Cray Inc. Reports Third Quarter 2016 Financial Results

SEATTLE, Nov. 07, 2016 (GLOBE NEWSWIRE) -- Global supercomputer leader Cray Inc. (Nasdaq:CRAY) today announced financial results for the third quarter ended September 30, 2016.

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.

Revenue for the third quarter of 2016 was $77.5 million, which compares with $191.4 million in the third quarter of 2015.  Net loss for the third quarter of 2016 was $23.0 million, or $0.58 per diluted share, compared to net income of $10.9 million, or $0.27 per diluted share in the third quarter of 2015.  Non-GAAP net loss was $19.5 million, or $0.49 per diluted share for the third quarter of 2016, compared to non-GAAP net income of $19.5 million, or $0.48 per diluted share for the same period of 2015.

Overall gross profit margin on a GAAP and non-GAAP basis for the third quarter of 2016 was 30% and 31%, respectively.  For the third quarter of 2015, GAAP and non-GAAP gross profit margin was 34% and 35%, respectively. 

Operating expenses for the third quarter of 2016 were $52.1 million, compared to $47.9 million for the third quarter of 2015.  Non-GAAP operating expenses for the third quarter of 2016 were $49.3 million, compared to $45.1 million for the third quarter of 2015. 

As of September 30, 2016, cash, investments and restricted cash totaled $147 million. Working capital decreased in the third quarter of 2016 to $364 million compared to $381 million at the end of the second quarter.

"Our performance in the third quarter was highlighted by a number of new installations of supercomputers and storage systems worldwide," said Peter Ungaro, president and CEO of Cray. "While market conditions remain challenging, we are beginning to see early signs of stabilization in certain areas, including in the energy market where we recently installed an additional XC system at PGS, and in the weather and climate market with a major win in the United States.  Overall, while our visibility remains limited, our competitive position is strong and we're focused on delivering on our outlook for the rest of the year."

OutlookFor 2016, a wide range of results remains possible.  Assuming the Company is able to successfully complete the acceptances of five large systems associated with two new processors that total roughly $185 million, the Company expects revenue to be in the range of $620 million to $650 million.  The Company is still working through technical issues with these systems and the delays in third-party components outlined previously have compressed the timelines available to work through these issues.  Significant risks remain to achieve these acceptances before year-end.  To the extent that one or more of these system acceptances is not completed by the end of the year, the Company expects that those acceptances would be completed in early 2017.

GAAP and Non-GAAP gross margin for the year is expected to be in the range of 34%.  Non-GAAP operating expenses for the year are anticipated to be about $200 million.  For 2016, GAAP operating expenses are anticipated to be about $11 million higher than non-GAAP operating expenses, and GAAP gross profit is expected to about $1 million lower than non-GAAP gross profit.

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

Recent Highlights
  • In November, Cray announced that the Department of Defense awarded it with a new contract for an XC40 supercomputer and three Sonexion storage systems.  The Cray systems will be located at the U.S. Army Engineer Research and Development Center (ERDC) in Vicksburg, Mississippi. As the research organization of the U.S. Army Corps of Engineers, ERDC conducts R&D in support of the soldier, military installations, and civil works projects, as well as for other federal agencies, state and municipal authorities, and with U.S. industry through innovative work agreements.
  • In October, Cray announced that PGS purchased a new 12-cabinet Cray XC supercomputer, adding to its existing industry leading Cray-based supercomputing platform.  Along with an additional 2.8 petabytes of capacity added to its Cray Sonexion storage system, the new XC supercomputer will significantly expand PGS' seismic imaging capabilities.
  • In October, Cray announced that Baylor University selected the Cray CS400 cluster computer to serve as its primary high performance computing platform.  Among other research initiatives, Baylor serves as a Compact Muon Solenoid (CMS) Tier 3 site for the European Organization for Nuclear Research, known as CERN. Baylor scientists analyze data gathered by the Large Hadron Collider in Geneva, Switzerland, in partnership with others around the globe as part of ongoing research into subatomic particles.

Conference Call InformationCray will host a conference call today, Monday, November 7, 2016 at 1:30 p.m. PST (4:30 p.m. EST) to discuss its third quarter ended September 30, 2016 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. International callers should dial (765) 889-6838 and use the conference ID #8629042.  To listen to the audio webcast, go to the Investors section of the Cray website at www.cray.com/company/investors.

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 conference ID #8629042.  The conference call replay will be available for 72 hours, beginning at 4:45 p.m. PST on Monday, November 7, 2016.

Use of Non-GAAP Financial MeasuresThis press release contains "non-GAAP financial measures" under the rules of the U.S. Securities and Exchange Commission.  A reconciliation of U.S. generally accepted accounting principles, or 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 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, and 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 StatementThis 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 operating results and its product development, 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 new third-party processors and other components, some of which are already delayed from when originally expected and/or have technical issues to be addressed, are not available with the performance expected or when needed to complete 2016 deliveries and acceptances, the risk that the systems ordered by customers, including the remaining large systems associated with two new processors, are not delivered when expected, do not perform as expected once delivered or have technical issues that cannot be corrected within the time for planned acceptances, the risk that the acceptance process for delivered systems, including for the remaining large systems associated with two new processors, is not completed, or 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, particularly the incorporation of new third-party processors into its products, in a timely fashion or at all, the risk that Cray is not able to achieve anticipated gross margin or expense levels, the risk that the expense to address Cray systems at customer sites that have issues with third party components or with Cray components, is material, the risk that Cray will not be able to secure orders for Cray products that could be accepted in 2016 when or at the levels expected, and such other risks as identified in Cray's quarterly report on Form 10-Q for the period ended September 30, 2016, 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, the stylized CRAY mark and Sonexion are registered trademarks of Cray Inc. in the United States and other countries, and the XC and CS families of supercomputers are trademarks of Cray Inc.
             
CRAY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited and in thousands, except per share data)
             
      Three Months Ended September 30,     Nine Months Ended September 30,
      2016     2015     2016     2015
Revenue:                        
Product     $ 47,685       $ 157,692       $ 188,024       $ 368,370  
Service     29,766       33,721       95,211       88,848  
Total revenue     77,451       191,413       283,235       457,218  
Cost of revenue:                        
Cost of product revenue     33,552       105,242       125,189       266,787  
Cost of service revenue     20,298       20,289       58,322       50,928  
Total cost of revenue     53,850       125,531       183,511       317,715  
Gross profit     23,601       65,882       99,724       139,503  
Operating expenses:                        
Research and development, net     29,084       24,989       82,323       67,282  
Sales and marketing     15,010       16,132       46,391       42,096  
General and administrative     7,968       6,729       24,325       19,304  
Total operating expenses     52,062       47,850       153,039       128,682  
Income (loss) from operations     (28,461 )     18,032       (53,315 )     10,821  
                         
Other income (expense), net     (312 )     (152 )     (1,169 )     334  
Interest income, net     544       337       1,654       1,114  
Income (loss) before income taxes     (28,229 )     18,217       (52,830 )     12,269  
Income tax benefit (expense)     5,208       (7,362 )     11,670       (5,027 )
Net income (loss)     $ (23,021 )     $ 10,855       $ (41,160 )     $ 7,242  
                         
Basic net income (loss) per common share     $ (0.58 )     $ 0.28       $ (1.03 )     $ 0.18  
Diluted net income (loss) per common share     $ (0.58 )     $ 0.27       $ (1.03 )     $ 0.18  
                         
Basic weighted average shares outstanding     39,936       39,382       39,786       39,164  
Diluted weighted average shares outstanding     39,936       40,322       39,786       40,589  

           
CRAY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited and in thousands, except share amounts)
           
  September 30,  2016       December 31,  2015
ASSETS          
Current assets:          
Cash and cash equivalents $ 144,476         $ 266,660  
Restricted cash         1,651  
Short-term investments 651         14,925  
Accounts and other receivables, net 110,006         124,719  
Inventory 243,608         113,655  
Deferred tax assets 49,353         38,628  
Prepaid expenses and other current assets 34,067         21,048  
Total current assets 582,161         581,286  
           
Long-term restricted cash 1,655         1,655  
Long-term investment in sales-type lease, net 34,797         18,317  
Property and equipment, net 28,454         31,079  
Service spares, net 2,726         3,090  
Goodwill 14,182         14,182  
Intangible assets other than goodwill, net 1,850         2,525  
Deferred tax assets 42,572         26,016  
Other non-current assets 14,675         16,025  
TOTAL ASSETS $ 723,072         $ 694,175  
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
Current liabilities:          
Accounts payable $ 66,192         $ 27,837  
Accrued payroll and related expenses 9,737         27,452  
Other accrued liabilities 8,747         24,079  
Deferred revenue 133,619         86,731  
Total current liabilities 218,295         166,099  
           
Long-term deferred revenue 23,467         33,306  
Other non-current liabilities 3,089         2,260  
TOTAL LIABILITIES 244,851         201,665  
           
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 40,752,443 and 40,693,707 shares, respectively 619,718         610,279  
Accumulated other comprehensive income 10,168         7,642  
Accumulated deficit (151,665 )       (125,411 )
TOTAL SHAREHOLDERS' EQUITY 478,221         492,510  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 723,072         $ 694,175  

       
CRAY INC. AND SUBSIDIARIES Reconciliation of Selected U.S. GAAP Measures to non-GAAP Measures (Unaudited; in millions, except EPS)
       
      Three Months Ended September 30, 2016
      Net Loss   Diluted EPS   Operating Loss   Gross Profit   OperatingExpenses
GAAP     $ (23.0 )   $ (0.58 )   $ (28.5 )   $ 23.6     $ 52.1  
                       
Share-based compensation (1)     2.7         2.7     0.1     2.6  
Amortization of acquired and other intangibles (2)     0.2         0.2         0.2  
Items impacting tax provision (3)     0.6                  
Total reconciling items     3.5     0.09     2.9     0.1     2.8  
                       
Non-GAAP     $ (19.5 )   $ (0.49 )   $ (25.6 )   $ 23.7     $ 49.3  
                       
                       
      Three Months Ended September 30, 2015
      Net Income   Diluted EPS   Operating Income   Gross Profit   OperatingExpenses
GAAP     $ 10.9     $ 0.27     $ 18.0     $ 65.9     $ 47.9  
                       
Share-based compensation (1)     2.7         2.7     0.1     2.6  
Purchase accounting adjustments (2)     0.1         0.1     0.1      
Amortization of acquired and other intangibles (2)     0.7         0.7     0.5     0.2  
Items impacting tax provision (3)     5.1                  
Total reconciling items     8.6     0.21     3.5     0.7     2.8  
                       
Non-GAAP     $ 19.5     $ 0.48     $ 21.5     $ 66.6     $ 45.1  
                       
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
(3) Adjustments associated with the tax impact on reconciling items, benefits 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 EPS)
       
      Nine Months Ended September 30, 2016
      Net Loss   Diluted EPS   Operating Loss   Gross Profit   OperatingExpenses
GAAP     $ (41.2 )   $ (1.03 )   $ (53.3 )   $ 99.7     $ 153.0  
                       
Share-based compensation (1)     8.4         8.4     0.4     8.0  
Purchase accounting adjustments (2)     0.1         0.1     0.1      
Amortization of acquired and other intangibles (2)     0.5         0.5         0.5  
Items impacting tax provision (3)     (4.2 )                
Total reconciling items     4.8     0.12     9.0     0.5     8.5  
                       
Non-GAAP     $ (36.4 )   $ (0.91 )   $ (44.3 )   $ 100.2     $ 144.5  
                       
                       
      Nine Months Ended September 30, 2015
      Net Income   Diluted EPS   Operating Income   Gross Profit   OperatingExpenses
GAAP     $ 7.2     $ 0.18     $ 10.8     $ 139.5     $ 128.7  
                       
Share-based compensation (1)     8.6         8.6     0.4     8.2  
Purchase accounting adjustments (2)     0.4         0.4     0.4      
Amortization of acquired and other intangibles (2)     1.9         1.9     1.5     0.4  
Items impacting tax provision (3)     2.7                  
Total reconciling items     13.6     0.33     10.9     2.3     8.6  
                       
Non-GAAP     $ 20.8     $ 0.51     $ 21.7     $ 141.8     $ 120.1  
                       
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 
(3) Adjustments associated with the tax impact on reconciling items, benefits 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 September 30, 2016
      Product   Service   Total
      Gross Profit   Gross Margin   Gross Profit   GrossMargin   Gross Profit   GrossMargin
GAAP     $ 14.1     30 %   $ 9.5     32 %   $ 23.6     30 %
                           
Share-based compensation (1)     0.1                 0.1      
Total reconciling items     0.1     %       %   0.1     1 %
                           
Non-GAAP     $ 14.2     30 %   $ 9.5     32 %   $ 23.7     31 %
                           
                           
      Three Months Ended September 30, 2015
      Product   Service   Total
      Gross Profit   GrossMargin   Gross Profit   GrossMargin   Gross Profit   GrossMargin
GAAP     $ 52.5     33 %   $ 13.4     40 %   $ 65.9     34 %
                           
Share-based compensation (1)             0.1         0.1      
Purchase accounting adjustments (2)     0.1                 0.1      
Amortization of acquired and other intangibles (2)     0.5                 0.5      
Total reconciling items     0.6     1 %   0.1     %   0.7     1 %
                           
Non-GAAP     $ 53.1     34 %   $ 13.5     40 %   $ 66.6     35 %
                           
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

       
CRAY INC. AND SUBSIDIARIES Reconciliation of Selected U.S. GAAP Measures to non-GAAP Measures (Unaudited; in millions, except percentages)
       
      Nine Months Ended September 30, 2016
      Product   Service   Total
      Gross Profit   GrossMargin   Gross Profit   GrossMargin   Gross Profit   GrossMargin
GAAP     $ 62.8     33 %   $ 36.9     39 %   $ 99.7     35 %
                                             
Share-based compensation (1)     0.2         0.2         0.4      
Purchase accounting adjustments (2)     0.1                 0.1      
Total reconciling items     0.3     1 %   0.2     %   0.5     %
                                             
Non-GAAP     $ 63.1     34 %   $ 37.1     39 %   $ 100.2     35 %
                           
                           
      Nine Months Ended September 30, 2015
      Product   Service   Total
      Gross Profit   GrossMargin   Gross Profit   GrossMargin   Gross Profit   GrossMargin
GAAP     $ 101.6     28 %   $ 37.9     43 %   $ 139.5     31 %
                           
Share-based compensation (1)     0.2         0.2         0.4      
Purchase accounting adjustments (2)     0.4                 0.4      
Amortization of acquired and other intangibles (2)     1.5                 1.5      
Total reconciling items     2.1     %   0.2     %   2.3     %
                                             
Non-GAAP     $ 103.7     28 %   $ 38.1     43 %   $ 141.8     31 %
                           
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

           
CRAY INC. AND SUBSIDIARIES Reconciliation of GAAP to non-GAAP Net Income (Loss) (Unaudited; in millions except per share amounts and percentages)
           
      Three Months Ended September 30,   Nine Months Ended September 30,
      2016   2015   2016   2015
GAAP Net Income (Loss)     $ (23.0 )   $ 10.9     $ (41.2 )   $ 7.2  
                   
Non-GAAP adjustments impacting gross profit:                  
Share-based compensation (1)     0.1     0.1     0.4     0.4  
Purchase accounting adjustments (2)         0.1     0.1     0.4  
Amortization of acquired and other intangibles (2)         0.5         1.5  
Total adjustments impacting gross profit     0.1     0.7     0.5     2.3  
                   
Non-GAAP gross margin percentage     31 %   35 %   35 %   31 %
                   
Non-GAAP adjustments impacting operating expenses:                  
Share-based compensation (1)     2.6     2.6     8.0     8.2  
Amortization of acquired and other intangibles (2)     0.2     0.2     0.5     0.4  
Total adjustments impacting operating expenses     2.8     2.8     8.5     8.6  
                   
Items impacting tax provision (3)     0.6     5.1     (4.2 )   2.7  
Non-GAAP Net Income (Loss)     $ (19.5 )   $ 19.5     $ (36.4 )   $ 20.8  
                   
Non-GAAP Diluted Net Income (Loss) per common share     $ (0.49 )   $ 0.48     $ (0.91 )   $ 0.51  
                   
Diluted weighted average shares     39.9     40.3     39.8     40.6  
                   
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
(3) Adjustments associated with the tax impact on reconciling items, benefits related to Cray's net operating loss carryforwards and changes in Cray's valuation allowance held against deferred tax assets
         

Cray Media:Nick Davis206/701-2123 pr@cray.com

Cray Investors:Paul Hiemstra206/701-2044 ir@cray.com

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