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SG

SMART Global Holdings, Inc. (SGH)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 FY2024 net sales were $284.8M (+3.9% q/q, -26.7% y/y); non-GAAP EPS rose to $0.27 (from $0.24 in Q1), while GAAP EPS was $(0.26), reflecting continued transformation and mix shifts .
  • IPS revenue grew 19% sequentially to $141.4M; Memory Solutions and LED Solutions declined q/q, with LED up y/y; gross margins declined sequentially (GAAP 28.8%, non-GAAP 31.5%) .
  • Q3 FY2024 guidance midpoints: revenue $300M, non-GAAP gross margin ~32%, non-GAAP EPS $0.30, non-GAAP OpEx ~$66M; guidance was reaffirmed on May 14, 2024 (maintained) .
  • Management highlights AI/HPC as strategic growth driver and appointed Pete Manca to lead IPS; later announced CFO transition and appointed Nate Olmstead as CFO—potential catalysts around execution and capital allocation .

What Went Well and What Went Wrong

What Went Well

  • IPS revenue up 19% q/q to $141.4M; CEO: “we are uniquely positioned to help our valued customers address the rapid adoption of AI” .
  • Non-GAAP EPS improved to $0.27 (vs $0.24 in Q1) and adjusted EBITDA remained solid at $33.4M, evidencing operating discipline amidst revenue shifts .
  • Strong liquidity: cash and equivalents $442.3M; combined cash and short-term investments $465.8M at Q2-end, supporting investment and debt reduction plans .

What Went Wrong

  • Sequential margin compression: GAAP gross margin fell to 28.8% (from 30.2%); non-GAAP to 31.5% (from 33.3%)—mix effects and lower margins in segments .
  • Memory Solutions declined q/q to $83.3M (and y/y), and LED Solutions declined q/q to $60.1M; Q2 GAAP net loss of $(13.6)M highlights ongoing transformation costs and headwinds .
  • Ongoing restructuring and Penguin Edge wind-down; management notes potential for further goodwill impairment at Penguin Edge ($16.1M remaining) .

Financial Results

MetricQ2 FY2023Q1 FY2024Q2 FY2024
Revenue ($USD Millions)$388.4 $274.2 $284.8
GAAP Gross Margin %28.6% 30.2% 28.8%
Non-GAAP Gross Margin %32.1% 33.3% 31.5%
GAAP Diluted EPS ($)$(0.68) $(0.23) $(0.26)
Non-GAAP Diluted EPS ($)$0.87 $0.24 $0.27
Adjusted EBITDA ($USD Millions)$65.1 $34.3 $33.4

Segment net sales

SegmentQ2 FY2023Q1 FY2024Q2 FY2024
Memory Solutions ($M)$110.3 $85.7 $83.3
Intelligent Platform Solutions ($M)$222.5 $118.8 $141.4
LED Solutions ($M)$55.6 $69.8 $60.1
Total Net Sales ($M)$388.4 $274.2 $284.8

KPIs

KPIQ2 FY2023Q1 FY2024Q2 FY2024
Cash and Equivalents ($M)$376.9 $529.1 $442.3
GAAP Operating Expenses ($M)$113.1 $81.5 $85.2
Non-GAAP Operating Expenses ($M)$68.7 $64.6 $63.2
Capital Expenditures ($M)$11.7 $4.6 $5.2

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($M)Q3 FY2024$300 ± $25 $300 ± $25 Maintained
Non-GAAP Gross Margin (%)Q3 FY2024~32% ± 1.5 (after ~3% adjustment) ~32% ± 1.5 Maintained
Non-GAAP Operating Expenses ($M)Q3 FY2024$66 ± $2 $66 ± $2 Maintained
Non-GAAP Diluted EPS ($)Q3 FY2024$0.30 ± $0.15 $0.30 ± $0.15 Maintained
Diluted Shares (Non-GAAP, M)Q3 FY202454.4 54.4 Maintained
Non-GAAP Effective Tax Rate PolicyFY2024New policy: 28% normalized non-GAAP ETR 28% normalized non-GAAP ETR Adopted

Performance vs guidance (Q2 FY2024)

MetricGuidance (Jan 9)Actual (Q2 FY2024)Outcome
Net Sales ($M)$285 ± $25 $284.8 In-line with midpoint
Non-GAAP EPS ($)$0.25 ± $0.10 $0.27 Slightly above midpoint
Non-GAAP Gross Margin (%)~33.5% ± 1 31.5% Below guidance midpoint
Non-GAAP OpEx ($M)$66 ± $3 $63.2 Better than guidance

Earnings Call Themes & Trends

TopicQ4 FY2023 (Q-2)Q1 FY2024 (Q-1)Q2 FY2024 (Current)Trend
AI/HPC initiativesEmphasis on enterprise solutions; non-GAAP GM 31.7% in Q4 “Investing strategically in AI” and advanced memory technologies CEO: positioned for rapid AI adoption; IPS leadership appointment (Pete Manca) Increasing focus on AI/HPC
Supply chain and componentsNoted macro and integration risks (Stratus, Brazil divestiture) Record liquidity; transformation progress Fab-light model; high demand/limited supply of AI components may affect sourcing Persistent risk; AI component constraints
Segment mix/marginsIPS strong for FY2023 but volatile by period Record gross margins; mix shift to higher-value solutions Gross margin down q/q; favorable higher service mix y/y Mix drives margin variability
LED market dynamicsLED revenue softness noted LED up q/q vs Q4 LED up y/y, down q/q; channel demand cited y/y Stabilizing y/y; near-term variability
Restructuring/Penguin EdgeInitiated wind-down; impairments recognized Ongoing integration actions Wind-down continues; potential further impairment Ongoing restructuring

Note: The Q2 FY2024 earnings call transcript was unavailable due to a database inconsistency; themes above are synthesized from press releases and the 10-Q [3:—].

Management Commentary

  • Mark Adams, CEO: “The second quarter marked a period of continued progress towards our transformation into a high-value enterprise solutions company… we are uniquely positioned to help our valued customers address the rapid adoption of AI” .
  • On IPS leadership: “Pete’s strategic vision… will propel our AI and HPC business forward” .
  • CFO transition (May 14): “As we continue our transformation, we remain focused on our growth in the high-performance, high-availability enterprise AI solutions market” .
  • New CFO Nate Olmstead: “I am excited to join SGH… innovative solutions and capabilities that harness the power of AI… great opportunity ahead to drive growth and deliver value” .

Q&A Highlights

  • Q2 FY2024 earnings call transcript could not be accessed due to a database inconsistency; Q&A highlights are unavailable [3:—].

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 FY2024 EPS, revenue, and EBITDA was unavailable due to a data mapping issue; therefore, comparison to consensus cannot be provided (S&P Global data unavailable).
  • Relative to company guidance, Q2 results were in-line on revenue and above the non-GAAP EPS midpoint; non-GAAP gross margin trailed guidance midpoint, suggesting mix and margin pressure despite sequential IPS growth .

Key Takeaways for Investors

  • Sequential recovery with IPS-driven growth (+19% q/q) supports AI/HPC narrative; execution in services and higher-value solutions remains key to sustaining margins .
  • Margins compressed q/q (non-GAAP 31.5% vs 33.3% prior), highlighting sensitivity to segment mix; management continues to optimize OpEx (non-GAAP $63.2M, better than Q2 guidance) .
  • Liquidity is strong ($442.3M cash; $465.8M with ST investments), and SGH prepaid term debt post-Q2 (Feb 29: $30M; Mar 29: $75M), reducing leverage trajectory .
  • Q3 FY2024 guidance (midpoints: $300M revenue, 32% non-GAAP GM, $0.30 non-GAAP EPS) was reaffirmed, providing near-term visibility; watch IPS pipeline conversion and component availability for AI builds .
  • Structural portfolio actions (Brazil divestiture; Penguin Edge wind-down) simplify focus but may carry residual impairment risk; monitor LED channel demand and IPS hardware variability .
  • Leadership changes (new CFO; IPS president appointment) may influence capital allocation and AI/HPC strategy execution—generally a positive for institutionalization of processes .