Dot Hill: Fiscal 2Q14 Financial Results

(in $ million)	2Q13	2Q14	6 mo. 13	6 mo. 14
Revenues	50.7	48.2	95.2	96.4
*Growth*		-5%		1%
Net income (loss)	(2.1)	(0.08)	1.1	(0.5)

Dot Hill Systems Corp. reported financial results for the second quarter ended June 30, 2014.

Financial Highlights:

Grew trailing 12 month as of June 30, 2014 relative to trailing 12 month as of June 30, 2013 non-GAAP revenue by 10%, with Vertical Markets growing 37% over the same period
Achieved non-GAAP gross margin of 33.9%, compared to 33.1% in the first quarter of 2014 and 34.7% in the second quarter of 2013
Delivered non-GAAP earnings per fully diluted share of $0.02, compared to $0.02 in the first quarter 2014 and $0.06 in the second quarter of 2013

“For the first half of 2014, results were within our expectations,” stated Dana Kammersgard, president and CEO, Dot Hill. “As previously noted, we expect that 2014 will be more back-end loaded than previous years. We remain very confident in the ramp of this revenue and the sustainability of this growth into 2015 and beyond, as we project at least three and potentially four major customer product launches scheduled between now and the end of the year.”

Second Quarter 2014 GAAP Financial Detail (including discontinued operations):

Net revenue was $48.2 million for the second quarter of 2014, compared to $50.7 million for the second quarter of 2013 and $48.2 million for the first quarter of 2014.
Gross margin for the second quarter of 2014 was 33.2%, compared to 33.5% for the second quarter of 2013 and 31.7% for the first quarter of 2014.
Operating expenses for the second quarter of 2014 were $16.0 million, compared to $14.9 million for the second quarter of 2013 and $15.7 million in the first quarter of 2014.
Net loss for the second quarter of 2014 was $0.08 million, or ($0.00) per fully diluted share, compared to net income of $2.1 million, or $0.04 per fully diluted share, for the second quarter of 2013, and a net loss of $0.4 million, or ($0.01) per fully diluted share, for the first quarter of 2014.

Second Quarter 2014 Non-GAAP Financial Details:

Net revenue was $48.4 million for the second quarter of 2014, compared to $51.2 million for the second quarter of 2013 and $48.9 million for the first quarter of 2014.
Vertical Markets net revenue was $20.8 million, compared to $21.3 million in the second quarter of 2013 and $22.4 million in the first quarter of 2014.
Server OEM net revenue was $27.7 million, compared to $30.0 million in the second quarter of 2013 and $26.5 million in the first quarter of 2014.
Gross margin for the second quarter of 2014 was 33.9%, compared to 34.7% in the second quarter of 2013 and 33.1% in the first quarter of 2014.
Vertical Markets gross margin was 44.7%, up from 43.2% in the second quarter of 2013 and 43.4% in the first quarter of 2014.
Server OEM gross margin was 25.9%, compared to 28.6% in the second quarter of 2013 and 24.4% in the first quarter of 2014.
Operating expenses for the second quarter of 2014 were $15.1 million, compared to $14.2 million for the second quarter of 2013 and $15.1 million in the first quarter of 2014.
Vertical Markets contribution margin was 33.0% for the second quarter of 2014, compared to 34.0% in the second quarter of 2013 and 33.6% in the first quarter of 2014.
Server OEM contribution margin was 24.0% for the second quarter of 2014, compared to 26.7% in the second quarter of 2013 and 22.7% in the first quarter of 2014.
Net income for the second quarter of 2014 was $1.3 million, or $0.02 per fully diluted share, compared to $3.5 million or $0.06 per share, for the second quarter of 2013, and $1.0 million, or $0.02 per fully diluted share, for the first quarter of 2014.

Balance Sheet:
The company exited the second quarter of 2014 with cash and cash equivalents of $42.2 million with no borrowings. This compares to $40.3 million at the end of the first quarter of 2014, with no borrowings, and $40.4 million at the end of the second quarter of 2013, with $2.1 million in borrowings.

Third Quarter 2014 Guidance:
For the third quarter of 2014, the company expects non-GAAP revenues to be between $50 and $58 million and non-GAAP EPS to be between $0.01and $0.06.

“With respect to 2014 overall, we currently believe that our results will fall around the low end of our guidance range, based on lower than expected Server OEM revenue in the first half. The precise timing of our new customer product launches, which is very hard to call, will impact revenues as well,” stated Hanif Jamal, CFO, Dot Hill. “We remain resolute in our conviction that we are getting very close to a transformative revenue ramp, and with the operating leverage in our business model, an even stronger earnings inflection point. With respect to our medium-term planning horizon relative to 2013 as provided during our March earnings call, we remain very confident in 14-18% total non-GAAP revenue growth with 40-50% growth in Vertical Markets and plus or minus 5% in Server OEMs revenue growth with an 8-12% operating margin target.”