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

1/22/2013
DURHAM, NC -- 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, 
2012

 

December 25, 
2011

 

December 30, 
2012

 

December 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 percentage

38.5

%

 

34.6

%

 

37.7

%

 

35.4

%

               

Operating expenses:

             

Research and development

39,941

   

35,886

   

77,488

   

70,288

 

Sales, general and administrative

60,100

   

49,176

   

112,745

   

94,715

 

Amortization of acquisition-related intangibles

7,719

   

7,367

   

15,389

   

11,292

 

Loss on disposal or impairment of long-lived assets

624

   

497

   

1,522

   

1,272

 

Total operating expenses

108,384

   

92,926

   

207,144

   

177,567

 
               

Operating income

25,092

   

12,192

   

42,381

   

25,579

 

Operating income percentage

7.2

%

 

4.0

%

 

6.4

%

 

4.5

%

               

Non-operating income:

             

Interest and other non-operating income, net

2,481

   

1,689

   

5,866

   

4,632

 

Income before income taxes

27,573

   

13,881

   

48,247

   

30,211

 

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 calculation

116,410

   

115,883

   

116,249

   

114,239

 


 

CREE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

December 30, 
2012

 

June 24, 
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 taxes

11,199

   

11,133

 

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, 
2012

 

December 25, 
2011

 

Change

 

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, 
2012

 

December 25, 
2011

 

Change

 

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, 
2012

 

December 25, 
2011

 

Change

 

LED Products gross profit

$

84,186

   

$

70,302

   

$

13,884

   

20

%

LED Products gross margin

41.9

%

 

36.2

%

       

Lighting Products gross profit

41,383

   

31,927

   

9,456

   

30

%

Lighting Products gross margin

33.7

%

 

33.3

%

       

Power and RF Products gross profit

12,798

   

5,274

   

7,524

   

143

%

Power and RF Products gross margin

56.6

%

 

37.1

%

       

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, 
2012

 

December 25, 
2011

 

Change

 

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 profit

23,220

   

14,016

   

9,204

   

66

%

Power and RF Products gross margin

54.3

%

 

40.3

%

       

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 th