SOURCE: Cray Inc.

Cray Inc.

July 29, 2014 16:05 ET

Cray Inc. Reports Second Quarter 2014 Financial Results

Company Highlights Significant Recent Customer Wins and Reaffirms Annual Guidance

SEATTLE, WA--(Marketwired - Jul 29, 2014) -  Global supercomputer leader Cray Inc. (NASDAQ: CRAY) today announced financial results for the second quarter ended June 30, 2014.

All figures in this release are based on U.S. GAAP unless otherwise noted. A reconciliation of GAAP to non-GAAP measures is included in the financial tables in this press release. Given the nature of the business, the Company's results can fluctuate dramatically quarter-to-quarter.

Revenue for the quarter was $85.1 million and compares to $84.5 million in the prior year period. The Company reported a net loss for the quarter of $6.7 million, or $0.18 per diluted share, compared to a net loss of $0.2 million, or $0.00 per diluted share in the second quarter of 2013. Non-GAAP net loss was $8.6 million, or $0.22 per diluted share for the quarter, compared to $7.0 million, or $0.19 per diluted share for the same period last year.

Overall gross profit margin for the second quarter of 2014 was 34% compared to 32% for the second quarter of 2013. Total non-GAAP gross profit margin for the second quarter of 2014 was 35% compared to 33% for the second quarter of 2013.

Operating expenses for the second quarter of 2014 were $42.8 million compared to $36.6 million for the prior year period. Non-GAAP operating expenses for the second quarter of 2014 were $39.9 million, compared to $35.0 million for the prior year period. The increase in 2014 GAAP and non-GAAP operating expenses was driven largely by the Company's investments in big data.

As of June 30, 2014, cash, investments and restricted cash totaled $211.6 million compared to $278.6 million at March 31, 2014. Working capital at the end of the second quarter was $300.5 million, compared to $314.9 million at the end of the first quarter.

"Over the last few months we've been on an incredible run of customer wins in both the U.S. and around the world," said Peter Ungaro, president and CEO of Cray. "These awards, some of them multi-year in nature, reaffirm our belief that we're in a great position to continue to grow, not only in 2014 but also over the coming years. Our products are competitively strong, with each of our development roadmaps being driven by the continuing convergence of supercomputing and big data we're seeing in the market. We believe we're in a great position to capitalize on this exciting market evolution and to continue to build on our market leadership."

Outlook
For 2014, while a wide range of results remains possible, the Company anticipates revenue to be in the range of $600 million for the year and, as previously indicated, to be heavily weighted to the fourth quarter as has been typical in recent years. Revenue is expected to be about $125 million for the third quarter. Non-GAAP gross margin for 2014 is anticipated to be in the mid-30% range. Total non-GAAP operating expenses for the year are anticipated to be about $175 million. Based on this outlook, the Company expects to be profitable on both a GAAP and non-GAAP basis for 2014.

The Company's 2014 effective non-GAAP tax rate is expected to be about 10%.

Actual results for any future period are subject to large fluctuations given the nature of Cray's business.

Recent Highlights

Conference Call Information
Cray will host a conference call today, Tuesday, July 29, 2014 at 1:30 p.m. PDT (4:30 p.m. EDT) to discuss its second quarter financial results. To access the call, please dial into the conference at least 10 minutes prior to the beginning of the call at (866) 362-9806. International callers should dial (765) 889-6838. 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 78154099. The conference call replay will be available for 72 hours, beginning at 4:30 p.m. PDT on Tuesday, July 29, 2014.

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 that we have set forth provide additional insight for analysts and investors and facilitate an evaluation of Cray's financial and operational performance that is consistent with the manner in which 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.

Additionally, we have not quantitatively reconciled the non-GAAP guidance measures disclosed under "Outlook" to their corresponding GAAP measures because we do not provide specific guidance for the various reconciling items such as stock-based compensation, adjustments to the provision for income taxes, amortization of intangibles, costs related to acquisitions, purchase accounting adjustments, and gain on significant asset sales, as certain items that impact these measures have not occurred, are out of our control or cannot be reasonably predicted. Accordingly, reconciliations to the non-GAAP guidance measures are not available without unreasonable effort. Please note that the unavailable reconciling items could significantly impact our financial results.

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 more than 40 years of experience in developing and servicing the world's most advanced supercomputers, Cray offers a comprehensive portfolio of supercomputers and big data storage and analytics 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 meet 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 the systems ordered by customers are not delivered when expected, do not perform as expected once delivered or have technical issues that must be corrected before acceptance, the risk that the acceptance process for delivered systems is not completed, or customer acceptances are not received, when expected or at all, the risk that Cray will not be able to secure orders for Cray systems to be delivered and accepted in 2014 when or at the levels expected, the risk that Cray's big data products, including storage, are not as successful as expected, 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 planned future third-party processors are not available with the performance expected or when expected, 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, 2014, 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 federally registered trademark of Cray Inc. in the United States and other countries, and XC30 and Sonexion 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
June 30,
    Six Months Ended
June 30,
 
    2014     2013     2014     2013  
Revenue:                                
  Product   $ 61,748     $ 62,353     $ 91,763     $ 122,221  
  Service     23,399       22,114       48,494       41,793  
    Total revenue     85,147       84,467       140,257       164,014  
Cost of revenue:                                
  Cost of product revenue     43,967       47,477       67,939       93,047  
  Cost of service revenue     12,176       10,189       25,377       20,017  
    Total cost of revenue     56,143       57,666       93,316       113,064  
      Gross profit     29,004       26,801       46,941       50,950  
Operating expenses:                                
  Research and development, net     24,189       19,968       46,810       40,194  
  Sales and marketing     13,259       11,550       25,035       22,693  
  General and administrative     5,316       5,085       10,729       10,570  
    Total operating expenses     42,764       36,603       82,574       73,457  
      Loss from operations     (13,760 )     (9,802 )     (35,633 )     (22,507 )
                                 
Other income (expense), net     (337 )     145       (983 )     (190 )
Interest income, net     84       204       145       580  
      Loss before income taxes     (14,013 )     (9,453 )     (36,471 )     (22,117 )
Income tax benefit     7,265       9,303       16,785       14,357  
      Net loss   $ (6,748 )   $ (150 )   $ (19,686 )   $ (7,760 )
                                 
    Basic net loss per common share   $ (0.18 )   $ --     $ (0.51 )   $ (0.21 )
    Diluted net loss per common share   $ (0.18 )   $ --     $ (0.51 )   $ (0.21 )
    Basic weighted average shares outstanding     38,509       37,658       38,414       37,497  
    Diluted weighted average shares outstanding     38,509       37,658       38,414       37,497  
                                     
                                     
                                     
CRAY INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(Unaudited and in thousands, except share amounts)  
   
    June 30,
 2014
    December 31,
 2013
 
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 120,512     $ 192,633  
  Restricted cash     20,015       --  
  Short-term investments     48,194       14,048  
  Accounts and other receivables, net     77,366       182,527  
  Inventory     191,657       95,129  
  Prepaid expenses and other current assets     35,380       20,999  
    Total current assets     493,124       505,336  
                 
Long-term restricted cash     15,100       13,768  
Long-term investments     7,813       --  
Property and equipment, net     30,718       30,278  
Service inventory, net     1,798       1,828  
Goodwill     14,182       14,182  
Intangible assets other than goodwill, net     5,103       6,362  
Deferred tax assets     27,690       19,206  
Other non-current assets     10,668       12,406  
    TOTAL ASSETS   $ 606,196     $ 603,366  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
Current liabilities:                
  Accounts payable   $ 75,514     $ 34,225  
  Accrued payroll and related expenses     6,816       22,470  
  Other accrued liabilities     8,259       22,225  
  Deferred revenue     102,048       91,488  
    Total current liabilities     192,637       170,408  
                 
Long-term deferred revenue     47,917       50,477  
Other non-current liabilities     7,014       6,894  
    TOTAL LIABILITIES     247,568       227,779  
                 
Shareholders' equity:                
  Preferred stock -- Authorized and undesignated, 5,000,000 shares; no shares issued or outstanding     --       --  
  Common stock and additional paid-in capital, par value $.01 per share -- Authorized, 75,000,000 shares; issued and outstanding 40,902,285 and 40,469,854 shares, respectively     592,106       586,243  
  Accumulated other comprehensive income     (1,283 )     853  
  Accumulated deficit     (232,195 )     (211,509 )
    TOTAL SHAREHOLDERS' EQUITY     358,628       375,587  
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 606,196     $ 603,366  
                     
                     
                     
CRAY INC. AND SUBSIDIARIES
Reconciliation of Selected U.S. GAAP Measures to non-GAAP Measures
(Unaudited; in millions, except EPS)
 
        Three Months Ended June 30, 2014
        Net Loss     Operating Loss     Diluted EPS     Gross Profit   Operating Expenses
GAAP       $ (6.7 )   $ (13.8 )   $ (0.18 )   $ 29.0   $ 42.8
                                         
Share-based compensation   (1)     2.9       2.9       0.08       0.1     2.8
Purchase accounting adjustments   (2)     0.2       0.2       0.01       0.2      
Amortization of acquired intangibles   (2)     0.6       0.6       0.02       0.5     0.1
Income tax on reconciling items   (3)     0.4               0.01              
Other items impacting tax provision   (4)     (6.0 )             (0.16 )            
Total reconciling items       $ (1.9 )   $ 3.7     $ (0.04 )   $ 0.8   $ 2.9
                                         
Non-GAAP       $ (8.6 )   $ (10.1 )   $ (0.22 )   $ 29.8   $ 39.9
                                         
                               
        Three Months Ended June 30, 2013
        Net Loss     Operating Loss     Diluted EPS     Gross Profit   Operating Expenses
GAAP       $ (0.2 )   $ (9.8 )   $ --     $ 26.8   $ 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   $ 1.6
                                         
Non-GAAP       $ (7.0 )   $ (7.5 )   $ (0.19 )   $ 27.5   $ 35.0
                                         
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. AND SUBSIDIARIES  
Reconciliation of Selected U.S. GAAP Measures to non-GAAP Measures  
(Unaudited; in millions, except percentages)  
   
        Three Months Ended June 30, 2014  
        Product     Service     Total  
        Gross Profit   Gross Margin     Gross Profit   Gross Margin     Gross Profit   Gross Margin  
GAAP       $ 17.8   29 %   $ 11.2   48 %   $ 29.0   34 %
                                         
Share-based compensation   (1)     --           0.1           0.1      
Purchase accounting adjustments   (2)     0.2           --           0.2      
Amortization of acquired intangibles   (2)     0.5           --           0.5      
Total reconciling items       $ 0.7   1 %   $ 0.1   -- %   $ 0.8   1 %
                                         
Non-GAAP       $ 18.5   30 %   $ 11.3   48 %   $ 29.8   35 %
                                         
                                   
        Three Months Ended June 30, 2013  
        Product     Service     Total  
        Gross Profit   Gross Margin     Gross Profit   Gross Margin     Gross Profit   Gross Margin  
GAAP       $ 14.9   24 %   $ 11.9   54 %   $ 26.8   32 %
                                         
Share-based compensation   (1)     --           0.1           0.1      
Purchase accounting adjustments   (2)     0.1           --           0.1      
Amortization of acquired intangibles   (2)     0.5           --           0.5      
Total reconciling items       $ 0.6   1 %   $ 0.1   -- %   $ 0.7   1 %
                                         
Non-GAAP       $ 15.5   25 %   $ 12.0   54 %   $ 27.5   33 %
                                         
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.  
   
   
   
CRAY INC. AND SUBSIDIARIES  
Reconciliation of GAAP to non-GAAP Net Income  
(Unaudited; in millions except per share amounts and percentages)  
   
        Three Months Ended
June 30,
    Six Months Ended
June 30,
 
        2014     2013     2014     2013  
GAAP Net Loss       $ (6.7 )   $ (0.2 )   $ (19.7 )   $ (7.8 )
                                     
Non-GAAP adjustments impacting gross profit:                                    
  Share-based compensation   (1)     0.1       0.1       0.2       0.2  
  Purchase accounting adjustments   (2)     0.2       0.1       0.3       1.1  
  Amortization of acquired and other intangibles   (2)     0.5       0.5       1.0       1.0  
Total adjustments impacting gross profit         0.8       0.7       1.5       2.3  
                                     
Non-GAAP gross margin percentage         35 %     33 %     35 %     32 %
                                     
Non-GAAP adjustments impacting operating expenses:                                    
  Share-based compensation   (1)     2.8       1.5       5.2       3.1  
  Amortization of acquired intangibles   (2)     0.1       0.1       0.2       0.2  
Total adjustments impacting operating expenses         2.9       1.6       5.4       3.3  
                                     
Non-GAAP adjustments impacting tax provision:                                    
  Income tax on reconciling items   (3)     0.4       0.2       0.7       0.5  
  Other items impacting tax provision   (4)     (6.0 )     (9.3 )     (14.2 )     (13.7 )
Total adjustments impacting tax provision         (5.6 )     (9.1 )     (13.5 )     (13.2 )
                                     
Non-GAAP Net Loss       $ (8.6 )   $ (7.0 )   $ (26.3 )   $ (15.4 )
                                     
Non-GAAP Diluted Net Loss per common share       $ (0.22 )   $ (0.19 )   $ (0.69 )   $ (0.41 )
                                     
Diluted weighted average shares         38.5       37.7       38.4       37.5  
                                     
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) 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  

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