SGI Reports First Quarter 2015 Financial Results 

SGI today reported financial results for its fiscal first quarter 2015 ended Sep. 26, 2014.

Total revenue for the fiscal first quarter was $112 million, which compares with $142 million in the previous quarter and $148 million in the first fiscal quarter of 2014.

GAAP net loss for the fiscal first quarter was $10 million, or $(0.30) per share, which compares with a GAAP net loss of $10 million, or $(0.30) per share, in the prior quarter, and GAAP net loss of $7 million, or $(0.20) per share, in the first quarter of fiscal 2014. Non-GAAP net loss for the quarter was $5 million, or $(0.14) per share, which compares with a non-GAAP net loss of $0.5 million, or $(0.01) per share, in the prior quarter and non-GAAP net income of $1 million, or $0.04 per diluted share, in the year-ago period.

• Core revenue was $111 million, down 21% from $141 million in the prior quarter and down 16% from $132 million in the same quarter a year ago. The company did not record any large deals in excess of $10 million in the quarter, while the prior quarter and year-ago periods included a number of larger deals. Core revenue excludes revenue related to legacy cloud infrastructure.
• Core revenue in the company’s Federal business, which includes U.S. government customers, system integrators, and higher education institutions, was $61 million, up 64% from $37 million in the prior quarter and down 21% from $76 million in the same quarter one year ago.
• Outside of the Federal business (commercial and non-U.S. public sector), core revenue was $50 million, down 52% from $103 million in the prior quarter and down 10% from $55 million in the same quarter a year ago.
• Revenue related to the legacy cloud, which is generally commodity servers for public cloud infrastructure, was approximately $1 million, which compares with approximately $2 million in the prior quarter and $16 million in the fiscal first quarter of 2014.

“Results for the quarter were consistent with our expectations and with our full-year outlook,” said Jorge Titinger, president and CEO of SGI. “First quarter revenue was negatively impacted by late material constraints that resulted in approximately $6 million of revenue being recognized in the first week of our fiscal second quarter. We continue to be on track to deliver 40%-45% of FY15 revenue expectations in the first half of the fiscal year, and expect solid revenue growth and profitability in the second half, driven primarily by large deals that we have recently won or expect to win by the end of December. In addition, we are excited about the recent success of our new UV 300 shared memory appliance for SAP HANA. We received SAP certification of our 4- and 8-socket solutions during the fiscal first quarter and we are ahead of schedule in booking orders and executing deployments of the new systems at multiple enterprise customers.”

Recent Highlights

• On Oct. 29, SGI was awarded a contract by the Department of Defense Supercomputing Resource Center (DSRC) at the US Army of Engineer Research and Development Center (ERDC) as part of their High Performance Computing Modernization Program for approximately $27 million. The SGI ICE X system is intended to bolster the compute capabilities of the DSRC at the ERDC to improve mission-critical research and drive innovation throughout the United States Armed Forces.
• On Oct. 21, DownUnder GeoSolutions (DUG), a global geosciences company offering seismic processing and interpretation solutions to the oil and gas industry, announced the purchase of high performance computing (HPC) hardware from SGI. The SGI custom solution significantly accelerates DUG’s turnaround time for processing seismic data, a huge advantage for international oil and gas exploration.
• On Oct. 16, SGI introduced SGI UV for SAP HANA, a purpose-built, in-memory computing appliance for growing environments running the SAP HANA platform. Initial customers include Sigma-Aldrich Corporation, which will deploy 24 SAP-certified appliances of SGI UV for SAP HANA to support high availability and disaster recovery configurations spanning multiple data centers. In total, these solutions deliver 50-plus terabytes of in-memory compute power to run all SAP HANA-based enterprise applications.
• On Sep. 24, SGI announced that the Foundation for Promotion of Material Science and Technology of Japan (MST) selected the SGI UV 2000 to enhance its basic research regarding materials, analysis and evaluation services. The SGI UV 2000 will provide a significant increase in shared-memory computing compared to MST’s previous solution and will greatly increase computational capability. Additionally, the deployment will improve the precision of simulations using analysis techniques such as electronic state calculation, molecular dynamics calculation, Monte Carlo and finite element methods.
• On Sep. 8, SGI announced that it achieved performance world records for Intel’s newest processor, which is SGI’s fourth title for new Intel releases. Featured on SGI ICE X, SGI InfiniteData Cluster and SGI Rackable servers, E5-2600 v3 processors further increase performance, energy efficiency, and security to enable greater innovation and insight for SGI’s broad range of customers.

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 substantial 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 outlook for the fiscal year ending Jun. 26, 2015, and the fiscal second quarter ending Dec. 26, 2014:

• The company remains on track toward its goal of winning approximately $700 million of business in fiscal 2015, including several relatively large deals with long deployment cycles. As a result, a range of revenue outcomes for the year is possible. The company continues to expect total revenue for the year in the range of $525 to $575 million. This revenue outlook would compare with core revenue of $501 million in fiscal 2014, representing growth of approximately 5% to 15%. Revenue for the fiscal year is expected to be back-end loaded, with 55% to 60% of revenue in the second half of the year.
• On a GAAP basis, the company expects to report a loss for the year of $15 to $28 million, or $(0.43) to $(0.79) per share. The company expects to be profitable on a non-GAAP basis for the full year. Non-GAAP net income for the fiscal year is expected to exclude approximately $25 million of adjustments, including stock-based compensation expense, restructuring and severance costs, intangibles amortization and other items. EPS calculations assume 36 million weighted average shares outstanding.
• For the fiscal second quarter, total revenue is expected to be in the range of $120 million to $130 million.
• GAAP net loss for the fiscal second quarter is expected to be in the range of $12 to $15 million, or $(0.35) to $(0.43) per share. Non-GAAP net loss for the fiscal second quarter is expected to be in the range of $3 to $6 million, or $(0.09) to $(0.17) per share. Non-GAAP net loss for the fiscal second quarter is expected to exclude approximately $9 million of adjustments, including stock-based compensation expense, restructuring and severance costs, intangibles amortization and other items. EPS calculations for the fiscal second quarter assume 34.7 million weighted average shares outstanding.