Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except par value)

December 31,

December 31,

2013

2012

ASSETS

Current assets:

Cash and cash equivalents

$        101,213

$          75,104

Short-term investments

125,126

85,521

Accounts receivable, net of allowances of $0 as of December 31, 2013 and $20 as of December 31, 2012

23,730

19,383

Inventories

39,737

32,115

Deferred income tax assets, net - current

294

1

Prepaid expenses and other current assets

1,986

2,177

Total current assets

292,086

214,301

Property and equipment, net

64,837

59,412

Long-term investments

9,860

11,755

Deferred income tax assets, net - long-term

481

669

Other long-term assets

1,644

1,025

Total assets

$        368,908

$        287,162

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$          10,694

$            9,859

Accrued compensation and related benefits

10,419

7,686

Accrued liabilities

17,376

5,915

Total current liabilities

38,489

23,460

Long-term liabilities

1,478

-

Non-current income tax liabilities

5,542

5,408

        Total liabilities

45,509

28,868

Stockholders' equity:

Common stock, $0.001 par value; shares authorized: 150,000; shares issued and outstanding: 38,291 and 35,673 as of December 31, 2013 and December 31, 2012, respectively

234,201

194,079

Retained earnings 

82,938

60,040

Accumulated other comprehensive income

6,260

4,175

Total stockholders' equity

323,399

258,294

Total liabilities and stockholders' equity

$        368,908

$        287,162

Condensed Consolidated Statement of Operations

(Unaudited, in thousands, except per share amounts)

Three Months Ended December 31,

Year Ended December 31,

2013

2012

2013

2012

Revenue 

$ 63,560

$ 48,214

$ 238,091

$ 213,813

Cost of revenue (1)

29,266

22,661

110,190

100,665

Gross profit 

34,294

25,553

127,901

113,148

Operating expenses:

  Research and development (1)

12,487

13,243

49,733

48,796

  Selling, general and administrative (1)

13,683

13,930

54,624

50,018

  Litigation expense (benefit), net

84

(2,600)

(371)

(2,945)

Total operating expenses 

26,254

24,573

103,986

95,869

Income from operations 

8,040

980

23,915

17,279

Interest and other income (expense), net

(57)

(10)

92

611

Income before income taxes 

7,983

970

24,007

17,890

Income tax provision 

484

722

1,109

2,134

Net income 

$   7,499

$      248

$   22,898

$   15,756

Basic net income per share 

$     0.20

$     0.01

$       0.61

$       0.45

Diluted net income per share 

$     0.19

$     0.01

$       0.59

$       0.43

Weighted average common shares outstanding:

          Basic

38,328

35,556

37,387

34,871

          Diluted

39,524

36,763

38,620

36,247

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

           Cost of revenue

$      166

$      185

$        631

$        510

          Research and development

1,661

2,667

6,219

6,922

          Selling, general and administrative

3,792

4,474

13,851

11,220

        Total stock-based compensation expense

$   5,619

$   7,326

$   20,701

$   18,652

RECONCILIATION OF NET INCOME TO NON-GAAP NET INCOME

(Unaudited, in thousands, except per share amounts)

Three Months Ended December 31,

Year Ended December 31,

2013

2012

2013

2012

Net income 

$   7,499

$      248

$   22,898

$   15,756

   Net income as a percentage of revenue

11.8%

0.5%

9.6%

7.4%

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

    Stock-based compensation

$   5,619

$   7,326

$   20,701

$   18,652

     Deferred compensation plan expense, net

12

-

21

-

    Cash award 

-

-

(266)

-

    Tax effect 

(537)

100

(2,226)

(607)

    Non-GAAP net income

$ 12,593

$   7,674

$   41,128

$   33,801

        Non-GAAP net income as a percentage of revenue

19.8%

15.9%

17.3%

15.8%

Non-GAAP earnings per share:

    Basic

$     0.33

$     0.22

$       1.10

$       0.97

    Diluted

$     0.32

$     0.21

$       1.06

$       0.93

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

    Basic

38,328

35,556

37,387

34,871

    Diluted

39,524

36,763

38,620

36,247

RECONCILIATION OF OPERATING EXPENSES TO NON-GAAP OPERATING EXPENSES

(Unaudited, in thousands)

Three Months Ended December 31,

Year Ended December 31,

2013

2012

2013

2012

Total operating expenses

$ 26,254

$ 24,573

$ 103,986

$   95,869

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

    Stock-based compensation

$ (5,453)

$ (7,141)

$ (20,070)

$ (18,142)

    Deferred compensation plan expense, net

(8)

-

(11)

-

    Non-GAAP operating expenses

$ 20,793

$ 17,432

$   83,905

$   77,727

RECONCILIATION OF OPERATING INCOME TO NON-GAAP OPERATING INCOME

(Unaudited, in thousands)

Three Months Ended December 31,

Year Ended December 31,

2013

2012

2013

2012

Total operating income

$   8,040

$      980

$   23,915

$   17,279

   Operating income as a percentage of revenue

12.6%

2.0%

10.0%

8.1%

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

    Stock-based compensation

$   5,619

$   7,326

$   20,701

$   18,652

    Deferred compensation plan expense, net

8

-

11

-

    Non-GAAP operating income

$ 13,667

$   8,306

$   44,627

$   35,931

       Non-GAAP operating income as a percentage of revenue

21.5%

17.2%

18.7%

16.8%

2014 FIRST QUARTER OUTLOOK

RECONCILIATION OF R&D AND SG&A EXPENSES TO NON-GAAP R&D AND SG&A EXPENSES

(Unaudited, in thousands)

Three Months Ending
March 31, 2014

Low

High

R&D and SG&A

$       26,300

$         29,500

Adjustments to reconcile R&D and SG&A to non-GAAP R&D and SG&A

    Stock-based compensation and deferred compensation plan expense

(6,300)

(7,000)

    Non-GAAP R&D and SG&A

$       20,000

$         22,500