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SMART Global Holdings Reports Fourth Quarter and Full Year Fiscal 2019 Financial Results

SMART Global Holdings Reports Fourth Quarter and Full Year Fiscal 2019 Financial Results

NEWARK, Calif., Oct. 03, 2019 (GLOBE NEWSWIRE) -- SMART Global Holdings, Inc. (“SMART” or the “Company”) (SGH), today reported financial results for the fourth quarter and full year fiscal 2019 ended August 30, 2019.

Fourth Quarter Fiscal 2019 Highlights:
  • Net sales of $278.4 million
  • GAAP operating income of $11.4 million
  • GAAP net income of $5.6 million
  • Adjusted EBITDA of $25.2 million
  • GAAP diluted EPS of $0.24
  • Non-GAAP diluted EPS of $0.50
Full Year Fiscal 2019 Highlights:
  • Net sales of $1.2 billion
  • GAAP operating income of $89.1 million
  • GAAP net income of $51.3 million
  • Adjusted EBITDA of $134.7 million
  • GAAP diluted EPS of $2.19
  • Non-GAAP diluted EPS of $3.34
  • Cash increase of $66.8 million

“Fiscal 2019 was a year of two halves.  In the first half we experienced a healthy memory pricing environment and our financial results benefited from that strength.  In the second half of fiscal 2019 component pricing in the memory market declined significantly, which primarily impacted our business in Brazil and, to a lesser extent, our Specialty Memory Products, and resulted in overall revenues in fiscal 2019 declining year-over-year by 6%,” commented Ajay Shah, Chairman and CEO.  

“Despite this challenging business environment, our Specialty Memory Products business grew year-over-year, and our Specialty Compute and Storage Solutions business finished strong representing 30% of total net sales for the fourth quarter of fiscal 2019. Additionally, during the year we added $66.8 million in cash while utilizing an additional $75 million to complete two significant acquisitions that are both accretive to earnings in the first full quarter of operations.”

“In Brazil, the new points-based system for local manufacturing became effective July 1, 2019. We are encouraged by the rebound in our forecasted unit volumes since the new rules went into effect,” continued Mr. Shah.

Jack Pacheco, Chief Operating Officer and Chief Financial Officer, added, “Fourth quarter fiscal 2019 financial results were below our previous guidance primarily due to weakness in our supply chain services business, which is reported as part of Specialty Memory Products.” 

               
Quarterly Financial Results GAAP (1)   Non-GAAP (2)
(In millions, except per share amounts) Q4 FY19 Q3 FY19 Q4 FY18   Q4 FY19 Q3 FY19 Q4 FY18
Net sales $ 278.4 $ 235.7 $ 374.0   $ 278.4 $ 235.7 $ 374.0
Gross profit $ 52.3 $ 43.0 $ 82.7   $ 53.4 $ 43.7 $ 83.8
Operating income $ 11.4 $ 7.4 $ 45.0   $ 18.0 $ 13.2 $ 51.8
Net income $ 5.6 $ 1.9 $ 29.7   $ 11.9 $ 7.9 $ 40.0
Diluted earnings per share (EPS) $ 0.24 $ 0.08 $ 1.28   $ 0.50 $ 0.34 $ 1.72
               


       
Annual Financial Results GAAP (1)   Non-GAAP (2)
(In millions, except per share amounts) FY19 FY18   FY19 FY18
Net sales $ 1,212.0 $ 1,288.8   $ 1,212.0 $ 1,288.8
Gross profit $ 237.5 $ 291.6   $ 240.6 $ 293.6
Operating income $ 89.1 $ 170.2   $ 113.2 $ 188.8
Net income $ 51.3 $ 119.5   $ 78.3 $ 147.0
Diluted earnings per share (EPS) $ 2.19 $ 5.17   $ 3.34 $ 6.36
           
(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 first quarter of fiscal 2020 ending November 29, 2019. These statements are forward-looking and actual results may differ materially. SMART undertakes no obligation to update these statements.

     
Net Sales $275 to $285 million
Gross Margin - GAAP / Non-GAAP 21% to 23%
Diluted EPS - GAAP $0.30 to $0.40
   
Share-based compensation per share $0.22
Intangible amortization per share $0.16
   
Diluted EPS - Non-GAAP $0.68 to $0.78
   
Expected diluted share count 23.9 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 using access code 6379732.

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: 6379732.

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; trade regulations and relations; 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 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 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 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 (Loss) to Adjusted EBITDA” tables below for more detail on non-GAAP calculations.

About SMART Global Holdings
The SMART lines of business are leading designers and manufacturers of electronic products focused on memory and computing technology areas. The company specializes in application specific product development and support for customers in enterprise, government and OEM sales channels. Customers rely on SMART as a strategic supplier with top tier customer service, product quality, and technical support with engineering, sales, manufacturing, supply chain and logistics capabilities worldwide. The company targets customers in markets such as communications, storage, networking, mobile, industrial automation, industrial internet of things, government, military, edge computing and high performance computing.  SMART operates in three primary product areas: specialty memory products, Brazil products and specialty compute and storage solutions.

See www.smartgh.com, www.smartm.comwww.smartembedded.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   Fiscal Year Ended
            August 30, 2019   May 31, 2019   August 31, 2018   August 30, 2019   August 31, 2018
Net sales:                        
  Brazil       $ 89,123     $ 100,982     $ 198,624     $ 536,495     $ 797,849  
  Specialty Memory         104,634       98,755       122,820       458,946       438,446  
  Specialty Compute and Storage Solutions         84,643       35,920       52,526       216,558       52,526  
    Total net sales         278,400       235,657       373,970       1,211,999       1,288,821  
Cost of sales (1)(2)         226,108       192,622       291,291       974,472       997,235  
  Gross profit         52,292       43,035       82,679       237,527       291,586  
Operating expenses:                        
  Research and development (1) (2)         13,536       11,330       11,659       47,920       39,824  
  Selling, general and administrative (1) (2)         30,024       24,306       29,039       103,226       84,541  
  Change in estimated fair value of acquisition-related contingent consideration         (2,700 )     —        (3,000 )     (2,700 )     (3,000 )
    Total operating expenses         40,860       35,636       37,698       148,446       121,365  
    Income from operations         11,432       7,399       44,981       89,081       170,221  
Other income (expense):                        
  Interest expense, net         (4,567 )     (5,001 )     (6,217 )     (20,716 )     (19,144 )
  Other income (expense), net         819       97       (5,987 )     (2,161 )     (13,299 )
    Total other expense         (3,748 )     (4,904 )     (12,204 )     (22,877 )     (32,443 )
    Income before income taxes         7,684       2,495       32,777       66,204       137,778  
Provision for income taxes         2,059       550       3,059       14,872       18,315  
    Net income       $ 5,625     $ 1,945     $ 29,718     $ 51,332     $ 119,463  
                             
Earnings per share:                        
  Basic       $ 0.24     $ 0.08     $ 1.33     $ 2.24     $ 5.42  
  Diluted       $ 0.24     $ 0.08     $ 1.28     $ 2.19     $ 5.17  
                             
Shares used in computing earnings per share:                        
  Basic         23,366       23,005       22,383       22,959       22,051  
  Diluted         23,825       23,330       23,270       23,468       23,119  
                             
(1) Includes share-based compensation expense as follows:                    
  Cost of sales       $ 682     $ 651     $ 475     $ 2,485     $ 1,334  
  Research and development         687       673       572       2,654       1,459  
  Selling, general and administrative         4,194       3,109       2,911       13,060       7,764  
    Total stock-based compensation expense       $ 5,563     $ 4,433     $ 3,958     $ 18,199     $ 10,557  
                             
(2) Includes amortization of intangible assets expense as follows:                    
  Cost of sales       $ 436     $ 16     $ 7     $ 566     $ 7  
  Research and development         —        —        252       —        987  
  Selling, general and administrative         2,165       961       2,144       5,048       5,136  
    Total amortization expense       $ 2,601     $ 977     $ 2,403     $ 5,614     $ 6,130  
                             



 
SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of Non-GAAP Financial Measures to GAAP Results
(In thousands, except per share data)
                           
          Three Months Ended   Fiscal Year Ended
          August 30, 2019   May 31, 2019   August 31, 2018   August 30, 2019   August 31, 2018
Reconciliation of gross profit:                      
GAAP gross profit     $ 52,292     $ 43,035     $ 82,679     $ 237,527     $ 291,586  
  GAAP gross margin       18.8 %     18.3 %     22.1 %     19.6 %     22.6 %
                           
Add: Share-based compensation included in cost of sales       682       651       475       2,485       1,334  
Add: Intangible amortization included in cost of sales       436       16       7       566       7  
Add: Purchase accounting adjustment       —        —        631       —        631  
                           
Non-GAAP gross profit     $ 53,410     $ 43,702     $ 83,792     $ 240,578     $ 293,558  
  Non-GAAP gross margin       19.2 %     18.5 %     22.4 %     19.8 %     22.8 %
                           
Reconciliation of operating expenses:                      
GAAP operating expenses     $ 40,860     $ 35,636     $ 37,698     $ 148,446     $ 121,365  
                           
Less: Share-based compensation expense included in opex                    
  Research and development       687       673       572       2,654       1,459  
  Selling, general and administrative       4,194       3,109       2,911       13,060       7,764  
    Total       4,881       3,782       3,483       15,714       9,223  
                           
Less: Amortization of intangible assets included in opex                      
  Research and development       —        —        252       —        987  
  Selling, general and administrative       2,165       961       2,144       5,048       5,136  
    Total       2,165       961       2,396       5,048       6,123  
                           
Less: S-1 related costs       —        —        —        —        813  
Less: Legal fees - term loan (payment holiday)       —        —        —        126       —   
Less: Acquisition-related expenses       1,068       431          2,844       2,922       3,435  
Less: Contingent consideration fair value adjustment       (2,700 )     —        (3,000 )     (2,700 )     (3,000 )
                           
Non-GAAP operating expenses     $ 35,446     $ 30,462     $ 31,975     $ 127,336     $ 104,771  
                           
Reconciliation of income from operations:                      
GAAP income from operations     $ 11,432     $ 7,399     $ 44,981     $ 89,081     $ 170,221  
  GAAP operating margin       4.1 %     3.1 %     12.0 %     7.3 %     13.2 %
                           
Add: Share-based compensation expense       5,563       4,433       3,958       18,199       10,557  
Add: Amortization of intangible assets       2,601       977       2,403       5,614       6,130  
Add: Purchase accounting adjustment       —        —        631       —        631  
Add: S-1 related costs       —        —        —        —        813  
Add: Legal fees - term loan (payment holiday)       —        —        —        126       —   
Add: Acquisition-related expenses       1,068       431          2,844       2,922       3,435  
Add: Contingent consideration fair value adjustment       (2,700 )     —        (3,000 )     (2,700 )     (3,000 )
                           
Non-GAAP income from operations     $ 17,964     $ 13,240     $ 51,817     $ 113,242     $ 188,787  
  Non-GAAP operating margin       6.5 %     5.6 %     13.9 %     9.3 %     14.6 %
                           



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SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of Non-GAAP Financial Measures to GAAP Results
(In thousands, except per share data)
                           
          Three Months Ended   Fiscal Year Ended
          August 30, 2019   May 31, 2019   August 31, 2018   August 30, 2019   August 31, 2018
                           
Reconciliation of income before income taxes:                      
GAAP income before income taxes     $ 7,684     $ 2,495     $ 32,777     $ 66,204     $ 137,778  
Add: Share-based compensation expense       5,563       4,433       3,958       18,199