SOURCE: SGI

SGI

January 28, 2015 16:00 ET

SGI Reports Financial Results for the Second Quarter of Fiscal 2015

MILPITAS, CA--(Marketwired - Jan 28, 2015) - SGI (NASDAQ: SGI), a global leader in high performance solutions for compute, data analytics, and data management, today reported financial results for its fiscal second quarter 2015 ended December 26, 2014.

Total revenue for the fiscal second quarter was $138 million, an increase of 24% from $112 million in the previous quarter and an increase of 19% from $116 million in the second fiscal quarter of 2014.

GAAP net loss for the fiscal second quarter was $10 million, or $(0.30) per share, compared with a GAAP net loss of $10 million, or $(0.30) per share, in the prior quarter, and a GAAP net loss of $14 million, or $(0.40) per share, in the second quarter of fiscal 2014. Non-GAAP net income for the quarter was $0.1 million, or breakeven per diluted share, compared with a non-GAAP net loss of $5 million, or $(0.14) per share, in the prior quarter and a non-GAAP net loss of $7 million, or $(0.20) per share, in the year-ago period.

  • Core revenue, which excludes $1 million of revenue related to legacy cloud infrastructure business, was $137 million, an increase of 24% from $111 million in the prior quarter and 29% from $107 million in the same quarter a year ago.
  • Revenue from the company's U.S. Federal business was $72 million, an increase of 19% from $61 million in the prior quarter and 63% from $44 million in the same quarter a year ago. 
  • Core revenue in the company's International and Commercial sectors was $65 million, an increase of 31% from $50 million in the prior quarter and 4% from $62 million in the same quarter a year ago.

"In the second quarter we made progress on our strategic priorities, including large project awards with existing and new customers. Our enterprise growth strategy began to deliver results as we further penetrated various technical computing markets and recognized our first revenue for our UV 300H product. This resulted in the highest bookings quarter we have seen in nearly three years, driven in part by the strength and diversification of our Federal business," said Jorge Titinger, President and CEO of SGI.

In a separate press release, the company today also announced the closing of a $70 million secured term loan facility. "This successful financing enables us to fund working capital for our bookings growth, especially the large Federal program award wins, which have longer award to acceptance cycle times," said Robert Nikl, EVP and Chief Financial Officer. 

Recent Highlights

  • As part of the Department of Defense's ongoing initiative to improve high performance computing (HPC) resources, SGI was awarded two contracts this quarter totaling approximately $60 million for SGI® ICE™ X supercomputers with SGI® InfiniteStorage™. The first contract is with the US Engineer Research and Development Center, and the second is with the Air Force Research Laboratory. 

  • SGI recognized revenue for two NASA contracts this quarter, enabling greater diversification into Federal agencies. The first was with the NASA Ames Research Center which is upgrading its flagship supercomputer, Pleiades. The second was with the NASA Center for Climate Simulation (NCCS), located at NASA's Goddard Space Flight Center, which is enhancing its research and analysis capabilities in climate prediction.

  • The IT-4 National Supercomputing Center in the Czech Republic selected the SGI® ICE™ XA solution to further its research. At two petaflops, the new supercomputer is expected to rank as one of the 50 largest supercomputers in the world.

Fiscal Third Quarter and Fiscal Year Outlook

The company is providing the following financial outlook:

  • The company expects total revenue for its fiscal third quarter ending March 27, 2015 to be in the range of $120 million to $130 million.

  • GAAP net loss for the fiscal third quarter is expected to be in the range of $5 to $9 million, or $(0.15) to $(0.25) per share. After excluding approximately $5 million of adjustments for stock-based compensation expense, restructuring and severance costs, intangibles amortization and other items, non-GAAP net loss for the quarter is expected to be in the range of breakeven to $4 million, or $0.00 to $(0.10) per share. 

  • The company expects total revenue for the second half of fiscal 2015 to be in the range of $290 to $310 million, which represents growth of 16% to 24% over the first half of fiscal 2015, and growth of 9% to 16% over the comparable period last year.

  • The company expects total revenue for its fiscal year ending June 26, 2015 to be in the range of $540 million to $560 million, reflecting annual core revenue growth of approximately 8% to 12%. 

Webcast and Conference Call Information

Management will host a conference call and a live webcast of the earnings conference call will be available on the Investor Relations section of the Company's website at investors.sgi.com beginning at 1:30 p.m. PT (4:30 p.m. ET). A replay of the webcast will be available approximately two hours after the conclusion of the call and will remain available until the next earnings call.

The public can also listen to the 1:30 p.m. PT (4:30 p.m. ET) earnings conference call by dialing (888) 463-5422 (toll-free) or (970) 315-0484 (international). An audio replay of the conference call will also be made available approximately two hours after the conclusion of the call. The audio replay will remain available for five days and can be accessed by dialing (855) 859-2056 (toll-free) or (404) 537-3406 (international) and entering the confirmation code: 61304846.

About SGI
SGI is a global leader in high performance solutions for compute, data analytics and data management that enable customers to accelerate time to discovery, innovation and profitability. Visit sgi.com for more information.

Connect with SGI on Twitter (@sgi_corp), YouTube (youtube.com/sgicorp), Facebook (facebook.com/sgiglobal) and LinkedIn (linkedin.com/company/sgi).

Forward Looking Statements

The statements made in this press release regarding projected financial results, including SGI's anticipated growth and profitability, guidance for the full year and third quarter of fiscal 2015, and certain statements made in the earnings conference call, are forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Actual results could differ materially from those described by these statements due to a number of factors, including, but not limited to the following: substantial sales to U.S. government entities, which are subject to the government's budgetary constraints; customer concentration risks; fluctuations in the buying patterns and sizes of customer orders from one quarter to the next; increased competition causing SGI to sell products or services at lower margins than expected; lengthy acceptance cycles of SGI's products by certain customers; development or product delivery delays, and delays in obtaining necessary components from suppliers; the addition of new customers or loss of existing customers; unexpected changes in the price for, and the availability of, components from SGI's suppliers; SGI's ability to enhance its products with new and better designs and functionality; actions taken by competitors, such as new product announcements or introductions or changes in pricing; market acceptance of newer products; and risks related to SGI's credit facility. Some of these risks and uncertainties are described in more detail in SGI's 10-Q, 10-K and other filings with the Securities and Exchange Commission ("SEC") and are available at the SEC's web site at http://www.sec.gov. Forward-looking statements are made based on information available to the company on the date of this press release. The company assumes no obligation to update the information in this press release.

Use of Non-GAAP Financial Measures

This press release and the related earnings conference call include financial measures that are not determined in accordance with U.S. generally accepted accounting principles ("GAAP"), including non-GAAP gross margin, non-GAAP net income (loss) and non-GAAP basic and diluted net income (loss) per share. These non-GAAP measures are not based on any comprehensive set of accounting rules or principles and management exercises judgment in determining which items should be excluded in the calculation of non-GAAP measures. In addition, these non-GAAP measures may be different from non-GAAP measures used by other companies. While we believe that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP, we believe that non-GAAP measures are valuable in evaluating the company's operating performance and analyzing our business operations. Management may exclude the following items from one or more of non-GAAP measures: (1) share-based compensation; (2) amortization and impairment of intangible assets; (3) restructuring and severance charges; (4) excess and obsolete inventory write-off; (5) gains or losses on investments; and (6) other non-recurring costs. Pursuant to the requirements of SEC Regulation G, a detailed reconciliation between SGI's GAAP and non-GAAP financial results is provided in this press release. The adjustments made should not be construed as an inference that all such adjustments or costs are unusual, infrequent or non-recurring. Investors are advised to carefully review and consider this information as well as the GAAP financial results that are disclosed in this release and SGI's SEC filings.

For a full reconciliation of historical non-GAAP measures referenced in this press release or today's presentation to the comparable measures under GAAP, please refer to the company's press releases on its website at www.sgi.com.

© 2015 Silicon Graphics International Corp. All rights reserved. SGI and the SGI logo are trademarks or registered trademarks of Silicon Graphics International Corp. or its subsidiaries in the United States and/or other countries. All other trademarks are property of their respective holders.

   
Silicon Graphics International Corp.  
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(In thousands, except per share amounts)  
                         
    Three Months Ended     Six Months Ended  
    December 26,     December 27,     December 26,     December 27,  
    2014     2013     2014     2013  
                                 
Revenue   $ 138,150     $ 116,060     $ 249,851     $ 263,579  
Cost of revenue     101,341       82,577       180,670       191,848  
                                 
Gross profit     36,809       33,483       69,181       71,731  
                                 
Operating expenses:                                
    Research and development     14,779       14,902       27,979       29,736  
    Sales and marketing     16,780       18,815       32,641       36,411  
    General and administrative     15,254       14,547       28,559       27,029  
    Restructuring     -       111       116       637  
      Total operating expenses     46,813       48,375       89,295       93,813  
                                 
Loss from operations     (10,004 )     (14,892 )     (20,114 )     (22,082 )
                                 
    Interest expense, net     (58 )     (46 )     (100 )     (53 )
    Other income (expense), net     (247 )     1,685       (104 )     1,988  
      Total other income (expense), net     (305 )     1,639       (204 )     1,935  
Loss before income taxes     (10,309 )     (13,253 )     (20,318 )     (20,147 )
Income tax provision     129       431       453       360  
                                 
Net loss   $ (10,438 )   $ (13,684 )   $ (20,771 )   $ (20,507 )
                                 
Basic and diluted net loss per share   $ (0.30 )   $ (0.40 )   $ (0.60 )   $ (0.60 )
                                 
Shares used in computing basic and diluted net loss per share     34,375       34,176       34,399       34,136  
                                 
Share-based compensation by category is as follows:                                
                                 
  Cost of revenue   $ 566     $ 459     $ 1,032     $ 901  
  Research and development     659       706       1,218       1,213  
  Sales and marketing     764       748       1,565       1,327  
  General and administrative     2,182       1,604       3,855       3,052  
  Total   $ 4,171     $ 3,517     $ 7,670     $ 6,493  
                                 
                                 
         
Silicon Graphics International Corp.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
         
    December 26,   June 27,
    2014   2014
ASSETS            
Current assets:            
  Cash and cash equivalents   $ 79,294   $ 109,297
  Current portion of restricted cash     2,256     2,273
  Accounts receivable, net     64,750     72,076
  Inventories     76,590     47,354
  Current portion of deferred cost of revenue     9,938     12,180
  Prepaid expenses and other current assets     11,620     19,802
    Total current assets     244,448     262,982
Non-current portion of restricted cash     2,425     2,177
Property and equipment, net     37,386     34,584
Goodwill and Intangible assets, net     11,656     13,207
Non-current portion of deferred cost of revenue     8,188     7,592
Other assets     43,707     44,396
             
        Total assets   $ 347,810   $ 364,938
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities:            
  Accounts payable   $ 57,679   $ 53,128
  Accrued compensation     16,798     20,049
  Short-term debt     1,750     -
  Current portion of deferred tax liabilities     15,846     15,846
  Current portion of deferred revenue     76,075     78,675
  Other current liabilities     28,502     37,814
    Total current liabilities     196,650     205,512
Short-term debt to be refinanced     13,250     -
Non-current portion of deferred revenue     44,872     45,422
Long-term income taxes payable     9,393     10,114
Retirement benefit obligations     11,474     12,931
Other non-current liabilities     8,146     8,807
      Total liabilities     283,785     282,786
             
Stockholders' equity     64,025     82,152
        Total liabilities and stockholders' equity   $ 347,810   $ 364,938
             
   
Silicon Graphics International Corp.  
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES  
(In thousands, except per share data)  
(Unaudited)  
                               
          Three Months Ended  
          December 26, 2014  
          Net
(Loss)/Income
   
EPS
   
Gross Profit
    Operating
Expenses
 
GAAP         $ (10,438 )   $ (0.30 )   $ 36,809     $ 46,813  
                                       
  Share-based compensation   (1 )     4,171       0.12       566       (3,605 )
  Amortization and impairment of acquired intangibles   (1 )     1,310       0.04       900       (410 )
  Restructuring and severance   (2 )     3,792       0.11       701       (3,091 )
  Other non-recurring items   (2 )     1,268       0.03       10       (1,258 )
Non-GAAP         $ 103     $ 0.00     $ 38,986     $ 38,449  
                                       
Gross Margin                                      
  Gross margin on a GAAP basis                           26.6 %        
  Gross margin on a Non-GAAP basis                           28.2 %        
                                       
Weighted average shares used in computing:                                      
  Basic net loss per share                   34,375                  
  Dilutive net income per share                   35,134                  
                                       
                               
          Three Months Ended  
          December 27, 2013  
          Net
Loss
   
EPS
   
Gross Profit
    Operating
Expenses
 
GAAP         $ (13,684 )   $ (0.40 )   $ 33,483     $ 48,375  
                                       
  Share-based compensation   (1 )     3,517       0.10       459       (3,058 )
  Amortization of acquired intangibles   (1 )     1,051       0.03       442       (609 )
  Restructuring and severance   (2 )     1,921       0.06       1,171       (750 )
  Other non-recurring items   (2 )     2,094       0.06       104       (1,990 )
  Gain on investment   (2 )     (1,717 )     (0.05 )     -       -  
Non-GAAP         $ (6,818 )   $ (0.20 )   $ 35,659     $ 41,968  
                                       
Gross Margin                                      
  Gross margin on a GAAP basis                           28.8 %        
  Gross margin on a Non-GAAP basis                           30.7 %        
                                       
Weighted average shares used in computing:                                      
  Basic and dilutive net loss per share                   34,176                  
                                       
                               
          Three Months Ended  
          September 26, 2014  
          Net
Loss
   
EPS
   
Gross Profit
    Operating
Expenses
 
GAAP         $ (10,333 )   $ (0.30 )   $ 32,372     $ 42,482  
                                       
  Share-based compensation   (1 )     3,499       0.10       466       (3,033 )
  Amortization of acquired intangibles   (1 )     215       0.01       144       (71 )
  Restructuring and severance   (2 )     1,092       0.03       437       (655 )
  Other non-recurring items   (2 )     550       0.02       -       (550 )
Non-GAAP         $ (4,977 )   $ (0.14 )   $ 33,419     $ 38,173  
                                       
                                       
Gross Margin                                      
  Gross margin on a GAAP basis                           29.0 %        
  Gross margin on a Non-GAAP basis                           29.9 %        
                                       
Weighted average shares used in computing:                                      
  Basic and dilutive net loss per share                   34,420                  
                                       
   
Silicon Graphics International Corp.  
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES  
(In thousands, except per share data)  
(Unaudited)  
   
      Six Months Ended  
      December 26, 2014  
      Net
Loss
   
EPS
   
Gross Profit
    Operating
Expenses
 
GAAP     $ (20,771 )   $ (0.60 )   $ 69,181     $ 89,295  
                                   
  Share-based compensation   (1)   7,670       0.22       1,032       (6,638 )
  Amortization and impairment of acquired intangibles   (1)   1,525       0.05       1,044       (481 )
  Restructuring and severance   (2)   4,884       0.14       1,138       (3,746 )
  Other non-recurring items   (2)   1,818       0.05       10       (1,808 )
Non-GAAP     $ (4,874 )   $ (0.14 )   $ 72,405     $ 76,622  
                                   
Gross Margin                                  
  Gross margin on a GAAP basis                       27.7 %        
  Gross margin on a Non-GAAP basis                       29.0 %        
                                   
Weighted average shares used in computing:                                  
  Basic and dilutive net loss per share               34,399                  
                           
      Six Months Ended  
      December 27, 2013  
      Net
Loss
   
EPS
   
Gross Profit
    Operating
Expenses
 
GAAP     $ (20,507 )   $ (0.60 )   $ 71,731     $ 93,813  
                                   
  Share-based compensation   (1)   6,493       0.19       901       (5,592 )
  Amortization of acquired intangibles   (1)   1,886       0.05       697       (1,189 )
  Restructuring and severance   (2)   2,850       0.09       1,204       (1,646 )
  Excess and obsolete inventory   (2)   3,242       0.10       3,242       -  
  Other non-recurring items   (2)   2,830       0.08       104       (2,726 )
  Gain on investment   (2)   (1,717 )     (0.05 )     -       -  
  Income tax abatement   (2)   (611 )     (0.02 )     -       -  
Non-GAAP     $ (5,534 )   $ (0.16 )   $ 77,879     $ 82,660  
                                   
Gross Margin                                  
  Gross margin on a GAAP basis                       27.2 %        
  Gross margin on a Non-GAAP basis                       29.5 %        
                                   
Weighted average shares used in computing:                                  
  Basic and dilutive net loss per share               34,136                  
                                     
NOTE: This presentation includes certain financial measures not in conformity with Generally Accepted Accounting Principles in the United States (non-GAAP measures).  Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.
 
(1)  Adjustments to exclude certain non-cash expenses such as share-based compensation and amortization and impairment of intangible assets.
(2)  Adjustments to exclude the items discussed below because such items are either operating expenses which would not otherwise have been incurred by the company  in the normal course of the company's business operations or are not reflective of the company's core results over time. These items may include recurring as well as non-recurring items. 
 
    (a)  Restructuring Charges and severance - Restructuring charges consist primarily of severance expense, facility closure and relocation costs.
    (b)  Other non-recurring items include settlements, headquarters relocation costs, asset impairments, acquisition- related costs, and costs associated with contract manufacturing transition / termination.
    (c)   Excess and obsolete charges related to our strategic withdrawal from legacy cloud infrastructure and other products that are at the end of the product life cycle.
   
   
Silicon Graphics International Corp.  
TRENDED FINANCIAL DATA  
(In thousands)  
(Unaudited)  
                           
    Q1 FY14   Q2 FY14   Q3 FY14   Q4 FY14   Q1 FY15   Q2 FY15  
                                       
Total Revenue                                      
  Americas   $ 102,212   $ 62,648   $ 56,554   $ 56,122   $ 67,670   $ 87,615  
  APJ     24,266     24,383     52,508     35,182     26,418     33,671  
  EMEA     21,041     29,029     15,221     50,780     17,613     16,864  
    Total revenue   $ 147,519   $ 116,060   $ 124,283   $ 142,084   $ 111,701   $ 138,150  
Revenue                                      
  Product   $ 108,820   $ 77,334   $ 85,927   $ 102,484   $ 75,002   $ 100,288  
  Service     38,699     38,726     38,356     39,600     36,699     37,862  
    Total revenue   $ 147,519   $ 116,060   $ 124,283   $ 142,084   $ 111,701   $ 138,150  
Cost of revenue                                      
  Product   $ 88,692   $ 61,343   $ 70,759   $ 84,991   $ 58,893   $ 78,741  
  Service     20,579     21,234     22,454     21,487     20,436     22,600  
    Total cost of revenue   $ 109,271   $ 82,577   $ 93,213   $ 106,478   $ 79,329   $ 101,341  
Gross margin by Product and Service                                      
  Product Gross Margin     18.5 %   20.7 %   17.7 %   17.1 %   21.5 %   21.5 %
  Service Gross Margin     46.8 %   45.2 %   41.5 %   45.7 %   44.3 %   40.3 %
    Total gross margin     25.9 %   28.8 %   25.0 %   25.1 %   29.0 %   26.6 %
                                       
 
Silicon Graphics International Corp.
CORE REVENUE TREND
(In thousands)
(Unaudited)
                         
    Q1 FY14   Q2 FY14   Q3 FY14   Q4 FY14   Q1 FY15   Q2 FY15
                                     
Core Revenue                                    
  Federal (*)   $ 76,374   $ 44,402   $ 45,013   $ 37,077   $ 60,674   $ 72,286
  International / Commercial (**)     55,259     62,482     77,215     103,470     49,841     65,191
                                     
    Total Core Revenue     131,633     106,884     122,228     140,547     110,515     137,477
                                     
Legacy Cloud     15,886     9,176     2,055     1,537     1,186     673
                                     
      Total Revenue   $ 147,519   $ 116,060   $ 124,283   $ 142,084   $ 111,701   $ 138,150
                                     
(*) Core Federal revenue includes U.S. government customers, system integrators, and higher education and research institutions
(**) Core International / Commercial revenue excludes revenue related to legacy cloud infrastructure
                                     

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