SMART Global Holdings(US:SGH)2023-01-04 02:36Financial Data and Key Metrics Changes - In Q1 2023, net sales totaled $465 million, with a record non-GAAP gross margin of 27.8%, exceeding guidance [9][83][78] - Non-GAAP diluted earnings per share were $0.79, also above the high end of guidance [9][83] - Inventory increased to $416 million from $323 million in the previous quarter, driven by inventory needed to support expected IPS revenue [11][120] - Cash and cash equivalents decreased to $325 million from $363 million in the prior quarter [120] Business Line Data and Key Metrics Changes - IPS revenue reached a record $211 million, up 46% sequentially and 78% year-over-year, representing 45% of total SGH revenue [5][118] - LED Solutions revenue was $63 million, with expectations for lower revenue in Q2 due to declining demand [7][121] - Memory Solutions Group revenue was $192 million, accounting for 41% of total sales, with a decline attributed to reduced worldwide memory pricing and softening demand [8][118] Market Data and Key Metrics Changes - The LED business faced challenges in China due to COVID-related policies, impacting supply chains and demand in the U.S. and Europe [7] - Demand in the consumer space is expected to remain weak, particularly in Brazil, with further softening anticipated in Q2 [116][121] Company Strategy and Development Direction - The company is focused on diversifying its business model, transitioning from a memory module company to a more diversified set of specialty businesses [66] - There is a commitment to increasing recurring services as a larger component of the solutions offered to customers [85] - The integration of Stratus Technologies into IPS is expected to enhance the portfolio of edge HPC AI and cloud solutions [6][66] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding visibility into demand for the second half of fiscal 2023, citing macroeconomic headwinds [84][37] - The company remains optimistic about long-term demand driven by trends in 5G, AI, and high-performance computing [23][87] - Management is actively monitoring project schedules and customer environments to navigate the current economic landscape [21][61] Other Important Information - The company repurchased 182,000 shares for $2.8 million during the quarter, with a total of approximately $53 million spent under the share repurchase authorization [12] - Non-GAAP operating expenses for Q1 were $74.4 million, up from $61.1 million in the previous quarter [10] Q&A Session Summary Question: Expectations for February quarter margins - Management indicated that margins are expected to be consistent with the previous quarter, with slight declines due to the LED business and service mix [15][16] Question: Revenue mix for first half versus second half - Management suggested a potential revenue mix of 55% in the first half versus 45% in the second half, though visibility remains limited [17][42] Question: Trends in RFQs and service contracts - Management noted stable RFQ processes but highlighted challenges in project implementation visibility [21][44] Question: Impact of pricing challenges in memory space - Management acknowledged pricing challenges in the consumer memory market but noted stability in the specialty memory business [18][126] Question: Contribution of Stratus to revenue - Stratus contributed significantly to service revenue growth, with overall service revenues reaching $75 million, up from $33 million in the prior year [89][138] Question: Future interest expense outlook - Management expects cash net interest expense to be approximately $8 million per quarter, influenced by current SOFR rates [34][114]