Dot Hill Systems Reports First Quarter 2001 Results; SANnet(TM) Sales Increase 125 Percent over First Quarter 2000

Apr 25, 2001, 01:00 ET from Dot Hill Systems Corp.

    CARLSBAD, Calif., April 25 /PRNewswire/ -- Dot Hill Systems Corp.
 (NYSE:   HIL), a leading supplier of carrier-class data storage and storage area
 network (SAN) solutions, today announced first quarter financial results for
 the period ended March 31, 2001 and that SANnet sales increased 125 percent
 over first quarter 2000.
     (Photo:  http://www.newscom.com/cgi-bin/prnh/20010227/HILLOGO )
     Dot Hill met revised revenue expectations for the first quarter.  Net
 revenue for the first quarter 2001 was approximately $18.6 million, compared
 to fourth quarter 2000 net revenue of $30.7 million and net revenue a year ago
 of $30.9 million.  For the first quarter 2001, Dot Hill experienced a net loss
 of $28.7 million, or $1.17 per share, which reflects charges discussed below.
 Last quarter, Dot Hill reported a net loss of $1.1 million, or $0.04 per
 share, and a year ago reported net income of $1.0 million, or $0.04 per
 diluted share.
     During the first quarter, Dot Hill took a number of actions in response to
 the economic downturn.  Two one-time charges were taken, the first of which
 was the recording of a $16.0 million charge in connection with a valuation
 allowance provided for deferred income tax assets.  This was a non-cash charge
 solely for financial reporting purposes that will significantly lower the
 effective tax rate of the company going forward.  The second was a
 restructuring charge of $2.9 million related to severance payments for the
 previously announced 30 percent work force reduction and for the consolidation
 of excess facilities and related fixed assets.  Further, the company recorded
 an additional $2.0 million inventory reserve related to the poor economic
 environment.
     Gross margin for the first quarter of 2001 was 10 percent of revenue.
 Excluding the inventory reserve charge, gross margin was 20 percent of
 revenue.  Last quarter, gross margin was 36 percent of revenue and a year ago,
 gross margin was 39 percent of revenue.  Dot Hill's cash and short-term
 investments were $25.8 million at the end of the first quarter.
     During the first quarter of 2001, sales of Dot Hill's SANnet systems
 accounted for 51 percent of revenue, compared to 38 percent of revenue for the
 fourth quarter and 14 percent of revenue a year ago.  Tape backup accounted
 for 10 percent of revenue and service for 10 percent; legacy and other
 products accounted for the remaining 29 percent.  Sales to telecommunications,
 service provider and e-commerce customers accounted for 35 percent of revenue;
 sales to government customers accounted for 23 percent of revenue, and; sales
 to other commercial customers accounted for 42 percent of revenue.
     As compared to the fourth quarter 2000 and the quarter a year ago, the
 decrease in revenue was primarily due to a reduction in demand from telecom
 and other commercial sectors and the planned shift away from legacy products.
 The decrease in gross margin compared to the fourth quarter 2000 and the
 quarter a year ago was mainly attributable to the less efficient absorption of
 fixed manufacturing costs due to the decrease in revenue and an inventory
 reserve related to the economic slowdown.
     "While this was a difficult quarter for technology companies, we are
 encouraged by our customers' continued transition toward our SANnet systems
 from our legacy products," said James Lambert, chief executive officer. "We
 also have made significant progress in marketing and in expanding our OEM
 channel.  Since last quarter, we announced OEM agreements with Motorola,
 IPeria, and Comverse.  Our worldwide SAN seminars, produced jointly with
 industry leaders Brocade(R), VERITAS(R) and IDC, are providing us with highly-
 qualified prospects and increased brand recognition.  Dot Hill's SANnet
 storage solutions, with its Network Equipment Building Systems (NEBS) level 3
 certification, continue to make us attractive to technology leaders as
 evidenced by our new partnerships with Cisco and FalconStor."
     Preston Romm, Dot Hill's chief financial officer stated, "Although we
 executed well with respect to many of our goals during the first quarter, Dot
 Hill has suffered from the current economic downturn.  Like many other
 technology companies, we saw a number of our customers delay purchasing
 decisions, suffer disruptive personnel cuts and experience budget freezes.
 Deals weren't lost as much as they simply didn't close, and we continue to see
 this trend entering the second quarter.  Due to our current lack of visibility
 and the economic downturn, we are unable to provide accurate financial
 guidance at this time.  Dot Hill has been proactive in dealing with these
 uncertain times and we acted quickly and decisively to limit our losses and
 conserve shareholder value.  As previously reported, we significantly reduced
 our work force and implemented other cost-saving actions during the first
 quarter to substantially reduce our break-even point.  We believe that by
 taking these measures and continuing to focus on providing customers with
 industry leading technologies, we are positioning Dot Hill for future success
 when the economy and industry rebounds."
     Dot Hill is a leading independent provider of carrier-class data storage
 solutions and services.  With solutions that include storage area networks,
 NEBS-certified systems for Telco and Internet operations and world-class
 service capabilities, Dot Hill is uniquely positioned to address the storage
 requirements of mission-critical continuous computing environments.  Dot
 Hill's customers include many of the world's leading Internet service
 providers, financial institutions, advanced technology and telecommunications
 companies, and government agencies.  Dot Hill is an ISO 9002 certified
 company.
 
     Dot Hill and SANnet are trademarks of Dot Hill Systems Corp.  All other
 trademarks and names are the property of their respective owners.
 
     Certain 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.  Forward-
 looking statements include statements about any future occurrences (as opposed
 to historical fact) such as Dot Hill's future financial and operating results,
 future product offerings, the future ability of Dot Hill to offer industry
 leading products and innovations such as SANnet and the future focus of Dot
 Hill's resources.  The risks that contribute to the uncertain nature of the
 forward-looking statements include:  rapid technological change, the new
 product introductions of competitors, unforeseen supply, technological,
 intellectual property or engineering issues, evolving industry standards and
 changing customer preferences in the Open Systems computing market.  However,
 there are many other risks not listed here that may affect the future business
 and financial results of Dot Hill, as well as the forward-looking statements
 contained herein.  To learn more about such risks and uncertainties, you
 should read the risk factors set forth in the forms 10K and 10Q recently filed
 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. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                    (unaudited)
                    (in thousands, except per share information)
 
 
                                                         Three Months Ended
                                                              March 31,
                                                           2001        2000
 
     Net revenue                                         $18,585      $30,853
 
     Cost of goods sold                                   16,824      18,831
 
     Gross margin                                          1,761      12,022
     Operating expenses:
     Sales and marketing                                   8,570       7,079
     Engineering and product development                   1,930       2,085
     General and administrative                            1,514       1,737
     Restructuring expenses                                2,935          --
 
        Total operating expenses                          14,949      10,901
 
     Operating (loss) income                             (13,188)      1,121
 
     Other income (expense):
     Interest income                                         419         496
     Interest expense                                        (26)        (16)
     Other income (expense), net                              24         (18)
     Gain (loss) on foreign currency transactions, net        67         (17)
        Total other income, net                              484         445
     (Loss) income before income taxes                   (12,704)      1,566
     Income tax provision                                 16,023         611
     Net (loss) income                                  $(28,727)       $955
     Basic and diluted net (loss) income per share        $(1.17)      $0.04
     Weighted average shares used to calculate
      basic net (loss) income per share                   24,612      24,047
     Weighted average shares used to calculate
      diluted net (loss) income per share                 24,612      25,052
 
 
                      DOT HILL SYSTEMS CORP. AND SUBSIDIARIES
                            CONSOLIDATED BALANCE SHEETS
                                   (in thousands)
 
                                                      March 31,   December 31,
                                                         2001         2000
     ASSETS                                          (unaudited)
     Current assets:
      Cash and cash equivalents                         $25,756     $ 33,653
      Accounts receivable, net                           10,560       19,341
      Inventories, net                                   21,258       24,109
      Prepaid expenses and other                          1,842        1,948
      Deferred income taxes                                  --        4,067
        Total current assets                             59,416       83,118
 
      Property and equipment, net                         4,332        4,814
      Other assets                                          105           94
      Goodwill, net                                         422          448
      Other intangible assets, net                           13           49
      Deferred income taxes                                  --       14,356
                                                        $64,288     $102,879
     LIABILITIES AND SHAREHOLDERS' EQUITY
     Current liabilities:
      Accounts payable                                   $8,840      $17,803
      Accrued compensation                                2,232        2,748
      Accrued expenses                                    1,515        1,858
      Restructuring accrual                               1,680           --
      Deferred revenue                                    2,982        2,866
      Income taxes payable                                1,456        3,389
        Total current liabilities                        18,705       28,664
     Borrowings under line of credit                        207          186
     Other long-term liabilities                            235          259
        Total liabilities                                19,147       29,109
 
     Shareholders' equity:
      Common stock                                          247          246
      Additional paid-in capital                         99,127       99,026
      Foreign currency translation adjustments             (220)        (216)
      Accumulated deficit                               (54,013)     (25,286)
        Total shareholders' equity                       45,141       73,770
                                                        $64,288     $102,879
 
                     MAKE YOUR OPINION COUNT -  Click Here
                http://tbutton.prnewswire.com/prn/11690X68177829
 
 

SOURCE Dot Hill Systems Corp.
    CARLSBAD, Calif., April 25 /PRNewswire/ -- Dot Hill Systems Corp.
 (NYSE:   HIL), a leading supplier of carrier-class data storage and storage area
 network (SAN) solutions, today announced first quarter financial results for
 the period ended March 31, 2001 and that SANnet sales increased 125 percent
 over first quarter 2000.
     (Photo:  http://www.newscom.com/cgi-bin/prnh/20010227/HILLOGO )
     Dot Hill met revised revenue expectations for the first quarter.  Net
 revenue for the first quarter 2001 was approximately $18.6 million, compared
 to fourth quarter 2000 net revenue of $30.7 million and net revenue a year ago
 of $30.9 million.  For the first quarter 2001, Dot Hill experienced a net loss
 of $28.7 million, or $1.17 per share, which reflects charges discussed below.
 Last quarter, Dot Hill reported a net loss of $1.1 million, or $0.04 per
 share, and a year ago reported net income of $1.0 million, or $0.04 per
 diluted share.
     During the first quarter, Dot Hill took a number of actions in response to
 the economic downturn.  Two one-time charges were taken, the first of which
 was the recording of a $16.0 million charge in connection with a valuation
 allowance provided for deferred income tax assets.  This was a non-cash charge
 solely for financial reporting purposes that will significantly lower the
 effective tax rate of the company going forward.  The second was a
 restructuring charge of $2.9 million related to severance payments for the
 previously announced 30 percent work force reduction and for the consolidation
 of excess facilities and related fixed assets.  Further, the company recorded
 an additional $2.0 million inventory reserve related to the poor economic
 environment.
     Gross margin for the first quarter of 2001 was 10 percent of revenue.
 Excluding the inventory reserve charge, gross margin was 20 percent of
 revenue.  Last quarter, gross margin was 36 percent of revenue and a year ago,
 gross margin was 39 percent of revenue.  Dot Hill's cash and short-term
 investments were $25.8 million at the end of the first quarter.
     During the first quarter of 2001, sales of Dot Hill's SANnet systems
 accounted for 51 percent of revenue, compared to 38 percent of revenue for the
 fourth quarter and 14 percent of revenue a year ago.  Tape backup accounted
 for 10 percent of revenue and service for 10 percent; legacy and other
 products accounted for the remaining 29 percent.  Sales to telecommunications,
 service provider and e-commerce customers accounted for 35 percent of revenue;
 sales to government customers accounted for 23 percent of revenue, and; sales
 to other commercial customers accounted for 42 percent of revenue.
     As compared to the fourth quarter 2000 and the quarter a year ago, the
 decrease in revenue was primarily due to a reduction in demand from telecom
 and other commercial sectors and the planned shift away from legacy products.
 The decrease in gross margin compared to the fourth quarter 2000 and the
 quarter a year ago was mainly attributable to the less efficient absorption of
 fixed manufacturing costs due to the decrease in revenue and an inventory
 reserve related to the economic slowdown.
     "While this was a difficult quarter for technology companies, we are
 encouraged by our customers' continued transition toward our SANnet systems
 from our legacy products," said James Lambert, chief executive officer. "We
 also have made significant progress in marketing and in expanding our OEM
 channel.  Since last quarter, we announced OEM agreements with Motorola,
 IPeria, and Comverse.  Our worldwide SAN seminars, produced jointly with
 industry leaders Brocade(R), VERITAS(R) and IDC, are providing us with highly-
 qualified prospects and increased brand recognition.  Dot Hill's SANnet
 storage solutions, with its Network Equipment Building Systems (NEBS) level 3
 certification, continue to make us attractive to technology leaders as
 evidenced by our new partnerships with Cisco and FalconStor."
     Preston Romm, Dot Hill's chief financial officer stated, "Although we
 executed well with respect to many of our goals during the first quarter, Dot
 Hill has suffered from the current economic downturn.  Like many other
 technology companies, we saw a number of our customers delay purchasing
 decisions, suffer disruptive personnel cuts and experience budget freezes.
 Deals weren't lost as much as they simply didn't close, and we continue to see
 this trend entering the second quarter.  Due to our current lack of visibility
 and the economic downturn, we are unable to provide accurate financial
 guidance at this time.  Dot Hill has been proactive in dealing with these
 uncertain times and we acted quickly and decisively to limit our losses and
 conserve shareholder value.  As previously reported, we significantly reduced
 our work force and implemented other cost-saving actions during the first
 quarter to substantially reduce our break-even point.  We believe that by
 taking these measures and continuing to focus on providing customers with
 industry leading technologies, we are positioning Dot Hill for future success
 when the economy and industry rebounds."
     Dot Hill is a leading independent provider of carrier-class data storage
 solutions and services.  With solutions that include storage area networks,
 NEBS-certified systems for Telco and Internet operations and world-class
 service capabilities, Dot Hill is uniquely positioned to address the storage
 requirements of mission-critical continuous computing environments.  Dot
 Hill's customers include many of the world's leading Internet service
 providers, financial institutions, advanced technology and telecommunications
 companies, and government agencies.  Dot Hill is an ISO 9002 certified
 company.
 
     Dot Hill and SANnet are trademarks of Dot Hill Systems Corp.  All other
 trademarks and names are the property of their respective owners.
 
     Certain 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.  Forward-
 looking statements include statements about any future occurrences (as opposed
 to historical fact) such as Dot Hill's future financial and operating results,
 future product offerings, the future ability of Dot Hill to offer industry
 leading products and innovations such as SANnet and the future focus of Dot
 Hill's resources.  The risks that contribute to the uncertain nature of the
 forward-looking statements include:  rapid technological change, the new
 product introductions of competitors, unforeseen supply, technological,
 intellectual property or engineering issues, evolving industry standards and
 changing customer preferences in the Open Systems computing market.  However,
 there are many other risks not listed here that may affect the future business
 and financial results of Dot Hill, as well as the forward-looking statements
 contained herein.  To learn more about such risks and uncertainties, you
 should read the risk factors set forth in the forms 10K and 10Q recently filed
 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. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                    (unaudited)
                    (in thousands, except per share information)
 
 
                                                         Three Months Ended
                                                              March 31,
                                                           2001        2000
 
     Net revenue                                         $18,585      $30,853
 
     Cost of goods sold                                   16,824      18,831
 
     Gross margin                                          1,761      12,022
     Operating expenses:
     Sales and marketing                                   8,570       7,079
     Engineering and product development                   1,930       2,085
     General and administrative                            1,514       1,737
     Restructuring expenses                                2,935          --
 
        Total operating expenses                          14,949      10,901
 
     Operating (loss) income                             (13,188)      1,121
 
     Other income (expense):
     Interest income                                         419         496
     Interest expense                                        (26)        (16)
     Other income (expense), net                              24         (18)
     Gain (loss) on foreign currency transactions, net        67         (17)
        Total other income, net                              484         445
     (Loss) income before income taxes                   (12,704)      1,566
     Income tax provision                                 16,023         611
     Net (loss) income                                  $(28,727)       $955
     Basic and diluted net (loss) income per share        $(1.17)      $0.04
     Weighted average shares used to calculate
      basic net (loss) income per share                   24,612      24,047
     Weighted average shares used to calculate
      diluted net (loss) income per share                 24,612      25,052
 
 
                      DOT HILL SYSTEMS CORP. AND SUBSIDIARIES
                            CONSOLIDATED BALANCE SHEETS
                                   (in thousands)
 
                                                      March 31,   December 31,
                                                         2001         2000
     ASSETS                                          (unaudited)
     Current assets:
      Cash and cash equivalents                         $25,756     $ 33,653
      Accounts receivable, net                           10,560       19,341
      Inventories, net                                   21,258       24,109
      Prepaid expenses and other                          1,842        1,948
      Deferred income taxes                                  --        4,067
        Total current assets                             59,416       83,118
 
      Property and equipment, net                         4,332        4,814
      Other assets                                          105           94
      Goodwill, net                                         422          448
      Other intangible assets, net                           13           49
      Deferred income taxes                                  --       14,356
                                                        $64,288     $102,879
     LIABILITIES AND SHAREHOLDERS' EQUITY
     Current liabilities:
      Accounts payable                                   $8,840      $17,803
      Accrued compensation                                2,232        2,748
      Accrued expenses                                    1,515        1,858
      Restructuring accrual                               1,680           --
      Deferred revenue                                    2,982        2,866
      Income taxes payable                                1,456        3,389
        Total current liabilities                        18,705       28,664
     Borrowings under line of credit                        207          186
     Other long-term liabilities                            235          259
        Total liabilities                                19,147       29,109
 
     Shareholders' equity:
      Common stock                                          247          246
      Additional paid-in capital                         99,127       99,026
      Foreign currency translation adjustments             (220)        (216)
      Accumulated deficit                               (54,013)     (25,286)
        Total shareholders' equity                       45,141       73,770
                                                        $64,288     $102,879
 
                     MAKE YOUR OPINION COUNT -  Click Here
                http://tbutton.prnewswire.com/prn/11690X68177829
 
 SOURCE  Dot Hill Systems Corp.