SMART Global Holdings Reports First Quarter Fiscal 2020 Financial Results

NEWARK, Calif., Dec. 19, 2019 (GLOBE NEWSWIRE) -- SMART Global Holdings, Inc. (“SMART” or the “Company”) (NASDAQ: SGH), today reported financial results for the first quarter of fiscal 2020 ended November 29, 2019.

First Quarter Fiscal 2020 Highlights:

  • Net sales of $272.0 million
  • Adjusted EBITDA of $23.5 million
  • GAAP diluted EPS of $0.01
  • Non-GAAP diluted EPS of $0.55
  • Increased cash and equivalents to $111.4 million
  • Reduced net long-term debt to $200.3 million

“In the first quarter of fiscal 2020, our Memory businesses, Specialty Memory Products and Brazil memory performed at or above expectations. In our Specialty Compute business, our two new acquisitions in July 2019 performed as expected, while our high performance computing business, Penguin Computing, experienced worse than expected seasonal weakness. We remain disciplined in managing our operating model and continue to drive improvements across all of our businesses. During the quarter, we meaningfully increased our cash position while reducing our debt. Overall we were able to increase non-GAAP EPS quarter-over-quarter in a difficult memory market,” commented Ajay Shah, Chairman and CEO.    

“In Brazil, having completed our first full quarter under the new points-based system for local manufacturing, we are encouraged by the results with units and revenues increasing from the previous quarter,” continued Mr. Shah.

“Looking forward, we continue to see improvement in our Memory related businesses and expect our second quarter to be the low point in this market,” concluded Mr. Shah.

                   
Quarterly Financial Results GAAP (1)   Non-GAAP (2)    
(In millions, except per share amounts) Q1 FY20 Q4 FY19 Q1 FY19   Q1 FY20 Q4 FY19 Q1 FY19    
Net sales $ 272.0 $ 278.4 $ 393.9   $ 272.0 $ 278.4 $ 393.9    
Gross profit $ 54.3 $ 52.3 $ 85.1   $ 55.7 $ 53.4 $ 85.6    
Operating income $ 5.9 $ 11.4 $ 47.8   $ 18.2 $ 18.0 $ 54.4    
Net income $ 0.2 $ 5.6 $ 31.0   $ 13.4 $ 11.9 $ 40.6    
Diluted earnings per share (EPS) $ 0.01 $ 0.24 $ 1.33   $ 0.55 $ 0.50 $ 1.75    
                   
(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" tables 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 2020 ending February 28, 2020. These statements are forward-looking and actual results may differ materially. SMART undertakes no obligation to update these statements.

Net Sales  $265 to $275 million
Gross Margin - GAAP / Non-GAAP 19% to 21%
Diluted EPS - GAAP $0.14 ± $0.05
   
Share-based compensation per share $0.22
Intangible amortization per share $0.14
   
Diluted EPS - Non-GAAP $0.50 ± $0.05
   
Expected diluted share count 24.0 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 4198684.

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: 4198684.

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; trade regulations and relations; 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 net income per diluted share. 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, integration expenses 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 expenses, 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 (Loss) to Adjusted EBITDA” tables below for more detail on non-GAAP calculations.

About SMART Global Holdings
The SMART lines of business are leading designers and manufacturers of electronic products focused on memory and computing technology areas. The company specializes in application specific product development and support for customers in enterprise, government and OEM sales channels. Customers rely on SMART as a strategic supplier with top tier customer service, product quality, and technical support with engineering, sales, manufacturing, supply chain and logistics capabilities worldwide. The company targets customers in markets such as communications, storage, networking, mobile, industrial automation, industrial internet of things, government, military, edge computing and high performance computing.  SMART operates in three primary product areas: specialty memory products, Brazil products and specialty compute and storage solutions.

See www.smartgh.com, www.smartm.comwww.smartembedded.com, www.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 29,
2019
  August 30,
2019
  November 30,
2018
 
Net sales:                  
  Specialty Memory Products       $ 103,529     $ 104,634     $ 139,949    
  Brazil Products         93,999       89,123       199,279    
  Specialty Compute and Storage Solutions         74,490       84,643       54,651    
    Total net sales         272,018       278,400       393,879    
Cost of sales (1)(2)         217,698       226,108       308,810    
  Gross profit         54,320       52,292       85,069    
Operating expenses:                  
  Research and development (1)         14,886       13,536       11,816    
  Selling, general and administrative (1) (2)         33,553       30,024       25,454    
  Change in estimated fair value of acquisition-related              
    contingent consideration         —        (2,700 )     —     
    Total operating expenses         48,439       40,860       37,270    
    Income from operations         5,881       11,432       47,799    
Other income (expense):                  
  Interest expense, net         (4,492 )     (4,567 )     (5,875 )  
  Other income (expense), net         (840 )     819       (3,329 )  
    Total other expense         (5,332 )     (3,748 )     (9,204 )  
    Income before income taxes         549       7,684       38,595    
Provision for income taxes         325       2,059       7,619    
    Net income       $ 224     $ 5,625     $ 30,976    
                       
Earnings per share:                  
  Basic       $ 0.01     $ 0.24     $ 1.37    
  Diluted       $ 0.01     $ 0.24     $ 1.33    
                       
Shares used in computing earnings per share:                  
  Basic         23,713       23,366       22,595    
  Diluted         24,286       23,825       23,257    
                       
(1) Includes share-based compensation expense as follows:              
  Cost of sales       $ 730     $ 682     $ 545    
  Research and development         744       687       634    
  Selling, general and administrative         4,482       4,194       2,876    
    Total stock-based compensation expense       $ 5,956     $ 5,563     $ 4,055    
                       
(2) Includes amortization of intangible assets expense as follows:              
  Cost of sales       $ 647     $ 436     $ 16    
  Selling, general and administrative         2,766       2,165       961    
    Total amortization expense       $ 3,413     $ 2,601     $ 977    
                       

 


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 29,
2019
  August 30,
2019
  November 30,
2018
 
Reconciliation of gross profit:                  
GAAP gross profit       $ 54,320     $ 52,292     $ 85,069    
  GAAP gross margin         20.0 %     18.8 %     21.6 %  
                       
Add: Share-based compensation included in cost of sales       730       682       545    
Add: Intangible amortization included in cost of sales         647       436       16    
                       
Non-GAAP gross profit       $ 55,697     $ 53,410     $ 85,630    
  Non-GAAP gross margin         20.5 %     19.2 %     21.7 %  
                       
Reconciliation of operating expenses:                  
GAAP operating expenses       $ 48,439     $ 40,860     $ 37,270    
                       
Less: Share-based compensation expense included in opex              
  Research and development         744       687       634    
  Selling, general and administrative         4,482       4,194       2,876    
    Total         5,226       4,881       3,510    
                       
Less: Amortization of intangible assets included in opex                  
  Selling, general and administrative         2,766       2,165       961    
    Total         2,766       2,165       961    
                       
Less: Legal fees - term loan (payment holiday)         —        —        126    
Less: Acquisition-related expenses         946       1,068       1,423    
Less: Integration expenses         2,052       —        —     
Less: Contingent consideration fair value adjustment         —        (2,700 )     —     
                       
Non-GAAP operating expenses       $ 37,449     $ 35,446     $ 31,250    
                       
Reconciliation of income from operations:                  
GAAP income from operations       $ 5,881     $ 11,432     $ 47,799    
  GAAP operating margin         2.2 %     4.1 %     12.1 %  
                       
Add: Share-based compensation expense         5,956       5,563       4,055    
Add: Amortization of intangible assets         3,413       2,601       977    
Add: Legal fees - term loan (payment holiday)         —        —        126    
Add: Acquisition-related expenses         946       1,068       1,423    
Add: Integration expenses         2,052       —        —     
Add: Contingent consideration fair value adjustment         —        (2,700 )     —     
                       
Non-GAAP income from operations       $ 18,248     $ 17,964     $ 54,380    
  Non-GAAP operating margin         6.7 %     6.5 %     13.8 %  
                       


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 29,
2019
  August 30,
2019
  November 30,
2018
 
Reconciliation of income before income taxes:                  
GAAP income before income taxes       $ 549     $ 7,684     $ 38,595    
Add: Share-based compensation expense         5,956       5,563       4,055    
Add: Amortization of intangible assets         3,413       2,601       977    
Add: Legal fees - Term loan (payment holiday)         —        —        126    
Add: Acquisition-related expenses         946       1,068       1,423    
Add: Integration expenses          2,052       —        —     
Add: Contingent consideration fair value adjustment         —        (2,700 )     —     
Add: Foreign currency (gains)/losses         911       (332 )     3,384    
                       
Non-GAAP income before income taxes       $ 13,827     $ 13,884     $ 48,560    
                       
Reconciliation of provision for income taxes:                  
GAAP provision for income taxes       $ 325     $ 2,059     $ 7,619    
  GAAP effective tax rate         59.2 %     26.8 %     19.7 %  
                       
Tax effect of adjustments to GAAP results         (91 )     33       (338 )  
                       
Non-GAAP provision for income taxes       $ 416     $ 2,026     $ 7,957    
  Non-GAAP effective tax rate         3.0 %     14.6 %     16.4 %  
                       
Reconciliation of net income and earnings per share (diluted):          
GAAP net income       $ 224     $ 5,625     $ 30,976    
                       
Adjustments to GAAP net income:                  
  Share-based compensation         5,956       5,563       4,055    
  Amortization of intangible assets         3,413       2,601       977    
  Legal fees - Term loan (payment holiday)         —        —        126    
  Acquisition related expenses         946       1,068       1,423    
  Integration expenses         2,052       —        —     
  Contingent consideration fair value adjustment         —        (2,700 )     —     
  Foreign currency (gains)/losses         911       (332 )     3,384    
  Tax effect of items excluded from non-GAAP results       (91 )     33       (338 )  
                       
Non-GAAP net income       $ 13,411     $ 11,858     $ 40,603    
                       
Shares used in computing earnings per share (diluted)         24,286       23,825       23,257    
                       
Non-GAAP earnings per share (diluted)       $ 0.55     $ 0.50     $ 1.75    
                       
GAAP earnings per share (diluted)       $ 0.01     $ 0.24     $ 1.33    
                       


SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of GAAP Net Income to Adjusted EBITDA
(In thousands)
                     
          Three Months Ended  
          November 29,
2019
  August 30,
2019
  November 30,
2018
 
                     
GAAP net income     $ 224   $ 5,625     $ 30,976  
                     
  Share-based compensation expense       5,956     5,563       4,055  
  Amortization of intangible assets       3,413     2,601       977  
  Interest expense, net       4,492     4,567       5,875  
  Provision for income tax       325     2,059       7,619  
  Depreciation       6,131     6,452       5,431  
  Legal fees - term loan (payment holiday)       —      —        126  
  Acquisition-related expenses(1)       946     1,068       1,423  
  Integration expenses         2,052     —        —   
  Contingent consideration fair value adjustment(1)     —      (2,700 )     —   
                     
  Adjusted EBITDA     $ 23,539   $ 25,235     $ 56,482  
                     
                     
  (1) Amounts in FY20 & FY19 related to acquisitions of new business, SMART EC & Wireless (July 2019) and Penguin Computing (June 2018).    


SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Balance Sheets
(In thousands)
                     
                November 29,   August 30,
    2019   2019
Assets
           
Current assets:          
  Cash and cash equivalents   $ 111,389   $ 98,139
  Accounts receivable, net   228,782   217,433
  Inventories       159,999   118,738
  Prepaid expenses and other current assets   32,158   37,950
Total current assets   532,328   472,260
Property and equipment, net   63,902   68,345
Operating lease right-of-use assets   27,211   — 
Other noncurrent assets   13,512   12,784
Intangible assets, net   65,912   69,325
Goodwill         79,868   81,423
Total assets   $ 782,733   $ 704,137
Liabilities and Shareholders’ Equity        
Current liabilities:        
  Accounts payable   $ 224,213   $ 164,866
  Accrued liabilities   52,723   48,980
  Current portion of long-term debt   23,039   24,054
Total current liabilities   299,975   237,900
Long-term debt     177,303   182,450
Long-term operating lease liabilities   23,452   — 
Other long-term liabilities   10,219   10,327
Total liabilities   510,949   430,677
Shareholders’ equity:        
  Ordinary shares   718   712
  Additional paid-in capital   294,332   285,994
  Accumulated other comprehensive loss   (188,110)   (177,866)
  Retained earnings   164,844   164,620
Total shareholders’ equity   271,784   273,460
Total liabilities and shareholders’ equity   $ 782,733   $ 704,137
                     



SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
 
                Three Months Ended
                November 29,
2019
  August 30,
2019
  November 30,
2018
Cash flows from operating activities:            
  Net income     $ 224     $ 5,625     $ 30,976  
  Adjustments to reconcile net income to net cash            
    provided by (used in) operating activities:            
      Depreciation and amortization     9,544       9,054       6,408  
      Share-based compensation     5,956       5,563       4,055  
      Provision for doubtful accounts receivable and sales returns     73       (66 )     (104 )
      Deferred income tax benefit     (970 )     (1,149 )     403  
      (Gain) Loss on disposal of property and equipment     (42 )     56       3  
      Amortization of debt discounts and issuance costs     734       718       685  
      Amortization of operating lease right-of-use assets     1,114       —        —   
      Change in fair value of contingent consideration     —        (2,700 )     —   
      Changes in operating assets and liabilities:            
        Accounts receivable     (13,688 )     27,582       (89,441 )
        Inventories     (42,206 )     19,312       30,576  
        Prepaid expenses and other assets     5,110       (3,393 )     (3,182 )
        Accounts payable     60,438       (19,684 )     48,574  
        Operating lease liabilities     (1,082 )     —        —   
        Accrued expenses and other liabilities     62       8,023       6,399  
          Net cash provided by operating activities     25,267       48,941       35,352  
Cash flows from investing activities:            
  Capital expenditures and deposits on equipment     (5,158 )     (3,321 )     (13,384 )
  Proceeds from sale of property and equipment     42       10       21  
  Acquisitions of business, net of cash acquired     —        (75,940 )     —   
          Net cash used in investing activities     (5,116 )     (79,251 )     (13,363 )
Cash flows from financing activities:            
  Long-term debt payment     (6,435 )     (1,680 )     (1,657 )
  Proceeds from borrowings under revolving line of credit     12,500       19,000       104,000  
  Repayments of borrowings under revolving line of credit     (12,500 )     (19,000 )     (104,000 )
  Proceeds from issuance of ordinary shares from share option exercises   1,166       1,300       2,402  
  Proceeds from issuance of ordinary shares from ESPP     1,242       —        968  
  Withholding tax on restricted stock units     (20 )     (290 )     —   
          Net cash provided by (used in) financing activities     (4,047 )     (670 )     1,713  
  Effect of exchange rate changes on the cash, cash equivalents            
    and restricted cash *     (2,854 )     3,020       2,018  
          Net increase (decrease) in cash and cash equivalents            
            and restricted cash *     13,250       (27,960 )     25,720  
Cash, cash equivalents, and restricted cash at beginning of period *     98,139       126,099       37,234  
Cash, cash equivalents, and restricted cash at end of period *   $ 111,389     $ 98,139     $ 62,954  
                         
                         
* Cash balance was adjusted to include restricted cash upon adoption of ASU 2016-18 in fiscal 2019.        
                         


Investor Contact:

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

SGH_Logo_2.jpg

Source: SMART Global Holdings, Inc.