MILPITAS, Calif., Jan. 29, 2014 - SGI (NASDAQ:SGI), the trusted leader in high performance computing and Big Data, today reported financial results for its fiscal second quarter ended Dec. 27, 2013. Reported results were generally consistent with the preliminary results announced on Jan. 14, 2014.
Total revenue for the fiscal second quarter was $116 million, which compares with $148 million in the previous quarter and $171 million in the second fiscal quarter of 2013. GAAP net loss for the second quarter was $14 million, or $(0.40) per share, which compares with a GAAP net loss of $7 million, or $(0.20) per share, in the prior quarter, and GAAP net income of $1 million, or $0.03 per share, in the second quarter of fiscal 2013. Non-GAAP net loss for the quarter was $7 million, or $(0.20) per share, which compares with non-GAAP net income of $1 million, or $0.04 per share, in the prior quarter and non-GAAP net income of $3 million, or $0.10 per share, in the year-ago period.
- Core revenue, which includes HPC, Big Data, storage, and services, but excludes revenue related to legacy cloud infrastructure and "low-margin deals" in prior periods, was $107 million, which compares with $132 million in the prior quarter and $133 million in the same quarter a year ago.
- As expected, core revenue in the company's Federal business, which includes U.S. government customers, system integrators, and higher education institutions, was impacted by the October 2013 government shutdown and its after-effects. Federal core revenue was $44 million, down from $76 million in the prior quarter and $65 million in the same quarter one year ago.
- Outside of the Federal business (commercial and non-U.S. public sector), core revenue was $62 million, up 13% from $55 million in the prior quarter and down 8% from $68 million in the same quarter a year ago.
- Revenue related to the legacy cloud, which is generally commodity servers for provisioning cloud infrastructure, was $9 million, which compares with $16 million in the prior quarter and $38 million in the fiscal second quarter of 2013. The company is continuing to exit commoditized legacy account relationships.
"Final results for the quarter were consistent with the preliminary results announced earlier this month, and reflect the impact of the October government shutdown as well as the continued freezing of certain Federal intelligence-related programs," said Jorge Titinger, president and CEO of SGI. "We are extremely proud to provide high-performance compute and storage solutions for a variety of mission-critical Federal government programs, including technology platforms that help to ensure the security of the United States and our allies. We will continue to work closely with current and prospective Federal customers and ecosystem partners to support the government's near-term and long-term IT-related missions and we are confident that our overall Federal business will soon resume its growth trajectory, whether as a result of the reprogramming of currently frozen projects or new programs on behalf of civilian and defense-related customers. In addition, we are now beginning to drive sustainable growth in core revenue outside of Federal. With recent wins for our coherent shared memory UV system in Japan, a big ICE X win in Europe, and a growing list of key software and go-to-market partners, we believe we are well positioned to exploit the growing HPC and Big Data opportunities in the U.S. commercial market and overseas."
- On Jan. 22, SGI announced that Liz King has joined the company as Senior Vice President, Worldwide Sales. She brings to SGI more than 20 years of experience developing and leading global teams to build and grow strategic account relationships and channel partners in both the enterprise and public sectors.
- On Jan. 21, SGI launched new performance-optimized enterprise storage systems and new all-flash array for Big Data and HPC workloads. These enhancements to the SGI InfiniteStorage 5000 series will enable customers to tackle their Big Data challenges with enhanced computing, performance and scalability, accelerating the discovery of actionable insights and innovation.
- On Jan. 14, SGI announced plans to develop an in-memory appliance based on the SAP HANA® platform, working in collaboration with SAP AG, the market leader in enterprise software and software-related services. Using the scalable shared memory architecture of SGI's next-generation UV™ system together with SAP HANA, the new in-memory appliance from SGI will be designed to streamline database management for single large node environments, which require extremely high capacity and scale to meet the needs of in-memory databases.
- On Nov. 22, SGI announced that the Atomic Weapons Establishment (AWE) in the United Kingdom has selected three SGI® ICE™ X systems to rapidly advance sophisticated scientific and technological capabilities, and to enhance the simulation methods used to verify the safety and reliability of the Trident warhead.
- On Nov. 22, SGI announced that it had finalized terms of its global supply chain partnership with Jabil Circuit. The relationship is expected to bring significant benefits to SGI and its customers, including a more variable cost structure, greater flexibility to respond to changes in volumes or customer requirements, shorter cycle times for certain products, and enhanced quality management.
- On Nov. 18, SGI received seven top honors in the 2013 HPCwire Readers' and Editors' Choice Awards, recognizing the extraordinary breakthroughs and innovations SGI is powering for today's enterprises to achieve Big Data results with high performance computing.
- On Nov. 17, SGI announced that it has been selected to supply the Data Assimilation Supercomputer at the Institute of Statistical Mathematics in Japan. The new supercomputer will be built around the SGI® UV™ 2000, SGI's large-scale shared-memory server. It will provide a shared computational infrastructure for statistical computation and data assimilation, which is a critical step in the research process of a number of scientific disciplines.
SGI provides technical computing and storage solutions to large government, higher education, and commercial customers. Any given customer deal can include a varying mix of compute and storage hardware, software, and services, and generally will carry terms that result in most of the product revenue associated with the deal being recognized upon final shipment or acceptance of the system. The timing of booking, installation, and acceptance of large deals is difficult to predict and can cause significant swings in quarterly revenue. The company derives a significant portion of its revenue from the U.S. government and from third parties and educational institutions that receive funding from the U.S. government. Government shutdowns, protracted Federal budget deliberations, and other disruptions in the timely funding or acceptance of government-related programs can impact the approval, installation and final acceptance of systems. Management provides guidance on revenue and other items based on its current expectations of the timing of revenue and associated costs; however there can be no assurance that revenues and associated costs will be recognized according to expected schedules and management assumes no obligation to update its guidance if the timing of revenues or other circumstances in the business differ from current expectations.
Consistent with its announcement on Jan. 14, 2014, the company reaffirmed the following guidance for the second half of fiscal 2014 ending Jun. 27, 2014:
- Total revenue for the fiscal second half is expected to be in the range of $260 - $300 million.
- Excluding Federal, core revenue for the second half of fiscal 2014 is expected to grow at least 30% compared with the second half of fiscal 2013. Including Federal, core revenue is expected to be in the range of flat to up 10%.
In addition, the company reaffirmed its long-term target operating model of non-GAAP gross margins of 31% to 33% and non-GAAP operating margins of 8% to 12%.
Webcast and Conference Call Information
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 2:00 p.m. PT (5:00 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 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: 31111498.
SGI, the trusted leader in high performance computing (HPC), is focused on helping customers solve their most demanding business and technology challenges by delivering technical computing, Big Data analytics, cloud computing, and petascale storage solutions that accelerate time to discovery, innovation, and profitability. Visit sgi.com (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).
Cautionary Statement Regarding Forward Looking Statements
The statements made in this press release regarding projected financial results, including SGI's anticipated growth and profitability, guidance for the second half of fiscal 2014 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 uncertainties, including, but not limited to:
- 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
- SGI's increased reliance on contract manufacturing and its anticipated benefits.
In addition, SGI's actual growth in revenue and profitability for the fiscal year ending June 27, 2014 could differ materially from expectations for a number of reasons, including, but not limited to, changes driven by new accounting, regulations, interpretations or guidance and other risks as detailed in SGI's filings with the Securities and Exchange Commission ("SEC"), including those described under the caption "Risk Factors" in SGI's Annual Report on Form 10-K filed with the SEC on Sept. 9, 2013 and SGI's Quarterly Report on Form 10-Q filed with the SEC on Nov. 4, 2013, which are available at the SEC's web site at http://www.sec.gov. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this announcement. SGI undertakes no obligation to update the information in this earnings release or the related earnings conference call, whether as a result of new information, future events or otherwise, unless otherwise required by law.
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 of intangible assets; (3) restructuring and severance charges; (4) excess and obsolete inventory write-off; (5) manufacturing transition costs; (6) gains or losses on investments; and (7) other non-recurring costs, including settlements and other items. Such measures are adjusted as described in the reconciliation of GAAP and non-GAAP numbers included in this release, if applicable; but these adjustments should not be construed as an inference that all of these adjustments or costs are unusual, infrequent or non-recurring.
In addition, management uses these non-GAAP financial measures to facilitate its review of the comparability of SGI's core operating performance on a period to period basis as well as to better understand the fundamental economics of a specific period's operational and financial performance. Management uses this view of SGI's operating performance for purposes of comparison with its business plan and individual operating budgets and allocations of resources.
Management also believes that the non-GAAP financial measures provide additional insight for analysts and investors in evaluating SGI's financial and operational performance in the same way that management evaluates the company's financial performance. However, these non-GAAP financial measures have limitations as an analytical tool, as they exclude the financial impact of transactions necessary or advisable for the conduct of SGI's business, such as the granting of equity compensation awards and are not intended to be an alternative to financial measures prepared in accordance with GAAP. Hence, to compensate for these limitations, management does not review these non-GAAP financial metrics in isolation from its GAAP results, nor should investors. 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. 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.
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