sgh-8k_20170622.htm

NEWARK, CA – (Marketwired) -- June 22, 2017 - 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.

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.”

• 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.

* 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.

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.

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.

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.

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.

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, www.smartm.com, www.smarth.com or www.smartsscs.com for more information.

	Three Months Ended									Nine Months Ended
	May 26, 2017			Feb 24, 2017			May 27, 2016			May 26, 2017			May 27, 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

	Three Months Ended									Nine Months Ended
	May 26, 2017			Feb 24, 2017			May 27, 2016			May 26, 2017			May 27, 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.

	Three Months Ended								Nine Months Ended
	May 26, 2017		Feb 24, 2017			May 27, 2016			May 26, 2017		May 27, 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		—
Misappropriate 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.

	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

	Three Months Ended									Nine Months Ended
	May 26,			February 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

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

Cayman Islands	001-38102	98-1013909
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

c/o Maples Corporate Services Limited P.O. Box 309 Ugland House Grand Cayman		KY1-1104 Cayman Islands
(Address of Principal Executive Offices)		(Zip Code)


Exhibit Number		Description

99.1		Press release issued on June 22, 2017.

By:	/s/ JACK PACHECO
	Name:	Jack Pacheco
	Title:	Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

Date: June 22, 2017


Exhibit Number		Description

99.1		Press release issued on June 22, 2017.

SMART GLOBAL HOLDINGS, INC.