Good day, ladi es and gentlemen. And welcome to the Cree's Fourth Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode [Operator Instructions]. Later, we will conduct the question-and-answer session and instructions will follow at that time. As a reminder, today's conference is being recorded. I'd now like to introduce your host for today's conference, Mr. Raiford Garrabrant, Director of Investor Relations. Sir, please go ahead.

Thank you, Liz, and good afternoon. Welcome to Cree’s fourth quarter fiscal 2018 conference call. Today, Gregg Lowe, our CEO and Mike McDevitt, our CFO, will report on our results for the fourth quarter of fiscal year 2018. Please note that we will be presenting non-GAAP financial results during today’s call. And reconciliation to the corresponding GAAP measures is in our press release and posted in the Investor Relations section of our Web site. Today’s presentations include forward-looking statements about our business outlook, and we may make other forward-looking statements during the call. 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. During the Q&A session, we ask that analysts limit themselves to one question and one follow up so that each participant has the opportunity to ask a question within our allotted time of one hour. If you have additional questions, please contact us after the call. Now, I’d like to turn the call over to Gregg.

Thanks, Raiford and good afternoon, everyone. For today's call, I'll briefly discuss our financial results, after which Mike will provide more detail regarding Q4 and our Q1 outlook. After that, I'll provide an update on how each business is performing along with some highlights from the quarter. Fiscal year 2018 finished with good momentum with fourth quarter non-GAAP earnings per share that exceeded the top-end of our range, driven by Wolfspeed growth and gross margin improvement. The demand for silicon carbide and GaN technologies continues to grow as evidenced by the excellent results of our Wolfspeed business. We are expanding our manufacturing footprint and broadening our product portfolio to extend our leadership position in this market and drive growth. I’ll now turn it over to Mike to provide more details on the quarterly results and the outlook for next quarter.

Thank you. Gregg. I’ll be providing commentary on our financial statements on a 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 to the corresponding GAAP measures for all periods mentioned on this call is posted on our Website or provided in our press release along with a historical summary of other key metrics. For fiscal 2018, revenue was $1.5 billion and non-GAAP earnings were $19 million or $0.19 per share. Non-GAAP earnings were above first call consensus estimates due to our strong Q4 performance. Non-GAAP earnings excluded $300 million of expense net of tax or $3 per share from the lighting segment goodwill impairment charge in Q3; non-cash stock-based compensation; acquired intangibles amortization; the Infineon RF Power acquisition transaction and integration costs; and our lighting segment rightsizing costs and other items that are outlined in our earnings press release. Fiscal 2018 revenue and non-GAAP gross profit for our reportable segments were as follows. Wolfspeed revenue grew 49% year-over-year to $329 million and gross profit was $158 million for 48.2% gross margin, which is a 140 basis points increase year-over-year. Organic growth was 35% year-over-year with strong growth in materials and devices. The additional growth was related to the RF Power acquisition, which is included in our segment results for the last four months of the year. Gross Profit grew in all product lines due to higher overall sales and gross margins increased due primarily to changes in product mix and successfully managing our factory execution, while we were significantly…

Thanks Mike. In addition to the strong financial results we delivered for the quarter, excellent progress was made in other areas. We completed the successful integration of the Infineon RF Power business and delivered accretive non-GAAP results for the quarter. That was less than three months after closing the acquisition, a remarkable timeline for such a large integration tat comprised of 12 sites and roughly 260 employees around the world. Turning to the businesses, Wolfspeed, which is our primary growth driver, continued to deliver on its objective of achieving high growth and strong gross margins. Q4 revenues increased 81% year-on-year, which included the first full quarter of the Infineon RF Power business with organic revenues increasing around 40% year-on-year. Goss margins increased 240 basis points year-on-year as we successfully managed the normal challenges associated with ramping new capacity and integrating the acquired business. With the additional growth targeted for Q1, Wolfspeed’s annual revenue run rate is now $0.5 billion. In early June, I have the pleasure of attending PCIM, the power electronics trade show and was struck by the number of companies promoting silicon carbide products. Hardly a booth was present that didn't have something pertaining to silicon carbide on display. Based on what I saw by walking the floor and meeting with customers. I believe the transition to silicon carbide continues to accelerate in the power electronics market. And Cree has been a pioneer and the leader in commercializing silicon carbide products. At the show, we introduced a third generation 1200-volt silicon carbide MOSFET family that will help foster the adoption of electric vehicles by delivering higher efficiency to increase the driving range and reduce system costs. We also recently announced the E-Series, the first commercial family of silicon carbide MOSFETs and diodes to be automotive AEC-2101 and PFAB…

[Operator Instructions] Our first question comes from the line of Hilary Cauley with JMP Securities. Your line is now open.

The first one was just on the side of the LED and Wolfspeed being under one umbrella now. And if you guys could outline further efficiencies we might see there, or furthermore as Wolfspeed picks up speed if we might see some of that capacity switchover to Wolfspeed side and away from LED?

Certainly, having them both under the same umbrella is a huge benefit for us across multiple different areas. One is the manufacturing assets are together under one leader, Rick McFarland is doing that. And we’re able to now leverage things that we’re learning in terms of yield improvement in LED that we can move into Wolfspeed and vice versa. There’s already been a lot of really great work done there, and I think Rick and the team have really just done a fabulous job of that. We’ve been increasing the capacity of the silicon carbide crystal growth in the materials business, that’s been very, very helpful as well. And then finally, there is some fungibility, especially in both the -- in the materials and in the wafer fab between the LED business and Wolfspeed. And as we see, the LED business transitioning some of its products to Sapphire, it gives us an opportunity to move that silicon carbide capability, primarily to our Power businesses. And so it’s a good trade off and it’s a good situation to have. I think both businesses are working very closely together and I think we can continue to see these kinds of efforts in the future.

And then just one on the lighting side, in terms of margins, do you expect it to be the slow and steady improvement. Or is there possibly like a short-term target you might put out there as we make progress towards that longer term gross margin?

I don’t anticipate things turning overnight. We’ve had two quarters in a row of over 100 basis points improvement. And I think it’s that zip code that I would have in mind. I think this business has a lot of improvement still ahead of it and I think we’ll take it three yards at a time.

Our next question comes from Jed Dorsheimer with Canaccord Genuity. Your line is now open.

Just I guess first question, Gregg, is on the lighting business. Have you provided -- have you given an analysis or done an analysis, I should say, on the impact that you think that might be negatively having on the LED components. I think your predecessor didn’t see a lot of risk around being competitive with your customers. But that would seem that there might be some latent demand should that business -- if you were to wind down or divest to that business at some point.

I don’t know how strong of an issue that is. Obviously, I don’t know a lot of the history I’ve met a number of our LED customers that have sort of competitive footprint with the lighting business. And I don’t think it’s a loud and screaming kind of thing at this point. I think the focusing of the LED business in the four areas that we have outlined at our Analysts Day, I think it’s really an important target for us, and I think we’re making really good progress there. So I don’t know how much of an impact that would have had. But what I would tell you is it’s not -- it doesn’t really come up as a loud screaming type issue at this point with customers.

And then as my follow-up question. The way that I interpreted some of your description on silicon carbide to the high power market for EVs, charging stations, base stations, et cetera. Very similar to the way that I heard manufacturers in the gallium arsenide space back in the early 2000s, so I guess I’m dating myself here, but describe gallium arsenide for power amplifiers in cell phones, while the Holy Grail was always to get to silicon, it didn’t happen in the timeframe that anybody expected and gas is still around. Do you see this silicon carbide market in a similar way and are you trying to basically enable many more players to come into this market?

I’m not an expert on the gallium arsenide side of things. What I would tell you is the end market the primary growth driver for our silicon carbide power business is the automotive market. The automotive market is way different than a handset market in terms of reliability requirements, quality requirements, the heat dissipation that you have to handle and all of this stuff. And there’s just an inherent significant advantage that silicon carbide has in all of those areas in addition to the fact that it’s -- an electric vehicle will go further using silicon carbide than using silicon. So I think there is some fundamental differences between the two. We’re certainly driving the adoption of that. We’re doing that through expanding our footprint, expanding our capacity, driving our costs down and all of that. And I think it’s a really good opportunity. And I think that based on -- it’s been almost a year that I’ve been here, I think the interest and excitement in the market for silicon carbide has just simply grown since I’ve been here, and I don’t mean to say it that way. But my observation is the market over the last 12 months has certainly become more -- has adopted silicon carbide in a much more quicker fashion. So it’s an exciting time for us. I think the opportunity is fantastic and we’re trying to capture most of it that we can.

Our next question comes from Hank Elder with Goldman Sachs. Your line is now open.

You mentioned that the core Wolfspeed business is holding around 40% year-over-year growth. And in this the level that we should expect the segment -- the core will speak to do in fiscal ’19, or as capacity comes online moving through the rest of the calendar year could that accelerate?

Well, what I would tell you is we're forecasting next quarter and we're forecasting some pretty decent growth 13% sequentially for next quarter on the Wolfspeed business. We certainly have capacity coming online and as we have indicated it's coming online slightly ahead of the original plan. We're going to continue bringing capacity online next year and we're going to be doing that through a couple of different mechanisms. One obviously as we've got a CapEx spend, which will be increasing capacity that's mostly targeted at the Wolfspeed business. But the second thing that's really happening right now is we've doubled the output of the capability of Wolfspeed – the manufacturing capability of Wolfspeed. And what that's doing is it’s significantly increasing the learning we're getting in manufacturing the learning cycles that we're getting in manufacturing, which is then being set back into the manufacturing processes, which is increasing yield. And so we're getting increasing yields off of existing capability and then we're increasing the number of machines that are producing the stuff. So it's a double effect. So I think our target is to drive the quadruple the size of the Wolfspeed business from fiscal '17, which was a little north of $200 million to around $850 million. And I think we've got good line of sight to do that. We're working really hard on that. That's going to include manufacturing capacity increases that I just talked about and the adoption that we've talked about earlier. So while I don't want to get into a quarter-by-quarter type forecasting thing, we're really excited about our position in the market, the scale have, the accelerated learning that we're getting from that scale. And quite frankly the performance of the manufacturing organization and bringing the stuff up is simply unbelievable. We've got cranes all over the campus here bringing things in and these guys have really brought this technology up in a pretty clean fashion, it's amazing actually.

And then maybe switching gears quickly on the tariffs. From what you can tell, is this potentially a larger impact for your competitors I guess given your U.S. manufacturing could to be a competitive benefit even though it's still a small P&L headwind?

I don't know. I guess what I would say as we are the largest manufacturer U.S. based and U.S. manufacturing based producer of LEDs. And that's certainly helped us as we work through the impact of the tariffs. We're really focusing that business in the four key areas. And I think to the extent that we're successful and as I mentioned in my prepared remarks, we've got fairly good indications that we are getting some good traction in those four areas. I think it will help the business deliver to our objective of modest growth and incremental gross margin improvements and good free cash flow.

Our next question comes from Harsh Kumar with Piper Jaffray. Your line is now open.

This is Matt on for Harsh. My first question was, could you walk us through an EPS bridge here into Q1. I think you previously talked about there being $0.01 diluted from ZTE but now that bandwidth with it and now we have $0.02 impact from the tariff and the Infineon being -- acquisition being accretive. Could you just maybe give us some more color about how we think about that and how we think about that moving into the rest of fiscal ‘19?

I guess from a tariff standpoint, based on what we know today and from my comments is the thing that’s certain right now is what’s the July 6 tariffs. So in Q2, Q3 and Q4, we’re targeting 3% EPS hit to that plus or minus from that tariff. On ZTE like you said in this Q1, it’s a nominal amount, don’t have enough visibility right now as to how quickly that business could come back and what it would ramp to within the fiscal 2019 from that standpoint and now we look at the Infineon RF Power acquisition just as part of our overall Wolfspeed results, which we’re targeting to grow 13% plus or minus quarter-over-quarter. So and as Greggjust mentioned, if you look at Wolfspeed’s growth if you think about that longer term model growing to $850 million and a path on that over the next couple of years is reasonable basis at this time.

Yes, and I’ll just add a little bit of color on ZTE. Our teams have met with them a number of times since the bandwidth lifted. We’ve had excellent conversations with them. There is a lot of good discussion going on. And ZTE is certainly highly -- quickly reengaging in the market. That all being said, the outfit has been -- the ZTE has been basically shut off for several months. So we’re being a little bit cautious on the actual impact for this quarter. We have a nominal amount of revenue anticipated for this quarter. Just simply thinking, gosh it’s going to be hard to get the entire supply up and running so quickly. So we’ll see how it goes. The good news is that they’re excited to reengage with us, and I think from a future standpoint signed -- what happens in the near term I think is it’s probably going to be a little tougher to ramp up than they would anticipate.

And then as a follow-up just a question on -- as you add capacity in the Wolfspeed business, how hard is it to find the people with the experience necessary and with the Wolfspeed technology in order to fully ramp up the business. Is that that you guys want given that everyone in the industry is to add capacity? And is that something now that the manufacturing is all under one roof? Is that something that can be added internally from other segments of the business? Thanks.

Yes, so certainly yes on that latter one. As you can imagine that we’re ramping this capacity there is a million things that you have to worry about and half of them go sideways at some point. And so there is the emergency call trying to get a team to go fix something. And I’d tell you our team has done a fantastic job of, just coalescing the resources and walking into it with one batch of, yes, I work on LED or yes, I work in Wolfspeed. But we’re going to go solve this problem they’ve done just a marvelous job on that. So yes we’re able to do some of that sourcing internally, if you will. I think that’s a pretty good way of describing it. And industry wide, I think there’s obviously not a whole lot of knowledge about this technology, and that’s one of the advantages that we have is that we have a lot of people that have a lot of capability here. And so we’re ramping up the capacity, it’s coming online very nicely, the equipment is being assembled and built and coming online. And like I said, we knew we’d get some of this but we’re really pleased with the rapid learning cycles that we’re getting, the more learning cycles we’re getting with the added capacity, it’s certainly a benefit we were thinking about, but it’s certainly come to fruition a lot faster than we anticipated. So the fact that we’re a lot bigger means we have a lot more data that says here are a couple ways we can squeeze a few more wafers out or improve yield and so forth. And that’s basically free capacity.

Our next question comes from Colin Rusch with Oppenheimer. Your line is now open.

As you look at the lining business in the portfolio of products. Could you talk about potential redesign of products or cadence of those new product introductions as we go forward?

Well, as we have talked about historically, I’ll kick it off and maybe Raiford or Mike can add some color to it. The team -- I’ll describe it as -- I’m going to just say most of fiscal ‘17 was really shutdown our new product development, because we were repairing the new product development process. That started coming off and the repairs were complete as we got into fiscal ’18. And I would say the back half of ’18 we’ve been in the mode of releasing new products. We’ve released a number of new families out to the market already. They’re getting very nice acceptance. We’ve had well over 100,000 products out in the market. We’ve had no warranty or quality issue and any large capacity at all. They’ve really ramped very, very nicely. So I’d say that team is now back in the mode of where we’d like them to be, which is developing innovative products that are high quality and high reliability that customers are excited about and that we can drive growth and good margin on.

Just one other point on that, so the hundred plus thousand of new products have been across categories, including high bays, low bays, street light and area lights. And then we’ve also in most recent quarter, the June quarter, achieved some costs outs, which is also an area of focus within product development. And those new cost for those products will be flowing through the P&L in the quarters of come. So that’s another area of emphasis.

And then just switching gears to silicon carbide and the competitive dynamics there. Obviously, it’s still early days with this and we’re seeing some new competitors enter into the market, a lot of different approaches to producing material and then producing devices. As you guys look forward over the next two to three years, what’s the strategy around maintaining the competitive edge? Is it really just about time to market availability of material, are there quality materials that you’re seeing as or are there some other dynamics that we should be thinking about?

I’ve been in technology world for a long time. I’ve been in semiconductor for over 30 years. And every business that I’ve ever been associated with has had a similar competitive dynamic where every day you got some competitor going after customers’ mind share and market share. So I think this is the norm in the industry. We’re in a unique situation right now, because we have a pretty substantial scale advantage in a market that’s growing very, very rapidly. And in an industry that has, and I’m talking about automotive electric vehicles, which has a good decade and more of growth potential. So it's a really fascinating market for us. I think for us the most important thing for us to do right now is drive that scale advantage, increase the capacity and the output, improve the yields and drive down cost and increase the adoption of silicon carbide across more markets. And so that's what we're focused on right now. It would be real easy for everyone to, and I don’t want to say just sit back, but say while we’re in this great position let's just accept t as it is. We're not doing that it all. We're saying we're in a great position, we've got our great markets and potential and we need to double down our efforts in terms of expanding capacity and reducing cost so that we can increase the adoption of silicon carbide across the power electronics industry.

Our next question comes of Jeff Osborne with Cowen & Company. Your line is now open.

I just had two quick accounting ones. I think I read somewhere that you sold your plane for $5 million. Is there a onetime gain that either happened in the quarter or is going to happen in upcoming quarter?

We did sale it for little bit less than $5 million, and we basically book kept at that all. And when we did it, we have to right at the end of the fair market value so there wasn't a gain.

And then Mike can you just touch on the tariff impact to the lighting segment if, are you securing any components from China?

That I would tell you is still a TBD, if they weren't covered under U.S. list 1 or U.S. list 2. They are part of U.S. list 3, which is not an effective under evaluation out. So we're continuing to evaluate that.

And just to clarify, you're asking about lighting products from China or LEDs that will be coming from China?

You're selling branded by Cree, any component procurement from China that would be impacted having higher bill materials?

Yes, nothing at this point…

Or the transfer pricing of your own packages that are produced in China that wouldn’t impact the lighting business with the current July tariff…

To the extent under list 1 that there is U.S. content, we get qualified for an exclusion on that value.

Our next question comes from Krysten Sciacca with Nomura Instinet. Your line is now open.

First question is on Silicon carbide. If you guys aren’t really the only one in the industry adding capacity for silicon carbide wafers, a lot of your competitors are as well. At what point, do you become concerned that the industry is going to go from a supply constraint situation to excess supply?

Well, I think you've got to look at the growth drivers in the industry and you start with electric vehicles. And I think at our Analyst Day, we had mentioned that from the October timeframe through to the Analyst Day, which was in February, car manufacturers and people in the auto industry had announced investments of about $60 billion in the electric vehicle arena. And since then it's grown to over $100 billion of investments. More and more companies have announced that all their models are going to be EV by a certain date or they're going to have 20 models by a certain day and so forth. So more and more of that is happening. So I think the demand -- the growth of the demand in this industry is likely going to outstrip the supply for some time. We’re obviously trying to alleviate that ourselves by increasing the output but we’re a pretty big player in this space. And the fact that we’ve doubled over the last year and a quarter or so, I think it likely says we’d become an even bigger market share type player in this space. So as I mentioned earlier, we always worry about competition. We’re paranoid about it every day. And what we’re doing is we’re bringing on the manufacturing capability as quickly as we can, while at the same time driving cost out so that we can increase the adoption. So I don’t have any answer other than that, you always have to worry about this stuff. But I think the key drivers are really pretty solid.

And then sticking on to silicon carbide topic. So have you seen any impact at all of the recent tariffs, particularly -- since especially EV is in store, there is a lot of consumption in China, or there soon to be a lot of future consumption in China? Or has there been so much of that pretty much just not been that impacted at all?

I don’t know of any impact of the tariffs on the silicon carbide or the appetite for silicon carbide in electric vehicles. I don’t know aware any of that. We’ve got great engagements around the world with the vehicle manufacturers, the tier one and so forth. And basically there has been no change in the adoption rate, if anything, it’s gotten more accelerated.

Our next question comes from Edwin Mok with Needham and Company. Your line is now open.

First question actually a longer term question, I guess on silicon carbide’s performance advantage versus as higher cost versus silicon. Just curious, Gregg, is that a tipping point or something that you can going to point to that or one thing or outsourcing that you can point to that might bring that -- close that gap allow this potential wide adoption. For example, do you think 6 inch wafer is necessary for industry to adopt to get to cost competitive point, any color you can provide on that?

Well, I would tell you that we’re absolutely focused on continuing to drive the cost down in silicon carbide and drive the gap between silicon and silicon carbide more narrow as well. We’ve got a number of different efforts in doing that. One is obviously we get cost reductions just simply because of scale advantage we have. And so that’s a pretty simple equation. The second is the number of what I would describe as engineering efforts. These are projects where we have a couple of people working on a couple of different techniques, which will increase yield and improve throughput and output. And so I would describe those as we’ve got pretty good line of sight for some pretty decent cost reductions associated with that. And then we’ve got more further out type things where we’re looking at challenging material science and moving things like 8 inch wafers and so forth that are little bit further out. But we’re actively engaged on all of these different things, because we know that to the extent that we can continue narrowing the gap between silicon and silicon carbide, it’s going to be better for us, it’s going to be better for the industry. That tipping point has already begun to happen in the auto electronics electric vehicle industry. And obviously as we narrow that gap and we drive costs down we’ll continue driving the adoption.

And Edwin, just one thing to add there, we’re trying to narrow that price differential assuming silicon wafer prices are stable when in fact over the past couple of years, silicon wafer prices have risen pretty meaningfully and forecast suggest that’s going to continue in the coming years.

And then just I guess housekeeping question. On the first quarter, you said LED is going to be down and I think highlights three reasons behind the tariff -- your ability or the capacity. Any way you can quantify or you talk about which one is the biggest driver for the sequential decline in LED? And then how much did the power contribute to fourth quarter revenue?

So on the LED side the breakdown on those there’s, I would say they’re in a similar range among those three paces and the impact on the revenue. And the mid power while the demand was up pretty nicely quarter-over-quarter, the overall mixer of that business is still a small part of the overall LED business.

Our next question comes from Craig Irwin with ROTH Capital. Your line is now open.

So Mike, when you initially give us guidance for incorporating the Infineon RF Power business into the model, you were pretty cautious about the outlook, given the storm clouds around ZTE, now that many of those issues are clearing, hopefully, done by the end of your first fiscal quarter. We do expect those assets to have organic growth year-over-year and contribute to the overall level of growth within the core business by the end of ‘19?

Well, I guess if you’re talking about -- Craig if you’re talking about ZTE specifically, like we mentioned earlier, it’s in there for a small amount in Q1 and then it’s wait to see how that develops. We’re having discussions with ZTE but it remains to be seen how quickly they’ll ramp up. So don’t have any systemic estimates for them for the rest of the year.

Second question is around LED headlights, so there’s quite a lot of optimism, you could be heading into one of the higher margin areas that might be a match for your traditional higher output, higher brightness, silicon carbide LED chips. Can you maybe update us on where we stand for new programs? What we’re looking at as potential opportunities for Cree over the next handful of quarters?

In the most recent quarter, we got a nice number of new design-ins. We’ve got active and design-in project funnel that’s up meaningfully from where we were before. We’ve got our first win with an American brand, which we’ll be ramping in the fall. So those products will be hitting the road there. So I would say it continues to build upon what we talked about at the Investor Day, which is we think that automotive could be $100 million opportunity over the timeframe of the long range plan that we laid out and we’re seeing good progress there.

I’m showing no further questions in queue at this time. I’d like to turn the call back to management for closing remarks.

Well, thank you everyone for your time today. Again, I want to thank Mike for his service to the Company. And we were chatting earlier, this is his 25th earnings call and really appreciate everything he's done for the Company over this time. We do appreciate all of your interest and support and look forward to reporting our first quarter results in October. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.