SMART Global Holdings Reports First Quarter Fiscal 2018 Financial Results

NEWARK, Calif., Dec. 21, 2017 (GLOBE NEWSWIRE) -- SMART Global Holdings, Inc. (“SMART”) (NASDAQ:SGH), parent company of SMART Modular Technologies, Inc., today reported financial results for the first quarter of fiscal 2018 ended November 24, 2017.

First Quarter Fiscal 2018 Highlights:

  • Net sales of $265.4 million, 67% higher than year ago quarter
  • GAAP operating income of $31.5 million
  • GAAP net income of $21.0 million
  • Adjusted EBITDA of $36.9 million
  • GAAP diluted EPS of $0.92
  • Non-GAAP diluted EPS of $1.05

“We are proud to report strength across the board for our first quarter of fiscal 2018. Revenue, gross margin and earnings per share all exceeded the high end of our revised guidance for the first quarter,” commented Iain MacKenzie, President and Chief Executive Officer of SMART Global Holdings.

“Looking ahead, we believe that the outlook is for more improvement in both SMART Brazil and our Specialty Memory businesses. The recovering economy in Brazil and health in the overall global memory market, combined with strong demand for higher density products from our OEM customers, lead us to be optimistic about continued positive momentum in the upcoming periods,” added Mr. MacKenzie.“We are proud to report strength across the board for our first quarter of fiscal 2018. Revenue, gross margin and earnings per share all exceeded the high end of our revised guidance for the first quarter,” commented Iain MacKenzie, President and Chief Executive Officer of SMART Global Holdings.

Quarterly Financial ResultsGAAP (1) Non-GAAP (2)
(In millions, except per share amounts)Q1 FY18Q4 FY17Q1 FY17 Q1 FY18Q4 FY17Q1 FY17
Net sales$265.4$223.0 $159.3 $265.4$223.0$159.3
Gross profit$57.8$48.0 $29.7 $58.1$48.2$29.8
Operating income$31.5$20.6 $3.6 $34.6$25.4$7.7
Net income (loss)$21.0$(10.2)$(3.2) $23.8$17.4$0.5
Earnings (loss) per share - diluted$0.92$(0.48)$(0.23) $1.05$0.79$0.04

(1) GAAP represents U.S. Generally Accepted Accounting Principles.
(2) Please refer to the “Non-GAAP Information” section and the "Reconciliation of Non-GAAP Financial Measures" table below for further detail on the non-GAAP financial reporting referenced above and a reconciliation of such measures to our nearest GAAP measures.

Business Outlook
The following statements are based upon management's current expectations for the second quarter of fiscal 2018 ending February 23, 2018. These statements are forward-looking, and actual results may differ materially. SMART undertakes no obligation to update these statements.

Net Sales - GAAP/Non-GAAP$280 to $300 million
Gross Margin - GAAP/Non-GAAP21% to 23%
Earnings per share - GAAP$1.18 to $1.24
Intangible amortization per share$0.05
Stock-based compensation per share$0.07
Earnings per share - Non-GAAP$1.30 to $1.36
Expected diluted share count23.0 million

Conference Call Details
SMART will host a conference call today for analysts and investors at 1:30 p.m. Pacific time, 4:30 p.m. Eastern time. Dial-in US toll free +1-866-487-6452 using access code 9699519.

A replay of the conference call will be available until December 28, 2017 through the Events section of the SMART website at www.smartgh.com or by calling US toll free +1-855-859-2056; Passcode: 9699519.

Forward-Looking Statements
This release contains, and statements made during the above-referenced conference call will contain "forward-looking statements" including among other things, statements regarding future events and the future financial performance of SMART (including the business outlook for the next fiscal quarter) and statements regarding growth drivers in SMART’s industry and markets. These statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including but not limited to: business and economic conditions and growth trends in the technology industry, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the success of our strategic initiatives including additional investments in new products and additional capacity; the DRAM market and the temporary and volatile nature of pricing trends; deterioration in customer relationships; production or manufacturing difficulties; competitive factors; technological changes; difficulties with or delays in the introduction of new products; slowing or contraction of growth in the memory market in Brazil; reduction in or termination of local content requirements in Brazil; changes to applicable tax regimes or rates; prices for the end products of our customers; fluctuations in material costs and availability; deterioration in or loss of relations with any of our limited number of key vendors; and other factors and risks detailed in SMART’s filings with the Securities and Exchange Commission. Such factors and risks as outlined above and in such filings may not constitute all factors and risks that could cause actual results of SMART to be materially different from the historical results and/or from any future results or outcomes expressed or implied by such forward-looking statements. SMART operates in a continually changing business environment and new factors emerge from time to time. SMART cannot predict such factors, nor can it assess the impact, if any, from such factors on SMART or its results. Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements should not be relied upon as a prediction of actual results. These forward-looking statements are made as of today, and SMART does not intend, and has no obligation, to update or revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this press release, except as required by law.

Non-GAAP Information
Certain non-GAAP financial measures are contained in this press release or will be discussed on our conference call, including Adjusted EBITDA, non-GAAP net income, non-GAAP net income per diluted share and non-GAAP diluted EPS. We define Adjusted EBITDA as GAAP net income plus net interest expense, income tax expense, depreciation and amortization expense, stock-based compensation expense, restructuring charges, amortization of non-cash debt discount related to warrants, non-cash charges in connection with refinancing, and other infrequent or unusual items. Adjusted EBITDA is not a measure of financial performance calculated in accordance with U.S. GAAP, and should be viewed as a supplement to, not a substitute for, our results of operations presented on the basis of U.S. GAAP. Adjusted EBITDA also does not purport to represent cash flow provided by, or used in, operating activities in accordance with U.S. GAAP and should not be used as a measure of liquidity.

The non-GAAP financial results presented herein do not include stock-based compensation expense, intangible amortization expense, amortization of non-cash debt discount related to warrants and non-cash charges in connection with refinancing. These non-GAAP financial measures are provided to enhance the user's overall understanding of our financial performance. By excluding these charges and gains, as well as any related tax effects, our non-GAAP results provide information to management and investors that is useful in assessing SMART's core operating performance and in evaluating and comparing our results of operations on a consistent basis from period to period. These non-GAAP financial measures are also used by management to evaluate financial results, to plan and forecast future periods, and to assess performance of certain executives for compensation purposes. The presentation of this additional information is not meant to be a substitute for the corresponding financial measures prepared in accordance with U.S. GAAP. In addition, these measures may not be used similarly by other companies and therefore may not be comparable between companies.

Investors are encouraged to review the “Reconciliation of Non-GAAP Financial Measures to GAAP Results” and “Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA” tables below for more detail on Adjusted EBITDA and non-GAAP calculations.

About SMART Global Holdings
The SMART family of companies are global leaders in specialty memory, storage and hybrid solutions serving the electronics industry with standard and custom products for over 25 years. SMART delivers components, modules and solutions to a broad customer base, including OEMs in computing, networking, communications, storage, mobile and industrial markets. Customers rely on SMART as a strategic supplier with custom designs, product quality, technical support, a global footprint, and the ability to provide locally manufactured memory products in multiple geographies. See www.smartgh.com, www.smartm.com, www.smarth.com or www.smartsscs.com for more information.

SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
Three Months Ended
November 24, 2017 August 25, 2017 November 25, 2016
Net sales:
Brazil DRAM $51,959 $46,830 $19,328
Brazil Mobile Memory 105,891 87,935 56,211
Specialty Memory 107,559 88,254 83,805
Total net sales 265,409 223,019 159,344
Cost of sales (1) 207,573 175,011 129,634
Gross profit 57,836 48,008 29,710
Operating expenses:
Research and development (1) (2) 8,550 9,718 9,697
Selling, general and administrative (1) (2) 17,818 17,722 15,410
Management advisory fees 1,000
Restructuring (14)
Total operating expenses 26,368 27,440 26,093
Income from operations 31,468 20,568 3,617
Other income (expense):
Interest expense, net (4,599) (6,132) (6,266)
Other income (expense), net (2,715) (20,887) 103
Total other expense (7,314) (27,019) (6,163)
Income (loss) before income taxes 24,154 (6,451) (2,546)
Provision for income taxes 3,149 3,758 661
Net income (loss) $21,005 $(10,209) $(3,207)
Earnings per share:
Basic $0.97 $(0.48) $(0.23)
Diluted $0.92 $(0.48) $(0.23)
Shares used in computing earnings per share:
Basic 21,673 21,435 13,870
Diluted 22,715 21,435 13,870
(1) Includes share-based compensation expense as follows:
Cost of sales $218 $192 $126
Research and development 274 232 215
Selling, general and administrative 1,113 1,407 709
Total stock-based compensation expense $1,605 $1,831 $1,050
(2) Includes amortization of intangible assets expense as follows:
Research and development $245 $1,225 $1,224
Selling, general and administrative 1,023 1,746 1,799
Total amortization expense $1,268 $2,971 $3,023


SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of Non-GAAP Financial Measures to GAAP Results
(In thousands, except per share data)
Three Months Ended
November 24, 2017 August 25, 2017 November 25, 2016
Reconciliation of gross profit:
GAAP gross profit $ 57,836 $ 48,008 $ 29,710
GAAP gross margin 21.8% 21.5% 18.6%
Add: Share-based compensation included in cost of sales 218 192 126
Non-GAAP gross profit $ 58,054 $ 48,200 $ 29,836
Non-GAAP gross margin 21.9% 21.6% 18.7%
Reconciliation of operating expenses:
GAAP operating expenses $ 26,368 $ 27,440 $ 26,093
Less: Share-based compensation expense included in opex
Research and development 274 232 215
Selling, general and administrative 1,113 1,407 709
Total 1,387 1,639 924
Less: Amortization of intangible assets included in opex
Research and development 245 1,225 1,224
Selling, general and administrative 1,023 1,746 1,799
Total 1,268 2,971 3,023
Less: S-1 related costs 300
Non-GAAP operating expenses $ 23,413 $ 22,830 $ 22,146
Reconciliation of income from operations:
GAAP income from operations $ 31,468 $ 20,568 $ 3,617
GAAP operating margin 11.9% 9.2% 2.3%
Add: Share-based compensation expense 1,605 1,831 1,050
Add: Amortization of intangible assets 1,268 2,971 3,023
Add: S-1 related costs 300
Non-GAAP income from operations $ 34,641 $ 25,370 $ 7,690
Non-GAAP operating margin 13.1% 11.4% 4.8%
Reconciliation of provision for income taxes:
GAAP provision for income taxes $ 3,149 $ 3,758 $ 661
GAAP effective tax rate 13.0% -58.3% -26.0%
Tax effect of adjustments to GAAP results (348) (317) (337)
Non-GAAP provision for income taxes $ 3,497 $ 4,075 $ 998
Non-GAAP effective tax rate 12.8% 19.0% 65.4%
Reconciliation of net income (loss) and earnings per share (diluted):
GAAP net income (loss) $ 21,005 $ (10,209) $ (3,207)
Adjustments to GAAP net income:
Share-based compensation 1,605 1,831 1,050
Amortization of intangible assets 1,268 2,971 3,023
Amortization of debt discount related to warrants 1,214
S-1 related costs 300
Loss on early debt repayment 6,743
Loss on extinguishment of LT debt 15,194
Tax effect of items excluded from non-GAAP results (348) (317) (337)
Non-GAAP net income $ 23,830 $ 17,427 $ 529
Shares used in computing earnings per share (diluted) 22,715 22,011 14,479
Non-GAAP earnings per share (diluted) $ 1.05 $ 0.79 $ 0.04

SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of GAAP Net Income (loss) to Adjusted EBITDA
(In thousands)
Three Months Ended
November 24, 2017 August 25, 2017 November 25, 2016
GAAP net income (loss) $ 21,005 $ (10,209) $ (3,207)
Share-based compensation expense 1,605 1,831 1,050
Amortization of intangible assets 1,268 2,971 3,023
Interest expense, net 4,599 6,132 6,266
Provision for income tax 3,149 3,758 661
Depreciation 5,002 4,869 5,539
S-1 related costs 300
Management advisory fees 1,000
Loss on early debt repayment * 6,743
Loss on extinguishment of LT debt ** 15,194
Restructuring (14)
Special retention bonuses 25
Investment advisory fees 406
Adjusted EBITDA $ 36,928 $ 31,289 $ 14,749
* Loss on early payment of term loan for principal amount of $61.1 million in June 2017 related to IPO.
** Loss on extinguishment of long-term debt for principal payment of $151.0 million in August 2017.

SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Balance Sheets
(In thousands)
November 24, August 25
2017 2017
Assets
Current assets:
Cash and cash equivalents $ 23,503 $ 22,436
Accounts receivable, net 236,199 183,303
Inventories 128,158 127,135
Prepaid expenses and other current assets 12,226 14,115
Total current assets 400,086 346,989
Property and equipment, net 55,134 55,182
Other noncurrent assets 25,772 26,728
Intangible assets, net 3,692 5,107
Goodwill 44,626 46,022
Total assets $ 529,310 $ 480,028
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 235,226 $ 189,717
Accrued liabilities 21,674 27,316
Current portion of long-term debt 22,500 22,841
Total current liabilities 279,400 239,874
Long-term debt 148,249 154,450
Deferred tax liabilities 1,041 1,439
Other long-term liabilities 1,869 1,869
Total liabilities $ 430,559 $ 397,632
Shareholders’ equity:
Ordinary shares 656 653
Additional paid-in capital 234,686 232,162
Accumulated other comprehensive loss (150,387) (143,210)
Retained earnings 13,796 (7,209)
Total shareholders’ equity 98,751 82,396
Total liabilities and shareholders’ equity $ 529,310 $ 480,028

SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended
November 24, 2017 August 25, 2017 November 25, 2016
Cash flows from operating activities:
Net income (loss) $ 21,005 $ (10,209) $ (3,207)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,270 7,839 8,562
Share-based compensation 1,605 1,831 1,050
Provision for doubtful accounts receivable and sales returns 28 (82) (192)
Deferred income tax benefit (220) (1,194) (305)
Loss on disposal of property and equipment 223
Extinguishment loss on long-term debt 15,194
Loss on early debt payment 6,744
Amortization of debt discounts and issuance costs 729 1,807 1,022
Changes in operating assets and liabilities:
Accounts receivable (55,801) (6,910) 21,610
Inventories (3,746) 9,333 9,000
Prepaid expenses and other assets 1,758 (799) 624
Accounts payable 47,492 (22,407) (56,400)
Accrued expenses and other liabilities (4,863) 4,639 1,215
Net cash provided by (used in) operating activities 14,257 6,009 (17,021)
Cash flows from investing activities:
Capital expenditures and deposits on equipment (6,039) (7,499) (3,075)
Proceeds from sale of property and equipment 184
Net cash used in investing activities (6,039) (7,315) (3,075)
Cash flows from financing activities:
Long-term debt payment (6,184) (2,009) (5,331)
Early payment of long-term debt (61,127)
Payment for extinguishment of long-term debt (151,008)
Proceeds from issuance of long-term debt, net of costs paid 156,962
Fees paid for revolving line of credit refinancing (299) (3,167)
Issuance of ordinary shares from an initial public offering,
net of underwriting commissions 63,507
Payment of costs related to initial public offering (1,289) (949)
Proceeds from borrowings under revolving line of credit 105,500 119,500 110,250
Repayments of borrowings under revolving line of credit (105,500) (119,500) (110,250)
Proceeds from issuance of ordinary shares from share option exercise 539 58
Tax payments due upon issuance of ordinary shares for release of
restricted stock units (763)
Net cash provided by (used in) financing activities (7,233) 1,504 (5,331)
Effect of exchange rate changes on cash and cash equivalents 82 (103) 479
Net increase (decrease) in cash and cash equivalents 1,067 95 (24,948)
Cash and cash equivalents at beginning of period 22,436 22,341 58,634
Cash and cash equivalents at end of period $ 23,503 $ 22,436 $ 33,686

Investor Contact:
Suzanne Schmidt
Investor Relations for SMART Global Holdings, Inc.
(510) 360-8596
ir@smartm.com

Source:SMART Global Holdings, Inc.