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Cray Inc. (CRAY)

Q1 2010 Earnings Call

May 4, 2010 4:30 pm ET

Executives

Paul Hiemstra - Director of Treasury and IR

Peter Ungaro - President and CEO

Brian Henry - EVP and CFO

Analysts

Chad Bennett - Northland Securities

Glenn Hanus - Needham & Company

Sid Parakh - McAdams Wright Ragen

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. And welcome to the Cray reports first quarter 2010 financial results conference call. (Operator Instructions) This conference is being recorded today, May 4th, 2010.

I would now like to turn the conference over to our host, Paul Hiemstra, Director of Treasury and Investor Relations. Please go ahead, sir.

Paul Hiemstra

Thank you. Good afternoon. I would like to thank everyone for joining us today. Participating from Cray are Peter Ungaro, President and Chief Executive Officer, Brian Henry, Executive Vice President and Chief Financial Officer, and Mike Piraino, Vice President and General Counsel.

This call is being broadcast live on the Internet and recorded for replay purposes. The replay will be available shortly after the call. You can access the replay by dialing 1-800-406-7325. International callers can dial 1-303-590-3030. You must then enter the access code 429-3223. A replay will also be available in the Investor Relations section of the Cray website for 180 days at www.cray.com.

I would like to remind each of you that today's conference call will contain forward-looking statements that are based on our current expectations. Forward-looking statements include statements about our financial guidance and expected future operating results, our product development and new product introduction plans, and our ability to expand and penetrate our addressable market, and other statements that are not historical facts. These statements are only predictions and actual results may materially vary from those projected. Please refer to the information provided on this call and Cray's documents filed with the SEC from time-to-time concerning factors that could affect the company and these forward-looking statements.

With that, I would like to turn the call over to Peter Ungaro.

Peter Ungaro

Thank you, Paul. And thank you all for joining the call today. I would like to begin with some comments around our first quarter performance and progress on our key focus areas for the year. Brian will then discuss our financial results and outlook. Then, I will wrap up by discussing our priorities going forward and open up the call for Q&A.

Clearly, we had a fairly slow quarter from a financial results perspective, which was in line with our overall expectations going into the year. That said, we had an excellent quarter in terms of securing new businesses. And most importantly, we remain well-positioned to achieve our growth targets for the year.

Our strong quarter of wins, which has continued into the second quarter, came from both domestic and international customers. In the first quarter, we signed significant contracts to deliver next-generation Baker Systems to domestic customers, including Los Alamos and Sandia National Laboratories, the U.S. Air Force Research Laboratory, the Arctic Region Supercomputing Center, and the U.S. Army Engineer Research and Development Center.

On the international front we had key wins at the Institute for Statistical Mathematics in Japan, and the University of Duisburg-Essen in Germany, where we will deliver an XT6m system.

Our most recent win was with the National Institute for Space Research in Brazil, where we will deliver an XT6 system, which will be one of the largest in the world for weather forecasting and climate change studies. Another new XT mini customer also in the weather and climate field, and that is the National Center for Atmospheric Research, right here in Boulder, Colorado.

In addition, we are in the final stages of negotiating two other large contracts where we have recently been selected as a sole vendor. Combined these contracts are valued at over $90 million, and would have product deliveries starting this year through 2013, along with multiple years of service.

These wins not only serve as a strong validation of our current technology, but also of our strategic roadmap and vision for the future of supercomputing. Our current and future generation architectures continue to lead the industry in terms of scalability and performance.

We continue to partner with some of the world's leading supercomputer centers to bring our key technical advances in our next generation of systems. Our strategic initiatives are pushing forward as well. During the quarter, we signed multiple contracts within customer engineering totaling over $20 million, including the contract with Microsoft that we signed at the beginning of the quarter and discussed on our last call.

With growth in custom engineering and a strong base of recurring maintenance, we are well on our way to building nice services practice within the company. Altogether, with our recent run of new contract wins around the world, I am happy to say that we now have nearly all of the orders necessary to achieve our revenue outlook for the year.

During the first quarter, we also took another step forward in expanding our addressable market and filling out our product lineup. In March, we announced our latest addition to the CX family with the launch of the Cray CX1000 supercomputer. This system with a starting price of under $100,000 and scaling up from there is right between our current CX1 and our XT mini supercomputers. This gives us the ability for the first time to offer a supercomputing solution at every level of the high-performance computing market.

Read the rest of this transcript for free on seekingalpha.com