PART I [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Penguin Solutions, Inc.'s unaudited consolidated financial statements for the quarter ended November 29, 2024, including balance sheets, income statements, cash flows, and detailed notes [Consolidated Financial Statements](index=5&type=section&id=Consolidated%20Financial%20Statements) Core financial statements show a profitability turnaround with $6.0 million net income, total assets growing to $1.58 billion, but operating cash flow decreased due to increased inventory | Financial Metric | Nov 29, 2024 (in thousands) | Aug 30, 2024 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $995,579 | $867,704 | ▲ | | Total Assets | $1,583,015 | $1,474,506 | ▲ | | Total Current Liabilities | $426,886 | $327,596 | ▲ | | Total Liabilities | $1,174,066 | $1,075,298 | ▲ | | Total Equity | $408,949 | $399,208 | ▲ | | Income Statement Item | Q1 FY2025 (in thousands) | Q1 FY2024 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Total Net Sales | $341,102 | $274,247 | +24.4% | | Gross Profit | $97,812 | $82,850 | +18.1% | | Operating Income | $17,356 | $1,305 | +1230% | | Net Income (Loss) | $5,964 | ($19,360) | Turnaround | | Diluted EPS | $0.10 | ($0.38) | Turnaround | | Cash Flow Item | Q1 FY2025 (in thousands) | Q1 FY2024 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $13,819 | $31,478 | ▼ | | Net cash (used for) investing activities | ($18,922) | $115,298 | ▼ | | Net cash used for financing activities | ($7,763) | ($26,756) | ▲ | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail significant events like the SMART Brazil divestiture, a $200 million post-quarter investment from SK Telecom, and provide breakdowns of revenue, debt, and share repurchase activity - On November 29, 2023, the company completed the divestiture of an **81% interest in SMART Brazil**, with its results now presented as **discontinued operations** for all periods shown[19](index=19&type=chunk)[26](index=26&type=chunk) - Subsequent to the quarter end, on December 13, 2024, the company closed a **$200 million investment** from an affiliate of SK Telecom Co., Ltd. through the sale of **200,000 convertible preferred shares**[22](index=22&type=chunk) | Debt Instrument | Carrying Value (Nov 29, 2024) | | :--- | :--- | | Amended 2027 TLA | $297,561 | | 2030 Notes | $193,066 | | 2029 Notes | $147,581 | | 2026 Notes | $19,862 | | **Total Long-term debt** | **$658,070** | | Segment | Net Sales Q1 FY25 (in thousands) | Net Sales Q1 FY24 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Advanced Computing | $177,426 | $118,824 | +49.3% | | Integrated Memory | $96,706 | $85,668 | +12.9% | | Optimized LED | $66,970 | $69,755 | -4.0% | | **Total** | **$341,102** | **$274,247** | **+24.4%** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the 24.4% revenue growth driven by Advanced Computing, gross margin decline, operational factors, and the company's strong liquidity position bolstered by a $200 million post-quarter investment [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Net sales increased by $66.9 million (24.4%) year-over-year, primarily from a 49.3% rise in Advanced Computing sales, leading to significantly higher operating income despite gross margin contraction - Net sales increased by **24.4%** in Q1 2025 compared to the prior year, primarily due to a **49.3%** increase in the Advanced Computing segment driven by demand for AI solutions and high-performance computing[98](index=98&type=chunk) - Gross margin decreased to **28.7%** in Q1 2025 from **30.2%** in Q1 2024, primarily due to an unfavorable product mix with higher product revenue in the Advanced Computing business[99](index=99&type=chunk) - Research and development expense decreased by **7.4%** due to lower personnel-related expenses and subcontract services, while Selling, general and administrative expense increased by **5.8%** due to rebranding efforts and higher personnel costs[105](index=105&type=chunk)[106](index=106&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) As of November 29, 2024, the company held $393.7 million in cash and equivalents, with management confident in sufficient liquidity, further bolstered by a $200 million post-quarter investment from SK Telecom - The company had cash, cash equivalents, and short-term investments of **$393.7 million** as of November 29, 2024[115](index=115&type=chunk) - On December 13, 2024, after the quarter's end, the company closed a **$200 million investment** from an affiliate of SKT through the sale of convertible preferred shares[121](index=121&type=chunk) | Cash Flow Summary (Continuing Operations) | Q1 FY2025 (in thousands) | Q1 FY2024 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $13,819 | $59,713 | | Net cash used for investing activities | ($18,922) | ($3,640) | | Net cash used for financing activities | ($7,763) | ($26,150) | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company identifies foreign exchange risk from international operations and interest rate risk from variable-rate debt as its primary market exposures - A hypothetical 10% adverse change in foreign exchange rates versus the U.S. dollar would result in an estimated loss of **$2.2 million** based on monetary assets and liabilities as of November 29, 2024[136](index=136&type=chunk) - A **1.0%** increase in interest rates would result in an estimated **$5.5 million** increase in annual interest expense, assuming the $300.0 million term loan is outstanding and the $250.0 million revolver is fully drawn[137](index=137&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of November 29, 2024, with no material changes to internal control over financial reporting - Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of November 29, 2024[139](index=139&type=chunk) - No changes in internal control over financial reporting occurred during the first quarter of fiscal 2025 that have materially affected, or are reasonably likely to materially affect, internal controls[140](index=140&type=chunk) PART II. Other Information [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the 'Commitments and Contingencies' note and 'Risk Factors' section for details on legal proceedings - For discussion of legal proceedings, the report refers to the Notes to Consolidated Financial Statements and Risk Factors[142](index=142&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended August 30, 2024, have been identified - There have been no material changes to the risks described in the company's Annual Report on Form 10-K for the fiscal year ended August 30, 2024[142](index=142&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details share repurchase activities, noting 467,040 shares repurchased during the quarter and $69.9 million remaining for future repurchases | Period | Total Shares Purchased | Average Price Paid | Value of Shares for Future Purchase | | :--- | :--- | :--- | :--- | | Aug 31 - Sep 27, 2024 | — | $— | $77,698,000 | | Sep 28 - Oct 25, 2024 | — | $— | $77,698,000 | | Oct 26 - Nov 29, 2024 | 467,040 | $16.68 | $69,906,000 | | **Total** | **467,040** | **$16.68** | | [Item 5. Other Information](index=37&type=section&id=Item%205.%20Other%20Information) The company discloses that a board member adopted a Rule 10b5-1 trading plan for the potential sale of up to 2,728 ordinary shares commencing February 10, 2025 - On November 7, 2024, a member of the Board of Directors, Penelope Herscher, adopted a Rule 10b5-1 trading arrangement for the sale of up to 2,728 ordinary shares[149](index=149&type=chunk) [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents

[Performance Highlights](index=1&type=section&id=Performance%20Highlights) Penguin Solutions achieved strong Q1 FY2025 results with a 24.4% net sales increase, driven by a 49% surge in Advanced Computing - The CEO highlighted that the **49% YoY growth** in Advanced Computing revenue is a direct result of the company's strategy to assist customers with the complexities of AI infrastructure implementation[2](index=2&type=chunk) Q1 FY2025 Key Financial Metrics vs. Prior Year Quarter (Q1 FY24) | Metric | Q1 FY2025 | Q1 FY2024 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $341.1M | $274.2M | +24.4% | | GAAP Gross Margin | 28.7% | 30.2% | -150 bps | | Non-GAAP Gross Margin | 30.8% | 33.3% | -250 bps | | GAAP Diluted EPS | $0.10 | $(0.23) | +$0.33 | | Non-GAAP Diluted EPS | $0.49 | $0.24 | +104.2% | [Financial Results](index=1&type=section&id=Financial%20Results) The company achieved $341.1 million in net sales and returned to GAAP profitability with $5.2 million net income in Q1 FY2025 [Key Financial Metrics (Q1 FY2025)](index=1&type=section&id=Key%20Financial%20Metrics%20(Q1%20FY2025)) Quarterly Financial Results (in thousands, except per share amounts) | Metric | Q1 FY25 (GAAP) | Q1 FY24 (GAAP) | Q1 FY25 (Non-GAAP) | Q1 FY24 (Non-GAAP) | | :--- | :--- | :--- | :--- | :--- | | Total Net Sales | $341,102 | $274,247 | $341,102 | $274,247 | | Gross Profit | $97,812 | $82,850 | $105,122 | $91,277 | | Operating Income | $17,356 | $1,305 | $40,918 | $26,679 | | Net Income (Loss) | $5,217 | $(11,773) | $26,518 | $12,538 | | Diluted EPS (Loss) | $0.10 | $(0.23) | $0.49 | $0.24 | [Segment Performance](index=1&type=section&id=Segment%20Performance) Net Sales by Segment (in thousands) | Segment | Q1 FY25 | Q1 FY24 | YoY Change | | :--- | :--- | :--- | :--- | | Advanced Computing | $177,426 | $118,824 | +49.3% | | Integrated Memory | $96,706 | $85,668 | +12.9% | | Optimized LED | $66,970 | $69,755 | -4.0% | [Business Outlook (FY2025)](index=2&type=section&id=Business%20Outlook%20(FY2025)) Penguin Solutions projects 15% YoY net sales growth and Non-GAAP diluted EPS of $1.50 +/- $0.20 for FY2025 Fiscal Year 2025 Financial Outlook | Metric | GAAP Outlook | Non-GAAP Outlook | | :--- | :--- | :--- | | Net Sales | 15% YoY Growth +/- 5% | 15% YoY Growth +/- 5% | | Gross Margin | 30% +/- 1% | 32% +/- 1% | | Operating Expenses | $335M +/- $15M | $275M +/- $15M | | Diluted EPS | $0.10 +/- $0.20 | $1.50 +/- $0.20 | | Diluted Shares | 56.3 million | 56.3 million | - The total projected Non-GAAP adjustments for FY2025 amount to approximately **$79 million**, primarily consisting of share-based compensation, amortization of acquisition-related intangibles, and other adjustments, offset by estimated income tax effects[7](index=7&type=chunk) [Financial Statements](index=5&type=section&id=Financial%20Statements) The unaudited consolidated financial statements detail the company's financial position, performance, and cash flows, showing a return to profitability [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) Q1 FY2025 Income Statement Highlights (in thousands) | Line Item | Three Months Ended Nov 29, 2024 | | :--- | :--- | | Total net sales | $341,102 | | Gross profit | $97,812 | | Total operating expenses | $80,456 | | Operating income | $17,356 | | Net income attributable to Penguin Solutions | $5,217 | [Consolidated Balance Sheets](index=8&type=section&id=Consolidated%20Balance%20Sheets) Key Balance Sheet Items (in thousands) | As of | Nov 29, 2024 | Aug 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $370,295 | $383,147 | | Inventories | $246,952 | $151,213 | | Total current assets | $995,579 | $867,704 | | Total assets | $1,583,015 | $1,474,506 | | Long-term debt | $658,070 | $657,347 | | Total liabilities | $1,174,066 | $1,075,298 | | Total equity | $408,949 | $399,208 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Q1 FY2025 Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Nov 29, 2024 | | :--- | :--- | | Net cash provided by operating activities | $13,819 | | Net cash used for investing activities | $(18,922) | | Net cash used for financing activities | $(7,763) | | Net decrease in cash | $(12,866) | [Reconciliation of GAAP to Non-GAAP Measures](index=6&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures) The company reconciles GAAP to non-GAAP measures, with significant adjustments for share-based compensation and amortization of intangibles Q1 FY2025 Reconciliation of GAAP to Non-GAAP Operating Income (in thousands) | Description | Amount | | :--- | :--- | | **GAAP operating income** | **$17,356** | | Share-based compensation expense | $11,531 | | Amortization of acquisition-related intangibles | $9,755 | | Other adjustments | $1,376 | | **Non-GAAP operating income** | **$40,918** | Q1 FY2025 Reconciliation of GAAP to Non-GAAP Net Income (in thousands) | Description | Amount | | :--- | :--- | | **GAAP net income (loss) attributable to Penguin Solutions** | **$5,217** | | Share-based compensation expense | $11,531 | | Amortization of acquisition-related intangibles | $9,755 | | Other adjustments (net) | $3,257 | | Income tax effects | $(4,242) | | **Non-GAAP net income attributable to Penguin Solutions** | **$26,518** | [Supplementary Information](index=2&type=section&id=Supplementary%20Information) This section provides supplementary details including conference call information, forward-looking statements, and non-GAAP measure explanations [Conference Call Information](index=2&type=section&id=Conference%20Call%20Information) - Penguin Solutions will host a conference call and webcast to discuss Q1 FY2025 results on January 8, 2025, at 1:30 p.m. Pacific Time[8](index=8&type=chunk) [Forward-Looking Statements](index=2&type=section&id=Forward-Looking%20Statements) - The press release includes forward-looking statements concerning future financial performance, strategic priorities, and business outlook. These statements are subject to significant risks and uncertainties, including global economic conditions, supply chain disruptions, and competitive factors[9](index=9&type=chunk)[10](index=10&type=chunk)[11](index=11&type=chunk) [Statement Regarding Use of Non-GAAP Financial Measures](index=3&type=section&id=Statement%20Regarding%20Use%20of%20Non-GAAP%20Financial%20Measures) - The company uses non-GAAP measures to supplement GAAP results, believing they provide useful information for analyzing core operating performance. These measures exclude items such as share-based compensation, amortization of acquisition-related intangibles, and restructuring charges[13](index=13&type=chunk) - For non-GAAP reporting, the company utilizes a long-term projected non-GAAP effective tax rate of **28%**, which it expects to use through fiscal 2025[14](index=14&type=chunk)

Financial Performance - Net sales for fiscal year 2024 were $1.2 billion, down from $1.4 billion in fiscal year 2023[3] - Q4 FY24 net sales were $311 million, down 1.7% compared to the year-ago quarter[3] - Penguin Solutions reported total net sales of $1,170.8 million for the year ended August 30, 2024, compared to $1,441.3 million in the previous year, representing a decrease of 18.8%[17] - The company's gross profit for the year ended August 30, 2024, was $340.8 million, down from $415.2 million in the previous year, a decline of 17.9%[17] - Operating income for the year ended August 30, 2024, was $18.3 million, compared to $8.7 million in the previous year, an increase of 109.4%[17] - Net loss attributable to Penguin Solutions for the year ended August 30, 2024, was $52.5 million, compared to a net loss of $187.5 million in the previous year, an improvement of 72.0%[17] - Net income (loss) from continuing operations was $(23.792) million for the three months ended August 30, 2024[24] Gross Margin and Profitability - GAAP gross margin for fiscal year 2024 was 29.1%, up 30 basis points from fiscal year 2023[3] - Non-GAAP gross margin for fiscal year 2024 was 31.9%, up 20 basis points from fiscal year 2023[3] - Non-GAAP gross profit for the three months ended August 30, 2024, was $96,007 thousand, compared to $96,962 thousand for the three months ended May 31, 2024[18] - Non-GAAP gross margin for the three months ended August 30, 2024, was 30.9%, compared to 32.3% for the three months ended May 31, 2024[18] Earnings Per Share (EPS) - GAAP EPS for fiscal year 2024 was $(0.85), compared to $0.15 in fiscal year 2023[3] - Non-GAAP EPS for fiscal year 2024 was $1.25, compared to $2.52 in fiscal year 2023[3] - Non-GAAP diluted earnings per share for the three months ended August 30, 2024, was $0.37, compared to $0.37 for the three months ended May 31, 2024[20] Segment Performance - Intelligent Platform Solutions segment net sales for fiscal year 2024 were $554.6 million, down from $749.7 million in fiscal year 2023[4] - Memory Solutions segment net sales for fiscal year 2024 were $356.4 million, down from $443.3 million in fiscal year 2023[4] - LED Solutions segment net sales for fiscal year 2024 were $259.8 million, up from $248.3 million in fiscal year 2023[4] - Penguin Solutions' Intelligent Platform Solutions segment generated $554.6 million in net sales for the year ended August 30, 2024, a decrease of 26.0% compared to the previous year[17] - The Memory Solutions segment reported net sales of $356.4 million for the year ended August 30, 2024, down 19.6% from the previous year[17] - The LED Solutions segment generated $259.8 million in net sales for the year ended August 30, 2024, an increase of 4.6% compared to the previous year[17] Expenses - Research and development expenses for the year ended August 30, 2024, were $81.5 million, down 10.0% from the previous year[17] - Selling, general and administrative expenses for the year ended August 30, 2024, were $233.9 million, a decrease of 10.3% compared to the previous year[17] - Share-based compensation expense for the three months ended August 30, 2024, was $10,359 thousand, compared to $11,192 thousand for the three months ended May 31, 2024[22] - Amortization of acquisition-related intangibles for the three months ended August 30, 2024, was $9,747 thousand, compared to $9,766 thousand for the three months ended May 31, 2024[22] - Restructure charge for the three months ended August 30, 2024, was $325 thousand, compared to $465 thousand for the three months ended May 31, 2024[22] - Depreciation and amortization expenses totaled $15.381 million for the three months ended August 30, 2024[24] Cash Flow and Liquidity - Cash and cash equivalents increased to $383.147 million in 2024 from $365.563 million in 2023[23] - Accounts receivable, net rose to $251.743 million in 2024 from $219.247 million in 2023[23] - Inventories decreased to $151.213 million in 2024 from $174.977 million in 2023[23] - Total current liabilities dropped to $327.596 million in 2024 from $426.250 million in 2023[23] - Long-term debt reduced to $657.347 million in 2024 from $754.820 million in 2023[23] - Net cash used for operating activities was $(12.156) million for the three months ended August 30, 2024[24] - Capital expenditures and deposits on equipment amounted to $(5.795) million for the three months ended August 30, 2024[24] - Net cash used for financing activities from continuing operations was $49.88 million for the period ending August 30, 2024, compared to $73.31 million for the previous quarter[25] - Total repayments of debt amounted to $224.7 million for the period ending August 30, 2024, a significant increase from $7.21 million in the same period last year[25] - Proceeds from debt issuance were $192.69 million for the period ending August 30, 2024, compared to $0 in the previous quarter[25] - Net cash decrease in cash, cash equivalents, and restricted cash was $70.31 million for the period ending August 30, 2024, compared to a net increase of $11.46 million in the previous quarter[25] - Cash, cash equivalents, and restricted cash at the end of the period were $383.48 million, down from $453.79 million at the beginning of the period[25] - Payments to acquire ordinary shares totaled $3.32 million for the period ending August 30, 2024, compared to $2.13 million in the previous quarter[25] - Proceeds from issuance of ordinary shares were $1.75 million for the period ending August 30, 2024, down from $3.82 million in the previous quarter[25] - Net cash provided by financing activities from discontinued operations was $0 for the period ending August 30, 2024, compared to a net use of $0.43 million in the same period last year[25] - Effect of changes in currency exchange rates was $0 for the period ending August 30, 2024, compared to a negative impact of $0.08 million in the previous quarter[25] - Cash, cash equivalents, and restricted cash at the beginning of the period were $453.79 million, up from $442.33 million in the previous quarter[25] Outlook and Projections - Fiscal year 2025 net sales outlook is 15% YoY growth +/- 5%, with a GAAP gross margin of 30% +/- 1%[6] - The company's non-GAAP effective tax rate for fiscal 2024 is projected to be 28%, which may be subject to change due to various factors[14] Non-GAAP Metrics - Non-GAAP operating income for the three months ended August 30, 2024, was $33,739 thousand, compared to $33,325 thousand for the three months ended May 31, 2024[18] - Adjusted EBITDA for the three months ended August 30, 2024, was $39,293 thousand, compared to $38,825 thousand for the three months ended May 31, 2024[21] - Non-GAAP net income attributable to Penguin Solutions for the three months ended August 30, 2024, was $20,007 thousand, compared to $20,221 thousand for the three months ended May 31, 2024[22] - GAAP net income (loss) attributable to Penguin Solutions for the three months ended August 30, 2024, was $(24,547) thousand, compared to $5,616 thousand for the three months ended May 31, 2024[22]

Core Viewpoint - SMART Global Holdings is positioned for record-high share prices due to its repositioning efforts, despite mixed Q3 results. The company is benefiting from the growing AI industry, which requires high-quality memory and LED components [1][2]. Financial Performance - Q3 revenue decreased by 12.7% year-over-year, missing consensus estimates, primarily due to the exit from Brazilian operations. However, sequential growth was observed for the second consecutive quarter across all segments, with Memory Solutions leading at a 10% increase [2]. - The company improved its gross and operating margins, with an 80 basis points increase on both GAAP and adjusted bases, resulting in GAAP EPS of $0.10 and adjusted EPS of $0.37 [3]. - Q4 revenue guidance is projected between $325 million, indicating both sequential and year-over-year growth, with expectations for margin expansion [4]. Balance Sheet Strength - The company reported a cash-flow-positive quarter, increasing its cash reserves by approximately 25% while reducing debt by over 10%. Leverage stands at 1.5x equity and cash, with equity nearly doubling [5]. Analyst Sentiment - Analysts maintain a bullish outlook on SMART Global, with a consensus price target of $30, reflecting a 16.1% upside potential. One analyst raised the target by $3 following Q3 results [6]. - Institutional investors own nearly 98% of the stock, which may create challenges for short-sellers, as short interest is around 10% [7]. Market Dynamics - The stock has shown strong premarket gains, potentially reaching new highs, although resistance may occur at $27.50, which aligns with previous resistance levels [8].

Financial Data and Key Metrics - Total Q3 revenues were $301 million, in line with the midpoint of guidance [19][35] - Non-GAAP gross margin was 32.3%, up from 31.6% YoY and 31.5% sequentially, driven by improved mix within IPS and higher service revenue [20][35] - Non-GAAP diluted EPS was $0.37, above the midpoint of guidance [19][35] - Cash and short-term investments totaled $468 million at the end of Q3 [35] - Inventory turns improved to 8.4x in Q3 from 6.8x in Q2, primarily due to timing of receipts and shipments [21] Business Line Performance Intelligent Platform Solutions (IPS) - IPS revenue was $145 million, representing 48% of total revenue [43] - Achieved multi-million dollar non-hardware win, providing only software and managed services [79] - Secured follow-on orders from hyperscaler, defense, and education verticals [79] - Biggest wins to-date with ztC Edge and ztC Endurance fault-tolerant computing platforms [79] Memory Solutions - Memory revenue was $92 million, representing 30% of total revenue [16][43] - Received first 8 DIMM CXL Add-In Card production sale to an AI compute vendor [17] - Introduced E3.S non-volatile CXL design combining DRAM and NAND devices [17] LED Solutions - LED revenue grew 6% sequentially to $64 million, representing 21% of total revenue [40][43] - Backlog and channel visibility are improving [40] - Cree LED's advanced R&D capabilities and robust IP portfolio set the stage for sustained innovation [41] Market Data and Key Metrics - Memory pricing has started to recover, with inventory normalizing at largest customers heading into Q4 [4] - The broader LED market environment suggests consolidation is likely in the sector at some point [41] Company Strategy and Industry Competition - The company is uniquely positioned to enable companies across the technology ecosystem in AI design, build, deploy, and management [12] - 25 years of deep experience in high-performance computing (HPC) differentiates the company as a partner that can rapidly and reliably deploy advanced systems [13] - The company is committed to delivering exceptional value to customers and stakeholders as it continues to innovate and strengthen its position in AI and HPC [27] Management Commentary on Operating Environment and Future Outlook - The company expects Q4 revenues to be approximately $325 million at the midpoint, with IPS revenues up in the low double-digits sequentially [47] - Memory revenues are expected to be up slightly in the low-single digits sequentially, while LED revenues are expected to be up slightly in the low-single digit range [81] - The company is navigating a challenging environment with global macroeconomic headwinds and ongoing supply chain constraints, especially in the IPS business [26] Other Important Information - The company retired $75 million of its term loan in Q3, bringing down the principal amount by $112 million since Q1 to $425 million [23] - The company has $77.7 million available for future share repurchases under its authorizations [22] - The company will hold its Investor Day on July 16 in New York City at the NASDAQ MarketSite [6] Q&A Session Question: How is IPS' go-to-market strategy changing? - The company has brought on new sales leadership over the last 6-12 months and hired Dave Osborne as SVP of Partnership and Alliances to expand reach and capabilities [29][65] - The company is seeing success in oil and gas and financial institutions, with a broader set of markets attracted to its reliable solutions [58] Question: Can you speak more about the largest wins for ztC Edge and Endurance? - The primary markets adopting these systems are oil and gas and financial institutions, with implementation time frames varying based on customer needs [58] Question: What was Stratus' contribution in the quarter? - The company does not break out brands like Stratus on a go-forward basis, but any product sold at the Edge and back in the data center on-prem environment includes software and services along with the hardware platform [82] Question: Can you give us an idea of the puts and takes of the margin pressure you're seeing? - The margin pressure is primarily due to a mix issue, with more hardware shipped in the quarter than software services [69][70] Question: What are you seeing near term and further out in the memory business? - The enterprise Memory Solutions business is less volatile than the high-volume consumer business in memory, with demand forecasts for Q4 and beyond looking strong [71]

The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call. Ahead of this earnings release, the estimate revisions trend for SMART Global: mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 2024 SMART GLOBAL HOLDINGS, INC. OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-38102 (Exact name of registrant as specified in its charter) Cayman Islands 98-1013909 (State or other jurisdicti ...

Financial Performance - Total net sales for Q3 FY24 were $300.6 million, representing a 5.5% increase compared to the prior quarter[5]. - GAAP gross margin improved to 29.6% from 28.8% in the previous quarter, while non-GAAP gross margin increased to 32.3% from 31.5%[5]. - GAAP EPS for Q3 FY24 was $0.10, a significant recovery from $(0.26) in the prior quarter, while non-GAAP EPS rose 37% to $0.37 from $0.27[5]. - Total net sales for the three months ended May 31, 2024, were $300.58 million, a decrease of 12.7% compared to $344.42 million for the same period in 2023[18]. - Gross profit for the three months ended May 31, 2024, was $88.91 million, resulting in a gross margin of 29.6%, compared to 29.2% in the same period last year[19]. - Operating income for the three months ended May 31, 2024, was $11.51 million, a significant improvement from an operating loss of $2.39 million in the same period of 2023[18]. - Net income attributable to SMART Global Holdings for the three months ended May 31, 2024, was $5.62 million, compared to a net loss of $24.46 million in the same period last year[18]. - Non-GAAP gross profit for the three months ended May 31, 2024, was $96.96 million, with a non-GAAP gross margin of 32.3%[19]. - The company reported a basic earnings per share of $0.11 for the three months ended May 31, 2024, compared to a loss of $0.50 per share in the same period of 2023[18]. - GAAP net income for the three months ended May 31, 2024, was $5.616 million, a significant improvement from a loss of $13.620 million in the previous quarter[20]. - Non-GAAP net income for the nine months ended May 31, 2024, was $46.900 million, compared to $109.275 million for the same period in 2023, reflecting a decrease of approximately 57%[20]. Future Projections - The company expects Q4 FY24 net sales to be approximately $325 million, with a variance of +/- $25 million[6]. - Projected gross margin for Q4 FY24 is 29.5% +/- 1.5% for GAAP and 31.5% +/- 1.5% for non-GAAP[6]. - Operating expenses for Q4 FY24 are anticipated to be around $81 million +/- $2 million for GAAP and $66 million +/- $2 million for non-GAAP[6]. - Diluted EPS guidance for Q4 FY24 is $0.03 +/- $0.15 for GAAP and $0.40 +/- $0.15 for non-GAAP[6]. - The company expects continued focus on market expansion and new product development to drive future growth[19]. Company Strategy - The company is focused on transforming into a high-performance enterprise solutions provider, particularly in AI deployment[2]. - The company is committed to strategic investments in new products and technologies to enhance its market position[10]. Segment Performance - Memory Solutions segment reported net sales of $91.6 million, while Intelligent Platform Solutions generated $145.0 million in sales for Q3 FY24[3]. Balance Sheet Highlights - Total assets as of May 31, 2024, increased to $1.546 billion from $1.506 billion as of August 25, 2023, representing a growth of about 2.6%[21]. - Cash and cash equivalents rose to $453.791 million, up from $365.563 million, indicating an increase of approximately 24%[21]. - Total liabilities decreased to $1.116 billion from $1.277 billion, showing a reduction of about 12.6%[21]. - Total SGH shareholders' equity increased to $423.449 million from $222.475 million, representing a substantial growth of approximately 90.4%[21]. Cash Flow and Expenses - The company generated $79,881,000 in net cash from operating activities from continuing operations for the three months ended May 31, 2024, compared to a cash outflow of $21,917,000 in the previous quarter[22]. - SMART Global Holdings incurred capital expenditures of $3,777,000 for the three months ended May 31, 2024, down from $5,204,000 in the previous quarter[23]. - The company repaid $75,000,000 in debt during the three months ended May 31, 2024, compared to $37,211,000 in the previous quarter[23]. - The net cash used for financing activities from continuing operations was $73,313,000 for the three months ended May 31, 2024, compared to $60,152,000 in the previous quarter[23]. - The company reported a depreciation expense of $15,525,000 for the three months ended May 31, 2024, compared to $17,156,000 in the previous quarter[22]. - The company reported a net cash provided by investing activities of $5,071,000 for the three months ended May 31, 2024, compared to a cash outflow of $4,506,000 in the previous quarter[23].

Financial Data and Key Metrics Changes - Total revenues for Q2 2024 were $285 million, aligning with the midpoint of guidance, with non-GAAP gross margin at 31.5%, down from 32.1% year-over-year and 33.3% sequentially [7][32][62] - Non-GAAP diluted earnings per share were $0.27, an increase from $0.24 in the previous quarter but down from $0.87 in the year-ago quarter [33][62] - Cash and short-term investments totaled $466 million, a decrease from $553 million in the prior quarter [67] Business Line Data and Key Metrics Changes - Intelligent Platform Solutions (IPS) revenue was $141 million, up 19% from the prior quarter, representing 50% of total SGH revenue [20][63] - Memory revenue was $83 million, accounting for 29% of total sales, with a slight decline from Q1 due to elevated inventory levels [25][63] - LED Solutions revenue totaled $60 million, or 21% of total sales, with expectations for sequential growth in Q3 [59][71] Market Data and Key Metrics Changes - The company noted a strong demand for AI infrastructure solutions from hyperscalers and large-scale cloud service providers, indicating a positive market trend [8][18] - There is a noted upward trend in the memory cycle, although near-term unit demand remains challenging for traditional enterprise customers [13][56] Company Strategy and Development Direction - The company aims to position itself as a leader in AI infrastructure by providing high-performance, high-availability solutions tailored to customer needs [6][18] - The introduction of the Stratus ztC Endurance Server reflects the company's commitment to expanding capabilities at the edge, addressing the demand for fault-tolerant computing [10][54] - The company is focusing on the convergence of compute and memory solutions, leveraging technologies like Compute Express Link (CXL) to enhance performance [26][58] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a rebound in business as the second half of fiscal 2024 approaches, with expectations for sequential revenue growth in Q3 [13][39] - The management highlighted the complexity enterprises face in deploying AI and the need for trusted advisors to navigate these challenges [76][117] - The company anticipates that the demand for AI infrastructure will continue to grow, particularly as enterprises refine their AI strategies [117] Other Important Information - The company repurchased approximately 106,000 shares for $1.9 million, with a total of $72.3 million used for share repurchases since April 2022 [68][69] - The capital allocation strategy includes investing in business growth, evaluating acquisition opportunities, and returning capital to shareholders [37][69] Q&A Session Summary Question: Demand across customer segments for IPS - Management noted increased engagement with large enterprises and Tier 2 CSPs, highlighting a significant demand for new deployments in AI infrastructure [46][78] Question: Memory outlook and pricing dynamics - Management indicated that while unit demand remains muted, pricing for DRAM and NAND is expected to rise, which could positively impact future gross margins [49][124] Question: Services revenue trends - Management expects services revenue to increase in Q4, indicating that the current decline is not a new run rate level [112][113] Question: Impact of generative AI on customer acquisition - The complexity of AI deployment has made the customer acquisition process longer, but it has also validated the need for the company's consultative approach [116][117]

[PART I. Financial Information](index=4&type=section&id=PART%20I.%20Financial%20Information) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The unaudited consolidated financial statements for Q2 2024 reflect a year-over-year revenue decrease, net loss, and key events like the SMART Brazil divestiture Consolidated Statements of Operations Highlights (Q2 FY2024 vs Q2 FY2023) | Metric | Three Months Ended March 1, 2024 (in thousands) | Three Months Ended February 24, 2023 (in thousands) | | :--- | :--- | :--- | | **Total net sales** | $284,821 | $388,377 | | **Gross profit** | $81,934 | $111,008 | | **Operating income (loss)** | $(3,312) | $(2,077) | | **Net income (loss) from continuing operations** | $(13,007) | $(32,963) | | **Diluted earnings (loss) per share (continuing)** | $(0.26) | $(0.68) | Consolidated Balance Sheet Highlights | Metric | As of March 1, 2024 (in thousands) | As of August 25, 2023 (in thousands) | | :--- | :--- | :--- | | **Total current assets** | $884,730 | $907,402 | | **Total assets** | $1,517,454 | $1,505,958 | | **Total current liabilities** | $267,959 | $426,250 | | **Total liabilities** | $1,105,950 | $1,276,725 | | **Total equity** | $411,504 | $229,233 | Consolidated Statements of Cash Flows Highlights (Six Months Ended) | Metric | Six Months Ended March 1, 2024 (in thousands) | Six Months Ended February 24, 2023 (in thousands) | | :--- | :--- | :--- | | **Net cash provided by (used for) operating activities from continuing operations** | $37,796 | $(6,954) | | **Net cash used for investing activities from continuing operations** | $(8,146) | $(232,524) | | **Net cash provided by (used for) financing activities from continuing operations** | $(86,302) | $222,472 | [Divestiture of SMART Brazil](index=12&type=section&id=Divestiture%20of%20SMART%20Brazil) SGH completed the divestiture of an 81% interest in SMART Brazil for **$194.1 million**, resulting in a **$190.5 million** loss and reclassification of a **$212.4 million** cumulative translation adjustment - Completed the divestiture of an **81% interest** in SMART Brazil on November 29, 2023, retaining a **19% interest**. The operations of SMART Brazil are now presented as discontinued[24](index=24&type=chunk)[27](index=27&type=chunk)[29](index=29&type=chunk) Consideration for 81% Interest in SMART Brazil | Component | Amount (in thousands) | | :--- | :--- | | Cash received at closing | $164,487 | | Post-closing adjustment | $451 | | Deferred payment | $25,433 | | Deferred cash adjustment | $3,721 | | **Total consideration** | **$194,092** | - Recognized a total loss on the divestiture of **$190.5 million**, which includes a pre-tax loss of **$163.9 million** and an income tax provision of **$26.6 million**. The pre-tax loss was primarily driven by the reclassification of a **$212.4 million** cumulative translation adjustment[37](index=37&type=chunk)[39](index=39&type=chunk)[72](index=72&type=chunk) [Business Acquisition - Stratus Technologies](index=17&type=section&id=Business%20Acquisition%20-%20Stratus%20Technologies) The company fully paid the **$50.0 million** contingent consideration for the Stratus Technologies acquisition during Q2 fiscal 2024 - In the second quarter of 2024, the company paid in full the **$50.0 million** contingent consideration (Stratus Earnout) related to the acquisition of Stratus Technologies[43](index=43&type=chunk)[102](index=102&type=chunk) [Debt](index=21&type=section&id=Debt) Total debt stood at **$740.7 million** as of March 1, 2024, with recent prepayments of **$30.0 million** and **$75.0 million** on the TLA Debt Composition as of March 1, 2024 | Debt Instrument | Carrying Value (in thousands) | | :--- | :--- | | Amended 2027 TLA | $494,607 | | 2029 Notes | $147,165 | | 2026 Notes | $98,891 | | **Total Long-term debt** | **$740,663** | - On February 29, 2024, the company prepaid **$30.0 million** of the Amended 2027 TLA. Subsequent to the quarter end, on March 29, 2024, an additional **$75.0 million** was prepaid[57](index=57&type=chunk) [Segment and Other Information](index=30&type=section&id=Segment%20and%20Other%20Information) The company's three segments, Memory Solutions, IPS, and LED Solutions, showed varied Q2 2024 performance, with IPS as the largest by revenue but both IPS and Memory Solutions experiencing significant declines Net Sales by Segment (Q2 FY2024 vs Q2 FY2023) | Segment | Q2 2024 Net Sales (in thousands) | Q2 2023 Net Sales (in thousands) | | :--- | :--- | :--- | | Memory Solutions | $83,297 | $110,339 | | Intelligent Platform Solutions | $141,405 | $222,451 | | LED Solutions | $60,119 | $55,587 | | **Total net sales** | **$284,821** | **$388,377** | Segment Operating Income (Q2 FY2024 vs Q2 FY2023) | Segment | Q2 2024 Operating Income (in thousands) | Q2 2023 Operating Income (in thousands) | | :--- | :--- | :--- | | Memory Solutions | $6,016 | $20,366 | | Intelligent Platform Solutions | $22,291 | $36,645 | | LED Solutions | $(1,793) | $(1,227) | | **Total segment operating income** | **$26,514** | **$55,784** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the **26.7%** year-over-year decrease in Q2 net sales, driven by IPS and Memory Solutions, and highlights the strategic SMART Brazil divestiture and strong liquidity position - The divestiture of the SMART Brazil business enables the company to focus its strategy on delivering high-performance, high-availability solutions to enterprise customers[100](index=100&type=chunk) - Key factors affecting performance include macro-economic demand, shifts in revenue mix between segments, the ability to integrate acquisitions, and supply chain disruptions, particularly for AI components[105](index=105&type=chunk)[106](index=106&type=chunk)[108](index=108&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) Q2 2024 net sales decreased by **26.7%** to **$284.8 million**, primarily due to declines in IPS and Memory Solutions, while gross margin slightly improved to **28.8%** - Q2 2024 net sales decreased by **$103.6 million** (**26.7%**) YoY, primarily due to lower sales in the IPS and Memory Solutions businesses[110](index=110&type=chunk) - Gross margin increased slightly to **28.8%** in Q2 2024 from **28.6%** in Q2 2023, mainly due to a favorable mix from higher service revenue in the IPS business[112](index=112&type=chunk) [Non-GAAP Operating Income](index=38&type=section&id=Non-GAAP%20Operating%20Income) Non-GAAP operating income for Q2 2024 declined sharply to **$26.5 million**, driven by significant decreases in Memory Solutions and IPS segment performance GAAP to Non-GAAP Operating Income Reconciliation (Q2 FY2024) | Metric | Amount (in thousands) | | :--- | :--- | | **GAAP operating loss** | **$(3,312)** | | Share-based compensation expense | $10,639 | | Amortization of acquisition-related intangibles | $9,751 | | Diligence, acquisition and integration expense | $5,885 | | Restructure charge & other | $3,551 | | **Non-GAAP operating income** | **$26,514** | - Memory Solutions non-GAAP operating income decreased by **70.5%** YoY, and IPS non-GAAP operating income decreased by **39.2%** YoY[115](index=115&type=chunk)[116](index=116&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 1, 2024, the company held **$465.8 million** in cash and investments, deemed sufficient for operations, with key cash flow events including the SMART Brazil divestiture and debt repayments - As of March 1, 2024, the company had cash, cash equivalents, and short-term investments of **$465.8 million**[129](index=129&type=chunk) - Net cash provided by operating activities from continuing operations was **$37.8 million** for the first six months of 2024, a significant improvement from a use of **$7.0 million** in the prior-year period, mainly due to a **$49.5 million** decrease in accounts receivable[135](index=135&type=chunk)[136](index=136&type=chunk) - Key financing activities in the first six months of 2024 included **$51.6 million** in debt repayments and **$15.9 million** in share repurchases[139](index=139&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company identifies foreign currency exchange risk and interest rate risk as primary market exposures, with hypothetical adverse changes impacting revaluation losses and annual interest expense - A hypothetical **10%** adverse change in foreign currency exchange rates versus the U.S. dollar would result in a revaluation loss of **$3.1 million** on monetary assets and liabilities as of March 1, 2024[146](index=146&type=chunk) - A **1.0%** increase in interest rates on the company's variable-rate debt would increase annual interest expense by approximately **$7.5 million**[148](index=148&type=chunk) [Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 1, 2024, with no material changes to internal control over financial reporting during Q2 fiscal 2024 - Management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective as of March 1, 2024[150](index=150&type=chunk) - There were no material changes in the company's internal control over financial reporting during the second quarter of fiscal 2024[151](index=151&type=chunk) [PART II. Other Information](index=36&type=section&id=PART%20II.%20Other%20Information) [Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the 'Commitments and Contingencies' note in the financial statements for information on legal proceedings, with no new material developments - For information on legal proceedings, the report refers to the 'Commitments and Contingencies' note in the financial statements[152](index=152&type=chunk) [Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) The company reports no material changes to the risk factors previously disclosed in its most recent Annual Report on Form 10-K - There have been no material changes to the risk factors described in the company's most recent Annual Report on Form 10-K[152](index=152&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company authorized an additional **$75 million** for share repurchases, repurchasing **105,998** shares for **$1.85 million** during the quarter, with **$77.7 million** remaining - On January 8, 2024, the Audit Committee approved an additional **$75 million** share repurchase authorization[154](index=154&type=chunk) Share Repurchase Activity (Q2 FY2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Dec 2, 2023 – Mar 1, 2024 | 105,998 | $17.47 | - As of March 1, 2024, **$77.7 million** remained available for future share repurchases under the authorized plans[154](index=154&type=chunk) [Defaults Upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities during the period - None[156](index=156&type=chunk) [Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's business - Not applicable[157](index=157&type=chunk) [Other Information](index=37&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the fiscal quarter ended March 1, 2024 - No director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement during the quarter[158](index=158&type=chunk) [Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including required certifications from the Principal Executive Officer and Principal Financial Officer - The report includes a list of all exhibits filed, such as CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and Inline XBRL documents[160](index=160&type=chunk)