SGH Reports Second Quarter Fiscal 2022 Financial Results

MILPITAS, Calif.–()–SMART Global Holdings, Inc. (“SGH” or the “Company”) (NASDAQ: SGH) today reported financial results for the second quarter of fiscal 2022. Per share measures for all periods reflect the effect of the February 2022 two-for-one share split.

Second Quarter Fiscal 2022 Highlights

  • Net sales of $449 million, up 48% versus the year ago quarter
  • GAAP gross margin of 25.1%, up 750 basis points versus the year ago quarter
  • Non-GAAP gross margin of 26.0%, up 660 basis points versus the year ago quarter
  • GAAP EPS of $0.04, down 67% versus the year ago quarter
  • Non-GAAP EPS of $0.87, up 98% versus the year ago quarter

YTD Fiscal 2022 Highlights

  • Net sales of $919 million, up 54% versus the year ago period
  • GAAP gross margin of 25.6%, up 780 basis points versus the year ago period
  • Non-GAAP gross margin of 26.5%, up 750 basis points versus the year ago period
  • GAAP EPS of $0.40, up 150% versus the year ago period
  • Non-GAAP EPS of $1.95, up 135% versus the year ago period

“We delivered solid financial results for the second quarter of fiscal 2022, culminating a strong first half of the fiscal year, and demonstrating the strength of our growth and diversification strategy,” commented CEO Mark Adams. “The results reflect our commitment to operational excellence by focusing on specialty solutions targeting growth markets such as AI, machine learning, data analytics, enterprise storage and edge/IoT. Across all of our businesses, we are investing to capitalize on the growth opportunities in these market segments. In addition, our Board approved a $75 million share repurchase authorization, reflecting their confidence in the strength of our financial position while providing us the flexibility to return capital to our shareholders in a disciplined manner.”

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 but may be suspended or terminated by the Board of Directors at any time.

During the second quarter, the Company issued a share dividend of one ordinary share for every one outstanding ordinary share owned. Ordinary shares and per share data in this press release have been adjusted for the impact of the share dividend.

Quarterly Financial Results

GAAP (1)

Non-GAAP (2)

(in millions, except per share amounts)

Q2 FY22

Q1 FY22

Q2 FY21

Q2 FY22

Q1 FY22

Q2 FY21

Net sales

$

449.2

$

469.9

$

304.0

$

449.2

$

469.9

$

304.0

Gross profit

112.7

122.2

53.5

116.9

127.0

59.3

Operating income

16.8

34.8

12.9

57.4

69.2

27.2

Net income attributable to SGH

2.5

20.0

5.8

47.6

56.3

21.9

Diluted earnings per share (3)

$

0.04

$

0.37

$

0.12

$

0.87

$

1.08

$

0.44

(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.

Business Outlook

As of April 5, 2022, SGH is providing the following financial outlook for its third quarter of fiscal 2022:

GAAP

Outlook

Adjustments

Non-GAAP

Outlook

Net sales

$435 to $475 million

$435 to $475 million

Gross margin

23% to 25%

1%

(A)

24% to 26%

Diluted earnings per share

$0.35 +/- $0.08

$0.40

(A)(B)(C)

$0.75 +/- $0.08

Diluted shares

57 million

(3) million

54 million

Non-GAAP adjustments: (in millions)

(A) Share-based compensation and amortization of acquisition-related intangibles included in cost of sales

$

4

(B) Share-based compensation and amortization of acquisition-related intangibles included in R&D and SG&A

11

(C) Amortization of debt discount and other costs

5

$

20

Second Quarter Fiscal 2022 Earnings Conference Call and Webcast Details

SGH will hold a conference call and webcast to discuss the Q2 fiscal 2022 results and related matters at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) on Tuesday, April 5, 2022. Interested parties may access the call by dialing +1-888-550-5584 in the U.S. or +1-646-960-0157 from international locations using access code 2316162. The webcast link is located on the SGH Investor Relations section of our 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, 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 SGH (including the business outlook for the next fiscal quarter) and statements regarding growth drivers in SGH’s industries and markets. These forward-looking statements are based on current expectations and preliminary assumptions that are subject to factors and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and other factors, many of which are outside SGH’s control, including, among others: global business and economic conditions and growth trends in technology and lighting industries, our customer markets and various geographic regions; uncertainties in the geopolitical environment; disruptions in our operations or our supply chain as a result of 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 our 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; reduction in or termination of incentives for local manufacturing in Brazil; 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 other factors and risks detailed in SGH’s filings with the U.S. Securities and Exchange Commission, which include SGH’s most recent reports on Form 10-K and Form 10-Q, including SGH’s future filings.

Such factors and risks as outlined above and in such filings do not constitute all factors and risks that could cause actual results of SGH to be materially different from our forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements. These forward-looking statements are made as of today, and SGH 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.

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, COVID-19 expenses, amortization of debt discount and other costs and other infrequent or unusual items. 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, COVID-19 expenses 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 in, 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)

Three Months Ended

Six Month Ended

Feb 25, 2022

Nov 26, 2021

Feb 26, 2021

Feb 25, 2022

Feb 26, 2021

Net sales:

Memory Solutions

$

260,081

$

239,401

$

218,597

$

499,482

$

444,421

Intelligent Platform Solutions

82,257

118,654

85,412

200,911

151,284

LED Solutions

106,833

111,889

218,722

Total net sales

449,171

469,944

304,009

919,115

595,705

Cost of sales

336,458

347,743

250,553

684,201

489,606

Gross profit

112,713

122,201

53,456

234,914

106,099

Operating expenses:

Research and development

18,794

17,657

8,852

36,451

15,816

Selling, general and administrative

53,114

52,550

31,664

105,664

69,720

Change in fair value of contingent consideration

24,000

17,200

41,200

Total operating expenses

95,908

87,407

40,516

183,315

85,536

Operating income

16,805

34,794

12,940

51,599

20,563

Non-operating (income) expense:

Interest expense, net

4,462

5,106

4,365

9,568

7,518

Other non-operating (income) expense

1,785

1,235

1,531

3,020

699

Total non-operating (income) expense

6,247

6,341

5,896

12,588

8,217

Income before taxes

10,558

28,453

7,044

39,011

12,346

Income tax provision

7,586

7,755

1,200

15,341

4,475

Net income

2,972

20,698

5,844

23,670

7,871

Net income attributable to noncontrolling interest

514

671

1,185

Net income attributable to SGH

$

2,458

$

20,027

$

5,844

$

22,485

$

7,871

Earnings per share:

Basic

$

0.05

$

0.41

$

0.12

$

0.46

$

0.16

Diluted

$

0.04

$

0.37

$

0.12

$

0.40

$

0.16

Shares used in per share calculations:

Basic

49,522

49,011

48,435

49,267

48,778

Diluted

57,636

54,635

50,407

56,135

50,307

Earnings per share and shares used in per share calculations reflect the impact of the share dividend. 

SMART Global Holdings, Inc.

Reconciliation of GAAP to Non-GAAP Measures

(In thousands)

Three Months Ended

Six Months Ended

Feb 25, 2022

Nov 26, 2021

Feb 26, 2021

Feb 25, 2022

Feb 26, 2021

GAAP gross profit

$

112,713

$

122,201

$

53,456

$

234,914

$

106,099

Share-based compensation expense

1,648

1,731

804

3,379

1,641

Amortization of acquisition-related intangibles

2,582

3,096

647

5,678

1,294

Out of period import tax expense

4,345

4,345

Non-GAAP gross profit

$

116,943

$

127,028

$

59,252

$

243,971

$

113,379

GAAP operating expenses

$

95,908

$

87,407

$

40,516

$

183,315

$

85,536

Share-based compensation expense

(8,325

)

(8,044

)

(4,594

)

(16,369

)

(14,845

)

Amortization of acquisition-related intangibles

(3,247

)

(3,247

)

(2,766

)

(6,494

)

(5,533

)

Change in fair value of contingent consideration

(24,000

)

(17,200

)

(41,200

)

Other

(828

)

(1,038

)

(1,064

)

(1,866

)

(2,681

)

Non-GAAP operating expenses

$

59,508

$

57,878

$

32,092

$

117,386

$

62,477

GAAP operating income

$

16,805

$

34,794

$

12,940

$

51,599

$

20,563

Share-based compensation expense

9,973

9,775

5,398

19,748

16,486

Amortization of acquisition-related intangibles

5,829

6,343

3,413

12,172

6,827

Change in fair value of contingent consideration

24,000

17,200

41,200

Out of period import tax expense

4,345

4,345

Other

828

1,038

1,064

1,866

2,681

Non-GAAP operating income

$

57,435

$

69,150

$

27,160

$

126,585

$

50,902

GAAP net income attributable to SGH

$

2,458

$

20,027

$

5,844

$

22,485

$

7,871

Share-based compensation expense

9,973

9,775

5,398

19,748

16,486

Amortization of acquisition-related intangibles

5,829

6,343

3,413

12,172

6,827

Change in fair value of contingent consideration

24,000

17,200

41,200

Out of period import tax expense

3,358

3,358

Amortization of debt discount and other costs

2,296

2,210

2,098

4,506

4,160

Foreign currency (gains) losses

1,408

1,467

843

2,875

201

Other

1,481

1,038

1,064

2,519

2,681

Estimated tax effects of non-GAAP adjustments

126

(1,752

)

(84

)

(1,626

)

(20

)

Non-GAAP net income attributable to SGH

$

47,571

$

56,308

$

21,934

$

103,879

$

41,564

SMART Global Holdings, Inc.

Reconciliation of GAAP to Non-GAAP Measures

(In thousands, except per share amounts)

Three Months Ended

Six Months Ended

Feb 25, 2022

Nov 26, 2021

Feb 26, 2021

Feb 25, 2022

Feb 26, 2021

Weighted-average shares outstanding – Diluted:

GAAP weighted-average shares outstanding

57,636

54,635

50,407

56,135

50,307

Adjustment for capped calls

(2,759

)

(2,583

)

(2,670

)

Non-GAAP weighted-average shares outstanding

54,877

52,052

50,407

53,465

50,307

Diluted earnings per share:

GAAP diluted earnings per share

$

0.04

$

0.37

$

0.12

$

0.40

$

0.16

Effect of above adjustments

0.83

0.71

0.32

1.55

0.67

Non-GAAP diluted earnings per share

$

0.87

$

1.08

$

0.44

$

1.95

$

0.83

Net income attributable to SGH

$

2,458

$

20,027

$

5,844

$

22,485

$

7,871

Interest expense, net

4,462

5,106

4,365

9,568

7,518

Income tax provision

7,586

7,755

1,200

15,341

4,475

Depreciation expense and amortization of intangible assets

16,077

15,813

8,793

31,890

17,160

Share-based compensation expense

9,973

9,775

5,398

19,748

16,486

Change in fair value of contingent consideration

24,000

17,200

41,200

Out of period import tax expense

4,345

4,345

Other

1,481

1,038

1,064

2,518

2,681

Adjusted EBITDA

$

66,037

$

76,714

$

31,009

$

142,750

$

60,536

Weighted average shares outstanding and diluted earnings per share reflect the impact of the share dividend.

SMART Global Holdings, Inc.

Consolidated Balance Sheets

(In thousands)

As of

February 25,

2022

August 27,

2021

Assets

Cash and cash equivalents

$

365,768

$

222,986

Accounts receivable, net

385,925

313,393

Inventories

334,148

363,601

Other current assets

45,876

50,838

Total current assets

1,131,717

950,818

Property and equipment, net

149,059

156,266

Operating lease right-of-use assets

35,816

40,869

Intangible assets, net

88,887

101,073

Goodwill

73,413

74,255

Other noncurrent assets

29,621

21,517

Total assets

$

1,508,513

$

1,344,798

Liabilities and Equity

Accounts payable and accrued expenses

$

440,983

$

484,107

Current debt

6,425

25,354

Other current liabilities

86,396

74,337

Total current liabilities

533,804

583,798

Long-term debt

483,911

340,484

Acquisition-related contingent consideration

101,700

60,500

Noncurrent operating lease liabilities

27,047

32,419

Other noncurrent liabilities

7,139

8,673

Total liabilities

1,153,601

1,025,874

Commitments and contingencies

SMART Global Holdings shareholders’ equity:

Ordinary shares

1,535

1,504

Additional paid-in-capital

423,136

396,120

Retained earnings

207,272

184,787

Treasury shares

(53,440

)

(50,545

)

Accumulated other comprehensive income (loss)

(229,676

)

(221,615

)

Total SGH shareholders’ equity

348,827

310,251

Noncontrolling interest in subsidiary

6,085

8,673

Total equity

354,912

318,924

Total liabilities and equity

$

1,508,513

$

1,344,798

SMART Global Holdings, Inc.

Consolidated Statements of Cash Flows

(In thousands)

Three Months Ended

Six Months Ended

Feb 25, 2022

Nov 26, 2021

Feb 26, 2021

Feb 25, 2022

Feb 26, 2021

Cash flows from operating activities:

Net income

$

2,972

$

20,698

$

5,844

$

23,670

$

7,871

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation expense and amortization of intangible assets

16,077

15,813

8,793

31,890

17,160

Amortization of debt discount and issuance costs

2,438

2,332

2,191

4,770

4,307

Share-based compensation expense

9,973

9,775

5,398

19,748

16,486

Change in fair value of contingent consideration

24,000

17,200

41,200

Amortization of operating lease right-of-use assets

2,417

2,548

1,500

5,245

2,913

Other

1,533

(192

)

994

1,341

981

Changes in operating assets and liabilities:

Accounts receivable

(39,526

)

(36,053

)

12,012

(75,579

)

10,082

Inventories

(13,225

)

39,640

(41,053

)

26,415

(28,134

)

Other current assets

6,132

(932

)

(9,849

)

5,200

(19,126

)

Accounts payable and accrued expenses

22,105

(53,751

)

35,780

(31,646

)

45,921

Operating lease liabilities

(2,075

)

(2,141

)

(1,238

)

(4,496

)

(2,742

)

Deferred income taxes, net

(656

)

209

49

(447

)

271

Net cash provided by operating activities

32,165

15,146

20,421

47,311

55,990

Cash flows from investing activities:

Capital expenditures and deposits on equipment

(7,376

)

(12,766

)

(20,151

)

(20,142

)

(34,795

)

Other

(81

)

(611

)

151

(692

)

167

Net cash used for investing activities

(7,457

)

(13,377

)

(20,000

)

(20,834

)

(34,628

)

Cash flows from financing activities:

Proceeds from debt

270,775

11,439

270,775

11,439

Proceeds from borrowing under line of credit

24,000

60,000

23,000

84,000

42,500

Proceeds from issuance of shares

2,431

5,029

2,546

7,460

5,651

Repayments of debt

(125,000

)

(23,000

)

(125,000

)

Repayments of borrowings under line of credit

(59,000

)

(50,000

)

(109,000

)

(42,500

)

Distribution to noncontrolling interest

(3,773

)

(3,773

)

Payments to acquire ordinary shares

(230

)

(2,666

)

(44,481

)

(2,895

)

(47,964

)

Other

(3,840

)

(3,841

)

Net cash provided by (used for) financing activities

105,363

12,363

(30,496

)

117,726

(30,874

)

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

2,647

(4,068

)

5,781

(1,421

)

(1,496

)

Net increase (decrease) in cash and cash equivalents

132,718

10,064

(24,294

)

142,782

(11,008

)

Cash and cash equivalents at beginning of period

233,050

222,986

164,097

222,986

150,811

Cash and cash equivalents at end of period

$

365,768

$

233,050

$

139,803

$

365,768

$

139,803

Rylee Evans for SurgeZirc
As a SurgeZirc tech news writer, Rylee has contributed extensively to the platform's mission of delivering accurate and up-to-date news to its readers. With a keen eye for detail, Rylee ensures that every article is thoroughly researched and fact-checked.
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