NEWARK, Calif., Jan. 08, 2019 (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 2019 ended November 30, 2018.

   
First Quarter Fiscal 2019 Highlights:  
• Net sales of $393.9 million, 48% higher than year ago quarter
• GAAP operating income of $47.8 million  
• GAAP net income of $31.0 million  
• Adjusted EBITDA of $56.5 million  
• GAAP diluted earnings per share (EPS) of $1.33   
• Non-GAAP diluted EPS of $1.75  

“We had a strong start to fiscal 2019 with revenue in our first quarter exceeding the high end of our guidance and coming in at $393.9 million,” commented Ajay Shah, Chairman and Chief Executive Officer.  “Driving the quarter was continued success in our Specialty Memory business, as well as solid sequential growth from our new Specialty Compute & Storage Solutions business. Our business in Brazil also met expectations”

“Looking ahead we remain optimistic about our overall business. We are seeing increased seasonality during our second fiscal quarter in our Brazil business. However, our other lines of business are expected to perform at or above our previous expectations for fiscal Q2,” concluded Mr. Shah.

          
Quarterly Financial ResultsGAAP (1) Non-GAAP (2)  
(In millions, except per share amounts)Q1 FY19Q4 FY18Q1 FY18 Q1 FY19Q4 FY18Q1 FY18  
Net sales$  393.9$  374.0$  265.4 $  393.9$  374.0$  265.4  
Gross profit$  85.1$  82.7$  57.8 $  85.6$  83.8$  58.1  
Operating income$  47.8$  45.0$  31.5 $  54.4$  51.8$  34.6  
Net income$  31.0$  29.7$  21.0 $  40.6$  40.0$  26.3  
Diluted earnings per share (EPS)$  1.33$  1.28$  0.92 $  1.75$  1.72$  1.16  
          
(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 2019 ending March 1, 2019. These statements are forward-looking and actual results may differ materially. SMART undertakes no obligation to update these statements.

     
Net Sales - GAAP / Non-GAAP$310 to $325 million  
Gross Margin - GAAP / Non-GAAP18% to 20%  
Diluted EPS - GAAP$0.53 to $0.57  
    
Share-based compensation per share$0.16  
Intangible amortization per share$0.04  
    
Diluted EPS - Non-GAAP$0.73 to $0.77  
    
Expected diluted share count23.4 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 4068047.

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: 4068047.

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 industries 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; changes in seasonal impacts on our results; changes in currency exchange rates; overall information technology spending; appropriations for government spending; the success of our strategic initiatives including additional investments in new products, additional capacity and acquisitions; 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; strikes or labor disputes; deterioration in or loss of relations with any of our limited number of key vendors;  changes in the availability of supply of materials, components or memory products; the inability of Penguin Computing to obtain and retain security clearances to expand its government business; 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 and its subsidiaries operate 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 subsidiaries’ 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 non-GAAP gross profit, non-GAAP operating income, Adjusted EBITDA, non-GAAP net income and non-GAAP diluted EPS. We define Adjusted EBITDA as GAAP net income plus net interest expense, income tax expense, depreciation and amortization expense, share-based compensation expense, acquisition-related expenses, restructuring charges, 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 exclude share-based compensation expense, intangible amortization expense, acquisition-related expenses, and other infrequent or unusual items, and with respect to non-GAAP diluted EPS, foreign currency gains (losses). These non-GAAP financial measures are provided to enhance the user's overall understanding of our financial performance. By excluding these charges, 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 to Adjusted EBITDA” tables below for more detail on 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. With the addition of Penguin Computing and the creation of a new business unit, SMART Specialty Compute & Storage Solutions (SCSS), SMART has expanded its serviceable markets into areas requiring specialized computing platforms in artificial intelligence and machine learning, advanced modeling and high performance computing. 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 products in multiple geographies. See www.smartgh.comwww.smartm.comwww.smarth.comwww.smartsscs.com and www.penguincomputing.com for more information.

  
SMART Global Holdings, Inc. 
and Subsidiaries 
Consolidated Income Statements 
(In thousands, except per share data) 
            
      Three Months Ended 
       November 30,
2018 
  August 31,
2018
 
  November 24,
2017 
 
Net sales:         
 Brazil   $  199,279  $  198,624  $  157,850  
 Specialty Memory      139,949     122,820     107,559  
 Specialty Compute and Storage Solutions      54,651     52,526   —   
  Total net sales      393,879     373,970     265,409  
Cost of sales (1)(2)      308,810     291,291     207,573  
 Gross profit      85,069     82,679     57,836  
Operating expenses:         
 Research and development (1) (2)      11,816     11,659     8,550  
 Selling, general and administrative (1) (2)      25,454     29,039     17,818  
 Change in estimated fair value of acquisition-related        
  contingent consideration    —      (3,000)  —   
  Total operating expenses      37,270     37,698     26,368  
            
  Income from operations      47,799     44,981     31,468  
Other income (expense):         
 Interest expense, net      (5,875)    (6,217)    (4,599) 
 Other expense, net      (3,329)    (5,987)    (2,715) 
  Total other expense      (9,204)    (12,204)    (7,314) 
  Income before income taxes      38,595     32,777     24,154  
Provision for income taxes      7,619     3,059     3,149  
  Net income    $  30,976  $  29,718  $  21,005  
            
Earnings per share:         
 Basic   $  1.37  $  1.33  $  0.97  
 Diluted   $  1.33  $  1.28  $  0.92  
            
Shares used in computing earnings per share:         
 Basic      22,595     22,383     21,673  
 Diluted      23,257     23,270     22,715  
            
(1) Includes share-based compensation expense as follows:      
 Cost of sales   $  545  $  475  $  218  
 Research and development      634     572     274  
 Selling, general and administrative      2,876     2,911     1,113  
  Total stock-based compensation expense   $  4,055  $  3,958  $  1,605  
            
(2) Includes amortization of intangible assets expense as follows:     
 Cost of sales   $  16  $  7  $  —   
 Research and development    —      252     245  
 Selling, general and administrative      961     2,144     1,023  
  Total amortization expense   $  977  $  2,403  $  1,268  
            

 

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 30,
2018 
  August 31,
2018
 
  November 24,
2017 
Reconciliation of gross profit:        
GAAP gross profit   $  85,069  $  82,679  $  57,836 
 GAAP gross margin    21.6%  22.1%  21.8%
           
Add: Share-based compensation included in cost of sales      545     475     218 
Add: Intangible amortization included in cost of sales      16     7   —  
Add: Purchase accounting adjustment    —      631   —  
           
Non-GAAP gross profit   $   85,630   $   83,792   $   58,054  
 Non-GAAP gross margin    21.7%  22.4%  21.9%
           
Reconciliation of operating expenses:        
GAAP operating expenses   $  37,270  $  37,698  $  26,368 
           
Less: Share-based compensation expense included in opex        
 Research and development      634     572     274 
 Selling, general and administrative      2,876     2,911     1,113 
  Total      3,510     3,483     1,387 
           
Less: Amortization of intangible assets included in opex        
 Research and development    —      252     245 
 Selling, general and administrative      961     2,144     1,023 
  Total      961     2,396     1,268 
           
Less: S-1 related costs    —    —    300 
Less: Legal fees - term loan (payment holiday)      126   —    —  
Less: Acquisition-related expenses      1,423     2,844   —  
Less: Contingent consideration fair value adjustment    —      (3,000)  —  
           
Non-GAAP operating expenses   $   31,250   $   31,975   $   23,413  
           
Reconciliation of income from operations:        
GAAP income from operations   $  47,799  $  44,981  $  31,468 
 GAAP operating margin    12.1%  12.0%  11.9%
           
Add: Share-based compensation expense      4,055     3,958     1,605 
Add: Amortization of intangible assets      977     2,403     1,268 
Add: Purchase accounting adjustment    —      631   —  
Add: S-1 related costs    —    —    300 
Add: Legal fees - term loan (payment holiday)      126   —    —  
Add: Acquisition-related expenses      1,423     2,844   —  
Add: Contingent consideration fair value adjustment    —      (3,000)  —  
           
Non-GAAP income from operations   $   54,380   $   51,817   $   34,641  
 Non-GAAP operating margin    13.8%  13.9%  13.1%
           

 

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 30,
2018 
  August 31,
2018
 
  November 24,
2017 
Reconciliation of income before income taxes:        
GAAP income before income taxes   $  38,595  $  32,777  $  24,154 
Add: Share-based compensation expense      4,055     3,958     1,605 
Add: Amortization of intangible assets      977     2,403     1,268 
Add: Purchase accounting adjustment    —      631   —  
Add: S-1 related costs    —    —    300    
Add: Legal fees - term loan (payment holiday)      126   —    —  
Add: Acquisition-related expenses      1,423     2,844   —  
Add: Contingent consideration fair value adjustment    —      (3,000)  —  
Add: Foreign currency losses      3,384     5,968     2,742 
           
Non-GAAP income before income taxes   $   48,560   $   45,581   $   30,069  
           
Reconciliation of provision for income taxes:        
GAAP provision for income taxes   $  7,619  $  3,059  $  3,149 
 GAAP effective tax rate    19.7%  9.3%  13.0%
           
Tax effect of adjustments to GAAP results      (338)    (2,529)    (622)
           
Non-GAAP provision for income taxes   $  7,957  $  5,588  $  3,771 
 Non-GAAP effective tax rate    16.4%  12.3%  12.5%
           
Reconciliation of net income and earnings per share (diluted):       
GAAP net income   $  30,976  $  29,718  $  21,005 
           
Adjustments to GAAP net income:        
 Share-based compensation      4,055     3,958     1,605 
 Amortization of intangible assets      977     2,403     1,268 
 Purchase accounting adjustment    —      631   —  
 S-1 related costs    —    —    300    
 Legal fees - term loan (payment holiday)      126   —    —  
 Acquisition related expenses      1,423     2,844   —  
 Contingent consideration fair value adjustment    —      (3,000)  —  
 Foreign currency losses      3,384     5,968     2,742 
 Tax effect of items excluded from non-GAAP results      (338)    (2,529)    (622)
           
Non-GAAP net income   $   40,603   $   39,993   $   26,298  
           
Shares used in computing earnings per share (diluted)      23,257     23,270     22,715 
           
Non-GAAP earnings per share (diluted)   $   1.75   $   1.72   $   1.16  
           
GAAP income per share (diluted)   $  1.33  $  1.28  $  0.92 
           

 

SMART Global Holdings, Inc.    
and Subsidiaries    
Reconciliation of GAAP Net Income to Adjusted EBITDA    
(In thousands)    
             
    Three Months Ended    
     November 30,
2018 
  August 31,
2018
 
  November 24,
2017 
    
             
GAAP net income $  30,976 $  29,718  $  21,005    
             
 Share-based compensation expense    4,055    3,958   1,605    
 Amortization of intangible assets    977    2,403   1,268    
 Interest expense, net    5,875    6,217   4,599    
 Provision for income tax    7,619    3,059   3,149    
 Depreciation    5,431    5,124   5,002    
 S-1 related costs  —   —    300    
 Legal fees - term loan (payment holiday)    126  —    —     
 Purchase accounting adjustment(1)  —     631   —     
 Acquisition-related expenses(1)    1,423    2,844   —     
 Contingent consideration fair value adjustment(1)  —     (3,000)  —     
             
 Adjusted EBITDA $  56,482 $  50,954  $  36,928    
             
 (1) Amounts in Q1'19 and Q4'18 related to acquisition of Penguin Computing in June 2018.
             
             

 

SMART Global Holdings, Inc. 
and Subsidiaries 
Consolidated Balance Sheets 
(In thousands) 
            
        November 30, August 31, 
         2018   2018  
Assets     
Current assets:      
 Cash and cash equivalents $  62,954  $  31,375  
 Accounts receivable, net     330,473     237,212  
 Inventories     188,390     221,419  
 Prepaid expenses and other current assets    40,351     32,043  
     Total current assets    622,168     522,049  
Property and equipment, net    60,412     56,615  
Other noncurrent assets    17,561     22,449  
Intangible assets, net    25,279     26,255  
Goodwill     45,655     45,394  
     Total assets $  771,075  $  672,762  
Liabilities and Shareholders’ Equity     
Current liabilities:     
 Accounts payable $  273,655  $  223,186  
 Accrued liabilities    49,317     45,190  
 Current portion of long-term debt    9,868     27,409  
     Total current liabilities    332,840     295,785  
Long-term debt     200,532     184,190  
Other long-term liabilities    8,038     5,659  
     Total liabilities $  541,410  $  485,634  
Shareholders’ equity:     
 Ordinary shares    687     678  
 Additional paid-in capital    257,607     250,191  
 Accumulated other comprehensive loss    (172,893)    (175,995) 
 Retained earnings    144,264     112,254  
     Total shareholders’ equity     229,665     187,128  
     Total liabilities and shareholders’ equity $  771,075  $  672,762  
            

 

SMART Global Holdings, Inc. 
and Subsidiaries 
Consolidated Statements of Cash Flows 
(In thousands) 
              
        Three Months Ended 
        November 30,
2018
 August 31,
2018
 November 24,
2017
 
Cash flows from operating activities:       
 Net income  $  30,976  $  29,718  $  21,005  
 Adjustments to reconcile net income to net cash        
  provided by (used in) operating activities:       
   Depreciation and amortization    6,408     7,526     6,270  
   Share-based compensation    4,055     3,958     1,605  
   Provision for doubtful accounts receivable and sales returns    (104)    (73)    28  
   Deferred income tax benefit    403     (1,444)    (220) 
   Loss on disposal of property and equipment    3     461   —   
   Amortization of debt discounts and issuance costs    685     807     729  
   Change in fair value of contingent consideration  —      (3,000)  —   
   Changes in operating assets and liabilities:       
    Accounts receivable    (89,441)    31,409     (55,801) 
    Inventories    30,576     (14,495)    (3,746) 
    Prepaid expenses and other assets    (3,182)    (5,241)    1,758  
    Accounts payable    48,574     (66,331)    47,492  
    Accrued expenses and other liabilities    6,399     7,321     (4,863) 
     Net cash provided by (used in) operating activities    35,352     (9,384)    14,257  
Cash flows from investing activities:       
 Capital expenditures and deposits on equipment    (13,384)    (7,487)    (6,039) 
 Proceeds from sale of property and equipment  21     204   —   
 Acquisition of business, net of cash acquired  —      (42,316)  —   
     Net cash used in investing activities    (13,363)    (49,599)    (6,039) 
Cash flows from financing activities:       
 Long-term debt payment    (1,657)    (5,865)    (6,184) 
 Proceeds from issuance of long-term debt, net of costs paid  —      59,365   —   
 Fees paid for revolving line of credit refinancing  —    —      (299) 
 Payment of costs related to initial public offering  —    —      (1,289) 
 Proceeds from borrowings under revolving line of credit    104,000     151,895     105,500  
 Repayments of borrowings under revolving line of credit    (104,000)    (184,184)    (105,500) 
 Proceeds from issuance of ordinary shares from share option exercises   2,402     1,324     539  
 Proceeds from issuance of ordinary shares from ESPP    968   —    —   
     Net cash provided by (used in) financing activities    1,713     22,535     (7,233) 
 Effect of exchange rate changes on the cash, cash equivalents       
  and restricted cash *    2,018     2,867     (231) 
     Net increase (decrease) in cash and cash equivalents        
      and restricted cash *    25,720     (33,581)    754  
Cash, cash equivalents, and restricted cash at beginning of period *    37,234     70,815     29,463  
Cash, cash equivalents, and restricted cash at end of period * $  62,954  $  37,234  $  30,217  
              
              
* Cash balance was adjusted to include restricted cash upon adoption of ASU 2016-18 in fiscal 2019.    
                

Investor Contacts:
Karl Motey
Vice President
Strategic Marketing and Communications
(510) 624-8213
karl.motey@smartm.com 

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