Smart Global Holdings Earnings 2020-11-27

Smart Global Holdings Earnings 2020-11-27

SGH 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

sgh-10q_20201127.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 27, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-38102

SMART GLOBAL HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

Cayman Islands	98-1013909
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
c/o Maples Corporate Services Limited P.O. Box 309 Ugland House Grand Cayman, Cayman Islands	KY1-1104
(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 class

Trading Symbol(s)

Name of each exchange on which registered

Ordinary shares, $0.03 par value per share

SGH

The NASDAQ Stock Market LLC

(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.

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 December 9, 2020, the registrant had 24,772,568 ordinary shares outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Loss	5
	Condensed Consolidated Statements of Shareholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44
PART II.	OTHER INFORMATION	46
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 6.	Exhibits	47
Signatures		48

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve many risks and uncertainties. Forward-looking statements are identified by the use of the words “would,” “could,” “will,” “may,” “expect,” “believe,” “should,” “anticipate,” “if,” “future,” “intend,” “plan,” “estimate,” “potential,” “target,” “seek,” or “continue” and similar words and phrases, including the negatives of these terms, or other variations of these terms, that denote future events. These statements reflect our current views with respect to future events and our potential financial performance and are subject to risks and uncertainties that could cause our actual results and financial position to differ materially and adversely from what is projected or implied in any forward-looking statements included in this report. These factors include, but are not limited to, the risks described under the caption “Risk Factors” in the documents we file from time to time with the Securities and Exchange Commission, including in our Annual Report on Form 10-K for our fiscal year ended August 28, 2020, and in this report, and in Item 2 of Part I – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We make these forward-looking statements based upon information available on the date of this report, and we expressly disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information or otherwise, except as required by law.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

SMART Global Holdings, Inc.

and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

	November 27,			August 28,
	2020			2020
Assets
Current assets:
Cash and cash equivalents	$	164,097		$	150,811
Accounts receivable, net of allowances of $89 and $101 as of November 27, 2020 and August 28, 2020, respectively		212,886			215,918
Inventories		147,203			162,991
Prepaid expenses and other current assets		34,337			26,990
Total current assets		558,523			556,710
Property and equipment, net		60,045			54,705
Operating lease right-of-use assets		23,050			25,013
Other noncurrent assets		18,749			20,554
Intangible assets, net		52,258			55,671
Goodwill		72,100			73,955
Total assets	$	784,725		$	786,608
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	235,557		$	224,660
Accrued liabilities		47,011			57,829
Total current liabilities		282,568			282,489
Long-term debt		197,634			195,573
Long-term operating lease liabilities		19,524			20,829
Other long-term liabilities		6,681			5,613
Total liabilities	$	506,407		$	504,504
Commitments and contingencies (see Note 10)
Shareholders’ equity:
Ordinary shares, $0.03 par value. Authorized 200,000 shares; issued and outstanding 24,759 and 24,419 as of November 27, 2020 and August 28, 2020, respectively		751			737
Additional paid-in capital		356,827			346,131
Accumulated other comprehensive loss		(244,764	)		(228,241	)
Retained earnings		165,504			163,477
Total shareholders’ equity		278,318			282,104
Total liabilities and shareholders’ equity	$	784,725		$	786,608

See accompanying notes to unaudited condensed consolidated financial statements.

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

	Three Months Ended
	November 27,			November 29,
	2020			2019
Net sales⁽¹⁾	$	291,697		$	272,018
Cost of sales		239,053			217,698
Gross profit		52,644			54,320
Operating expenses:
Research and development		6,964			14,886
Selling, general, and administrative		38,056			33,553
Total operating expenses		45,020			48,439
Income from operations		7,624			5,881
Interest expense, net		(3,154	)		(4,492	)
Other income (expense), net		832			(840	)
Total other expense		(2,322	)		(5,332	)
Income before income taxes		5,302			549
Provision for income taxes		3,275			325
Net income	$	2,027		$	224
Earnings per share:
Basic	$	0.08		$	0.01
Diluted	$	0.08		$	0.01
Shares used in computing earnings per share:
Basic		24,561			23,713
Diluted		25,103			24,286

(1)	Includes sales to affiliates of $14,975 and $16,956 in the three months ended November 27, 2020 and November 29, 2019, respectively (see Note 3).

See accompanying notes to unaudited condensed consolidated financial statements.

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

	Three Months Ended
	November 27,			November 29,
	2020			2019
Net income	$	2,027		$	224
Other comprehensive loss:
Foreign currency translation		(16,523	)		(10,244	)
Comprehensive loss	$	(14,496	)	$	(10,020	)

See accompanying notes to unaudited condensed consolidated financial statements.

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(In thousands)

(Unaudited)

									Accumulated
						Additional			other					Total
	Ordinary shares					paid-in			comprehensive			Retained		shareholders’
	Shares			Amount		capital			loss			earnings		equity
Balances as of August 30, 2019		23,617		$	712	$	285,994		$	(177,866	)	$	164,620	$	273,460
Share-based compensation expense		—			—		5,956			—			—		5,956
Issuance of ordinary shares from exercises		86			2		1,164			—			—		1,166
Issuance of ordinary shares from release of restricted stock units (RSUs)		69			2		(2	)		—			—		—
Issuance of ordinary shares from employee share purchase plan (ESPP)		67			2		1,240			—			—		1,242
Effect of adopting ASC 606		(1	)		—		(20	)		—			—		(20	)
Foreign currency translation		—			—		—			(10,244	)		—		(10,244	)
Net income		—			—		—			—			224		224
Balances as of November 29, 2019		23,838		$	718	$	294,332		$	(188,110	)	$	164,844	$	271,784

									Accumulated
						Additional			other					Total
	Ordinary shares					paid-in			comprehensive			Retained		shareholders’
	Shares			Amount		capital			loss			earnings		equity
Balances as of August 28, 2020		24,419		$	737	$	346,131		$	(228,241	)	$	163,477	$	282,104
Share-based compensation expense		—			—		11,088			—			—		11,088
Issuance of ordinary shares from exercises		59			2		1,335			—			—		1,337
Issuance of ordinary shares from release of RSUs		332			9		(9	)		—			—		—
Withholding tax on RSUs		(139	)		—		(3,483	)		—			—		(3,483	)
Issuance of ordinary shares from ESPP		88			3		1,765			—			—		1,768
Foreign currency translation		—			—		—			(16,523	)		—		(16,523	)
Net income		—			—		—			—			2,027		2,027
Balances as of November 27, 2020		24,759		$	751	$	356,827		$	(244,764	)	$	165,504	$	278,318

See accompanying notes to unaudited condensed consolidated financial statements.

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended
	November 27,			November 29,
	2020			2019
Cash flows from operating activities:
Net income	$	2,027		$	224
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,367			9,544
Share-based compensation		11,088			5,956
Provision for doubtful accounts receivable and sales returns		(9	)		73
Deferred income tax benefit		222			(970	)
Gain on disposal of property and equipment		(5	)		(42	)
Amortization of debt discounts and issuance costs		2,116			734
Amortization of operating lease right-of-use assets		1,413			1,114
Changes in operating assets and liabilities:
Accounts receivable		(1,930	)		(13,688	)
Inventories		12,919			(42,206	)
Prepaid expenses and other assets		(9,277	)		5,110
Accounts payable		18,022			60,438
Operating lease liabilities		(1,504	)		(1,082	)
Accrued expenses and other liabilities		(7,880	)		62
Net cash provided by operating activities		35,569			25,267
Cash flows from investing activities:
Capital expenditures and deposits on equipment		(14,644	)		(5,158	)
Proceeds from sale of property and equipment		16			42
Net cash used in investing activities		(14,628	)		(5,116	)
Cash flows from financing activities:
Long-term debt payments - BNDES		—			(6,435	)
Proceeds from borrowings under revolving line of credit

Price	31.15	EPS	1
Shares	24	P/E	37
MCap	757	P/FCF	5
Net Debt	94	EBIT	34
TEV	850	TEV/EBIT	25
TTM 2019-11-30, in MM, except price, ratios

10-Q	2020-11-27	Filed 2021-01-05
10-K	2020-08-28	Filed 2020-10-22
10-Q	2020-05-29	Filed 2020-07-07
10-Q	2020-02-28	Filed 2020-04-07
10-Q	2019-11-29	Filed 2019-12-20
10-K	2019-08-30	Filed 2019-11-06
10-Q	2019-05-31	Filed 2019-06-27
10-Q	2019-03-01	Filed 2019-03-28
10-Q	2018-11-30	Filed 2019-01-08
10-K	2018-08-31	Filed 2018-10-30
10-Q	2018-05-25	Filed 2018-06-21
10-Q	2018-02-23	Filed 2018-03-22
10-Q	2017-11-24	Filed 2017-12-21
10-K	2017-08-25	Filed 2017-10-13
10-Q	2017-05-26	Filed 2017-06-29

8-K	2020-10-18
8-K	2020-10-08
8-K	2020-10-01
8-K	2020-09-29
8-K	2020-08-28
8-K	2020-08-12
8-K	2020-07-07
8-K	2020-04-07
8-K	2020-03-30
8-K	2020-03-06
8-K	2020-02-13
8-K	2020-02-07
8-K	2020-02-06
8-K	2020-02-06
8-K	2019-12-19
8-K	2019-10-03
8-K	2019-07-09
8-K	2019-07-08
8-K	2019-06-27
8-K	2019-04-01
8-K	2019-03-28
8-K	2019-01-29
8-K	2019-01-08
8-K	2018-10-04
8-K	2018-10-02
8-K	2018-06-21
8-K	2018-06-08
8-K	2018-04-06
8-K	2018-03-22
8-K	2018-03-14
8-K	2018-01-29
8-K	2018-01-24
8-K	2018-01-19

EX-2.1	sgh-ex21_165.htm
EX-10.2	sgh-ex102_274.htm
EX-31.1	sgh-ex311_9.htm
EX-31.2	sgh-ex312_6.htm
EX-32.1	sgh-ex321_8.htm
EX-32.2	sgh-ex322_7.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company