SGI

Silicon Graphics International Corp (SGI)

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Silicon Graphics International (SGI)

Q1 2011 Earnings Call

November 03, 2010 5:00 pm ET

Executives

Jim Wheat - Chief Financial Officer and Senior Vice President

Erik Bylin - Investor Relations

Mark Barrenechea - Chief Executive Officer, President and Director

Analysts

Brian Freed - Morgan Keegan

Tim Quinlisk

Presentation

Operator

Good afternoon, and thank you for joining us on today's conference call to discuss SGI's First Quarter Fiscal 2011 Earnings Results. [Operator Instructions] At this time, I'd like to turn the call over to Mr. Erik Bylin for opening remarks and introduction. Please go ahead.

Erik Bylin

Good afternoon. Thank you for joining us to discuss our first quarter fiscal year 2011 financial earnings press release this afternoon, which is available on our website, www.sgi.com. I'm Erik Bylin, Investor Relations for SGI, and I'll be managing the call. Joining me on the call today are Mark Barrenechea, our President and Chief Executive Officer; and Jim Wheat, our Chief Financial Officer.

Before I turn the call over to Mark, I'd like to bring the following to your attention. The date of this call is November 3, 2010. This call is the property of SGI, and any recording, reproduction or transmission of this conference call without the expressed prior written consent of SGI is strictly prohibited. This call is being webcast live, and a web replay will be available on our website for approximately 90 days.

Our presentation today contains forward-looking statements reflecting management's expectations about our markets, business, products, 2011 outlook, long-term operating assumptions and plans and financial performance, as well as other events and circumstances that have not yet occurred. Statements containing the words such as will, expect, believe, project and intend and other statements in the future tense are forward-looking statements. Any statements made on this call that are not statements of historical facts may be deemed forward-looking statements.

Actual outcomes and results may differ materially from the expectations expressed or implied in these statements due to a number of risks and uncertainties including, SGI operates in a very competitive market, which may cause pricing pressure and impair our market penetration; SGI has extensive international business activities which create risks from complex international operations, foreign currency exposure and changing legal, regulatory, political or economic conditions and if SGI is unable to manage its more extensive international operations, its business will be harmed, uncertainty arising from SGI's increased dependence on business within U.S. Government entities, failure of our customers to accept new products and economic conditions impacting the purchasing decisions of SGI's customers.

Accordingly, we caution you not to place undue reliance on these forward-looking statements. These and other risks and uncertainties affecting SGI are set forth in our annual report on Form 10-K under the caption Risk Factors, which was filed with the Securities and Exchange Commission on September 8, 2010, as updated by SGI's subsequent filings with the SEC, all of which are available at sec.gov. We expressly disclaim any obligation to update or alter our forward-looking statements whether as a result of new information, future events or otherwise except as required by law.

We will be disclosing non-GAAP financial measures in this presentation. For a reconciliation of these non-GAAP financial measures to the corresponding GAAP measures, please see our press release of today, which is posted on our website at www.sgi.com. Today, we have posted a slide deck on our website that highlights the key details of today's conference call. Please go to investors.sgi if you would like to download it.

I'm pleased to let you know that we will be presenting at Barclays' Technology Conference in San Francisco on December 8, in Needham's Growth Conference in New York City on January 12. Please join us via webcast if you're unable to attend the conference. I'll now turn the call over to SGI's CEO, Mark Barrenechea.

Mark Barrenechea

Thank you, Erik, and welcome, everybody in today's call. Let me begin by saying how pleased I am with our progress, our overall Q1 results and our start to fiscal year '11. On a non-GAAP basis, we delivered revenues of $130 million, gross margin of 28.3%, operating expenses below $40 million, positive EBITDA and an EPS loss of $0.06%. Of the $42 million in cash used during Q1, $32 million was used to fund customer orders. We also entered Q2 with a strong backlog.

Compared to last quarter, revenues grew by approximately 7%. Gross margin expanded by 435 basis points, and we reduced our loss from $0.55 to $0.06. Combining our solid start for the year with our visibility over the next six months, we are reaffirming our non-GAAP FY '11 guidance of revenue between $550 million and $575 million, gross margin between 27% and 30%, operating expenses between $165 million and $171 million and EPS breakeven.

I would also like to reemphasize what I talked about in our Q4 call. Per our internal plan, we expect profitability in FY '12 and FY '13. In the quarter, non-GAAP revenues for the public sector and cloud markets combined were greater than 75% of our revenue. Manufacturing, oil and gas and telecommunications were the next three strongest markets for us. We are also reporting for the first time the U.S. Government as a greater than 10% customer. 28% of our revenue originated in or was fulfilled through our channel. Our international operations contributed 26%. Service was 31% of our business, contributing 43 points of gross margin on a non-GAAP basis. Our revenue was driven by solid performance within our Rackable and UV product lines. We also had encouraging contributions from our COPAN and LSI offerings. Overall, storage contributed 18% of our product mix.

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