conference date: August 8, 2013 @ 8:00 AM Pacific Time
for quarter ending: June 30, 2013 (second quarter, Q2 2013)
Overview: Best EPS in a while. Adjusted guidance for 2013 mostly up.
Basic data (GAAP) :
Revenues were $50.7 million, up 14% sequentially from $44.5 million and up 6% from $47.7million year-earlier.
Net income was $2.1 million, up sequentially from negative $1.0 million and up from negative $5.0 million in the year-earlier quarter.
EPS (earnings per share) were $0.04, up sequentially from negative $0.02 and up from negative $0.09 year-earlier.
Third quarter revenue range $50 to $55 million with non-GAAP EPS between $0.02 and $0.05. Gross margins down due to higher revenue from largest customer.
Full 2013 revenue $200 to $215 million, down from prior $205 to $227 million. Non-GAAP gross margin up to 32% to 33% from prior 30% to 31%. Non-GAAP EPS expected between $0.10 and $0.16, compared to prior guidance of $0.02 to $0.10.
Reaffirmed 2014 outlook presented in April.
As to 2013, "So far, so good." Not yet projecting smooth linear q/q growth in revenue and earnings. Depends on customer sales, with overall acceleration into 2014. Non-GAAP EPS beat guidance for the quarter.
There was a decline in revenue contribution from the largest customer [WPM: HP]. Revenue from vertical markets increased 55% sequentially and more than doubled y/y, driving gross margins to an eight-year high.
Non-GAAP numbers: revenue was $51.2 million. Net income was $3.5 million, up sequentially from $0.04 million. EPS was $0.06, up sequentially from $0.00. EBITDA $4.3 million up sequentially from $0.8 million. Gross margin was 34.7%, up from 27.4% year-earlier. Gross margins vary by customer, and are expected to moderate (down) in the second half.
Server OEMs are only expected to maintain revenue and generate lower margins, but provide a unit volume foundation that provides cost efficiencies. Includes HP, Lenovo, Dell, etc. and sell mostly Hill's entry-level products. Revenue from the segment was down 3% sequentially and 20% y/y, but excluding HP was up 32% sequentially and 87% y/y. HP was the decliner, 7% sequentially and 26% y/y, partly due a product transition in Q2, but still contributed about 50% of Dot Hill total revenues. HP should ramp in Q3 or Q4 based on the new product (MSA 2040) introductions.
Vertical markets up 55% sequentially and 106% y/y. Included a spike from a telecom infrastructure provider. Resiliant against macroeconomy. Telecoms customers seeing massive transition. Smartphones require storage. Same for media and entertainment market.
Cash and equivalents ended at $40.4 million, up slightly sequentially from $40.3 million. Short term debt was $2.1 million. Cash was impacted by $1.1 million of capital expenditures and timing of working capital. Cash from operations was $2.0 million.
Cost of goods sold was $33.7 million, leaving gross profit of $17.0 million. Operating expenses were $14.9 million, consisting of: $8.9 million research and development, $3.2 million sales and marketing, and $2.8 million general and administrative. Leaving operating of income of $2.1 million. Other expense near zero. Income taxes near zero.
Announced a new client, CGG, which serves the gas and oil exploration industry.
Big Data bubble is now ramping to sales, but name not released. Large bubble to far left moved to edge of Phase 2. See slide 6 of Q2 2013 Dot Hill presentation.
Plans to invest more in products for new customer opportunities.
Timing of revenue growth depends on how fast new customers ramp products, and how
HP business drop causes? Believes product transition was responsible, but macro environment for low end storage is also subdued.
Evidence of conviction on Q3 HP ramp? Incremental opportunities from current customers shown on slide 8, but cannot identify the customers. Last HP update was Q2 2010, so that pattern could be a guide. HP says they expect to see a bump up.
2014 color? We have brand new server OEMs that are beginning to ramp, including Acer. We expect HP trend to reverse to positive revenue growth. The Phase 1 potential customers are not even included in the 2014 model yet. Will update 2014 model in late 2013 or early 2014.
8-K differences with slides? Animation varies by viewing platform (works in Microsoft), it is just a general qualitative picture of these. Revenue estimates are just that, not guarantees. Does not expect to announce the big data customer until they give okay, which may not be until they have a number of tested systems in the field with commendations. The CGG bubble was just in Phase 3 on the 5/9/13 slide, is in Phase 4 on 8/8/13 slide.
Has not seen a customer drop out after Phase 4, but ramp rate varies, some times because they want to sell out prior inventory. Phase 2 and beyond are awarded wins, Phase 1 is in negotiations.
Internal policy is to keep $40 million cash on balance sheet, it reassures customers, that is why the small draw on debt.
Dot Hill is not counting on a strong macroeconomy in the second half. Most growth is from specific vertical markets that are expanding despite the economy. If general IT spending picks up in second half, that would be great. Many companies are delaying refreshing their servers.
Started shipping new HP product on June 10th, so little room in quarter for revenue for Dot Hill.
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