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 OR ☐ 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 incorporatio ...

Part I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) The company designs and manufactures electronic products, specializing in memory and computing technology across three core product areas for global markets [Overview](index=4&type=section&id=Overview) - **SMART Global Holdings** is a leading designer and manufacturer of electronic products focused in **memory and computing technology** areas. We specialize in **application specific product development** and support for customers in **enterprise, government and original equipment manufacturer, or OEM, markets**[19](index=19&type=chunk) - The company operates in **three primary product areas**: **Specialty Memory Products**, **Brazil Products**, and **Specialty Compute and Storage Solutions**[19](index=19&type=chunk)[23](index=23&type=chunk) [Our Products and Services](index=5&type=section&id=Our%20Products%20and%20Services) - Specialty Memory Products: **Global leader** in serving the electronics industry for **over 30 years**, developing solutions with OEM customers for industrial, defense, networking, communications, enterprise storage, and computing markets. Offers **customized, integrated supply chain services**[19](index=19&type=chunk)[22](index=22&type=chunk)[27](index=27&type=chunk) - Brazil Products: **Largest in-country manufacturer** of memory, processing imported wafers and die to create **DRAM modules and Flash-based products** for desktops, notebooks, servers, and mobile memory for smartphones[20](index=20&type=chunk)[28](index=28&type=chunk) - Specialty Compute and Storage Solutions (SCSS): Expanded into **specialized computing platforms for AI, machine learning (ML), advanced modeling, and high-performance computing (HPC)** through Penguin Computing, SMART Embedded Computing (AEC), and SMART Wireless Computing (Inforce)[21](index=21&type=chunk)[29](index=29&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) [Manufacturing and Test](index=7&type=section&id=Manufacturing%20and%20Test) - Manufacturing facilities are located in Atibaia, Brazil, Newark, California, and Penang, Malaysia, all **ISO 9001:2015, ISO 14001:2015, and ISO 45001:2018 certified**[33](index=33&type=chunk) - Brazil operations include receiving unmounted ICs in wafer form, preparing and packaging ICs into semiconductor components, and testing, making the company the **largest local manufacturer of DRAM components and modules**[35](index=35&type=chunk) - Extensive product testing capabilities ensure **low defect rates** and enable **specialized testing as an additional service**, with proprietary testing routines and advanced equipment[39](index=39&type=chunk)[40](index=40&type=chunk) [Customers](index=8&type=section&id=Customers) - Served **more than 800 end customers in fiscal 2020**, including global OEM, enterprise, and government customers[43](index=43&type=chunk) Sales to Top 10 End Customers (Percentage of Net Sales) | Fiscal Year | Percentage of Net Sales | | :---------- | :---------------------- | | **2020** | **66%** | | **2019** | **73%** | | **2018** | **84%** | Sales to Key Individual Customers (Percentage of Net Sales) | Customer | **2020** | **2019** | **2018** | | :------- | :--- | :--- | :--- | | Samsung | **17%** | **18%** | **34%** | | Nutanix | **11%** | - | - | | Cisco | - | **11%** | **12%** | | Lenovo | - | **13%** | **11%** | | Dell | - | - | **10%** | | Flex | **14%** | **17%** | **13%** | [Suppliers](index=9&type=section&id=Suppliers) - Maintains relationships with **leading semiconductor suppliers** in Asia, Europe, and the Americas, including Samsung, Micron, SK Hynix, Kioxia, Intel, AMD, Nvidia, and Qualcomm[46](index=46&type=chunk) - Purchases **almost all materials**, including wafers for Brazil memory products, on a purchase order basis, generally **without long-term commitments** from suppliers[47](index=47&type=chunk) [Sales, Support and Marketing](index=9&type=section&id=Sales%2C%20Support%20and%20Marketing) - **Primarily sells products directly to global OEMs, enterprise, and government customers** across North America, Latin America, Asia, and Europe[48](index=48&type=chunk) - Sales and marketing efforts are conducted through a direct sales force, e-commerce, customer service representatives, and on-site field application engineers (FAEs)[48](index=48&type=chunk)[49](index=49&type=chunk) - As of **August 28, 2020**, the company had **147 sales and marketing personnel worldwide**[48](index=48&type=chunk) [Research and Development](index=9&type=section&id=Research%20and%20Development) - R&D activities are conducted globally, focusing on innovations for **next-generation DRAM, mobile DRAM, hybrid memories, Flash-based products, and specialized computing platforms for AI/ML/HPC**[51](index=51&type=chunk)[52](index=52&type=chunk) Research and Development Expenses | Fiscal Year | Amount (Millions USD) | | :---------- | :-------------------- | | **2020** | **$52.1** | | **2019** | **$47.9** | | **2018** | **$39.8** | - As of **August 28, 2020**, the company had **276 research and development personnel worldwide**[55](index=55&type=chunk) [Competition](index=10&type=section&id=Competition) - The markets served are characterized by **intense competition** from large domestic and international companies with **greater resources, broader product lines, and lower cost structures**[112](index=112&type=chunk) - Competitors include specialty memory providers (e.g., Viking Technology, ATP), local Brazilian manufacturers (e.g., HT Micron, Adata), semiconductor memory IC manufacturers (e.g., Samsung, Micron), and providers of compute/storage systems (e.g., HPE, Dell) and embedded/wireless computing platforms (e.g., ADLink, Kontron)[57](index=57&type=chunk)[62](index=62&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[116](index=116&type=chunk)[118](index=118&type=chunk) - **Principal competitive factors** include **meeting customer-specific requirements, product quality, strong technical support, advanced testing capabilities, flexible delivery, reliable supply, and reasonable pricing**[56](index=56&type=chunk) [Intellectual Property](index=11&type=section&id=Intellectual%20Property) - Relies on a combination of **trade secrets, know-how, trademarks, copyright, and, to a lesser extent, patents** to protect intellectual property rights[60](index=60&type=chunk) Issued Patents (as of Oct 2, 2020) | Jurisdiction | Number of Patents | | :----------- | :---------------- | | United States | **110** | | China | **38** | | Brazil | **2** | | South Korea | **3** | | **Total** | **153** | - The **absence of patent protection** for most products means competitors can reverse-engineer and duplicate them; success largely depends on **technical expertise, customer relationships, and manufacturing/support capabilities**[63](index=63&type=chunk) [Employees](index=12&type=section&id=Employees) - As of **August 28, 2020**, the company had **1,754 full-time employees**[64](index=64&type=chunk) - Employee relations in Brazil are subject to **Brazilian labor laws and regulations**, as well as **annual collective bargaining agreements**, with **all employees represented by unions**[65](index=65&type=chunk) - The company has **never experienced a work stoppage worldwide** and considers its **employee relations to be good**[66](index=66&type=chunk) [Brazil Local Manufacturing Requirements](index=12&type=section&id=Brazil%20Local%20Manufacturing%20Requirements) - The Brazilian government has historically used **local manufacturing requirements and investment incentive programs** (**Lei da Informática—PPB/IT Program, Lei do Bem, PADIS**) to promote job creation and the IT industry[67](index=67&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk) - Following a **WTO ruling**, Brazil **revoked several local content requirements** under the PPB/IT Program effective **June 30, 2019**, and introduced a **new score-based point system for incentives**[75](index=75&type=chunk)[76](index=76&type=chunk) - Effective **April 1, 2020**, **tax reductions (IPI, PIS, COFINS)** for PPB/IT and PADIS participants were replaced with **financial credits based on R&D investments**, with multipliers and caps that decline over time[77](index=77&type=chunk) [Environmental Regulations](index=14&type=section&id=Environmental%20Regulations) - Operations are subject to **various U.S., foreign, and international environmental laws and regulations** concerning air emissions, wastewater, waste management, and hazardous materials[79](index=79&type=chunk) - **Lead contamination** has been found under a leased multi-tenant building in Brazil; the company **may be responsible for remediation** but may seek indemnification from responsible parties or the lessor[79](index=79&type=chunk) [Corporate Information](index=15&type=section&id=Corporate%20Information) - **SMART Global Holdings**, Inc. is a **Cayman Islands company** with U.S. principal executive offices located at **39870 Eureka Drive, Newark, California 94560**[80](index=80&type=chunk) - The company's principal website is http://www.smartgh.com[80](index=80&type=chunk) [Available Information](index=15&type=section&id=Available%20Information) - Annual, quarterly, and current reports on **Forms 10-K, 10-Q, and 8-K** are available **free of charge** on the company's website (www.smartgh.com) and the SEC's website (www.sec.gov)[82](index=82&type=chunk)[83](index=83&type=chunk) - **SMART Global Holdings** is a leading designer and manufacturer of electronic products focused in **memory and computing technology** areas, specializing in **application specific product development** and support for customers in **enterprise, government and original equipment manufacturer, or OEM, markets**[19](index=19&type=chunk) - The company operates in **three primary product areas**: **Specialty Memory Products**, **Brazil Products**, and **Specialty Compute and Storage Solutions (SCSS)**[19](index=19&type=chunk)[23](index=23&type=chunk) - As of **August 28, 2020**, the company had **1,754 full-time employees worldwide**[64](index=64&type=chunk) [Item 1A. Risk Factors](index=15&type=page&id=Item%201A.%20Risk%20Factors) This section outlines significant risks, including operational, market, international, financial, and governance factors, that could adversely affect the company's performance [Risks Relating to Our Business](index=16&type=section&id=Risks%20Relating%20to%20Our%20Business) - **COVID-19 pandemic** poses **significant risks**, including **disruptions to operations, supply chain, demand, and overall economic conditions**, potentially worsening in the future[87](index=87&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk)[92](index=92&type=chunk)[95](index=95&type=chunk) - Operating results are **unpredictable and may fluctuate** due to **cyclical markets, memory component price changes, customer demand shifts, and competitive developments**[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk)[100](index=100&type=chunk)[104](index=104&type=chunk) - **Dependence on a small number of sole or limited source suppliers** for **critical components** (e.g., DRAM, Flash ICs, processors) creates **risks of shortages, delays, and increased costs**[136](index=136&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) [Risks Relating to our International Operations](index=38&type=section&id=Risks%20Relating%20to%20our%20International%20Operations) - A **significant portion of sales and operations are focused on Brazil** (**35% of net sales in FY2020**), making the company dependent on the growth and stability of the Brazilian market[207](index=207&type=chunk) - Success in Brazil relies on **government incentives for local manufacturing**, which have been **restructured post-WTO ruling**, potentially **reducing demand and profit margins** if new programs are less effective[212](index=212&type=chunk)[215](index=215&type=chunk) - Operations in Brazil and Malaysia are exposed to **political and economic instability, changes in tax policies, currency fluctuations, and import/export controls**[217](index=217&type=chunk)[218](index=218&type=chunk)[233](index=233&type=chunk)[235](index=235&type=chunk) [Risks Relating to our Debt](index=47&type=section&id=Risks%20Relating%20to%20our%20Debt) - **Indebtedness**, including convertible senior notes and credit facilities, could **impair financial condition** by requiring **significant cash flow for debt service, limiting flexibility, and increasing vulnerability to economic downturns**[249](index=249&type=chunk)[256](index=256&type=chunk) - The Amended Credit Agreement contains **restrictive covenants** limiting the company's ability to **incur additional debt, pay dividends, make investments, and sell assets**, with **failure to comply potentially leading to default**[257](index=257&type=chunk)[259](index=259&type=chunk)[260](index=260&type=chunk) - The **accounting method for convertible notes** may **adversely affect reported earnings and financial condition** by **increasing interest expense and potentially reducing diluted EPS** under the 'if-converted' method[263](index=263&type=chunk)[264](index=264&type=chunk)[266](index=266&type=chunk) [Risks Relating to Investments in Cayman Islands Companies](index=51&type=section&id=Risks%20Relating%20to%20Investments%20in%20Cayman%20Islands%20Companies) - As a **Cayman Islands company**, **shareholder rights under Cayman Islands law differ from U.S. law**, potentially making it **more difficult for shareholders to protect their interests**[277](index=277&type=chunk)[280](index=280&type=chunk) - It may be **difficult to enforce judgments of U.S. courts** for **civil liabilities under U.S. federal securities laws** against the company in the Cayman Islands[278](index=278&type=chunk)[279](index=279&type=chunk) [Risks Relating to Our Ordinary Shares](index=52&type=section&id=Risks%20Relating%20to%20Our%20Ordinary%20Shares) - The market price of ordinary shares may be **volatile** due to various factors, including **operating results, industry conditions, major customer changes, and analyst coverage**[283](index=283&type=chunk)[284](index=284&type=chunk)[287](index=287&type=chunk) - Principal shareholders, particularly **Silver Lake (48% ownership post-IPO)**, have **significant influence over corporate matters**, potentially limiting other shareholders' influence[281](index=281&type=chunk) - The company **does not anticipate paying cash dividends in the foreseeable future**, intending to **retain earnings for debt repayment and business growth**[301](index=301&type=chunk) - The company faces risks related to the **COVID-19 pandemic**, which could **significantly disrupt operations**, including manufacturing, R&D, and sales, and negatively impact financial results[87](index=87&type=chunk)[88](index=88&type=chunk)[95](index=95&type=chunk) - Operating results have historically fluctuated and may continue to do so due to factors like market cyclicality, changes in memory component prices, customer demand, and economic conditions[96](index=96&type=chunk)[100](index=100&type=chunk)[104](index=104&type=chunk) - Sales to a limited number of key customers represent a significant portion of net sales (**66% in FY2020**), making the company vulnerable to the loss of any major customer or program[109](index=109&type=chunk)[111](index=111&type=chunk) [Item 1B. Unresolved Staff Comments](index=55&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported that there were no unresolved staff comments from the Securities and Exchange Commission (SEC) as of the filing date - **No unresolved staff comments were reported**[302](index=302&type=chunk) [Item 2. Properties](index=56&type=section&id=Item%202.%20Properties) The company maintains various leased and owned facilities globally for manufacturing, R&D, procurement, sales, and supply chain services - The company has facilities in **Newark, Fremont, Huntington Beach and Irvine California; Atibaia, Brazil; Penang, Malaysia; Gilbert and Tempe, Arizona; New Taipei City, Taiwan; Seongnam-City, South Korea; Tewksbury, Massachusetts; Bangalore and Cochin, India; East Kilbride, Scotland; and Houston, Texas**[304](index=304&type=chunk) - A **new U.S. corporate headquarters lease** for **21,365 square feet** in **Milpitas, California**, is expected to commence in the **second calendar quarter of 2021** with a **term expiring in 2031**[306](index=306&type=chunk) Key Facilities and Capabilities | Location | Facility Size (Sq. Feet) | Leased/Owned | Lease Expiration | | :---------------- | :----------------------- | :----------- | :--------------- | | Newark, CA | **79,480** | Leased | **April 2021** | | Fremont, CA | **44,256** | Leased | **July 2030** | | Atibaia, Brazil | **87,449** | Leased | **June 2032** | | Penang, Malaysia* | **86,730** | Owned | N/A | [Item 3. Legal Proceedings](index=57&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in ongoing legal proceedings, including indemnification claims and Brazilian import duty tax assessments, with one claim dismissed and others under appeal - The company is currently involved in **legal proceedings, claims, and government investigations** in the ordinary course of business, including **intellectual property and tax-related matters**[308](index=308&type=chunk)[733](index=733&type=chunk) - SanDisk's indemnification claim related to alleged patent infringement from a **2013** business sale was **dismissed by court order on May 19, 2020**[308](index=308&type=chunk)[735](index=735&type=chunk) - Brazilian federal tax authorities issued a **Third Assessment** for **R$3.6 million (or $0.7 million)** for **import-related tax issues and penalties for 2012 and 2013**, which is **currently under appeal by tax authorities after a favorable ruling for SMART Brazil**[312](index=312&type=chunk)[313](index=313&type=chunk)[738](index=738&type=chunk)[739](index=739&type=chunk) [Item 4. Mine Safety Disclosures](index=59&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company, indicating that it does not engage in mining operations or activities subject to mine safety disclosures - This item is **not applicable**[315](index=315&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=59&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's ordinary shares began trading on **NASDAQ** in **May 2017**, with no anticipated cash dividends in the foreseeable future - Ordinary shares began trading on the **NASDAQ Global Select Market** under the symbol **'SGH'** on **May 24, 2017**, with an IPO price of **$11.00 per share**[317](index=317&type=chunk) - As of **October 2, 2020**, there were **78 registered holders of record** of the company's ordinary shares[318](index=318&type=chunk) - The company **does not intend to pay any cash dividends on its ordinary shares in the foreseeable future**, prioritizing **retention of earnings for debt repayment and business growth**[319](index=319&type=chunk) - In connection with the **SMART Wireless acquisition**, **382,788** ordinary shares were issued as merger consideration, and **67,550** shares held back as security were later released, all issued under **Section 4(a)(2) of the Securities Act**[322](index=322&type=chunk)[324](index=324&type=chunk) [Item 6. Selected Financial Data](index=61&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents historical consolidated financial data for **fiscal years 2016-2020**, including key operational, balance sheet, and other financial metrics - The selected consolidated financial data is derived from **audited consolidated financial statements** and is presented for **fiscal years ended August 28, 2020, August 30, 2019, August 31, 2018, August 25, 2017, and August 26, 2016**[328](index=328&type=chunk) Consolidated Statement of Operations Data (in thousands, except per share data) | Metric | **FY 2020** | **FY 2019** | **FY 2018** | **FY 2017** | **FY 2016** | | :-------------------------- | :------------ | :------------ | :------------ | :------------ | :------------ | | Net sales | **$1,122,377** | **$1,211,999** | **$1,288,821** | **$761,291** | **$534,423** | | Cost of sales | **905,981** | **974,472** | **997,235** | **599,041** | **427,491** | | Gross profit | **216,396** | **237,527** | **291,586** | **162,250** | **106,932** | | Income from operations | **41,330** | **89,081** | **170,221** | **53,874** | **6,185** | | Net income (loss) | **$(1,143)** | **$51,332** | **$119,463** | **$(7,795)** | **$(19,960)** | | Basic EPS | **$(0.05)** | **$2.24** | **$5.42** | **$(0.49)** | **$(1.44)** | | Diluted EPS | **$(0.05)** | **$2.19** | **$5.17** | **$(0.49)** | **$(1.44)** | Consolidated Balance Sheet Data (in thousands) | Metric | **FY 2020** | **FY 2019** | **FY 2018** | **FY 2017** | **FY 2016** | | :-------------------------- | :------------ | :------------ | :------------ | :------------ | :------------ | | Cash and cash equivalents | **$150,811** | **$98,139** | **$31,375** | **$22,436** | **$58,634** | | Working capital | **274,221** | **234,360** | **226,264** | **107,115** | **90,095** | | Total assets | **786,608** | **704,137** | **672,762** | **480,028** | **458,655** | | Long-term debt | **195,573** | **182,450** | **184,190** | **154,450** | **225,587** | | Total shareholders' equity | **282,104** | **273,460** | **187,128** | **82,396** | **(1,237)** | Other Financial Data | Metric | **FY 2020** | **FY 2019** | **FY 2018** | **FY 2017** | **FY 2016** | | :-------------------------- | :------------ | :------------ | :------------ | :------------ | :------------ | | Adjusted EBITDA | **$104,211** | **$134,673** | **$195,540** | **$99,387** | **$51,760** | | Gross billings to customers | **$1,727,075** | **$2,158,302** | **$2,302,214** | **$1,625,547** | **$1,925,047** | | Days sales outstanding (DSO)| **46** | **37** | **38** | **41** | **27** | | Inventory turns | **9** | **16** | **9** | **12** | **18** | | Days payable outstanding (DPO)| **54** | **31** | **40** | **47** | **40** | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=65&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's financial performance, liquidity, and capital resources, detailing operating results, debt structure, and critical accounting policies [Overview](index=65&type=section&id=Overview) - The discussion and analysis of financial condition and results of operations should be read with the consolidated financial statements and notes[341](index=341&type=chunk) - The company uses a **52- to 53-week fiscal year** ending on the last Friday in August; Brazilian subsidiaries' financial information is included on a one-month lag[342](index=342&type=chunk) [Components of Operating Results](index=66&type=section&id=Components%20of%20Operating%20Results) - Net Sales: Generated predominantly from **sales of memory components, modules, and specialty compute/storage products** to OEMs and end users; **highly dependent on end-market demand and concentrated among a few customers**[343](index=343&type=chunk) - Cost of Sales: Primarily consists of **materials (DRAM and Flash components/wafers), fixed manufacturing costs, labor, depreciation, freight, and customs charges**; **susceptible to inventory write-downs and fluctuations in DRAM pricing**[344](index=344&type=chunk) - Operating Expenses: Comprise **R&D (personnel, consulting, overhead, increasing with product development)** and **SG&A (personnel, sales commissions, facilities, professional fees, increasing due to public company costs)**[346](index=346&type=chunk)[348](index=348&type=chunk)[349](index=349&type=chunk)[350](index=350&type=chunk) [Results of Operations](index=68&type=section&id=Results%20of%20Operations) Consolidated Statement of Operations Data (in thousands) | Metric | **FY 2020** | % of sales | **FY 2019** | % of sales | **FY 2018** | % of sales | | :------------------------------------------ | :------------ | :--------- | :------------ | :--------- | :------------ | :--------- | | Net sales | **$1,122,377** | **100%** | **$1,211,999** | **100%** | **$1,288,821** | **100%** | | Cost of sales | **905,981** | **81%** | **974,472** | **80%** | **997,235** | **77%** | | Gross profit | **216,396** | **19%** | **237,527** | **20%** | **291,586** | **23%** | | Research and development | **52,056** | **5%** | **47,920** | **4%** | **39,824** | **3%** | | Selling, general and administrative | **119,523** | **11%** | **103,226** | **9%** | **84,541** | **7%** | | Income from operations | **41,330** | **4%** | **89,081** | **7%** | **170,221** | **13%** | | Net income (loss) | **$(1,143)** | **0%** | **$51,332** | **4%** | **$119,463** | **9%** | [Comparison of the Years Ended August 28, 2020 and August 30, 2019](index=69&type=section&id=Comparison%20of%20the%20Years%20Ended%20August%2028%2C%202020%20and%20August%2030%2C%202019) Net Sales, Cost of Sales and Gross Profit (in thousands, except percentages) | Metric | **FY 2020** | **FY 2019** | Change Amount | Change % | | :----------- | :------------ | :------------ | :------------ | :------- | | Net sales | **$1,122,377** | **$1,211,999** | **$(89,622)** | **(7.4%)** | | Cost of sales| **905,981** | **974,472** | **(68,491)** | **(7.0%)** | | Gross profit | **$216,396** | **$237,527** | **$(21,131)** | **(8.9%)** | | Gross margin | **19.3%** | **19.6%** | | | - Net sales decreased by **$89.6 million (7.4%)** due to a **$147.1 million (27.4%) decrease** in Brazil product sales (lower DRAM and mobile memory ASPs), partially offset by a **$48.6 million (22.4%) increase** in SCSS revenue from acquisitions[361](index=361&type=chunk) - R&D expense increased by **$4.1 million (8.6%)** due to higher costs from SCSS acquisitions, partially offset by **$6.4 million** in Brazil financial credits. SG&A expense increased by **$16.3 million (15.8%)** due to SCSS acquisitions and integration expenses[366](index=366&type=chunk)[367](index=367&type=chunk) [Comparison of the Years Ended August 30, 2019 and August 31, 2018](index=71&type=section&id=Comparison%20of%20the%20Years%20Ended%20August%2030%2C%202019%20and%20August%2031%2C%202018) Net Sales, Cost of Sales and Gross Profit (in thousands, except percentages) | Metric | **FY 2019** | **FY 2018** | Change Amount | Change % | | :----------- | :------------ | :------------ | :------------ | :------- | | Net sales | **$1,211,999** | **$1,288,821** | **$(76,822)** | **(6.0%)** | | Cost of sales| **974,472** | **997,235** | **(22,763)** | **(2.3%)** | | Gross profit | **$237,527** | **$291,586** | **$(54,059)** | **(18.5%)** | | Gross margin | **19.6%** | **22.6%** | | | - Net sales decreased by **$76.8 million (6.0%)** due to a **$266.0 million (33.3%) decline** in Brazil sales (lower mobile memory and DRAM demand/ASPs), partially offset by **$150.4 million** additional revenue from Penguin Computing[374](index=374&type=chunk)[375](index=375&type=chunk) - Gross margin decreased to **19.6% from 22.6%** due to **higher cost of sales for SCSS and fixed manufacturing costs in Brazil**[377](index=377&type=chunk) [Liquidity and Capital Resources](index=73&type=section&id=Liquidity%20and%20Capital%20Resources) Cash Flow Summary (in thousands) | Metric | **FY 2020** | **FY 2019** | **FY 2018** | | :-------------------------------- | :------------ | :------------ | :------------ | | Cash provided by operating activities | **$87,205** | **$169,657** | **$67,907** | | Cash used in investing activities | **$(32,041)** | **$(109,440)** | **$(67,749)** | | Cash provided by financing activities | **$12,594** | **$100** | **$7,944** | | Net increase in cash and cash equivalents | **$52,672** | **$60,905** | **$7,771** | - Cash and cash equivalents increased to **$150.8 million** in **fiscal 2020**, with **$95.3 million** held outside the U.S[385](index=385&type=chunk) - In **February 2020**, the company issued **$250.0 million** in convertible senior notes, generating **$243.1 million** net proceeds, used to extinguish **$204.9 million** of long-term debt and purchase **$21.8 million** in capped calls[386](index=386&type=chunk)[387](index=387&type=chunk) [Contractual Obligations](index=75&type=section&id=Contractual%20Obligations) Contractual Obligations (in millions) | Obligation | Total | **1** year | **2-3** years | **4-5** years | After **5** years | | :-------------------------------- | :------ | :----- | :-------- | :-------- | :------------ | | Notes | **$250.0** | **$0** | **$0** | **$0** | **$250.0** | | Interest expense (Notes) | **$31.0** | **$5.6** | **$11.3** | **$11.3** | **$2.8** | | Operating leases | **$36.6** | **$7.2** | **$8.7** | **$6.5** | **$14.2** | | Non-cancellable purchase commitments | **$49.9** | **$49.9** | **$0** | **$0** | **$0** | | **Total** | **$367.5**| **$62.7**| **$20.0** | **$17.8** | **$267.0** | - As of **August 28, 2020**, gross unrecognized tax benefits, including penalties and interest, totaled **$16.5 million**, with **$0.4 million** recorded as a noncurrent liability[396](index=396&type=chunk) [Convertible Senior Notes due 2026](index=75&type=section&id=Convertible%20Senior%20Notes%20due%202026) - Issued **$250.0 million** in **2.25% convertible senior notes due 2026** in **February 2020**, bearing semi-annual interest[397](index=397&type=chunk)[398](index=398&type=chunk) - Notes are **convertible at the holder's option under specific conditions**, with the company electing to **settle conversions via a combination of cash (principal) and ordinary shares (excess conversion value)**[399](index=399&type=chunk)[400](index=400&type=chunk) - The company has the right to redeem the notes from **February 21, 2023**, at a **cash redemption price equal to the principal plus accrued interest**, subject to share price conditions[403](index=403&type=chunk) [Off-Balance Sheet Arrangements](index=77&type=section&id=Off-Balance%20Sheet%20Arrangements) - As of **August 28, 2020**, and **August 30, 2019**, the company had **no off-balance sheet arrangements** or relationships with unconsolidated entities or financial partnerships[409](index=409&type=chunk) [Critical Accounting Policies](index=77&type=section&id=Critical%20Accounting%20Policies) - Revenue recognition involves **identifying contracts, performance obligations, transaction price allocation, and recognizing revenue when control transfers to the customer**, with specific policies for **standard, customized, and NCNR products, and computing/agency services**[411](index=411&type=chunk)[412](index=412&type=chunk)[417](index=417&type=chunk)[418](index=418&type=chunk)[419](index=419&type=chunk)[420](index=420&type=chunk)[421](index=421&type=chunk)[422](index=422&type=chunk)[423](index=423&type=chunk)[424](index=424&type=chunk) - Inventory valuation involves **evaluating ending inventories for excess quantities and obsolescence** based on **sales levels, demand forecasts, market conditions, and product life cycles**, adjusting carrying values to the **lower of cost or net realizable value**[428](index=428&type=chunk) - Goodwill is **tested for impairment annually** by comparing the estimated fair value of reporting units to their carrying value, using **income and market approach methodologies** with **significant management judgments and assumptions**[431](index=431&type=chunk) - Net sales decreased by **$89.6 million (7.4%)** in **fiscal 2020** compared to **fiscal 2019**, primarily due to a **27.4% decline** in Brazil product sales, partially offset by a **22.4% increase** in SCSS revenue from acquisitions[361](index=361&type=chunk) - Gross margin remained relatively flat at **19.3%** in **fiscal 2020** (vs. **19.6%** in **fiscal 2019**), while R&D expense increased by **8.6%** and SG&A expense increased by **15.8%**, largely due to SCSS acquisitions[363](index=363&type=chunk)[366](index=366&type=chunk)[367](index=367&type=chunk) - Cash and cash equivalents increased to **$150.8 million** in **fiscal 2020**, with **$87.2 million** from operating activities and **$12.6 million** from financing activities, including **$243.1 million** from convertible notes[385](index=385&type=chunk)[386](index=386&type=chunk)[391](index=391&type=chunk)[394](index=394&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=81&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks primarily from foreign currency exchange rate fluctuations, especially in **Brazil**, and interest rate changes on variable-rate debt - The company is subject to **foreign currency exchange rate fluctuations** due to international sales and operations, particularly in Brazil (reais), impacting **product pricing, manufacturing costs, and reported financial results**[439](index=439&type=chunk)[441](index=441&type=chunk) - Foreign exchange losses were **$3.4 million** in **fiscal 2020**, **$3.1 million** in **2019**, and **$13.2 million** in **2018**[442](index=442&type=chunk) - **Interest rate risk** arises from **variable-rate short-term debt** under the Amended Credit Agreement; a **1.0% increase** in interest rates on fully drawn revolving loans would increase annual interest expense and decrease cash flow/income before taxes by **$0.5 million**[443](index=443&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=81&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Required financial statements and supplementary data are incorporated by reference from **Part IV, Item 15** of this annual report - The financial statements and supplemental financial information required by this item are presented beginning on page F-1 in **Part IV, Item 15** of this annual report on **Form 10-K** and are incorporated herein by reference[444](index=444&type=chunk) - Supplementary data required by this item is included in **Note 15, Selected Quarterly Information**, in the notes to consolidated financial statements[444](index=444&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=82&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) No changes in or disagreements with accountants on accounting principles or financial disclosure were reported - **No changes in and disagreements with accountants on accounting and financial disclosure were reported**[446](index=446&type=chunk) [Item 9A. Controls and Procedures](index=83&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of **August 28, 2020**, with no material changes in **Q4 fiscal 2020** - As of **August 28, 2020**, the company's management, including the CEO and CFO, concluded that its **disclosure controls and procedures were effective**[447](index=447&type=chunk) - Management concluded that **internal control over financial reporting was effective** as of **August 28, 2020**, based on the **COSO 2013 Framework**, a conclusion audited by **Deloitte & Touche LLP**[448](index=448&type=chunk)[449](index=449&type=chunk)[453](index=453&type=chunk) - There were **no material changes in internal control over financial reporting** during the **fourth quarter of fiscal 2020**[450](index=450&type=chunk) [Item 9B. Other Information](index=84&type=section&id=Item%209B.%20Other%20Information) The Board approved accelerated vesting for **270,000** restricted share awards granted to Executive Chairman Ajay Shah on **October 20, 2020** - The Board approved the **acceleration of vesting** for **90,000** performance-based and **180,000** time-based **restricted share awards** granted to **Executive Chairman Ajay Shah** on **October 20, 2020**[459](index=459&type=chunk) - These awards became **fully vested, free of restrictions and non-forfeitable** on **October 20, 2020**, in consideration of Mr. Shah's **outstanding service and role in recruiting the new CEO**[459](index=459&type=chunk) Part III [Item 10. Directors, Executive Officers and Corporate Governance](index=84&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement for the Annual General Meeting - Information on **directors, executive officers, and corporate governance** is incorporated by reference from the **Proxy Statement for the 2020 Annual General Meeting**[460](index=460&type=chunk) - The company has adopted a **Code of Business Ethics and Conduct** applicable to **all employees, officers, and directors**, available on its Investor Relations page at www.smartgh.com[461](index=461&type=chunk) [Item 11. Executive Compensation](index=85&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation details are incorporated by reference from the Proxy Statement for the next Annual General Meeting - Information on **executive compensation** is incorporated by reference to the **Proxy Statement for the next Annual General Meeting**, to be filed **within 120 days of the fiscal year ended August 28, 2020**[462](index=462&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters](index=85&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Shareholder%20Matters) Security ownership information for beneficial owners and management is incorporated by reference from the Proxy Statement for the next Annual General Meeting - Information on **security ownership of certain beneficial owners and management and related shareholder matters** is incorporated by reference to the **Proxy Statement for the next Annual General Meeting**[463](index=463&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=85&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related transactions and director independence is incorporated by reference from the Proxy Statement for the next Annual General Meeting - Information on **certain relationships and related transactions, and director independence** is incorporated by reference to the **Proxy Statement for the next Annual General Meeting**[464](index=464&type=chunk) [Item 14. Principal Accounting Fees and Services](index=85&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Principal accounting fees and services information is incorporated by reference from the Proxy Statement for the next Annual General Meeting - Information on **principal accounting fees and services** is incorporated by reference to the **Proxy Statement for the next Annual General Meeting**[465](index=465&type=chunk) Part IV [Item 15. Exhibits and Financial Statement Schedules](index=85&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the consolidated financial statements and various exhibits filed as part of the annual report - The **Consolidated Financial Statements** are filed as part of this report under **Item 8 'Financial Statements and Supplementary Data'**[467](index=467&type=chunk) Consolidated Financial Statements Included | Document | Page | | :------------------------------------------ | :--- | | Report of Independent Registered Public Accounting Firm | F-2 | | Consolidated Balance Sheets | F-5 | | Consolidated Statements of Operations | F-6 | | Consolidated Statements of Comprehensive Income (Loss) | F-7 | | Consolidated Statements of Shareholders' Equity | F-8 | | Consolidated Statements of Cash Flows | F-9 | | Notes to Consolidated Financial Statements | F-10 | - Exhibits, including **merger agreements, organizational documents, and various other agreements**, are listed on the **Exhibit Index** at the end of the report[468](index=468&type=chunk)[755](index=755&type=chunk)[756](index=756&type=chunk)[757](index=757&type=chunk)[758](index=758&type=chunk)[759](index=759&type=chunk)[760](index=760&type=chunk) [Item 16. Form 10-K Summary](index=85&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to the company, indicating that a separate Form 10-K summary is not provided or required - This item is **not applicable**[468](index=468&type=chunk) [SIGNATURES](index=91&type=section&id=SIGNATURES) The report is duly signed by the President and CEO, Mark Adams, along with other directors and officers, on **October 22, 2020** - The report is **duly signed** on behalf of **SMART Global Holdings**, Inc. by its **President and Chief Executive Officer, Mark Adams**, and **other directors and officers**[763](index=763&type=chunk)[764](index=764&type=chunk)[768](index=768&type=chunk) - The signing date for the report is **October 22, 2020**[764](index=764&type=chunk)

SMART Global Holdings, Inc. (NASDAQ:SGH) Q4 2020 Earnings Conference Call October 1, 2020 4:30 PM ET Company Participants Ajay Shah - Chairman Mark Adams - CEO Jack Pacheco - CFO Suzanne Schmidt - IR Conference Call Participants Rajvi Gill - Needham & Company Brian Chin - Stifel, Nicolaus & Company Kevin Cassidy - Rosenblatt Securities Sidney Ho - Deutsche Bank Blayne Curtis - Barclays Mark Lipacis - Jefferies Operator Ladies and gentlemen, thank you for standing by and welcome to the SMART Global Holdings ...

O C T O B E R 1 , 2 0 2 0 Q4 FY2020 Financial Results Conference Call SMART Disclaimer 2 This presentation and oral communications made during the course of this presentation contain "forward-looking statements" including among other things, statements regarding future events and the future financial performance of SMART Global Holdings, Inc. (including the business outlook for the next fiscal quarter) and statements regarding growth drivers in SMART's industries and markets. These statements are only predi ...

Financial Data and Key Metrics Changes - Total net sales for Q3 2020 increased by approximately 19% compared to the same quarter last year, driven by strength in the Specialty Memory business [9] - Non-GAAP net income and EPS increased by 116% and 106% respectively compared to last year's third fiscal quarter [9] - Non-GAAP gross profit for Q3 was $55.9 million, up from $52.9 million in the previous quarter [32] - Non-GAAP net income for Q3 was $17.1 million or $0.70 per diluted share, compared to $12.8 million or $0.52 per diluted share in the previous quarter [33] - Cash flow from operations totaled $13.6 million compared to $23.3 million in the prior quarter [38] Business Line Data and Key Metrics Changes - Specialty Memory products generated $127.7 million in revenue, approximately 45% of overall revenue, a 15% increase from the previous quarter [11] - Brazil business generated $92.7 million in revenues, approximately 33% of overall net sales, meeting expectations despite pandemic-related economic slowdowns [16] - Specialty Compute products recorded revenues of $60.9 million, representing approximately 22% of overall revenue [22] Market Data and Key Metrics Changes - Breakdown of net sales by end markets: Mobile and PCs 27%, Network and Telecom 25%, Servers and Storage 15%, Industrial, Defense & Other 33% [31] - Brazilian smartphone market is forecasted to see a unit sales slowdown, but average mobile memory capacity per phone continues to increase [17] Company Strategy and Development Direction - The company is focused on expanding its reach across new geographies and customers, particularly in high-performance computing and specialty memory [10][28] - The company is evaluating opportunities for accretive acquisitions to strengthen and diversify its operations [28] - The introduction of new high-density products is expected to drive future growth, particularly in the Brazilian market [21][87] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong financial performance ahead, despite uncertainties in the market [10] - The company is navigating the global health crisis effectively, with a focus on employee safety and adapting to new work environments [27] - Management noted that the federal year-end spending is delayed, impacting visibility on government contracts [48] Other Important Information - The company has a strong balance sheet with improved capital structure following the restructuring of debt [38][109] - Capital expenditures for the fourth fiscal quarter are expected to be in the range of $6 million to $10 million [45] Q&A Session Summary Question: Expectations for recovery in Brazil and other segments - Management indicated uncertainty regarding the duration of project delays but noted strong commercial sales in high-performance computing [48][49] Question: Gross margins and factors affecting them - Management attributed the increase in gross margins to a higher mix of specialty computing and mobile products [54] Question: Memory content and average selling price trends - Management expects a 15% to 20% growth in average selling prices in Q4 due to new product releases [57] Question: Gross margin by segment - Brazil's gross margin was approximately 21%, while specialty compute was at 24% [61] Question: Lead times for DRAM and flash - DRAM lead times have decreased slightly, while flash remains at around 16 weeks [63] Question: Significance of the 7-die device - The 7-die device is expected to increase density and is already being shipped in some phones [68] Question: Government business and budget flush - Management expressed uncertainty about the typical year-end budget flush due to the current environment [102] Question: M&A environment during the pandemic - The M&A environment remains active, with the company looking for strategic opportunities [106][109]

Part I [Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited condensed consolidated financial statements for SMART Global Holdings, Inc. for the quarterly period ended May 29, 2020, including key financial statements and detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $792.3 million, total liabilities rose to $527.8 million, and total shareholders' equity slightly decreased to $264.5 million as of May 29, 2020 Condensed Consolidated Balance Sheets (in thousands) | | May 29, 2020 | August 30, 2019 | | :--- | :--- | :--- | | **Total current assets** | $567,106 | $472,260 | | **Total assets** | $792,300 | $704,137 | | **Total current liabilities** | $306,260 | $237,900 | | **Total liabilities** | $527,781 | $430,677 | | **Total shareholders' equity** | $264,519 | $273,460 | [Condensed Consolidated Income Statements](index=5&type=section&id=Condensed%20Consolidated%20Income%20Statements) Net sales increased to $281.3 million for the three months ended May 29, 2020, while the nine-month period saw a net loss of $8.7 million Key Income Statement Data (in thousands, except per share data) | | Three Months Ended May 29, 2020 | Three Months Ended May 31, 2019 | Nine Months Ended May 29, 2020 | Nine Months Ended May 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $281,287 | $235,657 | $825,347 | $933,599 | | **Gross profit** | $54,233 | $43,035 | $160,059 | $185,235 | | **Income from operations** | $10,064 | $7,399 | $24,101 | $77,649 | | **Net income (loss)** | $825 | $1,945 | $(8,671) | $45,707 | | **Diluted EPS** | $0.03 | $0.08 | $(0.36) | $1.96 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) The company reported comprehensive losses of $34.9 million and $65.4 million for the three and nine months ended May 29, 2020, respectively, primarily due to negative foreign currency translation adjustments Comprehensive Income (Loss) (in thousands) | | Three Months Ended May 29, 2020 | Nine Months Ended May 29, 2020 | | :--- | :--- | :--- | | Net income (loss) | $825 | $(8,671) | | Foreign currency translation | $(35,752) | $(56,768) | | **Comprehensive income (loss)** | **$(34,927)** | **$(65,439)** | [Condensed Consolidated Statements of Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) Total shareholders' equity decreased to $264.5 million as of May 29, 2020, influenced by a net loss and negative foreign currency translation adjustments - Total shareholders' equity decreased to **$264.5 million** as of May 29, 2020, from **$273.5 million** as of August 30, 2019[23](index=23&type=chunk) - Key changes in equity for the nine months ended May 29, 2020 include a net loss of **$8.7 million**, share-based compensation of **$15.5 million**, and a **$50.8 million** equity component from new convertible notes[23](index=23&type=chunk)[26](index=26&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities decreased to $62.2 million for the nine months ended May 29, 2020, while financing activities provided $12.8 million Net Cash Flow Summary (in thousands) | | Nine Months Ended May 29, 2020 | Nine Months Ended May 31, 2019 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $62,227 | $120,716 | | **Net cash used in investing activities** | $(16,735) | $(30,189) | | **Net cash provided by financing activities** | $12,751 | $770 | | **Net increase in cash and cash equivalents** | $33,706 | $88,865 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, recent acquisitions, financial instruments, segment reporting changes, debt refinancing, and contingencies including a Brazilian tax assessment - The company operates in three segments: **Specialty Memory Products**, **Brazil Products**, and **Specialty Compute and Storage Solutions (SCSS)**[30](index=30&type=chunk)[218](index=218&type=chunk) - In July 2019, the company acquired **SMART Embedded Computing (SMART EC)** for approximately **$77.7 million** and **SMART Wireless Computing** for approximately **$14.6 million**[94](index=94&type=chunk)[102](index=102&type=chunk)[104](index=104&type=chunk) - In February 2020, the company issued **$250.0 million** of 2.25% convertible senior notes due 2026, using proceeds to repay existing term loans and recognizing a **$6.6 million** loss on extinguishment of debt[143](index=143&type=chunk)[169](index=169&type=chunk) - The company is contesting a Brazilian import duty tax assessment of **R$5.7 million ($1.1 million)** as of May 29, 2020, with management believing the probability of a material loss is remote[214](index=214&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk) Net Sales by Segment (in thousands) | Segment | Three Months Ended May 29, 2020 | Three Months Ended May 31, 2019 | | :--- | :--- | :--- | | Specialty Memory Products | $127,700 | $98,755 | | Brazil Products | $92,701 | $100,982 | | SCSS | $60,886 | $35,920 | | **Total** | **$281,287** | **$235,657** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, including a 19.4% Q3 net sales increase driven by acquisitions, an 11.6% nine-month decline due to Brazil, COVID-19 impacts, and liquidity analysis - The COVID-19 pandemic may negatively impact sales, marketing, and product development, with reduced sales volumes already observed in certain SCSS product lines[231](index=231&type=chunk) Net Sales Comparison (in millions) | Period | FY20 Q3 | FY19 Q3 | % Change | Nine Months FY20 | Nine Months FY19 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $281.3 | $235.7 | +19.4% | $825.3 | $933.6 | -11.6% | - Q3 sales increased due to **SCSS acquisitions** (contributing **$19.9 million**) and a **29.3%** rise in Specialty Memory sales, while nine-month sales declined primarily from an **8.2%** drop in Brazil product sales due to lower average selling prices[234](index=234&type=chunk) - Cash from operations for the nine months ended May 29, 2020, was **$62.2 million**, down from **$120.7 million** in the prior year, primarily due to a **$72.5 million** increase in inventory and a **$17.9 million** increase in accounts receivable[246](index=246&type=chunk)[251](index=251&type=chunk) - In February 2020, the company issued **$250.0 million** in convertible notes, using proceeds to extinguish **$204.9 million** of long-term debt and purchase **$21.8 million** in capped calls[247](index=247&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=51&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from foreign currency fluctuations, especially the Brazilian real, and interest rate changes, using forward contracts to mitigate some foreign exchange exposure - The company is subject to foreign exchange risk, with approximately **35%** of net sales for the nine months ended May 29, 2020, originating in Brazilian reais[264](index=264&type=chunk) - Foreign exchange forward contracts are utilized to mitigate risk associated with foreign-currency-denominated assets and liabilities, primarily in Brazil[263](index=263&type=chunk) - The company faces interest rate risk on its **$50 million** revolving credit facility, where a **1.0%** interest rate increase would result in a **$0.5 million** increase in annual interest expense if fully drawn[266](index=266&type=chunk) [Controls and Procedures](index=51&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of May 29, 2020, with no material changes in internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[269](index=269&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter[270](index=270&type=chunk) Part II [Legal Proceedings](index=53&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in legal matters arising in the normal course of business, with details provided in Note 10 of the financial statements - Information regarding legal proceedings is detailed in Note 10, Commitments and Contingencies, of the financial statements[272](index=272&type=chunk) [Risk Factors](index=53&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, including potential adverse impacts of the COVID-19 pandemic, risks associated with convertible senior notes, and changes to Brazilian tax incentive programs - The COVID-19 pandemic poses significant risks, potentially disrupting manufacturing, supply chains, and sales, and has negatively impacted certain SCSS product lines[274](index=274&type=chunk) - Risks related to convertible senior notes include potential inability to repurchase upon a 'fundamental change' and adverse accounting impacts on financial results[280](index=280&type=chunk)[282](index=282&type=chunk) - Capped call transactions related to the notes may affect the value of notes and ordinary shares, subject to counterparty hedging activities[288](index=288&type=chunk)[290](index=290&type=chunk) - Changes to Brazilian tax incentive programs (PPB/IT and PADIS) have shifted benefits from reduced tax rates to financial credits based on R&D investment, creating uncertainty about future benefits[292](index=292&type=chunk)[295](index=295&type=chunk)[299](index=299&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=60&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company's use of working capital and ability to pay dividends are restricted by its Amended Credit Agreement, as detailed in Note 7 - The company's use of working capital and ability to pay dividends are restricted by its Amended Credit Agreement[308](index=308&type=chunk) [Defaults Upon Senior Securities](index=60&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities during the period - None[309](index=309&type=chunk) [Mine Safety Disclosures](index=60&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[310](index=310&type=chunk) [Exhibits](index=61&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including amended articles of association, CEO and CFO certifications, and XBRL data files - Filed exhibits include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL interactive data files[312](index=312&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION For the quarterly period ended February 28, 2020 OR ☐ 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) c/o Maples Corporate Services Limited P.O. Box 309 Ugland House Grand Cayman, Cayman Islands KY1-1104 (Address of ...

Financial Performance - Net sales for the three months ended November 29, 2019, were $272,018 thousand, a decrease of 30.8% compared to $393,879 thousand for the same period in 2018[15]. - Gross profit for the same period was $54,320 thousand, down 36.2% from $85,069 thousand year-over-year[15]. - Net income for the three months ended November 29, 2019, was $224 thousand, a significant decline from $30,976 thousand in the same period of 2018[15]. - Total net revenue for the three months ended November 29, 2019, was $272.0 million, compared to $393.9 million for the same period in 2018[193]. - Basic earnings per share for the three months ended November 29, 2019, was $0.01, down from $1.37 in the prior year[188]. - Operating expenses increased to $48.4 million, or 18% of net sales, compared to $37.3 million, or 9% of net sales, in the prior year[193]. - Cash provided by operating activities was $25.3 million, down from $35.4 million in the same period last year[208]. Revenue Breakdown - Service revenue, net for the same period was $7.9 million, down 45.9% from $14.6 million in the prior year[47]. - Product net sales were $264.1 million, a decline of 30.4% from $379.2 million in the previous year[47]. - Brazil product sales decreased by $105.3 million, or 52.8%, primarily due to lower average selling prices for mobile memory and DRAM products, which declined by 71% and 67%, respectively[194]. - Specialty products sales decreased by $36.4 million, or 26.0%, mainly due to a 34% drop in average selling prices for Specialty DRAM products[194]. - Revenue from Specialty Compute and Storage Solutions (SCSS) increased by $19.8 million, or 36.3%, driven by two recent acquisitions in July 2019, contributing $27.5 million of revenue for the quarter[194]. Expenses and Costs - Research and development expenses increased to $14,886 thousand, up 26.5% from $11,816 thousand in the prior year[15]. - Cost of sales decreased by $91.1 million, or 29.5%, compared to the same period in the prior year, primarily due to lower raw material costs[195]. - Selling, general and administrative (SG&A) expense increased by $8.1 million, or 31.8%, mainly due to higher costs associated with new SCSS businesses and acquisitions[198]. - Interest expense, net decreased by $1.4 million, or 23.5%, due to higher interest income and lower revolver fees[199]. Assets and Liabilities - Total assets as of November 29, 2019, were $782,733 thousand, an increase of 11.1% from $704,137 thousand as of August 30, 2019[12]. - Total liabilities increased to $510,949 thousand as of November 29, 2019, compared to $430,677 thousand as of August 30, 2019, reflecting a rise of 18.6%[12]. - The company’s long-term debt as of November 29, 2019, was $177,303 thousand, a slight decrease from $182,450 thousand as of August 30, 2019[12]. - Accounts receivable increased by $11.3 million from $217.4 million as of August 30, 2019, to $228.8 million as of November 29, 2019[48]. - Total prepaid expenses and other current assets decreased from $37,950,000 on August 30, 2019 to $32,158,000 on November 29, 2019, a reduction of approximately 15%[119]. Acquisitions - The company incurred a total purchase price of approximately $77.7 million for the acquisition of SMART Embedded Computing, Inc., which includes a base purchase price of $75 million and estimated fair value of contingent consideration of $2.7 million[88][92]. - The acquisition of SMART Embedded Computing resulted in the recognition of identifiable intangible assets valued at $41.9 million, including customer relationships valued at $31.8 million and technology valued at $10.1 million[93]. - The company paid approximately $14.6 million for the acquisition of SMART Wireless Computing, which included $3.2 million in cash and $9.1 million in ordinary shares[96]. - The total purchase consideration for the Penguin Computing acquisition was $44,606,000, which included $42,316,000 in net cash for the merger and $3,000,000 in estimated fair value of contingent consideration[108]. - The acquisition of Penguin Computing resulted in identifiable intangible assets valued at $27,550,000 and goodwill of $5,246,000, enhancing the company's capabilities in specialty compute, storage, and networking markets[111]. Cash Flow and Investments - Cash and cash equivalents at the end of the period were $111,389 thousand, up from $98,139 thousand at the end of the previous quarter, representing a 13.0% increase[24]. - Net cash used in investing activities was $5.1 million, primarily for purchases of property and equipment[210]. - The company financed acquisitions of SMART EC and SMART Wireless for approximately $77 million and $14 million, respectively, using cash from operations and issued shares[205]. Tax and Compliance - Provision for income taxes decreased by $7,300,000 from $7,619,000 in the three months ended November 30, 2018 to $325,000 in the same period of 2019, a decrease of approximately 96.7%[132]. - The company has adopted U.S. GAAP for financial reporting, ensuring compliance with SEC regulations[31]. Stock and Compensation - Share-based compensation expense for the three months ended November 29, 2019, totaled $5.956 million, an increase from $4.055 million in the same period of 2018[77]. - The total intrinsic value of employee stock options exercised in the three months ended November 29, 2019 was $1.3 million, down from $4.1 million in the same period of 2018[166]. - The fair value of options granted under the SGH Plan during the three months ended November 29, 2019 was $11.85 per share, down from $14.41 per share in the same period of 2018[166].

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10‑K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 30, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 ...

Financial Performance - Net sales for the three months ended May 31, 2019, were $235.7 million, a decrease of 29.7% compared to $335.5 million for the same period in 2018[14] - Gross profit for the three months ended May 31, 2019, was $43.0 million, down 44.8% from $78.1 million in the prior year[14] - Net income for the three months ended May 31, 2019, was $1.9 million, a significant decline of 93.9% compared to $31.9 million for the same period in 2018[14] - Comprehensive loss for the three months ended May 31, 2019, was $14.3 million, compared to a comprehensive income of $14.0 million in the same period in 2018[17] - Net income for the nine months ended May 31, 2019, was $45.707 million, a decrease of 49% compared to $89.745 million for the same period in 2018[26] - Net sales for the nine months ended May 31, 2019, were $933.6 million, compared to $914.9 million for the same period in 2018, reflecting a year-over-year increase of 2.5%[49] - Net sales decreased by $99.8 million, or 29.8%, for the three months ended May 31, 2019, but increased by $18.7 million, or 2.0%, for the nine months ended May 31, 2019 compared to the prior year[198] Assets and Liabilities - Total current assets as of May 31, 2019, were $520.1 million, slightly down from $522.0 million as of August 31, 2018[12] - Total liabilities decreased to $427.9 million as of May 31, 2019, from $485.6 million as of August 31, 2018, representing a reduction of 11.9%[12] - Cash and cash equivalents increased to $126.1 million as of May 31, 2019, from $31.4 million as of August 31, 2018[12] - The company’s retained earnings increased to $159.0 million as of May 31, 2019, from $112.3 million as of August 31, 2018, reflecting a growth of 41.7%[12] - Accounts receivable as of May 31, 2019, totaled $230.2 million, a decrease of $9.9 million from $240.1 million as of September 1, 2018[53] - As of May 31, 2019, the outstanding principal balance of all term loans under the Amended Credit Agreement was $208.5 million, with no outstanding revolving loans[147] Cash Flow - Net cash provided by operating activities increased to $120.716 million from $77.291 million year-over-year, representing a 56% increase[26] - Cash, cash equivalents, and restricted cash at the end of the period reached $126.099 million, up from $70.815 million in the previous year, marking an increase of 78%[26] - Cash paid for interest during the period was $14.888 million, an increase from $11.048 million in the prior year, indicating a 35% rise[26] - The net increase in cash, cash equivalents, and restricted cash was $88.865 million for the nine months ended May 31, 2019, compared to $41.352 million in 2018, representing a 114.4% increase[208] Expenses - Research and development expenses increased to $11.3 million for the three months ended May 31, 2019, up 15.9% from $9.8 million in the same period of 2018[14] - Selling, general and administrative expenses rose by $4.7 million and $17.7 million, or 24.0% and 31.9%, during the three and nine months ended May 31, 2019, respectively[202] - Interest expense, net increased by $0.9 million and $3.2 million, or 22.0% and 24.9%, during the three and nine months ended May 31, 2019, respectively[203] Acquisitions - The Company completed the acquisition of Penguin Computing for approximately $45 million, assuming $32.3 million of Penguin's outstanding indebtedness[102] - The total purchase price for the Penguin acquisition was $44.6 million, which included an estimated fair value of contingent consideration of $3.0 million[106] - The acquisition of Penguin Computing resulted in the recognition of goodwill amounting to $5.246 million, which is not expected to be deductible for tax purposes[110] Market Presence - The company has operations in multiple countries including the United States, Brazil, Malaysia, Taiwan, Hong Kong, Scotland, Singapore, and South Korea, indicating a broad market presence[31] - The company has established a leading market position in Brazil as the largest in-country manufacturer of memory for desktops, notebooks, and servers[195] Revenue Recognition - The Company recognized revenue on NCNR customized product sales over time, reflecting a change in revenue recognition timing under ASC 606[98] - For the three months ended May 31, 2019, net sales were reported at $235.7 million, with an adjustment indicating a potential increase to $243.8 million without the adoption of ASC 606[101] Inventory and Goodwill - The carrying value of goodwill as of May 31, 2019, was $44.8 million, slightly down from $45.4 million as of August 31, 2018[68] - As of May 31, 2019, total inventories were $132.8 million, a decrease from $221.4 million as of August 31, 2018[122] Tax and Compliance - The provision for income taxes for the three months ended May 31, 2019, was $0.6 million, a decrease of $5.0 million compared to the same period in the prior year[130] - The Company recognized a net deferred tax liability of $1.6 million related to the Penguin acquisition, primarily due to non-goodwill intangible assets[111] Shareholder Information - The Company granted a performance-based restricted share unit award in May 2019, with no share-based compensation expense recognized for this award during the three and nine months ended May 31, 2019[168] - As of May 31, 2019, there were 4,956,243 ordinary shares reserved for issuance under the SGH Plan, with 1,555,969 shares available for grant[161]