Dot Hill Updates Guidance

Dot Hill Systems Corp. updated its guidance for first quarter of 2013, and provided guidance for the second quarter of 2013 as well as for the year ending December 31, 2013.

In addition, the company also established a target operating model for the year ending December 31, 2014.

The company will be presenting its updated guidance for 2013 and target operating model for 2014 at its Analyst Day, today, April 8, 2013, beginning at 9:00 am Eastern time at the NASDAQ MarketSite in New York City. Management will also discuss the company’s strategy, the pipeline for new customers and product positioning and roadmap. In addition, a representative from the company’s largest customer, Hewlett Packard Company, as well as representatives from Quantum Corporation and Stratus Technologies, Inc., will review their partnership experiences with the company. Enterprise Strategy Group and the Gartner Group will review market data and storage industry trends.

First Quarter 2013
The company now expects first quarter 2013 non-GAAP net revenue of $44 million to $45 million and non-GAAP EPS of $(0.02) to $0.00. The expected non-GAAP net revenue results are within the guidance range provided on March 14, 2013 of $43 million to $46 million, and non-GAAP EPS results are expected to be better than the previous guidance range of $(0.04) to $(0.02). The company attributed the better than expected non-GAAP EPS results to anticipated improvements in non-GAAP gross margins that are projected to exceed 30% for first quarter of 2013, due to a more favorable mix of customer and product sales. The company also stated that it is projecting cash and cash equivalents net of short-term borrowing as of March 31, 2013 to remain flat at $37.5 million compared to December 31, 2012.

The company has not completed its first quarter 2013 financial review process nor have its auditors completed their review process. Accordingly, the results and conclusions of these reviews could impact the company’s first quarter 2013 GAAP and non-GAAP financial results.

Second Quarter 2013
The company stated that it expects second quarter 2013 non-GAAP net revenue to be between $47 million and $53 million. The midpoint of this range represents a 12% increase in non-GAAP net revenue, compared to the midpoint of the revised first quarter 2013 non-GAAP net revenue range. The company also expects non-GAAP EPS for the second quarter of 2013 to be between $(0.01) to $0.02 on a fully diluted basis.

Year Ending December 31, 2013
For the year ending December 31, 2013, the company expects non-GAAP net revenues of $205 million to $227 million; non-GAAP gross margin of 30% to 31%; non-GAAP operating expenses of $60 million to $64 million, and non-GAAP EPS of $0.02 to $0.10. At the mid-points of these forecasted financial results ranges, non-GAAP net revenue would grow 10%; non-GAAP gross margin would improve 2.6%age points; non-GAAP operating expenses would increase $4.2 million, and non-GAAP EPS would increase by $0.12 compared to financial results for the year ended December 31, 2012.

"In 2013 our primary focus is to continue to execute on our strategic initiatives, as evidenced by the OEM partner announcements with Quantum and Acer this morning and to further solidify the revenue foundation for strong growth in 2014," stated Dana Kammersgard, president and CEO, Dot Hill. "Our server OEM business continues to be the technological and financial platform to support the growth in our vertical market’s business. Our deal pipeline has never been more full and is the result of the success of our recent product announcements as well as consolidation in the storage industry."

Kammersgard continued, "The growth we project is based solely on announced or unannounced customers with whom we have already signed contracts or who have verbally awarded us their business. We expect meaningful revenue growth based on this pipeline to start later in 2013 and accelerate in 2014 and beyond."

2014 Target Operating Model
The company expects growth to result in non-GAAP net revenue of $231 million to $301 million for the year ending December 31, 2014 and at the midpoint of this range, this represents growth of 23% compared to the midpoint of the guidance range for the year ending December 31, 2013. The company also stated it expects non-GAAP gross margin to increase modestly to 31% to 32% for the year ending December 31, 2014. Non-GAAP operating expenses are targeted to be in the range of $64 million to $72 million and non-GAAP EPS is projected to be $0.11 to $0.40 for the year ending December 31, 2014.

"Structurally, the company has many levers to create operating leverage. We outsource our manufacturing; we use a common technology platform across existing and new customers, and our go-to-market partners are responsible for demand generation, all of which contain our capital and operating expense investments," said Hanif Jamal, CFO, Dot Hill. "As a result, we expect revenues in excess of the company’s break-even point of around $200 million annually, to create non-GAAP operating profit of 20% to 30%. Based on our current forecast of the mix of customers in 2014, we are targeting accretion to the bottom line of around 25% from new business."