Revenues increase over first quarter 2009; operating expenses
decline for the fifth consecutive quarter; positive cash flow from
operations of $3.4 million and the company guides revenues to
increase in the third quarter CARLSBAD, Calif., Aug. 10
/PRNewswire-FirstCall/ -- Dot Hill Systems Corp. (NASDAQ:HILL)
today announced financial results for the second quarter of 2009.
The company recognized net revenue in the second quarter of 2009 of
$54.3 million, as compared to $71.0 million for the second quarter
of 2008 and $53.9 million for the first quarter of 2009. Gross
margin for the second quarter of 2009 was 14.7 percent, compared to
10.2 percent in the second quarter of 2008 and 17.2 percent in the
first quarter of 2009. Operating expenses for the second quarter of
2009 were $12.3 million, as compared to $14.7 million in the second
quarter of 2008 and $12.6 million in the first quarter of 2009. Net
loss for the second quarter of 2009 was $4.2 million, or $0.09
cents per fully diluted share, as compared to a net loss of $7.4
million, or $0.16 per fully diluted share in the second quarter of
2008 and a net loss of $3.3 million, or $0.07 per fully diluted
share, in the first quarter of 2009. The decline in year-over-year
revenue was due to the economic downturn along with declines in
revenues from Sun, partially offset by increases in revenues from
Hewlett-Packard. On a sequential basis, revenues increased slightly
which the company attributed primarily to increases in revenues
from Hewlett-Packard offset by a decrease in revenues from Sun.
Non-GAAP gross margin was 14.9 percent for the second quarter of
2009, compared to 10.6 percent in the second quarter of 2008 and
17.4 percent in the first quarter of 2009. The year-over-year
improvement in non-GAAP gross margin percentage was primarily due
to the strong progress the company made in reducing product costs
over the past year, partially offset by product mix shifts as sales
of higher margin Sun and other SANnet II products have declined.
The company also indicated that sequential non-GAAP gross margins
declined for three primary reasons. First, during the first quarter
of 2009, the company had higher than expected sales of high-margin
products to telecommunications and government customers, which was
not replicated in the second quarter. Second, as a result of the
economic downturn, certain of the company's customers reduced their
forecasts for legacy products that are nearing end of life, which
resulted in an accrual on potential excess materials for these
products. Third, the company continued to experience further
decline in higher margin revenues from Sun and for its SANnet II
products, which was for the most part replaced with revenues from
other customers at lower margins. Total non-GAAP operating expenses
for the second quarter of 2009 were $11.1 million, as compared to
$13.7 million for the second quarter of 2008 and $11.7 million for
the first quarter of 2009. The company attributed the sequential
and year over year decreases in operating expenses to its
continuing expense reduction initiatives, including reductions in
headcount and other discretionary expenses implemented since the
third quarter of 2008. Non-GAAP net loss for the second quarter of
2009 was $3.0 million or $0.06 per fully diluted share as compared
to a second quarter 2008 net loss of $6.0 million, or $0.13 per
fully diluted share and a first quarter 2009 net loss of $2.3
million, or $0.05 per fully diluted share. The company exited the
second quarter of 2009 with cash and cash equivalents of $57.1
million and a $0.7 million note payable associated with the
purchase of intellectual property from Ciprico. This compares to
the March 31, 2009 cash and cash equivalents balance of $54.3
million and the Ciprico note payable of $0.8 million. The increase
on the company's cash position was primarily attributable to
tighter management of working capital. The company also generated
$3.4 million in cash flow from operations during the second quarter
of 2009. "Overall, we had a strong quarter against a difficult
economic environment," said Hanif Jamal, Dot Hill's senior vice
president and chief financial officer. "Our product cost reduction
initiatives, operating expense controls and cash management have
been excellent and well executed and resulted in a fifth
consecutive quarter of non-GAAP operating expense reductions." The
company is targeting third quarter 2009 net revenue in the range of
$55 to $62 million and a net loss per fully diluted share in the
range of $0.02 to $0.08 on a non-GAAP basis. "Gross margin
percentage is expected to remain flat to slightly up on a non-GAAP
basis due to product cost reductions and moderate sequential growth
in revenue offset by the dilutive impact associated with product
mix changes and product line transitions changes," said Jamal.
"Operating expenses are expected to increase slightly as we start
to invest in sales and marketing, software and hardware product
development and we begin to transition our corporate headquarters
to Colorado. We expect cash and cash equivalents at the end of
September 30, 2009 to be in the range of $52 to $56 million." "I am
pleased with the achievements of our team during the second quarter
of 2009," said Dana Kammersgard, Dot Hill's president and chief
executive officer. "It was a quarter of solid execution against a
difficult economic backdrop. Operationally, we have cut expenses
and have systemically improved our gross margins, despite a decline
this last quarter because of accruals for excess materials on aging
product lines, and have managed our working capital and cash
extremely well. More importantly however, I am very excited about
the last half of 2009 and into 2010, when we expect the economy to
begin to recover and demand to stabilize and we take advantage of
technology transitions to win new customers. I am pleased to report
that we already have five new design wins this year with others
pending and a revenue pipeline that appears to be increasing." Dot
Hill's second quarter 2009 financial results conference call is
scheduled to take place on August 10, 2009 at 4:30 p.m. ET. Please
join us for a live audio webcast at http://www.dothill.com/ in the
Investor Relations section. If you prefer to join via telephone,
please dial 877-440-5785 (U.S.) or 719-325-4848 (International) at
least five minutes prior to the start of the call. A replay of the
webcast is scheduled to be available on the Dot Hill web site
following the conference call. For a telephone replay, dial
888-203-1112 (U.S.) or 719-457-0820 (International) and enter
passcode 4536372. About Non-GAAP Financial Measures This press
release contains financial results that exclude the effects of
share-based compensation expense, severance costs, restructuring
charges, foreign currency gains or losses, the effects of legal
settlements and the issuance of a warrant to a customer, and are
not in accordance with U.S. generally accepted accounting
principles (GAAP). 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 expected 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
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.
Dot Hill solutions are certified to meet rigorous industry
standards and military specifications, as well as RoHS and WEEE
international environmental standards. Headquartered in Carlsbad,
Calif., 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/.
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 Dot Hill's projected financial results for the
third quarter of 2009 and thereafter, anticipated economic
conditions and continued cost reductions. 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
third quarter of 2009 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; unforeseen technological, intellectual property, personnel or
engineering 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. DOT HILL SYSTEMS CORP. UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS (In Thousands, Except Per Share Amounts) Three Months Ended
Six Months Ended June 30, June 30, -------- -------- 2008 2009 2008
2009 ---- ---- ---- ---- NET REVENUE $71,027 $54,328 $123,853
$108,217 COST OF GOODS SOLD 63,805 46,358 112,465 90,986 ------
------ ------- ------ GROSS PROFIT 7,222 7,970 11,388 17,231 -----
----- ------ ------ OPERATING EXPENSES: Sales and marketing 3,647
2,519 7,919 5,085 Research and development 7,125 6,934 14,549
14,086 General and administrative 3,939 2,473 6,982 5,242
Restructuring charge - 326 - 411 Legal settlement - - (3,836) - ---
--- ------- --- Total operating expenses 14,711 12,252 25,614
24,824 ------ ------ ------ ------ OPERATING LOSS (7,489) (4,282)
(14,226) (7,593) ------- ------- -------- ------- OTHER INCOME:
Interest income, net 358 42 1,066 115 Other income (expense), net -
13 79 (7) --- --- --- --- Total other income, net 358 55 1,145 108
--- -- ----- --- LOSS BEFORE INCOME TAXES (7,131) (4,227) (13,081)
(7,485) INCOME TAX EXPENSE (BENEFIT) 239 (39) 398 (6) --- ---- ---
--- NET LOSS $(7,370) $(4,188) $(13,479) $(7,479) ======= =======
======== ======= NET LOSS PER SHARE: Basic and diluted $(0.16)
$(0.09) $(0.29) $(0.16) ====== ====== ====== ====== WEIGHTED
AVERAGE SHARES USED TO CALCULATE NET LOSS PER SHARE: Basic and
diluted 46,055 46,952 46,005 46,836 ====== ====== ====== ======
COMPREHENSIVE LOSS: Net loss $(7,370) $(4,188) $(13,479) $(7,479)
Foreign currency translation (gain) loss 130 (36) (101) 90 --- ----
----- -- Comprehensive loss $(7,240) $(4,224) $(13,580) $(7,389)
======= ======= ======== ======= DOT HILL SYSTEMS CORP. UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) December 31,
June 30, ------------ -------- 2008 2009 ---- ---- ASSETS Current
Assets: Cash and cash equivalents $56,850 $57,074 Accounts
receivable, net of allowance of $287 and $551 41,035 29,529
Inventories, net 14,127 9,713 Prepaid expenses and other 4,796
4,186 ----- ----- Total current assets 116,808 100,502 Property and
equipment, net 2,410 2,731 Intangible assets, net 4,164 3,597 Other
assets 515 250 --- --- Total assets $123,897 $107,080 ========
======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Accounts payable $31,050 $21,700 Accrued compensation 3,217 3,142
Accrued expenses 5,212 4,016 Deferred revenue 1,121 2,392
Restructuring accrual 681 484 Current portion of long-term note
payable 249 255 Income taxes payable 17 70 -- -- Total current
liabilities 41,547 32,059 Long term note payable - less current
portion 607 478 Other long-term liabilities 5,091 3,450 ----- -----
Total liabilities 47,245 35,987 ------ ------ Commitments and
Contingencies Stockholders' Equity: Preferred stock, $.001 par
value, 10,000 shares authorized, no shares issued and outstanding
at December 31, 2008 and March 31, 2009 - - Common stock, $.001 par
value, 100,000 shares authorized, 46,308 and 48,410 shares issued
and outstanding at December 31, 2008 and June 30, 2009,
respectively 46 48 Additional paid-in capital 300,555 302,383
Accumulated other comprehensive loss (3,474) (3,384) Accumulated
deficit (220,475) (227,954) -------- -------- Total stockholders'
equity 76,652 71,093 ------ ------ Total liabilities and
stockholders' equity $123,897 $107,080 ======== ======== DOT HILL
SYSTEMS CORP. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (In Thousands) Three Months Ended Six Months Ended June 30,
June 30, -------- -------- 2008 2009 2008 2009 ---- ---- ---- ----
Cash Flows From Operating Activities: Net loss $(7,370) $(4,188)
$(13,479) $(7,479) Adjustments to reconcile net loss to net cash
used in operating activities: Depreciation and amortization 1,526
725 2,991 1,437 Loss on disposal of property and equipment 62 - 57
- (Reduction) provision in bad debt reserve 51 136 (120) 264
Share-based compensation expense 898 811 1,563 1,553 Issuance of
warrant to customer - - 2,282 - Changes in operating assets and
liabilities: Accounts receivable (9,818) 3,644 (13,851) 11,216
Inventories 843 3,060 (4,547) 4,410 Prepaid expenses and other
assets 96 (445) (530) 545 Accounts payable 383 686 7,370 (9,268)
Accrued compensation and other expenses (1,327) (1,102) (1,448)
(956) Deferred revenue (77) 232 (228) (68) Income taxes payable 219
(6) 345 53 Restructuring accrual - (51) - (193) Other long-term
liabilities (153) (104) (516) (351) ----- ----- ----- ----- Net
cash (used in) provided by operating activities (14,667) 3,398
(20,111) 1,163 -------- ----- -------- ----- Cash Flows From
Investing Activities: Purchases of property and equipment (597)
(596) (865) (1,078) ----- ----- ----- ------- Net cash used in
investing activities (597) (596) (865) (1,078) ----- ----- -----
------- Cash Flows From Financing Activities: Principal payment of
note payable - (62) - (123) Proceeds from exercise of stock options
and warrants - - 198 - Proceeds from sale of stock to employees - -
465 277 --- --- --- --- Net cash provided by financing activities -
(62) 663 154 --- ---- --- --- Effect of Exchange Rate Changes on
Cash (60) 36 37 (15) ---- --- --- ---- Net (Decrease) Increase in
Cash and Cash Equivalents (15,324) 2,776 (20,276) 224 Cash and Cash
Equivalents, beginning of period 77,406 54,298 82,358 56,850 ------
------ ------ ------ Cash and Cash Equivalents, end of period
$62,082 $57,074 $62,082 $57,074 ======= ======= ======= =======
Supplemental Disclosures of Cash Flow Information: Cash paid for
interest $- $- $- $- === === === === Cash paid for income taxes $21
$12 $56 $32 === === === === Supplemental Disclosures of Non-Cash
Investing and Financing Activities: Construction-in-progress costs
incurred but not paid $133 $180 $275 $281 ==== ==== ==== ==== DOT
HILL SYSTEMS CORP. UNAUDITED RECONCILIATION TABLE OF NON-GAAP
MEASURES (In Thousands, Except Per Share Amounts) Three Months
Ended Six Months Ended June 30, June 30, -------- -------- 2008
2009 2008 2009 ---- ---- ---- ---- Net loss $(7,370) $(4,188)
$(13,479) $(7,479) Effect of currency (gain) loss 250 102 (44) 242
Effect of share-based compensation 898 811 1,563 1,553 Effect of
issuance of warrant to customer - - 2,282 - Effect of legal
settlement - - (3,836) - Effect of restructuring charge - 326 - 411
Effect of severance costs 186 (4) 508 0 --- --- --- --- Net loss as
adjusted $(6,036) $(2,953) $(13,006) $(5,273) ======= =======
======== ======= Net loss per share: Basic and diluted $(0.13)
$(0.06) $(0.28) $(0.11) ====== ====== ====== ====== Weighted
average shares used to calculate net loss per share: Basic and
diluted 46,055 46,952 46,005 46,836 ====== ====== ====== ====== Net
revenue $71,027 $54,328 $123,853 $108,217 Effect of issuance of
warrant to customer - - 2,282 - --- --- ----- --- Net revenue as
adjusted $71,027 $54,328 $126,135 $108,217 ======= ======= ========
======== Gross profit $7,222 $7,970 $11,388 $17,231 Effect of
issuance of warrant to customer - - 2,282 - Effect of share-based
compensation 108 115 204 208 Effect of severance costs 175 3 224 3
--- --- --- --- Gross profit as adjusted $7,505 $8,088 $14,098
$17,442 ====== ====== ======= ======= Operating expenses $14,711
$12,252 $25,614 $24,824 Effect of currency gain (loss) (250) (102)
44 (242) Effect of share-based compensation (790) (696) (1,359)
(1,345) Effect of legal settlement - - 3,836 - Effect of
restructuring charge - (326) - (411) Effect of severance costs (11)
1 (284) 3 ---- --- ----- --- Operating expenses as adjusted $13,660
$11,129 $27,851 $22,829 ======= ======= ======= ======= DOT HILL
SYSTEMS CORP. UNAUDITED RECONCILIATION TABLE OF NON-GAAP MEASURES:
EBITDA (In Thousands) Three Months Ended Six Months Ended June 30,
June 30, -------- -------- 2008 2009 2008 2009 ---- ---- ---- ----
Net loss $(6,036) $(2,953) $(13,006) $(5,273) Interest expense - 14
- 34 Income taxes 239 (39) 398 (6) Depreciation 1,120 441 2,178 869
Amortization 406 284 813 568 --- --- --- --- EBITDA $(4,271)
$(2,253) $(9,617) $(3,808) ======= ======= ======= =======
DATASOURCE: Dot Hill Systems Corp. CONTACT: Hanif Jamal, Chief
Financial Officer of Dot Hill Systems Corp., +1-760-931-5500, Web
Site: http://www.dothill.com/
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