SGI

The Trusted Leader in High Performance Computing

 

SGI Reports Financial Results for Third Quarter of Fiscal 2014


MILPITAS, CA -- (Marketwired) -- 04/30/14 -- SGI (NASDAQ: SGI), the trusted leader in high performance computing and Big Data, today reported financial results for its fiscal third quarter ended Mar. 28, 2014. Total revenue for the fiscal third quarter was $124 million, which compares with $116 million in the previous quarter and $233 million in the third fiscal quarter of 2013.

GAAP net loss for the third quarter was $22 million, or $(0.64) per share, which compares with a GAAP net loss of $14 million, or $(0.40) per share, in the prior quarter, and GAAP net income of $9 million, or $0.27 per diluted share, in the third quarter of fiscal 2013. Non-GAAP net loss for the quarter was $7 million, or $(0.22) per share, which compares with non-GAAP net loss of $7 million, or $(0.20) per share, in the prior quarter and non-GAAP net income of $6 million, or $0.18 per diluted 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 $122 million, which compares with $107 million in the prior quarter and $152 million in the same quarter a year ago.
  • Core revenue in the company's Federal business, which includes U.S. government customers, system integrators, and higher education institutions, was $45 million, up from $44 million in the prior quarter and down from $82 million in the same quarter one year ago.
  • Outside of the Federal business (commercial and non-U.S. public sector), core revenue was $77 million, up 24% from $62 million in the prior quarter and up 11% from $69 million in the same quarter a year ago.
  • Revenue related to the legacy cloud, which is generally commodity servers for public cloud infrastructure, was $2 million, which compares with $9 million in the prior quarter and $32 million in the fiscal third quarter of 2013.

"Results for the quarter were consistent with our expectations and reflected solid core revenue growth in international public sector and commercial accounts, coupled with continued softness in the spending of certain Federal defense-related customers," said Jorge Titinger, president and CEO of SGI. "Our core international and commercial business is on track to grow approximately 35% in the fiscal second half; however, in our Federal business we have yet to see the return of historical spending patterns or incremental new program wins to drive immediate growth. As a result, we currently expect total revenue for the fiscal second half to be within the lower end of our previously forecasted range. Looking beyond the current fiscal year, we are confident that we are making the right investments in people and products to drive market share gains and improved ranking among the top providers of supercomputers globally, and to achieve profitable growth in the enterprise through our highly differentiated core offerings for high-performance shared memory analytics."

Recent Highlights

  • On Apr. 30, SGI announced that Massachusetts General Hospital and Harvard Medical School's Center for Advanced Medical Imaging Sciences (CAMIS) Radiology Department has selected SGI to enhance research capabilities for diagnostic medical imaging. CAMIS chose SGI® UV™ 2000 and SGI® UV™ 20 large shared-memory systems and SGI® InfiniteStorage™ 5000 due to its proven ability to solve large-scale, data-intensive problems with industry-standard components while providing ease-of-use benefits.

  • On Apr. 16, SGI announced a partnership with NVIDIA and GIS Federal, a supplier of high performing innovative solutions for big data, cloud computing and intuitive tools across all intelligence disciplines, to power geospatial database that can scale several orders of magnitude higher than other compute databases. The database runs on a 10 terabyte (TB) SGI® UV™ 2000 system, with 16 NVIDIA® Tesla® K20x graphics processing unit (GPU) accelerators.

  • On Apr. 8, 3M and SGI announced the implementation of a fully functional supercomputer developed in collaboration with Intel, using a revolutionary two-phase immersion cooling technology pioneered by 3M that reduces water consumption and energy use -- while increasing supercomputer efficiency. The proof-of-concept includes the fifth generation SGI® ICE™ X distributed memory supercomputer with the Intel® Xeon® processor E5-2600 placed directly into the 3M™ Novec™ Engineered Fluid, showcasing this technology as the "Data Center of the Future."

  • On Mar. 3, SGI announced that the Japan Agency for Marine-Earth Science and Technology (JAMSTEC) has selected SGI UV 2000 powered by Intel® Xeon® processor E5-4600 v2 series for pre and post-processing offline grid simulations for its Earth Simulator supercomputer. JAMSTEC's SGI UV 2000 solution is one of the largest shared memory systems powered by 2,560 cores of Intel® Xeon® processor E5-4600 v2 series and provides 49.152 Tflops of computing capacity with 32TB shared memory for a Single System Instance, propelling JAMSTEC to the next level of large scale, fine-grained simulations that were otherwise unthinkable due to memory constraints.

  • On Feb. 6, SGI announced a partnership with Cognilytics, combining SGI's HPC technology for Big Data analytics with Cognilytics' expertise in implementing technologies such as Hadoop and SAP Platform and Analytics solutions -- bringing customers a more robust Big Data and HPC offering. Infrastructure solutions delivered through the new SGI and Cognilytics partnership include SGI® InfiniteData Cluster™ and SGI® UV™.

Outlook
SGI provides high-performance computing and data management 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 award, deployment, 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.

The company is providing the following guidance for the fiscal fourth quarter and fiscal half ending Jun. 27, 2014:

  • Total revenue for the fiscal second half is expected to be in the range of $260 to $270 million. Total revenue for the fiscal fourth quarter is expected to be in the range of $135 to $145 million.

  • Excluding Federal, core revenue for the second half of fiscal 2014 is expected to be in the range of $170 to $175 million, up approximately 35% from the second half of fiscal 2013, including expected year-over-year growth of at least 60% in the fiscal fourth quarter.

  • GAAP net loss for the fiscal fourth quarter is expected to be in the range of $8 - $11 million, or $(0.23) to $(0.30) per share. Non-GAAP net loss for the fiscal fourth quarter is expected to be in the range of $3 - $6 million, or $(0.08) to $(0.15) per share. Non-GAAP net loss is expected to exclude approximately $5 million of adjustments, including stock-based compensation expense, restructuring and severance costs, intangibles amortization and other items. Both EPS calculations assume 34.8 million weighted average shares outstanding.

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: 29326971.

About SGI
SGI, the trusted leader in high performance computing (HPC) and Big Data, 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 fourth quarter and 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 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 Feb. 3, 2014, 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.

© 2014 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 Nine Months Ended
March 28, March 29, March 28, March 29,
2014 2013 2014 2013
Revenue $ 124,283 $ 232,588 $ 387,862 $ 596,695
Cost of revenue 93,213 180,096 285,061 454,429
Gross profit 31,070 52,492 102,801 142,266
Operating expenses:
Research and development 17,327 15,518 47,063 45,017
Sales and marketing 19,105 19,824 55,516 59,059
General and administrative 16,431 14,924 43,460 41,496
Restructuring 9 740 646 5,081
Total operating expenses 52,872 51,006 146,685 150,653
(Loss) income from operations (21,802 ) 1,486 (43,884 ) (8,387 )
Interest income (expense), net (41 ) (11 ) (94 ) (278 )
Other income (expense), net 533 (359 ) 2,521 (1,253 )
Total other income (expense), net 492 (370 ) 2,427 (1,531 )
(Loss) income before income taxes (21,310 ) 1,116 (41,457 ) (9,918 )
Income tax (benefit) provision 548 (8,108 ) 908 (11,563 )
Net (loss) income $ (21,858 ) $ 9,224 $ (42,365 ) $ 1,645
Basic net (loss) income per share $ (0.64 ) $ 0.28 $ (1.24 ) $ 0.05
Diluted net (loss) income per share $ (0.64 ) $ 0.27 $ (1.24 ) $ 0.05
Shares used in computing basic net (loss) income per share 34,325 33,201 34,199 32,593
Shares used in computing diluted net (loss) income per share 34,325 34,467 34,199 33,295
Silicon Graphics International Corp.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 28, June 28,
2014 2013
ASSETS
Current assets:
Cash and cash equivalents $ 76,105 $ 175,181
Current portion of restricted cash 2,276 531
Accounts receivable, net 102,960 59,842
Inventories 71,731 61,770
Current portion of deferred cost of revenue 10,167 21,204
Prepaid expenses and other current assets 18,411 14,094
Total current assets 281,650 332,622
Non-current portion of restricted cash 2,078 2,853
Property and equipment, net 28,618 26,170
Goodwill and intangible assets, net 17,119 6,174
Non-current portion of deferred cost of revenue 6,392 7,281
Other assets 34,002 32,753
Total assets $ 369,859 $ 407,853
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 48,631 $ 51,531
Accrued compensation 20,656 28,504
Current portion of deferred revenue 93,641 86,357
Other current liabilities 35,671 35,364
Total current liabilities 198,599 201,756
Non-current portion of deferred revenue 46,884 50,362
Long-term income taxes payable 9,997 10,149
Retirement benefit obligations 12,006 11,542
Other non-current liabilities 8,621 3,790
Total liabilities 276,107 277,599
Stockholders' equity 93,752 130,254
Total liabilities and stockholders' equity $ 369,859 $ 407,853
Silicon Graphics International Corp.
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 28, 2014
Net
Loss

EPS

Gross Profit
Operating
Expenses
GAAP $ (21,858 ) $ (0.64 ) $ 31,070 $ 52,872
Share-based compensation (1) 3,268 0.10 431 (2,837 )
Amortization of intangibles (1) 1,047 0.03 441 (606 )
Restructuring and severance (2) 7,145 0.21 1,451 (5,694 )
Excess and obsolete inventory (2) 2,182 0.06 2,182 -
Other non-recurring items (2) 819 0.02 2 (817 )
Non-GAAP $ (7,397 ) $ (0.22 ) $ 35,577 $ 42,918
Gross Margin
Gross margin on a GAAP basis 25 %
Gross margin on a Non-GAAP basis 29 %
Weighted average shares used in computing:
Basic and dilutive net loss per share 34,325
Three Months Ended
March 29, 2013
Net
Income

EPS

Gross Profit
Operating
Expenses
GAAP $ 9,224 $ 0.27 $ 52,492 $ 51,006
Share-based compensation (1) 2,809 0.08 391 (2,418 )
Amortization of intangibles (1) 923 0.03 255 (668 )
Restructuring and severance (2) 1,744 0.05 98 (1,646 )
Income tax abatement (2) (8,447 ) (0.25 ) - -
Non-GAAP $ 6,253 $ 0.18 $ 53,236 $ 46,274
Gross Margin
Gross margin on a GAAP basis 23 %
Gross margin on a Non-GAAP basis 23 %
Weighted average shares used in computing:
Basic net income per share 33,201
Dilutive net income per share 34,467
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 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 29 %
Gross margin on a Non-GAAP basis 31 %
Weighted average shares used in computing:
Basic and dilutive net loss per share 34,176
Silicon Graphics International Corp.
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except per share data)
(Unaudited)
Nine Months Ended
March 28, 2014
Net
Loss

EPS

Gross Profit
Operating
Expenses
GAAP $ (42,365 ) $ (1.24 ) $ 102,801 $ 146,685
Share-based compensation (1) 9,761 0.28 1,332 (8,429 )
Amortization of intangibles (1) 2,933 0.09 1,138 (1,795 )
Restructuring and severance (2) 9,995 0.29 2,655 (7,340 )
Excess and obsolete inventory (2) 5,424 0.16 5,424 -
Other non-recurring items (2) 3,649 0.11 106 (3,543 )
Gain on investment (2) (1,717 ) (0.05 ) - -
Canada tax benefits (2) (611 ) (0.02 ) - -
Non-GAAP (12,931 ) $ (0.38 ) 113,456 125,578
Gross Margin
Gross margin on a GAAP basis 27 %
Gross margin on a Non-GAAP basis 29 %
Weighted average shares used in computing:
Basic and dilutive net loss per share 34,199
Nine Months Ended
March 29, 2013
Net
Income

EPS

Gross Profit
Operating
Expenses
GAAP $ 1,645 $ 0.05 $ 142,266 $ 150,653
Share-based compensation (1) 7,816 0.23 1,262 (6,554 )
Amortization of intangibles (1) 2,839 0.08 778 (2,061 )
Restructuring and severance (2) 7,157 0.22 993 (6,164 )
Other non-recurring items (2) (438 ) (0.01 ) - 438
Income tax abatement (2) (12,736 ) (0.38 ) - -
Non-GAAP $ 6,283 $ 0.19 $ 145,299 $ 136,312
Gross Margin
Gross margin on a GAAP basis 24 %
Gross margin on a Non-GAAP basis 24 %
Weighted average shares used in computing:
Basic net income per share 32,593
Dilutive net income per share 33,295
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 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 and other items
(c) Excess and obsolete charges related to our strategic withdrawal from legacy cloud infrastructure
Silicon Graphics International Corp.
TRENDED FINANCIAL DATA
(In thousands)
(Unaudited)
Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14
Total Revenue
Americas $ 123,385 $ 112,358 $ 142,215 $ 118,550 $ 102,212 $ 62,648 $ 56,554
APJ 44,434 27,735 36,314 28,084 24,266 24,383 52,508
EMEA 25,062 31,133 54,059 23,898 21,041 29,029 15,221
Total revenue $ 192,881 $ 171,226 $ 232,588 $ 170,532 $ 147,519 $ 116,060 $ 124,283
Revenue
Compute $ 130,800 $ 109,129 $ 160,367 $ 97,870 $ 88,842 $ 60,418 $ 72,805
Storage 15,515 18,911 26,773 31,324 19,978 16,916 13,122
Product Revenue 146,315 128,040 187,140 129,194 108,820 77,334 85,927
Service Revenue 46,566 43,186 45,448 41,338 38,699 38,726 38,356
Total revenue $ 192,881 $ 171,226 $ 232,588 $ 170,532 $ 147,519 $ 116,060 $ 124,283
Cost of revenue
Product $ 122,597 $ 97,350 $ 152,523 $ 99,469 $ 88,692 $ 61,343 $ 70,759
Service 28,074 26,312 27,573 24,277 20,579 21,234 22,454
Total cost of revenue $ 150,671 $ 123,662 $ 180,096 $ 123,746 $ 109,271 $ 82,577 $ 93,213
Gross margin by Product and Service
Product Gross Margin 16.2 % 24.0 % 18.5 % 23.0 % 18.5 % 20.7 % 17.7 %
Service Gross Margin 39.7 % 39.1 % 39.3 % 41.3 % 46.8 % 45.2 % 41.5 %
Total gross margin 21.9 % 27.8 % 22.6 % 27.4 % 25.9 % 28.8 % 25.0 %
Silicon Graphics International Corp.
CORE REVENUE TREND
(In thousands)
(Unaudited)
Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14
Core Federal
Federal $ 68,156 $ 64,803 $ 100,809 $ 66,857 $ 76,374 $ 44,402 $ 45,013
Low-Margin Deals - - (18,555 ) - - - -
Total Core Federal (*) 68,156 64,803 82,254 66,857 76,374 44,402 45,013
Core International / Commercial
International / Commercial 79,347 68,200 99,627 58,074 55,259 62,482 77,215
Low-Margin Deals (15,334 ) - (30,194 ) - - - -
Total Core International / Commercial (**) 64,013 68,200 69,433 58,074 55,259 62,482 77,215
Total Core Revenue 132,169 133,003 151,687 124,931 131,633 106,884 122,228
Legacy Cloud 45,378 38,223 32,152 45,601 15,886 9,176 2,055
Low-Margin Deals 15,334 - 48,749 - - - -
Total Revenue $ 192,881 $ 171,226 $ 232,588 $ 170,532 $ 147,519 $ 116,060 $ 124,283
(*) Core Federal revenue includes U.S. government customers, system integrators, and higher education institutions but excludes low-margin deals
(**) Core International / Commercial revenue includes HPC, Big Data, storage, and services, excludes revenue related to legacy cloud infrastructure and low-margin deals

Contact Information:

SGI Investor Relations
John Swenson
+1-669-900-8129
Email Contact

Source: SGI

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