Dot Hill: Fiscal 4Q14 Financial Results

 Dot Hill Systems Corp. reported financial results for the fourth quarter and year ended December 31, 2014.

Fourth Quarter 2014 Financial and Operational Highlights

• Grew non-GAAP revenues to $68.2 million, which represents 31% sequential growth and 14% growth year-over-year.
• Achieved non-GAAP Vertical Markets revenue of $38.5 million compared to $20.5 million in the third quarter of 2014 and $18.9 million in the fourth quarter of 2013, or 88% sequential growth and almost 104% year-over-year growth.
• Expanded non-GAAP gross margin to 34.6%, compared to 32.4% in the prior quarter and 31.7% in the fourth quarter of 2013.
• Shipped approximately 850 units of the company’s Ultra48 AssuredSAN 4004, a 2U storage array.
• Introduced and shipped nearly 200 units of the Ultra56 AssuredSAN 4004, a large form factor carrier grade, NEBS Level 3 compliant, high density 4U storage array.
• Secured the company’s 100th U.S. patent.
• Named to Computer Technology Review’s Top 25 Must Have Software Applications.

“The fourth quarter was perhaps the first real financial evidence of the company specific growth catalysts that we have been working on for quite some time. We added new customers and introduced breakthrough solutions to existing customers through product launches that we have been intently focused on throughout the year,” stated Dana Kammersgard, president and CEO. “Last quarter, we talked about chasing supply, and we were successful in fulfilling all of our customers’ ramp demands.”

Fourth Quarter 2014 GAAP Financial Detail (including discontinued operations)

• Net revenue was $69.1 million4, compared to $58.8 million for the fourth quarter of 2013 and $52.1 million for the third quarter of 2014.
• Gross margin was 35.2%, compared to 30.2% for the fourth quarter of 2013 and 32.5% for the third quarter of 2014.
• Operating expenses were $15.7 million, compared to $15.7 million for the fourth quarter of 2013 and $16.9 million for the third quarter of 2014.
• Net income was $8.5 million, or $0.13 per fully diluted share, compared to $2.2 million, or $0.04 per fully diluted share, for the fourth quarter of 2013, and $0.0 million, or $0.00 per fully diluted share, for the third quarter of 2014.

Fourth Quarter 2014 Non-GAAP Financial Detail

• Non-GAAP net revenue was $68.2 million, compared to $59.7 million for the fourth quarter of 2013 and $52.0 million for the third quarter of 2014.
• Vertical Markets non-GAAP net revenue was $38.5 million compared to $18.9 million in the fourth quarter of 2014 and $20.5 million for the third quarter of 2014.
• Server OEM non-GAAP net revenue was $29.7 million compared to $40.8 million in the fourth quarter of 2013 and $31.5 million for the third quarter of 2014.
• Non-GAAP gross margin was 34.6%, compared to 31.7% for the fourth quarter of 2013 and 32.4% for the third quarter of 2014.
• Vertical Markets non-GAAP gross margin was 40.7%, compared to 38.7% for the fourth quarter of 2013 and 43.3% for the third quarter of 2014.
• Server OEM non-GAAP gross margin was 26.6%, compared to 28.4% for the fourth quarter of 2013 and 25.4% for the third quarter of 2014.
• Non-GAAP operating expenses were $15.0 million, as compared to $14.8 million for the fourth quarter of 2013 and $15.1 million for the third quarter of 2014.
• Non-GAAP net income was $8.5 million, or $0.13 per fully diluted share, as compared to $4.2 million, or $0.07 per share, for the fourth quarter of 2013, and $1.7 million, or $0.03 per fully diluted share, for the third quarter of 2014.

Year ending December 31, 2014 GAAP Financial Detail (including discontinued operations)

• Net revenue was $217.7 million, compared to $206.6 million for 2013.
• Gross margin was 33.3%, compared to 31.9% for 2013.
• Operating expenses were $64.3 million, compared to $60.8 million for 2013.
• Net income was $8.1 million, or $0.13 per fully diluted share, compared to $5.1 million, or $0.09 per fully diluted share for 2013.

Year ending December 31, 2014 Non-GAAP Financial Detail

• Non-GAAP net revenue was $217.5 million, compared to $208.7 million for 2013.
• Vertical Markets non-GAAP revenue was $102.1 million for 2014, compared to $71.8 million for 2013.
• Server OEM non-GAAP revenue was $115.4 million, compared to $137.0 million for 2013
• Non-GAAP gross margin was 33.6%, compared to 32.8% for 2013.
• Vertical Markets non-GAAP gross margin was 42.6%, compared to 42.7% for 2013
• Server OEM non-GAAP gross margin was 25.6%, compared to 27.6% for 2013
• Non-GAAP operating expenses were $60.3 million, compared to $57.8 million for 2013.
• Non-GAAP net income fwas $12.5 million, or $0.20 per fully diluted share, compared to $10.5 million, or $0.18 per share for the full year of 2013.

Balance Sheet and Cash
The company exited 2014 with cash and cash equivalents of $42.5 million, with no borrowings, compared to $40.4 million at the end of 2013, with $2.0 million in borrowings from its working capital line, and $42.4 million at the end of the third quarter of 2014, with no borrowings.

First Quarter and Full Year 2015 Outlook
Non-GAAP net revenue and fully diluted earnings per share for the first quarter of 2015 are expected to be in the range of $55 million to $59 million and $0.04 to $0.07, respectively. Non-GAAP net revenue and earnings per fully diluted share for the full year 2015 are projected to be between $230 million and $270 million and $0.25 and $0.35, respectively.

“We believe that we have set ourselves up well for strong revenue growth and our fourth quarter results were the first tangible data point indicative of significant new revenue streams,” said Hanif Jamal, CFO. “To get to this point, we have had several years of hard work and disciplined execution across the entire company. Equally and perhaps more importantly, we also provided financial evidence of the underlying operating leverage of our business that we expect will enable EPS growth at a much faster rate than revenue growth.”