Dot Hill: Fiscal 1Q15 Financial Results

Dot Hill Systems Corp. reported financial results for the first quarter ended March 31, 2015.

Financial and Operational Highlights:

• Grew non-GAAP revenue to $60.3 million or over 23% year-over-year
• Grew Vertical Markets non-GAAP revenue 61% year-over-year
• Achieved non-GAAP gross margin of 33.8%, compared to 33.1% in the first quarter of 2014
• Delivered non-GAAP earnings per fully diluted share of $0.06, compared to $0.02 in the first quarter of 2014
• Teradata has integrated Dot Hill AssuredSAN Ultra48 into its new Data Warehouse Appliance 2800
• Quantum Corp. and Dot Hill announced a new, global go-to-market partnership whereby Quantum will integrate Dot Hill’s line of enterprise disk storage systems into its tiered storage offerings
• Awarded 101st patent for write-cache management to improve performance by up to 100% in demanding storage workload environments

“The first quarter of 2015 picked up where the fourth quarter of 2014 left off – that is, on a strong note. Especially when considered against the backdrop of what I believe was another flat to down quarter in aggregate for the storage industry at large,” stated Dana Kammersgard, president and CEO. “At our analyst day a couple of weeks ago, we highlighted ‘Growth through Innovation.’ And it really is this innovation, instantiated in products that we have developed in collaboration with our customers, which is driving our growth.

First Quarter 2015 GAAP Financial Detail

• Net revenue was $61.1 million, compared to $48.2 million for the first quarter of 2014 and $69.1 million for the fourth quarter of 2014
• Gross margin5 was 34.4%, compared to 31.7% for the first quarter of 2014 and 35.2% for the fourth quarter of 2014.
• Operating expenses for the first quarter of 2015 were $17.1 million, compared to $15.7 million for the first quarter of 2014 and $15.7 million in the fourth quarter of 2014.
• Net income was $3.9 million, or $0.06 per fully diluted share, compared to a net loss of $0.4 million, or ($0.01) per fully diluted share, for the first quarter of 2014, and net income of $8.6 million, or $0.14 per fully diluted share, for the fourth quarter of 2014.

First Quarter 2015 Non-GAAP Financial Detail

• Non-GAAP net revenue was $60.3 million, compared to $48.9 million for the first quarter of 2014 and $68.2 million for the fourth quarter of 2014.
• Vertical Markets non-GAAP net revenue was $35.9 million compared to $22.4 million in the first quarter of 2014 and $38.5 million in the fourth quarter of 2014.
• Server OEM non-GAAP net revenue decreased to $24.3 million, compared to $26.5 million in the first quarter of 2014 and $29.7 million in the fourth quarter of 2014.
• Non-GAAP gross margin was 33.8%, compared to 33.1% in the first quarter of 2014 and 34.6% in the fourth quarter of 2014.
  Vertical Markets non-GAAP gross margin was 42.0%, compared to 43.4% in the first quarter of 2014 and 40.7% in the fourth quarter of 2014.
• Server OEM non-GAAP gross margin was 21.6%, compared to 24.4% in the first quarter of 2014 and 26.6% in the fourth quarter of 2014.
• Non-GAAP operating expenses were $16.4 million, compared to $15.1 million for the first quarter of 2014 and $15.0 million in the fourth quarter of 2014.
• Non-GAAP contribution margin, which excludes R&D, general and administrative and certain corporate sales and marketing expenses, for the first quarter of 2015 was 27.7%, compared to 26.6% in the first quarter of 2014 and 29.0% in the fourth quarter of 2014.
• Vertical Markets non-GAAP contribution margin increased to 35.1%, compared to 33.6% in the first quarter of 2014 and 34.4% in the fourth quarter of 2014.
• Server OEM non-GAAP contribution margin decreased to 19.2%, compared to 22.7% in the first quarter of 2014 and 24.7% in the fourth quarter of 2014.
• Non-GAAP net income5 was $4.0 million, or $0.06 per fully diluted share, compared to $1.0 million or $0.02 per share, for the first quarter of 2014, and $8.5 million, or $0.13 per fully diluted share, for the fourth quarter of 2014.

Balance Sheet and Cash
The company exited the first quarter of 2015 with cash and cash equivalents of $46.3 million. This compares to $40.3 million at the end of the first quarter of 2014 and $42.5 million at the end of the fourth quarter of 2014.

Second Quarter 2015 Outlook
Non-GAAP net revenue and fully diluted earnings per share for the second quarter of 2015 are expected to be in the range of $58 million to $62 million and $0.04 to $0.08, respectively.

“In summary, Q1 was a very solid start to 2015, and we were able to continue the strong growth and momentum that started in earnest the prior quarter,” said Hanif Jamal, CFO. “The mid-point of guidance for Q2 that we issued today represents 24% year-over-year growth and about a 3x increase in non-GAAP revenue and earnings per share respectively. More importantly however, it is another data point to substantiate our expectations for a strong year of growth for all of 2015.”