dcsimg

SGI Reports Second Quarter Fiscal Year 2008 Results

SUNNYVALE, Calif., Feb. 5 /PRNewswire-FirstCall/ -- SGI (Nasdaq: SGIC) today announced financial results for the second quarter of fiscal 2008, which ended December 28, 2007.

SUNNYVALE, Calif., Feb. 5 /PRNewswire-FirstCall/ — SGI (Nasdaq: SGIC) today announced financial results for the second quarter of fiscal 2008, which ended December 28, 2007.

Second Quarter FY08 Highlights Overall in its second quarter, SGI: — Achieved bookings of $100 million, a 30 percent increase over Q1, led by strength in its storage business — Increased backlog by approximately 50 percent to $96 million — Added to its leadership team to support its strategy — Secured major new wins, including a 25,000-processor supercomputer at HLRN, the North German Group for High- and Highest-Performance Computers, and a 10,240-processor supercomputer at Total, the French oil and gas company

"I'm very pleased with the continued growth in our order rate this quarter," said Bo Ewald, SGI Chief Executive Officer. "We saw continuing momentum in our bookings, with an increase of 30 percent over Q1. We've also further strengthened our leadership team with the addition of Irene Qualters, who has joined SGI to lead the software organization and specifically drive our efforts to develop and productize the SGI Industrial Strength Linux Environment."

In this press release, the company uses certain pro forma financial measures that are not calculated in accordance with GAAP, or non-GAAP financial measures. These measures are referred to as "pro forma" in this press release. In addition the company uses bookings and backlog to measure performance. Bookings reflect authorized orders for SGI products and professional services received in the period, and backlog is the cumulative bookings for which the company has not yet recognized revenue. Management believes that these non-GAAP financial measures, bookings, and backlog are useful to investors because they facilitate period to period comparisons of SGI's performance and because they help investors view the company's results of operations through the eyes of management and the company's lenders. SGI's credit line covenants, management reporting and incentive plans are measured against certain of these non-GAAP financial measures.

GAAP Q2 Results

GAAP revenue for the second quarter was $90.1 million, compared to $91.1 million in the first quarter. The second quarter GAAP operating loss was $30.8 million, compared to $27.2 million in the first quarter of fiscal 2008. GAAP operating expenses were $58.6 million for the second quarter of 2008, as compared to $54.7 million for the first quarter of fiscal 2008.

Pro Forma Q2 Results

Pro forma revenue was $109.1 million in the second quarter of fiscal 2008, compared with $120.7 million in the first quarter of fiscal 2008. Backlog at the end of the second quarter of 2008 grew to $95.8 million compared to $65.0 million at the end of the first quarter of fiscal 2008.

"Our product mix improved this quarter, with storage increasing in both orders and revenue," said Kathy Lanterman, SGI Chief Financial Officer. "As we continue to drive bookings momentum and maintain our efforts on cost control, we expect our operating results to improve as these orders convert to revenue particularly in the fourth fiscal quarter."

Pro forma revenue excludes the impact of fresh-start accounting and the deferral of the company's recognition of revenues for certain of the company's transactions where software is more than incidental to the overall solution pursuant to AICPA Statement of Position 97-2, Software Revenue Recognition ("SOP 97-2"). Pro forma gross margin for the second quarter, which is adjusted for similar items, was 35.7 percent compared with 34.3 percent in the first quarter of fiscal 2008. Pro forma operating expenses, which exclude restructuring and reorganization-related expenses, stock-based compensation expense and the impact of fresh start accounting, were $55.3 million in the second quarter of fiscal 2008 compared with $51.5 million in the first quarter of fiscal 2008. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter of fiscal 2008, as defined in the company's debt agreements, were a loss of $11.0 million, compared with a $3.8 million loss for the first quarter of fiscal 2008.

Financing and Tax Ruling

On February 4, SGI entered into an amendment to obtain an additional $42.5 million as an extension to its existing credit facility. "Particularly in light of today's difficult financial markets, we're very pleased with this show of confidence from our existing lenders to help fund SGI's growth strategy," added Lanterman.

On January 29, SGI received a ruling from the Internal Revenue Service indicating that its $1.2 billion of pre-reorganization net operating losses may be used without the limitation imposed under our tax laws. The removal of this restriction is expected to drive a positive cash impact to SGI in future years.

"We've established the foundation for growth. We are beginning to see the results in our bookings, and we expect revenue to follow," added Ewald.

A reconciliation of the non-GAAP financial measures used in this press release to the company's GAAP results of operations, including an illustration of the impact of the company's fresh start accounting and the impact of the implementation of SOP 97-2, is attached to this press release and is also available at http://www.sgi.com/company_info/investors.

Conference Call

SGI will conduct a conference call today at 2 p.m. PT to provide additional details. The webcast is available at http://www.sgi.com/company_info/investors/. The conference call can be accessed by dialing (877) 495-0297 or (706) 643-9931 for participants outside of North America, conference ID: 31926234. An audio replay of this call will be available after 5 p.m. PT today at (800) 642-1687 or (706) 645-9291 (passcode: 31926234) and will be available until February 12, 2008 midnight PT. After February 12, 2008, the call will be available as an archived webcast. All links to the archived webcast and audio replay are available through SGI's web site at http://www.sgi.com/company_info/investors/.

SGI – Innovation for Results(TM)

SGI (Nasdaq: SGIC) is a leader in high-performance computing. SGI delivers a complete range of high-performance server, visualization and storage solutions along with industry-leading professional services and support that enable its customers to overcome the challenges of complex data-intensive workflows and accelerate breakthrough discoveries, innovation and information transformation. SGI helps customers solve significant challenges, whether it's enhancing the quality of life through drug research, designing and manufacturing safer and more efficient cars and airplanes, studying global climate change, providing technologies for homeland security and defense, or helping enterprises manage large data. With offices worldwide, the company is headquartered in Sunnyvale, Calif., and can be found on the Web at sgi.com.

(C) 2007 SGI. All rights reserved. SGI, the SGI cube and the SGI logo are registered trademarks of SGI in the United States and/or other countries worldwide. All other registered trademarks mentioned herein are the property of their respective owners.

This press release contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth herein, including the risks and uncertainties discussed under the caption "Risk Factors" and elsewhere in SGI's Form 10-K or Form 10-Q most recently filed with the Securities and Exchange Commission. These forward-looking statements speak only as of the date hereof. SGI disclaims any intent or obligation to update these forward-looking statements.

SILICON GRAPHICS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, unaudited) Dec. 28, 2007 June 29, 2007 ASSETS Current assets: Cash and cash equivalents $33,135 $69,887 Short-term marketable investments 41 223 Short-term restricted investments 9,399 6,763 Accounts receivable, net 41,750 47,643 Inventories 58,848 54,354 Prepaid expenses 7,448 6,153 Other current assets 44,387 49,576 Total current assets 195,008 234,599 Restricted investments 611 302 Property and equipment, net 42,842 43,392 Other intangibles, net 59,422 71,264 Other non-current assets, net 71,207 59,501 Total assets $369,090 $409,058 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $19,668 $14,387 Accrued compensation 31,806 35,382 Income taxes payable 3,578 2,209 Other current liabilities 45,524 44,420 Current portion of long-term debt 4,283 261 Current portion of deferred revenue 89,647 84,798 Current portion of restructuring liability 1,067 1,410 Total current liabilities 195,573 182,867 Long-term debt 80,750 85,000 Non-current portion of deferred revenue 59,582 32,362 Other non-current liabilities 25,708 24,370 Total liabilities 361,613 324,599 Total stockholders' equity 7,477 84,459 Total liabilities and stockholders' equity $369,090 $409,058 SILICON GRAPHICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts, unaudited) Predecessor Successor Company Company Six Three Months Months Three Months Ended Ended Ended Dec. 28, Dec. 29, Dec. 28, Sep. 29, 2007 2006 2007 2006 Product and other revenue $40,460 $58,680 $80,602 $45,229 Product revenue from related party (1) 2,953 5,002 8,407 15,377 Global services revenue 46,698 44,041 92,187 61,199 Total revenue 90,111 107,723 181,196 121,805 – – – – Costs and expenses: Cost of product and other revenue 34,938 59,918 72,630 42,710 Cost of service revenue 27,310 29,387 53,199 32,265 Research and development 14,464 14,984 27,760 16,007 Selling, general and administrative 44,163 41,606 85,387 42,359 Other operating expense, net 20 2,885 195 3,926 Total costs and expenses 120,895 148,780 239,171 137,267 Operating loss (30,784) (41,057) (57,975) (15,462) Interest expense (2,990) (3,158) (5,942) (7,688) Interest and other income (expense), net (2) (6,970) 1,199 (7,353) 11,391 Loss before reorganization items and income taxes (40,744) (43,016) (71,270) (11,759) Reorganization items, net – – – 340,397 Income (loss) before income taxes (40,744) (43,016) (71,270) 328,638 Income tax provision 1,432 678 7,099 2,382 Net income (loss) $(42,176) $(43,694) $(78,369) $326,256 Net income (loss) per share: Basic $(3.78) $(3.93) $(7.04) $1.20 Diluted $(3.78) $(3.93) $(7.04) $0.77 Weighted-average shares used to compute net income (loss) per share: Basic 11,147 11,125 11,136 271,563 Diluted 11,147 11,125 11,136 423,875 (1) Represents product sales to SGI Japan, a related party of which we owned a 10% interest at Dec. 28, 2007 and at Sep. 29, 2006. (2) The three-month period ended Dec. 28, 2007 includes a write-down of $6 million of our equity investment in SGI Japan to the estimated fair value of the investment, which was approximately $15 million at Dec. 28, 2007. The three-month period ended Sep. 29, 2006 includes a pre-tax gain of approximately $10 million on the sale of a portion of the Predecessor Company's investment in SGI Japan. Calculation of Non-GAAP Quarterly Results of Operations and Adjusted EBITDA Successor Company Three Months Ended: 28-Dec-07 28-Sep-07 29-Jun-07 30-Mar-07 29-Dec-06 (in thousands) Total revenue (GAAP) $90,111 $91,085 $122,295 $111,046 $107,723 Plus: Fresh-start accounting adjustments 2,094 3,835 5,472 8,329 15,877 SOP 97-2 revenue deferrals (1) 16,935 25,813 13,726 10,392 10,544 Non-GAAP total revenue 109,140 120,733 141,493 129,767 134,144 Cost of revenue (GAAP) 62,248 63,581 90,148 74,355 89,305 Plus: Fresh-start accounting adjustments (3,834) (2,762) (6,644) (4,703) (12,549) SOP 97-2 revenue deferrals (1) 11,794 18,576 8,213 3,574 6,293 Stock-based compensation expense 8 (87) (57) (45) (12) Non-GAAP cost of revenue 70,216 79,308 91,660 73,181 83,037 Research and development expense (GAAP) 14,464 13,296 14,870 14,186 14,984 Plus: Fresh-start accounting adjustments (12) 47 65 52 (348) Stock-based compensation expense (253) (309) (257) (200) (58) Non-GAAP research and development expense 14,199 13,034 14,678 14,038 14,578 Selling, general and administrative expenses (GAAP) 44,163 41,224 41,697 42,017 41,606 Plus: Fresh-start accounting adjustments (2,525) (2,076) (2,580) (2,587) (2,635) Restructuring and bankruptcy related expenses – – – – – Goodwill impairment – – – – – Stock-based compensation expense (530) (718) (581) (949) (54) Non-GAAP selling, general and administrative expenses 41,108 38,430 38,536 38,481 38,917 Other operating expenses (GAAP) 20 175 358 358 2,885 Plus: Restructuring and bankruptcy related expenses (20) (175) (358) (358) (2,885) Non-GAAP other operating expenses 0 0 0 0 0 Operating expenses (GAAP) 58,647 54,695 56,925 56,561 59,475 Plus: Fresh-start accounting adjustments (2,537) (2,029) (2,515) (2,535) (2,983) Stock-based compensation expense (783) (1,027) (838) (1,149) (112) Goodwill impairment 0 0 0 0 0 Restructuring and bankruptcy related expenses (20) (175) (358) (358) (2,885) Non-GAAP operating expenses 55,307 51,464 53,214 52,519 53,495 Operating income (loss) (GAAP) (30,784) (27,191) (24,778) (19,870) (41,057) Plus: Fresh-start accounting adjustments 8,465 8,626 14,631 15,567 31,409 SOP 97-2 revenue deferrals (1) 5,141 7,237 5,513 6,818 4,251 Stock-based compensation expense 775 1,114 895 1,194 124 Goodwill impairment 0 0 0 0 0 Restructuring and bankruptcy related expenses 20 175 358 358 2,885 Non-GAAP operating income (loss) (2): (16,383) (10,039) (3,381) 4,067 (2,388) Plus: Depreciation 5,414 6,224 6,169 6,128 6,552 Adjusted EBITDA (10,969) (3,815) 2,788 10,195 4,164 Predecessor Company Three Months Ended: 29-Sep-06 30-Jun-06 31-Mar-06 30-Dec-05 30-Sep-05 (in thousands) Total revenue (GAAP) $121,805 $115,708 $105,562 $136,796 $160,739 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals (1) 5,154 13,476 2,112 7,597 8,938 Non-GAAP total revenue 126,959 129,184 107,674 144,393 169,677 Cost of revenue (GAAP) 74,975 70,532 68,227 80,952 100,722 Plus: Fresh-start accounting adjustments – – – – – SOP 97-2 revenue deferrals (1) 2,795 4,675 1,334 3,366 4,810 Stock-based compensation expense 7 22 (53) (71) (228) Non-GAAP cost of revenue 77,777 75,229 69,508 84,247 105,304 Research and development expense (GAAP) 16,007 18,220 20,838 21,254 23,365 Plus: Fresh-start accounting adjustments – – – – – Stock-based compensation expense 5 32 (112) (231) (300) Non-GAAP research and development expense 16,012 18,252 20,726 21,023 23,065 Selling, general and administrative expenses (GAAP) 42,359 42,903 59,722 57,627 59,865 Plus: Fresh-start accounting adjustments – – – – – Restructuring and bankruptcy related expenses – – (3,452) (6,413) (2,082) Goodwill impairment – – (8,386) – – Stock-based compensation expense (134) (64) (344) (381) (455) Non-GAAP selling, general and administrative expenses 42,225 42,839 47,540 50,833 57,328 Other operating expenses (GAAP) 3,926 (7,694) 11,550 10,114 7,185 Plus: Restructuring and bankruptcy related expenses (3,926) 7,694 (11,550) (10,114) (7,185) Non-GAAP other operating expenses 0 0 0 0 0 Operating expenses (GAAP) 62,292 53,429 92,110 88,995 90,415 Plus: Fresh-start accounting adjustments – – – – – Stock-based compensation expense (129) (32) (456) (612) (755) Goodwill impairment 0 0 (8,386) 0 0 Restructuring and bankruptcy related expenses (3,926) 7,694 (15,002) (16,527) (9,267) Non-GAAP operating expenses 58,237 61,091 68,266 71,856 80,393 Operating income (loss) (GAAP) (15,462) (8,253) (54,775) (33,151) (30,398) Plus: Fresh-start accounting adjustments 0 0 0 0 0 SOP 97-2 revenue deferrals (1) 2,359 8,801 778 4,231 4,128 Stock-based compensation expense 122 10 509 683 983 Goodwill impairment 0 0 8,386 0 0 Restructuring and bankruptcy related expenses 3,926 (7,694) 15,002 16,527 9,267 Non-GAAP operating income (loss) (2): (9,055) (7,136) (30,100) (11,710) (16,020) Plus: Depreciation 6,467 10,003 10,898 11,959 13,379 Adjusted EBITDA (2,588) 2,867 (19,202) 249 (2,641) FY2007 FY2006 Total revenue (GAAP) $462,869 $518,805 Plus: Fresh-start accounting adjustments 29,678 – SOP 97-2 revenue deferrals(1) 39,816 32,123 Non-GAAP total revenue 532,363 550,928 Cost of revenue (GAAP) 328,783 320,433 Plus: Fresh-start accounting adjustments (23,896) – SOP 97-2 revenue deferrals(1) 20,875 14,185 Stock-based compensation expense (107) (330) Non-GAAP cost of revenue 325,655 334,288 Research and development expense (GAAP) 60,047 83,677 Plus: Fresh-start accounting adjustments (231) – Stock-based compensation expense (510) (611) Non-GAAP research and development expense 59,306 83,066 Selling, general and administrative expenses (GAAP) 167,679 220,117 Plus: Fresh-start accounting adjustments (7,802) – Restructuring and bankruptcy related expenses – (11,947) Goodwill impairment – (8,386) Stock-based compensation expense (1,718) (1,244) Non-GAAP selling, general and administrative expenses 158,159 198,540 Other operating expenses (GAAP) 7,527 21,155 Plus: Restructuring and bankruptcy related expenses (7,527) (21,155) Non-GAAP other operating expenses 0 0 Operating expenses (GAAP) 235,253 324,949 Plus: Fresh-start accounting adjustments (8,033) – Stock-based compensation expense (2,228) (1,855) Goodwill impairment 0 (8,386) Restructuring and bankruptcy related expenses (7,527) (33,102) Non-GAAP operating expenses 217,465 281,606 Operating income (loss) (GAAP) (101,167) (126,577) Plus: Fresh-start accounting adjustments 61,607 0 SOP 97-2 revenue deferrals(1) 18,941 17,938 Stock-based compensation expense 2,335 2,185 Goodwill impairment 0 8,386 Restructuring and bankruptcy related expenses 7,527 33,102 Non-GAAP operating income (loss) (2): (10,757) (64,966) Plus: Depreciation 25,316 46,239 Adjusted EBITDA 14,559 (18,727) Calculation of Non-GAAP Revenues by Reporting Segment(1) Successor Company Three Months Ended: 28-Dec-07 28-Sep-07 29-Jun-07 30-Mar-07 29-Dec-06 (in thousands) Core systems: Server products (GAAP) $23,282 $31,627 $47,926 $32,692 $40,954 Plus: Fresh-start accounting adjustments 196 22 332 1,100 1,109 SOP 97-2 revenue deferrals (2) 12,324 20,887 6,067 4,857 4,075 Non-GAAP server products revenue 35,802 52,536 54,325 38,649 46,138 Storage products revenue (GAAP) 13,505 8,233 14,486 12,063 10,920 Plus: Fresh-start accounting adjustments 0 0 293 0 320 SOP 97-2 revenue deferrals (2) 2,303 3,377 5,392 2,676 3,834 Non-GAAP storage products revenue 15,808 11,610 20,171 14,739 15,074 Non-GAAP core systems revenue 51,610 64,146 74,496 53,388 61,212 Legacy systems: Legacy systems (GAAP) 6,626 5,736 11,846 13,816 11,808 Plus: Fresh-start accounting adjustments 0 0 0 37 1,952 SOP 97-2 revenue deferrals (2) 1,190 424 259 634 895 Non-GAAP legacy systems revenue 7,816 6,160 12,105 14,487 14,655 Non-GAAP products revenue 59,426 70,306 86,601 67,875 75,867 Global services: Customer support (GAAP) 40,193 38,231 39,332 37,527 35,080 Plus: Fresh-start accounting adjustments 1,898 3,813 4,789 6,545 12,228 SOP 97-2 revenue deferrals (2) (2,215) 77 677 159 231 Non-GAAP customer support revenue 39,876 42,121 44,798 44,231 47,539 Professional services (GAAP) 6,505 7,258 8,705 14,948 8,961 Plus: Fresh-start accounting adjustments 0 0 58 647 268 SOP 97-2 revenue deferrals (2) 3,333 1,048 1,331 2,066 1,509 Non-GAAP professional services revenue 9,838 8,306 10,094 17,661 10,738 Non-GAAP global services revenue 49,714 50,427 54,892 61,892 58,277 Non-GAAP revenue $109,140 $120,733 $141,493 $129,767 $134,144 Predecessor Company Three Months Ended: 29-Sep-06 30-Jun-06 31-Mar-06 30-Dec-05 30-Sep-05 Core systems: Server products (GAAP) $34,914 $21,168 $20,484 $28,182 $53,993 Plus: Fresh-start accounting adjustments 0 0 0 0 0 SOP 97-2 revenue deferrals (2) 2,304 3,895 30 2,485 2,524 Non-GAAP server products revenue 37,218 25,063 20,514 30,667 56,517 Storage products revenue (GAAP) 12,750 13,134 11,798 11,185 13,816 Plus: Fresh-start accounting adjustments 0 0 0 0 0 SOP 97-2 revenue deferrals (2) 1,584 1,288 854 2,070 2,766 Non-GAAP storage products revenue 14,334 14,422 12,652 13,255 16,582 Non-GAAP core systems revenue 51,552 39,485 33,166 43,922 73,099 Legacy systems: Legacy systems (GAAP) 12,942 14,701 13,810 27,095 22,729 Plus: Fresh-start accounting adjustments 0 0 0 0 0 SOP 97-2 revenue deferrals (2) (580) 7,169 1,338 2,933 2,940 Non-GAAP legacy systems revenue 12,362 21,870 15,148 30,028 25,669 Non-GAAP products revenue 63,914 61,355 48,314 73,950 98,768 Global services: Customer support (GAAP) 48,396 49,552 52,053 55,304 57,174 Plus: Fresh-start accounting adjustments 0 0 0 0 0 SOP 97-2 revenue deferrals (2) 144 1,299 (190) (317) 97 Non-GAAP customer support revenue 48,540 50,851 51,863 54,987 57,271 Professional services (GAAP) 12,803 17,153 7,417 15,030 13,027 Plus: Fresh-start accounting adjustments 0 0 0 0 0 SOP 97-2 revenue deferrals (2) 1,702 (175) 80 426 611 Non-GAAP professional services revenue 14,505 16,978 7,497 15,456 13,638 Non-GAAP global services revenue 63,045 67,829 59,360 70,443 70,909 Non-GAAP revenue $126,959 $129,184 $107,674 $144,393 $169,677 FY2007 FY2006 Core systems: Server products (GAAP) $156,486 $123,827 Plus: Fresh-start accounting adjustments 2,541 0 SOP 97-2 revenue deferrals(2) 17,303 8,934 Non-GAAP server products revenue 176,330 132,761 Storage products revenue (GAAP) 50,219 49,933 Plus: Fresh-start accounting adjustments 613 0 SOP 97-2 revenue deferrals(2) 13,486 6,978 Non-GAAP storage products revenue 64,318 56,911 Non-GAAP core systems revenue 240,648 189,672 Legacy systems: Legacy systems (GAAP) 50,412 78,335 Plus: Fresh-start accounting adjustments 1,989 0 SOP 97-2 revenue deferrals(2) 1,208 14,380 Non-GAAP legacy systems revenue 53,609 92,715 Non-GAAP products revenue 294,257 282,387 Global services: Customer support (GAAP) 160,335 214,083 Plus: Fresh-start accounting adjustments 23,562 0 SOP 97-2 revenue deferrals(2) 1,211 889 Non-GAAP customer support revenue 185,108 214,972 Professional services (GAAP) 45,417 52,627 Plus: Fresh-start accounting adjustments 973 0 SOP 97-2 revenue deferrals(2) 6,608 942 Non-GAAP professional services revenue 52,998 53,569 Non-GAAP global services revenue 238,106 268,541 Non-GAAP revenue $532,363 $550,928 (1) For each of the periods indicated, non-GAAP core systems revenue is obtained by adding non-GAAP server products revenue and non-GAAP storage products revenue, non-GAAP products revenue is obtained by adding non-GAAP core systems revenue and non-GAAP legacy systems revenue, non-GAAP global services revenue is obtained by adding non-GAAP customer support revenue and non-GAAP professional services revenue and non-GAAP revenue is obtained by adding non-GAAP products revenue and non-GAAP global services revenue. This table includes a reconciliation of each listed component to the comparable GAAP figures. (2) The non-GAAP adjustments for SOP 97-2 are indicative of the revenue results the company would have recorded without the effect of SOP 97-2, although these are unaudited adjustments. We believe that this presentation more closely matches the results that would have been recorded had SAB 104 been applied, in which case the revenue for the hardware components of the arrangement would have been recorded when those deliverables were completed, and the primary remaining deliverable is customer support. Generally, this presentation matches the timing of billings to customers for the hardware deliverables, and therefore allows more transparency to cashflows.

SOURCE SGI

Comments are closed.