Dot Hill's Revenue Increases 180 Percent in First Quarter 2003

4/24/2003 - Dot Hill Systems Corp. (AMEX:HIL) announced financial results for the first quarter ended March 31, 2003. Net revenue increased to $30.5 million for the first quarter of 2003, compared to $10.9 million for the first quarter of 2002, and $16.3 million for the fourth quarter of 2002. This represents a 180 percent increase in revenue year over year, and an 88 percent increase quarter over quarter.

The company reported a net loss attributable to common stockholders of $1.6 million, or $0.06 per share, for the first quarter of 2003, which includes costs associated with the ramp-up of the new SANnet® II Fibre Channel product line. Excluding these ramp-up costs, the company experienced a pro forma net loss attributable to common stockholders of $1.0 million, or $0.04 per share. Net loss attributable to common stockholders for the first quarter of 2002 was $6.2 million, or $0.25 per share, and was $12.4 million, or $0.49 per share, for the fourth quarter of 2002.

“We started 2003 off well by turning in strong financial results and by raising $16.6 million in equity, net of costs,” said Preston Romm, chief financial officer. “The proceeds from this private placement of common stock enabled us to repay the entire loan made to us by Sun Microsystems. We exited the first quarter with $21.6 million in cash, up from $12.1 million at the end of last year, and we are on track to achieve profitability and positive cash flow for the second quarter of 2003, in accordance with our guidance first given three quarters ago.”

Gross margin for the first quarter of 2003 was $5.5 million, or 18.1 percent of net revenue, which includes costs associated with the aforementioned ramp-up of the new SANnet II Fibre Channel product line. Excluding these ramp-up costs, pro forma gross margin would have been 20.0 percent of net revenue. A year ago, gross margin for the first quarter of 2002 was $2.4 million, or 21.7 percent and was negative $2.0 million, or 12.4 percent for the fourth quarter of 2002. “Our margins are expected to improve over the course of 2003 as we phase-in identified cost reduction measures and exit the start-up phases of manufacturing our new SANnet II product family,” explained Romm.

“During the first quarter of 2003, we met or exceeded our financial and corporate goals,” said James Lambert, president and chief executive officer. “I am pleased to report that our model is working. The SANnet II SCSI and Fibre Channel products, launched in October 2002 and February 2003, respectively, are two of our most successful product launches to date. During the first quarter, sales of both products together accounted for more than 80 percent of total revenue, with sales of SANnet I accounting for approximately 10 percent of revenue. Our customers’ quick migration toward SANnet II is important, as it will allow us to manage expenses and exit the manufacturing operations conducted at our headquarters. Solectron, our third party manufacturer, is producing all of our SANnet II systems, and is doing so on schedule and with excellent quality. General availability of SANnet II NAS is scheduled for the second quarter of 2003, and SANnet II Blade is scheduled for the third quarter of 2003.

“Our focus on sales through channel partners also appears to be the right model for Dot Hill. Sales to channel partners accounted for 90 percent of revenue. Shipments to Sun, our key OEM, accounted for $22.8 million of first quarter 2003 revenue, of which $8.2 million was attributable to the new Fibre Channel product. Sun released this product to its customers this year in mid-March, and we are encouraged by the quick reception it has received. Shipments to non-Sun customers accounted for $7.7 million of first quarter 2003 revenue – up 12 percent from the fourth quarter of 2002.

“We are pleased with the first quarter’s results, and remain cautiously optimistic about the future. We are reaffirming our guidance to return to profitability and positive cash flow in the second quarter of 2003, and we are closely monitoring the new Fibre Channel product’s growth ramp and its potential impact on our current guidance. As a reminder, we are targeting second, third and fourth quarter 2003 revenues to be $34 million, $44 million, and $53 million, respectively, with net income per share of $0.01, $0.09 and $0.17, respectively.”

Dot Hill Systems Corp. is a leader in the innovative design and delivery of storage networking solutions to businesses worldwide. Its products include the SANnet II family of storage systems. For more information, visit Dot Hill on the Web at www.dothill.com.

Dot Hill, the Dot Hill logo and SANnet are trademarks of Dot Hill Systems Corp.

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