Dot Hill Reports Revenues Growth of Over 332%

7/24/2003 - Dot Hill Systems Corp. (AMEX:HIL) announced financial results for the second quarter ended June 30, 2003. Net revenue increased to $48.4 million for the second quarter of 2003, compared to $11.2 million for the second quarter of 2002, and $30.5 million for the first quarter of 2003. This represents a 332 percent increase year over year, and a 59 percent increase quarter over quarter.

The company reported net income attributable to common stockholders of $2.5 million, or $0.07 per diluted share, for the second quarter of 2003. Net loss attributable to common stockholders for the second quarter of 2002 was $8.9 million, or $0.36 per share, and net loss attributable to common stockholders was $1.6 million, or $0.06 per share, for the first quarter of 2003. Gross margin for the second quarter of 2003 was $10.0 million, or 20.7 percent of net revenue. A year ago, gross margin for the second quarter of 2002 was $0.3 million, or 2.4 percent of net revenue and was $5.5 million, or 18.1 percent of net revenue for the first quarter of 2003.

“Dot Hill turned in strong results during the second quarter. We have been predicting a return to profitability in the second quarter of 2003 for about a year now, and we not only met, but also exceeded that expectation,” said Preston Romm, chief financial officer. “In fact, our second quarter profit was large enough to create a year to date net income of $1.1 million, representing a fully diluted net income per share, attributable to common stockholders, of $0.03. Our balance sheet remained strong, with $30.7 million of cash, representing positive cash flow of $9.1 million for this quarter. Further during the quarter, the owners of the preferred stock we issued in December 2002 converted all of their securities into common stock and Dot Hill no longer has any preferred stock outstanding. We also are very pleased to have gained membership on the Russell 2000® index and to announce in a separate press release this morning our listing on the NASDAQ Stock Market’s National Market System effective as of Monday, July 28, 2003.”

“As we predicted, our customers’ rapid adoption of SANnet® II systems, as well as our move to a new business model, has allowed us to decrease expenses, inventory and headcount while improving our working capital position,” continued Romm. “We have migrated all but one customer to the SANnet II product line, which in turn has enabled us to transition nearly all manufacturing to Solectron, thus reducing internal manufacturing expenses. Selling, general and administrative expenses were relatively flat compared to the previous quarter, despite our significant increase in revenue. In addition, our annualized revenue per employee increased to $1.0 million compared to $184,000 for the same quarter last year.”

“We are changing our full year 2003 guidance based on second quarter results that exceeded guidance. Our revised 2003 guidance is for revenue of $180 million and fully diluted net income per share of $0.25 as compared to previous guidance of $171.5 million in revenue and fully diluted net income per share of $0.21. We are still assessing the impact that last quarter’s results and the continued strong acceptance rate of the Fibre Channel product will have on third quarter revenue.”

“During the second quarter of 2003, we again met or exceeded every target we set for the quarter,” said James Lambert, president and chief executive officer. “Our SANnet II Fibre Channel product, which was released in March 2003, accounted for more than 59 percent of our total second quarter revenue. Sales of SANnet II SCSI accounted for 30.1 percent of total revenue, and sales of SANnet I accounted for 6.1 percent. The total terabytes shipped across all product lines increased to 3,370 terabytes as compared to 1,836 terabytes last quarter.”

“Shipments to our major OEM customer accounted for $41.4 million of second quarter 2003 revenue,” continued Lambert. “Shipments to other customers accounted for $7.3 million of second quarter 2003 revenue. General availability of our SANnet II NAS product is scheduled for the third quarter of 2003, and SANnet II Blade for the fourth quarter of 2003. We are pleased with the reception our products have received at many top-tier customers and prospects, and we look forward to furthering these new relationships.”

“During the second quarter, we announced partnerships with companies like General Dynamics, Panasonic Solution Technologies and Wausau Financial Systems, each of which will deliver our SANnet solutions to its end-user customers. These partnerships and others like them demonstrate our commitment to the channel and to increasing our OEM and indirect sales revenue going forward. Virtually all end users now receive Dot Hill product through OEMs, systems integrators, service providers and resellers.

“Additionally, we recently signed a two year agreement with a major storage vendor under which we will license our SANpath® software application. This new customer plans to sell a customized version of SANpath with certain models of its storage systems. We are very encouraged by this agreement, as it validates the strength and quality of our software offerings. Additional details of this relationship will be forthcoming.”

“Lastly, we have delivered on the operating goals that we set forth last year: we have moved from a direct selling model to an indirect selling model; we have moved all significant manufacturing operations to Solectron; we have, for the most part, closed manufacturing in Carlsbad as planned; we have realigned headcount to plan; and we have invested additional resources in research and development. In relation to this final goal, we have hired an additional 19 engineers, which has resulted in an almost 25 percent increase in that department’s headcount. These resources will be focusing on development of new technologies and adding features to the SANnet II product line.”

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

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

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