Cray Inc. Reports First Quarter 2013 Results

Cray Inc. Reports First Quarter 2013 Results 
Company Reconfirms Guidance for 2013 
SEATTLE, WA -- (Marketwired) -- 04/30/13 --  Global supercomputer
leader Cray Inc. (NASDAQ: CRAY) today announced financial results for
the first quarter ended March 31, 2013. Revenue for the quarter was
$79.5 million compared to $112.3 million in the prior year period.
Cray reported a net loss for the quarter of $7.6 million or $0.20 per
share compared to net income of $5.0 million or $0.13 per share in
the first quarter of 2012.  
Please note, all figures in this release are based on U.S. GAAP
unless otherwise noted. A reconciliation of GAAP measures to non-GAAP
measures is included with the financial tables of this press release.
Non-GAAP net loss, which adjusts for selected unusual and non-cash
items, was $8.4 million or $0.23 per share, for the first quarter of
2013, compared to non-GAAP net income of $9.0 million, or $0.24 per
share, for the first quarter 2012.  
Total gross profit margin for the first quarter of 2013 was 30%
compared to 40% for the first quarter of 2012. Non-GAAP total gross
profit margin for the first quarter of 2013 was 32%. For the first
quarter of 2013, product margin was 24% and service margin was 50%.
Product margin for the first quarter of 2013 was negatively impacted
in part by non-cash items related to the acquisition of Appro and the
weakening of the Japanese Yen.  
Operating expenses for the first quarter of 2013 were $36.9 million,
consistent with the prior year period. Non-GAAP operating expenses
for the first quarter of 2013 were $35.2 million.  
The first quarter of 2013 operating results included $2.8 million for
depreciation. Non-cash, pre-tax items excluded for non-GAAP purposes
for the first quarter of 2013 were $0.6 million for amortization of
acquired and other intangibles, $1.0 million for purchase accounting
adjustments, and $1.7 million for stock compensation expense.  
As of March 31, 2013, cash and investments totaled $251 million
compared to $323 million as of December 31, 2012. Working capital at
the end of the first quarter was $283 million, unchanged compared to
December 31, 2012.  
"We had a solid first quarter," said Peter Ungaro, president and CEO
of Cray. "In HPC, our latest generation XC30 supercomputer is off to
a strong start with a number of big wins and is shipping to customers
around the world, and our new CS300 cluster is gaining traction. In
Big Data, our storage and graph analytics offerings are continuing to
make progress in this fast growing market. While we have a lot of
work left to do in order to achieve our outlook, we remain on track
to deliver strong revenue growth and I'm excited about our prospects
for the rest of the year."  
2013 Outlook
 While a wide range of results remains possible for
2013, we expect revenue to be approximately $500 million for the
year. Revenue is expected to ramp quarterly during 2013 with roughly
$80 million in the second quarter and about 45% of the annual revenue
expected in the fourth quarter. For 2013, overall gross margins are
anticipated to be in the mid-30% range. Total operating expenses for
2013 are expected to be in the range of $160 million. Non-GAAP
adjustments to pre-tax earnings are anticipated to be over $10
million in 2013, driven by stock-based compensation and acquisition
related expenses. Based on this outlook, we expect to be profitable
on a GAAP and non-GAAP basis for 2013.  
Cray's 2013 effective income tax rate is currently projected to be
about 40% but is dependent on a number of variables. Based on this
outlook, due to Cray's substantial net operating loss carryforwards,
the annual income tax provision is expected to be largely non-cash
and the effective non-GAAP tax rate is expected to be 7-10%. 
Actual results for any future period are subject to large
fluctuations given the nature of Cray's business. 
Recent Highlights  


 
--  In March, Cray was awarded a $32 million contract by the Swiss
    National Supercomputing Centre (CSCS) to upgrade and expand its Cray
    XC30 supercomputer and to provide a new Sonexion storage system. The
    system is expected to be operational in 2014.
--  During the first quarter, the Japan Advanced Institute for Science and
    Technology (JAIST) put the first Cray XC30 supercomputer in Asia into
    production.
--  In March, Cray's YarcData division announced a strategic partnership
    with QinetiQ North America (QNA), a leading defense solutions and
    advanced technology provider, to deliver solutions around YarcData's
    Urika graph analytics appliance to QNA customers. In April, YarcData
    also announced the winners of the YarcData Graph Analytics Challenge
    showcasing the increasing applicability and adoption of graph
    analytics.
--  In February, Cray introduced a new solution combining the Intel
    Distribution for Apache Hadoop software with the Cray CS300 line of
    supercomputers. Cray plans to begin shipping this Big Data offering in
    the second quarter of 2013.
--  In April, Cray announced the appointment of Prith Banerjee as a member
    of the Board of Directors and as Chair of the Strategic Technology
    Assessment Committee, effective May 1, 2013. Banerjee is Chief
    Technology Officer and a member of the global executive committee of
    the ABB Group.

  
Conference Call Information
 Cray will host a conference call today,
Tuesday, April 30, 2013 at 1:15 p.m. PDT (4:15 p.m. EDT) to discuss
its first quarter 2013 financial results. To access the call, please
dial into the conference at least 10 minutes prior to the beginning
of the call at (855) 894-4205 and enter the access code 52565837.
International callers should dial (832) 900-4685. To listen to the
audio webcast, go to the Investors section of the Cray website at
http://investors.cray.com. 
If you are unable to attend the live conference call, an audio
webcast replay will be available in the Investors section of the Cray
website for 180 days. A telephonic replay of the call will also be
available by dialing (855) 859-2056, international callers dial (404)
537-3406, and entering the access code 52565837. The conference call
replay will be available for 48 hours, beginning at 4:30 p.m. PDT on
Tuesday, April 30, 2013. 
Use of Non-GAAP Financial Measures
 This press release contains
"non-GAAP financial measures" under the rules of the U.S. Securities
and Exchange Commission. A reconciliation of GAAP to non-GAAP results
is included in the financial tables included in this press release.
Management believes that the non-GAAP financial measures provide
additional insight for analysts and investors in evaluating Cray's
financial and operational performance in the same way that the
management evaluates Cray's financial performance. However, these
non-GAAP financial measures have limitations as an analytical tool,
as they exclude the financial impact of transactions necessary or
advisable for the conduct of Cray's business, such as the granting of
equity compensation awards, and are not intended to be an alternative
to financial measures prepared in accordance with GAAP. Hence, to
compensate for these limitations, management does not review these
non-GAAP financial metrics in isolation from its GAAP results, nor
should investors.  
Non-GAAP financial measures are not based on a comprehensive set of
accounting rules or principles. This non-GAAP information
supplements, and is not intended to represent a measure of
performance in accordance with, or disclosures, required by generally
accepted accounting principles, or GAAP. These measures are adjusted
as described in the reconciliation of GAAP to non-GAAP numbers at the
end of this release, but these adjustments should not be construed as
an inference that all of these adjustments or costs are unusual,
infrequent or non-recurring. Non-GAAP financial measures should be
considered in addition to, not as a substitute for or superior to,
financial measures determined in accordance with GAAP. Investors are
advised to carefully review and consider this non-GAAP information as
well as the GAAP financial results that are disclosed in Cray's SEC
filings.  
About Cray Inc.
 Global supercomputing leader Cray Inc. (NASDAQ:
CRAY) provides innovative systems and solutions enabling scientists
and engineers in industry, academia and government to meet existing
and future simulation and analytics challenges. Leveraging 40 years
of experience in developing and servicing the world's most advanced
supercomputers, Cray offers a comprehensive portfolio of high
performance computing (HPC) systems, storage, and Big Data solutions
delivering unrivaled performance, efficiency and scalability. Cray's
Adaptive Supercomputing vision is focused on delivering innovative
next-generation products that integrate diverse processing
technologies into a unified architecture, allowing customers to
surpass today's limitations and meeting the market's continued demand
for realized performance. Go to www.cray.com for more information. 
Safe Harbor Statement
 This press release contains forward-looking
statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 and Section 27A of the Securities Act of 1933,
including, but not limited to, statements related to Cray's financial
guidance and expected future operating results and its product
delivery plans. These statements involve current expectations,
forecasts of future events and other statements that are not
historical facts. Inaccurate assumptions as well as known and unknown
risks and uncertainties can affect the accuracy of forward-looking
statements and cause actual results to differ materially from those
anticipated by these forward-looking statements. Factors that could
affect actual future events or results include, but are not limited
to, the risk that Cray does not achieve the operational or financial
results that it expects, the risk that Cray is not able to
successfully complete its planned product development efforts in a
timely fashion or at all, the risk that Cray is not able to realize
the expected benefits of the acquisition of Appro and Cray's new
Cluster Solutions business, the risk that Cray's Big Data growth
initiatives, including storage, are not successful, the risk that
Cray will not be able to secure orders for Cray systems to be
delivered and accepted in 2013 when or at the levels expected, the
risk that the systems ordered by customers are not delivered when
expected or do not perform as expected once delivered, the risk that
customer acceptances are not received when expected or at all, the
risk that Cray is not able to achieve anticipated gross margin or
expense levels, and such other risks as identified in Cray's
quarterly report on Form 10-Q for the period ended March 31, 2013,
and from time to time in other reports filed by Cray with the U.S.
Securities and Exchange Commission. You should not rely unduly on
these forward-looking statements, which apply only as of the date of
this release. Cray undertakes no duty to publicly announce or report
revisions to these statements as new information becomes available
that may change Cray's expectations. 
Cray is a registered trademark of Cray Inc. in the United States and
other countries and Cray XC30, Cray CS300, Sonexion, YarcData and
Urika are trademarks of Cray Inc. Other product and service names
mentioned herein are the trademarks of their respective owners. 


 
                                                                            
                                                                            
                         CRAY INC. AND SUBSIDIARIES                         
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS               
            (Unaudited and in thousands, except per share data)             
                                                                            
                                                     Three Months Ended     
                                                          March 31,         
                                                 -------------------------- 
                                                     2013          2012     
                                                 ------------  ------------ 
Revenue:                                                                    
  Product                                        $     59,868  $     95,977 
  Service                                              19,679        16,330 
                                                 ------------  ------------ 
    Total revenue                                      79,547       112,307 
                                                 ------------  ------------ 
Cost of revenue:                                                            
  Cost of product revenue                              45,570        57,550 
  Cost of service revenue                               9,827         9,601 
                                                 ------------  ------------ 
    Total cost of revenue                              55,397        67,151 
                                                 ------------  ------------ 
        Gross profit                                   24,150        45,156 
                                                 ------------  ------------ 
Operating expenses:                                                         
  Research and development, net                        20,226        23,750 
  Sales and marketing                                  11,143         7,873 
  General and administrative                            5,485         5,130 
                                                 ------------  ------------ 
    Total operating expenses                           36,854        36,753 
                                                 ------------  ------------ 
        Income (loss) from operations                 (12,704)        8,403 
Other income (expense), net                              (335)          220 
Interest income (expense), net                            376            (1)
                                                 ------------  ------------ 
        Income (loss) before income taxes             (12,663)        8,622 
Income tax (expense) benefit                            5,054        (3,658)
                                                 ------------  ------------ 
        Net income (loss)                        $     (7,609) $      4,964 
                                                 ============  ============ 
      Basic net income (loss) per common share   $      (0.20) $       0.14 
                                                 ============  ============ 
      Diluted net income (loss) per common share $      (0.20) $       0.13 
                                                 ============  ============ 
      Basic weighted average shares outstanding        37,335        35,528 
                                                 ============  ============ 
      Diluted weighted average shares                                       
       outstanding                                     37,335        36,906 
                                                 ============  ============ 
                                                                            
                                                                            
                                                                            
                         CRAY INC. AND SUBSIDIARIES                         
                   CONDENSED CONSOLIDATED BALANCE SHEETS                    
                     (In thousands, except share data)                      
                                                                            
                                                  March 31,    December 31, 
                                                     2013          2012     
                                                 ------------  ------------ 
                                   ASSETS                                   
Current assets:                                                             
    Cash and cash equivalents                    $    165,455  $    253,065 
    Short-term investments                             72,631        52,563 
    Accounts and other receivables, net                58,885        13,440 
    Inventory                                          78,581        89,796 
    Prepaid expenses and other current assets          12,905        11,823 
                                                 ------------  ------------ 
      Total current assets                            388,457       420,687 
  Long-term investments                                12,451        17,577 
  Property and equipment, net                          26,226        25,543 
  Service inventory, net                                1,434         1,490 
  Goodwill                                             14,182        14,182 
  Intangible assets other than goodwill, net            7,402         7,981 
  Deferred tax assets                                  11,871        10,041 
  Other non-current assets                             13,637        12,813 
                                                 ------------  ------------ 
      TOTAL ASSETS                               $    475,660  $    510,314 
                                                 ============  ============ 
                                                                            
                    LIABILITIES AND SHAREHOLDERS' EQUITY                    
Current liabilities:                                                        
    Accounts payable                             $     32,618  $     34,732 
    Accrued payroll and related expenses               10,280        25,927 
    Other accrued liabilities                           5,308         8,616 
    Deferred revenue                                   56,788        68,060 
                                                 ------------  ------------ 
      Total current liabilities                       104,994       137,335 
  Long-term deferred revenue                           29,835        29,254 
  Other non-current liabilities                         2,812         3,179 
                                                 ------------  ------------ 
      TOTAL LIABILITIES                               137,641       169,768 
                                                                            
Shareholders' equity:                                                       
    Common stock and additional paid-in capital       580,877       577,938 
    Accumulated other comprehensive income              7,395         5,181 
    Accumulated deficit                              (250,253)     (242,573)
                                                 ------------  ------------ 
      TOTAL SHAREHOLDERS' EQUITY                      338,019       340,546 
                                                 ------------  ------------ 
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $    475,660  $    510,314 
                                                 ============  ============ 
                                                                            
                                                                            
                                                                            
                         CRAY INC. AND SUBSIDIARIES                         
     Reconciliation of Selected U.S. GAAP Measures to non-GAAP Measures     
                        GAAP to non-GAAP Net Income                         
             (Unaudited; in millions except per share amounts)              
                                                                            
                                                     Three Months Ended     
                                                          March 31,         
                                                     2013          2012     
                                                 ------------  ------------ 
GAAP Net Income (Loss)                           $       (7.6) $        5.0 
                                                                            
Non-GAAP adjustments impacting gross                                        
 profit:                                                                    
Share-based compensation                     (1)          0.1           0.1 
  Purchase accounting adjustments            (2)          1.0            -- 
  Amortization of acquired and other                                        
   intangibles                               (2)          0.5            -- 
                                                 ------------  ------------ 
Total adjustments impacting gross profit                  1.6           0.1 
                                                                            
Non-GAAP gross margin percentage                           32%           40%
                                                                            
Non-GAAP adjustments impacting operating                                    
 expenses:                                                                  
  Share-based compensation                   (1)          1.6           1.1 
  Amortization of acquired intangibles       (2)          0.1            -- 
                                                 ------------  ------------ 
Total adjustments impacting operating                                       
 expenses                                                 1.7           1.1 
                                                                            
Non-GAAP adjustments impacting tax                                          
 provision:                                                                 
  Income tax on reconciling items            (3)          0.3          (0.1)
  Other items impacting tax provision        (4)         (4.4)          2.9 
                                                 ------------  ------------ 
Total adjustments impacting tax provision                (4.1)          2.8 
                                                                            
Non-GAAP Net Income (Loss)                       $       (8.4) $        9.0 
                                                 ============  ============ 
                                                                            
Non-GAAP Net Income (Loss) per common share      $      (0.23) $       0.24 
                                                 ============  ============ 
                                                                            
Diluted weighted average shares                          37.3          36.9 
                                                 ============  ============ 
                                                                            
Notes                                                                       
(1) Adjustments to exclude non-cash expenses related to share-based         
 compensation                                                               
(2) Adjustments to exclude amortization of acquired intangible and other    
 intangible assets and other acquisition-related charges related to the     
 acquisition of Appro International Inc.                                    
(3) Tax impact associated with reconciling items at non-GAAP tax rate       
(4) Adjustments to reflect cash tax impact considering benefits principally 
 related to Cray's net operating loss carryforwards and changes in Cray's   
 valuation allowance held against deferred tax assets                       
                                                                            
                                                                            
                                                                            
                                  CRAY INC.                                 
     Reconciliation of Selected U.S. GAAP Measures to non-GAAP Measures     
                (Unaudited; in millions, except percentages)                
                                                                            
                                   Three Months Ended March 31, 2013        
                          --------------------------------------------------
                            Net     Operating    Gross   Gross    Operating 
                            Loss      Loss      Profit   Margin    Expenses 
                          -------  ----------  -------- -------  -----------
GAAP                      $  (7.6) $    (12.7) $   24.2      30% $      36.9
                                                                            
Share-based                                                                 
 compensation         (1)     1.7         1.7       0.1                  1.6
Purchase accounting                                                         
 adjustments          (2)     1.0         1.0       1.0                     
Amortization of                                                             
 acquired intangibles (2)     0.6         0.6       0.5                  0.1
Income tax on                                                               
 reconciling items    (3)     0.3                                           
Other items impacting                                                       
 tax provision        (4)    (4.4)                                          
                          -------  ----------  -------- -------  -----------
Total reconciling                                                           
 items                       (0.8)        3.3       1.6       2%         1.7
                                                                            
Non-GAAP                  $  (8.4) $     (9.4) $   25.8      32% $      35.2
                          =======  ==========  ======== =======  ===========
                                                                            
                                                                            
                                   Three Months Ended March 31, 2012        
                          --------------------------------------------------
                            Net     Operating    Gross   Gross    Operating 
                           Income    Income     Profit   Margin    Expenses 
                          -------  ----------  -------- -------  -----------
GAAP                      $   5.0  $      8.4  $   45.2      40% $      36.8
                                                                            
Share-based                                                                 
 compensation         (1)     1.2         1.2       0.1                  1.1
Income tax on                                                               
 reconciling items    (3)    (0.1)                                          
Other items impacting                                                       
 tax provision        (4)     2.9                                           
                          -------  ----------  -------- -------  -----------
Total reconciling                                                           
 items                        4.0         1.2       0.1      --%         1.1
                                                                            
Non-GAAP                  $   9.0  $      9.6  $   45.3      40% $      35.7
                          =======  ==========  ======== =======  ===========
                                                                            
                                                                            
Notes                                                                       
(1) Adjustments to exclude non-cash expenses related to share-based         
 compensation                                                               
(2) Adjustments to exclude amortization of acquired intangible and other    
 intangible assets and other acquisition-related charges related to the     
 acquisition of Appro International Inc.                                    
(3) Tax impact associated with reconciling items at non-GAAP tax rate       
(4) Adjustments to reflect cash tax impact considering benefits principally 
 related to Cray's net operating loss carryforwards and changes in Cray's   
 valuation allowance held against deferred tax assets                       

  
Cray Media:
Nick Davis
206/701-2123
pr@cray.com 
Investors:
Paul Hiemstra
206/701-2044
ir@cray.com 
 
 
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