SGI Reports Fourth Quarter and Fiscal Year 2015 Financial Results

MILPITAS, CA--(Marketwired - Aug 5, 2015) - SGI ( NASDAQ : SGI ), a global leader in high performance solutions for compute, data analytics and data management, today reported financial results for its fourth quarter and fiscal year ended June 26, 2015. 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 fiscal fourth quarter was $153 million compared to $142 million in the fourth quarter of fiscal 2014. GAAP net loss for the fiscal fourth quarter was $10 million, or $(0.28) per share compared with a net loss of $10 million, or $(0.30) per share in the fourth quarter of fiscal year 2014. Non-GAAP net loss for the fiscal fourth quarter was $4 million, or $(0.12) per share compared with a net loss of $0.5 million, or $(0.01) per share in the same quarter a year ago.

Total revenue for fiscal 2015 was $521 million compared with $530 million in fiscal 2014. GAAP net loss for fiscal 2015 was $39 million, or $(1.13) per share, compared with a net loss of $53 million, or $(1.54) per share, in fiscal 2014. Non-GAAP net loss was $13 million, or $(0.36) per share for fiscal 2015, compared with a net loss of $13 million, or $(0.39) per share, for fiscal 2014.

"We began fiscal 2016 with significantly higher bookings and backlog than last year. The building blocks of our growth strategy are in place as we continue to win large strategic deals in HPC and penetrate the enterprise market for data analytics with our single node in-memory solutions. With our focus on profitable revenue growth and cost management, we are committed to achieving non-GAAP profitability and positive cash generation in fiscal 2016," said Jorge Titinger, President and CEO of SGI.

Recent Highlights

• SGI is now SAP®-certified to run the SAP HANA® platform in controlled availability at 20-sockets, delivering up to 15 terabytes (TB) of in-memory computing capacity in a single node. This specialized offering enables enterprises to further unlock value from information in real-time, boost innovation, and lower IT costs.
  
  

• Dell and SGI signed a significant partnership agreement that will broaden the availability of SGI's industry-leading in-memory computing solution, the SGI® UV" 300H compute servers for the SAP HANA® platform.
  
  

• The Institute for Solid State Physics (ISSP) of the University of Tokyo has deployed our recently introduced SGI ICE XA system together with a number of UV systems as its next supercomputer. The performance of this solution, at 2.6 petaflops, is nearly 15 times more powerful than their previous system and is among the largest SGI systems in Japan.
  
  

• PETRONAS, Malaysia's largest oil and gas company, installed an SGI ICE X system incorporating graphic processing unit (GPU) accelerators to support its research and development capabilities in subsurface imaging.
  
  

Outlook

The company currently expects revenue for fiscal year 2016 to be in the range of $600 to $625 million, representing year-over-year growth of 15% - 20%. While ranges could vary, the company currently anticipates first half revenue to be 45% to 50% of the full year. Non-GAAP gross margin for fiscal 2016 is expected to be between 26% and 27%. Total non-GAAP operating expenses for the year are expected to be flat to down 5% compared to fiscal 2015.

Based on this outlook, and after excluding approximately $17 million of adjustments, the company expects to be profitable on a non-GAAP basis in the range of $0.25 to $0.35 per share for fiscal 2016. On a GAAP basis, net loss is expected to be in the range of $(0.11) to $(0.21) per share for fiscal 2016. Earnings per share calculations for the fiscal year 2016 assume 36 million weighted average shares outstanding.

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: 80872796.

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 (sgi.com/) for more information.

Connect with SGI 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 growth strategy, outlook regarding future profitability 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 Form 10-Q, Form 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-offs; (5) gains or losses on investments; and (6) 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 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 .

		Silicon Graphics International Corp.
		UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		(In thousands, except per share amounts)
						Three Months Ended								Year Ended
						June 26,				June 27,				June 26,				June 27,
						2015				2014				2015				2014
		Revenue				$	152,904			$	142,084			$	521,259			$	529,946
		Cost of revenue					121,106				106,478				386,621				391,539
		Gross profit					31,798				35,606				134,638				138,407
		Operating expenses:
			Research and development				12,211				16,463				53,206				63,526
			Sales and marketing				14,655				17,165				61,544				72,681
			General and administrative				12,462				12,336				53,861				55,796
			Restructuring				-				605				116				1,251
				Total operating expenses			39,328				46,569				168,727				193,254
		Loss from operations					(7,530	)			(10,963	)			(34,089	)			(54,847	)
			Interest expense, net				(2,030	)			(23	)			(3,744	)			(117	)
			Other income (expense), net				(193	)			(359	)			(872	)			2,162
				Total other income (expense), net			(2,223	)			(382	)			(4,616	)			2,045
		Loss before income taxes					(9,753	)			(11,345	)			(38,705	)			(52,802	)
		Income tax (benefit) provision					(141	)			(896	)			440				12
		Net loss				$	(9,612	)		$	(10,449	)		$	(39,145	)		$	(52,814	)
		Basic and diluted net loss per share				$	(0.28	)		$	(0.30	)		$	(1.13	)		$	(1.54	)
		Shares used in computing basic and diluted net loss per share					34,839				34,445				34,559				34,260
		Share-based compensation by category is as follows:
		Cost of revenue				$	371			$	344			$	1,962			$	1,676
		Research and development					437				327				2,318				2,072
		Sales and marketing					489				439				2,771				2,598
		General and administrative					1,686				1,108				7,498				5,633
		Total				$	2,983			$	2,218			$	14,549			$	11,979

		Silicon Graphics International Corp.
		UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
		(In thousands)
							June 26,				June 27,
							2015				2014
		ASSETS
		Current assets:
			Cash and cash equivalents				$	67,191			$	109,297
			Current portion of restricted cash					2,109				2,273
			Accounts receivable, net					118,219				72,076
			Inventories					82,832				47,354
			Current portion of deferred cost of revenue					12,108				12,180
			Prepaid expenses and other current assets					17,547				19,802
				Total current assets				300,006				262,982
		Non-current portion of restricted cash						2,251				2,177
		Property and equipment, net						38,480				34,584
		Goodwill and Intangible assets, net						11,303				13,207
		Non-current portion of deferred cost of revenue						9,648				7,592
		Other non-current assets						25,896				44,396
					Total assets		$	387,584			$	364,938
		LIABILITIES AND STOCKHOLDERS' EQUITY
		Current liabilities:
			Accounts payable				$	48,677			$	53,128
			Accrued compensation					17,797				20,049
			Short-term debt net of unamortized debt issuance costs					3,096				-
			Current portion of deferred tax liabilities					45				15,846
			Current portion of deferred revenue					96,473				78,675
			Other current liabilities					33,135				37,814
			Total current liabilities					199,223				205,512
		Long-tem debt net of unamortized debt issuance costs						65,581				-
		Non-current portion of deferred revenue						43,781				45,422
		Long-term income taxes payable						8,420				10,114
		Retirement benefit obligations						9,330				12,931
		Other non-current liabilities						7,871				8,807
				Total liabilities				334,206				282,786
		Stockholders' equity						53,378				82,152
					Total liabilities and stockholders' equity		$	387,584			$	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
			June 26, 2015
			Net								Gross Profit											Operating
			Loss				EPS				Product				Service				Total				Expenses
GAAP			$	(9,612	)		$	(0.28	)		$	16,262			$	15,536			$	31,798			$	39,328
	Share-based compensation	(1)		2,983				0.09				78				293				371				(2,612	)
	Amortization and impairment of acquired intangibles	(1)		223				0.01				205				-				205				(18	)
	Restructuring and severance	(2)		722				0.02				-				4				4				(718	)
	Other non-recurring items	(2)		1,372				0.04				-				121				121				(1,251	)
Non-GAAP			$	(4,312	)		$	(0.12	)		$	16,545			$	15,954			$	32,499			$	34,729
Gross Margin
	Gross margin on a GAAP basis											13.7	%			45.3	%			20.8	%
	Gross margin on a Non-GAAP basis											13.9	%			46.5	%			21.3	%
Weighted average shares used in computing:
	Basic and diluted net loss per share							34,839
			Three Months Ended
			June 27, 2014
			Net								Gross Profit											Operating
			Loss				EPS				Product				Service				Total				Expenses
GAAP			$	(10,449	)		$	(0.30	)		$	17,493			$	18,113			$	35,606			$	46,569
	Share-based compensation	(1)		2,218				0.06				117				227				344				(1,874	)
	Amortization of acquired intangibles	(1)		3,815				0.11				3,567				-				3,567				(248	)
	Restructuring and severance	(2)		2,227				0.07				(475	)			(101	)			(576	)			(2,803	)
	Other non-recurring items	(2)		1,734				0.05				566				-				566				(1,168	)
Non-GAAP			$	(455	)		$	(0.01	)		$	21,268			$	18,239			$	39,507			$	40,476
Gross Margin
	Gross margin on a GAAP basis											17.1	%			45.7	%			25.1	%
	Gross margin on a Non-GAAP basis

20.8 % 46.1 % 27.8 % Weighted average shares used in computing: Basic and diluted net loss per share 34,445 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 and impairment of acquired intangibles (1) 106 - 75 - 75 (31 ) Restructuring and 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

Silicon Graphics International Corp.
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except per share data)
(Unaudited)
			Year Ended
			June 26, 2015
			Net								Gross Profit											Operating
			Loss				EPS				Product				Service				Total				Expenses
GAAP			$	(39,145	)		$	(1.13	)		$	72,522			$	62,116			$	134,638			$	168,727
	Share-based compensation	(1)		14,549				0.42				453				1,509				1,962				(12,587	)
	Amortization and impairment of acquired intangibles	(1)		1,854				0.06				1,324				-				1,324				(530	)
	Restructuring and severance	(2)		6,314				0.18				160				1,456				1,616				(4,698	)
	Other non-recurring items	(2)		3,878				0.11				-				199				199				(3,449	)
Non-GAAP			$	(12,550	)		$	(0.36	)		$	74,459			$	65,280			$	139,739			$	147,463
Gross Margin
	Gross margin on a GAAP basis											19.3	%			42.8	%			25.8	%
	Gross margin on a Non-GAAP basis											19.8	%			45.0	%			26.8	%
Weighted average shares used in computing:
	Basic and diluted net loss per share							34,559
			Year Ended
			June 27, 2014
			Net								Gross Profit											Operating
			Loss				EPS				Product				Service				Total				Expenses
GAAP			$	(52,814	)		$	(1.54	)		$	68,780			$	69,627			$	138,407			$	193,254
	Share-based compensation	(1)		11,979				0.34				561				1,115				1,676				(10,303	)
	Amortization of acquired intangibles	(1)		6,748				0.20				4,705				-				4,705				(2,043	)
	Restructuring and severance	(2)		12,222				0.36				445				1,634				2,079				(10,143	)
	Excess and obsolete inventory	(2)		5,424				0.16				5,424				-				5,424				-
	Other non-recurring items	(2)		5,383				0.16				672				-				672				(4,711	)
	Gain on investment	(2)		(1,717	)			(0.05	)			-				-				-				-
	Income tax abatement	(2)		(611	)			(0.02	)			-				-				-				-
Non-GAAP			$	(13,386	)		$	(0.39	)		$	80,587			$	72,376			$	152,963			$	166,054
Gross Margin
	Gross margin on a GAAP basis											18.4	%			44.8	%			26.1	%
	Gross margin on a Non-GAAP basis											21.5	%			46.6	%			28.9	%
Weighted average shares used in computing:
	Basic and diluted net loss per share							34,260

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)
			Q4 FY15				Q4 FY14				FY15				FY14
Total Revenue
	Americas		$	95,915			$	56,122			$	323,785			$	277,536
	APJ			31,919				35,182				124,163				136,339
	EMEA			25,070				50,780				73,311				116,071
		Total revenue	$	152,904			$	142,084			$	521,259			$	529,946
Revenue
	Product		$	118,606			$	102,484			$	376,294			$	374,565
	Service			34,298				39,600				144,965				155,381
		Total revenue	$	152,904			$	142,084			$	521,259			$	529,946
Cost of revenue
	Product		$	102,344			$	84,991			$	303,772			$	305,785
	Service			18,762				21,487				82,849				85,754
		Total cost of revenue	$	121,106			$	106,478			$	386,621			$	391,539
Gross margin by Product and Service
	Product Gross Margin			13.7	%			17.1	%			19.3	%			18.4	%
	Service Gross Margin			45.3	%			45.7	%			42.8	%			44.8	%
		Total gross margin		20.8	%			25.1	%			25.8	%			26.1	%

Silicon Graphics International Corp.
CORE REVENUE TREND
(In thousands)
(Unaudited)
				Q4 FY15			Q4 FY14			FY15			FY14
Core Revenue
	Federal (*)			$	89,803		$	37,077		$	279,906		$	202,866
	International / Commercial (**)				62,505			103,470			237,928			298,426
			Total Core Revenue		152,308			140,547			517,834			501,292
Legacy Cloud					596			1,537			3,425			28,654
			Total Revenue	$	152,904		$	142,084		$	521,259		$	529,946
(*) 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

© 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.