Dot Hill Reports Third Quarter 2013 Results

Dot Hill Reports Third Quarter 2013 Results

 63% YOY Increase in Vertical Markets Revenue Drove 10% YOY Non-GAAP Topline
                                    Growth

       Profitability Continued With Non-GAAP Net Income of $2.8 Million

LONGMONT, Colo., Nov. 8, 2013 (GLOBE NEWSWIRE) -- Dot Hill Systems Corp.
(Nasdaq:HILL), a leading provider of storage solutions, today announced
financial results for the third quarter 2013, ended September 30, 2013.

Recent Customer and Product Announcement Highlights:

  *Hewlett-Packard launched the HP MSA 2040 based on Dot Hill storage that
    incorporates industry-first 16Gb Fibre Channel support for entry-level
    products in June.
  *CGG, a fully integrated geoscience company serving the global Oil & Gas
    industry, selected Dot Hill's AssuredSAN 4000 Series midrange storage
    systems for CGG's subsurface imaging centers and as part of its reference
    architecture in August.
  *Hewlett-Packard launched the remainder of the HP MSA 2040 product family
    based on Dot Hill storage, including industry first 12Gb SAS and 16Gb/10Gb
    hybrid options in September.
  *Teradata added Dot Hill as a storage partner, incorporating the AssuredSAN
    4000 Series products into certain data warehousing and big data analytics
    appliances in October.
  *Dot Hill made available its own next generation AssuredSAN 4004 product
    family launched with 16Gb Fibre Channel, 12Gb SAS and hybrid FC and iSCSI
    options in November.

"We are successfully executing our strategies to penetrate select high-growth
vertical markets, gain market share with midrange products and maintain
industry-leading innovation in entry level products," stated Dana Kammersgard,
president and CEO of Dot Hill Systems Corp. "We recently announced
relationships with world class partners in Oil & Gas and Big Data Analytics,
adding to our partnerships with OEMs in Media & Entertainment and Telecom
Wireless and Internet Infrastructure. Additionally, we furthered our
innovation leadership by introducing our next-generation entry-level product
with industry-first features, which contributed to sequential growth in our
Server OEM business."

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

  *The Company recognized GAAP net revenue of $52.6 million for the third
    quarter of 2013, compared to $48.2 million for the third quarter of 2012
    and $50.7 million for the second quarter of 2013.
  *GAAP gross margin for the third quarter of 2013 was 32.1%, compared to
    25.4% for the third quarter of 2012 and 33.6% for the second quarter of
    2013.
  *GAAP operating expenses for the third quarter of 2013 were $15.0 million,
    as compared to $15.1 million for the third quarter of 2012 and $14.9
    million in the second quarter of 2013.
  *GAAP net income for the third quarter of 2013 was $1.8 million, or $0.03
    per fully diluted share, as compared to a net loss of $3.0 million, or
    ($0.05) per share, for the third quarter of 2012, and net income of $2.1
    million, or $0.04 per fully diluted share, for the second quarter of 2013.

Third Quarter 2013 Non-GAAP Financial Detail

  *The Company recognized non-GAAP net revenue of $52.9 million for the third
    quarter of 2013, as compared to $48.2 million for the third quarter of
    2012 and $51.2 million for the second quarter of 2013.
  *Non-GAAP gross margin for the third quarter of 2013 was 32.8%, compared to
    26.4% for the third quarter of 2012 and 34.7% for the second quarter of
    2013. The Company stated that the sequential decline in non-GAAP gross
    margin percent was largely due to customer mix changes associated with a
    20% increase in revenues from its largest customer.
  *Non-GAAP operating expenses for the third quarter of 2013 were $14.5
    million, as compared to $14.2 million for the third quarter of 2012 and
    $14.2 million in the second quarter of 2013. 
  *Non-GAAP net income for the third quarter of 2013 was $2.8 million, or
    $0.05 per share, as compared to net loss of $1.7 million, or ($0.03) per
    share, for the third quarter of 2012, and net income of $3.5 million, or
    $0.06 per share, for the second quarter of 2013.

"Overall, we had a solid third quarter despite ongoing macro-environment
headwinds and IT market challenges, with revenue and EPS in the upper half of
our guidance ranges," stated Hanif Jamal, chief financial officer, Dot Hill
Systems Corp. "Our largest customer bounced back with 20% sequential growth,
and our vertical markets grew 63% on a year-over-year basis. We also continued
to make good progress moving customer opportunities and design wins through
our sales pipeline, which will lay the foundation for a more diversified and
faster growing company in 2014."

Balance Sheet:

On September 30, 2013, the Company had cash and cash equivalents of $40.4
million with no borrowing as compared to $38.3 million in cash and cash
equivalents net of short-term borrowing of $2.1 million on June 30, 2013.

Fourth Quarter and Full Year 2013 Outlook:

The Company expects fourth quarter 2013 non-GAAP net revenue to be in the
range of $53 million to $58 million and non-GAAP earnings per share in the
range of $0.03 per share to $0.06 per share.As a result, management updated
its 2013 annual guidance.The Company now expects 2013 non-GAAP net revenue to
range between $202 million and $207 million.The Company reiterated annual
2013 gross margin guidance of between 32% and 33% and lowered operating
expense guidance to $57.5 million to $58 million. The net result of these
revised estimates is an increase in fully diluted non-GAAP EPS guidance of
between $0.14 and $0.17 as compared to the August 2013 projection of $0.10 to
$0.16.

Conference Call Information:

Dot Hill's third quarter 2013 financial results conference call is scheduled
to take place on November 8, 2013 at 11:00 a.m. ET. The live audio webcast
will be accessible at www.dothill.com in the Investor Relations section. For
access 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 will be available on the Dot Hill web site following the
conference call. For a telephone replay, please dial 855-859-2056 (U.S.) or
404-537-3406 (International) and enter Conference ID 78617172.

About Non-GAAP Financial Measures

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

Leveraging its proprietary Assured family of storage solutions, Dot Hill
solves many of today's most challenging storage problems – helping IT to
improve performance, increase availability, simplify operations, and reduce
costs. Dot Hill's solutions combine breakthrough software with the industry's
most flexible and extensive hardware platform and automated management to
deliver best-in-class solutions.Headquartered in Longmont, Colorado, Dot Hill
has offices and/or representatives in China, Germany, India, Japan, Singapore,
the United Kingdom, and the United States.For more information, visit
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 fourth 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 fourth
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

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


DOT HILL SYSTEMS CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

                     Three Months Ended                Nine Months Ended
                     September   June 30,   September  September   September
                      30, 2012    2013       30, 2013   30, 2012    30, 2013
                                                               
Net revenue           $48,223   $50,683  $52,603  $150,529  $147,766
Cost of goods sold    35,955     33,676    35,730    110,035    99,446
Gross profit          12,268     17,007    16,873    40,494     48,320
Operating expenses:                                             
Research and          9,368      8,908     8,972     28,226     26,593
development
Sales and marketing   3,558      3,187     3,512     10,415     9,807
General and           1,918      2,767     2,512     6,918      8,416
administrative
Total operating       14,844     14,862    14,996    45,559     44,816
expenses
Operating income      (2,576)    2,145     1,877     (5,065)    3,504
(loss)
Other income                                                    
(expense):
Interest expense, net (4)        (8)       (1)       (4)        (16)
Other income          (1)        1         (1)       12         (1)
(expense), net
Total other income    (5)        (7)       (2)       8          (17)
(expense), net
Income (loss) before
income taxes and      (2,581)    2,138     1,875     (5,057)    3,487
discontinued
operations
Income tax expense    153        49        100       462        183
Income (loss) from    (2,734)    2,089     1,775     (5,519)    3,304
continuing operations
Loss from
discontinued          (280)      (12)      (18)      (4,411)    (452)
operations
Net income (loss)     $(3,014)  $2,077   $1,757   $(9,930)  $2,852
Net earnings (loss)   $(0.05)   $0.04    $0.03    $(0.17)   $0.05
per share:
                                                               
Continuing                                                      
operations:
Basic and diluted
earnings (loss) per   $(0.05)   $0.04    $0.03    $(0.10)   $0.06
share
Discontinued                                                    
operations:
Basic and diluted     $--      $--     $--     $(0.08)   $(0.01)
loss per share
Net income (loss):                                              
Basic and diluted
income (loss) per     $(0.05)   $0.04    $0.03    $(0.17)   $0.05
share*
Weighted average
shares used to                                                  
calculate net income
(loss) per share:
Basic                 57,327     58,384    58,736    56,768     58,376
Diluted               57,327     58,797    60,062    56,768     58,879
                                                               
* 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, September 30,
                                          2012         2013
                                                      
Assets                                                 
Current assets:                                        
Cash and cash equivalents                  $40,315    $40,357
Accounts receivable, net                   25,025      30,110
Inventories                                5,037       6,426
Prepaid expenses and other assets          5,810       6,816
Total current assets                       76,187      83,709
Property and equipment, net                7,147       7,792
Other assets                               603         533
Total assets                               $83,937    $92,034
                                                      
Liabilities and stockholders' equity                   
Current liabilities:                                   
Accounts payable                           $22,659    $27,159
Accrued compensation                       4,863       5,256
Accrued expenses                           8,690       7,677
Deferred revenue                           2,889       4,216
Credit facility borrowings                 2,800       --
Total current liabilities                  41,901      44,308
Other long-term liabilities                3,261       3,382
Total liabilities                          45,162      47,690
                                                      
Stockholders' equity:                                  
Preferred stock                            --         --
Common stock                               58          59
Additional paid-in capital                 326,575     329,076
Accumulated other comprehensive loss       (3,533)     (3,318)
Accumulated deficit                        (284,325)   (281,473)
Total stockholders' equity                 38,775      44,344
Total liabilities and stockholders' equity $83,937    $92,034


DOT HILL SYSTEMS CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(INCLUDES RESULTS FROM BOTH DISCONTINUED AND CONTINUING OPERATIONS)
(In thousands)

                               Three Months Ended
                               September 30, 2012 June 30, 2013 September 30,
                                                                 2013
                                                              
Cash Flows From Operating                                      
Activities:
Net income (loss)               $(3,014)         $2,077      $1,757
Adjustments to reconcile net
loss to net cash provided by                                   
(used in) operating activities:
Depreciation and amortization   869                754           852
Stock-based compensation        897                689           560
expense
Provision for bad debt expense  (13)              (5)          7
Write off of fixed assets       68                --           --
Changes in operating assets and                                
liabilities:
Accounts receivable             (1,230)            (6,574)       (1,108)
Inventories                     (751)              748           (2,236)
Prepaid expenses and other      (2,127)            26            (751)
assets
Accounts payable                4,414              1,667         2,413
Accrued compensation and other  (87)               2,238         478
expenses
Deferred revenue                (222)              416           244
Other long-term liabilities     607                18            (9)
Net cash provided by operating  (589)              2,054         2,207
activities
                                                              
Cash Flows From Investing                                      
Activities:
Purchases of property and       (1,489)            (1,132)       (600)
equipment
Net cash used in investing      (1,489)            (1,132)       (600)
activities
                                                              
Cash Flows From Financing                                      
Activities:
Payments on bank borrowings     --               (2,800)      (2,100)
Proceeds from bank borrowings   1,800             2,100        --
Shares withheld for tax         (10)              (101)         (7)
purposes
Proceeds from sale of stock to  306                41           380
employees
Net cash provided by (used in)  2,096              (760)         (1,727)
financing activities
                                                              
Effect of Exchange Rate Changes 25                 (57)          75
on Cash and Cash Equivalents
Net Increase (Decrease) in Cash 43                 105           (45)
and Cash Equivalents
Cash and Cash Equivalents,      40,499             40,297        40,402
beginning of period
Cash and Cash Equivalents, end  $40,542          $40,402     $40,357
of period
                                                              
Supplemental Disclosures of
Non-Cash Investing and                                         
Financing Activities:
Capital assets acquired but not $507             $308        $340
paid
Supplemental Cash Flow Data:                                   
Cash paid (refund) for income   $45              $67         $(9)
taxes


DOT HILL SYSTEMS CORP.
UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES
(In thousands, except per share amounts)

                         Three Months Ended             Nine Months Ended
                         September  June 30,  September September  September
                          30, 2012   2013      30, 2013  30, 2012   30, 2013
                                                               
GAAP net revenue from     $48,223  $50,683 $52,603 $150,529 $147,766
continuing operations
Revenue from discontinued 26        2        18       232       40
operations
Net revenue, from
continuing and            $48,249  $50,685 $52,621 $150,761 $147,806
discontinued operations
AssuredUVS revenue        (26)      (2)      (18)     (232)     (40)
Long-term software        --       550      286      --       1,237
contract royalties
Non-GAAP net revenue      $48,223  $51,233 $52,889 $150,529 $149,003
                                                               
GAAP gross profit from    $12,268  $17,007 $16,873 $40,494  $48,320
continuing operations
Gross margin % from       25.4%      33.6%     32.1%     26.9%      32.7%
continuing operations
Gross profit from         (44)      (9)      18       (2,141)   (102)
discontinued operations
Gross profit from
continuing and            12,224    16,998   16,891   38,353    48,218
discontinued operations
Gross margin % from
continuing and            25.3%      33.5%     32.1%     25.4%      32.6%
discontinued operations
Stock-based compensation  144       83       75       483       254
Severance costs           60        --      17       66        40
Power supply component    --       32       (6)      --       (782)
failures
AssuredUVS revenue        (26)      (2)      (18)     (232)     (40)
AssuredUVS expenses       70        11       --      545       140
Long-term software        --       550      286      --       1,237
contract royalties
Long-term software        --       89       88       --       433
contract cost
Intangible asset          --       --      --      1,647     --
impairment
Intangible asset          245       --      --      952       --
amortization
Non-GAAP gross profit     $12,717  $17,761 $17,333 $41,814  $49,500
Non-GAAP gross margin %   26.4%      34.7%     32.8%     27.8%      33.2%
                                                               
GAAP operating expenses
from continuing           $14,844  $14,862 $14,996 $45,559  $44,816
operations
Operating expenses from   237       3        36       2,269     350
discontinued operations
Operating expenses from
continuing and            15,081    14,865   15,032   47,828    45,166
discontinued operations
Currency loss (gain)      133       (18)     (4)      (214)     (365)
Stock-based compensation  (753)     (606)    (485)    (2,490)   (1,663)
Contingent consideration  --       --      --      5         --
adjustment
AssuredUVS expenses       (301)     (5)      --      (1,439)   (358)
Long-term software        --       6        (41)     --       365
contract deferred cost
Restructuring (charge)    130       --      (35)     (544)     (25)
recoveries
Legal fees related to
power supply component    (40)      (1)      --      (40)      (2)
failure
Severance costs           (11)      --      (8)      (20)      (90)
Non-GAAP operating        $14,239  $14,241 $14,459 $43,086  $43,028
expenses
                                                               
GAAP net income (loss)
from continuing           $(2,734) $2,089  $1,775  $(5,519) $3,304
operations
Net income/(loss) from    (280)     (12)     (18)     (4,411)   (452)
discontinued operations
Net loss from continuing
and discontinued          (3,014)   2,077    1,757    (9,930)   2,852
operations
Currency loss (gain)      (133)     18       4        214       365
Stock-based compensation  897       689      560      2,973     1,917
Contingent consideration  --       --      --      (5)       --
adjustment
Restructuring charge      (130)     --      35       544       25
(recoveries)
Intangible asset          245       --      --      952       --
amortization
Power supply component    40        33       (6)      40        (780)
failures
AssuredUVS expenses       370       16       --      1,983     498
AssuredUVS revenue        (26)      (2)      (18)     (232)     (40)
Long-term software        --       550      286      --       1,237
contract royalties
Long-term software        --       89       88       --       433
contract cost
Long-term software        --       (6)      41       --       (365)
contract deferred cost
Intangible asset          --       --      --      1,647     --
impairment
Severance costs           71        --      25       86        130
Non-GAAP net income       $(1,680) $3,464   $2,772   $(1,728) $6,272
(loss)
                                                               
Non-GAAP net income                                             
(loss) per share
Basic and diluted         $(0.03)  $0.06   $0.05   $(0.03)  $0.11
Weighted average shares
used to calculate net                                           
income (loss) per share:
Basic                     57,327    58,384   58,736   56,768    58,376
Diluted                   57,327    58,797   60,062   56,768    58,879
                                                               
Non-GAAP net income       $(1,680) $3,464  $2,772  $(1,728) $6,272
(loss)
Interest expense less     12        8        1        26        16
AssuredUVS
Income tax expense        153       49       100      462       183
Depreciation less         626       757      852      1,803     2,315
AssuredUVS
Non-GAAP EBITDA           $(889)   $4,278  $3,725  $563     $8,786


DOT HILL SYSTEMS CORP.
NON-GAAP REVENUE DETAIL BY MARKET
(In thousands)

                     Three Months Ended                 Nine Months Ended
                     September 30, June 30,  September September September
                      2012          2013      30, 2013  30, 2012  30, 2013
                                                               
HP                    $32,860      $25,480 $30,618 $100,384 $83,428
Other Server OEMs     3,666         3,577    3,995    7,361     10,288
Total Server OEMs     36,526        29,057   34,613   107,745   93,716
Vertical Markets      10,261        20,564   16,748   37,297    50,612
Service               1,436         1,612    1,528    5,487     4,675
Total Non-GAAP        $48,223      $51,233 $52,889 $150,529 $149,003
Revenue


DOT HILL SYSTEMS CORP.
UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES
(In thousands, except per share amounts)

                       Three Months Ended               Nine Months Ended
                       September   June 30,  September  September  September
                        30, 2012    2013      30, 2013   30, 2012   30, 2013
GAAP earnings (loss)
per share from          $(0.05)   $0.04   $0.03    $(0.10)  $0.06
continuing operations
Loss per share from     --        --      --       (0.08)    (0.01)
discontinued operations
Loss per share from
continuing and          (0.05)     0.04     0.03      (0.17)    0.05
discontinued
operations*
Currency loss           --        --      --       --       0.01
Stock-based             0.02       0.01     0.01      0.05      0.03
compensation
Intangible asset        --        --      --       0.02      --
amortization
AssuredUVS expenses     0.01       --      --       0.03      0.01
Intangible asset        --        --      --       0.03      --
impairment
Restructuring expense   --        --      --       0.01      --
Long-term software      --        0.01     --       --       0.02
contract royalties
Long-term software      --        --      --       --       0.01
contract cost
Long-term software      --        --      --       --       (0.01)
contract deferred cost
Power supply component  --        --      --       --       (0.01)
failures
Other adjustments       (0.01)     --      0.01      --       --
Non-GAAP earnings       $(0.03)   $0.06   $0.05    $(0.03)  $0.11
(loss) per share*
                                                               
Weighted average shares
used to calculate                                               
earnings (loss) per
share:
Basic                   57,327     58,384   58,736    56,768    58,376
Diluted                 57,327     58,797   60,062    56,768    58,879
                                                               
* Per share data may not always add to the total for the period because each
figure is independently calculated.

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