Dot Hill: Fiscal 2Q15 Financial Results

(in $ million)	2Q14	2Q15	6 mo. 14	6 mo. 15
Revenue	48.2	61.5	96.4	122.7
*Growth*		28%		*27%*
Net income (loss)	(0.08)	0.7	(0.5)	4.6

Dot Hill Systems Corp. reported financial results for the second quarter ended June 30, 2015.

Financial and Operational Highlights:

Grew Non-GAAP revenue of $60.6 million in the second quarter of 2015, compared to $60.3 million in the first quarter 2015 and $48.4 million in the second quarter of 2014, or year-over-year growth of 25.2%
Delivered non-GAAP earnings per fully diluted share (EPS) of $0.06 in the second quarter of 2015, compared to $0.06 in the first quarter 2015 and $0.02 in the second quarter of 2014, or year-over-year growth of 200%
Awarded three new patents, bringing the Company’s portfolio to 105 patents

“The second quarter of 2015 marks the third data point of double digit revenue growth and as such begins to establish the trend line that I have referenced in prior quarters. At $60.6 million, we achieved strong year over year non-GAAP revenue growth of 25%,” stated Dana Kammersgard, president and CEO. “And with $0.06 of non-GAAP earnings, we achieved 200% growth in EPS, once again reinforcing the operating leverage inherent in our model. I continue to believe we are the only storage company guiding and posting double digit revenue growth with profits growing disproportionately faster.“

Second Quarter 2015 GAAP Financial Detail:

Net revenue was $61.5 million for the second quarter of 2015, compared to $48.2 million for the second quarter of 2014 and $61.1 million for the first quarter of 2015.
Gross margin for the second quarter of 2015 was 32.7%, compared to 33.2% for the second quarter of 2014 and 34.4% for the first quarter of 2015.
Operating expenses for the second quarter of 2015 were $19.4 million, compared to $16.0 million for the second quarter of 2014 and $17.1 million in the first quarter of 2015.
Net income for the second quarter of 2015 was $0.7 million, or $0.01 per fully diluted share, compared to a net loss of $0.1 million, or ($0.00) per fully diluted share, for the second quarter of 2014, and net income of $3.9 million, or $0.06 per fully diluted share, for the first quarter of 2015.

First Half 2015 GAAP Financial Detail:

Net revenue was $122.7 million for the first half of 2015, compared to $96.4 million for the first half of 2014.
Gross margin for the first half of 2015 was 33.6% compared to 32.4% for the first half of 2014.
Operating expenses were $36.5 million for the first half of 2015, compared to $31.7 million for the same period in 2014.
Net income for the first half of 2015 was $4.6 million compared to a net loss of $0.5 million for the first half of 2014.

Trailing Twelve Months GAAP Financial Data, Continuing and Discontinued Operations:

Total net revenue was $243.9 million for the trailing twelve month period ended June 30, 2015, compared to $207.9 million in the trailing twelve month period ended June 30, 2014.
Gross margin for the trailing twelve month period ended June 20, 2015 was 33.8%, compared to 31.7% in the trailing twelve month period ended June 30, 2014.
Operating expenses were $69.1 million for the trailing twelve month period ended June 30, 2015, compared to $62.4 for the trailing twelve month period ended June 30, 2014.
Net income was $13.1 million for the trailing twelve month period ended June 30, 2015, compared to $3.5 million for the trailing twelve month period ended June 30, 2014.

Second Quarter 2015 Non-GAAP Financial Detail:

Non-GAAP net revenue was $60.6 million for the second quarter of 2015, compared to $48.4 million for the second quarter of 2014 and $60.3 million for the first quarter of 2015, or year-over-year growth of 25.2%.
Vertical Markets non-GAAP net revenue was $24.8 million for the second quarter of 2015, compared to $20.8 million in the second quarter of 2014 and $35.9 million in the first quarter of 2015, or year-over-growth of 19.5%.
Server OEM non-GAAP net revenue was $35.8 million for the second quarter of 2015, compared to $27.7 million in the second quarter of 2014 and $24.3 million in the first quarter of 2015, or year-over-year growth of 29.5%.
Non-GAAP gross margin for the second quarter of 2015 was 32.0%, compared to 33.9% in the second quarter of 2014 and 33.8% in the first quarter of 2015.
Vertical Markets non-GAAP gross margin was 41.9% for the second quarter of 2015, compared to 44.7% in the second quarter of 2014 and 42.0% in the first quarter of 2015.
Server OEM non-GAAP gross margin was 25.2% for the second quarter of 2015, compared to 25.9% in the second quarter of 2014 and 21.6% in the first quarter of 2015.
Non-GAAP operating expenses for the second quarter of 2015 were $15.4 million, compared to $15.1 million for the second quarter of 2014 and $16.4 million in the first quarter of 2015, or year-over-year growth of 2.2%.
Non-GAAP net income for the second quarter of 2015 was $3.9 million, or $0.06 per fully diluted share, compared to $1.3 million, or $0.02 per fully diluted share, for the second quarter of 2014, and $4.0 million, or $0.06 per fully diluted share, for the first quarter of 2015, or year-over-year non-GAAP net income growth of 211%.

First Half 2015 Non-GAAP Financial Detail:

Non-GAAP net revenue for the first half of 2015 was $120.9 million, compared to $97.3 million in the first half of 2014, or year-over-growth of 24.3%.
Vertical Markets non-GAAP net revenue was $60.7 million, compared to $43.1 million in the first half of 2014, or year-over-year growth of 40.9%.
Server OEM non-GAAP net revenue was $60.1 million in the first half of 2015, compared to $54.2 million in the first half of 2014, or year-over-year growth of 11.0%.
Non-GAAP gross margin for the first six months of 2015 was 32.9%, compared to 33.5% in the first six months of 2014.
Vertical Markets non-GAAP gross margin was 42.0% in the first six months of 2015, compared to 44.0% in the first six months of 2014.
Server OEM gross margin was 23.8% in the first six months of 2015, compared to 25.2% in the first six months of 2014.
Non-GAAP operating expenses for the first half of 2015 were $31.8 million, compared to $30.2 million in the first half of 2014, or year-over-growth of 5.2%.
Non-GAAP net income for the first half of 2015 was $7.9 million, or $0.12 per fully diluted share, compared to $2.3 million, or $0.04 per fully diluted share, for the first half of 2014, or year-over-year non-GAAP net income growth of 246%.

Trailing Twelve Months non-GAAP Financial Data:

Non-GAAP net revenue was $241.1 million for the trailing twelve month period ended June 30, 2015, compared to $209.9 million for the trailing twelve month period ended June 30, 2014, or year-over-year growth of 14.8%.
Vertical Markets non-GAAP net revenue was $119.7 million for the trailing twelve month period ended June 30, 2015, compared to $79.5 million in the trailing twelve month period ended June 30, 2014, or year-over-year growth of 50.6%.
Server OEM non-GAAP net revenue was $121.4 million for the trailing twelve month period ended June 30, 2015, compared to $130.4 million in the trailing twelve month period ended June 30, 2014, or year-over-year decline of 6.9%.
Non-GAAP gross margin for the trailing twelve month period ended June 30, 2015 was 33.3%, compared to 32.8% for the trailing twelve month period ended June 30, 2014.
Vertical Markets non-GAAP gross margin was 41.8% for the trailing twelve month period ended June 30, 2015, compared to 43.1% in the trailing twelve month period ended June 30, 2014.
Server OEM non-GAAP gross margin was 24.9% for the trailing twelve month period ended June 30, 2015, compared to 26.6% in the trailing twelve month period ended June 30, 2014.
Non-GAAP operating expenses for the trailing twelve month period ended June 30, 2015 were $61.8 million, compared to $59.5 million for the trailing twelve month period ended June 30, 2014, or year-over-year growth of 3.9%.
Non-GAAP net income for the trailing twelve month period ended June 30, 2015 was $18.1 million, or $0.28 per fully diluted share, compared to $9.3 million, or $0.16 per fully diluted share, for the trailing twelve month period ended June 30, 2014, or year-over-year growth of 95.1%.

“The second quarter was another strong quarter and proof point of sustained growth in our business,” stated Hanif Jamal, CFO. “What is perhaps more important to us, is that when we look at our trailing twelve month financial metrics and trends, we are right on plan and perhaps a little ahead of plan on some metrics, compared to the goals we established for 2017 at our April Analyst Day.”

Non-GAAP Operating Leverage:
During the company’s Analyst Day on April 23, 2015, the Company established a non-GAAP operating leverage goal of 18% to 25% through fiscal year ending December 31, 2017 and defined operating leverage as the change in non-GAAP operating profit divided by the change in non-GAAP revenue. For the second quarter of 2015, for the first half of 2015 and for the trailing twelve months ending June 30, 2015, operating leverage relative to comparable prior year periods, was 22%, 24% and 29% respectively.

Balance Sheet:
The company exited the second quarter of 2015 with cash and cash equivalents of $49.1 million. This compares to $46.3 million at the end of the first quarter of 2015, and $42.2 million at the end of the second quarter of 2014.

Guidance:
For the third quarter of 2015, the company expects non-GAAP revenues to be between $58 million and $63 million and non-GAAP EPS to be between $0.05 and $0.08. The company also updated its full year 2015 guidance and is now projecting non-GAAP revenues of $245 million to $260 million and non-GAAP EPS of $0.30 to $0.35. In March 2015, the company had established full year 2015 non-GAAP revenue guidance of $230 million to $270 million, and non-GAAP EPS guidance of $0.25 to $0.35.