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Silicon Graphics International: Sgi Reports Fiscal Third Quarter 2016 Financial Results

The following excerpt is from the company's SEC filing.

Achieves Non-GAAP Profitability for Second Consecutive Quarter

MILPITAS, CA -- (Marketwired - April 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. G AAP 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 (Loss) / Gross Profit Operating 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 (Loss) / Gross Profit Operating 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) YTD - YTD - Q3 FY16 Q3 FY15 FY16 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

Contact Information:

SGI Investor Relations Annie Leschin (415) 775-1788 annie@streetsmartir.com Ben Liao (669) 900-8090 bliao@sgi.com

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

EVP of Silicon Graphics International Corp just picked up 2,146 shares - April 25, 2016
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