SMART Global Holdings Reports Second Quarter Fiscal 2019

NEWARK, Calif., March 28, 2019 (GLOBE NEWSWIRE) -- SMART Global Holdings, Inc. (“SMART”) (NASDAQ: SGH), parent company of SMART Modular Technologies, Inc., today reported financial results for the second quarter of fiscal 2019 ended March 1, 2019.

Second Quarter Fiscal 2019 Highlights:
•	Net sales of $304.1 million
•	GAAP operating income of $22.5 million
•	GAAP net income of $12.8 million
•	Adjusted EBITDA of $33.8 million
•	GAAP diluted earnings per share (EPS) of $0.55
•	Non-GAAP diluted EPS of $0.77

“SMART continues to execute well across all of our lines of business in a challenging environment. In our second fiscal quarter, our Specialty Products business and our Specialty Compute and Storage Solutions business performed well. Our Brazil business, where we supply commodity memory products to high volume requirements in smartphones and PCs, performed in line with expectations in a worsening pricing environment for such products,” said Ajay Shah, Chairman and Chief Executive Officer.

“We have made good progress towards realizing synergies from our acquisition of Penguin Computing and remain focused on disciplined execution to drive our financial performance,” concluded Mr. Shah.


Quarterly Financial Results	GAAP ⁽¹⁾						Non-GAAP ⁽²⁾
(In millions, except per share amounts)	Q2 FY19		Q1 FY19		Q2 FY18		Q2 FY19		Q1 FY19		Q2 FY18
Net sales	$	304.1	$	393.9	$	314.0	$	304.1	$	393.9	$	314.0
Gross profit	$	57.1	$	85.1	$	73.0	$	57.8	$	85.6	$	73.2
Operating income	$	22.5	$	47.8	$	45.1	$	27.7	$	54.4	$	48.5
Net income	$	12.8	$	31.0	$	36.8	$	18.0	$	40.6	$	37.7
Diluted earnings per share (EPS)	$	0.55	$	1.33	$	1.60	$	0.77	$	1.75	$	1.64

(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" table 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 2019 ending May 31, 2019. These statements are forward-looking and actual results may differ materially. SMART undertakes no obligation to update these statements.


Net Sales	$260 to $270 million
Gross Margin - GAAP / Non-GAAP	17% to 19%
Diluted EPS - GAAP	$0.13 to $0.17

Share-based compensation per share	$0.17
Intangible amortization per share	$0.04

Diluted EPS - Non-GAAP	$0.34 to $0.38

Expected diluted share count	23.5 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 8966306.

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: 8966306.

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; changes in seasonal impacts on our results; 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, non-GAAP net income per diluted share, and non-GAAP diluted EPS. 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 items, 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, similarly titled 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
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. With the addition of Penguin Computing and the creation of a new business unit, SMART Specialty Compute & Storage Solutions (SCSS), SMART has expanded its serviceable markets into areas requiring specialized computing platforms in artificial intelligence and machine learning, advanced modeling and high performance computing. 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 products in multiple geographies. See www.smartgh.com, www.smartm.com, www.smarth.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									Six Months Ended
			March 1, 2019			November 30, 2018			February 23, 2018			March 1, 2019			February 23, 2018
Net sales:
	Brazil		$	147,111		$	199,279		$	208,633			346,390			366,483
	Specialty Memory			115,608			139,949			105,332			255,557			212,891
	Specialty Compute and Storage Solutions			41,344			54,651			—			95,995			—
		Total net sales		304,063			393,879			313,965			697,942			579,374
Cost of sales ⁽¹⁾⁽²⁾				246,932			308,810			240,948			555,742			448,521
	Gross profit			57,131			85,069			73,017			142,200			130,853
Operating expenses:
	Research and development ^{(1) (2)}			11,238			11,816			9,852			23,054			18,402
	Selling, general and administrative^{(1) (2)}			23,442			25,454			18,087			48,896			35,905
		Total operating expenses		34,680			37,270			27,939			71,950			54,307

		Income from operations		22,451			47,799			45,078			70,250			76,546
Other income (expense):
	Interest expense, net			(5,273	)		(5,875	)		(4,230	)		(11,148	)		(8,829	)
	Other income (expense), net			252			(3,329	)		2,548			(3,077	)		(167	)
		Total other expense		(5,021	)		(9,204	)		(1,682	)		(14,225	)		(8,996	)
		Income before income taxes		17,430			38,595			43,396			56,025			67,550
Provision for income taxes				4,644			7,619			6,602			12,263			9,751
		Net income	$	12,786		$	30,976		$	36,794		$	43,762		$	57,799

Earnings per share:
	Basic		$	0.56		$	1.37		$	1.68		$	1.93		$	2.65
	Diluted		$	0.55		$	1.33		$	1.60		$	1.88		$	2.53

Shares used in computing earnings per share:
	Basic			22,872			22,595			21,915			22,733			21,794
	Diluted			23,359			23,257			23,038			23,314			22,877

(1) Includes share-based compensation expense as follows:
	Cost of sales		$	607		$	545		$	227		$	1,152		$	445
	Research and development			660			634			288			1,294			562
	Selling, general and administrative			2,881			2,876			1,182			5,757			2,295
		Total stock-based compensation expense	$	4,148		$	4,055		$	1,697		$	8,203		$	3,302

(2) Includes amortization of intangible assets expense as follows:
	Cost of sales		$	98		$	16		$	—		$	114		$	—
	Research and development			—			—			245			—			490
	Selling, general and administrative			961			961			993			1,922			2,016
		Total amortization expense	$	1,059		$	977		$	1,238		$	2,036		$	2,506

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
		March 1, 2019		November 30, 2018		February 23, 2018		March 1, 2019		February 23, 2018
Reconciliation of gross profit:
GAAP gross profit		$	57,131	$	85,069	$	73,017	$	142,200	$	130,853
	GAAP gross margin		18.8%		21.6%		23.3%		20.4%		22.6%

Add: Share-based compensation included in cost of sales			607		545		227		1,152		445
Add: Intangible amortization included in cost of sales			98		16		—		114		—

Non-GAAP gross profit		$	57,836	$	85,630	$	73,244	$	143,466	$	131,298
	Non-GAAP gross margin		19.0%		21.7%		23.3%		20.6%		22.7%

Reconciliation of operating expenses:
GAAP operating expenses		$	34,680	$	37,270	$	27,939	$	71,950	$	54,307

Less: Share-based compensation expense included in opex
	Research and development		660		634		288		1,294		562
	Selling, general and administrative		2,881		2,876		1,182		5,757		2,295
	Total		3,541		3,510		1,470		7,051		2,857

Less: Amortization of intangible assets included in opex
	Research and development		—		—		245		—		490
	Selling, general and administrative		961		961		993		1,922		2,016
	Total		961		961		1,238		1,922		2,506

Less: S-1 related costs			—		—		513		—		813
Less: Legal fees - term loan (payment holiday)			—		126		—		126		—
Less: Acquisition-related expenses			—		1,423		—		1,423		—

Non-GAAP operating expenses		$	30,178	$	31,250	$	24,718	$	61,428	$	48,131

Reconciliation of income from operations:
GAAP income from operations		$	22,451	$	47,799	$	45,078	$	70,250	$	76,546
	GAAP operating margin		7.4%		12.1%		14.4%		10.1%		13.2%

Add: Share-based compensation expense			4,148		4,055		1,697		8,203		3,302
Add: Amortization of intangible assets			1,059		977		1,238		2,036		2,506
Add: S-1 related costs			—		—		513		—		813
Add: Legal fees - term loan (payment holiday)			—		126		—		126		—
Add: Acquisition-related expenses			—		1,423		—		1,423		—

Non-GAAP income from operations		$	27,658	$	54,380	$	48,526	$	82,038	$	83,167
	Non-GAAP operating margin		9.1%		13.8%		15.5%		11.8%		14.4%

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
		March 1, 2019			November 30, 2018			February 23, 2018			March 1, 2019			February 23, 2018
Reconciliation of income before income taxes:
GAAP income before income taxes		$	17,430		$	38,595		$	43,396		$	56,025		$	67,550
Add: Share-based compensation expense			4,148			4,055			1,697			8,203			3,302
Add: Amortization of intangible assets			1,059			977			1,238			2,036			2,506
Add: S-1 related costs			—			—			513			—			813
Add: Legal fees - Term loan (payment holiday)			—			126			—			126			—
Add: Acquisition-related expenses			—			1,423			—			1,423			—
Add: Foreign currency (gains)/losses			(47	)		3,384			(2,415	)		3,337			327

Non-GAAP income before income taxes		$	22,590		$	48,560		$	44,429		$	71,150		$	74,498

Reconciliation of provision for income taxes:
GAAP provision for income taxes		$	4,644		$	7,619		$	6,602		$	12,263		$	9,751
	GAAP effective tax rate		26.6%			19.7%			15.2%			21.9%			14.4%

Tax effect of adjustments to GAAP results			5			(338	)		(97	)		(333	)		(719	)

Non-GAAP provision for income taxes		$	4,639		$	7,957		$	6,699		$	12,596		$	10,470
	Non-GAAP effective tax rate		20.5%			16.4%			15.1%			17.7%			14.1%

Reconciliation of net income and earnings per share (diluted):
GAAP net income		$	12,786		$	30,976		$	36,794		$	43,762		$	57,799

Adjustments to GAAP net income:
	Share-based compensation		4,148			4,055			1,697			8,203			3,302
	Amortization of intangible assets		1,059			977			1,238			2,036			2,506
	S-1 related costs		—			—			513			—			813
	Legal fees - Term loan (payment holiday)		—			126			—			126			—
	Acquisition related expenses		—			1,423			—			1,423			—
	Foreign currency (gains)/losses		(47	)		3,384			(2,415	)		3,337			327
	Tax effect of items excluded from non-GAAP results		5			(338	)		(97	)		(333	)		(719	)

Non-GAAP net income		$	17,951		$	40,603		$	37,730		$	58,554		$	64,028

Shares used in computing earnings per share (diluted)			23,359			23,257			23,038			23,314			22,877

Non-GAAP earnings per share (diluted)		$	0.77		$	1.75		$	1.64		$	2.51		$	2.80

GAAP earnings per share (diluted)		$	0.55		$	1.33		$	1.60		$	1.88		$	2.53

SMART Global Holdings, Inc.
and Subsidiaries
Reconciliation of GAAP Net Income to Adjusted EBITDA
(In thousands)

		Three Months Ended						Six Months Ended
		March 1, 2019		November 30, 2018		February 23, 2018		March 1, 2019		February 23, 2018

GAAP net income		$	12,786	$	30,976	$	36,794	$	43,762	$	57,799

	Share-based compensation expense		4,148		4,055		1,697		8,203		3,302
	Amortization of intangible assets		1,059		977		1,238		2,036		2,506
	Interest expense, net		5,273		5,875		4,230		11,148		8,829
	Provision for income tax		4,644		7,619		6,602		12,263		9,751
	Depreciation		5,868		5,431		5,120		11,299		10,122
	S-1 related costs		—		—		513		—		813
	Legal fees - term loan (payment holiday)		—		126		—		126		—
	Acquisition-related expenses⁽¹⁾		—		1,423		—		1,423		—

	Adjusted EBITDA	$	33,778	$	56,482	$	56,194	$	90,260	$	93,122


	(1) Amounts in Q1'19 are related to acquisition of Penguin Computing in June 2018.

SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Balance Sheets
(In thousands)

			March 1,			August 31,
				2019			2018
Assets
Current assets:
	Cash and cash equivalents		$	95,174		$	31,375
	Accounts receivable, net			326,470			237,212
	Inventories			171,843			221,419
	Prepaid expenses and other current assets			27,927			32,043
		Total current assets		621,414			522,049
Property and equipment, net				66,860			56,615
Other noncurrent assets				17,702			22,449
Intangible assets, net				24,302			26,255
Goodwill				46,130			45,394
		Total assets	$	776,408		$	672,762
Liabilities and Shareholders’ Equity
Current liabilities:
	Accounts payable		$	257,316		$	223,186
	Accrued liabilities			52,008			45,190
	Current portion of long-term debt			14,694			27,409
		Total current liabilities		324,018			295,785
Long-term debt				194,537			184,190
Other long-term liabilities				7,563			5,659
		Total liabilities		526,118			485,634
Shareholders’ equity:
	Ordinary shares			691			678
	Additional paid-in capital			262,603			250,191
	Accumulated other comprehensive loss			(170,054	)		(175,995	)
	Retained earnings			157,050			112,254
		Total shareholders’ equity		250,290			187,128
		Total liabilities and shareholders’ equity	$	776,408		$	672,762

SMART Global Holdings, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)

							Three Months Ended									Six Months Ended
							March 1, 2019			November 30, 2018			February 23, 2018			March 1, 2019			February 23, 2018
Cash flows from operating activities:
	Net income						$	12,786		$	30,976		$	36,794		$	43,762		$	57,799
	Adjustments to reconcile net income to net cash
		provided by operating activities:
			Depreciation and amortization					6,927			6,408			6,358			13,335			12,628
			Share-based compensation					4,148			4,055			1,697			8,203			3,302
			Provision for doubtful accounts receivable and sales returns					34			(104	)		39			(70	)		67
			Deferred income tax benefit					(650	)		403			(734	)		(247	)		(954	)
			(Gain) loss on disposal of property and equipment					(4	)		3			244			(1	)		244
			Amortization of debt discounts and issuance costs					694			685			722			1,379			1,451
			Changes in operating assets and liabilities:
				Accounts receivable				5,669			(89,441	)		14,894			(83,772	)		(40,907	)
				Inventories				17,084			30,576			(17,810	)		47,660			(21,556	)
				Prepaid expenses and other assets				7,424			(3,182	)		(67	)		4,242			1,691
				Accounts payable				(17,017	)		48,574			(10,145	)		31,557			37,347
				Accrued expenses and other liabilities				1,959			6,399			2,705			8,358			(2,158	)
					Net cash provided by operating activities			39,054			35,352			34,697			74,406			48,954
Cash flows from investing activities:
	Capital expenditures and deposits on equipment							(6,232	)		(13,384	)		(4,418	)		(19,616	)		(10,457	)
	Proceeds from sale of property and equipment							32			21			66			53			66
	Acquisition of business, net of cash acquired							(148	)		—			—			(148	)		—
					Net cash used in investing activities			(6,348	)		(13,363	)		(4,352	)		(19,711	)		(10,391	)
Cash flows from financing activities:
	Long-term debt payment							(1,712	)		(1,657	)		(6,125	)		(3,369	)		(12,309	)
	Fees paid for revolving line of credit refinancing							—			—			(469	)		—			(768	)
	Payment of costs related to initial public offering							—			—			(302	)		—			(1,591	)
	Proceeds from borrowings under revolving line of credit							64,000			104,000			103,000			168,000			208,500
	Repayments of borrowings under revolving line of credit							(64,000	)		(104,000	)		(103,000	)		(168,000	)		(208,500	)
	Proceeds from issuance of ordinary shares from share option exercises							1,071			2,402			3,638			3,473			4,177
	Proceeds from issuance of ordinary shares from ESPP							—			968			—			968			—
	Withholding tax on restricted stock units							(219	)		—			—			(219	)		—
					Net cash provided by (used in) financing activities			(860	)		1,713			(3,258	)		853			(10,491	)
	Effect of exchange rate changes on the cash, cash equivalents
		and restricted cash *						374			2,018			1,468			2,392			1,237
					Net increase in cash and cash equivalents and
						restricted cash *		32,220			25,720			28,555			57,940			29,309
Cash, cash equivalents, and restricted cash at beginning of period *								62,954			37,234			30,217			37,234			29,463
Cash, cash equivalents, and restricted cash at end of period *							$	95,174		$	62,954		$	58,772		$	95,174		$	58,772

* Cash balance was adjusted to include restricted cash upon adoption of ASU 2016-18 in fiscal 2019.

Investor Contacts:
Karl Motey
Vice President
Strategic Marketing and Communications
(510) 624-8213
karl.motey@smartm.com

Suzanne Schmidt
Investor Relations for SMART Global Holdings, Inc.
(510) 360-8596
ir@smartm.com

SMART Global Holdings Reports Second Quarter Fiscal 2019 Financial Results

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