SMART Global Holdings(SGH) - 2020 Q1 - Quarterly Report

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].