Dot Hill Reports Full Year and Fourth Quarter 2009 Results
Significant full year non-GAAP net loss improvement and positive cash flow from operations, and fourth quarter revenue, non-GAAP loss per share and cash all within guidance.
LONGMONT, Colo., March 4 /PRNewswire-FirstCall/ -- Dot Hill Systems Corp. (Nasdaq: HILL) today announced financial results for the fourth quarter and year ended December 31, 2009.
Financial and Operational Highlights:
- Increased 2009 non-GAAP gross margin to 16.3 percent compared to 12.1 percent in 2008
- Lowered non-GAAP operating expenses by nearly 12 percent to $46.8 million in 2009 from $53 million in 2008
- Reduced non-GAAP net loss to 18 cents per share in 2009 compared to 40 cents per share in 2008
- Cash flow from operations of $3.4 million in 2009 with year ending 2009 cash and cash equivalents of $57.6 million
"I am pleased with the achievements our team made during the past year," said Dana Kammersgard, Dot Hill's president and chief executive officer. "We have reduced our operating losses by nearly $10 million on a non-GAAP basis relative to 2008 despite less revenue, by aggressively reducing product costs and lowering non-GAAP operating expenses by well over 10 percent year-over-year. At the same time, we have executed very well for our large Tier-1 customers and in launching new and very competitive products. We have now completed the first stage of our transformation which began in 2006 and believe that our core storage array business can be profitable. We continue to make the strategic investments designed to develop our sales channels and diversify the Company to include software-centric storage solutions. These investments represent a well-defined opportunity for Dot Hill to achieve sustainable profitability and attractive margins."
Full-Year 2009 Financial Detail:
The Company recognized net revenue of $234.4 million for the full year of 2009, compared to $272.9 million for the year ended 2008. The decline in year-over-year revenue was due to the economy and declines in revenue from Sun Microsystems, partially offset by increases in revenue from other OEM customers.
Gross margin for 2009 was 16.1 percent, compared to 11.1 percent in 2008. Operating expenses for 2009 were $51.7 million compared to $57.6 million in 2008. Net loss for 2009 was $13.6 million, or $0.29 per share, as compared to a net loss of $25.8 million, or $0.56 per share, in 2008.
Non-GAAP gross margin was 16.3 percent for 2009, compared to 12.1 percent for 2008. The increase in non-GAAP gross margin was primarily due to product cost reductions. Total non-GAAP operating expenses for 2009 were $46.8 million, as compared to $53.0 million for 2008. The decline in non-GAAP operating expenses was due to cost reduction initiatives implemented in 2008 and 2009 as part of the Company's continued and disciplined cost control focus.
Non-GAAP net loss for 2009 was 8.4 million, or $0.18 per share, as compared to a 2008 non-GAAP net loss of $18.2 million, or $0.40 per share. Non-GAAP EBITDA for 2009 was negative $5.5 million compared to negative $12.2 million for 2008.
Fourth Quarter 2009 Financial Detail:
The Company recognized net revenue of $62.6 million for the fourth quarter of 2009, compared to $72.4 million for the fourth quarter of 2008 and $63.6 million for the third quarter of 2009. The decline in year-over-year revenue was due to declines in revenue from Sun Microsystems, partially offset by increases in revenue from other OEM customers. On a sequential basis, revenue declined by $1.0 million which was largely a result of a few non-recurring revenue transactions that occurred in the third quarter of 2009.
Gross margin for the fourth quarter of 2009 was 14.3 percent, compared to 13.9 percent for the fourth quarter of 2008 and 18.3 percent for the third quarter of 2009. Operating expenses for the fourth quarter of 2009 were $14.0 million, as compared to $18.9 million for the fourth quarter of 2008 and $12.9 million in the third quarter of 2009.
Net loss for the fourth quarter of 2009 was $5.0 million, or $0.11 per share, as compared to a net loss of $8.6 million, or $0.19 per share, in the fourth quarter of 2008, and $1.1 million, or $0.02 per share, in the third quarter of 2009.
Non-GAAP gross margin was 14.5 percent for the fourth quarter of 2009, compared to 14.0 percent for the fourth quarter of 2008 and 18.4 percent for the third quarter of 2009. Total non-GAAP operating expenses for the fourth quarter of 2009 were $12.0 million, as compared to $12.5 million for the fourth quarter of 2008 and $11.9 million for the third quarter of 2009.
Non-GAAP net loss for the fourth quarter of 2009 was 3.0 million, or $0.06 per share, as compared to a fourth quarter of 2008 non-GAAP net loss of $2.1 million, or $0.05 per share, and a third quarter 2009 non-GAAP net loss of $0.1 million, or $0.00 per share. Non-GAAP EBITDA for the fourth quarter of 2009 was negative $2.1 million compared to negative $0.7 million for the fourth quarter of 2008 and $0.4 million for the third quarter of 2009.
Balance Sheet and Cash Flows:
The Company exited 2009 with cash and cash equivalents of $57.6 million compared to $56.9 million at the end of 2008. The increase in the Company's cash was primarily attributable to tighter management of working capital. The Company also generated $3.4 million in cash flows from operations during the year ended December 31, 2009.
"We were pleased with the progress we made despite the challenging macroeconomic conditions in 2009," said Hanif Jamal, Dot Hill's senior vice president and chief financial officer. "Our company-wide efforts during the year enabled us to lower our break-even point significantly, improve gross margins, and continue to effectively manage operating expenses, working capital and cash."
First Quarter 2010 Outlook:
The Company is targeting first quarter 2010 net revenue in the range of $60 to $65 million and a non-GAAP net loss per share in the range of $0.05 to $0.10.
"Gross margin percentage is expected to improve modestly on a non-GAAP basis as we expect a more favorable customer sales mix in the quarter," said Mr. Jamal. "Operating expenses are expected to increase as a result of the acquisition of Cloverleaf Communications, Inc., in January 2010, and as we continue to invest in our channel program and software development. Consequently, we expect cash and cash equivalents at the end of the first quarter of 2010 to be in the range of $50 to $52 million."
Conference Call Information:
Dot Hill's fourth quarter and full year 2009 financial results conference call is scheduled to take place on March 4, 2010 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 877-303-3196 (U.S.) or 408-427-3864 (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 800-642-1687 (U.S.) or 706-645-9291 (International) and enter passcode 57173004.
About Non-GAAP Financial Measures
This press release contains financial results that exclude the effects of share-based compensation expense, severance costs, restructuring costs, long lived asset impairment charges, transaction expenses associated with our acquisition of Cloverleaf Communications Inc., a contingent consideration adjustment, 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 financial results in accordance with GAAP. A reconciliation of GAAP to non-GAAP measures is attached to this press release.
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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 Longmont, Colorado, Dot Hill has offices and/or representatives in China, Germany, Japan, United Kingdom, Singapore, Israel and the United States. For more information, visit us at http://www.dothill.com .
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 first quarter of and full year of 2010 and thereafter, Dot Hill's ability to achieve profitability 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 first quarter and full year of 2010 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; the risk that Dot Hill may have difficulties integrating the business acquired from Cloverleaf Communications, Inc.; 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.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Three Months Twelve Months
Ended Ended Ended
September 30, December 31, December 31,
------------- ------------ ------------
2009 2008 2009 2008 2009
---- ---- ---- ---- ----
(unaudited)(unaudited)(unaudited)(audited)(unaudited)
NET REVENUE $63,600 $72,385 $62,566 $272,879 $234,383
COST OF GOODS SOLD 51,969 62,326 53,600 242,491 196,556
------ ------ ------ ------- -------
GROSS PROFIT 11,631 10,059 8,966 30,388 37,827
----- ------ ----- ------ ------
OPERATING EXPENSES:
Sales and marketing 2,772 2,969 3,114 13,878 10,970
Research and
development 7,241 7,220 6,793 28,709 28,120
General and
administrative 2,320 2,488 2,577 12,779 10,139
Restructuring charge 530 813 1,489 813 2,430
Legal settlement - - - (4,036) -
Long-lived asset
impairment charge - 5,432 - 5,432 -
--- ----- --- ----- ---
Total operating
expenses 12,863 18,922 13,973 57,575 51,659
------ ------ ------ ------ ------
OPERATING LOSS (1,232) (8,863) (5,007) (27,187) (13,832)
------ ------ ------ ------- -------
OTHER INCOME:
Interest income, net 17 164 30 1,538 161
Other income (expense),
net (10) 13 23 74 6
--- --- --- --- ---
Total other
income, net 7 177 53 1,612 167
--- --- --- ----- ---
LOSS BEFORE INCOME
TAXES (1,225) (8,686) (4,954) (25,575) (13,665)
INCOME TAX EXPENSE
(BENEFIT) (88) (92) 54 190 (40)
--- --- --- --- ---
NET LOSS $(1,137) $(8,594) $(5,008) $(25,765) $(13,625)
======= ======= ======= ======== ========
NET LOSS PER SHARE:
Basic and diluted $(0.02) $(0.19) $(0.11) $(0.56) $(0.29)
====== ====== ====== ====== ======
WEIGHTED AVERAGE SHARES
USED TO CALCULATE NET
LOSS PER SHARE:
Basic and diluted 47,258 46,308 47,437 46,136 47,094
====== ====== ====== ====== ======
DOT HILL SYSTEMS CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value data)
December 31, December 31,
------------ ------------
2008 2009
---- ----
(audited) (unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $56,850 $57,574
Accounts receivable, net 41,035 34,197
Inventories 14,127 4,333
Prepaid expenses and other assets 4,796 5,314
----- -----
Total current assets 116,808 101,418
Property and equipment, net 2,410 3,616
Intangible assets, net 4,164 3,029
Other assets 515 217
--- ---
Total assets $123,897 $108,280
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $31,050 $28,411
Accrued compensation 3,217 3,602
Accrued expenses 5,229 4,220
Deferred revenue 1,121 1,217
Restructuring accrual 681 1,697
Current portion of long-term note payable 249 261
--- ---
Total current liabilities 41,547 39,408
Long term note payable 607 346
Other long-term liabilities 5,091 2,175
----- -----
Total liabilities 47,245 41,929
------ ------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value, 10,000
shares authorized, no shares issued and
outstanding at December 31, 2008 and
December 31, 2009 - -
Common stock, $.001 par value, 100,000
shares authorized, 46,308 and 48,952 shares
issued and outstanding at December 31, 2008
and December 31, 2009, respectively 46 49
Additional paid-in capital 300,555 303,841
Accumulated other comprehensive loss (3,474) (3,439)
Accumulated deficit (220,475) (234,100)
-------- --------
Total stockholders' equity 76,652 66,351
------ ------
Total liabilities and stockholders'
equity $123,897 $108,280
======== ========
DOT HILL SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Twelve Months Ended
December 31,
------------
2008 2009
---- ----
(audited) (unaudited)
Cash Flows From Operating Activities:
Net loss $(25,765) $(13,625)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation and amortization 5,833 2,871
Long-lived asset impairment charge 5,432 -
Loss on disposal of property and equipment 11 -
Adjustment to contingent consideration - (649)
(Reduction) provision in bad debt reserve 25 (63)
Share-based compensation expense 2,884 2,822
Issuance of warrant to customer 2,282 -
Changes in operating assets and liabilities:
Accounts receivable (8,484) 6,888
Inventories (5,077) 9,792
Prepaid expenses and other assets (1,021) (524)
Accounts payable 2,332 (2,564)
Accrued compensation and other expenses (1,391) (453)
Deferred revenue (311) (1,579)
Restructuring accrual 672 1,016
Other long-term liabilities 190 (499)
--- ----
Net cash provided by (used in) operating
activities (22,388) 3,433
------- -----
Cash Flows From Investing Activities:
Purchases of property and equipment (1,891) (2,939)
Purchases of intangible assets (2,545) -
------ ---
Net cash used in investing activities (4,436) (2,939)
------ ------
Cash Flows From Financing Activities:
Principal payment of note payable - (249)
Proceeds from exercise of stock options
and warrants 284 -
Proceeds from sale of stock to employees 912 467
--- ---
Net cash provided by financing activities 1,196 218
----- ---
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 120 12
--- ---
Net (Decrease) Increase in Cash and Cash
Equivalents (25,508) 724
Cash and Cash Equivalents, beginning of
period 82,358 56,850
------ ------
Cash and Cash Equivalents, end of period $56,850 $57,574
======= =======
Supplemental Disclosures of Cash Flow
Information:
Cash paid for income taxes $67 $78
=== ===
Supplemental Disclosures of Non-Cash Investing
and Financing Activities:
Capital assets acquired but not paid $168 $170
==== ====
Promissory note for intangible assets
purchase $918 $-
==== ===
Contingent payment for intangible assets
purchase $1,070 $-
====== ===
DOT HILL SYSTEMS CORP.
UNAUDITED RECONCILIATION TABLE OF NON-GAAP MEASURES
(In thousands, except per share amounts)
Three Months Three Months Twelve Months
Ended Ended Ended
September 30, December 31, December 31,
------------- ------------- ------------
2009 2008 2009 2008 2009
---- ---- ---- ---- ----
Net revenue, as
reported $63,600 $72,385 $62,566 $272,879 $234,383
Effect of issuance of
warrant to customer - - - 2,282 -
--- --- --- ----- ---
Non-GAAP net revenue $63,600 $72,385 $62,566 $275,161 $234,383
======= ======= ======= ======== ========
Gross profit, as
reported $11,631 $10,059 $8,966 $30,388 $37,827
Effect of issuance
of warrant to customer - - - 2,282 -
Effect of share-based
compensation 75 71 90 377 382
Effect of severance costs - - - 246 -
Non-GAAP gross profit $11,706 $10,130 $9,056 $33,293 $38,209
======= ======= ====== ======= =======
Operating expenses,
as reported $12,863 $18,922 $13,973 $57,575 $51,659
Effect of currency
gain (loss) 134 401 (40) 586 (148)
Effect of share-based
compensation (522) (589) (581) (2,507) (2,440)
Effect of legal
settlement - - - 3,836 -
Effect of long-lived
asset impairment charge - (5,432) - (5,432) -
Effect of restructuring
charge (530) (813) (1,489) (813) (2,430)
Effect of contingent
consideration adjustment - - 649 - 649
Effect of Cloverleaf
acquisition costs - - (469) - (469)
Effect of severance costs - - - (287) -
--- --- --- ---- ---
Non-GAAP operating
expense $11,945 $12,489 $12,043 $52,958 $46,821
======= ======= ======= ======= =======
Net loss, as
reported $(1,137) $(8,594) $(5,008) $(25,765) $(13,625)
Effect of currency
(gain) loss (134) (401) 40 (586) 148
Effect of share-based
compensation 597 660 671 2,884 2,822
Effect of issuance of
warrant to customer - - - 2,282 -
Effect of legal settlement - - - (3,836) -
Effect of long-lived
asset impairment charge - 5,432 - 5,432 -
Effect of restructuring
charge 530 813 1,489 813 2,430
Effect of contingent
consideration adjustment - - (649) - (649)
Effect of Cloverleaf
acquisition costs - - 469 - 469
Effect of severance costs - - - 533 -
--- --- --- --- ---
Non-GAAP net loss $(144) $(2,090) $(2,988) $(18,243) $(8,405)
===== ======= ======= ======== =======
Non-GAAP net loss per
share:
Basic and diluted $(0.00) $(0.05) $(0.06) $(0.40) $(0.18)
====== ====== ====== ====== ======
Weighted average shares
used to calculate net
loss per share:
Basic and diluted 47,258 46,308 47,437 46,136 47,094
====== ====== ====== ====== ======
DOT HILL SYSTEMS CORP.
UNAUDITED RECONCILIATION TABLE OF NON-GAAP MEASURES: EBITDA
(In thousands)
Three Months Three Months Twelve Months
Ended Ended Ended
September 30, December 31, December 31,
------------- ------------ ------------
2009 2008 2009 2008 2009
---- ---- ---- ---- ----
Non-GAAP net loss $(144) $(2,091) $(2,988) $(18,243) $(8,405)
Interest expense 11 26 12 57 57
Income tax expense
(benefit) (88) (91) 54 191 (40)
Depreciation 358 1,032 508 4,274 1,736
Amortization 284 416 284 1,559 1,135
--- --- --- ----- -----
Non-GAAP EBITDA $421 $(708) $(2,130) $(12,162) $(5,517)
==== ====== ======= ======== =======
SOURCE Dot Hill Systems Corp.
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