SOURCE: SMART Modular Technologies

SMART Modular Technologies

June 17, 2010 16:01 ET

SMART Modular Technologies Reports Third Quarter Fiscal 2010 Results

NEWARK, CA--(Marketwire - June 17, 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 third quarter of fiscal 2010 ended May 28, 2010.

Third Quarter Fiscal 2010 Highlights:

--  Net sales of $201.2 million
--  Gross profit of $45.5 million
--  GAAP diluted EPS of $0.23
--  Non-GAAP diluted EPS of $0.26
--  Adjusted EBITDA of $29.8 million

Net sales for the third quarter of fiscal 2010 were $201.2 million, compared to $160.1 million for the second quarter of fiscal 2010, and $91.6 million for the third quarter of fiscal 2009.

Gross profit for the third quarter of fiscal 2010 was $45.5 million, compared to $42.0 million for the second quarter of fiscal 2010, and $18.6 million for the third quarter of fiscal 2009.

On a GAAP basis, net income for the third quarter of fiscal 2010 was $14.9 million or $0.23 per diluted share, compared with $16.1 million, or $0.25 per diluted share for the second quarter of fiscal 2010, and a net loss of $2.4 million, or a net loss of $0.04 per share for the third quarter of fiscal 2009.

On a non-GAAP basis, net income was $17.3 million or $0.26 per diluted share for the third quarter of fiscal 2010, compared with $14.9 million or $0.23 per diluted share for the second quarter of fiscal 2010, and net income of $0.9 million or $0.01 per diluted share for the third quarter of fiscal 2009.

Adjusted EBITDA for the third quarter of fiscal 2010 was $29.8 million, compared to $28.4 million for the second quarter of fiscal 2010, and $5.2 million for the third quarter of fiscal 2009.

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.

"The strength of SMART's third quarter fiscal 2010 provides continued evidence of the success of our strategic initiatives and the strength of end user demand in our key markets in the U.S., Brazil and Asia. This end user demand, combined with a stable DRAM market and our enhanced operating efficiencies, have combined to drive our better than expected financial results," commented Iain MacKenzie, President and CEO of SMART. "During the quarter we continued to ramp our investment in Brazil as well as in our enterprise solid state storage business in order to solidify and grow our position within these rapidly expanding markets."

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 fourth quarter of fiscal 2010, SMART estimates net sales will be in the range of $200 to $210 million, gross profit in the range of $44 to $47 million, and net income per diluted share in the range of $0.19 to $0.21 on a GAAP basis. On a non-GAAP basis, SMART estimates net income per diluted share will be in the range of $0.22 to $0.24. The guidance for the fourth quarter of fiscal 2010 includes an income tax provision estimated in the range of $8.0 to $8.4 million. Please refer to the Non-GAAP Information section and the "Reconciliation of Q4-10 Guidance for Non-GAAP Financial Measures" table below for further detail.

Conference Call Details

SMART's third quarter fiscal 2010 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, June 17, 2010. The call may be accessed U.S. toll free by calling (877) 941-2068 or U.S. toll by calling (480) 629-9712. Please join the conference call at least ten minutes early in order to register. The access code is 4313196. 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, July 1, 2010, by dialing (303) 590-3030 and entering passcode 4313196.

Forward-Looking Statements

Statements contained in this press release, or in the teleconference or webcast, including the quotations attributed to Mr. MacKenzie, that are not statements of historical fact, including any statements that use the words "will," "believes," "anticipates," "estimates," "expects," "intends" 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, the benefits associated with operational efficiencies, the DRAM market, new product introductions, expansion of capacity and strength in markets in the U.S., Brazil and Asia, the launch of Flash packaging in Brazil, and end user and customer 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, fluctuations in product prices and raw material costs and availability, dependence upon third-party vendors, customer demand, 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 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 2009 and its Quarterly Reports on Form 10-Q for the quarters ended November 27, 2009 and February 26, 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 currently 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 (loss) plus net interest expense, income tax expense, depreciation and amortization expense, goodwill impairment charges, restructuring charges, stock-based compensation expense, display business divestiture, and other infrequent or unusual items, less net gain on repurchase of notes and gain from legal settlement. 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, goodwill impairment charges, net gain on repurchase of notes, gain from legal settlement 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 generally accepted accounting principles. 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 reconciliations of GAAP to non-GAAP financial measures, which are included below.

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, 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           Nine Months Ended
                     -------------------------------- --------------------
                                February
                      May 28,      26,      May 29,    May 28,    May 29,
                       2010       2009       2009       2010       2009
                     ---------- ---------  ---------  ---------  ---------

Net income (loss)    $   14,917 $  16,092  $  (2,386) $  35,591  $ (11,114)
Add:
  Stock-based
   compensation
   expense charged
   to operating
   expense, net of
   tax                    1,896     1,827      1,478      5,358      5,040
  Display business
   divestiture, no
   tax effect               486         -          -        486          -
  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          -
  Relocation of
   corporate
   headquarter
   charges, net of
   tax                        -         -        820          -        820
  Goodwill
   impairment, no
   tax effect                 -         -          -          -     10,416
  Restructuring
   charges, net of
   tax                        -         -        945          -      2,756
                     ---------- ---------  ---------  ---------  ---------
Non-GAAP net income  $   17,299 $  14,875  $     857  $  37,566  $   7,918
                     ========== =========  =========  =========  =========

Non-GAAP net income
 per diluted share   $     0.26 $    0.23  $    0.01  $    0.58  $    0.12
                     ========== =========  =========  =========  =========
Shares used in
 computing non-GAAP
 net income per
 diluted share:          65,502    65,010     63,489     64,843     63,381
                     ========== =========  =========  =========  =========

Net income (loss)    $   14,917 $  16,092  $  (2,386) $  35,591  $ (11,114)
  Interest expense,
   net                      837     1,163      1,629      3,663      5,079
  Income taxes            7,354     8,433        368     20,504      3,808
  Depreciation and
   amortization           4,250     3,912      3,142     11,779      9,586
                     ---------- ---------  ---------  ---------  ---------
EBITDA                   27,358    29,600      2,753     71,537      7,359
Adjustments:
  Stock-based
   compensation
   expense charged
   to operating
   expense                1,908     1,839      1,490      5,393      5,077
  Display business
   divestiture
   expenses                 486         -          -        486          -
  Gain on legal
   settlement                 -    (3,044)         -     (3,044)         -
  Gain on repurchase
   of notes                   -         -          -     (1,178)         -
  Goodwill
   impairment                 -         -          -          -     10,416
  Restructuring
   charges                    -         -        989          -      2,810
                     ---------- ---------  ---------  ---------  ---------
Adjusted EBITDA      $   29,752 $  28,395  $   5,232  $  73,194  $  25,662
                     ========== =========  =========  =========  =========



     Reconciliation of Q4-10 Guidance for Non-GAAP Financial Measures
              (In millions, except per share data; unaudited)



                                   Three Months Ending August 27, 2010
                               --------------------------------------------
                                   GAAP                         Non-GAAP
                                 Range of                       Range of
                                 Estimates                      Estimates
                               -------------                  -------------
                                From    To   Adjustments       From    To
                               ------ ------ ------------     ------ ------

Net income                     $ 12.4 $ 14.0 $        1.9 (a) $ 14.3 $ 15.9
                               ====== ======                  ====== ======
Net income per diluted share   $ 0.19 $ 0.21                  $ 0.22 $ 0.24
                               ====== ======                  ====== ======
Shares used in computing net
 income per diluted share        66.0   66.0                    66.0   66.0
                               ====== ======                  ====== ======

(a) Reflects estimated adjustment for 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     Nine Months Ended
                                --------------------  --------------------
                                 May 28,    May 29,    May 28,    May 29,
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------

Net sales                       $ 201,235  $  91,645  $ 484,438  $ 341,509
Cost of sales                     155,738     73,008    368,162    272,989
                                ---------  ---------  ---------  ---------
   Gross profit                    45,497     18,637    116,276     68,520

Operating expenses:
   Research and development         6,657      4,478     17,606     15,056
   Selling, general and
    administrative                 16,340     13,585     44,037     41,834
   Restructuring charges                -        989          -      2,810
   Goodwill impairment                  -          -          -     10,416
                                ---------  ---------  ---------  ---------
     Total operating expenses      22,997     19,052     61,643     70,116
                                ---------  ---------  ---------  ---------
     Income (loss) from
      operations                   22,500       (415)    54,633     (1,596)
Interest expense, net                (837)    (1,629)    (3,663)    (5,079)
Other income (expense), net           608         26      5,125       (631)
                                ---------  ---------  ---------  ---------
     Total other income
      (expense)                      (229)    (1,603)     1,462     (5,710)
                                ---------  ---------  ---------  ---------
Income (loss) before provision
 for income taxes                  22,271     (2,018)    56,095     (7,306)
Provision for income taxes          7,354        368     20,504      3,808
                                ---------  ---------  ---------  ---------
     Net income (loss)          $  14,917  $  (2,386) $  35,591  $ (11,114)
                                =========  =========  =========  =========

Net income (loss) per share,
 basic                          $    0.24  $   (0.04) $    0.57  $   (0.18)
                                =========  =========  =========  =========
Net income (loss) per share,
 diluted                        $    0.23  $   (0.04) $    0.55  $   (0.18)
                                =========  =========  =========  =========
Shares used in computing net
 income (loss) per ordinary
 share                             62,463     61,738     62,216     61,640
                                =========  =========  =========  =========
Shares used in computing net
 income (loss) per diluted
 share                             65,502     61,738     64,843     61,640
                                =========  =========  =========  =========



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


                                                       May 28,   August 28,
                                                        2010       2009
                                                      ---------- ----------
ASSETS                                                   (In thousands)
Current assets:
    Cash and cash equivalents                         $  105,981 $  147,658
    Accounts receivable, net of allowances of $1,574
     and $1,591 as of May 28, 2010 and August 28, 2009   212,426    130,953
    Inventories                                          110,191     63,115
    Prepaid expense and other current assets              29,222     12,628
                                                      ---------- ----------
      Total current assets                               457,820    354,354
  Property and equipment, net                             44,045     36,263
  Goodwill                                                 1,061      1,061
  Other intangible assets, net                             6,700      7,475
  Other non-current assets                                 7,497      4,585
                                                      ---------- ----------
      Total assets                                    $  517,123 $  403,738
                                                      ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                  $  146,783 $   68,928
    Accrued expenses and other current liabilities        29,512     16,615
                                                      ---------- ----------
      Total current liabilities                          176,295     85,543
  Long-term debt                                          55,072     81,250
  Other long-term liabilities                                441      2,120
                                                      ---------- ----------
      Total liabilities                                  231,808    168,913
                                                      ---------- ----------
  Shareholders' equity:
    Ordinary shares                                           10         10
    Additional paid in capital                           116,029    109,264
    Accumulated other comprehensive income                12,467      4,333
    Retained earnings                                    156,809    121,218
                                                      ---------- ----------
      Total shareholders' equity                         285,315    234,825
                                                      ---------- ----------
      Total liabilities and shareholders' equity      $  517,123 $  403,738
                                                      ========== ==========




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


                                                       Nine Months Ended
                                                     ---------------------
                                                      May 28,     May 29,
                                                       2010        2009
                                                     ---------   ---------
                                                         (In thousands)

Net cash provided by (used in) operating activities  $  (4,136)  $  44,595
Net cash used in investing activities                $ (15,034)  $ (18,603)
Net cash provided by (used in) financing activities  $ (23,616)  $     414

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