SGI Reports Preliminary Financial Results for Second Quarter of Fiscal 2014 

SGI reported preliminary financial results for its fiscal second quarter ended Dec. 27, 2013. The company also provided a financial outlook for the second half of fiscal 2014 reflecting growth in its core HPC, Big Data, storage and services revenues. Separately today, the company also announced that it has entered into a partnership with SAP A.G., the market leader in enterprise software and software-related services, to jointly develop and deploy integrated, high-performance commercial solutions based on SGI's UV in-memory compute technology and SAP's HANA in-memory database products. The company believes that this technology and marketing partnership expands its Total Addressable Market (TAM) by approximately $2 billion.

The following results are preliminary, and subject to adjustments. Final results are expected to be announced on Jan. 29, 2014.

• As expected, revenue in the company's Federal business, which includes U.S. government customers, system integrators, and higher education institutions, was impacted by the October 2013 government shutdown and its after-effects. Federal revenue was$44 million, down from $76 million in the prior quarter and $65 million in the same quarter one year ago.
• Excluding Federal, core revenues for HPC, Big Data, storage and services were $63 million, up 14% from $55 million in the prior quarter and down 7% from $68 million in the same quarter a year ago.
• Core revenue (including Federal) was approximately $107 million, which compares with $132 million in the prior quarter and $133 million in the same quarter a year ago.
• Revenue related to the legacy cloud, which is generally commodity servers for provisioning cloud infrastructure, was approximately $9 million, which compares with $16 million in the prior quarter and $38 million in the fiscal second quarter of 2013. The company is continuing to exit commoditized legacy account relationships.
• Total revenue is expected to be approximately $116 million, which compares with $148 million in the prior quarter and $171 millionin the fiscal second quarter of 2013.
• GAAP gross margin for the quarter is expected to be approximately 29%, which compares with 26% in the prior quarter and 28% in the same quarter a year ago. Non-GAAP gross margin is expected to be approximately 30%, which compares with 29% in the prior quarter and 29% in the same quarter one year ago.
• Adjusted EBITDA is expected to be a loss of approximately $(4) million, which compares with adjusted EBITDA of $5 million in the prior quarter and $6.5 million in the same quarter a year ago.
• GAAP net loss for the second quarter is expected to be $(12.5) to $(13.5) million, or $(0.37) to $(0.40) per share, which compares with a loss of $(7) million, or $(0.20) per share in the prior quarter and net income of $1 million, or $0.03 per share in the second quarter of fiscal 2013.
• Non-GAAP net loss for the second quarter is expected to be $(7.5) to $(8.5) million, or $(0.21) to $(0.24) per share, which compares with non-GAAP net income of $1 million, or $0.04 per share, in the prior quarter and non-GAAP net income of $3 million, or $0.10 per share in the same quarter a year ago.

Jorge Titinger, president and CEO, said, "As expected, our results in the fiscal second quarter were impacted by the government shutdown and its after-effects. Outside of our Federal business, in the second quarter we grew core revenue 14% sequentially, reflecting initial traction from our strategic focus on providing integrated HPC and Big Data solutions across key vertical markets. We are accelerating our initiatives to further penetrate the enterprise market with our extreme high performance in-memory UV system, including the SAP partnership announced today. We expect to achieve strong growth in core revenue and greater profitability in the second half of our fiscal year. However, this growth likely will be less than originally expected due to near-term delays in certain federal programs. With a new federal budget in place, we believe that our federal customers will begin to gain visibility of funding for mission-critical programs in the coming weeks. We therefore remain positive on the long-term outlook for growth, based on increasing traction with enterprise and international customers, increasing penetration of new agencies and departments within the federal government, and an eventual return to historical spending levels for most current federal customers."

Based on current expectations of the timing of customer decisions and system acceptances, the company provides the following outlook for the second half of its fiscal year:

• Total revenue for the second half of fiscal 2014 is expected to be in the range of $260 - $300 million.
• Excluding Federal, core revenue for the second half of fiscal 2014 is expected to grow at least 30% compared with the second half of fiscal 2013. Including Federal, core revenue is expected to be in the range of flat to up 10%.
• The company reaffirmed its long-term (12-24 months) target operating model of non-GAAP gross margins of 31-33% and non-GAAP operating margins of 8-12%.