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Cray Inc. Reports Full Year and Fourth Quarter Financial Results

Companies mentioned in this article: Cray Inc.

SEATTLE, WA -- (Marketwired) -- 02/13/14 -- Global supercomputer leader Cray Inc. (NASDAQ: CRAY) today announced financial results for the year and fourth quarter ended December 31, 2013. For 2013, Cray reported total revenue of $525.7 million, which compares with $421.1 million for 2012, an increase of 25% year over year. Net income for 2013 was $32.2 million, or $0.81 per diluted share, compared to $161.2 million, or $4.27 per diluted share, for 2012. The 2012 net income results included a $139.1 million pre-tax gain, which resulted from the sale of the Company's interconnect hardware development program to Intel Corporation.

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.

Non-GAAP net income, which adjusts for selected unusual and non-cash items was $30.3 million, or $0.76 per diluted share, for 2013, compared to $33.3 million, or $0.88 per diluted share, for 2012.

For the fourth quarter of 2013, revenue was $307.4 million compared to $188.8 million in the prior year period. The Company reported net income for the fourth quarter of $51.0 million, or $1.27 per diluted share, compared to $14.0 million, or $0.36 per diluted share, in the fourth quarter of 2012. Non-GAAP net income was $59.2 million, or $1.48 per diluted share, for the fourth quarter of 2013, compared to non-GAAP net income of $17.2 million, or $0.44 per diluted share for the same period last year.

Overall gross profit margin for 2013 was 35% compared to 36% for 2012. Product margin for 2013 was 32% compared to 35% for 2012; service margin for 2013 was 52% compared to 43% for 2012.

Operating expenses for 2013 were $162.7 million compared to $122.2 million for 2012. Non-GAAP operating expenses for 2013 were $155.5 million, compared to $115.6 million for 2012. Compared to 2012, 2013 GAAP and non-GAAP operating expenses were impacted by increased investments in our big data storage and analytics initiatives, significantly less R&D co-funding credits, and additional operating expenses from our acquisition of Appro International, Inc.

As of December 31, 2013, cash, investments and restricted cash totaled $220.4 million. Working capital increased $51.6 million to $334.9 million at the end of 2013, compared to $283.4 million at the end of 2012.

"We had a great year in 2013, led by strong growth in both supercomputing and big data," said Peter Ungaro, president and CEO of Cray. "We set Company records for annual and quarterly revenue as we completed the acceptance of more supercomputers during the fourth quarter than we have in any quarter in our history. Our XC30 and CS300 supercomputers are in strong competitive positions, providing customers with the most scalable, productive systems for real-world, scientific and commercial applications. In big data storage and analytics, we have a unique and growing set of offerings, including our Urika data discovery appliance and our new Tiered Adaptive Storage solution to transparently manage and access data across a storage hierarchy. 2013 was undoubtedly a great year for Cray and with continued strength in our supercomputing business and expanding big data solutions, I am excited about our potential to deliver continued growth in 2014 and beyond."

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. Revenue is expected to ramp quarterly during 2014, with about $50 million for the first quarter and roughly 50% of the year weighted to the fourth 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

  • In February, Cray won two new supercomputing contracts totaling more than $40 million to provide the Department of Defense High Performance Computing Modernization Program with three Cray XC30 supercomputers and two Cray Sonexion storage systems. Cray will be delivering systems to the U.S. Air Force Research Laboratory in Ohio and the Navy DOD Supercomputing Resource Center in Mississippi.
  • In November, Cray was awarded a $30 million contract by the University of Stuttgart to expand the XC30 supercomputer, nicknamed "Hornet" at the University's High Performance Computing Center Stuttgart (HLRS). The system, which will also include 2.3 petabytes of additional Cray file system storage for Lustre, is expected to go into production in 2015.
  • In November, Cray announced that the Cray Compiler Environment (CCE) is now available on the Cray CS300 line of cluster supercomputers. CCE provides Cray customers with a unique, scalable HPC-optimized compiler.
  • In November, Cray announced that its CS300 and XC30 supercomputers are now available with NVIDIA Tesla K40 GPU accelerators. Together with Cray's latest OpenACC 2.0 compiler, this offers customers a major total cost of ownership advantage by being able to upgrade their systems and achieve a substantial performance boost for GPU-accelerated computing.
  • In November, Cray launched a new big data framework that gives Cray customers the ability to more easily implement and run Apache Hadoop on the XC30 supercomputer. Fusing the benefits of supercomputing and big data, the Cray Framework for Hadoop package improves the overall efficiency and performance for XC30 customers deploying Hadoop in scientific big data environments.
  • Cray's YarcData division signed multiple new contracts with commercial and government customers for its Urika big data discovery appliance, including with a leading life sciences company which selected the Urika system as the development environment for its data discovery strategy. In the fourth quarter, the Pittsburgh Supercomputing Center was awarded an HPCwire Award for the Best Application of Big Data in HPC for their use of the Urika system to better understand cancer protein and gene interactions.
  • In November, Cray was awarded an industry-leading 10 HPCwire awards from the readers and editors of HPCwire, including Best HPC Collaboration between Government and Industry, Best HPC Cluster Solution or Technology, Best use of an HPC Application in the Manufacturing, Life Sciences, Automotive, and Financial Services industries.

Conference Call Information
Cray will host a conference call today, Thursday, February 13, 2014 at 1:30 p.m. PST (4:30 p.m. EST) to discuss its fourth quarter and year ended December 31, 2013 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 and enter the access code 58707088. International callers should dial (832) 900-4685. 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 58707088. The conference call replay will be available for 48 hours, beginning at 4:30 p.m. PST on Thursday, February 13, 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 manners 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 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, increased budgetary limitations and disruptions in the operations of the U.S. government, 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 growth initiatives, including storage, are not successful, 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 Cray is not able to achieve anticipated gross margin or expense levels, and such other risks as identified in Cray's annual report on Form 10-K for the period ended December 31, 2013, 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, Sonexion, Urika, and YarcData are federally registered trademarks of Cray Inc. in the United States and other countries, and XC30 and CS300 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      Twelve months ended
                                  December 31,            December 31,
                             ----------------------  ----------------------
                                2013        2012        2013        2012
                             ----------  ----------  ----------  ----------
Revenue:
  Product                    $  282,389  $  170,961  $  436,330  $  353,767
  Service                        24,980      17,868      89,419      67,291
                             ----------  ----------  ----------  ----------
    Total revenue               307,369     188,829     525,749     421,058
                             ----------  ----------  ----------  ----------
Cost of revenue:
  Cost of product revenue       181,827     123,692     298,244     231,237
  Cost of service revenue        12,593      10,942      43,179      38,643
                             ----------  ----------  ----------  ----------
    Total cost of revenue       194,420     134,634     341,423     269,880
                             ----------  ----------  ----------  ----------
        Gross profit            112,949      54,195     184,326     151,178
                             ----------  ----------  ----------  ----------
Operating expenses:
  Research and development,
   net                           25,979      18,177      87,728      64,303
  Sales and marketing            17,172      12,579      51,345      37,180
  General and administrative      8,063       7,282      23,603      20,707
                             ----------  ----------  ----------  ----------
    Total operating expenses     51,214      38,038     162,676     122,190
                             ----------  ----------  ----------  ----------
Net gain on sale of
 interconnect hardware
 development program                 --          --          --     139,068
                             ----------  ----------  ----------  ----------
        Income from
         operations              61,735      16,157      21,650     168,056
Other income (loss), net         (1,472)       (101)     (1,378)        472
Interest income (loss), net         (37)         60         757         204
                             ----------  ----------  ----------  ----------
        Income before income
         taxes                   60,226      16,116      21,029     168,732
Income tax (expense) benefit     (9,219)     (2,110)     11,194      (7,491)
                             ----------  ----------  ----------  ----------
        Net income           $   51,007  $   14,006  $   32,223  $  161,241
                             ==========  ==========  ==========  ==========

      Basic net income per
       common share          $     1.33  $     0.38  $     0.85  $     4.42
                             ==========  ==========  ==========  ==========
      Diluted net income per
       common share          $     1.27  $     0.36  $     0.81  $     4.27
                             ==========  ==========  ==========  ==========

      Basic weighted average
       shares outstanding        38,236      37,130      37,832      36,509
                             ==========  ==========  ==========  ==========
      Diluted weighted
       average shares
       outstanding               40,084      38,917      39,776      37,789
                             ==========  ==========  ==========  ==========



                         CRAY INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED BALANCE SHEETS
                               (In thousands)

                                                December 31,   December 31,
                                                    2013           2012
                                               -------------  -------------
                                   ASSETS
Current assets:
  Cash and cash equivalents                    $     192,633  $     253,065
  Short-term investments                              14,048         52,563
  Accounts and other receivables, net                182,527         13,440
  Inventory                                           95,129         89,796
  Prepaid expenses and other current assets           20,999         11,823
                                               -------------  -------------
    Total current assets                             505,336        420,687
Long-term restricted cash                             13,768             --
Long-term investments                                     --         17,577
Property and equipment, net                           30,278         25,543
Service inventory, net                                 1,828          1,490
Goodwill                                              14,182         14,182
Intangible assets other than goodwill, net             6,362          7,981
Deferred tax assets                                   19,206         10,041
Other non-current assets                              12,406         12,813
                                               -------------  -------------
    TOTAL ASSETS                               $     603,366  $     510,314
                                               =============  =============

                    LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                             $      34,225  $      34,732
  Accrued payroll and related expenses                22,470         25,927
  Other accrued liabilities                           22,225          8,616
  Deferred revenue                                    91,488         68,060
                                               -------------  -------------
    Total current liabilities                        170,408        137,335
Long-term deferred revenue                            50,477         29,254
Other non-current liabilities                          6,894          3,179
                                               -------------  -------------
    TOTAL LIABILITIES                                227,779        169,768
Shareholders' equity:
  Common stock and additional paid-in capital        586,243        577,938
  Accumulated other comprehensive income                 853          5,181
  Accumulated deficit                               (211,509)      (242,573)
                                               -------------  -------------
    TOTAL SHAREHOLDERS' EQUITY                       375,587        340,546
                                               -------------  -------------
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $     603,366  $     510,314
                                               =============  =============



                         CRAY INC. AND SUBSIDIARIES
     Reconciliation of Selected U.S. GAAP Measures to non-GAAP Measures
                        GAAP to non-GAAP Net Income
     (Unaudited; in millions except per share amounts and percentages)

                                  Three months ended    Twelve months ended
                                     December 31,          December 31,
                                 --------------------  --------------------
                                    2013       2012       2013       2012
                                 ---------  ---------  ---------  ---------
GAAP Net Income                  $    51.0  $    14.0  $    32.2  $   161.2

Non-GAAP adjustments
 impacting gross profit:
  Share-based compensation    (1)      0.1        0.1        0.4        0.3
  Purchase accounting
   adjustments                (2)      0.1         --        1.3         --
  Amortization of acquired
   and other intangibles      (2)      0.5        0.2        2.0        0.2
                                 ---------  ---------  ---------  ---------
Total adjustments impacting
 gross profit                          0.7        0.3        3.7        0.5

Non-GAAP gross margin
 percentage                             37%        29%        36%        36%

Non-GAAP adjustments
 impacting operating
 expenses:
  Share-based compensation    (1)      2.0        1.6        6.8        5.6
  Amortization of acquired
   intangibles                (2)      0.1        0.1        0.4        0.1
  Acquisition costs                     --        0.9         --        0.9
                                 ---------  ---------  ---------  ---------
Total adjustments impacting
 operating expenses                    2.1        2.6        7.2        6.6

Gain on sale to Intel         (3)       --         --         --     (139.1)

Non-GAAP adjustments
 impacting tax provision:
  Income tax on reconciling
   items                      (4)       --       (0.1)       0.7        4.4
  Other items impacting tax
   provision                  (5)      5.4        0.4      (13.5)      (0.3)
                                 ---------  ---------  ---------  ---------
Total adjustments impacting
 tax provision                         5.4        0.3      (12.8)       4.1

Non-GAAP Net Income              $    59.2  $    17.2  $    30.3  $    33.3
                                 =========  =========  =========  =========

Non-GAAP Diluted Net Income
 per common share                $    1.48  $    0.44  $    0.76  $    0.88
                                 =========  =========  =========  =========

Diluted weighted average
 shares                               40.1       38.9       39.8       37.8

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) Adjustment to exclude gain on divestiture of interconnect hardware
 development program in Q2 2012
(4) Tax impact associated with reconciling items at non-GAAP tax rate
(5) 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.
     Reconciliation of Selected U.S. GAAP Measures to non-GAAP Measures
            (Unaudited; in millions, except EPS and percentages)

                               Three Months Ended December 31, 2013
                      ------------------------------------------------------
                        Net    Operating Diluted  Gross   Gross    Operating
                       Income   Income     EPS    Profit  Margin   Expenses
                      ------- ---------- ------- ------- -------  ----------
GAAP                  $  51.0 $     61.7 $  1.27 $ 112.9      37% $     51.2

Share-based
 compensation      (1)    2.1        2.1    0.05     0.1                 2.0
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
Acquisition costs          --         --      --
Income tax on
 reconciling items (3)     --                 --
Other items
 impacting tax
 provision         (4)    5.4               0.14
                      ------- ---------- ------- ------- -------  ----------
Total reconciling
 items                $   8.2 $      2.8 $  0.21 $   0.7      --% $      2.1

Non-GAAP              $  59.2 $     64.5 $  1.48 $ 113.6      37% $     49.1
                      ======= ========== ======= ======= =======  ==========


                               Three Months Ended December 31, 2012
                      ------------------------------------------------------
                        Net    Operating Diluted  Gross   Gross    Operating
                      Income    Income     EPS    Profit  Margin   Expenses
                      ------  ---------- ------- ------- -------  ----------
GAAP                  $ 14.0  $     16.2 $  0.36 $  54.2      29% $     38.0

Share-based
 compensation      (1)   1.7         1.7    0.04     0.1                 1.6
Purchase
 accounting
 adjustments       (2)    --          --      --      --                  --
Amortization of
 acquired
 intangibles       (2)   0.3         0.3    0.01     0.2                 0.1
Acquisition Costs        0.9         0.9    0.02                         0.9
Income tax on
 reconciling items (3)  (0.1)                 --
Other items
 impacting tax
 provision         (4)   0.4                0.01
                      ------  ---------- ------- ------- -------  ----------
Total reconciling
 items                $  3.2  $      2.9 $  0.08 $   0.3      --% $      2.6

Non-GAAP              $ 17.2  $     19.1 $  0.44 $  54.5      29% $     35.4
                      ======  ========== ======= ======= =======  ==========

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



                              Twelve Months Ended December 31, 2013
                    --------------------------------------------------------
                      Net     Operating Diluted   Gross   Gross    Operating
                     Income    Income     EPS     Profit  Margin   Expenses
                    -------  ---------- -------  ------- -------  ----------
GAAP                $  32.2  $     21.7 $  0.81  $ 184.3      35% $    162.7

Share-based
 compensation    (1)    7.2         7.2    0.18      0.4                 6.8
Purchase
 accounting
 adjustments     (2)    1.3         1.3    0.03      1.3
Amortization of
 acquired
 intangibles     (2)    2.4         2.4    0.06      2.0                 0.4
Acquisition
 costs                   --          --      --
Gain on Intel
 sale            (3)     --          --      --
Income tax on
 reconciling
 items           (4)    0.7                0.02
Other items
 impacting tax
 provision       (5)  (13.5)              (0.34)
                    -------  ---------- -------  ------- -------  ----------
Total
 reconciling
 items              $  (1.9) $     10.9 $ (0.05) $   3.7       1% $      7.2

Non-GAAP            $  30.3  $     32.6 $  0.76  $ 188.0      36% $    155.5
                    =======  ========== =======  ======= =======  ==========


                              Twelve Months Ended December 31, 2012
                    --------------------------------------------------------
                      Net    Operating  Diluted   Gross   Gross    Operating
                     Income    Income     EPS     Profit  Margin   Expenses
                    -------  ---------  -------  ------- -------  ----------
GAAP                $ 161.2  $   168.1  $  4.27  $ 151.2      36% $    122.2

Share-based
 compensation    (1)    5.9        5.9     0.15      0.3                 5.6
Purchase
 accounting
 adjustments     (2)     --         --       --       --
Amortization of
 acquired
 intangibles     (2)    0.3        0.3     0.01      0.2                 0.1
Acquisition
 Costs                  0.9        0.9     0.02       --                 0.9
Gain on Intel
 sale            (3) (139.1)    (139.1)   (3.69)
Income tax on
 reconciling
 items           (4)    4.4                0.12
Other items
 impacting tax
 provision       (5)   (0.3)                 --
                    -------  ---------  -------  ------- -------  ----------
Total
 reconciling
 items              $(127.9) $  (132.0) $ (3.39) $   0.5      --% $      6.6

Non-GAAP            $  33.3  $    36.1  $  0.88  $ 151.7      36% $    115.6
                    =======  =========  =======  ======= =======  ==========

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 related to the
 acquisition of Appro International, Inc.
(3) Adjustment to exclude gain on divestiture of interconnect hardware
 development program in Q2 2012
(4) Tax impact associated with reconciling items at non-GAAP tax rate
(5) 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


Contact:

Cray Media:
Nick Davis
206/701-2123
pr@cray.com

Investors:
Paul Hiemstra
206/701-2044
ir@cray.com