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SMART Global Holdings Reports Fourth Quarter and Full Year Fiscal 2017 Financial Results


NEWARK, Calif., Sept.  28, 2017  (GLOBE NEWSWIRE) -- SMART Global Holdings, Inc. ("SMART") (NASDAQ:SGH), parent company of SMART Modular Technologies, Inc., today reported financial results for the fourth quarter and full year fiscal 2017 ended August 25, 2017.

Fourth Quarter Fiscal 2017 Highlights: Full Year Fiscal 2017 Highlights:
Net sales 53% higher than year ago quarter  Net sales 42% higher than prior fiscal year
 Net sales of $223.0 million  Net sales of $761.3 million
 GAAP operating income $20.6 million  GAAP operating income $53.9 million
 GAAP net loss of $(10.2) million  GAAP net loss of $(7.8) million
 Adjusted EBITDA of $31.3 million  Adjusted EBITDA of $99.4 million
 GAAP EPS of $(0.48)  GAAP EPS of $(0.49)
 Non-GAAP diluted EPS of $0.79  Non-GAAP diluted EPS of $2.26

"We completed fiscal 2017 on a strong note, having accomplished a number of key milestones  that set the foundation for continued momentum as we enter fiscal 2018," commented Iain MacKenzie, President and Chief Executive Officer of SMART Global Holdings. "The strength of the global memory market contributed to all of our businesses across the board.  In SMART Brazil we are also benefitting from the improving economy and the introduction of new products.  Increasing demand from our networking and storage customers is driving healthy growth in our Specialty Memory business as well.  We also recently paid off a portion of our term loan with the proceeds of our IPO, as well as completing an important debt refinancing that clears the path for improved operating leverage in our financial model, enabling us to drive increasing returns for our shareholders."

    
Quarterly Financial ResultsGAAP (1) Non-GAAP (2)
(In millions, except per share amounts)Q4 FY17Q3 FY17Q4 FY16 Q4 FY17Q3 FY17Q4 FY16
Net Sales$223.0 $207.0$146.2  $223.0$207.0 $146.2
Gross Profit$48.0 $47.4$29.9  $48.2$47.6 $30.0
Operating Income$20.6 $20.4$4.0  $25.4$24.8 $8.3
Net Income (Loss)$(10.2)$8.0$(1.5) $17.4$13.7 $2.5
Earnings (loss) per share$(0.48)$0.50$(0.11) $0.79$0.62*$0.18


Annual Financial ResultsGAAP (1) Non-GAAP (2) 
(In millions, except per share amounts)FY17 FY16 FY17 FY16 
Net Sales$761.3 $534.4  $761.3$534.4  
Gross Profit$162.3 $106.9  $162.9$107.4  
Operating Income$53.9 $6.2  $71.2$23.4  
Net Income (Loss)$(7.8)$(20.0) $36.6$(4.1) 
Earnings (loss) per share$(0.49)$(1.44) $2.26$(0.30) 
       
(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.  
       
* Represents pro forma non-GAAP earnings per diluted share.  The pro forma weighted average diluted
shares outstanding used in the computation includes the pro forma effect of the 6,095,000 shares issued
in our IPO on May 30, 2017 as if they were outstanding for the entire third quarter. 
  

Other Highlights
Paid down $61.1 million of our term loan with proceeds from the IPO and then completed a refinancing transaction that extended the maturity date of the term loan; both transactions contributed to significantly reduce interest expense. 

 

Business Outlook
The following statements are based upon management's current expectations for the first quarter of fiscal 2018 ending November 24, 2017. These statements are forward-looking, and actual results may differ materially. SMART undertakes no obligation to update these statements.

  
Net Sales - GAAP/Non-GAAP$225 to $240 million
Gross Margin  - GAAP/Non-GAAP 21% to 22%
Earnings per share - GAAP$0.66 to $0.70
  
Intangible amortization per share$0.06
Stock-based compensation per share$0.07
  
Earnings per share - Non -GAAP$0.79 to $0.83
  
Expected diluted share count22.3 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 79446792.

 

A replay of the conference call will be available until October 22, 2017 through the Events section of the SMART website at www.smartgh.com or until October 5, 2017 by calling US toll free +1-855-859-2056; Passcode: 79446792.

 

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
The following non-GAAP financial measures are included in this press release, including Adjusted EBITDA, non-GAAP net income, non-GAAP net income per diluted share, non-GAAP diluted EPS and pro forma 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, 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 Fiscal Year Ended
     August 25,
2017
  May 26,
2017
  August 26,
2016
  August 25,
2017
  August 26,
2016
Net sales:          
 Brazil DRAM $46,830  $38,028  $19,473  $132,881  $86,936 
 Brazil Mobile Memory  87,935   71,216   46,992   265,294   158,964 
 Specialty Memory  88,254   97,730   79,736   363,116   288,523 
  Total net sales  223,019   206,974   146,201   761,291   534,423 
Cost of sales (1)  175,011   159,599   116,325   599,041   427,491 
 Gross profit  48,008   47,375   29,876   162,250   106,932 
Operating expenses:          
 Research and development (1) (2)  9,718   8,797   10,353   38,160   38,116 
 Selling, general and administrative (1) (2)  17,722   17,193   14,532   66,759   57,495 
 Management advisory fees  -   1,000   1,000   3,000   4,001 
 Restructuring  -   -   (8)  457   1,135 
  Total operating expenses  27,440   26,990   25,877   108,376   100,747 
  Income from operations  20,568   20,385   3,999   53,874   6,185 
Other income (expense):          
 Interest expense, net  (6,132)  (8,294)  (6,310)  (29,204)  (25,575)
 Other income (expense), net  (20,887)  (762)  1,144   (22,551)  1,874 
  Total other expense  (27,019)  (9,056)  (5,166)  (51,755)  (23,701)
  Income (loss) before income taxes  (6,451)  11,329   (1,167)  2,119   (17,516)
Provision for income taxes  3,758   3,371   294   9,914   2,444 
  Net income (loss) $(10,209) $7,958  $(1,461) $(7,795) $(19,960)
             
Earnings per share:          
 Basic $(0.48) $0.57  $(0.11) $(0.49) $(1.44)
 Diluted $(0.48) $0.50  $(0.11) $(0.49) $(1.44)
             
Shares used in computing per-share calculation:          
 Basic  21,435   13,986   13,865   15,785   13,841 
 Diluted  21,435   15,955   13,865   15,785   13,841 
             
             
(1) Includes share-based compensation expense as follows:        
 Cost of sales $192  $176  $113  $636  $461 
 Research and development  232   (22)  162   655  $725 
 Selling, general and administrative  1,407   1,235   627   4,073  $2,686 
  Total stock-based compensation expense $1,831  $1,389  $902  $5,364  $3,872 
             
(2) Includes amortization of intangible assets expense as follows:        
 Research and development $1,225  $1,224  $1,225  $4,897  $4,897 
 Selling, general and administrative  1,746   1,774   2,196   7,042   8,471 
  Total amortization expense $2,971  $2,998  $3,421  $11,939  $13,368 
             


SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of Non-GAAP Financial Measures to GAAP Results
(In thousands, except per share data)
             
    Three Months Ended Fiscal Year Ended
     August 25,
2017
  May 26,
2017
  August 26,
2016
  August 25,
2017
  August 26,
2016
Reconciliation of gross profit:          
GAAP gross profit $48,008  $47,375  $29,876  $162,250  $106,932 
 GAAP gross margin  21.5%   22.9%   20.4%   21.3%   20.0% 
             
Add: Share-based compensation included in cost of sales  192   176   113   636   461 
             
Non-GAAP gross profit $48,200  $47,551  $29,989  $162,886  $107,393 
 Non-GAAP gross margin  21.6%   23.0%   20.5%   21.4%   20.1% 
             
Reconciliation of operating expenses:          
GAAP operating expenses $27,440  $26,990  $25,877  $108,376  $100,747 
             
Less: Share-based compensation expense included in opex          
 Research and development  232   (22)  162   655   725 
 Selling, general and administrative  1,407   1,235   627   4,073   2,686 
  Total  1,639   1,213   789   4,728   3,411 
             
Less: Amortization of intangible assets included in opex          
 Research and development  1,225   1,224   1,225   4,897   4,897 
 Selling, general and administrative  1,746   1,774   2,196   7,042   8,471 
  Total  2,971   2,998   3,421   11,939   13,368 
             
Non-GAAP operating expenses $22,830  $22,779  $21,667  $91,709  $83,968 
             
Reconciliation of income from operations:          
GAAP income from operations $20,568  $20,385  $3,999  $53,874  $6,185 
 GAAP operating margin  9.2%   9.8%   2.7%   7.1%   1.2% 
             
Add: Share-based compensation expense  1,831   1,389   902   5,364   3,872 
Add: Amortization of intangible assets  2,971   2,998   3,421   11,939   13,368 
             
Non-GAAP income from operations $25,370  $24,772  $8,322  $71,177  $23,425 
 Non-GAAP operating margin  11.4%   12.0%   5.7%   9.3%   4.4% 
             
Reconciliation of provision for income taxes:          
GAAP provision for income taxes $3,758  $3,371  $294  $9,914  $2,444 
 GAAP effective tax rate  -58.3%   29.8%   -25.2%   467.9%   -14.0% 
             
Tax effect of adjustments to GAAP results  (317)  (376)  (357)  (1,395)  (1,365)
             
Non-GAAP provision for income taxes $4,075  $3,747  $651  $11,309  $3,809 
 Non-GAAP effective tax rate  19.0%   21.5%   20.6%   23.6%   -1380.1% 
             
Reconciliation of net income (loss) per share (diluted)           
and diluted per share amounts:          
GAAP net income (loss) $(10,209) $7,958  $(1,461) $(7,795) $(19,960)
             
Adjustments to GAAP net income:          
 Share-based compensation  1,831   1,389   902   5,364   3,872 
 Amortization of intangible assets  2,971   2,998   3,421   11,939   13,368 
 Amortization of debt discount related to warrants  1,214   1,733   -   5,127   - 
 Loss on early debt repayment  6,743   -   -   6,743   - 
 Loss on extinguishment of LT debt  15,194   -   -   16,579   - 
 Tax effect of items excluded from non-GAAP results  (317)  (376)  (357)  (1,395)  (1,365)
             
Non-GAAP net income (loss) $17,427  $13,702  $2,505  $36,562  $(4,085)
             
Weighted average shares outstanding for calculation          
 of non-GAAP income per share (diluted)  22,011   15,955   13,865   16,171   13,841 
             
Non-GAAP net income per share (diluted) $0.79  $0.86  $0.18  $2.26  $(0.30)
             
Pro forma weighted average shares outstanding for          
 computing pro forma diluted per-share calculation*    22,050       
             
Pro forma non-GAAP net income per share (diluted)   $0.62       
             
* Assuming IPO closing shares (6,095) on May 30, 2017 were issued and outstanding as of the beginning of Q3'17.  


SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of GAAP Net Income (loss) to Adjusted EBITDA
(In thousands, except per share data)
             
    Three Months Ended Fiscal Year Ended
     August 25,
2017
  May 26,
2017
  August 26,
2016
  August 25,
2017
  August 26,
2016
             
GAAP net income (loss) $(10,209) $7,958 $(1,461) $(7,795) $(19,960)
             
 Share-based compensation expense  1,831   1,389  902   5,364   3,872 
 Amortization of intangible assets  2,971   2,998  3,421   11,939   13,368 
 Interest expense, net  6,132   8,294  6,310   29,204   25,575 
 Provision for income tax  3,758   3,371  294   9,914   2,444 
 Depreciation  4,869   4,848  4,668   21,300   18,111 
 Management advisory fees     1,000  1,000   3,000   4,001 
 Debt extension costs*          1,745    
 Loss on early debt repayment **  6,743        6,743    
 Loss on extinguishment of LT debt ***  15,194        16,579    
 Restructuring       (8)  457   1,135 
 Special retention bonuses       265   25   1,611 
 Valuation adjustment related to prepaid          
  state value-added taxes       908      908 
 Investment advisory fees          540    
 Obsolete inventory related to restructuring          372    
 Misappropriated product shipment             695 
             
 Adjusted EBITDA $31,289  $29,858 $16,299  $99,387  $51,760 
                      
 * Debt extension costs consist of $1.7 million associated with the amendment of our senior secured term loan and revolving
   credit facility in November 2016.          
             
 ** Loss on early payment of term loan for principal amount of $61.1 million in June 2017 related to IPO.
             
 *** Consists of $15.2 million loss on extinguishment of long-term debt for principal payment of $151.0 million in August 2017 
   and $1.4 million loss on a February 2017 extinguishment.


SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Balance Sheets
(In thousands)
             
        August 25 May 26, August 26,
         2017   2017   2016 
Assets      
Current assets:       
 Cash and cash equivalents $22,436  $22,341  $58,634 
 Accounts receivable, net  183,303   174,453   141,036 
 Inventories   127,135   135,489   103,066 
 Prepaid expenses and other current assets  14,115   15,699   16,522 
     Total current assets  346,989   347,982   319,258 
Property and equipment, net  55,182   52,006   57,600 
Other noncurrent assets  26,728   21,936   19,937 
Intangible assets, net  5,107   8,001   16,884 
Goodwill     46,022   45,360   44,976 
     Total assets $480,028  $475,285  $458,655 
Liabilities and Shareholders' Equity      
Current liabilities:      
 Accounts payable $189,717  $210,633  $197,976 
 Accrued liabilities  27,316   22,130   14,071 
 Current portion of long-term debt  22,841   13,024   17,116 
     Total current liabilities  239,874   245,787   229,163 
Long-term debt   154,450   197,910   225,587 
Deferred tax liabilities  1,439   1,769   2,677 
Other long-term liabilities  1,869   2,437   2,465 
     Total liabilities $397,632  $447,903  $459,892 
Shareholders' equity (deficit):      
 Ordinary shares  653   420   416 
 Additional paid-in capital  232,162   170,502   145,284 
 Accumulated other comprehensive loss  (143,210)  (146,540)  (147,523)
 Retained earnings (accumulated deficit)  (7,209)  3,000   586 
     Total shareholders' equity (deficit)  82,396   27,382   (1,237)
     Total liabilities and shareholders' equity $480,028  $475,285  $458,655 
             


SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
                 
        Three Months Ended Fiscal Year Ended
        August 25,
2017
 May 26,
2017
 August 26,
2016
 August 25,
2017
 August 26,
2016
Cash flows from operating activities:          
 Net income (loss) $(10,209) $7,958  $(1,461) $(7,795) $(19,960)
 Adjustments to reconcile net income (loss) to net cash provided by          
  (used in) operating activities:          
   Depreciation and amortization  7,839   7,846   8,090   33,238   31,480 
   Share-based compensation  1,831   1,389   902   5,364   3,872 
   Provision for doubtful accounts receivable and sales returns  (82)  205   34   (51)  18 
   Deferred income tax benefit  (1,194)  (84)  270   (2,389)  (1,417)
   (Gain) loss on disposal of property and equipment  223      2   352   (55)
   Extinguishment loss on long-term debt  15,194         16,580    
   Loss on early debt payment  6,744         6,744    
   Amortization of debt issuance costs  486   628   768   2,337   3,042 
   Amortization of debt original issuance discount  106   119   419   766   1,654 
   Amortization of debt discount  1,215   1,733      5,128    
   Changes in operating assets and liabilities:          
    Accounts receivable  (6,910)  (36,891)  (9,147)  (40,426)  44,922 
    Inventories  9,333   (4,833)  5,616   (21,851)  31,326 
    Prepaid expenses and other assets  (799)  (735)  8,663   (58)  11,007 
    Accounts payable  (22,407)  27,525   (15,595)  (10,608)  (86,588)
    Accrued expenses and other liabilities  4,639   3,846   (3,811)  11,736   (4,251)
     Net cash provided by (used in) operating activities  6,009   8,706   (5,250)  (933)  15,050 
Cash flows from investing activities:          
 Capital expenditures and deposits on equipment  (7,499)  (3,784)  (3,849)  (18,678)  (13,844)
 Restricted cash        13      194 
 Proceeds from sale of property and equipment  184   425   36   651   281 
     Net cash used in investing activities  (7,315)  (3,359)  (3,800)  (18,027)  (13,369)
Cash flows from financing activities:          
 Proceeds from long-term debt borrowing        592      5,771 
 Long-term debt payment  (2,009)  (5,954)  (4,246)  (19,698)  (16,694)
 Early payment of long-term debt  (61,127)        (61,127)   
 Payment for extinguishment of long-term debt  (151,008)        (151,946)   
 Proceeds from issuance of long-term debt, net of costs paid  156,962         156,962    
 Fees paid for revolving line of credit refinancing  (3,167)        (3,167)  
 Issuance of ordinary shares from an initial public offering, net of          
  underwriting commissions  63,507         63,507    
 Payment of costs related to initial public offering  (949)  (200)  6   (1,149)   
 Proceeds from borrowings under revolving line of credit  119,500   123,000   106,500   457,750   279,200 
 Repayments of borrowings under revolving line of credit  (119,500)  (123,000)  (106,500)  (457,750)  (279,200)
 Proceeds from issuance of ordinary shares from share option exercise  58   348   92   406   133 
 Tax payments due upon issuance of oridnary shares for release of          
  restricted stock units  (763)        (763)   
 Repurchase of ordinary shares              (124)
     Net cash used in financing activities  1,504   (5,806)  (3,556)  (16,975)  (10,914)
 Effect of exchange rate changes on cash and cash equivalents  (103)  (541)  (1,936)  (263)  (227)
     Net increase (decrease) in cash and cash equivalents  95   (1,000)  (14,542)  (36,198)  (9,460)
Cash and cash equivalents at beginning of period  22,341   23,341   73,176   58,634   68,094 
Cash and cash equivalents at end of period $22,436  $22,341  $58,634  $22,436  $58,634 
                 

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