Cray Inc. Reports Second Quarter 2017 Financial Results 

SEATTLE, July 27, 2017 -- Global supercomputer leader Cray Inc. (Nasdaq:CRAY) today announced financial results for its second quarter ended June 30, 2017.

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 second quarter of 2017 was $87.1 million, compared to $100.2 million in the second quarter of 2016.  Net loss for the second quarter of 2017 was $6.8 million, or $0.17 per diluted share, compared to a net loss of $13.1 million, or $0.33 per diluted share in the second quarter of 2016.  Non-GAAP net loss was $8.0 million, or $0.20 per diluted share for the second quarter of 2017, compared to non-GAAP net loss of $11.4 million, or $0.29 per diluted share for the same period of 2016.

Overall gross profit margin on a GAAP and non-GAAP basis for the second quarter of 2017 was 33%, compared to 36% for the second quarter of 2016.

Operating expenses for the second quarter of 2017 were $39.8 million, compared to $51.8 million for the second quarter of 2016.  Non-GAAP operating expenses for the second quarter of 2017 were $37.5 million, compared to $49.0 million for the second quarter of 2016.  Operating expenses for the second quarter of 2017 benefited from increased research and development credits.

As of June 30, 2017, cash, investments and restricted cash totaled $253 million.  Working capital at the end of the second quarter was $342 million, compared to $350 million at the end of the first quarter.

“As data continues to expand at an explosive rate, storage is becoming an increasingly key aspect to our strategic growth areas, including modeling and simulation, big data analytics, and artificial intelligence/deep learning,” said Peter Ungaro, president and CEO of Cray.  “We recently entered into an agreement to complete an exciting transaction and strategic partnership with Seagate that will strengthen our efforts in this area, broaden our storage portfolio and help us drive new growth in the high-performance storage market.  At the same time, our market has continued to experience a prolonged downturn, one which we believe will be temporary, but which drove us to take the difficult step last week to better align our workforce with both the short-term market realities and our long-term business strategies.  I want to thank those employees who were personally impacted.  I remain positive about the long-term prospects of our business as we remain well positioned to drive growth into the future.”

Outlook
For 2017, while a wide range of results remains possible, Cray expects revenue to be in the range of $400 million for the year.  Revenue in the third quarter of 2017 is expected to be approximately $60 million.  GAAP and non-GAAP gross margins for the year are expected to be in the low- to mid-30% range.  Non-GAAP operating expenses for 2017, including an estimate for what the impact of the Seagate transaction would be, are expected to be in the range of $190 million.  For 2017, GAAP operating expenses are anticipated to be about $24 million higher than non-GAAP operating expenses, driven by stock-based compensation, restructuring, and costs related to the Seagate transaction.  GAAP gross profit is expected to be about $1 million lower than non-GAAP gross profit as a result of stock based compensation.

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

Recent Highlights

• In July, Cray announced it has signed a definitive agreement with Seagate to complete a strategic transaction and enter into a partnership centered around Seagate's ClusterStor high-performance storage business.  The agreement also calls for Seagate and Cray to collaborate to incorporate the latest Seagate technology into future ClusterStor and Sonexion products.  Cray will continue to support and enhance the ClusterStor product line and to support new and existing customers going forward.
• In July, Cray announced that it will provide a Urika-GX to the Alan Turing Institute through a collaboration between Cray, Intel and the Institute.  The agile analytics platform will enable the development of advanced applications across a number of scientific fields including engineering and technology, defense and security, smart cities, financial services and life sciences.
• In June, Cray announced the Cray Urika-XC analytics software suite, bringing graph analytics, deep learning, and robust big data analytics tools to the Company's flagship line of Cray XC supercomputers.  With the Cray Urika-XC software suite, analytics and Artificial Intelligence (AI) workloads can run alongside scientific modeling and simulations on XC supercomputers.
• In June, Cray was awarded a contract with the National Institute of Water and Atmospheric Research in New Zealand to provide two Cray XC50 supercomputers and a Cray CS400 cluster supercomputer in a contract valued at more than $18 million.
• In June, Leidos and Cray announced that the companies signed a strategic alliance agreement to develop, market and sell Multi-Level Security solutions that include the Cray CS series of cluster supercomputers to Federal and commercial customers.
• In May, Markley and Cray announced a partnership to provide supercomputing as a service solutions that combine the power of Cray supercomputers with the premier hosting capabilities of Markley.  Through the partnership, Markley will offer Cray supercomputing technologies, as a hosted offering, and both companies will collaborate to build and develop industry-specific solutions.
• In May, Cray announced the launch of two new Cray CS-Storm accelerated cluster supercomputers -- the Cray CS-Storm 500GT and the Cray CS-Storm 500NX.  Purpose-built for the most demanding AI workloads, the new Cray systems will provide customers with powerful, accelerator-optimized solutions for running machine learning and deep learning applications.

Conference Call Information
Cray will host a conference call today, Thursday, July 27, 2017 at 1:30 p.m. PDT (4:30 p.m. EDT) to discuss its second quarter ended June 30, 2017 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 #56308197.  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 #56308197.  The conference call replay will be available for 72 hours, beginning at 4:45 p.m. PDT on Thursday, July 27, 2017.

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 (“SEC”).  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.

Source: Cray