SOURCE: SMART Modular Technologies

SMART Modular Technologies

March 24, 2011 16:01 ET

SMART Modular Technologies Reports Second Quarter Fiscal 2011 Results

NEWARK, CA--(Marketwire - March 24, 2011) - 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 second quarter of fiscal 2011 ended February 25, 2011.

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 million

Net 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)

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