Press release

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

0
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Cree, Inc. (Nasdaq: CREE) today announced financial results for its
third quarter of fiscal 2019, ended March 31, 2019. Revenue from
continuing operations for the third quarter of fiscal 2019 was $274
million, which represents a 22% increase compared to revenue from
continuing operations of $225 million for the third quarter of fiscal
2018. GAAP net loss from continuing operations for the third quarter of
fiscal 2019 was $22 million, or $0.22 per diluted share. This compares
to a GAAP net loss from continuing operations of $10 million, or $0.10
per diluted share for the third quarter of fiscal 2018. On a non-GAAP
basis, net income from continuing operations for the third quarter of
fiscal 2019 was $20 million, or $0.20 per diluted share, compared to
non-GAAP net income from continuing operations for the third quarter of
fiscal 2018 of $17 million, or $0.17 per diluted share.

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

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

Business Outlook:

For its fourth quarter of fiscal 2019 ending June 30, 2019, Cree targets
revenue from continuing operations in a range of $263 million to $271
million. GAAP net loss from continuing operations is targeted at $19
million to $24 million, or $0.18 to $0.23 per diluted share. Non-GAAP
net income from continuing operations is targeted to be in a range of
$12 million to $17 million, or $0.12 to $0.16 earnings per diluted
share. Targeted non-GAAP income from continuing operations excludes $36
million of estimated expenses, net of tax, related to stock-based
compensation expense, the amortization of debt issuance costs and
discount, costs associated with corporate restructuring, interest
accretion on our convertible notes’ issue costs and fair value
adjustments, and transaction-related costs. The GAAP and non-GAAP
targets from continuing operations do not include any estimated change
in the fair value of Cree’s Lextar investment.

Quarterly Conference Call:

Cree will host a conference call at 5:00 p.m. Eastern time today to
review the highlights of the fiscal 2019 third quarter results and the
fiscal 2019 fourth quarter business outlook, including significant
factors and assumptions underlying the targets noted above.

The conference call will be available to the public through a live audio
web broadcast via the internet. For webcast details, visit Cree’s
website at investor.cree.com/events.cfm.

Supplemental financial information, including the non-GAAP
reconciliation attached to this press release, is available on Cree’s
website at investor.cree.com/results.cfm.

About Cree, Inc.

Cree is an innovator of Wolfspeed® power and radio frequency
(RF) semiconductors and lighting class LEDs. Cree’s Wolfspeed product
families include SiC materials, power-switching devices and RF devices
targeted for applications such as electric vehicles, fast charging
inverters, power supplies, telecom and military and aerospace. Cree’s
LED product families include blue and green LED chips, high-brightness
LEDs and lighting-class power LEDs targeted for indoor and outdoor
lighting, video displays, transportation and specialty lighting
applications.

For additional product and Company information, please refer to www.cree.com.

Non-GAAP Financial Measures:

This press release highlights the Company’s financial results on both a
GAAP and a non-GAAP basis. The GAAP results include certain costs,
charges and expenses that are excluded from non-GAAP results. By
publishing the non-GAAP measures, management intends to provide
investors with additional information to further analyze the Company’s
performance, core results and underlying trends. Cree’s management
evaluates results and makes operating decisions using both GAAP and
non-GAAP measures included in this press release. Non-GAAP results are
not prepared in accordance with GAAP and non-GAAP information should be
considered a supplement to, and not a substitute for, financial
statements prepared in accordance with GAAP. Investors and potential
investors are encouraged to review the reconciliation of non-GAAP
financial measures to their most directly comparable GAAP measures
attached to this press release.

Forward Looking Statements:

The schedules attached to this release are an integral part of the
release. This press release contains forward-looking statements
involving risks and uncertainties, both known and unknown, that may
cause Cree’s actual results to differ materially from those indicated in
the forward-looking statements. Forward-looking statements by their
nature address matters that are, to different degrees, uncertain, such
as statements about the anticipated benefits of the transaction and
future financial and operating results. Actual results, including with
respect to our ability to complete the Cree Lighting Products business
unit divestiture transaction on time or at all, our plans to grow the
Wolfspeed business and our ability to achieve our targets for the fourth
quarter of fiscal 2019, could differ materially due to a number of
factors, including risks associated with divestiture transactions
generally, including the inability to obtain, or delays in obtaining,
required regulatory approvals; issues, delays or complications in
completing required carve-out activities to allow Cree Lighting to
operate on a stand-alone basis after the closing, including incurring
unanticipated costs to complete such activities; risks associated with
integration or transition of the operations, systems and personnel of
Cree Lighting, each, as applicable, within the term of the post-closing
transition services agreement between IDEAL and Cree; unfavorable
reaction to the sale by customers, competitors, suppliers and employees;
the risk that costs associated with the transaction will be greater than
we expect; the risk that we may not obtain sufficient orders to achieve
our targeted revenues; price competition in key markets; the risk that
we or our channel partners are not able to develop and expand customer
bases and accurately anticipate demand from end customers, which can
result in increased inventory and reduced orders as we experience wide
fluctuations in supply and demand; the risk that we may experience
production difficulties that preclude us from shipping sufficient
quantities to meet customer orders or that result in higher production
costs and lower margins; our ability to lower costs; the risk that our
results will suffer if we are unable to balance fluctuations in customer
demand and capacity, including bringing on additional capacity on a
timely basis to meet customer demand; the risk that longer manufacturing
lead times may cause customers to fulfill their orders with a
competitor’s products instead; the risk that the economic and political
uncertainty caused by the already imposed and proposed tariffs by the
United States on Chinese goods, and corresponding Chinese tariffs in
response, may negatively impact demand for our products; product mix;
risks associated with the ramp-up of production of our new products, and
our entry into new business channels different from those in which we
have historically operated; the risk that customers do not maintain
their favorable perception of our brand and products, resulting in lower
demand for our products; the risk that our products fail to perform or
fail to meet customer requirements or expectations, resulting in
significant additional costs, including costs associated with warranty
returns or the potential recall of our products; ongoing uncertainty in
global economic conditions, infrastructure development or customer
demand that could negatively affect product demand, collectability of
receivables and other related matters as consumers and businesses may
defer purchases or payments, or default on payments; risks resulting
from the concentration of our business among few customers, including
the risk that customers may reduce or cancel orders or fail to honor
purchase commitments; the risk that our investments may experience
periods of significant stock price volatility causing us to recognize
fair value losses on our investment; the risk posed by managing an
increasingly complex supply chain that has the ability to supply a
sufficient quantity of raw materials, subsystems and finished products
with the required specifications and quality; the risk we may be
required to record a significant charge to earnings if our remaining
goodwill or amortizable assets become impaired; risks relating to
confidential information theft or misuse, including through
cyber-attacks or cyber intrusion; our ability to complete development
and commercialization of products under development, such as our
pipeline of Wolfspeed products, improved LED chips and LED components;
the rapid development of new technology and competing products that may
impair demand or render our products obsolete; the potential lack of
customer acceptance for our products; risks associated with ongoing
litigation; and other factors discussed in our filings with the
Securities and Exchange Commission (SEC), including our report on Form
10-K for the fiscal year ended June 24, 2018, and subsequent reports
filed with the SEC. These forward-looking statements represent Cree’s
judgment as of the date of this release. Except as required under the
U.S. federal securities laws and the rules and regulations of the SEC,
Cree disclaims any intent or obligation to update any forward-looking
statements after the date of this release, whether as a result of new
information, future events, developments, changes in assumptions or
otherwise.

Cree® and Wolfspeed® are registered trademarks of
Cree, Inc.

 

CREE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME

(in thousands, except per share amounts and percentages)

 
    Three Months Ended     Nine Months Ended

March 31,
2019

   

March 25,
2018

March 31,
2019

   

March 25,
2018

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

CREE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

       

March 31,
2019

June 24,
2018

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

CREE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
    Nine Months Ended

March 31,
2019

   

March 25,
2018

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

CREE, INC.
UNAUDITED FINANCIAL RESULTS BY OPERATING
SEGMENT

(in thousands, except percentages)

The following table reflects the results of the Company’s reportable
segments as reviewed by the Company’s Chief Executive Officer, its Chief
Operating Decision Maker or CODM, for the three and nine months ended
March 31, 2019 and the three and nine months ended March 25, 2018. The
CODM does not review inter-segment transactions when evaluating segment
performance and allocating resources to each segment. As such, total
segment revenue is equal to the Company’s consolidated revenue.

    Three Months Ended        

March 31,
2019

   

March 25,
2018

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

51.5

%

36.4

%

LED Products revenue 132,797 143,298

(10,501

)

(7

)%

Percent of revenue

48.5

%

63.6

%

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

March 31,
2019

March 25,
2018

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

48.7

%

33.2

%

LED Products revenue 424,771 440,500

(15,729

)

(4

)%

Percent of revenue

51.3

%

66.8

%

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

March 31,
2019

March 25,
2018

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

(1,441

)

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

March 31,
2019

March 25,
2018

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

Reportable Segments Description

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

Financial Results by Reportable Segment

The Company’s CODM reviews gross profit as the lowest and only level of
segment profit. As such, all items below gross profit in the
consolidated statements of loss must be included to reconcile the
consolidated gross profit presented in the preceding table to the
Company’s consolidated loss before taxes.

The Company allocates direct costs and indirect costs to each segment’s
cost of revenue. The allocation methodology is based on a reasonable
measure of utilization considering the specific facts and circumstances
of the costs being allocated.

Certain costs are not allocated when evaluating segment performance.
These unallocated costs consist primarily of manufacturing employees’
stock-based compensation, expenses for profit sharing and quarterly or
annual incentive plans, and matching contributions under the Company’s
401(k) Plan.

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

Non-GAAP Measures of Financial Performance

To supplement the Company’s consolidated financial statements presented
in accordance with generally accepted accounting principles, or GAAP,
Cree uses non-GAAP measures of certain components of financial
performance. These non-GAAP measures include non-GAAP gross margin,
non-GAAP operating income, non-GAAP non-operating income, net, non-GAAP
net income, non-GAAP diluted earnings per share and free cash flow.

Reconciliation to the nearest GAAP measure of all historical non-GAAP
measures included in this press release can be found in the tables
included with this press release. In this press release, Cree also
presents its target for non-GAAP expenses, which are expenses less
expenses in the various categories described below. Both our GAAP
targets and non-GAAP targets do not include any estimated changes in the
fair value of our Lextar investment.

Non-GAAP measures presented in this press release are not in accordance
with or an alternative to measures prepared in accordance with GAAP and
may be different from non-GAAP measures used by other companies. In
addition, these non-GAAP measures are not based on any comprehensive set
of accounting rules or principles. Non-GAAP measures have limitations in
that they do not reflect all of the amounts associated with Cree’s
results of operations as determined in accordance with GAAP. These
non-GAAP measures should only be used to evaluate Cree’s results of
operations in conjunction with the corresponding GAAP measures.

Cree believes that these non-GAAP measures, when shown in conjunction
with the corresponding GAAP measures, enhance investors’ and
management’s overall understanding of the Company’s current financial
performance and the Company’s prospects for the future, including cash
flows available to pursue opportunities to enhance shareholder value. In
addition, because Cree has historically reported certain non-GAAP
results to investors, the Company believes the inclusion of non-GAAP
measures provides consistency in the Company’s financial reporting.

For its internal budgeting process, and as discussed further below,
Cree’s management uses financial statements that do not include the
items listed below and the income tax effects associated with the
foregoing. Cree’s management also uses non-GAAP measures, in addition to
the corresponding GAAP measures, in reviewing the Company’s financial
results.

Cree excludes the following items from one or more of its non-GAAP
measures when applicable:

Stock-based compensation expense. This expense consists of
expenses for stock options, restricted stock, performance stock awards
and employee stock purchases through its ESPP. Cree excludes stock-based
compensation expenses from its non-GAAP measures because they are
non-cash expenses that Cree does not believe are reflective of ongoing
operating results.

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

Amortization or impairment of acquisition-related intangibles. Cree
incurs amortization or impairment of acquisition-related intangibles in
connection with acquisitions. Cree excludes these items because they
arise from Cree’s prior acquisitions and have no direct correlation to
the ongoing operating results of Cree’s business.

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

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

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

Asset impairment. The Company incurred impairment charges in
conjunction with the proposed sale of the Lighting Products business
unit and other assets. Cree excludes these items because Cree believes
they are not reflective of the ongoing operating results of Cree’s
business.

Changes in the fair value of our Lextar investment. The Company’s
common stock ownership investment in Lextar Electronics Corporation is
accounted for utilizing the fair value option. As such, changes in fair
value are recognized in income, including fluctuations due to the
exchange rate between the New Taiwan Dollar and the United States
Dollar. Cree excludes the impact of these gains or losses from its
non-GAAP measures because they are non-cash impacts that Cree does not
believe are reflective of ongoing operating results. Additionally, Cree
excludes the impact of dividends received on its Lextar investment as
Cree does not believe it is reflective of ongoing operating results.

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

Income tax effects of the foregoing non-GAAP items. This
amount is used to present each of the amounts described above on an
after-tax basis consistent with the presentation of non-GAAP net income.
Non-GAAP net income is presented using a non-GAAP tax rate. The
Company’s non-GAAP tax rate represents a recalculation of the GAAP tax
rate reflecting the exclusion of the non-GAAP items.

Cree expects to incur many of these same expenses, including income
taxes associated with these expenses, in future periods. In addition to
the non-GAAP measures discussed above, Cree also uses free cash flow as
a measure of operating performance and liquidity. Free cash flow
represents operating cash flows less net purchases of property and
equipment and patent and licensing rights. Cree considers free cash flow
to be an operating performance and a liquidity measure that provides
useful information to management and investors about the amount of cash
generated by the business after the purchases of property and equipment,
a portion of which can then be used to, among other things, invest in
Cree’s business, make strategic acquisitions, strengthen the balance
sheet and repurchase stock. A limitation of the utility of free cash
flow as a measure of operating performance and liquidity is that it does
not represent the residual cash flow available to the company for
discretionary expenditures, as it excludes certain mandatory
expenditures such as debt service.

 

CREE, INC.

Unaudited Reconciliation of GAAP to Non-GAAP Measures

(in thousands, except per share amounts and percentages)

 

Non-GAAP Gross Margin

 
    Three Months Ended     Nine Months Ended

March 31,
2019

   

March 25,
2018

March 31,
2019

   

March 25,
2018

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

Non-GAAP Operating Income

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

Non-GAAP Non-Operating Income, net

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

Non-GAAP Net Income (Loss) from Continuing Operations

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

Free Cash Flow

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

CREE, INC.

Business Outlook Unaudited GAAP to Non-GAAP Reconciliation

(in millions)

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