Dot Hill: Fiscal 1Q13 Financial Results

Dot Hill Systems Corp. reported financial results for the first quarter 2013, ended March 31, 2013.

Non-GAAP 1Q2013 Financial and Operational Highlights:

• Net revenue from vertical markets grew 20% compared to fourth quarter 2012;
• Non-GAAP gross margins were 32.1%, as compared to 28.3% for the fourth quarter 2012, and the highest gross margin in over five years;
• Operating expenses were relatively flat as compared to first quarter 2012 and declined relative to fourth quarter 2012;
• Company returns to breakeven.

"The results of increased R&D spending in 2012 are now becoming more visible," stated Dana Kammersgard, president and CEO, Dot Hill. "Our focus on vertical markets and especially in media and entertainment and telecommunications is benefiting from explosive data growth as film studios keep producing 3-D movies and smartphone users keep generating and sharing data of all sorts. Furthermore, our new product efforts are bearing fruit as almost all of our recent new customer wins are based on our midrange 4000 or 5000 series products. Additionally, multiple existing and new OEM partners are on schedule to launch our next generation entry-level series 3000 arrays."

1Q2013 GAAP Financial Detail
(including discontinued operations):
The company recognized GAAP net revenue of $44.5 million for the first quarter of 2013, as compared to $54.7 million for the first quarter of 2012 and $44.1 million for the fourth quarter of 2012. The first quarter of 2012 benefitted from a spike in demand from one of the company’s telecommunications customers.

GAAP gross margins for the first quarter of 2013 were 32.2%, as compared to 27.7% for the first quarter of 2012 and 17.8% for the fourth quarter of 2012. GAAP operating expenses for the first quarter of 2013 were $15.3 million, as compared to $17.1 million for the first quarter of 2012 and $12.6 million in the fourth quarter of 2012. GAAP net loss for the first quarter of 2013 was $1.0 million, or ($0.02) per share, as compared to a net loss of $1.9 million, or ($0.03) per share, for the first quarter of 2012, and a net loss of $5.0 million, or ($0.09) per share, for the fourth quarter of 2012.

1Q2013 Non-GAAP Financial Detail:
The company recognized non-GAAP net revenue of $44.9 million for the first quarter of 2013, as compared to $54.6 million for the first quarter of 2012 and $46.2 million for the fourth quarter of 2012.

Non-GAAP gross margins were 32.1% for the first quarter of 2013, as compared to 29.3% for the first quarter of 2012 and 28.3% for the fourth quarter of 2012. The increase in gross margins during the first quarter of 2013 relative to the fourth quarter of 2012 was partly due to the growth in higher margin vertical markets revenues as a percentage of total revenue. Total non-GAAP operating expenses for the first quarter of 2013 were $14.3 million, as compared to $14.2 million for the first quarter of 2012 and $14.7 million for the fourth quarter of 2012.

Non-GAAP net income for the first quarter of 2013 was $0.04 million, or $0.00 per fully diluted share, as compared to first quarter 2012 non-GAAP net income of $1.9 million, or $0.03 per fully diluted share, and fourth quarter 2012 non-GAAP net loss of $2.0 million, or ($0.03) per share. Non-GAAP EBITDA for the first quarter of 2012 was positive $0.8 million as compared to positive $2.3 million for the first quarter of 2012 and negative $1.0 million for the fourth quarter of 2012.

Balance Sheet:
On March 31, 2013 the company had cash and cash equivalents of $40.3 million and $2.8 million in short term notes payable as compared to $40.3 million in cash and cash equivalents and $2.8 million in short term notes payable on December 31, 2012.

Second Quarter and Full Year 2013 Outlook:
The company reiterated the guidance ranges issued at its Analyst Day on April 8, 2013 of second quarter 2013 non-GAAP net revenue of $47 million to $53 million and non-GAAP EPS of a loss of ($0.01) per share to a profit of $0.02 per fully diluted share. The company also reiterated its full year 2013 outlook of non-GAAP revenue of $205 million to $227 million, non-GAAP gross margins of 30% to 31%, non-GAAP operating expenses of $60 million to $64 million and non-GAAP EPS of $0.02 per fully diluted share to $0.10 per fully diluted share.

"We are off to a solid start in 2013, given the global economic climate," stated Hanif Jamal, CFO, Dot Hill. "We are pleased with the continued traction in our vertical markets business, the significant improvement in non-GAAP gross margins, as well as the discipline in managing operating expenses and working capital during the first quarter. The result was a small non-GAAP net profit for the quarter. Based on our existing customer sales funnel, we are expecting solid revenue and earnings growth in the second half of 2013 with the potential for even higher revenue growth and non-GAAP EPS accretion in 2014."