10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2012

or

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

For the transition period from                      to                     

Commission File Number: 001-35188

FUSION-IO, INC.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

The number of shares of the registrant’s common stock, $0.0002 par value per share, outstanding as of February 1, 2013 was 96,592,568.

FUSION-IO, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION			1
Item 1.	Condensed Consolidated Financial Statements		1
	Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2012 and December 31, 2012		1
	Condensed Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended December 31, 2011 and 2012		2
	Condensed Consolidated Statements of Comprehensive (Loss) Income (unaudited) for the Three and Six Months Ended December 31, 2011 and 2012		3
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended December 31, 2011 and 2012		4
	Notes to Condensed Consolidated Financial Statements (unaudited)		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26
Item 4.	Controls and Procedures		26
PART II. OTHER INFORMATION			27
Item 1.	Legal Proceedings		27
Item 1A.	Risk Factors		27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		42
Item 3.	Defaults Upon Senior Securities		43
Item 4.	Mine Safety Disclosures		43
Item 5.	Other Information		43
Item 6.	Exhibits		43
SIGNATURES			45

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Part I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

FUSION-IO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(unaudited)

	June 30, 2012			December 31, 2012
Assets
Current assets:
Cash and cash equivalents	$	321,239		$	368,525
Accounts receivable, net of allowances of $953 and $1,780 as of June 30, 2012 and December 31, 2012, respectively		56,720			55,968
Inventories		59,457			74,185
Prepaid expenses and other current assets		9,224			9,614
Total current assets		446,640			508,292
Property and equipment, net		31,245			34,509
Intangible assets, net		8,164			6,852
Goodwill		54,777			54,777
Other assets		194			635
Total assets	$	541,020		$	605,065
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	9,765		$	9,109
Accrued and other current liabilities		29,187			33,850
Deferred revenue		20,715			27,203
Total current liabilities		59,667			70,162
Deferred revenue, less current portion		8,154			10,927
Other liabilities		12,276			13,591
Commitments and contingencies
Stockholders’ equity:
Preferred stock		—			—
Common stock		19			19
Additional paid-in capital		531,478			575,272
Accumulated other comprehensive loss		(15	)		(12	)
Accumulated deficit		(70,559	)		(64,894	)
Total stockholders’ equity		460,923			510,385
Total liabilities and stockholders’ equity	$	541,020		$	605,065

See accompanying notes.

-1-

FUSION-IO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(unaudited)

	Three Months Ended December 31,						Six Months Ended December 31,
	2011			2012			2011			2012
Revenue	$	84,131		$	120,569		$	158,516		$	238,684
Cost of revenue		41,206			46,010			68,560			94,004
Gross profit		42,925			74,559			89,956			144,680
Operating expenses:
Sales and marketing		20,265			28,676			37,742			53,696
Research and development		13,479			22,427			24,631			43,995
General and administrative		13,228			16,562			26,965			31,646
Total operating expenses		46,972			67,665			89,338			129,337
(Loss) income from operations		(4,047	)		6,894			618			15,343
Other income (expense):
Interest income		66			99			115			213
Interest expense		(44	)		(18	)		(90	)		(48	)
Other (expense) income, net		(663	)		15			132			(14	)
(Loss) income before income taxes		(4,688	)		6,990			775			15,494
Income tax (expense) benefit		(1,021	)		(5,258	)		705			(9,829	)
Net (loss) income	$	(5,709	)	$	1,732		$	1,480		$	5,665
Net (loss) income per common share:
Basic	$	(0.07	)	$	0.02		$	0.02		$	0.06
Diluted	$	(0.07	)	$	0.02		$	0.01		$	0.05
Weighted-average number of shares:
Basic		84,961			95,838			83,485			95,030
Diluted		84,961			109,048			104,599			108,737

See accompanying notes.

-2-

FUSION-IO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(unaudited)

	Three Months Ended December 31,						Six Months Ended December 31,
	2011			2012			2011			2012
Net (loss) income	$	(5,709	)	$	1,732		$	1,480		$	5,665
Foreign currency translation adjustment		(12	)		(21	)		(39	)		3
Comprehensive (loss) income	$	(5,721	)	$	1,711		$	1,441		$	5,668

See accompanying notes.

-3-

FUSION-IO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Six Months Ended December 31,
	2011			2012
Operating activities:
Net income	$	1,480		$	5,665
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,710			6,763
Stock-based compensation		18,940			27,818
Excess tax benefit from stock-based awards		(1,845	)		(9,393	)
Deferred taxes		(2,782	)		—
Other non-cash items		(70	)		—
Changes in operating assets and liabilities:
Accounts receivable, net		17,010			752
Inventories		(29,350	)		(14,728	)
Prepaid expenses and other assets		(84	)		(831	)
Accounts payable		1,808			(656	)
Accrued and other liabilities		3,877			14,241
Deferred revenue		3,925			9,261
Net cash provided by operating activities		16,619			38,892
Investing activities:
Business acquisition, net of cash acquired		(17,578	)		—
Proceeds from the sale of property and equipment		1			—
Purchases of property and equipment		(10,307	)		(8,712	)
Net cash used in investing activities		(27,884	)		(8,712	)
Financing activities:
Repurchases of common stock		(1,067	)		—
Repayment of capital lease obligations		(89	)		—
Proceeds from exercises of stock options		2,562			6,136
Issuance of restricted stock awards and restricted stock units, net of repurchases		—			(1,877	)
Proceeds from issuance of common stock, net of issuance costs		93,977			—
Proceeds from issuance of common stock under employee stock purchase plan		1,887			3,373
Excess tax benefit from stock option exercises		1,845			9,393
Net cash provided by financing activities		99,115			17,025
Effect of exchange rate changes on cash and cash equivalents		(76	)		81
Net increase in cash and cash equivalents		87,774			47,286
Cash and cash equivalents at the beginning of period		219,604			321,239
Cash and cash equivalents at the end of period	$	307,378		$	368,525

See accompanying notes.

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FUSION-IO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Description of Business and Summary of Significant Accounting Policies

Fusion-io, Inc. (the “Company” or “Fusion-io”) provides an enterprise storage class memory platform, based on the Company’s ioMemory technology with VSL storage virtualization software, automated data-tiering and virtualization caching software, datacenter management software, ION Data Accelerator software, and storage memory programming software. The Company was originally incorporated in the state of Nevada in December 2005 and in June 2010 was reincorporated in the state of Delaware as Fusion-io, Inc. The Company sells its products and services through its global direct sales force, original equipment manufacturers (“OEMs”), and other channel partners.

Basis of Presentation

The accompanying condensed consolidated balance sheets and the condensed consolidated statements of operations, comprehensive (loss) income, and cash flows are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which are considered of a normal recurring nature) considered necessary to present fairly the Company’s financial position, results of operations, and cash flows. The results of operations for the three and six months ended December 31, 2012 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2013 or any other period.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2012 (the “2012 Annual Report”) filed with the Securities and Exchange Commission (the “SEC”).

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

Segment and Geographic Information

Operating segments are defined in accounting standards as components of an enterprise about which separate financial information is available and is regularly evaluated by management, namely the chief operating decision maker of an organization, in order to make operating and resource allocation decisions. The Company has concluded it operates in one business segment, which is the development, marketing, and sale of storage memory platforms. Substantially all of the Company’s revenue for all periods presented in the accompanying condensed consolidated statements of operations has been from sales of the ioDrive product lines and related customer support services. The Company’s headquarters and most of its operations are located in the United States; however, it conducts sales activities through sales offices in Europe and Asia. Revenue recognized from sales with a ship-to location outside of the United States was 30% and 45% of revenue for the three months ended December 31, 2011 and 2012, respectively, and 30% and 41% of revenue for the six months ended December 31, 2011 and 2012, respectively. Revenue recognized from sales to customers with a ship-to address in Sweden was 22% of revenue for the three months ended December 31, 2012 and 11% of revenue for the six months ended December 31, 2012, and revenue recognized from sales to customers with a ship-to address in Germany was 10% of revenue for the six months ended December 31, 2012. No other country outside of the United States accounted for 10% or more of revenue for all periods presented. Long-lived assets located outside of the United States were not material for all periods for which a condensed consolidated balance sheet is presented.

Use of Estimates

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

-5-

FUSION-IO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Significant Customers

Customers that accounted for 10% or more of the Company’s revenue represented 71% and 69% of revenue for the three months ended December 31, 2011 and 2012, respectively, and 74% and 70% of revenue for the six months ended December 31, 2011 and 2012, respectively. As a result of the concentration of the Company’s customers, and typically a small number of large purchases by these customers, revenue, gross margin, and operating results may fluctuate significantly from period to period.

Product Warranty

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

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

	Total
Balance at June 30, 2012	$	2,825
Warranty costs accrued		2,499
Warranty claims		(1,049	)
Balance at December 31, 2012	$	4,275

Warranty costs accrued includes amounts accrued for products at the time of shipment, adjustments for changes in estimated costs for warranties on products shipped in the period, and changes in estimated costs for warranties on products shipped in prior periods. It is not practicable to determine the amounts applicable to each of these components.

Net (Loss) Income Per Share

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

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

	Three Months Ended December 31,						Six Months Ended December 31,
	2011			2012			2011			2012
Numerator:
Net (loss) income	$	(5,709	)	$	1,732		$	1,480		$	5,665
Denominator:
Weighted-average common shares outstanding		85,322			95,997			83,778			95,168
Less weighted-average common shares outstanding subject to repurchase		(361	)		(159	)		(293	)		(138	)
Weighted-average shares, basic		84,961			95,838			83,485			95,030
Dilution due to stock options, common stock warrant, restricted stock awards and restricted stock units		—			13,210			21,114			13,707
Weighted-average shares, diluted		84,961			109,048			104,599			108,737

-6-

FUSION-IO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2011		2012		2011		2012
Stock options		20,590		12,868		4,499		13,400
Common stock subject to repurchase		156		342		—		307
Warrant – common		37		—		—		—
Total		20,783		13,210		4,499		13,707

Recently Issued and Adopted Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (the “FASB”) issued new guidance which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive (loss) income (“OCI”) by eliminating the option to present components of OCI as part of the statement of changes in stockholders’ equity. The amendments in this standard require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive (loss) income or in two separate but consecutive statements. Subsequently in December 2011, the FASB issued additional guidance, which indefinitely defers the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement where the components of net income and the components of OCI are presented. The amendments in these standards do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components. The Company adopted this guidance retrospectively in the first quarter of fiscal year 2013. The adoption of this guidance did not have an impact on the Company’s results of operations, financial position, or cash flows as it related only to financial statement presentation.

-7-

FUSION-IO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

2. Balance Sheet Components

Cash and Cash Equivalents

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

	June 30, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash and cash equivalents:
Cash	$	54,295	$	—	$	—	$	54,295
Money market funds		266,944		—		—		266,944
Total cash and cash equivalents	$	321,239	$	—	$	—	$	321,239

	December 31, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash and cash equivalents:
Cash	$	101,389	$	—	$	—	$	101,389
Money market funds		267,136		—		—		267,136
Total cash and cash equivalents	$	368,525	$	—	$	—	$	368,525

Inventories

Inventories consisted of the following (in thousands):

	June 30, 2012		December 31, 2012
Raw materials	$	20,263	$	19,360
Work in progress		30,065		39,831
Finished goods		9,129		14,994
	$	59,457	$	74,185

-8-

FUSION-IO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Property and Equipment

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

	June 30, 2012			December 31, 2012
Computer equipment	$	14,904		$	18,034
Software		4,076			5,045
Property and equipment		5,682			9,288
Furniture and fixtures		3,759			4,052
Leasehold improvements		12,520			13,360
Construction in progress		329			179
		41,270			49,958
Less accumulated depreciation and amortization		(10,025	)		(15,449	)
	$	31,245		$	34,509

Depreciation expense (including amortization of leasehold improvements) was $1,462,000 and $2,919,000 for the three months ended December 31, 2011 and 2012, respectively, and $2,690,000 and $5,450,000 for the six months ended December 31, 2011 and 2012, respectively.

Accrued and Other Current Liabilities

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

	June 30, 2012		December 31, 2012
Accrued compensation	$	19,034	$	19,705
Accrued warranty expense		2,825		4,275
Accrued other liabilities		7,328		9,870
	$	29,187	$	33,850

Long-term Other Liabilities

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

	June 30, 2012		December 31, 2012
Long-term deferred tax liability	$	4,026	$	4,026
Long-term deferred rent		8,250		9,565
	$	12,276	$	13,591

-9-

FUSION-IO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

3. Fair Value Measurements

Assets Measured and Recorded at Fair Value on a Recurring Basis

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

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

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

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

	Fair Value Measurements at June 30, 2012
Description	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	266,944	$	—	$	—	$	266,944

	Fair Value Measurements at December 31, 2012
Description	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	267,136	$	—	$	—	$	267,136

Fair Value of Other Financial Instruments

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

4. Acquisitions

On August 11, 2011, the Company acquired 100% of the stock of IO Turbine, Inc. (“IO Turbine”) pursuant to the Agreement and Plan of Reorganization (the “Merger Agreement”) dated August 4, 2011. IO Turbine was a provider of caching solutions for virtual environments, based in San Jose, California. Accordingly, the assets, liabilities, and operating results of IO Turbine are reflected in the Company’s condensed consolidated financial statements following the date of acquisition. The fair value of the aggregate purchase price was approximately $65,568,000, which consisted of (1) cash of approximately $21,199,000, (2) approximately $43,485,000 in common stock valued at $28.40 per share, the closing sale price of the Company’s common stock on the closing date of the acquisition, and (3) approximately $884,000 in assumed stock options attributable to pre-acquisition service. In addition, subsequent to the acquisition, the Company has been recognizing and will continue to recognize up to approximately $26,421,000 of stock-based compensation expense related to the fair value of assumed restricted stock awards (“RSAs”) and stock options, of which approximately $3,795,000 were expensed immediately in connection with the acceleration of vesting of certain restricted stock awards and the remainder will continue to be recognized over the underlying future service period of the assumed stock awards and stock options. At the time of acquisition, IO Turbine stockholders holding RSAs had the option to receive cash and/or shares of the Company’s common stock for their unvested RSAs based on a fixed value determined at the acquisition date. As a result, the Company: (1) issued approximately 414,000 shares of its common stock that remain subject to forfeiture based on the original vesting schedule applicable to such awards and (2) will pay up to approximately $4,631,000 in cash in accordance with the original vesting schedule applicable to such awards. Of this total cash amount, approximately $2,957,000 had been paid through December 31, 2012.

Operating expenses associated with IO Turbine were approximately $5,176,000 and $2,922,000 for the three months ended December 31, 2011 and 2012, respectively, and $11,619,000 and $5,978,000 for the six months ended December 31, 2011 and 2012, respectively. Stock-based compensation expense related to IO Turbine was approximately $2,788,000 and $2,224,000 for the three months ended December 31, 2011 and 2012, respectively, and $8,049,000 and $4,493,000 for the six months ended December 31, 2011 and 2012, respectively.

-10-

FUSION-IO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Unaudited pro forma financial information

The following unaudited pro forma financial information is based on the combined historical financial statements of the Company and IO Turbine after giving effect to the Company’s acquisition of IO Turbine as if it had occurred as of July 1, 2010 and includes pro forma adjustments related to the amortization of acquired intangible assets, stock-based compensation expense, and depreciation expense (in thousands, except per share data):

	Three Months Ended December 31,					Six Months Ended December 31,
	2011			2012		2011			2012
Revenue	$	84,131		$	120,569	$	158,516		$	238,684
Net (loss) income from operations		(4,047	)		6,894		(3,635	)		15,343
Net (loss) income		(5,709	)		1,732		(2,775	)		5,665
Net (loss) income per share, basic	$	(0.07	)	$	0.02	$	(0.03	)	$	0.06
Net (loss) income per share, diluted	$	(0.07	)	$	0.02	$	(0.03	)	$	0.05

The amounts in the table above do not include non-recurring expense of approximately $3,795,000 related to the acceleration of vesting on certain stock-based awards that was recorded by the Company as stock-based compensation expense in the six months ended December 31, 2011.

5. Goodwill and Intangible Assets

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

	Total
Balance as of June 30, 2012	$	54,777
Current period acquisitions		—
Balance as of December 31, 2012	$	54,777

The Company’s goodwill is not deductible for income tax purposes.

The Company’s intangible assets and related accumulated amortization consisted of the following as of December 31, 2012 (in thousands):

	Weighted-Average Useful Life		Cost		Accumulated Amortization			Net
Developed technology		4 years	$	10,500	$	(3,648	)	$	6,852

-11-

FUSION-IO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Amortization expense related to intangible assets was $656,000 for the three months ended December 31, 2011 and 2012, and $1,021,000 and $1,313,000 for the six months ended December 31, 2011 and 2012, respectively. Estimated amortization expense in future periods through fiscal year 2016 for intangible assets subject to amortization is as follows (in thousands):

Fiscal Year Ended June 30,	Total
Remaining 2013		1,313
2014		2,625
2015		2,625
2016		289
	$	6,852

6. Long-term Obligations

Loan and Security Agreement

The Company maintained a loan and security agreement (the “Revolving Line of Credit”) with a financial institution prior to its maturity on December 31, 2012. The Revolving Line of Credit allowed the Company to borrow up to a limit of $25,000,000, including the issuance of letters of credit. Borrowings under the Revolving Line of Credit would have accrued interest at a per annum rate equal to, at the Company’s option, a floating per annum rate equal to the prime rate as published in the Wall Street Journal, or the LIBOR rate (based on 1, 2, 3 or 6-month interest periods) plus a margin equal to two percent (2.00%) per annum. The quarterly unused commitment fee was equal to one-quarter of one percent (0.25%) per annum of the difference between the $25,000,000 loan commitment and the average daily balance of borrowings outstanding on the last day of each quarter. Under the terms of the Revolving Line of Credit, the Company was required to maintain the following minimum financial covenants on a consolidated basis:

• A ratio of current assets to current liabilities plus, without duplication, any of the Company’s obligations to the financial institution, of at least 1.25 to 1.00.

• A tangible net worth of at least $25,000,000, plus 25% of the net proceeds the Company received from the sale or issuance of its equity or subordinated debt, such increase to be measured as of the last day of the quarter in which the Company received such proceeds.

During the three and six months ended December 31, 2012, there were no borrowings against the Revolving Line of Credit and the Company was in compliance with all covenants.

7. Income Taxes

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

The components of the Company income tax expense or benefit include state income taxes, foreign income taxes, U.S. federal alternative minimum tax, and effects of stock-based awards. Income tax expense was $1,021,000 and $5,258,000 for the three months ended December 31, 2011 and 2012, respectively, or 22% and 75% of (loss) income before income taxes, respectively. Income tax benefit was $705,000 and income tax expense was $9,829,000 for the six months ended December 31, 2011 and 2012, respectively, or a benefit of 91% and an expense of 63% of income before income taxes, respectively. The Company’s effective tax rate for the three and six months ended December 31, 2012 is higher when compared to the same periods in the prior year primarily due to the income tax benefit recorded in the prior year as a result of a valuation allowance reversal related to deferred tax liabilities generated from the acquisition of IO Turbine. In addition, the prior year taxable income was substantially offset by net operating losses which are no longer available in the current year. The effective tax rate for the three and six months ended December 31, 2012 differs from the U.S. federal statutory rate of 35% primarily due to the Company’s full valuation allowance against its net deferred tax assets and the tax effect of stock-based awards.

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

-12-

FUSION-IO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The Company is subject to income taxes in various U.S. and foreign jurisdictions and to continual examination by tax authorities. Significant judgment is required in evaluating the Company’s uncertain tax positions and determining its provision for income taxes. During the six months ended December 31, 2012, the aggregate change in the total gross amount of unrecognized tax benefits was as follows (in thousands):

	Total
Balance at June 30, 2012	$	2,709
Decrease of unrecognized tax benefits taken in prior years		(39	)
Increase in unrecognized tax benefits related to current year		546
Balance at December 31, 2012	$	3,216

The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. The Company did not incur any material interest or penalties related to income taxes in any of the periods presented. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $792,000. The Company does not anticipate any significant change of its uncertain tax positions within fiscal year 2013, and the Company does not anticipate any events which could cause a change to these uncertainties.

As of December 31, 2012, the Company had federal net operating loss carryforwards of $206,319,000, of which $203,183,000 related to stock option deductions claimed for tax purposes greater than the deductions claimed for book purposes. As of December 31, 2012, the Company had state net operating loss carryforwards of $176,090,000, of which $171,169,000 related to stock option deductions claimed for tax purposes greater than the deductions claimed for book purposes. Additionally, the Company had federal research and development tax credit carryforwards of $2,543,000, of which $2,492,000 related to stock option deductions claimed for tax purposes greater than the deductions claimed for book purposes. The Company had state research and development tax credit carryforwards of $2,538,000, of which $537,000 related to stock option deductions claimed for tax purposes greater than the deductions claimed for book purposes. In the future, the Company intends to utilize any carryforwards available to reduce its tax payments.

The Company recorded directly to equity a tax benefit of $5,008,000 and $9,393,000 for the three and six months ended December 31, 2012, respectively, related to certain tax deductions for stock-based awards.

8. Stockholders’ Equity

Equity Incentive Plans

On July 1, 2012, the number of authorized shares of common stock available for issuance under the 2011 Equity Incentive Plan (the “2011 Plan”) was increased by 4,681,423 shares in accordance with the provisions of the 2011 Plan. At December 31, 2012, a total of 11,177,117 shares of common stock were available for grant under the 2011 Plan.

Stock option activity for all the Equity Incentive Plans for the six months ended December 31, 2012 was as follows:

	Number of Shares Subject to Outstanding Options			Weighted- Average Exercise Price Per Share		Weighted- Average Contractual Term (in Years)		Aggregate Intrinsic Value (1)
								(in thousands)
Outstanding as of June 30, 2012		19,885,406		$	5.21
Granted		685,050			28.86
Exercised		(2,543,491	)		2.41
Canceled		(69,476	)		18.76
Outstanding as of December 31, 2012		17,957,489		$	6.46		7.63	$	295,759
Vested and expected to vest as of December 31, 2012		16,533,621		$	6.09		7.58	$	278,464
Vested and exercisable as of December 31, 2012		7,884,362		$	4.21		7.16	$	147,573

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FUSION-IO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(1) The aggregate intrinsic value is equal to the difference between the exercise price of the underlying stock option awards and the fair value of the Company’s common stock as of December 31, 2012.

Employee Stock Options

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2011		2012		2011		2012
Weighted-average grant date fair value – granted	$	17.00	$	—	$	12.31	$	15.35
Weighted-average grant date fair value – assumed in connection with the acquisition of IO Turbine		—		—		27.31		—
Weighted-average grant date fair value – forfeited		10.59		18.43		10.40		18.12

The aggregate intrinsic value of stock options exercised was $88,794,000 and $19,305,000 for the three months ended December 31, 2011 and 2012, respectively, and $90,880,000 and $60,881,000 for the six months ended December 31, 2011 and 2012, respectively, which reflected the difference between the exercise prices of the underlying stock option awards and the fair value of the Company’s common stock on the date of exercise.

The Company recorded stock-based compensation expense related to employee stock options of $4,522,000 and $5,079,000 for the three months ended December 31, 2011 and 2012, respectively, and $6,965,000 and $10,172,000 for the six months ended December 31, 2011 and 2012, respectively. As of December 31, 2012, there was $46,115,000 of total unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average service period of 2.7 years.

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

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

	Three Months Ended December 31,					Six Months Ended December 31,
	2011			2012		2011			2012
Expected volatility		59.6–60.2	%		—		59.1–60.2	%		61.4–63.1	%
Expected term (in years)		5.5–6.1			—		5.2–6.6			4.5–5.4
Risk-free interest rate		1.0–1.3	%		—		1.0–2.0	%		0.6–0.7	%
Expected dividends		—			—		—			—

Non-employee Stock Options

The Company from time to time grants options to purchase common stock to non-employees for advisory and consulting services. The Company estimates the fair value of these stock options using the Black-Scholes-Merton option pricing formula at each balance sheet date and records expense ratably over the vesting period of each stock option award. The Company recorded stock-based compensation expense related to these non-employee stock options of $2,231,000 and $1,772,000 for the three months ended December 31, 2011 and 2012, respectively, and $3,974,000 and $4,520,000 for the six months ended December 31, 2011 and 2012, respectively.

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FUSION-IO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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

	Three Months Ended December 31,						Six Months Ended December 31,
	2011			2012			2011			2012
Expected volatility		59.6–61.3	%		60.5–60.9	%		59.6–61.9	%		60.5–61.8	%
Expected term (in years)		6.8–9.4			5.8–8.4			6.8–9.7			5.8–8.7
Risk-free interest rate		1.9–2.2	%		1.4–1.8	%		1.9–2.4	%		1.3–1.8	%
Expected dividends		—			—			—			—

Restricted Stock Units and Restricted Stock Awards

The following table summarizes activity during the six months ended December 31, 2012 related to restricted stock units (“RSUs”) and RSAs:

	Number of Shares			Weighted-Average Grant-Date Fair Value
Unvested RSUs and RSAs at June 30, 2012		1,957,566		$	24.17
Granted		1,129,130			26.53
Vested		(321,337	)		24.29
Forfeited		(4,965	)		28.40
Cancelled		(37,396	)		28.61
Unvested RSUs and RSAs at December 31, 2012		2,722,998		$	25.11

The Company recorded stock-based compensation expense related to RSUs and RSAs of $2,892,000 and $6,362,000 for the three months ended December 31, 2011 and 2012, respectively, and $8,162,000 and $11,706,000 for the six months ended December 31, 2011 and 2012, respectively. Of the stock-based compensation expense recognized during the six months ended December 31, 2011, approximately $3,795,000 was due to accelerated vesting of certain RSAs assumed in connection with the IO Turbine acquisition, of which $793,000 related to awards that were settled in cash at the time of acquisition. At December 31, 2012, there was $61,023,000 of total unrecognized compensation cost related to unvested RSUs and RSAs. This unrecognized compensation cost is equal to the fair value of RSUs and RSAs expected to vest and will be recognized over a weighted-average period of 3.2 years.

Repurchases of Vested Restricted Stock Units

The Company is required to withhold minimum statutory taxes related to the vesting of RSUs, including the forfeiting of a portion of the newly vested award that has a current value equal to the withholding obligation. The Company is then required to remit the amount of taxes owed by the employee to the appropriate taxing authority. As a result of such forfeitures, during the six months ended December 31, 2012, the Company effectively repurchased a total of 79,137 shares of common stock related to employee tax withholding obligations. The Company has recorded $1,877,000 as a financing activity for these forfeitures in the condensed consolidated statement of cash flows for the six months ended December 31, 2012. There were no repurchases of vested restricted stock units during the six months ended December 31, 2011.

Employee Stock Purchase Plan

The Company recorded stock-based compensation expense related to its 2011 Employee Stock Purchase Plan (“ESPP”) of $312,000 and $716,000 for the three months ended December 31, 2011 and 2012, respectively, and $632,000 and $1,420,000 for the six months ended December 31, 2011 and 2012, respectively. On July 1, 2012, the number of authorized shares available for issuance under the ESPP was increased by 936,284 shares in accordance with the provisions of the ESPP. During the six months ended December 31, 2012, the Company issued 158,241 shares of common stock under the ESPP. At December 31, 2012, a total of 1,129,105 shares of common stock were reserved for future issuance under the ESPP.

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FUSION-IO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Stock-based Compensation Expense

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2011		2012		2011		2012
Cost of revenue	$	50	$	19	$	77	$	128
Sales and marketing		1,464		2,501		2,567		4,635
Research and development		1,669		4,582		3,288		9,009
General and administrative		6,774		6,827		13,801		14,046
Total stock-based compensation	$	9,957	$	13,929	$	19,733	$	27,818

9. Commitments and Contingencies

Letters of Credit

As of June 30, 2012 and December 31, 2012, the Company had a total of $3,183,000 in letters of credit outstanding with a financial institution. These outstanding letters of credit were issued for purposes of securing the Company’s obligations under facility leases prior to December 31, 2012. Subsequent to December 31, 2012, the letters of credit were collateralized by the Company’s cash.

Leases

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

Fiscal Year Ended June 30,	Operating Leases
Remaining 2013	$	3,077
2014		5,745
2015		6,229
2016		6,374
2017		6,454
Thereafter		25,576
Total	$	53,455

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

The Company also leases certain equipment under operating leases that expire at various dates through 2016. These equipment leases typically include provisions that allow the Company at the end of the initial lease term to renew the lease, purchase the underlying equipment at the then fair market value, or return the equipment to the lessor.

Rent expense was $1,161,000 and $1,729,000 for the three months ended December 31, 2011 and 2012, respectively, and $2,143,000 and $3,469,000 for the six months ended December 31, 2011 and 2012, respectively.

Purchase Commitments

In May 2012, the Company entered into a minimum purchase commitment for raw materials inventory that ends in June 2013 and provides for a termination fee based on a percentage of the amount of raw materials inventory not taken under the commitment. In November 2012, the Company amended the minimum purchase commitment to purchase additional raw material inventory. As of December 31, 2012, approximately $20,233,000 remained outstanding under this commitment.

Indemnification

The Company has agreed to indemnify its officers and directors for certain events or occurrences, while the officer or director is or was serving at the Company’s request in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that provides corporate reimbursement coverage that limits its exposure and enables it to recover a portion of any future amounts paid. The Company is unable to reasonably estimate the maximum amount that could be payable under these arrangements since these obligations are not capped but are conditional to the unique facts and circumstances involved. Accordingly, the Company has no liabilities recorded for these agreements as of June 30, 2012 and December 31, 2012.

-16-

FUSION-IO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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

Employee Agreements

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

Legal Matters

The Company is subject to legal proceedings and claims arising in the ordinary course of business, including claims of alleged infringement of third-party intellectual property rights. With respect to certain of these matters, the Company’s third-party suppliers have agreed to indemnify and defend the Company.

On September 7, 2011, Solid State Storage Solutions, Inc. filed a lawsuit in U.S. District Court for the Eastern District of Texas against the Company and eight other companies. The complaint alleges that the Company’s products infringe U.S. Patent Nos. 6,701,471; 7,234,087; 7,721,165; 6,370,059; 7,366,016; 7,746,697; 7,616,485; 6,341,085; 6,567,334; 6,347,051; 7,064,995; and 7,327,624. The complaint seeks both damages and a permanent injunction against the Company. Based on the Company’s preliminary investigation of the patents identified in the complaint, the Company does not believe that its products infringe any valid or enforceable claim of these patents. On January 3, 2013, the Court stayed the case pending resolution of the Company’s motion to transfer the lawsuit to Utah. On January 18, 2013, the Court denied the Company’s transfer motion and lifted the stay. The Company intends to appeal the denial of transfer. The Court rescheduled the patent claim construction hearing for March 6, 2013. The Court previously set a schedule calling for a trial commencing on July 1, 2013.

No amount has been accrued or disclosed as of December 31, 2012, as the Company has determined that an unfavorable resolution is either not currently probable or that an amount or relevant range of a possible loss is not reasonably estimable. However, litigation is inherently unpredictable and it is possible that a loss may occur related to the aforementioned lawsuit. Any unfavorable resolution of any of these matters could materially affect the Company’s consolidated financial position, cash flows, or results of operations. All legal costs associated with litigation are expensed as incurred.

-17-

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

Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the views of our management regarding current expectations and projections about future events and are based on currently available information. These forward-looking statements include, but are not limited to, statements concerning our possible or assumed future results of operations, business strategies, financing plans, technological leadership, market opportunity, expectations regarding product acceptance, ability to innovate new products and bring them to market in a timely manner, ability to successfully increase sales of our software offerings as part of our overall sales strategy, expectations concerning our technologies, products and solutions, including our ioMemory platform, our recently introduced ION Data Accelerator software, our ioTurbine virtualization caching software, our directCache data-tiering caching software, and our storage memory programming software, competitive position and the effects of competition, industry environment, potential growth opportunities, ability to expand internationally, the impact of quarterly fluctuations of revenue and operating results, changes to and expectations concerning gross margin, expectations concerning relationships with third parties, including channel partners, key customers and original equipment manufacturers, or OEMs, expectations regarding future revenues from our customers, levels of capital expenditures, future capital requirements and availability to fund operations and growth, the adequacy of facilities, impact of the acquisition of IO Turbine, Inc., the adequacy of our intellectual property rights, expectations concerning pending legal proceedings and related costs, the sufficiency of our issued patents and patent applications to protect our intellectual property rights, the effects of a natural disaster on us or our suppliers, our ability to resell inventory that we cannot use in our products due to obsolescence, our ability to grow our sales through OEMs and other channel partners and maintaining our relationships with those channel partners, including the timely qualification of our products for promotion and sale through those channels, particularly OEMs, OEM’s continuing to design our products into their products, the importance of software innovation, and volatility regarding our provision for income taxes. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts, “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms.

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

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

The information included in this management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the notes included in this report, and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended June 30, 2012.

Overview

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

We were incorporated in December 2005, and we initially focused on the engineering and development of our platform. We have experienced significant growth with revenue increasing from $158.5 million in the six months ended December 31, 2011 to $238.7 million in the six months ended December 31, 2012. Our headcount increased from 554 employees as of December 31, 2011 to 803 employees as of December 31, 2012.

-18-

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

Large purchases by a limited number of customers have accounted for a substantial majority of our revenue, and the composition of the group of our largest customers changes from period to period. Some of our customers make concentrated purchases to complete or upgrade specific large-scale data storage installations. These concentrated purchases are short-term in nature and are typically made on a purchase order basis rather than pursuant to long-term contracts. Sales to our 10 largest customers, including the applicable OEMs, accounted for 95% and 89% of revenue during the three months ended December 31, 2011 and 2012, respectively, and 93% and 89% of revenue during the six months ended December 31, 2011 and 2012, respectively. Our direct customer Facebook, Apple, through a reseller, and our OEM customer HP each accounted for 43%, 14%, and 14% of our revenue, respectively, during the three months ended December 31, 2011, 34%, 16%, and 19% of our revenue, respectively, during the three months ended December 31, 2012, 27%, 29%, and 18% of our revenue, respectively, during the six months ended December 31, 2011, and 31%, 22%, and 17% of our revenue, respectively, during the six months ended December 31, 2012. We expect that revenue from sales to certain key customers will decline significantly for the three months ending March 31, 2013, and the six months ending June 30, 2013, as they complete their planned deployments. As a result of our revenue concentrations, our quarterly revenue and operating results are likely to fluctuate in the future and will be difficult to estimate. We expect that sales to a limited number of customers will continue to contribute materially to our revenue for the foreseeable future.

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

We believe that extending our platform differentiation through software innovation will be critical to achieving broader market acceptance and to maintaining or increasing our gross margins. In this regard, our ioTurbine virtualization software, directCache data-tiering software, ION Data Accelerator software, ioSphere platform management software, and storage memory programming software allowing Integrated Software Vendors to develop, integrate, and add significant value to applications using our platforms and we intend to continue adding software functionality to differentiate our products. The next generation VSL 3.0 virtualization software and hardware platform is in full production. We continue to devote the majority of our research and development resources to software development, and if we are unable to successfully develop or acquire, and then market and sell additional software functionality, our ability to increase our revenue and gross margins could be adversely affected.

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

Our portfolio of storage class memory products incorporates our ioMemory based hardware subsystems and related VSL and caching software into our family of ioDrive, ioDrive2, ioScale, ioCache, and ioFX enterprise grade products. Our ioDrive, ioDrive2, ioScale, ioCache, and ioFX products work in conjunction or are integrated with our ioTurbine virtualization caching software, directCache data-tiering software, and ION Data Accelerator software. Our recently introduced ioScale product is derived from our ioMemory platform and is specifically designed for the unique needs of the high-volume hyperscale market.

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

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

-19-

Components of Consolidated Statements of Operations

Revenue

We derive revenue primarily from the sale of our storage class memory products and support services. We sell our storage class memory platforms and software through our global direct sales force, OEMs, and other channel partners. We provide our support services pursuant to support contracts, which involve hardware support, software support, and software upgrades on a when-and-if available basis for a period of one to five years. We recorded revenue from support services of $3.0 million and $9.0 million for the three months ended December 31, 2011 and 2012, respectively, and $5.1 million and $16.5 million for the six months ended December 31, 2011 and 2012, respectively. For the periods presented, our software revenue was not significant to our condensed consolidated statements of operations.

Cost of Revenue

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

Operating Expenses

The largest component of our operating expenses is personnel costs, consisting of salaries, benefits, and incentive compensation for our employees, which includes stock-based compensation.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel costs, incentive compensation, marketing programs, travel-related costs, consulting expenses associated with sales and marketing activities, and facilities-related costs.

Research and Development

Research and development expenses consist primarily of personnel costs, prototype expenses, amortization of an intangible asset, consulting services, depreciation associated with research and development equipment, and facilities-related costs. We expense research and development costs as incurred.

General and Administrative

General and administrative expenses consist primarily of personnel costs, legal expenses, consulting and professional services, audit costs, and facility-related expenses for our executive, finance, human resources, information technology, and legal organizations.

Other income (expense), net

Other income (expense), net consists of changes in the fair value of a derivative related to a repurchase of our common stock, interest expense, interest income, and transactional foreign currency gains and losses.

Trends in Our Business

Gross Margin

Our gross margin will vary due to product mix, customer demand, and opportunities to drive market adoption.

Sales and Marketing

We plan to continue to invest in sales by increasing our sales headcount. Our sales personnel are typically not immediately productive and therefore the increase in sales and marketing expense when we add new sales representatives is not immediately offset by increased revenue and may not result in increased revenue over the long-term. The timing of our hiring of new sales personnel and the rate at which they generate incremental revenue could therefore affect our future period-to-period financial performance. We expect sales and marketing expenses to increase in absolute dollars and increase as a percentage of revenue as we expect to continue hiring new sales representatives. We also expect to expand marketing activities to drive sales opportunities and brand awareness.

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Research and Development

We expect to continue to devote substantial resources to the development of our products including the development of new products. We believe that these investments are necessary to maintain and improve our competitive position. We expect research and development expenses to increase in absolute dollars and increase as a percentage of revenue as we expect to continue to invest in additional engineering personnel and infrastructure required to support the development of new products and to enhance existing products.

General and Administrative

While we expect personnel costs, including stock-based compensation expense, to be the primary component of general and administrative expenses, we also expect to continue to incur significant legal and accounting costs related to compliance with rules and regulations applicable to public companies. We expect that general and administrative expenses will continue to increase in absolute dollars and as a percentage of revenue primarily due to general growth of the business, infrastructure costs to support our international growth, and in legal costs related to intellectual property.

Results of Operations

Revenue

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

	Three Months Ended December 31,				Change in					Six Months Ended December 31,				Change in
	2011		2012		$		%			2011		2012		$		%
Revenue	$	84,131	$	120,569	$	36,438		43	%	$	158,516	$	238,684	$	80,168		51	%

Revenue increased $36.4 million from the three months ended December 31, 2011 to the three months ended December 31, 2012, and increased $80.2 million from the six months ended December 31, 2011 to the six months ended December 31, 2012 primarily due to the increase in the overall volume of our products shipped.

Revenue from the 10 largest customers, including the applicable OEMs, for the periods presented was 95% and 89% of revenue during the three months ended December 31, 2011 and 2012, respectively, and 93% and 89% of revenue during the six months ended December 31, 2011 and 2012, respectively. Our direct customer Facebook, Apple, through a reseller, and our OEM customer HP each accounted for 43%, 14%, and 14% of our revenue, respectively, during the three months ended December 31, 2011, 34%, 16%, and 19% of our revenue, respectively, during the three months ended December 31, 2012, 27%, 29%, and 18% of our revenue, respectively, during the six months ended December 31, 2011, and 31%, 22%, and 17% of our revenue, respectively, during the six months ended December 31, 2012. No other customer accounted for 10% or more of revenue in the periods presented. Revenue from customers with a ship-to location in the United States accounted for 70% and 55% of revenue during the three months ended December 31, 2011 and 2012, respectively, and 70% and 59% of revenue during the six months ended December 31, 2011 and 2012, respectively.

Cost of Revenue and Gross Margin

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

	Three Months Ended December 31,						Change in					Six Months Ended December 31,						Change in
	2011			2012			$		%			2011			2012			$		%
Cost of revenue	$	41,206		$	46,010		$	4,804		12	%	$	68,560		$	94,004		$	25,444		37	%
Gross profit		42,925			74,559			31,634		74	%		89,956			144,680			54,724		61	%
Gross margin		51	%		62	%							57	%		61	%

Cost of revenue increased $4.8 million and gross profit increased $31.6 million from the three months ended December 31, 2011 compared to the three months ended December 31, 2012, and cost of revenue increased $25.4 million and gross profit increased $54.7 million from the six months ended December 31, 2011 compared to the six months ended December 31, 2012. These changes were primarily due to the increase in the volume of our products shipped. Additionally, headcount increased from December 31, 2011 to December 31, 2012. Gross margin increased period over period due to lower raw material costs and product mix.

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Operating Expenses

Sales and Marketing

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

	Three Months Ended December 31,				Change in					Six Months Ended December 31,				Change in
	2011		2012		$		%			2011		2012		$		%
Sales and marketing	$	20,265	$	28,676	$	8,411		42	%	$	37,742	$	53,696	$	15,954		42	%

Sales and marketing expenses increased $8.4 million from the three months ended December 31, 2011 compared to the three months ended December 31, 2012, primarily due to an increase in sales and marketing personnel, as we hired additional employees to focus on acquiring new customers and expanding our business. This increase in headcount resulted in a $6.2 million increase in personnel-related costs, including a $1.9 million increase in sales commissions. The increase was also due to a $1.6 million increase in product demonstration expenses.

Sales and marketing expenses increased $16.0 million from the six months ended December 31, 2011 compared to the six months ended December 31, 2012, primarily due to an increase in sales and marketing personnel, as we hired additional employees to focus on acquiring new customers and expanding our business. This increase in headcount resulted in an $11.4 million increase in personnel-related costs, including a $3.0 million increase in sales commissions. The increase was also due to a $2.3 million increase in product demonstration expenses.

Research and Development

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

	Three Months Ended December 31,				Change in					Six Months Ended December 31,				Change in
	2011		2012		$		%			2011		2012		$		%
Research and development	$	13,479	$	22,427	$	8,948		66	%	$	24,631	$	43,995	$	19,364		79	%

Research and development expenses increased $8.9 million from the three months ended December 31, 2011 compared to the three months ended December 31, 2012, primarily due to an increase in research and development personnel, resulting in an $8.4 million increase in personnel-related costs. The increase was also due to a $0.8 million increase in contract labor and consulting services.

Research and development expenses increased $19.4 million from the six months ended December 31, 2011 compared to the six months ended December 31, 2012, primarily due to an increase in research and development personnel, resulting in a $16.7 million increase in personnel-related costs. The increase was also due to a $1.4 million increase in contract labor and consulting services, and a $1.3 million increase in depreciation and amortization expense.

General and Administrative

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

	Three Months Ended December 31,				Change in					Six Months Ended December 31,				Change in
	2011		2012		$		%			2011			2012	$		%
General and administrative	$	13,228	$	16,562	$	3,334		25	%	$	26,965	$31,646		$	4,681		17	%

General and administrative expenses increased $3.3 million from the three months ended December 31, 2011 compared to the three months ended December 31, 2012, primarily due to a $1.0 million increase in legal expenses and a $0.8 million increase in depreciation and amortization expense.

General and administrative expenses increased $4.7 million from the six months ended December 31, 2011 compared to the three months ended December 31, 2012, primarily due to an increase in general and administrative personnel, resulting in a $1.6 million increase in personnel-related costs. The increase was also due to a $1.5 million increase in depreciation and amortization expense and a $0.9 million increase in legal expenses.

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Other (Expense) Income, net

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

	Three Months Ended December 31,					Change in					Six Months Ended December 31,				Change in
	2011			2012		$		%			2011		2012		$			%
Other (expense) income, net	$	(641	)	$	96	$	737		115	%	$	157	$	151	$	(6	)		(4	)%

Other (expense) income, net changed by $0.7 million from the three months ended December 31, 2011 compared to the three months ended December 31, 2012, primarily due to $0.7 million in other expense due to changes in the fair value of a common stock repurchase derivative liability for the three months ended December 31, 2011, which liability was paid in full in December 2012.

Other (expense) income, net changed by less than $0.1 million from the six months ended December 31, 2011 compared to the six months ended December 31, 2012, primarily due to the net change in the fair value of a common stock repurchase derivative liability for the six months ended December 31, 2011, which liability was paid in full in December 2012.

Income Tax (Expense) Benefit

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

	Three Months Ended December 31,						Change in						Six Months Ended December 31,					Change in
	2011			2012			$			%			2011		2012			$			%
Income tax (expense) benefit	$	(1,021	)	$	(5,258	)	$	(4,237	)		(415	)%	$	705	$	(9,829	)	$	(10,534	)		(1,494	)%

Income tax (expense) benefit changed by $4.2 million from the three months ended December 31, 2011 compared to the three months ended December 31, 2012, primarily due to the fact that the prior year taxable income was substantially offset by net operating losses which are no longer available in the current year. The provision for income taxes for the three months ended December 31, 2012 was comprised of U.S. federal and state income taxes as well as foreign income taxes.

Income tax (expense) benefit changed by $10.5 million from the six months ended December 31, 2011 compared to the six months ended December 31, 2012, primarily due to the income tax benefit recorded in the prior year as a result of a valuation allowance reversal related to deferred tax liabilities generated from the acquisition of IO Turbine. In addition, the prior year taxable income was substantially offset by net operating losses which are no longer available in the current year. The provision for income taxes for the six months ended December 31, 2012 was comprised of foreign income taxes as well as U.S. federal and state income taxes.

Financial Position, Liquidity and Capital Resources

Primary Sources of Liquidity

As of December 31, 2012, our principal sources of liquidity consisted of cash and cash equivalents of $368.5 million and net accounts receivable of $56.0 million. In June 2011, we completed an initial public offering of our common stock, or IPO, in which we issued and sold 12,600,607 shares and received net proceeds of approximately $218.9 million. In November 2011, we completed a follow-on public offering of our common stock in which we issued and sold 3,000,000 shares and received net proceeds of approximately $94.0 million. We had working capital of $438.1 million as of December 31, 2012.

In August 2011, we used approximately $17.6 million (net of cash acquired) of the net IPO proceeds as partial consideration to purchase IO Turbine. We anticipate using the remaining net proceeds from our public offerings for working capital and general corporate purposes, including expansion of our sales organization, further development and expansion of our product offerings and possible acquisitions of, or investments in, businesses, technologies, or other assets. We have no present material understandings, commitments, or agreements to enter into any acquisitions or investments. Our excess cash is primarily invested in money market funds.

Historically, our primary sources of liquidity have been from customer payments for our products and services, the issuance of common and convertible preferred stock and convertible notes, and proceeds from a revolving line of credit. The revolving line of credit matured on December 31, 2012.

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Cash Flow Analysis

	Six Months Ended December 31,
	2011			2012
	(In thousands)
Net cash provided by (used in):
Operating activities	$	16,619		$	38,892
Investing activities		(27,884	)		(8,712	)
Financing activities		99,115			17,025

Operating Activities

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

Our net cash provided by operating activities for the six months ended December 31, 2011 and 2012 was $16.6 million and $38.9 million, respectively. During these periods, cash collected from our customers exceeded our operating cash outflows, which consisted primarily of purchases of inventory and personnel-related costs.

Investing Activities

Cash flows from investing activities primarily relate to purchases of computer equipment, leasehold improvements, and property and equipment to support our growth. Investing activities also include cash used for business acquisitions.

During the six months ended December 31, 2011, our net cash used in investing activities was $27.9 million and was primarily due to $17.6 million of cash paid for the acquisition of IO Turbine, net of cash acquired, and $10.3 million of purchases of property and equipment.

During the six months ended December 31, 2012, our net cash used in investing activities was $8.7 million for purchases of property and equipment.

Financing Activities

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

We generated $99.1 million of net cash from financing activities for the six months ended December 31, 2011, primarily due to $94.0 million in net proceeds from the issuance of common stock through our follow-on offering, $4.4 million in net proceeds from our employee stock purchase plan and exercise of stock options, and $1.8 million from a tax benefit from the exercise of stock options, all offset by the payout of the common stock repurchase derivative liability of $1.1 million.

We generated $17.0 million of net cash from financing activities for the six months ended December 31, 2012, primarily due to net proceeds of $9.5 million from the exercise of stock options and our employee stock purchase plan, and a $9.4 million tax benefit from the exercise of stock options, all offset by $1.9 million in net issuance of restricted stock awards and restricted stock units, net of repurchases.

Revolving Line of Credit

We maintained a loan and security agreement, or the revolving line of credit, with a financial institution prior to its maturity on December 31, 2012. The revolving line of credit allowed us to borrow up to a limit of $25,000,000, including the issuance of letters of credit. Borrowings under the revolving line of credit would have accrued interest at a per annum rate equal to, at our option, a floating per annum rate equal to the prime rate as published in the Wall Street Journal, or the LIBOR rate (based on 1, 2, 3 or 6-month interest periods) plus a margin equal to two percent (2.00%) per annum. The quarterly unused commitment fee was equal to one-quarter of one percent (0.25%) per annum of the difference between the $25,000,000 loan commitment and the average daily balance of borrowings outstanding on the last day of each quarter. Under the terms of the revolving line of credit, we were required to maintain the following minimum financial covenants on a consolidated basis:

• A ratio of current assets to current liabilities plus, without duplication, any of our obligations to the financial institution, of at least 1.25 to 1.00.

• A tangible net worth of at least $25,000,000, plus 25% of the net proceeds we received from the sale or issuance of our equity or subordinated debt, such increase to be measured as of the last day of the quarter in which we received such proceeds.

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During the three and six months ended December 31, 2012, there were no borrowings against the revolving line of credit and we were in compliance with all covenants.

Future Capital Requirements

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

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

Off Balance Sheet Arrangements

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

Contractual Obligations and Material Commitments

In May 2012, we entered into a minimum purchase commitment for raw materials inventory that ends in June 2013 and provides for a termination fee based on a percentage of the amount of raw materials inventory not taken under the commitment. In November 2012, we amended the minimum purchase commitment to purchase additional raw material inventory. As of December 31, 2012, approximately $20.2 million remained outstanding under this commitment.

Indemnification

We have agreed to indemnify our officers and directors for certain events or occurrences, while the officer or director is or was serving at our request in such capacity. The maximum amount of potential future indemnification is unlimited; however, we have a director and officer insurance policy that provides corporate reimbursement coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We are unable to reasonably estimate the maximum amount that could be payable under these arrangements since these obligations are not capped but are conditional to the unique facts and circumstances involved. Accordingly, we had no liabilities recorded for these agreements as of June 30, 2012 and December 31, 2012.

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

Critical Accounting Policies and Estimates

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

Our critical accounting policies and estimates are detailed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended June 30, 2012. None of our critical accounting policies and estimates have been significantly changed since the filing of our most recent Form 10-K except for those noted below.

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Income Taxes

Significant judgment is required in determining our provision for income taxes and evaluating our uncertain tax positions. Historically, the effective tax rate has been volatile and difficult to forecast due to the valuation allowance against our deferred tax assets, stock-based compensation, our ability to use tax credits and other adjustments. We expect this volatility to continue in our effective tax rate.

In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, our forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. Considering our recent positive evidence, we may release all or a portion of our valuation allowance during fiscal 2013. This release would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period such release is made.

On January 2, 2013, the federal research and development tax credit was reinstated retroactive to January 1, 2012. As the legislation was enacted after December 31, 2012, we have not included the impact of the credit in the financial statements for the period ended December 31, 2012. We anticipate that the effective tax rate reported for the period ending March 31, 2013 will include the credit earned for the period January 1, 2012 through March 31, 2013.

Recently Issued and Adopted Accounting Pronouncements

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

Segments

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

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

Foreign Currency Risk

Our international sales and marketing operations incur expenses that are denominated in foreign currencies. Although our international operations are currently immaterial compared to our operations in the United States, we expect to continue to expand our international operations which will increase our potential exposure to fluctuations in foreign currencies. Our exposures are to fluctuations in exchange rates primarily for the U.S. dollar versus the euro and the British pound. Changes in currency exchange rates could adversely affect our consolidated results of operations or financial position. Additionally, our international sales and marketing operations maintain cash balances denominated in foreign currencies. In order to decrease the inherent risk associated with translation of foreign cash balances into our reporting currency, we have not maintained excess cash balances in foreign currencies. As of December 31, 2012, we had approximately $1.7 million of cash in foreign accounts. To date, we have not hedged our exposure to changes in foreign currency exchange rates and, as a result, could incur unanticipated translation gains and losses. Through December 31, 2012, all of our sales were billed in U.S. dollars and therefore not subject to direct foreign currency risk.

Part I. Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

During the first quarter of fiscal 2013, we implemented a new stock-based compensation accounting system. During fiscal 2013 we plan to continue to enhance our enterprise resource planning system and continue to enhance our system of internal control over financial reporting. These items have not had an adverse impact on our business. There were no other changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings

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

On September 7, 2011, Solid State Storage Solutions, Inc., or S4, filed a lawsuit in U.S. District Court for the Eastern District of Texas against our company and eight other companies. The complaint alleges that our products infringe U.S. Patent Nos. 6,701,471; 7,234,087; 7,721,165; 6,370,059; 7,366,016; 7,746,697; 7,616,485; 6,341,085; 6,567,334; 6,347,051; 7,064,995; and 7,327,624. The complaint seeks both damages and a permanent injunction against us. The specific infringement allegations appear to focus on storage controllers for flash memory and in particular to storage address mapping, I/O buffering, wear leveling, and reducing read latency in relation to interfacing with flash storage media. On January 3, 2013, the Court stayed the case pending resolution of our motion to transfer the lawsuit to Utah. On January 18, 2013, the Court denied our transfer motion and lifted the stay. We intend to appeal the denial of transfer. The Court rescheduled the patent claim construction hearing for March 6, 2013. The Court previously set a schedule calling for a trial commencing on July 1, 2013.

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

Based on our preliminary investigations of the patents identified in the Entorian Technologies, Internet Machines and S4 complaints, we do not believe that our products infringe any valid or enforceable claim of the patents at issue in those complaints. Nevertheless, the costs associated with any actual, pending, or threatened litigation could negatively impact our operating results regardless of the actual outcome. In addition, we may, from time to time, be involved in various legal proceedings arising from the normal course of business activities, and an unfavorable resolution of any of these matters could materially affect our future results of operations, cash flows, or financial position.

Part II. Item 1A. Risk Factors

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

Risks Related to Our Business and Industry

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

We were founded in December 2005 and sold our first products in April 2007. The majority of our revenue growth has occurred since December 31, 2009. We continue to innovate and develop enterprise data acceleration solutions. For example, we recently released our ioScale product line, our ION Data Accelerator software, and extensions to our virtualization and automated data-tiering caching software. In addition, our current management team has only been working together for a relatively short period of time. Our limited operating history makes it difficult to evaluate our current business and our future prospects, including our ability to plan for and model future growth. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, such as the risks described herein. If we do not address these risks successfully, our business and operating results would be adversely affected, and our stock price could decline.

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

You should not consider our revenue growth in recent periods as indicative of our future performance. In fact, in future periods, our revenue could decline, and we expect our revenue to decline significantly in the three months ending March 31, 2013 compared to the three months ended December 31, 2012. We do not expect to achieve similar percentage revenue growth rates in future periods. We have experienced in the past, and continue to expect to experience, substantial concentrated purchases by customers to complete or upgrade large-scale datacenter deployments. Our revenue in any particular quarterly period could be disproportionately affected if this trend continues. You should not rely on our revenue for any prior quarterly or annual periods as an indication of our future revenue or revenue growth. If we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability.

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

We have significantly expanded our overall business, customer base, headcount, and operations, and we anticipate that we will continue to grow our business. For example, from December 31, 2011 to December 31, 2012, our headcount increased from 554 to 803 employees, representing an increase of 249 employees. Our future operating results depend to a large extent on our ability to successfully manage our anticipated expansion and growth.

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

• maintain and extend our leadership in enterprise data acceleration;

• maintain and expand our existing original equipment manufacturer, or OEM, and channel partner relationships and develop new OEM and channel partner relationships;

• forecast and control expenses;

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

• expand our support capabilities;

• enhance and expand our distribution and supply chain infrastructure;

• manage inventory levels;

• enhance and expand our international operations; and

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

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

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

Historically, large purchases by a relatively limited number of customers have accounted for a substantial majority of our revenue, and the composition of the group of our largest customers changes from period to period. Some of our customers make concentrated purchases to complete or upgrade specific large-scale data storage installations. These concentrated purchases are short-term in nature and are typically made on a purchase order basis rather than pursuant to long-term contracts. Sales to the 10 largest customers, including the applicable OEMs, for the periods presented was 95% and 89% of revenue during the three months ended December 31, 2011 and 2012, respectively, and 93% and 89% of revenue during the six months ended December 31, 2011 and 2012, respectively. Our direct customer Facebook, Apple, through a reseller, and our OEM customer HP each accounted for 43%, 14%, and 14% of our revenue, respectively, during the three months ended December 31, 2011, 34%, 16%, and 19% of our revenue, respectively, during the three months ended December 31, 2012, 27%, 29%, and 18% of our revenue, respectively, during the six months ended December 31, 2011, and 31%, 22%, and 17% of our revenue, respectively, during the six months ended December 31, 2012. We expect that revenue from sales to certain key customers will decline significantly for the three months ending March 31, 2013, and the six months ending June 30, 2013, as they complete their planned deployments. As a result of our revenue concentrations, our quarterly revenue and operating results are likely to fluctuate in the future and will be difficult to estimate.

As a consequence of our limited number of customers and the concentrated nature of their purchases, our quarterly revenue and operating results may fluctuate from quarter to quarter and are difficult to estimate. For example, any acceleration or delay in

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anticipated product purchases or the acceptance of shipped products by our larger customers could materially impact our revenue and operating results in any quarterly period. Additionally, our revenue and operating results could be adversely affected if any of these larger customers purchase our competitors’ products instead of purchasing our products. We cannot provide any assurance that we will be able to sustain or increase our revenue from our larger customers or that we will be able to offset the discontinuation of concentrated purchases by our larger customers with purchases by new or existing customers. We expect that sales of our products to a limited number of customers will continue to contribute materially to our revenue for the foreseeable future, but that competition for these sales will increase. The loss of, or a significant delay or reduction in purchases by or change in the purchasing patterns of, a small number of customers could materially harm our business and operating results.

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

Our gross margins fluctuate from period to period due primarily to product costs, customer mix, and product mix. From the three months ended December 31, 2011 through the three months ended December 31, 2012, our quarterly gross margins ranged from 51.0% to 61.8%. Our gross margins are likely to continue to fluctuate and may be affected by a variety of factors, including:

• demand for our products;

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

• significant new customer deployments;

• the cost of components and freight;

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

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

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

• changes in the mix between direct versus indirect sales;

• the timing and amount of revenue recognized and deferred;

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

• write-downs due to excess and obsolete inventory;

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

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

• inventory stocking requirements to support new product introductions; and

• product quality and service ability issues.

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

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

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

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

Sales of our products to OEMs represent a significant portion of our revenue and we anticipate that our OEM sales will constitute a substantial portion of our future sales. In some cases, our products must be designed into the OEM’s products. If that fails to occur for a given product line of an OEM, we would likely be unable to sell our products to that OEM for such product line during the life cycle of that product. Even if an OEM integrates one or more of our products into its server, data storage systems or appliance solutions, we cannot be assured that its product will be commercially successful, and as a result, our sales volumes may be less than anticipated. Our OEM customers are typically not obligated to purchase our products and can choose at any time to stop using our

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products, if their own systems are not commercially successful or if they decide to pursue other strategies or for any other reason, including the incorporation or development of competing products by these OEMs. Moreover, our OEM customers may not devote sufficient attention and resources to selling our products. We may not be able to develop or maintain relationships with OEMs for a number of reasons, including because of the OEM’s relationships with our competitors or prospective competitors or other incentives that may not motivate their internal sales forces to promote our products. In addition, direct sales of our ioDrive, ioDrive2, and ioScale product lines may compete with products sold by our OEM partners, and our OEM partners may compete directly with our other OEM partners, which may affect the commitment of our OEM partners to sell our products. Even if we are successful in selling through OEMs, we expect that sales through OEMs will be a lower gross margin business than our direct sales business. If we are unable to grow our OEM sales, if our OEM customers’ systems incorporating our products are not commercially successful, if our products, including new and next generation products, are not designed into a given OEM product cycle, if we fail to minimize conflicts between our channel partners, in particular OEMs, if our OEM customers do not timely qualify our products for promotion or sale by them, or if our OEM customers significantly reduce, cancel, or delay their orders with us, our revenue would suffer and our business, operating results, and financial condition could be materially adversely affected.

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

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

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

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

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

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

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

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

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

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

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

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

• reductions in customers’ budgets for information technology purchases;

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

• fluctuations in demand and prices for our products;

• changes in industry standards in the data storage industry;

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

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

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

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

• future accounting pronouncements and changes in accounting policies.

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

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

Prior to the three months ended March 31, 2011, we had incurred net losses in each quarter since our inception and again incurred net losses in the three months ended December 31, 2011, March 31, 2012, and June 30, 2012. We may incur losses in future periods as we continue to increase our expenses in all areas of our operations to support our growth. If our revenue does not increase to offset these expected increases in operating expenses, we will not be profitable. As of December 31, 2012, we had an accumulated deficit of approximately $64.9 million.

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

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

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

• changes in the research and development tax credit laws;

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

• transfer pricing adjustments;

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

• changes in the income allocation methods for state taxes;

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

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

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

• changes in accounting principles;

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

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

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

Significant judgment is required to determine the recognition and measurement attribute prescribed in Accounting Standards Codification 740. In addition, the standard applies to all income tax positions, including the potential recovery of previously paid taxes, which if settled unfavorably could adversely impact our provision for income taxes or additional paid-in capital.

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

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reasonable certainty, to continue to generate positive income we may release all or a portion of our valuation allowance during fiscal 2013. This release would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period such release is made. The release of all or a portion of the valuation allowance will have a significant effect on our tax expense in the period it is released.

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

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

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

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

We also sell to OEMs that incorporate our solutions into their products, which can require an extended evaluation, testing, and qualification process before our product is approved for inclusion in one of their product lines. We also may be required to customize our product to interoperate with an OEM’s product, which could further lengthen the sales cycle for OEM customers. The length of our sales cycle for an OEM makes us susceptible to the risk of delays or termination of orders if end-users decide to delay or withdraw funding for datacenter projects, which could occur for various reasons, including global economic cycles and capital market fluctuations.

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

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

The market for data storage products is highly competitive, and we expect competition to intensify in the future. Our products compete with various traditional datacenter architectures, including high performance server and storage approaches. These may include the traditional data storage providers, including storage array vendors such as EMC Corporation and Hitachi Data Systems, who typically sell centralized storage products and high-performance storage approaches utilizing solid state disks, as well as vertically integrated appliance vendors such as Oracle. In this regard, EMC introduced a product designed to compete with our caching solutions. In addition, we may also compete with enterprise solid state disk vendors such as Huawei Technologies, Co., Intel Corp., LSI Corporation, Marvell Semiconductor, Inc., Micron Technology, Inc., OCZ Technology Group, Inc., Samsung Electronics, Inc., SanDisk, Corp., Seagate Technology, STEC, Inc., Toshiba Corp., and Western Digital Corp. Our ION Data Accelerator software competes with proprietary integrated flash appliances from EMC Corporation, HP 3PAR by Hewlett-Packard Development Company, Texas Memory Systems, an IBM company, and a number of privately held companies. Our ioTurbine intelligent caching software, competes with solutions from EMC, Oracle, STEC’s open-source based product, and a privately held company. A number of new, privately held companies are currently attempting to enter our market, one or more of which may become significant competitors in the future.

Many of our current competitors have, and some of our potential competitors could have, longer operating histories, greater name recognition, larger customer bases, and significantly greater financial, technical, sales, marketing, and other resources than we

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have. Potential customers may prefer to purchase from their existing suppliers rather than a new supplier regardless of product performance or features. New start-up companies continue to innovate and may invent similar or superior products and technologies that may compete with our products and technology. Some of our competitors have made acquisitions of businesses that may allow them to offer more directly competitive and comprehensive solutions than they had previously offered. In addition, some of our competitors, including our OEM customers, may develop competing technologies and sell at zero or negative margins, through product bundling, closed technology platforms, or otherwise, to gain business. Our current and potential competitors may also establish cooperative relationships among themselves or with third parties. As a result, we cannot assure you that our products will continue to compete favorably, and any failure to do so could seriously harm our business, operating results, and financial condition.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Generally, our products comprise only a part of a datacenter. The servers, network, software, and other components and systems of a datacenter must comply with established industry standards in order to interoperate and function efficiently together. We depend on companies that provide other components of the servers and systems in a datacenter to support prevailing industry standards. Often, these companies are significantly larger and more influential in driving industry standards than we are. Some industry standards may

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not be widely adopted or implemented uniformly, and competing standards may emerge that may be preferred by our customers. If larger companies do not support the same industry standards that we do, or if competing standards emerge, market acceptance of our products could be adversely affected, which would harm our business, operating results, and financial condition.

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

Our success and future growth depends to a significant degree on the skills and continued services of our key technical, sales and management personnel. In particular, we are highly dependent on the services of our Chief Executive Officer, David Flynn. Our employees generally work for us on an at-will basis, and we could experience difficulty in retaining members of our senior management team. We do not have “key person” life insurance policies that cover any of our officers or other key employees, other than our Chief Executive Officer. The loss of the services of any of our key employees could disrupt our operations, delay the development and introduction of our products, and negatively impact our business, prospects, and operating results.

We plan to hire additional personnel in all areas of our business, particularly for sales and research and development. Competition for these types of personnel is intense. We cannot assure you that we will be able to successfully attract or retain qualified personnel. Our inability to retain and attract the necessary personnel could adversely affect our business, operating results, and financial condition.

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

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

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

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

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

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

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

Most of our sales are on an open credit basis. As a general matter, we monitor individual customer payment capability in granting open credit arrangements and may limit these open credit arrangements based on creditworthiness. We also maintain reserves we believe are adequate to cover exposure for doubtful accounts. Although we have programs in place that are designed to monitor and mitigate these risks, we cannot assure you these programs will be effective in reducing our credit risks, especially as we expand our business internationally. If we are unable to adequately control these risks, our business, operating results, and financial condition could be harmed.

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

We rely on several contract manufacturers to manufacture our products. We continue to evaluate other contract manufacturers. We currently do not have any long-term manufacturing contracts with these contract manufacturers. Our reliance on these contract manufacturers reduces our control over the assembly process, exposing us to risks, including reduced control over quality assurance, production costs, and product supply. If we fail to manage our relationship with these contract manufacturers effectively, or if these contract manufacturers experience delays, disruptions, capacity constraints, or quality control problems in their operations, our ability to ship products to our customers could be impaired and our competitive position and reputation could be harmed. If we are required to change contract manufacturers or assume internal manufacturing operations, we may lose revenue, incur increased costs, and damage our customer relationships. Qualifying a new contract manufacturer and commencing production is expensive and time-consuming. We may need to increase our component purchases, contract manufacturing capacity, and internal test and quality functions if we experience increased demand. The inability of these contract manufacturers to provide us with adequate supplies of high-quality products, could cause a delay in our order fulfillment, and our business, operating results, and financial condition would be adversely affected.

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

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

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

• price volatility for the components of our products;

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

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

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

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

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

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

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

It is common in the storage and networking industries for component vendors to discontinue the manufacture of, or experience lack of supply on, certain types of components from time to time due to evolving technologies and changes in market demands. A

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

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

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

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

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

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

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

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

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us with respect to these lawsuits. Based upon our preliminary investigation of the patents identified in the complaints, we do not believe that our products infringe any valid or enforceable claim of these patents. Nevertheless, the costs associated with any actual, pending, or threatened litigation could negatively impact our operating results regardless of the actual outcome.

Moreover, on September 7, 2011, Solid State Storage Solutions, Inc., or S4, filed a lawsuit in U.S. District Court for the Eastern District of Texas against our company and eight other companies. The complaint alleges that our products infringe U.S. Patent Nos. 6,701,471; 7,234,087; 7,721,165; 6,370,059; 7,366,016; 7,746,697; 7,616,485; 6,341,085; 6,567,334; 6,347,051; 7,064,995; and 7,327,624. The complaint seeks both damages and a permanent injunction against us. The specific infringement allegations appear to focus on storage controllers for flash memory and in particular to storage address mapping, I/O buffering, wear leveling, and reducing read latency in relation to interfacing with flash storage media. On January 3, 2013, the Court stayed the case pending resolution of our motion to transfer the lawsuit to Utah. On January 18, 2013, the Court denied our transfer motion and lifted the stay. We intend to appeal the denial of transfer. The Court rescheduled the patent claim construction hearing for March 6, 2013. The Court previously set a schedule calling for a trial commencing on July 1, 2013. Based on our preliminary investigation of the patents identified in the complaint, we do not believe that our products infringe any valid or enforceable claim of these patents. Nevertheless, the costs associated with any actual, pending, or threatened litigation could negatively impact our operating results regardless of the actual outcome.

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

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

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

We rely on a combination of patent, copyright, service mark, trademark, and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of which provide only limited protection. As of February 1, 2013, we had 37 issued patents and 121 patent applications in the United States and 68 corresponding patent applications in foreign countries. We cannot assure you that any patents will issue with respect to our currently pending patent applications in a manner that gives us the protection that we seek, if at all, or that any patents issued to us will not be challenged, invalidated, or circumvented. Our currently issued patents and any patents that may issue in the future with respect to pending or future patent applications may not provide sufficiently broad protection or they may not prove to be enforceable in actions against alleged infringers. We cannot be certain that the steps we have taken will prevent unauthorized use of our technology or the reverse engineering of our technology. Moreover, others may independently develop technologies that are competitive to ours or infringe our intellectual property.

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

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

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

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

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

If we do not successfully integrate our acquisition of IO Turbine, or if we do not otherwise achieve the expected benefits of the acquisition, our growth rate may decline and our operating results may be materially harmed.

In August 2011, we acquired IO Turbine, a provider of caching solutions for virtual environments, based in San Jose, California. If we fail to successfully integrate the business, operations, and technologies of IO Turbine, we may not realize the potential benefits of the acquisition. The integration of IO Turbine has resulted in the incurrence of ongoing expenses. If our integration effort is not successful, our results of operations could be harmed, employee morale could decline, key employees could leave, and customers could cancel existing orders or choose not to place new ones. Even if our integration efforts are successful, we may not achieve anticipated synergies or other benefits of the acquisition, including the anticipated benefits from the IO Turbine technology.

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

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

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

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

While we currently maintain limited operations outside of the United States, we have been expanding and intend to continue to expand these operations in the future. We have limited experience operating in foreign jurisdictions. Our inexperience in operating our business outside of the United States increases the risk that our international expansion efforts may not be successful. In addition, conducting and expanding international operations subjects us to new risks that we have not generally faced in the United States. These include: exposure to foreign currency exchange rate risk; difficulties in managing and staffing international operations; the increased travel, infrastructure, and legal compliance costs associated with multiple international locations; potentially adverse tax consequences; the burdens of complying with a wide variety of foreign laws, including trade barriers, and different legal standards; increased financial accounting and reporting burdens and complexities; political, social and economic instability abroad, terrorist attacks, and security concerns in general; and reduced or varied protection for intellectual property rights in some countries. The occurrence of any one of these risks could negatively affect our international business and, consequently, our business, operating results, and financial condition generally.

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

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

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

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

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

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

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

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

Risks Related to Our Common Stock

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

Our common stock is currently traded on the New York Stock Exchange, but we can provide no assurance that there will be active trading on that market or any other market in the future. If there is not an active trading market or if the volume of trading is

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limited, the price of our common stock could decline and holders of our common stock may have difficulty selling their shares. In addition, the trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. For example, after opening at $19.00 per share at the IPO, our common stock has experienced an intra-day trading high of $41.74 per share and a low of $14.90 per share through December 31, 2012. Some of the factors affecting our volatility include:

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

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

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

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

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

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

• litigation involving us, our industry or both;

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

• general economic conditions and trends;

• major catastrophic events;

• sales of large blocks of our stock; or

• departures of key personnel.

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

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

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

Insiders will continue to have substantial control over us, which could limit your ability to influence the outcome of key transactions, including a change of control.

As of February 1, 2013, our directors, executive officers, and each of our stockholders who own greater than 5% of our outstanding common stock and their affiliates, in the aggregate, own approximately 37% of the outstanding shares of our common stock. As a result, these stockholders, if acting together, could influence matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions, or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing, or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock. In addition, the significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise.

We have broad discretion in the use of the net proceeds that we received in our public offerings of common stock and may not use them effectively.

We have broad discretion in the application of the net proceeds from our public offerings of common stock in 2011 and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. We have not allocated these net proceeds for any specific purposes. We might not be able to yield a significant return, if any, on any investment of these net proceeds. Stockholders will not have the opportunity to influence our management’s decisions on how to use the net proceeds, and our failure to apply the funds effectively could have a material adverse effect on our business, and could cause the price of our common stock to decline.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Use of Proceeds from Registered Securities

Our initial public offering of common stock, or IPO, was made pursuant to a registration statement on Form S-1 (File No. 333-172683), which the SEC declared effective on June 8, 2011. In the offering, we issued and sold 12,600,607 shares, including 1,845,000 shares sold pursuant to the full exercise by the underwriters of their over-allotment option, at an issuance price of $19.00 per share. The offering did not terminate until after the sale of all of the securities registered by the registration statement. Goldman, Sachs & Co. and Morgan Stanley & Co. LLC acted as lead joint book-runners for the offering, and J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC acted as passive joint book-runners. As a result of the offering, we raised approximately $218.9 million in proceeds, net of underwriting discounts, commissions, and offering expenses.

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During the three months ended September 30, 2011, we used approximately $17.6 million (net of cash acquired) of the net IPO proceeds to acquire IO Turbine. Since our IPO, we have used and will continue to use the remaining net IPO proceeds for working capital and general corporate purposes, including expansion of our sales organization, further development and expansion of our product offerings and possible acquisitions of, or investments in, businesses, technologies or other assets. We have broad discretion in the way we use the net proceeds. Pending use of the net proceeds as described above, we have invested and will continue to invest the net proceeds in U.S. government securities and short-term corporate securities such as money market funds. There has been no material change in the planned use of net IPO proceeds from that described in the final prospectus filed with the SEC pursuant to Rule 424(b) on June 9, 2011.

Stock Repurchases

During the three months ended December 31, 2012, we repurchased the following shares of common stock in connection with certain employee stock awards:

Period	Total Number of Shares Purchased			Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs
October 1 – October 31, 2012		—		$	—		—		—
November 1 – November 30, 2012		—			—		—		—
December 1 – December 31, 2012		4,965	(1)		0.7973		—		—
Total		4,965		$	0.7973		—		—

(1) The shares repurchased during the three months ended December 31, 2012 represent the unvested portion of a former employee’s restricted stock award. The shares were repurchased at the employee’s original purchase price.

For the majority of the restricted stock units that vested during the three months ended on December 31, 2012, the shares issued at the time of vesting were net of the shares forfeited by the employee to cover the employee’s minimum statutory withholding taxes due upon vesting. These forfeited shares are not included within the tables above.

Part II. Item 3. Defaults Upon Senior Securities

None.

Part II. Item 4. Mine Safety Disclosures

Not applicable.

Part II. Item 5. Other Information

None.

Part II. Item 6. Exhibits

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

			Incorporated by Reference
Exhibit No.	Exhibit Description	Filed Herewith	Form	SEC File No.	Exhibit	Filing Date
10.8A	Amendment Number One to the Second Amended and Restated Employment Agreement among the Registrant, David Flynn and Sandusky Investments, Ltd., dated as of December 21, 2012	X
10.9B	Amendment Number Two to Amended and Restated Employment Agreement among the Registrant, Rick White and West Coast VC, LLC, dated as of December 30, 2012	X

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			Incorporated by Reference
Exhibit No.	Exhibit Description	Filed Herewith	Form	SEC File No.	Exhibit	Filing Date
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Schema Linkbase Document
101.CAL*	XBRL Taxonomy Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Definition Linkbase Document
101.LAB*	XBRL Taxonomy Labels Linkbase Document
101.PRE*	XBRL Taxonomy Presentation Linkbase Document

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

-44-

SIGNATURES

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

		FUSION-IO, INC.
Dated:	February 7, 2013	By:	/s/ DAVID A. FLYNN
			David A. Flynn
			Chief Executive Officer
Dated:	February 7, 2013	By:	/s/ DENNIS P. WOLF
			Dennis P. Wolf
			Chief Financial Officer

-45-

INDEX TO EXHIBITS

			Incorporated by Reference
Exhibit No.	Exhibit Description	Filed Herewith	Form	SEC File No.	Exhibit	Filing Date
10.8A	Amendment Number One to the Second Amended and Restated Employment Agreement among the Registrant, David Flynn and Sandusky Investments, Ltd., dated as of December 21, 2012	X
10.9B	Amendment Number Two to Amended and Restated Employment Agreement among the Registrant, Rick White and West Coast VC, LLC, dated as of December 30, 2012	X
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Schema Linkbase Document
101.CAL*	XBRL Taxonomy Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Definition Linkbase Document
101.LAB*	XBRL Taxonomy Labels Linkbase Document
101.PRE*	XBRL Taxonomy Presentation Linkbase Document

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

-46-

EX-10.8A

Exhibit 10.8A

AMENDMENT NUMBER ONE TO THE

SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Amendment Number One (this “Amendment”) by and among Fusion-io, Inc. a Delaware corporation (the “Company”), David Flynn, an individual (“Executive”) and Sandusky Investments, Ltd. (“Sandusky”) (collectively, the “Parties”), is dated as of December 21, 2012, and amends the Second Amended and Restated Employment Agreement by and among the Company, Executive and Sandusky, dated April 7, 2010 (the “Agreement”).

RECITALS

WHEREAS, the Parties desire to amend certain provisions of the Agreement in order to clarify the timing of the severance payments in accordance with Section VI.B.3 of Internal Revenue Service Notice 2010-6, as amended by Internal Revenue Service Notice 2010-80; and

WHEREAS, the Agreement provides that it can be altered or amended with the prior written consent of the Parties.

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending legally to be bound, hereby agree as follows:

AGREEMENT

1. Amendment to Section 8(d)(ii). The second, third, and fourth sentences of Section 8(d)(ii) of the Agreement are hereby amended and restated to read in their entirety as follows:

“In addition, if the Board terminates Executive’s employment pursuant to this Section 8(d)(ii) or if Executive resigns pursuant to Section 8(e), in either case prior to a Change in Control, subject to Executive promptly executing (and not revoking) a general release of all claims arising out of his employment in a form that is acceptable to the Company within 30 days of Executive’s termination date, the Company shall pay the Executive one times his Salary at the annualized rate in effect on the date of his termination. Further, if the Company (or its successor in a Change in Control) terminates Executive’s employment pursuant to this Section 8(d)(ii) or if Executive resigns pursuant to Section 8(e) in either case upon or following a Change in Control, subject to Executive promptly executing (and not revoking) a general release of all claims arising out of his employment in a form that is acceptable to the Company (or such successor) within 30 days of Executive’s termination date, the Company shall pay the Executive 1.5 times his Salary and 1.5 times his target Annual Bonus, in each case at the annualized rate in effect on the date of his termination. Any severance payment as provided in either of the immediately preceding two sentences, as applicable, is referred to herein as the “Severance Payment”. If the release of claims discussed in this section does not become

effective within 30 days of Executive’s termination date, Executive will forfeit his right to receive any Severance Payment. Subject to the release becoming effective within the time frame prescribed herein and any delay necessary to comply with Section 9(b) below, the Company shall pay the Severance Payment in substantially equal installments in accordance with the Company’s standard payroll practices over a period of twelve or eighteen consecutive months, as applicable, with the first installment payable in the Company’s first payroll period after the 30^th day following Executive’s Separation from Service (as defined below).”

2. Effect of Amendment. Except as set forth in this Amendment, the provision of the Agreement will remain unchanged and will continue in full force and effect.

3. Entire Agreement. This Amendment and the Agreement constitute the full and entire understanding and agreement between the Parties with regard to the subjects hereof and thereof. This Amendment may be amended at any time only by mutual written agreement of the Parties.

4. Counterparts. This Amendment may be executed in several counterparts, each of which so executed will be deemed to be an original, and such counterparts together will constitute but one and the same instrument. Any signature page delivered by a fax machine or telecopy machine will be binding to the same extent as an original signature page.

5. Governing Law. This Amendment will be governed by and construed under the laws of the State of Utah, excluding its conflicts and choice of law provisions.

Signature Page Follows

-2-

IN WITNESS WHEREOF, each of the Parties has executed this Amendment on the dates set forth below.

FUSION-IO, INC.
	/s/ Shawn Lindquist
By:	Shawn Lindquist
Date:	12/21/2012
EXECUTIVE
	/s/ David Flynn
Date:	12/21/2012
SANDUSKY INVESTMENTS, LTD.
	/s/ David Flynn
By:	David Flynn
Date:	12/21/2012

Signature Page to Amendment Number One to the Second Amended and Restated Employment Agreement

-3-

EX-10.9B

Exhibit 10.9B

AMENDMENT NUMBER TWO TO

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Amendment Number Two (this “Amendment”) by and among Fusion-io, Inc. a Delaware corporation (the “Company”), Rick White, an individual (“Executive”) and West Coast VC, LLC, a Delaware limited liability company (“WCV”) (collectively, the “Parties”), is dated as of December 30, 2012, and amends the Amended and Restated Employment Agreement by and among the Company, Executive and WCV dated December 31, 2008 (the “Prior Agreement”), as amended March 7, 2011 (the “First Amendment” and together with the Prior Agreement, the “Agreement”).

RECITALS

WHEREAS, the Parties desire to amend certain provisions of the Agreement in order to clarify the timing of the severance payments in accordance with Section VI.B.3 of Internal Revenue Service Notice 2010-6, as amended by Internal Revenue Service Notice 2010-80; and

WHEREAS, the Agreement provides that it can be altered or amended with the prior written consent of the Parties.

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending legally to be bound, hereby agree as follows:

AGREEMENT

1. Amendment to Section 8(d)(ii). The third and fourth sentences of Section 8(d)(ii) of the Agreement are hereby amended and restated to read in their entirety as follows:

“In addition, if the Board terminates Executive’s employment pursuant to this Section 8(d)(ii) or if Executive resigns pursuant to Section 8(e), subject to Executive promptly executing (and not revoking) a general release of all claims arising out of his employment in a form that is acceptable to the Company within 30 days of Executive’s termination, the Company shall pay the Executive one times his Salary at the annualized rate in effect on the date of his termination (the “Severance Payment”). If the release of claims discussed in this section does not become effective within 30 days of Executive’s termination date, Executive will forfeit his right to receive the Severance Payment. Subject to the release becoming effective within the time frame prescribed herein and any delay necessary to comply with Section 9(b) below, the Company shall pay the Severance Payment in substantially equal installments in accordance with the Company’s standard payroll practices over a period of twelve consecutive months, with the first installment payable in the Company’s first payroll period after the 30^th day following Executive’s Separation from Service (as defined below).”

2. Effect of Amendment. Except as set forth in this Amendment, the provision of the Agreement will remain unchanged and will continue in full force and effect.

3. Entire Agreement. This Amendment and the Agreement constitute the full and entire understanding and agreement between the Parties with regard to the subjects hereof and thereof. This Amendment may be amended at any time only by mutual written agreement of the Parties.

4. Counterparts. This Amendment may be executed in several counterparts, each of which so executed will be deemed to be an original, and such counterparts together will constitute but one and the same instrument. Any signature page delivered by a fax machine or telecopy machine will be binding to the same extent as an original signature page.

5. Governing Law. This Amendment will be governed by and construed under the laws of the State of Utah, excluding its conflicts and choice of law provisions.

Signature Page Follows

-2-

IN WITNESS WHEREOF, each of the Parties has executed this Amendment on the dates set forth below.

FUSION-IO, INC.
	/s/ Shawn Lindquist
By:	Shawn Lindquist
Date:	12/30/2012
EXECUTIVE
	/s/ Rick White
Date:	12/30/2012
WEST COAST VC, LLC
	/s/ Rick White
By:	Rick White
Date:	12/30/2012

Signature Page to Amendment Number Two to Amended and Restated Employment Agreement

-3-

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, David A. Flynn, Chief Executive Officer of Fusion-io, Inc., certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: February 7, 2013	/s/ DAVID A. FLYNN
	David A. Flynn
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Dennis P. Wolf, Chief Financial Officer of Fusion-io, Inc., certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: February 7, 2013	/s/ DENNIS P. WOLF
	Dennis P. Wolf
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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

1) the quarterly report on Form 10-Q of the Company for the fiscal quarter ended December 31, 2012 (the “Report”) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

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

Date: February 7, 2013	/s/ DAVID A. FLYNN
	David A. Flynn
	Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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

1) the quarterly report on Form 10-Q of the Company for the fiscal quarter ended December 31, 2012 (the “Report”) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

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

Date: February 7, 2013	/s/ DENNIS P. WOLF
	Dennis P. Wolf
	Chief Financial Officer

XML

Intangible Assets and Related Accumulated Amortization (Detail) (USD $) In Thousands, unless otherwise specified			6 Months Ended
	Dec. 31, 2012	Jun. 30, 2012	Dec. 31, 2012 Developed Technology Rights
Acquired Finite-Lived Intangible Assets [Line Items]
Intangible assets, weighted average useful life			4 years
Intangible assets, cost			$ 10,500
Intangible assets, accumulated amortization			(3,648)
Intangible assets, net	$ 6,852	$ 8,164	$ 6,852

XML

Assumptions Used in Black-Scholes-Merton Pricing Model Related to Employee Stock Options (Detail)	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Employee Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected volatility, Maximum		60.20%	63.10%	60.20%
Expected volatility, Minimum		59.60%	61.40%	59.10%
Risk-free interest rate, Maximum		1.30%	0.70%	2.00%
Risk-free interest rate, Minimum		1.00%	0.60%	1.00%
Expected dividends
Employee Stock Options | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term		6 years 1 month 6 days	5 years 4 months 24 days	6 years 7 months 6 days
Employee Stock Options | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term		5 years 6 months	4 years 6 months	5 years 2 months 12 days
Non-employee stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected volatility, Maximum	60.90%	61.30%	61.80%	61.90%
Expected volatility, Minimum	60.50%	59.60%	60.50%	59.60%
Risk-free interest rate, Maximum	1.80%	2.20%	1.80%	2.40%
Risk-free interest rate, Minimum	1.40%	1.90%	1.30%	1.90%
Expected dividends
Non-employee stock options | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term	8 years 4 months 24 days	9 years 4 months 24 days	8 years 8 months 12 days	9 years 8 months 12 days
Non-employee stock options | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term	5 years 9 months 18 days	6 years 9 months 18 days	5 years 9 months 18 days	6 years 9 months 18 days

XML

Stock Option Activity (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended
	Dec. 31, 2012 Y
Options Outstanding - Number of Shares
Outstanding, Beginning	19,885,406
Granted	685,050
Exercised	(2,543,491)
Canceled	(69,476)
Outstanding, Ending	17,957,489
Vested and expected to vest, Ending	16,533,621
Vested and exercisable, Ending	7,884,362
Options Outstanding - Weighted-Average Exercise Price
Outstanding, Beginning	$ 5.21
Granted	$ 28.86
Exercised	$ 2.41
Canceled	$ 18.76
Outstanding, Ending	$ 6.46
Vested and expected to vest, Ending	$ 6.09
Vested and exercisable, Ending	$ 4.21
Options Outstanding - Weighted-Average Contractual Term (In Years)
Outstanding, Ending	7 years 7 months 17 days
Vested and expected to vest, Ending	7.58
Vested and exercisable, Ending	7 years 1 month 28 days
Options Outstanding - Aggregate Intrinsic Value
Outstanding, Ending	$ 295,759	[1]
Vested and expected to vest, Ending	278,464	[1]
Vested and exercisable, Ending	$ 147,573	[1]

[1] The aggregate intrinsic value is equal to the difference between the exercise price of the underlying stock option awards and the fair value of the Company's common stock as of December 31, 2012.

XML

Accrued and Other Current Liabilities (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Jun. 30, 2012
Schedule Of Accrued Liabilities [Line Items]
Accrued compensation	$ 19,705	$ 19,034
Accrued warranty expense	4,275	2,825
Accrued other liabilities	9,870	7,328
Accrued and other current liabilities	$ 33,850	$ 29,187

XML

Description of Business and Summary of Significant Accounting Policies - Additional Information (Detail)	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Significant Customers [Line Items]
Number of business segment			1
Germany
Significant Customers [Line Items]
Revenue recognized			10.00%
Sweden
Significant Customers [Line Items]
Revenue recognized	22.00%		11.00%
External Customer
Significant Customers [Line Items]
Revenue recognized	45.00%	30.00%	41.00%	30.00%
First Quarter
Significant Customers [Line Items]
Customers that accounted for 10% or more of the company's revenue	69.00%	71.00%	69.00%	71.00%
Second Quarter
Significant Customers [Line Items]
Customers that accounted for 10% or more of the company's revenue	70.00%	74.00%	70.00%	74.00%

XML

Total Stock-Based Compensation Expense (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	$ 13,929	$ 9,957	$ 27,818	$ 19,733
Cost of Revenue
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	19	50	128	77
Sales and Marketing
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	2,501	1,464	4,635	2,567
Research and Development
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	4,582	1,669	9,009	3,288
General and Administrative
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	$ 6,827	$ 6,774	$ 14,046	$ 13,801

XML

Long-Term Obligations - Additional Information (Detail) (USD $)	6 Months Ended
	Dec. 31, 2012
Line of Credit Facility [Line Items]
Minimum tangible net worth	$ 25,000,000
Percentage of net proceeds received by company from sale or issuance of company's equity or subordinated debt	25.00%
Maximum
Line of Credit Facility [Line Items]
Ratio of current assets to current liabilities	1.25
Minimum
Line of Credit Facility [Line Items]
Ratio of current assets to current liabilities	1.00
Revolving Line of Credit
Line of Credit Facility [Line Items]
Maximum borrowing capacity	25,000,000
Revolving line of credit, maturity date	Dec. 31, 2012
Interest rate on borrowing	2.00%
Percentage of unused commitment fee percentage	0.25%
Revolving Line Of Credit
Line of Credit Facility [Line Items]
Borrowing outstanding	$ 0

XML

Pro Forma Financial Information (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Business Acquisition, Pro Forma Information, Nonrecurring Adjustment [Line Items]
Revenue	$ 120,569	$ 84,131	$ 238,684	$ 158,516
Net (loss) income from operations	6,894	(4,047)	15,343	(3,635)
Net (loss) income	$ 1,732	$ (5,709)	$ 5,665	$ (2,775)
Net (loss) income per share, basic	$ 0.02	$ (0.07)	$ 0.06	$ (0.03)
Net (loss) income per share, diluted	$ 0.02	$ (0.07)	$ 0.05	$ (0.03)

XML

Future Minimum Lease Payments Under Non-Cancelable Operating Leases (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Future Minimum Payments Under Non Cancelable Operating Leases With Initial Terms Of One Year Or More [Line Items]
Remaining 2013	$ 3,077
2014	5,745
2015	6,229
2016	6,374
2017	6,454
Thereafter	25,576
Total	$ 53,455

XML

Employee Stock Options (Detail) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted-average grant date fair value - granted		$ 17.00	$ 15.35	$ 12.31
Weighted-average grant date fair value - assumed in connection with the acquisition of IO Turbine				$ 27.31
Weighted-average grant date fair value - forfeited	$ 18.43	$ 10.59	$ 18.12	$ 10.40

XML

Fair Value Measurements

6 Months Ended

Dec. 31, 2012

Fair Value Measurements

3. Fair Value Measurements

Assets Measured and Recorded at Fair Value on a Recurring Basis

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

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

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

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

	Fair Value Measurements at June 30, 2012
Description	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	266,944	$	—	$	—	$	266,944

	Fair Value Measurements at December 31, 2012
Description	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	267,136	$	—	$	—	$	267,136

Fair Value of Other Financial Instruments

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

XML

Income Taxes - Additional Information (Detail) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Income Taxes [Line Items]
Income tax expense (benefit)	$ 5,258,000	$ 1,021,000	$ 9,829,000	$ (705,000)
Income (loss) before income taxes	75.00%	22.00%	63.00%	91.00%
Effective tax rate			35.00%
Total amount of unrecognized tax benefits affecting the effective tax rate	792,000		792,000
Federal net operating loss carryforwards	206,319,000		206,319,000
State net operating loss carryforwards	176,090,000		176,090,000
Tax benefit related to certain tax deductions for stock-based awards	5,008,000		9,393,000
Stock options
Income Taxes [Line Items]
Federal net operating loss carryforwards	203,183,000		203,183,000
State net operating loss carryforwards	171,169,000		171,169,000
Federal
Income Taxes [Line Items]
Federal research and development tax credit carryforwards	2,543,000		2,543,000
Federal | Stock options
Income Taxes [Line Items]
Federal research and development tax credits carryforwards associated with stock option tax deductions greater than deductions claimed for book purposes			2,492,000
State and Local Jurisdiction
Income Taxes [Line Items]
State research and development tax credit carryforwards	2,538,000		2,538,000
State and Local Jurisdiction | Stock options
Income Taxes [Line Items]
Federal research and development tax credits carryforwards associated with stock option tax deductions greater than deductions claimed for book purposes			$ 537,000

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Cash and Cash Equivalents (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents, amortized cost	$ 368,525	$ 321,239	$ 307,378	$ 219,604
Cash and cash equivalents, unrealized gains
Cash and cash equivalents, unrealized losses
Cash and cash equivalents, estimated fair value	368,525	321,239
Cash
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents, amortized cost	101,389	54,295
Cash and cash equivalents, unrealized gains
Cash and cash equivalents, unrealized losses
Cash and cash equivalents, estimated fair value	101,389	54,295
Money market funds
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents, amortized cost	267,136	266,944
Cash and cash equivalents, unrealized gains
Cash and cash equivalents, unrealized losses
Cash and cash equivalents, estimated fair value	$ 267,136	$ 266,944

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Weighted-Average Common Stock Equivalents, Anti-Dilutive (Detail) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Common stock equivalents	13,210	20,783	13,707	4,499
Stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Common stock equivalents	12,868	20,590	13,400	4,499
Common stock subject to repurchase
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Common stock equivalents	342	156	307
Warrant - common
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Common stock equivalents		37

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Aggregate Changes in Total Gross Amount of Unrecognized Tax Benefits (Detail) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Dec. 31, 2012
Reconciliation Of Unrecognized Tax Benefits [Line Items]
Balance at June 30, 2012	$ 2,709
Decrease of unrecognized tax benefits taken in prior years	(39)
Increase in unrecognized tax benefits related to current year	546
Balance at December 31, 2012	$ 3,216

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Inventories (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Jun. 30, 2012
Components Of Inventory [Line Items]
Raw materials	$ 19,360	$ 20,263
Work in progress	39,831	30,065
Finished goods	14,994	9,129
Inventories	$ 74,185	$ 59,457

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Property and Equipment (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Jun. 30, 2012
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	$ 49,958	$ 41,270
Less accumulated depreciation and amortization	(15,449)	(10,025)
Property and Equipment, Net, Total	34,509	31,245
Computer Equipment
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	18,034	14,904
Software
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	5,045	4,076
Property and Equipment
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	9,288	5,682
Furniture and Fixtures
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	4,052	3,759
Leasehold Improvements
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	13,360	12,520
Construction in Progress
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	$ 179	$ 329

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Balance Sheet Components

6 Months Ended

Dec. 31, 2012

Balance Sheet Components

2. Balance Sheet Components

Cash and Cash Equivalents

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

	June 30, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash and cash equivalents:
Cash	$	54,295	$	—	$	—	$	54,295
Money market funds		266,944		—		—		266,944
Total cash and cash equivalents	$	321,239	$	—	$	—	$	321,239

	December 31, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash and cash equivalents:
Cash	$	101,389	$	—	$	—	$	101,389
Money market funds		267,136		—		—		267,136
Total cash and cash equivalents	$	368,525	$	—	$	—	$	368,525

Inventories

Inventories consisted of the following (in thousands):

	June 30, 2012		December 31, 2012
Raw materials	$	20,263	$	19,360
Work in progress		30,065		39,831
Finished goods		9,129		14,994
	$	59,457	$	74,185

Property and Equipment

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

	June 30, 2012			December 31, 2012
Computer equipment	$	14,904		$	18,034
Software		4,076			5,045
Property and equipment		5,682			9,288
Furniture and fixtures		3,759			4,052
Leasehold improvements		12,520			13,360
Construction in progress		329			179
		41,270			49,958
Less accumulated depreciation and amortization		(10,025	)		(15,449	)
	$	31,245		$	34,509

Depreciation expense (including amortization of leasehold improvements) was $1,462,000 and $2,919,000 for the three months ended December 31, 2011 and 2012, respectively, and $2,690,000 and $5,450,000 for the six months ended December 31, 2011 and 2012, respectively.

Accrued and Other Current Liabilities

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

	June 30, 2012		December 31, 2012
Accrued compensation	$	19,034	$	19,705
Accrued warranty expense		2,825		4,275
Accrued other liabilities		7,328		9,870
	$	29,187	$	33,850

Long-term Other Liabilities

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

	June 30, 2012		December 31, 2012
Long-term deferred tax liability	$	4,026	$	4,026
Long-term deferred rent		8,250		9,565
	$	12,276	$	13,591

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Balance Sheet Components - Additional Information (Detail) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Balance Sheet Components [Line Items]
Depreciation expense including amortization of leasehold improvements	$ 2,919,000	$ 1,462,000	$ 5,450,000	$ 2,690,000

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Goodwill and Intangible Assets - Additional Information (Detail) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Goodwill And Intangible Assets [Line Items]
Amortization expense related to intangible assets	$ 656,000	$ 656,000	$ 1,313,000	$ 1,021,000

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Jun. 30, 2012
Current assets:
Cash and cash equivalents	$ 368,525	$ 321,239
Accounts receivable, net of allowances of $953 and $1,780 as of June 30, 2012 and December 31, 2012, respectively	55,968	56,720
Inventories	74,185	59,457
Prepaid expenses and other current assets	9,614	9,224
Total current assets	508,292	446,640
Property and equipment, net	34,509	31,245
Intangible assets, net	6,852	8,164
Goodwill	54,777	54,777
Other assets	635	194
Total assets	605,065	541,020
Current liabilities:
Accounts payable	9,109	9,765
Accrued and other current liabilities	33,850	29,187
Deferred revenue	27,203	20,715
Total current liabilities	70,162	59,667
Deferred revenue, less current portion	10,927	8,154
Other liabilities	13,591	12,276
Commitments and contingencies
Stockholders' equity:
Preferred stock
Common stock	19	19
Additional paid-in capital	575,272	531,478
Accumulated other comprehensive loss	(12)	(15)
Accumulated deficit	(64,894)	(70,559)
Total stockholders' equity	510,385	460,923
Total liabilities and stockholders' equity	$ 605,065	$ 541,020

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Stockholders' Equity - Additional Information (Detail) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Jun. 30, 2012
Shareholders Equity [Line Items]
Number of authorized shares of common stock available for issuance under the 2011 equity incentive plan					4,681,423
Common stock were available for grant under the company's equity incentive plans	11,177,117		11,177,117
Aggregate intrinsic value of stock options exercised	$ 19,305,000	$ 88,794,000	$ 60,881,000	$ 90,880,000
Stock-based compensation			27,818,000	18,940,000
Total unrecognized compensation expense related to unvested stock options	46,115,000		46,115,000
RSUs and RSAs expenses expected to be recognized over a weighted-average service period			2 years 8 months 12 days
Repurchase of common stock related to employee tax withholding obligations			79,137	0
Issuance of restricted stock awards and restricted stock units, net of repurchases			(1,877,000)
Repurchase of vested restricted stock units				0
Employee Stock Options
Shareholders Equity [Line Items]
Stock-based compensation	5,079,000	4,522,000	10,172,000	6,965,000
Non-employee stock options
Shareholders Equity [Line Items]
Stock-based compensation	1,772,000	2,231,000	4,520,000	3,974,000
Restricted Stock Units and Restricted Stock Awards
Shareholders Equity [Line Items]
Stock-based compensation	6,362,000	2,892,000	11,706,000	8,162,000
Total unrecognized compensation expense related to unvested stock options	61,023,000		61,023,000
RSUs and RSAs expenses expected to be recognized over a weighted-average service period			3 years 2 months 12 days
Stock based compensation expense recognized attributable to accelerated vesting of certain restricted stock awards assumed				3,795,000
Awards settled in cash at time of acquisition				793,000
Employee Stock Purchase Plan
Shareholders Equity [Line Items]
Stock-based compensation	$ 716,000	$ 312,000	$ 1,420,000	$ 632,000
Common stock issued under the ESPP			158,241
Common stock reserved for future issuance under ESPP	1,129,105		1,129,105
Increase in the number of shares available for issuance					936,284

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Operating activities:
Net income	$ 5,665	$ 1,480
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	6,763	3,710
Stock-based compensation	27,818	18,940
Excess tax benefit from stock-based awards	(9,393)	(1,845)
Deferred taxes		(2,782)
Other non-cash items		(70)
Changes in operating assets and liabilities:
Accounts receivable, net	752	17,010
Inventories	(14,728)	(29,350)
Prepaid expenses and other assets	(831)	(84)
Accounts payable	(656)	1,808
Accrued and other liabilities	14,241	3,877
Deferred revenue	9,261	3,925
Net cash provided by operating activities	38,892	16,619
Investing activities:
Business acquisition, net of cash acquired		(17,578)
Proceeds from the sale of property and equipment		1
Purchases of property and equipment	(8,712)	(10,307)
Net cash used in investing activities	(8,712)	(27,884)
Financing activities:
Repurchases of common stock		(1,067)
Repayment of capital lease obligations		(89)
Proceeds from exercises of stock options	6,136	2,562
Issuance of restricted stock awards and restricted stock units, net of repurchases	(1,877)
Proceeds from issuance of common stock, net of issuance costs		93,977
Proceeds from issuance of common stock under employee stock purchase plan	3,373	1,887
Excess tax benefit from stock option exercises	9,393	1,845
Net cash provided by financing activities	17,025	99,115
Effect of exchange rate changes on cash and cash equivalents	81	(76)
Net increase in cash and cash equivalents	47,286	87,774
Cash and cash equivalents at the beginning of period	321,239	219,604
Cash and cash equivalents at the end of period	$ 368,525	$ 307,378

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Fair Value of Financial Assets (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Jun. 30, 2012
Cash equivalents:
Cash and cash equivalents	$ 368,525	$ 321,239
Money market funds
Cash equivalents:
Cash and cash equivalents	267,136	266,944
Level 1 | Money market funds
Cash equivalents:
Cash and cash equivalents	$ 267,136	$ 266,944

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Income Taxes (Tables)

6 Months Ended

Dec. 31, 2012

Aggregate Changes in Total Gross Amount of Unrecognized Tax Benefits

During the six months ended December 31, 2012, the aggregate change in the total gross amount of unrecognized tax benefits was as follows (in thousands):

	Total
Balance at June 30, 2012	$	2,709
Decrease of unrecognized tax benefits taken in prior years		(39	)
Increase in unrecognized tax benefits related to current year		546
Balance at December 31, 2012	$	3,216

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Acquisitions - Additional Information (Detail) (USD $)	1 Months Ended	3 Months Ended		6 Months Ended
	Aug. 11, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Business Acquisition [Line Items]
Stock-based compensation expense related to restricted stock awards and stock options		$ 46,115,000		$ 46,115,000
Operating expenses		67,665,000	46,972,000	129,337,000	89,338,000
Stock-based compensation				27,818,000	18,940,000
Non-recurring expense recorded as stock-based compensation expense					3,795,000
IO Turbine
Business Acquisition [Line Items]
Acquisition of Stock	100.00%
Fair value of the aggregate purchase price	65,568,000
Cash consisted in fair value of aggregate purchase price	21,199,000	2,957,000		2,957,000
Common stock value	43,485,000
Common stock per share	$ 28.40
Pre-acquisition service	884,000
Stock-based compensation expense related to restricted stock awards and stock options	26,421,000
Expensed immediately recognized in connection with the acceleration of vesting of certain restricted stock awards	3,795,000
Common stock shares	414,000
Estimated cash to be paid	4,631,000
Operating expenses		2,922,000	5,176,000	5,978,000	11,619,000
Stock-based compensation		$ 2,224,000	$ 2,788,000	$ 4,493,000	$ 8,049,000

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Commitments and Contingencies (Tables)

6 Months Ended

Dec. 31, 2012

Future Minimum Lease Payments under Non-Cancelable Operating Leases

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

Fiscal Year Ended June 30,	Operating Leases
Remaining 2013	$	3,077
2014		5,745
2015		6,229
2016		6,374
2017		6,454
Thereafter		25,576
Total	$	53,455

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Description of Business and Summary of Significant Accounting Policies

6 Months Ended

Dec. 31, 2012

Description of Business and Summary of Significant Accounting Policies

1. Description of Business and Summary of Significant Accounting Policies

Fusion-io, Inc. (the “Company” or “Fusion-io”) provides an enterprise storage class memory platform, based on the Company’s ioMemory technology with VSL storage virtualization software, automated data-tiering and virtualization caching software, datacenter management software, ION Data Accelerator software, and storage memory programming software. The Company was originally incorporated in the state of Nevada in December 2005 and in June 2010 was reincorporated in the state of Delaware as Fusion-io, Inc. The Company sells its products and services through its global direct sales force, original equipment manufacturers (“OEMs”), and other channel partners.

Basis of Presentation

The accompanying condensed consolidated balance sheets and the condensed consolidated statements of operations, comprehensive (loss) income, and cash flows are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which are considered of a normal recurring nature) considered necessary to present fairly the Company’s financial position, results of operations, and cash flows. The results of operations for the three and six months ended December 31, 2012 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2013 or any other period.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2012 (the “2012 Annual Report”) filed with the Securities and Exchange Commission (the “SEC”).

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

Segment and Geographic Information

Operating segments are defined in accounting standards as components of an enterprise about which separate financial information is available and is regularly evaluated by management, namely the chief operating decision maker of an organization, in order to make operating and resource allocation decisions. The Company has concluded it operates in one business segment, which is the development, marketing, and sale of storage memory platforms. Substantially all of the Company’s revenue for all periods presented in the accompanying condensed consolidated statements of operations has been from sales of the ioDrive product lines and related customer support services. The Company’s headquarters and most of its operations are located in the United States; however, it conducts sales activities through sales offices in Europe and Asia. Revenue recognized from sales with a ship-to location outside of the United States was 30% and 45% of revenue for the three months ended December 31, 2011 and 2012, respectively, and 30% and 41% of revenue for the six months ended December 31, 2011 and 2012, respectively. Revenue recognized from sales to customers with a ship-to address in Sweden was 22% of revenue for the three months ended December 31, 2012 and 11% of revenue for the six months ended December 31, 2012, and revenue recognized from sales to customers with a ship-to address in Germany was 10% of revenue for the six months ended December 31, 2012. No other country outside of the United States accounted for 10% or more of revenue for all periods presented. Long-lived assets located outside of the United States were not material for all periods for which a condensed consolidated balance sheet is presented.

Use of Estimates

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

Significant Customers

Customers that accounted for 10% or more of the Company’s revenue represented 71% and 69% of revenue for the three months ended December 31, 2011 and 2012, respectively, and 74% and 70% of revenue for the six months ended December 31, 2011 and 2012, respectively. As a result of the concentration of the Company’s customers, and typically a small number of large purchases by these customers, revenue, gross margin, and operating results may fluctuate significantly from period to period.

Product Warranty

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

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

	Total
Balance at June 30, 2012	$	2,825
Warranty costs accrued		2,499
Warranty claims		(1,049	)
Balance at December 31, 2012	$	4,275

Warranty costs accrued includes amounts accrued for products at the time of shipment, adjustments for changes in estimated costs for warranties on products shipped in the period, and changes in estimated costs for warranties on products shipped in prior periods. It is not practicable to determine the amounts applicable to each of these components.

Net (Loss) Income Per Share

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

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

	Three Months Ended December 31,						Six Months Ended December 31,
	2011			2012			2011			2012
Numerator:
Net (loss) income	$	(5,709	)	$	1,732		$	1,480		$	5,665
Denominator:
Weighted-average common shares outstanding		85,322			95,997			83,778			95,168
Less weighted-average common shares outstanding subject to repurchase		(361	)		(159	)		(293	)		(138	)
Weighted-average shares, basic		84,961			95,838			83,485			95,030
Dilution due to stock options, common stock warrant, restricted stock awards and restricted stock units		—			13,210			21,114			13,707
Weighted-average shares, diluted		84,961			109,048			104,599			108,737

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2011		2012		2011		2012
Stock options		20,590		12,868		4,499		13,400
Common stock subject to repurchase		156		342		—		307
Warrant – common		37		—		—		—
Total		20,783		13,210		4,499		13,707

Recently Issued and Adopted Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (the “FASB”) issued new guidance which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive (loss) income (“OCI”) by eliminating the option to present components of OCI as part of the statement of changes in stockholders’ equity. The amendments in this standard require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive (loss) income or in two separate but consecutive statements. Subsequently in December 2011, the FASB issued additional guidance, which indefinitely defers the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement where the components of net income and the components of OCI are presented. The amendments in these standards do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components. The Company adopted this guidance retrospectively in the first quarter of fiscal year 2013. The adoption of this guidance did not have an impact on the Company’s results of operations, financial position, or cash flows as it related only to financial statement presentation.

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Jun. 30, 2012
Accounts receivable, allowances for doubtful accounts	$ 1,780	$ 953

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

6 Months Ended

Dec. 31, 2012

Changes in Product Warranty Liability

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

	Total
Balance at June 30, 2012	$	2,825
Warranty costs accrued		2,499
Warranty claims		(1,049	)
Balance at December 31, 2012	$	4,275

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

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

	Three Months Ended December 31,						Six Months Ended December 31,
	2011			2012			2011			2012
Numerator:
Net (loss) income	$	(5,709	)	$	1,732		$	1,480		$	5,665
Denominator:
Weighted-average common shares outstanding		85,322			95,997			83,778			95,168
Less weighted-average common shares outstanding subject to repurchase		(361	)		(159	)		(293	)		(138	)
Weighted-average shares, basic		84,961			95,838			83,485			95,030
Dilution due to stock options, common stock warrant, restricted stock awards and restricted stock units		—			13,210			21,114			13,707
Weighted-average shares, diluted		84,961			109,048			104,599			108,737

Weighted-Average Common Stock Equivalents, Anti-Dilutive

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2011		2012		2011		2012
Stock options		20,590		12,868		4,499		13,400
Common stock subject to repurchase		156		342		—		307
Warrant – common		37		—		—		—
Total		20,783		13,210		4,499		13,707

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Document and Entity Information	6 Months Ended
	Dec. 31, 2012	Feb. 01, 2013
Entity Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Dec. 31, 2012
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2
Trading Symbol	FIO
Entity Registrant Name	FUSION-IO, INC.
Entity Central Index Key	0001383729
Current Fiscal Year End Date	--06-30
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		96,592,568

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Balance Sheet Components (Tables)

6 Months Ended

Dec. 31, 2012

Cash and Cash Equivalents

Cash and Cash Equivalents

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

	June 30, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash and cash equivalents:
Cash	$	54,295	$	—	$	—	$	54,295
Money market funds		266,944		—		—		266,944
Total cash and cash equivalents	$	321,239	$	—	$	—	$	321,239

	December 31, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash and cash equivalents:
Cash	$	101,389	$	—	$	—	$	101,389
Money market funds		267,136		—		—		267,136
Total cash and cash equivalents	$	368,525	$	—	$	—	$	368,525

Inventories

Inventories

Inventories consisted of the following (in thousands):

	June 30, 2012		December 31, 2012
Raw materials	$	20,263	$	19,360
Work in progress		30,065		39,831
Finished goods		9,129		14,994
	$	59,457	$	74,185

Property and Equipment

Property and Equipment

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

	June 30, 2012			December 31, 2012
Computer equipment	$	14,904		$	18,034
Software		4,076			5,045
Property and equipment		5,682			9,288
Furniture and fixtures		3,759			4,052
Leasehold improvements		12,520			13,360
Construction in progress		329			179
		41,270			49,958
Less accumulated depreciation and amortization		(10,025	)		(15,449	)
	$	31,245		$	34,509

Accrued and Other Current Liabilities

Accrued and Other Current Liabilities

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

	June 30, 2012		December 31, 2012
Accrued compensation	$	19,034	$	19,705
Accrued warranty expense		2,825		4,275
Accrued other liabilities		7,328		9,870
	$	29,187	$	33,850

Long-term Other Liabilities

Long-term Other Liabilities

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

	June 30, 2012		December 31, 2012
Long-term deferred tax liability	$	4,026	$	4,026
Long-term deferred rent		8,250		9,565
	$	12,276	$	13,591

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Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Revenue	$ 120,569	$ 84,131	$ 238,684	$ 158,516
Cost of revenue	46,010	41,206	94,004	68,560
Gross profit	74,559	42,925	144,680	89,956
Operating expenses:
Sales and marketing	28,676	20,265	53,696	37,742
Research and development	22,427	13,479	43,995	24,631
General and administrative	16,562	13,228	31,646	26,965
Total operating expenses	67,665	46,972	129,337	89,338
(Loss) income from operations	6,894	(4,047)	15,343	618
Other income (expense):
Interest income	99	66	213	115
Interest expense	(18)	(44)	(48)	(90)
Other (expense) income, net	15	(663)	(14)	132
(Loss) income before income taxes	6,990	(4,688)	15,494	775
Income tax (expense) benefit	(5,258)	(1,021)	(9,829)	705
Net (loss) income	$ 1,732	$ (5,709)	$ 5,665	$ 1,480
Net (loss) income per common share:
Basic	$ 0.02	$ (0.07)	$ 0.06	$ 0.02
Diluted	$ 0.02	$ (0.07)	$ 0.05	$ 0.01
Weighted-average number of shares:
Basic	95,838	84,961	95,030	83,485
Diluted	109,048	84,961	108,737	104,599

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Long-term Obligations

6 Months Ended

Dec. 31, 2012

Long-term Obligations

6. Long-term Obligations

Loan and Security Agreement

The Company maintained a loan and security agreement (the “Revolving Line of Credit”) with a financial institution prior to its maturity on December 31, 2012. The Revolving Line of Credit allowed the Company to borrow up to a limit of $25,000,000, including the issuance of letters of credit. Borrowings under the Revolving Line of Credit would have accrued interest at a per annum rate equal to, at the Company’s option, a floating per annum rate equal to the prime rate as published in the Wall Street Journal, or the LIBOR rate (based on 1, 2, 3 or 6-month interest periods) plus a margin equal to two percent (2.00%) per annum. The quarterly unused commitment fee was equal to one-quarter of one percent (0.25%) per annum of the difference between the $25,000,000 loan commitment and the average daily balance of borrowings outstanding on the last day of each quarter. Under the terms of the Revolving Line of Credit, the Company was required to maintain the following minimum financial covenants on a consolidated basis:

• A ratio of current assets to current liabilities plus, without duplication, any of the Company’s obligations to the financial institution, of at least 1.25 to 1.00.

• A tangible net worth of at least $25,000,000, plus 25% of the net proceeds the Company received from the sale or issuance of its equity or subordinated debt, such increase to be measured as of the last day of the quarter in which the Company received such proceeds.

During the three and six months ended December 31, 2012, there were no borrowings against the Revolving Line of Credit and the Company was in compliance with all covenants.

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Goodwill and Intangible Assets

6 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets

5. Goodwill and Intangible Assets

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

	Total
Balance as of June 30, 2012	$	54,777
Current period acquisitions		—
Balance as of December 31, 2012	$	54,777

The Company’s goodwill is not deductible for income tax purposes.

The Company’s intangible assets and related accumulated amortization consisted of the following as of December 31, 2012 (in thousands):

	Weighted-Average Useful Life		Cost		Accumulated Amortization			Net
Developed technology		4 years	$	10,500	$	(3,648	)	$	6,852

Amortization expense related to intangible assets was $656,000 for the three months ended December 31, 2011 and 2012, and $1,021,000 and $1,313,000 for the six months ended December 31, 2011 and 2012, respectively. Estimated amortization expense in future periods through fiscal year 2016 for intangible assets subject to amortization is as follows (in thousands):

Fiscal Year Ended June 30,	Total
Remaining 2013		1,313
2014		2,625
2015		2,625
2016		289
	$	6,852

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Stockholders' Equity (Tables)

6 Months Ended

Dec. 31, 2012

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

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

	Three Months Ended December 31,					Six Months Ended December 31,
	2011			2012		2011			2012
Expected volatility		59.6–60.2	%		—		59.1–60.2	%		61.4–63.1	%
Expected term (in years)		5.5–6.1			—		5.2–6.6			4.5–5.4
Risk-free interest rate		1.0–1.3	%		—		1.0–2.0	%		0.6–0.7	%
Expected dividends		—			—		—			—

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

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

	Three Months Ended December 31,						Six Months Ended December 31,
	2011			2012			2011			2012
Expected volatility		59.6–61.3	%		60.5–60.9	%		59.6–61.9	%		60.5–61.8	%
Expected term (in years)		6.8–9.4			5.8–8.4			6.8–9.7			5.8–8.7
Risk-free interest rate		1.9–2.2	%		1.4–1.8	%		1.9–2.4	%		1.3–1.8	%
Expected dividends		—			—			—			—

Activity Related to Restricted Stock Units and Restricted Stock Awards

The following table summarizes activity during the six months ended December 31, 2012 related to restricted stock units (“RSUs”) and RSAs:

	Number of Shares			Weighted-Average Grant-Date Fair Value
Unvested RSUs and RSAs at June 30, 2012		1,957,566		$	24.17
Granted		1,129,130			26.53
Vested		(321,337	)		24.29
Forfeited		(4,965	)		28.40
Cancelled		(37,396	)		28.61
Unvested RSUs and RSAs at December 31, 2012		2,722,998		$	25.11

Total Stock-Based Compensation Expense

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2011		2012		2011		2012
Cost of revenue	$	50	$	19	$	77	$	128
Sales and marketing		1,464		2,501		2,567		4,635
Research and development		1,669		4,582		3,288		9,009
General and administrative		6,774		6,827		13,801		14,046
Total stock-based compensation	$	9,957	$	13,929	$	19,733	$	27,818

Employee Stock Options

Stock Option Activity

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2011		2012		2011		2012
Weighted-average grant date fair value – granted	$	17.00	$	—	$	12.31	$	15.35
Weighted-average grant date fair value – assumed in connection with the acquisition of IO Turbine		—		—		27.31		—
Weighted-average grant date fair value – forfeited		10.59		18.43		10.40		18.12

Equity Incentive Plans

Stock Option Activity

Stock option activity for all the Equity Incentive Plans for the six months ended December 31, 2012 was as follows:

	Number of Shares Subject to Outstanding Options			Weighted- Average Exercise Price Per Share		Weighted- Average Contractual Term (in Years)		Aggregate Intrinsic Value (1)
								(in thousands)
Outstanding as of June 30, 2012		19,885,406		$	5.21
Granted		685,050			28.86
Exercised		(2,543,491	)		2.41
Canceled		(69,476	)		18.76
Outstanding as of December 31, 2012		17,957,489		$	6.46		7.63	$	295,759
Vested and expected to vest as of December 31, 2012		16,533,621		$	6.09		7.58	$	278,464
Vested and exercisable as of December 31, 2012		7,884,362		$	4.21		7.16	$	147,573

(1) The aggregate intrinsic value is equal to the difference between the exercise price of the underlying stock option awards and the fair value of the Company’s common stock as of December 31, 2012.

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Fair Value Measurements (Tables)

6 Months Ended

Dec. 31, 2012

Fair Value of Financial Assets

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

	Fair Value Measurements at June 30, 2012
Description	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	266,944	$	—	$	—	$	266,944

	Fair Value Measurements at December 31, 2012
Description	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	267,136	$	—	$	—	$	267,136

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Commitments and Contingencies

6 Months Ended

Dec. 31, 2012

Commitments and Contingencies

9. Commitments and Contingencies

Letters of Credit

As of June 30, 2012 and December 31, 2012, the Company had a total of $3,183,000 in letters of credit outstanding with a financial institution. These outstanding letters of credit were issued for purposes of securing the Company’s obligations under facility leases prior to December 31, 2012. Subsequent to December 31, 2012, the letters of credit were collateralized by the Company’s cash.

Leases

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

Fiscal Year Ended June 30,	Operating Leases
Remaining 2013	$	3,077
2014		5,745
2015		6,229
2016		6,374
2017		6,454
Thereafter		25,576
Total	$	53,455

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

The Company also leases certain equipment under operating leases that expire at various dates through 2016. These equipment leases typically include provisions that allow the Company at the end of the initial lease term to renew the lease, purchase the underlying equipment at the then fair market value, or return the equipment to the lessor.

Rent expense was $1,161,000 and $1,729,000 for the three months ended December 31, 2011 and 2012, respectively, and $2,143,000 and $3,469,000 for the six months ended December 31, 2011 and 2012, respectively.

Purchase Commitments

In May 2012, the Company entered into a minimum purchase commitment for raw materials inventory that ends in June 2013 and provides for a termination fee based on a percentage of the amount of raw materials inventory not taken under the commitment. In November 2012, the Company amended the minimum purchase commitment to purchase additional raw material inventory. As of December 31, 2012, approximately $20,233,000 remained outstanding under this commitment.

Indemnification

The Company has agreed to indemnify its officers and directors for certain events or occurrences, while the officer or director is or was serving at the Company’s request in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that provides corporate reimbursement coverage that limits its exposure and enables it to recover a portion of any future amounts paid. The Company is unable to reasonably estimate the maximum amount that could be payable under these arrangements since these obligations are not capped but are conditional to the unique facts and circumstances involved. Accordingly, the Company has no liabilities recorded for these agreements as of June 30, 2012 and December 31, 2012.

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

Employee Agreements

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

Legal Matters

The Company is subject to legal proceedings and claims arising in the ordinary course of business, including claims of alleged infringement of third-party intellectual property rights. With respect to certain of these matters, the Company’s third-party suppliers have agreed to indemnify and defend the Company.

On September 7, 2011, Solid State Storage Solutions, Inc. filed a lawsuit in U.S. District Court for the Eastern District of Texas against the Company and eight other companies. The complaint alleges that the Company’s products infringe U.S. Patent Nos. 6,701,471; 7,234,087; 7,721,165; 6,370,059; 7,366,016; 7,746,697; 7,616,485; 6,341,085; 6,567,334; 6,347,051; 7,064,995; and 7,327,624. The complaint seeks both damages and a permanent injunction against the Company. Based on the Company’s preliminary investigation of the patents identified in the complaint, the Company does not believe that its products infringe any valid or enforceable claim of these patents. On January 3, 2013, the Court stayed the case pending resolution of the Company’s motion to transfer the lawsuit to Utah. On January 18, 2013, the Court denied the Company’s transfer motion and lifted the stay. The Company intends to appeal the denial of transfer. The Court rescheduled the patent claim construction hearing for March 6, 2013. The Court previously set a schedule calling for a trial commencing on July 1, 2013.

No amount has been accrued or disclosed as of December 31, 2012, as the Company has determined that an unfavorable resolution is either not currently probable or that an amount or relevant range of a possible loss is not reasonably estimable. However, litigation is inherently unpredictable and it is possible that a loss may occur related to the aforementioned lawsuit. Any unfavorable resolution of any of these matters could materially affect the Company’s consolidated financial position, cash flows, or results of operations. All legal costs associated with litigation are expensed as incurred.

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Income Taxes

6 Months Ended

Dec. 31, 2012

Income Taxes

7. Income Taxes

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

The components of the Company income tax expense or benefit include state income taxes, foreign income taxes, U.S. federal alternative minimum tax, and effects of stock-based awards. Income tax expense was $1,021,000 and $5,258,000 for the three months ended December 31, 2011 and 2012, respectively, or 22% and 75% of (loss) income before income taxes, respectively. Income tax benefit was $705,000 and income tax expense was $9,829,000 for the six months ended December 31, 2011 and 2012, respectively, or a benefit of 91% and an expense of 63% of income before income taxes, respectively. The Company’s effective tax rate for the three and six months ended December 31, 2012 is higher when compared to the same periods in the prior year primarily due to the income tax benefit recorded in the prior year as a result of a valuation allowance reversal related to deferred tax liabilities generated from the acquisition of IO Turbine. In addition, the prior year taxable income was substantially offset by net operating losses which are no longer available in the current year. The effective tax rate for the three and six months ended December 31, 2012 differs from the U.S. federal statutory rate of 35% primarily due to the Company’s full valuation allowance against its net deferred tax assets and the tax effect of stock-based awards.

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

The Company is subject to income taxes in various U.S. and foreign jurisdictions and to continual examination by tax authorities. Significant judgment is required in evaluating the Company’s uncertain tax positions and determining its provision for income taxes. During the six months ended December 31, 2012, the aggregate change in the total gross amount of unrecognized tax benefits was as follows (in thousands):

	Total
Balance at June 30, 2012	$	2,709
Decrease of unrecognized tax benefits taken in prior years		(39	)
Increase in unrecognized tax benefits related to current year		546
Balance at December 31, 2012	$	3,216

The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. The Company did not incur any material interest or penalties related to income taxes in any of the periods presented. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $792,000. The Company does not anticipate any significant change of its uncertain tax positions within fiscal year 2013, and the Company does not anticipate any events which could cause a change to these uncertainties.

As of December 31, 2012, the Company had federal net operating loss carryforwards of $206,319,000, of which $203,183,000 related to stock option deductions claimed for tax purposes greater than the deductions claimed for book purposes. As of December 31, 2012, the Company had state net operating loss carryforwards of $176,090,000, of which $171,169,000 related to stock option deductions claimed for tax purposes greater than the deductions claimed for book purposes. Additionally, the Company had federal research and development tax credit carryforwards of $2,543,000, of which $2,492,000 related to stock option deductions claimed for tax purposes greater than the deductions claimed for book purposes. The Company had state research and development tax credit carryforwards of $2,538,000, of which $537,000 related to stock option deductions claimed for tax purposes greater than the deductions claimed for book purposes. In the future, the Company intends to utilize any carryforwards available to reduce its tax payments.

The Company recorded directly to equity a tax benefit of $5,008,000 and $9,393,000 for the three and six months ended December 31, 2012, respectively, related to certain tax deductions for stock-based awards.

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Stockholders' Equity

6 Months Ended

Dec. 31, 2012

Stockholders' Equity

8. Stockholders’ Equity

Equity Incentive Plans

On July 1, 2012, the number of authorized shares of common stock available for issuance under the 2011 Equity Incentive Plan (the “2011 Plan”) was increased by 4,681,423 shares in accordance with the provisions of the 2011 Plan. At December 31, 2012, a total of 11,177,117 shares of common stock were available for grant under the 2011 Plan.

Stock option activity for all the Equity Incentive Plans for the six months ended December 31, 2012 was as follows:

	Number of Shares Subject to Outstanding Options			Weighted- Average Exercise Price Per Share		Weighted- Average Contractual Term (in Years)		Aggregate Intrinsic Value (1)
								(in thousands)
Outstanding as of June 30, 2012		19,885,406		$	5.21
Granted		685,050			28.86
Exercised		(2,543,491	)		2.41
Canceled		(69,476	)		18.76
Outstanding as of December 31, 2012		17,957,489		$	6.46		7.63	$	295,759
Vested and expected to vest as of December 31, 2012		16,533,621		$	6.09		7.58	$	278,464
Vested and exercisable as of December 31, 2012		7,884,362		$	4.21		7.16	$	147,573

(1) The aggregate intrinsic value is equal to the difference between the exercise price of the underlying stock option awards and the fair value of the Company’s common stock as of December 31, 2012.

Employee Stock Options

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2011		2012		2011		2012
Weighted-average grant date fair value – granted	$	17.00	$	—	$	12.31	$	15.35
Weighted-average grant date fair value – assumed in connection with the acquisition of IO Turbine		—		—		27.31		—
Weighted-average grant date fair value – forfeited		10.59		18.43		10.40		18.12

The aggregate intrinsic value of stock options exercised was $88,794,000 and $19,305,000 for the three months ended December 31, 2011 and 2012, respectively, and $90,880,000 and $60,881,000 for the six months ended December 31, 2011 and 2012, respectively, which reflected the difference between the exercise prices of the underlying stock option awards and the fair value of the Company’s common stock on the date of exercise.

The Company recorded stock-based compensation expense related to employee stock options of $4,522,000 and $5,079,000 for the three months ended December 31, 2011 and 2012, respectively, and $6,965,000 and $10,172,000 for the six months ended December 31, 2011 and 2012, respectively. As of December 31, 2012, there was $46,115,000 of total unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average service period of 2.7 years.

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

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

	Three Months Ended December 31,					Six Months Ended December 31,
	2011			2012		2011			2012
Expected volatility		59.6–60.2	%		—		59.1–60.2	%		61.4–63.1	%
Expected term (in years)		5.5–6.1			—		5.2–6.6			4.5–5.4
Risk-free interest rate		1.0–1.3	%		—		1.0–2.0	%		0.6–0.7	%
Expected dividends		—			—		—			—

Non-employee Stock Options

The Company from time to time grants options to purchase common stock to non-employees for advisory and consulting services. The Company estimates the fair value of these stock options using the Black-Scholes-Merton option pricing formula at each balance sheet date and records expense ratably over the vesting period of each stock option award. The Company recorded stock-based compensation expense related to these non-employee stock options of $2,231,000 and $1,772,000 for the three months ended December 31, 2011 and 2012, respectively, and $3,974,000 and $4,520,000 for the six months ended December 31, 2011 and 2012, respectively.

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

	Three Months Ended December 31,						Six Months Ended December 31,
	2011			2012			2011			2012
Expected volatility		59.6–61.3	%		60.5–60.9	%		59.6–61.9	%		60.5–61.8	%
Expected term (in years)		6.8–9.4			5.8–8.4			6.8–9.7			5.8–8.7
Risk-free interest rate		1.9–2.2	%		1.4–1.8	%		1.9–2.4	%		1.3–1.8	%
Expected dividends		—			—			—			—

Restricted Stock Units and Restricted Stock Awards

The following table summarizes activity during the six months ended December 31, 2012 related to restricted stock units (“RSUs”) and RSAs:

	Number of Shares			Weighted-Average Grant-Date Fair Value
Unvested RSUs and RSAs at June 30, 2012		1,957,566		$	24.17
Granted		1,129,130			26.53
Vested		(321,337	)		24.29
Forfeited		(4,965	)		28.40
Cancelled		(37,396	)		28.61
Unvested RSUs and RSAs at December 31, 2012		2,722,998		$	25.11

The Company recorded stock-based compensation expense related to RSUs and RSAs of $2,892,000 and $6,362,000 for the three months ended December 31, 2011 and 2012, respectively, and $8,162,000 and $11,706,000 for the six months ended December 31, 2011 and 2012, respectively. Of the stock-based compensation expense recognized during the six months ended December 31, 2011, approximately $3,795,000 was due to accelerated vesting of certain RSAs assumed in connection with the IO Turbine acquisition, of which $793,000 related to awards that were settled in cash at the time of acquisition. At December 31, 2012, there was $61,023,000 of total unrecognized compensation cost related to unvested RSUs and RSAs. This unrecognized compensation cost is equal to the fair value of RSUs and RSAs expected to vest and will be recognized over a weighted-average period of 3.2 years.

Repurchases of Vested Restricted Stock Units

The Company is required to withhold minimum statutory taxes related to the vesting of RSUs, including the forfeiting of a portion of the newly vested award that has a current value equal to the withholding obligation. The Company is then required to remit the amount of taxes owed by the employee to the appropriate taxing authority. As a result of such forfeitures, during the six months ended December 31, 2012, the Company effectively repurchased a total of 79,137 shares of common stock related to employee tax withholding obligations. The Company has recorded $1,877,000 as a financing activity for these forfeitures in the condensed consolidated statement of cash flows for the six months ended December 31, 2012. There were no repurchases of vested restricted stock units during the six months ended December 31, 2011.

Employee Stock Purchase Plan

The Company recorded stock-based compensation expense related to its 2011 Employee Stock Purchase Plan (“ESPP”) of $312,000 and $716,000 for the three months ended December 31, 2011 and 2012, respectively, and $632,000 and $1,420,000 for the six months ended December 31, 2011 and 2012, respectively. On July 1, 2012, the number of authorized shares available for issuance under the ESPP was increased by 936,284 shares in accordance with the provisions of the ESPP. During the six months ended December 31, 2012, the Company issued 158,241 shares of common stock under the ESPP. At December 31, 2012, a total of 1,129,105 shares of common stock were reserved for future issuance under the ESPP.

Stock-based Compensation Expense

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2011		2012		2011		2012
Cost of revenue	$	50	$	19	$	77	$	128
Sales and marketing		1,464		2,501		2,567		4,635
Research and development		1,669		4,582		3,288		9,009
General and administrative		6,774		6,827		13,801		14,046
Total stock-based compensation	$	9,957	$	13,929	$	19,733	$	27,818

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

6 Months Ended

Dec. 31, 2012

Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated balance sheets and the condensed consolidated statements of operations, comprehensive (loss) income, and cash flows are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which are considered of a normal recurring nature) considered necessary to present fairly the Company’s financial position, results of operations, and cash flows. The results of operations for the three and six months ended December 31, 2012 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2013 or any other period.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2012 (the “2012 Annual Report”) filed with the Securities and Exchange Commission (the “SEC”).

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

Segment and Geographic Information

Segment and Geographic Information

Operating segments are defined in accounting standards as components of an enterprise about which separate financial information is available and is regularly evaluated by management, namely the chief operating decision maker of an organization, in order to make operating and resource allocation decisions. The Company has concluded it operates in one business segment, which is the development, marketing, and sale of storage memory platforms. Substantially all of the Company’s revenue for all periods presented in the accompanying condensed consolidated statements of operations has been from sales of the ioDrive product lines and related customer support services. The Company’s headquarters and most of its operations are located in the United States; however, it conducts sales activities through sales offices in Europe and Asia. Revenue recognized from sales with a ship-to location outside of the United States was 30% and 45% of revenue for the three months ended December 31, 2011 and 2012, respectively, and 30% and 41% of revenue for the six months ended December 31, 2011 and 2012, respectively. Revenue recognized from sales to customers with a ship-to address in Sweden was 22% of revenue for the three months ended December 31, 2012 and 11% of revenue for the six months ended December 31, 2012, and revenue recognized from sales to customers with a ship-to address in Germany was 10% of revenue for the six months ended December 31, 2012. No other country outside of the United States accounted for 10% or more of revenue for all periods presented. Long-lived assets located outside of the United States were not material for all periods for which a condensed consolidated balance sheet is presented.

Use of Estimates

Use of Estimates

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

Significant Customers

Significant Customers

Customers that accounted for 10% or more of the Company’s revenue represented 71% and 69% of revenue for the three months ended December 31, 2011 and 2012, respectively, and 74% and 70% of revenue for the six months ended December 31, 2011 and 2012, respectively. As a result of the concentration of the Company’s customers, and typically a small number of large purchases by these customers, revenue, gross margin, and operating results may fluctuate significantly from period to period.

Product Warranty

Product Warranty

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

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

	Total
Balance at June 30, 2012	$	2,825
Warranty costs accrued		2,499
Warranty claims		(1,049	)
Balance at December 31, 2012	$	4,275

Warranty costs accrued includes amounts accrued for products at the time of shipment, adjustments for changes in estimated costs for warranties on products shipped in the period, and changes in estimated costs for warranties on products shipped in prior periods. It is not practicable to determine the amounts applicable to each of these components.

Net (Loss) Income Per Share

Net (Loss) Income Per Share

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

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

	Three Months Ended December 31,						Six Months Ended December 31,
	2011			2012			2011			2012
Numerator:
Net (loss) income	$	(5,709	)	$	1,732		$	1,480		$	5,665
Denominator:
Weighted-average common shares outstanding		85,322			95,997			83,778			95,168
Less weighted-average common shares outstanding subject to repurchase		(361	)		(159	)		(293	)		(138	)
Weighted-average shares, basic		84,961			95,838			83,485			95,030
Dilution due to stock options, common stock warrant, restricted stock awards and restricted stock units		—			13,210			21,114			13,707
Weighted-average shares, diluted		84,961			109,048			104,599			108,737

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2011		2012		2011		2012
Stock options		20,590		12,868		4,499		13,400
Common stock subject to repurchase		156		342		—		307
Warrant – common		37		—		—		—
Total		20,783		13,210		4,499		13,707

Recently Issued and Adopted Accounting Pronouncements

Recently Issued and Adopted Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (the “FASB”) issued new guidance which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive (loss) income (“OCI”) by eliminating the option to present components of OCI as part of the statement of changes in stockholders’ equity. The amendments in this standard require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive (loss) income or in two separate but consecutive statements. Subsequently in December 2011, the FASB issued additional guidance, which indefinitely defers the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement where the components of net income and the components of OCI are presented. The amendments in these standards do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components. The Company adopted this guidance retrospectively in the first quarter of fiscal year 2013. The adoption of this guidance did not have an impact on the Company’s results of operations, financial position, or cash flows as it related only to financial statement presentation.

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Long-term Other Liabilities (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Jun. 30, 2012
Schedule Of Accrued Liabilities [Line Items]
Long-term deferred tax liability	$ 4,026	$ 4,026
Long-term deferred rent	9,565	8,250
Other liabilities	$ 13,591	$ 12,276

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Commitments and Contingencies - Additional Information (Detail) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Jun. 30, 2012
Contingencies And Commitments [Line Items]
Letters of credit outstanding	$ 3,183,000		$ 3,183,000		$ 3,183,000
Lease expiration date			2021
Expiry date of operating leases			2016
Maximum Rent expense	1,729,000	1,161,000	3,469,000	2,143,000
Raw materials inventory	$ 20,233,000		$ 20,233,000

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Goodwill and Intangible Assets (Tables)

6 Months Ended

Dec. 31, 2012

Changes in Carrying Amount of Goodwill

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

	Total
Balance as of June 30, 2012	$	54,777
Current period acquisitions		—
Balance as of December 31, 2012	$	54,777

Company's Intangible Assets and Related Accumulated Amortization

The Company’s intangible assets and related accumulated amortization consisted of the following as of December 31, 2012 (in thousands):

	Weighted-Average Useful Life		Cost		Accumulated Amortization			Net
Developed technology		4 years	$	10,500	$	(3,648	)	$	6,852

Estimated Amortization Expenses

Estimated amortization expense in future periods through fiscal year 2016 for intangible assets subject to amortization is as follows (in thousands):

Fiscal Year Ended June 30,	Total
Remaining 2013		1,313
2014		2,625
2015		2,625
2016		289
	$	6,852

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Changes in Product Warranty Liability (Detail) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Dec. 31, 2012
Guarantor Obligations [Line Items]
Balance at beginning of period	$ 2,825
Warranty costs accrued	2,499
Warranty claims	(1,049)
Balance at end of period	$ 4,275

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Activity Related to Restricted Stock Units and Restricted Stock Awards (Detail) (USD $)	6 Months Ended
	Dec. 31, 2012
Number of Shares
Outstanding, Beginning	1,957,566
Granted	1,129,130
Vested	(321,337)
Forfeited	(4,965)
Cancelled	(37,396)
Outstanding, Ending	2,722,998
Weighted Average Grant Date Fair Value
Outstanding, Beginning	$ 24.17
Granted	$ 26.53
Vested	$ 24.29
Forfeited	$ 28.40
Cancelled	$ 28.61
Outstanding, Ending	$ 25.11

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Estimated Amortization Expenses (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Jun. 30, 2012
Expected Amortization Expense [Line Items]
Remaining 2013	$ 1,313
2014	2,625
2015	2,625
2016	289
Intangible assets, net	$ 6,852	$ 8,164

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Consolidated Statements of Comprehensive Income (Loss) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Net (loss) income	$ 1,732	$ (5,709)	$ 5,665	$ 1,480
Foreign currency translation adjustment	(21)	(12)	3	(39)
Comprehensive (loss) income	$ 1,711	$ (5,721)	$ 5,668	$ 1,441

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Acquisitions

6 Months Ended

Dec. 31, 2012

Acquisitions

4. Acquisitions

On August 11, 2011, the Company acquired 100% of the stock of IO Turbine, Inc. (“IO Turbine”) pursuant to the Agreement and Plan of Reorganization (the “Merger Agreement”) dated August 4, 2011. IO Turbine was a provider of caching solutions for virtual environments, based in San Jose, California. Accordingly, the assets, liabilities, and operating results of IO Turbine are reflected in the Company’s condensed consolidated financial statements following the date of acquisition. The fair value of the aggregate purchase price was approximately $65,568,000, which consisted of (1) cash of approximately $21,199,000, (2) approximately $43,485,000 in common stock valued at $28.40 per share, the closing sale price of the Company’s common stock on the closing date of the acquisition, and (3) approximately $884,000 in assumed stock options attributable to pre-acquisition service. In addition, subsequent to the acquisition, the Company has been recognizing and will continue to recognize up to approximately $26,421,000 of stock-based compensation expense related to the fair value of assumed restricted stock awards (“RSAs”) and stock options, of which approximately $3,795,000 were expensed immediately in connection with the acceleration of vesting of certain restricted stock awards and the remainder will continue to be recognized over the underlying future service period of the assumed stock awards and stock options. At the time of acquisition, IO Turbine stockholders holding RSAs had the option to receive cash and/or shares of the Company’s common stock for their unvested RSAs based on a fixed value determined at the acquisition date. As a result, the Company: (1) issued approximately 414,000 shares of its common stock that remain subject to forfeiture based on the original vesting schedule applicable to such awards and (2) will pay up to approximately $4,631,000 in cash in accordance with the original vesting schedule applicable to such awards. Of this total cash amount, approximately $2,957,000 had been paid through December 31, 2012.

Operating expenses associated with IO Turbine were approximately $5,176,000 and $2,922,000 for the three months ended December 31, 2011 and 2012, respectively, and $11,619,000 and $5,978,000 for the six months ended December 31, 2011 and 2012, respectively. Stock-based compensation expense related to IO Turbine was approximately $2,788,000 and $2,224,000 for the three months ended December 31, 2011 and 2012, respectively, and $8,049,000 and $4,493,000 for the six months ended December 31, 2011 and 2012, respectively.

Unaudited pro forma financial information

The following unaudited pro forma financial information is based on the combined historical financial statements of the Company and IO Turbine after giving effect to the Company’s acquisition of IO Turbine as if it had occurred as of July 1, 2010 and includes pro forma adjustments related to the amortization of acquired intangible assets, stock-based compensation expense, and depreciation expense (in thousands, except per share data):

	Three Months Ended December 31,					Six Months Ended December 31,
	2011			2012		2011			2012
Revenue	$	84,131		$	120,569	$	158,516		$	238,684
Net (loss) income from operations		(4,047	)		6,894		(3,635	)		15,343
Net (loss) income		(5,709	)		1,732		(2,775	)		5,665
Net (loss) income per share, basic	$	(0.07	)	$	0.02	$	(0.03	)	$	0.06
Net (loss) income per share, diluted	$	(0.07	)	$	0.02	$	(0.03	)	$	0.05

The amounts in the table above do not include non-recurring expense of approximately $3,795,000 related to the acceleration of vesting on certain stock-based awards that was recorded by the Company as stock-based compensation expense in the six months ended December 31, 2011.

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Reconciliation of Numerator and Denominator Used in Calculation of Basic and Diluted Net Income (Loss) Per Share (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Numerator:
Net (loss) income	$ 1,732	$ (5,709)	$ 5,665	$ 1,480
Denominator:
Weighted-average common shares outstanding	95,997	85,322	95,168	83,778
Less weighted-average common shares outstanding subject to repurchase	(159)	(361)	(138)	(293)
Weighted-average shares, basic	95,838	84,961	95,030	83,485
Dilution due to stock options, common stock warrant, restricted stock awards and restricted stock units	13,210		13,707	21,114
Weighted-average shares, diluted	109,048	84,961	108,737	104,599

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Changes In Carrying Amount of Goodwill (Detail) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Dec. 31, 2012
Goodwill And Intangible Assets [Line Items]
Balance at beginning of period	$ 54,777
Current period acquisitions
Balance at end of period	$ 54,777

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Acquisitions (Tables)

6 Months Ended

Dec. 31, 2012

Pro Forma Financial Information

The following unaudited pro forma financial information is based on the combined historical financial statements of the Company and IO Turbine after giving effect to the Company’s acquisition of IO Turbine as if it had occurred as of July 1, 2010 and includes pro forma adjustments related to the amortization of acquired intangible assets, stock-based compensation expense, and depreciation expense (in thousands, except per share data):

	Three Months Ended December 31,					Six Months Ended December 31,
	2011			2012		2011			2012
Revenue	$	84,131		$	120,569	$	158,516		$	238,684
Net (loss) income from operations		(4,047	)		6,894		(3,635	)		15,343
Net (loss) income		(5,709	)		1,732		(2,775	)		5,665
Net (loss) income per share, basic	$	(0.07	)	$	0.02	$	(0.03	)	$	0.06
Net (loss) income per share, diluted	$	(0.07	)	$	0.02	$	(0.03	)	$	0.05