Nov 09, 2012 -- Global supercomputer leader Cray Inc. (NASDAQ: CRAY) today announced financial results for the third quarter ended September 30, 2012. Revenue for the quarter was $35.7 million compared to $36.7 million in the prior year period. The Company reported a net loss for the quarter of ($5.2 million) or ($0.14) diluted loss per share compared to a net loss of ($12.2 million) or ($0.35) per share in the third quarter of 2011.
Revenue for the nine-month period ended September 30, 2012 was $232.2 million compared with $144.5 million in the prior year period. Net income was $147.2 million or $3.92 diluted income per share for the first nine months of 2012 compared to a net loss of ($16.7 million) or ($0.48) per share in the prior year period. Excluding the $139.1 million pre-tax gain from a development program divestiture to Intel in the second quarter of 2012, operating income for the first nine months of 2012 was $12.8 million, compared to an operating loss of ($16.1 million) in the prior year period.
The first nine months of 2012 operating results included non-cash costs of $6.1 million for depreciation and amortization and $4.2 million related to stock compensation expense.
Total gross profit margin for the third quarter of 2012 was 48% compared to 44% for the third quarter of 2011. For the third quarter of 2012, product margin was 43% and service margin was 54%.
Operating expenses for the third quarter of 2012 were $25.3 million compared to $28.6 million in the prior year period. The third quarter of 2012 results also included non-cash costs of $2.0 million for depreciation and amortization and $1.8 million for stock compensation expense. Gross margins and operating expenses benefited from a partial reduction of the Company's year-to-date incentive-based compensation accrual.
As of September 30, 2012, cash and investments totaled $283 million compared to $223 million as of June 30, 2012.
Separately today, the Company announced it signed a definitive agreement to acquire Appro International, Inc., a leading provider of cluster solutions in the high performance computing market, for approximately $25 million in cash, which assumes at least a $3.5 million net working capital balance at closing, with no debt. The transaction is expected to close relatively soon, possibly in the next few days or weeks, subject to customary closing conditions.
"We made good progress on our strategic roadmap in the third quarter, highlighted by several significant wins around the world for our new Cray XC30 supercomputer, previously called Cascade, which we launched yesterday," said Peter Ungaro, president and CEO of Cray. "We are also very excited by the opportunities created with our planned acquisition of Appro. When taken together with our three growth initiatives which continue to make solid gains in the market, we are building a broad portfolio of offerings across the HPC and Big Data markets, providing us with multiple high growth opportunities."
Ungaro added, "We recently achieved a major milestone by completing installation and beginning the acceptance process at both the University of Illinois for their Blue Waters supercomputer and at Oak Ridge National Laboratory for their Titan system -- both are central to our 2012 outlook. While we still have a lot of work left to do in order to get these systems fully accepted, it is exciting to have installed two of the largest supercomputers on the planet. With continued progress we are positioned to deliver very strong results for the year."
A wide range of results remains possible for 2012. While many variables may impact our results, the most significant is the timing of the acceptances of the Blue Waters and Titan supercomputers, which together could represent roughly $180 million in product revenue. These are two of the largest systems we have ever built and both are on tight timelines due to previous delays of third-party components. Assuming acceptance of these systems occurs in 2012, as currently planned, we anticipate total revenue to be in the range of $450 million for the year.
For 2012, overall gross margins are anticipated to be in the 35% range and total operating expenses are expected to be about $120 million. Based on this outlook, we expect to be solidly profitable for 2012, independent of the $139 million pre-tax gain on the development program divestiture that occurred during the second quarter.
The impact of the planned acquisition of Appro is not included in our 2012 outlook as the transaction is not yet closed.
The Company's 2012 effective income tax rate is currently projected to be about 5-8%, but is dependent on a number of variables.
For 2013, while it is very early in the annual budgeting cycle, based on the current outlook for 2012 and assuming successful completion of the Appro acquisition in 2012 as planned, we expect revenue to grow slightly as compared to 2012. Gross margins for 2013 are anticipated to be in the mid-30% range. Total operating expenses for 2013 are anticipated to increase significantly year-over-year due to increased investments in our storage and big data initiatives, completion of our DARPA program, annual compensation increases, as well as the Appro acquisition. The acquisition is expected to contribute at least $60 million in revenue and add about $15 million in operating expenses in 2013 (excluding potential purchase cost adjustments). Based on this outlook, we expect to be profitable for 2013.
The Company's 2013 effective income tax rate is currently projected to be about 40% but is dependent on a number of variables. Due to the Company's substantial net operating loss carryforwards, the quarterly and annual income tax provision is expected to be largely non-cash.
Actual results for any future period are subject to large fluctuations given the nature of Cray's business.
•Today, November 9, Cray announced plans to acquire Appro International.
•In November, Cray formally launched its next generation high-end system, the Cray XC30 supercomputer, previously code-named "Cascade". Cray has signed more than $100 million in contracts for this new system to be installed at sites around the world.
•In November, YarcData, Cray's subsidiary in Big Data graph analytics, announced two new contracts for uRiKA graph appliances. Oak Ridge will use a uRiKA graph appliance in a healthcare fraud detection program, and Pittsburgh Supercomputing Center recently deployed a uRiKA system called "Sherlock" to be used in a wide range of scientific research projects, including gene biology, social network analysis and cybersecurity. During the third quarter, YarcData launched the uRiKA Fall 2012 Release, adding substantial new standards-based capabilities that reduce uRiKA's "time-to-production" with new features that enhance uRiKA's ease-of-use and ability to manage the graph analytics appliance within the enterprise.
•In November, Cray announced that the Cray XE6 and Cray XE6m supercomputers are now available with the new AMD Opteron 6300 Series processor, using AMD's next-generation "Piledriver" core.
•In October, Cray launched a new series of production hybrid supercomputers -- the Cray XK7 system -- in conjunction with the debut of the Cray XK7 supercomputer nicknamed "Titan" located at Oak Ridge. Titan is capable of more than 20 petaflops and is the world's most powerful supercomputer for open science.
•In October, through an agreement with SystemFabricWorks, Cray expanded its storage and data management team with the addition of key individuals from SystemFabricWorks, a recognized leader in storage interconnect solutions and software. As part of the Blue Waters supercomputer, Cray recently installed a 36-cabinet, 25 petabyte Sonexion storage system which is expected to deliver more than one terabyte-per-second of I/O bandwidth performance to more than 25,000 compute nodes.
•In October, Cray announced that Indiana University plans to replace its largest supercomputer system with a next generation Cray XK supercomputer. Once installed, the system named Big Red II is expected to be the fastest university-owned supercomputer in the U.S.
•In September, Cray was awarded a contract to provide the Swiss National Supercomputing Centre with a 750 teraflop Cray XC30 supercomputer and a next-generation Cray Sonexion storage system.
•In August, Cray was awarded a contract to install a Cray XE6m at the University of Miami which will be used to study hydrocarbon research in the Gulf of Mexico in the wake of the Deepwater Horizon incident and Hurricane Isaac.
•In August, Cray announced it would add NVIDIA Kepler GPUs to its new Cray XC30 supercomputer. This future functionality comes in addition to Cray's previously disclosed future support of Intel's Xeon Phi coprocessor.
Conference Call Information
Cray will host a conference call today, Friday, Nov. 9, 2012 at 5:00 a.m. PST (8:00 a.m. EST)