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SMART Global Holdings, Inc. (SGH)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 FY2024 net sales were $311.1M, marking a third consecutive quarter of sequential growth; non-GAAP EPS was $0.37 and non-GAAP gross margin was 30.9% . The company changed its name and ticker to Penguin Solutions (PENG) to reflect its AI and HPC focus .
  • All segments grew sequentially in Q4: Intelligent Platform Solutions (IPS) to $149.4M, Memory Solutions to $95.8M, and LED Solutions to $66.0M .
  • FY2025 guidance shifts to annual: net sales +15% YoY (+/-5%), non-GAAP GM ~32% (+/-1%), non-GAAP OpEx ~$275M (+/-$15M), and non-GAAP diluted EPS ~$1.70 (+/-$0.20), with diluted shares ~56.3M .
  • Consensus context: S&P Global estimates were unavailable via our tool at this time; third-party indicates Q4 EPS of $0.37 missed by $0.03 and revenue of $311.15M missed by $13.85M versus consensus, implying modest headline misses as a potential stock-reaction driver .

What Went Well and What Went Wrong

What Went Well

  • Sequential revenue growth across all segments for Q4, highlighting execution in IPS and stabilization in Memory and LED . “We are pleased with our Q4 results, highlighted by our third consecutive quarter of sequential top line growth” — Mark Adams, CEO .
  • Non-GAAP EPS grew year-over-year to $0.37 (vs $0.35 in Q4 FY2023), with non-GAAP operating income up to $33.7M (vs $30.3M in Q4 FY2023), showing improved core profitability despite mix headwinds .
  • FY2025 annual guidance signals confidence and longer-horizon visibility: +15% YoY revenue growth, ~32% non-GAAP GM, and ~$1.70 non-GAAP EPS midpoint . Management reiterates AI infrastructure and high-availability enterprise solutions focus .

What Went Wrong

  • GAAP results pressured: GAAP EPS was $(0.46) and GAAP net loss was $(24.5)M; GAAP gross margin fell 90bps YoY to 28.0% .
  • YoY revenue declined 1.7% vs Q4 FY2023 despite sequential gains, reflecting ongoing macro and mix challenges, particularly in Memory .
  • Non-operating expenses elevated: total Q4 non-operating income/expense was $26.4M, including interest expense of $5.4M and a $21.6M loss on extinguishment/prepayment of debt, pressuring GAAP earnings quality .

Financial Results

Consolidated Performance vs Prior Periods and Estimates

MetricQ4 FY2023Q3 FY2024Q4 FY2024Consensus (Wall Street)Notes
Revenue ($USD Millions)$316.7 $300.6 $311.1 $325.0 midpoint (Q4 guidance from Q3) ; Third-party consensus miss by $13.85M Sequential +3.5%; YoY -1.7%
GAAP EPS ($)$1.17 $0.10 $(0.46) N/AGAAP impacted by non-operating items
Non-GAAP EPS ($)$0.35 $0.37 $0.37 $0.40 midpoint (Q4 guidance from Q3) ; Third-party EPS miss by $0.03 In-line with Q3; modest YoY improvement
GAAP Gross Margin (%)28.9% 29.6% 28.0% N/ADown sequentially and YoY
Non-GAAP Gross Margin (%)31.7% 32.3% 30.9% 31.5% midpoint (Q4 guidance from Q3) In-line with guided range

Segment Net Sales Breakdown

Segment ($USD Millions)Q4 FY2023Q3 FY2024Q4 FY2024
Intelligent Platform Solutions$145.4 $145.0 $149.4
Memory Solutions$105.2 $91.6 $95.8
LED Solutions$66.0 $64.0 $66.0
Total Net Sales$316.7 $300.6 $311.1

KPIs

KPIQ4 FY2023Q3 FY2024Q4 FY2024
Non-GAAP Operating Income ($USD Millions)$30.3 $33.3 $33.7
Adjusted EBITDA ($USD Millions)$37.6 $38.8 $39.3
Cash and Equivalents ($USD Millions)$410.1 $453.8 $383.1
Short-term Investments ($USD Millions)$0.0 $13.7 $6.3
Inventories ($USD Millions)$175.0 $177.3 $151.2
Operating Cash Flow – Continuing Ops ($USD Millions)$37.6 $79.9 $(12.2)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesQ4 FY2024$325M +/- $25M (non-GAAP) Actual: $311.1M Lower than midpoint; within range
Non-GAAP Gross MarginQ4 FY202431.5% +/- 1.5% Actual: 30.9% Slightly below midpoint; within range
Non-GAAP EPSQ4 FY2024$0.40 +/- $0.15 Actual: $0.37 Slightly below midpoint; within range
Net SalesFY2025N/A+15% YoY (+/-5%) New annual guidance
Non-GAAP Gross MarginFY2025N/A32% +/- 1% New annual guidance
Non-GAAP Operating ExpensesFY2025N/A~$275M +/- $15M New annual guidance
Non-GAAP Diluted EPSFY2025N/A~$1.70 +/- $0.20 New annual guidance
Non-GAAP Effective Tax RateFY2024/FY2025 approachLong-term non-GAAP ETR ~28% Continued use, subject to change Maintained framework

Earnings Call Themes & Trends

TopicQ2 FY2024 (7/9/24)Q3 FY2024 (10/15/24)Q4 FY2024 (10/15/24)Trend
AI/technology initiativesCEO emphasized positioning to address rapid AI adoption CEO highlighted transformation into high-performance enterprise solutions, enabling AI with systems/software/services Rebrand to Penguin Solutions underscores AI infrastructure focus; Origin AI traction discussed (early stage) Strengthening AI narrative; building pipeline
Guidance frameworkQ3 outlook provided (quarterly) Q4 outlook provided (quarterly) Shift to annual FY2025 guidance; rationale: longer-horizon visibility Shift to annual guidance
Segment performanceIPS +19% seq; Memory and LED mixed QoQ Sequential growth across segments QoQ Sequential growth across IPS/Memory/LED Sequential momentum continued
Supply chain/operational timingNot highlightedReins on OpEx; integration themes Some IPS revenue recognition deferred into early FY2025 due to operational complexities Timing headwinds to be managed
R&D/leadershipAppointed Pete Manca as President, IPS, with Dell background Continuing transformation and product/solutions focus Continued focus on enterprise solutions and managed services Strengthened leadership and execution

Management Commentary

  • “We are pleased with our Q4 results, highlighted by our third consecutive quarter of sequential top line growth. Our Company’s transition to Penguin Solutions reinforces our commitment to solving the complexities of AI infrastructure...” — Mark Adams, CEO .
  • “We are pleased with our Q3 operating results and continued progress in our transformation into a high-performance, high-availability enterprise solutions company...” — Mark Adams, CEO .
  • “The era of AI and HPC is upon us… I am eager to start working with the IPS team to maximize the benefit of these transformative technologies for our customers and partners.” — Pete Manca, President, IPS .

Q&A Highlights

  • Shift to annual guidance: management emphasized longer-term visibility driven by backlog, service renewals, and demand profiles; reduces quarterly noise in deployment/revenue recognition .
  • IPS timing: some revenue recognition shifted into Q1/Q2 FY2025 due to operational complexities; overall business trajectory intact .
  • Services/software mix: about 20% of corporate revenue from software and services (primarily services); software expected to grow over time, but near-term contributions modest .

Estimates Context

  • S&P Global consensus data was unavailable via our tool for PENG/SGH at the time of retrieval; as such, direct S&P comparisons cannot be provided. Values retrieved from S&P Global were unavailable.
  • Third-party reported context indicates Q4 EPS of $0.37 missed consensus by $0.03 and Q4 revenue of $311.15M missed by $13.85M, suggesting headline misses vs Street expectations .

Key Takeaways for Investors

  • Sequential momentum across segments and stable non-GAAP EPS underscore improving core profitability, while GAAP results remain pressured by non-operating items and mix; monitor debt service costs and any further extinguishment-related charges .
  • The strategic rebrand to Penguin Solutions and the pivot to annual guidance signal confidence and a tighter focus on AI infrastructure and high-availability enterprise solutions; near-term cadence may be affected by deployment timing, but medium-term visibility improves .
  • FY2025 targets (+15% revenue growth, ~32% non-GAAP GM, and ~$1.70 non-GAAP EPS) provide a baseline for estimate revisions; the Street may adjust models to annual cadence and reflect IPS timing shifts .
  • Liquidity remains solid with $383.1M in cash and $6.3M in short-term investments; inventory reduced to $151.2M, supporting working capital health, though Q4 operating cash flow was negative due to timing and financing actions .
  • Adjusted EBITDA increased to $39.3M, reflecting efficiency in the operating model; sustained progress on non-GAAP margins and OpEx discipline appears integral to FY2025 EPS targets .
  • Actionable near term: watch customer deployment schedules in IPS (revenue timing), mix shifts impacting margins, and any further financing actions; medium term: evaluate durability of AI-driven pipeline and managed services/software mix improvement .

Notes:

  • The company filed an 8-K/A indicating a minor reconciliation table omission (“Other” $0.3M) in the non-GAAP gross profit reconciliation; totals were correct, and the correction does not change reported non-GAAP results .