Cree, Inc. (Nasdaq: CREE) today announced revenue from
continuing operations of $145.8 million for its fourth quarter of
fiscal 2021, ended June 27, 2021. This represents a 35% increase
compared to revenue from continuing operations of $108.4 million
reported for the fourth quarter of fiscal 2020, and a 6% increase
compared to the third quarter of fiscal 2021. GAAP net loss from
continuing operations for the fourth quarter of fiscal 2021 was
$145.2 million, or $1.26 per diluted share, compared to GAAP net
loss from continuing operations of $44.2 million, or $0.41 per
diluted share, for the fourth quarter of fiscal 2020. On a non-GAAP
basis, net loss from continuing operations for the fourth quarter
of fiscal 2021 was $26.9 million, or $0.23 per diluted share,
compared to non-GAAP net loss from continuing operations for the
fourth quarter of fiscal 2020 of $28.9 million, or $0.27 per
diluted share.
GAAP net loss for the fourth quarter of fiscal 2021 includes a
$73.9 million expense related to a modification of Cree's
long-range plan regarding a portion of its Durham, North Carolina
campus originally intended for expanding Cree's LED production
capacity that Cree had considered using to expand the manufacturing
footprint for its silicon carbide materials product line. After
Cree completes its current ongoing silicon carbide materials
production capacity expansion in Durham, Cree now plans on further
expansion of its silicon carbide materials production capacity
outside of the Durham campus. As a result, the Company has decided
it will no longer complete the construction of certain buildings on
the Durham campus. The expense was recorded upon an updated
valuation of the property.
Additionally, in the fourth quarter of fiscal 2021 subsequent to
the sale of the LED Products business unit, Cree liquidated its
approximately 3.3% common stock ownership interest in ENNOSTAR and
received net proceeds of $66.4 million.
For fiscal year 2021, Cree reported revenue from continuing
operations of $525.6 million, which represents a 12% increase when
compared to revenue from continuing operations of $470.7 million
for fiscal 2020. GAAP net loss from continuing operations was
$341.3 million, or $3.04 per diluted share. This compares to a GAAP
net loss from continuing operations of $197.6 million, or $1.83 per
diluted share, for fiscal 2020. On a non-GAAP basis, net loss from
continuing operations for fiscal year 2021 was $104.7 million, or
$0.93 per diluted share, compared to non-GAAP net income from
continuing operations of $76.6 million, or $0.71 per diluted share,
for fiscal 2020.
“We delivered strong revenue during the quarter, as customers
are ramping up production earlier and steeper than originally
anticipated. We continued to grow and convert opportunities in our
device pipeline, further establishing our industry leadership
position in silicon carbide,” said Chief Executive Officer, Gregg
Lowe. “We are on track to bring the world’s largest silicon carbide
fab online in early calendar 2022, which uniquely positions us to
capitalize on what we believe to be a multi-decade growth
opportunity ahead."
Business Outlook:
For its first quarter of fiscal 2022, Cree targets revenue in a
range of $144 million to $154 million. GAAP net loss is targeted at
$78 million to $82 million, or $0.67 to $0.70 per diluted share.
Non-GAAP net loss is targeted to be in a range of $25 million to
$29 million, or $0.21 to $0.25 per diluted share. Targeted non-GAAP
net loss excludes $53 million of estimated expenses, net of tax,
related to stock-based compensation expense, amortization or
impairment of acquisition-related intangibles, factory optimization
restructuring and start-up costs, net accretion on convertible
notes, interest income from transaction-related note receivable and
project, transformation, transaction and transition costs.
Quarterly Conference Call:
Cree will host a conference call at 5:00 p.m. Eastern time today
to review the highlights of the fourth quarter results and the
fiscal first quarter 2022 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. Cree’s Wolfspeed product families include
silicon carbide materials, power-switching devices and RF devices
targeted for applications such as electric vehicles, fast charging
inverters, power supplies, telecom and military and aerospace.
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 our plans to grow the
Wolfspeed business and our ability to achieve our targets for the
first quarter of fiscal 2022 and beyond. Actual results could
differ materially due to a number of factors, including but not
limited to, risks relating to the ongoing COVID-19 pandemic,
including the risk of new and different government restrictions
that limit our ability to do business, the risk of infection in our
workforce and subsequent impact on our ability to conduct business,
the risk that our supply chain or customer demand may be negatively
impacted, the risk posed by vaccine resistance and the emergence of
fast-spreading variants, the risk that the COVID-19 pandemic will
lead to a global recession and the potential for costs associated
with our operations during the fiscal 2022 first quarter and future
quarters to be greater than we anticipate as a result of all of
these factors; issues, delays or complications in completing
required transition activities to allow the Company's now divested
LED Products business to operate under the SMART Global Holdings,
Inc. (SGH) portfolio of businesses after the closing, including
incurring unanticipated costs to complete such activities; the risk
that we may not obtain sufficient orders to achieve our targeted
revenues; price competition in key markets; 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, lower yields 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; 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; risks associated with our factory optimization plan and
construction of a new device fabrication facility, including design
and construction delays and cost overruns, issues in installing and
qualifying new equipment and ramping production, poor production
process yields and quality control, and potential increases to our
restructuring costs; 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 the economic and political
uncertainty caused by the tariffs imposed by the United States on
Chinese goods, and corresponding Chinese tariffs and currency
devaluation in response, may negatively impact demand for our
products; risks related to international sales and purchases,
including the risk that U.S. government actions with respect to
Huawei Technologies Co. and its affiliates or other foreign
customers or vendors may have a greater impact on our business and
results of operations than our expectations; 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 market value and
interest rate 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;
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; 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; risks associated with strategic
transactions, including the possibility that we may not realize the
full purchase price contemplated in connection with the sale of our
former LED Products or Lighting Products business units; 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 28, 2020, 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. CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three months ended
Fiscal years ended
(in millions of U.S. Dollars, except per
share data)
June 27, 2021
June 28, 2020
June 27, 2021
June 28, 2020
Revenue, net
$145.8
$108.4
$525.6
$470.7
Cost of revenue, net
102.0
79.3
361.0
312.2
Gross profit
43.8
29.1
164.6
158.5
Gross margin percentage
30
%
27
%
31
%
34
%
Operating expenses:
Research and development
45.1
39.5
177.8
152.0
Sales, general and administrative
46.6
46.0
181.6
181.7
Amortization or impairment of
acquisition-related intangibles
3.6
3.6
14.5
14.5
Abandonment of long-lived assets
73.9
—
73.9
—
Loss (gain) on disposal or impairment of
other assets
0.8
(0.2
)
1.6
1.5
Other operating expense
6.5
10.7
29.1
32.9
Operating loss
(132.7
)
(70.5
)
(313.9
)
(224.1
)
Operating loss percentage
(91
)%
(65
)%
(60
)%
(48
)%
Non-operating expense (income), net
7.4
(26.6
)
26.3
(18.5
)
Loss before income taxes
(140.1
)
(43.9
)
(340.2
)
(205.6
)
Income tax expense (benefit)
5.1
0.3
1.1
(8.0
)
Net loss from continuing
operations
(145.2
)
(44.2
)
(341.3
)
(197.6
)
Net (loss) income from discontinued
operations
(2.4
)
5.3
(181.2
)
7.0
Net loss
(147.6
)
(38.9
)
(522.5
)
(190.6
)
Net income from discontinued operations
attributable to noncontrolling interest
—
0.6
1.4
1.1
Net loss attributable to controlling
interest
($147.6
)
($39.5
)
($523.9
)
($191.7
)
Basic and diluted loss per
share
Continuing operations
($1.26
)
($0.41
)
($3.04
)
($1.83
)
Net loss attributable to controlling
interest
($1.28
)
($0.36
)
($4.66
)
($1.78
)
Weighted average shares - basic and
diluted (in thousands)
115,616
108,585
112,346
107,935
CREE, INC. CONDENSED
CONSOLIDATED BALANCE SHEETS (unaudited)
(in millions of U.S. Dollars)
June 27, 2021
June 28, 2020
Assets
Current assets:
Cash, cash equivalents, and short-term
investments
$1,154.6
$1,239.7
Accounts receivable, net
95.9
72.4
Inventories
166.6
121.9
Income taxes receivable
6.4
6.6
Prepaid expenses
25.7
26.2
Other current assets
27.9
8.7
Current assets held for sale
1.6
1.3
Current assets of discontinued
operations
—
116.0
Total current assets
1,478.7
1,592.8
Property and equipment, net
1,292.3
770.8
Goodwill
359.2
349.7
Intangible assets, net
140.5
156.9
Long-term receivables
138.4
—
Other long-term investments
—
55.9
Deferred tax assets
1.0
1.2
Other assets
35.5
33.6
Long-term assets of discontinued
operations
1.2
270.1
Total assets
$3,446.8
$3,231.0
Liabilities and Shareholders'
Equity
Current liabilities:
Accounts payable and accrued expenses
$381.1
$189.8
Accrued contract liabilities
22.9
14.2
Income taxes payable
0.4
1.2
Finance lease liabilities
5.2
3.6
Other current liabilities
38.6
22.2
Current liabilities of discontinued
operations
0.6
60.2
Total current liabilities
448.8
291.2
Long-term liabilities:
Convertible notes, net
823.9
783.8
Deferred tax liabilities
2.5
1.8
Finance lease liabilities - long-term
10.0
11.4
Other long-term liabilities
44.5
43.8
Long-term liabilities of discontinued
operations
0.6
9.8
Total long-term liabilities
881.5
850.6
Shareholders’ equity:
Common stock
0.1
0.1
Additional paid-in-capital
3,676.8
3,106.2
Accumulated other comprehensive income
2.7
16.0
Accumulated deficit
(1,563.1
)
(1,039.2
)
Total shareholders’ equity
2,116.5
2,083.1
Noncontrolling interest from discontinued
operations
—
6.1
Total equity
2,116.5
2,089.2
Total liabilities and shareholders’
equity
$3,446.8
$3,231.0
CREE, INC. CONSOLIDATED
STATEMENTS OF CASH FLOWS (unaudited)
Fiscal years ended
(in millions of U.S. Dollars)
June 27, 2021
June 28, 2020
Operating activities:
Net loss
($522.5
)
($190.6
)
Net (loss) income from discontinued
operations
(181.2
)
7.0
Net loss from continuing operations
(341.3
)
(197.6
)
Adjustments to reconcile net loss from
continuing operations to cash used in operating activities:
Depreciation and amortization
120.9
97.1
Amortization of debt issuance costs and
discount, net of capitalized interest
32.8
26.2
Gain on partial extinguishment of debt
—
(11.0
)
Stock-based compensation
53.2
47.2
Abandonment of long-lived assets
73.9
—
Loss on disposal or impairment of
long-lived assets
5.0
4.5
Amortization of premium/discount on
investments
6.9
1.7
Realized gain on sale of investments
(0.4
)
(1.5
)
Gain on equity investment
(8.3
)
(14.2
)
Foreign exchange gain on equity
investment
(2.2
)
(2.2
)
Deferred income taxes
0.9
(0.5
)
Changes in operating assets and
liabilities:
Accounts receivable, net
(23.5
)
(3.2
)
Inventories
(44.6
)
(8.5
)
Prepaid expenses and other assets
(20.0
)
(3.0
)
Accounts payable, trade
21.7
(7.2
)
Accrued salaries and wages and other
liabilities
15.3
(24.9
)
Accrued contract liabilities
(2.8
)
5.5
Net cash used in operating activities of
continuing operations
(112.5
)
(91.6
)
Net cash (used in) provided by operating
activities of discontinued operations
(13.0
)
62.6
Cash used in operating
activities
(125.5
)
(29.0
)
Investing activities:
Purchases of property and equipment
(570.5
)
(229.9
)
Purchases of patent and licensing
rights
(5.9
)
(4.4
)
Proceeds from sale of property and
equipment, including insurance proceeds
2.3
2.6
Purchases of short-term investments
(475.0
)
(821.4
)
Proceeds from maturities of short-term
investments
428.3
460.6
Proceeds from sale of short-term
investments
51.7
118.0
Reimbursement of property and equipment
purchases from long-term incentive agreement
10.7
—
Proceeds from sale of business, net
43.7
—
Proceeds from sale of long-term
investment
66.4
—
Net cash used in investing activities of
continuing operations
(448.3
)
(474.5
)
Net cash used in investing activities of
discontinued operations
(0.3
)
(12.4
)
Cash used in investing
activities
(448.6
)
(486.9
)
Financing activities:
Proceeds from long-term debt
borrowings
30.0
—
Payments on long-term debt borrowings,
including finance lease obligations
(30.4
)
(145.1
)
Proceeds from issuance of common stock
539.7
76.4
Tax withholding on vested equity
awards
(36.2
)
(16.9
)
Proceeds from convertible notes
—
575.0
Payments of debt issuance costs
—
(13.6
)
Refunds on incentive-related escrow
deposits
1.5
—
Incentive-related refundable escrow
deposits
—
(11.5
)
Commitment fee on long-term incentive
agreement
(0.5
)
—
Cash provided by financing
activities
504.1
464.3
Effects of foreign exchange changes on
cash and cash equivalents
0.2
(0.1
)
Net change in cash and cash
equivalents
(69.8
)
(51.7
)
Cash and cash equivalents, beginning of
period
448.8
500.5
Cash and cash equivalents, end of
period
$379.0
$448.8
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 gross margin, non-GAAP operating (loss) income,
non-GAAP non-operating income (expense), net, non-GAAP net (loss)
income from continuing operations, non-GAAP diluted (loss) earnings
per share from continuing operations 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.
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 Employee Stock
Purchase Program. 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 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.
Abandonment of long-lived assets. In the fourth quarter of
fiscal 2021, Cree modified its long-range plan regarding a portion
of its Durham, North Carolina campus. As a result, Cree decided it
will no longer complete the construction of certain buildings on
the Durham campus. The carrying value of the abandoned assets has
been reduced to an estimated salvage value. Cree does not believe
this expense is reflective of ongoing operating results.
Factory optimization restructuring. In May 2019, the Company
started a significant, multi-year factory optimization plan to be
anchored by a state-of-the-art, automated 200mm silicon carbide
device fabrication facility. In September 2019, the Company
announced the intent to build the new fabrication facility in
Marcy, New York to complement the factory expansion underway at its
U.S. campus headquarters in Durham, North Carolina. As part of the
plan, the Company will incur restructuring costs associated with
the movement of equipment as well as disposals on certain
long-lived assets. Because these charges relate to assets which had
been retired prior to the end of their estimated useful lives, Cree
does not believe these costs are reflective of ongoing operating
results. Similarly, Cree does not consider the realized net losses
on sale of assets relating to the restructuring to be reflective of
ongoing operating results.
Severance and other restructuring. These costs relate to the
Company's realignment of certain resources as part of the Company's
transition to a more focused semiconductor company. Cree does not
believe these costs are reflective of ongoing operating
results.
Project, transformation and transaction costs. The Company has
incurred professional services fees and other costs associated with
completed and potential acquisitions and divestitures, as well as
internal transformation programs focused on optimizing the
Company's administrative processes. Cree excludes these items
because Cree believes they are not reflective of the ongoing
operating results of Cree's business.
Factory optimization start-up costs. As part of the factory
optimization plan, the Company has incurred and will incur start-up
costs. Cree does not believe these costs are reflective of ongoing
operating results. In fiscal 2022, these costs will include an
estimated $80.0 million of start-up and pre-production related
costs associated with the Company ramping production at its new
device fabrication facility in Marcy, New York.
Non-restructuring related executive severance. The Company has
incurred costs in conjunction with the termination of key executive
personnel. Cree excludes these items because Cree believes they
have no direct correlation to the ongoing operating results of
Cree's business.
Transition service agreement costs. As a result of the sale of
the Lighting Products business unit, the Company is providing
certain information technology services under a transition services
agreement which will not be reimbursed. Cree excludes the costs of
these services because Cree believes they are not reflective of the
ongoing operating results of Cree's business.
Net changes in fair value of our ENNOSTAR (formerly Lextar)
investment. In January 2021, Lextar Electronics Corporation
(Lextar) completed its previously announced restructuring under a
holding company named ENNOSTAR Inc. (ENNOSTAR) with EPISTAR
Corporation via a share swap pursuant to which the Company received
0.275 shares of common stock of ENNOSTAR for each of share of
Lextar common stock. The Company's common stock ownership
investment in ENNOSTAR was accounted for utilizing the fair value
option. As such, changes in fair value were 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 ENNOSTAR investment as Cree
does not believe it is reflective of ongoing operating results.
From March 29, 2021 to April 16, 2021, the Company liquidated its
common stock ownership interest in ENNOSTAR.
Interest income on transaction-related note receivable. In
connection with the completed sale of the LED Products business
unit to SGH and its wholly owned acquisition subsidiary CreeLED,
Inc. (CreeLED and collectively with SGH, SMART), the Company
received an unsecured promissory note issued to the Company by SGH
in the amount of $125 million (the Purchase Price Note). Interest
income on the Purchase Price Note is excluded because Cree believes
it is not reflective of the ongoing operating results of Cree's
business.
Gain on partial debt extinguishment. In April 2020, the Company
issued $575 million in convertible notes (the 2026 Notes) and used
a portion of the net proceeds from the offering to repurchase
approximately $150 million of the $575 million of convertible notes
previously issued by the Company in August 2018 (the 2023 Notes).
This repurchase resulted in a gain on extinguishment of convertible
notes. Cree excludes this item because Cree believes it is not
reflective of the ongoing operating results of Cree's business.
Accretion on convertible notes, net of capitalized interest. The
issuance of the Company's convertible senior notes in August 2018
and April 2020 results in interest accretion on the convertible
notes' issue costs and discount. Cree 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 the Company's
past operating performance.
Loss (gain) on arbitration proceedings. In the third quarter of
fiscal 2020, the Company won an arbitration proceeding for which we
were awarded damages for a claim by us against a contract
manufacturer. The arbitration victory resulted in a cash settlement
beyond the legal fees incurred and was recognized as a gain in
other income. Additionally, a small legal settlement was paid in
the fourth quarter of fiscal 2020. Cree excludes these items
because Cree believes it is not reflective of the ongoing operating
results of Cree's business.
Loss on Wafer Supply Agreement. In connection with the completed
sale of the LED Products business unit to SMART, the Company
entered into a Wafer Supply and Fabrication Services Agreement (the
Wafer Supply Agreement), pursuant to which the Company will supply
CreeLED with certain silicon carbide materials and fabrication
services for up to four years. Cree excludes the financial impact
of this agreement because Cree believes it is not reflective of the
ongoing operating results of Cree's business.
Income tax adjustment. This amount reconciles GAAP tax (benefit)
expense to a calculated non-GAAP tax (benefit) expense utilizing a
non-GAAP tax rate. The non-GAAP tax rate estimates an appropriate
tax rate if the listed non-GAAP items were excluded. This
reconciling item adjusts non-GAAP net (loss) income from continuing
operations to the amount it would be if the calculated non-GAAP tax
rate was applied to non-GAAP (loss) income before income taxes.
Cree may incur some 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 from continuing
operations 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 and
strengthen the balance sheet. 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. Reconciliation of
GAAP to Non-GAAP Measures (in millions of U.S. Dollars, except per
share amounts and percentages) (unaudited)
Non-GAAP Gross Margin
Three months ended
Fiscal years ended
June 27, 2021
June 28, 2020
June 27, 2021
June 28, 2020
GAAP gross profit
$43.8
$29.1
$164.6
$158.5
GAAP gross margin percentage
30
%
27
%
31
%
34
%
Adjustments:
Stock-based compensation expense
3.2
2.9
14.4
10.0
Factory optimization restructuring
—
0.5
1.0
0.5
Non-GAAP gross profit
$47.0
$32.5
$180.0
$169.0
Non-GAAP gross margin percentage
32
%
30
%
34
%
36
%
Non-GAAP Operating Loss
Three months ended
Fiscal years ended
June 27, 2021
June 28, 2020
June 27, 2021
June 28, 2020
GAAP operating loss
($132.7
)
($70.5
)
($313.9
)
($224.1
)
GAAP operating loss percentage
(91
)%
(65
)%
(60
)%
(48
)%
Adjustments:
Stock-based compensation expense:
Cost of revenue, net
3.2
2.9
14.4
10.0
Research and development
2.0
2.0
8.7
8.0
Sales, general and administrative
7.7
7.0
30.1
30.8
Total stock-based compensation expense
12.9
11.9
53.2
48.8
Amortization or impairment of
acquisition-related intangibles
3.6
3.6
14.5
14.5
Abandonment of long-lived assets
73.9
—
73.9
—
Factory optimization restructuring
0.9
5.3
8.6
9.0
Severance and other restructuring
—
(0.2
)
3.4
0.6
Project, transformation and transaction
costs
4.0
1.4
10.7
12.2
Factory optimization start-up costs
2.0
4.5
8.0
9.5
Non-restructuring related executive
severance
—
—
2.8
2.1
Transition service agreement costs
—
4.1
5.0
14.8
Total adjustments to GAAP operating
loss
97.3
30.6
180.1
111.5
Non-GAAP operating loss
($35.4
)
($39.9
)
($133.8
)
($112.6
)
Non-GAAP operating loss percentage
(24
)%
(37
)%
(25
)%
(24
)%
Non-GAAP Non-Operating (Expense)
Income, net
Three months ended
Fiscal years ended
June 27, 2021
June 28, 2020
June 27, 2021
June 28, 2020
GAAP non-operating (expense) income,
net
($7.4
)
$26.6
($26.3
)
$18.5
Adjustments:
Net changes in the fair value of ENNOSTAR
(formerly Lextar) investment
0.8
(24.4
)
(10.5
)
(16.4
)
Interest income on transaction-related
note receivable
(1.4
)
—
(1.4
)
—
Gain on partial debt extinguishment
—
(11.0
)
—
(11.0
)
Accretion on convertible notes, net of
capitalized interest
6.7
9.0
32.8
26.2
Loss (gain) on arbitration proceedings
—
0.1
—
(7.9
)
Loss on Wafer Supply Agreement
0.7
—
0.8
—
Non-GAAP non-operating (expense) income,
net
($0.6
)
$0.3
($4.6
)
$9.4
Non-GAAP Net Loss
Three months ended
Fiscal years ended
June 27, 2021
June 28, 2020
June 27, 2021
June 28, 2020
GAAP net loss from continuing
operations
($145.2
)
($44.2
)
($341.3
)
($197.6
)
Adjustments:
Stock-based compensation expense
12.9
11.9
53.2
48.8
Amortization or impairment of
acquisition-related intangibles
3.6
3.6
14.5
14.5
Abandonment of long-lived assets
73.9
—
73.9
—
Factory optimization restructuring
0.9
5.3
8.6
9.0
Severance and other restructuring
—
(0.2
)
3.4
0.6
Project, transformation and transaction
costs
4.0
1.4
10.7
12.2
Factory optimization start-up costs
2.0
4.5
8.0
9.5
Non-restructuring related executive
severance
—
—
2.8
2.1
Transition service agreement costs
—
4.1
5.0
14.8
Net changes in the fair value of ENNOSTAR
(formerly Lextar) investment
0.8
(24.4
)
(10.5
)
(16.4
)
Interest income on transaction-related
note receivable
(1.4
)
—
(1.4
)
—
Gain on partial debt extinguishment
—
(11.0
)
—
(11.0
)
Accretion on convertible notes, net of
capitalized interest
6.7
9.0
32.8
26.2
Loss (gain) on arbitration proceedings
—
0.1
—
(7.9
)
Loss on Wafer Supply Agreement
0.7
—
0.8
—
Total adjustments to GAAP net loss from
continuing operations before provision for income taxes
104.1
4.3
201.8
102.4
Income tax adjustment - benefit
(expense)
14.2
11.0
34.8
18.6
Non-GAAP net loss from continuing
operations
($26.9
)
($28.9
)
($104.7
)
($76.6
)
Non-GAAP earnings per share from
continuing operations
Non-GAAP diluted loss per share from
continuing operations
($0.23
)
($0.27
)
($0.93
)
($0.71
)
Non-GAAP weighted average shares (in
thousands)
115,616
108,585
112,346
107,935
Free Cash Flow
Three months ended
Fiscal years ended
June 27, 2021
June 28, 2020
June 27, 2021
June 28, 2020
Net cash used in operating activities from
continuing operations
($53.6
)
($26.7
)
($112.5
)
($91.6
)
Less: PP&E spending, net of
reimbursements from long-term incentive agreement
(165.8
)
(63.0
)
(559.8
)
(229.9
)
Less: Patents spending
(2.3
)
(1.6
)
(5.9
)
(4.4
)
Total free cash flow
($221.7
)
($91.3
)
($678.2
)
($325.9
)
CREE, INC. Business Outlook
Unaudited GAAP to Non-GAAP Reconciliation
Three Months Ended
(in millions of U.S. Dollars)
September 26, 2021
GAAP net loss outlook range
($82) to ($78)
Adjustments:
Stock-based compensation expense
18
Amortization or impairment of
acquisition-related intangibles
4
Factory optimization restructuring and
start-up costs
14
Accretion on convertible notes, net of
capitalized interest
5
Interest income on transaction-related
note receivable
(2)
Project, transformation, transaction and
transition costs
3
Total adjustments to GAAP net loss before
provision for income taxes
42
Income tax adjustment
11
Non-GAAP net loss outlook range
($29) to ($25)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210817005839/en/
Tyler Gronbach Cree, Inc. Vice President, Investor Relations
Phone: 919-407-4820 investorrelations@cree.com
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