Dot Hill: Fiscal 3Q14 Financial Results

(in $ million)	3Q13	3Q14	9 mo. 13	9 mo. 14
Revenues	52.6	52.1	147.8	148.6
*Growth*		-1%		1%
Net income (loss)	1.8	0	2.9	(0.1)

Dot Hill Systems Corp. announced financial results for the third quarter ended September 30, 2014.

Financial and Operational Highlights:

Grew trailing 12 month as of September 30, 2014 relative to trailing 12 month as of September 30, 2013 non-GAAP revenue by 7%, with Vertical Markets growing 28% over the same period.
Awarded three new patents, which brings total US portfolio to 99 patents.
Unveiled the latest version of its storage management software, RealStor version 2.0, which delivers application workload-aware intelligence for s next-generation hybrid flash storage arrays.
Announced the Ultra48 AssuredSAN ultra-density, next-generation hybrid arrays, available with RealStor 2.0 software.

“I am very excited by the potential revenue contribution our new products represent – both the RealStor 2.0 software and its instantiation in the one-of-a-kind Ultra 48 AssuredSAN storage solution,” stated Dana Kammersgard, president and CEO. “We believe growth in company-specific growth catalysts is beginning, our business model is intact and the operating leverage that comes from both will soon be evident. It is gratifying to have arrived at a point where we can demonstrate the operating leverage inherent in our business model.“

Third Quarter 2014 GAAP Financial Detail (including discontinued operations):

GAAP net revenue of $52.1 million for the third quarter of 2014, compared to $52.6 million for the third quarter of 2013 and $48.2 million for the second quarter of 2014.
GAAP gross margin for the third quarter of 2014 was 32.5%, compared to 32.1% for the third quarter of 2013 and 33.2% for the second quarter of 2014.
GAAP operating expenses for the third quarter of 2014 were $16.9 million, as compared to $15.0 million for the third quarter of 2013 and $16.0 million in the second quarter of 2014.
GAAP net income for the third quarter of 2014 was $0.04 million, or $0.00 per fully diluted share, as compared to $1.8 million, or $0.03 per fully diluted share, for the third quarter of 2013, and a net loss of $0.08 million, or ($0.00) per share, for the second quarter of 2014.

Third Quarter 2014 Non-GAAP Financial Detail

Non-GAAP net revenue of $52.0 million for the third quarter of 2014, as compared to $52.9 million for the third quarter of 2013 and $48.4 million for the second quarter of 2014.
Vertical Markets non-GAAP net revenue was $20.5 million, compared to $17.5 million in the third quarter of 2013 and $20.8 million in the second quarter of 2014.
Server OEM non-GAAP net revenue was $31.5 million, compared to $35.4 million in the third quarter of 2013 and $27.7 million in the second quarter of 2014.
Non-GAAP gross margin for the third quarter of 2014 was 32.4%, compared to 32.8% for the third quarter of 2013 and 33.9% for the second quarter of 2014. The company stated that the sequential decline in non-GAAP gross margin percentage was largely due to customer mix.
Vertical Markets non-GAAP gross margin was 43.3%, compared to 45.4% in the third quarter of 2013 and 44.7% in the second quarter of 2014.
Server OEM non-GAAP gross margin was 25.4%, compared to 26.5% in the third quarter of 2013 and 25.9% in the second quarter of 2014.
Non-GAAP operating expenses for the third quarter of 2014 were $15.1 million, as compared to $14.5 million for the third quarter of 2013 and $15.1 million in the second quarter of 2014.
Vertical Markets non-GAAP contribution margin was 30.9% for the third quarter of 2014, compared to 32.0% in the third quarter of 2013 and 33.0% in the second quarter of 2014.
Server OEM non-GAAP contribution margin was 23.8% for the third quarter of 2014, compared to 25.2% in the third quarter of 2013 and 24.0% in the second quarter of 2014.

On September 30, 2014, the company had cash and cash equivalents of $42.4 million as compared to $42.2 million in cash and cash equivalents on June 30, 2014, and $40.4 million in cash and cash equivalents on September 30, 2013.

Fourth Quarter and Full Year 2014 Outlook:
The company expects fourth quarter 2014 non-GAAP net revenue to be in the range of $62 million to $68 million and non-GAAP earnings per share in the range of $0.07 to $0.12 per fully diluted share.

“Based on our development and some of our customer’s launch schedules, we have been anticipating a back-end loaded 2014, particularly in our Vertical Market’s business,” stated Hanif Jamal, CFO, Dot Hill. “The midpoint of our fourth quarter guidance represents 25% non-GAAP revenue and 250% non-GAAP EPS sequential growth and is an indication of our confidence in a strong Q4 revenue inflection which should set us up very well for a solid 2015.”