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Dot Hill: Fiscal 3Q14 Financial Results

Expect 250% non-GAAP EPS sequential growth.

(in $ million) 3Q13 3Q14 9 mo. 13 9 mo. 14
Revenues 52.6 52.1 147.8 148.6
Growth   -1%   1%
Net income (loss) 1.8 0 2.9 (0.1)

Dot Hill Systems Corp. announced financial results for the third quarter ended September 30, 2014.

Financial and Operational Highlights:

  • Grew trailing 12 month as of September 30, 2014 relative to trailing 12 month as of September 30, 2013 non-GAAP revenue by 7%, with Vertical Markets growing 28% over the same period.
  • Awarded three new patents, which brings total US portfolio to 99 patents.
  • Unveiled the latest version of its storage management software, RealStor version 2.0, which delivers application workload-aware intelligence for s next-generation hybrid flash storage arrays.
  • Announced the Ultra48 AssuredSAN ultra-density, next-generation hybrid arrays, available with RealStor 2.0 software.

I am very excited by the potential revenue contribution our new products represent – both the RealStor 2.0 software and its instantiation in the one-of-a-kind Ultra 48 AssuredSAN storage solution,” stated Dana Kammersgard, president and CEO. “We believe growth in company-specific growth catalysts is beginning, our business model is intact and the operating leverage that comes from both will soon be evident. It is gratifying to have arrived at a point where we can demonstrate the operating leverage inherent in our business model.

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

  • GAAP net revenue of $52.1 million for the third quarter of 2014, compared to $52.6 million for the third quarter of 2013 and $48.2 million for the second quarter of 2014.
  • GAAP gross margin for the third quarter of 2014 was 32.5%, compared to 32.1% for the third quarter of 2013 and 33.2% for the second quarter of 2014.
  • GAAP operating expenses for the third quarter of 2014 were $16.9 million, as compared to $15.0 million for the third quarter of 2013 and $16.0 million in the second quarter of 2014.
  • GAAP net income for the third quarter of 2014 was $0.04 million, or $0.00 per fully diluted share, as compared to $1.8 million, or $0.03 per fully diluted share, for the third quarter of 2013, and a net loss of $0.08 million, or ($0.00) per share, for the second quarter of 2014.

Third Quarter 2014 Non-GAAP Financial Detail

  • Non-GAAP net revenue of $52.0 million for the third quarter of 2014, as compared to $52.9 million for the third quarter of 2013 and $48.4 million for the second quarter of 2014.
  • Vertical Markets non-GAAP net revenue was $20.5 million, compared to $17.5 million in the third quarter of 2013 and $20.8 million in the second quarter of 2014.
  • Server OEM non-GAAP net revenue was $31.5 million, compared to $35.4 million in the third quarter of 2013 and $27.7 million in the second quarter of 2014.
  • Non-GAAP gross margin for the third quarter of 2014 was 32.4%, compared to 32.8% for the third quarter of 2013 and 33.9% for the second quarter of 2014. The company stated that the sequential decline in non-GAAP gross margin percentage was largely due to customer mix.
  • Vertical Markets non-GAAP gross margin was 43.3%, compared to 45.4% in the third quarter of 2013 and 44.7% in the second quarter of 2014.
  • Server OEM non-GAAP gross margin was 25.4%, compared to 26.5% in the third quarter of 2013 and 25.9% in the second quarter of 2014.
  • Non-GAAP operating expenses for the third quarter of 2014 were $15.1 million, as compared to $14.5 million for the third quarter of 2013 and $15.1 million in the second quarter of 2014.
  • Vertical Markets non-GAAP contribution margin was 30.9% for the third quarter of 2014, compared to 32.0% in the third quarter of 2013 and 33.0% in the second quarter of 2014.
  • Server OEM non-GAAP contribution margin was 23.8% for the third quarter of 2014, compared to 25.2% in the third quarter of 2013 and 24.0% in the second quarter of 2014.

On September 30, 2014, the company had cash and cash equivalents of $42.4 million as compared to $42.2 million in cash and cash equivalents on June 30, 2014, and $40.4 million in cash and cash equivalents on September 30, 2013.

Fourth Quarter and Full Year 2014 Outlook:
The company expects fourth quarter 2014 non-GAAP net revenue to be in the range of $62 million to $68 million and non-GAAP earnings per share in the range of $0.07 to $0.12 per fully diluted share.

Based on our development and some of our customer’s launch schedules, we have been anticipating a back-end loaded 2014, particularly in our Vertical Market’s business,” stated Hanif Jamal, CFO, Dot Hill. “The midpoint of our fourth quarter guidance represents 25% non-GAAP revenue and 250% non-GAAP EPS sequential growth and is an indication of our confidence in a strong Q4 revenue inflection which should set us up very well for a solid 2015.”

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