Exhibit 99.1
FOR IMMEDIATE RELEASE
Contact:
Hanif Jamal
Chief Financial Officer
Tel: 760-931-5500
email:investors@dothill.com
Dot Hill Reports Full Year and Fourth Quarter 2009 Results
Significant full year non-GAAP net loss improvement and positive cash flow from operations, and fourth quarter revenue,
non-GAAP loss per share and cash all within guidance.
LONGMONT, Colo. —March 4, 2010 — Dot Hill Systems Corp. (NASDAQ:HILL) today 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.”
Conference Call Information:
Dot Hill’s fourth quarter and full year 2009 financial results conference call is scheduled to take place on March 4, 2010 at 4:30 p.m. ET. Please join us for a live audio webcast atwww.dothill.com in the Investor Relations section. If you prefer to join via telephone, please dial 877-303-3196 (U.S.) or 408-427-3864 (International) at least five minutes prior to the start of the call. A replay of the webcast is scheduled to be available on the Dot Hill web site following the conference call. For a telephone replay, dial 800-642-1687 (U.S.) or 706-645-9291 (International) and enter passcode 57173004.
About Non-GAAP Financial Measures
This press release contains financial results that exclude the effects of share-based compensation expense, severance costs, restructuring costs, long lived asset impairment charges, transaction expenses associated with our acquisition of Cloverleaf Communications Inc., a contingent consideration adjustment, foreign currency gains or losses, the effects of legal settlements and the issuance of a warrant to a customer, and are not in accordance with U.S. generally accepted accounting principles (GAAP). The Company believes that these non-GAAP financial measures provide meaningful supplemental information to both management and investors that is indicative of the Company’s core operating results and facilitates comparison of operating results across reporting periods. The Company used these non-GAAP measures when evaluating its financial results as well as for internal resource management, planning and forecasting purposes. These non-GAAP measures should not be viewed in isolation from or as a substitute for the Company’s financial results in accordance with GAAP. A reconciliation of GAAP to non-GAAP measures is attached to this press release.
About Dot Hill
Delivering innovative technology and global support, Dot Hill empowers the OEM community to bring unique storage solutions to market, quickly, easily and cost-effectively. Offering high performance and industry-leading uptime, Dot Hill’s RAID technology is the foundation for best-in-class storage solutions offering enterprise-class security, availability and data protection. The Company’s products are in use today by the world’s leading service and equipment providers, common carriers and advanced technology and telecommunications companies, as well as government agencies. Dot Hill solutions are certified to meet rigorous industry standards and military specifications, as well as RoHS and WEEE international environmental standards. Headquartered in Longmont, Colorado, Dot Hill has offices and/or representatives in China, Germany, Japan, United Kingdom, Singapore, Israel and the United States. For more information, visit us athttp://www.dothill.com.
Statements contained in this press release regarding matters that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Such statements include statements regarding Dot Hill’s projected financial results for the first quarter of and full year of 2010 and thereafter, Dot Hill’s ability to achieve profitability and Dot Hill’s ability to take advantage of technology transitions to win new customers. The risks that contribute to the uncertain nature of the forward-looking statements include, among other things: the risk that actual financial results for the first quarter and full year of 2010 may be different from the financial guidance provided in this press release; the risks associated with macroeconomic factors that are outside of Dot Hill’s control; the fact that no Dot Hill customer agreements provide for mandatory minimum purchase requirements; the risk that one or more of Dot Hill’s OEM or other customers may cancel or reduce orders, not order as forecasted or terminate their agreements with Dot Hill; the risk that Dot Hill’s new products may not prove to be popular; the risk that one or more of Dot Hill’s suppliers or subcontractors may fail to perform or may terminate their agreements with Dot Hill; the risk that Dot Hill may have difficulties integrating the business acquired from Cloverleaf Communications, Inc.; unforeseen technological, intellectual property, personnel or engineering issues; and the additional risks set forth in the form 10-Q most recently filed with the Securities and Exchange Commission by Dot Hill. All forward-looking statements contained in this press release speak only as of the date on which they were made. Dot Hill undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they were made.
DOT HILL SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months September 30, | Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | ||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (audited) | (unaudited) | ||||||||||||||||
NET REVENUE | $ | 63,600 | $ | 72,385 | $ | 62,566 | $ | 272,879 | $ | 234,383 | ||||||||||
COST OF GOODS SOLD | 51,969 | 62,326 | 53,600 | 242,491 | 196,556 | |||||||||||||||
GROSS PROFIT | 11,631 | 10,059 | 8,966 | 30,388 | 37,827 | |||||||||||||||
OPERATING EXPENSES: | ||||||||||||||||||||
Sales and marketing | 2,772 | 2,969 | 3,114 | 13,878 | 10,970 | |||||||||||||||
Research and development | 7,241 | 7,220 | 6,793 | 28,709 | 28,120 | |||||||||||||||
General and administrative | 2,320 | 2,488 | 2,577 | 12,779 | 10,139 | |||||||||||||||
Restructuring charge | 530 | 813 | 1,489 | 813 | 2,430 | |||||||||||||||
Legal settlement | — | — | — | (4,036 | ) | — | ||||||||||||||
Long-lived asset impairment charge | — | 5,432 | — | 5,432 | — | |||||||||||||||
Total operating expenses | 12,863 | 18,922 | 13,973 | 57,575 | 51,659 | |||||||||||||||
OPERATING LOSS | (1,232 | ) | (8,863 | ) | (5,007 | ) | (27,187 | ) | (13,832 | ) | ||||||||||
OTHER INCOME: | ||||||||||||||||||||
Interest income, net | 17 | 164 | 30 | 1,538 | 161 | |||||||||||||||
Other income (expense), net | (10 | ) | 13 | 23 | 74 | 6 | ||||||||||||||
Total other income, net | 7 | 177 | 53 | 1,612 | 167 | |||||||||||||||
LOSS BEFORE INCOME TAXES | (1,225 | ) | (8,686 | ) | (4,954 | ) | (25,575 | ) | (13,665 | ) | ||||||||||
INCOME TAX EXPENSE (BENEFIT) | (88 | ) | (92 | ) | 54 | 190 | (40 | ) | ||||||||||||
NET LOSS | $ | (1,137 | ) | $ | (8,594 | ) | $ | (5,008 | ) | $ | (25,765 | ) | $ | (13,625 | ) | |||||
NET LOSS PER SHARE: | ||||||||||||||||||||
Basic and diluted | $ | (0.02 | ) | $ | (0.19 | ) | $ | (0.11 | ) | $ | (0.56 | ) | $ | (0.29 | ) | |||||
WEIGHTED AVERAGE SHARES USED TO CALCULATE NET LOSS PER SHARE: | ||||||||||||||||||||
Basic and diluted | 47,258 | 46,308 | 47,437 | 46,136 | 47,094 | |||||||||||||||
DOT HILL SYSTEMS CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value data)
| December 31, 2008 | December 31, 2009 | |||||||
| (audited) | (unaudited) | |||||||
| ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 56,850 | $ | 57,574 | ||||
Accounts receivable, net | 41,035 | 34,197 | ||||||
Inventories | 14,127 | 4,333 | ||||||
Prepaid expenses and other assets | 4,796 | 5,314 | ||||||
Total current assets | 116,808 | 101,418 | ||||||
Property and equipment, net | 2,410 | 3,616 | ||||||
Intangible assets, net | 4,164 | 3,029 | ||||||
Other assets | 515 | 217 | ||||||
Total assets | $ | 123,897 | $ | 108,280 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 31,050 | $ | 28,411 | ||||
Accrued compensation | 3,217 | 3,602 | ||||||
Accrued expenses | 5,229 | 4,220 | ||||||
Deferred revenue | 1,121 | 1,217 | ||||||
Restructuring accrual | 681 | 1,697 | ||||||
Current portion of long-term note payable | 249 | 261 | ||||||
Total current liabilities | 41,547 | 39,408 | ||||||
Long term note payable | 607 | 346 | ||||||
Other long-term liabilities | 5,091 | 2,175 | ||||||
Total liabilities | 47,245 | 41,929 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ Equity: | ||||||||
Preferred stock, $.001 par value, 10,000 shares authorized, no shares issued and outstanding at December 31, 2008 and December 31, 2009 | — | — | ||||||
Common stock, $.001 par value, 100,000 shares authorized, 46,308 and 48,952 shares issued and outstanding at December 31, 2008 and December 31, 2009, respectively | 46 | 49 | ||||||
Additional paid-in capital | 300,555 | 303,841 | ||||||
Accumulated other comprehensive loss | (3,474 | ) | (3,439 | ) | ||||
Accumulated deficit | (220,475 | ) | (234,100 | ) | ||||
Total stockholders’ equity | 76,652 | 66,351 | ||||||
Total liabilities and stockholders’ equity | $ | 123,897 | $ | 108,280 | ||||
DOT HILL SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Twelve Months Ended December 31, | ||||||||
| 2008 | 2009 | |||||||
| (audited) | (unaudited) | |||||||
Cash Flows From Operating Activities: | ||||||||
Net loss | $ | (25,765 | ) | $ | (13,625 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 5,833 | 2,871 | ||||||
Long-lived asset impairment charge | 5,432 | — | ||||||
Loss on disposal of property and equipment | 11 | — | ||||||
Adjustment to contingent consideration | — | (649 | ) | |||||
(Reduction) provision in bad debt reserve | 25 | (63 | ) | |||||
Share-based compensation expense | 2,884 | 2,822 | ||||||
Issuance of warrant to customer | 2,282 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (8,484 | ) | 6,888 | |||||
Inventories | (5,077 | ) | 9,792 | |||||
Prepaid expenses and other assets | (1,021 | ) | (524 | ) | ||||
Accounts payable | 2,332 | (2,564 | ) | |||||
Accrued compensation and other expenses | (1,391 | ) | (453 | ) | ||||
Deferred revenue | (311 | ) | (1,579 | ) | ||||
Restructuring accrual | 672 | 1,016 | ||||||
Other long-term liabilities | 190 | (499 | ) | |||||
Net cash provided by (used in) operating activities | (22,388 | ) | 3,433 | |||||
Cash Flows From Investing Activities: | ||||||||
Purchases of property and equipment | (1,891 | ) | (2,939 | ) | ||||
Purchases of intangible assets | (2,545 | ) | — | |||||
Net cash used in investing activities | (4,436 | ) | (2,939 | ) | ||||
Cash Flows From Financing Activities: | ||||||||
Principal payment of note payable | — | (249 | ) | |||||
Proceeds from exercise of stock options and warrants | 284 | — | ||||||
Proceeds from sale of stock to employees | 912 | 467 | ||||||
Net cash provided by financing activities | 1,196 | 218 | ||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | 120 | 12 | ||||||
Net (Decrease) Increase in Cash and Cash Equivalents | (25,508 | ) | 724 | |||||
Cash and Cash Equivalents, beginning of period | 82,358 | 56,850 | ||||||
Cash and Cash Equivalents, end of period | $ | 56,850 | $ | 57,574 | ||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Cash paid for income taxes | $ | 67 | $ | 78 | ||||
Supplemental Disclosures of Non-Cash Investing and Financing Activities: | ||||||||
Capital assets acquired but not paid | $ | 168 | $ | 170 | ||||
Promissory note for intangible assets purchase | $ | 918 | $ | — | ||||
Contingent payment for intangible assets purchase | $ | 1,070 | $ | — | ||||
DOT HILL SYSTEMS CORP.
UNAUDITED RECONCILIATION TABLE OF NON-GAAP MEASURES
(In thousands, except per share amounts)
| Three Months Ended September 30, | Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | ||||||||||||||||
Net revenue, as reported | $ | 63,600 | $ | 72,385 | $ | 62,566 | $ | 272,879 | $ | 234,383 | ||||||||||
Effect of issuance of warrant to customer | — | — | — | 2,282 | — | |||||||||||||||
Non-GAAP net revenue | $ | 63,600 | $ | 72,385 | $ | 62,566 | $ | 275,161 | $ | 234,383 | ||||||||||
Gross profit, as reported | $ | 11,631 | $ | 10,059 | $ | 8,966 | $ | 30,388 | $ | 37,827 | ||||||||||
Effect of issuance of warrant to customer | — | — | — | 2,282 | — | |||||||||||||||
Effect of share-based compensation | 75 | 71 | 90 | 377 | 382 | |||||||||||||||
Effect of severance costs | — | — | — | 246 | — | |||||||||||||||
Non-GAAP gross profit | $ | 11,706 | $ | 10,130 | $ | 9,056 | $ | 33,293 | $ | 38,209 | ||||||||||
Operating expenses, as reported | $ | 12,863 | $ | 18,922 | $ | 13,973 | $ | 57,575 | $ | 51,659 | ||||||||||
Effect of currency gain (loss) | 134 | 401 | (40 | ) | 586 | (148 | ) | |||||||||||||
Effect of share-based compensation | (522 | ) | (589 | ) | (581 | ) | (2,507 | ) | (2,440 | ) | ||||||||||
Effect of legal settlement | — | — | — | 3,836 | — | |||||||||||||||
Effect of long-lived asset impairment charge | — | (5,432 | ) | — | (5,432 | ) | — | |||||||||||||
Effect of restructuring charge | (530 | ) | (813 | ) | (1,489 | ) | (813 | ) | (2,430 | ) | ||||||||||
Effect of contingent consideration adjustment | — | — | 649 | — | 649 | |||||||||||||||
Effect of Cloverleaf acquisition costs | — | — | (469 | ) | — | (469 | ) | |||||||||||||
Effect of severance costs | — | — | — | (287 | ) | — | ||||||||||||||
Non-GAAP operating expense | $ | 11,945 | $ | 12,489 | $ | 12,043 | $ | 52,958 | $ | 46,821 | ||||||||||
Net loss, as reported | $ | (1,137 | ) | $ | (8,594 | ) | $ | (5,008 | ) | $ | (25,765 | ) | $ | (13,625 | ) | |||||
Effect of currency (gain) loss | (134 | ) | (401 | ) | 40 | (586 | ) | 148 | ||||||||||||
Effect of share-based compensation | 597 | 660 | 671 | 2,884 | 2,822 | |||||||||||||||
Effect of issuance of warrant to customer | — | — | — | 2,282 | — | |||||||||||||||
Effect of legal settlement | — | — | — | (3,836 | ) | — | ||||||||||||||
Effect of long-lived asset impairment charge | — | 5,432 | — | 5,432 | — | |||||||||||||||
Effect of restructuring charge | 530 | 813 | 1,489 | 813 | 2,430 | |||||||||||||||
Effect of contingent consideration adjustment | — | — | (649 | ) | — | (649 | ) | |||||||||||||
Effect of Cloverleaf acquisition costs | — | — | 469 | — | 469 | |||||||||||||||
Effect of severance costs | — | — | — | 533 | — | |||||||||||||||
Non-GAAP net loss | $ | (144 | ) | $ | (2,090 | ) | $ | (2,988 | ) | $ | (18,243 | ) | $ | (8,405 | ) | |||||
Non-GAAP net loss per share: | ||||||||||||||||||||
Basic and diluted | $ | (0.00 | ) | $ | (0.05 | ) | $ | (0.06 | ) | $ | (0.40 | ) | $ | (0.18 | ) | |||||
Weighted average shares used to calculate net loss per share: | ||||||||||||||||||||
Basic and diluted | 47,258 | 46,308 | 47,437 | 46,136 | 47,094 | |||||||||||||||
DOT HILL SYSTEMS CORP.
UNAUDITED RECONCILIATION TABLE OF NON-GAAP MEASURES: EBITDA
(In thousands)
| Three Months Ended September 30, | Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | ||||||||||||||||
Non-GAAP net loss | $ | (144 | ) | $ | (2,091 | ) | $ | (2,988 | ) | $ | (18,243 | ) | $ | (8,405 | ) | |||||
Interest expense | 11 | 26 | 12 | 57 | 57 | |||||||||||||||
Income tax expense (benefit) | (88 | ) | (91 | ) | 54 | 191 | (40 | ) | ||||||||||||
Depreciation | 358 | 1,032 | 508 | 4,274 | 1,736 | |||||||||||||||
Amortization | 284 | 416 | 284 | 1,559 | 1,135 | |||||||||||||||
Non-GAAP EBITDA | $ | 421 | $ | (708 | ) | $ | (2,130 | ) | $ | (12,162 | ) | $ | (5,517 | ) | ||||||