SMART Modular Technologies Reports Second Quarter Fiscal 2009 Results and Announces $10 Million Share Repurchase Program

FREMONT, CA – March 26, 2009 – SMART Modular Technologies (WWH), Inc. (“SMART” or the “Company”) (Nasdaq: SMOD), a leading independent manufacturer of memory modules, solid state drives, embedded computing subsystems, and TFT-LCD display products, today reported financial results for the second quarter of fiscal 2009.

Second Quarter Fiscal 2009 Highlights:

  • Net Sales of $109.1 Million
  • Gross Profit of $24.1 Million
  • Adjusted EBITDA of $10.2 Million
  • GAAP EPS of ($0.03)
  • Non-GAAP Diluted EPS of $0.06
  • Year-to-date Operating Cash Flow of $24.6 million
  • Cash and Cash Equivalents of $125.4 million

Net sales for the second quarter of fiscal 2009 were $109.1 million, compared to $140.8 million for the first quarter of fiscal 2009, and $164.5 million for the second quarter of fiscal 2008.

Gross profit for the second quarter of fiscal 2009 was $24.1 million, compared to $25.8 million for the first quarter of fiscal 2009, and $32.9 million for the second quarter of fiscal 2008.

GAAP net income (loss) for the second quarter of fiscal 2009 was ($1.9) million, or ($0.03) per share, compared to ($6.9) million, or ($0.11) per share for the first quarter of fiscal 2009, and $11.4 million, or $0.18 per diluted share for the second quarter of fiscal 2008.

Non-GAAP net income was $4.1 million or $0.06 per diluted share for the second quarter of fiscal 2009, compared to $3.0 million, or $0.05 per diluted share for the first quarter of fiscal 2009, and $13.3 million, or $0.21 per diluted share for the second quarter of fiscal 2008. Non-GAAP net income excludes charges related to goodwill impairment, restructuring, and stock-based compensation. Please refer to the “Non-GAAP Information” below for further detail.

Adjusted EBITDA for the second quarter of fiscal 2009 was $10.2 million, compared to $10.3 million for the first quarter of fiscal 2009, and $19.1 million for the second quarter of fiscal 2008. Adjusted EBITDA is defined as GAAP net income (loss) plus net interest expense, income tax expense, depreciation and amortization expense, goodwill impairment charges, restructuring charges, and stock-based compensation expense.

Operating cash outflow for the second quarter of fiscal 2009 was $4.1 million mainly due to working capital changes. Year-to-date operating cash flow was $24.6 million. Cash and cash equivalents at the end of the second quarter of fiscal 2009 was $125.4 million and long-term debt, due in 2012, remained at $81.3 million.

The Company also announced that its Board of Directors has authorized the repurchase of up to $10 million of the Company’s ordinary shares. The timing, duration, and the exact number of shares to be purchased will be at the Company’s discretion. Under the repurchase program, depending on price, regulatory requirements, market conditions and other factors, shares may be purchased on the open market or in privately negotiated transactions. The Company intends to repurchase shares using its available cash. At the end of its second fiscal quarter, SMART had 61,730,661 ordinary shares outstanding. Purchases under the program may be commenced, suspended, or terminated at any time without prior notice.

The Board's approval of this share repurchase program reflects its confidence in the long-term growth of SMART's business and an ongoing commitment to deliver shareholder value. The Board and management believe that SMART’s shares are currently undervalued relative to SMART’s long-term earning potential,” commented Iain MacKenzie, President and CEO of SMART.

“For the second quarter of fiscal 2009, we are proud to report that gross profit and non-GAAP EPS surpassed the high-end of our guidance, driven by a favorable mix shift towards higher margin businesses in combination with prudent financial management,” added Mr. MacKenzie. “These accomplishments were achieved even with lower net sales which were impacted by challenging macro economic conditions and weak market demand. Despite this relatively strong performance and our strong balance sheet, and despite our confidence in the eventual resumption of growth, we remain mindful of the current overall weak environment and have decided to take further steps to help protect long-term profitability. These steps include salary reductions in the U.S., shortened work weeks internationally, a suspension of our 401(k) matching program and a reduction in Board compensation. We expect that these cost-reductions, along with our leading market position and focus on financial controls, will enable us to endure these challenging times,” concluded Mr. MacKenzie.

Business Outlook
The following statements are based upon management’s current expectations. These statements are forward-looking, and actual results may differ materially. The Company undertakes no obligation to update these statements. For the third quarter of fiscal 2009, SMART estimates net sales will be in the range of $95 million to $105 million, gross profit in the range of $17 million to $19 million, and net (loss) per share will be in the range of ($0.05) to ($0.04) on a GAAP basis. On a non-GAAP basis, excluding charges related to restructuring, stock-based compensation, and other non-recurring items, such as estimated costs associated with the planned relocation of its corporate headquarters, the Company expects net income per diluted share will be in the range of $0.00 to $0.01.

Conference Call Details
SMART’s second quarter, fiscal 2009 teleconference and webcast is scheduled to begin at 1:30 p.m. Pacific Daylight Time (PDT), or 4:30 p.m. Eastern Daylight Time (EDT), on Thursday, March 26, 2009. The call may be accessed US toll free by calling (800) 240-4186 or US toll by calling (303) 228-2960. Please join the conference call at least ten minutes early in order to register. The passcode for the call is “SMART”. SMART will also offer a live and archived webcast of the conference call, accessible from the Company’s website at http://www.smartm.com. A telephonic replay of the conference call will be available through midnight PDT, April 9, 2009, by dialing (800) 405-2236 and entering passcode 11127425#. Callers outside the U.S. and Canada may access the replay by dialing (303) 590-3000.


Forward-Looking Statements
Statements contained in this press release, including the quotations attributed to Mr. MacKenzie, that are not statements of historical fact, including any statements that use the words “will,” “believes,” “anticipates,” “estimates,” “expects,” “intends” or similar words that describe the Company’s or its management’s future expectations, plans, objectives, or goals, are “forward-looking statements” and are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include projections regarding the Company’s financial performance and financial condition, the share repurchase program, the benefits of cost-reduction measures, and the Company’s market position.
Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the company to be materially different from the historical results and/or from any future results or outcomes expressed or implied by such forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, DRAM supply and demand, production or manufacturing difficulties, competitive factors, new products and technological changes (or rate of adoption), fluctuations in product prices and raw material costs, dependence upon third-party vendors, customer demand, changes in industry standards or release plans, the timing, duration, number of repurchased shares (if any), price, regulatory requirements, and market conditions, and other risks detailed in the Company’s periodic report filings with the Securities and Exchange Commission including the Company’s Form 10-K for the fiscal year ended August 29, 2008 and Form 10-Q for the quarter ended November 28, 2008. Such risk factors as outlined in this press release and the Company’s periodic report filings may not constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. The Company operates in a continually changing business environment and new factors emerge from time to time. The Company cannot predict such factors, nor can it assess the impact, if any, from such factors on the Company or its results. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The Company is not obligated to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this press release.

Non-GAAP Information
Certain non-GAAP financial measures are included in this press release, including Adjusted EBITDA, non-GAAP net income and non-GAAP net income per diluted share. We define adjusted EBITDA as GAAP net income (loss) plus net interest expense, income tax expense, depreciation and amortization expense, goodwill impairment charges, restructuring charges, and stock-based compensation expense. Non-GAAP net income and non-GAAP net income per diluted share do not include goodwill impairment charges, restructuring charges, stock-based compensation expense, and other infrequent or unusual items, such as estimated costs associated with the planned relocation of its corporate headquarters. These non-GAAP financial measures are provided to enhance the user's overall understanding of our financial performance. By excluding these charges, as well as the related tax effects, our non-GAAP results provide information to management and investors that is useful in assessing SMART's core operating performance and in evaluating and comparing our results of operations on a consistent basis from period to period. These non-GAAP financial measures are also used by management to evaluate financial results and to plan and forecast future periods. The presentation of this additional information is not meant to be a substitute for the corresponding financial measures prepared in accordance with generally accepted accounting principles. Investors are encouraged to review the reconciliations of GAAP to non-GAAP financial measures, which are included below:

SMART MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data; unaudited)

Three Months
Ended
February 27,
2009

Three Months
Ended
November 28,
2008

Three Months
Ended
February 29,
2008

Six Months
Ended
February 27,
2009

Six Months
Ended
February 29,
2008

Net income (loss)

$ (1,850)

$ (6,878)

$ 11,440

$ (8,728)

$ 23,505

Add:

Goodwill impairment, no tax effect.

3,206

7,210

-

10,416

-

Restructuring charges, net of tax

925

886

-

1,811

-

Stock-based compensation expense
charged to operating expenses, net of tax

1,787

1,775

1,823

3,562

3,451

Non-GAAP net income

$ 4,068

$ 2,993

$ 13,263

$ 7,061

$ 26,956

Non-GAAP net income per diluted share

$ 0.06

$ 0.05

$ 0.21

$ 0.11

$ 0.42

Shares used in computing net income per
diluted share

63,326

63,330

63,713

63,328

63,684

Net income (loss)

$ (1,850)

$ (6,878)

$ 11,440

$ (8,728)

$ 23,505

Interest expense, net

1,698

1,752

1,327

3,450

2,351

Income taxes

1,263

2,177

1,539

3,440

4,220

Depreciation and amortization

3,115

3,330

2,953

6,445

5,570

EBITDA

$ 4,226

$ 381

$ 17,259

$ 4,607

$ 35,646

Adjustments:

Goodwill impairment

3,206

7,210

-

10,416

-

Restructuring charges

935

886

-

1,821

-

Stock-based compensation expense
charged to operating expenses

1,800

1,787

1,835

3,587

3,474

Adjusted EBITDA

$ 10,167

$ 10,264

$ 19,094

$ 20,431

$ 39,120

RECONCILIATION OF Q3-09 GUIDANCE FOR NON-GAAP FINANCIAL MEASURES
(In millions, except per share data; unaudited)

Three Months Ending May 29, 2009

Non-GAAP Range of Estimate

GAAP Range of Estimate

From

To

Adjustments

From

To

Net income (loss)

$ 0.2

$ 0.5

$ 3.0 (a)

$ (2.8)

$ (2.5)

Net income (loss) per share

$ 0.00

$ 0.01

$ (0.05)

$ (0.04)

Shares used in computing net
income (loss) per diluted share

63.3

63.3

61.7

61.7

(a) Reflects estimated adjustment for restructuring charges, stock-based compensation, and relocating corporate headquarters.


About SMART
SMART Modular Technologies is a leading provider of memory products, offering more than 500 standard and custom products to top-tier OEMs in the computer, industrial, networking, and telecommunications sectors. Taking innovations from the design stage through manufacturing and delivery, SMART has developed a comprehensive memory product line that includes DRAM, SRAM, and Flash in various form factors. Through its subsidiary, Adtron Corporation, SMART offers high performance, high capacity solid-state drives for enterprise, defense/aerospace, industrial automation, medical, and transportation markets. SMART's Display and Embedded Products Group designs, manufactures and sells thin film transistors (TFT) liquid crystal display (LCD) solutions to customers developing casino gaming systems as well as embedded applications such as kiosk, ATM, point-of-service, and industrial control systems. SMART's presence in the US, Europe, Asia, and Latin America enables it to provide its customers with proven expertise in international logistics, asset management, and supply-chain management worldwide. More information on SMART can be obtained at www.smartm.com.





Three Months
Ended
February 27,
2009


Three Months
Ended
February 29,
2008


Six Months
Ended
February 27,
2009


Six Months
Ended
February 29,
2008

(In thousands, except per share data)

Net sales

$ 109,089

$ 164,497

$ 249,864

$ 341,870

Cost of sales

85,022

131,609

199,981

274,888

Gross profit

24,067

32,888

49,883

66,982

Research and development

5,142

4,624

10,578

9,309

Selling, general and administrative

13,782

14,331

28,249

29,392

Restructuring charges

935

1,821

Goodwill impairment

3,206

10,416

Total operating expenses

23,065

18,955

51,064

38,701

Income (loss) from operations

1,002

13,933

(1,181)

28,281

Interest expense, net

(1,698)

(1,327)

(3,450)

(2,351)

Other income (expense), net

109

373

(657)

1,795

Total other expense, net

(1,589)

(954)

(4,107)

(556)

Income (loss) before provision for income taxes

(587)

12,979

(5,288)

27,725

Provision for income taxes

1,263

1,539

3,440

4,220

Net income (loss)

$ (1,850)

$ 11,440

$ (8,728)

$ 23,505

Net income (loss) per share, basic

$ (0.03)

$ 0.19

$ (0.14)

$ 0.38

Shares used in computing net income per ordinary share

61,673

60,869

61,590

60,782

Net income (loss) per share, diluted

$ (0.03)

$ 0.18

$ (0.14)

$ 0.37

Shares used in computing net income (loss) per diluted share

61,673

63,713

61,590

63,684

SMART MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


SMART MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

February 27,
2009

August 29,
2008

(In thousands)

ASSETS

Cash and cash equivalents

$ 125,393

$ 115,994

Accounts receivable, net of allowances of $1,143 and $1,517 as of February 27, 2009 and August 29, 2008, respectively

115,591

193,736

Inventories

84,610

62,430

Prepaid expenses and other current assets

12,889

14,973

Total current assets

338,483

387,133

Property and equipment, net

33,099

39,317

Goodwill

7,210

Other intangible assets, net

8,010

8,545

Other non-current assets

4,014

4,943

Total assets

$ 383,606

$ 447,148

LIABILITIES AND SHAREHOLDERS’ EQUITY

Accounts payable

$ 58,950

$ 93,482

Accrued expenses and other current liabilities

22,070

23,942

Total current liabilities

81,020

117,424

Long-term debt

81,250

81,250

Other long-term liabilities

2,171

1,568

Total liabilities

164,441

200,242

Shareholders’ equity:

Ordinary shares

10

10

Additional paid-in capital

104,228

100,234

Deferred stock-based compensation

(34)

(91)

Accumulated other comprehensive income (loss)

(8,932)

14,132

Retained earnings

123,893

132,621

Total shareholders’ equity

219,165

246,906

Total liabilities and shareholders’ equity

$ 383,606

$ 447,148


SMART MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
SUMMARY CASH FLOW INFORMATION
(Unaudited)





Six Months
Ended
February 27,
2009


Six Months
Ended
February 29,
2008

(In thousands)

Net cash provided by operating activities

$ 24,581

$ 19,764

Net cash used in investing activities

$ (11,368)

$ (9,621)

Net cash provided by financing activities

$ 464

$ 305


For More Information
Investor Contacts:

Suzanne Craig
The Blueshirt Group for SMART Modular Technologies
415-217-7722
Suzanne@blueshirtgroup.com

Barry Zwarenstein
CFO, Senior Vice President
SMART Modular Technologies
510-624-8134
Barry.Zwarenstein@smartm.com