##### 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 September 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 SEPTEMBER 30, 2008
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1.
    
    Consolidated Financial Statements
    
    
    3Consolidated Balance Sheets  As of September 30, 2008 and December 31, 2007
    
    
    3Consolidated Statements of Operations  Three and Nine Months Ended September 30, 2008 and 2007
    
    
    4Consolidated Statements of Cash Flows  Nine Months Ended September 30, 2008 and 2007
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4T.
    
    Controls and Procedures
    
    
    23PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    24Item 1A.
    
    Risk Factors
    
    
    24Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 3.
    
    Defaults Upon Senior Securities
    
    
    39Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    39Item 5.
    
    Other Information
    
    
    39Item 6.
    
    Exhibits
    
    
    40Signatures
    
    
    
    
    41EX-31.1EX-31.2EX-32.1
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PART I  FINANCIAL INFORMATION
 
 Item 1. Consolidated Financial Statements.
 COMPELLENT TECHNOLOGIES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)(in thousands, except share andper share amounts)AssetsCurrent assetsCash and cash equivalents
    
    $
    45,812
    
    
    $
    82,382Short-term investments
    
    
    31,872
    
    
    
    11,350Accounts receivable, net of allowance of $738 and
$408

as of September 30, 2008
and December 31, 2007
    
    
    21,386
    
    
    
    13,311Inventories
    
    
    3,898
    
    
    
    2,538Prepaid expenses and other current assets
    
    
    1,339
    
    
    
    1,046Total current assets
    
    
    104,307
    
    
    
    110,627Long-term investments
    
    
    17,304
    
    
    
    Property and equipment, net
    
    
    3,348
    
    
    
    2,749Total assets
    
    $
    124,959
    
    
    $
    113,376Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    5,487
    
    
    $
    3,216Accrued compensation and benefits
    
    
    4,373
    
    
    
    3,083Accrued liabilities
    
    
    2,041
    
    
    
    1,139Deferred revenue, current
    
    
    12,805
    
    
    
    7,934Total current liabilities
    
    
    24,706
    
    
    
    15,372Deferred revenue, non-current
    
    
    4,548
    
    
    
    2,588Commitments and contingenciesStockholders equityCommon stock, $0.001 par value, 300,000,000 shares
authorized; 

30,724,325 and 30,593,468
shares issued and
outstanding as
of September 30, 2008 and
December 31, 2007
    
    
    31
    
    
    
    31Additional paid in capital
    
    
    146,995
    
    
    
    144,824Accumulated deficit
    
    
    (51,194
    )
    
    
    (49,439
    )Accumulated other comprehensive loss
    
    
    (127
    )
    
    
    Total stockholders equity
    
    
    95,705
    
    
    
    95,416Total liabilities and
stockholders equity
    
    $
    124,959
    
    
    $
    113,376
  3




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COMPELLENT TECHNOLOGIES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(unaudited)(in thousands, except per share amounts)RevenueProduct
    
    $
    19,501
    
    
    $
    11,168
    
    
    $
    51,416
    
    
    $
    28,809Product support and services
    
    
    5,109
    
    
    
    2,236
    
    
    
    12,519
    
    
    
    5,534Total revenue
    
    
    24,610
    
    
    
    13,404
    
    
    
    63,935
    
    
    
    34,343Cost of revenueCost of product
    
    
    9,338
    
    
    
    5,551
    
    
    
    24,716
    
    
    
    14,549Cost of product support and services
    
    
    2,064
    
    
    
    1,163
    
    
    
    5,078
    
    
    
    3,232Total cost of revenue
    
    
    11,402
    
    
    
    6,714
    
    
    
    29,794
    
    
    
    17,781Gross profit
    
    
    13,208
    
    
    
    6,690
    
    
    
    34,141
    
    
    
    16,562Operating expensesSales and marketing
    
    
    9,041
    
    
    
    5,828
    
    
    
    25,823
    
    
    
    15,414Research and development
    
    
    2,452
    
    
    
    2,177
    
    
    
    7,111
    
    
    
    5,597General and administrative
    
    
    1,883
    
    
    
    767
    
    
    
    5,087
    
    
    
    2,055Total operating expenses
    
    
    13,376
    
    
    
    8,772
    
    
    
    38,021
    
    
    
    23,066Loss from operations
    
    
    (168
    )
    
    
    (2,082
    )
    
    
    (3,880
    )
    
    
    (6,504
    )Interest income
    
    
    632
    
    
    
    88
    
    
    
    2,125
    
    
    
    457Net income (loss)
    
    $
    464
    
    
    $
    (1,994
    )
    
    $
    (1,755
    )
    
    $
    (6,047
    )Net income (loss) per weighted average share, basic
    
    $
    0.02
    
    
    $
    (0.45
    )
    
    $
    (0.06
    )
    
    $
    (1.40
    )Weighted average shares, basic
    
    
    30,523
    
    
    
    4,413
    
    
    
    30,434
    
    
    
    4,304Net income (loss) per weighted average share, diluted
    
    $
    0.01
    
    
    $
    (0.45
    )
    
    $
    (0.06
    )
    
    $
    (1.40
    )Weighted average shares, diluted
    
    
    31,695
    
    
    
    4,413
    
    
    
    30,434
    
    
    
    4,304
  4




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COMPELLENT TECHNOLOGIES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Nine MonthsEnded September 30,2008
    
    
    2007(unaudited)(in thousands)Operating activitiesNet loss
    
    $
    (1,755
    )
    
    $
    (6,047
    )Adjustments to reconcile net loss to net cash provided by
(used in) operating activitiesDepreciation and amortization
    
    
    1,136
    
    
    
    862Stock-based compensation expense
    
    
    1,538
    
    
    
    385Issuance of common stock for services
provided
    
    
    
    
    
    
    32Changes in operating assets and
liabilitiesAccounts receivable
    
    
    (8,075
    )
    
    
    (4,266
    )Inventories
    
    
    (1,360
    )
    
    
    (797
    )Prepaid expenses
and other current
assets
    
    
    (293
    )
    
    
    (464
    )Accounts payable
    
    
    2,271
    
    
    
    975Accrued
compensation and
benefits and
accrued liabilities
    
    
    2,282
    
    
    
    483Deferred revenue
    
    
    6,831
    
    
    
    4,043Net cash provided by (used in) operating activities
    
    
    2,575
    
    
    
    (4,794
    )Investing activitiesPurchases of property and equipment
    
    
    (1,735
    )
    
    
    (2,002
    )Purchases of investments
    
    
    (73,884
    )
    
    
    Proceeds from sales and maturities of investments
    
    
    35,931
    
    
    
    258Net cash used in investing activities
    
    
    (39,688
    )
    
    
    (1,744
    )Financing activitiesProceeds from issuance of common stock
    
    
    543
    
    
    
    30Payments for repurchase of common stock
    
    
    
    
    
    
    (142
    )Net cash provided by (used in) financing activities
    
    
    543
    
    
    
    (112
    )Net decrease in cash and cash equivalents
    
    
    (36,570
    )
    
    
    (6,650
    )Cash and cash equivalents, beginning of period
    
    
    82,382
    
    
    
    15,106Cash and cash equivalents, end of period
    
    $
    45,812
    
    
    $
    8,456Supplemental non-cash disclosure:Issuance of common stock for services provided
    
    $
    
    
    
    $
    15Vesting of restricted common stock
    
    $
    90
    
    
    $
    116Unrealized loss on available-for-sale investments
    
    $
    (127
    )
    
    $
    Prepaid expenses related to the initial public offering
    
    $
    
    
    
    $
    1,393
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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
  September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)Component materials
    
    $
    596
    
    
    $
    489Finished systems
    
    
    3,302
    
    
    
    2,049$
    3,898
    
    
    $
    2,538
 8




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COMPELLENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 6. Property and Equipment
  September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)Computer equipment
    
    $
    630
    
    
    $
    541Office furniture and equipment
    
    
    5,257
    
    
    
    3,953Computer software
    
    
    599
    
    
    
    423Leasehold improvements
    
    
    1,065
    
    
    
    1,0387,551
    
    
    
    5,955Accumulated depreciation and amortization
    
    
    (4,203
    )
    
    
    (3,206
    )$
    3,348
    
    
    $
    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 (unaudited)
    
    
    1,171,461
    
    
    
    9.26Exercised (unaudited)
    
    
    (82,615
    )
    
    
    1.20Cancelled (unaudited)
    
    
    (10,934
    )
    
    
    5.35Balance outstanding at September 30, 2008 (unaudited)
    
    
    2,295,336
    
    
    $
    6.33Options exercisable at September 30, 2008 (unaudited)
    
    
    640,680
    
    
    $
    3.50
  Stock-Based Compensation Expense
 Share-Based Payment
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007(unaudited)Risk-free interest rate
    
    
    3.25
    %
    
    
    4.29
    %
    
    
    2.96
    %
    
    
    4.49
    %Expected life (years)
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5Expected volatility
    
    
    50.46
    %
    
    
    59.60
    %
    
    
    50.58
    %
    
    
    64.75
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  10




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COMPELLENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(unaudited)Cost of product
    
    $
    54
    
    
    $
    25
    
    
    $
    141
    
    
    $
    52Sales and marketing
    
    
    253
    
    
    
    88
    
    
    
    688
    
    
    
    290Research and development
    
    
    107
    
    
    
    41
    
    
    
    301
    
    
    
    96General and administrative
    
    
    134
    
    
    
    18
    
    
    
    408
    
    
    
    67Stock-based compensation expense before
income tax benefit
    
    
    548
    
    
    
    172
    
    
    
    1,538
    
    
    
    505Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total stock-based compensation expense, net
of tax benefit
    
    $
    548
    
    
    $
    172
    
    
    $
    1,538
    
    
    $
    505
   Stock Options Exercised for Unvested Restricted Common Stock
   Numberof SharesBalance outstanding at December 31, 2007
    
    
    272,144Stock options exercised for unvested restricted shares
    
    
    Vested
    
    
    (90,743
    )Balance outstanding at September 30, 2008 (unaudited)
    
    
    181,401
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COMPELLENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 9. Net Income (Loss) Per Common Share
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(unaudited)Net income (loss) attributable to common stockholders
    
    $
    464
    
    
    $
    (1,994
    )
    
    $
    (1,755
    )
    
    $
    (6,047
    )Weighted average common shares outstanding
    
    
    30,719
    
    
    
    4,739
    
    
    
    30,660
    
    
    
    4,644Weighted average unvested restricted common
stock
    
    
    (196
    )
    
    
    (326
    )
    
    
    (226
    )
    
    
    (340
    )Weighted average common shares used in
computing net income (loss) per share, basic
    
    
    30,523
    
    
    
    4,413
    
    
    
    30,434
    
    
    
    4,304Dilutive effect of stock options and unvested
restricted common stock
    
    
    1,172
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares used in
computing net loss per share, diluted
    
    
    31,695
    
    
    
    4,413
    
    
    
    30,434
    
    
    
    4,304Net income (loss) per common share, basic
    
    $
    0.02
    
    
    $
    (0.45
    )
    
    $
    (0.06
    )
    
    $
    (1.40
    )Net income (loss) per common share, diluted
    
    $
    0.01
    
    
    $
    (0.45
    )
    
    $
    (0.06
    )
    
    $
    (1.40
    )
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007(unaudited)Options to purchase common stock
    
    
    139
    
    
    
    1,168
    
    
    
    2,295
    
    
    
    1,168Unvested
restricted common stock
    
    
    
    
    
    
    308
    
    
    
    181
    
    
    
    308Convertible preferred stock (as converted)
    
    
    
    
    
    
    18,939
    
    
    
    
    
    
    
    18,939
 10. Income Taxes
  12




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COMPELLENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 11. Commitments and Contingencies
 Indemnification Obligations
   Legal Proceedings
    12. Segment and Geographic Information
 Disclosures about Segments of an Enterprise and Related Information
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COMPELLENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(unaudited)RevenueUnited States
    
    $
    21,044
    
    
    $
    11,997
    
    
    $
    54,292
    
    
    $
    30,660International
    
    
    3,566
    
    
    
    1,407
    
    
    
    9,643
    
    
    
    3,683Total
    
    $
    24,610
    
    
    $
    13,404
    
    
    $
    63,935
    
    
    $
    34,343
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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 unfavorable economic and market conditions, including
lessening demand in the information technology market;
    
    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
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Critical Accounting Policies and Estimates
   Results of Operations
  Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Change
    
    
    September 30,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %
    
    
    2008
    
    
    2007
    
    
    $
    
    
    %(unaudited)RevenueProduct
    
    $
    19,501
    
    
    $
    11,168
    
    
    $
    8,333
    
    
    
    74.6
    %
    
    $
    51,416
    
    
    $
    28,809
    
    
    $
    22,607
    
    
    
    78.5
    %Product support and services
    
    
    5,109
    
    
    
    2,236
    
    
    
    2,873
    
    
    
    128.5
    
    
    
    12,519
    
    
    
    5,534
    
    
    
    6,985
    
    
    
    126.2Total revenue
    
    
    24,610
    
    
    
    13,404
    
    
    
    11,206
    
    
    
    83.6
    
    
    
    63,935
    
    
    
    34,343
    
    
    
    29,592
    
    
    
    86.2Cost of revenueCost of product
    
    
    9,338
    
    
    
    5,551
    
    
    
    3,787
    
    
    
    68.2
    
    
    
    24,716
    
    
    
    14,549
    
    
    
    10,167
    
    
    
    69.9Cost of product support and services
    
    
    2,064
    
    
    
    1,163
    
    
    
    901
    
    
    
    77.5
    
    
    
    5,078
    
    
    
    3,232
    
    
    
    1,846
    
    
    
    57.1Total cost of revenue
    
    
    11,402
    
    
    
    6,714
    
    
    
    4,688
    
    
    
    69.8
    
    
    
    29,794
    
    
    
    17,781
    
    
    
    12,013
    
    
    
    67.6Gross profit
    
    
    13,208
    
    
    
    6,690
    
    
    
    6,518
    
    
    
    97.4
    
    
    
    34,141
    
    
    
    16,562
    
    
    
    17,579
    
    
    
    106.1Operating expensesSales and marketing
    
    
    9,041
    
    
    
    5,828
    
    
    
    3,213
    
    
    
    55.1
    
    
    
    25,823
    
    
    
    15,414
    
    
    
    10,409
    
    
    
    67.5Research and development
    
    
    2,452
    
    
    
    2,177
    
    
    
    275
    
    
    
    12.6
    
    
    
    7,111
    
    
    
    5,597
    
    
    
    1,514
    
    
    
    27.1General and administrative
    
    
    1,883
    
    
    
    767
    
    
    
    1,116
    
    
    
    145.5
    
    
    
    5,087
    
    
    
    2,055
    
    
    
    3,032
    
    
    
    147.5Total operating expenses
    
    
    13,376
    
    
    
    8,772
    
    
    
    4,604
    
    
    
    52.5
    
    
    
    38,021
    
    
    
    23,066
    
    
    
    14,955
    
    
    
    64.8Loss from operations
    
    
    (168
    )
    
    
    (2,082
    )
    
    
    1,914
    
    
    
    91.9
    
    
    
    (3,880
    )
    
    
    (6,504
    )
    
    
    2,624
    
    
    
    40.3Interest income
    
    
    632
    
    
    
    88
    
    
    
    544
    
    
    
    618.2
    
    
    
    2,125
    
    
    
    457
    
    
    
    1,668
    
    
    
    365.0Net income (loss)
    
    $
    464
    
    
    $
    (1,994
    )
    
    $
    2,458
    
    
    
    123.3
    %
    
    $
    (1,755
    )
    
    $
    (6,047
    )
    
    $
    4,292
    
    
    
    71.0
    %
 16




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Comparison of Three Months Ended September 30, 2008 and 2007
 Revenue
  Three Months Ended September 30,2008
    
    
    2007%
    
    
    
    
    
    
    %of Total
    
    
    
    
    
    
    of Total
    
    
    Change$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    %(unaudited)RevenueProduct
    
    $
    19,501
    
    
    
    79.2
    %
    
    $
    11,168
    
    
    
    83.3
    %
    
    $
    8,333
    
    
    
    74.6
    %Product support and services
    
    
    5,109
    
    
    
    20.8
    
    
    
    2,236
    
    
    
    16.7
    
    
    
    2,873
    
    
    
    128.5Total revenue
    
    $
    24,610
    
    
    
    100.0
    %
    
    $
    13,404
    
    
    
    100.0
    %
    
    $
    11,206
    
    
    
    83.6
    %
 Product Revenue.
 Product Support and Services Revenue.
 Cost of Revenue and Gross Margin
  Three Months Ended September 30,2008
    
    
    2007%
    
    
    
    
    
    
    %of Related
    
    
    
    
    
    
    of Related
    
    
    Change$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    %(unaudited)Cost of revenueCost of product
    
    $
    9,338
    
    
    
    47.9
    %
    
    $
    5,551
    
    
    
    49.7
    %
    
    $
    3,787
    
    
    
    68.2
    %Cost of product support and services
    
    
    2,064
    
    
    
    40.4
    
    
    
    1,163
    
    
    
    52.0
    
    
    
    901
    
    
    
    77.5Total cost of revenue
    
    $
    11,402
    
    
    
    46.3
    %
    
    $
    6,714
    
    
    
    50.1
    %
    
    $
    4,688
    
    
    
    69.8
    %Gross margin
    
    
    
    
    
    
    53.7
    %
    
    
    
    
    
    
    49.9
    %
 Cost of Product Revenue.
 Cost of Product Support and Services Revenue.
 17




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Gross Margin.
 Operating Expenses and Interest Income
  Three Months Ended September 30,2008
    
    
    2007%
    
    
    
    
    
    
    %of Total
    
    
    
    
    
    
    of Total
    
    
    Change$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    %(unaudited)Operating expensesSales and marketing
    
    $
    9,041
    
    
    
    36.7
    %
    
    $
    5,828
    
    
    
    43.5
    %
    
    $
    3,213
    
    
    
    55.1
    %Research and development
    
    
    2,452
    
    
    
    10.0
    
    
    
    2,177
    
    
    
    16.2
    
    
    
    275
    
    
    
    12.6General and administrative
    
    
    1,883
    
    
    
    7.7
    
    
    
    767
    
    
    
    5.7
    
    
    
    1,116
    
    
    
    145.5Total operating expenses
    
    $
    13,376
    
    
    
    54.4
    %
    
    $
    8,772
    
    
    
    65.4
    %
    
    $
    4,604
    
    
    
    52.5
    %Interest income
    
    $
    632
    
    
    
    2.6
    %
    
    $
    88
    
    
    
    0.7
    %
    
    $
    544
    
    
    
    618.2
    %
 Sales and Marketing Expense.
 Research and Development Expense.
 General and Administrative Expense.
 Interest Income.
 18




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Comparison of Nine Months Ended September 30, 2008 and 2007
 Revenue
  Nine Months Ended September 30,2008
    
    
    2007%
    
    
    
    
    
    
    %of Total
    
    
    
    
    
    
    of Total
    
    
    Change$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    %(unaudited)RevenueProduct
    
    $
    51,416
    
    
    
    80.4
    %
    
    $
    28,809
    
    
    
    83.9
    %
    
    $
    22,607
    
    
    
    78.5
    %Product support and services
    
    
    12,519
    
    
    
    19.6
    
    
    
    5,534
    
    
    
    16.1
    
    
    
    6,985
    
    
    
    126.2Total revenue
    
    $
    63,935
    
    
    
    100.0
    %
    
    $
    34,343
    
    
    
    100.0
    %
    
    $
    29,592
    
    
    
    86.2
    %
 Product Revenue.
 Product Support and Services Revenue.
 Cost of Revenue and Gross Margin
  Nine Months Ended September 30,2008
    
    
    2007%
    
    
    
    
    
    
    %of Related
    
    
    
    
    
    
    of Related
    
    
    Change$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    %(unaudited)Cost of revenueCost of product
    
    $
    24,716
    
    
    
    48.1
    %
    
    $
    14,549
    
    
    
    50.5
    %
    
    $
    10,167
    
    
    
    69.9
    %Cost of product support and services
    
    
    5,078
    
    
    
    40.6
    
    
    
    3,232
    
    
    
    58.4
    
    
    
    1,846
    
    
    
    57.1Total cost of revenue
    
    $
    29,794
    
    
    
    46.6
    %
    
    $
    17,781
    
    
    
    51.8
    %
    
    $
    12,013
    
    
    
    67.6
    %Gross margin
    
    
    
    
    
    
    53.4
    %
    
    
    
    
    
    
    48.2
    %
 Cost of Product Revenue.
 Cost of Product Support and Services Revenue.
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Gross Margin.
 Operating Expenses and Interest Income
  Nine Months Ended September 30,2008
    
    
    2007%
    
    
    
    
    
    
    %of Total
    
    
    
    
    
    
    of Total
    
    
    Change$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    $
    
    
    %(unaudited)Operating expensesSales and marketing
    
    $
    25,823
    
    
    
    40.4
    %
    
    $
    15,414
    
    
    
    44.9
    %
    
    $
    10,409
    
    
    
    67.5
    %Research and development
    
    
    7,111
    
    
    
    11.1
    
    
    
    5,597
    
    
    
    16.3
    
    
    
    1,514
    
    
    
    27.1General and administrative
    
    
    5,087
    
    
    
    8.0
    
    
    
    2,055
    
    
    
    6.0
    
    
    
    3,032
    
    
    
    147.5Total operating expenses
    
    $
    38,021
    
    
    
    59.5
    %
    
    $
    23,066
    
    
    
    67.2
    %
    
    $
    14,955
    
    
    
    64.8
    %Interest income
    
    $
    2,125
    
    
    
    3.3
    %
    
    $
    457
    
    
    
    1.3
    %
    
    $
    1,668
    
    
    
    365.0
    %
 Sales and Marketing Expense.
 Research and Development Expense.
 General and Administrative Expense.
 Interest Income.
 Liquidity and Capital Resources
  20




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Cash Flows
  Nine Months EndedSeptember 30,2008
    
    
    2007(unaudited)Net cash provided by (used in) operating activities
    
    $
    2,575
    
    
    $
    (4,794
    )Net cash used in investing activities
    
    
    (39,688
    )
    
    
    (1,744
    )Net cash provided by (used in) financing activities
    
    
    543
    
    
    
    (112
    )Net decrease in cash and cash equivalents
    
    $
    (36,570
    )
    
    $
    (6,650
    )
 Operating Activities
   Investing Activities
   Financing Activities
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Operating and Capital Expenditure Requirements
  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
  22




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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
  23




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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
 Unfavorable economic and market conditions and a lessening demand in the information technology
market could adversely affect our operating results.
  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.
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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 economic 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
    
    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.
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##### Table of Contents




    
    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.
   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.
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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;
    
    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.
 
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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 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;
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##### Table of Contents




    
    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.
  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.
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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.
  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.
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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.
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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.
   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;
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
    
    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 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;
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
    
    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.
  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.
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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.
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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.
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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;
    
    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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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.
  
 Item 5. Other Information.
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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.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.*
    
    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. 
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##### Table of Contents



SIGNATURES
   Compellent Technologies, Inc./s/ John R. JuddJohn R. JuddChief Financial Officer 
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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.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.*
    
    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. 
 42