Cree, Inc. (Nasdaq: CREE) today announced financial results for
its first quarter of fiscal 2018, ended September 24, 2017. Revenue
for the first quarter of fiscal 2018 was $360 million, which
represents a 3% decrease compared to revenue of $371 million for
the first quarter of fiscal 2017 and a slight increase compared to
the fourth quarter of fiscal 2017. GAAP net loss for the first
quarter of fiscal 2018 was $20 million, or $0.20 per diluted share.
This compares to GAAP net income of $566 thousand, or $0.01 per
diluted share, for the first quarter of fiscal 2017. On a non-GAAP
basis, net income for the first quarter of fiscal 2018 was $4
million, or $0.04 per diluted share, compared to non-GAAP net
income for the first quarter of fiscal 2017 of $15 million, or
$0.15 per diluted share.
“Cree is a company that’s known as an innovator with a long
history of blazing new trails, and I’m excited to be part of this
team,” stated Gregg Lowe, Cree CEO. “There are a number of
opportunities and challenges in front of us, and I look forward to
working together with our talented team to maximize those
opportunities while dealing with the challenges head on.”
Business Outlook:
For its second quarter of fiscal 2018 ending December 24, 2017,
Cree targets revenue in a range of $340 million to $360 million.
GAAP net loss is targeted at $25 million to $31 million, or $0.25
to $0.31 per diluted share. Non-GAAP net income is targeted to be
in a range of $1 million loss to a $4 million profit, or $0.01 loss
per diluted share to $0.04 earnings per diluted share. Targeted
non-GAAP income excludes $29 million of expenses, net of tax,
related to stock-based compensation expense and the amortization or
impairment of acquisition-related intangibles. The GAAP and
non-GAAP targets do not include any estimated change in the fair
value of Cree’s Lextar investment.
Quarterly Conference Call:
Cree will host a conference call at 5:00 p.m. Eastern time today
to review the highlights of the fiscal 2018 first quarter results
and the fiscal 2018 second quarter business outlook, including
significant factors and assumptions underlying the targets noted
above.
The conference call will be available to the public through a
live audio web broadcast via the internet. For webcast details,
visit Cree’s website at investor.cree.com/events.cfm.
Supplemental financial information, including the non-GAAP
reconciliation attached to this press release, is available on
Cree’s website at investor.cree.com/results.cfm.
About Cree, Inc.
Cree is a leading innovator of lighting-class LEDs, lighting
products and wide bandgap semiconductor products for power and
radio frequency (RF) applications. Cree’s product families include
LED lighting systems and lamps, blue and green LED chips,
high-brightness LEDs, lighting-class power LEDs, SiC materials,
power devices and RF devices. Cree’s products are driving
improvements in applications such as commercial and consumer
general illumination, video screens, electronic signs and signals,
motor drives, power supplies, EV charging, solar, traction,
transportation, radar, communications, telecom, data link and
broadband amplifiers.
For additional product and Company information, please refer to
www.cree.com.
Non-GAAP Financial Measures:
This press release highlights the Company’s financial results on
both a GAAP and a non-GAAP basis. The GAAP results include certain
costs, charges and expenses which are excluded from non-GAAP
results. By publishing the non-GAAP measures, management intends to
provide investors with additional information to further analyze
the Company’s performance, core results and underlying trends.
Cree’s management evaluates results and makes operating decisions
using both GAAP and non-GAAP measures included in this press
release. Non-GAAP results are not prepared in accordance with GAAP
and non-GAAP information should be considered a supplement to, and
not a substitute for, financial statements prepared in accordance
with GAAP. Investors and potential investors are encouraged to
review the reconciliation of non-GAAP financial measures to their
most directly comparable GAAP measures attached to this press
release.
Forward Looking Statements:
The schedules attached to this release are an integral part of
the release. This press release contains forward-looking statements
involving risks and uncertainties, both known and unknown, that may
cause actual results to differ materially from those indicated in
the forward-looking statements. Actual results, including with
respect to our targets and prospects, could differ materially due
to a number of factors, including the risk that we may not obtain
sufficient orders to achieve our targeted revenues; price
competition in key markets; the risk that we or our channel
partners are not able to develop and expand customer bases and
accurately anticipate demand from end customers, which can result
in increased inventory and reduced orders as we experience wide
fluctuations in supply and demand; the risk that our commercial
Lighting results will continue to suffer if new issues arise
regarding issues related to product quality of supplied components
for this business; the risk that we may experience production
difficulties that preclude us from shipping sufficient quantities
to meet customer orders or that result in higher production costs
and lower margins; our ability to lower costs; the risk that our
results will suffer if we are unable to balance fluctuations in
customer demand and capacity, including bringing on additional
capacity on a timely basis to meet customer demand; the risk that
longer manufacturing lead times may cause customers to fulfill
their orders with a competitor’s products instead; product mix;
risks associated with the ramp-up of production of our new
products, and our entry into new business channels different from
those in which we have historically operated; the risk that
customers do not maintain their favorable perception of our brand
and products, resulting in lower demand for our products; the risk
that our products fail to perform or fail to meet customer
requirements or expectations, resulting in significant additional
costs, including costs associated with warranty returns or the
potential recall of our products; the risk that retail customers
may alter promotional pricing, increase promotion of a competitor’s
products over our products or reduce their inventory levels, all of
which could negatively affect product demand; the risk that our
investments may experience periods of significant stock price
volatility causing us to recognize fair value losses on our
investment; the risk posed by managing an increasingly complex
supply chain that has the ability to supply a sufficient quantity
of raw materials, subsystems and finished products with the
required specifications and quality; ongoing uncertainty in global
economic conditions, infrastructure development or customer demand
that could negatively affect product demand, collectability of
receivables and other related matters as consumers and businesses
may defer purchases or payments, or default on payments; the risk
we may be required to record a significant charge to earnings if
our goodwill or amortizable assets become impaired; our ability to
complete development and commercialization of products under
development, such as our pipeline of improved LED chips, LED
components, LED lighting products, and Wolfspeed products; risks
resulting from the concentration of our business among few
customers, including the risk that customers may reduce or cancel
orders or fail to honor purchase commitments; risks related to our
multi-year warranty periods for LED lighting products; risks
associated with acquisitions, divestitures, joint ventures or
investments generally; the rapid development of new technology and
competing products that may impair demand or render our products
obsolete; the potential lack of customer acceptance for our
products; risks associated with ongoing litigation; and other
factors discussed in our filings with the Securities and Exchange
Commission (SEC), including our report on Form 10-K for the fiscal
year ended June 25, 2017, and subsequent reports filed with
the SEC. These forward-looking statements represent Cree’s judgment
as of the date of this release. Except as required under the U.S.
federal securities laws and the rules and regulations of the SEC,
Cree disclaims any intent or obligation to update any
forward-looking statements after the date of this release, whether
as a result of new information, future events, developments,
changes in assumptions or otherwise.
Cree® is a registered trademark and Wolfspeed™ is a trademark of
Cree, Inc.
CREE, INC.
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF (LOSS) INCOME
(in thousands, except per share amounts
and percentages)
Three Months Ended
September 24,2017
September 25,2016
Revenue, net $360,398 $371,231 Cost of revenue, net 260,066
261,302 Gross profit 100,332 109,929 Gross margin percentage
27.8 % 29.6 % Operating expenses: Research and development
41,859 39,948 Sales, general and administrative 62,964 68,458
Amortization or impairment of acquisition-related intangibles 6,792
6,408 Loss on disposal or impairment of long-lived assets 2,825
324 Total operating expenses 114,440 115,138
Operating loss (14,108 ) (5,209 ) Operating loss percentage (3.9 )%
(1.4 )% Non-operating expense, net (1,068 ) (158 ) Loss
before income taxes (15,176 ) (5,367 ) Income tax expense (benefit)
4,697 (5,933 ) Net (loss) income (19,873 ) 566 Net loss
attributable to noncontrolling interest (16 ) — Net (loss)
income attributable to controlling interest $(19,857 ) $566
Diluted (loss) earnings per share ($0.20 ) $0.01
Shares used in diluted per share calculation 97,811 100,559
CREE, INC.
UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEETS
(in thousands, except par
value)
September 24,2017
June 25,2017
ASSETS Current assets: Cash, cash equivalents, and
short-term investments $624,854 $610,938 Accounts receivable, net
154,854 148,392 Income tax receivable 7,639 8,040 Inventories
277,944 284,385 Prepaid expenses 23,572 23,305 Other current assets
15,352 23,390 Current assets held for sale 2,254 2,180
Total current assets 1,106,469 1,100,630 Property and
equipment, net 594,698 581,263 Goodwill 618,828 618,828 Intangible
assets, net 267,066 274,315 Other long-term investments 47,298
50,366 Deferred income taxes 11,137 11,763 Other assets 12,491
12,702 Total assets $2,657,987 $2,649,867
LIABILITIES AND SHAREHOLDERS’ EQUITY Current
liabilities: Accounts payable, trade $146,578 $133,185 Accrued
salaries and wages 39,766 41,860 Other current liabilities 43,024
36,978 Total current liabilities 229,368 212,023
Long-term liabilities: Long-term debt 141,000 145,000
Deferred income taxes 52,895 49,860 Other long-term liabilities
18,743 20,179 Total long-term liabilities 212,638
215,039 Shareholders’ equity: Common stock 121 121
Additional paid-in-capital 2,426,063 2,419,517 Accumulated other
comprehensive income, net of taxes 7,512 5,909 Accumulated deficit
(222,599 ) (202,742 ) Total shareholders’ equity 2,211,097
2,222,805 Noncontrolling interest $4,884 $— Total
liabilities and equity $2,657,987 $2,649,867
CREE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF
CASH FLOWS
Three Months Ended
September 24,2017
September 25,2016
(In thousands) Cash flows from operating activities: Net
(loss) income ($19,873 ) $566 Adjustments to reconcile net (loss)
income to net cash provided by operating activities: Depreciation
and amortization 37,400 35,939 Stock-based compensation 10,135
14,650 Excess tax benefit from stock-based payment arrangements —
(12 ) Loss on disposal or impairment of long-lived assets 2,824 325
Amortization of premium/discount on investments 1,310 1,382 Loss on
equity investment 3,267 2,487 Foreign exchange gain on equity
investment (199 ) (1,373 ) Deferred income taxes 3,133 54 Changes
in operating assets and liabilities: Accounts receivable, net
(5,996 ) (9,227 ) Inventories 6,960 (10,808 ) Prepaid expenses and
other assets 9,323 (1,922 ) Accounts payable, trade 6,442 (2,111 )
Accrued salaries and wages and other liabilities (603 ) (11,852 )
Net cash provided by operating activities 54,123 18,098
Cash flows from investing activities: Purchases of property
and equipment (36,450 ) (19,337 ) Purchases of patent and licensing
rights (2,476 ) (2,252 ) Proceeds from sale of property and
equipment 327 165 Purchases of short-term investments (117,607 )
(106,749 ) Proceeds from maturities of short-term investments
119,928 77,645 Proceeds from sale of short-term investments 1,974
5,148 Net cash used in investing activities (34,304 )
(45,380 ) Cash flows from financing activities: Proceeds from
issuing shares to non-controlling interest 4,900 — Payment of
acquisition-related contingent consideration (1,850 ) (2,775 )
Proceeds from long-term debt borrowings 95,000 110,000 Payments on
long-term debt borrowings (99,000 ) (83,000 ) Net proceeds from
issuance of common stock 119 406 Excess tax benefit from
stock-based payment arrangements — 12 Repurchases of common stock —
(35,663 ) Net cash used in financing activities (831 )
(11,020 ) Effects of foreign exchange changes on cash and cash
equivalents 473 (11 ) Net increase (decrease) in cash and cash
equivalents 19,461 (38,313 ) Cash and cash equivalents: Beginning
of period 132,597 166,154 End of period $152,058
$127,841 Supplemental disclosure of cash flow
information: Significant non-cash transactions: Accrued property
and equipment $18,909 $3,103
The accompanying notes are an integral
part of the consolidated financial statements.
CREE, INC.
UNAUDITED FINANCIAL RESULTS BY
OPERATING SEGMENT
(in thousands, except
percentages)
The following table reflects the results of the
Company’s reportable segments as reviewed by the Company’s Chief
Executive Officer, its Chief Operating Decision Maker or CODM, for
the three months ended September 24, 2017 and the three months
ended September 25, 2016. The CODM does not review inter-segment
transactions when evaluating segment performance and allocating
resources to each segment. As such, total segment revenue is equal
to the Company’s consolidated revenue.
Three Months Ended
September 24,2017
September 25,2016
Change Lighting Products revenue $149,724 $183,836 ($34,112
) (19 )% Percent of revenue 42 % 50 % LED Products revenue 144,520
137,493 7,027 5 % Percent of revenue 40 % 37 % Wolfspeed revenue
66,154 49,902 16,252 33 % Percent of revenue 18 % 13 % Total
revenue $360,398 $371,231 ($10,833 ) (3 )%
Three Months Ended
September 24,2017
September 25,2016
Change Lighting Products gross profit $31,883 $49,290
($17,407 ) (35 )% Lighting Products gross margin 21.3 % 26.8 % LED
Products gross profit 38,810 41,770 (2,960 ) (7 )% LED Products
gross margin 26.9 % 30.4 % Wolfspeed gross profit 32,398 23,460
8,938 38 % Wolfspeed gross margin 49.0 % 47.0 % Unallocated costs
(2,759 ) (4,591 ) 1,832 (40 )% Consolidated gross profit
$100,332 $109,929 ($9,597 ) (9 )% Consolidated gross
margin 27.8 % 29.6 %
Reportable Segments Description
The Company’s Lighting Products segment
primarily consists of LED lighting systems and lamps. The Company’s
LED Products segment includes LED chips and LED components. The
Company’s Wolfspeed segment includes power devices, RF devices, and
SiC materials.
Financial Results by Reportable
Segment
The Company’s CODM reviews gross profit as the
lowest and only level of segment profit. As such, all items below
gross profit in the consolidated statements of (loss) income must
be included to reconcile the consolidated gross profit presented in
the preceding table to the Company’s consolidated loss before
taxes.
The Company allocates direct costs and indirect
costs to each segment’s cost of revenue. The allocation methodology
is based on a reasonable measure of utilization considering the
specific facts and circumstances of the costs being allocated.
Certain costs are not allocated when evaluating
segment performance. These unallocated costs consist primarily of
manufacturing employees’ stock-based compensation, expenses for
profit sharing and quarterly or annual incentive plans and matching
contributions under the Company’s 401(k) Plan.
Non-GAAP Measures of Financial
Performance
To supplement the Company’s consolidated
financial statements presented in accordance with generally
accepted accounting principles, or GAAP, Cree uses non-GAAP
measures of certain components of financial performance. These
non-GAAP measures include non-GAAP gross margin, non-GAAP operating
income, non-GAAP non-operating income, net, non-GAAP net income,
non-GAAP diluted (loss) earnings per share and free cash flow.
Reconciliation to the nearest GAAP measure of
all historical non-GAAP measures included in this press release can
be found in the tables included with this press release. In this
press release, Cree also presents its target for non-GAAP expenses,
which are expenses less expenses in the various categories
described below. Both our GAAP targets and non-GAAP targets do not
include any estimated changes in the fair value of our Lextar
investment.
Non-GAAP measures presented in this press
release are not in accordance with or an alternative to measures
prepared in accordance with GAAP and may be different from non-GAAP
measures used by other companies. In addition, these non-GAAP
measures are not based on any comprehensive set of accounting rules
or principles. Non-GAAP measures have limitations in that they do
not reflect all of the amounts associated with Cree’s results of
operations as determined in accordance with GAAP. These non-GAAP
measures should only be used to evaluate Cree’s results of
operations in conjunction with the corresponding GAAP measures.
Cree believes that these non-GAAP measures,
when shown in conjunction with the corresponding GAAP measures,
enhance investors’ and management’s overall understanding of the
Company’s current financial performance and the Company’s prospects
for the future, including cash flows available to pursue
opportunities to enhance shareholder value. In addition, because
Cree has historically reported certain non-GAAP results to
investors, the Company believes the inclusion of non-GAAP measures
provides consistency in the Company’s financial reporting.
For its internal budgeting process, and as
discussed further below, Cree’s management uses financial
statements that do not include the items listed below and the
income tax effects associated with the foregoing. Cree’s management
also uses non-GAAP measures, in addition to the corresponding GAAP
measures, in reviewing the Company’s financial results.
Cree excludes the following items from one or
more of its non-GAAP measures when applicable:
Stock-based compensation expense. This expense
consists of expenses for stock options, restricted stock,
performance stock awards and employee stock purchases through its
ESPP. Cree excludes stock-based compensation expenses from its
non-GAAP measures because they are non-cash expenses that Cree does
not believe are reflective of ongoing operating results.
Amortization or impairment of
acquisition-related intangibles. Cree incurs amortization or
impairment of acquisition-related intangibles in connection with
acquisitions. Cree excludes these items because they arise from
Cree’s prior acquisitions and have no direct correlation to the
ongoing operating results of Cree’s business.
LED business restructuring charges or gains. In
June 2015, Cree’s board of directors approved a plan to restructure
the LED business. The restructuring, which was completed during
fiscal 2016, reduced excess capacity and overhead in order to
improve the cost structure moving forward. The components of the
restructuring included the planned sale or abandonment of certain
manufacturing equipment, facility consolidation and the elimination
of certain positions. Because these charges relate to assets which
have been retired prior to the end of their estimated useful lives
and severance costs for eliminated positions, Cree does not
consider these charges to be reflective of ongoing operating
results. Similarly, Cree does not consider realized gains or losses
on the sale of assets relating to the restructuring to be
reflective of ongoing operating results.
Net changes associated with equity investment.
The Company’s common stock ownership investment in Lextar
Electronics Corporation is accounted for utilizing the fair value
option. As such, changes in fair value are recognized in income,
including fluctuations due to the exchange rate between the New
Taiwan Dollar and the United States Dollar. Cree excludes the
impact of these gains or losses from its non-GAAP measures because
they are non-cash impacts that Cree does not believe are reflective
of ongoing operating results. Additionally, Cree excludes the
impact of dividends received on its Lextar investment as Cree does
not believe it is reflective of ongoing operating results.
Transaction costs associated with the
terminated sale of the Wolfspeed business. The Company incurred
transaction costs in fiscal 2017 in conjunction with the previously
proposed sale of its Wolfspeed business to Infineon. Because these
costs were incurred relative to a portion of the business which was
previously reported as discontinued operations in fiscal 2017, Cree
does not consider these amounts to be reflective of ongoing
operating results.
Income tax effects of the foregoing non-GAAP
items. This amount is used to present each of the amounts
described above on an after-tax basis consistent with the
presentation of non-GAAP net income. Non-GAAP net income is
presented using a non-GAAP tax rate. The Company’s non-GAAP tax
rate represents a recalculation of the GAAP tax rate reflecting the
exclusion of the non-GAAP items.
Cree expects to incur many of these same
expenses, including income taxes associated with these expenses, in
future periods. In addition to the non-GAAP measures discussed
above, Cree also uses free cash flow as a measure of operating
performance and liquidity. Free cash flow represents operating cash
flows less net purchases of property and equipment and patent and
licensing rights. Cree considers free cash flow to be an operating
performance and a liquidity measure that provides useful
information to management and investors about the amount of cash
generated by the business after the purchases of property and
equipment, a portion of which can then be used to, among other
things, invest in Cree’s business, make strategic acquisitions,
strengthen the balance sheet and repurchase stock. A limitation of
the utility of free cash flow as a measure of operating performance
and liquidity is that it does not represent the residual cash flow
available to the company for discretionary expenditures, as it
excludes certain mandatory expenditures such as debt service.
CREE, INC.
Unaudited Reconciliation of GAAP to
Non-GAAP Measures
(in thousands, except per share amounts
and percentages)
Non-GAAP Gross Margin
Three Months Ended
September 24,2017
September 25,2016
GAAP gross profit $100,332 $109,929 GAAP gross margin percentage
27.8 % 29.6 % Adjustment: Stock-based compensation expense 1,775
2,805 Non-GAAP gross profit $102,107 $112,734
Non-GAAP gross margin percentage 28.3 % 30.4 %
Non-GAAP Operating Income
Three Months Ended
September 24,2017
September 25,2016
GAAP operating loss ($14,108 ) ($5,209 ) GAAP operating loss
percentage (3.9 )% (1.4 )% Adjustments: Stock-based compensation
expense: Cost of revenue, net 1,775 2,805 Research and development
2,457 3,439 Sales, general and administrative 5,903 8,406
Total stock-based compensation expense 10,135 14,650
Amortization or impairment of acquisition-related intangibles 6,792
6,408 LED business restructuring charges — 7 Transaction costs
related to the terminated sale of the Wolfspeed business —
1,996 Total adjustments to GAAP operating loss 16,927
23,061 Non-GAAP operating income $2,819 $17,852
Non-GAAP operating income percentage 0.8 % 4.8 %
Non-GAAP Non-Operating Income,
net
Three Months Ended
September 24,2017
September 25,2016
GAAP non-operating loss, net ($1,068 ) ($158 ) Adjustment: Net
changes associated with equity method investment 3,067 1,114
Non-GAAP non-operating income, net $1,999 $956
Non-GAAP Net Income
Three Months Ended
September 24,2017
September 25,2016
GAAP net (loss) income ($19,857 ) $566 Adjustments: Stock-based
compensation expense 10,135 14,650 Amortization or impairment of
acquisition-related intangibles 6,792 6,408 LED business
restructuring charges — 7 Transaction costs related to the
terminated sale of the Wolfspeed business — 1,996 Net changes
associated with equity method investment 3,067 1,114
Total adjustments to GAAP net (loss) income before provision for
income taxes 19,994 24,175 Income tax effect 3,974 (9,595 )
Non-GAAP net income $4,111 $15,146 Non-GAAP
Earnings per share Non-GAAP diluted earnings per share $0.04 $0.15
Shares used in non-GAAP diluted earnings per share
calculation Non-GAAP shares used 97,811 100,559
Free Cash Flow
Three Months Ended
September 24,2017
September 25,2016
Cash flows from operations $54,123 $18,098 Less: PP&E spending
(36,450 ) (19,337 ) Less: Patents spending (2,476 ) (2,252 ) Total
free cash flow $15,197 ($3,491 )
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171017006639/en/
Cree, Inc.Raiford Garrabrant, 919-407-7895Director, Investor
Relationsinvestorrelations@cree.com
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