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Total Expenses were $1.14 billion in 2019
Breakdown of Cree's Total Expenses in 2019:
Total = $1.14 Bil
Cost of Sales = $690 Mil
Operating Expenses = $410 Mil
Non-operating expenses = $30 Mil
Provision for income taxes = $10 Mil
Cree's total expenses have grown steadily from $860 million in 2017 to $1.14 billion in 2019. As a percentage of revenues, expenses dropped, going from 111.4% in 2017 to 105.4% in 2019.Cost of sales is the biggest expense head for the company, with it being 68.4% of revenue in 2017, before dropping to around 63.8% of revenue in 2019. This, combined with a steady growth in revenue, has helped drive EPS from -$0.89 to -$0.56 over this period.Also, going forward, cost of sales as % of revenue is expected to drop further, leading to a projected increase in net income margin from -5.4% in 2019 to 0.2% in 2021.This projected growth has helped drive a >30% rise in Cree's share price over the past 2 years.Below, we take a look at the key drivers of Cree's expenses and net margins.
Cree's Total Expenses Have Gone From $0.86 Billion in 2017 to $1.14 Billion in 2019
% Change in total expenses
Cree's total expenses have grown steadily, going from $0.86 billion in 2017 to about $1.14 billion in 2019.
For 2020, we expect total expenses to stand at $1.09 billion, which comprises of
1) Cost of Sales: $673 million
2) Operating Expenses: $390 million
2) Non-Operating Expenses: $25 million
3) Income Taxes: $5 million
Below, we take a look at how the company's key expense components have trended and the key reasons for the change.
(A) SG&A Expense has grown steadily with a rise in revenue, going from $145.7 million in 2017 to $200.7 million in 2019. As a % of revenue, SG&A expense dropped marginally from 18.9% to 18.6% over the same period. Going forward, we expect this expense to come in at 18.8% in 2020 and 18.5% in 2021.
Selling, General and Administrative expenses
S,G & A as a % of revenue
(B) R&D Expense grew from $113.8 million in 2017 to about $157.9 million in 2019, in line with Cree's steady revenue growth. As a % of Revenue, R&D expenses remained roughly the same, going from 14.8% to 14.6% during the same period. We expect this metric to rise slightly in 2020 to 15.2%, before coming back down to 14.4% in 2021.
R&D expenses as a % of revenue
(C) Amortization and impairment charges grew from $5.2 million in 2017 to $20.3 million in 2019. As a % of revenue, this expense went from 0.7% to 1.9% over the same period. We expect this metric to come in at 1% of total revenue in 2020 and 2021.
Amortization or impariment of intangibles and other assets
Amortization or impariment of intangibles and other assets as a % of revenue
(D) Other operating expenses went from -$0.6 million in 2017 to about $28 million in 2019. This metric primarily includes restructuring charges and other miscellaneous expenses. We expect this metric to come in at around 2% of total revenue in 2020 and 2021.
Other Operating Expenses
Other Operating Expenses as a % of revenue
3) Non-Operating Expense has increased from -$13 million in 2017 to $29.3 million in 2019. There was a rise in 2019, due to higher miscellaneous non-operating expenses related to the divestment of the lighting business. Total debt for Cree has dropped from $145 million in 2017 to $0 million in 2019. Going forward, we expect non operating expenses to grow to around $25 million for 2020 and 2021.
4) Income Tax Expense has dropped from $81 million in 2017 to $12.7 million in 2019. We expect income tax to be $5 million in 2020, and with the company set to turn profitable in 2021, we expect effective tax rate to be around 14.3% for 2021.
Income Tax Expense
Effective Tax Rate
Our complete set of analyses on Cree
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