SGH Reports Fourth Quarter and Full Year Fiscal 2023 Financial Results

Record GAAP and Non-GAAP Gross Margins for FY2023

SMART Global Holdings, Inc. ("SGH" or the "Company") (NASDAQ:SGH) today reported financial results for the fourth quarter and full year fiscal 2023.

On June 13, 2023, we entered into an agreement to sell an 81% interest in our SMART Brazil operations. The transaction is expected to close at the end of calendar 2023 or early 2024, subject to required regulatory approvals and satisfaction of customary closing conditions. Accordingly, our SMART Brazil operations are classified as discontinued operations in the accompanying financial statements for all periods presented.

The following discussion relates to our continuing operations, which exclude SMART Brazil.

Fiscal 2023 Highlights for Continuing Operations

• Net sales of $1.44 billion, up 3.3% versus fiscal year 2022
• Record GAAP gross margin of 28.8%, up 80 basis points versus fiscal year 2022
• Record Non-GAAP gross margin of 31.7%, up 250 basis points versus fiscal year 2022
• GAAP EPS of $0.15 versus $0.41 in fiscal year 2022
• Non-GAAP EPS of $2.52 versus $2.65 in fiscal year 2022

Fourth Quarter Fiscal 2023 Highlights for Continuing Operations

• Net sales of $316.7 million, down 12.6% versus the year-ago quarter
• GAAP gross margin of 28.9%, up 290 basis points versus the year-ago quarter
• Non-GAAP gross margin of 31.7%, up 460 basis points versus the year-ago quarter
• GAAP EPS of $1.17 versus $0.18 in the year-ago quarter
• Non-GAAP EPS of $0.35 versus $0.63 in the year-ago quarter

"Throughout fiscal 2023 the team has made significant progress in our transformational journey towards becoming an enterprise solutions company focused on higher quality revenue and improving gross margins. In the fourth quarter, in what remains a challenging global economic environment, non-GAAP gross margin increased to 31.7%, an improvement of 460 basis points from the same period last year, and non-GAAP earnings were $0.35 per share. In addition, we exited the fourth quarter with a strong balance sheet, including cash, cash equivalents and short term investments of $391 million," commented the Company's CEO Mark Adams.

Business Outlook

As of October 12, 2023, SGH is providing the following financial outlook for its continuing operations for the first quarter of fiscal 2024:

Fourth Quarter Fiscal 2023 Earnings Conference Call and Webcast Details

SGH will hold a conference call and webcast to discuss the fourth quarter and full year fiscal 2023 results and related matters today, October 12, 2023, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time). Interested parties may access the call by dialing +1-833-470-1428 in the U.S. or +1-929-526-1599 from international locations, using the access code 759938. The earnings presentation and a live webcast of the conference call can be accessed from the Company's investor relations website (https://ir.smartm.com/investors/default.aspx) where they will remain available for approximately one year.

Use of Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements concerning or regarding future events and the future financial and operating performance of SGH; statements regarding the extent and timing or and expectations regarding SGH's future revenues and expenses and customer demand; statements regarding sale of the Company's SMART Brazil operations and expected closing timeline; and statements regarding the business and financial outlook for the next fiscal quarter described under "Business Outlook" above.

These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as "anticipate," "target," "expect," "estimate," "intend," "plan," "goal," "believe," "could," and other words of similar meaning. Forward-looking statements provide SGH's current expectations or forecasts of future events, circumstances, results or aspirations and are subject to a number of significant risks, uncertainties and other factors, many of which are outside of SGH's control, including but not limited to, issues, delays or complications in integrating the operations of Stratus Technologies; global business and economic conditions and growth trends in technology industries, SGH's customer markets and various geographic regions; uncertainties in the geopolitical environment; the unpredictable nature of the COVID-19 pandemic; disruptions in SGH's operations or supply chain as a result of the downstream effects of the COVID-19 pandemic or otherwise; the ability to manage SGH's cost structure, including SGH's success in implementing restructuring or other plans intended to improve SGH's operating efficiency; workforce reductions; uncertainties in the global macro-economic environment; changes in demand for SGH's segments; changes in trade regulations or adverse developments in international trade relations and agreements; changes in currency exchange rates; availability of our cash and cash equivalents; overall information technology spending; appropriations for government spending; the success of SGH's strategic initiatives including additional investments in new products and additional capacity; acquisitions of companies or technologies, the failure to successfully integrate and operate them or customers' negative reactions to them, including any resulting impairment of goodwill or gain (loss) on extinguishment of debt; the proposed divestiture of SMART Brazil, the failure to execute on the separation and transition of SMART Brazil and its business, the failure to satisfy all conditions to complete the proposed divestiture within the expected timeframe, and the failure to achieve the intended benefits of the sale of SMART Brazil and its business; limitations on, or changes in the availability of, supply of materials and components; fluctuations in material costs; the temporary or volatile nature of pricing trends in memory or elsewhere; deterioration in customer relationships; production or manufacturing difficulties; competitive factors; technological changes; difficulties with, or delays in, the introduction of new products; slowing or contraction of growth in the memory market in Brazil or in the LED market; reduction in, or termination of, incentives for local manufacturing in Brazil; changes to applicable tax regimes or rates; reversal of the valuation allowance for a significant portion of our deferred tax assets, including any potential inability to realize these assets in the future; prices for the end products of SGH's customers; strikes or labor disputes; deterioration in or loss of relations with any of SGH's limited number of key vendors; the inability to maintain or expand government business; and the continuing availability of borrowings under term loans and revolving lines of credit and our ability to raise capital through debt or equity financings. These and other risks, uncertainties and factors are described in greater detail under the sections titled "Risk Factors," "Critical Accounting Estimates," "Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk," and "Liquidity and Capital Resources" contained in the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and the Company's other filings with the U.S. Securities and Exchange Commission. In addition, such risks, uncertainties and factors as outlined above and in such filings do not constitute all risks, uncertainties and factors that could cause actual results of SGH to be materially different from such forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements. Any forward-looking statements that the Company makes in this press release speak only as of the date of this press release. Except as required by law, SGH does not undertake to update the forward-looking statements contained in this press release to reflect the impact of circumstances or events that may arise after the date that the forward-looking statements were made.

Statement Regarding Use of Non-GAAP Financial Measures

SGH management uses non-GAAP measures to supplement SGH's financial results under GAAP. Management uses these measures to analyze its operations and make decisions as to future operational plans and believes that this supplemental non-GAAP information is useful to investors in analyzing and assessing the Company's past and future operating performance. These non-GAAP measures exclude certain items, such as share-based compensation expense, amortization of acquisition-related intangible assets (consisting of amortization of developed technology, customer relationships, trademarks/trade names and backlog acquired in connection with business combinations), acquisition-related inventory adjustments, acquisition-related expenses, restructure charges and integration expenses, impairment of goodwill, changes in the fair value of contingent consideration, gains (losses) from changes in currency exchange rates, amortization of debt discount and other costs, gain (loss) on extinguishment of debt, other infrequent or unusual items and related tax effects and other tax adjustments. While amortization of acquisition-related intangible assets is excluded, the revenues from acquired companies is reflected in the Company's non-GAAP measures and these intangible assets contribute to revenue generation. Management believes the presentation of operating results that exclude certain items provides useful supplemental information to investors and facilitates the analysis of the Company's core operating results and comparison of operating results across reporting periods. Management also uses adjusted EBITDA, which represents GAAP net income (loss), adjusted for net interest expense, income tax expense, depreciation and amortization expense, share-based compensation expense, acquisition-related inventory adjustments, acquisition-related expenses, restructure charges and integration expenses, impairment of goodwill, changes in the fair value of contingent consideration, gain (loss) on extinguishment of debt and other infrequent or unusual items.

Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP, as they exclude important information about SGH's financial results, as noted above. The presentation of these adjusted amounts varies from amounts presented in accordance with GAAP and therefore may not be comparable to amounts reported by other companies. In addition, adjusted EBITDA does not purport to represent cash flow provided by, or used for, operating activities in accordance with GAAP and should not be used as a measure of liquidity. Investors are encouraged to review the "Reconciliation of GAAP to Non-GAAP Measures" tables below.

About SMART Global Holdings – SGH

At SGH, we design and develop high-performance, high-availability, enterprise solutions that help our customers solve for the future. Across our computing, memory, and LED lines of business, we focus on serving our customers by providing deep technical knowledge and expertise, custom design engineering, build-to-order flexibility, and a commitment to best-in-class quality.

Learn more about us at SGHcorp.com.