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News Release

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Cray Inc. Reports Second Quarter 2007 Financial Results
SEATTLE, WA, Aug 02, 2007 (MARKET WIRE via COMTEX News Network) -- Global supercomputer leader Cray Inc. (NASDAQ: CRAY) today announced financial results for the second quarter ended June 30, 2007. Revenue for the quarter was $26.6 million compared to $38.5 million in the prior year period. Net loss for the quarter was ($6.4 million) or ($0.20) per share compared to a net loss of ($7.2 million) or ($0.32) per share in the second quarter of 2006.

Total gross margin for the second quarter of 2007 was 40.3 percent compared to 32.5 percent in the prior year period. Product margin for the second quarter was 40.3 percent compared to 26.6 percent in the second quarter of 2006. The high product margin was driven by product mix across a small number of transactions and the reduction of low margin development revenue. Service margin for the second quarter was also 40.3 percent compared to 43.0 percent in the second quarter of 2006, in line with the company's target level.

Operating expenses were $17.8 million in the second quarter compared to $16.7 million in the prior year period, excluding restructuring and severance. The increase was driven by higher research and development expenses, partially offset by both lower sales and marketing and lower general and administrative expenses.

Included in second quarter 2007 results were non-cash items of $3.2 million for depreciation and amortization and $1.0 million related to stock compensation.

For the first half of 2007, Cray reported total revenue of $73.7 million compared to $87.0 million in the prior year period. Operating expenses were up modestly year-over-year to $35.2 million compared to $34.4 million in the first half of 2006, excluding restructuring and severance. Net loss improved by 42 percent from the prior year to ($7.2 million) or ($0.23) per share in the first half of 2007 compared to a net loss of ($12.5 million) or ($0.56) per share in the first half of 2006.

Cash and short-term investment balances as of June 30, 2007 were $124.5 million compared to $140.3 million reported as of December 31, 2006.

"Thus far in 2007 we have improved bottom-line results year-over-year and, with well over $100 million in new contract announcements, we have continued to leverage our strong product portfolio and supercomputing roadmap in the marketplace," said Peter Ungaro, president and CEO of Cray. "We have also seen a number of product development challenges surface over the past few months and have worked aggressively to address them. We are presently on track to build initial BlackWidow and quad-core Cray XT4(TM) systems late in the fourth quarter of this year, for revenue in the first half of 2008. We anticipate availability of initial Cray XMT(TM) systems in the first half of 2008. Clearly, our key priorities for the remainder of 2007 are to execute on product development initiatives and to win new business around the world."

Outlook

Quarterly and annual results for 2007 will be affected by many factors, including the level and timing of government funding, the timing of customer orders, shipments, acceptances and revenue recognition and the timing and success of planned product rollouts.

While there continues to be a wide range of potential outcomes for quarterly and annual results, Cray estimates 2007 revenue will likely be below $190 million, and consequently does not anticipate profitability for the year. The company anticipates mixed results for the third and fourth quarters, as two large revenue transactions are anticipated to make up a substantial majority of revenue for the second half of the year, either or both of which could be accepted in the third or fourth quarter. The company anticipates minimal, if any, revenue from BlackWidow and quad-core Cray XT4 systems in 2007. Cray expects an improved gross margin percent and higher operating expenses for the year compared to 2006. The company anticipates using cash in the third quarter with positive cash flow in the fourth quarter.

For 2008, while there is a wide range of potential outcomes, Cray expects improved revenue over 2007 and anticipates being profitable for the year.

Recent Highlights

-- In July, Cray announced that two Cray supercomputers, one installed at Oak Ridge National Laboratory and the other at Sandia National Laboratories, achieved top-three status on the industry-standard TOP500 benchmark. Each system achieved computational performance of over 100 teraflops (trillion floating point operations per second), a level of performance achieved by only one other computer in the world.

-- In July, Cray announced that Cray supercomputers played a key role in the design of Boeing's highly successful 787 Dreamliner. Through the use of supercomputer-based modeling and simulation, Boeing engineers were able to build the 787 Dreamliner after physically testing only 11 wing designs, versus 77 wing designs for the earlier Boeing 767 aircraft.

-- In June, Cray announced a contract with the University of Bergen, in Norway, for a 50 teraflops Cray XT4 supercomputer to be delivered later this year at the Bergen Center for Computational Science. The supercomputer will be used for advanced research in fields including marine molecular biology, large scale simulation of ocean processes, climate research, computational chemistry, computational physics, computational biology, geosciences, and applied mathematics.

-- In April, Cray announced an order that will nearly triple the capability of the Swiss National Supercomputing Centre's (CSCS) Cray XT3(TM) system from 8.5 teraflops to 22.8 teraflops. The upgrade was achieved in two phases: first, the existing Cray XT3 system was upgraded with dual-core AMD Opteron(TM) processors, followed by the installation of a fully compatible Cray XT4 supercomputer. The existing Cray XT3 system began operational weather forecasting in support of MeteoSwiss in February, 2007.

Conference Call Information

Cray will host a conference call today, Thursday, August 2, 2007 at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss second quarter 2007 financial results. To access the call, please dial into the conference at least 10 minutes prior to the beginning of the call at 1-800-257-6566. International callers should dial 303-262-2191. To listen to the live 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. If you do not have Internet access, a replay of the call will be available by dialing 1-800-405-2236 and entering access code 11094386. International callers can listen to the replay by dialing 303-590-3000, access code 11094386. The conference call replay will be available for 72 hours, beginning at 4:30 p.m. Pacific Time on Thursday, August 2, 2007.

About Cray Inc.

As a global leader in supercomputing, Cray provides highly advanced supercomputers and world-class services and support to government, industry and academia. Cray technology enables scientists and engineers to achieve remarkable breakthroughs by accelerating performance, improving efficiency and extending the capabilities of their most demanding applications. Cray's Adaptive Supercomputing vision will result in innovative next-generation products that integrate diverse processing technologies into a unified architecture, allowing customers to surpass today's limitations and meeting 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. There are certain factors that could cause Cray's execution to differ materially from those anticipated by the statements above. These factors include anticipated revenue subject to complex revenue recognition rules; fluctuating quarterly operating results; lower margins and operating results due to many variables including pricing pressure; the technical challenges of developing high performance computing systems, including potential delays in development projects, such as the quad-core Cray XT4, Cray XMT, BlackWidow and Baker systems; the timing and level of government funding for supercomputer system purchases and research and development activities; the successful passing of customer acceptance tests; significant reliance on third-party development service suppliers and parts suppliers including their competitiveness with other suppliers and potential delays in the results of their development and in the availability of qualified parts from suppliers; the successful porting of application programs to Cray supercomputer systems; Cray's ability to keep up with rapid technological change; Cray's ability to compete against larger, more established companies and innovative competitors; and general economic and market conditions. For a discussion of these and other risks, see "Risk Factors" in Cray's most recent Quarterly Report on Form 10-Q filed with the SEC.

Cray is a registered trademark, and Cray XT4, Cray XMT and Cray XT3 are trademarks of Cray Inc. All other trademarks are the property of their respective owners.

                        CRAY INC. AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
      (Unaudited and in thousands, except share and per share data)
                                 Three Months Ended     Six Months Ended
                                      June 30,              June 30,
                                  2007       2006       2007       2006
                                ---------  ---------  ---------  ---------
REVENUE:
  Product                       $  13,789  $  24,647  $  47,449  $  58,916
  Service                          12,836     13,866     26,285     28,112
                                ---------  ---------  ---------  ---------
     Total revenue                 26,625     38,513     73,734     87,028
                                ---------  ---------  ---------  ---------
COST OF REVENUE:
  Cost of product revenue           8,227     18,099     31,804     44,776
  Cost of service revenue           7,660      7,901     15,658     15,594
                                ---------  ---------  ---------  ---------
     Total cost of revenue         15,887     26,000     47,462     60,370
                                ---------  ---------  ---------  ---------
     Gross margin                  10,738     12,513     26,272     26,658
                                ---------  ---------  ---------  ---------
OPERATING EXPENSES:
  Research and development, net     8,859      6,371     16,739     13,586
  Sales and marketing               5,123      5,682     10,391     10,667
  General and administrative        3,822      4,600      8,102     10,194
  Restructuring and severance           -        549         10      1,287
                                ---------  ---------  ---------  ---------
    Total operating expenses       17,804     17,202     35,242     35,734
                                ---------  ---------  ---------  ---------
    Loss from operations           (7,066)    (4,689)    (8,970)    (9,076)
Other income (expense), net            76     (1,831)       471     (1,872)
Interest income (expense), net        966       (441)     1,999     (1,049)
                                ---------  ---------  ---------  ---------
    Loss before income taxes       (6,024)    (6,961)    (6,500)   (11,997)
Income tax expense                   (360)      (212)      (725)      (481)
                                ---------  ---------  ---------  ---------
    Net loss                    $  (6,384) $  (7,173) $  (7,225) $ (12,478)
                                =========  =========  =========  =========
   Diluted net loss per common
    share                       $   (0.20) $   (0.32) $   (0.23) $   (0.56)
                                =========  =========  =========  =========
   Diluted weighted average
    shares outstanding             31,635     22,451     31,560     22,395
                                =========  =========  =========  =========
                        CRAY INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                       (Unaudited and in thousands)
                                                    June 30,   December 31,
                                                      2007         2006
                                                  -----------  -----------
                      ASSETS
Current assets:
   Cash and cash equivalents                      $    48,335  $   115,328
   Restricted cash                                     25,000       25,000
   Short-term investments, available-for-sale          51,163            -
   Accounts receivable, net                            24,599       44,790
   Inventory                                           61,950       58,798
   Prepaid expenses and other current assets            4,635        2,156
                                                  -----------  -----------
          Total current assets                        215,682      246,072
Property and equipment, net                            19,697       21,564
Service inventory, net                                  3,707        4,292
Goodwill                                               61,503       57,138
Deferred tax asset                                        770          722
Intangible assets, net                                  1,309        1,404
Other non-current assets                                6,000        6,311
                                                  -----------  -----------
          TOTAL ASSETS                            $   308,668  $   337,503
                                                  ===========  ===========
         LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                               $    18,686  $    22,450
   Accrued payroll and related expenses                11,944       17,411
   Advance research and development payments            8,899       21,518
   Other accrued liabilities                            5,515        5,121
   Deferred revenue                                    37,808       43,248
                                                  -----------  -----------
          Total current liabilities                    82,852      109,748
Long-term deferred revenue                              1,589        2,475
Other non-current liabilities                           3,526        3,906
Convertible notes payable                              80,000       80,000
                                                  -----------  -----------
          TOTAL LIABILITIES                           167,967      196,129
Shareholders'  equity:
   Common stock                                       511,372      507,356
   Accumulated other comprehensive income               9,391        6,855
   Accumulated deficit                               (380,062)    (372,837)
                                                  -----------  -----------
          TOTAL SHAREHOLDERS' EQUITY                  140,701      141,374
                                                  -----------  -----------
          TOTAL LIABILITIES AND SHAREHOLDERS'
           EQUITY                                 $   308,668  $   337,503
                                                  ===========  ===========

Cray Media:
Erin McGhee
206/701-2107
pr@cray.com

Investors:
Victor Chynoweth
206/701-2094
ir@cray.com

SOURCE: Cray Inc.

mailto:pr@cray.com
mailto:ir@cray.com

 

   

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