Dot Hill: Fiscal 3Q09 Financial Results

Dot Hill Systems Corp. announced financial results for the third quarter of 2009. The company recognized net revenue in the third quarter of 2009 of $63.6 million, as compared to $76.6 million for the third quarter of 2008 and $54.3 million for the second quarter of 2009.

Gross margin for the third quarter of 2009 was 18.3 percent, compared to 11.7 percent in the third quarter of 2008 and 14.7 percent in the second quarter of 2009. Operating expenses for the third quarter of 2009 were $12.9 million, as compared to $13.0 million in the third quarter of 2008 and $12.3 million in the second quarter of 2009.

Net loss for the third quarter of 2009 was $1.1 million, or $0.02 per fully diluted share, as compared to a net loss of $3.7 million, or $0.08 per fully diluted share, in the third quarter of 2008 and a net loss of $4.2 million, or $0.09 per fully diluted share, in the second quarter of 2009.

The decline in year-over-year revenue was due in part to macro economic factors, and also to declines in revenues from Sun Microsystems, partially offset by increases in revenues from other customers. On a sequential basis, revenues increased substantially, which the company primarily attributed to increases in revenues from its current largest customer offset by a decrease in revenues from Sun.

Non-GAAP gross margin was 18.4 percent for the third quarter of 2009, compared to 11.8 percent in the third quarter of 2008 and 14.9 percent in the second quarter of 2009.

Total non-GAAP operating expenses for the third quarter of 2009 were $11.9 million, as compared to $12.6 million for the third quarter of 2008 and $11.1 million for the second quarter of 2009.

Non-GAAP net loss for the third quarter of 2009 was $0.1 million, or $0.00 per fully diluted share, as compared to a third quarter 2008 net loss of $3.1 million, or $0.07 per fully diluted share, and a second quarter 2009 net loss of $3.0 million, or $0.06 per fully diluted share. Non-GAAP EBITDA for the third quarter of 2009 was a $0.4 million profit compared to a loss of $1.8 million for the third quarter of 2008 and a loss of $2.3 million for the second quarter of 2009.

The company exited the third quarter of 2009 with cash and cash equivalents of $59.2 million, which compares to a June 30, 2009 cash and cash equivalents balance of $57.1 million. The increase in the company’s cash position was primarily attributable to tighter management of working capital. The company also generated $3.3 million in cash flow from operations during the third quarter of 2009.

"Overall, we had a strong quarter against a difficult but improving economic environment," said Hanif Jamal, Dot Hill’s senior vice president and chief financial officer. "Sequentially, revenues grew 17 percent, gross margin increased by 3.5 percentage points, we reduced our operating losses to essentially break-even, or $0.00 per share on a non-GAAP basis, and we were cash flow positive from operations."

The company is targeting fourth quarter 2009 net revenue in the range of $62 to $67 million and a net loss per fully diluted share in the range of $0.01 to $0.07 on a non-GAAP basis. "Gross margin percentage is expected to decline modestly on a non-GAAP basis as we pass through some contractually agreed to price reductions to certain customers," said Jamal. "Operating expenses are expected to increase slightly as we continue to invest in our channel program and software product development, and as we absorb the additional costs associated with the move of our corporate headquarters to Colorado. We expect cash and cash equivalents at the end of December 31, 2009 to be in the range of $55 to $60 million."

"I am pleased with the achievements of our team during the third quarter of 2009," said Dana Kammersgard, Dot Hill’s president and chief executive officer. "It was a quarter of solid execution against a difficult but stabilizing economic backdrop. Operationally, we have systemically improved our gross margins and have managed our working capital and cash extremely well. More importantly however, I am very excited about the fourth quarter 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."