Record GAAP and Non-GAAP Gross
Margins
SMART Global Holdings, Inc. (“SGH” or the “Company”) (NASDAQ:
SGH) today reported financial results for the first quarter of
fiscal 2024.
On November 29, 2023, we completed our previously announced
divestiture of an 81% interest in our SMART Brazil operations. Our
SMART Brazil operations are classified as discontinued operations
in the accompanying financial information for all periods
presented. The following discussion relates to our continuing
operations, which exclude SMART Brazil.
First Quarter Fiscal 2024 Highlights for Continuing
Operations
- Net sales of $274.2 million, down 30.0% versus the year-ago
quarter
- Record GAAP gross margin of 30.2%, up 160 basis points versus
the year-ago quarter
- Record Non-GAAP gross margin of 33.3%, up 200 basis points
versus the year-ago quarter
- GAAP EPS of $(0.23) versus $(0.08) in the year-ago quarter
- Non-GAAP EPS of $0.24 versus $0.75 in the year-ago quarter
“We are pleased with the progress we are making on our
transformation journey, marked by the strategic divestiture of our
Brazil business and another quarter of record non-GAAP gross
margins reflecting the continued shift to higher value enterprise
solutions,” commented CEO Mark Adams. “Additionally, we ended our
first quarter with record cash and short term-investments of $553
million, allowing us to continue investing strategically in AI,
developing products based on advanced memory technologies and
strengthening CreeLED’s portfolio to enable future long term
growth,” concluded Adams.
Share Repurchase Authorization
On January 8, 2024, the Audit Committee of the Board of
Directors approved a $75 million share repurchase authorization,
bringing total share repurchase authorizations over the last two
years to $150 million. Under the share repurchase authorization,
the Company may repurchase its outstanding ordinary shares from
time to time through open market purchases, privately-negotiated
transactions or otherwise. The share repurchase authorization has
no expiration date, may be suspended or terminated by the Audit
Committee at any time and does not obligate the Company to acquire
any amount of ordinary shares.
Quarterly Financial Results of Continuing Operations
GAAP (1)
Non-GAAP (2)
(in thousands, except per share
amounts)
Q1 FY24
Q4 FY23
Q1 FY23
Q1 FY24
Q4 FY23
Q1 FY23
Net sales:
Memory Solutions
$
85,668
$
105,181
$
118,286
$
85,668
$
105,181
$
118,286
Intelligent Platform Solutions
118,824
145,432
210,971
118,824
145,432
210,971
LED Solutions
69,755
66,045
62,540
69,755
66,045
62,540
Total net sales
$
274,247
$
316,658
$
391,797
$
274,247
$
316,658
$
391,797
Gross profit
$
82,850
$
91,585
$
112,098
$
91,277
$
100,300
$
122,805
Operating income (loss)
1,305
(1,639
)
14,847
26,679
30,295
51,388
Net income (loss) attributable to SGH
(11,773
)
64,841
(3,939
)
12,538
18,406
37,364
Diluted earnings (loss) per share
$
(0.23
)
$
1.17
$
(0.08
)
$
0.24
$
0.35
$
0.75
(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 January 9, 2024, SGH is providing the following financial
outlook for its continuing operations for the second quarter of
fiscal 2024:
GAAP
Outlook
Adjustments
Non-GAAP
Outlook
Net sales
$285 million +/- $25 million
—
$285 million +/- $25 million
Gross margin
29.5% +/- 1%
3%
(A)
32.5% +/- 1%
Operating expenses
$81 million +/- $3 million
($15) million
(B)(C)
$66 million +/- $3 million
Diluted earnings (loss) per share
$(0.15) +/- $0.10
$0.40
(A)(B)(C)(D)
$0.25 +/- $0.10
Diluted shares
52 million
1 million
53 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
2
(D) Estimated income tax effects
(2
)
$
21
First Quarter Fiscal 2024 Earnings Conference Call and
Webcast Details
SGH will hold a conference call and webcast to discuss the first
quarter of fiscal 2024 results and related matters today, January
9, 2024, 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 064997. 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 of and expectations regarding SGH’s future revenues and
expenses and customer demand; statements regarding SGH’s strategic
investments and priorities; statements regarding long-term
effective tax rates; 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,
global business and economic conditions and growth trends in
technology industries, our customer markets and various geographic
regions; uncertainties in the geopolitical environment; the ability
to manage our cost structure; disruptions in our operations or
supply chain; 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 and additional capacity; acquisitions of companies or
technologies and the failure to successfully integrate and operate
them or customers’ negative reactions to them; incurring
unanticipated costs following the completion of the sale of our
SMART Brazil business; issues, delays or complications in
integrating the operations of Stratus Technologies; 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; our dependence on a select
number of customers and the timing and volume of customer orders;
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 LED market; changes to applicable tax regimes or rates; prices
for the end products of our customers; strikes or labor disputes;
deterioration in or loss of relations with any of our 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.
Beginning in 2024, for our non-GAAP reporting, we are utilizing
a long-term projected non-GAAP effective tax rate of 28%, which
includes the tax impact of pre-tax non-GAAP adjustments and
reflects currently available information as well as other factors
and assumptions. While we expect to use this normalized non-GAAP
effective tax rate through 2024, this long-term non-GAAP effective
tax rate may be subject to change for a variety of reasons,
including the rapidly evolving global tax environment, significant
changes in our geographic earnings mix or changes to our strategy
or business operations. Our GAAP effective tax can vary
significantly from quarter to quarter based on a variety of
factors, including, but not limited to, discrete items which are
recorded in the period they occur, the tax effects of certain items
of income or expense, significant changes in our geographic
earnings mix or changes to our strategy or business operations. We
are unable to predict the timing and amounts of these items, which
could significantly impact our GAAP effective tax rate, and
therefore we are unable to reconcile our forward-looking non-GAAP
effective tax rate measure to our GAAP effective tax rate.
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, we design, build, deploy and manage high-performance,
high-availability enterprise solutions that help our customers
solve for the future. Across our computing, memory, and LED lines
of business, we focus on serving our customers by providing deep
technical knowledge and expertise, custom design engineering,
build-to-order flexibility and a commitment to best-in-class
quality.
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
December 1,
2023
August 25, 2023
November 25,
2022
Net sales:
Memory Solutions
$
85,668
$
105,181
$
118,286
Intelligent Platform Solutions
118,824
145,432
210,971
LED Solutions
69,755
66,045
62,540
Total net sales
274,247
316,658
391,797
Cost of sales
191,397
225,073
279,699
Gross profit
82,850
91,585
112,098
Operating expenses:
Research and development
21,389
20,883
24,072
Selling, general and administrative
57,217
65,026
67,708
Impairment of goodwill
—
1,534
—
Change in fair value of contingent
consideration
—
4,100
3,700
Other operating (income) expense
2,939
1,681
1,771
Total operating expenses
81,545
93,224
97,251
Operating income (loss)
1,305
(1,639
)
14,847
Non-operating (income) expense:
Interest expense, net
9,559
9,183
8,494
Other non-operating (income) expense
(576
)
(462
)
(1,362
)
Total non-operating (income) expense
8,983
8,721
7,132
Income (loss) before taxes
(7,678
)
(10,360
)
7,715
Income tax provision (benefit)
3,534
(75,890
)
11,322
Net income (loss) from continuing
operations
(11,212
)
65,530
(3,607
)
Net income (loss) from discontinued
operations
(8,148
)
(205,685
)
8,931
Net income (loss)
(19,360
)
(140,155
)
5,324
Net income attributable to noncontrolling
interest
561
689
332
Net income (loss) attributable to SGH
$
(19,921
)
$
(140,844
)
$
4,992
Basic earnings (loss) per share:
Continuing operations
$
(0.23
)
$
1.28
$
(0.08
)
Discontinued operations
(0.15
)
(4.05
)
0.18
$
(0.38
)
$
(2.77
)
$
0.10
Diluted earnings (loss) per share:
Continuing operations
$
(0.23
)
$
1.17
$
(0.08
)
Discontinued operations
(0.15
)
(3.71
)
0.18
$
(0.38
)
$
(2.54
)
$
0.10
Shares used in per share calculations:
Basic
52,068
50,807
48,962
Diluted
52,068
55,523
48,962
SMART Global Holdings, Inc.
Reconciliation of GAAP to Non-GAAP
Measures
(In thousands)
(Unaudited)
Three Months Ended
December 1,
2023
August 25, 2023
November 25,
2022
GAAP gross profit
$
82,850
$
91,585
$
112,098
Share-based compensation expense
1,815
1,789
1,642
Amortization of acquisition-related
intangibles
5,944
5,876
6,466
Flow-through of inventory step up
—
—
2,599
Cost of sales-related restructure
668
1,050
—
Non-GAAP gross profit
$
91,277
$
100,300
$
122,805
GAAP gross margin
30.2
%
28.9
%
28.6
%
Effect of adjustments
3.1
%
2.8
%
2.7
%
Non-GAAP gross margin
33.3
%
31.7
%
31.3
%
GAAP operating expenses
$
81,545
$
93,224
$
97,251
Share-based compensation expense
(9,155
)
(7,785
)
(8,339
)
Amortization of acquisition-related
intangibles
(4,064
)
(5,443
)
(4,392
)
Acquisition and integration expenses
(789
)
(2,676
)
(6,732
)
Impairment of goodwill
—
(1,534
)
—
Change in fair value of contingent
consideration
—
(4,100
)
(3,700
)
Restructure charge
(2,939
)
(1,681
)
(1,771
)
Other
—
—
(900
)
Non-GAAP operating expenses
$
64,598
$
70,005
$
71,417
GAAP operating income (loss)
$
1,305
$
(1,639
)
$
14,847
Share-based compensation expense
10,970
9,574
9,981
Amortization of acquisition-related
intangibles
10,008
11,319
10,858
Flow-through of inventory step up
—
—
2,599
Cost of sales-related restructure
668
1,050
—
Acquisition and integration expenses
789
2,676
6,732
Impairment of goodwill
—
1,534
—
Change in fair value of contingent
consideration
—
4,100
3,700
Restructure charge
2,939
1,681
1,771
Other
—
—
900
Non-GAAP operating income
$
26,679
$
30,295
$
51,388
SMART Global Holdings, Inc.
Reconciliation of GAAP to Non-GAAP
Measures
(In thousands, except per share
amounts)
(Unaudited)
Three Months Ended
December 1,
2023
August 25, 2023
November 25,
2022
GAAP net income (loss) attributable to
SGH
$
(11,773
)
$
64,841
$
(3,939
)
Share-based compensation expense
10,970
9,574
9,981
Amortization of acquisition-related
intangibles
10,008
11,319
10,858
Flow-through of inventory step up
—
—
2,599
Cost of sales-related restructure
668
1,050
—
Acquisition and integration expenses
789
2,676
6,732
Impairment of goodwill
—
1,534
—
Change in fair value of contingent
consideration
—
4,100
3,700
Restructure charge
2,939
1,681
1,771
Amortization of debt discount and other
costs
1,042
1,010
1,069
Loss (gain) on extinguishment of debt
—
—
(767
)
Foreign currency (gains) losses
(546
)
(276
)
(520
)
Other
—
—
900
Income tax effects
(1,559
)
(79,103
)
4,980
Non-GAAP net income attributable to
SGH
$
12,538
$
18,406
$
37,364
Weighted-average shares outstanding -
Diluted:
GAAP weighted-average shares
outstanding
52,068
55,523
48,962
Adjustment for dilutive securities and
capped calls
1,213
(2,233
)
829
Non-GAAP weighted-average shares
outstanding
53,281
53,290
49,791
Diluted earnings (loss) per share from
continuing operations:
GAAP diluted earnings (loss) per share
$
(0.23
)
$
1.17
$
(0.08
)
Effect of adjustments
0.47
(0.82
)
0.83
Non-GAAP diluted earnings per share
$
0.24
$
0.35
$
0.75
Net income (loss) attributable to
SGH
$
(11,773
)
$
64,841
$
(3,939
)
Interest expense, net
9,559
9,183
8,494
Income tax provision (benefit)
3,534
(75,890
)
11,322
Depreciation expense and amortization of
intangible assets
17,654
18,830
17,049
Share-based compensation expense
10,970
9,574
9,981
Flow-through of inventory step up
—
—
2,599
Cost of sales-related restructure
668
1,050
—
Acquisition and integration expenses
789
2,676
6,732
Impairment of goodwill
—
1,534
—
Change in fair value of contingent
consideration
—
4,100
3,700
Restructure charge
2,939
1,681
1,771
Loss on extinguishment of debt
—
—
(767
)
Other
—
—
900
Adjusted EBITDA
$
34,340
$
37,579
$
57,842
SMART Global Holdings, Inc.
Consolidated Balance Sheets
(In thousands)
(Unaudited)
As of
December 1,
2023
August 25, 2023
Assets
Cash and cash equivalents
$
529,059
$
365,563
Short-term investments
24,385
25,251
Accounts receivable, net
170,590
219,247
Inventories
208,441
174,977
Other current assets
54,373
51,790
Current assets of discontinued
operations
—
70,574
Total current assets
986,848
907,402
Property and equipment, net
112,328
118,734
Operating lease right-of-use assets
64,637
68,444
Intangible assets, net
150,283
160,185
Goodwill
161,958
161,958
Deferred tax assets
74,365
74,085
Other noncurrent assets
80,446
15,150
Total assets
$
1,630,865
$
1,505,958
Liabilities and Equity
Accounts payable and accrued expenses
$
219,082
$
182,035
Current debt
28,511
35,618
Deferred revenue
39,096
48,096
Other current liabilities
32,115
32,731
Acquisition-related contingent
consideration
50,000
50,000
Current liabilities of discontinued
operations
—
77,770
Total current liabilities
368,804
426,250
Long-term debt
748,299
754,820
Noncurrent operating lease liabilities
64,407
66,407
Other noncurrent liabilities
33,346
29,248
Total liabilities
1,214,856
1,276,725
Commitments and contingencies
SMART Global Holdings shareholders’
equity:
Ordinary shares
1,753
1,726
Additional paid-in capital
491,145
476,703
Retained earnings
62,536
82,457
Treasury shares
(145,577
)
(132,447
)
Accumulated other comprehensive income
(loss)
303
(205,964
)
Total SGH shareholders’ equity
410,160
222,475
Noncontrolling interest in subsidiary
5,849
6,758
Total equity
416,009
229,233
Total liabilities and equity
$
1,630,865
$
1,505,958
SMART Global Holdings, Inc.
Consolidated Statements of Cash
Flows
(In thousands)
(Unaudited)
Three Months Ended
December 1,
2023
August 25, 2023
November 25,
2022
Cash flows from operating
activities
Net income (loss)
$
(19,360
)
$
(140,155
)
$
5,324
Net income (loss) from discontinued
operations
(8,148
)
(205,685
)
8,931
Net income (loss) from continuing
operations
(11,212
)
65,530
(3,607
)
Adjustments to reconcile net income (loss)
from continuing operations to cash provided by (used for) operating
activities
Depreciation expense and amortization of
intangible assets
17,654
18,830
17,049
Amortization of debt discount and issuance
costs
1,042
1,010
1,069
Share-based compensation expense
10,970
9,574
9,981
Impairment of goodwill and other
assets
—
1,534
—
Change in fair value of contingent
consideration
—
4,100
3,700
Loss on extinguishment of debt
—
—
(767
)
Deferred income taxes, net
(282
)
(65,228
)
1,718
Other
664
701
357
Changes in operating assets and
liabilities:
Accounts receivable
48,658
3,007
123,097
Inventories
(33,464
)
28,564
(102,047
)
Other assets
2,102
(290
)
(6,828
)
Accounts payable and accrued expenses and
other liabilities
23,581
(29,776
)
(54,749
)
Payment of acquisition-related contingent
consideration
—
—
(73,724
)
Net cash provided by (used for) operating
activities from continuing operations
59,713
37,556
(84,751
)
Net cash provided by (used for) operating
activities from discontinued operations
(28,235
)
(757
)
10,766
Net cash provided by (used for) operating
activities
31,478
36,799
(73,985
)
Cash flows from investing
activities
Capital expenditures and deposits on
equipment
(4,648
)
(7,747
)
(7,991
)
Acquisition of business, net of cash
acquired
—
—
(210,273
)
Proceeds from maturities of investment
securities
9,665
—
—
Purchases of held-to-maturity investment
securities
(8,469
)
(25,015
)
—
Other
(188
)
(4,345
)
(1,759
)
Net cash used for investing activities
from continuing operations
(3,640
)
(37,107
)
(220,023
)
Net cash provided by (used for) investing
activities from discontinued operations
118,938
(11,640
)
(3,620
)
Net cash provided by (used for) investing
activities
$
115,298
$
(48,747
)
$
(223,643
)
SMART Global Holdings, Inc.
Consolidated Statements of Cash Flows,
Continued
(In thousands)
(Unaudited)
Three Months Ended
December 1,
2023
August 25, 2023
November 25,
2022
Cash flows from financing
activities
Proceeds from debt
$
—
$
—
$
295,287
Proceeds from issuance of ordinary
shares
3,455
34,615
3,942
Payment of acquisition-related contingent
consideration
—
—
(28,100
)
Payments to acquire ordinary shares
(13,130
)
(7,788
)
(4,659
)
Repayments of debt
(14,423
)
(7,212
)
(3,606
)
Distribution to noncontrolling
interest
(1,470
)
—
—
Other
(582
)
(487
)
(788
)
Net cash provided by (used for) financing
activities from continuing operations
(26,150
)
19,128
262,076
Net cash used for financing activities
from discontinued operations
(606
)
(426
)
(97
)
Net cash provided by (used for) financing
activities
(26,756
)
18,702
261,979
Effect of changes in currency exchange
rates
(1,025
)
2,035
205
Net increase (decrease) in cash and cash
equivalents
118,995
8,789
(35,444
)
Cash and cash equivalents at beginning of
period
410,064
401,275
363,065
Cash and cash equivalents at end of
period
$
529,059
$
410,064
$
327,621
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240109180450/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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