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Dot Hill Reports Third Quarter 2009 Results
Revenues increased 17% and gross margin increased 3.5 percentage points over second quarter 2009, leading to positive cash flow from operations of $3.3 million sequentially and $0.00 net loss per fully diluted share on a non-GAAP basis
CARLSBAD, Calif., Nov. 5 /PRNewswire-FirstCall/ -- Dot Hill Systems Corp. (Nasdaq: HILL) today announced financial results for the third quarter of 2009. The company recognized net revenue in the third quarter of 2009 of $63.6 million, as compared to $76.6 million for the third quarter of 2008 and $54.3 million for the second quarter of 2009.
Gross margin for the third quarter of 2009 was 18.3 percent, compared to 11.7 percent in the third quarter of 2008 and 14.7 percent in the second quarter of 2009. Operating expenses for the third quarter of 2009 were $12.9 million, as compared to $13.0 million in the third quarter of 2008 and $12.3 million in the second quarter of 2009.
Net loss for the third quarter of 2009 was $1.1 million, or $0.02 per fully diluted share, as compared to a net loss of $3.7 million, or $0.08 per fully diluted share, in the third quarter of 2008 and a net loss of $4.2 million, or $0.09 per fully diluted share, in the second quarter of 2009.
The decline in year-over-year revenue was due in part to macro economic factors, and also to declines in revenues from Sun Microsystems, partially offset by increases in revenues from other customers. On a sequential basis, revenues increased substantially, which the company primarily attributed to increases in revenues from its current largest customer offset by a decrease in revenues from Sun.
Non-GAAP gross margin was 18.4 percent for the third quarter of 2009, compared to 11.8 percent in the third quarter of 2008 and 14.9 percent in the second quarter of 2009.
Total non-GAAP operating expenses for the third quarter of 2009 were $11.9 million, as compared to $12.6 million for the third quarter of 2008 and $11.1 million for the second quarter of 2009.
Non-GAAP net loss for the third quarter of 2009 was $0.1 million, or $0.00 per fully diluted share, as compared to a third quarter 2008 net loss of $3.1 million, or $0.07 per fully diluted share, and a second quarter 2009 net loss of $3.0 million, or $0.06 per fully diluted share. Non-GAAP EBITDA for the third quarter of 2009 was a $0.4 million profit compared to a loss of $1.8 million for the third quarter of 2008 and a loss of $2.3 million for the second quarter of 2009.
The company exited the third quarter of 2009 with cash and cash equivalents of $59.2 million, which compares to a June 30, 2009 cash and cash equivalents balance of $57.1 million. The increase in the company's cash position was primarily attributable to tighter management of working capital. The company also generated $3.3 million in cash flow from operations during the third quarter of 2009.
"Overall, we had a strong quarter against a difficult but improving economic environment," said Hanif Jamal, Dot Hill's senior vice president and chief financial officer. "Sequentially, revenues grew 17 percent, gross margin increased by 3.5 percentage points, we reduced our operating losses to essentially break-even, or $0.00 per share on a non-GAAP basis, and we were cash flow positive from operations."
The company is targeting fourth quarter 2009 net revenue in the range of $62 to $67 million and a net loss per fully diluted share in the range of $0.01 to $0.07 on a non-GAAP basis. "Gross margin percentage is expected to decline modestly on a non-GAAP basis as we pass through some contractually agreed to price reductions to certain customers," said Jamal. "Operating expenses are expected to increase slightly as we continue to invest in our channel program and software product development, and as we absorb the additional costs associated with the move of our corporate headquarters to Colorado. We expect cash and cash equivalents at the end of December 31, 2009 to be in the range of $55 to $60 million."
"I am pleased with the achievements of our team during the third quarter of 2009," said Dana Kammersgard, Dot Hill's president and chief executive officer. "It was a quarter of solid execution against a difficult but stabilizing economic backdrop. Operationally, we have systemically improved our gross margins and have managed our working capital and cash extremely well. More importantly however, I am very excited about the fourth quarter of 2009 and into 2010, when we expect the economy to begin to recover and demand to stabilize, and we take advantage of technology transitions to win new customers."
Dot Hill's third quarter 2009 financial results conference call is scheduled to take place on November 5, 2009 at 4:30 p.m. ET. Please join us for a live audio webcast at www.dothill.com in the Investor Relations section. If you prefer to join via telephone, please dial 888-233-7970 (U.S.) or 913-312-1450 (International) at least five minutes prior to the start of the call. A replay of the webcast is scheduled to be available on the Dot Hill web site following the conference call. For a telephone replay, dial 888-203-1112 (U.S.) or 719-457-0820 (International) and enter passcode 4917179.
About Non-GAAP Financial Measures
This press release contains financial results that exclude the effects of share-based compensation expense, severance costs, restructuring costs, foreign currency gains or losses, the effects of legal settlements and the issuance of a warrant to a customer, and are not in accordance with U.S. generally accepted accounting principles (GAAP). The company believes that these non-GAAP financial measures provide meaningful supplemental information to both management and investors that is indicative of the company's core operating results and facilitates comparison of operating results across reporting periods. The company used these non-GAAP measures when evaluating its financial results as well as for internal resource management, planning and forecasting purposes. These non-GAAP measures should not be viewed in isolation from or as a substitute for the company's expected financial results in accordance with GAAP. A reconciliation of GAAP to non-GAAP measures is attached to this press release.
About Dot Hill
Delivering innovative technology and global support, Dot Hill empowers the OEM community to bring unique storage solutions to market, quickly, easily and cost-effectively. Offering high performance and industry-leading uptime, Dot Hill's RAID technology is the foundation for best-in-class storage solutions offering enterprise-class security, availability and data protection. The company's products are in use today by the world's leading service and equipment providers, common carriers and advanced technology and telecommunications companies, as well as government agencies. Dot Hill solutions are certified to meet rigorous industry standards and military specifications, as well as RoHS and WEEE international environmental standards. Headquartered in Carlsbad, Calif., Dot Hill has offices and/or representatives in China, Germany, Japan, United Kingdom, Singapore and the United States. For more information, visit us at http://www.dothill.com.
HILL-F
Statements contained in this press release regarding matters that are not historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Such statements include statements regarding Dot Hill's projected financial results for the fourth quarter of 2009 and thereafter and Dot Hill's ability to take advantage of technology transitions to win new customers. The risks that contribute to the uncertain nature of the forward-looking statements include, among other things: the risk that actual financial results for the fourth quarter of 2009 may be different from the financial guidance provided in this press release; the risks associated with macroeconomic factors that are outside of Dot Hill's control; the fact that no Dot Hill customer agreements provide for mandatory minimum purchase requirements; the risk that one or more of Dot Hill's OEM or other customers may cancel or reduce orders, not order as forecasted or terminate their agreements with Dot Hill; the risk that Dot Hill's new products may not prove to be popular; the risk that one or more of Dot Hill's suppliers or subcontractors may fail to perform or may terminate their agreements with Dot Hill; unforeseen technological, intellectual property, personnel or engineering issues; and the additional risks set forth in the form 10-Q most recently filed with the Securities and Exchange Commission by Dot Hill. All forward-looking statements contained in this press release speak only as of the date on which they were made. Dot Hill undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they were made.
DOT HILL SYSTEMS CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(In Thousands, Except Per Share Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2008 2009 2008 2009
---- ---- ---- ----
NET REVENUE $76,641 $63,600 $200,494 $171,817
COST OF GOODS SOLD 67,700 51,969 180,165 142,955
------ ------ ------- -------
GROSS PROFIT 8,941 11,631 20,329 28,862
----- ------ ------ ------
OPERATING EXPENSES:
Sales and marketing 2,990 2,772 10,909 7,856
Research and development 6,940 7,241 21,489 21,327
General and administrative 3,309 2,320 10,291 7,562
Restructuring charge - 530 - 941
Legal settlement (200) - (4,036) -
----- - ------- -
Total operating expenses 13,039 12,863 38,653 37,686
------ ------ ------ ------
OPERATING LOSS (4,098) (1,232) (18,324) (8,824)
------- ------- -------- -------
OTHER INCOME:
Interest income, net 309 17 1,374 132
Other income (expense), net (19) (10) 61 (17)
---- ---- -- ----
Total other income, net 290 7 1,435 115
--- --- ----- ---
LOSS BEFORE INCOME TAXES (3,808) (1,225) (16,889) (8,709)
INCOME TAX EXPENSE (BENEFIT) (117) (88) 281 (94)
----- ---- --- ----
NET LOSS $(3,691) $(1,137) $(17,170) $(8,615)
======= ======= ======== =======
NET LOSS PER SHARE:
Basic and diluted $(0.08) $(0.02) $(0.37) $(0.18)
====== ====== ====== ======
WEIGHTED AVERAGE SHARES
USED TO CALCULATE NET LOSS
PER SHARE:
Basic and diluted 46,223 47,258 46,078 46,978
====== ====== ====== ======
COMPREHENSIVE LOSS:
Net loss $(3,691) $(1,137) $(17,170) $(8,615)
Foreign currency translation
(gain) loss (27) (89) (128) 1
---- ---- ----- ---
Comprehensive loss $(3,718) $(1,226) $(17,298) $(8,614)
======= ======= ======== =======
DOT HILL SYSTEMS CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, September 30,
------------ -------------
2008 2009
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $56,850 $59,208
Accounts receivable, net of
allowance of $287 and $579 41,035 35,179
Inventories, net 14,127 5,038
Prepaid expenses and other 4,796 6,830
----- -----
Total current assets 116,808 106,255
Property and equipment, net 2,410 3,611
Intangible assets, net 4,164 3,313
Other assets 515 224
--- ---
Total assets $123,897 $113,403
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $31,050 $28,913
Accrued compensation 3,217 2,940
Accrued expenses 5,229 4,822
Deferred revenue 1,121 1,425
Restructuring accrual 681 725
Current portion of long-term
note payable 249 258
--- ---
Total current liabilities 41,547 39,083
Long term note payable -
less current portion 607 412
Other long-term liabilities 5,091 3,253
----- -----
Total liabilities 47,245 42,748
------ ------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par
value, 10,000 shares
authorized, no shares
issued and outstanding at
December 31, 2008 and
September 30, 2009 - -
Common stock, $.001 par
value, 100,000 shares
authorized, 46,308 and
48,944 shares issued and
outstanding at December 31,
2008 and September 30,
2009, respectively 46 49
Additional paid-in capital 300,555 303,169
Accumulated other
comprehensive loss (3,474) (3,473)
Accumulated deficit (220,475) (229,090)
-------- --------
Total stockholders' equity 76,652 70,655
------ ------
Total liabilities and
stockholders' equity $123,897 $113,403
======== ========
DOT HILL SYSTEMS CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2008 2009 2008 2009
---- ---- ---- ----
Cash Flows From Operating
Activities:
Net loss $(3,691) $(1,137) $(17,170) $(8,615)
Adjustments to reconcile net
loss to net cash provided
by (used in) operating
activities:
Depreciation and
amortization 1,394 642 4,385 2,079
Loss on disposal of
property and equipment - - 57 -
(Reduction) provision
in bad debt reserve (33) 28 (153) 292
Share-based compensation
expense 661 597 2,224 2,151
Issuance of warrant to
customer - - 2,282 -
Changes in operating
assets and liabilities:
Accounts receivable (1,715) (5,629) (15,566) 5,587
Inventories 969 4,676 (3,578) 9,086
Prepaid expenses and
other assets 489 (2,590) (42) (2,046)
Accounts payable (660) 7,143 6,710 (2,125)
Accrued compensation
and other expenses (594) 507 (2,042) (449)
Deferred revenue (23) (1,131) (251) (1,199)
Income taxes payable (139) (5) 205 48
Restructuring accrual - 240 - 47
Other long-term liabilities 367 (16) (147) (367)
--- ---- ----- -----
Net cash provided by (used
in) operating activities (2,975) 3,325 (23,086) 4,489
------ ----- ------- -----
Cash Flows From Investing
Activities:
Purchases of property
and equipment (638) (1,343) (1,503) (2,421)
Purchases of intangible
assets (2,482) - (2,482) -
------- --- ------- ---
Net cash used in
investing activities (3,120) (1,343) (3,985) (2,421)
------ ------ ------ ------
Cash Flows From Financing
Activities:
Principal payment of
note payable - (62) - (185)
Proceeds from exercise
of stock options and
warrants 86 - 284 -
Proceeds from sale of
stock to employees 447 190 912 466
--- --- --- ---
Net cash provided by
financing activities 533 128 1,196 281
--- --- ----- ---
Effect of Exchange Rate
Changes on Cash 4 24 41 9
--- --- --- ---
Net (Decrease) Increase in
Cash and Cash Equivalents (5,558) 2,134 (25,834) 2,358
Cash and Cash Equivalents,
Beginning of period 62,082 57,074 82,358 56,850
------ ------ ------ ------
Cash and Cash Equivalents,
end of period $56,524 $59,208 $56,524 $59,208
======= ======= ======= =======
Supplemental Disclosures of
Cash Flow Information:
Cash paid for income
taxes $22 $5 $78 $37
=== === === ===
Supplemental Disclosures of
Non-Cash Investing and
Financing Activities:
Construction-in-progress
costs incurred but not
paid $261 $175 $108 $175
==== ==== ==== ====
Promissory note for
intangible assets
purchase $918 $- $918 $-
==== === ==== ===
Contingent payment for
intangible assets
purchase $1,070 $- $1,070 $-
====== === ====== ===
DOT HILL SYSTEMS CORP.
UNAUDITED RECONCILIATION TABLE OF NON-GAAP MEASURES
(In Thousands, Except Per Share Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2008 2009 2008 2009
---- ---- ---- ----
Net loss $(3,691) $(1,137) $(17,170) $(8,615)
Effect of currency (gain) loss (141) (134) (185) 108
Effect of share-based
compensation 660 597 2,224 2,151
Effect of issuance of warrant
to customer - - 2,282 -
Effect of legal settlement - - (3,836) -
Effect of restructuring charge - 530 - 941
Effect of severance costs 24 - 533 -
--- --- --- ---
Net loss as adjusted $(3,148) $(144) $(16,152) $(5,415)
======= ===== ======== =======
Net loss per share:
Basic and diluted $(0.07) $(0.00) $(0.35) $(0.12)
====== ====== ====== ======
Weighted average shares used
to calculate net loss per share:
Basic and diluted 46,223 47,258 46,078 46,978
====== ====== ====== ======
Net revenue $76,641 $63,600 $200,494 $171,817
Effect of issuance of warrant
to customer - - 2,282 -
--- --- ----- ---
Net revenue as adjusted $76,641 $63,600 $202,776 $171,817
======= ======= ======== ========
Gross profit $8,941 $11,631 $20,329 $28,862
Effect of issuance of warrant
to customer - - 2,282 -
Effect of share-based
compensation 102 75 306 292
Effect of severance costs 22 0 183 0
--- --- --- ---
Gross profit as adjusted $9,065 $11,706 $23,100 $29,154
====== ======= ======= =======
Operating expenses $13,039 $12,863 $38,653 $37,686
Effect of currency gain (loss) 141 134 185 (108)
Effect of share-based
compensation (558) (522) (1,918) (1,859)
Effect of legal settlement - - 3,836 -
Effect of restructuring
charge - (530) - (941)
Effect of severance costs (2) 0 (350) 0
--- --- ----- ---
Operating expenses as adjusted $12,620 $11,945 $40,406 $34,778
======= ======= ======= =======
DOT HILL SYSTEMS CORP.
UNAUDITED RECONCILIATION TABLE OF NON-GAAP MEASURES: EBITDA
(In Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2008 2009 2008 2009
---- ---- ---- ----
Net loss as adjusted $(3,148) $(144) $(16,152) $(5,415)
Interest expense 31 11 31 45
Income tax expense (benefit) (117) (88) 281 (94)
Depreciation 1,063 358 3,242 1,227
Amortization 331 284 1,143 852
--- --- ----- ---
EBITDA as adjusted $(1,840) $421 $(11,455) $(3,385)
======= ==== ======== =======
SOURCE Dot Hill Systems Corp.
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