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

SMART Global Holdings Reports Second Quarter Fiscal 2019 Financial Results

March 28, 2019

NEWARK, Calif., March 28, 2019 (GLOBE NEWSWIRE) -- SMART Global Holdings, Inc. (“SMART”) (NASDAQ: SGH), parent company of SMART Modular Technologies, Inc., today reported financial results for the second quarter of fiscal 2019 ended March 1, 2019.

Second Quarter Fiscal 2019 Highlights: • Net sales of $304.1 million • GAAP operating income of $22.5 million • GAAP net income of $12.8 million • Adjusted EBITDA of $33.8 million • GAAP diluted earnings per share (EPS) of $0.55 • Non-GAAP diluted EPS of $0.77

“SMART continues to execute well across all of our lines of business in a challenging environment. In our second fiscal quarter, our Specialty Products business and our Specialty Compute and Storage Solutions business performed well. Our Brazil business, where we supply commodity memory products to high volume requirements in smartphones and PCs, performed in line with expectations in a worsening pricing environment for such products,” said Ajay Shah, Chairman and Chief Executive Officer.

“We have made good progress towards realizing synergies from our acquisition of Penguin Computing and remain focused on disciplined execution to drive our financial performance,” concluded Mr. Shah.

Quarterly Financial Results GAAP (1) Non-GAAP (2) ----------------------- (In millions, except per share amounts) Q2 FY19 Q1 FY19 Q2 FY18 Q2 FY19 Q1 FY19 Q2 FY18 --------------------------------------- ------- ------- ------- ------- ------- ------- Net sales $ 304.1 $ 393.9 $ 314.0 $ 304.1 $ 393.9 $ 314.0 - ----- - ----- - ----- - ----- - ----- - ----- Gross profit $ 57.1 $ 85.1 $ 73.0 $ 57.8 $ 85.6 $ 73.2 --------------------------------------- - ----- - ----- - ----- - ----- - ----- - ----- Operating income $ 22.5 $ 47.8 $ 45.1 $ 27.7 $ 54.4 $ 48.5 - ----- - ----- - ----- - ----- - ----- - ----- Net income $ 12.8 $ 31.0 $ 36.8 $ 18.0 $ 40.6 $ 37.7 --------------------------------------- - ----- - ----- - ----- - ----- - ----- - ----- Diluted earnings per share (EPS) $ 0.55 $ 1.33 $ 1.60 $ 0.77 $ 1.75 $ 1.64 --------------------------------------- - ----- - ----- - ----- - ----- - ----- - ----- (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” table 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 third quarter of fiscal 2019 ending May 31, 2019. These statements are forward-looking and actual results may differ materially. SMART undertakes no obligation to update these statements.

Net Sales $260 to $270 million ---------------------------------- -------------------- Gross Margin - GAAP / Non-GAAP 17% to 19% ---------------------------------- -------------------- Diluted EPS - GAAP $0.13 to $0.17 ---------------------------------- -------------------- Share-based compensation per share $0.17 ---------------------------------- -------------------- Intangible amortization per share $0.04 ---------------------------------- -------------------- Diluted EPS - Non-GAAP $0.34 to $0.38 ---------------------------------- -------------------- Expected diluted share count 23.5 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 8966306.

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: 8966306.

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; changes in seasonal impacts on our results; 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, non-GAAP net income per diluted share, and non-GAAP diluted EPS. 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 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 items, 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, similarly titled 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 to Adjusted EBITDA” tables below for more detail on non-GAAP calculations.

About SMART Global Holdings The SMART family of companies are global leaders in specialty memory, storage and hybrid solutions serving the electronics industry with standard and custom products for over 25 years. SMART delivers components, modules and solutions to a broad customer base, including OEMs in computing, networking, communications, storage, mobile and industrial markets. With the addition of Penguin Computing and the creation of a new business unit, SMART Specialty Compute & Storage Solutions (SCSS), SMART has expanded its serviceable markets into areas requiring specialized computing platforms in artificial intelligence and machine learning, advanced modeling and high performance computing. Customers rely on SMART as a strategic supplier with custom designs, product quality, technical support, a global footprint, and the ability to provide locally manufactured products in multiple geographies. See www.smartgh.com, www.smartm.com, www.smarth.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 ------------------------------------- ------------------------ March 1, November February March 1, February 2019 30, 23, 2019 23, 2018 2018 2018 ----------- ----------- ----------- ----------- ----------- Net sales: Brazil $ 147,111 $ 199,279 $ 208,633 346,390 366,483 Specialty Memory 115,608 139,949 105,332 255,557 212,891 Specialty Compute and Storage 41,344 54,651 — 95,995 — Solutions - ------- - - ------- - - ------- - - ------- - - ------- - Total net sales 304,063 393,879 313,965 697,942 579,374 Cost of sales (1)(2) 246,932 308,810 240,948 555,742 448,521 Gross profit 57,131 85,069 73,017 142,200 130,853 - ------- - - ------- - - ------- - - ------- - - ------- - Operating expenses: Research and development (1) 11,238 11,816 9,852 23,054 18,402 (2) Selling, general and 23,442 25,454 18,087 48,896 35,905 administrative(1) (2) Total operating expenses 34,680 37,270 27,939 71,950 54,307 - ------- - - ------- - - ------- - - ------- - - ------- - Income from operations 22,451 47,799 45,078 70,250 76,546 Other income (expense): Interest expense, net (5,273 ) (5,875 ) (4,230 ) (11,148 ) (8,829 ) Other income (expense), net 252 (3,329 ) 2,548 (3,077 ) (167 ) Total other expense (5,021 ) (9,204 ) (1,682 ) (14,225 ) (8,996 ) - ------- - - ------- - - ------- - - ------- - - ------- - Income before income taxes 17,430 38,595 43,396 56,025 67,550 Provision for income taxes 4,644 7,619 6,602 12,263 9,751 Net income $ 12,786 $ 30,976 $ 36,794 $ 43,762 $ 57,799 - ------- - - ------- - - ------- - - ------- - - ------- - Earnings per share: Basic $ 0.56 $ 1.37 $ 1.68 $ 1.93 $ 2.65 - ------- - - ------- - - ------- - - ------- - - ------- - Diluted $ 0.55 $ 1.33 $ 1.60 $ 1.88 $ 2.53 - ------- - - ------- - - ------- - - ------- - - ------- - Shares used in computing earnings per share: Basic 22,872 22,595 21,915 22,733 21,794 - ------- - - ------- - - ------- - - ------- - - ------- - Diluted 23,359 23,257 23,038 23,314 22,877 - ------- - - ------- - - ------- - - ------- - - ------- - (1) Includes share-based compensation expense as follows: Cost of sales $ 607 $ 545 $ 227 $ 1,152 $ 445 Research and development 660 634 288 1,294 562 Selling, general and 2,881 2,876 1,182 5,757 2,295 administrative Total stock-based $ 4,148 $ 4,055 $ 1,697 $ 8,203 $ 3,302 compensation expense - ------- - - ------- - - ------- - - ------- - - ------- - (2) Includes amortization of intangible assets expense as follows: Cost of sales $ 98 $ 16 $ — $ 114 $ — Research and development — — 245 — 490 Selling, general and 961 961 993 1,922 2,016 administrative Total amortization expense $ 1,059 $ 977 $ 1,238 $ 2,036 $ 2,506 - ------- - - ------- - - ------- - - ------- - - ------- -

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 ------------------------------------- ------------------------ March 1, November 30, February 23, March 1, February 23, 2019 2018 2018 2019 2018 --------- ------------ ------------ ---------- ------------ Reconciliation of gross profit: GAAP gross profit $ 57,131 $ 85,069 $ 73,017 $ 142,200 $ 130,853 GAAP gross margin 18.8% 21.6% 23.3% 20.4% 22.6% Add: Share-based compensation included in 607 545 227 1,152 445 cost of sales Add: Intangible amortization included in 98 16 — 114 — cost of sales - ------ - ------ --- - ------ --- - ------- - ------- -- Non-GAAP gross profit $ 57,836 $ 85,630 $ 73,244 $ 143,466 $ 131,298 - ------ - ------ --- - ------ --- - ------- - ------- -- Non-GAAP gross margin 19.0% 21.7% 23.3% 20.6% 22.7% Reconciliation of operating expenses: GAAP operating expenses $ 34,680 $ 37,270 $ 27,939 $ 71,950 $ 54,307 Less: Share-based compensation expense included in opex Research and development 660 634 288 1,294 562 Selling, general and administrative 2,881 2,876 1,182 5,757 2,295 - ------ - ------ --- - ------ --- - ------- - ------- -- Total 3,541 3,510 1,470 7,051 2,857 - ------ - ------ --- - ------ --- - ------- - ------- -- Less: Amortization of intangible assets included in opex Research and development — — 245 — 490 Selling, general and administrative 961 961 993 1,922 2,016 Total 961 961 1,238 1,922 2,506 - ------ - ------ --- - ------ --- - ------- - ------- -- Less: S-1 related costs — — 513 — 813 Less: Legal fees - term loan (payment — 126 — 126 — holiday) Less: Acquisition-related expenses — 1,423 — 1,423 — - ------ - ------ --- - ------ --- - ------- - ------- -- Non-GAAP operating expenses $ 30,178 $ 31,250 $ 24,718 $ 61,428 $ 48,131 - ------ - ------ --- - ------ --- - ------- - ------- -- Reconciliation of income from operations: GAAP income from operations $ 22,451 $ 47,799 $ 45,078 $ 70,250 $ 76,546 GAAP operating margin 7.4% 12.1% 14.4% 10.1% 13.2% Add: Share-based compensation expense 4,148 4,055 1,697 8,203 3,302 Add: Amortization of intangible assets 1,059 977 1,238 2,036 2,506 Add: S-1 related costs — — 513 — 813 Add: Legal fees - term loan (payment — 126 — 126 — holiday) Add: Acquisition-related expenses — 1,423 — 1,423 — - ------ - ------ --- - ------ --- - ------- - ------- -- Non-GAAP income from operations $ 27,658 $ 54,380 $ 48,526 $ 82,038 $ 83,167 - ------ - ------ --- - ------ --- - ------- - ------- -- Non-GAAP operating margin 9.1% 13.8% 15.5% 11.8% 14.4%

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 ---------------------------------- ---------------------- March 1, November February March 1, February 2019 30, 23, 2019 23, 2018 2018 2018 ---------- ---------- ---------- ---------- ---------- Reconciliation of income before income taxes: GAAP income before income taxes $ 17,430 $ 38,595 $ 43,396 $ 56,025 $ 67,550 Add: Share-based compensation expense 4,148 4,055 1,697 8,203 3,302 Add: Amortization of intangible assets 1,059 977 1,238 2,036 2,506 Add: S-1 related costs — — 513 — 813 Add: Legal fees - Term loan (payment — 126 — 126 — holiday) Add: Acquisition-related expenses — 1,423 — 1,423 — Add: Foreign currency (gains)/losses (47 ) 3,384 (2,415 ) 3,337 327 - ------ - - ------ - - ------ - - ------ - - ------ - Non-GAAP income before income taxes $ 22,590 $ 48,560 $ 44,429 $ 71,150 $ 74,498 - ------ - - ------ - - ------ - - ------ - - ------ - Reconciliation of provision for income taxes: GAAP provision for income taxes $ 4,644 $ 7,619 $ 6,602 $ 12,263 $ 9,751 GAAP effective tax rate 26.6% 19.7% 15.2% 21.9% 14.4% Tax effect of adjustments to GAAP 5 (338 ) (97 ) (333 ) (719 ) results - ------ - - ------ - - ------ - - ------ - - ------ - Non-GAAP provision for income taxes $ 4,639 $ 7,957 $ 6,699 $ 12,596 $ 10,470 - ------ - - ------ - - ------ - - ------ - - ------ - Non-GAAP effective tax rate 20.5% 16.4% 15.1% 17.7% 14.1% Reconciliation of net income and earnings per share (diluted): GAAP net income $ 12,786 $ 30,976 $ 36,794 $ 43,762 $ 57,799 Adjustments to GAAP net income: Share-based compensation 4,148 4,055 1,697 8,203 3,302 Amortization of intangible assets 1,059 977 1,238 2,036 2,506 S-1 related costs — — 513 — 813 Legal fees - Term loan (payment — 126 — 126 — holiday) Acquisition related expenses — 1,423 — 1,423 — Foreign currency (gains)/losses (47 ) 3,384 (2,415 ) 3,337 327 Tax effect of items excluded from 5 (338 ) (97 ) (333 ) (719 ) non-GAAP results - ------ - - ------ - - ------ - - ------ - - ------ - Non-GAAP net income $ 17,951 $ 40,603 $ 37,730 $ 58,554 $ 64,028 - ------ - - ------ - - ------ - - ------ - - ------ - Shares used in computing earnings per 23,359 23,257 23,038 23,314 22,877 share (diluted) - ------ - - ------ - - ------ - - ------ - - ------ - Non-GAAP earnings per share (diluted) $ 0.77 $ 1.75 $ 1.64 $ 2.51 $ 2.80 - ------ - - ------ - - ------ - - ------ - - ------ - GAAP earnings per share (diluted) $ 0.55 $ 1.33 $ 1.60 $ 1.88 $ 2.53 - ------ - - ------ - - ------ - - ------ - - ------ -

SMART Global Holdings, Inc. and Subsidiaries Reconciliation of GAAP Net Income to Adjusted EBITDA (In thousands) Three Months Ended Six Months Ended ---------------------------- ------------------ March 1, November February March 1, February 2019 30, 23, 2019 23, 2018 2018 2018 -------- -------- -------- -------- -------- GAAP net income $ 12,786 $ 30,976 $ 36,794 $ 43,762 $ 57,799 Share-based compensation expense 4,148 4,055 1,697 8,203 3,302 Amortization of intangible assets 1,059 977 1,238 2,036 2,506 Interest expense, net 5,273 5,875 4,230 11,148 8,829 Provision for income tax 4,644 7,619 6,602 12,263 9,751 Depreciation 5,868 5,431 5,120 11,299 10,122 S-1 related costs — — 513 — 813 Legal fees - term loan (payment holiday) — 126 — 126 — Acquisition-related expenses(1) — 1,423 — 1,423 — -------- -------- -------- -------- -------- Adjusted EBITDA $ 33,778 $ 56,482 $ 56,194 $ 90,260 $ 93,122 --------------------------------------- - ------ - ------ - ------ - ------ - ------ (1) Amounts in Q1′19 are related to acquisition of Penguin Computing in June 2018.

SMART Global Holdings, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands) March 1, August 31, 2019 2018 - -------- - - -------- - Assets Current assets: Cash and cash equivalents $ 95,174 $ 31,375 Accounts receivable, net 326,470 237,212 Inventories 171,843 221,419 Prepaid expenses and other current assets 27,927 32,043 - -------- - - -------- - Total current assets 621,414 522,049 Property and equipment, net 66,860 56,615 Other noncurrent assets 17,702 22,449 Intangible assets, net 24,302 26,255 Goodwill 46,130 45,394 Total assets $ 776,408 $ 672,762 - -------- - - -------- - Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 257,316 $ 223,186 Accrued liabilities 52,008 45,190 Current portion of long-term debt 14,694 27,409 - -------- - - -------- - Total current liabilities 324,018 295,785 Long-term debt 194,537 184,190 Other long-term liabilities 7,563 5,659 Total liabilities 526,118 485,634 - -------- - - -------- - Shareholders’ equity: Ordinary shares 691 678 Additional paid-in capital 262,603 250,191 Accumulated other comprehensive loss (170,054 ) (175,995 ) Retained earnings 157,050 112,254 - -------- - - -------- - Total shareholders’ equity 250,290 187,128 Total liabilities and shareholders’ equity $ 776,408 $ 672,762 - -------- - - -------- -

SMART Global Holdings, Inc. and Subsidiaries Consolidated Statements of Cash Flows (In thousands) Three Months Ended Six Months Ended --------------------------------------- -------------------------- March 1, November 30, February 23, March 1, February 23, 2019 2018 2018 2019 2018 ----------- ------------ ------------ ------------ ------------ Cash flows from operating activities: Net income $ 12,786 $ 30,976 $ 36,794 $ 43,762 $ 57,799 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and 6,927 6,408 6,358 13,335 12,628 amortization Share-based compensation 4,148 4,055 1,697 8,203 3,302 Provision for doubtful accounts receivable and 34 (104 ) 39 (70 ) 67 sales returns Deferred income tax (650 ) 403 (734 ) (247 ) (954 ) benefit (Gain) loss on disposal of (4 ) 3 244 (1 ) 244 property and equipment Amortization of debt discounts and issuance 694 685 722 1,379 1,451 costs Changes in operating assets and liabilities: Accounts receivable 5,669 (89,441 ) 14,894 (83,772 ) (40,907 ) Inventories 17,084 30,576 (17,810 ) 47,660 (21,556 ) Prepaid expenses and 7,424 (3,182 ) (67 ) 4,242 1,691 other assets Accounts payable (17,017 ) 48,574 (10,145 ) 31,557 37,347 Accrued expenses and 1,959 6,399 2,705 8,358 (2,158 ) other liabilities Net cash provided by 39,054 35,352 34,697 74,406 48,954 operating activities - ------- - - -------- - - -------- - - -------- - - -------- - Cash flows from investing activities: Capital expenditures and (6,232 ) (13,384 ) (4,418 ) (19,616 ) (10,457 ) deposits on equipment Proceeds from sale of 32 21 66 53 66 property and equipment Acquisition of business, net (148 ) — — (148 ) — of cash acquired - -------- - - -------- - - -------- - Net cash used in (6,348 ) (13,363 ) (4,352 ) (19,711 ) (10,391 ) investing activities - ------- - - -------- - - -------- - - -------- - - -------- - Cash flows from financing activities: Long-term debt payment (1,712 ) (1,657 ) (6,125 ) (3,369 ) (12,309 ) Fees paid for revolving line — — (469 ) — (768 ) of credit refinancing Payment of costs related to — — (302 ) — (1,591 ) initial public offering Proceeds from borrowings under revolving line of 64,000 104,000 103,000 168,000 208,500 credit Repayments of borrowings under revolving line of (64,000 ) (104,000 ) (103,000 ) (168,000 ) (208,500 ) credit Proceeds from issuance of ordinary shares from share 1,071 2,402 3,638 3,473 4,177 option exercises Proceeds from issuance of — 968 — 968 — ordinary shares from ESPP Withholding tax on (219 ) — — (219 ) — restricted stock units - ------- - - -------- - - -------- - - -------- - - -------- - Net cash provided by (used in) financing (860 ) 1,713 (3,258 ) 853 (10,491 ) activities Effect of exchange rate changes on the cash, cash equivalents and restricted cash * 374 2,018 1,468 2,392 1,237 - ------- - - -------- - - -------- - - -------- - - -------- - Net increase in cash and cash equivalents and restricted cash * 32,220 25,720 28,555 57,940 29,309 Cash, cash equivalents, and restricted cash at beginning 62,954 37,234 30,217 37,234 29,463 of period * - ------- - - -------- - Cash, cash equivalents, and restricted cash at end of $ 95,174 $ 62,954 $ 58,772 $ 95,174 $ 58,772 period * - ------- - - -------- - - -------- - - -------- - - -------- - * Cash balance was adjusted to include restricted cash upon adoption of ASU 2016-18 in fiscal 2019.

Investor Contacts: Karl MoteyVice PresidentStrategic Marketing and Communications(510) 624-8213 karl.motey@smartm.com

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