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Cree, Inc. F4Q10 (Qtr End 06/27/10) Earnings Call Transcript

Cree, Inc. F4Q10 (Qtr End 06/27/10) Earnings Call Transcript

Cree, Inc. (CREE)

F4Q10 (Qtr End 06/27/10) Earnings Call Transcript

August 10, 2010 5:00 pm ET


Raiford Garrabrant – Director, IR

Chuck Swoboda – Chairman and CEO

John Kurtzweil – CFO, EVP of Finance and Treasurer


Steven Milunovich – Merrill Lynch

Christopher Blansett – JP Morgan

Stephen Chin – UBS

Dale Pfau – Cantor Fitzgerald

Amar Zaman – Piper Jaffray

Andrew Young [ph] – Carnegie

Harsh Kumar – Morgan Keegan

Lauren Stoller – Lazard Capital Markets

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Jed Dorsheimer – Canaccord

Bill Ong – Merriman & Co.

Alex Gauna – JMP Securities

Carter Shoop – Deutsche Bank

Jiwon Lee – Sidoti & Co.



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» Cree, Inc. F1Q10 (Qtr End 09/27/09) Earnings Call Transcript
» Cree, Inc. Q409 (Qtr End 06/28/2009) Earnings Call Transcript

Good afternoon. My name is Amanda, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Cree Incorporated’s fourth quarter 2010 fiscal year end financial results conference call. (Operator instructions) I will now turn the call over to the Director of Investor Relations, Mr. Raiford Garrabrant.

Raiford Garrabrant

Thank you, Amanda, and good afternoon. Welcome to Cree’s fourth quarter fiscal 2010 earnings conference call. By now you should have all received a copy of the press release. If you did not receive a copy, please call our office at 919-287-7895 and we will be pleased to assist you.

Today, Chuck Swoboda, our Chairman and CEO, and John Kurtzweil, Cree CFO will report on our results for the fourth quarter of fiscal year 2010. Please note that we will be presenting both GAAP and non-GAAP financial results in our remarks during today’s call, which are reconciled in our press release and under financial metrics posted in the investor relations section of our website at under FY 2010 financial metrics.

Today’s presentations include forward-looking statements about our business outlook and we may make other forward-looking statements during the call. These may include comments concerning trends in revenue, gross margin and earnings, plans for new products and other forward-looking statements indicated by words like anticipate, expect, target and estimate.

Such forward-looking statements are subject to numerous risks and uncertainties. Our press release today and the SEC filings noted in the release mention important factors that could cause actual results to differ materially. Also, we’d like to note that we’ll be limiting our comments regarding Cree’s fourth quarter for fiscal year 2010 to a discussion of the information included in our earnings release and the metrics posted on our website. We will not be able to answer any questions that would involve providing additional financial information about the quarter beyond the comments made in the prepared remarks.

This call is being recorded on behalf of the company. The presentations and the recording of this call are copyrighted property of the company, and no other recording, reproduction or transcription is permitted unless authorized by the company in writing. Consistent with our previous conference calls, we are requesting that only sell side analysts ask questions during the Q&A session.

Also since we plan to complete the call in the allotted time of one hour, we recognize that other investors may have additional questions, and we welcome you to contact us after the call by email or phone at 919-287-7895. We are also web casting our conference call and a replay will be available on our website through August 24, 2010.

Now I’d like to turn the call over the Chuck.

Chuck Swo


Thank you, Raiford. Fiscal 2010 was a record year for Cree as the LED lighting revolution gained momentum. Revenue increased 53% to $867 million, while non-GAAP earnings increased 203% to $179 million or $1.71 per diluted share. For fiscal Q4 revenue increased 13% from Q3 to a record $265 million and non-GAAP net income increased 17% sequentially to a record $60 million or $0.55 per diluted share. Revenue was such at the high-end of our target range while profits exceeded our targets for the quarter due to strong gross margins, and favorable end of year tax adjustments. They were partially offset by the New Mark [ph] patent litigation settlement.

The revenue growth in Q4 was driven primarily by strong growth in XLamp LED components sales for outdoor lighting and LED bulb applications, incremental growth in LED lighting products for indoor commercial applications, and incremental growth in power sales for solar inverter applications. Non-GAAP gross margin was 50% in Q4, which was on the high-end of our target range for the quarter of 48% plus or minus. The gross margin was driven by several factors, continued strong execution in our factory ramp and the benefit of higher volume and scale, better than forecast cost reductions due to higher yields, and continued improvement in our power and RF product line.

Cash and investments increased to nearly $1.1 billion. We remain in the strong position to continue to invest in our business and lead the adoption of LED lighting. We made good progress building momentum in our business, and delivering on our four key objectives for fiscal 2010. We grew the LED lighting components business more than 100% year-over-year. We further established our leadership in LED lighting and disrupted the market with customer wins like Wal-Mart, we turned power and RF into a profitable and growing product line and we increased non-GAAP operating profit 244% from fiscal 2009.

We have a solid order book for Q1 and are tracking ahead of last quarter’s order level. Demand for lighting related products is targeted to grow double digits sequentially, driven by the US and Asia, while European demand is seasonally slow. LED chip demand is slow due to weakness in consumer related backlighting applications. We see this as a short-term correction and still believe the long-term trend to LED backlit TVs will continue.

The capacity investments made in fiscal ’10 are allowing us to reduce LED lead times to more normal levels and pursue more near-term opportunities more aggressively. Sales through our distribution partners continued to grow and channel inventories are at target levels in terms of days on hand.

I will now turn the call over to John Kurtzweil to review our fourth quarter and year-end financial results in more detail, as well as our targets for the first quarter of fiscal 2011.

John Kurtzweil

Thank you, Chuck. I will be providing commentary on our financial statements on both a GAAP and non-GAAP basis, which is consistent with how management measures Cree’s results internally. However, non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies.

Non-GAAP information should be considered a supplement to and not a substitute for financial statements prepared in accordance with GAAP. A reconciliation of the non-GAAP information for all quarters mentioned on this call is posted on our website as well as a historical summary of other key metrics.

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