Sign in

You're signed outSign in or to get full access.

SG

SMART Global Holdings, Inc. (SGH)·Q3 2024 Earnings Summary

Executive Summary

  • SGH delivered sequential improvement with net sales of $300.6M (+5.5% q/q) and non-GAAP EPS of $0.37; GAAP EPS was $0.10. Mix-driven gross margin expanded q/q (GAAP 29.6%, non-GAAP 32.3%). Guidance for Q4 FY24 implies higher revenue at the midpoint but slightly lower gross margin than prior quarter’s guidance for Q3 .
  • Against public consensus, SGH posted a modest revenue miss (~$0.97M) but a clear EPS beat (+$0.06), a positive surprise driven by expense discipline and margin mix; S&P Global consensus data was unavailable for SGH in our system mapping, so we reference Seeking Alpha’s consensus .
  • Segment performance showed IPS (Penguin) and Memory up sequentially, while LED also improved q/q; yoy declines reflect the prior year’s higher IPS deployments and macro normalization. Non-GAAP operating income improved q/q to $33.3M, with adjusted EBITDA at $38.8M .
  • The call emphasized transformation to high-performance, high-availability enterprise solutions for AI; management highlighted growing AI deployments, services/software progress, and early CXL traction. Supply-chain component lead times remain a constraint on IPS deployment pacing into Q4 .
  • Post-quarter strategic announcements (Analyst Day, SK Telecom $200M investment, and rebranding plan to Penguin Solutions) reinforce the AI infrastructure narrative and represent potential medium-term stock catalysts .

What Went Well and What Went Wrong

What Went Well

  • Sequential topline and margin expansion with disciplined non-GAAP OpEx; non-GAAP EPS rose 37% q/q to $0.37; non-GAAP operating income increased to $33.3M; adjusted EBITDA reached $38.8M .
  • IPS, Memory, and LED all grew q/q; IPS delivered $145.0M, Memory $91.6M, LED $64.0M, supporting mix and gross margin improvement (non-GAAP 32.3%) .
  • Management emphasized AI transformation: “Our customers are looking for a trusted deployment partner to help them solve the complexity of AI… we are well positioned with our portfolio of systems, software and managed services” — Mark Adams (CEO) .

What Went Wrong

  • Year-over-year comparisons remained pressured: revenue down 12.7% yoy, with IPS (-$25.9M yoy) and Memory (-$17.8M yoy) reflecting normalized deployments and prior-year comps; GAAP gross margin essentially flat yoy (29.6% vs. 29.2%) .
  • Public consensus flagged a revenue miss (~$0.97M) despite EPS beat; highlights sensitivity to deployment timing and mix within IPS .
  • Supply chain and component lead times in IPS continue to slow the ramp of customer projects into Q4, tempering gross margin outlook at 31.5% mid versus 32.0% previously (Q3 guide) .

Financial Results

Consolidated Results vs Prior Periods

MetricQ3 FY23Q2 FY24Q3 FY24
Revenue ($USD Millions)$344.4 $284.8 $300.6
GAAP Gross Margin %29.2% 28.8% 29.6%
Non-GAAP Gross Margin %31.6% 31.5% 32.3%
GAAP Diluted EPS ($)$(0.50) $(0.26) $0.10
Non-GAAP Diluted EPS ($)$0.57 $0.27 $0.37

Actual vs Public Consensus (Q3 FY24)

MetricActualPublic ConsensusSurprise
Revenue ($USD Millions)$300.58 $301.55 Miss by $0.97M
Non-GAAP EPS ($)$0.37 $0.31 Beat by $0.06

Note: S&P Global consensus data unavailable due to mapping error; consensus sourced from Seeking Alpha as a proxy .

Segment Net Sales

Segment ($USD Millions)Q3 FY23Q2 FY24Q3 FY24
Memory Solutions$109.5 $83.3 $91.6
Intelligent Platform Solutions (IPS)$170.9 $141.4 $145.0
LED Solutions$64.1 $60.1 $64.0
Total Net Sales$344.4 $284.8 $300.6

KPIs and Operating Metrics (Q3 FY24)

KPIQ3 FY24
Gross Profit ($USD Millions)$88.9
Non-GAAP Gross Profit ($USD Millions)$97.0
Non-GAAP Operating Income ($USD Millions)$33.3
Adjusted EBITDA ($USD Millions)$38.8
Cash from Operating Activities ($USD Millions)$79.9
Capital Expenditures ($USD Millions)$3.8
Cash and Cash Equivalents ($USD Millions)$453.8
Accounts Receivable, Net ($USD Millions)$211.8
Inventory ($USD Millions)$177.3

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($USD)Q3 FY24$300M ± $25M ——
Non-GAAP Gross Margin %Q3 FY2432.0% ± 1.5% ——
Non-GAAP OpEx ($USD)Q3 FY24$66M ± $2M ——
Non-GAAP Diluted EPS ($)Q3 FY24$0.30 ± $0.15 ——
Net Sales ($USD)Q4 FY24—$325M ± $25M Raised midpoint vs prior quarter’s next-quarter guide (+$25M)
Non-GAAP Gross Margin %Q4 FY24—31.5% ± 1.5% Lower midpoint vs prior quarter’s next-quarter guide (−50 bps)
Non-GAAP OpEx ($USD)Q4 FY24—$66M ± $2M Maintained relative to prior quarter’s levels
Non-GAAP Diluted EPS ($)Q4 FY24—$0.40 ± $0.15 Raised midpoint vs prior quarter’s next-quarter guide (+$0.10)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
AI infrastructure deployments (IPS)Emphasis on enterprise AI adoption, Tier-2 CSP activity; IPS up 19% q/q in Q2 .Continued AI focus; transformation to high-performance, high-availability solutions; services/software progress .Positive momentum; broadening enterprise adoption.
Supply chain and lead timesQ2 guide tempered by component lead times affecting IPS ramp .Ongoing lead-time constraints into Q4; pacing deployment ramp .Constraint persists; careful operational management.
Memory cycle and specialty memoryQ2: muted volatility vs commodity cycles; expecting services uptick and memory normalization .Indications of recovery and normalization; first CXL production order; prospects for Q4 growth .Improving demand/pricing; product innovation (CXL).
Edge computing (Stratus ztC Edge)Q2 highlights of edge platforms and endurance server demand .Wins in oil & gas and financial verticals; high availability and minimal onsite support value props .Building traction across industrial/financial use cases.
Services vs hardware mixQ2: services dipped, expected to tick up in Q3 .Services contribution (22%) alongside $233M product revenue; margin mix aided non-GAAP GM .Stabilizing; mix supportive of margins.
Strategic capital and brand—Analyst Day and SK Telecom $200M preferred investment; rebranding intent to Penguin Solutions .Catalysts for AI infrastructure leadership and investor narrative.

Management Commentary

  • “We are pleased with our Q3 operating results and continued progress in our transformation into a high-performance, high-availability enterprise solutions company… we feel we are well positioned with our portfolio of systems, software and managed services to enable [customers’] success.” — Mark Adams, CEO .
  • Prepared remarks underscored expanding AI customer engagements, advancing software/services, and operational efficiency improvements as core drivers of profitability and margin resilience .
  • On forward outlook, management cited macro headwinds and component lead times affecting IPS ramp timing into Q4, reinforcing prudent execution while investing for long-term growth .

Q&A Highlights

  • Memory cycle recovery and specialty memory outlook: management noted normalization at large customers and improving pricing; received first production order for CXL in Q3, validating leadership in advanced memory .
  • Edge solutions traction: largest wins for ztC Edge and Endurance in oil & gas and financial institutions where high availability and remote operability are critical .
  • Mix/margin dynamics and services: services expected to stabilize after Q2 downtick; overall mix supported non-GAAP gross margin in Q3 .
  • IPS deployment pacing: extended component lead times constrain ramp timing; prudent operations while scaling AI factory deployments .
  • Strategic trajectory: rebranding to Penguin Solutions and SKT investment bolster end-to-end AI infrastructure positioning and financial flexibility .

Estimates Context

  • S&P Global consensus data was unavailable for SGH in our estimates tool mapping; accordingly, we reference Seeking Alpha for consensus: EPS $0.31 and revenue $301.55M, versus actual non-GAAP EPS $0.37 and revenue $300.58M. This constitutes an EPS beat (+$0.06) and a slight revenue miss (~$0.97M) .
  • Given Q4 guidance midpoints (revenue $325M, non-GAAP GM 31.5%, EPS $0.40), sell-side models may raise revenue and EPS for the upcoming quarter while trimming gross margin assumptions by ~50 bps vs prior quarter’s next-quarter guide .

Key Takeaways for Investors

  • Sequential improvements and an EPS beat despite a slight revenue miss reflect margin resilience and cost discipline; non-GAAP GM expanded to 32.3% and OpEx held at ~$63.6M .
  • IPS remains the anchor, with persistent component lead-time constraints tempering ramp speed; near-term results hinge on execution and supply alignment .
  • Memory business shows signs of recovery; first CXL production order points to product-cycle optionality into Q4+ and positions SGH for AI memory attach opportunities .
  • Edge platforms (Stratus ztC Edge/Endurance) are gaining traction in industrial and financial verticals, supporting services revenue and high-availability differentiation .
  • Q4 guide raises revenue and EPS midpoints while modestly lowering gross margin, indicating faster top-line growth with near-term mix pressure; watch services vs hardware mix and supply chain fluidity .
  • Strategic announcements (SKT $200M preferred investment and rebranding to Penguin Solutions) likely strengthen capital flexibility and elevate AI infrastructure branding—potential medium-term re-rating catalysts .
  • Near-term trading: focus on supply-chain updates, IPS deployment cadence, and memory/CXL order visibility; medium-term thesis centers on SGH’s end-to-end AI factory capabilities across systems, software, and managed services .