Cree Reports Financial Results for the First Quarter of Fiscal Year 2020
“The transformation of Cree continued during the quarter and we delivered results that met or exceeded the upper end of our ranges," stated
Business Outlook:
For its second quarter of fiscal 2020, Cree targets revenue in a range of
Quarterly Conference Call:
Cree will host a conference call at
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 is an innovator of Wolfspeed™ power and radio frequency (RF) semiconductors and lighting class LEDs. Cree’s Wolfspeed product families include silicon carbide materials, power-switching devices and RF devices targeted for applications such as electric vehicles, fast charging inverters, power supplies, telecom and military and aerospace. Cree’s LED product families include blue and green LED chips, high-brightness LEDs and lighting-class power LEDs targeted for indoor and outdoor lighting, video displays, transportation and specialty lighting applications.
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 that 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.
The Company revised net cash provided by operating activities and total free cash flow for the three months ended
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 Cree’s actual results to differ materially from those indicated in the forward-looking statements. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about our plans to grow the Wolfspeed business and our ability to achieve our targets for the second quarter of fiscal 2020. Actual results could differ materially due to a number of factors, including the risk that the economic and political uncertainty caused by the already imposed and proposed tariffs by
Cree® and Wolfspeed® are registered trademarks of
CREE, INC. |
|||||
|
|||||
|
Three months ended |
||||
(in millions of U.S. Dollars, except per share data) |
September 29, 2019 |
|
September 23, 2018 |
||
Revenue, net |
$242.8 |
|
|
$274.2 |
|
Cost of revenue, net |
168.6 |
|
|
175.9 |
|
Gross profit |
74.2 |
|
|
98.3 |
|
Gross margin percentage |
31 |
% |
|
36 |
% |
|
|
|
|
||
Operating expenses: |
|
|
|
||
Research and development |
43.7 |
|
|
36.3 |
|
Sales, general and administrative |
57.6 |
|
|
43.9 |
|
Amortization or impairment of acquisition-related intangibles |
3.6 |
|
|
3.9 |
|
Loss on disposal or impairment of other assets |
1.0 |
|
|
0.4 |
|
Other operating expense |
7.2 |
|
|
3.0 |
|
Operating (loss) income |
(38.9 |
) |
|
10.8 |
|
Operating (loss) income percentage |
(16 |
)% |
|
4 |
% |
|
|
|
|
||
Non-operating (income) expense, net |
(1.6 |
) |
|
9.7 |
|
(Loss) income before income taxes |
(37.3 |
) |
|
1.1 |
|
Income tax expense |
0.5 |
|
|
1.9 |
|
Net loss from continuing operations |
(37.8 |
) |
|
(0.8 |
) |
Net loss from discontinued operations |
— |
|
|
(10.3 |
) |
Net loss |
(37.8 |
) |
|
(11.1 |
) |
Net income attributable to noncontrolling interest |
— |
|
|
— |
|
Net loss attributable to controlling interest |
($37.8 |
) |
|
($11.1 |
) |
|
|
|
|
||
Basic and diluted loss per share |
|
|
|
||
Continuing operations attributable to controlling interest |
($0.35 |
) |
|
($0.01 |
) |
Net loss attributable to controlling interest |
($0.35 |
) |
|
($0.11 |
) |
|
|
|
|
||
Weighted average shares - basic and diluted (in thousands) |
107,113 |
|
|
101,884 |
|
CREE, INC. |
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|
|||||
(in millions of U.S. Dollars) |
September 29, 2019 |
|
June 30, 2019 |
||
Assets |
|
|
|
||
Current assets: |
|
|
|
||
Cash, cash equivalents, and short-term investments |
$993.9 |
|
|
$1,051.4 |
|
Accounts receivable, net |
137.6 |
|
|
128.9 |
|
Inventories |
182.9 |
|
|
187.4 |
|
Income taxes receivable |
— |
|
|
0.2 |
|
Prepaid expenses |
22.8 |
|
|
23.3 |
|
Other current assets |
15.6 |
|
|
19.7 |
|
Current assets held for sale |
0.2 |
|
|
1.9 |
|
Total current assets |
1,353.0 |
|
|
1,412.8 |
|
Property and equipment, net |
656.5 |
|
|
625.2 |
|
Goodwill |
530.0 |
|
|
530.0 |
|
Intangible assets, net |
191.9 |
|
|
197.9 |
|
Other long-term investments |
42.9 |
|
|
39.5 |
|
Deferred tax assets |
5.1 |
|
|
5.6 |
|
Other assets |
17.2 |
|
|
5.9 |
|
Total assets |
$2,796.6 |
|
|
$2,816.9 |
|
|
|
|
|
||
Liabilities and Shareholders' Equity |
|
|
|
||
Current liabilities: |
|
|
|
||
Accounts payable and accrued expenses |
$174.5 |
|
|
$200.9 |
|
Income taxes payable |
1.4 |
|
|
3.0 |
|
Accrued contract liabilities |
43.2 |
|
|
45.8 |
|
Other current liabilities |
23.6 |
|
|
18.5 |
|
Total current liabilities |
242.7 |
|
|
268.2 |
|
|
|
|
|
||
Long-term liabilities: |
|
|
|
||
Convertible notes, net |
474.7 |
|
|
469.1 |
|
Deferred tax liabilities |
1.5 |
|
|
2.0 |
|
Other long-term liabilities |
52.1 |
|
|
36.4 |
|
Total long-term liabilities |
528.3 |
|
|
507.5 |
|
|
|
|
|
||
Shareholders’ equity: |
|
|
|
||
Common stock |
0.1 |
|
|
0.1 |
|
Additional paid-in-capital |
2,895.8 |
|
|
2,874.1 |
|
Accumulated other comprehensive income |
10.0 |
|
|
9.5 |
|
Accumulated deficit |
(885.3 |
) |
|
(847.5 |
) |
Total shareholders’ equity |
2,020.6 |
|
|
2,036.2 |
|
Non-controlling interest |
5.0 |
|
|
5.0 |
|
Total equity |
2,025.6 |
|
|
2,041.2 |
|
Total liabilities and shareholders’ equity |
$2,796.6 |
|
|
$2,816.9 |
|
CREE, INC. |
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|
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|
Three months ended |
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(in millions of U.S. Dollars) |
September 29, 2019 |
|
September 23, 2018 |
||
Operating activities: |
|
|
|
||
Net loss from continuing operations |
($37.8 |
) |
|
($0.8 |
) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
|
|
|
||
Depreciation and amortization |
28.6 |
|
|
29.5 |
|
Amortization of debt issuance costs and discount |
5.6 |
|
|
1.8 |
|
Stock-based compensation |
16.9 |
|
|
10.0 |
|
Loss on disposal or impairment of long-lived assets |
1.0 |
|
|
0.5 |
|
Amortization of premium/discount on investments |
— |
|
|
0.8 |
|
(Gain)/loss on equity investment |
(3.5 |
) |
|
6.7 |
|
Foreign exchange loss on equity investment |
0.1 |
|
|
0.6 |
|
Deferred income taxes |
— |
|
|
(2.3 |
) |
Changes in operating assets and liabilities: |
|
|
|
||
Accounts receivable, net |
(8.8 |
) |
|
(7.4 |
) |
Inventories |
5.0 |
|
|
(7.9 |
) |
Prepaid expenses and other assets |
7.9 |
|
|
1.1 |
|
Accounts payable, trade |
(21.7 |
) |
|
3.4 |
|
Accrued salaries and wages and other liabilities |
(20.5 |
) |
|
4.2 |
|
Accrued contract liabilities |
7.2 |
|
|
0.9 |
|
Net cash (used in) provided by operating activities of continuing operations |
(20.0 |
) |
|
41.1 |
|
Net cash provided by operating activities of discontinued operations |
— |
|
|
3.7 |
|
Cash (used in) provided by operating activities |
(20.0 |
) |
|
44.8 |
|
|
|
|
|
||
Investing activities: |
|
|
|
||
Purchases of property and equipment |
(42.0 |
) |
|
(31.0 |
) |
Purchases of patent and licensing rights |
(1.1 |
) |
|
(2.4 |
) |
Proceeds from sale of property and equipment |
— |
|
|
0.2 |
|
Purchases of short-term investments |
(134.0 |
) |
|
(145.8 |
) |
Proceeds from maturities of short-term investments |
93.0 |
|
|
58.3 |
|
Proceeds from sale of short-term investments |
31.8 |
|
|
24.8 |
|
Net cash used in investing activities of continuing operations |
(52.3 |
) |
|
(95.9 |
) |
Net cash used in investing activities of discontinued operations |
— |
|
|
(6.4 |
) |
Cash used in investing activities |
(52.3 |
) |
|
(102.3 |
) |
|
|
|
|
||
Financing activities: |
|
|
|
||
Proceeds from long-term debt borrowings |
— |
|
|
95.0 |
|
Payments on long-term debt borrowings |
— |
|
|
(387.0 |
) |
Proceeds from convertible notes |
— |
|
|
575.0 |
|
Payments of debt issuance costs |
— |
|
|
(12.9 |
) |
Proceeds from issuance of common stock |
18.6 |
|
|
15.5 |
|
Tax withholding on vested equity awards |
(13.2 |
) |
|
(10.8 |
) |
Cash provided by financing activities |
5.4 |
|
|
274.8 |
|
Effects of foreign exchange changes on cash and cash equivalents |
(0.3 |
) |
|
0.1 |
|
Net change in cash and cash equivalents |
(67.2 |
) |
|
217.4 |
|
Cash and cash equivalents, beginning of period |
500.5 |
|
|
118.9 |
|
Cash and cash equivalents, end of period |
$433.3 |
|
|
$336.3 |
|
FINANCIAL RESULTS BY OPERATING SEGMENT
(unaudited)
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 (CODM), for the three months ended
|
Three months ended |
|
|
|
|
||||||
(in millions of U.S. Dollars, except percentages) |
September 29, 2019 |
|
September 23, 2018 |
|
Change |
||||||
Wolfspeed revenue |
$127.7 |
|
|
$127.4 |
|
|
$0.3 |
|
|
— |
% |
Wolfspeed percent of revenue |
53 |
% |
|
46 |
% |
|
|
|
|
||
LED Products revenue |
115.1 |
|
|
146.8 |
|
|
(31.7 |
) |
|
(22 |
)% |
LED Products percent of revenue |
47 |
% |
|
54 |
% |
|
|
|
|
||
Total revenue |
$242.8 |
|
|
$274.2 |
|
|
($31.4 |
) |
|
(11 |
)% |
|
Three months ended |
|
|
|
|
||||||
(in millions of U.S. Dollars, except percentages) |
September 29, 2019 |
|
September 23, 2018 |
|
Change |
||||||
Wolfspeed gross profit |
$59.0 |
|
|
$60.4 |
|
|
($1.4 |
) |
|
(2 |
)% |
Wolfspeed gross margin |
46 |
% |
|
47 |
% |
|
|
|
|
||
LED Products gross profit |
22.1 |
|
|
41.3 |
|
|
(19.2 |
) |
|
(46 |
)% |
LED Products gross margin |
19 |
% |
|
28 |
% |
|
|
|
|
||
Unallocated costs |
(6.9 |
) |
|
(2.2 |
) |
|
(4.7 |
) |
|
(214 |
)% |
COGS acquisition related costs |
— |
|
|
(1.2 |
) |
|
1.2 |
|
|
100 |
% |
Consolidated gross profit |
$74.2 |
|
|
$98.3 |
|
|
($24.1 |
) |
|
(25 |
)% |
Consolidated gross margin |
31 |
% |
|
36 |
% |
|
|
|
|
||
Reportable Segments Description
The Company's Wolfspeed segment's products consists of silicon carbide and gallium nitride (GaN) materials, and power devices and RF devices based on wide bandgap semiconductor materials and silicon. The Company's LED Products segment's products consist of LED chips and LED components.
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 must be included to reconcile the consolidated gross profit presented in the preceding table to the Company's consolidated (loss) income 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 cost being allocated. Certain costs are not allocated when evaluating segment performance. These unallocated costs consist primarily of manufacturing employees' stock-based compensation, annual incentive plans and matching contributions under the Company's 401(k) Plan.
The cost of goods sold (COGS) acquisition related cost adjustment includes inventory fair value amortization of the fair value increase to inventory recognized at the date of acquisition, and acquisition costs resulting from the purchase of certain assets from
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 (loss) income, non-GAAP non-operating income (expense), net, non-GAAP net (loss) income, non-GAAP diluted (loss) earnings per share from continuing operations 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. 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.
Factory optimization restructuring. In
Severance and other restructuring. For the three months ended
Project, transformation and transaction costs. The Company has incurred professional services fees associated with acquisitions and divestitures, as well as for internal transformation programs designed to improve its operating margins and change the manner in which business is conducted. Cree excludes these items because Cree believes they are not reflective of the ongoing operating results of Cree's business.
Factory optimization start-up costs. The Company has incurred and will incur start-up costs as part of the factory optimization plan. Cree does not believe these costs are reflective of ongoing operating results.
Non-restructuring related executive severance. The Company has incurred costs in conjunction with the termination of key executive personnel. Cree excludes these items because Cree believes they have no direct correlation to the ongoing operating results of Cree's business.
Transition service agreement costs. As a result of the sale of the Lighting Products business unit, the Company is providing certain IT services under a transition services agreement which will not be reimbursed. Cree excludes the costs of these services because Cree believes they are not reflective of the ongoing operating results of Cree's business.
Asset impairment. The Company incurred impairment charges in conjunction with the factory optimization plan. Cree excludes these items because Cree believes they are not reflective of the ongoing operating results of Cree's business.
Net changes in fair value of our Lextar investment. The Company's common stock ownership investment in
Accretion on convertible notes. In
Income tax adjustment. This amount reconciles GAAP tax expense (benefit) to a calculated non-GAAP tax expense (benefit) utilizing a non-GAAP tax rate. The non-GAAP tax rate estimates an appropriate tax rate if the listed non-GAAP items were excluded. This reconciling item adjusts non-GAAP net (loss) income to the amount it would be if the calculated non-GAAP tax rate was applied to non-GAAP (loss) income before taxes.
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 from continuing operations 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. |
|||||
|
|
|
|||
Non-GAAP Gross Margin |
|||||
|
|
|
|||
|
Three months ended |
||||
|
September 29, 2019 |
|
September 23, 2018 |
||
GAAP gross profit |
$74.2 |
|
|
$98.3 |
|
GAAP gross margin percentage |
31 |
% |
|
36 |
% |
Adjustments: |
|
|
|
||
Stock-based compensation expense |
2.2 |
|
|
1.6 |
|
Project, transformation and transaction costs |
— |
|
1.2 |
|
|
Non-GAAP gross profit |
$76.4 |
|
|
$101.1 |
|
Non-GAAP gross margin percentage |
31 |
% |
|
37 |
% |
Non-GAAP Operating (Loss) Income |
|||||
|
Three months ended |
||||
|
September 29, 2019 |
|
September 23, 2018 |
||
GAAP operating (loss) income from continuing operations |
($38.9 |
) |
|
$10.8 |
|
GAAP operating (loss) income percentage |
(16 |
)% |
|
4 |
% |
Adjustments: |
|
|
|
||
Stock-based compensation expense: |
|
|
|
||
Cost of revenue, net |
2.2 |
|
|
1.6 |
|
Research and development |
2.4 |
|
|
1.5 |
|
Sales, general and administrative |
12.3 |
|
|
6.9 |
|
Total stock-based compensation expense |
16.9 |
|
|
10.0 |
|
Amortization or impairment of acquisition-related intangibles |
3.6 |
|
|
3.9 |
|
Factory optimization restructuring |
1.2 |
|
|
— |
|
Severance and other restructuring |
0.8 |
|
|
2.6 |
|
Project, transformation and transaction costs |
2.6 |
|
|
1.6 |
|
Factory optimization start-up costs |
1.4 |
|
|
— |
|
Non-restructuring related executive severance |
1.2 |
|
|
— |
|
Transition service agreement costs |
3.0 |
|
|
— |
|
Asset impairment |
0.2 |
|
|
— |
|
Non-GAAP operating (loss) income |
($8.0 |
) |
|
$28.9 |
|
Non-GAAP operating (loss) income percentage |
(3 |
)% |
|
11 |
% |
Non-GAAP Non-Operating Income (Expense), net |
|||||
|
Three months ended |
||||
|
September 29, 2019 |
|
September 23, 2018 |
||
Non-operating income (expense), net |
$1.6 |
|
|
($9.7 |
) |
Adjustments: |
|
|
|
||
Net changes in the fair value of Lextar investment |
(3.4 |
) |
|
7.3 |
|
Accretion on convertible notes |
5.6 |
|
|
1.8 |
|
Non-GAAP non-operating income (expense), net |
$3.8 |
|
|
($0.6 |
) |
Non-GAAP Non-Operating Income (Expense), net |
|||||
|
Three months ended |
||||
|
September 29, 2019 |
|
September 23, 2018 |
||
GAAP net loss from continuing operations |
($37.8 |
) |
|
($0.8 |
) |
Adjustments: |
|
|
|
||
Stock-based compensation expense |
16.9 |
|
|
10.0 |
|
Amortization or impairment of acquisition-related intangibles |
3.6 |
|
|
3.9 |
|
Factory optimization restructuring |
1.2 |
|
|
— |
|
Severance and other restructuring |
0.8 |
|
|
2.6 |
|
Project, transformation and transaction costs |
2.6 |
|
|
1.6 |
|
Factory optimization start-up costs |
1.4 |
|
|
— |
|
Non-restructuring related executive severance |
1.2 |
|
|
— |
|
Transition service agreement costs |
3.0 |
|
|
— |
|
Asset impairment |
0.2 |
|
|
— |
|
Net changes in the fair value of Lextar investment |
(3.4 |
) |
|
7.3 |
|
Accretion on convertible notes |
5.6 |
|
|
1.8 |
|
Total adjustments to GAAP net loss from continuing operations before provision for income taxes |
33.1 |
|
|
27.2 |
|
Income tax adjustment - benefit/(expense) |
1.1 |
|
|
(3.2 |
) |
Non-GAAP net (loss) income from continuing operations |
($3.6 |
) |
|
$23.2 |
|
|
|
|
|
||
Non-GAAP diluted (loss) earnings per share from continuing operations |
($0.03 |
) |
|
$0.23 |
|
|
|
|
|
||
Non-GAAP weighted average shares (in thousands) |
107,113 |
|
|
101,884 |
|
Free Cash Flow |
|||||
|
Three months ended |
||||
|
September 29, 2019 |
|
September 23, 2018 |
||
Net cash (used in) provided by operating activities of continuing operations |
($20.0 |
) |
|
$41.1 |
|
Less: PP&E spending |
(42.0 |
) |
|
(31.0 |
) |
Less: Patents spending |
(1.1 |
) |
|
(2.4 |
) |
Total free cash flow |
($63.1 |
) |
|
$7.7 |
|
CREE, INC. |
||
|
Three Months Ended |
|
(in millions of U.S. Dollars) |
|
December 29, 2019 |
GAAP net loss outlook range |
|
($49) to ($45) |
Adjustments: |
|
|
Stock-based compensation expense |
|
13 |
Amortization or impairment of acquisition-related intangibles |
|
4 |
Factory optimization restructuring and start-up costs |
|
4 |
Accretion on convertible notes |
|
6 |
Project, transformation, transaction and transition costs |
|
4 |
Total adjustments to GAAP net loss before provision for income taxes |
|
31 |
Income tax adjustment - benefit/(expense) |
|
6 |
Non-GAAP net loss outlook range |
|
($12) to ($8) |
View source version on businesswire.com: https://www.businesswire.com/news/home/20191030005917/en/
Source:
Tyler Gronbach
Cree, Inc.
Vice President, Investor Relations
Phone: 919-407-4820
investorrelations@cree.com