Dot Hill: Fiscal 3Q13 Financial Results

Dot Hill Systems Corp. announced financial results for the third quarter 2013, ended September 30, 2013.

Recent Customer and Product Announcement Highlights:

• Hewlett-Packard launched the MSA 2040 based on Dot Hill storage that incorporates 16Gb FC support for entry-level products in June.
• CGG, an integrated geoscience company serving the global oil and gas industry, selected AssuredSAN 4000 Series midrange storage systems for subsurface imaging centers and as part of its reference architecture in August.
• Hewlett-Packard launched the remainder of the MSA 2040 product family based on Dot Hill storage, including 12Gb SAS and 16Gb/10Gb hybrid options in September.
• Teradata added Dot Hill as a storage partner, incorporating the AssuredSAN 4000 Series products into certain data warehousing and big data analytics appliances in October.
• Made available its own next generation AssuredSAN 4004 product family launched with 16Gb FC, 12Gb SAS and hybrid FC and iSCSI options in November.

“We are successfully executing our strategies to penetrate select high-growth vertical markets, gain market share with midrange products and maintain industry-leading innovation in entry level products,” stated Dana Kammersgard, president and CEO, Dot Hill. “We recently announced relationships with world class partners in oil and gas and big data analytics, adding to our partnerships with OEMs in media and entertainment and telecom wireless and Internet infrastructure. Additionally, we furthered our innovation leadership by introducing our next-generation entry-level product with industry-first features, which contributed to sequential growth in our Server OEM business.“

Non-GAAP revenue by market
(in thousands)

3Q13 GAAP Financial Detail (including discontinued operations):

• The company recognized GAAP net revenue of $52.6 million for the third quarter of 2013, compared to $48.2 million for the third quarter of 2012 and $50.7 million for the second quarter of 2013.
• GAAP gross margin for the third quarter of 2013 was 32.1%, compared to 25.4% for the third quarter of 2012 and 33.6% for the second quarter of 2013.
• GAAP operating expenses for the third quarter of 2013 were $15.0 million, as compared to $15.1 million for the third quarter of 2012 and $14.9 million in the second quarter of 2013.
• GAAP net income for the third quarter of 2013 was $1.8 million, or $0.03 per fully diluted share, as compared to a net loss of $3.0 million, or ($0.05) per share, for the third quarter of 2012, and net income of $2.1 million, or $0.04 per fully diluted share, for the second quarter of 2013.

3Q13 Non-GAAP Financial Detail

• The company recognized non-GAAP net revenue of $52.9 million for the third quarter of 2013, as compared to $48.2 million for the third quarter of 2012 and $51.2 million for the second quarter of 2013.
• Non-GAAP gross margin for the third quarter of 2013 was 32.8%, compared to 26.4% for the third quarter of 2012 and 34.7% for the second quarter of 2013. The company stated that the sequential decline in non-GAAP gross margin percentage was largely due to customer mix changes associated with a 20% increase in revenues from its largest customer.
• Non-GAAP operating expenses for the third quarter of 2013 were $14.5 million, as compared to $14.2 million for the third quarter of 2012 and $14.2 million in the second quarter of 2013.
• Non-GAAP net income for the third quarter of 2013 was $2.8 million, or $0.05 per share, as compared to net loss of $1.7 million, or ($0.03) per share, for the third quarter of 2012, and net income of $3.5 million, or $0.06 per share, for the second quarter of 2013.

“Overall, we had a solid third quarter despite ongoing macro-environment headwinds and IT market challenges, with revenue and EPS in the upper half of our guidance ranges,” stated Hanif Jamal, CFO, Dot Hill. “Our largest customer bounced back with 20% sequential growth, and our vertical markets grew 63% on a year-over-year basis. We also continued to make good progress moving customer opportunities and design wins through our sales pipeline, which will lay the foundation for a more diversified and faster growing company in 2014.”

Balance Sheet:
On September 30, 2013, the company had cash and cash equivalents of $40.4 million with no borrowing as compared to $38.3 million in cash and cash equivalents net of short-term borrowing of $2.1 million on June 30, 2013.

Fourth Quarter and Full Year 2013 Outlook:
The company expects fourth quarter 2013 non-GAAP net revenue to be in the range of $53 million to $58 million and non-GAAP earnings per share in the range of $0.03 per share to $0.06 per share. As a result, management updated its 2013 annual guidance. The company now expects 2013 non-GAAP net revenue to range between $202 million and $207 million. The company reiterated annual 2013 gross margin guidance of between 32% and 33% and lowered operating expense guidance to $57.5 million to $58 million. The net result of these revised estimates is an increase in fully diluted non-GAAP EPS guidance of between $0.14 and $0.17 as compared to the August 2013 projection of $0.10 to $0.16.

To read the earnings call transcript