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 SMART Global Holdings Reports Third Quarter Fiscal 2019 Financial Results
   Thursday, June 27, 2019 4:05:00 PM ET

NEWARK, Calif., June 27, 2019 (GLOBE NEWSWIRE) -- SMART Global Holdings, Inc. (“SMART”) (NASDAQ: SGH), parent company of SMART Modular Technologies, Inc. , today reported financial results for the third quarter of fiscal 2019 ended May 31, 2019.



Financial Highlights Q3FY19:

  • Net sales of $235.7 million
  • GAAP EPS of $0.08
  • Non-GAAP EPS of $0.34
  • GAAP gross margin of 18.3%
  • Non-GAAP gross margin of 18.5%
  • Cash and equivalents of $126 million
  • Cash flow from operations up 19% sequentially to $46 million
  • Specialty Products revenue YTD up 12% to $354 million

“Despite significant declines in memory pricing that caused our revenue to be weaker than expected during our third fiscal quarter, we were able to achieve non-GAAP earnings which was within the range of our guidance,”  commented Ajay Shah, Chairman and Chief Executive Officer.  “Importantly,  during the quarter we maintained our gross margins and generated $46 million in cash flow from operations, ending the quarter with $126 million in cash on the balance sheet thus positioning us well to execute on our growth strategies.” 

“As we look forward to our fourth fiscal quarter ending in August, we are forecasting significantly better revenue and earnings performance even though the memory pricing environment remains weak. This is due to improvements in Specialty Memory unit volumes and strength in Specialty Compute,” concluded Mr. Shah.

        
Quarterly Financial ResultsGAAP (1) Non-GAAP (2)
(In millions, except per share amounts)Q3 FY19Q2 FY19Q3 FY18 Q3 FY19Q2 FY19Q3 FY18
Net sales$235.7$304.1$335.5 $235.7$304.1$335.5
Gross profit$43.0$57.1$78.1 $43.7$57.8$78.5
Operating income$7.4$22.5$48.7 $13.2$27.7$53.8
Net income$1.9$12.8$31.9 $7.9$18.0$43.0
Diluted earnings per share (EPS)$0.08$0.55$1.37 $0.34$0.77$1.84
        
(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 or 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 fourth quarter of fiscal 2019 ending August 30, 2019. These statements are forward-looking and actual results may differ materially. SMART undertakes no obligation to update these statements.

   
Net Sales$270 to $280 million
Gross Margin - GAAP / Non-GAAP19% to 21%
Diluted EPS - GAAP$0.33 to $0.43
  
Share-based compensation per share$0.18
Intangible amortization per share$0.04
  
Diluted EPS - Non-GAAP$0.55 to $0.65
  
Expected diluted share count23.5 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 3277125.

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: 3277125.

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; changes in seasonal impacts on our results; 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, 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, share-based compensation expense, acquisition-related 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 items, 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, similarly titled 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 to Adjusted EBITDA” tables below for more detail on 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. With the addition of Penguin Computing and the creation of a new business unit, SMART Specialty Compute & Storage Solutions (SCSS), SMART has expanded its serviceable markets into areas requiring specialized computing platforms in artificial intelligence and machine learning, advanced modeling and high performance computing. 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 products in multiple geographies. See www.smartgh.comwww.smartm.comwww.smarth.comwww.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 Nine Months Ended 
       May 31,
2019 
  March 1,
2019
 
  May 25,
2018
 
  May 31,
2019 
  May 25,
2018
 
 
Net sales:             
 Brazil   $100,982  $147,111  $232,742   447,372   599,225  
 Specialty Memory    98,755   115,608   102,735   354,312   315,626  
 Specialty Compute and Storage Solutions    35,920   41,344      131,915     
  Total net sales    235,657   304,063   335,477   933,599   914,851  
Cost of sales (1)(2)    192,622   246,932   257,423   748,364   705,944  
 Gross profit    43,035   57,131   78,054   185,235   208,907  
Operating expenses:             
 Research and development (1) (2)    11,330   11,238   9,763   34,384   28,165  
 Selling, general and administrative (1) (2)    24,306   23,442   19,597   73,202   55,502  
  Total operating expenses    35,636   34,680   29,360   107,586   83,667  
  Income from operations    7,399   22,451   48,694   77,649   125,240  
Other income (expense):             
 Interest expense, net    (5,001)  (5,273)  (4,098)  (16,149)  (12,927) 
 Other income (expense), net    97   252   (7,145)  (2,980)  (7,312) 
  Total other expense    (4,904)  (5,021)  (11,243)  (19,129)  (20,239) 
  Income before income taxes    2,495   17,430   37,451   58,520   105,001  
Provision for income taxes    550   4,644   5,505   12,813   15,256  
  Net income   $1,945  $12,786  $31,946  $45,707  $89,745  
                
Earnings per share:             
 Basic   $0.08  $0.56  $1.44  $2.00  $4.09  
 Diluted   $0.08  $0.55  $1.37  $1.96  $3.90  
                
Shares used in computing earnings per share:             
 Basic    23,005   22,872   22,206   22,824   21,932  
 Diluted    23,330   23,359   23,306   23,374   23,020  
                
(1) Includes share-based compensation expense as follows:           
 Cost of sales   $651  $607  $414  $1,803  $859  
 Research and development    673   660   325   1,967   887  
 Selling, general and administrative    3,109   2,881   2,558   8,866   4,853  
  Total stock-based compensation expense   $4,433  $4,148  $3,297  $12,636  $6,599  
                
(2) Includes amortization of intangible assets expense as follows:           
 Cost of sales   $16  $98  $  $130  $  
 Research and development          245      735  
 Selling, general and administrative    961   961   976   2,883   2,992  
  Total amortization expense   $977  $1,059  $1,221  $3,013  $3,727  
                


  
SMART Global Holdings, Inc. 
and Subsidiaries 
Reconciliation of Non-GAAP Financial Measures to GAAP Results 
(In thousands, except per share data) 
                
      Three Months Ended Nine Months Ended 
       May 31,
2019 
  March 1,
2019
 
  May 25,
2018
 
  May 31,
2019 
  May 25,
2018
 
 
Reconciliation of gross profit:             
GAAP gross profit   $43,035 $57,131 $78,054 $185,235 $208,907 
 GAAP gross margin    18.3%  18.8%  23.3%  19.8%  22.8% 
                
Add: Share-based compensation included in cost of sales    651  607  414  1,803  859 
Add: Intangible amortization included in cost of sales    16  98    130   
                
Non-GAAP gross profit   $   43,702  $   57,836  $   78,468  $   187,168  $   209,766  
 Non-GAAP gross margin    18.5%  19.0%  23.4%  20.0%  22.9% 
                
Reconciliation of operating expenses:             
GAAP operating expenses   $35,636 $34,680 $29,360 $107,586 $83,667 
                
Less: Share-based compensation expense included in opex             
 Research and development    673  660  325  1,967  887 
 Selling, general and administrative    3,109  2,881  2,558  8,866  4,853 
  Total    3,782  3,541  2,883  10,833  5,740 
                
Less: Amortization of intangible assets included in opex             
 Research and development        245    735 
 Selling, general and administrative    961  961  976  2,883  2,992 
  Total    961  961  1,221  2,883  3,727 
                
Less: S-1 related costs            813 
Less: Legal fees - term loan (payment holiday)          126   
Less: Acquisition-related expenses        591  1,423  591 
Less: Diligence expenses    431      431   
                
Non-GAAP operating expenses   $   30,462  $   30,178  $   24,665  $   91,890  $   72,796  
                
Reconciliation of income from operations:             
GAAP income from operations   $7,399 $22,451 $48,694 $77,649 $125,240 
 GAAP operating margin    3.1%  7.4%  14.5%  8.3%  13.7% 
                
Add: Share-based compensation expense    4,433  4,148  3,297  12,636  6,599 
Add: Amortization of intangible assets    977  1,059  1,221  3,013  3,727 
Add: S-1 related costs            813 
Add: Legal fees - term loan (payment holiday)          126   
Add: Acquisition-related expenses        591  1,423  591 
Add: Diligence expenses    431      431   
                
Non-GAAP income from operations   $   13,240  $   27,658  $   53,803  $   95,278  $   136,970  
 Non-GAAP operating margin    5.6%  9.1%  16.0%  10.2%  15.0% 
                


  
SMART Global Holdings, Inc. 
and Subsidiaries 
Reconciliation of Non-GAAP Financial Measures to GAAP Results 
(In thousands, except per share data) 
                
      Three Months Ended Nine Months Ended 
       May 31,
2019 
  March 1,
2019
 
  May 25,
2018
 
  May 31,
2019 
  May 25,
2018
 
 
Reconciliation of income before income taxes:             
GAAP income before income taxes   $2,495 $17,430 $37,451 $58,520 $105,001 
Add: Share-based compensation expense    4,433  4,148  3,297  12,636  6,599 
Add: Amortization of intangible assets    977  1,059  1,221  3,013  3,727 
Add: S-1 related costs            813 
Add: Legal fees - Term loan (payment holiday)          126   
Add: Acquisition-related expenses        591  1,423  591 
Add: Diligence expenses    431      431   
Add: Foreign currency (gains)/losses    144  (47)  6,932  3,481  7,259 
                
Non-GAAP income before income taxes   $   8,480  $   22,590  $   49,492  $   79,630  $   123,990  
                
Reconciliation of provision for income taxes:             
GAAP provision for income taxes   $550 $4,644 $5,505 $12,813 $15,256 
 GAAP effective tax rate    22.0%  26.6%  14.7%  21.9%  14.5% 
                
Tax effect of adjustments to GAAP results    (14)  5  (1,025)  (347)  (1,744) 
                
Non-GAAP provision for income taxes   $564 $4,639 $6,530 $13,160 $17,000 
 Non-GAAP effective tax rate    6.7%  20.5%  13.2%  16.5%  13.7% 
                
Reconciliation of net income and earnings per share (diluted):            
GAAP net income   $   1,945  $   12,786  $   31,946  $   45,707  $   89,745  
                
Adjustments to GAAP net income:             
 Share-based compensation    4,433  4,148  3,297  12,636  6,599 
 Amortization of intangible assets    977  1,059  1,221  3,013  3,727 
 S-1 related costs            813 
 Legal fees - Term loan (payment holiday)          126   
 Acquisition-related expenses        591  1,423  591 
 Diligence expenses    431      431   
 Foreign currency (gains)/losses    144  (47)  6,932  3,481  7,259 
 Tax effect of items excluded from non-GAAP results    (14)  5  (1,025)  (347)  (1,744) 
                
Non-GAAP net income   $   7,916  $   17,951  $   42,962  $   66,470  $   106,990  
                
Shares used in computing earnings per share (diluted)    23,330  23,359  23,306  23,374  23,020 
                
Non-GAAP earnings per share (diluted)   $   0.34  $   0.77  $   1.84  $   2.84  $   4.65  
                
GAAP earnings per share (diluted)   $0.08 $0.55 $1.37 $1.96 $3.90 
                


  
SMART Global Holdings, Inc. 
and Subsidiaries 
Reconciliation of GAAP Net Income to Adjusted EBITDA 
(In thousands) 
              
    Three Months Ended Nine Months Ended 
     May 31,
2019 
  March 1,
2019
 
  May 25,
2018
 
  May 31,
2019 
  May 25,
2018
 
 
              
GAAP net income $   1,945  $   12,786  $   31,946  $   45,707  $   89,745  
              
 Share-based compensation expense  4,433  4,148  3,297  12,636  6,599 
 Amortization of intangible assets  977  1,059  1,221  3,013  3,727 
 Interest expense, net  5,001  5,273  4,098  16,149  12,927 
 Provision for income tax  550  4,644  5,505  12,813  15,256 
 Depreciation  5,841  5,868  4,806  17,140  14,928 
 S-1 related costs          813 
 Legal fees - term loan (payment holiday)        126   
 Acquisition-related expenses      591  1,423  591 
 Diligence expenses  431      431   
              
 Adjusted EBITDA $   19,178  $   33,778  $   51,464  $   109,438  $   144,586  
                  


  
SMART Global Holdings, Inc. 
and Subsidiaries 
Consolidated Balance Sheets 
(In thousands) 
            
        May 31, August 31, 
        2019
 2018
 
Assets     
Current assets:      
 Cash and cash equivalents $126,099  $31,375  
 Accounts receivable, net  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  
Shareholders’ equity:     
 Ordinary shares  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  
            


  
SMART Global Holdings, Inc. 
and Subsidiaries 
Consolidated Statements of Cash Flows 
(In thousands) 
                  
        Three Months Ended Nine Months Ended 
        May 31,
2019
 March 1,
2019
 May 25,
2018
  May 31,
2019 
  May 25,
2018
 
 
Cash flows from operating activities:           
 Net income  $1,945  $12,786  $31,946  $45,707  $89,745  
 Adjustments to reconcile net income to net cash           
  provided by operating activities:           
   Depreciation and amortization  6,817   6,927   6,028   20,152   18,656  
   Share-based compensation  4,433   4,148   3,297   12,636   6,599  
   Provision for doubtful accounts receivable and sales returns  46   34   (80)  (24)  (13) 
   Deferred income tax benefit  677   (650)  (422)  430   (1,376) 
   (Gain) loss on disposal of property and equipment  22   (4)  (14)  21   230  
   Write off of long-term asset        250      250  
   Amortization of debt discounts and issuance costs  706   694   714   2,085   2,165  
   Changes in operating assets and liabilities:           
    Accounts receivable  91,430   5,669   (45,799)  7,658   (86,706) 
    Inventories  35,111   17,084   (6,384)  82,771   (27,940) 
    Prepaid expenses and other assets  (2,455)  7,424   (5,186)  1,787   (3,495) 
    Accounts payable  (76,442)  (17,017)  46,532   (44,885)  83,879  
    Accrued expenses and other liabilities  (15,980)  1,959   (2,545)  (7,622)  (4,703) 
     Net cash provided by operating activities  46,310   39,054   28,337   120,716   77,291  
                           
Cash flows from investing activities:           
 Capital expenditures and deposits on equipment  (10,496)  (6,232)  (7,794)  (30,112)  (18,251) 
 Proceeds from sale of property and equipment  18   32   35   71   101  
 Acquisition of business, net of cash acquired     (148)     (148)    
     Net cash used in investing activities  (10,478)  (6,348)  (7,759)  (30,189)  (18,150) 
                           
Cash flows from financing activities:           
 Long-term debt payment  (1,704)  (1,712)  (6,093)  (5,073)  (18,402) 
 Fees paid for revolving line of credit refinancing              (768) 
 Payment of costs related to initial public offering              (1,591) 
 Proceeds from borrowings under revolving line of credit  67,500   64,000   69,000   235,500   277,500  
 Repayments of borrowings under revolving line of credit  (67,500)  (64,000)  (69,000)  (235,500)  (277,500) 
 Proceeds from issuance of ordinary shares from share option exercises 297   1,071   1,993   3,770   6,170  
 Proceeds from issuance of ordinary shares from ESPP  1,335         2,303     
 Withholding tax on restricted stock units  (11)  (219)     (230)    
     Net cash provided by (used in) financing activities  (83)  (860)  (4,100)  770   (14,591) 
 Effect of exchange rate changes on the cash, cash equivalents           
  and restricted cash *  (4,824)  374   (4,435)  (2,432)  (3,198) 
     Net increase in cash and cash equivalents and           
      restricted cash *  30,925   32,220   12,043   88,865   41,352  
                            
Cash, cash equivalents, and restricted cash at beginning of period *  95,174   62,954   58,772   37,234   29,463  
Cash, cash equivalents, and restricted cash at end of period * $126,099  $95,174  $70,815  $126,099  $70,815  
                  
                  
* Cash balance was adjusted to include restricted cash upon adoption of ASU 2016-18 in fiscal 2019.       
                  

Investor Contacts: 
Karl Motey
Vice President
Strategic Marketing and Communications
(510) 624-8213
karl.motey@smartm.com

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

SGH_Logo_2.jpg

Source: SMART Global Holdings, Inc.


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