Cray Management Discusses Q2 2012 Results - Earnings Call Transcript

Cray (CRAY)

Q2 2012 Earnings Call

July 31, 2012 4:30 pm ET

Executives

Paul Hiemstra

Peter J. Ungaro - Chief Executive Officer, President and Director

Brian C. Henry - Chief Financial Officer and Executive Vice President

Analysts

Glenn Hanus - Needham & Company, LLC, Research Division

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

Presentation

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Cray Reports Second Quarter 2012 Financial Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, Tuesday, July 31, 2012, at 1:30 p.m. Pacific Time. I'll turn the call over to Paul Hiemstra, Director of Treasury and Investor Relations.

Paul Hiemstra

Good afternoon. I'd like to thank everyone for joining us today. Participating from Cray are Peter Ungaro, President and Chief Executive Officer; and Brian Henry, Executive Vice President and Chief Financial Officer. This call is being broadcast live on the Internet and recorded for replay purposes. A replay will be available shortly after the call. You can access the replay by dialing 1 (855) 859-2056. You must then enter the access code 14743057. A replay will also be available in the Investor Relations section of the Cray website for 180 days at www.cray.com.

I'd like to remind each of you that today's conference call will contain forward-looking statements that are based on our current expectations. Forward-looking statements include statements about our financial guidance and expected future operating results, our planned customer acceptances, our product development and new product introduction plans, our ability to expand and penetrate our addressable market and other statements that are not historical facts. These statements are only predictions, and actual results may vary materially from those projected. Please refer to Cray's documents filed with the SEC from time to time concerning factors that could affect the company and these forward-looking statements.

With that, I would like to turn the call over to Peter Ungaro.

Peter J. Ungaro

Thanks, Paul. And thank you all for joining the call today. I'll begin with some comments on our second quarter performance then turn it over to Brian, who will take us through our financial results and outlook. I'll wrap up by discussing our plans for the rest of the year, then open up the call for Q&A.

We had a great quarter, with solid revenue and gross margin results. Along with some big wins, we also completed the asset sale for an interconnect hardware development program to Intel for $140 million. And even if you'd back out the gain we recorded from that transaction, we were still solidly profitable for the quarter and even stronger for the first half.

We had a good quarter on the product side of our business with a couple of large acceptances and a number of new orders. The big news of the -- for the quarter was our first ever petascale supercomputer installed on a large commercial customer. It was an especially nice win for us as it included both an extremely large XE6 system, as well as our Sonexion storage solution. While we can't name the customer, we can tell you that they're in the energy segment and they're using the system to do a new form of high-end subsurface imaging, which we believe will be an important application area in this vertical over the next few years. This is also our latest win in the commercial HPC market, and we're excited to continue to seek for the use of supercomputers being deployed in various commercial sectors, a great time for us and our industry.

As I mentioned, we also had a strong run of new orders for our high-end systems over the past few months, both domestically and around the world. Even more importantly, we now closed all the deals we needed to reach our current 2012 outlook. And something I'm very proud of over the last month or so, we signed a number of contracts totaling over $70 million, all which feature our next-generation Cascade supercomputer, getting us off to a good start as we look into 2013 and our next generation of products.

Let me tell you about a couple of these recent wins. On the U.S. front, we were awarded a new contract to deliver a Cascade supercomputer and a Sonexion storage system to the Department of Energy's National Energy Research Scientific Computing Center, also known as NERSC. NERSC is part of the large Berkeley National Laboratory and they serve over 4,000 users working on a wide array of scientific research disciplines to improve our country's competitiveness and natural resource sustainability.

Also in the quarter, we were awarded a new contract by the Department of Defense's High-Performance Computing Monetization Program to perform a significant upgrade to the program's 3 existing XE6 systems, and combine them into a single petascale supercomputer. We'll be doubling the number of process reports in each of the 3 systems by upgrading them to the latest AMD Opteron technology.

In Europe, we were awarded a new contract to deliver one of our next-generation Cascade supercomputers to the Finnish IT Center for Science. It's a multiyear, multiphase contract with the majority of the system being delivered in 2014. And just this month in Australia, we're awarded a contract to deliver a Cascade supercomputer with Sonexion storage to the Pawsey Centre in Perth. This is a notable win as one of the uses of this system will be to support the data-intensive science that will be carried out by the Australian Square Kilometer Array Project. The amount of data ultimately generated by this project will be so fast that researchers must analyze it in real-time, a process which required massive amounts of computing power.

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