Dot Hill: Fiscal 1Q12 Financial Results

(in US$ million)	1Q11	1Q12
Revenues	49.2	54.7
Growth		11%
Net income (loss)	(1.3)	(1.9)

Dot Hill Systems Corp. announced financial results for the first quarter 2012, or the period ended March 31, 2012.

Financial and Operational Highlights:

• First quarter 2012 non-GAAP revenue of $54.6 million, up from $48.5 million in the first quarter of 2011, and $48.0 million in the fourth quarter of 2011
• Non-GAAP revenues grew 12.5% on a year-over-year basis and 13.7% on a quarter-over-quarter basis
• Tier 2 OEM business grew 123% on a year-over year basis and 37% sequentially, while channel business increased 99.8% on a year-over-year basis and 15% sequentially
• First quarter 2012 non-GAAP gross margin of 29.3%, up from 25.4% in the prior quarter and up from 25.4% in the first quarter of 2011. This is a six-year non-GAAP gross margin high.
• First quarter 2012 non-GAAP EPS of $0.03, compared to $0.00 in the prior quarter and up from $0.02 in the first quarter of 2011
• Total non-GAAP operating expenses for the first quarter of 2012 were $14.2 million, as compared to $11.4 million for the first quarter of 2011 and $12.3 million for the fourth quarter of 2011
• Cash and cash equivalents of $41.4 million as of March 31, 2012 compared to $46.2 million as of December 31, 2011.

First Quarter 2012 GAAP Financial Detail:
The company recognized GAAP net revenue of $54.7 million for the first quarter of 2012, compared to $49.2 million for the first quarter of 2011 and $47.0 million for the fourth quarter of 2011. GAAP net revenues grew 11.3% on a year-over-year basis and 16.4% on a quarter-over-quarter basis.

GAAP gross margin for the first quarter of 2012 was 27.7%, compared to 24.6% for the first quarter of 2011 and 17.6% for the fourth quarter of 2011. GAAP operating expenses for the first quarter of 2012 were $17.1 million, as compared to $13.3 million for the first quarter of 2011 and $15.0 million in the fourth quarter of 2011. GAAP net loss for the first quarter of 2012 was $1.9 million, or $(0.03) per share, as compared to a net loss of $1.3 million, or $(0.02) per share, for the first quarter of 2011, and a net loss of $6.6 million, or $(0.12) per share, for the fourth quarter of 2011.

First Quarter 2012 Non-GAAP Financial Detail:
The company recognized non-GAAP net revenue of $54.6 million for the first quarter of 2012, compared to $48.5 million for the first quarter of 2011 and $48.0 million for the fourth quarter of 2011. Non-GAAP net revenues grew 12.5% on a year-over-year basis and 13.7% on a quarter-over-quarter basis.

Non-GAAP gross margin was 29.3% for the first quarter of 2012, compared to 25.4% for the first quarter of 2011 and 25.4% for the fourth quarter of 2011. The year-over-year improvement in gross margin was attributable to a more favorable customer mix, as well as the leverage of spreading a larger revenue base over fixed supply chain overhead costs. In addition, to the factors outlined for the year-over-year gross margin improvement, quarter-over-quarter improvement in gross margin benefited from lower warranty accruals. Total non-GAAP operating expenses for the first quarter of 2012 were $14.2 million, as compared to $11.4 million for the first quarter of 2011 and $12.3 million for the fourth quarter of 2011. The year-over-year increase in non-GAAP operating expenses was largely attributable to higher R&D investments in new and prospective customer design wins, mid-range products and next generation technology, as well as higher payroll costs.

Non-GAAP net income for the first quarter of 2012 was $1.9 million, or $0.03 per share, as compared to first quarter 2011 non-GAAP net income of $0.9 million, or $0.02 per share, and a fourth quarter 2011 non-GAAP net loss of $0.1 million, or $0.00 per share. Non-GAAP EBITDA for the first quarter of 2012 was positive $2.3 million compared to positive $1.4 million for the first quarter of 2011 and positive $0.1 million for the fourth quarter of 2011.

"I am particularly pleased with the performance of our Tier 2 OEM sales team and with the continued traction in our indirect channel sales business," said Dana Kammersgard, president and CEO, Dot Hill Systems. "With respect to our mid-range product launch scheduled for later this year, we have identified launch partners and, based on their feedback, I expect these products to be very competitive from a performance, ease of use, feature functionality and price points of view."

Balance Sheet:
The company exited the first quarter of 2012 with cash and cash equivalents of $41.4 million compared to $46.3 million at the end of March 2011 and $46.2 million at the end of 2011.

Second Quarter 2012 Outlook:
The company is targeting second quarter 2012 non-GAAP net revenue in the range of $48 million to $52 million and a non-GAAP EPS in the range of a loss of $0.03 per share to a profit of $0.01 per share.

"Our Q1 2012 revenues benefited from a spike in demand from one of our 4G infrastructure customers and we expect a reduction in revenue from this customer in the second quarter. While we are guiding to a slight revenue decline in the second quarter, our projected first half of 2012 revenue of $102.5 million based on the mid-point of the guidance range is in line with the current average of the sell side analysts covering Dot Hill," stated Hanif Jamal, CFO, Dot Hill Systems.