SMART Global Holdings Reports First Quarter Fiscal 2021 Financial Results - Yahoo Finance

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SMART Global Holdings, Inc. ("SMART" or the "Company") (NASDAQ: SGH), today reported financial results for the first quarter fiscal 2021 ended November 27, 2020.

First Quarter Fiscal 2021 Highlights:

• Net sales of $291.7 million, 7.2% higher than the year ago quarter.

• GAAP net income of $2.0 million, or $0.08 per share, compared with $0.2 million or $0.01 per share in the year ago quarter.

• Non-GAAP net income of $19.6 million or $0.78 per share, 46.4% and 41.8% higher than the year ago quarter, respectively.

• Adjusted EBITDA of $29.5 million, 25.4% higher than the year ago quarter.

"I am proud of the results our team delivered in the first quarter of fiscal 2021 during these challenging times. Total revenue grew by 7% when compared to the first quarter a year ago, and non-GAAP earnings per share of $0.78 exceeded the high end of our guidance range," commented Mark Adams, President and CEO.

"With our continuing focus on delivering differentiated solutions to our valued customers and driving operational excellence across each of our businesses, we remain optimistic about the future and our ability to deliver strong returns for our shareholders," concluded Mr. Adams.

Quarterly Financial Results		GAAP (1)										Non-GAAP (2)
(In millions, except per share amounts)		Q1 FY21			Q4 FY20			Q1 FY20				Q1 FY21			Q4 FY20			Q1 FY20
Net sales		$	291.7		$	297.0		$	272.0			$	291.7		$	297.0		$	272.0
Gross profit		$	52.6		$	56.3		$	54.3			$	54.1		$	57.8		$	55.7
Operating income		$	7.6		$	17.2		$	5.9			$	23.7		$	28.4		$	18.2
Net income		$	2.0		$	7.5		$	0.2			$	19.6		$	20.4		$	13.4
Diluted earnings per share (EPS)		$	0.08		$	0.30		$	0.01			$	0.78		$	0.82		$	0.55

(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 second quarter of fiscal 2021 ending February 26, 2021. These statements are forward-looking and actual results may differ materially. SMART undertakes no obligation to update these statements.

Net Sales	$285 to $305 million
Gross Margin - GAAP / Non-GAAP	18% to 20%
Diluted EPS - GAAP	$0.38 ± $0.05
Share-based compensation per share	$0.20
Intangible amortization per share	$0.14
Convertible debt discount OID and fees per share	$0.08
Diluted EPS - Non-GAAP	$0.80 ± $0.05
Expected diluted share count	25.6 million

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 International toll free +1-213-660-0710 using access code 9456176. We will post an accompanying slide presentation to our website prior to the beginning of the call.

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, or International toll free +1 404-537-3406; Passcode: 9456176.

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; changes in trade regulations or adverse developments in international trade relations and agreements; 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 incentives for local manufacturing 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/revolver, capped call mark to market (MTM) adjustment, restructuring expenses, integration expenses, COVID-19 expenses, acquisition-related expenses, gain on settlements 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/revolver, capped call MTM adjustment, convertible debt original issue discount (OID) and fees, restructuring expenses, integration expenses, COVID-19 expenses, acquisition-related expenses, gain on settlements 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 to Adjusted EBITDA" tables below for more detail on non-GAAP calculations.

About SMART Global Holdings – SGH
SGH is comprised of business units that are leading designers and manufacturers of electronic products focused on computing and memory technology. These businesses specialize in application-specific product development and support for customers in enterprise, government and OEM sales channels.

Customers rely on SGH businesses as their strategic suppliers providing exceptional customer service, product quality, and technical support with engineering, sales, manufacturing, supply chain and logistics capabilities that span the globe. SGH’s businesses support customers in communications, storage, networking, mobile, industrial automation, IoT and industrial IoT, government, military, and computing including edge and high performance computing markets. SGH businesses operate in three primary areas: specialty compute and storage solutions, specialty memory products, and Brazil.

For more information about SGH business units, visit: SMART Modular Technologies; SMART Embedded Computing; SMART Supply Chain Services; and Penguin Computing.

SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Income Statements
(In thousands, except per share data)
					Three Months Ended
					November 27, 2020				August 28, 2020				November 29, 2019
Net sales:
	Specialty Memory Products				$	120,657			$	125,142			$	103,529
	Brazil Products					105,166				105,011				93,999
	Specialty Compute and Storage Solutions					65,873				66,877				74,490
		Total net sales				291,697				297,030				272,018
Cost of sales (1) (2)						239,053				240,693				217,698
	Gross profit					52,644				56,337				54,320
Operating expenses:
	Research and development (1)					6,964				8,032				14,886
	Selling, general and administrative (1) (2)					38,056				27,587				33,553
	Restructuring charge					—				3,487				—
		Total operating expenses				45,020				39,107				48,439
		Income from operations				7,624				17,230				5,881
Other income (expense):
	Interest expense, net					(3,154	)			(3,265	)			(4,492	)
	Other income (expense), net					832				(299	)			(840	)
		Total other expense				(2,322	)			(3,564	)			(5,332	)
		Income before income taxes				5,302				13,666				549
Provision for income taxes						3,275				6,139				325
		Net income			$	2,027			$	7,527			$	224
Earnings per share:
	Basic				$	0.08			$	0.31			$	0.01
	Diluted				$	0.08			$	0.30			$	0.01
Shares used in computing earnings per share:
	Basic					24,561				24,290				23,713
	Diluted					25,103				24,839				24,286
(1) Includes share-based compensation expense as follows:
	Cost of sales				$	838			$	861			$	730
	Research and development					778				763				744
	Selling, general and administrative					9,472				1,582				4,482
		Total stock-based compensation expense			$	11,088			$	3,206			$	5,956
(2) Includes amortization of intangible assets expense as follows:
	Cost of sales				$	647			$	647			$	647
	Selling, general and administrative					2,766				2,767				2,766
		Total amortization expense			$	3,413			$	3,414			$	3,413

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 27, 2020				August 28, 2020				November 29, 2019
Reconciliation of gross profit:
GAAP gross profit				$	52,644			$	56,337			$	54,320
	GAAP gross margin				18.0	%			19.0	%			20.0	%
Add: Share-based compensation included in cost of sales					838				861				730
Add: Intangible amortization included in cost of sales					647				647				647
Non-GAAP gross profit				$	54,129			$	57,845			$	55,697
	Non-GAAP gross margin				18.6	%			19.5	%			20.5	%
Reconciliation of operating expenses:
GAAP operating expenses				$	45,020			$	39,107			$	48,439
Less: Share-based compensation expense included in opex
	Research and development				778				763				744
	Selling, general and administrative				9,472				1,582				4,482
		Total			10,250				2,345				5,226
Less: Amortization of intangible assets included in opex
	Selling, general and administrative				2,766				2,767				2,766
		Total			2,766				2,767				2,766
Less: Acquisition-related expenses					1,617				1,061				946
Less: Integration/restructuring expenses					—				3,487				2,052
Non-GAAP operating expenses				$	30,388			$	29,447			$	37,449
Reconciliation of income from operations:
GAAP income from operations				$	7,624			$	17,230			$	5,881
	GAAP operating margin				2.6	%			5.8	%			2.2	%
Add: Share-based compensation expense					11,088				3,206				5,956
Add: Amortization of intangible assets					3,413				3,414				3,413
Add: Acquisition-related expenses					1,617				1,061				946
Add: Integration/restructuring expenses					—				3,487				2,052
Non-GAAP income from operations				$	23,741			$	28,398			$	18,248
	Non-GAAP operating margin				8.1	%			9.6	%			6.7	%

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 27, 2020				August 28, 2020				November 29, 2019
Reconciliation of income before income taxes:
GAAP income before income taxes				$	5,302			$	13,666			$	549
Add: Share-based compensation expense					11,088				3,206				5,956
Add: Amortization of intangible assets					3,413				3,414				3,413
Add: Acquisition-related expenses					1,617				1,061				946
Add: Integration/Restructuring expenses					—				3,487				2,052
Add: Gain on settlement of indemnity claim					—				(364	)			—
Add: Convertible debt discount OID and fees					2,062				2,026				—
Add: Foreign currency (gains)/losses					(642	)			822				911
Non-GAAP income before income taxes				$	22,839			$	27,318			$	13,827
Reconciliation of provision for income taxes:
GAAP provision for income taxes				$	3,275			$	6,139			$	325
	GAAP effective tax rate				61.8	%			44.9	%			59.2	%
Less: Goodwill tax credit					—				(673	)			—
Tax effect of adjustments to GAAP results					64				(82	)			(91	)
Non-GAAP provision for income taxes				$	3,211			$	6,894			$	416
	Non-GAAP effective tax rate				14.1	%			25.2	%			3.0	%
Reconciliation of net income and earnings per share (diluted):
GAAP net income				$	2,027			$	7,527			$	224
Adjustments to GAAP net income:
	Share-based compensation				11,088				3,206				5,956
	Amortization of intangible assets				3,413				3,414				3,413
	Acquisition-related expenses				1,617				1,061				946
	Integration/restructuring expenses				—				3,487				2,052
	Convertible debt discount OID and fees				2,062				2,026				—
	Gain on settlement of indemnity claim				—				(364	)			—
	Goodwill tax credit				—				(673	)			—
	Foreign currency (gains)/losses				(642	)			822				911
	Tax effect of items excluded from non-GAAP results				64				(82	)			(91	)
Non-GAAP net income				$	19,628			$	20,424			$	13,411
Shares used in computing earnings per share (diluted)					25,103				24,839				24,286
Non-GAAP earnings per share (diluted)				$	0.78			$	0.82			$	0.55
GAAP earnings per share (diluted)				$	0.08			$	0.30			$	0.01

SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of GAAP Net Income to Adjusted EBITDA
(In thousands)
				Three Months Ended
				November 27, 2020			August 28, 2020				November 29, 2019
GAAP net income				$	2,027		$	7,527			$	224
	Share-based compensation expense				11,088			3,206				5,956
	Amortization of intangible assets				3,413			3,414				3,413
	Interest expense, net				3,154			3,265				4,492
	Provision for income tax				3,275			6,139				325
	Depreciation				4,954			5,219				6,131
	Acquisition-related expenses(1)				1,617			1,061				946
	Integration/restructuring expenses				—			3,487				2,052
	Gain on settlement of indemnity claim				—			(364	)			—
	Adjusted EBITDA			$	29,527		$	32,954			$	23,539

(1) Amounts related to acquisitions of Cree (pending) and SMART EC & Wireless (July 2019).

SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Balance Sheets
(In thousands)
						November 27,				August 28,
						2020				2020
Assets
Current assets:
	Cash and cash equivalents					$	164,097			$	150,811
	Accounts receivable, net						212,886				215,918
	Inventories						147,203				162,991
	Prepaid expenses and other current assets						34,337				26,990
				Total current assets			558,523				556,710
Property and equipment, net							60,045				54,705
Operating lease right-of-use assets							23,050				25,013
Other noncurrent assets							18,749				20,554
Intangible assets, net							52,258				55,671
Goodwill							72,100				73,955
				Total assets		$	784,725			$	786,608
Liabilities and Shareholders’ Equity
Current liabilities:
	Accounts payable					$	235,557			$	224,660
	Accrued liabilities						47,011				57,829
				Total current liabilities			282,568				282,489
Long-term debt							197,634				195,573
Long-term operating lease liabilities							19,524				20,829
Other long-term liabilities							6,681				5,613
				Total liabilities			506,407				504,504
Shareholders’ equity:
	Ordinary shares						751				737
	Additional paid-in capital						356,827				346,131
	Accumulated other comprehensive loss						(244,764	)			(228,241	)
	Retained earnings						165,504				163,477
				Total shareholders’ equity			278,318				282,104
				Total liabilities and shareholders’ equity		$	784,725			$	786,608

SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
							Three Months Ended
							November 27, 2020				August 28, 2020				November 29, 2019
Cash flows from operating activities:
	Net income						$	2,027			$	7,527			$	224
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization						8,367				8,633				9,544
		Share-based compensation						11,088				3,206				5,956
		Provision for doubtful accounts receivable and sales returns						(9	)			(118	)			73
		Deferred income tax benefit						222				(2,181	)			(970	)
		(Gain) Loss on disposal of property and equipment						(5	)			2,565				(42	)
		Amortization of debt discounts and issuance costs						2,116				2,080				734
		Amortization of operating lease right-of-use assets						1,413				1,491				1,114
		Changes in operating assets and liabilities:
			Accounts receivable					(1,930	)			5,537				(13,688	)
			Inventories					12,919				20,641				(42,206	)
			Prepaid expenses and other assets					(9,277	)			(1,291	)			5,110
			Accounts payable					18,022				(26,251	)			60,438
			Operating lease liabilities					(1,504	)			(1,260	)			(1,082	)
			Accrued expenses and other liabilities					(7,880	)			(4,421	)			62
				Net cash provided by operating activities				35,569				16,159				25,267
Cash flows from investing activities:
	Capital expenditures and deposits on equipment							(14,644	)			(7,386	)			(5,158	)
	Proceeds from sale of property and equipment							16				250				42
				Net cash used in investing activities				(14,628	)			(7,136	)			(5,116	)
Cash flows from financing activities:
	Long-term debt payment - term loan							—				—				(5,625	)
	Long-term debt payment - BNDES							—				(615	)			(810	)
	Proceeds from borrowings under revolving line of credit							19,500				42,500				12,500
	Repayments of borrowings under revolving line of credit							(19,500	)			(42,500	)			(12,500	)
	Proceeds from issuance of ordinary shares from share option exercises							1,337				554				1,166
	Proceeds from issuance of ordinary shares from ESPP							1,768				—				1,242
	Withholding tax on restricted stock units							(3,483	)			(96	)			(20	)
				Net cash used in financing activities				(378	)			(157	)			(4,047	)
	Effect of exchange rate changes on the cash and cash equivalents							(7,277	)			10,100				(2,854	)
				Net increase in cash and cash equivalents				13,286				18,966				13,250
Cash and cash equivalents at beginning of period								150,811				131,845				98,139
Cash and cash equivalents at end of period							$	164,097			$	150,811			$	111,389

View source version on businesswire.com: https://www.businesswire.com/news/home/20210105005923/en/

Contacts

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

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