Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Cray (NASDAQ:CRAY)

Q1 2013 Earnings Call

April 30, 2013 4:15 pm ET

Executives

Paul Hiemstra

Peter J. Ungaro - Chief Executive Officer, President and Director

Brian C. Henry - Chief Financial Officer and Executive Vice President

Analysts

Glenn Hanus - Needham & Company, LLC, Research Division

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

Michael Needleman

Operator

Good afternoon. My name is Steve, and I will be your conference operator today. At this time, I would like to welcome everyone to Cray Inc.'s 2013 first quarter financial results conference call. [Operator Instructions] I would now like to turn the call over to your host, Mr. Paul Hiemstra, Director of Treasury and Investor Relations. Sir, you may begin.

Paul Hiemstra

Good afternoon. I'd like to thank everyone for joining us today. Participating from Cray are Peter Ungaro, President and Chief Executive Officer; and Brian Henry, Executive Vice President and Chief Financial Officer. Today's press release is available on the Investor Relations section of our website at www.cray.com. This call is being broadcast live on the Internet and recorded for replay purposes. A telephonic replay will be available shortly after the call. You can access it by dialing 1 (855) 859-2056. International callers can dial 1 (404) 537-3406. You must then enter the access code 52565837. A replay will also be available in the Investor Relations section of the Cray website for 180 days.

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 and acceptance plans, 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 Cray's documents filed with the SEC from time to time concerning factors that could affect the company and these forward-looking statements.

Our presentation includes certain non-GAAP financial measures in an effort to provide additional information to investors. All non-GAAP measures have been reconciled to their related GAAP measures in accordance with SEC rules. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings press release, which is posted on our website and included with the related 8-K furnished with the SEC.

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

Peter J. Ungaro

Thanks, Paul, and thank you all for joining the call today. I'm going to start with some comments on our first quarter performance and then turn it over to Brian who will go through our financial results and outlook. I'll wrap up by discussing our plans for the rest of the year and open up the call for Q&A.

We had a solid first quarter and made significant progress towards our goal for the year. For the quarter, our revenue exceeded the guidance we previously laid out as we were able to pull in some revenues sooner than we had originally anticipated. We also secured a number of exciting new wins over the past few months, including wins across all of our product lines and in each of our geographies around the world.

Our product margin for the quarter came in a little lower than both our historical average and where we've set our target margins for the year. I'll let Brian take you through what drove this for Q1, but I do want to note that we are maintaining our margin outlook for the year, and we are confident in our margins overall.

As you know, we have a pretty lumpy business with our large transactions. And just like our revenue and earnings, our margins often fluctuate from quarter-to-quarter with the timing of individual deals. That's why we continue to believe that a full year is the proper horizon to evaluate our progress.

In high performance computing, our new XC30 supercomputer is off to a strong start, driving the majority of our new wins this past quarter. We began shipping the system late last year on a limited basis, and we are now delivering it broadly to customers worldwide. We had an exciting win last month at the Swiss National Supercomputing Centre to upgrade and expand their XC30 system. This is particularly rewarding as CSCS was one of our first XC30 customers. The fact that they've already decided to upgrade it and buy a large petascale system for delivery later this year is further validation of this dynamic industry leading system we've developed. Their system will be upgraded to include Tesla GPUs from NVIDIA. CSCS is our first customer to order an XC system with GPUs, leveraging the system's ability to deliver on our Adaptive Supercomputing vision.

Also, during Q1, the Japan Advanced Institute for Science and Technology put the first XC supercomputer in Asia into production. JAIST has a wide range of scientific goals targeted for the system, including large scale simulations in nanotechnology and biomechanics.

Our cluster solutions offerings continue to gain traction during the quarter as we announced the CS300 cluster supercomputer. We had some good wins and achieved acceptances on a number of systems across several customer sites, including at both Bettis and Knolls Atomic Power Laboratories, at the National Energy Research Scientific Computing Center, at the Electronics and Telecommunications Research Institute in Korea and at a major financial institution.

Our cluster team is extremely busy on a number of customer bids both in the U.S. and around the world, with their pipeline seeming to grow each week. This is an exciting business that opens up many new opportunities for us in the very large cluster supercomputer market, and I'm pleased with our progress so far.

We had a good quarter in our Storage and Data Management group, recognizing over $13 million in revenue on several large installations in the U.S. and Europe, including at a commercial customer. We also had a significant win during the quarter to deliver a new Sonexion storage appliance alongside the XC30 supercomputer we'll be delivering out at CSCS later this year. This new solution will provide more than 2 petabytes of usable storage, with more than 100 gigabytes per second of sustained aggregate I/O performance when it is completed.

In YarcData, our Big Data graph analytics group continued to make good progress. We are very excited that just a couple of weeks ago, a leading financial services company selected our Urika appliance for a pilot of their next-generation decision sciences platform. The firm is looking to leverage Urika and the power of graph analytics to enable them to better reveal hidden opportunities for cross-selling and up selling and to help them offer new tailored and differentiated financial services offerings in the marketplace.

As we discussed last quarter, breaking into the financial services segment was an important first-half goal for us, so I couldn't be happier to get this win.

Our YarcData team was also recently highlighted by Gartner as one of their "cool vendors" in content and social analytics for 2013. Yet another endorsement of what we are doing in the world of Big Data.

And finally, just about a month ago, we announced that Prith Banerjee will be joining our Board of Directors, effective tomorrow. Prith will also serve as the Chair of the Board's Strategic Technology Assessment Committee, helping guide us in maximizing the value of our R&D investments. Prith brings a wealth of experience to Cray, including having previously served at Hewlett-Packard as Senior Vice President of Research and Director of HP Labs; and as a professor of electrical engineering and a dean of the College of Engineering at the University of Illinois. He is currently the CTO and a member of the global executive committee at ABB, a leading power and automation technology group based in Switzerland. Prith will be immensely valuable to us as we continue to develop and launch new products for the converging Big Data and supercomputing markets. I'm excited to welcome him to our company.

With that, I'll turn it over to Brian to take you through the numbers and the outlook.

Brian C. Henry

Thanks, Pete, and good afternoon, everyone. Before I get into the 2013 outlook, let me first take you through the first quarter financial results.

For the first quarter, revenue was $79.5 million. And as anticipated, we reported a net loss of $7.6 million, or $0.20 per share. Product revenue for the quarter was $59.9 million, and service revenue was $19.7 million.

I want to note that we began reporting non-GAAP measures last quarter, which adjusts for certain non-cash, unusual and infrequent items included in our GAAP results. For example, adjusting items include stock-based compensation, amortization of purchased and other intangibles and purchase accounting adjustments. We also adjust our book tax provision for certain items, including the impact of non-cash items such as benefits, principally related to our net operating loss carryforwards and changes in the valuation allowance held against our deferred tax assets.

Our non-GAAP operating loss for the first quarter of 2013 was $9.4 million, or about $3.3 million less than our GAAP loss for the quarter. Our non-GAAP net loss for the first quarter was $8.4 million. This was $0.8 million more than our GAAP net loss. The difference, despite our better non-GAAP operating results, was due to lower -- a lower tax benefit of $4.1 million for non-GAAP purposes resulting from a lower non-GAAP tax rate in the first quarter.

For the first quarter, total gross margin was 30%, and non-GAAP profit margin was 32%. Reported product margin was 24%, and service margin was 50%. Product margin was negatively impacted in part by non-cash items related to the acquisition of Appro and a weakening of the Japanese yen against the U.S. dollar, each having about a 2% impact on our overall gross margin. However, as Pete mentioned, our gross margins can fluctuate significantly from quarter-to-quarter depending on a number of items. Please also note that we are maintaining our gross margin outlook for the year.

Operating expenses for the first quarter totaled $36.9 million, consistent with the first quarter last year. Non-GAAP operating expenses for the first quarter of 2013 were $35.2 million, slightly lower than last year. Operating expenses this past quarter benefited from significantly lower incentive-based compensation.

Our first quarter operating results included $2.8 million for depreciation. Non-cash pre-tax items excluded for non-GAAP purposes for the first quarter of 2013 were $0.6 million for amortization of acquired and other intangibles, $1 million for the purchase accounting adjustments and $1.7 million for stock compensation expense. Total cash and investments at the end of the first quarter were $251 million, down from $323 million at the end of 2012.

As we noted on our last call, our accounts receivable balance at the end of the fourth quarter was abnormally low and, as we discussed, reverted to more normalized levels this quarter, decreasing cash for the quarter. And I want to note that networking capital at the end of the first quarter of 2013 was $283 million, unchanged from 2012.

Inventory at March 31 was $79 million, down somewhat from the last quarter, with more than 44% or $35 million out at customer sites and in the acceptance process.

I would now like to take a moment to discuss our outlook for 2013. We are maintaining our outlook for 2013. While a wide range of results remains possible, we expect revenue to be approximately $500 million for the year. Revenue is expected to ramp quarterly during the year with roughly $80 million in the second quarter and about 45% of the annual total coming in the fourth quarter.

As you are likely aware, our revenue results for any given quarter are highly dependent on a number of variables, including a limited number of significant customer transactions and the timing of system acceptances. Our system acceptances are impacted by several items, including the availability and timing of third-party components.

For the year, overall gross margin is anticipated to be in the mid-30% range. Total operating expenses for the year is expected to be in the range of $160 million, which includes approximately $10 million in non-GAAP adjustments to our pre-tax earnings, driven by stock-based compensation and amortization of purchased intangibles.

Other income and expense are expected to be in the neutral to modestly positive range in 2013, mostly dependent on foreign currency fluctuations. Based on this outlook, we expect to be profitable on a GAAP and non-GAAP basis for 2013.

Our reported effective income tax rate for 2013 is expected to be about 40% but is highly dependent on a number of variables, including the level of geographic distribution of taxable income and the impact from changes to the valuation allowance held against our deferred tax assets. However, the large majority of our reported income tax provision for 2013 are expected to be offset by previous net operating losses and thus, will not require cash disbursements. Based on this outlook, our effective non-tax -- or our non-GAAP tax rate is anticipated to be about 7% to 10%. Share count, when profitable, should be about 40 million but is dependent on a number of factors, including our share price.

We expect cash and investments to fluctuate significantly quarter-to-quarter around the current range. As usual, our cash balances are highly volatile and subject to a number of factors, including the timing of customer installations, individual contract variations, the timing of customer acceptances and collections.

In summary, we had a solid quarter, and we're off to a good start for 2013. Our product offerings are strong, and we are continuing to invest to expand our competitiveness and drive growth into the future. With continued focus and execution, we are in good position to deliver on our outlook for the year.

With that, I'll turn it back over to Pete.

Peter J. Ungaro

Thanks, Brian. Let me finish up by taking you through our 3 focus areas for the remainder of 2013. Our first is to achieve our revenue goal of $500 million, or about 20% year-over-year revenue growth. We have good visibility into the vast majority of our revenue outlook, and we have 3 primary development projects on tap that are key to achieving it.

The first is our ongoing plan to complete the final phase of the upgrade to the Titan XK7 supercomputer out at Oak Ridge National Lab. We're in the final status of getting the system ready to begin acceptance testing, and they have been getting solid work out of the system as we've been finishing the upgrade in parallel to their operations. We are currently on track to complete this during the second quarter but, as always, the final acceptance date is hard to predict and can move around.

Our second development project is the support of the next-generation Intel Xeon processors in our XC supercomputers, and the third is integrating accelerators into the system as we plan to support both NVIDIA GPUs, as well as the Intel Xeon FICO processor. While there is obviously plenty of work left to do here and we're dependent on our partners execution as well as our own internal R&D for these programs, we're anticipating completing these XC development projects during the second half of the year.

Our second goal for the year is to establish a stronger presence in the Big Data market, led by our offerings in high performance storage and Big Data analytics. In Storage and Data Management, we're focused on building on the strong momentum and growth we achieved last year. We have a number of Sonexion installations planned across each of our geographies around the world. We're expanding our storage offerings to connect to non-traditional Cray systems, which we call cluster-attached storage. We're not going to discuss this in detail yet, but we do expect to roll it out later this quarter.

In YarcData, we're continuing to market solutions based on a Urika graph analytics appliance for the financial services, health sciences, cyber security and scientific research segments. We have good momentum in the cyber security and research segments. And with a new deal just signed in the financial services sector, we're starting to expand into commercial customers as well. I'm excited about the opportunities we're seeing here and the progress we've made in this fast-growing market.

Another great example of our push to expand our presence in Big Data is our new solution combining the Intel Distribution for Apache Hadoop software with our CS300 line of cluster supercomputers. We plan on beginning shipping this exciting offering this summer.

And our third goal for the year is to build a significant cluster solutions business. This one is really about making our Appro acquisition pay off for us in the marketplace. We have 3 keys to this strategy, and I want to give you an update on each of them.

First was to integrate our 2 teams and extend Appro's reach by enabling the worldwide sales and distribution of these cluster supercomputers. Overall, the integration has been moving very quickly, and the customer-facing portions of the business, including sales and service, have all been integrated. There's a few remaining areas still -- to still transition over such as IT and accounting systems, but these are all essentially behind the scenes from our customers' perspective and are expected to be completed later this year. Some of our cluster wins from the first quarter came from the international side of our sales team, so we're already seeing some leverage that we're looking for.

The second was to work with our traditional Cray customers to grow the business, and we made good progress here as we have a number of new opportunities that we're working on for later in the year.

And third was to leverage our supercomputing and Big Data technologies to drive further differentiation in our cluster offering. We've already began work on this, exploring new opportunities to bring some of Cray's unique technology through our CS300 cluster.

Let me wrap up my comments by saying that I'm pleased with what we achieved for the first quarter. While we have a lot of work left to do in order to hit our outlook, our strategy and plans for the year are solid, and we're in a good position to deliver strong growth and profitability once again in 2013.

With that, I'd now like to turn the call over to the operator to begin the Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Glenn Hanus.

Glenn Hanus - Needham & Company, LLC, Research Division

So maybe just big picture on the funding issues. I mean, it sounds like you have good visibility on the year. Can you help us understand kind of how and why you're insulated? And where are the -- what are sort of the parts of the HPC space maybe where you're not so exposed, that could be see more sort of budgetary pressures? Just help us understand all that a little better.

Peter J. Ungaro

Sure, Glenn. So as we've discussed before, as we went into 2013, we felt it was highly likely that sequestration was going to happen. And so we put a little bit of that assumption into our plan as we came out with our outlook, which we're holding this quarter. So while we think sequestration slow a number of things down and such, it hasn't had an impact that was any different really than what we had assumed going into the year. And so while I can't tell you that we've seen 0 impact from sequestration, I can tell you that we're not seeing any major impacts from sequestration, and we're holding on to our targets for this year overall. Now in a higher-end business, that is -- we're seeing less impact than we are, for instance, in clusters and in storage, for instance. So smaller purchases. So typically, I think the way to think about it, at least how it's impacted Cray, is that the larger the system, the less the impact has been. And typically, because that's been a longer cycle for the customer that they go through, they typically -- it's more central to the their goals that they have for the year in their mission requirements. And then things that are smaller or exploratory, we see those getting some delays or getting pushed off. So again, not a major impact to us overall. I feel very confident that it's going to remain that way through this year for us, and we'll have to see how the budget comes out for next year as we go forward.

Glenn Hanus - Needham & Company, LLC, Research Division

And then on the international front, on the margin, anything more positive or negative sort of versus your last report last quarter?

Peter J. Ungaro

So on the overall, on international, I feel like that business is kicking up. I mean, it's unfortunate, Glenn, that in the quarter that we do really well in Japan, we had the yen issues. But overall, I feel really good about that, and you saw us sign a number of deals in Asia Pacific, as well as in Europe. So I feel our strength in international markets is actually growing. And a lot of what we've added into our sales force distribution -- so we've grown our sales force over the past year. We did internationally, and I think we're starting to see some very early signs that, that's going to pay off for us.

Glenn Hanus - Needham & Company, LLC, Research Division

Yes. Actually, that leads into my next question. Was -- I think you mentioned something like 50% sales growth last year. Where are you in kind of ramping productivity? And what are -- can you kind of update us on your plans for sales capacity growth this year and focal -- focus points?

Peter J. Ungaro

Yes. Sure, Glenn. And just to clarify for everyone, so we -- last year, we added about 50% more people to our selling team out in the field from a worldwide basis. Some of that was actual salespeople, some was kind of presales support people. They go along with growing that capacity. And that's gone very well. We pretty much -- I would say we're pretty much through that whole staffing plan as we kind of exited the first quarter. And we expect that it's about 9 months, about 3 quarters before we started getting payback out of that because we're typically in deals that are longer sales cycles. We find that a lot of them are coming in cold so we have opportunities there that we're working on already. So about 9 months is kind of the way that we're thinking. So we're hoping that we start to see positive signs and impacts from that in the second half of this year. I would tell you, if I just looked at it from a perspective of our pipeline growth, from, let's say, middle of last year to today, I would say that it's really having a nice effect on our business overall because our -- the number of opportunities that we've had in our pipeline, that part of that is from bringing on Appro, acquiring Appro and bringing on a cluster solutions product and expanding that out to worldwide distribution. And part of that is adding in more sales capacity. So I really feel that, that's going to pay off for us. And I think we're going to see the first fruits of that, really, in the second half of this year.

Operator

[Operator Instructions] You're next question comes from Chad Bennett.

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

So the $13 million in storage and Big Data revenue in the quarter, was there any Big Data revenue in that number?

Peter J. Ungaro

No doubt. Just to be clear, Chad, over $13 million in storage.

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

Okay. Was there any Big Data revenue in the quarter?

Peter J. Ungaro

There was Big Data revenue in the quarter. I mean, storage is part of our overall Big Data offerings, but we also have Big Data revenue. Not substantial as you know. Our Big Data numbers are still small.

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

Okay. And in -- was the gross margin on the storage business in the quarter, can you give us kind of a rough estimate of where that ended up?

Brian C. Henry

It's disclosed in our Q that we filed now. And it was a very good quarter for storage. We had 44% gross margins for storage in the quarter. And they, by the way, weren't affected by the yen.

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

That'll be next year, right?

Peter J. Ungaro

Hopefully it goes the other way for us.

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

Yes. Well, when you have a vastly bigger Asian business or Japanese business in your storage segment. So, Pete, how should we think about -- I guess should we still think about the storage growth rate the same that you indicated when you gave guidance for the year? I think you said roughly maybe 2x to 4x the storage -- HPC storage growth rate of kind of 12%-ish. Is that still how we should think about that business?

Peter J. Ungaro

That's exactly how I think about it, Chad, is that the overall storage business, or high performance computing storage is growing at about 12%, and we think we could grow it 2x to 4x faster than that. So we're generally thinking about 25% to 50% growth rate that we're targeting for this year. We had a good start to that, obviously, in the first quarter, but we have to keep on ramping it up as we go throughout the year to get to those numbers. And so -- I was just going to add one more thing, Chad, which is a big part of that is going to be this cluster-attached storage that we're planning on bringing out here later in this quarter. So that's a big part to our upside because that really expands the TAM that we have in that storage market.

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

Pete, do you think you can -- or Brian for that matter, do you think you can hold the gross margins above 40% on cluster-attached storage solutions?

Peter J. Ungaro

I would say above 40% is a big number for us. I mean, we kind of believe that, that business is going to be in the upper 30% or 40%, but it's really early for us to tell what we're going to be able to achieve in that market overall. And I would love to -- in a year, I think I could give you a good answer to that question, Chad, but it's a hard one for us right now. Clearly, we couldn't be happier to start the year off with a good revenue number and a good margin number within our storage business. I think it just builds on what we achieved last year. And as long as we can keep that going, I think we'll be in good shape. Brian, you want to add anything?

Brian C. Henry

No. I agree with what Pete said. I think we -- our current plans are targeted into the mid to high 30s, but it's a little too early for us to tell over time.

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

Yes. Okay. And since it's your first full quarter, can you speak to what Appro did in the quarter or what your cluster business did?

Peter J. Ungaro

I've been really happy with that business. As I mentioned, we -- our big focus for kind of the last 6 -- we've kind of had 6 weeks of last year, and the first quarter was to get that integrated, get that out into the field and get that going. So I feel really good about how that's going. I mean, the pipeline almost is building every week, week-on-week, which is pretty amazing for us. We don't typically see that in a lot of our businesses. So that's been a great thing. We don't break it out, obviously, in our business overall because it's part of our HPC business, but I think we had a good first quarter, and I feel really good about where that business is and what it's going to provide for us. So we've got our work cut out for us to continue to grow it at a fast pace. And I think we've got a good shot for that, Chad.

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

Okay. So, Pete, the pilot that you won for in the financial services vertical, was -- when you're rattling off the kind of application or the business case, was that a cyber security-type application? Or was that something else?

Peter J. Ungaro

It actually wasn't, Chad. I couldn't be more excited about this win that we had in that space. But it really was -- for this firm that's doing it, it's really more about looking at their customer base and looking for relationships amongst that customer, kind of communities of customers that are interested in things so they can look at cross-selling and up selling or offering new solutions to a specific set of their customers. So I think of it more as an application for them to drive their own business, and growth opportunities within their customer base, really trying to uncover things within their customer base that they weren't seeing before.

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

How long do you think the pilot will last, Pete?

Peter J. Ungaro

We're expecting it to go somewhere between 3 and 6 months.

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

Okay. And it started fairly recently, I assume?

Peter J. Ungaro

Yes. Just a couple of weeks ago, we got their sign off on it.

Chad M. Bennett - Craig-Hallum Capital Group LLC, Research Division

Got it. Okay, all right. And then last one for me, and then I'll hop off. Pete, can you talk about where -- you mentioned a little bit in the script, but Intel and Ivy Bridge and kind of where -- what your comfort level there is and where they're at with that development effort?

Peter J. Ungaro

Yes, I mentioned that as being a key part of our development effort. Right? We have to get the next generation of Intel processors, as you mentioned, Ivy Bridge, into our XC systems. And then we also, at the same time, Chad, have to bring in NVIDIA GPUs. As we mentioned, we're doing a delivery out at CSCS in Switzerland later this year with Intel GPUs. And also Xeon 5, Intel's processor accelerator. So we have a lot untapped there. Right now, I would say things are going pretty well. I mean, we're feeling like -- we're starting to see early parts, and we're getting them in our systems and testing them out. It's still a little bit early, so we have a lot more testing to do and a lot more verification of that. And I wanted to make sure that I've, of course, highlighted the risk for you guys like we always do so you guys are aware of what's got to get done for those things to happen. But as you saw, we held on to our outlook for the year, so we feel confident right now that those things are going to happen as we see it today.

Operator

You're next question comes from Michael Needleman.

Michael Needleman

I apologize, but I came on the call a little late so I didn't hear all of the prepared information. But just a couple of follow-up questions. So on the Big Data, revenue of $13 million, can you just remind us or me what that number was last quarter in terms of your overall revenue in the big -- Storage and Big Data area?

Peter J. Ungaro

So, Michael, this is Pete. So we break out our storage business. A lot of our Big Data business is not broken out yet. It's not of the size that it's broken out. So just over $13 million that we did this quarter. We're just checking on what it was last quarter, but we had a pretty significant fourth quarter for Storage because we had a big delivery with our Blue Waters system at NTSA. So I don't know -- I'll give you that number here before we finish up. But -- so...

Michael Needleman

Just a question in regards to what Chad also asked, just to follow up, the Appro acquisition -- I think when you guys made the acquisition, you suggested to Wall Street that you were comfortable with the revenue of -- I don't have it off the top of my head, so forgive me.

Peter J. Ungaro

$60 million basically was our target.

Michael Needleman

Yes. Is that still kind of where you think that revenue will come in for the year?

Peter J. Ungaro

Yes. I mean, we're -- you'll know, if I change my overall number, that, that's a big swing part of that. So it's early for us. This is kind of our first full quarter with Appro fully integrated, Michael, into our business. And that's -- as I mentioned, I feel good about how that's gone so far. The team has been really excellent for us as we've brought them into Cray and expanded that worldwide. And our sales team is keeping them really busy. So that's -- those are all great things. So I'm still targeting that number. I'm hopeful that we can even do a little bit better than that number, but definitely targeting that number right now.

Michael Needleman

Just in terms of -- although Big Data is a very small portion, did I hear you correctly that you actually made sales in the Big Data for the storage area this quarter?

Peter J. Ungaro

Yes. So the way that we think about our Big Data business overall, is it's our Storage business. So kind of think about it as Big Data storage, as well as Big Data analytics, which, today, is mostly our -- is our YarcData business. But as I mentioned in the summer, we're going to have a Hadoop offering that we're going to do on our CS300 or the Appro system. So from that perspective, we've been -- we've gotten components of both of those. But our storage business specifically got so large last year that -- and material to our business, we wanted to break that out for you guys so you guys can see that business broken up.

Michael Needleman

Just in terms of cash, cash usage or cash was down. But how do you kind of think about cash as we go forward this year?

Brian C. Henry

Well, in terms of cash, we think the balance sheet is more normalized right now, and it will fluctuate a little bit as it always does with the movement of inventory, receivables and things. We really suggest that people take a look at working capital, and we advocated that on the previous call because that balances the timing issues that we have in receivables and inventory and payables pretty well. In that regard, working capital was pretty flat quarter-to-quarter between the fourth quarter and this quarter.

Michael Needleman

But in terms of receivables and pure cash as we go through the year, the cash side of your number, pure cash, that should go up over the course of the year. Is that a fair assumption or not really?

Brian C. Henry

It is really hard to tell because it really depends on what the timing is and what we have going on in the business at the time. For example, if we were doing large builds in the fourth quarter for either late fourth quarter or early first quarter shipments, we could be investing a lot, for example, in inventory. Or if our -- if a lot of the revenue at the end of the year happened in December and we didn't collect it till January, that could change the receivables. That's why we really focus on looking at working capital. I think this balance sheet is pretty balanced in terms of being "normal" as it goes by Cray's way of looking at it. So I would say we'll probably fluctuate around here. If we can, we'd like to improve the cash and the balance sheet position over time. But I think this is a fair view the way it is today.

Peter J. Ungaro

As we've been growing -- just to add on that, Michael, as we've been growing a lot in our business, of course, we can use cash. We have a great balance sheet in order to take advantage of that for our business. So we're not at all constrained in our growth by cash, which is just a great position for us to be in over the next while. And as Brian said, it's pretty tricky to call it quarter-over-quarter, but there's definitely good opportunity, I think, as we move forward in that front.

Michael Needleman

And just a last question, did you guys find out what the comp was in the storage for last quarter?

Peter J. Ungaro

Yes. We -- I know what the number is. Unfortunately, we didn't disclose it last quarter. So we did say it was $50.2 million for the full year though. So you could kind of get a perspective of what it was. And I said it was a big quarter in our fourth quarter because we had our largest storage subsystem installation of the year. So hopefully, that gives you a little bit of numbers to kind of get a feel for where we were in that fourth quarter.

Operator

You're next question comes from Glenn Hanus.

Glenn Hanus - Needham & Company, LLC, Research Division

A follow-up. The upside in Q1, can you comment at all where that came from?

Peter J. Ungaro

So, Glenn, the -- a business that I thought of 3 months ago that we would probably get done in the second quarter. That actually got done in the first quarter. And I couldn't be more happy about that. It was across both our high-end line -- our high-end supercomputers, as well as our cluster business. And those systems drag a little storage along with it. So it was pretty broadly across our business, actually, in a few kind of mid-sized transactions.

Glenn Hanus - Needham & Company, LLC, Research Division

And you were -- in answering one of the questions there, you were talking about I think where -- what the sort of swing factors would be that I guess Appro would be a healthy swing factor for the year. Maybe you could just rank your -- if you kind of look at things and you look at the guidance for the year, what are the biggest swing factors and just sort of rank them with -- I would assume that the HPC, you have pretty good visibility on that. So that's more kind of baked into your numbers, and that's more a question of just making sure you execute from a delivery standpoint. And then the Appro and maybe some of the storage, that's more like real-time business, and so maybe you could just -- you could talk about that.

Peter J. Ungaro

Yes, Glenn. That's a great question, by the way. But I'm going to still say that our high-end supercomputers is the biggest factor in this point. So just because we can do -- we can move a lot of revenue really quickly. And so if we can pull in some of that, either win an extra deal or 2 or get something done that we expect to be in the first quarter right now and get that done in the fourth quarter or visa versa, things that could be in the fourth -- that we think today are in the fourth quarter that may move out into the first quarter of next year, that's really our biggest swing that can happen, because we can move tens of millions of dollars really quickly as you know. Second to that, I would say really is cluster solutions. Going back to Michael's point, I think that's a new business for us. And as we ramp that up, it moves a lot faster than our high-end business. And so we have the opportunity to win a few more deals and get those done in a much quicker pace than we do. Also, typically, the acceptance time line of those are not quite as long as our high-end systems. So we potentially can get a little bit more movement in that business. And then third is storage, and I'm going to particularly talk about this cluster-attached offering that we're going to announce later this quarter because that's really going to open up our addressable market quite substantially, right? And when we announce that, basically, anybody that wants to consider running the Lustre parallel file system all of a sudden becomes an option for us. And so that is going to add a couple of billion dollars of addressable markets for us. So if we can make progress in that over the course of the summer and through the second half, I think that, that can be also a nice little upside for us. So that's how I would rate them, is our high-end systems, first; cluster solutions, second; and then storage and specifically, this cluster-attached storage, third. I do think we have some upside in our Big Data, both in this Hadoop offering as well as YarcData. I just think -- I would put that fourth on the list. I think that's -- it's a smaller overall business. And so even if we do really, really well on that, it's not going to map moving one big system in or out of the year.

Glenn Hanus - Needham & Company, LLC, Research Division

And just a quick follow-up on the cluster attached, can you just talk a little bit more about betas and -- or any visibility on order flow there?

Peter J. Ungaro

Yes. So we've announced before that we were doing 2 beta sites, and it was really more testing, right? So we wanted to test the solution out in 2 environments that are -- were non-Cray environments, both from a system perspective, as well as a file system. They were both non-Lustre environments. And so we've been doing those. They've been both at commercial customers. We're completing those over the course of this quarter. And so far, they look very good, and that's why I'm confident that we're going to announce this offering here in this quarter. We wanted to make sure that they tested out okay in, I would say, demanding non-typical environments for us before we really launch that into the marketplace. So, so far so good, and we've got a little bit of a pipeline already building around this even before we've announced this. And so I think over the course of the next couple of quarters, it is going to tell how we're going to fare on this one.

Operator

There are no further questions at this time. I now turn the call back over to the presenters.

Peter J. Ungaro

Thank you. I continue to be excited about our prospects for 2013 and what we're building for the future. Our supercomputing product offerings are strong, and our Big Data solutions are continuing to gain momentum in the market. We're positioned to have a strong 2013 and continued success going forward. Thank you all for joining the call today and for your continued support of Cray. Have a great evening.

Brian C. Henry

Thank you.

Operator

This concludes today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Cray Management Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts