Cree Reports Financial Results for the Third Quarter of Fiscal Year 2019

DURHAM, N.C.--(BUSINESS WIRE)--May 1, 2019-- Cree, Inc. (Nasdaq: CREE) today announced financial results for its third quarter of fiscal 2019, ended March 31, 2019. Revenue from continuing operations for the third quarter of fiscal 2019 was $274 million, which represents a 22% increase compared to revenue from continuing operations of $225 million for the third quarter of fiscal 2018. GAAP net loss from continuing operations for the third quarter of fiscal 2019 was $22 million, or $0.22 per diluted share. This compares to a GAAP net loss from continuing operations of $10 million, or $0.10 per diluted share for the third quarter of fiscal 2018. On a non-GAAP basis, net income from continuing operations for the third quarter of fiscal 2019 was $20 million, or $0.20 per diluted share, compared to non-GAAP net income from continuing operations for the third quarter of fiscal 2018 of $17 million, or $0.17 per diluted share.

As previously announced, on March 14, 2019, Cree executed a definitive agreement to sell the Lighting Products business to IDEAL Industries, Inc. (IDEAL). As a result, the results of the Lighting Products business have been classified as discontinued operations in the consolidated statements of (loss) income for all periods presented. Additionally, the related assets and liabilities associated with the discontinued operations are classified as held for sale in the consolidated balance sheets. Unless otherwise noted, discussions herein relate to the Company’s continuing operations. The transaction is expected to close by the end of Cree’s fiscal year 2019, subject to customary closing conditions and governmental approvals. The parties received early termination of the waiting period under the Hart-Scott-Rodino Act in April 2019.

“Our Wolfspeed business continued to post strong performance in the third quarter, which helped drive non-GAAP earnings per share above the top end of our range,” said Cree CEO Gregg Lowe. “We are also very pleased to have recorded gross margin improvements across the business while addressing some softness within our LED business. We are well positioned to meet the growing demand for next generation silicon carbide solutions over the next five years that support a variety of mega trends including the auto industry’s transition to electric vehicles and the rapid deployment of faster 5G wireless networks.”

Business Outlook:

For its fourth quarter of fiscal 2019 ending June 30, 2019, Cree targets revenue from continuing operations in a range of $263 million to $271 million. GAAP net loss from continuing operations is targeted at $19 million to $24 million, or $0.18 to $0.23 per diluted share. Non-GAAP net income from continuing operations is targeted to be in a range of $12 million to $17 million, or $0.12 to $0.16 earnings per diluted share. Targeted non-GAAP income from continuing operations excludes $36 million of estimated expenses, net of tax, related to stock-based compensation expense, the amortization of debt issuance costs and discount, costs associated with corporate restructuring, interest accretion on our convertible notes’ issue costs and fair value adjustments, and transaction-related costs. The GAAP and non-GAAP targets from continuing operations 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 2019 third quarter results and the fiscal 2019 fourth 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 an innovator of Wolfspeed® power and radio frequency (RF) semiconductors and lighting class LEDs. Cree’s Wolfspeed product families include SiC 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.

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 the anticipated benefits of the transaction and future financial and operating results. Actual results, including with respect to our ability to complete the Cree Lighting Products business unit divestiture transaction on time or at all, our plans to grow the Wolfspeed business and our ability to achieve our targets for the fourth quarter of fiscal 2019, could differ materially due to a number of factors, including risks associated with divestiture transactions generally, including the inability to obtain, or delays in obtaining, required regulatory approvals; issues, delays or complications in completing required carve-out activities to allow Cree Lighting to operate on a stand-alone basis after the closing, including incurring unanticipated costs to complete such activities; risks associated with integration or transition of the operations, systems and personnel of Cree Lighting, each, as applicable, within the term of the post-closing transition services agreement between IDEAL and Cree; unfavorable reaction to the sale by customers, competitors, suppliers and employees; the risk that costs associated with the transaction will be greater than we expect; 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 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; the risk that the economic and political uncertainty caused by the already imposed and proposed tariffs by the United States on Chinese goods, and corresponding Chinese tariffs in response, may negatively impact demand for our products; 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; 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; 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; 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; the risk we may be required to record a significant charge to earnings if our remaining goodwill or amortizable assets become impaired; risks relating to confidential information theft or misuse, including through cyber-attacks or cyber intrusion; our ability to complete development and commercialization of products under development, such as our pipeline of Wolfspeed products, improved LED chips and LED components; 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 24, 2018, 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® and Wolfspeed® are registered trademarks of Cree, Inc.

 

CREE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME

(in thousands, except per share amounts and percentages)

 
      Three Months Ended     Nine Months Ended
     

March 31,
2019

   

March 25,
2018

   

March 31,
2019

   

March 25,
2018

Revenue, net     $274,050       $225,200       $828,729       $659,128  
Cost of revenue, net     173,596       150,337       526,444       445,198  
Gross profit     100,454       74,863       302,285       213,930  
Gross margin percentage     36.7 %     33.2 %     36.5 %     32.5 %
                         
Operating expenses:                        
Research and development     40,722       31,144       117,235       95,184  
Sales, general and administrative     61,626       46,631       157,937       128,743  
Amortization or impairment of acquisition-related intangibles     3,906       1,516       11,717       3,224  
Loss on disposal and impairment of other assets     5,286       1,112       5,708       6,940  
Total operating expenses     111,540       80,403       292,597       234,091  
                         
Operating (loss) income     (11,086 )     (5,540 )     9,688       (20,161 )
Operating (loss) income percentage     (4.0 )%     (2.5 )%     1.2 %     (3.1 )%
                         
Non-operating (expense) income, net     (8,440 )     (10,000 )     (23,695 )     14,942  
Loss before income taxes     (19,526 )     (15,540 )     (14,007 )     (5,219 )
Income tax expense (benefit)     2,785       (5,377 )     9,252       (17,633 )
Net (loss) income from continuing operations     (22,311 )     (10,163 )     (23,259 )     12,414  
Loss from discontinued operations, net of tax     (205,420 )     (230,370 )     (218,085 )     (259,067 )
Net loss     (227,731 )     (240,533 )     (241,344 )     (246,653 )
Net income attributable to non-controlling interest     121       44       23       59  
Net loss attributable to controlling interest     ($227,852 )     ($240,577 )     ($241,367 )     ($246,712 )
                         
Diluted (loss) income per share for continuing operations     ($0.22 )     ($0.10 )     ($0.23 )     $0.12  
                         
Shares used in diluted per share calculation     103,659       100,140       102,807       100,672  
                                 
 

CREE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

             
     

March 31,
2019

   

June 24,
2018

         
ASSETS            
Current assets:            
Cash, cash equivalents, and short-term investments     $789,268       $387,085  
Accounts receivable, net     150,390       86,398  
Income tax receivable     489       2,256  
Inventories     172,793       151,636  
Prepaid expenses     19,201       24,521  
Other current assets     25,916       12,921  
Current assets held for sale     340,782       225,544  
Total current assets     1,498,839       890,361  
Property and equipment, net     607,659       589,073  
Goodwill     530,004       530,004  
Intangible assets, net     203,016       215,815  
Other long-term investments     44,122       57,501  
Deferred income taxes     9,958       5,766  
Other assets     5,559       11,604  
Long-term assets held for sale           337,692  
Total assets     $2,899,157       $2,637,816  
             
LIABILITIES AND SHAREHOLDERS’ EQUITY            
Current liabilities:            
Accounts payable, trade     $111,203       $105,354  
Accrued salaries and wages     63,361       41,877  
Income taxes payable     1,701        
Accrued contract liabilities     47,328        
Other current liabilities     20,472       19,280  
Current liabilities held for sale     90,355       82,053  
Total current liabilities     334,420       248,564  
             
Long-term liabilities:            
Long-term debt           292,000  
Convertible notes, net     463,491        
Deferred income taxes     5,878       3,148  
Other long-term liabilities     29,453       518  
Long-term liabilities held for sale           21,505  
Total long-term liabilities     498,822       317,171  
             
Shareholders’ equity:            
Common stock     131       127  
Additional paid-in-capital     2,772,042       2,549,123  
Accumulated other comprehensive income, net of taxes     2,554       596  
Accumulated deficit     (713,780 )     (482,710 )
Total shareholders’ equity     2,060,947       2,067,136  
Non-controlling interest     4,968       4,945  
Total liabilities and equity     $2,899,157       $2,637,816  
                 
 

CREE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
      Nine Months Ended
     

March 31,
2019

   

March 25,
2018

      (In thousands)
Cash flows from operating activities:            
Net loss     ($241,344 )     ($246,653 )
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization     116,256       113,244  
Amortization of debt issuance costs and discount     12,687        
Stock-based compensation     40,497       33,319  
Impairment charges     197,580       247,455  
Loss on disposal or impairment of long-lived assets     2,842       8,803  
Amortization of premium/discount on investments     2,113       3,943  
Loss (gain) on equity investment     12,443       (7,510 )
Foreign exchange loss (gain) on equity investment     936       (2,543 )
Deferred income taxes     (1,655 )     (49,875 )
Changes in operating assets and liabilities:            
Accounts receivable, net     (56,339 )     5,728  
Inventories     (19,237 )     (4,640 )
Prepaid expenses and other assets     3,517       2,041  
Accounts payable, trade     6,590       15,328  
Accrued salaries and wages and other liabilities     110,083       6,783  
Net cash provided by operating activities     186,969       125,423  
Cash flows from investing activities:            
Purchases of property and equipment     (106,522 )     (128,433 )
Purchases of patent and licensing rights     (9,148 )     (7,913 )
Proceeds from sale of property and equipment     286       538  
Purchases of short-term investments     (251,676 )     (174,623 )
Proceeds from maturities of short-term investments     146,368       166,771  
Proceeds from sale of short-term investments     28,185       176,981  
Purchase of acquired business, net of cash acquired           (427,120 )
Net cash used in investing activities     (192,507 )     (393,799 )
Cash flows from financing activities:            
Proceeds from issuing shares to non-controlling interest           4,900  
Payment of acquisition-related contingent consideration           (1,850 )
Proceeds from long-term debt borrowings     95,000       555,000  
Payments on long-term debt borrowings     (387,000 )     (384,000 )
Proceeds from convertible notes     575,000        
Payments of debt issuance costs     (12,938 )      
Net proceeds from issuance of common stock     72,948       62,240  
Net cash provided by financing activities     343,010       236,290  
Effects of foreign exchange changes on cash and cash equivalents     (239 )     715  
Net increase (decrease) in cash and cash equivalents     337,233       (31,371 )
Cash and cash equivalents:            
Beginning of period     118,924       132,597  
End of period     $456,157       $101,226  
Supplemental disclosure of cash flow information:            
Significant non-cash transactions:            
Accrued property and equipment     $15,247       $19,275  
                 

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 and nine months ended March 31, 2019 and the three and nine months ended March 25, 2018. 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            
     

March 31,
2019

   

March 25,
2018

    Change
Wolfspeed revenue     $141,253       $81,902       $59,351       72 %
Percent of revenue    

51.5

%

   

36.4

%

           
LED Products revenue     132,797       143,298      

(10,501

)

   

(7

)%

Percent of revenue    

48.5

%

   

63.6

%

           
Total revenue     $274,050       $225,200       $48,850       22 %
                   
      Nine Months Ended            
     

March 31,
2019

   

March 25,
2018

    Change
Wolfspeed revenue     $403,958       $218,628       $185,330       85 %
Percent of revenue    

48.7

%

   

33.2

%

           
LED Products revenue     424,771       440,500      

(15,729

)

   

(4

)%

Percent of revenue    

51.3

%

   

66.8

%

           
Total revenue     $828,729       $659,128       $169,601       26 %
                   
      Three Months Ended            
     

March 31,
2019

   

March 25,
2018

    Change
Wolfspeed gross profit     $68,851       $39,285       $29,566       75 %
Wolfspeed gross margin     48.7 %     48.0 %            
LED Products gross profit     36,982       37,764       (782 )     (2 )%
LED Products gross margin     27.8 %     26.4 %            
Unallocated costs     (3,938 )     (2,186 )     (1,752 )     (80 )%
COGS acquisition related costs     (1,441 )          

(1,441

)

    (100 )%
Consolidated gross profit     $100,454       $74,863       $25,591       34 %
Consolidated gross margin     36.7 %     33.2 %            
                   
      Nine Months Ended            
     

March 31,
2019

   

March 25,
2018

    Change
Wolfspeed gross profit     $193,947       $105,816       $88,131       83 %
Wolfspeed gross margin     48.0 %     48.4 %            
LED Products gross profit     121,787       115,180       6,607       6 %
LED Products gross margin     28.7 %     26.1 %            
Unallocated costs     (10,782 )     (7,066 )     (3,716 )     (53 )%
COGS acquisition related costs     (2,667 )           (2,667 )     (100 )%
Consolidated gross profit     $302,285       $213,930       $88,355       41 %
Consolidated gross margin     36.5 %     32.5 %            
                             

Reportable Segments Description

The Company’s Wolfspeed segment’s products consists of silicon carbide (SiC) and gallium nitride (GaN) materials, and power devices and RF devices based on silicon (Si) and wide bandgap semiconductor materials. The Company’s LED Products segment’s products include 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 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.

The cost of goods sold (COGS) acquisition related cost adjustment includes RF Power acquisition costs impacting cost of revenue for fiscal 2019. These costs were not allocated to the reportable segments’ gross profit for fiscal 2019 because they represent an adjustment which does not provide comparability to the corresponding prior period and therefore were not reviewed by the Company’s CODM when evaluating segment performance and allocating resources.

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 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.

Costs related to the RF Power acquisition. The Company incurred transaction, transition and integration costs in fiscal 2018 and 2019 in conjunction with the purchase of certain assets of the Infineon Technologies AG RF Power (“RF Power”) business. Cree excludes these items because they have no direct correlation to the ongoing operating results of Cree’s business.

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.

Corporate restructuring charges or gains. In April 2018, Cree began the process of consolidating operations and expanding its production footprint to support the expected growth of the Wolfspeed business. The components of this plan include the sale or abandonment of certain equipment, facility consolidation, and elimination of certain positions. Because these charges relate to assets which had been retired prior to the end of their estimated useful lives and severance costs for eliminated positions, Cree does not believe these charges are reflective of ongoing operating results. Similarly, Cree does not consider the realized losses on sale of assets relating to the restructuring to be reflective of ongoing operating results.

Severance pay associated with termination of executive personnel. The Company incurred costs in fiscal 2018 and fiscal 2019 in conjunction with the termination of certain executive personnel. Cree excludes these items because they have no direct correlation to the ongoing operating results of Cree’s business.

Transaction-related costs. The Company has incurred transaction and transition costs in conjunction with the proposed sale of the Lighting Products business unit and other assets. Cree excludes these items 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 proposed sale of the Lighting Products business unit and other assets. Cree excludes these items because Cree believes they are not reflective of the ongoing operating results of Cree’s business.

Changes in the fair value of our Lextar 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.

Amortization of debt issuance costs and discount. In August 2018, the Company issued $575 million in convertible notes resulting in interest accretion on the convertible notes’ issue costs and fair value adjustments. Management considers these items as either limited in term or having no impact on the Company’s cash flows, and therefore has excluded such items to facilitate a review of current operating performance and comparisons to our past operating performance.

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     Nine Months Ended
     

March 31,
2019

   

March 25,
2018

   

March 31,
2019

   

March 25,
2018

GAAP gross profit     $100,454       $74,863       $302,285       $213,930  
GAAP gross margin percentage     36.7 %     33.2 %     36.5 %     32.5 %
Adjustment:                        
Stock-based compensation expense     2,084       1,519       5,559       4,737  
Costs related to the RF Power acquisition     1,441       128       2,667       128  
Total adjustments to GAAP gross profit     3,525       1,647       8,226       4,865  
Non-GAAP gross profit     $103,979       $76,510       $310,511       $218,795  
Non-GAAP gross margin percentage     37.9 %     34.0 %     37.5 %     33.2 %
 

Non-GAAP Operating Income

 
      Three Months Ended     Nine Months Ended
      March 31,
2019
    March 25,
2018
    March 31,
2019
    March 25,
2018
GAAP operating (loss) income     ($11,086 )     ($5,540 )     $9,688       ($20,161 )
GAAP operating (loss) income percentage     (4.0 )%     (2.5 )%     1.2 %     (3.1 )%
Adjustments:                        
Stock-based compensation expense:                        
Cost of revenue, net     2,084       1,519       5,559       4,737  
Research and development     1,883       1,959       5,582       5,620  
Sales, general and administrative     9,411       6,372       23,319       19,043  
Total stock-based compensation expense     13,378       9,850       34,460       29,400  
Amortization or impairment of acquisition-related intangibles     3,906       1,516       11,717       3,224  
Costs associated with corporate restructuring                 3,904        
Costs related to the RF Power acquisition     1,583       4,327       3,416       4,327  
Transaction-related costs     9,410             9,966        
Asset impairment     4,960             4,960        
Executive severance     1,390       565       3,907       4,528  
Total adjustments to GAAP operating income     34,627       16,258       72,330       41,479  
Non-GAAP operating income     $23,541       $10,718       $82,018       $21,318  
Non-GAAP operating income percentage     8.6 %     4.8 %     9.9 %     3.2 %
 

Non-GAAP Non-Operating Income, net

 
      Three Months Ended     Nine Months Ended
      March 31,
2019
    March 25,
2018
    March 31,
2019
    March 25,
2018
GAAP non-operating (expense) income, net     ($8,440 )     ($10,000 )     ($23,695 )     $14,942  
Adjustment:                        
Net changes in the fair value of the Lextar investment     4,309       12,096       13,392       (10,055 )
Amortization of debt issuance costs and discount     5,490             12,687        
Foreign exchange gain on RF Power acquisition           (1,941 )           (1,941 )
Non-GAAP non-operating income, net     $1,359       $155       $2,384       $2,946  
                                 
 

Non-GAAP Net Income (Loss) from Continuing Operations

 
      Three Months Ended     Nine Months Ended
      March 31,
2019
    March 25,
2018
    March 31,
2019
    March 25,
2018
GAAP net (loss) income from continuing operations     ($22,311 )     ($10,163 )     ($23,259 )     $12,414  
Adjustments:                        
Stock-based compensation expense     13,378       9,850       34,460       29,400  
Amortization or impairment of acquisition-related intangibles     3,906       1,516       11,717       3,224  
Costs associated with corporate restructuring                 3,904        
Costs related to the RF Power acquisition     1,583       4,327       3,416       4,327  
Transaction-related costs     9,410             9,966        
Executive severance     1,390       565       3,907       4,528  
Asset impairment     4,960             4,960        
Net changes in the fair value of the Lextar investment     4,309       12,096       13,392       (10,055 )
Amortization of debt issuance costs and discount     5,490             12,687        
Foreign exchange gain on RF Power acquisition           (1,941 )           (1,941 )
Total adjustments to GAAP net loss before provision for income taxes     44,426       26,413       98,409       29,483  
Income tax effect     (1,697 )     499       (5,939 )     (15,228 )
Non-GAAP net income (loss) from continuing operations     $20,418       $16,749       $69,211       $26,669  
                         
Non-GAAP earnings per share from continuing operations                        
Non-GAAP diluted earnings (loss) per share from continuing operations     $0.20       $0.17       $0.67       $0.26  
                         
Shares used in non-GAAP diluted earnings per share calculation                        
Non-GAAP shares used     103,659       100,140       102,807       100,672  
 

Free Cash Flow

 
      Three Months Ended     Nine Months Ended
      March 31,
2019
    March 25,
2018
    March 31,
2019
    March 25,
2018
Cash flows from operations     $60,703       $19,609       $186,969       $125,423  
Less: PP&E spending     (33,217 )     (43,211 )     (106,522 )     (128,433 )
Less: Patents spending     (3,687 )     (2,981 )     (9,148 )     (7,913 )
Total free cash flow     $23,799       ($26,583 )     $71,299       ($10,923 )
                                 
 

CREE, INC.

Business Outlook Unaudited GAAP to Non-GAAP Reconciliation

(in millions)

 
      Three Months Ended
      June 30, 2019
GAAP net loss from continuing operations outlook range     ($19) to ($24)
Adjustments:      
Stock-based compensation expense     11
Amortization or impairment of acquired intangibles     4
Corporate restructuring charges or gains     7
Amortization of debt issuance costs and discount     6
Transaction-related costs     11
Total adjustments to GAAP net loss before provision for income taxes     39
Income tax effect     3
Non-GAAP net income from continuing operations outlook range     $12 to $17
       

 

Source: Cree, Inc.

Tyler Gronbach
Cree, Inc.
Vice President, Investor Relations
Phone: 919-407-4820
investorrelations@cree.com