SOURCE: SMART Modular Technologies

SMART Modular Technologies

December 16, 2010 16:01 ET

SMART Modular Technologies Reports First Quarter Fiscal 2011 Results

NEWARK, CA--(Marketwire - December 16, 2010) - SMART Modular Technologies (WWH), Inc. ("SMART" or the "Company") (NASDAQ: SMOD), a leading independent manufacturer of memory modules and solid state storage products, today reported financial results for the first quarter of fiscal 2011 ended November 26, 2010.

First Quarter Fiscal 2011 Highlights:
 -- Net sales of $216.4 million
 -- Gross profit of $44.0 million
 -- GAAP diluted EPS of $0.12
 -- Non-GAAP diluted EPS of $0.27
 -- Adjusted EBITDA of $29.6 million

Net sales for the first quarter of fiscal 2011 were $216.4 million, as compared to $218.7 million for the fourth quarter of fiscal 2010, and $123.1 million for the first quarter of fiscal 2010.

Gross profit for the first quarter of fiscal 2011 was $44.0 million, compared to $49.8 million for the fourth quarter of fiscal 2010, and $28.8 million for the first quarter of fiscal 2010.

On a GAAP basis, net income for the first quarter of fiscal 2011 was $8.0 million or $0.12 per diluted share, compared to $17.0 million or $0.26 per diluted share for the fourth quarter of fiscal 2010, and $4.6 million or $0.07 per diluted share for the first quarter of fiscal 2010. The first quarter of fiscal 2011 net income of $8.0 million includes a one-time technology access charge of $7.5 million to accelerate our development of enterprise solid state drives.

On a non-GAAP basis, net income was $17.6 million or $0.27 per diluted share for the first quarter of fiscal 2011, compared to $18.8 million or $0.29 per diluted share for the fourth quarter of fiscal 2010, and net income of $5.4 million or $0.08 per diluted share for the first quarter of fiscal 2010.

Adjusted EBITDA for the first quarter of fiscal 2011 was $29.6 million, compared to $33.2 million for the fourth quarter of fiscal 2010, and $15.0 million for the first quarter of fiscal 2010.

Please refer to the Non-GAAP Information section and the "Reconciliation of Non-GAAP Financial Measures" table below for further detail on non-GAAP net income and Adjusted EBITDA.

"We are pleased to have achieved our earnings per share guidance, notwithstanding significant pricing pressures in the DRAM market," commented Iain MacKenzie, President and CEO of SMART. "In Brazil, despite a greater than 20% increase in module capacity, gross profit was slightly below expectations due to end-of-quarter DRAM price declines. In our specialty memory business, end user demand was somewhat weaker than we had anticipated due in part to delays in orders resulting from the weaker DRAM pricing environment. Despite these pressures, we were able to lower overall operating expenses and achieve our expectations for earnings per share."

"Longer term, we continue to make progress with our enterprise solid state storage and Brazil flash business initiatives, both of which are important drivers of our future growth. We were particularly pleased with our second Enterprise XceedIOPS SSD design win, in this instance with IBM's Power7 Supercomputing group. Although we are going through a period of significant DRAM pricing declines, we expect such pricing declines to be temporary and we believe that our strong customer relationships and operational excellence will enable us to remain solidly profitable and successful as the year unfolds," concluded Mr. MacKenzie.

Business Outlook

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

SMART expects that the combination of the substantial DRAM price declines and the reduced number of business days in the second fiscal quarter will put pressure on its second quarter results.

For the second quarter of fiscal 2011, SMART expects net sales will be in the range of $165 to $185 million and gross profit in the range of $31 to $34 million. Net income per diluted share is expected to be in the range of $0.06 to $0.08 on a GAAP basis. On a non-GAAP basis, SMART expects net income per diluted share will be in the range of $0.09 to $0.11. The guidance for the second quarter of fiscal 2011 includes an income tax provision expected to be in the range of $3.4 to $3.7 million. Please refer to the Non-GAAP Information section and the "Reconciliation of Q2-11 Guidance for Non-GAAP Financial Measures" table below for further detail.

Conference Call Details

SMART's first quarter fiscal 2011 teleconference and webcast is scheduled to begin at 1:30 p.m. Pacific Standard Time (PST), or 4:30 p.m. Eastern Standard Time (EST), on Thursday, December 16, 2010. The call may be accessed U.S. toll free by calling (877) 941-4774 or U.S. toll by calling (480) 629-9760. Please join the conference call at least ten minutes early in order to register. The access code is 4390981. SMART will also offer a live and archived webcast of the conference call, accessible from the Company's website at http://www.smartm.com. A telephonic replay of the conference call will be available through midnight PST, December 30, 2010, by dialing (303) 590-3030 and entering passcode 4390981.

Forward-Looking Statements

Statements contained in this press release, or in the teleconference or webcast that are not statements of historical fact, including quotations attributed to Mr. MacKenzie and any statements that use the words "will," "believes," "anticipates," "estimates," "expects," "intends," "temporary," or similar words that describe the Company's or its management's future expectations, plans, objectives, or goals, are "forward-looking statements" and are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include projections regarding the Company's financial performance, the success of our strategic initiatives including investments in our solid state storage growth strategy and the Brazil flash business, the benefits associated with operational efficiencies, the DRAM market and its pricing trends, the temporary nature of pricing trends, new product introductions, market growth, expansion of capacity and strength in markets in the United States, Brazil and Asia, the launch of our flash initiatives in Brazil, customer relationships, and end user and/or customer acceptance, qualification or demand for products.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to be materially different from the historical results and/or from any future results or outcomes expressed or implied by such forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, production or manufacturing difficulties, competitive factors, new products and technological changes, difficulties with or delays in the introduction of new products, declines or fluctuations in product prices and raw material costs and availability, dependence upon third-party vendors, customer demand for or acceptance or qualification of products, end user markets, changes in industry standards or release plans, fluctuations in the quarterly effective tax rate and related tax provision, failure to receive continued favorable tax treatment or renewals of exemptions from or benefits relating to certain taxes in foreign countries, higher than anticipated costs from increasing capacity, changes in foreign currency exchange rates, intellectual property disputes, and other risks detailed in the Company's periodic report filings with the Securities and Exchange Commission including the Company's Annual Report on Form 10-K for fiscal 2010. Such risk factors as outlined in these reports may not constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. The Company operates in a continually changing business environment and new factors emerge from time to time. The Company cannot predict such factors, nor can it assess the impact, if any, from such factors on the Company or its results. Accordingly, our future results may differ materially from projections and 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 the Company 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.

Non-GAAP Information

Certain non-GAAP financial measures are included in this press release, including Adjusted EBITDA, non-GAAP net income and non-GAAP net income per diluted share. We define Adjusted EBITDA as GAAP net income plus net interest expense, income tax expense, depreciation and amortization expense, stock-based compensation expense, a technology access charge, 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.

Non-GAAP financial results do not include stock-based compensation expense, a technology access charge and other infrequent or unusual items. 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 table below for more detail on Adjusted EBITDA and non-GAAP calculations.

About SMART

SMART is a leading independent designer, manufacturer and supplier of electronic subsystems to original equipment manufacturers, or OEMs. SMART offers more than 500 standard and custom products to OEMs engaged in the computer, enterprise, industrial, networking, gaming, telecommunications, defense, aerospace and embedded application markets. Taking innovations from the design stage through manufacturing and delivery, SMART has developed a comprehensive memory product line that includes DRAM, SRAM, and Flash memory in various form factors. SMART also offers high performance, high capacity solid state drives, or SSDs, for enterprise, defense, aerospace, industrial automation, medical, and transportation markets. SMART's presence in the U.S., Europe, Asia, and Latin America enables it to provide its customers with proven expertise in international logistics, asset management, and supply-chain management worldwide. See www.smartm.com for more information.

          SMART Modular Technologies (WWH), Inc. and Subsidiaries
              Reconciliation of Non-GAAP Financial Measures
             (In thousands, except per share data; unaudited)

                                               Three Months Ended
                                     --------------------------------------
                                     November 26,  August 27,  November 27,
                                         2010         2010        2009
                                     ------------ ------------ -----------

Net income                           $      7,967 $     16,980 $     4,582
Add:
  Stock-based compensation expense
   charged to operating expense, net
   of tax                                   2,133        1,815       1,635
  Technology access charge, no tax
   effect                                   7,534            -           -
  Gain on repurchase of notes, no
   tax effect                                   -            -      (1,178)
  Loan fees written off on
   repurchase of notes, no tax
   effect                                       -            -         353
                                     ------------ ------------ -----------
Non-GAAP net income                  $     17,634 $     18,795 $     5,392
                                     ============ ============ ===========

Non-GAAP net income per diluted
 share                               $       0.27 $       0.29 $      0.08
                                     ============ ============ ===========
Shares used in computing non-GAAP
 net income per diluted share:             65,760       65,175      64,016
                                     ============ ============ ===========

Net income                           $      7,967 $     16,980 $     4,582
  Interest expense, net                       711          747       1,663*
  Income taxes                              5,339        8,434       4,717
  Depreciation and amortization             5,898        5,225       3,617
                                     ------------ ------------ -----------
EBITDA                                     19,915       31,386      14,579
Adjustments:
  Stock-based compensation expense
   charged to operating expenses            2,145        1,827       1,646
  Gain on repurchase of notes                   -            -      (1,178)
  Technology access charge                  7,534            -           -
                                     ------------ ------------ -----------
Adjusted EBITDA                      $     29,594 $     33,213 $    15,047
                                     ============ ============ ===========


 * Includes $353K of loan fees written off on repurchase of notes.





     Reconciliation of Q2-11 Guidance for Non-GAAP Financial Measures
              (In millions, except per share data; unaudited)


                                  Three Months Ending February 25, 2011
                                -------------------------------------------
                                    GAAP                        Non-GAAP
                                  Range of                      Range of
                                  Estimates                     Estimates
                                -------------                 -------------
                                 From     To   Adjustments     From    To
                                ------ ------  ----------     ------ ------

Net income                      $  3.8 $  5.1  $      2.2 (a) $  6.0 $  7.3
                                ====== ======                 ====== ======
Net income per diluted share    $ 0.06 $ 0.08                 $ 0.09 $ 0.11
                                ====== ======                 ====== ======
Shares used in computing net
 income per diluted share         66.0   66.0                   66.0   66.0
                                ====== ======                 ====== ======


(a) Reflects estimated adjustment for $2.2 million stock-based compensation
    expense.




          SMART Modular Technologies (WWH), Inc. and Subsidiaries
              Condensed Consolidated Statements of Operations
             (In thousands, except per share data; unaudited)


                                               Three Months Ended
                                     -------------------------------------
                                     November 26,  August 27,  November 27,
                                         2010         2010         2009
                                     -----------  -----------  -----------
Net sales                            $   216,359  $   218,652  $   123,093
Cost of sales                            172,350      168,872       94,327
                                     -----------  -----------  -----------
  Gross profit                            44,009       49,780       28,766

Operating expenses:
  Research and development                 8,160        7,496        5,730
  Selling, general and administrative     14,848       16,083       13,366
  Technology access charge                 7,534            -            -
                                     -----------  -----------  -----------
     Total operating expenses             30,542       23,579       19,096
                                     -----------  -----------  -----------
     Income from operations               13,467       26,201        9,670
Interest expense, net                       (711)        (747)      (1,663)
Other income (expense), net                  550          (40)       1,292
                                     -----------  -----------  -----------
     Total other expense                    (161)        (787)        (371)
                                     -----------  -----------  -----------
Income before provision for income
 taxes                                    13,306       25,414        9,299
Provision for income taxes                 5,339        8,434        4,717
                                     -----------  -----------  -----------
     Net income                      $     7,967  $    16,980  $     4,582
                                     ===========  ===========  ===========

Net income per share, basic          $      0.13  $      0.27  $      0.07
                                     ===========  ===========  ===========
Net income per share, diluted        $      0.12  $      0.26  $      0.07
                                     ===========  ===========  ===========
Shares used in computing net income
 per ordinary share                       62,899       62,662       61,974
                                     ===========  ===========  ===========
Shares used in computing net income
 per diluted share                        65,760       65,175       64,016
                                     ===========  ===========  ===========




          SMART Modular Technologies (WWH), Inc. and Subsidiaries
                  Condensed Consolidated Balance Sheets
                                (Unaudited)

                                                  November 26,   August 27,
                                                      2010         2010
                                                  ------------ ------------
ASSETS                                                 (In thousands)
Current assets:
  Cash and cash equivalents                       $     92,944 $    115,474
  Accounts receivable, net of allowances of
   $1,773 and $1,660 as of November 26, 2010
   and August 27, 2010, respectively                   178,887      208,377
  Inventories                                          103,464      112,103
  Prepaid expense and other current assets              22,325       33,488
                                                  ------------ ------------
     Total current assets                              397,620      469,442
Property and equipment, net                             49,179       46,221
Other non-current assets                                27,838       21,217
Other intangible assets, net                             6,220        6,460
Goodwill                                                 1,061        1,061
                                                  ------------ ------------
     Total assets                                 $    481,918 $    544,401
                                                  ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                $     81,681 $    151,885
  Accrued liabilities                                   21,178       29,318
                                                  ------------ ------------
    Total current liabilities                          102,859      181,203
Long-term debt                                          55,072       55,072
Other long-term liabilities                              4,749        4,546
                                                  ------------ ------------
  Total liabilities                                    162,680      240,821
                                                  ------------ ------------
Shareholders' equity:
  Ordinary shares                                           11           10
  Additional paid in capital                           121,269      118,123
  Accumulated other comprehensive income                16,202       11,658
  Retained earnings                                    181,756      173,789
                                                  ------------ ------------
     Total shareholders' equity                        319,238      303,580
                                                  ------------ ------------
     Total liabilities and shareholders' equity   $    481,918 $    544,401
                                                  ============ ============




          SMART Modular Technologies (WWH), Inc. and Subsidiaries
                      Summary Cash Flow Information
                                (Unaudited)

                                                     Three Months Ended
                                                  ------------------------
                                                  November 26, November 27,
                                                      2010         2009
                                                  -----------  -----------
                                                       (In thousands)

Net cash provided by (used in) operating
 activities                                       $   (16,182) $     7,703
Net cash used in investing activities             $    (7,537) $    (2,895)
Net cash provided by (used in) financing
 activities                                       $     1,002  $   (24,782)

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