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Cree Reports Financial Results for the Third Quarter of Fiscal Year 2016

DURHAM, N.C., Apr 26, 2016 (BUSINESS WIRE) -- Cree, Inc. CREE, -2.85% a market leader in LED lighting, today announced revenue of $367 million for its third quarter of fiscal 2016, ended March 27, 2016. This compares to revenue of $410 million reported for the third quarter of fiscal 2015, and $436 million reported for the second quarter of fiscal 2016. GAAP net income for the third quarter of fiscal 2016 was $152 thousand, or $0.00 per diluted share, compared to GAAP net income of $476 thousand, or $0.00 per diluted share, for the third quarter of fiscal 2015. On a non-GAAP basis, net income for the third quarter of fiscal 2016 was $17 million, or $0.17 per diluted share, compared to non-GAAP net income for the third quarter of fiscal 2015 of $25 million, or $0.22 per diluted share.

“Q3 operating results were in-line with the preliminary estimates we provided on April 5th,” stated Chuck Swoboda, Cree Chairman and CEO. “I believe we’ve addressed the root causes that led to our recent business challenges. We improved customer responsiveness in March, and we’re optimistic that this, combined with new product momentum, will drive sequential growth in fiscal Q4.”

Q3 2016 Financial Metrics

(in thousands, except per share amounts and percentages)

Third Quarter
2016 2015* Change
(unaudited) (unaudited)
Revenue, net $ 366,919 $ 409,519 $ (42,600 ) (10 )%
GAAP
Gross margin 29.7 % 30.6 %
Operating margin (1.2 )% 0.3 %
Net income (loss) $ 152 $ 476 $ (324 ) (68 )%
Earnings (loss) per diluted share $ $ $
Non-GAAP
Gross margin 30.6 % 31.3 %
Operating margin 4.5 % 6.3 %
Net income $ 16,943 $ 24,727 $ (7,784 ) (31 )%
Earnings per diluted share $ 0.17 $ 0.22 $ (0.05 ) (23 )%

* As revised to reflect the correction of an immaterial error. For additional information, see the Company’s

Form 10-Q for the quarterly period ended March 27, 2016 to be filed with the Securities and Exchange Commission

on April 27, 2016.

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  • Gross margin decreased from 30.8% in Q2 of fiscal 2016 to 29.7% on a GAAP basis and decreased from 31.6% to 30.6% on a non-GAAP basis.
  • Cash and investments increased by $3 million from Q2 of fiscal 2016 to $620 million.
  • Accounts receivable, net decreased by $4 million from Q2 of fiscal 2016 to $179 million, with days sales outstanding of 44.
  • Inventory increased by $18 million from Q2 of fiscal 2016 to $298 million and represents 104 days of inventory.
  • Cash from operations was $15 million, free cash flow was $(6) million and share repurchases were $18 million for Q3 of fiscal 2016.

Recent Business Highlights:

  • Expanded our lighting product portfolio with the introduction of Essentia [®] by Cree, a new brand of commercial lighting products that offer a broad range of high quality lighting solutions at a great value;
  • Introduced the Cree [®] RSW [TM] LED Street Luminaire, the first of a generation of streetlights that deliver LED energy savings and reliability in a warm color temperature that is preferred in many residential applications;
  • Announced SmartCast [®] Power over Ethernet (PoE), an intuitively simple, scalable and open platform that enables the Internet of Things (IoT) for buildings through better light, and SmartCast [®] Manager, innovative software that unlocks the potential of better LED technology as the engine of limitless applications beyond light;
  • Released the next generation of the XLamp [®] XP-G platform, the XLamp XP-G3 LED, which delivers 31 percent more lumens than our prior generation, as well as improved lumen density, voltage characteristics and reliability;
  • Announced TrueWhitePlus [TM] Technology, a spectral control breakthrough that sets a new standard for what is possible with LED light;
  • Introduced two new XLamp CXA2 high density LED arrays that double lumen output and deliver the highest lumen density in the industry for their LES (light emitting surface) size;
  • Announced an agreement with Pilot Flying J, the largest operator of travel centers in North America, to install indoor and outdoor LED lighting at select locations.

Business Outlook:

For its fourth quarter of fiscal 2016 ending June 26, 2016, Cree targets revenue in a range of $370 million to $395 million, with GAAP gross margin targeted to be 30.7%+/- and non-GAAP gross margin targeted to be 31.5%+/-. Our GAAP gross margin targets include stock-based compensation expense of approximately $3 million, while our non-GAAP targets do not. GAAP operating expenses are targeted to be approximately $117 million, and non-GAAP operating expenses are targeted to be approximately $98 million. The GAAP tax rate is targeted at 19%+/- and the non-GAAP tax rate is targeted at 16.0%+/- for the fourth quarter of fiscal 2016. GAAP net (loss) income is targeted at $(3) million to $3 million, or $(0.03) to $0.03 per diluted share, excluding any net changes associated with Cree’s Lextar investment. Non-GAAP net income is targeted in a range of $16 million to $22 million, or $0.16 to $0.22 per diluted share. The GAAP and non-GAAP per diluted share targets are based on an estimated 101 million diluted weighted average shares. Targeted non-GAAP earnings exclude $0.19 per diluted share of expenses related to stock-based compensation expense, the amortization or impairment of acquisition-related intangibles and any net changes associated with Cree’s Lextar investment.

Quarterly Conference Call:

Cree will host a conference call at 5:00 p.m. EST today to review the highlights of the fiscal 2016 third quarter results and the fiscal 2016 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 a market-leading innovator of lighting-class LEDs, lighting products and semiconductor products for power and radio frequency (RF) applications. Cree believes in better light experiences and is delivering new innovative LED technology that transforms the way people experience light through high-quality, interior and exterior LED lighting solutions.

Cree’s product families include LED lighting systems and bulbs, blue and green LED chips, high-brightness LEDs, lighting-class power LEDs, power-switching devices and RF devices. Cree’s 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 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 in the forward-looking statements. 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; 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 commercial Lighting results will continue to suffer if new issues arise regarding the new ERP system we implemented in the third quarter of fiscal 2016 for this business; 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; 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 retail customers may alter promotional pricing, increase promotion of a competitor's products over our products or reduce their inventory levels, all of which could negatively affect product demand; the risk that our equity method investments may experience periods of significant stock price volatility causing us to recognize fair value losses on our investment; the risk that we have an increasingly complex supply chain and its ability to scale to enable maintaining a sufficient supply of raw materials; 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...


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