SGI Reports Financial Results for the Third Quarter of

MILPITAS, CA--(Marketwired - Apr 29, 2015) - 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 2015 ended March 27, 2015.

Total revenue for the fiscal third quarter was $119 million, a decrease of 14% from $138 million in the previous quarter and a decrease of 5% from $124 million in the third fiscal quarter of 2014.

GAAP net loss for the fiscal third quarter was $9 million, or $(0.25) per share, compared with a GAAP net loss of $10 million, or $(0.30) per share, in the prior quarter, and a GAAP net loss of $22 million, or $(0.64) per share, in the third quarter of fiscal 2014. Non-GAAP net loss for the quarter was $3.4 million, or $(0.10) per share, compared with a non-GAAP net income of $0.1 million, or breakeven per diluted share, in the prior quarter and a non-GAAP net loss of $7 million, or $(0.22) per share, in the year-ago period.

"Demand for our HPC solutions remained robust this quarter as bookings increased significantly, driven by multiple large program wins across the company, including our Federal business and international operations," said Jorge Titinger, President and CEO of SGI. "In addition, we received certification for our UV solution for SAP HANA for up to 16-sockets, which represents a significant milestone as we position to capture share in the In-Memory market."

"Looking at the fiscal year, it now appears likely that revenue for one of our large DoD projects will be delayed one quarter, adding to what we believe will be a strong first half of fiscal 2016. Overall, we remain encouraged by our progress in diversifying our HPC business, entering the In-Memory market with our UV products and continuing our focus on operational excellence," continued Titinger.

Recent Highlights

• SGI's Federal business continues to strengthen with significant successes across the intelligence community, the Department of Defense and multiple civilian agencies. SGI's HPC and HPDA capabilities are providing mission focused capability and speeding time to insight and discovery. SGI has been awarded several large programs and contract vehicles with multi-year funding available for data analytics solutions, shared memory and cluster products.
• The fourth largest oil and gas company in the world, TOTAL S.A., selected SGI to upgrade its supercomputer "Pangea," with a new ICE™ X system to increase Pangea with an additional 4.4 petaflops of compute power. With this upgrade, Pangea will continue to be the largest commercial supercomputer in the world.
• The UK Atomic Weapons Establishment (AWE) selected SGI's record-breaking ICE XA systems for its new supercomputer to support complex scientific modeling at high resolution and faster processing speeds for research and development. This will be one of the first global customer installations of SGI ICE XA, taking energy efficiency and flexible packaging to new levels.
• The Japan Atomic Energy Agency awarded SGI a contract for its fully integrated, 2.4 petaflop, 35 rack ICE-X supercomputer and storage system for its comprehensive R&D institute dedicated to nuclear energy. This system will be the largest Intel Xeon-based supercomputer in Japan.

Fiscal Fourth Quarter and Full Year Guidance

• The company expects total revenue for its fiscal fourth quarter ending June 26, 2015 to be in the range of $130 million to $145 million.
• The company expects non-GAAP net loss for the fiscal fourth quarter is expected to be in the range of $4 to $8 million, or $(0.12) to $(0.24) per share after excluding approximately $5 million of recurring adjustments for stock-based compensation expense, restructuring and severance costs, intangibles amortization and other items. GAAP net loss for the fiscal fourth quarter to be in the range of $9 to $13 million, or $(0.26) to $(0.38) per share.
• The company expects total revenue for its fiscal year ending June 26, 2015 to be in the range of $500 million to $515 million.

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: 24094588.

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 guidance and outlook, 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 factors, including, but not limited to the following: 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 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 .

© 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.

Silicon Graphics International Corp.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
				Three Months Ended								Nine Months Ended
				March 27,				March 28,				March 27,				March 28,
				2015				2014				2015				2014
Revenue				$	118,504			$	124,283			$	368,355			$	387,862
Cost of revenue					84,845				93,213				265,515				285,061
Gross profit					33,659				31,070				102,840				102,801
Operating expenses:
	Research and development				13,016				17,327				40,995				47,063
	Sales and marketing				14,248				19,105				46,889				55,516
	General and administrative				12,840				16,431				41,399				43,460
	Restructuring				-				9				116				646
		Total operating expenses			40,104				52,872				129,399				146,685
Loss from operations					(6,445	)			(21,802	)			(26,559	)			(43,884	)
	Interest expense, net				(1,614	)			(41	)			(1,714	)			(94	)
	Other income (expense), net				(575	)			533				(679	)			2,521
		Total other income (expense), net			(2,189	)			492				(2,393	)			2,427
Loss before income taxes					(8,634	)			(21,310	)			(28,952	)			(41,457	)
Income tax provision					128				548				581				908
Net loss				$	(8,762	)		$	(21,858	)		$	(29,533	)		$	(42,365	)
Basic and diluted net loss per share				$	(0.25	)		$	(0.64	)		$	(0.86	)		$	(1.24	)
Shares used in computing basic and diluted net loss per share					34,586				34,325				34,462				34,199
Share-based compensation by category is as follows:
Cost of revenue				$	559			$	431			$	1,591			$	1,332
Research and development					663				532				1,881				1,745
Sales and marketing					717				832				2,282				2,159
General and administrative					1,957				1,473				5,812				4,525
Total				$	3,896			$	3,268			$	11,566			$	9,761

Silicon Graphics International Corp.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
					March 27,			June 27,
					2015			2014
ASSETS
Current assets:
	Cash and cash equivalents				$	79,922		$	109,297
	Current portion of restricted cash					2,110			2,273
	Accounts receivable, net					83,307			72,076
	Inventories					100,351			47,354
	Current portion of deferred cost of revenue					10,118			12,180
	Prepaid expenses and other current assets					16,071			19,802
		Total current assets				291,879			262,982
Non-current portion of restricted cash						2,167			2,177
Property and equipment, net						37,711			34,584
Goodwill and Intangible assets, net						11,536			13,207
Non-current portion of deferred cost of revenue						7,951			7,592
Other non-current assets						43,897			44,396
			Total assets		$	395,141		$	364,938
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable				$	45,652		$	53,128
	Accrued compensation					17,832			20,049
	Short-term debt					4,258			-
	Current portion of deferred tax liabilities					15,846			15,846
	Current portion of deferred revenue					81,325			78,675
	Other current liabilities					28,282			37,814
		Total current liabilities				193,195			205,512
Long-tem debt						68,250			-
Non-current portion of deferred revenue						45,693			45,422
Long-term income taxes payable						8,949			10,114
Retirement benefit obligations						10,336			12,931
Other non-current liabilities						7,770			8,807
		Total liabilities				334,193			282,786
Stockholders' equity						60,948			82,152
			Total liabilities and stockholders' equity		$	395,141		$	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
				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
				Three Months Ended
				March 28, 2014
				Net								Gross Profit												Operating
				Loss				EPS				Product				Service				Total				Expenses
GAAP				$	(21,858	)		$	(0.64	)		$	15,168			$	15,902			$	31,070			$	52,872
	Share-based compensation		(1)		3,268				0.10				141				290				431				(2,837	)
	Amortization of acquired intangibles		(1)		1,047				0.03				441				-				441				(606	)
	Restructuring and severance		(2)		7,145				0.21				176				1,275				1,451				(5,694	)
	Excess and obsolete inventory		(2)		2,182				0.06				2,182				-				2,182				-
	Other non-recurring items		(2)		819				0.02				2				-				2				(817	)
Non-GAAP				$	(7,397	)		$	(0.22	)		$	18,110			$	17,467			$	35,577			$	42,918
Gross Margin
	Gross margin on a GAAP basis												17.7	%			41.5	%			25.0	%
	Gross margin on a Non-GAAP basis												21.1	%			45.5	%			28.6	%
Weighted average shares used in computing:
	Basic and diluted net loss per share								34,325
				Three Months Ended
				December 26, 2014
				Net								Gross Profit												Operating
				(Loss) / Income				EPS				Product				Service				Total				Expenses
GAAP				$	(10,438	)		$	(0.30	)		$	21,547			$	15,262			$	36,809			$	46,813
	Share-based compensation		(1)		4,171				0.12				122				444				566				(3,605	)
	Amortization and impairment of acquired intangibles		(1)		1,310				0.04				900				-				900				(410	)
	Restructuring and severance		(2)		3,792				0.11				8				693				701				(3,091	)
	Other non-recurring items		(2)		1,268				0.03				-				10				10				(1,258	)
Non-GAAP				$	103			$	0.00			$	22,577			$	16,409			$	38,986			$	38,449
Gross Margin
	Gross margin on a GAAP basis												21.5	%			40.3	%			26.6	%
	Gross margin on a Non-GAAP basis												22.5	%			43.3	%			28.2	%
Weighted average shares used in computing:
	Basic net loss per share								34,375
	Diluted net income per share								35,134

Silicon Graphics International Corp.
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except per share data)
(Unaudited)
				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
				Nine Months Ended
				March 28, 2014
				Net								Gross Profit												Operating
				Loss				EPS				Product				Service				Total				Expenses
GAAP				$	(42,365	)		$	(1.24	)		$	51,287			$	51,514			$	102,801			$	146,685
	Share-based compensation		(1)		9,761				0.28				444				888				1,332				(8,429	)
	Amortization of acquired intangibles		(1)		2,933				0.09				1,138				-				1,138				(1,795	)
	Restructuring and severance		(2)		9,995				0.29				920				1,735				2,655				(7,340	)
	Excess and obsolete inventory		(2)		5,424				0.16				5,424				-				5,424				-
	Other non-recurring items		(2)		3,649				0.11				106				-				106				(3,543	)
	Gain on investment		(2)		(1,717	)			(0.05	)			-				-				-				-
	Income tax abatement		(2)		(611	)			(0.02	)			-				-				-				-
Non-GAAP				$	(12,931	)		$	(0.38	)		$	59,319			$	54,137			$	113,456			$	125,578
Gross Margin
	Gross margin on a GAAP basis												18.8	%			44.5	%			26.5	%
	Gross margin on a Non-GAAP basis												21.8	%			46.8	%			29.3	%
Weighted average shares used in computing:
	Basic and diluted net loss per share								34,199

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)
				Q1 FY14			Q2 FY14			Q3 FY14			Q4 FY14			Q1 FY15			Q2 FY15			Q3 FY15
Total Revenue
	Americas			$	102,212		$	62,648		$	56,554		$	56,122		$	67,670		$	87,615		$	72,585
	APJ				24,266			24,383			52,508			35,182			26,418			33,671			32,155
	EMEA				21,041			29,029			15,221			50,780			17,613			16,864			13,764
		Total revenue		$	147,519		$	116,060		$	124,283		$	142,084		$	111,701		$	138,150		$	118,504
Revenue
	Product			$	108,820		$	77,334		$	85,927		$	102,484		$	75,002		$	100,288		$	82,398
	Service				38,699			38,726			38,356			39,600			36,699			37,862			36,106
		Total revenue		$	147,519		$	116,060		$	124,283		$	142,084		$	111,701		$	138,150		$	118,504
Cost of revenue
	Product			$	88,692		$	61,343		$	70,759		$	84,991		$	58,893		$	78,741		$	63,794
	Service				20,579			21,234			22,454			21,487			20,436			22,600			21,051
		Total cost of revenue		$	109,271		$	82,577		$	93,213		$	106,478		$	79,329		$	101,341		$	84,845
Gross margin by Product and Service
	Product Gross Margin				18.5	%		20.7	%		17.7	%		17.1	%		21.5	%		21.5	%		22.6	%
	Service Gross Margin				46.8	%		45.2	%		41.5	%		45.7	%		44.3	%		40.3	%		41.7	%
		Total gross margin			25.9	%		28.8	%		25.0	%		25.1	%		29.0	%		26.6	%		28.4	%

Silicon Graphics International Corp.
CORE REVENUE TREND
(In thousands)
(Unaudited)
					Q1 FY14			Q2 FY14			Q3 FY14			Q4 FY14			Q1 FY15			Q2 FY15			Q3 FY15
Core Revenue
	Federal (*)				$	76,374		$	44,402		$	45,013		$	37,077		$	60,674		$	72,286		$	57,143
	International / Commercial (**)					55,259			62,482			77,215			103,470			49,841			65,191			60,391
		Total Core Revenue				131,633			106,884			122,228			140,547			110,515			137,477			117,534
Legacy Cloud						15,886			9,176			2,055			1,537			1,186			673			970
			Total Revenue		$	147,519		$	116,060		$	124,283		$	142,084		$	111,701		$	138,150		$	118,504

(*) 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