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CST: 07/12/2019 04:14:32   

Cray Inc. Reports Second Quarter 2019 Financial Results

126 Days ago

SEATTLE, Aug. 02, 2019 (GLOBE NEWSWIRE) -- Global supercomputer leader Cray Inc. (Nasdaq: CRAY) today announced financial results for its second quarter ended June 30, 2019.

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 2019 was $69 million, compared to $120 million in the second quarter of 2018. Net loss for the second quarter of 2019 was $43 million, or $1.03 per diluted share, compared to net loss of $11 million, or $0.27 per diluted share in the second quarter of 2018. Non-GAAP net loss was $31 million, or $0.75 per diluted share for the second quarter of 2019, compared to non-GAAP net loss of $8 million, or $0.20 per diluted share in the second quarter of 2018.

Overall gross profit margin on a GAAP and non-GAAP basis for the second quarter of 2019 was 35% and 36%, respectively, compared to 31% and 32%, on a GAAP and non-GAAP basis in the second quarter of 2018, respectively.

Operating expenses for the second quarter of 2019 were $68 million, compared to $50 million in the second quarter of 2018. Non-GAAP operating expenses for the second quarter of 2019 were $57 million, compared to $47 million in the second quarter of 2018, with the increase primarily driven by higher R&D costs. Non-GAAP adjustments for the second quarter of 2019 include $7.6 million in costs related to our pending merger with Hewlett Packard Enterprise Company (“HPE”).

As of June 30, 2019, cash and restricted cash totaled $165 million. Working capital at the end of the second quarter of 2019 was $223 million, compared to $263 million at the end of the first quarter of 2019.

No Quarterly Conference Call
As previously announced on May 17, 2019, Cray entered into an agreement and plan of merger with HPE to acquire all the issued and outstanding common shares of Cray for $35 per share in cash. Due to the pending merger, Cray will not hold an earnings conference call.

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.

About Cray Inc.
Cray Inc. (Nasdaq:CRAY) combines computation and creativity so visionaries can keep asking questions that challenge the limits of possibility. Drawing on more than 45 years of experience, Cray develops the world’s most advanced supercomputers, pushing the boundaries of performance, efficiency and scalability. Cray continues to innovate today at the convergence of data and discovery, offering a comprehensive portfolio of supercomputers, high-performance storage, data analytics and artificial intelligence solutions. Go to www.cray.com for more information.

CRAY and the stylized CRAY mark are registered trademarks of Cray Inc. in the United States and other countries.

 
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,
    2019   2018   2019   2018
Revenue:                
Product   $ 29,924     $ 83,379     $ 64,082     $ 127,833  
Service   38,775     36,824     76,163     71,964  
Total revenue   68,699     120,203     140,245     199,797  
Cost of revenue:                
Cost of product revenue   23,424     65,274     49,526     99,319  
Cost of service revenue   21,328     17,122     40,748     35,719  
Total cost of revenue   44,752     82,396     90,274     135,038  
Gross profit   23,947     37,807     49,971     64,759  
Operating expenses:                
Research and development, net   37,171     29,382     72,957     59,274  
Sales and marketing   14,919     15,218     29,194     30,883  
General and administrative   15,890     5,624     21,832     11,403  
Restructuring               476  
Total operating expenses   67,980     50,224     123,983     102,036  
Loss from operations   (44,033 )   (12,417 )   (74,012 )   (37,277 )
                 
Other income (expense), net   272     430     25     48  
Interest income, net   1,223     667     2,148     1,380  
Loss before income taxes   (42,538 )   (11,320 )   (71,839 )   (35,849 )
Income tax benefit (expense)   (22 )   370     (141 )   (109 )
Net loss   $ (42,560 )   $ (10,950 )   $ (71,980 )   $ (35,958 )
                 
Basic net loss per common share   $ (1.03 )   $ (0.27 )   $ (1.75 )   $ (0.89 )
Diluted net loss per common share   $ (1.03 )   $ (0.27 )   $ (1.75 )   $ (0.89 )
                 
Basic weighted average shares outstanding   41,191     40,616     41,069     40,527  
Diluted weighted average shares outstanding   41,191     40,616     41,069     40,527  


CRAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share data)
 
    June 30,
 2019
  December 31,
 2018
ASSETS        
Current assets:        
Cash and cash equivalents   $ 147,533     $ 228,434  
Restricted cash   3,772     1,300  
Accounts and other receivables, net   76,501     87,819  
Inventory   88,035     80,360  
Prepaid expenses and other current assets   25,053     22,331  
Total current assets   340,894     420,244  
         
Long-term restricted cash   13,847     16,030  
Property and equipment, net   38,290     35,737  
Operating lease right-of-use assets   32,656      
Goodwill   14,182     14,182  
Intangible assets other than goodwill, net   2,602     3,178  
Other non-current assets   17,200     27,761  
TOTAL ASSETS   $ 459,671     $ 517,132  
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable   $ 30,098     $ 32,847  
Accrued payroll and related expenses   20,462     23,703  
Other accrued liabilities   13,206     10,805  
Customer contract liabilities   54,353     61,983  
Total current liabilities   118,119     129,338  
         
Long-term customer contract liabilities   23,077     32,021  
Long-term operating lease liabilities   39,845      
Other non-current liabilities   2,384     12,394  
TOTAL LIABILITIES   183,425     173,753  
         
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 41,337,879 and 40,893,807 shares, respectively   654,948     647,045  
Accumulated other comprehensive income   1,534     3,208  
Accumulated deficit   (380,236 )   (306,874 )
TOTAL SHAREHOLDERS’ EQUITY   276,246     343,379  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   $ 459,671     $ 517,132  


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, 2019
      Net Loss   Diluted EPS   Operating Loss   Gross Profit   Operating Expenses
GAAP     $ (42.6 )   $ (1.03 )   $ (44.0 )   $ 23.9     $ 68.0  
                       
Share-based compensation   (1) 4.1         4.1     0.3     3.8  
Amortization of acquired and other intangibles   (2) 0.2         0.2     0.2      
Transaction costs related to the pending merger with HPE   (3) 7.6         7.6         7.6  
Income tax on reconciling items   (4) (2.6 )                
Other items impacting tax provision   (5) 2.3                  
Total reconciling items     11.6     0.28     11.9     0.5     11.4  
                       
Non-GAAP     $ (31.0 )   $ (0.75 )   $ (32.1 )   $ 24.4     $ 56.6  
                       
      Three Months Ended June 30, 2018
      Net Loss   Diluted EPS   Operating Loss   Gross Profit   Operating Expenses
GAAP     $ (11.0 )   $ (0.27 )   $ (12.4 )   $ 37.8     $ 50.2  
                       
Share-based compensation   (1) 3.2         3.2     0.2     3.0  
Amortization of acquired and other intangibles   (2) 0.3         0.3     0.2     0.1  
Income tax on reconciling items   (4) (0.7 )                
Other items impacting tax provision   (5) 0.1                  
Total reconciling items     2.9     0.07     3.5     0.4     3.1  
                       
Non-GAAP     $ (8.1 )   $ (0.20 )   $ (8.9 )   $ 38.2     $ 47.1  
                       
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
(3) Adjustments to exclude non-recurring transaction costs related to the pending merger with HPE
(4) Adjustments associated with the estimated tax impact on non-GAAP reconciling items at our marginal U.S. tax rate of approximately 21%
(5) As part of an alternative non-GAAP income measure, we have adjusted GAAP taxes as reported including the impact to the GAAP tax provision of the non-GAAP reconciling items (adjusted for note (3) above). And when applicable, we also adjust for changes related to the utilization or increase of our net operating loss carryforwards and for changes in our 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)
 
      Six Months Ended June 30, 2019
      Net Loss   Diluted EPS   Operating Loss   Gross Profit   Operating Expenses
GAAP     $ (72.0 )   $ (1.75 )   $ (74.0 )   $ 50.0     $ 124.0  
                       
Share-based compensation   (1) 7.7         7.7     0.5     7.2  
Amortization of acquired and other intangibles   (2) 0.5         0.5     0.4     0.1  
Transaction costs related to the pending merger with HPE
  (3) 7.6         7.6         7.6  
Income tax on reconciling items   (5) (3.4 )                
Other items impacting tax provision   (6) 3.0                  
Total reconciling items     15.4     0.37     15.8     0.9     14.9  
                       
Non-GAAP     $ (56.6 )   $ (1.38 )   $ (58.2 )   $ 50.9     $ 109.1  
                       
                       
      Six Months Ended June 30, 2018
      Net Loss   Diluted EPS   Operating Loss   Gross Profit   Operating Expenses
GAAP     $ (36.0 )   $ (0.89 )   $ (37.3 )   $ 64.8     $ 102.0  
                       
Share-based compensation   (1) 6.1         6.1     0.4     5.7  
Amortization of acquired and other intangibles   (2) 0.5         0.5     0.4     0.1  
Restructuring   (4) 0.5         0.5         0.5  
Income tax on reconciling items   (5) (1.5 )                
Other items impacting tax provision   (6) 0.8                  
Total reconciling items     6.4     0.16     7.1     0.8     6.3  
                       
Non-GAAP     $ (29.6 )   $ (0.73 )   $ (30.2 )   $ 65.6     $ 95.7  
                       
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
(3) Adjustments to exclude non-recurring transaction costs related to the pending merger with HPE
(4) Adjustments to exclude restructuring costs
(5) Adjustments associated with the estimated tax impact on non-GAAP reconciling items at our marginal U.S. tax rate of approximately 21%
(6) As part of an alternative non-GAAP income measure, we have adjusted GAAP taxes as reported including the impact to the GAAP tax provision of the non-GAAP reconciling items (adjusted for note (4) above). And when applicable, we also adjust for changes related to the utilization or increase of our net operating loss carryforwards and for changes in our 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, 2019
      Product   Service   Total
      Gross Profit   Gross Margin   Gross Profit   Gross Margin   Gross Profit   Gross Margin
GAAP     $ 6.5     22 %   $ 17.4     45 %   $ 23.9     35 %
                           
Share-based compensation   (1) 0.2         0.1         0.3      
Amortization of acquired and other intangibles   (2) 0.2                 0.2      
Total reconciling items     0.4     1 %   0.1     %   0.5     1 %
                           
Non-GAAP     $ 6.9     23 %   $ 17.5     45 %   $ 24.4     36 %
                           
                           
      Three Months Ended June 30, 2018
      Product   Service   Total
      Gross Profit   Gross Margin   Gross Profit   Gross Margin   Gross Profit   Gross Margin
GAAP     $ 18.1     22 %   $ 19.7     54 %   $ 37.8     31 %
                           
Share-based compensation   (1) 0.1         0.1         0.2      
Amortization of acquired and other intangibles   (2) 0.2                 0.2      
Total reconciling items     0.3     %   0.1     %   0.4     1 %
                           
Non-GAAP     $ 18.4     22 %   $ 19.8     54 %   $ 38.2     32 %
                           
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


CRAY INC. AND SUBSIDIARIES
Reconciliation of Selected U.S. GAAP Measures to non-GAAP Measures
(Unaudited; in millions, except percentages)
 
      Six Months Ended June 30, 2019
      Product   Service   Total
      Gross Profit   Gross Margin   Gross Profit   Gross Margin   Gross Profit   Gross Margin
GAAP.     $ 14.6     23 %   $ 35.4     46 %   $ 50.0     36 %
                           
Share-based compensation   (1) 0.3         0.2         0.5      
Amortization of acquired and other intangibles   (2) 0.4                 0.4      
Total reconciling items     0.7     1 %   0.2     %   0.9     %
                           
Non-GAAP     $ 15.3     24 %   $ 35.6     46 %   $ 50.9     36 %
                           
                           
      Six Months Ended June 30, 2018
      Product   Service   Total
      Gross Profit   Gross Margin   Gross Profit   Gross Margin   Gross Profit   Gross Margin
GAAP     $ 28.5     22 %   $ 36.3     50 %   $ 64.8     32 %
                           
Share-based compensation   (1) 0.2         0.2         0.4      
Amortization of acquired and other intangibles   (2) 0.4                 0.4      
Total reconciling items     0.6     1 %   0.2     1 %   0.8     1 %
                           
Non-GAAP     $ 29.1     23 %   $ 36.5     51 %   $ 65.6     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


CRAY INC. AND SUBSIDIARIES

Reconciliation of GAAP to non-GAAP Net Loss
(Unaudited; in millions except per share amounts and percentages)

      Three Months Ended
June 30,
  Six Months Ended
June 30,
      2019   2018   2019   2018
GAAP Net Loss     $ (42.6 )   $ (11.0 )   $ (72.0 )   $ (36.0 )
                   
Non-GAAP adjustments impacting gross profit:                  
Share-based compensation   (1) 0.3     0.2     0.5     0.4  
Amortization of acquired and other intangibles   (2) 0.2     0.2     0.4     0.4  
Total adjustments impacting gross profit     0.5     0.4     0.9     0.8  
                   
Non-GAAP gross margin percentage     36 %   32 %   36 %   33 %
                   
Non-GAAP adjustments impacting operating expenses:                  
Share-based compensation   (1) 3.8     3.0     7.2     5.7  
Amortization of acquired and other intangibles   (2)     0.1     0.1     0.1  
Restructuring   (3)             0.5  
Transaction costs related to the pending merger with HPE   (4) 7.6         7.6      
Total adjustments impacting operating expenses     11.4     3.1     14.9     6.3  
                   
Non-GAAP adjustments impacting tax provision:                  
Income tax on reconciling items   (5) (2.6 )   (0.7 )   (3.4 )   (1.5 )
Other items impacting tax provision   (6) 2.3     0.1     3.0     0.8  
      (0.3 )   (0.6 )   (0.4 )   (0.7 )
                   
Non-GAAP Net Loss     $ (31.0 )   $ (8.1 )   $ (56.6 )   $ (29.6 )
                   
Non-GAAP Diluted Net Loss per common share     $ (0.75 )   $ (0.20 )   $ (1.38 )   $ (0.73 )
                   
Diluted weighted average shares     41.1     40.6     41.1     40.5  
                   
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
(3) Adjustments to exclude restructuring costs
(4) Adjustments to exclude non-recurring transaction costs related to the pending merger with HPE
(5) Adjustments associated with the estimated tax impact on non-GAAP reconciling items at our marginal U.S. tax rate of approximately 21%
(6) As part of an alternative non-GAAP income measure, we have adjusted GAAP taxes as reported including the impact to the GAAP tax provision of the non-GAAP reconciling items (adjusted for note (5) above). And when applicable, we also adjust for changes related to the utilization or increase of our net operating loss carryforwards and for changes in our valuation allowance held against deferred tax assets.


Cray Media:   Investors:
Diana Brodskiy   Paul Hiemstra
415/306-6199   206/701-2044
pr@cray.com   ir@cray.com
     

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