Dot Hill: Fiscal 2Q08 Financial Results

Dot Hill Systems Corp. announced financial results for the second quarter ended June 30, 2008. For the second quarter of 2008, net revenue was $71.0 million (a record for the company’s quarterly net revenue), compared to $56.2 million for the second quarter of 2007, and $52.8 million for the first quarter of 2008, which included a reduction in net revenue of $2.3 million associated with a warrant issued to Hewlett-Packard.

Net revenue for the second quarter of 2008 exceeded the guidance range of $66 to $70 million that the company provided on June 26, 2008.

For the second quarter of 2008, net loss was $7.4 million, or $0.16 per fully diluted share. This compares to a net loss of $3.7 million for the second quarter of 2007, or $0.08 per fully diluted share, and a first quarter 2008 net loss of $6.1 million, or $0.13 per fully diluted share, which included the Hewlett-Packard warrant of $2.3 million and the proceeds from a legal settlement of $3.8 million.

On a non-GAAP basis after excluding share-based compensation expense, foreign currency translation losses and severance costs, net loss for the second quarter of 2008 was $6.0 million, or $0.13 per fully diluted share, and was within the $0.12 to $0.16 net loss per share range issued by the company on June 26, 2008.

Gross margin for the second quarter of 2008 was 10.2 percent as compared to second quarter 2007 gross margin of 12.3 percent and first quarter 2008 gross margin of 7.9 percent. The company attributes the decrease in gross margin percentage on a year-over-year basis primarily to a change in product and customer sales mix, as the company’s higher margin net revenue from Sun Microsystems have declined over the past year, while shipments of the company’s lower margin Series 2000 and Series 5000 products to NetApp, Hewlett-Packard and other customers have increased. Excluding share-based compensation expense and severance costs, non-GAAP gross margin for the second quarter of 2008 was 10.6 percent.

"We are pleased with our accomplishments during the second quarter of 2008," said Dana Kammersgard, president and chief executive officer, Dot Hill. "Overall, we had a strong quarter as we achieved record net revenue, with three of our OEM customers each generating in excess of 20 percent of our total net revenue. Additionally, we experienced 34 percent sequential net revenue growth and 26 percent net revenue growth on a year-over-year basis. We remain keenly focused on improving margins and reducing costs to reach our goal of sustainable profitability."

The company exited the second quarter of 2008 with cash and cash equivalents of $62.1 million, with no outstanding debt. This compares to the first quarter 2008 balance of cash and cash equivalents of $77.4 million, and no outstanding debt. The sequential decrease in cash and cash equivalents was due primarily to operating losses and increased working capital requirements associated with the significant increase in accounts receivable from Hewlett-Packard.

The company is targeting third quarter 2008 net revenue in the range of $73 to $78 million and a net loss per fully diluted share in the range of $0.06 to $0.10 on a non-GAAP basis, which excludes share-based compensation expense, foreign currency gains or losses, severance and restructuring expenses.