Attached files
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EX-10.1 - EX-10.1 - ACME PACKET INC | b82620exv10w1.htm |
EX-31.1 - EX-31.1 - ACME PACKET INC | b82620exv31w1.htm |
EX-31.2 - EX-31.2 - ACME PACKET INC | b82620exv31w2.htm |
EX-32.1 - EX-32.1 - ACME PACKET INC | b82620exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-33041
ACME PACKET, INC.
(Exact name of registrant as specified in its charter)
Delaware | 04-3526641 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
100 Crosby Drive
Bedford, MA 01730
(Address of principal executive offices) (zip code)
Bedford, MA 01730
(Address of principal executive offices) (zip code)
(781) 328-4400
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes þ No
The number of shares outstanding of each of the issuers classes of common stock, as of
October 26, 2010: 63,509,788
ACME PACKET, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010
Table of Contents
2
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
ACME PACKET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share data)
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share data)
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 110,642 | $ | 90,471 | ||||
Short-term investments |
126,380 | 39,990 | ||||||
Accounts receivable, net of allowance of $1,312 and $1,311, respectively |
30,289 | 25,604 | ||||||
Inventory |
6,279 | 4,372 | ||||||
Deferred product costs |
2,501 | 3,400 | ||||||
Deferred tax asset |
1,567 | 1,567 | ||||||
Other current assets |
10,065 | 2,710 | ||||||
Total current assets |
287,723 | 168,114 | ||||||
Long-term investments |
| 44,526 | ||||||
Property and equipment, net |
15,661 | 6,437 | ||||||
Intangible assets, net of accumulated amortization of $2,011 and $706, respectively |
9,923 | 11,228 | ||||||
Deferred tax asset, net |
15,622 | 15,622 | ||||||
Other assets |
818 | 799 | ||||||
Total assets |
$ | 329,747 | $ | 246,726 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 3,971 | $ | 3,895 | ||||
Accrued expenses and other current liabilities |
10,980 | 9,261 | ||||||
Deferred revenue |
29,708 | 31,506 | ||||||
Total current liabilities |
44,659 | 44,662 | ||||||
Deferred rent, net of current portion |
1,612 | | ||||||
Deferred revenue, net of current portion |
1,530 | 1,841 | ||||||
Contingencies (Note 10) |
||||||||
Stockholders equity: |
||||||||
Undesignated preferred stock, $0.001 par value: Authorized 5,000,000 shares; Issued
and outstanding 0 shares |
| | ||||||
Common stock, $0.001 par value:
Authorized 150,000,000 shares; Issued 70,165,205 and 65,459,593 shares, respectively |
70 | 65 | ||||||
Additional paid-in capital |
242,005 | 188,871 | ||||||
Treasury stock, at cost 6,756,693 and 6,756,687 shares, respectively |
(37,522 | ) | (37,522 | ) | ||||
Accumulated other comprehensive income (loss) |
55 | (2 | ) | |||||
Retained earnings |
77,338 | 48,811 | ||||||
Total stockholders equity |
281,946 | 200,223 | ||||||
Total liabilities and stockholders equity |
$ | 329,747 | $ | 246,726 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
Table of Contents
ACME PACKET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except share and per share data)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except share and per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenue: |
||||||||||||||||
Product |
$ | 45,328 | $ | 27,726 | $ | 129,452 | $ | 75,020 | ||||||||
Maintenance, support and service |
11,286 | 8,621 | 31,548 | 25,175 | ||||||||||||
Total revenue |
56,614 | 36,347 | 161,000 | 100,195 | ||||||||||||
Cost of revenue (1): |
||||||||||||||||
Product |
7,903 | 5,178 | 22,886 | 15,280 | ||||||||||||
Maintenance, support and service |
2,556 | 1,773 | 6,964 | 3,903 | ||||||||||||
Total cost of revenue |
10,459 | 6,951 | 29,850 | 19,183 | ||||||||||||
Gross profit |
46,155 | 29,396 | 131,150 | 81,012 | ||||||||||||
Operating expenses (1): |
||||||||||||||||
Sales and marketing |
17,012 | 13,703 | 50,062 | 37,647 | ||||||||||||
Research and development |
8,896 | 7,271 | 26,235 | 20,513 | ||||||||||||
General and administrative |
3,906 | 3,253 | 10,785 | 9,674 | ||||||||||||
Merger and integration-related costs |
| | | 1,102 | ||||||||||||
Total operating expenses |
29,814 | 24,227 | 87,082 | 68,936 | ||||||||||||
Income from operations |
16,341 | 5,169 | 44,068 | 12,076 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest income |
157 | 40 | 397 | 205 | ||||||||||||
Other income (expense) |
32 | (12 | ) | (43 | ) | (55 | ) | |||||||||
Total other income, net |
189 | 28 | 354 | 150 | ||||||||||||
Income before provision for income taxes |
16,530 | 5,197 | 44,422 | 12,226 | ||||||||||||
Provision for income taxes |
6,065 | 1,617 | 15,895 | 4,195 | ||||||||||||
Net income |
$ | 10,465 | $ | 3,580 | $ | 28,527 | $ | 8,031 | ||||||||
Net income per share (Note 8): |
||||||||||||||||
Basic |
$ | 0.17 | $ | 0.06 | $ | 0.46 | $ | 0.14 | ||||||||
Diluted |
$ | 0.15 | $ | 0.06 | $ | 0.43 | $ | 0.13 | ||||||||
Weighted average number of common
shares used in the calculation of net
income per share: |
||||||||||||||||
Basic |
62,772,466 | 58,143,857 | 61,371,085 | 56,622,433 | ||||||||||||
Diluted |
68,426,272 | 62,927,591 | 67,114,486 | 60,904,244 | ||||||||||||
| ||||||||||||||||
(1) Amounts include stock-based compensation expense, as follows: | ||||||||||||||||
Cost of product revenue |
$ | 202 | $ | 125 | $ | 557 | $ | 381 | ||||||||
Cost of maintenance, support, and service revenue |
279 | 154 | 737 | 415 | ||||||||||||
Sales and marketing |
2,006 | 1,261 | 5,339 | 3,537 | ||||||||||||
Research and development |
1,254 | 934 | 3,551 | 2,537 | ||||||||||||
General and administrative |
847 | 322 | 1,761 | 848 |
See accompanying Notes to Condensed Consolidated Financial Statements.
4
Table of Contents
ACME PACKET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Operating activities |
||||||||
Net income |
$ | 28,527 | $ | 8,031 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
4,521 | 3,379 | ||||||
Amortization of intangible assets |
1,305 | 410 | ||||||
Provision for bad debts |
54 | 511 | ||||||
Amortization of premium/discount on investments |
1,419 | | ||||||
Impairment of fixed assets |
| 94 | ||||||
Stock-based compensation expense |
11,945 | 7,718 | ||||||
Excess tax benefit related to exercise of stock options |
(20,429 | ) | (723 | ) | ||||
Change in operating assets and liabilities, net of acquisition: |
||||||||
Accounts receivable |
(4,739 | ) | 1,786 | |||||
Inventory |
(1,907 | ) | (422 | ) | ||||
Deferred product costs |
899 | (411 | ) | |||||
Other assets |
339 | (577 | ) | |||||
Accounts payable |
76 | 1,865 | ||||||
Accrued expenses. other current liabilities and deferred rent |
12,848 | 283 | ||||||
Deferred revenue |
(2,109 | ) | 7,395 | |||||
Net cash provided by operating activities |
32,749 | 29,339 | ||||||
Investing activities |
||||||||
Purchases of property and equipment |
(10,546 | ) | (3,786 | ) | ||||
Purchases of marketable securities |
(151,003 | ) | | |||||
Proceeds from sale and maturities of marketable securities |
107,777 | | ||||||
Cash received from the acquisition, net |
| 5,965 | ||||||
Increase (decrease) in other assets |
| (105 | ) | |||||
Net cash (used in) provided by investing activities |
(53,772 | ) | 2,074 | |||||
Financing activities |
||||||||
Proceeds from exercise of stock options |
20,765 | 942 | ||||||
Excess tax benefit related to exercise of stock options |
20,429 | 723 | ||||||
Net cash provided by financing activities |
41,194 | 1,665 | ||||||
Net increase in cash and cash equivalents |
20,171 | 33,078 | ||||||
Cash and cash equivalents at beginning of period |
90,471 | 125,723 | ||||||
Cash and cash equivalents at end of period |
$ | 110,642 | $ | 158,801 | ||||
Supplemental disclosure of noncash investing and operating activities: |
||||||||
Capital additions as a result of lease incentives |
$ | 3,199 | $ | |
See accompanying Notes to Condensed Consolidated Financial Statements.
5
Table of Contents
ACME PACKET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except share, restricted stock unit and per share data)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except share, restricted stock unit and per share data)
1. Business Description and Basis of Presentation
Business Description
Acme Packet, Inc., or the Company, is a leading provider in session border control solutions
which enable the delivery of trusted, first-class interactive communications voice, video and
multimedia sessions and data services across internet protocol, or IP, network borders.
Session border control is a service delivery architecture encompassing many different product
categories. The Companys Net-Net product family of session border controllers, session aware load
balancers, session routing proxies and multiservice security gateways supports multiple
applications in enterprise networks and fixed line, mobile, over-the-top and application service
provider networks. These applications range from voice over IP, or VoIP, trunking to hosted
enterprise and residential services to fixed-mobile convergence. The Companys products satisfy
critical security, service assurance and regulatory requirements in these networks.
Basis of Presentation
The accompanying interim condensed consolidated financial statements are unaudited. These
financial statements and notes should be read in conjunction with the audited consolidated
financial statements and related notes, together with Managements Discussion and Analysis of
Financial Condition and Results of Operations, contained in the Companys Annual Report on Form
10-K for the year ended December 31, 2009.
The accompanying unaudited condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC. Certain
information and footnote disclosures normally included in financial statements prepared in
accordance with United States generally accepted accounting principles, or U.S. GAAP, have been
condensed or omitted pursuant to such SEC rules and regulations. In the opinion of management, the
unaudited condensed consolidated financial statements and notes have been prepared on the same
basis as the audited consolidated financial statements contained in the Companys Annual Report on
Form 10-K, and include all adjustments (consisting of normal, recurring adjustments) necessary for
the fair presentation of the Companys financial position at September 30, 2010, statements of
income for the three and nine months ended September 30, 2010 and 2009 and statements of cash flows
for the nine months ended September 30, 2010 and 2009. The interim periods are not necessarily
indicative of the results to be expected for any other interim period or the full year.
The Company has evaluated all subsequent events and determined that there are no material
recognized or unrecognized subsequent events requiring disclosure.
As of September 30, 2010, the Companys significant accounting policies and estimates, which
are detailed in the Companys Annual Report on Form 10-K for the year ended December 31, 2009, have
not changed.
2. Cash, Cash Equivalents, Short-Term and Long-Term Investments and Restricted Cash
Cash, Cash Equivalents, Short-term and Long-term Investments
Cash, cash equivalents, short-term and long-term investments as of September 30, 2010 and
December 31, 2009 consist of the following:
As of September 30, 2010 | ||||||||||||||||
Contracted | Amortized | Fair Market | Carrying | |||||||||||||
Maturity | Cost | Value | Value | |||||||||||||
Cash |
Demand | $ | 8,262 | $ | 8,262 | $ | 8,262 | |||||||||
Money market funds |
Demand | 102,380 | 102,380 | 102,380 | ||||||||||||
Total cash and cash equivalents |
$ | 110,642 | $ | 110,642 | $ | 110,642 | ||||||||||
U.S. agency notes available-for-sale |
22 420 days | $ | 66,699 | $ | 66,752 | $ | 66,752 | |||||||||
U.S. agency notes held-to-maturity |
68 210 days | 59,628 | 59,969 | 59,628 | ||||||||||||
Total short-term marketable securities |
$ | 126,327 | $ | 126,721 | $ | 126,380 | ||||||||||
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Table of Contents
As of December 31, 2009 | ||||||||||||||||
Contracted | Amortized | Fair Market | Carrying | |||||||||||||
Maturity | Cost | Value | Value | |||||||||||||
Cash |
Demand | $ | 8,789 | $ | 8,789 | $ | 8,789 | |||||||||
Money market funds |
Demand | 81,682 | 81,682 | 81,682 | ||||||||||||
Total cash and cash equivalents |
$ | 90,471 | $ | 90,471 | $ | 90,471 | ||||||||||
U.S. agency notes available-for-sale |
263346 days | $ | 4,985 | $ | 4,983 | $ | 4,983 | |||||||||
U.S. agency notes held-to-maturity |
42346 days | 35,007 | 35,028 | 35,007 | ||||||||||||
Total short-term marketable securities |
$ | 39,992 | $ | 40,011 | $ | 39,990 | ||||||||||
U.S. agency notes held-to-maturity |
375435 days | $ | 44,526 | $ | 44,385 | $ | 44,526 | |||||||||
Total long-term marketable securities |
$ | 44,526 | $ | 44,385 | $ | 44,526 | ||||||||||
To date, realized gains or losses from the sale of cash equivalents or short-term or long-term
investments have been immaterial.
3. Inventory
Inventory is stated at the lower of cost, determined on a first in, first out basis, or
market, and consists primarily of finished products.
4. Concentrations of Credit Risk and Off-Balance-Sheet Risk
The Company has no significant off-balance-sheet risk such as foreign exchange contracts,
option contracts, or other international hedging arrangements. Financial instruments that
potentially expose the Company to concentrations of credit risk consist mainly of cash, cash
equivalents and short-term investments and accounts receivable. The Company maintains its cash,
cash equivalents and short-term investments principally in accredited financial institutions of
high credit standing. The Company assesses the credit worthiness of its customers both at the
inception of the business relationship and then routinely on an ongoing basis. The Company does not
require collateral from its customers. Due to these factors, no additional credit risk beyond
amounts provided for collection losses is believed by management to be probable in the Companys
accounts receivable.
The Company had certain customers whose revenue individually represented 10% or more of the
Companys total revenue, as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Customer A |
15 | % | 11 | % | 12 | % | 16 | % | ||||||||
Customer B |
13 | * | * | * | ||||||||||||
Customer C |
* | 10 | * | 14 |
* | Less than 10% of total revenue. |
The Company had certain customers whose accounts receivable balances individually represented
10% or more of the Companys accounts receivable, as follows:
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Customer A |
25 | % | 16 | % | ||||
Customer C |
* | 15 |
5. Product Warranties
Substantially all of the Companys products are covered by a standard warranty of ninety days
for software and one year for hardware. In the event of a failure of hardware product or software
covered by this warranty, the Company must repair or replace the software or hardware product or,
if those remedies are insufficient, and at the discretion of the Company, provide a refund. The
Companys customers typically purchase maintenance and support contracts, which supersede its
warranty obligations. The Companys warranty reserve reflects estimated material and labor costs
for potential or actual product issues in its installed base that are not covered under maintenance
contracts, but for which the Company expects to incur an obligation. The Companys estimates of
anticipated rates of warranty claims and costs are primarily based on historical information and
future forecasts. The Company periodically assesses the adequacy of the warranty allowance and
adjusts the amount as necessary. If the historical data used to
calculate the adequacy of the warranty allowance are not indicative of future requirements,
additional or reduced warranty reserves may be required.
7
Table of Contents
The following is a summary of changes in the amount reserved for warranty costs for the nine
months ended September 30, 2010:
Balance at December 31, 2009 |
$ | 140 | ||
Provision for warranty costs |
1,076 | |||
Uses/Reductions |
(1,039 | ) | ||
Balance at September 30, 2010 |
$ | 177 | ||
6. Stock-Based Compensation
The Company recorded stock-based compensation expense of $4,588 and $2,796 for the three
months ended September 30, 2010 and 2009, respectively, and $11,945 and $7,718 for the nine months
ended September 30, 2010 and 2009, respectively. As of September 30, 2010, there was $37,598 of
unrecognized stock-based compensation expense related to stock-based awards that is expected to be
recognized over a weighted average period of 2.77 years.
The following is a summary of the status of the Companys stock options as of September 30,
2010 and the stock option activity for all stock option plans during the nine months ended
September 30, 2010:
Weighted | Weighted | |||||||||||||||||||
Average | Average | |||||||||||||||||||
Exercise | Remaining | Aggregate | ||||||||||||||||||
Number of | Exercise Price | Price Per | Contractual | Intrinsic | ||||||||||||||||
Shares | Per Share | Share | Life (Years) | Value(1) | ||||||||||||||||
Outstanding at December 31, 2009 |
12,236,695 | $ | 0.20 16.86 | $ | 5.43 | |||||||||||||||
Granted |
3,378,500 | 13.04 36.06 | 17.01 | |||||||||||||||||
Canceled |
(107,832 | ) | 4.35 27.60 | 11.60 | ||||||||||||||||
Exercised |
(4,561,202 | ) | 0.20 16.86 | 4.57 | $ | 105,118 | ||||||||||||||
Outstanding at September 30, 2010 |
10,946,161 | 0.20 36.06 | 9.31 | 5.53 | $ | 313,413 | ||||||||||||||
Exercisable at September 30, 2010 |
3,517,852 | 0.20 26.69 | 4.78 | 4.92 | $ | 116,639 | ||||||||||||||
Vested or expected to vest at September 30, 2010 (2) |
9,689,626 | 0.20 36.06 | 9.12 | 5.51 | $ | 279,265 | ||||||||||||||
(1) | The aggregate intrinsic value was calculated based on the positive difference between the fair value of the Companys common stock on September 30, 2010 of $37.94, or the date of exercise, as appropriate, and the exercise price of the underlying options. | |
(2) | This represents the number of vested options as of September 30, 2010 plus the number of unvested options expected to vest as of September 30, 2010, based on the unvested options outstanding at September 30, 2010, adjusted for an estimated forfeiture rate. |
The Company has entered into restricted stock unit agreements with certain of its employees.
Under the terms of the agreements, the Company grants restricted stock units, or RSUs, to its
employees pursuant to the Acme Packet, Inc. 2006 Equity Incentive Plan. Vesting occurs periodically
at specified time intervals, ranging from one to three years, and in specified percentages. Upon
vesting, the holder will receive one share of the Companys common stock for each unit vested. A
summary of the Companys unvested RSUs outstanding at September 30, 2010 and the changes during the
nine months then ended, is presented below:
Weighted | ||||||||
Average | ||||||||
Number of | Grant Date | |||||||
RSUs | Fair Value | |||||||
Unvested at December 31, 2009 |
385,818 | $ | 6.00 | |||||
Granted |
238,000 | 13.04 | ||||||
Vested |
(159,151 | ) | 6.46 | |||||
Forfeited |
(47,500 | ) | 7.58 | |||||
Unvested at September 30, 2010 |
417,167 | 9.66 | ||||||
7. Comprehensive Income
Comprehensive income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner sources. Accumulated
other comprehensive income is presented separately on the balance sheet as required, and relates to
unrealized gains on the Companys available-for-sale securities.
8
Table of Contents
Comprehensive income for the periods indicated are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income |
$ | 10,465 | $ | 3,580 | $ | 28,527 | $ | 8,031 | ||||||||
Unrealized gain on available-for-sale securities |
18 | | 55 | | ||||||||||||
Comprehensive income |
$ | 10,483 | $ | 3,580 | $ | 28,582 | $ | 8,031 | ||||||||
Other comprehensive income consists entirely of unrealized gains on available for sale
securities at September 30, 2010 and December 31, 2009.
8. Net Income Per Share
A reconciliation of the number of shares used in the calculation of basic and diluted net
income per share is as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Weighted average number of shares of common stock |
62,772,466 | 58,144,105 | 61,371,085 | 56,624,143 | ||||||||||||
Less: Weighted average number of unvested restricted
common shares outstanding |
| (248 | ) | | (1,710 | ) | ||||||||||
Weighted average number of common shares used in
calculating basic net income per share |
62,772,466 | 58,143,857 | 61,371,085 | 56,622,433 | ||||||||||||
Weighted average number of common shares issuable
upon exercise of outstanding stock options, based on
treasury stock method |
5,441,418 | 4,651,104 | 5,533,717 | 4,180,339 | ||||||||||||
Weighted average number of unvested restricted common
shares outstanding |
| 226 | | 1,547 | ||||||||||||
Weighted average number of common shares issuable
upon vesting of outstanding restricted stock units |
212,388 | 132,404 | 209,684 | 99,925 | ||||||||||||
Weighted average number of common shares used in
computing diluted net income per share |
68,426,272 | 62,927,591 | 67,114,486 | 60,904,244 | ||||||||||||
In the computation of the diluted weighted average number of common shares outstanding,
638,685 and 3,606,572 weighted average common share equivalents underlying outstanding stock
options have been excluded from the computation during the three months ended September 30, 2010
and 2009, respectively, and 402,176 and 5,086,498 during the nine months ended September 30, 2010
and September 30, 2009, respectively, as their effect would have been antidilutive.
9. Income Taxes
For the three months ended September 30, 2010 and 2009, the Companys effective income tax
rate was approximately 37% and 31% respectively, and for the nine months ended September 30, 2010
and 2009, the Companys effective income tax rate was approximately 36% and 34%, respectively. As
of September 30, 2010, the Company expects to realize recorded net deferred tax assets of $17,189.
The Companys conclusion that these assets will be recovered is based upon its expectation that
current and future earnings will provide sufficient taxable income to realize the recorded tax
asset. The realization of the Companys net deferred tax asset cannot be assured, and to the extent
that future taxable income against which these tax assets may be applied is not sufficient, some or
all of the Companys recorded net deferred tax assets would not be realizable. Approximately $7,085
of the deferred tax asset recorded as of September 30, 2010 was attributable to benefits associated
with stock-based compensation charges. In accordance with the provision of Accounting Standards
Codification, or ASC, 718, Compensation-Stock Compensation, no valuation allowance has been
recorded against this amount. However, in the future, if the underlying amounts expire with an
intrinsic value less than the fair value of the awards on the date of grant, some or all of the
benefits may not be realizable.
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10. Contingencies
Litigation
From time to time and in the ordinary course of business, the Company may be subject to
various claims, charges, and litigation. At September 30, 2010 and December 31, 2009, the Company
did not have any pending claims, charges, or litigation that it expects would have a material
adverse effect on its consolidated financial position, results of operations, or cash flows.
Subsequent to September 30, 2010, Nortel Networks, Inc., or Nortel, a
customer of the Company, filed a complaint against the Company in the
United States Bankruptcy Court in the District of Delaware. The complaint
alleges that prior to the acquisition of Covergence Inc., or Covergence,
in April 2009, Covergence received a preferential payment prior to
Nortels bankruptcy petition in January 2009. Based on the early stage of
this litigation, the Company is unable to reasonably estimate the outcome
of this claim.
Other
Certain of the Companys arrangements with customers include clauses whereby the Company may
be subject to penalties for failure to meet certain performance obligations. The Company has not
incurred any such penalties to date.
11. Segment Information
Geographic Data
Total revenue to unaffiliated customers by geographic area is as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
United States and Canada |
$ | 32,915 | $ | 19,456 | $ | 97,587 | $ | 54,373 | ||||||||
International |
23,699 | 16,891 | 63,413 | 45,822 | ||||||||||||
Total |
$ | 56,614 | $ | 36,347 | $ | 161,000 | $ | 100,195 | ||||||||
During the three and nine months ended September 30, 2010 and 2009, no one international
country contributed more than 10% of the Companys total revenue.
As of September 30, 2010 and 2009, property and equipment at locations outside the United
States was not material.
12. Fair Value Measurements
Fair value is defined as an exit price, representing the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants
based on the highest and best use of the asset or liability. As such, fair value is a market based
measurement that should be determined based on assumptions that market participants would use in
pricing an asset or liability. The Company uses valuation techniques to measure fair value that
maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are
prioritized as follows:
| Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets; | ||
| Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly such as quoted prices for similar assets or liabilities or market corroborated inputs; and | ||
| Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions about how market participants would price the assets or liabilities. |
The valuation techniques that may be used to measure fair value are as follows:
| Market approach Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities; | ||
| Income approach Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option pricing models and excess earnings method; and | ||
| Cost approach Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). |
The following table sets forth the Companys financial instruments carried at fair value
within the accounting standard hierarchy and using the lowest level of input as of September 30,
2010:
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Quoted Prices in | Significant | |||||||||||||||
Active Markets | Other | Significant | ||||||||||||||
for | Observable | Unobservable | ||||||||||||||
Identical Items | Inputs | Inputs | ||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Assets: |
||||||||||||||||
Money market funds |
$ | 82,068 | $ | | $ | | $ | 82,068 | ||||||||
U.S. agency notes |
| 20,312 | | 20,312 | ||||||||||||
Restricted cash |
837 | | | 837 | ||||||||||||
Total cash equivalents and restricted cash |
82,905 | 20,312 | | 103,217 | ||||||||||||
Short-term U.S. agency notes |
| 126,380 | | 126,380 | ||||||||||||
Total assets |
$ | 82,905 | $ | 146,692 | $ | | $ | 229,597 | ||||||||
Realized gains and losses from sales of the Companys investments are included in Other
income and unrealized gains and losses from available-for-sale securities are included as a
separate component of equity unless the loss is determined to be other-than-temporary.
The Company measures eligible assets and liabilities at fair value with changes in value
recognized in earnings. Fair value treatment may be elected either upon initial recognition of an
eligible asset or liability or, for an existing asset or liability, if an event triggers a new
basis of accounting. The Company did not elect to remeasure any of its existing financial assets or
liabilities, and did not elect the fair value option for any financial assets and liabilities
transacted in the three and nine months ended September 30, 2010.
13. Recent Accounting Pronouncements
In September 2009, the Financial Accounting Standards Board, or FASB, ratified ASU 2009-13,
Revenue Arrangements with Multiple Deliverables, which would modify the objective and reliable
evidence of fair value threshold as it relates to assigning value to specific deliverables in a
multiple element arrangement. This authoritative guidance would allow the use of an estimated
selling price for undelivered elements for purposes of separating elements included in multiple
element arrangements and allocating arrangement consideration when neither Vendor Specific
Objective Evidence, or VSOE, nor acceptable third party evidence of the selling price of the
undelivered element are available. Additionally, the FASB ratified ASU 2009-14, Certain Revenue
Arrangements that Include Software Elements, which provides that tangible products containing
software components and non-software components that function together to deliver the products
essential functionality should be considered non-software deliverables, and therefore, will no
longer be within the scope of the revenue recognition guidance. Both FASB updates are required to
be adopted in annual periods beginning after June 15, 2010. The Company is currently evaluating the
effect that the adoption of both pieces of authoritative guidance may have on the Companys
consolidated financial position and results of operations.
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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
Cautionary Statement
This Quarterly Report on Form 10-Q, including the information incorporated by reference
herein, contains, in addition to historical information, forward -looking statements. We may, in
some cases, use words such as project, believe, anticipate, plan, expect, estimate,
intend, continue, should, would, could, potentially, will, may or similar words and
expressions that convey uncertainty of future events or outcomes to identify these forward looking
statements. Forward looking statements in this Quarterly Report on Form 10-Q may include statements
about:
| our ability to attract and retain customers; | ||
| our ability to retain and hire necessary employees and appropriately staff our operations; | ||
| our financial performance; | ||
| our expectations regarding our revenue, cost of revenue and our related gross profit and gross margin; | ||
| our development activities, expansion of our product offerings and the emerging opportunities for our solutions; | ||
| our position in the session border control market; | ||
| the effect of the economy on purchases of our products; | ||
| the expectations about our growth and acquisitions of new technologies; | ||
| the demand for and the growth of worldwide revenues for session border control solutions; | ||
| the benefit of our products, services, or programs; | ||
| our ability to establish and maintain relationships with key partners and contract manufacturers; | ||
| the advantages of our technology as compared to that of our competitors; | ||
| our expectations regarding the realization of recorded deferred tax assets; and | ||
| our cash needs. |
The outcome of the events described in these forward-looking statements is subject to known
and unknown risks, uncertainties and other factors that could cause actual results to differ
materially from the results anticipated by these forward looking statements. These important
factors include our financial performance, our ability to attract and retain customers, our
development activities and those factors we discuss in this Quarterly Report on Form 10-Q and in
our Annual Report on Form 10-K under the caption Risk Factors. You should read these factors and
the other cautionary statements made in this Quarterly Report on Form 10-Q as being applicable to
all related forward looking statements wherever they appear in this Quarterly Report on Form 10-Q.
These risk factors are not exhaustive and other sections of this Quarterly Report on Form 10-Q may
include additional factors which could adversely impact our business and financial performance.
Company Background
We are a leading provider in session border control solutions which enable the delivery of
trusted, first-class interactive communications voice, video and multimedia sessions and data
services across internet protocol, or IP, network borders.
We were incorporated in the State of Delaware on August 3, 2000. We relocated our headquarters
to Bedford, Massachusetts from Burlington, Massachusetts in July 2010. We maintain sales offices in
Madrid, Spain; Seoul, Korea; Tokyo, Japan; and Ipswich, United Kingdom. We also have sales
personnel in Argentina, Australia, Belgium, Brazil, Canada, China, Columbia, Croatia, Czech
Republic, France, Germany, Hong Kong, India, Indonesia, Italy, Malaysia, Mexico, the Netherlands,
Peru, Poland, Russia, Singapore, South
Africa, Sweden, Taiwan, Thailand, United Arab Emirates and throughout the United States. We
expect to selectively add personnel to provide additional geographic sales and technical support
coverage.
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As of September 30, 2010, approximately 1,180 end user customers in 105 countries have
deployed our products. We sell or license our products and support services through our direct
sales force and 112 distribution partners, including many of the largest network and IP
communications equipment vendors throughout the world.
Industry Background
Service providers traditionally have delivered voice and data services over two separate
networks: the public switched telephone network, or PSTN, and the internet. The PSTN provides high
reliability and security but is costly to operate and is limited in its ability to support high
bandwidth video and other interactive multimedia services. The internet is capable of cost
effectively transmitting any form of traffic that is IP-based, including interactive voice, video
and data, but it transmits traffic only on a best efforts basis, because all forms of traffic have
the same priority. Therefore, the internet attempts to deliver all traffic without distinction,
which can result in significantly varying degrees of service quality for the same or similar types
of traffic transmissions. Internet based services are also subject to disruptive and fraudulent
behavior, including identity theft, viruses, unwanted and excessively large input data, known as
SPAM, and the unauthorized use and attempts to circumvent or bypass security mechanisms associated
with those services, known as hacking.
Service providers are migrating to a single IP network architecture to serve as the foundation
for their next generation voice, video, multimedia and data service offerings. Recently, an
increasing number of enterprises, including contact centers and government agencies have begun to
migrate to a single IP network architecture as well. In order to provide secure and high quality
interactive communications on a converged IP network, service providers and enterprises must be
able to control the communications flows that comprise communication sessions.
Acme Packet Solutions
Our session border control solutions provide controls in five areas:
| Security Our products protect themselves, softswitches, IP private branch exchanges, or IP PBXes, unified communication, or UC, servers and other service delivery infrastructure elements, as well as customer networks, systems and relationships. They protect customer networks and session privacy, and provide denial of service, or DoS/DDoS, protection from malicious attacks and non-malicious overloads. | ||
| Service and application reach maximization Our products extend the reach of interactive communications by enabling interoperability to maximize the different types of networks and devices supported. Support is provided for enabling sessions to traverse existing data firewall/network address translation, or NAT, devices, bridging private networks using overlapping IP addresses and virtual private networks, or VPNs, mediating between different signaling, transport and encryption protocols, converting between incompatible codecs, and translating signaling layer telephone numbers, addresses and response codes. | ||
| Service level agreement assurance Our products play a critical role in assuring session capacity and quality. They perform admission control to ensure that both the network and service infrastructure has the capacity to support a session with high quality. Our products also monitor and report actual session quality to determine compliance with performance specifications set forth in service level agreements between service providers and enterprises, and their external or internal customers. | ||
| Regulatory compliance Our products enable compliance with government mandated regulations worldwide, including emergency services such as E-9-1-1, national government priority services such as Government Emergency Telecommunications Service, or GETS, and lawful intercept such as the Communications Assistance for Law Enforcement Act, or CALEA, in the United States. | ||
| Revenue and cost management Our products enable organizations to increase revenues and control costs by protecting against both bandwidth and quality of service theft, by routing sessions optimally to minimize costs and by providing accounting and related mechanisms to maximize billable sessions. |
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Acme Packet Products
Session border control is a service delivery architecture that encompasses several product
categories that control voice, video and data sessions not only at IP network borders but also
across IP networks to these borders. The product categories in our current portfolio include
session border controllers, session aware load balancers, session routing proxies and multiservice
security gateways, or MSGs. Infonetics Research, a market research and consulting firm specializing
in networking and IP communications, projects that the cumulative worldwide addressable market
opportunity for our products may exceed $2 billion annually by 2014. More specifically:
| SBCs control sessions at the IP network borders. Infonetics Research estimates that the market for SBCs among service providers and enterprises will grow to over approximately $900 million by 2014, with a compounded annual growth rate of approximately 24%. | ||
| Session routing proxies route Session Initiation Protocol, or SIP, sessions to and from borders both access and interconnect and directly compete with CLASS 4 softswitches. They also serve as the Breakout Gateway Control Function in IP multimedia subsystem, or IMS, networks. Infonetics Research estimates that the session routing proxy market may grow to approximately $375 million by 2014, with a compounded annual growth rate of approximately 6%. | ||
| MSGs transport all services and applications including voice, video and data across the untrusted Internet to private service provider network borders via IP security, or IPsec, sessions. Infonetics Research estimates that the MSG market may grow to approximately $600 million by 2014, with a compounded annual growth rate of over 69%. |
Acme Packet Markets
Today, our solutions are used by four different market segments to deliver trusted, first
class interactive communicationsvoice, video and multimedia sessionsand data services across IP
network borders.
| Fixed line service providers use our solutions to deliver services to residential, small and medium business and enterprise customers over their cable, digital subscriber line, or DSL, fiber to the x, or FTTx, Ethernet and leased line access network borders. They also use our solutions to deliver these services across their interconnect and peering borders to other service providers for PSTN termination, IP transit or IP service connections to other subscriber populations. Our solutions support a wide range of services including basic voice, IP Centrex, hosted unified communications and SIP trunking. | ||
| Mobile service providers use our solutions to deliver interactive communications and data services to their mobile subscribers over 3G, long term evolution, or LTE, femtocell, wireless fidelity, or WiFi, and worldwide interoperability for microwave access, or WiMAX, access network borders. They also use our solutions to deliver services across their interconnect and peering borders to other service providers for PSTN termination, IP transit, roaming subscribers and connections to other subscriber populations. We offer specific solutions for SIP services over 3G, global system for mobile communications, or GSM, Rich Communications Suite and IP exchange, or IPX, Voice-over-LTE, or VoLTE, macro radio access network, or RAN, off-load, and fixed-mobile convergence. Our solutions support services ranging from basic voice to presence-enabled voice, interactive video, messaging and collaboration, and Internet data service. | ||
| Over-the-top and application service providers use our solutions to deliver services and applications from their data centers to users over the public Internet or the managed IP network of a third party network service provider. These services range from basic voice to presence enabled voice, video, messaging and collaboration delivered over both fixed line and mobile networks for both consumers and businesses. They also include a wide variety of hosted services for enterprises and service providers such as audio, video and web conferencing, outsourced contact centers, SIP trunking, session recording and E-9-1-1. | ||
| Enterprises, including government agencies and contact centers, use our solutions at SIP trunking borders to connect to the PSTN, federated enterprise and consumer groups, outsourced contact centers and hosted services such as audio, video and web conferencing; hosted customer relationship management, or CRM, and business process management, or BPM, applications, session recording and E-9-1-1. They are also used to secure the public Internet border connecting remote workers and offices. In extremely security conscious organizations, they are also used to secure IP PBX and UC servers from internal employees located on the enterprise campus local area network, or LAN, and in offices connected via a private wide area network, or WAN, such as multiprotocol label switching, or MPLS, and VPNs. Our solutions support a wide range of services and applications such as basic voice, video conferencing, telepresence and presence enabled unified communications and collaboration. |
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Key Financial Highlights
Some of our key financial highlights for the third quarter of 2010 include the following:
| Total revenue was $56.6 million compared to $36.3 million in the same period of 2009. | ||
| Net income was $10.5 million compared to $3.6 million in the same period of 2009. | ||
| Earnings per share was $0.15 per share on a diluted basis compared to $0.06 per share on a diluted basis in the same period of 2009. | ||
| Cash provided by operating activities was $9.7 million compared to $4.1 million in the same period of 2009. |
The Acme Packet Strategy
Principal elements of our strategy include:
| Continuing to satisfy the evolving border requirements of enterprises and fixed line, mobile and over-the-top service providers. Our product deployments position us to gain valuable knowledge that we can use to expand and enhance our products features and functionality. We may develop new products organically, or through selective acquisitions. | ||
| Implementing new technologies to enhance product performance and scalability. We will seek to leverage new technologies as they become available to increase the performance, capacity and functionality of our product family, as well as to reduce our costs. | ||
| Investing in quality and responsive support. As we broaden our product platform and increase our product capabilities, we will continue to provide comprehensive service and support targeted at maximizing customer satisfaction and retention. | ||
| Facilitating and promoting service interconnects and federations among our customers. We intend to drive increased demand for our products by helping our customers extend the reach of their services and applications and, consequently, to increase the value of their services to their customers. | ||
| Leveraging distribution partnerships to enhance market penetration. We will continue to invest in training and tools for our distribution partners sales, systems engineering and support organizations, in order to improve the overall efficiency and effectiveness of these partnerships. | ||
| Actively contributing to architecture and standards definition processes. We will utilize our breadth and depth of experience with SBC deployments to contribute significantly to organizations developing standards and architectures for next generation IP networks. |
Factors That May Affect Future Performance
| Global Macroeconomic Conditions. We believe that the capital budgets and spending initiatives of some of our core customers service providers, enterprises, government agencies and contact centers may be affected by current worldwide economic conditions. Our ability to generate revenue from these core customers is dependent on the status of such budgets and initiatives. | ||
| Gross Margin. Our gross margin has been, and will continue to be, affected by many factors, including (a) the demand for our products and services, (b) the average selling price of our products, which in turn depends, in part, on the mix of product and product configurations sold, (c) the level of software license upgrades, (d) new product introductions, (e) the mix of the sales channels through which our products are sold, and (f) the costs of manufacturing our hardware products and providing our related support services. Customers license our software in various configurations depending on each customers requirements for session capacity, feature groups and protocols. The product software configuration mix will have a direct impact on the average selling price of the system sold. Systems with higher software content (higher session capacity, support for higher number of security protocols and a larger number of feature groups) will generally have a higher average selling price than those systems sold with lower software content. If customers begin to purchase and license systems with lower software content, this may have a negative impact on our revenue and gross margins. |
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| Competition. Competition in our product categories is strong and constantly evolving. While we believe we are currently the market leader in the service provider and enterprise markets for session border controller solutions, we expect competition to persist and intensify in the future as the market grows. Our primary competitors for session border controller solutions generally consist of specialty vendors, such as GENBAND Inc., and more established network and component companies such as Cisco Systems, Inc. and Huawei Technologies Co., Ltd. We also compete with some of the companies with which we have distribution partnerships, such as Alcatel Lucent, Nokia Siemens Networks and Telefonaktiebolaget LM Ericsson. We believe we compete successfully with all of these companies based upon our experience in interactive communications networks, the breadth of our applications and standards support, the depth of our border control features, the demonstrated ability of our products to interoperate with key communications infrastructure elements, and our comprehensive service and support. We also believe our products are priced competitively with our competitors offerings. As the session border control market opportunity grows, we expect competition from additional networking and IP communications equipment suppliers, including our distribution partners. | ||
| Evolution of the Session Border Control Market. The market for our products is in its early stages and is still evolving, and it is uncertain whether these products will continue to achieve and sustain high levels of demand and market acceptance. Our success will depend, to a substantial extent, on the willingness of interactive communications service providers and enterprises to continue to implement our solutions. | ||
| Research and Development. To continue to achieve market acceptance for our products, we must effectively anticipate and adapt, in a timely manner, to customer requirements and must offer products that meet changing customer demands. Prospective customers may require product features and capabilities that our current products do not have. The market for session border control solutions is characterized by rapid technological change, frequent new product introductions, and evolving industry requirements. We intend to continue to invest in our research and development efforts, which we believe are essential to maintaining our competitive position. | ||
| Managing Growth. We significantly expanded our operations in 2009 and in the first nine months of 2010. From January 1, 2009 through September 30, 2010, we increased the number of our employees and full time independent contractors by 39%, from 381 to 529. We anticipate that further expansion of our infrastructure and headcount will be required to achieve planned expansion of our product offerings, projected increases in our customer base and anticipated growth in the number of product deployments. In the future, we expect to continue to carefully manage the increase of our operating expenses based on our ability to expand our revenues, the expansion of which could occur organically or through future acquisitions. |
Revenue
We derive product revenue from the sale of our Net-Net hardware and the licensing of our
Net-Net software. We generally recognize product revenue at the time of product delivery, provided
all other revenue recognition criteria have been met. For arrangements that include customer
acceptance or other material non-standard terms, we defer revenue recognition until after delivery,
assuming all other criteria for revenue recognition have been met.
We generate maintenance, support and service revenue from (a) maintenance associated with
software licenses, (b) technical support services for our software product, (c) hardware repair and
maintenance services, (d) implementation, training and consulting services and (e) reimbursable
travel and other out-of-pocket expenses.
We offer our products and services indirectly through distribution partners and directly
through our sales force. Our distribution partners include networking and telecommunications
equipment vendors throughout the world. Our distribution partners generally purchase our products
after they have received a purchase order from their customers and, generally, do not maintain an
inventory of our products in anticipation of sales to their customers. Generally, the pricing
offered to our distribution partners will be lower than to our direct customers.
The product configuration, which reflects the mix of session capacity, signaling protocol
support and requested features, determines the price for each product sold. Customers can purchase
our products in either a standalone or high availability configuration and can license our software
in various configurations, depending on the customers requirements for session capacity, feature
groups and protocols. The product software configuration mix will have a direct impact on the
average selling price of the system sold. As the market continues to develop and grow, we expect to
experience increased price pressure on our products and services.
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We believe that our revenue and results of operations may vary significantly from quarter to
quarter as a result of long sales and deployment cycles, variations in customer ordering patterns,
and the application of complex revenue recognition rules to certain transactions. Some of our
arrangements with customers include clauses under which we may be subject to penalties for failure
to meet specified performance obligations. We have not incurred any such penalties to date.
Cost of Revenue
Cost of product revenue consists primarily of (a) third party manufacturers fees for
purchased materials and services, combined with our expenses for (b) salaries, wages and related
benefits for our manufacturing personnel, (c) related overhead, (d) provision for inventory
obsolescence, (e) amortization of intangible assets and (f) stock-based compensation. Amortization
of intangible assets represents the amortization of developed technologies from our acquisition of
Covergence.
Cost of maintenance, support and service revenue consists primarily of (a) salaries, wages and
related benefits for our support and service personnel (b) related overhead, (c) billable and
non-billable travel, lodging, and other out-of-pocket expenses, (d) material costs consumed in the
provision of services and (e) stock-based compensation.
Gross Profit
Our gross profit has been, and will be, affected by many factors, including (a) the demand for
our products and services, (b) the average selling price of our products, which in turn depends, in
part, on the mix of product and product configurations sold, (c) the mix between product and
service revenue, (d) new product introductions, (e) the mix of sales channels through which our
products are sold, (f) the volume and costs of manufacturing our hardware products and (g)
personnel and related costs for manufacturing, support and services.
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. During the period from January 1, 2009 through September 30, 2010, we
increased the number of our employees and full time independent contractors by 39%, from 381 to
529. We expect to continue to hire new employees to support our expected growth.
Sales and marketing expense consists primarily of (a) salaries and related personnel costs,
(b) commissions, (c) travel, lodging and other out-of-pocket expenses, (d) marketing programs such
as trade shows, (e) stock-based compensation and (f) other related overhead. Commissions are
recorded as expense when earned by the employee. We expect sales and marketing expense to increase
in absolute dollars as we expand our sales force to continue to increase our revenue and market
share. We anticipate that sales and marketing expense will moderately increase as a percentage of
total revenue in the future.
Research and development expense consists primarily of (a) salaries and related personnel
costs, (b) payments to suppliers for design and consulting services, (c) prototype and equipment
costs relating to the design and development of new products and enhancement of existing products,
(d) quality assurance and testing, (e) stock-based compensation and (f) other related overhead. To
date, all of the costs related to our research and development efforts have been expensed as
incurred. We intend to continue to invest in our research and development efforts, which we believe
are essential to maintaining our competitive position. We expect research and development expense
to increase in absolute dollars. However, we anticipate that research and development expense will
remain relatively consistent as a percentage of total revenue in the future.
General and administrative expense consists primarily of (a) salaries, wages and personnel
costs related to our executive, finance, human resource and information technology organizations,
(b) accounting and legal professional fees, (c) expenses associated with uncollectible accounts,
(d) stock-based compensation and (e) other related overhead. We expect general and administrative
expense to increase in absolute dollars as we invest in infrastructure to support continued growth
and incur ongoing expenses related to being a publicly traded company, including increased audit
and legal fees, costs of compliance with securities and other regulations, investor relations
expense, and higher insurance premiums. However, we anticipate that general and administrative
expense will decrease as a percentage of total revenue in the future.
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Stock-Based Compensation
Cost of revenue and operating expenses include stock-based compensation expense. We expense
stock-based payment awards with compensation cost for stock-based payment transactions measured at
fair value. For the three months ended September 30, 2010 and 2009, we recorded an expense of $4.6
million and $2.8 million, respectively, and for the nine months ended September 30, 2010 and 2009,
we recorded an expense of $11.9 million and $7.7 million, respectively. Based on stock-based awards
granted from 2006 through 2010, a future expense of non-vested options of $37.6 million is expected
to be recognized over a weighted average period of 2.77 years.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest income earned on cash, cash
equivalents and investments. We have invested cash in high quality securities generally of a short
duration and are not materially affected by fluctuations in interest rates. Other income (expense)
also includes gains (losses) from foreign currency translation adjustments of our international
activities. The functional currency of our international operations in Europe and Asia is the
United States, or U.S., dollar. Accordingly, all assets and liabilities of these international
subsidiaries are re-measured into U.S. dollars using the exchange rates in effect at the balance
sheet date, or historical rate, as appropriate. Revenue and expenses of these international
subsidiaries are re-measured into U.S. dollars at the average rates in effect during the period.
Any differences resulting from the re-measurement of assets, liabilities and operations of the
European and Asian subsidiaries are recorded within other income (expense).
Application of Critical Accounting Policies and Use of Estimates
Our financial statements are prepared in accordance with United States generally accepted
accounting principles, or U.S. GAAP. The preparation of these financial statements requires that we
make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting periods. We base our estimates on
historical experience and on various other assumptions that we believe to be reasonable under the
circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results
may differ significantly from these estimates under different assumptions or conditions. There have
been no material changes to these estimates for the periods presented in this Quarterly Report on
Form 10-Q. For a detailed explanation of the judgments made in these areas, refer to Managements
Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on
Form 10-K for the year ended December 31, 2009, which we filed with the Securities and Exchange
Commission, or SEC, on March 9, 2010.
Results of Operations
Comparison of Three Months Ended September 30, 2010 and 2009
Revenue
Three Months Ended September 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Percentage | Percentage | |||||||||||||||||||||||
of Total | of Total | Period-to-Period Change | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Percentage | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Revenue by Type: |
||||||||||||||||||||||||
Product |
$ | 45,328 | 80 | % | $ | 27,726 | 76 | % | $ | 17,602 | 63 | % | ||||||||||||
Maintenance, support and service |
11,286 | 20 | 8,621 | 24 | 2,665 | 31 | ||||||||||||||||||
Total revenue |
$ | 56,614 | 100 | % | $ | 36,347 | 100 | % | $ | 20,267 | 56 | % | ||||||||||||
Revenue by Geography: |
||||||||||||||||||||||||
United States and Canada |
$ | 32,915 | 58 | % | $ | 19,456 | 54 | % | $ | 13,459 | 69 | % | ||||||||||||
International |
23,699 | 42 | 16,891 | 46 | 6,808 | 40 | ||||||||||||||||||
Total revenue |
$ | 56,614 | 100 | % | $ | 36,347 | 100 | % | $ | 20,267 | 56 | % | ||||||||||||
Revenue by Sales Channel: |
||||||||||||||||||||||||
Direct |
$ | 27,299 | 48 | % | $ | 14,535 | 40 | % | $ | 12,764 | 88 | % | ||||||||||||
Indirect |
29,315 | 52 | 21,812 | 60 | 7,503 | 34 | ||||||||||||||||||
Total revenue |
$ | 56,614 | 100 | % | $ | 36,347 | 100 | % | $ | 20,267 | 56 | % | ||||||||||||
18
Table of Contents
The $17.6 million increase in product revenue was primarily due to an increase in the number
of systems recognized as revenue, reflecting an increase in our customer base, coupled with an
increase in the average selling price of our systems due to changes in both our product software
configuration mix, including software upgrades, and the mix of system platforms purchased by our
customers. The product configuration, which reflects the mix of session capacity support for
signaling protocols and requested features, determines the price for each system sold. Customers
can license our software in various configurations, depending on requirements for session capacity,
feature groups and protocols. The product software configuration mix has a direct impact on the
average selling price of a system sold. Systems with higher software content (higher session
capacity support for higher number of signaling protocols and a higher number of feature groups)
will generally have a higher average selling price than those systems sold with lower software
content. The growth in product revenue was primarily due to our direct sales channel and, to a
lesser extent, our indirect sales channel. Direct product revenues increased $11.6 million,
primarily due to an increase attributable to customers in the United States and Canada. Indirect
product revenues increased $6.0 million primarily due to a $5.7 million increase attributable to
our international customers as well as an increase of $365,000 in indirect product revenues related
to customers in the United States and Canada.
Maintenance, support and service revenue increased by $2.7 million primarily due to increases
in maintenance and support fees associated with the growth in our installed product base.
Cost of Revenue, Gross Profit and Gross Margin
Three Months Ended September 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Percentage | Percentage | |||||||||||||||||||||||
of Related | of Related | Period-to-Period Change | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Percentage | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Cost of Revenue: |
||||||||||||||||||||||||
Product |
$ | 7,903 | 17 | % | $ | 5,178 | 19 | % | $ | 2,725 | 53 | % | ||||||||||||
Maintenance, support and service |
2,556 | 23 | 1,773 | 21 | 783 | 44 | ||||||||||||||||||
Total cost of revenue |
$ | 10,459 | 18 | % | $ | 6,951 | 19 | % | $ | 3,508 | 50 | % | ||||||||||||
Gross Profit: |
||||||||||||||||||||||||
Product |
$ | 37,425 | 83 | % | $ | 22,548 | 81 | % | $ | 14,877 | 66 | % | ||||||||||||
Maintenance, support and service |
8,730 | 77 | 6,848 | 79 | 1,882 | 27 | ||||||||||||||||||
Total gross profit |
$ | 46,155 | 82 | % | $ | 29,396 | 81 | % | $ | 16,759 | 57 | % | ||||||||||||
The $2.7 million increase in cost of product revenue was primarily due to (a) a $1.5 million
increase in direct product costs resulting from an increase in the number of systems recognized as,
(b) a $655,000 increase in costs associated with amounts reserved against inventory deemed to be
excess or obsolete, (c) a $213,000 increase in depreciation of fixed assets and amortization of
developed technology acquired in the acquisition of Covergence, (d) a $140,000 increase in
salaries, wages and related benefits, (e) a $104,000 increase in freight costs and (f) a $77,000
increase in stock-based compensation expense. The balance was due to increased overhead and other
manufacturing related costs.
The $783,000 increase in cost of maintenance, support and service revenue was primarily due to
(a) a $365,000 increase in the reserve for warranty repairs and product costs associated with
performance of our maintenance obligations due to the expansion of our customer install base, (b) a
$186,000 increase in salaries and related benefits corresponding to a
26% increase in employee
headcount for our support and services organization to support our rapidly growing customer base,
(c) a $125,000 increase in stock-based compensation expense and (d) a $38,000 increase in travel
expenses. The balance was due to increases in overhead and other maintenance, support and service
related costs.
Product gross margin increased 2 percentage points primarily due to an increase in the number
of units sold in the three months ended September 30, 2010 compared to the three months ended
September 30, 2009, which resulted in fixed manufacturing costs being absorbed by a higher product
volume base. The product platform mix was also a factor for the increase in the average selling
price of systems sold in the three months ended September 30, 2010.
Gross margin on maintenance, support and service revenue decreased 2 percentage points,
primarily due to an increase in reserves for warranty repairs and product costs associated with
performance of our maintenance obligations. The 26% increase in employee headcount for our support
and services organization to support our rapidly growing customer base was also a factor for the
increase in salaries and related benefits.
We expect cost of product revenue and cost of maintenance, support and service revenue each to
increase at approximately the same rate as the related revenue for the foreseeable future. As a
result, we expect that gross profit will increase, but that the related gross margin will remain
relatively consistent for the foreseeable future.
19
Table of Contents
Operating Expenses
Three Months Ended September 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Percentage | Percentage | |||||||||||||||||||||||
of Total | of Total | Period-to-Period Change | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Percentage | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Sales and marketing |
$ | 17,012 | 30 | % | $ | 13,703 | 38 | % | $ | 3,309 | 24 | % | ||||||||||||
Research and development |
8,896 | 16 | 7,271 | 20 | 1,625 | 22 | ||||||||||||||||||
General and administrative |
3,906 | 7 | 3,253 | 9 | 653 | 20 | ||||||||||||||||||
Total operating expenses |
$ | 29,814 | 53 | % | $ | 24,227 | 67 | % | $ | 5,587 | 23 | % | ||||||||||||
The $3.3 million increase in sales and marketing expense was primarily due to (a) a $1.6
million increase in salaries, commissions associated with increased revenues, bonuses and other
benefits associated with a 26% increase in the number of sales and marketing personnel, (b) a
$745,000 increase in stock-based compensation expense, (c) a $303,000 increase in depreciation and
amortization expense due to capital expenditures for evaluation systems, (d) a $303,000 increase in
facility costs related to a larger sales office in Madrid, Spain and the amortization of deferred
rent for our corporate headquarters in Bedford, MA, (e) a $283,000 increase in expenditures
associated with marketing programs, including trade shows, (f) a $243,000 increase in travel and
entertainment expenses reflecting the afore mentioned increase in related headcount and (g) a
$92,000 increase in professional search fees. These increases were partially offset by a $130,000
decrease in training costs and a $112,000 decrease in third party services. The balance was due to
increased overhead costs. We expect sales and marketing expense to continue to increase in absolute
dollars for the foreseeable future as we expand our sales force to continue to increase our revenue
and market share. We anticipate that sales and marketing expense will modestly increase as a
percentage of total revenue for the foreseeable future.
The $1.6 million increase in research and development expense was primarily due to (a) a
$864,000 increase in salaries, bonuses and other benefits associated with an 13% increase in the
number of employees working on the design and development of new products and enhancement of
existing products, quality assurance and testing, (b) a $320,000 increase in stock-based
compensation expense, (c) a $174,000 increase in facility costs, (d) a $66,000 increase in software
and other maintenance costs for lab and other engineering equipment, (e) a $63,000 increase in
third party services and (f) a $62,000 increase in computer and engineering supplies. The balance
was primarily due to increased overhead costs. The addition of personnel and our continued
investment in research and development were driven by our strategy of maintaining our competitive
position by expanding our product offerings and enhancing our existing products to meet the
requirements of our customers and market. We expect research and development expense to increase in
absolute dollars for the foreseeable future. However, we anticipate that research and development
expense will remain relatively consistent as a percentage of total revenue for the foreseeable
future.
The $653,000 increase in general and administrative expense was primarily due to (a) a
$525,000 increase in stock-based compensation expense, (b) a $244,000 increase in salaries, bonuses
and other benefits associated with an 22% increase in the number of employees and (c) a $44,000
increase in facility costs. These increases were partially offset by a $285,000 decrease in
corporate taxes. The balance was due to increased overhead costs. We expect general and
administrative expense to continue to increase in absolute dollars as we invest in infrastructure
to support continued growth and incur expenses related to being a publicly traded company,
including increased audit and legal fees, costs of compliance with securities and other
regulations, insurance costs and investor relations expense. However, we expect general and
administrative expense will decrease as a percentage of total revenue for the foreseeable future.
Operating and Other Income
Three Months Ended September 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Percentage | Percentage | |||||||||||||||||||||||
of Total | of Total | Period-to-Period Change | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Percentage | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Income from operations |
$ | 16,341 | 29 | % | $ | 5,169 | 14 | % | $ | 11,172 | 216 | % | ||||||||||||
Interest income |
157 | | 40 | | 117 | 293 | ||||||||||||||||||
Other income (expense) |
32 | | (12 | ) | | 44 | (367 | ) | ||||||||||||||||
Income before provision for income taxes |
16,530 | 29 | 5,197 | 14 | 11,333 | 218 | ||||||||||||||||||
Provision for income taxes |
6,065 | 11 | 1,617 | 4 | 4,448 | 275 | ||||||||||||||||||
Net income |
$ | 10,465 | 18 | % | $ | 3,580 | 10 | % | $ | 6,885 | 192 | % | ||||||||||||
20
Table of Contents
Interest income (expense) consisted of income generated from the investment of our cash
balances. The increase in interest income was primarily due to higher average interest rates due to
a change in the nature of our investments as well as an increase in the average cash balance in the
three months ended September 30, 2010.
Other income primarily consisted of foreign currency translation adjustments of our
international subsidiaries and sales consummated in foreign currencies. The increase in other
income was primarily due to fluctuations in the value of the Euro and British Pound.
Our effective tax rate was approximately 37% and 31% for the three months ended September 30,
2010 and 2009, respectively. The increase in the effective tax rate was primarily due to the
disallowance of the United State federal research and development tax credit in 2010, which was
available in 2009. We currently expect to realize recorded net deferred tax assets as of September
30, 2010 of $17.2 million. Our conclusion that these assets will be recovered is based upon the
expectation that our current and future earnings will provide sufficient taxable income to realize
the recorded tax assets. The realization of our net deferred tax assets cannot be assured, to the
extent that future taxable income against which these tax assets may be applied is not sufficient,
some or all of our recorded net deferred tax asset would not be realizable. Approximately $7.1
million of the deferred tax assets recorded as of September 30, 2010 is attributable to benefits
associated with stock-based compensation charges. In accordance with the guidance in Accounting
Standards Codification, ASC, 718, Compensation-Stock Compensation, no valuation allowance has been
recorded against this amount. However, in the future, if the underlying amounts expire with an
intrinsic value less than the fair value of the awards on the date of grant, some or all of the
benefits may not be realizable.
Comparison of Nine Months Ended September 30, 2010 and 2009
Revenue
Nine Months Ended September 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Percentage | Percentage | |||||||||||||||||||||||
of Total | of Total | Period-to-Period Change | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Percentage | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Revenue by Type: |
||||||||||||||||||||||||
Product |
$ | 129,452 | 80 | % | $ | 75,020 | 75 | % | $ | 54,432 | 73 | % | ||||||||||||
Maintenance, support and service |
31,548 | 20 | 25,175 | 25 | 6,373 | 25 | ||||||||||||||||||
Total revenue |
$ | 161,000 | 100 | % | $ | 100,195 | 100 | % | $ | 60,805 | 61 | % | ||||||||||||
Revenue by Geography: |
||||||||||||||||||||||||
United States and Canada |
$ | 97,587 | 61 | % | $ | 54,373 | 54 | % | $ | 43,214 | 79 | % | ||||||||||||
International |
63,413 | 39 | 45,822 | 46 | 17,591 | 38 | ||||||||||||||||||
Total revenue |
$ | 161,000 | 100 | % | $ | 100,195 | 100 | % | $ | 60,805 | 61 | % | ||||||||||||
Revenue by Sales Channel: |
||||||||||||||||||||||||
Direct |
$ | 78,989 | 49 | % | $ | 38,037 | 38 | % | $ | 40,952 | 108 | % | ||||||||||||
Indirect |
82,011 | 51 | 62,158 | 62 | 19,853 | 32 | ||||||||||||||||||
Total revenue |
$ | 161,000 | 100 | % | $ | 100,195 | 100 | % | $ | 60,805 | 61 | % | ||||||||||||
The $54.4 million increase in product revenue was primarily due to an increase in the number
of systems recognized as revenue in the nine months ended September 30, 2010 as compared to the
same period in 2009, reflecting a significant increase in our customer base, coupled with an
increase in the average selling price of our systems due to a change in both our product software
configuration mix, including software upgrades, and the mix of system platforms purchased by our
customers. The product configuration, which reflects the mix of session capacity, requested
features and protocols, determines the prices for each system sold. Customers can license our
software in various configurations, depending on requirements for session capacity, feature groups
and protocols. The product software configuration mix has a direct impact on the average selling
price of a system sold. Systems with higher software content (higher session capacity and a higher
number of feature groups) will generally have a higher average selling price than those systems
sold with lower software content. The growth in product revenue was primarily due to our direct
sales channel and, to a lesser extent, our indirect sales channel. Direct product revenues
increased $38.9 million, primarily due to a $37.9 million increase attributable to customers in the
United States and Canada, and to a lesser extent, an increase of $1.0 million in direct product
revenues generated by our international customers. Indirect product revenues increased $15.5
million primarily due to a $14.0 million increase attributable to our international customers, and,
to a lesser extent, an increase of $1.5 million attributable to our customers in the United States
and Canada.
21
Table of Contents
Maintenance, support and service revenue increased by $6.4 million primarily due to increases
in maintenance and support fees associated with the growth in our installed product base.
Cost of Revenue, Gross Profit, and Gross Margin
Nine Months Ended September 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Percentage | Percentage | |||||||||||||||||||||||
of Related | of Related | Period-to-Period Change | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Percentage | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Cost of Revenue: |
||||||||||||||||||||||||
Product |
$ | 22,886 | 18 | % | $ | 15,280 | 20 | % | $ | 7,606 | 50 | % | ||||||||||||
Maintenance, support and service |
6,964 | 22 | 3,903 | 16 | 3,061 | 78 | ||||||||||||||||||
Total cost of revenue |
$ | 29,850 | 19 | % | $ | 19,183 | 19 | % | $ | 10,667 | 56 | % | ||||||||||||
Gross Profit: |
||||||||||||||||||||||||
Product |
$ | 106,566 | 82 | % | $ | 59,740 | 80 | % | $ | 46,826 | 78 | % | ||||||||||||
Maintenance, support and service |
24,584 | 78 | 21,272 | 84 | 3,312 | 16 | ||||||||||||||||||
Total gross profit |
$ | 131,150 | 81 | % | $ | 81,012 | 81 | % | $ | 50,138 | 62 | % | ||||||||||||
The $7.6 million increase in cost of product revenue was primarily due to (a) a $4.7 million
increase in direct product costs resulting from an increase in the number of systems recognized as
revenue in the nine months ended September 30, 2010 as compared to the same period in 2009, (b) a
$1.1 million increase in depreciation and amortization of developed technology acquired in the
acquisition of Covergence, (c) a $954,000 increase in costs associated with amounts reserved
against inventory deemed to be excess or obsolete, (d) a $412,000 increase in salaries, wages and
related benefits, (e) a $181,000 increase in freight costs, (f) a $176,000 increase in stock-based
compensation expense and (g) a $79,000 increase in manufacturing supplies. The balance was due to
increased overhead and other manufacturing related costs.
The $3.1 million increase in cost of maintenance, support and service revenue was primarily
due to (a) a $1.3 million increase in the reserve for warranty repairs and product costs associated
with performance of our maintenance obligations, (b) a $1.1 million increase in salaries and
related benefits corresponding to a 26% increase in employee headcount for our support and services
organization to support our rapidly growing customer base, (c) a $322,000 increase in stock-based
compensation expense, (d) a $118,000 increase in freight costs associated with our maintenance and
warranty obligations and (e) a $98,000 increase in travel expense. The balance was due to increased
overhead and other maintenance, support and service related costs.
Product gross margin increased 2 percentage points primarily due to an increase in the number
of units sold in the nine months ended September 30, 2010 compared to the nine months ended
September 30, 2009. In addition, the average selling price of our products increased as a result
of a change in our product mix. Both of these factors resulted in our fixed manufacturing costs
being absorbed by a higher product volume base.
Gross margin on maintenance, support and service revenue decreased 6 percentage points, due to
an increase in salaries and related benefits corresponding to a 26% increase in employee headcount
for our support and services organization to support our rapidly growing customer base without a
corresponding increase in maintenance, support and service revenue. The increase in reserve for
warranty repairs and product costs associated with performance of our maintenance obligations was
also a factor.
Operating Expenses
Nine Months Ended September 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Percentage | Percentage | |||||||||||||||||||||||
of Total | of Total | Period-to-Period Change | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Percentage | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Sales and marketing |
$ | 50,062 | 31 | % | $ | 37,647 | 38 | % | $ | 12,415 | 33 | % | ||||||||||||
Research and development |
26,235 | 16 | 20,513 | 20 | 5,722 | 28 | ||||||||||||||||||
General and administrative |
10,785 | 7 | 9,674 | 10 | 1,111 | 11 | ||||||||||||||||||
Merger and integration-related costs |
| | 1,102 | 1 | (1,102 | ) | (100 | ) | ||||||||||||||||
Total operating expenses |
$ | 87,082 | 54 | % | $ | 68,936 | 69 | % | $ | 18,146 | 26 | % | ||||||||||||
22
Table of Contents
The $12.4 million increase in sales and marketing expense was primarily due to (a) a $7.3
million increase in salaries, commissions associated with increased revenues, bonuses and other
benefits associated with a 26% increase in the number of sales and marketing personnel, (b) a $1.8
million increase in stock-based compensation expense, (c) a $923,000 increase in depreciation and
amortization expense due to capital expenditures for evaluation systems, (d) a $747,000 increase in
travel expenses resulting from the increase in our headcount, (e) a $730,000
increase in facility costs related to a larger sales office in Madrid, Spain as well as the
amortization of deferred rent for our corporate headquarters in Bedford, MA, (f) a $510,000
increase in expenditures associated with marketing programs, including trade shows, (g) a $220,000
increase in professional search fees associated with the growth in headcount and (h) a $129,000
increase in software and other maintenance fees. The balance was due to increased overhead costs.
The $5.7 million increase in research and development expense was primarily due to (a) a $3.5
million increase in salaries, bonuses and other benefits associated with a 13% increase in the
number of employees working on the design and development of new products and enhancement of
existing products, quality assurance and testing, (b) a $1.0 million increase in stock-based
compensation expense, (c) a $479,000 increase in facility costs, (d) a $277,000 increase in outside
consulting services, (e) a $175,000 increase in software and other maintenance fees for lab and
other engineering equipment, (e) an $87,000 increase in depreciation and amortization expense due
to capital expenditures for lab and other engineering equipment, (f) an $80,000 increase in travel
expenses and (g) a $76,000 increase in professional service fees. The balance was due to increased
overhead costs. The addition of personnel and our continued investment in research and development
were driven by our strategy of maintaining our competitive position by expanding our product
offerings and enhancing our existing products to meet the requirements of our customers and market.
The $1.1 million increase in general and administrative expense was primarily due to (a) a
$913,000 increase in stock-based compensation expense, (b) a $523,000 increase in salaries, bonuses
and other benefits associated with a 22% increase in the number of employees, (c) a $114,000
increase in office and computer supplies and (d) a $52,000 increase in travel expenses. These
increases were partially offset by (a) a $549,000 decrease in bad debt expense and (b) a $131,000
decrease in depreciation expense. The balance was due to increased overhead costs.
During the nine months ended September 30, 2009, we incurred $1.1 million of merger and
integration-related costs associated with our acquisition of Covergence in April 2009, including
$585,000 of transaction expenses and $517,000 of severance related charges pertaining to 20
employees of Covergence across all functional areas who were terminated on April 30, 2009. There
were no such costs incurred in the nine months ended September 30, 2010.
Operating and Other Income
Nine Months Ended September 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Percentage | Percentage | |||||||||||||||||||||||
of Total | of Total | Period-to-Period Change | ||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | Percentage | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Income from operations |
$ | 44,068 | 28 | % | $ | 12,076 | 12 | % | $ | 31,992 | 265 | % | ||||||||||||
Interest income |
397 | | 205 | | 192 | 94 | ||||||||||||||||||
Other expense |
(43 | ) | | (55 | ) | | 12 | (22 | ) | |||||||||||||||
Income before provision for income taxes |
44,422 | 28 | 12,226 | 12 | 32,196 | 263 | ||||||||||||||||||
Provision for income taxes |
15,895 | 10 | 4,195 | 4 | 11,700 | 279 | ||||||||||||||||||
Net income |
$ | 28,527 | 18 | % | $ | 8,031 | 8 | % | $ | 20,496 | 255 | % | ||||||||||||
Interest income consisted of income generated from the investment of our cash balances. The
increase in interest income was primarily due to higher average interest rates due to a change in
the nature of our investments as well as an increase in the average cash balance in the nine months
ended September 30, 2010.
Other expense primarily consisted of foreign currency translation adjustments of our
international subsidiaries and sales consummated in foreign currencies. The decrease in other
expense was primarily due to fluctuations in the value of the Euro and British Pound.
Our effective tax rate was approximately 36% and 34% for the nine months ended September 30,
2010 and 2009, respectively. The increase in the effective tax rate was primarily due to the
disallowance of the United State federal research and development tax credit in 2010, but which was
available in 2009.
23
Table of Contents
Liquidity and Capital Resources
Resources
Since 2005, we have funded our operations primarily with the growth in our operating cash
flows. In October 2006, we completed an initial public offering, or IPO, of our common stock in
which we sold and issued 9.7 million shares of our common stock, including 1.7 million shares sold
by us pursuant to the underwriters full exercise of their over-allotment option, at an issue price
of $9.50 per share. We raised a total of $92.4 million in gross proceeds from the IPO, or $83.2
million in net proceeds after deducting underwriting discounts and commissions of $6.5 million and
other offering costs of $2.7 million. To date we have not used or designated any of the proceeds
from our IPO.
Key measures of our liquidity are as follows:
As of and | ||||||||
As of and for | for the | |||||||
the Nine | Year | |||||||
Months Ended | Ended | |||||||
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Cash and cash equivalents |
$ | 110,642 | $ | 90,471 | ||||
Short-term and long-term investments |
126,380 | 84,516 | ||||||
Accounts receivable, net |
30,289 | 25,604 | ||||||
Working capital |
243,064 | 123,452 | ||||||
Cash provided by operating activities |
32,749 | 45,146 | ||||||
Cash used in investing activities |
(53,772 | ) | (84,156 | ) | ||||
Cash provided by financing activities |
41,194 | 3,758 |
Cash, cash equivalents, short-term and long-term investments. Our cash and cash equivalents at
September 30, 2010 were invested primarily in high quality securities of a short duration and are
not materially affected by fluctuations in interest rates. Our short-term and long-term investments
consist of high quality government treasuries and bonds. The cash and cash equivalents are held for
working capital purposes. We do not enter into investments for trading or speculative purposes.
Restricted cash, which totaled $837,000 and $1.1 million at September 30, 2010 and December 31,
2009, respectively, is not included in cash and cash equivalents, and was held in certificates of
deposit as collateral for letters of credit related to the lease agreements for our former
corporate headquarters in Burlington, Massachusetts, our sales office in Madrid, Spain as well as
our new corporate headquarters in Bedford, Massachusetts to which we relocated to in July 2010.
24
Table of Contents
Accounts receivable, net. Our accounts receivable balance fluctuates from period to period,
which affects our cash flow from operating activities. The fluctuations vary depending on the
timing of our shipping and billing activity, cash collections, and changes in our allowance for
doubtful accounts. In some situations we receive cash payment from a customer prior to the time we
are able to recognize revenue on a transaction. We record these payments as deferred revenue, which
has a positive effect on our accounts receivable balances. We use days sales outstanding, or DSO,
calculated on a quarterly basis, as a measurement of the quality and status of our receivables. We
define DSO as (a) accounts receivable, net of allowance for doubtful accounts, divided by (b) total
revenue for the most recent quarter, multiplied by (c) 90 days. DSO was 48 days at September 30,
2010 and 56 days at December 31, 2009. The decrease in DSO at September 30, 2010 was primarily due
to the receipt of cash on product orders prior to their recognition as revenue during the three
months ended September 30, 2010.
Operating activities. Cash provided by operating activities primarily consists of net income
adjusted for certain non-cash items including depreciation and amortization, deferred income taxes,
provision for bad debts, stock-based compensation, tax benefits associated with stock option
exercises and the effect of changes in working capital and other activities. Cash provided by
operating activities in the nine months ended September 30, 2010 was $32.7 million and consisted of
(a) $28.5 million of net income, (b) non-cash adjustments of $1.2 million (consisting primarily of
$11.9 million of stock-based compensation expense, $5.8 million of depreciation and amortization
expense, and $1.4 million of amortization of the premium/discount on investments), and (c) $5.4
million provided by working capital and other activities, partially offset by $20.4 million related
to excess tax benefits from the exercise, by employees, of stock options and $54,000 for
the bad debts provision. Cash provided by working capital and other activities primarily reflected
increases of $12.8 million in accrued expenses and other current liabilities and decreases of
$899,000 and $76,000 in deferred product costs and accounts payable, respectively, partially offset
by increases of $4.7 million in accounts receivable, $1.9 million in inventory, $339,000 in other
assets and a $2.1 million decrease in deferred revenue. The
increase of $12.8 million in accrued
expenses primarily represents the effect of excess tax benefits used to offset our tax liability in
the nine months ended September 30, 2010. The level of benefits available in the same period in
2009 was significantly less. The increase of $4.7 million in accounts receivable and the $1.9
million increase in inventory is primarily attributable to the amount of revenue recognized in the
nine months ended September 30, 2010 as compared to the same period in 2009. The $2.1 million
decrease in deferred revenue is attributable to the timing of revenue recognition on customer
orders. The timing of revenue recognition is affected by, among other things, the timing of the
receipt of customer orders, and the contractual acceptance terms under which these orders are
placed.
Investing activities. Cash used in investing activities in the nine months ended September 30,
2010 was $53.8 million, which included $151.0 million in purchases of marketable securities and
$10.6 million in purchases of property and equipment, all of which were partially offset by the
receipt of $107.8 million in proceeds from sales and maturities of marketable securities.
Financing activities. Net cash provided by financing activities included proceeds from the
exercise of common stock options in the amount of $20.8 million during the nine months ended
September 30, 2010 and $20.4 million of excess tax benefits from the exercise of stock options.
Anticipated cash flows. We believe our existing cash, cash equivalents and short-term and
long-term investments and our cash flow from operating activities will be sufficient to meet our
anticipated cash needs for at least the next twelve months. Our future working capital requirements
will depend on many factors, including the rate of our revenue growth, our introduction of new
products and enhancements, and our expansion of sales and marketing and product development
activities. To the extent that our cash, cash equivalents, short-term and long-term investments and
cash flow from operating activities are insufficient to fund our future activities, we may need to
raise additional funds through bank credit arrangements or public or private equity or debt
financings. We also may need to raise additional funds in the event we determine in the future to
effect one or more acquisitions of businesses, technologies and products that will complement our
existing operations. In the event additional funding is required, and given the current condition
of the global financial markets, we may not be able to obtain bank credit arrangements or affect an
equity or debt financing on terms acceptable to us or at all.
Requirements
Capital expenditures. We have made capital expenditures primarily for equipment to support
product development, evaluation systems for sales opportunities, improvements to our leased
corporate headquarters in Bedford, Massachusetts and other general purposes to support our growth.
Our capital expenditures totaled $10.6 million in the nine months ended September 30, 2010. We
expect to spend an additional $1.0 million to $2.0 million in capital expenditures in the remainder
of 2010, excluding any investment related to the expansion of our headquarters in July 2010.
Contractual obligations and requirements. Our only significant contractual obligations relate
to the lease of our corporate headquarters in Bedford, Massachusetts to which we relocated in July
2010 and our office facilities in Madrid, Spain.
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On December 10, 2009 we entered into a lease dated as of November 23, 2009 with MSCP Crosby,
LLC to secure office space for our corporate headquarters at 100 Crosby Drive, Bedford,
Massachusetts. The commencement date for occupancy under the lease was June 1, 2010. The lease for
our former corporate headquarters at 71 Third Avenue, Burlington, Massachusetts expired on July 31,
2010.
The lease for our new corporate headquarters at 100 Crosby Drive, Bedford, Massachusetts
provides for the rental of 123,788 square feet of space and has an initial term of six years and
six months. We can, subject to certain conditions, extend this term for an additional period of
five years. We are not required to pay any rent for the first six months of the initial lease term.
Thereafter, the annual rent will be $2.4 million, or approximately $201,156 per month. The total
base rent payable in the initial lease term is $14.5 million.
In addition to base rent, the lease for our new corporate headquarters requires us to pay our
proportionate share of certain taxes and operating expenses, as further set forth in the lease. We
received lease incentives, including free rent for the first six months of occupancy, which totaled
approximately $1.2 million, and allowances for tenant improvements totaling approximately $3.2
million. We are recognizing the total base rent payable of $14.5 million ratably over the initial
lease term of the lease which is 78 months. The allowances for tenant improvements is being
amortized on a straight-line basis over the initial lease term as a reduction of rental expense.
On July 12, 2010 we entered into a lease amendment dated as of June 1, 2010 with MSCP Crosby,
LLC to secure additional office space at our new corporate headquarters. The commencement date for
occupancy under the amendment is July 1, 2010. The lease amendment provides for an additional
27,161 square feet of space. We are not required to pay any rent on this additional space until
August 1, 2011 at which point our rent will be $245,292 per month for the entire facility. In
addition to the free rent, we are receiving allowances for tenant improvements totaling
approximately $447,000.
In connection with the signing of the lease for our new headquarters, we have deposited with
the landlord an unconditional, irrevocable letter of credit in the landlords favor in the amount
of approximately $603,000.
Off-Balance-Sheet Arrangements
As of September 30, 2010, we did not have any significant off-balance-sheet arrangements, as
defined in Item 303(a)(4)(ii) of Regulation S-K.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk represents the risk of loss that may impact our financial position due to adverse
changes in financial market prices and rates. Our market risk exposure is primarily a result of
fluctuations in foreign exchange rates and interest rates. We do not hold or issue financial
instruments for trading purposes.
Foreign Currency Exchange Risk
To date, substantially all of our international customer agreements have been denominated in
U.S. dollars. Accordingly, we have limited exposure to foreign currency exchange rates and do not
enter into foreign currency hedging transactions. The functional currency of our international
operations in Europe and Asia is the U.S. dollar. Accordingly, all operating assets and liabilities
of these international subsidiaries are re-measured into U.S. dollars using the exchange rates in
effect at the balance sheet date. Revenue and expenses of these international subsidiaries are
re-measured into U.S. dollars at the average rates in effect during the period. Any differences
resulting from the re-measurement of assets, liabilities and operations of the European and Asian
subsidiaries are recorded within other income in the consolidated statements of income. If the
foreign currency exchange rates fluctuated by 10% as of September 30, 2010, our foreign exchange
exposure would have fluctuated by less then $10,000.
Interest Rate Risk
At September 30, 2010, we had unrestricted cash, cash equivalents and short-term investments
totaling $237.0 million. These amounts were invested primarily in high quality securities of a
short duration and are not materially affected by fluctuations in interest rates. The cash and cash
equivalents are held for working capital requirements. We do not enter into investments for trading
or
speculative purposes. Due to the short nature of our short-term investments, we believe that we
do not have any material exposure to changes in the fair value of our investment portfolio as a
result of changes in interest rates. Declines in interest rates, however, would reduce future
interest income.
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ITEM 4. Controls and Procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial
Officer (our principal executive officer and our principal financial officer), evaluated the
effectiveness of our disclosure controls and procedures as of September 30, 2010. The term
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act of 1934, as amended (the Exchange Act), means controls and other procedures of a
company that are designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under the Exchange
Act is accumulated and communicated to the companys management, including its principal executive
and principal financial officers, as appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. Based on the evaluation of our disclosure controls and procedures as of September
30, 2010, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date,
our disclosure controls and procedures were effective at the reasonable assurance level to enable
us to record, process, summarize and report information required to be included in our periodic
filings under the Exchange Act and to ensure that information required to be disclosed in such
filings is accumulated and communicated to our management, including our Chief Executive Officer
and Chief Financial Officer, to allow timely decisions regarding required disclosure.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2010 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
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PART IIOTHER INFORMATION
ITEM 1. Legal Proceedings.
We are not currently a party to any material litigation, and we are not aware of any pending
or threatened litigation against us that could have a material adverse effect on our consolidated
financial position, results of operations, or cash flows. The software and communications
infrastructure industries are characterized by frequent claims and litigation, including claims
regarding patent and other intellectual property rights, as well as improper hiring practices. As a
result, we may be involved in various legal proceedings from time to time.
ITEM 1A. Risk Factors.
In addition to the other information set forth in this Quarterly Report on Form 10-Q and the
risks discussed below, you should carefully consider the factors discussed under the heading, Risk
Factors in Item 1A of Part I of our most recent Annual Report on Form 10-K, some of which are
updated below. These are risks and uncertainties that could cause actual results to differ
materially from the results contemplated by the forward-looking statements contained in this
Quarterly Report on Form 10-Q. Because of the following factors, as well as other variables
affecting our operating results, past financial performance should not be considered as a reliable
indicator of future performance and investors should not use historical trends to anticipate
results or trends in future periods. These risks are not the only ones facing the Company. Please
also see Cautionary Statement on page 12 of this Quarterly Report on Form 10-Q.
Risks Relating to Our Business
We rely on many distribution partners to assist in selling our products, and if we do not develop
and manage these relationships effectively, our ability to generate revenue and control expenses
will be adversely affected.
As of September 30, 2010, we had 112 distribution partners. Our success is highly dependent
upon our ability to continue to establish and maintain successful relationships with these
distribution partners from whom, collectively, we derive a significant portion of our revenue, and
who may comprise a concentrated amount of our accounts receivable at any point in time. Revenue
derived through distribution partners accounted for 52% and 60% of our total revenue in the three
months ended September 30, 2010 and 2009, respectively, and 51% and 62% in the nine months ended
September 30, 2010 and 2009, respectively. One distribution partner accounted for 25% and two for
31%, of our total accounts receivable as of September 30, 2010 and December 31, 2009, respectively.
Given the current global economic conditions, there is a risk that one or more of our distribution
partners could cease operations. For example, one of our distribution partners entered into
bankruptcy proceedings in January 2009, which caused us to increase our allowance for doubtful
accounts as of December 31, 2008. Although we have entered into contracts with each of our
distribution partners, our contractual arrangements are not exclusive and do not obligate our
distribution partners to order, purchase or distribute any fixed or minimum quantities of our
products. Accordingly, our distribution partners, at their sole discretion, may choose to purchase
solutions from our competitors rather than from us. Under our contracts with our distribution
partners, they generally order products from us by submitting purchase orders that describe, among
other things, the type and quantities of our products desired, delivery date and terms applicable
to the ordered products. Accordingly, our ability to sell our products and generate significant
revenue through our distribution partners is highly dependent on the continued desire and
willingness of our distribution partners to purchase and distribute our products and on the
continued cooperation between us and our distribution partners. Some of our distribution partners
may develop competitive products in the future or may already have other product offerings that
they may choose to offer and support in lieu of our products. Divergence in strategy, change in
focus, competitive product offerings, potential contract defaults, and changes in ownership or
management of a distribution partner may interfere with our ability to market, license, implement
or support our products with that party, which in turn may have a material adverse effect on our
consolidated financial position, results of operations, or cash flows. Some of our competitors may
have stronger relationships with our distribution partners than we do, and we have limited control,
if any, as to whether those partners implement our products rather than our competitors products
or whether they devote resources to market and support our competitors products rather than our
offerings.
Moreover, if we are unable to leverage our sales, support and services resources through our
distribution partner relationships, we may need to hire and train additional qualified sales,
support and services personnel. We cannot be assured, however, that we will be able to hire
additional qualified sales, support and services personnel in these circumstances and our failure
to do so may restrict our ability to generate revenue or implement our products on a timely basis.
Even if we are successful in hiring additional qualified sales, support and services personnel, we
will incur additional costs and our operating results, including our gross margin, may have a
material adverse effect on our consolidated financial position, results of operations, or cash
flows.
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We depend on a limited number of customers for a substantial portion of our revenue in any period,
and the loss of, or a significant shortfall in orders from, key customers could significantly
reduce our revenue.
We derive a substantial portion of our total revenue in any period from a limited number of
customers as a result of the nature of our target market and the current stage of our development.
During any given period, a small number of customers may each account for 10% or more of our
revenue. For example, two customers accounted for 28% and 21% of our total revenue in the three
months ended September 30, 2010 and 2009, respectively, and one and two such customers accounted
for 12% and 30% of our total revenue in the nine months ended September 30, 2010 and 2009,
respectively. Additionally, we do not enter into long term purchase contracts with our customers,
and we have no contractual arrangements to ensure future sales of our products to our existing
customers. Our inability to generate anticipated revenue from our key existing or targeted
customers, or a significant shortfall in sales to them could have a material adverse effect on our
consolidated financial position, results of operations, or cash flows. Our operating results in the
foreseeable future will continue to depend on our ability to effect sales to existing and other
large customers.
If we are unable to manage our growth and expand our operations successfully, our business and
operating results will be harmed and our reputation may be damaged.
We continued to expand our operations in 2009 and the first nine months of 2010. For example,
during the period from January 1, 2009 through September 30, 2010, we increased the number of our
employees and full-time independent contractors by 39%, from 381 to 529. We have also increased the
number of our employees and full-time independent contractors located outside the United States in
multiple countries and as a result we are required to comply with varying local employment and tax
laws for each of these new locations. In connection with the acquisition of Covergence in April
2009, we added 39 employees. In addition, our total operating expenses increased by 53% in 2007,
18% in 2008, 23% in 2009, and for the nine months ended September 30, 2010 were 26% higher than for
the nine months ended September 30, 2009. We anticipate that further expansion of our
infrastructure and headcount will be required to achieve planned expansion of our product
offerings, projected increases in our customer base and anticipated growth in the number of product
deployments. Our rapid growth has placed, and will continue to place, a significant strain on our
administrative and operational infrastructure. Our ability to manage our operations and growth,
domestically and across multiple countries, will require us to continue to refine our operational,
financial and management controls, human resource policies, and reporting systems and procedures.
We may not be able to implement improvements to our management information and control systems
in an efficient or timely manner and may discover deficiencies in existing systems and controls. If
we are unable to manage future expansion, our ability to provide quality products and services
could be harmed, which would damage our reputation and brand and may have a material adverse effect
on our consolidated financial position, results of operations, or cash flows.
Over the long-term we intend to increase
our investment in engineering, sales, marketing, service,
manufacturing and administration activities, and these investments may achieve delayed or lower
than expected benefits, which could harm our operating results.
Over the long-term, we intend to continue to add personnel and other resources to our
engineering, sales, marketing, service, manufacturing and administrative functions as we focus on
developing emerging technologies, the next wave of advanced technologies, capitalizing on our
emerging market opportunities, enhancing our evolving support model and increasing our market share
gains. We are likely to recognize the costs associated with these 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. If we do not achieve the benefits anticipated from these investments, or if
the achievement of these benefits is delayed, our consolidated financial position, results of
operations, or cash flows may be adversely affected.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Sales of Unregistered Securities
None.
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(b) Use of Proceeds from Public Offering of Common Stock
In October 2006, we completed an initial public offering, or IPO, of common stock pursuant to
a registration statement on Form
S-1 (Registration No. 333-134683) which the SEC declared effective on October 12, 2006.
Pursuant to the registration statement, we registered the offering and sale of an aggregate of
9,721,179 shares of our common stock, and another 3,474,528 shares of our common stock sold by
selling stockholders. The offering did not terminate until after the sale of all of the shares
registered in the registration statement. We sold and issued 9,721,179 shares of our common stock,
including 1,721,179 shares sold by us pursuant to the underwriters full exercise of their
over-allotment option, at an issue price of $9.50 per share. The managing underwriters for the
offering were Goldman, Sachs & Co., Credit Suisse, JPMorgan and Think Equity Partners LLC.
We raised a total of $92.4 million in gross proceeds from the IPO, or approximately $83.2
million in net proceeds after deducting underwriting discounts and commissions of $6.5 million and
other estimated offering costs of approximately $2.7 million. None of our net proceeds from the IPO
have been utilized to support business operations. Pending such application, we have invested the
remaining net proceeds in money-market mutual funds and United States agency notes, in accordance
with our investment policy. None of the remaining net proceeds were paid, directly or indirectly,
to directors, officers, persons owning ten percent or more of our equity securities, or any of our
other affiliates.
ITEM 3. Defaults Upon Senior Securities.
None.
ITEM 4. Removed and Reserved.
ITEM 5. Other Information.
None.
ITEM 6. Exhibits.
The following is an index of the exhibits included in this report:
Exhibit No. | Description | |
2.1
|
Agreement and Plan of Merger dated as of April 29, 2009 by and among Acme Packet, Inc., PAIC Midco Corp., CIAP Merger Corp., Covergence, Inc. and the stockholder representative named therein (incorporated by reference to Exhibit 2.1 to the Registrants Current Report on Form 8-K filed on April 30, 2009 (Commission File No. 001-33041)). | |
3.1
|
Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.3 to the Registrants Registration Statement on Form S-1 (Commission File No. 333-134683)). | |
3.2
|
Second Amended and Restated Bylaws of the Registrant (incorporated by reference to the Registrants Current Report of Form 8-K filed on December 11, 2007 (Commission File No. 001-33041)). | |
10.1
|
Lease Amendment entered into on July 12, 2010 and dated as of June 1, 2010 to the Lease, dated November 23, 2009, by and between MSCP Crosby, LLC and the Registrant. | |
31.1
|
Certification of Chief Executive Officer, pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Certification of Chief Financial Officer, pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ACME PACKET, INC. (Registrant) |
||||
Date: October 28, 2010 | By: | /s/ Andrew D. Ory | ||
Andrew D. Ory | ||||
President and Chief Executive Officer (Principal Executive Officer) |
||||
Date: October 28, 2010 | By: | /s/ Peter J. Minihane | ||
Peter J. Minihane | ||||
Chief Financial Officer and Treasurer (Principal Financial Officer) |
||||
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