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SGH Reports Fourth Quarter And Full Year Fiscal 2023 Financial Results

By Business Wire

Business Wire
Overall Rating

Record GAAP and Non-GAAP Gross Margins for FY2023

MILPITAS, Calif.--(BUSINESS WIRE)--$SGH #IR--SMART Global Holdings, Inc. (“SGH” or the “Company”) (NASDAQ: SGH) today reported financial results for the fourth quarter and full year fiscal 2023.

On June 13, 2023, we entered into an agreement to sell an 81% interest in our SMART Brazil operations. The transaction is expected to close at the end of calendar 2023 or early 2024, subject to required regulatory approvals and satisfaction of customary closing conditions. Accordingly, our SMART Brazil operations are classified as discontinued operations in the accompanying financial statements for all periods presented.

The following discussion relates to our continuing operations, which exclude SMART Brazil.

Fiscal 2023 Highlights for Continuing Operations

  • Net sales of $1.44 billion, up 3.3% versus fiscal year 2022
  • Record GAAP gross margin of 28.8%, up 80 basis points versus fiscal year 2022
  • Record Non-GAAP gross margin of 31.7%, up 250 basis points versus fiscal year 2022
  • GAAP EPS of $0.15 versus $0.41 in fiscal year 2022
  • Non-GAAP EPS of $2.52 versus $2.65 in fiscal year 2022

Fourth Quarter Fiscal 2023 Highlights for Continuing Operations

  • Net sales of $316.7 million, down 12.6% versus the year-ago quarter
  • GAAP gross margin of 28.9%, up 290 basis points versus the year-ago quarter
  • Non-GAAP gross margin of 31.7%, up 460 basis points versus the year-ago quarter
  • GAAP EPS of $1.17 versus $0.18 in the year-ago quarter
  • Non-GAAP EPS of $0.35 versus $0.63 in the year-ago quarter

“Throughout fiscal 2023 the team has made significant progress in our transformational journey towards becoming an enterprise solutions company focused on higher quality revenue and improving gross margins. In the fourth quarter, in what remains a challenging global economic environment, non-GAAP gross margin increased to 31.7%, an improvement of 460 basis points from the same period last year, and non-GAAP earnings were $0.35 per share. In addition, we exited the fourth quarter with a strong balance sheet, including cash, cash equivalents and short term investments of $391 million,” commented the Company’s CEO Mark Adams.

Annual Financial Results of Continuing Operations

GAAP (1)

Non-GAAP (2)

(in thousands, except per share amounts)

FY23

FY22

FY21

FY23

FY22

FY21

Net sales:

Memory Solutions

$

443,264

$

551,705

$

486,205

$

443,264

$

551,705

$

486,205

Intelligent Platform Solutions

749,708

440,986

344,757

749,708

440,986

344,757

LED Solutions

248,278

403,185

224,567

248,278

403,185

224,567

Total net sales

$

1,441,250

$

1,395,876

$

1,055,529

$

1,441,250

$

1,395,876

$

1,055,529

Gross profit

$

415,171

$

391,045

$

237,973

$

456,578

$

408,082

$

257,162

Operating income (loss)

8,745

67,176

(15,706

)

179,794

177,461

83,484

Net income (loss) attributable to SGH

7,858

22,372

(43,150

)

127,681

139,287

62,122

Diluted earnings (loss) per share

$

0.15

$

0.41

$

(0.89

)

$

2.52

$

2.65

$

1.23

Quarterly Financial Results of Continuing Operations

GAAP (1)

Non-GAAP (2)

(in thousands, except per share amounts)

Q4 FY23

Q3 FY23

Q4 FY22

Q4 FY23

Q3 FY23

Q4 FY22

Net sales:

Memory Solutions

$

105,181

$

109,458

$

134,611

$

105,181

$

109,458

$

134,611

Intelligent Platform Solutions

145,432

170,854

144,730

145,432

170,854

144,730

LED Solutions

66,045

64,106

83,118

66,045

64,106

83,118

Total net sales

$

316,658

$

344,418

$

362,459

$

316,658

$

344,418

$

362,459

Gross profit

$

91,585

$

100,480

$

94,420

$

100,300

$

108,990

$

98,356

Operating income (loss)

(1,639

)

(2,386

)

23,060

30,295

42,327

41,866

Net income (loss) attributable to SGH

64,841

(19,648

)

8,862

18,406

28,731

31,610

Diluted earnings (loss) per share

$

1.17

$

(0.40

)

$

0.18

$

0.35

$

0.57

$

0.63

(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 October 12, 2023, SGH is providing the following financial outlook for its continuing operations for the first quarter of fiscal 2024:

GAAP

Outlook

Adjustments

Non-GAAP

Outlook

Net sales

$275 million +/- $25 million

$275 million +/- $25 million

Gross margin

28.5% +/- 1%

3%

(A)

31.5% +/- 1%

Operating expenses

$82 million +/- $1 million

($15) million

(B)(C)

$67 million +/- $1 million

Diluted earnings (loss) per share

$(0.16) +/- $0.15

$0.31

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

$0.15 +/- $0.15

Diluted shares

55.6 million

(1.6) million

54 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

(6

)

$

17

Fourth Quarter Fiscal 2023 Earnings Conference Call and Webcast Details

SGH will hold a conference call and webcast to discuss the fourth quarter and full year fiscal 2023 results and related matters today, October 12, 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 759938. 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 sale of the Company’s SMART Brazil operations and expected closing timeline; 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 unpredictable nature of the COVID-19 pandemic; disruptions in SGH’s operations or supply chain as a result of the downstream effects 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; the proposed divestiture of SMART Brazil, the failure to execute on the separation and transition of SMART Brazil and its business, the failure to satisfy all conditions to complete the proposed divestiture within the expected timeframe, and the failure to achieve the intended benefits of the sale of SMART Brazil and its business; 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; reversal of the valuation allowance for a significant portion of our deferred tax assets, including any potential inability to realize these assets in the future; 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, we design and develop 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

Year Ended

August 25,
2023

May 26,
2023

August 26,
2022

August 25,
2023

August 26,
2022

August 27,
2021

Net sales:

Memory Solutions

$

105,181

$

109,458

$

134,611

$

443,264

$

551,705

$

486,205

Intelligent Platform Solutions

145,432

170,854

144,730

749,708

440,986

344,757

LED Solutions

66,045

64,106

83,118

248,278

403,185

224,567

Total net sales

316,658

344,418

362,459

1,441,250

1,395,876

1,055,529

Cost of sales

225,073

243,938

268,039

1,026,079

1,004,831

817,556

Gross profit

91,585

100,480

94,420

415,171

391,045

237,973

Operating expenses:

Research and development

20,883

20,338

19,160

90,565

77,472

59,933

Selling, general and administrative

65,026

67,914

52,215

260,722

204,839

158,174

Impairment of goodwill

1,534

19,092

Change in fair value of contingent consideration

4,100

14,800

29,000

41,324

32,400

Other operating (income) expense

1,681

(186

)

(15

)

7,047

234

3,172

Total operating expenses

93,224

102,866

71,360

406,426

323,869

253,679

Operating income (loss)

(1,639

)

(2,386

)

23,060

8,745

67,176

(15,706

)

Non-operating (income) expense:

Interest expense, net

9,183

9,314

7,485

36,421

24,345

17,141

Other non-operating (income) expense

(462

)

354

170

11,837

350

(582

)

Total non-operating (income) expense

8,721

9,668

7,655

48,258

24,695

16,559

Income (loss) before taxes

(10,360

)

(12,054

)

15,405

(39,513

)

42,481

(32,265

)

Income tax provision (benefit)

(75,890

)

7,216

6,075

(49,203

)

18,074

9,689

Net income (loss) from continuing operations

65,530

(19,270

)

9,330

9,690

24,407

(41,954

)

Net income (loss) from discontinued operations, net of tax

(205,685

)

(4,807

)

11,097

(195,384

)

44,185

64,460

Net income (loss)

(140,155

)

(24,077

)

20,427

(185,694

)

68,592

22,506

Net income attributable to noncontrolling interest

689

378

468

1,832

2,035

1,196

Net income (loss) attributable to SGH

$

(140,844

)

$

(24,455

)

$

19,959

$

(187,526

)

$

66,557

$

21,310

Basic earnings (loss) per share:

Continuing operations

$

1.28

$

(0.40

)

$

0.18

$

0.16

$

0.45

$

(0.89

)

Discontinued operations

(4.05

)

(0.10

)

0.23

(3.94

)

0.90

1.33

$

(2.77

)

$

(0.50

)

$

0.41

$

(3.78

)

$

1.35

$

0.44

Diluted earnings (loss) per share:

Continuing operations

$

1.17

$

(0.40

)

$

0.18

$

0.15

$

0.41

$

(0.89

)

Discontinued operations

(3.71

)

(0.10

)

0.22

(3.80

)

0.81

1.33

$

(2.54

)

$

(0.50

)

$

0.40

$

(3.65

)

$

1.22

$

0.44

Shares used in per share calculations:

Basic

50,807

49,380

49,238

49,566

49,467

48,558

Diluted

55,523

49,380

50,504

51,322

54,443

48,558

SMART Global Holdings, Inc.

Reconciliation of GAAP to Non-GAAP Measures

(In thousands)

(Unaudited)

Three Months Ended

Year Ended

August 25,
2023

May 26,
2023

August 26,
2022

August 25,
2023

August 26,
2022

August 27,
2021

GAAP gross profit

$

91,585

$

100,480

$

94,420

$

415,171

$

391,045

$

237,973

Share-based compensation expense

1,789

1,595

1,569

6,334

6,296

3,871

Amortization of acquisition-related intangibles

5,876

6,704

2,367

25,661

10,741

8,228

Flow-through of inventory step up

2,599

7,090

Cost of sales-related restructure

1,050

211

6,813

Non-GAAP gross profit

$

100,300

$

108,990

$

98,356

$

456,578

$

408,082

$

257,162

GAAP gross margin

28.9

%

29.2

%

26.0

%

28.8

%

28.0

%

22.5

%

Effect of adjustments

2.8

%

2.4

%

1.1

%

2.9

%

1.2

%

1.9

%

Non-GAAP gross margin

31.7

%

31.6

%

27.1

%

31.7

%

29.2

%

24.4

%

GAAP operating expenses

$

93,224

$

102,866

$

71,360

$

406,426

$

323,869

$

253,679

Share-based compensation expense

(7,785

)

(8,047

)

(7,890

)

(32,894

)

(30,988

)

(27,090

)

Amortization of acquisition-related intangibles

(5,443

)

(4,905

)

(3,247

)

(18,940

)

(12,988

)

(12,027

)

Acquisition and integration expenses

(2,676

)

(8,637

)

(3,620

)

(20,869

)

(7,090

)

(5,314

)

Impairment of goodwill

(1,534

)

(19,092

)

Change in fair value of contingent consideration

(4,100

)

(14,800

)

(29,000

)

(41,324

)

(32,400

)

Restructure charge

(1,681

)

186

15

(7,047

)

(234

)

(3,172

)

Other

(128

)

(1,800

)

(624

)

2

Non-GAAP operating expenses

$

70,005

$

66,663

$

56,490

$

276,784

$

230,621

$

173,678

GAAP operating income (loss)

$

(1,639

)

$

(2,386

)

$

23,060

$

8,745

$

67,176

$

(15,706

)

Share-based compensation expense

9,574

9,642

9,459

39,228

37,284

30,961

Amortization of acquisition-related intangibles

11,319

11,609

5,614

44,601

23,729

20,255

Flow-through of inventory step up

2,599

7,090

Cost of sales-related restructure

1,050

211

6,813

Acquisition and integration expenses

2,676

8,637

3,620

20,869

7,090

5,314

Impairment of goodwill

1,534

19,092

Change in fair value of contingent consideration

4,100

14,800

29,000

41,324

32,400

Restructure charge

1,681

(186

)

(15

)

7,047

234

3,172

Other

128

1,800

624

(2

)

Non-GAAP operating income

$

30,295

$

42,327

$

41,866

$

179,794

$

177,461

$

83,484

SMART Global Holdings, Inc.

Reconciliation of GAAP to Non-GAAP Measures

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended

Year Ended

August 25,
2023

May 26,
2023

August 26,
2022

August 25,
2023

August 26,
2022

August 27,
2021

GAAP net income (loss) attributable to SGH

$

64,841

$

(19,648

)

$

8,862

$

7,858

$

22,372

$

(43,150

)

Share-based compensation expense

9,574

9,642

9,459

39,228

37,284

30,961

Amortization of acquisition-related intangibles

11,319

11,609

5,614

44,601

23,729

20,255

Flow-through of inventory step up

2,599

7,090

Cost of sales-related restructure

1,050

211

6,813

Acquisition and integration expenses

2,676

8,637

3,620

20,869

7,090

5,314

Impairment of goodwill

1,534

19,092

Change in fair value of contingent consideration

4,100

14,800

29,000

41,324

32,400

Restructure charge

1,681

(186

)

(15

)

7,047

234

3,172

Amortization of debt discount and other costs

1,010

937

2,788

4,064

9,999

8,419

Loss on extinguishment of debt

15,924

653

Foreign currency (gains) losses

(276

)

410

97

(221

)

9

389

Other

128

1,800

624

(1,004

)

Income tax effects

(79,103

)

2,319

1,057

(70,993

)

(4,031

)

(1,724

)

Non-GAAP net income attributable to SGH

$

18,406

$

28,731

$

31,610

$

127,681

$

139,287

$

62,122

Weighted-average shares outstanding - Diluted:

GAAP weighted-average shares outstanding

55,523

49,380

50,504

51,322

54,443

48,558

Adjustment for dilutive securities and capped calls

(2,233

)

754

(558

)

(1,851

)

2,129

Non-GAAP weighted-average shares outstanding

53,290

50,134

50,504

50,764

52,592

50,687

Diluted earnings (loss) per share from continuing operations:

GAAP diluted earnings (loss) per share

$

1.17

$

(0.40

)

$

0.18

$

0.15

$

0.41

$

(0.89

)

Effect of adjustments

(0.82

)

0.97

0.45

2.37

2.24

2.12

Non-GAAP diluted earnings per share

$

0.35

$

0.57

$

0.63

$

2.52

$

2.65

$

1.23

Net income (loss) attributable to SGH

$

64,841

$

(19,648

)

$

8,862

$

7,858

$

22,372

$

(43,150

)

Interest expense, net

9,183

9,314

7,485

36,421

24,345

17,141

Income tax provision (benefit)

(75,890

)

7,216

6,075

(49,203

)

18,074

9,689

Depreciation expense and amortization of intangible assets

18,830

18,554

11,646

71,632

46,665

34,937

Share-based compensation expense

9,574

9,642

9,459

39,228

37,284

30,961

Flow-through of inventory step up

2,599

7,090

Cost of sales-related restructure

1,050

211

6,813

Acquisition and integration expenses

2,676

8,637

3,620

20,869

7,090

5,314

Impairment of goodwill

1,534

19,092

Change in fair value of contingent consideration

4,100

14,800

29,000

41,324

32,400

Restructure charge

1,681

(186

)

(15

)

7,047

234

3,172

Loss on extinguishment of debt

15,924

653

Other

128

1,800

624

(1,004

)

Adjusted EBITDA

$

37,579

$

48,540

$

47,260

$

209,080

$

198,665

$

96,550


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
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First published on Fri, Oct 13, 2023

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