10-Q 1 sgh-20240301.htm 10-Q sgh-20240301
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 1, 2024
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-38102
gheae2oaiqd5000002.jpg
SMART GLOBAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Cayman Islands98-1013909
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
c/o Walkers Corporate Limited
190 Elgin Avenue
George Town, Grand Cayman
Cayman IslandsKY1-9008
(Address of Principal Executive Offices)(Zip Code)
Registrant’s telephone number, including area code: (510) 623-1231
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Ordinary shares, $0.03 par value per shareSGH
Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒
As of April 1, 2024, the registrant had 52,297,047 ordinary shares outstanding.



Table of Contents


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Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Quarterly Report”) 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 that are not historical in nature, that are predictive or that depend upon or refer to future events or conditions. These statements include, but are not limited to, statements regarding our future financial or operating performance, the extent and timing of future revenues and expenses and customer demand; statements regarding the deployment of our products and services; statements regarding our reliance on third parties; and statements using words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “plan,” “potential,” “should” and similar words and the negatives thereof. These forward-looking statements are based on our 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 our 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 our Annual Report on Form 10-K for the fiscal year ended August 25, 2023, this Quarterly Report and the risks discussed in our other Securities and Exchange Commission (“SEC”) filings. The risks, uncertainties and factors outlined above, and in such SEC filings, do not constitute all risks, uncertainties and factors that could cause actual results of our Company to be materially different from such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on any forward-looking statements.
The forward-looking statements included in this Quarterly Report are made only as of the date of this Quarterly Report. We do not intend, and have 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 Quarterly Report, except as required by law.
About This Quarterly Report
As used herein, “SGH,” “Company,” “Registrant,” “we,” “our,” “us” or similar terms refer to SMART Global Holdings, Inc. and its consolidated subsidiaries, unless the context indicates otherwise. Our fiscal year is the 52- or 53-week period ending on the last Friday in August. Fiscal years 2024 and 2023 contain 53 weeks and 52 weeks, respectively. All period references are to our fiscal periods unless otherwise indicated.
SGH, SMART Global Holdings, SMART Modular Technologies, SMART, the SMART logo, Intelligent Platform Solutions, Penguin Computing, Penguin Edge, Penguin Solutions, the Penguin Computing logo, CreeLED, J Series, XLamp, Stratus, Stratus Technologies, the Stratus Logo and our other trademarks or service marks appearing in this Quarterly Report are our trademarks or registered trademarks. Trade names, trademarks and service marks of other companies appearing in this Quarterly Report are the property of their respective holders.
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PART I. Financial Information
Item 1. Financial Statements

INDEX TO FINANCIAL STATEMENTS

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SMART Global Holdings, Inc.
Consolidated Balance Sheets
(In thousands, except par value amount)
(Unaudited)

As ofMarch 1,
2024
August 25,
2023
Assets  
Cash and cash equivalents$442,329 $365,563 
Short-term investments23,439 25,251 
Accounts receivable, net169,718 219,247 
Inventories172,763 174,977 
Other current assets76,481 51,790 
Current assets of discontinued operations 70,574 
Total current assets884,730 907,402 
Property and equipment, net109,516 118,734 
Operating lease right-of-use assets62,529 68,444 
Intangible assets, net140,923 160,185 
Goodwill161,958 161,958 
Deferred tax assets73,914 74,085 
Other noncurrent assets83,884 15,150 
Total assets$1,517,454 $1,505,958 
Liabilities and Equity
Accounts payable and accrued expenses$182,021 $182,035 
Current debt 35,618 
Deferred revenue37,228 48,096 
Acquisition-related contingent consideration 50,000 
Other current liabilities48,710 32,731 
Current liabilities of discontinued operations 77,770 
Total current liabilities267,959 426,250 
Long-term debt740,663 754,820 
Noncurrent operating lease liabilities62,585 66,407 
Other noncurrent liabilities34,743 29,248 
Total liabilities1,105,950 1,276,725 
Commitments and contingencies
SMART Global Holdings shareholders’ equity:
Ordinary shares, $0.03 par value; authorized 200,000 shares; 58,972 shares issued and 52,287 outstanding as of March 1, 2024; 57,542 shares issued and 51,901 outstanding as of August 25, 2023
1,769 1,726 
Additional paid-in capital502,560 476,703 
Retained earnings48,916 82,457 
Treasury shares, 6,685 and 5,641 shares held as of March 1, 2024 and August 25, 2023, respectively
(148,309)(132,447)
Accumulated other comprehensive income (loss)106 (205,964)
Total SGH shareholders’ equity405,042 222,475 
Noncontrolling interest in subsidiary6,462 6,758 
Total equity411,504 229,233 
Total liabilities and equity$1,517,454 $1,505,958 
The accompanying notes are an integral part of these consolidated financial statements.
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SMART Global Holdings, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)

Three Months EndedSix Months Ended
March 1,
2024
February 24,
2023
March 1,
2024
February 24,
2023
Net sales:
Products$235,457 $333,052 $441,887 $649,560 
Services49,364 55,325 117,181 130,614 
Total net sales284,821 388,377 559,068 780,174 
Cost of sales:
Products179,889 255,710 343,302 507,001 
Services22,998 21,659 50,982 50,067 
Total cost of sales202,887 277,369 394,284 557,068 
Gross profit81,934 111,008 164,784 223,106 
Operating expenses:
Research and development20,526 25,272 41,915 49,344 
Selling, general and administrative61,385 60,074 118,602 127,782 
Impairment of goodwill 17,558  17,558 
Change in fair value of contingent consideration 6,400  10,100 
Other operating (income) expense3,335 3,781 6,274 5,552 
Total operating expenses85,246 113,085 166,791 210,336 
Operating income (loss)(3,312)(2,077)(2,007)12,770 
 
Non-operating (income) expense:
Interest expense, net7,249 9,430 16,808 17,924 
Other non-operating (income) expense248 13,307 (328)11,945 
Total non-operating (income) expense7,497 22,737 16,480 29,869 
Income (loss) before taxes(10,809)(24,814)(18,487)(17,099)
 
Income tax provision (benefit)2,198 8,149 5,732 19,471 
Net income (loss) from continuing operations(13,007)(32,963)(24,219)(36,570)
Net income (loss) from discontinued operations 6,177 (8,148)15,108 
Net income (loss)(13,007)(26,786)(32,367)(21,462)
Net income attributable to noncontrolling interest613 433 1,174 765 
Net income (loss) attributable to SGH$(13,620)$(27,219)$(33,541)$(22,227)
 
Basic earnings (loss) per share:
Continuing operations$(0.26)$(0.68)$(0.49)$(0.76)
Discontinued operations 0.13 (0.15)0.31 
$(0.26)$(0.55)$(0.64)$(0.45)
Diluted earnings (loss) per share:
Continuing operations$(0.26)$(0.68)$(0.49)$(0.76)
Discontinued operations 0.13 (0.15)0.31 
$(0.26)$(0.55)$(0.64)$(0.45)
Shares used in per share calculations:
Basic52,031 49,116 52,050 49,039 
Diluted52,031 49,116 52,050 49,039 
The accompanying notes are an integral part of these consolidated financial statements.
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SMART Global Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)

Three Months EndedSix Months Ended
March 1,
2024
February 24,
2023
March 1,
2024
February 24,
2023
Net income (loss)$(13,007)$(26,786)$(32,367)$(21,462)
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment(210)6,121 (6,352)4,113 
Cumulative translation adjustment reclassified to net income (loss)  212,397  
Gains (losses) on derivative instruments (24) (4)
Gains (losses) on investments13 (4)25 (11)
Comprehensive income (loss)(13,204)(20,693)173,703 (17,364)
Comprehensive income attributable to noncontrolling interest613 433 1,174 765 
Comprehensive income (loss) attributable to SGH$(13,817)$(21,126)$172,529 $(18,129)
The accompanying notes are an integral part of these consolidated financial statements.
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SMART Global Holdings, Inc.
Consolidated Statements of Shareholders’ Equity
(In thousands)
(Unaudited)

Shares
Issued
AmountAdditional
Paid-in Capital
Retained
Earnings
Treasury
Shares
Accumulated
Other
Comprehensive
Income (Loss)
Total SGH
Shareholders’
Equity
Non-
controlling
Interest in
Subsidiary
Total
Equity
As of August 25, 202357,542 $1,726 $476,703 $82,457 $(132,447)$(205,964)$222,475 $6,758 $229,233 
Net income (loss)— — — (19,921)— — (19,921)561 (19,360)
Other comprehensive income (loss)— — — — — 206,267 206,267 — 206,267 
Shares issued under equity plans905 27 3,428 — — — 3,455 — 3,455 
Repurchase of ordinary shares— — — — (13,130)— (13,130)— (13,130)
Share-based compensation expense— — 11,014 — — — 11,014 — 11,014 
Distribution to noncontrolling interest— — — — — — — (1,470)(1,470)
As of December 1, 202358,447 1,753 491,145 62,536 (145,577)303 410,160 5,849 416,009 
Net income (loss)— — — (13,620)— — (13,620)613 (13,007)
Other comprehensive income (loss)— — — — — (197)(197)— (197)
Shares issued under equity plans525 16 776 — — — 792 — 792 
Repurchase of ordinary shares— — — — (2,732)— (2,732)— (2,732)
Share-based compensation expense— — 10,639 — — — 10,639 — 10,639 
As of March 1, 202458,972 $1,769 $502,560 $48,916 $(148,309)$106 $405,042 $6,462 $411,504 
The accompanying notes are an integral part of these consolidated financial statements.










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SMART Global Holdings, Inc.
Consolidated Statements of Shareholders’ Equity
(In thousands)
(Unaudited)
Shares
Issued
AmountAdditional
Paid-in Capital
Retained
Earnings
Treasury
Shares
Accumulated
Other
Comprehensive
Income (Loss)
Total SGH
Shareholders’
Equity
Non-
controlling
Interest in
Subsidiary
Total
Equity
As of August 26, 202252,880 $1,586 $448,112 $251,344 $(107,776)$(221,655)$371,611 $6,935 $378,546 
Net income— — — 4,992 — — 4,992 332 5,324 
Other comprehensive income (loss)— — — — — (1,995)(1,995)— (1,995)
Shares issued under equity plans1,060 32 3,910 — — — 3,942 — 3,942 
Repurchase of ordinary shares— — — — (4,659)— (4,659)— (4,659)
Share-based compensation expense— — 10,412 — — — 10,412 — 10,412 
Adoption of ASU 2020-06— — (50,822)18,639 — — (32,183)— (32,183)
As of November 25, 202253,940 1,618 411,612 274,975 (112,435)(223,650)352,120 7,267 359,387 
Net income (loss)— — — (27,219)— — (27,219)433 (26,786)
Other comprehensive income (loss)— — — — — 6,093 6,093 — 6,093 
Shares issued under equity plans443 13 295 — — — 308 — 308 
Repurchase of ordinary shares— — — — (11,564)— (11,564)— (11,564)
Purchase of Capped Calls— — (15,090)— — — (15,090)— (15,090)
Settlement of Capped Calls— — 10,786 — — — 10,786 — 10,786 
Share-based compensation expense— — 10,395 — — — 10,395 — 10,395 
Distribution to noncontrolling interest— — — — — — — (2,009)(2,009)
As of February 24, 202354,383 $1,631 $417,998 $247,756 $(123,999)$(217,557)$325,829 $5,691 $331,520 
The accompanying notes are an integral part of these consolidated financial statements.
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SMART Global Holdings, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

Six Months EndedMarch 1,
2024
February 24,
2023
Cash flows from operating activities
Net income (loss)$(32,367)$(21,462)
Net income (loss) from discontinued operations(8,148)15,108 
Net loss from continuing operations(24,219)(36,570)
Adjustments to reconcile net loss from continuing operations to net cash provided by (used for) operating activities:
Depreciation expense and amortization of intangible assets34,810 34,248 
Amortization of debt discount and issuance costs2,010 2,117 
Share-based compensation expense21,609 20,012 
Impairment of goodwill 17,558 
Change in fair value of contingent consideration 10,100 
(Gain) loss on extinguishment or prepayment of debt325 15,924 
Deferred income taxes, net194 1,630 
Other456 4,116 
Changes in operating assets and liabilities:
Accounts receivable49,530 172,033 
Inventories2,214 10,240 
Other assets(21,127)(9,893)
Accounts payable and accrued expenses and other liabilities994 (174,745)
Payment of acquisition-related contingent consideration(29,000)(73,724)
Net cash provided by (used for) operating activities from continuing operations37,796 (6,954)
Net cash provided by (used for) operating activities from discontinued operations(28,235)33,504 
Net cash provided by (used for) operating activities9,561 26,550 
Cash flows from investing activities
Capital expenditures and deposits on equipment(9,852)(19,690)
Proceeds from maturities of investment securities21,955  
Purchases of held-to-maturity investment securities(19,503) 
Acquisition of business, net of cash acquired (213,073)
Other(746)239 
Net cash used for investing activities from continuing operations(8,146)(232,524)
Net cash provided by (used for) investing activities from discontinued operations118,938 (4,472)
Net cash provided by (used for) investing activities110,792 (236,996)
Cash flows from financing activities
Proceeds from debt 295,287 
Proceeds from issuance of ordinary shares4,247 4,250 
Payment of acquisition-related contingent consideration(21,000)(28,100)
Payments to acquire ordinary shares(15,862)(16,223)
Repayments of debt(51,634)(7,211)
Payment of premium in connection with convertible note exchange (14,141)
Net cash paid for settlement and purchase of Capped Calls (4,304)
Distribution to noncontrolling interest(1,470)(2,009)
Other(583)(5,077)
Net cash provided by (used for) financing activities from continuing operations(86,302)222,472 
Net cash used for financing activities from discontinued operations(606)(124)
Net cash provided by (used for) financing activities(86,908)222,348 
Effect of changes in currency exchange rates(1,180)1,917 
Net increase (decrease) in cash and cash equivalents32,265 13,819 
Cash and cash equivalents at beginning of period410,064 363,065 
Cash and cash equivalents at end of period$442,329 $376,884 
Cash and cash equivalents at end of period:
Continuing operations$442,329 $310,377 
Discontinued operations 66,507 
$442,329 $376,884 
The accompanying notes are an integral part of these consolidated financial statements.
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SMART Global Holdings, Inc.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of SMART Global Holdings, Inc. and its consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) consistent in all material respects with those applied in our Annual Report on Form 10-K for the fiscal year ended August 25, 2023 and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of our management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, consisting of a normal recurring nature, to fairly state the financial information set forth herein. These consolidated interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended August 25, 2023.
Presentation of SMART Brazil as Discontinued Operations: On June 13, 2023, we entered into an agreement to divest of an 81% interest in SMART Modular Technologies do Brasil – Indústria e Comercio de Componentes Ltda. (“SMART Brazil”). We concluded that, as of August 25, 2023, (i) the net assets of SMART Brazil met the criteria for classification as held for sale and (ii) the proposed sale represented a strategic shift that was expected to have a major effect on our operations and financial results. On November 29, 2023, we completed the divestiture. The balance sheets, results of operations and cash flows of SMART Brazil have been presented as discontinued operations for all periods presented. SMART Brazil was previously included within our Memory Solutions segment. See “Divestiture of SMART Brazil.”
Unless otherwise noted, amounts and discussion within these notes to the consolidated financial statements relate to our continuing operations. Prior period comparative information has been conformed to current period presentation for continuing operations.
Reclassifications: Certain reclassifications have been made to prior period amounts to conform to current period presentation.
Fiscal Year: Our fiscal year is the 52- or 53-week period ending on the last Friday in August. Fiscal years 2024 and 2023 contain 53 weeks and 52 weeks, respectively. All period references are to our fiscal periods unless otherwise indicated.
Financial information for our subsidiaries in Brazil was included in our consolidated financial statements on a one-month lag because their fiscal years ended on July 31 of each year. In connection with the completion of the divestiture of an 81% interest in SMART Brazil, we ceased consolidating the operations of SMART Brazil in our financial statements as of the November 29, 2023 disposal date. As a result, financial information for the first quarter of 2024 includes the four-month period for our SMART Brazil operations from August 1, 2023 to November 29, 2023.
Divestiture of SMART Brazil
Overview of Transaction
On November 29, 2023, we completed the previously announced divestiture of SMART Brazil pursuant to the terms of that certain Stock Purchase Agreement (the “Brazil Purchase Agreement”), by and among SMART Modular Technologies (LX) S.à r.l., a société à responsabilité limitée governed by the laws of Grand Duchy of Luxembourg and a wholly owned subsidiary of SGH (the “Brazil Seller”), Lexar Europe B.V., a company organized under the laws of The Netherlands (the “Brazil Purchaser”), Shenzhen Longsys Electronics Co., Ltd., a company limited by shares governed by the laws of the People’s Republic of China (“Longsys”), solely with respect to certain provisions therein, Shanghai Intelligent Memory Semiconductor Co., Ltd., a limited liability company governed by the laws of the People’s Republic of China and, solely with respect to certain provisions therein, SGH.
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Pursuant to the Brazil Purchase Agreement, Brazil Seller sold to Brazil Purchaser, and Brazil Purchaser purchased from Brazil Seller, 81% of Brazil Seller’s right, title and interest in and to the outstanding quotas of SMART Brazil, with Brazil Seller retaining a 19% interest in SMART Brazil (the “Retained Interest”) (the “Brazil Divestiture”).
At the closing of the Brazil Divestiture, Brazil Purchaser paid to Brazil Seller (based on a total enterprise value of $205 million for SMART Brazil) an upfront cash purchase price, subject to certain customary adjustments as set forth in the Brazil Purchase Agreement. In addition, pursuant to the Brazil Purchase Agreement, we have a right to receive, and Brazil Purchaser is obligated to pay, (i) a deferred payment due eighteen months following the closing and (ii) subject to and at the time of exercise of the Put/Call Option (as defined below), an additional deferred cash adjustment equal to 19% of the amount of SMART Brazil’s net cash as of the closing (as calculated pursuant to the Brazil Purchase Agreement).
Put/Call Option: Pursuant to the Brazil Purchase Agreement, at the closing, SMART Brazil, Brazil Seller, Brazil Purchaser and Longsys entered into a Quotaholders Agreement, which provides Brazil Seller with a put option to sell the Retained Interest in SMART Brazil to Brazil Purchaser (the “Put Option”) during three exercise windows following its fiscal years ending December 31, 2026, December 31, 2027 or December 31, 2028 (the “Exercise Windows”), with such Exercise Windows beginning on June 15, 2027 and ending on July 15, 2027, beginning on June 15, 2028 and ending on July 15, 2028 and beginning on June 15, 2029 and ending on July 15, 2029, respectively. A call option has also been granted to Brazil Purchaser to require Brazil Seller to sell the Retained Interest to Brazil Purchaser during the Exercise Windows (together with the Put Option, the “Put/Call Option”). The price for the Put/Call Option is based on a 100% enterprise value of 7.5x net income for SMART Brazil for the preceding fiscal year at the time of exercise.
Consideration: The following is a summary of total consideration in exchange for the sale of an 81% interest in SMART Brazil:
Cash received at closing (1)
$164,487 
Post-closing adjustment for net cash and net working capital (2)
451 
Deferred payment (3)
25,433 
Deferred cash adjustment (4)
3,721 
Total consideration$194,092 
(1)Includes $26.8 million of cash received at closing for an estimated amount of net cash and an estimated net working capital amount (in excess of a minimum target amount) as of the closing.
(2)Represents the post-closing adjustment for net cash and net working capital, which was received subsequent to the second quarter of 2024 upon completion of the review of the final net cash and final working capital amounts. The post closing adjustment is included in other current assets as of March 1, 2024 in the accompanying consolidated balance sheet.
(3)Represents the fair value of the deferred payment, comprised of a notional amount of $28.4 million, discounted at 7.5% and due May 2025. The deferred payment is included in other noncurrent assets in the accompanying consolidated balance sheet.
(4)Represents the fair value of the deferred cash adjustment, comprised of a notional amount of $4.8 million, discounted at 7.5%, equal to 19% of the amount of SMART Brazil’s net cash as of the closing (as calculated pursuant to the Brazil Purchase Agreement). The deferred cash adjustment, which is accounted for as a derivative financial instrument, is due at the time of exercise of the Put/Call Option and is included in other noncurrent assets in the accompanying consolidated balance sheet.
Presentation of SMART Brazil Operations
As of August 25, 2023, we concluded that the net assets of SMART Brazil met the criteria for classification as held for sale. In addition, the divestiture of SMART Brazil is expected to have a major effect on our operations and financial results. As a result, we have presented the results of operations, cash flows and financial position of SMART Brazil as discontinued operations in the accompanying consolidated financial statements and notes for all periods presented.
A disposal group classified as held for sale is measured at the lower of its carrying amount or fair value less costs to sell. Accordingly, we evaluated the carrying value of the net assets of SMART Brazil (including $206.3 million recognized within shareholders’ equity related to the cumulative translation adjustment from SMART Brazil), estimated costs to sell and expected proceeds and concluded the net assets were impaired as of August 25, 2023. As a result, we recognized an impairment charge of $153.0 million in the fourth quarter of 2023 to write down the carrying value of the net assets of SMART Brazil. In addition, we concluded that the outside basis of SMART Brazil inclusive of any withholding taxes should be recognized upon the classification as held for sale as of August 25, 2023. Accordingly, we recognized withholding taxes on the expected capital gain and deferred tax liabilities of$28.6 million in 2023.
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Assets and liabilities of SMART Brazil as of the November 29, 2023 disposal date and as of August 25, 2023 were as follows:
As ofNovember 29,
2023
August 25,
2023
Cash and cash equivalents$40,927 $44,501 
Accounts receivable, net16,482 17,055 
Inventories26,103 25,877 
Other current assets17,800 17,732 
Total current assets101,312 105,165 
Property and equipment, net66,870 58,321 
Operating lease right-of-use assets6,912 5,213 
Goodwill19,856 20,668 
Other noncurrent assets27,490 34,243 
Total assets222,440 223,610 
Impairment of SMART Brazil assets(153,036)(153,036)
Total assets, net of impairment$69,404 $70,574 
Accounts payable and accrued expenses$20,576 $25,867 
Current debt3,872 4,006 
Other current liabilities1,023 1,030 
Total current liabilities25,471 30,903 
Long-term debt11,938 13,689 
Noncurrent operating lease liabilities5,686 4,614 
Noncurrent deferred tax liabilities28,564 28,564 
Other noncurrent liabilities93 $ 
Total liabilities$71,752 $77,770 
Net assets of discontinued operations$(2,348)$(7,196)
Reported as:
Current assets of discontinued operations$70,574 
Current liabilities of discontinued operations77,770 
Net assets of discontinued operations$(7,196)
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The following table presents the results of operations for SMART Brazil:
Three Months Ended
Six Months Ended
February 24,
2023
March 1,
2024
February 24,
2023
Net sales$40,797 $55,159 $114,478 
Cost of sales41,424 50,560 108,793 
Gross profit(627)4,599 5,685 
Operating expenses:
Research and development1,393 157 1,377 
Selling, general and administrative2,697 5,421 6,011 
Other operating (income) expense373 64 643 
Total operating expenses4,463 5,642 8,031 
Operating income (loss)(5,090)(1,043)(2,346)
 
Non-operating (income) expense:
Loss from divestiture of 81% interest in SMART Brazil
 10,888  
Interest (income) expense, net(1,424)(1,262)(1,881)
Other non-operating (income) expense22 138 724 
Total non-operating (income) expense(1,402)9,764 (1,157)
Income (loss) before taxes(3,688)(10,807)(1,189)
Income tax provision (benefit)(9,865)(2,659)(16,297)
Net income (loss) from discontinued operations$6,177 $(8,148)$15,108 
Loss from Divestiture of SMART Brazil
The following table presents the calculation of the loss from the divestiture of an 81% interest in SMART Brazil:
Proceeds, less costs to sell and other expenses:
Consideration$194,092 
Costs to sell and other expenses(4,150)
189,942 
Basis in 81% interest in SMART Brazil:
Net assets of SMART Brazil145,194 
Cumulative translation adjustment (1)
212,397 
357,591 
Gain on revalue of 19% Retained Interest in SMART Brazil (2)
3,725 
Pre-tax loss on divestiture of 81% interest in SMART Brazil163,924 
Income tax provision26,580 
Loss on divestiture of 81% interest in SMART Brazil$190,504 
(1)The sale of an 81% interest in SMART Brazil resulted in the de-consolidation of SMART Brazil and, accordingly, the release of the related cumulative translation adjustment. Included in the basis calculation above is the balance of cumulative translation adjustment for SMART Brazil as of the closing. The release of the cumulative translation adjustment is included in net income (loss) from discontinued operations in the accompanying consolidated statement of operations.
(2)In connection with the transaction, we revalued our 19% Retained Interest in SMART Brazil based on the implied value for 100% of SMART Brazil, adjusted for lack of control premium. As of March 1, 2024, the carrying value of our remaining 19% interest in SMART Brazil was $37.8 million and is included in other noncurrent assets in the accompanying consolidated balance sheet as a non-marketable equity investment.
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Recognition Periods: The loss from the divestiture of an 81% interest in SMART Brazil was recognized as follows:
Three Months Ended
December 1,
2023
August 25,
2023
Total
Pre-tax loss on divestiture of 81% interest in SMART Brazil$10,888 $153,036 $163,924 
Income tax provision (benefit)(1,984)28,564 26,580 
Loss on divestiture of 81% interest in SMART Brazil$8,904 $181,600 $190,504 
Recently Issued Accounting Standards
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU are intended to increase transparency through improvements to annual disclosures primarily related to income tax rate reconciliation and income taxes paid. The amendments in this ASU are effective for us in 2026 for annual reporting, with early adoption permitted. The ASU may be applied on a prospective basis, although retrospective application is permitted. We are evaluating the timing and effects of this ASU on our income tax disclosures.
In November 2023, the FASB issued ASU 2023-07 – Segment Reporting (Topic 280): Improvements to Segment Reporting Disclosures, which will require an entity to provide more detailed information about its reportable segment expenses that are included within management’s measurement of profit and loss and will require certain annual disclosures to be provided on an interim basis. The amendments in this ASU are effective for us in 2025 for annual reporting and in 2026 for interim reporting, with early adoption permitted beginning in 2024, and is required to be applied using the full retrospective method of transition. We are evaluating the timing and effects of adoption of this ASU on our segment disclosures.
Business Acquisition
Stratus Technologies
On August 29, 2022 (the “Stratus Acquisition Date”), we completed the acquisition of Storm Private Holdings I Ltd., a Cayman Islands exempted company (“Stratus Holding Company” and together with its subsidiaries, “Stratus Technologies”), pursuant to the terms of that certain Share Purchase Agreement (the “Stratus Purchase Agreement”), dated as of June 28, 2022, by and among SGH, Stratus Holding Company and Storm Private Investments LP, a Cayman Islands exempted limited partnership (the “Stratus Seller”). Pursuant to the Stratus Purchase Agreement, among other matters, the Stratus Seller sold to SGH, and SGH purchased from the Stratus Seller, all of the Stratus Seller’s right, title and interest in and to the outstanding equity securities of Stratus Holding Company.
Purchase Price: At the closing of the transaction, we paid the Stratus Seller a cash purchase price of $225 million, subject to certain adjustments. In addition, the Stratus Seller had the right to receive, and we were obligated to pay, contingent consideration of up to $50.0 million (the “Stratus Earnout”) based on the gross profit performance of Stratus Technologies during the first full 12 fiscal months following the closing of the acquisition. In the second quarter of 2024, we paid in full $50.0 million related to the Stratus Earnout.
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Cash and Investments
As of March 1, 2024 and August 25, 2023, all of our debt securities, the fair values of which approximated their carrying values, were classified as held to maturity. Cash, cash equivalents and short-term investments were as follows:
 As of March 1, 2024As of August 25, 2023
 
Cash and Cash Equivalents
Short-term Investments
Cash and Cash Equivalents
Short-term Investments
Cash and cash equivalents$415,962 $ $321,937 $ 
Level 1:
Money market funds16,167  43,626  
U.S. Treasury securities 23,439  25,251 
Level 2:
Time deposits
10,200    
 $442,329 $23,439 $365,563 $25,251 
Non-marketable Equity Investments
As of March 1, 2024 and August 25, 2023, other noncurrent assets included $41.9 million and $4.2 million, respectively, of non-marketable equity investments, which are accounted for under the measurement alternative at cost less impairment, if any. In the event an observable price change occurs in an orderly transaction for an identical or a similar investment, the carrying value of investments would be remeasured to fair value as of the date that the observable transaction occurred, with any resulting gains or losses recorded in earnings.
Accounts Receivable
In the third quarter of 2023, we entered into a trade accounts receivable sale program with a third-party financial institution to sell certain of our trade accounts receivable on a non-recourse basis pursuant to a factoring arrangement. This program allows us to sell certain of our trade accounts receivables up to $60 million. As of March 1, 2024, there have been no trade accounts receivable sold under this program.
Inventories
As ofMarch 1,
2024
August 25,
2023
Raw materials$85,131 $90,085 
Work in process32,426 24,485 
Finished goods55,206 60,407 
 $172,763 $174,977 
As of March 1, 2024 and August 25, 2023, 13% and 8%, respectively, of total inventories were owned and held under our logistics services program.
Property and Equipment
As ofMarch 1,
2024
August 25,
2023
Equipment$90,730 $86,429 
Buildings and building improvements67,832 69,325 
Furniture, fixtures and software43,696 44,121 
Land16,126 16,126 
218,384 216,001 
Accumulated depreciation(108,868)(97,267)
 $109,516 $118,734 
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Depreciation expense for property and equipment was $7.2 million and $14.7 million in the second quarter and first six months of 2024, respectively, and $6.2 million and $12.4 million in the second quarter and first six months of 2023, respectively.
Intangible Assets and Goodwill
As of March 1, 2024
As of August 25, 2023
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
Intangible assets:
Technology$142,054 $(46,766)$141,201 $(34,569)
Customer relationships72,500 (39,849)72,500 (33,990)
Trademarks/trade names28,300 (15,316)28,300 (13,257)
$242,854 $(101,931)$242,001 $(81,816)
Goodwill by segment:
Intelligent Platform Solutions$147,238 $147,238 
Memory Solutions14,720 14,720 
$161,958 $161,958 
In the first six months of 2024 and 2023, we capitalized $0.9 million and $127.0 million, respectively, for intangible assets with weighted-average useful lives of 19.0 years and 6.1 years, respectively. Amortization expense for intangible assets was $9.9 million and $20.1 million in the second quarter and first six months of 2024, respectively, and $11.0 million and $21.9 million in the second quarter and first six months of 2023, respectively. Amortization expense is expected to be $19.9 million for the remainder of 2024, $35.7 million for 2025, $30.3 million for 2026, $29.6 million for 2027, $9.9 million for 2028 and $15.6 million for 2029 and thereafter.
In connection with our acquisition of Stratus Technologies in the first quarter of 2023, we capitalized $3.9 million of in-process research and development (“IPR&D”) related to next generation fault tolerant architecture. Amortization of this technology commenced in the second quarter of 2024.
During the second quarter of 2023, we initiated a plan within our IPS segment pursuant to which we intend to wind down manufacturing and discontinue the sale of legacy products offered through our Penguin Edge business by approximately the end of calendar 2024. As a result, we recorded aggregate charges of $19.1 million in 2023 to impair the carrying value of Penguin Edge goodwill. At each reporting date through the end of the wind-down period, we will reassess the estimated remaining cash flows of the Penguin Edge business. We currently anticipate that the remaining goodwill of the Penguin Edge reporting unit of $16.1 million as of the end of the second quarter of 2024 may become further impaired in future periods.
Accounts Payable and Accrued Expenses
As ofMarch 1,
2024
August 25,
2023
Accounts payable (1)
$148,008 $134,980 
Salaries, wages and benefits19,801 27,665 
Income and other taxes10,139 13,370 
Other4,073 6,020 
$182,021 $182,035 
(1)Included accounts payable for property and equipment of $0.9 million and $5.2 million as of March 1, 2024 and August 25, 2023, respectively.
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Debt
As ofMarch 1,
2024
August 25,
2023
Amended 2027 TLA$494,607 $544,943 
2029 Notes147,165 146,886 
2026 Notes98,891 98,609 
740,663 790,438 
Less current debt (35,618)
Long-term debt$740,663 $754,820 
Credit Facility
On February 7, 2022, SGH and SMART Modular Technologies, Inc. (collectively, the “Borrowers”) entered into a credit agreement (the “Original Credit Agreement”) with a syndicate of banks and Citizens Bank, N.A., as administrative agent (the “Administrative Agent”) that provided for (i) a term loan credit facility in an aggregate principal amount of $275.0 million (the “2027 TLA”) and (ii) a revolving credit facility in an aggregate principal amount of $250.0 million (the “2027 Revolver”), in each case, maturing on February 7, 2027 (subject to certain earlier “springing maturity” dates upon certain conditions specified in the Original Credit Agreement). On August 29, 2022, the Borrowers entered into the First Amendment (the “Incremental Amendment”; the Original Credit Agreement as amended by the Incremental Amendment, the “Amended Credit Agreement”) with and among the lenders party thereto and the Administrative Agent. The Incremental Amendment amended the Original Credit Agreement and (i) provides for incremental term loans under the Amended Credit Agreement in an aggregate amount of $300.0 million (the “Incremental Term Loans” and together with the 2027 TLA, the “Amended 2027 TLA”) which Incremental Term Loans are on the same terms as the term loans incurred under the Original Credit Agreement, (ii) increases the maximum First Lien Leverage Ratio (as defined in the Amended Credit Agreement) financial covenant from 3.00:1.00 to 3.25:1.00 and (iii) increases the aggregate amount of unrestricted cash and permitted investments netted from the definitions of Consolidated First Lien Debt and Consolidated Net Debt under the Amended Credit Agreement from $100 million to $125 million.
As of March 1, 2024, there was $500.0 million of principal amount outstanding under the Amended 2027 TLA, unamortized issuance costs were $5.4 million and the effective interest rate was 8.47%. As of March 1, 2024, there were no amounts outstanding under the 2027 Revolver and unamortized issuance costs were $2.7 million.
Amended 2027 TLA
On February 29, 2024, we prepaid $30.0 million outstanding under the Amended 2027 TLA. In connection therewith, we wrote off $0.3 million of unamortized issuance costs. On March 29, 2024, subsequent to the end of our second quarter ended March 1, 2024, we prepaid $75.0 million outstanding under the Amended 2027 TLA. In connection therewith, we wrote off $0.8 million of unamortized issuance costs.
Convertible Senior Notes
Convertible Senior Notes Exchange
In the second quarter of 2023, we exchanged $150.0 million principal amount of 2.25% Convertible Senior Notes due 2026 (the “2026 Notes”) for $150.0 million in aggregate principal amount of 2.00% Convertible Senior Notes due 2029 (the “2029 Notes”), together with an aggregate of $15.6 million in cash, with such cash payment representing $14.1 million of premium paid for the 2026 Notes in excess of par value and $1.5 million of accrued and unpaid interest on the 2026 Notes. The exchange was accounted for as an extinguishment of the 2026 Notes and the issuance of the 2029 Notes. In connection therewith, we recognized an extinguishment loss in the second quarter of 2023, included in other non-operating expense, of $16.7 million, consisting of $14.1 million of premium paid to extinguish the 2026 Notes and $2.5 million for the write-off of unamortized issuance costs.
Convertible Senior Notes Interest
Unamortized debt discount and issuance costs are amortized over the terms of our 2026 Notes and 2029 Notes using the effective interest method. As of March 1, 2024 and August 25, 2023, the effective interest rate for our 2026 Notes was 2.83%. As of March 1, 2024 and August 25, 2023, the effective interest rate for our 2029 Notes was 2.40%. Aggregate
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interest expense for our convertible notes consisted of contractual stated interest and amortization of discount and issuance costs and included the following:
Three Months EndedSix Months Ended
March 1,
2024
February 24,
2023
March 1,
2024
February 24,
2023
Contractual stated interest$1,312 $1,366 $2,712 $2,757 
Amortization of discount and issuance costs264 317 561 654 
$1,576 $1,683 $3,273 $3,411 
As of August 26, 2022, the carrying amount of the equity components of the 2026 Notes, which was included in additional paid-in capital, was $50.8 million. As of the beginning of 2023, we adopted ASU 2020-06. In connection therewith, we reclassified $32.2 million from additional paid-in-capital to long-term debt and $18.6 million from additional paid-in-capital to retained earnings.
Maturities of Debt
As of March 1, 2024, maturities of debt were as follows:
Remainder of 2024$ 
202513,267 
2026128,844 
2027457,904 
2028 
2029 and thereafter150,000 
Less unamortized discount and issuance costs(9,352)
$740,663 
Leases
We have operating leases through which we utilize facilities, offices and equipment in our manufacturing operations, research and development activities and selling, general and administrative functions. Sublease income was not significant in any period presented. The components of operating lease expense were as follows:
Three Months EndedSix Months Ended
March 1,
2024
February 24,
2023
March 1,
2024
February 24,
2023
Fixed lease cost$3,181 $4,724 $6,686 $9,335 
Variable lease cost399 299 848 683 
Short-term lease cost563 558 1,202 1,057 
 $4,143 $5,581 $8,736 $11,075 
Cash flows used for operating activities in the first six months of 2024 and 2023 included payments for operating leases of $4.5 million and $4.8 million, respectively. Acquisitions of right-of-use assets were $0.3 million in the first six months of 2024 and $10.5 million in the first six months of 2023.
As of March 1, 2024 and August 25, 2023, the weighted-average remaining lease term for our operating leases was 10.5 years and the weighted-average discount rate was 6.0%. Certain of our operating leases include one or more options to extend the lease term for periods from two to five years. In determining the present value of our operating lease liabilities, we have assumed we will not extend any lease terms.
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As of March 1, 2024, minimum payments of lease liabilities were as follows:
Remainder of 2024$6,503 
202510,969 
20269,663 
20277,723 
20287,939 
2029 and thereafter54,412 
97,209 
Less imputed interest(26,163)
Present value of total lease liabilities$71,046 
Commitments and Contingencies
Product Warranty and Indemnities
We generally provide a limited warranty that our products are in compliance with applicable specifications existing at the time of delivery. Under our standard terms and conditions of sale, liability for certain failures of product during a stated warranty period is usually limited to repair or replacement of defective items or return of amounts paid for such items. Our warranty obligations are not material.
We are party to a number of agreements in which we have agreed to defend, indemnify and hold harmless our customers and suppliers from damages and costs, which may arise from product defects as well as from any alleged infringement by our products of third-party patents, trademarks or other proprietary rights. We believe our internal development processes and other policies and practices limit our exposure related to such indemnities. Maximum potential future payments cannot be estimated because many of these agreements do not have a maximum stated liability. However, to date, we have not had to reimburse any of our customers or suppliers for any significant losses related to these indemnities. We have not recorded any liability for such indemnities.
Contingencies
From time to time, we may be involved in legal matters that arise in the normal course of business. Litigation in general, and intellectual property, employment and shareholder litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. We regularly review contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made.
Equity
SGH Shareholders’ Equity
Share Repurchase Authorization
On April 4, 2022, our Board of Directors approved a $75.0 million share repurchase authorization, under which we may repurchase our 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. On January 8, 2024, the Audit Committee of the Board of Directors approved an additional $75.0 million share repurchase authorization. In the first six months of 2024 and 2023, we repurchased 931 thousand and 533 thousand shares for $13.9 million and $8.4 million, respectively, under the initial authorization. As of March 1, 2024, an aggregate of $77.7 million of these authorizations remained available for the repurchase of our ordinary shares.
Other Share Repurchases
Ordinary shares withheld as payment of withholding taxes and exercise prices in connection with the vesting or exercise of equity awards are treated as ordinary share repurchases. In the first six months of 2024 and 2023, we repurchased 113 thousand and 176 thousand ordinary shares as payment of withholding taxes for $1.9 million and $2.4 million, respectively.
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In connection with the exchange transactions in the second quarter of 2023, we repurchased 326 thousand ordinary shares for $5.4 million.
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component for the first six months of 2024 were as follows:
Cumulative
Translation
Adjustment
Gains (Losses)
on
Investments
Total
As of August 25, 2023$(205,969)$5 $(205,964)
Other comprehensive income (loss) before reclassifications(6,352)25 (6,327)
Reclassifications out of accumulated other comprehensive income212,397  212,397 
Other comprehensive income (loss)206,045 25 206,070 
As of March 1, 2024$76 $30 $106 
In connection with our divestiture of an 81% interest in SMART Brazil, we reclassified $212.4 million of cumulative translation adjustment related to SMART Brazil from other accumulated comprehensive income to results of operations in the first quarter of 2024. See “Divestiture of SMART Brazil.”
Fair Value Measurements
As of March 1, 2024As of August 25, 2023
Fair
Value
Carrying
Value
Fair
Value
Carrying
Value
Assets:
Derivative financial instrument$3,790 $3,790 $ $ 
Liabilities:
Amended 2027 TLA$500,015 $494,607 $551,648 $544,943 
2029 Notes184,455 147,165 195,426 146,886 
2026 Notes125,987 98,891 131,864 98,609 
The deferred cash adjustment resulting from the divestiture of an 81% interest in SMART Brazil is accounted for as a derivative financial instrument and is revalued at the end of each reporting period. The fair value as of March 1, 2024, as measured on a recurring basis, was based on Level 2 measurements, including market-based observable inputs of interest rates and credit-risk spreads.
The fair value of the Amended 2027 TLA, as measured on a non-recurring basis, was estimated based on Level 2 measurements, including discounted cash flows and interest rates based on similar debt issued by parties with credit ratings similar to ours. The fair values of the 2029 Notes and the 2026 Notes, as measured on a non-recurring basis, was determined based on Level 2 measurements, including the trading prices of the 2029 Notes and the 2026 Notes.
Equity Plans
As of March 1, 2024, 7.3 million of our ordinary shares were available for future awards under our equity plans.
The disclosures related to our restricted awards, share options and employee share purchase plan include both our continuing and discontinued operations.
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Restricted Share Awards and Restricted Share Units Awards (“Restricted Awards”)
Aggregate Restricted Award activity was as follows:
Three Months EndedSix Months Ended
March 1,
2024
February 24,
2023
March 1,
2024
February 24,
2023
Awards granted205 826241,222
Weighted-average grant date fair value per share$21.15 $17.15 $22.75 $19.05 
Aggregate vesting date fair value of shares vested$10,222 $6,665 $18,955 $15,614 
As of March 1, 2024, total unrecognized compensation costs for unvested Restricted Awards was $70.0 million, which was expected to be recognized over a weighted-average period of 2.1 years.
Share Options
As of March 1, 2024, total aggregate unrecognized compensation costs for unvested options was $0.5 million, which was expected to be recognized over a weighted-average period of 0.5 years.
Employee Share Purchase Plan (“ESPP”)
Under our ESPP, employees purchased 298 thousand ordinary shares for $3.3 million in the first six months of 2024 and 265 thousand shares for $2.9 million in the first six months of 2023.
Share-Based Compensation Expense
Share-based compensation expense for our continuing operations was as follows:
Three Months EndedSix Months Ended
March 1,
2024
February 24,
2023
March 1,
2024
February 24,
2023
Share-based compensation expense by caption:
Cost of sales$1,691 $1,308 $3,541 $2,950 
Research and development1,781 1,385 3,414 2,941 
Selling, general and administrative7,167 7,338 14,907 14,121 
 $10,639 $10,031 $21,862 $20,012 
Income tax benefits for share-based awards were $1.7 million and $3.5 million in the second quarter and first six months of 2024, respectively, and $1.6 million and $3.4 million in the second quarter and first six months of 2023, respectively.
Revenue and Customer Contract Balances
Net Sales and Gross Billings
We provide certain logistics services on an agent basis, whereby we procure materials and services on behalf of our customers and then resell such materials and services to our customers. Our materials logistics business includes procurement, logistics, inventory management, temporary warehousing, kitting and/or packaging services. While we take title to inventory under such arrangements, control of such inventory does not transfer to us as we do not, at any point, have the ability to direct the use, and thereby obtain the benefits of, the inventory.
Gross amounts invoiced to customers in connection with these agent services include amounts related to the services performed by us in addition to the cost of the materials and services procured. However, only the amount related to the agent component is recognized as revenue in our results of operations. We generally recognize revenue for these procurement, logistics and inventory management services upon the completion of such services, which generally occurs at
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the time of shipment of product to the customer. The cost of materials and services invoiced to our customers under these arrangements, but not recognized as revenue or cost of sales in our results of operations, were as follows:
Three Months EndedSix Months Ended
March 1,
2024
February 24,
2023
March 1,
2024
February 24,
2023
Cost of materials and services invoiced in connection with logistics services
$90,670 $143,984 $199,639 $521,735 
Customer Contract Balances
As ofMarch 1,
2024
August 25,
2023
Contract assets (1)
$1,189 $ 
Contract liabilities: (2)
Deferred revenue
$58,776 $69,326 
Customer advances24,0505,565
$82,826 $74,891 
(1)Contract assets are included in other current and noncurrent assets.
(2)Contract liabilities are included in other current and noncurrent liabilities based on the timing of when our customer is expected to take control of the asset or receive the benefit of the service.
Contract assets represent amounts recognized as revenue for which we do not have the unconditional right to consideration.
Deferred revenue represents amounts received from customers in advance of satisfying performance obligations. As of March 1, 2024, we expect to recognize revenue of $37.2 million of the $58.8 million balance in the next 12 months and the remaining amount thereafter. In the first six months of 2024, we recognized revenue of $38.6 million from satisfying performance obligations related to amounts included in deferred revenue as of August 25, 2023. Deferred revenue includes $7.9 million and $10.9 million as of March 1, 2024 and August 25, 2023, respectively, related to contracts that contain termination rights.
Customer advances represent amounts received from customers for advance payments to secure product. In the first six months of 2024, we recognized revenue of $1.2 million from satisfying performance obligations related to amounts included in customer advances as of August 25, 2023.
As of March 1, 2024 and August 25, 2023, other current liabilities included $13.0 million and $12.5 million, respectively, for estimates of consideration payable to customers, including estimates for pricing adjustments and returns.
Other Operating (Income) Expense
In 2024 and 2023, we initiated plans that included workforce reductions and the elimination of certain projects across our businesses. In connection therewith, we recorded restructure charges of $6.3 million and $5.6 million in the first six months of 2024 and 2023, respectively, primarily for employee severance costs and other benefits. We anticipate that these activities will continue into future quarters and anticipate recording additional restructure charges. As of March 1, 2024, $3.0 million remained unpaid, which is expected to be paid in 2024.
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Other Non-operating (Income) Expense
Three Months EndedSix Months Ended
March 1,
2024
February 24,
2023
March 1,
2024
February 24,
2023
Loss (gain) on extinguishment or prepayment of debt$325 $16,691 $325 $15,924 
Loss (gain) from changes in foreign currency exchange rates182 165 (364)(355)
Loss (gain) on disposition of assets41 (2,984)86 (3,025)
Other(300)(565)(375)(599)
$248 $13,307 $(328)$11,945 
Income Taxes
Three Months EndedSix Months Ended
March 1,
2024
February 24,
2023
March 1,
2024
February 24,
2023
Income (loss) before taxes