sgh-10q_20190531.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-38102

 

SMART GLOBAL HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Cayman Islands

98-1013909

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

c/o Maples Corporate Services Limited

P.O. Box 309

Ugland House

Grand Cayman, Cayman Islands

KY1-1104

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (510) 623-1231

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Ordinary shares, $0.03 par value per share

SGH

The NASDAQ Stock Market LLC

(NASDAQ Global Select Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of May 31, 2019, the registrant had 23,081,158 ordinary shares outstanding.

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

3

Item 1.

Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Income Statements

4

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

5

 

Condensed Consolidated Statement of Equity

6

 

Condensed Consolidated Statements of Cash Flows

8

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

37

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

42

Item 4.

Controls and Procedures

42

PART II.

OTHER INFORMATION

44

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

Item 3.

Defaults Upon Senior Securities

45

Item 4.

Mine Safety Disclosures

45

Item 6.

Exhibits

46

Signatures

47

 

 

1


 

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve many risks and uncertainties. Forward-looking statements are identified by the use of the words “would,” “could,” “will,” “may,” “expect,” “believe,” “should,” “anticipate,” “if,” “future,” “intend,” “plan,” “estimate,” “potential,” “target,” “seek,” or “continue” and similar words and phrases, including the negatives of these terms, or other variations of these terms, that denote future events. These statements reflect our current views with respect to future events and our potential financial performance and are subject to risks and uncertainties that could cause our actual results and financial position to differ materially and adversely from what is projected or implied in any forward-looking statements included in this report. These factors include, but are not limited to, the risks described under the caption “Risk Factors” in the documents we file from time to time with the Securities and Exchange Commission, including in our Annual Report on Form 10-K for our fiscal year ended August 31, 2018, and in this report, and in Item 2 of Part I – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We make these forward-looking statements based upon information available on the date of this report, and we expressly disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information or otherwise, except as required by law.

 

 

2


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

SMART Global Holdings, Inc.

and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

 

 

 

May 31,

 

 

August 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

126,099

 

 

$

31,375

 

Accounts receivable, net of allowances of $200 and $225 as of May 31, 2019

   and August 31, 2018, respectively

 

 

230,177

 

 

 

237,212

 

Inventories

 

 

132,816

 

 

 

221,419

 

Prepaid expenses and other current assets

 

 

31,052

 

 

 

32,043

 

Total current assets

 

 

520,144

 

 

 

522,049

 

Property and equipment, net

 

 

67,135

 

 

 

56,615

 

Other noncurrent assets

 

 

14,603

 

 

 

22,449

 

Intangible assets, net

 

 

23,326

 

 

 

26,255

 

Goodwill

 

 

44,805

 

 

 

45,394

 

Total assets

 

$

670,013

 

 

$

672,762

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

177,519

 

 

$

223,186

 

Accrued liabilities

 

 

36,059

 

 

 

45,190

 

Current portion of long-term debt

 

 

19,087

 

 

 

27,409

 

Total current liabilities

 

 

232,665

 

 

 

295,785

 

Long-term debt

 

 

188,428

 

 

 

184,190

 

Other long-term liabilities

 

 

6,840

 

 

 

5,659

 

Total liabilities

 

$

427,933

 

 

$

485,634

 

Commitments and contingencies (see Note 10)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Ordinary shares, $0.03 par value. Authorized 200,000 shares; issued and

   outstanding 23,081 and 22,480 as of May 31, 2019 and August 31, 2018,

   respectively

 

 

696

 

 

 

678

 

Additional paid-in capital

 

 

268,652

 

 

 

250,191

 

Accumulated other comprehensive loss

 

 

(186,263

)

 

 

(175,995

)

Retained earnings

 

 

158,995

 

 

 

112,254

 

Total shareholders’ equity

 

 

242,080

 

 

 

187,128

 

Total liabilities and shareholders’ equity

 

$

670,013

 

 

$

672,762

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

3


 

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Income Statements

(In thousands, except per share data)

(Unaudited)

 

  

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

May 31,

 

 

May 25,

 

 

May 31,

 

 

May 25,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net sales (1)

 

$

235,657

 

 

$

335,477

 

 

$

933,599

 

 

$

914,851

 

Cost of sales

 

 

192,622

 

 

 

257,423

 

 

 

748,364

 

 

 

705,944

 

Gross profit

 

 

43,035

 

 

 

78,054

 

 

 

185,235

 

 

 

208,907

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

11,330

 

 

 

9,763

 

 

 

34,384

 

 

 

28,165

 

Selling, general, and administrative

 

 

24,306

 

 

 

19,597

 

 

 

73,202

 

 

 

55,502

 

Total operating expenses

 

 

35,636

 

 

 

29,360

 

 

 

107,586

 

 

 

83,667

 

Income from operations

 

 

7,399

 

 

 

48,694

 

 

 

77,649

 

 

 

125,240

 

Interest expense, net

 

 

(5,001

)

 

 

(4,098

)

 

 

(16,149

)

 

 

(12,927

)

Other income (expense), net

 

 

97

 

 

 

(7,145

)

 

 

(2,980

)

 

 

(7,312

)

Total other expense

 

 

(4,904

)

 

 

(11,243

)

 

 

(19,129

)

 

 

(20,239

)

Income before income taxes

 

 

2,495

 

 

 

37,451

 

 

 

58,520

 

 

 

105,001

 

Provision for income taxes

 

 

550

 

 

 

5,505

 

 

 

12,813

 

 

 

15,256

 

Net income

 

$

1,945

 

 

$

31,946

 

 

$

45,707

 

 

$

89,745

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.08

 

 

$

1.44

 

 

$

2.00

 

 

$

4.09

 

Diluted

 

$

0.08

 

 

$

1.37

 

 

$

1.96

 

 

$

3.90

 

Shares used in computing earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

23,005

 

 

 

22,206

 

 

 

22,824

 

 

 

21,932

 

Diluted

 

 

23,330

 

 

 

23,306

 

 

 

23,374

 

 

 

23,020

 

 

(1)

Includes sales to affiliates of $26,427 and $94,641 in the three and nine months ended May 31, 2019, respectively, and $39,665 and $100,737 for the corresponding periods of fiscal 2018.   (see Note 3).

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

4


 

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

May 31,

 

 

May 25,

 

 

May 31,

 

 

May 25,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

1,945

 

 

$

31,946

 

 

$

45,707

 

 

$

89,745

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

(16,209

)

 

 

(17,974

)

 

 

(10,268

)

 

 

(18,740

)

Comprehensive income (loss)

 

$

(14,264

)

 

$

13,972

 

 

$

35,439

 

 

$

71,005

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5


 

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statement of Equity

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Retained

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

other

 

 

earnings

 

 

 

 

Total

 

 

 

Ordinary shares

 

 

paid-in

 

 

comprehensive

 

 

(accumulated

 

 

 

 

shareholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

deficit)

 

 

 

 

equity

 

Balances as of August 25, 2017

 

 

21,666

 

 

$

653

 

 

$

232,162

 

 

$

(143,210

)

 

$

(7,209

)

 

 

 

$

82,396

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,605

 

 

 

 

 

 

 

 

 

 

 

1,605

 

Issuance of ordinary shares from exercises

 

 

81

 

 

 

3

 

 

 

919

 

 

 

 

 

 

 

 

 

 

 

922

 

Issuance of ordinary shares from release of

   restricted stock units

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

(7,177

)

 

 

 

 

 

 

 

(7,177

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,005

 

 

 

 

 

21,005

 

Balance as of November 24, 2017

 

 

21,751

 

 

 

656

 

 

 

234,686

 

 

 

(150,387

)

 

 

13,796

 

 

 

 

 

98,751

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,697

 

 

 

 

 

 

 

 

 

 

 

1,697

 

Issuance of ordinary shares from exercises

 

 

300

 

 

 

9

 

 

 

3,246

 

 

 

 

 

 

 

 

 

 

 

3,255

 

Issuance of ordinary shares from release of

   restricted stock units

 

 

55

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

6,411

 

 

 

 

 

 

 

 

6,411

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36,794

 

 

 

 

 

36,794

 

Balance as of February 23, 2018

 

 

22,106

 

 

 

666

 

 

 

239,628

 

 

 

(143,976

)

 

 

50,590

 

 

 

 

 

146,908

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,297

 

 

 

 

 

 

 

 

 

 

 

3,297

 

Issuance of ordinary shares from exercises

 

 

202

 

 

 

6

 

 

 

2,172

 

 

 

 

 

 

 

 

 

 

 

2,178

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

(17,974

)

 

 

 

 

 

 

 

(17,974

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31,946

 

 

 

 

 

31,946

 

Balance as of May 25, 2018

 

 

22,308

 

 

$

672

 

 

$

245,097

 

 

$

(161,950

)

 

$

82,536

 

 

 

 

$

166,355

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

6


 

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statement of Equity (continued)

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

other

 

 

 

 

 

 

Total

 

 

 

Ordinary shares

 

 

paid-in

 

 

comprehensive

 

 

Retained

 

 

shareholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

earnings

 

 

equity

 

Balances as of August 31, 2018

 

 

22,480

 

 

$

678

 

 

$

250,191

 

 

$

(175,995

)

 

$

112,254

 

 

$

187,128

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,055

 

 

 

 

 

 

 

 

 

4,055

 

Issuance of ordinary shares from exercises

 

 

210

 

 

 

6

 

 

 

2,396

 

 

 

 

 

 

 

 

 

2,402

 

Issuance of ordinary shares from release of

   restricted stock units

 

 

55

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Issuance of ordinary shares from

   employee share purchase plan

 

 

36

 

 

 

1

 

 

 

967

 

 

 

 

 

 

 

 

 

968

 

Effect of adopting ASC 606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,034

 

 

 

1,034

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

3,102

 

 

 

 

 

 

3,102

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,976

 

 

 

30,976

 

Balance as of November 30, 2018

 

 

22,781

 

 

 

687

 

 

 

257,607

 

 

 

(172,893

)

 

 

144,264

 

 

 

229,665

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,148

 

 

 

 

 

 

 

 

 

4,148

 

Issuance of ordinary shares from exercises

 

 

87

 

 

 

3

 

 

 

1,068

 

 

 

 

 

 

 

 

 

1,071

 

Issuance of ordinary shares from release of

   restricted stock units

 

 

67

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Withholding tax on restricted stock units

 

 

(8

)

 

 

 

 

 

(219

)

 

 

 

 

 

 

 

 

(219

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

2,839

 

 

 

 

 

 

2,839

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,786

 

 

 

12,786

 

Balance as of March 1, 2019

 

 

22,927

 

 

 

691

 

 

 

262,603

 

 

 

(170,054

)

 

 

157,050

 

 

 

250,290

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,433

 

 

 

 

 

 

 

 

 

4,433

 

Issuance of ordinary shares from exercises

 

 

28

 

 

 

1

 

 

 

296

 

 

 

 

 

 

 

 

 

297

 

Issuance of ordinary shares from release of

   restricted stock units

 

 

52

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Issuance of ordinary shares from

   employee share purchase plan

 

 

74

 

 

 

2

 

 

 

1,333

 

 

 

 

 

 

 

 

 

1,335

 

Withholding tax on restricted stock units

 

 

 

 

 

 

 

 

(11

)

 

 

 

 

 

 

 

 

(11

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

(16,209

)

 

 

 

 

 

(16,209

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,945

 

 

 

1,945

 

Balance as of May 31, 2019

 

 

23,081

 

 

$

696

 

 

$

268,652

 

 

$

(186,263

)

 

$

158,995

 

 

$

242,080

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

7


 

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

May 31,

 

 

May 25,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

45,707

 

 

$

89,745

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

20,152

 

 

 

18,656

 

Share-based compensation

 

 

12,636

 

 

 

6,599

 

Provision for doubtful accounts receivable and sales returns

 

 

(24

)

 

 

(13

)

Deferred income tax benefit

 

 

430

 

 

 

(1,376

)

(Gain) loss on disposal of property and equipment

 

 

21

 

 

 

230

 

Write off of long-term asset

 

 

 

 

 

250

 

Amortization of debt discounts and issuance costs

 

 

2,085

 

 

 

2,165

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

7,658

 

 

 

(86,706

)

Inventories

 

 

82,771

 

 

 

(27,940

)

Prepaid expenses and other assets

 

 

1,787

 

 

 

(3,495

)

Accounts payable

 

 

(44,885

)

 

 

83,879

 

Accrued expenses and other liabilities

 

 

(7,622

)

 

 

(4,703

)

Net cash provided by operating activities

 

 

120,716

 

 

 

77,291

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures and deposits on equipment

 

 

(30,112

)

 

 

(18,251

)

Proceeds from sale of property and equipment

 

 

71

 

 

 

101

 

Acquisition of business, net of cash acquired

 

 

(148

)

 

 

 

Net cash used in investing activities

 

 

(30,189

)

 

 

(18,150

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Fees paid for revolving line of credit financing

 

 

 

 

 

(768

)

Long-term debt payment

 

 

(5,073

)

 

 

(18,402

)

Payment of costs related to initial public offering (IPO)

 

 

 

 

 

(1,591

)

Proceeds from borrowings under revolving line of credit

 

 

235,500

 

 

 

277,500

 

Repayments of borrowings under revolving line of credit

 

 

(235,500

)

 

 

(277,500

)

Proceeds from issuance of ordinary shares from share option exercises

 

 

3,770

 

 

 

6,170

 

Proceeds from issuance of ordinary shares from employee share purchase plan

 

 

2,303

 

 

 

 

Withholding tax on restricted stock units

 

 

(230

)

 

 

 

Net cash provided by (used in) financing activities

 

 

770

 

 

 

(14,591

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash *

 

 

(2,432

)

 

 

(3,198

)

Net increase in cash, cash equivalents and restricted cash *

 

 

88,865

 

 

 

41,352

 

Cash, cash equivalents and restricted cash at beginning of period *

 

 

37,234

 

 

 

29,463

 

Cash, cash equivalents and restricted cash at end of period *

 

$

126,099

 

 

$

70,815

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

14,888

 

 

$

11,048

 

Cash paid for income taxes, net of refunds

 

 

13,817

 

 

 

17,085

 

Noncash activities information:

 

 

 

 

 

 

 

 

Capital expenditures included in accounts payable at period end

 

 

2,455

 

 

 

2,905

 

Unpaid debt fees related to term loan and revolver

 

 

 

 

 

469

 

Proceeds receivable from the exercise of stock options

 

 

 

 

 

(198

)

 

 

 

 

 

 

 

 

 

* Cash balance was adjusted to include restricted cash upon adoption of ASU 2016-18 in fiscal 2019.

 

 

See accompanying notes to unaudited condensed consolidated financial statements.