Dot Hill Reports Second Quarter 2011 Results

Results Exceed Revenue Target and Mark Sixth consecutive Quarter of non-GAAP Gross Margin Improvement

Aug 04, 2011, 16:01 ET from Dot Hill Systems Corp.

LONGMONT, Colo., Aug. 4, 2011 /PRNewswire/ -- Dot Hill Systems Corp.(NASDAQ: HILL), a leading provider of unified virtual storage and SAN storage solutions, today announced financial results for the second quarter 2011, the period ended June 30, 2011.

Financial and Operational Highlights:

  • Second quarter 2011 revenue of $53.2 million which, excluding the exited Netapp business, compares to $47.6 million in the second quarter of 2010 and represents 11.7% year-over-year growth
  • Second quarter 2011 GAAP gross margin of 24.8% up from 24.6% in the prior quarter and up from 14.8% in the second quarter of 2010
  • Second quarter 2011 non-GAAP gross margin of 26.3% up from 25.9% in the prior quarter and up from 15.8% in the second quarter of 2010. Company achieved its Q411 non-GAAP gross margin goal of 26% two quarters ahead of plan.
  • Second quarter 2011 GAAP EPS of ($0.04) per share compared to ($0.02)per share in Q111 and ($0.11) per share in Q210
  • Second quarter 2011 non-GAAP EPS of $0.01 compared to $0.00 in the prior quarter and up from ($0.06) in the second quarter of 2010
  • Cash and cash equivalents of $46.5 million as of June 30, 2011, up from $46.3 million as of March 31, 2011.

Second Quarter 2011 Financial Detail:

The Company recognized net revenue of $53.2 million for the second quarter of 2011, compared to $65.5 million for the second quarter of 2010 and $49.2 million for the first quarter of 2011. Excluding Netapp, net revenues grew 11.7% on a year-over-year basis from $47.6 million for the second quarter of 2010 and 8.1% on a quarter-over-quarter basis from $49.2 million for the first quarter of 2011.

GAAP gross margin for the second quarter of 2011 was 24.8%, compared to 14.8% for the second quarter of 2010 and 24.6% for the first quarter of 2011. GAAP operating expenses for the second quarter of 2011 were $15.1 million, as compared to $15.5 million for the second quarter of 2010 and $13.3 million in the first quarter of 2011. GAAP net loss for the second quarter of 2011 was $1.9 million, or ($0.04) per share, as compared to a net loss of $5.8 million, or ($0.11) per share, for the second quarter of 2010, and net loss of $1.3 million, or ($0.02) per share, for the first quarter of 2011.

Non-GAAP gross margin was 26.3% for the second quarter of 2011, compared to 15.8% for the second quarter of 2010 and 25.9% for the first quarter of 2011. The year-over-year improvement in gross margin percent was primarily a result of a more favorable product mix, including the elimination of low margin revenue from Netapp and larger contributions from the company's AssuredUVS and AssuredVRA software products. Total non-GAAP operating expenses for the second quarter of 2011 were $13.5 million, as compared to $13.6 million for the second quarter of 2010 and $12.6 million for the first quarter of 2011.

Non-GAAP net income for the second quarter of 2011 was $0.4 million, or $0.01 per share, as compared to a second quarter 2010 non-GAAP net loss of $3.3 million, or ($0.06) per share, and first quarter 2011 non-GAAP net income of $0.1 million, or $0.00 per share. Non-GAAP EBITDA for the second quarter of 2011 was $1.1 million compared to ($2.8) million for the second quarter of 2010 and $0.7 million for the first quarter of 2011.

"The second quarter was another solid quarter of improving financial performance for us, with revenue and cash exceeding our guidance ranges, gross margin and earnings per share at the upper end of guidance and operating expenses right in the middle of our range," said Dana Kammersgard, Dot Hill Systems' Chief Executive Officer. "While we are continuing to work on new AssuredSAN storage array opportunities through both new and existing OEM's, our strategic direction and intent remains intact.  We will continue to capitalize on the investments we are making to expand both our software and branded reseller programs, as they represent the best long term potential for revenue diversification and margin growth."

Balance Sheet:

The Company exited the second quarter of 2011 with cash and cash equivalents of $46.5 million compared to $42.6 million at the end of June 2010 and $46.3 million at the end of March 31, 2011.

Third Quarter 2011 Outlook:

The Company is targeting third quarter 2011 net revenue in the range of $50 million to $54 million and a non-GAAP EPS in the range of ($0.01) per share to $0.02 per share.

"At the mid-point of our guidance range we are expecting 16.1% year-over-year growth in net revenue, excluding revenue from Netapp," said Hanif Jamal, Dot Hill Systems' Chief Financial Officer. "Non-GAAP gross margin percentage is expected to increase slightly to the 26.5% to 27.5% range, while non-GAAP operating expenses are expected to increase to between $13.8 million and $14.3 million as a result of continued investments in R&D, some of which will be required to support new or prospective customer wins. Finally, we expect cash and cash equivalents at the end of the third quarter of 2011 to be in the range of $44 million to $47 million."

Conference Call Information:

Dot Hill's second quarter 2011 financial results conference call is scheduled to take place on Thursday, August 4, 2011 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 for one week on the Dot Hill web site following the conference call. For a telephone replay, dial 855-859-2056(U.S.) or 404-537-3406 (International) and enter conference ID#86862756.

About Non-GAAP Financial Measures

This press release contains financial results that exclude the effects of share-based compensation expense, severance costs, restructuring costs, intangible asset amortization, transaction expenses associated with our acquisition of Cloverleaf Communications Inc.,  contingent consideration adjustments, and foreign currency gains or losses, and are not in accordance with U.S. generally accepted accounting principles (GAAP).In addition, as a result of exiting our relationship with Netapp on or about November 30, 2010, the company will also be presenting standalone non-GAAP revenue metrics to exclude the historical revenue attributable to Netapp in order to better compare revenue from its ongoing business.  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 uses 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.

About Dot Hill

Delivering innovative technology and global support, Dot Hill empowers the OEM and channels 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 and small and medium enterprise customers. 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 third quarter of and full year of 2011 and thereafter, and Dot Hill's ability to achieve profitability. 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 third quarter and full year of 2011 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.; the risk that sales through channel partners may not ramp as expected; unforeseen product quality, technological, intellectual property, personnel or engineering issues and any costs that may result from such 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.

HILL-F

DOT HILL SYSTEMS CORP.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Three Months Ended

Six Months Ended

June 30, 2010

March 31, 2011

June 30, 2011

June 30, 2010

June 30, 2011

Net revenue

$ 65,493

$ 49,174

$ 53,179

$ 125,467

$ 102,353

Cost of goods sold

55,824

37,072

39,984

107,673

77,056

Gross profit

9,669

12,102

13,195

17,794

25,297

Operating expenses:

Research and development

8,447

7,986

8,946

16,220

16,932

Sales and marketing

3,379

3,033

3,649

6,740

6,682

General and administrative

2,225

2,341

2,437

5,301

4,778

Restructuring charge (recoveries)

1,413

(41)

37

1,702

(4)

Total operating expenses

15,464

13,319

15,069

29,963

28,388

Operating loss

(5,795)

(1,217)

(1,874)

(12,169)

(3,091)

Other income (expense):

Interest income (expense), net

4

(6)

(5)

7

(11)

Other income (expense), net

(8)

2

(1)

(15)

1

Total other income (expense), net

(4)

(4)

(6)

(8)

(10)

Loss before income taxes

(5,799)

(1,221)

(1,880)

(12,177)

(3,101)

Income tax expense

35

50

65

84

115

Net loss

$ (5,834)

$ (1,271)

$ (1,945)

$ (12,261)

$   (3,216)

Net loss per basic and diluted share

$   (0.11)

$   (0.02)

$   (0.04)

$     (0.23)

$     (0.06)

Shares used to compute net loss

per basic and diluted share

53,246

54,334

54,737

52,397

54,536

DOT HILL SYSTEMS CORP.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value data)

December 31,

June 30,

2010

2011

Assets

Current assets:

Cash and cash equivalents

$   45,732

$   46,508

Accounts receivable, net

35,202

30,905

Inventories

7,340

5,290

Prepaid expenses and other assets

3,540

4,463

Total current assets

91,814

87,166

Property and equipment, net

3,597

4,215

Intangible assets, net

7,581

6,541

Goodwill

4,140

4,140

Other assets

370

299

Total assets

$ 107,502

$ 102,361

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

$   30,555

$   25,417

Accrued compensation

3,899

4,385

Accrued expenses

4,171

5,479

Deferred revenue

1,371

1,394

Restructuring accrual

1,664

1,183

Current portion of long-term note payable

275

210

Total current liabilities

41,935

38,068

Long-term note payable

71

-

Other long-term liabilities

1,118

763

Total liabilities

43,124

38,831

Commitments and Contingencies

Stockholders' equity:

Preferred stock

-

-

Common stock

56

57

Additional paid-in capital

315,257

317,652

Accumulated other comprehensive loss

(3,584)

(3,612)

Accumulated deficit

(247,351)

(250,567)

Total stockholders' equity

64,378

63,530

Total liabilities and stockholders' equity

$ 107,502

$ 102,361

DOT HILL SYSTEMS CORP.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Three Months Ended

June 30, 2010

March 31, 2011

June 30, 2011

Cash Flows From Operating Activities:

Net loss

$ (5,834)

$ (1,271)

$ (1,945)

Adjustments to reconcile net loss to net cash

provided by (used in) operating activities:

Depreciation and amortization

1,028

1,049

1,115

Stock-based compensation expense

771

803

1,734

Changes in operating assets and liabilities, net of effects of business acquisition:

Accounts receivable

(298)

8,003

(3,705)

Inventories

(947)

2,190

(140)

Prepaid expenses and other assets

(408)

(46)

(804)

Accounts payable

(6,939)

(8,489)

3,184

Accrued compensation and other expenses

383

(1,022)

2,276

Deferred revenue

106

220

(197)

Restructuring accrual

1,054

(243)

(238)

Other long-term liabilities

(134)

(244)

(111)

  Net cash provided by (used in) operating activities

(11,218)

950

1,169

Cash Flows From Investing Activities:

Acquisition, net of cash acquired

-

-

-

Purchases of property and equipment

(179)

(604)

(974)

  Net cash used in investing activities

(179)

(604)

(974)

Cash Flows From Financing Activities:

Principal payment of note and loan payable

(65)

(68)

(68)

Proceeds from bank borrowings

2,800

-

-

Shares withheld for tax purposes

-

(191)

(152)

Common stock issued under stock plans

(38)

536

206

  Net cash provided by (used in) financing activities

2,697

277

(14)

  Effect of Exchange Rate Changes on Cash and Cash Equivalents

26

(46)

18

  Net Increase (Decrease) in Cash and Cash Equivalents

(8,674)

577

199

  Cash and Cash Equivalents, beginning of period

51,310

45,732

46,309

  Cash and Cash Equivalents, end of period

$42,636

$46,309

$46,508

Supplemental Disclosures of Non-Cash Investing and

  Financing Activities:

Capital assets acquired but not paid

$     249

$     223

$     164

DOT HILL SYSTEMS CORP.

UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES

(In thousands, except per share amounts)

Three Months Ended

Six Months Ended

June 30, 2010

March 31, 2011

June 30, 2011

June 30, 2010

June 30, 2011

Net revenue, as reported

$ 65,493

$ 49,174

$ 53,179

$ 125,467

$ 102,353

Effect of Netapp revenue

17,870

-

-

36,254

-

Non-GAAP net revenue

$ 47,623

$ 49,174

$ 53,179

$   89,213

$ 102,353

Gross profit, as reported

$   9,669

$ 12,102

$ 13,195

$   17,794

$   25,297

Effect of stock-based compensation

139

133

285

320

418

Effect of severance costs

17

-

3

17

3

Effect of intangible asset amortization

519

520

519

961

1,039

Non-GAAP gross profit

$ 10,344

$ 12,755

$ 14,002

$   19,092

$   26,757

Operating expenses, as reported

$ 15,464

$ 13,319

$ 15,069

$   29,963

$   28,388

Effect of currency gain (loss)

286

(58)

(26)

465

(84)

Effect of stock-based compensation

(632)

(670)

(1,449)

(1,443)

(2,119)

Effect of contingent consideration adjustment

-

-

-

285

-

Effect of restructuring (charge) recoveries

(1,413)

41

(37)

(1,702)

4

Effect of severance costs

(62)

-

(46)

(67)

(46)

Effect of Cloverleaf acquisition costs

2

-

-

(314)

-

Non-GAAP operating expenses

$ 13,645

$ 12,632

$ 13,511

$   27,187

$   26,143

Net loss, as reported

$ (5,834)

$ (1,271)

$ (1,945)

$ (12,261)

$   (3,216)

Effect of currency (gain) loss

(286)

58

26

(465)

84

Effect of stock-based compensation

771

803

1,734

1,763

2,537

Effect of contingent consideration adjustment

-

-

-

(285)

-

Effect of restructuring charge (recoveries)

1,413

(41)

37

1,702

(4)

Effect of intangible asset amortization

519

520

519

961

1,039

Effect of severance costs

79

-

49

84

49

Effect of Cloverleaf acquisition costs

(2)

-

-

314

-

Non-GAAP net income (loss)

$ (3,340)

$        69

$      420

$   (8,187)

$        489

Non-GAAP net income (loss) per share

    Basic and diluted

$   (0.06)

$0.00

$     0.01

$     (0.16)

$       0.01

Weighted average shares used to calculate net income (loss) per share:

    Basic

53,246

54,334

54,737

52,397

54,536

    Diluted

53,246

55,644

56,020

52,397

55,847

Non-GAAP net income (loss)

$ (3,340)

$        69

$      420

$   (8,187)

$        489

Interest expense

9

8

8

20

16

Income tax expense

35

50

65

84

115

Depreciation

509

529

596

1,038

1,125

Non-GAAP EBITDA

$ (2,787)

$      656

$   1,089

$   (7,045)

$     1,745

Contact: Hanif Jamal Chief Financial Officer Tel: 303-845-3377 Email: investors@dothill.com

Peter Seltzberg Hayden IR Tel: 646-415-8972 Email: peter@haydenir.com

SOURCE Dot Hill Systems Corp.



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