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

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

   Quarterly Revenue increased 23% year-over-year to a record $349 million

     Quarterly Net Income increased 134% year-over-year to $22.2 million

Business Wire

DURHAM, N.C. -- April 23, 2013

Cree, Inc. (Nasdaq: CREE), a market leader in LED lighting, today announced
revenue of $348.9 million for its third quarter of fiscal 2013, ended
March31, 2013. This represents a 23% increase compared to revenue of $284.8
million reported for the third quarter of fiscal 2012, and a 1% increase
compared to the second quarter of fiscal 2013. GAAP net income for the third
quarter was $22.2 million, or $0.19 per diluted share, an increase of 134%
year-over-year compared to GAAP net income of $9.5 million, or $0.08 per
diluted share, for the third quarter of fiscal 2012. On a non-GAAP basis, net
income for the third quarter of fiscal 2013 was $40.8 million, or $0.34 per
diluted share, an increase of 75% year-over-year compared to non-GAAP net
income for the third quarter of fiscal 2012 of $23.3 million, or $0.20 per
diluted share.

“Fiscal Q3 was another good quarter with record revenue and earnings per share
that were on the high-end of our target range,” stated Chuck Swoboda, Cree
Chairman and CEO. “Overall company backlog is ahead of this point last quarter
and we are targeting solid growth for Q4. We remain focused on using new
product innovation to grow our business and build the Cree brand.”

Q3 2013 Financial Metrics
                                                                     
(in thousands, except per share
amounts and percentages)
                                 Third Quarter
                                 2013         2012          Change
                                 (unaudited)   (unaudited)
Net revenue                      $ 348,934     $ 284,801     $ 64,133    23  %
GAAP
Gross margin                     38.1      %   34.9      %
Operating margin                 6.7       %   1.8       %
Net income                       $ 22,157      $ 9,489       $ 12,668    134 %
Earnings per diluted share       $ 0.19        $ 0.08        $ 0.11      138 %
Non-GAAP
Gross margin                     38.8      %   35.6      %
Operating margin                 12.9      %   8.6       %
Net income                       $ 40,761      $ 23,322      $ 17,439    75  %
Earnings per diluted share       $ 0.34        $ 0.20        $ 0.14      70  %

  *Gross margin decreased 40 basis points from Q2 of fiscal 2013 to 38.1% on
    a GAAP basis and decreased 40 basis points to 38.8% on a non-GAAP basis.
  *Cash and investments increased $51.2 million from Q2 of fiscal 2013 to
    $937.1 million.
  *Accounts receivable (net) increased $37.3 million from Q2 of fiscal 2013
    to $181.9 million, with days sales outstanding of 47.
  *Inventory increased $10.7 million from Q2 of fiscal 2013 to $195.7
    million, with days of inventory of 82 days.

Recent Business Highlights:

  *Introduced the Cree LED Bulbs, a game-changing series of LED bulbs at a
    retail price point that gives consumers a reason to switch to LED
    lighting;
  *Announced the availability of a new product family, XLamp^® XQ LEDs, which
    are Cree's smallest lighting-class LEDs and 57 percent smaller than Cree's
    XLamp XB package;
  *Introduced the CR Series LED Architectural High-Efficiency (HE) troffer,
    with an industry-leading 130 lumens per watt and 90 CRI;
  *Released a second-generation SiC MOSFET that delivers industry-leading
    power density and switching efficiency at half the cost-per-amp of Cree's
    previous generation MOSFETs;
  *Set a new R&D performance record with a 276 lumen-per-watt white power
    LED;
  *Appointed Mike McDevitt as Executive Vice President and Chief Financial
    Officer.

Business Outlook:

For its fourth quarter of fiscal 2013 ending June30, 2013, Cree targets
revenue in a range of $365 million to $385 million with GAAP gross margin
targeted to be 39.0%+/- and non-GAAP gross margin targeted to be 39.5%+/-. Our
GAAP gross margin targets include stock-based compensation expense of
approximately $2.3 million, while our non-GAAP targets do not. Operating
expenses are targeted to increase by +/- $4 million on a GAAP basis and +/- $5
million on a non-GAAP basis. The tax rate is targeted at 20.0%+/- for fiscal
Q4. GAAP net income is targeted at $25 million to $31 million, or $0.20 to
$0.26 per diluted share. Non-GAAP net income is targeted in a range of $41
million to $47 million, or $0.34 to $0.40 per diluted share. The GAAP and
non-GAAP net income targets are based on an estimated 119.6 million diluted
weighted average shares. Targeted non-GAAP earnings exclude expenses related
to the amortization of acquired intangibles and stock-based compensation
expense of $0.14 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 third quarter 2013 results and the fiscal 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 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.

CREE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts and percentages)

(unaudited)
                                                 
                       Three Months Ended          Nine Months Ended
                       March 31,    March 25,     March 31,      March 25,
                       2013          2012          2013            2012
                       
Revenue, net           $ 348,934     $ 284,801     $ 1,010,973     $ 857,899
Cost of revenue, net   215,924      185,388      628,438        555,340   
Gross profit           133,010       99,413        382,535         302,559
Gross margin           38.1      %   34.9      %   37.8        %   35.3      %
percentage
                                                                   
Operating expenses:
Research and           39,036        36,148        116,524         106,436
development
Sales, general and     62,140        50,074        174,885         144,789
administrative
Amortization of
acquisition-related    7,719         7,368         23,108          18,660
intangibles
Loss on disposal or
impairment of          863          816          2,385          2,088     
long-lived assets
Total operating        109,758       94,406        316,902         271,973
expenses
                                                                   
Operating income       23,252        5,007         65,633          30,586
Operating income       6.7       %   1.8       %   6.5         %   3.6       %
percentage
                                                                   
Non-operating income:
Interest and other
non-operating income,  2,512        2,183        8,378          6,815     
net
Income before income   25,764        7,190         74,011          37,401
taxes
Income tax expense     3,607        (2,299    )   15,328         3,015     
(benefit)
Net income             $ 22,157     $ 9,489      $ 58,683       $ 34,386  
                                                                   
Earnings per share:
Diluted                $ 0.19        $ 0.08        $ 0.50          $ 0.30
                                                                   
Shares used in diluted 118,608       116,074       116,768         114,879
per share calculation

CREE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)
                                                                 
                                                   March 31,       June 24,
                                                   2013            2012
                                                   (unaudited)
                                                   
ASSETS
Current assets:
Cash, cash equivalents, and short-term investments $ 937,051       $ 744,513
Accounts receivable, net                           181,877         152,258
Inventories                                        195,743         188,849
Deferred income taxes                              22,410          21,744
Prepaid expenses and other current assets          62,831         56,917
Total current assets                               1,399,912       1,164,281
Property and equipment, net                        550,237         582,461
Intangible assets, net                             362,442         376,075
Goodwill                                           616,345         616,345
Other assets                                       8,552          8,336
Total assets                                       $ 2,937,488    $ 2,747,498
                                                                   
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade                            $ 112,416       $ 78,873
Accrued salaries and wages                         40,286          29,837
Income taxes payable                               4,405           3,834
Other current liabilities                          41,459         36,633
Total current liabilities                          198,566         149,177
                                                                   
Long-term liabilities:
Deferred income taxes                              15,926          15,609
Other long-term liabilities                        14,797         22,695
Total long-term liabilities                        30,723          38,304
                                                                   
Shareholders’ equity:
Common Stock                                       146             144
Additional paid-in-capital                         1,951,011       1,861,502
Accumulated other comprehensive income, net of     11,121          11,133
taxes
Retained earnings                                  745,921        687,238
Total shareholders’ equity                         2,708,199      2,560,017
Total liabilities and shareholders’ equity         $ 2,937,488    $ 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 nine months ended March 31, 2013 and
the three and nine months ended March 25, 2012. 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                                           
               March 31,          March 25,        Change                 
               2013                2012
LED Products   $  195,561          $  180,944        $  14,617      8      %
Percent of     56            %     64          %
revenue
Lighting       130,659             86,527            44,132          51     %
Products
Percent of     37            %     30          %
revenue
Power and RF   22,714              17,330            5,384           31     %
Products
Percent of     7             %     6           %                    
revenue
Total revenue  $  348,934         $  284,801       $  64,133      23     %
               Nine Months Ended                                            
               March 31,           March 25,         Change                 
               2013                2012
LED Products   $  584,070          $  571,884        $  12,186       2      %
Percent of     58            %     67          %
revenue
Lighting       361,446             233,936           127,510         55     %
Products
Percent of     36            %     27          %
revenue
Power and RF   65,457              52,079            13,378          26     %
Products
Percent of     6             %     6           %                    
revenue
Total revenue  $  1,010,973       $  857,899       $  153,074     18     %
               Three Months Ended                                           
               March 31,           March 25,         Change                 
               2013                2012
LED Products   $  85,728           $  70,257         $  15,471         22  %
gross profit
LED Products   43.8          %     38.8        %
gross margin
Lighting
Products gross 39,966              24,640            15,326             62  %
profit
Lighting
Products gross 30.6          %     28.5        %
margin
Power and RF
Products gross 12,033              7,954             4,079              51  %
profit
Power and RF
Products gross 53.0          %     45.9        %
margin
Unallocated    (4,717        )     (3,438      )     (1,279      )      37  %
costs
Consolidated   $  133,010         $  99,413        $  33,597         34  %
gross profit
Consolidated   38.1          %     34.9        %
gross margin
               Nine Months Ended                                            
               March 31,           March 25,         Change                 
               2013                2012
LED Products   $  245,381          $  218,319        $  27,062          12  %
gross profit
LED Products   42.0          %     38.2        %
gross margin
Lighting
Products gross 115,449             72,517            42,932             59  %
profit
Lighting
Products gross 31.9          %     31.0        %
margin
Power and RF
Products gross 35,253              21,970            13,283             60  %
profit
Power and RF
Products gross 53.9          %     42.2        %
margin
Unallocated    (13,548       )     (10,247     )     (3,301      )      32  %
costs
Consolidated   $  382,535         $  302,559       $  79,976         26  %
gross profit
Consolidated   37.8          %     35.3        %
gross margin

Reportable Segments Description

The Company's LED Products segment includes LED chips, LED components, and SiC
materials. 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            Nine Months Ended
                     March 31,     March 25,      March 31,     March 25,
                     2013           2012           2013           2012
GAAP gross profit    $ 133,010      $ 99,413       $ 382,535      $ 302,559
GAAP gross margin    38.1      %    34.9      %    37.8      %    35.3      %
percentage
Adjustment:
Stock-based          $ 2,334        $ 2,104        $ 6,875        $ 5,433
compensation expense
Ruud Lighting
finished goods       —             —             —             1,482     
inventory step-up
Non-GAAP gross       $ 135,344     $ 101,517     $ 389,410     $ 309,474 
profit
Non-GAAP gross       38.8      %    35.6      %    38.5      %    36.1      %
margin percentage
                                                   
Non-GAAP Operating
Income
                                                   
                     Three Months Ended            Nine Months Ended
                     March 31,      March 25,      March 31,      March 25,
                     2013           2012           2013           2012
GAAP operating       $ 23,252       $ 5,007        $ 65,633       $ 30,586
income
GAAP operating       6.7       %    1.8       %    6.5       %    3.6       %
income percentage
Adjustments
Stock-based          13,915         12,249         40,945         34,884
compensation expense
Amortization of
acquisition-related  7,719          7,368          23,108         18,660
intangible assets
Ruud Lighting        —              —              —              3,069
acquisition costs
Ruud Lighting
finished goods       —             —             —             1,482     
inventory step-up
Total adjustments to
GAAP operating       21,634        19,617        64,053        58,095    
income
Non-GAAP operating   $ 44,886      $ 24,624      $ 129,686     $ 88,681  
income
Non-GAAP operating   12.9      %    8.6       %    12.8      %    10.3      %
income percentage
                                                   
Non-GAAP Net Income
                                                   
                     Three Months Ended            Nine Months Ended
                     March 31,      March 25,      March 31,      March 25,
                     2013           2012           2013           2012
GAAP net income      $ 22,157       $ 9,489        $ 58,683       $ 34,386
Adjustments
Stock-based          13,915         12,249         40,945         34,884
compensation expense
Amortization of
acquisition-related  7,719          7,368          23,108         18,660
intangible assets
Ruud Lighting        —              —              —              3,069
acquisition costs
Ruud Lighting
finished goods       —             —             —             1,482      
inventory step-up
Total adjustments to
GAAP income before   21,634         19,617         64,053         58,095
provision for income
taxes
Income tax effect *  (3,030     )   (5,784     )   (13,259    )   (12,436    )
Non-GAAP net income  $ 40,761      $ 23,322      $ 109,477     $ 80,045   
                                                                  
Earnings per Share
Non-GAAP diluted net $ 0.34         $ 0.20         $ 0.94         $ 0.70
income per share
                                                                  
Shares used in
diluted net income
per share
calculation
Non-GAAP shares used 118,608        116,074        116,768        114,879
* Based on effective tax rate calculated using forecasted non-GAAP income
                                                   
Free Cash Flow
                                                   
                     Three Months Ended            Nine Months Ended
                     March 31,      March 25,      March 31,      March 25,
                     2013           2012           2013           2012
Cash flow from       $ 45,776       $ 48,340       $ 224,070      $ 170,577
operations
Less: PP&E CapEx     (24,976    )   (22,168    )   (55,406    )   (75,206    )
spending
Less: Patents        (5,773     )   (3,916     )   (15,794    )   (11,959    )
spending
Total free cash flow $ 15,027      $ 22,256      $ 152,870     $ 83,412   

Contact:

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