DURHAM, N.C.–(BUSINESS WIRE)–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 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.

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.

Contacts

Tyler Gronbach
Cree, Inc.
Vice President, Investor Relations
Phone:
919-407-4820
[email protected]

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