Second Quarter Fiscal 2011 Highlights: -- Net sales of $170.5 million -- Gross profit of $28.5 million -- GAAP diluted EPS of $0.00 -- Non-GAAP diluted EPS of $0.08 -- Adjusted EBITDA of $13.6 millionNet sales for the second quarter of fiscal 2011 were $170.5 million, compared to $216.4 million for the first quarter of fiscal 2011, and $160.1 million for the second quarter of fiscal 2010. Gross profit for the second quarter of fiscal 2011 was $28.5 million, compared to $44.0 million for the first quarter of fiscal 2011, and $42.0 million for the second quarter of fiscal 2010. On a GAAP basis, net income for the second quarter of fiscal 2011 was $0.2 million or $0.00 per diluted share, compared to $8.0 million or $0.12 per diluted share for the first quarter of fiscal 2011, and $16.1 million, or $0.25 per diluted share for the second quarter of fiscal 2010. The second quarter of fiscal 2011 net income of $0.2 million includes restructuring charges of $2.8 million related to the closure of the Company's Puerto Rico facility. On a non-GAAP basis, net income was $5.2 million or $0.08 per diluted share for the second quarter of fiscal 2011, compared to $17.6 million or $0.27 per diluted share for the first quarter of fiscal 2011, and net income of $14.9 million or $0.23 per diluted share for the second quarter of fiscal 2010. Adjusted EBITDA for the second quarter of fiscal 2011 was $13.6 million, compared to $29.6 million for the first quarter of fiscal 2011, and $28.4 million for the second 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 delighted with the growing momentum in our enterprise solid state storage business," commented Iain MacKenzie, President and CEO of SMART. "We continue to have success at broadening our engagements with enterprise customers and believe that we are positioned for meaningful increases in this business during the second half of this fiscal year." "In the second fiscal quarter our gross profit was negatively impacted by the weaker than anticipated DRAM pricing environment, which primarily affected our business in Brazil," Mr. MacKenzie continued. "Despite this impact, we were able to achieve non-GAAP diluted earnings per share of $0.08, due in large part to the resilience of our business model, prudent cost controls and our continued focus on operational excellence. Pricing in the DRAM market appears to have stabilized, and we believe that our second fiscal quarter marked the trough with respect to earnings." 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. For the third quarter of fiscal 2011, SMART expects net sales will be in the range of $160 to $180 million and gross profit will be in the range of $29 to $33 million. Net income per diluted share is expected to be in the range of $0.04 to $0.07 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 $0.12. The guidance for the third quarter of fiscal 2011 includes an income tax provision expected to be in the range of $2.8 to $3.1 million. Please refer to the Non-GAAP Information section and the "Reconciliation of Q3-11 Guidance for Non-GAAP Financial Measures" table below for further detail. Conference Call Details SMART's second quarter fiscal 2011 teleconference and webcast is scheduled to begin at 1:30 p.m. Pacific Daylight Time (PDT), or 4:30 p.m. Eastern Daylight Time (EDT), on Thursday, March 24, 2011. 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 4421390. 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 PDT, April 7, 2011, by dialing (303) 590-3030 and entering passcode 4421390. 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," "appears," "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, supply shortages, 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 or new 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 and the Form 10-Qs filed for fiscal 2011. 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, restructuring charges, 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, restructuring charges, 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, 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 Six Months Ended
--------------------------- -----------------
February November February February February
25, 26, 26, 25, 26,
2011 2010 2010 2011 2010
-------- -------- -------- -------- --------
Net income $ 171 $ 7,967 $ 16,092 $ 8,138 $ 20,674
Add:
Stock-based compensation
expense charged to
operating expenses, net
of tax 2,232 2,133 1,827 4,365 3,462
Restructuring charges,
no tax effect 2,831 - - 2,831 -
Technology access
charge, no tax effect - 7,534 - 7,534 -
Gain on legal settlement,
no tax effect - - (3,044) - (3,044)
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 $ 5,234 $ 17,634 $ 14,875 $ 22,868 $ 20,267
======== ======== ======== ======== ========
Non-GAAP net income per
diluted share $ 0.08 $ 0.27 $ 0.23 $ 0.35 $ 0.31
======== ======== ======== ======== ========
Shares used in computing
non-GAAP net income per
diluted share: 66,087 65,760 65,010 65,923 64,513
======== ======== ======== ======== ========
Net income $ 171 $ 7,967 $ 16,092 $ 8,138 $ 20,674
Interest expense, net 230 711 1,163 941 2,826 *
Income taxes 2,557 5,339 8,433 7,896 13,150
Depreciation and
amortization 5,585 5,898 3,912 11,483 7,529
-------- -------- -------- -------- --------
EBITDA 8,543 19,915 29,600 28,458 44,179
Adjustments:
Stock-based compensation
expense charged to
operating expenses 2,248 2,145 1,839 4,393 3,485
Restructuring charges 2,831 - - 2,831 -
Technology access charge - 7,534 - 7,534 -
Gain on legal settlement - - (3,044) - (3,044)
Gain on repurchase of
notes - - - - (1,178)
-------- -------- -------- -------- --------
Adjusted EBITDA $ 13,622 $ 29,594 $ 28,395 $ 43,216 $ 43,442
======== ======== ======== ======== ========
* Includes $353K of loan fees written off on repurchase of notes.
Reconciliation of Q3-11 Guidance for Non-GAAP Financial Measures
(In millions, except per share data; unaudited)
Three Months Ending May 27, 2011
-------------------------------------------
GAAP Non-GAAP
Range of Range of
Estimates Estimates
------------- -------------
From To Adjustments From To
------ ------ ----------- ------ ------
Net income $ 2.8 $ 4.5 $ 3.2 (a) $ 6.0 $ 7.7
====== ====== ====== ======
Net income per diluted share $ 0.04 $ 0.07 $ 0.09 $ 0.12
====== ====== ====== ======
Shares used in computing net
income per diluted share 66.5 66.5 66.5 66.5
====== ====== ====== ======
(a) Reflects estimated adjustments for $2.2 million stock-based
compensation expense and $1.0 million restructuring charges.
SMART Modular Technologies (WWH), Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share data; unaudited)
Three Months Ended Six Months Ended
------------------------------- --------------------
February November February February February
25, 26, 26, 25, 26,
2011 2010 2010 2011 2010
--------- --------- --------- --------- ---------
Net sales $ 170,549 $ 216,359 $ 160,110 $ 386,908 $ 283,203
Cost of sales 142,024 172,350 118,097 314,374 212,424
--------- --------- --------- --------- ---------
Gross profit 28,525 44,009 42,013 72,534 70,779
Operating expenses:
Research and
development 7,852 8,160 5,219 16,012 10,949
Selling, general
and administrative 15,169 14,848 14,331 30,017 27,697
Restructuring
charges 2,831 - - 2,831 -
Technology access
charge - 7,534 - 7,534 -
--------- --------- --------- --------- ---------
Total operating
expenses 25,852 30,542 19,550 56,394 38,646
--------- --------- --------- --------- ---------
Income from
operations 2,673 13,467 22,463 16,140 32,133
Interest expense, net (230) (711) (1,163) (941) (2,826)
Other income, net 285 550 3,225 835 4,517
--------- --------- --------- --------- ---------
Total other
income (expense) 55 (161) 2,062 (106) 1,691
--------- --------- --------- --------- ---------
Income before
provision for
income taxes 2,728 13,306 24,525 16,034 33,824
Provision for income
taxes 2,557 5,339 8,433 7,896 13,150
--------- --------- --------- --------- ---------
Net income $ 171 $ 7,967 $ 16,092 $ 8,138 $ 20,674
========= ========= ========= ========= =========
Net income per
share, basic $ 0.00 $ 0.13 $ 0.26 $ 0.13 $ 0.33
========= ========= ========= ========= =========
Net income per
share, diluted $ 0.00 $ 0.12 $ 0.25 $ 0.12 $ 0.32
========= ========= ========= ========= =========
Shares used in
computing net
income per ordinary
share 63,178 62,899 62,211 63,039 62,092
========= ========= ========= ========= =========
Shares used in
computing net
income per diluted
share 66,087 65,760 65,010 65,923 64,513
========= ========= ========= ========= =========
SMART Modular Technologies (WWH), Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
February 25, August 27,
2011 2010
------------- -------------
ASSETS (In thousands)
Current assets:
Cash and cash equivalents $ 134,426 $ 115,474
Accounts receivable, net of allowances of
$1,863 and $1,660 as of February 25, 2011
and August 27, 2010, respectively 184,724 208,377
Inventories 96,087 112,103
Prepaid expense and other current assets 29,108 33,488
------------- -------------
Total current assets 444,345 469,442
Property and equipment, net 52,996 46,221
Other non-current assets 26,066 21,217
Other intangible assets, net 5,980 6,460
Goodwill 1,061 1,061
------------- -------------
Total assets $ 530,448 $ 544,401
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 118,840 $ 151,885
Accrued liabilities 24,649 29,318
------------- -------------
Total current liabilities 143,489 181,203
Long-term debt 55,072 55,072
Other long-term liabilities 6,225 4,546
------------- -------------
Total liabilities 204,786 240,821
------------- -------------
Shareholders' equity:
Ordinary shares 11 10
Additional paid in capital 124,892 118,123
Accumulated other comprehensive income 18,832 11,658
Retained earnings 181,927 173,789
------------- -------------
Total shareholders' equity 325,662 303,580
------------- -------------
Total liabilities and shareholders'
equity $ 530,448 $ 544,401
============= =============
SMART Modular Technologies (WWH), Inc. and Subsidiaries
Summary Cash Flow Information
(Unaudited)
Six Months Ended
--------------------------
February 25, February 26,
2011 2010
------------ ------------
(In thousands)
Net cash provided by operating activities $ 28,955 $ 4,917
Net cash used in investing activities $ (12,965) $ (9,822)
Net cash provided by (used in) financing
activities $ 2,377 $ (24,337)
Contact Information: For More Information Investor Contacts: Suzanne Craig The Blueshirt Group for SMART Modular Technologies 415-217-7722 Suzanne@blueshirtgroup.com Barry Zwarenstein CFO, Senior Vice President SMART Modular Technologies 510-624-8134 Barry.Zwarenstein@smartm.com