SMART Global Holdings(US:SGH)2025-07-08 21:17PART I. Financial Information Financial Statements Financial statements for May 30, 2025, reflect increased assets, cash, and net income, driven by preferred share issuance and sales growth Consolidated Balance Sheets The balance sheet shows significant increases in cash, total assets, and equity, primarily due to a preferred share issuance Consolidated Balance Sheet Highlights (in thousands) | Account | May 30, 2025 | August 30, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $709,871 | $383,147 | | Total current assets | $1,249,896 | $867,704 | | Goodwill | $150,585 | $161,958 | | Total assets | $1,802,782 | $1,474,506 | | Liabilities & Equity | | | | Total current liabilities | $476,744 | $327,596 | | Long-term debt | $639,562 | $657,347 | | Total liabilities | $1,207,859 | $1,075,298 | | Total equity | $594,923 | $399,208 | Consolidated Statements of Operations The statement of operations shows a significant increase in net sales and a return to net income from continuing operations Statement of Operations Summary (in thousands, except per share data) | Metric | Nine Months Ended May 30, 2025 | Nine Months Ended May 31, 2024 | | :--- | :--- | :--- | | Total net sales | $1,030,872 | $859,648 | | Gross profit | $297,543 | $253,690 | | Operating income | $45,687 | $9,504 | | Net income (loss) from continuing operations | $18,285 | $(17,993) | | Net income (loss) attributable to Penguin Solutions | $15,960 | $(27,925) | | Diluted EPS from continuing operations | $0.18 | $(0.38) | - The company recorded a goodwill impairment charge of $5.3 million in Q3 2025 and $11.4 million in the first nine months of 2025, compared to zero in the prior year periods17 Consolidated Statements of Cash Flows Cash flows show a substantial increase in operating and financing cash, driven by preferred share issuance and improved net income Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended May 30, 2025 | Nine Months Ended May 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $179,517 | $89,341 | | Net cash provided by investing activities | $2,606 | $115,863 | | Net cash provided by (used for) financing activities | $144,587 | $(160,221) | | Net increase in cash, cash equivalents and restricted cash | $326,710 | $43,727 | - Financing activities in the first nine months of 2025 were primarily driven by $191.2 million in net proceeds from the issuance of preferred shares, partially offset by $49.2 million in share repurchases. This is a significant shift from the prior year, which saw $126.6 million in debt repayments22 Notes to Consolidated Financial Statements Notes detail redomiciliation to Delaware, SMART Brazil divestiture, a $200 million SKT investment, and a $11.4 million goodwill impairment - On June 30, 2025, the company completed its redomiciliation from the Cayman Islands to Delaware, with Penguin Solutions, Inc. (Delaware) becoming the publicly traded parent company23119 - The company completed the divestiture of an 81% interest in SMART Brazil on November 29, 2023. The results of SMART Brazil are now presented as discontinued operations for all periods2632 - On December 13, 2024, the company received a $200 million investment from an affiliate of SK Telecom Co., Ltd. through the sale of 200,000 convertible preferred shares2971 - Goodwill for the Penguin Edge business was impaired by $5.3 million in Q3 2025 and $11.4 million in the first nine months of 2025 due to the planned wind-down of the business. The remaining $4.7 million of goodwill is expected to be fully impaired by the end of calendar 20255356 - Subsequent to the quarter end, on June 24, 2025, the company entered into a new $400 million revolving credit facility and used a $100 million draw plus cash on hand to repay its $300 million term loan A facility111112113 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 19.9% revenue growth driven by AI and memory demand, a slight gross margin decrease, and enhanced liquidity from the SKT investment Results of Operations Results show 19.9% total net sales growth, primarily from Advanced Computing and Integrated Memory, with a slight gross margin decline Net Sales by Segment (in thousands) | Segment | Nine Months Ended May 30, 2025 | Nine Months Ended May 31, 2024 | % Change | | :--- | :--- | :--- | :--- | | Advanced Computing | $510,081 | $405,197 | +25.9% | | Integrated Memory | $332,090 | $260,594 | +27.4% | | Optimized LED | $188,701 | $193,857 | -2.7% | | Total net sales | $1,030,872 | $859,648 | +19.9% | - Gross margin for the first nine months of 2025 decreased to 28.9% from 29.5% in the prior year, primarily due to an unfavorable product mix from higher product revenue in the Advanced Computing business147 - A goodwill impairment charge of $11.4 million was recorded in the first nine months of 2025 related to the planned wind-down of the Penguin Edge business within the Advanced Computing segment155 Liquidity and Capital Resources Liquidity significantly improved with $735.5 million in cash and increased operating cash flow, supported by the SKT investment and new credit facility - As of May 30, 2025, the company had cash, cash equivalents, and short-term investments of $735.5 million162 - Operating cash flow from continuing operations for the first nine months of 2025 was $183.6 million, a significant increase from $117.7 million in the prior-year period, driven by higher net income and favorable changes in working capital182183 - On June 24, 2025, the company entered a new $400 million revolving credit facility and used proceeds to repay its $300 million Amended 2022 TLA, which is expected to result in a loss on extinguishment of debt of $3.3 million166168 - The company received $191.2 million in net proceeds from the SKT convertible preferred share investment in December 2024177187 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency and interest rate fluctuations, with potential impacts of $2.2 million and $4.0 million respectively - A 10% adverse change in foreign currency exchange rates versus the U.S. dollar would result in a revaluation loss of approximately $2.2 million based on monetary assets and liabilities as of May 30, 2025194 - Following the refinancing on June 24, 2025, the company is subject to interest rate risk on its new $400 million variable-rate 2025 Credit Facility. A 1.0% increase in interest rates would increase annual interest expense by $4.0 million, assuming the facility is fully drawn195 Controls and Procedures Management concluded disclosure controls and procedures were effective as of May 30, 2025, with no material changes in internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of May 30, 2025197 - No changes in internal control over financial reporting occurred during the third quarter of 2025 that have materially affected, or are reasonably likely to materially affect, internal controls198 PART II. Other Information Risk Factors New and updated risks include those from U.S. Domestication, anti-takeover provisions, trade restrictions, and restrictive covenants in the new credit agreement - The company may not realize the anticipated benefits of its U.S. Domestication, and the process could have a material adverse effect on business, results, or financial condition201 - As a Delaware corporation, the company is now subject to anti-takeover provisions, including a classified board and provisions of Delaware General Corporation Law Section 203, which could delay or prevent a change in control206208 - The new 2025 Credit Agreement contains restrictive covenants that limit the company's ability to, among other things, incur additional debt, sell assets, pay dividends, and make certain acquisitions220222 - The company faces risks from tariffs and trade restrictions, particularly in its LED business, which could increase costs, reduce demand, and adversely impact financial results219 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 1,822,300 shares for $29.8 million in Q3 2025, with $36.8 million remaining for future repurchases Issuer Purchases of Equity Securities (Q3 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | March 1 - March 28, 2025 | — | $— | | March 29 - April 25, 2025 | 1,425,200 | $16.03 | | April 26 - May 30, 2025 | 397,100 | $17.53 | | Total | 1,822,300 | $16.36 | - As of May 30, 2025, $36.8 million remained available for repurchase under the company's share repurchase authorization224 Other Information Executive Vice President Jack Pacheco adopted a Rule 10b5-1 trading plan for the potential sale of up to 63,447 shares - Executive Vice President Jack Pacheco adopted a Rule 10b5-1 trading plan on April 21, 2025, for the sale of up to 63,447 shares, starting July 21, 2025228