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REVENUE, DEFERRED REVENUE AND DEFERRED COMMISSIONS | 12 Months Ended
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Jul. 31, 2018
Revenue from Contract with Customer [Abstract] |
REVENUE, DEFERRED REVENUE AND DEFERRED COMMISSIONS | REVENUE, DEFERRED REVENUE AND DEFERRED COMMISSIONS Revenue Recognition Effective August 1, 2017, we adopted ASC 606 using the full retrospective method, which required a recast of historical financial information to conform with the standard. The most significant impact of ASC 606 on our historical financial information relates to the timing of revenue recognition for certain software licenses sold with PCS, for which we did not have vendor specific objective evidence ("VSOE") of fair value under the previous revenue recognition guidance. Under ASC 606, the requirement to have VSOE for undelivered elements was eliminated and we now recognize revenue for such software licenses upon transfer of control to the customer. In addition, the adoption of ASC 606 also resulted in differences in the timing of recognition of contract costs, such as sales commissions, as well as the corresponding impact to the provision for income taxes. The adoption of the standard had no significant impact on the provision for income taxes and had no impact on the net cash from or used in operating, investing or financing activities on the consolidated statements of cash flows. See "ASC 606 Adoption Impact to Previously Reported Results" below for the impact of the adoption of the standard on the consolidated financial statements. ASC 606 Adoption Impact to Previously Reported Results We adjusted our consolidated financial statements from amounts previously reported due to the adoption of ASC 606. Selected consolidated balance sheet line items, adjusted for the adoption of ASC 606, are as follows:
| As of July 31, 2017
| As Previously Reported |  | Impact of Adoption |  | As Adjusted
| (in thousands)
Assets |  |  |  |  |
Deferred commissions—current | $ | 27,679 |  |  | $ | (3,836 | ) | (1) | $ | 23,843 |
Deferred commissions—non-current | 33,709 |  |  | 15,975 |  | (1) | 49,684 |
Total deferred commissions | $ | 61,388 |  |  | $ | 12,139 |  |  | $ | 73,527 |
Liabilities |  |  |  |  |
Deferred revenue—current | $ | 233,498 |  |  | $ | (63,375 | ) | (2) | $ | 170,123 |
Deferred revenue—non-current | 292,573 |  |  | (93,640 | ) | (2) | 198,933 |
Total deferred revenue | $ | 526,071 |  |  | $ | (157,015 | ) |  | $ | 369,056 |
Accrued expenses and other current liabilities | $ | 9,414 |  |  | $ | 293 |  | (3) | $ | 9,707 |
Stockholders' Equity | $ | 48,202 |  |  | $ | 168,861 |  |  | $ | 217,063 |
(1) | Impact of cumulative change in commissions expense
(2) | Impact of cumulative change in revenue
(3) | Impact of cumulative change in provision for income taxes
Selected consolidated statement of operations line items, adjusted for the adoption of ASC 606, are as follows:
| Fiscal Year Ended July 31, 2016
| As Previously Reported |  | Impact of Adoption |  | As Adjusted
| (in thousands, except per share data)
Revenue |  |  |  |  |
Product | $ | 350,798 |  |  | $ | 63,112 |  |  | $ | 413,910 |
Support, entitlements and other services | 94,130 |  |  | (4,630 | ) |  | 89,500 |
Total revenue | $ | 444,928 |  |  | $ | 58,482 |  |  | $ | 503,410 |
Gross profit | $ | 274,141 |  |  | $ | 58,482 |  |  | $ | 332,623 |
Operating expenses |  |  |  |  |
Sales and marketing expenses | $ | 288,493 |  |  | $ | (1,909 | ) |  | $ | 286,584 |
Loss from operations | $ | (165,017 | ) |  | $ | 60,391 |  |  | $ | (104,626 | )
Net loss | $ | (168,499 | ) |  | $ | 60,266 |  |  | $ | (108,233 | )
Basic and diluted net loss per share | $ | (3.83 | ) |  | $ | 1.37 |  |  | $ | (2.46 | )
| Fiscal Year Ended July 31, 2017
| As Previously Reported |  | Impact of Adoption |  | As Adjusted
| (in thousands, except per share data)
Revenue |  |  |  |  |
Product | $ | 583,011 |  |  | $ | 90,286 |  |  | $ | 673,297 |
Support, entitlements and other services | 183,858 |  |  | (11,252 | ) |  | 172,606 |
Total revenue | $ | 766,869 |  |  | $ | 79,034 |  |  | $ | 845,903 |
Gross profit | $ | 439,538 |  |  | $ | 79,034 |  |  | $ | 518,572 |
Operating expenses |  |  |  |  |
Sales and marketing expenses | $ | 500,529 |  |  | $ | 492 |  |  | $ | 501,021 |
Loss from operations | $ | (426,951 | ) |  | $ | 78,542 |  |  | $ | (348,409 | )
Net loss | $ | (458,011 | ) |  | $ | 78,373 |  |  | $ | (379,638 | )
Basic and diluted net loss per share | $ | (3.57 | ) |  | $ | 0.61 |  |  | $ | (2.96 | )
Revenue by geographic location, based on bill-to location, adjusted for the adoption of ASC 606, is as follows:
| Fiscal Year Ended July 31, 2016
| As Previously Reported |  | Impact of Adoption |  | As Adjusted
| (in thousands)
U.S. | $ | 280,800 |  |  | $ | 38,496 |  |  | $ | 319,296 |
Europe, the Middle East and Africa | 81,320 |  |  | (15,721 | ) |  | 65,599 |
Asia Pacific | 63,610 |  |  | 33,113 |  |  | 96,723 |
Other Americas | 19,198 |  |  | 2,594 |  |  | 21,792 |
Total revenue | $ | 444,928 |  |  | $ | 58,482 |  |  | $ | 503,410 |
| Fiscal Year Ended July 31, 2017
| As Previously Reported |  | Impact of Adoption |  | As Adjusted
| (in thousands)
U.S. | $ | 462,770 |  |  | $ | 25,309 |  |  | $ | 488,079 |
Europe, the Middle East and Africa | 139,170 |  |  | (355 | ) |  | 138,815 |
Asia Pacific | 131,921 |  |  | 54,943 |  |  | 186,864 |
Other Americas | 33,008 |  |  | (863 | ) |  | 32,145 |
Total revenue | $ | 766,869 |  |  | $ | 79,034 |  |  | $ | 845,903 |
Selected consolidated statement of cash flows line items, adjusted for the adoption of ASC 606, are as follows:
| Fiscal Year Ended July 31, 2016
| As Previously Reported |  | Impact of Adoption |  | As Adjusted
| (in thousands)
Cash flows from operating activities: |  |  |  |  |
Net loss | $ | (168,499 | ) |  | $ | 60,266 |  |  | $ | (108,233 | )
Adjustments to reconcile net loss to net cash provided by operating activities: |  |  |  |  |
Deferred commissions | $ | (19,813 | ) |  | $ | (1,911 | ) |  | $ | (21,724 | )
Accrued expenses and other liabilities | $ | (1,336 | ) |  | $ | 127 |  |  | $ | (1,209 | )
Deferred revenue | $ | 192,867 |  |  | $ | (58,482 | ) |  | $ | 134,385 |
| Fiscal Year Ended July 31, 2017
| As Previously Reported |  | Impact of Adoption |  | As Adjusted
| (in thousands)
Cash flows from operating activities: |  |  |  |  |
Net loss | $ | (458,011 | ) |  | $ | 78,373 |  |  | $ | (379,638 | )
Adjustments to reconcile net loss to net cash provided by operating activities: |  |  |  |  |
Deferred commissions | $ | (24,495 | ) |  | $ | 489 |  |  | $ | (24,006 | )
Accrued expenses and other liabilities | $ | 4,944 |  |  | $ | 172 |  |  | $ | 5,116 |
Deferred revenue | $ | 223,598 |  |  | $ | (79,034 | ) |  | $ | 144,564 |
The core principle of ASC 606 is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. This principle is achieved by applying the following five-step approach:
• | Identification of the contract, or contracts, with a customer — A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
• | Identification of the performance obligations in the contract — Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or services either on their own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods or services, we apply judgment to determine whether promised goods or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised goods or services are accounted for as a combined performance obligation.
• | Determination of the transaction price — The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods or services to the customer.
• | Allocation of the transaction price to the performance obligations in the contract — If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price ("SSP"). We determine SSP based on the price at which the performance obligation is sold separately. If the SSP is not observable through past transactions, we estimate the SSP, taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
• | Recognition of revenue when, or as, performance obligations are satisfied — We satisfy performance obligations either over time or at a point in time, as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied with the transfer of a promised good or service to a customer.
Disaggregation of Revenue We generate revenue primarily from the sale of our enterprise cloud platform, which can be delivered pre-installed on an appliance that is configured to order or delivered separately to be utilized on a variety of certified hardware platforms. Software delivered on configured to order appliances is not portable to other appliances and has a term equal to the life of the associated appliance, while separately purchased software typically has a term of one to five years. For the fiscal year ended July 31, 2018, the weighted average term for such software licenses was approximately 3.5 years. Configured to order appliances, including our Nutanix-branded NX hardware line, can be purchased from one of our OEM partners or directly from Nutanix. Our platform is typically purchased with one or more years of support and entitlements, which includes the right to software upgrades and enhancements as well as technical support. A substantial portion of sales are made through channel partners and OEM relationships. The following table depicts the disaggregation of revenue by revenue type, consistent with how we evaluate our financial performance:
| Fiscal Year Ended July 31,
| 2016 |  | 2017 |  | 2018
| (in thousands)
Software revenue | $ | 287,603 |  |  | $ | 436,981 |  |  | $ | 630,675 |
Hardware revenue | 126,307 |  |  | 236,316 |  |  | 257,314 |
Support, entitlements and other services revenue | 89,500 |  |  | 172,606 |  |  | 267,468 |
Total revenue | $ | 503,410 |  |  | $ | 845,903 |  |  | $ | 1,155,457 |
Software revenue — A majority of our product revenue is generated from the sale of our enterprise cloud platform. We also sell renewals of previously purchased software licenses. Revenue from our software products is generally recognized upon transfer of control to the customer, which is typically upon shipment for sales including a hardware appliance, or upon making the software available to our customers when not sold with an appliance. Hardware revenue — In transactions where we deliver the hardware appliance, we consider ourselves to be the principal in the transaction and we record revenue and costs of goods sold on a gross basis. We consider the amount allocated to hardware revenue to be equivalent to the cost of the hardware procured. Hardware revenue is generally recognized upon transfer of control to the customer. Support, entitlements and other services revenue — We generate our support, entitlements and other services revenue primarily from software entitlement and support subscriptions, which include the right to software upgrades and enhancements as well as technical support. The majority of our product sales are sold in conjunction with software entitlement and support subscriptions, with terms ranging from one to five years. Occasionally, we also sell professional services with our products. We recognize revenue from software entitlement and support contracts ratably over the contractual service period. The service period typically commences upon transfer of control of the corresponding products to the customer. We recognize revenue related to professional services as they are performed. Contracts with multiple performance obligations — Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative SSP basis. For deliverables that are routinely sold separately, such as support and maintenance on our core offerings, SSP is determined by evaluating the standalone sales over the trailing 12 months. For those that are not sold routinely, SSP is determined based on overall pricing trends and objectives, taking into consideration market conditions and other factors, including the value of our contracts, the products sold and geographic locations. Contract balances — The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. A receivable is recognized in the period goods are delivered or services are provided, or when the right to consideration is unconditional. Payment terms on invoiced amounts are typically 30 days. The balance of accounts receivable, net of allowance for doubtful accounts, as of July 31, 2017 and 2018 is presented in the accompanying consolidated balance sheets. Costs to obtain and fulfill a contract — We capitalize commissions paid to sales personnel and the related payroll taxes when customer contracts are signed. These costs are recorded as deferred commission expense in the consolidated balance sheets, current and non-current. We determine whether costs should be deferred based on our sales compensation plans, if the commissions are incremental and would not have been incurred absent the execution of the customer contract. Sales commissions for renewals of customer contracts are not commensurate with the commissions paid for the acquisition of the initial contract given the substantive difference in commission rates in proportion to their respective contract values. Commissions paid upon the initial acquisition of a contract are amortized over the estimated period of benefit, which may exceed the term of the initial contract. Accordingly, the amortization of deferred costs is recognized on a systematic basis that is consistent with the pattern of revenue recognition allocated to each performance obligation and included in sales and marketing expense in the consolidated statements of operations. We determine the estimated period of benefit by evaluating the expected renewals of customer contracts, the duration of relationships with our customers, customer retention data, our technology development lifecycle, and other factors. Deferred costs are periodically reviewed for impairment. Deferred revenue — We record deferred revenue when cash payments are received in advance of performance. The current portion of deferred revenue represents the amounts that are expected to be recognized as revenue within one year of the consolidated balance sheet date. Significant changes in the balance of deferred revenue (contract liability) and total deferred commissions (contract asset) for the periods presented are as follows:
| Deferred Revenue |  | Deferred Commissions
| (in thousands)
Balance as of July 31, 2016 | $ | 218,481 |  |  | $ | 49,522 |
Additions | 317,170 |  |  | 101,152 |
Revenue/commissions recognized | (172,606 | ) |  | (77,147 | )
Assumed in a business combination | 6,011 |  |  | — |
Balance as of July 31, 2017 (1) | 369,056 |  |  | 73,527 |
Additions | 529,495 |  |  | 150,122 |
Revenue/commissions recognized | (267,468 | ) |  | (109,270 | )
Assumed in a business combination | 124 |  |  | — |
Balance as of July 31, 2018 | $ | 631,207 |  |  | $ | 114,379 |
(1) | See details above for a summary of adjustments to deferred commissions and deferred revenue as a result of the adoption of ASC 606.
Of the $114.4 million deferred commissions balance as of July 31, 2018, we expect to recognize approximately 29% as commission expense over the next 12 months, and the remainder thereafter. During the fiscal year ended July 31, 2017, we recognized revenue of approximately $101.6 million pertaining to amounts deferred as of July 31, 2016. During the fiscal year ended July 31, 2018, we recognized revenue of approximately $170.1 million pertaining to amounts deferred as of July 31, 2017. The majority of our contracted but not invoiced performance obligations are subject to cancellation terms. Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized ("contracted not recognized"), which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenue in future periods and excludes performance obligations that are subject to cancellation terms. Contracted not recognized revenue was approximately $657.1 million as of July 31, 2018, of which we expect to recognize approximately 45% over the next 12 months, and the remainder thereafter.

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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