Dot Hill Extends Agreement With HP for Five Years

Dot Hill Systems Corp. has amended and extended its agreement with Hewlett-Packard Development Company, L.P.

Under the amended agreement, Dot Hill will continue to provide proprietary, private-label RAID storage products to HP for an additional five-year term ending October 30, 2016. The agreement as amended continues to have no minimum purchase commitments by HP.

Dot Hill offers a family of entry-level and midrange disk arrays based on its AssuredSAN architecture delivering storage performance, efficiency, flexibility and scale.

"Dot Hill has built a solid and dependable architecture which results in industry-leading storage arrays with a flexible, scalable and differentiated set of features," said Dana Kammersgard, president and chief executive officer, Dot Hill. "Continued success with HP has proven how simple, powerful solutions are creating tremendous customer value. We are very excited to extend our partnership with HP."

Simultaneously with the extension of the supply agreement, Dot Hill agreed to extend until October 30, 2016 the expiration date of the warrant previously issued to HP to purchase 1,602,489 shares of Dot Hill’s common stock at the original exercise price of $2.40 per share. The impact of this extension on financial statements is an expected non-cash reduction in revenue of approximately $1.1 million in Dot Hill’s fourth quarter and full-year 2011 GAAP financial results.

Preliminary Financial Results
The company also updated its guidance for the third quarter of 2011, and now expects net revenue to be approximately $48 million and non-GAAP EPS to be around $(0.01). These expected results are below the net revenue guidance of $50 million to $54 million and at the low-end of the non-GAAP EPS guidance range of $(0.01) to $0.02 established on August 4, 2011. The company attributed these expected results primarily to inventory re-balancing by a certain customer and also to not recognizing revenue from a software OEM customer who is delinquent in its payments to the company.

The company also indicated that it anticipated its third quarter of 2011 non-GAAP gross margin to be in the 28.0% to 28.5% range which would exceed its guidance of 26.5% to 27.5% set in August. Non-GAAP operating expenses for the third quarter of 2011 are projected to be between $14.0 million and $14.2 million including a bad debt charge of approximately $0.2 million associated with the delinquent software OEM customer, compared to $13.8 million to $14.3 million guidance range established in August. The company also stated that it expected to report cash and cash equivalents as of September 30, 2011 of $45.7 million, which would be in the middle of the guidance range of $44 million to $47 million.

"We anticipate our third quarter of 2011 results will have several highlights including extending our supply agreement with Hewlett Packard by five more years, revenue growth of over 7% on a year-over-year basis excluding Q3 2010 revenues from NetApp, solid revenue growth in both our Tier 2 OEM and channel businesses and winning several new customers," stated Hanif Jamal, Dot Hill System’s chief financial officer.