SMART Global Holdings, Inc. Reports Third Quarter Fiscal 2017 Financial Results
NEWARK, CA -- (Marketwired) -- 06/22/17 -- SMART Global Holdings, Inc. ("SMART") (NASDAQ: SGH), parent company of SMART Modular Technologies, Inc., today reported financial results for the third quarter of fiscal 2017 ended May 26, 2017.
Third Quarter Fiscal 2017 Highlights:
- Net sales of $207.0 million
- Gross profit of $47.4 million
- Net income of $8.0 million
- Adjusted EBITDA of $29.9 million
- GAAP diluted EPS of $0.50
- Pro forma* non-GAAP diluted EPS of $0.62
Net sales for the third quarter of fiscal 2017 were $207.0 million, compared to $172.0 million for the second quarter of fiscal 2017, and $149.6 million for the third quarter of fiscal 2016.
Gross profit for the third quarter of fiscal 2017 was $47.4 million, compared to $37.2 million for the second quarter of fiscal 2017, and $30.6 million for the third quarter of fiscal 2016.
On a GAAP basis, net income for the third quarter of fiscal 2017 was $8.0 million or $0.50 per diluted share, compared to a net loss of $2.3 million or $(0.17) per diluted share for the second quarter of fiscal 2017, and a net loss of $1.3 million, or $(0.10) per diluted share for the third quarter of fiscal 2016.
On a non-GAAP basis, net income was $13.7 million, and on a pro forma* basis, non-GAAP net income was $0.62 per diluted share for the third quarter of fiscal 2017. Non-GAAP net income for the second quarter of fiscal 2017 was $3.5 million or $0.25 per diluted share, and $2.6 million or $0.19 per diluted share for the third quarter of fiscal 2016.
Adjusted EBITDA for the third quarter of fiscal 2017 was $29.9 million, compared to $23.5 million for the second quarter of fiscal 2017, and $17.4 million for the third quarter of fiscal 2016.
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 measures referenced above and a reconciliation of such measures to our nearest GAAP measures.
"The third quarter of fiscal 2017 marks our first quarter having re-emerged as a public company, following the close of our IPO on May 30, 2017. I am very pleased to report strong financial results with net sales 20 percent higher than the previous quarter, driven by solid performance in both SMART Brazil and our Specialty Memory businesses. Combined with a sharp focus on disciplined spending, we generated pro forma non-GAAP earnings per share of $0.62, demonstrating the leverage in our business model," commented Iain MacKenzie, President & Chief Executive Officer of SMART Global Holdings. "We have multiple structural growth drivers in place, from increasing local content requirements and growing sales of mobile phones in Brazil, to growing demand for new memory technologies especially in datacenter storage and networking applications. We believe we are well-positioned to deliver strong financial results as we enter the final quarter of this fiscal year and beyond."
Other Highlights
- Successfully closed an initial public offering (IPO) of 6.1 million ordinary shares at $11.00 per share, including 795,000 shares sold pursuant to the exercise in full of the underwriters' option to purchase additional shares.
- Generated approximately $61.1 million in net proceeds from the IPO.
* Pro forma weighted average shares outstanding for computing the diluted per-share calculation reflects 6,095,000 shares issued in our IPO on May 30, 2017, as well as the net exercise of the class A warrants of 1,536,955, each as if they occurred at the beginning of the third quarter of fiscal 2017.
Business Outlook
The following statements are based upon management's current expectations. These statements are forward-looking, and actual results may differ materially. SMART undertakes no obligation to update these statements.
For the fourth quarter of fiscal 2017, SMART expects net sales will be in the range of $205 to $215 million and gross margin is expected to be in the range of 21% to 23%. Net income per diluted share is expected to be in the range of $0.05 to $0.07 on a GAAP basis. On June 2, 2017, SMART used the net proceeds of the IPO to make a mandatory repayment of $61.1 million aggregate principal amount of its outstanding term loans under its Senior Secured Credit Agreement, which will result in an associated non-cash charge in the fourth quarter of approximately $6.7 million. This non-cash charge will be reflected in "other income/(expense)" in the fourth quarter of fiscal 2017. On a non-GAAP basis, SMART expects net income per diluted share will be in the range of $0.62 to $0.66.
We expect our diluted share count to be 22.4 million shares for the fourth quarter.
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 or US toll +1-213-660-0710 using access code 40977486.
A replay of the conference call will be available until July 7, 2017 at www.smartm.com or until June 29 by calling US toll free +1-855-859-2056 or US toll by calling +1-404-537-3406 and using access code 40977486.
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 industry 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; overall information technology spending; the success of our strategic initiatives including additional investments in new products and additional capacity; the DRAM market and the temporary nature of pricing trends; 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; deterioration in or loss of relations with any of our limited number of key vendors; and other factors and risks detailed in SMART's final prospectus filed with the Securities and Exchange Commission on May 25, 2017. Such factors and risks as outlined above and in the final prospectus 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 operates 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 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
The following non-GAAP financial measures are included in this press release, including Adjusted EBITDA, non-GAAP net income, non-GAAP net income per diluted share, non-GAAP diluted EPS and pro forma non-GAAP diluted EPS. We define Adjusted EBITDA as GAAP net income plus net interest expense, income tax expense, depreciation and amortization expense, stock-based compensation expense, restructuring charges 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 do not include stock-based compensation expense, amortization expense or amortization of non-cash debt discount related to warrants. 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 U.S. GAAP. In addition, these measures may not be used similarly by other companies and therefore may not be comparable between companies.
This release also includes a forward-looking non-GAAP financial measure, non-GAAP net income per diluted share. A reconciliation of this forward looking measure to the most directly comparable GAAP measure is not included because material items that affect this measure, such as the number of shares granted and market price needed to quantify stock-based compensation expense, are not ascertainable at this time without unreasonable effort and/or cannot be reasonably predicted. The effect of these excluded items may be significant.
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 Adjusted EBITDA and 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. 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 memory products in multiple geographies. See www.smartgh.com, www.smartm.com, www.smarth.com or www.smartsscs.com for more information.
SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
Three Months Ended Nine Months Ended
--------------------------------- ---------------------
May 26, Feb 24, May 27, May 26, May 27,
2017 2017 2016 2017 2016
----------- ---------- ---------- ---------- ----------
Net sales:
Brazil DRAM $ 38,028 $ 28,695 $ 20,824 $ 86,051 $ 67,463
Brazil Mobile
Memory 71,216 49,932 58,916 177,359 111,972
Specialty Memory 97,730 93,327 69,869 274,862 208,787
----------- ---------- ---------- ---------- ----------
Total net sales 206,974 171,954 149,609 538,272 388,222
Cost of sales (1) 159,599 134,797 118,997 424,030 311,166
----------- ---------- ---------- ---------- ----------
Gross profit 47,375 37,157 30,612 114,242 77,056
----------- ---------- ---------- ---------- ----------
Operating expenses:
Research and
development (1)
(2) 8,797 9,948 9,667 28,442 27,763
Selling, general
and administrative
(1) (2) 17,193 16,434 14,680 49,037 42,963
Management advisory
fees 1,000 1,000 1,000 3,000 3,001
Restructuring - 471 128 457 1,143
----------- ---------- ---------- ---------- ----------
Total operating
expenses 26,990 27,853 25,475 80,936 74,870
----------- ---------- ---------- ---------- ----------
Income from
operations 20,385 9,304 5,137 33,306 2,186
Other income
(expense):
Interest expense,
net (8,294) (8,512) (6,326) (23,072) (19,265)
Other income
(expense), net (762) (1,005) 2,102 (1,664) 730
----------- ---------- ---------- ---------- ----------
Total other
expense (9,056) (9,517) (4,224) (24,736) (18,535)
----------- ---------- ---------- ---------- ----------
Income (loss)
before income
taxes 11,329 (213) 913 8,570 (16,349)
Provision for income
taxes 3,371 2,124 2,258 6,156 2,150
----------- ---------- ---------- ---------- ----------
Net income (loss) $ 7,958 $ (2,337) $ (1,345) $ 2,414 $ (18,499)
=========== ========== ========== ========== ==========
Earnings per share:
Basic $ 0.57 $ (0.17) $ (0.10) $ 0.17 $ (1.31)
=========== ========== ========== ========== ==========
Diluted $ 0.50 $ (0.17) $ (0.10) $ 0.16 $ (1.31)
=========== ========== ========== ========== ==========
Shares used in
computing per-share
calculation:
Basic 13,986 13,870 13,832 13,909 14,147
=========== ========== ========== ========== ==========
Diluted 15,955 13,870 13,832 15,230 14,147
=========== ========== ========== ========== ==========
(1) Includes share-based compensation expense as follows:
Cost of sales $ 176 $ 142 $ 112 $ 444 $ 348
Research and
development (22) 230 181 423 563
Selling, general
and administrative 1,235 722 654 2,666 2,059
----------- ---------- ---------- ---------- ----------
Total stock-based
compensation
expense $ 1,389 $ 1,094 $ 947 $ 3,533 $ 2,970
=========== ========== ========== ========== ==========
(2) Includes amortization of intangible assets expense as follows:
Research and
development $ 1,224 $ 1,224 $ 1,224 $ 3,672 $ 3,672
Selling, general
and administrative 1,774 1,723 2,105 5,296 6,275
----------- ---------- ---------- ---------- ----------
Total
amortization
expense $ 2,998 $ 2,947 $ 3,329 $ 8,968 $ 9,947
=========== ========== ========== ========== ==========
SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of Non-GAAP Financial Measures to GAAP Results
(In thousands, except per share data)
Three Months Ended Nine Months Ended
--------------------------------- ---------------------
May 26, Feb 24, May 27, May 26, May 27,
2017 2017 2016 2017 2016
----------- ---------- ---------- ---------- ----------
Reconciliation of
gross profit:
GAAP gross profit $ 47,375 $ 37,157 $ 30,612 $ 114,242 $ 77,056
GAAP gross margin 22.9% 21.6% 20.5% 21.2% 19.8%
Add: Share-based
compensation
included in cost of
sales 176 142 112 444 348
----------- ---------- ---------- ---------- ----------
Non-GAAP gross profit$ 47,551 $ 37,299 $ 30,724 $ 114,686 $ 77,404
----------- ---------- ---------- ---------- ----------
Non-GAAP gross
margin 23.0% 21.7% 20.5% 21.3% 19.9%
Reconciliation of
operating expenses:
GAAP operating
expenses $ 26,990 $ 27,853 $ 25,475 $ 80,936 $ 74,870
Less: Share-based
compensation expense
included in opex
Research and
development (22) 230 181 423 563
Selling, general
and administrative 1,235 722 654 2,666 2,059
----------- ---------- ---------- ---------- ----------
Total 1,213 952 835 3,089 2,622
----------- ---------- ---------- ---------- ----------
Less: Amortization of
intangible assets
included in opex
Research and
development 1,224 1,224 1,224 3,672 3,672
Selling, general
and administrative 1,774 1,723 2,105 5,296 6,275
----------- ---------- ---------- ---------- ----------
Total 2,998 2,947 3,329 8,968 9,947
----------- ---------- ---------- ---------- ----------
Non-GAAP operating
expenses $ 22,779 $ 23,954 $ 21,311 $ 68,879 $ 62,301
----------- ---------- ---------- ---------- ----------
Reconciliation of
income from
operations:
GAAP income from
operations $ 20,385 $ 9,304 $ 5,137 $ 33,306 $ 2,186
GAAP operating
margin 9.8% 5.4% 3.4% 6.2% 0.6%
Add: Share-based
compensation expense 1,389 1,094 947 3,533 2,970
Add: Amortization of
intangible assets 2,998 2,947 3,329 8,968 9,947
----------- ---------- ---------- ---------- ----------
Non-GAAP income from
operations $ 24,772 $ 13,345 $ 9,413 $ 45,807 $ 15,103
----------- ---------- ---------- ---------- ----------
Non-GAAP operating
margin 12.0% 7.8% 6.3% 8.5% 3.9%
Reconciliation of
provision for income
taxes:
GAAP provision for
income taxes $ 3,371 $ 2,124 $ 2,258 $ 6,156 $ 2,150
GAAP effective tax
rate 29.8% -997.2% 247.3% 71.8% -13.2%
Tax effect of
adjustments to GAAP
results (376) (365) (371) (1,106) (978)
----------- ---------- ---------- ---------- ----------
Non-GAAP provision
for income taxes $ 3,747 $ 2,489 $ 2,629 $ 7,262 $ 3,128
----------- ---------- ---------- ---------- ----------
Non-GAAP effective
tax rate 21.5% 41.4% 50.7% 29.1% -91.1%
Reconciliation of net
income (loss) per
share (diluted) and
diluted per share
amounts:
GAAP net income
(loss) $ 7,958 $ (2,337) $ (1,345) $ 2,414 $ (18,499)
Adjustments to GAAP
net income:
Share-based
compensation 1,389 1,094 947 3,533 2,970
Amortization of
intangible assets 2,998 2,947 3,329 8,968 9,947
Amortization of
debt discount
related to
warrants 1,733 2,180 - 3,913 -
Tax effect of items
excluded from non-
GAAP results (376) (365) (371) (1,106) (978)
----------- ---------- ---------- ---------- ----------
Non-GAAP net income
(loss) $ 13,702 $ 3,519 $ 2,560 $ 17,722 $ (6,560)
=========== ========== ========== ========== ==========
Weighted average
shares outstanding
for calculation of
non-GAAP income per
share (diluted) 15,955 13,870 13,832 15,230 14,147
----------- ---------- ---------- ---------- ----------
Non-GAAP net income
per share (diluted) $ 0.86 $ 0.25 $ 0.19 $ 1.16 $ (0.46)
=========== ========== ========== ========== ==========
GAAP income (loss)
per share (diluted) $ 0.50 $ (0.17) $ (0.10) $ 0.16 $ (1.31)
=========== ========== ========== ========== ==========
Pro forma weighted
average shares
outstanding for
computing diluted
per-share
calculation* 22,050
-----------
Pro forma non-GAAP
net income per share
(diluted) $ 0.62
===========
Pro forma GAAP net
income per share
(diluted) $ 0.36
===========
* Assuming IPO closing shares (6,095) on May 30, 2017 were issued and
outstanding as of the beginning of Q3'17.
SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of GAAP Net Income (loss) to Adjusted EBITDA
(In thousands, except per share data)
Three Months Ended Nine Months Ended
-------------------------------- --------------------
May 26, Feb 24, May 27, May 26, May 27,
2017 2017 2016 2017 2016
---------- ---------- ---------- --------- ----------
GAAP net income (loss) $ 7,958 $ (2,337) $ (1,345) $ 2,414 $ (18,499)
Share-based
compensation expense 1,389 1,094 947 3,533 2,970
Amortization of
intangible assets 2,998 2,947 3,329 8,968 9,947
Interest expense, net 8,294 8,512 6,326 23,072 19,265
Provision for income
tax 3,371 2,124 2,258 6,156 2,150
Depreciation 4,848 6,044 4,380 16,431 13,443
Management advisory
fees 1,000 1,000 1,000 3,000 3,001
Debt extension and
extinguishment
costs* - 3,130 - 3,130 -
Restructuring - 471 128 457 1,143
Special retention
bonuses - - 333 25 1,346
Investment advisory
fees - 134 - 540 -
Obsolete inventory
related to
restructuring - 372 - 372 -
Misappropriated
product shipment - - - - 695
---------- ---------- ---------- --------- ----------
Adjusted EBITDA $ 29,858 $ 23,491 $ 17,356 $ 68,098 $ 35,461
========== ========== ========== ========= ==========
--------------------
* Debt extension costs consist of $1.7 million associated with the
amendment of our senior secured term loan and revolving credit facility
in November 2016 and debt extinguishment costs represent a $1.4 million
on a February 2017 extinguishment.
SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Balance Sheets
(In thousands)
May 26, February 24, August 26,
2017 2017 2016
------------ -------------- -----------
Assets
Current assets:
Cash and cash equivalents $ 22,341 $ 23,341 $ 58,634
Accounts receivable, net 174,453 138,592 141,036
Inventories 135,489 131,884 103,066
Prepaid expenses and other current
assets 15,699 13,346 16,522
------------ -------------- -----------
Total current assets 347,982 307,163 319,258
Property and equipment, net 52,006 53,902 57,600
Other noncurrent assets 21,936 22,701 19,937
Intangible assets, net 8,001 11,112 16,884
Goodwill 45,360 46,059 44,976
------------ -------------- -----------
Total assets $ 475,285 $ 440,937 $ 458,655
============ ============== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 210,633 $ 183,331 $ 197,976
Accrued liabilities 22,130 17,311 14,071
Current portion of long-term debt 13,024 12,162 17,116
------------ -------------- -----------
Total current liabilities 245,787 212,804 229,163
Long-term debt 197,910 202,744 225,587
Deferred tax liabilities 1,769 2,174 2,677
Other long-term liabilities 2,437 2,507 2,465
------------ -------------- -----------
Total liabilities $ 447,903 $ 420,229 $ 459,892
------------ -------------- -----------
Shareholders' equity (deficit):
Ordinary shares 420 416 416
Additional paid-in capital 170,502 168,769 145,284
Accumulated other comprehensive
loss (146,540) (143,519) (147,523)
Retained earnings (accumulated
deficit) 3,000 (4,958) 586
------------ -------------- -----------
Total shareholders' equity
(deficit) 27,382 20,708 (1,237)
------------ -------------- -----------
Total liabilities and
shareholders' equity $ 475,285 $ 440,937 $ 458,655
============ ============== ===========
SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended Nine Months Ended
---------------------------------- ---------------------
February
May 26, 24, May 27, May 26, May 27,
2017 2017 2016 2017 2016
---------- ------------ ---------- ---------- ----------
Cash flows from
operating
activities:
Net income (loss) $ 7,958 $ (2,337) $ (1,345) $ 2,414 $ (18,499)
Adjustments to
reconcile net
income (loss) to
net cash provided
by (used in)
operating
activities:
Depreciation and
amortization 7,846 8,991 7,709 25,399 23,390
Share-based
compensation 1,389 1,094 947 3,533 2,970
Provision for
doubtful
accounts
receivable and
sales returns 205 18 3 31 (16)
Deferred income
tax benefit (84) (806) (1,298) (1,195) (1,687)
(Gain) loss on
disposal of
property and
equipment - 129 54 129 (57)
Extinguishment
loss on long-
term debt - 1,386 - 1,386 -
Amortization of
debt issuance
costs 628 624 763 1,851 2,274
Amortization of
debt original
issuance
discount 119 118 415 660 1,235
Amortization of
debt discount 1,733 2,180 - 3,913 -
Changes in
operating
assets and
liabilities:
Accounts
receivable (36,891) (18,235) 8,776 (33,516) 54,069
Inventories (4,833) (35,351) (2,046) (31,184) 25,710
Prepaid
expenses and
other assets (735) 852 534 741 2,344
Accounts
payable 27,525 40,674 (24,727) 11,799 (70,993)
Accrued
expenses and
other
liabilities 3,846 2,036 4,503 7,097 (440)
---------- ------------ ---------- ---------- ----------
Net cash
provided by
(used in)
operating
activities 8,706 1,373 (5,712) (6,942) 20,300
---------- ------------ ---------- ---------- ----------
Cash flows from
investing
activities:
Capital
expenditures and
deposits on
equipment (3,784) (4,320) (4,253) (11,179) (9,995)
Restricted cash - - - - 181
Proceeds from sale
of property and
equipment 425 42 - 467 245
---------- ------------ ---------- ---------- ----------
Net cash
used in
investing
activities (3,359) (4,278) (4,253) (10,712) (9,569)
---------- ------------ ---------- ---------- ----------
Cash flows from
financing
activities:
Proceeds from
long-term debt
borrowing - - - - 5,179
Long-term debt
payment (5,954) (6,404) (4,163) (17,689) (12,448)
Payment for
extinguishment of
long-term debt - (938) - (938) -
Payment of costs
related to
initial public
offering (200) - - (200) (6)
Proceeds from
borrowings under
revolving line of
credit 123,000 105,000 53,500 338,250 172,700
Repayments of
borrowings under
revolving line of
credit (123,000) (105,000) (53,500) (338,250) (172,700)
Proceeds from
issuance of
ordinary shares
from share option
exercise 348 - 41 348 41
Repurchase of
ordinary shares - - - - (124)
---------- ------------ ---------- ---------- ----------
Net cash
used in
financing
activities (5,806) (7,342) (4,122) (18,479) (7,358)
Effect of exchange
rate changes on
cash and cash
equivalents (541) (98) 3,450 (160) 1,709
---------- ------------ ---------- ---------- ----------
Net increase
(decrease)
in cash and
cash
equivalents (1,000) (10,345) (10,637) (36,293) 5,082
Cash and cash
equivalents at
beginning of period 23,341 33,686 83,813 58,634 68,094
---------- ------------ ---------- ---------- ----------
Cash and cash
equivalents at end
of period $ 22,341 $ 23,341 $ 73,176 $ 22,341 $ 73,176
========== ============ ========== ========== ==========
Investor Contact: Suzanne SchmidtInvestor Relations for SMART Global Holdings, Inc. (510) [email protected]
Source: SMART Global Holdings, Inc.