T
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
77-0560389
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
1090 Kifer Road
Sunnyvale, California
|
94086
|
(Address of principal executive offices)
|
(Zip Code)
|
|
|
|
|
|
Page
|
|
|
|
|
Part I
|
|
|
|
|
Item 1.
|
||
|
||
|
||
|
||
|
||
|
||
Item 2.
|
||
Item 3.
|
||
Item 4.
|
||
|
|
|
|
Part II
|
|
|
|
|
Item 1.
|
||
Item 1A.
|
||
Item 2.
|
||
Item 3.
|
||
Item 4.
|
||
Item 5.
|
||
Item 6.
|
||
|
ITEM 1.
|
Financial Statements
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
June 30,
2013 |
|
June 30,
2012 |
|
June 30,
2013 |
|
June 30,
2012 |
|||||||||
REVENUE:
|
|
|
|
|
|
|
|
||||||||
Product
|
$
|
66,525
|
|
|
$
|
61,692
|
|
|
$
|
124,475
|
|
|
$
|
114,896
|
|
Services
|
79,668
|
|
|
65,412
|
|
|
155,564
|
|
|
127,550
|
|
||||
Ratable and other revenue
|
1,235
|
|
|
1,858
|
|
|
3,209
|
|
|
3,763
|
|
||||
Total revenue
|
147,428
|
|
|
128,962
|
|
|
283,248
|
|
|
246,209
|
|
||||
COST OF REVENUE:
|
|
|
|
|
|
|
|
||||||||
Product
|
26,948
|
|
|
23,935
|
|
|
49,906
|
|
|
43,003
|
|
||||
Services
|
16,259
|
|
|
12,467
|
|
|
31,833
|
|
|
23,680
|
|
||||
Ratable and other revenue
|
501
|
|
|
725
|
|
|
1,097
|
|
|
1,487
|
|
||||
Total cost of revenue
|
43,708
|
|
|
37,127
|
|
|
82,836
|
|
|
68,170
|
|
||||
GROSS PROFIT:
|
|
|
|
|
|
|
|
||||||||
Product
|
39,577
|
|
|
37,757
|
|
|
74,569
|
|
|
71,893
|
|
||||
Services
|
63,409
|
|
|
52,945
|
|
|
123,731
|
|
|
103,870
|
|
||||
Ratable and other revenue
|
734
|
|
|
1,133
|
|
|
2,112
|
|
|
2,276
|
|
||||
Total gross profit
|
103,720
|
|
|
91,835
|
|
|
200,412
|
|
|
178,039
|
|
||||
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
||||||||
Research and development
|
25,158
|
|
|
20,388
|
|
|
48,492
|
|
|
40,055
|
|
||||
Sales and marketing
|
55,997
|
|
|
44,259
|
|
|
105,973
|
|
|
86,295
|
|
||||
General and administrative
|
8,788
|
|
|
6,238
|
|
|
16,779
|
|
|
12,023
|
|
||||
Total operating expenses
|
89,943
|
|
|
70,885
|
|
|
171,244
|
|
|
138,373
|
|
||||
OPERATING INCOME
|
13,777
|
|
|
20,950
|
|
|
29,168
|
|
|
39,666
|
|
||||
INTEREST INCOME
|
1,337
|
|
|
1,203
|
|
|
2,706
|
|
|
2,287
|
|
||||
OTHER (EXPENSE) INCOME—Net
|
(100
|
)
|
|
73
|
|
|
115
|
|
|
3
|
|
||||
INCOME BEFORE INCOME TAXES
|
15,014
|
|
|
22,226
|
|
|
31,989
|
|
|
41,956
|
|
||||
PROVISION FOR INCOME TAXES
|
6,035
|
|
|
8,276
|
|
|
10,761
|
|
|
13,833
|
|
||||
NET INCOME
|
$
|
8,979
|
|
|
$
|
13,950
|
|
|
$
|
21,228
|
|
|
$
|
28,123
|
|
Net income per share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
0.06
|
|
|
$
|
0.09
|
|
|
$
|
0.13
|
|
|
$
|
0.18
|
|
Diluted
|
$
|
0.05
|
|
|
$
|
0.08
|
|
|
$
|
0.13
|
|
|
$
|
0.17
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
||||||||
Basic
|
162,247
|
|
|
157,474
|
|
|
161,767
|
|
|
156,742
|
|
||||
Diluted
|
168,042
|
|
|
166,061
|
|
|
168,033
|
|
|
165,808
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
2013 |
|
June 30,
2012 |
|
June 30,
2013 |
|
June 30,
2012 |
||||||||
Net income
|
$
|
8,979
|
|
|
$
|
13,950
|
|
|
$
|
21,228
|
|
|
$
|
28,123
|
|
Other comprehensive (loss) income, net of reclassification adjustments:
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation losses
|
(861
|
)
|
|
(783
|
)
|
|
(1,813
|
)
|
|
(225
|
)
|
||||
Unrealized (losses) gains on investments
|
(1,468
|
)
|
|
(326
|
)
|
|
(1,426
|
)
|
|
1,473
|
|
||||
Unrealized gains on cash flow hedges
|
—
|
|
|
19
|
|
|
—
|
|
|
19
|
|
||||
Tax benefit (provision) related to items of other comprehensive income or loss
|
513
|
|
|
114
|
|
|
498
|
|
|
(515
|
)
|
||||
Other comprehensive (loss) income, net of tax
|
(1,816
|
)
|
|
(976
|
)
|
|
(2,741
|
)
|
|
752
|
|
||||
Comprehensive income
|
$
|
7,163
|
|
|
$
|
12,974
|
|
|
$
|
18,487
|
|
|
$
|
28,875
|
|
|
Six Months Ended
|
||||||
|
June 30,
2013 |
|
June 30,
2012 |
||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
||||
Net income
|
$
|
21,228
|
|
|
$
|
28,123
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
7,322
|
|
|
5,077
|
|
||
Amortization of investment premiums
|
5,889
|
|
|
6,528
|
|
||
Stock-based compensation expense
|
20,006
|
|
|
15,098
|
|
||
Excess tax benefit from employee stock option plans
|
(1,894
|
)
|
|
(5,158
|
)
|
||
Other non-cash items, net
|
(925
|
)
|
|
31
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable—Net
|
(801
|
)
|
|
171
|
|
||
Inventory
|
(16,375
|
)
|
|
(7,952
|
)
|
||
Prepaid expenses and other current assets
|
(243
|
)
|
|
(152
|
)
|
||
Other assets
|
(12,442
|
)
|
|
1,461
|
|
||
Accounts payable
|
14,255
|
|
|
4,337
|
|
||
Accrued payroll and compensation
|
2,287
|
|
|
3,119
|
|
||
Accrued and other liabilities
|
(257
|
)
|
|
(115
|
)
|
||
Deferred revenue
|
25,943
|
|
|
36,492
|
|
||
Income taxes payable
|
11,339
|
|
|
5,743
|
|
||
Net cash provided by operating activities
|
75,332
|
|
|
92,803
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
||||
Purchases of investments
|
(275,029
|
)
|
|
(355,025
|
)
|
||
Sales of investments
|
16,691
|
|
|
44,255
|
|
||
Maturities of investments
|
176,378
|
|
|
209,242
|
|
||
Purchases of property and equipment
|
(3,569
|
)
|
|
(3,855
|
)
|
||
Payments made in connection with acquisitions, net of cash acquired
|
(5,985
|
)
|
|
(550
|
)
|
||
Net cash used in investing activities
|
(91,514
|
)
|
|
(105,933
|
)
|
||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
||||
Proceeds from issuance of common stock
|
15,590
|
|
|
17,650
|
|
||
Excess tax benefit from employee stock option plans
|
1,894
|
|
|
5,158
|
|
||
Net cash provided by financing activities
|
17,484
|
|
|
22,808
|
|
||
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
|
(809
|
)
|
|
(442
|
)
|
||
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
493
|
|
|
9,236
|
|
||
CASH AND CASH EQUIVALENTS—Beginning of period
|
122,975
|
|
|
71,990
|
|
||
CASH AND CASH EQUIVALENTS—End of period
|
$
|
123,468
|
|
|
$
|
81,226
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
||||
Cash paid for income taxes
|
$
|
11,640
|
|
|
$
|
6,380
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
||||
Purchase of property and equipment not yet paid
|
$
|
1,056
|
|
|
$
|
580
|
|
Liability incurred in connection with business acquisition
|
$
|
—
|
|
|
$
|
400
|
|
1.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
|
June 30, 2013
|
||||||||||
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
||||
Corporate debt securities
|
576,447
|
|
|
1,188
|
|
|
(919
|
)
|
|
576,716
|
|
Commercial paper
|
71,844
|
|
|
15
|
|
|
(7
|
)
|
|
71,852
|
|
Municipal bonds
|
34,387
|
|
|
63
|
|
|
(12
|
)
|
|
34,438
|
|
Certificates of deposit and term deposits
|
7,933
|
|
|
4
|
|
|
(1
|
)
|
|
7,936
|
|
Total available-for-sale securities
|
690,611
|
|
|
1,270
|
|
|
(939
|
)
|
|
690,942
|
|
|
|
|
|
|
|
|
|
||||
|
December 31, 2012
|
||||||||||
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
||||
Corporate debt securities
|
529,738
|
|
|
1,814
|
|
|
(161
|
)
|
|
531,391
|
|
Commercial paper
|
39,229
|
|
|
22
|
|
|
(6
|
)
|
|
39,245
|
|
Municipal bonds
|
36,787
|
|
|
83
|
|
|
—
|
|
|
36,870
|
|
Certificates of deposit and term deposits
|
9,099
|
|
|
6
|
|
|
—
|
|
|
9,105
|
|
Total available-for-sale securities
|
614,853
|
|
|
1,925
|
|
|
(167
|
)
|
|
616,611
|
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
||||||||||||
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
||||||
Corporate debt securities
|
262,379
|
|
|
(919
|
)
|
|
—
|
|
|
—
|
|
|
262,379
|
|
|
(919
|
)
|
Commercial paper
|
18,372
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
18,372
|
|
|
(7
|
)
|
Municipal bonds
|
10,370
|
|
|
(12
|
)
|
|
—
|
|
|
—
|
|
|
10,370
|
|
|
(12
|
)
|
Certificate of deposit
|
1,000
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
1,000
|
|
|
(1
|
)
|
Total available-for-sale securities
|
292,121
|
|
|
(939
|
)
|
|
—
|
|
|
—
|
|
|
292,121
|
|
|
(939
|
)
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
||||||||||||
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
||||||
Corporate debt securities
|
133,006
|
|
|
(156
|
)
|
|
5,010
|
|
|
(5
|
)
|
|
138,016
|
|
|
(161
|
)
|
Commercial paper
|
8,464
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
8,464
|
|
|
(6
|
)
|
Total available-for-sale securities
|
141,470
|
|
|
(162
|
)
|
|
5,010
|
|
|
(5
|
)
|
|
146,480
|
|
|
(167
|
)
|
|
June 30,
2013 |
|
December 31,
2012 |
||
Due within one year
|
379,229
|
|
|
290,719
|
|
Due within one to three years
|
311,713
|
|
|
325,892
|
|
Total
|
690,942
|
|
|
616,611
|
|
|
June 30, 2013
|
|
December 31, 2012
|
||||||||||||||
|
Aggregate
Fair
Value
|
|
Quoted
Prices in
Active
Markets For
Identical
Assets
|
|
Significant
Other
Observable
Remaining
Inputs
|
|
Aggregate
Fair
Value
|
|
Quoted
Prices in
Active
Markets For
Identical
Assets
|
|
Significant
Other
Observable
Remaining
Inputs
|
||||||
|
|
|
(Level 1)
|
|
(Level 2)
|
|
|
|
(Level 1)
|
|
(Level 2)
|
||||||
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Corporate debt securities
|
576,716
|
|
|
—
|
|
|
576,716
|
|
|
531,391
|
|
|
—
|
|
|
531,391
|
|
Commercial paper
|
75,977
|
|
|
—
|
|
|
75,977
|
|
|
41,994
|
|
|
—
|
|
|
41,994
|
|
Municipal bonds
|
34,438
|
|
|
—
|
|
|
34,438
|
|
|
36,870
|
|
|
—
|
|
|
36,870
|
|
Certificates of deposit and term deposits
|
7,936
|
|
|
—
|
|
|
7,936
|
|
|
9,105
|
|
|
—
|
|
|
9,105
|
|
Money market funds
|
6,674
|
|
|
6,674
|
|
|
—
|
|
|
39,871
|
|
|
39,871
|
|
|
—
|
|
Total
|
701,741
|
|
|
6,674
|
|
|
695,067
|
|
|
659,231
|
|
|
39,871
|
|
|
619,360
|
|
Reported as:
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cash equivalents
|
10,799
|
|
|
|
|
|
|
42,620
|
|
|
|
|
|
||||
Short-term investments
|
379,229
|
|
|
|
|
|
|
290,719
|
|
|
|
|
|
||||
Long-term investments
|
311,713
|
|
|
|
|
|
|
325,892
|
|
|
|
|
|
||||
Total
|
701,741
|
|
|
|
|
|
|
659,231
|
|
|
|
|
|
|
June 30,
2013 |
|
December 31,
2012 |
||
Raw materials
|
6,625
|
|
|
4,958
|
|
Finished goods
|
26,692
|
|
|
16,102
|
|
Inventory
|
33,317
|
|
|
21,060
|
|
|
June 30,
2013 |
|
December 31,
2012 |
||
Land
|
13,895
|
|
|
13,895
|
|
Building and building improvements
|
610
|
|
|
610
|
|
Evaluation units
|
21,154
|
|
|
18,322
|
|
Computer equipment and software
|
20,478
|
|
|
17,176
|
|
Furniture and fixtures
|
1,666
|
|
|
1,501
|
|
Leasehold improvements and tooling
|
5,368
|
|
|
5,354
|
|
Total property and equipment
|
63,171
|
|
|
56,858
|
|
Less: accumulated depreciation
|
(36,124
|
)
|
|
(31,220
|
)
|
Property and equipment—net
|
27,047
|
|
|
25,638
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
June 30,
2013 |
|
June 30,
2012 |
|
June 30,
2013 |
|
June 30,
2012 |
||||
Numerator:
|
|
|
|
|
|
|
|
||||
Net income
|
8,979
|
|
|
13,950
|
|
|
21,228
|
|
|
28,123
|
|
|
|
|
|
|
|
|
|
||||
Denominator:
|
|
|
|
|
|
|
|
||||
Basic shares:
|
|
|
|
|
|
|
|
||||
Weighted-average common stock outstanding-basic
|
162,247
|
|
|
157,474
|
|
|
161,767
|
|
|
156,742
|
|
Diluted shares:
|
|
|
|
|
|
|
|
||||
Weighted-average common stock outstanding-basic
|
162,247
|
|
|
157,474
|
|
|
161,767
|
|
|
156,742
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
|
|
||||
Stock options
|
5,734
|
|
|
8,576
|
|
|
6,152
|
|
|
9,043
|
|
RSUs
|
32
|
|
|
—
|
|
|
46
|
|
|
—
|
|
ESPP
|
29
|
|
|
11
|
|
|
68
|
|
|
23
|
|
Weighted-average shares used to compute diluted net income per share
|
168,042
|
|
|
166,061
|
|
|
168,033
|
|
|
165,808
|
|
Net income per share:
|
|
|
|
|
|
|
|
||||
Basic
|
0.06
|
|
|
0.09
|
|
|
0.13
|
|
|
0.18
|
|
Diluted
|
0.05
|
|
|
0.08
|
|
|
0.13
|
|
|
0.17
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
June 30,
2013 |
|
June 30,
2012 |
|
June 30,
2013 |
|
June 30,
2012 |
||||
Stock options
|
7,472
|
|
|
7,475
|
|
|
7,483
|
|
|
6,767
|
|
RSUs
|
2,554
|
|
|
—
|
|
|
1,804
|
|
|
—
|
|
ESPP
|
434
|
|
|
311
|
|
|
395
|
|
|
298
|
|
|
10,460
|
|
|
7,786
|
|
|
9,682
|
|
|
7,065
|
|
|
June 30,
2013 |
|
December 31,
2012 |
||
Product
|
4,611
|
|
|
5,411
|
|
Services
|
378,453
|
|
|
348,548
|
|
Ratable and other revenue
|
6,618
|
|
|
9,226
|
|
Total deferred revenue
|
389,682
|
|
|
363,185
|
|
Reported As:
|
|
|
|
||
Short-term
|
265,639
|
|
|
247,268
|
|
Long-term
|
124,043
|
|
|
115,917
|
|
Total deferred revenue
|
389,682
|
|
|
363,185
|
|
|
Rental
Payment
|
|
Fiscal Years:
|
|
|
2013 (remainder)
|
4,325
|
|
2014
|
5,974
|
|
2015
|
4,384
|
|
2016
|
3,968
|
|
2017
|
3,632
|
|
Thereafter
|
7,544
|
|
Total
|
29,827
|
|
|
For The Six Months Ended
|
||||
|
June 30,
2013 |
|
June 30,
2012 |
||
Accrued warranty balance—beginning of the period
|
2,309
|
|
|
2,582
|
|
Warranty costs incurred
|
(1,744
|
)
|
|
(1,141
|
)
|
Provision for warranty
|
2,204
|
|
|
764
|
|
Changes in prior period estimates
|
208
|
|
|
(265
|
)
|
Accrued warranty balance—end of the period
|
2,977
|
|
|
1,940
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||
|
|
June 30,
2012 |
|
June 30,
2012 |
||
Expected term in years
|
|
4.6
|
|
|
4.6
|
|
Volatility (%)
|
|
46.4
|
|
|
46.4 - 51.9
|
|
Risk-free interest rate (%)
|
|
0.9
|
|
|
0.7 - 0.9
|
|
Dividend rate (%)
|
|
—
|
|
|
—
|
|
|
Options Outstanding
|
|||||||||
|
Number
of Shares
|
|
Weighted-
Average
Exercise
Price ($)
|
|
Weighted-
Average
Remaining
Contractual
Life (Years)
|
|
Aggregate
Intrinsic
Value ($)
|
|||
Balance—December 31, 2012
|
18,571
|
|
|
12.40
|
|
|
|
|
|
|
Forfeited
|
(464
|
)
|
|
21.54
|
|
|
|
|
|
|
Exercised
|
(1,687
|
)
|
|
5.36
|
|
|
|
|
|
|
Balance—June 30, 2013
|
16,420
|
|
|
12.86
|
|
|
|
|
117,043
|
|
Options vested and expected to vest—June 30, 2013
|
16,405
|
|
|
12.86
|
|
|
3.7
|
|
117,034
|
|
Options exercisable—June 30, 2013
|
11,657
|
|
|
9.30
|
|
|
3.2
|
|
112,038
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
June 30, 2013
|
|
June 30, 2012
|
|
June 30, 2013
|
|
June 30, 2012
|
||||
Weighted-average fair value per share granted
|
—
|
|
|
9.62
|
|
|
—
|
|
|
10.94
|
|
Intrinsic value of options exercised
|
3,058
|
|
|
12,588
|
|
|
29,117
|
|
|
50,690
|
|
Fair value of options vested
|
5,486
|
|
|
4,881
|
|
|
16,489
|
|
|
13,074
|
|
|
Restricted Stock Units Outstanding
|
||||
|
Number of Shares
|
|
Weighted-Average Grant-Date Fair Value per Share ($)
|
||
Balance—December 31, 2012
|
830
|
|
|
23.73
|
|
Granted
|
2,711
|
|
|
22.12
|
|
Forfeited
|
(170
|
)
|
|
23.36
|
|
Balance—June 30, 2013
|
3,371
|
|
|
22.35
|
|
RSUs expected to vest—June 30, 2013
|
3,097
|
|
|
22.36
|
|
|
|
Six Months Ended
|
||||
|
|
June 30, 2013
|
|
June 30, 2012
|
||
Expected term in years
|
|
0.5
|
|
|
0.5
|
|
Volatility (%)
|
|
48
|
|
|
58
|
|
Risk-free interest rate (%)
|
|
0.1
|
|
|
0.2
|
|
Dividend rate (%)
|
|
—
|
|
|
—
|
|
|
|
Six Months Ended
|
||||
|
|
June 30, 2013
|
|
June 30, 2012
|
||
Weighted-average fair value per share granted ($)
|
|
7.02
|
|
|
8.08
|
|
Shares issued under the ESPP
|
|
329
|
|
|
288
|
|
Weighted-average price per share issued ($)
|
|
19.91
|
|
|
17.51
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
June 30,
2013 |
|
June 30,
2012 |
|
June 30,
2013 |
|
June 30,
2012 |
||||
Cost of product revenue
|
96
|
|
|
88
|
|
|
186
|
|
|
152
|
|
Cost of services revenue
|
1,226
|
|
|
941
|
|
|
2,246
|
|
|
1,686
|
|
Research and development
|
3,291
|
|
|
2,292
|
|
|
6,057
|
|
|
4,249
|
|
Sales and marketing
|
4,594
|
|
|
3,475
|
|
|
8,712
|
|
|
6,918
|
|
General and administrative
|
1,500
|
|
|
1,056
|
|
|
2,805
|
|
|
2,093
|
|
Total stock-based compensation expense
|
10,707
|
|
|
7,852
|
|
|
20,006
|
|
|
15,098
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
June 30,
2013 |
|
June 30,
2012 |
|
June 30,
2013 |
|
June 30,
2012 |
||||
Stock options
|
1,215
|
|
|
6,681
|
|
|
6,701
|
|
|
12,997
|
|
RSUs
|
4,357
|
|
|
—
|
|
|
5,496
|
|
|
—
|
|
ESPP
|
5,135
|
|
|
1,171
|
|
|
7,809
|
|
|
2,101
|
|
Total stock-based compensation expense
|
10,707
|
|
|
7,852
|
|
|
20,006
|
|
|
15,098
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
June 30,
2013 |
|
June 30,
2012 |
|
June 30,
2013 |
|
June 30,
2012 |
||||
Income tax benefit from employee stock option plans
|
2,794
|
|
|
3,713
|
|
|
6,381
|
|
|
10,387
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
Revenue
|
June 30,
2013 |
|
June 30,
2012 |
|
June 30,
2013 |
|
June 30,
2012 |
||||
Americas:
|
|
|
|
|
|
|
|
||||
United States
|
38,815
|
|
|
34,190
|
|
|
73,603
|
|
|
65,309
|
|
Other Americas
|
21,211
|
|
|
17,732
|
|
|
39,050
|
|
|
33,044
|
|
Total Americas
|
60,026
|
|
|
51,922
|
|
|
112,653
|
|
|
98,353
|
|
Europe, Middle East and Africa (“EMEA”)
|
50,801
|
|
|
43,664
|
|
|
98,127
|
|
|
84,550
|
|
Asia Pacific and Japan (“APAC”)
|
36,601
|
|
|
33,376
|
|
|
72,468
|
|
|
63,306
|
|
Total revenue
|
147,428
|
|
|
128,962
|
|
|
283,248
|
|
|
246,209
|
|
Property and Equipment
|
June 30,
2013 |
|
December 31,
2012 |
||
Americas:
|
|
|
|
||
United States
|
19,704
|
|
|
18,764
|
|
Canada
|
4,268
|
|
|
4,376
|
|
Other Americas
|
61
|
|
|
87
|
|
Total Americas
|
24,033
|
|
|
23,227
|
|
EMEA
|
1,402
|
|
|
1,213
|
|
APAC
|
1,612
|
|
|
1,198
|
|
Total property and equipment—net
|
27,047
|
|
|
25,638
|
|
|
Buy/Sell
|
|
Notional
|
|
Balance Sheet Contracts:
|
|
|
|
|
Currency - As of June 30, 2013
|
|
|
|
|
CAD
|
Buy
|
|
23,025
|
|
|
|
|
|
|
Currency - As of December 31, 2012
|
|
|
|
|
CAD
|
Buy
|
|
17,968
|
|
Cash and cash equivalents
|
206
|
|
Other current assets
|
501
|
|
Finite-lived intangible assets
|
2,800
|
|
Indefinite-lived intangible assets
|
2,600
|
|
Goodwill
|
2,766
|
|
Other assets
|
88
|
|
Total assets acquired
|
8,961
|
|
Current liabilities
|
1,078
|
|
Long-term liabilities
|
1,898
|
|
Total liabilities assumed
|
2,976
|
|
Total purchase price
|
5,985
|
|
|
June 30, 2013
|
|||||||
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|||
Finite-lived other intangible assets:
|
|
|
|
|
|
|||
Developed technology
|
5,784
|
|
|
2,090
|
|
|
3,694
|
|
Customer relationships
|
500
|
|
|
21
|
|
|
479
|
|
|
6,284
|
|
|
2,111
|
|
|
4,173
|
|
Indefinite-lived other intangible assets:
|
|
|
|
|
|
|||
In-process research and development
|
2,600
|
|
|
—
|
|
|
2,600
|
|
Total other intangible assets
|
8,884
|
|
|
2,111
|
|
|
6,773
|
|
|
December 31, 2012
|
|||||||
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|||
Finite-lived other intangible assets:
|
|
|
|
|
|
|||
Developed technology
|
3,541
|
|
|
1,424
|
|
|
2,117
|
|
Total other intangible assets
|
3,541
|
|
|
1,424
|
|
|
2,117
|
|
|
Amount
|
|
Fiscal Years:
|
|
|
2013 (remainder)
|
758
|
|
2014
|
1,154
|
|
2015
|
738
|
|
2016
|
472
|
|
2017
|
467
|
|
Thereafter
|
584
|
|
Total
|
4,173
|
|
|
Foreign Currency Translation Gains and Losses
|
|
Unrealized Gains and Losses on Investments
|
|
Tax benefit or provision related to items of other comprehensive income or loss
|
|
Total
|
||||
Beginning balance
|
1,948
|
|
|
1,758
|
|
|
(615
|
)
|
|
3,091
|
|
Other comprehensive income before reclassifications
|
(1,813
|
)
|
|
(1,421
|
)
|
|
496
|
|
|
(2,738
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
(5
|
)
|
|
2
|
|
|
(3
|
)
|
Net current-period other comprehensive income
|
(1,813
|
)
|
|
(1,426
|
)
|
|
498
|
|
|
(2,741
|
)
|
Ending balance
|
135
|
|
|
332
|
|
|
(117
|
)
|
|
350
|
|
Details about Accumulated Other Comprehensive Income Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Income
|
|
Affected Line Item in the Statement Where Net Income is Presented
|
|
Unrealized gains on investments
|
|
(5
|
)
|
|
Other (expense) income, net
|
Tax provision related to items of other comprehensive income or loss
|
|
2
|
|
|
Provision for income taxes
|
Total reclassification for the period
|
|
(3
|
)
|
|
|
ITEM 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
•
|
variability in sales in certain product categories from year to year and between quarters;
|
•
|
expected impact of sales of certain products;
|
•
|
continued sales into large enterprises and service providers;
|
•
|
the significance of stock-based compensation as an expense;
|
•
|
the proportion of our revenue that consists of our product and service revenues, and the mix of billings between products and services;
|
•
|
the impact of our product innovation strategy;
|
•
|
trends in revenue, costs of revenue, and gross margin;
|
•
|
trends in our operating expenses, including personnel costs, research and development expense, sales and marketing expense and general and administrative expense, and expectations regarding these expenses as a percentage of revenue;
|
•
|
our effective tax rate;
|
•
|
the sufficiency of our existing cash, cash equivalents and investments to meet our cash needs for at least the next 12 months; and
|
•
|
as well as other statements regarding our future operations, financial condition and prospects and business strategies.
|
•
|
We recorded total revenue of
$147.4 million
and
$283.2 million
during the
three and six months ended
June 30, 2013
, respectively. This represents an increase of
14%
and
15%
during the
three and six months ended
June 30, 2013
, respectively, compared to the same periods last year. Product revenue was
$66.5 million
and
$124.5 million
during the
three and six months ended
June 30, 2013
, respectively, an increase of
8%
during each of the periods, compared to the same periods last year. Services revenue was
$79.7 million
and
$155.6 million
during the
three and six months ended
June 30, 2013
, respectively, an increase of
22%
during each of the periods, compared to the same periods last year.
|
•
|
We generated cash flows from operating activities of
$75.3 million
during the six months ended
June 30, 2013
, a decrease of
19%
compared to the same period last year.
|
•
|
Cash, cash equivalents and investments were
$814.4 million
as of
June 30, 2013
, an increase of
$74.8 million
from
December 31, 2012
.
|
•
|
Deferred revenue was
$389.7 million
as of
June 30, 2013
, an increase of
$26.5 million
from
December 31, 2012
.
|
|
Three Months Ended
|
||||
June 30,
2013 |
|
June 30,
2012 |
|||
($ amounts in 000’s)
|
|||||
Billings:
|
|
|
|
||
Revenue
|
147,428
|
|
|
128,962
|
|
Add increase in deferred revenue
|
13,268
|
|
|
16,796
|
|
Total billings (Non-GAAP)
|
160,696
|
|
|
145,758
|
|
|
Three Months Ended
|
||||
June 30,
2013 |
|
June 30,
2012 |
|||
($ amounts in 000’s)
|
|||||
Free Cash Flow:
|
|
|
|
||
Net cash provided by operating activities
|
37,221
|
|
|
44,285
|
|
Less purchases of property and equipment
|
(2,035
|
)
|
|
(2,231
|
)
|
Free cash flow (Non-GAAP)
|
35,186
|
|
|
42,054
|
|
|
Three Months Ended
|
||||||||
June 30,
2013 |
|
June 30,
2012 |
|||||||
Amount ($)
|
|
% of
Revenue
|
|
Amount ($)
|
|
% of
Revenue
|
|||
($ amounts in 000’s)
|
|||||||||
Total revenue
|
147,428
|
|
|
|
|
128,962
|
|
|
|
GAAP gross profit and margin
|
103,720
|
|
|
70
|
|
91,835
|
|
|
71
|
Stock-based compensation expense
|
1,322
|
|
|
1
|
|
1,029
|
|
|
1
|
Amortization expense of certain intangible assets
(1)
|
354
|
|
|
—
|
|
226
|
|
|
—
|
Non-GAAP gross profit and margin
|
105,396
|
|
|
71
|
|
93,090
|
|
|
72
|
GAAP operating income and margin
|
13,777
|
|
|
9
|
|
20,950
|
|
|
16
|
Stock-based compensation expense:
|
|
|
|
|
|
|
|
||
Cost of revenue
|
1,322
|
|
|
1
|
|
1,029
|
|
|
1
|
Research and development
|
3,291
|
|
|
2
|
|
2,292
|
|
|
2
|
Sales and marketing
|
4,594
|
|
|
3
|
|
3,475
|
|
|
2
|
General and administrative
|
1,500
|
|
|
1
|
|
1,056
|
|
|
1
|
Total stock-based compensation expense
|
10,707
|
|
|
7
|
|
7,852
|
|
|
6
|
Amortization expense of certain intangible assets
(1)
|
354
|
|
|
—
|
|
226
|
|
|
—
|
Patent settlement income
|
(478
|
)
|
|
—
|
|
(478
|
)
|
|
—
|
Non-GAAP operating income and margin
|
24,360
|
|
|
16
|
|
28,550
|
|
|
22
|
(1)
|
Effective
second
quarter of fiscal
2013
, amortization expense of certain intangible assets is excluded from GAAP gross profit and margin, and GAAP operating income and margin to reconcile to non-GAAP financial metrics. Prior period amounts have been adjusted to conform to current period presentation.
|
|
Three Months Ended
|
||||||||||
June 30,
2013 |
|
June 30,
2012 |
|||||||||
Amount ($)
|
|
% of
Revenue
|
|
Amount ($)
|
|
% of
Revenue
|
|||||
($ amounts in 000’s)
|
|||||||||||
Operating Expenses:
|
|
|
|
|
|
|
|
||||
Research and development expenses:
|
|
|
|
|
|
|
|
||||
GAAP research and development expenses
|
25,158
|
|
|
17
|
|
|
20,388
|
|
|
16
|
|
Stock-based compensation expense
|
(3,291
|
)
|
|
(2
|
)
|
|
(2,292
|
)
|
|
(2
|
)
|
Non-GAAP research and development expenses
|
21,867
|
|
|
15
|
|
|
18,096
|
|
|
14
|
|
Sales and marketing expenses:
|
|
|
|
|
|
|
|
||||
GAAP sales and marketing expenses
|
55,997
|
|
|
38
|
|
|
44,259
|
|
|
34
|
|
Stock-based compensation expense
|
(4,594
|
)
|
|
(3
|
)
|
|
(3,475
|
)
|
|
(2
|
)
|
Non-GAAP sales and marketing expenses
|
51,403
|
|
|
35
|
|
|
40,784
|
|
|
32
|
|
General and administrative expenses:
|
|
|
|
|
|
|
|
||||
GAAP general and administrative expenses
|
8,788
|
|
|
6
|
|
|
6,238
|
|
|
5
|
|
Stock-based compensation expense
|
(1,500
|
)
|
|
(1
|
)
|
|
(1,056
|
)
|
|
(1
|
)
|
Patent settlement income
|
478
|
|
|
—
|
|
|
478
|
|
|
—
|
|
Non-GAAP general and administrative expenses
|
7,766
|
|
|
5
|
|
|
5,660
|
|
|
4
|
|
Total operating expenses:
|
|
|
|
|
|
|
|
||||
GAAP operating expenses
|
89,943
|
|
|
61
|
|
|
70,885
|
|
|
55
|
|
Stock-based compensation expense
|
(9,385
|
)
|
|
(6
|
)
|
|
(6,823
|
)
|
|
(5
|
)
|
Patent settlement income
|
478
|
|
|
—
|
|
|
478
|
|
|
—
|
|
Non-GAAP operating expenses
|
81,036
|
|
|
55
|
|
|
64,540
|
|
|
50
|
|
|
Three Months Ended
|
||||
June 30,
2013 |
June 30,
2012 |
||||
($ and share amounts in 000’s, except per share amounts)
|
|||||
Net Income:
|
|
|
|
||
GAAP net income
|
8,979
|
|
|
13,950
|
|
Stock-based compensation expense
(1)
|
10,707
|
|
|
7,852
|
|
Amortization expense of certain intangible assets
(2)
|
354
|
|
|
226
|
|
Patent settlement income
(3)
|
(478
|
)
|
|
(478
|
)
|
Provision for income taxes
(4)
|
6,035
|
|
|
8,276
|
|
Non-GAAP income before provision for income taxes
|
25,597
|
|
|
29,826
|
|
Non-GAAP provision for income taxes
(5)
|
(8,447
|
)
|
|
(10,141
|
)
|
Non-GAAP net income
|
17,150
|
|
|
19,685
|
|
Non-GAAP net income per share—diluted
|
0.10
|
|
|
0.12
|
|
Shares used in per share calculation—diluted
|
168,042
|
|
|
166,061
|
|
(1)
|
Stock-based compensation expense is excluded from GAAP net income to reconcile to non-GAAP income before provision for income taxes.
|
(2)
|
Effective
second
quarter of fiscal
2013
, amortization expense of certain intangible assets is excluded from GAAP net income to reconcile to non-GAAP income before provision for income taxes. Prior period amounts have been adjusted to conform to current period presentation.
|
(3)
|
The patent settlement income is excluded from GAAP net income to reconcile to non-GAAP income before provision for income taxes.
|
(4)
|
Provision for income taxes is our GAAP tax provision that must included in GAAP net income to reconcile to non-GAAP income before provision for income taxes.
|
(5)
|
We used non-GAAP effective tax rates of 33% and 34%, which could differ from the GAAP tax rates, to calculate non-GAAP net income for the three months ended
June 30, 2013
and
June 30, 2012
, respectively.
|
|
Three Months Ended
|
|
|
|
|
||||||||||
June 30,
2013 |
|
June 30,
2012 |
|
|
|
|
|||||||||
Amount ($)
|
|
% of
Total Revenue
|
|
Amount ($)
|
|
% of
Total Revenue
|
|
Change
|
|
% Change
|
|||||
($ amounts in 000’s)
|
|||||||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product
|
66,525
|
|
|
45
|
|
61,692
|
|
|
48
|
|
4,833
|
|
|
8
|
|
Services
|
79,668
|
|
|
54
|
|
65,412
|
|
|
51
|
|
14,256
|
|
|
22
|
|
Ratable and other revenue
|
1,235
|
|
|
1
|
|
1,858
|
|
|
1
|
|
(623
|
)
|
|
(34
|
)
|
Total revenue
|
147,428
|
|
|
100
|
|
128,962
|
|
|
100
|
|
18,466
|
|
|
14
|
|
Revenue by geography:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Americas
|
60,026
|
|
|
41
|
|
51,922
|
|
|
40
|
|
8,104
|
|
|
16
|
|
Europe, Middle East and Africa (“EMEA”)
|
50,801
|
|
|
34
|
|
43,664
|
|
|
34
|
|
7,137
|
|
|
16
|
|
Asia Pacific and Japan (“APAC”)
|
36,601
|
|
|
25
|
|
33,376
|
|
|
26
|
|
3,225
|
|
|
10
|
|
Total revenue
|
147,428
|
|
|
100
|
|
128,962
|
|
|
100
|
|
18,466
|
|
|
14
|
|
|
Three Months Ended
|
|
|
|
|
||||||
June 30,
2013 |
|
June 30,
2012 |
|
Change
|
|
% Change
|
|||||
($ amounts in 000’s)
|
|||||||||||
Cost of revenue:
|
|
|
|
|
|
|
|
||||
Product
|
26,948
|
|
|
23,935
|
|
|
3,013
|
|
|
13
|
|
Services
|
16,259
|
|
|
12,467
|
|
|
3,792
|
|
|
30
|
|
Ratable and other revenue
|
501
|
|
|
725
|
|
|
(224
|
)
|
|
(31
|
)
|
Total cost of revenue
|
43,708
|
|
|
37,127
|
|
|
6,581
|
|
|
18
|
|
Gross margin (%):
|
|
|
|
|
|
|
|
||||
Product
|
59.5
|
|
|
61.2
|
|
|
(1.7
|
)
|
|
|
|
Services
|
79.6
|
|
|
80.9
|
|
|
(1.3
|
)
|
|
|
|
Ratable and other revenue
|
59.4
|
|
|
61.0
|
|
|
(1.6
|
)
|
|
|
|
Total gross margin
|
70.4
|
|
|
71.2
|
|
|
(0.8
|
)
|
|
|
|
Three Months Ended
|
|
Change
|
|
% Change
|
|||||||||
June 30,
2013 |
|
June 30,
2012 |
|
|||||||||||
Amount ($)
|
|
% of
Total Revenue
|
|
Amount ($)
|
|
% of
Total Revenue
|
|
|||||||
($ amounts in 000’s)
|
||||||||||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|||
Research and development
|
25,158
|
|
|
17
|
|
20,388
|
|
|
16
|
|
4,770
|
|
|
23
|
Sales and marketing
|
55,997
|
|
|
38
|
|
44,259
|
|
|
34
|
|
11,738
|
|
|
27
|
General and administrative
|
8,788
|
|
|
6
|
|
6,238
|
|
|
5
|
|
2,550
|
|
|
41
|
Total operating expenses
|
89,943
|
|
|
61
|
|
70,885
|
|
|
55
|
|
19,058
|
|
|
27
|
|
Three Months Ended
|
|
|
|
|
||||||
June 30,
2013 |
|
June 30,
2012 |
|
Change
|
|
% Change
|
|||||
($ amounts in 000’s)
|
|||||||||||
Interest income
|
1,337
|
|
|
1,203
|
|
|
134
|
|
|
11
|
|
Other (expense) income, net
|
(100
|
)
|
|
73
|
|
|
(173
|
)
|
|
(237
|
)
|
|
Three Months Ended
|
|
Change
|
|
% Change
|
||||||
June 30,
2013 |
|
June 30,
2012 |
|
||||||||
($ amounts in 000’s)
|
|||||||||||
Provision for income taxes
|
6,035
|
|
|
8,276
|
|
|
(2,241
|
)
|
|
(27
|
)
|
Effective tax rate (%)
|
40
|
|
|
37
|
|
|
3
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
||||||||||
June 30,
2013 |
|
June 30,
2012 |
|
|
|
|
|||||||||
Amount ($)
|
|
% of
Total Revenue
|
|
Amount ($)
|
|
% of
Total Revenue
|
|
Change
|
|
% Change
|
|||||
($ amounts in 000’s)
|
|||||||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product
|
124,475
|
|
|
44
|
|
114,896
|
|
|
47
|
|
9,579
|
|
|
8
|
|
Services
|
155,564
|
|
|
55
|
|
127,550
|
|
|
52
|
|
28,014
|
|
|
22
|
|
Ratable and other revenue
|
3,209
|
|
|
1
|
|
3,763
|
|
|
1
|
|
(554
|
)
|
|
(15
|
)
|
Total revenue
|
283,248
|
|
|
100
|
|
246,209
|
|
|
100
|
|
37,039
|
|
|
15
|
|
Revenue by geography:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Americas
|
112,653
|
|
|
40
|
|
98,353
|
|
|
40
|
|
14,300
|
|
|
15
|
|
EMEA
|
98,127
|
|
|
35
|
|
84,550
|
|
|
34
|
|
13,577
|
|
|
16
|
|
APAC
|
72,468
|
|
|
25
|
|
63,306
|
|
|
26
|
|
9,162
|
|
|
14
|
|
Total revenue
|
283,248
|
|
|
100
|
|
246,209
|
|
|
100
|
|
37,039
|
|
|
15
|
|
|
Six Months Ended
|
|
|
|
|
||||||
June 30,
2013 |
|
June 30,
2012 |
|
Change
|
|
% Change
|
|||||
($ amounts in 000’s)
|
|||||||||||
Cost of revenue:
|
|
|
|
|
|
|
|
||||
Product
|
49,906
|
|
|
43,003
|
|
|
6,903
|
|
|
16
|
|
Services
|
31,833
|
|
|
23,680
|
|
|
8,153
|
|
|
34
|
|
Ratable and other revenue
|
1,097
|
|
|
1,487
|
|
|
(390
|
)
|
|
(26
|
)
|
Total cost of revenue
|
82,836
|
|
|
68,170
|
|
|
14,666
|
|
|
22
|
|
Gross margin (%):
|
|
|
|
|
|
|
|
||||
Product
|
59.9
|
|
|
62.6
|
|
|
(2.7
|
)
|
|
|
|
Services
|
79.5
|
|
|
81.4
|
|
|
(1.9
|
)
|
|
|
|
Ratable and other revenue
|
65.8
|
|
|
60.5
|
|
|
5.3
|
|
|
|
|
Total gross margin
|
70.8
|
|
|
72.3
|
|
|
(1.5
|
)
|
|
|
|
Six Months Ended
|
|
Change
|
|
% Change
|
|||||||||
June 30,
2013 |
|
June 30,
2012 |
|
|||||||||||
Amount ($)
|
|
% of
Total Revenue
|
|
Amount ($)
|
|
% of
Total Revenue
|
|
|||||||
($ amounts in 000’s)
|
||||||||||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|||
Research and development
|
48,492
|
|
|
17
|
|
40,055
|
|
|
16
|
|
8,437
|
|
|
21
|
Sales and marketing
|
105,973
|
|
|
37
|
|
86,295
|
|
|
35
|
|
19,678
|
|
|
23
|
General and administrative
|
16,779
|
|
|
6
|
|
12,023
|
|
|
5
|
|
4,756
|
|
|
40
|
Total operating expenses
|
171,244
|
|
|
60
|
|
138,373
|
|
|
56
|
|
32,871
|
|
|
24
|
|
Six Months Ended
|
|
|
|
|
|||||
June 30,
2013 |
|
June 30,
2012 |
|
Change
|
|
% Change
|
||||
($ amounts in 000’s)
|
||||||||||
Interest income
|
2,706
|
|
|
2,287
|
|
|
419
|
|
|
18
|
Other (expense) income, net
|
115
|
|
|
3
|
|
|
112
|
|
|
3,733
|
|
Six Months Ended
|
|
Change
|
|
% Change
|
||||||
June 30,
2013 |
|
June 30,
2012 |
|
||||||||
($ amounts in 000’s)
|
|||||||||||
Provision for income taxes
|
10,761
|
|
|
13,833
|
|
|
(3,072
|
)
|
|
(22
|
)
|
Effective tax rate (%)
|
34
|
|
|
33
|
|
|
1
|
|
|
|
|
|
June 30,
2013 |
|
December 31,
2012 |
||
|
($ amounts in 000’s)
|
||||
Cash and cash equivalents
|
123,468
|
|
|
122,975
|
|
Investments
|
690,942
|
|
|
616,611
|
|
Total cash, cash equivalents and investments
|
814,410
|
|
|
739,586
|
|
Working capital
|
311,919
|
|
|
249,970
|
|
|
Six months ended
|
||||
|
June 30,
2013 |
|
June 30,
2012 |
||
|
($ amounts in 000’s)
|
||||
Cash provided by operating activities
|
75,332
|
|
|
92,803
|
|
Cash used in investing activities
|
(91,514
|
)
|
|
(105,933
|
)
|
Cash provided by financing activities
|
17,484
|
|
|
22,808
|
|
Effect of exchange rates on cash and cash equivalents
|
(809
|
)
|
|
(442
|
)
|
Net increase in cash and cash equivalents
|
493
|
|
|
9,236
|
|
|
Six Months Ended
|
||||
|
June 30,
2013 |
|
June 30,
2012 |
||
|
($ amounts in 000’s)
|
||||
Net income
|
21,228
|
|
|
28,123
|
|
Adjustments for non-cash charges
(1)
|
30,398
|
|
|
21,576
|
|
Net income before non-cash charges
|
51,626
|
|
|
49,699
|
|
Increase in deferred revenue
|
25,943
|
|
|
36,492
|
|
(Increase) decrease in accounts receivable—net
|
(801
|
)
|
|
171
|
|
Increase in accounts payable and accrued liabilities, net
(2)
|
13,998
|
|
|
4,222
|
|
Increase in income taxes payable
(2)
|
11,339
|
|
|
5,743
|
|
(Increase) decrease in other assets
(2)
|
(12,442
|
)
|
|
1,461
|
|
Increase in inventory
|
(16,375
|
)
|
|
(7,952
|
)
|
Increase in accrued payroll and compensation
|
2,287
|
|
|
3,119
|
|
Increase in prepaid expenses and other current assets
(2)
|
(243
|
)
|
|
(152
|
)
|
Net cash provided by operating activities
|
75,332
|
|
|
92,803
|
|
(1)
|
Non-cash charges consist of stock-based compensation expense, depreciation and amortization, amortization of investment premiums, an excess tax benefit from our employee stock option plans, and other non-cash items, net.
|
(2)
|
Certain prior period amounts have been combined to conform to current period presentation.
|
|
Payments Due by Period
|
|||||||||||||
|
Total
|
|
Less than 1 year
|
|
1 - 3 years
|
|
3 - 5 years
|
|
More than 5 years
|
|||||
|
($ amounts in 000’s)
|
|||||||||||||
Operating leases
(1)
|
29,827
|
|
|
4,325
|
|
|
14,326
|
|
|
6,869
|
|
|
4,307
|
|
Purchase commitments
(2)
|
39,803
|
|
|
39,803
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
(3)
|
69,630
|
|
|
44,128
|
|
|
14,326
|
|
|
6,869
|
|
|
4,307
|
|
(1)
|
Consists of contractual obligations from non-cancelable office space under operating leases. In March 2013, we extended the operating lease for one of our existing facilities in Canada through 2020. The total incremental lease payments are $14.3 million.
|
(2)
|
Consists of minimum purchase commitments with independent contract manufacturers. As of
June 30, 2013
, we had
$39.8 million
of open purchase orders with our independent contract manufacturers that may not be cancelable compared to $30.0 million as of December 31, 2012. The increase is required to replenish current inventory and to ensure adequate future inventory related to new product releases and product lead-times for certain products.
|
(3)
|
No tax liabilities related to uncertain tax positions have been included in the table. As of
June 30, 2013
, we had $33.4 million of long-term tax liabilities, including interest, related to uncertain tax positions. Because of the high degree of uncertainty regarding the settlement of these liabilities, we are unable to estimate the years in which future cash outflows may occur.
|
ITEM 4.
|
Controls and Procedures
|
•
|
the level of demand for our products and services;
|
•
|
the timing of channel partner and end-customer orders and our reliance on a concentration of shipments at the end of the quarter;
|
•
|
the timing of shipments, which may depend on many factors such as inventory levels and logistics, our ability to ship new products on schedule and to accurately forecast inventory requirements, and potential delays in the manufacturing process;
|
•
|
inventory imbalances, such as those related to new products and the end of life of existing products;
|
•
|
the mix of products sold, the mix of revenue between products and services and the degree to which products and services are bundled and sold together for a package price;
|
•
|
the budgeting cycles and purchasing practices of our channel partners and end-customers;
|
•
|
seasonal buying patterns of our end-customers;
|
•
|
the timing of revenue recognition for our sales, which may be affected by both the mix of sales by our “sell-in” versus our “sell-through” channel partners, and by the extent to which we bring on new distributors;
|
•
|
the accuracy and timing of point of sale reporting by our sell-through distributors, which impacts our ability to recognize revenue;
|
•
|
the level of perceived threats to network security, which may fluctuate from period to period;
|
•
|
changes in end-customer, distributor or reseller requirements or market needs and buying practices and patterns;
|
•
|
changes in the growth rate of the network security or UTM markets;
|
•
|
the timing and success of new product and service introductions by us or our competitors or any other change in the competitive landscape of our industry, including consolidation among our competitors or end-customers;
|
•
|
deferral of orders from end-customers in anticipation of new products or product enhancements announced by us or our competitors;
|
•
|
increases or decreases in our expenses caused by fluctuations in foreign currency exchange rates, as a significant portion of our expenses are incurred and paid in currencies other than the U.S. dollar;
|
•
|
decisions by potential end-customers to purchase network security solutions from larger, more established security vendors or from their primary network equipment vendors;
|
•
|
price competition, and increased competitiveness in general in our market;
|
•
|
changes in customer renewal rates for our services;
|
•
|
changes in the payment terms of services contracts or the length of services contracts sold;
|
•
|
increased expenses, unforeseen liabilities or write-downs and any impact on results of operations from any acquisition consummated;
|
•
|
insolvency or credit difficulties confronting our customers, affecting their ability to purchase or pay for our products and services;
|
•
|
disruptions in our channel or termination of our relationship with important channel partners;
|
•
|
insolvency or credit difficulties confronting our key suppliers, which could disrupt our supply chain;
|
•
|
general economic conditions, both in our domestic and foreign markets; and
|
•
|
future accounting pronouncements or changes in our accounting policies.
|
•
|
increased competition from competitors, such as Cisco Systems, Inc. (“Cisco”), Sourcefire, Inc. ("Sourcefire") (acquired by Cisco) Check Point Software Technologies Ltd. (“Check Point”), McAfee, Inc. (“McAfee”) (acquired by Intel Corporation (“Intel”)), Blue Coat Systems, Inc. ("Blue Coat"), Palo Alto Networks, Inc. (“Palo Alto Networks”), SonicWALL, Inc. (“SonicWALL”) (acquired by Dell Inc. (“Dell”)), Juniper Networks, Inc. (“Juniper”), and Stonesoft Corporation ("Stonesoft") (acquired by McAfee) that traditionally target enterprises, service providers and governmental entities and that may already have purchase commitments from those end-customers;
|
•
|
increased purchasing power and leverage held by large end-customers in negotiating contractual arrangements;
|
•
|
unanticipated changes in the capital resources of or purchasing behavior of large end-customers, including changes in the volume and frequency of their purchases;
|
•
|
more stringent support requirements in our support service contracts, including stricter support response times, more complex customer requirements, and increased penalties for any failure to meet support requirements; and
|
•
|
longer sales cycles and the associated risk that substantial time and resources may be spent on a potential end-customer that elects not to purchase our products and services.
|
•
|
expenditure of significant financial and product development resources in efforts to analyze, correct, eliminate or work-around errors or defects or to address and eliminate vulnerabilities;
|
•
|
loss of existing or potential end-customers or channel partners;
|
•
|
delayed or lost revenue;
|
•
|
delay or failure to attain market acceptance;
|
•
|
negative publicity, which will harm our reputation; and
|
•
|
litigation, regulatory inquiries or investigations that may be costly and harm our reputation.
|
•
|
a potential inability to obtain an adequate supply of required parts or components when required;
|
•
|
financial or other difficulties faced by our suppliers;
|
•
|
infringement or misappropriation of our intellectual property;
|
•
|
price increases;
|
•
|
failure of a component to meet environmental or other regulatory requirements;
|
•
|
failure to meet delivery obligations in a timely fashion; and
|
•
|
failure in component quality.
|
•
|
economic or political instability in foreign markets;
|
•
|
greater difficulty in enforcing contracts, accounts receivable collection and longer collection periods;
|
•
|
changes in regulatory requirements;
|
•
|
difficulties and costs of staffing and managing foreign operations;
|
•
|
the uncertainty of protection for intellectual property rights in some countries;
|
•
|
costs of compliance with foreign policies, laws and regulations and the risks and costs of non-compliance with such policies, laws and regulations;
|
•
|
costs of complying with U.S. laws and regulations for foreign operations, including the Foreign Corrupt Practices Act, import and export control laws, tariffs, trade barriers, and economic sanctions;
|
•
|
other regulatory or contractual limitations on our ability to sell our products in certain foreign markets, and the risks and costs of non-compliance;
|
•
|
heightened risks of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may result in disruption in the sales team and may adversely impact financial results as compared to those already reported or the forecasted results and result in restatements of financial statements and irregularities in financial statements;
|
•
|
the potential for political unrest, terrorism, hostilities or war;
|
•
|
management communication and integration problems resulting from cultural differences and geographic dispersion; and
|
•
|
multiple and possibly overlapping tax structures.
|
•
|
public sector budgetary cycles,
|
•
|
funding authorizations and requirements unique to government agencies, with funding or purchasing reductions or delays adversely affecting public sector demand for our products,
|
•
|
geopolitical matters, and
|
•
|
rules and regulations applicable to certain government sales.
|
•
|
earnings being lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates;
|
•
|
changes in the valuation of our deferred tax assets and liabilities;
|
•
|
expiration of, or lapses in the research and development tax credit laws;
|
•
|
transfer pricing adjustments including the effect of acquisitions on our intercompany research and development and legal structure;
|
•
|
an increase in non-deductible expenses for tax purposes, including certain stock-based compensation expense, write-offs of acquired in-process research and development, and impairment of goodwill;
|
•
|
a decrease in the stock option exercises by our employees in some of our foreign subsidiaries that can cause an adverse transfer pricing adjustment;
|
•
|
tax costs related to intercompany realignments;
|
•
|
tax assessments resulting from income tax audits or any related tax interest or penalties that could significantly affect our income tax provision for the period in which the settlement takes place;
|
•
|
a change in our decision to indefinitely reinvest foreign earnings;
|
•
|
changes in accounting principles; or
|
•
|
changes in tax laws and regulations including possible changes in the United States to the taxation of earnings of our foreign subsidiaries, and the deductibility of expenses attributable to foreign income, or the foreign tax credit rules, or changes to the U.S. income tax rate, which would necessitate a revaluation of our deferred tax assets and liabilities.
|
•
|
delays in releasing our new products or enhancements to the market;
|
•
|
failure to accurately predict market demand in terms of product functionality and to supply products that meet this demand in a timely fashion;
|
•
|
failure of our sales force and partners to focus on selling new products;
|
•
|
inability to interoperate effectively with the networks or applications of our prospective end-customers;
|
•
|
inability to protect against new types of attacks or techniques used by hackers;
|
•
|
actual or perceived defects, vulnerabilities, errors or failures;
|
•
|
negative publicity about their performance or effectiveness;
|
•
|
introduction or anticipated introduction of competing products by our competitors;
|
•
|
poor business conditions for our end-customers, causing them to delay IT purchases;
|
•
|
easing of regulatory requirements around security; and
|
•
|
reluctance of customers to purchase products incorporating open source software.
|
•
|
greater name recognition and longer operating histories;
|
•
|
larger sales and marketing budgets and resources;
|
•
|
broader distribution and established relationships with distribution partners and end-customers;
|
•
|
access to larger customer bases;
|
•
|
greater customer support resources;
|
•
|
greater resources to make acquisitions;
|
•
|
lower labor and development costs; and
|
•
|
substantially greater financial, technical and other resources.
|
•
|
providing for a classified board of directors whose members serve staggered three-year terms;
|
•
|
authorizing “blank check” preferred stock, which could be issued by the board without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;
|
•
|
limiting the liability of, and providing indemnification to, our directors and officers;
|
•
|
limiting the ability of our stockholders to call and bring business before special meetings;
|
•
|
requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;
|
•
|
controlling the procedures for the conduct and scheduling of board and stockholder meetings; and
|
•
|
providing the board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings.
|
|
FORTINET, INC.
|
|
|
|
|
|
By:
|
/s/ AHMED RUBAIE
|
Ken Goldman
Vice President and Chief Financial Officer
|
|
Ahmed Rubaie
Chief Financial Officer and Chief Operating Officer (Principal Financial and Accounting Officer) (Duly Authorized Officer)
|
Exhibit Number
|
|
Description
|
|
Incorporated by reference herein
|
|
|
||
|
|
|
|
Form
|
|
Date
|
|
Exhibit Number
|
|
|
|
|
|
|
|
|
|
10.1†
|
|
Offer Letter, dated as of April 16, 2013, between Registrant and Ahmed Rubaie
|
|
Current report on Form 8-K (File No. 001-34511)
|
|
April 19, 2013
|
|
99.1
|
|
|
|
|
|
|
|
|
|
10.2 †
|
|
Change of Control Severance Agreement, dated as of April 16, 2013, between Registrant and Ahmed Rubaie
|
|
Current Report on Form 8-K (File No. 001-34511)
|
|
April 19, 2013
|
|
99.2
|
|
|
|
|
|
|
|
|
|
31.1*
|
|
Certification of Chief Executive Officer pursuant to 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 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*
|
|
Certifications 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99.1†*
|
|
2009 Equity Incentive Plan Performance Stock Unit Award Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.INS*
|
|
XBRL Instance Document
|
|
|
|
|
|
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Fortinet, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
|
/s/ Ken Xie
|
|
Ken Xie
|
|
President, Chief Executive Officer and Chairman of the Board of Directors
(Principal Executive Officer)
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Fortinet, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
|
/s/ Ahmed Rubaie
|
|
Ahmed Rubaie
|
|
Chief Financial Officer and Chief Operating Officer
(Principal Financial Officer)
|
I.
|
NOTICE OF PERFORMANCE STOCK UNIT GRANT
|