Filing summary
Entity and period: The supplied filing is Cree, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2013, not a Wolfspeed filing or a 2012 third-quarter report. Cree reported three- and nine-month results against periods ended March 25, 2012; the nine-month 2013 period included one additional week.
Business context and results
Cree develops and sells LED components and materials, lighting products, and power and RF semiconductors. Results below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
| Metric | Three months ended Mar. 31, 2013 | Three months ended Mar. 25, 2012 | Nine months ended Mar. 31, 2013 | Nine months ended Mar. 25, 2012 |
|---|---|---|---|---|
| Revenue | $348.9 | $284.8 | $1,011.0 | $857.9 |
| Gross profit / margin | $133.0 / 38.1% | $99.4 / 34.9% | $382.5 / 37.8% | $302.6 / 35.3% |
| Operating income | $23.3 | $5.0 | $65.6 | $30.6 |
| Net income | $22.2 | $9.5 | $58.7 | $34.4 |
| Diluted EPS | $0.19 | $0.08 | $0.50 | $0.30 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $224.1 | $170.6 |
Quarterly revenue rose 23% year over year and nine-month revenue rose 18%. Revenue growth came from all three segments, led by Lighting Products. In the quarter, LED Products revenue was $195.6 million (+8%), Lighting Products $130.7 million (+51%), and Power and RF Products $22.7 million (+31%). Nine-month growth in Lighting Products also reflected a full first quarter of Ruud Lighting sales in fiscal 2013, whereas the prior-year period included only part of the post-acquisition period.
Margins improved across all segments. Management attributed the improvement mainly to factory cost reductions, higher utilization, and lower-cost new products, which more than offset selling-price declines. Operating expenses increased: nine-month R&D was $116.5 million (+9%) and SG&A was $174.9 million (+21%), including increased sales and marketing investment for lighting and added personnel.
Financial position, cash flow, and liquidity
At March 31, 2013, cash, cash equivalents, and short-term investments totaled $937.1 million, up from $744.5 million at June 24, 2012. Working capital was $1.201 billion. Current assets were $1.400 billion and current liabilities $198.6 million. The company reported no debt or active credit lines.
For the nine months, operating cash flow was $224.1 million; investing cash outflow was $271.0 million, including $55.4 million of property and equipment purchases and $15.8 million for patent and licensing rights; financing cash inflow was $46.4 million, primarily from employee stock issuances and related tax benefits. Cash and cash equivalents ended at $178.4 million, compared with $178.9 million at June 24, 2012. Inventory increased to $195.7 million from $188.8 million. Management said liquidity and expected cash generation should meet needs for at least the next 12 months.
Outlook, risks, and unusual items
No numerical revenue or earnings guidance is provided in the supplied text. Management expected highly competitive markets during fiscal 2013 and highlighted priorities to accelerate LED lighting adoption, expand LED component sales through innovation, develop power and RF applications, and improve costs and profitability. Capital expenditures were targeted to be slightly below fiscal 2012 levels.
Notable items include a one-time payment in the first quarter of fiscal 2013 related to the SemiLEDs patent-litigation settlement, contributing to higher nine-month other non-operating income. The retroactive reinstatement of the U.S. R&D tax credit affected the third-quarter tax provision; the nine-month effective tax rate was 20.7%, versus 8.1% in the prior-year period. The company also began using a foreign-currency forward contract during the quarter; none was outstanding at quarter-end.
Key risks include LED price competition and uncertain general-lighting adoption, customer and distributor concentration, supply constraints and manufacturing yield/capacity execution, product quality and warranty exposure, international and foreign-exchange risks, and intellectual-property litigation. Cree filed a new patent infringement complaint against Cooper Lighting and was named in a new patent complaint filed by Lighting Science Group after quarter-end. The filing says potential losses for claims against the company generally were not reasonably estimable. Warranty liabilities were $7.1 million at quarter-end.
Important facts for investors to verify
- Confirm the intended issuer and reporting period: the source is Cree, Inc., fiscal Q3 2013, not Wolfspeed, Inc. or 2012 Q3.
- Assess how much reported growth reflects underlying demand versus the Ruud Lighting acquisition and the extra week in the nine-month comparison.
- Track LED selling-price declines against cost reductions, utilization, and segment margin trends.
- Review the investment portfolio’s credit and interest-rate exposure, and the timing and outcome of tax audits and the $4.4 million unrecognized tax-benefit liability.
- Monitor pending patent litigation, warranty claims, and execution of manufacturing expansion and capacity plans.