TechDogs-"SGH Reports First Quarter Fiscal 2023 Financial Results"

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SGH Reports First Quarter Fiscal 2023 Financial Results

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TechDogs-"SGH Reports First Quarter Fiscal 2023 Financial Results"
MILPITAS, Calif.--(BUSINESS WIRE)--$SGH #SGH--SMART Global Holdings, Inc. (“SGH” or the “Company”) (NASDAQ: SGH) today reported financial results for the first quarter of fiscal 2023. Per share measures for all periods reflect the effect of the February 2022 two-for-one share split.

First Quarter Fiscal 2023 Highlights

  • Net sales of $465 million, up 6.3% versus the prior quarter
  • GAAP gross margin of 25.4%, up 170 basis points versus the prior quarter
  • Non-GAAP gross margin of 27.8%, up 320 basis points versus the prior quarter
  • GAAP EPS of $0.10 versus $0.40 in the prior quarter
  • Non-GAAP EPS of $0.79 versus $0.80 in the prior quarter
  • Closed acquisition of Stratus Technologies on August 29, 2022

We are pleased with our financial results for the first quarter of fiscal 2023, highlighted by record non-GAAP gross margins of 27.8%, reflecting our focus on higher quality revenue, combined with the hard work of our dedicated employees,” commented CEO Mark Adams. “Looking ahead, we expect to continue to strategically invest in our business while managing our operations in a prudent manner as we navigate a challenging economic environment,” concluded Adams.

Quarterly Financial Results

GAAP (1)

Non-GAAP (2)

(in millions, except per share amounts)

Q1 FY23

Q4 FY22

Q1 FY22

Q1 FY23

Q4 FY22

Q1 FY22

Net sales

$

465.5

$

437.7

$

469.9

$

465.5

$

437.7

$

469.9

Gross profit

118.4

103.8

122.2

129.2

107.8

127.0

Operating income

17.6

27.6

34.8

54.8

46.8

69.2

Net income attributable to SGH

5.0

20.0

20.0

39.5

40.4

56.3

Diluted earnings per share (3)

$

0.10

$

0.40

$

0.37

$

0.79

$

0.80

$

1.08

(1) GAAP represents U.S. Generally Accepted Accounting Principles.
(2) Non-GAAP represents GAAP excluding the impact of certain activities. Further information regarding our use of non-GAAP measures and reconciliations between GAAP and non-GAAP measures is included within this press release.
(3) Diluted earnings per share reflect the impact of the share dividend paid in February 2022.

Business Outlook

As of January 3, 2023, SGH is providing the following financial outlook for its second quarter of fiscal 2023:

GAAP

Outlook

Adjustments

Non-GAAP

Outlook

Net sales

$410 to $460 million

$410 to $460 million

Gross margin

25% to 27%

1%

(A)

26% to 28%

Diluted earnings per share

$0.13 +/- $0.15

$0.47

(A)(B)(C)(D)

$0.60 +/- $0.15

Diluted shares

50 million

50 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) Amortization of debt discount and other costs

7

(D) Estimated tax effects

(4

)

$

24

First Quarter Fiscal 2023 Earnings Conference Call and Webcast Details

SGH will hold a conference call and webcast to discuss the first quarter of fiscal 2023 results and related matters today, January 3, 2023, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time). Interested parties may access the call by dialing +1-844-200-6205 in the U.S. or +1-929-526-1599 from international locations using access code 821417. The webcast link is located on the SGH Investor Relations section of the website at https://sghcorp.com. We will also post the presentation to our website prior to the call.

Shortly after the conclusion of the conference call, a replay of the audio webcast will be available on the SGH Investor Relations website for approximately seven days.

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, and Section 21E of the Securities Exchange Act of 1934, as amended, including but not limited to, statements concerning or regarding future events and the future financial performance of SGH (including the business and financial outlook for the next fiscal quarter), SGH’s investment in its business and growth drivers in SGH’s industries and markets.

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; uncertainties in the global macroeconomic environment; disruptions in SGH’s operations or its supply chain as a result of the COVID-19 pandemic or otherwise; 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 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; 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; 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; and the inability to maintain or expand government business. These risks, uncertainties and factors could cause SGH’s actual results to differ materially from those set forth in such forward-looking statements. These and other risks, uncertainties and factors are described in greater detail under the section titled “Risk Factors” 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 are made pursuant to the Private Securities Litigation Reform Act of 1995, as amended, and 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, changes in the fair value of contingent consideration, (gains) losses from changes in currency exchange rates, amortization of debt discount and other costs, 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 our 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, changes in the fair value of contingent consideration 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 our 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

November 25,
2022

August 26,
2022

November 26,
2021

Net sales:

Memory Solutions

$

191,967

$

209,849

$

239,401

Intelligent Platform Solutions

210,971

144,730

118,654

LED Solutions

62,540

83,118

111,889

Total net sales

465,478

437,697

469,944

Cost of sales

347,068

333,854

347,743

Gross profit

118,410

103,843

122,201

Operating expenses:

Research and development

24,056

20,607

17,657

Selling, general and administrative

71,022

55,650

52,550

Change in fair value of contingent consideration

3,700

17,200

Other operating (income) expense

2,041

(15

)

Total operating expenses

100,819

76,242

87,407

Operating income

17,591

27,601

34,794

Non-operating (income) expense:

Interest expense, net

8,037

6,491

5,106

Other non-operating (income) expense

(660

)

1,267

1,235

Total non-operating (income) expense

7,377

7,758

6,341

Income before taxes

10,214

19,843

28,453

Income tax provision (benefit)

4,890

(584

)

7,755

Net income

5,324

20,427

20,698

Net income attributable to noncontrolling interest

332

468

671

Net income attributable to SGH

$

4,992

$

19,959

$

20,027

Earnings per share:

Basic

$

0.10

$

0.41

$

0.41

Diluted

$

0.10

$

0.40

$

0.37

Shares used in per share calculations:

Basic

48,962

49,238

49,011

Diluted

49,791

50,504

54,635

SMART Global Holdings, Inc.

Reconciliation of GAAP to Non-GAAP Measures

(In thousands)

(Unaudited)

Three Months Ended

November 25,
2022

August 26,
2022

November 26,
2021

GAAP gross profit

$

118,410

$

103,843

$

122,201

Share-based compensation expense

1,708

1,637

1,731

Amortization of acquisition-related intangibles

6,466

2,367

3,096

Flow-through of inventory step up

2,599

Non-GAAP gross profit

$

129,183

$

107,847

$

127,028

GAAP gross margin

25.4

%

23.7

%

26.0

%

Effect of adjustments

2.4

%

0.9

%

1.0

%

Non-GAAP gross margin

27.8

%

24.6

%

27.0

%

GAAP operating expenses

$

100,819

$

76,242

$

87,407

Share-based compensation expense

(8,704

)

(8,187

)

(8,044

)

Amortization of acquisition-related intangibles

(4,392

)

(3,247

)

(3,247

)

Acquisition and integration expenses

(6,732

)

(3,620

)

(1,038

)

Change in fair value of contingent consideration

(3,700

)

(17,200

)

Restructure charge

(2,041

)

15

Other

(900

)

(130

)

Non-GAAP operating expenses

$

74,350

$

61,073

$

57,878

GAAP operating income

$

17,591

$

27,601

$

34,794

Share-based compensation expense

10,412

9,824

9,775

Amortization of acquisition-related intangibles

10,858

5,614

6,343

Flow-through of inventory step up

2,599

Acquisition and integration expenses

6,732

3,620

1,038

Change in fair value of contingent consideration

3,700

17,200

Restructure charge

2,041

(15

)

Other

900

130

Non-GAAP operating income

$

54,833

$

46,774

$

69,150

GAAP net income attributable to SGH

$

4,992

$

19,959

$

20,027

Share-based compensation expense

10,412

9,824

9,775

Amortization of acquisition-related intangibles

10,858

5,614

6,343

Flow-through of inventory step up

2,599

Acquisition and integration expenses

6,732

3,620

1,038

Change in fair value of contingent consideration

3,700

17,200

Amortization of debt discount and other costs

1,069

2,788

2,210

Foreign currency (gains) losses

242

1,212

1,467

Restructure charge

2,041

(15

)

Other

133

129

Tax effects of above, other tax adjustments and the tax effect of capitalization of R&D expense

(3,300

)

(2,696

)

(1,752

)

Non-GAAP net income attributable to SGH

$

39,478

$

40,435

$

56,308

SMART Global Holdings, Inc.

Reconciliation of GAAP to Non-GAAP Measures

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended

November 25,
2022

August 26,
2022

November 26,
2021

Weighted-average shares outstanding - Diluted:

GAAP weighted-average shares outstanding

49,791

50,504

54,635

Adjustment for capped calls

(2,583

)

Non-GAAP weighted-average shares outstanding

49,791

50,504

52,052

Diluted earnings per share:

GAAP diluted earnings per share

$

0.10

$

0.40

$

0.37

Effect of adjustments

0.69

0.40

0.71

Non-GAAP diluted earnings per share

$

0.79

$

0.80

$

1.08

Net income attributable to SGH

$

4,992

$

19,959

$

20,027

Interest expense, net

8,037

6,491

5,106

Income tax provision (benefit)

4,890

(584

)

7,755

Depreciation expense and amortization of intangible assets

19,789

16,446

15,813

Share-based compensation expense

10,412

9,824

9,775

Flow-through of inventory step up

2,599

Acquisition and integration expenses

6,732

3,620

1,038

Change in fair value of contingent consideration

3,700

17,200

Restructure charge

2,041

(15

)

Other

133

129

Adjusted EBITDA

$

63,325

$

55,870

$

76,714

SMART Global Holdings, Inc.

Consolidated Balance Sheets

(In thousands)

(Unaudited)

As of

November 25,
2022

August 26,
2022

Assets

Cash and cash equivalents

$

324,821

$

363,065

Accounts receivable, net

306,323

410,323

Inventories

416,082

323,084

Other current assets

74,685

55,393

Total current assets

1,121,911

1,151,865

Property and equipment, net

165,033

153,935

Operating lease right-of-use assets

83,018

77,399

Intangible assets, net

193,337

77,812

Goodwill

199,691

74,009

Other noncurrent assets

44,670

37,044

Total assets

$

1,807,660

$

1,572,064

Liabilities and Equity

Accounts payable and accrued expenses

$

389,151

$

413,354

Current debt

28,435

12,025

Acquisition-related contingent consideration

24,500

Other current liabilities

109,721

90,161

Total current liabilities

551,807

515,540

Long-term debt

796,985

591,389

Noncurrent operating lease liabilities

76,950

71,754

Other noncurrent liabilities

22,531

14,835

Total liabilities

1,448,273

1,193,518

Commitments and contingencies

SMART Global Holdings shareholders’ equity:

Ordinary shares

1,618

1,586

Additional paid-in capital

411,612

448,112

Retained earnings

274,975

251,344

Treasury shares

(112,435

)

(107,776

)

Accumulated other comprehensive income (loss)

(223,650

)

(221,655

)

Total SGH shareholders’ equity

352,120

371,611

Noncontrolling interest in subsidiary

7,267

6,935

Total equity

359,387

378,546

Total liabilities and equity

$

1,807,660

$

1,572,064

SMART Global Holdings, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended

November 25,
2022

August 26,
2022

November 26,
2021

Cash flows from operating activities:

Net income

$

5,324

$

20,427

$

20,698

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

Depreciation expense and amortization of intangible assets

19,789

16,446

15,813

Amortization of debt discount and issuance costs

1,069

2,787

2,332

Share-based compensation expense

10,412

9,824

9,775

Change in fair value of contingent consideration

3,700

17,200

Other

(448

)

55

(192

)

Changes in operating assets and liabilities:

Accounts receivable

129,695

(56,019

)

(36,053

)

Inventories

(82,882

)

39,783

39,640

Other assets

(5,199

)

(3,423

)

1,616

Accounts payable and accrued expenses and other liabilities

(83,030

)

(7,564

)

(55,892

)

Payment of acquisition-related contingent consideration

(73,724

)

Deferred income taxes, net

1,309

(1,410

)

209

Net cash provided by (used for) operating activities

(73,985

)

20,906

15,146

Cash flows from investing activities:

Capital expenditures and deposits on equipment

(11,649

)

(8,855

)

(12,766

)

Acquisition of business, net of cash acquired

(210,273

)

Other

(1,721

)

(71

)

(611

)

Net cash used for investing activities

(223,643

)

(8,926

)

(13,377

)

Cash flows from financing activities:

Proceeds from debt

295,287

7,882

Proceeds from issuance of ordinary shares

3,942

291

5,029

Proceeds from borrowing under line of credit

60,000

Payment of acquisition-related contingent consideration

(28,100

)

Payments to acquire ordinary shares

(4,659

)

(40,431

)

(2,666

)

Repayments of debt

(4,489

)

(2,073

)

Repayments of borrowings under line of credit

(50,000

)

Other

(2

)

Net cash provided by (used for) financing activities

261,979

(34,331

)

12,363

Effect of changes in currency exchange rates on cash, cash equivalents and restricted cash

205

(1,910

)

(4,068

)

Net increase (decrease) in cash, cash equivalents and restricted cash

(35,444

)

(24,261

)

10,064

Cash, cash equivalents and restricted cash at beginning of period

363,065

387,326

222,986

Cash, cash equivalents and restricted cash at end of period

$

327,621

$

363,065

$

233,050


Contacts

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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First published on Wed, Jan 4, 2023

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