SMART Global Holdings Inc

Previous wording

Presentation of SMART Brazil as Discontinued Operations: On June 13, 2023, we entered into an agreement to divest of an 81% interest in SMART Brazil. We concluded that, as of August 25, 2023, (i) the net assets of SMART Brazil met the criteria for classification as held for sale and (ii) the proposed sale represented a strategic shift that was expected to have a major effect on our operations and financial results. On November 29, 2023, we completed the divestiture. The balance sheets, results of operations and cash flows of SMART Brazil have been presented as discontinued operations for all periods presented. SMART Brazil was previously included within our Memory Solutions segment.

Current wording

Presentation of SMART Brazil as Discontinued Operations: On June 13, 2023, we entered into an agreement to divest of an 81% interest in SMART Brazil. We concluded that, as of August 25, 2023, (i) the net assets of SMART Brazil met the criteria for classification as held for sale and (ii) the proposed sale represented a strategic shift that was expected to have a major effect on our operations and financial results. The balance sheets, results of operations and cash flows of SMART Brazil have been presented as discontinued operations for all periods presented. SMART Brazil was previously included within our Memory Solutions segment.

Previous wording

Net sales decreased by $103.6 million, or 26.7%, in the second quarter of 2024 compared to the same period in the prior year, and by $221.1 million, or 28.3%, for the first six months of 2024 compared to the same period in the prior year. These decreases were primarily due to lower sales in both our IPS and Memory Solutions businesses, partially offset by higher LED Solutions sales. IPS net sales decreased by $81.0 million, or 36.4%, and by $173.2 million, or 40.0%, in the second quarter and first six months of 2024 compared to the same periods in the prior year, respectively, primarily due to lower hardware sales. Memory Solutions sales decreased by $27.0 million, or 24.5%, and by $59.7 million, or 26.1%, in the second quarter and first six months of 2024 compared to the same periods in the prior year, respectively, primarily due to lower sales volumes of Flash products. LED Solutions sales increased by $4.5 million, or 8.2%, and by $11.7 million, or 9.9%, in the second quarter and first six months of 2024 compared to the same periods in the prior year, respectively, primarily due to higher channel demand.

Current wording

Net sales decreased by $43.8 million, or 12.7%, in the third quarter of 2024 compared to the same period in the prior year, and by $264.9 million, or 23.6%, for the first nine months of 2024 compared to the same period in the prior year. These decreases were primarily due to lower sales in both our IPS and Memory Solutions businesses in the third quarter and the first nine months of 2024 compared to the same periods in the prior year, while LED Solutions sales remained relatively unchanged for the third quarter of 2024 compared to the same period in the prior year but were higher for the first nine months of 2024 compared to the same period in the prior year. IPS net sales decreased by $25.9 million, or 15.2%, and by $199.1 million, or 32.9%, in the third quarter and first nine months of 2024 compared to the same periods in the prior year, respectively, primarily due to lower hardware and federal sales. Memory Solutions net sales decreased by $17.8 million, or 16.3%, and by $77.5 million, or 22.9%, in the third quarter and first nine months of 2024 compared to the same periods in the prior year, respectively, primarily due to lower sales volumes of Flash and DRAM products, partially offset by higher broker sales. LED Solutions net sales increased by $11.6 million, or 6.4%, in the first nine months of 2024 compared to the same periods in the prior year, respectively, primarily due to higher channel demand.

Previous wording

Cost of sales decreased by $74.5 million, or 26.9%, in the second quarter of 2024, compared to the same period in the prior year, and by $162.8 million, or 29.2%, for the first six months of 2024 compared to the same period in the prior year. IPS and Memory Solutions segments had lower material cost from lower sales and lower other costs from initiatives that resulted in additional savings.

Current wording

Cost of sales decreased by $32.3 million, or 13.2%, in the third quarter of 2024, compared to the same period in the prior year, and by $195.0 million, or 24.4%, for the first nine months of 2024 compared to the same period in the prior year. IPS and Memory Solutions segments had lower material cost from lower sales and lower other costs from initiatives that resulted in additional savings.

Previous wording

Gross margin increased to 28.8% in the second quarter of 2024 compared to 28.6% in the same period in 2023, and to 29.5% for the first six months of 2024 compared to 28.6% in the same period in 2023, primarily due to favorable mix from higher service revenue in our IPS business.

Current wording

Gross margin increased slightly to 29.6% in the third quarter of 2024 compared to 29.2% in the same period in 2023, and to 29.5% for the first nine months of 2024 compared to 28.8% in the same period in 2023, primarily due to favorable mix from higher service revenue in our IPS business.

Previous wording

Memory Solutions operating income decreased by $14.4 million, or 70.5%, in the second quarter of 2024 compared to same period in the prior year, and by $26.2 million, or 66.5%, in the first six months of 2024 compared to the same period in the prior year, primarily due to lower sales and gross profit due to lower sales volumes of Flash products.

Current wording

Memory Solutions operating income decreased by $14.9 million, or 76.9%, in the third quarter of 2024 compared to the same period in the prior year, and by $41.1 million, or 69.9%, in the first nine months of 2024 compared to the same period in the prior year, primarily due to lower sales and gross profit due to lower sales volumes of Flash and DRAM products.

Previous wording

IPS operating income decreased by $14.4 million, or 39.2%, in the second quarter of 2024 compared to same period in the prior year, and by $29.4 million, or 42.3%, in the first six months of 2024 compared to the same period in the prior year, primarily due to lower sales from our Penguin Solutions business, partially offset by lower operating expenses mainly driven by personnel-related expenses due to lower headcount.

Current wording

IPS operating income increased by $4.8 million, or 19.7%, in the third quarter of 2024 compared to same period in the prior year, primarily due to a higher volume of Penguin service revenue. IPS operating income decreased by $24.7 million, or 26.3%, in the first nine months of 2024 compared to the same period in the prior year, primarily due to lower sales from our Penguin Solutions business, partially offset by lower operating expenses, mainly driven by personnel-related expenses due to lower headcount, and lower subcontract services.

Previous wording

Research and development expense decreased by $4.7 million, or 18.8%, in the second quarter of 2024 compared to the same period in the prior year, and by $7.4 million, or 15.1%, for the first six months of 2024 compared to the same period in the prior year, primarily due to lower subcontract services mainly driven by Penguin Solutions.

Current wording

Research and development expense decreased by $0.7 million, or 3.2%, in the third quarter of 2024 compared to the same period in the prior year, and by $8.1 million, or 11.6%, for the first nine months of 2024 compared to the same period in the prior year, primarily due to lower personnel-related expenses mainly driven by headcount reductions for both the three-month and nine-month periods, as well as lower subcontract services mainly driven by Penguin Solutions for the nine-month comparative periods.

Previous wording

Selling, general and administrative expense in the first six months of 2024 and 2023 included costs of $6.7 million and $9.6 million, respectively, associated with the diligence, acquisition and integration of executed and potential business combinations. We anticipate that these activities will continue into future quarters.

Current wording

Selling, general and administrative expense in the first nine months of 2024 and 2023 included costs of $6.7 million and $18.2 million, respectively, associated with the diligence, acquisition and integration of executed and potential business combinations. We anticipate that these activities will continue into future quarters.

Previous wording

During the second quarter of 2023, we initiated a plan pursuant to which we intend to wind down manufacturing and discontinue the sale of certain legacy products offered through our Penguin Edge business by approximately the end of calendar 2024. We recorded impairment charges of $17.6 million and $1.5 million in the second and fourth quarters of 2023, respectively, to impair the carrying value of Penguin Edge goodwill. We currently anticipate that the remaining goodwill of the Penguin Edge reporting unit of $16.1 million as of the end of the second quarter of 2024 may become further impaired in future periods.

Current wording

During the second quarter of 2023, we initiated a plan pursuant to which we intend to wind down manufacturing and discontinue the sale of certain legacy products offered through our Penguin Edge business by approximately the end of 2025. We recorded impairment charges of $17.6 million and $1.5 million in the second and fourth quarters of 2023, respectively, to impair the carrying value of Penguin Edge goodwill. We currently anticipate that the remaining goodwill of the Penguin Edge reporting unit of $16.1 million as of the end of the third quarter of 2024 may become further impaired in future periods.

Previous wording

Our acquisition of Stratus Technologies in the first quarter of 2023 included contingent consideration. We estimated the fair value of the contingent consideration as of the date of acquisition and subsequently recognized changes in the fair value in results of operations. In the second quarter and first six months of 2023, we recorded charges of $6.4 million and $10.1 million, respectively, to adjust the fair value of the contingent consideration. As of August 25, 2023, current liabilities included $50.0 million for the amount payable for the Stratus Earnout, which we paid in full in the second quarter of 2024. See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Business Acquisition – Stratus Technologies.”

Current wording

Our acquisition of Stratus Technologies in the first quarter of 2023 included contingent consideration. We estimated the fair value of the contingent consideration as of the date of acquisition and subsequently recognized changes in the fair value in results of operations. In the third quarter and first nine months of 2023, we recorded charges of $14.8 million and $24.9 million, respectively, to adjust the fair value of the contingent consideration. As of August 25, 2023, current liabilities included $50.0 million for the amount payable for the Stratus Earnout, which we paid in full in the second quarter of 2024. See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Business Acquisition – Stratus Technologies.”

Previous wording

Other operating expense in the first six months of 2024 and 2023 included restructure charges of $6.3 million and $5.6 million, respectively, primarily for employee severance costs and other benefits resulting from workforce reductions, the elimination of certain projects across our businesses and other costs associated with the wind down of our Penguin Edge business. We anticipate that these activities will continue into future quarters and anticipate recording additional restructure charges.

Current wording

Other operating expense in the first nine months of 2024 and 2023 included restructure charges of $6.7 million and $5.4 million, respectively, primarily for employee severance costs and other benefits resulting from workforce reductions, the elimination of certain projects across our businesses and other costs associated with the wind down of our Penguin Edge business. We anticipate that these activities will continue into future quarters and anticipate recording additional restructure charges.

Previous wording

Net interest expense decreased by $1.1 million in the first six months of 2024 compared to the same period in the prior year, primarily due to higher interest income resulting from higher cash balances, partially offset by higher interest expense from the Amended 2027 TLA.

Current wording

Net interest expense decreased by $3.1 million in the third quarter of 2024 compared to the same period in the prior year, primarily due to higher interest income resulting from higher cash and investment balances and lower interest expense due to the prepayments of the Amended 2027 TLA. Net interest expense decreased by $4.3 million in the first nine months of 2024 compared to the same period in the prior year, primarily due to higher interest income resulting from higher cash and investment balances, partially offset by higher interest expense from the Amended 2027 TLA.

Previous wording

Other non-operating (income) expense in the second quarter and first six months of 2023 consisted primarily of a $15.9 million loss on the extinguishment of debt, partially offset, in the first six months of 2023, by $3.0 million gain on disposition of assets. See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Other Non-operating (Income) Expense” and “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt – Convertible Senior Notes – Convertible Senior Notes Exchange.”

Current wording

Other non-operating (income) expense in the first nine months of 2023 consisted primarily of a $15.9 million loss on the extinguishment of debt, partially offset by $3.0 million gain on disposition of assets. See “Item 1. Financial Statements –

Previous wording

Income tax provision in the second quarter and in the first six months of 2024 decreased by $6.0 million and by $13.7 million, respectively, as compared to the same periods in the prior year, primarily due to a decrease in profit before tax in jurisdictions subject to income tax.

Current wording

Income tax provision in the third quarter and first nine months of 2024 decreased by $8.5 million and $22.3 million, respectively, as compared to the same periods in the prior year, primarily due to a decrease in profit before tax in jurisdictions subject to income tax, partially offset by the effect of a $4.5 million benefit recognized upon completion of a research and development tax credit study for prior years.

Previous wording

Our effective tax rate was (20.3)% and (31.0)% in the second quarter and first six months of 2024, respectively, and differed from the U.S. statutory rate primarily due to losses generated in a jurisdiction where no tax benefit can be recognized and to withholding taxes and state income taxes. Our effective tax rate was (32.8)% and (113.9)% in the second quarter and first six months of 2023, respectively and differed from the U.S. statutory rate primarily due to losses generated in a jurisdiction where no tax benefit can be recognized.

Current wording

Our effective tax rate was (27.0)% and (32.5)% in the third quarter and first nine months of 2024, respectively, and differed from the U.S. statutory rate primarily due to losses generated in a jurisdiction where no tax benefit can be recognized and to withholding taxes and state income taxes, partially offset by the effect of a $4.5 million benefit recognized in the third quarter of 2024 upon completion of a research and development tax credit study for prior years. Our effective tax rate was (59.9)% and (91.5)% in the third quarter and first nine months of 2023, respectively, and differed from the U.S. statutory rate primarily due to losses generated in a jurisdiction where no tax benefit can be recognized.

Previous wording

As of March 1, 2024, we had cash, cash equivalents and short-term investments of $465.8 million, of which $348.6 million was held by subsidiaries outside of the United States. Our principal uses of cash and capital resources have been acquisitions, debt service requirements, capital expenditures, research and development expenditures and working capital requirements. We expect that future capital expenditures will focus on expanding our research and development activities, manufacturing equipment upgrades, acquisitions and IT infrastructure and software upgrades. Cash and cash equivalents generally consist of funds held in demand deposit accounts, money market funds and time deposits. We do not acquire investments for trading or speculative purposes.

Current wording

As of May 31, 2024, we had cash, cash equivalents and short-term investments of $467.5 million, of which $384.1 million was held by subsidiaries outside of the United States. Our principal uses of cash and capital resources have been acquisitions, debt service requirements, capital expenditures, research and development expenditures and working capital requirements. We expect that future capital expenditures will focus on expanding our research and development activities, manufacturing equipment upgrades, acquisitions and IT infrastructure and software upgrades. Cash and cash equivalents generally consist of funds held in demand deposit accounts, money market funds and time deposits. We do not acquire investments for trading or speculative purposes.

Previous wording

Divestiture of SMART Brazil: On November 29, 2023, we completed the previously announced divestiture of SMART Brazil. In connection with the divestiture, we sold an 81% interest and retained a 19% interest in SMART Brazil. At the closing of the transaction, we received $143.0 million in cash from the sale (which includes gross proceeds of $164.5 million less withholding taxes of $21.5 million). In addition, we have the right to receive a deferred payment of $28.4 million eighteen months following the closing. See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Divestiture of SMART Brazil.”

Current wording

Divestiture of SMART Brazil: On November 29, 2023, we completed the previously announced divestiture of SMART Brazil. In connection with the divestiture, we sold an 81% interest and retained a 19% interest in SMART Brazil. At the closing of the transaction, we received $143.0 million in cash from the sale (which includes gross proceeds of $164.5 million less withholding taxes of $21.5 million). In addition, we have the right to receive a deferred payment of $28.4 million eighteen

Previous wording

Stratus Technologies Earnout: On August 29, 2022, we completed the acquisition of Stratus Technologies. At the closing of the transaction (including in connection with the completion of the review of the working capital assets acquired and liabilities assumed), we paid the Stratus Seller a cash purchase price of $242.2 million. In addition, the Stratus Seller had the

Current wording

Stratus Technologies Earnout: On August 29, 2022, we completed the acquisition of Stratus Technologies. At the closing of the transaction (including in connection with the completion of the review of the working capital assets acquired and liabilities assumed), we paid the Stratus Seller a cash purchase price of $242.2 million. In addition, the Stratus Seller had the right to receive contingent consideration of up to $50.0 million, based on the gross profit performance of Stratus Technologies during the first full 12 fiscal months following the closing. In the second quarter of 2024, we paid in full $50.0 million related to the Stratus Earnout.

Previous wording

Net cash provided by operating activities from continuing operations in the first six months of 2024 resulted primarily from net loss of $24.2 million, adjusted for non-cash items of $59.4 million. Operating cash flows were favorably affected by a $2.6 million net change in our operating assets and liabilities primarily from the effects of a decrease of $49.5 million in accounts receivable, partially offset by the payment of $29.0 million of contingent consideration related to our 2023 acquisition of Stratus Technologies and an increase of $21.1 million in other current assets. The decrease in accounts receivable was primarily due to lower gross sales in our IPS and Memory Solutions segments.

Current wording

Net cash provided by operating activities from continuing operations in the first nine months of 2024 resulted primarily from a net loss of $18.0 million, adjusted for non-cash items of $80.7 million. Operating cash flows were favorably affected by a $55.0 million net change in our operating assets and liabilities, primarily from the effects of an increase of $84.6 million in accounts payable and accrued expenses and other liabilities, partially offset by the payment of $29.0 million of contingent consideration related to our 2023 acquisition of Stratus Technologies. The increase in accounts payable and accrued expenses and other liabilities was primarily due to timing of payments, as well as higher deferred revenue resulting from amounts received from customers in advance of satisfying performance obligations.

Previous wording

Net cash used for operating activities from continuing operations in the first six months of 2023 resulted primarily from net loss of $36.6 million, adjusted for non-cash items of $105.7 million. Operating cash flows were adversely affected by a $76.1 million net change in our operating assets and liabilities primarily from the effects of decreases of $174.7 million in accounts payable and accrued expenses and other liabilities and the payment of $73.7 million of contingent consideration related to our 2021 acquisition of the LED business, partially offset by the effect of a decrease of $172.0 million in accounts receivable. The decreases in accounts payable and accrued expenses and other liabilities and in accounts receivable were primarily due to timing of payments and receipts.

Current wording

Net cash provided by operating activities from continuing operations in the first nine months of 2023 resulted primarily from a net loss of $55.8 million, adjusted for non-cash items of $148.8 million. Operating cash flows were adversely affected by a $66.9 million net change in our operating assets and liabilities, primarily from the effects of a decrease of $226.4 million in accounts payable and accrued expenses and other liabilities and the payment of $73.7 million of contingent consideration related to our 2021 acquisition of the LED business, partially offset by the effect of decreases of $159.5 million in accounts receivable and $66.7 million in inventories. The decreases in accounts payable and accrued expenses and other liabilities and in accounts receivable and inventories were primarily due to timing of payments and receipts.

Previous wording

Investing Activities: Net cash used for investing activities from continuing operations in the first six months of 2024 consisted primarily of $9.9 million for capital expenditures and deposits on equipment.

Current wording

Investing Activities: Net cash used for investing activities from continuing operations in the first nine months of 2024 consisted primarily of $13.6 million for capital expenditures and deposits on equipment, offset by net maturities of investment securities of $11.4 million.

Previous wording

Net cash used for investing activities from continuing operations in the first six months of 2023 consisted primarily of $213.1 million for the acquisition of Stratus Technologies and $19.7 million for capital expenditures and deposits on equipment.

Current wording

Net cash used for investing activities from continuing operations in the first nine months of 2023 consisted primarily of $213.1 million for the acquisition of Stratus Technologies and $31.7 million for capital expenditures and deposits on equipment.

Previous wording

Financing Activities: Net cash used for financing activities from continuing operations in the first six months of 2024 consisted primarily of $51.6 million in repayments of debt, $21.0 million for payment of contingent consideration related to our 2023 acquisition of Stratus Technologies and $15.9 million of payments to acquire our ordinary shares (including $13.9 million under our share repurchase program), partially offset by $4.2 million in proceeds from the issuance of ordinary shares from our equity plans.

Current wording

Financing Activities: Net cash used for financing activities from continuing operations in the first nine months of 2024 consisted primarily of $126.6 million in repayments of debt, $21.0 million for payment of contingent consideration related to our 2023 acquisition of Stratus Technologies and $18.0 million of payments to acquire our ordinary shares (including $13.9 million under our share repurchase program), partially offset by $8.1 million in proceeds from the issuance of ordinary shares from our equity plans.

Previous wording

Net cash provided by financing activities from continuing operations in the first six months of 2023 consisted primarily of $295.3 million in net proceeds from the issuance of a term loan and $4.3 million in proceeds from the issuance of ordinary shares, partially offset by $28.1 million for payment of contingent consideration related to our 2021 acquisition of the LED business, $16.2 million of payments to acquire our ordinary shares (including $13.8 million under our share repurchase program and convertible note exchange), $14.1 million for payment of premium in connection with our convertible note exchange, $7.2 million in principal repayment of the LED Purchase Price Note and $4.3 million net cash paid for settlement and purchase of privately-negotiated capped call transactions (“Capped Calls”).

Current wording

shares, partially offset by $28.1 million for payment of contingent consideration related to our 2021 acquisition of the LED business, $16.9 million of payments to acquire our ordinary shares (including $13.8 million under our share repurchase program and convertible note exchange), $14.1 million for payment of premium in connection with our convertible note exchange, $14.4 million in principal repayment of the LED Purchase Price Note and $4.3 million net cash paid for settlement and purchase of privately-negotiated capped call transactions (“Capped Calls”).