SOURCE: SGI

SGI

April 27, 2016 16:05 ET

SGI Reports Fiscal Third Quarter 2016 Financial Results

Achieves Non-GAAP Profitability for Second Consecutive Quarter

MILPITAS, CA--(Marketwired - Apr 27, 2016) - SGI (NASDAQ: SGI), a global leader in high-performance solutions for compute, data analytics and data management, today reported financial results for its fiscal third quarter ended March 25, 2016. The data in this release is presented on both a GAAP and non-GAAP basis and a reconciliation of GAAP to non-GAAP measures is included in the financial tables in this press release.

Total revenue for the third quarter was $132 million compared to $119 million in the third quarter of 2015. GAAP net income for the third quarter was $0.7 million, or $0.02 per share compared with a net loss of $9 million, or $0.25 per share in the third quarter of 2015. Non-GAAP net income in the third quarter was $1 million, or $0.03 per share compared with net loss of $3 million, or $0.10 per share in the same quarter a year ago. The Company exited the quarter with $103 million in cash.

"This quarter we achieved non-GAAP profitability for the second consecutive quarter despite lower than anticipated revenues," said Jorge Titinger, President and CEO. "While delays in federal business are significantly impacting our outlook for the year, our growing HPDA in-memory pipeline and newly-signed OEM agreement should help diversify and grow our revenue and profitability going forward."

Recent Highlights

  • We signed our most significant agreement to date with Hewlett Packard Enterprise ("HPE"), the largest x86 vendor in the world. Through this agreement, HPE will OEM our in-memory UV technology for a new 8-socket system, more than doubling our served available market and significantly adding to our go-to-market capabilities.

  • In our Earth Sciences vertical, TOTAL, one of the largest integrated oil and gas companies in the world, recently increased the compute power of its SGI Pangea supercomputer by adding the equivalent of more than 80,000 laptops and increasing storage capacity by the equivalent of 6 million DVDs.

  • In our Manufacturing vertical, SKODA Auto launched an SGI UV and two ICE HPC systems into operation that enhance the car maker's ability to conduct complex product performance and safety.

  • In our Life Sciences vertical, CSIRO (Commonwealth Scientific and Industrial Research Organization) recently installed an SGI UV3000 HPC system to handle massive data workloads. This will enable researchers across Australia to collaborate on projects in areas such as bioinformatics, genome assembly, climate modeling, nanoscience and image processing to help solve complex issues.

Outlook

Based on the revenue shortfall in our federal business, the company now expects fiscal 2016 results of:

  • Revenue of at least $530 million
  • Non-GAAP earnings per share of at least $0.03, excluding approximately $15 million of adjustments
  • GAAP net loss per share of approximately $(0.40)

The company currently expects to achieve non-GAAP profitability for the fourth quarter based on revenue of at least $120 million.

Conference Call and Webcast

SGI's third quarter fiscal 2016 financial results conference call is scheduled to take place on Wednesday, April 27, 2016 at 1:30 p.m. PT (4:30 p.m. ET). A live webcast of the company's earnings conference call will be available simultaneously on the Investor Relations section of the company's website at investors.sgi.com. A replay of the webcast will also be available approximately two hours after the conclusion of the conference call and will remain available until next quarter.

The earnings conference call can also be accessed by dialing (888) 463-5422 (toll-free) or (970) 315-0484 (international) and entering the confirmation code 82870775. 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 82870775.

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 future product sales, anticipated growth, outlook regarding revenue, earnings and positive cash generation, as well as 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: 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 and their effects on SGI's revenue and liquidity; development or product delivery delays, delays in obtaining necessary components from suppliers or delays in customer acceptance once products are delivered; 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 term loan. Some of these risks and uncertainties are described in more detail in SGI's most recent Forms 10-K and 10-Q 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) gains or losses on sale of assets; and (5) other non-recurring costs. Pursuant to the requirements of SEC Regulation G, a detailed reconciliation between 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 to the comparable measures under GAAP, please refer to the company's press releases on its website at www.sgi.com.

© 2016 Silicon Graphics International Corp. All rights reserved. SGI, the SGI logo, SGI UV, and SGI ICE are trademarks or registered trademarks of Silicon Graphics International Corp. or its subsidiaries in the United States and/or other countries. All other product and service names mentioned are the trademarks of their respective companies.

   
Silicon Graphics International Corp.  
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(In thousands, except per share amounts)  
                         
    Three Months Ended     Nine Months Ended  
    March 25,     March 27,     March 25,     March 27,  
    2016     2015     2016     2015  
                                 
Revenue   $ 132,083     $ 118,504     $ 410,216     $ 368,355  
Cost of revenue     94,315       84,845       303,159       265,515  
                                 
Gross profit     37,768       33,659       107,057       102,840  
                                 
Operating expenses:                                
  Research and development     12,744       13,016       38,911       40,995  
  Sales and marketing     12,308       14,248       38,702       46,889  
  General and administrative     7,801       12,840       32,312       41,399  
  Restructuring     -       -       -       116  
    Total operating expenses     32,853       40,104       109,925       129,399  
                                 
Income (loss) from operations     4,915       (6,445 )     (2,868 )     (26,559 )
                                 
  Interest expense, net     (1,988 )     (1,614 )     (6,044 )     (1,714 )
  Other expense, net     (1,812 )     (575 )     (1,375 )     (679 )
    Total other expense, net     (3,800 )     (2,189 )     (7,419 )     (2,393 )
Income (loss) before income taxes     1,115       (8,634 )     (10,287 )     (28,952 )
Income tax provision     376       128       1,025       581  
                                 
Net income (loss)   $ 739     $ (8,762 )   $ (11,312 )   $ (29,533 )
                                 
Basic net income (loss) per share   $ 0.02     $ (0.25 )   $ (0.32 )   $ (0.86 )
Diluted net income (loss) per share   $ 0.02     $ (0.25 )   $ (0.32 )   $ (0.86 )
                                 
Shares used in computing basic net income (loss) per share     35,954       34,586       35,553       34,462  
Shares used in computing diluted net income (loss) per share     37,028       34,586       35,553       34,462  
                                 
Share-based compensation by category is as follows:                                  
                                 
Cost of revenue - product   $ 110     $ 145     $ 317     $ 375  
Cost of revenue - service     295       414       1,025       1,216  
Research and development     567       663       1,768       1,881  
Sales and marketing     407       717       1,376       2,282  
General and administrative     1,569       1,957       5,536       5,812  
Total   $ 2,948     $ 3,896     $ 10,022     $ 11,566  
                                 
 
Silicon Graphics International Corp.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
         
    March 25,   June 26,
    2016   2015
ASSETS            
Current assets:            
  Cash and cash equivalents   $ 98,959   $ 67,191
  Current portion of restricted cash     2,109     2,109
  Accounts receivable, net     80,723     118,219
  Inventories     51,791     82,832
  Current portion of deferred cost of revenue     14,130     12,108
  Prepaid expenses and other current assets     12,734     17,547
    Total current assets     260,446     300,006
Non-current portion of restricted cash     2,153     2,251
Property and equipment, net     40,769     38,480
Goodwill and Intangible assets, net     10,801     11,303
Non-current portion of deferred cost of revenue     11,183     9,648
Other non-current assets     27,292     25,896
             
      Total assets   $ 352,644   $ 387,584
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities:            
  Accounts payable   $ 46,471   $ 48,677
  Accrued compensation     15,724     17,797
  Short-term debt, net of unamortized debt issuance costs     3,980     3,096
  Current portion of deferred revenue     71,946     96,473
  Other current liabilities     27,108     33,180
    Total current liabilities     165,229     199,223
Long-tem debt, net of unamortized debt issuance costs     64,366     65,581
Non-current portion of deferred revenue     42,997     43,781
Long-term income taxes payable     8,188     8,420
Retirement benefit obligations     9,310     9,330
Other non-current liabilities     7,923     7,871
    Total liabilities     298,013     334,206
             
Stockholders' equity     54,631     53,378
      Total liabilities and stockholders' equity   $ 352,644   $ 387,584
             
                                       
Silicon Graphics International Corp.  
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES  
(In thousands, except per share data)  
(Unaudited)  
                                       
      Three Months Ended  
      March 25, 2016  
      Net           Gross Profit     Operating  
      Income     EPS     Product     Service     Total     Expenses  
GAAP     $ 739     $ 0.02     $ 22,137     $ 15,631     $ 37,768     $ 32,853  
                                                   
  Share-based compensation (1)     2,948       0.08       110       295       405       (2,543 )
  Amortization of acquired intangibles (1)     191       -       175       -       175       (16 )
  Severance (2)     723       0.02       5       -       5       (718 )
  Other non-recurring items (2)     (3,485 )     (0.09 )     -       (21 )     (21 )     3,442  
Non-GAAP     $ 1,116     $ 0.03     $ 22,427     $ 15,905     $ 38,332     $ 33,018  
                                                   
Gross Margin                                                  
  Gross margin on a GAAP basis                       23.0 %     43.8 %     28.6 %        
  Gross margin on a Non-GAAP basis                       23.3 %     44.6 %     29.0 %        
                                                   
Weighted average shares used in computing:                                                  
  Basic net income per share               35,954                                  
  Diluted net income per share               37,028                                  
                                                   
                                                   
      Three Months Ended  
      March 27, 2015  
      Net           Gross Profit     Operating  
      Loss     EPS     Product     Service     Total     Expenses  
GAAP     $ (8,762 )   $ (0.25 )   $ 18,604     $ 15,055     $ 33,659     $ 40,104  
                                                   
  Share-based compensation (1)     3,896       0.11       145       414       559       (3,337 )
  Amortization of acquired intangibles (1)     106       -       75       -       75       (31 )
  Severance (2)     708       0.02       (5 )     479       474       (234 )
  Other non-recurring items (2)     688       0.02       -       68       68       (390 )
Non-GAAP     $ (3,364 )   $ (0.10 )   $ 18,819     $ 16,016     $ 34,835     $ 36,112  
                                                   
Gross Margin                                                  
  Gross margin on a GAAP basis                       22.6 %     41.7 %     28.4 %        
  Gross margin on a Non-GAAP basis                       22.8 %     44.4 %     29.4 %        
                                                   
Weighted average shares used in computing:                                                  
  Basic and diluted net loss per share               34,586                                  
                                                   
                                                   
      Three Months Ended  
      December 25, 2015  
      Net           Gross Profit     Operating  
      (Loss) / Income     EPS     Product     Service     Total     Expenses  
GAAP     $ (479 )   $ (0.01 )   $ 25,634     $ 15,191     $ 40,825     $ 39,417  
                                                   
  Share-based compensation (1)     3,167       0.09       98       314       412       (2,755 )
  Amortization of acquired intangibles (1)     192       -       175       -       175       (17 )
  Severance (2)     730       0.02       -       -       -       (730 )
  Other non-recurring items (2)     1,396       0.04       -       (12 )     (12 )     (1,408 )
Non-GAAP     $ 5,006     $ 0.14     $ 25,907     $ 15,493     $ 41,400     $ 34,507  
                                                   
                                                   
Gross Margin                                                  
  Gross margin on a GAAP basis                       22.3 %     41.2 %     26.9 %        
  Gross margin on a Non-GAAP basis                       22.5 %     42.1 %     27.3 %        
                                                   
Weighted average shares used in computing:                                                  
  Basic net loss per share               35,531                                  
  Diluted net income per share               36,021                                  
                                                   
                                       
Silicon Graphics International Corp.  
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES  
(In thousands, except per share data)  
(Unaudited)  
                                       
      Nine Months Ended  
      March 25, 2016  
      Net           Gross Profit     Operating  
      (Loss) / Income     EPS     Product     Service     Total     Expenses  
GAAP     $ (11,312 )   $ (0.32 )   $ 61,951     $ 45,106     $ 107,057     $ 109,925  
                                                   
  Share-based compensation   (1)   10,022       0.28       317       1,025       1,342       (8,680 )
  Amortization of acquired intangibles   (1)   475       0.01       425       -       425       (50 )
  Severance   (2)   2,397       0.07       5       123       128       (2,269 )
  Other non-recurring items   (2)   (806 )     (0.02 )     -       (10 )     (10 )     774  
Non-GAAP     $ 776     $ 0.02     $ 62,698     $ 46,244     $ 108,942     $ 99,700  
                                                   
Gross Margin                                                  
  Gross margin on a GAAP basis                       20.3 %     43.1 %     26.1 %        
  Gross margin on a Non-GAAP basis                       20.5 %     44.2 %     26.6 %        
                                                   
Weighted average shares used in computing:                                                  
  Basic net income (loss) per share               35,553                                  
  Dilutive net income (loss) per share               36,121                                  
                                                   
      Nine Months Ended  
      March 27, 2015  
      Net           Gross Profit     Operating  
      Loss     EPS     Product     Service     Total     Expenses  
GAAP     $ (29,533 )   $ (0.86 )   $ 56,260     $ 46,580     $ 102,840     $ 129,399  
                                                   
  Share-based compensation   (1)   11,566       0.34       375       1,216       1,591       (9,975 )
  Amortization and impairment of acquired intangibles   (1)   1,631       0.05       1,119       -       1,119       (512 )
  Restructuring and severance   (2)   5,592       0.16       160       1,452       1,612       (3,980 )
  Other non-recurring items   (2)   2,506       0.07       -       78       78       (2,198 )
Non-GAAP     $ (8,238 )   $ (0.24 )   $ 57,914     $ 49,326     $ 107,240     $ 112,734  
                                                   
Gross Margin                                                  
  Gross margin on a GAAP basis                       21.8 %     42.1 %     27.9 %        
  Gross margin on a Non-GAAP basis                       22.5 %     44.6 %     29.1 %        
                                                   
Weighted average shares used in computing:                                                  
  Basic and diluted net loss per share               34,462                                  
     
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, asset impairments, sale of assets, and other non-recurring items.
     
                         
Silicon Graphics International Corp.  
TRENDED FINANCIAL DATA  
(In thousands)  
(Unaudited)  
                         
    Q3 FY16     Q3 FY15     YTD - FY16     YTD - FY15  
                                 
Revenue                                
  Americas   $ 54,604     $ 72,585     $ 217,127     $ 227,870  
  APJ     33,329       32,155       104,835       92,244  
  EMEA     44,150       13,764       88,254       48,241  
    Total revenue   $ 132,083     $ 118,504     $ 410,216     $ 368,355  
                                 
Revenue                                
  Federal (*)   $ 40,043     $ 57,143     $ 178,523     $ 190,103  
  International / Commercial     92,040       61,361       231,693       178,252  
    Total revenue   $ 132,083     $ 118,504     $ 410,216     $ 368,355  
                                 
Revenue                                
  Product   $ 96,432     $ 82,398     $ 305,518     $ 257,688  
  Service     35,651       36,106       104,698       110,667  
    Total revenue   $ 132,083     $ 118,504     $ 410,216     $ 368,355  
Cost of revenue                                
  Product   $ 74,295     $ 63,794     $ 243,567     $ 201,428  
  Service     20,020       21,051       59,592       64,087  
    Total cost of revenue   $ 94,315     $ 84,845     $ 303,159     $ 265,515  
Gross margin by Product and Service                                
  Product Gross Margin     23.0 %     22.6 %     20.3 %     21.8 %
  Service Gross Margin     43.8 %     41.7 %     43.1 %     42.1 %
    Total gross margin     28.6 %     28.4 %     26.1 %     27.9 %
                                 
(*) Federal revenue includes U.S. government customers, system integrators, and higher education and research institutions  
   

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