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posted on 06 February 2008 08:41

SUNNYVALE, Calif. (February 5, 2008)—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."

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 www.sgi.com/company_info/investors.

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