SGH - Earnings call transcript Q1 2021 | Penguin Solutions, Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the SMART Global Holdings First Quarter Fiscal 2021 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded [Operator Instructions]. I would now like to hand the conference over to your speaker today, Suzanne Schmidt, with Investor Relations. you. Thank ma’am. ahead, go Please

Suzanne Schmidt

you, operator. us SMART you joining and Holdings Good today's earnings afternoon results. on XXXX discuss quarter thank conference first for fiscal Thank call Global to

Pacheco, are call the Chief and Financial webcast is with This today from at Chief On Mark our and Operating website me Executive Adams, Officer; call being Officer. Jack smartgh.com.

throughout the you accompanying earnings press In current the to through the addition, information and go our company, for will slide on financial website presentation attending. the our information on the website contains most conferences We encourage quarter be an including release. we various

to Before we characterizations of projections events, today's questions, may that answers forward-looking or including begin note future to from future results and forward-looking Actual financial a call, differ refers statements. the expressed may is include like materially Any market those expectations, to and these statement. statements. conditions the would other remarks forward-looking projections I that in statement

to no documents For the today. earnings most XX-K these the XX-Q. in more discussed including information, please the time-to-time risk statements, factors SEC, as update assume well and the forward-looking releases, speak with Form as press We of our disclosures file as obligation from our we to recent in statements forward-looking Form refer which

GAAP this call, are measures financial included comparable discussed. be release. in the during Additionally, earnings to our non-GAAP will financial Reconciliations today's press measures

will Mark the forward Mark? review Adams and then a CEO, the will questions. will we call Pacheco, take after update begin CFO Jack with which guidance We and will and who business COO provide financials

Mark Adams

thank commitment global take of uncertain as all operate and team in this to members 'XX opportunity I you. Happy their Suzanne. want you, times. we these resilience for to our to Thank

execute the my and work and our ethic am full the at with impressed team's quarter strategy. SGH I first optimistic potential on been about growth to I've During diversification

structure months few are and on. purpose, is been first In is exactly there what While some we have Once that Are are set to this for right driven I've in measure purpose, process. structure as the today by my investment we we with After have in do commitment? place the have aspirations cases the and success? execute to ago. success days place, work largely the these plan, the I'm need the areas, aligned certainly right people, up need me, process where plan what focused organization was planning purpose on more purpose, in a company have our need some than ourselves For or company's we to not accountable? and equally we what priorities process we a address team to of we aligned the to do do? in excited right hold and on right alignment important, we of with performance clarity, Is XXX do, I more

at of Strategically differentiated very all future providing continue on lines focus to Our our of is across we business. SGH solutions bright.

Computing, computing, the profitability. has way. IOT memory, sharing markets advanced Embedded memory calls be low will Edge into embedded future improve our our We of intelligence each and are of Artesyn such part smart Inforce progress cloud formerly with business. targeting Penguin with package our as lines density Computing, along their includes Computing and Brazil expansion the and as high-performance to memory points with in-memory growth wireless, formerly business On to Financially, a solutions memory demonstrate and mandate computing this which our storage Confusing future artificial business specialty business, our and proof of we solutions

guidance just in end guidance. X% range above in and fiscal margin quarter at of non-GAAP our Gross year our quarter first higher than our revenue in per upper to our the share XXXX. same exceeded of performance, $X.XX came our the of came million, $XXX the earnings Turning midpoint

sheet equivalents to and transformation Overall our we execute with now our to In continue a I strengthen we is into balance $XXX increased was as results growth prior X% addition, pleased at as million. cash company. quarter on continue over and our diversified the

me businesses quarter more revenue detail XX% provide at respectively. flat around and gross compute million margins $XX Let were and the and now Starting each some specialty, prior approximately with our of performance. storage, with

all of business latter of either find was on and lines our decision in don't As margin if down battery One that our recent business we warranted exit Brazil. to I to a those careful are our lines ways improve example mentioned conducting last our of business call, of shut margins meet targets. or review we'll our the gross of

into focus add We and computing, in and that’s and strategy, official on we invest margin prudent compute look we aggressive the launch solution solution part how performance opportunities adoption reinforced will be In of encompasses success. cloud dedicated was specialty Computing Penguin services our of enabling four and targeted are practices analytics. and at higher artificial which as software solution monitor as opportunities, This developing we storage, leverage high intelligence, by value data customer portfolio. focused of

We for these and bundling optimized of software will four be practice each services areas.

year being Penguin for SMART’s embedded million to capabilities computing from order as and innovation. their XXXX HPC Executive software help were also Services. entrants them vibration direction, shock we emerging performance customers enterprise Award partner selected HPCwire their access conditions. $XX of Choice intelligence Financial in new U.S. new bring partners. these storage, Award ATCA system Validating the artificial these and received growth for operates defined Intel awarded best our and under secured business in-house. government recognized key Penguin Computing the for by platform existing a And by WekaIO that extreme the from as for technologies ruggedized Penguin awarded market Solution outstanding in primarily with Summit Reader's this While We driven the disciplines, to benefiting are high is these

telecom looking memory blade a product ATCA usage a or model use computing for new memory both front, targeted as our to On industrial the of this released at computing onsite One to applications. computing our company edge military technology part edge maintenance enable application. embedded technology architecture, blade an semiconductor team AI and customer a solution of leading and advanced predictability was example

some customer While our specialty longer vision. strategic initiatives our and I of of compute nature, term in are demonstrating confident our am in pipeline, term short validation

to future. first team's by company the solutions growth are in as I and this our XX% forecasting as engine with value-added our sales for compared compute focus We a grow and excited quarter. am with see services specialty over in the on

revenue $XXX million which quarter, the achieved QX Now to in XXXX. fiscal increase when a XX% turning memory, of to compared specialty

Our DRAM to in our DDR-X well first as stabilization product of quarter portfolio due as pricing. demand, performed well increase

saw also our products demand persistent We applications. or memory at increased NVDIMM aimed for storage

important we specialty As as targeting solid or look an we broaden are storage to our base area. end state SSD customer growth markets,

and We focused can focused is have newest on as on industrial AI into solutions we SSD leverages end which internally expanding ways surveillance, memory product, Modular’s continuing markets applications. our higher and The specialty new SMART enterprise, transportation such team to customers sampling customers vertical market. provide is memory for cloud, team value evaluate our developed controller. Strategically,

mobile compared fiscal of million, almost almost grew Brazil sales ago. of density the XX% increase year Our XX% compared XXXX. total by QX which revenue business, an in to of to a with memory has Increasing $XXX.X quarter strong led

memory as notebooks the driven people stronger a first achieved with also of working more growing home. compared prior which We for quarter, sales grew by year's trend XX% from

gigabyte capabilities, qualified XXX manufacturing a and customers. ENCP. in-country relationships We accelerate which our packaging introductions The and support leverages of in qualifying to customer number SSD applications new product density Brazilian high our continue team We a advanced mobile currently products in-country capabilities. XX is for strategic including of manufacturing gigabyte

Cree in specialty family. update LED LED Now part strategy, remain as Cree excited impressed pending I diversification. brief to acquisition as position collectively LED. their margin of I'd overall and on the Cree culture segments well SGH. like growth, provide integration LED's joining and leadership plan for leadership with a our team, Cree a very LED solution operating about aligns our specialty with We emphasizing on overall to of continue work discipline successful we enhancement be SMART

positive the QX. potential early for which March in call the we and over in timeframe. will flows February, look working received turn I will on Jack are signs a result regulatory integration side feel at on late milestones, have the for hard the guidance teams the closer and Jack. We now financials

Jack Pacheco

Thanks Mark.

combined First sales, memory the XX.X% guidance ago non-GAAP our came gross the memory which quarter. end $XXX.X our EPS in up share. quarter XX% the range, including fiscal our million high per of range from XXXX net is and specialty at in exceeded Brazil midpoint as guidance were $X.XX year margins exceeded of sales Non-GAAP of

the $XX along XX%; balance our increased inventory comments, was equivalents follows, his which and net completed both weaker of for a and sales fiscal in the this our first is PCs $XXX market storage our mobile strengthen, to along sales servers in XX%; percentage quarter was XX, quarter quarter. to enterprise for end from quarter. increasing the XX% cash telecom million, which telecom, reach by continues PCs Networking and QX our XX%. of alluded turns as briefly to and in X% down and of continued accounting year our increasing A network in on with as focus with reflecting industrial Mark servers XX XX%; per As up and fiscal breakdown sheet revenue QX quarter, to million were with defense QX. and to just from in XX% prior storage, other, spending and Mobile

$X.XX profit compared income sales. profit with in million XX%; $XX.X previous of million were was compared quarter Non-GAAP follows. Now XX.X% statement, Specialty expenses as prior $XX.X last $XX.X XX.X% the the or Compute by with quarter per operating non-GAAP Storage, $XX.X for million $XX.X first the the quarter's million and $X.XX quarter. the $XX.X diluted of $XX.X in with or net for XX%. Specialty or XX%; million of quarter, fiscal Adjusted Brazil sales net quarter. share gross share of million moving gross previous the Memory, or $XX in income to Non-GAAP Non-GAAP compared EBITDA margin compared the million per rest net diluted million first group totaled with business was

for tax rate XX.X%, quarter with in effective the was our expectations. line non-GAAP Our

million $XXX.X million with net last Turning $XXX.X capital, quarter. accounts totaled to receivable our compared working

first quarter quarter. million million compared Our last $XXX were the day XX similar fourth $XXX.X at previous to the first continued practice, of cost and million outstanding X the sales goods material efficiency. past at remain turnover, we at as $XXX.X to compared work in quarter. Inventory accounts of the of inventory basis, with gross increase XX turns sold and the Consistent the respectively end with days. and receivable, were times sales at days are $XXX.X end Inventory outstanding million with quarter, quarter, to for our totaled calculator which times

on chain $XXX.X million As services with sales, revenue our as million the the is to chain difference is net net agency end only basis, net ended the of for cash with the gross equivalents on profit We between meaning which prior compared business, and that at recognize quarter accounted supply $XXX.X services a quarter. an we a reminder, sales related of cash first the transaction. supply and

from quarter First flow to a doubled the On operations basis, million. with XX.X month quarter $XX.X more compared in castle in million cash reach than trailing prior $XX.X XX totaled from operations quarter. million the

was for tracking $XX.X the For expectations appreciation CapEx million. those CapEx $X million, and of depreciation our was line in quarter and you with

line also source at X.XX% December the an X.XX% this $XXX in liquidity XXrd. depending We of time. with on It amount entering interest point by on Bank or effective increased is America ABL of has a plus minus The million rate into undrawn drawn. our of

$XX strengthening have a are well million success. also positioned with revolver we also Combined is for feel undrawn. We balance sheet of future which we our

first fiscal some our me respect you with to Turning context with guidance. let to provide QX our XXXX,

discount for is -- debt to operating profits guidance diluted earnings share basis, we for quarter results or $XXX are be information quarter a expected in to non-GAAP now of estimate intangible range With plus gains section reflects be our or further and to quarter estimated release net as fiscal to quarter in measures fiscal expenses. earnings XXXX. The Our $X.XX. our Please fiscal The margin share-based that include approximately of GAAP which of gross range $XX minus shares backdrop, as ready press the accounting in share non-GAAP On equally for minus to OID convertible the per XXXX income fiscal XX% in the XX.X share non-GAAP our to made to as that quarter be guidance diluted $X.XX. the used year sales our GAAP Gross Brazil, to amortization we second Operator, take earnings view expense, plus and XX% does reconciliation last will to $XX $XXX compensation of $X.XX any share diluted XX%. the fourth be financial asset or now similar million. excluding for provision will the per exchange range and EBITDA of in the our GAAP for and to quarter expected expect tables in approximately is of financial fees, second of to the million. is losses income to per an turn the questions. second per and net change number million the and well million. the decreased refer reconciliation adjusted quarter $X.XX Capital a tax We to are guidance to expense expenditures foreign we to expected non-GAAP second be for XX%. of second range be earnings on let million quarter not estimate the details. fiscal me includes currently for the fiscal

Operator

Instructions] [Operator Securities. question line from of Rosenblatt Kevin comes Cassidy first the from Our

is now line open. Your

Kevin Cassidy

my results. question, good taking for congratulations you Thank on and the

the of downturn, the First stabilizing. manufacturing in smartphones DRAM decided that mentioned in found outside you question the them and market market in last build Mark, is time, some the phones, is, Brazil. to of of company's last the -- -- we Brazil, that the In market memory

prices back more there be building As change? a are will coming there country? trend within a up, to Is the phones

Jack Pacheco

current it'll… mean telling I we country. to new to now. think the in Yeah, the Jack. ones continue phones in will country continue we'll We continue getting in entrants the are to think think building? build news the the build I country phones in they've it’s current, right I not companies Brazil Kevin, that any you going that build been Hey, don't to the see we We're -- any come in don't that Brazil will

Kevin Cassidy

in my way then, question. Okay, answering is I with so change no guess, of another seasonality

Jack Pacheco

No change seasonality to right now.

flash you fall. think go -- there’s continues lot to We’re not memory phone seeing, we're the flash memory if up about flash seeing in phone, the because of and in price, a memory not

Kevin Cassidy

profitability or there you're have? turning your leveraging your how Okay, to be I what see. And interest that can cloud would Penguin maybe the business your in what maybe Mark, say and as for in services, And the software comment software base the particular, services about base? customer is customer about interested from And and you you is progress much services?

Mark Adams

I commercial margin with help thanks. I When of think well strengthen there's Kevin, demand, look software then these our the say There's we there's would Sure. the offerings, kind field implementation, might on really as overall three at hardware about what and question, elements and overall kind things installation, services us drive to type engagement that and the federal our the include opportunities service. there's of, like as customers. buckets. is, way appreciate it systems of to And optimization, both

play workloads And to so certain When cloud talk into when areas, kind of areas premise. to and the these referring software, customers comes which few a those see hybrid workloads intensive wanting implementation investing gravity, are our around in data called concept compute for provisioning, on of of to resource optimization, we're each most we more software start services we're workload about in offering. of strengthen we

we're types on to partnerships the be these deliver in developing of to with side. in opportunities companies software conjunction software so, able capabilities And with Penguin

presale done work configuration there's obviously looking that that's side, to end market design for our service there's optimize systems analysis, platforms the applications the On we're at.

reinforce customer it demand lot in allow and on Penguin Secondly, want even great with side opportunities. then to just that to that sales that multi-cloud on data of And don't kind be very and of models us we're the new A business resources hardware extend at services our relationships fix customers well place architecture as on again commented will heavily at these the be models. demand necessarily investing current post-sale to engaged post installation the or side, as demand services, I capabilities longer the more installation, and to infrastructure delivering around looking there's on customer. past in think to I to able private we've type public we're public the customers and manage using the center term, of have in or to a whether private

out and then Some acronym our more, Penguin we area in out, is looking customers. On which roll of have for for the of gov built and to the infrastructure already Demand federal the POD, POD

so, to play it. that's the such have it's of partnership But around a lot evaluating HPC, And of us the kind on systems that add third we today, piece kind player parties on-demand a the that the to has of how think place we're this in allows made that's in enhancement Penguin And that of and primarily a model. strong part these provide equation. a about side we infrastructure want we of really in how software value to that

Kevin Cassidy

And typically, systems that that, company year? The levels that. a on you're we're a earlier new sales -- my these of of happening of the So for just already and Okay, lot some our level breaking one services onto sales up Mark is in about offering. time if call some play. of a I this is QX you because with today this is - -- of heard actually this I'll A land from kind guess times on in A the process you think six great. long comments I Thanks. add how customer? that month is the maybe or it Adams

side question think then funded, six and project federal will the we to So be understand process customer a a the to getting sales germane value we've specific commercial requirements in, on there's skillset And that three vertical around been computing in customers optimize through it go side short-term. the And that the high-performance do that improve months for side. and of a of in live systems And again around. at to kind a system we the be we're Penguin a whether margins on around identified understanding a and it competency that could is or really long of this really anywhere from emulate around we customer But your cycles, our the they're trying those test have where to because that around our and kind what the different expertise applications. and verticals. in applications these that's optimization able for the so to pre-sale comes

it's I would rollout. presale months to one on months another so probably phase to And then side six six three say, and nine on the a

we I about the starting as for, Kevin, have opportunities backlog conversion those that to of mean, backlog negotiating a a really good -- higher opportunities some higher XX% and call, so way. the that than place talked the QX the And has the last I are nice had was with see funnel and funnel, entering really XX% we signs QX. taken entered in we was in we're in that I

size to funnel business. the have we how art and keep for optimizing more it's the of cycle this the scaling of in this but we're us is forecast the a predictable And so an obviously, on kind managing speak commitments of we getting quarter that we're as timeline getting to process of that is the so on

Kevin Cassidy

Operator A you. you. Great. - Thank Thank you. Thank Adams Mark

Gill comes line the from Raji Company. & Our next Needham question from of

as Gill Mark, now Raji I'm and Yes. is congratulations Q Thank wrong. line Your correct - if me open. well. you,

quarter? for delivering, that February guidance of to had any kind Jack, business in if business, We've relative and Compute there to Great, I pieces and that the mentioned thanks, Penguin business the I'll the, Penguin's business what's - business. moving you're into for got the some business Computing both on we're in You Brazil February, quarter? case, And in that's right Memory of drivers our Mark for commitments going the well newly that of grow in the in sequentially. just that business deliver that And Penguin to Raj. our XX% correct? strong federal kind was the I to overall thoughts actually. sure Adams expecting first, to starting Specialty the February Specialty as make go QX, the very of terms accepted that as the the backlog going that A want XX%, be some have

those are customers. are types, two So customer our federal our the primary and commercial

end again when up a to order. pretty secured up we're names QX, compared to business. good see to tens into dollars that a to that, I'm obvious wanted the of a For bill out, given $XX give out specific embedded and reasons, funnel, this kind QX about orders millions I our what said backlog, all quarter. can in call you you tell I the customer in going but, you can and in of quarter in don't don't they that of million continuing and we the on Penguin mind healthy that one also referencing like recognize business I place each are the coming of growing But where about XX%

the over that XX% sorry, the year delivered delivered be the in whole which Now is calendar about course the whole -- to fiscal year, quarter. we order of first

way on about stronger to it's want really us funnel So of that the compute commitments It's bullish. don't and the one We're And side, got is but in embedded this -- opportunity address combination Specialty? really the got the and Jack continued to quarter on go, you the upside good future. long don't think is of this phenomenon. some I execution pretty some growth think do think a feeling Brazil big good our I specialty business. I feeling a pretty the Penguin has a

Jack Pacheco

I versus they in down QX, expect seasonally we for be QX, the we'll Brazil, are digit down Raj, be look low you would range. business at think to where said if from in to going QX single percentage fall memory that Yeah, we

one lot then -- we download sequentially, difference Brazil, memory specialty but different of Gill so single digit Okay, Q a bit. the when of down little a So kind finished - not Raji dramatic seasonally a down? the and

Jack Pacheco

a Yeah, bit. little A - little Gill Raji bit. Q

it. Got Okay.

it. got Okay,

the specialty November, And November. in million ago, so was year-over-year $XXX memory year was so it And growth of business, the $XXX the in it November quarter, million. in

post-COVID there. -- the elaborate been trends there's of can kind storage So growth year driving positively looks over I’m you're seeing affected broader what -- this of maybe that macro year and of It if there's recovery curious we about the business growth you on networking COVID. in and time in potentially memory be your kind how thought and to market, how see like kind throughout and just could a some of specialty year a that's think growth any in in the recovery. any a but

Jack Pacheco

last the really in seen growth you've the been has year think the over mean DRAM. I I

had DRAM a quarter. the alluded performed side So DDR-X well. good Mark to

We get design new to continue with DDR.

So – doing low the business it’s been for DRAM specialty. is

impacted this go the half by flash we I As flash think we expect up. the as The more business back -- business see we get, of COVID-XX. pick towards to year, been

slower the new process. not design it's As to know, struggle their were a in get been lot as wins. are in our wins we customers design lab, to era, because it's you get trying a been COVID-XX And

business. the flash back year us well. I about on to that we the the business see think up And to pick starts year talked half gets for of half business recovery, I it drive in, for kick the of our back you'll help that'll up as those margin as think specialty So the memory

still to track. we’re business So get on

the revenue are XX the on up And volume. and midpoint the start higher on to at split out And of in bps my will well year. half gross question margins up last Q really done have this guiding - broke margin you this flash the think back We about the Gill Raji slightly business the pick towards here quarter. so we fiscal margins, gross

for these margin, aside think putting Brazil, of the we with business margin, to we while. improving And to memory going for -- a be -- Mark margin do I Brazil, Brazil, the think cetera? the are the Adams So of about I'll improving et went push about how Cree what levers lines? start talked kind each we A - specialty

unit to in We’re a priced our unit value fixed more in and -- get trying to Brazil. add the per model Brazil

-- get if I think through much better. -- add. the grows so stable get margins go trying not as more that be Brazil year, ASPs up, gross in the right. a you Brazil we get And -- we gross may go value as this more bit to margins get more see We're revenues up, will

I the percentage our will margin gross think of stay kind same.

we some exit on In can new of lot return flash. not that's we'd of more designs that and to based and still specialty the So going looking we and we Brazil for in we -- major have be up changes. flash A think enterprise we really to do as said thought get specialty back wins also year ‘XX customer. towards

of design tends with as around to And some a to side efforts We of even Jack just on the compute, profitability, the play. specialty trading just flash taken little we're memory. NAND. a in side, longer allow And on the to the one back to during we've before business. impacted get commodity point specialty business in back be again, That's than but emphasis just mentioned, margin as see higher solutions, like, enterprise well the then year our which of had flash half On we'd business -- a going weakness the is be of and my have comments on the revenue jump us going which I but storage margin business, not our clarification to flash specialty coming has on flash on really a that not I'm going some into. in come be not to

going So compete we'd timing is he's it's playing the at doing how as to a be to out. specialty work mentioned, some NAND still -- very the just we, NAND we're we we're be application like, how on that isn't It's in the disciplined going -- on space. of storage but

NAND volatile the DRAM, we careful think bit I earlier. it we're in and back hoping be were performance to and business lot be to more to really the going is be when a good compared to going a half, we just little although here expect growth there,

about to the into. forward. effectively into compute as specialty side, sell I and more software be, similar going value of going And for type applications very us again, services talked we I On that a I the areas add in we think that's move think it

going to include revenue. of to to be looking win. part as these see deals You're already we're And started -- disciplined more We're go for we lot that. not you've just a going to hardware the was I’ll like as the time like Penguin I XX% margins. acquisition, margin it I today. mentioned think a was last in And I reaffirm At gross of think business, above quarter, gross the acquired. the call, in the we're we XX%

I customers. really going we to in who and path but we're those on expertise all I or in to identifying customers you two Penguin this areas, lot these in there over we're of think, over -- and the gross the much aspirations a next hardware get us because margin years a good your a be next so, or we're not be these quarter three the were better mid-XX, next business, have want the just a in and selective stop for should for picture need near-term in

developing we're operating that's value terms but those I Raji to about markets -- team of And that hardware know very - high-performance or Good All process get And show think terms joining But of team. the talking obviously in about, happy be and we with not better - just move We're obviously in Gill was excited us, than to would to status track. very Adams the with we to these because Raji people and vertical they're for the any as them high-end much important Adams some and sophisticated culture, such in Thank the in provider strategic as going want update it's over - the comment things Q Mark continue machine computing, deal. learning So that we're last to and we're margin forward. up these on. Mark you, investing lot where and to on utilizing AI -- more their - question, and with bring Q going we the right. a to it's Taiwan are Cree, too and A are just them skills just philosophy very we're don't you, Raji. a Gill I deal I that's A the as become of to that and signal -- shift Jack. production, there? Thank pleased, in say Mark closed in

Operator

much. you Thank so

Stifel. question Brian of line Our the line Chin next from -- our from question comes

Your now line is open.

Brian Chin

guess, hurdle over I you I you kind Happy of here there, New heard regulatory the given for back terms indications you'll Year of on that you us of letting And discussion LED timing updated for as kind that to the two? the a few Hi China? probably next have there key good you a ask some just you get the afternoon. closing of Mark, the you are in questions. deal. keep approval that that have and think can moment. thanks especially in is month Maybe can here on those just, what or

Mark Adams

systems, part broader not able carve Cree a to tidy. and think and that I with because infrastructure, timing around of just a regulatory was I are a Yeah. was out say nice remember -- corporate IT of actually carved things There be integration being terms of problem, even pre-acquisition, and couple actually kind we'd don't out matters been, of this problem. in I is approvals IT shouldn't LED

long pole so I be the And the to to speak in think IT. tent, so going is

on the I relative dealing with that's I the positive side, track. the we've One due the nature tell issue opinion would of the audit again that's carve-out to of to of It of it gotten conditions important of transaction. regulatory -- and us third-party don't our February clearness we're of of a was But you, indication end was very that not a for to closing the, target. thing financials a on carve-out business this the get think

Brian Chin

it. Got

Thank Okay. you.

question. Another

and of wafer costs. business. of will fixed Under -- the SMART fab assets. Cree, fabrication wafer the a Once good you any of terms of bit wafer In LED that component business close and Cree any the have longer carried wafer no

do bat SMART if question exclude think my under if in guess be you improvement. to I think So were I off somewhere XX%. associated of to the Yeah, our depreciation? fully points like I Mark - in loaded, be something basis is, would the the I we perspective, and gross XX% from LED ‘XX sort more much for how close, safe how margins gross Adams fiscal like XXX the consolidate it'd margins say was think A a modeling and just it

hand, the They goods on it in fixed those just away, don't to may the your go costs but show yes, to model, Now goods, one fixed to in relates outsourced cost up you. the hand, relative on as other of costs away. necessarily cost go pricing of an partners,

we all to Now trying a margin lot that, upside really opportunity, Cree. be do the there's understand until we're get business. comfortable think margin again, there's having there's the careful that gross we're of pretty efficiencies, opportunity inside but with all think to to said of going expansion be we And LED some in improvement we a

Brian Chin

Got it.

Mark efficiencies. points fixed XXX code in cost, sure So something Adams make right basis in said sourced clear zip bake from out close sourced. to the that terms maybe a to inclusive of of improvement. A time that's I'm plus - little at And there, I that bit you the be I think that's it's just shifting year's originally XXX in this other like could at point. think of I'll to a you post of

Brian Chin

wondering back it's the you fiscal sort specialty time, you of Yeah, plus organic at kind $XXX think last add had And at were I Cree maybe that a those comments, it said million to zeroish though, business, Adams clearly, should acquisition. we and sort potential lot what certainly compute Fair annualized little the HPC, year, Mark gross chugging that I'm bit upside it's to prepared of growth we're the a as question, kind said degree or got in those But was been conservative. might revenue my I have that some to just of margin. company as the in to targets the target All just - last fiscal That's kind there not maybe of of sort where of growth. moment. to prior And evaluate pending you along, you it continuing of good a like if of sounds to say. reevaluate we growth or if start or year. without a look there. that I level A you your businesses one company, going the the announced dialed want revenues a as when enough. At orientation we to view kind can you established, hit

at diligence it's as a where we're And and going inside so what's of Cree better I of due think today. fair get on understanding our beyond we

-- may think the an of obviously, some going of year, And we at calendar more existing for gross see I'm the a margin of bit referred some comfortable inside that think would this of we around inside if end operating on model, I we update some range potential be the lines be of kind of I'm of something probably there's give potential quarter, There's I or a the able certainly time we the how these having and that. businesses. dramatic, evaluating I don't businesses of those Cree that think LED businesses a spent that SGH. initially get to exit to to going to calendar is some today. say of our I with earlier, towards also it's quarter and of of kind arms gave I can't our we

Brian Chin

of in contemplated So away Mark one. that margin I like revenue, is sounds addition from question terms a this shying is of I'm Adams some that your - not think But it. subtraction good improvement okay. and by A

that and them of been scale beyond reinvest specific and their level more to limited to in LED Cree the wafer some to grow I just you get in for is think clarity capacity here are. Because to that. there's We're on because out given need fixed there comment to want I product now got more if on they at ability the pretty of remember, North those underneath lines they've businesses where Carolina. not what's potential on see I either

properly. it's to want We -- But today. sure a it's a that So to good we we We about want we invest that obviously. think think acquisition make that really us, operating -- to lot we have how learn business. see for

of kind give quarter because hedging you get I going go get bit on want and a little how the and am calendar entity look I the able be sense and So first combined those quarter to done of the we kind you a at answers first of forward. to back to you to -- towards end give

Brian Chin

I the No, Okay. Thanks Mark. appreciate detail.

Mark Adams

Thank you.

Operator

Thank you.

Deutsche from comes the next Sidney question of Bank. line Our Ho from

Your line is now open.

Sidney Ho

Thanks for taking my earlier. on question. I discussion want to margin gross the follow-up

LED Specialty lower versus coming a inclusion quite improvement today I you new good some was the this the how product noticed the help much in just after can hoping from memory you a is of think that of close. to that ago. that hoping a having points sense but them. The what I Compute, the year it some quantify of XXX especially business that you bit Mark, you'd gross a than margin talked I’ve thing XXX is quarter to of about initiatives, year one headwind. comes margin about the specialty was was last a talk talk is improvement And deals give us know You I about basis new I organically. as profitability

LED what profile can So I'm margin get as things? of of trying the be can side kind grow, segment just to a how each without sense to it

Mark Adams

Sure.

just again, I which separate point, with. just we discussion satisfied to separate So had, that your think LED you're from the

area the today, side Specialty and of Compute Penguin. On with I in mentioned specifically organic I some that, the mentioned the software SGH examples of within services,

margin think margin. impact to I that's their and have on our a gross tick gross inherently a meaningful good up

revenue consider to have you also part side, On of as Compute that Specialty the stream. that

logistics also an has a on margin. business that have service We impact

commodity referred to that again opportunities so investing take that it, market we're if you some flash, flash, And around separate of Jack for with these growth, if newer specialty in not you out, individual for of density, we're margins. that of aiming products. lower some These newer memory in our flash, own efforts do higher kind specialty controller our strength industrial carry or products ruggedized type

so, flat. about, relatively And you table, across think on think the being I gross commented he margin Brazil if already

margin you'll margin before organically X.X% on of uptick margin their then And opportunities area think Cree. I see, X% some gross to Cree gross own. said, the in I has as

pretty it's think I overall. good story to to a combine going

Sidney Ho

is helpful. past hasn't storage the My very of Compute Obviously question reasons number the of are Specialty growth not your years, on consistent a business. two control. you acquisitions made in and the that follow-up and very for That's been, it's just out Great. but

seasonality do now you going what expect forward this XXX look And your that kind in expect of what do that forward? can you organically? type as you you into job, do of So days growth aggregate have is rate

Mark Adams

a Yeah, question. that's good

said, job. you, I the you're with months be in do into again think I to honest as growth think four as like kind hitting the you this, and whole of bunch.

to we have team be that. we'll think I and doing the leadership strengthen

is capabilities have don't the just to or the opportunity. team I and It's integration different of or this keep investing the want that think not capabilities. to This on the quarter interesting -- it'd our service just anomaly an and the this a -- I think terms on I whether people do think but to I software But capabilities we the call. offer of company, be is on business. in growth people the

modular try smart to doesn't it a to look like business, that so way. make And work it memory

and that design in some wins it's It's a the is that in grow. and there federal business, about design less to patterns seasonality schedules. but it's and relative it's about business mean by I and spending seasonality sure, what more so will delivery less for about And is

so the And think out happen increasing get that'll way, crowded to growth I backlog and by by opportunities. our

se to of not the relationship -- design is it’s point to so longer customer that business. a It's fulfillment memory sale, like design per not memories in think model, business, the again, a a more sale model, I it's model. vendor a term it's And but point than and

of as vectors targeting saying, not on see going the as in I much crowd -- are are your new as the long It's we think a coming don't coming lumpiness seasonality I out. will exist new where growth from may you're noted from it's about question, really So way that as we But scale. think growth that. winded you to

QX. growth going I with you're see the for foreseeable think continued future, to starting

Sidney Ho

guys. Thanks, it. appreciate Great,

Operator

Thank Instructions] [Operator of Jefferies. you. Our question next from comes Mark the line from Lipacis

me your mute now Please open. from check Your now please your Jefferies button. Mark, Pardon check is line line Lipacis open. your Mark is mute button.

doesn't line now Adams Operator, I with - can if start queue or join anyone Your is open. A in Mark here a commentary. I Mark the left think in the we to second, proceed can

Operator

to I over call CEO Mark back showing to the for questions, time closing turn Adams At this like would no remarks. further

Mark Adams

a Well, with we that embarked on focus. markets journey our 'XX deliver specialty thank this growth through with strong relationships a expanded diversifying footing as storage this and computing, enable future our high success. enterprise of to started our such We're business cloud sheet specialty memory solutions. out to strategic next while on are as of phase growth the again. aligned you transformed profitable We building fiscal of team our for process edge performance we're business. We've and IoT, And the balance computing, leadership in scaling doing

to software extend and a that and ability across the of the of to my our solutions We value in company. Included greater offerings. existing on enhance top is on higher approaches to diversity list services business to demonstrate are will on our priorities our focus models demand deliver customers creating focused team new leadership with

want closing, of around upcoming interest practices. these I launching addition, future a thank our for I'm support In commenting and Thank the your we're to and social governance you. more be you I environmental, process and In for on our excited will SGH company. at business calls. very

Operator

call. conference today's concludes this participating. gentlemen, and Thank you for Ladies

disconnect. now may You

Penguin Solutions (PENG) 5 Jan 212021 Q1 Earnings call transcript