SMART Global Holdings(SGH) - 2025 Q1 - Quarterly Report

PART I Item 1. Financial Statements This section presents Penguin Solutions, Inc.'s unaudited consolidated financial statements for the quarter ended November 29, 2024, including balance sheets, income statements, cash flows, and detailed notes Consolidated Financial Statements Core financial statements show a profitability turnaround with $6.0 million net income, total assets growing to $1.58 billion, but operating cash flow decreased due to increased inventory | Financial Metric | Nov 29, 2024 (in thousands) | Aug 30, 2024 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $995,579 | $867,704 | ▲ | | Total Assets | $1,583,015 | $1,474,506 | ▲ | | Total Current Liabilities | $426,886 | $327,596 | ▲ | | Total Liabilities | $1,174,066 | $1,075,298 | ▲ | | Total Equity | $408,949 | $399,208 | ▲ | | Income Statement Item | Q1 FY2025 (in thousands) | Q1 FY2024 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Total Net Sales | $341,102 | $274,247 | +24.4% | | Gross Profit | $97,812 | $82,850 | +18.1% | | Operating Income | $17,356 | $1,305 | +1230% | | Net Income (Loss) | $5,964 | ($19,360) | Turnaround | | Diluted EPS | $0.10 | ($0.38) | Turnaround | | Cash Flow Item | Q1 FY2025 (in thousands) | Q1 FY2024 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $13,819 | $31,478 | ▼ | | Net cash (used for) investing activities | ($18,922) | $115,298 | ▼ | | Net cash used for financing activities | ($7,763) | ($26,756) | ▲ | Notes to Consolidated Financial Statements Notes detail significant events like the SMART Brazil divestiture, a $200 million post-quarter investment from SK Telecom, and provide breakdowns of revenue, debt, and share repurchase activity - On November 29, 2023, the company completed the divestiture of an 81% interest in SMART Brazil, with its results now presented as discontinued operations for all periods shown[19][26] - Subsequent to the quarter end, on December 13, 2024, the company closed a $200 million investment from an affiliate of SK Telecom Co., Ltd. through the sale of 200,000 convertible preferred shares[22] | Debt Instrument | Carrying Value (Nov 29, 2024) | | :--- | :--- | | Amended 2027 TLA | $297,561 | | 2030 Notes | $193,066 | | 2029 Notes | $147,581 | | 2026 Notes | $19,862 | | Total Long-term debt | $658,070 | | Segment | Net Sales Q1 FY25 (in thousands) | Net Sales Q1 FY24 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Advanced Computing | $177,426 | $118,824 | +49.3% | | Integrated Memory | $96,706 | $85,668 | +12.9% | | Optimized LED | $66,970 | $69,755 | -4.0% | | Total | $341,102 | $274,247 | +24.4% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 24.4% revenue growth driven by Advanced Computing, gross margin decline, operational factors, and the company's strong liquidity position bolstered by a $200 million post-quarter investment Results of Operations Net sales increased by $66.9 million (24.4%) year-over-year, primarily from a 49.3% rise in Advanced Computing sales, leading to significantly higher operating income despite gross margin contraction - Net sales increased by 24.4% in Q1 2025 compared to the prior year, primarily due to a 49.3% increase in the Advanced Computing segment driven by demand for AI solutions and high-performance computing[98] - Gross margin decreased to 28.7% in Q1 2025 from 30.2% in Q1 2024, primarily due to an unfavorable product mix with higher product revenue in the Advanced Computing business[99] - Research and development expense decreased by 7.4% due to lower personnel-related expenses and subcontract services, while Selling, general and administrative expense increased by 5.8% due to rebranding efforts and higher personnel costs[105][106] Liquidity and Capital Resources As of November 29, 2024, the company held $393.7 million in cash and equivalents, with management confident in sufficient liquidity, further bolstered by a $200 million post-quarter investment from SK Telecom - The company had cash, cash equivalents, and short-term investments of $393.7 million as of November 29, 2024[115] - On December 13, 2024, after the quarter's end, the company closed a $200 million investment from an affiliate of SKT through the sale of convertible preferred shares[121] | Cash Flow Summary (Continuing Operations) | Q1 FY2025 (in thousands) | Q1 FY2024 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $13,819 | $59,713 | | Net cash used for investing activities | ($18,922) | ($3,640) | | Net cash used for financing activities | ($7,763) | ($26,150) | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company identifies foreign exchange risk from international operations and interest rate risk from variable-rate debt as its primary market exposures - A hypothetical 10% adverse change in foreign exchange rates versus the U.S. dollar would result in an estimated loss of $2.2 million based on monetary assets and liabilities as of November 29, 2024[136] - A 1.0% increase in interest rates would result in an estimated $5.5 million increase in annual interest expense, assuming the $300.0 million term loan is outstanding and the $250.0 million revolver is fully drawn[137] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of November 29, 2024, with no material changes to internal control over financial reporting - Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of November 29, 2024[139] - No changes in internal control over financial reporting occurred during the first quarter of fiscal 2025 that have materially affected, or are reasonably likely to materially affect, internal controls[140] PART II. Other Information Item 1. Legal Proceedings This section refers to the 'Commitments and Contingencies' note and 'Risk Factors' section for details on legal proceedings - For discussion of legal proceedings, the report refers to the Notes to Consolidated Financial Statements and Risk Factors[142] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended August 30, 2024, have been identified - There have been no material changes to the risks described in the company's Annual Report on Form 10-K for the fiscal year ended August 30, 2024[142] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details share repurchase activities, noting 467,040 shares repurchased during the quarter and $69.9 million remaining for future repurchases | Period | Total Shares Purchased | Average Price Paid | Value of Shares for Future Purchase | | :--- | :--- | :--- | :--- | | Aug 31 - Sep 27, 2024 | — | $— | $77,698,000 | | Sep 28 - Oct 25, 2024 | — | $— | $77,698,000 | | Oct 26 - Nov 29, 2024 | 467,040 | $16.68 | $69,906,000 | | Total | 467,040 | $16.68 | | Item 5. Other Information The company discloses that a board member adopted a Rule 10b5-1 trading plan for the potential sale of up to 2,728 ordinary shares commencing February 10, 2025 - On November 7, 2024, a member of the Board of Directors, Penelope Herscher, adopted a Rule 10b5-1 trading arrangement for the sale of up to 2,728 ordinary shares[149] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents