Dot Hill: Fiscal 1Q14 Financial Results

Dot Hill Systems Corp. reported financial results for the first quarter ended March 31, 2014.

Financial Highlights:

• Grew non-GAAP revenue by 9% year-over-year
• Grew Vertical Markets non-GAAP revenue 18% sequentially and 59% year-over-year
• Achieved non-GAAP gross margin of 33.1%, up from 31.7% in the fourth quarter of 2013 and 32.1% in the first quarter of 2013
• Delivered non-GAAP earnings per fully diluted share of $0.02, compared to $0.07 in the fourth quarter 2013 and $0.00 in the first quarter of 2013

“We are confident in our 2014 goal of 45% growth at the midpoint of our guidance range in Vertical Markets,” stated Dana Kammersgard, CEO. “This anticipated growth primarily comes from existing customers with existing products who are still in the early stages of their revenue ramps and from some of these same customers with new products that we expect to launch later this year. Our growth is not dependent on revenue from new prospects.“

First Quarter 2014 GAAP Financial Detail (including discontinued operations)

• Net revenue was $48.2 million for the first quarter of 2014, compared to $44.5 million for the first quarter of 2013 and $58.8 million for the fourth quarter of 2013.
• Gross margin for the first quarter of 2014 was 31.7%, compared to 32.2% for the first quarter of 2013 and 30.2% for the fourth quarter of 2013.
• Operating expenses for the first quarter of 2014 were $15.7 million, compared to $15.0 million for the first quarter of 2013 and $15.6 million in the fourth quarter of 2013.
• Net loss for the first quarter of 2014 was $0.4 million, or ($0.01) per fully diluted share, compared to a net loss of $1.0 million, or ($0.02) per fully diluted share, for the first quarter of 2013, and net income of $2.2 million, or $0.04 per fully diluted share, for the fourth quarter of 2013.

First Quarter 2014 Non-GAAP Financial Detail

• Non-GAAP net revenue was $48.9 million for the first quarter of 2014, compared to $44.9 million for the first quarter of 2013 and $59.7 million for the fourth quarter of 2013.
• Vertical Markets non-GAAP net revenue increased to $22.4 million, compared to $14.1 million in the first quarter of 2013 and $18.9 million in the fourth quarter of 2013.
• Server OEM non-GAAP net revenue decreased to $26.5 million, compared to $30.8 million in the first quarter of 2013 and $40.8 million in the fourth quarter of 2013.
• Non-GAAP gross margin for the first quarter of 2014 was 33.1%, up from 32.1% in the first quarter of 2013 and 31.7% in the fourth quarter of 2013.
• Vertical Markets non-GAAP gross margin was 43.4%, compared to 43.9% in the first quarter of 2013 and 38.7% in the fourth quarter of 2013.
• Server OEM non-GAAP gross margin was 24.4%, compared to 26.7% in the first quarter of 2013 and 28.4% in the fourth quarter of 2013. The decrease in gross margin for the segment is primarily due to allocation of fixed supply chain overhead costs over a smaller revenue base.
• Non-GAAP operating expenses for the first quarter of 2014 were $15.1 million, compared to $14.3 million for the first quarter of 2013 and $14.8 million in the fourth quarter of 2013.
• Non-GAAP contribution margin, which excludes R&D, general and administrative and certain corporate sales and marketing expenses, for the first quarter of 2014 was 26.6%, compared to 25.4% in the first quarter of 2013 and 25.7% in the fourth quarter of 2013.
• Vertical Markets non-GAAP contribution margin for the first quarter of 2014 was 33.6%, compared to 29.4% in the first quarter of 2013 and 26.7% in the fourth quarter of 2013.
• Server OEM non-GAAP contribution margin for the first quarter of 2014 was 22.7%, compared to 25.4% in the first quarter of 2013 and 27.1% in the fourth quarter of 2013.
• Non-GAAP net income for the first quarter of 2014 was $1.0 million, or $0.02 per fully diluted share, compared to $0.0 million or $0.00 per share, for the first quarter of 2013, and $4.2 million, or $0.07 per fully diluted share, for the fourth quarter of 2013.

Balance Sheet and Cash
The company exited the first quarter of 2014 with cash and cash equivalents of $40.3 million with no borrowings. This compares to $40.3 million at the end of the first quarter of 2013, with $2.8 million in borrowings, and $40.4 million at the end of the fourth quarter of 2013, with $2.0 million in borrowings.

Second Quarter and Full Year 2014 Outlook
Non-GAAP net revenue and fully diluted earnings per share for the second quarter of 2014 are expected to be in the range of $49 million to $54 million and $0.01 to $0.04, respectively.

“We had a solid start to 2014, with revenue within guidance and EPS above guidance during the first quarter,” said Hanif Jamal, CFO. “More importantly, we crossed a critical milestone in our transformation that started in 2010 with the launch of our Vertical Markets strategy, with gross and contribution margin dollars from our Vertical Markets segment exceeding those from our core and legacy Server OEM business for the very first time.“

To read the earnings call transcript