Dot Hill: Fiscal 4Q12 Financial Results

Dot Hill Systems Corp. reported financial results for the fourth quarter and year ended December 31, 2012.

Non-GAAP Financial and Operational Highlights:

• Net revenue from Vertical Markets grew 38% on a year-over-year basis compared to 2011;
• The company’s Server OEM annual revenue, excluding its largest customer, was up almost 12% in 2012 from 2011;
• Fourth quarter 2012 gross margins were 28.3%, compared to 25.4% for the same period in 2011.

"Our vertical markets grew over 38% annually, which is an impressive growth rate by most any measure and especially in light of the headwinds our industry has faced throughout the year," said Dana Kammersgard, president and CEO, Dot Hill. "We believe this is clear evidence that our strategic initiatives are beginning to work."

"In addition, on our third quarter conference call, we reported three new OEM wins and several more in our pipeline," Kammersgard continued. "I am pleased to report today that we now have won a total of 11 new opportunities that are in various stages of contract negotiations, customization, and/or launch preparation."

Fourth Quarter 2012 GAAP Financial Detail
(includes the results of both discontinued
and continuing operations):

• The company recognized GAAP net revenue of $44.1 million for the fourth quarter of 2012, compared to $47.0 million for the fourth quarter of 2011 and $48.2 million for the third quarter of 2012.
• GAAP gross margin for the fourth quarter of 2012 was 17.8% compared to 17.6% for the fourth quarter of 2011 and 25.3% for the third quarter of 2012.
• GAAP operating expenses for the fourth quarter of 2012 were $12.6 million, compared to $15.0 million for the fourth quarter of 2011 and $15.1 million in the third quarter of 2012.
• GAAP net loss for the fourth quarter of 2012 was $5.0 million, or $0.09 per share, as compared to a net loss of $6.6 million, or $0.12 per share, in the fourth quarter of 2011, and a net loss $3.0 million, or $0.05 per share, in the third quarter of 2012.

Full Year 2012 GAAP Financial Detail
(includes the results of both discontinued
and continuing operations):
The company recognized GAAP net revenue of $194.9 million for the full year of 2012, compared to $197.5 million for the full year of 2011. GAAP gross margin for 2012 was 23.7%, compared to 21.1% in 2011. GAAP operating expenses for 2012 were $60.4 million compared to $63.5 million in 2011. GAAP net loss for the full year of 2012 was $15.0 million, compared to a GAAP net loss of $22.0 million for the full year of 2011.

Fourth Quarter 2012 Non-GAAP Financial Detail:

• The company recognized non-GAAP net revenue of $46.2 million in the fourth quarter of 2012, compared to $48.0 million for the fourth quarter of 2011 and $48.2 million for the third quarter of 2012.
• Non-GAAP gross margin was 28.3% for the fourth quarter of 2012, compared to 25.4% for the fourth quarter of 2011 and 26.4% for the third quarter of 2012. The year-over-year improvement in gross margin was largely attributable to a more favorable product and customer mix.
• Total non-GAAP operating expenses for the fourth quarter of 2012 were $14.7 million, as compared to $12.3 million for the fourth quarter of 2011 and $14.2 million for the third quarter of 2012.
• Non-GAAP net loss for the fourth quarter of 2012 was $2.0 million, or $0.03 per share, as compared to a fourth quarter of 2011 non-GAAP net loss of $0.1 million, or $0.00 per share, and a third quarter 2012 non-GAAP net loss of $1.7 million, or $0.03 per share. Non-GAAP EBITDA for the fourth quarter of 2012 was negative $1.0 million compared to positive $0.1 million for the fourth quarter of 2011 and negative $0.9 million for the third quarter of 2012.

Full-Year 2012 Non-GAAP Financial Detail:

• Non-GAAP net revenue was $196.7 million for 2012, compared to $196.8 million for 2011. Non-GAAP gross margin was 27.9% for 2012, compared to 26.4% for 2011. The increase in non-GAAP gross margin was primarily due to increased diversification of our revenues in both customer and product mix. Total non-GAAP operating expenses for 2012 were $57.8 million, compared to $48.8 million for 2011. The increase in non-GAAP operating expenses was largely due to incremental engineering investments to support new customer customizations and launch preparation, as well as the development of our next generation entry-level product line due to launch this summer.
• Non-GAAP net loss for 2012 was $3.7 million, or $0.06 per share, as compared to a 2011 non-GAAP net income of $3.0 million, or $0.05 per share. Non-GAAP EBITDA for 2012 was negative $0.4 million compared to positive $5.4 million for 2011.

Balance Sheet and Cash:
The company exited 2012 with cash and cash equivalents of $40.3 million compared to $46.2 million at the end of 2011 and $40.5 million at the end of the third quarter of 2012.

First Quarter 2013 Outlook:
Non-GAAP net revenues for the first quarter of 2013 are expected to be in the range of $43 million to $46 million. The non-GAAP loss per share is expected to be in the range of $0.02 to $0.04.

"Despite global economic and industry specific headwinds, I remain excited about our prospects and opportunities as we begin 2013 with a strong new customer pipeline, a very competitive midrange product offering and a planned launch of our next generation entry-level product line in the summer," stated Hanif Jamal, CFO, Dot Hill.