Condensed Consolidated Statement of Operations
(Unaudited, in thousands, except per share amounts)

Three months ended September 30,

Nine months ended September 30,

2013

2012

2013

2012

Revenue 

$ 65,347

$ 56,508

$ 174,531

$ 165,599

Cost of revenue (1)

30,053

26,495

80,924

78,004

Gross profit 

35,294

30,013

93,607

87,595

Operating expenses:

  Research and development (1)

12,643

11,967

37,246

35,553

  Selling, general and administrative (1)

13,891

11,955

40,941

36,088

  Litigation expense (benefit)

104

(229)

(455)

(345)

          Total operating expenses 

26,638

23,693

77,732

71,296

Income from operations 

8,656

6,320

15,875

16,299

Interest and other income (expense), net

(59)

156

149

621

Income before income taxes 

8,597

6,476

16,024

16,920

Income tax provision 

1,187

555

625

1,412

Net income 

$   7,410

$   5,921

$   15,399

$   15,508

Basic net income per share 

$     0.20

$     0.17

$       0.42

$       0.45

Diluted net income per share 

$     0.19

$     0.16

$       0.40

$       0.43

Weighted average common shares outstanding:

          Basic

37,910

35,145

37,079

34,677

          Diluted

39,009

36,438

38,419

36,008

(1) Includes stock-based compensation expense as follows:

              Cost of revenue

$      163

$      112

$        465

$        325

          Research and development

1,491

1,465

4,557

4,255

          Selling, general and administrative

3,577

2,605

10,059

6,746

        Total stock-based compensation expense

$   5,231

$   4,182

$   15,081

$   11,326

RECONCILIATION OF NET INCOME TO NON-GAAP NET INCOME

(Unaudited, in thousands, except per share amounts)

Three months ended September 30,

Nine months ended September 30,

2013

2012

2013

2012

Net income 

$   7,410

$   5,921

$   15,399

$   15,508

   Net income as a percentage of revenue

11.3%

10.5%

8.8%

9.4%

Adjustments to reconcile net income to non-GAAP net income:

    Stock-based compensation

$   5,231

$   4,182

$   15,081

$   11,326

     Deferred compensation plan expense

9

-

9

-

    Cash award 

-

-

(266)

-

    Tax effect 

149

(244)

(1,689)

(706)

    Non-GAAP net income

$ 12,799

$   9,859

$   28,534

$   26,128

        Non-GAAP net income as a percentage of revenue

19.6%

17.4%

16.3%

15.8%

Non-GAAP earnings per share

    Basic

$     0.34

$     0.28

$       0.77

$       0.75

    Diluted

$     0.33

$     0.27

$       0.74

$       0.73

Shares used in the calculation of non-GAAP earnings per share:

    Basic

37,910

35,145

37,079

34,677

    Diluted

39,009

36,438

38,419

36,008

RECONCILIATION OF OPERATING EXPENSES TO NON-GAAP OPERATING EXPENSES

(Unaudited, in thousands)

Three months ended September 30,

Nine months ended September 30,

2013

2012

2013

2012

Total operating expenses

$ 26,638

$ 23,693

$   77,732

$   71,296

Adjustments to reconcile total operating expenses to non-GAAP total operating expenses:

    Stock-based compensation

$ (5,068)

$ (4,070)

$ (14,616)

$ (11,001)

    Deferred compensation plan expense

(3)

-

(3)

-

    Non-GAAP operating expenses

$ 21,567

$ 19,623

$   63,113

$   60,295

RECONCILIATION OF OPERATING INCOME TO NON-GAAP OPERATING INCOME

(Unaudited, in thousands)

Three months ended September 30,

Nine months ended September 30,

2013

2012

2013

2012

Total operating income

$   8,656

$   6,320

$   15,875

$   16,299

   Operating income as a percentage of revenue

13.2%

11.2%

9.1%

9.8%

Adjustments to reconcile total operating income to non-GAAP total operating income:

    Stock-based compensation

$   5,231

$   4,182

$   15,081

$   11,326

    Deferred compensation plan expense

3

-

3

-

    Non-GAAP operating income

$ 13,890

$ 10,502

$   30,959

$   27,625

       Non-GAAP operating income as a percentage of revenue

21.3%

18.6%

17.7%

16.7%