SMART Global Holdings, Inc. (SGH) Q2 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture: strong investment in AI infrastructure and a positive outlook for memory pricing and services revenue are offset by declining LED revenue and fluctuating gross margins. The Q&A reveals optimism for AI at the edge and CXL products but lacks concrete timelines, which may concern investors. Given the market cap of approximately $1.2 billion, these mixed signals are likely to result in a neutral stock price movement over the next two weeks.
Key Financial Performance
Total Revenues $285 million, up from $X million in the year-ago quarter.
Non-GAAP Gross Margin 31.5%, down from 32.1% in the year-ago quarter, primarily driven by lower memory volumes.
Non-GAAP Earnings Per Share $0.27, down from $0.87 in the year-ago quarter, but up from $0.24 last quarter.
Services Revenue $49 million, down from $55 million in the year-ago quarter.
Product Revenues $235 million, compared to $X million in the year-ago quarter.
IPS Revenue $141 million, up 19% from the prior quarter.
Memory Revenue $83 million, down from $X million in the prior quarter.
LED Revenue $60 million, down from $X million in the prior quarter.
Non-GAAP Operating Expenses $63.2 million, down from $68.7 million in the year-ago quarter.
Adjusted EBITDA $33 million, or 12% of sales, down from $65 million, or 17% of sales in the year-ago quarter.
Cash and Short-term Investments $466 million, down from $553 million in the prior quarter.
Inventory $173 million, down from $208 million in the prior quarter.
Days Sales Outstanding 41 days, down from 44 days in the prior quarter.
Cash Flows Used in Operating Activities $22 million, compared to $60 million provided by operating activities in the prior quarter.
Share Repurchases Approximately 106,000 shares repurchased for $1.9 million.
Term Loan Principal $425 million outstanding, down from $X million in the prior quarter.
Capital Expenditures $5.2 million in the second quarter.
Depreciation $7.2 million in the second quarter.
You have reached the limit. Sign up to access full content
Get started
Operating Highlights
New Product Launch: Introduced the Stratus ztC Endurance Server, a next-generation fault-tolerant computing platform, which is seeing strong demand. Launched XLamp XP-G4 High Intensity LEDs optimized for various applications. Introduced Zefr ZDIMM Memory Modules with ultra-high reliability.
New Product Development: Completed design of 8 DIMM DDR5 CXL Add-In Card, anticipating sampling later this year.
Market Expansion: Noted increased AI adoption by larger enterprises across various sectors including finance, oil and gas, and education. Expect revenues in Memory and LED segments to grow sequentially in Q3.
Operational Efficiency: Achieved non-GAAP earnings per share of $0.27 through better operating expense controls. Reduced operating expenses to $63.2 million, down from $64.6 million in Q1.
Strategic Shift: Transitioning to a total solution provider for AI infrastructure, focusing on high-performance compute and memory. Announced new President of IPS, Pete Manca, to drive future growth.
You have reached the limit. Sign up to access full content
Get started
Risk or Challenges
Competitive Pressures: The company is facing challenges from increased competition in the AI infrastructure market, as larger enterprises and Tier 2 cloud service providers are beginning to adopt AI solutions, which may intensify competitive dynamics.
Regulatory Issues: The company acknowledges potential risks related to evolving global tax environments and regulatory changes that could impact their long-term non-GAAP tax rate.
Supply Chain Challenges: There are ongoing supply chain constraints affecting the IPS business, particularly extended lead times for certain components, which could delay project ramp-ups.
Economic Factors: The company is navigating global macroeconomic headwinds that may impact overall business performance and growth.
Inventory Levels: Elevated inventory levels at large customers are affecting sales in the memory segment, indicating potential demand challenges.
Market Demand: While there are signs of recovery in the memory market, near-term unit demand remains challenging for traditional enterprise customers.
You have reached the limit. Sign up to access full content
Get started
Guidance & Outlook
AI Infrastructure Solutions: SGH is transforming into a provider of high-performance, high-availability solutions for AI deployment across various environments including on-premise, edge, and cloud.
New Product Launches: Introduction of the Stratus ztC Endurance Server, a fault-tolerant computing platform, to support AI applications at the edge.
Management Changes: Appointment of Pete Manca as President of IPS to drive growth and innovation in AI infrastructure solutions.
Memory Solutions Development: Progress on CXL product development, including an 8 DIMM DDR5 CXL Add-In Card expected to sample later this year.
Q3 2024 Revenue Guidance: Expected revenues for Q3 2024 are approximately $300 million at the midpoint, plus or minus $25 million.
Q3 2024 Gross Margin Guidance: GAAP gross margin expected to be approximately 29% at the midpoint; non-GAAP gross margin expected to be approximately 32%.
Q3 2024 EPS Guidance: GAAP diluted EPS expected to be a loss of approximately $0.07; non-GAAP diluted EPS expected to be approximately $0.30.
Capex Guidance: Cash capital expenditures for Q3 are expected to be in the range of $4 million to $6 million.
You have reached the limit. Sign up to access full content
Get started
Shareholder Return Plan
Share Repurchase Program: During the second quarter, SMART Global Holdings repurchased approximately 106,000 shares of common stock using $1.9 million. Since the initial repurchase authorization in April 2022, a total of $72.3 million has been used to repurchase 4.1 million shares. As of the second quarter, there is $78 million available for future repurchases under the authorizations.
You have reached the limit. Sign up to access full content
Get started
Key Q&A
Q:Can you provide insights on demand across large CSPs, Tier 2 CSPs, and enterprises for new deployments in the second half of calendar '24?
A:Management noted a significant uptick in demand from large enterprises evaluating their AI strategies, with various deployment models being considered. They highlighted a massive shortage in available data centers for AI, particularly due to power requirements.
Q:Are there opportunities for AI at the edge in the traditional Penguin business?
A:Management confirmed that they are developing solutions for AI at the edge, focusing on inferencing rather than just training, and are investing in future integration into their solution roadmap.
Q:Regarding the memory outlook, is the high-single-digit growth mostly ASP growth?
A:Management indicated that while pricing benefits are being seen, demand has been somewhat flat, but they expect to see a turnaround in demand in Q3 and Q4.
Q:Can you elaborate on the IPS business and its guidance for gross margin?
A:Management explained that margins can fluctuate based on hardware and service mix, but they are confident in their execution and expect continued progress.
Q:How has interest in generative AI changed the customer acquisition and rollout process?
A:Management stated that while interest has increased, the process has become longer and more complex as enterprises are still defining their AI strategies.
Q:What impact do you foresee from memory price increases on future gross margins?
A:Management refrained from forecasting specific impacts but noted that pricing changes typically affect revenue more than gross margins.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer regarding the specific impact of memory price increases on future gross margins, using vague language about the relationship between pricing and revenue without specific data.
You have reached the limit. Sign up to access full content
Get started
Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI edge
AI infrastructure
ASP
ASPs
Bolton Needham
Cree
DIMM
Dell
Penguin
President
Stratus
Tier CSPs
client engagement
cluster
complexity
compute
configuration
digit
dynamic
edge cloud
enterprise AI
future
issue
language model
leader
memory system
mix hardware
need
payment
portfolio
power
premise edge
pricing
recovery
repurchase authorization
requirement
scale enterprise
server
space
term loan
training
transport
uptime
SGH Transcript
SMART Global Holdings, Inc. (SGH) Q3 2024 Earnings Call Transcript
Neutral7-9
SMART Global Holdings, Inc. (SGH) Q2 2024 Earnings Call Transcript
Unknown4-9
The earnings call presents a mixed picture: strong investment in AI infrastructure and a positive outlook for memory pricing and services revenue are offset by declining LED revenue and fluctuating gross margins. The Q&A reveals optimism for AI at the edge and CXL products but lacks concrete timelines, which may concern investors. Given the market cap of approximately $1.2 billion, these mixed signals are likely to result in a neutral stock price movement over the next two weeks.
SMART Global Holdings, Inc. (SGH) Q4 2023 Earnings Call Transcript
Neutral10-13
SMART Global Holdings, Inc. (SGH) Q3 2023 Earnings Call Transcript
Neutral6-30
SGH Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
How soon is the transcript available after the earnings call ends?
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
Is the transcript edited or altered in any way?
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
