SOURCE: SMART Global Holdings, Inc.

SMART Global Holdings

June 22, 2017 16:05 ET

SMART Global Holdings, Inc. Reports Third Quarter Fiscal 2017 Financial Results

NEWARK, CA--(Marketwired - June 22, 2017) - SMART Global Holdings, Inc. ("SMART") (NASDAQ: SGH), parent company of SMART Modular Technologies, Inc., today reported financial results for the third quarter of fiscal 2017 ended May 26, 2017.

Third Quarter Fiscal 2017 Highlights:

  • Net sales of $207.0 million
  • Gross profit of $47.4 million
  • Net income of $8.0 million
  • Adjusted EBITDA of $29.9 million
  • GAAP diluted EPS of $0.50
  • Pro forma* non-GAAP diluted EPS of $0.62

Net sales for the third quarter of fiscal 2017 were $207.0 million, compared to $172.0 million for the second quarter of fiscal 2017, and $149.6 million for the third quarter of fiscal 2016.

Gross profit for the third quarter of fiscal 2017 was $47.4 million, compared to $37.2 million for the second quarter of fiscal 2017, and $30.6 million for the third quarter of fiscal 2016.

On a GAAP basis, net income for the third quarter of fiscal 2017 was $8.0 million or $0.50 per diluted share, compared to a net loss of $2.3 million or $(0.17) per diluted share for the second quarter of fiscal 2017, and a net loss of $1.3 million, or $(0.10) per diluted share for the third quarter of fiscal 2016.

On a non-GAAP basis, net income was $13.7 million, and on a pro forma* basis, non-GAAP net income was $0.62 per diluted share for the third quarter of fiscal 2017. Non-GAAP net income for the second quarter of fiscal 2017 was $3.5 million or $0.25 per diluted share, and $2.6 million or $0.19 per diluted share for the third quarter of fiscal 2016.

Adjusted EBITDA for the third quarter of fiscal 2017 was $29.9 million, compared to $23.5 million for the second quarter of fiscal 2017, and $17.4 million for the third quarter of fiscal 2016.

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 measures referenced above and a reconciliation of such measures to our nearest GAAP measures.

"The third quarter of fiscal 2017 marks our first quarter having re-emerged as a public company, following the close of our IPO on May 30, 2017. I am very pleased to report strong financial results with net sales 20 percent higher than the previous quarter, driven by solid performance in both SMART Brazil and our Specialty Memory businesses. Combined with a sharp focus on disciplined spending, we generated pro forma non-GAAP earnings per share of $0.62, demonstrating the leverage in our business model," commented Iain MacKenzie, President & Chief Executive Officer of SMART Global Holdings. "We have multiple structural growth drivers in place, from increasing local content requirements and growing sales of mobile phones in Brazil, to growing demand for new memory technologies especially in datacenter storage and networking applications. We believe we are well-positioned to deliver strong financial results as we enter the final quarter of this fiscal year and beyond."

Other Highlights

  • Successfully closed an initial public offering (IPO) of 6.1 million ordinary shares at $11.00 per share, including 795,000 shares sold pursuant to the exercise in full of the underwriters' option to purchase additional shares.
  • Generated approximately $61.1 million in net proceeds from the IPO.

* Pro forma weighted average shares outstanding for computing the diluted per-share calculation reflects 6,095,000 shares issued in our IPO on May 30, 2017, as well as the net exercise of the class A warrants of 1,536,955, each as if they occurred at the beginning of the third quarter of fiscal 2017.

Business Outlook
The following statements are based upon management's current expectations. These statements are forward-looking, and actual results may differ materially. SMART undertakes no obligation to update these statements.

For the fourth quarter of fiscal 2017, SMART expects net sales will be in the range of $205 to $215 million and gross margin is expected to be in the range of 21% to 23%. Net income per diluted share is expected to be in the range of $0.05 to $0.07 on a GAAP basis. On June 2, 2017, SMART used the net proceeds of the IPO to make a mandatory repayment of $61.1 million aggregate principal amount of its outstanding term loans under its Senior Secured Credit Agreement, which will result in an associated non-cash charge in the fourth quarter of approximately $6.7 million. This non-cash charge will be reflected in "other income/(expense)" in the fourth quarter of fiscal 2017. On a non-GAAP basis, SMART expects net income per diluted share will be in the range of $0.62 to $0.66.

We expect our diluted share count to be 22.4 million shares for the fourth quarter.

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 or US toll +1-213-660-0710 using access code 40977486.
A replay of the conference call will be available until July 7, 2017 at www.smartm.com or until June 29 by calling US toll free +1-855-859-2056 or US toll by calling +1-404-537-3406 and using access code 40977486.

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 nature of pricing trends; 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 final prospectus filed with the Securities and Exchange Commission on May 25, 2017. Such factors and risks as outlined above and in the final prospectus 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 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, amortization expense or amortization of non-cash debt discount related to warrants. 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.

This release also includes a forward-looking non-GAAP financial measure, non-GAAP net income per diluted share. A reconciliation of this forward looking measure to the most directly comparable GAAP measure is not included because material items that affect this measure, such as the number of shares granted and market price needed to quantify stock-based compensation expense, are not ascertainable at this time without unreasonable effort and/or cannot be reasonably predicted. The effect of these excluded items may be significant.

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   Nine Months Ended  
  May 26, 2017   Feb 24, 2017   May 27,
2016
  May 26, 2017   May 27,
2016
 
Net sales:                         
 Brazil DRAM $38,028   $28,695   $20,824   $86,051   $67,463  
 Brazil Mobile Memory  71,216    49,932    58,916    177,359    111,972  
 Specialty Memory  97,730    93,327    69,869    274,862    208,787  
  Total net sales  206,974    171,954    149,609    538,272    388,222  
Cost of sales (1)  159,599    134,797    118,997    424,030    311,166  
 Gross profit  47,375    37,157    30,612    114,242    77,056  
Operating expenses:                         
 Research and development (1) (2)  8,797    9,948    9,667    28,442    27,763  
 Selling, general and administrative (1) (2)  17,193    16,434    14,680    49,037    42,963  
 Management advisory fees  1,000    1,000    1,000    3,000    3,001  
 Restructuring  -    471    128    457    1,143  
  Total operating expenses  26,990    27,853    25,475    80,936    74,870  
  Income from operations  20,385    9,304    5,137    33,306    2,186  
Other income (expense):                         
 Interest expense, net  (8,294 )  (8,512 )  (6,326 )  (23,072 )  (19,265 )
 Other income (expense), net  (762 )  (1,005 )  2,102    (1,664 )  730  
  Total other expense  (9,056 )  (9,517 )  (4,224 )  (24,736 )  (18,535 )
  Income (loss) before income taxes  11,329    (213 )  913    8,570    (16,349 )
Provision for income taxes  3,371    2,124    2,258    6,156    2,150  
 Net income (loss) $7,958   $(2,337 ) $(1,345 ) $2,414   $(18,499 )
                          
Earnings per share:                         
 Basic $0.57   $(0.17 ) $(0.10 ) $0.17   $(1.31 )
 Diluted $0.50   $(0.17 ) $(0.10 ) $0.16   $(1.31 )
                          
Shares used in computing per-share calculation:                         
 Basic  13,986    13,870    13,832    13,909    14,147  
 Diluted  15,955    13,870    13,832    15,230    14,147  
                          
                          
(1) Includes share-based compensation expense as follows:  
 Cost of sales $176   $142   $112   $444   $348  
 Research and development  (22 )  230    181    423    563  
 Selling, general and administrative  1,235    722    654    2,666    2,059  
  Total stock-based compensation expense $1,389   $1,094   $947   $3,533   $2,970  
                          
(2) Includes amortization of intangible assets expense as follows:  
 Research and development $1,224   $1,224   $1,224   $3,672   $3,672  
 Selling, general and administrative  1,774    1,723    2,105    5,296    6,275  
  Total amortization expense $2,998   $2,947   $3,329   $8,968   $9,947  
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 26, 2017   Feb 24, 2017   May 27,
2016
  May 26, 2017    May 27,
2016
 
Reconciliation of gross profit:                         
GAAP gross profit $47,375   $37,157   $30,612   $114,242   $77,056  
 GAAP gross margin  22.9 %  21.6 %  20.5 %  21.2 %  19.8 % 
                          
Add: Share-based compensation included in cost of sales  176    142    112    444    348  
                          
Non-GAAP gross profit $47,551   $37,299   $30,724   $114,686   $77,404  
 Non-GAAP gross margin  23.0 %  21.7 %  20.5 %  21.3 %  19.9 %
                          
Reconciliation of operating expenses:                         
GAAP operating expenses $26,990   $27,853   $25,475   $80,936   $74,870  
                          
Less: Share-based compensation expense included in opex                         
 Research and development  (22 )  230    181    423    563  
 Selling, general and administrative  1,235    722    654    2,666    2,059  
  Total  1,213    952    835    3,089    2,622  
                          
Less: Amortization of intangible assets included in opex                         
 Research and development  1,224    1,224    1,224    3,672    3,672  
 Selling, general and administrative  1,774    1,723    2,105    5,296    6,275  
  Total  2,998    2,947    3,329    8,968    9,947  
                          
Non-GAAP operating expenses $22,779   $23,954   $21,311   $68,879   $62,301  
                          
Reconciliation of income from operations:                         
GAAP income from operations $20,385   $9,304   $5,137   $33,306   $2,186  
 GAAP operating margin  9.8 %  5.4 %  3.4 %  6.2 %  0.6 %
                          
Add: Share-based compensation expense  1,389    1,094    947    3,533    2,970  
Add: Amortization of intangible assets  2,998    2,947    3,329    8,968    9,947  
                          
Non-GAAP income from operations $24,772   $13,345   $9,413   $45,807   $15,103  
 Non-GAAP operating margin  12.0 %  7.8 %  6.3 %  8.5 %  3.9%  
                          
Reconciliation of provision for income taxes:                         
GAAP provision for income taxes $3,371   $2,124   $2,258   $6,156    $ 2,150  
 GAAP effective tax rate  29.8 %  -997.2 %  247.3 %  71.8 %  -13.2 %
                          
Tax effect of adjustments to GAAP results  (376 )  (365 )  (371 )  (1,106 )  (978 )
                          
Non-GAAP provision for income taxes $3,747   $2,489   $2,629   $7,262   $3,128  
 Non-GAAP effective tax rate  21.5 %  41.4 %  50.7 %  29.1 %  -91.1 %
                          
Reconciliation of net income (loss) per share (diluted) and diluted per share amounts:                         
GAAP net income (loss) $7,958   $(2,337 ) $(1,345 ) $2,414   $(18,499 )
                          
Adjustments to GAAP net income:                         
 Share-based compensation  1,389    1,094    947    3,533    2,970  
 Amortization of intangible assets  2,998    2,947    3,329    8,968    9,947  
 Amortization of debt discount related to warrants  1,733    2,180    -    3,913    -  
 Tax effect of items excluded from non-GAAP results  (376 )  (365 )  (371 )  (1,106 )  (978 )
                          
Non-GAAP net income (loss) $13,702   $3,519   $2,560   $17,722   $(6,560 )
                          
Weighted average shares outstanding for calculation of non-GAAP income per share (diluted)  15,955    13,870    13,832    15,230    14,147  
                          
Non-GAAP net income per share (diluted) $0.86   $0.25   $0.19   $1.16   $(0.46 )
                          
GAAP income (loss) per share (diluted) $0.50   $(0.17 ) $(0.10 ) $0.16   $(1.31 )
                          
Pro forma weighted average shares outstanding for computing diluted per-share calculation*  22,050                      
                          
Pro forma non-GAAP net income per share (diluted) $0.62                      
                          
Pro forma GAAP net income per share (diluted) $0.36                      
                          
* 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   Nine Months Ended  
  May 26, 2017  Feb 24, 2017   May 27,
2016
  May 26, 2017  May 27,
2016
 
                        
GAAP net income (loss) $7,958  $(2,337 ) $(1,345 ) $2,414  $(18,499 )
                        
 Share-based compensation expense  1,389   1,094    947    3,533   2,970  
 Amortization of intangible assets  2,998   2,947    3,329    8,968   9,947  
 Interest expense, net  8,294   8,512    6,326    23,072   19,265  
 Provision for income tax  3,371   2,124    2,258    6,156   2,150  
 Depreciation  4,848   6,044    4,380    16,431   13,443  
 Management advisory fees  1,000   1,000    1,000    3,000   3,001  
 Debt extension and extinguishment costs*  -   3,130    -    3,130   -  
 Restructuring  -   471    128    457   1,143  
 Special retention bonuses  -   -    333    25   1,346  
 Investment advisory fees  -   134    -    540   -  
 Obsolete inventory related to restructuring  -   372    -    372   -  
 Misappropriated product shipment  -   -    -    -   695  
                        
 Adjusted EBITDA $29,858  $23,491   $17,356   $68,098  $35,461  
    
*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 and debt extinguishment costs represent a $1.4 million on a February 2017 extinguishment.
SMART Global Holdings, Inc.  
and Subsidiaries  
Consolidated Balance Sheets  
(In thousands)  
             
  May 26,   February 24,   August 26,  
  2017   2017   2016  
Assets               
Current assets:               
 Cash and cash equivalents $22,341   $23,341   $58,634  
 Accounts receivable, net  174,453    138,592    141,036  
 Inventories  135,489    131,884    103,066  
 Prepaid expenses and other current assets  15,699    13,346    16,522  
  Total current assets  347,982    307,163    319,258  
Property and equipment, net  52,006    53,902    57,600  
Other noncurrent assets  21,936    22,701    19,937  
Intangible assets, net  8,001    11,112    16,884  
Goodwill  45,360    46,059    44,976  
  Total assets $475,285   $440,937   $458,655  
Liabilities and Shareholders' Equity               
Current liabilities:               
 Accounts payable $210,633   $183,331   $197,976  
 Accrued liabilities  22,130    17,311    14,071  
 Current portion of long-term debt  13,024    12,162    17,116  
  Total current liabilities  245,787    212,804    229,163  
Long-term debt  197,910    202,744    225,587  
Deferred tax liabilities  1,769    2,174    2,677  
Other long-term liabilities  2,437    2,507    2,465  
  Total liabilities $447,903   $420,229   $459,892  
Shareholders' equity (deficit):               
 Ordinary shares  420    416    416  
 Additional paid-in capital  170,502    168,769    145,284  
 Accumulated other comprehensive loss  (146,540 )  (143,519 )  (147,523 )
 Retained earnings (accumulated deficit)  3,000    (4,958 )  586  
  Total shareholders' equity (deficit)  27,382    20,708    (1,237 )
  Total liabilities and shareholders' equity $475,285   $440,937   $458,655  
SMART Global Holdings, Inc.  
and Subsidiaries  
Consolidated Statements of Cash Flows  
(In thousands)  
                     
  Three Months Ended   Nine Months Ended  
  May 26,   February 24,   May 27,   May 26,   May 27,  
  2017   2017   2016   2017   2016  
Cash flows from operating activities:                         
 Net income (loss) $7,958   $(2,337 ) $(1,345 ) $2,414   $(18,499 )
 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                         
  Depreciation and amortization  7,846    8,991    7,709    25,399    23,390  
  Share-based compensation  1,389    1,094    947    3,533    2,970  
  Provision for doubtful accounts receivable and sales returns  205    18    3    31    (16 )
  Deferred income tax benefit  (84 )  (806 )  (1,298 )  (1,195 )  (1,687 )
  (Gain) loss on disposal of property and equipment  -    129    54    129    (57 )
  Extinguishment loss on long-term debt  -    1,386    -    1,386    -  
  Amortization of debt issuance costs  628    624    763    1,851    2,274  
  Amortization of debt original issuance discount  119    118    415    660    1,235  
  Amortization of debt discount  1,733    2,180    -    3,913    -  
  Changes in operating assets and liabilities:                         
   Accounts receivable  (36,891 )  (18,235 )  8,776    (33,516 )  54,069  
   Inventories  (4,833 )  (35,351 )  (2,046 )  (31,184 )  25,710  
   Prepaid expenses and other assets  (735 )  852    534    741    2,344  
   Accounts payable  27,525    40,674    (24,727 )  11,799    (70,993 )
   Accrued expenses and other liabilities  3,846    2,036    4,503    7,097    (440 )
    Net cash provided by (used in) operating activities  8,706    1,373    (5,712 )  (6,942 )  20,300  
Cash flows from investing activities:                         
 Capital expenditures and deposits on equipment  (3,784 )  (4,320 )  (4,253 )  (11,179 )  (9,995 )
 Restricted cash  -    -    -    -    181  
 Proceeds from sale of property and equipment  425    42    -    467    245  
    Net cash used in investing activities  (3,359 )  (4,278 )  (4,253 )  (10,712 )  (9,569 )
Cash flows from financing activities:                         
 Proceeds from long-term debt borrowing  -    -    -    -    5,179  
 Long-term debt payment  (5,954 )  (6,404 )  (4,163 )  (17,689 )  (12,448 )
 Payment for extinguishment of long-term debt  -    (938 )  -    (938 )  -  
 Payment of costs related to initial public offering  (200 )  -    -    (200 )  (6 )
 Proceeds from borrowings under revolving line of credit  123,000    105,000    53,500    338,250    172,700  
 Repayments of borrowings under revolving line of credit  (123,000 )  (105,000 )  (53,500 )  (338,250 )  (172,700 )
 Proceeds from issuance of ordinary shares from share option exercise  348    -    41    348    41  
 Repurchase of ordinary shares  -    -    -    -    (124 )
    Net cash used in financing activities  (5,806 )  (7,342 )  (4,122 )  (18,479 )  (7,358 )
 Effect of exchange rate changes on cash and cash equivalents  (541 )  (98 )  3,450    (160 )  1,709  
    Net increase (decrease) in cash and cash equivalents  (1,000 )  (10,345 )  (10,637 )  (36,293 )  5,082  
Cash and cash equivalents at beginning of period  23,341    33,686    83,813    58,634    68,094  
Cash and cash equivalents at end of period $22,341   $23,341   $73,176   $22,341   $73,176  

Contact Information

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