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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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27-0989767
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1740 Technology Drive, Suite 150
San Jose, CA 95110
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(Address of principal executive offices, including zip code)
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(408) 216-8360
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(Registrant's telephone number, including area code)
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Large accelerated filer
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x
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Accelerated filer
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o
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Non-accelerated filer
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o (Do not check if a smaller reporting company)
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Smaller reporting company
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o
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Emerging growth company
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¨
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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o
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PAGE
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Item 3
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Item 4
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Item 5
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•
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our future revenue, cost of revenue and operating expenses, as well as changes in the cost of product revenue, component costs, product gross margins and support, entitlements and other services revenue and changes in research and development, sales and marketing and general and administrative expenses;
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•
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our business plan, our growth strategy and our ability to effectively manage our growth;
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•
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anticipated trends, growth rates and challenges in our business and in the markets in which we operate, including the productivity of our sales team;
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•
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our ability to develop new solutions, product features and technology and bring them to market in a timely manner;
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•
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market acceptance of new technology and recently introduced solutions;
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•
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the interoperability and availability of our solutions with and on third-party hardware platforms;
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•
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our plans and objectives for future operations, including plans to continue to invest in our global engineering, research and development and sales and marketing teams, and the impact of such investments on our operations;
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•
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our ability to increase sales of our solutions;
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•
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our ability to attract new end customers and retain and grow sales from our existing end customers;
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•
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our ability to maintain and strengthen our relationships with our channel and OEM partners;
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•
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the effects of seasonal trends on our results of operations;
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•
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our expectations concerning relationships with third parties, including our ability to compress and stabilize sales cycles;
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•
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our ability to maintain, protect and enhance our intellectual property;
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•
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our exposure to and ability to guard against cyber attacks;
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•
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our ability to continue to expand internationally;
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•
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the effects of increased competition in our market and our ability to compete effectively;
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•
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anticipated capital expenditures;
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•
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future acquisitions or investments in complementary companies, products, services or technologies and the ability to successfully integrate completed acquisitions;
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•
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our ability to stay in compliance with laws and regulations that currently apply or become applicable to our business both in the United States and internationally, including recent changes in global tax laws;
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•
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economic and industry trends, projected growth or trend analysis;
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•
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our ability to attract and retain qualified employees and key personnel;
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•
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our plans for and the impact of changes to our business model, including our shift to a more subscription-based model;
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•
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our expectations concerning future shifts in the mix of whether our solutions are sold as an appliance or as software-only, and in the mix of the types of appliances we sell; and
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•
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the sufficiency of cash balances to meet cash needs for at least the next 12 months.
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As of
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||||||
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July 31,
2018 |
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October 31, 2018
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||||
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(in thousands, except share and per share data)
|
||||||
Assets
|
|
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Current assets:
|
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Cash and cash equivalents
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$
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305,975
|
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$
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399,786
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Short-term investments
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628,328
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|
|
565,189
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Accounts receivable, net
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258,289
|
|
|
237,682
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Deferred commissions—current
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33,691
|
|
|
34,742
|
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||
Prepaid expenses and other current assets
|
36,818
|
|
|
39,621
|
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||
Total current assets
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1,263,101
|
|
|
1,277,020
|
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||
Property and equipment, net
|
85,111
|
|
|
104,750
|
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||
Deferred commissions—non-current
|
80,688
|
|
|
87,365
|
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Intangible assets, net
|
45,366
|
|
|
79,830
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Goodwill
|
87,759
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|
|
184,994
|
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||
Other assets—non-current
|
37,855
|
|
|
39,127
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||
Total assets
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$
|
1,599,880
|
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$
|
1,773,086
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Liabilities and Stockholders’ Equity
|
|
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Current liabilities:
|
|
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||||
Accounts payable
|
$
|
65,503
|
|
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$
|
69,474
|
|
Accrued compensation and benefits
|
85,398
|
|
|
65,709
|
|
||
Accrued expenses and other current liabilities
|
31,682
|
|
|
28,552
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|
||
Deferred revenue—current
|
275,648
|
|
|
307,195
|
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||
Total current liabilities
|
458,231
|
|
|
470,930
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||
Deferred revenue—non-current
|
355,559
|
|
|
394,605
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||
Convertible senior notes, net
|
429,598
|
|
|
436,745
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|
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Other liabilities—non-current
|
29,713
|
|
|
39,487
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|
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Total liabilities
|
1,273,101
|
|
|
1,341,767
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Commitments and contingencies (Note 7)
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|
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Stockholders’ equity:
|
|
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Preferred stock, par value of $0.000025 per share— 200,000,000 shares authorized as of July 31, 2018 and October 31, 2018; no shares issued and outstanding as of July 31, 2018 and October 31, 2018
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—
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—
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Common stock, par value of $0.000025 per share—1,200,000,000 (1,000,000,000 Class A, 200,000,000 Class B) shares authorized as of July 31, 2018 and October 31, 2018; 172,858,082 (135,109,672 Class A and 37,748,410 Class B) and 179,066,211 (141,366,331 Class A and 37,699,880 Class B) shares issued and outstanding as of July 31, 2018 and October 31, 2018
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4
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|
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4
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Additional paid-in capital
|
1,355,907
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1,554,878
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Accumulated other comprehensive loss
|
(1,002
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)
|
|
(1,168
|
)
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Accumulated deficit
|
(1,028,130
|
)
|
|
(1,122,395
|
)
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Total stockholders’ equity
|
326,779
|
|
|
431,319
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|
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Total liabilities and stockholders’ equity
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$
|
1,599,880
|
|
|
$
|
1,773,086
|
|
|
Three Months Ended
October 31, |
||||||
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2017
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2018
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||||
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(in thousands, except share and per share data)
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||||||
Revenue:
|
|
|
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Product
|
$
|
219,052
|
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$
|
224,346
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Support, entitlements and other services
|
56,500
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|
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88,937
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Total revenue
|
275,552
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313,283
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Cost of revenue:
|
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Product
|
85,162
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39,261
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Support, entitlements and other services
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23,460
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34,845
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Total cost of revenue
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108,622
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74,106
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Gross profit
|
166,930
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239,177
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Operating expenses:
|
|
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Sales and marketing
|
145,405
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|
|
196,497
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Research and development
|
64,512
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|
|
110,531
|
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General and administrative
|
16,052
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|
|
27,339
|
|
||
Total operating expenses
|
225,969
|
|
|
334,367
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|
||
Loss from operations
|
(59,039
|
)
|
|
(95,190
|
)
|
||
Other expense, net
|
(189
|
)
|
|
(2,703
|
)
|
||
Loss before provision for (benefit from) income taxes
|
(59,228
|
)
|
|
(97,893
|
)
|
||
Provision for (benefit from) income taxes
|
2,259
|
|
|
(3,628
|
)
|
||
Net loss
|
$
|
(61,487
|
)
|
|
$
|
(94,265
|
)
|
Net loss per share attributable to Class A and Class B common stockholders—basic and diluted
|
$
|
(0.39
|
)
|
|
$
|
(0.54
|
)
|
Weighted average shares used in computing net loss per share attributable to Class A and Class B common stockholders—basic and diluted
|
156,780,631
|
|
|
175,445,969
|
|
|
Three Months Ended
October 31, |
||||||
|
2017
|
|
2018
|
||||
|
(in thousands)
|
||||||
Net loss
|
$
|
(61,487
|
)
|
|
$
|
(94,265
|
)
|
Other comprehensive loss, net of tax:
|
|
|
|
||||
Change in unrealized loss on available-for-sale securities, net of tax
|
(130
|
)
|
|
(166
|
)
|
||
Comprehensive loss
|
$
|
(61,617
|
)
|
|
$
|
(94,431
|
)
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Accumulated
Deficit
|
|
Total
Stockholders’
Equity
|
|||||||||||||
|
Shares
|
|
Amount
|
|
||||||||||||||||||
|
(in thousands, except share data)
|
|||||||||||||||||||||
Balance - July 31, 2017
|
154,636,520
|
|
|
$
|
4
|
|
|
$
|
948,134
|
|
|
$
|
(106
|
)
|
|
$
|
(730,969
|
)
|
|
$
|
217,063
|
|
Issuance of common stock through employee equity incentive plans, net of repurchases
|
3,989,701
|
|
|
—
|
|
|
7,968
|
|
|
—
|
|
|
—
|
|
|
7,968
|
|
|||||
Issuance of common stock from ESPP purchase
|
1,261,104
|
|
|
—
|
|
|
17,402
|
|
|
—
|
|
|
—
|
|
|
17,402
|
|
|||||
Vesting of early exercised stock options
|
—
|
|
|
—
|
|
|
249
|
|
|
—
|
|
|
—
|
|
|
249
|
|
|||||
Stock-based compensation
|
—
|
|
|
—
|
|
|
35,515
|
|
|
—
|
|
|
—
|
|
|
35,515
|
|
|||||
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(130
|
)
|
|
—
|
|
|
(130
|
)
|
|||||
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(61,487
|
)
|
|
(61,487
|
)
|
|||||
Balance - October 31, 2017
|
159,887,325
|
|
|
$
|
4
|
|
|
$
|
1,009,268
|
|
|
$
|
(236
|
)
|
|
$
|
(792,456
|
)
|
|
$
|
216,580
|
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Accumulated
Deficit
|
|
Total
Stockholders’
Equity
|
|||||||||||||
|
Shares
|
|
Amount
|
|
||||||||||||||||||
|
(in thousands, except share data)
|
|||||||||||||||||||||
Balance - July 31, 2018
|
172,858,082
|
|
|
$
|
4
|
|
|
$
|
1,355,907
|
|
|
$
|
(1,002
|
)
|
|
$
|
(1,028,130
|
)
|
|
$
|
326,779
|
|
Issuance of common stock through employee equity incentive plans
|
2,629,079
|
|
|
—
|
|
|
3,680
|
|
|
—
|
|
|
—
|
|
|
3,680
|
|
|||||
Issuance of common stock from ESPP purchase
|
1,127,728
|
|
|
—
|
|
|
26,318
|
|
|
—
|
|
|
—
|
|
|
26,318
|
|
|||||
Vesting of early exercised stock options
|
—
|
|
|
—
|
|
|
70
|
|
|
—
|
|
|
—
|
|
|
70
|
|
|||||
Issuance of common stock in connection with a business combination
|
2,451,322
|
|
|
—
|
|
|
102,978
|
|
|
—
|
|
|
—
|
|
|
102,978
|
|
|||||
Stock-based compensation
|
—
|
|
|
—
|
|
|
65,925
|
|
|
—
|
|
|
—
|
|
|
65,925
|
|
|||||
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(166
|
)
|
|
—
|
|
|
(166
|
)
|
|||||
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(94,265
|
)
|
|
(94,265
|
)
|
|||||
Balance - October 31, 2018
|
179,066,211
|
|
|
$
|
4
|
|
|
$
|
1,554,878
|
|
|
$
|
(1,168
|
)
|
|
$
|
(1,122,395
|
)
|
|
$
|
431,319
|
|
|
Three Months Ended
October 31, |
||||||
|
2017
|
|
2018
|
||||
|
(in thousands)
|
||||||
Cash flows from operating activities:
|
|
|
|
||||
Net loss
|
$
|
(61,487
|
)
|
|
$
|
(94,265
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
11,333
|
|
|
16,183
|
|
||
Stock-based compensation
|
35,515
|
|
|
65,925
|
|
||
Change in fair value of contingent consideration
|
282
|
|
|
(799
|
)
|
||
Amortization of debt discount and issuance costs
|
—
|
|
|
7,148
|
|
||
Other
|
131
|
|
|
(759
|
)
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable, net
|
7,326
|
|
|
23,497
|
|
||
Deferred commissions
|
(8,457
|
)
|
|
(7,728
|
)
|
||
Prepaid expenses and other assets (1)
|
(316
|
)
|
|
(3,812
|
)
|
||
Accounts payable
|
(6,504
|
)
|
|
1,292
|
|
||
Accrued compensation and benefits
|
(7,220
|
)
|
|
(19,689
|
)
|
||
Accrued expenses and other liabilities
|
(293
|
)
|
|
(7,442
|
)
|
||
Deferred revenue
|
39,788
|
|
|
70,273
|
|
||
Net cash provided by operating activities (1)
|
10,098
|
|
|
49,824
|
|
||
Cash flows from investing activities:
|
|
|
|
||||
Maturities of investments
|
35,920
|
|
|
143,409
|
|
||
Purchases of investments
|
(59,108
|
)
|
|
(79,766
|
)
|
||
Purchases of property and equipment
|
(17,965
|
)
|
|
(29,832
|
)
|
||
Payment for a business combination, net of cash and restricted cash acquired
|
—
|
|
|
(18,662
|
)
|
||
Net cash (used in) provided by investing activities
|
(41,153
|
)
|
|
15,149
|
|
||
Cash flows from financing activities:
|
|
|
|
||||
Proceeds from sales of shares through employee equity incentive plans, net of repurchases
|
25,231
|
|
|
29,890
|
|
||
Payment of debt in conjunction with a business combination
|
—
|
|
|
(991
|
)
|
||
Payment of convertible notes issuance costs
|
—
|
|
|
(75
|
)
|
||
Payment of offering costs
|
(85
|
)
|
|
—
|
|
||
Net cash provided by financing activities
|
25,146
|
|
|
28,824
|
|
||
Net (decrease) increase in cash, cash equivalents and restricted cash (1)
|
$
|
(5,909
|
)
|
|
$
|
93,797
|
|
Cash, cash equivalents and restricted cash—beginning of period (1)
|
139,497
|
|
|
307,098
|
|
||
Cash, cash equivalents and restricted cash—end of period (1)
|
$
|
133,588
|
|
|
$
|
400,895
|
|
Restricted cash (1)(2)
|
1,129
|
|
|
1,109
|
|
||
Cash and cash equivalents—end of period
|
$
|
132,459
|
|
|
$
|
399,786
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
||||
Cash paid for income taxes
|
$
|
2,066
|
|
|
$
|
3,910
|
|
Supplemental disclosures of non-cash investing and financing information:
|
|
|
|
||||
Issuance of common stock in connection with a business combination
|
$
|
—
|
|
|
$
|
102,978
|
|
Purchases of property and equipment included in accounts payable and accrued liabilities
|
$
|
7,084
|
|
|
$
|
15,717
|
|
Vesting of early exercised stock options
|
$
|
249
|
|
|
$
|
70
|
|
|
(1)
|
During the first quarter of fiscal 2019, we adopted Accounting Standards Update ("ASU") No. 2016-18, which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash. We adopted the standard retrospectively for the prior period presented. Our adoption of ASU 2016-18 did not have any significant impact on our condensed consolidated statements of cash flows.
|
(2)
|
Included within other assets—non-current in the condensed consolidated balance sheets.
|
|
|
Revenue
|
|
Accounts Receivable
as of
|
||||||||
|
|
Three Months Ended
October 31, |
|
|||||||||
Partners
|
|
2017
|
|
2018
|
|
July 31,
2018 |
|
October 31, 2018
|
||||
Partner A
|
|
17
|
%
|
|
12
|
%
|
|
16
|
%
|
|
14
|
%
|
Partner B
|
|
28
|
%
|
|
11
|
%
|
|
13
|
%
|
|
(1)
|
|
Partner C
|
|
19
|
%
|
|
22
|
%
|
|
15
|
%
|
|
16
|
%
|
Partner D
|
|
10
|
%
|
|
(1)
|
|
|
(1)
|
|
|
11
|
%
|
Partner E
|
|
12
|
%
|
|
12
|
%
|
|
12
|
%
|
|
13
|
%
|
|
(1)
|
Less than 10%
|
|
Estimated Fair Value
|
||
|
(in thousands)
|
||
Goodwill
|
$
|
97,143
|
|
Amortizable intangible assets
|
38,180
|
|
|
Tangible assets acquired
|
10,811
|
|
|
Liabilities assumed
|
(16,474
|
)
|
|
Total consideration
|
$
|
129,660
|
|
|
Three Months Ended
October 31, |
||||||
|
2017
|
|
2018
|
||||
|
(in thousands)
|
||||||
Non-portable software
|
$
|
126,897
|
|
|
$
|
146,570
|
|
Subscription
|
62,376
|
|
|
126,976
|
|
||
Hardware
|
80,838
|
|
|
32,547
|
|
||
Professional services
|
5,441
|
|
|
7,190
|
|
||
Total revenue
|
$
|
275,552
|
|
|
$
|
313,283
|
|
|
Three Months Ended
October 31, 2018 |
||||||
|
Deferred Revenue
|
|
Deferred Commissions
|
||||
|
(in thousands)
|
||||||
Balance as of July 31, 2018
|
$
|
631,207
|
|
|
$
|
114,379
|
|
Additions
|
159,210
|
|
|
33,958
|
|
||
Revenue/commissions recognized
|
(88,937
|
)
|
|
(26,230
|
)
|
||
Assumed in a business combination
|
320
|
|
|
—
|
|
||
Balance as of October 31, 2018
|
$
|
701,800
|
|
|
$
|
122,107
|
|
|
As of July 31, 2018
|
||||||||||||||
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
||||||||
|
(in thousands)
|
||||||||||||||
Financial Assets:
|
|
|
|
|
|
|
|
||||||||
Cash equivalents:
|
|
|
|
|
|
|
|
||||||||
Money market funds
|
$
|
41,763
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
41,763
|
|
Commercial paper
|
—
|
|
|
77,818
|
|
|
—
|
|
|
77,818
|
|
||||
U.S. government securities
|
—
|
|
|
4,985
|
|
|
—
|
|
|
4,985
|
|
||||
Short-term investments:
|
|
|
|
|
|
|
|
|
|||||||
Corporate bonds
|
—
|
|
|
448,458
|
|
|
—
|
|
|
448,458
|
|
||||
Commercial paper
|
—
|
|
|
120,772
|
|
|
—
|
|
|
120,772
|
|
||||
U.S. government securities
|
—
|
|
|
59,098
|
|
|
—
|
|
|
59,098
|
|
||||
Total measured at fair value
|
$
|
41,763
|
|
|
$
|
711,131
|
|
|
$
|
—
|
|
|
$
|
752,894
|
|
Cash
|
|
|
|
|
|
|
181,409
|
|
|||||||
Total cash, cash equivalents and short-term investments
|
|
|
|
|
|
|
$
|
934,303
|
|
||||||
Financial Liabilities:
|
|
|
|
|
|
|
|
||||||||
Contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,872
|
|
|
$
|
1,872
|
|
|
As of October 31, 2018
|
||||||||||||||
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
||||||||
|
(in thousands)
|
||||||||||||||
Financial Assets:
|
|
|
|
|
|
|
|
||||||||
Cash equivalents:
|
|
|
|
|
|
|
|
||||||||
Money market funds
|
$
|
59,957
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59,957
|
|
Commercial paper
|
—
|
|
|
106,600
|
|
|
—
|
|
|
106,600
|
|
||||
U.S. government securities
|
—
|
|
|
4,985
|
|
|
—
|
|
|
4,985
|
|
||||
Short-term investments:
|
|
|
|
|
|
|
|
|
|||||||
Corporate bonds
|
—
|
|
|
458,674
|
|
|
—
|
|
|
458,674
|
|
||||
Commercial paper
|
—
|
|
|
57,247
|
|
|
—
|
|
|
57,247
|
|
||||
U.S. government securities
|
—
|
|
|
49,268
|
|
|
—
|
|
|
49,268
|
|
||||
Total measured at fair value
|
$
|
59,957
|
|
|
$
|
676,774
|
|
|
$
|
—
|
|
|
$
|
736,731
|
|
Cash
|
|
|
|
|
|
|
228,244
|
|
|||||||
Total cash, cash equivalents and short-term investments
|
|
|
|
|
|
|
$
|
964,975
|
|
||||||
Financial Liabilities:
|
|
|
|
|
|
|
|
||||||||
Contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,073
|
|
|
$
|
1,073
|
|
|
As of July 31, 2018
|
|
As of October 31, 2018
|
||||||||||||
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
||||||||
|
(in thousands)
|
||||||||||||||
Convertible senior notes, net
|
$
|
429,598
|
|
|
$
|
685,527
|
|
|
$
|
436,745
|
|
|
$
|
634,513
|
|
|
Three Months Ended
October 31, |
||||||
|
2017
|
|
2018
|
||||
|
(in thousands)
|
||||||
Contingent consideration—beginning balance
|
$
|
4,295
|
|
|
$
|
1,872
|
|
Change in fair value (1)
|
282
|
|
|
(799
|
)
|
||
Contingent consideration—ending balance
|
$
|
4,577
|
|
|
$
|
1,073
|
|
|
(1)
|
Recognized in the condensed consolidated statements of operations within general and administrative expenses.
|
|
As of
October 31, 2018
|
||
|
(in thousands)
|
||
Due within one year
|
$
|
434,191
|
|
Due in one year through three years
|
130,998
|
|
|
Total
|
$
|
565,189
|
|
|
Estimated
Useful Life |
|
As of
|
||||||
|
|
July 31,
2018 |
|
October 31, 2018
|
|||||
|
(in months)
|
|
(in thousands)
|
||||||
Computer, production, engineering and other equipment
|
36
|
|
$
|
131,805
|
|
|
$
|
153,647
|
|
Demonstration units
|
12
|
|
53,547
|
|
|
54,387
|
|
||
Leasehold improvements
|
(1)
|
|
19,916
|
|
|
26,138
|
|
||
Furniture and fixtures
|
60
|
|
7,636
|
|
|
9,580
|
|
||
Total property and equipment, gross
|
|
|
212,904
|
|
|
243,752
|
|
||
Less: accumulated depreciation
|
|
|
(127,793
|
)
|
|
(139,002
|
)
|
||
Total property and equipment, net
|
|
|
$
|
85,111
|
|
|
$
|
104,750
|
|
|
(1)
|
Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements or the remaining lease term.
|
|
|
Carrying Amount
|
||
|
|
(in thousands)
|
||
Balance as of July 31, 2018
|
|
$
|
87,759
|
|
Acquired in Frame Acquisition
|
|
97,143
|
|
|
Other
|
|
92
|
|
|
Balance as of October 31, 2018
|
|
$
|
184,994
|
|
|
As of
|
||||||
|
July 31,
2018 |
|
October 31, 2018
|
||||
|
(in thousands)
|
||||||
Developed technology
|
$
|
47,500
|
|
|
$
|
79,300
|
|
Customer relationships
|
6,650
|
|
|
8,860
|
|
||
Trade name
|
—
|
|
|
4,170
|
|
||
Total intangible assets, gross
|
54,150
|
|
|
92,330
|
|
||
Less:
|
|
|
|
||||
Accumulated amortization of developed technology
|
(6,956
|
)
|
|
(10,122
|
)
|
||
Accumulated amortization of customer relationships
|
(1,828
|
)
|
|
(2,204
|
)
|
||
Accumulated amortization of trade name
|
—
|
|
|
(174
|
)
|
||
Total accumulated amortization
|
(8,784
|
)
|
|
(12,500
|
)
|
||
Total intangible assets, net
|
$
|
45,366
|
|
|
$
|
79,830
|
|
Fiscal Year Ending July 31:
|
Amount
|
||
|
(in thousands)
|
||
2019 (remaining nine months)
|
$
|
13,060
|
|
2020
|
17,380
|
|
|
2021
|
17,380
|
|
|
2022
|
16,183
|
|
|
2023
|
10,856
|
|
|
Thereafter
|
4,971
|
|
|
Total
|
$
|
79,830
|
|
|
As of
|
||||||
|
July 31,
2018 |
|
October 31, 2018
|
||||
|
(in thousands)
|
||||||
Other tax assets—non-current
|
$
|
30,927
|
|
|
$
|
31,460
|
|
Deferred tax assets—non-current
|
2,860
|
|
|
2,810
|
|
||
Other
|
4,068
|
|
|
4,857
|
|
||
Total other assets—non-current
|
$
|
37,855
|
|
|
$
|
39,127
|
|
|
As of
|
||||||
|
July 31,
2018 |
|
October 31, 2018
|
||||
|
(in thousands)
|
||||||
Accrued commissions
|
$
|
21,660
|
|
|
$
|
17,721
|
|
Accrued vacation
|
10,548
|
|
|
12,069
|
|
||
Payroll taxes payable
|
9,563
|
|
|
9,718
|
|
||
Contributions to ESPP withheld
|
21,931
|
|
|
8,907
|
|
||
Accrued bonus
|
12,129
|
|
|
7,848
|
|
||
Other
|
9,567
|
|
|
9,446
|
|
||
Total accrued compensation and benefits
|
$
|
85,398
|
|
|
$
|
65,709
|
|
|
As of
|
||||||
|
July 31,
2018 |
|
October 31, 2018
|
||||
|
(in thousands)
|
||||||
Income taxes payable
|
$
|
20,863
|
|
|
$
|
19,571
|
|
Accrued professional services
|
5,838
|
|
|
3,124
|
|
||
Other
|
4,981
|
|
|
5,857
|
|
||
Total accrued expenses and other current liabilities
|
$
|
31,682
|
|
|
$
|
28,552
|
|
|
Amount
|
||
|
(in thousands)
|
||
Principal amount
|
$
|
575,000
|
|
Less: initial purchasers' discount
|
(10,781
|
)
|
|
Less: cost of the bond hedges
|
(143,175
|
)
|
|
Add: proceeds from the sale of warrants
|
87,975
|
|
|
Less: other issuance costs
|
(707
|
)
|
|
Net proceeds
|
$
|
508,312
|
|
1)
|
during any fiscal quarter commencing after the fiscal quarter ending on April 30, 2018 (and only during such fiscal quarter), if the last reported sale price of our Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter, is greater than or equal to 130% of the conversion price on each applicable trading day;
|
2)
|
during the five business day period after any five consecutive trading day period (the "measurement period") in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our Class A common stock and the conversion rate for the Notes on each such trading day; or
|
3)
|
upon the occurrence of certain specified corporate events.
|
|
As of
October 31, 2018
|
||
|
(in thousands)
|
||
Principal amounts:
|
|
||
Principal
|
$
|
575,000
|
|
Unamortized debt discount (1)
|
(130,949
|
)
|
|
Unamortized debt issuance costs (1)
|
(7,306
|
)
|
|
Net carrying amount
|
$
|
436,745
|
|
Carrying amount of equity component (2)
|
$
|
148,598
|
|
|
(1)
|
Included in the condensed consolidated balance sheets within convertible senior notes, net and amortized over the remaining life of the Notes using the effective interest rate method. The effective interest rate is 6.62%.
|
(2)
|
Included in the condensed consolidated balance sheets within additional paid-in capital, net of $3.0 million in equity issuance costs.
|
|
Three Months Ended
October 31, 2018 |
||
|
(in thousands)
|
||
Interest expense related to amortization of debt discount
|
$
|
6,770
|
|
Interest expense related to amortization of debt issuance costs
|
378
|
|
|
Total interest expense
|
$
|
7,148
|
|
Fiscal Year Ending July 31:
|
Amount
|
||
|
(in thousands)
|
||
2019 (remaining nine months)
|
$
|
22,196
|
|
2020
|
28,084
|
|
|
2021
|
25,506
|
|
|
2022
|
25,233
|
|
|
2023
|
24,151
|
|
|
Thereafter
|
18,315
|
|
|
Total
|
$
|
143,485
|
|
•
|
If the Average Stock Price on any given quarterly measurement date does not equal or exceed $80, then none of the MSUs will vest that quarter, and any unvested MSUs will carry over to the next quarter (the “Carryover MSUs”);
|
•
|
If the Average Stock Price on any given quarterly measurement date equals or exceeds $80, then 1/18th of the MSUs plus the applicable Carryover MSUs, if any, would vest; and/or
|
•
|
If the Average Stock Price never equals or exceeds $80 during the Performance Period, the MSUs would terminate at the end of the Performance Period.
|
|
Three Months Ended
October 31, |
||||
|
2017
|
|
2018
|
||
Expected term (in years)
|
0.75
|
|
|
0.79
|
|
Risk-free interest rate
|
1.25
|
%
|
|
2.5
|
%
|
Volatility
|
50.2
|
%
|
|
49.5
|
%
|
Dividend yield
|
—
|
%
|
|
—
|
%
|
|
Three Months Ended
October 31, |
||||||
|
2017
|
|
2018
|
||||
|
(in thousands)
|
||||||
Cost of revenue:
|
|
|
|
||||
Product
|
$
|
570
|
|
|
$
|
698
|
|
Support, entitlements and other services
|
2,072
|
|
|
3,157
|
|
||
Sales and marketing
|
13,766
|
|
|
22,606
|
|
||
Research and development
|
15,542
|
|
|
31,009
|
|
||
General and administrative
|
3,565
|
|
|
8,455
|
|
||
Total stock-based compensation expense
|
$
|
35,515
|
|
|
$
|
65,925
|
|
|
Three Months Ended
October 31, |
||||||
|
2017
|
|
2018
|
||||
|
(in thousands, except share and per share data)
|
||||||
Numerator:
|
|
|
|
||||
Net loss
|
$
|
(61,487
|
)
|
|
$
|
(94,265
|
)
|
Denominator:
|
|
|
|
||||
Weighted average shares—basic and diluted
|
156,780,631
|
|
|
175,445,969
|
|
||
Net loss per share attributable to common stockholders—basic and diluted
|
$
|
(0.39
|
)
|
|
$
|
(0.54
|
)
|
|
Three Months Ended
October 31, |
||||
|
2017
|
|
2018
|
||
Outstanding stock options and RSUs
|
34,400,643
|
|
|
33,696,368
|
|
Employee stock purchase plan
|
2,089,383
|
|
|
1,596,411
|
|
Contingently issuable shares pursuant to business combinations
|
—
|
|
|
920,371
|
|
Common stock subject to repurchase
|
152,558
|
|
|
29,461
|
|
Common stock warrants
|
34,180
|
|
|
34,180
|
|
Total
|
36,676,764
|
|
|
36,276,791
|
|
|
Three Months Ended
October 31, |
||||||
|
2017
|
|
2018
|
||||
|
(in thousands)
|
||||||
U.S.
|
$
|
187,365
|
|
|
$
|
181,006
|
|
Europe, the Middle East and Africa
|
37,444
|
|
|
54,776
|
|
||
Asia Pacific
|
44,859
|
|
|
67,238
|
|
||
Other Americas
|
5,884
|
|
|
10,263
|
|
||
Total revenue
|
$
|
275,552
|
|
|
$
|
313,283
|
|
|
As of and for the
Three Months Ended October 31,
|
||||||
|
2017
|
|
2018
|
||||
|
(in thousands, except percentages)
|
||||||
Total revenue
|
$
|
275,552
|
|
|
$
|
313,283
|
|
Year-over-year percentage increase
|
46.1
|
%
|
|
13.7
|
%
|
||
Subscription revenue
|
$
|
62,376
|
|
|
$
|
126,976
|
|
Software and support revenue
|
$
|
194,714
|
|
|
$
|
280,736
|
|
Total billings
|
$
|
315,340
|
|
|
$
|
383,556
|
|
Subscription billings
|
$
|
98,902
|
|
|
$
|
194,764
|
|
Software and support billings
|
$
|
234,502
|
|
|
$
|
351,009
|
|
Gross profit
|
$
|
166,930
|
|
|
$
|
239,177
|
|
Adjusted gross profit
|
$
|
170,467
|
|
|
$
|
246,200
|
|
Gross margin
|
60.6
|
%
|
|
76.3
|
%
|
||
Adjusted gross margin
|
61.9
|
%
|
|
78.6
|
%
|
||
Total deferred revenue
|
$
|
408,844
|
|
|
$
|
701,800
|
|
Net cash provided by operating activities
|
$
|
10,098
|
|
|
$
|
49,824
|
|
Free cash flow
|
$
|
(7,867
|
)
|
|
$
|
19,992
|
|
Non-GAAP operating expenses
|
$
|
192,603
|
|
|
$
|
272,065
|
|
Total end customers
|
7,810
|
|
|
11,490
|
|
|
Three Months Ended
October 31, |
||||||
|
2017
|
|
2018
|
||||
|
(in thousands)
|
||||||
Disaggregation of revenue:
|
|
|
|
||||
Non-portable software revenue
|
$
|
126,897
|
|
|
$
|
146,570
|
|
Subscription revenue
|
62,376
|
|
|
126,976
|
|
||
Hardware revenue
|
80,838
|
|
|
32,547
|
|
||
Professional services revenue
|
5,441
|
|
|
7,190
|
|
||
Total revenue
|
$
|
275,552
|
|
|
$
|
313,283
|
|
|
|
|
|
||||
Disaggregation of billings:
|
|
|
|
||||
Non-portable software billings
|
$
|
126,897
|
|
|
$
|
146,570
|
|
Subscription billings
|
98,902
|
|
|
194,764
|
|
||
Hardware billings
|
80,838
|
|
|
32,547
|
|
||
Professional services billings
|
8,703
|
|
|
9,675
|
|
||
Total billings
|
$
|
315,340
|
|
|
$
|
383,556
|
|
•
|
are used by management and the Board of Directors to understand and evaluate our performance and trends, as well as to provide a useful measure for period-to-period comparisons of our core business;
|
•
|
are widely used as a measure of financial performance to understand and evaluate companies in our industry; and
|
•
|
are used by management to prepare and approve our annual budget and to develop short-term and long-term operational and compensation plans, as well as to assess our actual performance against our goals.
|
|
Three Months Ended
October 31, |
||||||
|
2017
|
|
2018
|
||||
|
(in thousands, except percentages)
|
||||||
Total revenue
|
$
|
275,552
|
|
|
$
|
313,283
|
|
Change in deferred revenue, net of acquisitions
|
39,788
|
|
|
70,273
|
|
||
Total billings (non-GAAP)
|
$
|
315,340
|
|
|
$
|
383,556
|
|
|
|
|
|
||||
Gross profit
|
$
|
166,930
|
|
|
$
|
239,177
|
|
Stock-based compensation
|
2,642
|
|
|
3,855
|
|
||
Amortization of intangible assets
|
895
|
|
|
3,168
|
|
||
Adjusted gross profit (non-GAAP)
|
$
|
170,467
|
|
|
$
|
246,200
|
|
|
|
|
|
||||
Gross margin
|
60.6
|
%
|
|
76.3
|
%
|
||
Stock-based compensation
|
1.0
|
%
|
|
1.2
|
%
|
||
Amortization of intangible assets
|
0.3
|
%
|
|
1.1
|
%
|
||
Adjusted gross margin (non-GAAP)
|
61.9
|
%
|
|
78.6
|
%
|
||
|
|
|
|
||||
Net cash provided by operating activities
|
$
|
10,098
|
|
|
$
|
49,824
|
|
Purchases of property and equipment
|
(17,965
|
)
|
|
(29,832
|
)
|
||
Free cash flow (non-GAAP)
|
$
|
(7,867
|
)
|
|
$
|
19,992
|
|
|
|
|
|
||||
Operating expenses
|
$
|
225,969
|
|
|
$
|
334,367
|
|
Stock-based compensation
|
(32,873
|
)
|
|
(62,070
|
)
|
||
Change in fair value of contingent consideration
|
(282
|
)
|
|
799
|
|
||
Amortization of intangible assets
|
(211
|
)
|
|
(550
|
)
|
||
Acquisition-related costs
|
—
|
|
|
(481
|
)
|
||
Operating expenses (non-GAAP)
|
$
|
192,603
|
|
|
$
|
272,065
|
|
|
Three Months Ended
October 31, |
||||||
|
2017
|
|
2018
|
||||
|
(in thousands)
|
||||||
Subscription revenue
|
$
|
62,376
|
|
|
$
|
126,976
|
|
Change in subscription deferred revenue, net of acquisitions (1)
|
36,526
|
|
|
67,788
|
|
||
Subscription billings
|
$
|
98,902
|
|
|
$
|
194,764
|
|
|
|
|
|
||||
Professional services revenue
|
$
|
5,441
|
|
|
$
|
7,190
|
|
Change in professional services deferred revenue
|
3,262
|
|
|
2,485
|
|
||
Professional services billings
|
$
|
8,703
|
|
|
$
|
9,675
|
|
|
|
|
|
||||
Software revenue
|
$
|
138,214
|
|
|
$
|
191,799
|
|
Hardware revenue
|
80,838
|
|
|
32,547
|
|
||
Product revenue
|
219,052
|
|
|
224,346
|
|
||
Support, entitlements and other services revenue
|
56,500
|
|
|
88,937
|
|
||
Total revenue
|
$
|
275,552
|
|
|
$
|
313,283
|
|
|
|
|
|
||||
Total software and support revenue (2)
|
$
|
194,714
|
|
|
$
|
280,736
|
|
Change in software and support deferred revenue, net of acquisitions (1)
|
39,788
|
|
|
70,273
|
|
||
Software and support billings (2)
|
$
|
234,502
|
|
|
$
|
351,009
|
|
|
(1)
|
Amount for the three months ended October 31, 2018 excludes approximately $0.3 million of deferred revenue assumed in an acquisition.
|
(2)
|
Software and support revenue and billings include software and support, entitlements and other services revenue and billings.
|
|
Three Months Ended
October 31, |
||||||
|
2017
|
|
2018
|
||||
|
(in thousands)
|
||||||
Revenue:
|
|
|
|
||||
Product
|
$
|
219,052
|
|
|
$
|
224,346
|
|
Support, entitlements and other services
|
56,500
|
|
|
88,937
|
|
||
Total revenue
|
275,552
|
|
|
313,283
|
|
||
Cost of revenue:
|
|
|
|
||||
Product (1)(2)
|
85,162
|
|
|
39,261
|
|
||
Support, entitlements and other services (1)
|
23,460
|
|
|
34,845
|
|
||
Total cost of revenue
|
108,622
|
|
|
74,106
|
|
||
Gross profit
|
166,930
|
|
|
239,177
|
|
||
Operating expenses:
|
|
|
|
||||
Sales and marketing (1)(2)
|
145,405
|
|
|
196,497
|
|
||
Research and development (1)
|
64,512
|
|
|
110,531
|
|
||
General and administrative (1)
|
16,052
|
|
|
27,339
|
|
||
Total operating expenses
|
225,969
|
|
|
334,367
|
|
||
Loss from operations
|
(59,039
|
)
|
|
(95,190
|
)
|
||
Other expense, net
|
(189
|
)
|
|
(2,703
|
)
|
||
Loss before provision for (benefit from) income taxes
|
(59,228
|
)
|
|
(97,893
|
)
|
||
Provision for (benefit from) income taxes
|
2,259
|
|
|
(3,628
|
)
|
||
Net loss
|
$
|
(61,487
|
)
|
|
$
|
(94,265
|
)
|
|
|
|
|
||||
(1) Includes stock-based compensation expense as follows:
|
|
|
|
||||
Product cost of revenue
|
$
|
570
|
|
|
$
|
698
|
|
Support, entitlements and other services cost of revenue
|
2,072
|
|
|
3,157
|
|
||
Sales and marketing
|
13,766
|
|
|
22,606
|
|
||
Research and development
|
15,542
|
|
|
31,009
|
|
||
General and administrative
|
3,565
|
|
|
8,455
|
|
||
Total stock-based compensation expense
|
$
|
35,515
|
|
|
$
|
65,925
|
|
|
|
|
|
||||
(2) Includes amortization of intangible assets as follows:
|
|
|
|
||||
Product cost of revenue
|
$
|
895
|
|
|
$
|
3,168
|
|
Sales and marketing
|
211
|
|
|
550
|
|
||
Total amortization of intangible assets
|
$
|
1,106
|
|
|
$
|
3,718
|
|
|
Three Months Ended
October 31, |
||||
|
2017
|
|
2018
|
||
|
(as a percentage of total revenue)
|
||||
Revenue:
|
|
|
|
||
Product
|
79.5
|
%
|
|
71.6
|
%
|
Support, entitlements and other services
|
20.5
|
%
|
|
28.4
|
%
|
Total revenue
|
100.0
|
%
|
|
100.0
|
%
|
Cost of revenue:
|
|
|
|
||
Product
|
30.9
|
%
|
|
12.6
|
%
|
Support, entitlements and other services
|
8.5
|
%
|
|
11.1
|
%
|
Total cost of revenue
|
39.4
|
%
|
|
23.7
|
%
|
Gross profit
|
60.6
|
%
|
|
76.3
|
%
|
Operating expenses:
|
|
|
|
||
Sales and marketing
|
52.8
|
%
|
|
62.7
|
%
|
Research and development
|
23.4
|
%
|
|
35.3
|
%
|
General and administrative
|
5.8
|
%
|
|
8.7
|
%
|
Total operating expenses
|
82.0
|
%
|
|
106.7
|
%
|
Loss from operations
|
(21.4
|
)%
|
|
(30.4
|
)%
|
Other expense, net
|
(0.1
|
)%
|
|
(0.9
|
)%
|
Loss before provision for (benefit from) income taxes
|
(21.5
|
)%
|
|
(31.3
|
)%
|
Provision for (benefit from) income taxes
|
0.8
|
%
|
|
(1.2
|
)%
|
Net loss
|
(22.3
|
)%
|
|
(30.1
|
)%
|
|
Three Months Ended
October 31, |
|
Change
|
|||||||||||
|
2017
|
|
2018
|
|
$
|
|
%
|
|||||||
|
(in thousands, except percentages)
|
|||||||||||||
Product
|
$
|
219,052
|
|
|
$
|
224,346
|
|
|
$
|
5,294
|
|
|
2
|
%
|
Support, entitlements and other services
|
56,500
|
|
|
88,937
|
|
|
32,437
|
|
|
57
|
%
|
|||
Total revenue
|
$
|
275,552
|
|
|
$
|
313,283
|
|
|
$
|
37,731
|
|
|
14
|
%
|
|
Three Months Ended
October 31, |
|
Change
|
|||||||||||
|
2017
|
|
2018
|
|
$
|
|
%
|
|||||||
|
(in thousands, except percentages)
|
|||||||||||||
U.S.
|
$
|
187,365
|
|
|
$
|
181,006
|
|
|
$
|
(6,359
|
)
|
|
(3
|
)%
|
Europe, the Middle East and Africa
|
37,444
|
|
|
54,776
|
|
|
17,332
|
|
|
46
|
%
|
|||
Asia Pacific
|
44,859
|
|
|
67,238
|
|
|
22,379
|
|
|
50
|
%
|
|||
Other Americas
|
5,884
|
|
|
10,263
|
|
|
4,379
|
|
|
74
|
%
|
|||
Total revenue
|
$
|
275,552
|
|
|
$
|
313,283
|
|
|
$
|
37,731
|
|
|
14
|
%
|
|
Three Months Ended
October 31, |
|
Change
|
|||||||||||
|
2017
|
|
2018
|
|
$
|
|
%
|
|||||||
|
(in thousands, except percentages)
|
|||||||||||||
Cost of product revenue
|
$
|
85,162
|
|
|
$
|
39,261
|
|
|
$
|
(45,901
|
)
|
|
(54
|
)%
|
Product gross margin
|
61.1
|
%
|
|
82.5
|
%
|
|
|
|
|
|
||||
Cost of support, entitlements and other services revenue
|
$
|
23,460
|
|
|
$
|
34,845
|
|
|
$
|
11,385
|
|
|
49
|
%
|
Support, entitlements and other services gross margin
|
58.5
|
%
|
|
60.8
|
%
|
|
|
|
|
|
||||
Total gross margin
|
60.6
|
%
|
|
76.3
|
%
|
|
|
|
|
|
|
Three Months Ended
October 31, |
|
Change
|
|||||||||||
|
2017
|
|
2018
|
|
$
|
|
%
|
|||||||
|
(in thousands, except percentages)
|
|||||||||||||
Other expense, net
|
$
|
(189
|
)
|
|
$
|
(2,703
|
)
|
|
$
|
(2,514
|
)
|
|
1,330
|
%
|
|
Three Months Ended
October 31, |
||||||
|
2017
|
|
2018
|
||||
|
(in thousands)
|
||||||
Net cash provided by operating activities
|
$
|
10,098
|
|
|
$
|
49,824
|
|
Net cash (used in) provided by investing activities
|
(41,153
|
)
|
|
15,149
|
|
||
Net cash provided by financing activities
|
25,146
|
|
|
28,824
|
|
||
Net (decrease) increase in cash, cash equivalents and restricted cash
|
$
|
(5,909
|
)
|
|
$
|
93,797
|
|
|
Payments Due by Period
|
||||||||||||||||||
|
Total
|
|
Less than
1 Year
|
|
1 Year to
3 Years
|
|
3 to 5 Years
|
|
More than 5 Years
|
||||||||||
|
(in thousands)
|
||||||||||||||||||
Principal amount payable on convertible senior notes (1)
|
$
|
575,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
575,000
|
|
|
$
|
—
|
|
Operating lease obligations
|
143,485
|
|
|
29,567
|
|
|
52,465
|
|
|
48,814
|
|
|
12,639
|
|
|||||
Other purchase commitments (2)
|
59,973
|
|
|
59,973
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Purchase commitments with contract manufacturers (3)
|
126,643
|
|
|
126,643
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total
|
$
|
905,101
|
|
|
$
|
216,183
|
|
|
$
|
52,465
|
|
|
$
|
623,814
|
|
|
$
|
12,639
|
|
|
(1)
|
For additional information regarding our convertible senior notes, refer to Note 6 of Part I, Item 1 of this Quarterly Report on Form 10-Q.
|
(2)
|
Purchase obligations pertaining to our normal operations.
|
(3)
|
Commitments in the form of guarantees to our contract manufacturers related to certain components.
|
•
|
software providers, such as Red Hat, Inc. and VMware, that offer a broad range of virtualization, infrastructure and management products to build and operate enterprise clouds;
|
•
|
traditional IT systems vendors, such as Cisco Systems, Inc. ("Cisco"), Dell, Hewlett Packard Enterprise Company ("HPE"), Hitachi Data Systems Corporation ("Hitachi"), International Business Machines Corporation ("IBM"), and Lenovo Group Ltd., that offer integrated systems that include bundles of servers, storage and networking solutions, as well as a broad range of standalone server and storage products;
|
•
|
traditional storage array vendors, such as Dell, Hitachi and NetApp, Inc. ("NetApp"), which typically sell centralized storage products; and
|
•
|
providers of public cloud infrastructure, such as Amazon.com, Inc. ("Amazon"), Google Inc. and Microsoft Corporation.
|
•
|
arrangements entered into on a subscription basis generally delay when we can recognize revenue and can require up-front costs, which may be significant;
|
•
|
since revenue is recognized over the term of the customer agreement in certain transactions, any decrease in customer purchases of our subscription-based products and services will not be fully reflected in our operating results until future periods. This will also make it difficult for us to rapidly increase our revenue through additional subscription sales in any one period;
|
•
|
subscription-based revenue arrangements are under short-term agreements. Accordingly, our customers generally have no long-term obligation to us and may cancel their subscription at any time, even if our customers are satisfied with our subscription products;
|
•
|
customers in a subscription arrangement may elect not to renew their contract upon expiration, or they may attempt to renegotiate pricing or other contractual terms at the point of, or prior to, renewal on terms that are less favorable to us;
|
•
|
investors, industry and financial analysts may have difficulty understanding the shift in our business model, resulting in changes in financial estimates or failure to meet investor expectations; and
|
•
|
there is no assurance that the solutions we offer on a subscription basis, including new revenue models or new products that we may introduce, will receive broad marketplace acceptance.
|
•
|
competition from companies that traditionally target larger enterprises, service providers and government entities and that may have pre-existing relationships or purchase commitments from such end customers;
|
•
|
increased purchasing power and leverage held by large end customers in negotiating contractual arrangements with us;
|
•
|
more stringent requirements in our support service contracts, including demand for quicker support response times and penalties for any failure to meet support requirements; and
|
•
|
longer sales cycles and the associated risk that substantial time and resources may be spent on a potential end customer that elects not to purchase our solutions.
|
•
|
the timing and magnitude of orders, shipments and acceptance of our solutions in any quarter;
|
•
|
our ability to attract new and retain existing end customers;
|
•
|
disruptions in our sales channels or shifts in our relationships with important channel partners and OEMs;
|
•
|
the timing of revenue recognition for our sales, the impact of which is heightened by our shift toward software-only sales and shift to a subscription-based model;
|
•
|
reductions in end customers’ budgets for information technology purchases;
|
•
|
delays in end customers’ purchasing cycles or deferments of end customers’ purchases in anticipation of new products or updates from us or our competitors;
|
•
|
fluctuations in demand and competitive pricing pressures for our solutions;
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•
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the mix of solutions sold, including the mix between appliance and software-only sales and the mix of the types of appliances that we sell, and the mix of revenue between products and support, entitlements and other services, which will depend in part on whether we are successful in executing our strategy to transition our business to focus on more software-only transactions;
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•
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our ability to develop, introduce and ship in a timely manner new solutions and product enhancements that meet customer requirements, and market acceptance of such new solutions and product enhancements;
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the timing of product releases or upgrades or announcements by us or our competitors;
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•
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any change in the competitive dynamics of our markets, including consolidation or partnerships among our competitors or resellers, new entrants or discounting of prices;
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•
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the amount and timing of expenses to grow our business and the extent to which we are able to take advantage of economies of scale or to leverage our relationships with OEM or channel partners;
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•
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the costs associated with acquiring new businesses and technologies and the follow-on costs of integrating and consolidating the results of acquired businesses;
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•
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the amount and timing of stock-based compensation expenses;
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•
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our ability to control the costs of our solutions and their key components, or to pass along any cost increases to our end customers;
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•
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general economic, industry and market conditions; and
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•
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future accounting pronouncements and changes in accounting policies, including our ability to implement the new procedures and processes necessary to accurately recognize our revenue under the new ASC 606 revenue recognition standard.
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•
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lost revenue or lost OEM or other channel partners or end customers;
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•
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increased costs, including warranty expense and costs associated with end customer support as well as development costs to remedy the errors or defects;
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•
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delays, cancellations, reductions or rescheduling of orders or shipments;
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product returns or discounts; and
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•
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damage to our reputation and brand.
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public sector budgetary cycles and funding authorizations;
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•
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changes in fiscal or contracting policies;
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decreases in available government funding;
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changes in government programs or applicable requirements;
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•
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the adoption of new laws or regulations or changes to existing laws or regulations;
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potential delays or changes in the government appropriations or other funding authorization processes; and
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•
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higher expenses associated with, or delays caused by, diligence and qualifying or maintaining qualification as a government vendor.
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business practices may differ from those in the United States and may require us in the future to include terms other than our standard terms in customer, channel partner, employee, consultant and other contracts;
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political, economic and social instability or uncertainty around the world;
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•
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potential changes in trade relations arising from policy initiatives implemented by, or statements made by, the U.S. government, which has been critical of existing and proposed trade agreements, such as the newly imposed tariffs for Chinese imports to the U.S.;
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•
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greater difficulty in enforcing contracts, judgments and arbitration awards in international courts, and in collecting accounts receivable and longer payment and collection periods;
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greater risk of unexpected changes in regulatory practices, tariffs, and tax laws and treaties;
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risks associated with trade restrictions and foreign legal requirements, including the importation, certification and localization of our solutions required in foreign countries;
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•
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greater risk of a failure of foreign employees, partners, distributors and resellers to comply with both U.S. and foreign laws, including antitrust regulations, the FCPA, the U.K. Bribery Act, U.S. or foreign sanctions regimes and export or import control laws, and any trade regulations ensuring fair trade practices;
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•
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heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements;
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•
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requirements to comply with foreign privacy, data protection and information security laws and regulations and the risks and costs of noncompliance;
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•
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reduced or uncertain protection for intellectual property rights in some countries;
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impediments to the flow of foreign exchange capital payments and receipts due to exchange controls instituted by certain foreign governments;
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•
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increased expenses incurred in establishing and maintaining corporate entities, office space, and equipment for our international operations;
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difficulties in managing and staffing international offices and increased travel, infrastructure and legal compliance costs associated with multiple international locations;
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•
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greater difficulty in identifying, attracting and retaining local experienced personnel, and the costs and expenses associated with such activities;
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•
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the challenge of managing a development team in geographically disparate locations;
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•
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management communication and integration problems resulting from cultural and geographic dispersion;
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•
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differing employment practices and labor relations issues;
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•
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fluctuations in exchange rates between the U.S. dollar and foreign currencies in markets where we do business; and
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•
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treatment of revenue from international sources for tax purposes and changes in tax laws, regulations or official interpretations, including being subject to foreign tax laws and being liable for paying withholding, income or other taxes in foreign jurisdictions.
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•
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If open source software programmers, most of whom we do not employ, do not continue to develop and enhance open source technologies, our development expenses could increase and our product release and upgrade schedules could be delayed.
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•
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Open source software is open to further development or modification by anyone. As a result, others may develop such software to be competitive with our platform, and may make such competitive software available as open source. It is also possible for competitors to develop their own solutions using open source software, potentially reducing the demand for, and putting price pressure on, our solutions.
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•
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The licenses under which we license certain types of open source software may require that, if we modify the open source software we receive, we are required to make such modified software and other related proprietary software of ours publicly available without cost and on the same terms. Accordingly, we monitor our use of open source software in an effort to avoid subjecting our proprietary software to such conditions and others we do not intend. Although we believe that we have complied with our obligations under the various applicable licenses for open source software that we use, our processes used to monitor how open source software is used could be subject to error. In addition, there is little or no legal precedent governing the interpretation of terms in most of these licenses. Therefore, any improper usage of open source could result in unanticipated obligations regarding our solutions and technologies, which could have an adverse impact on our intellectual property rights and our ability to derive revenue from solutions incorporating the open source software.
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•
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If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur legal expenses defending against such allegations, or engineering expenses in developing a substitute solution.
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•
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price and volume fluctuations in the overall stock market from time to time;
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volatility in the market prices and trading volumes of high technology stocks;
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changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;
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changes in financial estimates by any analysts who follow our company, including as a result of our plan to transition our business to focus on more software-only transactions and our announced plan to transition toward a subscription-based model, or our failure to meet these estimates or the expectations of investors;
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•
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the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
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announcements by us or our competitors of new products or new or terminated significant contracts, commercial relationships or capital commitments;
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public analyst or investor reaction to our press releases, other public announcements and filings with the SEC;
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rumors and market speculation involving us or other companies in our industry;
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actual or anticipated changes or fluctuations in our operating results;
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actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;
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actual or threatened litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;
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•
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developments or disputes concerning our intellectual property or our solutions, or third-party proprietary rights;
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•
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rumored, announced or completed acquisitions of businesses or technologies by us or our competitors;
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•
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new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
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changes in accounting standards, policies, guidelines, interpretations or principles;
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•
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any major changes in our management or our Board of Directors;
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•
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general economic conditions and slow or negative growth of our markets; and
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•
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other events or factors, including those resulting from war, incidents of terrorism or responses to these events.
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•
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our amended and restated certificate of incorporation provides for a dual class common stock structure for 17 years following the completion of our IPO;
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•
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a classified Board of Directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our Board of Directors;
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•
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the ability of our Board of Directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
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•
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upon the conversion of our Class A common stock and Class B common stock into a single class of common stock, the exclusive right of our Board of Directors to elect a director 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;
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•
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upon the conversion of our Class A common stock and Class B common stock into a single class of common stock, a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
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•
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the requirement that a special meeting of stockholders may be called only by the chairman of our Board of Directors, our lead independent director, our president, our secretary or a majority vote of our Board of Directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
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•
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the requirement for the affirmative vote of holders of at least 66 2⁄3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the issuance of preferred stock and management of our business or our amended and restated bylaws, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt;
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•
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the ability of our Board of Directors, by majority vote, to amend our amended and restated bylaws, which may allow our Board of Directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend our amended and restated bylaws to facilitate an unsolicited takeover attempt; and
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•
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advance notice procedures with which stockholders must comply to nominate candidates to our Board of Directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
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Date: December 7, 2018
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/s/ Duston M. Williams
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Duston M. Williams
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Chief Financial Officer
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(Principal Financial Officer)
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A.
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Landlord (as successor in interest to CA-Metro Plaza Limited Partnership, a Delaware limited partnership) and Tenant are parties to that certain lease dated April 23, 2014 (the "Original Lease"), as previously amended by that certain First Amendment dated March 23, 2015 ("First Amendment"), by that certain Second Amendment dated January 28, 2016 ("Second Amendment"), by that certain Third Amendment dated July 28, 2016 ("Third Amendment"), and by that certain Fourth Amendment dated April 4, 2018 ("Fourth Amendment") (as amended, the "Lease"). Pursuant to the Lease, Landlord has leased to Tenant space currently containing a total of approximately 28,121 rentable square feet (the "Existing Premises") comprised of approximately 9,716 rentable square feet described as Suite No. 280 located on the second (2nd) floor and approximately 18,405 rentable square feet described as Suite No. 300 located on the third (3rd) floor of the building commonly known as 181 Metro Drive located at 181 Metro Drive, San Jose, California 95110 (the "181 Building").
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B.
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The parties wish to expand the Existing Premises to include a total of approximately 30,531 rentable square feet of additional space comprised of (i) approximately 7,396 rentable square feet described as Suite No. 220 on the second (2nd) floor of the building commonly known as 25 Metro Drive, San Jose, California 95110 (the "25 Building") and shown on Exhibit A attached hereto, and (ii) approximately 23,135 rentable square feet described as the sixth (6th) floor of the 25 Building and shown on Exhibit A attached hereto (collectively, the "First Expansion Space"), on the following terms and conditions.
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C.
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The parties also wish to expand the Existing Premises to include a total of approximately 49,958 rentable square feet comprised of (i) approximately 24,337 rentable square feet described as the 5th floor of the 25 Building, and (ii) approximately 25,621 rentable square feet described as the 4th floor of the 25 Building, as shown on Exhibit B attached hereto (collectively, the "Second Expansion Space"), on the following terms and conditions.
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1.
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The First Expansion.
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7.1
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Effect of the First Expansion. Effective as of the First Expansion Effective Date (defined in Section 1.2 below), the Premises shall be increased by the addition of the First Expansion Space (a total of 30,531 rentable square feet), and, from and after the First Expansion Effective Date, the First Expansion Space shall be deemed part of the "Premises" under the Lease, as amended hereby. The term of the Lease for the First Expansion Space (the "First Expansion Space Term") shall commence on the First Expansion Effective Date and, unless extended or sooner terminated in accordance with the Lease, end on May 31, 2024. From and after the First Expansion Effective Date, the First Expansion Space shall be subject to all the terms and conditions of the Lease except as provided herein. Except as may be expressly provided herein, (a) Tenant shall not be entitled to receive, with respect to the First Expansion Space, any allowance, free rent or other financial concession granted with respect to the Existing Premises, and (b) no representation or warranty made by Landlord with respect to the Existing Premises shall apply to the First Expansion Space.
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7.2
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First Expansion Effective Date. As used herein, "First Expansion Effective Date" means December 1, 2018. During the period beginning on the date of full execution and delivery of this Fifth Amendment and ending on the date immediately preceding the First Expansion Effective Date, Tenant shall have the right to use and access the First Expansion Space, and, during any such period of use or access, all provisions of the Lease relating to the First Expansion Space shall apply as if the First Expansion Effective Date had occurred and Tenant shall be entitled to construct improvements in and/or to conduct business; provided, however, that during such period
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7.3
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Base Rent. With respect to the First Expansion Space during the First Expansion Space Term, the schedule of Base Rent shall be as follows:
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Period during
First Expansion Term
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Annual Rate Per Square Foot (rounded to the nearest 100th of a dollar)
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Monthly Base Rent
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12/1/2018 - 3/31/2019
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$40.20
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$102,278.85
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4/1/2019 - 3/31/2020
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$41.41
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$105,347.21
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4/1/2020 - 3/31/2021
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$42.65
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$108,507.62
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4/1/2021 - 3/31/2022
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$43.93
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$111,762.84
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4/1/2022 - 3/31/2023
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$45.25
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$115,115.72
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4/1/2023 - 3/31/2024
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$46.60
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$118,569.19
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4/1/2024 - 5/31/2024
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$48.00
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$122,126.26
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7.4
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Tenant's Share. With respect to the First Expansion Space during the First Expansion Space Term, Tenant's Share shall be 7.0120%.
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7.5
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Expenses and Taxes. With respect to the First Expansion Space during the First Expansion Term, Tenant shall pay for Tenant's Share of Expenses and Taxes in accordance with the terms of the Lease; provided, however, that, with respect to the First Expansion Space during the First Expansion Space Term, the Base Year for Expenses and Taxes shall be 2019.
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7.6
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Condition of the First Expansion Space.
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A.
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Configuration and Condition of the First Expansion Space. Tenant acknowledges that it has inspected the First Expansion Space and agrees to accept it in its existing configuration and condition, without any representation by Landlord regarding its configuration or condition and without any obligation on the part of Landlord to perform or pay for any alteration or improvement, except as may be otherwise expressly provided in this Fifth Amendment
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B.
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Responsibility for Improvements to the First Expansion Space. Tenant shall be entitled to perform additional improvements in the First Expansion Space, and to receive an allowance from Landlord for such improvements, in accordance with the Work Letter attached to the First Amendment as Exhibit B; provided that (i) the Allowance referenced in Section 1.1 of the Work Letter shall be $55.00 per rentable square foot of the First Expansion Space, (ii) the last sentence of Section 1.1 of the Work Letter shall be revised to the following: "Notwithstanding any contrary provision of this Amendment, if Tenant fails to use a portion of the Allowance by December 31, 2019, then such unused portion of the Allowance shall revert to Landlord and Tenant shall have no further rights with respect thereto", and (iii) the Coordination Fee, referenced in Section 2.3 of the Work Letter shall be 1.5% of the cost of the Tenant Improvement Work. The Tenant Improvement Work payable from the Allowance may be used towards restroom and corridor renovations on the sixth (6th) floor of the 25 Building and any Tenant Improvement Work performed by or on behalf of Tenant in the Second Expansion Space.
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7.7
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Parking. During the First Expansion Space Term with respect to the First Expansion Space, Tenant shall be entitled to use an additional ninety-two (92) unreserved parking spaces in the Parking Facility in accordance with the terms of the Lease.
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2.
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The Second Expansion.
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7.1
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Effect of the Second Expansion. Effective as of the Second Expansion Effective Date (defined in Section 2.2 below), the Premises shall be increased by the addition of the Second Expansion Space (a total of 49,958 rentable square feet), and, from and after the Second Expansion Effective Date, the Second Expansion Space shall be
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7.2
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Second Expansion Effective Date. As used herein, "Second Expansion Effective Date" means April 1, 2019. During the period beginning on the date of full execution and delivery of this Fifth Amendment and ending on the date immediately preceding the Second Expansion Effective Date, Tenant shall have the right to use and access the Second Expansion Space, and, during any such period of use or access, all provisions of the Lease relating to the Second Expansion Space shall apply as if the Second Expansion Effective Date had occurred and Tenant shall be entitled to construct improvements in and/or to conduct business; provided, however, that during such period Tenant shall not be required to pay Base Rent or Tenant's Share of Expenses and Taxes for the Second Expansion Space.
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7.3
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Base Rent. With respect to the Second Expansion Space during the Second Expansion Space Term, the schedule of Base Rent shall be as follows:
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Period during
Second Expansion Term
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Annual Rate Per Square Foot (rounded to the nearest 100th of a dollar)
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Monthly Base Rent
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4/1/2019 - 3/31/2020
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$41.41
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$172,396.73
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4/1/2020 - 3/31/2021
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$42.65
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$177,568.63
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4/1/2021 - 3/31/2022
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$43.93
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$182,895.69
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4/1/2022 - 3/31/2023
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$45.25
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$188,382.56
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4/1/2023 - 3/31/2024
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$46.60
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$194,034.04
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4/1/2024 - 5/31/2024
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$48.00
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$199,855.06
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7.4
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Tenant's Share. With respect to the Second Expansion Space during the Second Expansion Space Term, Tenant's Share shall be 11.4738%.
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7.5
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Expenses and Taxes. With respect to the Second Expansion Space during the Second Expansion Term, Tenant shall pay for Tenant's Share of Expenses and Taxes in accordance with the terms of the Lease; provided, however, that, with respect to the Second Expansion Space during the Second Expansion Space Term, the Base Year for Expenses and Taxes shall be 2019.
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7.6
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Condition of the Second Expansion Space.
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A.
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Configuration and Condition of the Second Expansion Space. Tenant acknowledges that it has inspected the Second Expansion Space and agrees to accept it in its existing configuration and condition, without any representation by Landlord regarding its configuration or condition and without any obligation on the part of Landlord to perform or pay for any alteration or improvement, except as may be otherwise expressly provided in this Fifth Amendment
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B.
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Responsibility for Improvements to the Second Expansion Space. Tenant shall be entitled to perform additional improvements in the Second Expansion Space, and to receive an allowance from Landlord for such improvements, in accordance with the Work Letter attached to the First Amendment as Exhibit B; provided that (i) the Allowance referenced in Section 1.1 of the Work Letter shall be $55.00 per rentable square foot of the Second Expansion Space, (ii) the last sentence of Section 1.1 of the Work Letter shall be revised to the following: "Notwithstanding any contrary provision of this Amendment, if Tenant fails to use a portion of the Allowance by December 31, 2019, then such unused
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7.7
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Parking. During the Second Expansion Space Term with respect to the Second Expansion Space, Tenant shall be entitled to use an additional one hundred fifty (150) unreserved parking spaces in the Parking Facility in accordance with the terms of the Lease.
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3.
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Security Deposit/First Month's Rent. Tenant has previously deposited with Landlord $89,495.08 as a Security Deposit under the Lease. Concurrently with Tenant's execution of this Fifth Amendment, Tenant shall deposit with Landlord an additional $321,981.32, for a total security deposit of $411,476.40. Landlord shall continue to hold the Security Deposit, as increased by this Fifth Amendment, in accordance with the terms and conditions of Section 21 of the Original Lease. In addition, concurrently with Tenant's execution of this Lease, Tenant shall pay to Landlord Monthly Base Rent for the First Expansion Space for the third month of the First Expansion Space Term in the amount of $102,278.85 and shall pay Monthly Base Rent for the Second Expansion Space for the third month Second Expansion Space Term in the amount of $172,396.73.
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4.
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Extension Option. Tenant shall retain the right to further extend the term of the Lease for the entire Premises (including the First Expansion Space and the Second Expansion Space) for one (1) additional period of three (3) years under the terms and conditions of Section 6 of the Fourth Amendment.
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5.
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California Civil Code Section 1938. Pursuant to California Civil Code § 1938, Landlord hereby states that the First Expansion Space and the Second Expansion Space have not undergone inspection by a Certified Access Specialist (CASp) (defined in California Civil Code §55.52) and provides the following notification to Tenant: "A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction related accessibility standards within the premises." In accordance with the foregoing, Landlord and Tenant agree that if Tenant requests a CASp inspection of the First Expansion Space or the Second Expansion Space, then Tenant shall pay (i) the fee for such inspection, and (ii) the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the First Expansion Space and the Second Expansion Space; provided, that, if Tenant is required to obtain such CASp inspection by applicable Law or to avoid any penalty imposed under applicable Law, then the cost of and obligation of making any repairs necessary to correct violations of construction-related accessibility standards within the First Expansion Space and the Second Expansion Space shall be governed by the provisions of the Lease.
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6.
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Building-Top Signage. Subject to this Section 6, Tenant may, at Tenant's sole cost and expense, install one (1) building-top sign on an elevation of the 25 Building ("Tenant's Building-Top Signage"). The graphics, materials, size, color, design, lettering, lighting (if any), specifications and exact location of Tenant's Building-Top Signage (collectively, the "Signage Specifications") shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned, or delayed. In addition, the Tenant's Building-Top Signage and all Signage Specifications therefor shall be subject to Tenant's receipt of all required governmental permits and approvals and shall be subject to all applicable governmental laws and ordinances. Installation of the Building-Top Signage shall not include drilling into the granite exterior panels of the 25 Building. Tenant hereby acknowledges that, notwithstanding Landlord's approval of the Tenant's Building-Top Signage and/or the Signage Specifications therefor, Landlord has made no representations or warranty to Tenant with respect to the probability of obtaining such approvals and permits. In the event Tenant does not receive the necessary permits and approvals for Tenant's Building-Top Signage, Tenant's and Landlord's rights and obligations under the remaining provisions of the Lease, as amended hereby, shall not be affected. Landlord shall reasonably cooperate with Tenant, at no cost to Landlord, to assist Tenant in applying for the proper permits and approvals. The cost of installation of Tenant's Building-Top Signage, as well as all costs of design and construction of Tenant's Building-Top Signage and all other costs associated with Tenant's Building-Top Signage, including, without limitation, permits, maintenance and repair, shall be the sole responsibility of Tenant. Notwithstanding anything to the contrary contained herein, in the event that at any time Tenant fails to lease at least 82,989 rentable square feet in the 25 Building, Tenant's right to Tenant's Building-Top Signage shall thereupon terminate and Tenant shall remove Tenant's Building-Top Signage as provided in this Section 6 below. The rights to Tenant's Building-Top Signage shall be personal
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7.
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Miscellaneous.
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7.1
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This Fifth Amendment and the attached exhibits, which are hereby incorporated into and made a part of this Fifth Amendment, set forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. Tenant shall not be entitled, in connection with entering into this Fifth Amendment, to any free rent, allowance, alteration, improvement or similar economic incentive to which Tenant may have been entitled in connection with entering into the Lease, except as may be otherwise expressly provided in this Fifth Amendment.
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7.2
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Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect.
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7.3
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In the case of any inconsistency between the provisions of the Lease and this Fifth Amendment, the provisions of this Fifth Amendment shall govern and control.
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7.4
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Submission of this Fifth Amendment by Landlord is not an offer to enter into this Fifth Amendment but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this Fifth Amendment until Landlord has executed and delivered it to Tenant.
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7.5
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Capitalized terms used but not defined in this Fifth Amendment shall have the meanings given in the Lease.
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7.6
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Tenant shall indemnify and hold Landlord, its trustees, members, principals, beneficiaries, partners, officers, directors, employees, mortgagee(s) and agents, and the respective principals and members of any such agents harmless from all claims of any brokers, other than Savills Studley, claiming to have represented Tenant in connection with this Fifth Amendment. Landlord shall indemnify and hold Tenant, its trustees, members, principals, beneficiaries, partners, officers, directors, employees, and agents, and the respective principals and members of any such agents harmless from all claims of any brokers claiming to have represented Landlord in connection with this Fifth Amendment. Tenant acknowledges that any assistance rendered by any agent or employee of any affiliate of Landlord in connection with this Fifth Amendment has been made as an accommodation to Tenant solely in furtherance of consummating the transaction on behalf of Landlord, and not as agent for Tenant.
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7.7
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Landlord represents and warrants to Tenant that no Security Agreement which is secured by the 25 Building exists on the date hereof. Tenant acknowledges and agrees that Landlord leases the land underlying the Project pursuant to a ground lease (the "Ground Lease") under which Landlord currently is the lessee and the lessor. Landlord and Tenant agree that in the event of any merger of the ground leasehold interest with fee ownership
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7.8
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This Fifth Amendment may be executed in any number of duplicate originals, all of which shall be of equal legal force and effect. Additionally, this Fifth Amendment may be executed in counterparts, but shall become effective only after each party has executed a counterpart hereof; all said counterparts when taken together, shall constitute the entire single agreement between the parties. This Fifth Amendment may be executed by a party's signature transmitted by portable document format ("pdf") or email or by a party's electronic signature (collectively, "pdf Signatures"), and copies of this Fifth Amendment executed and delivered by electronic means or originals of this Fifth Amendment executed by pdf Signature shall have the same force and effect as copies hereof executed and delivered with original wet signatures. All parties hereto may rely upon emailed or pdf Signatures as if such signatures were original wet signatures. Any party executing and delivering this Fifth Amendment by pdf or email shall promptly thereafter deliver a counterpart signature page of this Fifth Amendment containing said party's original signature. All parties hereto agree that a pdf or emailed signature page or a pdf Signature may be introduced into evidence in any proceeding arising out of or related to this Fifth Amendment as if it were an original wet signature page.
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LANDLORD:
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HUDSON METRO PLAZA, LLC,
a Delaware limited liability company
By:Hudson Pacific Properties, L.P.,
a Maryland limited partnership,
its sole member
By:Hudson Pacific Properties, Inc.,
a Maryland corporation,
its general partner
By: /s/ Mark T. Lammas
Name: Mark T. Lammas
Title: Chief Operating Officer,
Chief Financial Officer & Treasurer
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TENANT:
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NUTANIX, INC.,
a Delaware corporation,
By: /s/ Kenneth Long
Name: Kenneth Long
Title: VP, Corporate Controller and Chief Accounting Officer
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1.
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BASIC LEASE INFORMATION
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2.
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PREMISES, DELIVERY DATE, COMMON AREAS, RELOCATION OF EXISTING TENANT, MUST TAKE SPACE
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3.
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RENT
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4.
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EXPENSES AND TAXES
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5.
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USE; COMPLIANCE WITH LAWS
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6.
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SERVICES
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7.
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REPAIRS AND ALTERATIONS
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8.
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LANDLORD'S PROPERTY
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9.
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LIENS
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10.
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INDEMNIFICATION; INSURANCE
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11.
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CASUALTY DAMAGE
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12.
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NONWAIVER
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13.
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CONDEMNATION
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14.
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ASSIGNMENT AND SUBLETTING
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15.
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SURRENDER
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16.
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HOLDOVER
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17.
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SUBORDINATION; ESTOPPEL CERTIFICATES
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18.
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ENTRY BY LANDLORD
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19.
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DEFAULTS; REMEDIES
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20.
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LANDLORD EXCULPATION
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21.
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SECURITY DEPOSIT
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22.
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INTENTIONALLY OMITTED
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23.
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COMMUNICATIONS AND COMPUTER LINES
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24.
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PARKING
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25.
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MISCELLANEOUS
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1.
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BASIC LEASE INFORMATION.
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1.1 Date:
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September 5, 2018
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1.2 Premises.
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1.2.1 "Building":
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1741 Technology Drive, San Jose, California, commonly known as The Concourse V.
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1.2.2 "Premises":
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Subject to Section 2.1.1, 7,934 rentable square feet commonly known as "Suite 100," the outline and location of which is set forth in Exhibit A. Pursuant to Section 2.3, the Premises shall be increased to include Suite 130 upon the Suite 130 Expansion Effective Date. Pursuant to Section 2.4, the Premises shall be further increased to include the Must Take Space upon the Must Take Effective Date. If the Premises include any floor in its entirety, all corridors and restroom facilities located on such floor shall be considered part of the Premises. If Tenant combines Suite 100 with Suite 130, the combined suite will then be known as Suite 100.
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1.2.3 "Property":
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The Building, the parcel(s) of land upon which it is located, and, at Landlord's discretion, any parking facilities and other improvements serving the Building and the parcel(s) of land upon which such parking facilities and other improvements are located.
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1.2.4 "Project":
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The Property or, at Landlord's discretion, any project containing the Property and any other land, buildings or other improvements.
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1.3 Term
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1.3.1 Term:
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The term of this Lease (the "Term") be approximately sixty‑eight (68) months and shall begin on the Commencement Date and expire on the Expiration Date (or any earlier date on which this Lease is terminated as provided herein).
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1.3.2 "Commencement Date":
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October 1, 2018.
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1.3.3 "Expiration Date":
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May 31, 2024.
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1.5 Intentionally Omitted
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1.6 "Tenant's Share":
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Initially 5.6177% (based upon 7,934 rentable square feet contained in Suite 100 and a total of 141,233 rentable square feet in the Building), subject to Section 2.1.1. Upon the Suite 130 Expansion Effective Date, Tenant's Share shall be increased to 10.1605%. Upon the Must Take Effective Date, Tenant's Share shall be increased to 30.6444%.
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1.7 "Permitted Use":
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General office and administrative use consistent with a first-class office building.
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1.8 "Security Deposit":
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$132,443.70, as more particularly described in Section 21.
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Prepaid Base Rent:
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$132,443.70, as more particularly described in Section 3.
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Prepaid Additional Rent:
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$43,278.79, as more particularly described in Section 3.
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1.9 Parking:
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Fourteen (14) unreserved parking spaces at the rate of $0.00 per month (increased to thirty-two (32) unreserved parking spaces at the rate of $0.00 per month upon the Suite 130 Expansion Effective Date and further increased to ninety-five (95) unreserved parking spaces at the rate of $0.00 per month on the Must Take Effective Date).
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1.10 Address of Tenant:
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Nutanix, Inc.
1740 Technology Drive, Suite 150
San Jose, CA 95110
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1.11 Address of Landlord:
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Hudson Concourse, LLC
c/o Hudson Pacific Properties
2055 Gateway Place, Suite 200
San Jose, CA 95110
Attn: Building Manager
with copies to:
Hudson Concourse, LLC
c/o Hudson Pacific Properties
950 Tower Lane, Suite 1800
Foster City, CA 94404
Attn: Managing Counsel
and
Hudson Concourse, LLC
c/o Hudson Pacific Properties
11601 Wilshire Boulevard, Suite 900
Los Angeles, California 90025
Attn: Lease Administration
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1.12 Broker(s):
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Savills-Studley ("Tenant's Broker"), representing Tenant, and Colliers International ("Landlord's Broker"), representing Landlord.
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1.13 Building HVAC Hours and Holidays:
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"Building HVAC Hours" means 8:00 a.m. to 6:00 p.m., Monday through Friday, excluding the day of observation of New Year's Day, Presidents Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day, and, at Landlord's discretion, any other locally or nationally recognized holiday that is observed by other Comparable Buildings (defined in Section 25.10) (collectively, "Holidays").
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1.14 "Tenant Improvements":
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Defined in Exhibit B, if any.
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1.15 "Guarantor":
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As of the date hereof, there is no Guarantor.
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2.
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PREMISES, , COMMON AREAS, SUITE 130 EXPANSION SPACE, MUST TAKE SPACE.
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|
LANDLORD:
HUDSON CONCOURSE, LLC,
a Delaware limited liability company
By: Hudson Pacific Properties, L.P.,
a Maryland limited partnership,
its sole member
By: Hudson Pacific Properties, Inc.,
a Maryland corporation,
its general partner
By: /s/ Mark T. Lammas
Name: Mark T. Lammas
Title: Chief Operating Officer,
Chief Financial Officer & Treasurer
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|
TENANT:
NUTANIX, INC., a Delaware corporation
By: /s/ Kenneth Long
Name: Kenneth Long
Title: VP, Coprorate Contoller and Chief Accounting Officer
By:
Name:
Title:
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(i)
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"Tenant Improvements" means all improvements to be constructed in the Premises (including all corridors and restroom facilities located on each floor of the Premises), pursuant to this Work Letter. Any proposed improvements to such corridors and restroom facilities shall be in conformance with the Building-standard specifications and finishes for the Common Areas and shall be subject to Landlord's review and approval under Section 2.2 of this Work Letter below;
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(ii)
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"Tenant Improvement Work" means the construction of the Tenant Improvements, together with any related work (including demolition) that is necessary to construct the Tenant Improvements;
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(iii)
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"law" means Law; and
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(iv)
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"Agreement" means the amendment of which this Work Letter is a part.
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1.
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ALLOWANCE.
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2.
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MISCELLANEOUS.
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To:
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_______________________
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1.
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The Commencement Date is _____________ and the Expiration Date is _______________.
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2.
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The exact number of rentable square feet within the Premises is _________ square feet, subject to Section 2.1.1 of the Lease.
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3.
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Tenant's Share, based upon the exact number of rentable square feet within the Premises, is ____________%, subject to Section 2.1.1 of the Lease.
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"Landlord":
_______________________________,
a ______________________________
By:
Name:
Title:
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Agreed and Accepted as of , 20 .
"Tenant":
_______________________________,
a ______________________________
By:
Name:
Title:
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1.
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California Civil Code Section 1938. Pursuant to California Civil Code § 1938, Landlord hereby states that the Premises has not undergone inspection by a Certified Access Specialist (CASp) (defined in California Civil Code § 55.52). Accordingly, pursuant to California Civil Code § 1938(e), Landlord hereby further states as follows: "A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises". In accordance with the foregoing, Landlord and Tenant agree that if Tenant requests a CASp inspection of the Premises, then Tenant shall pay (i) the fee for such inspection, and (ii) the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the Premises; provided, that, if Tenant is required to obtain such CASp inspection by applicable Law or to avoid any penalty imposed under applicable Law, then the cost of and obligation for making any repairs necessary to correct violations of construction-related accessibility standards within the Premises shall be governed by the provisions of this Lease.
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2.
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Extension Option.
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(a)
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not less than 12 and not more than 15 full calendar months before the expiration date of the Lease, Tenant delivers written notice to Landlord (the "Extension Notice") electing to exercise the Extension Option and stating Tenant's estimate of the Prevailing Market (defined in Section 2.5 below) rate for the Extension Term;
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(b)
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no Default exists when Tenant delivers the Extension Notice;
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(c)
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no part of the Premises is sublet (other than to an Affiliate of Tenant) when Tenant delivers the Extension Notice; and
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(d)
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the Lease has not been assigned (other than pursuant to a Permitted Transfer) before Tenant delivers the Extension Notice.
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(a)
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During the Extension Term, (a) the Base Rent rate per rentable square foot shall be equal to the Prevailing Market rate per rentable square foot; (b) Base Rent shall increase, if at all, in accordance with the increases assumed in the determination of Prevailing Market rate; and (c) Base Rent shall be payable in monthly installments in accordance with the terms and conditions of the Lease.
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(b)
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During the Extension Term, Tenant shall pay Tenant's Share of Expenses and Taxes for the Premises in accordance with the Lease.
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2.3
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Procedure for Determining Prevailing Market.
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(a)
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Initial Procedure. Within thirty (30) days after receiving the Extension Notice, Landlord shall give Tenant either (i) written notice ("Landlord's Binding Notice") accepting Tenant's estimate of the Prevailing Market rate for the Extension Term stated in the Extension Notice, or (ii) written notice ("Landlord's Rejection Notice") rejecting such estimate and stating Landlord's estimate of the Prevailing Market rate for the Extension Term. If Landlord gives Tenant a Landlord's Rejection Notice,
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(b)
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Dispute Resolution Procedure.
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1.
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If, within 30 days after delivery of a Tenant's Rejection Notice, the parties fail to agree in writing upon the Prevailing Market rate, Landlord and Tenant, within five (5) days thereafter, shall each simultaneously submit to the other, in a sealed envelope, its good faith estimate of the Prevailing Market rate for the Extension Term (collectively, the "Estimates"). Within seven (7) days after the exchange of Estimates, Landlord and Tenant shall each select a broker or agent (an "Agent") to determine which of the two Estimates most closely reflects the Prevailing Market rate for the Extension Term. Each Agent so selected shall be licensed as a real estate broker or agent and in good standing with the California Department of Real Estate, and shall have at least five (5) years' experience within the previous 10 years as a commercial real estate broker or agent working in San Jose, California, with working knowledge of current rental rates and leasing practices relating to buildings similar to the Building.
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2.
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If each party selects an Agent in accordance with Section 2.3(b)(1) above, the parties shall cause their respective Agents to work together in good faith to agree upon which of the two Estimates most closely reflects the Prevailing Market rate for the Extension Term. The Estimate, if any, so agreed upon by such Agents shall be final and binding on both parties as the Prevailing Market rate for the Extension Term and may be entered in a court of competent jurisdiction. If the Agents fail to reach such agreement within 20 days after their selection, then, within 10 days after the expiration of such 20-day period, the parties shall instruct the Agents to select a third Agent meeting the above criteria (and if the Agents fail to agree upon such third Agent within 10 days after being so instructed, either party may cause a court of competent jurisdiction to select such third Agent). Promptly upon selection of such third Agent, the parties shall instruct such Agent (or, if only one of the parties has selected an Agent within the 7-day period described above, then promptly after the expiration of such 7-day period the parties shall instruct such Agent) to determine, as soon as practicable but in any case within 14 days after his selection, which of the two Estimates most closely reflects the Prevailing Market rate. Such determination by such Agent (the "Final Agent") shall be final and binding on both parties as the Prevailing Market rate for the Extension Term and may be entered in a court of competent jurisdiction. If the Final Agent believes that expert advice would materially assist him, he may retain one or more qualified persons to provide such expert advice. The parties shall share equally in the costs of the Final Agent and of any experts retained by the Final Agent. Any fees of any other broker, agent, counsel or expert engaged by Landlord or Tenant shall be borne by the party retaining such broker, agent, counsel or expert.
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(c)
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Adjustment. If the Prevailing Market rate has not been determined by the commencement date of the Extension Term, Tenant shall pay Base Rent for the Extension Term upon the terms and conditions in effect during the last month ending on or before the expiration date of the Lease until such time as the Prevailing Market rate has been determined. Upon such determination, the Base Rent for the Extension Term shall be retroactively adjusted. If such adjustment results in an under- or overpayment of Base Rent by Tenant, Tenant shall pay Landlord the amount of such underpayment, or receive a credit in the amount of such overpayment, with or against the next Base Rent due under the Lease.
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2.4
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Extension Amendment. If Tenant is entitled to and properly exercises its Extension Option, and if the Prevailing Market rate for the Extension Term is determined in accordance with Section 2.3 above, Landlord, within a reasonable time thereafter, shall prepare and deliver to Tenant an amendment (the "Extension Amendment") reflecting changes in the Base Rent, the Term, the expiration date of the Lease, and other appropriate terms in accordance with this Section 2, and Tenant shall execute and return (or provide Landlord with reasonable objections to) the Extension Amendment within thirty (30) days after receiving it. Notwithstanding the foregoing, upon determination of the Prevailing Market rate for the Extension Term in accordance with Section 2.3 above,
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2.5
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Definition of Prevailing Market. For purposes of this Extension Option, "Prevailing Market" shall mean the arms-length, fair-market, annual rental rate per rentable square foot under extension and renewal leases and amendments entered into on or about the date on which the Prevailing Market is being determined hereunder for space comparable to the Premises in the Building and office buildings comparable to the Building in the immediate vicinity of the Building in San Jose, California. The determination of Prevailing Market shall take into account (i) any material economic differences between the terms of the Lease and any comparison lease or amendment, such as rent abatements, construction costs and other concessions, and the manner, if any, in which the landlord under any such lease is reimbursed for operating expenses and taxes; (ii) any material differences in configuration or condition between the Premises and any comparison space, including any cost that would have to be incurred in order to make the configuration or condition of the comparison space similar to that of the Premises; and (iii) any reasonably anticipated changes in the Prevailing Market rate from the time such Prevailing Market rate is being determined and the time such Prevailing Market rate will become effective under the Lease.
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1.
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The Parties agree that Exhibit C is deleted in its entirety and replaced with the following:
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1.
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As stated in Section 9.1 of the Agreement, OEM has no inventory liability inventory other than the Non-Standard Material, which is described in the spreadsheet attached to this Amendment 2.
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2.
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Where a component in the list of Non-Standard Material is listed in the “Nutanix Liability” column as being “[***] of On Hand Value & On Order to Lead Time”, Nutanix shall only have liability of [***] of the price of the relevant Non-Standard Material component.
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3.
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No other changes are made to the Agreement, and following the Amendment Two Effective Date, all references to the “Agreement” shall mean the Agreement as amended by this Amendment Two.
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Supermicro Part Number
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Nutanix Part Number
|
Lead Time (Work Days)
|
Nutanix Liability
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Cost $
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1.
|
EQUITY COMPENSATION
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Board Member:
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$330,000
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Lead Independent Director:
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$20,000
|
|
|
|
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Committee Awards:
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Chair
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Member
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Audit
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$25,000
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$12,500
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Compensation
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$20,000
|
$10,000
|
Nominating and Governance
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$10,000
|
$5,000
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2.
|
TRAVEL EXPENSES
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3.
|
ADDITIONAL PROVISIONS
|
4.
|
REVISIONS
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Nutanix, Inc.;
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2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
|
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
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(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(c)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
|
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Date: December 7, 2018
|
|
/s/ Dheeraj Pandey
|
|
|
Dheeraj Pandey
|
|
|
Chairman and Chief Executive Officer
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|
|
(Principal Executive Officer)
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Nutanix, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
|
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(c)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
|
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: December 7, 2018
|
|
/s/ Duston M. Williams
|
|
|
Duston M. Williams
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
Date: December 7, 2018
|
|
/s/ Dheeraj Pandey
|
|
|
Dheeraj Pandey
|
|
|
Chairman and Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
Date: December 7, 2018
|
|
/s/ Duston M. Williams
|
|
|
Duston M. Williams
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial Officer)
|