- Fourth Quarter 2014 non-GAAP Vertical Markets revenue grew 104% year-over-year
- Fourth Quarter 2014 non-GAAP EPS nearly doubled year-over-year
- Highest revenue quarter in six years
LONGMONT, Colo., March 5, 2015 (GLOBE NEWSWIRE) -- Dot Hill Systems Corp. (Nasdaq:HILL), a trusted supplier of innovative enterprise class storage systems, reported financial results for the fourth quarter and year ended December 31, 2014.
Fourth Quarter 2014 Financial and Operational Highlights
- Grew fourth quarter 2014 non-GAAP revenues to $68.2 million, which represents 31% sequential growth and 14% growth year-over-year.
- Achieved non-GAAP Vertical Markets revenue of $38.5 million in the fourth quarter 2014, compared to $20.5 million in the third quarter of 2014 and $18.9 million in the fourth quarter of 2013, or 88% sequential growth and almost 104% year-over-year growth.
- Expanded fourth quarter 2014 non-GAAP gross margin to 34.6%, compared to 32.4% in the prior quarter and 31.7% in the fourth quarter of 2013.
- Shipped approximately 850 units of the Company's Ultra48™ AssuredSAN® 4004, the industry's first 2U small form factor high density storage array.
- Introduced and shipped nearly 200 units of the Ultra56™ AssuredSAN® 4004, the industry's only large form factor carrier grade, NEBS Level 3 compliant, high density 4U storage array.
- Secured the Company's 100th U.S. patent.
- Named to Computer Technology Review's Top 25 Must Have Software Applications.
"The fourth quarter was perhaps the first real financial evidence of the company specific growth catalysts that we have been working on for quite some time. We added new customers and introduced breakthrough solutions to existing customers through product launches that we have been intently focused on throughout the year," stated Dana Kammersgard, president and CEO, Dot Hill Systems. "Last quarter, we talked about chasing supply, and we were successful in fulfilling all of our customers' ramp demands."
Fourth Quarter 2014 GAAP Financial Detail (including discontinued operations)
- Net revenue was $69.1 million for the fourth quarter of 2014, compared to $58.8 million for the fourth quarter of 2013 and $52.1 million for the third quarter of 2014.
- Gross margin for the fourth quarter of 2014 was 35.2%, compared to 30.2% for the fourth quarter of 2013 and 32.5% for the third quarter of 2014.
- Operating expenses for the fourth quarter of 2014 were $15.7 million, compared to $15.7 million for the fourth quarter of 2013 and $16.9 million for the third quarter of 2014.
- Net income for the fourth quarter of 2014 was $8.5 million, or $0.13 per fully diluted share, compared to $2.2 million, or $0.04 per fully diluted share, for the fourth quarter of 2013, and $0.0 million, or $0.00 per fully diluted share, for the third quarter of 2014.
Fourth Quarter 2014 Non-GAAP Financial Detail
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Non-GAAP net revenue for the fourth quarter of 2014 was $68.2 million, compared to $59.7 million for the fourth quarter of 2013 and $52.0 million for the third quarter of 2014.
- Vertical Markets non-GAAP net revenue was $38.5 million for the fourth quarter of 2014, compared to $18.9 million in the fourth quarter of 2014 and $20.5 million for the third quarter of 2014.
- Server OEM non-GAAP net revenue was $29.7 million for the fourth quarter of 2014, compared to $40.8 million in the fourth quarter of 2013 and $31.5 million for the third quarter of 2014.
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Non-GAAP gross margin for the fourth quarter of 2014 was 34.6%, compared to 31.7% for the fourth quarter of 2013 and 32.4% for the third quarter of 2014.
- Vertical Markets non-GAAP gross margin for the fourth quarter of 2014 was 40.7%, compared to 38.7% for the fourth quarter of 2013 and 43.3% for the third quarter of 2014.
- Server OEM non-GAAP gross margin for the fourth quarter of 2014 was 26.6%, compared to 28.4% for the fourth quarter of 2013 and 25.4% for the third quarter of 2014.
- Non-GAAP operating expenses for the fourth quarter of 2014 were $15.0 million, as compared to $14.8 million for the fourth quarter of 2013 and $15.1 million for the third quarter of 2014.
- Non-GAAP net income for the fourth quarter of 2014 was $8.5 million, or $0.13 per fully diluted share, as compared to $4.2 million, or $0.07 per share, for the fourth quarter of 2013, and $1.7 million, or $0.03 per fully diluted share, for the third quarter of 2014.
Year ending December 31, 2014 GAAP Financial Detail (including discontinued operations)
- Net revenue was $217.7 million for 2014, compared to $206.6 million for 2013.
- Gross margin for 2014 was 33.3%, compared to 31.9% for 2013.
- Operating expenses for 2014 were $64.3 million, compared to $60.8 million for 2013.
- Net income for 2014 was $8.1 million, or $0.13 per fully diluted share, compared to $5.1 million, or $0.09 per fully diluted share for 2013.
Year ending December 31, 2014 Non-GAAP Financial Detail
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Non-GAAP net revenue for 2014 was $217.5 million, compared to $208.7 million for 2013.
- Vertical Markets non-GAAP revenue was $102.1 million for 2014, compared to $71.8 million for 2013.
- Server OEM non-GAAP revenue for 2014 was $115.4 million, compared to $137.0 million for 2013
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Non-GAAP gross margin for 2014 was 33.6%, compared to 32.8% for 2013.
- Vertical Markets non-GAAP gross margin was 42.6% for 2014, compared to 42.7% for 2013
- Server OEM non-GAAP gross margin was 25.6% in 2014, compared to 27.6% for 2013
- Non-GAAP operating expenses for 2014 were $60.3 million, compared to $57.8 million for 2013.
- Non-GAAP net income for the full year of 2014 was $12.5 million, or $0.20 per fully diluted share, compared to $10.5 million, or $0.18 per share for the full year of 2013.
Balance Sheet and Cash
The company exited 2014 with cash and cash equivalents of $42.5 million, with no borrowings, compared to $40.4 million at the end of 2013, with $2.0 million in borrowings from its working capital line, and $42.4 million at the end of the third quarter of 2014, with no borrowings.
First Quarter and Full Year 2015 Outlook
Non-GAAP net revenue and fully diluted earnings per share for the first quarter of 2015 are expected to be in the range of $55 million to $59million and $0.04 to $0.07, respectively. Non-GAAP net revenue and earnings per fully diluted share for the full year 2015 are projected to be between $230 million and $270 million and $0.25 and $0.35, respectively.
"We believe that we have set ourselves up well for strong revenue growth and our fourth quarter results were the first tangible data point indicative of significant new revenue streams," said Hanif Jamal, chief financial officer, Dot Hill Systems Corp. "To get to this point, we have had several years of hard work and disciplined execution across the entire company. Equally and perhaps more importantly, we also provided financial evidence of the underlying operating leverage of our business that we expect will enable EPS growth at a much faster rate than revenue growth."
Conference Call Information
Dot Hill's fourth quarter and year-end 2014 financial results conference call is scheduled to take place on Thursday, March 5, 2015 at 11:00 am ET. Please join the Company for a live audio webcast at www.dothill.com in the Investor Relations section, or 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 for one week on the Dot Hill web site following the conference call. For a telephone replay, dial 855-859-2056 (U.S.) or 404-537-3406 (International) and enter conference ID# 90240996.
About Non-GAAP Financial Measures
The Company's non-GAAP financial measures exclude the impact of stock-based compensation expense, legal settlements and associated expenses, intangible asset amortization, restructuring and severance charges, charges or credits for contingent consideration adjustments, charges for impairment of goodwill and other long-lived assets, specific and significant warranty claims arising from a supplier's defective products, the impact of our discontinued AssuredUVS software business and the effects of foreign currency gains or losses. The non-GAAP financial measures include the recognition of revenues and directly related costs associated with long-term AssuredVRA software contracts, which were deferred and amortized in the Company's GAAP financial statements. 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 Segment Financial Reporting
The Server OEM segment consists primarily of large Original Equipment Manufacturers who purchase products from the Company to sell along with their Server products. Major Server OEM customers include Hewlett Packard, Lenovo, Stratus, Dell, and AMD. The Vertical Markets segment consists of strategically selected Vertical Markets including Media & Entertainment, Telecommunications Infrastructure, Oil and Gas, Big Data Analytics and Digital Imaging among others. These customers typically embed the Company's products into solutions for their customers. The Company sells to these customers through Vertical Markets OEM partners or Embedded Solutions Integrators, as well as through Channel Partners. Major Vertical Market customers include Teradata, Motorola, Tektronix, Concurrent, Autodesk, and Nokia Siemens. The Corporate segment consists primarily of "platform costs" that support both the Server OEM and Vertical Markets segments.
About Dot Hill
Leveraging its proprietary Assured family of storage solutions, Dot Hill solves many of today's most challenging storage problems – helping IT to improve performance, increase availability, simplify operations, and reduce costs. Dot Hill's solutions combine breakthrough software with the industry's most flexible and extensive hardware platform and automated management to deliver best-in-class solutions. Headquartered in Longmont, Colorado, Dot Hill has offices and/or representatives in China, Germany, India, Japan, Singapore, the United Kingdom, and the United States. For more information, visit 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 future opportunities for additional business and the stage of such opportunities relative to a final binding agreement, prospects for Dot Hill's continued growth, and Dot Hill's projected financial results for the first quarter and full year of 2015. 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 2015 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 risk that projected future opportunities may never fully develop into ongoing business relationships and/or binding contractual agreements; 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 vertical markets' sales may not ramp as expected; unforeseen product quality, technological, intellectual property, personnel or engineering issues and any costs that may result from such issues; and the additional risks set forth in Dot Hill's most recent Form 10-Q and Form10-K filings with the Securities and Exchange Commission. 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.
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| DOT HILL SYSTEMS CORP. | |||||
| UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||
| (In thousands, except per share amounts) | |||||
| Three Months Ended | Twelve Months Ended | ||||
| December 31, 2013 | September 30, 2014 | December 31, 2014 | December 31, 2013 | December 31, 2014 | |
| Net revenue | $ 58,799 | $ 52,121 | $ 69,115 | $ 206,565 | $ 217,665 |
| Cost of goods sold | 41,049 | 35,159 | 44,790 | 140,495 | 145,090 |
| Gross profit | 17,750 | 16,962 | 24,325 | 66,070 | 72,575 |
| Operating expenses: | |||||
| Research and development | 8,739 | 9,516 | 9,313 | 35,332 | 37,645 |
| Sales and marketing | 3,643 | 3,522 | 3,846 | 13,450 | 14,505 |
| General and administrative | 3,242 | 3,836 | 2,537 | 11,658 | 12,122 |
| Total operating expenses | 15,624 | 16,874 | 15,696 | 60,440 | 64,272 |
| Operating income | 2,126 | 88 | 8,629 | 5,630 | 8,303 |
| Other income (expense): | |||||
| Interest expense, net | -- | (4) | (10) | (16) | (36) |
| Other income (expense), net | (22) | 2 | (8) | (23) | 15 |
| Total other expense, net | (22) | (2) | (18) | (39) | (21) |
| Income before income taxes and discontinued operations | 2,104 | 86 | 8,611 | 5,591 | 8,282 |
| Income tax expense (benefit) | (132) | 46 | 106 | 51 | 227 |
| Income from continuing operations | 2,236 | 40 | 8,505 | 5,540 | 8,055 |
| Loss from discontinued operations | (24) | -- | -- | (476) | -- |
| Net income | $ 2,212 | $ 40 | $ 8,505 | $ 5,064 | $ 8,055 |
| Net income (loss) per share - basic: | |||||
| Income from continuing operations - basic | $ 0.04 | $ 0.00 | $ 0.14 | $ 0.09 | $ 0.13 |
| Loss from discontinued operations - basic | $ -- | $ -- | $ -- | $ (0.01) | $ -- |
| Net income per share - basic | $ 0.04 | $ 0.00 | $ 0.14 | $ 0.09 | $ 0.13 |
| Net income (loss) per share - diluted: | |||||
| Income from continuing operations - diluted | $ 0.04 | $ 0.00 | $ 0.13 | $ 0.09 | $ 0.13 |
| Loss from discontinued operations - diluted | $ (0.00) | $ -- | $ -- | $ (0.01) | $ -- |
| Net income per share - diluted | $ 0.04 | $ 0.00 | $ 0.13 | $ 0.09 | $ 0.13 |
| Weighted average shares used to calculate net income per share: | |||||
| Basic | 58,948 | 60,396 | 60,615 | 58,521 | 60,171 |
| Diluted | 60,867 | 63,755 | 64,307 | 59,247 | 63,898 |
| * Per share data may not always add to the total for the period because each figure is independently calculated. | |||||
| DOT HILL SYSTEMS CORP. | ||
| UNAUDITED CONSOLIDATED BALANCE SHEETS | ||
| (In thousands) | ||
| December 31, | December 31, | |
| 2013 | 2014 | |
| Assets | ||
| Current assets: | ||
| Cash and cash equivalents | $ 40,406 | $ 42,492 |
| Accounts receivable, net | 42,907 | 43,328 |
| Inventories | 6,539 | 11,342 |
| Prepaid expenses and other assets | 7,265 | 11,126 |
| Total current assets | 97,117 | 108,288 |
| Property and equipment, net | 7,565 | 8,764 |
| Intangible assets | -- | 2,680 |
| Other assets | 702 | 500 |
| Total assets | $ 105,384 | $ 120,232 |
| Liabilities and Stockholders' Equity | ||
| Current liabilities: | ||
| Accounts payable | $ 33,255 | $ 37,421 |
| Accrued compensation | 4,922 | 4,015 |
| Accrued expenses | 8,935 | 8,039 |
| Deferred revenue | 4,211 | 5,319 |
| Credit facility borrowings | 2,000 | -- |
| Total current liabilities | 53,323 | 54,794 |
| Other long-term liabilities | 4,414 | 2,908 |
| Total liabilities | 57,737 | 57,702 |
| Stockholders' equity: | ||
| Preferred stock | -- | -- |
| Common stock | 59 | 61 |
| Additional paid-in capital | 330,103 | 336,827 |
| Accumulated other comprehensive loss | (3,254) | (3,152) |
| Accumulated deficit | (279,261) | (271,206) |
| Total stockholders' equity | 47,647 | 62,530 |
| Total liabilities and stockholders' equity | $ 105,384 | $ 120,232 |
| DOT HILL SYSTEMS CORP. | |||
| UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||
| (INCLUDES RESULTS FROM BOTH DISCONTINUED AND CONTINUING OPERATIONS) | |||
| (In thousands) | |||
| Three Months Ended | |||
| December 31, 2013 | September 30, 2014 | December 31, 2014 | |
| Cash Flows From Operating Activities: | |||
| Net income | $ 2,212 | $ 40 | 8,505 |
| Adjustments to reconcile net income to net cash provided by operating activities: | |||
| Depreciation and amortization | 810 | 989 | 1,092 |
| Stock-based compensation expense | 773 | 765 | 748 |
| Provision for bad debt expense | -- | 65 | (3) |
| Write-off of property and equipment | 23 | -- | 58 |
| Changes in operating assets and liabilities: | |||
| Accounts receivable | (12,770) | (4,247) | (6,473) |
| Inventories | (106) | 547 | (4,357) |
| Prepaid expenses and other assets | (627) | (2,812) | (3,414) |
| Accounts payable | 6,564 | 5,467 | 6,617 |
| Accrued compensation and other expenses | 972 | 390 | 1,040 |
| Deferred revenue | (2) | 234 | 57 |
| Other long-term liabilities | 1,030 | 441 | (1,788) |
| Net cash provided by (used in) operating activities | (1,121) | 1,879 | 2,082 |
| Cash Flows From Investing Activities: | |||
| Purchases of property and equipment | (717) | (1,596) | (1,128) |
| Purchase of intangible assets | -- | (545) | (1,445) |
| Net cash used in investing activities | (717) | (2,141) | (2,573) |
| Cash Flows From Financing Activities: | |||
| Proceeds from bank borrowings | 2,000 | -- | -- |
| Shares withheld for tax purposes | (1) | (12) | (3) |
| Proceeds from sale of stock to employees | 254 | 516 | 660 |
| Net cash provided by financing activities | 2,253 | 504 | 657 |
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | (366) | (69) | (43) |
| Net Increase in Cash and Cash Equivalents | 49 | 173 | 123 |
| Cash and Cash Equivalents, beginning of period | 40,357 | 42,196 | 42,369 |
| Cash and Cash Equivalents, end of period | $ 40,406 | $ 42,369 | 42,492 |
| Supplemental Disclosures of Non-Cash Investing and | |||
| Financing Activities: | |||
| Capital assets acquired but not paid | $ 369 | $ 1,652 | $ 948 |
| Supplemental Cash Flow Data: | |||
| Cash paid (refunded) for income taxes | $ (3) | $ (15) | $ 254 |
| DOT HILL SYSTEMS CORP. | |||||
| UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES | |||||
| (In thousands, except per share amounts) | |||||
| Three Months Ended | Twelve Months Ended | ||||
| December 31, 2013 | September 30, 2014 | December 31, 2014 | December 31, 2013 | December 31, 2014 | |
| GAAP net revenue from continuing operations | $ 58,799 | $ 52,121 | $ 69,115 | $ 206,565 | $ 217,665 |
| GAAP revenue from discontinued operations | 10 | -- | -- | 50 | -- |
| GAAP net revenue from continuing and discontinued operations | $ 58,809 | $ 52,121 | $ 69,115 | $ 206,615 | $ 217,665 |
| AssuredUVS revenue | (10) | -- | -- | (50) | -- |
| Long-term software contract royalties | 942 | (150) | (892) | 2,179 | (186) |
| Non-GAAP net revenue | $ 59,741 | $ 51,971 | $ 68,223 | $ 208,744 | $ 217,479 |
| GAAP gross profit from continuing operations | $ 17,750 | $ 16,962 | $ 24,325 | $ 66,070 | $ 72,575 |
| GAAP gross margin % from continuing operations | 30.2% | 32.5% | 35.2% | 32.0% | 33.3% |
| GAAP gross profit (loss) from discontinued operations | 10 | -- | -- | (92) | -- |
| GAAP gross profit from continuing and discontinued operations | $ 17,760 | $ 16,962 | $ 24,325 | $ 65,978 | $ 72,575 |
| GAAP gross margin % from continuing and discontinued operations | 30.2% | 32.5% | 35.2% | 31.9% | 33.3% |
| Stock-based compensation | 80 | 98 | 93 | 334 | 350 |
| Severance costs | -- | -- | -- | 40 | 74 |
| Power supply component failures | 75 | (100) | -- | (707) | (100) |
| AssuredUVS revenue | (10) | -- | -- | (50) | -- |
| AssuredUVS expenses | -- | -- | -- | 140 | -- |
| Long-term software contract royalties | 942 | (150) | (892) | 2,179 | (186) |
| Long-term software contract costs | 90 | 50 | 50 | 523 | 340 |
| Non-GAAP gross profit | $ 18,937 | $ 16,860 | $ 23,576 | $ 68,437 | $ 73,053 |
| Non-GAAP gross margin % | 31.7% | 32.4% | 34.6% | 32.8% | 33.6% |
| GAAP sales and marketing expenses from continuing operations | $ 3,643 | $ 3,522 | $ 3,846 | $ 13,450 | $ 14,505 |
| GAAP contribution margin from continuing operations | $ 14,107 | $ 13,440 | $ 20,479 | $ 52,620 | $ 58,070 |
| GAAP contribution margin % from continuing operations | 24.0% | 25.8% | 29.6% | 25.5% | 26.7% |
| Stock-based compensation | (62) | (102) | (80) | (275) | (354) |
| Severance costs | -- | -- | (2) | (9) | (43) |
| Non-GAAP sales and marketing expenses | $ 3,581 | $ 3,420 | $ 3,764 | $ 13,166 | $ 14,108 |
| Non-GAAP contribution margin | $ 15,356 | $ 13,440 | $ 19,812 | $ 55,271 | $ 58,945 |
| Non-GAAP contribution margin % | 25.7% | 25.9% | 29.0% | 26.5% | 27.1% |
| GAAP operating expenses from continuing operations | $ 15,624 | $ 16,874 | $ 15,696 | $ 60,440 | $ 64,272 |
| GAAP operating expenses from discontinued operations | 33 | -- | -- | 383 | -- |
| GAAP operating expenses from continuing and discontinued operations | $ 15,657 | $ 16,874 | $ 15,696 | $ 60,823 | $ 64,272 |
| Currency loss | (152) | (116) | (71) | (517) | (86) |
| Stock-based compensation | (693) | (668) | (655) | (2,356) | (2,796) |
| AssuredUVS expenses | (19) | -- | -- | (402) | -- |
| Long-term software contract deferred costs | 29 | -- | -- | 394 | -- |
| Legal settlement | -- | (1,000) | -- | -- | (1,000) |
| Legal fees related to power supply component failure | -- | -- | -- | (2) | -- |
| Severance costs | (7) | (11) | (19) | (97) | (113) |
| Non-GAAP operating expenses | $ 14,815 | $ 15,079 | $ 14,951 | $ 57,843 | $ 60,277 |
| GAAP operating income from continuing operations | $ 2,126 | $ 88 | $ 8,629 | $ 5,630 | $ 8,303 |
| GAAP operating loss from discontinued operations | (23) | -- | -- | (484) | -- |
| GAAP operating income from continuing and discontinued operations | $ 2,103 | $ 88 | $ 8,629 | $ 5,146 | $ 8,303 |
| Currency loss | 152 | 116 | 71 | 517 | 86 |
| Stock-based compensation | 773 | 766 | 748 | 2,690 | 3,145 |
| Power supply component failures | 75 | (100) | -- | (705) | (100) |
| AssuredUVS expenses | 19 | -- | -- | 552 | -- |
| AssuredUVS revenue | (10) | -- | -- | (50) | -- |
| Long-term software contract royalties | 942 | (150) | (892) | 2,179 | (186) |
| Long-term software contract costs | 90 | 50 | 50 | 523 | 340 |
| Long-term software contract deferred costs | (29) | -- | -- | (394) | -- |
| Legal settlement | -- | 1,000 | -- | -- | 1,000 |
| Severance costs | 7 | 11 | 19 | 137 | 188 |
| Non-GAAP operating income | $ 4,122 | $ 1,781 | $ 8,625 | $ 10,595 | $ 12,776 |
| GAAP net income from continuing operations | $ 2,236 | $ 40 | $ 8,505 | $ 5,540 | $ 8,055 |
| GAAP net loss from discontinued operations | (24) | -- | -- | (476) | -- |
| GAAP net income from continuing and discontinued operations | $ 2,212 | $ 40 | $ 8,505 | $ 5,064 | $ 8,055 |
| Currency loss | 152 | 116 | 71 | 517 | 86 |
| Stock-based compensation | 773 | 766 | 748 | 2,690 | 3,145 |
| Power supply component failures | 75 | (100) | -- | (705) | (100) |
| AssuredUVS expenses | 19 | -- | -- | 542 | -- |
| AssuredUVS revenue | (10) | -- | -- | (50) | -- |
| Other income | -- | -- | -- | -- | (27) |
| Long-term software contract royalties | 942 | (150) | (892) | 2,179 | (186) |
| Long-term software contract costs | 90 | 50 | 50 | 523 | 340 |
| Long-term software contract deferred costs | (29) | -- | -- | (394) | -- |
| Legal settlement | -- | 1,000 | -- | -- | 1,000 |
| Severance costs | 7 | 11 | 19 | 137 | 188 |
| Non-GAAP net income | $ 4,231 | $ 1,733 | $ 8,501 | $ 10,503 | $ 12,501 |
| Non-GAAP net income per share | |||||
| Basic | $ 0.07 | $ 0.03 | $ 0.14 | $ 0.18 | $ 0.21 |
| Diluted | $ 0.07 | $ 0.03 | $ 0.13 | $ 0.18 | $ 0.20 |
| Weighted average shares used to calculate net income per share: | |||||
| Basic | 58,948 | 60,396 | 60,615 | 58,521 | 60,171 |
| Diluted | 60,867 | 63,755 | 64,307 | 59,247 | 63,898 |
| Non-GAAP net income | $ 4,231 | $ 1,733 | $ 8,501 | $ 10,503 | $ 12,501 |
| Interest expense less AssuredUVS | (2) | 4 | 10 | 14 | 36 |
| Income tax expense | (132) | 46 | 106 | 51 | 227 |
| Depreciation less AssuredUVS | 810 | 989 | 1,092 | 3,125 | 3,972 |
| Non-GAAP EBITDA | $ 4,907 | $ 2,772 | $ 9,709 | $ 13,693 | $ 16,736 |
| DOT HILL SYSTEMS CORP. | |||||
| UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES FOR SERVER OEM SEGMENT | |||||
| (In thousands) | |||||
| Three Months Ended | Twelve Months Ended | ||||
| December 31, 2013 | September 30, 2014 | December 31, 2014 | December 31, 2013 | December 31, 2014 | |
| Server OEM GAAP net revenue from continuing operations | $ 39,889 | $ 31,643 | $ 30,620 | $ 134,798 | $ 115,580 |
| Long-term software contract royalties | 942 | (150) | (892) | 2,179 | (186) |
| Server OEM non-GAAP net revenue | $ 40,831 | $ 31,493 | $ 29,728 | $ 136,977 | $ 115,394 |
| Server OEM GAAP gross profit from continuing operations | $ 10,445 | $ 8,120 | $ 8,704 | $ 35,534 | $ 29,211 |
| Server OEM GAAP gross margin % from continuing operations | 26.2% | 25.7% | 28.4% | 26.4% | 25.3% |
| Stock-based compensation | 59 | 67 | 46 | 244 | 214 |
| Severance costs | -- | -- | -- | 26 | 48 |
| Power supply component failures | 75 | (100) | -- | (707) | (100) |
| Long-term software contract royalties | 942 | (150) | (892) | 2,179 | (186) |
| Long-term software contract costs | 90 | 50 | 50 | 523 | 340 |
| Server OEM non-GAAP gross profit | $ 11,611 | $ 7,987 | $ 7,908 | $ 37,799 | $ 29,527 |
| Server OEM non-GAAP gross margin % | 28.4% | 25.4% | 26.6% | 27.6% | 25.6% |
| Server OEM GAAP sales and marketing expenses from continuing operations | $ 569 | $ 516 | $ 581 | $ 2,070 | $ 2,120 |
| Server OEM GAAP contribution margin from continuing operations | $ 9,876 | $ 7,604 | $ 8,123 | $ 33,464 | $ 27,091 |
| Server OEM GAAP contribution margin % from continuing operations | 24.8% | 24.0% | 26.5% | 24.8% | 23.4% |
| Stock-based compensation | (13) | (18) | (14) | (58) | (68) |
| Severance costs | -- | -- | -- | (2) | (9) |
| Server OEM non-GAAP sales and marketing expenses | $ 556 | $ 498 | $ 567 | $ 2,010 | $ 2,043 |
| Server OEM non-GAAP contribution margin | $ 11,055 | $ 7,489 | $ 7,341 | $ 35,789 | $ 27,484 |
| Server OEM non-GAAP contribution margin % | 27.1% | 23.8% | 24.7% | 26.1% | 23.8% |
| Server OEM GAAP operating income from continuing operations | $ 9,876 | $ 7,604 | $ 8,123 | $ 33,464 | $ 27,091 |
| Stock-based compensation | 72 | 85 | 60 | 302 | 282 |
| Severance costs | -- | -- | -- | 28 | 57 |
| Power supply component failures | 75 | (100) | -- | (707) | (100) |
| Long-term software contract royalties | 942 | (150) | (892) | 2,179 | (186) |
| Long-term software contract costs | 90 | 50 | 50 | 523 | 340 |
| Server OEM non-GAAP operating income | $ 11,055 | $ 7,489 | $ 7,341 | $ 35,789 | $ 27,484 |
| DOT HILL SYSTEMS CORP. | |||||
| UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES FOR VERTICAL MARKETS SEGMENT | |||||
| (In thousands) | |||||
| Three Months Ended | Twelve Months Ended | ||||
| December 31, 2013 | September 30, 2014 | December 31, 2014 | December 31, 2013 | December 31, 2014 | |
| Vertical Markets GAAP net revenue from continuing operations | $ 18,910 | $ 20,478 | $ 38,495 | $ 71,767 | $ 102,085 |
| GAAP Revenue from discontinued operations | 10 | -- | -- | 50 | -- |
| Vertical Markets GAAP net revenue from continuing and discontinued operations | $ 18,920 | $ 20,478 | $ 38,495 | $ 71,817 | $ 102,085 |
| AssuredUVS revenue | (10) | -- | -- | (50) | -- |
| Vertical Markets non-GAAP net revenue | $ 18,910 | $ 20,478 | $ 38,495 | $ 71,767 | $ 102,085 |
| Vertical Markets GAAP gross profit from continuing operations | $ 7,305 | $ 8,842 | $ 15,621 | $ 30,536 | $ 43,364 |
| Vertical Markets GAAP gross margin % from continuing operations | 38.6% | 43.2% | 40.6% | 42.5% | 42.5% |
| Vertical Markets GAAP gross profit (loss) from discontinued operations | 10 | -- | -- | (92) | -- |
| Vertical Markets GAAP gross profit from continuing and discontinued operations | $ 7,315 | $ 8,842 | $ 15,621 | $ 30,444 | $ 43,364 |
| Vertical Markets GAAP gross margin % from continuing and discontinued operations | 38.7% | 43.2% | 40.6% | 42.4% | 42.5% |
| Stock-based compensation | 21 | 31 | 47 | 90 | 136 |
| Severance costs | -- | -- | -- | 14 | 26 |
| AssuredUVS revenue | (10) | -- | -- | (50) | -- |
| AssuredUVS expenses | -- | -- | -- | 140 | -- |
| Vertical Markets non-GAAP gross profit | $ 7,326 | $ 8,873 | $ 15,668 | $ 30,638 | $ 43,526 |
| Vertical Markets non-GAAP gross margin % | 38.7% | 43.3% | 40.7% | 42.7% | 42.6% |
| Vertical Markets GAAP sales and marketing expenses from continuing operations | $ 2,302 | $ 2,593 | $ 2,452 | $ 8,755 | $ 9,777 |
| Vertical Markets GAAP contribution margin from continuing operations | $ 5,003 | $ 6,249 | $ 13,169 | $ 21,781 | $ 33,587 |
| Vertical Markets GAAP contribution margin % from continuing operations | 26.5% | 30.5% | 34.2% | 30.3% | 32.9% |
| Stock-based compensation | (28) | (51) | (40) | (125) | (170) |
| Severance costs | -- | -- | (1) | (4) | (20) |
| Vertical Markets non-GAAP sales and marketing expenses | $ 2,274 | $ 2,542 | $ 2,411 | $ 8,626 | $ 9,587 |
| Vertical Markets non-GAAP contribution margin | $ 5,052 | $ 6,331 | $ 13,257 | $ 22,012 | $ 33,939 |
| Vertical Markets non-GAAP contribution margin % | 26.7% | 30.9% | 34.4% | 30.7% | 33.2% |
| Vertical Markets GAAP operating income from continuing operations | $ 5,003 | $ 6,249 | $ 13,169 | $ 21,781 | $ 33,587 |
| Vertical Markets GAAP operating income (loss) from discontinued operations | 10 | -- | -- | (92) | -- |
| Vertical Markets GAAP operating income from continuing and discontinued operations | $ 5,013 | $ 6,249 | $ 13,169 | $ 21,689 | $ 33,587 |
| Stock-based compensation | 49 | 82 | 87 | 215 | 306 |
| Severance costs | -- | -- | 1 | 18 | 46 |
| AssuredUVS revenue | (10) | -- | -- | (50) | -- |
| AssuredUVS expenses | -- | -- | -- | 140 | -- |
| Vertical Markets non-GAAP operating income | $ 5,052 | $ 6,331 | $ 13,257 | $ 22,012 | $ 33,939 |
| DOT HILL SYSTEMS CORP. | |||||
| UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES FOR CORPORATE SEGMENT | |||||
| (In thousands) | |||||
| Three Months Ended | Twelve Months Ended | ||||
| December 31, 2013 | September 30, 2014 | December 31, 2014 | December 31, 2013 | December 31, 2014 | |
| Corporate GAAP sales and marketing expenses from continuing operations | $ 772 | $ 413 | $ 813 | $ 2,625 | $ 2,608 |
| Corporate GAAP contribution margin from continuing operations | $ (772) | $ (413) | $ (813) | $ (2,625) | $ (2,608) |
| Stock-based compensation | (21) | (33) | (26) | (92) | (116) |
| Severance costs | -- | -- | (1) | (3) | (14) |
| Corporate non-GAAP sales and marketing expenses | $ 751 | $ 380 | $ 786 | $ 2,530 | $ 2,478 |
| Corporate non-GAAP contribution margin | $ (751) | $ (380) | $ (786) | $ (2,530) | $ (2,478) |
| Corporate GAAP research and development expenses from continuing operations | $ 8,739 | $ 9,516 | $ 9,313 | $ 35,332 | $ 37,645 |
| Stock-based compensation | (136) | (341) | (356) | (1,053) | (1,304) |
| Long-term software contract deferred costs | 29 | -- | -- | 394 | -- |
| Severance costs | (7) | (11) | (17) | (84) | (69) |
| Corporate non-GAAP research and development expenses | $ 8,625 | $ 9,164 | $ 8,940 | $ 34,589 | $ 36,272 |
| Corporate GAAP general and administrative expenses from continuing operations | $ 3,242 | $ 3,836 | $ 2,537 | $ 11,658 | $ 12,122 |
| Corporate GAAP general and administrative expenses from discontinued operations | 33 | -- | -- | 393 | -- |
| Corporate GAAP general and administrative expenses from continuing and discontinued operations | $ 3,275 | $ 3,836 | $ 2,537 | $ 12,051 | $ 12,122 |
| Currency loss | (152) | (116) | (71) | (517) | (86) |
| Stock-based compensation | (495) | (225) | (219) | (1,028) | (1,137) |
| AssuredUVS expenses | (19) | -- | -- | (412) | -- |
| Legal settlement | -- | (1,000) | -- | -- | (1,000) |
| Legal fees related to power supply component failure | -- | -- | -- | (2) | -- |
| Severance costs | -- | -- | -- | (4) | (2) |
| Corporate non-GAAP general and administrative expenses | $ 2,609 | $ 2,495 | $ 2,247 | $ 10,088 | $ 9,897 |
| Corporate GAAP operating loss from continuing operations | $ (12,753) | $ (13,765) | $ (12,663) | $ (49,615) | $ (52,375) |
| Corporate GAAP operating loss from discontinued operations | (33) | -- | -- | (392) | -- |
| Corporate GAAP operating loss from continuing and discontinued operations | $ (12,786) | $ (13,765) | $ (12,663) | $ (50,007) | $ (52,375) |
| Currency loss | 152 | 116 | 71 | 517 | 86 |
| Stock-based compensation | 652 | 599 | 601 | 2,173 | 2,557 |
| AssuredUVS expenses | 19 | -- | -- | 412 | -- |
| Long-term software contract deferred costs | (29) | -- | -- | (394) | -- |
| Legal fees related to power supply component failure | -- | -- | -- | 2 | -- |
| Legal settlement | -- | 1,000 | -- | -- | 1,000 |
| Severance costs | 7 | 11 | 18 | 91 | 85 |
| Corporate non-GAAP operating loss | $ (11,985) | $ (12,039) | $ (11,973) | $ (47,206) | $ (48,647) |
| DOT HILL SYSTEMS CORP. | |||||
| UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES | |||||
| (In thousands, except per share amounts) | |||||
| Three Months Ended | Twelve Months Ended | ||||
| December 31, 2013 | September 30, 2014 | December 31, 2014 | December 31, 2013 | December 31, 2014 | |
| GAAP income per share from continuing operations | $ 0.04 | $ 0.00 | $ 0.14 | $ 0.09 | $ 0.13 |
| GAAP loss per share from discontinued operations | -- | -- | -- | (0.01) | -- |
| GAAP income per share from continuing and discontinued operations* | $ 0.04 | $ 0.00 | $ 0.14 | $ 0.09 | $ 0.13 |
| Currency loss | -- | 0.00 | 0.00 | 0.01 | 0.00 |
| Stock-based compensation | 0.01 | 0.01 | 0.01 | 0.05 | 0.05 |
| Power supply component failures | -- | (0.00) | 0.00 | (0.01) | 0.00 |
| AssuredUVS expenses | -- | -- | -- | 0.01 | -- |
| Long-term software contract royalties | 0.02 | (0.00) | (0.01) | 0.04 | (0.00) |
| Long-term software contract costs | -- | 0.00 | 0.00 | 0.01 | 0.01 |
| Long-term software contract deferred costs | -- | -- | -- | (0.01) | -- |
| Legal settlement | -- | 0.02 | 0.00 | -- | 0.02 |
| Other adjustments | -- | -- | (0.01) | (0.01) | (0.01) |
| Non-GAAP income per share* | $ 0.07 | $ 0.03 | $ 0.13 | $ 0.18 | $ 0.20 |
| Weighted average shares used to calculate income per share: | |||||
| Basic | 58,948 | 60,396 | 60,615 | 58,521 | 60,171 |
| Diluted | 60,867 | 63,755 | 64,307 | 59,247 | 63,898 |
| * Per share data may not always add to the total for the period because each figure is independently calculated. | |||||