SMART Global Holdings Reports First Quarter Fiscal 2018 Financial Results

2017-12-21 / @nasdaq

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 Results	GAAP ⁽¹⁾								Non-GAAP ⁽²⁾
(In millions, except per share amounts)	Q1 FY18		Q4 FY17			Q1 FY17			Q1 FY18		Q4 FY17		Q1 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-GAAP	21% 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 count	23.0 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