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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 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.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

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