conference date: May 6, 2010 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2010 (first quarter 2010)
Overview: Continues to be unable to get into the black. Management upbeat about potential sales of new 3000 series and new storage management software offering.
Basic data (GAAP) :
Revenues were $60.0 million, down 4% sequentially from $62.6, but up 11% from $53.9 million in the year-earlier quarter.
Net income was negative $6.4 million, a sequential drop from negative $5.0 million, and also worse than negative $3.3 million year-earlier.
EPS was negative $0.12, down sequentially from negative $0.11, and down from negative $0.07 year-earlier.
Q2 revenues and losses about the same as Q1. Specific Q2 guidance will be given at a later conference, in June.
Disappointed that only hit low range of guidance. Q1 tends to be a seasonally weaker quarter.
Cloverleaf Communications was acquired in January 2010. Volume shipments of Series 3000 products began. Admitted to need "company-wide expense reduction." Still hopes to reach EBITDA break-even by year end.
Revenue from largest customer HP, increased y/y, offset by Sun declines and NetApp sequential declines. $1.2 million in late bookings deferred into Q2 also hit revenue.
13.5% GAAP gross margin.
Non-GAAP numbers: gross margin 14.6%, net loss $4.8 million, EPS negative $0.09. EBITDA negative $4.3 million.
Cash ended at $51.3 million, down $6.3 million in the quarter due to acquisition and negative $4.7 cash flow from operations (of which $1.5 million related to Cloverleaf liabilities assumed).
Cost of goods sold was $51.8 million, leaving gross profit of $8.1 million. Operating expenses of $14.5 million included $7.8 million for research and development, $3.4 million for sales and marketing, $3.1 million for general administration, and $0.3 million for restructuring. Resulting in an operating loss of $6.4 million. Other income zero. Income tax $49 thousand.
Series 3000 shipments are better than expected due to advanced features not yet available from competitors. More models within the family will be released later in quarter.
Large OEM opportunities are still in play, but taking longer than expected. They are not included in guidance. OEM discussion for Cloverleaf software also underway, with at least two customers expected to launch in second half of 2010.
Now 118 reseller partners, a dramatic expansion.
Lowering break-even for EBITDA to $60 to $65 million per quarter by some select price increases and cost reductions. Does intend to increase sales force.
May 18 analyst day postponed to second half of year.
NetApp and HP? HP 50%, NetApp 30% of business. In Q4 was 52% and 32%.
NetApp decrease? It was a difficult compare sequentially, should not read anything more into it.
If NetApp went down, why did margins not go up? There was little change in product mix, but we had costs to expedite components. There were still component shortages in Q1, particularly for the new 3000 series products. A variety of components, from the mundane to some hard disk drives, were in short supply.
RAIDCore? OEM partner working on that.
New OEMs? Product evaluations of 3000 series has been good, but nothing nailed down yet. Once contracts are signed, it takes 3 to 6 months to customize and get started.
More on why at low end of range? Timing of major OEM orders. Also new revenue recognition policies require installs to be completed before booking. There was a tail off at the end of March, but April was strong for bookings and shipments.
The $60 to $65 million break even goal is not due to our own revenue projections; it sets us up for profitability at a higher level of revenue. Our strategic investments are beginning to take off, and should contribute to higher margins. Concluding a development phase, we should be able to cut back on costs a bit.
Cloverleaf revenues in the quarter were under $100,000.
Will resellers be accumulating inventory? We don't expect much, they prefer to only order when a customer orders.
Margins should go up on 3000 series, but depends on what options customers buy. Attach rates will be very important.
Analyst Conference Summaries Main Page
Dot Hill Investor Relations page
Openicon Main Dot Hill page