Cree Earnings 2019-12-29

CREE 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Comparables ($MM TTM)
Ticker	M Cap	Assets	Liab	Rev	G Profit	Net Inc	EBITDA	EV	G Margin	EV/EBITDA	ROA
DQ	7,786	855	330	0	0	0	0	7,828			0%
QRVO	7,686	5,926	1,589	3,173	1,253	203	849	8,075	39%	9.5	3%
IPGP	7,138	2,737	370	1,365	691	304	516	6,648	51%	12.9	11%
FSLR	6,900	7,138	2,003	2,484	305	24	66	6,059	12%	92.1	0%
IDTI	6,645	1,378	706	929	557	109	171	6,358	60%	37.2	8%
MLNX	6,377	1,822	359	1,185	771	0	112	5,768	65%	51.7	0%
MPWR	6,041	868	164	606	335	106	130	5,844	55%	45.0	12%
CREE	5,877	2,817	776	1,347	453	-375	-219	4,826	34%	-22.1	-13%
SIMO	5,029	673	140	0	0	0	0	4,722			0%
SLAB	4,962	1,603	552	841	509	32	52	4,773	61%	92.6	2%

cree-20191229

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 29, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-21154

__________________________________________

CREE, INC.

(Exact name of registrant as specified in its charter)

North Carolina

56-1572719

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

4600 Silicon Drive

Durham

North Carolina

27703

(Address of principal executive offices)

(Zip Code)

(919) 407-5300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00125 par value	CREE	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock, par value $0.00125 per share, as of January 24, 2020, was 108,071,430.

Table of Contents

CREE, INC.

FORM 10-Q

For the Quarterly Period Ended December 29, 2019

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Table of Contents

CREE, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS


(in millions of U.S. Dollars, except share data)	December 29, 2019	June 30, 2019
Assets
Current assets:
Cash and cash equivalents	$382.6	$500.5
Short-term investments	568.9	550.9
Total cash, cash equivalents and short-term investments	951.5	1,051.4
Accounts receivable, net	137.2	128.9
Inventories	165.3	187.4
Income taxes receivable	1.1	0.2

Prepaid expenses	24.5	23.3
Other current assets	12.8	19.7
Current assets held for sale	0.2	1.9

Total current assets	1,292.6	1,412.8
Property and equipment, net	692.4	625.2
Goodwill	530.0	530.0
Intangible assets, net	187.7	197.9
Other long-term investments	50.7	39.5
Deferred tax assets	6.0	5.6

Other assets	23.4	5.9
Total assets	$2,782.8	$2,816.9

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$176.7	$200.9

Income taxes payable	2.4	3.0
Accrued contract liabilities	44.4	45.8
Other current liabilities	25.0	18.5

Total current liabilities	248.5	268.2
Long-term liabilities:

Convertible notes, net	480.5	469.1
Deferred tax liabilities	—	2.0
Other long-term liabilities	57.3	36.4

Total long-term liabilities	537.8	507.5
Commitments and contingencies
Shareholders’ equity:
Preferred stock, par value $0.01; 3,000 shares authorized at December 29, 2019 and June 30, 2019; none issued and outstanding	—	—
Common stock, par value $0.00125; 200,000 shares authorized at December 29, 2019 and June 30, 2019; 108,031 and 106,570 shares issued and outstanding at December 29, 2019 and June 30, 2019, respectively	0.1	0.1
Additional paid-in-capital	2,919.5	2,874.1
Accumulated other comprehensive income	9.7	9.5
Accumulated deficit	(938.1)	(847.5)
Total shareholders’ equity	1,991.2	2,036.2
Non-controlling interest	5.3	5.0
Total equity	1,996.5	2,041.2
Total liabilities and shareholders’ equity	$2,782.8	$2,816.9

The accompanying notes are an integral part of the consolidated financial statements

Table of Contents

CREE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three months ended			Six months ended
	December 29, 2019	December 30, 2018	December 29, 2019	December 30, 2018
(in millions of U.S. Dollars, except share data)
Revenue, net	$239.9	$280.5	$482.7	$554.7
Cost of revenue, net	178.0	177.0	346.6	352.9
Gross profit	61.9	103.5	136.1	201.8
Operating expenses:
Research and development	47.3	40.2	91.0	76.5
Sales, general and administrative	52.8	49.2	110.4	93.1
Amortization or impairment of acquisition-related intangibles	3.6	3.9	7.2	7.8
Loss on disposal or impairment of other assets	0.8	—	1.8	0.4


Other operating expense	13.8	0.2	21.0	3.2

Operating (loss) income	(56.4)	10.0	(95.3)	20.8
Non-operating (income) expense, net	(5.1)	5.6	(6.7)	15.3
(Loss) income before income taxes	(51.3)	4.4	(88.6)	5.5
Income tax expense	1.2	4.6	1.7	6.5
Net loss from continuing operations	(52.5)	(0.2)	(90.3)	(1.0)
Net loss from discontinued operations	—	(2.3)	—	(12.6)
Net loss	(52.5)	(2.5)	(90.3)	(13.6)
Net income attributable to noncontrolling interest	0.3	—	0.3	—
Net loss attributable to controlling interest	($52.8)	($2.5)	($90.6)	($13.6)

Basic and diluted loss per share
Continuing operations attributable to controlling interest	($0.49)	$—	($0.84)	($0.01)

Net loss attributable to controlling interest	($0.49)	($0.02)	($0.84)	($0.13)






Weighted average shares - basic and diluted (in thousands)	107,925	102,871	107,519	102,396

The accompanying notes are an integral part of the consolidated financial statements

Table of Contents

CREE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


	Three months ended			Six months ended
(in millions of U.S. Dollars)	December 29, 2019	December 30, 2018	December 29, 2019	December 30, 2018
Net loss	($52.5)	($2.5)	($90.3)	($13.6)
Other comprehensive loss:
Currency translation loss	—	(0.9)	—	(0.5)
Net unrealized (loss) gain on available-for-sale securities	(0.3)	1.1	0.2	0.8

Comprehensive loss	(52.8)	(2.3)	(90.1)	(13.3)
Net income attributable to non-controlling interest	0.3	—	0.3	—
Comprehensive loss attributable to controlling interest	($53.1)	($2.3)	($90.4)	($13.3)

The accompanying notes are an integral part of the consolidated financial statements

Table of Contents

CREE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


	Common Stock			Additional Paid-in Capital	Accumulated Deficit	Accumulated Other Comprehensive Income	Total Equity - Controlled Interest	Non-controlling Interest	Total Equity
(in millions of U.S Dollars, except share data)	Number of Shares	Par Value
Balance at June 30, 2019	106,570	$0.1	$2,874.1	($847.5)	$9.5	$2,036.2	$5.0	$2,041.2
Net loss	—	—	—	(37.8)	—	(37.8)	—	(37.8)

Unrealized gain on available-for-sale securities	—	—	—	—	0.5	0.5	—	0.5
Comprehensive loss						(37.3)	—	(37.3)
Tax withholding on vested equity awards	—	—	(14.3)	—	—	(14.3)	—	(14.3)

Stock-based compensation	—	—	17.4	—	—	17.4	—	17.4
Exercise of stock options and issuance of shares	1,127	—	18.6	—	—	18.6	—	18.6



Balance at September 29, 2019	107,697	$0.1	$2,895.8	($885.3)	$10.0	$2,020.6	$5.0	$2,025.6
Net (loss) income	—	—	—	(52.8)	—	(52.8)	0.3	(52.5)

Unrealized loss on available-for-sale securities	—	—	—	—	(0.3)	(0.3)	—	(0.3)
Comprehensive (loss) income						(53.1)	0.3	(52.8)
Tax withholding on vested equity awards	—	—	(0.4)	—	—	(0.4)	—	(0.4)

Stock-based compensation	—	—	13.4	—	—	13.4	—	13.4
Exercise of stock options and issuance of shares	334	—	10.7	—	—	10.7	—	10.7



Balance at December 29, 2019	108,031	$0.1	$2,919.5	($938.1)	$9.7	$1,991.2	$5.3	$1,996.5

The accompanying notes are an integral part of the consolidated financial statements

Table of Contents

CREE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


	Common Stock			Additional Paid-in Capital	Accumulated Deficit	Accumulated Other Comprehensive Income	Total Equity - Controlled Interest	Non-controlling Interest	Total Equity
(in millions of U.S. Dollars, except share data)	Number of Shares	Par Value
Balance at June 24, 2018	101,488	$0.1	$2,549.1	($482.7)	$0.6	$2,067.1	$5.0	$2,072.1
Net loss	—	—	—	(11.1)	—	(11.1)	—	(11.1)
Currency translation gain	—	—	—	—	0.3	0.3	—	0.3
Unrealized loss on available-for-sale securities	—	—	—	—	(0.3)	(0.3)	—	(0.3)
Comprehensive loss						(11.1)	—	(11.1)
Tax withholding on vested equity awards	—	—	(10.8)	—	—	(10.8)	—	(10.8)

Stock-based compensation	—	—	12.1	—	—	12.1	—	12.1
Exercise of stock options and issuance of shares	1,032	—	15.5	—	—	15.5	—	15.5
Convertible note issuance	—	—	110.6	—	—	110.6	—	110.6
Adoption of ASC 606	—	—	—	10.3	—	10.3	—	10.3

Balance at September 23, 2018	102,520	$0.1	$2,676.5	($483.5)	$0.6	$2,193.7	$5.0	$2,198.7
Net loss	—	—	—	(2.5)	—	(2.5)	—	(2.5)
Currency translation loss	—	—	—	—	(0.9)	(0.9)	—	(0.9)
Unrealized gain on available-for-sale securities	—	—	—	—	1.1	1.1	—	1.1
Comprehensive loss						(2.3)	—	(2.3)
Tax withholding on vested equity awards	—	—	(1.1)	—	—	(1.1)	—	(1.1)
Repurchased shares	—	—	—	—	—	—	—	—
Stock-based compensation	—	—	13.6	—	—	13.6	—	13.6
Exercise of stock options and issuance of shares	553	—	14.6	—	—	14.6	—	14.6



Balance at December 30, 2018	103,073	$0.1	$2,703.6	($486.0)	$0.8	$2,218.5	$5.0	$2,223.5

The accompanying notes are an integral part of the consolidated financial statements

Table of Contents

CREE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six months ended
(in millions of U.S. Dollars)	December 29, 2019	December 30, 2018
Operating activities:
Net loss from continuing operations	($90.3)	($1.0)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	59.3	60.9
Amortization of debt issuance costs and discount	11.4	7.2
Stock-based compensation	29.9	21.0





Loss on disposal or impairment of long-lived assets	1.8	0.7
Amortization of premium/discount on investments	0.1	1.6
(Gain)/loss on equity investment	(9.9)	8.6
Foreign exchange (gain) loss on equity investment	(1.3)	0.5
Deferred income taxes	(2.4)	(4.6)
Changes in operating assets and liabilities:
Accounts receivable, net	(8.2)	(0.3)
Inventories	23.0	(18.7)
Prepaid expenses and other assets	7.8	2.3
Accounts payable, trade	(14.5)	0.5
Accrued salaries and wages and other liabilities	(26.9)	11.9
Accrued contract liabilities	8.4	19.2
Net cash (used in) provided by operating activities of continuing operations	(11.8)	109.8
Net cash provided by operating activities of discontinued operations	—	17.9
Cash (used in) provided by operating activities	(11.8)	127.7
Investing activities:
Purchases of property and equipment	(101.0)	(63.2)
Purchases of patent and licensing rights	(3.3)	(3.8)
Proceeds from sale of property and equipment	1.7	0.2
Purchases of short-term investments	(295.3)	(210.7)
Proceeds from maturities of short-term investments	212.6	83.8
Proceeds from sale of short-term investments	64.8	26.7



Net cash used in investing activities of continuing operations	(120.5)	(167.0)
Net cash used in investing activities of discontinued operations	—	(11.8)
Cash used in investing activities	(120.5)	(178.8)
Financing activities:


Proceeds from long-term debt borrowings

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$0.00	107	$5,877

10-Q	2020-01-30	Quarter: 2019-12-29
10-Q	2019-10-31	Quarter: 2019-09-29
10-K	2019-08-21	Annual: 2019-06-30
10-Q	2019-05-03	Quarter: 2019-03-31
10-Q	2019-01-31	Quarter: 2018-12-30
10-Q	2018-10-17	Quarter: 2018-09-23
10-K	2018-08-20	Annual: 2018-06-24
10-Q	2018-04-25	Quarter: 2018-03-25
10-Q	2018-01-24	Quarter: 2017-12-24
10-Q	2017-10-18	Quarter: 2017-09-24
10-K	2017-08-23	Annual: 2017-06-25
10-Q	2017-04-26	Quarter: 2017-03-26
10-Q	2017-01-25	Quarter: 2016-12-25
10-Q	2016-10-19	Quarter: 2016-09-25
10-K	2016-08-25	Annual: 2016-06-26
10-Q	2016-04-27	Quarter: 2016-03-27
10-Q	2016-01-20	Quarter: 2015-12-27
10-Q	2015-10-21	Quarter: 2015-09-27
10-K	2015-08-27	Annual: 2015-06-28
10-Q	2015-04-22	Quarter: 2015-03-29
10-Q	2015-01-21	Quarter: 2014-12-28
10-Q	2014-10-22	Quarter: 2014-09-28
10-K	2014-08-27	Annual: 2014-06-29
10-Q	2014-04-23	Quarter: 2014-03-30
10-Q	2014-01-22	Quarter: 2013-12-29
10-Q	2013-10-23	Quarter: 2013-09-29
10-K	2013-08-28	Annual: 2013-06-30
10-Q	2013-01-23	Quarter: 2012-12-30
10-Q	2012-10-17	Quarter: 2012-09-23
10-K	2012-08-21	Annual: 2012-06-24
10-Q	2012-04-18	Quarter: 2012-03-25
10-Q	2012-01-19	Quarter: 2011-12-25
10-Q	2011-10-20	Quarter: 2011-09-25
10-K	2011-08-17	Annual: 2011-06-26
10-Q	2011-04-20	Quarter: 2011-03-27
10-Q	2011-01-19	Quarter: 2010-12-26
10-Q	2010-10-21	Quarter: 2010-09-26
10-K	2010-08-18	Annual: 2010-06-27
10-Q	2010-04-21	Quarter: 2010-03-28
10-Q	2010-01-20	Quarter: 2009-12-27

8-K	2020-01-29	Earnings, Exhibits
8-K	2020-01-27	Officers, Exhibits
8-K	2019-12-16	Enter Agreement, Exhibits
8-K	2019-11-20	Regulation FD, Exhibits
8-K	2019-10-30	Earnings, Exhibits
8-K	2019-10-28	Shareholder Vote
8-K	2019-08-26	Officers, Exhibits
8-K	2019-08-20	Earnings, Exhibits
8-K	2019-06-11	Regulation FD, Exhibits
8-K	2019-05-13	M&A, Regulation FD, Exhibits
8-K	2019-05-01	Earnings, Exhibits
8-K	2019-03-14	Enter Agreement, Regulation FD, Exhibits
8-K	2019-01-30	Earnings, Exhibits
8-K	2018-12-10	Officers
8-K	2018-10-22	Shareholder Vote
8-K	2018-10-16	Earnings, Exhibits
8-K	2018-08-24	Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K	2018-08-21	Enter Agreement, Off-BS Arrangement, Enter Agreement, Other Events, Exhibits
8-K	2018-08-20	Other Events, Exhibits
8-K	2018-08-20	Officers, Exhibits
8-K	2018-08-14	Earnings, Exhibits
8-K	2018-07-23	Officers, Regulation FD, Exhibits
8-K	2018-06-05	Officers, Regulation FD, Exhibits
8-K	2018-04-30	Officers, Exhibits
8-K	2018-04-24	Earnings, Exhibits
8-K	2018-03-13	Officers
8-K	2018-03-06	Regulation FD, Exhibits
8-K	2018-03-06	Regulation FD, Exhibits
8-K	2018-02-26	Regulation FD, Exhibits
8-K	2018-01-23	Earnings, Exhibits

EX-31.1	cree12292019ex311.htm
EX-31.2	cree12292019ex312.htm
EX-32.1	cree12292019ex321.htm
EX-32.2	cree12292019ex322.htm


Part I. Financial Information
	Item 1. Financial Statements (Unaudited)	3






	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	42
	Item 4. Controls and Procedures	42
Part II. Other Information
	Item 1. Legal Proceedings	43
	Item 1A. Risk Factors	44
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	57
	Item 3. Defaults Upon Senior Securities	57
	Item 4. Mine Safety Disclosures	57
	Item 5. Other Information	57
	Item 6. Exhibits	58


Consolidated Balance Sheets as of December 29, 2019 and June 30, 2019			4
Consolidated Statements of Operations for the three and six months ended December 29, 2019 and December 30 , 2018			5
Consolidated Statements of Comprehensive Loss for the three and six months ended December 29, 2019 and December 30 , 2018			6
Consolidated Statement of Shareholders' Equity for the six months ended December 29, 2019 and December 30 , 2018			7
Consolidated Statements of Cash Flows for the s ix months ended December 29, 2019 and December 30 , 2018			9
Notes to Unaudited Consolidated Financial Statements			10