The Mountain View, California-based high-performance computing vendor announced that it has enlisted the help of Alix Partners LLC as it revealed revenue down 17.1% in the fourth quarter, and 13.3% in its fiscal year ended June 24.
SGI recorded net income of $7.9m for the fourth quarter on revenue of $172.2m, compared to net income of $43.6m on $207.7m in the same quarter last year. The net loss for the full year was $76.0m on revenue of $730.0m, compared to a net loss of $45.8m on revenue of $842.0m the previous year.
As well as shrinking revenue, the company is concerned about its level of unrestricted cash, and has engaged Alix Partners to help it move forward. The Alix Partners arrangement is focused on improved revenue generation, further reductions in our operating cost, and enhanced liquidity, said SGI’s CFO, Jeff Zelmer. The next 90 days are crucial for us because we need to accomplish two ambitious and closely-related objectives: increasing our cash position through asset-based borrowing or other alternatives, and beginning to implement our restructuring plan. We think that a creditable restructuring plan will be required to obtain additional financing, and that the additional financing will be required to support the operations to business through the restructuring period.
The company was not prepared to discuss details of its restructuring plans at this stage, but said it aims to reduce its quarterly expenses run rate to $60m when fully realized, with savings beginning to be accrued in the second quarter.
Enhancing our liquidity is a primary focus for the management team and the board, said Zelmer. We are seeking increased availability [to unrestricted cash] under asset-based financing arrangements with our existing lender, Wells Fargo Foothill, and other sources, with a goal of concluding an improved arrangement this quarter.
The company is also evaluating other financing and strategic alternatives, and has completed previous restructuring plans to reduce its expenses by 10%. We are proceeding with further restructuring and cost-cutting, while simultaneously remaining focused on corporate liquidity and new sources of capital and finance, said chairman and CEO, Bob Bishop.
SGI’s financial fortunes have been in decline for some time now, despite some significant customer wins and quality Linux server, storage and visualization products. One of the problems for the company remains the fact that it operates in a low-volume, high-cost market in which a single customer win can make all the difference in terms of meeting its quarterly targets.
Zelmer noted that two large system contracts failed to complete in the fourth quarter, and that while the company was hoping to complete them in the first quarter, there were no guarantees. Guidance of revenue between $150m and $170m for the first quarter indicated the difference between closing those deals or not, he said.
In addition other longer delivery cycle contracts worth up to $70m were not included in the company’s backlog for the fourth quarter, according to Zelmer, including previously announced deals with the Leibniz Rechenzentrum Computing Center at Munich, Germany, and the Technology University in Dresden, Germany.
Delays of this sort are par for the course in the HPC space – SGI’s HPC and supercomputer rival Cray Inc has also faced similar problems in recent quarters – but the retention of a turnaround firm indicates that SGI has longer-term problems. It looks increasingly like a takeover target.
