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Cree Reports Financial Results for the Second Quarter of Fiscal Year 2013

  Cree Reports Financial Results for the Second Quarter of Fiscal Year 2013

   Quarterly Revenue increased 14% year-over-year to a record $346 million

      Quarterly Net Income increased 69% year-over-year to $20.4 million

Business Wire

DURHAM, N.C. -- January 22, 2013

Cree, Inc. (Nasdaq: CREE), a market leader in LED lighting, today announced
revenue of $346.3 million for its second quarter of fiscal 2013, ended
December30, 2012. This represents a 14% increase compared to revenue of
$304.1 million reported for the second quarter of fiscal 2012 and a 10%
increase compared to the first quarter of fiscal 2013. GAAP net income for the
second quarter was $20.4 million, or $0.18 per diluted share, an increase of
69% year-over-year compared to GAAP net income of $12.1 million, or $0.10 per
diluted share, for the second quarter of fiscal 2012. On a non-GAAP basis, net
income for the second quarter of fiscal 2013 was $36.9 million, or $0.32 per
diluted share, an increase of 29% year-over-year compared to non-GAAP net
income for the second quarter of fiscal 2012 of $28.7 million, or $0.25 per
diluted share.

“Fiscal Q2 was another strong quarter with record revenue and earnings per
share that were higher than our target range due to stronger sales in both
LEDs and Lighting combined with improved gross margins,” stated Chuck Swoboda,
Cree Chairman and CEO. “Overall company backlog is in line with seasonal
trends for our fiscal Q3. Longer term, we remain focused on driving adoption
through innovation, and with our broad understanding of the technology levers
from materials through systems, we see opportunities to move the market even
faster than what has been experienced to date.”

Q2 2013 Financial Metrics

(in thousands, except per share amounts and percentages)

                            Second Quarter             
                             2013         2012         Change       
                             (unaudited)   (unaudited)
Net revenue                  $ 346,286     $ 304,118     $ 42,168  14 %
GAAP
Gross margin                 38.5      %   34.6      %
Operating margin             7.2       %   4.0       %
Net income                   $ 20,403      $ 12,078      $ 8,325   69 %
Earnings per diluted share   $ 0.18        $ 0.10        $ 0.08    80 %
Non-GAAP
Gross margin                 39.2      %   35.3      %
Operating margin             13.7      %   10.3      %
Net income                   $ 36,878      $ 28,665      $ 8,213   29 %
Earnings per diluted share   $ 0.32        $ 0.25        $ 0.07    28 %

  *Gross margin increased 170 basis points from Q1 of fiscal 2013 to 38.5% on
    a GAAP basis and increased 170 basis points to 39.2% on a non-GAAP basis.
  *Cash and investments increased $69.5 million from Q1 of fiscal 2013 to
    $885.8 million.
  *Accounts receivable (net) decreased $17.7 million from Q1 of fiscal 2013
    to $144.6 million, with days sales outstanding of 38.
  *Inventory increased $5.3 million from Q1 of fiscal 2013 to $185.0 million,
    with days of inventory declining to 78 days.

Recent Business Highlights:

  *Achieved an LED industry milestone with the release of our 200
    lumen-per-watt XLamp^® MK-R LED;
  *Announced our revolutionary new LM16 LED replacement lamp to obsolete
    energy-wasting halogen MR16 lamps;
  *Introduced the XLamp XM-L2 LEDs, the industry's brightest,
    highest-performing single-die LEDs delivering 186 lumens per watt;
  *Announced that more than 130 locations of convenience restaurant chain
    Sheetz, Inc. now feature state-of-the-art LED lighting by Cree;
  *Released the industry's first fully qualified, production-ready, all SiC
    power module.

Business Outlook:

For its third quarter of fiscal 2013 ending March31, 2013, Cree targets
revenue in a range of $325 million to $345 million with GAAP gross margin
targeted to be similar to Q2 and non-GAAP gross margin targeted to be
39.5%+/-. Our GAAP gross margin targets include stock-based compensation
expense of approximately $2.4 million, while our non-GAAP targets do not.
Operating expenses are targeted to be similar to Q2 on both a GAAP and
non-GAAP basis. The tax rate is targeted at 17.0% for fiscal Q3. GAAP net
income is targeted at $17 million to $23 million, or $0.15 to $0.20 per
diluted share. Non-GAAP net income is targeted in a range of $35 million to
$41 million, or $0.30 to $0.35 per diluted share. The GAAP and non-GAAP net
income targets are based on an estimated 116.7 million diluted weighted
average shares. Targeted non-GAAP earnings exclude expenses related to the
amortization of acquired intangibles and stock-based compensation expense of
$0.15 per diluted share.

Quarterly Conference Call:

Cree will host a conference call at 5:00 p.m. Eastern time today to review the
highlights of the fiscal second quarter 2013 results and the fiscal third
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 leading the LED lighting revolution and making energy-wasting
traditional lighting technologies obsolete through the use of
energy-efficient, mercury-free LED lighting. Cree is a market-leading
innovator of lighting-class LEDs, LED lighting, and semiconductor products for
power and radio frequency (RF) applications.

Cree's product families include LED fixtures and bulbs, blue and green LED
chips, high-brightness LEDs, lighting-class power LEDs, power-switching
devices and RF devices. Cree products are driving improvements in applications
such as general illumination, electronic signs and signals, power supplies and
inverters.

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 the 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. 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 given that our backlog is a low percentage of our revenue
targets and our ability to forecast orders is limited; risks associated with
our acquisition of Ruud Lighting; 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 results will suffer if we are unable to
balance fluctuations in customer demand and capacity; 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 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; 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 and LED lighting 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; 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 June24, 2012, and
subsequent reports filed with the SEC. Except as required under the U.S.
federal securities laws and the rules and regulations of the SEC, Cree
disclaims any 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^®, the Cree logo, and XLamp^® are registered trademarks of Cree, Inc. or
one of its subsidiaries.

CREE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts and percentages)

(unaudited)
                                                  
                      Three Months Ended            Six Months Ended
                      December 30,   December 25,   December 30,   December
                      2012          2011           2012          25,
                                                                   2011
                      
Revenue, net          $  346,286     $  304,118     $  662,039     $ 573,098
Cost of revenue, net  212,810       199,000       412,514       369,952   
Gross profit          133,476        105,118        249,525        203,146
Gross margin          38.5       %   34.6       %   37.7       %   35.4      %
percentage
                                                                   
Operating expenses:
Research and          39,941         35,886         77,488         70,288
development
Sales, general and    60,100         49,176         112,745        94,715
administrative
Amortization of
acquisition-related   7,719          7,367          15,389         11,292
intangibles
Loss on disposal or
impairment of         624           497           1,522         1,272     
long-lived assets
Total operating       108,384        92,926         207,144        177,567
expenses
                                                                   
Operating income      25,092         12,192         42,381         25,579
Operating income      7.2        %   4.0        %   6.4        %   4.5       %
percentage
                                                                   
Non-operating income:
Interest and other
non-operating income, 2,481         1,689         5,866         4,632     
net
Income before income  27,573         13,881         48,247         30,211
taxes
Income tax expense    7,170         1,803         11,721        5,314     
Net income            $  20,403     $  12,078     $  36,526     $ 24,897  
                                                                   
Earnings per share:
Diluted               $  0.18        $  0.10        $  0.31        $ 0.22
                                                                   
Shares used in
diluted per share     116,410        115,883        116,249        114,239
calculation
                                                                             

CREE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)
                                                                 
                                                   December 30,    June 24,
                                                   2012            2012
                                                   (unaudited)
                                                   
ASSETS
Current assets:
Cash, cash equivalents, and short-term investments $ 885,803       $ 744,513
Accounts receivable, net                           144,552         152,258
Inventories                                        185,006         188,849
Deferred income taxes                              21,931          21,744
Prepaid expenses and other current assets          61,117         56,917
Total current assets                               1,298,409       1,164,281
Property and equipment, net                        555,049         582,461
Intangible assets, net                             366,520         376,075
Goodwill                                           616,345         616,345
Other assets                                       7,733          8,336
Total assets                                       $ 2,844,056    $ 2,747,498
                                                                   
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade                            $ 94,487        $ 78,873
Accrued salaries and wages                         39,907          29,837
Income taxes payable                               8,904           3,834
Other current liabilities                          32,655         36,633
Total current liabilities                          175,953         149,177
                                                                   
Long-term liabilities:
Deferred income taxes                              15,733          15,609
Other long-term liabilities                        16,762         22,695
Total long-term liabilities                        32,495          38,304
                                                                   
Shareholders’ equity:
Common Stock                                       145             144
Additional paid-in-capital                         1,900,500       1,861,502
Accumulated other comprehensive income, net of     11,199          11,133
taxes
Retained earnings                                  723,764        687,238
Total shareholders’ equity                         2,635,608      2,560,017
Total liabilities and shareholders’ equity         $ 2,844,056    $ 2,747,498
                                                                     

                                  CREE, INC.
                    FINANCIAL RESULTS BY OPERATING SEGMENT
                      (in thousands, except percentages)
                                 (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 or CODM, for the three and six months ended December 30, 2012
and the three and six months ended December 25, 2011. The Company does not
review inter-segment revenue 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                            
                      December 30,  December 25,  Change          
                      2012           2011
LED Products          $  200,962     $  194,162     $ 6,800    4  %
Percent of revenue    58         %   64         %
Lighting Products     122,714        95,736         26,978       28 %
Percent of revenue    35         %   31         %
Power and RF Products 22,610         14,220         8,390        59 %
Percent of revenue    7          %   5          %               
Total revenue         $  346,286    $  304,118    $ 42,168    14 %
                                                                    

                      Six Months Ended                              
                      December 30,  December 25,  Change          
                      2012           2011
LED Products          $  388,509     $  390,940     $ (2,431 )  (1 )%
Percent of revenue    59         %   68         %
Lighting Products     230,787        147,409        83,378       57 %
Percent of revenue    35         %   26         %
Power and RF Products 42,743         34,749         7,994        23 %
Percent of revenue    6          %   6          %               
Total revenue         $  662,039    $  573,098    $ 88,941    16 %
                                                                    

                              Three Months Ended                             
                              December 30,  December 25,  Change           
                              2012           2011
LED Products gross profit     $  84,186      $  70,302      $ 13,884    20  %
LED Products gross margin     41.9       %   36.2       %
Lighting Products gross       41,383         31,927         9,456        30  %
profit
Lighting Products gross       33.7       %   33.3       %
margin
Power and RF Products gross   12,798         5,274          7,524        143 %
profit
Power and RF Products gross   56.6       %   37.1       %
margin
Unallocated costs             (4,891     )   (2,385     )   (2,506   )   105 %
Consolidated gross profit     $  133,476    $  105,118    $ 28,358    27  %
Consolidated gross margin     38.5       %   34.6       %
                                                                         

                               Six Months Ended                              
                               December 30,  December 25,  Change          
                               2012           2011
LED Products gross profit      $  159,653     $  148,062     $ 11,591    8  %
LED Products gross margin      41.1       %   37.9       %
Lighting Products gross profit 75,483         47,877         27,606       58 %
Lighting Products gross margin 32.7       %   32.5       %
Power and RF Products gross    23,220         14,016         9,204        66 %
profit
Power and RF Products gross    54.3       %   40.3       %
margin
Unallocated costs              (8,831     )   (6,809     )   (2,022   )   30 %
Consolidated gross profit      $  249,525    $  203,146    $ 46,379    23 %
Consolidated gross margin      37.7       %   35.4       %
                                                                          

Reportable Segments Description

The Company's LED Products segment includes LED chips, LED components, and SiC
wafers. The Company's Lighting Products segment consists of both LED and
traditional lighting systems, with its primary focus on LED lighting. The
Company's Power and RF Products segment includes power devices and RF devices.

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 on the income statement
must be included to reconcile the consolidated gross profit presented in the
preceding table to the Company's consolidated income before taxes.

The Company allocates direct costs and indirect costs to each segment's cost
of sales. 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 include variable compensation costs for manufacturing
employees consisting primarily of stock-based compensation, expenses for
profit sharing and quarterly or annual incentive plans, matching contributions
under the Company's 401(k) plan and acquisition related costs.

                                  Cree, Inc.
                  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 net income, non-GAAP earnings per diluted
share, non-GAAP gross margin, non-GAAP operating expenses 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 operating expenses, which is operating expenses less stock-based
compensation expense, charges for amortization or impairment of acquired
intangibles, acquisition finished goods inventory step-up, and acquisition
costs.

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 stock-based
compensation expense or amortization or impairment of acquired intangible
assets, and the income taxes associated with the foregoing, and also do not
include acquisition finished goods inventory step-up or acquisition costs.
Cree's management also uses non-GAAP measures, in addition to the
corresponding GAAP measures, in reviewing the company's financial results.

The Consolidated GAAP Gross Profit includes amounts that are excluded for
non-GAAP measures in the “Unallocated Costs” in the Segment Reporting. The
Company does not consider these costs when evaluating segment performance and
allocating resources.

As described above, 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 and employee stock purchases through its Employee
Stock Purchase Plan (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 acquired intangible assets. Cree incurs
amortization or impairments of acquired intangible assets in connection with
acquisitions. Cree excludes these items because they arise from Cree's prior
acquisitions and have no direct correlation to the current operating results
of Cree's business.

Ruud Lighting Finished Goods Inventory Step-up. The inventory purchased as
part of the Ruud Lighting acquisition was recorded at fair value at the time
of the acquisition. In particular, the finished goods inventory was valued at
the anticipated customer sales price less cost to sell, which is higher than
the cost to produce the finished goods. Cree refers to the difference between
the fair value and cost to produce as the Ruud Lighting finished goods
inventory step-up. Cree excludes this inventory step-up item as Cree does not
believe this step-up value is reflective of ongoing operating results.

Ruud Lighting Acquisition Cost. Cree incurred expenses directly related the
acquisition of Ruud Lighting. These expenses include auditor fees, investment
banking fees, legal fees and other consulting fees incurred to conclude the
acquisition. Cree excludes these expenses as they bear no direct correlation
to the current operating results and are not reflective of the 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.

Cree expects to incur stock-based compensation expense and amortization of
acquired intangible assets in future periods, including income taxes
associated with the foregoing. In addition to the non-GAAP measures discussed
above, Cree also uses free cash flow as a measure of operating performance.
Free cash flow represents operating cash flows less net purchases of property
and equipment and payments for patent and licensing rights. Cree considers
free cash flow to be 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, 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 financial performance is that it does not
represent the total increase or decrease in the company's cash balance for the
period.

                                  CREE, INC.
                 Reconciliation of GAAP to Non-GAAP Measures
           (in thousands, except per share amounts and percentages)
                                 (unaudited)

Non-GAAP Gross Margin

                     Three Months Ended           Six Months Ended
                     December 30,  December 25,   December 30,  December 25,
                     2012           2011           2012           2011
GAAP gross profit    $  133,476     $  105,118     $  249,525     $  203,146
GAAP gross margin    38.5       %   34.6       %   37.7       %   35.4       %
percentage
Adjustment:
Stock-based          $  2,257       $  1,615       $  4,541       $  3,329
compensation expense
Ruud Lighting
finished goods       —             503           —             1,482      
inventory step-up
Non-GAAP gross       $  135,733    $  107,236    $  254,066    $  207,957 
profit
Non-GAAP gross       39.2       %   35.3       %   38.4       %   36.3       %
margin percentage
                                                                             

Non-GAAP Operating Income

                      Three Months Ended           Six Months Ended
                      December 30,   December 25,   December 30,   December
                      2012          2011           2012          25,
                                                                   2011
GAAP operating income $  25,092      $  12,192      $  42,381      $  25,579
GAAP operating income 7.2        %   4.0        %   6.4        %   4.5       %
percentage
Adjustments
Stock-based           14,544         11,195         27,029         22,635
compensation expense
Amortization of
acquisition-related   7,719          7,367          15,389         11,292
intangible assets
Ruud Lighting         —              —              —              3,069
acquisition costs
Ruud Lighting
finished goods        —             503           —             1,482     
inventory step-up
Total adjustments to  22,263        19,065        42,418        38,478    
GAAP operating income
Non-GAAP operating    $  47,355     $  31,257     $  84,799     $  64,057 
income
Non-GAAP operating    13.7       %   10.3       %   12.8       %   11.2      %
income percentage
                                                                             

Non-GAAP Net Income

                      Three Months Ended           Six Months Ended
                      December 30,   December 25,   December 30,   December
                                    2011           2012          25,
                      2012                                         2011
GAAP net income       $  20,403      $  12,078      $  36,526      $  24,897
Adjustments
Stock-based           14,544         11,195         27,029         22,635
compensation expense
Amortization of
acquisition-related   7,719          7,367          15,389         11,292
intangible assets
Ruud Lighting         —              —              —              3,069
acquisition costs
Ruud Lighting
finished goods        —             503           —             1,482     
inventory step-up
Total adjustments to
GAAP income before    22,263         19,065         42,418         38,478
provision for income
taxes
Income tax effect *   (5,788     )   (2,478     )   (10,308    )   (6,772    )
Non-GAAP net income   $  36,878     $  28,665     $  68,636     $  56,603 
                                                                   
Earnings per Share
Non-GAAP diluted net  $  0.32        $  0.25        $  0.59        $  0.50
income per share
                                                                   
Shares used in
diluted net income
per share calculation
Non-GAAP shares used  116,410        115,883        116,249        114,239

* Based on effective tax rate calculated using forecasted non-GAAP income

Free Cash Flow

                     Three Months Ended           Six Months Ended
                     December 30,  December 25,   December 30,  December 25,
                     2012           2011           2012           2011
Cash flow from       $  92,608      $  80,592      $  178,294     $  122,237
operations
Less: PP&E CapEx     (17,833    )   (19,076    )   (30,430    )   (53,038    )
spending
Less: Patents        (4,473     )   (3,884     )   (10,021    )   (8,043     )
spending
Total free cash flow $  70,302     $  57,632     $  137,843    $  61,156  

Contact:

Cree, Inc.
Raiford Garrabrant
Director, Investor Relations
919-407-7895
Fax: 919-407-5615
investorrelations@cree.com
 
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