##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2008
 OR
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission File Number: 001-33685
 
 COMPELLENT TECHNOLOGIES, INC.
 (Exact name of Registrant as specified in its charter)
 
 Delaware
    
    37-1434895(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 7625 Smetana Lane
Eden Prairie, Minnesota 55344
(952) 294-3300
 
 (Address, including zip code, and telephone number, including area code, of registrants principal
executive offices)
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



COMPELLENT TECHNOLOGIES, INC.
 FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2008
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1.
    
    Consolidated Financial Statements
    
    3Consolidated Balance Sheets  As of June 30, 2008 and December 31, 2007
    
    3Consolidated Statements of Operations  Three and Six Months Ended June 30, 2008 and 2007
    
    4Consolidated Statements of Cash Flows  Six Months Ended June 30, 2008 and 2007
    
    5Notes to Consolidated Financial Statements
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    22Item 4T.
    
    Controls and Procedures
    
    22PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    23Item 1A.
    
    Risk Factors
    
    23Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    38Item 3.
    
    Defaults Upon Senior Securities
    
    38Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    38Item 5.
    
    Other Information
    
    38Item 6.
    
    Exhibits
    
    39Signatures
    
    
    
    40EX-10.20EX-31.1EX-31.2EX-32.1
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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Consolidated Financial Statements.
 COMPELLENT TECHNOLOGIES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)(in thousands, except share andper share amounts)AssetsCurrent assetsCash and cash equivalents
    
    $
    57,026
    
    
    $
    82,382Short-term investments
    
    
    18,515
    
    
    
    11,350Accounts receivable, net of allowance of $598 and
$408
as of June 30, 2008 and
December 31, 2007
    
    
    19,022
    
    
    
    13,311Inventories
    
    
    3,721
    
    
    
    2,538Prepaid expenses and other current assets
    
    
    1,013
    
    
    
    1,046Total current assets
    
    
    99,297
    
    
    
    110,627Long-term investments
    
    
    17,337
    
    
    
    Property and equipment, net
    
    
    3,276
    
    
    
    2,749Total assets
    
    $
    119,910
    
    
    $
    113,376Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    4,105
    
    
    $
    3,216Accrued compensation and benefits
    
    
    4,074
    
    
    
    3,083Accrued liabilities
    
    
    1,409
    
    
    
    1,139Deferred revenue, current
    
    
    11,279
    
    
    
    7,934Total current liabilities
    
    
    20,867
    
    
    
    15,372Deferred revenue, non-current
    
    
    4,283
    
    
    
    2,588Commitments and contingenciesStockholders equityCommon stock, $0.001 par value, 300,000,000 shares
authorized; 
30,714,282 and 30,593,468
shares issued and outstanding
 as
of June 30, 2008 and December 31, 2007
    
    
    31
    
    
    
    31Additional paid in capital
    
    
    146,410
    
    
    
    144,824Accumulated deficit
    
    
    (51,658
    )
    
    
    (49,439
    )Accumulated other comprehensive income
    
    
    (23
    )
    
    
    Total stockholders equity
    
    
    94,760
    
    
    
    95,416Total liabilities and
stockholders equity
    
    $
    119,910
    
    
    $
    113,376
  3




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COMPELLENT TECHNOLOGIES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(unaudited)(in thousands, except per share amounts)RevenueProduct
    
    $
    17,039
    
    
    $
    10,215
    
    
    $
    31,915
    
    
    $
    17,641Product support and services
    
    
    3,973
    
    
    
    1,863
    
    
    
    7,410
    
    
    
    3,298Total revenue
    
    
    21,012
    
    
    
    12,078
    
    
    
    39,325
    
    
    
    20,939Cost of revenueCost of product
    
    
    8,031
    
    
    
    5,177
    
    
    
    15,378
    
    
    
    8,998Cost of product support and services
    
    
    1,606
    
    
    
    1,127
    
    
    
    3,014
    
    
    
    2,069Total cost of revenue
    
    
    9,637
    
    
    
    6,304
    
    
    
    18,392
    
    
    
    11,067Gross profit
    
    
    11,375
    
    
    
    5,774
    
    
    
    20,933
    
    
    
    9,872Operating expensesSales and marketing
    
    
    8,829
    
    
    
    5,388
    
    
    
    16,782
    
    
    
    9,586Research and development
    
    
    2,311
    
    
    
    1,868
    
    
    
    4,659
    
    
    
    3,420General and administrative
    
    
    1,459
    
    
    
    587
    
    
    
    3,204
    
    
    
    1,288Total operating expenses
    
    
    12,599
    
    
    
    7,843
    
    
    
    24,645
    
    
    
    14,294Loss from operations
    
    
    (1,224
    )
    
    
    (2,069
    )
    
    
    (3,712
    )
    
    
    (4,422
    )Interest income
    
    
    621
    
    
    
    146
    
    
    
    1,493
    
    
    
    369Net loss
    
    $
    (603
    )
    
    $
    (1,923
    )
    
    $
    (2,219
    )
    
    $
    (4,053
    )Net loss per common share, basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.45
    )
    
    $
    (0.07
    )
    
    $
    (0.95
    )Shares used in computing net loss per common
share, basic and diluted
    
    
    30,434
    
    
    
    4,317
    
    
    
    30,389
    
    
    
    4,248
  4




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COMPELLENT TECHNOLOGIES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Six MonthsEnded June 30,2008
    
    
    2007(unaudited)(in thousands)Operating activitiesNet loss
    
    $
    (2,219
    )
    
    $
    (4,053
    )Adjustments to reconcile net loss to net cash used in
operating activitiesDepreciation and amortization
    
    
    700
    
    
    
    548Stock-based compensation expense
    
    
    990
    
    
    
    213Changes in operating assets and liabilitiesAccounts receivable
    
    
    (5,711
    )
    
    
    (2,467
    )Inventories
    
    
    (1,183
    )
    
    
    (332
    )Prepaid expenses and other current assets
    
    
    33
    
    
    
    (58
    )Accounts payable
    
    
    889
    
    
    
    591Accrued compensation and benefits and accrued liabilities
    
    
    1,322
    
    
    
    626Deferred revenues
    
    
    5,040
    
    
    
    2,583Net cash used in operating activities
    
    
    (139
    )
    
    
    (2,349
    )Investing activitiesPurchase of property and equipment
    
    
    (1,227
    )
    
    
    (1,591
    )Purchase of investments
    
    
    (50,675
    )
    
    
    Proceeds from sales and maturities of investments
    
    
    26,150
    
    
    
    258Net cash used in investing activities
    
    
    (25,752
    )
    
    
    (1,333
    )Financing activitiesProceeds from issuance of common stock
    
    
    535
    
    
    
    28Payments for repurchase of common stock
    
    
    
    
    
    
    (142
    )Net cash provided by (used in) financing activities
    
    
    535
    
    
    
    (114
    )Net decrease in cash and cash equivalents
    
    
    (25,356
    )
    
    
    (3,796
    )Cash and cash equivalents, beginning of period
    
    
    82,382
    
    
    
    15,106Cash and cash equivalents, end of period
    
    $
    57,026
    
    
    $
    11,310Supplemental non-cash disclosure:Issuance of common stock for services provided
    
    $
    
    
    
    $
    18Vesting of restricted common stock
    
    $
    61
    
    
    $
    80Unrealized loss on available-for-sale investments
    
    $
    (23
    )
    
    $
    Prepaid expenses related to the initial public offering
    
    $
    
    
    
    $
    786
  5




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COMPELLENT TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Business Description
   2. Unaudited Interim Financial Information
   3. Summary of Significant Accounting Policies and Estimates
 Revenue Recognition
 Software Revenue
Recognition, Modification of SOP 97-2, Software Revenue
Recognition with Respect to Certain Transactions Revenue Recognition
 
    
    Persuasive Evidence of an Arrangement Exists.The Company determines that persuasive
evidence of an arrangement exists by receiving a purchase order or by obtaining a signed
quote.
    
    Delivery has Occurred.Substantially all products are shipped to end users. Delivery is
deemed to have occurred upon shipment as title transfers to the end user, with the channel
partner acting as a broker. Products shipped with acceptance criteria are not recognized as
revenue until all conditional criteria are satisfied.
    
    The Fee is Fixed or Determinable. Fees are considered fixed and determinable upon
establishment of an arrangement that contains the final terms of sale including description,
quantity and price of each product or service purchased, and the payment term is less than
twelve months.
    
    Collectibility is Probable. Probability of collection is assessed on a case-by-case
basis. Customers are subject to a credit review process that evaluates the customers
financial position and ultimately their ability to pay. If the Company is unable to
determine from the outset of an arrangement that collectibility is probable based upon its
review process, revenue is recognized upon cash receipt.
  6




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COMPELLENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Modification of SOP 97-2 Software Revenue Recognition
with Respect to Certain Transactions Revenue Arrangements with Multiple
Deliverables
   How Taxes Collected from
Customers and Remitted to Governmental Authorities Should be Presented In the Income Statement
(That Is, Gross Versus Net Presentation),
 Use of Estimates
  Recent Accounting Pronouncements
 Fair Value Measurements
 
    
    Level 1  quoted prices in active markets for identical assets and liabilities;
    
    Level 2  observable inputs other than quoted prices in active markets for identical
assets and liabilities; and
    
    Level 3  unobservable inputs in which there is little or no market data available, which
require the reporting entity to develop its own assumptions.
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COMPELLENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Effective Date of FASB Statement No. 157
 The Fair Value Option for Financial Assets and
Financial Liabilities, including an amendment of FASB Statement No. 115
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of Accounting Research Bulletin No. 51
 4. Investments
  5. Inventories
  June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)Component materials
    
    $
    477
    
    
    $
    489Finished systems
    
    
    3,244
    
    
    
    2,049$
    3,721
    
    
    $
    2,538
 8




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COMPELLENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 6. Property and Equipment
  June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)Computer equipment
    
    $
    645
    
    
    $
    541Office furniture and equipment
    
    
    4,973
    
    
    
    3,953Computer software
    
    
    456
    
    
    
    423Leasehold improvements
    
    
    1,065
    
    
    
    1,0387,139
    
    
    
    5,955Accumulated depreciation and amortization
    
    
    (3,863
    )
    
    
    (3,206
    )$
    3,276
    
    
    $
    2,749
 7. Line of Credit
  8. Stock-Based Compensation
 2007 Employee Stock Purchase Plan
  2002 Stock Option Plan
  2007 Equity Incentive Plan
  9




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COMPELLENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   WeightedAverageNumber
    
    
    Exercise Priceof Shares
    
    
    Per ShareBalance outstanding at December 31, 2007
    
    
    1,217,424
    
    
    $
    3.16Granted
    
    
    1,090,842
    
    
    
    8.99Exercised
    
    
    (72,572
    )
    
    
    1.27Cancelled
    
    
    (10,134
    )
    
    
    4.97Balance outstanding at June 30, 2008 (unaudited)
    
    
    2,225,560
    
    
    $
    6.07Options exercisable at June 30, 2008 (unaudited)
    
    
    484,662
    
    
    $
    2.39
  Stock-Based Compensation Expense
 Share-Based Payment
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007(unaudited)Risk-free interest rate
    
    
    3.01
    %
    
    
    4.81
    %
    
    
    2.94
    %
    
    
    4.56
    %Expected life (years)
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5Expected volatility
    
    
    50.51
    %
    
    
    63.56
    %
    
    
    50.59
    %
    
    
    66.36
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  10




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COMPELLENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(unaudited)Cost of product
    
    $
    53
    
    
    $
    15
    
    
    $
    87
    
    
    $
    27Sales and marketing
    
    
    243
    
    
    
    60
    
    
    
    435
    
    
    
    202Research and development
    
    
    106
    
    
    
    30
    
    
    
    194
    
    
    
    55General and administrative
    
    
    135
    
    
    
    15
    
    
    
    274
    
    
    
    49Stock-based compensation expense before
income tax benefit
    
    
    537
    
    
    
    120
    
    
    
    990
    
    
    
    333Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total stock-based compensation expense,
net of tax benefit
    
    $
    537
    
    
    $
    120
    
    
    $
    990
    
    
    $
    333
   Stock Options Exercised for Unvested Restricted Common Stock
   Numberof SharesBalance outstanding at December 31, 2007
    
    
    272,144Stock options exercised for unvested restricted shares
    
    
    Vested
    
    
    (61,162
    )Balance outstanding at June 30, 2008 (unaudited)
    
    
    210,982
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COMPELLENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 9. Net Loss Per Common Share
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(unaudited)Net loss attributable to common stockholders
    
    $
    (603
    )
    
    $
    (1,923
    )
    
    $
    (2,219
    )
    
    $
    (4,053
    )Weighted-average common shares outstanding
    
    
    30,660
    
    
    
    4,696
    
    
    
    30,630
    
    
    
    4,595Weighted-average common shares with vesting
restrictions
    
    
    (226
    )
    
    
    (379
    )
    
    
    (241
    )
    
    
    (347
    )Weighted-average common shares used in
computing net loss per share, basic and diluted
    
    
    30,434
    
    
    
    4,317
    
    
    
    30,389
    
    
    
    4,248Net loss per common share, basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.45
    )
    
    $
    (0.07
    )
    
    $
    (0.95
    )
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007(unaudited)Options to purchase common stock
    
    
    2,226
    
    
    
    1,050
    
    
    
    2,226
    
    
    
    1,050Common stock with vesting restrictions
    
    
    211
    
    
    
    343
    
    
    
    211
    
    
    
    343Convertible preferred stock (as converted)
    
    
    
    
    
    
    18,939
    
    
    
    
    
    
    
    18,939
 10. Income Taxes
  11. Commitments and Contingencies
 Indemnification Obligations
  12




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COMPELLENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Legal Proceedings
   12. Segment and Geographic Information
 Disclosures about Segments of an Enterprise and Related Information
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(unaudited)RevenueUnited States
    
    $
    17,809
    
    
    $
    10,469
    
    
    $
    33,248
    
    
    $
    18,663International
    
    
    3,203
    
    
    
    1,609
    
    
    
    6,077
    
    
    
    2,276Total
    
    $
    21,012
    
    
    $
    12,078
    
    
    $
    39,325
    
    
    $
    20,939
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, that are based on our managements beliefs and assumptions and on
information currently available to our management. Forward-looking statements include all
statements other than statements of historical fact contained in this Quarterly Report on Form
10-Q, including, but not limited to, statements about:
 
    
    our expectations regarding our revenue, gross margin and expenses;
    
    our ability to compete in our industry;
    
    our ability to maintain and grow our channel partner relationships;
    
    our growth strategy and our growth rate;
    
    our anticipated cash needs and our estimates regarding our capital requirements and our
need for additional financing;
    
    our ability to protect our intellectual property rights; and
    
    Pricing and availability of our suppliers products.
 In some cases, you can identify forward-looking statements by terms such as anticipate,
believe, can, continue, could, estimate, expect, intend, may, plan, potential,
predict, project, should, will, would and similar expressions intended to identify
forward-looking statements. These statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance, time frames or achievements to be
materially different from any future results, performance, time frames or achievements expressed or
implied by the forward-looking statements. We discuss many of these risks, uncertainties and other
factors in this Quarterly Report on Form 10-Q in greater detail in Part II, Item IA. Risk
Factors. Given these risks, uncertainties and other factors, you should not place undue reliance
on these forward-looking statements. Also, these forward-looking statements represent our estimates
and assumptions only as of the date hereof. We hereby qualify all of our forward-looking statements
by these cautionary statements. Except as required by law, we assume no obligation to update these
forward-looking statements publicly, or to update the reasons actual results could differ
materially from those anticipated in these forward-looking statements, even if new information
becomes available in the future.
 The following discussion should be read in conjunction with our financial statements and the
related notes contained elsewhere in this Quarterly Report on Form 10-Q and in our other Securities
and Exchange Commission, or SEC, filings, including our Annual Report on Form 10-K for the year
ended December 31, 2007, filed with the SEC on March 27, 2008.
 Overview
   14




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Critical Accounting Policies and Estimates
   Results of Operations
  Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %
    
    
    2008
    
    
    2007
    
    
    $
    
    
    %(unaudited)RevenueProduct
    
    $
    17,039
    
    
    $
    10,215
    
    
    $
    6,824
    
    
    
    66.8
    %
    
    $
    31,915
    
    
    $
    17,641
    
    
    $
    14,274
    
    
    
    80.9
    %Product support and services
    
    
    3,973
    
    
    
    1,863
    
    
    
    2,110
    
    
    
    113.3
    
    
    
    7,410
    
    
    
    3,298
    
    
    
    4,112
    
    
    
    124.7Total revenue
    
    
    21,012
    
    
    
    12,078
    
    
    
    8,934
    
    
    
    74.0
    
    
    
    39,325
    
    
    
    20,939
    
    
    
    18,386
    
    
    
    87.8Cost of revenueCost of product
    
    
    8,031
    
    
    
    5,177
    
    
    
    2,854
    
    
    
    55.1
    
    
    
    15,378
    
    
    
    8,998
    
    
    
    6,380
    
    
    
    70.9Cost of product support and services
    
    
    1,606
    
    
    
    1,127
    
    
    
    479
    
    
    
    42.5
    
    
    
    3,014
    
    
    
    2,069
    
    
    
    945
    
    
    
    45.7Total cost of revenue
    
    
    9,637
    
    
    
    6,304
    
    
    
    3,333
    
    
    
    52.9
    
    
    
    18,392
    
    
    
    11,067
    
    
    
    7,325
    
    
    
    66.2Gross profit
    
    
    11,375
    
    
    
    5,774
    
    
    
    5,601
    
    
    
    97.0
    
    
    
    20,933
    
    
    
    9,872
    
    
    
    11,061
    
    
    
    112.0Operating expensesSales and marketing
    
    
    8,829
    
    
    
    5,388
    
    
    
    3,441
    
    
    
    63.9
    
    
    
    16,782
    
    
    
    9,586
    
    
    
    7,196
    
    
    
    75.1Research and development
    
    
    2,311
    
    
    
    1,868
    
    
    
    443
    
    
    
    23.7
    
    
    
    4,659
    
    
    
    3,420
    
    
    
    1,239
    
    
    
    36.2General and administrative
    
    
    1,459
    
    
    
    587
    
    
    
    872
    
    
    
    148.6
    
    
    
    3,204
    
    
    
    1,288
    
    
    
    1,916
    
    
    
    148.8Total operating expenses
    
    
    12,599
    
    
    
    7,843
    
    
    
    4,756
    
    
    
    60.6
    
    
    
    24,645
    
    
    
    14,294
    
    
    
    10,351
    
    
    
    72.4Loss from operations
    
    
    (1,224
    )
    
    
    (2,069
    )
    
    
    845
    
    
    
    40.8
    
    
    
    (3,712
    )
    
    
    (4,422
    )
    
    
    710
    
    
    
    16.1Interest income
    
    
    621
    
    
    
    146
    
    
    
    475
    
    
    
    325.3
    
    
    
    1,493
    
    
    
    369
    
    
    
    1,124
    
    
    
    304.6Net loss
    
    $
    (603
    )
    
    $
    (1,923
    )
    
    $
    1,320
    
    
    
    68.6
    %
    
    $
    (2,219
    )
    
    $
    (4,053
    )
    
    $
    1,834
    
    
    
    45.3
    %
 15




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Comparison of Three Months Ended June 30, 2008 and 2007
 Revenue
  Three Months Ended June 30,2008
    
    
    2007%
    
    
    
    
    
    
    %of Total
    
    
    
    
    
    
    of Total
    
    
    Change$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    %(unaudited)RevenueProduct
    
    $
    17,039
    
    
    
    81.1
    %
    
    $
    10,215
    
    
    
    84.6
    %
    
    $
    6,824
    
    
    
    66.8
    %Product support and services
    
    
    3,973
    
    
    
    18.9
    
    
    
    1,863
    
    
    
    15.4
    
    
    
    2,110
    
    
    
    113.3Total revenue
    
    $
    21,012
    
    
    
    100.0
    %
    
    $
    12,078
    
    
    
    100.0
    %
    
    $
    8,934
    
    
    
    74.0
    %
 Product Revenue.
 Product Support and Services Revenue.
 Cost of Revenue and Gross Margin
  Three Months Ended June 30,2008
    
    
    2007%
    
    
    
    
    
    
    %of Related
    
    
    
    
    
    
    of Related
    
    
    Change$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    %(unaudited)Cost of revenueCost of product
    
    $
    8,031
    
    
    
    47.1
    %
    
    $
    5,177
    
    
    
    50.7
    %
    
    $
    2,854
    
    
    
    55.1
    %Cost of product support and services
    
    
    1,606
    
    
    
    40.4
    
    
    
    1,127
    
    
    
    60.5
    
    
    
    479
    
    
    
    42.5Total cost of revenue
    
    $
    9,637
    
    
    
    45.9
    %
    
    $
    6,304
    
    
    
    52.2
    %
    
    $
    3,333
    
    
    
    52.9
    %Gross margin
    
    
    
    
    
    
    54.1
    %
    
    
    
    
    
    
    47.8
    %
 Cost of Product Revenue.
 Cost of Product Support and Services Revenue.
 Gross Margin.
 16




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Operating Expenses and Interest Income
  Three Months Ended June 30,2008
    
    
    2007%
    
    
    
    
    
    
    %of Total
    
    
    
    
    
    
    of Total
    
    
    Change$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    %(unaudited)Operating expensesSales and marketing
    
    $
    8,829
    
    
    
    42.0
    %
    
    $
    5,388
    
    
    
    44.6
    %
    
    $
    3,441
    
    
    
    63.9
    %Research and development
    
    
    2,311
    
    
    
    11.0
    
    
    
    1,868
    
    
    
    15.5
    
    
    
    443
    
    
    
    23.7General and administrative
    
    
    1,459
    
    
    
    6.9
    
    
    
    587
    
    
    
    4.9
    
    
    
    872
    
    
    
    148.6Total operating expenses
    
    $
    12,599
    
    
    
    60.0
    %
    
    $
    7,843
    
    
    
    64.9
    %
    
    $
    4,756
    
    
    
    60.6
    %Interest income
    
    $
    621
    
    
    
    3.0
    %
    
    $
    146
    
    
    
    1.2
    %
    
    $
    475
    
    
    
    325.3
    %
 Sales and Marketing Expense.
 Research and Development Expense.
 General and Administrative Expense.
 Interest Income.
 17




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Comparison of Six Months Ended June 30, 2008 and 2007
 Revenue
  Six Months Ended June 30,2008
    
    
    2007%
    
    
    
    
    
    
    %of Total
    
    
    
    
    
    
    of Total
    
    
    Change$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    %(unaudited)RevenueProduct
    
    $
    31,915
    
    
    
    81.2
    %
    
    $
    17,641
    
    
    
    84.2
    %
    
    $
    14,274
    
    
    
    80.9
    %Product support and services
    
    
    7,410
    
    
    
    18.8
    
    
    
    3,298
    
    
    
    15.8
    
    
    
    4,112
    
    
    
    124.7Total revenue
    
    $
    39,325
    
    
    
    100.0
    %
    
    $
    20,939
    
    
    
    100.0
    %
    
    $
    18,386
    
    
    
    87.8
    %
 Product Revenue.
 Product Support and Services Revenue.
 Cost of Revenue and Gross Margin
  Six Months Ended June 30,2008
    
    
    2007%
    
    
    
    
    
    
    %of Related
    
    
    
    
    
    
    of Related
    
    
    Change$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    %(unaudited)Cost of revenueCost of product
    
    $
    15,378
    
    
    
    48.2
    %
    
    $
    8,998
    
    
    
    51.0
    %
    
    $
    6,380
    
    
    
    70.9
    %Cost of product support and services
    
    
    3,014
    
    
    
    40.7
    
    
    
    2,069
    
    
    
    62.7
    
    
    
    945
    
    
    
    45.7Total cost of revenue
    
    $
    18,392
    
    
    
    46.8
    %
    
    $
    11,067
    
    
    
    52.9
    %
    
    $
    7,325
    
    
    
    66.2
    %Gross margin
    
    
    
    
    
    
    53.2
    %
    
    
    
    
    
    
    47.1
    %
 Cost of Product Revenue.
 Cost of Product Support and Services Revenue.
 Gross Margin.
 18




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Operating Expenses and Interest Income
  Six Months Ended June 30,2008
    
    
    2007%
    
    
    
    
    
    
    %of Total
    
    
    
    
    
    
    of Total
    
    
    Change$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    %(unaudited)Operating expensesSales and marketing
    
    $
    16,782
    
    
    
    42.7
    %
    
    $
    9,586
    
    
    
    45.8
    %
    
    $
    7,196
    
    
    
    75.1
    %Research and development
    
    
    4,659
    
    
    
    11.8
    
    
    
    3,420
    
    
    
    16.3
    
    
    
    1,239
    
    
    
    36.2General and administrative
    
    
    3,204
    
    
    
    8.1
    
    
    
    1,288
    
    
    
    6.2
    
    
    
    1,916
    
    
    
    148.8Total operating expenses
    
    $
    24,645
    
    
    
    62.7
    %
    
    $
    14,294
    
    
    
    68.3
    %
    
    $
    10,351
    
    
    
    72.4
    %Interest income
    
    $
    1,493
    
    
    
    3.8
    %
    
    $
    369
    
    
    
    1.8
    %
    
    $
    1,124
    
    
    
    304.6
    %
 Sales and Marketing Expense.
 Research and Development Expense.
 General and Administrative Expense.
 Interest Income.
 Liquidity and Capital Resources
  19




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Cash Flows
  Six Months EndedJune 30,2008
    
    
    2007(unaudited)Net cash used in operating activities
    
    $
    (139
    )
    
    $
    (2,349
    )Net cash used in investing activities
    
    
    (25,752
    )
    
    
    (1,333
    )Net cash provided by (used in) financing activities
    
    
    535
    
    
    
    (114
    )Net decrease in cash and cash equivalents
    
    $
    (25,356
    )
    
    $
    (3,796
    )
 Operating Activities
   Investing Activities
   Financing Activities
  Operating and Capital Expenditure Requirements
  20




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Risk Factors
  
    
    the revenue generated by sales of Storage Center;
    
    our ability to control our costs;
    
    the emergence of competing or complementary technological developments;
    
    the costs of filing, prosecuting, defending and enforcing any patent claims and other
intellectual product rights, or participating in litigation-related activities; and
    
    the acquisition of businesses, products and technologies, although we currently have no
commitments or agreements relating to any of these types of transactions.
 Contractual Obligations
 Managements
Discussion and Analysis of Financial Condition and Results of Operations  Contractual Obligations
 Credit Facility
  Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
  21




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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Quantitative and Qualitative Disclosure About Market Risk,
 
 Item 4T. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  Inherent Limitations of Internal Controls
  22




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   
 Item 1A. Risk Factors.
 We have identified the following risks and uncertainties that may harm on our business,
financial condition or results of operations. The risks described below are not the only ones we
face. Additional risks not presently known to us or that we currently believe are immaterial may
also significantly impair our business operations. Our business could be harmed by any of these
risks. In assessing these risks, you should also refer to the other information contained in this
Quarterly Report on Form 10-Q , including our consolidated financial statements and related notes.
 Risks Related to Our Business
 We have a limited operating history and a history of losses, and we may not achieve or sustain
profitability in the future, on a quarterly or annual basis.
  Our quarterly operating results may fluctuate significantly, which makes our future results
difficult to predict.
  23




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##### Table of Contents




    
    hardware and software configuration and mix;
    
    fluctuations in demand, including due to seasonality, for our products and services;
    
    changes in pricing by us in response to competitive pricing actions;
    
    reductions in end users budgets for information technology purchases and delays in their
purchasing cycles;
    
    the sale of Storage Center in the timeframes we anticipate, including the number and size
of orders in each quarter;
    
    our ability to develop, introduce and ship in a timely manner new products and product
enhancements that meet end user requirements;
    
    the timing of product releases or upgrades by us or by our competitors;
    
    any significant changes in the competitive dynamics of our market, including new entrants
or substantial discounting of products;
    
    our ability to control costs, including our operating expenses and the costs of the
components we purchase;
    
    the extent to which our end users renew their service and maintenance agreements with us;
    
    volatility in our stock price, which may lead to higher stock compensation expenses; and
    
    general economic conditions in our domestic and international markets.
 The markets in which we compete are highly competitive and dominated by large corporations and we
may not be able to compete effectively.
   
    
    our products functionality, scalability, performance, ease of use, reliability,
availability and cost effectiveness relative to that of our competitors products;
    
    our success in utilizing new and proprietary technologies to offer products and features
previously not available in the marketplace;
    
    our success in identifying new markets, applications and technologies;
    
    our ability to attract and retain value-added resellers, which we refer to as channel
partners;
    
    our name recognition and reputation;
    
    our ability to recruit software engineers and sales and marketing personnel; and
    
    our ability to protect our intellectual property.
 24




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##### Table of Contents



Aggressive business tactics by our competitors may reduce our revenue.
  
    
    selling at a discount;
    
    offering bundled software at no charge;
    
    announcing competing products combined with extensive marketing efforts;
    
    offering to repurchase our system from existing end users;
    
    providing financing, marketing and advertising assistance to customers; and
    
    asserting intellectual property rights irrespective of the validity of the claims.
  We are dependent on a single product, and the lack of continued market acceptance of Storage Center
would result in lower revenue.
  
    
    any decline in demand for Storage Center;
    
    the failure of Storage Center to achieve continued market acceptance;
    
    the introduction of products and technologies that serve as a replacement or substitute
for, or represent an improvement over, Storage Center;
 25




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##### Table of Contents




    
    technological innovations or new communications standards that Storage Center does not
address; and
    
    our inability to release enhanced versions of Storage Center on a timely basis.
  Our products must meet exacting specifications, and defects and failures may occur, which may cause
channel partners or end users to return or stop buying our products.
  
    
    lost revenue;
    
    increased costs, including warranty expense and costs associated with end user support;
    
    delays or cancellations or rescheduling of orders or shipments;
    
    product returns or discounts;
    
    diversion of management resources;
    
    damage to our reputation and brand equity;
    
    payment of damages for performance failures;
    
    reduced orders from existing channel partners and end users; and
    
    declining interest from potential channel partners or end users.
   We may not sustain our percentage growth rate, and we may not be able to manage any future growth
effectively.
  26




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##### Table of Contents




    
    increase our channel partners and end users in the small to medium size enterprises, or
SME market;
    
    address new markets, such as large enterprise end users and end users outside the United
States;
    
    control expenses;
    
    recruit, hire, train and manage additional qualified engineers;
    
    add additional sales and marketing personnel;
    
    expand our international operations; and
    
    implement and improve our administrative, financial and operational systems, procedures
and controls.
   Our gross margin may vary and such variation may make it more difficult to forecast our earnings.
  
    
    demand for Storage Center and related services;
    
    discount levels and price competition;
    
    average order system size and end user mix;
    
    hardware and software component mix;
    
    the cost of components;
    
    level of fixed costs of customer service personnel;
    
    the mix of services as a percentage of revenue;
    
    new product introductions and enhancements; and
    
    geographic sales mix.
  27




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##### Table of Contents



We receive a substantial portion of our revenue from a limited number of channel partners, and the
loss of, or a significant reduction in, orders from one or more of our major channel partners would
result in lower revenue.
  We may not be able to maintain existing channel partners or grow our business to include more
channel partners and large enterprise end users.
  If our channel partners give higher priority to our competitors storage products we may be unable
to grow our revenue and we may continue to incur net losses.
  The loss of any key suppliers or the failure to accurately forecast demand for our products or
successfully manage our relationships with our key suppliers could negatively impact our ability to
sell our products.
  28




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##### Table of Contents



If our third-party repair service fails to timely and correctly resolve hardware failures
experienced by our end users, our reputation will suffer, our competitive position will be impaired
and our expenses could increase.
  If we are unsuccessful in developing and selling new products, services and product enhancements,
our competitive position will be adversely affected and our ability to grow our revenue will be
impaired.
    29




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##### Table of Contents



If our channel partners fail to timely and correctly install and configure our storage systems, or
face disruptions in their business, our reputation will suffer, our competitive position could be
impaired and we could lose customers.
  As we enter new markets we may encounter longer sales, payment and implementation cycles, which
could have an adverse effect on the size, timing and predictability of our revenue.
  
    
    our end users budgetary constraints;
    
    the timing of our end users budget cycles and approval processes;
    
    our channel partners and end users credit risks;
    
    our end users willingness to replace their current storage solutions;
    
    our or our channel partners need to educate end users about the uses and benefits of our
products and services; and
    
    the timing of the expiration of our end users current license agreements or outsourcing
agreements for similar services.
 If we fail to attract or retain engineering or sales and marketing personnel or if we lose the
services of our founders or key management, our ability to grow our business and our competitive
position would be impaired.
   30




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##### Table of Contents



We expect to face numerous challenges as we attempt to grow our operations, and our channel partner
and end user base internationally.
   
    
    difficulties of managing and staffing international offices, and the increased travel,
infrastructure and legal compliance costs associated with international locations;
    
    greater difficulty in collecting accounts receivable and longer collection periods;
    
    difficulty in contract enforcement; regulatory, political or economic conditions in a
specific country or region;
    
    compliance with local laws and regulations and unanticipated changes in local laws and
regulations, including tax laws and regulations;
    
    export and import controls; trade protection measures and other regulatory requirements;
    
    effects of changes in currency exchange rates;
    
    potentially adverse tax consequences; service provider and government spending patterns;
    
    reduced protection of our intellectual property and other assets in some countries;
    
    greater difficulty documenting and testing our internal controls;
    
    differing employment practices and labor issues; and
    
    man-made problems such as computer viruses and acts of terrorism and international
conflicts.
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##### Table of Contents



If we fail to protect our intellectual property rights adequately, our ability to compete
effectively or to defend ourselves from litigation could be impaired which could reduce our revenue
and increase our costs.
   Assertions by third parties of infringement by us of their intellectual property rights could
result in a significant diversion of managements time and increased expenses.
  
    
    stop selling products or using technology that contains the allegedly infringing
intellectual property;
    
    lose the opportunity to license our technology to others or to collect royalty payments
based upon successful protection and assertion of our intellectual property against others;
    
    incur significant legal expenses;
    
    pay substantial damages to the party whose intellectual property rights we may be found
to be infringing;
    
    redesign those products that contain the allegedly infringing intellectual property; or
    
    attempt to obtain a license to the relevant intellectual property from third parties,
which may not be available on reasonable terms or at all.
 32




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##### Table of Contents



Any significant impairment of our intellectual property rights from any litigation we face could
damage our reputation, impair our ability to compete and increase our expenses.
  If we fail to comply with the terms of our open source software license agreement, we could be
required to release portions of our software codes, which could impair our ability to compete and
result in lower revenue.
  If our products do not interoperate with our end users networks, servers or software applications,
installations would be delayed or cancelled.
  We cannot predict our future capital needs and we may be unable to obtain additional financing to
fund our operations.
  33




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##### Table of Contents



We may engage in future acquisitions that could disrupt our business, cause dilution to our
stockholders, reduce our financial resources and result in increased expenses.
  We are subject to governmental export and import controls that could subject us to liability or
impair our ability to compete in international markets.
  We incur significant costs as a result of operating as a public company and our management devotes
substantial time to new compliance initiatives.
    34




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##### Table of Contents



If we fail to maintain effective internal control over financial reporting in the future, the
accuracy and timing of our financial reporting may be impaired.
    We expense stock options, which will reduce our net income or increase our net losses in future
periods.
 Share-Based Payment Accounting for Stock Issued to Employees.
 Risks Related to the Ownership of Our Common Stock
 Our stock price is volatile and purchasers of our common stock could incur substantial losses.
  
    
    quarterly variations in our results of operations or those of our competitors;
 35




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##### Table of Contents




    
    fluctuations in the valuation of companies perceived by investors to be comparable to us;
    
    economic developments in the storage industry as a whole;
    
    general economic conditions and slow or negative growth of related markets;
    
    changes in financial estimates including our ability to meet our future revenue and
operating profit or loss projections;
    
    changes in earnings estimates or recommendations by securities analysts;
    
    announcements by us or our competitors of acquisitions, new products, significant
contracts, commercial relationships or capital commitments;
    
    our ability to develop and market new and enhanced products on a timely basis;
    
    commencement of, or our involvement in, litigation;
    
    disruption to our operations;
    
    any major change in our board of directors or management; and
    
    changes in governmental regulations.
  If securities analysts or industry analysts downgrade our stock, publish negative research or
reports, or do not publish reports about our business, our stock price and trading volume could
decline.
  A limited number of stockholders will have the ability to influence the outcome of director
elections and other matters requiring stockholder approval.
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##### Table of Contents



The price of our stock could decrease as a result of shares of common stock being sold in the
market.
    Delaware law and our amended and restated certificate of incorporation and bylaws contain
provisions that could delay or discourage takeover attempts that stockholders may consider
favorable and result in a lower market price for our common stock.
  
    
    the division of our board of directors into three classes;
    
    the right of the board of directors to elect a director to fill a vacancy created by the
expansion of the board of directors or due to the resignation or departure of an existing
board member;
    
    the prohibition of cumulative voting in the election of directors, which would otherwise
allow less than a majority of stockholders to elect director candidates;
    
    the requirement for the advance notice of nominations for election to the board of
directors or for proposing matters that can be acted upon at a stockholders meeting;
    
    the ability of our board of directors to alter our bylaws without obtaining stockholder
approval;
    
    the ability of the board of directors to issue, without stockholder approval, up to
10,000,000 shares of preferred stock with terms set by the board of directors, which rights
could be senior to those of our common stock;
    
    the elimination of the rights of stockholders to call a special meeting of stockholders
and to take action by written consent in lieu of a meeting;
    
    the required approval of at least 66 2/3% of the shares entitled to vote at an election
of directors to adopt, amend or repeal our bylaws or repeal the provisions of our amended
and restated certificate of incorporation regarding the election and removal of directors
and the inability of stockholders to take action by written consent in lieu of a meeting;
and
    
    the required approval of at least a majority of the shares entitled to vote at an
election of directors to remove directors without cause.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 Unregistered Sales of Equity Securities
  Use of Proceeds from the Sale of Registered Securities
   
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
   For
    
    WithheldPhilip E. Soran
    
    
    20,930,172
    
    
    
    41,566Sven A. Wehrwein
    
    
    20,906,337
    
    
    
    65,401
   For
    
    Against
    
    Abstain
    
    Broker Non-votes20,940,448
    
    
    31,290
    
    
    
    
    
    
    
    
 
 Item 5. Other Information.
  38




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##### Table of Contents



Item 6. Exhibits.
 ExhibitNumber
    
    Description of Document3.1(1)
    
    Amended and Restated Certificate of Incorporation of Compellent Technologies, Inc.3.2(2)
    
    Amended and Restated Bylaws of Compellent Technologies, Inc.4.1
    
    Reference is made to Exhibits 3.1 and 3.2.4.2(3)
    
    Specimen Common Stock Certificate.10.09(4)
    
    Employment Agreement, by and between Compellent Technologies, Inc. and Philip E. Soran, dated June 16, 2008.10.10(4)
    
    Employment Agreement, by and between Compellent Technologies, Inc. and John P. Guider, dated June 16, 2008.10.11(4)
    
    Employment Agreement, by and between Compellent Technologies, Inc. and Lawrence E. Aszmann, dated June 16,
2008.10.13(4)
    
    Employment Agreement, by and between Compellent Technologies, Inc. and John R. Judd, dated June 16, 2008.10.20
    
    Employment Agreement, by and between Compellent Technologies, Inc. and Brian P. Bell, dated June 16, 2008.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934,
as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934,
as amended.32.1*
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the
Securities Exchange Act of 1934, as amended.
 
 (1)
    
    Filed as Exhibit 3.1 to our Current Report on Form 8-K (No. 001-33685), dated October 15,
2007, and filed with the SEC on October 16, 2007, and incorporated herein by reference.(2)
    
    Filed as Exhibit 3.4 to our Registration Statement on Form S-1 (No. 333-144255) filed with
the SEC on July 2, 2007, as amended, and incorporated herein by reference.(3)
    
    Filed as Exhibit 4.2 to our Registration Statement on Form S-1 (No. 333-144255) filed with
the SEC on July 2, 2007, as amended, and incorporated herein by reference.(4)
    
    Filed as a similarly described exhibit to our Current Report on Form 8-K (No. 001-33685),
filed with the SEC on June 18, 2008, and incorporated herein by reference.*
    
    The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form
10-Q, is not deemed filed with the SEC and is not to be incorporated by reference into any
filing of Compellent Technologies, Inc. under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after the date of this
Form 10-Q, irrespective of any general incorporation language contained in such filing. 39




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##### Table of Contents



SIGNATURES
   Compellent Technologies, Inc./s/ John R. JuddJohn R. JuddChief Financial Officer 40




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Document3.1(1)
    
    Amended and Restated Certificate of Incorporation of Compellent Technologies, Inc.3.2(2)
    
    Amended and Restated Bylaws of Compellent Technologies, Inc.4.1
    
    Reference is made to Exhibits 3.1 and 3.2.4.2(3)
    
    Specimen Common Stock Certificate.10.09(4)
    
    Employment Agreement, by and between Compellent Technologies, Inc. and Philip E. Soran, dated June 16, 2008.10.10(4)
    
    Employment Agreement, by and between Compellent Technologies, Inc. and John P. Guider, dated June 16, 2008.10.11(4)
    
    Employment Agreement, by and between Compellent Technologies, Inc. and Lawrence E. Aszmann, dated June 16,
2008.10.13(4)
    
    Employment Agreement, by and between Compellent Technologies, Inc. and John R. Judd, dated June 16, 2008.10.20
    
    Employment Agreement, by and between Compellent Technologies, Inc. and Brian P. Bell, dated June 16, 2008.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934,
as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934,
as amended.32.1*
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the
Securities Exchange Act of 1934, as amended.
 
 (1)
    
    Filed as Exhibit 3.1 to our Current Report on Form 8-K (No. 001-33685), dated October 15,
2007, and filed with the SEC on October 16, 2007, and incorporated herein by reference.(2)
    
    Filed as Exhibit 3.4 to our Registration Statement on Form S-1 (No. 333-144255) filed with
the SEC on July 2, 2007, as amended, and incorporated herein by reference.(3)
    
    Filed as Exhibit 4.2 to our Registration Statement on Form S-1 (No. 333-144255) filed with
the SEC on July 2, 2007, as amended, and incorporated herein by reference.(4)
    
    Filed as a similarly described exhibit to our Current Report on Form 8-K (No. 001-33685),
filed with the SEC on June 18, 2008,and incorporated herein by reference.*
    
    The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form
10-Q, is not deemed filed with the SEC and is not to be incorporated by reference into any
filing of Compellent Technologies, Inc. under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after the date of this
Form 10-Q, irrespective of any general incorporation language contained in such filing. 41