##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2010
 OR
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number 001-33685
 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
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



COMPELLENT TECHNOLOGIES, INC.
 FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2010
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    1Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009
    
    
    1Condensed Consolidated Statements of Operations for the Three and Nine months ended September 30, 2010 and 2009
    
    
    2Condensed Consolidated Statements of Cash Flows for the Nine months ended September 30, 2010 and 2009
    
    
    3Notes to the Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    19PART II - OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities
    
    
    32Item 4. (Removed and Reserved)
    
    
    32Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    33Signatures
    
    
    34EX-31.1EX-31.2EX-32.1




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 COMPELLENT TECHNOLOGIES, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 September 30,
    
    
    December 31,2010
    
    
    2009(unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    26,070
    
    
    $
    29,155Short-term investments
    
    
    33,815
    
    
    
    35,218Accounts receivable, net
    
    
    38,257
    
    
    
    36,702Inventories, net
    
    
    9,151
    
    
    
    4,750Other current assets
    
    
    4,742
    
    
    
    3,497Total current assets
    
    
    112,035
    
    
    
    109,322Long-term investments
    
    
    78,912
    
    
    
    59,472Property and equipment, net
    
    
    8,838
    
    
    
    5,153Total assets
    
    $
    199,785
    
    
    $
    173,947Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    9,957
    
    
    $
    8,968Accrued liabilities
    
    
    2,200
    
    
    
    1,261Accrued compensation
    
    
    7,666
    
    
    
    5,489Deferred revenues, current
    
    
    32,910
    
    
    
    25,668Total current liabilities
    
    
    52,733
    
    
    
    41,386Deferred revenues, non-current
    
    
    18,325
    
    
    
    12,529Commitments and contingencies
    
    
    
    
    
    
    Stockholders equityCommon stock, $0.001 par value, 300,000,000 shares authorized;
31,839,999 and 31,674,940 shares issued and outstanding as
of September 30, 2010 and December 31, 2009
    
    
    32
    
    
    
    32Additional paid in capital
    
    
    170,772
    
    
    
    164,885Accumulated deficit
    
    
    (42,702
    )
    
    
    (45,062
    )Accumulated other comprehensive income
    
    
    625
    
    
    
    177Total stockholders equity
    
    
    128,727
    
    
    
    120,032Total liabilities and stockholders equity
    
    $
    199,785
    
    
    $
    173,947
  1




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COMPELLENT TECHNOLOGIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009RevenuesProduct
    
    $
    28,866
    
    
    $
    22,987
    
    
    $
    74,323
    
    
    $
    64,564Support and services
    
    
    13,199
    
    
    
    9,225
    
    
    
    36,063
    
    
    
    24,437Total revenues
    
    
    42,065
    
    
    
    32,212
    
    
    
    110,386
    
    
    
    89,001Cost of revenuesProduct
    
    
    14,409
    
    
    
    10,957
    
    
    
    38,026
    
    
    
    32,089Support and services
    
    
    4,141
    
    
    
    2,825
    
    
    
    11,818
    
    
    
    8,232Total cost of revenues
    
    
    18,550
    
    
    
    13,782
    
    
    
    49,844
    
    
    
    40,321Gross profit
    
    
    23,515
    
    
    
    18,430
    
    
    
    60,542
    
    
    
    48,680Operating expensesSales and marketing
    
    
    13,228
    
    
    
    11,386
    
    
    
    38,594
    
    
    
    32,052Research and development
    
    
    5,075
    
    
    
    3,276
    
    
    
    13,912
    
    
    
    9,160General and administrative
    
    
    2,165
    
    
    
    1,680
    
    
    
    6,387
    
    
    
    4,630Total operating
expenses
    
    
    20,468
    
    
    
    16,342
    
    
    
    58,893
    
    
    
    45,842Operating income
    
    
    3,047
    
    
    
    2,088
    
    
    
    1,649
    
    
    
    2,838Other income, net
    
    
    423
    
    
    
    465
    
    
    
    1,139
    
    
    
    1,380Income before income taxes
    
    
    3,470
    
    
    
    2,553
    
    
    
    2,788
    
    
    
    4,218Income tax expense
    
    
    158
    
    
    
    294
    
    
    
    428
    
    
    
    699Net income
    
    $
    3,312
    
    
    $
    2,259
    
    
    $
    2,360
    
    
    $
    3,519Net income per weighted
average share, basic
    
    $
    0.10
    
    
    $
    0.07
    
    
    $
    0.07
    
    
    $
    0.11Net income per weighted
average share, diluted
    
    $
    0.10
    
    
    $
    0.07
    
    
    $
    0.07
    
    
    $
    0.11Weighted average shares,
basic
    
    
    31,827
    
    
    
    30,818
    
    
    
    31,770
    
    
    
    30,732Weighted average shares,
diluted
    
    
    32,818
    
    
    
    31,944
    
    
    
    32,803
    
    
    
    31,682
  2




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COMPELLENT TECHNOLOGIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 For the Nine Months EndedSeptember 30,2010
    
    
    2009Operating activitiesNet income
    
    $
    2,360
    
    
    $
    3,519Adjustments to reconcile net income to net cash provided by
operating activitiesDepreciation and amortization
    
    
    2,640
    
    
    
    1,700Stock-based compensation expense
    
    
    4,570
    
    
    
    3,033Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (1,555
    )
    
    
    (11,497
    )Inventories, net
    
    
    (4,401
    )
    
    
    (591
    )Other current assets
    
    
    (1,245
    )
    
    
    (1,496
    )Accounts payable
    
    
    989
    
    
    
    4,236Accrued liabilities
    
    
    946
    
    
    
    (55
    )Accrued compensation
    
    
    2,177
    
    
    
    518Deferred revenues
    
    
    13,038
    
    
    
    11,158Net cash provided by operating activities
    
    
    19,519
    
    
    
    10,525Investing activitiesPurchases of property and equipment
    
    
    (6,325
    )
    
    
    (2,902
    )Purchases of investments
    
    
    (96,371
    )
    
    
    (81,614
    )Proceeds from sales of investments
    
    
    61,893
    
    
    
    39,807Proceeds from maturities of investments
    
    
    16,911
    
    
    
    13,536Net cash used in investing activities
    
    
    (23,892
    )
    
    
    (31,173
    )Financing activitiesProceeds from issuance of common stock
    
    
    1,288
    
    
    
    951Net decrease in cash and cash equivalents
    
    
    (3,085
    )
    
    
    (19,697
    )Cash and cash equivalents, beginning of period
    
    
    29,155
    
    
    
    51,989Cash and cash equivalents, end of period
    
    $
    26,070
    
    
    $
    32,292Supplemental cash flow disclosure:Cash paid for income taxes
    
    $
    341
    
    
    $
    567Supplemental non-cash disclosure:Vesting of restricted common stock
    
    $
    29
    
    
    $
    87
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COMPELLENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. Nature of Business, Basis of Presentation and Recent Accounting Pronouncements
 Nature of Business
  Basis of Presentation
    Recent Accounting Pronouncements
    4




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2. Fair Value Measurements and Investments
 Fair Value Measurements
   Fair Value Measurements UsingSeptember 30,
    
    
    
    
    
    
    (in thousands)Description
    
    2010
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Cash (1)
    
    $
    3,870
    
    
    $
    3,870
    
    
    $
    
    
    
    $
    Corporate debt securities (2)
    
    
    59,725
    
    
    
    
    
    
    
    59,725
    
    
    
    U.S. agency securities (3)
    
    
    31,744
    
    
    
    
    
    
    
    31,744
    
    
    
    Municipal bonds (2)
    
    
    7,582
    
    
    
    
    
    
    
    7,582
    
    
    
    Commercial paper (4)
    
    
    16,985
    
    
    
    
    
    
    
    16,985
    
    
    
    Certificates of deposit (2)
    
    
    1,691
    
    
    
    
    
    
    
    1,691
    
    
    
    Money market funds (1)
    
    
    17,200
    
    
    
    17,200
    
    
    
    
    
    
    
    Total
    
    $
    138,797
    
    
    $
    21,070
    
    
    $
    117,727
    
    
    $
    
 5




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Fair Value Measurements UsingDecember 31,
    
    
    
    
    
    
    (in thousands)Description
    
    2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Cash (1)
    
    $
    1,276
    
    
    $
    1,276
    
    
    $
    
    
    
    $
    Corporate debt securities (2)
    
    
    50,172
    
    
    
    50,172
    
    
    
    
    
    
    
    U.S. agency securities (2)
    
    
    27,394
    
    
    
    
    
    
    
    27,394
    
    
    
    Municipal bonds (2)
    
    
    5,925
    
    
    
    
    
    
    
    5,925
    
    
    
    Commercial paper (5)
    
    
    2,998
    
    
    
    
    
    
    
    2,998
    
    
    
    Certificates of deposit (5)
    
    
    1,396
    
    
    
    
    
    
    
    1,396
    
    
    
    Variable rate demand notes (5)
    
    
    6,806
    
    
    
    
    
    
    
    6,806
    
    
    
    Money market funds (1)
    
    
    27,878
    
    
    
    27,878
    
    
    
    
    
    
    
    Total
    
    $
    123,845
    
    
    $
    79,326
    
    
    $
    44,519
    
    
    $
    
 
 (1)
    
    Included in cash and cash equivalents on the consolidated balance sheets.(2)
    
    Included in short-term and long-term investments on the consolidated balance sheets.(3)
    
    Included in long-term investments on the consolidated balance sheets.(4)
    
    Included in cash and cash equivalents and short-term investments on the consolidated balance
sheets.(5)
    
    Included in short-term investments on the consolidated balance sheets.  Investments
  Gross UnrealizedAt September 30, 2010
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCorporate debt securities
    
    $
    59,097
    
    
    $
    635
    
    
    $
    (7
    )
    
    $
    59,725U.S. agency securities
    
    
    31,694
    
    
    
    50
    
    
    
    
    
    
    
    31,744Municipal bonds
    
    
    7,584
    
    
    
    12
    
    
    
    (14
    )
    
    
    7,582Commercial paper
    
    
    16,985
    
    
    
    
    
    
    
    
    
    
    
    16,985Certificates of deposit
    
    
    1,691
    
    
    
    
    
    
    
    
    
    
    
    1,691Money market funds
    
    
    17,200
    
    
    
    
    
    
    
    
    
    
    
    17,200Total
    
    $
    134,251
    
    
    $
    697
    
    
    $
    (21
    )
    
    $
    134,927
 Gross UnrealizedAt December 31, 2009
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCorporate debt securities
    
    $
    49,972
    
    
    $
    323
    
    
    $
    (123
    )
    
    $
    50,172U.S. agency securities
    
    
    27,399
    
    
    
    34
    
    
    
    (39
    )
    
    
    27,394Municipal bonds
    
    
    5,915
    
    
    
    13
    
    
    
    (3
    )
    
    
    5,925Commercial paper
    
    
    2,998
    
    
    
    
    
    
    
    
    
    
    
    2,998Certificates of deposit
    
    
    1,396
    
    
    
    
    
    
    
    
    
    
    
    1,396Variable rate demand notes
    
    
    6,806
    
    
    
    
    
    
    
    
    
    
    
    6,806Money market funds
    
    
    27,878
    
    
    
    
    
    
    
    
    
    
    
    27,878Total
    
    $
    122,364
    
    
    $
    370
    
    
    $
    (165
    )
    
    $
    122,569
  6




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Cost
    
    
    Fair ValueDue in one year or less
    
    $
    55,987
    
    
    $
    56,015Due between one year to five years
    
    
    78,264
    
    
    
    78,912Total
    
    $
    134,251
    
    
    $
    134,927
   3. Inventories
  September 30,
    
    
    December 31,2010
    
    
    2009Component materials
    
    $
    4,668
    
    
    $
    2,045Finished systems
    
    
    4,483
    
    
    
    2,705Total
    
    $
    9,151
    
    
    $
    4,750
 4. Property and Equipment
  September 30,
    
    
    December 31,2010
    
    
    2009Computer equipment
    
    $
    13,720
    
    
    $
    8,855Computer software
    
    
    981
    
    
    
    951Office furniture and fixtures
    
    
    1,422
    
    
    
    1,200Leasehold improvements
    
    
    2,402
    
    
    
    1,21718,525
    
    
    
    12,223Accumulated depreciation and amortization
    
    
    (9,687
    )
    
    
    (7,070
    )Total
    
    $
    8,838
    
    
    $
    5,153
 5. Comprehensive Income
  7




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For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income
    
    $
    3,312
    
    
    $
    2,259
    
    
    $
    2,360
    
    
    $
    3,519Net changes in other comprehensive income:Cumulative translation adjustment
    
    
    (4
    )
    
    
    
    
    
    
    (22
    )
    
    
    (12
    )Unrealized gain on investments, net
    
    
    173
    
    
    
    78
    
    
    
    470
    
    
    
    174Total comprehensive income
    
    $
    3,481
    
    
    $
    2,337
    
    
    $
    2,808
    
    
    $
    3,681
 6. Stock-Based Compensation
 Option Activity
  Weighted
    
    
    WeightedAverage
    
    
    AverageExercise
    
    
    RemainingNumber of
    
    
    Price per
    
    
    ContractualShares
    
    
    Share
    
    
    LifeOptions outstanding at December 31, 2009
    
    
    3,374,061
    
    
    $
    9.19
    
    
    
    6.00Granted
    
    
    973,789
    
    
    
    15.69
    
    
    
    Exercised
    
    
    (95,943
    )
    
    
    5.50
    
    
    
    Cancelled
    
    
    (89,811
    )
    
    
    13.15
    
    
    
    Options outstanding at September 30, 2010
    
    
    4,162,096
    
    
    $
    10.71
    
    
    
    5.51Options exercisable at September 30, 2010
    
    
    2,076,109
    
    
    $
    7.79
    
    
    
    5.28
 Stock-Based Compensation Expense
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Cost of product
    
    $
    19
    
    
    $
    10
    
    
    $
    52
    
    
    $
    36Cost of support and services
    
    
    49
    
    
    
    18
    
    
    
    138
    
    
    
    156Sales and marketing
    
    
    699
    
    
    
    405
    
    
    
    2,071
    
    
    
    1,298Research and development
    
    
    353
    
    
    
    139
    
    
    
    956
    
    
    
    552General and administrative
    
    
    488
    
    
    
    386
    
    
    
    1,353
    
    
    
    991Total stock-based compensation expense
    
    $
    1,608
    
    
    $
    958
    
    
    $
    4,570
    
    
    $
    3,033
  7. Net Income Per Share
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Basic weighted-average shares outstanding
    
    
    31,827
    
    
    
    30,818
    
    
    
    31,770
    
    
    
    30,732Dilutive effect of stock options and unvested restricted common stock
    
    
    991
    
    
    
    1,126
    
    
    
    1,033
    
    
    
    950Diluted weighted-average shares outstanding
    
    
    32,818
    
    
    
    31,944
    
    
    
    32,803
    
    
    
    31,682Net income
    
    $
    3,312
    
    
    $
    2,259
    
    
    $
    2,360
    
    
    $
    3,519Net income per weighted average share, basic and diluted
    
    $
    0.10
    
    
    $
    0.07
    
    
    $
    0.07
    
    
    $
    0.11
 8




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8. Income Taxes
    Balance at December 31, 2009
    
    $
    430Increase related to current year tax positions
    
    
    18Balance at September 30, 2010
    
    $
    448
  9. Commitments and Contingencies
 Indemnification Obligations
  9




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Legal Proceedings
   10. Segment and Geographic Information
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009RevenuesUnited States
    
    $
    36,169
    
    
    $
    27,166
    
    
    $
    93,882
    
    
    $
    73,810International
    
    
    5,896
    
    
    
    5,046
    
    
    
    16,504
    
    
    
    15,191Total
    
    $
    42,065
    
    
    $
    32,212
    
    
    $
    110,386
    
    
    $
    89,001
  11. Subsequent Events
  10




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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 net income, revenues, gross margin, expenses and earnings
per share;
    
    our expectations regarding unfavorable economic and market conditions, including
lessening demand in the information technology market;
    
    our ability to compete in our industry;
    
    our ability to maintain and grow our channel partner relationships;
    
    our growth strategy and our growth rate;
    
    our ability to protect our intellectual property rights;
    
    pricing and availability of our suppliers products; and
    
    assumptions underlying or related to any of the foregoing.
 In some cases, you can identify forward-looking statements by terms such as anticipate,
believe, can, continue, could, expect, intend, may, plan, potential, 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 condensed consolidated
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, 2009, filed with the SEC on March 5, 2010.
 Overview
  11




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Critical Accounting Policies and Estimates
   Results of Operations
  Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Change
    
    
    September 30,
    
    
    Change2010
    
    
    2009
    
    
    $
    
    
    %
    
    
    2010
    
    
    2009
    
    
    $
    
    
    %RevenuesProduct
    
    $
    28,866
    
    
    $
    22,987
    
    
    $
    5,879
    
    
    
    25.6
    %
    
    $
    74,323
    
    
    $
    64,564
    
    
    $
    9,759
    
    
    
    15.1
    %Support and services
    
    
    13,199
    
    
    
    9,225
    
    
    
    3,974
    
    
    
    43.1
    
    
    
    36,063
    
    
    
    24,437
    
    
    
    11,626
    
    
    
    47.6Total revenues
    
    
    42,065
    
    
    
    32,212
    
    
    
    9,853
    
    
    
    30.6
    
    
    
    110,386
    
    
    
    89,001
    
    
    
    21,385
    
    
    
    24.0Cost of revenuesProduct
    
    
    14,409
    
    
    
    10,957
    
    
    
    3,452
    
    
    
    31.5
    
    
    
    38,026
    
    
    
    32,089
    
    
    
    5,937
    
    
    
    18.5Support and services
    
    
    4,141
    
    
    
    2,825
    
    
    
    1,316
    
    
    
    46.6
    
    
    
    11,818
    
    
    
    8,232
    
    
    
    3,586
    
    
    
    43.6Total cost of revenues
    
    
    18,550
    
    
    
    13,782
    
    
    
    4,768
    
    
    
    34.6
    
    
    
    49,844
    
    
    
    40,321
    
    
    
    9,523
    
    
    
    23.6Gross profit
    
    
    23,515
    
    
    
    18,430
    
    
    
    5,085
    
    
    
    27.6
    
    
    
    60,542
    
    
    
    48,680
    
    
    
    11,862
    
    
    
    24.4Operating expensesSales and marketing
    
    
    13,228
    
    
    
    11,386
    
    
    
    1,842
    
    
    
    16.2
    
    
    
    38,594
    
    
    
    32,052
    
    
    
    6,542
    
    
    
    20.4Research and development
    
    
    5,075
    
    
    
    3,276
    
    
    
    1,799
    
    
    
    54.9
    
    
    
    13,912
    
    
    
    9,160
    
    
    
    4,752
    
    
    
    51.9General and administrative
    
    
    2,165
    
    
    
    1,680
    
    
    
    485
    
    
    
    28.9
    
    
    
    6,387
    
    
    
    4,630
    
    
    
    1,757
    
    
    
    37.9Total operating expenses
    
    
    20,468
    
    
    
    16,342
    
    
    
    4,126
    
    
    
    25.2
    
    
    
    58,893
    
    
    
    45,842
    
    
    
    13,051
    
    
    
    28.5Operating income
    
    
    3,047
    
    
    
    2,088
    
    
    
    959
    
    
    
    45.9
    
    
    
    1,649
    
    
    
    2,838
    
    
    
    (1,189
    )
    
    
    (41.9
    )Other income, net
    
    
    423
    
    
    
    465
    
    
    
    (42
    )
    
    
    (9.0
    )
    
    
    1,139
    
    
    
    1,380
    
    
    
    (241
    )
    
    
    (17.5
    )Income before income taxes
    
    
    3,470
    
    
    
    2,553
    
    
    
    917
    
    
    
    35.9
    
    
    
    2,788
    
    
    
    4,218
    
    
    
    (1430
    )
    
    
    (33.9
    )Income tax expense
    
    
    158
    
    
    
    294
    
    
    
    (136
    )
    
    
    (46.3
    )
    
    
    428
    
    
    
    699
    
    
    
    (271
    )
    
    
    (38.8
    )Net income
    
    $
    3,312
    
    
    $
    2,259
    
    
    $
    1,053
    
    
    
    46.6
    %
    
    $
    2,360
    
    
    $
    3,519
    
    
    $
    (1,159
    )
    
    
    (32.9
    )%
 12




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##### Table of Contents



Comparison of Three Months Ended September 30, 2010 and 2009
 Revenues
  Three Months Ended September 30,2010
    
    
    2009%
    
    
    
    
    
    
    %of Total
    
    
    
    
    
    
    of Total
    
    
    Change$
    
    
    Revenues
    
    
    $
    
    
    Revenues
    
    
    $
    
    
    %RevenuesProduct
    
    $
    28,866
    
    
    
    68.6
    %
    
    $
    22,987
    
    
    
    71.4
    %
    
    $
    5,879
    
    
    
    25.6
    %Support and services
    
    
    13,199
    
    
    
    31.4
    
    
    
    9,225
    
    
    
    28.6
    
    
    
    3,974
    
    
    
    43.1Total revenues
    
    $
    42,065
    
    
    
    100.0
    %
    
    $
    32,212
    
    
    
    100.0
    %
    
    $
    9,853
    
    
    
    30.6
    %
 Product Revenue.
 Support and Services Revenues.
 Cost of Revenues and Gross Profit
  Three Months Ended September 30,2010
    
    
    2009%
    
    
    
    
    
    
    %of Related
    
    
    
    
    
    
    of Related
    
    
    Change$
    
    
    Revenues
    
    
    $
    
    
    Revenues
    
    
    $
    
    
    %Cost of revenuesProduct
    
    $
    14,409
    
    
    
    49.9
    %
    
    $
    10,957
    
    
    
    47.7
    %
    
    $
    3,452
    
    
    
    31.5
    %Support and services
    
    
    4,141
    
    
    
    31.4
    
    
    
    2,825
    
    
    
    30.6
    
    
    
    1,316
    
    
    
    46.6Total cost of revenues
    
    $
    18,550
    
    
    
    44.1
    %
    
    $
    13,782
    
    
    
    42.8
    %
    
    $
    4,768
    
    
    
    34.6
    %Gross profit
    
    
    
    
    
    
    55.9
    %
    
    
    
    
    
    
    57.2
    %
 Cost of Product Revenue.
 Cost of Support and Services Revenues.
 Gross Profit.
 13




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##### Table of Contents



Operating Expenses
  Three Months Ended September 30,2010
    
    
    2009%
    
    
    
    
    
    
    %of Total
    
    
    
    
    
    
    of Total
    
    
    Change$
    
    
    Revenues
    
    
    $
    
    
    Revenues
    
    
    $
    
    
    %Operating expensesSales and marketing
    
    $
    13,228
    
    
    
    31.4
    %
    
    $
    11,386
    
    
    
    35.3
    %
    
    $
    1,842
    
    
    
    16.2
    %Research and development
    
    
    5,075
    
    
    
    12.1
    
    
    
    3,276
    
    
    
    10.2
    
    
    
    1,799
    
    
    
    54.9General and administrative
    
    
    2,165
    
    
    
    5.1
    
    
    
    1,680
    
    
    
    5.2
    
    
    
    485
    
    
    
    28.9Total operating expenses
    
    $
    20,468
    
    
    
    48.7
    %
    
    $
    16,342
    
    
    
    50.7
    %
    
    $
    4,126
    
    
    
    25.2
    %
 Sales and Marketing Expenses.
 Research and Development Expenses.
 General and Administrative Expenses.
 Other Income, Net
 Other Income, Net.
 Income Tax Expense
 Income Tax Expense.
 Comparison of Nine Months Ended September 30, 2010 and 2009
 Revenues
  Nine Months Ended September 30,2010
    
    
    2009%
    
    
    
    
    
    
    %of Total
    
    
    
    
    
    
    of Total
    
    
    Change$
    
    
    Revenues
    
    
    $
    
    
    Revenues
    
    
    $
    
    
    %RevenuesProduct
    
    $
    74,323
    
    
    
    67.3
    %
    
    $
    64,564
    
    
    
    72.5
    %
    
    $
    9,759
    
    
    
    15.1
    %Support and services
    
    
    36,063
    
    
    
    32.7
    
    
    
    24,437
    
    
    
    27.5
    
    
    
    11,626
    
    
    
    47.6Total revenues
    
    $
    110,386
    
    
    
    100.0
    %
    
    $
    89,001
    
    
    
    100.0
    %
    
    $
    21,385
    
    
    
    24.0
    %
 14




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##### Table of Contents



Product Revenue.
 Support and Services Revenues.
 Cost of Revenues and Gross Margin
  Nine Months Ended September 30,2010
    
    
    2009%
    
    
    
    
    
    
    %of Related
    
    
    
    
    
    
    of Related
    
    
    Change$
    
    
    Revenues
    
    
    $
    
    
    Revenues
    
    
    $
    
    
    %Cost of revenuesProduct
    
    $
    38,026
    
    
    
    51.2
    %
    
    $
    32,089
    
    
    
    49.7
    %
    
    $
    5,937
    
    
    
    18.5
    %Support and services
    
    
    11,818
    
    
    
    32.8
    
    
    
    8,232
    
    
    
    33.7
    
    
    
    3,586
    
    
    
    43.6Total cost of revenues
    
    $
    49,844
    
    
    
    45.2
    %
    
    $
    40,321
    
    
    
    45.3
    %
    
    $
    9,523
    
    
    
    23.6
    %Gross profit
    
    
    
    
    
    
    54.8
    %
    
    
    
    
    
    
    54.7
    %
 Cost of Product Revenue.
 Cost of Support and Services Revenues.
 Gross Profit.
 Operating Expenses
  Nine Months Ended September 30,2010
    
    
    2009%
    
    
    
    
    
    
    %of Total
    
    
    
    
    
    
    of Total
    
    
    Change$
    
    
    Revenues
    
    
    $
    
    
    Revenues
    
    
    $
    
    
    %Operating expensesSales and marketing
    
    $
    38,594
    
    
    
    35.0
    %
    
    $
    32,052
    
    
    
    36.0
    %
    
    $
    6,542
    
    
    
    20.4
    %Research and development
    
    
    13,912
    
    
    
    12.6
    
    
    
    9,160
    
    
    
    10.3
    
    
    
    4,752
    
    
    
    51.9General and administrative
    
    
    6,387
    
    
    
    5.8
    
    
    
    4,630
    
    
    
    5.2
    
    
    
    1,757
    
    
    
    37.9Total operating expenses
    
    $
    58,893
    
    
    
    53.4
    %
    
    $
    45,842
    
    
    
    51.5
    %
    
    $
    13,051
    
    
    
    28.5
    %
 Sales and Marketing Expenses.
 15




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##### Table of Contents



Research and Development Expenses.
 General and Administrative Expenses.
 Other Income, Net
 Other Income, Net.
 Income Tax Expense
 Income Tax Expense.
 Liquidity and Capital Resources
   16




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##### Table of Contents



Cash Flows
  Nine Months EndedSeptember 30,2010
    
    
    2009Net cash provided by operating activities
    
    $
    19,519
    
    
    $
    10,525Net cash used in investing activities
    
    
    (23,892
    )
    
    
    (31,173
    )Net cash provided by financing activities
    
    
    1,288
    
    
    
    951Net decrease in cash and cash equivalents
    
    $
    (3,085
    )
    
    $
    (19,697
    )
 Operating Activities
   Investing Activities
   Financing Activities
   17




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##### Table of Contents



Operating and Capital Expenditure Requirements
  Contractual Obligations
 Managements
Discussion and Analysis of Financial Condition and Results of Operations  Contractual
Obligations
 Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
    18




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Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  Inherent Limitations of Internal Controls
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   19




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##### Table of Contents



Item 1A. Risk Factors
 We have identified the following additional risks and uncertainties that may have a material
adverse effect on our business, financial condition or results of operations. Investors should
carefully consider the risks described below before making an investment decision. The risks
described below are not the only ones we face. Additional risks not presently known to us or that
we currently believe are immaterial may also significantly impair our business operations. Our
business could be harmed by any of these risks. The trading price of our common stock could decline
due to any of these risks, and investors may lose all or part of their investment.
 Risks Related to Our Business
 Our quarterly operating results may fluctuate significantly, which makes our future results difficult to predict.
   
    
    reductions in end users budgets for information technology purchases and delays in their
budgeting and purchasing cycles, given current macroeconomic conditions;
    
    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;
    
    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
 20




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##### Table of Contents




    
    general economic conditions in our domestic and international markets.
 We may not sustain profitability on a quarterly or an annual basis in the future.
  Unfavorable economic and market conditions and a lessening demand in the information technology
market could adversely affect our operating results.
  The markets in which we compete are highly competitive and dominated by large corporations and we
may not be able to compete effectively.
   
    
    our products 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.
 21




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##### Table of Contents



We are dependent on a single product, and the lack of continued market acceptance of Storage Center
would result in lower revenues.
  
    
    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;
    
    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.
  22




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##### Table of Contents




    
    lost revenues;
    
    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.
   
    
    increase our channel partners and end users;
    
    address new end user markets, such as larger enterprises and 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
 23




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##### Table of Contents




    
    implement and improve our administrative, financial and operational systems, procedures
and controls.
   Our gross profit 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 revenues;
    
    new product introductions and enhancements; and
    
    geographic sales mix.
  We receive a substantial portion of our revenues from a limited number of channel partners, and the
loss of or a significant reduction in orders from one or more of our major channel partners would
result in lower revenues.
   24




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##### Table of Contents



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.
   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.
  25




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##### Table of Contents



If we are unsuccessful in developing and selling new products, services and product enhancements,
our competitive position will be adversely affected and our ability to grow our revenues will be
impaired.
  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.
  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.
   26




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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.
  If we fail to protect our intellectual property rights adequately, our ability to compete
effectively or to defend ourselves from litigation could be impaired which could reduce our
revenues and increase our costs.
 27




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##### Table of Contents



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.
  28




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##### Table of Contents



If we fail to comply with the terms of our open source software license agreement, we could be
required to release portions of our software codes, which could impair our ability to compete and
result in lower revenues.
  We may need to raise additional funds in the future, which may not be available to us on terms
acceptable to us, or at all.
  We may engage in future acquisitions that could disrupt our business, cause dilution to our
stockholders, reduce our financial resources and result in increased expenses.
  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;
 29




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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 revenues and
operating profit or loss projections;
    
    changes in earnings estimates or recommendations by securities analysts;
    
    announcements by us or our competitors of acquisitions, new products, significant
contracts, commercial relationships or capital commitments;
    
    our ability to develop and market new and enhanced products on a timely basis;
    
    commencement of, or our involvement in, litigation;
    
    disruption to our operations;
    
    any major change in our board of directors or management; and
    
    changes in governmental regulations.
  We have been named a defendant in purported securities class action lawsuits. These, and potential
similar or related litigation, could result in substantial damages and may divert managements time
and attention from our business.
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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.
  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 required approval of at least a majority of the shares entitled to vote at an
election of directors to remove directors without cause.
  31




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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. (Removed and Reserved)
 
 Item 5. Other Information
  32




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##### Table of Contents



Item 6. Exhibits
 Exhibit
    
    
    
    Incorporated by Reference

    
    FiledNumber
    
    Exhibit Description
    
    Form
    
    Date
    
    Number
    
    Herewith3.1
    
    Amended and Restated Certificate of Incorporation of Compellent Technologies,
Inc.
    
    8-K
    
    10/16/07
    
    
    3.13.2
    
    Amended and Restated Bylaws of Compellent Technologies, Inc.
    
    S-1
    
    07/02/07
    
    
    3.44.1
    
    Reference is made to Exhibits 3.1 and 3.2.4.2
    
    Specimen Common Stock Certificate.
    
    S-1/A
    
    09/21/07
    
    
    4.231.1
    
    Certification of Chief Executive Officer of Compellent Technologies, Inc., as
required by Rule 13a-14(a) or Rule 15d-14(a).
    
    
    
    
    
    
    
    
    
    X31.2
    
    Certification of Chief Financial Officer of Compellent Technologies, Inc., as
required by Rule 13a-14(a) or Rule 15d-14(a).
    
    
    
    
    
    
    
    
    
    X32.1
    
    Certification by the Chief Executive Officer and Chief Financial Officer, as
required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 36 of
Title 18 of the United States Code (18 U.S.C. §1350).*
    
    
    
    
    
    
    
    
    
    X
 
 *
    
    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. 33




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##### Table of Contents



SIGNATURES
   Compellent Technologies, Inc./s/ John. R. JuddJohn R. JuddChief Financial Officer 34




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    
    
    Incorporated by Reference
    
    FiledNumber
    
    Exhibit Description
    
    Form
    
    Date
    
    Number
    
    Herewith3.1
    
    Amended and Restated Certificate of Incorporation of
Compellent Technologies, Inc.
    
    8-K
    
    10/16/07
    
    
    3.13.2
    
    Amended and Restated Bylaws of Compellent Technologies, Inc.
    
    S-1
    
    07/02/07
    
    
    3.44.1
    
    Reference is made to Exhibits 3.1 and 3.2.4.2
    
    Specimen Common Stock Certificate.
    
    S-1/A
    
    09/21/07
    
    
    4.231.1
    
    Certification of Chief Executive Officer of Compellent
Technologies, Inc., as required by Rule 13a-14(a) or Rule
15d-14(a).
    
    
    
    
    
    
    
    
    
    X31.2
    
    Certification of Chief Financial Officer of Compellent
Technologies, Inc., as required by Rule 13a-14(a) or Rule
15d-14(a).
    
    
    
    
    
    
    
    
    
    X32.1
    
    Certification by the Chief Executive Officer and Chief
Financial Officer, as required by Rule 13a-14(b) or Rule
15d-14(b) and Section 1350 of Chapter 36 of Title 18 of the
United States Code (18 U.S.C. §1350).*
    
    
    
    
    
    
    
    
    
    X
 
 *
    
    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. 35