Dot Hill: Fiscal 2Q12 Financial Results

Dot Hill Systems Corp. announced financial results for the second quarter 2012, the period ended June 30, 2012.

Operational Highlights:

• The company announced that it had signed contracts with a number of new OEM’s including Harris Broadcast Communications for its forthcoming midrange products.
• The company will be hosting a midrange product launch on August 22, 2012.
• The company’s non-HP OEM business grew 67% in the first half of 2012 compared to the first half of 2011.
• The company’s branded Channels business grew almost 60% in the first half of 2012 compared to the first half of 2011.

"At the beginning of 2012, when I outlined our game plan, I stated that we were winding down the UVS business in order to focus our investments on core storage opportunities that could result in strong revenue growth in 2013," stated Dana Kammersgard, president and CEO, Dot Hill Systems. "The early indicators of results from these investments give me greater confidence today that we will indeed start to see tangible returns on our investments beginning in 2013 and that our growth will likely come from our forthcoming midrange products, from new OEM prospects, from competitive consolidation and from continued channel sales traction. Despite the weak economic outlook for the rest of 2012 and potentially into 2013, we continue to expect that these same company specific catalysts will enable us to grow faster than the data storage industry as a whole."

Financial Highlights:

• Second quarter 2012 non-GAAP revenue of $47.7 million compared to $54.6 million in the first quarter of 2012, $52.5 million in the second quarter of 2011 and a guidance range of $48 million to $52 million established in May 2012. The company stated that they had expected a sequential decline in revenue in the second quarter of 2012 due to a first quarter 2012 spike in demand from an OEM partner in the 4G LTE space from whom they recognized revenue of $10.4 million in the first quarter of 2012 compared to revenue of $3.3 million in the second quarter of 2012.
• Second quarter 2012 non-GAAP gross margin of 27.4% compared to 29.3% in the prior quarter and compared to 26.1% in the second quarter of 2011.
• Second quarter 2012 non-GAAP EPS of $(0.03) compared to $0.03 in the prior quarter, $0.03 in the second quarter of 2011 and a guidance range of $(0.03) to $0.01 established in May 2012.
• First half 2012 non-GAAP revenue of $102.3 million compared to $101.0 million for the first half of 2011.
• First half 2012 non-GAAP gross margin of 28.4% compared to 25.8% for the first half of 2011.
• First half 2012 non-GAAP EPS of $0.00 compared to $0.05 for the first half of 2011.
• Cash and cash equivalents of $40.5 million as of June 30, 2012 compared to $41.4 million as of March 31, 2012.

Second Quarter 2012 GAAP Financial Detail:

• The company recognized GAAP net revenue of $47.8 million for the second quarter of 2012, compared to $53.2 million for the second quarter of 2011 and $54.7 million for the first quarter of 2012.
• GAAP gross margin for the second quarter of 2012 was 22.9%, compared to 24.8% for the second quarter of 2011 and 27.7% for the first quarter of 2012. The decline in gross margin relative to the first quarter of 2012 was due to impairing assets associated with winding down the company’s UVS business, lower revenues and thus margin to cover fixed supply chain costs and increased costs associated with service inventory.
• GAAP operating expenses for the second quarter of 2012 were $15.6 million, as compared to $15.1 million for the second quarter of 2011 and $17.1 million in the first quarter of 2012. GAAP net loss for the second quarter of 2012 was $5.0 million, or $(0.09) per share, as compared to a net loss of $1.9 million, or $(0.04) per share, for the second quarter of 2011, and net loss of $1.9 million, or $(0.03) per share, for the first quarter of 2012.

Second Quarter 2012 Non-GAAP Financial Detail:

• The company recognized non-GAAP net revenue of $47.7 million for the second quarter of 2012, compared to $52.5 million for the second quarter of 2011 and $54.6 million for the first quarter of 2012.
• Non-GAAP gross margin was 27.4% for the second quarter of 2012, compared to 26.1% for the second quarter of 2011 and 29.3% for the first quarter of 2012. Total non-GAAP operating expenses for the second quarter of 2012 were $14.6 million, as compared to $12.0 million for the second quarter of 2011 and $14.2 million for the first quarter of 2012.
• Non-GAAP net loss for the second quarter of 2012 was $1.9 million, or $(0.03) per share, as compared to a second quarter 2011 non-GAAP net income of $1.6 million, or $0.03 per share, and first quarter 2012 non-GAAP net income of $1.9 million, or $0.03 per share. Non-GAAP EBITDA for the second quarter of 2012 was negative $0.9 million compared to positive $2.2 million for the second quarter of 2011 and positive $2.3 million for the first quarter of 2012.

Balance Sheet:

• The company exited the second quarter of 2012 with cash and cash equivalents of $40.5 million compared to $46.5 million at the end of June 2011 and $41.4 million at the end of March 31, 2012.

Third Quarter 2012 and 2012 Outlook:

• The company reiterated that it expected a weak economic environment in the second half of 2012 and into 2013 that could potentially subdue growth for companies in the IT space at large and also in the storage markets.
• The company is targeting third quarter 2012 non-GAAP net revenue in the range of $48 million to $53 million and a non-GAAP EPS in the range of $(0.04) per share to $0.01 per share in part as a result of continued investments in the launch preparations for new OEM customers. In addition, the company updated its 2012 outlook established in March 2012 of non-GAAP net revenue of $205 million to $225 million and non-GAAP EPS of $0.02 to $0.08 to non-GAAP net revenue of $205 million to $215 million and non-GAAP EPS of $(0.02) to $0.04.

"While 2013 is starting to look quite exciting for us, given the economic outlook it is still too early to provide more granularity. We will, however, provide you with more details on December 10th at our Analyst Day," stated Hanif Jamal, CFO, Dot Hill Systems. "We certainly expect good growth fueled by several company specific factors and given the operating leverage characteristics of our business model we expect this to give us a clear path to consistent non-GAAP profits."