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Silicon Graphics International.'s (SGI) CEO Jorge Titinger on Q3 2016 Results - Earnings Call Transcript

Executives

Annie Leschin - Head of Investor Relations

Jorge Titinger - President, Chief Executive Officer, Director

Mack Asrat - Chief Financial Officer, Senior Vice President of Finance, Principal Accounting Officer, Controller

Analysts

Alex Kurtz - Sterne

Rich Kugele - Needham & Co.

Joan Tong - Sidoti

Aaron Rakers - Stifel

Operator

Greetings, ladies and gentlemen and welcome to the SGI third quarter fiscal year 2016 earnings conference call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

I would now like to turn the call over to your host, Ms. Annie Leschin. Thank you, you may begin.

Annie Leschin

Thank you operator and good afternoon everyone. Welcome to SGI's third quarter fiscal year 2016 earnings conference call. Today's call is being recorded. At this time, I would like to welcome everyone. Joining me on today's call are Jorge Titinger, President and CEO and Mack Asrat, CFO.

This call is being webcast and a replay of that webcast will be available on our website two hours after the conclusion of the call and will remain available until the next earnings call. Before we begin, I would like to mention that SGI will be attending the D. A. Davidson Technology Forum in New York on June 1 and the Stifel Internet and Media Conference in San Francisco on June 6.

As a reminder, many of the financial measures that we will be discussing are on a non-GAAP basis unless otherwise indicated. A full reconciliation to our GAAP results is included in our earnings release and posted on our website. Let me remind you that today's remarks include forward-looking statements and there are number of risks that could cause our future results to differ materially from our expectation.

You can learn more about these risks in the press release that we issued earlier this afternoon and in our most recent periodic reports filed with the SEC. These documents are available on the Investor Relations page of our website at www.sgi.com. We assume no obligation to update any forward-looking statements.

I would now like to pass the call on to Jorge Titinger. Jorge?

Jorge Titinger

Thank you Annie. Welcome everyone and thank you for joining us today. We made solid progress on our strategic priorities during the quarter with one notable exception, the short fall on the top line which I will expand on in a moment. During the quarter, we grew our in-memory HPDA business organically, signed a significant OEM agreement with Hewlett-Packard Enterprise and continued to see success with our platform strategy for HPC. We improved our margins, partially paid down our expensive debt and despite lower than expected revenues reduced our breakeven to its lowest point in the last several years. With an increasing contribution from the high growth HPDA business, a more favorable product mix and ongoing operational efficiencies, we achieved profitability on a non-GAAP basis for the second consecutive quarter. The strides we have made to improve our operating and financial model are taking hold.

We experienced a revenue shortfall in the third quarter mainly linked to one of our largest and more consistent federal customers. This customer has been very satisfied with our product performance and service to-dare and as such, we believe we will be successful in winning future business. For the time being, however, the bidding process is delayed. The lower outlook for the federal business together with a push out of two large deals is resulting in a much lower than anticipated Q4 revenue picture and will impact us for the next couple quarters. While some federal spending from the approved budget began during the quarter, most of the funding flow-through has been slower than anticipated to trickle-down due to ongoing participation challenges over specific departmental allocations and recent changes to technical evaluation criteria.