Dot Hill: Fiscal 2Q11 Financial Results

Dot Hill Systems Corp. announced financial results for the second quarter 2011, the period ended June 30, 2011.

Financial and Operational Highlights:

• Second quarter 2011 revenue of $53.2 million which, excluding the exited NetApp business, compares to $47.6 million in the second quarter of 2010 and represents 11.7% year-over-year growth
• Second quarter 2011 GAAP gross margin of 24.8% up from 24.6% in the prior quarter and up from 14.8% in the second quarter of 2010
• Second quarter 2011 non-GAAP gross margin of 26.3% up from 25.9% in the prior quarter and up from 15.8% in the second quarter of 2010. company achieved its Q411 non-GAAP gross margin goal of 26% two quarters ahead of plan.
• Second quarter 2011 GAAP EPS of ($0.04) per share compared to ($0.02)per share in Q111 and ($0.11) per share in Q210
• Second quarter 2011 non-GAAP EPS of $0.01 compared to $0.00 in the prior quarter and up from ($0.06) in the second quarter of 2010
• Cash and cash equivalents of $46.5 million as of June 30, 2011, up from $46.3 million as of March 31, 2011.

Second Quarter 2011 Financial Detail:
The company recognized net revenue of $53.2 million for the second quarter of 2011, compared to $65.5 million for the second quarter of 2010 and $49.2 million for the first quarter of 2011. Excluding NetApp, net revenues grew 11.7% on a year-over-year basis from $47.6 million for the second quarter of 2010 and 8.1% on a quarter-over-quarter basis from $49.2 million for the first quarter of 2011.

GAAP gross margin for the second quarter of 2011 was 24.8%, compared to 14.8% for the second quarter of 2010 and 24.6% for the first quarter of 2011. GAAP operating expenses for the second quarter of 2011 were $15.1 million, as compared to $15.5 million for the second quarter of 2010 and $13.3 million in the first quarter of 2011. GAAP net loss for the second quarter of 2011 was $1.9 million, or ($0.04) per share, as compared to a net loss of $5.8 million, or ($0.11) per share, for the second quarter of 2010, and net loss of $1.3 million, or ($0.02) per share, for the first quarter of 2011.

Non-GAAP gross margin was 26.3% for the second quarter of 2011, compared to 15.8% for the second quarter of 2010 and 25.9% for the first quarter of 2011. The year-over-year improvement in gross margin percent was primarily a result of a more favorable product mix, including the elimination of low margin revenue from NetApp and larger contributions from the company’s AssuredUVS and AssuredVRA software products. Total non-GAAP operating expenses for the second quarter of 2011 were $13.5 million, as compared to $13.6 million for the second quarter of 2010 and $12.6 million for the first quarter of 2011.

Non-GAAP net income for the second quarter of 2011 was $0.4 million, or $0.01 per share, as compared to a second quarter 2010 non-GAAP net loss of $3.3 million, or ($0.06) per share, and first quarter 2011 non-GAAP net income of $0.1 million, or $0.00 per share. Non-GAAP EBITDA for the second quarter of 2011 was $1.1 million compared to ($2.8) million for the second quarter of 2010 and $0.7 million for the first quarter of 2011.

"The second quarter was another solid quarter of improving financial performance for us, with revenue and cash exceeding our guidance ranges, gross margin and earnings per share at the upper end of guidance and operating expenses right in the middle of our range," said Dana Kammersgard, Dot Hill Systems’ Chief Executive Officer. "While we are continuing to work on new AssuredSAN storage array opportunities through both new and existing OEM’s, our strategic direction and intent remains intact.  We will continue to capitalize on the investments we are making to expand both our software and branded reseller programs, as they represent the best long term potential for revenue diversification and margin growth."

Balance Sheet:
The company exited the second quarter of 2011 with cash and cash equivalents of $46.5 million compared to $42.6 million at the end of June 2010 and $46.3 million at the end of March 31, 2011.

Third Quarter 2011 Outlook:
The company is targeting third quarter 2011 net revenue in the range of $50 million to $54 million and a non-GAAP EPS in the range of ($0.01) per share to $0.02 per share.

"At the mid-point of our guidance range we are expecting 16.1% year-over-year growth in net revenue, excluding revenue from NetApp," said Hanif Jamal, Dot Hill Systems’ Chief Financial Officer. "Non-GAAP gross margin percentage is expected to increase slightly to the 26.5% to 27.5% range, while non-GAAP operating expenses are expected to increase to between $13.8 million and $14.3 million as a result of continued investments in R&D, some of which will be required to support new or prospective customer wins. Finally, we expect cash and cash equivalents at the end of the third quarter of 2011 to be in the range of $44 million to $47 million."