Analyst Conference Call Summary

conference date: November 8, 2013 @ 8:00 AM Pacific Time
for quarter ending: September 30, 2013 (third quarter, Q3 2013)

Forward-looking statements

Overview: Continuing revenue growth and positive earnings.

Basic data (GAAP) :

Revenues were $52.6 million, up 4% sequentially from $50.7 million and up 9% from $48.2 million in the year-earlier quarter.

Net income was $1.8 million, down 14% sequentially from $2.1 million, but up from negative $3.0 million year-earlier.

EPS (earnings per share) were $0.03, down 25% sequentially from $0.04, but up from negative $0.05 year earlier.

Guidance:

Fourth quarter revenue range $53 to $58 million. Non-GAAP EPS $0.03 to $0.06.

Narrowed guidance. Full 2013 non-GAAP revenue $202 to $207 million. Non-GAAP gross margin up to 32% to 33%. Non-GAAP EPS expected between $0.14 and $0.17, compared to prior guidance of $0.10 and $0.16.

Conference Highlights:

There were macro-economic headwinds and a challenging market, but revenue and EPS still was above the midpoint of guidance. "There has been no resurgence in IT spending in the second half of 2013."

"We also continued to make good progress moving customer opportunities and design wins through our sales pipeline, which will lay the foundation for a more diversified and faster growing company in 2014."

Largest customer, HP, bounced back with 20% sequential growth (but was down 7% y/y) as newer systems were introduced. "We have given HP a first to market advantage" in several products. HP contributed $30.7 million, 58% of total revenue, compared to 68% year-earlier.

The critical vertical markets segment grew 63% y/y to $16.7 million, but down 19% sequentially due to a spike in Q4. This higher margin revenue was the main driver of gross margins y/y. First oil and gas company customer, CGG, was announced in the quarter.

Server OEM revenue was $34.6 million, up 19% sequentially, but down 5% y/y. Non-HP customer revenue grew 12% sequentially, and 9 y/y.

Teradata unveiled a Dot Hill based product for Big Data, but it did not contribute to revenue in Q3; should see contributions in 2014. Customer ramps are not under the control of Dot Hill.

Growth in 2014 is likely to be lumpy by quarter. New customer pipeline can be seen in the slide show, with quite a few OEMs in Phase 1, product evaluation.

Non-GAAP numbers: revenue was $52.9 million, up 3% sequentially from $51.2 million and up 10% from $48.2 million year-earlier. Net income was $2.8 million, down 20% sequentially from $3.5 million but well up from negative $1.7 million year-earlier. EPS was $0.05, down 17% sequentially from $0.06, but well up from negative $0.03 year-earlier. EBITDA was $, up sequentially from $4.3 million. Gross margin was 32.8%, down sequentially from 34.7%, but up y/y from 26.4%

Cash and equivalents ended at $40.4 million, flat sequentially from $40.4 million. Cash from operations was negative $0.6 million. No Debt.

Cost of goods sold was $35.7 million, leaving gross profit of $16.9 million. Operating expenses were $15.0 million, consisting of: $9.0 million research and development, $3.5 million sales and marketing, and $2.5 million general and administrative. Leaving operating of income of $1.9 million. Other expense near zero. Income taxes $0.1 million.

Invested more in new and customized products, contributing to the slight sequential margin dip.

Q&A:

2014 model still intact? Annual planning takes a three year outlook; planning runs September till the end of the year. We are not ready to provide 2014 guidance; we don't have a date set yet.

2013 revenue guidance? Most storage companies did not make their numbers in Q3, so we are being cautious with guidance. Because new products just were announced, we don't know the extent or timing of their ramps.

HP last had a product refresh in Q1 of 2010, and had the same 20% bump.

CGG and Teradata have set us up for growth; we are very excited to be launched with them.

NetApp Eugenio acquisition, how did that play out? At a macro level it is working out, just taking longer than one would think. We recently got a new inquiry in this category. "We feel there is a very favorable competitive dynamic right now."

Federal closing impact? No one is immune to the government sector. It had a small impact on Q3, but we factored it into Q4 guidance. Some server OEMs could see an impact. We picked the verticals we picked because we thought they were resiliant to macroeconomic pressures, including government cutbacks.

We expect some momentum to continue with HP on the new markets. Their competition has not announced competing products yet.

We think Teradata could be a $20 million to $70 million contributor to revenue in 2014. But that is not guidance, it is a qualitative statement. We are not a single source to them, so we don't know what share we will get. 1700 Extreme Data Appliance was announced, that is our entree.

Flash or hybrid companies in pipeline? We consider those to be competitors. Our dynamic tiering capability includes SSD, and we believe it to be best of breed.

Patents in SSD? We can't say if anyone is infringing on our SSD or other patents, particularly real-time tiering. We are working on more patent applications.

Crossroads lawsuit? That is not about patent infringement. It is a contract dispute. We have honored the spirit and letter of the contract, and will defend it vigorously. We believe we have paid them all the royalties they are owed.

Any Lenovo product that is under $25,000 for end users is a Dot Hill product, more expensive products are by EMC. Eugenio is out at Lenovo.

5000 product ramp color? We are not selling it to our server OEMs at this time, so it is a branded reseller channel sales product. We are pleased with results so far. A couple of vertical OEMs are looking at it too. It is possible the server OEMs might become interested later.

OpenIcon Analyst Conference Summaries Main Page
Dot Hill Investor Relations page
www.dothill.com
Openicon Main Dot Hill page

Search

More Analyst Conference Pages: