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Dot Hill Reports Second Quarter 2014 Results
[August 07, 2014]

Dot Hill Reports Second Quarter 2014 Results


(GlobeNewswire Via Acquire Media NewsEdge) Reiterates medium-term annual guidance over the planning horizon: 14% to 18% non-GAAP total revenue growth, 40% to 50% Vertical Markets revenue increase and 8% to 12% operating margin target LONGMONT, Colo., Aug. 7, 2014 (GLOBE NEWSWIRE) -- Dot Hill Systems Corp. (Nasdaq:HILL), a trusted supplier of innovative enterprise class storage systems, reported financial results for the second quarter ended June 30, 2014.



Financial Highlights: Grew trailing 12 month as of June 30, 2014 relative to trailing 12 month as of June 30, 2013 non-GAAP revenue by 10%, with Vertical Markets growing 37% over the same period Achieved non-GAAP gross margin of 33.9%, compared to 33.1% in the first quarter of 2014 and 34.7% in the second quarter of 2013 Delivered non-GAAP earnings per fully diluted share of $0.02, compared to $0.02 in the first quarter 2014 and $0.06 in the second quarter of 2013 "For the first half of 2014, results were within our expectations," stated Dana Kammersgard, president and CEO, Dot Hill Systems Corp. "As previously noted, we expect that 2014 will be more back-end loaded than previous years. We remain very confident in the ramp of this revenue and the sustainability of this growth into 2015 and beyond, as we project at least three and potentially four major customer product launches scheduled between now and the end of the year." Second Quarter 2014 GAAP Financial Detail (including discontinued operations): Net revenue was $48.2 million for the second quarter of 2014, compared to $50.7 million for the second quarter of 2013 and $48.2 million for the first quarter of 2014.

Gross margin for the second quarter of 2014 was 33.2%, compared to 33.5% for the second quarter of 2013 and 31.7% for the first quarter of 2014.


Operating expenses for the second quarter of 2014 were $16.0 million, compared to $14.9 million for the second quarter of 2013 and $15.7 million in the first quarter of 2014.

Net loss for the second quarter of 2014 was $0.08 million, or ($0.00) per fully diluted share, compared to net income of $2.1 million, or $0.04 per fully diluted share, for the second quarter of 2013, and a net loss of $0.4 million, or ($0.01) per fully diluted share, for the first quarter of 2014.Second Quarter 2014 Non-GAAP Financial Detail: Non-GAAP net revenue was $48.4 million for the second quarter of 2014, compared to $51.2 million for the second quarter of 2013 and $48.9 million for the first quarter of 2014.

Vertical Markets non-GAAP net revenue was $20.8 million, compared to $21.3 million in the second quarter of 2013 and $22.4 million in the first quarter of 2014.

Server OEM non-GAAP net revenue was $27.7 million, compared to $30.0 million in the second quarter of 2013 and $26.5 million in the first quarter of 2014.

Non-GAAP gross margin for the second quarter of 2014 was 33.9%, compared to 34.7% in the second quarter of 2013 and 33.1% in the first quarter of 2014.

Vertical Markets non-GAAP gross margin was 44.7%, up from 43.2% in the second quarter of 2013 and 43.4% in the first quarter of 2014.

Server OEM non-GAAP gross margin was 25.9%, compared to 28.6% in the second quarter of 2013 and 24.4% in the first quarter of 2014.

Non-GAAP operating expenses for the second quarter of 2014 were $15.1 million, compared to $14.2 million for the second quarter of 2013 and $15.1 million in the first quarter of 2014.

Vertical Markets non-GAAP contribution margin was 33.0% for the second quarter of 2014, compared to 34.0% in the second quarter of 2013 and 33.6% in the first quarter of 2014.

Server OEM non-GAAP contribution margin was 24.0% for the second quarter of 2014, compared to 26.7% in the second quarter of 2013 and 22.7% in the first quarter of 2014.

Non-GAAP net income for the second quarter of 2014 was $1.3 million, or $0.02 per fully diluted share, compared to $3.5 million or $0.06 per share, for the second quarter of 2013, and $1.0 million, or $0.02 per fully diluted share, for the first quarter of 2014.Balance Sheet: The Company exited the second quarter of 2014 with cash and cash equivalents of $42.2 million with no borrowings. This compares to $40.3 million at the end of the first quarter of 2014, with no borrowings, and $40.4 million at the end of the second quarter of 2013, with $2.1 million in borrowings.

Third Quarter 2014 Guidance: For the third quarter of 2014, the Company expects non-GAAP revenues to be between $50 and $58 million and non-GAAP EPS to be between $0.01and $0.06.

"With respect to 2014 overall, we currently believe that our results will fall around the low end of our guidance range, based on lower than expected Server OEM revenue in the first half. The precise timing of our new customer product launches, which is very hard to call, will impact revenues as well," stated Hanif Jamal, chief financial officer, Dot Hill Systems Corp. "We remain resolute in our conviction that we are getting very close to a transformative revenue ramp, and with the operating leverage in our business model, an even stronger earnings inflection point. With respect to our medium-term planning horizon relative to 2013 as provided during our March earnings call, we remain very confident in 14-18% total non-GAAP revenue growth with 40-50% growth in Vertical Markets and plus or minus 5% in Server OEMs revenue growth with an 8-12% operating margin target." Conference Call Information: The Company's second quarter 2014 financial results conference call is scheduled to take place on Thursday, August 7, 2014 at 11:00 a.m. ET. Please join the Company for a live audio webcast at www.dothill.com in the Investor Relations section. If you prefer to join 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# 80812230.

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 both Vertical Markets OEM partners or Embedded Solutions Integrators, as well as through Channel Partners. Major Vertical Market customers include Teradata, CGG, Motorola, Tektronix, Samsung, 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 third quarter and full year of 2014. 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 third quarter and full year of 2014 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.

HILL-F Contacts: Hanif Jamal Chief Financial Officer Tel: 303-845-3377 Email: [email protected] Jodi Bochert Investor Relations Tel: 303-845-3469 Email: [email protected] Kirsten Chapman LHA Investor Relations Tel: 415-433-3777 Email: [email protected] DOT HILL SYSTEMS CORP.UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share amounts)    Three Months EndedSix Months Ended  June 30, 2013March 31, 2014June 30, 2014June 30, 2013June 30, 2014             Net revenue  $ 50,683  $ 48,207  $ 48,222  $ 95,163  $ 96,429 Cost of goods sold  33,676  32,942  32,199  63,716  65,141 Gross profit  17,007  15,265  16,023  31,447  31,288 Operating expenses:           Research and development  8,908  9,476  9,340  17,621  18,816 Sales and marketing  3,187  3,294  3,843  6,295  7,137 General and administrative  2,767  2,898  2,851  5,904  5,749 Total operating expenses  14,862  15,668  16,034  29,820  31,702 Operating income (loss)  2,145  (403)  (11)  1,627  (414) Other income (expense):           Interest income (expense), net  (8)  (18)  (4)  (15)  (22) Other income (expense), net  1  10  11  --   21 Total other income (expense), net  (7)  (8)  7  (15)  (1) Income (loss) before income taxes and discontinued operations  2,138  (411)  (4)  1,612  (415) Income tax expense  49  1  74  83  75 Income (loss) from continuing operations  2,089  (412)  (78)  1,529  (490) Loss from discontinued operations  (12)  --   --   (433)  --  Net income (loss)  $ 2,077  $ (412)  $ (78)  $ 1,096  $ (490)             Continuing operations:           Basic and diluted earnings (loss) per share  $ 0.04  $ (0.01)  $ (0.00)  $ 0.03  $ (0.01) Discontinued operations:           Basic and diluted loss per share  $ (0.00)  $ --   $ --   $ (0.01)  $ --  Net income (loss):           Basic and diluted income (loss) per share*  $ 0.04  $ (0.01)  $ (0.00)  $ 0.02  $ (0.01) Weighted average shares used to calculate net income (loss) per share:           Basic  58,384  59,678  60,159  58,194  59,920 Diluted  58,797  59,678  60,159  58,616  59,920             * 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,June 30,  20132014      Assets    Current assets:     Cash and cash equivalents  $ 40,406  $ 42,196 Accounts receivable, net  42,907  32,814 Inventories  6,539  7,532 Prepaid expenses and other assets  7,265  4,823 Total current assets  97,117  87,365 Property and equipment, net  7,565  7,577 Other assets  702  602 Total assets  $ 105,384  $ 95,544      Liabilities and stockholders' equity    Current liabilities:     Accounts payable  $ 33,255  $ 24,092 Accrued compensation  4,922  3,441 Accrued expenses  8,935  7,509 Deferred revenue  4,211  5,045 Credit facility borrowings  2,000  --  Total current liabilities  53,323  40,087 Other long-term liabilities  4,414  4,276 Total liabilities  57,737  44,363      Stockholders' equity:     Preferred stock  --   --  Common stock  59  60 Additional paid-in capital  330,103  334,155 Accumulated other comprehensive loss  (3,254)  (3,283) Accumulated deficit  (279,261)  (279,751) Total stockholders' equity  47,647  51,181 Total liabilities and stockholders' equity  $ 105,384  $ 95,544      DOT HILL SYSTEMS CORP.UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS(INCLUDES RESULTS FROM BOTH DISCONTINUED AND CONTINUING OPERATIONS)(In thousands)    Three Months Ended  June 30, 2013March 31, 2014June 30, 2014        Cash Flows From Operating Activities:       Net income (loss)  $ 2,077  $ (412)  $ (78)Adjustments to reconcile net income (loss) to net cash provided by operating activities:       Depreciation and amortization 754 959 932 Stock-based compensation expense 689 578 1,054 Provision for bad debt expense  (5)  --  2 Write-off of property and equipment  --  --  5Changes in operating assets and liabilities:       Accounts receivable (6,574) 9,240 621 Inventories 748 (1,122) 87 Prepaid expenses and other assets 26 1,238 1,306 Accounts payable 1,667 (7,112) (2,010) Accrued compensation and other expenses 2,238 (2,809) (404) Deferred revenue 416 799 32 Other long-term liabilities 18 (252) 109 Net cash provided by operating activities 2,054 1,107 1,656        Cash Flows From Investing Activities:       Purchases of property and equipment (1,132) (995) (437) Net cash used in investing activities (1,132) (995) (437)        Cash Flows From Financing Activities:       Payments on bank borrowings  (2,800)  (2,000)  -- Proceeds from bank borrowings  2,100  --  -- Shares withheld for tax purposes  (101) (72) (8) Proceeds from sale of stock to employees 41  1,854  646 Net cash provided by (used in) financing activities (760) (218) 638        Effect of Exchange Rate Changes on Cash and Cash Equivalents (57) 22 17Net Increase (Decrease) in Cash and Cash Equivalents 105 (84) 1,874Cash and Cash Equivalents, beginning of period 40,297 40,406 40,322Cash and Cash Equivalents, end of period  $ 40,402  $ 40,322  $ 42,196        Supplemental Disclosures of Non-Cash Investing and Financing Activities:       Capital assets acquired but not paid  $ 308  $ 995  $ 345Supplemental Cash Flow Data:       Cash paid for income taxes  $ 67  $ 195  $ 65        DOT HILL SYSTEMS CORP.UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES(In thousands, except per share amounts)    Three Months EndedSix Months Ended  June 30, 2013March 31, 2014June 30, 2014June 30, 2013June 30, 2014             GAAP net revenue from continuing operations  $ 50,683  $ 48,207  $ 48,222  $ 95,163  $ 96,429 GAAP revenue from discontinued operations  2  --   --   22  --  GAAP net revenue from continuing and discontinued operations  $ 50,685  $ 48,207  $ 48,222  $ 95,185  $ 96,429 AssuredUVS revenue  (2)  --   --   (22)  --  Long-term software contract royalties  550  653  203  951  856 Non-GAAP net revenue  $ 51,233  $ 48,860  $ 48,425  $ 96,114  $ 97,285             GAAP gross profit from continuing operations  $ 17,007  $ 15,265  $ 16,023  $ 31,447  $ 31,288GAAP gross margin % from continuing operations33.6%31.7%33.2%33.0%32.4% GAAP gross profit (loss) from discontinued operations  (9)  --   --   (120)  --  GAAP gross profit from continuing and discontinued operations  $ 16,998  $ 15,265  $ 16,023  $ 31,327  $ 31,288GAAP gross margin % from continuing and discontinued operations33.5%31.7%33.2%32.9%32.4% Stock-based compensation  83  64  95  179  159 Severance costs  --   73  2  23  75 Power supply component failures  32  --   --   (776)  --  AssuredUVS revenue  (2)  --   --   (22)  --  AssuredUVS expenses  11  --   --   140  --  Long-term software contract royalties  550  653  203  951  856 Long-term software contract costs  89  123  117  345  240 Non-GAAP gross profit  $ 17,761  $ 16,178  $ 16,440  $ 32,167  $ 32,618Non-GAAP gross margin %34.7%33.1%33.9%33.5%33.5%             GAAP sales and marketing expenses from continuing operations  $ 3,187  $ 3,294  $ 3,843  $ 6,295  $ 7,137 GAAP contribution margin from continuing operations  $ 13,820  $ 11,971  $ 12,180  $ 25,152  $ 24,151GAAP contribution margin % from continuing operations27.3%24.8%25.3%26.4%25.0% Stock-based compensation  (72)  (72)  (99)  (148)  (171) Severance costs  --   (42)  --   (5)  (42) Non-GAAP sales and marketing expenses  $ 3,115  $ 3,180  $ 3,744  $ 6,142  $ 6,924 Non-GAAP contribution margin  $ 14,646  $ 12,998  $ 12,696  $ 26,025  $ 25,694Non-GAAP contribution margin %28.6%26.6%26.2%27.1%26.4%             GAAP operating expenses from continuing operations  $ 14,862  $ 15,668  $ 16,034  $ 29,820  $ 31,702 GAAP operating expenses from discontinued operations  3  --   --   313  --  GAAP operating expenses from continuing and discontinued operations  $ 14,865  $ 15,668  $ 16,034  $ 30,133  $ 31,702 Currency (loss) gain  (18)  73  28  (361)  101 Stock-based compensation  (606)  (514)  (959)  (1,178)  (1,473) AssuredUVS expenses  (5)  --   --   (358)  --  Long-term software contract deferred costs  6  --   --   406  --  Restructuring recoveries  --   --   --   10  --  Legal fees related to power supply component failure  (1)  --   --   (2)  --  Severance costs  --   (83)  --   (82)  (83) Non-GAAP operating expenses  $ 14,241  $ 15,144  $ 15,103  $ 28,568  $ 30,247             GAAP net income (loss) from continuing operations  $ 2,089  $ (412)  $ (78)  $ 1,529  $ (490) GAAP net loss from discontinued operations  (12)  --   --   (433)  --  GAAP net income (loss) from continuing and discontinued operations  $ 2,077  $ (412)  $ (78)  $ 1,096  $ (490) Currency loss (gain)  18  (73)  (28)  361  (101) Stock-based compensation  689  578  1,054  1,357  1,632 Restructuring recoveries  --   --   --   (10)  --  Power supply component failures  33  --   --   (774)  --  AssuredUVS expenses  16  --   --   498  --  AssuredUVS revenue  (2)  --   --   (22)  --  Other income  --   (10)  (17)  --   (27) Long-term software contract royalties  550  653  203  951  856 Long-term software contract costs  89  123  117  345  240 Long-term software contract deferred costs  (6)  --   --   (406)  --  Severance costs  --   156  2  105  158 Non-GAAP net income  $ 3,464  $ 1,015  $ 1,253  $ 3,501  $ 2,268             Non-GAAP net income per share           Basic and diluted  $ 0.06  $ 0.02  $ 0.02  $ 0.06  $ 0.04 Weighted average shares used to calculate net income per share:           Basic  58,384  59,678  60,159  58,194  59,920 Diluted  58,797  63,912  63,806  58,616  63,834             Non-GAAP net income  $ 3,464  $ 1,015  $ 1,253  $ 3,501  $ 2,268 Interest expense less AssuredUVS  8  18  4  15  22 Income tax expense  49  1  74  83  75 Depreciation less AssuredUVS  757  959  932  1,463  1,891 Non-GAAP EBITDA  $ 4,278  $ 1,993  $ 2,263  $ 5,062  $ 4,256            DOT HILL SYSTEMS CORP.UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES FOR NET REVENUE FOR TRAILING 12 MONTHS(In thousands)          Q3 12 through Q2 13Q3 13 through Q2 14       Total GAAP net revenue from continuing operations  $ 187,405  $ 207,831 GAAP revenue from discontinued operations  176  28 Total GAAP net revenue, from continuing and discontinued operations  $ 187,581  $ 207,859 AssuredUVS revenue  (176)  (28) Long-term software contract royalties  3,092  2,084 Total non-GAAP net revenue  $ 190,497  $ 209,915       Server OEM GAAP net revenue from continuing operations  $ 129,414  $ 128,332 Long-term software contract royalties  3,092  2,084 Server OEM non-GAAP net revenue  $ 132,506  $ 130,416       Vertical Markets GAAP net revenue from continuing operations  $ 57,991  $ 79,499 GAAP revenue from discontinued operations  176  28 Vertical Markets GAAP net revenue, from continuing and discontinued operations  $ 58,167  $ 79,527 AssuredUVS revenue  (176)  (28) Vertical Markets non-GAAP net revenue  $ 57,991  $ 79,499      DOT HILL SYSTEMS CORP.UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES FOR SERVER OEM SEGMENT(In thousands)    Three Months EndedSix Months Ended  June 30, 2013March 31, 2014June 30, 2014June 30, 2013June 30, 2014             Server OEM GAAP net revenue from continuing operations  $ 29,400  $ 25,854  $ 27,463  $ 59,783  $ 53,317 Long-term software contract royalties  550  653  203  951  856 Server OEM non-GAAP net revenue  $ 29,950  $ 26,507  $ 27,666  $ 60,734  $ 54,173             Server OEM GAAP gross profit from continuing operations  $ 7,843  $ 5,604  $ 6,783  $ 16,126  $ 12,387Server OEM GAAP gross margin % from continuing operations26.7%21.7%24.7%27.0%23.2% Stock-based compensation  52  41  59  130  100 Severance costs  --   47  2  14  49 Power supply component failures  32  --   --   (776)  --  Long-term software contract royalties  550  653  203  951  856 Long-term software contract costs  89  123  117  345  240 Server OEM non-GAAP gross profit  $ 8,566  $ 6,468  $ 7,164  $ 16,790  $ 13,632Server OEM non-GAAP gross margin %28.6%24.4%25.9%27.6%25.2%             Server OEM GAAP sales and marketing expenses from continuing operations  $ 573  $ 482  $ 541  $ 1,008  $ 1,023 Server OEM GAAP contribution margin from continuing operations  $ 7,270  $ 5,122  $ 6,242  $ 15,118  $ 11,364Server OEM GAAP contribution margin % from continuing operations24.7%19.8%22.7%25.3%21.3% Stock-based compensation  (15)  (15)  (21)  (31)  (36) Severance costs  --   (9)  --   (1)  (9) Server OEM non-GAAP sales and marketing expenses  $ 558  $ 458  $ 520  $ 976  $ 978 Server OEM non-GAAP contribution margin  $ 8,008  $ 6,010  $ 6,644  $ 15,814  $ 12,654Server OEM non-GAAP contribution margin %26.7%22.7%24.0%26.0%23.4%             Server OEM GAAP operating income for continuing operations  $ 7,270  $ 5,122  $ 6,242  $ 15,118  $ 11,364 Stock-based compensation  67  56  80  161  136 Severance costs  --   56  2  15  58 Power supply component failures  32  --   --   (776)  --  Long-term software contract royalties  550  653  203  951  856 Long-term software contract costs  89  123  117  345  240 Server OEM non-GAAP operating income  $ 8,008  $ 6,010  $ 6,644  $ 15,814  $ 12,654            DOT HILL SYSTEMS CORP.UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES FOR VERTICAL MARKETS SEGMENT(In thousands)    Three Months EndedSix Months Ended  June 30, 2013March 31, 2014June 30, 2014June 30, 2013June 30, 2014             Vertical Markets GAAP net revenue from continuing operations  $ 21,283  $ 22,353  $ 20,759  $ 35,380  $ 43,112 GAAP Revenue from discontinued operations  2  --   --   22  --  Vertical Markets GAAP net revenue from continuing and discontinued operations  $ 21,285  $ 22,353  $ 20,759  $ 35,402  $ 43,112 AssuredUVS revenue  (2)  --   --   (22)  --  Vertical Markets non-GAAP net revenue  $ 21,283  $ 22,353  $ 20,759  $ 35,380  $ 43,112             Vertical Markets GAAP gross profit from continuing operations  $ 9,164  $ 9,661  $ 9,240  $ 15,321  $ 18,901Vertical Markets GAAP gross margin % from continuing operations43.1%43.2%44.5%43.3%43.8% Vertical Markets GAAP gross profit (loss) from discontinued operations  (9)  --   --   (120)  --  Vertical Markets GAAP gross profit from continuing and discontinued operations  $ 9,155  $ 9,661  $ 9,240  $ 15,201  $ 18,901Vertical Markets GAAP gross margin % from continuing and discontinued operations43.0%43.2%44.5%42.9%43.8% Stock-based compensation  31  23  36  49  58 Severance costs  --   26  --   9  27 AssuredUVS revenue  (2)  --   --   (22)  --  AssuredUVS expenses  11  --   --   140  --  Vertical Markets non-GAAP gross profit  $ 9,195  $ 9,710  $ 9,276  $ 15,377  $ 18,986Vertical Markets non-GAAP gross margin %43.2%43.4%44.7%43.5%44.0%             Vertical Markets GAAP sales and marketing expenses from continuing operations  $ 1,996  $ 2,254  $ 2,478  $ 4,076  $ 4,732 Vertical Markets GAAP contribution margin from continuing operations  $ 7,168  $ 7,407  $ 6,762  $ 11,245  $ 14,169Vertical Markets GAAP contribution margin % from continuing operations33.7%33.1%32.6%31.8%32.9% Stock-based compensation  (33)  (33)  (45)  (68)  (78) Severance costs  --   (19)  --   (2)  (19) Vertical Markets non-GAAP sales and marketing expenses  $ 1,963  $ 2,202  $ 2,433  $ 4,006  $ 4,635 Vertical Markets non-GAAP contribution margin  $ 7,232  $ 7,508  $ 6,843  $ 11,371  $ 14,351Vertical Markets non-GAAP contribution margin %34.0%33.6%33.0%32.1%33.3%             Vertical Markets GAAP operating income for continuing operations  $ 7,168  $ 7,407  $ 6,762  $ 11,245  $ 14,169 Vertical Markets GAAP operating loss for discontinued operations  (9)  --   --   (120)  --  Vertical Markets GAAP operating income for continuing and discontinued operations  $ 7,159  $ 7,407  $ 6,762  $ 11,125  $ 14,169 Stock-based compensation  64  56  81  117  136 Severance costs  --   45  --   11  46 AssuredUVS revenue  (2)  --   --   (22)  --  AssuredUVS expenses  11  --   --   140  --  Vertical Markets non-GAAP operating income  $ 7,232  $ 7,508  $ 6,843  $ 11,371  $ 14,351  DOT HILL SYSTEMS CORP.UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES FOR CORPORATE SEGMENT(In thousands)    Three Months EndedSix Months Ended  June 30, 2013March 31, 2014June 30, 2014June 30, 2013June 30, 2014             Corporate GAAP sales and marketing expenses from continuing operations  $ 618  $ 558  $ 824  $ 1,211  $ 1,382 Corporate GAAP contribution margin from continuing operations  $ (618)  $ (558)  $ (824)  $ (1,211)  $ (1,382) Stock-based compensation  (24)  (24)  (33)  (49)  (57) Severance costs  --   (14)  --   (2)  (14) Corporate non-GAAP sales and marketing expenses  $ 594  $ 520  $ 791  $ 1,160  $ 1,311 Corporate non-GAAP contribution margin  $ (594)  $ (520)  $ (791)  $ (1,160)  $ (1,311)             Corporate GAAP research and development expenses from continuing operations   $ 8,908  $ 9,476  $ 9,340  $ 17,621  $ 18,816 Stock-based compensation  (203)  (260)  (347)  (577)  (607) Long-term software contract deferred costs  6  --   --   406  --  Severance costs  --   (40)  --   (77)  (40) Corporate non-GAAP Research and development expenses  $ 8,711  $ 9,176  $ 8,993  $ 17,373  $ 18,169             Corporate GAAP general and administrative expenses from continuing operations  $ 2,767  $ 2,898  $ 2,851  $ 5,904  $ 5,749 Corporate GAAP general and administrative expenses from discontinued operations  3  --   --   313  --  Corporate GAAP general and administrative expenses from continuing and discontinued operations  $ 2,770  $ 2,898  $ 2,851  $ 6,217  $ 5,749 Currency (loss) gain  (18)  73  28  (361)  101 Stock-based compensation  (331)  (182)  (513)  (453)  (695) AssuredUVS expenses  (5)  --   --   (358)  --  Restructuring recoveries  --   --   --   10  --  Legal fees related to power supply component failure  (1)  --   --   (2)  --  Severance costs  --   (1)  --   --   (1) Corporate non-GAAP general and administrative expenses  $ 2,415  $ 2,788  $ 2,366  $ 5,053  $ 5,154             Corporate GAAP operating loss from continuing operations  $ (12,293)  $ (12,932)  $ (13,015)  $ (24,736)  $ (25,947) Corporate GAAP operating loss from discontinued operations  (3)  --   --   (313)  --  Corporate GAAP operating loss from continuing and discontinued operations  $ (12,296)  $ (12,932)  $ (13,015)  $ (25,049)  $ (25,947) Currency loss (gain)  18  (73)  (28)  361  (101) Stock-based compensation  558  466  893  1,079  1,359 AssuredUVS expenses  5  --   --   358  --  Long-term software contract deferred costs  (6)  --   --   (406)  --  Restructuring recoveries  --   --   --   (10)  --  Legal fees related to power supply component failure  1  --   --   2  --  Severance costs  --   55  --   79  55 Corporate non-GAAP operating loss  $ (11,720)  $ (12,484)  $ (12,150)  $ (23,586)  $ (24,634)            DOT HILL SYSTEMS CORP.UNAUDITED RECONCILIATION OF CONSOLIDATED NON-GAAP MEASURES(In thousands, except per share amounts)    Three Months EndedSixth Months Ended  June 30, 2013March 31, 2014June 30, 2014June 30, 2013June 30, 2014 GAAP income (loss) per share from continuing operations  $ 0.04  $ (0.01)  $ (0.00)  $ 0.03  $ (0.01) GAAP loss per share from discontinued operations  (0.00)  --   --   (0.01)  --  GAAP income (loss) per share from continuing and discontinued operations*  $ 0.04  $ (0.01)  $ (0.00)  $ 0.02  $ (0.01) Currency loss  0.00 (0.00) (0.00) 0.01 0.00 Stock-based compensation 0.01 0.01 0.02 0.02 0.03 Power supply component failures 0.00  --   --  (0.01)  --  AssuredUVS expenses 0.00  --   --  0.01  --  Long-term software contract royalties 0.01 0.01 0.00 0.02 0.01 Long-term software contract costs 0.00 0.00 0.00 0.01 0.00 Long-term software contract deferred costs (0.00)  --   --  (0.01)  --  Other adjustments  --  0.01  --   --   0.01 Non-GAAP income per share*  $ 0.06  $ 0.02  $ 0.02  $ 0.06  $ 0.04             Weighted average shares used to calculate income per share:           Basic  58,384  59,678  60,159  58,194  59,920 Diluted  58,797  63,912  63,806  58,616  63,834             * Per share data may not always add to the total for the period because each figure is independently calculated.

Source: Dot Hill Systems Corporation 2014 GlobeNewswire, Inc.

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