Investor Presentation 2017
Disclaimer This presentation includes certain non-gaap financial measures. These non-gaap financial measures are in addition to, and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-gaap financial measures versus their nearest GAAP equivalents. For example, other companies may calculate non-gaap financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-gaap financial measures as tools for comparison. This presentation and oral communications made during the course of this presentation contain statements by SMART Global Holdings, Inc. (the Company ) that constitute forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding the Company s intent, belief or current expectations and based on information currently available to management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in forward-looking statements due to various factors including, but not limited to, factors and risks detailed in the Company s final prospectus filed with the Securities and Exchange Commission on May 25, 2017. Such factors and risks as outlined above and in the final prospectus may not constitute all factors and risks that could cause 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. The Company cannot predict all such factors, nor can it assess the impact, if any, from currently unknown factors on the Company or its results. Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements should not be relied upon as a prediction of actual results. These forward-looking statements are made as of today, and the Company does not intend, and has no obligation, to update or revise any forward-looking statements in order to reflect events or circumstances that may arise after the date hereof, except as required by law. Certain information included in this presentation was obtained from third parties and has not been independently verified by the Company. 2
Who is SMART? SMART is a technology leader in the design, development and deployment of current and next-generation memory modules, memory components, and embedded Flash products Brazil ($330 million, 48% of LTM 1 revenue) Specialty Memory ($354 million, 52% of LTM 1 revenue) Mobile Memory DRAM Suppliers OEM Customer Contract Manuf. Mobile Memory was 68% of LTM revenue in Brazil 2 #1 DRAM supplier in Brazil Capital-efficient model with strategic wafer supply relationship Leadership in Specialty Flash and Specialty DRAM High margin Supply Chain Services business provides recurring revenue, stable cash flow, and increased stickiness of relationships Multiple solutions focused on addressing evolving customer needs for the enterprise History of SMART 1988 Founded 1995 IPO 2002 Entered Brazilian Memory Market 2004 LBO from Solectron 2006 IPO 2011 Taken private by Silver Lake 2013 Sale of SMART Storage Systems 2017 IPO Note: Represents fiscal year ending August. 1. LTM statistics as of fiscal Q3 17 ended May 2017 2. As measured by market share of manufacturing of DRAM components and modules, and manufacturing of products for Mobile Memory. 3
SMART s Value Proposition to the Memory Market Specialized Player in Large and Growing Memory Market $73.1bn Flash $31.9bn DRAM $41.2bn 2016 Market NAND Flash and DRAM Sold as a Variety of Standard and Specialty Products 85-95% Mobile Memory & Standard Modules Brazil Specialty Memory 5-15% Specialty Memory SMART Brazil Value Proposition Only scaled player in Brazil providing mobile memory solutions Established product development and engineering capabilities in Mobile Memory and DRAM Interactive customer relationships covering technology and product roadmap SMART Specialty Memory Value Proposition Deep engineering collaboration between SMART and its customers Application-driven solutions, with endto-end capabilities Integrated Supply Chain Services provided globally Source: IDC, 2017. 4
SMART: Strong position Investment Highlights Key Business Drivers Positive secular fundamentals in the memory market Leading positions in multiple Brazil markets and established presence worldwide Regional expertise in Brazil with over $170mm invested over 15 years Deep, long-standing tier 1 OEM customer relationships Capital efficient model with operating leverage Experienced management team with proven track record Brazil Macro DRAM market Flash market PPB Local content Brazil Mobile Memory Ramp SMART used capital raised in the all-primary IPO at the end of May to repay debt and further position the business for sustained growth 5
Key Pillars for Sustainable Growth 1 Strong momentum driven by secular fundamentals in the memory market 2 Structural growth drivers in Brazil enhancing established market presence 3 New vectors for growth in Brazil 4 Continued leadership in Specialty Memory and Flash 6
1 Strong Momentum Driven By Secular Fundamentals in the Memory Market DRAM Market Supplier Consolidation 64% 94% Strong Bit Growth DRAM Bit Demand Gigabyte Shipments (in bn) 20.7 9.6 Expanding Global Memory Spend DRAM $ in bn $41.2 $44.4 2016 2021 NAND Flash Bit Demand Gigabyte Shipments (in bn) 538.1 $ in bn 2016 2021 NAND Flash $44.6 $31.9 2008 2016 Top 3 market share 117.6 2016 2021 2016 2021 $41bn DRAM market with increased stability driven by industry consolidation Robust projected bit growth in both DRAM and Flash $32bn Flash market with secular growth driven by increased use cases for flash Source: IDC, 2017. 7
2 SMART Leveraging the Growth in the Brazil Mobile Memory Market Brazil Mobile Memory Market Potential Brazil Mobile TAM 1 SMART Brazil Mobile Memory Trend Million Units Local Content Million USD Million USD Non Local Content $224 50.2 51.5 53.5 55.0 $390 $486 $499 75% y-o-y growth 21.4 22.0 25.8 32.6 25.8 32.1 33.0 17.6 2016 2017E 2018E 2019E Local Content Requirements 35% 2 50% 60% 60% SMART Market Share LTM Q2 17 (ending in Feb 2017) $249 $212 2016 2017E 2018E 2019E SMART is qualified at mobile vendors which hold more than 87% share of the Local Brazil Mobile Market $128 LTM 3Q16 3 LTM 3Q17 Represents fiscal year ending August Structural growth drivers in Brazil Mobile Memory market Sources: Company, Brazilian Ministry of Science, Technology and Innovation and IT Data. Note: Numbers may not sum due to rounding. 1. Brazil Mobile TAM is the total available market for locally produced mobile memory for mobile phones and tablets in Brazil. Brazil Mobile TAM is based on 1 component per mobile device and an estimated ASP of USD$17.09 per component through 2019, which is an average estimated selling price per component for mobile memory during Q2 FY17. 2. 2016 was 40% but with 5% allowable carryover (effective rate 35%). 3. LTM statistics as of fiscal Q3 17 ended May 2017. 8
3 New Vectors for Growth in Brazil New growth areas represent an incremental $2bn+ addressable market opportunity by 2020 Wireless (WiFi, Bluetooth, and Cellular) Camera Module DRAM / LPDRAM Sources: Gartner, IDC, and IT Data. 9
4 Specialty Memory Value Proposition Flexible & Responsive Organization With Robust End-to-End Capabilities Value Proposition 30 year history of providing Flash and DRAM based products for OEMs in the embedded market Long product life cycles (5 to 7 years) Application-specific solutions End-to-end capabilities Deep engineering collaboration between SMART and its customers Dedicated product development team driving enterprise grade functionality, performance and qualification 10
Blue-Chip Customer Base Across Diverse Markets Brazil Specialty Memory DRAM Mobile Memory Networking & Telecom Industrial, A&D, Medical, Computing Servers & Storage Top 5 End Customers for Q1 Q3 FY17 1 : Note: (1) Represents fiscal year ending August. Customer listing alphabetical order. 11
Financial Highlights Diversified revenue base across customers, geographies and end markets Track record of capitalizing on growth opportunities Structural growth drivers in Brazil Mobile Memory Consistent profitability with flexible cost structure Capital-efficient business model with operating leverage 12
Quarterly Trends ($mm) $200 $150 $100 $50 $117.0 Net Sales $149.6 $146.2 $159.3 $172.0 Gross Profit & Margins YoY Growth: (5%) 10% 31% 47% 38% ($mm) YoY Growth: (8%) 37% 27% 61% $207.0 $40 $30 $20 $10 $23.1 $30.6 $29.9 $29.7 $37.2 55% $47.4 19.7% 20.5% 20.4% 18.6% 21.6% 22.9% $0 Q2'16A Q3'16A Q4'16A Q1'17A Q2'17A Q3'17A $0 Q2'16A Q3'16A Q4'16A Q1'17A Q2'17A Q3'17A Gross Margin ($mm) $24 $18 $12 $6 Adjusted EBITDA LTM Adjusted EBITDA YoY Growth: 21% 232% 71% 147% 72% ($mm) YoY Growth: (40%) (7%) 20% 92% 109% $23.5 $29.8 $84.4 $80 $71.9 $17.4 $16.3 $14.7 $60 $51.8 $57.9 $37.5 $40.5 $9.5 $40 11.6% 11.1% 13.7% 14.4% 7.1% 7.8% 9.7% 10.1% 11.5% 12.3% 8.1% 9.3% $20 $0 Q2'16A Q3'16A Q4'16A Q1'17A Q2'17A Q3'17A EBITDA Margin $0 Q2'16A Q3'16A Q4'16A Q1'17A Q2'17A Q3'17A EBITDA Margin Note: Represents fiscal year ending August. 13
Revenue Trends Brazil DRAM ~15% of LTM net sales Applications: desktops, notebooks, smarttvs Brazil Mobile Memory ~33% of LTM net sales Applications: mobile and smartphones ($mm) $200 $150 $100 $185 $83 $16 $168 $158 $65 $51 $31 $34 $132 $122 $117 $39 $26 $21 $16 $23 $30 $150 $146 $21 $19 $59 $47 $159 $19 $56 $172 $29 $50 $207 $38 $71 Q3 16 Q3 17 Growth 83% 21% Specialty Memory ~52% of LTM net sales Applications: servers, storage, networking, industrial $50 $0 $86 $93 $98 $71 $72 $77 $72 $80 $84 $67 $70 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 40% Specialty Memory Brazil Mobile Memory Brazil DRAM Shift in business from a DRAM-focused mix to a more balanced mix of DRAM and Flash Note: Represents fiscal year ending August. LTM statistics as of fiscal Q3 17 ended May 2017. Red dotted boxes are representative of Calendar Year (Feb to Jan for Brazil) 14
Consistent Profitability Through Cycles SMART and Micron Cash Flow Ratio EBITDA minus Capex as % of revenue 0% 1 2 SMART s flexible business model and cost structure enable it to remain cash flow positive while others burn cash during industry down cycles 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Company filings, FactSet. Note: SMART and Micron metrics represent fiscal years ending August. 1. SMART Adj. EBITDA is defined as net income (loss) adjusted to exclude share-based compensation, interest income, provision for income taxes, depreciation, amortization of intangible assets and other adjustments. See adjusted EBITDA reconciliation on slide 31. 2. Micron EBITDA represents non-gaap operating income adjusted for D&A and other one-time items. 15
Target Model LTM 3Q FY17 Revenue Growth 31% Gross Margin 21% Operating Margin 8% EBITDA Margin 12% Tax Rate 20% Capital Expenditures 2% Leverage 2.7x Target Model 10% - 15% 20% - 23% 10% - 12% 12% - 15% 12% - 16% 2% - 4% < 2.0x Note: Represents LTM as of May 17. 16
SMART: Positive secular fundamentals in the memory market Leading positions in multiple Brazil markets and established presence worldwide Regional expertise in Brazil with over $170mm invested over 15 years Deep, long-standing tier 1 OEM customer relationships Capital efficient model with operating leverage Experienced management team with proven track record 17