Dot Hill Reports Third Quarter 2012 Results

LONGMONT, Colo., Nov. 8, 2012 (GLOBE NEWSWIRE) -- Dot Hill Systems Corp. (Nasdaq:HILL), a leading provider of storage solutions, today announced financial results for the third quarter 2012.

Financial and Operational Highlights:

  • Third quarter 2012 non-GAAP net revenue and non-GAAP earnings per share within previously established guidance ranges;
  • Net revenue from Vertical Markets (Media and Entertainment, Telco Service Providers, Oil and Gas, Data Analytics and High Performance Computing) grew 50% on a third quarter year-to-date basis compared to the same period in 2011; and
  • AssuredSAN 4000 and Pro 5000 mid-range products launched.

"We are encouraged with the early response to our new Pro 5000 and 4000 series products," stated Dana Kammersgard, president and CEO, Dot Hill Systems. "We have had very positive reviews in independent lab validations, and the performance and real-time tiering aspects of the Pro 5000 in particular is resonating very well with analysts, with resellers and especially with end-user customers."

"This is because the new normal with respect to storage requirements is a product that cost effectively and responsively handles the dynamically changing nature of the virtualized server workload," Kammersgard stated. "Batch migration that takes 24 hours to promote hot data to a faster tier employing solid state drives is no longer good enough, and pure play solid state arrays are simply too expensive for most applications and customers."

Third Quarter 2012 GAAP Financial Detail (without the effects of discontinued operations presentation):

The Company recognized GAAP net revenue of $48.2 million for the third quarter of 2012, compared to $48.1 million for the third quarter of 2011 and $47.8 million for the second quarter of 2012.

GAAP gross margin for the third quarter of 2012 was 25.3%, compared to 16.7% for the third quarter of 2011 and 22.9% for the second quarter of 2012.

GAAP operating expenses for the third quarter of 2012 were $15.1 million, as compared to $20.1 million for the third quarter of 2011 and $15.6 million in the second quarter of 2012.

GAAP net loss for the third quarter of 2012 was $3.0 million, or $(0.05) per share, as compared to a net loss of $12.2 million, or $(0.22) per share, for the third quarter of 2011, and net loss of $5.0 million, or $(0.09) per share, for the second quarter of 2012.

Third Quarter 2012 Non-GAAP Financial Detail:

The Company recognized non-GAAP net revenue of $48.2 million for the third quarter of 2012, compared to $47.8 million for the third quarter of 2011 and $47.7 million for the second quarter of 2012. Going forward, the Company intends to break out its revenue between Vertical Markets and Server OEMs. The Company reported that net revenue from Vertical Markets was $10.2 million in the third quarter of 2012, and grew 2% over the prior quarter and 6% from the third quarter of 2011, despite some softness in its channel business in Europe and the US. Net revenue from the Company's Server OEM business increased 1% to $36.5 million in the third quarter of 2012 compared to the second quarter of 2012, but declined 1% compared to the third quarter of 2011.

Non-GAAP gross margin for the third quarter of 2012 was 26.4%, compared to 28.7% for the third quarter of 2011 and 27.4% for the second quarter of 2012. The Company stated that the decline in non-GAAP gross margin percent was largely due to higher warranty related charges in the third quarter of 2012.

Non-GAAP operating expenses for the third quarter of 2012 were $14.2 million, as compared to $13.2 million for the third quarter of 2011 and $14.6 million in the second quarter of 2012.

Non-GAAP net loss for the third quarter of 2012 was $1.7 million, or $(0.03) per share, as compared to net income of $0.5 million, or $0.01 per share, for the third quarter of 2011, and net loss of $1.9 million, or $(0.03) per share, for the second quarter of 2012.

Balance Sheet:

The Company exited the third quarter of 2012 with cash and cash equivalents of $40.5 million compared to $45.7 million at September 30, 2011 and $40.5 million at June 30, 2012. As of September 30, 2012, the Company had borrowed $1.8 million from its previously established line of credit with Silicon Valley Bank.

Fourth Quarter 2012 Outlook:

Given the macro-economic environment, the Company is targeting fourth quarter 2012 non-GAAP net revenue in the range of $48 million to $53 million and a non-GAAP earnings per share in the range of $(0.03) per share to $0.02 per share. 

"Given the tough economic climate, I am quite pleased with the traction in our Vertical Markets business, as well as the discipline we demonstrated in managing working capital and operating expenses during the third quarter," said Hanif Jamal, chief financial officer, Dot Hill Systems.

Conference Call Information:

Dot Hill's third quarter 2012 financial results conference call is scheduled to take place on November 8, 2012 at 11:00 a.m. ET. The live audio webcast will be accessible at www.dothill.com in the Investor Relations section. For access via telephone, please dial 877-303-3196 (U.S.) or 408-427-3864 (International) at least five minutes prior to the start of the call. A replay of the webcast will be available on the Dot Hill web site following the conference call. For a telephone replay, please dial 855-859-2056 (U.S.) or 404-537-3406 (International) and enter Conference ID 48369027.

About Non-GAAP Financial Measures

In 2011 and/or 2012, the Company's non-GAAP financial measures exclude the impact of stock-based compensation expense, legal settlements and their associated expenses, intangible asset amortization, restructuring and severance charges, charges or credits for contingent consideration adjustments, charges for impairment of goodwill and other long-lived assets, contra-revenue charges from the extension of customer warrants, specific and significant warranty claims arising from a supplier's defective products, impacts associated with the AssuredUVS software business, which the Company has substantially closed down, and the effects of foreign currency gains or losses. The Company believes that these non-GAAP financial measures provide meaningful supplemental information to both management and investors that is indicative of the Company's core operating results and facilitates comparison of operating results across reporting periods. The Company used these non-GAAP measures when evaluating its financial results as well as for internal resource management, planning and forecasting purposes. These non-GAAP measures should not be viewed in isolation from or as a substitute for the Company's financial results in accordance with GAAP. A reconciliation of GAAP to non-GAAP measures is attached to this press release.

About Dot Hill

Delivering innovative technology and global support, Dot Hill empowers the OEM and channels community to bring unique storage solutions to market, quickly, easily and cost-effectively. Offering high performance and industry-leading uptime, Dot Hill's RAID technology is the foundation for best-in-class storage solutions offering enterprise-class security, availability and data protection. The Company's products are in use today by the world's leading service and equipment providers, common carriers and advanced technology and telecommunications companies, as well as government agencies and small and medium enterprise customers. Dot Hill solutions are certified to meet rigorous industry standards and military specifications, as well as RoHS and WEEE international environmental standards. Headquartered in Longmont, Colorado, Dot Hill has offices and/or representatives in China, Germany, Japan, United Kingdom, Singapore and the United States. For more information, visit us at http://www.dothill.com.

The Dot Hill Systems Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=13870

Statements contained in this press release regarding matters that are not historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Such statements include statements regarding customer acceptance of Dot Hill's Pro 5000 and 4000 Series products and Dot Hill's projected financial results for the fourth quarter of 2012. The risks that contribute to the uncertain nature of the forward-looking statements include, among other things: the risk that actual financial results for the fourth quarter and full year of 2012 may be different from the financial guidance provided in this press release; the risks associated with macroeconomic factors that are outside of Dot Hill's control; the fact that no Dot Hill customer agreements provide for mandatory minimum purchase requirements; the risk that one or more of Dot Hill's OEM or other customers may cancel or reduce orders, not order as forecasted or terminate their agreements with Dot Hill; the risk that Dot Hill's new products may not prove to be popular; the risk that one or more of Dot Hill's suppliers or subcontractors may fail to perform or may terminate their agreements with Dot Hill; the risk that Vertical Markets' sales may not ramp as expected; unforeseen product quality, technological, intellectual property, personnel or engineering issues and any costs that may result from such issues; and the additional risks set forth in the Form 10-Q most recently filed with the Securities and Exchange Commission by Dot Hill. All forward-looking statements contained in this press release speak only as of the date on which they were made. Dot Hill undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they were made.

HILL-F

DOT HILL SYSTEMS CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months EndedNine Months Ended
September 30, 2011June 30, 2012September 30, 2012September 30, 2011September 30, 2012
Net revenue  $ 48,071  $ 47,768  $ 48,249  $ 150,424  $ 150,761
Cost of goods sold  40,029  36,813  36,025  117,085  112,408
Gross profit  8,042  10,955  12,224  33,339  38,353
Operating expenses:
Research and development  9,506  9,677  9,348  26,438  28,967
Sales and marketing  3,768  3,380  3,558  10,450  10,471
General and administrative  2,060  2,473  2,305  6,838  7,846
Restructuring charge (recoveries)  659  73  (130)  655  544
Goodwill impairment charge  4,140  --   --   4,140  -- 
Total operating expenses  20,133  15,603  15,081  48,521  47,828
Operating loss  (12,091)  (4,648)  (2,857)  (15,182)  (9,475)
Other income (expense):
Interest income (expense), net  (18)  (7)  4  (29)  4
Other income (expense), net  2  7  --   3  (11)
Total other income (expense), net  (16)  --   (4)  (26)  7
Loss before income taxes  (12,107)  (4,648)  (2,861)  (15,208)  (9,468)
Income tax expense  75  400  153  190  462
Net loss  $ (12,182)  $ (5,048)  $ (3,014)  $ (15,398)  $ (9,930)
Net loss per basic and diluted share  $ (0.22)  $ (0.09)  $ (0.05)  $ (0.28)  $ (0.17)
Shares used to compute net loss per basic and diluted share  55,186  56,934  57,327  54,755  56,768
DOT HILL SYSTEMS CORP.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value data)
December 31,September 30,
20112012
Assets
Current assets:
Cash and cash equivalents  $ 46,168  $ 40,542
Accounts receivable, net  31,697  28,333
Inventories  5,251  5,407
Prepaid expenses and other assets  7,896  6,725
Total current assets  91,012  81,007
Property and equipment, net  4,972  6,182
Intangible assets, net  2,601  -- 
Other assets  294  399
Total assets  $ 98,879  $ 87,588
Liabilities and stockholders' equity
Current liabilities:
Accounts payable  $ 31,434  $ 27,196
Accrued compensation  5,049  3,184
Accrued expenses  10,860  9,073
Deferred revenue  883  1,263
Restructuring accrual  1,328  549
Current portion of long-term note payable  71  1,800
Total current liabilities  49,625  43,065
Other long-term liabilities  552  1,571
Total liabilities  50,177  44,636
Commitments and Contingencies
Stockholders' equity:
Preferred stock  --   -- 
Common stock  58  58
Additional paid-in capital  321,681  325,870
Accumulated other comprehensive loss  (3,662)  (3,671)
Accumulated deficit  (269,375)  (279,305)
Total stockholders' equity  48,702  42,952
Total liabilities and stockholders' equity  $ 98,879  $ 87,588
DOT HILL SYSTEMS CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
September 30, 2011June 30, 2012September 30, 2012
Cash Flows From Operating Activities:
Net loss  $ (12,182)  $ (5,048)  $ (3,014)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 1,746 874 869
Provision for bad debt expense 203  25  (13)
Stock-based compensation expense 1,458 934 897
Loss on write-off of fixed assets  --  121 68
Loss on write-off of intangible assets  --  1,647 0
Goodwill and long-lived asset impairment charge 7,068  --  --
Changes in operating assets and liabilities, net of effects of business acquisition:
Accounts receivable 5,759 8,051 (1,230)
Inventories 98 99 (751)
Prepaid expenses and other assets (901) 8,444 (2,127)
Accounts payable (4,611) (13,705) 4,414
Accrued compensation and other expenses 545 (1,866) 503
Deferred revenue (489) 698 (222)
Restructuring accrual 383 (600) (590)
Other long-term liabilities (107) 530 607
Net cash provided by (used in) operating activities (1,030) 204 (589)
Cash Flows From Investing Activities:
Purchases of property and equipment (501) (1,098) (1,489)
Net cash used in investing activities (501) (1,098) (1,489)
Cash Flows From Financing Activities:
Principal payment of note and loan payable (69)  --  --
Cash proceeds from borrowings on credit facility (current period)  --  0 1,800
Shares withheld for tax purposes  (1) (132) (10)
Common stock issued under stock plans 680  --  306
Net cash provided by (used in) financing activities 610 (132) 2,096
Effect of Exchange Rate Changes on Cash and Cash Equivalents 85 78 25
Net Increase (Decrease) in Cash and Cash Equivalents (836) (948) 43
Cash and Cash Equivalents, beginning of period 46,508 41,447 40,499
Cash and Cash Equivalents, end of period  $ 45,672  $ 40,499  $ 40,532
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Capital assets acquired but not paid  $ 793  $ 811  $ 507
DOT HILL SYSTEMS CORP.
UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES
(In thousands, except per share amounts)
Three Months EndedNine Months Ended
September 30, 2011June 30, 2012September 30, 2012September 30, 2011September 30, 2012
Net revenue, as reported  $ 48,071  $ 47,768  $ 48,249  $ 150,424  $ 150,761
Effect of ITC revenue  (266)  (59)  (26)  (1,618)  (232)
Non-GAAP net revenue  $ 47,805  $ 47,709  $ 48,223  $ 148,806  $ 150,529
Gross profit, as reported  $ 8,042  $ 10,955  $ 12,224  $ 33,339  $ 38,353
Effect of stock-based compensation  252  167  144  670  483
Effect of severance costs  10  --   60  13  66
Effect of gain from insurance recovery  (555)  --   --   (555)  -- 
Effect of power supply component failures  2,300  --   --   2,300  -- 
Effect of ITC revenue  (266)  (59)  (26)  (1,618)  (232)
Effect of ITC expenses  498  119  70  1,125  545
Effect of long-lived asset impairment  2,928  --   --   2,928  -- 
Effect of intangible asset impairment  --   1,647  --   --   1,647
Effect of intangible asset amortization   522  266  245  1,561  952
Non-GAAP gross profit  $ 13,731  $ 13,095  $ 12,717  $ 39,763  $ 41,814
Operating expenses, as reported  $ 20,133  $ 15,603  $ 15,081  $ 48,521  $ 47,828
Effect of currency gain (loss)  485  29  133  401  (214)
Effect of stock-based compensation  (1,206)  (767)  (753)  (3,325)  (2,490)
Effect of contingent consideration adjustment  --   5  --   --   5
Effect of ITC expenses  (1,378)  (182)  (301)  (4,196)  (1,439)
Effect of goodwill impairment  (4,140)  --   --   (4,140)  -- 
Effect of restructuring (charge) recoveries  (659)  (73)  130  (655)  (544)
Effect of legal fees related to power supply component failure  --   --   (40)  --   (40)
Effect of severance costs  (67)  --   (11)  (113)  (20)
Non-GAAP operating expenses  $ 13,168  $ 14,615  $ 14,239  $ 36,493  $ 43,086
Net loss, as reported  $ (12,182)  $ (5,048)  $ (3,014)  $ (15,398)  $ (9,930)
Effect of currency (gain) loss  (485)  (29)  (133)  (401)  214
Effect of stock-based compensation  1,458  935  897  3,995  2,973
Effect of contingent consideration adjustment  --   (5)  --   --   (5)
Effect of restructuring charge (recoveries)  659  73  (130)  655  544
Effect of intangible asset amortization   522  266  245  1,561  952
Effect of gain from insurance recovery  (555)  --   --   (555)  -- 
Effect of power supply component failures  2,300  --   40  2,300  40
Effect of ITC expenses  1,876  301  370  5,321  1,983
Effect of ITC revenue  (266)  (59)  (26)  (1,618)  (232)
Effect of intangible impairment  --   1,647  --   --   1,647
Effect of long-lived asset impairment  2,928  --   --   2,928  -- 
Effect of goodwill impairment  4,140  --   --   4,140  -- 
Effect of severance costs  77  --   71  126  86
Non-GAAP net income (loss)  $ 472  $ (1,919)  $ (1,680)  $ 3,054  $ (1,728)
Non-GAAP net income (loss) per share
Basic and diluted  $ 0.01  $ (0.03)  $ (0.03)  $ 0.05  $ (0.03)
Weighted average shares used to calculate net income (loss) per share:
Basic  55,186  56,934  57,327  54,755  56,768
Diluted  55,702  56,934  57,327  55,829  56,768
Non-GAAP net income (loss)  $ 472  $ (1,919)  $ (1,680)  $ 3,054  $ (1,728)
Interest expense less ITC  21  7 626  34 1803
Income tax expense  75  400 153  190 462
Depreciation less ITC  1,082  632 12  1,986 26
Non-GAAP EBITDA  $ 1,650  $ (880)  $ (889)  $ 5,264  $ 563
CONTACT: Hanif Jamal
         Chief Financial Officer
         Tel: 303-845-3377
         Email: investors@dothill.com
         
         Jodi Bochert
         Investor Relations
         Tel: 303-845-3469
         Email: investors@dothill.com
         
         Peter Seltzberg
         Hayden IR
         Tel: 646-415-8972
         Email: peter@haydenir.com
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