NEWARK, Calif.–(BUSINESS WIRE)–SMART Global Holdings, Inc. (“SGH” or the “Company”) (Nasdaq: SGH), today reported financial results for the second quarter fiscal 2021 ended February 26, 2021.
Second Quarter Fiscal 2021 Highlights:
Net sales of $304.0 million, up 11.8% compared to the year ago quarter. GAAP net income of $5.8 million, or $0.23 per share, compared to a GAAP net loss of $9.7 million or ($0.41) per share in the year ago quarter. Non-GAAP net income of $21.9 million or $0.87 per share, up 71.1% and 67.3%, respectively, compared to the year ago quarter. Adjusted EBITDA of $31.0 million, up 38.9% compared to the year ago quarter. “Our second quarter sales of $304 million, which represented an 11.8 percent increase compared to the same quarter of fiscal 2020, enabled us to achieve non-GAAP earnings per share of $0.87, exceeding the high end of our guidance,” commented Mark Adams, President and CEO. “The Intelligent Platform Solutions business, formerly referred to as Specialty Compute and Storage Solutions, grew sales 30% quarter over quarter, and when coupled with the newly acquired Cree LED, illustrates the continued progress of a growing and diversified SGH.”
Quarterly Financial Results GAAP (1) Non-GAAP (2) (In millions, except per share amounts) Q2 FY21 Q1 FY21 Q2 FY20 Q2 FY21 Q1 FY21 Q2 FY20 Net sales $
304.0
$
291.7
$
272.0
$
304.0
$
291.7
$
272.0
Gross profit $
53.5
$
52.6
$
51.5
$
59.3
$
54.1
$
52.9
Operating income $
12.9
$
7.6
$
8.2
$
27.2
$
23.7
$
17.3
Net income (loss) $
5.8
$
2.0
$
(9.7
)
$
21.9
$
19.6
$
12.8
Diluted earnings per share (EPS) $
0.23
$
0.08
$
(0.41
)
$
0.87
$
0.78
$
0.52
(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 third quarter of fiscal 2021 ending May 28, 2021. These statements are forward-looking and actual results may differ materially. SMART undertakes no obligation to update these statements.
Net Sales $400 to $430 million
Gross Margin – GAAP / Non-GAAP 19% to 21%
Diluted EPS – GAAP* $0.64 ± $0.10
Share-based compensation per share $0.24
Intangible amortization per share $0.14
Convertible debt discount OID and fees per share $0.08
Diluted EPS – Non-GAAP $1.10 ± $0.10
Expected diluted share count – GAAP 27.0 million
Capped call anti-dilution related to convertible (1.0 million)
Expected diluted share count – Non-GAAP 26.0 million
*Does not include purchase price accounting for Cree LED acquisition. 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 +1-844-912-3896, or International toll free +1-236-714-3344 using access code 8075139. We will post an accompanying slide presentation to our website prior to 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 +1-800-585-8367, or International toll free +1 416-621-4642; Passcode: 8075139.
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 technology and lighting industries, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; disruptions in our operations, our supply chain 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; unforeseen issues in completing the carveout of Cree LED from Cree, Inc. and in the integration of Cree LED into SMART; unforeseen issues in the execution of Cree LED’s margin expansion plans; changes in the availability of supply of materials and components; fluctuations in material costs; negative reaction to the acquisition of Cree LED by customers, suppliers and other business partners; 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 our Penguin Computing subsidiary 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, out-of-period adjustments related to import taxes, 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, out-of-period adjustments related to import taxes , 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, memory and LED lighting technologies. 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 computing including edge and high performance computing, communications, storage, networking, mobile, industrial automation, IoT and industrial IoT, government, military and LED lighting markets. SGH businesses operate in three primary areas: specialty computing, specialty memory products, and LED lighting.
For more information about SGH business units, visit: SMART Modular Technologies; SMART Embedded Computing; SMART Wireless Computing; SMART Supply Chain Services; Penguin Computing; Cree LED.
SMART Global Holdings, Inc. and Subsidiaries Consolidated Income Statements (In thousands, except per share data) Three Months Ended Six Months Ended February 26,
2021 November 27,
2020 February 28,
2020 February 26,
2021 February 28,
2020 Net sales: Specialty Memory Products $
115,452
$
120,657
$
111,455
$
236,109
$
214,984
Brazil Products 103,145
105,166
97,700
208,312
191,699
Specialty Compute and Storage Solutions 85,411
65,873
62,887
151,284
137,377
Total net sales 304,009
291,697
272,042
595,705
544,060
Cost of sales (1) (2) 250,553
239,053
220,536
489,606
438,234
Gross profit 53,456
52,644
51,506
106,099
105,826
Operating expenses: Research and development (1) 8,852
6,964
14,702
15,816
29,588
Selling, general and administrative (1) (2) 31,664
38,056
28,648
69,720
62,201
Total operating expenses 40,516
45,020
43,350
85,536
91,789
Income from operations 12,940
7,624
8,156
20,563
14,037
Other income (expense): Interest expense, net (4,365
)
(3,154
)
(4,150
)
(7,518
)
(8,642
)
Other income (expense), net (1,531
)
832
(12,386
)
(699
)
(13,226
)
Total other expense (5,896
)
(2,322
)
(16,536
)
(8,217
)
(21,868
)
Income before income taxes 7,044
5,302
(8,380
)
12,346
(7,831
)
Provision for income taxes 1,200
3,275
1,340
4,475
1,665
Net income (loss) $
5,844
$
2,027
$
(9,720
)
$
7,871
$
(9,496
)
Earnings per share: Basic $
0.24
$
0.08
$
(0.41
)
$
0.32
$
(0.40
)
Diluted $
0.23
$
0.08
$
(0.41
)
$
0.31
$
(0.40
)
Shares used in computing earnings per share: Basic 24,217
24,561
23,906
24,389
23,809
Diluted 25,203
25,103
23,906
25,221
23,809
(1) Includes share-based compensation expense as follows: Cost of sales $
804
$
838
$
731
$
1,641
$
1,461
Research and development 810
778
783
1,588
1,527
Selling, general and administrative 3,784
9,472
3,133
13,257
7,615
Total stock-based compensation expense $
5,398
$
11,088
$
4,647
$
16,486
$
10,603
(2) Includes amortization of intangible assets expense as follows: Cost of sales $
647
$
647
$
647
$
1,294
$
1,294
Selling, general and administrative 2,766
2,766
2,766
5,533
5,533
Total amortization expense $
3,413
$
3,413
$
3,413
$
6,827
$
6,827
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 26,
2021 November 27,
2020 February 28,
2020 February 26,
2021 February 28,
2020 Reconciliation of gross profit: GAAP gross profit $
53,456
$
52,644
$
51,506
$
106,099
$
105,826
GAAP gross margin 17.6
%
18.0
%
18.9
%
17.8
%
19.5
%
Add: Share-based compensation included in cost of sales 804
838
731
1,641
1,461
Add: Intangible amortization included in cost of sales 647
647
647
1,294
1,294
Add: Import taxes – Out of period adjustment 4,345
—
—
4,345
—
Non-GAAP gross profit $
59,252
$
54,129
$
52,884
$
113,379
$
108,581
Non-GAAP gross margin 19.5
%
18.6
%
19.4
%
19.0
%
20.0
%
Reconciliation of operating expenses: GAAP operating expenses $
40,516
$
45,020
$
43,350
$
85,536
91,789
Less: Share-based compensation expense included in opex Research and development 810
778
783
1,588
1,527
Selling, general and administrative 3,784
9,472
3,133
13,257
7,615
Total 4,594
10,250
3,916
14,845
9,142
Less: Amortization of intangible assets included in opex Selling, general and administrative 2,766
2,766
2,766
5,533
5,533
Total 2,766
2,766
2,766
5,533
5,533
Less: Acquisition-related expenses 1,064
1,617
—
2,681
946
Less: Integration/restructuring expenses —
—
1,040
—
3,092
Non-GAAP operating expenses $
32,092
$
30,388
$
35,628
$
62,477
$
73,077
Reconciliation of income from operations: GAAP income from operations $
12,940
$
7,624
$
8,156
$
20,563
$
14,037
GAAP operating margin 4.3
%
2.6
%
3.0
%
3.5
%
2.6
%
Add: Share-based compensation expense 5,398
11,088
4,647
16,486
10,603
Add: Amortization of intangible assets 3,413
3,413
3,413
6,827
6,827
Add: Acquisition-related expenses 1,064
1,617
—
2,681
946
Add: Integration/restructuring expenses —
—
1,040
—
3,092
Add: Import taxes – Out of period adjustment 4,345
—
—
4,345
—
Non-GAAP income from operations $
27,160
$
23,741
$
17,256
$
50,902
$
35,504
Non-GAAP operating margin 8.9
%
8.1
%
6.3
%
8.5
%
6.5
%
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 26,
2021
November 27,
2020
February 28,
2020
February 26,
2021
February 28,
2020
Reconciliation of income before income taxes: GAAP income (loss) before income taxes $
7,044
$
5,302
$
(8,380
)
$
12,346
$
(7,831
)
Add: Share-based compensation expense 5,398
11,088
4,647
16,486
10,603
Add: Amortization of intangible assets 3,413
3,413
3,413
6,827
6,827
Add: Acquisition-related expenses 1,064
1,617
—
2,681
946
Add: Integration/Restructuring expenses —
—
1,040
—
3,092
Add: Import taxes – Out of period adjustment 5,085
—
—
5,085
—
Add: Extinguishment of term loan —
—
6,630
—
6,630
Add: Capped call MTM adjustment —
—
4,795
—
4,795
Add: Convertible debt discount OID and fees 2,098
2,062
399
4,160
399
Add: Foreign currency (gains)/losses 843
(642
)
1,191
201
2,102
Non-GAAP income before income taxes $
24,945
$
22,839
$
13,735
$
47,785
$
27,562
Reconciliation of provision for income taxes: GAAP provision for income taxes $
1,200
$
3,275
$
1,340
$
4,475
$
1,665
GAAP effective tax rate 17.0
%
61.8
%
-16.0
%
36.2
%
-21.3
%
–
Less: Goodwill tax credit —
—
484
—
484
Add: Import taxes – Out of period adjustment 1,727
—
—
1,727
—
Tax effect of other adjustments to GAAP results (84
)
64
(119
)
(20
)
(210
)
Non-GAAP provision for income taxes $
3,011
$
3,211
$
975
$
6,222
$
1,391
Non-GAAP effective tax rate 12.1
%
14.1
%
7.1
%
13.0
%
5.0
%
Reconciliation of net income and earnings per share (diluted): GAAP net income (loss) $
5,844
$
2,027
$
(9,720
)
$
7,871
$
(9,496
)
Adjustments to GAAP net income (loss): Share-based compensation 5,398
11,088
4,647
16,486
10,603
Amortization of intangible assets 3,413
3,413
3,413
6,827
6,827
Acquisition-related expenses 1,064
1,617
—
2,681
946
Integration/restructuring expenses —
—
1,040
—
3,092
Import taxes – Out of period adjustment 3,358
—
—
3,358
—
Extinguishment of term loan —
—
6,630
—
6,630
Capped call MTM adjustment —
—
4,795
—
4,795
Convertible debt discount OID and fees 2,098
2,062
399
4,160
399
Goodwill tax credit —
—
484
—
484
Foreign currency (gains)/losses 843
(642
)
1,191
201
2,102
Tax effect of other items excluded from non-GAAP results (84
)
64
(119
)
(20
)
(210
)
Non-GAAP net income $
21,934
$
19,628
$
12,760
$
41,564
$
26,171
Shares used in computing earnings per share (diluted) 25,203
25,103
24,567
25,221
24,440
Non-GAAP earnings per share (diluted) $
0.87
$
0.78
$
0.52
$
1.65
$
1.07
GAAP earnings per share (diluted) $
0.23
$
0.08
$
(0.41
)
$
0.31
$
(0.40
)
SMART Global Holdings, Inc. and Subsidiaries Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA (In thousands) Three Months Ended Six Months Ended February 26,
2021 November 27,
2020 February 28,
2020 February 26,
2021 February 28,
2020 GAAP net income (loss) $
5,844
$
2,027
$
(9,720
)
$
7,871
$
(9,496
)
Share-based compensation expense 5,398
11,088
4,647
16,486
10,603
Amortization of intangible assets 3,413
3,413
3,413
6,827
6,826
Interest expense, net 4,365
3,154
4,150
7,519
8,642
Provision for income tax 1,200
3,275
1,340
4,475
1,665
Depreciation 5,378
4,954
6,021
10,332
12,152
Acquisition-related expenses(1) 1,064
1,617
—
2,681
946
Integration/restructuring expenses —
—
1,040
—
3,092
Import taxes – Out of period adjustment 4,345
—
—
4,345
—
Extinguishment of term loan —
—
6,630
—
6,630
Capped call MTM adjustment —
—
4,795
—
4,795
Adjusted EBITDA $
31,007
$
29,527
$
22,316
$
60,536
$
45,855
(1) Amounts related to acquisitions of Cree LED (March 2021) and SMART EC & Wireless (July 2019). SMART Global Holdings, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands) February 26, August 28, 2021
2020
Assets Current assets: Cash and cash equivalents $
139,803
$
150,811
Accounts receivable, net 203,376
215,918
Inventories 189,327
162,991
Prepaid expenses and other current assets 46,321
26,990
Total current assets 578,827
556,710
Property and equipment, net 78,146
54,705
Operating lease right-of-use assets 25,049
25,013
Other noncurrent assets 16,924
20,554
Intangible assets, net 48,844
55,671
Goodwill 73,017
73,955
Total assets $
820,807
$
786,608
Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $
261,443
$
224,660
Accrued liabilities 61,581
57,829
Total current liabilities 323,024
282,489
Long-term debt 210,811
195,573
Long-term operating lease liabilities 21,342
20,829
Other long-term liabilities 7,071
5,613
Total liabilities 562,248
504,504
Shareholders’ equity: Ordinary shares 757
737
Additional paid-in capital 320,284
346,131
Accumulated other comprehensive loss (233,830
)
(228,241
)
Retained earnings 171,348
163,477
Total shareholders’ equity 258,559
282,104
Total liabilities and shareholders’ equity $
820,807
$
786,608
SMART Global Holdings, Inc. and Subsidiaries Consolidated Statements of Cash Flows (In thousands) Three Months Ended Six Months Ended February 26,
2021 November 27,
2020 February 28,
2020 February 26,
2021 February 28,
2020 Cash flows from operating activities: Net income (loss) $
5,844
$
2,027
$
(9,720
)
$
7,871
$
(9,496
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 8,793
8,367
9,435
17,160
18,979
Share-based compensation 5,398
11,088
4,647
16,486
10,603
Provision for doubtful accounts receivable and sales returns 6
(9
)
(100
)
(3
)
(27
)
Deferred income tax benefit 49
222
610
271
(360
)
(Gain) Loss on disposal of property and equipment 988
(5
)
(18
)
984
(60
)
Loss on mark-to-market adjustment of the capped call —
—
4,795
—
4,795
Loss on extinguishment of debt —
—
6,630
—
6,630
Amortization of debt discounts and issuance costs 2,191
2,116
1,047
4,307
1,781
Amortization of operating lease right-of-use assets 1,500
1,413
1,168
2,913
2,282
Changes in operating assets and liabilities: Accounts receivable 12,012
(1,930
)
9,198
10,082
(4,490
)
Inventories (41,053
)
12,919
(3,343
)
(28,134
)
(45,549
)
Prepaid expenses and other assets (9,849
)
(9,277
)
1,386
(19,126
)
6,496
Accounts payable 21,607
18,022
(3,782
)
39,629
56,656
Operating lease liabilities (1,238
)
(1,504
)
(1,058
)
(2,742
)
(2,140
)
Accrued expenses and other liabilities 14,173
(7,880
)
2,439
6,292
2,501
Net cash provided by operating activities 20,421
35,569
23,334
55,990
48,601
Cash flows from investing activities: Capital expenditures and deposits on equipment (20,151
)
(14,644
)
(4,210
)
(34,795
)
(9,368
)
Proceeds from sale of property and equipment 151
16
54
167
96
Net cash used in investing activities (20,000
)
(14,628
)
(4,156
)
(34,628
)
(9,272
)
Cash flows from financing activities: Repurchase of ordinary shares (44,330
)
—
—
(44,330
)
—
Proceeds from FINEP loan 11,439
—
—
11,439
—
Proceeds from borrowings under revolving line of credit 23,000
19,500
6,000
42,500
18,500
Repayments of borrowings under revolving line of credit (23,000
)
(19,500
)
(6,000
)
(42,500
)
(18,500
)
Proceeds from issuance of ordinary shares from share option exercises 2,546
1,337
641
3,883
1,807
Proceeds from issuance of ordinary shares from ESPP —
1,768
—
1,768
1,242
Withholding tax on restricted stock units (151
)
(3,483
)
(351
)
(3,634
)
(371
)
Long-term debt payment – Term loan —
—
—
—
(5,625
)
Long-term debt payment – BNDES —
—
(797
)
—
(1,607
)
Purchase of capped call —
—
(21,825
)
—
(21,825
)
Proceeds from convertible notes due 2026, net of discount —
—
243,125
—
243,125
Payment for extinguishment of long-term debt —
—
(204,904
)
—
(204,904
)
Net cash provided by (used in) financing activities (30,496
)
(378
)
15,889
(30,874
)
11,842
Effect of exchange rate changes on the cash and cash equivalents 5,781
(7,277
)
(4,596
)
(1,496
)
(7,450
)
Net increase (decrease) in cash and cash equivalents (24,294
)
13,286
30,471
(11,008
)
43,721
Cash and cash equivalents at beginning of period 164,097
150,811
111,389
150,811
98,139
Cash and cash equivalents at end of period $
139,803
$
164,097
$
141,860
$
139,803
$
141,860