What changed in this filing

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Item 1. Financial Statements

2022-04-05 compared with 2022-01-04 · 304 added, 108 removed, 375 unchanged (52% of the section changed)

10 unchanged sentences

(In thousands, except par value amount)

As of February 25,

2022 August 27,

Cash and cash equivalents $ 365,768 $ 222,986

Accounts receivable, net (1)

385,925 313,393

Inventories 334,148 363,601

Other current assets 45,876 50,838

3 unchanged sentences

Intangible assets, net 88,887 101,073

Goodwill 73,413 74,255

Other noncurrent assets 29,621 21,517

Total assets $ 1,508,513 $ 1,344,798

Liabilities and Equity

Accounts payable and accrued expenses $ 440,983 $ 484,107

Current debt 6,425 25,354

Other current liabilities 86,396 74,337

9 unchanged sentences

authorized 200,000 shares;

26,137 issued and 24,684 outstanding as of November 26, 2021;

25,770 issued and 24,368 outstanding as of August 27, 2021

51,189 shares issued and 49,733 outstanding as of February 25, 2022;

50,138 shares issued and 48,736 outstanding as of August 27, 2021

Additional paid-in-capital 423,136 396,120

Retained earnings 207,272 184,787

Treasury shares, 1,453 and 1,402 shares held as of November 26, 2021

and August 27, 2021, respectively

Treasury shares, 1,456 and 1,402 shares held as of February 25, 2022 and August 27, 2021, respectively

( 53,440 ) ( 50,545 )

Accumulated other comprehensive income (loss) ( 229,676 ) ( 221,615 )

1 unchanged sentence

Noncontrolling interest in subsidiary 6,085 8,673

Total equity 354,912 318,924

Total liabilities and equity $ 1,508,513 $ 1,344,798

Receivables from related parties were de minimus and $ 14,057 as of November 26, 2021 and August 27, 2021, respectively.

(1) Receivables from related parties were de minimis and $ 14,057 as of February 25, 2022 and August 27, 2021, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

(In thousands, except per share amounts)

Three months ended

Three Months Ended Six Months Ended

2022 February 26,

2021 February 25,

2022 February 26,

Net sales (1)

$ 449,171 $ 304,009 $ 919,115 $ 595,705

Cost of sales 336,458 250,553 684,201 489,606

Gross profit 112,713 53,456 234,914 106,099

Operating expenses:

10 unchanged sentences

Income tax provision 7,586 1,200 15,341 4,475

Net income 2,972 5,844 23,670 7,871

Net income attributable to noncontrolling interest 514 — 1,185 —

1 unchanged sentence

Earnings per share:

Basic $ 0.05 $ 0.12 $ 0.46 $ 0.16

Diluted $ 0.04 $ 0.12 $ 0.40 $ 0.16

Shares used in per share calculations:

Sales to related parties were de minimus and $ 14,975 in the first quarters of 2022 and 2021, respectively.

Basic 49,522 48,435 49,267 48,778

Diluted 57,636 50,407 56,135 50,307

(1) Sales to related parties were de minimis in 2022 and were $ 18,173 and $ 33,148 in the three and six months ended February 26, 2021, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

(In thousands)

Three months ended

Three Months Ended Six Months Ended

2022 February 26,

2021 February 25,

2022 February 26,

Net income $ 2,972 $ 5,844 $ 23,670 $ 7,871

Other comprehensive income (loss), net of tax:

7 unchanged sentences

(In thousands)

Paid-in-capital

Amount Additional

Paid-in-capital Retained

Earnings Treasury

Shares Accumulated

Comprehensive

Income (Loss)

Income (Loss) Total SGH

Shareholders’

Subsidiary Total

As of August 27, 2021 50,138 $ 1,504 $ 396,120 $ 184,787 $ ( 50,545 ) $ ( 221,615 ) $ 310,251 $ 8,673 $ 318,924

Other comprehensive income

Net income — — — 20,027 — — 20,027 671 20,698

Other comprehensive income (loss) — — — — — ( 19,440 ) ( 19,440 ) — ( 19,440 )

Shares issued under equity plans 734 22 5,007 — — — 5,029 — 5,029

2 unchanged sentences

As of November 26, 2021 50,821 1,524 410,868 204,814 ( 53,211 ) ( 241,055 ) 322,940 9,344 332,284

Paid-in-capital

Net income — — — 2,458 — — 2,458 514 2,972

Other comprehensive income (loss) — — — — — 11,379 11,379 — 11,379

Shares issued under equity plans 372 11 2,420 — — — 2,431 — 2,431

Repurchase of ordinary shares ( 4 ) — — — ( 229 ) — ( 229 ) — ( 229 )

Share-based compensation expense — — 9,848 — — — 9,848 — 9,848

Distribution to noncontrolling interest — — — — — — — ( 3,773 ) ( 3,773 )

As of February 25, 2022 51,189 $ 1,535 $ 423,136 $ 207,272 $ ( 53,440 ) $ ( 229,676 ) $ 348,827 $ 6,085 $ 354,912

Issued Amount Additional

Paid-in-capital Retained

Earnings Treasury

Shares Accumulated

Comprehensive

Income (Loss)

Income (Loss) Total SGH

Shareholders’

Subsidiary Total

As of August 28, 2020 48,988 $ 1,469 $ 347,431 $ 163,475 $ ( 2,032 ) $ ( 228,241 ) $ 282,102 $ — $ 282,102

Other comprehensive income

Net income — — — 2,027 — — 2,027 — 2,027

Other comprehensive income (loss) — — — — — ( 16,525 ) ( 16,525 ) — ( 16,525 )

Shares issued under equity plans 956 29 3,077 — — — 3,106 — 3,106

2 unchanged sentences

As of November 27, 2020 49,805 1,494 361,600 165,502 ( 5,515 ) ( 244,766 ) 278,315 — 278,315

Net income — — — 5,844 — — 5,844 — 5,844

Other comprehensive income (loss) — — — — — 10,934 10,934 — 10,934

Shares issued under equity plans 371 11 2,534 — — — 2,545 — 2,545

Repurchase of ordinary shares ( 1,104 ) ( 33 ) 33 — ( 44,481 ) — ( 44,481 ) — ( 44,481 )

Share-based compensation expense — — 5,398 — — — 5,398 — 5,398

As of February 26, 2021 49,072 $ 1,472 $ 369,565 $ 171,346 $ ( 49,996 ) $ ( 233,832 ) $ 258,555 $ — $ 258,555

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

(In thousands)

Three months ended

Six Months Ended February 25,

2022 February 26,

Cash flows from operating activities:

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Net income $ 23,670 $ 7,871

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation expense and amortization of intangible assets 31,890 17,160

Amortization of debt discounts and issuance costs

Amortization of debt discount and issuance costs 4,770 4,307

Share-based compensation expense 19,748 16,486

1 unchanged sentence

Amortization of operating lease right-of-use assets 5,245 2,913

Other 1,341 981

Changes in operating assets and liabilities:

Accounts receivable ( 75,579 ) 10,082

Inventories 26,415 ( 28,134 )

Other current assets 5,200 ( 19,126 )

5 unchanged sentences

Capital expenditures and deposits on equipment ( 20,142 ) ( 34,795 )

Other ( 692 ) 167

Net cash used for investing activities ( 20,834 ) ( 34,628 )

Cash flows from financing activities:

Proceeds from debt 270,775 11,439

Proceeds from borrowing under line of credit 84,000 42,500

Proceeds from issuance of ordinary shares

Proceeds from issuance of shares 7,460 5,651

Repayments of debt ( 125,000 ) —

Repayments of borrowings under line of credit ( 109,000 ) ( 42,500 )

Distribution to noncontrolling interest ( 3,773 ) —

Payments to acquire ordinary shares ( 2,895 ) ( 47,964 )

Other ( 3,841 ) —

Net cash provided by (used for) financing activities 117,726 ( 30,874 )

Effect of changes in currency exchange rates on cash and cash equivalents ( 1,421 ) ( 1,496 )

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents 142,782 ( 11,008 )

Cash and cash equivalents at beginning of period 222,986 150,811

16 unchanged sentences

Subsequent Event

Share Repurchase Authorization

On April 4, 2022, our Board of Directors approved a $ 75 million share repurchase authorization, under which the Company may repurchase its outstanding ordinary shares from time to time through open market purchases, privately-negotiated transactions or otherwise.

The share repurchase authorization has no expiration date but may be suspended or terminated by the Board of Directors at any time.

Share Dividend

On January 3, 2022 , our Board of Directors declared a share dividend of one ordinary share, $ 0.03 par value per share, for every one ordinary share owned.

The share dividend will be payable to shareholders of record as of January 25, 2022 , and will be paid on February 1, 2022 .

Ordinary shares and per share data in the accompanying consolidated financial statements and notes have not been adjusted for the impact of the share dividend.

On January 3, 2022, our Board of Directors declared a share dividend of one ordinary share, $ 0.03 par value per share, for every one outstanding ordinary share owned to shareholders of record as of January 25, 2022.

The dividend was paid on February 1, 2022.

The accompanying consolidated financial statements and notes have been restated and adjusted for the impact of the share dividend.

Recently Adopted Accounting Standards

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The Earnout Note will begin to bear interest upon completion of the Earnout Period at LIBOR plus 3.0 % and is due on March 27, 2025.

In the second quarter of 2022, we repaid the LED Purchase Price Note.

Contingent Consideration :

3 unchanged sentences

The Earnout Note is revalued each quarter and changes in valuation are reflected in results of operations.

In the second half of 2021, we recorded charges of $ 32.4 million to adjust the value of the Earnout Note to its fair value as of August 27, 2021, and in the first quarter of 2022, we recorded an additional charge of $ 17.2 million to adjust the value of the Earnout Note to its fair value as of November 26, 2021.

In the second half of 2021, we recorded charges of $ 32.4 million to adjust the value of the Earnout Note to its fair value as of August 27, 2021, and in the first six months of 2022, we recorded additional aggregate charges of $ 41.2 million to adjust the value of the Earnout Note to its fair value as of February 25, 2022.

The changes in fair value reflected new information about the probability and timing of meeting the conditions of the revenue and gross profit targets of the LED Business.

As of November 26, 2021, the fair value of the Earnout Note was $ 77.7 million.

As of February 25, 2022, the fair value of the Earnout Note was $ 101.7 million.

Upon completion of the Earnout Period, the Earnout Note will be reclassified as debt.

Unaudited Pro Forma Financial Information :

The following unaudited pro forma financial information presents our combined results of operations as if the acquisition of the LED Business had occurred on August 31, 2019.

The unaudited pro forma financial

information is based on various adjustments and assumptions and is not necessarily indicative of what our results of operations actually would have been had the acquisition been completed as of August 31, 2019 or will be for any future periods.

The unaudited pro forma financial information is based on various adjustments and assumptions and is not necessarily indicative of what our results of operations actually would have been had the acquisition been completed as of August 31, 2019 or will be for any future periods.

Furthermore, the pro forma financial information does not include adjustments to reflect any potential revenue, synergies or dis-synergies or cost savings that may be achievable in connection with the acquisition, or the associated costs that may be necessary to achieve such revenues, synergies or cost savings.

The unaudited pro forma financial information for the first quarter of 2021 combines our results of operations for the quarter ended November 27, 2020 and the results of operations of the LED Business for the quarter ended September 27, 2020.

Three months ended

The unaudited pro forma financial information for the second quarter and first six months of 2021 combines our results of operations for the three and six months ended February 26, 2021 and the results of operations of the LED Business for the three and six months ended December 26, 2021.

Three Months Ended Six Months Ended

2021 February 26,

Net sales $ 409,166 $ 799,899

Net loss attributable to SGH ( 27,680 ) ( 155,758 )

Earnings (loss) per share:

Basic $ ( 0.57 ) $ ( 3.19 )

Diluted $ ( 0.57 ) $ ( 3.19 )

The unaudited pro forma financial information above reflects the following adjustments:

4 unchanged sentences

• The impacts to income tax expense as a result of the pro forma adjustments.

As of February 25,

2022 August 27,

Raw materials $ 168,956 $ 163,610

1 unchanged sentence

Finished goods 97,202 107,090

As of November 26, 2021 and August 27, 2021, 10 % and 11 %, respectively, of total inventories were inventories owned and held under our supply chain services.

$ 334,148 $ 363,601

As of February 25, 2022 and August 27, 2021, 7 % and 11 %, respectively, of total inventories were inventories owned and held under our logistics services.

Property and Equipment

As of February 25,

2022 August 27,

Equipment $ 185,514 $ 182,493

Buildings and building improvements 55,306 53,502

Furniture, fixtures and software 35,356 32,114

Land 16,126 16,126

292,302 284,235

Accumulated depreciation ( 143,243 ) ( 127,969 )

Depreciation expense for property and equipment was $ 9.5 million and $ 5.0 million in the first quarters of 2022 and 2021, respectively.

$ 149,059 $ 156,266

Depreciation expense for property and equipment was $ 10.2 million and $ 19.7 million in the three and six months ended February 25, 2022, respectively, and $ 5.4 million and $ 10.3 million in the three and six months ended February 26, 2021, respectively.

Intangible Assets and Goodwill

As of November 26, 2021

As of August 27, 2021

February 25, 2022 August 27, 2021

Amount Accumulated

Intangible assets:

Technology $ 61,336 $ ( 13,934 ) $ 61,307 $ ( 9,142 )

Customer relationships 57,500 ( 27,315 ) 57,500 ( 22,393 )

Trademarks/tradenames

Trademarks/trade names 19,200 ( 8,199 ) 19,200 ( 6,628 )

Order backlog 3,400 ( 3,101 ) 3,800 ( 2,571 )

$ 141,436 $ ( 52,549 ) $ 141,807 $ ( 40,734 )

Goodwill by segment:

1 unchanged sentence

Memory Solutions 33,012 33,854

In the first quarter of 2022, we capitalized $ 0.6 million for intangible assets with weighted-average useful lives of 8.23 years.

Amortization expense for intangible assets was $ 6.3 million and $ 3.4 million in the first quarters of 2022 and 2021, respectively.

$ 73,413 $ 74,255

In the first six months of 2022, we capitalized $ 0.8 million for intangible assets with weighted average useful lives of 13.6 years.

Amortization expense for intangible assets was $ 5.9 million and $ 12.2 million in the three and six months ended February 25, 2022, respectively, and $ 3.4 million and $ 6.8 million in the three and six months ended February 26, 2021, respectively.

Amortization expense is expected to be $ 11.7 million for the remainder of 2022, $ 21.8 million in 2023, $ 18.1 million in 2024, $ 15.4 million in 2025, $ 8.4 million in 2026 and $ 13.6 million thereafter.

Goodwill of our Memory Solutions segment decreased by $ 1.8 million in the first quarter of 2022 and increased in all of 2021 by $ 0.3 million from translation adjustments.

Goodwill of our Memory Solutions segment decreased by $ 0.8 million in the first six months of 2022 and increased in all of 2021 by $ 0.3 million from translation adjustments.

Accounts Payable and Accrued Expenses

As of February 25,

2022 August 27,

Accounts payable (1)

$ 380,088 $ 429,640

Salaries, wages and benefits 38,514 37,795

Income and other taxes 21,041 14,319

Includes accounts payable for property and equipment of $ 3.6 million and $ 3.1 million as of November 26, 2021 and August 27, 2021, respectively.

Other 1,340 2,353

$ 440,983 $ 484,107

(1) Includes accounts payable for property and equipment of $ 2.1 million and $ 3.1 million as of February 25, 2022 and August 27, 2021, respectively.

As of February 25,

2022 August 27,

Credit Facility Term Loan $ 270,560 $ —

Convertible Senior Notes 208,452 203,992

1 unchanged sentence

ABL Credit Agreement — 25,000

Other 11,324 11,846

490,336 365,838

Less current debt ( 6,425 ) ( 25,354 )

Long-term debt $ 483,911 $ 340,484

Credit Facility

On February 7, 2022, we entered into a credit agreement (the "Credit Agreement") with a syndicate of banks that provides for (i) a term loan credit facility in an aggregate principal amount of $ 275.0 million (the "2027 TLA") and (ii) a revolving credit facility in an aggregate principal amount of $ 250.0 million (the "2027 Revolver," and together with the 2027 TLA, the "Credit Facility"), in each case, maturing on February 7, 2027 (subject to certain earlier “springing maturity” dates upon certain conditions specified in the Credit Agreement).

The Credit Agreement provides that up to $ 35.0 million of the 2027 Revolver is available for issuances of letters of credit.

Issuance costs incurred in connection with the Credit Facility were $ 9.1 million and were allocated to the 2027 TLA and 2027 Revolver on a pro rata basis.

Unamortized issuances costs allocated to the 2027 TLA are amortized using the effective interest method and are included as a reduction of the principal amount of the 2027 TLA within debt.

Unamortized issuances costs allocated to the 2027 Revolver are amortized using the straight-line method and are included in other current and noncurrent assets.

Principal payments under the 2027 TLA are due quarterly, beginning in May 2022, equal to 2.5 % per annum of the initial aggregate principal amount, with such per annum percentage equal to 5.0 %, 5.0 %, 5.0 % and 7.5 % per annum in years two through five, respectively, with the balance due at maturity.

Interest and fees :

Loans under the Credit Agreement bear interest at a rate per annum equal to either, at our option, a term secured overnight financing rate ("SOFR") rate or a base rate, in each case plus an applicable margin.

The applicable margin for 2027 TLA is 2.00 % per annum with respect to term SOFR borrowings, and 1.00 % per annum with respect to base rate borrowings.

As of February 25, 2022, the interest rate applicable to the principal amount outstanding under the 2027 TLA was 2.37 % per annum.

As of February 25, 2022, there was $ 275.0 million of 2027 TLA

principal amount outstanding and unamortized issuance costs were $ 4.4 million and, as of February 25, 2022, the 2027 TLA had an effective interest rate of 2.76 %.

2027 Revolver :

The applicable margin for revolving loans varies based on our Total Leverage Ratio (as defined in the Credit Agreement) and ranges from 1.25 % to 3.00 % per annum with respect to term SOFR borrowings and from 0.25 % to 2.00 % per annum with respect to base rate borrowings.

In addition, we are required to pay a quarterly unused commitment fee at an initial rate of 0.25 %, which may increase up to a rate of 0.35 % based on certain Total Leverage Ratio levels specified in the Credit Agreement.

As of February 25, 2022, there were no amounts outstanding under the 2027 Revolver and unamortized issuance costs were $ 4.6 million.

The Credit Agreement is jointly and severally guaranteed on a senior basis by certain subsidiaries of SGH organized in the United States and Cayman Islands.

In addition, the Credit Agreement is secured by a pledge of the capital stock of, or equity interests in, certain subsidiaries of SGH organized in the United States and the Cayman Islands and by substantially all of the assets of certain subsidiaries of SGH organized in the United States and the Cayman Islands.

The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability and the ability of our subsidiaries to:

incur additional indebtedness;

create liens on assets;

engage in mergers or consolidations;

pay dividends;

make distributions or repurchase capital stock;

make investments, loans or advances;

repay or repurchase certain subordinated debt (except as scheduled or at maturity);

create restrictions on the payment of dividends or other amounts to us from our restricted subsidiaries;

make certain acquisitions;

engage in certain transactions with affiliates;

amend material agreements governing our subordinated debt and fundamentally change our business.

The Credit Agreement also includes the following financial maintenance covenants tested on the final day of each fiscal quarter:

a First Lien Leverage Ratio (as defined in the Credit Agreement) of 3.00 to 1.00;

a Total Leverage Ratio of 5.00 to 1.00;

provided, that commencing after the eighth full fiscal quarter after the Effective Date, such Total Leverage Ratio level will instead be 4.50 to 1.00;

provided further, that commencing after the eighth full fiscal quarter after the Effective Date, in connection with any Material Acquisition (as defined in the Credit Agreement), at the election of the Borrowers, the maximum Total Leverage Ratio for the next four testing periods after such Material Acquisition has been consummated will be automatically increased by 0.50 to 1.00 above the otherwise permitted Total Leverage Ratio for the applicable fiscal quarter (not to exceed 5.00 to 1.00 in any event);

provided further, that (x) no more than two such elections may be made during the term of the Credit Agreement and (y) following the first such election, no subsequent election may be made unless the Total Leverage Ratio has been less than or equal to 5.00 to 1.00 as of the last day of at least two consecutive Test Periods (as defined in the Credit Agreement) following the expiration of the first increase;

an Interest Coverage Ratio (as defined in the Credit Agreement) of 3.00 to 1.00.

For purposes of calculating the First Lien Leverage Ratio and the Total Leverage Ratio, the consolidated debt of the Company and its Restricted Subsidiaries (as defined in the Credit Agreement) is reduced by up to $ 100 million of the aggregate amount of unrestricted cash and Permitted Investments (as defined in the Credit Agreement) of the Company and its Restricted Subsidiaries.

Substantially simultaneously with entering into the Credit Agreement, we used a portion of the proceeds of the Credit Facility to pay in full all borrowings and terminated all commitments under (i) our ABL Credit Agreement, dated as of December 23, 2020, (ii) our Amended Credit Agreement, dated as of of March 6, 2020 and (iii) the LED Purchase Price Note, dated as of March 1, 2021.

In connection therewith, we used an aggregate of $ 160.4 million to pay principal and interest outstanding under these agreements and recorded charges of $ 0.7 million in other non-operating expense to write off certain unamortized issuance costs.

Convertible Senior Notes

2 unchanged sentences

The 2026 Notes are governed by an indenture (the “Indenture”) between us and U.S.

Bank National Association, as trustee.

The initial conversion rate of the 2026 Notes is 24.6252 ordinary shares per $ 1,000 principal amount of notes, which represents an initial conversion price of approximately $ 40.61 per ordinary share.

National Association, as trustee.

After the effect of the share dividend paid in the second quarter of 2022, the conversion rate of the 2026 Notes is 49.2504 ordinary shares per $ 1,000 principal amount of notes, which represents a conversion price of approximately $ 20.30 per ordinary share.

The conversion rate is subject to adjustment upon the occurrence of certain specified events as set forth in the Indenture.

8 unchanged sentences

Our intent is to settle in cash the principal amount of our convertible notes upon conversion and may, at our option, settle any excess of the conversion value over the principal amount in cash, ordinary shares or any combination thereof.

The closing price of our ordinary shares exceeded 130 % of the conversion price for our 2026 Notes for at least 20 trading days in the 30 consecutive trading days ended on November 26, 2021.

As a result, the 2026 Notes are convertible by holders through February 25, 2022 .

The closing price of our ordinary shares exceeded 130 % of the conversion price for our 2026 Notes for at least 20 trading days in the 30 consecutive trading days ended on February 25, 2022.

As a result, the 2026 Notes are convertible by holders through May 27, 2022.

If we receive a notice of conversion for our 2026 Notes, and we elect to settle in cash any portion of the conversion obligation, the cash settlement obligation becomes a derivative debt liability subject to mark-to-market accounting treatment based on the volume-weighted-average price of our ordinary shares over a period of 40 consecutive trading days, beginning two business days after the holder gives notice to convert.

Accordingly, as of the date of our election to settle any part of a conversion in cash, we would reclassify all or a portion of the fair value of the equity component of the converted 2026 Notes from additional capital to derivative debt liability within current debt in our consolidated balance sheet.

Interest expense for the 2026 Notes consisted of 2.25% contractual stated interest of $ 1.4 million and $ 1.4 million in the first quarters of 2022 and 2021, respectively, and amortization of discount and issuance costs of $ 2.2 million and $ 2.1 million in the first quarters of 2022 and 2021, respectively, resulting in an effective interest rate of 7.06 %.

As of both November 26, 2021 and August 27, 2021, the carrying amount of the equity components of the 2026 Notes, which are included in additional paid-in-capital, was $ 50.8 million.

As of November 26, 2021 and August 27, 2021, we had operating leases through which we utilize facilities, offices and equipment in our manufacturing operations, research and development activities and selling, general and administrative functions.

Sublease income was not significant in the first quarters of 2022 or 2021.

Unamortized debt discount and issuance costs are amortized over the term of the 2026 Notes using the effective interest rate method.

As of February 25, 2022 and August 26, 2021, the effective interest rate was 7.06 %.

Interest expense for the 2026 Notes consisted of 2.25 % contractual stated interest and amortization of discount and issuance costs and included of the following:

Three Months Ended Six Months Ended

2022 February 26,

2021 February 25,

2022 February 26,

Contractual stated interest $ 1,390 $ 1,391 $ 2,781 $ 2,781

Amortization of discount and issuance costs 2,250 2,098 4,460 4,159

$ 3,640 $ 3,489 $ 7,241 $ 6,940

As of both February 25, 2022 and August 27, 2021, the carrying amount of the equity components of the 2026 Notes, which is included in additional paid-in-capital, was $ 50.8 million.

As of February 25, 2022 and August 27, 2021, we had operating leases through which we utilize facilities, offices and equipment in our manufacturing operations, research and development activities and selling, general and administrative functions.

Sublease income was not significant in the first six months of 2022 or 2021.

The components of operating lease expense were as follows:

Three months ended

Three Months Ended Six Months Ended

2022 February 26,

2021 February 25,

2022 February 26,

Fixed lease cost $ 3,213 $ 1,915 $ 6,516 $ 3,454

1 unchanged sentence

Short-term lease cost 182 57 258 115

Cash flows used for operating activities in the first quarters of 2022 and 2021 included payments for operating leases of $ 2.9 million and $ 1.6 million, respectively.

Noncash acquisitions of right-of-use assets were not significant in the first quarters of 2022 and 2021.

As of November 26, 2021 and August 27, 2021, the weighted-average remaining lease term for our operating leases was 6.0 years and 6.1 years, respectively.

$ 3,848 $ 2,260 $ 7,595 $ 4,129

Cash flows used for operating activities for the first six months of 2022 and 2021 included payments for operating leases of $ 5.1 million and $ 3.1 million, respectively.

Noncash acquisitions of right-of-use assets were $ 0.6 million and $ 3.3 million for the first six months of 2022 and 2021, respectively.

As of February 25, 2022 and August 27, 2021, the weighted-average remaining lease term for our operating leases was 5.8 years and 6.1 years, respectively.

Certain of our operating leases include one or more options to extend the lease term for periods from two to five years .

In determining the present value of our operating lease liabilities, we have assumed we will not extend any lease terms.

As of November 26, 2021 and August 27, 2021, the weighted-average discount rate for our operating leases was 6.8 % and 6.7 %, respectively.

Minimum payments of lease liabilities as of November 26, 2021 were as follows:

As of February 25, 2022 and August 27, 2021, the weighted-average discount rate for our operating leases was 6.8 % and 6.7 %, respectively.

Minimum payments of lease liabilities as of February 25, 2022 were as follows:

Remainder of 2022

3 unchanged sentences

The table above excludes lease liabilities for leases that have been executed but not yet commenced.

As of November 26, 2021, we had such lease commitments relating to operating lease payment obligations of $ 51.8 million for a building lease with a term of 16 years.

As of February 25, 2022, we had such lease commitments relating to operating lease payment obligations of $ 51.8 million for a building lease with a term of 16 years.

We will recognize a right-of-use asset and an associated lease liability at the time such asset becomes available for our use.

Such lease is currently expected to commence in the second half of calendar 2022.

Such lease is currently expected to commence in the second half of fiscal 2022.

Commitments and Contingencies

5 unchanged sentences

It is not possible to predict the maximum potential amount of future payments under these types of agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement.

Historically, our payments under these types of agreements have not had a material adverse effect on our business, results of operations or financial condition.

Historically, our payments under these types of agreements have not had a material adverse effect

on our business, results of operations or financial condition.

We regularly review contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made.

1 unchanged sentence

Ordinary Share Repurchases

Ordinary shares withheld as payment of withholding taxes and exercise prices in connection with the vesting or exercise of equity awards are treated as ordinary share repurchases.

An aggregate of 51 thousand and 139 thousand shares were acquired for $ 2.7 million and $ 3.5 million in the first quarters of 2022 and 2021, respectively.

In January 2021, we agreed to repurchase an aggregate of 1.1 million ordinary shares from Silver Lake Partners III Cayman (AIV III), L.P., Silver Lake Technology Investors III Cayman, L.P., Silver Lake Sumeru Fund Cayman, L.P.

and Silver Lake Technology Investors Sumeru Cayman, L.P.

at a purchase price of $ 40.30 per share in a privately negotiated transaction.

The transaction closed on January 15, 2021.

In addition, ordinary shares withheld as payment of withholding taxes and exercise prices in connection with the vesting or exercise of equity awards are treated as ordinary share repurchases.

We repurchased 4 thousand and 55 thousand ordinary shares in the second quarter and first six months of 2022, respectively, and 1.1 million and 1.2 million ordinary shares in the second quarter and first six months of 2021, respectively.

As of February 25, 2022, these repurchased shares are held in treasury.

Noncontrolling Interest in Subsidiary

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The 49 % ownership interest held by San’an is classified as noncontrolling interest.

Noncontrolling interest increased by $ 0.7 million in the first quarter of 2022 for San’an’s share of net income from the Cree Joint Venture.

Cash and other assets of the Cree Joint Venture are generally not available for use by us in our other operations.

In the second quarter of 2022, the Cree Joint Venture distributed an aggregate of $ 7.7 million to its partners, including $ 3.9 million to SGH and $ 3.8 million to San’an.

Noncontrolling interest increased by $ 0.5 million and $ 1.2 million in the second quarter and first six months of 2022, respectively, for San’an’s share of net income from the Cree Joint Venture.

Remaining cash and other assets of the Cree Joint Venture are generally not available for use by us in our other operations.

Government Incentives

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Through our Brazil subsidiaries, we participate in two programs (“Brazil Incentive Programs”), pursuant to which the Brazilian government incentivizes the manufacture and sale of certain information technology and consumer electronics products within Brazil.

The programs include 1) Lei da Informática – Processo Produtivo Básico Program (aka Informatics Law – Basic Productive Process Program) (“PPB/IT”) and 2) Programa de Apoio ao Desenvolvimento Tecnológico da Indústria de Semicondutores (aka Program of Support of the Development of the Semiconductor Industry) (“PADIS”).

The financial credits available through PADIS are currently set to expire in January 2022.

The programs include 1) Lei da Informática – Processo Produtivo Básico Program (also known as Informatics Law – Basic Productive Process Program) (“IT Law/PPB”) and 2) Programa de Apoio ao Desenvolvimento Tecnológico da Indústria de Semicondutores (also known as Program of Support of the Development of the Semiconductor Industry) (“PADIS”).

In January 2022, the Brazilian government approved an extension to PADIS.

The financial credits available through PADIS are set to expire in December 2026, while the financial credits through IT Law/PPB are set to expire in December 2029.

The Brazil Incentive Programs provide for reduced import and other transaction-related taxes for certain procurement, manufacturing and sales activities.

In exchange, we must invest in certain research and development activities related to semiconductors and displays in aggregate amounts that exceed a specified percentage of our gross revenues recognized in connection with sales in Brazil.

In exchange, we must invest in certain research and development activities related to semiconductors and IT solutions in aggregate amounts that exceed a specified percentage of our gross revenues recognized in connection with sales in Brazil, excluding exports and sales to customers located at the Manaus Free Trade Zone.

Accordingly, financial credits earned in connection with the Brazil Incentive Programs are reflected as a reduction of research and development expense.

Financial credits available under the Brazil Incentive Programs are subject to limitations, which range from approximately 11 % to 14 % of gross revenues recognized for sales in Brazil.

Pursuant to the Brazil Incentive Programs, we recognized aggregate financial credits, reflected as a reduction of research and development expense, of $ 5.9 million and $ 7.9 million in the first quarters of 2022 and 2021, respectively.

Under PADIS, we recognized aggregate financial credits, reflected as a reduction of research and development expense, of $ 6.0 million and $ 11.9 million in the second quarter and first six months of 2022, respectively, and $ 6.2 million and $ 14.0

million in the second quarter and first six months of 2021, respectively.

Financial credits earned under the Brazil Incentive Programs may be refunded in cash or used to offset liabilities for Brazil federal taxes.

As of November 26, 2021 and August 27, 2021, earned but unused financial credits of $ 16.9 million and $ 19.8 million, respectively, were included in other current assets.

Financial credits earned but unused as of November 26, 2021 can be utilized through November 2026.

As of February 25, 2022 and August 27, 2021, earned under PADIS but unused financial credits of $ 17.5 million and $ 19.8 million, respectively, were included in other current assets.

Financial credits earned under PADIS but unused as of February 25, 2022 can be utilized through November 2026.

Fair Value Measurements

Cash and cash equivalents as of November 26, 2021 and August 27, 2021 included money market funds of $ 2.8 million and $ 2.7 million, respectively, which were valued based on Level 1 measurements using quoted prices in active markets for identical assets.

Cash and cash equivalents as of both February 25, 2022 and August 27, 2021 included money market funds of $ 2.7 million, which were valued based on Level 1 measurements using quoted prices in active markets for identical assets.

Fair value measurements of other assets and liabilities were as follows:

As of November 26, 2021

As of August 27, 2021

Carrying Value

February 25, 2022 August 27, 2021

Value Carrying

Derivative financial instrument assets $ — $ — $ 883 $ 883

Derivative financial instrument liabilities $ 2,895 $ 2,895 $ 50 $ 50

Credit Facility Term Loan 275,000 270,560 — —

Convertible Senior Notes 382,903 208,452 335,668 203,992

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ABL Credit Agreement — — 25,000 25,000

Debt – other 10,375 11,324 10,702 11,846

Acquisition-related contingent consideration 101,700 101,700 60,500 60,500

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The fair values of our LED Purchase Price Note, ABL Credit Agreement and other debt, as measured on a non-recurring basis, were estimated based on Level 2 measurements, including discounted cash flows and interest rates based on similar debt issued by parties with credit ratings similar to ours.

Acquisition-related contingent consideration relates to our acquisition of the LED Business and is included in other noncurrent liabilities.

Acquisition-related contingent consideration relates to our acquisition of the LED Business and is included in noncurrent liabilities.

The fair value, as measured on a recurring basis, was based on Level 3 measurements, which includes significant inputs not observable in the market.

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We use currency forward contracts to mitigate our exposure of certain monetary assets and liabilities from changes in currency exchange rates.

Realized and unrealized gains and losses on derivative instruments without hedge accounting designation as well as the changes in the underlying monetary assets and liabilities from changes in currency exchange rates are included in other non-operating (income) expense.

For derivative instruments without hedge accounting designation, in the first quarter of 2022, we recognized net realized gains of $ 3.9 million and net unrealized gains on the change in the fair value of the non-designated forward contracts of $ 0.8 million.

In the first quarter of 2021, we recognized net realized gains of $ 2.4 million and net unrealized gains on the change in the fair value of the non-designated forward contracts of $ 2.9 million.

As of November 26, 2021, 4.3 million shares of our ordinary shares were available for future awards under our equity plans.

Realized and unrealized gains and losses from derivative instruments without hedge accounting designation as well as the changes in the underlying monetary assets and liabilities from changes in currency exchange rates are included in other non-operating (income) expense.

In the three and six months ended February 25, 2022, we recognized net realized gains of $ 1.2 million and $ 4.5 million in the three and six months ended February 25, 2022, respectively, and net unrealized losses of $ 4.3 million and $ 3.5 million, respectively, from changes in the fair value of the non-designated forward contracts.

In the three and six months ended February 26, 2021, we recognized net realized losses of $ 2.9 million and $ 0.7 million, respectively, and net unrealized gains of $ 0.1 million and $ 3.1 million, respectively, from changes in the fair value of the non-designated forward contracts.

As of February 25, 2022, 8.6 million shares of our ordinary shares were available for future awards under our equity plans.

Restricted Share Awards and Restricted Share Units Awards (“Restricted Awards”)

Aggregate Restricted Award activity was as follows:

Three months ended

Three Months Ended Six Months Ended

2022 February 26,

2021 February 25,

2022 February 26,

Awards granted 113 337 646 1,434

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The fair value of awards with market conditions were fixed at the grant date using a Monte Carlo simulation analysis and were based on significant inputs not observable in the market.

In May 2020, we granted a performance-based restricted share award that had both service and performance conditions.

In May 2020, we granted a performance-based restricted share award to our former CEO that had both service and performance conditions.

As of August 28, 2020, we deemed it was probable that the service condition would be met and the attainment of the performance condition for this award was probable.

On October 20, 2020, we modified this award, as well as another time-based award, each for our former CEO, to accelerate the remaining service-based vesting requirements such that they became fully vested as of the acceleration date.

On October 20, 2020, we modified this award, as well as another time-based award previously granted to our former CEO, to accelerate the remaining service-based vesting requirements such that they became fully vested as of the acceleration date.

These modifications resulted in additional share-based compensation expense in the first quarter of 2021 of $ 5.8 million.

As of November 26, 2021, total unrecognized compensation costs for unvested Restricted Awards was $ 93.1 million, which was expected to be recognized over a weighted average period of 2.95 years.

As of February 25, 2022, total unrecognized compensation costs for unvested Restricted Awards was $ 87.4 million, which was expected to be recognized over a weighted average period of 2.76 years.

Share Options

Share option activity and assumptions were as follows:

Three months ended

Six Months Ended February 26,

Share options granted 500

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Expected dividend yield —

As of November 26, 2021, total unrecognized compensation costs for unvested options was $ 5.3 million, which was expected to be recognized over a weighted average period of 1.96 years.

As of February 25, 2022, total unrecognized compensation costs for unvested options was $ 4.4 million, which was expected to be recognized over a weighted average period of 1.77 years.

Employee Share Purchase Plan

Under our employee share purchase plan (“ESPP”), employees purchased 67 thousand ordinary shares for $ 3.0 million in the first quarter of 2022 and 87 thousand shares for $ 1.8 million in the first quarter of 2021.

Under our employee share purchase plan (“ESPP”), employees purchased 133 thousand ordinary shares for $ 3.0 million in the first six months of 2022 and 173 thousand ordinary shares for $ 1.8 million in the first six months of 2021.

Share-Based Compensation Expense

Three months ended

Three Months Ended Six Months Ended

2022 February 26,

2021 February 25,

2022 February 26,

Share-based compensation expense by caption:

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Selling, general and administrative 6,766 3,784 13,270 13,257

$ 9,973 $ 5,398 $ 19,748 $ 16,486

Income tax benefits related to the tax deductions for share-based awards are recognized only upon the settlement of the related share-based awards.

Consistent with our treatment of income or loss from our U.S.

operations, our income tax provision in the first quarters of 2022 and 2021 reflects de minimis income tax benefits for share-based compensation expense.

operations, our income tax provision in 2022 and 2021 reflects de minimis income tax benefits for share-based compensation expense.

Revenue and Customer Contract Balances

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Net Sales and Gross Billings

Net sales by products and services and gross amounts billed for services, including those services in which we act as an agent for our customers, were as follows:

Three months ended

Gross billings in connection with services:

Net sales by products and services and gross amounts billed for services, including logistics services in which we act as an agent for our customers, were as follows:

Three Months Ended Six Months Ended

2022 February 26,

2021 February 25,

2022 February 26,

Products and professional services $ 434,036 $ 296,996 $ 890,461 $ 582,197

Logistics services 15,135 7,013 28,654 13,508

$ 449,171 $ 304,009 $ 919,115 $ 595,705

Gross billings in connection with logistics services:

Logistics services $ 15,135 $ 7,013 $ 28,654 $ 13,508

Cost of materials (1)

Included in gross billings in connection with services are amounts billed to customers for the cost of materials procured in an agent capacity in connection with our procurement, logistics, inventory management, temporary warehousing, kitting and packaging services.

339,715 144,109 675,990 275,633

$ 354,850 $ 151,122 $ 704,644 $ 289,141

(1) Included in gross billings in connection with services are amounts billed to customers for the cost of materials procured in an agent capacity in connection with our logistics services business, which includes procurement, logistics, inventory management, temporary warehousing, kitting and/or packaging services.

While we take title to inventory under such arrangements, control of such inventory does not transfer to us as we do not, at any point, have the ability to direct the use, and thereby obtain the benefits of, the inventory.

Customer Contract Balances

As of February 25,

2022 August 27,

Contract assets (1)

$ 102 $ 4,247

Contract liabilities:

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Customer advances 17,202 15,835

$ 40,746 $ 35,106

(1) Contract assets are included in other current assets.

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Deferred revenue related to amounts received from customers in advance of satisfying performance obligations.

As of November 26, 2021, we expect to recognize revenue of $ 10.5 million of the balance of $ 14.9 million in the next 12 months and the remaining amount thereafter.

In the first quarter of 2022, we recognized revenue of $ 5.8 million from satisfying performance obligations related to amounts included in deferred revenue as of August 27, 2021.

As of February 25, 2022, we expect to recognize revenue of $ 19.8 million of the balance of $ 23.5 million in the next 12 months and the remaining amount thereafter.

In the first six months of 2022, we recognized revenue of $ 11.2 million from satisfying performance obligations related to amounts included in deferred revenue as of August 27, 2021.

Customer advances represent amounts received from customers for advance payments to secure product and services within the next 12 months.

In the first quarter of 2022, we recognized revenue of $ 1.3 million from satisfying performance obligations related to amounts included in customer advances as of August 27, 2021.

As of November 26, 2021 and August 27, 2021, other current liabilities included $ 25.1 million and $ 24.9 million, respectively, for estimates of consideration payable to customers, including estimates for pricing adjustments and returns.

In the first six months of 2022, we recognized revenue of $ 5.1 million from satisfying performance obligations related to amounts included in customer advances as of August 27, 2021.

As of February 25, 2022 and August 27, 2021, other current liabilities included $ 23.4 million and $ 24.9 million, respectively, for estimates of consideration payable to customers, including estimates for pricing adjustments and returns.

Other Non-operating (Income) Expense

Three months ended

Three Months Ended Six Months Ended

2022 February 26,

2021 February 25,

2022 February 26,

Foreign currency (gains) losses $ 1,408 $ 843 $ 2,875 $ 201

Other 377 688 145 498

$ 1,785 $ 1,531 $ 3,020 $ 699

Foreign currency (gains) and losses relate primarily to our Brazil operating subsidiaries.

Three months ended

Three Months Ended Six Months Ended

2022 February 26,

2021 February 25,

2022 February 26,

Income before income taxes $ 10,558 $ 7,044 $ 39,011 $ 12,346

Income tax provision 7,586 1,200 15,341 4,475

Effective tax rate

Income tax expense includes a provision for federal, state and foreign taxes based on the annual estimated effective tax rate applicable to us and our subsidiaries, adjusted for certain discrete items which are fully recognized in the period they occur.

Accordingly, the interim effective tax rate may not be reflective of the annual estimated effective tax rate.

Provision for income taxes for the three months ended November 26, 2021 increased by $ 4.5 million, as compared to the same period in the prior year, primarily due to an increase in the amount of earnings subject to non-U.S.

As of November 26, 2021 and August 27, 2021, we had a full valuation allowance for net deferred tax assets associated with our U.S.

Our provision for income taxes for the six months ended February 25, 2022 increased by $ 10.9 million as compared to the same period in the prior year, primarily due to an increase in the amount of earnings subject to non-U.S.

As of February 25, 2022 and August 27, 2021, we had a full valuation allowance for net deferred tax assets associated with our U.S.

The amount of the deferred tax asset considered realizable could be adjusted if significant positive evidence increases.

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Earnings Per Share

Three months ended

Three Months Ended Six Months Ended

2022 February 26,

2021 February 25,

2022 February 26,

Net income attributable to SGH – Basic and Diluted $ 2,458 $ 5,844 $ 22,485 $ 7,871

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Earnings per share:

Basic $ 0.05 $ 0.12 $ 0.46 $ 0.16

Diluted $ 0.04 $ 0.12 $ 0.40 $ 0.16

Below are potentially dilutive shares that were not included in the computation of diluted earnings per share because to do so would have been antidilutive:

Three months ended

We have the option to pay cash, issue shares or any combination thereof for the aggregate amount due upon any conversion of our 2026 Notes.

Three Months Ended Six Months Ended

2022 February 26,

2021 February 25,

2022 February 26,

Equity plans 24 2,145 276 2,303

Convertible notes — 12,313 — 12,313

24 14,458 276 14,616

We have the option to pay cash, issue shares or a combination thereof for the aggregate amount due upon any conversion of our 2026 Notes.

It is our intent to settle the principal amount of the 2026 Notes in cash upon any conversion.

As a result, only the amounts payable in excess of the principal amounts upon conversion of the 2026 Notes are considered in diluted earnings per share under the treasury stock method.

As a result, the 2026 Notes would be dilutive when the average share price of the Company’s ordinary shares for a reporting period exceeds the conversion price of the 2026 Notes of $ 40.61 per share.

The 2026 Notes are dilutive when the average share price of the Company’s ordinary shares for a reporting period exceeds the conversion price of the 2026 Notes of $ 20.30 per share.

See “Debt – Convertible Senior Notes.”

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Memory Solutions, Intelligent Platforms Solutions and LED Solutions.

Two of our previous segments, specialty memory products and Brazil products, have been combined to become Memory Solutions.

Two of our previous segments, specialty memory products and Brazil products, were combined to become Memory Solutions.

Intelligent Platform Solutions was formerly referred to as specialty compute and storage solutions.

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• Memory Solutions :

Our Memory Solutions group provides high performance and reliable memory solutions through the design, development and advanced packaging of leading-edge to extended lifecycle products.

Our Memory Solutions group, under our SMART Modular brand, provides high performance and reliable memory solutions through the design, development and advanced packaging of leading-edge to extended lifecycle products.

These specialty products are tailored to meet customer-specific requirements across networking and communications, enterprise storage, computing, including desktop, notebook and server applications, smartphones and other vertical markets.

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• Intelligent Platform Solutions (“IPS”) :

Our IPS group consists of Penguin Computing and Penguin Edge.

Our IPS group, under our Penguin Solutions brand, consists of two major product lines – Penguin Computing and Penguin Edge.

Penguin Computing offers specialized platform solutions for high-performance computing, artificial intelligence, machine learning and advanced modeling for technology research.

We provide these leading-edge solutions to customers in the government, hyper-scale, energy, financial services and education markets.

Penguin Edge encompasses the operations of SMART EC and SMART Wireless and offers solutions for embedded and wireless applications, specializing in high-reliability products for a wide range of customers in government, telecommunications, health care, smart city, network edge and industrial applications.

Penguin Edge offers solutions for embedded and wireless applications, specializing in high-reliability products for a wide range of customers in government, telecommunications, health care, smart city, network edge and industrial applications.

• LED Solutions :

Our LED Solutions group offers a broad portfolio of application-optimized LEDs focused on improving on lumen density, intensity, efficacy, optical control and reliability.

Backed by expert design assistance and superior sales support, our LED products enable our customers to develop and market LED-based products for lighting, video screens and specialty lighting applications.

Our LED Solutions group, under our Cree LED brand, offers a broad portfolio of application-optimized LEDs focused on improving on lumen density, intensity, efficacy, optical control and reliability.

Backed by expert design assistance and superior sales support, our LED products enable our customers to develop and market LED-based products for general lighting, video screens and specialty lighting applications.

Our LED Solutions is comprised of the LED Business we acquired from Cree, Inc.

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Operating expenses directly associated with the activities of a specific segment are charged to that segment.

Certain other indirect operating income and expenses are generally allocated to segments based on their respective percentage of net sales.

Certain other

indirect operating income and expenses are generally allocated to segments based on their respective percentage of net sales.

We do not allocate interest, other non-operating (income) expense or taxes to segments.

Three months ended

Three Months Ended Six Months Ended

2022 February 26,

2021 February 25,

2022 February 26,

Memory Solutions $ 260,081 $ 218,597 $ 499,482 $ 444,421

10 unchanged sentences

Change in fair value of contingent consideration ( 24,000 ) — ( 41,200 ) —

Out of period import tax expense (1)

— ( 4,345 ) — ( 4,345 )

Other ( 828 ) ( 1,064 ) ( 1,866 ) ( 2,681 )

Total unallocated ( 40,630 ) ( 14,220 ) ( 74,986 ) ( 30,339 )

Consolidated operating income $ 16,805 $ 12,940 $ 51,599 $ 20,563

(1) During the second quarter of 2021, we recorded an out-of-period adjustment to correct errors originating in previous periods related to understated import tax costs, which resulted in a $4.3 million increase in cost of sales, $0.8 million increase in interest expense and $1.7 million benefit for income taxes.

The adjustment was not considered material to the interim or annual consolidated financial statements for the year ended August 27, 2021 nor to any previously issued interim or annual consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements