10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended October 1, 2016

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 001-35957

Gigamon Inc.

(Exact name of Registrant as specified in its Charter)

Delaware	26-3963351
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3300 Olcott Street, Santa Clara, California 95054
(Address of principal executive offices and Zip Code)
(408) 831-4000
(Registrant's telephone number, including area code)

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. YESýNO¨

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YESýNO¨

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer	ý	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¨NOý

As of October 31, 2016, there were 36,127,054 shares of the registrant’s common stock outstanding.

Gigamon Inc.

Form 10-Q

For the Quarterly Period Ended October 1, 2016

TABLE OF CONTENTS

		Page No.
PART I - FINANCIAL INFORMATION		1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income	2
	Condensed Consolidated Statements of Comprehensive Income (Loss)	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	35
PART II - OTHER INFORMATION		35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	55
	Signatures	56

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Gigamon Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

(Unaudited)

	October 1, 2016			December 26, 2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	155,553		$	120,212
Short-term investments	89,183			90,001
Accounts receivable, net of allowance for doubtful accounts of $456 and $309, as of October 1, 2016 and December 26, 2015, respectively	60,184			47,947
Inventories	6,953			3,813
Prepaid expenses and other current assets	10,448			7,621
Total current assets	322,321			269,594
Property and equipment, net	11,381			9,416
Deferred tax assets, net	31,608			135
Other assets, non-current	1,034			766
TOTAL ASSETS	$	366,344		$	279,911
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,910		$	3,724
Accrued liabilities	33,696			37,334
Deferred revenue	59,663			62,248
Total current liabilities	97,269			103,306
Deferred revenue, non-current	23,483			19,883
Deferred tax liability	182			279
Other liabilities, non-current	661			1,087
TOTAL LIABILITIES	121,595			124,555
Commitments and Contingencies (Note 5)
STOCKHOLDERS’ EQUITY:
Preferred stock—$0.0001 par value; 20,000 shares authorized, no shares issued or outstanding as of October 1, 2016 and December 26, 2015	—			—
Common stock—$0.0001 par value; 1,000,000 shares authorized, 36,058 and 34,323 shares issued and outstanding as of October 1, 2016 and December 26, 2015, respectively	4			3
Treasury stock— 8,110 shares outstanding as of October 1, 2016 and December 26, 2015	(12,469		)	(12,469		)
Additional paid-in capital	257,702			211,402
Accumulated other comprehensive income (loss)	36			(47		)
Accumulated deficit	(524		)	(43,533		)
TOTAL STOCKHOLDERS’ EQUITY	244,749			155,356
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	366,344		$	279,911

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Gigamon Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	October 1, 2016			September 26, 2015			October 1, 2016			September 26, 2015
Revenue:
Product	$	59,835		$	38,717		$	155,805		$	105,683
Service	23,677			17,935			70,021			49,268
Total revenue	83,512			56,652			225,826			154,951
Cost of revenue:
Product	12,197			9,613			34,414			28,616
Service	2,141			1,708			6,562			5,248
Total cost of revenue	14,338			11,321			40,976			33,864
Gross profit	69,174			45,331			184,850			121,087
Operating expenses:
Research and development	18,306			12,677			50,914			36,400
Sales and marketing	31,994			21,388			88,494			61,391
General and administrative	8,887			6,950			26,029			19,671
Total operating expenses	59,187			41,015			165,437			117,462
Income from operations	9,987			4,316			19,413			3,625
Interest income	235			106			661			330
Other expense, net	(144		)	(69		)	(386		)	(72		)
Income before income tax (provision) benefit	10,078			4,353			19,688			3,883
Income tax (provision) benefit	(3,999		)	(73		)	23,321			(260		)
Net income	$	6,079		$	4,280		$	43,009		$	3,623
Net income per share:
Basic	$	0.17		$	0.13		$	1.22		$	0.11
Diluted	$	0.16		$	0.12		$	1.15		$	0.10
Weighted average shares used in computing net income per share:
Basic	35,770			33,830			35,171			33,412
Diluted	38,113			35,872			37,341			35,497

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Gigamon Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands) 

(Unaudited)

	Three Months Ended					Nine Months Ended
	October 1, 2016			September 26, 2015		October 1, 2016		September 26, 2015
Net income	$	6,079		$	4,280	$	43,009	$	3,623
Other comprehensive (loss) income:
Unrealized (loss) gain on available-for-sale investments, net	(31		)	22		83		126
Comprehensive income	$	6,048		$	4,302	$	43,092	$	3,749

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Gigamon Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	October 1, 2016			September 26, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	43,009		$	3,623
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,815			5,162
Stock-based compensation expense	28,884			23,780
Deferred income taxes	(31,570		)	(2		)
Excess tax benefit from employee stock-based compensation	(8,258		)	—
Inventory write-down	312			1,374
Write down on fixed assets	219			12
Allowance for doubtful accounts	147			—
Changes in operating assets and liabilities:
Accounts receivable	(12,384		)	(13,052		)
Inventories	(5,015		)	76
Prepaid expenses and other assets	(2,991		)	(1,803		)
Accounts payable	54			852
Accrued liabilities and other liabilities	4,674			5,516
Deferred revenue	1,015			13,734
Net cash provided by operating activities	22,911			39,272
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments	(84,773		)	(40,168		)
Proceeds from sales of short-term investments	—			2,006
Proceeds from maturities of short-term investments	85,747			58,818
Purchase of property and equipment	(6,001		)	(3,985		)
Net cash (used in) provided by investing activities	(5,027		)	16,671
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from employee stock purchase plan	6,785			5,099
Proceeds from exercise of stock options	9,654			3,525
Shares repurchased for tax withholdings on vesting of restricted stock units	(7,240		)	(6,964		)
Excess tax benefit from employee stock-based compensation	8,258			—
Net cash provided by financing activities	17,457			1,660
NET INCREASE IN CASH AND CASH EQUIVALENTS	35,341			57,603
CASH AND CASH EQUIVALENTS — Beginning of period	120,212			38,941
CASH AND CASH EQUIVALENTS — End of period	$	155,553		$	96,544
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid during the period	$	2,843		$	348
NONCASH INVESTING AND FINANCING ACTIVITIES:
Unpaid property and equipment purchases	$	707		$	395

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Gigamon Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Description of the Company

The Company

Gigamon Inc. (the “Company”) designs, develops and sells products and services that together provide customers with visibility and control of network traffic. The Company serves global enterprises and service providers that seek to maintain and improve the security, reliability and performance of their network infrastructure.

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The Company prepared its condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2015.

There have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K that have had a material impact on the Company’s condensed consolidated financial statements and related notes.

Certain prior periods’ amounts were reclassified to conform to the current year’s presentation. None of these reclassifications had an impact on the reported net (loss) income for any of the periods presented.

The Company has a 52 or 53-week fiscal year that ends on the last Saturday in December. Fiscal 2015 was a 52-week fiscal year ending on December 26, 2015 and each quarter therein was 13-week quarter. Fiscal 2016 is a 53-week fiscal year ending on December 31, 2016, with the first quarter being a 14-week quarter which ended on April 2, 2016 and each subsequent quarter being a 13-week quarter. Fiscal 2017 will be a 52-week fiscal year ending on December 30, 2017, with each quarter therein being a 13-week quarter.

Unaudited Interim Financial Statements

The accompanying unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary to fairly state the Company’s financial position as of October 1, 2016, its results of operations and comprehensive income for the three and nine months ended October 1, 2016 and September 26, 2015, respectively, and cash flows for the nine months ended October 1, 2016 and September 26, 2015. The financial data and the other financial information disclosed in the accompanying notes to the condensed consolidated financial statements related to these three and nine month periods are also unaudited. The fiscal year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The statements of income in the three and nine months ended October 1, 2016 are not necessarily indicative of the results to be expected for the full fiscal year or any other future periods.

Principles of Consolidation

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

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. On an ongoing basis, the Company evaluates its estimates, including but not limited to those related to revenue recognition, allowance for doubtful accounts, warranty reserve, excess and obsolete inventory write-downs, stock-based compensation expense, depreciable useful lives and income taxes. The Company bases its estimates on historical experience, projections for future performance and other

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assumptions that it believes to be reasonable under the circumstances. Actual results could differ materially from those estimates.

Cash Equivalents and Marketable Securities

All highly liquid marketable securities with original maturities of less than three months at the date of purchase are considered to be cash equivalents. Marketable securities are generally classified as available-for-sale for use in current operations, if required, and are reported at fair value, with unrealized gains and losses, net of tax, presented as a separate component of stockholders’ equity within accumulated other comprehensive income (loss). All realized gains and losses and unrealized losses resulting from declines in fair value that are other-than-temporary are recorded in other expense) net, in the period of occurrence. The Company uses the specific identification method to determine the realized gains and losses on investments. For all investments in marketable securities, the Company assesses whether an impairment is other-than-temporary. If the fair value of a security is less than its amortized cost basis, an impairment is considered other-than-temporary if (i) the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its entire amortized cost basis, or (ii) the Company does not expect to recover the entire amortized cost of the security. If an impairment is considered other-than-temporary based on condition (i), the entire difference between the amortized cost and the fair value of the security is recognized in earnings. If an impairment is considered other-than-temporary based on condition (ii), the amount representing credit losses, defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the security, will be recognized in earnings, and the amount relating to all other factors will be recognized in accumulated other comprehensive income (loss). The Company evaluates both qualitative and quantitative factors such as duration and severity of the unrealized losses, credit ratings, default and loss rates of the underlying collateral, structure and credit enhancements to determine if a credit loss may exist.

Concentrations

The Company operates in highly competitive and rapidly changing markets that could negatively impact the Company’s operating results. A number of components that meet the Company’s manufacturing requirements are available only from single source suppliers. In addition, the Company relies on one contract manufacturer to manufacture a substantial majority of its products. The inability of its single source suppliers and contract manufacturer to provide the Company with adequate supplies of high-quality components and products could cause a delay in order fulfillment, which could adversely affect the Company’s revenue, cost of revenue and operating results.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable. The Company currently invests the majority of its cash in high-grade government and corporate debt and maintains these investments with a limited number of major financial institutions in the United States that management believes are creditworthy. Such deposits may exceed the insured limits provided on them. The Company mitigates credit risk associated with its accounts receivable by performing ongoing credit evaluations of its customers and determines if it needs to establish an allowance for doubtful accounts for estimated losses based on management’s assessment of the collectability of customer accounts.

The following customers represented more than 10% or more of total revenue or accounts receivable:

	Three Months Ended				Nine Months Ended
	October 1, 2016		September 26, 2015		October 1, 2016		September 26, 2015
Percent of Revenue:
Customer A (distributor)	38	%	38	%	35	%	41	%
Customer B (distributor)	24	%	18	%	25	%	19	%
Customer C (end-user)	*		16	%	12	%	*

* Represented less than 10% of total revenues

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	As of
	October 1, 2016		December 26, 2015
Percent of Accounts Receivable:
Customer A (distributor)	38	%	19	%
Customer B (distributor)	26	%	30	%
Customer C (end-user)	14	%	11	%

Inventories

Inventory is valued at the lower of cost computed on a first-in, first-out basis, or market value. The Company writes down inventory in excess of forecasted demand over a certain period, as a component of cost of revenue. In these cases, inventory is reduced to estimated realizable value based on historical usage and expected demand. At the point of inventory write-down, a new lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. Inherent in the Company’s estimates of market value in determining inventory valuation are estimates related to economic trends, future demand for the Company’s products, and technical obsolescence of products. The Company uses a contract manufacturer to provide the majority of its manufacturing services for its products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, the Company enters into agreements with the contract manufacturer that either allow it to procure inventory based upon criteria as defined by the Company, or establish the parameters defining the Company’s requirements. A portion of the Company’s reported purchase commitments arising from these agreements consists of non-cancelable commitments. The Company records a liability for firm, non-cancelable and unconditional purchase commitments for quantities in excess of its future demand forecasts consistent with the valuation of the Company’s excess and obsolete inventory.

The Company recorded inventory write-downs within cost of revenue of $40,000 and $0.5 million in the three months ended October 1, 2016 and September 26, 2015, respectively, and $0.3 million and $1.4 million in the nine months ended October 1, 2016 and September 26, 2015, respectively.

Revenue Recognition

The Company generates product revenue from sales of traffic visibility solutions to customers as well as service revenue from sales of maintenance and support contracts and other billable services. The Company typically sells products and services in a single transaction. The Company’s typical arrangement consists of the sale of products together with maintenance and support or a renewal of maintenance and support contracts. Billable services are billed in advance or when service is provided and performed as requested by customers. Under maintenance and support contracts, services are provided as needed by customers over the fixed arrangement term. The Company does not grant its customers a general right of return or any refund terms. Revenue from distributors is reported net of rebates, discounts and any other sales incentives.

The Company recognizes revenue when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the sales price is fixed or determinable and (4) collectability is reasonably assured.

When sales arrangements contain multiple elements and software and non-software components that function together to deliver the products’ essential functionality, the Company allocates revenue to each element based on a selling price hierarchy: vendor-specific objective evidence ("VSOE"), if available, third party evidence ("TPE"), of the selling price if VSOE is not available, or best estimated selling prices ("BESP") if neither VSOE nor TPE is available.

When the Company enters into arrangements to provide more than one product or service, or what the Company refers to as multiple deliverables, these arrangements are evaluated to determine if the multiple elements consist of more than one unit of accounting and can be separated accordingly. Based on separation criteria under the guidance, deliverables in multiple element arrangements can be segregated into separate units of accounting if they have value to the customer on a standalone basis. If deliverables can be separated into individual units of accounting, then the arrangement consideration is allocated among deliverables based on their relative selling price. Revenue from each deliverable is recognized when all requirements are met for that specific deliverable. If deliverables cannot be separated into separate units of accounting, then the arrangement will be accounted for as a single unit of accounting and revenue will be recognized when all requirements are met for all deliverables within

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the arrangement. The Company has established VSOE for maintenance and support contracts since the majority of selling prices fall within a narrow range when sold separately. TPE is not used since this information is not widely available in the market and the Company does not consider its products to be similar to or interchangeable with its competitors’ products in standalone sales to similarly situated customers. For deliverables with no established VSOE, such as standard product offerings, the Company determines the standalone selling price for such deliverables by establishing BESP, which incorporates historical selling prices, the effect of market conditions, gross margin objectives and pricing practices, as well as entity specific factors. The Company monitors and evaluates BESP on a regular basis to ensure that changes in circumstances are accounted for in a timely manner.

Service revenue is recognized ratably over the contractual support period, which is typically one year but can be up to 10 years.

In accordance with contractual provisions, the Company may offer cooperative marketing funds based on a fixed dollar percentage of product sales to certain of its channel partners or to fund specific marketing activities for these partners. The Company records such amounts as a reduction to revenue or, if the Company has evidence of fair value of the separable and identifiable benefit received, as a marketing expense.

Revenue is recorded net of sales taxes.

Costs of products not yet recognized as revenue are deferred and included as a component of prepaid expenses and other current assets on the condensed consolidated balance sheets. As of October 1, 2016 and December 26, 2015, deferred cost of product revenue was $0.1 million and $1.6 million, respectively.

Shipping and Handling Charges

Shipping and handling costs are recorded in cost of revenue in the period products are shipped to customers.

Warranty

The Company provides five-year warranties against defects in manufacturing on its hardware products. The Company accrues for potential liability claims as a component of cost of product revenue based on historical trends of product failure rates and the expected material and labor costs to provide warranty services. The accrued warranty balance is reviewed periodically for adequacy and is included in accrued liabilities and in other non-current liabilities on the condensed consolidated balance sheets.

Stock-Based Compensation

Stock-based compensation expense related to stock-based transactions, including employee and director awards, as well as employee stock purchase plan purchase rights (“ESPP purchase rights”), is measured and recognized in the consolidated financial statements based on the fair value of the award on the grant date. Stock-based compensation expense related to equity awards that can be settled in cash is measured based on the fair value on each balance sheet date until the settlement dates. The fair value of option awards and ESPP purchase rights is estimated using the Black-Scholes option-pricing model. This model requires assumptions including the market value of the Company’s common stock, expected volatility, expected term of the award, expected dividend yield and risk-free interest rate. Expected term for stock option awards is determined based on the mid-point of the vest period and the contractual period of each option award due to the Company’s limited historical stock option exercise data. Expected volatility is established based on the historical volatility of the common stock of the Company, combined with the historical volatility of a peer group of publicly traded companies. Stock-based compensation expense, net of estimated forfeitures, is recognized on a graded-vesting basis over the requisite service periods of the awards, unless a performance-based condition exists. Expenses for performance-based awards are recognized when the issuance of the underlying awards are probable, which is re-measured at each reporting period and the expense is trued up accordingly. Expenses for consultant awards are measured based on the fair value on the vest date. Expenses related to the option grants to consultants that have not been vested as of the reporting date are marked to market until the earlier of the commitment or the completion of the underlying performance. The Company estimates a forfeiture rate to calculate the stock-based compensation for its awards based on an analysis of its historical experience, analysis of employee turnover and other related factors. The Company currently utilizes two separate forfeiture rates, based on the classification of the employees.

Advertising Costs

Expenses related to advertising of products are charged to sales and marketing expense as incurred. For all periods presented, advertising expenses were not material.

Income Taxes

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The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized on a more likely than not basis.

Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considers all available evidence, including past operating results, estimates of future taxable income and the feasibility of any viable tax planning strategies. In the event that the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to the income tax provision in the period in which such determination is made.

Comprehensive Income, net

Comprehensive income is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources. Comprehensive income is comprised of all components of net income and the changes in the components of accumulated other comprehensive income within stockholders’ equity. The Company’s accumulated other comprehensive income includes unrealized gains and losses from its available-for-sale securities that are not considered other-than-temporarily impaired, net of taxes.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the "FASB") issued an accounting standards update related to revenue from contracts with customers, which supersedes the revenue recognition requirements in the current Accounting Standards Codification. This standard is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015 the FASB voted to defer the effective date of this standard by one year. Additionally, in March 2016 the FASB issued additional information that clarifies the implementation guidance on principal versus agent considerations. The effective date of this standard will be the first quarter of fiscal 2018 using one of two retrospective application methods. The Company is currently evaluating the potential impact of this guidance on its condensed consolidated financial statements and has not selected the transition method.

In July 2015, the FASB issued an accounting standard update related to disclosure of inventory, to provide guidance on management’s responsibility to measure inventory at the lower of cost and net realizable value. The effective date of this standard will be for annual periods ending after December 15, 2016 with early adoption permitted. The Company is currently evaluating the impact of this guidance on the Company’s condensed consolidated financial statements.

In February 2016, the FASB issued an accounting standard update which amends the existing accounting standards for leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification. Under the new guidance, a lessee will be required to recognize assets and liabilities for all leases with lease terms of more than 12 months. The effective date of this update will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 using a modified retrospective transition method with early adoption permitted. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

In March 2016, the FASB issued an accounting standard related to Improvements to Employee Share-Based Payment Accounting, which amends Compensation – Stock Compensation. This standard includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The effective date of this standard will be for annual periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company is evaluating the impact of this guidance on its condensed consolidated financial statements.

In June 2016, the FASB issued new guidance that changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. The effective date of

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this standard will be for annual periods ending after December 15, 2019, and interim periods within that reporting period. Early adoption is permitted starting in annual periods ending after December 15, 2018. The Company is evaluating the impact of this guidance on its condensed consolidated financial statements.

In August 2016, the FASB issued new guidance related to Classification of Certain Cash Receipts and Cash Payments. This standard provides guidance for eight cash flow classification issues to reduce diversity in practice. The clarification includes guidance on items such as debt prepayment or debt extinguishment cost, contingent consideration payment made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies and distributions received from equity method investees. The effective date of this standard is for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. The Company is evaluating the impact of this guidance on its condensed consolidated financial statements.

3. Fair Value Measurements

The Company records its financial assets and liabilities at fair value. The inputs used in the valuation methodologies in measuring fair value are defined in the fair value hierarchy as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company recognizes transfers among Level 1, Level 2 and Level 3 classifications as of the actual date of the events or change in circumstances that caused the transfers.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The carrying value of the Company’s accounts receivable, accounts payable and accrued liabilities approximates their fair value due to the short-term nature of these instruments.

Cash, Cash Equivalents and Short-Term Investments

The Company measures its financial instruments at fair value on a recurring basis. The components of the Company's cash, cash equivalents and short-term investments are as follows (in thousands):

			Fair Value Measured Using
	October 1, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents:
Money market funds	$	119,315	$	119,315	$	—	$	—
Commercial paper	2,499		—		2,499		—
Total cash equivalents	$	121,814	$	119,315	$	2,499	$	—
Cash	33,739
Total cash and cash equivalents	$	155,553
Short-term investments:
Corporate debt securities	$	6,506	$	—	$	6,506	$	—
Commercial paper	14,943		—		14,943		—
U.S. agency debt securities	25,714		—		25,714		—
U.S. government securities	42,020		—		42,020		—
Total short-term investments	$	89,183	$	—	$	89,183	$	—

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			Fair Value Measured Using
	December 26, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents:
Money market funds	$	83,852	$	83,852	$	—	$	—
Commercial paper	4,497		—		4,497		—
Total cash equivalents	$	88,349	$	83,852	$	4,497	$	—
Cash	31,863
Total cash and cash equivalents	$	120,212
Short-term investments:
Corporate debt securities	$	14,560	$	—	$	14,560	$	—
Commercial paper	8,986		—		8,986		—
U.S. agency debt securities	29,008		—		29,008		—
U.S. government securities	37,447		—		37,447		—
Total short-term investments	$	90,001	$	—	$	90,001	$	—

The Company considers all highly liquid investments with maturity of three months or less at the time of purchase to be cash equivalents. The Company holds money market funds that invest primarily in high-quality short-term money-market instruments, and these funds are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Company presents available-for-sale investments as current assets as they are available for the Company's current operations.

Money market funds have been classified as Level 1 because these securities are valued based upon quoted prices in active markets. The Company’s Level 2 assets are priced using quoted market prices for similar instruments or non-binding market prices that are corroborated by observable market data. Observable inputs reflect market data obtained from independent sources. The Company did not have any transfers between Level 1 and Level 2 in the nine months ended October 1, 2016.

As of October 1, 2016 and December 26, 2015, the Company had no liabilities measured at fair value.

Financial assets measured at amortized cost, gross unrealized gains, gross unrealized losses and fair value by significant investment categories are summarized as follows (in thousands):

	As of October 1, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and cash equivalents:
Money market funds	$	119,315	$	—	$	—		$	119,315
Commercial paper	2,499		—		—			2,499
Cash	33,739		—		—			33,739
Total cash and cash equivalents	$	155,553	$	—	$	—		$	155,553
Short-term investments:
Corporate debt securities	$	6,507	$	1	$	(2	)	$	6,506
Commercial paper	14,943		—		—			14,943
U.S. agency debt securities	25,701		13		—			25,714
U.S. government securities	41,996		25		(1		)	42,020
Total short-term investments	$	89,147	$	39	$	(3	)	$	89,183

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	As of December 26, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and cash equivalents:
Money market funds	$	83,852	$	—	$	—		$	83,852
Commercial paper	4,497		—		—			4,497
Cash	31,863		—		—			31,863
Total cash and cash equivalents	$	120,212	$	—	$	—		$	120,212
Short-term investments:
Corporate debt securities	$	14,570	$	—	$	(10	)	$	14,560
Commercial paper	8,986		—		—			8,986
U.S. agency debt securities	29,031		—		(23		)	29,008
U.S. government securities	37,461		3		(17		)	37,447
Total short-term investments	$	90,048	$	3	$	(50	)	$	90,001

The Company’s realized gain was immaterial in the nine months ended October 1, 2016. There were no securities in a material continuous loss position for 12 months or longer as of October 1, 2016 or December 26, 2015.

The following table summarizes the estimated fair value of the Company’s debt investments, designated as available-for-sale classified by the contractual maturity date of the security (in thousands):

	As of
	October 1, 2016		December 26, 2015
Due within one year	$	210,997	$	177,852
Due between one and five years	—		498
Total cash equivalents and short-term investments	$	210,997	$	178,350

4. Balance Sheet Components

Inventories

Inventories are comprised of the following (in thousands):

	As of
	October 1, 2016		December 26, 2015
Raw materials	$	127	$	76
Finished goods	6,826		3,737
Total inventories	$	6,953	$	3,813

Accrued Liabilities

Accrued liabilities are comprised of the following (in thousands):

	As of
	October 1, 2016		December 26, 2015
Accrued employee related costs	$	21,322	$	25,392
Accrued inventory and other purchases	2,500		2,452
Accrued taxes payable	2,929		1,918
Accrued professional services	748		1,655
Other accruals	6,197		5,917
Total accrued liabilities	$	33,696	$	37,334

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Accrued Warranty

Warranty activity and accrued warranty is comprised of the following (in thousands):

	Nine Months Ended
	October 1, 2016			September 26, 2015
Accrued warranty balance at beginning of period	$	807		$	875
Accrual for warranty during the period	1,269			886
Actual costs incurred	(1,116		)	(741		)
Accrued warranty balance at end of period	$	960		$	1,020

	As of
Warranty accrual reported as:	October 1, 2016		December 26, 2015
Current	$	643	$	490
Non-current	317		317
Total accrued warranty	$	960	$	807

Deferred Revenue

Deferred revenue is comprised of the following (in thousands):

	As of
	October 1, 2016		December 26, 2015
Deferred service revenue	$	80,925	$	73,454
Deferred product revenue	2,221		8,677
Total deferred revenue	$	83,146	$	82,131

The change in deferred product revenue as of October 1, 2016 as compared to December 26, 2015 is associated with the Company's transition to a centralized global fulfillment model. Prior to this transition deferred product revenue primarily represented the value of stocking inventory that had been at various distributor locations, which is now centralized by the Company.

Accumulated Other Comprehensive (Loss) Income

Accumulated other comprehensive (loss) income consists of unrealized gains and losses from available-for-sale securities. The following summarizes the activity within accumulated other comprehensive (loss) income (in thousands):

Accumulated Other Comprehensive (Loss) Income	Net Unrealized (Losses) Gains
Balance as of December 26, 2015	$	(47	)
Available-for-sale securities:
Unrealized gains	83
Total other comprehensive income	83
Balance as of October 1, 2016	$	36

There was no material tax impact on the unrealized gains or losses and total other comprehensive income.

There were no material reclassifications out of accumulated other comprehensive (loss) income into the condensed consolidated statements of income in the nine months ended October 1, 2016 and September 26, 2015.

5. Commitments and Contingencies

Lease Commitments

The Company leases office space for its current headquarters in Santa Clara, California and its United Kingdom subsidiary under non-cancelable operating leases that expire at various times through fiscal 2021. The Company

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has also entered into lease agreements for additional office space in Australia, Hong Kong, Japan, India, Mexico, Russia, Singapore, and the United Arab Emirates. The Company recognizes rent expense on a straight-line basis over the lease period.

Rent expense related to the Company’s operating leases was $1.0 million and $0.8 million for the three months ended October 1, 2016 and September 26, 2015, respectively, and $2.9 million and $2.4 million for the nine months ended October 1, 2016 and September 26, 2015, respectively.

Future minimum lease payments under non-cancelable operating leases as of October 1, 2016 were as follows (in thousands):

Fiscal Year:
2016 (remaining three months)	$	1,109
2017	4,258
2018	1,485
2019	299
2020	191
2021	135
Total	$	7,477

Purchase Commitments

The Company has agreements with contract manufacturers for the manufacturing of its products. The agreement with its primary contract manufacturer allows the contract manufacturer to procure components on the Company’s behalf based upon a production forecast provided by the Company. The Company may be obligated to purchase component inventory that is non-cancellable. As of October 1, 2016 and December 26, 2015, the Company’s non-cancellable purchase commitments for such component inventory were $12.2 million and $12.0 million, respectively.

Legal Proceedings

From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company is not currently a party to any legal proceedings the outcome of which, if determined adversely to the Company, would individually or in the aggregate be expected to have a material adverse effect on its business, operating results, financial condition or cash flows.

Indemnification Obligations

Under the indemnification provisions of its standard sales related contracts, the Company agrees to defend its customers against third-party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks, or trade secrets, and to pay judgments entered on such claims. The Company’s exposure under these indemnification provisions is generally limited to the total amount paid by its customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose the Company to losses in excess of the amount received under the agreement. The Company has not incurred any costs as a result of such indemnifications and has not accrued any liabilities related to such obligations in its consolidated financial statements. In addition, the Company indemnifies its officers, directors and certain key employees while they are serving in good faith in the company capacities. To date, there have been no claims under any indemnification provisions.

6. Stockholders’ Equity

Preferred Stock

The Company has authorized 20,000,000 shares of undesignated preferred stock, $0.0001 par value per share. As of October 1, 2016 and December 26, 2015, the Company had no shares of preferred stock issued or outstanding.

Common Stock

The Company has authorized 1,000,000,000 shares of common stock, $0.0001 par value per share. Each holder of common stock is entitled to one vote for each share of common stock held. Cumulative voting for the election of directors is not provided in the Company’s amended and restated certificate of incorporation. The Company’s common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or

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sinking fund provisions. Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of common stock are entitled to receive dividends out of funds legally available if the Company's board of directors (the "Board"), in its discretion, determines to issue dividends and then only at the times and in the amounts that the Board may determine.

As of October 1, 2016 and December 26, 2015, the Company had 36,058,037 and 34,323,457 shares of common stock issued and outstanding, respectively.

Treasury Stock

As of October 1, 2016 and December 26, 2015, the Company had 8,109,848 shares of treasury stock outstanding, with a carrying value of $12.5 million, or $1.53 per share, within stockholders’ equity on its condensed consolidated balance sheet. The treasury stock was purchased in fiscal 2010 pursuant to a purchase and redemption agreement.

Equity Award Plans

2013 Equity Incentive Plan

In May 2013, the Company adopted the 2013 Equity Incentive Plan (the “2013 Equity Plan”). All authorized but unissued shares of the Company’s 2012 Unit Option Plan (the "2012 Plan") were added to the 2013 Equity Plan’s authorized pool in June 2013. A maximum of 2,929,481 shares of common stock were initially authorized for future issuance, plus up to an additional 4,967,172 shares upon termination of awards under the 2012 Plan. In addition, the 2013 Equity Plan is subject to an annual increase on the first day of each of the Company’s fiscal years, by an amount equal to the least of (i) 1,464,740 shares, (ii) 5% of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year, or (iii) such other amount as determined by the Board. In each of the fiscal years ended December 27, 2014 and December 26, 2015, an additional 1,464,740 shares of common stock were authorized for future issuance under the 2013 Equity Plan and an additional 1,464,740 shares were authorized during the nine months ended October 1, 2016. Vested but unexercised options, under the 2013 Equity Plan, expire three months after termination of service with the Company. As of October 1, 2016, outstanding awards under the 2013 Equity Plan and the 2012 Plan covered 3,480,841 shares and 485,469 shares of the Company's common stock, respectively.

The 2013 Equity Plan permits the grant of stock options, stock appreciation rights, restricted stock, restricted stock units ("RSUs"), performance units and performance shares to employees, directors and consultants of the Company.

Employee Stock Purchase Plan

In conjunction with the completion of its initial public offering (the "IPO") in June 2013, the Company adopted the 2013 Employee Stock Purchase Plan (the “ESPP”). A maximum of 439,422 shares were initially authorized for future issuance. In addition, the ESPP is subject to an annual increase on the first day of each of the Company's fiscal years, by an amount equal to the least of (i) 439,422 shares, (ii) 1.5% of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year, or (iii) such other amount as determined by the Board. In each of the fiscal years ended December 27, 2014 and December 26, 2015, an additional 439,422 shares of common stock were authorized for future issuance under the ESPP and an additional 439,422 shares were authorized during the nine months ended October 1, 2016. Eligible employees can purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to plan limitations. Employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock (i) at the date of commencement of the offering period or (ii) at the last day of the purchase period. The ESPP provides for a 24-month offering period comprised of four purchase periods of approximately six months. The offering periods are scheduled to start on the first trading day on or after February 15 and August 15 of each year, except for the first offering period, which commenced on the first trading day upon the completion of the Company’s IPO, or June 12, 2013, and ended on August 17, 2015.

In accordance with the terms of the Company's 2013 Employee Stock Purchase Plan (the "ESPP"), an additional 439,422 shares were authorized for future issuance during the nine months ended October 1, 2016. The Company recorded stock-based compensation expense for its ESPP of $1.4 million and $2.7 million for the three and nine months ended October 1, 2016, respectively, and $0.7 million and $2.1 million for the three and nine months ended September 26, 2015, respectively. For the nine months ended October 1, 2016 there were two purchase periods that resulted in the issuance of 586,132 shares of common stock at a weighted average purchase price of $11.75 per share.

Stock Options

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Stock options granted under the 2013 Equity Plan and formerly under the 2012 Plan (together, the “Option Plans”), are generally subject to a four-year vesting period whereby stock options become 25% vested on the first anniversary of the grant date and then ratably monthly thereafter through the end of the vesting period. Vested stock options may be exercised up to ten years from the grant date, with certain options granted in fiscal 2015 and fiscal 2016 expiring seven years from the date of grant. Under the 2012 Plan, vested but unexercised stock options expire 30 days after termination of service with the Company. Under the 2013 Equity Plan, vested but unexercised stock options expire three months after termination of service with the Company.

The following table summarizes the stock option activity under the Company’s Option Plans:

	Number of Stock Options Outstanding		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
	(in thousands)
Balance — December 26, 2015	2,170,720		$	15.73	7.14	$	24,910
Options granted	70,000		$	31.16
Options exercised	(778,675	)	$	12.40
Options canceled	(44,522	)	$	20.27
Balance — October 1, 2016	1,417,523		$	18.18	6.60	$	51,906
Vested and expected to vest — October 1, 2016	1,360,227		$	18.02	6.62	$	50,024
Exercisable — October 1, 2016	836,612		$	16.18	6.68	$	32,313

Aggregate intrinsic value represents the difference between the exercise price of the awards and the Company’s fair value per share of $54.80 and $26.82 as of October 1, 2016 and December 26, 2015, respectively, for the total number of underlying options. As of October 1, 2016 and December 26, 2015 there were zero and 2,611 shares underlying performance-based common stock awards outstanding, respectively, of which zero and 1,488, respectively, were not yet vested and subject to performance-based vesting criteria.

Restricted Stock Unit Activity

RSUs generally vest over a period of one to four years. RSU vesting dates are determined by the Company. The vesting is subject to the employee’s continuing service with the Company over that period. Until vested, RSUs do not have the voting or dividend participation rights of the Company’s common stock and the shares of the Company’s common stock underlying the awards are not considered issued and outstanding. The cost of RSUs is determined using the fair value of the Company’s common stock on the date of the grant.

The following table summarizes the RSU activity under the Company’s Option Plans:

	Number of RSUs Outstanding		Weighted- Average Grant Date Fair Value		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
						(in thousands)
Balance - December 26, 2015	1,779,339		$	22.64	1.53	$	47,722
RSUs granted	1,569,219		$	26.45
RSUs vested	(587,400	)	$	22.88
RSUs canceled	(212,371	)	$	23.92
Balance - October 1, 2016	2,548,787		$	24.82	1.48	$	139,674
Vested and expected to vest — October 1, 2016	2,185,562		$	24.70	1.38	$	119,769

 Aggregate intrinsic value for RSUs represents the Company’s fair market value per share of $54.80 and $26.82, as of October 1, 2016 and December 26, 2015, respectively, for the total number of underlying RSUs.

Performance-Based Awards

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During the nine months ended October 1, 2016, the Company awarded 193,000 shares of performance-based RSUs. The vesting conditions of these awards are tied to the Company's fiscal 2016 revenue and operating income performance. These RSUs can vest from 0% to 200% of the target grant, based on attainment of the performance goals. The target achievement percentage will be known as of December 31, 2016; until then the Company estimates the probability of the achievement of these performance goals each quarterly period and recognizes any related stock-based compensation expense. If the achievement of such performance goals is not probable, no compensation expense is recognized. For the three and nine months endedOctober 1, 2016, the Company has recorded $1.3 million and $2.9 million on a graded-vesting basis, respectively, in stock-based compensation expense related to these RSU awards.

Stock-Based Compensation Expense

The fair value of stock options and ESPP purchase rights is estimated on the date of grant using the Black-Scholes option-pricing model. The fair values of the option awards and ESPP purchase rights granted and the assumptions used in the Black-Scholes option pricing model are summarized as follows:

	Three Months Ended		Nine Months Ended
	October 1, 2016	September 26, 2015	October 1, 2016	September 26, 2015
Stock option awards:
Expected term (in years)	0	0	4.6	4.6
Risk-free interest rate	—%	—%	1.4%	1.6%
Expected volatility	—%	—%	76.1%	56.04%
Expected dividend rate	—%	—%	—%	—%
Grant date fair value per award	$—	$—	$18.62	$10.11
ESPP purchase right:
Expected term (in years)	0.50 - 2.0	0.50 - 2.0	0.50 - 2.0	0.50 - 2.0
Risk-free interest rate	0.46% - 0.72%	0.24% - 0.72%	0.42% - 0.74%	0.07% - 0.72%
Expected volatility	43.9% - 54.6%	42.5% - 59.9%	43.9% - 67.2%	37.6% - 59.9%
Expected dividend rate	—%	—%	—%	—%
Grant date fair value per share	$12.84 - $20.77	$7.25 - $12.64	$7.75 - $20.77	$5.48 - $12.64

The following table summarizes the stock-based compensation expense recorded in the Company’s condensed consolidated statements of income (in thousands):

	Three Months Ended				Nine Months Ended
	October 1, 2016		September 26, 2015		October 1, 2016		September 26, 2015
Cost of revenue	$	519	$	471	$	1,527	$	1,530
Research and development	3,397		2,451		9,800		7,156
Sales and marketing	3,062		2,498		8,802		7,757
General and administrative	3,126		2,431		8,755		7,337
Total stock-based compensation expense	$	10,104	$	7,851	$	28,884	$	23,780

As of October 1, 2016, unrecognized compensation expense related to stock options, RSUs, PSUs, and ESPP purchase rights, net of estimated forfeitures, was $2.1 million, $26.7 million, $4.8 million, and $5.3 million, respectively.

7. Defined Contribution Plans

The Company’s contributions to the 401(k) defined contribution plan, which are expensed immediately as compensation costs, were $0.6 million and $0.3 million for the three months ended October 1, 2016 and September 26, 2015, respectively, and $1.7 million and $1.0 million for the nine months ended October 1, 2016 and September 26, 2015, respectively.

8. Income Tax

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The Company recorded an income tax provision of $4.0 million for the three months ended October 1, 2016 and an income tax benefit of $23.3 million for the nine months ended October 1, 2016, and an income tax provision of $0.1 million and $0.3 million for the three and nine months ended September 26, 2015, respectively. The income tax benefit for the nine months ended October 1, 2016 represents the release of $30.5 million of the Company’s existing valuation allowance against its U.S. deferred tax assets and additional foreign income tax expense. The Company considered all available positive and negative evidence in making a determination to release a portion of its existing valuation allowance.  Such evidence included, among others, the Company’s history of profitability and losses, jurisdictional income recognition trends, forecasted income by jurisdiction and achievement of three years of cumulative taxable income in the U.S. federal tax jurisdiction as of July 2, 2016. Therefore, the Company determined that there is sufficient positive evidence to conclude that it is more likely than not that it will utilize its U.S. deferred tax assets. Included in the net deferred tax asset balance is a $3.7 million valuation allowance that relates to research and development credits in a jurisdiction with a history of credits in excess of taxable profits.   

As a result of the valuation allowance release, an unreserved deferred tax asset of $31.6 million is reflected on the accompanying condensed consolidated balance sheet as of October 1, 2016. The related $31.6 million effect on the accompanying condensed consolidated statement of income for the nine months ended October 1, 2016 is a non-cash income tax benefit.

The Company files annual income tax returns in multiple tax jurisdictions on a worldwide basis. A number of years may lapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes that its reserves for income taxes reflect the most likely outcomes. The Company adjusts these reserves, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular position could require the use of cash.

As of October 1, 2016, changes to the Company's uncertain tax positions in the next 12 months that are reasonably possible are not expected to have a material impact on the Company's financial position or results of operations. The Company recognizes interest and penalties related to uncertain tax positions as part of the income tax provision. To date, no such interest and penalties have been accrued.

9. Net Income per Share

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding.

The following table presents the computation of basic and diluted net income per share attributable to common stockholders (in thousands, except per share data):

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	Three Months Ended				Nine Months Ended
	October 1, 2016		September 26, 2015		October 1, 2016		September 26, 2015
Numerator:
Net income	$	6,079	$	4,280	$	43,009	$	3,623
Denominator:
Weighted average shares used for basic net income per share computation	35,770		33,830		35,171		33,412
Weighted average effect of dilutive securities:
Stock options	666		664		696		685
RSUs	1,313		1,018		1,169		991
Performance-based Units	175		—		102		—
ESPP purchase rights	189		360		203		409
Weighted average shares used for diluted net income per share computation	38,113		35,872		37,341		35,497
Net income per share attributable to common stockholders:
Basic	$	0.17	$	0.13	$	1.22	$	0.11
Diluted	$	0.16	$	0.12	$	1.15	$	0.10

The weighted average number of shares outstanding used in the computation of diluted net income per share does not include the effect of the following shares of potentially outstanding common stock because the effect would have been anti-dilutive for the periods presented (in thousands):

	Three Months Ended		Nine Months Ended
	October 1, 2016	September 26, 2015	October 1, 2016	September 26, 2015
Equity awards to purchase common stock	20	721	74	642

10. Segment Information

Operating segments are defined as components of an enterprise that engage in business activities for which separate financial information is available and evaluated by the chief operating decision maker in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker is its chief executive officer. The chief executive officer reviews financial information presented on a consolidated basis, for purposes of allocating resources and evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, or plans for levels or components below the consolidated unit level. Accordingly, the Company operates as a single reportable segment.

The following table summarizes the Company’s revenue by geographic region, based on the location to where the product was shipped (in thousands):

	Three Months Ended				Nine Months Ended
	October 1, 2016		September 26, 2015		October 1, 2016		September 26, 2015
United States	$	67,205	$	44,764	$	179,678	$	115,195
Rest of Americas	2,562		2,167		7,385		8,215
Europe, Middle East and Africa	7,370		7,209		21,349		21,471
Asia Pacific	6,375		2,512		17,414		10,070
Total	$	83,512	$	56,652	$	225,826	$	154,951

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The Company’s long-lived assets by geographic region are summarized as follows (in thousands):

	As of
	October 1, 2016		December 26, 2015
United States	$	9,868	$	9,148
Other	1,513		268
Total	$	11,381	$	9,416

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10. Subsequent Events

On October 27, 2016, Michael J. Burns, resigned as the chief financial officer of the Company, effective immediately. Following his resignation from the position of chief financial officer, Mr. Burns will remain with the Company through February 28, 2017 to assist in the Company’s transition to the new chief financial officer.

On October 27, 2016, the Company announced the appointment of Rex S. Jackson as chief financial officer of the Company. Mr. Jackson will also serve as the Company’s principal financial officer and principal accounting officer.

On October 25, 2016, Gigamon retired 8,109,848 shares of treasury stock. The retired stock had a carrying value of approximately $12.5 million. The Company’s accounting policy upon the formal retirement of treasury stock is as a deduction to Additional Paid-in Capital.

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

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 26, 2015, as filed with the Securities and Exchange Commission. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements contained in this Quarterly Report on Form 10-Q, other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Unless expressly indicated or the context requires otherwise, the terms “Gigamon,” “Company,” “we,” “us” and “our” in this document refer to Gigamon Inc., a Delaware corporation, and, where appropriate, its wholly owned subsidiaries. The term “Gigamon” may also refer to our products, regardless of the manner in which they are accessed.

Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

• our expectations regarding our results of operations and financial condition;

• anticipated trends and challenges in our business and in the markets in which we operate;

• the impact of seasonality on our business;

• our anticipated growth strategies;

• maintaining and expanding our end-user customer base and our relationships with our channel partners;

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• our ability to anticipate market needs and develop new and enhanced products and services to meet those needs;

• our ability to manage the introduction of new products including products jointly developed with third-party joint development and original design manufacturing partners and the effects of such new product introductions on our existing product portfolio;

• our sales cycles and the results of our sales efforts;

• our relationships with our third-party manufacturers and suppliers;

• our management of inventory and backlog;

• the evolution of technology affecting our products, services and markets;

• our ability to retain and hire necessary employees and to staff our operations appropriately;

• our liquidity and working capital requirements;

• our need to obtain additional funding and our ability to obtain future funding on acceptable terms;

• our remaining valuation allowance on deferred tax assets and the assumptions and estimates underpinning our determination;

• our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business both in the United States and internationally; and

• the estimates and estimate methodologies used in preparing our condensed consolidated financial statements.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

Overview

We have developed an innovative solution that delivers pervasive and dynamic intelligent visibility and control of traffic across networks. Our Visibility Fabric consists of a distributed system of nodes that enable an advanced level of visibility, modification and control of network traffic. Our Visibility Fabric solution is comprised of data center and central office physical appliances, virtual nodes in virtualized or private cloud environments, and small form-factor remote site appliances that in combination enable pervasive visibility of network infrastructures. We believe Visibility Fabric enables organizations to significantly improve their cyber-security posture by leveraging the power of network visibility to establish visibility within the perimeter of their IT infrastructure; mobile service providers to gain subscriber-aware visibility into their IT infrastructure enabling them to reduce operational costs, increase revenue generating opportunities and provide improved services for the subscribers; and IT departments to significantly increase the effectiveness, efficiency and performance of their network management, analysis and compliance tools.

We generate product revenue primarily from sales of perpetual software licenses installed on physical appliances for our Visibility Fabric solution to channel partners, including distributors and resellers, as well as directly to end-user customers. We sell our products directly through our own sales force and indirectly through our channel partners. We provide our channel partners with marketing assistance, technical training and support.

We generate service revenue primarily from the sale of maintenance and support services for our products. Starting in the quarter ending September 26, 2015, we began to sell first-year maintenance and support as an additional offering. Prior to that time, the first year of maintenance and support services was generally bundled or purchased with the initial contract to purchase our products. Following expiration of this one-year contract, our end-user customers typically purchase maintenance and support contracts that generally have one-year terms.

Our revenue increased to $83.5 million in the three months ended October 1, 2016 from $56.7 million in the three months ended September 26, 2015, representing 47% growth from sales of our products and services to existing and new customers. As of October 1, 2016, we had increased our cumulative customer count to over 2,200, as compared to over 1,800 as of September 26, 2015. Our net income was $6.1 million for the three months ended October 1, 2016 compared to $4.3 million for the three months ended September 26, 2015. We generated cash from our operations of $22.9 million for the nine months ended October 1, 2016 compared to $39.3 million for the nine months ended September 26, 2015. We operate as a single reportable segment.

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Fiscal year 2015 was a 52-week fiscal year, with each quarter therein being a 13-week quarter. Fiscal 2016 is a 53-week fiscal year ending on December 31, 2016, with the first quarter being a 14-week quarter which ended on April 2, 2016 and each subsequent quarter being a 13-week quarter.

Key Performance Indicators of Our Business

We monitor a variety of key performance indicators to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess operational efficiencies. These key performance indicators include the following (dollars in thousands):

	Three Months Ended						Nine Months Ended
	October 1, 2016			September 26, 2015			October 1, 2016			September 26, 2015
Key Performance Indicators:
Revenue	$	83,512		$	56,652		$	225,826		$	154,951
Gross margin	83		%	80		%	82		%	78		%
Income from operations	$	9,987		$	4,316		$	19,413		$	3,625
							As of October 1, 2016			As of September 26, 2015
Deferred service revenue							$	80,925		$	61,410

Revenue. We monitor our revenue to assess the acceptance of our products and services by our end-user customers and growth in the markets we serve.

Gross margin. We monitor our gross margin to assess the impact on our current and forecasted financial results from any changes to the pricing and mix of products we are selling to our customers.

Income from operations. We monitor our income from operations to assess how effectively we are conducting our operations as well as controlling our operating expenses, which are primarily driven by headcount.

Deferred service revenue. Our deferred service revenue consists of the unamortized portion of service revenue from maintenance and support contracts. We monitor our deferred service revenue balance because it represents a significant portion of the revenue that we will recognize in future periods. We assess the annual change in our deferred service revenue balance which, taken together with revenue, is an indication of sales activity year over year.

Financial Overview

Revenue

We generate revenue from the sale of products and related services, including maintenance and support. We present revenue net of discounts, rebates and sales taxes. Our revenue is comprised of the following:

Product revenue. We generate product revenue primarily from sales of perpetual software licenses installed on physical appliances for our Visibility Fabric. We generally recognize product revenue at the time of product delivery, provided all other revenue recognition criteria have been met. As a percentage of revenue, we expect our product revenue to vary from quarter-to-quarter based on, among other things, the timing of orders, the delivery of products, and seasonal and cyclical factors discussed under the section titled “Results of Operations.”

We have experienced seasonality in the sale of our products. The first quarter of each year is usually our lowest revenue quarter during the year and product revenue typically declines sequentially from the prior fourth quarter. We generally expect an increase in sales in the second half of the year relative to the first half, primarily due to the buying habits of many of our end-user customers as budgets for annual capital purchases are being fully utilized.

We expect our product revenue to increase as we continue to add new end-user customers, expand the volume of shipments to our current end-user customers and introduce new products.

Service revenue. We generate service revenue from sales of maintenance and support contracts, which may be bundled with sales of products, and from sales and subsequent renewals of maintenance and support contracts. We offer tiered maintenance and support services under our renewable, fee-based maintenance and support contracts, which include technical support, bug fixes, patches and unspecified upgrades on a when-and-if-available basis. We recognize service revenue ratably over the duration of the contract, which is typically one year and can be for multiple years depending on the customer contract. As a result, the impact on service revenue will lag any shift in product revenue because product revenue is recognized when a product is sold and revenue criteria are

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satisfied, whereas service revenue is recognized ratably over the contract term. We expect our service revenue to increase as we expand our installed base by selling more products and support contracts, and adding more end-user customers.

Cost of revenue

Our cost of revenue consists of the following:

Cost of product revenue. Cost of product revenue is comprised primarily of the costs associated with manufacturing our products, including third-party hardware manufacturing costs; personnel costs for salary, benefits, bonuses and stock-based compensation expense; shipping costs; allocated costs of facilities and information technology; any inventory write-downs; and warranty costs and other related expenses. We expect cost of product revenue to increase in connection with the anticipated increase in product revenue.

Cost of service revenue. Cost of service revenue is comprised primarily of personnel costs for salary, benefits, bonuses and stock-based compensation expense related to our customer support organization, as well as allocated costs of facilities, information technology and engineering. We expect cost of service revenue to increase in connection with the anticipated increase in service revenue.

Gross profit and gross margin

Gross profit has been and will continue to be affected by a variety of factors including shipment volumes, changes in the mix of products and services sold, changes in our product costs including any inventory write-downs, new product introductions and upgrades to existing products, changes in customer mix, changes in pricing and the extent of customer rebates and incentive programs. We expect our gross margin to fluctuate over time depending on a variety of factors, including those described above.

Operating expenses

Operating expenses consist of research and development, sales and marketing and general and administrative expenses. Personnel costs comprise a significant component of our operating expenses, and consist of salaries, benefits, bonuses and stock-based compensation expense; and with respect to our sales organization, personnel costs also include sales commissions. The number of employees attributable to our operating expenses increased to 588 as of October 1, 2016, compared to 426 as of September 26, 2015. We expect to continue to hire new employees to support our anticipated growth, particularly with respect to an anticipated increase in sales and marketing and research and development efforts in fiscal 2016. We expect operating expenses to increase as we continue to grow. However, we generally expect these increases to be at or lower than the rate of our revenue growth.

Research and development. Our research and development efforts are focused on new product development and on developing additional functionality for our existing products. Research and development expenses consist primarily of personnel costs, and to a lesser extent, prototype materials, allocated costs of facilities and information technology and product certification. We expense research and development costs as incurred. We expect our research and development expenses to increase as we continue to develop new products and enhance our existing products. However, we generally expect these increases to be at or lower than the rate of our revenue growth.

Sales and marketing. Sales and marketing expenses are the largest component of our operating expenses and consist primarily of personnel costs, as well as travel expenses, trade shows, marketing and promotional activities, and allocated costs of facilities and information technology. We sell our products through our global sales organization, which is divided into three geographic regions: (i) the Americas (which includes the United States, Canada and Latin America), (ii) Europe, the Middle East and Africa (EMEA) and (iii) Asia Pacific. We expect our sales and marketing expenses to increase as we expand our sales and marketing efforts internationally and domestically to help drive increased revenue. However, we generally expect these increases to be lower than the rate of our revenue growth.

General and administrative. General and administrative expenses consist of personnel costs and allocated costs of facilities and information technology related to our executive, finance, human resources and legal functions, as well as professional services costs. Professional services costs consist primarily of outside legal and accounting services. We have incurred and expect to continue to incur expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange and costs related to compliance and reporting obligations. However, we generally expect these increases to be at or lower than the rate of our revenue growth.

Interest income and other income (expense), net

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Interest income consists primarily of income earned on our invested cash, cash equivalents and short-term investments. Historically, interest income has not been material, and is not expected to be material despite our increasedevel of invested cash.

Other income (expense), net consists primarily of foreign currency exchange gains (losses) related to transactions denominated in currencies other than the U.S. dollar, which have not been material to date.

Income Tax (Provision) Benefit

We recorded an income tax provision of $4.0 million for three months ended October 1, 2016 and an income tax benefit of $23.3 million for the nine months ended October 1, 2016, as compared to an income tax provision of $0.1 million and $0.3 million for the three and nine months ended September 26, 2015, respectively. The income tax benefit recorded in the nine months ended October 1, 2016 was related to the release of the valuation allowance previously recorded against deferred tax assets (see Note 8 Income Tax included in Part I, Item I).

Stock-based compensation expense and other compensation charges

Total stock-based compensation expense, net of estimated forfeitures, was $10.1 million and $28.9 million for the three and nine months ended October 1, 2016, respectively, as compared to $7.9 million and $23.8 million for the three and nine months ended September 26, 2015, respectively. As of October 1, 2016, unrecognized stock-based compensation expense, net of estimated forfeitures, was $38.9 million. To the extent actual forfeiture rates differ from what we have anticipated, stock-based compensation expense related to these awards will be different from our expectations.

Results of Operations

The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenue (dollars in thousands):

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	Three Months Ended						Nine Months Ended
	October 1, 2016			September 26, 2015			October 1, 2016			September 26, 2015
Consolidated Statement of Income Data:
Revenue:
Product	$	59,835		$	38,717		$	155,805		$	105,683
Service	23,677			17,935			70,021			49,268
Total revenue	83,512			56,652			225,826			154,951
Cost of revenue:
Product	12,197			9,613			34,414			28,616
Service	2,141			1,708			6,562			5,248
Total cost of revenue	14,338			11,321			40,976			33,864
Gross profit	69,174			45,331			184,850			121,087
Operating expenses:
Research and development	18,306			12,677			50,914			36,400
Sales and marketing	31,994			21,388			88,494			61,391
General and administrative	8,887			6,950			26,029			19,671
Total operating expenses	59,187			41,015			165,437			117,462
Income from operations	9,987			4,316			19,413			3,625
Interest income	235			106			661			330
Other expense, net	(144		)	(69		)	(386		)	(72		)
Income before income tax (provision) benefit	10,078			4,353			19,688			3,883
Income tax (provision) benefit	(3,999		)	(73		)	23,321			(260		)
Net income	$	6,079		$	4,280		$	43,009		$	3,623
Income from operations includes stock-based compensation and related payroll tax expenses allocated as follows:
Stock-based compensation and related payroll tax expenses:
Cost of revenue	$	546		$	487		$	1,591		$	1,590
Research and development	3,506			2,532			10,175			7,519
Sales and marketing	3,204			2,534			9,091			8,023
General and administrative	3,261			2,460			8,998			7,439
Total stock-based compensation and related payroll tax expenses	$	10,517		$	8,013		$	29,855		$	24,571

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	Three Months Ended				Nine Months Ended
	October 1, 2016		September 26, 2015		October 1, 2016		September 26, 2015
Percentage of Revenue:
Revenue:
Product	72	%	68	%	69	%	68	%
Service	28	%	32	%	31	%	32	%
Total revenue	100	%	100	%	100	%	100	%
Cost of revenue	17	%	20	%	18	%	22	%
Gross margin	83	%	80	%	82	%	78	%
Operating expenses:
Research and development	22	%	22	%	23	%	23	%
Sales and marketing	38	%	38	%	38	%	40	%
General and administrative	11	%	12	%	12	%	13	%
Total operating expenses	71	%	72	%	73	%	76	%
Income from operations	12	%	8	%	9	%	2	%
Interest income	—	%	—	%	—	%	—	%
Other expense, net	—	%	—	%	—	%	—	%
Income before income tax (provision) benefit	12	%	8	%	9	%	2	%
Income tax (provision) benefit	(5	)%	—	%	10	%	—	%
Net income	7	%	8	%	19	%	2	%

Comparison of the Three and Nine Months EndedOctober 1, 2016 and September 26, 2015

Revenue

	Three Months Ended							Nine Months Ended
	October 1, 2016		September 26, 2015		Increase		% Increase	October 1, 2016		September 26, 2015		Increase		% Increase
	(dollars in thousands)							(dollars in thousands)
Revenue:
Product	$	59,835	$	38,717	$	21,118	55%	$	155,805	$	105,683	$	50,122	47%
Service	23,677		17,935		5,742		32%	70,021		$	49,268	20,753		42%
Total revenue	$	83,512	$	56,652	$	26,860	47%	$	225,826	$	154,951	$	70,875	46%

Product revenue increased $21.1 million and $50.1 million in the three and nine months ended October 1, 2016, respectively, as compared to the same prior year periods, primarily due to the increase in sales across most of our product portfolio, partially offset by reduced sales of our earlier-generation products.

Service revenue increased $5.7 million and $20.8 million in the three and nine months ended October 1, 2016, respectively, as compared to the same prior year periods, primarily due to the growth in our installed base of end-user customers driven in part by the transition to first year support under maintenance and support contracts. Additionally the increase in the nine months ended October 1, 2016 was also impacted by an extra week of service revenue recognized in the 14-week quarter ended April 2, 2016.

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Cost of revenue and gross margin

	Three Months Ended									Nine Months Ended
	October 1, 2016			September 26, 2015			Increase		% Increase	October 1, 2016			September 26, 2015			Increase/(Decrease)		% Increase/(Decrease)
	(dollars in thousands)									(dollars in thousands)
Cost of revenue:
Product	$	12,197		$	9,613		$	2,584	27%	$	34,414		$	28,616		$	5,798	20%
Service	2,141			1,708			433		25%	6,562			5,248			1,314		25%
Total cost of revenue	$	14,338		$	11,321		$	3,017	27%	$	40,976		$	33,864		$	7,112	21%
Gross margin:
Product	80		%	75		%				78		%	73		%
Service	91		%	90		%				91		%	89		%
Total gross margin	83		%	80		%				82		%	78		%
Stock-based compensation and related payroll tax expense included in cost of revenue	547			487			60		12%	1,591			1,590			1		—%

Three Months Ended October 1, 2016 Compared to Three Months Ended September 26, 2015

Total gross margin increased to 83% in the three months ended October 1, 2016 from 80% in the three months ended September 26, 2015. This improvement was driven by lower manufacturing and distribution costs, improved manufacturing efficiencies, pricing improvements, and efficiency gains associated with supporting a larger installed base of end-user customers under maintenance and support contracts. Additionally, the total gross margin for the three months ended October 1, 2016 contained a one-time inventory adjustment that increased gross margin by 0.6%.

Product gross margin increased to 80% in the three months ended October 1, 2016 from 75% in the three months ended September 26, 2015. This improvement was driven by lower manufacturing and distribution costs, improved manufacturing efficiencies, and pricing improvements. Additionally, the product gross margin for the three months ended October 1, 2016 contained a one-time inventory adjustment that increased product gross margin by 0.9%.

Service gross margin increased to 91% in the three months ended October 1, 2016 from 90% in the three months ended September 26, 2015, primarily due to increased operating efficiencies associated with supporting a larger installed base of end-user customers under maintenance and support contracts.

Nine Months EndedOctober 1, 2016 Compared to Nine Months EndedSeptember 26, 2015

Total gross margin increased to 82% in the nine months ended October 1, 2016 from 78% in the nine months ended September 26, 2015. This improvement was driven by lower manufacturing and distribution costs, improved manufacturing efficiencies, pricing improvements, and efficiency gains associated with supporting a larger installed base of end-user customers under maintenance and support contracts.

Product gross margin increased to 78% in the nine months ended October 1, 2016 from 73% in the nine months ended September 26, 2015. This improvement was driven by lower manufacturing and distribution costs, improved manufacturing efficiencies, and pricing improvements.

Service gross margin increased to 91% in the nine months ended October 1, 2016 from 89% in the nine months ended September 26, 2015, primarily due to increased operating efficiencies associated with supporting a larger installed base of end-user customers under maintenance and support contracts.

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Operating expenses

	Three Months Ended							Nine Months Ended
	October 1, 2016		September 26, 2015		Increase		% Increase	October 1, 2016		September 26, 2015		Increase		% Increase
	(dollars in thousands)							(dollars in thousands)
Operating expenses:
Research and development	$	18,306	$	12,677	$	5,629	44%	$	50,914	$	36,400	$	14,514	40%
Sales and marketing	31,994		21,388		10,606		50%	88,494		61,391		27,103		44%
General and administrative	8,887		6,950		1,937		28%	26,029		19,671		6,358		32%
Total operating expenses	$	59,187	$	41,015	$	18,172	44%	$	165,437	$	117,462	$	47,975	41%
Stock-based compensation and related payroll tax expense included in:
Research and development	$	3,506	$	2,532	$	974	38%	$	10,175	$	7,519	$	2,656	35%
Sales and marketing	3,204		2,534		$	670	26%	9,091		8,023		$	1,068	13%
General and administrative	3,261		2,460		$	801	33%	8,998		7,439		$	1,559	21%
Total stock-based compensation and related payroll tax expense	$	9,971	$	7,526	$	2,445	32%	$	28,264	$	22,981	$	5,283	23%

Three Months Ended October 1, 2016 Compared to Three Months Ended September 26, 2015

Research and development expenses increased $5.6 million in the three months ended October 1, 2016 as compared to the same prior year period. This increase was primarily driven by $3.4 million of additional personnel costs, which were primarily comprised of increased payroll and contractor related expenses of $1.4 million, increased bonus related costs of $0.8 million, and increased stock-based compensation and related payroll tax expenses of $1.0 million. The remaining research and development expense increase was primarily driven by a $1.0 million increase in product development expenses and a $1.1 million increase in facilities-related and IT-related expenses required to support a larger research and development team.

Sales and marketing expenses increased $10.6 million in the three months ended October 1, 2016 as compared to the same prior year period. This increase was primarily driven by $7.6 million of additional personnel costs, which were primarily comprised of increased payroll, payroll tax and consulting expenses of $3.1 million, increased commission expenses of $3.2 million and increased stock-based compensation and related payroll tax expenses of $0.7 million. The remaining sales and marketing expense increase was primarily driven by a $1.4 million increase in our sales and marketing promotional related expenses and an increase of $0.9 million in IT and facilities related costs to support a larger sales and marketing team.

General and administrative expenses increased $1.9 million in the three months ended October 1, 2016 as compared to the same prior year period. This increase was primarily driven by $1.9 million of additional personnel costs, which were primarily comprised of $0.6 million increased payroll and payroll tax, and $0.8 million increased stock-based compensation and related payroll tax expenses.

Nine Months EndedOctober 1, 2016 Compared to Nine Months EndedSeptember 26, 2015

As noted above, the three months ended April 2, 2016 was a 14-week quarter while the quarter ended March 28, 2015 was 13-weeks, consequently the nine months ended October 1, 2016 had 40-weeks while the nine months ended September 26, 2015 had 39-weeks. This difference, along with the explanations below, contributed to the year over year change in operating expenses.

Research and development expenses increased $14.5 million in the nine months ended October 1, 2016 as compared to the same prior year period. This increase was primarily driven by $8.8 million of additional personnel costs, which were primarily comprised of increased payroll and payroll tax expenses of $5.2 million, increased bonus related costs of $1.4 million, and increased stock-based compensation and related payroll tax expenses of $2.7 million, and offset by $0.6 million reduced contractor expenses. The remaining research and development expense increase was primarily driven by a $2.7 million increase in product development expenses and a $2.7 million increase in facilities-related and IT-related expenses.

Sales and marketing expenses increased $27.1 million in the nine months ended October 1, 2016 as compared to the same prior year period. This increase was primarily driven by $18.9 million of additional personnel costs, which were primarily comprised of increased payroll and payroll tax expenses of $8.9 million, increased commission expenses of $7.0 million and increased stock-based compensation and related taxes of $1.0 million. The remaining sales and marketing expense increase was primarily driven by a $3.2 million increase in our sales and marketing

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promotional related expenses, an increase of $1.1 million in travel expense, and an increase of $2.6 million in IT and facilities related costs to support a larger sales and marketing team.

General and administrative expenses increased $6.4 million in the nine months ended October 1, 2016 as compared to the same prior year period. This increase was primarily driven by $5.2 million of additional personnel costs, which were primarily comprised of $2.1 million increased payroll and payroll tax expenses, $0.8 million of contractor related expenses, $0.5 million increased bonus related costs, and increased stock-based compensation and related payroll tax expenses of $1.6 million. Professional services fees and general office expenses drove the remainder of the general and administrative increase.

Income Tax (Provision) Benefit

	Three Months Ended											Nine Months Ended
	October 1, 2016			September 26, 2015			Change			% Change		October 1, 2016		September 26, 2015			Change		% Change
	(dollars in thousands)											(dollars in thousands)
Income tax (provision) benefit	$	(3,999	)	$	(73	)	$	(3,926	)	5,378	%	$	23,321	$	(260	)	$	23,581	(9,070	)%

We account for income taxes under the asset and liability approach. This process involves estimating our actual current tax exposure, including assessing the risks associated with tax audits, and assessing temporary differences resulting from the different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance. Significant judgment is required in determining whether the valuation allowance should be recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence including past operating results and estimates of future forecasted taxable income or losses.

We had an income tax provision of $4.0 million for the three months ended October 1, 2016. The income tax provision recorded in the three months ended October 1, 2016 was due to increased profitability primarily in the United States. We had an income tax benefit of $23.3 million for the nine months ended October 1, 2016 compared to a tax provision of $0.1 million and $0.3 million for the three and nine months ended September 26, 2015, respectively. The income tax benefit recorded in the nine months ended October 1, 2016 was related to the release of our valuation allowance previously recorded against deferred tax assets (see Note 8 Income Tax included in Part I, Item I).

In making a determination to release a portion of our existing valuation allowance, we considered all available evidence, both positive and negative. Such evidence included, but was not limited to, our history of profitability and losses, jurisdictional income recognition trends, pre-tax losses adjusted for certain other items, and forecasted income by jurisdiction. Based on the above evidence, we determined that it is more likely than not that we will utilize our U.S. deferred tax assets.

Non-GAAP Financial Measures

We report all financial information required in accordance with U.S. generally accepted accounting principles, or GAAP, but we believe evaluating our ongoing operating results may be difficult to understand if limited to reviewing only GAAP financial measures. Many of our investors have requested that we disclose non-GAAP information because it is useful in understanding our performance as it excludes amounts that many investors feel may obscure our true operating results. Likewise, management uses non-GAAP measures to manage and assess the profitability of our business going forward and does not consider stock-based compensation expense and related payroll taxes, income tax effect of stock-based compensation expense, and a valuation allowance against deferred tax assets. Specifically, management does not consider these expenses or benefits when developing and monitoring our budgets and spending. As a result, we use calculations of non-GAAP net income and non-GAAP net income per share, which exclude these expenses, when evaluating our ongoing operations and allocating resources within the organization.

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Reconciliations of our GAAP and non-GAAP financial measures were as follows (in thousands, except per share amounts): 

	Three Months Ended						Nine Months Ended
	October 1, 2016			September 26, 2015			October 1, 2016			September 26, 2015
GAAP net income	$	6,079		$	4,280		$	43,009		$	3,623
Stock-based compensation	10,104			7,851			28,884			23,780
Stock-based compensation related payroll taxes	414			162			971			791
Income tax effect of release of valuation allowance	—			—			(30,500		)	—
Income tax effect of non-GAAP adjustments**	(2,593		)	(4,310		)	(8,676		)	(9,781		)
Non-GAAP net income	$	14,004		$	7,983		$	33,688		$	18,413
Basic GAAP net income per share	$	0.17		$	0.13		$	1.22		$	0.11
Diluted GAAP net income per share	$	0.16		$	0.12		$	1.15		$	0.10
Basic Non-GAAP net income per share	$	0.39		$	0.24		$	1.83		$	0.55
Diluted Non-GAAP net income per share	$	0.36		$	0.22		$	1.69		$	0.51
GAAP and Non-GAAP weighted average number of shares - Basic	35,770			33,830			35,171			33,412
GAAP weighted average number of shares - Diluted	38,113			35,872			37,341			35,497
Stock-based compensation impact on weighted average number of shares	544			498			673			726
Non-GAAP weighted average number of shares - Diluted	38,657			36,370			38,014			36,223

** Non-GAAP tax provision excludes the tax benefit relating to stock-based compensation expense, the valuation allowance against deferred tax assets, and uses a long-term projected tax rate for the fiscal 2016 annual period applied to interim results.

Liquidity and Capital Resources

As of October 1, 2016 our principal sources of liquidity, which consisted of cash, cash equivalents and short-term investments of $244.7 million, were held primarily in the United States. Our liquidity requirements are primarily to fund our working capital and operating expenses. As of October 1, 2016, we had no material commitments for capital expenditures.

Our future capital requirements will depend on many factors, including our results of operations and the expansion of our research and development, sales and marketing and general and administrative functions. Based on our current operating plan, we believe our existing cash, cash equivalents and investments, combined with cash generated from operations, will be sufficient to fund our working capital and operating expenses for at least the next 12 months. If we require additional capital resources to grow our business internally or to acquire complementary technologies and businesses at any time in the future, we may seek to sell additional equity, or raise funds through debt financing or other sources. The sale of additional equity could result in additional dilution to our stockholders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility, and would also require us to incur interest expense. We can provide no assurance that additional financing will be available at all or, if available, that we would be able to obtain financing on terms favorable to us.

Cash flows

The following table summarizes our cash flows for the periods indicated (in thousands):

	Nine Months Ended
	October 1, 2016			September 26, 2015
Cash provided by operating activities	$	22,911		$	39,272
Cash (used in) provided by investing activities	$	(5,027	)	$	16,671
Cash provided by financing activities	$	17,457		$	1,660

Cash flows from operating activities

Our cash provided by operating activities is generated from sales of our products and, to a lesser extent, by upfront payments from customers under maintenance and support contracts. Our primary uses of cash from operating activities have been for personnel related expenses, manufacturing costs, expenses related to marketing and promotional activities and costs related to our facilities. Our cash flows from operating activities will continue to

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be affected principally by our working capital requirements and increased spending on personnel, facilities and sales and marketing activities to meet our anticipated business growth.

In the nine months ended October 1, 2016, our operating activities provided cash of $22.9 million. This was primarily due to our net income of $43.0 million offset by the changes in our operating assets and liabilities of $14.6 million and non-cash charges of $5.5 million. The non-cash charges of $5.5 million were largely comprised of $28.9 million in stock-based compensation expense, $4.8 million in depreciation and amortization and $$0.3 million in inventory write-downs, partially offset by a $31.6 million increase in deferred tax assets and $8.3 million in excess tax benefit. The $14.6 million of changes in operating assets and liabilities was largely due to an increase of $12.4 million in accounts receivable, an increase of $5.0 million in inventory and an increase of $3.0 million in prepaid expenses, partially offset by a reduction in accounts payable and accrued liabilities of $4.7 million, and an increase of $1.0 million in deferred revenue.

In the nine months ended September 26, 2015, our operating activities provided cash of $39.3 million that was primarily comprised of net income of $3.6 million, non-cash charges of $30.3 million and $5.3 million provided by the changes in our operating assets and liabilities. The non-cash charges of $30.3 million were largely comprised of $23.8 million in stock-based compensation expense, $5.2 million in depreciation and amortization and $1.4 million in inventory write-downs. The $5.3 million provided by the changes in operating assets and liabilities were largely provided by a $13.7 million deferred revenue increase and increased accounts payable and accrued liabilities of $6.4 million, which was partially offset by an increase of $13.1 million in accounts receivable and an increase of $1.8 million in prepaid expenses.

Cash flows from investing activities

Net cash used by investing activities of $5.0 million for the nine months ended October 1, 2016 was primarily attributable to $84.8 million used for purchases of short-term investments and $6.0 million used for capital expenditures for property and equipment to support the growth of our business, which were partially offset by maturities of short-term investments of $85.7 million.

Net cash provided by investing activities of $16.7 million for the nine months ended September 26, 2015 was primarily attributable to sales and maturities of marketable securities of $60.8 million offset by $40.2 million used for purchases of marketable securities and $4.0 million used for capital expenditures for property and equipment to support the growth of our business.

Cash flows from financing activities

Net cash provided by financing activities of $17.5 million for the nine months ended October 1, 2016 was primarily due to proceeds of $6.8 million from the issuance of common stock pursuant to our ESPP, $9.7 million from stock option exercises and $8.3 million from excess tax benefits from employee stock-based compensation, partially offset by $7.2 million in shares repurchased for tax withholding upon vesting of restricted stock units, or RSUs.

Net cash provided by financing activities of $1.7 million for the nine months ended September 26, 2015 was primarily due to proceeds of $5.1 million from the issuance of common stock pursuant to our ESPP and $3.5 million from stock option exercises, offset in part by $7.0 million in shares repurchased for tax withholding upon vesting of RSUs.

Contractual Obligations

The following summarizes our contractual obligations as of October 1, 2016: 

	Payments Due by Period
	Less than 1 year		1 to 3 years		4 to 5 years		More than 5 years		Total
	(in thousands)
Operating lease obligations (1)	$	4,382	$	2,722	$	373			$	7,477
Purchase commitments (2)	12,238		—		—		—		12,238
Total	$	16,620	$	2,722	$	373	$	—	$	19,715

(1) Operating lease obligations represent our obligations to make payments under the lease agreements for our facilities and office equipment.

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(2) Purchase commitments represent the total non-cancelable purchase commitments our contract manufacturers make on our behalf.

Off-Balance Sheet Arrangements

We do 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 purposes.

Indemnification Obligations

Under the indemnification provisions of our standard sales related contracts, we agree to defend our customers against third-party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks, or trade secrets, and to pay judgments entered on such claims. Our exposure under these indemnification provisions is generally limited to the total amount paid by our customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose us to losses in excess of the amount received under the agreement. We have not incurred any costs as a result of such indemnifications and have not accrued any liabilities related to such obligations in our consolidated financial statements. In addition, we indemnify our officers, directors, and certain key employees while they are serving in good faith in the company capacities. To date, there have been no claims under any indemnification provisions.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, in Notes to Condensed Consolidated Financial Statements in Part I - Item 1 - Financial Statements (unaudited) of this Report, for a full description of recent accounting pronouncements, including the expected dates of adoption and effects on the consolidated financial statements, which is incorporated herein by reference.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these condensed financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, operating expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances. Accordingly, actual results could differ significantly from the estimates made by our management. To the extent that there are material differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows would be affected.

An accounting policy is considered to be critical if the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the effect of the estimates and assumptions on financial condition or operating performance is material. The accounting policies we believe to reflect our more significant estimates, judgments, and assumptions and are most critical to understanding and evaluating our reported financial results are as follows:

• Revenue Recognition;

• Stock-Based Compensation;

• Inventory Valuation;

• Warranty Reserves; and

• Income Taxes and the release of our Valuation Allowance (see Note 8 Income Tax included in Part I, Item I).

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 26, 2015.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. We do not hold or issue financial instruments for trading purposes.

Foreign currency exchange rate sensitivity

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Our functional currency is the U.S. dollar. Most of our sales, cost of sales and operating expenses are denominated in U.S. dollars, and therefore our revenue is not currently subject to significant foreign currency risk. Our operating expenses are transacted in the currencies of the countries in which our operations are located, which are primarily in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific region. Our condensed consolidated results of operations, comprehensive loss and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments. In nine months ended October 1, 2016 and September 26, 2015, the effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our condensed consolidated financial statements.

Interest rate sensitivity

We had cash, cash equivalents and short-term investments of $244.7 million as of October 1, 2016. We hold our cash, cash equivalents and short-term investments for working capital purposes. Our cash and cash equivalents are primarily held in cash deposits and money market funds. We have invested a portion of our funds in short-term investments that are focused on preservation of capital and supporting our liquidity requirements. Our short-term investments are held in U.S. Treasury securities, U.S. agency debt securities and corporate debt securities. Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce future interest income. For the nine months ended October 1, 2016, the effect of a hypothetical 10% increase or decrease in overall interest rates would not have had a material impact on the fair value of our available-for-sale securities or our interest income.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The phrase “disclosure controls and procedures” refers to controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, or the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission, or the SEC. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer, or the CEO, and our Chief Financial Officer, or the CFO, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our CEO and CFO, we carried out an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of October 1, 2016, the end of the fiscal period covered by this Quarterly Report on Form 10-Q, or the Evaluation Date. Based on this evaluation, our CEO and CFO concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective such that the information required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting identified in connection with our evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act that occurred during the third quarter of fiscal 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are subject to various legal proceedings, claims and litigation arising in the ordinary course of business. We do not believe we are a party to any currently pending legal proceedings the outcome of which would be expected to have a material adverse effect on our financial position, results of operations or cash flows.

There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K, before making a decision to invest in our common stock. The risks and uncertainties described below may not be the only ones we face. If any of the risks actually occur, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to Our Business

The network traffic visibility market is rapidly evolving and difficult to predict. If the network traffic visibility market does not evolve as we anticipate or if our target end-user customers do not adopt our Visibility Fabric or our Security Delivery Platform, our sales will not grow as quickly as anticipated and our stock price could decline.

We are in a new, rapidly evolving category within the network infrastructure industry that focuses on providing organizations with enhanced visibility and control over their networks through the efficient collection and analysis of network traffic. As such, it is difficult to predict important market trends, including how large the network traffic visibility market will be, or when and what products end-user customers will adopt. For example, organizations that currently use traditional approaches may believe that these approaches already provide them with sufficient visibility and control to secure and manage their network traffic. Therefore, they may continue spending their

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network infrastructure budgets on these products and may not adopt our Visibility Fabric or Security Delivery Platform in addition to or in lieu of such products.

If the market for network traffic visibility does not evolve in the way we anticipate, if organizations do not recognize the benefits of our solution or if we are unable to sell our family of products to end-user customers, or if we are not able to effectively expand into new or adjacent markets, then our revenue may not grow as expected or may decline, and our stock price could decline.

New or existing technologies that are perceived to address network traffic visibility or address the need for network traffic visibility in different ways could gain wide adoption and supplant our products, thereby weakening our sales and our financial results.

The introduction of products and services embodying new technologies could render our existing products obsolete or less attractive to end-user customers. Other network traffic visibility technologies exist and could be developed in the future, and our business could be materially negatively affected if such technologies are widely adopted. We may not be able to successfully anticipate or adapt to changing technology or customer requirements on a timely basis, or at all. If we fail to keep up with technological changes, do not effectively adapt our technology to next generation network infrastructure deployments or fail to convince our end-user customers and potential end-user customers of the value of our solution even in light of new technologies, our business, operating results and financial condition could be materially and adversely affected.

If we are unable to introduce new products successfully and to make enhancements to existing products, our growth rates would likely decline and our business, operating results and competitive position could suffer.

Our continued success depends on our ability to identify and develop new products and to enhance and improve our existing products, and the acceptance of those products by our existing and target end-user customers. Our growth would likely be adversely affected if: 

• we fail to introduce these new products or product enhancements;

• our new products or product enhancements are not timely introduced or do not function as expected;

• we fail to successfully manage the transition to new products from the products they are replacing;

• we do not invest our development efforts in appropriate products or enhancements for markets in which we now compete and expect to compete;

• we fail to predict the demand for new products following their introduction to market; or

• these new products or enhancements do not attain market acceptance.

We invest substantial amounts of time and resources in researching and developing new products and enhancing existing products by incorporating additional features, improving functionality and adding other improvements to meet end-user customers’ rapidly evolving demands in our highly competitive industry. Our research and development expenses were $50.9 million, or 23% of our revenue in the nine months ended October 1, 2016, and $36.4 million, or 23% of revenue in the nine months ended September 26, 2015.

Our future plans contemplate significant investments in research and development and related product opportunities. In addition, we plan to increasingly use third-party joint development and original design manufacturing partners for the development of future products in our road map. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts and increase our investment in joint development relationships to maintain our competitive position. We have limited experience in joint development of products and our increasing use of third-party joint development and original design manufacturers reduces our control over the design, as well as the timing and delivery, of products to the market. If we do not manage these joint design relationships successfully, future products may be delayed or the features and quality of the products may not meet our expectations or that of our customers. We have invested and continue to invest in our internal research and development capabilities and other internal research and development efforts as well as third-party design and manufacturing relationships without being certain that they will result in products that the market will accept or that will expand our share of those markets.

The introduction of new products or product enhancements may shorten the life cycle of our existing products, or replace sales of some of our current products, thereby offsetting the benefit of even a successful product introduction, and may cause end-user customers to defer purchasing our existing products in anticipation of the new products.

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Failure to successfully introduce new products in our portfolio could harm our operating results by decreasing sales, increasing our inventory levels of older products and exposing us to greater risk of product obsolescence. We have also experienced, and may in the future experience, delays in developing and releasing new products and product enhancements. This has led to, and may in the future lead to, delayed sales, deferred revenue, increased expenses and lower than anticipated quarterly revenue. In addition, complexity and difficulties in managing product transitions at the end-of-life stage of a product can create excess inventory of components associated with the outgoing products that can lead to increased expenses. Any or all of the above problems could materially harm our business and operating results.

Our quarterly and annual operating results may vary significantly and be difficult to predict, which may cause our stock price to fluctuate.

Our quarterly and annual operating results have varied historically from period to period, and we expect that they will continue to fluctuate due to a variety of factors, many of which are outside of our control, including: 

• fluctuations in demand for our products and services, the timing of orders from our channel partners and end-user customers, and our ability to accurately forecast end-user customer demand;

• the timing of our product shipments of products, which may depend on many factors such as inventory and logistics and our ability to ship new products on schedule and accurately forecast inventory requirements;

• the budgeting cycles and internal purchasing priorities of our end-user customers;

• seasonal buying patterns of our end-user customers;

• changes in end-user customer or channel partner requirements or market needs;

• the mix of products sold and the mix of revenue between products and services;

• changes in the growth rate of the network traffic visibility market, the cyber-security market and related markets, such as the network infrastructure market, and the market for network management, analysis, compliance and security tools;

• our ability to control costs, including operating expenses, the costs of hardware and software components, and other manufacturing costs;

• our ability to timely develop, introduce and gain market acceptance for new products, technologies and services;

• price competition;

• any significant changes in the competitive environment, including the entry of new competitors, and any related discounting of products or services;

• the timing and execution of product transitions or new product introductions, and related inventory costs;

• deferral of orders from end-user customers in anticipation of new products or product enhancements announced by us or our competitors;

• decisions by potential end-user customers to purchase alternative network traffic visibility solutions or cyber-security solutions from their existing network infrastructure and security vendors or other third parties;

• our ability to establish and manage our distribution channels, and the effectiveness of any changes we make to our distribution model;

• the ability of our suppliers and contract manufacturers to provide component parts and finished products in a timely manner;

• changes in end-user customer renewal rates for our services and our ability to up-sell additional products;

• general economic conditions, both domestically and in our foreign markets;

• the timing of revenue recognition for our sales, which may be affected by the mix of sales by our channel partners; and

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• future accounting pronouncements or changes in our accounting policies.

Any one of the factors above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our quarterly and annual operating results, including fluctuations in our key performance indicators. This variability and unpredictability could result in our failure to meet our internal operating plan or the expectations of securities analysts or investors for any period. In addition, a significant percentage of our operating expenses are fixed in nature in the short term and based on forecasted revenue trends. Accordingly, in the event of revenue shortfalls, we are generally unable to mitigate the negative impact on margins in the short term. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our shares could fall substantially and we could face costly lawsuits, including securities class action suits.

We compete in highly competitive markets, and competitive pressures from existing and new companies may adversely impact our business and operating results.

The markets in which we compete are highly competitive. We expect competition to intensify in the future as existing competitors bundle new and more competitive offerings with their existing products and services, and as new market entrants introduce new products into our markets. This competition could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses and our failure to increase, or the loss of, market share, any of which would likely seriously harm our business, operating results and financial condition. We also expect that competition will continue to increase as a result of advancements in networking technology and architecture. If we do not keep pace with product and technology advances and otherwise keep our product offerings competitive, there could be a material and adverse effect on our competitive position, revenue and prospects for growth.

We compete either directly or indirectly with certain large Ethernet switch vendors, such as Cisco Systems Inc., Brocade Systems Communications, Inc. and Arista Networks, Inc., and network management, analysis, compliance and security tool vendors, such as Netscout and Ixia, that offer point solutions that address a portion of the issues that we solve. The principal competitive factors in our markets include functionality and performance, price and total cost of ownership, ease of use, flexibility and scalability of deployment, brand awareness, breadth of portfolio, product reliability and quality, interoperability with other products, the extent and speed of user adoption and quality of service, support and fulfillment.

Many of our current and potential competitors are substantially larger and have greater financial, technical, research and development, sales and marketing, manufacturing, distribution and other resources and greater name recognition. We could also face competition from new market entrants, including our other current technology partners. In addition, many of our existing and potential competitors enjoy substantial competitive advantages, such as: 

• longer operating histories;

• the capacity to leverage their sales efforts and marketing expenditures across a broader portfolio of products;

• broader distribution and established relationships with channel partners;

• access to larger customer bases;

• greater resources to make acquisitions;

• larger intellectual property portfolios;

• the ability to bundle competitive offerings with other products and services; and

• greater customer support.

As a result, increased competition could result in fewer customer orders, price reductions, reduced operating margins and loss of market share. Our competitors also may be able to provide end-user customers with capabilities or benefits different from or greater than those we can provide in areas such as technical qualifications or geographic presence, or to provide end-user customers a broader range of products, services and prices. In addition, some of our larger potential competitors have substantially broader product offerings and could leverage their relationships based on other products or incorporate functionality into existing products to gain business in a manner that discourages users from purchasing our products, including through selling at zero or negative margins, product bundling or closed technology platforms. These larger potential competitors may also have more extensive relationships within existing and potential end-user customers that provide them with an advantage in competing for business with those end-user customers. In addition, to the extent that one of our competitors establishes or strengthens a cooperative relationship with, or acquires one or more of the network management, analysis,

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compliance and security tool vendors that we have relationships with, it could adversely affect our ability to compete. Our ability to compete will depend upon our ability to provide a better solution than our competitors at a competitive price. To remain competitive, we may be required to make substantial additional investments in research, development, marketing and sales in order to respond to competition, and there is no assurance that these investments will achieve any returns for us or that we will be able to compete successfully in the future.

We also expect increased competition if our market continues to expand. Conditions in our market could change rapidly and significantly as a result of technological advancements or other factors. In addition, current or potential competitors may be acquired by third parties that have greater resources available. As a result of these acquisitions, our current or potential competitors might take advantage of the greater resources of the larger organization to compete more aggressively against us.

We depend on growth in markets relating to network security, management and analysis, and lack of growth or contraction in one or more of these markets could have a material adverse effect on our sales and financial condition.

Demand for our products is linked to, among other things, growth in the size and complexity of network infrastructures and the demand for networking technologies addressing the security, management and analysis of such infrastructures. If this demand declines or if we do not effectively adapt our technology to next generation network infrastructure deployments, our sales, profitability and financial condition would be materially adversely affected. Segments of the network infrastructure industry have in the past experienced significant economic downturns. The occurrence of any of these factors in the markets relating to network security, management and analysis could materially adversely affect our sales, profitability and financial condition. Furthermore, these markets are dynamic and evolving. Our future financial performance will depend in large part on continued growth in the number of organizations investing in their network infrastructure and the amount they commit to such investments. The market for network infrastructure may not continue to grow at historic rates, or at all. If this market fails to grow, or grows more slowly than we currently anticipate, our sales and profitability could be adversely affected.

Our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense.

We have experienced difficulty managing lengthening and increasingly unpredictable sales cycles in the past. Our sales efforts involve educating our end-user customers about the use and benefits of our solution, including its technical capabilities. End-user customers often undertake an evaluation and testing process that can result in a lengthy sales cycle. Also, as our distribution strategy has evolved into more of a channel model, utilizing distributors, the level of variability in the length of sales cycle across transactions has increased and made it more difficult to predict the timing of many of our sales transactions. We spend substantial time and resources on our sales efforts without any assurance that our efforts will produce any sales or a material amount of revenue from such sales. In addition, product purchases are frequently subject to budget constraints, multiple approvals and unplanned administrative, processing and other delays. These factors, among others, have in the past led to, and could continue to result in, long and unpredictable sales cycles.

We sell our products primarily to enterprise IT departments and service providers. The length of our sales cycles typically ranges from three to six months and is generally longer the larger the size of the transaction. Often times, our larger transactions are part of larger data center projects or upgrades by our customers and we have little ability to influence the timing of these transactions. As a result, our sales cycles can often be more than six months, with sales cycles involving service providers taking significantly longer to complete. To the extent that the mix of our future sales shifts to include relatively more revenue from service providers, the average length of our sales cycles will likely increase. Furthermore, our sales to federal, state and local governmental agency end-user customers have increased in recent periods, and we may in the future increase sales to governmental entities. Selling to governmental entities can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that some of these efforts will generate a sale. As a result of these lengthy and uncertain sales cycles and the increasing size of our transactions, it is difficult for us to predict when end-user customers may purchase solutions and accept products from us. If we are unable to effectively manage the sales cycle or if we fail to close a large transaction or multiple smaller transactions that we expect to close in a given period, our operating results may vary significantly from period to period and may be materially adversely affected.

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

We were founded in 2004 and sold our first products commercially in 2005. We have experienced rapid growth since our inception, and we have been increasing the breadth and scope of our product offerings. The majority of our revenue growth, however, has occurred over the past five years. This limited operating history, as well as the early stage of our relationships with many of our channel partners, makes financial forecasting and evaluation of our business difficult. Furthermore, because we depend in part on the market’s acceptance of our products, it is difficult to evaluate trends that may affect our business. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries. If we do not address these risks successfully, our business and operating results would be adversely affected, and our stock price could decline.

Some of the components and technologies used in our products are purchased and licensed from a single source or a limited number of sources. The loss of any of these suppliers might cause us to incur additional transition costs, result in delays in the manufacturing and delivery of our products, or cause us to carry excess or obsolete inventory and could require us to redesign our products.

Although supplies of our components are generally available from a variety of sources, we currently depend on a single source or a limited number of sources for most components included in our products. For example, the processors and connectors that we use in the products manufactured by Broadcom Corp., Freescale Semiconductor, Ltd., Cavium, Inc. and Molex Inc. are currently available only from a limited number of sources, and neither we nor, to our knowledge, these manufacturers have entered into supply agreements with such sources. As there are no other sources for identical components and technologies, if we lost any of these suppliers or were unable to acquire enough of these components these components or license these technologies, we may not be able to sell our products for a significant period of time, and we could incur significant costs to redesign our hardware and software to incorporate components or technologies from alternative sources or to qualify alternative suppliers. Our reliance on a single source or a limited number of suppliers involves a number of additional risks, including risks related to: 

• supplier capacity constraints;

• price increases;

• timely delivery;

• component quality;

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

• delays in, or the inability to execute on, a supplier roadmap for components and technologies; and

• natural disasters.

In addition, for certain components for which there are multiple sources, we are subject to potential price increases and limited availability as a result of market demand for these components. In the past, unexpected demand for computer and network products has caused worldwide shortages of certain electronic parts. If similar shortages occur in the future, our business would be adversely affected. Although we carry some finished goods inventory of our products, we and our manufacturers rely on our suppliers to deliver necessary components in a timely manner. We and our manufacturers rely on purchase orders rather than long-term contracts with these suppliers, and as a result we or our manufacturers might not be able to secure sufficient components, even if they were available, at reasonable prices or of acceptable quality to build products in a timely manner and, therefore, might not be able to meet end-user customer demands for our products, which would have a material and adverse effect on our business, operating results and financial condition.

We rely on third-party channel partners for a substantial portion of our revenue. If our partners fail to perform, our ability to sell our products and services would be limited, and if we fail to optimize our channel partner model going forward, our operating results would be harmed.

A substantial portion of our revenue is generated through sales by our channel partners, which include distributors and resellers. We depend upon our channel partners to assist with the sales process through introduction to accounts and the distribution of our products. In North America we rely on two distributors, Global Convergence, Inc., or GCI, and Arrow Enterprise Computing Solutions, Inc., or Arrow. GCI accounted for 35% and 41% of our revenue in the nine months ended October 1, 2016 and September 26, 2015, respectively. Arrow, which we first engaged as a distributor in February 2013, accounted for 25% and 19% of our revenue in the nine months

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ended October 1, 2016 and September 26, 2015, respectively. To the extent our channel partners are unable to generate an increasing amount of our sales opportunities, are unsuccessful in selling our products, or we are unable to enter into arrangements with, and retain, a sufficient number of high quality channel partners in each of the regions in which we sell products, and keep them motivated to sell our products, our ability to sell our products and operating results would be harmed. The termination of our relationship with any significant channel partner may adversely impact our sales, operating results and revenue growth. If we fail to optimize our channel partner model or fail to manage existing sales channels, our business and operating results could be materially and adversely affected.

Managing inventory of our products and product components is complex. Insufficient inventory may result in lost sales opportunities or delayed revenue, while excess inventory may harm our gross margins.

Managing inventory of our products and product components is complex with many critical components requiring long lead times from the component manufacturer. These long lead times place added importance on our ability to effectively forecast customer demand so that we have the right amount of product or product components available. Managing inventory is further complicated as our channel partners may increase orders during periods of product shortages, cancel orders, return product or take advantage of price protection (if any) or delay orders in anticipation of new products. They also may adjust their orders in response to the supply of our products and the products of our competitors that are available to them and in response to seasonal fluctuations in customer demand. Furthermore, if the time required to manufacture certain products or ship products increases for any reason, this could result in inventory shortfalls. Managing our inventory depends significantly on our ability to accurately forecast end-user customer demand for our products. Our inventory management and demand planning systems and related supply chain visibility tools may be inadequate to enable us to effectively manage inventory. Inventory management remains an area of focus as we balance the need to maintain inventory levels that are sufficient to ensure competitive lead times against the risk of inventory obsolescence because of rapidly changing technology and customer requirements. If we ultimately determine that we have excess inventory, we may have to reduce our prices or write-down inventory, which in turn could result in lower gross margins. Alternatively, insufficient inventory levels may lead to shortages that result in delayed revenue or loss of sales opportunities altogether as potential end-user customers turn to competitors’ products that are readily available. If we are unable to effectively manage our inventory, our operating results could be adversely affected.

We currently rely on a single contract manufacturer to manufacture a substantial majority of our products, and our failure to manage our relationship with our contract manufacturer successfully could negatively impact our business.

We rely on Jabil Circuit, Inc., or Jabil, to manufacture a substantial majority of our products. We transitioned our manufacturing to Jabil in an effort to expand and upgrade our manufacturing, systems assembly, testing and order fulfillment capabilities. We entered into a manufacturing services agreement with Jabil in April 2013 and amended and restated the agreement in April 2015. Our amended agreement with Jabil has an initial term of two years, and the agreement automatically renews for additional one-year terms, unless it is terminated by either party by giving written notice of non-renewal at least six months before the end of the then-current term. In addition, the agreement may be terminated (i) upon mutual written consent of both parties, (ii) for convenience upon nine months written notice by Jabil or six months written notice by us, (iii) for cause upon written notice of a material breach and if the other party does not cure such breach within 30 days of such notice, (iv) immediately upon the bankruptcy or insolvency of the other party, or (v) upon a change of control of either party, subject to applicable notice periods.

Our reliance on Jabil 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 effectively manage our relationship with Jabil, or if Jabil experiences delays, disruptions, capacity constraints or quality control problems in their operations, our ability to ship products to our end-user customers could be impaired and our competitive position and reputation could be harmed. Furthermore, Jabil manufactures our products in their facility in Guadalajara, Mexico. As such, these manufacturing operations may be subject to changes in the economic, security and political conditions in Mexico which might interrupt manufacturing operations. In addition, any adverse change in Jabil’s financial or business condition could disrupt our ability to supply quality products to our end-user customers. If we are required to change our contract manufacturer or cannot find a suitable alternative in a timely manner, we may lose revenue, incur increased costs and damage our relationships with our channel partners and end-user customers. In addition, qualifying a new contract manufacturer and commencing production can be an expensive and lengthy process. If we experience increased demand that Jabil is unable to fulfill, or if Jabil is unable to provide us with an adequate supply of high-quality products for any reason, we could experience a delay in our order fulfillment, and our business, operating results and financial condition would be adversely affected.

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Defects, errors or vulnerabilities in our products, or the failure of our solution to improve network security, could harm our reputation and business.

Our products are complex and have contained and may contain undetected defects or errors, especially when first introduced or when new versions are released. Defects in our products may impede or block network traffic or cause our products to fail to provide network traffic visibility as intended. Further, defects in our products may impair the functionality or performance of the appliances and applications that rely on the data provided by our products. Defects in our products may lead to product returns and require us to implement design changes or software updates. Additionally, defects or vulnerabilities in our products or services may cause the networks of our end-user customers to be vulnerable to security attacks, cause them to fail to help secure networks, or temporarily interrupt the networking traffic of our end-user customers. Because the techniques used by computer hackers to access or sabotage networks change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques and provide a solution in time to fix the defect or vulnerability in our products or services. Furthermore, as we increasingly design and market our products with specific security related features, our networks, products, and services could be targeted by attacks specifically designed to disrupt our business and harm our reputation. Any successful security attack on our network or on the network of one of our end-user customers that could be traced to a defect or vulnerability in one of our products or services could lead to significant liability or reputational harm that could have a material adverse impact on our operating results.

Any defects or errors in our products, or the perception of such defects or errors, could result in:

• expenditure of significant financial and product development resources in efforts to analyze, correct, eliminate or work around errors or defects;

• loss of existing or potential end-user customers or channel partners;

• delayed or lost revenue;

• delay or failure to attain market acceptance;

• delay in the development or release of new products or services;

• negative publicity, which will harm our reputation;

• warranty claims against us, which could result in an increase in our provision for doubtful accounts;

• an increase in collection cycles for accounts receivable or the expense and risk of litigation; and

• harm to our operating results.

Although we have limitation of liability provisions in our standard terms and conditions of sale, they may not fully or effectively protect us from claims as a result of federal, state or local laws or ordinances or unfavorable judicial decisions in the United States or other countries. The sale and support of our products also entail the risk of product liability claims. We maintain insurance to protect against certain claims associated with the use of our products, but our insurance coverage may not adequately cover any claim asserted against us. In addition, even claims that ultimately are unsuccessful could result in our expenditure of funds in litigation and divert management’s time and other resources.

We rely on the availability of licenses to third-party software and other intellectual property.

Many of our products and services include software or other intellectual property licensed from third parties, and we otherwise use software and other intellectual property licensed from third parties in our business. This exposes us to risks over which we may have little or no control. For example, a licensor may have difficulties keeping up with technological changes or may stop supporting the software or other intellectual property that it licenses to us. Also, it will be necessary in the future to renew certain licenses, expand the scope of certain existing licenses or seek new licenses, relating to various aspects of these products and services, or otherwise relating to our business, which may result in increased license fees. There can be no assurance that the necessary licenses will be available on acceptable terms, if at all. In addition, a third-party may assert that we or our end-user customers, are in breach of the terms of a license, which could, among other things, give such third-party the right to terminate a license, seek damages from us, or both. The inability to obtain or maintain certain licenses or other rights or to obtain or maintain such licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could result in delays in releases of products and services, and could otherwise disrupt our business, until equivalent technology can be identified, licensed or developed, if at all, and integrated into our products and services or otherwise in the conduct of our business. Any of these events could have a material adverse effect on our business, operating results and financial condition. Moreover, the inclusion in our products

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and services of software or other intellectual property licensed from third parties on a nonexclusive basis may limit our ability to differentiate our products from those of our competitors.

Furthermore, we have a license and services agreement with Tall Maple Systems, Inc., or Tall Maple, pursuant to which we have been granted a perpetual, non-exclusive, worldwide license to certain software code of Tall Maple, which we integrate into the software component of our H Series products and which can be integrated into our other products and applications. In return, we paid Tall Maple a license fee. The agreement can only be terminated for cause upon written notice of a material breach and if the other party does not cure such breach within 30 days of such notice. We were notified in 2013 that the assets of Tall Maple were acquired by a third party. If our agreement with Tall Maple is terminated as a result of a material breach by us that we do not timely cure, we may need to identify, license or develop equivalent software, and integrate such replacement software into the software component of our H Series products, which could impede our ability to sell our H Series products until equivalent software is identified, licensed or developed, and integrated. These delays, if they occur, could adversely affect our business, operating results and financial condition.

Failure to protect our proprietary technology and intellectual property rights could substantially harm our business and operating results.

The success of our business depends on our ability to protect and enforce our trade secrets, trademarks, copyrights, patents and other intellectual property rights. We attempt to protect our intellectual property under patent, trademark, copyright and trade secret laws, and through a combination of confidentiality procedures, contractual provisions and other methods, all of which offer only limited protection.

As of October 1, 2016, we had 35 issued patents in the United States, but this number may be relatively small in comparison to some of our competitors and potential competitors. Additionally, as of October 1, 2016, we had 27 pending U.S. patent applications. Internationally, as of October 1, 2016, we had eight issued patents and a number of pending patent applications. We may file additional patent applications in the future. The process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may choose not to seek patent protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions. Furthermore, it is possible that our patent applications may not issue as granted patents, that the scope of our issued patents will be insufficient or not have the coverage originally sought, that our issued patents will not provide us with any competitive advantages, and that our patents and other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. In addition, issuance of a patent does not guarantee that we have an absolute right to practice the patented invention, or that we have the right to exclude others from practicing the claimed invention. As a result, we may not be able to obtain adequate patent protection or to enforce our issued patents effectively.

In addition to patented technology, we rely on our unpatented proprietary technology and trade secrets. Despite our efforts to protect our proprietary technology and trade secrets, unauthorized parties may attempt to misappropriate, reverse engineer or otherwise obtain and use them. The contractual provisions that we enter into with employees, consultants, partners, vendors and customers may not prevent unauthorized use or disclosure of our proprietary technology or intellectual property rights and may not provide an adequate remedy in the event of unauthorized use or disclosure of our proprietary technology or intellectual property rights. Moreover, policing unauthorized use of our technologies, products and intellectual property is difficult, expensive and time-consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in the United States and where mechanisms for enforcement of intellectual property rights may be weak. For example, the laws of India, where we are establishing a research and development facility, do not protect our proprietary rights to the same extent as the laws of the United States. We may be unable to determine the extent of any unauthorized use or infringement of our products, technologies or intellectual property rights.

From time to time, we may need to take legal action to enforce our patents and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the intellectual property rights of others or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could negatively affect our business, operating results, financial condition and cash flows. If we are unable to adequately protect our intellectual property rights, we may find ourselves at a competitive disadvantage to others who need not incur the additional expense, time and effort required to create the innovative products that have enabled us to be successful to date.

Assertions by third parties of infringement or other violations by us of their intellectual property rights, or other lawsuits asserted against us, could result in significant costs and substantially harm our business and operating results.

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Patent and other intellectual property disputes are common in the network infrastructure industry. Some companies in the network infrastructure industry, including some of our competitors, own large numbers of patents, copyrights, trademarks and trade secrets, which they may use to assert claims against us. Third parties may in the future assert claims of infringement, misappropriation or other violations of intellectual property rights against us. They may also assert such claims against our end-user customers or channel partners whom we typically indemnify against claims that our products infringe, misappropriate or otherwise violate the intellectual property rights of third parties. As the number of products and competitors in our market increase and overlaps occur, claims of infringement, misappropriation and other violations of intellectual property rights may increase. Any claim of infringement, misappropriation or other violation of intellectual property rights by a third party, even those without merit, could cause us to incur substantial costs defending against the claim and could distract our management from our business.

The patent portfolios of our most significant competitors and potential competitors are larger than ours. This disparity between our patent portfolio and the patent portfolios of our most significant competitors may increase the risk that they may sue us for patent infringement and may limit our ability to counterclaim for patent infringement or settle through patent cross-licenses. In addition, future assertions of patent rights by third parties, and any resulting litigation, may involve patent holding companies or other adverse patent owners who have no relevant product revenue and against whom our own patents may therefore provide little or no deterrence or protection. We cannot assure you that we are not infringing or otherwise violating any third-party intellectual property rights.

An adverse outcome of a dispute may require us to, among other things, pay substantial damages, including treble damages, if we are found to have willfully infringed a third party’s patents or copyrights; cease making, licensing or using solutions that are alleged to infringe or misappropriate the intellectual property of others; expend additional development resources to attempt to redesign our products or services or otherwise to develop non-infringing technology, which may not be successful; enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies or intellectual property rights; and indemnify our partners and other third parties. Any damages or royalty obligations we may become subject to, and any third-party indemnity we may need to provide, as a result of an adverse outcome could harm our operating results. Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant royalty payments and other expenditures. In addition, some licenses may be non-exclusive, and therefore our competitors may have access to the same technology licensed to us. Any of these events could seriously harm our business, financial condition and operating results.

Under the indemnification provisions of our standard sales contracts, we agree to defend our customers against third-party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks or trade secrets, and to pay judgments entered on such claims. Our exposure under these indemnification provisions is generally limited to the total amount paid by our customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose us to losses in excess of the amount received under the agreement. We have not incurred any material costs in the past as a result of such indemnification obligations, and have not accrued any liabilities related to such obligations in our consolidated financial statements.

In addition, we may, from time to time, be a party to other lawsuits in the normal course of our business. Litigation in general, and intellectual property and securities litigation in particular, can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. Responding to lawsuits is likely to be expensive and time consuming for us, and could divert our management’s attention from our business. An unfavorable resolution of any lawsuit could adversely affect our business, operating results or 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, and although we monitor our use of open source software to avoid subjecting our products to conditions we do not intend, the terms of many open source licenses have not been interpreted by U.S. courts. As a result, there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our products. In such an event, or if we fail to adequately monitor our use of open source software, we could be required to seek licenses from third parties to continue offering our products, to make our proprietary code generally available in source code form, to re-engineer our products or to discontinue the sale of our products if re-engineering could not be accomplished on a timely basis, any of which could adversely affect our business, operating results and financial condition.

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We are dependent on a single product family comprised of a limited number of products.

Our product offering is limited to a single product family comprised of our GigaVUE, GigaSECURE, GigaSMART and G-TAP products. Historically, we have derived a substantial portion of our revenue from sales of our GigaVUE appliances and related services, and we expect to continue to derive a significant portion of our revenue from sales of our GigaVUE appliances and related services for the foreseeable future. A decline in the price of these products and related services, whether due to competition or otherwise, or our inability to increase sales of these products, would harm our business and operating results more seriously than it would if we derived significant revenue from a variety of product lines and services. We expect that this concentration of revenue from a single product family comprised of a limited number of products will continue for the foreseeable future. As a result, our future growth and financial performance will depend heavily on our ability to develop and sell enhanced versions of our GigaVUE appliances and the related family of products and services. If we fail to deliver product enhancements, new releases or new products that end-user customers want, it will be more difficult for us to succeed.

Adverse economic conditions or reduced information technology and network infrastructure spending may adversely impact our business and operating results.

Our business depends on the overall demand for information technology, network infrastructure and the market for network security analysis, compliance and monitoring tools. In addition, the purchase of our products and services is often discretionary and may involve a significant commitment of capital and other resources. Weak global economic conditions, or a reduction in information technology and network infrastructure spending even if economic conditions improve, could adversely impact our business, financial condition and operating results in a number of ways, including longer sales cycles, lower prices for our products and services, higher default rates among our distributors, reduced unit sales and lower or no growth. As global or regional economic conditions continue to be volatile or economic uncertainty remains, trends in information technology and network infrastructure spending also remain unpredictable and subject to reductions due to credit constraints and uncertainties about the future. Unfavorable economic conditions may lead end-customers to delay or reduce purchases of our solution. Demand for our solution may not reach our sales targets, or may decline, when there is an economic downturn or economic uncertainty. Our sensitivity to economic cycles and any related fluctuation in demand may have a material adverse effect on our business, financial condition and operating results.

The market for cloud-based and cloud-focused solutions is accelerating and if it does not continue to develop or develops more slowly than we expect, our business could be harmed.

We expect to expand the range of our cloud-focused offerings in the future. Many factors may affect the market acceptance of cloud-based and cloud-focused solutions, including: 

•perceived security capabilities and reliability;

•perceived concerns about the ability to scale operations for large enterprise customers;

•concerns with entrusting a third party to store and manage critical data; and

•the level of configurability or customizability of the solution.

If organizations that establish a presence in the cloud do not perceive the benefits of our cloud-focused solutions, or if our competitors or new market entrants are able to develop cloud-focused solutions that are or are perceived to be more effective than ours, this portion of our business may not grow further or may develop more slowly than we expect, either of which would adversely affect our business and operating results.

The average selling price of our products has decreased from time to time, and may decrease in the future, which may negatively impact gross profits.

From time to time, the average selling price of our products has decreased. In the future, it is possible that the average selling prices of our products will decrease in response to competitive pricing pressures, increased sales discounts, new product introductions by us or our competitors or other factors. Such pricing pressures may also be dependent upon the mix of products sold, the mix of revenue between products and services and the degree to which products and services are bundled and sold together for a package price. Therefore, in order to maintain our profitability, we must develop and introduce new products and product enhancements on a timely basis and continually reduce our product costs. Our failure to do so would likely cause our revenue and gross profits to decline, which would harm our business and operating results. In addition, we may experience substantial period-to-period fluctuations in future operating results in the event we experience an erosion of our average selling prices.

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We rely on revenue from support services which may decline, and because we recognize revenue from support services over the term of the relevant service period, downturns or upturns in sales of support services are not immediately reflected in full in our operating results.

Our service revenue has become a more meaningful part of revenue in recent periods. Starting in the quarter ending September 26, 2015, we began to sell first year maintenance and support as an additional offering. Prior to that time, the first year of maintenance and support was bundled as part of the initial contract to purchase our products. Sales of new or renewal services contracts may decline and fluctuate as a result of a number of factors, including end-user customers’ level of satisfaction with our products and services, the prices of our products and services, the prices of products and services offered by our competitors or reductions in our end-user customers’ spending levels. If our sales of new or renewal services contracts decline, our revenue and revenue growth may decline and our business will suffer. In addition, we recognize service revenue over the term of the relevant service period, which is typically twelve months. As a result, some of the revenue we report each quarter is the recognition of deferred revenue from services contracts entered into during previous quarters. Consequently, a decline in new or renewed service contracts in any one quarter will not be fully reflected in revenue in that quarter but will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in new or renewed sales of our services is not reflected in full in our operating results until future periods. Our service revenue also makes it difficult for us to rapidly increase our revenue through additional service sales in any period, as revenue from new and renewal service contracts must be recognized over the applicable service period. Furthermore, increases in the average term of services contracts would result in revenue for services contracts being recognized over longer periods of time.

Seasonality may cause fluctuations in our revenue and operating results.

We have experienced seasonality in our product revenue and operating results in the past, and we believe that we will continue to experience such seasonality in the future. The first quarter of each year is usually our lowest revenue quarter during the year and product revenue typically declines sequentially from the prior fourth quarter. We believe that this results in part from the procurement, budgeting and deployment cycles of many of our end-user customers. We generally expect an increase in sales in the second half of each year as budgets of our end-user customers for annual capital purchases are being fully utilized. We expect that seasonality will continue to affect our revenue and operating results in the future.

Our business and operations have experienced rapid growth, and if we do not appropriately manage any future growth, or are unable to improve our systems and processes, our operating results will be negatively affected.

We have experienced rapid growth over the last several years, which has placed a strain on our management, administrative, operational and financial infrastructure. In addition, some of the members of our current management team have only been working together for a short period of time. We also anticipate that additional investments in key channel partnerships and direct-sales personnel, as well as infrastructure and research and development spending, will be required to: 

• scale our operations and increase productivity;

• address the needs of our end-user customers;

• further develop and enhance our products and services;

• develop new technology; and

• expand our markets and opportunity under management, including into new industry verticals and geographic areas.

Our success will depend in part upon our ability to manage our growth effectively. To do so, we must continue to increase the productivity of our existing employees and to hire, train and manage new employees as needed. To manage domestic and international growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls and our reporting processes and procedures, and implement more extensive and integrated financial and business information systems. These additional investments will increase our operating costs, which will make it more difficult for us to offset any future revenue shortfalls by reducing expenses in the short term. Moreover, if we fail to scale our operations successfully, our business and operating results could be materially and adversely affected.

If we are unable to implement and maintain effective internal control over financial reporting, the accuracy and timeliness of our financial reporting may be adversely affected.

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We must maintain effective internal control over financial reporting in order to accurately and timely report our results of operations and financial condition. In addition, the Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting and the effectiveness of our disclosure controls and procedures quarterly. If we are not able to comply with the requirements of the Sarbanes-Oxley Act in a timely manner, 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 diminish investor confidence in our financial reporting and require additional financial and management resources, each of which may adversely affect our business and operating results.

We have reported material weaknesses in our financial reporting in the past. Although prior material weaknesses have been remediated, including certain material weaknesses which our management determined were remediated in connection with their review of our internal control over financial reporting for fiscal 2015, there can be no assurance that control deficiencies or other significant deficiencies or material weaknesses in our financial reporting will not occur in the future. Any failure to maintain or implement required new or improved controls, or difficulties we encounter in their implementation, could result in significant deficiencies or material weaknesses, or cause us to fail to meet our future reporting obligations. Internal control deficiencies could also result in a restatement of our financial statements in the future or cause investors to lose confidence in our reported financial information, which could cause a decline in the market price of our common stock.

We are dependent on the continued services and performance of our senior management and other key employees, the loss of any of whom could adversely affect our business, operating results and financial condition.

Our future performance depends on the continued services and contributions of our senior management and other key employees to execute on our business plan, and to identify and pursue new opportunities and product innovations. The loss of services of senior management or other key employees could significantly delay or prevent the achievement of our development and strategic objectives. In addition, certain members of our current management team have recently joined us, including our Chief Financial Officer, Rex S. Jackson. The loss of the services of our senior management or other key employees for any reason could adversely affect our business, financial condition and operating results.

If we are unable to hire, retain and motivate qualified personnel, our business would suffer.

Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. The loss of the services of any of our key personnel, the inability to attract or retain qualified personnel or delays in hiring required personnel, particularly in engineering and sales, may seriously harm our business, financial condition and operating results. None of our key employees has an employment agreement for a specific term, and any of our employees may terminate their employment at any time. Our ability to continue to attract and retain highly skilled personnel will be critical to our future success. Competition for highly skilled personnel is frequently intense, especially in the San Francisco Bay Area, the location in which we have a substantial presence and need for highly-skilled personnel. We intend to continue to issue stock options and restricted stock units as a key component of our overall compensation and employee attraction and retention efforts. In addition, we are required under GAAP to recognize compensation expense in our operating results for employee stock-based compensation under our equity grant programs, which may negatively impact our operating results and may increase the pressure to limit stock-based compensation. We may not be successful in attracting, assimilating or retaining qualified personnel to fulfill our current or future needs. Also, to the extent we hire personnel from competitors, we may besubject to allegations that they have been improperly solicited or divulged proprietary or other confidential information.

Our long-term success depends, in part, on our ability to expand the sales of our products to end-user customers located outside of the United States, and therefore our business will be susceptible to risks associated with international operations.

While we currently maintain limited operations outside of the United States, we intend to expand these operations in the future. For example, in 2015 we opened a research and development facility in India and completed the transition of our primary manufacturing operations, through Jabil, to Mexico. We have limited experience operating in foreign jurisdictions. Our inexperience in operating our business outside of the United States increases the risk that any international expansion efforts we may undertake will 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;

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• difficulties in managing and staffing international operations;

• the increased travel, 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.

A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.

Sales to U.S. and foreign, federal, state and local governmental agency end-user customers have accounted for an increasingly significant amount of our revenue, and we may in the future increase sales to government entities. Sales to government entities are subject to a number of risks. Selling to government entities can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. Government certification requirements for products like ours may change, thereby restricting our ability to sell into the federal government sector until we have attained the revised certification. Government demand and payment for our products and services may be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our products and services. Our sales to date to government entities have been made indirectly through our channel partners. Government entities may have statutory, contractual or other legal rights to terminate contracts with our distributors and resellers for convenience or due to a default, and any such termination may adversely impact our operating results. We have contractual obligations to provide certain channel partners that sell to the government with certain pricing information that they may pass on to governmental entities. Governments routinely investigate and audit government contractors’ administrative processes and compliance, and any unfavorable audit could result in the government refusing to continue buying our products and services, a reduction of revenue, or fines or civil or criminal liability if the audit uncovers improper or illegal activities, which could adversely impact our operating results in a material way. Finally, for purchases by the U.S. government, the government may require that certain products to be manufactured in the United States and other relatively high cost manufacturing locations, and we may not manufacture all products in locations that meet such requirements, affecting our ability to sell these products to the U.S. government.

Our use of and reliance on research and development resources in India may expose us to unanticipated costs or events.

We opened a research and development center in India during the second quarter of fiscal 2015 and, in the future expect to increase our headcount and development activity at this facility. There is no assurance that our reliance upon research and development resources in India will enable us to achieve our research and development goals or greater resource efficiency. Further, our research and development efforts in India involve significant risks, including:

• difficulty hiring and retaining appropriate engineering personnel due to intense competition for such resources and resulting wage inflation;

• the knowledge transfer related to our technology and resulting exposure to misappropriation of intellectual property or information that is proprietary to us, our customers and other third parties;

• heightened exposure to change in the economic, security and political conditions in India;

• fluctuations in currency exchange rates and regulatory compliance in India; and

• interruptions to our operations in India as a result of floods and other natural catastrophic events as well as manmade problems such as power disruptions or terrorism.

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Difficulties resulting from the factors above and other risks related to our research and development activities in India could increase our research and development expenses, delay the introduction of new products, or impact our product quality, the occurrence of which could adversely affect our business and operating results.

We are dependent on various IT systems, and failures of or interruptions to those systems could harm our business.

Many of our business processes depend upon our IT systems, the systems and processes of third parties and on interfaces with the systems of third parties. For example, we rely on Microsoft AX Dynamics for our ERP system and Salesforce.com for our customer relationship management system. If those systems fail or are interrupted, or if our ability to connect to or interact with one or more networks is interrupted, our processes may function at a diminished level or not at all. This would harm our ability to ship products, and our financial results would likely be harmed.

In addition, reconfiguring our IT systems or other business processes in response to changing business needs may be time consuming and costly. To the extent this impacts our ability to react timely to specific market or business opportunities, our financial results would likely be harmed.

Failure to comply with 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. For example, our products are subject to various U.S. and foreign governmental regulations limiting the electromagnetic interference that our products can safely emit. If our products do not meet these regulatory standards, we may be required to stop shipping or recall non-compliant products until we are able to meet the applicable standards. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, 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.

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, that apply to our products. 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.

Due to the global nature of our business, we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, or similar anti-bribery laws in other jurisdictions in which we operate, and various international trade and export laws.

The global nature of our business creates various domestic and local regulatory challenges. The U.S. Foreign Corrupt Practices Act, or the FCPA, the U.K. Bribery Act 2010, or the U.K. Bribery Act, and similar anti-bribery laws in other jurisdictions generally prohibit U.S.-based companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. In addition, U.S.-based companies are required to maintain records that accurately and fairly represent their transactions and have an adequate system of internal accounting controls. We operate in areas of the world that experience corruption by government officials to some degree and, in certain circumstances, compliance with anti-bribery laws may conflict with local customs and practices. Our global operations require us to import and export to and from several countries, which geographically stretches our compliance obligations. In addition, changes in such laws could result in increased regulatory requirements and compliance costs which could adversely affect our business, financial condition and results of operations. We cannot assure you that our employees or other agents will not engage in prohibited conduct and render us responsible under the FCPA or the U.K. Bribery Act. If we are found to be in violation of the FCPA, the U.K. Bribery Act or other anti-bribery laws (either due to acts or inadvertence of our employees, or due to

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the acts or inadvertence of others), we could suffer criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.

We may 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 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.

An acquisition or investment 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. An acquisition could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or the write-off of goodwill. These challenges related to acquisitions or investments could adversely affect our business, operating results and financial condition.

If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating results could fall below expectations of securities analysts and investors, resulting in a decline in our stock price.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price. Significant assumptions and estimates used in preparing our consolidated financial statements include, or may in the future include, those related to revenue recognition, stock-based compensation expense, long-lived assets, excess and obsolete inventory write-downs, warranty reserves and accounting for income taxes including deferred tax assets and liabilities.

If we fail to comply with environmental requirements, our business, financial condition, operating results and reputation could be adversely affected.

We are subject to various environmental laws and regulations including laws governing the hazardous material content of our products and laws relating to the collection of and recycling of electrical and electronic equipment. Examples of these laws and regulations include the European Union, or the EU, Restrictions of Hazardous Substances Directive, or the RoHS Directive, and the EU Waste Electrical and Electronic Equipment Directive, or the WEEE Directive, as well as the implementing legislation of the EU member states. Similar laws and regulations have been passed or are pending in China, South Korea, Norway and Japan and may be enacted in other regions, including in the United States, and we are, or may in the future be, subject to these laws and regulations.

The RoHS Directive and the similar laws of other jurisdictions ban the use of certain hazardous materials such as lead, mercury and cadmium in the manufacture of electrical equipment, including our products. We rely on our contract manufacturers to ensure that the manufacturer of our physical appliances and major component part suppliers comply with the RoHS Directive requirements. In addition, if there are changes to this or other laws (or their interpretation) or if new similar laws are passed in other jurisdictions, we may be required to reengineer our products to use components compatible with these regulations. This reengineering and component substitution could result in additional costs to us or disrupt our operations or logistics.

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The WEEE Directive requires electronic goods producers to be responsible for the collection, recycling and treatment of such products. Changes in the interpretation of the WEEE Directive may cause us to incur costs or have additional regulatory requirements to meet in the future in order to comply with this directive, or with any similar laws adopted in other jurisdictions.

Our failure to comply with past, present and future similar laws could result in reduced sales of our products, substantial product inventory write-offs, reputational damage, penalties and other sanctions, which could harm our business and financial condition. We also expect that our products will be affected by new environmental laws and regulations on an ongoing basis. To date, our expenditures for environmental compliance have not had a material impact on our results of operations or cash flows and, although we cannot predict the future impact of such laws or regulations, they will likely result in additional costs and may increase penalties associated with violations or require us to change the content of our products or how they are manufactured, which could have a material adverse effect on our business, operating results and financial condition.

Changes in our valuation allowance against deferred tax assets may affect our future financial results

We record a valuation allowance to reduce our net deferred tax assets to the amount that we believe is more-likely-than-not to be realized. In assessing the need for a valuation allowance, we consider historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and practical tax planning strategies. On a periodic basis we evaluate our deferred tax asset balance for realizability. To the extent we believe it is more-likely-than-not that some portion of our deferred tax assets will not be realized, we will increase the valuation allowance against the deferred tax assets. Realization of our deferred tax assets is primarily dependent upon future taxable income in related tax jurisdictions. If our assumptions and consequently our estimates change in the future, the valuation allowances may be increased or decreased, resulting in a respective increase or decrease in income tax expense.

As of October 1, 2016, we assessed that it is more-likely-than-not that we will realize our federal and state deferred tax assets based on sufficient positive objective evidence that we would generate sufficient taxable income in our U.S. tax jurisdiction to realize the deferred tax assets. Such evidence included, among others, the Company’s history of profitability and losses, jurisdictional income recognition trends, pretax losses adjusted for certain other items, and forecasted income by jurisdiction. Accordingly, we released our valuation allowance on our federal and state deferred tax assets in the six month period ended July 2, 2016 (see Note 8 of the Notes to Condensed Consolidated Financial Statements in Part I - Item 1 of this Quarterly Report on Form 10-Q).

New regulations related to conflict minerals may cause us to incur additional expenses and could limit the supply and increase the costs of certain metals used in the manufacturing of our products.

As a public company, we are subject to new requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, which requires us to diligence, disclose, and report whether or not our products contain conflict minerals. As a recently public company, we filed our initial report with respect to conflict minerals on May 26, 2016 for the 2015 calendar year. The implementation of these new requirements could adversely affect the sourcing, availability and pricing of the materials used in the manufacture of components used in our products. In addition, we have incurred, and will continue to incur additional costs to comply with the disclosure requirements, including costs related to conducting diligence procedures to determine the sources of conflict minerals that may be used or necessary to the production of our products and, if applicable, potential changes to products, processes or sources of supply as a consequence of such verification activities. It is also possible that we may face reputational harm if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to alter our products, processes or sources of supply to avoid such materials.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified board members.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the New York Stock Exchange and other applicable securities rules and regulations. Compliance with these rules and regulations has increased and may continue to increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly as we ceased to be an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 on December 26, 2015. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and

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management oversight will be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. Additionally, beginning with our Annual Report on Form 10-K for fiscal 2015, our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. Although we have already hired additional employees to comply with these requirements, we may need to hire more employees in the future or engage outside consultants, which will increase our costs and expenses.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

Our business is subject to the risks of earthquakes, fire, power outages, floods and other catastrophic events, and to interruption by manmade problems such as terrorism.

A significant natural disaster, such as an earthquake, fire or a flood, or a significant power outage could have a material adverse impact on our business, operating results and financial condition. Our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity. In addition, natural disasters could affect our manufacturing vendors or logistics providers’ ability to perform services such as manufacturing products on a timely basis and assisting with shipments on a timely basis. In the event our service providers’ information technology systems or manufacturing or logistics abilities are hindered by any of the events discussed above, shipments could be delayed, resulting in missing financial targets, such as revenue and shipment targets, for a particular quarter. Further, if a natural disaster occurs in a region from which we derive a significant portion of our revenue, end-user customers in that region may delay or forego purchases of our products, which may materially and adversely impact our operating results for a particular period. In addition, acts of terrorism could cause disruptions in our business or the business of our manufacturer, logistics providers, partners, end-user customers or the economy as a whole. Given our typical concentration of sales at each quarter end, any disruption in the business of our manufacturer, logistics providers, partners or customers that impacts sales at the end of our quarter could have a significant adverse impact on our quarterly results. All of the aforementioned risks may be augmented if the disaster recovery plans for us and our suppliers prove to be inadequate. To the extent that any of the above results in delays or cancellations of customer orders, or delays in the manufacture, deployment or shipment of our products, our business, financial condition and operating results would be adversely affected.

Risks Relating to Owning Our Common Stock

Our actual operating results may differ significantly from our guidance.

From time to time, we have released, and may continue to release guidance in our quarterly earnings conference call, quarterly earnings releases, or otherwise, regarding our future performance that represents our management’s estimates as of the date of release. This guidance, which includes forward-looking statements, has been and will be based on projections prepared by our management. These projections are not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public Accountants, and neither our registered public accountants nor any other independent expert or outside party compiles or examines the projections. Accordingly, no such person expresses any opinion or any other form of assurance with respect to the projections.

Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change. We intend to state possible outcomes as high and low ranges which are intended to provide a sensitivity analysis as variables are changed but are not intended to imply that actual results could not fall outside of the suggested ranges. The principal reason that we release guidance is to provide a basis for our management to discuss our business outlook with analysts and investors. We do not accept any responsibility for any projections or reports published by any such third parties.

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Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the guidance furnished by us will not materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what management believes is realizable as of the date of release. Actual results may vary from our guidance and the variations may be material. For example, in the first and second quarters of fiscal 2014, we announced results that fell below our guidance and below analyst expectations, both of which events resulted in sharp declines in our stock price. If we fail to meet such expectations in the future, the market price of our common stock could again fall substantially and we could face costly lawsuits, including securities class action litigation. We undertake no obligation to make revisions or publicly update our guidance in advance of actual results unless required by law. In light of the foregoing, investors are urged to consider all of the information we make publicly available in making an investment decision regarding our common stock and not rely solely upon our guidance.

Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this “Risk Factors” section could result in the actual operating results being different from our guidance, and the differences may be adverse and material.

Our share price has been and may continue to be volatile, and you could lose all or part of your investment.

Technology stocks have historically experienced high levels of volatility. The trading price of our common stock has been and is likely to continue to be highly volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control and may not be related to our operating performance. Since shares of our common stock were sold in our Initial Public Offering in June 2013 at a price of $19.00 per share, the reported high and low sales prices of our common stock have ranged from $9.95 to $56.38 through October 1, 2016. These fluctuations could cause you to lose all or part of your investment in our common stock. Factors that may cause the market price of our common stock to fluctuate 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; and

• departures of key personnel.

In addition, if the market for technology stocks, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, operating results or financial condition. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. If our stock price is volatile, we may become the target of securities litigation. Securities litigation could result in substantial costs and divert our management’s attention and resources from our business, and this could have a material adverse effect on our business, operating results and financial condition.

Sales of outstanding shares of our common stock into the market in the future could cause the market price of our common stock to drop significantly.

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If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. There were 36,058,037 shares of common stock outstanding as of October 1, 2016, all of which are freely tradable, unless such shares are held by “affiliates,” as that term is defined in Rule 144 of the Securities Act of 1933, as amended.

In addition, we have filed registration statements to register all shares subject to options or RSUs that are currently outstanding or that are reserved for future issuance under our equity compensation plans. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

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 could be influenced by any research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts have only recently commenced research coverage of us. In the event securities or industry analysts who cover our company 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 cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

We do not intend to pay dividends in the foreseeable future.

We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends on our common stock for the foreseeable 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.

Provisions in our certificate of incorporation and bylaws and certain provisions 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.

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

a) Unregistered Sales of Equity Securities

None.

b) Use of Proceeds

Not applicable

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c) Issuer Purchases of Equity Securities

None.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned.

		GIGAMON INC.
Date:	November 10, 2016	/s/ Paul A. Hooper
		Paul A. Hooper
		Chief Executive Officer
		(Principal Executive Officer)
Date:	November 10, 2016	/s/ Rex S. Jackson
		Rex S. Jackson
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit Number	Description
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14 (a) of the Securities Exchange Act of 1934
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14 (a) of the Securities Exchange Act of 1934
32.1*	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

* The certifications attached as Exhibit 32.1 and 32.2 that accompany this Quarterly Report on Form 10‑Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Gigamon Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10‑Q, irrespective of any general incorporation language contained in such filing.

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EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302(a)

OF THE SARBANES-OXLEY ACT OF 2002

I, Paul A. Hooper, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Gigamon 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 10, 2016

/s/ Paul A. Hooper

Paul A. Hooper

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302(a)

OF THE SARBANES-OXLEY ACT OF 2002

I, Rex S. Jackson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Gigamon 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 10, 2016

/s/ Rex S. Jackson

Rex S. Jackson

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code, Paul A. Hooper, Chief Executive Officer of Gigamon Inc. (the “Company”), hereby certifies that, to the best of his knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the period ended October 1, 2016, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and

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

November 10, 2016

By:	/s/ Paul A. Hooper
Name:	Paul A. Hooper
Title:	Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code, Rex S. Jackson, Chief Financial Officer of Gigamon Inc. (the “Company”), hereby certifies that, to the best of his knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the period ended October 1, 2016, to which this Certification is attached as Exhibit 32.2 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and

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

November 10, 2016

By:	/s/ Rex S. Jackson
Name:	Rex S. Jackson
Title:	Chief Financial and Accounting Officer

XML

Document and Entity Information - shares	9 Months Ended
	Oct. 01, 2016	Oct. 31, 2016
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Oct. 01, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Trading Symbol	GIMO
Entity Registrant Name	GIGAMON INC.
Entity Central Index Key	0001484504
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		36,127,054

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Oct. 01, 2016	Dec. 26, 2015
CURRENT ASSETS:
Cash and cash equivalents	$ 155,553	$ 120,212
Short-term investments	89,183	90,001
Accounts receivable, net of allowance for doubtful accounts of $456 and $309, as of October 1, 2016 and December 26, 2015, respectively	60,184	47,947
Inventories	6,953	3,813
Prepaid expenses and other current assets	10,448	7,621
Total current assets	322,321	269,594
Property and equipment, net	11,381	9,416
Deferred tax assets, net	31,608	135
Other assets, non-current	1,034	766
TOTAL ASSETS	366,344	279,911
CURRENT LIABILITIES:
Accounts payable	3,910	3,724
Accrued liabilities	33,696	37,334
Deferred revenue	59,663	62,248
Total current liabilities	97,269	103,306
Deferred revenue, non-current	23,483	19,883
Deferred tax liability	182	279
Other liabilities, non-current	661	1,087
TOTAL LIABILITIES	121,595	124,555
Commitments and Contingencies (Note 5)
STOCKHOLDERS’ EQUITY:
Preferred stock—$0.0001 par value; 20,000 shares authorized, no shares issued or outstanding as of October 1, 2016 and December 26, 2015	0	0
Common stock—$0.0001 par value; 1,000,000 shares authorized, 36,058 and 34,323 shares issued and outstanding as of October 1, 2016 and December 26, 2015, respectively	4	3
Treasury stock— 8,110 shares outstanding as of October 1, 2016 and December 26, 2015	(12,469)	(12,469)
Additional paid-in capital	257,702	211,402
Accumulated other comprehensive income (loss)	36	(47)
Accumulated deficit	(524)	(43,533)
TOTAL STOCKHOLDERS’ EQUITY	244,749	155,356
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 366,344	$ 279,911

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Oct. 01, 2016	Dec. 26, 2015
Statement of Financial Position [Abstract]
Allowance for Doubtful Accounts Receivable, Current	$ 456	$ 309
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	20,000,000	20,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	1,000,000,000	1,000,000,000
Common stock, shares issued	36,058,037	34,323,457
Common stock, shares outstanding	36,058,037	34,323,457
Treasury stock, shares authorized and outstanding	8,109,848	8,109,848

XML

Condensed Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015
Revenue:
Product	$ 59,835	$ 38,717	$ 155,805	$ 105,683
Service	23,677	17,935	70,021	49,268
Total revenue	83,512	56,652	225,826	154,951
Cost of revenue:
Product	12,197	9,613	34,414	28,616
Service	2,141	1,708	6,562	5,248
Total cost of revenue	14,338	11,321	40,976	33,864
Gross profit	69,174	45,331	184,850	121,087
Operating expenses:
Research and development	18,306	12,677	50,914	36,400
Sales and marketing	31,994	21,388	88,494	61,391
General and administrative	8,887	6,950	26,029	19,671
Total operating expenses	59,187	41,015	165,437	117,462
Income from operations	9,987	4,316	19,413	3,625
Interest income	235	106	661	330
Other expense, net	(144)	(69)	(386)	(72)
Income before income tax (provision) benefit	10,078	4,353	19,688	3,883
Income tax (provision) benefit	(3,999)	(73)	23,321	(260)
Net income	$ 6,079	$ 4,280	$ 43,009	$ 3,623
Net income per share:
Basic (in dollars per share)	$ 0.17	$ 0.13	$ 1.22	$ 0.11
Diluted (in dollars per share)	$ 0.16	$ 0.12	$ 1.15	$ 0.10
Weighted average shares used in computing net income per share:
Basic (in shares)	35,770	33,830	35,171	33,412
Diluted (in shares)	38,113	35,872	37,341	35,497

XML

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015
Statement of Comprehensive Income [Abstract]
Net income	$ 6,079	$ 4,280	$ 43,009	$ 3,623
Other comprehensive (loss) income:
Unrealized (loss) gain on available-for-sale investments, net	(31)	22	83	126
Comprehensive income	$ 6,048	$ 4,302	$ 43,092	$ 3,749

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 43,009	$ 3,623
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,815	5,162
Stock-based compensation expense	28,884	23,780
Deferred income taxes	(31,570)	(2)
Excess tax benefit from employee stock-based compensation	(8,258)	0
Inventory write-down	312	1,374
Write down on fixed assets	219	12
Allowance for doubtful accounts	147	0
Changes in operating assets and liabilities:
Accounts receivable	(12,384)	(13,052)
Inventories	(5,015)	76
Prepaid expenses and other assets	(2,991)	(1,803)
Accounts payable	54	852
Accrued liabilities and other liabilities	4,674	5,516
Deferred revenue	1,015	13,734
Net cash provided by operating activities	22,911	39,272
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments	(84,773)	(40,168)
Proceeds from sales of short-term investments	0	2,006
Proceeds from maturities of short-term investments	85,747	58,818
Purchase of property and equipment	(6,001)	(3,985)
Net cash (used in) provided by investing activities	(5,027)	16,671
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from employee stock purchase plan	6,785	5,099
Proceeds from exercise of stock options	9,654	3,525
Shares repurchased for tax withholdings on vesting of restricted stock units	(7,240)	(6,964)
Excess tax benefit from employee stock-based compensation	8,258	0
Net cash provided by financing activities	17,457	1,660
NET INCREASE IN CASH AND CASH EQUIVALENTS	35,341	57,603
CASH AND CASH EQUIVALENTS — Beginning of period	120,212	38,941
CASH AND CASH EQUIVALENTS — End of period	155,553	96,544
Income taxes paid during the period	2,843	348
Unpaid property and equipment purchases	$ 707	$ 395

XML

Description of the Company

9 Months Ended

Oct. 01, 2016

Accounting Policies [Abstract]

Description of the Company

Description of the Company

The Company

Gigamon Inc. (the “Company”) designs, develops and sells products and services that together provide customers with visibility and control of network traffic. The Company serves global enterprises and service providers that seek to maintain and improve the security, reliability and performance of their network infrastructure.

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Summary of Significant Accounting Policies

9 Months Ended

Oct. 01, 2016

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The Company prepared its condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2015.

There have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K that have had a material impact on the Company’s condensed consolidated financial statements and related notes.

Certain prior periods’ amounts were reclassified to conform to the current year’s presentation. None of these reclassifications had an impact on the reported net (loss) income for any of the periods presented.

The Company has a 52 or 53-week fiscal year that ends on the last Saturday in December. Fiscal 2015 was a 52-week fiscal year ending on December 26, 2015 and each quarter therein was 13-week quarter. Fiscal 2016 is a 53-week fiscal year ending on December 31, 2016, with the first quarter being a 14-week quarter which ended on April 2, 2016 and each subsequent quarter being a 13-week quarter. Fiscal 2017 will be a 52-week fiscal year ending on December 30, 2017, with each quarter therein being a 13-week quarter.

Unaudited Interim Financial Statements

The accompanying unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary to fairly state the Company’s financial position as of October 1, 2016, its results of operations and comprehensive income for the three and nine months ended October 1, 2016 and September 26, 2015, respectively, and cash flows for the nine months ended October 1, 2016 and September 26, 2015. The financial data and the other financial information disclosed in the accompanying notes to the condensed consolidated financial statements related to these three and nine month periods are also unaudited. The fiscal year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The statements of income in the three and nine months ended October 1, 2016 are not necessarily indicative of the results to be expected for the full fiscal year or any other future periods.

Principles of Consolidation

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

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. On an ongoing basis, the Company evaluates its estimates, including but not limited to those related to revenue recognition, allowance for doubtful accounts, warranty reserve, excess and obsolete inventory write-downs, stock-based compensation expense, depreciable useful lives and income taxes. The Company bases its estimates on historical experience, projections for future performance and other assumptions that it believes to be reasonable under the circumstances. Actual results could differ materially from those estimates.

Cash Equivalents and Marketable Securities

All highly liquid marketable securities with original maturities of less than three months at the date of purchase are considered to be cash equivalents. Marketable securities are generally classified as available-for-sale for use in current operations, if required, and are reported at fair value, with unrealized gains and losses, net of tax, presented as a separate component of stockholders’ equity within accumulated other comprehensive income (loss). All realized gains and losses and unrealized losses resulting from declines in fair value that are other-than-temporary are recorded in other expense) net, in the period of occurrence. The Company uses the specific identification method to determine the realized gains and losses on investments. For all investments in marketable securities, the Company assesses whether an impairment is other-than-temporary. If the fair value of a security is less than its amortized cost basis, an impairment is considered other-than-temporary if (i) the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its entire amortized cost basis, or (ii) the Company does not expect to recover the entire amortized cost of the security. If an impairment is considered other-than-temporary based on condition (i), the entire difference between the amortized cost and the fair value of the security is recognized in earnings. If an impairment is considered other-than-temporary based on condition (ii), the amount representing credit losses, defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the security, will be recognized in earnings, and the amount relating to all other factors will be recognized in accumulated other comprehensive income (loss). The Company evaluates both qualitative and quantitative factors such as duration and severity of the unrealized losses, credit ratings, default and loss rates of the underlying collateral, structure and credit enhancements to determine if a credit loss may exist.

Concentrations

The Company operates in highly competitive and rapidly changing markets that could negatively impact the Company’s operating results. A number of components that meet the Company’s manufacturing requirements are available only from single source suppliers. In addition, the Company relies on one contract manufacturer to manufacture a substantial majority of its products. The inability of its single source suppliers and contract manufacturer to provide the Company with adequate supplies of high-quality components and products could cause a delay in order fulfillment, which could adversely affect the Company’s revenue, cost of revenue and operating results.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable. The Company currently invests the majority of its cash in high-grade government and corporate debt and maintains these investments with a limited number of major financial institutions in the United States that management believes are creditworthy. Such deposits may exceed the insured limits provided on them. The Company mitigates credit risk associated with its accounts receivable by performing ongoing credit evaluations of its customers and determines if it needs to establish an allowance for doubtful accounts for estimated losses based on management’s assessment of the collectability of customer accounts.

The following customers represented more than 10% or more of total revenue or accounts receivable:

	Three Months Ended				Nine Months Ended
	October 1, 2016		September 26, 2015		October 1, 2016		September 26, 2015
Percent of Revenue:
Customer A (distributor)	38	%	38	%	35	%	41	%
Customer B (distributor)	24	%	18	%	25	%	19	%
Customer C (end-user)	*		16	%	12	%	*

* Represented less than 10% of total revenues

	As of
	October 1, 2016		December 26, 2015
Percent of Accounts Receivable:
Customer A (distributor)	38	%	19	%
Customer B (distributor)	26	%	30	%
Customer C (end-user)	14	%	11	%

Inventories

Inventory is valued at the lower of cost computed on a first-in, first-out basis, or market value. The Company writes down inventory in excess of forecasted demand over a certain period, as a component of cost of revenue. In these cases, inventory is reduced to estimated realizable value based on historical usage and expected demand. At the point of inventory write-down, a new lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. Inherent in the Company’s estimates of market value in determining inventory valuation are estimates related to economic trends, future demand for the Company’s products, and technical obsolescence of products. The Company uses a contract manufacturer to provide the majority of its manufacturing services for its products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, the Company enters into agreements with the contract manufacturer that either allow it to procure inventory based upon criteria as defined by the Company, or establish the parameters defining the Company’s requirements. A portion of the Company’s reported purchase commitments arising from these agreements consists of non-cancelable commitments. The Company records a liability for firm, non-cancelable and unconditional purchase commitments for quantities in excess of its future demand forecasts consistent with the valuation of the Company’s excess and obsolete inventory.

The Company recorded inventory write-downs within cost of revenue of $40,000 and $0.5 million in the three months ended October 1, 2016 and September 26, 2015, respectively, and $0.3 million and $1.4 million in the nine months ended October 1, 2016 and September 26, 2015, respectively.

Revenue Recognition

The Company generates product revenue from sales of traffic visibility solutions to customers as well as service revenue from sales of maintenance and support contracts and other billable services. The Company typically sells products and services in a single transaction. The Company’s typical arrangement consists of the sale of products together with maintenance and support or a renewal of maintenance and support contracts. Billable services are billed in advance or when service is provided and performed as requested by customers. Under maintenance and support contracts, services are provided as needed by customers over the fixed arrangement term. The Company does not grant its customers a general right of return or any refund terms. Revenue from distributors is reported net of rebates, discounts and any other sales incentives.

The Company recognizes revenue when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the sales price is fixed or determinable and (4) collectability is reasonably assured.

When sales arrangements contain multiple elements and software and non-software components that function together to deliver the products’ essential functionality, the Company allocates revenue to each element based on a selling price hierarchy: vendor-specific objective evidence ("VSOE"), if available, third party evidence ("TPE"), of the selling price if VSOE is not available, or best estimated selling prices ("BESP") if neither VSOE nor TPE is available.

When the Company enters into arrangements to provide more than one product or service, or what the Company refers to as multiple deliverables, these arrangements are evaluated to determine if the multiple elements consist of more than one unit of accounting and can be separated accordingly. Based on separation criteria under the guidance, deliverables in multiple element arrangements can be segregated into separate units of accounting if they have value to the customer on a standalone basis. If deliverables can be separated into individual units of accounting, then the arrangement consideration is allocated among deliverables based on their relative selling price. Revenue from each deliverable is recognized when all requirements are met for that specific deliverable. If deliverables cannot be separated into separate units of accounting, then the arrangement will be accounted for as a single unit of accounting and revenue will be recognized when all requirements are met for all deliverables within the arrangement. The Company has established VSOE for maintenance and support contracts since the majority of selling prices fall within a narrow range when sold separately. TPE is not used since this information is not widely available in the market and the Company does not consider its products to be similar to or interchangeable with its competitors’ products in standalone sales to similarly situated customers. For deliverables with no established VSOE, such as standard product offerings, the Company determines the standalone selling price for such deliverables by establishing BESP, which incorporates historical selling prices, the effect of market conditions, gross margin objectives and pricing practices, as well as entity specific factors. The Company monitors and evaluates BESP on a regular basis to ensure that changes in circumstances are accounted for in a timely manner.

Service revenue is recognized ratably over the contractual support period, which is typically one year but can be up to 10 years.

In accordance with contractual provisions, the Company may offer cooperative marketing funds based on a fixed dollar percentage of product sales to certain of its channel partners or to fund specific marketing activities for these partners. The Company records such amounts as a reduction to revenue or, if the Company has evidence of fair value of the separable and identifiable benefit received, as a marketing expense.

Revenue is recorded net of sales taxes.

Costs of products not yet recognized as revenue are deferred and included as a component of prepaid expenses and other current assets on the condensed consolidated balance sheets. As of October 1, 2016 and December 26, 2015, deferred cost of product revenue was $0.1 million and $1.6 million, respectively.

Shipping and Handling Charges

Shipping and handling costs are recorded in cost of revenue in the period products are shipped to customers.

Warranty

The Company provides five-year warranties against defects in manufacturing on its hardware products. The Company accrues for potential liability claims as a component of cost of product revenue based on historical trends of product failure rates and the expected material and labor costs to provide warranty services. The accrued warranty balance is reviewed periodically for adequacy and is included in accrued liabilities and in other non-current liabilities on the condensed consolidated balance sheets.

Stock-Based Compensation

Stock-based compensation expense related to stock-based transactions, including employee and director awards, as well as employee stock purchase plan purchase rights (“ESPP purchase rights”), is measured and recognized in the consolidated financial statements based on the fair value of the award on the grant date. Stock-based compensation expense related to equity awards that can be settled in cash is measured based on the fair value on each balance sheet date until the settlement dates. The fair value of option awards and ESPP purchase rights is estimated using the Black-Scholes option-pricing model. This model requires assumptions including the market value of the Company’s common stock, expected volatility, expected term of the award, expected dividend yield and risk-free interest rate. Expected term for stock option awards is determined based on the mid-point of the vest period and the contractual period of each option award due to the Company’s limited historical stock option exercise data. Expected volatility is established based on the historical volatility of the common stock of the Company, combined with the historical volatility of a peer group of publicly traded companies. Stock-based compensation expense, net of estimated forfeitures, is recognized on a graded-vesting basis over the requisite service periods of the awards, unless a performance-based condition exists. Expenses for performance-based awards are recognized when the issuance of the underlying awards are probable, which is re-measured at each reporting period and the expense is trued up accordingly. Expenses for consultant awards are measured based on the fair value on the vest date. Expenses related to the option grants to consultants that have not been vested as of the reporting date are marked to market until the earlier of the commitment or the completion of the underlying performance. The Company estimates a forfeiture rate to calculate the stock-based compensation for its awards based on an analysis of its historical experience, analysis of employee turnover and other related factors. The Company currently utilizes two separate forfeiture rates, based on the classification of the employees.

Advertising Costs

Expenses related to advertising of products are charged to sales and marketing expense as incurred. For all periods presented, advertising expenses were not material.

Income Taxes

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized on a more likely than not basis.

Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considers all available evidence, including past operating results, estimates of future taxable income and the feasibility of any viable tax planning strategies. In the event that the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to the income tax provision in the period in which such determination is made.

Comprehensive Income, net

Comprehensive income is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources. Comprehensive income is comprised of all components of net income and the changes in the components of accumulated other comprehensive income within stockholders’ equity. The Company’s accumulated other comprehensive income includes unrealized gains and losses from its available-for-sale securities that are not considered other-than-temporarily impaired, net of taxes.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the "FASB") issued an accounting standards update related to revenue from contracts with customers, which supersedes the revenue recognition requirements in the current Accounting Standards Codification. This standard is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015 the FASB voted to defer the effective date of this standard by one year. Additionally, in March 2016 the FASB issued additional information that clarifies the implementation guidance on principal versus agent considerations. The effective date of this standard will be the first quarter of fiscal 2018 using one of two retrospective application methods. The Company is currently evaluating the potential impact of this guidance on its condensed consolidated financial statements and has not selected the transition method.

In July 2015, the FASB issued an accounting standard update related to disclosure of inventory, to provide guidance on management’s responsibility to measure inventory at the lower of cost and net realizable value. The effective date of this standard will be for annual periods ending after December 15, 2016 with early adoption permitted. The Company is currently evaluating the impact of this guidance on the Company’s condensed consolidated financial statements.

In February 2016, the FASB issued an accounting standard update which amends the existing accounting standards for leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification. Under the new guidance, a lessee will be required to recognize assets and liabilities for all leases with lease terms of more than 12 months. The effective date of this update will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 using a modified retrospective transition method with early adoption permitted. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

In March 2016, the FASB issued an accounting standard related to Improvements to Employee Share-Based Payment Accounting, which amends Compensation – Stock Compensation. This standard includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The effective date of this standard will be for annual periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company is evaluating the impact of this guidance on its condensed consolidated financial statements.

In June 2016, the FASB issued new guidance that changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. The effective date of this standard will be for annual periods ending after December 15, 2019, and interim periods within that reporting period. Early adoption is permitted starting in annual periods ending after December 15, 2018. The Company is evaluating the impact of this guidance on its condensed consolidated financial statements.

In August 2016, the FASB issued new guidance related to Classification of Certain Cash Receipts and Cash Payments. This standard provides guidance for eight cash flow classification issues to reduce diversity in practice. The clarification includes guidance on items such as debt prepayment or debt extinguishment cost, contingent consideration payment made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies and distributions received from equity method investees. The effective date of this standard is for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. The Company is evaluating the impact of this guidance on its condensed consolidated financial statements.

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Fair Value Measurements

9 Months Ended

Oct. 01, 2016

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Company records its financial assets and liabilities at fair value. The inputs used in the valuation methodologies in measuring fair value are defined in the fair value hierarchy as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company recognizes transfers among Level 1, Level 2 and Level 3 classifications as of the actual date of the events or change in circumstances that caused the transfers.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The carrying value of the Company’s accounts receivable, accounts payable and accrued liabilities approximates their fair value due to the short-term nature of these instruments.

Cash, Cash Equivalents and Short-Term Investments

The Company measures its financial instruments at fair value on a recurring basis. The components of the Company's cash, cash equivalents and short-term investments are as follows (in thousands):

			Fair Value Measured Using
	October 1, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents:
Money market funds	$	119,315	$	119,315	$	—	$	—
Commercial paper	2,499		—		2,499		—
Total cash equivalents	$	121,814	$	119,315	$	2,499	$	—
Cash	33,739
Total cash and cash equivalents	$	155,553
Short-term investments:
Corporate debt securities	$	6,506	$	—	$	6,506	$	—
Commercial paper	14,943		—		14,943		—
U.S. agency debt securities	25,714		—		25,714		—
U.S. government securities	42,020		—		42,020		—
Total short-term investments	$	89,183	$	—	$	89,183	$	—

			Fair Value Measured Using
	December 26, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents:
Money market funds	$	83,852	$	83,852	$	—	$	—
Commercial paper	4,497		—		4,497		—
Total cash equivalents	$	88,349	$	83,852	$	4,497	$	—
Cash	31,863
Total cash and cash equivalents	$	120,212
Short-term investments:
Corporate debt securities	$	14,560	$	—	$	14,560	$	—
Commercial paper	8,986		—		8,986		—
U.S. agency debt securities	29,008		—		29,008		—
U.S. government securities	37,447		—		37,447		—
Total short-term investments	$	90,001	$	—	$	90,001	$	—

The Company considers all highly liquid investments with maturity of three months or less at the time of purchase to be cash equivalents. The Company holds money market funds that invest primarily in high-quality short-term money-market instruments, and these funds are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Company presents available-for-sale investments as current assets as they are available for the Company's current operations.

Money market funds have been classified as Level 1 because these securities are valued based upon quoted prices in active markets. The Company’s Level 2 assets are priced using quoted market prices for similar instruments or non-binding market prices that are corroborated by observable market data. Observable inputs reflect market data obtained from independent sources. The Company did not have any transfers between Level 1 and Level 2 in the nine months ended October 1, 2016.

As of October 1, 2016 and December 26, 2015, the Company had no liabilities measured at fair value.

Financial assets measured at amortized cost, gross unrealized gains, gross unrealized losses and fair value by significant investment categories are summarized as follows (in thousands):

	As of October 1, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and cash equivalents:
Money market funds	$	119,315	$	—	$	—		$	119,315
Commercial paper	2,499		—		—			2,499
Cash	33,739		—		—			33,739
Total cash and cash equivalents	$	155,553	$	—	$	—		$	155,553
Short-term investments:
Corporate debt securities	$	6,507	$	1	$	(2	)	$	6,506
Commercial paper	14,943		—		—			14,943
U.S. agency debt securities	25,701		13		—			25,714
U.S. government securities	41,996		25		(1		)	42,020
Total short-term investments	$	89,147	$	39	$	(3	)	$	89,183

	As of December 26, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and cash equivalents:
Money market funds	$	83,852	$	—	$	—		$	83,852
Commercial paper	4,497		—		—			4,497
Cash	31,863		—		—			31,863
Total cash and cash equivalents	$	120,212	$	—	$	—		$	120,212
Short-term investments:
Corporate debt securities	$	14,570	$	—	$	(10	)	$	14,560
Commercial paper	8,986		—		—			8,986
U.S. agency debt securities	29,031		—		(23		)	29,008
U.S. government securities	37,461		3		(17		)	37,447
Total short-term investments	$	90,048	$	3	$	(50	)	$	90,001

The Company’s realized gain was immaterial in the nine months ended October 1, 2016. There were no securities in a material continuous loss position for 12 months or longer as of October 1, 2016 or December 26, 2015.

The following table summarizes the estimated fair value of the Company’s debt investments, designated as available-for-sale classified by the contractual maturity date of the security (in thousands):

	As of
	October 1, 2016		December 26, 2015
Due within one year	$	210,997	$	177,852
Due between one and five years	—		498
Total cash equivalents and short-term investments	$	210,997	$	178,350

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Balance Sheet Components

9 Months Ended

Oct. 01, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Balance Sheet Components

Balance Sheet Components

Inventories

Inventories are comprised of the following (in thousands):

	As of
	October 1, 2016		December 26, 2015
Raw materials	$	127	$	76
Finished goods	6,826		3,737
Total inventories	$	6,953	$	3,813

Accrued Liabilities

Accrued liabilities are comprised of the following (in thousands):

	As of
	October 1, 2016		December 26, 2015
Accrued employee related costs	$	21,322	$	25,392
Accrued inventory and other purchases	2,500		2,452
Accrued taxes payable	2,929		1,918
Accrued professional services	748		1,655
Other accruals	6,197		5,917
Total accrued liabilities	$	33,696	$	37,334

Accrued Warranty

Warranty activity and accrued warranty is comprised of the following (in thousands):

	Nine Months Ended
	October 1, 2016			September 26, 2015
Accrued warranty balance at beginning of period	$	807		$	875
Accrual for warranty during the period	1,269			886
Actual costs incurred	(1,116		)	(741		)
Accrued warranty balance at end of period	$	960		$	1,020

	As of
Warranty accrual reported as:	October 1, 2016		December 26, 2015
Current	$	643	$	490
Non-current	317		317
Total accrued warranty	$	960	$	807

Deferred Revenue

Deferred revenue is comprised of the following (in thousands):

	As of
	October 1, 2016		December 26, 2015
Deferred service revenue	$	80,925	$	73,454
Deferred product revenue	2,221		8,677
Total deferred revenue	$	83,146	$	82,131

The change in deferred product revenue as of October 1, 2016 as compared to December 26, 2015 is associated with the Company's transition to a centralized global fulfillment model. Prior to this transition deferred product revenue primarily represented the value of stocking inventory that had been at various distributor locations, which is now centralized by the Company.

Accumulated Other Comprehensive (Loss) Income

Accumulated other comprehensive (loss) income consists of unrealized gains and losses from available-for-sale securities. The following summarizes the activity within accumulated other comprehensive (loss) income (in thousands):

Accumulated Other Comprehensive (Loss) Income	Net Unrealized (Losses) Gains
Balance as of December 26, 2015	$	(47	)
Available-for-sale securities:
Unrealized gains	83
Total other comprehensive income	83
Balance as of October 1, 2016	$	36

There was no material tax impact on the unrealized gains or losses and total other comprehensive income.

There were no material reclassifications out of accumulated other comprehensive (loss) income into the condensed consolidated statements of income in the nine months ended October 1, 2016 and September 26, 2015.

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Commitments and Contingencies

9 Months Ended

Oct. 01, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Lease Commitments

The Company leases office space for its current headquarters in Santa Clara, California and its United Kingdom subsidiary under non-cancelable operating leases that expire at various times through fiscal 2021. The Company has also entered into lease agreements for additional office space in Australia, Hong Kong, Japan, India, Mexico, Russia, Singapore, and the United Arab Emirates. The Company recognizes rent expense on a straight-line basis over the lease period.

Rent expense related to the Company’s operating leases was $1.0 million and $0.8 million for the three months ended October 1, 2016 and September 26, 2015, respectively, and $2.9 million and $2.4 million for the nine months ended October 1, 2016 and September 26, 2015, respectively.

Future minimum lease payments under non-cancelable operating leases as of October 1, 2016 were as follows (in thousands):

Fiscal Year:
2016 (remaining three months)	$	1,109
2017	4,258
2018	1,485
2019	299
2020	191
2021	135
Total	$	7,477

Purchase Commitments

The Company has agreements with contract manufacturers for the manufacturing of its products. The agreement with its primary contract manufacturer allows the contract manufacturer to procure components on the Company’s behalf based upon a production forecast provided by the Company. The Company may be obligated to purchase component inventory that is non-cancellable. As of October 1, 2016 and December 26, 2015, the Company’s non-cancellable purchase commitments for such component inventory were $12.2 million and $12.0 million, respectively.

Legal Proceedings

From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company is not currently a party to any legal proceedings the outcome of which, if determined adversely to the Company, would individually or in the aggregate be expected to have a material adverse effect on its business, operating results, financial condition or cash flows.

Indemnification Obligations

Under the indemnification provisions of its standard sales related contracts, the Company agrees to defend its customers against third-party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks, or trade secrets, and to pay judgments entered on such claims. The Company’s exposure under these indemnification provisions is generally limited to the total amount paid by its customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose the Company to losses in excess of the amount received under the agreement. The Company has not incurred any costs as a result of such indemnifications and has not accrued any liabilities related to such obligations in its consolidated financial statements. In addition, the Company indemnifies its officers, directors and certain key employees while they are serving in good faith in the company capacities. To date, there have been no claims under any indemnification provisions.

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Preferred Stock and Stockholders' Equity

9 Months Ended

Oct. 01, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Preferred Stock and Stockholders' Equity

Stockholders’ Equity

Preferred Stock

The Company has authorized 20,000,000 shares of undesignated preferred stock, $0.0001 par value per share. As of October 1, 2016 and December 26, 2015, the Company had no shares of preferred stock issued or outstanding.

Common Stock

The Company has authorized 1,000,000,000 shares of common stock, $0.0001 par value per share. Each holder of common stock is entitled to one vote for each share of common stock held. Cumulative voting for the election of directors is not provided in the Company’s amended and restated certificate of incorporation. The Company’s common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions. Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of common stock are entitled to receive dividends out of funds legally available if the Company's board of directors (the "Board"), in its discretion, determines to issue dividends and then only at the times and in the amounts that the Board may determine.

As of October 1, 2016 and December 26, 2015, the Company had 36,058,037 and 34,323,457 shares of common stock issued and outstanding, respectively.

Treasury Stock

As of October 1, 2016 and December 26, 2015, the Company had 8,109,848 shares of treasury stock outstanding, with a carrying value of $12.5 million, or $1.53 per share, within stockholders’ equity on its condensed consolidated balance sheet. The treasury stock was purchased in fiscal 2010 pursuant to a purchase and redemption agreement.

Equity Award Plans

2013 Equity Incentive Plan

In May 2013, the Company adopted the 2013 Equity Incentive Plan (the “2013 Equity Plan”). All authorized but unissued shares of the Company’s 2012 Unit Option Plan (the "2012 Plan") were added to the 2013 Equity Plan’s authorized pool in June 2013. A maximum of 2,929,481 shares of common stock were initially authorized for future issuance, plus up to an additional 4,967,172 shares upon termination of awards under the 2012 Plan. In addition, the 2013 Equity Plan is subject to an annual increase on the first day of each of the Company’s fiscal years, by an amount equal to the least of (i) 1,464,740 shares, (ii) 5% of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year, or (iii) such other amount as determined by the Board. In each of the fiscal years ended December 27, 2014 and December 26, 2015, an additional 1,464,740 shares of common stock were authorized for future issuance under the 2013 Equity Plan and an additional 1,464,740 shares were authorized during the nine months ended October 1, 2016. Vested but unexercised options, under the 2013 Equity Plan, expire three months after termination of service with the Company. As of October 1, 2016, outstanding awards under the 2013 Equity Plan and the 2012 Plan covered 3,480,841 shares and 485,469 shares of the Company's common stock, respectively.

The 2013 Equity Plan permits the grant of stock options, stock appreciation rights, restricted stock, restricted stock units ("RSUs"), performance units and performance shares to employees, directors and consultants of the Company.

Employee Stock Purchase Plan

In conjunction with the completion of its initial public offering (the "IPO") in June 2013, the Company adopted the 2013 Employee Stock Purchase Plan (the “ESPP”). A maximum of 439,422 shares were initially authorized for future issuance. In addition, the ESPP is subject to an annual increase on the first day of each of the Company's fiscal years, by an amount equal to the least of (i) 439,422 shares, (ii) 1.5% of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year, or (iii) such other amount as determined by the Board. In each of the fiscal years ended December 27, 2014 and December 26, 2015, an additional 439,422 shares of common stock were authorized for future issuance under the ESPP and an additional 439,422 shares were authorized during the nine months ended October 1, 2016. Eligible employees can purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to plan limitations. Employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock (i) at the date of commencement of the offering period or (ii) at the last day of the purchase period. The ESPP provides for a 24-month offering period comprised of four purchase periods of approximately six months. The offering periods are scheduled to start on the first trading day on or after February 15 and August 15 of each year, except for the first offering period, which commenced on the first trading day upon the completion of the Company’s IPO, or June 12, 2013, and ended on August 17, 2015.

In accordance with the terms of the Company's 2013 Employee Stock Purchase Plan (the "ESPP"), an additional 439,422 shares were authorized for future issuance during the nine months ended October 1, 2016. The Company recorded stock-based compensation expense for its ESPP of $1.4 million and $2.7 million for the three and nine months ended October 1, 2016, respectively, and $0.7 million and $2.1 million for the three and nine months ended September 26, 2015, respectively. For the nine months ended October 1, 2016 there were two purchase periods that resulted in the issuance of 586,132 shares of common stock at a weighted average purchase price of $11.75 per share.

Stock Options

Stock options granted under the 2013 Equity Plan and formerly under the 2012 Plan (together, the “Option Plans”), are generally subject to a four-year vesting period whereby stock options become 25% vested on the first anniversary of the grant date and then ratably monthly thereafter through the end of the vesting period. Vested stock options may be exercised up to ten years from the grant date, with certain options granted in fiscal 2015 and fiscal 2016 expiring seven years from the date of grant. Under the 2012 Plan, vested but unexercised stock options expire 30 days after termination of service with the Company. Under the 2013 Equity Plan, vested but unexercised stock options expire three months after termination of service with the Company.

The following table summarizes the stock option activity under the Company’s Option Plans:

	Number of Stock Options Outstanding		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
	(in thousands)
Balance — December 26, 2015	2,170,720		$	15.73	7.14	$	24,910
Options granted	70,000		$	31.16
Options exercised	(778,675	)	$	12.40
Options canceled	(44,522	)	$	20.27
Balance — October 1, 2016	1,417,523		$	18.18	6.60	$	51,906
Vested and expected to vest — October 1, 2016	1,360,227		$	18.02	6.62	$	50,024
Exercisable — October 1, 2016	836,612		$	16.18	6.68	$	32,313

Aggregate intrinsic value represents the difference between the exercise price of the awards and the Company’s fair value per share of $54.80 and $26.82 as of October 1, 2016 and December 26, 2015, respectively, for the total number of underlying options. As of October 1, 2016 and December 26, 2015 there were zero and 2,611 shares underlying performance-based common stock awards outstanding, respectively, of which zero and 1,488, respectively, were not yet vested and subject to performance-based vesting criteria.

Restricted Stock Unit Activity

RSUs generally vest over a period of one to four years. RSU vesting dates are determined by the Company. The vesting is subject to the employee’s continuing service with the Company over that period. Until vested, RSUs do not have the voting or dividend participation rights of the Company’s common stock and the shares of the Company’s common stock underlying the awards are not considered issued and outstanding. The cost of RSUs is determined using the fair value of the Company’s common stock on the date of the grant.

The following table summarizes the RSU activity under the Company’s Option Plans:

	Number of RSUs Outstanding		Weighted- Average Grant Date Fair Value		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
						(in thousands)
Balance - December 26, 2015	1,779,339		$	22.64	1.53	$	47,722
RSUs granted	1,569,219		$	26.45
RSUs vested	(587,400	)	$	22.88
RSUs canceled	(212,371	)	$	23.92
Balance - October 1, 2016	2,548,787		$	24.82	1.48	$	139,674
Vested and expected to vest — October 1, 2016	2,185,562		$	24.70	1.38	$	119,769

 Aggregate intrinsic value for RSUs represents the Company’s fair market value per share of $54.80 and $26.82, as of October 1, 2016 and December 26, 2015, respectively, for the total number of underlying RSUs.

Performance-Based Awards

During the nine months ended October 1, 2016, the Company awarded 193,000 shares of performance-based RSUs. The vesting conditions of these awards are tied to the Company's fiscal 2016 revenue and operating income performance. These RSUs can vest from 0% to 200% of the target grant, based on attainment of the performance goals. The target achievement percentage will be known as of December 31, 2016; until then the Company estimates the probability of the achievement of these performance goals each quarterly period and recognizes any related stock-based compensation expense. If the achievement of such performance goals is not probable, no compensation expense is recognized. For the three and nine months endedOctober 1, 2016, the Company has recorded $1.3 million and $2.9 million on a graded-vesting basis, respectively, in stock-based compensation expense related to these RSU awards.

Stock-Based Compensation Expense

The fair value of stock options and ESPP purchase rights is estimated on the date of grant using the Black-Scholes option-pricing model. The fair values of the option awards and ESPP purchase rights granted and the assumptions used in the Black-Scholes option pricing model are summarized as follows:

	Three Months Ended		Nine Months Ended
	October 1, 2016	September 26, 2015	October 1, 2016	September 26, 2015
Stock option awards:
Expected term (in years)	0	0	4.6	4.6
Risk-free interest rate	—%	—%	1.4%	1.6%
Expected volatility	—%	—%	76.1%	56.04%
Expected dividend rate	—%	—%	—%	—%
Grant date fair value per award	$—	$—	$18.62	$10.11
ESPP purchase right:
Expected term (in years)	0.50 - 2.0	0.50 - 2.0	0.50 - 2.0	0.50 - 2.0
Risk-free interest rate	0.46% - 0.72%	0.24% - 0.72%	0.42% - 0.74%	0.07% - 0.72%
Expected volatility	43.9% - 54.6%	42.5% - 59.9%	43.9% - 67.2%	37.6% - 59.9%
Expected dividend rate	—%	—%	—%	—%
Grant date fair value per share	$12.84 - $20.77	$7.25 - $12.64	$7.75 - $20.77	$5.48 - $12.64

The following table summarizes the stock-based compensation expense recorded in the Company’s condensed consolidated statements of income (in thousands):

	Three Months Ended				Nine Months Ended
	October 1, 2016		September 26, 2015		October 1, 2016		September 26, 2015
Cost of revenue	$	519	$	471	$	1,527	$	1,530
Research and development	3,397		2,451		9,800		7,156
Sales and marketing	3,062		2,498		8,802		7,757
General and administrative	3,126		2,431		8,755		7,337
Total stock-based compensation expense	$	10,104	$	7,851	$	28,884	$	23,780

As of October 1, 2016, unrecognized compensation expense related to stock options, RSUs, PSUs, and ESPP purchase rights, net of estimated forfeitures, was $2.1 million, $26.7 million, $4.8 million, and $5.3 million, respectively.

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Defined Contribution Plans

9 Months Ended

Oct. 01, 2016

Postemployment Benefits [Abstract]

Defined Contribution Plans

Defined Contribution Plans

The Company’s contributions to the 401(k) defined contribution plan, which are expensed immediately as compensation costs, were $0.6 million and $0.3 million for the three months ended October 1, 2016 and September 26, 2015, respectively, and $1.7 million and $1.0 million for the nine months ended October 1, 2016 and September 26, 2015, respectively.

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Income Tax

9 Months Ended

Oct. 01, 2016

Income Tax Disclosure [Abstract]

Income Tax

Income Tax

The Company recorded an income tax provision of $4.0 million for the three months ended October 1, 2016 and an income tax benefit of $23.3 million for the nine months ended October 1, 2016, and an income tax provision of $0.1 million and $0.3 million for the three and nine months ended September 26, 2015, respectively. The income tax benefit for the nine months ended October 1, 2016 represents the release of $30.5 million of the Company’s existing valuation allowance against its U.S. deferred tax assets and additional foreign income tax expense. The Company considered all available positive and negative evidence in making a determination to release a portion of its existing valuation allowance.  Such evidence included, among others, the Company’s history of profitability and losses, jurisdictional income recognition trends, forecasted income by jurisdiction and achievement of three years of cumulative taxable income in the U.S. federal tax jurisdiction as of July 2, 2016. Therefore, the Company determined that there is sufficient positive evidence to conclude that it is more likely than not that it will utilize its U.S. deferred tax assets. Included in the net deferred tax asset balance is a $3.7 million valuation allowance that relates to research and development credits in a jurisdiction with a history of credits in excess of taxable profits.   

As a result of the valuation allowance release, an unreserved deferred tax asset of $31.6 million is reflected on the accompanying condensed consolidated balance sheet as of October 1, 2016. The related $31.6 million effect on the accompanying condensed consolidated statement of income for the nine months ended October 1, 2016 is a non-cash income tax benefit.

The Company files annual income tax returns in multiple tax jurisdictions on a worldwide basis. A number of years may lapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes that its reserves for income taxes reflect the most likely outcomes. The Company adjusts these reserves, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular position could require the use of cash.

As of October 1, 2016, changes to the Company's uncertain tax positions in the next 12 months that are reasonably possible are not expected to have a material impact on the Company's financial position or results of operations. The Company recognizes interest and penalties related to uncertain tax positions as part of the income tax provision. To date, no such interest and penalties have been accrued.

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Net Income per Share

9 Months Ended

Oct. 01, 2016

Earnings Per Share [Abstract]

Net Income per Share

Net Income per Share

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding.

The following table presents the computation of basic and diluted net income per share attributable to common stockholders (in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	October 1, 2016		September 26, 2015		October 1, 2016		September 26, 2015
Numerator:
Net income	$	6,079	$	4,280	$	43,009	$	3,623
Denominator:
Weighted average shares used for basic net income per share computation	35,770		33,830		35,171		33,412
Weighted average effect of dilutive securities:
Stock options	666		664		696		685
RSUs	1,313		1,018		1,169		991
Performance-based Units	175		—		102		—
ESPP purchase rights	189		360		203		409
Weighted average shares used for diluted net income per share computation	38,113		35,872		37,341		35,497
Net income per share attributable to common stockholders:
Basic	$	0.17	$	0.13	$	1.22	$	0.11
Diluted	$	0.16	$	0.12	$	1.15	$	0.10

The weighted average number of shares outstanding used in the computation of diluted net income per share does not include the effect of the following shares of potentially outstanding common stock because the effect would have been anti-dilutive for the periods presented (in thousands):

	Three Months Ended		Nine Months Ended
	October 1, 2016	September 26, 2015	October 1, 2016	September 26, 2015
Equity awards to purchase common stock	20	721	74	642

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Segment Information

9 Months Ended

Oct. 01, 2016

Segment Reporting [Abstract]

Segment Information

Segment Information

Operating segments are defined as components of an enterprise that engage in business activities for which separate financial information is available and evaluated by the chief operating decision maker in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker is its chief executive officer. The chief executive officer reviews financial information presented on a consolidated basis, for purposes of allocating resources and evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, or plans for levels or components below the consolidated unit level. Accordingly, the Company operates as a single reportable segment.

The following table summarizes the Company’s revenue by geographic region, based on the location to where the product was shipped (in thousands):

	Three Months Ended				Nine Months Ended
	October 1, 2016		September 26, 2015		October 1, 2016		September 26, 2015
United States	$	67,205	$	44,764	$	179,678	$	115,195
Rest of Americas	2,562		2,167		7,385		8,215
Europe, Middle East and Africa	7,370		7,209		21,349		21,471
Asia Pacific	6,375		2,512		17,414		10,070
Total	$	83,512	$	56,652	$	225,826	$	154,951

The Company’s long-lived assets by geographic region are summarized as follows (in thousands):

	As of
	October 1, 2016		December 26, 2015
United States	$	9,868	$	9,148
Other	1,513		268
Total	$	11,381	$	9,416

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Subsequent Event

9 Months Ended

Oct. 01, 2016

Subsequent Events [Abstract]

Subsequent Event

Subsequent Events

On October 27, 2016, Michael J. Burns, resigned as the chief financial officer of the Company, effective immediately. Following his resignation from the position of chief financial officer, Mr. Burns will remain with the Company through February 28, 2017 to assist in the Company’s transition to the new chief financial officer.

On October 27, 2016, the Company announced the appointment of Rex S. Jackson as chief financial officer of the Company. Mr. Jackson will also serve as the Company’s principal financial officer and principal accounting officer.

On October 25, 2016, Gigamon retired 8,109,848 shares of treasury stock. The retired stock had a carrying value of approximately $12.5 million. The Company’s accounting policy upon the formal retirement of treasury stock is as a deduction to Additional Paid-in Capital.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Oct. 01, 2016

Accounting Policies [Abstract]

Basis of Presentation and Consolidation

Basis of Presentation and Consolidation

The Company prepared its condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2015.

There have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K that have had a material impact on the Company’s condensed consolidated financial statements and related notes.

Certain prior periods’ amounts were reclassified to conform to the current year’s presentation. None of these reclassifications had an impact on the reported net (loss) income for any of the periods presented.

Fiscal Period Policy

The Company has a 52 or 53-week fiscal year that ends on the last Saturday in December. Fiscal 2015 was a 52-week fiscal year ending on December 26, 2015 and each quarter therein was 13-week quarter. Fiscal 2016 is a 53-week fiscal year ending on December 31, 2016, with the first quarter being a 14-week quarter which ended on April 2, 2016 and each subsequent quarter being a 13-week quarter. Fiscal 2017 will be a 52-week fiscal year ending on December 30, 2017, with each quarter therein being a 13-week quarter.

Unaudited Interim Financial Statements

Unaudited Interim Financial Statements

The accompanying unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary to fairly state the Company’s financial position as of October 1, 2016, its results of operations and comprehensive income for the three and nine months ended October 1, 2016 and September 26, 2015, respectively, and cash flows for the nine months ended October 1, 2016 and September 26, 2015. The financial data and the other financial information disclosed in the accompanying notes to the condensed consolidated financial statements related to these three and nine month periods are also unaudited. The fiscal year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The statements of income in the three and nine months ended October 1, 2016 are not necessarily indicative of the results to be expected for the full fiscal year or any other future periods.

Principles of Consolidation

Principles of Consolidation

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

Use of Estimates

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. On an ongoing basis, the Company evaluates its estimates, including but not limited to those related to revenue recognition, allowance for doubtful accounts, warranty reserve, excess and obsolete inventory write-downs, stock-based compensation expense, depreciable useful lives and income taxes. The Company bases its estimates on historical experience, projections for future performance and other assumptions that it believes to be reasonable under the circumstances. Actual results could differ materially from those estimates.

Cash Equivalents and Marketable Securities

Cash Equivalents and Marketable Securities

All highly liquid marketable securities with original maturities of less than three months at the date of purchase are considered to be cash equivalents. Marketable securities are generally classified as available-for-sale for use in current operations, if required, and are reported at fair value, with unrealized gains and losses, net of tax, presented as a separate component of stockholders’ equity within accumulated other comprehensive income (loss). All realized gains and losses and unrealized losses resulting from declines in fair value that are other-than-temporary are recorded in other expense) net, in the period of occurrence. The Company uses the specific identification method to determine the realized gains and losses on investments. For all investments in marketable securities, the Company assesses whether an impairment is other-than-temporary. If the fair value of a security is less than its amortized cost basis, an impairment is considered other-than-temporary if (i) the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its entire amortized cost basis, or (ii) the Company does not expect to recover the entire amortized cost of the security. If an impairment is considered other-than-temporary based on condition (i), the entire difference between the amortized cost and the fair value of the security is recognized in earnings. If an impairment is considered other-than-temporary based on condition (ii), the amount representing credit losses, defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the security, will be recognized in earnings, and the amount relating to all other factors will be recognized in accumulated other comprehensive income (loss). The Company evaluates both qualitative and quantitative factors such as duration and severity of the unrealized losses, credit ratings, default and loss rates of the underlying collateral, structure and credit enhancements to determine if a credit loss may exist.

Concentrations

Concentrations

The Company operates in highly competitive and rapidly changing markets that could negatively impact the Company’s operating results. A number of components that meet the Company’s manufacturing requirements are available only from single source suppliers. In addition, the Company relies on one contract manufacturer to manufacture a substantial majority of its products. The inability of its single source suppliers and contract manufacturer to provide the Company with adequate supplies of high-quality components and products could cause a delay in order fulfillment, which could adversely affect the Company’s revenue, cost of revenue and operating results.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable. The Company currently invests the majority of its cash in high-grade government and corporate debt and maintains these investments with a limited number of major financial institutions in the United States that management believes are creditworthy. Such deposits may exceed the insured limits provided on them. The Company mitigates credit risk associated with its accounts receivable by performing ongoing credit evaluations of its customers and determines if it needs to establish an allowance for doubtful accounts for estimated losses based on management’s assessment of the collectability of customer accounts.

Inventories

Inventories

Inventory is valued at the lower of cost computed on a first-in, first-out basis, or market value. The Company writes down inventory in excess of forecasted demand over a certain period, as a component of cost of revenue. In these cases, inventory is reduced to estimated realizable value based on historical usage and expected demand. At the point of inventory write-down, a new lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. Inherent in the Company’s estimates of market value in determining inventory valuation are estimates related to economic trends, future demand for the Company’s products, and technical obsolescence of products. The Company uses a contract manufacturer to provide the majority of its manufacturing services for its products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, the Company enters into agreements with the contract manufacturer that either allow it to procure inventory based upon criteria as defined by the Company, or establish the parameters defining the Company’s requirements. A portion of the Company’s reported purchase commitments arising from these agreements consists of non-cancelable commitments. The Company records a liability for firm, non-cancelable and unconditional purchase commitments for quantities in excess of its future demand forecasts consistent with the valuation of the Company’s excess and obsolete inventory.

Revenue Recognition

Revenue Recognition

The Company generates product revenue from sales of traffic visibility solutions to customers as well as service revenue from sales of maintenance and support contracts and other billable services. The Company typically sells products and services in a single transaction. The Company’s typical arrangement consists of the sale of products together with maintenance and support or a renewal of maintenance and support contracts. Billable services are billed in advance or when service is provided and performed as requested by customers. Under maintenance and support contracts, services are provided as needed by customers over the fixed arrangement term. The Company does not grant its customers a general right of return or any refund terms. Revenue from distributors is reported net of rebates, discounts and any other sales incentives.

The Company recognizes revenue when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the sales price is fixed or determinable and (4) collectability is reasonably assured.

When sales arrangements contain multiple elements and software and non-software components that function together to deliver the products’ essential functionality, the Company allocates revenue to each element based on a selling price hierarchy: vendor-specific objective evidence ("VSOE"), if available, third party evidence ("TPE"), of the selling price if VSOE is not available, or best estimated selling prices ("BESP") if neither VSOE nor TPE is available.

When the Company enters into arrangements to provide more than one product or service, or what the Company refers to as multiple deliverables, these arrangements are evaluated to determine if the multiple elements consist of more than one unit of accounting and can be separated accordingly. Based on separation criteria under the guidance, deliverables in multiple element arrangements can be segregated into separate units of accounting if they have value to the customer on a standalone basis. If deliverables can be separated into individual units of accounting, then the arrangement consideration is allocated among deliverables based on their relative selling price. Revenue from each deliverable is recognized when all requirements are met for that specific deliverable. If deliverables cannot be separated into separate units of accounting, then the arrangement will be accounted for as a single unit of accounting and revenue will be recognized when all requirements are met for all deliverables within the arrangement. The Company has established VSOE for maintenance and support contracts since the majority of selling prices fall within a narrow range when sold separately. TPE is not used since this information is not widely available in the market and the Company does not consider its products to be similar to or interchangeable with its competitors’ products in standalone sales to similarly situated customers. For deliverables with no established VSOE, such as standard product offerings, the Company determines the standalone selling price for such deliverables by establishing BESP, which incorporates historical selling prices, the effect of market conditions, gross margin objectives and pricing practices, as well as entity specific factors. The Company monitors and evaluates BESP on a regular basis to ensure that changes in circumstances are accounted for in a timely manner.

Service revenue is recognized ratably over the contractual support period, which is typically one year but can be up to 10 years.

In accordance with contractual provisions, the Company may offer cooperative marketing funds based on a fixed dollar percentage of product sales to certain of its channel partners or to fund specific marketing activities for these partners. The Company records such amounts as a reduction to revenue or, if the Company has evidence of fair value of the separable and identifiable benefit received, as a marketing expense.

Revenue is recorded net of sales taxes.

Costs of products not yet recognized as revenue are deferred and included as a component of prepaid expenses and other current assets on the condensed consolidated balance sheets.

Shipping and Handling Charges

Shipping and Handling Charges

Shipping and handling costs are recorded in cost of revenue in the period products are shipped to customers.

Warranty

Warranty

The Company provides five-year warranties against defects in manufacturing on its hardware products. The Company accrues for potential liability claims as a component of cost of product revenue based on historical trends of product failure rates and the expected material and labor costs to provide warranty services. The accrued warranty balance is reviewed periodically for adequacy and is included in accrued liabilities and in other non-current liabilities on the condensed consolidated balance sheets.

Stock-Based Compensation

Stock-Based Compensation

Stock-based compensation expense related to stock-based transactions, including employee and director awards, as well as employee stock purchase plan purchase rights (“ESPP purchase rights”), is measured and recognized in the consolidated financial statements based on the fair value of the award on the grant date. Stock-based compensation expense related to equity awards that can be settled in cash is measured based on the fair value on each balance sheet date until the settlement dates. The fair value of option awards and ESPP purchase rights is estimated using the Black-Scholes option-pricing model. This model requires assumptions including the market value of the Company’s common stock, expected volatility, expected term of the award, expected dividend yield and risk-free interest rate. Expected term for stock option awards is determined based on the mid-point of the vest period and the contractual period of each option award due to the Company’s limited historical stock option exercise data. Expected volatility is established based on the historical volatility of the common stock of the Company, combined with the historical volatility of a peer group of publicly traded companies. Stock-based compensation expense, net of estimated forfeitures, is recognized on a graded-vesting basis over the requisite service periods of the awards, unless a performance-based condition exists. Expenses for performance-based awards are recognized when the issuance of the underlying awards are probable, which is re-measured at each reporting period and the expense is trued up accordingly. Expenses for consultant awards are measured based on the fair value on the vest date. Expenses related to the option grants to consultants that have not been vested as of the reporting date are marked to market until the earlier of the commitment or the completion of the underlying performance. The Company estimates a forfeiture rate to calculate the stock-based compensation for its awards based on an analysis of its historical experience, analysis of employee turnover and other related factors. The Company currently utilizes two separate forfeiture rates, based on the classification of the employees.

Advertising Costs

Advertising Costs

Expenses related to advertising of products are charged to sales and marketing expense as incurred. For all periods presented, advertising expenses were not material.

Income Taxes

Income Taxes

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized on a more likely than not basis.

Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considers all available evidence, including past operating results, estimates of future taxable income and the feasibility of any viable tax planning strategies. In the event that the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to the income tax provision in the period in which such determination is made.

Comprehensive Income (Loss)

Comprehensive Income, net

Comprehensive income is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources. Comprehensive income is comprised of all components of net income and the changes in the components of accumulated other comprehensive income within stockholders’ equity. The Company’s accumulated other comprehensive income includes unrealized gains and losses from its available-for-sale securities that are not considered other-than-temporarily impaired, net of taxes.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the "FASB") issued an accounting standards update related to revenue from contracts with customers, which supersedes the revenue recognition requirements in the current Accounting Standards Codification. This standard is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015 the FASB voted to defer the effective date of this standard by one year. Additionally, in March 2016 the FASB issued additional information that clarifies the implementation guidance on principal versus agent considerations. The effective date of this standard will be the first quarter of fiscal 2018 using one of two retrospective application methods. The Company is currently evaluating the potential impact of this guidance on its condensed consolidated financial statements and has not selected the transition method.

In July 2015, the FASB issued an accounting standard update related to disclosure of inventory, to provide guidance on management’s responsibility to measure inventory at the lower of cost and net realizable value. The effective date of this standard will be for annual periods ending after December 15, 2016 with early adoption permitted. The Company is currently evaluating the impact of this guidance on the Company’s condensed consolidated financial statements.

In February 2016, the FASB issued an accounting standard update which amends the existing accounting standards for leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification. Under the new guidance, a lessee will be required to recognize assets and liabilities for all leases with lease terms of more than 12 months. The effective date of this update will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 using a modified retrospective transition method with early adoption permitted. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

In March 2016, the FASB issued an accounting standard related to Improvements to Employee Share-Based Payment Accounting, which amends Compensation – Stock Compensation. This standard includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The effective date of this standard will be for annual periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company is evaluating the impact of this guidance on its condensed consolidated financial statements.

In June 2016, the FASB issued new guidance that changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. The effective date of this standard will be for annual periods ending after December 15, 2019, and interim periods within that reporting period. Early adoption is permitted starting in annual periods ending after December 15, 2018. The Company is evaluating the impact of this guidance on its condensed consolidated financial statements.

In August 2016, the FASB issued new guidance related to Classification of Certain Cash Receipts and Cash Payments. This standard provides guidance for eight cash flow classification issues to reduce diversity in practice. The clarification includes guidance on items such as debt prepayment or debt extinguishment cost, contingent consideration payment made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies and distributions received from equity method investees. The effective date of this standard is for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. The Company is evaluating the impact of this guidance on its condensed consolidated financial statements.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Oct. 01, 2016

Accounting Policies [Abstract]

Customers Representing Major Revenue and Accounts Receivable

The following customers represented more than 10% or more of total revenue or accounts receivable:

	Three Months Ended				Nine Months Ended
	October 1, 2016		September 26, 2015		October 1, 2016		September 26, 2015
Percent of Revenue:
Customer A (distributor)	38	%	38	%	35	%	41	%
Customer B (distributor)	24	%	18	%	25	%	19	%
Customer C (end-user)	*		16	%	12	%	*

* Represented less than 10% of total revenues

	As of
	October 1, 2016		December 26, 2015
Percent of Accounts Receivable:
Customer A (distributor)	38	%	19	%
Customer B (distributor)	26	%	30	%
Customer C (end-user)	14	%	11	%

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Fair Value Measurements (Tables)

9 Months Ended

Oct. 01, 2016

Fair Value Disclosures [Abstract]

Components of Cash and Cash Equivalents

The Company measures its financial instruments at fair value on a recurring basis. The components of the Company's cash, cash equivalents and short-term investments are as follows (in thousands):

			Fair Value Measured Using
	October 1, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents:
Money market funds	$	119,315	$	119,315	$	—	$	—
Commercial paper	2,499		—		2,499		—
Total cash equivalents	$	121,814	$	119,315	$	2,499	$	—
Cash	33,739
Total cash and cash equivalents	$	155,553
Short-term investments:
Corporate debt securities	$	6,506	$	—	$	6,506	$	—
Commercial paper	14,943		—		14,943		—
U.S. agency debt securities	25,714		—		25,714		—
U.S. government securities	42,020		—		42,020		—
Total short-term investments	$	89,183	$	—	$	89,183	$	—

			Fair Value Measured Using
	December 26, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents:
Money market funds	$	83,852	$	83,852	$	—	$	—
Commercial paper	4,497		—		4,497		—
Total cash equivalents	$	88,349	$	83,852	$	4,497	$	—
Cash	31,863
Total cash and cash equivalents	$	120,212
Short-term investments:
Corporate debt securities	$	14,560	$	—	$	14,560	$	—
Commercial paper	8,986		—		8,986		—
U.S. agency debt securities	29,008		—		29,008		—
U.S. government securities	37,447		—		37,447		—
Total short-term investments	$	90,001	$	—	$	90,001	$	—

Schedule of Amortized Cost, Gross Unrealized Gains and Losses and Fair Value of Investments

Financial assets measured at amortized cost, gross unrealized gains, gross unrealized losses and fair value by significant investment categories are summarized as follows (in thousands):

	As of October 1, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and cash equivalents:
Money market funds	$	119,315	$	—	$	—		$	119,315
Commercial paper	2,499		—		—			2,499
Cash	33,739		—		—			33,739
Total cash and cash equivalents	$	155,553	$	—	$	—		$	155,553
Short-term investments:
Corporate debt securities	$	6,507	$	1	$	(2	)	$	6,506
Commercial paper	14,943		—		—			14,943
U.S. agency debt securities	25,701		13		—			25,714
U.S. government securities	41,996		25		(1		)	42,020
Total short-term investments	$	89,147	$	39	$	(3	)	$	89,183

	As of December 26, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and cash equivalents:
Money market funds	$	83,852	$	—	$	—		$	83,852
Commercial paper	4,497		—		—			4,497
Cash	31,863		—		—			31,863
Total cash and cash equivalents	$	120,212	$	—	$	—		$	120,212
Short-term investments:
Corporate debt securities	$	14,570	$	—	$	(10	)	$	14,560
Commercial paper	8,986		—		—			8,986
U.S. agency debt securities	29,031		—		(23		)	29,008
U.S. government securities	37,461		3		(17		)	37,447
Total short-term investments	$	90,048	$	3	$	(50	)	$	90,001

Schedule of Contractual Maturity Date of Marketable Securities

The following table summarizes the estimated fair value of the Company’s debt investments, designated as available-for-sale classified by the contractual maturity date of the security (in thousands):

	As of
	October 1, 2016		December 26, 2015
Due within one year	$	210,997	$	177,852
Due between one and five years	—		498
Total cash equivalents and short-term investments	$	210,997	$	178,350

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Balance Sheet Components (Tables)

9 Months Ended

Oct. 01, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Inventories

Inventories are comprised of the following (in thousands):

	As of
	October 1, 2016		December 26, 2015
Raw materials	$	127	$	76
Finished goods	6,826		3,737
Total inventories	$	6,953	$	3,813

Accrued Liabilities

Accrued liabilities are comprised of the following (in thousands):

	As of
	October 1, 2016		December 26, 2015
Accrued employee related costs	$	21,322	$	25,392
Accrued inventory and other purchases	2,500		2,452
Accrued taxes payable	2,929		1,918
Accrued professional services	748		1,655
Other accruals	6,197		5,917
Total accrued liabilities	$	33,696	$	37,334

Accrued Warranty Liability

Warranty activity and accrued warranty is comprised of the following (in thousands):

	Nine Months Ended
	October 1, 2016			September 26, 2015
Accrued warranty balance at beginning of period	$	807		$	875
Accrual for warranty during the period	1,269			886
Actual costs incurred	(1,116		)	(741		)
Accrued warranty balance at end of period	$	960		$	1,020

	As of
Warranty accrual reported as:	October 1, 2016		December 26, 2015
Current	$	643	$	490
Non-current	317		317
Total accrued warranty	$	960	$	807

Deferred Revenue

Deferred revenue is comprised of the following (in thousands):

	As of
	October 1, 2016		December 26, 2015
Deferred service revenue	$	80,925	$	73,454
Deferred product revenue	2,221		8,677
Total deferred revenue	$	83,146	$	82,131

Accumulated Other Comprehensive Income

The following summarizes the activity within accumulated other comprehensive (loss) income (in thousands):

Accumulated Other Comprehensive (Loss) Income	Net Unrealized (Losses) Gains
Balance as of December 26, 2015	$	(47	)
Available-for-sale securities:
Unrealized gains	83
Total other comprehensive income	83
Balance as of October 1, 2016	$	36

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Commitments and Contingencies (Tables)

9 Months Ended

Oct. 01, 2016

Commitments and Contingencies Disclosure [Abstract]

Future Minimum Lease Payments Under Non-Cancelable Operating Leases

Future minimum lease payments under non-cancelable operating leases as of October 1, 2016 were as follows (in thousands):

Fiscal Year:
2016 (remaining three months)	$	1,109
2017	4,258
2018	1,485
2019	299
2020	191
2021	135
Total	$	7,477

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Preferred Stock and Stockholders' Equity (Tables)

9 Months Ended

Oct. 01, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Stock Options Activity

The following table summarizes the stock option activity under the Company’s Option Plans:

	Number of Stock Options Outstanding		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
	(in thousands)
Balance — December 26, 2015	2,170,720		$	15.73	7.14	$	24,910
Options granted	70,000		$	31.16
Options exercised	(778,675	)	$	12.40
Options canceled	(44,522	)	$	20.27
Balance — October 1, 2016	1,417,523		$	18.18	6.60	$	51,906
Vested and expected to vest — October 1, 2016	1,360,227		$	18.02	6.62	$	50,024
Exercisable — October 1, 2016	836,612		$	16.18	6.68	$	32,313

Schedule of RSU Activity

The following table summarizes the RSU activity under the Company’s Option Plans:

	Number of RSUs Outstanding		Weighted- Average Grant Date Fair Value		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
						(in thousands)
Balance - December 26, 2015	1,779,339		$	22.64	1.53	$	47,722
RSUs granted	1,569,219		$	26.45
RSUs vested	(587,400	)	$	22.88
RSUs canceled	(212,371	)	$	23.92
Balance - October 1, 2016	2,548,787		$	24.82	1.48	$	139,674
Vested and expected to vest — October 1, 2016	2,185,562		$	24.70	1.38	$	119,769

Schedule of Fair Values of the Options Awards and ESPP Purchase Rights Granted

The fair values of the option awards and ESPP purchase rights granted and the assumptions used in the Black-Scholes option pricing model are summarized as follows:

	Three Months Ended		Nine Months Ended
	October 1, 2016	September 26, 2015	October 1, 2016	September 26, 2015
Stock option awards:
Expected term (in years)	0	0	4.6	4.6
Risk-free interest rate	—%	—%	1.4%	1.6%
Expected volatility	—%	—%	76.1%	56.04%
Expected dividend rate	—%	—%	—%	—%
Grant date fair value per award	$—	$—	$18.62	$10.11
ESPP purchase right:
Expected term (in years)	0.50 - 2.0	0.50 - 2.0	0.50 - 2.0	0.50 - 2.0
Risk-free interest rate	0.46% - 0.72%	0.24% - 0.72%	0.42% - 0.74%	0.07% - 0.72%
Expected volatility	43.9% - 54.6%	42.5% - 59.9%	43.9% - 67.2%	37.6% - 59.9%
Expected dividend rate	—%	—%	—%	—%
Grant date fair value per share	$12.84 - $20.77	$7.25 - $12.64	$7.75 - $20.77	$5.48 - $12.64

Summary of Stock-based Compensation Expense

The following table summarizes the stock-based compensation expense recorded in the Company’s condensed consolidated statements of income (in thousands):

	Three Months Ended				Nine Months Ended
	October 1, 2016		September 26, 2015		October 1, 2016		September 26, 2015
Cost of revenue	$	519	$	471	$	1,527	$	1,530
Research and development	3,397		2,451		9,800		7,156
Sales and marketing	3,062		2,498		8,802		7,757
General and administrative	3,126		2,431		8,755		7,337
Total stock-based compensation expense	$	10,104	$	7,851	$	28,884	$	23,780

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Net Income per Share (Tables)

9 Months Ended

Oct. 01, 2016

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

he following table presents the computation of basic and diluted net income per share attributable to common stockholders (in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	October 1, 2016		September 26, 2015		October 1, 2016		September 26, 2015
Numerator:
Net income	$	6,079	$	4,280	$	43,009	$	3,623
Denominator:
Weighted average shares used for basic net income per share computation	35,770		33,830		35,171		33,412
Weighted average effect of dilutive securities:
Stock options	666		664		696		685
RSUs	1,313		1,018		1,169		991
Performance-based Units	175		—		102		—
ESPP purchase rights	189		360		203		409
Weighted average shares used for diluted net income per share computation	38,113		35,872		37,341		35,497
Net income per share attributable to common stockholders:
Basic	$	0.17	$	0.13	$	1.22	$	0.11
Diluted	$	0.16	$	0.12	$	1.15	$	0.10

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

The weighted average number of shares outstanding used in the computation of diluted net income per share does not include the effect of the following shares of potentially outstanding common stock because the effect would have been anti-dilutive for the periods presented (in thousands):

	Three Months Ended		Nine Months Ended
	October 1, 2016	September 26, 2015	October 1, 2016	September 26, 2015
Equity awards to purchase common stock	20	721	74	642

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Segment Information (Tables)

9 Months Ended

Oct. 01, 2016

Segment Reporting [Abstract]

Revenue and Long-Lived Assets by Geographic Region

The following table summarizes the Company’s revenue by geographic region, based on the location to where the product was shipped (in thousands):

	Three Months Ended				Nine Months Ended
	October 1, 2016		September 26, 2015		October 1, 2016		September 26, 2015
United States	$	67,205	$	44,764	$	179,678	$	115,195
Rest of Americas	2,562		2,167		7,385		8,215
Europe, Middle East and Africa	7,370		7,209		21,349		21,471
Asia Pacific	6,375		2,512		17,414		10,070
Total	$	83,512	$	56,652	$	225,826	$	154,951

The Company’s long-lived assets by geographic region are summarized as follows (in thousands):

	As of
	October 1, 2016		December 26, 2015
United States	$	9,868	$	9,148
Other	1,513		268
Total	$	11,381	$	9,416

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Summary of Significant Accounting Policies - Customers Representing Major Revenue and Accounts Receivable (Detail)	3 Months Ended		9 Months Ended		12 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015	Dec. 26, 2015
Total Revenue | Customer A (distributor)
Concentration Risk [Line Items]
Concentration risk	38.00%	38.00%	35.00%	41.00%
Total Revenue | Customer B (distributor)
Concentration Risk [Line Items]
Concentration risk	24.00%	18.00%	25.00%	19.00%
Total Revenue | Customer C (end-user)
Concentration Risk [Line Items]
Concentration risk		16.00%	12.00%
Accounts Receivable | Customer A (distributor)
Concentration Risk [Line Items]
Concentration risk			38.00%		19.00%
Accounts Receivable | Customer B (distributor)
Concentration Risk [Line Items]
Concentration risk			26.00%		30.00%
Accounts Receivable | Customer C (end-user)
Concentration Risk [Line Items]
Concentration risk			14.00%		11.00%

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Summary of Significant Accounting Policies - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015	Dec. 26, 2015
Schedule Of Significant Accounting Policies [Line Items]
Inventory write-down	$ 40	$ 504	$ 312	$ 1,374
Deferred costs	$ 100		$ 100		$ 1,600
Product warranties period (in years)			5 years
Minimum
Schedule Of Significant Accounting Policies [Line Items]
Services revenue, recognition period (in years)			1 year
Maximum
Schedule Of Significant Accounting Policies [Line Items]
Services revenue, recognition period (in years)			10 years

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Fair Value Measurements - Components of Cash and Cash Equivalents (Detail) - USD ($) $ in Thousands	Oct. 01, 2016	Dec. 26, 2015
Cash and cash equivalents:
Cash and cash equivalents	$ 155,553	$ 120,212
Short-term investments:
Short-term investments	89,183	90,001
Money market funds
Cash and cash equivalents:
Cash and cash equivalents	119,315	83,852
Corporate debt securities
Short-term investments:
Short-term investments	6,506	14,560
Commercial paper
Cash and cash equivalents:
Cash and cash equivalents	2,499	4,497
Short-term investments:
Short-term investments	14,943	8,986
Cash Equivalents
Cash and cash equivalents:
Cash and cash equivalents	121,814	88,349
Cash
Cash and cash equivalents:
Cash and cash equivalents	33,739	31,863
U.S. agency debt securities
Short-term investments:
Short-term investments	25,714	29,008
U.S. government securities
Short-term investments:
Short-term investments	42,020	37,447
Quoted Prices in Active Markets for Identical Assets (Level 1) | Money market funds
Cash and cash equivalents:
Cash and cash equivalents	119,315	83,852
Quoted Prices in Active Markets for Identical Assets (Level 1) | Corporate debt securities
Cash and cash equivalents:
Cash and cash equivalents		0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Cash Equivalents
Cash and cash equivalents:
Cash and cash equivalents	119,315	83,852
Significant Other Observable Inputs (Level 2)
Short-term investments:
Short-term investments	89,183	90,001
Significant Other Observable Inputs (Level 2) | Corporate debt securities
Short-term investments:
Short-term investments	6,506	14,560
Significant Other Observable Inputs (Level 2) | Commercial paper
Cash and cash equivalents:
Cash and cash equivalents	2,499	4,497
Short-term investments:
Short-term investments	14,943	8,986
Significant Other Observable Inputs (Level 2) | Cash Equivalents
Cash and cash equivalents:
Cash and cash equivalents	2,499	4,497
Significant Other Observable Inputs (Level 2) | U.S. agency debt securities
Short-term investments:
Short-term investments	25,714	29,008
Significant Other Observable Inputs (Level 2) | U.S. government securities
Short-term investments:
Short-term investments	$ 42,020	$ 37,447

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Fair Value Measurements - Financial Instruments Measured at Amortized Costs, Gross Unrealized Gain, Gross Unrealized Loss and Fair Value by Significant Investment Categories (Detail) - USD ($) $ in Thousands	Oct. 01, 2016	Dec. 26, 2015
Cash and Cash Equivalents
Cash And Cash Equivalents And Short Term Investments [Line Items]
Amortized Cost Basis	$ 155,553	$ 120,212
Fair Value	155,553	120,212
Cash and Cash Equivalents | Money market funds
Cash And Cash Equivalents And Short Term Investments [Line Items]
Amortized Cost Basis	119,315	83,852
Fair Value	119,315	83,852
Cash and Cash Equivalents | Commercial paper
Cash And Cash Equivalents And Short Term Investments [Line Items]
Amortized Cost Basis	2,499	4,497
Fair Value	2,499	4,497
Cash and Cash Equivalents | Cash
Cash And Cash Equivalents And Short Term Investments [Line Items]
Amortized Cost Basis	33,739	31,863
Fair Value	33,739	31,863
Short-term Investments
Cash And Cash Equivalents And Short Term Investments [Line Items]
Amortized Cost Basis	89,147	90,048
Gross Unrealized Gains	39	3
Gross Unrealized Losses	(3)	(50)
Fair Value	89,183	90,001
Short-term Investments | Corporate debt securities
Cash And Cash Equivalents And Short Term Investments [Line Items]
Amortized Cost Basis	6,507	14,570
Gross Unrealized Gains	1	0
Gross Unrealized Losses	(2)	(10)
Fair Value	6,506	14,560
Short-term Investments | Commercial paper
Cash And Cash Equivalents And Short Term Investments [Line Items]
Amortized Cost Basis	14,943	8,986
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	14,943	8,986
Short-term Investments | U.S. agency debt securities
Cash And Cash Equivalents And Short Term Investments [Line Items]
Amortized Cost Basis	25,701	29,031
Gross Unrealized Gains	13	0
Gross Unrealized Losses	0	(23)
Fair Value	25,714	29,008
Short-term Investments | U.S. government securities
Cash And Cash Equivalents And Short Term Investments [Line Items]
Amortized Cost Basis	41,996	37,461
Gross Unrealized Gains	25	3
Gross Unrealized Losses	(1)	(17)
Fair Value	$ 42,020	$ 37,447

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Fair Value Measurements - Contractual Maturity Date of Short-Term Investments (Detail) - USD ($) $ in Thousands	Oct. 01, 2016	Dec. 26, 2015
Contractual Maturity Date of Short-Term Investments [Abstract]
Due within one year	$ 210,997	$ 177,852
Due between one and five years	0	498
Total	$ 210,997	$ 178,350

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Balance Sheet Components - Inventories (Detail) - USD ($) $ in Thousands	Oct. 01, 2016	Dec. 26, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Raw materials	$ 127	$ 76
Finished goods	6,826	3,737
Total inventories	$ 6,953	$ 3,813

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Balance Sheet Components - Accrued Liabilities (Detail) - USD ($) $ in Thousands	Oct. 01, 2016	Dec. 26, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Accrued employee related costs	$ 21,322	$ 25,392
Accrued inventory and other purchases	2,500	2,452
Accrued taxes payable	2,929	1,918
Accrued professional services	748	1,655
Other accruals	6,197	5,917
Total accrued liabilities	$ 33,696	$ 37,334

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Balance Sheet Components - Accrued Warranty (Detail) - USD ($) $ in Thousands	9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Dec. 26, 2015
Movement in Standard Product Warranty Accrual [Roll Forward]
Beginning balance	$ 807	$ 875
Accrual for warranty during the period	1,269	886
Actual costs incurred	(1,116)	(741)
Ending balance	960	1,020
Product Warranty Accrual, Balance Sheet Classification [Abstract]
Current			$ 643	$ 490
Non-current			317	317
Total accrued warranty	$ 807	$ 875	$ 960	$ 807

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Balance Sheet Components - Accumulated Other Comprehensive Income (Loss) (Detail) - USD ($)	9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015
Net Unrealized (Losses) Gains
Beginning balance	$ (47,000)
Ending balance	36,000
Income Tax Provision
Tax impact on total other comprehensive income	0
Tax impact on unrealized gains or losses		$ 0
Reclassifications out of accumulated other comprehensive income	0	$ 0
Accumulated Net Unrealized Investment Gain (Loss)
Net Unrealized (Losses) Gains
Other comprehensive income (loss), before tax	$ 83,000

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Balance Sheet Components -Deferred Revenues (Details) - USD ($) $ in Thousands	Oct. 01, 2016	Dec. 26, 2015
Deferred Revenue Arrangement [Line Items]
Deferred Revenue	$ 83,146	$ 82,131
Sales Revenue, Services, Net [Member]
Deferred Revenue Arrangement [Line Items]
Deferred Revenue	80,925	73,454
Product [Member]
Deferred Revenue Arrangement [Line Items]
Deferred Revenue	$ 2,221	$ 8,677

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Commitments and Contingencies - Future Minimum Lease Payments Under Non-Cancelable Operating Leases (Detail) $ in Thousands	Oct. 01, 2016 USD ($)
Commitments and Contingencies Disclosure [Abstract]
2016 (remaining three months)	$ 1,109
2017	4,258
2018	1,485
2019	299
2020	191
2021	135
Total	$ 7,477

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Commitments and Contingencies - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015	Dec. 26, 2015
Commitments and Contingencies Disclosure [Abstract]
Rent expense	$ 1.0	$ 0.8	$ 2.9	$ 2.4
Purchase commitments with vendors	$ 12.2		$ 12.2		$ 12.0

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Preferred Stock and Stockholders' Equity - Preferred, Common and Treasury Stock (Details) - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended	12 Months Ended
	Oct. 01, 2016	Dec. 26, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Preferred stock, shares authorized	20,000,000	20,000,000
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares issued	0	0
Common stock, shares authorized	1,000,000,000	1,000,000,000
Common stock, par value	$ 0.0001	$ 0.0001
Common Stock, votes per share	$ 1
Common stock, shares issued	36,058,037	34,323,457
Treasury stock, shares	8,109,848	8,109,848
Treasury stock, value	$ 12,469	$ 12,469
Treasury stock acquired, average cost per share	$ 1.53	$ 1.53
Preferred stock, shares outstanding	0	0
Common stock, shares outstanding	36,058,037	34,323,457

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Preferred Stock and Stockholders' Equity - Equity Award Plans Narrative (Details) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Oct. 01, 2016 USD ($) $ / shares shares	Sep. 26, 2015 USD ($)	Oct. 01, 2016 USD ($) Period $ / shares shares	Sep. 26, 2015 USD ($)	Dec. 27, 2014 shares	Dec. 26, 2015 $ / shares shares	May 31, 2013 shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense | $	$ 10,104	$ 7,851	$ 28,884	$ 23,780
ESPP Purchase Right
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Employee stock ownership plan (ESOP), plan description			The ESPP provides for a 24-month offering period comprised of four purchase periods of approximately six months. Employees are able to purchase shares at 85% of the lower of the market value of the Company's common stock (i) at the date of commencement of the offering period or (ii) at the last day of the purchase period.
Number of shares authorized	439,422		439,422				439,422
Percentage of outstanding stock, maximum			1.50%
Number of additional shares authorized					439,422
Employee stock purchase plan, maximum percentage of compensation to purchase shares by eligible participants			15.00%
Employee stock purchase plan, percentage of purchase price from market value			85.00%
Employee stock purchase plan, offered period (in months)			24 months
Number of purchase periods in subscription | Period			4
Term of purchase period (in months)			6 months
Stock-based compensation expense | $	$ 1,400	$ 700	$ 2,700	$ 2,100
Number of purchase periods | Period			2
Shares issued in period			586,132
Per share weighted average price of shares purchased | $ / shares	$ 11.75		$ 11.75
Compensation cost not yet recognized | $	$ 5,300		$ 5,300
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options outstanding	1,417,523		1,417,523			2,170,720
Description			Vested options may be exercised up to ten years from the vesting commencement date.
Compensation cost not yet recognized | $	$ 2,100		$ 2,100
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense | $	$ 1,300		$ 2,900
Share price | $ / shares	$ 54.80		$ 54.80			$ 26.82
RSUs granted			1,569,219
Compensation cost not yet recognized | $	$ 26,700		$ 26,700
Restricted Stock Units (RSUs) | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period (in years)			1 year
Restricted Stock Units (RSUs) | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period (in years)			4 years
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options outstanding	0		0			2,611
Unvested performance shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options outstanding	0		0			1,488
Performance Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
RSUs granted			193,000
Compensation cost not yet recognized | $	$ 4,800		$ 4,800
Performance Units | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting rights (as a percent)			0.00%
Performance Units | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting rights (as a percent)			200.00%
Equity Incentive Plan Twenty Thirteen
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized	1,464,740		1,464,740			1,464,740	2,929,481
Other share increase (decrease) (in shares)			4,967,172
Number of additional shares allowable for future authorization each year			1,464,740
Percentage of outstanding stock, maximum			5.00%
Options, maximum exercisable term for general termination (in months)			3 months
Description			(i) 1,464,740 shares, (ii) 5% of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year, or (iii) such other amount as determined by the Board. Vested but unexercised options, under the 2013 Equity Plan, expire three months after termination of service with the Company.
Equity Incentive Plan Twenty Thirteen | Common Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock, capital shares reserved for future issuance	3,480,841		3,480,841
Equity Incentive Plan Twenty Thirteen | Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period (in years)			4 years
Award vesting rights (as a percent)			25.00%
Expiration period (in years)			10 years
Expiration period after termination of employment (in days, months)			3 months
Equity Incentive Plan Twenty Fifteen | Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expiration period (in years)			7 years
Equity Incentive Plan Twenty Twelve | Common Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock, capital shares reserved for future issuance	485,469		485,469
Equity Incentive Plan Twenty Twelve | Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expiration period after termination of employment (in days, months)			30 days
Unit Option Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Description			Vested options may be exercised up to ten years from the vesting commencement date, as defined in the Option Plan. Vested but unexercised options, under the Option Plan, expire 30 days after termination of employment with the Company.

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Preferred Stock and Stockholders' Equity - Stock Option Activity Table (Details) - Stock Options - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended	12 Months Ended
	Oct. 01, 2016	Dec. 26, 2015
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Beginning Balance	2,170,720
Options granted	70,000
Options exercised	(778,675)
Options canceled	(44,522)
Ending Balance	1,417,523	2,170,720
Options vested and expected to vest	1,360,227
Options exercisable	836,612
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]
Weighted average exercise price, outstanding, beginning balance	$ 15.73
Weighted average exercise price, options granted	31.16
Weighted average exercise price, options exercised	12.40
Weighted average exercise price, options canceled	20.27
Weighted average exercise price, outstanding, ending balance	18.18	$ 15.73
Weighted average exercise price, options vested and expected to vest	18.02
Weighted average exercise price, options exercisable	$ 16.18
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Weighted average remaining contractual term	6 years 7 months 6 days	7 years 1 month 20 days
Weighted average remaining contractual term, options vested and expected to vest	6 years 7 months 13 days
Weighted average remaining contractual term, options exercisable	6 years 8 months 4 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Intrinsic Value [Abstract] [Roll Forward]
Intrinsic value, beginning balance	$ 24,910
Intrinsic value, ending balance	51,906	$ 24,910
Intrinsic value, options vested and expected to vest	50,024
Intrinsic value, options exercisable	$ 32,313

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Preferred Stock and Stockholders' Equity - RSU Activity Table (Details) - Restricted Stock Units (RSUs) - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended	12 Months Ended
	Oct. 01, 2016	Dec. 26, 2015
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Balance - December 26, 2015	1,779,339
RSUs granted	1,569,219
RSUs vested	(587,400)
RSUs canceled	(212,371)
Balance - October 1, 2016	2,548,787	1,779,339
Vested and expected to vest — October 1, 2016	2,185,562
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Balance - December 26, 2015	$ 22.64
RSUs granted	26.45
RSUs vested	22.88
RSUs canceled	23.92
Balance - October 1, 2016	24.82	$ 22.64
Vested and expected to vest — October 1, 2016	$ 24.70
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Weighted average remaining contractual life (years)	1 year 5 months 23 days	1 year 6 months 10 days
Vested and expected to vest — October 1, 2016	1 year 4 months 17 days
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Intrinsic Value [Abstract] [Roll Forward]
Balance - December 26, 2015	$ 47,722
Balance - October 1, 2016	139,674	$ 47,722
Vested and expected to vest — October 1, 2016	$ 119,769

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Preferred Stock and Stockholders' Equity - Fair Value of Option Awards amd ESPP Purchase Rights Granted (Details) - $ / shares	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term (in years)	0 years	0 days	4 years 7 months 6 days	4 years 7 months 6 days
Risk-free interest rate	0.00%	0.00%	1.40%	1.60%
Expected volatility (percent)	0.00%	0.00%	76.10%	56.04%
Expected dividend rate (percent)	0.00%	0.00%	0.00%	0.00%
Grant date fair value per award	$ 0.00	$ 0.00	$ 18.62	$ 10.11
Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected dividend rate (percent)	0.00%	0.00%	0.00%	0.00%
Minimum | ESPP Purchase Right
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term (in years)	6 months	6 months	6 months	6 months
Risk-free interest rate	0.46%	0.24%	0.42%	0.07%
Expected volatility (percent)	43.90%	42.50%	43.90%	37.60%
Grant date fair value per share	$ 12.84	$ 7.25	$ 7.75	$ 5.48
Maximum | ESPP Purchase Right
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term (in years)	2 years	2 years	2 years	2 years
Risk-free interest rate	0.72%	0.72%	0.74%	0.72%
Expected volatility (percent)	54.60%	59.90%	67.20%	59.90%
Grant date fair value per share	$ 20.77	$ 12.64	$ 20.77	$ 12.64

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Preferred Stock and Stockholders' Equity - Summary of Stock-based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	$ 10,104	$ 7,851	$ 28,884	$ 23,780
Cost of revenue
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	519	471	1,527	1,530
Research and development
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	3,397	2,451	9,800	7,156
Sales and marketing
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	3,062	2,498	8,802	7,757
General and administrative
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	$ 3,126	$ 2,431	$ 8,755	$ 7,337

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Defined Contribution Plans - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015
Postemployment Benefits [Abstract]
Defined benefit plan, contributions by employer	$ 0.6	$ 0.3	$ 1.7	$ 1.0

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Income Tax - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015	Dec. 26, 2015
Income Tax Disclosure [Abstract]
Income tax (provision) benefit	$ (3,999)	$ (73)	$ 23,321	$ (260)
Release valuation allowance			30,500
Deferred taxes, business combination, valuation allowance, available to reduce goodwill and intangible assets	3,700		3,700
Deferred tax assets, net of valuation allowance, noncurrent	$ 31,608		$ 31,608		$ 135

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Net Income per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Net income available to common stockholders, basic	$ 6,079	$ 4,280	$ 43,009	$ 3,623
Weighted average number of shares outstanding, basic	35,770	33,830	35,171	33,412
Diluted (in shares)	38,113	35,872	37,341	35,497
Basic (in dollars per share)	$ 0.17	$ 0.13	$ 1.22	$ 0.11
Diluted (in dollars per share)	$ 0.16	$ 0.12	$ 1.15	$ 0.10
Stock Options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Incremental common shares attributable to dilutive effect of share-based payment arrangements	666	664	696	685
Restricted Stock Units (RSUs)
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Incremental common shares attributable to dilutive effect of share-based payment arrangements	1,313	1,018	1,169	991
Performance Units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Incremental common shares attributable to dilutive effect of share-based payment arrangements	175	0	102	0
ESPP Purchase Right
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Incremental common shares attributable to dilutive effect of share-based payment arrangements	189	360	203	409
Option Plans Awards To Purchase Common Stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, amount	20	721	74	642

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Segment Information - Additional Information (Detail)	9 Months Ended
	Oct. 01, 2016 Segment
Segment Reporting [Abstract]
Number of segments	1

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Segment Information - Revenue and Long-Lived Assets by Geographic Region (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 01, 2016	Sep. 26, 2015	Oct. 01, 2016	Sep. 26, 2015	Dec. 26, 2015
Segment Reporting Revenue Reconciling Item [Line Items]
Total revenue	$ 83,512	$ 56,652	$ 225,826	$ 154,951
Long-lived assets	11,381		11,381		$ 9,416
United States
Segment Reporting Revenue Reconciling Item [Line Items]
Total revenue	67,205	44,764	179,678	115,195
Long-lived assets	9,868		9,868		9,148
Rest of Americas
Segment Reporting Revenue Reconciling Item [Line Items]
Total revenue	2,562	2,167	7,385	8,215
Europe, Middle East and Africa
Segment Reporting Revenue Reconciling Item [Line Items]
Total revenue	7,370	7,209	21,349	21,471
Asia Pacific
Segment Reporting Revenue Reconciling Item [Line Items]
Total revenue	6,375	$ 2,512	17,414	$ 10,070
Other
Segment Reporting Revenue Reconciling Item [Line Items]
Long-lived assets	$ 1,513		$ 1,513		$ 268

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Subsequent Event (Details) - USD ($) $ in Thousands	Oct. 25, 2016	Oct. 01, 2016	Dec. 26, 2015
Subsequent Event [Line Items]
Treasury stock, shares		8,109,848	8,109,848
Treasury stock, value		$ 12,469	$ 12,469
Subsequent Event
Subsequent Event [Line Items]
Treasury stock, shares	8,109,848
Treasury stock, value	$ 12,469