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SMART Global Holdings Reports First Quarter Fiscal 2019 Financial Results

NEWARK, Calif., Jan. 08, 2019 (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 2019 ended November 30, 2018.

     
First Quarter Fiscal 2019 Highlights:    
•  Net sales of $393.9 million, 48% higher than year ago quarter
•  GAAP operating income of $47.8 million    
•  GAAP net income of $31.0 million    
•  Adjusted EBITDA of $56.5 million    
•  GAAP diluted earnings per share (EPS) of $1.33      
•  Non-GAAP diluted EPS of $1.75    

/EIN News/ -- “We had a strong start to fiscal 2019 with revenue in our first quarter exceeding the high end of our guidance and coming in at $393.9 million,” commented Ajay Shah, Chairman and Chief Executive Officer.  “Driving the quarter was continued success in our Specialty Memory business, as well as solid sequential growth from our new Specialty Compute & Storage Solutions business. Our business in Brazil also met expectations”

“Looking ahead we remain optimistic about our overall business. We are seeing increased seasonality during our second fiscal quarter in our Brazil business. However, our other lines of business are expected to perform at or above our previous expectations for fiscal Q2,” concluded Mr. Shah.

                   
Quarterly Financial Results GAAP (1)   Non-GAAP (2)    
(In millions, except per share amounts) Q1 FY19 Q4 FY18 Q1 FY18   Q1 FY19 Q4 FY18 Q1 FY18    
Net sales $   393.9 $   374.0 $   265.4   $   393.9 $   374.0 $   265.4    
Gross profit $   85.1 $   82.7 $   57.8   $   85.6 $   83.8 $   58.1    
Operating income $   47.8 $   45.0 $   31.5   $   54.4 $   51.8 $   34.6    
Net income $   31.0 $   29.7 $   21.0   $   40.6 $   40.0 $   26.3    
Diluted earnings per share (EPS) $   1.33 $   1.28 $   0.92   $   1.75 $   1.72 $   1.16    
                   
(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 2019 ending March 1, 2019. These statements are forward-looking and actual results may differ materially. SMART undertakes no obligation to update these statements.

         
Net Sales - GAAP / Non-GAAP $310 to $325 million    
Gross Margin - GAAP / Non-GAAP 18% to 20%    
Diluted EPS - GAAP $0.53 to $0.57    
       
Share-based compensation per share $0.16    
Intangible amortization per share $0.04    
       
Diluted EPS - Non-GAAP $0.73 to $0.77    
       
Expected diluted share count 23.4 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 4068047.

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: 4068047.

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 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, restructuring charges, 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, 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 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  
             November 30,
2018 
   August 31,
2018
 
   November 24,
2017 
 
Net sales:                  
  Brazil       $   199,279     $   198,624     $   157,850    
  Specialty Memory           139,949         122,820         107,559    
  Specialty Compute and Storage Solutions           54,651         52,526       —     
    Total net sales           393,879         373,970         265,409    
Cost of sales (1)(2)           308,810         291,291         207,573    
  Gross profit           85,069         82,679         57,836    
Operating expenses:                  
  Research and development (1) (2)           11,816         11,659         8,550    
  Selling, general and administrative (1) (2)           25,454         29,039         17,818    
  Change in estimated fair value of acquisition-related               
    contingent consideration         —          (3,000 )     —     
    Total operating expenses           37,270         37,698         26,368    
                       
    Income from operations           47,799         44,981         31,468    
Other income (expense):                  
  Interest expense, net           (5,875 )       (6,217 )       (4,599 )  
  Other expense, net           (3,329 )       (5,987 )       (2,715 )  
    Total other expense           (9,204 )       (12,204 )       (7,314 )  
    Income before income taxes           38,595         32,777         24,154    
Provision for income taxes           7,619         3,059         3,149    
    Net income        $   30,976     $   29,718     $   21,005    
                       
Earnings per share:                  
  Basic       $   1.37     $   1.33     $   0.97    
  Diluted       $   1.33     $   1.28     $   0.92    
                       
Shares used in computing earnings per share:                  
  Basic           22,595         22,383         21,673    
  Diluted           23,257         23,270         22,715    
                       
(1) Includes share-based compensation expense as follows:            
  Cost of sales       $   545     $   475     $   218    
  Research and development           634         572         274    
  Selling, general and administrative           2,876         2,911         1,113    
    Total stock-based compensation expense       $   4,055     $   3,958     $   1,605    
                       
(2) Includes amortization of intangible assets expense as follows:          
  Cost of sales       $   16     $   7     $   —     
  Research and development         —          252         245    
  Selling, general and administrative           961         2,144         1,023    
    Total amortization expense       $   977     $   2,403     $   1,268    
                       

 

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 30,
2018 
   August 31,
2018
 
   November 24,
2017 
Reconciliation of gross profit:                
GAAP gross profit       $   85,069     $   82,679     $   57,836  
  GAAP gross margin         21.6 %     22.1 %     21.8 %
                     
Add: Share-based compensation included in cost of sales           545         475         218  
Add: Intangible amortization included in cost of sales           16         7       —   
Add: Purchase accounting adjustment         —          631       —   
                     
Non-GAAP gross profit       $    85,630     $    83,792     $    58,054  
  Non-GAAP gross margin         21.7 %     22.4 %     21.9 %
                     
Reconciliation of operating expenses:                
GAAP operating expenses       $   37,270     $   37,698     $   26,368  
                     
Less: Share-based compensation expense included in opex                
  Research and development           634         572         274  
  Selling, general and administrative           2,876         2,911         1,113  
    Total           3,510         3,483         1,387  
                     
Less: Amortization of intangible assets included in opex                
  Research and development         —          252         245  
  Selling, general and administrative           961         2,144         1,023  
    Total           961         2,396         1,268  
                     
Less: S-1 related costs         —        —        300  
Less: Legal fees - term loan (payment holiday)           126       —        —   
Less: Acquisition-related expenses           1,423         2,844       —   
Less: Contingent consideration fair value adjustment         —          (3,000 )     —   
                     
Non-GAAP operating expenses       $    31,250     $    31,975     $    23,413  
                     
Reconciliation of income from operations:                
GAAP income from operations       $   47,799     $   44,981     $   31,468  
  GAAP operating margin         12.1 %     12.0 %     11.9 %
                     
Add: Share-based compensation expense           4,055         3,958         1,605  
Add: Amortization of intangible assets           977         2,403         1,268  
Add: Purchase accounting adjustment         —          631       —   
Add: S-1 related costs         —        —        300  
Add: Legal fees - term loan (payment holiday)           126       —        —   
Add: Acquisition-related expenses           1,423         2,844       —   
Add: Contingent consideration fair value adjustment         —          (3,000 )     —   
                     
Non-GAAP income from operations       $    54,380     $    51,817     $    34,641  
  Non-GAAP operating margin         13.8 %     13.9 %     13.1 %
                     

 

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 30,
2018 
   August 31,
2018
 
   November 24,
2017 
Reconciliation of income before income taxes:                
GAAP income before income taxes       $   38,595     $   32,777     $   24,154  
Add: Share-based compensation expense           4,055         3,958         1,605  
Add: Amortization of intangible assets           977         2,403         1,268  
Add: Purchase accounting adjustment         —          631       —   
Add: S-1 related costs         —        —        300     
Add: Legal fees - term loan (payment holiday)           126       —        —   
Add: Acquisition-related expenses           1,423         2,844       —   
Add: Contingent consideration fair value adjustment         —          (3,000 )     —   
Add: Foreign currency losses           3,384         5,968         2,742  
                     
Non-GAAP income before income taxes       $    48,560     $    45,581     $    30,069  
                     
Reconciliation of provision for income taxes:                
GAAP provision for income taxes       $   7,619     $   3,059     $   3,149  
  GAAP effective tax rate         19.7 %     9.3 %     13.0 %
                     
Tax effect of adjustments to GAAP results           (338 )       (2,529 )       (622 )
                     
Non-GAAP provision for income taxes       $   7,957     $   5,588     $   3,771  
  Non-GAAP effective tax rate         16.4 %     12.3 %     12.5 %
                     
Reconciliation of net income and earnings per share (diluted):             
GAAP net income       $   30,976     $   29,718     $   21,005  
                     
Adjustments to GAAP net income:                
  Share-based compensation           4,055         3,958         1,605  
  Amortization of intangible assets           977         2,403         1,268  
  Purchase accounting adjustment         —          631       —   
  S-1 related costs         —        —        300     
  Legal fees - term loan (payment holiday)           126       —        —   
  Acquisition related expenses           1,423         2,844       —   
  Contingent consideration fair value adjustment         —          (3,000 )     —   
  Foreign currency losses           3,384         5,968         2,742  
  Tax effect of items excluded from non-GAAP results           (338 )       (2,529 )       (622 )
                     
Non-GAAP net income       $    40,603     $    39,993     $    26,298  
                     
Shares used in computing earnings per share (diluted)           23,257         23,270         22,715  
                     
Non-GAAP earnings per share (diluted)       $    1.75     $    1.72     $    1.16  
                     
GAAP income per share (diluted)       $   1.33     $   1.28     $   0.92  
                     

 

SMART Global Holdings, Inc.        
and Subsidiaries        
Reconciliation of GAAP Net Income to Adjusted EBITDA        
(In thousands)        
                         
        Three Months Ended        
         November 30,
2018 
   August 31,
2018
 
   November 24,
2017 
       
                         
GAAP net income   $   30,976   $   29,718     $   21,005        
                         
  Share-based compensation expense       4,055       3,958       1,605        
  Amortization of intangible assets       977       2,403       1,268        
  Interest expense, net       5,875       6,217       4,599        
  Provision for income tax       7,619       3,059       3,149        
  Depreciation       5,431       5,124       5,002        
  S-1 related costs     —      —        300        
  Legal fees - term loan (payment holiday)       126     —        —         
  Purchase accounting adjustment(1)     —        631       —         
  Acquisition-related expenses(1)       1,423       2,844       —         
  Contingent consideration fair value adjustment(1)     —        (3,000 )     —         
                         
  Adjusted EBITDA   $   56,482   $   50,954     $   36,928        
                         
  (1) Amounts in Q1'19 and Q4'18 related to acquisition of Penguin Computing in June 2018.
                         
                         

 

SMART Global Holdings, Inc.  
and Subsidiaries  
Consolidated Balance Sheets  
(In thousands)  
                       
                November 30,   August 31,  
                  2018       2018    
Assets          
Current assets:           
  Cash and cash equivalents   $   62,954     $   31,375    
  Accounts receivable, net        330,473         237,212    
  Inventories        188,390         221,419    
  Prepaid expenses and other current assets       40,351         32,043    
          Total current assets       622,168         522,049    
Property and equipment, net       60,412         56,615    
Other noncurrent assets       17,561         22,449    
Intangible assets, net       25,279         26,255    
Goodwill        45,655         45,394    
          Total assets   $   771,075     $   672,762    
Liabilities and Shareholders’ Equity          
Current liabilities:          
  Accounts payable   $   273,655     $   223,186    
  Accrued liabilities       49,317         45,190    
  Current portion of long-term debt       9,868         27,409    
          Total current liabilities       332,840         295,785    
Long-term debt        200,532         184,190    
Other long-term liabilities       8,038         5,659    
          Total liabilities   $   541,410     $   485,634    
Shareholders’ equity:          
  Ordinary shares       687         678    
  Additional paid-in capital       257,607         250,191    
  Accumulated other comprehensive loss       (172,893 )       (175,995 )  
  Retained earnings       144,264         112,254    
          Total shareholders’ equity        229,665         187,128    
          Total liabilities and shareholders’ equity   $   771,075     $   672,762    
                       

 

SMART Global Holdings, Inc.  
and Subsidiaries  
Consolidated Statements of Cash Flows  
(In thousands)  
                           
                Three Months Ended  
                November 30,
2018
  August 31,
2018
  November 24,
2017
 
Cash flows from operating activities:              
  Net income    $   30,976     $   29,718     $   21,005    
  Adjustments to reconcile net income to net cash               
    provided by (used in) operating activities:              
      Depreciation and amortization       6,408         7,526         6,270    
      Share-based compensation       4,055         3,958         1,605    
      Provision for doubtful accounts receivable and sales returns       (104 )       (73 )       28    
      Deferred income tax benefit       403         (1,444 )       (220 )  
      Loss on disposal of property and equipment       3         461       —     
      Amortization of debt discounts and issuance costs       685         807         729    
      Change in fair value of contingent consideration     —          (3,000 )     —     
      Changes in operating assets and liabilities:              
        Accounts receivable       (89,441 )       31,409         (55,801 )  
        Inventories       30,576         (14,495 )       (3,746 )  
        Prepaid expenses and other assets       (3,182 )       (5,241 )       1,758    
        Accounts payable       48,574         (66,331 )       47,492    
        Accrued expenses and other liabilities       6,399         7,321         (4,863 )  
          Net cash provided by (used in) operating activities       35,352         (9,384 )       14,257    
Cash flows from investing activities:              
  Capital expenditures and deposits on equipment       (13,384 )       (7,487 )       (6,039 )  
  Proceeds from sale of property and equipment     21         204       —     
  Acquisition of business, net of cash acquired     —          (42,316 )     —     
          Net cash used in investing activities       (13,363 )       (49,599 )       (6,039 )  
Cash flows from financing activities:              
  Long-term debt payment       (1,657 )       (5,865 )       (6,184 )  
  Proceeds from issuance of long-term debt, net of costs paid     —          59,365       —     
  Fees paid for revolving line of credit refinancing     —        —          (299 )  
  Payment of costs related to initial public offering     —        —          (1,289 )  
  Proceeds from borrowings under revolving line of credit       104,000         151,895         105,500    
  Repayments of borrowings under revolving line of credit       (104,000 )       (184,184 )       (105,500 )  
  Proceeds from issuance of ordinary shares from share option exercises     2,402         1,324         539    
  Proceeds from issuance of ordinary shares from ESPP       968       —        —     
          Net cash provided by (used in) financing activities       1,713         22,535         (7,233 )  
  Effect of exchange rate changes on the cash, cash equivalents              
    and restricted cash *       2,018         2,867         (231 )  
          Net increase (decrease) in cash and cash equivalents               
            and restricted cash *       25,720         (33,581 )       754    
Cash, cash equivalents, and restricted cash at beginning of period *       37,234         70,815         29,463    
Cash, cash equivalents, and restricted cash at end of period *   $   62,954     $   37,234     $   30,217    
                           
                           
* 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

 

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