Dot Hill: Fiscal 4Q09 Financial Results

Dot Hill Systems Corp. announced financial results for the fourth quarter and year ended December 31, 2009.

Financial and Operational Highlights:

• Increased 2009 non-GAAP gross margin to 16.3 percent compared to 12.1 percent in 2008
• Lowered non-GAAP operating expenses by nearly 12 percent to $46.8 million in 2009 from $53 million in 2008
• Reduced non-GAAP net loss to 18 cents per share in 2009 compared to 40 cents per share in 2008
• Cash flow from operations of $3.4 million in 2009 with year ending 2009 cash and cash equivalents of $57.6 million

"I am pleased with the achievements our team made during the past year," said Dana Kammersgard, Dot Hill’s president and chief executive officer. "We have reduced our operating losses by nearly $10 million on a non-GAAP basis relative to 2008 despite less revenue, by aggressively reducing product costs and lowering non-GAAP operating expenses by well over 10 percent year-over-year. At the same time, we have executed very well for our large Tier-1 customers and in launching new and very competitive products. We have now completed the first stage of our transformation which began in 2006 and believe that our core storage array business can be profitable. We continue to make the strategic investments designed to develop our sales channels and diversify the Company to include software-centric storage solutions. These investments represent a well-defined opportunity for Dot Hill to achieve sustainable profitability and attractive margins."

Full-Year 2009 Financial Detail:
The Company recognized net revenue of $234.4 million for the full year of 2009, compared to $272.9 million for the year ended 2008. The decline in year-over-year revenue was due to the economy and declines in revenue from Sun Microsystems, partially offset by increases in revenue from other OEM customers.

Gross margin for 2009 was 16.1 percent, compared to 11.1 percent in 2008. Operating expenses for 2009 were $51.7 million compared to $57.6 million in 2008. Net loss for 2009 was $13.6 million, or $0.29 per share, as compared to a net loss of $25.8 million, or $0.56 per share, in 2008.

Non-GAAP gross margin was 16.3 percent for 2009, compared to 12.1 percent for 2008. The increase in non-GAAP gross margin was primarily due to product cost reductions. Total non-GAAP operating expenses for 2009 were $46.8 million, as compared to $53.0 million for 2008. The decline in non-GAAP operating expenses was due to cost reduction initiatives implemented in 2008 and 2009 as part of the Company’s continued and disciplined cost control focus.

Non-GAAP net loss for 2009 was 8.4 million, or $0.18 per share, as compared to a 2008 non-GAAP net loss of $18.2 million, or $0.40 per share. Non-GAAP EBITDA for 2009 was negative $5.5 million compared to negative $12.2 million for 2008.

Fourth Quarter 2009 Financial Detail:
The Company recognized net revenue of $62.6 million for the fourth quarter of 2009, compared to $72.4 million for the fourth quarter of 2008 and $63.6 million for the third quarter of 2009. The decline in year-over-year revenue was due to declines in revenue from Sun Microsystems, partially offset by increases in revenue from other OEM customers. On a sequential basis, revenue declined by $1.0 million which was largely a result of a few non-recurring revenue transactions that occurred in the third quarter of 2009.

Gross margin for the fourth quarter of 2009 was 14.3 percent, compared to 13.9 percent for the fourth quarter of 2008 and 18.3 percent for the third quarter of 2009. Operating expenses for the fourth quarter of 2009 were $14.0 million, as compared to $18.9 million for the fourth quarter of 2008 and $12.9 million in the third quarter of 2009.

Net loss for the fourth quarter of 2009 was $5.0 million, or $0.11 per share, as compared to a net loss of $8.6 million, or $0.19 per share, in the fourth quarter of 2008, and $1.1 million, or $0.02 per share, in the third quarter of 2009.

Non-GAAP gross margin was 14.5 percent for the fourth quarter of 2009, compared to 14.0 percent for the fourth quarter of 2008 and 18.4 percent for the third quarter of 2009. Total non-GAAP operating expenses for the fourth quarter of 2009 were $12.0 million, as compared to $12.5 million for the fourth quarter of 2008 and $11.9 million for the third quarter of 2009.

Non-GAAP net loss for the fourth quarter of 2009 was 3.0 million, or $0.06 per share, as compared to a fourth quarter of 2008 non-GAAP net loss of $2.1 million, or $0.05 per share, and a third quarter 2009 non-GAAP net loss of $0.1 million, or $0.00 per share. Non-GAAP EBITDA for the fourth quarter of 2009 was negative $2.1 million compared to negative $0.7 million for the fourth quarter of 2008 and $0.4 million for the third quarter of 2009.

Balance Sheet and Cash Flows:
The Company exited 2009 with cash and cash equivalents of $57.6 million compared to $56.9 million at the end of 2008. The increase in the Company’s cash was primarily attributable to tighter management of working capital. The Company also generated $3.4 million in cash flows from operations during the year ended December 31, 2009.

"We were pleased with the progress we made despite the challenging macroeconomic conditions in 2009," said Hanif Jamal, Dot Hill’s senior vice president and chief financial officer. "Our company-wide efforts during the year enabled us to lower our break-even point significantly, improve gross margins, and continue to effectively manage operating expenses, working capital and cash."

First Quarter 2010 Outlook:
The Company is targeting first quarter 2010 net revenue in the range of $60 to $65 million and a non-GAAP net loss per share in the range of $0.05 to $0.10.

"Gross margin percentage is expected to improve modestly on a non-GAAP basis as we expect a more favorable customer sales mix in the quarter," said Mr. Jamal. "Operating expenses are expected to increase as a result of the acquisition of Cloverleaf Communications, Inc., in January 2010, and as we continue to invest in our channel program and software development. Consequently, we expect cash and cash equivalents at the end of the first quarter of 2010 to be in the range of $50 to $52 million."