SMART Global Holdings(SGH) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total net sales for Q3 2020 increased by approximately 19% compared to the same quarter last year, driven by strength in the Specialty Memory business [9] - Non-GAAP net income and EPS increased by 116% and 106% respectively compared to last year's third fiscal quarter [9] - Non-GAAP gross profit for Q3 was $55.9 million, up from$ 52.9 million in the previous quarter [32] - Non-GAAP net income for Q3 was $17.1 million or$ 0.70 per diluted share, compared to $12.8 million or$ 0.52 per diluted share in the previous quarter [33] - Cash flow from operations totaled $13.6 million compared to$ 23.3 million in the prior quarter [38] Business Line Data and Key Metrics Changes - Specialty Memory products generated $127.7 million in revenue, approximately 45% of overall revenue, a 15% increase from the previous quarter [11] - Brazil business generated$ 92.7 million in revenues, approximately 33% of overall net sales, meeting expectations despite pandemic-related economic slowdowns [16] - Specialty Compute products recorded revenues of $60.9 million, representing approximately 22% of overall revenue [22] Market Data and Key Metrics Changes - Breakdown of net sales by end markets: Mobile and PCs 27%, Network and Telecom 25%, Servers and Storage 15%, Industrial, Defense & Other 33% [31] - Brazilian smartphone market is forecasted to see a unit sales slowdown, but average mobile memory capacity per phone continues to increase [17] Company Strategy and Development Direction - The company is focused on expanding its reach across new geographies and customers, particularly in high-performance computing and specialty memory [10][28] - The company is evaluating opportunities for accretive acquisitions to strengthen and diversify its operations [28] - The introduction of new high-density products is expected to drive future growth, particularly in the Brazilian market [21][87] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong financial performance ahead, despite uncertainties in the market [10] - The company is navigating the global health crisis effectively, with a focus on employee safety and adapting to new work environments [27] - Management noted that the federal year-end spending is delayed, impacting visibility on government contracts [48] Other Important Information - The company has a strong balance sheet with improved capital structure following the restructuring of debt [38][109] - Capital expenditures for the fourth fiscal quarter are expected to be in the range of$ 6 million to $10 million [45] Q&A Session Summary Question: Expectations for recovery in Brazil and other segments - Management indicated uncertainty regarding the duration of project delays but noted strong commercial sales in high-performance computing [48][49] Question: Gross margins and factors affecting them - Management attributed the increase in gross margins to a higher mix of specialty computing and mobile products [54] Question: Memory content and average selling price trends - Management expects a 15% to 20% growth in average selling prices in Q4 due to new product releases [57] Question: Gross margin by segment - Brazil's gross margin was approximately 21%, while specialty compute was at 24% [61] Question: Lead times for DRAM and flash - DRAM lead times have decreased slightly, while flash remains at around 16 weeks [63] Question: Significance of the 7-die device - The 7-die device is expected to increase density and is already being shipped in some phones [68] Question: Government business and budget flush - Management expressed uncertainty about the typical year-end budget flush due to the current environment [102] Question: M&A environment during the pandemic - The M&A environment remains active, with the company looking for strategic opportunities [106][109]