Nimble Storage Inc - FORM 10-Q

Nimble Storage Inc - FORM 10-Q - September 9, 2015

Attached files

Attached files

Nimble Storage Inc Reports

file	filename
EX-32.1 - EX-32.1 - Nimble Storage Inc	d37561dex321.htm
EX-31.1 - EX-31.1 - Nimble Storage Inc	d37561dex311.htm
EX-31.2 - EX-31.2 - Nimble Storage Inc	d37561dex312.htm
EX-32.2 - EX-32.2 - Nimble Storage Inc	d37561dex322.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

001-36233

(Commission File No.)

Nimble Storage, Inc.

(Exact name of Registrant as specified in its charter)

Delaware

26-1418899

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

211 River Oaks Parkway

San Jose, California

95134

(Address of principal executive offices)

(Zip Code)

(408) 432-9600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
Common Stock, par value $0.001 per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of August 31, 2015, there were approximately 79.5 million shares of the Registrant’s Common Stock outstanding.

TABLE OF CONTENTS


		Page
	Part I. FINANCIAL INFORMATION		3
Item 1.	Financial Statements (Unaudited)		3
	Consolidated Balance Sheets		3
	Consolidated Statements of Operations		4
	Consolidated Statements of Comprehensive Loss		5
	Consolidated Statements of Cash Flows		6
	Notes to Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		24
Item 4.	Controls and Procedures		24

	Part II. OTHER INFORMATION		26
Item 1.	Legal Proceedings		26
Item 1A.	Risk Factors		26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		42
Item 3.	Defaults Upon Senior Securities		43
Item 4.	Mine Safety Disclosures		43
Item 5.	Other Information		43
Item 6.	Exhibits		43

PART I

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Nimble Storage, Inc.

Consolidated Balance Sheets

(In thousands, except per share data)


	As of
	July 31, 2015			January 31, 2015
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	213,554		$	208,394
Accounts receivable, net of allowance for doubtful accounts of $55 as of July 31, 2015 and $0 as of January 31, 2015		43,117			35,271
Inventories		13,717			11,981
Prepaid expenses and other current assets		4,908			4,974

Total current assets		275,296			260,620
Property and equipment, net		43,596			36,716
Restricted cash, non-current		3,979			3,983
Other long-term assets		263			255

Total assets	$	323,134		$	301,574

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	23,364		$	19,799
Accrued compensation and benefits		18,356			21,128
Deferred revenue, current portion		46,387			34,246
Other current liabilities		8,388			8,063

Total current liabilities		96,495			83,236
Deferred revenue, non-current portion		51,517			40,200
Other long-term liabilities		9,126			9,566

Total liabilities		157,138			133,002

Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, par value of $0.001 per share; 5,000 shares authorized, no shares issued and outstanding as of July 31, 2015 and January 31, 2015		—			—
Common stock, par value of $0.001 per share; 750,000 shares authorized as of July 31, 2015 and January 31, 2015; 79,368 and 76,191 shares issued and outstanding as of July 31, 2015 and January 31, 2015, respectively		74			71
Additional paid-in capital		425,325			368,689
Accumulated other comprehensive loss		(370	)		(250	)
Accumulated deficit		(259,033	)		(199,938	)

Total stockholders’ equity		165,996			168,572

Total liabilities and stockholders’ equity	$	323,134		$	301,574

See Notes to Consolidated Financial Statements.

Nimble Storage, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)


	Three Months Ended July 31,						Six Months Ended July 31,
	2015			2014			2015			2014
Revenue:
Product	$	66,752		$	47,123		$	126,945		$	88,358
Support and service		13,357			6,638			24,452			11,950

Total revenue		80,109			53,761			151,397			100,308
Cost of revenue:
Product		21,127			14,797			40,268			27,808
Support and service		6,637			3,719			12,289			7,043

Total cost of revenue		27,764			18,516			52,557			34,851
Gross profit		52,345			35,245			98,840			65,457
Operating expenses:
Research and development		24,539			17,417			46,248			31,634
Sales and marketing		47,860			36,639			92,303			65,841
General and administrative		9,449			7,101			18,710			13,538

Total operating expenses		81,848			61,157			157,261			111,013

Loss from operations		(29,503	)		(25,912	)		(58,421	)		(45,556	)
Interest income, net		61			22			129			18
Other income (expense), net		(379	)		(65	)		(303	)		144

Loss before provision for income taxes		(29,821	)		(25,955	)		(58,595	)		(45,394	)
Provision for income taxes		288			162			500			318

Net loss	$	(30,109	)	$	(26,117	)	$	(59,095	)	$	(45,712	)

Net loss per share, basic and diluted	$	(0.38	)	$	(0.37	)	$	(0.76	)	$	(0.65	)

Weighted-average shares used to compute net loss per share, basic and diluted		78,228			71,381			77,381			70,854

See Notes to Consolidated Financial Statements.

Nimble Storage, Inc.

Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)


	Three Months Ended July 31,						Six Months Ended July 31,
	2015			2014			2015			2014
Net loss	$	(30,109	)	$	(26,117	)	$	(59,095	)	$	(45,712	)
Other comprehensive income (loss), net of taxes:
Change in cumulative translation adjustment		(113	)		46			(119	)		117

Comprehensive loss	$	(30,222	)	$	(26,071	)	$	(59,214	)	$	(45,595	)

See Notes to Consolidated Financial Statements.

Nimble Storage, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Six Months Ended July 31,
	2015			2014
Cash flows from operating activities:
Net loss	$	(59,095	)	$	(45,712	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		6,938			3,828
Stock-based compensation expense		43,306			24,726
Loss on disposal of property and equipment		109			—
Provision (recoveries) for allowance for doubtful accounts		54			(32	)
Provision (recoveries) for excess and obsolete inventories		76			(167	)
Changes in operating assets and liabilities:
Accounts receivable		(7,900	)		(11,912	)
Inventories		(1,639	)		(3,690	)
Prepaid expenses and other assets		58			163
Accounts payable		3,308			7,648
Deferred revenue		23,458			16,966
Accrued and other liabilities		(2,104	)		11,471

Net cash provided by operating activities		6,569			3,289
Cash flows from investing activities:
Purchase of property and equipment		(13,958	)		(7,907	)
Change in restricted cash		4			(98	)

Net cash used in investing activities		(13,954	)		(8,005	)
Cash flows from financing activities:
Payment of issuance costs related to issuance of common stock		—			(1,210	)
Proceeds from exercise of stock options, net of repurchases		5,243			3,241
Proceeds from issuance of stock under employee stock purchase plan		7,201			—
Excess tax benefit from employee stock plans		226			—
Payment of taxes related to net settlement of restricted stock units		—			(125	)

Net cash provided by financing activities		12,670			1,906
Foreign exchange impact on cash and cash equivalents		(125	)		117

Net increase (decrease) in cash and cash equivalents		5,160			(2,693	)
Cash and cash equivalents, beginning of period		208,394			208,486

Cash and cash equivalents, end of period	$	213,554		$	205,793

Supplemental disclosure of cash flow information:
Cash paid for income taxes		207			251
Cash paid for interest		18			—
Supplemental disclosure of noncash investing and financing activities:
Vesting of early exercised stock options		720			1,378
Purchase of property and equipment not yet paid		6,367			1,912

See Notes to Consolidated Financial Statements.

Nimble Storage, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Description of Business and Basis of Presentation

Description of Business

Nimble Storage, Inc. (the “Company”) was incorporated in the state of Delaware in November 2007. The Company’s mission is to provide its customers with the industry’s most efficient data storage platform. The Company has designed and sells a flash-optimized storage platform, Adaptive Flash, that it believes is disrupting the market by enabling significant improvements in application performance and storage capacity with superior data protection, while simplifying business operations and lowering costs. With the combination of the Company’s file system, CASL, and its cloud-based storage management and support service, InfoSight, the Company’s Adaptive Flash platform serves a broad array of enterprises and cloud-based service providers, and the Company’s software and storage systems effectively handle mainstream applications, including virtual desktops, databases, email, collaboration and analytics. The Company is headquartered in San Jose, California, with employees in several international locations, including the United Kingdom, Australia, Canada, Germany, and Singapore.

Basis of Presentation and Consolidation

The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and include the consolidated accounts of the Company and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

These interim Consolidated Financial Statements are unaudited but reflect, in the opinion of management, all adjustments, consisting of normal recurring adjustments and accruals, necessary to present fairly the financial position of the Company, the Consolidated Statements of Operations, the Consolidated Statements of Comprehensive Loss and the Consolidated Statements of Cash Flows. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the Securities and Exchange Commission’s (the “SEC”) rules and regulations relating to interim financial statements. The accompanying consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K (the “Annual Report”) for the year ended January 31, 2015 filed with the SEC on April 2, 2015. The results of operations for the three and six months ended July 31, 2015 are not necessarily indicative of the results to be expected for the full year.

2. Summary of Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies for the three and six months ended July 31, 2015, as compared to the significant accounting policies described in its Annual Report for the fiscal year ended January 31, 2015.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Such estimates include, but are not limited to, the determination of the best estimated selling prices of deliverables included in multiple-deliverable revenue arrangements; the allowance for doubtful accounts; provision for excess or obsolete inventory; the useful lives of property and equipment; the warranty reserve; and the fair value of the Company’s common stock and stock options issued. Actual results could differ from these estimates.

Concentrations

The Company’s financial instruments that are exposed to concentrations of credit risk are primarily cash and cash equivalents and trade accounts receivable. Cash and cash equivalents are maintained primarily at one financial institution, and deposits may exceed the amount of insurance provided on such deposits. Risks associated with cash and cash equivalents are mitigated by banking with a creditworthy institution. The Company has not experienced any losses on its deposits of cash and cash equivalents.

The Company performs ongoing credit evaluations of its customers’ financial condition whenever deemed necessary and generally does not require collateral. The Company’s policy is to maintain an allowance for doubtful accounts based upon the expected collectability of its accounts receivable, which takes into consideration specific customer creditworthiness and current economic trends. During the third and fourth quarters of the year ended January 31, 2014, the Company consolidated the majority of its North American sales to three distributors, and as a result, accounts receivable and revenue increased in concentration. The majority of previous value added resellers

(“VARs”) are now purchasing from our distributors. Of all the Company’s customers, which include direct end-customers, VARs and distributors, the following customers individually accounted for more than 10% of the Company’s accounts receivable and revenue at the end of and for each period presented:


	% of Accounts Receivable						% of Revenue
	As of						Six Months Ended July 31,
	July 31, 2015			January 31, 2015			2015			2014
Customer A		36	%		44	%		41	%		54	%
Customer B		20	%		18	%		20	%		*
Customer C		21	%		16	%		18	%		22	%
Customer D		10	%		*			*			*

*	Represents less than 10%.

There are no concentrations of business transacted with a particular market that would severely impact the Company’s business in the near term. However, the Company currently relies on one key contract manufacturer and supplier to produce most of its products; any disruption or termination of these arrangements could materially adversely affect the Company’s operating results.

Warranties

The Company provides a standard one-year warranty for hardware components covering material defects in materials and workmanship. In addition, the Company provides a 90-day warranty on the embedded software in its products for non-conformance with documented specifications. The Company accrues for estimated warranty costs based upon historical experience, and periodically assesses the adequacy of its recorded warranty liability at the end of each period. These costs are expensed as incurred and included in cost of product revenue in the Company’s consolidated statements of operations. In addition, failed parts recovered from customers are submitted to the Company’s suppliers for repair or replacement. These cost recoveries are offset against the Company’s warranty costs. The Company records warranty liability in other current liabilities in its consolidated balance sheet. As of July 31, 2015, the Company’s warranty liability was not material.

Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (“FASB”) issued new authoritative guidance on fees paid in a cloud computing arrangement. The standard requires customers in a cloud computing arrangement to evaluate whether the arrangement includes a software license. If the arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract. The standard is effective for the Company for its first quarter of fiscal 2017, although early adoption is permitted, and will be applied on either a prospective or retrospective basis. The Company is currently evaluating adoption methods and whether this standard will have a material impact on our consolidated financial statements.

In May 2014, the FASB released Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The guidance in ASU No. 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition and permits the use of either the retrospective or cumulative effect transition method. The Company is required to adopt this standard starting February 1, 2018 based on the newly released ASU No. 2014-14 in August 2015. Early adoption is not permitted. The Company has not yet selected a transition method and is currently in the process of determining the impact of ASU No. 2014-09 on its consolidated financial statements and related disclosures.

3. Net Loss Per Share

The following table sets forth the computation of net loss per share (in thousands, except per share amounts):


	Three Months Ended July 31,						Six Months Ended July 31,
	2015			2014			2015			2014
Numerator:
Net loss	$	(30,109	)	$	(26,117	)	$	(59,095	)	$	(45,712	)

Denominator:
Weighted-average number of shares outstanding - basic and diluted		78,228			71,381			77,381			70,854

Net loss per share, basic and diluted	$	(0.38	)	$	(0.37	)	$	(0.76	)	$	(0.65	)

The following potentially dilutive securities were excluded (as common stock equivalents) from the computation of diluted net loss per share for the periods presented as their effect would have been antidilutive (in thousands):


	As of July 31,
	2015		2014
Shares subject to options to purchase common stock		10,033		14,675
Unvested restricted stock units		7,823		3,556
Unvested early exercised common shares		411		1,097
Employee stock purchase plan		341		387

4. Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, to measure the fair value:

•

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

•

Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

•

Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.

The Company entered into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on cash and certain trade and inter-company receivables and payables. These instruments are marked to market through earnings every period and generally have an original maturity period of one month. These instruments are classified within level 2 of the fair value hierarchy. The fair value of foreign exchange forward contracts outstanding was a loss of $71,000 and $59,000 as of July 31, 2015 and January 31, 2015, respectively. The Company’s derivative assets and derivative liabilities as of July 31, 2015 and January 31, 2015 are as follows (in thousands):


	As of July 31, 2015					As of January 31, 2015
	Nominal Amount		Fair Value			Nominal Amount		Fair Value
Forward Contracts:
Purchased	$	—	$	—		$	—	$	—
Sold	$	11,632	$	(71	)	$	17,324	$	(59	)

5. Balance Sheet Components

Inventory

Inventories consist primarily of raw materials related to component parts, finished goods, which include both inventory held for sale and service inventory held at service depots in support of customer service agreements, and customer evaluation inventory. Service inventory held at service depots was $5.0 million and $4.1 million as of July 31, 2015 and January 31, 2015, respectively. In addition, inventory reserves were $3.2 million and $2.3 million as of July 31, 2015 and January 31, 2015, respectively.

The following is a summary of the Company’s inventories, net of inventory provisions recorded to adjust inventory to its estimated realizable value, by major category (in thousands):


	As of
	July 31,		January 31,
	2015		2015
Raw materials	$	2,513	$	2,383
Finished goods		7,095		6,871
Evaluation inventory		4,109		2,727

	$	13,717	$	11,981

Property and Equipment

Property and equipment, net consisted of the following (in thousands):


	As of
	July 31,			January 31,
	2015			2015
Computer equipment	$	11,032		$	9,226
Lab equipment		23,920			17,768
Software		3,886			3,443
Furniture and fixtures		3,486			3,287
Leasehold improvements		14,493			14,461
Construction in progress		5,416			1,223
Demonstration equipment		1,806			1,256

Total property and equipment		64,039			50,664
Less: accumulated depreciation		(20,443	)		(13,948	)

Total property and equipment, net	$	43,596		$	36,716

Costs incurred in connection with the development of the Company’s software are accounted for as follows: all costs incurred in the preliminary project and post-implementation stages are expensed as incurred. Certain costs incurred in the application development stage of a new product or projects are capitalized if certain criteria are met. Such costs are depreciated on a straight-line basis over the estimated useful lives of the related assets, which was estimated to be three years. Maintenance and training costs are typically expensed as incurred.

Depreciation expense related to property and equipment was $3.6 million and $2.1 million for the three months ended July 31, 2015 and 2014, respectively, and $6.9 million and $3.8 million for the six months ended July 31, 2015 and 2014, respectively.

6. Commitments and Contingencies

Leases

The Company leases its facilities under various noncancelable operating leases with fixed rental payments. Rent expense totaled $1.5 million and $1.3 million for the three months ended July 31, 2015 and 2014, respectively, and $3.0 million and $2.5 million for the six months ended July 31, 2015 and 2014, respectively.

Future minimum commitments under these operating leases as of July 31, 2015 were as follows (in thousands):


Years ending January 31:
2016 (remaining six months)	$	3,456
2017		6,932
2018		6,864
2019		6,683
2020		6,598
Thereafter		12,354

	$	42,887

In July 2014, the Company entered into a new facility lease agreement for its North Carolina office. The 84-month lease commenced on August 1, 2014 and provides 47,986 square feet of space. Total rent, including common area maintenance expense and fixed operating expense, payable over the lease period is $5.0 million. As part of the lease agreement, the Company will receive an allowance of $1.4 million for tenant improvements. This allowance was included in the calculation of rent expense and related deferred rent balances. In December 2014, the Company amended the lease agreement for its North Carolina office giving the Company access to an additional 38,909 square feet of space on February 1, 2016 through the same term as the original facility lease.

In April 2013, the Company entered into a facility lease agreement with a 96-month lease term that commenced on November 1, 2013 and provides 164,608 square feet of space in San Jose, California. Total rent, including operating expenses, payable over the lease period is $35.5 million. As part of the lease agreement, the Company received $4.9 million in tenant improvement allowance during the year ended January 31, 2014. This tenant improvement allowance was included in the calculation of rent expense and related deferred rent balances. As a condition of the lease agreement, the Company is required to maintain a letter of credit of $3.9 million, with the landlord named as the beneficiary. The Company has the option to extend the term of the lease for an additional period of 60 months.

Contingencies

From time to time, the Company is party to litigation and subject to claims that arise in the ordinary course of business, including actions with respect to employment claims and other matters. Although the results of litigation and claims are inherently unpredictable, the Company believes that the final outcome of such matters will not have a material adverse effect on the business, consolidated financial position, results of operations or cash flows.

On October 29, 2013, NetApp, Inc. (“NetApp”), filed a lawsuit in United States District Court, Northern District of California, alleging violations of the federal Computer Fraud and Abuse Act (“CFAA”), trade secret misappropriation, unfair competition and related state law claims. The Company and three individuals, a sales engineer employee of an Australian affiliate, along with a sales representative and program manager of the Company, had been named as defendants. On January 10, 2014, NetApp filed a First Amended Complaint that added similar state law claims against three additional individuals as defendants. The First Amended Complaint alleged that the Australian defendant, a former employee of a NetApp reseller, accessed NetApp’s password-protected website allegedly restricted to NetApp partners, resellers, employees and customers, and downloaded confidential and proprietary information in violation of the CFAA. It further alleged that the other five individual defendants, who were formerly employed at NetApp, downloaded NetApp company documents and materials, including allegedly confidential and trade secret information and/or deleted NetApp documents and materials, prior to leaving NetApp.

On May 16, 2014, NetApp filed a lawsuit in the Superior Court of California, County of Santa Clara against the Company and five individuals who were dismissed from the federal lawsuit, alleging claims that were similar to those dismissed from the federal lawsuit. The state court complaint sought unspecified damages and injunctive relief.

On July 15, 2015, NetApp filed a motion to modify the settlement agreement to allow NetApp additional time to comply. The Company opposed that motion and at a hearing on August 25, 2015, the Court took the motion under submission. On August 3, 2015, NetApp filed a motion alleging the Company and codefendants had not fully complied with the terms of the confidential settlement agreement. The Company opposed that motion and at a hearing on September 2, 2015, the Court denied the motion in its entirety.

Indemnification

Some of the Company’s sales contracts require the Company to indemnify its customers against third-party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks, or trade secrets, and to pay judgments entered on such claims. The Company’s exposure under these indemnification provisions is generally limited to the total amount paid by the customer under the contract. However, certain contracts include indemnification provisions that could potentially expose the Company to losses in excess of the amount received under the contract. In addition, the Company indemnifies its officers, directors, and certain key employees while they are serving in good faith in their respective capacities. To date, there have been no claims under any indemnification provisions.

7. Stock-Based Compensation

The following table summarizes the components of stock-based compensation expense related to stock options, restricted stock units (“RSUs”) and the employee stock purchase plan (“ESPP”) (in thousands):


	Three Months Ended July 31,				Six Months Ended July 31,
	2015		2014		2015		2014
Cost of product revenue	$	660	$	374	$	1,205	$	605
Cost of support and service revenue		1,304		593		2,461		986
Research and development		6,638		3,692		12,069		6,132
Sales and marketing		9,389		8,664		19,500		13,585
General and administrative		4,330		1,846		8,071		3,418

Total stock-based compensation expense	$	22,321	$	15,169	$	43,306	$	24,726

The Company grants RSUs to certain employees, which is based on the Company meeting certain performance thresholds. The estimated probability of the amount of shares expected to vest was assessed for each reporting period until the total shares granted are determined. For the three and six months ended July 31, 2015, the Company recognized $4.1 million and $7.2 million stock-based compensation related to these RSUs, respectively.

8. Income Taxes

The Company’s provision for income taxes of $288,000 and $500,000 for the three and six months ended July 31, 2015 consisted of current foreign taxes and current state taxes, respectively. The Company’s provision for income taxes of $162,000 and $318,000 for the three and six months ended July 31, 2014 consisted of current foreign taxes and current state taxes, respectively.

9. Segments

The Company’s chief operating decision maker is its chief executive officer. The chief executive officer reviews consolidated financial information accompanied by information about revenue by product line for purposes of allocating resources and evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, or operating results for levels or components. In addition, the majority of the Company’s operations and customers are located in the United States. As such, the Company has a single reporting segment and operating unit structure.

Revenue by country or region, based on the mailing address of the customer, for the periods presented was as follows (in thousands):


	Three Months Ended July 31,				Six Months Ended July 31,
	2015		2014		2015		2014
North America	$	64,107	$	45,726	$	122,010	$	83,826
EMEA		10,201		5,693		19,452		11,744
APAC		5,801		2,336		9,935		4,726
Other		—		6		—		12

Total revenue	$	80,109	$	53,761	$	151,397	$	100,308

Long-lived assets located in the following countries and regions as of each period end were as follows (in thousands):


	As of
	July 31, 2015		January 31, 2015
North America	$	47,333	$	40,521
Other		505		433

Total long-lived assets	$	47,838	$	40,954

10. Line of Credit

In October 2013, the Company entered into an agreement with Wells Fargo Bank, National Association (“Wells Fargo”) to provide a secured revolving credit facility (the “Credit Facility”) that allows the Company to borrow up to $15.0 million for general corporate purposes. There was a $0.9 million reduction of the available line related to the Letter of Credit issued in July 2014 for the Company’s new facility lease in North Carolina. In April 2015, the Company increased its Letter of Credit from $0.9 million to $1.1 million, with the landlord named as the beneficiary.

As of July 31, 2015, the remaining Credit Facility available for borrowings was $13.0 million. Amounts outstanding under the Credit Facility will bear interest at Wells Fargo’s prime rate with accrued interest payable on a monthly basis. In addition, the Company is obligated to pay a commitment fee of 0.20% per annum on the unused portion of the Credit Facility, with such fee payable on a quarterly basis. As of July 31, 2015, the commitment fee was capitalized and being amortized on the Company’s consolidated balance sheet. The Credit Facility was renewed in September 2014 for an incremental two-year period and now expires in October 2016. Under the credit facility renewal, the Company granted to Wells Fargo a first priority lien in its accounts receivable and other corporate assets, agreed to not pledge its intellectual property to other parties and became subject to certain reporting and financial covenants, as follows: (1) maintain minimum tangible net worth, defined as the aggregate of total stockholders’ equity plus subordinated debt less any intangible assets and less any loans or advances to, or investments in, any related entities or individuals, of $135 million; and (2) maintain a monthly ratio of not less than 1.25 to 1.00, based on the aggregate of its cash and net accounts receivable divided by total current liabilities minus current deferred revenue. As of July 31, 2015, no amounts had been drawn against the Credit Facility.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q (the “Form 10-Q”). This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and in other parts of this Form 10-Q.

Overview

Our mission is to provide our customers with the industry’s most efficient data storage platform. We have designed and sell a flash-optimized storage platform, Adaptive Flash, that we believe is disrupting the market by enabling significant improvements in application performance and storage capacity with superior data protection, while simplifying business operations and lowering costs. At the core of our innovative Adaptive Flash platform is our Cache-Accelerated Sequential Layout file system software, which we call our CASL technology, and our cloud-based storage management and support service, InfoSight.

We were incorporated in November 2007, and we initially focused on the development of our CASL file system software and our storage platform. We shipped our first product line, our CS200 series, in August 2010. In August 2012, we introduced our CS400 series of products and a number of scale-to-fit products, including expansion shelves and controller upgrades. In April 2013, we launched InfoSight. In addition, as of May 2014, we made our scale-out firmware release generally available to all customers with a support and services agreement. From June 2014 to October 2014, we introduced several new product lines, which include the CS700 series, CS500 series, and CS300 series. The CS500 series and CS300 series replaced certain CS400 series and CS200 series products. In addition, in October 2014, we made available Fibre Channel protocol support for the CS-series arrays. In November 2014, we launched flexible pricing and deployment models (Storage on Demand) for enterprises and service providers managing storage in cloud environments. In August 2015, we advanced the Adaptive Flash Platform to deliver customized service levels in three user-selectable modes (All-Flash, Auto-Flash, and No Flash modes) from one single platform. We typically recognize product revenue upon the shipment of these products. We also offer support and maintenance services including InfoSight, for periods ranging from one to five years, and recognize revenue over the term of the related support and maintenance agreement. In addition, we recognize revenue for our Storage on Demand business as services are performed.

We sell our products through our network of VARs and distributors, and also engage our end-customers through our global sales force. Our channel partners act as an extension of our sales force to market our solutions directly to end-customers and generally do not hold inventory. For certain end-customer orders, products are shipped to resellers, distributors and third-party systems integrators for various reasons including importing of products to non-U.S. countries and systems integration (e.g. SmartStack integrations) prior to shipment to the end-customer or the end-customer specified location(s). We have sales offices located in several international locations, including Australia, England, Germany and Singapore. In addition, we have sales employees located in 20 countries and distribution agreements in 30 countries. Our revenue outside North America was 20% and 15% of our total revenue for the three months ended July 31, 2015 and 2014, respectively, and was 19% and 16% of our total revenue for the six months ended July 31, 2015 and 2014, respectively, as we increased our sales and marketing efforts on a global basis.

We outsource the manufacturing of our hardware products to our contract manufacturer, Flextronics, which assembles and tests our products. Our contract manufacturer generally procures the components used in our products directly from third-party suppliers. Inventory and shipment are handled by our third-party logistics partners. Distributors and VARs generally handle fulfillment and, in some situations, shipment for our domestic and international end-customers, but do not hold inventory.

We have experienced significant growth in recent periods with total revenue of $80.1 million and $53.8 million in the three months ended July 31, 2015 and 2014, respectively, and $151.4 million and $100.3 million in the six months ended July 31, 2015 and 2014, respectively. Our net loss was $30.1 million and $26.1 million in the three months ended July 31, 2015 and 2014, respectively, and $59.1 million and $45.7 million in the six months ended July 31, 2015 and 2014, respectively. As our sales and customer base have grown, we have also experienced growth in our deferred revenue from $74.4 million as of January 31, 2015 to $97.9 million as of July 31, 2015. Our gross margin has decreased from approximately 65.6% for the three months ended July 31, 2014 to 65.3% for the three months ended July 31, 2015, and remained flat at approximately 65.3% for the six months ended July 31, 2015 and 2014, respectively. As a percentage of total revenue, our operating expenses have decreased from 114% and 111% for the three and six months ended July 31,

2014, respectively, to 102% and 104% for the three and six months ended July 31, 2015, respectively. As a percentage of total revenue, our non-GAAP operating loss declined from (20%) and (21%) for the three and six months ended July 31, 2014, respectively, to (9%) and (10%) for the three and six months ended July 31, 2015, respectively. We expect our non-GAAP operating loss as a percentage of revenue to continue to decline as we experience operating leverage in our business.

As a consequence of the rapidly evolving nature of our business and our limited operating history, we believe that period-to-period comparisons of revenue and other operating results, including gross margin, operating expenses and non-GAAP operating loss as a percentage of our total revenue, are not necessarily meaningful and should not be relied upon as indications of future performance. Although we have experienced significant percentage growth in our total revenue, we do not believe that our historical growth rates are likely to be sustainable or indicative of future growth.

Since our founding, we have invested heavily in growing our business, particularly in research and development and sales and marketing. From January 31, 2014 to July 31, 2015, our headcount has increased from 592 to 975 employees. We intend to continue to invest in development of our solutions and sales and marketing programs to drive sustainable long-term growth. To support future sales, we plan to continue to invest significant resources in sales and marketing.

The successful growth of our business will depend on our ability to continue to expand our customer base by gaining new customers and in turn grow revenues from our existing customer base. As a result, we intend to hire additional sales and marketing personnel. We are also expanding our VAR network and contracting directly with large distributors. While these areas represent significant opportunities for us, they also pose risks and challenges that we must successfully address in order to sustain the growth of our business and improve our operating results. For example, our investments in these areas might not result in a significant increase in productive sales personnel or channel partners. If this were to occur, we might not be able to expand our base of new customers or succeed in selling additional products to existing customers, which would affect our ability to continue to grow our revenues.

Our future performance will also depend on our ability to continue to innovate, improve functionality in our products and adapt to new technologies or changes to existing technologies. Accordingly, we also intend to continue to invest in our research and development activities. It is difficult for us to predict the timing and impact that these investments will have on future revenue. Additionally, we face significant competition in the storage market, which makes it more important that the investments we make in our business are successful. Weak global economic conditions, particularly market and financial uncertainty in the United States and Europe, or a reduction in spending even if economic conditions improve, could adversely impact our business, financial condition and operating results. If we are unable to address these challenges, our business could be adversely affected.

Key Business Metrics

We monitor the key business metrics set forth below in managing our business. We discuss revenue and gross margin below under “Components of Operating Results”. Deferred revenue, cash flow provided by operating activities, free cash flow, Non-GAAP Net Loss, Non-GAAP Operating Loss and Adjusted EBITDA are discussed immediately below the following table.


	Three Months Ended July 31,						Six Months Ended July 31,
	2015			2014			2015			2014
	(dollars in thousands)
Total revenue	$	80,109		$	53,761		$	151,397		$	100,308
Year-over-year percentage increase		49	%		89	%		51	%		98	%
Gross margin		65.3	%		65.6	%		65.3	%		65.3	%
Deferred revenue, current and non-current		97,904			50,475			97,904			50,475
Net cash provided by operating activities		14,876			2,837			6,569			3,289
Free cash flow		8,975			(1,342	)		(7,389	)		(4,618	)
Non-GAAP Net Loss		(7,788	)		(10,948	)		(15,789	)		(20,986	)
Non-GAAP Operating Loss		(7,182	)		(10,743	)		(15,115	)		(20,830	)
Non-GAAP Operating Loss as a percentage of total revenue		-9	%		-20	%		-10	%		-21	%
Adjusted EBITDA		(3,935	)		(8,738	)		(8,480	)		(16,858	)

Deferred Revenue

Our deferred revenue consists of amounts that have been either invoiced or prepaid but have not yet been recognized as revenue as of the period end. The majority of our deferred revenue consists of the unrecognized portion of revenue from sales of our support and service contracts. We monitor our deferred revenue balance because it represents a portion of revenue to be recognized in future periods.

Net Cash Provided by Operating Activities

We monitor net cash provided by operating activities as a measure of our overall business performance. Our net cash provided by operating activities is driven in large part by our net losses. Monitoring net cash provided by operating activities enables us to analyze our financial performance without the non-cash effects of certain items such as depreciation and stock-based compensation costs, thereby allowing us to better understand and manage the cash needs of our business.

Free Cash Flow

We monitor free cash flow as a measure of our overall business performance. We define free cash flow as our net cash provided by operating activities, adjusted to exclude cash outflow used to purchase property and equipment. Monitoring free cash flow enables us to analyze our ability to generate cash after accounting for capital expenditures, thereby allowing us to better understand and manage the cash needs of our business.

Non-GAAP Net Loss and Non-GAAP Operating Loss

To provide investors with additional information regarding our financial results, we have disclosed in this Form 10-Q Non-GAAP Net Loss and Non-GAAP Operating Loss. We define Non-GAAP Net Loss as our net loss adjusted to exclude stock-based compensation. We define Non-GAAP Operating Loss as our operating loss adjusted to exclude stock-based compensation. We have provided reconciliations below of Non-GAAP Net Loss to net loss and Non-GAAP Operating Loss to operating loss, the most directly comparable GAAP financial measures.

Adjusted EBITDA

To provide investors with additional information regarding our financial results, we have disclosed in this Form 10-Q Adjusted EBITDA, a non-GAAP financial measure. We define Adjusted EBITDA as our net loss, adjusted to exclude stock-based compensation, interest income, provision for income taxes and depreciation and amortization. We have provided a reconciliation below of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.

We have included Non-GAAP Net Loss, Non-GAAP Operating Loss and Adjusted EBITDA in this Form 10-Q because they are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short-term and long-term operational and compensation plans. In particular, the exclusion of certain expenses in calculating Non-GAAP Net Loss, Non-GAAP Operating Loss and Adjusted EBITDA can provide useful measures for period-to-period comparisons of our core business. Accordingly, we believe that Non-GAAP Net Loss, Non-GAAP Operating Loss and Adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Our use of Non-GAAP Net Loss, Non-GAAP Operating Loss and Adjusted EBITDA has limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

•

Non-GAAP Net Loss, Non-GAAP Operating Loss and Adjusted EBITDA do not consider the potentially dilutive impact of equity-based compensation, which is an ongoing expense for us;

•

Adjusted EBITDA does not reflect cash capital expenditure requirements for additional capital expenditures;

•

Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and

•

Other companies, including companies in our industry, may calculate Non-GAAP Net Loss, Non-GAAP Operating Loss and Adjusted EBITDA differently, which reduces their usefulness as comparative measures.

Because of these limitations, you should consider Non-GAAP Net Loss, Non-GAAP Operating Loss and Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net loss and our other GAAP results. We compensate for these limitations by also reviewing our GAAP financial statements.

Reconciliations of Non-GAAP Net Loss and Adjusted EBITDA to net loss and Non-GAAP Operating Loss to operating loss are provided below:


	Three Months Ended July 31,						Six Months Ended July 31,
	2015			2014			2015			2014
	(in thousands)
Net loss	$	(30,109	)	$	(26,117	)	$	(59,095	)	$	(45,712	)
Stock-based compensation expense		22,321			15,169			43,306			24,726

Non-GAAP Net Loss	$	(7,788	)	$	(10,948	)	$	(15,789	)	$	(20,986	)

Interest income, net		(61	)		(22	)		(129	)		(18	)
Provision for income taxes		288			162			500			318
Depreciation		3,626			2,070			6,938			3,828

Adjusted EBITDA	$	(3,935	)	$	(8,738	)	$	(8,480	)	$	(16,858	)

Loss from operations	$	(29,503	)	$	(25,912	)	$	(58,421	)	$	(45,556	)
Stock-based compensation expense		22,321			15,169			43,306			24,726

Non-GAAP Operating Loss	$	(7,182	)	$	(10,743	)	$	(15,115	)	$	(20,830	)

Components of Operating Results

Revenue

Our total revenue is comprised of the following:

Product Revenue. We generate the substantial majority of our product revenue from the sales of our storage products. It is our practice to identify a direct customer or an end-customer from our VARs and distributors prior to shipment. In the majority of instances, products are shipped directly to the direct customer or the end-customers. For certain end-customer orders, products are shipped to resellers, distributors and third-party systems integrators for various reasons including importing of products to non-U.S. countries and systems integration (e.g. SmartStack integrations) prior to shipment to the end-customer or the end-customer specified location. Assuming all other revenue recognition criteria have been met, we generally recognize revenue upon shipment from our origin location in California, as title and risk of loss are transferred at that time. For certain VARs and distributors, title and risk of loss is transferred upon delivery to the end-customers and revenue is recognized after delivery has been completed. Our arrangements with VARs and distributors do not contain rights of return, subsequent price discounts, price protection or other allowances for shipments completed.

Support and Service Revenue. We generate our support and service revenue primarily from support and service contracts, which include our InfoSight cloud-based monitoring and management platform. The majority of our product sales are bundled with support and service contracts with terms ranging from one to five years. We recognize revenue from support and service contracts over the contractual service period. Our support and service revenue also includes our Storage on Demand (“SoD”) service offering. Under this pay-as-you-go subscription model, customers are generally billed on a monthly basis based on the amount of data consumed during the month. The SoD service offering includes all support services such as InfoSight. Revenue is recognized as services are performed. As a percentage of total revenue, we expect our support and service revenue to increase as we add new customers and renew existing support and service contracts, and our customers use more of our SoD service.

Cost of Revenue

Our total cost of revenue is comprised of the following:

Cost of Product Revenue. Cost of product revenue primarily includes costs paid to our third-party contract manufacturer, which includes the costs of our components, and personnel costs associated with our manufacturing operations. Personnel costs consist of salaries, benefits, bonuses and stock-based compensation. Our cost of product revenue also includes warranty costs, inventory related expenses, freight and allocated overhead costs. Overhead costs consist of certain facilities, depreciation, benefits and information technology (“IT”) costs. We expect our cost of product revenue to increase as our product revenue increases.

Cost of Support and Service Revenue. Cost of support and service revenue includes personnel costs associated with our global customer support organization, operation and administration of our service depots, cost from service inventory reserves and allocated overhead costs. Personnel costs consist of salaries, benefits, bonuses and stock-based compensation. Overhead costs consist of certain facilities, depreciation, benefits and IT costs. We expect our cost of support and service revenue to increase as our installed end-customer base grows.

Gross Margin

Gross margin, or gross profit as a percentage of total revenue, has been and will continue to be affected by a variety of factors, including the average sales price of our storage products and related support and service contracts, manufacturing and overhead costs including personnel costs, component costs, the mix of products sold, and our ability to leverage our existing infrastructure as we continue to grow. We expect our gross margins to fluctuate over time depending on the factors described above.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing, and general and administrative expense. Personnel costs are the most significant component of operating expenses.

Research and Development. Research and development expense consists primarily of personnel costs and allocated overhead and also includes depreciation expense from property and equipment purchases, consulting and other costs to support our development activities. To date, we have expensed all research and development costs as incurred. We expect research and development expense to continue to increase in absolute dollars as we continue to invest in our research and product development efforts to enhance our product capabilities, expand our product offerings and access new customer markets, although such expense may fluctuate as a percentage of total revenue.

Sales and Marketing. Sales and marketing expense consists primarily of personnel costs, sales commission costs and allocated overhead. We expense sales commission costs as incurred. Sales and marketing expense also includes costs for recruiting and training channel partners, market development programs, promotional and other marketing activities, travel, office equipment, depreciation of proof-of-concept evaluation units and outside consulting costs. We expect sales and marketing expense to continue to increase in absolute dollars as we expand our sales and marketing headcount in all markets and expand our international operations, although such expense may fluctuate as a percentage of total revenue.

General and Administrative. General and administrative expense consists of personnel costs, professional services and allocated overhead. General and administrative personnel include our executive, finance, human resources, investor relations, compliance, administrative, IT, facilities and legal organizations. Professional services consist primarily of legal, auditing, accounting and other consulting costs. We expect general and administrative expense to continue to increase in absolute dollars as we have recently incurred, and expect to continue to incur, additional general and administrative expenses as we grow our operations and operate as a public company, including higher legal, corporate insurance and accounting expenses.

Interest Income and Other Expense, Net

Interest income consists of interest earned on our cash and cash equivalent balances. We have historically invested our cash in money-market funds. We expect interest income, which has not been historically significant to our operations, to vary each reporting period depending on our average investment balances during the period, types and mix of investments and market interest rates.

Other expense, net consists primarily of gains and losses from foreign currency transactions and revaluation of non-U.S. dollar denominated assets and liabilities.

Provision for Income Taxes

Provision for income taxes consists primarily of state income taxes in the United States and income taxes in certain foreign jurisdictions in which we conduct business. We provide a full valuation allowance for U.S. deferred tax assets, which includes net operating loss (“NOL”), carryforwards and tax credits related primarily to research and development. We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that the assets will not be realized based on our history of losses.

Results of Operations

The following tables summarize our consolidated results of operations for the periods presented and as a percentage of our total revenue for those periods. The period-to-period comparison of results is not necessarily indicative of results for future periods.


	Three Months Ended July 31,						Six Months Ended July 31,
	2015			2014			2015			2014
	(in thousands)
Consolidated Statements of Operations Data:
Revenue:
Product	$	66,752		$	47,123		$	126,945		$	88,358
Support and service		13,357			6,638			24,452			11,950

Total revenue		80,109			53,761			151,397			100,308
Cost of revenue:
Product(1)		21,127			14,797			40,268			27,808
Support and service(1)		6,637			3,719			12,289			7,043

Total cost of revenue		27,764			18,516			52,557			34,851
Total gross profit		52,345			35,245			98,840			65,457
Operating expenses:
Research and development(1)		24,539			17,417			46,248			31,634
Sales and marketing(1)		47,860			36,639			92,303			65,841
General and administrative(1)		9,449			7,101			18,710			13,538

Total operating expenses		81,848			61,157			157,261			111,013

Loss from operations		(29,503	)		(25,912	)		(58,421	)		(45,556	)
Interest income, net		61			22			129			18
Other income (expense), net		(379	)		(65	)		(303	)		144

Loss before provision for income taxes		(29,821	)		(25,955	)		(58,595	)		(45,394	)
Provision for income taxes		288			162			500			318

Net loss	$	(30,109	)	$	(26,117	)	$	(59,095	)	$	(45,712	)


(1) Includes stock-based compensation expense as follows:
Cost of product revenue	$	660		$	374		$	1,205		$	605
Cost of support and service revenue		1,304			593			2,461			986
Research and development		6,638			3,692			12,069			6,132
Sales and marketing		9,389			8,664			19,500			13,585
General and administrative		4,330			1,846			8,071			3,418

Total stock-based compensation expense	$	22,321		$	15,169		$	43,306		$	24,726

Comparison of the Three and Six Months Ended July 31, 2015 and 2014

Revenue


	Three Months Ended July 31,									Six Months Ended July 31,
	2015		2014		Change					2015		2014		Change
	Amount		Amount		Amount		%			Amount		Amount		Amount		%
	(dollars in thousands)
Revenue:
Product	$	66,752	$	47,123	$	19,629		42	%	$	126,945	$	88,358	$	38,587		44	%
Support and service		13,357		6,638		6,719		101			24,452		11,950		12,502		105

Total revenue	$	80,109	$	53,761	$	26,348		49	%	$	151,397	$	100,308	$	51,089		51	%

Total revenue increased by $26.3 million, or 49%, during the three months ended July 31, 2015 compared to the three months ended July 31, 2014. Total revenue increased by $51.1 million, or 51%, during the six months ended July 31, 2015 compared to the six months ended July 31, 2014. The revenue growth reflects increased demand for our storage products and related support and service, partially offset by lower revenue from the foreign currency impact on our non-U.S. dollar billings. The increase in product revenue was driven by higher sales of our storage products to existing and new end-customers, expansion into Global 5000 enterprises and cloud service providers, and international expansion. We acquired 2,460 new end-customers from July 31, 2014 to July 31, 2015. The increase in support and service revenue was driven by higher product sales and the resulting expansion of our installed base of end customers.

Cost of Revenue and Gross Margin


	Three Months Ended July 31,											Six Months Ended July 31,
	2015			2014			Change					2015			2014			Change
	Amount			Amount			Amount		%			Amount			Amount			Amount		%
	(dollars in thousands)
Cost of revenue:
Product	$	21,127		$	14,797		$	6,330		43	%	$	40,268		$	27,808		$	12,460		45	%
Support and service		6,637			3,719			2,918		78			12,289			7,043			5,246		74

Total cost of revenue	$	27,764		$	18,516		$	9,248		50	%	$	52,557		$	34,851		$	17,706		51	%

Gross margin		65.3	%		65.6	%							65.3	%		65.3	%

Cost of revenue increased by $9.2 million, or 50%, during the three months ended July 31, 2015 compared to the three months ended July 31, 2014. The increase in cost of product revenue was driven primarily by higher product sales. The increase in cost of product revenue was also impacted by higher costs of $0.6 million in our manufacturing operations, primarily driven by personnel costs associated with increased headcount. The increase in cost of support and service revenue was primarily attributable to higher costs of $2.1 million in our global customer support organization primarily driven by personnel costs associated with increased headcount and increase in allocated overhead resulting from higher facilities utilization.

Cost of revenue increased by $17.7 million, or 51%, during the six months ended July 31, 2015 compared to the six months ended July 31, 2014. The increase in cost of product revenue was driven primarily by higher product sales. The increase in cost of product revenue was also impacted by higher costs of $1.2 million in our manufacturing operations, primarily driven by personnel costs, including stock-based compensation, associated with increased headcount. The increase in cost of support and service revenue was primarily attributable to higher costs of $3.8 million in our global customer support organization primarily driven by personnel costs, including stock-based compensation, associated with increased headcount and increase in allocated overhead resulting from higher facilities utilization.

Gross margin decreased from 65.6% during the three months ended July 31, 2014 to 65.3% during the three months ended July 31, 2015, which was mainly driven by lower product gross margin, partially offset by improvement due to higher support and service gross margin. Product gross margin decreased by 0.2 percentage points from 68.6% to 68.4% during the three months ended July 31, 2015 compared to the three months ended July 31, 2014. The decrease in product gross margin from the prior year was mainly driven by higher stock based compensation, partially offset by continuing operational leverage and efficiencies in our supply chain infrastructure. Support and service gross margin increased by 6.3 percentage points from 44.0% to 50.3% during the three months ended July 31, 2015 compared to the three months ended July 31, 2014. The improvements in support and service gross margin from prior year were driven by increased revenue from our larger base of end customers and economies of scale from our support organization, enabled by the automation capabilities of InfoSight.

Gross margin remained flat at 65.3% during the six months ended July 31, 2015 and 2014, respectively. Our gross margin remained flat from the prior year mainly because of improvement due to higher support and service gross margin, partially offset by lower product gross margin. Support and service gross margin increased by 8.7 percentage points from 41.1% to 49.7% during the six months ended July 31, 2015 compared to the six months ended July 31, 2014. The improvements in support and service gross margin from the prior year were driven by increased revenue from our larger base of end customers and economies of scale from our support organization, enabled by the automation capabilities of InfoSight. Product gross margin decreased by 0.2 percentage points from 68.5% to 68.3% during the six months ended July 31, 2015 compared to the six months ended July 31, 2014. The decrease in product gross margin from the prior year was mainly driven by higher stock based compensation, partially offset by continuing operational leverage and efficiencies in our supply chain infrastructure.

Operating Expenses


	Three Months Ended July 31,									Six Months Ended July 31,
	2015		2014		Change					2015		2014		Change
	Amount		Amount		Amount		%			Amount		Amount		Amount		%
	(dollars in thousands)
Operating expenses:
Research and development	$	24,539	$	17,417	$	7,122		41	%	$	46,248	$	31,634	$	14,614		46	%
Sales and marketing		47,860		36,639		11,221		31			92,303		65,841		26,462		40
General and administrative		9,449		7,101		2,348		33			18,710		13,538		5,172		38

Total operating expenses	$	81,848	$	61,157	$	20,691		34	%	$	157,261	$	111,013	$	46,248		42	%

Includes stock-based compensation expense of:
Research and development	$	6,638	$	3,692	$	2,946		80	%	$	12,069	$	6,132	$	5,937		97	%
Sales and marketing		9,389		8,664		725		8			19,500		13,585		5,915		44
General and administrative		4,330		1,846		2,484		135			8,071		3,418		4,653		136

Total	$	20,357	$	14,202	$	6,155		43	%	$	39,640	$	23,135	$	16,505		71	%

Research and Development

Research and development expense increased by $7.1 million, or 41%, during the three months ended July 31, 2015 compared to the three months ended July 31, 2014. The increase was primarily due to a $5.9 million increase in personnel costs, including stock-based compensation, resulting from headcount growth to support further development of our storage products, and $0.7 million increase in depreciation expense from property and equipment purchases as we further invested in our laboratory and test infrastructure.

Research and development expense increased by $14.6 million, or 46%, during the six months ended July 31, 2015 compared to the six months ended July 31, 2014. The increase was primarily due to a $12.0 million increase in personnel costs, including stock-based compensation, resulting from headcount growth to support further development of our storage products, and $1.5 million increase in depreciation expense from property and equipment purchases as we further invested in our laboratory and test infrastructure.

Sales and Marketing

Sales and marketing expense increased by $11.2 million, or 31%, during the three months ended July 31, 2015 compared to the three months ended July 31, 2014. The increase was primarily due to a $5.4 million increase in personnel costs, including stock-based compensation, resulting from headcount growth, a $2.0 million increase in advertising and tradeshow expenses, and a $1.9 million increase in commission expense related to higher sales.

Sales and marketing expense increased by $26.5 million, or 40%, during the six months ended July 31, 2015 compared to the six months ended July 31, 2014. The increase was primarily due to a $15.7 million increase in personnel costs, including stock-based compensation, resulting from headcount growth, a $4.0 million increase in commission expense related to higher sales, and a $2.9 million increase in advertising and tradeshow expenses.

General and Administrative

General and administrative expense increased by $2.3 million, or 33%, during the three months ended July 31, 2015 compared to the three months ended July 31, 2014. The increase was primarily due to a $3.0 million increase in personnel costs, including stock-based compensation expense, resulting from headcount growth, partially offset by a $0.9 million decrease in legal costs.

General and administrative expense increased by $5.2 million, or 38%, during the six months ended July 31, 2015 compared to the six months ended July 31, 2014. The increase was primarily due to a $5.5 million increase in personnel costs, including stock-based compensation expense, resulting from headcount growth, partially offset by a $1.0 million decrease in legal costs.

Other Income (expense), Net


	Three Months Ended July 31,												Six Months Ended July 31,
	2015			2014			Change						2015			2014		Change
	Amount			Amount			Amount			%			Amount			Amount		Amount			%
	(dollars in thousands)
Interest income, net	$	61		$	22		$	39			177	%	$	129		$	18	$	111			617	%
Other income (expense), net		(379	)		(65	)		(314	)		483	%		(303	)		144		(447	)		(310	)%

Other income (expense), net consisted primarily of gains (losses) from the remeasurement of our foreign currency denominated assets. The increase in the losses from the remeasurement of our foreign currency denominated assets during the three and six months ended July 31, 2015 compared to the three and six months ended July 31, 2014 resulted from higher non-U.S. dollar denominated net asset balances due to increased international expansion, and the appreciation of the U.S. dollar against the Euro, British pound sterling, Australian dollar, and Canadian dollar. We entered into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on cash and certain trade and inter-company receivables and payables. For the three and six months ended July 31, 2015, we recognized $0.2 million in realized gains and $0.1 million in realized losses related to foreign currency forward contracts, respectively. We did not enter foreign currency forward contracts for the three and six months ended July 31, 2014.

Provision for Income Taxes


	Three Months Ended July 31,									Six Months Ended July 31,
	2015		2014		Change					2015		2014		Change
	Amount		Amount		Amount		%			Amount		Amount		Amount		%
	(dollars in thousands)
Provision for income taxes	$	288	$	162	$	126		78	%	$	500	$	318	$	182		57	%

The increase in the provision for income taxes during the three and six months ended July 31, 2015 compared to the three and six months ended July 31, 2014 was primarily due to an increase in foreign taxes related to intercompany cost plus agreements with our international subsidiaries.

Liquidity and Capital Resources


	As of
	July 31, 2015		January 31, 2015
	(in thousands)
Cash and cash equivalents	$	213,554	$	208,394


	Six Months Ended July 31,
	2015			2014
	(dollars in thousands)
Cash provided by operating activities	$	6,569		$	3,289
Cash used in investing activities		(13,954	)		(8,005	)
Cash provided by financing activities		12,670			1,906
Foreign exchange impact on cash and cash equivalents		(125	)		117

Net increase (decrease) in cash and cash equivalents	$	5,160		$	(2,693	)

Other Financial and Operational Metrics:
Days Sales Outstanding		41			36
Days Sales Inventory (1)		48			40

(1)	Average number of days we hold our inventory before sale. This is calculated by taking the average of the beginning and ending inventory divided by total cost of revenue excluding stock-based compensation for the periods presented.

At July 31, 2015, our cash and cash equivalents were $213.6 million, of which approximately $2.9 million was held outside of the United States and not immediately available to fund domestic operations and obligations. We do not enter into investments for trading or speculative purposes.

We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the

timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product and service offerings, and the continuing market acceptance of our products. In the event that additional financing is required from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition would be adversely affected.

Operating Activities

During the six months ended July 31, 2015, cash provided by operating activities was $6.6 million. The primary factors affecting our cash flows from operations during this period were our net loss of $59.1 million, partially offset by non-cash charges of $43.3 million for stock-based compensation, and $6.9 million for depreciation of our property and equipment, and net cash flows of $15.2 million provided by changes in our operating assets and liabilities. The primary driver of the changes in operating assets and liabilities was a $23.5 million increase in deferred revenue due to higher sales of support and service contracts and a $1.2 million increase in accounts payable and accrued liabilities as a result of increase in inventory purchases and timing of payments. This was partially offset by the increase of $7.9 million in accounts receivable which was attributable to increased sales, and a $1.6 million increase in inventories. We expect operating cash flows to continue to be affected by timing of sales and timing of collections.

During the six months ended July 31, 2014, cash provided by operating activities was $3.3 million. The primary factors affecting our cash flows from operations during this period were our net loss of $45.7 million, partially offset by non-cash charges of $24.7 million for stock-based compensation and $3.8 million for depreciation of our property and equipment, and net cash flows of $20.6 million provided by changes in our operating assets and liabilities. The primary driver of the changes in operating assets and liabilities was a $19.1 million increase in accounts payable and accrued liabilities as a result of increase in inventory purchases and timing of payments, and a $17.0 million increase in deferred revenue due to higher sales of support and service contracts. This was partially offset by the increase of $11.9 million in accounts receivable which was attributable to increased sales and a $3.7 million increase in inventories.

Investing Activities

Cash used in investing activities during the six months ended July 31, 2015 was $14.0 million, primarily resulting from the purchase of property and equipment due to an increase in expansion of our research and development and overall infrastructure. We expect to continue to make such purchases to support continued growth of our business.

Cash used in investing activities during the six months ended July 31, 2014 was $8.0 million, primarily resulting from the purchase of property and equipment due to an increase in expansion of our research and development infrastructure.

Financing Activities

Cash provided by financing activities for the six months ended July 31, 2015 was $12.7 million, primarily resulting from $7.2 million of proceeds from issuance of common stock under our ESPP, and $5.2 million of proceeds from the exercise of stock options, net of repurchases of unvested early exercised shares.

Cash used in financing activities for the six months ended July 31, 2014 was $1.9 million, primarily resulting from $3.2 million of proceeds from the exercise of stock options, partially offset by a $1.2 million payment of issuance costs related to our initial public offering in December 2013.

Contractual Obligations and Commitments

There have been no material changes in our contractual obligations and commitments for the six months ended July 31, 2015, as compared to the contractual obligations and commitments described in our Annual Report for the fiscal year ended January 31, 2015.

Off-Balance Sheet Arrangements

As of July 31, 2015 and January 31, 2015, we did not have any relationships with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other purposes.

Segment Information

We have one primary business activity and operate in one reportable segment.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Exchange Risk

Our sales contracts are primarily denominated in U.S. dollars with a number of contracts denominated in foreign currencies. A portion of our operating expenses are incurred outside the United States and denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British pound sterling, Australian dollar, Canadian dollar and Euro.

The combination of our higher non-U.S. dollar denominated net asset balances from increased international expansion, primarily in our U.S. entity, and the foreign currency fluctuations, net of hedging, caused us to recognize transaction losses of $0.4 million and $0.1 million during the three months ended July 31, 2015 and 2014, respectively, and transaction losses of $0.3 million and transaction gains of $0.1 million during the six months ended July 31, 2015 and 2014, respectively, in other income, net, in the consolidated statements of operations. The $0.4 million in foreign exchange transaction losses recognized for the three months ended July 31, 2015 was net of $0.2 million in gains from foreign currency forward contracts which we entered during the three months ended July 31, 2015. The $0.3 million in foreign exchange transaction losses recognized for the six months ended July 31, 2015 included $0.1 million in losses from foreign currency forward contracts which we entered during the six months ended July 31, 2015. In November 2014, we entered into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on cash and certain trade and inter-company receivables and payables. These contracts reduce the exposure to fluctuations in foreign currency exchange rate movements as the gains and losses associated with foreign currency balances are offset with the gains and losses on the forward contracts. These instruments are marked to market through earnings every period and generally are one months in original maturity. We do not enter into foreign currency forward contracts for trading or speculative purposes. As our international operations grow, we will continue to reassess our approach to managing the risks relating to fluctuations in currency rates. It is difficult to predict the impact hedging activities could have on our results of operations. The fair value of foreign exchange forward contracts outstanding as of July 31, 2015 was a loss of $71,000.

Interest Rate Risk

We had cash and cash equivalents of $213.6 million as of July 31, 2015, consisting of bank deposits. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant.

We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

There have been no material changes to our critical accounting policies and estimates during the six months ended July 31, 2015 from those disclosed in Item 7A. Quantitative and Qualitative Disclosures about Market Risk in our Annual Report for the year ended January 31, 2015.

Recent Accounting Pronouncements

See Note 2. Summary of Significant Accounting Policies contained in the “Notes to Consolidated Financial Statements” in Item 1 of Part I of this Form 10-Q for a full description of the recent accounting pronouncements and our expectation of their impact, if any, on our results of operations and financial conditions.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Regulations under the Securities Exchange Act of 1934 (the “Exchange Act”) require public companies to maintain “disclosure controls and procedures.” Rule 13a-15(e) and Rule 15d-15(e) require that a company’s controls and other

procedures are designed to ensure information required to be disclosed in the reports it files, or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and other procedures designed to ensure information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 under the Exchange Act, as of the end of the period covered by this Form 10-Q for the financial quarter ended July 31, 2015. Based on the evaluation, as of July 31, 2015, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended July 31, 2015 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

On October 29, 2013, NetApp filed a lawsuit in United States District Court, Northern District of California, alleging violations of the federal CFAA, trade secret misappropriation, unfair competition and related state law claims. The Company and three individuals, a sales engineer employee of an Australian affiliate, along with a sales representative and program manager of the Company, had been named as defendants. On January 10, 2014, NetApp filed a First Amended Complaint that added similar state law claims against three additional individuals as defendants. The First Amended Complaint alleged that the Australian defendant, a former employee of a NetApp reseller, accessed NetApp’s password-protected website allegedly restricted to NetApp partners, resellers, employees and customers, and downloaded confidential and proprietary information in violation of the CFAA. It further alleged that the other five individual defendants, who were formerly employed at NetApp, downloaded NetApp company documents and materials, including allegedly confidential and trade secret information and/or deleted NetApp documents and materials, prior to leaving NetApp. On May 16, 2014, NetApp filed a lawsuit in the Superior Court of California, County of Santa Clara against the Company and five individuals who were dismissed from the federal lawsuit, alleging claims that were similar to those dismissed from the federal lawsuit. The state court complaint sought unspecified damages and injunctive relief.

The parties entered into a written settlement agreement effective March 16, 2015, the terms of which are confidential. The settlement, which is not material to the Company’s consolidated financial statements, resolved all remaining claims in the two pending litigations. Both matters involving NetApp were dismissed with prejudice. On July 15, 2015, NetApp filed a motion to modify the settlement agreement to allow NetApp additional time to comply. The Company opposed that motion and at a hearing on August 25, 2015, the Court took the motion under submission. On August 3, 2015, NetApp filed a motion alleging the Company and codefendants had not fully complied with the terms of the confidential settlement agreement. The Company opposed that motion and at a hearing on September 2, 2015, the Court denied the motion in its entirety.

ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this report, including our consolidated financial statements and related notes, before investing in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. If any of the following risks occur, our business, operating results and prospects could be materially harmed. In that event, the price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to Our Business and Our Industry

We have a history of losses, anticipate increasing our operating expenses in the future, and may not be able to achieve or maintain profitability. If we cannot become profitable or maintain our profitability in the future, our business and operating results may suffer.

We have incurred net losses in all fiscal years since our inception, including net losses of $27.9 million, $43.1 million, $98.8 million and $59.1 million in the years ended January 31, 2013, 2014 and 2015 and the six months ended July 31, 2015, respectively. As of July 31, 2015, we had an accumulated deficit of $259.0 million. We anticipate that we will continue to operate in a net loss position for the foreseeable future as we continue to develop our technology, enhance our product and service offerings, expand our sales channels, expand our operations and hire additional employees. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently, or at all, to offset these higher expenses. In future periods, our profitability could be adversely affected for a number of possible reasons, including slowing demand for our products or services, increasing competition, changes in the way storage services are consumed, a decrease in the growth of the storage market or general economic conditions. If we are unable to meet these risks and challenges as we encounter them, our business and operating results may suffer.

Our limited operating history makes it difficult to evaluate our current business and future prospects.

We were incorporated in November 2007 and shipped our first products in August 2010. The majority of our revenue growth has occurred in the years ended January 31, 2012 and later. Our limited operating history makes it difficult to evaluate our current business and our future prospects, including our ability to plan for and model future growth. We have encountered and will continue to encounter risks and difficulties frequently experienced by rapidly growing

companies in constantly evolving industries, including the risks described in this report. If we do not address these risks successfully, our business and operating results will be adversely affected, and our stock price could decline. Further, we have limited historical financial data. As such, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history or operated in a more predictable market.

If the market for storage products does not grow as we anticipate, our revenue may not grow and our operating results would be harmed.

We are vulnerable to fluctuations in overall demand for storage products. Our business plan assumes that the demand for storage products will increase as organizations collect, process and store an increasing amount of data. However, if storage markets in general or markets for captive storage experience downturns or grow more slowly than anticipated, or if demand for our products does not grow as quickly as we anticipate, whether as a result of competition, product obsolescence, budgetary constraints of our end-customers, technological changes, unfavorable economic conditions, uncertain geopolitical environments or other factors, we may not be able to increase our revenue sufficiently to ever achieve profitability and our stock price would decline. For example, the emergence of cloud computing and storage-as-a-service may impact both short-term and long-term growth patterns in the markets in which we compete.

Our revenue growth rate in recent periods may not be indicative of our future performance.

You should not consider our revenue growth rate in recent periods as indicative of our future performance. While we have recently experienced significant revenue growth rates, we may not achieve similar revenue growth rates in future periods. You should not rely on our revenue growth rates for any prior periods as any indication of our future revenue or revenue growth rates.

Our quarterly operating results may fluctuate significantly, which could cause the trading price of our common stock to decline.

Our operating results have historically fluctuated and may continue to fluctuate from quarter to quarter, and we expect that this trend will continue as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including:

•

the budgeting cycles and purchasing practices of end-customers;

•

increasing number and size of orders from Global 5000 companies and other large enterprises and cloud service providers that may require longer sales cycles;

•

deferral of orders in anticipation of new products or product enhancements announced by us or our competitors;

•

our ability to attract and retain new channel partners and end-customers;

•

our ability to sell additional products to existing channel partners and end-customers;

•

changes in end-customer requirements or market needs and our inability to make corresponding changes to our business;

•

any potential disruption in our sales channels or termination of our relationship with important channel partners;

•

potential seasonality in the markets we serve;

•

the timing and success of new product and service introductions by us or our competitors, including the introduction and success of fibre channel products;

•

general economic conditions, both domestically and in our foreign markets;

•

changes in the competitive landscape, including consolidation among our competitors or end-customers;

•

price competition;

•

material changes in customer adoption of our product or service offerings, such as our Storage on Demand offering, that may change the timing of revenue recognition;

•

our inability to provide adequate support to our end-customers;

•

our ability to control the costs of manufacturing our products, including the cost of components;

•

our inability to fulfill our customers’ orders due to supply chain delays or events that impact our manufacturers or their suppliers;

•

our inability to adjust certain fixed costs and expenses, particularly in research and development, for changes in demand;

•

the timing of certain payments and related expenses, such as sales commissions;

•

increases or decreases in our revenue and expenses caused by fluctuations in foreign currency exchange rates, as an increasing portion of our revenue is collected and expenses are incurred and paid in currencies other than the U.S. dollar;

•

the cost of and potential outcomes of existing and future claims or litigation, which could have a material adverse effect on our business;

•

future accounting pronouncements and changes in our accounting policies; and

•

changes in tax laws or tax regulations.

Any one of the factors above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our operating results. In particular, because we have historically received a substantial portion of sales orders during the last few weeks of each fiscal quarter, we are particularly vulnerable to any delay in order fulfillment, failure to close anticipated orders or any other problems encountered during the last few weeks of each fiscal quarter. This variability and unpredictability could result in our failure to meet our revenue or other operating result expectations or those of investors for a particular period. The failure to meet or exceed such expectations could have a material adverse effect on our business, result of operations and financial condition that could ultimately adversely affect our stock price.

We have limited visibility into future sales, which makes it difficult to forecast our future operating results.

Because of our limited visibility into end-customer demand, our ability to accurately forecast our future revenue is limited. We sell our products primarily through our network of channel partners that accounted for, 89% 92%, 98% and 99% of our total revenue in the years ended January 31, 2013, 2014 and 2015 and the six months ended July 31, 2015, respectively. We place orders with our third-party manufacturer based on our forecasts of our end-customers’ requirements and forecasts provided by our channel partners. These forecasts are based on multiple assumptions, each of which might cause our estimates to be inaccurate, affecting our ability to provide products to our end-customers. When demand for our products increases significantly, we may not be able to meet it on a timely basis, and we may need to expend a significant amount of time working with our end-customers to allocate limited supply and maintain positive customer relations, or we may incur additional costs to accelerate the manufacture and delivery of additional products. If we or our channel partners underestimate end-customer demand, we may forego revenue opportunities, lose market share and damage our end-customer relationships. Conversely, if we overestimate demand for our products and consequently purchase significant amounts of components or hold inventory, we could incur additional costs and potentially incur related charges, which could adversely affect our operating results.

Adverse economic conditions or reduced IT spending may adversely impact our business.

Our business depends on the overall demand for IT and on the economic health of our current and prospective customers. In general, worldwide economic conditions remain unstable, and these conditions make it difficult for our current and prospective customers and us to forecast and plan future business activities accurately, and they could cause our customers or prospective customers to reevaluate their decision to purchase our products or services. Weak global economic conditions, or a reduction in IT spending even if economic conditions improve, could adversely impact our business and operating results in a number of ways, including longer sales cycles, lower prices for our products, reduced bookings and lower or no growth.

We are dependent on a small number of product lines, and the lack of continued market acceptance of these product lines, particularly our CS Series of storage products, would result in lower revenue.

Our CS Series of storage products (“CS products”), account for a majority of our total revenue and we anticipate that these products will continue to do so for the foreseeable future. As a result, our revenue could be reduced as a result of:

•

any decline in demand for these products;

•

the introduction of products and technologies by us or our competitors that serve as a replacement or substitute for, or represent an improvement over, our CS products;

•

technological innovations or new communications standards that our CS products do not address;

•

our failure or inability to predict changes in our industry or end-customers’ demands or to design products or enhancements that meet end-customers’ increasing demands; and

•

our inability to release enhanced versions of our CS products or new product lines on a timely basis.

We rely on third-party channel partners to sell substantially all of our products, and if our partners fail to perform, our ability to sell and distribute our products and services will be limited, and our operating results will be harmed.

We depend on VARs and distributors to sell our products. Our contracts with channel partners typically have a term of one year and are terminable without cause upon written notice to the other party. Our channel partner agreements do not prohibit them from offering competitive products or services and do not contain any purchase commitments. Many of

our channel partners also sell our competitors’ products. If our channel partners give higher priority to our competitors’ storage products, we may be unable to grow our revenue and our net loss could increase. Further, in order to develop and expand our channels, we must continue to scale and improve our processes and procedures that support our channel partners, including investments in systems and training, and those processes and procedures may become increasingly complex and difficult to manage. If we fail to maintain existing channel partners or develop relationships with new channel partners, our revenue opportunities will be reduced.

We receive a substantial portion of our total revenue from a limited number of channel partners, including VARs and distributors, and the loss of, or a significant reduction in, orders from one or more of our major channel partners would harm our business.

We receive a substantial portion of our total revenue from a limited number of channel partners, including distributors and VARs. For the years ended January 31, 2013, 2014 and 2015 our top ten channel partners accounted for 37%, 47% and 90%, respectively, of our total revenue. We have transitioned order fulfillment in North America largely to three distributors. The majority of our existing VARs now contract directly with one or all of these three distributors, Avnet, Inc., Ingram Micro Inc. and Carahsoft Technology Corp. Avnet, Inc. accounted for more than 10% of our revenue for the year ended January 31, 2014 and 2015. Carahsoft Technology Corp. accounted for more than 10% of our revenue for the year ended January 31, 2015, but less than 10% of our revenue for the year ended January 31, 2014. Ingram Micro started to account for more than 10% of our revenue beginning from the first quarter of our fiscal year 2016. For the year ended January 31, 2013, revenue from another distributor, Advanced Media Services, accounted for more than 10% of our revenue, but less than 10% of our revenue for the years ended January 31, 2014 and 2015. We anticipate that we will continue to depend upon a limited number of channel partners for a substantial portion of our total revenue for the foreseeable future and, in some cases, the portion of our revenue attributable to individual channel partners may increase in the future. The loss of one or more key channel partners or a reduction in sales through any major channel partner would reduce our revenue.

We face intense competition in our market, especially from larger, well-established companies, and we may lack sufficient financial or other resources to maintain or improve our competitive position.

A number of very large corporations have historically dominated the storage market. We consider our primary competitors to be companies that provide enterprise storage products, including Dell, Inc., EMC Corporation, Hewlett-Packard Company and NetApp, Inc. We also compete to a lesser extent with a number of other private companies and certain well-established companies. Some of our competitors have made acquisitions of businesses that allow them to offer more directly competitive and comprehensive solutions than they had previously offered. In addition, the emergence of cloud computing and storage-as-a-service may impact both short-term and long-term growth patterns in the markets in which we compete. We expect to encounter new competitors domestically and internationally as other companies enter our market or if we enter new markets.

Many of our existing competitors have, and some of our potential competitors could have, substantial competitive advantages such as:

•

potential for broader market acceptance of their storage architectures and solutions;

•

greater name recognition and longer operating histories;

•

larger sales and marketing and customer support budgets and resources;

•

broader distribution and established relationships with distribution partners and end-customers;

•

the ability to bundle storage products with other technology products and services, or offer a broader range of storage solutions to better fit certain customers’ needs;

•

lower labor and development costs;

•

larger and more mature intellectual property portfolios;

•

substantially greater financial, technical and other resources; and

•

greater resources to make acquisitions.

If we are not successful in executing our strategy to increase sales of our products to larger enterprise end-customers, our operating results may suffer.

Our growth strategy is dependent, in part, upon increasing sales of our products to larger enterprises. Sales to these types of end-customers involve risks that may not be present or that are present to a lesser extent with sales to smaller entities. These risks include:

•

competition from larger competitors that traditionally target larger enterprises that may have pre-existing relationships or purchase commitments from those end-customers;

•

successfully introducing and supporting fibre channel products, as many large enterprises often require products that support this technology;

•

increased purchasing power and leverage held by large end-customers in negotiating price and other contractual arrangements;

•

more stringent support requirements; and

•

longer sales cycles and the associated risk that substantial time and resources may be spent on potential end-customers that elect not to purchase our products.

Large enterprises often undertake a significant evaluation process that results in a lengthy sales cycle. Although we have a channel sales model, our sales representatives may invest substantial time and resources in engaging with sales to larger end-customers. We may spend this time and resources without being successful in generating any sales. In addition, product purchases by large enterprises are frequently subject to bidding processes involving multiple competing suppliers, budget constraints, multiple approvals, and unplanned administrative, processing and other delays. Finally, large enterprises typically have longer implementation cycles, require greater product functionality and scalability (including, for example, fibre channel products) and a broader range of services, demand that vendors take on a larger share of risks, sometimes require acceptance provisions that can potentially lead to a delay in revenue recognition, and expect greater payment flexibility from vendors. All of these factors can add risk to business conducted with these end-customers. If we fail to realize an expected sale from a large end-customer in a particular quarter or at all, our business, operating results and financial condition could be adversely affected.

Our sales cycle is unpredictable, which makes it difficult to predict our results even in the near term.

A substantial portion of our quarterly sales typically occurs during the last month of the quarter, which we believe largely reflects sales cycles of storage products and other products in the technology industry generally. We have little visibility at the start of any quarter as to which existing end-customers, if any, will make additional purchases and when any additional purchases may occur, if at all.

Currently, our average sales cycle is approximately three months. However, potential end-customers may undertake a longer evaluation process that has, in the past, resulted in a longer sales cycle. In addition, our sales cycle may be extended if potential end-customers decide to re-evaluate other aspects of their storage infrastructure at the same time they are considering a purchase of our products. As a result, our quarterly operating results are difficult to predict even in the near term.

Our growth depends in part on the success of our strategic relationships with third parties.

Our future growth will depend on our ability to enter into successful strategic relationships with third parties. For example, our SmartStack initiative involves working with third parties, including Cisco Systems, Inc., Citrix Systems, Inc., Microsoft Corporation, Oracle Corporation and VMware, Inc. to create a broader integrated technology solution to address our end-customers’ needs. In addition, we work with global distributors to streamline and grow our sales channel. These relationships may not result in additional customers or enable us to generate significant revenue. These relationships are typically non-exclusive and do not prohibit the other party from working with our competitors or from offering competing services. If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to compete in the marketplace or to grow our revenue could be impaired and our operating results could suffer.

Our products handle mission-critical data for our end-customers and are highly technical in nature. If our products have defects, failures occur or end-customer data is lost or corrupted, our reputation and business could be harmed.

Our products are highly technical and complex and are involved in storing and replicating mission-critical data for our end-customers. Our products may contain undetected defects and failures when they are first introduced or as new versions are released. We have in the past and may in the future discover software errors in new versions of our existing products, new products or product enhancements after their release or introduction, which could result in lost revenue. Despite testing by us and by current and potential end-customers, errors might not be found in new releases or products until after commencement of commercial shipments, resulting in loss of or delay in market acceptance. Our products may have security vulnerabilities and be subject to intentional attacks by viruses that seek to take advantage of these bugs, errors or other weaknesses. If defects or failures occur in our products, a number of negative effects in our business could result, including:

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lost revenue or lost end-customers;

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increased costs, including warranty expense and costs associated with end-customer support;

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delays, cancellations, reductions or rescheduling of orders or shipments;

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product returns or discounts;

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diversion of management resources;

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legal claims for breach of contract, product liability, tort or breach of warranty; and

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damage to our reputation and brand.

Because our end-customers use our products to manage and protect their data, we could face claims resulting from any loss or corruption of our end-customers’ data due to a product defect. While our sales contracts contain provisions relating to warranty disclaimers and liability limitations, these provisions might not be upheld. Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention and could result in public perception that our products are not effective, even if the occurrence is unrelated to the use of our products. In addition, our business liability insurance coverage might not be adequate to cover such claims. If any data is lost or corrupted in connection with the use or support of our products, our reputation could be harmed and market acceptance of our products could suffer.

We rely on a limited number of suppliers, and in some cases single-source suppliers, and any disruption or termination of these supply arrangements, failure to successfully manage our relationships with our key suppliers or component quality problems could delay shipments of our products and damage our channel partner or end-customer relationships.

We rely on a limited number of suppliers, and in some cases single-source suppliers, for several key components of our products. We generally purchase components on a purchase order basis and do not have long-term supply contracts with our suppliers. Our reliance on key suppliers reduces our control over the manufacturing process and exposes us to risks, including reduced control over product quality, production costs, timely delivery and capacity. It also exposes us to the potential inability to obtain an adequate supply of required components because we do not have long-term supply commitments. In particular, replacing the single-source suppliers of our solid state drives and chassis would require a product re-design that could take months to implement.

We generally maintain minimal inventory for repairs, evaluation and demonstration units and acquire components only as needed. We do not enter into long-term supply contracts for these components. As a result, our ability to respond to channel partner or end-customer orders efficiently may be constrained by the then-current availability, terms and pricing of these components. Our industry has experienced component shortages and delivery delays in the past, and we may experience shortages or delays of critical components in the future as a result of strong demand in the industry or other factors. If we or our suppliers inaccurately forecast demand for our products or we ineffectively manage our enterprise resource planning processes, our suppliers may have inadequate inventory, which could increase the prices we must pay for substitute components or result in our inability to meet demand for our products, as well as damage our channel partner or end-customer relationships.

Component quality is particularly important with respect to disk drives. We have in the past and may in the future experience disk drive failures, which could cause our reputation to suffer, our competitive position to be impaired and our end-customers to select other vendors. To meet our product performance requirements, we must obtain disk drives of extremely high quality and capacity. In addition, there are periodic supply-and-demand issues for disk drives and flash memory that could result in component shortages, selective supply allocations and increased prices of such components. We may not be able to obtain our full requirements of components, including disk drives, that we need for our storage products or the prices of such components may increase.

If we fail to effectively manage our relationships with our key suppliers, or if our key suppliers increase prices of components, experience delays, disruptions, capacity constraints, quality control problems in their manufacturing operations or adverse changes to their financial condition, our ability to ship products to our channel partners or end-customers could be impaired and our competitive position and reputation could be adversely affected. Qualifying a new key supplier is expensive and time-consuming. If we are required to change key suppliers or assume internal manufacturing operations, we may lose revenue and damage our channel partner or end-customer relationships.

Because we depend on a single third-party manufacturer to build our products, we are susceptible to manufacturing delays and pricing fluctuations that could prevent us from shipping orders on time, if at all, or on a cost-effective basis, which would cause our business to suffer.

In the first quarter of the year ended January 31, 2015, we completed the transition of our manufacturing activities from two third-party manufactures to one, Flextronics. Our reliance on this third-party manufacturer reduces our control over the manufacturing process and exposes us to risks, including reduced control over quality assurance, product costs and product supply and timing. Any manufacturing disruption by Flextronics could severely impair our ability to fulfill orders. Our current agreement with Flextronics, which is terminable at will or upon short notice by Flextronics, does not contain any minimum commitment to manufacture our products, and any orders are fulfilled only after a purchase order

has been delivered and accepted. As a result, Flextronics may stop taking new orders or fulfilling our orders on short notice or limit our allocations of products. Moreover, our orders represent a relatively small percentage of the overall orders received by Flextronics from its customers; therefore, fulfilling our orders may not be a priority in the event Flextronics is constrained in its ability to fulfill all of its customer obligations. If we are unable to manage our relationship with Flextronics effectively, or if Flextronics suffers delays or disruptions for any reason, experiences increased manufacturing lead-times, capacity constraints or quality control problems in its manufacturing operations, limits our allocations of products, stops taking new orders or fulfilling our orders on short notice, or otherwise fails to meet our future requirements for timely delivery, our ability to ship products to our end-customers would be impaired, and our business and operating results would be harmed.

Our business and operations have experienced rapid growth in recent periods. If we do not effectively manage any future growth or are unable to improve our systems and processes, our operating results could be harmed.

We have experienced rapid growth over the last few years. Our employee headcount and number of end-customers have increased significantly, and we expect to continue to grow our headcount significantly over the next 12 months. For example, from January 31, 2011 to July 31, 2015, our headcount increased from 47 to 975 employees. Since we initially launched our products in August 2010, our number of end-customers grew to over 6,211 as of July 31, 2015. The growth and expansion of our business and product and service offerings places a continuous significant strain on our management, operational and financial resources.

To manage any future growth effectively, we must continue to improve and expand our IT, and financial infrastructure, our operating and administrative systems and controls, our enterprise resource planning systems and processes and our ability to manage headcount, capital and processes in an efficient manner. In addition, our systems and processes may not prevent or detect all errors, omissions, or fraud. Our failure to improve our systems and processes, or their failure to operate in the intended manner, may result in our inability to manage the growth of our business and to accurately forecast our revenue and expenses, or to prevent losses. Our productivity and the quality of our products and services may also be adversely affected if we do not integrate and train our new employees quickly and effectively. Failure to manage any future growth effectively could result in increased costs, negatively impact our end-customers’ satisfaction and harm our operating results.

Our ability to sell our products is dependent on the quality of our technical support services, and our failure to offer high quality technical support services could have a material adverse effect on our sales, operating results and end-customers’ satisfaction with our products and services.

Once our products are deployed within our end-customers’ networks, our end-customers depend on our technical support services to resolve any issues relating to our products. We may be unable to respond quickly enough to accommodate short-term increases in end-customer demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by competitors. Increased end-customer demand for these services, without corresponding revenue, could increase costs and adversely affect our operating results. Any failure by us to effectively help our end-customers quickly resolve post-deployment issues or provide high-quality technical support, or a market perception that we do not maintain high-quality support, could harm our reputation and adversely affect our ability to sell our solutions to existing and prospective customers.

If we do not successfully anticipate market needs and develop products and product enhancements that meet those needs, or if those products do not gain market acceptance, our business will suffer.

The storage market is characterized by rapidly evolving technology, customer needs and industry standards. We might not be able to anticipate future market needs or changes in existing technologies, and we might not be able to develop new products or product enhancements to meet such needs, either in a timely manner or at all. For example, if changes in technology result in a significant reduction in the price for flash memory, enterprises may not need to utilize flash-optimized storage in order to cost effectively protect their data. Also, one or more new technologies could be introduced that compete favorably with our storage products or that cause our storage products to no longer be of significant benefit to our end-customers.

The process of developing new technology is complex and uncertain, and we may not be able to develop our products in a manner that enables us to successfully address the changing needs of our end-customers. We must commit significant resources to developing new products and product enhancements before knowing whether our investments will result in products the market will accept. Additionally, we may not achieve the cost savings or the anticipated performance improvements we expect, and we may take longer to generate revenue, or generate less revenue, than we anticipate. If we are not able to successfully identify new product opportunities, develop and bring new products to market in a timely manner, or achieve market acceptance of our products, our business and operating results will be harmed.

Our future growth plan depends in part on expanding outside of the United States, and we are therefore subject to a number of risks associated with international sales and operations.

As part of our growth plan, we intend to expand our operations globally. We have a limited history of marketing, selling and supporting our products and services internationally. International sales and operations are subject to a number of risks, including the following:

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greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods;

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increased expenses incurred in establishing and maintaining office space and equipment for our international operations;

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fluctuations in exchange rates between the U.S. dollar and foreign currencies in markets where we do business;

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management communication and integration problems resulting from cultural and geographic dispersion;

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difficulties in attracting and retaining personnel with experience in international operations;

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risks associated with trade restrictions and foreign legal requirements, including the importation, certification and localization of our products required in foreign countries;

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greater risk of unexpected changes in regulatory practices, tariffs, and tax laws and treaties;

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the uncertainty of protection for intellectual property rights in some countries;

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greater risk of a failure of foreign employees to comply with both U.S. and foreign laws, including antitrust regulations, the U.S. Foreign Corrupt Practices Act and any trade regulations ensuring fair trade practices; and

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general economic and political conditions in these foreign markets.

These factors and other factors could harm our ability to gain future international revenue and, consequently, materially impact our business and operating results. The expansion of our existing international operations and entry into additional international markets will require significant management attention and financial resources. Our failure to successfully manage our international operations and the associated risks effectively could limit the future growth of our business.

Failure to adequately expand our sales force will impede our growth.

We will need to continue to expand and optimize our sales infrastructure in order to grow our customer base and our business. In particular, our ability to increase our business with both large enterprises as well as international customers will require qualified personnel with experience selling into these types of customers. We plan to continue to expand our sales force globally. Identifying, recruiting and training qualified personnel require significant time, expense and attention. It can take time before our sales representatives are fully-trained and productive. Moreover, strategies that may be successful in one region may not be relevant for another region. Our business may be adversely affected if our efforts to expand and train our sales force do not generate a corresponding increase in revenue. In particular, if we are unable to hire, develop and retain talented sales personnel globally or if new sales personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the expected benefits of this investment or increase our revenue.

We have been evolving our distribution model, which may harm our future operating results.

We have been evolving our global distribution model from contracting directly with hundreds of individual VARs to contracting with fewer larger global distributors. This transition is largely complete in the US. Although we believe that this transition continues to make our sales channels more efficient and broader reaching, there is no guarantee that this new distribution model will increase our sales in the short term or allow us to sustain our gross margins. Any potential delays or confusion during the transition process with our new partners may negatively affect our relationship with our existing end-customers and channel partners. Our failure to successfully implement this new distribution model globally could adversely affect our operating results.

Interruptions to and failures of our IT infrastructure could disrupt our operations and services.

We depend on our IT infrastructure, which includes our data centers and networks, to operate our business and to provide services to our end-customers through our InfoSight platform. This infrastructure, including our back-up systems, resides in two locations. Currently we do not have a disaster recovery policy, but we are in the process of implementing such a policy in the upcoming quarters. Any interruptions to or failures of our IT infrastructure, whether due to natural disasters, system failures, computer viruses, security breaches, computer hacking attacks or other causes, whether through third party action or employee error or malfeasance, would affect our ability to operate our business and provide services through our InfoSight platform. As a result, we could face liability with respect to any diminished performance of our InfoSight platform or support services generally during the periods when our IT infrastructure is compromised and any subsequent periods required to repair such interruptions or failures. Moreover, we would likely suffer reputational damage, and our ability to sell our solutions to existing and prospective customers could be harmed.

The inability of our products to interoperate with leading business software applications, hypervisors and data management tools would cause our business to suffer.

Our products are also designed to interoperate with virtualization solutions in the market. Virtual environment solutions require a fast and flexible network storage foundation. If our products are not compatible with leading business software applications, hypervisors and data management tools, demand for our products will decline. We must devote significant resources to enhancing our products to continue to interoperate with these software applications, hypervisors and data management tools. Any current or future providers of software applications, hypervisors or data management tools could make future changes that would diminish the ability of our products to interoperate with them, and we might need to spend significant additional time and effort to ensure the continued compatibility of our products, which might not be possible at all. Any of these developments could harm our business.

If our products do not interoperate with our end-customers’ infrastructure, sales of our products could be negatively affected, which would harm our business.

Our products must interoperate with our end-customers’ existing infrastructure, which often have different specifications, utilize multiple protocol standards, deploy products from multiple vendors, and contain multiple generations of products that have been added over time. As a result, when problems occur in a network, it may be difficult to identify the sources of these problems. If we find errors in the existing software or defects in the hardware used in our end-customers’ infrastructure or problematic network configurations or settings, we may have to modify our software or hardware so that our products will interoperate with our end-customers’ infrastructure. In such cases, our products may be unable to provide significant performance improvements for applications deployed in our end-customers’ infrastructure. In addition, government and other end-customers may require our products to comply with certain security or other certifications and standards. If our products are late in achieving or fail to achieve compliance with these certifications and standards, or our competitors achieve compliance with these certifications and standards, we may be disqualified from, or disadvantaged in, selling our products to such end-customers, which could harm our business and operating results.

If our industry experiences extraordinary declines in average sales prices, our revenue and gross profit may also decline.

The data storage products industry is highly competitive and has historically been characterized by declines in average sales prices. It is possible that the market for our storage products could experience similar trends in equal or greater degree than the rest of the industry. Our average sales prices could decline due to pricing pressure caused by several factors, including competition, the introduction of competing technologies, overcapacity in the worldwide supply of flash memory or disk drive components, increased manufacturing efficiencies, implementation of new manufacturing processes and expansion of manufacturing capacity by component suppliers. If we are required to decrease our prices to be competitive and are not able to offset this decrease by increases in the volume of sales or the sales of new products with higher margins, our gross margins and operating results could be adversely affected.

Governmental regulations affecting the export of certain of our solutions could negatively affect our business.

Our products, technology and software are subject to U.S. export controls and economic sanctions, and we incorporate encryption technology into certain of our products. These encryption products and the underlying technology may be exported outside the United States only with the required export authorizations, including by license, a license exception or other appropriate government authorizations, including the filing of an encryption registration. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products to U.S. embargoed or sanctioned countries, governments and persons and for certain end-uses. Governmental regulation of encryption technology and regulation of imports or exports, or our failure, or inability due to governmental action or inaction, to obtain required import or export approval for our products could harm our international sales and adversely affect our revenue. Obtaining the necessary export license or other authorization for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities even if the export license ultimately may be granted. Even though we take precautions to ensure that our channel partners comply with all relevant regulations, any failure by our channel partners to comply with such regulations could have negative consequences, including reputational harm, government investigations and penalties.

We have in the past had to make a voluntary disclosure to the Office of Export Enforcement of the U.S. Commerce Department to report a failure to obtain an encryption registration number prior to shipment of a particular hardware appliance product to a limited number of international customers. Failure to comply with export regulations and these recent voluntary submissions could result in penalties, costs, and restrictions on export privileges, which could also harm our operating results, as well as our inability to service certain products already in the hands of our end-customers, which could have negative consequences, including reputational harm. The U.S. Commerce Department’s Bureau of Industry and Security has granted the service authorization and closed the enforcement matter by issuing us a warning letter, rather than assessing a civil penalty.

A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.

We may in the future increase sales to government entities. Selling to government entities can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that these efforts will result in a sale. Government certification requirements for products like ours may change and in doing so restrict our ability to sell into certain government sectors until we have attained the revised certification. Government demand and payment for our products and services may be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our products and services. Government entities may have statutory, contractual or other legal rights to terminate contracts with our channel partners for convenience or due to a default, and any such termination may adversely impact our future operating results. Government entities may require contract terms that differ from standard arrangements and may impose compliance requirements that are complicated, require preferential pricing or “most favored nation” terms and conditions, or are otherwise time consuming and expensive to satisfy. Government entities routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government entity refusing to continue buying our products and services, a reduction of revenue, fines or civil or criminal liability if the audit uncovers improper or illegal activities, which could adversely impact our operating results.

We may be subject to claims that our employees have wrongfully disclosed or we have wrongfully used proprietary information of our employees’ former employers. These claims may be costly to defend and if we do not successfully do so, our business could be harmed.

Many of our employees were previously employed at current or potential competitors. We may be subject to claims that these employees have divulged or we have used proprietary information of these employees’ former employers. For example, on October 29, 2013 and again on May 16, 2014, NetApp, Inc. filed lawsuits against us alleging that we and certain of our employees violated NetApp’s proprietary rights, as more fully described in the section titled “Legal Proceedings.” Although we have settled the NetApp lawsuits and both matters have been dismissed with prejudice, litigation may be necessary to defend against other similar future claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper our ability to develop new products and features for existing products, which could severely harm our business. Even if we are successful in defending against these and future claims, litigation could result in substantial costs and be a distraction to management.

Our proprietary rights may be difficult to enforce or protect, which could enable others to copy or use aspects of our products without compensating us.

We rely and expect to continue to rely on a combination of confidentiality agreements, as well as trademark, copyright, patent and trade secret protection laws, to protect our proprietary rights with our employees, consultants and third parties with whom we have relationships. We have filed various applications for certain aspects of our intellectual property. Valid patents may not issue from our pending applications, and the claims eventually allowed on any patents may not be sufficiently broad to protect our technology or products. Any issued patents may be challenged, invalidated or circumvented, and any rights granted under these patents may not actually provide adequate defensive protection or competitive advantages to us. Additionally, the process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary. We generally enter into confidentiality or license agreements with our employees, consultants, vendors and customers, and generally limit access to and distribution of our proprietary information. However, we cannot assure you that the agreements we have entered into will not be breached. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the United States, and many foreign countries do not enforce these laws as diligently as government agencies and private parties in the United States.

From time to time, we may need to take legal action to enforce our patents and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could negatively affect our business and operating results. Attempts to enforce our rights against third parties could also provoke these third parties to assert their own intellectual property or other rights against us, or result in a holding that invalidates or narrows the scope of our rights, in whole or in part. Any of these events would have a material adverse effect on our business and operating results.

Claims by others that we infringe their proprietary technology or other rights could harm our business.

Companies in the storage industry own large numbers of patents, copyrights, trademarks, domain names and trade secrets, and frequently enter into litigation based on allegations of infringement, misappropriation or other violations of intellectual property or other rights. Third parties have asserted and may in the future assert claims of infringement of intellectual property rights against us or our end-customers and channel partners. Our standard license and other agreements obligate us to indemnify our end-customers and channel partners against claims that our products infringe the intellectual property rights of third parties, and in some cases this indemnification obligation is uncapped as to the amount of the liability. As the number of products and competitors in our market increases and overlaps occur, and our profile within this market grows, infringement claims may increase. While we intend to increase the size of our patent portfolio, our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. In addition, future litigation may involve patent holding companies or other adverse patent owners who have no relevant product revenue and against whom our own patents may therefore provide little or no deterrence or protection. Any claim of infringement by a third party, even those without merit, could cause us to incur substantial costs defending against the claim and could distract our management from our business. Furthermore, a successful claimant could secure a judgment or we may agree to a settlement that requires us to pay substantial damages, royalties or other fees. Any of these events could harm our business and operating results.

Although third parties may offer a license to their technology or other intellectual property, the terms of any offered license may not be acceptable and the failure to obtain a license or the costs associated with any license could materially and adversely affect our business and operating results. If a third party does not offer us a license to its technology or other intellectual property on reasonable terms, or at all, we could be enjoined from continued use of such intellectual property. As a result, we may be required to develop alternative, non-infringing technology, which could require significant time (during which we would be unable to continue to offer our affected products or services), effort and expense, and may ultimately not be successful.

If we are unable to hire, retain, train and motivate qualified personnel and senior management, our business could be harmed.

Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. In particular, we are highly dependent on the contributions of our executive team as well as members of our research and development organization. The loss of any key personnel could make it more difficult to manage our operations and research and development activities, reduce our employee retention and revenue and impair our ability to compete. Although we have entered into employment offer letters with our key personnel, these agreements have no specific duration and constitute at-will employment.

Competition for highly skilled personnel is often intense, especially in the San Francisco Bay Area where we have a substantial presence and need for highly skilled personnel. We may not be successful in attracting, integrating or retaining qualified personnel to fulfill our current or future needs. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. In addition, job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our stock declines, it may adversely affect our ability to hire or retain highly skilled employees. In addition, since we expense all stock-based compensation, we may periodically change our equity compensation practices, which may include reducing the number of employees eligible for options or reducing the size of equity awards granted per employee. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be harmed.

If we or our channel partners fail to timely and correctly install our storage products, or if our channel partners face disruptions in their business, our reputation will suffer, our competitive position could be impaired and we could lose end-customers.

In addition to our small team of installation personnel, we rely upon some of our channel partners to install our storage products at our end-customer locations. Although we train and certify our channel partners on the installation of our products, end-customers have in the past encountered installation difficulties with our channel partners. In addition, if one or more of our channel partners suffers an interruption in its business, or experiences delays, disruptions or quality control problems in its operations, our revenue could be reduced and our ability to compete could be impaired. As a significant portion of our sales occur in the last month of a quarter, our end-customers may also experience installation delays following a purchase if we or our channel partners have too many installations in a short period of time. If we or our channel partners fail to timely and correctly install our products, end-customers may not purchase additional products and services from us, our reputation could suffer and our revenue could be reduced. In addition, if our channel partners are unable to correctly install our products, we might incur additional expenses to correctly install our products.

We are exposed to the credit risk of some of our channel partners and direct customers, which could result in material losses and negatively impact our operating results.

Some of our channel partners and direct customers have experienced financial difficulties in the past. A channel partner or direct customer experiencing such difficulties will generally not purchase or sell as many of our products as it would under normal circumstances and may cancel orders. Our typical payment terms are 30 days from invoice. Because of local customs or conditions, payment terms may be longer in some circumstances and markets. In addition, a channel partner or direct customer experiencing financial difficulties generally increases our exposure to uncollectible receivables. If any of our channel partners or direct customers that represent a significant portion of our total revenue becomes insolvent or suffers a deterioration in its financial or business condition and is unable to pay for our products, our results of operations could be harmed.

Changes in laws, regulations and standards related to data privacy and the Internet could harm our business.

Federal, state or foreign government bodies or agencies have in the past adopted, and could in the future adopt, laws and regulations affecting data privacy and the use of the Internet as a commercial medium. Changing laws, regulations and standards applying to the solicitation, collection, processing or use of personal or consumer information could affect our end-customers’ ability to use and share data, potentially restricting our ability to store, process and share data with our end-customers through our InfoSight platform, and in turn limit our ability to provide real-time and predictive customer support. If we are not able to adjust to changing laws, regulations and standards related to the Internet, our business could be harmed.

Some of our products use “open source” software, which may restrict how we use or distribute our products or require that we release the source code of certain software subject to open source licenses.

Some of our products may incorporate software licensed under so-called “free,” “open source” or other similar licenses where the licensed software is made available to the general public under the terms of a specific non-negotiable license. Some open source licenses require that software subject to the license be made available to the public and that any modifications or derivative works based on open source software be licensed in source code form under the same open source licenses. Few courts have interpreted open source licenses, and the manner in which these licenses may be interpreted and enforced is therefore subject to some uncertainty. We rely on multiple software programmers to design our proprietary technologies, we are not able to exercise complete control over the development methods and efforts of our programmers, and we cannot be certain that our programmers have not incorporated open source software into our products without our knowledge or that they will not do so in the future. Some of our products incorporate third-party software under commercial licenses. We cannot be certain whether such third-party software incorporates open-source software without our knowledge. In the event that portions of our proprietary technology are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our products, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our products and materially and adversely affect our ability to sustain and grow our business. Many open source licenses include additional obligations and restrictions, such as providing attribution to the authors of the open source software or providing a copy of the applicable open source license to recipients of the open source software. If we distribute products outside the terms of applicable open source licenses, we could be exposed to claims of breach of contract or intellectual property infringement.

Our failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products could reduce our ability to compete and could harm our business.

We expect that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months. In the future, we may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all. If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests and the per share value of our common stock could decline. Furthermore, if we engage in debt financing, the holders of debt would have priority over the holders of common stock, and we may be required to accept terms that restrict our ability to incur additional indebtedness. We may also be required to take other actions that would otherwise be in the interests of the debt holders and force us to maintain specified liquidity or other ratios, any of which could harm our business and operating results. If we need additional capital and cannot raise it on acceptable terms, we might not be able to, among other things:

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develop or enhance our products;

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continue to expand our sales and marketing and research and development organizations;

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acquire complementary technologies, products or businesses;

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expand operations in the United States or internationally;

•

hire, train and retain employees; or

•

respond to competitive pressures or unanticipated working capital requirements.

Our failure to do any of these things could harm our business and operating results.

If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the New York Stock Exchange. We expect the requirements of these rules and regulations will increase our legal, accounting, financial compliance and audit costs, make some activities more challenging, time consuming and costly, and place strain on our personnel, systems and resources.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. We are continuing to enhance and refine our disclosure controls and other procedures designed to ensure information required to be disclosed in the reports filed with the SEC, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.

Our current controls, and any new controls developed, may become inadequate because of changes in external conditions and in our business. Any failure to update, implement and maintain effective internal controls could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting required in periodic reports filed with the SEC under Section 404 of the Sarbanes-Oxley Act. Further, weaknesses in our internal controls may be discovered in the future and result in a restatement of our financial statements for prior periods. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results, or cause us to fail to meet our reporting obligations.

Ineffective disclosure controls and procedures and ineffective internal control over financial reporting could cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock.

To maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended and will continue to expend significant resources, including accounting and professional services fees related costs and in providing diligent management oversight. Any failure to maintain the adequacy of our internal controls, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could impair our ability to operate our business. In the event that our internal controls are assessed or perceived as inadequate, or we are unable to produce timely and accurate financial statements, investors may lose confidence in our operating results and our stock price could decline. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the New York Stock Exchange.

We will be required to disclose changes made in our internal controls and procedures on a quarterly basis and, in compliance with Section 404 of the Sarbanes-Oxley Act, file an internal control report with our annual report acknowledging the obligation of management to establish and maintain adequate internal controls and procedures for financial reporting.

We have performed system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. To comply with the full requirements of a public company, we will need to undertake various other actions, such as implementing new internal controls and procedures and hiring accounting and/or internal audit staff. Commencing with the audit of our fiscal year when we must comply with the attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, which will be the fiscal year ended January 31, 2016, our independent registered public accounting firm will be required to formally attest to the effectiveness of our internal control over financial reporting. At such time, our independent registered public accounting firm may issue a report that it is not satisfied with the level at which our controls are designed or operating or may assess certain controls as ineffective, and our remediation efforts may not enable us to avoid a material weakness in the future.

If we fail to comply with environmental requirements, our business, operating results and reputation could be adversely affected.

We are subject to various environmental laws and regulations including laws governing the hazardous material content of our products and laws relating to the collection of and recycling of electrical and electronic equipment. Examples of these laws and regulations include the European Union (the “EU”), Restrictions of Hazardous Substances Directive (“RoHS”), and the EU Waste Electrical and Electronic Equipment Directive (“WEEE”), as well as the implementing legislation of the EU member states. Similar laws and regulations have been passed or are pending in China, South Korea, Norway and Japan and may be enacted in other regions, including in the United States, and we are, or may in the future be, subject to these laws and regulations.

The EU RoHS and the similar laws of other jurisdictions ban the use of certain hazardous materials such as lead, mercury and cadmium in the manufacture of electrical equipment, including our products. Currently, the manufacturer of our hardware appliances and our major component part suppliers comply with the EU RoHS requirements. However, if there are changes to this or other laws (or their interpretation) or if new similar laws are passed in other jurisdictions, we may be required to reengineer our products to use components compatible with these regulations. This reengineering and component substitution could result in additional costs to us or disrupt our operations or logistics.

The WEEE Directive requires electronic goods producers to be responsible for the collection, recycling and treatment of such products. Changes in interpretation of the directive may cause us to incur costs or have additional regulatory requirements to meet in the future in order to comply with this directive, or with any similar laws adopted in other jurisdictions.

Our failure to comply with past, present and future similar laws could result in reduced sales of our products, substantial product inventory write-offs, reputational damage, penalties and other sanctions, any of which could harm our business and operating results. We also expect that our products will be affected by new environmental laws and regulations on an ongoing basis. To date, our expenditures for environmental compliance have not had a material impact on our results of operations or cash flows, and although we cannot predict the future impact of such laws or regulations, they will likely result in additional costs and may increase penalties associated with violations or require us to change the content of our products or how they are manufactured, which could have a material adverse effect on our business and operating results.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our operating results.

Our sales contracts are primarily denominated in U.S. dollars. In addition, we also invoice in British pound sterling, Australian dollar, Canadian dollar and Euro. A strengthening of the U.S. dollar could increase the real cost of our products to our end-customers outside of the United States, which could adversely affect our operating results. In addition, an increasing portion of our operating expenses is incurred and an increasing portion of our assets is held outside the United States. These operating expenses and assets are denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates. If we are not able to successfully hedge against the risks associated with currency fluctuations, our operating results could be adversely affected.

Our business is subject to the risks of earthquakes, fire, power outages, floods, and other catastrophic events, and to interruption by man-made problems such as terrorism.

A significant natural disaster, such as an earthquake, fire, flood, or significant power outage could have a material adverse impact on our business, operating results. Both our corporate headquarters and the location where our products are manufactured are located in the San Francisco Bay Area, a region known for seismic activity. In addition, natural disasters could affect our supply chain, manufacturing vendors, or logistics providers’ ability to provide materials and perform services such as manufacturing products or assisting with shipments on a timely basis. In the event we or our service providers are hindered by any of the events discussed above, shipments could be delayed, resulting in missed financial targets, such as revenue and shipment targets, for a particular quarter. In addition, acts of terrorism and other geo-political unrest could cause disruptions in our business or the businesses of our supply chain, manufacturers, logistics providers, partners or end-customers, or the economy as a whole. Any disruption in the business of our supply chain, manufacturers, logistics providers, partners or end-customers that impacts sales at the end of a fiscal quarter could have a significant adverse impact on our quarterly results. All of the aforementioned risks may be further increased if we do not implement a disaster recovery plan or our suppliers’ disaster recovery plans prove to be inadequate. To the extent that any of the above should result in delays or cancellations of customer orders, or delays in the manufacture, deployment or shipment of our products, our business and operating results would be adversely affected.

Regulations related to conflict minerals may cause us to incur additional expenses and could limit the supply and increase the costs of certain metals used in the manufacturing of our products.

As a public company, we will be subject to new requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), that will require us to diligence, disclose and report whether or not our products contain conflict minerals. The implementation of these new requirements could adversely affect the sourcing, availability and pricing of the materials used in the manufacture of components used in our products. In addition, we will incur additional costs to comply with the disclosure requirements, including costs related to conducting diligence procedures to determine the sources of conflict minerals that may be used or necessary to the production of our products and, if applicable, potential changes to products, processes or sources of supply as a consequence of such verification activities. It is also possible that we may face reputational harm if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to alter our products, processes or sources of supply to avoid such materials. Under the Dodd-Frank Act, we are required to assess if our products contain minerals that are not determined to be conflict free in the first calendar year following the first eight months after our initial public offering date. Our first calendar year which requires this assessment begins January 1, 2015. After our assessment has been completed, any public filings of our assessment must be made by May 31, 2016.

Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.

As of January 31, 2015, we had federal and state net operating loss carryforwards of $170.8 million and $90.5 million due to prior period losses, which if not utilized, will begin to expire in 2035. If these NOLs expire unused and are unavailable to offset future income tax liabilities, our profitability may be adversely affected. In addition, under Section 382 of the U.S. Internal Revenue Code a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. Our existing NOLs may be subject to limitations arising from previous ownership changes and, if we undergo an ownership change in the future, our ability to utilize our NOLs could be further limited by Section 382. Future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Section 382. In September 2013, we completed an analysis to evaluate whether there are any limitations of our NOLs and concluded no limitations currently exist. While we do not believe that we have experienced an ownership change that would result in limitations, regulatory changes, such as suspension of the use of NOLs, could result in the expiration of our NOLs or otherwise cause them to be unavailable to offset future income tax liabilities. Our net operating losses could also be impaired under state law. As a result, we might not be able to utilize a material portion of our NOLs.

We may acquire other businesses which could require significant management attention, disrupt our business, dilute stockholder value and adversely affect our operating results.

As part of our business strategy, we may make investments in complementary companies, products or technologies. However, we have not made any acquisitions to date, and as a result, our ability as an organization to acquire and integrate other companies, products or technologies in a successful manner is unproven. We may not be able to find suitable acquisition candidates, or we may not be able to complete such acquisitions on favorable terms, if at all. If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, and any acquisitions we complete could be viewed negatively by our end-customers, investors or securities analysts. In addition, if we are unsuccessful at integrating such acquisitions, or the technologies associated with such acquisitions, into our Company, our operating results could be adversely affected. We may also incur unforeseen liabilities which could materially and adversely affect our operating results. We may not successfully evaluate or utilize the acquired technology or personnel, or accurately forecast the financial impact of an acquisition transaction, including accounting charges. The sale of equity or issuance of debt to finance any such acquisitions could result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that impede our ability to manage our operations.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Because the market value of our common stock held by non-affiliates exceeds $700 million as of July 31, 2015, we will be deemed a “large accelerated filer” under the Exchange Act and will lose emerging growth company status as of January 31, 2016.

We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Under the JOBS Act, “emerging growth companies” can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.”

Risks Related to Ownership of Our Common Stock

The price of our common stock has been, and is likely to continue to be, volatile and may decline regardless of our operating performance, and you may not be able to resell your shares at or above the price at which you purchased your shares.

The trading price of our common stock has been volatile, and could be subject to wide fluctuations in response to various factors, many of which are beyond our control, including:

•

overall performance of the equity markets;

•

our operating performance and the performance of other similar companies;

•

changes in the estimates of our operating results that we provide to the public, our failure to meet these projections or changes in recommendations by securities analysts that elect to follow our common stock;

•

announcements of technological innovations, new applications or enhancements to services, acquisitions, strategic alliances or significant agreements by us or by our competitors;

•

announcements of customer additions and customer cancellations or delays in customer purchases;

•

recruitment or departure of key personnel;

•

the economy as a whole, market conditions in our industry, and the industries of our customers;

•

the size of our market float; and

•

any other factors discussed in this report.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

If securities or industry analysts choose to publish or refrain from publishing research, publish inaccurate or unfavorable research, or discontinue publishing research, about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If industry analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price could decline.

Our directors, executive officers and their affiliates have significant influence over us.

Our directors and executive officers, together with their affiliates, beneficially own, in the aggregate, 36% of our outstanding common stock as of August 31, 2015. As a result, these stockholders, acting together, have the ability to significantly influence the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. Accordingly, this concentration of ownership could harm the market price of our common stock by:

•

delaying, deferring or preventing a change in control of us;

•

impeding a merger, consolidation, takeover or other business combination involving us; or

•

discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control of us.

We do not intend to pay dividends for the foreseeable future.

We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

Delaware law and provisions in our restated certificate of incorporation and restated bylaws could make a merger, tender offer, or proxy contest difficult, thereby depressing the trading price of our common stock.

Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and restated bylaws contain provisions that may make the acquisition of our Company more difficult, including the following:

•

our board of directors is classified into three classes of directors with staggered three-year terms and directors will only be able to be removed from office for cause;

•

only our board of directors has the right to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

•

only our chairman of the board, our chief executive officer, our president or a majority of our board of directors are authorized to call a special meeting of stockholders;

•

certain litigation against us can only be brought in Delaware;

•

our restated certificate of incorporation will authorizes undesignated preferred stock, the terms of which may be established, and shares of which may be issued, without the approval of the holders of common stock; and

•

advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sale of Unregistered Securities and Use of Proceeds

Recent Sale of Unregistered Securities

None.

Use of Proceeds

On December 12, 2013, the Securities and Exchange Commission declared our registration statement on Form S-1 (File No. 333-191789) effective for our initial public offering. An aggregate of 9,200,000 shares of our common stock were offered and sold in our initial public offering, including 1,200,000 shares to cover the underwriters’ over-allotment option. There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the Securities and Exchange Commission on December 13, 2013 pursuant to Rule 424(b).

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

During the second quarter of the year ending January 31, 2016, we repurchased the following shares of common stock from former employees by exercising our right to repurchase unvested shares upon termination of employment at a price equal to the lower of the fair market value on the repurchase date or the original exercise price paid for such shares:

Period

Total
Number
of
Shares
Purchased

Average
Price
Paid per
Share

Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans
or
Programs

Approximate
Dollar
Value of
Shares
That May
Yet Be
Purchased
Under
the Plans or
Programs

May 1, 2015 to May 30, 2015

N/A

June 1, 2015 to June 30, 2015

N/A

July 1, 2015 to July 31, 2015

3,907

1.6933

N/A

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


Exhibit Number		Exhibit Description

31.1		Certification of Periodic Report by Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Periodic Report by Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, in San Jose, California, on the 9^th day of September, 2015.


NIMBLE STORAGE, INC.

By:		/s/ Anup Singh
		Anup Singh Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting Company)

Small reporting company