REVENUE, DEFERRED REVENUE AND DEFERRED COMMISSIONS

9 Months Ended

Apr. 30, 2019

Revenue Recognition and Deferred Revenue [Abstract]

REVENUE, DEFERRED REVENUE AND DEFERRED COMMISSIONS

ue and Revenue Recognition

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 subscription term-based licenses typically have a term of one to five years. Configured to order appliances, including our Nutanix-branded NX hardware line, are typically sold through Partners and can be purchased from one of our OEMs 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:



	Three Months Ended April 30,				Nine Months Ended April 30,
	2018		2019		2018		2019
	(in thousands)
Subscription	$	80,105	$	168,447	$	216,668	$	452,779
Non-portable software	140,879		88,719		396,986		366,910
Hardware	62,617		21,853		221,454		92,319
Professional services	5,812		8,605		16,601		24,259
Total revenue	$	289,413	$	287,624	$	851,709	$	936,267

Prior to the first quarter of fiscal 2019, we disaggregated revenue into the following categories: software revenue, hardware revenue and support, entitlements and other services revenue. Software revenue included non-portable software and term-based software licenses. Under the new disaggregated revenue categories, included in the table above, term-based software licenses are included within subscription revenue and non-portable software is presented separately. Support, entitlements and other services revenue included software entitlement and support subscriptions and professional services. Under the new disaggregated revenue categories, software entitlement and support subscriptions are included within subscription revenue and professional services revenue is presented separately. There was no change to the presentation of hardware revenue.

Subscription revenue — Subscription revenue is generated from the sales of software entitlement and support subscriptions, subscription term-based licenses and cloud-based software as a service ("SaaS") offerings. We recognize revenue from software entitlement and support subscriptions and SaaS offerings ratably over the contractual service period, the majority of which relate to software entitlement and support subscriptions. These offerings represented approximately $62.5 million and $171.8 million of our subscription revenue for the three and nine months ended April 30, 2018 and approximately $96.1 million and $269.7 million of our subscription revenue for the three and nine months ended April 30, 2019, respectively. Revenue from our subscription term-based licenses is generally recognized upfront upon transfer of control to the customer, which happens when we make the software available to the customer. These subscription term-based licenses represented approximately $17.6 million and $44.9 million of our subscription revenue for the three and nine months ended April 30, 2018 and approximately $72.3 million and $183.1 million of our subscription revenue for the three and nine months ended April 30, 2019, respectively. For the three and nine months ended April 30, 2018, the weighted average term for these subscription term-based licenses was approximately 3.3 years and 3.6 years, respectively. For the three and nine months ended April 30, 2019, the weighted average term for these subscription term-based licenses was approximately 3.9 years and 3.8 years, respectively.

Non-portable software revenue — Non-portable software revenue includes sales of our software operating system when delivered on a configured to order appliance by us or one of our OEMs. The software licenses associated with these sales are typically non-portable and have a term equal to the life of the appliance the software is delivered on. Revenue from our non-portable software products is generally recognized upon transfer of control to the customer.

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.

Professional services revenue — We also sell professional services with our products. 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 standalone selling price ("SSP") basis. For deliverables that we routinely sell separately, such as software entitlement and support subscriptions on our core offerings, we determine SSP by evaluating the standalone sales over the trailing 12 months. For those that are not sold routinely, we determine SSP based on our 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 we deliver goods or provide services, or when our right to consideration is unconditional. In situations where revenue recognition occurs before invoicing, an unbilled receivable is created, which represents a contract asset. Unbilled accounts receivable, included in accounts receivable, net on the condensed consolidated balance sheets, was not material for any of the periods presented.

Payment terms on invoiced amounts are typically 30 days. The balance of accounts receivable, net of allowance for doubtful accounts, as of July 31, 2018 and April 30, 2019 is presented in the accompanying condensed 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 commissions in the condensed 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 support subscriptions 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 condensed 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 — Deferred revenue primarily consists of amounts that have been invoiced but not yet recognized as revenue and primarily pertain to support subscriptions and professional services. The current portion of deferred revenue represents the amounts that are expected to be recognized as revenue within one year of the condensed 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, 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
Additions	176,487			37,280
Revenue/commissions recognized	(98,428		)	(29,353		)
Balance as of January 31, 2019	779,859			130,034
Additions	161,233			38,396
Revenue/commissions recognized	(102,830		)	(29,232		)
Balance as of April 30, 2019	$	838,262		$	139,198

During the three and nine months ended April 30, 2018, we recognized revenue of approximately $49.4 million and $136.8 million pertaining to amounts deferred as of January 31, 2018 and July 31, 2017, respectively. During the three and nine months ended April 30, 2019, we recognized revenue of approximately $89.8 million and $216.3 million pertaining to amounts deferred as of January 31, 2019 and July 31, 2018, respectively.

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 $845.7 million as of April 30, 2019, of which we expect to recognize approximately 43% over the next 12 months, and the remainder thereafter.