10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

or

¨ 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: 001-35188

FUSION-IO, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-4232255
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
2855 E. Cottonwood Parkway, Suite 100 Salt Lake City, Utah	84121
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (801) 424-5500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of the registrant’s common stock, $0.0002 par value per share, outstanding as of November 1, 2013 was 105,480,908.

FUSION-IO, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page
	PART I. FINANCIAL INFORMATION		1
Item 1.	Condensed Consolidated Financial Statements		1
	Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2013 and September 30, 2013		1
	Condensed Consolidated Statements of Operations (unaudited) for the Three Months Ended September  30, 2012 and 2013		2
	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three Months Ended September 30, 2012 and 2013		3
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended September 30, 2012 and 2013		4
	Notes to Condensed Consolidated Financial Statements (unaudited)		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		25
Item 4.	Controls and Procedures		25
	PART II. OTHER INFORMATION		26
Item 1.	Legal Proceedings		26
Item 1A.	Risk Factors		26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		42
Item 3.	Defaults Upon Senior Securities		42
Item 4.	Mine Safety Disclosures		42
Item 5.	Other Information		42
Item 6.	Exhibits		43
SIGNATURES			44
EXHIBIT INDEX			45

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Part I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

FUSION-IO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(unaudited)

	June 30, 2013			September 30, 2013
Assets
Current assets:
Cash and cash equivalents	$	238,351		$	225,265
Accounts receivable, net of allowances of $1,990 and $1,806 as of June 30, 2013 and September 30, 2013, respectively		69,107			63,912
Inventories		71,160			74,115
Prepaid expenses and other current assets		9,530			11,416
Total current assets		388,148			374,708
Property and equipment, net		35,272			34,989
Restricted cash		4,860			1,587
Intangible assets, net		28,268			26,018
Goodwill		149,467			149,467
Other assets		1,433			1,428
Total assets	$	607,448		$	588,197
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	14,170		$	11,691
Accrued and other current liabilities		44,425			39,039
Deferred revenue		24,848			22,533
Total current liabilities		83,443			73,263
Deferred revenue, less current portion		14,167			14,643
Other liabilities		19,421			19,157
Commitments and contingencies
Stockholders’ equity:
Preferred stock		—			—
Common stock		20			20
Additional paid-in capital		599,292			618,165
Accumulated other comprehensive loss		(110	)		(370	)
Accumulated deficit		(108,785	)		(136,681	)
Total stockholders’ equity		490,417			481,134
Total liabilities and stockholders’ equity	$	607,448		$	588,197

See accompanying notes.

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FUSION-IO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(unaudited)

	Three Months Ended September 30,
	2012			2013
Revenue	$	118,115		$	86,293
Cost of revenue		48,065			36,540
Gross profit		70,050			49,753
Operating expenses:
Sales and marketing		25,587			34,798
Research and development		22,173			29,468
General and administrative		13,841			13,291
Total operating expenses		61,601			77,557
Income (loss) from operations		8,449			(27,804	)
Other income (expense):
Interest income		114			35
Interest expense		(30	)		(51	)
Other (expense) income, net		(29	)		186
Income (loss) before income taxes		8,504			(27,634	)
Income tax expense		(4,571	)		(262	)
Net income (loss)	$	3,933		$	(27,896	)
Net income (loss) per common share:
Basic	$	0.04		$	(0.28	)
Diluted	$	0.04		$	(0.28	)
Weighted-average number of shares:
Basic		94,221			99,903
Diluted		108,425			99,903

See accompanying notes.

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FUSION-IO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(unaudited)

	Three Months Ended September 30,
	2012		2013
Net income (loss)	$	3,933	$	(27,896	)
Foreign currency translation adjustment		23		(260	)
Comprehensive income (loss)	$	3,956	$	(28,156	)

See accompanying notes.

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FUSION-IO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Three Months Ended September 30,
	2012			2013
Operating activities:
Net income (loss)	$	3,933		$	(27,896	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		3,188			5,838
Stock-based compensation		13,889			14,215
Excess tax benefit from stock-based awards		(4,385	)		(3	)
Changes in operating assets and liabilities:
Accounts receivable, net		(8,951	)		5,195
Inventories		(7,746	)		(2,955	)
Prepaid expenses and other assets		457			(1,881	)
Accounts payable		14,014			(2,479	)
Accrued and other liabilities		8,658			(5,341	)
Deferred revenue		5,610			(1,839	)
Net cash provided by (used in) operating activities		28,667			(17,146	)
Investing activities:
Purchases of property and equipment		(5,175	)		(3,281	)
Net cash used in investing activities		(5,175	)		(3,281	)
Financing activities:
Proceeds from exercises of stock options		4,279			3,206
Issuance of restricted awards and restricted stock units, net of repurchases		(1,055	)		(702	)
Proceeds from issuance of common stock under employee stock purchase plan		1,459			1,569
Excess tax benefit from stock option exercises		4,385			3
Change in restricted cash		—			3,273
Net cash provided by financing activities		9,068			7,349
Effect of exchange rate changes on cash and cash equivalents		94			(8	)
Net increase (decrease) in cash and cash equivalents		32,654			(13,086	)
Cash and cash equivalents at the beginning of period		321,239			238,351
Cash and cash equivalents at the end of period	$	353,893		$	225,265

See accompanying notes.

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FUSION-IO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Description of Business and Summary of Significant Accounting Policies

Fusion-io, Inc. (the “Company” or “Fusion-io”) provides an enterprise storage class memory platform and storage solution portfolio, based on the Company’s ioMemory technology with virtual storage layer (“VSL”) software and direct acceleration, shared acceleration, and virtualization acceleration products. The Company sells its products and services through its global direct sales force, original equipment manufacturers (“OEMs”), and other channel partners.

Basis of Presentation

The accompanying condensed consolidated balance sheets and the condensed consolidated statements of operations, comprehensive income (loss), and cash flows are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which are considered of a normal recurring nature) considered necessary to present fairly the Company’s financial position, results of operations, and cash flows. The results of operations for the three months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2014 or any other period.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013 (the “2013 Annual Report”) filed with the Securities and Exchange Commission (the “SEC”).

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in the unaudited condensed consolidated financial statements.

Segment and Geographic Information

Operating segments are defined in accounting standards as components of an enterprise about which separate financial information is available and is regularly evaluated by management, namely the chief operating decision maker of an organization, in order to make operating and resource allocation decisions. The Company has concluded it operates in one business segment, which is the development, marketing, and sale of storage memory solutions. Substantially all of the Company’s revenue for all periods presented in the accompanying condensed consolidated statements of operations has been from sales of the ioMemory based product lines and related customer support services. The Company’s headquarters and most of its operations are located in the United States; however, it conducts sales activities through sales offices in Europe and Asia. Revenue recognized from sales with a ship-to location outside of the United States was 38% and 40% of revenue for the three months ended September 30, 2012 and 2013, respectively. Revenue recognized from sales to customers with a ship-to address in Germany was 19% of revenue for the three months ended September 30, 2012 and revenue recognized from sales to customers with a ship-to address in China was 11% of revenue for the three months ended September 30, 2013. No other country outside of the United States accounted for 10% or more of revenue for all periods presented. Long-lived tangible assets located outside of the United States were not material for all periods for which a condensed consolidated balance sheet is presented.

Reclassification

Certain expense amounts previously reported in the condensed consolidated statements of operations for the three months ended September 30, 2012 have been reclassified to reflect an adjustment to the method in which the Company allocates information technology and facility costs and to conform to fiscal 2014 presentation. As a result of the reclassifications, cost of revenue increased by $71,000, sales and marketing expenses increased by $567,000, research and development expenses increased by $605,000, and general and administrative expenses decreased by $1,243,000 for the three months ended September 30, 2012. The net effect of these reclassifications did not impact the amounts previously reported as income from operations and net income.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an on-going basis, the Company evaluates its significant estimates, including those related to revenue recognition, sales returns, accounting for business combinations and impairment of long-lived and intangible assets including goodwill, determination of fair value of stock options, valuation of inventory, product warranty, and income taxes. The Company also uses estimates in determining the useful lives of property and equipment and intangible assets and provisions for doubtful accounts. Actual results could differ from those estimates.

- 5 -

Significant Customers

Customers that accounted for 10% or more of the Company’s revenue represented 70% and 57% of revenue for the three months ended September 30, 2012 and 2013, respectively. As a consequence of the concentration of the Company’s customers, and typically a small number of large purchases by these customers, revenue, gross margin, and operating results may fluctuate significantly from period to period.

Product Warranty

The Company provides its customers a standard limited product warranty of up to five years. The standard warranty requires the Company to repair or replace defective products at no cost to the customer during such warranty period. The Company estimates the costs that may be incurred under its standard limited warranty and records a liability in the amount of such costs at the time product sales are recognized. Factors that affect the Company’s warranty liability include the number of installed units, identified warranty issues, historical experience, and management’s judgment regarding anticipated rates of warranty claims and cost per claim. The Company assesses the adequacy of its recorded warranty liability each period and makes adjustments to the liability as necessary based on actual experience.

The following table presents the changes in the product warranty liability (in thousands):

	Total
Balance at June 30, 2013	$	5,241
Warranty costs accrued		376
Warranty claims		(421	)
Adjustments related to pre-existing warranties, including changes in estimates		279
Balance at September 30, 2013	$	5,475

Restricted Cash

As of June 30, 2013 and September 30, 2013, the Company had restricted cash of approximately $4,860,000 and $1,587,000, respectively. Of the amounts restricted as of September 30, 2013, approximately $87,000 related to letters of credit for purposes of securing the Company’s obligation under a facility lease which was collateralized by a portion of the Company’s cash through the term of the lease, which ends March 2017. In addition, the Company retained $1,500,000 as partial security for indemnification obligations of shareholders as part of the acquisition of ID7 Ltd. and SCST Limited (together, the “ID7 Entities”) (see Note 4). This restricted cash amount, less any indemnification claims, will be paid in September 2014.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period, less weighted-average common shares subject to repurchase. Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the period that have a dilutive effect on net income (loss) per share. Potentially dilutive common shares result from the assumed exercise of outstanding stock options, assumed vesting of outstanding restricted stock subject to vesting provisions, restricted stock awards (“RSAs”), and restricted stock units (“RSUs”). In a net loss position, diluted net loss per share is computed using only the weighted-average number of common shares outstanding during the period, less weighted-average common shares subject to repurchase, as any additional common shares would be anti-dilutive.

The following table presents the reconciliation of the numerator and denominator used in the calculation of basic and diluted net income (loss) per share (in thousands):

	Three Months Ended September 30,
	2012			2013
Numerator:
Net income (loss)	$	3,933		$	(27,896	)
Denominator:
Weighted-average common shares outstanding		94,432			100,376
Less weighted-average common shares outstanding subject to repurchase		(211	)		(473	)
Weighted-average shares, basic		94,221			99,903
Effect of dilutive securities		14,204			—
Weighted-average shares, diluted		108,425			99,903

- 6 -

The following weighted-average common stock equivalents were anti-dilutive and therefore were excluded from the calculation of diluted net income (loss) per share (in thousands):

	Three Months Ended September 30,
	2012		2013
Stock options		4,664		8,200
Restricted stock units and restricted stock awards		1,841		114
Total		6,505		8,314

Recently Issued and Adopted Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”) requiring an entity to report information, either on the face of the statement where net income is presented or in the notes, about the amounts reclassified out of accumulated other comprehensive income by component and to report significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The ASU has been adopted by the Company effective for the first quarter of fiscal 2014. Other than requiring additional disclosures, the adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

In July 2013, the FASB issued an ASU providing presentation requirements for unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a similar tax credit carryforward exists. This accounting standard update will be effective for the Company beginning in its first quarter of fiscal 2015 and is not expected to have a significant impact on its consolidated financial statements.

2. Balance Sheet Components

Cash and Cash Equivalents

Cash and cash equivalents were as follows (in thousands):

	June 30, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash and cash equivalents:
Cash	$	36,107	$	—	$	—	$	36,107
Money market funds		202,244		—		—		202,244
Total cash and cash equivalents	$	238,351	$	—	$	—	$	238,351
Restricted cash:
Cash	$	4,860	$	—	$	—	$	4,860
	September 30, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash and cash equivalents:
Cash	$	22,991	$	—	$	—	$	22,991
Money market funds		202,274		—		—		202,274
Total cash and cash equivalents	$	225,265	$	—	$	—	$	225,265
Restricted cash:
Cash	$	1,587	$	—	$	—	$	1,587

- 7 -

Inventories

Inventories consisted of the following (in thousands):

	June 30, 2013		September 30, 2013
Raw materials	$	32,067	$	40,699
Work in progress		25,497		22,117
Finished goods		13,596		11,299
	$	71,160	$	74,115

Property and Equipment, net

Property and equipment consisted of the following (in thousands):

	June 30, 2013			September 30, 2013
Computer equipment	$	21,866		$	23,395
Software		4,674			4,802
Property and equipment		10,625			11,881
Furniture and fixtures		4,294			4,427
Leasehold improvements		15,446			15,597
Construction in progress		203			310
		57,108			60,412
Less accumulated depreciation and amortization		(21,836	)		(25,423	)
	$	35,272		$	34,989

Depreciation expense (including amortization of leasehold improvements) was $2,532,000 and $3,587,000 for the three months ended September 30, 2012 and 2013, respectively.

Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following (in thousands):

	June 30, 2013		September 30, 2013
Accrued compensation	$	25,146	$	21,000
Accrued warranty expense		5,241		5,475
Accrued other liabilities		14,038		12,564
	$	44,425	$	39,039

Long-term Other Liabilities

Long-term other liabilities consisted of the following (in thousands):

	June 30, 2013		September 30, 2013
Long-term deferred tax liability	$	4,900	$	4,816
Long-term deferred rent		9,209		9,029
Long-term other liabilities		5,312		5,312
	$	19,421	$	19,157

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3. Fair Value Measurements

Assets Measured and Recorded at Fair Value on a Recurring Basis

The Company measures and records certain financial assets at fair value on a recurring basis. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company’s financial instruments that are measured at fair value on a recurring basis consist of money market funds. The following three levels of inputs are used to measure the fair value of financial instruments:

Level 1:	Quoted prices in active markets for identical assets or liabilities. The Company classifies its money market funds as Level 1 instruments as they are traded in active markets with sufficient volume and frequency of transactions.
Level 2:	Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3:	Unobservable inputs are used when little or no market data is available.

The fair value of the Company’s money market funds was as follows (in thousands):

	Fair Value Measurements at June 30, 2013
Description	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	202,244	$	—	$	—	$	202,244
	Fair Value Measurements at September 30, 2013
Description	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	202,274	$	—	$	—	$	202,274

Fair Value of Other Financial Instruments

The carrying amounts of the Company’s accounts receivable, accounts payable, accrued liabilities, and other liabilities approximate their fair values due to the short maturities of these assets and liabilities.

4. Acquisitions

NexGen Storage, Inc.

On April 24, 2013, the Company acquired 100% of the stock of NexGen Storage, Inc., (“NexGen”), a developer of hybrid storage systems based in Louisville, Colorado, pursuant to the Merger Agreement dated April 24, 2013. The consideration transferred was $110,737,000, consisting of (i) $108,973,000 in cash, (ii) $1,418,000 in assumed stock options, and (iii) $346,000 related to the elimination of intercompany balances. Of the cash consideration, $17,854,000 of cash was deposited in escrow as partial security for the indemnification obligations of the NexGen stockholders pursuant to the Merger Agreement. This amount, less any indemnification claims, will be distributed promptly following April 24, 2014.

In addition, the Company agreed to pay $5,000,000 in cash to one of the selling stockholders in 12 equal quarterly installments and issue 339,627 in shares of the Company’s common stock to another selling stockholder, which is subject to a repurchase right that lapses in 12 equal quarterly installments. The quarterly installments for both the cash and restricted stock amounts are subject to ongoing employment requirements.

- 9 -

The Company also assumed NexGen’s options and restricted stock units that were unvested at the time of the merger that were converted into unvested options to purchase 822,927 shares of the Company’s common stock and 84,808 of the Company’s restricted stock units. The fair value of the assumed options was estimated using the Black-Scholes-Merton option pricing model with market assumptions. Option pricing models require the use of highly subjective market assumptions, including expected stock price volatility, which if changed, can materially affect fair value estimates. The more significant assumptions used in estimating the fair value of these stock options include expected volatility of 65.0%, expected option term of between 3.9 years and 5.7 years and a risk-free interest rate of 0.70%. The fair value of the assumed restricted stock units and the common stock was $16.63 and is based on the closing trading price of the Company’s common stock on the date of acquisition.

Subsequent to the acquisition, the Company will recognize, over the underlying future service period, up to approximately $23,701,000 of compensation expense related to the fair value of the cash, restricted stock, and the assumed stock-based awards.

Allocation of Consideration Transferred

Pursuant to the Company’s business combinations accounting policy, the total consideration transferred for NexGen was allocated to the net tangible and intangible assets based upon their fair values as set forth below. The acquisition of NexGen adds to the Company’s software solutions and expands the Company’s reach into small to medium enterprise markets. These factors contributed to consideration transferred in excess of the fair value of the NexGen net tangible and intangible assets acquired, and as a result, the Company has recorded goodwill in connection with this transaction.

The Company’s allocation of consideration transferred for NexGen is as follows (in thousands):

Total assets	$	3,777
Total liabilities		(1,973	)
Net acquired tangible assets	$	1,804
Developed technology (weighted-average useful life of 4 years)		15,000
Trade names (weighted-average useful life of 2 years)		520
Customer relationships (weighted-average useful life of 6 years)		390
Total identifiable intangible assets	$	15,910
Goodwill		93,023
Total fair value of consideration transferred	$	110,737

For the three months ended September 30, 2013, the Company recorded revenue associated with NexGen of approximately $1,248,000. Operating expenses associated with NexGen for the three months ended September 30, 2013 were approximately $6,350,000, of which approximately $2,141,000 related to stock-based compensation expense.

ID7 Entities

On March 13, 2013, the Company acquired 100% of the stock of the ID7 Entities for total cash consideration of approximately $5,869,000. The ID7 Entities, located in England and Wales, are the primary developers of the SCST storage subsystem enabling enhanced shared storage software functionality for any Linux server or appliance. Accordingly, the assets, liabilities, and operating results of the ID7 Entities are reflected in the Company’s consolidated financial statements following the date of acquisition. Of the cash consideration, the Company retained $1,500,000 as partial security for indemnification obligations of shareholders as part of this acquisition. This restricted cash amount, less any indemnification claims, will be paid in September 2014. In connection with the acquisition, the Company issued 135,131 shares of its common stock to the former shareholders of the ID7 Entities, which is subject to a repurchase right, that lapse 25% after one year and the remaining 75% in 12 equal quarterly installments thereafter. Subsequent to the acquisition, the Company will recognize over the underlying future service period up to approximately $2,367,000 of stock-based compensation expense related to the fair value of the restricted stock awards. The fair value of the common stock was $17.52 and is based on the closing trading price of the Company’s common stock on the date of acquisition.

Allocation of Consideration Transferred

Pursuant to the Company’s business combinations accounting policy, the total consideration transferred for ID7 Entities was allocated to the net liabilities assumed and intangible assets acquired based upon their fair values as set forth below. The acquisition of the ID7 Entities is an important part of the Company’s strategy as they are the primary developers of the SCST storage subsystem enabling enhanced shared storage software functionality for any Linux server or appliance. These factors contributed to consideration transferred in excess of the fair value of the net liabilities assumed and intangible assets acquired, and as a result, the Company has recorded goodwill in connection with this transaction.

- 10 -

The Company’s allocation of consideration transferred for ID7 Entities is as follows (in thousands):

Total assets	$	76
Total liabilities		(645	)
Net assumed liabilities	$	(569	)
Developed technology (weighted-average useful life of 4 years)		5,900
Goodwill		1,667
Deferred income tax liability		(1,129	)
Total fair value of consideration transferred	$	5,869

The Company assumed notes payable of approximately $623,000 as part of the acquisition of the ID7 Entities, which were paid in full in March 2013.

Operating results of the ID7 Entities subsequent to the date of acquisition are not separately disclosed as the results were not material to the Company’s consolidated statements of operations.

Unaudited pro forma financial information

Unaudited Pro forma information related to the acquisition of the ID7 Entities has not been included as it was not material to the Company’s consolidated statements of operations. The following unaudited pro forma financial information is based on the combined historical financial statements of the Company and NexGen after giving effect to the Company’s acquisition of NexGen as if it had occurred as of July 1, 2012 and includes pro forma adjustments related to the amortization of acquired intangible assets, stock-based compensation expense, and depreciation expense (in thousands, except per share data):

	Three Months Ended September 30,
	2012			2013
Revenue	$	118,245		$	86,293
Net income (loss) from operations		2,863			(27,804	)
Net loss		(828	)		(27,896	)
Net loss per share, basic	$	(0.01	)	$	(0.28	)
Net loss per share, diluted	$	(0.01	)	$	(0.28	)

Acquisition related expenses

Acquisition related expenses totaled approximately $0 and $36,000 for the three months ended September 30, 2012 and 2013, respectively, and were recorded in general and administrative expenses.

5. Goodwill and Intangible Assets:

Changes in the carrying amount of Goodwill consisted of the following (in thousands):

	Total
Balance as of June 30, 2013	$	149,467
Current period acquisitions		—
Balance as of September 30, 2013	$	149,467

The Company’s goodwill related to the acquisition of NexGen is not deductible for income tax purposes. The Company’s goodwill related to the acquisition of the ID7 Entities is deductible for income tax purposes.

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The Company’s intangible assets and related accumulated amortization consisted of the following as of September 30, 2013 (in thousands):

	Weighted-Average Useful Life	Cost		Accumulated Amortization			Net
Developed technology	4 years	$	31,400	$	(8,070	)	$	23,330
Licensed technology	3 years		2,784		(864	)		1,920
Trade names	2 years		520		(114	)		406
Customer relationships	6 years		390		(28	)		362
Total intangible assets	4 years	$	35,094	$	(9,076	)	$	26,018

Amortization expense related to intangible assets for the three months ended September 30, 2012 and 2013 was approximately $656,000 and $2,251,000, respectively. Estimated amortization expense in future periods for intangible assets subject to amortization is as follows (in thousands):

Fiscal Year Ending June 30,	Total
Remaining 2014	$	6,639
2015		8,804
2016		6,257
2017		4,200
2018		65
Thereafter		53
	$	26,018

6. Long-term Obligations

Revolving Line of Credit

In September 2013, the Company entered into a credit agreement (the “Revolving Line of Credit”) with Silicon Valley Bank. The Revolving Line of Credit allows the Company to borrow up to a limit of $25,000,000, with a $25,000,000 letter of credit sub-facility. The Revolving Line of Credit contains an option to increase the lending commitments, subject to certain requirements, with Silicon Valley Bank and/or new lenders to provide up to an aggregate of $75,000,000 in additional lending commitments. Loan proceeds may be used for general corporate purposes, and the Company may prepay and/or reborrow revolving loans under the Revolving Line of Credit in whole or in part at any time without premium or penalty. As of September 30, 2013, the Company had no outstanding revolving loans under the credit agreement and an aggregate face amount of $3,183,000 in undrawn letters of credit under the Revolving Line of Credit.

The revolving loans bear interest, at the Company’s option, at (i) a base rate determined in accordance with the Revolving Line of Credit, minus 0.75%, or (ii) a LIBOR rate determined in accordance with the credit agreement, plus 1.25%. The base rate means the highest of (i) the prime rate published by the Wall Street Journal and (ii) the federal funds rate plus a margin equal to 0.50%. Interest is due and payable in arrears monthly for base rate loans and at the end of an interest period (or at each three month interval in the case of loans with interest periods greater than three months) for LIBOR rate loans. Principal, together with all accrued and unpaid interest, is due and payable on September 13, 2016.

The Company is also obligated to pay a quarterly unused commitment fee equal to 0.10% multiplied by the average unused portion of the total revolving commitments, a quarterly fee of 1.25% on the daily amount available to be drawn under each letter of credit, and other customary fees for a facility of this size and type.

Upon an event of default, the lender(s) may terminate their commitments to make further revolving loans and declare the outstanding revolving loans and all accrued and unpaid interest under the Revolving Line of Credit to be immediately due and payable. The events of default under the Revolving Line of Credit include, among others, payment defaults, covenant defaults, inaccuracy of representations and warranties, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults, ERISA defaults, judgment defaults, a change of control default, and a material adverse effect default.

Under the terms of the Revolving Line of Credit, the Company is required to maintain the following minimum financial covenants on a consolidated basis:

• A ratio of current assets to the sum of (i) current liabilities plus, without duplication, (ii) the aggregate amount of outstanding revolving loans and undrawn or unreimbursed letters of credit under the Revolving Line of Credit, of at least 2.00 to 1.00.

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• A tangible net worth of at least the sum of (i) $200,000,000, plus (ii) an amount equal to 50% of net income earned in each fiscal quarter ending after March 30, 2013, plus (ii) an amount equal to 25% of the aggregate increases in shareholders’ equity resulting from certain specified transactions.

As of September 30, 2013, the Company was in compliance with all covenants.

7. Income Taxes

In order to determine the quarterly provision for income taxes, the Company considers the estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates. To the extent that application of the estimated annual effective tax rate is not representative of the quarterly portion of actual tax expense expected to be recorded for the year, the Company determines the quarterly provision for income taxes based on actual year-to-date income. Certain significant or unusual items are separately recognized in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

The components of the Company’s income tax expense or benefit include state income taxes, foreign income taxes, U.S. federal alternative minimum tax, and effects of stock-based awards. Income tax expense was approximately $4,571,000 and $262,000 for the three months ended September 30, 2012 and 2013, respectively, or approximately 54% and 1% of income (loss) before income taxes, respectively. The Company’s effective tax rate for the three months ended September 30, 2013 is lower when compared to the same period in the prior year primarily due to the operating loss incurred in the current period. The effective tax rate for the three months ended September 30, 2013 differs from the U.S. federal statutory rate of 35% primarily due to the Company’s full valuation allowance against its net deferred tax assets.

The Company files U.S., state, and foreign income tax returns in jurisdictions with various statutes of limitations. The Company’s consolidated federal tax return and any significant state or foreign tax returns are not currently under examination.

The Company is subject to income taxes in various U.S. and foreign jurisdictions and to continual examination by tax authorities. Significant judgment is required in evaluating the Company’s uncertain tax positions and determining its provision for income taxes. During the three months ended September 30, 2013, the aggregate change in the total gross amount of unrecognized tax benefits was as follows (in thousands):

	Total
Balance at June 30, 2013	$	6,047
Increase in unrecognized tax benefits related to current year		626
Balance at September 30, 2013	$	6,673

The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. The Company did not incur any material interest or penalties related to income taxes in any of the periods presented. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $1,166,000. The Company does not anticipate any significant change of its uncertain tax positions within fiscal 2014, and the Company does not anticipate any events which could cause a change to these uncertainties.

As of September 30, 2013, the Company had federal net operating loss carryforwards of $314,847,000, of which $285,261,000 relate to stock option deductions claimed for tax purposes greater than the deductions claimed for book purposes. As of September 30, 2013, the Company had state net operating loss carryforwards of $254,949,000, of which $202,305,000 relate to stock option deductions claimed for tax purposes greater than the deductions claimed for book purposes. Additionally, the Company had federal research and development tax credit carryforwards of $7,172,000, and state research and development tax credit carryforwards of $3,706,000, of which $537,000 related to stock option deductions claimed for tax purposes greater than the deductions claimed for book purposes. In the future, the Company intends to utilize any carryforwards available to reduce its tax payments.

The Company recorded directly to equity a tax benefit for the three months ended September 30, 2013 of approximately $3,000 related to certain tax deductions for stock-based awards.

8. Stockholders’ Equity

Equity Incentive Plans

On July 1, 2013, the number of authorized shares of common stock available for issuance under the 2011 Equity Incentive Plan (the “2011 Plan”) was increased by 4,952,076 shares in accordance with the provisions of the 2011 Plan. At September 30, 2013, a total of 13,589,193 shares of common stock were available for grant under the Company’s equity incentive plans.

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Stock option activity for all the Equity Incentive Plans for the three months ended September 30, 2013 was as follows:

	Number of Shares Subject to Outstanding Options			Weighted- Average Exercise Price Per Share		Weighted- Average Contractual Term (in Years)		Aggregate Intrinsic Value (1)
								(in thousands)
Outstanding as of June 30, 2013		17,265,304		$	6.92
Granted		156,600			11.04
Exercised		(2,812,590	)		1.14
Canceled		(254,423	)		10.16
Outstanding as of September 30, 2013		14,354,891		$	8.04		7.4	$	76,733
Vested and expected to vest as of September 30, 2013		13,539,655		$	7.85		7.4	$	74,980
Vested and exercisable as of September 30, 2013		8,046,293		$	6.46		6.9	$	55,759

(1) The aggregate intrinsic value is equal to the difference between the exercise price of the underlying stock option awards and the fair value of the Company’s common stock as of September 30, 2013.

Employee Stock Options

Additional per share information related to stock options granted to employees was as follows:

	Three Months Ended September 30,
	2012		2013
Weighted-average grant date fair value — granted	$	15.42	$	5.56
Weighted-average grant date fair value — forfeited		11.06		9.57

The aggregate intrinsic value of stock options exercised during the three months ended September 30, 2012 and 2013 was approximately $41,576,000 and $31,115,000, respectively, which reflected the difference between the exercise prices of the underlying stock option awards and the fair value of the Company’s common stock on the date of exercise.

The Company recorded stock-based compensation expense related to employee stock options of approximately $5,093,000 and $4,408,000 for the three months ended September 30, 2012 and 2013, respectively. As of September 30, 2013, there was approximately $39,115,000 of total unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average service period of 2.2 years.

The Company estimates the fair value of stock options granted to employees using the Black-Scholes-Merton pricing model and a single option award approach, which requires the input of several highly subjective and complex assumptions. The risk-free interest rate for the expected term of the option is based on the yield available on United States Treasury Zero Coupon issues with an equivalent expected term. The expected option term used in the Black-Scholes-Merton pricing model is calculated using the simplified method. The simplified method defines the expected term as the average of the option’s contractual term and the option’s weighted-average vesting period. The Company utilizes this method as it has limited historical stock option data that is sufficient to derive a reasonable estimate of the expected stock option term. The computation of estimated expected volatility is based on the volatility of comparable companies from a representative peer group selected based on industry data.

The following table presents the assumptions used in the Black-Scholes-Merton pricing model related to employee stock options:

	Three Months Ended September 30,
	2012	2013
Expected volatility	61.4 – 63.1%	61.4 – 62.0%
Expected term (in years)	4.5 – 5.4	4.4 – 4.5
Risk-free interest rate	0.6 – 0.7%	1.4 – 1.7%
Expected dividends	—	—

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Non-employee Stock Options

The Company from time to time grants options to purchase common stock to non-employees for advisory and consulting services. The Company estimates the fair value of these stock options using the Black-Scholes-Merton option pricing formula at each balance sheet date and records expense ratably over the vesting period of each stock option award. The Company recorded stock-based compensation expense related to these non-employee stock options of approximately $2,748,000 and $2,257,000 for the three months ended September 30, 2012 and 2013, respectively.

In May 2013, the Company entered into separation agreements with its former Chief Executive Officer and Chief Marketing Officer in that they will provide advisory services to the Company for the 12-month period following the date of their respective resignation. In conjunction with their continued services, the vesting of their awards has been modified such that all awards will be vested in full at the completion of the12-month period, subject to their executing (and not revoking) a supplemental release at the end of the 12-month term. As a result, the Company modified the vesting of 1,176,249 stock options and 267,500 RSUs. For the three months ended September 30, 2013, the Company recognized approximately $2,255,000 of stock-based compensation expense, and as of September 30, 2013, there was approximately $6,455,000 of unrecognized compensation expense related to the modified awards, which is expected to be recognized ratably through May 2014.

The following table presents the assumptions used in the Black-Scholes-Merton pricing model related to non-employee stock options:

	Three Months Ended September 30,
	2012	2013
Expected volatility	61.2 – 61.8%	52.5 – 65.3%
Expected term (in years)	6.1 – 8.7	0.9 – 7.3
Risk-free interest rate	1.3 – 1.7%	0.1 – 2.0%
Expected dividends	—	—

Restricted Stock Units and Restricted Stock Awards

The following table summarizes activity during the three months ended September 30, 2013 related to RSUs and RSAs:

	Number of Shares			Weighted-Average Grant-Date Fair Value
Unvested RSUs and RSAs at June 30, 2013		4,137,846		$	20.78
Granted		1,604,460			11.25
Vested		(311,046	)		22.86
Forfeited		(5,735	)		24.76
Canceled		(212,392	)		23.30
Unvested RSUs and RSAs at September 30, 2013		5,213,133		$	17.62

The Company recorded stock-based compensation expense related to RSUs and RSAs of approximately $5,344,000 and $6,466,000 for the three months ended September 30, 2012 and 2013, respectively. At September 30, 2013, there was approximately $75,767,000 of total unrecognized compensation cost related to unvested RSUs and RSAs. This unrecognized compensation cost is equal to the fair value of RSUs and RSAs expected to vest and will be recognized over a weighted-average period of 3.2 years.

Repurchases of Vested Restricted Stock Units

The Company is required to withhold minimum statutory taxes related to the vesting of RSUs, including the forfeiting of a portion of the newly vested award that has a current value equal to the withholding obligation. The Company is then required to remit the amount of taxes owed by the employee to the appropriate taxing authority. As a result of such forfeitures, the Company effectively repurchased a total of 43,392 and 64,949 shares of common stock related to employee tax withholding obligations during the three months ended September 30, 2012 and 2013, respectively. The Company recorded approximately $1,055,000 and $702,000 as a financing activity for these forfeitures in the condensed consolidated statement of cash flows for the three months ended September 30, 2012 and 2013, respectively.

Employee Stock Purchase Plan

On July 1, 2013, the number of authorized shares available for issuance under the 2011 Employee Stock Purchase Plan (“ESPP”) was increased by 990,415 shares in accordance with the provisions of the ESPP. During the three months ended September 30, 2013, the Company issued 311,137 shares of common stock under the ESPP. At September 30, 2013, a total of 1,543,157 shares of common stock were reserved for future issuance under the ESPP. The Company recorded stock-based compensation expense related to its 2011 ESPP of approximately $704,000 and $1,084,000 for the three months ended September 30, 2012 and 2013, respectively.

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Stock-based Compensation Expense

Total stock-based compensation expense was classified as follows in the accompanying condensed consolidated statement of operations (in thousands):

	Three Months Ended September 30,
	2012		2013
Cost of revenue	$	113	$	157
Sales and marketing		2,169		2,923
Research and development		4,464		5,598
General and administrative		7,143		5,537
Total stock-based compensation	$	13,889	$	14,215

9. Commitments and Contingencies

Letters of Credit

As of June 30, 2013 and September 30, 2013, the Company had a total of $3,360,000 and $3,270,000, respectively, in letters of credit outstanding with financial institutions. These outstanding letters of credit were issued for purposes of securing the Company’s obligations under facility leases. For the periods presented, the letters of credit were collateralized by a portion of the Company’s cash. This is reflected as restricted cash of $3,360,000 and $87,000 on the condensed consolidated balance sheet as of June 30, 2013 and September 30, 2013, respectively.

Leases

Future minimum lease payments under non-cancelable operating leases were as follows (in thousands):

Fiscal Year Ending June 30,	Total
Remaining 2014	$	5,251
2015		6,765
2016		6,827
2017		6,769
2018		6,754
Thereafter		17,868
Total	$	50,234

Operating lease payments primarily relate to the Company’s leases of office space with various expiration dates through 2021. The terms of these leases often include tenant improvement allowances, periods of free rent, and increasing rental rates over time. The Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense recorded but not paid.

The Company also leases certain equipment under operating leases that expire at various dates through 2018. These equipment leases typically include provisions that allow the Company at the end of the initial lease term to renew the lease, purchase the underlying equipment at the then fair market value, or return the equipment to the lessor.

Rent expense was $1,741,000 and $1,980,000 for the three months ended September 30, 2012 and 2013, respectively.

Indemnification

The Company has agreed to indemnify its officers and directors for certain events or occurrences, while the officer or director is or was serving at the Company’s request in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that provides corporate reimbursement coverage that limits its exposure and enables it to recover a portion of any future amounts paid. The Company is unable to reasonably estimate the maximum amount that could be payable under these arrangements since these obligations are not capped but are conditional to the unique facts and circumstances involved. Accordingly, the Company has no liabilities recorded for these agreements as of June 30, 2013 and September 30, 2013.

Many of the Company’s agreements with customers and channel partners, including OEMs and resellers, generally include certain provisions for indemnifying the channel partners and customers against liabilities if the Company’s products infringe a third party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnification provisions and has not accrued any liabilities related to such obligations in the consolidated financial statements.

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Employee Agreements

The Company has various agreements with selected employees pursuant to which if their employment is terminated by the Company without cause or by the employees for good reason, or following a change of control of the Company, the employees are entitled to receive certain benefits, including severance payments, accelerated vesting of stock and stock options, and certain insurance benefits.

Legal Matters

On February 7, 2012, Entorian Technologies L.P. (“Entorian Technologies”), filed a lawsuit in the U.S. District Court for the District of Utah against the Company. The complaint alleged that memory stacks included in some of the Company’s products infringe U.S. Patent No. 5,420,751, or the ‘751 patent, which expired in May 2012. Polystak, Inc. is the Company’s third-party supplier of the accused memory stack component. On March 1, 2012, Polystak filed a lawsuit against Entorian Technologies in the U.S. District Court for the Northern District of California. The complaint alleges that the ‘751 patent is invalid, and that Polystak’s memory stacks do not infringe the ‘751 patent. On March 8, 2012, Entorian Technologies dismissed the lawsuit against the Company in Utah. On March 9, 2012, Entorian Technologies filed a counterclaim against the Company and Polystak in the Northern District of California lawsuit. The counterclaim alleges that the Company and Polystak infringe the ‘751 patent and seeks damages, but it does not seek an injunction. On September 4, 2012, the Court stayed this lawsuit pending reexamination of the ‘751 patent by the U.S. Patent Office. Polystak has agreed to indemnify and defend the Company with respect to these lawsuits.

On May 18, 2011, Internet Machines LLC (“Internet Machines”) filed a lawsuit in U.S. District Court for the Eastern District of Texas against the Company and 20 other companies. The complaint alleges that the Company’s products infringe U.S. Patent Nos. 7,454,552; 7,421,532; 7,814,259; and 7,945,722. On August 26, 2011, Internet Machines MC LLC amended its prior complaint filed in the U.S. District Court for the Eastern District of Texas against PLX Technology, Inc. to add the Company and several other companies as defendants. This complaint alleges that the Company’s products infringe U.S. Patent No. 7,539,190. These complaints seek both damages and a permanent injunction against the Company. The specific infringement allegations appear to focus on a PCI switch component that, while used in some of the Company’s products, is manufactured by a third-party supplier. This third-party supplier was found to infringe the above identified U.S. Patent Nos. 7,454,552 and 7,421,532 by a jury in a prior case. The judge has stayed the lawsuits against the Company pending the entry of a final non-appealable judgment in the prior case between the third-party supplier and Internet Machines. The third-party supplier has agreed to indemnify and defend the Company with respect to these lawsuits.

Based on the Company’s preliminary investigations of the patents identified in the Entorian Technologies and Internet Machines complaints, the Company does not believe that its products infringe any valid or enforceable claim of the patents at issue in those complaints. With respect to these matters, the Company’s third-party suppliers have agreed to indemnify and defend the Company. As of September 30, 2013, the Company did not record a liability related to these matters as it determined that an unfavorable resolution is either not currently probable or that an amount or relevant range is not reasonably estimable. However, litigation is inherently unpredictable and it is possible that losses may occur. Any unfavorable resolution of any of these matters could materially affect the Company’s consolidated financial position, cash flows, or results of operations. All legal costs associated with litigation are expensed as incurred.

Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

In addition to historical information, this Annual Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the views of our management regarding current expectations and projections about future events and are based on currently available information. These forward-looking statements include, but are not limited to, statements concerning our possible or assumed future results of operations, business strategies, financing plans, technological leadership, market opportunity, expectations regarding product acceptance, ability to innovate new products and bring them to market in a timely manner, ability to successfully increase sales of our software offerings as part of our overall sales strategy, expectations concerning our technologies, products and solutions, including our current ioDrive, ioScale, and ioFX product lines, our ION Data Accelerator software, our virtualization acceleration software, and our ioControl hybrid storage system, competitive position and the effects of competition, industry environment, the impact of recent management changes, potential growth opportunities, ability to expand internationally, ability to expand in adjacent markets, the impact of quarterly fluctuations of revenue and operating results, changes to and expectations concerning gross margin, expectations concerning relationships with third parties, including channel partners, key customers and original equipment manufacturers, or OEMs, expectations regarding future revenues from our customers, levels of capital expenditures, future capital requirements and availability to fund operations and growth, the adequacy of facilities, impact and expectations concerning our acquisitions of the ID7 Ltd. and SCST Limited, or ID7 Entities, and NexGen Storage, Inc., or

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NexGen, the adequacy of our intellectual property rights, expectations concerning pending legal proceedings and related costs, the sufficiency of our issued patents and patent applications to protect our intellectual property rights, the effects of a natural disaster on us or our suppliers, our ability to resell inventory that we cannot use in our products due to obsolescence, our ability to maintain or grow our sales through OEMs and other channel partners and to maintain our relationships with those channel partners, including the timely qualification of our products for promotion and sale through those channels, particularly OEMs, OEMs continuing to design our products into their products, the importance of software innovation, and volatility regarding our provision for income taxes. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts, “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms.

These forward-looking statements are inherently subject to uncertainties, risks, and changes in circumstances that are difficult to predict. Actual results could differ materially from those contained in these forward-looking statements for a variety of reasons, including, but not limited to, those discussed in the section entitled “Risk Factors” in Part II, Item 1A and elsewhere in this report. Other unknown or unpredictable factors also could have a material adverse effect on our business, financial condition, and results of operations. Accordingly, readers should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Form 10-Q.

We are not under any obligation to, and do not intend to, publicly update or review any of these forward-looking statements, whether as a result of new information, future events, or otherwise, even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized, except to the extent required by applicable securities laws. Please carefully review and consider the various disclosures made in this report and in our other reports filed with the Securities and Exchange Commission, or SEC, that attempt to advise interested parties of the risks and factors that may affect our business, prospects, and results of operations.

The information included in this management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the notes included in this report, and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended June 30, 2013.

Overview

We provide solutions for enterprises, hyperscale datacenters, and small to medium enterprises that accelerate databases, virtualization, cloud computing, big data, information systems, and the applications that help drive business from the smallest e-tailers to some of the world’s largest data centers, social media leaders, and Fortune Global 500 businesses. Our integrated hardware and software platforms enable the acceleration of data away from legacy architectures and proprietary hardware. This core technology leverages flash memory to significantly increase datacenter and computer-based information system efficiency, with enterprise grade performance, reliability, availability, and manageability.

We were incorporated in December 2005 and have experienced significant growth since inception. Our growth has included significant increases in end-customers, introduction of new products including those from acquisitions, and investments in our product roadmap and business operations to support this growth. As a result of these factors, our headcount increased from 733 employees as of September 30, 2012 to 911 employees as of September 30, 2013.

We sell our products through our global direct sales force, OEMs, including Cisco, Dell, Fujitsu, HP, and IBM, and other channel partners. Some of our OEMs and channel partners integrate our platform into their own proprietary product offerings. Our primary sales office is located in San Jose, California, and we also have additional sales presence in North America, Europe, and Asia.

Large purchases by a limited number of customers, including OEMs and resellers which sell to end-customers, have accounted for a substantial majority of our revenue, and the composition of the group of our largest customers changes from period to period. Some of our customers make concentrated purchases to complete or upgrade specific large-scale data storage installations. These concentrated purchases are short-term in nature and are typically made on a purchase order basis rather than pursuant to long-term contracts. Customers that accounted for 10% or more of our revenue represented 70% and 57% of revenue for the three months ended September 30, 2012 and 2013, respectively. During the three months ended September 30, 2012 and 2013, revenue from the 10 largest customers in each period, including the applicable OEMs, accounted for approximately 91% and 77% of revenue, respectively. As a result of our revenue concentrations, our quarterly and annual revenue, gross margin, and operating results are likely to fluctuate in the future and will be difficult to estimate. We expect that sales to a limited number of customers will continue to contribute materially to our revenue for the foreseeable future. As our solutions become more broadly deployed in the market place and the number of our end-customers increases, we expect to have a broader customer base to support the continued growth of our business.

We anticipate that sales through OEMs and other channel partners will continue to constitute a substantial portion of our future revenue. In some cases, our products must be designed or qualified into the OEM’s products. If that fails to occur for a given product line of an OEM, we would likely be unable to sell our products to that OEM during the life cycle of that product, which would adversely affect our revenue. We expect that as we continue to expand our global presence and business overseas, we will increasingly depend on our OEM relationships in such markets.

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We believe that extending our platform differentiation through software and hardware innovation will be critical to achieving broader market acceptance and to maintaining or increasing our gross margins. In this regard, our ioTurbine virtualization acceleration software, ION Data Accelerator software, ioVDI virtual desktop acceleration, ioControl hybrid storage software, ioSphere management software, and specialized storage memory programming software interface extensions that allow Integrated Software Vendors to develop, integrate, and add significant value to applications using our platforms are important strategic investments that differentiate our products from hardware competitors. We invest in hardware qualification so that we can apply the value of our software to new non-volatile technologies as they become available. We also invest in new hardware controllers to ensure that our products are competitive in performance, reliability, power, and density. If we are unable to successfully develop or acquire hardware or software technology, and then market and sell additional functionality, our ability to increase our revenue and gross margins could be adversely affected.

Our ioMemory technology forms the basis of our ioDrive, ioScale, and ioFX product offerings. Our ioMemory is designed as a portfolio of upgradeable design modules, enabling faster time-to-market and increased extensibility, and it provides server-based storage class memory, low access latency, field upgradeability, deep error correction, self-healing protection, and native PCI-Express connectivity. Our second generation ioMemory technology supports the latest NAND geometries, significantly increases performance and capacity, improves reliability and cost while retaining the ability to build storage systems of varying capacity, performance, and form factors. At the heart of the ioMemory technology is our proprietary field programmable data path controller. It connects a large array of non-volatile memory chips natively to the server’s PCI-Express 1.0 or 2.0 peripheral bus, and addresses the reliability issues of non-volatile memory with our Adaptive Flashback Protection advanced chip-level fault tolerance technology, which is capable of restoring, correcting, and resurrecting lost data in the flash-based storage sub-system.

We outsource manufacturing of our ioMemory-based products using a limited number of contract manufacturers. We outsource manufacturing of our shared acceleration products using a limited number of system integrators. We procure a majority of the components used in our products directly from third-party vendors and have them delivered to our contract manufacturers for manufacturing and assembly. Once our contract manufacturers perform sub-assembly and assembly quality tests, our products are assembled to our specified configurations. We then perform final manufacturing assurance tests, labeling, final configuration, including a final firmware installation and shipment to our customers.

As a consequence of the rapidly evolving nature of our business and our limited operating history, we believe that period-to-period comparisons of revenue and other operating results, including gross margin and operating expenses as a percentage of our revenue should not be relied upon as indications of future performance. Although we have historically experienced significant percentage growth in our revenue, we do not believe that our historical growth rates are likely to be sustainable or indicative of future growth.

Components of Condensed Consolidated Statements of Operations

Revenue

We derive revenue primarily from the sale of our storage memory products and support services. We sell our solutions through our global direct sales force, OEMs, and other channel partners. We provide our support services pursuant to support contracts, which involve hardware support, software support, and software upgrades on a when-and-if available basis for a period of one to five years. We recorded services, support, and maintenance revenue of $7.5 million and $8.4 million for the three months ended September 30, 2012 and 2013, respectively. For the periods presented, our software revenue was not significant to our condensed consolidated statements of operations.

Cost of Revenue

Cost of revenue consists primarily of material costs including amounts paid to our suppliers and contract manufacturers for hardware components and assembly of those components into our products. The largest portion of our cost of revenue consists of the cost of non-volatile memory components. Given the commodity nature of memory components, neither we nor our contract manufacturers generally enter into long-term supply contracts for our product components, which can cause our cost of revenue to fluctuate. Cost of revenue is recorded when the related product revenue is recognized. Cost of revenue also includes costs related to carrying value adjustments recorded for excess and obsolete inventory, allocated personnel expenses related to customer support, amortization of intangible assets, manufacturing operations, warranty costs, and costs of shipping.

Operating Expenses

The largest component of our operating expenses is personnel costs, consisting of salaries, benefits, and incentive compensation for our employees, which includes stock-based compensation. Our headcount increased from 733 to 911 from September 30, 2012 to September 30, 2013. As a result, operating expenses have increased significantly over these periods.

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Certain expense amounts previously reported in the condensed consolidated statements of operations for the three months ended September 30, 2012 have been reclassified to reflect an adjustment to the method in which we allocate information technology and facility costs and to conform to fiscal 2014 presentation. As a result of the reclassifications, cost of revenue increased by $0.1 million, sales and marketing expenses increased by $0.6 million, research and development expenses increased by $0.5 million, and general and administrative expenses decreased by $1.2 million for the three months ended September 30, 2012. The net effect of these reclassifications did not impact the amounts previously reported as income from operations and net income.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel costs, including incentive compensation, travel-related costs, allocated facilities and IT costs, product demonstration expenses, depreciation associated with sales and marketing acquired assets, contract labor and consulting expenses associated with sales and marketing activities, and amortization of intangible assets.

Research and Development

Research and development expenses consist primarily of personnel costs, including incentive compensation, allocated facilities and IT costs, depreciation associated with research and development acquired assets, contract labor and consulting services, amortization of intangible assets, travel-related costs, and prototype expenses. We expense research and development costs as incurred.

General and Administrative

General and administrative expenses consist primarily of personnel costs, including incentive compensation, depreciation expense, legal, finance, and accounting expenses, consulting and professional services, allocated facilities and IT costs for our executive, finance, human resources, information technology, and legal organizations, and travel-related costs.

Other Income (Expense), net

Other income (expense), net consists of transactional foreign currency gains and losses, interest expense, and interest income.

Trends in Our Business

Gross Margin

Our gross margin will vary due to product mix, pricing, cost of materials, and product transition. We currently anticipate gross margin to decrease in the near term primarily as a result of our growth strategy.

Operating Expenses

We expect operating expenses to remain relatively flat in absolute dollars in the near term and to increase over time to support growth.

Results of Operations

Revenue

The following table presents our revenue for the periods indicated and related changes as compared to the prior periods (dollars in thousands):

	Three Months Ended September 30,				Change in
	2012		2013		$			%
Revenue	$	118,115	$	86,293	$	(31,822	)		(27	)%

Revenue decreased $31.8 million from the three months ended September 30, 2012 compared to the three months ended September 30, 2013 primarily due to the decrease in the overall volume of our products shipped.

Customers that accounted for 10% or more of our revenue represented 70% and 57% of revenue for the three months ended September 30, 2012 and 2013, respectively. Revenue from the 10 largest customers, including the applicable OEMs, for the periods presented was 91% and 77% of revenue for the three months ended September 30, 2012 and 2013, respectively. Revenue recognized from sales with a ship-to location outside of the United States was 38% and 40% of revenue for the three months ended September 30, 2012 and 2013, respectively.

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Cost of Revenue and Gross Margin

The following table presents our cost of revenue, gross profit, and gross margin for the periods indicated and related changes as compared to the prior periods (dollars in thousands):

	Three Months Ended September 30,						Change in
	2012			2013			$			%
Cost of revenue	$	48,065		$	36,540		$	(11,525	)		(24	)%
Gross profit		70,050			49,753			(20,297	)		(29	)%
Gross margin		59	%		58	%

Cost of revenue decreased $11.5 million and gross profit decreased $20.3 million from the three months ended September 30, 2012 compared to the three months ended September 30, 2013, primarily due to the decrease in the volume of our products shipped. Gross margin decreased period over period due to inventory adjustments primarily from excess and obsolete inventory and amortization of intangible assets acquired in fiscal 2013, partially offset by favorable product mix and material costs.

Operating Expenses

Sales and Marketing

The following table presents our sales and marketing expenses for the periods indicated and related changes as compared to the prior periods (dollars in thousands):

	Three Months Ended September 30,				Change in
	2012		2013		$		%
Sales and marketing	$	25,587	$	34,798	$	9,211		36	%

Sales and marketing expenses increased $9.2 million from the three months ended September 30, 2012 compared to the three months ended September 30, 2013, primarily due to an increase in sales and marketing personnel, as we hired additional employees to focus on acquiring new customers and expanding our business. This increase in headcount resulted in an $8.1 million increase in personnel-related costs, including a $1.9 million increase in sales commissions. The increase was also due to a $1.6 million increase in travel costs.

Research and Development

The following table presents our research and development expenses for the periods indicated and related changes as compared to the prior periods (dollars in thousands):

	Three Months Ended September 30,				Change in
	2012		2013		$		%
Research and development	$	22,173	$	29,468	$	7,295		33	%

Research and development expenses increased $7.3 million from the three months ended September 30, 2012 compared to the three months ended September 30, 2013, primarily due to an increase in research and development personnel, resulting in a $7.0 million increase in personnel-related costs.

General and Administrative

The following table presents our general and administrative expenses for the periods indicated and related changes as to the prior periods (dollars in thousands):

	Three Months Ended September 30,				Change in
	2012		2013		$			%
General and administrative	$	13,841	$	13,291	$	(550	)		(4	)%

General and administrative expenses decreased $0.6 million from the three months ended September 30, 2012 compared to the three months ended September 30, 2013, primarily due to lower stock-based compensation expense offset by an increase in other personnel-related costs.

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Other Income (Expense), net

The following table presents our other income (expense), net for the periods indicated and related changes as compared to the prior periods (dollars in thousands):

	Three Months Ended September 30,				Change in
	2012		2013		$		%
Other income (expense), net	$	55	$	170	$	115		209	%

Other income (expense), net changed by $0.1 million from the three months ended September 30, 2012 compared to the three months ended September 30, 2013, primarily due to an increase in foreign currency exchange rate variances.

Income Tax Expense

The following table presents our income tax expense for the periods indicated and related changes as compared to the prior periods (dollars in thousands):

	Three Months Ended September 30,				Change in
	2012		2013		$			%
Income tax expense	$	4,571	$	262	$	(4,309	)		(94	)%

Income tax expense decreased by $4.3 million from the three months ended September 30, 2012 compared to the three months ended September 30, 2013, primarily due to the current period operating loss. The provision for income taxes for the three months ended September 30, 2013 was comprised primarily of foreign and state income taxes.

Financial Position, Liquidity, and Capital Resources

Primary Sources of Liquidity

As of September 30, 2013, our principal sources of liquidity consisted of cash and cash equivalents of $225.3 million, net accounts receivable of $63.9 million, and amounts available under our revolving line of credit of approximately $21.8 million. We had working capital of $301.4 million as of September 30, 2013.

Historically, our primary sources of liquidity have been from customer payments for our products and services, and the issuance of common stock.

Cash Flow Analysis

	Three Months Ended September 30,
	2012			2013
	(In thousands)
Net cash provided by (used in):
Operating activities	$	28,667		$	(17,146	)
Investing activities		(5,175	)		(3,281	)
Financing activities		9,068			7,349

Operating Activities

Our operating cash flow primarily depends on the timing and amount of cash receipts from our customers, inventory purchases, and payments for operating expenses.

Our net cash provided by operating activities for the three months ended September 30, 2012 was $28.7 million. During this period, cash collected from our customers exceeded our operating cash outflows, which consisted primarily of purchases of inventory and personnel-related costs.

Our net cash used in operating activities for the three months ended September 30, 2013 was $17.1 million. During this period, our cash used in operating activities was primarily the result of operating cash outflows, which mainly included payments on certain year-end accrued liabilities and purchases of inventory, exceeding cash collected from our customers as a result of decreased revenue.

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Investing Activities

Cash flows from investing activities primarily relate to purchases of computer equipment, leasehold improvements, and property and equipment to support our growth.

During the three months ended September 30, 2012 and 2013, our net cash used in investing activities was $5.2 million and $3.3 million, respectively, for purchases of property and equipment.

Financing Activities

Cash flows from financing activities primarily include net proceeds from the exercise of stock options and our employee stock purchase plan.

We generated $9.1 million of net cash from financing activities for the three months ended September 30, 2012, primarily due to $5.7 million in net proceeds from the exercise of stock options and our employee stock purchase plan, and $4.4 million from a tax benefit from the exercise of stock options, all offset by the issuance of restricted stock awards and restricted stock units, net of repurchases of $1.1 million.

We generated $7.3 million of net cash from financing activities for the three months ended September 30, 2013, primarily due to $4.8 million in net proceeds from the exercise of stock options and our employee stock purchase plan, and reduced restricted cash of $3.3 million as a result of the majority of our letters of credit being collateralized by our line of credit entered into during the three months ended September 30, 2013.

Revolving Line of Credit

In September 2013, we entered into a credit agreement, or the revolving line of credit, with Silicon Valley Bank. The revolving line of credit allows us to borrow up to a limit of $25.0 million, with a $25.0 million letter of credit sub-facility. The revolving line of credit contains an option to increase the lending commitments, subject to certain requirements, with Silicon Valley Bank and/or new lenders to provide up to an aggregate of $75.0 million in additional lending commitments. Loan proceeds may be used for general corporate purposes, and we may prepay and/or reborrow revolving loans under the revolving line of credit in whole or in part at any time without premium or penalty. As of September 30, 2013, we had no outstanding revolving loans under the credit agreement and an aggregate face amount of $3.2 million in undrawn letters of credit under the revolving line of credit.

The revolving loans bear interest, at our option, at (i) a base rate determined in accordance with the revolving line of credit, minus 0.75%, or (ii) a LIBOR rate determined in accordance with the credit agreement, plus 1.25%. The base rate means the highest of (i) the prime rate published by the Wall Street Journal and (ii) the federal funds rate plus a margin equal to 0.50%. Interest is due and payable in arrears monthly for base rate loans and at the end of an interest period (or at each three month interval in the case of loans with interest periods greater than three months) for LIBOR rate loans. Principal, together with all accrued and unpaid interest, is due and payable on September 13, 2016.

We are also obligated to pay a quarterly unused commitment fee equal to 0.10% multiplied by the average unused portion of the total revolving commitments, a quarterly fee of 1.25% on the daily amount available to be drawn under each letter of credit, and other customary fees for a facility of this size and type.

Upon an event of default, the lender(s) may terminate their commitments to make further revolving loans and declare the outstanding revolving loans and all accrued and unpaid interest under the revolving line of credit to be immediately due and payable. The events of default under the revolving line of credit include, among others, payment defaults, covenant defaults, inaccuracy of representations and warranties, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults, ERISA defaults, judgment defaults, a change of control default, and a material adverse effect default.

Under the terms of the revolving line of credit, we are required to maintain the following minimum financial covenants on a consolidated basis:

• A ratio of current assets to the sum of (i) current liabilities plus, without duplication, (ii) the aggregate amount of outstanding revolving loans and undrawn or unreimbursed letters of credit under the revolving line of credit, of at least 2.00 to 1.00.

• A tangible net worth of at least the sum of (i) $200 million, plus (ii) an amount equal to 50% of net income earned in each fiscal quarter ending after March 30, 2013, plus (ii) an amount equal to 25% of the aggregate increases in shareholders’ equity resulting from certain specified transactions.

As of September 30, 2013, we were in compliance with all covenants.

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Future Capital Requirements

Our future capital requirements will depend on many factors, including our rate of revenue growth, possible acquisitions of, or investments in, businesses, technologies, or other assets, the expansion of our sales and marketing activities, the timing and extent of spending to support product development efforts, and the expansion into new territories, the timing of new product introductions, the building of infrastructure to support our growth, the continued market acceptance of our products, and strategic investments in businesses.

We believe that our cash and cash equivalents will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. Although we are not currently a party to any material agreement or letter of intent regarding potential investments in, or acquisitions of, complementary businesses, applications, or technologies, we may enter into these types of arrangements, which could require us to seek additional equity or debt financing. If required, additional financing may not be available on terms that are favorable to us, if at all. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced and these securities might have rights, preferences, and privileges senior to those of our current stockholders. We cannot assure you that additional financing will be available or that, if available, such financing can be obtained on terms favorable to our stockholders and us.

Off Balance Sheet Arrangements

During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purpose.

Indemnification

We have agreed to indemnify our officers and directors for certain events or occurrences, while the officer or director is or was serving at our request in such capacity. The maximum amount of potential future indemnification is unlimited; however, we have a director and officer insurance policy that provides corporate reimbursement coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We are unable to reasonably estimate the maximum amount that could be payable under these arrangements since these obligations are not capped but are conditional to the unique facts and circumstances involved. Accordingly, we had no liabilities recorded for these agreements as of June 30, 2013 and September 30, 2013.

Many of our agreements with customers and channel partners, including OEMs and resellers, generally include certain provisions for indemnifying the channel partners and customers against liabilities if our products infringe a third party’s intellectual property rights. To date, we have not incurred any material costs as a result of such indemnification provisions and have not accrued any liabilities related to such obligations in our consolidated financial statements.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. These estimates and assumptions are often based on judgments that we believe to be reasonable under the circumstances at the time made, but all such estimates and assumptions are inherently uncertain and unpredictable. Actual results may differ from those estimates and assumptions, and it is possible that other professionals, applying their own judgment to the same facts and circumstances, could develop and support alternative estimates and assumptions that would result in material changes to our operating results and financial condition. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

Our critical accounting policies and estimates are detailed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended June 30, 2013. None of our critical accounting policies and estimates have been significantly changed since the filing of our most recent Form 10-K.

Recently Issued and Adopted Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, see Note 1 “Description of Business and Summary of Significant Accounting Policies — Recently Issued and Adopted Accounting Pronouncements” in the notes to condensed consolidated financial statements.

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Segments

Operating segments are defined in accounting standards as components of an enterprise about which separate financial information is available and is regularly evaluated by management, namely the chief operating decision maker of an organization, in order to make operating and resource allocation decisions. We have concluded that we operate in one business segment, which is the development, marketing, and sale of storage class memory products. Substantially all of our revenue for all periods presented in the accompanying consolidated statements of operations has been from sales of the ioMemory product lines and related customer support services.

Part I. Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Risk

Our international sales and marketing operations incur expenses that are denominated in foreign currencies. Although our international operations are currently immaterial compared to our operations in the United States, we expect to continue to expand our international operations which will increase our potential exposure to fluctuations in foreign currencies. Our exposures are to fluctuations in exchange rates primarily for the U.S. dollar versus the euro and the British pound. Changes in currency exchange rates could adversely affect our consolidated results of operations or financial position. Additionally, our international sales and marketing operations maintain cash balances denominated in foreign currencies. In order to decrease the inherent risk associated with translation of foreign cash balances into our reporting currency, we have not maintained material excess cash balances in foreign currencies. As of September 30, 2013, we had approximately $3.7 million of cash in foreign accounts. To date, we have not hedged our exposure to changes in foreign currency exchange rates and, as a result, could incur unanticipated translation gains and losses. Through September 30, 2013, all of our sales were billed in U.S. dollars and therefore not subject to direct foreign currency risk.

Part I. Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, our management, including our Chief Executive Officer and Principal Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Principal Accounting Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

During the first quarter of fiscal 2014, we did not make any changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings

On February 7, 2012, Entorian Technologies L.P., filed a lawsuit in the U.S. District Court for the District of Utah against our company. The complaint alleged that memory stacks included in some of our products infringe U.S. Patent No. 5,420,751, or the ‘751 patent, which expired in May 2012. Polystak, Inc. is our third-party supplier of the accused memory stack component. On March 1, 2012, Polystak filed a lawsuit against Entorian Technologies in the U.S. District Court for the Northern District of California. The complaint alleges that the ‘751 patent is invalid, and that Polystak’s memory stacks do not infringe the ‘751 patent. On March 8, 2012, Entorian Technologies dismissed the lawsuit against us in Utah. On March 9, 2012, Entorian Technologies filed a counterclaim against us and Polystak in the Northern District of California lawsuit. The counterclaim alleges that Fusion-io and Polystak infringe the ‘751 patent and seeks damages, but it does not seek an injunction. On September 4, 2012, the Court stayed this lawsuit pending reexamination of the ‘751 patent by the U.S. Patent Office. Polystak has agreed to indemnify and defend us with respect to these lawsuits.

On May 18, 2011, Internet Machines LLC filed a lawsuit in U.S. District Court for the Eastern District of Texas against us and 20 other companies. The complaint alleges that our products infringe U.S. Patent Nos. 7,454,552; 7,421,532; 7,814,259; and 7,945,722. On August 26, 2011, Internet Machines MC LLC amended its prior complaint filed in the U.S. District Court for the Eastern District of Texas against PLX Technology, Inc. to add our company and several other companies as defendants. This complaint alleges that our products infringe U.S. Patent No. 7,539,190. These complaints seek both damages and a permanent injunction against us. The specific infringement allegations appear to focus on a PCI switch component that, while used in some of our products, is manufactured by a third-party supplier. This third-party supplier was found to infringe the above identified U.S. Patent Nos. 7,454,552 and 7,421,532 by a jury in a prior case. The judge has stayed the lawsuits against us pending the entry of a final non-appealable judgment in the prior case between the third-party supplier and Internet Machines. The third-party supplier has agreed to indemnify and defend us with respect to these lawsuits.

Based on our preliminary investigations of the patents identified in the Entorian Technologies and Internet Machines complaints, we do not believe that our products infringe any valid or enforceable claim of the patents at issue in those complaints. Nevertheless, the costs associated with any actual, pending, or threatened litigation could negatively impact our operating results regardless of the actual outcome. In addition, we may, from time to time, be involved in various legal proceedings arising from the normal course of business activities, and an unfavorable resolution of any of these matters could materially affect our future results of operations, cash flows, or financial position.

Part II. Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties, including those described below, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock.

Risks Related to Our Business and Industry

Our limited operating history makes it difficult to evaluate our current business and future prospects, and may increase the risk of your investment.

We were founded in December 2005 and sold our first products in April 2007. The majority of our revenue growth has occurred since December 31, 2009. We continue to innovate and develop enterprise data acceleration solutions. For example, we expanded our line of PCIe attached Flash product lines to include both performance and cost optimized solutions, released and upgraded our ION Data Accelerator software, acquired hybrid storage solutions for the SME market, added extensions to our virtualization and automated data-tiering caching software, and introduced industry standard application programming interfaces, or APIs, under the OpenNVM initiative. In addition, our current management team has only been working together for a relatively short period of time. Our limited operating history makes it difficult to evaluate our current business and our future prospects, including our ability to plan for and model future growth. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, such as the risks described herein. If we do not address these risks successfully, our business and operating results would be adversely affected, and our stock price could decline.

Our revenue growth rate in recent periods is not expected to recur in the near term and may not be indicative of our future performance.

You should not consider our revenue growth in recent periods as indicative of our future performance. In future periods, we do not expect to achieve similar percentage revenue growth rates as have achieved in some past periods. We have experienced in the past, and continue to expect to experience, substantial concentrated purchases by customers to complete or upgrade large-scale datacenter deployments. As illustrated in the three months ended March 31, 2013, June 30, 2013, and September 30, 2013, our revenue in any particular quarterly period could be disproportionately affected if this trend continues. You should not rely on our revenue for any prior quarterly or annual periods as an indication of our future revenue or revenue growth. If we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability.

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We have experienced rapid growth in recent periods and we may not be able to sustain or manage any future growth effectively.

We have significantly expanded our overall business, customer base, headcount, and operations, and we anticipate that we will continue to grow our business. For example, from September 30, 2012 to September 30, 2013, our headcount increased from 733 to 911 employees, representing an increase of 178 employees. Our future operating results depend to a large extent on our ability to successfully manage our anticipated expansion and growth.

To manage our growth successfully, we believe we must effectively, among other things:

• maintain and extend our leadership in enterprise, hyperscale, and SME data acceleration;

• maintain and expand our existing OEM and channel partner relationships and develop new OEM and channel partner relationships;

• forecast and control expenses;

• recruit, hire, train, and manage additional research and development and sales personnel;

• expand our support capabilities;

• enhance and expand our distribution and supply chain infrastructure;

• manage inventory levels;

• enhance and expand our international operations; and

• implement, improve, and maintain our administrative, financial, and operational systems, procedures, and controls.

We expect that our future growth will continue to place a significant strain on our managerial, administrative, operational, financial, and other resources. We will incur costs associated with this future growth prior to realizing the anticipated benefits, and the return on these investments may be lower, or may develop more slowly, than we expect or may be nonexistent. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities or develop new products or enhancements to existing products, and we may fail to satisfy end-users’ requirements, maintain product quality, execute on our business plan or respond to competitive pressures, each of which could adversely affect our business and operating results.

We expect large and concentrated purchases by a limited number of customers to continue to represent a substantial majority of our revenue, and any loss or delay of expected purchases could adversely affect our operating results.

Historically, large purchases by a relatively limited number of customers have accounted for a substantial majority of our revenue, and the composition of the group of our largest customers changes from period to period. Some of our customers make concentrated purchases to complete or upgrade specific large-scale data storage installations. These concentrated purchases are short-term in nature and are typically made on a purchase order basis rather than pursuant to long-term contracts. Customers that accounted for 10% or more of our revenue represented 70% and 57% of revenue for the three months ended September 30, 2012 and 2013, respectively. During the three months ended September 30, 2012 and 2013, revenue from the 10 largest customers in each period, including the applicable OEMs, accounted for approximately 91% and 77% of revenue, respectively.

As a consequence of our limited number of large customers and the concentrated nature of their purchases, our quarterly revenue, gross margin, and operating results may fluctuate from quarter to quarter and are difficult to estimate. For example, any acceleration or delay in anticipated product purchases or the acceptance of shipped products by our larger customers could materially impact our revenue and operating results in any quarterly period. Additionally, our revenue and operating results could be adversely affected if any of these larger customers purchase our competitors’ products instead of purchasing our products. We typically have limited visibility into the timing and size of purchases by our larger customers. We cannot provide any assurance that we will be able to sustain or increase our revenue from our larger customers or that we will be able to offset the discontinuation of concentrated purchases by our larger customers with purchases by new or existing customers. We expect that sales of our products to a limited number of customers will continue to contribute materially to our revenue for the foreseeable future, but that competition for these sales will increase. The loss of, or a significant delay or reduction in purchases by or change in the purchasing patterns of, a small number of significant customers could materially harm our business and operating results.

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Our gross margins are impacted by a variety of factors, are subject to variation from period to period, and are difficult to predict.

Our gross margins fluctuate from period to period due primarily to product costs, customer mix, and product mix. From the three months ended September 30, 2012 through the three months ended September 30, 2013, our quarterly gross margins ranged from 54.9% to 61.7%. Our gross margins are likely to continue to fluctuate and may be affected by a variety of factors, including:

• demand for our products;

• rebates, sales and marketing initiatives, discount levels, and competitive pricing;

• changes in customer, geographic, or product mix, including mix of configurations within products;

• favorable pricing for volume sales transactions;

• significant new customer deployments;

• the cost of components and freight;

• changes in our manufacturing costs, including fluctuations in yields and production volumes;

• new product introductions and enhancements, potentially with initial sales at relatively small volumes and higher product costs;

• our growth strategy;

• changes in the mix between direct versus indirect sales;

• the timing and amount of revenue recognized and deferred;

• excess inventory levels or purchase commitments as a result of changes in demand forecasts or last time buy purchases;

• write-downs due to excess and obsolete inventory;

• possible product and software defects and related increased warranty or repair costs;

• the timing of technical support service contracts and contract renewals;

• expenses relating to licensed technology;

• inventory stocking requirements to mitigate supply constraints, accommodate unforeseen demand, or support new product introductions; and

• product quality and service ability issues.

Due to such factors, gross margins are subject to variation from period to period and are difficult to predict. If we are unable to manage these factors effectively, our gross margins may decline, and fluctuations in gross margin may make it difficult to manage our business and achieve or maintain profitability, which could materially harm our business and operating results.

Some of our larger customers require more favorable terms and conditions from their vendors and may request pricing concessions. As we seek to sell more products to these customers, we may be required to agree to terms and conditions that may have an adverse effect on our business or ability to recognize revenue.

Some of our larger customers have significant purchasing power and, accordingly, have requested and received more favorable terms and conditions, including lower prices, than we typically provide. As we seek to sell more products to this class of customer, we may be required to agree to these terms and conditions, which may include terms that affect the timing of our revenue recognition or may reduce our gross margins and have an adverse effect on our business and operating results.

The future growth of our sales to OEMs is dependent on OEM customers incorporating our products into their server and data storage systems and the OEM’s sales efforts. Any failure to grow our OEM sales and maintain relationships with OEMs could adversely affect our business, operating results, and financial condition.

Sales of our products to OEMs represent a significant portion of our revenue and we anticipate that our OEM sales will constitute a substantial portion of our future sales. In some cases, our products must be designed into the OEM’s products. If that fails to occur for a given product line of an OEM, we would likely be unable to sell our products to that OEM for such product line during the life cycle of that product. Even if an OEM integrates one or more of our products into its server, data storage systems or appliance solutions, we cannot be assured that its product will be commercially successful, and as a result, our sales volumes may be less than anticipated. Our OEM customers are typically not obligated to purchase our products and can choose at any time to stop using our products, if their own systems are not commercially successful or if they decide to pursue other strategies or for any other reason, including the incorporation or development of competing products by these OEMs. Moreover, our OEM customers may not devote sufficient attention and resources to selling our products. We may not be able to develop or maintain relationships with OEMs for a number of reasons, including because of the OEM’s relationships with our competitors or prospective competitors or other incentives that may not motivate their internal sales forces to promote our products. In addition, direct sales of our ioDrive and ioScale product lines may compete with products sold by our OEM partners, and our OEM partners may compete directly with our other OEM

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partners, which may affect the commitment of our OEM partners to sell our products. Even if we are successful in selling through OEMs, sales through OEMs could result in a lower gross margin business than our direct sales business. If we are unable to grow our OEM sales, if our OEM customers’ systems incorporating our products are not commercially successful, if our products, including new and next generation products, are not designed into a given OEM product cycle, if we fail to minimize conflicts between our channel partners, in particular OEMs, if our OEM customers do not timely qualify our products for promotion or sale by them, or if our OEM customers significantly reduce, cancel, or delay their orders with us, our revenue would suffer and our business, operating results, and financial condition could be materially adversely affected.

Ineffective management of our inventory levels could adversely affect our operating results.

If we are unable to properly forecast, monitor, control, and manage our inventory and maintain appropriate inventory levels and mix of products to support our customers’ needs, we may incur increased and unexpected costs associated with our inventory. Sales of our products are generally made through individual purchase orders and some of our customers place large orders with short lead times, which make it difficult to predict demand for our products and the level of inventory that we need to maintain to satisfy customer demand. If we build our inventory in anticipation of future demand that does not materialize, or if a customer cancels or postpones outstanding orders, we could experience an unanticipated increase in levels of our finished products. For some customers, even if we are not contractually obligated to accept returned products, we may determine that it is in our best interest to accept returns in order to maintain good relationships with those customers. Product returns would increase our inventory and reduce our revenue. If we are unable to sell our inventory in a timely manner, we could incur additional carrying costs, reduced inventory turns, and potential write-downs due to obsolescence.

Alternatively, we could carry insufficient inventory, and we may not be able to satisfy demand, which could have an adverse effect on our customer relationships or cause us to lose potential sales.

We have often experienced order changes including delivery delays and fluctuations in order levels from period-to-period, and we expect to continue to experience similar delays and fluctuations in the future, which could result in fluctuations in inventory levels, cash balances, and revenue.

The occurrence of any of these risks could adversely affect our business, operating results, and financial condition.

Our operating results may fluctuate significantly, which could make our future results difficult to predict and could cause our operating results to fall below expectations.

Our operating results may fluctuate due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of our future performance. If our revenue or operating results fall below the expectations of investors or any securities analysts that follow our company, the price of our common stock would likely decline.

Factors that are difficult to predict and that could cause our operating results to fluctuate include:

• the timing and magnitude of orders, shipments, and acceptance of our products in any quarter;

• our ability to control the costs of the components we use in our hardware products;

• our ability to timely adopt subsequent generations of non-volatile memory components into our hardware products;

• disruption in our supply chains, component availability, and related procurement costs;

• reductions in customers’ budgets for information technology purchases;

• delays in customers’ purchasing cycles or deferments of customers’ product purchases in anticipation of new products or updates from us or our competitors;

• fluctuations in demand and prices for our products;

• changes in industry standards in the data storage industry;

• our ability to develop, introduce, and ship in a timely manner new products and product enhancements that meet customer requirements;

• the timing of product releases or upgrades or announcements by us or our competitors;

• any change in the competitive dynamics of our markets, including new entrants or discounting of product prices;

• our ability to control costs, including our operating expenses; and

• future accounting pronouncements and changes in accounting policies.

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The occurrence of any one of these risks could negatively affect our operating results in any particular quarter, which could cause the price of our common stock to decline.

We have incurred significant net losses during our limited operating history and may not consistently achieve or maintain profitability.

Prior to the three months ended March 31, 2011, we had incurred net losses in each quarter since our inception and again incurred net losses in the three months ended December 31, 2011, March 31, 2012, June 30, 2012, March 31, 2013, June 30, 2013 and September 30, 2013. We may incur losses in future periods, including as we increase our operating expenses to support our future growth. If our revenue does not increase to offset these expected increases in operating expenses, we will not be profitable. As of September 30, 2013, we had an accumulated deficit of $136.7 million.

Changes in our provision for income taxes or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.

Our provision for income taxes is subject to volatility and could be adversely affected by several factors, many of which are outside of our control, including:

• changes in the valuation of our deferred tax assets and liabilities;

• changes in the research and development tax credit laws;

• an increase in non-deductible expenses for tax purposes, including certain stock-based compensation expense and impairment of goodwill;

• transfer pricing adjustments;

• earnings being lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates;

• changes in the income allocation methods for state taxes;

• a change in the pattern of stock option exercises by our employees;

• tax assessments resulting from income tax audits or any related tax interest or penalties that could significantly affect our income tax provision for the period in which the settlement takes place;

• a change in our decision to indefinitely reinvest foreign earnings;

• changes in accounting principles;

• the tax effects of purchase accounting for acquisitions and restructuring charges that may cause fluctuations between reporting periods;

• imposition of withholding or other taxes on payments by subsidiaries or customers; or

• changes in tax laws or related interpretations, accounting standards, regulations, and interpretations in multiple tax jurisdictions in which we operate.

Significant judgment is required to determine the recognition and measurement attribute as prescribed in the income tax accounting standards. In addition, these standards apply to all income tax positions, including the potential recovery of previously paid taxes, which if settled unfavorably could adversely impact our provision for income taxes or additional paid-in capital.

In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, our forecast of future market growth, forecasted earnings, and future taxable income, and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. Due to historical net losses incurred and the uncertainty of realizing the deferred tax assets, for all the periods presented, we have a full valuation allowance against our deferred tax assets. We will continue to assess the need for a valuation allowance on the deferred tax assets by evaluating both positive and negative evidence that may exist. To the extent that we generate positive income and expect, with reasonable certainty, to continue to generate positive income we may release all or a portion of our valuation allowance in a future period. This release would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period such release is recorded. The release of all or a portion of the valuation allowance will have a significant effect on our tax expense in the period it is released.

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As a multinational corporation, we conduct our business in many countries and are subject to taxation in many jurisdictions. The taxation of our business is subject to the application of multiple and sometimes conflicting tax laws and regulations as well as multinational tax conventions. Our effective tax rate is dependent upon the availability of tax credits and carryforwards. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation, and the evolution of regulations and court rulings. Consequently, taxing authorities may impose tax assessments or judgments against us that could materially impact our tax liability and/or our effective income tax rate.

In addition, we may be subject to examination of our income tax returns by the Internal Revenue Service and other tax authorities. If tax authorities challenge the relative mix of our U.S. and international income, our future effective income tax rates could be adversely affected. While we regularly assess the likelihood of adverse outcomes from such examinations and the adequacy of our provision for income taxes, there can be no assurance that such provision is sufficient and that a determination by a tax authority will not have an adverse effect on our business, financial condition, and results of operations.

Our sales cycles can be long and unpredictable, particularly with respect to large orders and OEM relationships, and our sales efforts require considerable time and expense. As a result, it can be difficult for us to predict when, if ever, a particular customer will choose to purchase our products, which may cause our operating results to fluctuate significantly.

Our sales efforts involve educating our customers about the use and benefits of our products, including their technical capabilities and cost saving potential. Customers often undertake an evaluation and testing process that can result in a lengthy sales cycle. We spend substantial time and resources on our sales efforts without any assurance that our efforts will produce any sales. In addition, product purchases are frequently subject to budget constraints, multiple approvals, and unplanned administrative, processing, and other delays. Additionally, a significant portion of our sales personnel have been with us for less than a year, and we continue to hire new sales personnel, which could further extend the sales cycle as these new personnel are typically not immediately productive. These factors, among others, could result in long and unpredictable sales cycles, particularly with respect to large orders.

We also sell to OEMs that incorporate our solutions into their products, which can require an extended evaluation, testing, and qualification process before our product is approved for inclusion in one of their product lines. We also may be required to customize our product to interoperate with an OEM’s product, which could further lengthen the sales cycle for OEM customers. In addition, an OEM may align the announcement of our products in conjunction with their fixed product release cycle and may further add delay when not aligned with the current cycle. The length of our sales cycle for an OEM makes us susceptible to the risk of delays or termination of orders if end-users decide to delay or withdraw funding for datacenter projects, which could occur for various reasons, including global economic cycles and capital market fluctuations.

As a result of these lengthy and uncertain sales cycles of our products, it is difficult for us to predict when customers may purchase and accept products from us and as a result, our operating results may vary significantly and may be adversely affected.

We compete with large storage and software providers and expect competition to intensify in the future from established competitors and new market entrants.

The market for data storage products is highly competitive, and we expect competition to intensify in the future. Our direct acceleration products compete with various traditional datacenter architectures, including high performance server and storage approaches. These may include offerings from traditional data storage providers, including storage array vendors such as EMC Corporation, which typically sell centralized storage products as well as high-performance storage approaches utilizing solid state disks, as well as vertically integrated appliance vendors such as Oracle or a number of all Flash or hybrid array startups. In addition, we may also compete with enterprise solid state disk vendors such as Huawei Technologies, Intel, LSI, Marvell Semiconductor, Micron Technology, OCZ Technology Group, Samsung Electronics, SanDisk, Seagate Technology, Toshiba, Western Digital, and other privately held companies. A number of new, privately held companies are currently attempting to enter our market, one or more of which may become significant competitors in the future.

Our shared acceleration products compete with proprietary integrated flash appliances from EMC, Dell, flash-based storage products by HP, NetApp, TMS by IBM, Violin Memory Systems, and other privately held companies.

Our virtualization acceleration products compete with solutions from Adaptec, EMC, LSI, Oracle, Sandisk, and Western Digital, as well as several open source software solutions and other software-based hardware cache solutions being developed by privately held companies.

Many of our current competitors have, and some of our potential competitors could have, longer operating histories, greater name recognition, larger customer bases, and significantly greater financial, technical, sales, marketing, and other resources than we have. Potential customers may prefer to purchase from their existing suppliers rather than a new supplier regardless of product performance or features. New start-up companies continue to innovate and may invent similar or superior products and technologies that may compete with our products and technology. Some of our competitors have made acquisitions of businesses that may allow

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them to offer more directly competitive and comprehensive solutions than they had previously offered. In addition, some of our competitors, including our OEM customers, may develop competing technologies and sell at zero or negative margins, through product bundling, closed technology platforms, or otherwise, to gain business. Our current and potential competitors may also establish cooperative relationships among themselves or with third parties. As a result, we cannot assure you that our products will continue to compete favorably, and any failure to do so could seriously harm our business, operating results, and financial condition.

Competitive factors could make it more difficult for us to sell our products, resulting in increased pricing pressure, reduced gross margins, increased sales and marketing expenses, longer customer sales cycles, and failure to increase, or the loss of, market share, any of which could seriously harm our business, operating results, and financial condition. Any failure to meet and address these competitive challenges could seriously harm our business and operating results.

The market for non-volatile storage memory products is developing, segmenting, and rapidly evolving, which makes it difficult to forecast end-user adoption rates and demand for our products.

The market for non-volatile storage class memory products is developing, segmenting, and rapidly evolving. Accordingly, our future financial performance will depend in large part on growth in this market and on our ability to adapt to emerging demands in this market. Sales of our products currently are dependent in large part upon demand in markets that require high performance data storage solutions such as computing, Internet, and financial services. It is difficult to predict with any precision end-user adoption rates, end-user demand for our products or the future growth rate and size of our market. The rapidly evolving nature of the technology in the data storage products market, as well as other factors that are beyond our control, reduce our ability to accurately evaluate our future outlook and forecast quarterly or annual performance. Our products may never reach mass adoption, and changes or advances in technologies could adversely affect the demand for our products. Further, although Flash-based data storage products have a number of advantages compared to other data storage alternatives, Flash-based storage devices have certain disadvantages as well, including a higher price per gigabyte of storage, potentially shortened product lifespan, more limited methods for data recovery and lower performance for certain uses, including sequential input/output transactions and increased utilization of host system resources than traditional storage, and may require end-users to modify or replace network systems originally made for traditional storage media. A reduction in demand for Flash-based data storage caused by lack of end-user acceptance, technological challenges, competing technologies, and products or otherwise would result in a lower revenue growth rate or decreased revenue, either of which could negatively impact our business and operating results.

If our industry experiences declines in average sales prices, it may result in declines in our revenue and gross profit.

The industry for data storage products is highly competitive and has historically been characterized by declines in average sales prices. It is possible that the market for decentralized storage solutions could experience similar trends. Our average sales prices could decline due to pricing pressure caused by several factors, including competition, the introduction of competing technologies, the worldwide supply of Flash-based or similar memory components, our manufacturing efficiencies, implementation of new manufacturing processes, and expansion of manufacturing capacity by component suppliers. If we are required to decrease our prices to be competitive and are not able to offset this decrease by improvements in our cost of goods, increases in volume of sales or the sales of new products with higher margins, our gross margins and operating results would likely be adversely affected.

Developments or improvements in storage system technologies may materially adversely affect the demand for our products.

Significant developments in data storage systems, such as advances in solid state storage drives or improvements in non-volatile memory, may materially and adversely affect our business and prospects in ways we do not currently anticipate. For example, improvements in existing data storage technologies, such as a significant increase in the speed of traditional interfaces for transferring data between storage and a server or the speed of traditional embedded controllers, could emerge as preferred alternative to our products especially if they are sold at lower prices. This could be the case even if such advances do not deliver all of the benefits of our products. Any failure by us to develop new or enhanced technologies or processes, or to react to changes or advances in existing technologies, could materially delay our development and introduction of new products, which could result in the loss of competitiveness of our products, decreased revenue, and a loss of market share to competitors.

We derive substantially all of our revenue from our storage memory products, and a decline in demand for these products would cause our revenue to grow more slowly or to decline.

Our storage memory products account for substantially all of our revenue and will continue to comprise a significant portion of our revenue for the foreseeable future. As a result, our revenue could be reduced by:

• the failure of our storage memory products to achieve broad market acceptance;

• any decline or fluctuation in demand for our storage memory products, whether as a result of product obsolescence, technological change, customer budgetary constraints, or other factors;

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• the introduction of products and technologies that serve as a replacement or substitute for, or represent an improvement over, these products; and

• our inability to release enhanced versions of our products, including any related software, on a timely basis.

If the storage markets grow more slowly than anticipated or if demand for our products declines, we may not be able to increase our revenue sufficiently to achieve and maintain profitability and our stock price would decline.

If we fail to develop and introduce new or enhanced products on a timely basis, including innovations in our software offerings, our ability to attract and retain customers could be impaired and our competitive position could be harmed.

We operate in a dynamic environment characterized by rapidly changing technologies and industry standards and technological obsolescence. To compete successfully, we must design, develop, market, and sell new or enhanced products that provide increasingly higher levels of performance, capacity, and reliability and meet the cost expectations of our customers. The introduction of new products by our competitors, the market acceptance of products based on new or alternative technologies, or the emergence of new industry standards could render our existing or future products obsolete. Our failure to anticipate or timely develop new or enhanced products or technologies in response to technological shifts could result in decreased revenue and harm our business. If we fail to introduce new or enhanced products that meet the needs of our customers or penetrate new markets in a timely fashion, we will lose market share and our operating results will be adversely affected.

In order to maintain or increase our gross margins, we will need to continue to create valuable software solutions to be integrated with our storage class memory products. Any new feature or application that we develop or acquire may not be introduced in a timely or cost-effective manner and may not achieve the broad market acceptance necessary to help increase our overall gross margins. If we are unable to successfully develop or acquire, and then market and sell our next generation products, our ability to increase our revenue and gross margin will be adversely affected.

Our products are highly technical and may contain undetected defects, which could cause data unavailability, loss or corruption that might, in turn, result in liability to our customers and harm to our reputation and business.

Our products are highly technical and complex and are often used to store information critical to our customers’ business operations. Our products may contain undetected errors, defects, or security vulnerabilities that could result in data unavailability, loss, or corruption or other harm to our customers. Some errors in our products may only be discovered after they have been installed and used by customers. Any errors, defects, or security vulnerabilities discovered in our products after commercial release could result in a loss of revenue or delay in revenue recognition, injury to our reputation, a loss of customers or increased service and warranty costs, any of which could adversely affect our business. In addition, we could face claims for product liability, tort, or breach of warranty. Many of our contracts with customers contain provisions relating to warranty disclaimers and liability limitations, which may be difficult to enforce. Defending a lawsuit, regardless of its merit, would be costly and might divert management’s attention and adversely affect the market’s perception of us and our products. In addition, our business liability insurance coverage could prove inadequate with respect to a claim and future coverage may be unavailable on acceptable terms or at all. These product-related issues could result in claims against us and our business could be adversely impacted.

Our products must interoperate with operating systems, software applications, and hardware that are developed by others and if we are unable to devote the necessary resources to ensure that our products interoperate with such software and hardware, we may fail to increase, or we may lose, market share and we may experience a weakening demand for our products.

Our products must interoperate with our customers’ existing infrastructure, specifically their networks, servers, software, and operating systems, which may be manufactured by a wide variety of vendors and OEMs. When new or updated versions of these software operating systems or applications are introduced, we must sometimes develop updated versions of our software so that our products will interoperate properly. We may not accomplish these development efforts quickly, cost-effectively, or at all. These development efforts require capital investment and the devotion of engineering resources. If we fail to maintain compatibility with these applications, our customers may not be able to adequately utilize the data stored on our products, and we may, among other consequences, fail to increase, or we may lose, market share and experience a weakening in demand for our products, which would adversely affect our business, operating results, and financial condition.

Our products must conform to industry standards in order to be accepted by customers in our markets.

Generally, our products comprise only a part of a datacenter. The servers, network, software, and other components and systems of a datacenter must comply with established industry standards in order to interoperate and function efficiently together. We depend on companies that provide other components of the servers and systems in a datacenter to support prevailing industry standards. Often, these companies are significantly larger and more influential in driving industry standards than we are. Some industry standards may not be widely adopted or implemented uniformly, and competing standards may emerge that may be preferred by our customers. If larger companies do not support the same industry standards that we do, or if competing standards emerge, market acceptance of our products could be adversely affected, which would harm our business, operating results, and financial condition.

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We rely on our key technical, sales, and management personnel to grow our business, and the loss of one or more key employees or the inability to attract and retain qualified personnel could harm our business.

Our success and future growth depends to a significant degree on the skills and continued services of our key technical, sales, and management personnel. In particular, we are highly dependent on the services of our Chief Executive Officer, Shane Robison, and our President and Chief Operating Officer, Lance L. Smith. Our employees generally work for us on an at-will basis, and we could experience difficulty in retaining members of our senior management team. We do not have “key person” life insurance policies that cover any of our officers or other key employees. In addition, we have recently experienced significant turnover in executive management, including the resignation of David Flynn and the appointment of Mr. Robison as our Chief Executive Officer in May 2013. As a result, our current management team has only been working together for a short period of time. We cannot provide assurances that we will effectively manage these transitions, which may impact our ability to retain our remaining key executive officers and which could harm our business and operations to the extent there is customer or employee uncertainty arising from these transitions. The loss of the services of any of our key employees for any reason could disrupt our operations, delay the development and introduction of our products, and negatively impact our business, prospects, and operating results.

We plan to hire additional personnel in all areas of our business, particularly for sales and research and development. Competition for these types of personnel is intense. We cannot assure you that we will be able to successfully attract or retain qualified personnel.

Our inability to retain and attract the necessary personnel could adversely affect our business, operating results, and financial condition.

Our current research and development efforts may not produce successful products that result in significant revenue in the near future, if at all.

Developing our products and related enhancements is expensive. Our investments in research and development may not result in marketable products or may result in products that are more expensive than anticipated, take longer to generate revenue or generate less revenue, than we anticipate. Our future plans include significant investments in research and development and related product opportunities. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. However, we may not receive significant revenue from these investments in the near future, if at all, which could adversely affect our business and operating results.

Our ability to sell our products is dependent in part on ease of use and the quality of our support offerings, and any failure to offer high-quality technical support would harm our business, operating results, and financial condition.

Although our products are designed to be interoperable with existing servers and systems, we may need to provide customized installation and configuration support to our customers before our products become fully operational in their environments. Once our products are deployed within our customers’ datacenters, they depend on our support organization to resolve any technical issues relating to our products. Our ability to provide effective support is largely dependent on our ability to attract, train, and retain qualified personnel. In addition, our sales process is highly dependent on our product and business reputation and on strong recommendations from our existing customers. Any failure to maintain high-quality installation and technical support, or a market perception that we do not maintain high-quality support, could harm our reputation, adversely affect our ability to sell our products to existing and prospective customers, and could harm our business, operating results, and financial condition.

If we fail to successfully maintain or grow our reseller and other channel partner relationships, our business and operating results could be adversely affected.

Our ability to maintain or grow our revenue will depend, in part, on our ability to maintain our arrangements with our existing channel partners and to establish and expand arrangements with new channel partners. Our channel partners may choose to discontinue offering our products or may not devote sufficient attention and resources toward selling our products. For example, our competitors may provide incentives to our existing and potential channel partners to use or purchase their products and services or to prevent or reduce sales of our products. The occurrence of any of these events could adversely affect our business and operating results.

We are exposed to the credit risk of some of our customers and to credit exposure in weakened markets, which could result in material losses.

Most of our sales are on an open credit basis. As a general matter, we monitor individual customer payment capability in granting open credit arrangements and may limit these open credit arrangements based on creditworthiness. We also maintain allowances we believe are adequate to cover exposure for doubtful accounts. Although we have programs in place that are designed to

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monitor and mitigate these risks, we cannot assure you these programs will be effective in reducing our credit risks, especially as we expand our business internationally. If we are unable to adequately control these risks, our business, operating results, and financial condition could be harmed.

We currently rely on contract manufacturers to manufacture our products, and our failure to manage our relationship with our contract manufacturers successfully could negatively impact our business.

We rely on several contract manufacturers to manufacture our products. We continue to evaluate other contract manufacturers. Our reliance on these contract manufacturers reduces our control over the assembly process, exposing us to risks, including reduced control over quality assurance, production costs, and product supply. If we fail to manage our relationships with these contract manufacturers effectively, or if these contract manufacturers experience delays, disruptions, capacity constraints, or quality control problems in their operations, our ability to ship products to our customers could be impaired and our competitive position and reputation could be harmed. If we are required to change contract manufacturers or assume internal manufacturing operations, we may lose revenue, incur increased costs, and damage our customer relationships. Qualifying a new contract manufacturer and commencing production is expensive and time-consuming. We may need to increase our component purchases, contract manufacturing capacity, and internal test and quality functions if we experience increased demand. The inability of these contract manufacturers to provide us with adequate supplies of high-quality products, could cause a delay in our order fulfillment, and our business, operating results, and financial condition would be adversely affected.

We rely on a limited number of suppliers, and in some cases single-source suppliers, and any disruption or termination of these supply arrangements could delay shipments of our products and could materially and adversely affect our relationships with current and prospective customers.

We rely on a limited number of suppliers, and in some cases single-source suppliers, for several key components of our products, and we have not generally entered into agreements for the long-term purchase of these components. This reliance on a limited number of suppliers and the lack of any guaranteed sources of supply exposes us to several risks, including:

• the inability to obtain an adequate supply of key components, including non-volatile memory and reprogrammable controllers;

• price volatility for the components of our products;

• failure of a supplier to meet our quality, yield, or production requirements;

• failure of a key supplier to remain in business or adjust to market conditions; and

• consolidation among suppliers, resulting in some suppliers exiting the industry or discontinuing the manufacture of components.

As a result of these risks, we cannot assure you that we will be able to obtain enough of these key components in the future or that the cost of these components will not increase. If our supply of certain components is disrupted or delayed, or if we need to replace our existing suppliers, there can be no assurance that additional supplies or components will be available when required or that supplies will be available on terms that are favorable to us, which could extend our lead times, increase the costs of our components and materially adversely affect our business, operating results, and financial condition. If we are successful in growing our business, we may not be able to continue to procure components at current prices, which would require us to enter into longer term contracts with component suppliers to obtain these components at competitive prices. This could increase our costs and decrease our gross margins, harming our operating results.

Our results of operations could be affected by natural events in locations in which our customers or suppliers operate.

Several of our customers and suppliers have operations in locations that are subject to natural disasters, such as severe weather and geological events, which could disrupt the operations of those customers and suppliers. For example, in March 2011, the northern region of Japan experienced a severe earthquake followed by a tsunami. These geological events caused significant damage in that region and have adversely affected Japan’s infrastructure and economy. Some of our customers and suppliers are located in Japan and they have experienced, and may experience in the future, shutdowns as a result of these events, and their operations may be negatively impacted by these events. Our customers affected by this or a future natural disaster could postpone or cancel orders of our products, which could negatively impact our business. Moreover, should any of our key suppliers fail to deliver components to us as a result of this or a future natural disaster, we may be unable to purchase these components in necessary quantities or may be forced to purchase components in the open market at significantly higher costs. We may also be forced to purchase components in advance of our normal supply chain demand to avoid potential market shortages. In addition, if we are required to obtain one or more new suppliers for components or use alternative components in our solutions, we may need to conduct additional testing of our solutions to ensure those components meet our quality and performance standards, all of which could delay shipments to our customers and adversely affect our financial condition and results of operations.

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To the extent we purchase excess or insufficient component inventory in connection with discontinuations by our vendors of components used in our products, our business or operating results may be adversely affected.

It is common in the storage and networking industries for component vendors to discontinue the manufacture of, or experience lack of supply on, certain types of components from time to time due to evolving technologies and changes in market demands. A supplier’s discontinuation or allocation of a particular type of component, such as a specific type of NAND Flash memory, may require us to make significant “last time” or higher cost purchases of component inventory that is being discontinued or limited by the vendor to ensure supply continuity until the transition to products based on next generation components or until we are able to secure an alternative supply. To the extent we purchase insufficient component inventory in connection with these discontinuations or allocations, we may experience delayed shipments, order cancellations or otherwise purchase more expensive components to meet customer demand, which could result in reduced gross margins. Alternatively, to the extent we purchase excess component inventory that we cannot use in our products due to obsolescence, we could be required to reduce or write-off the carrying value of inventory or be required to sell the components at or below our carrying value, which could reduce our gross margins.

Our business may be adversely affected if we encounter difficulties as we upgrade our enterprise resource planning system, or ERP, and other information technology systems.

We have substantially completed the upgrade of our ERP system and other information technology systems. Because we are in the process of upgrading and improving these systems, this upgrading and improvement poses a risk to our internal controls over financial reporting and to our business operations. Disruptions or difficulties in upgrading and improving these systems or the related procedures or controls could adversely affect both our internal and disclosure controls and harm our business, including our ability to forecast or make sales, manage our supply chain, and collect our receivables. Moreover, such a disruption could result in unanticipated costs or expenditures and a diversion of management’s attention and resources.

We will need to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act and the failure to do so could have a material adverse effect on our business and stock price.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. We are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, or Section 404. Our compliance with Section 404 may require us to continue to incur substantial expense and expend significant management efforts. If we are unable to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm notes or identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the New York Stock Exchange, the SEC, or other regulatory authorities, which would require additional financial and management resources.

Third-party claims that we are infringing intellectual property, whether successful or not, could subject us to costly and time-consuming litigation or expensive licenses, and our business could be harmed.

The storage and networking industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. We have in the past received and may in the future receive inquiries from other intellectual property holders and may become subject to claims that we infringe their intellectual property rights, particularly as we expand our presence in the market and face increasing competition. For example, on February 7, 2012, Entorian Technologies L.P., filed a lawsuit in the U.S. District Court for the District of Utah against our company. The complaint alleged that memory stacks included in some of our products infringe U.S. Patent No. 5,420,751, or the ‘751 patent, which expired in May 2012. Polystak, Inc. is our third-party supplier of the accused memory stack component. On March 1, 2012, Polystak filed a lawsuit against Entorian Technologies in the U.S. District Court for the Northern District of California. The complaint alleges that the ‘751 patent is invalid, and that Polystak’s memory stacks do not infringe the ‘751 patent. On March 8, 2012, Entorian Technologies dismissed the lawsuit against us in Utah. On March 9, 2012, Entorian Technologies filed a counterclaim against Polystak and us in the Northern District of California lawsuit. The counterclaim alleges infringement of the ‘751 patent by Polystak and us and seeks damages, but it does not seek an injunction. On September 4, 2012, the Court stayed this lawsuit pending reexamination of the ‘751 patent by the U.S. Patent Office. Based on our preliminary investigation, we do not believe that our products infringe any valid or enforceable claim of the ‘751 patent. Polystak has agreed to indemnify and defend us with respect to these lawsuits. Nevertheless, the costs associated with any actual, pending, or threatened litigation could negatively impact our operating results regardless of the actual outcome.

In addition, on May 18, 2011, Internet Machines LLC filed a lawsuit in U.S. District Court for the Eastern District of Texas against our company and 20 other companies. The complaint alleges that our products infringe U.S. Patent Nos. 7,454,552; 7,421,532; 7,814,259; and 7,945,722. On August 26, 2011, Internet Machines MC LLC amended its prior complaint filed in U.S. District Court for the Eastern District of Texas against PLX Technology, Inc. to add our company and several other companies as defendants. This complaint alleges that our products infringe U.S. Patent No. 7,539,190. These complaints seek both damages and a permanent

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injunction against us. The specific infringement allegations appear to focus on a PCI switch component that, while used in some of our products, is manufactured by a third-party supplier. This third-party supplier was found to infringe U.S. Patent Nos. 7,454,552 and 7,421,532 by a jury in a prior case. The judge has stayed the lawsuits against us pending the entry of a final non-appealable judgment in the prior case between the third-party supplier and Internet Machines. The third-party supplier has agreed to indemnify and defend us with respect to these lawsuits. Based upon our preliminary investigation of the patents identified in the complaints, we do not believe that our products infringe any valid or enforceable claim of these patents. Nevertheless, the costs associated with any actual, pending, or threatened litigation could negatively impact our operating results regardless of the actual outcome.

We currently have a number of agreements in effect pursuant to which we have agreed to defend, indemnify, and hold harmless our customers, suppliers, and channel partners from damages and costs which may arise from the infringement by our products of third-party patents, trademarks, or other proprietary rights. The scope of these indemnity obligations varies, but may, in some instances, include indemnification for damages and expenses, including attorneys’ fees. Our insurance may not cover intellectual property infringement claims. A claim that our products infringe a third party’s intellectual property rights, if any, could harm our relationships with our customers, may deter future customers from purchasing our products and could expose us to costly litigation and settlement expenses. Even if we are not a party to any litigation between a customer and a third party relating to infringement by our products, an adverse outcome in any such litigation could make it more difficult for us to defend our products against intellectual property infringement claims in any subsequent litigation in which we are a named party. Any of these results could harm our brand and operating results.

Any intellectual property rights claim against us or our customers, suppliers, and channel partners, with or without merit, could be time-consuming, expensive to litigate or settle, could divert management resources and attention and could force us to acquire intellectual property rights and licenses, which may involve substantial royalty payments. Further, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages. An adverse determination also could invalidate our intellectual property rights and prevent us from offering our products to our customers and may require that we procure or develop substitute products that do not infringe, which could require significant effort and expense. We may have to seek a license for the technology, which may not be available on reasonable terms or at all, may significantly increase our operating expenses or require us to restrict our business activities in one or more respects. Any of these events could seriously harm our business, operating results, and financial condition.

The success of our business depends in part on our ability to protect and enforce our intellectual property rights.

We rely on a combination of patent, copyright, service mark, trademark, and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of which provide only limited protection. As of November 1, 2013, we had 61 issued patents and 137 patent applications in the United States, 4 issued patents and 44 patent applications in foreign countries, and 7 Patent Cooperation Treaty, or PCT, applications. We cannot assure you that any patents will issue with respect to our currently pending patent applications in a manner that gives us the protection that we seek, if at all, or that any patents issued to us will not be challenged, invalidated, or circumvented. Our currently issued patents and any patents that may issue in the future with respect to pending or future patent applications may not provide sufficiently broad protection or they may not prove to be enforceable in actions against alleged infringers. We cannot be certain that the steps we have taken will prevent unauthorized use of our technology or the reverse engineering of our technology. Moreover, others may independently develop technologies that are competitive to ours or infringe our intellectual property.

Protecting against the unauthorized use of our intellectual property, products, and other proprietary rights is expensive and difficult. Litigation may be necessary in the future to enforce or defend our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could result in substantial costs and diversion of management resources, either of which could harm our business, operating results, and financial condition. Further, many of our current and potential competitors have the ability to dedicate substantially greater resources to defending intellectual property infringement claims and to enforcing their intellectual property rights than we have. Accordingly, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Effective patent, trademark, service mark, copyright, and trade secret protection may not be available in every country in which our products are available. An inability to adequately protect and enforce our intellectual property and other proprietary rights could seriously harm our business, operating results, and financial condition.

Our use of open source and third-party technology could impose limitations on our ability to commercialize our software.

We use open source software in our products. Although we monitor our use of open source software closely, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our products. In such event, we could be required to seek licenses from third parties in order to continue offering our products for certain uses, to license portions of our source code at no charge, to re-engineer our technology or to discontinue offering some of our software in the event re-engineering cannot be accomplished on a timely basis, any of which could adversely affect our business, operating results, and financial condition.

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If we do not successfully integrate our recent acquisitions, or if we do not otherwise achieve the expected benefits of the acquisitions, our growth may be adversely affected and our operating results may be materially harmed.

Since 2011, we have acquired three businesses. If we fail to successfully integrate the businesses, operations, and technologies of these acquired companies and assets, we may not realize the potential benefits of those acquisitions. The integration of these acquisitions, particularly the integration of NexGen, may be time-consuming and will result in the incurrence of ongoing expenses. If our integration efforts are not successful, our results of operations could be harmed, employee morale could decline, key employees could leave, and customers could cancel existing orders or choose not to place new ones. Even if our integration efforts are successful, we may not achieve anticipated synergies or other benefits of these acquisitions, including the anticipated benefits from the acquired technologies. We must operate as a combined organization utilizing common information and communication systems, operating procedures, financial controls and human resources practices. We may encounter difficulties, costs and delays involved in integrating these operations, including the following:

• failure to successfully manage relationships with channel partners, customers, and other important relationships;

• failure to maintain product development timelines and introduce new features in a timely manner;

• failure of customers to purchase the new products of the combined company;

• difficulties in successfully integrating the employees of the acquired companies;

• challenges encountered in managing larger, more geographically dispersed operations;

• loss of key employees;

• diversion of the attention of management from other ongoing business concerns;

• potential incompatibility of technologies and systems;

• potential impairment charges incurred to write down the carrying amount of intangible assets generated as a result of the acquisitions; and

• potential incompatibility of business cultures.

If we do not meet the expectations of our existing customers or those of the acquired companies, then these customers may cease doing business with us altogether, which would harm our results of operations and financial condition.

We may further expand through acquisitions of, or investments in, other companies, each of which may divert our management’s attention, resulting in additional dilution to our stockholders and consumption of resources that are necessary to sustain and grow our business.

Our business strategy may, from time to time, include acquiring other complementary products, technologies, or businesses. We also may enter into relationships with other businesses in order to expand our product offerings, which could involve preferred or exclusive licenses, additional channels of distribution or discount pricing or investments in other companies. Negotiating these transactions can be time-consuming, difficult, and expensive, and our ability to close these transactions may be subject to third-party approvals, such as government regulation, which are beyond our control. Consequently, we can make no assurance that these transactions, once undertaken and announced, will close.

These kinds of acquisitions or investments may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel, or operations of the acquired companies, particularly if the key personnel of the acquired business choose not to work for us, and we may have difficulty retaining the customers of any acquired business. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for development of our business. Any acquisition or investment could expose us to unknown liabilities. Moreover, we cannot assure you that the anticipated benefits of any acquisition or investment would be realized or that we would not be exposed to unknown liabilities. In connection with these types of transactions, we may issue additional equity securities that would dilute our stockholders, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us or that we are unable to repay, incur large charges or substantial liabilities, encounter difficulties integrating diverse business cultures, and become subject to adverse tax consequences, substantial depreciation or deferred compensation charges. These challenges related to acquisitions or investments could adversely affect our business, operating results, and financial condition.

Because our long-term success depends, in part, on our ability to expand the sales of our products to customers located outside of the United States, our business is susceptible to risks associated with international operations.

We currently maintain operations outside of the United States. We have been expanding and intend to continue to expand these operations in the future. We have limited experience operating in foreign jurisdictions. Our inexperience in operating our business outside of the United States increases the risk that our international expansion efforts may not be successful. In addition, conducting and expanding international operations subjects us to new risks that we have not generally faced in the United States. These include: exposure to foreign currency exchange rate risk; difficulties in managing and staffing international operations; the increased travel,

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infrastructure, and legal compliance costs associated with multiple international locations; potentially adverse tax consequences; the burdens of complying with a wide variety of foreign laws, including trade barriers, and different legal standards; increased financial accounting and reporting burdens and complexities; political, social and economic instability abroad, terrorist attacks, and security concerns in general; and reduced or varied protection for intellectual property rights in some countries. The occurrence of any one of these risks could negatively affect our international business and, consequently, our business, operating results, and financial condition generally.

Adverse economic conditions or reduced datacenter spending may adversely impact our revenues and profitability.

Our operations and performance depend in part on worldwide economic conditions and the impact these conditions have on levels of spending on datacenter technology. Our business depends on the overall demand for datacenter infrastructure and on the economic health of our current and prospective customers. Weak economic conditions, or a reduction in datacenter spending, would likely adversely impact our business, operating results, and financial condition in a number of ways, including by reducing sales, lengthening sales cycles, and lowering prices for our products and services.

Governmental regulations affecting the import or export of products could negatively affect our revenue.

The U.S. and various foreign governments have imposed controls, export license requirements, and restrictions on the import or export of some technologies, especially encryption technology. In addition, from time to time, governmental agencies have proposed additional regulation of encryption technology, such as requiring the escrow and governmental recovery of private encryption keys. Governmental regulation of encryption technology and regulation of imports or exports, or our failure to obtain required import or export approval for our products, could harm our international and domestic sales and adversely affect our revenue. In addition, failure to comply with such regulations could result in penalties, costs, and restrictions on export privileges, which would harm our operating results.

The terms of our revolving line of credit may restrict our ability to engage in certain transactions.

Pursuant to the current terms of our revolving line of credit, we are subject to financial covenants and certain limitations on our ability to engage in certain transactions, including disposing of certain assets, incurring additional indebtedness, granting liens, declaring dividends, acquiring or merging with another entity, making investments or entering into transactions with affiliates, unless we receive prior approval from the lender(s) under our revolving line of credit. If the lender(s) do not consent to any of these actions or if we are unable to comply with these covenants, we could be prohibited from engaging in transactions which could be beneficial to our business and our stockholders.

We might require additional capital to support business growth, and this capital might not be available on acceptable terms, or at all.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new products or enhance our existing products, enhance our operating infrastructure and acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. Any debt financing in the future could involve additional restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, and our business, operating results, financial condition, and prospects could be adversely affected.

Our business is subject to the risks of earthquakes and other natural catastrophic events, and to interruption by man-made problems such as computer viruses or terrorism.

Our two largest facilities and our current contract manufacturers are located in the San Francisco Bay and Salt Lake City areas, which have heightened risks of earthquakes. We may not have adequate business interruption insurance to compensate us for losses that may occur from a significant natural disaster, such as an earthquake, which could have a material adverse impact on our business, operating results and financial condition. In addition, acts of terrorism or malicious computer viruses could cause disruptions in our or our customers’ businesses or the economy as a whole. To the extent that these disruptions result in delays or cancellations of customer orders or the deployment of our products, our business, operating results, and financial condition would be adversely affected.

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Failure to comply with governmental laws and regulations could harm our business.

Our business is subject to regulation by various federal, state, local, and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws, and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, and civil and criminal penalties, or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results, and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, operating results, and financial condition.

Risks Related to Our Common Stock

The trading price of our common stock is likely to be volatile, and an active, liquid, and orderly market for our common stock may not be sustained.

Our common stock is currently traded on the New York Stock Exchange, but we can provide no assurance that there will be active trading on that market or any other market in the future. If there is not an active trading market or if the volume of trading is limited, the price of our common stock could decline and holders of our common stock may have difficulty selling their shares. In addition, the trading price of our common stock has been volatile and will likely continue to be volatile. The trading of our common stock may fluctuate widely in response to various factors, some of which are beyond our control. For example, after opening at $19.00 per share at the IPO, our common stock has experienced an intra-day trading high of $41.74 per share and a low of $9.40 per share through November 1, 2013. Some of the factors affecting our volatility include:

• price and volume fluctuations in the overall stock market from time to time;

• significant volatility in the market price and trading volume of technology companies in general, and of companies in our industry;

• actual or anticipated changes in our results of operations or fluctuations in our operating results;

• whether our operating results meet the expectations of securities analysts or investors;

• actual or anticipated changes in the expectations of investors or securities analysts;

• actual or anticipated developments in our competitors’ businesses or the competitive landscape generally;

• litigation involving us, our industry, or both;

• regulatory developments in the United States, foreign countries, or both;

• general economic conditions and trends;

• major catastrophic events;

• sales of large blocks of our stock; or

• departures of key personnel.

The stock markets in general, and market prices for the securities of technology-based companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. In several recent situations where the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results.

If securities analysts do not publish research or reports about our business, or if they downgrade our stock, the price of our stock could decline.

The trading market for our common stock is likely to be influenced by any research and reports that securities or industry analysts publish about us or our business. In the event securities or industry analysts cover our company and one or more of these analysts downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

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We have never paid dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future.

We have never declared or paid any dividends on our common stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.

We will continue to incur increased costs as a result of being a public company.

As a public company, we are incurring and will continue to incur significant legal, accounting, and other expenses that we did not incur as a private company. In addition, new rules implemented by the SEC and the New York Stock Exchange, require changes in corporate governance practices of public companies. We expect these rules and regulations to continue to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We will continue to incur additional costs associated with our public company reporting requirements. We expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors or as executive officers.

Provisions in our certificate of incorporation and bylaws and under Delaware law might discourage, delay, or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Our certificate of incorporation and bylaws contain provisions that could depress the trading price of our common stock by acting to discourage, delay, or prevent a change of control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions:

• establish a classified board of directors so that not all members of our board of directors are elected at one time;

• authorize the issuance of “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares to discourage a takeover attempt;

• prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

• prohibit stockholders from calling a special meeting of our stockholders;

• provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws; and

• establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

Additionally, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder and which may discourage, delay, or prevent a change of control of our company.

Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

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Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Stock Repurchases

During the three months ended September 30, 2013, we repurchased the following shares of common stock in connection with certain employee stock awards:

Period	Total Number of Shares Purchased			Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs
July 1 – July 31, 2013		—		$	—		—		—
August 1 – August 31, 2013		—			—		—		—
September 1 – September 30, 2013		5,735	(1)		0.5326		—		—
Total		5,735		$	0.5326		—		—

(1) The shares repurchased during the three months ended September 30, 2013 represent the unvested portion of former employees’ restricted stock awards. The shares were repurchased at the employee’s respective original purchase price.

For the restricted stock units that vested during the three months ended on September 30, 2013, the shares issued at the time of vesting were net of the shares forfeited by the employee to cover the employee’s minimum statutory withholding taxes due upon vesting. These forfeited shares are not included within the table above.

Part II. Item 3. Defaults Upon Senior Securities

None.

Part II. Item 4. Mine Safety Disclosures

Not applicable.

Part II. Item 5. Other Information

None.

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Part II. Item 6. Exhibits

The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q.

				Incorporated by Reference
Exhibit No.	Exhibit Description	Filed Herewith		Form		SEC File No.		Exhibit		Filing Date
10.1	Credit Agreement, dated as of September 13, 2013, by and among Fusion-io, Inc., the lenders from time to time party thereto and Silicon Valley Bank, as administrative agent				8-K		001-35188		10.1		9/13/2013
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		X
31.2	Certification of the Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		X
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		X
32.2	Certification of the Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		X
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Schema Linkbase Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.DEF	XBRL Taxonomy Definition Linkbase Document
101.LAB	XBRL Taxonomy Labels Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		FUSION-IO, INC.
Dated:	November 8, 2013	By:	/s/    SHANE ROBISON
			Shane Robison
			Chief Executive Officer
Dated:	November 8, 2013	By:	/s/    DAVID SAMPSON
			David Sampson
			Vice President, Finance (Principal Accounting Officer)

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INDEX TO EXHIBITS

				Incorporated by Reference
Exhibit No.	Exhibit Description	Filed Herewith		Form		SEC File No.		Exhibit		Filing Date
10.1	Credit Agreement, dated as of September 13, 2013, by and among Fusion-io, Inc., the lenders from time to time party thereto and Silicon Valley Bank, as administrative agent				8-K		001-35188		10.1		9/13/2013
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		X
31.2	Certification of the Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		X
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		X
32.2	Certification of the Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		X
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Schema Linkbase Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.DEF	XBRL Taxonomy Definition Linkbase Document
101.LAB	XBRL Taxonomy Labels Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document

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EX-31.1

Exhibit 31.1

Certification

I, Shane Robison, Chief Executive Officer of Fusion-io, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Fusion-io, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2013	/s/ SHANE ROBISON
	Shane Robison
	Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

I, David Sampson, Principal Accounting Officer of Fusion-io, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Fusion-io, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2013	/S/ DAVID SAMPSON
	David Sampson
	Principal Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Shane Robison, Chief Executive Officer of Fusion-io, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to my knowledge:

1) the quarterly report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2013 (the “Report”) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 8, 2013	/s/ SHANE ROBISON
	Shane Robison
	Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, David Sampson, Principal Accounting Officer of Fusion-io, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to my knowledge:

1) the quarterly report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2013 (the “Report”) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 8, 2013	/s/ DAVID SAMPSON
	David Sampson
	Principal Accounting Officer

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Description of Business and Summary of Significant Accounting Policies (Tables)

3 Months Ended

Sep. 30, 2013

Changes in Product Warranty Liability

The following table presents the changes in the product warranty liability (in thousands):

	Total
Balance at June 30, 2013	$	5,241
Warranty costs accrued		376
Warranty claims		(421	)
Adjustments related to pre-existing warranties, including changes in estimates		279
Balance at September 30, 2013	$	5,475

Reconciliation of Numerator and Denominator Used in Calculation of Basic and Diluted Net Income (Loss) Per Share

The following table presents the reconciliation of the numerator and denominator used in the calculation of basic and diluted net income (loss) per share (in thousands):

	Three Months Ended September 30,
	2012			2013
Numerator:
Net income (loss)	$	3,933		$	(27,896	)
Denominator:
Weighted-average common shares outstanding		94,432			100,376
Less weighted-average common shares outstanding subject to repurchase		(211	)		(473	)
Weighted-average shares, basic		94,221			99,903
Effect of dilutive securities		14,204			—
Weighted-average shares, diluted		108,425			99,903

Weighted-Average Common Stock Equivalents, Anti-Dilutive

The following weighted-average common stock equivalents were anti-dilutive and therefore were excluded from the calculation of diluted net income (loss) per share (in thousands):

	Three Months Ended September 30,
	2012		2013
Stock options		4,664		8,200
Restricted stock units and restricted stock awards		1,841		114
Total		6,505		8,314

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Commitments and Contingencies - Additional Information (Detail) (USD $)	3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Jun. 30, 2013
Commitments and Contingencies [Line Items]
Letters of credit outstanding	$ 3,270,000		$ 3,360,000
Restricted cash	1,587,000		4,860,000
Expiry date of office space operating leases	2021
Expiry date of equipment operating leases	2018
Maximum Rent expense	1,980,000	1,741,000
Letter of credit
Commitments and Contingencies [Line Items]
Restricted cash	$ 87,000		$ 3,360,000

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Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Revenue	$ 86,293	$ 118,115
Cost of revenue	36,540	48,065
Gross profit	49,753	70,050
Operating expenses:
Sales and marketing	34,798	25,587
Research and development	29,468	22,173
General and administrative	13,291	13,841
Total operating expenses	77,557	61,601
Income (loss) from operations	(27,804)	8,449
Other income (expense):
Interest income	35	114
Interest expense	(51)	(30)
Other (expense) income, net	186	(29)
Income (loss) before income taxes	(27,634)	8,504
Income tax expense	(262)	(4,571)
Net income (loss)	$ (27,896)	$ 3,933
Net income (loss) per common share:
Basic	$ (0.28)	$ 0.04
Diluted	$ (0.28)	$ 0.04
Weighted-average number of shares:
Basic	99,903	94,221
Diluted	99,903	108,425

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Acquisitions

3 Months Ended

Sep. 30, 2013

Acquisitions

4. Acquisitions

NexGen Storage, Inc.

On April 24, 2013, the Company acquired 100% of the stock of NexGen Storage, Inc., (“NexGen”), a developer of hybrid storage systems based in Louisville, Colorado, pursuant to the Merger Agreement dated April 24, 2013. The consideration transferred was $110,737,000, consisting of (i) $108,973,000 in cash, (ii) $1,418,000 in assumed stock options, and (iii) $346,000 related to the elimination of intercompany balances. Of the cash consideration, $17,854,000 of cash was deposited in escrow as partial security for the indemnification obligations of the NexGen stockholders pursuant to the Merger Agreement. This amount, less any indemnification claims, will be distributed promptly following April 24, 2014.

In addition, the Company agreed to pay $5,000,000 in cash to one of the selling stockholders in 12 equal quarterly installments and issue 339,627 in shares of the Company’s common stock to another selling stockholder, which is subject to a repurchase right that lapses in 12 equal quarterly installments. The quarterly installments for both the cash and restricted stock amounts are subject to ongoing employment requirements.

The Company also assumed NexGen’s options and restricted stock units that were unvested at the time of the merger that were converted into unvested options to purchase 822,927 shares of the Company’s common stock and 84,808 of the Company’s restricted stock units. The fair value of the assumed options was estimated using the Black-Scholes-Merton option pricing model with market assumptions. Option pricing models require the use of highly subjective market assumptions, including expected stock price volatility, which if changed, can materially affect fair value estimates. The more significant assumptions used in estimating the fair value of these stock options include expected volatility of 65.0%, expected option term of between 3.9 years and 5.7 years and a risk-free interest rate of 0.70%. The fair value of the assumed restricted stock units and the common stock was $16.63 and is based on the closing trading price of the Company’s common stock on the date of acquisition.

Subsequent to the acquisition, the Company will recognize, over the underlying future service period, up to approximately $23,701,000 of compensation expense related to the fair value of the cash, restricted stock, and the assumed stock-based awards.

Allocation of Consideration Transferred

Pursuant to the Company’s business combinations accounting policy, the total consideration transferred for NexGen was allocated to the net tangible and intangible assets based upon their fair values as set forth below. The acquisition of NexGen adds to the Company’s software solutions and expands the Company’s reach into small to medium enterprise markets. These factors contributed to consideration transferred in excess of the fair value of the NexGen net tangible and intangible assets acquired, and as a result, the Company has recorded goodwill in connection with this transaction.

The Company’s allocation of consideration transferred for NexGen is as follows (in thousands):

Total assets	$	3,777
Total liabilities		(1,973	)
Net acquired tangible assets	$	1,804
Developed technology (weighted-average useful life of 4 years)		15,000
Trade names (weighted-average useful life of 2 years)		520
Customer relationships (weighted-average useful life of 6 years)		390
Total identifiable intangible assets	$	15,910
Goodwill		93,023
Total fair value of consideration transferred	$	110,737

For the three months ended September 30, 2013, the Company recorded revenue associated with NexGen of approximately $1,248,000. Operating expenses associated with NexGen for the three months ended September 30, 2013 were approximately $6,350,000, of which approximately $2,141,000 related to stock-based compensation expense.

ID7 Entities

On March 13, 2013, the Company acquired 100% of the stock of the ID7 Entities for total cash consideration of approximately $5,869,000. The ID7 Entities, located in England and Wales, are the primary developers of the SCST storage subsystem enabling enhanced shared storage software functionality for any Linux server or appliance. Accordingly, the assets, liabilities, and operating results of the ID7 Entities are reflected in the Company’s consolidated financial statements following the date of acquisition. Of the cash consideration, the Company retained $1,500,000 as partial security for indemnification obligations of shareholders as part of this acquisition. This restricted cash amount, less any indemnification claims, will be paid in September 2014. In connection with the acquisition, the Company issued 135,131 shares of its common stock to the former shareholders of the ID7 Entities, which is subject to a repurchase right, that lapse 25% after one year and the remaining 75% in 12 equal quarterly installments thereafter. Subsequent to the acquisition, the Company will recognize over the underlying future service period up to approximately $2,367,000 of stock-based compensation expense related to the fair value of the restricted stock awards. The fair value of the common stock was $17.52 and is based on the closing trading price of the Company’s common stock on the date of acquisition.

Allocation of Consideration Transferred

Pursuant to the Company’s business combinations accounting policy, the total consideration transferred for ID7 Entities was allocated to the net liabilities assumed and intangible assets acquired based upon their fair values as set forth below. The acquisition of the ID7 Entities is an important part of the Company’s strategy as they are the primary developers of the SCST storage subsystem enabling enhanced shared storage software functionality for any Linux server or appliance. These factors contributed to consideration transferred in excess of the fair value of the net liabilities assumed and intangible assets acquired, and as a result, the Company has recorded goodwill in connection with this transaction.

The Company’s allocation of consideration transferred for ID7 Entities is as follows (in thousands):

Total assets	$	76
Total liabilities		(645	)
Net assumed liabilities	$	(569	)
Developed technology (weighted-average useful life of 4 years)		5,900
Goodwill		1,667
Deferred income tax liability		(1,129	)
Total fair value of consideration transferred	$	5,869

The Company assumed notes payable of approximately $623,000 as part of the acquisition of the ID7 Entities, which were paid in full in March 2013.

Operating results of the ID7 Entities subsequent to the date of acquisition are not separately disclosed as the results were not material to the Company’s consolidated statements of operations.

Unaudited pro forma financial information

Unaudited Pro forma information related to the acquisition of the ID7 Entities has not been included as it was not material to the Company’s consolidated statements of operations. The following unaudited pro forma financial information is based on the combined historical financial statements of the Company and NexGen after giving effect to the Company’s acquisition of NexGen as if it had occurred as of July 1, 2012 and includes pro forma adjustments related to the amortization of acquired intangible assets, stock-based compensation expense, and depreciation expense (in thousands, except per share data):

	Three Months Ended September 30,
	2012			2013
Revenue	$	118,245		$	86,293
Net income (loss) from operations		2,863			(27,804	)
Net loss		(828	)		(27,896	)
Net loss per share, basic	$	(0.01	)	$	(0.28	)
Net loss per share, diluted	$	(0.01	)	$	(0.28	)

Acquisition related expenses

Acquisition related expenses totaled approximately $0 and $36,000 for the three months ended September 30, 2012 and 2013, respectively, and were recorded in general and administrative expenses.

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Commitments and Contingencies (Tables)

3 Months Ended

Sep. 30, 2013

Future Minimum Lease Payments under Non-Cancelable Operating Leases

Future minimum lease payments under non-cancelable operating leases were as follows (in thousands):

Fiscal Year Ending June 30,	Total
Remaining 2014	$	5,251
2015		6,765
2016		6,827
2017		6,769
2018		6,754
Thereafter		17,868
Total	$	50,234

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Balance Sheet Components (Tables)

3 Months Ended

Sep. 30, 2013

Cash and Cash Equivalents

Cash and cash equivalents were as follows (in thousands):

	June 30, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash and cash equivalents:
Cash	$	36,107	$	—	$	—	$	36,107
Money market funds		202,244		—		—		202,244
Total cash and cash equivalents	$	238,351	$	—	$	—	$	238,351
Restricted cash:
Cash	$	4,860	$	—	$	—	$	4,860
	September 30, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash and cash equivalents:
Cash	$	22,991	$	—	$	—	$	22,991
Money market funds		202,274		—		—		202,274
Total cash and cash equivalents	$	225,265	$	—	$	—	$	225,265
Restricted cash:
Cash	$	1,587	$	—	$	—	$	1,587

Inventories

Inventories consisted of the following (in thousands):

	June 30, 2013		September 30, 2013
Raw materials	$	32,067	$	40,699
Work in progress		25,497		22,117
Finished goods		13,596		11,299
	$	71,160	$	74,115

Property and Equipment, net

Property and equipment consisted of the following (in thousands):

	June 30, 2013			September 30, 2013
Computer equipment	$	21,866		$	23,395
Software		4,674			4,802
Property and equipment		10,625			11,881
Furniture and fixtures		4,294			4,427
Leasehold improvements		15,446			15,597
Construction in progress		203			310
		57,108			60,412
Less accumulated depreciation and amortization		(21,836	)		(25,423	)
	$	35,272		$	34,989

Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following (in thousands):

	June 30, 2013		September 30, 2013
Accrued compensation	$	25,146	$	21,000
Accrued warranty expense		5,241		5,475
Accrued other liabilities		14,038		12,564
	$	44,425	$	39,039

Long-term Other Liabilities

Long-term other liabilities consisted of the following (in thousands):

	June 30, 2013		September 30, 2013
Long-term deferred tax liability	$	4,900	$	4,816
Long-term deferred rent		9,209		9,029
Long-term other liabilities		5,312		5,312
	$	19,421	$	19,157

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Stock Option Activity (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Sep. 30, 2013
Options Outstanding - Number of Shares
Outstanding, Beginning	17,265,304
Granted	156,600
Exercised	(2,812,590)
Canceled	(254,423)
Outstanding, Ending	14,354,891
Vested and expected to vest, Ending	13,539,655
Vested and exercisable, Ending	8,046,293
Options Outstanding - Weighted-Average Exercise Price
Outstanding, Beginning	$ 6.92
Granted	$ 11.04
Exercised	$ 1.14
Canceled	$ 10.16
Outstanding, Ending	$ 8.04
Vested and expected to vest, Ending	$ 7.85
Vested and exercisable, Ending	$ 6.46
Options Outstanding - Weighted-Average Contractual Term (In Years)
Outstanding, Ending	7 years 4 months 24 days
Vested and expected to vest, Ending	7 years 4 months 24 days
Vested and exercisable, Ending	6 years 10 months 24 days
Options Outstanding - Aggregate Intrinsic Value
Outstanding, Ending	$ 76,733	[1]
Vested and expected to vest, Ending	74,980	[1]
Vested and exercisable, Ending	$ 55,759	[1]

[1] The aggregate intrinsic value is equal to the difference between the exercise price of the underlying stock option awards and the fair value of the Company's common stock as of September 30, 2013.

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Business Acquisition, Purchase Price Allocation (Parenthetical) (Detail)	1 Months Ended
	Apr. 24, 2013 Nexgen Developed technology	Apr. 24, 2013 Nexgen Trade names	Apr. 24, 2013 Nexgen Customer relationships	Mar. 13, 2013 ID7 Acquisition Developed technology
Business Acquisition [Line Items]
Identifiable intangible assets, weighted-average useful life	4 years	2 years	6 years	4 years

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Reconciliation of Numerator and Denominator Used in Calculation of Basic and Diluted Net Income (Loss) Per Share (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Numerator:
Net income (loss)	$ (27,896)	$ 3,933
Denominator:
Weighted-average common shares outstanding	100,376	94,432
Less weighted-average common shares outstanding subject to repurchase	(473)	(211)
Weighted-average shares, basic	99,903	94,221
Effect of dilutive securities		14,204
Weighted-average shares, diluted	99,903	108,425

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Changes in Product Warranty Liability (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2013
Guarantor Obligations [Line Items]
Balance at beginning of period	$ 5,241
Warranty costs accrued	376
Warranty claims	(421)
Adjustments related to pre-existing warranties, including changes in estimates	279
Balance at end of period	$ 5,475

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Aggregate Changes in Total Gross Amount of Unrecognized Tax Benefits (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2013
Reconciliation of Unrecognized Tax Benefits [Line Items]
Balance at June 30, 2013	$ 6,047
Increase in unrecognized tax benefits related to current year	626
Balance at September 30, 2013	$ 6,673

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Long-term Other Liabilities (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Jun. 30, 2013
Schedule of Accrued Liabilities [Line Items]
Long-term deferred tax liability	$ 4,816	$ 4,900
Long-term deferred rent	9,029	9,209
Long-term other liabilities	5,312	5,312
Other liabilities	$ 19,157	$ 19,421

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Changes In Carrying Amount of Goodwill (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2013
Goodwill [Line Items]
Balance at beginning of period	$ 149,467
Current period acquisitions
Balance at end of period	$ 149,467

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Employee Stock Options (Detail) (USD $)	3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted-average grant date fair value - granted	$ 5.56	$ 15.42
Weighted-average grant date fair value - forfeited	$ 9.57	$ 11.06

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Property and Equipment, net (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Jun. 30, 2013
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	$ 60,412	$ 57,108
Less accumulated depreciation and amortization	(25,423)	(21,836)
Property and Equipment, Net	34,989	35,272
Computer equipment
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	23,395	21,866
Software
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	4,802	4,674
Property and equipment
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	11,881	10,625
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	4,427	4,294
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	15,597	15,446
Construction in progress
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	$ 310	$ 203

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Estimated Amortization Expense (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Jun. 30, 2013
Finite-Lived Intangible Assets [Line Items]
Remaining 2014	$ 6,639
2015	8,804
2016	6,257
2017	4,200
2018	65
Thereafter	53
Intangible assets, net	$ 26,018	$ 28,268

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Description of Business and Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)	3 Months Ended
	Sep. 30, 2013 Segment	Sep. 30, 2012 Segment	Jun. 30, 2013
Significant Accounting Policies [Line Items]
Number of business segment	1	1
Product warranty period	5 years
Restricted cash	$ 1,587,000		$ 4,860,000
Lease expiration period	2017-03
Restricted cash expiration period	2014-09
Letter of credit
Significant Accounting Policies [Line Items]
Restricted cash	87,000		3,360,000
Indemnification Agreement
Significant Accounting Policies [Line Items]
Restricted cash	1,500,000
Reclassifications
Significant Accounting Policies [Line Items]
Increase in cost of revenue		71,000
Increase in sales and marketing		567,000
Increase in research and development		605,000
Decrease in general and administrative		$ (1,243,000)
Revenues | External Customer
Significant Accounting Policies [Line Items]
Concentration risk	40.00%	38.00%
Revenues | External Customer | Germany
Significant Accounting Policies [Line Items]
Concentration risk		19.00%
Revenues | External Customer | China
Significant Accounting Policies [Line Items]
Concentration risk	11.00%
Sales
Significant Accounting Policies [Line Items]
Concentration risk	57.00%	70.00%

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Operating activities:
Net income (loss)	$ (27,896)	$ 3,933
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	5,838	3,188
Stock-based compensation	14,215	13,889
Excess tax benefit from stock-based awards	(3)	(4,385)
Changes in operating assets and liabilities:
Accounts receivable, net	5,195	(8,951)
Inventories	(2,955)	(7,746)
Prepaid expenses and other assets	(1,881)	457
Accounts payable	(2,479)	14,014
Accrued and other liabilities	(5,341)	8,658
Deferred revenue	(1,839)	5,610
Net cash provided by (used in) operating activities	(17,146)	28,667
Investing activities:
Purchases of property and equipment	(3,281)	(5,175)
Net cash used in investing activities	(3,281)	(5,175)
Financing activities:
Proceeds from exercises of stock options	3,206	4,279
Issuance of restricted awards and restricted stock units, net of repurchases	(702)	(1,055)
Proceeds from issuance of common stock under employee stock purchase plan	1,569	1,459
Excess tax benefit from stock option exercises	3	4,385
Change in restricted cash	3,273
Net cash provided by financing activities	7,349	9,068
Effect of exchange rate changes on cash and cash equivalents	(8)	94
Net increase (decrease) in cash and cash equivalents	(13,086)	32,654
Cash and cash equivalents at the beginning of period	238,351	321,239
Cash and cash equivalents at the end of period	$ 225,265	$ 353,893

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Balance Sheet Components

3 Months Ended

Sep. 30, 2013

Balance Sheet Components

2. Balance Sheet Components

Cash and Cash Equivalents

Cash and cash equivalents were as follows (in thousands):

	June 30, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash and cash equivalents:
Cash	$	36,107	$	—	$	—	$	36,107
Money market funds		202,244		—		—		202,244
Total cash and cash equivalents	$	238,351	$	—	$	—	$	238,351
Restricted cash:
Cash	$	4,860	$	—	$	—	$	4,860
	September 30, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash and cash equivalents:
Cash	$	22,991	$	—	$	—	$	22,991
Money market funds		202,274		—		—		202,274
Total cash and cash equivalents	$	225,265	$	—	$	—	$	225,265
Restricted cash:
Cash	$	1,587	$	—	$	—	$	1,587

Inventories

Inventories consisted of the following (in thousands):

	June 30, 2013		September 30, 2013
Raw materials	$	32,067	$	40,699
Work in progress		25,497		22,117
Finished goods		13,596		11,299
	$	71,160	$	74,115

Property and Equipment, net

Property and equipment consisted of the following (in thousands):

	June 30, 2013			September 30, 2013
Computer equipment	$	21,866		$	23,395
Software		4,674			4,802
Property and equipment		10,625			11,881
Furniture and fixtures		4,294			4,427
Leasehold improvements		15,446			15,597
Construction in progress		203			310
		57,108			60,412
Less accumulated depreciation and amortization		(21,836	)		(25,423	)
	$	35,272		$	34,989

Depreciation expense (including amortization of leasehold improvements) was $2,532,000 and $3,587,000 for the three months ended September 30, 2012 and 2013, respectively.

Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following (in thousands):

	June 30, 2013		September 30, 2013
Accrued compensation	$	25,146	$	21,000
Accrued warranty expense		5,241		5,475
Accrued other liabilities		14,038		12,564
	$	44,425	$	39,039

Long-term Other Liabilities

Long-term other liabilities consisted of the following (in thousands):

	June 30, 2013		September 30, 2013
Long-term deferred tax liability	$	4,900	$	4,816
Long-term deferred rent		9,209		9,029
Long-term other liabilities		5,312		5,312
	$	19,421	$	19,157

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Goodwill and Intangible Assets

3 Months Ended

Sep. 30, 2013

Goodwill and Intangible Assets

5. Goodwill and Intangible Assets:

Changes in the carrying amount of Goodwill consisted of the following (in thousands):

	Total
Balance as of June 30, 2013	$	149,467
Current period acquisitions		—
Balance as of September 30, 2013	$	149,467

The Company’s goodwill related to the acquisition of NexGen is not deductible for income tax purposes. The Company’s goodwill related to the acquisition of the ID7 Entities is deductible for income tax purposes.

The Company’s intangible assets and related accumulated amortization consisted of the following as of September 30, 2013 (in thousands):

	Weighted-Average Useful Life	Cost		Accumulated Amortization			Net
Developed technology	4 years	$	31,400	$	(8,070	)	$	23,330
Licensed technology	3 years		2,784		(864	)		1,920
Trade names	2 years		520		(114	)		406
Customer relationships	6 years		390		(28	)		362
Total intangible assets	4 years	$	35,094	$	(9,076	)	$	26,018

Amortization expense related to intangible assets for the three months ended September 30, 2012 and 2013 was approximately $656,000 and $2,251,000, respectively. Estimated amortization expense in future periods for intangible assets subject to amortization is as follows (in thousands):

Fiscal Year Ending June 30,	Total
Remaining 2014	$	6,639
2015		8,804
2016		6,257
2017		4,200
2018		65
Thereafter		53
	$	26,018

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Fair Value Measurements

3 Months Ended

Sep. 30, 2013

Fair Value Measurements

3. Fair Value Measurements

Assets Measured and Recorded at Fair Value on a Recurring Basis

The Company measures and records certain financial assets at fair value on a recurring basis. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company’s financial instruments that are measured at fair value on a recurring basis consist of money market funds. The following three levels of inputs are used to measure the fair value of financial instruments:

Level 1:	Quoted prices in active markets for identical assets or liabilities. The Company classifies its money market funds as Level 1 instruments as they are traded in active markets with sufficient volume and frequency of transactions.
Level 2:	Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3:	Unobservable inputs are used when little or no market data is available.

The fair value of the Company’s money market funds was as follows (in thousands):

	Fair Value Measurements at June 30, 2013
Description	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	202,244	$	—	$	—	$	202,244
	Fair Value Measurements at September 30, 2013
Description	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	202,274	$	—	$	—	$	202,274

Fair Value of Other Financial Instruments

The carrying amounts of the Company’s accounts receivable, accounts payable, accrued liabilities, and other liabilities approximate their fair values due to the short maturities of these assets and liabilities.

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Intangible Assets and Related Accumulated Amortization (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2013	Jun. 30, 2013
Acquired Finite-Lived Intangible Assets [Line Items]
Intangible assets, weighted-average useful life	4 years
Intangible assets, cost	$ 35,094
Intangible assets, accumulated amortization	(9,076)
Intangible assets, net	26,018	28,268
Developed technology
Acquired Finite-Lived Intangible Assets [Line Items]
Intangible assets, weighted-average useful life	4 years
Intangible assets, cost	31,400
Intangible assets, accumulated amortization	(8,070)
Intangible assets, net	23,330
Licensed technology
Acquired Finite-Lived Intangible Assets [Line Items]
Intangible assets, weighted-average useful life	3 years
Intangible assets, cost	2,784
Intangible assets, accumulated amortization	(864)
Intangible assets, net	1,920
Trade names
Acquired Finite-Lived Intangible Assets [Line Items]
Intangible assets, weighted-average useful life	2 years
Intangible assets, cost	520
Intangible assets, accumulated amortization	(114)
Intangible assets, net	406
Customer relationships
Acquired Finite-Lived Intangible Assets [Line Items]
Intangible assets, weighted-average useful life	6 years
Intangible assets, cost	390
Intangible assets, accumulated amortization	(28)
Intangible assets, net	$ 362

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Weighted-Average Common Stock Equivalents, Anti-Dilutive (Detail) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Common stock equivalents	8,314	6,505
Stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Common stock equivalents	8,200	4,664
Restricted stock units and restricted stock awards
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Common stock equivalents	114	1,841

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Balance Sheet Components - Additional Information (Detail) (USD $)	3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Balance Sheet Components [Line Items]
Depreciation expense including amortization of leasehold improvements	$ 3,587,000	$ 2,532,000

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Business Acquisition, Purchase Price Allocation (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Jun. 30, 2013	Apr. 24, 2013 Nexgen	Apr. 24, 2013 Nexgen Developed technology	Apr. 24, 2013 Nexgen Trade names	Apr. 24, 2013 Nexgen Customer relationships	Mar. 13, 2013 ID7 Acquisition	Mar. 13, 2013 ID7 Acquisition Developed technology
Business Acquisition [Line Items]
Total assets			$ 3,777				$ 76
Total liabilities			(1,973)				(645)
Net acquired tangible assets			1,804				(569)
Identifiable intangible assets			15,910	15,000	520	390		5,900
Goodwill	149,467	149,467	93,023				1,667
Deferred income tax liability							(1,129)
Total fair value of consideration transferred			$ 110,737				$ 5,869

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Assumptions Used in Black-Scholes-Merton Pricing Model Related to Employee and Non-Employee Stock Options (Detail)	3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected volatility, Maximum	62.00%	63.10%
Expected volatility, Minimum	61.40%	61.40%
Risk-free interest rate, Maximum	1.70%	0.70%
Risk-free interest rate, Minimum	1.40%	0.60%
Expected dividends
Stock options | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term	4 years 6 months	5 years 4 months 24 days
Stock options | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term	4 years 4 months 24 days	4 years 6 months
Non-employee stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected volatility, Maximum	65.30%	61.80%
Expected volatility, Minimum	52.50%	61.20%
Risk-free interest rate, Maximum	2.00%	1.70%
Risk-free interest rate, Minimum	0.10%	1.30%
Expected dividends
Non-employee stock options | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term	7 years 3 months 18 days	8 years 8 months 12 days
Non-employee stock options | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term	10 months 24 days	6 years 1 month 6 days

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Income Taxes - Additional Information (Detail) (USD $)	3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Income Taxes [Line Items]
Income tax expense	$ 262,000	$ 4,571,000
Income tax expense as percentage of income (loss) before income taxes	1.00%	54.00%
Effective tax rate	35.00%
Total amount of unrecognized tax benefits affecting the effective tax rate	1,166,000
Federal net operating loss carryforwards	314,847,000
State net operating loss carryforwards	254,949,000
Federal research and development tax credit carryforwards	7,172,000
State research and development tax credit carryforwards	3,706,000
Tax benefit related to certain tax deductions for stock-based awards	3,000
Stock options
Income Taxes [Line Items]
Federal net operating loss carryforwards	285,261,000
State net operating loss carryforwards	202,305,000
State research and development tax credit carryforwards	$ 537,000

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Jun. 30, 2013
Accounts receivable, allowances for doubtful accounts	$ 1,806	$ 1,990

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Stockholders' Equity

3 Months Ended

Sep. 30, 2013

Stockholders' Equity

8. Stockholders’ Equity

Equity Incentive Plans

On July 1, 2013, the number of authorized shares of common stock available for issuance under the 2011 Equity Incentive Plan (the “2011 Plan”) was increased by 4,952,076 shares in accordance with the provisions of the 2011 Plan. At September 30, 2013, a total of 13,589,193 shares of common stock were available for grant under the Company’s equity incentive plans.

Stock option activity for all the Equity Incentive Plans for the three months ended September 30, 2013 was as follows:

	Number of Shares Subject to Outstanding Options			Weighted- Average Exercise Price Per Share		Weighted- Average Contractual Term (in Years)		Aggregate Intrinsic Value (1)
								(in thousands)
Outstanding as of June 30, 2013		17,265,304		$	6.92
Granted		156,600			11.04
Exercised		(2,812,590	)		1.14
Canceled		(254,423	)		10.16
Outstanding as of September 30, 2013		14,354,891		$	8.04		7.4	$	76,733
Vested and expected to vest as of September 30, 2013		13,539,655		$	7.85		7.4	$	74,980
Vested and exercisable as of September 30, 2013		8,046,293		$	6.46		6.9	$	55,759

(1) The aggregate intrinsic value is equal to the difference between the exercise price of the underlying stock option awards and the fair value of the Company’s common stock as of September 30, 2013.

Employee Stock Options

Additional per share information related to stock options granted to employees was as follows:

	Three Months Ended September 30,
	2012		2013
Weighted-average grant date fair value — granted	$	15.42	$	5.56
Weighted-average grant date fair value — forfeited		11.06		9.57

The aggregate intrinsic value of stock options exercised during the three months ended September 30, 2012 and 2013 was approximately $41,576,000 and $31,115,000, respectively, which reflected the difference between the exercise prices of the underlying stock option awards and the fair value of the Company’s common stock on the date of exercise.

The Company recorded stock-based compensation expense related to employee stock options of approximately $5,093,000 and $4,408,000 for the three months ended September 30, 2012 and 2013, respectively. As of September 30, 2013, there was approximately $39,115,000 of total unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average service period of 2.2 years.

The Company estimates the fair value of stock options granted to employees using the Black-Scholes-Merton pricing model and a single option award approach, which requires the input of several highly subjective and complex assumptions. The risk-free interest rate for the expected term of the option is based on the yield available on United States Treasury Zero Coupon issues with an equivalent expected term. The expected option term used in the Black-Scholes-Merton pricing model is calculated using the simplified method. The simplified method defines the expected term as the average of the option’s contractual term and the option’s weighted-average vesting period. The Company utilizes this method as it has limited historical stock option data that is sufficient to derive a reasonable estimate of the expected stock option term. The computation of estimated expected volatility is based on the volatility of comparable companies from a representative peer group selected based on industry data.

The following table presents the assumptions used in the Black-Scholes-Merton pricing model related to employee stock options:

	Three Months Ended September 30,
	2012	2013
Expected volatility	61.4 – 63.1%	61.4 – 62.0%
Expected term (in years)	4.5 – 5.4	4.4 – 4.5
Risk-free interest rate	0.6 – 0.7%	1.4 – 1.7%
Expected dividends	—	—

Non-employee Stock Options

The Company from time to time grants options to purchase common stock to non-employees for advisory and consulting services. The Company estimates the fair value of these stock options using the Black-Scholes-Merton option pricing formula at each balance sheet date and records expense ratably over the vesting period of each stock option award. The Company recorded stock-based compensation expense related to these non-employee stock options of approximately $2,748,000 and $2,257,000 for the three months ended September 30, 2012 and 2013, respectively.

In May 2013, the Company entered into separation agreements with its former Chief Executive Officer and Chief Marketing Officer in that they will provide advisory services to the Company for the 12-month period following the date of their respective resignation. In conjunction with their continued services, the vesting of their awards has been modified such that all awards will be vested in full at the completion of the12-month period, subject to their executing (and not revoking) a supplemental release at the end of the 12-month term. As a result, the Company modified the vesting of 1,176,249 stock options and 267,500 RSUs. For the three months ended September 30, 2013, the Company recognized approximately $2,255,000 of stock-based compensation expense, and as of September 30, 2013, there was approximately $6,455,000 of unrecognized compensation expense related to the modified awards, which is expected to be recognized ratably through May 2014.

The following table presents the assumptions used in the Black-Scholes-Merton pricing model related to non-employee stock options:

	Three Months Ended September 30,
	2012	2013
Expected volatility	61.2 – 61.8%	52.5 – 65.3%
Expected term (in years)	6.1 – 8.7	0.9 – 7.3
Risk-free interest rate	1.3 – 1.7%	0.1 – 2.0%
Expected dividends	—	—

Restricted Stock Units and Restricted Stock Awards

The following table summarizes activity during the three months ended September 30, 2013 related to RSUs and RSAs:

	Number of Shares			Weighted-Average Grant-Date Fair Value
Unvested RSUs and RSAs at June 30, 2013		4,137,846		$	20.78
Granted		1,604,460			11.25
Vested		(311,046	)		22.86
Forfeited		(5,735	)		24.76
Canceled		(212,392	)		23.30
Unvested RSUs and RSAs at September 30, 2013		5,213,133		$	17.62

The Company recorded stock-based compensation expense related to RSUs and RSAs of approximately $5,344,000 and $6,466,000 for the three months ended September 30, 2012 and 2013, respectively. At September 30, 2013, there was approximately $75,767,000 of total unrecognized compensation cost related to unvested RSUs and RSAs. This unrecognized compensation cost is equal to the fair value of RSUs and RSAs expected to vest and will be recognized over a weighted-average period of 3.2 years.

Repurchases of Vested Restricted Stock Units

The Company is required to withhold minimum statutory taxes related to the vesting of RSUs, including the forfeiting of a portion of the newly vested award that has a current value equal to the withholding obligation. The Company is then required to remit the amount of taxes owed by the employee to the appropriate taxing authority. As a result of such forfeitures, the Company effectively repurchased a total of 43,392 and 64,949 shares of common stock related to employee tax withholding obligations during the three months ended September 30, 2012 and 2013, respectively. The Company recorded approximately $1,055,000 and $702,000 as a financing activity for these forfeitures in the condensed consolidated statement of cash flows for the three months ended September 30, 2012 and 2013, respectively.

Employee Stock Purchase Plan

On July 1, 2013, the number of authorized shares available for issuance under the 2011 Employee Stock Purchase Plan (“ESPP”) was increased by 990,415 shares in accordance with the provisions of the ESPP. During the three months ended September 30, 2013, the Company issued 311,137 shares of common stock under the ESPP. At September 30, 2013, a total of 1,543,157 shares of common stock were reserved for future issuance under the ESPP. The Company recorded stock-based compensation expense related to its 2011 ESPP of approximately $704,000 and $1,084,000 for the three months ended September 30, 2012 and 2013, respectively.

Stock-based Compensation Expense

Total stock-based compensation expense was classified as follows in the accompanying condensed consolidated statement of operations (in thousands):

	Three Months Ended September 30,
	2012		2013
Cost of revenue	$	113	$	157
Sales and marketing		2,169		2,923
Research and development		4,464		5,598
General and administrative		7,143		5,537
Total stock-based compensation	$	13,889	$	14,215

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Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Net income (loss)	$ (27,896)	$ 3,933
Foreign currency translation adjustment	(260)	23
Comprehensive income (loss)	$ (28,156)	$ 3,956

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Jun. 30, 2013
Current assets:
Cash and cash equivalents	$ 225,265	$ 238,351
Accounts receivable, net of allowances of $1,990 and $1,806 as of June 30, 2013 and September 30, 2013, respectively	63,912	69,107
Inventories	74,115	71,160
Prepaid expenses and other current assets	11,416	9,530
Total current assets	374,708	388,148
Property and equipment, net	34,989	35,272
Restricted cash	1,587	4,860
Intangible assets, net	26,018	28,268
Goodwill	149,467	149,467
Other assets	1,428	1,433
Total assets	588,197	607,448
Current liabilities:
Accounts payable	11,691	14,170
Accrued and other current liabilities	39,039	44,425
Deferred revenue	22,533	24,848
Total current liabilities	73,263	83,443
Deferred revenue, less current portion	14,643	14,167
Other liabilities	19,157	19,421
Commitments and contingencies
Stockholders' equity:
Preferred stock
Common stock	20	20
Additional paid-in capital	618,165	599,292
Accumulated other comprehensive loss	(370)	(110)
Accumulated deficit	(136,681)	(108,785)
Total stockholders' equity	481,134	490,417
Total liabilities and stockholders' equity	$ 588,197	$ 607,448

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Activity Related to Restricted Stock Units and Restricted Stock Awards (Detail) (USD $)	3 Months Ended
	Sep. 30, 2013
Number of Shares
Unvested, Beginning	4,137,846
Granted	1,604,460
Vested	(311,046)
Forfeited	(5,735)
Canceled	(212,392)
Unvested, Ending	5,213,133
Weighted Average Grant Date Fair Value
Unvested, Beginning	$ 20.78
Granted	$ 11.25
Vested	$ 22.86
Forfeited	$ 24.76
Canceled	$ 23.30
Unvested, Ending	$ 17.62

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Cash and Cash Equivalents (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Jun. 30, 2013	Sep. 30, 2012	Jun. 30, 2012
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents, amortized cost	$ 225,265	$ 238,351	$ 353,893	$ 321,239
Cash and Cash Equivalents
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents, amortized cost	225,265	238,351
Cash and cash equivalents, unrealized gains
Cash and cash equivalents, unrealized losses
Cash and cash equivalents, estimated fair value	225,265	238,351
Cash and Cash Equivalents | Cash
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents, amortized cost	22,991	36,107
Cash and cash equivalents, unrealized gains
Cash and cash equivalents, unrealized losses
Cash and cash equivalents, estimated fair value	22,991	36,107
Cash and Cash Equivalents | Money market funds
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents, amortized cost	202,274	202,244
Cash and cash equivalents, unrealized gains
Cash and cash equivalents, unrealized losses
Cash and cash equivalents, estimated fair value	202,274	202,244
Restricted Cash | Cash
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents, amortized cost	1,587	4,860
Cash and cash equivalents, unrealized gains
Cash and cash equivalents, unrealized losses
Cash and cash equivalents, estimated fair value	$ 1,587	$ 4,860

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Stockholders' Equity (Tables)

3 Months Ended

Sep. 30, 2013

Stock Option Activity

Stock option activity for all the Equity Incentive Plans for the three months ended September 30, 2013 was as follows:

	Number of Shares Subject to Outstanding Options			Weighted- Average Exercise Price Per Share		Weighted- Average Contractual Term (in Years)		Aggregate Intrinsic Value (1)
								(in thousands)
Outstanding as of June 30, 2013		17,265,304		$	6.92
Granted		156,600			11.04
Exercised		(2,812,590	)		1.14
Canceled		(254,423	)		10.16
Outstanding as of September 30, 2013		14,354,891		$	8.04		7.4	$	76,733
Vested and expected to vest as of September 30, 2013		13,539,655		$	7.85		7.4	$	74,980
Vested and exercisable as of September 30, 2013		8,046,293		$	6.46		6.9	$	55,759

(1) The aggregate intrinsic value is equal to the difference between the exercise price of the underlying stock option awards and the fair value of the Company’s common stock as of September 30, 2013.

Activity Related to Restricted Stock Units and Restricted Stock Awards

The following table summarizes activity during the three months ended September 30, 2013 related to RSUs and RSAs:

	Number of Shares			Weighted-Average Grant-Date Fair Value
Unvested RSUs and RSAs at June 30, 2013		4,137,846		$	20.78
Granted		1,604,460			11.25
Vested		(311,046	)		22.86
Forfeited		(5,735	)		24.76
Canceled		(212,392	)		23.30
Unvested RSUs and RSAs at September 30, 2013		5,213,133		$	17.62

Total Stock-Based Compensation Expense

Total stock-based compensation expense was classified as follows in the accompanying condensed consolidated statement of operations (in thousands):

	Three Months Ended September 30,
	2012		2013
Cost of revenue	$	113	$	157
Sales and marketing		2,169		2,923
Research and development		4,464		5,598
General and administrative		7,143		5,537
Total stock-based compensation	$	13,889	$	14,215

Stock options

Stock Option Activity

Additional per share information related to stock options granted to employees was as follows:

	Three Months Ended September 30,
	2012		2013
Weighted-average grant date fair value — granted	$	15.42	$	5.56
Weighted-average grant date fair value — forfeited		11.06		9.57

Assumptions Used in Black-Scholes-Merton Pricing Model Related to Stock Options

The following table presents the assumptions used in the Black-Scholes-Merton pricing model related to employee stock options:

	Three Months Ended September 30,
	2012	2013
Expected volatility	61.4 – 63.1%	61.4 – 62.0%
Expected term (in years)	4.5 – 5.4	4.4 – 4.5
Risk-free interest rate	0.6 – 0.7%	1.4 – 1.7%
Expected dividends	—	—

Non-employee stock options

Assumptions Used in Black-Scholes-Merton Pricing Model Related to Stock Options

The following table presents the assumptions used in the Black-Scholes-Merton pricing model related to non-employee stock options:

	Three Months Ended September 30,
	2012	2013
Expected volatility	61.2 – 61.8%	52.5 – 65.3%
Expected term (in years)	6.1 – 8.7	0.9 – 7.3
Risk-free interest rate	1.3 – 1.7%	0.1 – 2.0%
Expected dividends	—	—

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Long-term Obligations - Additional Information (Detail) (USD $)	3 Months Ended
	Sep. 30, 2013
Revolving Line of Credit
Line of Credit Facility [Line Items]
Current borrowing capacity	$ 25,000,000
Maximum borrowing capacity	75,000,000
Borrowing outstanding	0
Credit facility due date	Sep. 13, 2016
Percentage of unused commitment fee	0.10%
Ratio of current assets to current liabilities	2.00
Minimum tangible net worth	200,000,000
Percentage of net income	50.00%
Percentage of the aggregate increases in shareholders' equity	25.00%
Revolving Line of Credit | Base rate
Line of Credit Facility [Line Items]
Percentage spread on variable rate	0.75%
Revolving Line of Credit | LIBOR
Line of Credit Facility [Line Items]
Percentage spread on variable rate	1.25%
Revolving Line of Credit | Federal funds rate
Line of Credit Facility [Line Items]
Percentage spread on variable rate	0.50%
Letter of credit
Line of Credit Facility [Line Items]
Current borrowing capacity	25,000,000
Borrowing outstanding	$ 3,183,000
Percentage of unused commitment fee	1.25%

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Future Minimum Lease Payments Under Non-Cancelable Operating Leases (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013
Operating Leases, Future Minimum Payments Due
Remaining 2014	$ 5,251
2015	6,765
2016	6,827
2017	6,769
2018	6,754
Thereafter	17,868
Total	$ 50,234

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Pro Forma Financial Information (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Business Acquisition, Pro Forma Information, Nonrecurring Adjustment [Line Items]
Revenue	$ 86,293	$ 118,245
Net income (loss) from operations	(27,804)	2,863
Net loss	$ (27,896)	$ (828)
Net loss per share, basic	$ (0.28)	$ (0.01)
Net loss per share, diluted	$ (0.28)	$ (0.01)

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Fair Value of Financial Assets (Detail) (Money market funds, USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Jun. 30, 2013
Cash equivalents:
Cash and cash equivalents	$ 202,274	$ 202,244
Level 1
Cash equivalents:
Cash and cash equivalents	$ 202,274	$ 202,244

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Acquisitions - Additional Information (Detail) (USD $)	3 Months Ended				1 Months Ended	3 Months Ended		1 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Jun. 30, 2013	Sep. 30, 2013 Indemnification Agreement	Apr. 24, 2013 Nexgen	Sep. 30, 2013 Nexgen	Sep. 30, 2013 Nexgen Fair value of cash, restricted stock, and assumed stock-based awards	Apr. 24, 2013 Nexgen Minimum	Apr. 24, 2013 Nexgen Maximum	Mar. 13, 2013 ID7 Acquisition	Mar. 31, 2013 ID7 Acquisition	Mar. 13, 2013 ID7 Acquisition Indemnification Agreement
Business Acquisition [Line Items]
Business combination, percentage of ownership acquired					100.00%					100.00%
Business combination, total fair value of purchase price					$ 110,737,000					$ 5,869,000
Business combination, cash consideration transferred					108,973,000
Business combination, stock option assumed					1,418,000
Business combination, elimination of inter company balances					346,000
Business acquisition, cash deposited in escrow					17,854,000
Business combination, additional contingent cash payment to stockholders					5,000,000
Business combination, shares to be issued in connection with acquisition					339,627
Business combination, Unvested option					822,927
Business combination, Unvested Restricted Stock Units assumed					84,808
Expected volatility					65.00%
Expected option term								3 years 10 months 24 days	5 years 8 months 12 days
Risk-free interest rate					0.70%
Fair value of assumed restricted stock units					$ 16.63
Compensation expense related to the fair value of the cash, restricted stock, and the assumed stock-based awards	$ 11.25						$ 23,701,000
Operating expenses	77,557,000	61,601,000				6,350,000
Stock based compensation expense	14,215,000	13,889,000				2,141,000
Revenue	86,293,000	118,115,000				1,248,000
Business combination, restricted cash retained	1,587,000		4,860,000	1,500,000								1,500,000
Common stock shares issued										135,131
Business Acquisition stock issued description										In connection with the acquisition, the Company issued 135,131 shares of its common stock to the former shareholders of the ID7 Entities, which is subject to a repurchase right, that lapse 25% after one year and the remaining 75% in 12 equal quarterly installments thereafter.
Fair value of assumed restricted stock units										$ 17.52
Business Combination, Notes payable assumed											623,000
Acquisition related expenses	$ 36,000	$ 0

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Income Taxes

3 Months Ended

Sep. 30, 2013

Income Taxes

7. Income Taxes

In order to determine the quarterly provision for income taxes, the Company considers the estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates. To the extent that application of the estimated annual effective tax rate is not representative of the quarterly portion of actual tax expense expected to be recorded for the year, the Company determines the quarterly provision for income taxes based on actual year-to-date income. Certain significant or unusual items are separately recognized in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

The components of the Company’s income tax expense or benefit include state income taxes, foreign income taxes, U.S. federal alternative minimum tax, and effects of stock-based awards. Income tax expense was approximately $4,571,000 and $262,000 for the three months ended September 30, 2012 and 2013, respectively, or approximately 54% and 1% of income (loss) before income taxes, respectively. The Company’s effective tax rate for the three months ended September 30, 2013 is lower when compared to the same period in the prior year primarily due to the operating loss incurred in the current period. The effective tax rate for the three months ended September 30, 2013 differs from the U.S. federal statutory rate of 35% primarily due to the Company’s full valuation allowance against its net deferred tax assets.

The Company files U.S., state, and foreign income tax returns in jurisdictions with various statutes of limitations. The Company’s consolidated federal tax return and any significant state or foreign tax returns are not currently under examination.

The Company is subject to income taxes in various U.S. and foreign jurisdictions and to continual examination by tax authorities. Significant judgment is required in evaluating the Company’s uncertain tax positions and determining its provision for income taxes. During the three months ended September 30, 2013, the aggregate change in the total gross amount of unrecognized tax benefits was as follows (in thousands):

	Total
Balance at June 30, 2013	$	6,047
Increase in unrecognized tax benefits related to current year		626
Balance at September 30, 2013	$	6,673

The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. The Company did not incur any material interest or penalties related to income taxes in any of the periods presented. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $1,166,000. The Company does not anticipate any significant change of its uncertain tax positions within fiscal 2014, and the Company does not anticipate any events which could cause a change to these uncertainties.

As of September 30, 2013, the Company had federal net operating loss carryforwards of $314,847,000, of which $285,261,000 relate to stock option deductions claimed for tax purposes greater than the deductions claimed for book purposes. As of September 30, 2013, the Company had state net operating loss carryforwards of $254,949,000, of which $202,305,000 relate to stock option deductions claimed for tax purposes greater than the deductions claimed for book purposes. Additionally, the Company had federal research and development tax credit carryforwards of $7,172,000, and state research and development tax credit carryforwards of $3,706,000, of which $537,000 related to stock option deductions claimed for tax purposes greater than the deductions claimed for book purposes. In the future, the Company intends to utilize any carryforwards available to reduce its tax payments.

The Company recorded directly to equity a tax benefit for the three months ended September 30, 2013 of approximately $3,000 related to certain tax deductions for stock-based awards.

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Inventories (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Jun. 30, 2013
Inventory [Line Items]
Raw materials	$ 40,699	$ 32,067
Work in progress	22,117	25,497
Finished goods	11,299	13,596
Inventories	$ 74,115	$ 71,160

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Goodwill and Intangible Assets - Additional Information (Detail) (USD $)	3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Goodwill And Intangible Assets [Line Items]
Amortization expense related to intangible assets	$ 2,251,000	$ 656,000

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Description of Business and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Sep. 30, 2013

Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated balance sheets and the condensed consolidated statements of operations, comprehensive income (loss), and cash flows are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which are considered of a normal recurring nature) considered necessary to present fairly the Company’s financial position, results of operations, and cash flows. The results of operations for the three months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2014 or any other period.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013 (the “2013 Annual Report”) filed with the Securities and Exchange Commission (the “SEC”).

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in the unaudited condensed consolidated financial statements.

Segment and Geographic Information

Segment and Geographic Information

Operating segments are defined in accounting standards as components of an enterprise about which separate financial information is available and is regularly evaluated by management, namely the chief operating decision maker of an organization, in order to make operating and resource allocation decisions. The Company has concluded it operates in one business segment, which is the development, marketing, and sale of storage memory solutions. Substantially all of the Company’s revenue for all periods presented in the accompanying condensed consolidated statements of operations has been from sales of the ioMemory based product lines and related customer support services. The Company’s headquarters and most of its operations are located in the United States; however, it conducts sales activities through sales offices in Europe and Asia. Revenue recognized from sales with a ship-to location outside of the United States was 38% and 40% of revenue for the three months ended September 30, 2012 and 2013, respectively. Revenue recognized from sales to customers with a ship-to address in Germany was 19% of revenue for the three months ended September 30, 2012 and revenue recognized from sales to customers with a ship-to address in China was 11% of revenue for the three months ended September 30, 2013. No other country outside of the United States accounted for 10% or more of revenue for all periods presented. Long-lived tangible assets located outside of the United States were not material for all periods for which a condensed consolidated balance sheet is presented.

Reclassification

Reclassification

Certain expense amounts previously reported in the condensed consolidated statements of operations for the three months ended September 30, 2012 have been reclassified to reflect an adjustment to the method in which the Company allocates information technology and facility costs and to conform to fiscal 2014 presentation. As a result of the reclassifications, cost of revenue increased by $71,000, sales and marketing expenses increased by $567,000, research and development expenses increased by $605,000, and general and administrative expenses decreased by $1,243,000 for the three months ended September 30, 2012. The net effect of these reclassifications did not impact the amounts previously reported as income from operations and net income.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an on-going basis, the Company evaluates its significant estimates, including those related to revenue recognition, sales returns, accounting for business combinations and impairment of long-lived and intangible assets including goodwill, determination of fair value of stock options, valuation of inventory, product warranty, and income taxes. The Company also uses estimates in determining the useful lives of property and equipment and intangible assets and provisions for doubtful accounts. Actual results could differ from those estimates.

Significant Customers

Significant Customers

Customers that accounted for 10% or more of the Company’s revenue represented 70% and 57% of revenue for the three months ended September 30, 2012 and 2013, respectively. As a consequence of the concentration of the Company’s customers, and typically a small number of large purchases by these customers, revenue, gross margin, and operating results may fluctuate significantly from period to period.

Product Warranty

Product Warranty

The Company provides its customers a standard limited product warranty of up to five years. The standard warranty requires the Company to repair or replace defective products at no cost to the customer during such warranty period. The Company estimates the costs that may be incurred under its standard limited warranty and records a liability in the amount of such costs at the time product sales are recognized. Factors that affect the Company’s warranty liability include the number of installed units, identified warranty issues, historical experience, and management’s judgment regarding anticipated rates of warranty claims and cost per claim. The Company assesses the adequacy of its recorded warranty liability each period and makes adjustments to the liability as necessary based on actual experience.

The following table presents the changes in the product warranty liability (in thousands):

	Total
Balance at June 30, 2013	$	5,241
Warranty costs accrued		376
Warranty claims		(421	)
Adjustments related to pre-existing warranties, including changes in estimates		279
Balance at September 30, 2013	$	5,475

Restricted Cash

Restricted Cash

As of June 30, 2013 and September 30, 2013, the Company had restricted cash of approximately $4,860,000 and $1,587,000, respectively. Of the amounts restricted as of September 30, 2013, approximately $87,000 related to letters of credit for purposes of securing the Company’s obligation under a facility lease which was collateralized by a portion of the Company’s cash through the term of the lease, which ends March 2017. In addition, the Company retained $1,500,000 as partial security for indemnification obligations of shareholders as part of the acquisition of ID7 Ltd. and SCST Limited (together, the “ID7 Entities”) (see Note 4). This restricted cash amount, less any indemnification claims, will be paid in September 2014.

Net Income (Loss) Per Share

Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period, less weighted-average common shares subject to repurchase. Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the period that have a dilutive effect on net income (loss) per share. Potentially dilutive common shares result from the assumed exercise of outstanding stock options, assumed vesting of outstanding restricted stock subject to vesting provisions, restricted stock awards (“RSAs”), and restricted stock units (“RSUs”). In a net loss position, diluted net loss per share is computed using only the weighted-average number of common shares outstanding during the period, less weighted-average common shares subject to repurchase, as any additional common shares would be anti-dilutive.

The following table presents the reconciliation of the numerator and denominator used in the calculation of basic and diluted net income (loss) per share (in thousands):

	Three Months Ended September 30,
	2012			2013
Numerator:
Net income (loss)	$	3,933		$	(27,896	)
Denominator:
Weighted-average common shares outstanding		94,432			100,376
Less weighted-average common shares outstanding subject to repurchase		(211	)		(473	)
Weighted-average shares, basic		94,221			99,903
Effect of dilutive securities		14,204			—
Weighted-average shares, diluted		108,425			99,903

The following weighted-average common stock equivalents were anti-dilutive and therefore were excluded from the calculation of diluted net income (loss) per share (in thousands):

	Three Months Ended September 30,
	2012		2013
Stock options		4,664		8,200
Restricted stock units and restricted stock awards		1,841		114
Total		6,505		8,314

Recently Issued and Adopted Accounting Pronouncements

Recently Issued and Adopted Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”) requiring an entity to report information, either on the face of the statement where net income is presented or in the notes, about the amounts reclassified out of accumulated other comprehensive income by component and to report significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The ASU has been adopted by the Company effective for the first quarter of fiscal 2014. Other than requiring additional disclosures, the adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

In July 2013, the FASB issued an ASU providing presentation requirements for unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a similar tax credit carryforward exists. This accounting standard update will be effective for the Company beginning in its first quarter of fiscal 2015 and is not expected to have a significant impact on its consolidated financial statements.

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Long-term Obligations

3 Months Ended

Sep. 30, 2013

Long-term Obligations

6. Long-term Obligations

Revolving Line of Credit

In September 2013, the Company entered into a credit agreement (the “Revolving Line of Credit”) with Silicon Valley Bank. The Revolving Line of Credit allows the Company to borrow up to a limit of $25,000,000, with a $25,000,000 letter of credit sub-facility. The Revolving Line of Credit contains an option to increase the lending commitments, subject to certain requirements, with Silicon Valley Bank and/or new lenders to provide up to an aggregate of $75,000,000 in additional lending commitments. Loan proceeds may be used for general corporate purposes, and the Company may prepay and/or reborrow revolving loans under the Revolving Line of Credit in whole or in part at any time without premium or penalty. As of September 30, 2013, the Company had no outstanding revolving loans under the credit agreement and an aggregate face amount of $3,183,000 in undrawn letters of credit under the Revolving Line of Credit.

The revolving loans bear interest, at the Company’s option, at (i) a base rate determined in accordance with the Revolving Line of Credit, minus 0.75%, or (ii) a LIBOR rate determined in accordance with the credit agreement, plus 1.25%. The base rate means the highest of (i) the prime rate published by the Wall Street Journal and (ii) the federal funds rate plus a margin equal to 0.50%. Interest is due and payable in arrears monthly for base rate loans and at the end of an interest period (or at each three month interval in the case of loans with interest periods greater than three months) for LIBOR rate loans. Principal, together with all accrued and unpaid interest, is due and payable on September 13, 2016.

The Company is also obligated to pay a quarterly unused commitment fee equal to 0.10% multiplied by the average unused portion of the total revolving commitments, a quarterly fee of 1.25% on the daily amount available to be drawn under each letter of credit, and other customary fees for a facility of this size and type.

Upon an event of default, the lender(s) may terminate their commitments to make further revolving loans and declare the outstanding revolving loans and all accrued and unpaid interest under the Revolving Line of Credit to be immediately due and payable. The events of default under the Revolving Line of Credit include, among others, payment defaults, covenant defaults, inaccuracy of representations and warranties, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults, ERISA defaults, judgment defaults, a change of control default, and a material adverse effect default.

Under the terms of the Revolving Line of Credit, the Company is required to maintain the following minimum financial covenants on a consolidated basis:

• A ratio of current assets to the sum of (i) current liabilities plus, without duplication, (ii) the aggregate amount of outstanding revolving loans and undrawn or unreimbursed letters of credit under the Revolving Line of Credit, of at least 2.00 to 1.00.

• A tangible net worth of at least the sum of (i) $200,000,000, plus (ii) an amount equal to 50% of net income earned in each fiscal quarter ending after March 30, 2013, plus (ii) an amount equal to 25% of the aggregate increases in shareholders’ equity resulting from certain specified transactions.

As of September 30, 2013, the Company was in compliance with all covenants.

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Description of Business and Summary of Significant Accounting Policies

3 Months Ended

Sep. 30, 2013

Description of Business and Summary of Significant Accounting Policies

1. Description of Business and Summary of Significant Accounting Policies

Fusion-io, Inc. (the “Company” or “Fusion-io”) provides an enterprise storage class memory platform and storage solution portfolio, based on the Company’s ioMemory technology with virtual storage layer (“VSL”) software and direct acceleration, shared acceleration, and virtualization acceleration products. The Company sells its products and services through its global direct sales force, original equipment manufacturers (“OEMs”), and other channel partners.

Basis of Presentation

The accompanying condensed consolidated balance sheets and the condensed consolidated statements of operations, comprehensive income (loss), and cash flows are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which are considered of a normal recurring nature) considered necessary to present fairly the Company’s financial position, results of operations, and cash flows. The results of operations for the three months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2014 or any other period.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013 (the “2013 Annual Report”) filed with the Securities and Exchange Commission (the “SEC”).

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in the unaudited condensed consolidated financial statements.

Segment and Geographic Information

Operating segments are defined in accounting standards as components of an enterprise about which separate financial information is available and is regularly evaluated by management, namely the chief operating decision maker of an organization, in order to make operating and resource allocation decisions. The Company has concluded it operates in one business segment, which is the development, marketing, and sale of storage memory solutions. Substantially all of the Company’s revenue for all periods presented in the accompanying condensed consolidated statements of operations has been from sales of the ioMemory based product lines and related customer support services. The Company’s headquarters and most of its operations are located in the United States; however, it conducts sales activities through sales offices in Europe and Asia. Revenue recognized from sales with a ship-to location outside of the United States was 38% and 40% of revenue for the three months ended September 30, 2012 and 2013, respectively. Revenue recognized from sales to customers with a ship-to address in Germany was 19% of revenue for the three months ended September 30, 2012 and revenue recognized from sales to customers with a ship-to address in China was 11% of revenue for the three months ended September 30, 2013. No other country outside of the United States accounted for 10% or more of revenue for all periods presented. Long-lived tangible assets located outside of the United States were not material for all periods for which a condensed consolidated balance sheet is presented.

Reclassification

Certain expense amounts previously reported in the condensed consolidated statements of operations for the three months ended September 30, 2012 have been reclassified to reflect an adjustment to the method in which the Company allocates information technology and facility costs and to conform to fiscal 2014 presentation. As a result of the reclassifications, cost of revenue increased by $71,000, sales and marketing expenses increased by $567,000, research and development expenses increased by $605,000, and general and administrative expenses decreased by $1,243,000 for the three months ended September 30, 2012. The net effect of these reclassifications did not impact the amounts previously reported as income from operations and net income.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an on-going basis, the Company evaluates its significant estimates, including those related to revenue recognition, sales returns, accounting for business combinations and impairment of long-lived and intangible assets including goodwill, determination of fair value of stock options, valuation of inventory, product warranty, and income taxes. The Company also uses estimates in determining the useful lives of property and equipment and intangible assets and provisions for doubtful accounts. Actual results could differ from those estimates.

Significant Customers

Customers that accounted for 10% or more of the Company’s revenue represented 70% and 57% of revenue for the three months ended September 30, 2012 and 2013, respectively. As a consequence of the concentration of the Company’s customers, and typically a small number of large purchases by these customers, revenue, gross margin, and operating results may fluctuate significantly from period to period.

Product Warranty

The Company provides its customers a standard limited product warranty of up to five years. The standard warranty requires the Company to repair or replace defective products at no cost to the customer during such warranty period. The Company estimates the costs that may be incurred under its standard limited warranty and records a liability in the amount of such costs at the time product sales are recognized. Factors that affect the Company’s warranty liability include the number of installed units, identified warranty issues, historical experience, and management’s judgment regarding anticipated rates of warranty claims and cost per claim. The Company assesses the adequacy of its recorded warranty liability each period and makes adjustments to the liability as necessary based on actual experience.

The following table presents the changes in the product warranty liability (in thousands):

	Total
Balance at June 30, 2013	$	5,241
Warranty costs accrued		376
Warranty claims		(421	)
Adjustments related to pre-existing warranties, including changes in estimates		279
Balance at September 30, 2013	$	5,475

Restricted Cash

As of June 30, 2013 and September 30, 2013, the Company had restricted cash of approximately $4,860,000 and $1,587,000, respectively. Of the amounts restricted as of September 30, 2013, approximately $87,000 related to letters of credit for purposes of securing the Company’s obligation under a facility lease which was collateralized by a portion of the Company’s cash through the term of the lease, which ends March 2017. In addition, the Company retained $1,500,000 as partial security for indemnification obligations of shareholders as part of the acquisition of ID7 Ltd. and SCST Limited (together, the “ID7 Entities”) (see Note 4). This restricted cash amount, less any indemnification claims, will be paid in September 2014.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period, less weighted-average common shares subject to repurchase. Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the period that have a dilutive effect on net income (loss) per share. Potentially dilutive common shares result from the assumed exercise of outstanding stock options, assumed vesting of outstanding restricted stock subject to vesting provisions, restricted stock awards (“RSAs”), and restricted stock units (“RSUs”). In a net loss position, diluted net loss per share is computed using only the weighted-average number of common shares outstanding during the period, less weighted-average common shares subject to repurchase, as any additional common shares would be anti-dilutive.

The following table presents the reconciliation of the numerator and denominator used in the calculation of basic and diluted net income (loss) per share (in thousands):

	Three Months Ended September 30,
	2012			2013
Numerator:
Net income (loss)	$	3,933		$	(27,896	)
Denominator:
Weighted-average common shares outstanding		94,432			100,376
Less weighted-average common shares outstanding subject to repurchase		(211	)		(473	)
Weighted-average shares, basic		94,221			99,903
Effect of dilutive securities		14,204			—
Weighted-average shares, diluted		108,425			99,903

The following weighted-average common stock equivalents were anti-dilutive and therefore were excluded from the calculation of diluted net income (loss) per share (in thousands):

	Three Months Ended September 30,
	2012		2013
Stock options		4,664		8,200
Restricted stock units and restricted stock awards		1,841		114
Total		6,505		8,314

Recently Issued and Adopted Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”) requiring an entity to report information, either on the face of the statement where net income is presented or in the notes, about the amounts reclassified out of accumulated other comprehensive income by component and to report significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The ASU has been adopted by the Company effective for the first quarter of fiscal 2014. Other than requiring additional disclosures, the adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

In July 2013, the FASB issued an ASU providing presentation requirements for unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a similar tax credit carryforward exists. This accounting standard update will be effective for the Company beginning in its first quarter of fiscal 2015 and is not expected to have a significant impact on its consolidated financial statements.

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Total Stock-Based Compensation Expense (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	$ 14,215	$ 13,889
Cost of Revenue
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	157	113
Sales and Marketing
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	2,923	2,169
Research and Development
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	5,598	4,464
General and Administrative
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	$ 5,537	$ 7,143

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Stockholders' Equity - Additional Information (Detail) (USD $)	3 Months Ended		1 Months Ended		3 Months Ended						3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Jul. 30, 2013 2011 Plan	Sep. 30, 2013 2011 Plan	Sep. 30, 2013 Stock options	Sep. 30, 2012 Stock options	Sep. 30, 2013 Non-employee stock options	Sep. 30, 2012 Non-employee stock options	May 30, 2013 Stock option	May 30, 2013 Restricted Stock Units	Sep. 30, 2013 Stock Options and Restricted Stock Units (RSUs)	Sep. 30, 2013 Restricted Stock Units and Restricted Stock Awards	Sep. 30, 2012 Restricted Stock Units and Restricted Stock Awards	Sep. 30, 2013 ESPP	Sep. 30, 2012 ESPP	Jul. 30, 2013 ESPP
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Additional number of shares authorized under 2011 Plan			4,952,076
Number of shares available for issuance under 2011 Plan				13,589,193
Aggregate intrinsic value of stock options exercised	$ 31,115,000	$ 41,576,000
Stock-based compensation	14,215,000	13,889,000			4,408,000	5,093,000	2,257,000	2,748,000				6,466,000	5,344,000	1,084,000	704,000
Total unrecognized compensation expense					39,115,000							75,767,000
Stock expense expected to be recognized over a weighted-average service period					2 years 2 months 12 days							3 years 2 months 12 days
Vesting of Shares									1,176,249	267,500
Employee related stock-based compensation expense											2,255,000
Unrecognized stock based compensation expense	6,455,000
Repurchase of common stock related to employee tax withholding obligations	64,949	43,392
Issuance of restricted stock awards and restricted stock units, net of repurchases	$ 702,000	$ 1,055,000
Increase in the number of shares available for issuance																990,415
Common stock issued under the ESPP														311,137
Common stock reserved for future issuance under ESPP	1,543,157

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Accrued and Other Current Liabilities (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Jun. 30, 2013
Schedule of Accrued Liabilities [Line Items]
Accrued compensation	$ 21,000	$ 25,146
Accrued warranty expense	5,475	5,241
Accrued other liabilities	12,564	14,038
Accrued and other current liabilities	$ 39,039	$ 44,425

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Fair Value Measurements (Tables)

3 Months Ended

Sep. 30, 2013

Fair Value of Financial Assets

The fair value of the Company’s money market funds was as follows (in thousands):

	Fair Value Measurements at June 30, 2013
Description	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	202,244	$	—	$	—	$	202,244
	Fair Value Measurements at September 30, 2013
Description	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	202,274	$	—	$	—	$	202,274

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Commitments and Contingencies

3 Months Ended

Sep. 30, 2013

Commitments and Contingencies

9. Commitments and Contingencies

Letters of Credit

As of June 30, 2013 and September 30, 2013, the Company had a total of $3,360,000 and $3,270,000, respectively, in letters of credit outstanding with financial institutions. These outstanding letters of credit were issued for purposes of securing the Company’s obligations under facility leases. For the periods presented, the letters of credit were collateralized by a portion of the Company’s cash. This is reflected as restricted cash of $3,360,000 and $87,000 on the condensed consolidated balance sheet as of June 30, 2013 and September 30, 2013, respectively.

Leases

Future minimum lease payments under non-cancelable operating leases were as follows (in thousands):

Fiscal Year Ending June 30,	Total
Remaining 2014	$	5,251
2015		6,765
2016		6,827
2017		6,769
2018		6,754
Thereafter		17,868
Total	$	50,234

Operating lease payments primarily relate to the Company’s leases of office space with various expiration dates through 2021. The terms of these leases often include tenant improvement allowances, periods of free rent, and increasing rental rates over time. The Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense recorded but not paid.

The Company also leases certain equipment under operating leases that expire at various dates through 2018. These equipment leases typically include provisions that allow the Company at the end of the initial lease term to renew the lease, purchase the underlying equipment at the then fair market value, or return the equipment to the lessor.

Rent expense was $1,741,000 and $1,980,000 for the three months ended September 30, 2012 and 2013, respectively.

Indemnification

The Company has agreed to indemnify its officers and directors for certain events or occurrences, while the officer or director is or was serving at the Company’s request in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that provides corporate reimbursement coverage that limits its exposure and enables it to recover a portion of any future amounts paid. The Company is unable to reasonably estimate the maximum amount that could be payable under these arrangements since these obligations are not capped but are conditional to the unique facts and circumstances involved. Accordingly, the Company has no liabilities recorded for these agreements as of June 30, 2013 and September 30, 2013.

Many of the Company’s agreements with customers and channel partners, including OEMs and resellers, generally include certain provisions for indemnifying the channel partners and customers against liabilities if the Company’s products infringe a third party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnification provisions and has not accrued any liabilities related to such obligations in the consolidated financial statements.

Employee Agreements

The Company has various agreements with selected employees pursuant to which if their employment is terminated by the Company without cause or by the employees for good reason, or following a change of control of the Company, the employees are entitled to receive certain benefits, including severance payments, accelerated vesting of stock and stock options, and certain insurance benefits.

Legal Matters

On February 7, 2012, Entorian Technologies L.P. (“Entorian Technologies”), filed a lawsuit in the U.S. District Court for the District of Utah against the Company. The complaint alleged that memory stacks included in some of the Company’s products infringe U.S. Patent No. 5,420,751, or the ‘751 patent, which expired in May 2012. Polystak, Inc. is the Company’s third-party supplier of the accused memory stack component. On March 1, 2012, Polystak filed a lawsuit against Entorian Technologies in the U.S. District Court for the Northern District of California. The complaint alleges that the ‘751 patent is invalid, and that Polystak’s memory stacks do not infringe the ‘751 patent. On March 8, 2012, Entorian Technologies dismissed the lawsuit against the Company in Utah. On March 9, 2012, Entorian Technologies filed a counterclaim against the Company and Polystak in the Northern District of California lawsuit. The counterclaim alleges that the Company and Polystak infringe the ‘751 patent and seeks damages, but it does not seek an injunction. On September 4, 2012, the Court stayed this lawsuit pending reexamination of the ‘751 patent by the U.S. Patent Office. Polystak has agreed to indemnify and defend the Company with respect to these lawsuits.

On May 18, 2011, Internet Machines LLC (“Internet Machines”) filed a lawsuit in U.S. District Court for the Eastern District of Texas against the Company and 20 other companies. The complaint alleges that the Company’s products infringe U.S. Patent Nos. 7,454,552; 7,421,532; 7,814,259; and 7,945,722. On August 26, 2011, Internet Machines MC LLC amended its prior complaint filed in the U.S. District Court for the Eastern District of Texas against PLX Technology, Inc. to add the Company and several other companies as defendants. This complaint alleges that the Company’s products infringe U.S. Patent No. 7,539,190. These complaints seek both damages and a permanent injunction against the Company. The specific infringement allegations appear to focus on a PCI switch component that, while used in some of the Company’s products, is manufactured by a third-party supplier. This third-party supplier was found to infringe the above identified U.S. Patent Nos. 7,454,552 and 7,421,532 by a jury in a prior case. The judge has stayed the lawsuits against the Company pending the entry of a final non-appealable judgment in the prior case between the third-party supplier and Internet Machines. The third-party supplier has agreed to indemnify and defend the Company with respect to these lawsuits.

Based on the Company’s preliminary investigations of the patents identified in the Entorian Technologies and Internet Machines complaints, the Company does not believe that its products infringe any valid or enforceable claim of the patents at issue in those complaints. With respect to these matters, the Company’s third-party suppliers have agreed to indemnify and defend the Company. As of September 30, 2013, the Company did not record a liability related to these matters as it determined that an unfavorable resolution is either not currently probable or that an amount or relevant range is not reasonably estimable. However, litigation is inherently unpredictable and it is possible that losses may occur. Any unfavorable resolution of any of these matters could materially affect the Company’s consolidated financial position, cash flows, or results of operations. All legal costs associated with litigation are expensed as incurred.

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Income Taxes (Tables)

3 Months Ended

Sep. 30, 2013

Aggregate Changes in Total Gross Amount of Unrecognized Tax Benefits

During the three months ended September 30, 2013, the aggregate change in the total gross amount of unrecognized tax benefits was as follows (in thousands):

	Total
Balance at June 30, 2013	$	6,047
Increase in unrecognized tax benefits related to current year		626
Balance at September 30, 2013	$	6,673

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Acquisitions (Tables)

3 Months Ended

Sep. 30, 2013

Pro Forma Financial Information

The following unaudited pro forma financial information is based on the combined historical financial statements of the Company and NexGen after giving effect to the Company’s acquisition of NexGen as if it had occurred as of July 1, 2012 and includes pro forma adjustments related to the amortization of acquired intangible assets, stock-based compensation expense, and depreciation expense (in thousands, except per share data):

	Three Months Ended September 30,
	2012			2013
Revenue	$	118,245		$	86,293
Net income (loss) from operations		2,863			(27,804	)
Net loss		(828	)		(27,896	)
Net loss per share, basic	$	(0.01	)	$	(0.28	)
Net loss per share, diluted	$	(0.01	)	$	(0.28	)

Nexgen

Business Acquisition, Purchase Price Allocation

The Company’s allocation of consideration transferred for NexGen is as follows (in thousands):

Total assets	$	3,777
Total liabilities		(1,973	)
Net acquired tangible assets	$	1,804
Developed technology (weighted-average useful life of 4 years)		15,000
Trade names (weighted-average useful life of 2 years)		520
Customer relationships (weighted-average useful life of 6 years)		390
Total identifiable intangible assets	$	15,910
Goodwill		93,023
Total fair value of consideration transferred	$	110,737

ID7 Acquisition

Business Acquisition, Purchase Price Allocation

The Company’s allocation of consideration transferred for ID7 Entities is as follows (in thousands):

Total assets	$	76
Total liabilities		(645	)
Net assumed liabilities	$	(569	)
Developed technology (weighted-average useful life of 4 years)		5,900
Goodwill		1,667
Deferred income tax liability		(1,129	)
Total fair value of consideration transferred	$	5,869

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Document and Entity Information	3 Months Ended
	Sep. 30, 2013	Nov. 01, 2013
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2013
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1
Trading Symbol	FIO
Entity Registrant Name	FUSION-IO, INC.
Entity Central Index Key	0001383729
Current Fiscal Year End Date	--06-30
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		105,480,908

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Goodwill and Intangible Assets (Tables)

3 Months Ended

Sep. 30, 2013

Changes in Carrying Amount of Goodwill

Changes in the carrying amount of Goodwill consisted of the following (in thousands):

	Total
Balance as of June 30, 2013	$	149,467
Current period acquisitions		—
Balance as of September 30, 2013	$	149,467

Company's Intangible Assets and Related Accumulated Amortization

The Company’s intangible assets and related accumulated amortization consisted of the following as of September 30, 2013 (in thousands):

	Weighted-Average Useful Life	Cost		Accumulated Amortization			Net
Developed technology	4 years	$	31,400	$	(8,070	)	$	23,330
Licensed technology	3 years		2,784		(864	)		1,920
Trade names	2 years		520		(114	)		406
Customer relationships	6 years		390		(28	)		362
Total intangible assets	4 years	$	35,094	$	(9,076	)	$	26,018

Estimated Amortization Expenses

Estimated amortization expense in future periods for intangible assets subject to amortization is as follows (in thousands):

Fiscal Year Ending June 30,	Total
Remaining 2014	$	6,639
2015		8,804
2016		6,257
2017		4,200
2018		65
Thereafter		53
	$	26,018