Exhibit 99.1
craylogoregistered2a01a01a10.jpg
Cray Media:
Investors:
Nick Davis
Paul Hiemstra
206/701-2123
206/701-2044
pr@cray.com
ir@cray.com


CRAY INC. REPORTS 2017 FULL YEAR AND FOURTH QUARTER FINANCIAL RESULTS
Cray Continues to Expect Growth for 2018
        
Seattle, WA - February 15, 2018 - Global supercomputer leader Cray Inc. (Nasdaq: CRAY) today announced financial results for the year and fourth quarter ended December 31, 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.

For 2017, Cray reported total revenue of $392.5 million, which compares with $629.8 million in 2016. Net loss for 2017 was $133.8 million, or $3.33 per diluted share, compared to net income of $10.6 million, or $0.26 per diluted share in 2016. Non-GAAP net loss, which adjusts for selected unusual and non-cash items, was $40.5 million, or $1.01 per diluted share for 2017, compared to non-GAAP net income of $19.9 million, or $0.49 per diluted share in 2016.

Revenue for the fourth quarter of 2017 was $166.6 million, compared to $346.6 million in the fourth quarter of 2016. Net loss for the fourth quarter of 2017 was $97.5 million, or $2.42 per diluted share, compared to net income of $51.8 million, or $1.27 per diluted share in the fourth quarter of 2016. Non-GAAP net income was $9.2 million, or $0.22 per diluted share for the fourth quarter of 2017, compared to non-GAAP net income of $56.3 million, or $1.38 per diluted share for the same period in 2016.

The Company’s GAAP Net Loss for the fourth quarter and year ended December 31, 2017 was significantly impacted by both the enactment of the Tax Cuts and Jobs Act of 2017 and by its decision to record a valuation allowance against all of its U.S. deferred tax assets. The combined GAAP impact totaled $103 million. These items have been excluded for non-GAAP purposes.

For 2017, overall gross profit margin on a GAAP and non-GAAP basis was 33% and 34%, respectively, compared to 35% on a GAAP and non-GAAP basis for 2016.

Operating expenses for 2017 were $196.4 million, compared to $211.1 million in 2016. Non-GAAP operating expenses for 2017 were $176.5 million, compared to $199.7 million in 2016. GAAP operating expenses in 2017 included $8.6 million in restructuring charges associated with our recent workforce reduction.

As of December 31, 2017, cash, investments and restricted cash totaled $147 million. Working capital at the end of the fourth quarter was $354 million, compared to $373 million at December 31, 2016.

“Despite difficult conditions in our core market we finished 2017 strong, highlighted by several large acceptances at multiple sites around the world, including completing the installation of what is now the largest supercomputing complex in India at the Ministry of Earth Sciences,” said Peter Ungaro, president

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and CEO of Cray.  “As we shift to 2018, we’re seeing signs of a rebound at the high-end of supercomputing as well as considerable growth opportunities in the coming years. Supercomputing continues to expand in importance to both government and commercial customers, driving growth and competitiveness across many different disciplines and industries. As the leader at the high-end of the market, we’re poised to play a key role in this growth and I’m excited about where we’re headed.”

Outlook
For 2018, while a wide range of results remains possible, Cray continues to expect revenue to grow in the range of 10-15% over 2017. Revenue is expected to be about $50 million for the first quarter of 2018. For 2018, GAAP and non-GAAP gross margins are expected to be in the low- to mid-30% range. Non-GAAP operating expenses for 2018 are expected to be in the range of $190 million. For 2018, non-GAAP adjustments are expected to total about $14 million, driven primarily by share-based compensation. For the year, GAAP operating expenses are anticipated to be about $12 million higher than non-GAAP operating expenses, and GAAP gross profit is expected to be about $2 million lower than non-GAAP gross profit.

Based on this outlook, Cray’s effective GAAP and non-GAAP tax rates for 2018 are both expected to be in the low-single digit range, on a percentage basis.

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

Recent Highlights
In January, Cray announced it had deployed two Cray XC40 supercomputers and two Cray ClusterStor storage systems as part of a $67 million contract with the Ministry of Earth Sciences in India. The combined systems are the largest supercomputing resource in India and were accepted in late 2017.
In December, Cray announced that it has joined the Big Data Center at the Department of Energy’s National Energy Research Scientific Computing Center (NERSC). The collaboration is representative of Cray’s commitment to leverage its supercomputing expertise, technologies, and best practices to advance the adoption of Artificial Intelligence (AI), deep learning, and data-intensive computing.
In November, Cray announced that Samsung Electronics Co. Ltd. has purchased a Cray CS-Storm accelerated cluster supercomputer. The Samsung Strategy & Innovation Center procured the system for use in its research into AI and deep learning workloads, including systems for connected cars and autonomous technologies.
In November, Cray announced new high performance computing storage solutions including Cray View for ClusterStor – providing customers with dramatically improved job productivity; Cray ClusterStor L300N – a flash-based acceleration solution; and Cray DataWarp for the Cray XC50 supercomputer – exponentially reducing data access time.
In November, Cray announced the Company is creating an Arm-based supercomputer with the addition of Cavium ThunderX2 processors to the Cray XC50 supercomputer. Cray customers will have a complete Arm-based supercomputer that features a full software environment, including the Cray Linux Environment, the Cray Programming Environment, and Arm-optimized compilers, libraries, and tools for running today’s supercomputing workloads.
In November, Cray announced a comprehensive set of AI products and programs that will empower customers to learn, start, and scale their deep learning initiatives. These include the new Cray Accel AI lab, new Cray Accel AI offerings, a new Cray Urika-XC analytics software suite, and an AI collaboration agreement with Intel.

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In December, Cray announced that Catriona Fallon was appointed to Cray’s board of directors. Fallon is currently the Senior Vice President, Networks Segment at Itron Inc. and was Chief Financial Officer before Itron’s acquisition of Silver Springs Networks in January 2018.

Conference Call Information
Cray will host a conference call today, Thursday, February 15, 2018 at 1:30 p.m. PT (4:30 p.m. ET) to discuss its year and fourth quarter ended December 31, 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 #56308204. 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 #56308204. The conference call replay will be available for 72 hours, beginning at 4:45 p.m. PT on Thursday, February 15, 2018.

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 share-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.

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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.

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 operating results, Cray’s competitive position in the high-end supercomputing market and the timing of a rebound in that market, Cray’s ability to grow in the future, and its product development, sales and delivery plans. These statements involve current expectations, forecasts of future events and other statements that are not historical facts. Inaccurate assumptions and estimates 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 Cray will not be able to secure orders for Cray systems to be accepted in the future when or at the levels expected, the risk that the segments of the high-end of the supercomputing market that Cray targets do not recover from the current downturn as early or as completely as expected or at all, 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, the risk that Cray is not able to successfully sell products and services in the big data, artificial intelligence and commercial markets as expected or at all, the risk that Cray is not able to reach new customers through cloud services offerings as expected or at all, the risk that Cray is not able to expand and penetrate its addressable market as expected or at all, the risk that the expense and/or effort to address Cray systems at customer sites that have issues with third party components or with Cray components, including issues related to the “Spectre” and “Meltdown” processor security vulnerabilities, is material, 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 government funding for research and development projects is less than expected, the risk that new third-party processors and other components for our systems are not available with the anticipated performance, timing or pricing, 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 year ended December 31, 2017, and from time to time in other reports filed by Cray with the SEC. 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.

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CRAY, the stylized CRAY mark and Urika are registered trademarks of Cray Inc. in the United States and other countries, and ClusterStor, CS-Storm, DataWarp and the XC family of supercomputers are trademarks of Cray Inc. 

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CRAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except per share data)
 

 
 
Three Months Ended
December 31,
 
Twelve Months Ended
December 31,
 
 
2017
 
2016
 
2017
 
2016
Revenue:
 
 
 
 
 
 
 
 
Product
 
$
132,256

 
$
311,408

 
$
250,195

 
$
499,432

Service
 
34,387

 
35,166

 
142,314

 
130,377

Total revenue
 
166,643

 
346,574

 
392,509

 
629,809

Cost of revenue:
 
 
 
 
 
 
 
 
Cost of product revenue
 
99,474

 
206,827

 
188,830

 
332,016

Cost of service revenue
 
17,109

 
19,256

 
72,975

 
77,578

Total cost of revenue
 
116,583

 
226,083

 
261,805

 
409,594

Gross profit
 
50,060

 
120,491

 
130,704

 
220,215

Operating expenses:
 
 
 
 
 
 
 
 
Research and development, net
 
22,186

 
29,807

 
98,777

 
112,130

Sales and marketing
 
16,602

 
18,502

 
59,894

 
64,893

General and administrative
 
6,089

 
9,728

 
29,113

 
34,053

Restructuring
 
915

 

 
8,568

 

Total operating expenses
 
45,792

 
58,037

 
196,352

 
211,076

Income (loss) from operations
 
4,268

 
62,454

 
(65,648
)
 
9,139

 
 
 
 
 
 
 
 
 
Other income (expense), net
 
(356
)
 
(196
)
 
5,002

 
(1,365
)
Interest income, net
 
621

 
493

 
3,276

 
2,147

Gain on strategic transaction
 
91

 

 
4,480

 

Income (loss) before income taxes
 
4,624

 
62,751

 
(52,890
)
 
9,921

Income tax benefit (expense)
 
(102,166
)
 
(10,976
)
 
(80,939
)
 
694

Net income (loss)
 
$
(97,542
)
 
$
51,775

 
$
(133,829
)
 
$
10,615

 
 
 
 
 
 
 
 
 
Basic net income (loss) per common share
 
$
(2.42
)
 
$
1.30

 
$
(3.33
)
 
$
0.27

Diluted net income (loss) per common share
 
$
(2.42
)
 
$
1.27

 
$
(3.33
)
 
$
0.26

 
 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
 
40,309

 
39,974

 
40,139

 
39,833

Diluted weighted average shares outstanding
 
40,309

 
40,816

 
40,139

 
41,012




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CRAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share amounts)
 
December 31,
2017
 
December 31,
2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
137,326

 
$
222,962

Restricted cash
1,964

 

Short-term investments
6,997

 

Accounts and other receivables, net
162,034

 
197,941

Inventory
186,307

 
88,254

Prepaid expenses and other current assets
25,015

 
20,006

Total current assets
519,643

 
529,163

 
 
 
 
Long-term restricted cash
1,030

 
1,655

Long-term investment in sales-type lease, net
23,367

 
31,050

Property and equipment, net
36,623

 
30,620

Service spares, net
2,551

 
3,023

Goodwill
14,182

 
14,182

Intangible assets other than goodwill, net
4,345

 
1,637

Deferred tax assets
1,106

 
85,613

Other non-current assets
15,910

 
17,629

TOTAL ASSETS
$
618,757

 
$
714,572

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
57,207

 
$
45,504

Accrued payroll and related expenses
18,546

 
17,199

Other accrued liabilities
9,471

 
10,303

Deferred revenue
80,119

 
83,129

Total current liabilities
165,343

 
156,135

 
 
 
 
Long-term deferred revenue
38,622

 
27,258

Other non-current liabilities
14,495

 
5,703

TOTAL LIABILITIES
218,460

 
189,096

 
 
 
 
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 40,464,963 and 40,757,458 shares, respectively
633,408

 
622,604

Accumulated other comprehensive income
915

 
2,782

Accumulated deficit
(234,026
)
 
(99,910
)
TOTAL SHAREHOLDERS’ EQUITY
400,297

 
525,476

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
618,757

 
$
714,572


 


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CRAY INC. AND SUBSIDIARIES
Reconciliation of Selected U.S. GAAP Measures to non-GAAP Measures
(Unaudited; in millions, except EPS)

 
 
Three Months Ended December 31, 2017
 
 
Net Income (Loss)
 
Diluted EPS
 
Operating Income
 
Gross Profit
 
Operating Expenses
GAAP
 
$
(97.5
)
 
$
(2.42
)
 
$
4.3

 
$
50.1

 
$
45.8

 
 
 
 
 
 
 
 
 
 
 
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

Restructuring
(3)
0.9

 
 
 
0.9

 
 
 
0.9

Gain on strategic transaction
(4)
(0.1
)
 
 
 
 
 
 
 
 
Income tax on reconciling items
(5)
(1.2
)
 
 
 
 
 
 
 
 
Other items impacting tax provision
(6)
103.6

 
 
 
 
 
 
 
 
Total reconciling items
 
106.7

 
2.64

 
4.4

 
0.4

 
4.0

 
 
 
 
 
 
 
 
 
 
 
Non-GAAP
 
$
9.2

 
$
0.22

 
$
8.7

 
$
50.5

 
$
41.8

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31, 2016
 
 
Net Income
 
Diluted EPS
 
Operating Income
 
Gross Profit
 
Operating Expenses
GAAP
 
$
51.8

 
$
1.27

 
$
62.5

 
$
120.5

 
$
58.0

 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
(1)
2.8

 
 
 
2.8

 
0.1

 
2.7

Amortization of acquired and other intangibles
(2)
0.2

 
 
 
0.2

 
 
 
0.2

Income tax on reconciling items
(5)
(1.1
)
 
 
 
 
 
 
 
 
Other items impacting tax provision
(6)
2.6

 
 
 
 
 
 
 
 
Total reconciling items
 
4.5

 
0.11

 
3.0

 
0.1

 
2.9

 
 
 
 
 
 
 
 
 
 
 
Non-GAAP
 
$
56.3

 
$
1.38

 
$
65.5

 
$
120.6

 
$
55.1

 
 
 
 
 
 
 
 
 
 
 
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 restructuring costs
(4) Adjustments to exclude gain on strategic transaction with Seagate
(5) Adjustments associated with the estimated tax impact on non-GAAP reconciling items at our marginal U.S. tax rate of approximately 35%
(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), related to the utilization or increase of our net operating loss carryforwards. And when applicable, we also adjust for changes in our valuation allowance held against deferred tax assets and any applicable change in tax law, including the Tax Cuts and Jobs Act of 2017.

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CRAY INC. AND SUBSIDIARIES
Reconciliation of Selected U.S. GAAP Measures to non-GAAP Measures
(Unaudited; in millions, except EPS)
 
 
Year Ended December 31, 2017
 
 
Net Loss
 
Diluted EPS
 
Operating Loss
 
Gross Profit
 
Operating Expenses
GAAP
 
$
(133.8
)
 
$
(3.33
)
 
$
(65.6
)
 
$
130.7

 
$
196.4

 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
(1)
10.9

 
 
 
10.9

 
0.6

 
10.3

Amortization of acquired and other intangibles
(2)
0.7

 
 
 
0.7

 
0.2

 
0.5

Restructuring
(3)
8.6

 
 
 
8.6

 
 
 
8.6

Strategic transaction-related costs
(4)
0.5

 
 
 
0.5

 
 
 
0.5

Gain on strategic transaction
(5)
(4.5
)
 
 
 
 
 
 
 
 
Gain on sale of investment
(6)
(3.3
)
 
 
 
 
 
 
 
 
Income tax on reconciling items
(7)
(6.1
)
 
 
 
 
 
 
 
 
Other items impacting tax provision
(8)
86.5

 
 
 
 
 
 
 
 
Total reconciling items
 
93.3

 
2.32

 
20.7

 
0.8

 
19.9

 
 
 
 
 
 
 
 
 
 
 
Non-GAAP
 
$
(40.5
)
 
$
(1.01
)
 
$
(44.9
)
 
$
131.5

 
$
176.5

 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2016
 
 
Net Income
 
Diluted EPS
 
Operating Income
 
Gross Profit
 
Operating Expenses
GAAP
 
$
10.6

 
$
0.26

 
$
9.1

 
$
220.2

 
$
211.1

 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
(1)
11.2

 
 
 
11.2

 
0.5

 
10.7

Purchase accounting adjustments
(2)
0.1

 
 
 
0.1

 
0.1

 
 
Amortization of acquired and other intangibles
(2)
0.7

 
 
 
0.7

 
 
 
0.7

Income tax on reconciling items
(7)
(4.6
)
 
 
 
 
 
 
 
 
Other items impacting tax provision
(8)
1.9

 
 
 
 
 
 
 
 
Total reconciling items
 
9.3

 
0.23

 
12.0

 
0.6

 
11.4

 
 
 
 
 
 
 
 
 
 
 
Non-GAAP
 
$
19.9

 
$
0.49

 
$
21.1

 
$
220.8

 
$
199.7

 
 
 
 
 
 
 
 
 
 
 
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 and other acquisition-related charges
(3) Adjustments to exclude restructuring costs
(4) Adjustments to exclude strategic transaction-related costs
(5) Adjustments to exclude gain on strategic transaction with Seagate
(6) Adjustments to exclude gain on sale of investment
(7) Adjustments associated with the estimated tax impact on non-GAAP reconciling items at our marginal U.S. tax rate of approximately 35%
(8) 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 (7) above), related to the utilization or increase of our net operating loss carryforwards. And when applicable, we also adjust for changes in our valuation allowance held against deferred tax assets and any applicable change in tax law, including the Tax Cuts and Jobs Act of 2017.

8



CRAY INC. AND SUBSIDIARIES
Reconciliation of Selected U.S. GAAP Measures to non-GAAP Measures
(Unaudited; in millions, except percentages)


 
 
Three Months Ended December 31, 2017
 
 
Product
 
Service
 
Total
 
 
Gross Profit
 
Gross Margin
 
Gross Profit
 
Gross Margin
 
Gross Profit
 
Gross Margin
GAAP
 
$
32.8

 
25
%
 
$
17.3

 
50
%
 
$
50.1

 
30
%
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
1
%
 
0.4

 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP
 
$
33.1

 
25
%
 
$
17.4

 
51
%
 
$
50.5

 
30
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31, 2016
 
 
Product
 
Service
 
Total
 
 
Gross Profit
 
Gross Margin
 
Gross Profit
 
Gross Margin
 
Gross Profit
 
Gross Margin
GAAP
 
$
104.6

 
34
%
 
$
15.9

 
45
%
 
$
120.5

 
35
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
(1)
0.1

 
 
 

 
 
 
0.1

 
 
Total reconciling items
 
0.1

 
%
 

 
%
 
0.1

 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP
 
$
104.7

 
34
%
 
$
15.9

 
45
%
 
$
120.6

 
35
%
 
 
 
 
 
 
 
 
 
 
 
 
 
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

9



CRAY INC. AND SUBSIDIARIES
Reconciliation of Selected U.S. GAAP Measures to non-GAAP Measures
(Unaudited; in millions, except percentages)


 
 
Year Ended December 31, 2017
 
 
Product
 
Service
 
Total
 
 
Gross Profit
 
Gross Margin
 
Gross Profit
 
Gross Margin
 
Gross Profit
 
Gross Margin
GAAP
 
$
61.4

 
25
%
 
$
69.3

 
49
%
 
$
130.7

 
33
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
(1)
0.3

 
 
 
0.3

 
 
 
0.6

 
 
Amortization of acquired and other intangibles
(2)
0.2

 
 
 

 
 
 
0.2

 
 
Total reconciling items
 
0.5

 
%
 
0.3

 
%
 
0.8

 
1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP
 
$
61.9

 
25
%
 
$
69.6

 
49
%
 
$
131.5

 
34
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2016
 
 
Product
 
Service
 
Total
 
 
Gross Profit
 
Gross Margin
 
Gross Profit
 
Gross Margin
 
Gross Profit
 
Gross Margin
GAAP
 
$
167.4

 
34
%
 
$
52.8

 
40
%
 
$
220.2

 
35
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
(1)
0.3

 
 
 
0.2

 
 
 
0.5

 
 
Purchase accounting adjustments
(2)
0.1

 
 
 
 
 
 
 
0.1

 
 
Total reconciling items
 
0.4

 
%
 
0.2

 
1
%
 
0.6

 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP
 
$
167.8

 
34
%
 
$
53.0

 
41
%
 
$
220.8

 
35
%
 
 
 
 
 
 
 
 
 
 
 
 
 
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


10



CRAY INC. AND SUBSIDIARIES
Reconciliation of GAAP to non-GAAP Net Income (Loss)
(Unaudited; in millions except per share amounts and percentages)
 
 
Three Months Ended
December 31,
 
Twelve Months Ended
December 31,
 
 
2017
 
2016
 
2017
 
2016
GAAP Net Income (Loss)
 
$
(97.5
)
 
$
51.8

 
$
(133.8
)
 
$
10.6

 
 
 
 
 
 
 
 
 
Non-GAAP adjustments impacting gross profit:
 
 
 
 
 
 
 
 
  Share-based compensation
(1)
0.2

 
0.1

 
0.6

 
0.5

  Amortization of acquired and other intangibles
(2)
0.2

 

 
0.2

 

  Purchase accounting adjustments
(2)

 

 

 
0.1

Total adjustments impacting gross profit
 
0.4

 
0.1

 
0.8

 
0.6

 
 
 
 
 
 
 
 
 
Non-GAAP gross margin percentage
 
30
%
 
35
%
 
34
%
 
35
%
 
 
 
 
 
 
 
 
 
Non-GAAP adjustments impacting operating expenses:
 
 
 
 
 
 
 
 
  Share-based compensation
(1)
3.0

 
2.7

 
10.3

 
10.7

  Amortization of acquired and other intangibles
(2)
0.1

 
0.2

 
0.5

 
0.7

  Restructuring
(3)
0.9

 

 
8.6

 

  Strategic transaction-related costs
(4)

 

 
0.5

 

Total adjustments impacting operating expenses
 
4.0

 
2.9

 
19.9

 
11.4

 
 
 
 
 
 
 
 
 
Gain on strategic transaction
(5)
(0.1
)
 

 
(4.5
)
 

Gain on sale of investment
(6)

 

 
(3.3
)
 

 
 
 
 
 
 
 
 
 
Non-GAAP adjustments impacting tax provision:
 
 
 
 
 
 
 
 
  Income tax on reconciling items
(7)
(1.2
)
 
(1.1
)
 
(6.1
)
 
(4.6
)
  Other items impacting tax provision
(8)
103.6

 
2.6

 
86.5

 
1.9

 
 
102.4

 
1.5

 
80.4

 
(2.7
)
 
 
 
 
 
 
 
 
 
Non-GAAP Net Income (Loss)
 
$
9.2

 
$
56.3

 
$
(40.5
)
 
$
19.9

 
 
 
 
 
 
 
 
 
Non-GAAP Diluted Net Income (Loss) per common share
 
$
0.22

 
$
1.38

 
$
(1.01
)
 
$
0.49

 
 
 
 
 
 
 
 
 
Diluted weighted average shares
(9)
41.3

 
40.8

 
40.1

 
41.0

 
 
 
 
 
 
 
 
 
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
(3) Adjustments to exclude restructuring costs
(4) Adjustments to exclude strategic transaction-related costs
(5) Adjustments to exclude gain on strategic transaction with Seagate
(6) Adjustments to exclude gain on sale of investment
(7) Adjustments associated with the estimated tax impact on non-GAAP reconciling items at our marginal U.S. tax rate of approximately 35%

11



(8) 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 (7) above), related to the utilization or increase of our net operating loss carryforwards. And when applicable, we also adjust for changes in our valuation allowance held against deferred tax assets and any applicable change in tax law, including the Tax Cuts and Jobs Act of 2017
(9) Cray recorded a GAAP net loss for the three months ended December 31, 2017 and non-GAAP net income for the same period. As such, the diluted weighted average shares number on the Reconciliation of GAAP to non-GAAP Net Income (Loss) differs from the amount on Cray’s Condensed Consolidated Statement of Operations by the weighted average number of potential common shares outstanding, including the additional dilution related to conversion of stock options, unvested restricted stock and unvested restricted stock units as computed under the treasury stock method

12

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