Significant Accounting Policies (Policies) | 6 Months Ended |
Jun. 28, 2014 |
Basis of Presentation | ' |
Basis of Presentation |
The Company prepared its condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2013. |
There have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K that have had a material impact on the Company’s condensed consolidated financial statements and related notes. |
The Company has a 52 - or 53-week fiscal year that ends on the last Saturday in December. Fiscal 2014 is a 52-week fiscal year ending on December 27, 2014 and each quarter therein is a 13-week quarter. |
Unaudited Interim Financial Statements |
The accompanying condensed consolidated financial statements are unaudited. The unaudited interim consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary to fairly state the Company’s financial position as of June 28, 2014, its results of operations, comprehensive loss for the three and six months ended June 28, 2014 and June 29, 2013, and cash flows for the six months ended June 28, 2014 and June 29, 2013. The financial data and the other financial information disclosed in the accompanying notes to the condensed consolidated financial statements related to these three and six month periods are also unaudited. The fiscal year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations in the three and six months ended June 28, 2014 are not necessarily indicative of the results to be expected for the full fiscal year or any other future periods. |
Revision of Prior Consolidated Financial Statements |
During the three months ended December 28, 2013 the Company identified errors related to income taxes and inventory in its unaudited interim consolidated financial statements for the three and six months period ended June 29, 2013. As result of the stock-based compensation expense from the Company’s 2013 Employee Stock Purchase Plan (the “ESPP”) being inappropriately included in the determination of the deferred income tax benefit the benefit for income taxes was cumulatively overstated by $2.0 million in the three and six month periods ended June 29, 2013. Furthermore, the recovery of previously written down inventory was cumulatively understated by $0.2 million in the three and six month periods ended June 29, 2013 due to an error in the calculation. |
The Company assessed the materiality of the above errors both individually and in the aggregate on prior periods’ financial statements in accordance with the SEC’s Staff Accounting Bulletin No. 99 and, based on an analysis of quantitative and qualitative factors, determined that the errors were not material to the Company’s June 29, 2013 interim consolidated financial statements and, therefore, these previously issued consolidated financial statements could continue to be relied upon and that amendments of the previously filed Quarterly Reports on Form 10-Q were not required. However, if the aggregated corrections were recorded in the three months ended December 28, 2013, the cumulative errors would be material to the financial results for the three months ended December 28, 2013. Accordingly, the Company had previously revised its consolidated statements of operations, comprehensive loss, and cash flows for the three and six months ended June 29, 2013 as presented herein to correct these errors. |
The following table sets forth the impact of the accounting errors on the previously reported consolidated statements of operations for the three and six months ended June 29, 2013 (in thousands, except per share amounts): |
|
| Three Months ended June 29, 2013 | | | Six Months ended June 29, 2013 | |
| | | | | Income Tax | | | Inventory | | | | | | | | | | | Income Tax | | | Inventory | | | | | |
| (As Reported) | | | Adjustment | | | Adjustment | | | (As Revised) | | | (As Reported) | | | Adjustment | | | Adjustment | | | (As Revised) | |
Consolidated Statement of Operations Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Product | $ | 23,354 | | | $ | — | | | $ | — | | | $ | 23,354 | | | $ | 40,873 | | | $ | — | | | $ | — | | | $ | 40,873 | |
Services | | 9,055 | | | | — | | | | — | | | | 9,055 | | | | 17,349 | | | | — | | | | — | | | | 17,349 | |
Total revenue | | 32,409 | | | | — | | | | — | | | | 32,409 | | | | 58,222 | | | | — | | | | — | | | | 58,222 | |
Cost of revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Product | | 7,098 | | | | — | | | | (154 | ) | | | 6,944 | | | | 11,822 | | | | — | | | | (154 | ) | | | 11,668 | |
Services | | 1,911 | | | | — | | | | — | | | | 1,911 | | | | 2,564 | | | | — | | | | — | | | | 2,564 | |
Total cost of revenue | | 9,009 | | | | — | | | | (154 | ) | | | 8,855 | | | | 14,386 | | | | — | | | | (154 | ) | | | 14,232 | |
Gross profit | | 23,400 | | | | — | | | 154 | | | | 23,554 | | | | 43,836 | | | | — | | | 154 | | | | 43,990 | |
Research and development | | 17,097 | | | | — | | | | — | | | | 17,097 | | | | 22,768 | | | | — | | | | — | | | | 22,768 | |
Sales and marketing | | 26,114 | | | | — | | | | — | | | | 26,114 | | | | 38,535 | | | | — | | | | — | | | | 38,535 | |
General and administrative | | 12,688 | | | | — | | | | — | | | | 12,688 | | | | 16,197 | | | | — | | | | — | | | | 16,197 | |
Total operating expenses | | 55,899 | | | | — | | | | — | | | | 55,899 | | | | 77,500 | | | | — | | | | — | | | | 77,500 | |
Loss from operations | | (32,499 | ) | | | — | | | 154 | | | | (32,345 | ) | | | (33,664 | ) | | | — | | | 154 | | | | (33,510 | ) |
Interest income | 1 | | | | — | | | | — | | | 1 | | | 3 | | | | — | | | | — | | | 3 | |
Other expense, net | | (18 | ) | | | — | | | | — | | | | (18 | ) | | | (25 | ) | | | — | | | | — | | | | (25 | ) |
Loss before income tax | | (32,516 | ) | | | — | | | 154 | | | | (32,362 | ) | | | (33,686 | ) | | | — | | | 154 | | | | (33,532 | ) |
benefit (provision) |
Income tax benefit (provision) | | 24,571 | | | | (2,002 | ) | | | — | | | | 22,569 | | | | 24,542 | | | | (2,002 | ) | | | — | | | | 22,540 | |
Net loss | $ | (7,945 | ) | | $ | (2,002 | ) | | $ | 154 | | | $ | (9,793 | ) | | $ | (9,144 | ) | | $ | (2,002 | ) | | $ | 154 | | | $ | (10,992 | ) |
Accretion of preferred stock | | (503 | ) | | | — | | | | — | | | | (503 | ) | | | (1,088 | ) | | | — | | | | — | | | | (1,088 | ) |
to redemption value and |
issuance costs |
Loss distributable to preferred | 538 | | | | — | | | | — | | | 538 | | | | 1,107 | | | | — | | | | — | | | | 1,107 | |
stockholders |
Net loss attributable to common | $ | (7,910 | ) | | $ | (2,002 | ) | | $ | 154 | | | $ | (9,758 | ) | | $ | (9,125 | ) | | $ | (2,002 | ) | | $ | 154 | | | $ | (10,973 | ) |
stockholders |
Net loss per share attributable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
to common stockholders: |
Basic | $ | (0.41 | ) | | | | | | | | | | $ | (0.51 | ) | | $ | (0.41 | ) | | | | | | | | | | $ | (0.51 | ) |
Diluted | $ | (0.41 | ) | | | | | | | | | | $ | (0.51 | ) | | $ | (0.41 | ) | | | | | | | | | | $ | (0.51 | ) |
|
|
The following table sets forth the impact of the accounting errors on the previously reported consolidated statements of comprehensive loss for the three and six month ended June 29, 2013 (in thousands): |
|
| Three Months ended June 29, 2013 | | | Six Months ended June 29, 2013 | |
| | | | | Income Tax | | | Inventory | | | | | | | | | | | Income Tax | | | Inventory | | | | | |
| (As Reported) | | | Adjustment | | | Adjustment | | | (As Revised) | | | (As Reported) | | | Adjustment | | | Adjustment | | | (As Revised) | |
Net loss | $ | (7,945 | ) | | $ | (2,002 | ) | | $ | 154 | | | $ | (9,793 | ) | | $ | (9,144 | ) | | $ | (2,002 | ) | | $ | 154 | | | $ | (10,992 | ) |
Other comprehensive loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accretion of preferred stock to | | (503 | ) | | | — | | | | — | | | | (503 | ) | | | (1,088 | ) | | | — | | | | — | | | | (1,088 | ) |
redemption value and |
issuance costs |
Loss distributable to | | 538 | | | | — | | | | — | | | | 538 | | | | 1,107 | | | | — | | | | — | | | | 1,107 | |
preferred stockholders |
Comprehensive loss attributable | $ | (7,910 | ) | | $ | (2,002 | ) | | $ | 154 | | | $ | (9,758 | ) | | $ | (9,125 | ) | | $ | (2,002 | ) | | $ | 154 | | | $ | (10,973 | ) |
to common stockholders |
|
The following table sets forth the impact of the accounting errors on the previously reported consolidated statements of cash flows for the six month ended June 29, 2013: |
|
| Six Months ended June 29, 2013 | | | | | | | | | | | | | | |
| | | | | Income Tax | | | | | Inventory | | | | | | | | | | | | | | | | | | | |
| (As Reported) | | | Adjustment | | | | | Adjustment | | | | (As Revised) | | | | | | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | $ | (9,144 | ) | | $ | (2,002 | ) | | | | $ | 154 | | | | $ | (10,992 | ) | | | | | | | | | | | | | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Deferred income taxes | | (24,585 | ) | | | 2,002 | | | | | | | | | | | (22,583 | ) | | | | | | | | | | | | | |
Inventory write-down | | 549 | | | | | | | | | | (154 | ) | | | | 395 | | | | | | | | | | | | | | |
Net cash provided by operating activities | | 15,065 | | | | — | | | | | | — | | | | | 15,065 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net cash used in investing activities | | (2,200 | ) | | | — | | | | | | — | | | | | (2,200 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by financing activities | | 89,982 | | | | — | | | | | | — | | | | | 89,982 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net increase in cash and cash equivalents | | 102,847 | | | | — | | | | | | — | | | | | 102,847 | | | | | | | | | | | | | | |
Cash and cash equivalents at beginning of period | | 18,675 | | | | — | | | | | | — | | | | | 18,675 | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | $ | 121,522 | | | $ | — | | | | | $ | — | | | | $ | 121,522 | | | | | | | | | | | | | | |
|
Unaudited Interim Financial Statements | ' |
Unaudited Interim Financial Statements |
The accompanying condensed consolidated financial statements are unaudited. The unaudited interim consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary to fairly state the Company’s financial position as of June 28, 2014, its results of operations, comprehensive loss for the three and six months ended June 28, 2014 and June 29, 2013, and cash flows for the six months ended June 28, 2014 and June 29, 2013. The financial data and the other financial information disclosed in the accompanying notes to the condensed consolidated financial statements related to these three and six month periods are also unaudited. The fiscal year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations in the three and six months ended June 28, 2014 are not necessarily indicative of the results to be expected for the full fiscal year or any other future periods. |
Revision of Prior Consolidated Financial Statements | ' |
Revision of Prior Consolidated Financial Statements |
During the three months ended December 28, 2013 the Company identified errors related to income taxes and inventory in its unaudited interim consolidated financial statements for the three and six months period ended June 29, 2013. As result of the stock-based compensation expense from the Company’s 2013 Employee Stock Purchase Plan (the “ESPP”) being inappropriately included in the determination of the deferred income tax benefit the benefit for income taxes was cumulatively overstated by $2.0 million in the three and six month periods ended June 29, 2013. Furthermore, the recovery of previously written down inventory was cumulatively understated by $0.2 million in the three and six month periods ended June 29, 2013 due to an error in the calculation. |
The Company assessed the materiality of the above errors both individually and in the aggregate on prior periods’ financial statements in accordance with the SEC’s Staff Accounting Bulletin No. 99 and, based on an analysis of quantitative and qualitative factors, determined that the errors were not material to the Company’s June 29, 2013 interim consolidated financial statements and, therefore, these previously issued consolidated financial statements could continue to be relied upon and that amendments of the previously filed Quarterly Reports on Form 10-Q were not required. However, if the aggregated corrections were recorded in the three months ended December 28, 2013, the cumulative errors would be material to the financial results for the three months ended December 28, 2013. Accordingly, the Company had previously revised its consolidated statements of operations, comprehensive loss, and cash flows for the three and six months ended June 29, 2013 as presented herein to correct these errors. |
The following table sets forth the impact of the accounting errors on the previously reported consolidated statements of operations for the three and six months ended June 29, 2013 (in thousands, except per share amounts): |
|
| Three Months ended June 29, 2013 | | | Six Months ended June 29, 2013 | |
| | | | | Income Tax | | | Inventory | | | | | | | | | | | Income Tax | | | Inventory | | | | | |
| (As Reported) | | | Adjustment | | | Adjustment | | | (As Revised) | | | (As Reported) | | | Adjustment | | | Adjustment | | | (As Revised) | |
Consolidated Statement of Operations Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Product | $ | 23,354 | | | $ | — | | | $ | — | | | $ | 23,354 | | | $ | 40,873 | | | $ | — | | | $ | — | | | $ | 40,873 | |
Services | | 9,055 | | | | — | | | | — | | | | 9,055 | | | | 17,349 | | | | — | | | | — | | | | 17,349 | |
Total revenue | | 32,409 | | | | — | | | | — | | | | 32,409 | | | | 58,222 | | | | — | | | | — | | | | 58,222 | |
Cost of revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Product | | 7,098 | | | | — | | | | (154 | ) | | | 6,944 | | | | 11,822 | | | | — | | | | (154 | ) | | | 11,668 | |
Services | | 1,911 | | | | — | | | | — | | | | 1,911 | | | | 2,564 | | | | — | | | | — | | | | 2,564 | |
Total cost of revenue | | 9,009 | | | | — | | | | (154 | ) | | | 8,855 | | | | 14,386 | | | | — | | | | (154 | ) | | | 14,232 | |
Gross profit | | 23,400 | | | | — | | | 154 | | | | 23,554 | | | | 43,836 | | | | — | | | 154 | | | | 43,990 | |
Research and development | | 17,097 | | | | — | | | | — | | | | 17,097 | | | | 22,768 | | | | — | | | | — | | | | 22,768 | |
Sales and marketing | | 26,114 | | | | — | | | | — | | | | 26,114 | | | | 38,535 | | | | — | | | | — | | | | 38,535 | |
General and administrative | | 12,688 | | | | — | | | | — | | | | 12,688 | | | | 16,197 | | | | — | | | | — | | | | 16,197 | |
Total operating expenses | | 55,899 | | | | — | | | | — | | | | 55,899 | | | | 77,500 | | | | — | | | | — | | | | 77,500 | |
Loss from operations | | (32,499 | ) | | | — | | | 154 | | | | (32,345 | ) | | | (33,664 | ) | | | — | | | 154 | | | | (33,510 | ) |
Interest income | 1 | | | | — | | | | — | | | 1 | | | 3 | | | | — | | | | — | | | 3 | |
Other expense, net | | (18 | ) | | | — | | | | — | | | | (18 | ) | | | (25 | ) | | | — | | | | — | | | | (25 | ) |
Loss before income tax | | (32,516 | ) | | | — | | | 154 | | | | (32,362 | ) | | | (33,686 | ) | | | — | | | 154 | | | | (33,532 | ) |
benefit (provision) |
Income tax benefit (provision) | | 24,571 | | | | (2,002 | ) | | | — | | | | 22,569 | | | | 24,542 | | | | (2,002 | ) | | | — | | | | 22,540 | |
Net loss | $ | (7,945 | ) | | $ | (2,002 | ) | | $ | 154 | | | $ | (9,793 | ) | | $ | (9,144 | ) | | $ | (2,002 | ) | | $ | 154 | | | $ | (10,992 | ) |
Accretion of preferred stock | | (503 | ) | | | — | | | | — | | | | (503 | ) | | | (1,088 | ) | | | — | | | | — | | | | (1,088 | ) |
to redemption value and |
issuance costs |
Loss distributable to preferred | 538 | | | | — | | | | — | | | 538 | | | | 1,107 | | | | — | | | | — | | | | 1,107 | |
stockholders |
Net loss attributable to common | $ | (7,910 | ) | | $ | (2,002 | ) | | $ | 154 | | | $ | (9,758 | ) | | $ | (9,125 | ) | | $ | (2,002 | ) | | $ | 154 | | | $ | (10,973 | ) |
stockholders |
Net loss per share attributable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
to common stockholders: |
Basic | $ | (0.41 | ) | | | | | | | | | | $ | (0.51 | ) | | $ | (0.41 | ) | | | | | | | | | | $ | (0.51 | ) |
Diluted | $ | (0.41 | ) | | | | | | | | | | $ | (0.51 | ) | | $ | (0.41 | ) | | | | | | | | | | $ | (0.51 | ) |
|
|
The following table sets forth the impact of the accounting errors on the previously reported consolidated statements of comprehensive loss for the three and six month ended June 29, 2013 (in thousands): |
|
| Three Months ended June 29, 2013 | | | Six Months ended June 29, 2013 | |
| | | | | Income Tax | | | Inventory | | | | | | | | | | | Income Tax | | | Inventory | | | | | |
| (As Reported) | | | Adjustment | | | Adjustment | | | (As Revised) | | | (As Reported) | | | Adjustment | | | Adjustment | | | (As Revised) | |
Net loss | $ | (7,945 | ) | | $ | (2,002 | ) | | $ | 154 | | | $ | (9,793 | ) | | $ | (9,144 | ) | | $ | (2,002 | ) | | $ | 154 | | | $ | (10,992 | ) |
Other comprehensive loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accretion of preferred stock to | | (503 | ) | | | — | | | | — | | | | (503 | ) | | | (1,088 | ) | | | — | | | | — | | | | (1,088 | ) |
redemption value and |
issuance costs |
Loss distributable to | | 538 | | | | — | | | | — | | | | 538 | | | | 1,107 | | | | — | | | | — | | | | 1,107 | |
preferred stockholders |
Comprehensive loss attributable | $ | (7,910 | ) | | $ | (2,002 | ) | | $ | 154 | | | $ | (9,758 | ) | | $ | (9,125 | ) | | $ | (2,002 | ) | | $ | 154 | | | $ | (10,973 | ) |
to common stockholders |
|
The following table sets forth the impact of the accounting errors on the previously reported consolidated statements of cash flows for the six month ended June 29, 2013: |
|
| Six Months ended June 29, 2013 | | | | | | | | | | | | | | |
| | | | | Income Tax | | | | | Inventory | | | | | | | | | | | | | | | | | | | |
| (As Reported) | | | Adjustment | | | | | Adjustment | | | | (As Revised) | | | | | | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | $ | (9,144 | ) | | $ | (2,002 | ) | | | | $ | 154 | | | | $ | (10,992 | ) | | | | | | | | | | | | | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Deferred income taxes | | (24,585 | ) | | | 2,002 | | | | | | | | | | | (22,583 | ) | | | | | | | | | | | | | |
Inventory write-down | | 549 | | | | | | | | | | (154 | ) | | | | 395 | | | | | | | | | | | | | | |
Net cash provided by operating activities | | 15,065 | | | | — | | | | | | — | | | | | 15,065 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net cash used in investing activities | | (2,200 | ) | | | — | | | | | | — | | | | | (2,200 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by financing activities | | 89,982 | | | | — | | | | | | — | | | | | 89,982 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net increase in cash and cash equivalents | | 102,847 | | | | — | | | | | | — | | | | | 102,847 | | | | | | | | | | | | | | |
Cash and cash equivalents at beginning of period | | 18,675 | | | | — | | | | | | — | | | | | 18,675 | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | $ | 121,522 | | | $ | — | | | | | $ | — | | | | $ | 121,522 | | | | | | | | | | | | | | |
|
Principles of Consolidation | ' |
Principles of Consolidation |
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary in the United Kingdom. All significant intercompany accounts and transactions have been eliminated in consolidation. |
Use of Estimates | ' |
Use of Estimates |
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain 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 revenues and expenses during the reported periods. On an ongoing basis, the Company evaluates its estimates, including but not limited to those related to revenue recognition, provision for doubtful accounts, warranty reserve, excess and obsolete inventory write-downs, stock-based compensation expense, depreciable lives, and income taxes. The Company bases its estimates on historical experience, projections for future performance and other assumptions that it believes to be reasonable under the circumstances. Actual results could differ materially from those estimates. |
Cash Equivalents and Marketable Securities | ' |
Cash Equivalents and Marketable Securities |
All highly liquid marketable securities with original or remaining maturities of less than three months at the date of purchase are considered to be cash equivalents. Marketable securities are generally classified as available-for-sale for use in current operations, if required, and are reported at fair value, with unrealized gains and losses, net of tax, presented as a separate component of stockholders’ equity under accumulated other comprehensive income. All realized gains and losses and unrealized losses resulting from declines in fair value that are other-than-temporary are recorded in other expense, net in the period of occurrence. The Company uses the specific identification method to determine the realized gains and losses on investments. For all investments in marketable securities, the Company assesses whether the impairment is other-than-temporary. If the fair value of a security is less than its amortized cost basis, an impairment is considered other-than-temporary if (i) the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its entire amortized cost basis, or (ii) the Company does not expect to recover the entire amortized cost of the security. If an impairment is considered other-than-temporary based on condition (i), the entire difference between the amortized cost and the fair value of the security is recognized in earnings. If an impairment is considered other-than-temporary based on condition (ii), the amount representing credit losses, defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the security, will be recognized in earnings, and the amount relating to all other factors will be recognized in other comprehensive income. The Company evaluates both qualitative and quantitative factors such as duration and severity of the unrealized losses, credit ratings, default and loss rates of the underlying collateral, structure and credit enhancements to determine if a credit loss may exist. |
Concentrations | ' |
Concentrations |
The Company operates in highly competitive and rapidly changing markets that could negatively impact the Company’s operating results. A number of components that meet the Company’s manufacturing requirements are available only from single source suppliers. In addition, the Company relies on one contract manufacturer to manufacture substantially all of its products. The inability of its single source suppliers and contract manufacturer to provide the Company with adequate supplies of high-quality components and products could cause a delay in order fulfillment, which could adversely affect the Company’s revenue, cost of sales and operating results. |
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable. The majority of the Company’s cash, cash equivalents and short-term investments are held in or managed by a limited number of major financial institutions in the United States that management believes are creditworthy. Such deposits may exceed the insured limits provided on them. |
The Company sells its products primarily through channel partners, including distributors and resellers, and occasionally directly to end-user customers. The Company generally requires no collateral from its customers. The Company mitigates credit risk associated with its accounts receivable by performing ongoing credit evaluations of its customers and establishes an allowance for doubtful accounts for estimated losses based on management’s assessment of the collectability of customer accounts. |
Customers that represented more than 10% of total revenue and accounts receivable are the following: |
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| Three Months Ended | | | Six Months Ended | | | | | | | | | | | | | | | | | |
| June 28, | | | June 29, | | | June 28, | | | June 29, | | | | | | | | | | | | | | | | | |
| 2014 | | | 2013 | | | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Percent of Net Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Customer A (distributor) | | 39% | | | | 57% | | | | 42% | | | | 57% | | | | | | | | | | | | | | | | | |
Customer B (distributor) | | 15% | | | * | | | | 17% | | | * | | | | | | | | | | | | | | | | | |
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* Represents less than 10% of total revenue |
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| As of | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 28, | | | December 31, | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2014 | | | 2013 | | | | | | | | | | | | | | | | | | | | | | | | | |
Percent of Accounts Receivable: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Customer A (distributor) | | 24% | | | | 23% | | | | | | | | | | | | | | | | | | | | | | | | | |
Customer B (distributor) | | 18% | | | | 11% | | | | | | | | | | | | | | | | | | | | | | | | | |
Customer C (end-user) | | 13% | | | ** | | | | | | | | | | | | | | | | | | | | | | | | | |
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** Represents less than 10% of accounts receivable |
In the three and six months ended June 28, 2014 and June 29, 2013, no end-user customer accounted for 10% or more of total revenue. |
Inventories | ' |
Inventories |
Inventory is valued at the lower of cost computed on a first-in, first-out basis, or market value. The Company writes down inventory in excess of forecasted demand over a certain period, as a component of cost of revenue. In these cases, inventory is reduced to estimated realizable value based on historical usage and expected demand. At the point of inventory write-down, a new lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. |
Inherent in the Company’s estimates of market value in determining inventory valuation are estimates related to economic trends, future demand for the Company’s products, and technical obsolescence of products. The Company uses a contract manufacturer to provide manufacturing services for its products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, the Company enters into agreements with the contract manufacturer that either allow them to procure inventory based upon criteria as defined by the Company, or establish the parameters defining the Company’s requirements. A portion of the Company’s reported purchase commitments arising from these agreements consists of non-cancelable commitments. The Company records a liability for firm, non-cancelable and unconditional purchase commitments for quantities in excess of its future demand forecasts consistent with the valuation of the Company’s excess and obsolete inventory. |
In the three and six months ended June 28, 2014, the Company recognized a $0.6 million and $2.4 million inventory write-down within cost of revenue and a $0.3 million and $0.7 million benefit from the sale of previously written-down inventory. In the three and six months ended June 29, 2013, the Company recognized a $0.1 million benefit from the sale of previously written-down inventory. |
Revenue Recognition | ' |
Revenue Recognition |
The Company generates product revenue from sales of traffic visibility solutions to customers as well as services revenue from sales of maintenance and support contracts and other billable services. Most of the Company’s products are hardware appliances containing software components that function together to deliver the essential functionality of the solution. The Company typically delivers products and services in a single transaction. The deliverables consist of traffic visibility solutions, maintenance and support, and other billable services. The Company’s typical arrangement includes the sale of one or multiple products that include first year maintenance and support as well as standard warranty. Other arrangements consist of the sale of products bundled with additional maintenance and support or a renewal of maintenance and support contracts. Billable services are billed in advance or when service is provided and performed as requested by customers. Under maintenance and support contracts, services are provided as needed by customers over the fixed arrangement term. The Company does not grant its customers a general right of return or any refund terms, except to two of the Company’s distributors which have a general right of return and in that case, revenue is deferred until sell-through has occurred. Revenue is reported net of rebates, discounts and any other sales incentives. |
The Company recognizes revenue when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) sales price is fixed or determinable and (4) collectability is reasonably assured. |
When sales arrangements contain multiple elements and software and non-software components that function together to deliver the products’ essential functionality, the Company allocates revenue to each element based on a selling price hierarchy: vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”) of the selling price if VSOE is not available, or best estimated selling prices (“BESP”) if neither VSOE nor TPE is available. |
When the Company enters in arrangements to provide more than one product or service (“multiple deliverables”), these arrangements are evaluated to determine if the multiple elements consist of more than one unit of accounting and can be separated accordingly. Based on separation criteria under the guidance, deliverables in multiple element arrangements can be segregated into separate units of accounting if they have value to the customer on a standalone basis. If deliverables can be separated into individual units of accounting, then the arrangement consideration is allocated among deliverables based on their relative selling price. Revenue from each deliverable is recognized when all requirements are met for that specific deliverable. If deliverables cannot be separated into separate units of accounting, then the arrangement will be accounted for as a single unit of accounting and revenue will be recognized when all requirements are met for all deliverables within the arrangement. The Company has established VSOE for maintenance and support contracts since the majority of selling prices fall within a narrow range when sold separately. TPE is not used since this information is not widely available in the market and the Company does not consider its products to be similar to or interchangeable with its competitors’ products in standalone sales to similarly situated customers. For deliverables with no established VSOE, the Company determines the standalone selling price for such deliverables by establishing BESP, which incorporates historical selling prices, the effect of market conditions, gross margin objectives and pricing practices, as well as entity specific factors. The Company monitors and evaluates BESP on a regular basis to ensure that changes in circumstances are accounted for in a timely manner. |
Services revenue is recognized ratably over the contractual support period, which is typically one year and can be up to five years. |
In accordance with contractual provisions, the Company may offer cooperative marketing funds based on a fixed dollar percentage of product sales to certain of its channel partners or to fund specific marketing activities for these partners. The Company records such amounts as a reduction to revenue or, if the Company has evidence of fair value of the separable and identifiable benefit received, as marketing expense. |
Revenue is recorded net of sales taxes. Costs of products not yet recognized as revenue are deferred and included as a component of prepaid expenses and other current assets in the condensed consolidated balance sheets. As of June 28, 2014 and December 28, 2013, deferred product costs were $1.1 million and $0.9 million, respectively. |
Shipping and handling costs are recorded in cost of revenue in the period products are shipped to customers. |
Warranty | ' |
Warranty |
The Company provides five-year warranties on its products against defects in manufacturing. The Company accrues for potential liability claims as a component of cost of product revenue based on historical trends of product failure rates and the expected material and labor costs to provide warranty services. The accrued warranty balance is reviewed periodically for adequacy and is included in accrued liabilities and in other non-current liabilities on the condensed consolidated balance sheets. |
Stock-Based Compensation | ' |
Stock-Based Compensation |
Stock-based compensation expense related to stock-based transactions, including employee and director awards, as well as employee stock purchase plan purchase rights (“ESPP purchase rights”), is measured and recognized in the condensed consolidated financial statements based on fair value of the award on the grant date. Stock-based compensation expense related to equity awards that can be settled in cash is measured based on the fair value on each balance sheet date until the settlement dates. The fair value of option awards and ESPP purchase rights is estimated using the Black-Scholes option-pricing model. This model requires assumptions including the market value of the Company’s common stock, expected volatility, expected term of the award, expected dividend yield and risk-free interest rate. Expected term for stock option awards is determined based on the mid-point of the vest period and the contractual period of each option award due to the Company’s limited historical stock option exercise data. Expected volatility is established based on the historical volatility of the common stock of a peer group of publicly traded companies. The stock-based compensation expense, net of estimated forfeitures, is recognized on a graded-vesting basis over the requisite service periods of the awards, unless a performance-based condition exists. Expense for performance-based awards are recognized when the issuance of the underlying awards are probable. Expense for consultant awards are measured based on the fair value on the vest date. Expenses related to the option grants to consultants that have not been vested as of the reporting date are marked to market until the earlier of the commitment or the completion of the underlying performance. The Company estimates a forfeiture rate to calculate the stock-based compensation for its awards based on an analysis of its historical experience, analysis of employee turnover and other related factors. |
Advertising Costs | ' |
Advertising Costs |
Expenses related to advertising of products are charged to sales and marketing expense as incurred. For all periods presented, advertising expenses were insignificant. |
Income Taxes | ' |
Income Taxes |
The Company provides for income taxes under the asset and liability method. Under this method, deferred income tax assets, including those related to tax loss carryforwards and credits, and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded to reduce deferred tax assets when management cannot conclude that it is more-likely-than-not that the deferred tax asset will be recovered. The valuation allowance is determined by assessing both positive and negative evidence to determine whether it is more-likely-than-not that deferred tax assets are recoverable; such assessment is performed on a jurisdiction-by-jurisdiction basis. |
Comprehensive (Loss) Income | ' |
Comprehensive Loss |
Comprehensive loss is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources. Comprehensive loss comprises of all components of net loss and all components of other comprehensive loss within stockholders’ equity. The Company’s other comprehensive loss includes unrealized gains and losses from its available-for-sale securities that are not considered other-than-temporarily impaired, net of taxes. |
Recent Accounting Pronouncements | ' |
Recent Accounting Pronouncements |
In May 2014, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The effective date of this ASU will be the first quarter of fiscal year 2017 using one of two retrospective application methods. We have not determined the potential effects on our condensed consolidated financial statements. |
In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A company should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The amendments in this update are effective for annual periods and interim periods within annual periods beginning after December 15, 2015 and early adoption is permitted. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements. |
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