Dot Hill Reports First Quarter 2013 Results

Dot Hill Reports First Quarter 2013 Results

LONGMONT, Colo., May 9, 2013 (GLOBE NEWSWIRE) -- Dot Hill Systems Corp.
(Nasdaq:HILL), a leading provider of SAN storage solutions, reported financial
results for the first quarter 2013, ended March 31, 2013.

Non-GAAP First Quarter 2013 Financial and Operational Highlights:

  *Net revenue from Vertical Markets grew 20% compared to fourth quarter
    2012;
  *Non-GAAP gross margins were 32.1%, as compared to 28.3% for the fourth
    quarter 2012, and the highest gross margin in over five years;
  *Operating expenses were relatively flat as compared to first quarter 2012
    and declined relative to fourth quarter 2012;
  *Company returns to breakeven.

"The results of increased R&D spending in 2012 are now becoming more visible,"
stated Dana Kammersgard, president and chief executive officer, Dot Hill
Systems. "Our focus on Vertical Markets and especially in Media and
Entertainment and Telecommunications is benefiting from explosive data growth
as film studios keep producing 3-D movies and smartphone users keep generating
and sharing data of all sorts. Furthermore, our new product efforts are
bearing fruit as almost all of our recent new customer wins are based on our
midrange 4000 or 5000 series products. Additionally, multiple existing and new
OEM partners are on schedule to launch our next generation entry-level series
3000 arrays."

First Quarter 2013 GAAP Financial Detail (including discontinued operations):

The Company recognized GAAP net revenue of $44.5 million for the first quarter
of 2013, as compared to $54.7 million for the first quarter of 2012 and $44.1
million for the fourth quarter of 2012. The first quarter of 2012 benefitted
from a spike in demand from one of the Company's telecommunications customers.

GAAP gross margins for the first quarter of 2013 were 32.2%, as compared to
27.7% for the first quarter of 2012 and 17.8% for the fourth quarter of 2012.
GAAP operating expenses for the first quarter of 2013 were $15.3 million, as
compared to $17.1 million for the first quarter of 2012 and $12.6 million in
the fourth quarter of 2012. GAAP net loss for the first quarter of 2013 was
$1.0 million, or ($0.02) per share, as compared to a net loss of $1.9 million,
or ($0.03) per share, for the first quarter of 2012, and a net loss of $5.0
million, or ($0.09) per share, for the fourth quarter of 2012.

First Quarter 2013 Non-GAAP Financial Detail:

The Company recognized non-GAAP net revenue of $44.9 million for the first
quarter of 2013, as compared to $54.6 million for the first quarter of 2012
and $46.2 million for the fourth quarter of 2012.

Non-GAAP gross margins were 32.1% for the first quarter of 2013, as compared
to 29.3% for the first quarter of 2012 and 28.3% for the fourth quarter of
2012. The increase in gross margins during the first quarter of 2013 relative
to the fourth quarter of 2012 was partly due to the growth in higher margin
Vertical Markets revenues as a percent of total revenue. Total non-GAAP
operating expenses for the first quarter of 2013 were $14.3 million, as
compared to $14.2 million for the first quarter of 2012 and $14.7 million for
the fourth quarter of 2012.

Non-GAAP net income for the first quarter of 2013 was $0.04 million, or $0.00
per fully diluted share, as compared to first quarter 2012 non-GAAP net income
of $1.9 million, or $0.03 per fully diluted share, and fourth quarter 2012
non-GAAP net loss of $2.0 million, or ($0.03) per share. Non-GAAP EBITDA for
the first quarter of 2012 was positive $0.8 million as compared to positive
$2.3 million for the first quarter of 2012 and negative $1.0 million for the
fourth quarter of 2012.

Balance Sheet:

On March 31, 2013 the Company had cash and cash equivalents of $40.3 million
and $2.8 million in short term notes payable as compared to $40.3 million in
cash and cash equivalents and $2.8 million in short term notes payable on
December 31, 2012.

Second Quarter and Full Year 2013 Outlook:

The Company reiterated the guidance ranges issued at its Analyst Day on April
8, 2013 of second quarter 2013 non-GAAP net revenue of $47 million to $53
million and non-GAAP EPS of a loss of ($0.01) per share to a profit of $0.02
per fully diluted share.The Company also reiterated its full year 2013
outlook of non-GAAP revenue of $205 million to $227 million, non-GAAP gross
margins of 30% to 31%, non-GAAP operating expenses of $60 million to $64
million and non-GAAP EPS of $0.02 per fully diluted share to $0.10 per fully
diluted share.

"We are off to a solid start in 2013, given the global economic climate,"
stated Hanif Jamal, chief financial officer, Dot Hill Systems."We are pleased
with the continued traction in our Vertical Markets business, the significant
improvement in non-GAAP gross margins, as well as the discipline in managing
operating expenses and working capital during the first quarter. The result
was a small non-GAAP net profit for the quarter. Based on our existing
customer sales funnel, we are expecting solid revenue and earnings growth in
the second half of 2013 with the potential for even higher revenue growth and
non-GAAP EPS accretion in 2014."

Conference Call Information:

Dot Hill's first quarter 2013 financial results conference call is scheduled
to take place on Thursday, May 9, 2012 at 11:00 am 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#
36635397.

About Non-GAAP Financial Measures

In 2012 and/or 2013, the Company's non-GAAP financial measures exclude the
impact of stock-based compensation expense, legal settlements and associated
expenses, intangible asset amortization, restructuring and severance charges,
charges or credits for contingent consideration adjustments, charges for
impairment of goodwill and other long-lived assets, specific and significant
warranty claims arising from a supplier's defective products, the impact of
our discontinued AssuredUVS software business and the effects of foreign
currency gains or losses.The non-GAAP financial measures include the
recognition of revenues and directly related costs associated with long term
AssuredVRA software contracts, which were deferred and amortized in the
Company's GAAP financial statements. 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.

About Dot Hill

Delivering innovative technology and global support, Dot Hill empowers its
customers 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 and the United States. For more information, visit
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 future opportunities for additional business and
the stage of such opportunities relative to a final binding agreement,
prospects for Dot Hill's continued growth, and Dot Hill's projected financial
results for the second quarter and full year of 2013.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 second
quarter and full year of 2013 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 risk that projected future
opportunities may never fully develop into ongoing business relationships
and/or binding contractual agreements; 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 Vertical Markets'
sales 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 Dot Hill's most
recent Form 10-Q and Form10-K filings with the Securities and Exchange
Commission. 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
                              March 31, 2012 December 31, 2012 March 31, 2013
                                                             
Net revenue                    $54,598      $44,019         $44,480
Cost of goods sold             39,033        36,142           $30,040
Gross profit                   15,565        7,877            14,440
Operating expenses:                                           
Research and development       9,197         5,974            8,713
Sales and marketing            3,477         3,718            3,108
General and administrative     2,834         2,776            3,137
Total operating expenses       15,508        12,468           14,958
Operating loss                 57            (4,591)          (518)
Other income (expense):                                       
Interest income (expense), net 8             7                (7)
Other income (expense), net    4             (12)             (1)
Total other income (expense),  12            (5)              (8)
net
Income (loss) before income
taxes and discontinued         69            (4,596)          (526)
operations
Income tax expense (benefit)   (91)          287              34
Income (loss) from continuing  160           (4,883)          (560)
operations
Loss from discontinued         (2,028)       (137)            (421)
operations
Net loss                       $(1,868)     $(5,020)        $(981)
Net earnings (loss) per share: $(0.03)      $(0.09)         $(0.02)
                                                             
Continuing operations:                                        
Basic and diluted earnings     $--         $(0.08)         $(0.01)
(loss) per share
Discontinued operations:                                      
Basic and diluted loss per     $(0.04)      $--            $(0.01)
share
Net loss:                                                     
Basic and diluted loss per     $(0.03)      $(0.09)         $(0.02)
share*
Weighted average shares used
to calculate net income (loss)                                
per share:
Basic                          56,030        57,501           58,001
Diluted                        56,558        57,501           58,001
                                                             
* Per share data may not always add to the total for the period because each
figure is independently calculated.



DOT HILL SYSTEMS CORP.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value data)
                                                      
                                          December 31, March 31,
                                          2012         2013
                                                      
Assets                                                 
Current assets:                                        
Cash and cash equivalents                  40,315      $40,297
Accounts receivable, net                   25,025      22,484
Inventories                                5,037       4,944
Prepaid expenses and other assets          5,810       5,960
Total current assets                       76,187      73,685
Property and equipment, net                7,147       7,645
Other assets                               603         679
Total assets                               $83,937    $82,009
                                                      
Liabilities and stockholders' equity                   
Current liabilities:                                   
Accounts payable                           $22,659    $23,055
Accrued compensation                       4,863       3,443
Accrued expenses                           8,690       6,888
Deferred revenue                           2,889       3,559
Credit facility borrowings                 2,800       2,800
Total current liabilities                  41,901      39,745
Other long-term liabilities                3,261       3,385
Total liabilities                          45,162      43,130
                                                      
Stockholders' equity:                                  
Preferred stock                            --         --
Common stock                               58          58
Additional paid-in capital                 326,575     327,516
Accumulated other comprehensive loss       (3,533)     (3,389)
Accumulated deficit                        (284,325)   (285,306)
Total stockholders' equity                 38,775      38,879
Total liabilities and stockholders' equity $83,937    $82,009



DOT HILL SYSTEMS CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(INCLUDES RESULTS FROM BOTH DISCONTINUED AND CONTINUING OPERATIONS)
(In thousands)
                                                             
                              Three Months Ended
                              March 31, 2012 December 31, 2012 March 31, 2013
                                                             
Cash Flows From Operating                                     
Activities:
Net loss                       $(1,868)     $(5,020)        $(981)
Adjustments to reconcile net
loss to net cash provided by                                  
(used in) operating
activities:
Depreciation and amortization  1,085          699               709
Provision for bad debt expense --           13               --
Stock-based compensation       1,142          750               668
expense
(Gain) Loss on disposal of     123           (68)              --
fixed assets
Changes in operating assets                                   
and liabilities:
Accounts receivable            (3,469)        3,269             2,521
Inventories                    496            369               91
Prepaid expenses and other     (5,250)        673               (266)
assets
Accounts payable               4,543          (4,266)           456
Accrued compensation and other (875)          923               (3,074)
expenses
Deferred revenue               (96)           1,637             682
Other long-term liabilities    (118)          1,707             142
Net cash provided by (used in) (4,287)        686               948
operating activities
                                                             
Cash Flows From Investing                                     
Activities:
Purchases of property and      (327)          (1,698)           (1,195)
equipment
Proceeds from sale of property --           74               0
and equipment
Net cash used in investing     (327)          (1,624)           (1,195)
activities
                                                             
Cash Flows From Financing                                     
Activities:
Principal payment of note and  (71)           --               --
loan payable
Net cash proceeds from
borrowings on credit facility  --           1,000             --
(current period)
Shares withheld for tax        (401)         (45)              (114)
purposes
Common stock issued under      448            --               387
stock plans
Net cash provided by (used in) (24)           955               273
financing activities
                                                             
Effect of Exchange Rate
Changes on Cash and Cash       (83)           (244)             (44)
Equivalents
Net Decrease in Cash and Cash  (4,721)        (227)             (18)
Equivalents
Cash and Cash Equivalents,     46,168         40,542            40,315
beginning of period
Cash and Cash Equivalents, end $41,447      $40,315         $40,297
of period
                                                             
Supplemental Disclosures of
Non-Cash Investing and                                        
Financing Activities:
Capital assets acquired but    $855         $477            $489
not paid
Supplemental Cash Flow Data:                                  
Cash paid for income taxes     $34          $79             $17



DOT HILL SYSTEMS CORP.
UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES
(In thousands, except per share amounts)
                                                             
                              Three Months Ended
                              March 31, 2012 December 31, 2012 March 31, 2013
                                                             
GAAP net revenue from          $54,598      $44,019         $44,480
continuing operations
Revenue from discontinued      146           128              20
operations
Net revenue, from continuing   $54,744      $44,147         $44,500
and discontinued operations
ITC revenue                    (146)         (128)            (20)
Long-term software contract    --           2,141            401
royalties
Non-GAAP net revenue           $54,598      $46,160         $44,881
                                                             
GAAP gross profit from         $15,565      $7,877          $14,440
continuing operations
Gross margin % from continuing 28.5%          17.9%             32.5%
operations
Gross profit from discontinued (391)         --              (111)
operations
Gross profit from continuing   15,174        7,877            14,329
and discontinued operations
Gross margin % from continuing 27.7%          17.8%             32.2%
and discontinued operations
Stock-based compensation       172           135              96
Severance costs                6             4                23
Power supply component         --           --              (808)
failures
ITC revenue                    (147)         (128)            (20)
ITC expenses                   356           128              129
Long-term software contract    --           2,141            401
royalties
Long-term software contract    --           2,885            256
cost
Intangible asset amortization 441           --              --
Non-GAAP gross profit          $16,002      $13,042         $14,406
Non-GAAP gross margin %        29.3%          28.3%             32.1%
                                                             
GAAP operating expenses from   $15,508      $12,468         $14,958
continuing operations
Operating expenses from        1,636         137              310
discontinued operations
Operating expenses from
continuing and discontinued    17,144        12,605           15,268
operations
Currency loss                  (376)         (341)            (343)
Stock-based compensation       (970)         (615)            (572)
ITC expenses                   (956)         (147)            (353)
Long-term software contract    --           3,562            400
deferred cost
Restructuring (charge)         (601)         (95)             10
recoveries
Legal fees related to power    --           (9)              (1)
supply component failure
Severance costs                (9)           (237)            (82)
Non-GAAP operating expenses    $14,232      $14,723         $14,327
                                                             
GAAP net income (loss) from    $160         $(4,883)        $(560)
continuing operations
Net loss from discontinued     (2,028)       (137)            (421)
operations
Net loss from continuing and   (1,868)       (5,020)          (981)
discontinued operations
Currency loss                  376           341              343
Stock-based compensation       1,142         750              668
Restructuring charge           601           95               (10)
(recoveries)
Intangible asset amortization 441           --              --
Power supply component         --           9                (807)
failures
ITC expenses                   1,312         275              482
ITC revenue                    (147)         (128)            (20)
Long-term software contract    15            2,141            401
royalties
Long-term software contract    --           2,885            256
cost
Long-term software contract    --           (3,562)          (400)
deferred cost
Severance costs                --           241              105
Non-GAAP net income (loss)     $1,872       $(1,973)        37
                                                             
Non-GAAP net income (loss) per                                
share
Basic and diluted              $0.03        $(0.03)         $--
Weighted average shares used
to calculate net income (loss)                                
per share:
Basic                          56,030        57,501           58,001
Diluted                        56,558        57,501           58,473
                                                             
Non-GAAP net income (loss)     $1,872       $(1,973)        $37
Interest expense less ITC      7             12               7
Income tax expense (benefit)   (91)          287              34
Depreciation less ITC          545           697              706
Non-GAAP EBITDA                $2,333       $(977)          $784



DOT HILL SYSTEMS CORP.
NON-GAAP REVENUE DETAIL BY MARKET
(In thousands)
                                                       
                      Three Months Ended
                      March 31, 2012 December 31, 2012 March 31, 2013
                                                       
HP                     $33,224        $29,869         $27,329
Other Server OEMs      1,784           3,831            2,718
Total Server OEMs      35,008          $33,700         30,047
Vertical Markets       17,049          11,056           13,299
Service                2,541           1,404            1,535
Total Non-GAAP Revenue $54,598        $46,160         $44,881



DOT HILL SYSTEMS CORP.
UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES
(In thousands, except per share amounts)
                                                            
                                Three Months Ended
                                March 31, 2012  December 31,  March 31, 2013
                                                 2012
GAAP earnings (loss) per share   $--          $(0.08)     $(0.01)
from continuing operations
Loss per share from discontinued (0.04)         --          (0.01)
operations
Loss per share from continuing   (0.03)         (0.09)       (0.02)
and discontinued operations*
Currency loss                    0.01           0.01         0.01
Intangible asset amortization   0.01           --          --
Stock-based compensation         0.02           0.01         0.01
ITC expenses                     0.02           --          0.01
Long-term software contract      --            0.04         0.01
royalties
Long-term software contract cost --            0.05         --
Long-term software contract      --            (0.06)       (0.01)
deferred cost
Other adjustments                --            0.01         (0.01)
Non-GAAP earnings (loss) per     $0.03         $(0.03)     $--
share*
                                                            
Weighted average shares used to calculate                     
earnings (loss) per share:
Basic                            56,030         57,501       58,001
Diluted                          56,558         57,501       58,473
                                                            
* Per share data may not always add to the total for the period because each
figure is independently calculated.

CONTACT: Hanif Jamal
         Chief Financial Officer
         Tel: 303-845-3377
         Email: investors@dothill.com
        
         Jodi Bochert
         Investor Relations
         Tel: 303-845-3469
         Email: investors@dothill.com
        
         Kirsten Chapman
         LHA Investor Relations
         Tel: 415-433-3777
         Email: dothill@lhai.com

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