Net sales of $314.0 million, 83% higher than prior year quarter
GAAP operating income of $45.1 million
GAAP net income of $36.8 million
Adjusted EBITDA of $56.2 million
GAAP diluted EPS of $1.60 (1)
Non-GAAP diluted EPS of $1.73(1) (1)GAAP and Non-GAAP diluted EPS include $0.10 of EPS due to FX gains
“The second quarter of fiscal 2018 came in above expectations as we benefited from multiple growth drivers. The overall memory industry supply and demand dynamics remained favorable with respect to increasing memory densities and pricing. Additionally, in Brazil, the economy continued to improve and we benefited from local content requirements. Lastly, we once again demonstrated exceptional operating expense control and operating leverage in our financial model,” commented Iain MacKenzie, President and Co-Chief Executive Officer of SMART Global Holdings.
“We remain confident in our ability to drive additional growth and improvement in both SMART Brazil and our Specialty Memory businesses as the global memory market and economic trends in Brazil remain positive, and we see increasing demand from our OEM customers, particularly in the storage and networking end markets,” added Mr. MacKenzie.
“As we announced on March 14, 2018, I am very pleased that Ajay Shah has agreed to accept the role of President and CEO. Ajay’s extensive industry knowledge and long history with SMART make him the ideal executive to lead SMART through this next phase of growth. I look forward to working closely with Ajay through this transition,” concluded Mr. MacKenzie.
Quarterly Financial Results
GAAP (1)
Non-GAAP (2)
(In millions, except per share amounts)
Q2 FY18
Q1 FY18
Q2 FY17
Q2 FY18
Q1 FY18
Q2 FY17
Net sales
$
314.0
$
265.4
$
172.0
$
314.0
$
265.4
$
172.0
Gross profit
$
73.0
$
57.8
$
37.2
$
73.2
$
58.1
$
37.3
Operating income
$
45.1
$
31.5
$
9.3
$
48.5
$
34.6
$
13.3
Net income (loss)
$
36.8
$
21.0
$
(2.3
)
$
39.9
$
23.8
$
4.9
Earnings (loss) per share - diluted
$
1.60
$
0.92
$
(0.17
)
$
1.73
$
1.05
$
0.35
GAAP represents U.S. Generally Accepted Accounting Principles.
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 Outlook The following statements are based upon management's current expectations for the third quarter of fiscal 2018 ending May 25, 2018. These statements are forward-looking and actual results may differ materially. SMART undertakes no obligation to update these statements.
Net Sales - GAAP / Non-GAAP
$320 to $340 million
Gross Margin - GAAP / Non-GAAP
21% to 23%
Diluted EPS - GAAP
$1.61 to $1.69
Intangible amortization per share
$0.05
Stock-based compensation per share
$0.08
Diluted EPS - Non-GAAP
$1.74 to $1.82
Expected diluted share count
23.2 million
Conference Call Details SMART will host a conference call today for analysts and investors at 2:30pm Pacific Time, 5:30 pm Eastern Time. Dial-in US toll free +1-866-487-6452 using access code 9983539.
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: 9983539.
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 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; deterioration in or loss of relations with any of our limited number of key vendors; 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 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 Certain non-GAAP financial measures are contained in this press release or will be discussed on our conference call, including 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, stock-based compensation expense, restructuring charges, amortization of non-cash debt discount related to warrants, non-cash charges in connection with refinancing, 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, intangible amortization expense, amortization of non-cash debt discount related to warrants and non-cash charges in connection with refinancing. 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.
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
Six Months Ended
February 23, 2018
November 24, 2017
February 24, 2017
February 23, 2018
February 24, 2017
Net sales:
Brazil DRAM
$
67,322
$
51,959
$
28,695
$
119,281
$
48,023
Brazil Mobile Memory
141,311
105,891
49,932
247,202
106,143
Specialty Memory
105,332
107,559
93,327
212,891
177,132
Total net sales
313,965
265,409
171,954
579,374
331,298
Cost of sales (1)
240,948
207,573
134,797
448,521
264,431
Gross profit
73,017
57,836
37,157
130,853
66,867
Operating expenses:
Research and development (1) (2)
9,852
8,550
9,948
18,402
19,645
Selling, general and administrative (1) (2)
18,087
17,818
16,434
35,905
31,844
Management advisory fees
—
—
1,000
—
2,000
Restructuring
—
—
471
—
457
Total operating expenses
27,939
26,368
27,853
54,307
53,946
Income from operations
45,078
31,468
9,304
76,546
12,921
Other income (expense):
Interest expense, net
(4,230
)
(4,599
)
(8,512
)
(8,829
)
(14,778
)
Other income (expense), net
2,548
(2,715
)
(1,005
)
(167
)
(902
)
Total other expense
(1,682
)
(7,314
)
(9,517
)
(8,996
)
(15,680
)
Income (loss) before income taxes
43,396
24,154
(213
)
67,550
(2,759
)
Provision for income taxes
6,602
3,149
2,124
9,751
2,785
Net income (loss)
$
36,794
$
21,005
$
(2,337
)
$
57,799
$
(5,544
)
Earnings per share:
Basic
$
1.68
$
0.97
$
(0.17
)
$
2.65
$
(0.40
)
Diluted
$
1.60
$
0.92
$
(0.17
)
$
2.53
$
(0.40
)
Shares used in computing earnings per share:
Basic
21,915
21,673
13,870
21,794
13,870
Diluted
23,038
22,715
13,870
22,877
13,870
(1) Includes share-based compensation expense as follows:
Cost of sales
$
227
$
218
$
142
$
445
$
268
Research and development
288
274
230
562
445
Selling, general and administrative
1,182
1,113
722
2,295
1,431
Total stock-based compensation expense
$
1,697
$
1,605
$
1,094
$
3,302
$
2,144
(2) Includes amortization of intangible assets expense as follows:
Research and development
$
245
$
245
$
1,224
$
490
$
2,448
Selling, general and administrative
993
1,023
1,723
2,016
3,522
Total amortization expense
$
1,238
$
1,268
$
2,947
$
2,506
$
5,970
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 23, 2018
November 24, 2017
February 24, 2017
February 23, 2018
February 24, 2017
Reconciliation of gross profit:
GAAP gross profit
$
73,017
$
57,836
$
37,157
$
130,853
$
66,867
GAAP gross margin
23.3
%
21.8
%
21.6
%
22.6
%
20.2
%
Add: Share-based compensation included in cost of sales
227
218
142
445
268
Non-GAAP gross profit
$
73,244
$
58,054
$
37,299
$
131,298
$
67,135
Non-GAAP gross margin
23.3
%
21.9
%
21.7
%
22.7
%
20.3
%
Reconciliation of operating expenses:
GAAP operating expenses
$
27,939
$
26,368
$
27,853
$
54,307
$
53,946
Less: Share-based compensation expense included in opex
Research and development
288
274
230
562
445
Selling, general and administrative
1,182
1,113
722
2,295
1,431
Total
1,470
1,387
952
2,857
1,876
Less: Amortization of intangible assets included in opex
Research and development
245
245
1,224
490
2,448
Selling, general and administrative
993
1,023
1,723
2,016
3,522
Total
1,238
1,268
2,947
2,506
5,970
Less: S-1 related costs
513
300
—
813
—
Non-GAAP operating expenses
$
24,718
$
23,413
$
23,954
$
48,131
$
46,100
Reconciliation of income from operations:
GAAP income from operations
$
45,078
$
31,468
$
9,304
$
76,546
$
12,921
GAAP operating margin
14.4
%
11.9
%
5.4
%
13.2
%
3.9
%
Add: Share-based compensation expense
1,697
1,605
1,094
3,302
2,144
Add: Amortization of intangible assets
1,238
1,268
2,947
2,506
5,970
Add: S-1 related costs
513
300
—
813
—
Non-GAAP income from operations
$
48,526
$
34,641
$
13,345
$
83,167
$
21,035
Non-GAAP operating margin
15.5
%
13.1
%
7.8
%
14.4
%
6.3
%
Reconciliation of provision for income taxes:
GAAP provision for income taxes
$
6,602
$
3,149
$
2,124
$
9,751
$
2,785
GAAP effective tax rate
15.2
%
13.0
%
-997.2
%
14.4
%
-100.9
%
Tax effect of adjustments to GAAP results
(338
)
(348
)
(365
)
(686
)
(702
)
Non-GAAP provision for income taxes
$
6,940
$
3,497
$
2,489
$
10,437
$
3,487
Non-GAAP effective tax rate
14.8
%
12.8
%
33.7
%
14.1
%
39.1
%
Reconciliation of net income (loss) and earnings per share (diluted):
GAAP net income (loss)
$
36,794
$
21,005
$
(2,337
)
$
57,799
$
(5,544
)
Adjustments to GAAP net income:
Share-based compensation
1,697
1,605
1,094
3,302
2,144
Amortization of intangible assets
1,238
1,268
2,947
2,506
5,970
Amortization of debt discount related to warrants
—
—
2,180
—
2,180
S-1 related costs
513
300
—
813
—
Loss on extinguishment of LT debt
—
—
1,385
—
1,385
Tax effect of items excluded from non-GAAP results
(338
)
(348
)
(365
)
(686
)
(702
)
Non-GAAP net income
$
39,904
$
23,830
$
4,904
$
63,734
$
5,433
Shares used in computing earnings per share (diluted)
23,038
22,715
14,142
22,877
14,137
Non-GAAP earnings per share (diluted)
$
1.73
$
1.05
$
0.35
$
2.79
$
0.38
SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of GAAP Net Income (loss) to Adjusted EBITDA
(In thousands)
Three Months Ended
Six Months Ended
February 23, 2018
November 24, 2017
February 24, 2017
February 23, 2018
February 24, 2017
GAAP net income (loss)
$
36,794
$
21,005
$
(2,337
)
$
57,799
$
(5,544
)
Share-based compensation expense
1,697
1,605
1,094
3,302
2,144
Amortization of intangible assets
1,238
1,268
2,947
2,506
5,970
Interest expense, net
4,230
4,599
8,512
8,829
14,778
Provision for income tax
6,602
3,149
2,124
9,751
2,785
Depreciation
5,120
5,002
6,044
10,122
11,583
S-1 related costs
513
300
—
813
—
Management advisory fees
—
—
1,000
—
2,000
Debt extension costs*
—
—
1,745
—
1,745
Loss on extinguishment of LT debt **
—
—
1,385
—
1,385
Restructuring
—
—
471
—
457
Special retention bonuses
—
—
—
—
25
Investment advisory fees
—
—
134
—
540
Obsolete inventory related to restructuring
—
—
372
—
372
Adjusted EBITDA
$
56,194
$
36,928
$
23,491
$
93,122
$
38,240
* 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.
** Loss on extinguishment of long-term debt consists of $1.4 million loss on a February 2017 extinguishment.
SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Balance Sheets
(In thousands)
February 23,
August 25,
2018
2017
Assets
Current assets:
Cash and cash equivalents
$
51,816
$
22,436
Accounts receivable, net
223,500
183,303
Inventories
148,577
127,135
Prepaid expenses and other current assets
18,181
14,115
Total current assets
442,074
346,989
Property and equipment, net
53,238
55,182
Other noncurrent assets
21,556
26,728
Intangible assets, net
2,533
5,107
Goodwill
45,709
46,022
Total assets
$
565,110
$
480,028
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
$
225,718
$
189,717
Accrued liabilities
24,151
27,316
Current portion of long-term debt
22,954
22,841
Total current liabilities
272,823
239,874
Long-term debt
142,752
154,450
Deferred tax liabilities
730
1,439
Other long-term liabilities
1,897
1,869
Total liabilities
$
418,202
$
397,632
Shareholders’ equity:
Ordinary shares
666
653
Additional paid-in capital
239,628
232,162
Accumulated other comprehensive loss
(143,976
)
(143,210
)
Retained earnings
50,590
(7,209
)
Total shareholders’ equity
146,908
82,396
Total liabilities and shareholders’ equity
$
565,110
$
480,028
SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended
Six Months Ended
February 23, 2018
November 24, 2017
February 24, 2017
February 23, 2018
February 24, 2017
Cash flows from operating activities:
Net income (loss)
$
36,794
$
21,005
$
(2,337
)
$
57,799
$
(5,544
)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization
6,358
6,270
8,991
12,628
17,553
Share-based compensation
1,697
1,605
1,094
3,302
2,144
Provision for doubtful accounts receivable and sales returns
39
28
18
67
(174
)
Deferred income tax benefit
(734
)
(220
)
(806
)
(954
)
(1,111
)
Loss on disposal of property and equipment
244
—
129
244
129
Extinguishment loss on long-term debt
—
—
1,386
—
1,386
Amortization of debt discounts and issuance costs
722
729
2,922
1,451
3,944
Changes in operating assets and liabilities:
Accounts receivable
14,894
(55,801
)
(18,235
)
(40,907
)
3,375
Inventories
(17,810
)
(3,746
)
(35,351
)
(21,556
)
(26,351
)
Prepaid expenses and other assets
(67
)
1,758
852
1,691
1,476
Accounts payable
(10,145
)
47,492
40,674
37,347
(15,726
)
Accrued expenses and other liabilities
2,705
(4,863
)
2,036
(2,158
)
3,251
Net cash provided by (used in) operating activities
34,697
14,257
1,373
48,954
(15,648
)
Cash flows from investing activities:
Capital expenditures and deposits on equipment
(4,418
)
(6,039
)
(4,320
)
(10,457
)
(7,395
)
Proceeds from sale of property and equipment
66
—
42
66
42
Net cash used in investing activities
(4,352
)
(6,039
)
(4,278
)
(10,391
)
(7,353
)
Cash flows from financing activities:
Long-term debt payment
(6,125
)
(6,184
)
(6,404
)
(12,309
)
(11,735
)
Payment for extinguishment of long-term debt
—
—
(938
)
—
(938
)
Fees paid for revolving line of credit refinancing
(469
)
(299
)
—
(768
)
—
Payment of costs related to initial public offering
(302
)
(1,289
)
—
(1,591
)
—
Proceeds from borrowings under revolving line of credit
103,000
105,500
105,000
208,500
215,250
Repayments of borrowings under revolving line of credit
(103,000
)
(105,500
)
(105,000
)
(208,500
)
(215,250
)
Proceeds from issuance of ordinary shares from share option exercise
3,638
539
—
4,177
—
Net cash used in financing activities
(3,258
)
(7,233
)
(7,342
)
(10,491
)
(12,673
)
Effect of exchange rate changes on cash and cash equivalents
1,226
82
(98
)
1,308
381
Net increase (decrease) in cash and cash equivalents
28,313
1,067
(10,345
)
29,380
(35,293
)
Cash and cash equivalents at beginning of period
23,503
22,436
33,686
22,436
58,634
Cash and cash equivalents at end of period
$
51,816
$
23,503
$
23,341
$
51,816
$
23,341
Investor Contact: Suzanne Schmidt Investor Relations for SMART Global Holdings, Inc. (510) 360-8596 [email protected]