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.comwww.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