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
December 30, 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 March 31, 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 June 24, 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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