NEWARK, Calif., April 07, 2020 (GLOBE NEWSWIRE) -- SMART Global Holdings, Inc. (“SMART” or the “Company”) (NASDAQ: SGH), today reported financial results for the second quarter of fiscal 2020 ended February 28, 2020.

Second Quarter Fiscal 2020 Highlights:

  • Net sales of $272.0 million
  • GAAP net income (loss) of ($9.7) million, or ($0.41) per share
  • Non-GAAP net income of $12.8 million, or $0.52 per share
  • Adjusted EBITDA of $22.3 million
  • Increased cash and equivalents to $141.9 million

“In the second quarter of fiscal 2020, we generated financial results above the midpoint of our guidance range driven by excellent performance from our team members along with better than expected performance from both our Specialty Memory and Brazil businesses,” commented Ajay Shah, Chairman and CEO. “Despite the challenges we all face during the COVID-19 crisis, we remain optimistic about the longer-term positioning of our businesses.”

“During the quarter we significantly improved our capital structure through the issuance of $250 million of convertible senior notes in a private placement, the majority of the proceeds of which we used to pay down our existing, higher interest rate debt, thereby recapitalizing our balance sheet, lowering our interest expense, eliminating quarterly principal payments and extending the debt maturity,” added Jack Pacheco, COO and CFO.

        
Quarterly Financial ResultsGAAP (1) Non-GAAP (2)
(In millions, except per share amounts)Q2 FY20Q1 FY20Q2 FY19 Q2 FY20Q1 FY20Q2 FY19
Net sales$272.0 $272.0$304.1 $272.0$272.0$304.1
Gross profit$51.5 $54.3$57.1 $52.9$55.7$57.8
Operating income$8.2 $5.9$22.5 $17.3$18.2$27.7
Net income (loss)$(9.7)$0.2$12.8 $12.8$13.4$18.0
Diluted earnings per share (EPS)$(0.41)$0.01$0.55 $0.52$0.55$0.77
        
(1)  GAAP represents U.S. Generally Accepted Accounting Principles.    
(2)  Please refer to the “Non-GAAP Information” section and the "Reconciliation of Non-GAAP Financial Measures" tables below for further detail on the non-GAAP financial reporting referenced above and a reconciliation of such measures to our nearest GAAP measures.
 

Business Outlook
The following statements are based upon management's current expectations for the third quarter of fiscal 2020 ending May 29, 2020. These statements are forward-looking and actual results may differ materially. SMART undertakes no obligation to update these statements.

   
Net Sales$270 to $300 million
Gross Margin - GAAP / Non-GAAP20% to 22%
Diluted EPS - GAAP*$0.33 ± $0.05
  
Share-based compensation per share$0.20
Intangible amortization per share$0.15
  
Diluted EPS - Non-GAAP*$0.68 ± $0.05
  
Expected diluted share count24.6 million
   
*EPS does not include any potential loss from the mark to market of the capped call.
   

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 using access code 5089819.

A replay of the conference call will be available for one week following today’s call through the Events section of the SMART website at www.smartgh.com or by calling US toll free +1-855-859-2056; Passcode: 5089819.

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 industries 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; disruptions in our operations or in global markets as a result of the outbreak of COVID-19; trade regulations and relations; changes in currency exchange rates; overall information technology spending; appropriations for government spending; the success of our strategic initiatives including additional investments in new products, additional capacity and acquisitions; the DRAM market and the temporary and volatile nature of pricing trends; deterioration in 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; strikes or labor disputes; deterioration in or loss of relations with any of our limited number of key vendors; changes in the availability of supply of materials, components or memory products; the inability of Penguin Computing to obtain and retain security clearances to expand its government business; and other factors and risks detailed in SMART’s filings with the Securities and Exchange Commission. Such factors and risks as outlined above and in such filings 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 and its subsidiaries operate 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 subsidiaries’ 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
Certain non-GAAP financial measures are contained in this press release or will be discussed on our conference call, including non-GAAP gross profit, non-GAAP operating income, 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, share-based compensation expense, loss on extinguishment of debt, capped call mark to market (MTM) adjustment, integration expenses, acquisition-related expenses 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 exclude share-based compensation expense, intangible amortization expense, loss on extinguishment of debt, capped call MTM adjustment, convertible debt original issue discount (OID), integration expenses, acquisition-related expenses and other infrequent or unusual expenses, and with respect to non-GAAP diluted EPS, foreign currency gains (losses). 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 to GAAP Results” and “Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA” tables below for more detail on non-GAAP calculations.

About SMART Global Holdings

The SMART lines of business are leading designers and manufacturers of electronic products focused on memory and computing technology areas. The Company specializes in application specific product development and support for customers in enterprise, government and OEM sales channels. Customers rely on SMART as a strategic supplier with top tier customer service, product quality, and technical support with engineering, sales, manufacturing, supply chain and logistics capabilities worldwide. The Company targets customers in markets such as communications, storage, networking, mobile, industrial automation, industrial internet of things, government, military, edge computing and high performance computing. SMART operates in three primary product areas: Specialty Memory products, Brazil products and Specialty Compute and Storage Solutions.

See www.smartgh.com, www.smartm.comwww.smartembedded.com, www.smartsscs.com and www.penguincomputing.com for more information.

SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Income Statements
(In thousands, except per share data)
          
 Three Months Ended Six Months Ended
 February 28,
2020
 November 29,
2019
 March 1,
2019
 February 28,
2020
 March 1,
2019
Net sales:         
Specialty Memory Products$111,455  $103,529  $115,608  $214,984  $255,557 
Brazil Products 97,700   93,999   147,111   191,699   346,390 
Specialty Compute and Storage Solutions 62,887   74,490   41,344   137,377   95,995 
Total net sales 272,042   272,018   304,063   544,060   697,942 
Cost of sales (1) (2) 220,536   217,698   246,932   438,234   555,742 
Gross profit 51,506   54,320   57,131   105,826   142,200 
Operating expenses:         
Research and development (1) 14,702   14,886   11,238   29,588   23,054 
Selling, general and administrative (1) (2) 28,648   33,553   23,442   62,201   48,896 
Total operating expenses 43,350   48,439   34,680   91,789   71,950 
          
Income from operations 8,156   5,881   22,451   14,037   70,250 
Other income (expense):         
Interest expense, net (4,150)  (4,492)  (5,273)  (8,642)  (11,148)
Other income (expense), net (12,386)  (840)  252   (13,226)  (3,077)
Total other expense (16,536)  (5,332)  (5,021)  (21,868)  (14,225)
Income (loss) before income taxes (8,380)  549   17,430   (7,831)  56,025 
Provision for income taxes 1,340   325   4,644   1,665   12,263 
Net income (loss)$(9,720) $224  $12,786  $(9,496) $43,762 
          
Earnings per share:         
Basic$(0.41) $0.01  $0.56  $(0.40) $1.93 
Diluted$(0.41) $0.01  $0.55  $(0.40) $1.88 
          
Shares used in computing earnings per share:         
Basic 23,906   23,713   22,872   23,809   22,733 
Diluted 23,906   24,286   23,359   23,809   23,314 
          
(1) Includes share-based compensation expense as follows:         
Cost of sales$731  $730  $607  $1,461  $1,152 
Research and development 783   744   660   1,527   1,294 
Selling, general and administrative 3,133   4,482   2,881   7,615   5,757 
Total stock-based compensation expense$4,647  $5,956  $4,148  $10,603  $8,203 
          
(2) Includes amortization of intangible assets expense as follows:         
Cost of sales$647  $647  $98  $1,294  $114 
Selling, general and administrative 2,766   2,766   961   5,533   1,922 
Total amortization expense$3,413  $3,413  $1,059  $6,827  $2,036 
          


SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of Non-GAAP Financial Measures to GAAP Results
(In thousands, except per share data)
          
 Three Months Ended Six Months Ended
 February 28,
2020
 November 29,
2019
 March 1,
2019
 February 28,
2020
 March 1,
2019
Reconciliation of gross profit:         
GAAP gross profit$51,506  $54,320  $57,131  $105,826  $142,200 
GAAP gross margin 18.9%  20.0%  18.8%  19.5%  20.4%
          
Add: Share-based compensation included in cost of sales 731   730   607   1,461   1,152 
Add: Intangible amortization included in cost of sales 647   647   98   1,294   114 
          
Non-GAAP gross profit$ 52,884  $ 55,697  $ 57,836  $ 108,581  $ 143,466 
Non-GAAP gross margin 19.4%  20.5%  19.0%  20.0%  20.6%
          
Reconciliation of operating expenses:         
GAAP operating expenses$43,350  $48,439  $34,680  $91,789   $71,950 
          
Less: Share-based compensation expense included in opex         
Research and development 783   744   660   1,527   1,294 
Selling, general and administrative 3,133   4,482   2,881   7,615   5,757 
Total 3,916 - 5,226 - 3,541 - 9,142 - 7,051 
          
Less: Amortization of intangible assets included in opex         
Selling, general and administrative 2,766   2,766   961   5,532   1,922 
Total 2,766   2,766   961   5,532   1,922 
          
Less: Legal fees - term loan (payment holiday)             126 
Less: Acquisition-related expenses    946      946   1,423 
Less: Integration expenses 1,040   2,052      3,092    
          
Non-GAAP operating expenses$ 35,628  $ 37,449  $ 30,178  $ 73,077  $ 61,428 
          
Reconciliation of income from operations:         
GAAP income from operations$8,156  $5,881  $22,451  $14,037  $70,250 
GAAP operating margin 3.0%  2.2%  7.4%  2.6%  10.1%
          
Add: Share-based compensation expense 4,647   5,956   4,148   10,603   8,203 
Add: Amortization of intangible assets 3,413   3,413   1,059   6,826   2,036 
Add: Legal fees - term loan (payment holiday)             126 
Add: Acquisition-related expenses    946      946   1,423 
Add: Integration expenses 1,040   2,052      3,092    
          
Non-GAAP income from operations$ 17,256  $ 18,248  $ 27,658  $ 35,504  $ 82,038 
Non-GAAP operating margin 6.3%  6.7%  9.1%  6.5%  11.8%
          


SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of Non-GAAP Financial Measures to GAAP Results
(In thousands, except per share data)
           
  Three Months Ended Six Months Ended
  February 28,
 
2020
 November 29,
2019
 March 1,
2019
 February 28,
2020
 March 1,
2019
Reconciliation of income (loss) before income taxes:         
GAAP income (loss) before income taxes$(8,380) $549  $17,430  $(7,831) $56,025 
Add: Share-based compensation expense 4,647   5,956   4,148   10,603   8,203 
Add: Amortization of intangible assets 3,413   3,413   1,059   6,826   2,036 
Add: Legal fees - term loan (payment holiday)             126 
Add: Acquisition-related expenses -   946      946   1,423 
Add: Integration expenses 1,040   2,052      3,092    
Add: Extinguishment of term loan 6,630         6,630    
Add: Capped call MTM adjustment 4,795         4,795    
Add: Convertible debt discount OID 399         399    
Add: Foreign currency (gains)/losses 1,191   911   (47)  2,102   3,337 
           
Non-GAAP income before income taxes$ 13,735  $ 13,827  $ 22,590  $ 27,562  $ 71,150 
           
Reconciliation of provision for income taxes:         
GAAP provision for income taxes$1,340  $325  $4,644  $1,665  $12,263 
GAAP effective tax rate -16.0%  59.2%  26.6%  -21.3%  21.9%
           
Less: Goodwill tax credit 484         484    
Tax effect of adjustments to GAAP results (119)  (91)  5   (210)  (333)
           
Non-GAAP provision for income taxes$975  $416  $4,639  $1,391  $12,596 
Non-GAAP effective tax rate 7.1%  3.0%  20.5%  5.0%  17.7%
           
Reconciliation of net income (loss) and earnings per share (diluted):          
GAAP net income (loss)$ (9,720) $ 224  $ 12,786  $ (9,496) $ 43,762 
           
Adjustments to GAAP net income (loss):         
Share-based compensation 4,647   5,956   4,148   10,603   8,203 
Amortization of intangible assets 3,413   3,413   1,059   6,826   2,036 
Legal fees - term loan (payment holiday)             126 
Acquisition related expenses    946      946   1,423 
Integration expenses 1,040   2,052      3,092    
Extinguishment of term loan 6,630         6,630    
Capped call MTM adjustment 4,795         4,795    
Convertible debt discount OID 399         399    
Goodwill tax credit 484         484    
Foreign currency (gains)/losses 1,191   911   (47)  2,102   3,337 
Tax effect of items excluded from non-GAAP results (119)  (91)  5   (210)  (333)
           
Non-GAAP net income$ 12,760  $ 13,411  $ 17,951  $ 26,171  $ 58,554 
           
Shares used in computing earnings per share (diluted) 24,567   24,286   23,359   24,440   23,314 
           
Non-GAAP earnings per share (diluted)$ 0.52  $ 0.55  $ 0.77  $ 1.07  $ 2.51 
           
GAAP earnings per share (diluted)$(0.41) $0.01  $0.55  $(0.40) $1.88 
           


SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA
(In thousands)
           
 Three Months Ended Six Months Ended 
 February 28,
 
2020
 November 29,
2019
 March 1,
2019
 February 28,
2020
 March 1,
2019
 
           
GAAP net income (loss)$ (9,720) $ 224 $ 12,786 $ (9,496) $ 43,762 
           
Share-based compensation expense 4,647   5,956  4,148  10,603   8,203 
Amortization of intangible assets 3,413   3,413  1,059  6,826   2,036 
Interest expense, net 4,150   4,492  5,273  8,642   11,148 
Provision for income tax 1,340   325  4,644  1,665   12,263 
Depreciation 6,021   6,131  5,868  12,152   11,299 
Legal fees - term loan (payment holiday)           126 
Acquisition-related expenses(1)    946    946   1,423 
Integration expenses 1,040   2,052    3,092    
Extinguishment of term loan 6,630       6,630    
Capped call MTM adjustment 4,795       4,795    
           
Adjusted EBITDA$ 22,316  $ 23,539 $ 33,778 $ 45,855  $ 90,260 
           
(1) Amounts in FY20 & FY19 related to acquisitions of new businesses, SMART EC & Wireless (July 2019)         
           


SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Balance Sheets
(In thousands)
     
  February 28, August 30,
   2020   2019 
Assets    
Current assets:    
Cash and cash equivalents $141,860  $98,139 
Accounts receivable, net  217,361   217,433 
   161,407   118,738 
Prepaid expenses and other current assets  29,279   37,950 
Total current assets  549,907   472,260 
Property and equipment, net  59,029   68,345 
Operating lease right-of-use assets  28,665    
Other noncurrent assets  29,991   12,784 
Intangible assets, net  62,498   69,325 
   78,347   81,423 
Total assets $808,437  $704,137 
Liabilities and Shareholders’ Equity    
Current liabilities:    
Accounts payable $217,256  $164,866 
Accrued liabilities  58,425   48,980 
Current portion of long-term debt  1,546   24,054 
Total current liabilities  277,227   237,900 
Long-term debt  191,593   182,450 
Long-term operating lease liabilities  24,440    
Other long-term liabilities  8,126   10,327 
Total liabilities  501,386   430,677 
Shareholders’ equity:    
Ordinary shares  723   712 
Additional paid-in capital  350,086   285,994 
Accumulated other comprehensive loss  (198,882)  (177,866)
Retained earnings  155,124   164,620 
Total shareholders’ equity  307,051   273,460 
Total liabilities and shareholders’ equity $808,437  $704,137 
     


SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
           
  Three Months Ended Six Months Ended
  February 28,
2020
 November 29,
2019
 March 1,
2019
 February 28,
2020
 March 1,
2019
Cash flows from operating activities:          
Net income (loss) $(9,720) $224  $12,786  $(9,496) $43,762 
Adjustments to reconcile net income (loss) to net cash          
provided by operating activities:          
Depreciation and amortization  9,435   9,544   6,927   18,979   13,335 
Share-based compensation  4,647   5,956   4,148   10,603   8,203 
Provision for doubtful accounts receivable and sales returns  (100)  73   34   (27)  (70)
Deferred income tax benefit  610   (970)  (650)  (360)  (247)
(Gain) Loss on disposal of property and equipment  (18)  (42)  (4)  (60)  (1)
Loss on mark-to-market derivatives  4,795         4,795    
Loss on extinguishment of debt  6,630         6,630    
Amortization of debt discounts and issuance costs  1,047   734   694   1,781   1,379 
Amortization of operating lease right-of-use assets  1,168   1,114      2,282    
Changes in operating assets and liabilities:          
Accounts receivable  9,198   (13,688)  5,669   (4,490)  (83,772)
Inventories  (3,343)  (42,206)  17,084   (45,549)  47,660 
Prepaid expenses and other assets  1,386   5,110   7,424   6,496   4,242 
Accounts payable  (3,782)  60,438   (17,017)  56,656   31,557 
Operating lease liabilities  (1,058)  (1,082)     (2,140)   
Accrued expenses and other liabilities  2,439   62   1,959   2,501   8,358 
Net cash provided by operating activities  23,334   25,267   39,054   48,601   74,406 
Cash flows from investing activities:          
Capital expenditures and deposits on equipment  (4,210)  (5,158)  (6,232)  (9,368)  (19,616)
Proceeds from sale of property and equipment  54   42   32   96   53 
Acquisitions of business, net of cash acquired        (148)     (148)
Net cash used in investing activities  (4,156)  (5,116)  (6,348)  (9,272)  (19,711)
Cash flows from financing activities:          
Long-term debt payments  (797)  (6,435)  (1,712)  (7,232)  (3,369)
Purchase of capped call  (21,825)        (21,825)   
Proceeds from convertible notes due 2026, net of discount  243,125         243,125    
Payment for extinguishment of long-term debt  (204,904)        (204,904)   
Proceeds from borrowings under revolving line of credit  6,000   12,500   64,000   18,500   168,000 
Repayments of borrowings under revolving line of credit  (6,000)  (12,500)  (64,000)  (18,500)  (168,000)
Proceeds from issuance of ordinary shares from share option exercises 641   1,166   1,071   1,807   3,473 
Proceeds from issuance of ordinary shares from ESPP     1,242      1,242   968 
Withholding tax on restricted stock units  (351)  (20)  (219)  (371)  (219)
Net cash provided by (used in) financing activities  15,889   (4,047)  (860)  11,842   853 
Effect of exchange rate changes on the cash, cash equivalents          
and restricted cash *  (4,596)  (2,854)  374   (7,450)  2,392 
Net increase in cash and cash equivalents          
  and restricted cash *  30,471   13,250   32,220   43,721   57,940 
Cash, cash equivalents, and restricted cash at beginning of period *  111,389   98,139   62,954   98,139   37,234 
Cash, cash equivalents, and restricted cash at end of period * $141,860  $111,389  $95,174  $141,860  $95,174 
           
           
* Cash balance was adjusted to include restricted cash upon adoption of ASU 2016-18 in fiscal 2019.        
           

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