Cray Inc. Reports Second Quarter 2013 Results

Cray Inc. Reports Second Quarter 2013 Results 
Company Increases Revenue Outlook for 2013 
SEATTLE, WA -- (Marketwired) -- 07/31/13 --  Global supercomputer
leader Cray Inc. (NASDAQ: CRAY) today announced financial results for
the second quarter ended June 30, 2013. Revenue for the quarter was
$84.5 million compared to $84.2 million in the prior year period.
Cray reported a net loss for the quarter of $0.2 million or $0.00 per
share compared to net income of $147.4 million or $3.91 diluted
income per share in the second quarter of 2012. Net loss results for
the second quarter of 2013 were positively impacted by a $9.3 million
tax benefit which resulted from the partial release of the valuation
allowance held against Cray's deferred tax assets. The second quarter
of 2012 operating results included a $139.1 million pre-tax gain,
which resulted from the sale of the Company's interconnect hardware
development program to Intel Corporation. 
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
$7.0 million or $0.19 per share for the second quarter of 2013,
compared to non-GAAP net income of $12.8 million or $0.34 per share
for the second quarter of 2012.  
Revenue for the six-month period ended June 30, 2013 was $164.0
million compared with $196.5 million in the prior year period.
Non-GAAP net loss for the first six months of 2013 was $15.4 million,
compared to non-GAAP net income of $21.8 million for the prior year
period.  
Total gross profit margin for the second quarter of 2013 was 32%
compared to 41% for the second quarter of 2012. Non-GAAP total gross
profit margin for the second quarter of 2013 was 33% compared to 41%
for the second quarter of 2012. For the second quarter of 2013,
product margin was 24% and service margin was 54%. Product margin for
the second quarter of 2013 was negatively impacted in part by higher
than anticipated costs on a single, large installation. Without the
additional costs associated with this installation, product margin
for the quarter would have been 8 percentage points higher, at 32%,
and total gross profit margin would have b
een 6 percentage points
higher, at 38%. 
Operating expenses for the second quarter of 2013 were $36.6 million,
compared to $22.1 million in the prior year period. Second quarter of
2012 operating expenses benefited from $15 million in R&D co-funding
credits related to the Company's DARPA contract, which was completed
in 2012. Non-GAAP operating expenses for the second quarter of 2013
were $35.0 million compared to $20.9 million in the prior year
period.  
The second quarter of 2013 operating results included $3.5 million
for depreciation. Non-cash, pre-tax items excluded for non-GAAP
purposes for the second quarter of 2013 were $0.6 million for
amortization of acquired and other intangibles, $0.1 million for
purchase accounting adjustments, and $1.6 million for stock
compensation expense.  
As of June 30, 2013, cash and investments totaled $253 million
compared to $251 million as of March 31, 2013. Working capital
increased during the second quarter to $285 million compared to $283
million at the end of the first quarter.  
"We had a good second quarter, with continued progress across each of
our different product offerings, and we ended the first half of the
year ahead of our revenue track," said Peter Ungaro, president and
CEO of Cray. "Our supercomputing business continues to be strong,
highlighted by several exciting new wins around the world in the last
few months, including flagship wins at both the European Centre for
Medium-Range Weather Forecasts and the ARCHER project for the UK
national supercomputing facility. In big data, we recently launched
our Cray Cluster Connect offering, a complete, end-to-end high
performance storage solution for any x86 Linux cluster. On the
analytics front, we had a number of exciting wins in our YarcData
group, signing up new customers across several of our key market
segments for our Urika real-time data discovery platform. We're in a
strong competitive position right now and I'm really excited about
the momentum we've built throughout our business. With an increase to
our outlook today, we're anticipating strong revenue growth of more
than 20% for the year and solid profitability."  
2013 Outlook 
 While a wide range of results remains possible for
2013, we expect revenue to be approximately $520 million for the
year. Revenue in the third quarter is expected to be about $90
million. For 2013, total gross profit margin is 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.  
Following a partial release of Cray's deferred tax asset valuation
allowance in the second quarter of 2013, the Company expects to
record an income tax benefit for the year. 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 July, Cray won a new $30 million contract to deliver a Cray XC30
    supercomputer and a Cray Sonexion storage system for the UK national
    supercomputing facility at the University of Edinburgh in Scotland, as
    part of the ARCHER project.
--  In June, Cray was awarded a contract valued at more than $65 million
    by the European Centre for Medium-Range Weather Forecasts (ECMWF), one
    of the world's premier numerical weather prediction and research
    centers, to deliver a Cray XC30 supercomputer and Cray Sonexion
    storage for their next operational facility.
--  In June, the Company launched Cray Cluster Connect, a complete Lustre
    storage solution for x86 clusters across the HPC and big data
    computing markets. Cray Cluster Connect provides customers with an
    end-to-end Lustre solution consisting of hardware, networking,
    software, architecture and support.
--  In May, Cray introduced the Cray XC30-AC supercomputer, the Company's
    new addition to its series of Cray XC30 systems. The system features
    all of the advanced high performance technologies offered in the XC30
    system with prices starting at $500,000.
--  In the second quarter, Cray announced that the Cray CS300 cluster
    supercomputers are available with Intel Xeon Phi coprocessors which
    are optimized to deliver the highest levels of parallel performance to
    power breakthrough innovations across an array of scientific fields.
    Also in the second quarter, Cray launched a new turnkey Hadoop
    offering built on an optimized configuration of the Cray CS300 system.
--  In the second quarter, Cray's YarcData division was awarded multiple
    new contracts for its Urika system, a big data appliance for real-time
    data discovery.
--  In the second quarter, Cray's YarcData division was named a 2013
    Gartner "Cool Vendor" in Content and Social Analytics. The Gartner
    report found that gaining insights across multi-structured dat
a is one
    of the biggest opportunities to derive value from analytics.

  
Conference Call Information
 Cray will host a conference call today,
Wednesday, July 31, 2013 at 1:30 p.m. PDT (4:30 p.m. EDT) to discuss
its second 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 24952249.
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 24952249. The conference call
replay will be available for 48 hours, beginning at 4:30 p.m. PDT on
Wednesday, July 31, 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 sales
and 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 June 30, 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 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     Six Months Ended   
                                       June 30,              June 30,       
                                 --------------------  -------------------- 
                                    2013       2012       2013       2012   
                                 ---------  ---------  ---------  --------- 
Revenue:                                                                    
  Product                        $  62,353  $  68,516  $ 122,221  $ 164,493 
  Service                           22,114     15,667     41,793     31,997 
                                 ---------  ---------  ---------  --------- 
    Total revenue                   84,4
67     84,183    164,014    196,490 
                                 ---------  ---------  ---------  --------- 
Cost of revenue:                                                            
  Cost of product revenue           47,477     39,521     93,047     97,071 
  Cost of service revenue           10,189     10,167     20,017     19,768 
                                 ---------  ---------  ---------  --------- 
    Total cost of revenue           57,666     49,688    113,064    116,839 
                                 ---------  ---------  ---------  --------- 
        Gross profit                26,801     34,495     50,950     79,651 
                                 ---------  ---------  ---------  --------- 
Operating expenses:                                                         
  Research and development, net     19,968      6,893     40,194     30,643 
  Sales and marketing               11,550     10,233     22,693     18,106 
  General and administrative         5,085      4,971     10,570     10,101 
                                 ---------  ---------  ---------  --------- 
    Total operating expenses        36,603     22,097     73,457     58,850 
                                 ---------  ---------  ---------  --------- 
Net gain on sale of interconnect                                            
 hardware development program           --    139,068         --    139,068 
                                 ---------  ---------  ---------  --------- 
        Income (loss) from                                                  
         operations                 (9,802)   151,466    (22,507)   159,869 
Other income (expense), net            145        245       (190)       465 
Interest income, net                   204         37        580         36 
                                 ---------  ---------  ---------  --------- 
        Income (loss) before                                                
         income taxes               (9,453)   151,748    (22,117)   160,370 
Income tax (expense) benefit         9,303     (4,326)    14,357     (7,984)
                                 ---------  ---------  ---------  --------- 
        Net income (loss)        $    (150) $ 147,422  $  (7,760) $ 152,386 
                                 =========  =========  =========  ========= 
                                                                            
      Basic net income (loss)                                               
       per common share          $      --  $    4.05  $   (0.21) $    4.24 
                                 =========  =========  =========  ========= 
      Diluted net income (loss)                                             
       per common share          $      --  $    3.91  $   (0.21) $    4.12 
                                 =========  =========  =========  ========= 
                                                                            
      Basic weighted average                                                
       shares outstanding           37,658     36,367     37,497     35,947 
                                 =========  =========  =========  ========= 
      Diluted weighted average                                              
       shares outstanding           37,658     37,682     37,497     36,956 
                                 =========  =========  =========  ========= 
                                                                            
                                                                            
                                                                            
                         CRAY INC. AND SUBSIDIARIES                         
                   CONDENSED CONSOLIDATED BALANCE SHEETS                    
                     (In thousands, except share data)                      
                                                                            
                                                   June 30,    December 31, 
                                                     2013          2012     
                                                 ------------  ------------ 
                                   ASSETS                                   
Current assets:                                                             
    Cash and cash equivalents                    $    149,146  $    253,065 
    Short-term investments                             91,804        52,563 
    Accounts and other receivables, net                25,137        13,440 
    Inventory                                         126,199        89,796 
    Prepaid expenses and other current assets          17,634        11,823 
                                                 ------------  ------------ 
      Total current assets                            409,920       420,687 
  Long-term investments                                12,242        17,577 
  Property and equipment, net                          26,990        25,543 
  Service inventory, net                                1,524         1,490 
  Goodwill                                             14,182        14,182 
  Intangible assets other than goodwill, net            6,829         7,981 
  Deferred tax assets                                  19,664        10,041 
  Other non-current assets                             11,418        12,813 
                                                 ------------  ------------ 
      TOTAL ASSETS                               $    502,769  $    510,314 
                                                 ============  ============ 
                                                                            
                    LIABILITIES AND SHAREHOLDERS' EQUITY                    
Current liabilities:                                                        
    Accounts payable                             $     62,297  $     34,732 
    Accrued payroll and related expenses                9,162        25,927 
    Other accrued liabilities                           4,662         8,616 
    Deferred revenue                                   48,563        68,060 
                                                 ------------  ------------ 
      Total current liabilities                       124,684       137,335 
  Long-term deferred revenue                           37,042        29,254 
  Other non-current liabilities                         2,759         3,179 
                                                 ------------  ------------ 
      TOTAL LIABILITIES                               164,485       169,768 
Shareholders' equity:                                                       
  Common stock and additional paid-in capital         582,093       577,938 
  Accumulated other comprehensive income                6,820         5,181 
  Accumulated deficit                                (250,629)     (242,573)
                                                 ------------  ------------ 
      TOTAL SHAREHOLDERS' EQUITY
                      338,284       340,546 
                                                 ------------  ------------ 
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $    502,769  $    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 and percentages)      
                                                                            
                                  Three Months Ended     Six Months Ended   
                                       June 30,              June 30,       
                                 --------------------  -------------------- 
                                    2013       2012       2013       2012   
                                 ---------  ---------  ---------  --------- 
GAAP Net Income (Loss)           $    (0.2) $   147.4  $    (7.8) $   152.4 
                                                                            
Non-GAAP adjustments                                                        
 impacting gross profit:                                                    
Share-based compensation     (1)       0.1        0.1        0.2        0.2 
  Purchase accounting                                                       
   adjustments               (2)       0.1         --        1.1         -- 
  Amortization of acquired                                                  
   and other intangibles     (2)       0.5         --        1.0         -- 
                                 ---------  ---------  ---------  --------- 
Total adjustments impacting                                                 
 gross profit                          0.7        0.1        2.3        0.2 
                                                                            
Non-GAAP gross margin                                                       
 percentage                             33%        41%        32%        41%
                                                                            
Non-GAAP adjustments                                                        
 impacting operating                                                        
 expenses:                                                                  
  Share-based compensation   (1)       1.5        1.2        3.1        2.3 
  Amortization of acquired                                                  
   intangibles               (2)       0.1         --        0.2         -- 
                                 ---------  ---------  ---------  --------- 
Total adjustments impacting                                                 
 operating expenses                    1.6        1.2        3.3        2.3 
                                                                            
Gain on sale to Intel        (3)        --     (139.1)        --     (139.1)
                                                                            
Non-GAAP adjustments                                                        
 impacting tax provision:                                                   
  Income tax on reconciling                                                 
   items                     (4)       0.2        4.7        0.5        4.6 
  Other items impacting tax                                                 
   provision                 (5)      (9.3)      (1.5)     (13.7)       1.4 
                                 ---------  ---------  ---------  --------- 
Total adjustments impacting                                                 
 tax provision                        (9.1)       3.2      (13.2)       6.0 
                                                                            
Non-GAAP Net Income (Loss)       $    (7.0) $    12.8  $   (15.4) $    21.8 
                                 =========  =========  =========  ========= 
                                                                            
Non-GAAP Net Income (Loss)                                                  
 per common share                $   (0.19) $    0.34  $   (0.41) $    0.59 
                                 =========  =========  =========  ========= 
                                                                            
Diluted weighted average                                                    
 shares                               37.7       37.7       37.5       37.0 
                                                                            
Notes                                                                       
(1) Adjustments to exclude non-cash expenses related to share-based         
    compensation                                                            
(2) Adjustments to exclude amortization of acquired intangible assets and   
    other acquisition-related charges related to the acquisition of Appro   
    International, Inc.                                                     
(3) Adjustment to exclude gain on divestiture of interconnect hardware      
    development program in Q2 2012                                          
(4) Tax impact associated with reconciling items at non-GAAP tax rate       
(5) 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 EPS and percentages)            
                                                                            
                                Three months ended June 30, 2013            
                    --------------------------------------------------------
                              Operating  Diluted   Gross   Gross   Operating
                    Net Loss     Loss      EPS     Profit Margin   Expenses 
                    --------  ---------  -------  ------- ------  ----------
GAAP                $   (0.2) $    (9.8) $    --  $  26.8     32% $     36.6
                                                                            
Share-based                                                                 
 compensation   (1)      1.6        1.6     0.04      0.1                1.5
Purchase                                                                    
 accounting                                                                 
 adjustments    (2)      0.1        0.1       --      0.1                   
Amortization of                                                             
 acquired                                                                   
 intangibles    (2)      0.6        0.6     0.02      0.5                0.1
Income tax on                                                               
 reconciling                                                                
 items          (3)      0.2                0.01                            
Other items                                                                 
 impacting tax                                                              
 provision      (4)     (9.3)              (0.26)                           
                    --------  ---------  -------  ------- ------  ----------
Total                                                                       
 reconciling                                                                
 items              $   (6.8) $     2.3  $ (0.19) $   0.7      1% $      1.6
                                                                            
Non-GAAP            $   (7.0) $    (7.5) $ (0.19) $  27.5     33% $     35.0
                    ========  =========  =======  ======= ======  ==========
                                                                            
                                Three months ended June 30, 2012            
                    --------------------------------------------------------
                       Net    Operating  Diluted   Gross   Gross   Operating
                     Income     Income     EPS     Profit Margin   Expenses 
                    --------  ---------  -------  ------- ------  ----------
GAAP                $  147.4  $   151.5  $  
3.91  $  34.5     41% $     22.1
                                                                            
Share-based                                                                 
 compensation   (1)      1.3        1.3     0.03      0.1                1.2
Gain on Intel                                                               
 sale           (5)   (139.1)    (139.1)   (3.69)                           
Income tax on                                                               
 reconciling                                                                
 items          (3)      4.7                0.12                            
Other items                                                                 
 impacting tax                                                              
 provision      (4)     (1.5)              (0.03)                           
                    --------  ---------  -------  ------- ------  ----------
Total                                                                       
 reconciling                                                                
 items              $ (134.6) $  (137.8) $ (3.57) $   0.1     --% $      1.2
                                                                            
Non-GAAP            $   12.8  $    13.7  $  0.34  $  34.6     41% $     20.9
                    ========  =========  =======  ======= ======  ==========

 
                                                                            
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                    
(5) Adjustment to exclude gain on divestiture of interconnect hardware      
    development program in Q2 2012                                          

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