UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the year ended December 31,
2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File
No. 001-33685
COMPELLENT TECHNOLOGIES,
INC.
(Exact name of Registrant as
specified in its charter)
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Delaware
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37-1434895
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification
Number)
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7625
Smetana Lane
Eden Prairie, MN 55344
(952) 294-3300
(Address,
including zip code, and telephone number, including area code,
of registrants principal executive offices)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.001 par value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether registrant is a shell company (as
defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the voting stock held by
non-affiliates of the registrant based upon the closing price of
the common stock listed on the New York Stock Exchange on
June 30, 2009 was $174,634,597, based on a closing price of
$15.25 per share, excluding 19,428,239 shares of the
registrants common stock held by current executive
officers, directors and stockholders whose ownership exceeds 5%
of the common stock outstanding at June 30, 2009. The
number of shares held by stockholders whose ownership exceeds 5%
of the registrants common stock outstanding at
June 30, 2009 is based on Schedules 13D and 13G filed by
such stockholders for the year ended December 31, 2008 and
subsequent reports, if any, filed by such stockholders pursuant
to Section 16 of the Securities Exchange Act of 1934, as
amended. Exclusion of such shares should not be construed to
indicate that any such person possesses the power, direct or
indirect, to direct or cause the direction of the management or
policies of the registrant or that such person is controlled by
or under common control with the registrant.
As of February 26, 2010, 31,696,564 shares of the
registrants common stock, $0.001 par value, were
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive Proxy Statement for
the 2010 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission pursuant to
Regulation 14A not later than 120 days after the end
of the fiscal year covered by this
Form 10-K
are incorporated by reference in Part III,
Items 10-14
of this
Form 10-K.
COMPELLENT
TECHNOLOGIES, INC.
2009
ANNUAL REPORT ON
FORM 10-K
TABLE OF
CONTENTS
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PART I
This Annual Report on
Form 10-K
contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended, that are based on our managements beliefs and
assumptions and on information currently available to our
management. Forward-looking statements include all statements
other than statements of historical fact contained in this
Annual Report on
Form 10-K,
including, but not limited to, statements about:
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our expectations regarding our revenues, gross margin and
operating expenses;
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our expectations regarding unfavorable economic and market
conditions, including lessening demand in the information
technology market;
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our ability to compete in our industry;
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our ability to maintain and grow our channel partner
relationships;
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our growth strategy and our growth rate;
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our ability to protect our intellectual property rights;
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pricing and availability of our suppliers products;
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assumptions underlying or related to any of the foregoing.
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In some cases, you can identify forward-looking statements by
terms such as anticipate, believe,
can, continue, could,
estimate, expect, intend,
may, plan, potential,
predict, project, should,
will, would and similar expressions
intended to identify forward-looking statements. These
statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance,
time frames or achievements to be materially different from any
future results, performance, time frames or achievements
expressed or implied by the forward-looking statements. We
discuss many of these risks, uncertainties and other factors in
this Annual Report on
Form 10-K
in greater detail in Part I, Item IA. Risk
Factors. Given these risks, uncertainties and other
factors, you should not place undue reliance on these
forward-looking statements. Also, these forward-looking
statements represent our estimates and assumptions only as of
the date hereof. We hereby qualify all of our forward-looking
statements by these cautionary statements. Except as required by
law, we assume no obligation to update these forward-looking
statements publicly, or to update the reasons actual results
could differ materially from those anticipated in these
forward-looking statements, even if new information becomes
available in the future.
The following discussion should be read in conjunction with
our financial statements and the related notes contained
elsewhere in this Annual Report on
Form 10-K
and in our other Securities and Exchange Commission filings.
All references to Compellent, we,
us, our or the Company in
this report mean Compellent Technologies, Inc. and its
subsidiaries, except where it is made clear that the term means
only the parent company.
Overview
We are a leading provider of enterprise-class network storage
solutions that automate the movement and management of data
throughout its lifecycle. Our Storage Center is a Storage Area
Network, or SAN, that is designed to significantly lower storage
and infrastructure capital expenditures, reduce the skill level
and number of personnel required to manage information and
enable continuous data availability and storage virtualization.
Storage Center is based on our innovative Fluid Data
Architecture, which allows enterprises of all sizes to move
beyond simply storing data to actively, intelligently managing
data. With Fluid Data storage, users are able to intelligently
store, recover and manage large amounts of data with minimal
effort. We combine our sophisticated software with
standards-based hardware into a single integrated solution. We
believe that Storage Center is the most comprehensive
enterprise-class network storage solution available today,
providing increased functionality and lower total cost of
ownership when compared to traditional storage systems.
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We developed our Storage Center software and hardware solution
to target mid-size enterprises. We believe mid-size enterprises
are acutely impacted by the proliferation of data and that their
need for a scalable and cost-effective storage solution has
historically been unmet. We believe our business model is highly
differentiated and provides us with several competitive
advantages. We sell our products through an all-channel assisted
sales model designed to enable us to quickly scale and cost
effectively increase sales. We also employ a virtual
manufacturing strategy, which significantly reduces inventory
and eliminates the need for in-house and outsourced
manufacturing.
We have achieved broad industry recognition for our innovative
enterprise storage. Compellent was awarded storage area network
Technology of the Year awards from InfoWorld
the past three years the publication has presented them
2006, 2008 and 2010. In 2009, Compellent was also named
Microsofts Partner of the Year for Advanced Infrastructure
Solutions, Storage Solutions and in 2008 was presented
Storage magazines Quality Award.
Gartner, a third-party industry analyst, reported Compellent to
be the fastest growing storage area network company in 2006,
2007 and 2008. In 2009, TheInfoPro, an independent research
firm, announced that mid-sized and large enterprise end users
gave Compellent the highest possible ratings over competitive
products in 10 key areas such as technology and quality of
service delivered.
The
Compellent Solution
Compellent was founded by a team of storage industry veterans
with the vision of delivering a highly scalable, feature rich,
easy to use and cost effective SAN for enterprises of all sizes.
We believe Storage Center is an innovative solution that
provides a
point-and-click
graphical user interface, automated tiered storage, integrated
data and disaster recovery, efficient thin storage provisioning,
storage virtualization and the flexibility to effectively
combine advances in storage technologies into one integrated
solution.
Innovative
Architecture
The foundation of our solution is our Fluid Data Architecture,
which utilizes block-level intelligence to improve the movement,
placement and access of data at a level of granularity that
delivers significant improvements in the cost, administration
and recovery of data.
Compellents Fluid Data Architecture records and tracks
specific information about an applications data at the
block level, the lowest level of data granularity within any
storage system. Fluid Data Architecture allows Storage Center to
record and track specific information about each block of data
in a given enterprise network. This information about the data,
or metadata, provides Storage Center with intelligence on how
each block is being used. The metadata that Storage Center
gathers can be extensive, including access frequency,
performance and availability characteristics. Storage Center
combines metadata with our sophisticated data movement engine,
enabling enterprises to take a more intelligent approach to
storing, recovering and managing data in an integrated automated
solution. This metadata is used by Storage Center to
automatically change how blocks of data are stored within each
volume (e.g., by changing disk drive types). We refer to this
capability as managing data inside the volume. Because of our
innovative approach to managing data within a storage system,
Storage Center provides significant cost and time saving feature
advantages to our end users and allows them to easily respond to
changing business conditions.
Storage Center delivers enterprise storage capabilities through
an integrated suite of software applications that are offered in
a modular fashion, so that enterprises can modify the solution
to meet their changing requirements. Building on
Compellents Fluid Data Architecture, Storage Center
software applications intelligently improve data movement and
access at the block-level, increasing utilization, automating
tiered storage, simplifying replication and speeding data and
disaster recovery.
Storage Centers standards-based hardware platform enables
flexibility and scalability with a no single point of failure
architecture. Storage Centers architecture is designed to
enable rapid deployment and expansion of storage without
disruption of service. Furthermore, Compellents
standards-based approach enables enterprises to be technology
neutral, adopting new hardware technologies to adapt to evolving
business requirements.
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Storage
Center Directly Addresses Todays Storage
Challenges
We believe Storage Center is a highly sophisticated and
easy-to-use system that addresses the challenges faced by
todays storage users in one integrated solution.
Simplified
Storage Management
We designed Storage Center to reduce the complexity associated
with traditional storage systems. Our intuitive interface and
integrated architecture enables even less sophisticated users to
accomplish advanced storage tasks in minutes, by automating
manual, time-consuming storage management tasks, such as volume
provisioning, tiering, disaster recovery and boot from SAN. This
enables enterprises to more efficiently deploy their information
technology resources. According to an end user study
commissioned by us in 2006 and conducted by Enterprise Strategy
Group, an independent third-party consultant, 98% of our end
users surveyed were able to manage their SAN in three hours or
less per week, while only 31% of other storage system users
surveyed were able to do so. We believe that enterprises could
purchase and integrate a number of different hardware and
software products and still not achieve the functionality of
Storage Center.
Automated,
Cost-Effective Management of Inactive Data
Storage Center offers automated tiered storage technology based
on the block-level intelligence provided by our Fluid Data
Architecture. With information about access frequency at the
block level, Storage Center automatically moves inactive blocks
of data to lower cost tiers of storage. Our solution allows for
automatic movement of blocks of data between tiers of high cost,
high performance storage and tiers of lower cost storage based
on access frequency and other parameters. Our solution also
allows for dynamic placement of blocks of data on the preferred
track of each system drive. Traditional storage systems do not
gather information about blocks of data that would enable them
to implement tiered storage with this level of functionality. As
an example, an end users entire email database (calendar,
inbox, sent items, deleted items, attachments, contacts, etc.)
is contained in one single file, yet all of this data does not
require equal performance, reliability, and frequency of access.
Traditional storage systems store this entire file on one
storage tier. With Storage Center, enterprises have the
flexibility to put the frequently accessed items (such as the
majority of a users inbox) on a faster tier of storage,
and inactive items (such as almost all of a users sent and
deleted items) on a less expensive tier of storage.
Storage Center users maintain the ability to establish the
parameters under which tiering will be performed through a
simple intuitive graphical user interface. With over 80% of
customers data inactive, we believe Storage Centers
automated tiered storage can result in significant cost savings
for end users.
Rapid
Data Recovery
Using Storage Center, storage administrators can typically
recover and allocate any size volume to any server in seconds,
without the constraints of traditional recovery methodologies.
Using a simple
point-and-click
interface, administrators can quickly recover data in the event
of disruption. Storage Centers advanced architecture
enables the creation of significantly more snapshots, while
consuming minimal storage space as Storage Center only captures
data changes at the block level. The time intervals between
snapshots on Storage Center are significantly shorter than
traditional storage systems, providing many more recovery points
and greater recovery precision. Storage Centers
architecture enables enterprises storage administrators to
use snapshots as the first line of defense in data recovery,
reducing the frequency of saving data to tapes.
Affordable
and Reliable Disaster Recovery
We designed our replication technology to consume less disk
space and require less bandwidth and management oversight than
traditional storage solutions, which we call thin replication.
Storage Centers thin replication application sends only
written data during the initial site synchronization process
instead of the allocated but unused space sent by other
commercially available replication technologies. To save
additional time, especially for organizations without dedicated
high-speed data transfer links, administrators can utilize
Compellents Portable Volume solution, a kit with two
enterprise-class external hard drives preconfigured for
replication synchronization. For ongoing replication, Storage
Centers thin replication application transfers only the
changed
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data, consuming less space and lowering bandwidth costs. Storage
Center eliminates the need for expensive protocol converters,
provides the ability to prioritize replication across
applications, enables multi-site replication using different
hardware configurations and reduces the amount of data that
needs to be sent to the replication site. Enterprises using
Storage Center can easily
set-up a
remote replication solution, typically in just a few minutes.
The simplicity and robustness of Storage Centers disaster
recovery solution makes it attractive for a range of end users
from those with limited technical sophistication to large
enterprises with significant technical know-how. One of the most
important differentiators of Storage Center is its ability to
test disaster recovery systems seamlessly and without disruption
of service. We believe Compellent offers the only commercially
available SAN solution that provides this level of capability.
Efficient
Storage Utilization
Compellents thin provisioning technology is designed to
maximize storage utilization. Thin provisioning describes a
storage systems ability to provision (or
allocate to an application) more storage space than
is physically in the system. With thin provisioning, end users
can allocate more applications on less physical storage space,
which increases the utilization rate of the physical storage
space installed and requires fewer disk drives. Because of Fluid
Data Architecture, Storage Center only consumes physical disk
capacity when data is written by an application or user, as
opposed to allocating physical capacity to users and
applications upfront. We believe this capability significantly
reduces an end users total cost of ownership by enabling
them to defer or avoid additional spending on storage until the
capacity is required, if ever. Storage Center enables end users
to allocate capacity at a much more granular level than
traditional storage systems. Storage Center also enables power
and cooling savings, improved performance, data availability and
storage utilization, while automating many of the tasks
associated with capacity planning.
Enabling
the Virtualized Data Center
Compellents advanced storage virtualization technology
enabled by Fluid Data Architecture enables end users to create
an efficient shared storage pool. This pool can be comprised of
any combination of the disk drive technologies that Storage
Center supports and enables any application to access all drives
in the system. Storage Center dynamically distributes workloads
across the entire pool, automatically improving utilization of
storage resources for applications. Application Optimizer allows
end users to set the size of data transfers within the SAN to
match I/O performance for different applications such as video
imaging,
e-mail and
databases. The result is a significant improvement in storage
utilization, performance, flexibility and cost for end users.
Compellents approach to storage virtualization complements
server virtualization technologies. End users realize similar
benefits from Compellents storage virtualization features
as they do from server virtualization, including reduced
hardware costs, high utilization of assets and simplified
management. While virtual server environments are not dependent
on virtualized storage (and vice versa), we believe our storage
virtualization leads to a more cost effective, flexible and high
performing virtual data center. Virtual datacenters have lower
hardware requirements due to higher utilization of both server
and storage hardware and simplified management, which can reduce
operating expenses.
Reducing
Technology Risk
Compellents hardware architecture is designed to mitigate
our end users technology risk. Storage Center enables
users to simultaneously utilize any combination of our various
standards-based hardware options
and/or
connectivity platforms and easily adopt new technologies as they
become available. Storage Center offers disk independence,
enabling end users to use any combination of Solid State, Fibre
Channel, Serial Attached SCSI or Serial ATA disks in one
virtualized storage pool. Storage Centers virtualization
engine enables end users to access the full capacity of all the
drives in the system, even if they mix drive types. Similarly,
Storage Center provides server connectivity independence,
supporting both Fibre Channel and iSCSI protocols in the same
system, which gives end users more flexibility. As our
users storage needs expand, Storage Centers modular
design enables them to seamlessly add the appropriate technology
without discarding current hardware and software investments.
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Highly-Efficient
and Scalable Business Model
We believe our business model is highly differentiated and gives
us a competitive advantage. Key elements of our business model
are virtual manufacturing, a standards-based hardware
architecture and assisted selling through an all-channel
approach. We believe these combined strategies create an
efficient and scalable business model that enables us to grow
our end user base, significantly reduce operating costs and
improve capital efficiency.
Virtual
Manufacturing
Our virtual manufacturing model incorporates standards-based
hardware architecture, thereby eliminating the need for in-house
or outsourced manufacturing operations. The different
standards-based hardware components of our solution are provided
by our suppliers. These components are custom configured,
shipped from multiple geographic locations to a centralized
consolidation point, merged in transit and delivered to the end
user as one order. This is the process we call virtual
manufacturing. This model significantly reduces our working
capital needs and eliminates the need for maintaining assembly
facilities, production inventory, warehouses or complex
outsourced manufacturing relationships. By working with large
suppliers and utilizing standards-based hardware architecture,
we are able to scale rapidly with reduced capital outlay.
Standards-Based
Hardware Architecture
Our hardware approach enables us to offer the best
industry-standard hardware technology that suits the needs of
our end users. Since we use hardware components that are tested
extensively and shipped in high volumes by the manufacturers,
our end users achieve high quality and low cost. This model
enables us to focus our research and development efforts on our
software core competencies to design and develop advanced
software functionality at reasonable costs.
All-Channel
Assisted Sales Model
We employ an all-channel assisted selling model through
value-added resellers, which we refer to as channel partners.
Our channel partners generally sign agreements with us outlining
the terms of our relationship with them. Provisions within these
agreements include a restriction that software is licensed while
the hardware is sold, warranty provisions, agreement term (one
year with automatic renewal terms of one year terminable without
cause upon written notice to the other party), payment terms
(generally 30 days), channel partner sales commitments,
installation and configuration training requirements, which we
may waive at our discretion, and the channel partners
acknowledgement of the existence of our deal registration
process for registering potential system sales to end users.
Substantially all of our channel partners sign similar
agreements except for sales commitments. Our channel partner
agreements do not contain financial penalties for either party.
Unlike other enterprise storage vendors who utilize resellers
for distribution but may also compete with them through direct
sales, our business model motivates our channel partners and
significantly reduces our sales expense. By leveraging the
customer reach, technical expertise and industry knowledge of
our channel partners, we believe that we are able to market to a
significantly larger set of end users more effectively and at
lower cost than we could with our own direct sales force. We
have built a strong internal sales team to assist our channel
partners with, among other things, executive sales calls,
service and support offerings, product matter expertise,
configuration and pricing, joint sales calls, product
demonstrations and design assistance. We believe this model
provides us high visibility of demand for Storage Center and
quick market entry. We further believe our close working
relationship with channel partners and end users enables us to
better understand end user needs.
Our
Strategy
Our goal is to be the leading provider of feature rich, easy to
use and cost effective storage solutions for enterprises of all
sizes. Key elements of our strategy include:
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Extend Our Technology Leadership and Product Depth and
Breadth. We intend to further enhance our current
Storage Center solution by increasing our feature set and
service offerings to further address end user needs.
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Increase Market Share in the Mid-size Enterprise and Large
Enterprise Markets. We initially targeted the
fast-growing mid-size enterprise market. Storage Center is also
being used by large enterprises, such as large financial
services institutions and the federal government, due to its
scalability and functionality. We intend to work with our
channel partners to grow our business in both of these markets.
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Increase Number of Channel Partners, Industry Verticals and
Geographic Markets. We intend to continue to
broaden our relationships with our channel partners and develop
sales channels in additional geographies and industry verticals
through both new and existing channel partners.
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Broaden and Develop Strategic
Relationships. We plan to expand our existing
relationships and develop new relationships with leading
technology and distribution partners, including hardware vendors
such as switch, connectivity, disk and server vendors, as well
as software providers such as operating system, application,
server virtualization and database providers. We believe that
these strategic relationships will enable us to provide enhanced
solutions that will expand our addressable market, increase
sales of our systems through joint selling and marketing
arrangements and improve our insight into emerging industry
trends.
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Realize Upgrade Revenues From Customer
Base. As of December 31, 2009, Storage
Center was being utilized by 1,812 enterprises worldwide. We
have designed Storage Center to enable users to incrementally
add software and hardware features and capacity as their needs
grow. We have been able to realize significant revenues from
existing end users growing or upgrading their systems. We intend
to grow our upgrade revenues by marketing additional
functionality, capacity upgrades and replication systems to our
end users.
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Capitalize On Scalable Business Model. We
intend to capitalize on our business model as we grow our
business. We believe our strategy of using virtual
manufacturing, standards-based hardware and an all-channel sales
model will enable us to scale rapidly, without incurring
significant capital expenditures while gaining significant
operating leverage.
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Our
Technology
We have designed a highly scalable, enterprise-class storage
solution with an intelligent software architecture, advanced
storage virtualization capabilities and a modular,
standards-based hardware platform. Storage Center is designed to
work with most server operating systems in use today (i.e.,
Apple, AIX, HP-UX, Linux, NetWare, Solaris and Windows) without
installing additional server software. We believe these
underlying technologies enable Storage Center to overcome the
limitations of traditional storage systems and operate as a
fully integrated solution managed through a single, intuitive,
user interface.
Fluid
Data Architecture
The foundation of Compellents solution is our Fluid Data
Architecture, which utilizes block-level intelligence to improve
the movement, placement and access of data with a level of
functionality that delivers significant improvements in the
cost, administration and recovery of data. Fluid Data
Architecture enables us to record and track specific information
about each block of data in a given system. This information
about the data, or metadata, provides Storage Center with
intelligence on how each block is being used. The metadata
Storage Center gathers can be extensive, including access
frequency, performance and availability characteristics. Storage
Center combines metadata with our sophisticated data movement
engine, enabling enterprises to take a more intelligent approach
to storing, recovering and managing data in an integrated
automated solution. Because of our innovative approach to
managing data within a storage system, Storage Center provides
significant cost and time saving feature advantages to our end
users.
Advanced
Storage Virtualization
Storage Center accelerates data access by spreading read/write
operations across all disk drives, so multiple requests are
processed in parallel. This is known as storage virtualization,
where the physical drives are abstracted from the logical view
of the data that the end user sees. Storage Center removes the
limitations of physical drives by
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aggregating them into logical, virtual volumes. Storage
Centers advanced virtualization technology manages all
disk space, even across disparate technologies, as a centralized
pool, and when demand increases, end users can simply add
physical drives without downtime. This centralized pool of
storage simplifies capacity planning for end users, who no
longer need to map physical disk drives to dedicated servers and
can provision logical volumes from a single storage pool without
restrictions.
Storage Centers virtualization technology removes the
concept of dedicated disk drives for servers, applications and
users, treating blocks as the basic resource managed by the
system and intelligently placing these blocks across disk drives
in a virtualized environment. In addition, administrators can
virtualize the Fibre Channel and iSCSI connections to simplify
configurations and reduce the number of physical I/O ports
required in network switches.
Standards-Based
Hardware Platform
Storage Centers standards-based architecture enables the
ongoing adoption of new storage technologies, without forcing
enterprises to replace or discard their existing hardware and
software investments. This architecture enables end users to mix
and match server interfaces and disk drive technologies,
simultaneously supporting Fibre Channel
and/or iSCSI
server connections, and any combination of Solid State, Fibre
Channel, Serial Attached SCSI
and/or
Serial ATA disk drives. As part of a complete storage solution,
we also provide switches, host bus adapters, drive enclosures
and controllers.
Storage Centers modular hardware architecture enables
users to add capacity, connectivity and performance
incrementally to match demand, rather than purchasing resources
upfront that may never get used. Organizations can scale
capacity from one to hundreds of terabytes on a single
integrated platform, expanding hardware and upgrading software
online without disruption or downtime.
We have architected Storage Center for high availability by
striping data across all nodes in a cluster so that, if one node
fails, the other nodes can perform the requested function,
thereby preventing any single point of failure. Dual paths from
controllers to disk drives, redundant power and fans, and
controller failover support with a single or dual host bus
adapters are designed to enable continuous data access.
Controllers can be clustered but are connected independently and
fail over without additional software, even with a single server
connection.
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Our
Products
Building on our Fluid Data Architecture, Storage Centers
integrated suite of software applications dramatically improve
utilization, automate tiered storage, streamline storage
administration and speed data and disaster recovery. A base
configuration of Storage Center typically includes a controller,
disk enclosure, disk drives, connectivity hardware, Storage
Center Core software and Dynamic Capacity. Most users also
purchase Data Instant Replay with their initial order. Based on
their capacity or functionality requirements, users can add
hardware or software modules to complete their solutions. We
believe that Storage Centers software products offer the
following key benefits:
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Product
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Key Benefit
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Storage Center Core (includes Graphical User Interface)
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Provides storage virtualization and speeds both common and
complex storage tasks by reducing the time and effort required
for many complex functions into a few simple point-and-click
steps.
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Data Progression Automated Tiered Storage
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Automatically classifies and migrates data at the block-level to
the appropriate tier of storage based on frequency of access.
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Fast Track Performance Acceleration
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Fast Track dynamically places the most frequently used data on
the fastest, or outer, tracks of each drive. The result is a
system that requires fewer drives to manage data
delivering a big payoff in cost savings management and power
consumption without sacrificing performance.
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Data Instant Replay Continuous Snapshots
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Creates any number of space-efficient copies of data that
deliver nearly instant recovery from data hazards without the
limitations of traditional snapshots.
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Server Instant Replay Boot from SAN
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Automates booting and recovering servers from the SAN by taking
and storing space-efficient copies.
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Remote Instant Replay Thin Replication
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Replicates space-efficient copies between primary and remote
data centers to deliver nearly instant disaster recovery without
the traditional cost or complexity.
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Portable Volume
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Enables users to implement initial disaster recovery volumes
through use of encrypted portable disk drives.
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Dynamic Capacity Thin Provisioning
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Maximizes storage utilization by only consuming physical disk
space when data is written by the application, as opposed to
allocating capacity upfront.
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Enterprise Manager Storage Resource Management
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Enables multi-site and multi-system management from a single
console with a suite of advanced storage resource management and
reporting features.
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Single,
Intuitive Management Interface
All of Storage Centers software applications are managed
through a single unified interface that spans our entire set of
technologies, capabilities and configurations. An intuitive
point-and-click
approach enables rapid set up and installation and reduces the
need for training and specialized storage skills.
Complex allocation, configuration and administration functions
can be easily accomplished with a point and click interface,
that we call wizards, which guides the process and expands the
capabilities of a single administrator. Storage consumption and
usage trends are instantly monitored and displayed. Users can
manage individual or multiple systems from the same interface.
8
We believe Storage Centers wizard-driven interface is easy
to use, speeding both common and complex storage tasks by
reducing the time and effort required for many complex functions
into a few simple
point-and-click
steps. Users can accomplish advanced storage tasks in just
minutes, including implementing information lifecycle management
in a single step, provisioning volumes, automating capacity
planning, creating and expiring snapshots, deploying and testing
disaster recovery and administering their entire storage
environment.
Data
Progression (Automated Tiered Storage)
Storage Centers Data Progression application automatically
classifies and migrates blocks of data based on user selected
policies. When combined with our Fast Track application, blocks
of data are dynamically placed on the appropriate tracks on each
drive within the system. For instance, data can be migrated to
the appropriate tier of storage based on usage, retaining
frequently accessed data on the fastest portion of
high-performance storage and storing infrequently accessed data
on lower cost storage. Users can configure storage tiers based
on technology, performance redundancy, or other criteria.
Storage Centers block-level intelligence allows blocks of
data to move both up and down tiers of storage and across drives
for appropriate placement over time based on frequency of
access. A good example is medical imaging applications, which
are storage intensive. All of the data associated with these
applications does not require equal performance, reliability and
frequency of access. With Data Progression technology, images
are automatically placed, or can be manually placed by end
users, on the appropriate tier of storage based on the required
level of performance. Active images are stored on Solid State or
Fibre-Channel Drives, which offer the highest level of
performance. Inactive images can be stored on lower cost
storage, Serial Attached SCSI or Serial ATA Drives, which
utilize higher density and lower performance.
Data
Instant Replay (Continuous Snapshots)
Storage Centers Data Instant Replay application creates
space-efficient copies of data, called Replays, which enable
rapid recovery from data hazards, creation of test environments
and duplication of boot volumes. Replays are created without an
initial clone and contain only written data, rather than the
allocated but unused storage typical in traditional storage
systems. After the Replay creation, only the changed data blocks
are stored, resulting in greater space savings. End users are
able to create and store more Replays without consuming excess
storage capacity or negatively impacting performance. Every
Replay can be converted to a readable and writeable volume that
can be quickly mapped to any server.
End users can create Replays at multiple time intervals and keep
those Replays as long as required. With Replays, end users are
able to create more recovery points, which can reduce potential
data loss and dependence on tape backups by allowing recovery to
be targeted as close as possible to the time before the failure
occurred. Replays automatically expire after a user-specified
time and space is automatically returned to the shared storage
pool. Storage Centers intuitive interface typically
enables users to create a manual Replay in less than five
seconds and recover a Replay in less than ten seconds.
Additionally, Replays can be initiated directly by end user
applications.
Server
Instant Replay (Boot from SAN)
Storage Centers Server Instant Replay application
integrates with Storage Centers Data Instant Replay
application to provide snapshots of server boot images that are
stored and booted from a SAN instead of from local disks. This
capability enables end users to deploy diskless servers and
significantly simplifies server management. Each new boot image
is created by taking a Replay of the initial boot image, which
includes pointers to the original gold image rather
than creating a duplicate copy of equal size. These
space-efficient Replays consume significantly less space per
boot image as compared to traditional storage systems, reducing
overall capacity requirements. An intuitive wizard automates the
set-up,
management and restoration process, enabling end users to simply
provision and recover servers.
Remote
Instant Replay (Thin Replication)
Storage Centers Remote Instant Replay application creates
any number of space-efficient Replays between primary and remote
data centers without a pre-allocation of space. This granularity
enables shorter recovery intervals, enabling end users near
instant recovery from any point in time.
9
Replication can be synchronous or asynchronous and can be
enabled in bi-directional,
point-to-point
or multi-point configurations. System configurations can be
different between primary and remote locations, but all sites
are active and available for recovery. Storage Centers
hardware ships with a native iSCSI interface, allowing our
system to replicate over long distances using existing Ethernet
networks. We support both
IP-based and
Fibre Channel replication.
Remote Instant Replay improves bandwidth utilization by only
sending written data during the initial site synchronization
process, instead of the allocated but unused space sent by other
replication technologies. Remote Instant Replay then transfers
only the changed data, consuming less space and lowering
bandwidth costs. Replay data de-duplication ensures the same
block of data is not sent twice.
With Remote Instant Replays bandwidth simulation, users
can accurately estimate bandwidth requirements upfront based on
actual data, improving the initial bandwidth purchase. Ongoing
bandwidth shaping enables users to customize transfer rates
based on link speed, time of day and replication priority.
Storage Centers intuitive interface also enables users to
test and verify disaster recovery online. There is no need to
bring systems down to test disaster recovery readiness. A
replication can be setup in as few as six clicks and replication
templates can be created without complex scripting, reducing
overall management requirements. This streamlined replication
management is designed to allow recovery from a disaster in
seconds with a single click disaster declaration.
Portable
Volume
Compellents Portable Volume jumpstarts replication,
reducing initial synchronization time to days or even hours
without the need for high-speed connections or a duplicate
array. Instead of transmitting data via conventional links, end
users connect a Portable Volume primed with the replication
information needed for the initial synchronization to the
primary storage array. Once the data to be replicated is loaded
onto the portable disk drive, end users pack the drive in a
protective travel case and carry or ship it to the secondary
site. At the destination site, Storage Center auto-detects the
Portable Volume and begins the replication synchronization
process.
Dynamic
Capacity (Thin Provisioning)
Storage Centers Dynamic Capacity application consumes
physical disk space only when data is written by the
application, as opposed to traditional storage systems, which
require users to allocate potential needed capacity upfront.
This enables Storage Centers end users to reduce storage
purchases and add capacity only when needed. With Storage
Center, maximum capacity does not have to be fixed on a per
volume basis. Volumes can easily be created and expanded online
without disruption or downtime. Continual automated monitoring
and alerts of allocated, used and physical storage enable
administrators to ensure that the appropriate physical storage
space is available when it is actually needed.
Storage Centers Thin Import allows users to copy thick
provisioned volumes from traditional storage systems onto
Storage Center and convert unused space into thin provisioned
volumes. In traditional implementations of thin provisioning,
the operating system will report deleted files as unavailable
space. Storage Centers Free Space Recovery software
identifies and reclaims space that is no longer in use. These
advanced thin provisioning features improve the efficiency of
Storage Center. Due to Storage Centers use of Dynamic
Capacitys thin provisioned volumes, Storage Center
increases the performance of volume-based operations such as
rebuilds, copies, backups and replications.
Enterprise
Manager (Storage Resource Management)
Enterprise Manager is designed to enable all local and remote
Storage Center systems to be monitored and managed using a
single console, providing a complete, centralized view of all
aspects of an enterprises storage environment and enabling
a single administrator to monitor multiple systems. System
reports present storage resource management information,
including summaries for capacity utilization, performance,
replications and events. Users can view storage capacity
utilization and performance on all systems over any period of
time, including summaries from the last week, month or year.
Hero reports allow users to easily show the cost and power
10
savings of Storage Center compared to traditional storage
systems. Users can also chargeback departments or customer sites
for actual storage consumed, associating different costs with
multiple storage tiers and charging premiums or discounts based
on user defined configurations.
Our
Services
Our Copilot Service is a comprehensive customer service and
technical support program that integrates installation services,
a single point of contact call center, hardware and software
maintenance, and onsite field services to enable reliable
service delivery and execution for Storage Center end users.
Copilot Service provides the convenience of one contract and a
single point of contact to address Storage Center hardware or
software issues.
Support activities are provided by highly skilled and trained
staff, and Compellents channel partners can monitor
service issues via a secure, online tracking system. Copilot
Service utilizes Storage Centers integrated
PhoneHome functionality to alert users to potential
systems issues via scheduled or event-based notifications.
Onsite hardware repair services are delivered through Anacomp,
Inc., a third-party hardware maintenance provider with a global
field service force of trained technicians, dispatched via a
24-hour call
center with access to local exchange parts depots in which we
store replacement parts for Storage Center.
Our installation services speed time to deployment with
on-site
configuration and implementation. Our training services improve
system understanding and operation through instruction in system
administration and management. Our professional service
offerings provide access to our technical experts in storage
administration, management and troubleshooting, without
requiring staff overhead for the end user. These services
include regularly scheduled reviews, system health checks and
evaluations as well as advanced configuration and software
support.
End
Users
As of December 31, 2009, Storage Center was being utilized
by 1,812 enterprises worldwide in a variety of industries,
including accounting, agriculture, automotive, construction,
education, entertainment, financial services, food services,
government, healthcare, insurance, legal, manufacturing, media,
real estate, retail, scientific, technology, telecommunications,
transportation and travel.
Distribution
Channel and Marketing
We currently sell Storage Center to mid-size and large
enterprise customers through our all-channel assisted sales
model. We provide our end users with SAN solutions through our
channel partners, who our end users rely on to address their
enterprise-class networking and storage needs. We selectively
recruit value-added-resellers to join our channel partner
network. We have built a strong internal sales team to train and
assist our channel partners with, among other things, executive
sales calls, service and support offerings, product matter
expertise, configuration and pricing, joint sales calls, product
demonstrations and design assistance. In addition, we currently
maintain a small team of installation professionals to assist
channel partners and end users in installing our products.
For 2009, 2008 and 2007, our top ten channel partners accounted
for 42%, 47% and 45% of our revenues, respectively. One channel
partner, AMEX, Inc., accounted for 15% and 12% of total revenues
for the years ended December 31, 2009 and 2008,
respectively. Another channel partner, Insight Investments,
accounted for 10% and 13% of total revenues for the years ended
December 31, 2008 and 2007, respectively.
Since January 2008, we have maintained a marketing agreement
with AMEX, Inc., an export firm, pursuant to which we granted
AMEX exclusive distribution rights to resell Storage Center to
resellers and end users internationally, except Canada. AMEX
agrees to use its best efforts to further the promotion,
marketing and sale of Storage Center. The marketing agreement is
renewable on an annual basis each January unless either party
notifies the other party in writing of an intention to
discontinue the relationship at least 90 days prior to the
renewal date. In the event we elect not to renew the marketing
agreement, we must continue to pay AMEX a sliding-scale
commission based on international sales for a period of two
years following termination.
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Virtual
Manufacturing
Our virtual manufacturing model incorporates standards-based
hardware architecture, thereby eliminating the need for in-house
and outsourced manufacturing operations. The different
standards-based hardware components of our solution are provided
by our suppliers. These components are custom configured,
shipped from multiple geographic locations to a centralized
consolidation point, merged in transit and delivered to the end
user as one order. This is the process we call virtual
manufacturing. This virtual manufacturing and integration
approach enables us to focus resources on the design,
development and marketing of Storage Center.
We currently rely on a limited number of suppliers for
components such as system controllers, enclosures, disk drives
and switches utilized in the assembly of Storage Center and do
not have long-term supply contracts. In particular, we rely on
Bell Microproducts, Inc., a value added distributor, to provide
us with customized system controllers, which Bell Microproducts
generally obtains from Supermicro Computer, Inc. We also rely on
Xyratex Corporation, a provider of data storage subsystems, to
provide us with custom enclosures and disk drives. Xyratex
purchases most of the disk drives that it supplies to us from
Seagate Technology, Inc. This model significantly reduces our
working capital needs and eliminates the need for maintaining
assembly facilities, production inventory, warehouses or complex
outsourced manufacturing relationships. We work closely with our
suppliers to lower component costs and improve quality. By
working with large suppliers, we are able to scale rapidly with
limited capital expenditures. We generally maintain minimal
inventory for repairs, evaluation and demonstration units and
acquire components only as needed. We do not enter into
long-term supply contracts for these components.
Research
and Development
We believe that our future success depends in part on our
ability to introduce enhancements to Storage Center and to
develop new applications for both existing and new markets. Our
research and development efforts are directed largely to the
development of additional enterprise-class network storage
solutions demanded by our channel partners and end users. We
have assembled a team of highly skilled engineers who have
expertise in designing and developing
enterprise-class SANs. Our research and development group
is located in Eden Prairie, Minnesota. As of December 31,
2009 and 2008, we had 75 and 58 employees in the research
and development group. Our research and development expenses
were $12.7 million in 2009, $10.1 million in 2008, and
$7.6 million in 2007.
Competition
We compete with numerous domestic and international companies,
most of which have longer operating histories, greater name
recognition, larger customer bases and significantly greater
financial, technical, sales, marketing and other resources than
we have. A number of very large corporations have historically
dominated the storage market. We consider our primary
competitors to be companies that provide SAN products, such as
3Par, Inc., Dell, Inc., EMC Corporation, Hewlett-Packard
Company, Hitachi Data Systems Corporation, IBM, NetApp, Inc. and
Xiotech Corporation. Some of our competitors, including Dell,
EMC and NetApp, have made acquisitions of businesses that allow
them to offer more directly competitive and comprehensive
solutions than they had previously offered. We expect to
encounter new competitors as we enter new markets as well as
increased competition, both domestically and internationally,
from other established and emerging storage companies, original
equipment manufacturers, and from systems and network management
companies. In addition, there may be new technologies that are
introduced that reduce demand for, or make our, storage solution
architecture obsolete.
We believe that the principal competitive factors affecting the
data storage market include such storage system attributes as:
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functionality;
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scalability;
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performance;
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ease of use;
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system reliability and availability; and
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cost efficiency in acquisition, deployment and ongoing support.
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12
We believe that we compete favorably with our competitors on the
basis of these factors. However, potential end users may prefer
to purchase from their existing suppliers rather than a new
supplier regardless of product performance or features. Our
success will also depend on utilizing new and proprietary
technologies to offer products and features previously not
available in the marketplace. If we fail to continue to compete
favorably, our business will be harmed.
Intellectual
Property
Our success depends in part upon our ability to protect our core
technology and intellectual property. To accomplish this, we
rely on a combination of intellectual property rights, including
patents, trade secrets, copyrights and trademarks, and
contractual protections.
As of December 31, 2009, we had five issued patents in the
United States and one issued foreign patent in China, expiring
between 2024 and 2026. We also had thirteen pending patent
applications in the United States, three patent application
filed pursuant to the Patent Cooperation Treaty and seventeen
pending foreign patent applications. Our pending patent
applications relate to Fluid Data Architecture storage
processing and other SAN concepts. We focus our patent efforts
in the United States, and, when justified by cost and strategic
importance, we file corresponding foreign patent applications in
strategic jurisdictions such as Asia and Europe. Our patent
strategy is designed to provide a balance between the need for
coverage in our strategic markets and the need to maintain costs
at a reasonable level.
We do not know whether any of our pending patent applications
will result in the issuance of additional patents or whether the
examination process will require us to narrow the scope of our
claims. With respect to our issued patents, and to the extent
any of our pending applications proceed to issuance as a patent,
any such patent or future patent may be opposed, contested,
circumvented, designed around by a third party, or found to be
invalid or unenforceable. In addition, our future patent
applications may not be issued with the scope of the claims
sought by us, if at all, or the scope of claims we are seeking
may not be sufficiently broad to protect our proprietary
technologies. Others may develop technologies that are similar
or superior to our proprietary technologies, duplicate our
proprietary technologies or design around patents owned or
licensed by us. If our products are found to conflict with any
patent held by third parties, we could be prevented from selling
our products or our patent applications may not result in issued
patents.
In addition, we generally control access to and use of our
proprietary software and other confidential information through
the use of internal and external controls, including contractual
protections with employees, contractors, end users and channel
partners. We rely in part on U.S. and international
copyright laws to protect our software. All employees and
consultants are required to execute confidentiality agreements
in connection with their employment and consulting relationships
with us. We also require them to agree to disclose and assign to
us all inventions conceived or made in connection with the
employment or consulting relationship. We cannot provide any
assurance that employees and consultants will abide by the
confidentiality or invention assignment terms of their
agreements. Despite our efforts to protect our intellectual
property through patents, trademarks and confidentiality
agreements, unauthorized parties may copy or otherwise obtain
and use our software and proprietary technology.
Our Storage Center suite of products utilizes eCos, an
open source, royalty-free, real-time operating
system intended for embedded applications. eCos is released
under a modified version of the well-known GNU General Public
License. Open source software is generally made available to the
public by its authors
and/or other
third parties under licenses, such as the GNU General Public
License, which impose certain obligations on licensees in the
event such licensees make derivative works of the open source
software.
Third parties have sent us letters offering to license their
patents, and they and others could claim that our products or
technologies infringe their proprietary rights. The SAN industry
is characterized by the existence of a large number of patents,
trademarks and copyrights and by frequent litigation based on
allegations of infringement or other violations of intellectual
property rights. As the number of products and competitors in
our market increases, we face a higher risk of being the subject
of intellectual property infringement claims from other third
parties. We cannot assure you that we do not currently infringe,
or that we will not in the future infringe, upon any third-party
patents or other proprietary rights.
13
Litigation in this industry is often protracted and expensive.
Questions of infringement in the SAN industry involve highly
technical and subjective analyses. Any claim of infringement
from a third-party, even those without merit, could cause us to
incur substantial costs defending against such claims, and could
distract our management from running our business. Furthermore,
a party making such a claim, if successful, could secure a
judgment that requires us to pay substantial damages. A judgment
could also include an injunction or other court order that could
prevent us from selling Storage Center. In the event we receive
an adverse result in any litigation, we could be required to pay
substantial damages, cease sale of products, expend significant
resources to develop alternative technology and discontinue the
use of processes requiring the relevant technology. In addition,
we might be required to seek a license for the use of such
intellectual property, which may not be available on
commercially reasonable terms or at all.
In addition, litigation may become necessary in the future to
enforce our intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary
rights of others, or to defend against claims of infringement or
invalidity, and we may not prevail in any future litigation. The
results of any litigation are inherently uncertain. Any
successful infringement claim or litigation against us could
have a significant adverse impact on our business.
Alternatively, we may be required to develop non-infringing
technology, which would require significant effort and expense
and may ultimately not be successful.
We may also be required to seek licenses under patents or
intellectual property rights owned by third parties. However, we
cannot be certain that third parties will offer licenses to us
or that the terms of any licenses offered to us will be
acceptable. If we fail to obtain such third-party license for
our products, we could incur substantial liabilities or be
forced to suspend sales of our products.
Backlog
We do not believe that backlog as of any particular date is
meaningful, as sales of Storage Center are made primarily
pursuant to purchase orders for delivery of products. We
consider backlog to be approved orders that have not yet been
shipped. As of March 3, 2010, we had $2.3 million of
backlog and as of March 16, 2009, we had $557,000 of
backlog. We do not believe that backlog as of any particular
date is indicative of future results.
Financial
Information by Business Segment and Geographic Data
We operate in one reportable industry segment: the design,
marketing, and technical support of enterprise-class network
storage solutions. Our chief operating decision maker is our
chief executive officer. Our chief executive officer reviews
financial information, accompanied by information about revenues
by geographic region for purposes of allocating resources and
evaluating financial performance. The information included in
Note 13 of the Notes to Consolidated Financial Statements
is hereby incorporated by reference.
Employees
As of December 31, 2009, we had 387 employees, which
included 75 employees in research and development, 212 in
sales and marketing, 63 in customer and technical services, 22
in administration and 15 in manufacturing. None of our employees
are represented by a labor union and we consider current
employee relations to be good.
Executive
Officers of the Registrant
Our executive officers, their ages and their positions as of
March 5, 2010, are as follows:
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Name
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Age
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Position(s)
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Philip E. Soran
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53
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Chairman, President and Chief Executive Officer
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Lawrence E. Aszmann
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63
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Chief Technology Officer
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Brian P. Bell
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43
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Vice President, Worldwide Sales
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John P. Guider
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65
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Chief Operating Officer and Director
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John R. Judd
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53
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Chief Financial Officer
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14
Philip E. Soran has served as our Chairman, President and
Chief Executive Officer since co-founding Compellent in March
2002. From July 1995 to August 2001, Mr. Soran served as
President and Chief Executive Officer of Xiotech Corporation, or
Xiotech, a storage area networking company, which Mr. Soran
co-founded in July 1995. Xiotech was acquired by Seagate
Technology, or Seagate, a disk drive manufacturer, in January
2000. From October 1992 to April 1995, Mr. Soran served as
Executive Vice President of Prodea Software Corporation, a data
warehousing software company. From 1982 to 1993, Mr. Soran
also held a variety of management, sales, marketing and
technical positions with IBM. Mr. Soran received a B.A. in
Education from the University of Northern Colorado.
Lawrence E. Aszmann has served as our Chief Technology
Officer and Secretary since co-founding Compellent in March
2002. Mr. Aszmann was a member of our board of directors
from March 2002 through June 2003. From July 1995 to August
2001, Mr. Aszmann served as Chief Technology Officer of
Xiotech, which Mr. Aszmann co-founded in July 1995. Xiotech
was acquired by Seagate in January 2000. From July 1988 to
August 1995, Mr. Aszmann served as Director of Intelligent
Input/Output Subsystems at Tricord Systems. From December 1981
to June 1988, Mr. Aszmann served as Chief Software
Architect of Star Technologies, and Mr. Aszmann previously
held various storage-related technology positions with
Technalysis Corporation, a consulting company, and Control Data
Corporation, a mainframe manufacturing company.
Brian P. Bell has served as our Vice President, Worldwide
Sales since April 2006. From August 2003 to April 2006, he
served as our Director of Business Development. From August 2002
to August 2003, Mr. Bell was with Storage Networks, Inc.,
an information storage software and services company, as Vice
President of Global Services. From July 1999 to August 2002,
Mr. Bell served in various positions for Storage Network,
Inc. including most recently as Director of Operations. From
1988 to 1999, Mr. Bell served as a commissioned officer in
the U.S. Air Force. Mr. Bell received a B.S. in Human
Factors from the U.S. Air Force Academy and an M.S. in
Human Factors Engineering from the University of Illinois.
John P. Guider has served as our Chief Operating Officer
and a member of our board of directors since co-founding
Compellent in March 2002. From July 1995 to August 2001,
Mr. Guider served as Chief Operating Officer of Xiotech,
which Mr. Guider co-founded in July 1995. Xiotech was
acquired by Seagate in January 2000. From 1987 to 1995,
Mr. Guider served as Chief Technology Officer and Senior
Vice President of Product Development of Tricord Systems, a high
performance server company, which Mr. Guider co-founded in
1987. From December 1982 to January 1987, Mr. Guider served
as Director of Hardware Development at Star Technologies, a
scientific computer company, and held various management and
technical positions with Sperry Corporation, a mainframe systems
company. Mr. Guider received a B.S. in Electrical
Engineering from the University of Minnesota, Minneapolis.
John R. Judd has served as our Chief Financial Officer
since June 2006. From October 2003 to July 2006, Mr. Judd
served as Chief Financial Officer of ATS Medical, Inc., a
medical device manufacturer. From June 2000 to October 2003,
Mr. Judd served as Controller of American Medical Systems
Holdings, Inc., a medical device manufacturer. From 1997 to
1999, Mr. Judd served as Chief Financial Officer of the
Autoglass Division of Apogee Enterprises, Inc., a glass
technology company. Mr. Judd received a B.A. and an M.B.A.
from the University of St. Thomas.
Corporate
Information
Compellent Technologies, Inc. was formed in Minnesota in March
2002 and reincorporated in Delaware in June 2002. The address of
our principal executive office is 7625 Smetana Lane, Eden
Prairie, Minnesota 55344, and our telephone number is
(952) 294-3300.
Our website address is
http://www.compellent.com.
Available
Information
Our website address is
http://www.compellent.com.
Information contained on our website is not incorporated by
reference into this
Form 10-K
unless expressly noted. We file reports with the Securities and
Exchange Commission, or the SEC, which we make available on our
website free of charge. These reports include annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to such reports, each of which is provided on our
website as soon as reasonably practicable after we
electronically file such
15
materials with or furnish them to the SEC. You can also read and
copy any materials we file with the SEC at the SECs Public
Reference Room at 100 F Street, N.E., Washington, DC
20549. You can obtain additional information about the operation
of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
In addition, the SEC maintains a website
(http://www.sec.gov)
that contains reports, proxy and information statements, and
other information regarding issuers that file electronically
with the SEC, including us. In addition, our Corporate
Governance Guidelines, Code of Business Conduct and Ethics and
Charters of our Audit, Compensation and Nominating and Corporate
Governance Committees are available on our website and are
available in print to any stockholder who requests such
information.
We have identified the following additional risks and
uncertainties that may have a material adverse effect on our
business, financial condition or results of operations.
Investors should carefully consider the risks described below
before making an investment decision. The risks described below
are not the only ones we face. Additional risks not presently
known to us or that we currently believe are immaterial may also
significantly impair our business operations. Our business could
be harmed by any of these risks. The trading price of our common
stock could decline due to any of these risks, and investors may
lose all or part of their investment.
Risks
Related to Our Business
Our
quarterly operating results may fluctuate significantly, which
makes our future results difficult to predict.
Our quarterly operating results fluctuate due to a variety of
factors, many of which are outside of our control. Our future
revenues are difficult to predict. A significant portion of our
sales typically occurs during the last month of a quarter. As a
result, we typically cannot predict our revenues in any
particular quarter with any certainty until late in that
quarter. Our storage products typically are shipped shortly
after orders are received. As a result, revenues in any quarter
are substantially dependent on orders booked and shipped in that
quarter. Revenues for any future period are not predictable with
any significant degree of certainty. As a result, comparing our
operating results on a
period-to-period
basis may not be meaningful. You should not rely on our past
results as an indication of our future performance. Moreover,
spending on storage solutions has historically been cyclical in
nature, reflecting overall economic conditions as well as
budgeting and buying patterns of business enterprises. We
believe our recent rapid growth has masked the cyclicality and
seasonality of our business. The third quarter is generally the
slowest sales quarter in the storage industry. Our expense
levels are relatively fixed in the short term and are based, in
part, on our expectations as to future revenues. If revenues
levels are below our expectations, we may incur less income and
may not sustain profitability on a quarterly or an annual basis.
Our operating results may be disproportionately affected by a
reduction in revenues because a proportionately smaller amount
of our expenses varies with our revenues. As a result, our
quarterly operating results are difficult to predict, even in
the near term. If our revenues or operating results fall below
the expectations of investors or securities analysts or below
any guidance we may provide to the market, the price of our
common stock would likely decline substantially.
In addition to other risk factors listed in this Risk
Factors section, factors that may affect our operating
results include:
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reductions in end users budgets for information technology
purchases and delays in their budgeting and purchasing cycles,
given current macroeconomic conditions;
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hardware and software configuration and mix;
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fluctuations in demand, including due to seasonality, for our
products and services;
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changes in pricing by us in response to competitive pricing
actions;
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the sale of Storage Center in the timeframes we anticipate,
including the number and size of orders in each quarter;
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our ability to develop, introduce and ship in a timely manner
new products and product enhancements that meet end user
requirements;
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the timing of product releases or upgrades by us or by our
competitors;
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any significant changes in the competitive dynamics of our
market, including new entrants or substantial discounting of
products;
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our ability to control costs, including our operating expenses
and the costs of the components we purchase;
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the extent to which our end users renew their service and
maintenance agreements with us;
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volatility in our stock price, which may lead to higher stock
compensation expenses; and
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general economic conditions in our domestic and international
markets.
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We
have a history of losses, and we may not sustain profitability
on a quarterly or an annual basis in the future.
We achieved profitability on an annual basis for the first time
as of December 31, 2009. We had net income (loss) of
$4.8 million, ($416,000) and ($7.8) million for the
years ended December 31, 2009, 2008 and 2007, respectively.
As of December 31, 2009, our accumulated deficit was
$45.1 million. We expect to make significant expenditures
related to the development of our products and expansion of our
business, including sales and marketing, research and
development and general and administrative expenses. We may also
encounter unforeseen difficulties, complications, product delays
and other unknown factors that require additional expenditures.
As a result of these increased expenditures, we will have to
generate and sustain substantially increased revenues to achieve
and maintain profitability, which we may never do. In addition,
the percentage growth rates we achieved in prior periods will
not be sustainable and we may not be able to increase our
revenues sufficiently in absolute dollars to sustain quarterly
or annual profitability.
Unfavorable
economic and market conditions and a lessening demand in the
information technology market could adversely affect our
operating results.
Our operating results may be adversely affected by unfavorable
global economic and market conditions as well as a lessening
demand in the information technology, or IT, market. Customer
demand for our products is intrinsically linked to the strength
of the economy. A reduction in demand for storage and data
management products caused by weak
and/or
deteriorating economic conditions and customer decreases in
corporate spending, deferral or delay of IT projects, longer
time frames for IT purchasing decisions, the inability of
customers to obtain credit to finance purchases of our products
and generally reduced capital expenditures for IT storage
solutions will result in decreased revenues and lower revenues
growth rates for us. If the storage and data management markets
grow slower than anticipated or if IT spending is reduced,
demand for our products could decline and our operating results
could be materially and adversely affected.
The
markets in which we compete are highly competitive and dominated
by large corporations and we may not be able to compete
effectively.
The storage market is intensely competitive and is characterized
by rapidly changing technology. This competition could make it
more difficult for us to sell our products, and result in
increased pricing pressure, reduced gross profit, increased
sales and marketing expense and failure to increase, or the loss
of, market share or expected market share which would likely
result in lower revenues.
Our ability to compete depends on a number of factors, including:
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our products functionality, scalability, performance, ease
of use, reliability, availability and cost effectiveness
relative to that of our competitors products;
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our success in utilizing new and proprietary technologies to
offer products and features previously not available in the
marketplace;
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our success in identifying new markets, applications and
technologies;
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our ability to attract and retain value-added resellers, which
we refer to as channel partners;
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our name recognition and reputation;
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our ability to recruit software engineers and sales and
marketing personnel; and
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our ability to protect our intellectual property.
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Potential end users may prefer to purchase from their existing
suppliers rather than a new supplier regardless of product
performance or features. In the event a potential end user
decides to evaluate a new storage system, the end user may be
more inclined to select one of our competitors whose product
offerings are broader than just storage systems. In addition,
potential end users may prefer to purchase from their existing
suppliers rather than a new supplier, regardless of product
performance or features. Most of our new end users have
installed storage systems, which gives an incumbent competitor
an advantage in retaining an end user because it already
understands the network infrastructure, user demands and
information technology needs of the end user, and also because
it is costly and time-consuming for end users to change storage
systems.
A number of very large corporations have historically dominated
the storage market. We consider our primary competitors to be
companies that provide Storage Area Network, or SAN products,
such as 3Par, Inc., Dell, Inc., EMC Corporation, Hewlett-Packard
Company, Hitachi Data Systems Corporation, IBM and NetApp, Inc.,
and Xiotech Corporation. Some of our competitors, including
Dell, EMC and NetApp, have made acquisitions of businesses that
allow them to offer more directly competitive and comprehensive
solutions than they had previously offered. Most of our
competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater
financial, technical, sales, marketing and other resources than
we have. We expect to encounter new competitors as we enter new
markets as well as increased competition, both domestically and
internationally, from other established and emerging storage
companies, original equipment manufacturers, and from systems
and network management companies. In addition, there may be new
technologies that are introduced that reduce demand for, or make
our, storage solution architecture obsolete. Our current and
potential competitors may also establish cooperative
relationships among themselves or with third parties and rapidly
acquire significant market share. Increased competition could
also result in price reductions and loss of market share, any of
which could result in lower revenues and reduced gross profits.
We are
dependent on a single product, and the lack of continued market
acceptance of Storage Center would result in lower
revenues.
Storage Center accounts for all of our revenues and will
continue to do so for the foreseeable future. As a result, our
revenues could be reduced by:
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any decline in demand for Storage Center;
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the failure of Storage Center to achieve continued market
acceptance;
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the introduction of products and technologies that serve as a
replacement or substitute for, or represent an improvement over,
Storage Center;
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technological innovations or new communications standards that
Storage Center does not address; and
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our inability to release enhanced versions of Storage Center on
a timely basis.
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We are particularly vulnerable to fluctuations in demand for
storage area network products in general and Storage Center in
particular. If the storage markets grow more slowly than
anticipated or if demand for Storage Center does not grow as
quickly as anticipated, whether as a result of competition,
product obsolescence, technological change, unfavorable economic
conditions, uncertain geopolitical environments, budgetary
constraints of our end users or other factors, we may not be
able to increase our revenues sufficiently to sustain quarterly
or annual profitability and our stock price would decline.
Our
products must meet exacting specifications, and defects and
failures may occur, which may cause channel partners or end
users to return or stop buying our products.
Our channel partners and end users generally establish demanding
specifications for quality, performance and reliability that our
products must meet. However, our products are highly complex and
may contain undetected
18
defects and failures when they are first introduced or as new
versions are released. We have in the past and may in the future
discover software errors in new versions of Storage Center or
new products or product enhancements after their release or
introduction, which could result in lost revenues during the
period required to correct such errors. Despite testing by us
and by current and potential end users, errors may not be found
in new releases or products until after commencement of
commercial shipments, resulting in loss of or delay in market
acceptance. Storage Center may also be subject to intentional
attacks by viruses that seek to take advantage of these bugs,
errors or other weaknesses. If defects or failures occur in
Storage Center, a number of negative effects in our business
could result, including:
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lost revenues;
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increased costs, including warranty expense and costs associated
with end user support;
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delays or cancellations or rescheduling of orders or shipments;
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product returns or discounts;
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diversion of management resources;
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damage to our reputation and brand equity;
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payment of damages for performance failures;
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reduced orders from existing channel partners and end
users; and
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declining interest from potential channel partners or end users.
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In addition, delays in our ability to fill product orders as a
result of quality control issues may negatively impact our
relationship with our channel partners and end users. Our
revenues could be lower and our expenses could increase if any
of the foregoing occurs.
Our end users utilize Storage Center to manage their data. As a
result, we could face claims resulting from any loss or
corruption of our end users data due to a product defect.
Our contracts with end users contain provisions relating to
warranty disclaimers and liability limitations, which may not be
upheld. Defending a lawsuit, regardless of its merit, is costly
and may divert managements attention and could result in
public perception that our products are not effective, even if
the occurrence is unrelated to the use of our products or
services. In addition, if our business liability insurance
coverage proves inadequate or future coverage is unavailable on
acceptable terms or at all, our costs to defend and cover such
claims, if any, will increase.
We
will not sustain our percentage growth rate, and we may not be
able to manage any future growth effectively.
We have experienced significant growth in a short period of
time. Our revenues increased from $3.9 million in 2004 to
$125.3 million in 2009. The percentage growth rates we
achieved in prior periods will not be sustainable. You should
not rely on our operating results for any prior quarterly or
annual periods as an indication of our future operating
performance. If we are unable to maintain adequate revenues
growth in dollars, we may not be able to sustain quarterly or
annual profitability and our stock price could decline.
Our future operating results depend to a large extent on our
ability to successfully manage our anticipated expansion and
growth. To manage our growth successfully and handle the
responsibilities of being a public company, we believe we must
effectively, among other things:
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increase our channel partners and end users in the mid-size
enterprise market;
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address new markets, such as large enterprise end users and end
users outside the United States;
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control expenses;
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recruit, hire, train and manage additional qualified engineers;
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add additional sales and marketing personnel;
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expand our international operations; and
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implement and improve our administrative, financial and
operational systems, procedures and controls.
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We intend to increase our investment in sales and marketing,
research and development and general and administrative and
other functions to grow our business. We are likely to recognize
the costs associated with these increased investments earlier
than some of the anticipated benefits and the return on these
investments may be lower, or may develop more slowly, than we
expect, which could decrease our annual net income.
If we are unable to manage our growth effectively, we may not be
able to take advantage of market opportunities or develop new
products or enhancements to existing products and we may fail to
satisfy end user requirements, maintain product quality, execute
on our business plan or respond to competitive pressures, which
could result in lower revenues and a decline in our stock price.
Our
gross profit may vary and such variation may make it more
difficult to forecast our earnings.
Our gross profit has been and may continue to be affected by a
variety of other factors, including:
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demand for Storage Center and related services;
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discount levels and price competition;
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average order system size and end user mix;
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hardware and software component mix;
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the cost of components;
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level of fixed costs of customer service personnel;
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the mix of services as a percentage of revenues;
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new product introductions and enhancements; and
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geographic sales mix.
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Changes in gross profit may result from various factors such as
continued investments in our Copilot Services, increases in our
fixed costs, changes in the mix between technical support
services and professional services, as well as the timing and
amount of maintenance agreement initiations and renewals.
We
receive a substantial portion of our revenues from a limited
number of channel partners, and the loss of, or a significant
reduction in, orders from one or more of our major channel
partners would result in lower revenues.
Our future success is highly dependent upon establishing and
maintaining successful relationships with a variety of channel
partners. We market and sell Storage Center through an
all-channel assisted sales model and we derive substantially all
of our revenues from these channel partners. We generally enter
into agreements with our channel partners outlining the terms of
our relationship, including channel partner sales commitments,
installation and configuration training requirements, and the
channel partners acknowledgement of the existence of our
sales registration process for registering potential systems
sales to end users. These contracts typically have a term of one
year and are terminable without cause upon written notice to the
other party. Our reseller agreements with our channel partners
do not prohibit them from offering competitive products or
services. Many of our channel partners also sell our
competitors products. If our channel partners give higher
priority to our competitors storage products, we may be
unable to grow our revenues and could decrease our annual net
income.
We receive a substantial portion of our revenues from a limited
number of channel partners. For 2009, 2008 and 2007, our top ten
channel partners accounted for 42%, 47% and 45% of our revenues,
respectively. One channel partner, AMEX, Inc., accounted for 15%
and 12% of total revenues for the years ended December 31,
2009 and 2008, respectively. Another channel partner, Insight
Investments, accounted for 10% and 13% of total revenues for the
years ended December 31, 2008 and 2007, respectively. We
anticipate that we will continue to be dependent upon a limited
number of channel partners for a significant portion of our
revenues for the foreseeable future and, in
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some cases, the portion of our revenues attributable to
individual channel partners may increase in the future. The loss
of one or more key channel partners or a reduction in sales
through any major channel partner would reduce our revenues.
Further, in order to develop and expand our channels, we must
continue to scale and improve our processes and procedures that
support our channel partners, including investments in systems
and training, and those processes and procedures may become
increasingly complex and difficult to manage. If we fail to
maintain existing channel partners or develop relationships with
new channel partners, our revenue opportunities will be reduced.
The
loss of any key suppliers or the failure to accurately forecast
demand for our products or successfully manage our relationships
with our key suppliers could negatively impact our ability to
sell our products.
We generally maintain minimal inventory for repairs, evaluation
and demonstration units and acquire components only as needed.
We do not enter into long-term supply contracts for these
components. As a result, our ability to respond to channel
partner or end user orders efficiently may be constrained by the
then-current availability, terms and pricing of these
components. Our industry has experienced component shortages and
delivery delays in the past, and we may experience shortages or
delays of critical components in the future as a result of
strong demand in the industry or other factors. If we or our
suppliers inaccurately forecast demand for our products, our
suppliers may have inadequate inventory, which could increase
the prices we must pay for substitute components or result in
our inability to meet demand for our products, as well as damage
our channel partner or end user relationships.
We currently rely on a limited number of suppliers for
components such as system controllers, enclosures, disk drives
and switches utilized in the assembly of Storage Center. We
generally purchase components on a purchase order basis and do
not have long-term supply contracts with these suppliers. In
particular, we rely on Bell Microproducts, Inc., a value-added
distributor, to provide us with customized system controllers,
which Bell Microproducts generally obtains from Supermicro
Computer, Inc., a server and component manufacturer. We also
rely on Xyratex Corporation, a provider of data storage
subsystems, to provide us with their custom enclosures and disk
drives. Xyratex purchases most of the disk drives that it
supplies to us from Seagate Technology, Inc., a disk drive
manufacturer. Our reliance on these key suppliers reduces our
control over the manufacturing process, exposing us to risks,
including reduced control over product quality, production
costs, timely delivery and capacity. It also exposes us to the
potential inability to obtain an adequate supply of required
components, because we do not have long-term supply commitments
and generally purchase our products on a purchase order basis.
Component quality is particularly significant with respect to
our suppliers of disk drives. We have in the past and may in the
future experience disk drive failures, which could cause our
reputation to suffer, our competitive position to be impaired
and our customers to select other vendors. To meet our product
performance requirements, we must obtain disk drives of
extremely high quality and capacity. In addition, there are
periodic
supply-and-demand
issues for disk drives that could result in component shortages,
selective supply allocations and increased prices of such
components. We may not be able to obtain our full requirements
of components, including disk drives, that we need for our
storage products or the prices of such components may increase.
If we fail to effectively manage our relationships with our key
suppliers, or if our key suppliers increase prices of
components, experience delays, disruptions, capacity
constraints, or quality control problems in their manufacturing
operations, our ability to ship products to our channel partners
or end users could be impaired and our competitive position and
reputation could be adversely affected. Qualifying a new key
supplier is expensive and time-consuming. If we are required to
change key suppliers or assume internal manufacturing
operations, we may lose revenues and damage our channel partner
or end user relationships.
If our
third-party repair service fails to timely and correctly resolve
hardware failures experienced by our end users, our reputation
will suffer, our competitive position will be impaired and our
expenses could increase.
We rely upon Anacomp Inc., or Anacomp, a third-party hardware
maintenance provider, which specializes in providing
vendor-neutral support of storage equipment, network devices and
peripherals, to provide repair services to our end users. We
currently have limited capabilities in-house to resolve hardware
failures or other issues experienced by our end users. If
Anacomp fails to timely and correctly resolve hardware failures
or issues
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experienced by our end users, our reputation will suffer, our
competitive position will be impaired and our expenses could
increase. In May 2008, we entered into a five year agreement
with Anacomp. Our agreement with Anacomp will automatically
renew for successive one-year terms, unless either party
notifies the other, in writing, of its intention to terminate or
renegotiate the agreement at least 180 days prior to the
end of the initial five-year term or any successive one-year
term. In addition, either party may immediately terminate the
agreement for a material default by the other party that is not
cured within 30 days. If our relationship with Anacomp were
to end, we would have to engage a new third-party provider of
hardware support, and the transition could result in delays in
effecting repairs and damage our reputation and competitive
position as well as increase our operating expenses.
If we
are unsuccessful in developing and selling new products,
services and product enhancements, our competitive position will
be adversely affected and our ability to grow our revenues will
be impaired.
We operate in a dynamic environment characterized by rapid
technological change, changing end user needs, frequent new
product introductions and evolving industry standards. The
introduction of products embodying new technologies and the
emergence of new industry standards could render our existing
products obsolete and unmarketable. Our competitiveness and
future success depend on our ability to anticipate, develop,
market and support new products and product enhancements on a
timely and cost effective basis that keep pace with
technological developments and emerging industry standards and
that address the increasingly sophisticated needs of our end
users. We may fail to develop and market products and services
that respond to technological changes or evolving industry
standards, experience difficulties that could delay or prevent
the successful development, introduction and marketing of these
products and services, or fail to develop products and services
that adequately meet the requirements of the marketplace or
achieve market acceptance. Our failure to develop and market
such products and services on a timely basis would erode our
competitive position and impair our ability to grow our revenues.
If our
channel partners fail to timely and correctly install and
configure our storage systems, or face disruptions in their
business, our reputation will suffer, our competitive position
could be impaired and we could lose customers.
In addition to our small team of installation personnel, we rely
upon some of our channel partners to install Storage Center at
our end user locations. Our channel partner agreements generally
contain provisions requiring installation and configuration
training by the channel partners, which we may waive at our
discretion. Although we train and certify our channel partners
on the installation and configuration of Storage Center, end
users have in the past encountered installation and
configuration difficulties. In addition, if one or more of our
channel partners suffers an interruption in its business, or
experiences delays, disruptions or quality control problems in
its operations, or we have to change or add additional channel
partners, installation and configuration of Storage Center to
our end users could be delayed, our revenues could be reduced
and our ability to compete could be impaired. As a significant
portion of our sales occur in the last month of a quarter, our
end users may also experience installation delays following a
purchase if we or our channel partners have too many
installations in a short period of time. If we or our channel
partners fail to timely and correctly install and configure
Storage Center, end users may not purchase additional products
and services from us, our reputation could suffer and our
revenues could be reduced. In addition, we will incur additional
expenses to correctly install and configure Storage Center to
meet the expectations of our end users.
If we
fail to attract or retain engineering or sales and marketing
personnel or if we lose the services of our founders or key
management, our ability to grow our business and our competitive
position would be impaired.
We believe our future success will depend in large part upon our
ability to attract, retain and motivate highly skilled
managerial, research and development, sales and marketing
personnel. Our management, research and development, sales and
marketing personnel represent a significant asset and serve as
the source of our business strategy, technological and product
innovations, and sales and marketing initiatives. As a result,
our success is substantially dependent upon our ability to
attract additional personnel for all areas of our organization,
particularly in our research and development department and our
sales and marketing department. Competition for qualified
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personnel is intense, and we may not be successful in attracting
and retaining such personnel on a timely basis or on competitive
terms. Any failure to adequately expand our management, research
and development, sales and marketing personnel will impede our
growth. In addition, many qualified personnel are located
outside of the Minneapolis geographic area where our
headquarters are located, and some qualified personnel that we
may recruit may not be interested in relocating. If we are
unable to attract and retain the necessary personnel on a
cost-effective basis, our ability to grow our business and our
competitive position would be impaired.
In particular, we are highly dependent on the contributions of
our three founders, Philip E. Soran, our Chairman, President and
Chief Executive Officer, John P. Guider, our Chief Operating
Officer, and Lawrence E. Aszmann, our Chief Technology Officer.
The loss of any of our founders could make it more difficult to
manage our operations and research and development activities,
reduce our employee retention and revenues and impair our
ability to compete. If any of our founders were to leave us
unexpectedly, we could face substantial difficulty in hiring
qualified successors and could experience a loss in productivity
during the search for and while any such successor is integrated
into our business and operations. The loss of any of our
founders or the inability to attract, retain or motivate
qualified personnel, including research and development and
sales and marketing personnel, could delay the development and
introduction of, and impair our ability to, sell our products.
We
expect to face numerous challenges as we attempt to grow our
operations, and our channel partner and end user base
internationally.
Historically, we have conducted only a small portion of our
business internationally. We have two international offices and
revenues from international sales were 17%, 16% and 11% of our
consolidated revenues during 2009, 2008 and 2007, respectively.
Although we expect that part of our future revenues growth will
be from channel partners and end users located outside of the
United States, we may not be able to increase international
market demand for Storage Center. In January 2008, we entered
into a marketing agreement with AMEX, Inc., an export firm,
pursuant to which we granted AMEX exclusive distribution rights
to resell Storage Center to resellers and end users
internationally, except in Canada. In January 2009, we entered
into a new marketing agreement with AMEX containing exclusive
distribution rights similar to those contained in the January
2008 agreement. AMEX agrees to use its best efforts to further
the promotion, marketing and sale of Storage Center. The
marketing agreement is renewable on an annual basis each January
unless either party notifies the other party in writing of an
intention to discontinue the relationship at least 90 days
prior to the renewal date. If AMEX is not successful in helping
us expand our international distribution channel, our revenues
and our ability to compete internationally could be impaired.
We expect to face numerous challenges as we attempt to grow our
operations, channel partner relationships and end user base
internationally, in particular attracting and retaining channel
partners with international capabilities or channel partners
located in international markets. Our revenues and expenses
could be adversely affected by a variety of factors associated
with international operations some of which are beyond our
control, including:
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difficulties of managing and staffing international offices, and
the increased travel, infrastructure and legal compliance costs
associated with international locations;
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greater difficulty in collecting accounts receivable and longer
collection periods;
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difficulty in contract enforcement;
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regulatory, political or economic conditions in a specific
country or region;
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compliance with local laws and regulations and unanticipated
changes in local laws and regulations, including tax laws and
regulations;
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export and import controls; trade protection measures and other
regulatory requirements;
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effects of changes in currency exchange rates;
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potentially adverse tax consequences;
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service provider and government spending patterns;
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reduced protection of our intellectual property and other assets
in some countries;
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greater difficulty documenting and testing our internal controls;
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differing employment practices and labor issues; and
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man-made problems such as computer viruses and acts of terrorism
and international conflicts.
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In addition, we expect that we may encounter increased
complexity and costs of managing international operations,
including longer and more difficult collection of receivables,
difficulties in staffing international operations, local
business and cultural factors that differ from our normal
standards and practices, differing employment practices and
labor issues, and work stoppages, any of which could result in
lower revenues and higher expenses.
If we
fail to protect our intellectual property rights adequately, our
ability to compete effectively or to defend ourselves from
litigation could be impaired which could reduce our revenues and
increase our costs.
We rely primarily on patent, copyright, trademark and trade
secret laws, as well as confidentiality and non-disclosure
agreements and other methods, to protect our proprietary
technologies and know-how. As of December 31, 2009, we have
five issued patents in the United States, one international
patent and additional patents pending in the United States and
in foreign countries. The rights granted to us under our issued
patents and, if the pending patent applications are granted,
those applications may not be meaningful or provide us with any
commercial advantage and they could be opposed, contested,
circumvented or designed around by our competitors or be
declared invalid or unenforceable in judicial or administrative
proceedings. The failure of our patents to adequately protect
our technology might make it easier for our competitors to offer
similar products or technologies. Foreign patent protection is
generally not as comprehensive as U.S. patent protection
and may not protect our intellectual property in some countries
where our products are sold or may be sold in the future. Many
U.S.-based
companies have encountered substantial intellectual property
infringement in foreign countries, including countries where we
sell or intend to sell products. Even if foreign patents are
granted, effective enforcement in foreign countries may not be
available.
Monitoring unauthorized use of our intellectual property is
difficult and costly. Although we are not aware of any
unauthorized use of our intellectual property in the past, it is
possible that unauthorized use of our intellectual property may
have occurred or may occur without our knowledge. The steps we
have taken may not prevent unauthorized use of our intellectual
property. Our failure to effectively protect our intellectual
property could reduce the value of our technology in licensing
arrangements or in cross-licensing negotiations, and could
impair our ability to compete. We may in the future need to
initiate infringement claims or litigation. Litigation, whether
we are a plaintiff or a defendant, can be expensive,
time-consuming and may divert the efforts of our technical staff
and managerial personnel, which could result in lower revenues
and higher expenses, whether or not such litigation results in a
determination favorable to us.
Assertions
by third parties of infringement by us of their intellectual
property rights could result in a significant diversion of
managements time and increased expenses.
The storage industry is characterized by vigorous protection and
pursuit of intellectual property rights and positions, which has
resulted in protracted and expensive litigation for many
companies. Litigation can be expensive, lengthy, and disruptive
to ordinary business operations. Moreover, the results of
complex legal proceedings are difficult to predict. We have
received and expect that in the future we may receive
communications from various industry participants alleging our
infringement of their patents, trade secrets or other
intellectual property rights
and/or
offering licenses to such intellectual property. Any lawsuits
resulting from such allegations could subject us to significant
liability for damages and invalidate our proprietary rights. Any
intellectual property litigation also could force us to do one
or more of the following:
|
|
|
|
|
stop selling products or using technology that contains the
allegedly infringing intellectual property;
|
|
|
|
lose the opportunity to license our technology to others or to
collect royalty payments based upon successful protection and
assertion of our intellectual property against others;
|
24
|
|
|
|
|
incur significant legal expenses;
|
|
|
|
pay substantial damages to the party whose intellectual property
rights we may be found to be infringing;
|
|
|
|
redesign those products that contain the allegedly infringing
intellectual property; or
|
|
|
|
attempt to obtain a license to the relevant intellectual
property from third parties, which may not be available on
reasonable terms or at all.
|
We expect that companies in the storage market will increasingly
be subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality
of products in different industry segments overlaps. Our channel
partners and end users could also become the target of
litigation relating to patent and other intellectual property
rights of others. This could trigger technical support and
indemnification obligations in our licenses and maintenance
agreements. These obligations could results in substantial
expenses, including the payment by us of costs and damages.
If we
fail to comply with the terms of our open source software
license agreement, we could be required to release portions of
our software codes, which could impair our ability to compete
and result in lower revenues.
Storage Center utilizes a software application called eCos, an
open source, royalty-free, real-time operating
system intended for embedded applications. eCos is licensed to
us under a modified version of version 2.0 of the GNU General
Public License. Open source software is often made available to
the public by its authors
and/or other
third parties under licenses, such as the GNU General Public
License, which impose certain obligations on licensees in the
event such licensees re-distribute
and/or make
derivative works of the open source software. The terms of our
license to the eCos application require us to make source code
for the derivative works freely available to the public,
and/or
license such derivative works under a particular type of
license, rather than the forms of commercial license customarily
used to protect our intellectual property. In addition, there is
little or no legal precedent for interpreting the terms of
certain of these open source licenses, including the
determination of which works are subject to the terms of such
licenses. While we believe we have complied with our obligations
under the various applicable licenses for open source software
to avoid subjecting our proprietary products to conditions we do
not intend, in the event the copyright holder of any open source
software were to successfully establish in court that we had not
complied with the terms of a license for a particular work, we
could be required to release the source code of that work to the
public, stop distribution of that work
and/or
recall our products that include that work. In this event, we
could be required to seek licenses from third parties in order
to continue offering our products, to make generally available,
in source code form, proprietary code that links to certain open
source modules, to re-engineer our products, or to recall
and/or
discontinue the sale of our products if re-engineering could not
be accomplished on a timely basis, any of which could impair our
ability to compete, result in lower revenues and increase our
expenses.
We may
need to raise additional funds in the future, which may not be
available to us on terms acceptable to us, or at
all.
We may need to raise additional funds in the future. Any
required additional financing may not be available on terms
acceptable to us, or at all. If we raise additional funds by
issuing equity securities or convertible debt, investors may
experience significant dilution of their ownership interest, and
the newly-issued securities may have rights senior to those of
the holders of our common stock. If we raise additional funds by
obtaining loans from third parties, the terms of those financing
arrangements may include negative covenants or other
restrictions on our business that could impair our operational
flexibility, and would also require us to fund additional
interest expense. If additional financing is not available when
required or is not available on acceptable terms, we may be
unable to successfully develop or enhance our storage products
in order to take advantage of business opportunities or respond
to competitive pressures, which could result in lower revenues
and reduce the competitiveness of our storage product offerings.
25
We may
engage in future acquisitions that could disrupt our business,
cause dilution to our stockholders, reduce our financial
resources and result in increased expenses.
In the future, we may acquire other businesses, products or
technologies. We have not made any acquisitions to date.
Accordingly, our ability as an organization to make acquisitions
is unproven. We may not be able to find suitable acquisition
candidates, and we may not be able to complete acquisitions on
favorable terms, if at all. If we do complete acquisitions, we
may not strengthen our competitive position or achieve our
goals, or these acquisitions may be viewed negatively by channel
partners, end users, financial markets or investors. In
addition, any acquisitions that we make could lead to
difficulties in integrating personnel, technologies and
operations from the acquired businesses and in retaining and
motivating key personnel from these businesses. Acquisitions may
disrupt our ongoing operations, divert management from
day-to-day
responsibilities and increase our expenses. Future acquisitions
may reduce our cash available for operations and other uses, and
could result in an increase in amortization expense related to
identifiable assets acquired, potentially dilutive issuances of
equity securities or the incurrence of debt. We cannot forecast
the number, timing or size of future acquisitions, or the effect
that any such acquisitions might have on our operating or
financial results.
Risks
Related to the Ownership of Our Common Stock
Our
stock price is volatile and purchasers of our common stock could
incur substantial losses.
The market price of our common stock and the securities of other
technology companies has been and may continue to be highly
volatile. The market price of our common stock may fluctuate
significantly in response to a number of factors, including:
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|
|
|
|
quarterly variations in our results of operations or those of
our competitors;
|
|
|
|
fluctuations in the valuation of companies perceived by
investors to be comparable to us;
|
|
|
|
economic developments in the storage industry as a whole;
|
|
|
|
general economic conditions and slow or negative growth of
related markets;
|
|
|
|
changes in financial estimates including our ability to meet our
future revenues and operating profit or loss projections;
|
|
|
|
changes in earnings estimates or recommendations by securities
analysts;
|
|
|
|
announcements by us or our competitors of acquisitions, new
products, significant contracts, commercial relationships or
capital commitments;
|
|
|
|
our ability to develop and market new and enhanced products on a
timely basis;
|
|
|
|
commencement of, or our involvement in, litigation;
|
|
|
|
disruption to our operations;
|
|
|
|
any major change in our board of directors or
management; and
|
|
|
|
changes in governmental regulations.
|
In addition, the stock market in general, and the market for
technology companies in particular, has experienced extreme
price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those
companies. These broad market and industry factors may cause the
market price of our common stock to decrease, regardless of our
actual operating performance. These trading price fluctuations
may also make it more difficult for us to use our common stock
as a means to make acquisitions or to use options to purchase
our common stock to attract and retain employees. In addition,
in the past, following periods of volatility in the overall
market and the market price of a companys securities,
securities class action litigation has often been instituted
against these companies. This litigation, if instituted against
us, could result in substantial costs and a diversion of our
managements attention and resources.
26
If
securities analysts or industry analysts downgrade our stock,
publish negative research or reports, or do not publish reports
about our business, our stock price and trading volume could
decline.
The trading market for our common stock will be influenced by
the research and reports that industry or securities analysts
publish about us, our business and our market. If one or more
analysts adversely change their recommendation regarding our
stock or our competitors stock, our stock price would
likely decline. If one or more analysts cease coverage of us or
fail to regularly publish reports on us, we could lose
visibility in the financial markets, which in turn could cause
our stock price or trading volume to decline.
A
limited number of stockholders will have the ability to
influence the outcome of director elections and other matters
requiring stockholder approval.
Our directors and executive officers and their affiliates
beneficially own approximately 28.6% of our outstanding common
stock, as of February 26, 2010. These stockholders, if they
acted together, could exert substantial influence over matters
requiring approval by our stockholders, including electing
directors, adopting new compensation plans and approving
mergers, acquisitions or other business combination
transactions. This concentration of ownership may discourage,
delay or prevent a change of control of our company, which could
deprive our stockholders of an opportunity to receive a premium
for their stock as part of a sale of our company and might
reduce our stock price. These actions may be taken even if they
are opposed by our other stockholders.
Delaware
law and our amended and restated certificate of incorporation
and bylaws contain provisions that could delay or discourage
takeover attempts that stockholders may consider favorable and
result in a lower market price for our common
stock.
Provisions in our amended and restated certificate of
incorporation and bylaws may have the effect of delaying or
preventing a change of control or changes in our management.
These provisions include the following:
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|
|
the division of our board of directors into three classes;
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|
|
the right of the board of directors to elect a director to fill
a vacancy created by the expansion of the board of directors or
due to the resignation or departure of an existing board member;
|
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|
|
the prohibition of cumulative voting in the election of
directors, which would otherwise allow less than a majority of
stockholders to elect director candidates;
|
|
|
|
the requirement for the advance notice of nominations for
election to the board of directors or for proposing matters that
can be acted upon at a stockholders meeting;
|
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|
|
the ability of our board of directors to alter our bylaws
without obtaining stockholder approval;
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|
|
the ability of the board of directors to issue, without
stockholder approval, up to 10,000,000 shares of preferred
stock with terms set by the board of directors, which rights
could be senior to those of our common stock;
|
|
|
|
the elimination of the rights of stockholders to call a special
meeting of stockholders and to take action by written consent in
lieu of a meeting;
|
|
|
|
the required approval of at least
662/3%
of the shares entitled to vote at an election of directors to
adopt, amend or repeal our bylaws or repeal the provisions of
our amended and restated certificate of incorporation regarding
the election and removal of directors; and
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|
|
the required approval of at least a majority of the shares
entitled to vote at an election of directors to remove directors
without cause.
|
In addition, because we are incorporated in Delaware, we are
governed by the provisions of Section 203 of the Delaware
General Corporation Law. These provisions may prohibit large
stockholders, particularly those owning 15% or more of our
outstanding voting stock, from merging or combining with us.
These provisions in our amended and restated certificate of
incorporation and amended and restated bylaws and under Delaware
law could discourage
27
potential takeover attempts, could reduce the price that
investors are willing to pay for shares of our common stock in
the future and could potentially result in the market price
being lower than they would without these provisions.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Our principal executive offices are located in leased facilities
in Eden Prairie, Minnesota, consisting of approximately
106,000 square feet of office space. Our leases expire at
various dates through February 2014. These facilities
accommodate our principal engineering, sales, marketing,
operations and finance and administrative activities. We do not
own any real property. We believe that our leased facilities are
adequate for our anticipated future needs.
|
|
Item 3.
|
Legal
Proceedings
|
In April 2009, Data Network Storage LLC, or Data Networks, filed
a lawsuit in the U.S. District Court for the Southern
District of California, against us and 14 other storage vendors,
alleging, among other things, patent infringement on a universal
storage management system for which it holds an exclusive
license. Data Networks is seeking unspecified monetary damages
and an injunction against further infringement from us and the
other defendants. We filed an answer to Data Networks
complaint denying any liability and are vigorously contesting
the lawsuit. We have accrued an immaterial amount of what we
believe to be the probable costs in connection with this matter.
In the ordinary course of business, we are from time to time
involved in lawsuits, claims, investigations, proceedings, and
threats of litigation consisting of intellectual property,
commercial and other matters. While the outcome of these
proceedings and claims cannot be predicted with certainty, there
are no matters, as of December 31, 2009, that, in the
opinion of management, might have a material adverse effect on
our financial position, results of operations or cash flows.
|
|
Item 4.
|
(Removed
and Reserved)
|
28
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
for our Common Stock
Our common stock has been traded on the New York Stock Exchange,
or NYSE, under the ticker symbol CML since
March 23, 2009. Prior to March 23, 2009, our common
stock was traded on the NYSE Arca under the ticker symbol
CML since it began trading on October 10, 2007.
The following table sets forth, for the period indicated, the
range of high and low sale prices of our common stock, as
reported by the NYSE Arca with respect to the period from
January 1, 2008 through March 20, 2009 and by the NYSE
for the period from March 23, 2009 through
December 31, 2009.
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|
|
|
|
|
|
|
|
Prices
|
|
|
|
High
|
|
|
Low
|
|
|
2009
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
23.84
|
|
|
$
|
17.23
|
|
Third Quarter
|
|
$
|
18.68
|
|
|
$
|
13.83
|
|
Second Quarter
|
|
$
|
15.80
|
|
|
$
|
9.94
|
|
First Quarter
|
|
$
|
14.18
|
|
|
$
|
9.83
|
|
2008
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
12.68
|
|
|
$
|
7.15
|
|
Third Quarter
|
|
$
|
15.20
|
|
|
$
|
10.00
|
|
Second Quarter
|
|
$
|
13.93
|
|
|
$
|
9.33
|
|
First Quarter
|
|
$
|
12.90
|
|
|
$
|
7.62
|
|
There were 186 stockholders of record of our common stock as of
February 26, 2010. In addition, we believe that a
significant number of beneficial owners of our common stock hold
their shares in street name.
Dividend
Policy
To date, we have not declared or paid any cash dividends on our
common stock. We currently expect to retain any future earnings
for use in the operation and expansion of our business and do
not anticipate paying any cash dividends on our common stock in
the foreseeable future.
29
Stockholder
Return Comparison
The following graph shows the cumulative
26-month
total return of an investment of $100 on October 10, 2007,
the date we became a public company, for our common stock on
NYSE (or the NYSE Arca for applicable periods), in the Russell
2000 Index and the NASDAQ Computer Index. The stock price
performance shown on the graph is not necessarily indicative of
future price performance, and we do not make or endorse any
predictions as to future stockholder returns. This graph is not
soliciting material, is not deemed filed
with the SEC and is not to be incorporated by reference into any
filing of Compellent Technologies, Inc. under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, whether made before or after the date hereof and
irrespective of any general incorporation language in any such
filing.
COMPARISON
OF 26 MONTH CUMULATIVE TOTAL RETURN*
Among
Compellent Technologies, Inc., The Russell 2000 Index
And The NASDAQ Computer Index
|
|
|
* |
|
$100 invested on 10/10/07 in stock or 9/30/07 in index,
including reinvestment of dividends.
Fiscal year ending December 31. |
30
Unregistered
Sales of Equity Securities
None.
Use of
Proceeds from the Sale of Registered Securities
Our initial public offering of common stock was effected through
a Registration Statement on
Form S-1
(File
No. 333-144255),
that was declared effective by the Securities and Exchange
Commission on October 9, 2007. We registered
6,900,000 shares of our common stock with a proposed
maximum aggregate offering price of $93.1 million. The
offering did not terminate until after the sale of all of the
shares registered on the Registration Statement. All of the
shares of common stock issued pursuant to the registration
statement were sold at a price to the public of $13.50 per
share. The managing underwriters were Morgan Stanley &
Co. Incorporated, Needham & Company, LLC, Piper
Jaffray & Co., RBC Capital Markets and Thomas Weisel
Partners LLC.
As a result of our initial public offering, we raised a total of
approximately $84.6 million in net proceeds after deducting
underwriting discounts and commissions of $6.5 million and
offering expenses of a $2.0 million. As of
February 26, 2010, $5.0 million of the
$84.6 million in net proceeds has been utilized as working
capital in support of operations, with the remainder included in
our investment portfolio. No payments for such offering expenses
were made directly or indirectly to (i) any of our officers
or directors or their associates, (ii) any persons owning
10% or more of any class of our equity securities, or
(iii) any of our affiliates.
31
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data should be read in
conjunction with our consolidated financial statements and the
notes thereto, and with Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations. The consolidated statements of operations data
for the years ended December 31, 2009, 2008 and 2007 and
the consolidated balance sheet data as of December 31, 2009
and 2008 have been derived from and should be read in
conjunction with our audited consolidated financial statements
and the notes thereto included elsewhere in this Annual Report
on
Form 10-K.
The consolidated statements of operations data for the year
ended December 31, 2006 and 2005 and the consolidated
balance sheet data as of December 31, 2007, 2006 and 2005,
are derived from audited consolidated financial statements and
the notes thereto which are not included in this Annual Report
on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in thousands, except per share amounts)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
90,938
|
|
|
$
|
72,417
|
|
|
$
|
42,831
|
|
|
$
|
19,996
|
|
|
$
|
8,670
|
|
Support and services
|
|
|
34,337
|
|
|
|
18,479
|
|
|
|
8,368
|
|
|
|
3,337
|
|
|
|
1,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
125,275
|
|
|
|
90,896
|
|
|
|
51,199
|
|
|
|
23,333
|
|
|
|
9,911
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
45,809
|
|
|
|
34,949
|
|
|
|
21,554
|
|
|
|
9,897
|
|
|
|
4,915
|
|
Support and services
|
|
|
11,592
|
|
|
|
7,011
|
|
|
|
4,423
|
|
|
|
2,774
|
|
|
|
1,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
57,401
|
|
|
|
41,960
|
|
|
|
25,977
|
|
|
|
12,671
|
|
|
|
5,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
67,874
|
|
|
|
48,936
|
|
|
|
25,222
|
|
|
|
10,662
|
|
|
|
3,949
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
45,392
|
|
|
|
35,834
|
|
|
|
23,520
|
|
|
|
10,562
|
|
|
|
5,504
|
|
Research and development
|
|
|
12,687
|
|
|
|
10,060
|
|
|
|
7,632
|
|
|
|
5,675
|
|
|
|
5,241
|
|
General and administrative
|
|
|
6,066
|
|
|
|
6,224
|
|
|
|
3,324
|
|
|
|
1,565
|
|
|
|
2,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
64,145
|
|
|
|
52,118
|
|
|
|
34,476
|
|
|
|
17,802
|
|
|
|
13,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
3,729
|
|
|
|
(3,182
|
)
|
|
|
(9,254
|
)
|
|
|
(7,140
|
)
|
|
|
(9,264
|
)
|
Other income, net
|
|
|
1,782
|
|
|
|
2,766
|
|
|
|
1,425
|
|
|
|
316
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
5,511
|
|
|
|
(416
|
)
|
|
|
(7,829
|
)
|
|
|
(6,824
|
)
|
|
|
(9,126
|
)
|
Income tax expense
|
|
|
718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
4,793
|
|
|
|
(416
|
)
|
|
|
(7,829
|
)
|
|
|
(6,824
|
)
|
|
|
(9,126
|
)
|
Accretion of redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,330
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
4,793
|
|
|
$
|
(416
|
)
|
|
$
|
(7,829
|
)
|
|
$
|
(13,154
|
)
|
|
$
|
(9,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share, basic
|
|
$
|
0.16
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.77
|
)
|
|
$
|
(3.29
|
)
|
|
$
|
(2.35
|
)
|
Net income (loss) per common share, diluted
|
|
$
|
0.15
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.77
|
)
|
|
$
|
(3.29
|
)
|
|
$
|
(2.35
|
)
|
Weighted average shares, basic
|
|
|
30,851
|
|
|
|
30,471
|
|
|
|
10,219
|
|
|
|
4,003
|
|
|
|
3,897
|
|
Weighted average shares, diluted
|
|
|
31,915
|
|
|
|
30,471
|
|
|
|
10,219
|
|
|
|
4,003
|
|
|
|
3,897
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
29,155
|
|
|
$
|
51,989
|
|
|
$
|
82,382
|
|
|
$
|
15,106
|
|
|
$
|
2,037
|
|
Short-term investments
|
|
|
35,218
|
|
|
|
29,146
|
|
|
|
11,350
|
|
|
|
258
|
|
|
|
|
|
Working capital
|
|
|
67,936
|
|
|
|
81,131
|
|
|
|
95,255
|
|
|
|
17,685
|
|
|
|
1,688
|
|
Long-term investments
|
|
|
59,472
|
|
|
|
19,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
173,947
|
|
|
|
128,057
|
|
|
|
113,376
|
|
|
|
26,407
|
|
|
|
6,006
|
|
Total liabilities
|
|
|
53,915
|
|
|
|
29,791
|
|
|
|
17,960
|
|
|
|
8,503
|
|
|
|
3,736
|
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,655
|
|
Total stockholders equity (deficit)
|
|
$
|
120,032
|
|
|
$
|
98,266
|
|
|
$
|
95,416
|
|
|
$
|
17,904
|
|
|
$
|
(28,385
|
)
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This Annual Report on
Form 10-K
contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended, that are based on our managements beliefs and
assumptions and on information currently available to our
management. Forward-looking statements include all statements
other than statements of historical fact contained in this
Annual Report on
Form 10-K,
including, but not limited to, statements about:
|
|
|
|
|
our expectations regarding our revenues, gross profit and
operating expenses;
|
|
|
|
our expectations regarding unfavorable economic conditions,
including lessening demand in the information technology
market;
|
|
|
|
our ability to compete in our industry;
|
|
|
|
our ability to maintain and grow our channel partner
relationships;
|
|
|
|
our growth strategy and our growth rate;
|
|
|
|
our ability to protect our intellectual property rights;
|
|
|
|
pricing and availability of our suppliers products;
and
|
|
|
|
assumptions underlying or related to any of the foregoing.
|
In some cases, you can identify forward-looking statements by
terms such as anticipate, believe,
can, continue, could,
estimate, expect, intend,
may, plan, potential,
predict, project, should,
will, would and similar expressions
intended to identify forward-looking statements. These
statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance,
time frames or achievements to be materially different from any
future results, performance, time frames or achievements
expressed or implied by the forward-looking statements. We
discuss many of these risks, uncertainties and other factors in
this Annual Report on
Form 10-K
in greater detail in Part I, Item IA. Risk
Factors. Given these risks, uncertainties and other
factors, you should not place undue reliance on these
forward-looking statements. Also, these forward-looking
statements represent our estimates and assumptions only as of
the date hereof. We hereby qualify all of our forward-looking
statements by these cautionary statements. Except as required by
law, we assume no obligation to update these forward-looking
statements publicly, or to update the reasons actual results
could differ materially from those anticipated in these
forward-looking statements, even if new information becomes
available in the future.
The following discussion should be read in conjunction with
our consolidated financial statements and the related notes
contained elsewhere in this Annual Report on
Form 10-K
and in our other Securities and Exchange Commission filings.
33
Overview
We are a leading provider of enterprise-class network storage
solutions that are highly scalable, feature rich and designed to
be easy to use and cost effective. Our Storage Center solution
is a Storage Area Network, or SAN, that enables users to
intelligently store, recover and manage large amounts of data by
combining our sophisticated software with standards-based
hardware into a single integrated solution. As of
December 31, 2009, Storage Center was being utilized by
1,812 enterprises worldwide, across a wide variety of industries
including education, financial services, government, healthcare,
insurance, legal, media, retail, technology and transportation.
We believe that Storage Center is the most comprehensive
enterprise-class network storage solution available today,
providing increased functionality and lower total cost of
ownership when compared to competing storage systems.
We believe our business model is highly differentiated and
provides us with several competitive advantages. We sell our
products through an all-channel assisted sales model designed to
enable us to quickly scale and cost effectively increase sales.
We have built a strong internal sales team, which is spread
geographically throughout the United States and in certain
international markets, to assist our channel partners with,
among other things, executive sales calls, service and support
offerings, product matter expertise, configuration and pricing,
joint sales calls, product demonstrations and design assistance.
We also employ a virtual manufacturing strategy, which
significantly reduces inventory and eliminates the need for
in-house or outsourced manufacturing. We believe these combined
strategies create an efficient and scalable business model that
enables us to reduce operating costs and improve capital
efficiency.
Key
Financial Measures and Trends
Sources
of Revenues
Revenues are comprised of product revenues, consisting of
software and hardware revenues, and support and services
revenues. A sale of Storage Center is typically comprised of
(a) an upfront fully-paid perpetual end-user license fee,
(b) the associated hardware components, (c) a software
maintenance arrangement that includes telephone support, bug
fixes and potential unspecified product updates, (d) a
hardware maintenance agreement that includes telephone support
and on-site
repairs and replacement and (e) in certain cases,
professional services for installation, training and consulting
support. Substantially all of our revenues consist of product
revenue from sales of Storage Center. We expect that support and
services revenues will grow on an absolute basis as our
installed base of end users continues to grow, but will remain
relatively consistent as a percentage of total revenues.
We offer our products and services through value-added
resellers, which we refer to as channel partners. Our channel
partners purchase our products after they have received a
purchase order from an end user, as they do not maintain an
inventory of our products in anticipation of sales to end users.
For 2009, 2008 and 2007, our top ten channel partners accounted
for 42%, 47% and 45% of our revenues, respectively. One channel
partner, AMEX, Inc., accounted for 15% and 12% of total revenues
for the years ended December 31, 2009 and 2008,
respectively. Another channel partner, Insight Investments,
accounted for 10% and 13% of total revenues for the years ended
December 31, 2008 and 2007, respectively.
Our systems are modular and highly configurable. Variations in
these configurations affect our average system order size and
can significantly impact our overall revenues, cost of revenues
and gross profit performance. Our revenues within a particular
quarter are often significantly affected by the unpredictable
procurement patterns of our end users. Historically, we have
generated the majority of our revenues in the final month of
each quarter primarily because many of our end users do not
finalize their purchasing decisions until the final weeks or
days of a quarter. We expect these purchasing patterns to
continue in the future.
Product
Revenues
Product revenues consist of license fees for software
applications and related hardware sales of disk drives, system
controllers, host bus adapters, switches and enclosures. We also
derive a portion of our product revenues from software and
hardware upgrades, which include new software applications and
additional hardware components. We expect that product revenues
will increase on an absolute basis if we are able to execute our
business strategy.
34
Support
and Services Revenues
Support and services revenues consist of software and hardware
maintenance contracts, which typically have a duration of one to
three years, and professional services for installation,
training and consulting support.
Maintenance. We offer software maintenance
that includes telephone support, bug fixes and unspecified
product updates and hardware maintenance that includes telephone
support and
on-site
repairs and replacement. Revenues are deferred at the time the
maintenance agreement is entered into and is recognized ratably
over the term of the maintenance agreement. Our historical
experience has shown us that substantially all of our end users
have renewed their maintenance agreements upon expiration of
their existing maintenance agreements. We anticipate that
maintenance revenues will grow on an absolute basis as our
installed base of end users continues to grow, but will remain
relatively consistent as a percentage of total revenues.
Professional Services. We generally sell
professional services on a
time-and-materials
basis and recognize revenues when the services are performed.
Professional services include installation, training and
consulting support. We expect that professional services
revenues will grow on an absolute basis as our installed base of
end users continues to grow, but remain relatively consistent as
a percentage of total revenues.
Cost
of Revenues and Gross Profit
Cost of revenues is comprised of cost of product revenues and
cost of support and services. Cost of product revenues consist
primarily of the cost of component hardware charged by our
component suppliers, shipping and handling, provisions for
excess and obsolete inventory, overhead allocations, and
employee salaries, benefits, and stock-based compensation
expense. We expect cost of product revenues to increase in
absolute dollars, but remain relatively constant as a percentage
of total product revenues. Cost of support and services consists
of employee salaries, benefits, stock-based compensation expense
for our customer service and technical support team and service
fees charged by our third-party hardware maintenance provider.
We expect cost of support and services revenues to increase as
we expand the size of our customer service and technical support
team and incur increased third-party services fees associated
with anticipated future revenues growth.
Our gross profit has been and will be affected by many factors,
including:
|
|
|
|
|
the demand for Storage Center and related services;
|
|
|
|
discount levels and price competition;
|
|
|
|
average system order size and end user mix;
|
|
|
|
hardware and software component mix;
|
|
|
|
the cost of component;
|
|
|
|
the level of fixed costs of customer service and personnel;
|
|
|
|
the mix of services as a percentage of revenue;
|
|
|
|
new product introductions and enhancements; and
|
|
|
|
geographic sales mix.
|
We do not expect any material changes to our gross profit, as
compared to current levels.
Operating
Expenses
Operating expenses consist of sales and marketing, research and
development and general and administrative expenses.
Personnel-related costs are the most significant component of
each of these expense categories. We expect to continue to hire
a significant number of new employees to support our anticipated
growth.
Our business strategy is to be a leading provider of
enterprise-class network storage solutions. For us to achieve
our goals, substantial investments in our infrastructure were,
and continue to be, necessary to facilitate rapid expansion. Our
sales and marketing team geographically covers the entire United
States, and certain international
35
markets, with employees predominately located at either our
corporate headquarters or working remotely. With our increased
sales and marketing headcount, and the correlating growth in our
revenues, we have also expanded our support functions such as
sales management, sales operations, information technology,
finance and human resources to leverage our corporate structure
to further our business strategy.
Sales and Marketing. Sales and marketing
expense consists primarily of:
|
|
|
|
|
salaries, related personnel costs and stock-based compensation
expense for our sales and marketing personnel;
|
|
|
|
commissions;
|
|
|
|
travel expenses;
|
|
|
|
marketing programs; and
|
|
|
|
other related overhead.
|
We expect sales and marketing expense to increase on an absolute
basis for the foreseeable future as we increase the number of
sales and marketing professionals and, to a lesser extent,
increase our marketing activities. We expect sales and marketing
expense to decrease as a percentage of revenues if our revenues
grow as we anticipate.
Research and Development. Research and
development expense consists primarily of:
|
|
|
|
|
salaries, related personnel costs and stock-based compensation
expense for our research and development personnel;
|
|
|
|
depreciation on equipment; and
|
|
|
|
other related overhead.
|
To date, all of our research and development expenses have been
expensed as incurred. We expect research and development expense
to increase on an absolute basis for the foreseeable future as
we enhance and expand our product offerings. We expect research
and development expense to decrease as a percentage of revenues
if our revenues grow as we anticipate.
General and Administrative. General and
administrative expense consists primarily of:
|
|
|
|
|
salaries, related personnel costs and stock-based compensation
for our finance, human resource, and information technology
personnel and certain executive officers;
|
|
|
|
accounting, tax and legal professional fees; and
|
|
|
|
other related overhead.
|
We expect general and administrative expenses to increase on an
absolute basis for the foreseeable future as we increase
personnel to support growth of our operations. We expect general
and administrative expenses to decrease as a percentage of
revenues if our revenues grow as we anticipate.
Other
Income, net
Other Income, net. Other income, net consists
primarily of interest income and realized gains and losses on
investments.
Income
Tax Expense
Income Tax. Income tax expense consists
primarily of U.S. federal alternative minimum income tax
expense, state income tax expenses and foreign income tax
expenses.
36
Critical
Accounting Policies and Estimates
The discussion of our financial condition and results of
operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting
principles generally accepted in the United States. In preparing
the consolidated financial statements, we are required to make
various estimates, judgments and assumptions that have a
significant impact on the results reported in the consolidated
financial statements. We base our estimates on historical
experience and other assumptions that we believed to be
reasonable under the circumstances. Changes to these estimates
could have a material effect on our consolidated financial
statements. We have discussed the development, selection and
disclosure of these estimates with the audit committee of our
board of directors.
Our significant accounting policies can be found in Note 1
of our Notes to the consolidated financial statements. We
believe the following accounting policies may include a higher
degree of judgment and complexity in their application and are
most critical to aid in fully understanding and evaluating our
reported financial condition and results of operations.
Revenue
Recognition
We recognize product revenues when:
|
|
|
|
|
Persuasive Evidence of an Arrangement
Exists. We determine that persuasive evidence of
an arrangement exists by receiving a purchase order or by
obtaining a signed quote.
|
|
|
|
Delivery has Occurred. Substantially all
products are shipped to end users. Delivery is deemed to have
occurred upon shipment as title transferred. Products shipped
with acceptance criteria are not recognized as revenues until
all conditional criteria are satisfied.
|
|
|
|
The Fee is Fixed or Determinable. Fees are
considered fixed and determinable upon establishment of an
arrangement that contains the final terms of sale including
description, quantity and price of each product or service
purchased, and the payment term is less than twelve months.
|
|
|
|
Collectability is Probable. Probability of
collection is assessed on a
case-by-case
basis. Customers are subject to a credit review process that
evaluates the customers financial position and ultimately
their ability to pay. If we are unable to determine from the
outset of an arrangement that collectability is probable based
upon our review process, revenues are recognized upon cash
receipt.
|
We use channel partners to sell our products. Revenues under
channel partner arrangements are not recognized until delivery
occurs, the fee is fixed and determinable, collectability is
probable and supported, and an end user has been identified. We
maintain contractual arrangements with our channel partners,
which contain provisions that specify that the risk of loss and
title transfers upon shipment. In circumstances where we sell
directly to an end user, our revenues are the price we charge
the end user and revenues are recognized upon delivery.
A sale is typically a multiple-element arrangement including
software, hardware, software maintenance, hardware maintenance
and, in certain cases, services. Our determination of fair value
of each element in these multiple-element arrangements is based
on vendor-specific objective evidence, or VSOE. We have analyzed
all of the elements included in our multiple-element
arrangements and have determined that we have sufficient VSOE to
allocate revenues to all undelivered elements of a contract.
VSOE is evaluated and determined by us based on separate sales
of the specific elements. No software products remain
undelivered at the inception of the arrangement. Accordingly,
assuming all other revenue recognition criteria are met,
revenues from software and hardware are recognized upon delivery
using the residual method, and revenues from software
maintenance and hardware maintenance are recognized ratably over
the respective support period. For multiple-element arrangements
that include only hardware and hardware maintenance, we have
determined that we have objective and reliable evidence of fair
value to allocate revenues separately to hardware and hardware
maintenance.
We generally sell professional services on a
time-and-materials
basis and recognize revenues when the services are performed.
37
Allowance
for Doubtful Accounts
In the vast majority of sales, we sell our products to channel
partners for resale to end users. In certain limited
circumstances, we may sell directly to the end user, primarily
due to concerns of the credit worthiness of the channel partner.
We perform ongoing evaluations of our channel partners and end
users and continuously monitor collections and payments. We
record an allowance for doubtful accounts for potentially
uncollectible receivables. The allowance is established based on
a specific assessment of accounts with known collection
exposure, a review of the age of the receivable, the
customers payment history, the customers financial
condition and industry and general economic conditions, as well
as a general assessment of collection exposure in the remaining
receivable population based upon bad debt history. Our actual
bad debt exposure could differ significantly from our estimates
if the financial condition of our channel partners or end users
were to deteriorate, resulting in an impairment of their ability
to make payments.
Inventory
Valuations
Inventories are recorded at the lower of cost, determined on the
first-in,
first-out method, or market value (estimated net realizable
value). Each quarter, we evaluate our inventories for
obsolescence and excess quantities. We record provisions for
excess and obsolete inventory. The amounts of these provisions
are based upon our analysis of current inventory levels,
expected product lives, historical loss trends and projections
of future sales demand. However, our inventory provision may not
be sufficient if future demand for our products decreased
because of economic or competitive conditions, or if products
became obsolete because of technical advancements in the
industry or by us. Under these and other circumstances,
additional inventory write-downs would be required and would
adversely affect income in the period the write-down is made.
Stock-Based
Compensation
We measure and recognize compensation expense for all
share-based payment awards made to employees and non-employee
directors based on fair value. Determining the appropriate fair
value model and calculating the fair value of stock option
grants requires the input of highly subjective assumptions. We
use the Black-Scholes option pricing model to value our stock
option awards. Stock-based compensation expense is significant
to our financial statements and is calculated using our best
estimates, which involve inherent uncertainties and the
application of managements judgment. Significant estimates
include the risk free interest rate, the expected life of the
option, stock price volatility, the dividend yield and the
forfeiture rate. The risk-free interest rate is based on the
yield available on U.S. Treasury zero-coupon bonds at the
date of grant with maturity dates approximately equal to the
expected life of the options at their grant date. The expected
life of the options is based on evaluations of historic expected
lives from a selected publicly traded peer group, believed to be
comparable after consideration of size, maturity, profitability,
growth, risk and return on investment. Volatility is based on
historic volatilities from traded shares of the same publicly
traded peer group. We have not paid dividends in the past and do
not expect to in the foreseeable future. We utilize historical
data to estimate pre-vesting forfeitures and record stock-based
compensation expense only for those awards that are expected to
vest. Any changes in these highly subjective assumptions could
significantly impact the amount of stock-based compensation
expense recognized, which could have a material impact on our
financial statements.
Income
Taxes
We are required to estimate income taxes in each of the
jurisdictions in which we operate. This process involves
estimating actual current tax expense and assessing temporary
differences resulting from differing treatment of items for
financial statement and income tax purposes. These temporary
differences result in deferred tax assets and liabilities, which
are included in the consolidated balance sheets. We record a
valuation allowance to reduce our deferred tax assets to the
amount that is more likely than not to be realized. Increases in
the valuation allowance result in the recognition of additional
income tax expense. Income tax expense could be materially
different from actual results because of changes in our
expectations regarding future taxable income, the relationship
between book and taxable income and available tax planning
strategies. If tax regulations, operating results or the ability
to implement tax-planning strategies vary, adjustments to the
carrying value of deferred tax assets and liabilities may be
required.
38
We recognize the financial statement benefit of a tax position
only after determining that the relevant tax authority would
more likely than not sustain the position following an audit.
For tax positions meeting the more likely than not threshold,
the amount recognized in the financial statements is the largest
benefit that has a greater than 50 percent likelihood of
being realized upon ultimate settlement with the relevant tax
authority. We have recorded unrecognized tax benefits of
$430,000 at December 31, 2009, which are netted against the
corresponding deferred tax assets on the balance sheet.
Our deferred tax assets are comprised primarily of net operating
loss, or NOL, carryforwards, federal and state research and
development credit carryforwards and federal alternative minimum
tax, or AMT, credit carryforwards. As of December 31, 2009,
we had federal tax NOL carryforwards of approximately
$24.2 million. The NOL carryforwards are available to
offset taxable income through 2027 and will begin to expire in
2022. Our various state NOL carryforwards are available to
offset future state taxable income. These state NOL
carryforwards typically will have the same expirations as our
federal tax NOL carryforwards. We had approximately
$1.6 million of federal research and development credit
carryforwards, $578,000 of state research and development credit
carryforwards and $278,000 of federal AMT credit carryforwards.
The federal and state research and development credit
carryforwards will begin to expire in 2022, while the federal
AMT credit carryforwards do not have an expiration date. In
addition, under the provisions of Section 382 of the
Internal Revenue Code of 1986, as amended, substantial changes
in our ownership could place limitations on the availability of
our NOL carryforwards.
Based on the level of projected future taxable income over the
periods in which the deferred tax assets are deductible, our
past history of losses and the positive and negative evidence
available, we have concluded it is more likely than not that we
will not realize the benefits of our net deferred tax assets.
Accordingly, we have recorded a full valuation allowance against
our net deferred tax assets as of December 31, 2009 and
2008 of $14.2 million and $15.1 million, respectively.
We continue to evaluate the realization of deferred tax assets
and at the point in time when we determine that it is more
likely than not that a portion of our deferred tax assets will
be realized, we will evaluate our valuation allowance and
release an amount that is expected to be realized.
Results
of Operations
The following table sets forth a summary of our Consolidated
Statements of Operations and the related changes for the periods
indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
Change
|
|
|
December 31,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
90,938
|
|
|
$
|
72,417
|
|
|
$
|
18,521
|
|
|
|
25.6
|
%
|
|
$
|
72,417
|
|
|
$
|
42,831
|
|
|
$
|
29,586
|
|
|
|
69.1
|
%
|
Support and services
|
|
|
34,337
|
|
|
|
18,479
|
|
|
|
15,858
|
|
|
|
85.8
|
|
|
|
18,479
|
|
|
|
8,368
|
|
|
|
10,111
|
|
|
|
120.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
125,275
|
|
|
|
90,896
|
|
|
|
34,379
|
|
|
|
37.8
|
|
|
|
90,896
|
|
|
|
51,199
|
|
|
|
39,697
|
|
|
|
77.5
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
45,809
|
|
|
|
34,949
|
|
|
|
10,860
|
|
|
|
31.1
|
|
|
|
34,949
|
|
|
|
21,554
|
|
|
|
13,395
|
|
|
|
62.1
|
|
Support and services
|
|
|
11,592
|
|
|
|
7,011
|
|
|
|
4,581
|
|
|
|
65.3
|
|
|
|
7,011
|
|
|
|
4,423
|
|
|
|
2,588
|
|
|
|
58.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
57,401
|
|
|
|
41,960
|
|
|
|
15,441
|
|
|
|
36.8
|
|
|
|
41,960
|
|
|
|
25,977
|
|
|
|
15,983
|
|
|
|
61.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
67,874
|
|
|
|
48,936
|
|
|
|
18,938
|
|
|
|
38.7
|
|
|
|
48,936
|
|
|
|
25,222
|
|
|
|
23,714
|
|
|
|
94.0
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
45,392
|
|
|
|
35,834
|
|
|
|
9,558
|
|
|
|
26.7
|
|
|
|
35,834
|
|
|
|
23,520
|
|
|
|
12,314
|
|
|
|
52.4
|
|
Research and development
|
|
|
12,687
|
|
|
|
10,060
|
|
|
|
2,627
|
|
|
|
26.1
|
|
|
|
10,060
|
|
|
|
7,632
|
|
|
|
2,428
|
|
|
|
31.8
|
|
General and administrative
|
|
|
6,066
|
|
|
|
6,224
|
|
|
|
(158
|
)
|
|
|
(2.5
|
)
|
|
|
6,224
|
|
|
|
3,324
|
|
|
|
2,900
|
|
|
|
87.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
64,145
|
|
|
|
52,118
|
|
|
|
12,027
|
|
|
|
23.1
|
|
|
|
52,118
|
|
|
|
34,476
|
|
|
|
17,642
|
|
|
|
51.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
3,729
|
|
|
|
(3,182
|
)
|
|
|
6,911
|
|
|
|
*
|
|
|
|
(3,182
|
)
|
|
|
(9,254
|
)
|
|
|
6,072
|
|
|
|
65.6
|
|
Other income, net
|
|
|
1,782
|
|
|
|
2,766
|
|
|
|
(984
|
)
|
|
|
(35.6
|
)
|
|
|
2,766
|
|
|
|
1,425
|
|
|
|
1,341
|
|
|
|
94.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
5,511
|
|
|
|
(416
|
)
|
|
|
5,927
|
|
|
|
*
|
|
|
|
(416
|
)
|
|
|
(7,829
|
)
|
|
|
7,413
|
|
|
|
94.7
|
|
Income tax expense
|
|
|
718
|
|
|
|
|
|
|
|
718
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,793
|
|
|
$
|
(416
|
)
|
|
$
|
5,209
|
|
|
|
*
|
|
|
$
|
(416
|
)
|
|
$
|
(7,829
|
)
|
|
$
|
7,413
|
|
|
|
94.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
- not a meaningful percentage |
39
Comparison
of Years Ended December 31, 2009 and 2008
Revenues
Revenues and the related changes for the years ended
December 31, 2009 and 2008 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
of Total
|
|
|
|
|
|
of Total
|
|
|
Change
|
|
|
|
$
|
|
|
Revenues
|
|
|
$
|
|
|
Revenues
|
|
|
$
|
|
|
%
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
90,938
|
|
|
|
72.6
|
%
|
|
$
|
72,417
|
|
|
|
79.7
|
%
|
|
$
|
18,521
|
|
|
|
25.6
|
%
|
Support and services
|
|
|
34,337
|
|
|
|
27.4
|
|
|
|
18,479
|
|
|
|
20.3
|
|
|
|
15,858
|
|
|
|
85.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
125,275
|
|
|
|
100.0
|
%
|
|
$
|
90,896
|
|
|
|
100.0
|
%
|
|
$
|
34,379
|
|
|
|
37.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Revenues. Product revenues derived
from system sales primarily increased due to a 39% increase in
the number of systems sold. The increase in systems sales was
driven by an increase of 107 channel partners, an increase in
sales and marketing headcount to 212 people from
163 people, and additional marketing programs. While we
continued to experience lower revenues per megabyte for disk
drives, this was offset by increased revenues from enhanced
capacity and complexity of systems purchased by our end users.
Product revenues derived from upgrade sales increased due to the
ongoing growth in the number of our total end users, which
increased to 1,812 as of December 31, 2009 from 1,278 as of
December 31, 2008.
Support and Services Revenues. Support
revenues increased 87% primarily due to the renewal of
maintenance agreements by existing end users and the growth of
the installed base. Services revenues increased 80% due to an
increase in end user and channel partner training programs and
an increase in Storage Center installations. These increases
were due to both an increase in the number of products sold and
our efforts to grow services revenues.
Cost
of Revenues and Gross Profit
Cost of revenues and gross profit and the related changes for
the years ended December 31, 2009 and 2008 were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
of Related
|
|
|
|
|
|
of Related
|
|
|
Change
|
|
|
|
$
|
|
|
Revenues
|
|
|
$
|
|
|
Revenues
|
|
|
$
|
|
|
%
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
45,809
|
|
|
|
50.4
|
%
|
|
$
|
34,949
|
|
|
|
48.3
|
%
|
|
$
|
10,860
|
|
|
|
31.1
|
%
|
Support and services
|
|
|
11,592
|
|
|
|
33.8
|
|
|
|
7,011
|
|
|
|
37.9
|
|
|
|
4,581
|
|
|
|
65.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
$
|
57,401
|
|
|
|
45.8
|
%
|
|
$
|
41,960
|
|
|
|
46.2
|
%
|
|
$
|
15,441
|
|
|
|
36.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
54.2
|
%
|
|
|
|
|
|
|
53.8
|
%
|
|
|
|
|
|
|
|
|
Cost of Product Revenues. Cost of product
revenues increased primarily due to increased component hardware
costs associated with the increased number of systems and
upgrades purchased by our end users.
Cost of Support and Services Revenues. Cost of
support and services revenues increased primarily due to
increased salaries, employee benefits and stock-based
compensation expense of $2.0 million related to growth in
our customer service and technical support headcount to
63 people from 41 people, increased travel expense of
$143,000, increased hardware service fees of $2.0 million
charged by our third-party hardware maintenance provider
associated with the continuing growth of our installed base and
$477,000 for allocations of facilities related costs and
depreciation expense.
40
Gross Profit. Gross profit increased due to
revenues increasing faster than cost of revenues as discussed
above.
Operating
Expenses
Operating expenses and the related changes for the years ended
December 31, 2009 and 2008 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
of Total
|
|
|
|
|
|
of Total
|
|
|
Change
|
|
|
|
$
|
|
|
Revenues
|
|
|
$
|
|
|
Revenues
|
|
|
$
|
|
|
%
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
45,392
|
|
|
|
36.1
|
%
|
|
$
|
35,834
|
|
|
|
39.4
|
%
|
|
$
|
9,558
|
|
|
|
26.7
|
%
|
Research and development
|
|
|
12,687
|
|
|
|
10.1
|
|
|
|
10,060
|
|
|
|
11.1
|
|
|
|
2,627
|
|
|
|
26.1
|
|
General and administrative
|
|
|
6,066
|
|
|
|
4.8
|
|
|
|
6,224
|
|
|
|
6.8
|
|
|
|
(158
|
)
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
64,145
|
|
|
|
51.2
|
%
|
|
$
|
52,118
|
|
|
|
57.3
|
%
|
|
$
|
12,027
|
|
|
|
23.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing Expense. Sales and
marketing expense increased primarily due to an increase in
sales and marketing headcount to 212 people from
163 people, resulting in a $6.1 million increase in
salaries, employee benefits, commissions and stock-based
compensation expense, a $479,000 increase in sales and marketing
related travel and support costs and a $297,000 increase in
channel partner commissions due to increased third-party selling
activities. Increased marketing efforts led to an additional
$2.6 million of expense related to partner programs, trade
shows and other promotional activities.
Research and Development Expense. Research and
development expense increased primarily due to an increase in
research and development headcount to 75 people from
58 people, resulting in a $2.0 million increase in
salaries, employee benefits and stock-based compensation
expense. Depreciation expense increased $511,000 due to an
increase in our purchases of lab equipment throughout 2009.
General and Administrative Expense. General
and administrative expense decreased primarily due to a decrease
in professional and compliance fees of $589,000 for outside
legal and consulting services from prior year, which pertained
predominately to public company reporting and compliance
requirements related to our initial public offering in October
2007. In the prior year, we also incurred $778,000 of additional
legal and settlement expenses in defense and settlement of
claims brought against us. These decreases were somewhat offset
by an increase in salaries, employee benefits and stock-based
compensation expense of $983,000 due to an increase in staff
headcount in finance, information technology, and human
resources from 17 people to 22 people and for
compensation increases to reflect current market conditions. In
addition, our accounting fees increased $182,000 due to an
increase in tax services for one-time projects.
Other
Income, Net
Other Income, Net. Other income, net decreased
$984,000 primarily due to decreased interest income resulting
from lower interest rates partially offset by interest income on
increased cash, cash equivalents and investment balances.
Income
Tax Expense
Income Tax Expense. Income tax expense of
$718,000 for the year-ended December 31, 2009 consisted of
$256,000 for U.S. federal alternative minimum income tax
expense, $409,000 for state income tax expense and $53,000 for
foreign income tax expense. There was no income tax expense or
benefit incurred in 2008.
41
Comparison
of Years Ended December 31, 2008 and 2007
Revenues
Revenues and the related changes for the years ended
December 31, 2008 and 2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
of Total
|
|
|
|
|
|
of Total
|
|
|
Change
|
|
|
|
$
|
|
|
Revenues
|
|
|
$
|
|
|
Revenues
|
|
|
$
|
|
|
%
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
72,417
|
|
|
|
79.7
|
%
|
|
$
|
42,831
|
|
|
|
83.7
|
%
|
|
$
|
29,586
|
|
|
|
69.1
|
%
|
Support and services
|
|
|
18,479
|
|
|
|
20.3
|
|
|
|
8,368
|
|
|
|
16.3
|
|
|
|
10,111
|
|
|
|
120.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
90,896
|
|
|
|
100.0
|
%
|
|
$
|
51,199
|
|
|
|
100.0
|
%
|
|
$
|
39,697
|
|
|
|
77.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Revenues. Product revenues derived
from system sales primarily increased due to a 42% increase in
the number of systems sold. The increase in systems sales was
driven by an increase of approximately 80 channel partners, an
increase in sales and marketing headcount to 163 people
from 119 people, and additional marketing programs. While
we continued to experience lower revenues per megabyte for disk
drives, this was offset by increased revenues from enhanced
capacity and complexity of systems purchased by our end users.
Product revenues derived from upgrade sales increased due to the
ongoing growth in the number of our total end users, which
increased to over 1,275 as of December 31, 2008 from over
740 as of December 31, 2007.
Support and Services Revenues. Support
revenues increased 113% primarily due to the renewal of
maintenance agreements by existing end users and the growth of
the installed base. Support pricing remained relatively flat
with an adjustment for immaterial inflationary price increases.
Services revenues increased 204% due to an increase in end user
and channel partner training programs and an increase in Storage
Center installations. These increases were due to both an
increase in the number of products sold and our efforts to grow
services revenues.
Cost
of Revenues and Gross Profit
Cost of revenues and gross profit and the related changes for
the years ended December 31, 2008 and 2007 were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
of Related
|
|
|
|
|
|
of Related
|
|
|
Change
|
|
|
|
$
|
|
|
Revenues
|
|
|
$
|
|
|
Revenues
|
|
|
$
|
|
|
%
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
34,949
|
|
|
|
48.3
|
%
|
|
$
|
21,554
|
|
|
|
50.3
|
%
|
|
$
|
13,395
|
|
|
|
62.1
|
%
|
Support and services
|
|
|
7,011
|
|
|
|
37.9
|
|
|
|
4,423
|
|
|
|
52.9
|
|
|
|
2,588
|
|
|
|
58.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
$
|
41,960
|
|
|
|
46.2
|
%
|
|
$
|
25,977
|
|
|
|
50.7
|
%
|
|
$
|
15,983
|
|
|
|
61.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
53.8
|
%
|
|
|
|
|
|
|
49.3
|
%
|
|
|
|
|
|
|
|
|
Cost of Product Revenues. Cost of product
revenues increased primarily due to increased component hardware
costs associated with the increased number of systems and
upgrades purchased by our end users.
Cost of Support and Services Revenues. Cost of
support and services revenues increased primarily due to
increased salaries, employee benefits and stock-based
compensation expense of $806,000 related to growth in our
customer service and technical support headcount to
41 people from 26 people, increased travel expense of
$226,000, increased hardware service fees of $1.1 million
charged by our third-party hardware maintenance provider
associated with the continuing growth of our installed base and
$445,000 of product cost predominately for obligations owed to
customers pursuant to terms of our hardware and software
maintenance contracts.
42
Gross Profit. Gross profit increased due to
revenues increasing faster than cost of revenues as discussed
above.
Operating
Expenses
Operating expenses and the related changes for the years ended
December 31, 2008 and 2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
|
Change
|
|
|
|
$
|
|
|
Revenues
|
|
|
$
|
|
|
Revenues
|
|
|
$
|
|
|
%
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
35,834
|
|
|
|
39.4
|
%
|
|
$
|
23,520
|
|
|
|
45.9
|
%
|
|
$
|
12,314
|
|
|
|
52.4
|
%
|
Research and development
|
|
|
10,060
|
|
|
|
11.1
|
|
|
|
7,632
|
|
|
|
14.9
|
|
|
|
2,428
|
|
|
|
31.8
|
|
General and administrative
|
|
|
6,224
|
|
|
|
6.8
|
|
|
|
3,324
|
|
|
|
6.5
|
|
|
|
2,900
|
|
|
|
87.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
52,118
|
|
|
|
57.3
|
%
|
|
$
|
34,476
|
|
|
|
67.3
|
%
|
|
$
|
17,642
|
|
|
|
51.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing Expense. Sales and
marketing expense increased primarily due to an increase in
sales and marketing headcount to 163 people from
119 people, resulting in a $9.8 million increase in
salaries, employee benefits, commissions and stock-based
compensation expense, a $942,000 increase in sales and marketing
related travel and support costs and a $661,000 increase in
channel partner commissions due to increased third-party selling
activities. Increased marketing efforts led to an additional
$624,000 of expense related to partner programs, trade shows and
other promotional activities.
Research and Development Expense. Research and
development expense increased primarily due to an increase in
research and development headcount to 58 people from
48 people, resulting in a $2.0 million increase in
salaries, employee benefits and stock-based compensation
expense, and an increase of $284,000 in facilities related costs
due primarily to our relocation to our new executive
headquarters in March 2007.
General and Administrative Expense. General
and administrative expense increased primarily due to an
increase in finance, information technology, and human resource
staff headcount to 17 people from 11 people and
compensation increases to reflect current market conditions,
resulting in a $893,000 increase in salaries, employee benefits
and stock-based compensation expense. Professional and
compliance fees increased $1.1 million for outside legal,
accounting, and consulting services, pertaining predominately to
public company reporting and compliance requirements as we
completed an initial public offering in October 2007. We also
incurred $778,000 of additional legal and settlement expenses in
defense and settlement of claims brought against us.
Other
Income, Net
Other Income, Net. Other income, net increased
primarily due to increased interest income resulting from higher
cash and cash equivalent and investment balances following the
closing of the initial public offering in October 2007.
Liquidity
and Capital Resources
We completed an initial public offering of our common stock on
October 9, 2007 in which we sold 6,900,000 shares of
our common stock at $13.50 per share for cash proceeds of
$84.6 million, net of underwriting discounts and
commissions and offering expenses. We have used these funds for
general corporate purposes since our initial public offering and
expect to continue to do so. We also completed a secondary
offering of our common stock on November 17, 2009 in which
we sold 600,000 shares of our common stock at $19.25 per
share for cash proceeds of $10.7 million, net of
underwriting discounts and commissions and offering expenses.
Cash in excess of immediate operating requirements is invested
in accordance with our investment policy, primarily with a goal
of maintaining liquidity and capital preservation. Our cash,
cash equivalents and short and long-term investments are held in
highly liquid money market funds, federal agency securities,
corporate debt securities, certificates of deposit, and variable
rate demand notes.
43
Our cash, cash equivalents and short-term investments available
to fund current operations were $64.4 million and
$81.1 million at December 31, 2009 and 2008,
respectively. Our cash, cash equivalents and short-term
investment balances decreased between periods due to movement of
funds into long-term securities to capture higher interest
rates. We held $59.5 million and $19.2 million of
long-term investments at December 31, 2009 and 2008,
respectively. Additionally, cash provided by operating
activities for the year ended December 31, 2009 was
$14.9 million compared to $7.8 million for the year
ended December 31, 2008.
Cash
Flows
The following table summarizes our cash flows for the years
ended December 31, 2009, 2008 and 2007 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
14,939
|
|
|
$
|
7,849
|
|
|
$
|
(3,476
|
)
|
Net cash used in investing activities
|
|
|
(50,438
|
)
|
|
|
(39,107
|
)
|
|
|
(13,990
|
)
|
Net cash provided by financing activities
|
|
|
12,665
|
|
|
|
865
|
|
|
|
84,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(22,834
|
)
|
|
$
|
(30,393
|
)
|
|
$
|
67,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Cash provided by operating activities was $14.9 million in
2009. We had net income of $4.8 million, which included
non-cash charges consisting of $2.4 million in depreciation
and $4.1 million in stock-based compensation expense. Cash
provided by other operating activities included an increase in
deferred revenues of $17.6 million and an increase in
accounts payable of $6.1 million, partially offset by an
increase in accounts receivable of $17.5 million. The
increase in deferred revenues reflects an increase in our
customer base and related increase in the purchase of our
maintenance agreements, which are paid for in advance but
recorded as revenues ratably over the term of the agreement. The
increase in accounts payable relates to increased inventory
purchases at the end of the current year as a result of
increased sales in the fourth quarter. The increase in accounts
receivable reflects an overall increase in revenues primarily
due to the expansion of our operations.
Cash provided by operating activities was $7.8 million in
2008. We incurred a net loss of $416,000, which included
non-cash charges consisting of $1.6 million in depreciation
and $2.2 million in stock-based compensation expense
related to employees. Cash provided by other operating
activities included an increase in deferred revenues of
$10.1 million and an increase in accrued compensation and
accrued liabilities of $2.2 million, partially offset by an
increase in accounts receivable of $5.9 million. The
increase in deferred revenues reflects an increase in our
customer base and related increase in the purchase of our
maintenance agreements, which are paid for in advance but
recorded as revenues ratably over the term of the agreement. The
increase in accrued compensation and accrued liabilities relates
predominately to increased employee costs for salaries,
vacation, bonuses and commissions due to increased headcount,
timing of payroll, and overall expansion of our operations and
customer base. The increase in accounts receivable reflects an
overall increase in revenues primarily due to the expansion of
our operations.
Cash used in operating activities was $3.5 million in 2007.
We incurred a net loss of $7.8 million, which included
non-cash charges consisting of $1.2 million in depreciation
and $642,000 in stock-based compensation expense related to
employees. Cash used in other operating activities included an
increase in accounts receivable of $5.4 million, more than
offset by an increase in deferred revenues of $6.6 million
and an increase in accrued compensation and accrued liabilities
of $2.1 million. The increase in accounts receivable
reflects an overall increase in revenues primarily due to the
expansion of our operations. The increase in deferred revenues
reflects an increase in our customer base and related increase
in the purchase of our maintenance agreements, which are paid
for in advance but recorded as revenues ratably over the term of
the agreement. The increase in accrued compensation and accrued
liabilities relates predominately to increased employee costs
for salaries, vacation, bonuses and commissions due to increased
headcount, timing of payroll, and overall expansion of our
operations and customer base.
44
Investing
Activities
Cash used in investing activities was $50.4 million in
2009, consisting primarily of $4.1 million for purchases of
property and equipment and $123.4 million for purchases of
investments, partially offset by sales and maturities of
investments of $77.0 million.
Cash used in investing activities was $39.1 million in
2008, consisting primarily of $2.3 million for purchases of
property and equipment and $98.5 million for purchases of
investments, partially offset by sales and maturities of
investments of $61.7 million.
Cash used in investing activities was $14.0 million in
2007, consisting primarily of $11.4 million for purchases
of short-term investments and $2.9 million for purchases of
property and equipment.
Financing
Activities
Cash provided by financing activities was $12.7 million
from the issuance of 306,000 shares of common stock in
conjunction with the 2007 Employee Stock Purchase Plan and the
exercise of stock options with cash proceeds of
$2.0 million and from the issuance of 600,000 shares
of common stock in conjunction with a secondary offering in
November 2009 with cash proceeds of $10.7 million, net of
offering expenses.
Cash provided by financing activities was $865,000 in 2008,
largely from the issuance of common stock in conjunction with
the 2007 Employee Stock Purchase Plan and pursuant to the
exercise of stock options.
Cash provided by financing activities was $84.7 million in
2007, primarily from the issuance of 6,900,000 shares of
common stock in conjunction with our initial public offering in
October 2007 with cash proceeds of $84.6 million, net of
underwriting discounts and commissions and offering expenses.
Operating
and Capital Expenditure Requirements
We anticipate using available cash to fund growth in operations
and further investments in human capital and capital equipment.
In the next twelve months, capital expenditures are
expected to be in the range of approximately $6.5 million
to $7.5 million, primarily for product development. We
believe our current cash and cash equivalents, investments, and
the interest we earn on these balances, will be sufficient to
meet our anticipated cash needs for working capital and capital
expenditures for at least the next twelve months. If these
sources of cash are insufficient to satisfy our liquidity
requirements beyond the next twelve months, we may seek to
sell additional equity or convertible debt securities or enter
into a credit facility. The sale of additional equity and
convertible debt securities may result in dilution to our
stockholders. If we raise additional funds through the issuance
of convertible debt securities, such securities could have
rights senior to those of our common stock and could contain
covenants that would restrict our operations. We may require
additional capital beyond our currently forecasted amounts. Any
such required additional capital may not be available on
reasonable terms, if at all.
Contractual
Obligations
The following table summarizes our outstanding contractual
obligations as of December 31, 2009 and the effect those
obligations are expected to have on our liquidity and cash flows
in future periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Operating Leases
|
|
$
|
6,176
|
|
|
$
|
1,234
|
|
|
$
|
3,079
|
|
|
$
|
1,863
|
|
|
$
|
|
|
The table above reflects only payment obligations that are fixed
and determinable. Our commitments for operating leases relate to
our corporate headquarters in Eden Prairie, Minnesota and office
equipment.
Off-Balance
Sheet Arrangements
Since our inception, we have not engaged in any off-balance
sheet arrangements, including the use of structured finance,
special purpose entities or variable interest entities.
45
Recent
Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update
No. 2009-01,
Generally Accepted Accounting Principles (ASC Topic
105), which establishes the FASB Accounting Standards
Codificationtm,
or the Codification or ASC, and amended the hierarchy of
generally accepted accounting principles (GAAP) such that the
ASC became the single source of authoritative U.S. GAAP.
The ASC did not change current U.S. GAAP, but was intended
to simplify user access to all authoritative U.S. GAAP by
providing all the authoritative literature related to a
particular topic in one place. All previously existing
accounting standards were superseded and all other accounting
literature not included in the Codification is considered
non-authoritative. New accounting standards issued subsequent to
June 30, 2009 are communicated by the FASB through
Accounting Standards Updates (ASUs). This standard is effective
for financial statements issued for interim and annual periods
ending after September 15, 2009 and therefore was effective
for us in the third quarter of fiscal 2009. The principal impact
on our financial statements is limited to disclosures as all
future references to authoritative accounting literature will be
referenced in accordance with the Codification. The Codification
did not have an impact on our financial condition or results of
operation.
In October 2009, the FASB issued the following ASUs:
|
|
|
|
|
ASU
No. 2009-13,
Revenue Recognition (ASC Topic 605)
Multiple-Deliverable Revenue Arrangements, a consensus of the
FASB Emerging Issues Task Force; and
|
|
|
|
ASU
No. 2009-14,
Software (ASC Topic 985) Certain Revenue
Arrangements That Include Software Elements, a consensus of the
FASB Emerging Issues Task Force.
|
ASU
No. 2009-13: This
guidance modifies the fair value requirements of ASC Subtopic
605-25
Revenue Recognition Multiple-Element Arrangements by allowing
the use of the best estimate of selling price in
addition to VSOE and Vendor Objective Evidence (now referred to
as third-party evidence, or TPE) for determining the selling
price of a deliverable. A vendor is now required to use its best
estimate of the selling price when VSOE or TPE of the selling
price cannot be determined. In addition, the residual method of
allocating arrangement consideration is no longer permitted.
ASU
No. 2009-14: This
guidance modifies the scope of ASC Subtopic
965-605
Software Revenue Recognition to exclude from its requirements
(a) non-software components of tangible products and
(b) software components of tangible products that are sold,
licensed, or leased with tangible products when the software
components and non-software components of the tangible product
function together to deliver the tangible products
essential functionality.
These updates require expanded qualitative and quantitative
disclosures and are effective for fiscal years beginning on or
after June 15, 2010. However, companies may elect to adopt
as early as interim periods ended September 30, 2009. We
plan to adopt these updates on January 1, 2011 on a
prospective basis. We are currently evaluating the impact of
adopting these updates on our consolidated financial statements.
46
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We are exposed to market risk from changes in interest rates
relating to our investment portfolio. The primary objective of
our investment activities is to preserve our capital for the
purpose of funding operations while at the same time maximizing
the income we receive from our investments without significantly
increasing risk. This means that a change in prevailing interest
rates may cause the principal amount of the investments to
fluctuate. By policy, we minimize risk by placing our
investments with high quality debt security issuers and limit
the amount of credit exposure to any one issuer. To achieve
these objectives, our investment policy allows us to maintain a
portfolio of cash equivalents and short-term and long-term
investments in a variety of securities, including commercial
paper, money market funds and corporate debt securities. Our
investment policy prohibits investment in derivative
instruments. Through our money managers, we maintain risk
management control systems to monitor interest rate risk. Our
cash and cash equivalents as of December 31, 2009 primarily
included liquid money market accounts and are held with high
quality financial institutions and at times, such balances may
be in excess of insurance limits. Our investments as of
December 31, 2009 included federal agency securities,
corporate debt securities, certificates of deposit, and variable
rate demand notes. Our investments in variable rate demand notes
are not subject to auction risk. We performed a sensitivity
analysis on our variable and fixed rate financial investments.
According to our analysis, if our blended rate of return
decreased by 10% in 2009, our interest income for 2009 would
have declined by approximately $239,000. While we cannot predict
future market conditions or market liquidity, we have taken
steps, including regularly reviewing our investments and
associated risk profiles, which we believe will allow us to
effectively manage the risks of our investment portfolio.
We manufacture our products in the United States and sell them
worldwide. As a result, our financial results could be affected
by factors such as changes in foreign currency exchange rates or
weak economic conditions in foreign markets. Since our sales are
currently denominated in U.S. dollars, a strengthening of
the dollar could make our products less competitive in foreign
markets and our accounts receivable more difficult to collect.
We do not currently hedge our exposure to foreign currency
exchange rate fluctuations. We may, however, hedge such exposure
to foreign currency exchange rate fluctuations in the future.
We believe that our international entities are subject to risks
typical of any international entity, including, but not limited
to: differing economic conditions, changes in political climate,
differing tax structures, other regulations and restrictions and
foreign exchange rate volatility. Accordingly, our future
results could be materially adversely impacted by changes in
these or other factors.
47
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Compellent
Technologies, Inc.
Index to
Consolidated Financial Statements
48
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Compellent Technologies, Inc.
We have audited the accompanying consolidated balance sheets of
Compellent Technologies, Inc. (a Delaware corporation) and
subsidiaries as of December 31, 2009 and 2008, and the
related consolidated statements of operations,
stockholders equity (deficit), and cash flows for each of
the three years in the period ended December 31, 2009. Our
audits of the basic financial statements included the financial
statement schedule listed in the index appearing under
Item 15 (2). These financial statements and financial
statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Compellent Technologies, Inc. and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Oversight Board (United States), Compellent
Technologies, Inc. and subsidiaries internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report
dated March 5, 2010 expressed an unqualified opinion.
Minneapolis, Minnesota
March 5, 2010
49
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Compellent Technologies, Inc.
We have audited Compellent Technologies, Inc. (a Delaware
corporation) and subsidiaries internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
internal control over financial reporting of Compellent
Technologies, Inc. and subsidiaries based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Compellent Technologies, Inc. and subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2009, based on
criteria established in Internal Control
Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Compellent Technologies, Inc. and
subsidiaries as of December 31, 2009 and 2008, and the
related consolidated statements of operations,
stockholders equity (deficit), and cash flows for each of
the three years in the period ended December 31, 2009, and
our report dated March 5, 2010 expressed an unqualified
opinion.
Minneapolis, Minnesota
March 5, 2010
50
COMPELLENT
TECHNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands, except share and per share amounts)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
29,155
|
|
|
$
|
51,989
|
|
Short-term investments
|
|
|
35,218
|
|
|
|
29,146
|
|
Accounts receivable, net of allowances of $1,300 and $654
as of December 31, 2009 and 2008
|
|
|
36,702
|
|
|
|
19,167
|
|
Inventories
|
|
|
4,750
|
|
|
|
3,564
|
|
Other current assets
|
|
|
3,497
|
|
|
|
1,592
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
109,322
|
|
|
|
105,458
|
|
Long-term investments
|
|
|
59,472
|
|
|
|
19,153
|
|
Property and equipment, net
|
|
|
5,153
|
|
|
|
3,446
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
173,947
|
|
|
$
|
128,057
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
8,968
|
|
|
$
|
2,885
|
|
Accrued compensation
|
|
|
5,489
|
|
|
|
4,834
|
|
Accrued liabilities
|
|
|
1,261
|
|
|
|
1,480
|
|
Deferred revenues, current
|
|
|
25,668
|
|
|
|
15,128
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
41,386
|
|
|
|
24,327
|
|
Deferred revenues, non-current
|
|
|
12,529
|
|
|
|
5,464
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 300,000,000 shares
authorized; 31,674,940 and 30,768,706 shares issued
and outstanding as of December 31, 2009 and 2008
|
|
|
32
|
|
|
|
31
|
|
Additional paid in capital
|
|
|
164,885
|
|
|
|
147,974
|
|
Accumulated deficit
|
|
|
(45,062
|
)
|
|
|
(49,855
|
)
|
Accumulated other comprehensive income
|
|
|
177
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
120,032
|
|
|
|
98,266
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
173,947
|
|
|
$
|
128,057
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
51
COMPELLENT
TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands, except per share amounts)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
90,938
|
|
|
$
|
72,417
|
|
|
$
|
42,831
|
|
Support and services
|
|
|
34,337
|
|
|
|
18,479
|
|
|
|
8,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
125,275
|
|
|
|
90,896
|
|
|
|
51,199
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
45,809
|
|
|
|
34,949
|
|
|
|
21,554
|
|
Support and services
|
|
|
11,592
|
|
|
|
7,011
|
|
|
|
4,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
57,401
|
|
|
|
41,960
|
|
|
|
25,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
67,874
|
|
|
|
48,936
|
|
|
|
25,222
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
45,392
|
|
|
|
35,834
|
|
|
|
23,520
|
|
Research and development
|
|
|
12,687
|
|
|
|
10,060
|
|
|
|
7,632
|
|
General and administrative
|
|
|
6,066
|
|
|
|
6,224
|
|
|
|
3,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
64,145
|
|
|
|
52,118
|
|
|
|
34,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
3,729
|
|
|
|
(3,182
|
)
|
|
|
(9,254
|
)
|
Other income, net
|
|
|
1,782
|
|
|
|
2,766
|
|
|
|
1,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
5,511
|
|
|
|
(416
|
)
|
|
|
(7,829
|
)
|
Income tax expense
|
|
|
718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,793
|
|
|
$
|
(416
|
)
|
|
$
|
(7,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share, basic
|
|
$
|
0.16
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.77
|
)
|
Net income (loss) per common share, diluted
|
|
$
|
0.15
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.77
|
)
|
Weighted average shares, basic
|
|
|
30,851
|
|
|
|
30,471
|
|
|
|
10,219
|
|
Weighted average shares, diluted
|
|
|
31,915
|
|
|
|
30,471
|
|
|
|
10,219
|
|
See accompanying notes to consolidated financial statements.
52
COMPELLENT
TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity (Deficit)
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Stock
|
|
|
Common Stock
|
|
|
Paid In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
Balance at December 31, 2006
|
|
|
18,939
|
|
|
$
|
59,366
|
|
|
|
4,423
|
|
|
$
|
4
|
|
|
$
|
144
|
|
|
$
|
(41,610
|
)
|
|
$
|
|
|
|
$
|
17,904
|
|
Conversion of convertible preferred stock to common stock
|
|
|
(18,939
|
)
|
|
|
(59,366
|
)
|
|
|
18,939
|
|
|
|
19
|
|
|
|
59,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in conjunction with initial public offering,
net
|
|
|
|
|
|
|
|
|
|
|
6,900
|
|
|
|
7
|
|
|
|
84,601
|
|
|
|
|
|
|
|
|
|
|
|
84,608
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
642
|
|
|
|
|
|
|
|
|
|
|
|
642
|
|
Common stock issued under stock option plan
|
|
|
|
|
|
|
|
|
|
|
138
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
Common stock repurchased
|
|
|
|
|
|
|
|
|
|
|
(302
|
)
|
|
|
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
(142
|
)
|
Stock options exercised for unvested restricted common stock
|
|
|
|
|
|
|
|
|
|
|
475
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Vesting of restricted common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
153
|
|
Issuance of common stock for services provided
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,829
|
)
|
|
|
|
|
|
|
(7,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
30,593
|
|
|
$
|
31
|
|
|
$
|
144,824
|
|
|
$
|
(49,439
|
)
|
|
$
|
|
|
|
$
|
95,416
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,166
|
|
|
|
|
|
|
|
|
|
|
|
2,166
|
|
Common stock issued under stock option and employee stock
purchase plans
|
|
|
|
|
|
|
|
|
|
|
176
|
|
|
|
|
|
|
|
865
|
|
|
|
|
|
|
|
|
|
|
|
865
|
|
Vesting of restricted common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(416
|
)
|
|
|
|
|
|
|
(416
|
)
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
(14
|
)
|
Unrealized gain on investments, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
|
|
|
$
|
|
|
|
|
30,769
|
|
|
$
|
31
|
|
|
$
|
147,974
|
|
|
$
|
(49,855
|
)
|
|
$
|
116
|
|
|
$
|
98,266
|
|
Secondary offering issuance of stock, net
|
|
|
|
|
|
|
|
|
|
|
600
|
|
|
|
1
|
|
|
|
10,657
|
|
|
|
|
|
|
|
|
|
|
|
10,658
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,131
|
|
|
|
|
|
|
|
|
|
|
|
4,131
|
|
Common stock issued under stock option and employee stock
purchase plans
|
|
|
|
|
|
|
|
|
|
|
306
|
|
|
|
|
|
|
|
1,960
|
|
|
|
|
|
|
|
|
|
|
|
1,960
|
|
Tax benefits related to stock option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
Vesting of restricted common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
116
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,793
|
|
|
|
|
|
|
|
4,793
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
(13
|
)
|
Unrealized gain on investments, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
|
|
$
|
|
|
|
|
31,675
|
|
|
$
|
32
|
|
|
$
|
164,885
|
|
|
$
|
(45,062
|
)
|
|
$
|
177
|
|
|
$
|
120,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
53
COMPELLENT
TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,793
|
|
|
$
|
(416
|
)
|
|
$
|
(7,829
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,414
|
|
|
|
1,591
|
|
|
|
1,208
|
|
Stock-based compensation expense
|
|
|
4,131
|
|
|
|
2,166
|
|
|
|
642
|
|
Excess tax benefits from stock-based compensation
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
Issuance of common stock for services provided
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(17,535
|
)
|
|
|
(5,856
|
)
|
|
|
(5,393
|
)
|
Inventories
|
|
|
(1,186
|
)
|
|
|
(1,026
|
)
|
|
|
(785
|
)
|
Other current assets
|
|
|
(1,905
|
)
|
|
|
(546
|
)
|
|
|
(726
|
)
|
Accounts payable
|
|
|
6,130
|
|
|
|
(331
|
)
|
|
|
677
|
|
Accrued compensation and accrued liabilities
|
|
|
539
|
|
|
|
2,197
|
|
|
|
2,140
|
|
Deferred revenues
|
|
|
17,605
|
|
|
|
10,070
|
|
|
|
6,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
14,939
|
|
|
|
7,849
|
|
|
|
(3,476
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(4,121
|
)
|
|
|
(2,288
|
)
|
|
|
(2,898
|
)
|
Purchases of investments
|
|
|
(123,364
|
)
|
|
|
(98,503
|
)
|
|
|
(11,350
|
)
|
Proceeds from sales of investments
|
|
|
55,770
|
|
|
|
48,090
|
|
|
|
|
|
Proceeds from maturities of investments
|
|
|
21,277
|
|
|
|
13,594
|
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(50,438
|
)
|
|
|
(39,107
|
)
|
|
|
(13,990
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
1,960
|
|
|
|
865
|
|
|
|
33
|
|
Proceeds from secondary offering issuance of stock, net
|
|
|
10,658
|
|
|
|
|
|
|
|
|
|
Excess tax benefits from stock-based compensation
|
|
|
47
|
|
|
|
|
|
|
|
|
|
Proceeds from initial public offering, net
|
|
|
|
|
|
|
|
|
|
|
84,851
|
|
Payments for repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
12,665
|
|
|
|
865
|
|
|
|
84,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(22,834
|
)
|
|
|
(30,393
|
)
|
|
|
67,276
|
|
Cash and cash equivalents, beginning of period
|
|
|
51,989
|
|
|
|
82,382
|
|
|
|
15,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
29,155
|
|
|
$
|
51,989
|
|
|
$
|
82,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosure:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
811
|
|
|
$
|
|
|
|
$
|
|
|
Supplemental non-cash disclosure:
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of restricted common stock
|
|
$
|
116
|
|
|
$
|
119
|
|
|
$
|
153
|
|
Unrealized gain on
available-for-sale
investments, net
|
|
$
|
74
|
|
|
$
|
130
|
|
|
$
|
|
|
Conversion of convertible preferred stock to common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
59,366
|
|
Accounts payable corresponding to IPO expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
243
|
|
Issuance of common stock for services provided
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7
|
|
See accompanying notes to consolidated financial statements.
54
COMPELLENT
TECHNOLOGIES, INC.
|
|
1.
|
Nature of
Business and Summary of Significant Accounting
Policies
|
Nature
of Business and Basis of Presentation
Compellent Technologies, Inc., individually or in any
combination with its consolidated subsidiaries, we,
us, or our, was incorporated in March
2002. We develop, market and service enterprise-class network
storage solutions, which include software and hardware. We sell
products through an all-channel assisted sales model. Corporate
headquarters are in Eden Prairie, Minnesota, and we have channel
partners and end users located in the United States and certain
international markets.
The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America, or U.S. GAAP.
Principles
of Consolidation
Our consolidated financial statements include the accounts of
Compellent Technologies, Inc. and our wholly owned subsidiaries.
All intercompany balances and transactions have been eliminated
in consolidation.
Reclassifications
Certain reclassifications have been made to prior years
financial statements to conform to the current year
presentation. The reclassifications were deemed immaterial to
the financial statements as they had no effect on net earnings,
total stockholders equity, total assets or cash flows.
Use of
Estimates
Preparation of the consolidated financial statements in
conformity with U.S. GAAP requires us to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates. The items in our consolidated financial
statements requiring significant estimates and judgments are
revenue recognition, allowance for doubtful accounts, inventory
valuations, stock-based compensation and income taxes, each of
which is disclosed below and under the heading Critical
Accounting Policies and Estimates in Part II,
Item 7 of this Annual Report on
Form 10-K.
Concentrations
of Risk
We receive a substantial portion of our revenues from a limited
number of channel partners. Our top ten channel partners
accounted for 42%, 47%, and 45% of total revenues for the years
ended December 31, 2009, 2008 and 2007, respectively. One
channel partner, AMEX, Inc., accounted for 15% and 12% of total
revenues for the years ended December 31, 2009 and 2008,
respectively. Another channel partner, Insight Investments,
accounted for 10% and 13% of total revenues for the years ended
December 31, 2008 and 2007, respectively. Loss of one or
more of these key channel partners could adversely affect our
operating results in the near term.
At December 31, 2009 and 2008 we had amounts due from one
customer, AMEX, Inc., that represented over 10% of our accounts
receivable balance.
We rely on a limited number of key suppliers to supply
components. One supplier, Xyratex Corporation, comprised 36%,
36%, and 28% of total purchases, and another supplier, Bell
Microproducts, Inc., comprised 21%, 23%, and 23% of total
purchases for the years ended December 31, 2009, 2008 and
2007, respectively. We rely on one third-party hardware
maintenance provider. Management believes alternate sources of
component materials and maintenance services are available;
however, disruption or termination of these relationships could
adversely affect our operating results in the near term.
55
COMPELLENT
TECHNOLOGIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
and Cash Equivalents
Cash and cash equivalents include highly liquid instruments with
an original maturity of three months or less when acquired. Cash
equivalents consist primarily of money market securities at
December 31, 2009 and 2008. We hold our cash and cash
equivalents with high quality financial institutions and at
times, such balances may be in excess of insurance limits.
Investments
Investments are comprised primarily of federal agency
securities, corporate debt securities, municipal securities,
certificates of deposit, and variable rate demand notes that are
classified as
available-for-sale
and are recorded at their fair market values. Investments with
remaining effective maturities of more than twelve months from
the balance sheet date are typically classified as long-term
investments. However, our portfolio includes variable rate
demand notes that have stated maturities beyond twelve months,
but are priced and traded as short-term instruments due to the
liquidity provided through the interest reset mechanism of 7 to
35 days. Any unrealized holding gains or losses on these
investments are reported in accumulated other comprehensive
income, a component of stockholders equity, until realized.
Receivables
and Allowance for Doubtful Accounts
We record accounts receivable at face amount less an allowance
for doubtful accounts for potentially uncollectible receivables.
We perform ongoing evaluations of our channel partners and end
users and continuously monitor collections and payments. We
record an allowance for doubtful accounts based on a specific
assessment of accounts with known collection exposure, a review
of the age of the receivable, the customers payment
history, the customers financial condition and industry
and general economic conditions, as well as a general assessment
of collection exposure in the remaining receivable population
based upon bad debt history. The uncollectible portion of
receivables is charged against the allowance for doubtful
accounts when collections efforts have ceased. To date, accounts
receivable balances written off have been within
managements expectations and have not exceeded the
allowances provided.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined on a
first-in,
first-out basis. We record provisions for excess and obsolete
inventory based upon our analysis of current inventory levels,
expected product lives, historical loss trends and projections
of future sales demand.
Property
and Equipment
Property and equipment are stated at cost. Additions and
improvements that extend the lives of assets are capitalized,
while expenditures for repairs and maintenance are expensed as
incurred. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets.
Amortization of leasehold improvements is computed on a
straight-line basis over the shorter of the estimated useful
lives of the related assets or life of the lease.
The estimated useful lives are:
|
|
|
|
|
Computer equipment
|
|
|
2 3 years
|
|
Computer software
|
|
|
2 3 years
|
|
Office furniture and fixtures
|
|
|
5 years
|
|
Leasehold improvements
|
|
|
5 7 years
|
|
We review our property and equipment for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset (asset group) may not be recoverable. The
carrying amount of a long-lived asset
56
COMPELLENT
TECHNOLOGIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
group is not recoverable if it exceeds the sum of the
undiscounted future cash flows expected to result from the use
and eventual disposition of the asset group. If it is determined
that an impairment loss has occurred, the loss is measured as
the amount by which the carrying amount of the long-lived asset
group exceeds its fair value. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell. To date, we have not recognized any impairment
loss for property and equipment.
Fair
Value of Financial Instruments
The reported amounts of our financial instruments, including
cash and cash equivalents, short-term investments, accounts
receivable, accounts payable, accrued compensation and accrued
liabilities approximate fair value due to their short-term
maturities.
Comprehensive
Income
Accounting principles generally require that recognized revenue,
expenses, gains, and losses be included in net income. Certain
changes in assets and liabilities, such as cumulative
translation adjustments and unrealized gains and losses on
available-for-sale
securities, are reported as a separate component of the
stockholders equity section of the balance sheet. Such
items, along with net income (loss), are components of
comprehensive income.
Revenue
Recognition
We recognize product revenues when:
|
|
|
|
|
Persuasive Evidence of an Arrangement
Exists. We determine that persuasive evidence of
an arrangement exists by receiving a purchase order or by
obtaining a signed quote.
|
|
|
|
Delivery has Occurred. Substantially all
products are shipped to end users. Delivery is deemed to have
occurred upon shipment as title transferred. Products shipped
with acceptance criteria are not recognized as revenues until
all conditional criteria are satisfied.
|
|
|
|
The Fee is Fixed or Determinable. Fees are
considered fixed and determinable upon establishment of an
arrangement that contains the final terms of sale including
description, quantity and price of each product or service
purchased, and the payment term is less than twelve months.
|
|
|
|
Collectability is Probable. Probability of
collection is assessed on a
case-by-case
basis. Customers are subject to a credit review process that
evaluates the customers financial position and ultimately
their ability to pay. If we are unable to determine from the
outset of an arrangement that collectability is probable based
upon our review process, revenues are recognized upon cash
receipt.
|
We use channel partners to sell our products. Revenues under
channel partner arrangements are not recognized until delivery
occurs, the fee is fixed and determinable, collectability is
probable and supported, and an end user has been identified. We
maintain contractual arrangements with our channel partners,
which contain provisions that specify that the risk of loss and
title transfers upon shipment. In circumstances where we sell
directly to an end user, our revenues are the price we charge
the end user and revenues are recognized upon delivery.
A sale is typically a multiple-element arrangement including
software, hardware, software maintenance, hardware maintenance
and, in certain cases, services. Our determination of fair value
of each element in these multiple-element arrangements is based
on vendor-specific objective evidence, or VSOE. We have analyzed
all of the elements included in our multiple-element
arrangements and have determined that we have sufficient VSOE to
allocate revenues to all undelivered elements of a contract.
VSOE is evaluated and determined by us based on separate sales
of the specific elements. No software products remain
undelivered at the inception of the arrangement. Accordingly,
assuming all other revenue recognition criteria are met,
revenues from software and hardware are recognized upon delivery
using the residual method, and revenues from software
maintenance and hardware maintenance are recognized ratably over
the respective support period. For multiple-element arrangements
that
57
COMPELLENT
TECHNOLOGIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
include only hardware and hardware maintenance, we have
determined that we have objective and reliable evidence of fair
value to allocate revenues separately to hardware and hardware
maintenance.
Product revenues consist of license fees for software
applications and related hardware sales of disk drives, system
controllers, host bus adapters, switches and enclosures. We also
derive a portion of our product revenues from software and
hardware upgrades, which include new software applications and
additional hardware components. Revenues from shipping and
handling are included in product revenues and its related cost
is included in cost of product revenues.
Support and services revenues consist of software and hardware
maintenance contracts and professional services for
installation, training and consulting support. We offer software
maintenance that includes telephone support, bug fixes and
unspecified product updates and hardware maintenance that
includes telephone support and
on-site
repairs and replacement. Revenues related to software and
hardware maintenance are deferred at the time the maintenance
agreement is entered into and is recognized ratably over the
term of the maintenance agreement, typically one to three years.
We generally sell professional services on a
time-and-materials
basis and recognize revenues when the services are performed.
Research
and Development Costs
Research and development costs relate to software development
and enhancements to existing products. All such costs are
expensed as incurred. Costs related to the development of
software products are capitalized between the time when
technological feasibility has been established and when the
product is available for general release to customers. To date,
we have not capitalized any software development costs as the
time has been short and the costs have been immaterial from the
date of establishing technological feasibility to the date of
commercial release.
Income
Taxes
We are required to estimate income taxes in each of the
jurisdictions in which we operate. This process involves
estimating actual current tax expense and assessing temporary
differences resulting from differing treatment of items for
financial statement and income tax purposes. These temporary
differences result in deferred tax assets and liabilities, which
are included in the consolidated balance sheets. We record a
valuation allowance to reduce our deferred tax assets to the
amount that is more likely than not to be realized. Increases in
the valuation allowance result in the recognition of additional
income tax expense. Income tax expense could be materially
different from actual results because of changes in our
expectations regarding future taxable income, the relationship
between book and taxable income and available tax planning
strategies. If tax regulations, operating results or the ability
to implement tax-planning strategies vary, adjustments to the
carrying value of deferred tax assets and liabilities may be
required.
We recognize the financial statement benefit of a tax position
only after determining that the relevant tax authority would
more likely than not sustain the position following an audit.
For tax positions meeting the more likely than not threshold,
the amount recognized in the financial statements is the largest
benefit that has a greater than 50 percent likelihood of
being realized upon ultimate settlement with the relevant tax
authority. We have recorded unrecognized tax benefits of
$430,000 at December 31, 2009, which are netted against the
corresponding deferred tax assets on the balance sheet.
Our deferred tax assets are comprised primarily of net operating
loss, or NOL, carryforwards, federal and state research and
development credit carryforwards and federal alternative minimum
tax, or AMT, credit carryforwards. As of December 31, 2009,
we had federal tax NOL carryforwards of approximately
$24.2 million. The NOL carryforwards are available to
offset taxable income through 2027 and will begin to expire in
2022. Our various state NOL carryforwards are available to
offset future state taxable income. These state NOL
carryforwards typically will have the same expirations as our
federal tax NOL carryforwards. We had approximately
$1.6 million of federal research and development credit
carryforwards, $578,000 of state research and development credit
carryforwards and $278,000 of federal AMT credit carryforwards.
The federal and state research and development credit
58
COMPELLENT
TECHNOLOGIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
carryforwards will begin to expire in 2022, while the federal
AMT credit carryforwards do not have an expiration date. In
addition, under the provisions of Section 382 of the
Internal Revenue Code of 1986, as amended, substantial changes
in our ownership could place limitations on the availability of
our NOL carryforwards.
Based on the level of projected future taxable income over the
periods in which the deferred tax assets are deductible, our
past history of losses and the positive and negative evidence
available, we have concluded it is more likely than not that we
will not realize the benefits of our net deferred tax assets.
Accordingly, we have recorded a full valuation allowance against
our net deferred tax assets as of December 31, 2009 and
2008 of $14.2 million and $15.1 million, respectively.
We continue to evaluate the realization of deferred tax assets
and at the point in time when we determine that it is more
likely than not that a portion of our deferred tax assets will
be realized, we will evaluate our valuation allowance and
release an amount that is expected to be realized.
Net
Income (Loss) per Common Share
Basic net income (loss) per common share is computed by dividing
net income (loss) attributable to common stockholders by the
weighted average number of vested shares of common stock
outstanding during the period. Diluted net income per common
share is computed giving effect to all potential dilutive common
shares, including common stock issuable upon exercise of stock
options, and unvested restricted common stock. As we had net
losses for the years ended December 31, 2008 and 2007, all
potential common shares were determined to be anti-dilutive.
Accordingly, diluted net loss per common share is equivalent to
basic net loss per common share for the years ended
December 31, 2008 and 2007.
Stock-Based
Compensation
We recognize compensation expense for all share-based payment
awards made to employees and non-employee directors in our
income statement based on their fair values at the date of
grant. We recognize stock-based compensation expense on a
straight-line basis over the vesting period for all awards, net
of an estimated forfeiture rate, resulting in the recognition of
compensation expense for only those shares expected to vest.
Compensation expense is recognized for all awards over the
vesting period to the extent the employees or directors meet the
requisite service requirements, whether or not the award is
ultimately exercised. Conversely when an employee or director
does not meet the requisite service requirements and forfeits
the award prior to vesting, any compensation expense previously
recognized for the award is reversed. See Note 8 for
additional discussion.
New
Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update
No. 2009-01,
Generally Accepted Accounting Principles (ASC Topic
105), which establishes the FASB Accounting Standards
Codificationtm,
or the Codification or ASC, and amended the hierarchy of
U.S. GAAP such that the ASC became the single source of
authoritative U.S. GAAP. The ASC did not change current
U.S. GAAP, but was intended to simplify user access to all
authoritative U.S. GAAP by providing all the authoritative
literature related to a particular topic in one place. All
previously existing accounting standards were superseded and all
other accounting literature not included in the Codification is
considered non-authoritative. New accounting standards issued
subsequent to June 30, 2009 are communicated by the FASB
through Accounting Standards Updates (ASUs). This standard is
effective for financial statements issued for interim and annual
periods ending after September 15, 2009 and therefore was
effective for us in the third quarter of fiscal 2009. The
principal impact on our financial statements is limited to
disclosures as all future references to authoritative accounting
literature will be referenced in accordance with the
Codification. The Codification did not have an impact on our
financial condition or results of operation.
In October 2009, the FASB issued ASU
No. 2009-13,
Revenue Recognition (ASC Topic 605)
Multiple-Deliverable Revenue Arrangements, a consensus of the
FASB Emerging Issues Task Force. This guidance modifies
the fair value requirements of ASC Subtopic
605-25
Revenue Recognition-Multiple-Element
59
COMPELLENT
TECHNOLOGIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Arrangements by allowing the use of the best estimate of
selling price in addition to VSOE and Vendor Objective
Evidence (now referred to as third-party evidence, or TPE) for
determining the selling price of a deliverable. A vendor is now
required to use its best estimate of the selling price when VSOE
or TPE of the selling price cannot be determined. In addition,
the residual method of allocating arrangement consideration is
no longer permitted.
In October 2009, the FASB issued ASU
No. 2009-14,
Software (ASC Topic 985) Certain Revenue
Arrangements That Include Software Elements, a consensus of the
FASB Emerging Issues Task Force. This guidance modifies
the scope of ASC Subtopic
965-605
Software-Revenue Recognition to exclude from its requirements
(a) non-software components of tangible products and
(b) software components of tangible products that are sold,
licensed, or leased with tangible products when the software
components and non-software components of the tangible product
function together to deliver the tangible products
essential functionality. These updates require expanded
qualitative and quantitative disclosures and are effective for
fiscal years beginning on or after June 15, 2010. However,
companies may elect to adopt as early as interim periods ended
September 30, 2009. We plan to adopt these updates on
January 1, 2011 on a prospective basis. We are currently
evaluating the impact of adopting these updates on our
consolidated financial statements.
|
|
2.
|
Fair
Value Measurements and Investments
|
Fair
Value Measurements
Fair value is defined as the amount that would be received to
sell an asset or paid to transfer a liability (an exit price) in
an orderly transaction between market participants as of the
measurement date. A hierarchy for inputs used in measuring fair
value is in place to maximize the use of observable inputs and
minimize the use of unobservable inputs by requiring that the
most observable inputs be used when available. Observable inputs
are inputs market participants would use in valuing the asset or
liability developed based on market data obtained from sources
independent of us. Unobservable inputs are inputs that reflect
our assumptions about the factors market participants would use
in valuing the asset or liability developed based upon the best
information available in the circumstances.
The following table presents information about our financial
assets included in our consolidated balance sheets that are
measured at fair value on a recurring basis for the periods
presented, and indicates the fair value hierarchy of the
valuation techniques utilized to determine such fair value. The
hierarchy is broken down into three levels. Level 1 inputs
are unadjusted quoted prices in active markets that are
accessible at the measurement date for identical assets or
liabilities. Level 2 inputs are based on quoted prices for
similar instruments in active markets, quoted prices for
identical or similar instruments in markets that are not active,
or model-based valuation techniques for which all significant
assumptions are observable in the market. Level 3 inputs
are generated from model-based techniques that use significant
assumptions not observable in the market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Fair Value Measurements at December 31, 2009 Using:
|
|
Description
|
|
2009
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
(in thousands)
|
|
|
Available-for-sale
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities(1)
|
|
$
|
50,172
|
|
|
$
|
50,172
|
|
|
$
|
|
|
|
$
|
|
|
Variable rate demand notes(2)
|
|
|
6,806
|
|
|
|
|
|
|
|
6,806
|
|
|
|
|
|
U.S. agency securities(1)
|
|
|
27,394
|
|
|
|
|
|
|
|
27,394
|
|
|
|
|
|
Municipal bonds(1)
|
|
|
5,925
|
|
|
|
|
|
|
|
5,925
|
|
|
|
|
|
Commercial paper(2)
|
|
|
2,998
|
|
|
|
|
|
|
|
2,998
|
|
|
|
|
|
Certificates of deposit(2)
|
|
|
1,396
|
|
|
|
|
|
|
|
1,396
|
|
|
|
|
|
Money market funds(4)
|
|
|
27,878
|
|
|
|
27,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
122,569
|
|
|
$
|
78,050
|
|
|
$
|
44,519
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
COMPELLENT
TECHNOLOGIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Fair Value Measurements at December 31, 2008 Using
|
|
Description
|
|
2008
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
(in thousands)
|
|
|
Available-for-sale
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities(1)
|
|
$
|
12,934
|
|
|
$
|
11,363
|
|
|
$
|
1,571
|
|
|
$
|
|
|
Variable rate demand notes(1)
|
|
|
7,291
|
|
|
|
|
|
|
|
7,291
|
|
|
|
|
|
U.S. agency securities(1)
|
|
|
23,612
|
|
|
|
|
|
|
|
23,612
|
|
|
|
|
|
Certificates of deposit(3)
|
|
|
7,406
|
|
|
|
|
|
|
|
7,406
|
|
|
|
|
|
Money market funds(4)
|
|
|
36,496
|
|
|
|
36,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
87,739
|
|
|
$
|
47,859
|
|
|
$
|
39,880
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in short-term and long-term investments on the
consolidated balance sheets. |
|
(2) |
|
Included in short-term investments on the consolidated balance
sheets. |
|
(3) |
|
Included in cash and cash equivalents and short-term investments
on the consolidated balance sheets. |
|
(4) |
|
Included in cash and cash equivalents on the consolidated
balance sheets. |
Available-for-sale
investments are carried at fair value based on unadjusted quoted
market prices, if available, and are based on significant
observable inputs when quoted market prices are not available.
Such inputs may include benchmark yields, reported trades,
broker/dealer quotes, issuer spreads, two-sided markets,
benchmark securities, bids, offers and other reference data.
Investments
The amortized cost, gross unrealized gains and losses, fair
values and contractual maturities of
available-for-sale
investments for the periods presented, consist of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
At December 31, 2009
|
|
Contractual Maturities
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Corporate debt securities
|
|
Less than 3 years
|
|
$
|
49,972
|
|
|
$
|
323
|
|
|
$
|
(123
|
)
|
|
$
|
50,172
|
|
Variable rate demand notes
|
|
Less than 12 months
|
|
|
6,806
|
|
|
|
|
|
|
|
|
|
|
|
6,806
|
|
U.S. agency securities
|
|
Less than 3 years
|
|
|
27,399
|
|
|
|
34
|
|
|
|
(39
|
)
|
|
|
27,394
|
|
Municipal bonds
|
|
Less than 2 years
|
|
|
5,915
|
|
|
|
13
|
|
|
|
(3
|
)
|
|
|
5,925
|
|
Commercial paper
|
|
Less than 12 months
|
|
|
2,998
|
|
|
|
|
|
|
|
|
|
|
|
2,998
|
|
Certificates of deposit
|
|
Less than 12 months
|
|
|
1,396
|
|
|
|
|
|
|
|
|
|
|
|
1,396
|
|
Money market funds
|
|
Less than 12 months
|
|
|
27,878
|
|
|
|
|
|
|
|
|
|
|
|
27,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
122,364
|
|
|
$
|
370
|
|
|
$
|
(165
|
)
|
|
$
|
122,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
$
|
12,899
|
|
|
$
|
52
|
|
|
$
|
(17
|
)
|
|
$
|
12,934
|
|
Variable rate demand notes
|
|
|
|
|
7,291
|
|
|
|
|
|
|
|
|
|
|
|
7,291
|
|
U.S. agency securities
|
|
|
|
|
23,514
|
|
|
|
98
|
|
|
|
|
|
|
|
23,612
|
|
Certificates of deposit
|
|
|
|
|
7,409
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
7,406
|
|
Money market funds
|
|
|
|
|
36,496
|
|
|
|
|
|
|
|
|
|
|
|
36,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
87,609
|
|
|
$
|
150
|
|
|
$
|
(20
|
)
|
|
$
|
87,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
COMPELLENT
TECHNOLOGIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our proceeds from sales and maturities of
available-for-sale
investments were $77.0 million, $61.7 million and
$0.3 million in 2009, 2008 and 2007, respectively. We
realized gross gains of $82,000, $13,000 and $0 and no gross
losses on those sales and maturities in 2009, 2008 and 2007,
respectively.
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Component materials
|
|
$
|
1,652
|
|
|
$
|
280
|
|
Finished systems
|
|
|
3,098
|
|
|
|
3,284
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,750
|
|
|
$
|
3,564
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Property
and Equipment
|
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Computer equipment
|
|
$
|
8,855
|
|
|
$
|
5,510
|
|
Computer software
|
|
|
951
|
|
|
|
710
|
|
Office furniture and fixtures
|
|
|
1,200
|
|
|
|
820
|
|
Leasehold improvements
|
|
|
1,217
|
|
|
|
1,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,223
|
|
|
|
8,105
|
|
Accumulated depreciation and amortization
|
|
|
(7,070
|
)
|
|
|
(4,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,153
|
|
|
$
|
3,446
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense was $2.4 million,
$1.6 million and $1.2 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
On September 14, 2007, we effected a
one-for-two-and-one-half
(1:2.5) reverse split of our common stock and convertible
preferred stock. In this report, share and per share data have
been adjusted retroactively to reflect the reverse stock split.
|
|
6.
|
Convertible
Preferred Stock
|
The following outstanding classes of convertible preferred stock
were outstanding at December 31, 2006:
|
|
|
|
|
Series A-1
preferred stock; $0.001 par value, 7,723,996 shares
authorized; 7,723,994 issued and outstanding.
|
|
|
|
Series A-2
preferred stock; $0.001 par value, 4,104,791 shares
authorized; 4,104,788 issued and outstanding.
|
|
|
|
Series B preferred stock; $0.001 par value,
4,943,154 shares authorized; 4,943,149 issued and
outstanding.
|
|
|
|
Series C preferred stock; $0.001 par value,
2,167,238 shares authorized; 2,167,233 issued and
outstanding.
|
62
COMPELLENT
TECHNOLOGIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The holders of preferred stock could, at their option, convert
at any time their shares of preferred stock into shares of
common stock. Each share of preferred stock could be
automatically converted into shares of common stock if 70% of
the shares of preferred stock, voting as a single class voted in
favor of a conversion or if a public offering is closed at
$20.78 (amended to $8.00 on September 14, 2007 in
conjunction with the reverse stock split see
Note 5) or more per share and cash proceeds (net of
underwriting discounts, commissions and expenses) to us of at
least $30 million (see Note 7), in each case at the
conversion rate on the date of the event. The preferred stock
was converted to common stock on a
1-for-1
ratio at the time of the public offering.
|
|
7.
|
Initial
Public Offering and Secondary Offering
|
On October 9, 2007, we completed an initial public offering
in which we sold 6,900,000 shares of common stock at $13.50
per share for cash proceeds of $84.6 million, net of
underwriting discounts and commissions and offering expenses. In
connection with the closing of the initial public offering, all
of our shares of convertible preferred stock outstanding at the
time of the closing of the offering were automatically converted
into 18,939,164 shares of common stock and we filed an
amended and restated certificate of incorporation with the
Delaware Secretary of State authorizing 300,000,000 shares
of common stock and 10,000,000 shares of undesignated
preferred stock.
On November 17, 2009, we completed a secondary offering in
which we sold 600,000 shares of our common stock at $19.25
per share for cash proceeds of $10.7 million, net of
underwriting discounts and commissions and offering expenses.
|
|
8.
|
Stock-Based
Compensation
|
2007
Employee Stock Purchase Plan
The 2007 Employee Stock Purchase Plan, or ESPP, became effective
in October 2007 in conjunction with our initial public offering,
and authorizes, as of December 31, 2009, the issuance of
1,717,490 shares of common stock pursuant to purchase
rights granted to our employees or to employees of our
designated affiliates. Generally, all employees, including
executive officers, may participate in the ESPP and may
contribute up to the lesser of 15% of their earnings or the
statutory limit under the U.S. Internal Revenue Code for
the purchase of our common stock at a price per share equal to
the lower of (a) 85% of the fair market value of a share of
common stock on the first date of an offering period or
(b) 85% of the fair market value of a share of common stock
on the date of purchase. Standard offering periods are
approximately six months in duration, with purchase dates on or
about May 15 and November 15. During the years ended
December 31, 2009 and 2008, there were 113,946 and
88,996 shares of common stock purchased under the ESPP,
respectively. The weighted average purchase price was $8.53 and
$8.57 per share for the years ended December 31, 2009 and
2008, respectively.
2002
Stock Option Plan
The 2002 Stock Option Plan, or 2002 Plan, became effective in
July 2002. Options granted under this plan typically vest over a
four-year period and expire within a maximum term of ten years
from the date of grant. New common shares are issued upon
exercise of stock options. Certain stock option agreements
include early exercise provisions; however, we retain the right
to repurchase any unvested shares. In conjunction with our
initial public offering, the 2002 Plan was terminated in October
2007 and no further awards may be granted under this plan.
2007
Equity Incentive Plan
The 2007 Equity Incentive Plan, or 2007 Plan, became effective
in October 2007 in conjunction with our initial public offering.
The 2007 Plan provides for the grant of incentive stock options,
nonstatutory stock options, restricted stock awards, restricted
stock unit awards, stock appreciation rights, performance-based
stock awards, and other forms of equity compensation, or
collectively, stock awards, all of which may be granted to
employees,
63
COMPELLENT
TECHNOLOGIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
including officers, non-employee directors and consultants. The
aggregate number of shares of common stock that may be issued,
as of December 31, 2009, pursuant to stock awards under the
2007 Plan is 6,654,486, plus any shares subject to outstanding
stock awards granted under the 2002 Plan that expire or
terminate for any reason prior to their exercise or settlement.
The 2007 Plan also provides that grants of incentive and
nonstatutory stock options cannot be less than 100% of the fair
market value of our common stock on the date of grant. Options
typically vest over a four-year period and expire within a
maximum of ten years from the date of grant. New common shares
are issued upon exercise of stock options.
A summary of option activity for the 2002 and 2007 Plans for the
year ended December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
of Shares
|
|
|
per Share
|
|
|
Life
|
|
|
Value
|
|
|
Options outstanding at December 31, 2008
|
|
|
2,539,035
|
|
|
$
|
6.70
|
|
|
|
6.94
|
|
|
$
|
8,591,841
|
|
Granted
|
|
|
1,155,412
|
|
|
|
14.11
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(192,288
|
)
|
|
|
5.21
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(128,098
|
)
|
|
|
10.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2009
|
|
|
3,374,061
|
|
|
$
|
9.19
|
|
|
|
6.00
|
|
|
$
|
45,521,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2009
|
|
|
1,469,868
|
|
|
$
|
6.13
|
|
|
|
6.01
|
|
|
$
|
24,327,413
|
|
Cash received from the exercise of stock options was
$2.0 million, $865,000 and $33,000 for the years ended
December 31, 2009, 2008 and 2007, respectively. The income
tax benefit realized from the exercise of stock options and
recorded as an increase to additional paid-in capital was
$47,000 for the year ended December 31, 2009. The total
intrinsic value of options exercised during the years ended
December 31, 2009, 2008 and 2007 was $2.2 million,
$896,000, and $2.8 million, respectively.
As of December 31, 2009, there is a total of
4,157,019 shares of common stock reserved for future grants
to eligible employees, directors, and outside consultants under
our 2007 Plan.
Stock-Based
Compensation Expense
We estimate the grant date fair value of stock-based awards
using the Black-Scholes option pricing model with the following
weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Risk-free interest rate
|
|
|
2.14
|
%
|
|
|
2.86
|
%
|
|
|
4.46
|
%
|
Expected life (years)
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
Expected volatility
|
|
|
52.47
|
%
|
|
|
50.69
|
%
|
|
|
63.72
|
%
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
We review these assumptions at the time of each new option award
and adjust them as necessary to ensure proper option valuation.
The risk-free interest rate is based on the yield of constant
maturity U.S. treasury bonds with a remaining term equal to
the expected life of the awards at the grant date. The expected
life represents the period that the stock option awards are
expected to be outstanding. The expected life is based on an
evaluation of historic expected lives from a selected publicly
traded peer group, believed to be comparable after consideration
of size, maturity, profitability, growth, risk and return on
investment. Volatility is based on historic volatilities from
64
COMPELLENT
TECHNOLOGIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
traded shares of the same publicly traded peer group. The
expected dividend yield is zero, as we have not paid or declared
any dividends on our common stock and do not expect to pay
dividends in the foreseeable future. We utilize historical data
to estimate pre-vesting forfeitures and record stock-based
compensation expense only for those awards that are expected to
vest.
Forfeitures have been insignificant during each of the periods
presented herein.
The stock-based compensation expense for the 2007 Plan, 2002
Plan and ESPP included in the consolidated statements of
operations is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cost of product
|
|
$
|
50
|
|
|
$
|
207
|
|
|
$
|
91
|
|
Cost of support and services
|
|
|
194
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
1,848
|
|
|
|
979
|
|
|
|
430
|
|
Research and development
|
|
|
761
|
|
|
|
421
|
|
|
|
154
|
|
General and administrative
|
|
|
1,278
|
|
|
|
559
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense before income tax benefit
|
|
|
4,131
|
|
|
|
2,166
|
|
|
|
762
|
|
Income tax benefit
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense, net of tax benefit
|
|
$
|
4,084
|
|
|
$
|
2,166
|
|
|
$
|
762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total number of options granted during the years ended
December 31, 2009, 2008 and 2007 were 1.2 million,
1.4 million and 929,000, respectively. The weighted-average
fair values of the options granted during the years ended
December 31, 2009, 2008 and 2007 were $6.56, $4.43, and
$4.68, respectively.
As of December 31, 2009 and 2008 there was
$10.4 million and $7.0 million of total unrecognized
compensation costs related to non-vested stock-based
compensation arrangements granted under our stock option plans.
As of December 31, 2009 and 2008 this expense will be
amortized on a straight-line basis over a weighted-average
period of approximately 2.8 years and 2.6 years,
respectively.
Stock
Options Exercised for Unvested Restricted Common
Stock
Certain stock options granted under the 2002 Stock Option Plan
provide the employee option holder the right to early exercise
unvested options in exchange for shares of restricted common
stock. The restrictions on such common stock lapse over a time
frame similar to how the original underlying options vested. We
have a right to repurchase any unvested restricted shares at the
original exercise price in the event the respective
optionees employment is terminated. This right usually
lapses 25% on the first anniversary of the vesting start date
and in 36 equal monthly amounts thereafter. The cash received
from employees for early exercise of unvested options is treated
as a refundable deposit and is recorded as a liability in our
financial statements. There were no early exercises of options
during the years ended December 31, 2009 and 2008, and for
the year ended December 31, 2007 cash received for early
exercise of options was $429,000.
During the year ended December 31, 2007, we purchased
301,667 unvested shares of restricted stock at a price of $1.25
per share, which was above the original exercise price of $0.30
per share. We also issued new option agreements to purchase the
same number of shares at an exercise price of $1.25 per share.
These transactions resulted in substance to be a modification of
the original award. We fair valued the original award just
before the modification and the new award just after the
modification using the Black Scholes methodology. It was
determined that the fair value of the new awards was greater
than the value of the original awards, as modified. In addition,
a settlement of the original awards was deemed to have occurred.
We recorded compensation expense of $120,000 representing the
additional value of the new awards and a settlement charge of
$116,000 related to the original awards, as modified. The
employees immediately early exercised their right to purchase
restricted shares under the new option awards.
65
COMPELLENT
TECHNOLOGIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of activity for unvested restricted common stock is as
follows:
|
|
|
|
|
|
|
Number of
|
|
|
|
Shares
|
|
|
Balance at December 31, 2006
|
|
|
348,000
|
|
Stock options exercised for unvested restricted shares
|
|
|
475,000
|
|
Vested
|
|
|
(249,189
|
)
|
Repurchased
|
|
|
(301,667
|
)
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
272,144
|
|
Vested
|
|
|
(120,324
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
151,820
|
|
Vested
|
|
|
(118,325
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
33,495
|
|
|
|
|
|
|
|
|
9.
|
Net
Income (Loss) Per Common Share
|
Basic net income (loss) per common share is computed by dividing
net income (loss) attributable to common stockholders by the
weighted average number of vested shares of common stock
outstanding during the period. Diluted net income per common
share is computed giving effect to all potential dilutive common
shares, including common stock issuable upon exercise of stock
options, and unvested restricted common stock. As we had net
losses for the years ended December 31, 2008 and 2007, all
potential common shares were determined to be anti-dilutive.
Accordingly, diluted net loss per common share is equivalent to
basic net loss per common share for the years ended
December 31, 2008 and 2007.
The following table sets forth the computation of net income
(loss) per common share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Basic weighted-average common shares outstanding
|
|
|
30,851
|
|
|
|
30,471
|
|
|
|
10,219
|
|
Dilutive effect of stock options and unvested restricted common
stock
|
|
|
1,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total diluted weighted-average common shares outstanding
|
|
|
31,915
|
|
|
|
30,473
|
|
|
|
10,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,793
|
|
|
$
|
(416
|
)
|
|
$
|
(7,829
|
)
|
Net income (loss) per common share, basic
|
|
$
|
0.16
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.77
|
)
|
Net income (loss) per common share, diluted
|
|
$
|
0.15
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.77
|
)
|
Potential common share equivalents of 1.1 million related
to our outstanding stock options were excluded from the
computation of diluted earnings per share for the year ended
December 31, 2009, as inclusion of these shares would have
been anti-dilutive. All potential common share equivalents
related to our outstanding stock options and unvested restricted
common stock for the years ended December 31, 2008 and 2007
were excluded from the computation of diluted earnings per share
as inclusion of these shares would have been anti-dilutive.
|
|
10.
|
Defined
Contribution Plan
|
We sponsor a voluntary defined contribution employee retirement
plan, or 401(k) plan, for its U.S. employees. The 401(k)
plan provides that each participant may contribute pre-tax
compensation up to the statutory limit allowable. Under the
401(k) plan, each participant is fully vested in their deferred
salary contributions when
66
COMPELLENT
TECHNOLOGIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
contributed. Matching contributions are discretionary and vest
over a four year period. No matching contributions were made by
us during the years ended December 31, 2009, 2008 and 2007.
During the year ended December 31, 2009, we recorded income
tax expense of $718,000, of which $665,000 is cash tax expense
related to domestic taxes, $24,000 is cash tax expense related
to foreign income taxes and $29,000 is for foreign income tax
expenses due. We recorded no income tax expense for the years
ended December 31, 2008 and 2007.
Federal alternative minimum tax, or AMT, was provided on the
portion of our alternative minimum taxable income which could
not be entirely offset by the available alternative net
operating loss (NOL) carryforwards. Current tax law provides
that the entire amount of the AMT paid can be carried forward
indefinitely and credited against federal regular tax in future
tax years to the extent the regular tax liability exceeds the
AMT in those years.
For the year ended December 31, 2009, we had
$4.7 million of domestic income before income taxes and
$100,000 of foreign income before income taxes. We recorded a
net loss for both domestic and foreign income before income
taxes for the years ended December 31, 2008 and 2007. As a
result of the income we earned in the year ended
December 31, 2009, our components of income tax expense
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Federal
|
|
$
|
256
|
|
|
$
|
|
|
State
|
|
|
409
|
|
|
|
|
|
Foreign
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
718
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of income tax expense computed at the
U.S. statutory rate to the effective income tax rate is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
Federal AMT
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefits
|
|
|
3.3
|
|
|
|
(3.4
|
)
|
|
|
3.4
|
|
Meals and entertainment
|
|
|
2.0
|
|
|
|
(21.4
|
)
|
|
|
|
|
Stock-based compensation expense
|
|
|
1.7
|
|
|
|
(65.4
|
)
|
|
|
(3.2
|
)
|
Research and development (R&D) credits
|
|
|
(31.1
|
)
|
|
|
|
|
|
|
|
|
Impact of change in deferred tax rates
|
|
|
|
|
|
|
(149.6
|
)
|
|
|
4.0
|
|
Impact of change in valuation allowance
|
|
|
0.4
|
|
|
|
194.8
|
|
|
|
(37.6
|
)
|
Tax exempt interest
|
|
|
0.2
|
|
|
|
6.0
|
|
|
|
|
|
Other
|
|
|
(1.0
|
)
|
|
|
5.0
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.0
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
COMPELLENT
TECHNOLOGIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income tax assets and liabilities result from temporary
differences between the carrying values of assets and
liabilities for financial statement and income tax purposes.
Significant components of our net deferred tax assets and
liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Current deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Asset allowances
|
|
$
|
1,005
|
|
|
$
|
714
|
|
Accrued compensation
|
|
|
590
|
|
|
|
422
|
|
Deferred revenues
|
|
|
1,619
|
|
|
|
573
|
|
Prepaid expenses
|
|
|
(690
|
)
|
|
|
(199
|
)
|
NOL carryforwards
|
|
|
6,500
|
|
|
|
|
|
Accrued liabilities and other
|
|
|
138
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,162
|
|
|
|
1,664
|
|
Long term deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(446
|
)
|
|
|
(115
|
)
|
Accrued stock-based compensation expense
|
|
|
1,508
|
|
|
|
507
|
|
Deferred revenues
|
|
|
369
|
|
|
|
370
|
|
R&D and AMT credit carryforwards
|
|
|
1,833
|
|
|
|
|
|
NOL carryforwards
|
|
|
1,770
|
|
|
|
12,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,034
|
|
|
|
13,416
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
14,196
|
|
|
|
15,080
|
|
Valuation allowance
|
|
|
(14,196
|
)
|
|
|
(15,080
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
In assessing the realization of deferred tax assets, we have
considered whether it is more likely than not that some or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which
those temporary differences become deductible. Based on the
level of projected future taxable income over the periods in
which the deferred tax assets are deductible and our history of
losses, we believe that it is more likely than not that we will
not realize the benefits of these deductible differences.
Accordingly, we have provided a full valuation allowance against
the deferred tax assets as of December 31, 2009 and 2008.
As of December 31, 2009 and 2008, we had federal tax NOL
carryforwards of approximately $24.2 million and
$34.7 million, respectively. These NOL carryforwards are
available to offset taxable income through 2027 and will begin
to expire in 2022. We also have various state NOL carryforwards
available to offset future state taxable income. These state NOL
carryforwards typically will have the same expirations as our
federal tax NOL carryforwards. For the years ended
December 31, 2009 and 2008, we have taken a deduction for
the tax benefit related to stock option deductions of
$1.0 million and $7,000, respectively. The tax benefit from
these stock option deductions will be recorded as an increase to
additional paid-in capital upon utilization of the NOL
carryforwards. In addition, under the provisions of
Section 382 of the Internal Revenue Code of 1986, as
amended, substantial changes in our ownership could place
limitations on the availability of our NOL carryforwards.
As of December 31, 2009, we had approximately
$1.6 million of federal research and development credit
carryforwards, $578,000 of state research and development credit
carryforwards and $278,000 of federal AMT credit carryforwards.
The federal and state research and development credit
carryforwards will begin to expire in 2022, while the federal
AMT credit carryforwards do not have an expiration date.
68
COMPELLENT
TECHNOLOGIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As required by FASB ASC Topic 740, Income Taxes, we
recognize the financial statement benefit of a tax position only
after determining that the relevant tax authority would more
likely than not sustain the position following an audit. For tax
positions meeting the more likely than not threshold, the amount
recognized in the financial statements is the largest benefit
that has a greater than 50 percent likelihood of being
realized upon ultimate settlement with the relevant tax
authority. We had recorded a liability relating to unrecognized
tax benefits of $430,000 at December 31, 2009. We had no
liabilities related to unrecognized tax benefits at
December 31, 2008. We recognize interest and penalties
related to uncertain tax provisions as part of our provision for
income taxes. We have not currently reserved for any interest or
penalties for such reserves. We do not expect to recognize any
benefits from the unrecognized tax benefits within the next
twelve months. A reconciliation of the beginning and ending
amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
Balance at January 1, 2009
|
|
$
|
|
|
Increases related to prior year tax positions
|
|
|
350
|
|
Decreases related to prior year tax positions
|
|
|
|
|
Increases related to current year tax positions
|
|
|
80
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
430
|
|
|
|
|
|
|
We are subject to U.S. Federal income tax as well as state
income tax in multiple jurisdictions. Tax years from 2006
through the present remain open for audit under the applicable
statute of limitations. However, due to NOL carryforwards from
prior periods, the Internal Revenue Service (IRS) and the
appropriate state income taxing authorities could potentially
review the losses related to NOL generating years from 2002 to
2008. We are also subject to income tax in two foreign
jurisdictions which have open tax years varying by jurisdiction
that range from 2007 to 2008. We do not expect the amount of
unrecognized tax benefits to significantly change within the
next twelve months.
|
|
12.
|
Commitments
and Contingencies
|
Leases
The minimum lease payments, related to buildings and office
equipment, that are expected to be made in each of the years
indicated based on operating leases in effect at
December 31, 2009 are as follows (in thousands):
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2010
|
|
$
|
1,234
|
|
2011
|
|
|
1,528
|
|
2012
|
|
|
1,551
|
|
2013
|
|
|
1,586
|
|
2014
|
|
|
277
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,176
|
|
|
|
|
|
|
Rent expense related to these operating leases for the years
ended December 31, 2009, 2008 and 2007 was
$1.6 million, $1.4 million, and $955,000, respectively.
Indemnification
Obligations
We have agreements with our channel partners and end users,
which generally include certain provisions for indemnifying the
channel partners and end users against liabilities if our
products infringe a third partys intellectual property
rights. To date, we have not incurred any material costs as a
result of such indemnification provisions and
69
COMPELLENT
TECHNOLOGIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
have not accrued any liabilities related to such obligations in
our consolidated financial statements. As permitted under
Delaware law and to the maximum extent allowable under that law,
we have certain obligations to indemnify our executive officers,
directors and may indemnify other employees for certain events
or occurrences while the executive officer, director or employee
is or was serving at our request in such capacity. These
indemnification obligations are valid as long as the executive
officer, director or employee acted in good faith and in a
manner the person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any
criminal proceeding, had no reasonable cause to believe his or
her conduct was unlawful. The maximum potential amount of future
payments we could be required to make under these
indemnification obligations is unlimited; however, we have a
director and officer insurance policy that mitigates our
exposure and generally enables us to recover a portion of any
future amounts paid.
Legal
Matters
In April 2009, Data Network Storage LLC, or Data Networks, filed
a lawsuit in the U.S. District Court for the Southern
District of California, against us and 14 other storage vendors,
alleging, among other things, patent infringement on a universal
storage management system for which it holds an exclusive
license. Data Networks is seeking unspecified monetary damages
and an injunction against further infringement from us and the
other defendants. We filed an answer to Data Networks
complaint denying any liability and are vigorously contesting
the lawsuit. We have accrued an immaterial amount of what we
believe to be the probable costs in connection with this matter.
In the ordinary course of business, we are from time to time
involved in lawsuits, claims, investigations, proceedings, and
threats of litigation consisting of intellectual property,
commercial and other matters. While the outcome of these
proceedings and claims cannot be predicted with certainty, there
are no matters, as of December 31, 2009, that, in the
opinion of management, might have a material adverse effect on
our financial position, results of operations or cash flows.
|
|
13.
|
Segment
and Geographic Information
|
We operate in one reportable industry segment: the design,
marketing, and technical support of enterprise-class network
storage solutions. The following table is based on the
geographic location of the channel partner or end user who
purchased our products. For sales to channel partners, their
geographic location may be different from the geographic
locations of the end user. Historically, channel partners
located in the United States have generally sold our products to
end users located in the United States. Revenues by geographic
region were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
103,687
|
|
|
$
|
76,581
|
|
|
$
|
45,498
|
|
International
|
|
|
21,588
|
|
|
|
14,315
|
|
|
|
5,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
125,275
|
|
|
$
|
90,896
|
|
|
$
|
51,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We did not hold any long-lived assets outside of the United
States as of December 31, 2009 and 2008.
We have evaluated all subsequent events through the date the
audited consolidated financial statements were issued. No
subsequent events have taken place that meet the definition of a
subsequent event that requires further disclosure in this filing.
70
COMPELLENT
TECHNOLOGIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
Selected
Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
28,073
|
|
|
$
|
28,716
|
|
|
$
|
32,212
|
|
|
$
|
36,274
|
|
Gross profit
|
|
$
|
14,822
|
|
|
$
|
15,427
|
|
|
$
|
18,430
|
|
|
$
|
19,194
|
|
Operating income (loss)
|
|
$
|
793
|
|
|
$
|
(43
|
)
|
|
$
|
2,088
|
|
|
$
|
891
|
|
Net income
|
|
$
|
1,014
|
|
|
$
|
247
|
|
|
$
|
2,259
|
|
|
$
|
1,274
|
|
Net income per common share, basic
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
|
$
|
0.07
|
|
|
$
|
0.04
|
|
Net income per common share, diluted
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
|
$
|
0.07
|
|
|
$
|
0.04
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
18,313
|
|
|
$
|
21,012
|
|
|
$
|
24,610
|
|
|
$
|
26,961
|
|
Gross profit
|
|
$
|
9,558
|
|
|
$
|
11,375
|
|
|
$
|
13,208
|
|
|
$
|
14,795
|
|
Operating income (loss)
|
|
$
|
(2,488
|
)
|
|
$
|
(1,224
|
)
|
|
$
|
(168
|
)
|
|
$
|
698
|
|
Net income (loss)
|
|
$
|
(1,616
|
)
|
|
$
|
(603
|
)
|
|
$
|
464
|
|
|
$
|
1,339
|
|
Net income (loss) per common share, basic
|
|
$
|
(0.05
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
0.04
|
|
Net income (loss) per common share, diluted
|
|
$
|
(0.05
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
0.04
|
|
Net income (loss) per common share for each quarter is required
to be computed independently. Accordingly, the sum of the
quarterly net income (loss) per common share, basic and diluted,
amounts may not equal the annual totals.
71
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
Based on their evaluation as of December 31, 2009, our
Chief Executive Officer and Chief Financial Officer, with the
participation of management, have concluded that our disclosure
controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e) of
the Securities Exchange Act of 1934) were effective at the
reasonable assurance level.
Managements
Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) to provide reasonable assurance
regarding the reliability of our financial reporting and the
preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting
principles.
Management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2009.
Management based its assessment on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. Managements assessment included evaluation of
elements such as the design and operating effectiveness of key
financial reporting controls, process documentation, accounting
policies, and our overall control environment.
Based on this assessment under the criteria set forth in
Internal Control Integrated Framework,
management has concluded that our internal control over
financial reporting was effective as of December 31, 2009.
The attestation report concerning the effectiveness of our
internal control over financial reporting as of
December 31, 2009, issued by Grant Thornton LLP, an
independent registered public accounting firm, appears in
Part II, Item 8 of this Annual Report on
Form 10-K.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during the quarter ended December 31, 2009 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Inherent
Limitations of Internal Controls
Our management, including our Chief Executive Officer and Chief
Financial Officer, does not expect that our disclosure controls
and procedures or our internal controls will prevent all error
and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the
company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty,
and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more
people, or by management override of the control. The design of
any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Over time,
control may become inadequate because of changes in conditions,
or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or
fraud may occur and not be detected.
|
|
Item 9B.
|
Other
Information
|
None.
72
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this item with respect to our
directors, executive officers and corporate governance is
incorporated by reference to the information set forth in our
definitive proxy statement for the 2010 Annual Meeting of
Stockholders to be filed with the SEC within 120 days of
December 31, 2009. For biographical information pertaining
to our executive officers, refer to the Executive Officers
of the Registrant section of Part 1, Item 1 of
this Annual Report on
Form 10-K.
|
|
Item 11.
|
Executive
Compensation
|
Information responsive to this item is incorporated herein by
reference to our definitive proxy statement with respect to our
2010 Annual Meeting of Stockholders to be filed with the SEC
within 120 days after the end of the fiscal year covered by
this Annual Report on
Form 10-K.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Information responsive to this item is incorporated herein by
reference to our definitive proxy statement with respect to our
2010 Annual Meeting of Stockholders to be filed with the SEC
within 120 days after the end of the fiscal year covered by
this Annual Report on
Form 10-K.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Information responsive to this item is incorporated herein by
reference to our definitive proxy statement with respect to our
2010 Annual Meeting of Stockholders to be filed with the SEC
within 120 days after the end of the fiscal year covered by
this Annual Report on
Form 10-K.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
Information responsive to this item is incorporated herein by
reference to our definitive proxy statement with respect to our
2010 Annual Meeting of Stockholders to be filed with the SEC
within 120 days after the end of the fiscal year covered by
this Annual Report on
Form 10-K.
73
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules.
|
1. Index to Financial Statements:
See Index to Consolidated Financial Statements in Part II,
Item 8 of this Annual Report on
Form 10-K,
which is incorporated herein by reference.
2. Financial Statement Schedules:
Schedule II:
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
Bad Debt
|
|
|
|
|
|
End of
|
|
Description
|
|
of Period
|
|
|
Expense
|
|
|
Deductions
|
|
|
Period
|
|
|
|
(in thousands)
|
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts receivable
|
|
$
|
654
|
|
|
$
|
508
|
|
|
$
|
(132
|
)
|
|
$
|
1,030
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts receivable
|
|
$
|
408
|
|
|
$
|
261
|
|
|
$
|
(15
|
)
|
|
$
|
654
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts receivable
|
|
$
|
430
|
|
|
$
|
322
|
|
|
$
|
(344
|
)
|
|
$
|
408
|
|
All other schedules are omitted because they are not applicable,
or not required, or because the required information is included
in the consolidated financial statements or notes thereto.
3. Exhibits The following exhibits are
included herein or incorporated herein by reference:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Date
|
|
Number
|
|
Herewith
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Compellent
Technologies, Inc.
|
|
8-K
|
|
10/16/07
|
|
|
3
|
.1
|
|
|
|
3
|
.2
|
|
Amended and Restated Bylaws of Compellent Technologies,
Inc.
|
|
S-1
|
|
07/02/07
|
|
|
3
|
.4
|
|
|
|
4
|
.1
|
|
Reference is made to Exhibits 3.1 and 3.2.
|
|
|
|
|
|
|
|
|
|
|
|
4
|
.2
|
|
Specimen Common Stock Certificate.
|
|
S-1/A
|
|
09/21/07
|
|
|
4
|
.2
|
|
|
|
10
|
.1
|
|
Amended and Restated Investor Rights Agreement, dated
September 22, 2006, between Compellent and certain of its
stockholders.
|
|
S-1
|
|
07/02/07
|
|
|
10
|
.1
|
|
|
|
10
|
.2
|
|
Form of Indemnity Agreement for directors and officers.*
|
|
S-1/A
|
|
09/11/07
|
|
|
10
|
.2
|
|
|
|
10
|
.3
|
|
2002 Stock Option Plan, as amended.*
|
|
S-1
|
|
07/02/07
|
|
|
10
|
.3
|
|
|
|
10
|
.4
|
|
Form of Option Agreement under 2002 Stock Option Plan.*
|
|
S-1
|
|
07/02/07
|
|
|
10
|
.4
|
|
|
|
10
|
.5
|
|
2007 Equity Incentive Plan.*
|
|
S-1/A
|
|
09/21/07
|
|
|
10
|
.5
|
|
|
|
10
|
.6
|
|
Form of Option Grant Notice and Option Agreement under 2007
Equity Incentive Plan.*
|
|
S-1/A
|
|
09/21/07
|
|
|
10
|
.6
|
|
|
|
10
|
.7
|
|
2007 Employee Stock Purchase Plan.*
|
|
S-1/A
|
|
09/21/07
|
|
|
10
|
.7
|
|
|
|
10
|
.8
|
|
Amended and Restated Employment Agreement, by and between
Compellent Technologies, Inc. and Philip E. Soran, dated
February 3, 2010.*
|
|
8-K
|
|
02/04/10
|
|
|
10
|
.8
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Date
|
|
Number
|
|
Herewith
|
|
|
10
|
.9
|
|
Amended and Restated Employment Agreement, by and between
Compellent Technologies, Inc. and John P. Guider, dated
February 3, 2010.*
|
|
8-K
|
|
02/04/10
|
|
|
10
|
.9
|
|
|
|
10
|
.10
|
|
Amended and Restated Employment Agreement, by and between
Compellent Technologies, Inc. and Lawrence E. Aszmann, dated
February 3, 2010.*
|
|
8-K
|
|
02/04/10
|
|
|
10
|
.10
|
|
|
|
10
|
.11
|
|
Amended and Restated Employment Agreement, by and between
Compellent Technologies, Inc. and John R. Judd, dated
February 3, 2010.*
|
|
8-K
|
|
02/04/10
|
|
|
10
|
.11
|
|
|
|
10
|
.12
|
|
Amended and Restated Employment Agreement, by and between
Compellent Technologies, Inc. and Brian P. Bell, dated
February 3, 2010.*
|
|
8-K
|
|
02/04/10
|
|
|
10
|
.12
|
|
|
|
10
|
.13(i)
|
|
2009 Management Incentive Plan, as amended.*
|
|
8-K
|
|
02/12/10
|
|
|
10
|
.1
|
|
|
|
10
|
.13(ii)
|
|
2010 Management Incentive Plan.*
|
|
8-K
|
|
02/12/10
|
|
|
10
|
.2
|
|
|
|
10
|
.14(i)
|
|
2009 Non-Employee Director Compensation Policy.*
|
|
10-K
|
|
03/16/09
|
|
|
10
|
.14
|
|
|
|
10
|
.14(ii)
|
|
2010 Non-Employee Director Compensation Policy.*
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.15
|
|
Lease Agreement, by and between Compellent Technologies, Inc.
and Liberty Property Limited Partnership, dated
November 15, 2006, as amended.
|
|
S-1
|
|
07/02/07
|
|
|
10
|
.14
|
|
|
|
10
|
.16
|
|
Sublease Agreement, by and between Compellent Technologies, Inc.
and SurModics, Inc., dated July 17, 2009.
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X
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10
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.17
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Lease Agreement, by and between Compellent Technologies, Inc.
and Liberty Property Limited Partnership, dated
December 21, 2009.
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X
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10
|
.18
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Offer Letter, by and between Compellent Technologies, Inc. and
Duston Williams, dated September 29, 2008.*
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X
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10
|
.19
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Offer Letter, by and between Compellent Technologies, Inc. and
Sherman Black, dated July 30, 2009.*
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X
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21
|
.1
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Subsidiaries of Compellent Technologies, Inc.
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X
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23
|
.1
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Consent of Independent Registered Public Accounting Firm.
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X
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24
|
.1
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|
Power of Attorney (included on the signature pages hereto).
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X
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31
|
.1
|
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Certification of Chief Executive Officer of Compellent
Technologies, Inc., as required by
Rule 13a-14(a)
or
Rule 15d-14(a).
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X
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|
31
|
.2
|
|
Certification of Chief Financial Officer of Compellent
Technologies, Inc., as required by
Rule 13a-14(a)
or
Rule 15d-14(a).
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X
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32
|
.1
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Certification by the Chief Executive Officer and Chief Financial
Officer, as required by
Rule 13a-14(b)
or
Rule 15d-14(b)
and Section 1350 of Chapter 36 of Title 18 of the
United States Code (18 U.S.C. §1350).**
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X
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* |
|
Management contract or compensation plan or arrangement. |
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** |
|
The certification attached as Exhibit 32.1 that accompanies
this Annual Report on
Form 10-K,
is not deemed filed with the Securities and Exchange Commission
and is not to be incorporated by reference into any filing of
Compellent Technologies, Inc. under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended,
whether made before or after the date of this
Form 10-K,
irrespective of any general incorporation language contained in
such filing. |
75
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Compellent Technologies, Inc.
(Registrant)
John R. Judd
(Chief Financial Officer)
Date: March 5, 2010
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Philip E. Soran
and John R. Judd, and each of them, as his true and lawful
attorneys-in-fact and agents, with full power of substitution
for him, and in his name in any and all capacities, to sign any
and all amendments to this Annual Report on
Form 10-K,
and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done
therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, and any of them, his
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, the following persons on behalf of the registrant and in
the capacities and on the dates indicated have signed this
report below:
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Signature
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Title
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Date
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/s/ Philip
E. Soran
Philip
E. Soran
|
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Chairman, President and Chief Executive Officer (Principal
Executive Officer)
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March 5, 2010
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/s/ John
R. Judd
John
R. Judd
|
|
Chief Financial Officer (Principal Accounting and Financial
Officer)
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|
March 5, 2010
|
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/s/ John
P. Guider
John
P. Guider
|
|
Chief Operating Officer and Director
|
|
March 5, 2010
|
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/s/ Charles
Beeler
Charles
Beeler
|
|
Director
|
|
March 5, 2010
|
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/s/ Sherman
Black
Sherman
Black
|
|
Director
|
|
March 5, 2010
|
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/s/ R.
David Spreng
R.
David Spreng
|
|
Director
|
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March 5, 2010
|
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/s/ Sven
A. Wehrwein
Sven
A. Wehrwein
|
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Director
|
|
March 5, 2010
|
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/s/ Duston
M. Williams
Duston
M. Williams
|
|
Director
|
|
March 5, 2010
|
76