SOURCE: Cray Inc.

Cray Inc.

May 04, 2010 16:00 ET

Cray Inc. Reports First Quarter 2010 Financial Results

Company Reaffirms Guidance With Strong Momentum for New Orders

SEATTLE, WA--(Marketwire - May 4, 2010) - Global supercomputer leader Cray Inc. (NASDAQ: CRAY) today announced financial results for the first quarter ended March 31, 2010. Revenue for the quarter was $28.4 million compared to $74.5 million in the prior year period. The company reported a net loss for the quarter of ($11.6 million) or ($0.34) per share compared to a net loss of ($4.9 million) or ($0.15) per share in the first quarter of 2009.

Total gross profit margin for the first quarter was 23 percent down slightly from 24 percent in the first quarter of 2009. Product margin declined during the first quarter to 12 percent driven by low volume and a $0.5 million charge for estimated excess inventory. The first quarter 2010 service margin of 29 percent was impacted by lower revenues on a custom engineering contract.

Operating expenses for the first quarter of 2010 were $18.2 million compared to $21.4 million in the prior year period due primarily to lower spending on outside services in research and development. The first quarter 2010 results included non-cash items of $2.2 million for depreciation and amortization and $1.2 million related to stock compensation expense.

As of March 31, 2010, cash and short-term investments totaled $103.3 million.

"As expected, we got off to a slow start in the first quarter from a financial-results perspective, but we remain well-positioned to deliver on our growth targets for the year," said Peter Ungaro, president and CEO of Cray. "Our recently announced Cray XT6 supercomputer began shipping to customers, and while we still have important development and testing to complete, our next generation 'Baker' supercomputer is currently on track for release early in the third quarter. We also continued to expand our addressable market with the introduction of the Cray CX1000 supercomputer. This system fills out our product lineup and with our recent Cray Linux Environment enhancements, enables us to offer a supercomputing solution to every level of the High Performance Computing market."

Ungaro added, "We have had an extremely strong run of wins at major supercomputing centers around the world and within our custom engineering business. As a result, we now have nearly all of the orders we need to achieve our revenue outlook for the year."


A wide range of results remains possible for 2010. Many variables may impact our results, but one significant item is the timing of the availability and customer acceptances of our next generation supercomputer, code-named "Baker," including its new interconnect chipset, known as "Gemini," and associated system software.

Assuming a successful release of Baker in the third quarter and customer acceptances in 2010 as currently planned, we continue to anticipate revenue in the range of $305 to $325 million for 2010. As a result of the timing of the Baker system release, we expect a significant majority of 2010 revenue to be recognized in the fourth quarter. We currently expect revenue in the second and third quarters to be around $30 million and $50 million, respectively. Service revenue is expected to be in the range of $110 million for 2010, driven by strong growth in our custom engineering initiative. Gross margins for 2010 are expected to be in the mid-30 percent range. Operating expenses are expected to be lower in 2010 than in 2009, driven primarily by lower outside services and higher anticipated research and development co-funding credits. Based on this outlook, we expect to be profitable for 2010.

We expect to use cash in 2010, with the majority of the decline coming in the third quarter as we build inventory for product deliveries during the second half of 2010.

Recent Highlights

-- In April, Cray announced it had signed a contract to provide Brazil's
   National Institute for Space Research (INPE) with a new Cray XT6
   supercomputer for weather forecasting and climate studies.  Consisting
   of products and multi-year services, the contract is valued at more than
   $20 million and the system is expected to go into production in late

-- In April, Cray was awarded a contract to provide the National Nuclear
   Security Administration (NNSA), through a joint partnership between Los
   Alamos National Laboratory and Sandia National Laboratories, with a
   next-generation Cray supercomputer. The system is expected to go into
   production in late 2010. The multi-year, multi-phase contract is
   currently valued at more than $45 million.

-- In April, Cray announced the release of the latest version of its Cray
   Linux Environment, the production petascale operating system for the
   company's line of Cray XT supercomputers. Shipping with Cray XT6 and
   Cray XT6m systems, this third generation of the Cray Linux Environment
   includes the introduction of Cluster Compatibility Mode, allowing
   Cray XT supercomputers to run applications from Independent Software
   Vendors without modifications.

-- In the first quarter, Cray signed multiple custom engineering contracts
   valued at a combined total of over $20 million.

-- In March, Cray announced the launch of the Cray CX1000 system, giving
   the company the ability to now offer a supercomputing solution at every
   level of the high performance computing (HPC) server market. The dense,
   efficient and powerful rack-mounted Cray CX1000 supercomputer is priced
   starting at under $100,000, and gives HPC users an easy-to-use
   supercomputing system featuring a hybrid supercomputing architecture
   built on the latest generation of Intel® Xeon® processors.

-- In February, Cray announced it had won all three high performance
   computing system awards from the Department of Defense (DoD) as part of
   its 2010 High Performance Computing Modernization Program (HPCMP). The
   contract, worth more than $45 million including multi-year services, is
   the largest DoD HPCMP system award to a single vendor in the history of
   the program. The systems, which are expected to go into production in
   late 2010, will be housed at the U.S. Air Force Research Laboratory
   (AFRL), the Arctic Region Supercomputing Center (ARSC), and the U.S.
   Army Engineer Research and Development Center (ERDC).

-- In February, Cray completed a development milestone related to its
   Defense Advanced Research Projects Agency ("DARPA") contract. The
   $12.5 million milestone represented an offset to gross research and
   development expense.

Conference Call Information

Cray will host a conference call today, Tuesday, May 4, 2010 at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss 2010 first quarter financial results. To access the call, please dial into the conference at least 10 minutes prior to the beginning of the call at 1-888-561-1721. International callers should dial 1-480-629-9869. To listen to the live audio webcast, go to the Investors section of the Cray website at

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. If you do not have Internet access, a replay of the call will be available by dialing 1-800-406-7325, international callers can dial 1-303-590-3030, and the access code is 4293223. The conference call replay will be available for 72 hours, beginning at 4:30 p.m. Pacific Time on Tuesday, May 4, 2010.

About Cray Inc.

As a global leader in supercomputing, Cray provides highly advanced supercomputers and world-class services and support to government, industry and academia. Cray technology is designed to enable scientists and engineers to achieve remarkable breakthroughs by accelerating performance, improving efficiency and extending the capabilities of their most demanding applications. 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 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, its product development plans, including its planned release of the Baker system, and its ability to expand and penetrate its addressable market. 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 customer acceptances are not received when expected or at all, the risk that Cray is not able to successfully complete its planned product development efforts or to ship the Baker system within the planned timeframe or at all, the risk that Baker systems do not perform as expected or as required by customers, the risk that Cray is not able to achieve and obtain acceptance of co-funded development milestones when or as expected or at all, the risk that Cray will not be successful in growing revenue from its strategic initiatives, including Custom Engineering, the risk that Cray will not be able to expand and penetrate its addressable market as expected or at all and such other risks as identified in the Company's annual report on Form 10-K for the period ended December 31, 2009, 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 the Company's expectations.

Cray is a registered trademark of Cray Inc. in the United States and other countries and Cray XT, Cray XT6, Cray XT6m, Cray CX1000, Baker and Gemini are trademarks of Cray Inc. Other product and service names mentioned herein are the trademarks of their respective owners.

                      CRAY INC. AND SUBSIDIARIES

            (Unaudited and in thousands, except per share data)

                                                      Quarter Ended
                                                        March 31,
                                                    2010          2009
                                                ------------  ------------

  Product                                       $      9,065  $     59,462
  Service                                             19,323        15,019
                                                ------------  ------------
     Total revenue                                    28,388        74,481
                                                ------------  ------------

  Cost of product revenue                              8,006        46,334
  Cost of service revenue                             13,748        10,276
                                                ------------  ------------
     Total cost of revenue                            21,754        56,610
                                                ------------  ------------
     Gross profit                                      6,634        17,871
                                                ------------  ------------

  Research and development, net                        7,694        11,215
  Sales and marketing                                  6,264         6,063
  General and administrative                           4,287         4,146

                                                ------------  ------------
    Total operating expenses                          18,245        21,424
                                                ------------  ------------

    Loss from operations                             (11,611)       (3,553)

Other income (expense), net                               97          (754)

Interest income (expense), net                            17          (533)
                                                ------------  ------------

    Loss before income taxes                         (11,497)       (4,840)

Income tax expense                                      (100)          (48)
                                                ------------  ------------

    Net loss                                    $    (11,597) $     (4,888)
                                                ============  ============

   Diluted net loss per common share            $      (0.34) $      (0.15)
                                                ============  ============

   Diluted weighted average shares outstanding        33,954        33,197
                                                ------------  ------------

                        CRAY INC. AND SUBSIDIARIES

                       (Unaudited and in thousands)

                                                  March 31,   December 31,
                                                    2010          2009
                                                ------------  ------------
Current assets:
   Cash and cash equivalents                    $     95,048  $    105,018
   Restricted cash                                     5,210         5,161
   Short term investments, available-for-sale          3,000         2,999
   Accounts and other receivables, net                38,313        38,207
   Inventory                                          39,621        29,011
   Prepaid expenses and other current assets           6,534         5,514
                                                ------------  ------------
          Total current assets                       187,726       185,910

Property and equipment, net                           21,463        19,809
Service inventory, net                                 1,719         1,719
Deferred tax assets                                    2,692         2,661
Other non-current assets                              13,078        13,561
                                                ------------  ------------
          TOTAL ASSETS                          $    226,678  $    223,660
                                                ============  ============

Current liabilities:
   Accounts payable                             $     16,035  $     18,783
   Accrued payroll and related expenses                9,947        16,219
   Other accrued liabilities                           9,570         9,735
   Deferred revenue                                   63,515        42,414
                                                ------------  ------------
          Total current liabilities                   99,067        87,151

Long-term deferred revenue                             8,781         9,627
Other non-current liabilities                          2,574         2,719
                                                ------------  ------------
          TOTAL LIABILITIES                          110,422        99,497

Shareholders' equity:
   Common stock and additional paid-in capital       553,804       551,220
   Accumulated other comprehensive income              7,254         6,148
   Accumulated deficit                              (444,802)     (433,205)
                                                ------------  ------------
          TOTAL SHAREHOLDERS' EQUITY                 116,256       124,163
                                                ------------  ------------
           EQUITY                               $    226,678  $    223,660
                                                ------------  ------------

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