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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

SMART Global Holdings Reports First Quarter Fiscal 2020 Financial Results

December 19, 2019 GMT

NEWARK, Calif., Dec. 19, 2019 (GLOBE NEWSWIRE) -- SMART Global Holdings, Inc. (“SMART” or the “Company”) (NASDAQ: SGH), today reported financial results for the first quarter of fiscal 2020 ended November 29, 2019.

First Quarter Fiscal 2020 Highlights:

-- Net sales of $272.0 million -- Adjusted EBITDA of $23.5 million -- GAAP diluted EPS of $0.01 -- Non-GAAP diluted EPS of $0.55 -- Increased cash and equivalents to $111.4 million -- Reduced net long-term debt to $200.3 million

“In the first quarter of fiscal 2020, our Memory businesses, Specialty Memory Products and Brazil memory performed at or above expectations. In our Specialty Compute business, our two new acquisitions in July 2019 performed as expected, while our high performance computing business, Penguin Computing, experienced worse than expected seasonal weakness. We remain disciplined in managing our operating model and continue to drive improvements across all of our businesses. During the quarter, we meaningfully increased our cash position while reducing our debt. Overall we were able to increase non-GAAP EPS quarter-over-quarter in a difficult memory market,” commented Ajay Shah, Chairman and CEO.

“In Brazil, having completed our first full quarter under the new points-based system for local manufacturing, we are encouraged by the results with units and revenues increasing from the previous quarter,” continued Mr. Shah.

“Looking forward, we continue to see improvement in our Memory related businesses and expect our second quarter to be the low point in this market,” concluded Mr. Shah.

Quarterly Financial Results GAAP(1) Non-GAAP(2) ----------------------- (In millions, except per share amounts) Q1 FY20 Q4 FY19 Q1 FY19 Q1 FY20 Q4 FY19 Q1 FY19 --------------------------------------- ------- ------- ------- ------- ------- ------- Net sales $ 272.0 $ 278.4 $ 393.9 $ 272.0 $ 278.4 $ 393.9 - ----- - ----- - ----- - ----- - ----- - ----- Gross profit $ 54.3 $ 52.3 $ 85.1 $ 55.7 $ 53.4 $ 85.6 --------------------------------------- - ----- - ----- - ----- - ----- - ----- - ----- Operating income $ 5.9 $ 11.4 $ 47.8 $ 18.2 $ 18.0 $ 54.4 - ----- - ----- - ----- - ----- - ----- - ----- Net income $ 0.2 $ 5.6 $ 31.0 $ 13.4 $ 11.9 $ 40.6 --------------------------------------- - ----- - ----- - ----- - ----- - ----- - ----- Diluted earnings per share (EPS) $ 0.01 $ 0.24 $ 1.33 $ 0.55 $ 0.50 $ 1.75 --------------------------------------- - ----- - ----- - ----- - ----- - ----- - ----- (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 OutlookThe following statements are based upon management’s current expectations for the second quarter of fiscal 2020 ending February 28, 2020. These statements are forward-looking and actual results may differ materially. SMART undertakes no obligation to update these statements.

Net Sales $265 to $275 million ---------------------------------- -------------------- Gross Margin - GAAP / Non-GAAP 19% to 21% ---------------------------------- -------------------- Diluted EPS - GAAP $0.14 ± $0.05 ---------------------------------- -------------------- Share-based compensation per share $0.22 ---------------------------------- -------------------- Intangible amortization per share $0.14 ---------------------------------- -------------------- Diluted EPS - Non-GAAP $0.50 ± $0.05 ---------------------------------- -------------------- Expected diluted share count 24.0 million ---------------------------------- --------------------

Conference Call DetailsSMART 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 4198684.

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: 4198684.

Forward-Looking StatementsThis 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; 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 InformationCertain 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 plus net interest expense, income tax expense, depreciation and amortization expense, share-based compensation expense, acquisition-related expenses, integration 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, 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 HoldingsThe 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.com, www.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 ------------------------------------- November August 30, November 29, 2019 30, 2019 2018 ----------- ----------- ----------- Net sales: Specialty Memory Products $ 103,529 $ 104,634 $ 139,949 Brazil Products 93,999 89,123 199,279 Specialty Compute and Storage Solutions 74,490 84,643 54,651 - ------- - - ------- - - ------- - Total net sales 272,018 278,400 393,879 Cost of sales (1)(2) 217,698 226,108 308,810 Gross profit 54,320 52,292 85,069 - ------- - - ------- - - ------- - Operating expenses: Research and development (1) 14,886 13,536 11,816 Selling, general and administrative (1) 33,553 30,024 25,454 (2) Change in estimated fair value of acquisition-related contingent consideration — (2,700 ) — Total operating expenses 48,439 40,860 37,270 - ------- - - ------- - - ------- - Income from operations 5,881 11,432 47,799 Other income (expense): Interest expense, net (4,492 ) (4,567 ) (5,875 ) Other income (expense), net (840 ) 819 (3,329 ) Total other expense (5,332 ) (3,748 ) (9,204 ) - ------- - - ------- - - ------- - Income before income taxes 549 7,684 38,595 Provision for income taxes 325 2,059 7,619 Net income $ 224 $ 5,625 $ 30,976 - ------- - - ------- - - ------- - Earnings per share: Basic $ 0.01 $ 0.24 $ 1.37 - ------- - - ------- - - ------- - Diluted $ 0.01 $ 0.24 $ 1.33 - ------- - - ------- - - ------- - Shares used in computing earnings per share: Basic 23,713 23,366 22,595 - ------- - - ------- - - ------- - Diluted 24,286 23,825 23,257 - ------- - - ------- - - ------- - (1) Includes share-based compensation expense as follows: Cost of sales $ 730 $ 682 $ 545 Research and development 744 687 634 Selling, general and administrative 4,482 4,194 2,876 Total stock-based compensation expense $ 5,956 $ 5,563 $ 4,055 - ------- - - ------- - - ------- - (2) Includes amortization of intangible assets expense as follows: Cost of sales $ 647 $ 436 $ 16 Selling, general and administrative 2,766 2,165 961 Total amortization expense $ 3,413 $ 2,601 $ 977 - ------- - - ------- - - ------- -

SMART Global Holdings, Inc. and Subsidiaries Reconciliation of Non-GAAP Financial Measures to GAAP Results (In thousands, except per share data) Three Months Ended ---------------------------------- November August 30, November 29, 30, 2019 2019 2018 ---------- ---------- ---------- Reconcil iation of gross profit: GAAP gross $ 54,320 $ 52,292 $ 85,069 profit GAAP gross 20.0 % 18.8 % 21.6 % margin Add: Share-bas ed compensat 730 682 545 ion included in cost of sales Add: Intangib le amortiza tion 647 436 16 included in cost of sales - ------ - - ------ - - ------ - Non-GAAP gross $ 55,697 $ 53,410 $ 85,630 profit - ------ - - ------ - - ------ - Non-GAA P 20.5 % 19.2 % 21.7 % gross margin Reconcil iation of operatin g expenses : GAAP operatin $ 48,439 $ 40,860 $ 37,270 g expenses Less: Share-base d compensati on expense included in opex Researc h and 744 687 634 develop ment Selling , general 4,482 4,194 2,876 and adminis trative - ------ - - ------ - - ------ - Total 5,226 4,881 3,510 - ------ - - ------ - - ------ - Less: Amortiza tion of intangib le assets included in opex Selling , general 2,766 2,165 961 and adminis trative Total 2,766 2,165 961 - ------ - - ------ - - ------ - Less: Legal fees - term — — 126 loan (payment holiday) Less: Acquisit ion-rela 946 1,068 1,423 ted expenses Less: Integrat 2,052 — — ion expenses Less: Continge nt consider ation — (2,700 ) — fair value adjustme nt - ------ - - ------ - - ------ - Non-GAAP operatin $ 37,449 $ 35,446 $ 31,250 g expenses - ------ - - ------ - - ------ - Reconcil iation of income from operatio ns: GAAP income from $ 5,881 $ 11,432 $ 47,799 operatio ns GAAP operati 2.2 % 4.1 % 12.1 % ng margin Add: Share-ba sed 5,956 5,563 4,055 compensa tion expense Add: Amortiza tion of 3,413 2,601 977 intangib le assets Add: Legal fees - term — — 126 loan (payment holiday) Add: Acquisit ion-rela 946 1,068 1,423 ted expenses Add: Integrat 2,052 — — ion expenses Add: Continge nt consider ation — (2,700 ) — fair value adjustme nt - ------ - - ------ - - ------ - Non-GAAP income from $ 18,248 $ 17,964 $ 54,380 operatio ns - ------ - - ------ - - ------ - Non-GAA P operati 6.7 % 6.5 % 13.8 % ng margin

SMART Global Holdings, Inc. and Subsidiaries Reconciliation of Non-GAAP Financial Measures to GAAP Results (In thousands, except per share data) Three Months Ended ---------------------------------- November August 30, November 29, 30, 2019 2019 2018 ---------- ---------- ---------- Reconciliation of income before income taxes: GAAP income before income taxes $ 549 $ 7,684 $ 38,595 Add: Share-based compensation expense 5,956 5,563 4,055 Add: Amortization of intangible assets 3,413 2,601 977 Add: Legal fees - Term loan (payment holiday) — — 126 Add: Acquisition-related expenses 946 1,068 1,423 Add: Integration expenses 2,052 — — Add: Contingent consideration fair value adjustment — (2,700 ) — Add: Foreign currency (gains)/losses 911 (332 ) 3,384 - ------ - - ------ - - ------ - Non-GAAP income before income taxes $ 13,827 $ 13,884 $ 48,560 - ------ - - ------ - - ------ - Reconciliation of provision for income taxes: GAAP provision for income taxes $ 325 $ 2,059 $ 7,619 GAAP effective tax rate 59.2 % 26.8 % 19.7 % Tax effect of adjustments to GAAP results (91 ) 33 (338 ) - ------ - - ------ - - ------ - Non-GAAP provision for income taxes $ 416 $ 2,026 $ 7,957 - ------ - - ------ - - ------ - Non-GAAP effective tax rate 3.0 % 14.6 % 16.4 % Reconciliation of net income and earnings per share (diluted): GAAP net income $ 224 $ 5,625 $ 30,976 Adjustments to GAAP net income: Share-based compensation 5,956 5,563 4,055 Amortization of intangible assets 3,413 2,601 977 Legal fees - Term loan (payment holiday) — — 126 Acquisition related expenses 946 1,068 1,423 Integration expenses 2,052 — — Contingent consideration fair value adjustment — (2,700 ) — Foreign currency (gains)/losses 911 (332 ) 3,384 Tax effect of items excluded from non-GAAP results (91 ) 33 (338 ) - ------ - - ------ - - ------ - Non-GAAP net income $ 13,411 $ 11,858 $ 40,603 - ------ - - ------ - - ------ - Shares used in computing earnings per share (diluted) 24,286 23,825 23,257 - ------ - - ------ - - ------ - Non-GAAP earnings per share (diluted) $ 0.55 $ 0.50 $ 1.75 - ------ - - ------ - - ------ - GAAP earnings per share (diluted) $ 0.01 $ 0.24 $ 1.33 - ------ - - ------ - - ------ -

SMART Global Holdings, Inc. and Subsidiaries Reconciliation of GAAP Net Income to Adjusted EBITDA (In thousands) Three Months Ended ------------------------------ November August 30, November 29, 30, 2019 2019 2018 -------- ---------- -------- GAAP net income $ 224 $ 5,625 $ 30,976 Share-based compensation expense 5,956 5,563 4,055 Amortization of intangible assets 3,413 2,601 977 Interest expense, net 4,492 4,567 5,875 Provision for income tax 325 2,059 7,619 Depreciation 6,131 6,452 5,431 Legal fees - term loan (payment holiday) — — 126 Acquisition-related expenses(1) 946 1,068 1,423 Integration expenses 2,052 — — Contingent consideration fair value adjustment(1) — (2,700 ) — -------- ---------- -------- Adjusted EBITDA $ 23,539 $ 25,235 $ 56,482 -------------------- ------------------- - ------ - ------ - - ------ (1) Amounts in FY20 & FY19 related to acquisitions of new business, SMART EC & Wireless (July 2019) and Penguin Computing (June 2018).

SMART Global Holdings, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands) November 29, August 30, 2019 2019 ------------ ---------- Assets Current assets: Cash and cash equivalents $ 111,389 $ 98,139 Accounts receivable, net 228,782 217,433 Inventories 159,999 118,738 Prepaid expenses and other current assets 32,158 37,950 ------------ ---------- Total current assets 532,328 472,260 Property and equipment, net 63,902 68,345 Operating lease right-of-use assets 27,211 — Other noncurrent assets 13,512 12,784 Intangible assets, net 65,912 69,325 Goodwill 79,868 81,423 Total assets $ 782,733 $ 704,137 ------------ ---------- Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 224,213 $ 164,866 Accrued liabilities 52,723 48,980 Current portion of long-term debt 23,039 24,054 ------------ ---------- Total current liabilities 299,975 237,900 Long-term debt 177,303 182,450 Long-term operating lease liabilities 23,452 — Other long-term liabilities 10,219 10,327 Total liabilities 510,949 430,677 ------------ ---------- Shareholders’ equity: Ordinary shares 718 712 Additional paid-in capital 294,332 285,994 Accumulated other comprehensive loss (188,110) (177,866) Retained earnings 164,844 164,620 ------------ ---------- Total shareholders’ equity 271,784 273,460 Total liabilities and shareholders’ equity $ 782,733 $ 704,137 ------------ ----------

SMART Global Holdings, Inc. and Subsidiaries Consolidated Statements of Cash Flows (In thousands) Three Months Ended -------------------------------------- November August 30, November 30, 29, 2019 2019 2018 ----------- ----------- ------------ Cash flows from operating activities: Net income $ 224 $ 5,625 $ 30,976 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 9,544 9,054 6,408 Share-based compensation 5,956 5,563 4,055 Provision for doubtful accounts receivable and sales 73 (66 ) (104 ) returns Deferred income tax benefit (970 ) (1,149 ) 403 (Gain) Loss on disposal of (42 ) 56 3 property and equipment Amortization of debt discounts 734 718 685 and issuance costs Amortization of operating 1,114 — — lease right-of-use assets Change in fair value of — (2,700 ) — contingent consideration Changes in operating assets and liabilities: Accounts receivable (13,688 ) 27,582 (89,441 ) Inventories (42,206 ) 19,312 30,576 Prepaid expenses and other 5,110 (3,393 ) (3,182 ) assets Accounts payable 60,438 (19,684 ) 48,574 Operating lease liabilities (1,082 ) — — Accrued expenses and other 62 8,023 6,399 liabilities Net cash provided by 25,267 48,941 35,352 operating activities - ------- - - ------- - - -------- - Cash flows from investing activities: Capital expenditures and (5,158 ) (3,321 ) (13,384 ) deposits on equipment Proceeds from sale of property 42 10 21 and equipment Acquisitions of business, net of — (75,940 ) — cash acquired - ------- - - -------- - Net cash used in investing (5,116 ) (79,251 ) (13,363 ) activities - ------- - - ------- - - -------- - Cash flows from financing activities: Long-term debt payment (6,435 ) (1,680 ) (1,657 ) Proceeds from borrowings under 12,500 19,000 104,000 revolving line of credit Repayments of borrowings under (12,500 ) (19,000 ) (104,000 ) revolving line of credit Proceeds from issuance of ordinary 1,166 1,300 2,402 shares from share option exercises Proceeds from issuance of 1,242 — 968 ordinary shares from ESPP Withholding tax on restricted (20 ) (290 ) — stock units - ------- - - ------- - - -------- - Net cash provided by (used (4,047 ) (670 ) 1,713 in) financing activities Effect of exchange rate changes on the cash, cash equivalents and restricted cash * (2,854 ) 3,020 2,018 - ------- - - ------- - - -------- - Net increase (decrease) in cash and cash equivalents and restricted cash * 13,250 (27,960 ) 25,720 Cash, cash equivalents, and restricted cash at beginning of 98,139 126,099 37,234 period * - ------- - - ------- - Cash, cash equivalents, and restricted cash at end of period $ 111,389 $ 98,139 $ 62,954 * - ------- - - ------- - - -------- - * 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