Strong Operating Results and Record Cash and
Equivalents
SMART Global Holdings, Inc. (“SGH” or the “Company”) (NASDAQ:
SGH) today reported financial results for the third quarter of
fiscal 2023.
Third Quarter Fiscal 2023 Highlights
- Net sales of $383 million, down 17.1% versus the year-ago
quarter
- GAAP gross margin of 25.7%, up 100 basis points versus the
year-ago quarter
- Non-GAAP gross margin of 28.0%, up 230 basis points versus the
year-ago quarter
- GAAP EPS of $(0.50) versus $0.44 in the year-ago quarter
- Non-GAAP EPS of $0.66 versus $0.87 in the year-ago quarter
- Record cash and cash equivalents of $401 million
- Announced agreement to sell an 81% interest in SMART Modular
Technologies do Brasil – Indústria e Comércio de Componentes Ltda.
(“SMART Brazil”)
“The team achieved strong results for the third quarter in what
remains a challenging global economic environment. Non-GAAP gross
margin increased to 28.0%, an improvement of 230 basis points from
the same period last year, and achieved non-GAAP earnings of $0.66
per share. In addition, we exited the third quarter with a strong
balance sheet, including record cash and cash equivalents of $401
million,” commented the Company’s CEO Mark Adams. “With the
announced agreement to sell an 81% interest in SMART Brazil on June
13, we are continuing our transformation to a high-performance,
high-availability enterprise solutions company, and believe we are
positioned to benefit from emerging trends in AI, machine learning
and data analytics,” indicated Adams.
Quarterly Financial Results
GAAP (1)
Non-GAAP (2)
(in millions, except per share
amounts)
Q3 FY23
Q2 FY23
Q3 FY22
Q3 FY23
Q2 FY23
Q3 FY22
Net sales
$
383.3
$
429.2
$
462.5
$
383.3
$
429.2
$
462.5
Gross profit
98.6
110.4
114.5
107.2
123.9
118.9
Operating income (loss)
(8.8
)
(7.2
)
35.3
36.3
51.4
54.3
Net income (loss) attributable to SGH
(24.5
)
(27.2
)
24.1
33.1
37.6
45.9
Diluted earnings (loss) per share
$
(0.50
)
$
(0.55
)
$
0.44
$
0.66
$
0.76
$
0.87
(1)
GAAP represents U.S. Generally Accepted
Accounting Principles.
(2)
Non-GAAP represents GAAP excluding the
impact of certain activities. Further information regarding the
Company’s use of non-GAAP measures and reconciliations between GAAP
and non-GAAP measures is included within this press release.
Business Outlook
As of June 29, 2023, SGH is providing the following financial
outlook for its fourth quarter of fiscal 2023:
GAAP
Outlook
Adjustments
Non-GAAP
Outlook
Net sales
$375 million +/- $25 million
—
$375 million +/- $25 million
Gross margin
26% +/- 1%
2%
(A)
28% +/- 1%
Operating expenses
$87 million +/- $2 million
($16) million
(B)(C)
$71 million +/- $2 million
Diluted earnings (loss) per share
$0.02 +/- $0.15
$0.43
(A)(B)(C)(D)
$0.45 +/- $0.15
Diluted shares
54.5 million
(2) million
52.5 million
Non-GAAP adjustments (in
millions)
(A) Share-based compensation and
amortization of acquisition-related intangibles included in cost of
sales
$
8
(B) Share-based compensation and
amortization of acquisition-related intangibles included in R&D
and SG&A
13
(C) Other adjustments included in
operating expenses
3
(D) Estimated income tax effects
(3
)
$
21
Third Quarter Fiscal 2023 Earnings Conference Call and
Webcast Details
SGH will hold a conference call and webcast to discuss the third
quarter of fiscal 2023 results and related matters today, June 29,
2023, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time).
Interested parties may access the call by dialing +1-833-470-1428
in the U.S. or +1-929-526-1599 from international locations, using
the access code 177936. The earnings presentation and a live
webcast of the conference call can be accessed from the Company’s
investor relations website
(https://ir.smartm.com/investors/default.aspx) where they will
remain available for approximately one year.
Use of Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995.
These statements include, but are not limited to, statements
concerning or regarding future events and the future financial and
operating performance of SGH; statements regarding the extent and
timing or and expectations regarding SGH’s future revenues and
expenses and customer demand; statements regarding SGH’s business
strategies, investments and growth drivers in SGH’s industries and
markets, and statements regarding the business and financial
outlook for the next fiscal quarter described under “Business
Outlook” above.
These statements can be identified by the fact that they do not
relate strictly to historical or current facts. Forward-looking
statements often use words such as “anticipate,” “target,”
“expect,” “estimate,” “intend,” “plan,” “goal,” “believe,” “could,”
and other words of similar meaning. Forward-looking statements
provide SGH’s current expectations or forecasts of future events,
circumstances, results or aspirations and are subject to a number
of significant risks, uncertainties and other factors, many of
which are outside of SGH’s control, including but not limited to,
issues, delays, or complications in integrating the operations of
Stratus Technologies; global business and economic conditions and
growth trends in technology industries, SGH’s customer markets and
various geographic regions; uncertainties in the geopolitical
environment; the rapidly evolving nature of the COVID-19 pandemic;
disruptions in SGH’s operations or supply chain as a result of the
COVID-19 pandemic or otherwise; the ability to manage SGH’s cost
structure, including SGH’s success in implementing restructuring or
other plans intended to improve SGH’s operating efficiency;
workforce reductions; uncertainties in the global macro-economic
environment; changes in demand for SGH’s segments; changes in trade
regulations or adverse developments in international trade
relations and agreements; changes in currency exchange rates;
availability of our cash and cash equivalents; overall information
technology spending; appropriations for government spending; the
success of SGH’s strategic initiatives including additional
investments in new products and additional capacity; acquisitions
of companies or technologies, the failure to successfully integrate
and operate them or customers’ negative reactions to them,
including any resulting impairment of goodwill or gain (loss) on
extinguishment of debt; limitations on, or changes in the
availability of, supply of materials and components; fluctuations
in material costs; the temporary or volatile nature of pricing
trends in memory or elsewhere; deterioration in customer
relationships; production or manufacturing difficulties;
competitive factors; technological changes; future cash flows of
the Penguin Edge business; difficulties with, or delays in, the
introduction of new products; slowing or contraction of growth in
the memory market in Brazil or in the LED market; reduction in, or
termination of, incentives for local manufacturing in Brazil;
changes to applicable tax regimes or rates; prices for the end
products of SGH’s customers; strikes or labor disputes;
deterioration in or loss of relations with any of SGH’s limited
number of key vendors; the inability to maintain or expand
government business; and the continuing availability of borrowings
under term loans and revolving lines of credit and our ability to
raise capital through debt or equity financings. These and other
risks, uncertainties and factors are described in greater detail
under the sections titled “Risk Factors,” “Critical Accounting
Estimates,” “Results of Operations,” “Quantitative and Qualitative
Disclosures About Market Risk,” and “Liquidity and Capital
Resources” contained in the Company’s Annual Report on Form 10-K
and Quarterly Reports on Form 10-Q and the Company’s other filings
with the U.S. Securities and Exchange Commission. In addition, such
risks, uncertainties and factors as outlined above and in such
filings do not constitute all risks, uncertainties and factors that
could cause actual results of SGH to be materially different from
such forward-looking statements. Accordingly, investors are
cautioned not to place undue reliance on any forward-looking
statements. Any forward-looking statements that the Company makes
in this press release speak only as of the date of this press
release. Except as required by law, SGH does not undertake to
update the forward-looking statements contained in this press
release to reflect the impact of circumstances or events that may
arise after the date that the forward-looking statements were
made.
Statement Regarding Use of Non-GAAP Financial
Measures
SGH management uses non-GAAP measures to supplement SGH’s
financial results under GAAP. Management uses these measures to
analyze its operations and make decisions as to future operational
plans and believes that this supplemental non-GAAP information is
useful to investors in analyzing and assessing the Company’s past
and future operating performance. These non-GAAP measures exclude
certain items, such as share-based compensation expense,
amortization of acquisition-related intangible assets (consisting
of amortization of developed technology, customer relationships,
trademarks/trade names and backlog acquired in connection with
business combinations), acquisition-related inventory adjustments,
acquisition-related expenses, restructure charges and integration
expenses, impairment of goodwill, changes in the fair value of
contingent consideration, (gains) losses from changes in currency
exchange rates, amortization of debt discount and other costs, gain
(loss) on extinguishment of debt, other infrequent or unusual items
and related tax effects and other tax adjustments. While
amortization of acquisition-related intangible assets is excluded,
the revenues from acquired companies is reflected in the Company’s
non-GAAP measures and these intangible assets contribute to revenue
generation. Management believes the presentation of operating
results that exclude certain items provides useful supplemental
information to investors and facilitates the analysis of the
Company’s core operating results and comparison of operating
results across reporting periods. Management also uses adjusted
EBITDA, which represents GAAP net income (loss), adjusted for net
interest expense, income tax expense, depreciation and amortization
expense, share-based compensation expense, acquisition-related
inventory adjustments, acquisition-related expenses, restructure
charges and integration expenses, impairment of goodwill, changes
in the fair value of contingent consideration, gain (loss) on
extinguishment of debt and other infrequent or unusual items.
Non-GAAP financial measures should not be considered as a
substitute for, or superior to, measures of financial performance
prepared in accordance with GAAP, as they exclude important
information about SGH’s financial results, as noted above. The
presentation of these adjusted amounts varies from amounts
presented in accordance with GAAP and therefore may not be
comparable to amounts reported by other companies. In addition,
adjusted EBITDA does not purport to represent cash flow provided
by, or used for, operating activities in accordance with GAAP and
should not be used as a measure of liquidity. Investors are
encouraged to review the “Reconciliation of GAAP to Non-GAAP
Measures” tables below.
About SMART Global Holdings – SGH
At SGH, our companies are united by a drive to raise the bar,
execute with discipline and focus on what’s next for the
technologies that support and advance the world. Across computing,
memory and LED lighting solutions, we build long-term strategic
partnerships with our customers.
Backed by a proven leadership team, we operate with excellence
around the globe while unlocking new avenues of growth for our
business and industry.
Learn more about us at SGHcorp.com.
SMART Global Holdings,
Inc.
Consolidated Statements of
Operations
(In thousands, except per share
amounts)
(Unaudited)
Three Months Ended
Nine Months Ended
May 26, 2023
February 24,
2023
May 27, 2022
May 26, 2023
May 27, 2022
Net sales:
Memory Solutions
$
148,370
$
151,136
$
265,850
$
491,473
$
765,332
Intelligent Platform Solutions
170,854
222,451
95,345
604,276
296,256
LED Solutions
64,106
55,587
101,345
182,233
320,067
Total net sales
383,330
429,174
462,540
1,277,982
1,381,655
Cost of sales
284,687
318,793
348,077
950,548
1,032,278
Gross profit
98,643
110,381
114,463
327,434
349,377
Operating expenses:
Research and development
22,235
26,665
20,298
72,956
56,749
Selling, general and administrative
70,596
62,771
58,483
204,389
164,147
Impairment of goodwill
—
17,558
—
17,558
—
Change in fair value of contingent
consideration
14,800
6,400
124
24,900
41,324
Other operating (income) expense
(186
)
4,154
249
6,009
249
Total operating expenses
107,445
117,548
79,154
325,812
262,469
Operating income (loss)
(8,802
)
(7,167
)
35,309
1,622
86,908
Non-operating (income) expense:
Interest expense, net
8,059
8,006
5,110
24,102
14,678
Other non-operating (income) expense
514
13,329
550
13,183
3,570
Total non-operating (income) expense
8,573
21,335
5,660
37,285
18,248
Income (loss) before taxes
(17,375
)
(28,502
)
29,649
(35,663
)
68,660
Income tax provision (benefit)
6,702
(1,716
)
5,154
9,876
20,495
Net income (loss)
(24,077
)
(26,786
)
24,495
(45,539
)
48,165
Net income attributable to noncontrolling
interest
378
433
382
1,143
1,567
Net income (loss) attributable to SGH
$
(24,455
)
$
(27,219
)
$
24,113
$
(46,682
)
$
46,598
Earnings (loss) per share:
Basic
$
(0.50
)
$
(0.55
)
$
0.48
$
(0.95
)
$
0.94
Diluted
$
(0.50
)
$
(0.55
)
$
0.44
$
(0.95
)
$
0.84
Shares used in per share calculations:
Basic
49,380
49,116
50,095
49,152
49,543
Diluted
49,380
49,116
54,998
49,152
55,756
SMART Global Holdings, Inc.
Reconciliation of GAAP to Non-GAAP
Measures
(In thousands)
(Unaudited)
Three Months Ended
Nine Months Ended
May 26, 2023
February 24,
2023
May 27, 2022
May 26, 2023
May 27, 2022
GAAP gross profit
$
98,643
$
110,381
$
114,463
$
327,434
$
349,377
Share-based compensation expense
1,655
1,369
1,724
4,732
5,103
Amortization of acquisition-related
intangibles
6,704
6,615
2,696
19,785
8,374
Flow-through of inventory step up
—
—
—
2,599
—
Cost of sales-related restructure
211
5,552
—
5,763
—
Non-GAAP gross profit
$
107,213
$
123,917
$
118,883
$
360,313
$
362,854
GAAP gross margin
25.7
%
25.7
%
24.7
%
25.6
%
25.3
%
Effect of adjustments
2.3
%
3.2
%
1.0
%
2.6
%
1.0
%
Non-GAAP gross margin
28.0
%
28.9
%
25.7
%
28.2
%
26.3
%
GAAP operating expenses
$
107,445
$
117,548
$
79,154
$
325,812
$
262,469
Share-based compensation expense
(8,376
)
(9,026
)
(8,823
)
(26,106
)
(25,192
)
Amortization of acquisition-related
intangibles
(4,905
)
(4,200
)
(3,247
)
(13,497
)
(9,741
)
Acquisition and integration expenses
(8,637
)
(2,824
)
(2,181
)
(18,193
)
(3,470
)
Impairment of goodwill
—
(17,558
)
—
(17,558
)
—
Change in fair value of contingent
consideration
(14,800
)
(6,400
)
(124
)
(24,900
)
(41,324
)
Restructure charge
186
(4,154
)
(249
)
(6,009
)
(249
)
Other
—
(900
)
81
(1,800
)
(496
)
Non-GAAP operating expenses
$
70,913
$
72,486
$
64,611
$
217,749
$
181,997
GAAP operating income (loss)
$
(8,802
)
$
(7,167
)
$
35,309
$
1,622
$
86,908
Share-based compensation expense
10,031
10,395
10,547
30,838
30,295
Amortization of acquisition-related
intangibles
11,609
10,815
5,943
33,282
18,115
Flow-through of inventory step up
—
—
—
2,599
—
Cost of sales-related restructure
211
5,552
—
5,763
—
Acquisition and integration expenses
8,637
2,824
2,181
18,193
3,470
Impairment of goodwill
—
17,558
—
17,558
—
Change in fair value of contingent
consideration
14,800
6,400
124
24,900
41,324
Restructure charge
(186
)
4,154
249
6,009
249
Other
—
900
(81
)
1,800
496
Non-GAAP operating income
$
36,300
$
51,431
$
54,272
$
142,564
$
180,857
SMART Global Holdings, Inc.
Reconciliation of GAAP to Non-GAAP
Measures
(In thousands, except per share
amounts)
(Unaudited)
Three Months Ended
Nine Months Ended
May 26, 2023
February 24,
2023
May 27, 2022
May 26, 2023
May 27, 2022
GAAP net income (loss) attributable to
SGH
$
(24,455
)
$
(27,219
)
$
24,113
$
(46,682
)
$
46,598
Share-based compensation expense
10,031
10,395
10,547
30,838
30,295
Amortization of acquisition-related
intangibles
11,609
10,815
5,943
33,282
18,115
Flow-through of inventory step up
—
—
—
2,599
—
Cost of sales-related restructure
211
5,552
—
5,763
—
Acquisition and integration expenses
8,637
2,824
2,181
18,193
3,470
Impairment of goodwill
—
17,558
—
17,558
—
Change in fair value of contingent
consideration
14,800
6,400
124
24,900
41,324
Restructure charge
(186
)
4,154
249
6,009
249
Amortization of debt discount and other
costs
937
1,048
2,705
3,054
7,211
Loss on extinguishment of debt
—
16,691
—
15,924
653
Foreign currency (gains) losses
590
281
641
1,113
3,516
Other
—
900
(81
)
1,800
496
Income tax effects
10,900
(11,753
)
(513
)
(4,153
)
(2,139
)
Non-GAAP net income attributable to
SGH
$
33,074
$
37,646
$
45,909
$
110,198
$
149,788
Weighted-average shares outstanding -
Diluted:
GAAP weighted-average shares
outstanding
49,380
49,116
54,998
49,152
55,756
Adjustment for dilutive securities and
capped calls
754
726
(2,063
)
770
(2,468
)
Non-GAAP weighted-average shares
outstanding
50,134
49,842
52,935
49,922
53,288
Diluted earnings (loss) per
share:
GAAP diluted earnings (loss) per share
$
(0.50
)
$
(0.55
)
$
0.44
$
(0.95
)
$
0.84
Effect of adjustments
1.16
1.31
0.43
3.16
1.97
Non-GAAP diluted earnings per share
$
0.66
$
0.76
$
0.87
$
2.21
$
2.81
Net income (loss) attributable to
SGH
$
(24,455
)
$
(27,219
)
$
24,113
$
(46,682
)
$
46,598
Interest expense, net
8,059
8,006
5,110
24,102
14,678
Income tax provision (benefit)
6,702
(1,716
)
5,154
9,876
20,495
Depreciation expense and amortization of
intangible assets
21,300
19,931
16,571
61,020
48,461
Share-based compensation expense
10,031
10,395
10,547
30,838
30,295
Flow-through of inventory step up
—
—
—
2,599
—
Cost of sales-related restructure
211
5,552
—
5,763
—
Acquisition and integration expenses
8,637
2,824
2,181
18,193
3,470
Impairment of goodwill
—
17,558
—
17,558
—
Change in fair value of contingent
consideration
14,800
6,400
124
24,900
41,324
Restructure charge
(186
)
4,154
249
6,009
249
Loss on extinguishment of debt
—
16,691
—
15,924
653
Other
—
900
(81
)
1,800
496
Adjusted EBITDA
$
45,099
$
63,476
$
63,968
$
171,900
$
206,719
The non-GAAP adjustment for income tax effects for the three
months ended May 26, 2023 includes a reduction in taxes of $4.0
million, or $0.08 per diluted share, for the retroactive effect of
a revision in the amount of U.S. net operating losses expected to
be utilized in 2023.
SMART Global Holdings, Inc.
Consolidated Balance Sheets
(In thousands)
(Unaudited)
As of
May 26, 2023
August 26, 2022
Assets
Cash and cash equivalents
$
401,275
$
363,065
Accounts receivable, net
243,571
410,323
Inventories
226,051
323,084
Other current assets
68,014
55,393
Total current assets
938,911
1,151,865
Property and equipment, net
177,751
153,935
Operating lease right-of-use assets
77,789
77,399
Intangible assets, net
171,415
77,812
Goodwill
183,089
74,009
Other noncurrent assets
42,233
37,044
Total assets
$
1,591,188
$
1,572,064
Liabilities and Equity
Accounts payable and accrued expenses
$
210,125
$
413,354
Current debt
32,253
12,025
Acquisition-related contingent
consideration
45,700
—
Other current liabilities
96,227
90,161
Total current liabilities
384,305
515,540
Long-term debt
782,258
591,389
Noncurrent operating lease liabilities
73,421
71,754
Other noncurrent liabilities
27,038
14,835
Total liabilities
1,267,022
1,193,518
Commitments and contingencies
SMART Global Holdings shareholders’
equity:
Ordinary shares
1,655
1,586
Additional paid-in capital
432,185
448,112
Retained earnings
223,301
251,344
Treasury shares
(124,659
)
(107,776
)
Accumulated other comprehensive income
(loss)
(214,385
)
(221,655
)
Total SGH shareholders’ equity
318,097
371,611
Noncontrolling interest in subsidiary
6,069
6,935
Total equity
324,166
378,546
Total liabilities and equity
$
1,591,188
$
1,572,064
SMART Global Holdings, Inc.
Consolidated Statements of Cash
Flows
(In thousands)
(Unaudited)
Three Months Ended
Nine Months Ended
May 26, 2023
February 24,
2023
May 27, 2022
May 26, 2023
May 27, 2022
Cash flows from operating activities:
Net income (loss)
$
(24,077
)
$
(26,786
)
$
24,495
$
(45,539
)
$
48,165
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation expense and amortization of
intangible assets
21,300
19,931
16,571
61,020
48,461
Amortization of debt discount and issuance
costs
937
1,048
2,706
3,054
7,476
Share-based compensation expense
10,031
10,395
10,547
30,838
30,295
Impairment of goodwill
—
17,558
—
17,558
—
Change in fair value of contingent
consideration
14,800
6,400
124
24,900
41,324
(Gain) loss on extinguishment of debt
—
16,691
—
15,924
653
Other
(811
)
3,705
(48
)
3,213
640
Changes in operating assets and
liabilities:
Accounts receivable
(13,746
)
78,529
34,089
194,478
(41,490
)
Inventories
67,952
119,491
(26,531
)
104,561
(116
)
Other assets
15,391
(1,525
)
(8,375
)
8,667
2,070
Accounts payable and accrued expenses and
other liabilities
(49,907
)
(145,951
)
(18,032
)
(278,888
)
(54,174
)
Payment of acquisition-related contingent
consideration
—
—
—
(73,724
)
—
Deferred income taxes, net
(832
)
1,049
1,168
1,526
721
Net cash provided by operating
activities
41,038
100,535
36,714
67,588
84,025
Cash flows from investing activities:
Capital expenditures and deposits on
equipment
(13,260
)
(12,613
)
(9,156
)
(37,522
)
(29,298
)
Acquisition of business, net of cash
acquired
—
(2,800
)
—
(213,073
)
—
Other
434
2,060
(54
)
773
(746
)
Net cash used for investing activities
(12,826
)
(13,353
)
(9,210
)
(249,822
)
(30,044
)
Cash flows from financing activities:
Proceeds from debt
—
—
—
295,287
270,775
Proceeds from issuance of ordinary
shares
4,180
308
4,389
8,430
11,849
Proceeds from borrowing under line of
credit
—
—
—
—
84,000
Payment of acquisition-related contingent
consideration
—
—
—
(28,100
)
—
Payments to acquire ordinary shares
(660
)
(11,564
)
(13,905
)
(16,883
)
(16,800
)
Payment of premium in connection with
convertible note exchange
—
(14,141
)
—
(14,141
)
—
Repayments of debt
(8,153
)
(4,507
)
—
(17,149
)
(125,000
)
Net cash paid for settlement and purchase
of Capped Calls
—
(4,304
)
—
(4,304
)
—
Distribution to noncontrolling
interest
—
(2,009
)
—
(2,009
)
(3,773
)
Repayments of borrowings under line of
credit
—
—
—
—
(109,000
)
Other
(1
)
(3,414
)
—
(3,417
)
(3,841
)
Net cash provided by (used for) financing
activities
(4,634
)
(39,631
)
(9,516
)
217,714
108,210
Effect of changes in currency exchange
rates on cash and cash equivalents
813
1,712
3,570
2,730
2,149
Net increase in cash and cash
equivalents
24,391
49,263
21,558
38,210
164,340
Cash and cash equivalents at beginning of
period
376,884
327,621
365,768
363,065
222,986
Cash and cash equivalents at end of
period
$
401,275
$
376,884
$
387,326
$
401,275
$
387,326
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230629137591/en/
Investor Contact: Suzanne Schmidt Investor Relations
+1-510-360-8596 ir@sghcorp.com
PR Contact: Valerie Sassani VP of Marketing and
Communications +1-510-941-8921 pr@sghcorp.com
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