Dot Hill: Fiscal 2Q10 Financial Results …

Dot Hill Systems Corp. announced financial results for the second quarter ended June 30, 2010.

Financial and Operational Highlights:

• Announced, executed and completed restructuring designed to expand gross margin, reduce operating expenses and to achieve non-GAAP EBITDA by the end of 2010
• Increased second quarter revenue by over 20 percent on a year-over-year basis and 9 percent sequentially
• Doubled revenues from channel partners compared to the first quarter of 2010
• Signed agreement with Xiotech for its Intelligent Storage Networking product which is based on newly acquired Cloverleaf technology platform
• Launched the 6 gigabit version of the Series 3000 product through OEM and channel partners

"I am pleased with our second quarter’s results and believe we are clearly on the right path," commented Dana Kammersgard, the company’s president and chief executive officer. "We exceeded the high end of the guidance range on the metrics we discussed on our last call and executed on a restructuring plan that positions the company well for enhanced bottom line financial performance, with losses starting to sharply narrow in the second half of this year. I am encouraged by the early results from our new channel sales organization as well as the progress we have made with our January 2010 acquisition of Cloverleaf Communications."

Second Quarter 2010 Financial Details:
The Company recognized net revenue of $65.5 million for the second quarter of 2010, as compared to $54.3 million for the second quarter of 2009 and $60.0 million for the first quarter of 2010. The increase in year-over-year revenue was due to increases in revenue from the Company’s two largest customers and channel partners which was partially offset by declines in legacy revenue from Sun Microsystems. GAAP gross margin for the second quarter of 2010 was 14.8 percent, compared to 14.7 percent for the second quarter of 2009 and 13.5 percent for the first quarter of 2010. Operating expenses for the second quarter of 2010 were $15.5 million, as compared to $12.3 million for the second quarter of 2009 and $14.5 million for the first quarter of 2010.

Net loss for the second quarter of 2010 was $5.8 million, or $0.11 per share, as compared to a net loss of $4.2 million, or $0.09 per share, for the second quarter of 2009, and $6.4 million, or $0.12 per share, for the first quarter of 2010.

Non-GAAP gross margin was 15.8 percent for the second quarter of 2010, as compared to 14.9 percent for the second quarter of 2009 and 14.6 percent for the first quarter of 2010. The improved gross margin was largely attributable to higher revenues against which the Company allocates manufacturing overhead. Total non-GAAP operating expenses for the second quarter of 2010 were $13.6 million, as compared to $10.9 million for the second quarter of 2009 and $13.5 million for the first quarter of 2010. The increase in non-GAAP operating expenses was largely attributable to the Cloverleaf Communications, Inc. acquisition, and investments in other software development and the Company’s channel sales organization.

Non-GAAP net loss for the second quarter of 2010 was $3.3 million, or $0.06 per share, as compared to a second quarter 2009 non-GAAP net loss of $2.7 million, or $0.06 per share, and a first quarter 2010 non-GAAP net loss of $4.8 million, or $0.09 per share. Non-GAAP EBITDA for the second quarter of 2010 was negative $2.8 million, as compared to negative $2.3 million for the second quarter of 2009 and negative $4.3 million for the first quarter of 2010.

Balance Sheet and Cash Flows:
The Company exited the second quarter of 2010 with cash and cash equivalents of $42.6 million, as compared to $51.3 million at the end of the first quarter of 2010. The decrease in cash and cash equivalents was primarily due to investments in service inventory for the Company’s legacy products, working capital timing and operating losses which included restructuring charges. At the end of the second quarter of 2010, the Company elected to pay $3.5 million earlier than due to take advantage of discounts that will benefit the Company in the third quarter of 2010. The Company also borrowed $2.8 million to partially offset this accelerated payment.

Hanif Jamal, the Company’s senior vice president and chief financial officer, commented: "I am pleased with our second quarter results and execution across the Company. During the third quarter of 2010, we expect revenues to be between $60 and $64 million and non-GAAP earnings per share to be between break-even and $0.04 loss per share. With respect to cash, we may elect to take advantage of an early pay discount similar to the one we utilized in the second quarter and to borrow against our credit facility to maintain cash balances above $40 million."