SMART Global Holdings Reports Second Quarter Fiscal 2018 Financial Results

NEWARK, Calif., March 22, 2018 (GLOBE NEWSWIRE) --

SMART Global Holdings, Inc. (“SMART”) (NASDAQ:SGH), parent company of SMART Modular Technologies, Inc., today reported financial results for the second quarter of fiscal 2018 ended February 23, 2018.

Second Quarter Fiscal 2018 Highlights:

  • Net sales of $314.0 million, 83% higher than prior year quarter
  • GAAP operating income of $45.1 million
  • GAAP net income of $36.8 million
  • Adjusted EBITDA of $56.2 million
  • GAAP diluted EPS of $1.60 (1)
  • Non-GAAP diluted EPS of $1.73(1)
    (1) GAAP and Non-GAAP diluted EPS include $0.10 of EPS due to FX gains

“The second quarter of fiscal 2018 came in above expectations as we benefited from multiple growth drivers. The overall memory industry supply and demand dynamics remained favorable with respect to increasing memory densities and pricing. Additionally, in Brazil, the economy continued to improve and we benefited from local content requirements. Lastly, we once again demonstrated exceptional operating expense control and operating leverage in our financial model,” commented Iain MacKenzie, President and Co-Chief Executive Officer of SMART Global Holdings.

“We remain confident in our ability to drive additional growth and improvement in both SMART Brazil and our Specialty Memory businesses as the global memory market and economic trends in Brazil remain positive, and we see increasing demand from our OEM customers, particularly in the storage and networking end markets,” added Mr. MacKenzie.

“As we announced on March 14, 2018, I am very pleased that Ajay Shah has agreed to accept the role of President and CEO. Ajay’s extensive industry knowledge and long history with SMART make him the ideal executive to lead SMART through this next phase of growth. I look forward to working closely with Ajay through this transition,” concluded Mr. MacKenzie.

Quarterly Financial ResultsGAAP (1) Non-GAAP (2)
(In millions, except per share amounts)Q2 FY18Q1 FY18Q2 FY17 Q2 FY18Q1 FY18Q2 FY17
Net sales$ 314.0$ 265.4$ 172.0 $ 314.0$ 265.4$ 172.0
Gross profit$ 73.0$ 57.8$ 37.2 $ 73.2$ 58.1$ 37.3
Operating income$ 45.1$ 31.5$ 9.3 $ 48.5$ 34.6$ 13.3
Net income (loss)$ 36.8$ 21.0$ (2.3) $ 39.9$ 23.8$ 4.9
Earnings (loss) per share - diluted$ 1.60$ 0.92$ (0.17) $ 1.73$ 1.05$ 0.35

  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 third quarter of fiscal 2018 ending May 25, 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$320 to $340 million
Gross Margin - GAAP / Non-GAAP21% to 23%
Diluted EPS - GAAP$1.61 to $1.69
Intangible amortization per share$0.05
Stock-based compensation per share$0.08
Diluted EPS - Non-GAAP$1.74 to $1.82
Expected diluted share count23.2 million

Conference Call Details
SMART will host a conference call today for analysts and investors at 2:30pm Pacific Time, 5:30 pm Eastern Time. Dial-in US toll free +1-866-487-6452 using access code 9983539.

A replay of the conference call will be available for one week following today’s call through the Events section of the SMART website at www.smartgh.com or by calling US toll free +1-855-859-2056; Passcode: 9983539.

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 Six Months Ended
February 23,
2018
November 24,
2017
February 24,
2017
February 23,
2018
February 24,
2017
Net sales:
Brazil DRAM $ 67,322 $ 51,959 $ 28,695 $ 119,281 $ 48,023
Brazil Mobile Memory 141,311 105,891 49,932 247,202 106,143
Specialty Memory 105,332 107,559 93,327 212,891 177,132
Total net sales 313,965 265,409 171,954 579,374 331,298
Cost of sales (1) 240,948 207,573 134,797 448,521 264,431
Gross profit 73,017 57,836 37,157 130,853 66,867
Operating expenses:
Research and development (1) (2) 9,852 8,550 9,948 18,402 19,645
Selling, general and administrative (1) (2) 18,087 17,818 16,434 35,905 31,844
Management advisory fees 1,000 2,000
Restructuring 471 457
Total operating expenses 27,939 26,368 27,853 54,307 53,946
Income from operations 45,078 31,468 9,304 76,546 12,921
Other income (expense):
Interest expense, net (4,230) (4,599) (8,512) (8,829) (14,778)
Other income (expense), net 2,548 (2,715) (1,005) (167) (902)
Total other expense (1,682) (7,314) (9,517) (8,996) (15,680)
Income (loss) before income taxes 43,396 24,154 (213) 67,550 (2,759)
Provision for income taxes 6,602 3,149 2,124 9,751 2,785
Net income (loss) $ 36,794 $ 21,005 $ (2,337) $ 57,799 $ (5,544)
Earnings per share:
Basic $ 1.68 $ 0.97 $ (0.17) $ 2.65 $ (0.40)
Diluted $ 1.60 $ 0.92 $ (0.17) $ 2.53 $ (0.40)
Shares used in computing earnings per share:
Basic 21,915 21,673 13,870 21,794 13,870
Diluted 23,038 22,715 13,870 22,877 13,870
(1) Includes share-based compensation expense as follows:
Cost of sales $ 227 $ 218 $ 142 $ 445 $ 268
Research and development 288 274 230 562 445
Selling, general and administrative 1,182 1,113 722 2,295 1,431
Total stock-based compensation expense $ 1,697 $ 1,605 $ 1,094 $ 3,302 $ 2,144
(2) Includes amortization of intangible assets expense as follows:
Research and development $ 245 $ 245 $ 1,224 $ 490 $ 2,448
Selling, general and administrative 993 1,023 1,723 2,016 3,522
Total amortization expense $ 1,238 $ 1,268 $ 2,947 $ 2,506 $ 5,970


SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of Non-GAAP Financial Measures to GAAP Results
(In thousands, except per share data)
Three Months Ended Six Months Ended
February 23,
2018
November 24,
2017
February 24,
2017
February 23,
2018
February 24,
2017
Reconciliation of gross profit:
GAAP gross profit $ 73,017 $ 57,836 $ 37,157 $ 130,853 $ 66,867
GAAP gross margin 23.3% 21.8% 21.6% 22.6% 20.2%
Add: Share-based compensation included in cost of sales 227 218 142 445 268
Non-GAAP gross profit $ 73,244 $ 58,054 $ 37,299 $ 131,298 $ 67,135
Non-GAAP gross margin 23.3% 21.9% 21.7% 22.7% 20.3%
Reconciliation of operating expenses:
GAAP operating expenses $ 27,939 $ 26,368 $ 27,853 $ 54,307 $ 53,946
Less: Share-based compensation expense included in opex
Research and development 288 274 230 562 445
Selling, general and administrative 1,182 1,113 722 2,295 1,431
Total 1,470 1,387 952 2,857 1,876
Less: Amortization of intangible assets included in opex
Research and development 245 245 1,224 490 2,448
Selling, general and administrative 993 1,023 1,723 2,016 3,522
Total 1,238 1,268 2,947 2,506 5,970
Less: S-1 related costs 513 300 813
Non-GAAP operating expenses $ 24,718 $ 23,413 $ 23,954 $ 48,131 $ 46,100
Reconciliation of income from operations:
GAAP income from operations $ 45,078 $ 31,468 $ 9,304 $ 76,546 $ 12,921
GAAP operating margin 14.4% 11.9% 5.4% 13.2% 3.9%
Add: Share-based compensation expense 1,697 1,605 1,094 3,302 2,144
Add: Amortization of intangible assets 1,238 1,268 2,947 2,506 5,970
Add: S-1 related costs 513 300 813
Non-GAAP income from operations $ 48,526 $ 34,641 $ 13,345 $ 83,167 $ 21,035
Non-GAAP operating margin 15.5% 13.1% 7.8% 14.4% 6.3%
Reconciliation of provision for income taxes:
GAAP provision for income taxes $ 6,602 $ 3,149 $ 2,124 $ 9,751 $ 2,785
GAAP effective tax rate 15.2% 13.0% -997.2% 14.4% -100.9%
Tax effect of adjustments to GAAP results (338) (348) (365) (686) (702)
Non-GAAP provision for income taxes $ 6,940 $ 3,497 $ 2,489 $ 10,437 $ 3,487
Non-GAAP effective tax rate 14.8% 12.8% 33.7% 14.1% 39.1%
Reconciliation of net income (loss) and earnings per share (diluted):
GAAP net income (loss) $ 36,794 $ 21,005 $ (2,337) $ 57,799 $ (5,544)
Adjustments to GAAP net income:
Share-based compensation 1,697 1,605 1,094 3,302 2,144
Amortization of intangible assets 1,238 1,268 2,947 2,506 5,970
Amortization of debt discount related to warrants 2,180 2,180
S-1 related costs 513 300 813
Loss on extinguishment of LT debt 1,385 1,385
Tax effect of items excluded from non-GAAP results (338) (348) (365) (686) (702)
Non-GAAP net income $ 39,904 $ 23,830 $ 4,904 $ 63,734 $ 5,433
Shares used in computing earnings per share (diluted) 23,038 22,715 14,142 22,877 14,137
Non-GAAP earnings per share (diluted) $ 1.73 $ 1.05 $ 0.35 $ 2.79 $ 0.38


SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of GAAP Net Income (loss) to Adjusted EBITDA
(In thousands)
Three Months Ended Six Months Ended
February 23,
2018
November 24,
2017
February 24,
2017
February 23,
2018
February 24,
2017
GAAP net income (loss) $ 36,794 $ 21,005 $ (2,337) $ 57,799 $ (5,544)
Share-based compensation expense 1,697 1,605 1,094 3,302 2,144
Amortization of intangible assets 1,238 1,268 2,947 2,506 5,970
Interest expense, net 4,230 4,599 8,512 8,829 14,778
Provision for income tax 6,602 3,149 2,124 9,751 2,785
Depreciation 5,120 5,002 6,044 10,122 11,583
S-1 related costs 513 300 813
Management advisory fees 1,000 2,000
Debt extension costs* 1,745 1,745
Loss on extinguishment of LT debt ** 1,385 1,385
Restructuring 471 457
Special retention bonuses 25
Investment advisory fees 134 540
Obsolete inventory related to restructuring 372 372
Adjusted EBITDA $ 56,194 $ 36,928 $ 23,491 $ 93,122 $ 38,240
* Debt extension costs consist of $1.7 million associated with the amendment of our senior secured term loan and revolving credit facility in November 2016.
** Loss on extinguishment of long-term debt consists of $1.4 million loss on a February 2017 extinguishment.


SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Balance Sheets
(In thousands)
February 23, August 25,
2018 2017
Assets
Current assets:
Cash and cash equivalents $ 51,816 $ 22,436
Accounts receivable, net 223,500 183,303
Inventories 148,577 127,135
Prepaid expenses and other current assets 18,181 14,115
Total current assets 442,074 346,989
Property and equipment, net 53,238 55,182
Other noncurrent assets 21,556 26,728
Intangible assets, net 2,533 5,107
Goodwill 45,709 46,022
Total assets $ 565,110 $ 480,028
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 225,718 $ 189,717
Accrued liabilities 24,151 27,316
Current portion of long-term debt 22,954 22,841
Total current liabilities 272,823 239,874
Long-term debt 142,752 154,450
Deferred tax liabilities 730 1,439
Other long-term liabilities 1,897 1,869
Total liabilities $ 418,202 $ 397,632
Shareholders’ equity:
Ordinary shares 666 653
Additional paid-in capital 239,628 232,162
Accumulated other comprehensive loss (143,976) (143,210)
Retained earnings 50,590 (7,209)
Total shareholders’ equity 146,908 82,396
Total liabilities and shareholders’ equity $ 565,110 $ 480,028


SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended Six Months Ended
February 23,
2018
November 24,
2017
February 24,
2017
February 23,
2018
February 24,
2017
Cash flows from operating activities:
Net income (loss) $ 36,794 $ 21,005 $ (2,337) $ 57,799 $ (5,544)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,358 6,270 8,991 12,628 17,553
Share-based compensation 1,697 1,605 1,094 3,302 2,144
Provision for doubtful accounts receivable and sales returns 39 28 18 67 (174)
Deferred income tax benefit (734) (220) (806) (954) (1,111)
Loss on disposal of property and equipment 244 129 244 129
Extinguishment loss on long-term debt 1,386 1,386
Amortization of debt discounts and issuance costs 722 729 2,922 1,451 3,944
Changes in operating assets and liabilities:
Accounts receivable 14,894 (55,801) (18,235) (40,907) 3,375
Inventories (17,810) (3,746) (35,351) (21,556) (26,351)
Prepaid expenses and other assets (67) 1,758 852 1,691 1,476
Accounts payable (10,145) 47,492 40,674 37,347 (15,726)
Accrued expenses and other liabilities 2,705 (4,863) 2,036 (2,158) 3,251
Net cash provided by (used in) operating activities 34,697 14,257 1,373 48,954 (15,648)
Cash flows from investing activities:
Capital expenditures and deposits on equipment (4,418) (6,039) (4,320) (10,457) (7,395)
Proceeds from sale of property and equipment 66 42 66 42
Net cash used in investing activities (4,352) (6,039) (4,278) (10,391) (7,353)
Cash flows from financing activities:
Long-term debt payment (6,125) (6,184) (6,404) (12,309) (11,735)
Payment for extinguishment of long-term debt (938) (938)
Fees paid for revolving line of credit refinancing (469) (299) (768)
Payment of costs related to initial public offering (302) (1,289) (1,591)
Proceeds from borrowings under revolving line of credit 103,000 105,500 105,000 208,500 215,250
Repayments of borrowings under revolving line of credit (103,000) (105,500) (105,000) (208,500) (215,250)
Proceeds from issuance of ordinary shares from share option exercise 3,638 539 4,177
Net cash used in financing activities (3,258) (7,233) (7,342) (10,491) (12,673)
Effect of exchange rate changes on cash and cash equivalents 1,226 82 (98) 1,308 381
Net increase (decrease) in cash and cash equivalents 28,313 1,067 (10,345) 29,380 (35,293)
Cash and cash equivalents at beginning of period 23,503 22,436 33,686 22,436 58,634
Cash and cash equivalents at end of period $ 51,816 $ 23,503 $ 23,341 $ 51,816 $ 23,341


Investor Contact:

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

Source:SMART Global Holdings, Inc.