Dot Hill: Fiscal 1Q11 Financial Results

Dot Hill Systems Corp. announced financial results for the first quarter 2011, the period ended March 31, 2011.

Financial and Operational Highlights:

• First quarter 2011 revenue of $49.2 million which, excluding the exited NetApp business, compared to $41.6 million in the first quarter of 2010, represents 18.2% year-over-year growth
• First quarter 2011 GAAP gross margin of 24.6% up from 21.0% in the prior quarter and up from 13.5% in the first quarter of 2010
• First quarter 2011 non-GAAP gross margin of 25.9% up from 22.0% in the prior quarter and up from 14.6% in the first quarter of 2010
• First quarter 2011 GAAP EPS of $(0.02) per share compared to $0.01 per share in Q410 and $(0.12) per share in Q110
• First quarter 2011 non-GAAP EPS of $0.00 compared to $0.04 in the prior quarter and up from ($0.09) in the first quarter of 2010
• Cash and cash equivalents of $46.3 million as of March 31, 2011, up from $45.7 million as of December 31, 2010.

First Quarter 2011 Financial Detail:
The Company recognized net revenue of $49.2 million for the first quarter of 2011, compared to $60.0 million for the first quarter of 2010 and $65.4 million for the fourth quarter of 2010. Excluding NetApp, net revenues grew 18.2% on a year-over-year basis from $41.6 million for the first quarter of 2010 and declined 7.0% on a quarter-over-quarter basis compared to $52.9 million for the fourth quarter of 2010.

GAAP gross margin for the first quarter of 2011 was 24.6%, compared to 13.5% for the first quarter of 2010 and 21.0% for the fourth quarter of 2010. The improvement in gross margin percent was primarily a result of a more favorable product mix including no low margin revenues from NetApp and larger contributions from the company’s AssuredUVS and AssuredVRA software products. GAAP operating expenses for the first quarter of 2011 were $13.3 million, as compared to $14.5 million for the first quarter of 2010 and $13.3 million in the fourth quarter of 2010. GAAP net loss for the first quarter of 2011 was $1.3 million, or ($0.02) per share, as compared to a net loss of $6.4 million, or ($0.12) per share, for the first quarter of 2010, and net income of $0.3 million, or $0.01 per share, for the fourth quarter of 2010.

Non-GAAP gross margin was 25.9% for the first quarter of 2011, compared to 14.6% for the first quarter of 2010 and 22.0% for the fourth quarter of 2010. The improvement in gross margin was largely attributable to a more favorable product and customer mix resulting from exiting the relationship with NetApp and growth in Dot Hill’s Software business. Total non-GAAP operating expenses for the first quarter of 2011 were $12.6 million, as compared to $13.5 million for the first quarter of 2010 and $12.2 million for the fourth quarter of 2010.

Non-GAAP net income for the first quarter of 2011 was $0.1 million, or $0.00 per share, as compared to a first quarter 2010 non-GAAP net loss of $4.8 million, or ($0.09) per share, and fourth quarter 2010 non-GAAP net income of $2.0 million, or $0.04 per share. Non-GAAP EBITDA for the first quarter of 2011 was positive $0.7 million compared to negative $4.3 million for the first quarter of 2010 and positive $2.6 million for the fourth quarter of 2010.

"The first quarter was a solid start to 2011 for us," said Dana Kammersgard, Dot Hill Systems’ President and Chief Executive Officer. "Revenues grew 18.2% year-over-year to $49.2 million, excluding the NetApp business. At the same time, gross margin percent and cash flow exceeded our expectations, operating expenses were at the low end of guidance and we delivered a small non-GAAP profit for the quarter."

Balance Sheet:
The Company exited the first quarter of 2011 with cash and cash equivalents of $46.3 million compared to $51.3 million at the end of March 2010 and $45.7 million at the end of 2010.

Second Quarter 2011 Outlook:
The Company is targeting second quarter 2011 net revenue in the range of $49 million to $53 million and a non-GAAP EPS in the range of a loss of $0.02 per share to income of $0.02 per share.

"At the mid-point of our guidance range we are expecting 7% year-over-year growth in net revenue, excluding revenue from NetApp," said Hanif Jamal, Dot Hill Systems’ Chief Financial Officer. "Non-GAAP gross margin percentage is expected to remain relatively flat in the 25.5-26.5% range after a significant sequential improvement in the first quarter of 2011. Non-GAAP operating expenses are expected to increase to between $13.3 million and $13.8 million as a result of additional investments in engineering, some of which are tied to the completion of certain milestones. Finally, we expect cash and cash equivalents at the end of the second quarter of 2011 to be in the range of $42 to $46 million."