Analyst Conference Call Summary

Silicon Graphics International

conference date: August 6, 2014 @ 1:30 PM Pacific Time
for quarter ending: June 27, 2014 (fourth quarter, Q4, fiscal 2014)

Forward-looking statements

Overview: Significant improvement in this beaten-down company. Turnaround? Nope, guidance is weak.

Basic data (GAAP) :

Revenues were $142.1 million, up 14% sequentially from $124.3 million but down 17% from $170.5 million in the year-earlier quarter.

Net income was negative $10.4 million, up sequentially from negative $21.9 million and down from negative $4.5 million in the year-earlier quarter.

EPS (earnings per share) were negative $0.30, up sequentially from negative $0.64 and down from negative $0.13 year-earlier.


For the September quarter (Q1 fiscal 2015) revenue is expected to be between $115 and $125 million. GAAP net loss between $4.5 and $6.5 million, EPS negative 0.31 to $0.37.

For full fiscal 2015 (Ending June 2015) SGI has a goal of $700 million in orders resulting in $525 to $575 million in revenue. Revenue in the year expected to be back-end loaded. SGI expects to be profitable on a non-GAAP basis for the full fiscal year.

Conference Highlights:

Better than expected quarter results. Positive EBITDA and positive cash flow.

Believes can grow the HPC (high-performance computing) business at a 15% annual rate.

Non-GAAP numbers: net income was negative $0.5 million, up sequentially from negative $7 million, but down from $6 million year-earlier. EPS was negative $0.01, sequentially from negative $0.22 and down from $0.17 year-earlier. % gross margin.

Core revenue was $141 million, up 12% from 125 million year-earlier. Federal core revenue was $37 million, down 45% y/y from $67 million. Decline was largely in intelligence-related spending. Bookings for new Federal business increased substantially in the quarter, but large deals have long deployment timelines. Expects 50% sequential growth in revenue for Q1.

Legacy cloud business revenue was $2 million, down from $46 million year-earlier.

ICE X . Expects this to become the leading product line in 2014. A major system was deployed at the UK Atomic Weapons Establishment . Several deals were signed in Q4 and more were already signed in the current quarter.

UV300 HANA appliance is expected to generate revenue in the second half of fiscal 2015. Already establishing a pipeline of deals.

In the quarter only one customer represented greater than 10% of revenue.

Expects to decrease operating expenses by 5% in fiscal 2015 while continuing to invest in key initiatives where SGI is differentiated from the competition.

Cash and equivalents balance ended at $114 million, up $33 million sequentially from $80 million on good receivables collections. Inventories dropped to $47.4 million. Accounts receivable $72 million. There is no debt. $2 million in capital expenditures. $3 million for depreciation and amortization. $2.9 million was used to repurchase stock; $16 million remains authorized.

Cost of revenue was $106.5 million, leaving gross profit of $35.6 million. Operating expenses of $46.6 million included: $16.5 million for research and development; $17.2 million sales and marketing; $12.3 million general and administrative; and $0.6 million restructuring. Leaving income from operations of negative $11.0 million. Other expense was $0.4 million. Income tax benefit $0.9 million.

1166 headcount, down 17% y/y.


Opportunity to do better than high end of 2015 guidance? Yes, some deals are large with long lead times, we might be able to bring them in. But with large deals it is hard to be certain when they will produce revenue.

The order pipeline is pretty broad. It is not as concentrated in Federal as in the past.

Single traditional intelligence accounts, or others? Orders are coming more broadly from Federal customers. Some revenue is coming back from the traditional customer. We don't want to comment on specific customer activity.

Assembly and supply chain plans? We hope to use more contractors for sub-assemblies and perhaps for testing. Our Chipewa Falls factory does final assembly and test. We have always used subcontractors.

The $700 million guidance is a goal. The potential pipeline is four times that size.

UV HANA systems potential? This is a high-end computer for SAP software. TAM around $1 billion over 3 years. The four socket device should expand that TAM significantly. This is being driven both by SAP and customer interest. HANA works extremely well when it is all in memory.

In-memory market? All the database providers are very interested in this market.


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Copyright 2014 William P. Meyers