SGH - Earnings call transcript Q2 2022 | Penguin Solutions, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the SGH Second Quarter Fiscal 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Suzanne Schmidt, you may begin your conference.

Suzanne Schmidt

Thank you, operator. you webcast us quarter to results. thank conference today's fiscal and and call discuss afternoon, for on joining earnings 'XX Good SGH's second

me Officer. Officer; Chief Officer; Joining Ken Mark Chief and Financial Pacheco, Operating Executive Chief Rizvi, are today Jack Adams,

the encourage presentation and the find the to site you this to release also earnings that to to of today of section made constitute quarter slide earnings everyone events that on Investor release the we conferences like I expectations the we information forward-looking most including throughout of on the included go may company, on that Relations accompanying may current these actual for that our statements read can press present remind or for note forward-looking financial materially. You our call website. press information attend. statements results the call note We statements the differ various certain will the use and earnings are and statements the in the and have Please presentation. would

non-GAAP to discuss when our substitute measures. to non-GAAP to also performance. in press GAAP superior included reconciliation for today's and encourage as be financial isolation release. measures GAAP both not or Non-GAAP measures a We results. of GAAP our consider considered in all We you should from, A analyzing measures is

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

Mark Adams

the high also in XX% well the our gross of $XXX above at quarter delivered non-GAAP earnings our to today. SGH, of the range another midpoint quarter above midpoint all end operating at Thank who million, of you, of of which $X.XX came range, share our have per We you guidance second guidance. margins and Suzanne, non-GAAP with revenues total us and guidance at strong thank joined

X-for-X the effective results of these a the beginning reminder, share share February. at became split As reflect per that

quarter. Solutions, share maturity. We loan repurchase our confidence $XX We we and addition, and governance improve the in with our In debt made one balance LED that now long Board in term Chair we progress facing delivered see Eastern liquidity Europe. solid we over in have my we growth business of for Platform our today, times increasing of our Memory our Solutions Solutions, results despite strengthened and areas of the opportunities Each during and independent supply overall extending Intelligent demonstrating continue impact announced term, constraints except a sheet the our Board the the Directors, including COVID role of our me million and the fully Penny companies, operating the with the businesses, course, following a as CEO. conflict of continuing of the in to authorization a macroeconomic corporate Herscher refinancing, appointment and challenges, as in all chain

to am chain us, work well tireless teams us that drive our for very our support to have shareholders. the peers our of focus SGH apart if a few I ago. That heightened supply enabling a customers in our and position importantly, as places continued us for strong set as results deliver reported, have chain months from of proud and with and many remain challenges As anything, said, supply also of operational

turn starting with or me review Group, Platform our second at quarter. for $XX of Solutions came where revenue of businesses, each million the a Intelligent Let to IPS, in

growth is is QX. That of 'XX. said, revenue vary level half case business the quarterly the very fiscal first past, An can up deployments is the of in this to which well was timing investment the in the compared XX% performing over due various of first projects. just stated half our 'XX this of the business services. million, of of with we've As fiscal And with IPS important in $XXX part

XX% This the was compared testament QX. of storage, and ongoing designed it gas integrity grew IPS and fastest of the which expand AI services. infrastructure. than will market, and compute optimized of optimized its high-performance customer its with optimized AI government role mid-XXXX, XX% Computing continues final segments. performance ability to Meta NVIDIA and AI the developed SuperCluster an world. revenue in to Meta believes the supercomputer of is for over The market software prior all GPUs in critical represented engagement and called provide services AI unique for expected highlighting the quarter with several build-out XX,XXX engagements ultra-scale AI the to security, Meta’s availability, Second elements ensure RSC. supercomputer Penguin years, fiscal QX managed X has by across RSC largest make services and solution in revenue the needs year. oil ultra-scale, of and IPS Overall, expected hardware, ability and providing Specific utilize announced exabyte our a platform RSC to and is services comprehensive In been to the Research to address to managed AI both architecture cutting-edge of significant more a environments, application data or approximately

the the the business success well in edge, invest where telecommunication We as in sector. segment a our also we of have strategic government as market experienced continue to

will business to We evolve as our continue and overall strategy. part this IPS of grow

XXXX. are our a out our about component level in think cases, quarter, fiscal supply fiscal date delivery expected QX from third of and moving we our into QX constraints into portion fiscal As certain

revenue or be guidance provide. demand these part as contemplated issue our are by not revenue. lost of reflected timing for of As more its customer industry-wide, Ken that our and shift a will This will QX constraints is

umbrella for We also Penguin recently announced Solutions. a new IPS brand called

the now showcase will this we the all name, of our customers brand brand new of identify leverage under aspects Our breadth will and IPS single capabilities. to full

data Penguin referring Computing when storage the name to use center current and support. including the products, to continue will HPC We our servers,

name reflects are we Penguin services the by see new and delivering to legacy taking Edge Solutions span that and The to growth solutions use we to acquisitions. innovate core business existing both and direction offerings, refer embedded of products. and wireless the new solutions edge-related commercial expanding brand scale business will customer our new on funnel, to Penguin We federal edge, in our of continuum cloud. agents the terms and new in focusing Overall, and also

as a half we strong fiscal continued We second into are head XXXX expecting and XXXX. momentum of

LED Now turning to Solutions.

which business compared Revenues with QX, product with LED had X% brand, under LED of another quarter up the specialty when approximately with part by video, Wolfspeed. QX still our markets. $XXX of revenue Year-over-year when products million is and Solutions landscape being Our were XXXX performance. in was brightness this Group, Cree driven architectural operating lighting operates strong the revenues fiscal high into growth customer wins

silicon and includes We plan, transition sapphire continue manufacturing to from a manufacturing carbide execute to outsourced wafers which the model transformation captive to an from on our capital-light model.

completed quarter. We transition by calendar fourth to expect this largely be

On delivering the achieving of the innovative optimized a the front, appetizing system variety enabling LEDs, lighting best value. is team product overall design while

of of our the road are LED, It with of and of team's in engagement, be new our product high-powered Cree product acquisition X where the as horticulture focus markets since video CVXXD to and indoor history drive market. a in lighting DDRX, the and to has the focus flash was up now results areas the excellence. signage storage Solutions as the and Solutions such as each and the roadmaps, coming memory Group, as wins SMART and applications, mix DDRX innovation fiscal believe good specialty year. QX server prior continued as telecom quarter and technology customers specialty I our design deliver Cree products We revenues under as improving such competitors. compared the and differentiate end product up our offerings X% compared by traction and totaled with offering LED's density ability strong sales technology Modular $XXX growth focus we market, brand year of Group products, in general favorable representing continue operating the lighting, Memory been continuously customer DDIMM our for well us higher long display sports market In operational for lighting, and seeing with This well impressed can networking in mid-power our which to XX% video, million, and name, prior year. core of improvements with products high-end our general the specialty the the With LED of our versus driven was

solutions. with we products next-generation offer for are controller-based to customers DDRX-based DDRX next-generation Flash-based positioning ourselves our we and products, support legacy DDRX While continue to optimized memory and

Add-in CXL data for We major investments closely we Card of cloud memory CPU, recently with partner applications, CXL were making the such key a development We products validation a for working another NV-CXL the next-generation a customers semiconductor their company as and EX.S are in as center and by solutions. selected our solutions. in proof for memory point module new advanced in are

for to network, differentiated factors, the all of readiness, form high seeing in are opportunities For and solutions. specialization applications at play power, of low-volume edge smaller which terms the of low mix, we our of strength

the a Brazil, ramp in line, expected system-level network products, expect is infrastructure targeted from this storage of Flash factor and end which systems. facility form product to USB assemble fiscal SSD 'XX expand completed to by SATA In our capabilities transition have our new we our the where encrypted ramp we equipment product our custom fiscal Our we for year. and to including

to to for other ability existing our chain, and second with of a I'll diversification not new to the strategy. to the continue meet we expectations guidance across next customers Ken? the constraints the hand grow continue At only the of our see Our optimistic in customers, lines And all quarter. financials the our our of while detailed our about are business. and supply business also with chain for electronic customers it demonstrate results X supply similar for Ken of to expand but over review benefits our to we this more footprint businesses quarter our time, clearly

Ken Rizvi

on our I are Thanks, GAAP tables. non-GAAP Mark. will to in which release my earnings focus remarks results, reconciled

reflects that XXXX. share a In effect addition, in took in the of commentary the split of dividend my X-for-X form February

of The over XX.X%. opportunities $XXX XX%. sales second year-over-year for ahead sales ago, demonstrating businesses. XXXX our were how for tremendous was quarter consecutive second solutions SGH, $XXX our million, positive We came year to our technology all eighth non-GAAP advanced deliver just fiscal yield for to QX of gross the customers of gross margin non-GAAP continues our across of growth and In SGH million, was quarter at X in XXXX, margin see results. the A quarter and strategy is our

year-over-year increase second to the quarter Net XX% quarter. of Now detailed XXXX. were for for We of second fiscal XXXX. our results the million, let me fiscal $XXX strong another quarter reported turn sales a

In high the was end addition, quarter, at margin and range. gross in the XX% $X.XX And non-GAAP at diluted end second per above came the for non-GAAP high guidance our of our of guidance range. share earnings

year-over-year by helped into XX% the growth SGH. Cree SGH Our LED revenue incorporation was of

Solutions LED, our grew in XX% our revenues by strength driven year-over-year, Excluding Cree Memory business.

of For quarter, IPS the second revenues $XX million. had

previous on As every the have That over discussed IPS ago. year in XX% the we for of calls, with and from said, to our of a quarter-to-quarter and earnings was continue services margin very a based business have revenue of variability million growth period in first strong $XXX given half XXXX quarter. being IPS hardware, will the in timing software gross the and same sales

million in this quarter, and Wolfspeed. ago Our LED of the were our part Group when the was business when from approximately up a still last expectations second X% sales Solutions year quarter $XXX of to with product revenues quarter, was had line compared in which

revenues primarily due and investments our Non-GAAP $XXX second of businesses. up million XX.X% of both the in $XX.X second in second continued than Specialty Group Our expenses for quarter from gross Memory XX% of fiscal in our previous in the of of Operating $XX the up quarter Memory XXXX. had fiscal and Solutions quarter, for businesses. SGH was quarter million, margin Solutions to second Memory were quarter the in and the Solutions year were second higher the the approximately IPS XX%, million the was for LED higher inclusion from second XXXX. quarter Non-GAAP expenses and up operating Brazil

production part but This our forward, January law In of facility. financial moving credit in however, offset We credit spending million quarter expire to realize the of operating second in to to extended credit. due from This expect benefited required credits credit through in $X helped XXXX going which addition, reduced the this enabling XXXX, benefits of Brazil. R&D the to is our be from some do, set in in was Brazil expenses was our to this this XXXX. Manaus

EBITDA million million currently in per was our XXX% earnings of approximately result, per credits quarter. approximately of from share of diluted $X.XX the million $XX to quarter Non-GAAP XX.X% was $X sales we ago in quarter. per of compared a for XXXX of to year share fiscal the of XXXX second second share, Adjusted us anticipate up or XX.X% As in the XXXX. sales quarter benefiting $XX million quarter second $X.XX $X third the or for

Our by as lighting, breakdown servers was of advanced data and follows: AI, PCs end the and XX%; machine and of storage, XX%; XX%; net and XX%; learning, was network industrial, and other, second telecom, XX%. analytics sales for market defense mobile XXXX quarter XX%; and

capital. working to Turning

up the half which $XXX second a are respectively, practice, of X.Xx the the the sales quarter. $XXX quarter. days came outstanding million and Inventory the were last $XXX sales prior the at quarter. from quarter. versus growth on in in and of days, X.Xx in the were And higher consistent turnover in million inventory inventory year. quarter. with quarter of Inventory we past was second receivable days XX $XXX the cost gross last basis, of Days million up million accounts IPS quarter, second from million outstanding builds totaled for for with driven prepare by $XXX at at prior receivable, net and end end goods second primarily sold $XXX the million, for calculated accounts as Our X compared totaled This turns

agent reminder, a net is as recognize we the related meaning which is difference revenue basis, net profit only Services between sales As gross Logistics an that Services sales. net the Logistics for our and business, to on accounted on

approximately Term add to second revolving a our A million with and quarter, refinancing the the completed loan liquidity. credit facility, the from our balance completed a sheet, refinancing Loan also our debt During via facility to million and extend we was The strengthen maturities $XXX and compared proceeds net $XXX term end the million our $XXX outstanding of at ending at acquisition $XXX retire end the the ABL. LED the of the million of Cree amounts equivalents used prior $XXX quarter the note the totaled under debt, to million for with seller quarter. and Cash second

$XX.X from flow prior million $XX.X the totaled compared quarter. operations Second million quarter in with cash

constraints, up has the supply tied over chain year. in the working more With capital continued global past capital electronic of our been

For in depreciation tracking $X.X those depreciation, of CapEx and million. you was $XX.X CapEx was million and the second quarter

discuss we Before expectations to balance and turning strong the I to for repurchase continued reflects decision guidance, growth. million This $XX cash sheet our flow today. share announced allocation our wanted authorization our capital

businesses First growth our will our and of organic invest we significant further for as foremost, opportunities segments. we X in continue each in business see to

seen a flexibility share shareholder the shareholders an we capital price-sensitive acquisition the we seek of have And if repurchase manner our utilize authorization and with our diversification Second, provide in and Cree return further results. value potential provides have as we volatility in acquisition to we and manner, markets recent to divergence to seen between share the LED. further will continue there to strong finally, to and is our opportunistic financial which can and and believe price in capture review opportunities returns scale disciplined for most us

guidance. XXXX quarter third fiscal our to Turning

constraints approximately supply the and $XXX We the by that the earlier. up expect of the range XXXX we highlighted million at chain quarter net million, second midpoint quarter some impacted slightly will third sales for $XXX of from from to

be XX% Non-GAAP expected and Our the between quarter margin XX%. is XX%. third expected for for GAAP approximately is gross margin to gross the to XX% be quarter to third

and Our be for range quarter is expense, the million of be $X.XX, in be $XX share other amortization a for expected $X.XX. to quarter or per expenditures third $X.XX. million the asset for to plus per diluted expected range are approximately $XX quarter we intangible the the earnings are non-GAAP minus expenses operating of non-GAAP third million. excluding share-based discount Cash in diluted plus $XX expected or basis, to $XX $X.XX million. will On be and approximately to expect share GAAP to minus expense, compensation non-GAAP debt earnings third adjustments, the capital

third price. be Our expected shares the is for stock GAAP XX our share based to diluted million quarter count current approximately on

diluted count calls. million Our non-GAAP approximately share to convertible benefit is XX the includes expected of it be our shares capped as note

constraints measures our based the the reconciliation contemplates which global chain. further Our information the the in on forecast supply of tables current section in fiscal non-GAAP for for is questions. are we XXXX for non-GAAP Please earnings now details. Operator, to ready quarter environment, the GAAP refer and to of the third financial release current

Operator

[Operator Instructions].

line with first question Your of Stifel. Brian comes from the Chin

Brian Chin

can Thanks been for guide you, a guess, I the letting ask revenue third questions. were quarter kick constraints? Maybe for provide things can your fiscal off, to have And us few would businesses way not impacted of and you kind sort relay the kinds revenues to what are which which -- the XQ? also revenues out are fiscal of all most are of affected

Ken Rizvi

for companies Thanks electronic within folks think Ken. chain in supply the question. the are are similar the Yes, I supply other seeing. This that chain, impacted the Sure. by constraints we is

about at business some where seeing pushed have our of IPS look QX the in So as and certain even say instances. within overall XXXX constraints if specifically, into sales, out segment, into QX, that we've we're talked into you our

IPS of is Now I'd for very that you, nature. lot custom a the business just remind we do

sales, just out of a a nearly push So quarter. it's future it's not loss into a

specific order, some to about still time of we've several in size. albeit announced and as need past the that happening around government frame, to related down instead We some the QX an product. orders, months example, That about is totaled specific in in $XX happen of into QX to million which Now one now frame, the to that time that we QX ago. lock more likely and talked in components QX

an movements Brian, we're seeing. that of occur So is example, can that the constraints given

Mark Adams

think would would that would that I add -- Brian, example I Mark. Ken -- I add is used. add also so that's an this I

I And think we've businesses. guidance. still noticeable seen Ken's a the dramatic across in other that's reflected less but impact

of job sense customers, had did got clear what but great scale to have been could I supporting kind had we team selling. the you a and think a our

Ken Rizvi

great a great And we being mean, had that Yes. I said, quarter, a QX.

across overall happy at you performance talked out QX constraints The you we at looks If the XXXX QX, look guide the overall into we've given And about. look for we're SGH. the look good. into if and backlog even as

So excited about we're we very and the are business where today.

Brian Chin

little it. some Got Got the relative in Understood. in bit. growth way maybe And in guide to rank business, overall just to down the of of some right of growth flattish, IPS highest that is segments and it memory, Is maybe right of the kind think LED growth to sequentially? the a -- sort order sort it. maybe then

Mark Adams

I because of in surprise it’s Sequentially rate was thought as We memory been think much quarter to but read digits. growing. a robust. I Ken versus And the trend the wouldn't maybe, single the the at funnel same growth overall into kind has IPS up memory our 'XX. it pleasant either growth high XX% opportunity, too was of And remain a continues in highlighted, that

as highlighted, space. year-over-year. designs And is the the continue business, -- to application in LED up we We memory new that find win

broad from opportunity, think by LED. highest looking a rates memory, market just opportunity, think terms the this per in I grower I of market at I by the about rate think followed if followed So se, is probably you're growth

Brian Chin

sure. Sure,

XQ. the $X million a to think extension is close just of right being... $X sequential Okay. about That in million with $X fiscal Or million XQ, to that of $X more fiscal than credit, question. of benefit in just million Maybe in $X model of benefit Ken way to lot budget a R&D? sense. that million financial the Is you're some R&D lastly, and makes a talking maybe to of sort increase The out

Ken Rizvi

reason OpEx way million was that’s Brian, lower part is And R&D. that's to about for see best to our range guidance. think $XX I of in $XX million that And Brazil the in our that a for OpEx you of that guide embedded result that. credit guess, in

Brian Chin

to you're sequential sort there else ask, in increase is I P&L getting Yes. the going offset of sort in another Ken, counterbalance -- the the to was of increase somewhere R&D?

Ken Rizvi

the guidance in we embedded is that Brian. that of gave, All

that There free are So factored if being look in in Manaus. some a of is able terms at That's you QX, to benefits in. manufacture trade zone.

benefits there. some there So are

of Some QX. as of side, COGS our but baked at that's the on into guide we overall that look all is

Operator

Your comes Tom line the Barclays. question with of from O'Malley next

Tom O'Malley

dive a little to wanted bit outperformance Solutions the just Group. more the I in into Memory

both strength come on dive about sequential the noted a specialty revenue higher you You more it Brazil, expected? but saw bit could for in you in a saw you than there as the little a stronger where call, in you did

Ken Rizvi

Yes.

great Tom, So, out. call

we So That Mark sequentially a meaning growth and at if the our as look Brazil very and I then growth very had sequential business strong XX% as both that saw growth I highlighted was highlighted business, specialty of overall in businesses, strong for if look quarter-on-quarter range actually, And business, well. the quarter-on-quarter. overall. both memory the earlier, we

in sequential this to QX were they range if the I similar year. QX a at So of look very growth

Tom O'Malley

we're right risk in you there you moving you out about you're in that the different consumer higher, certain anything discretionary what a then look thought inflation the the And talk about just the you and is Group, mean at change macro, as Memory and just environment Solutions grower in said the the how When areas. way long-term with business? particularly obviously, Analyst the Brazil? about in Day, you Brazil have now, maybe in your handicapping a Could Helpful. spend embedded I in model business

Mark Adams

I change. radical a is that suggest would Nothing

as category of by the our a I launching you're we in end drives. brand-new aware, state year solid fiscal product have Brazil think in

semiconductor We player broad memory solutions continue largest to in be in Brazil. the

think of for a the be solutions But Of our grow an at course, And move as and we of if can just kind opportunities lot macroeconomic these there looking to basis wins good here, impact. Manaus. from more to from here. there's growth go how a we're sideways

if there's system, differently. term. shock to But haven't in that and massive So in significant yet not we to short headwind seen the we're demand sure, our anticipating think business, the a we'll have

Tom O'Malley

just the rates, more, you talked your sequential and you X Mark, then growth the have next And about on asked helpful detail past growth I could you quarter? longer-term giving if offer I sequential color Helpful. the but just think each question. of one for guys rates. sneak Brian been growth Could any on the in businesses into the

Mark Adams

going I Ken just I'm let little to a take actual on can comment the numbers. bit.

of gave from supply was the growth commentary As our rates. said, kind in for continue been good overall It's impacts piece that Cree very strong in sequential Ken that and just and IPS QX, gross chain LED. I QX an upside of example demand as My From results. around growth in and of and to some equation. expansion impact of piece on remain an the the Memory certainly margin a well we growth operating recipe here, outstanding bullish numbers Solutions seeing just great performance

And we so the pretty behind actual it. bullish talk the but data about let I'll that, about business see Ken as

Ken Rizvi

Yes.

would bit we to memory a QX that QX And IPS versus think that business we to also QX. the be grow about flat, So relatively midpoint a the up midpoint. to flat a and can about levels expect here business or guide, bit it's the plus that, as QX. at LED a is range minus million If overall $XXX look that would it relatively our we at from business, bit way think

Operator

Rosenblatt. comes question from line next of Kevin Cassidy Your with the

Kevin Cassidy

results. Thank ask you letting congratulations the and for question me a great on

say Mark, funnel XX%? talking you to and IPS I the can growing. mentioned up -- opportunity year? compare it demand? you the up is what's is Can last Is the driving you that Just Or as it think we're about -- opportunity XX%,

Mark Adams

and And to from best XX% we I the was we and just platform in continue just customer completed that's give it production a factual new in from I terms think scale that I our the expand size highlighted, in of be with we meaningful as relationships Because fiscal guess Ken the business. going of to And deliver chain in we the to nature. And are supply say 'XX tiny first confident to the that a more deployments. the just but that's not again, is growth. opportunities about what transition talked customers. existing we in continue in you some data, opportunity why would significant half is our terms just And And see relationships. can -- overall remain only I and time that this the as is kind think development opportunity year-over-year. the that we've growth And of I issues explained way, I up, the of of that's that's very index to past by platform business of important?

about half. we the the the half, we're and IPS as head opportunity second with first growth we're in happy the very very bullish So in in

Kevin Cassidy

growth the would any That's a maybe customers about building but in and But of there's And business your -- customers and investors in questions for Great. Okay. be products? specialty inventory I channel. lot custom, building to get in that especially custom showing from memory. memory inventory your of end you're

Mark Adams

Yes.

in I the I custom given less good And with cases, in think issue it all of at very And specific not but a sole products of times, very on product In lot sole the nature design, a developed It's understand -- of of IPS question businesses them, an good not the all Memory, question. really. our nature on a we're and the many necessarily the our that. similarly. a design. source we're question. of sourced of that really Specialty across segment. but It's agreements a for careful probably customer, It's

is So this the seeing, I kind we're a in and customers working different This chain. whole not we're -- the think a And memory cycle much electronic it's that different on there's is this. much double a quite frankly, the past. than of ordering with supply across broad cycle

each are not lot commitments are these of cases, supply in I -- think orders a in in have longer more willing of to So and non-cancelable. these be people businesses, our

would And shape think outsourced the in shape good course, of pretty -- pretty the side there. LED model, so memory we're And the capital-light good we're house. in I foundry model, of on I on

to continue the watch grow past. Ken We side our being we're we challenges, is on to balance strategic trying given continue deliver channel supply inventories can have you're in as well. as comment in and as our and we that so seeing can position to What sheet, business well, the this ourselves on

Ken Rizvi

Yes.

demand the about to think So some million, Kevin, size. you be million, orders, large million, plus system that, million $XX on IPS even million, when the segment, or they these specific in of $X $X the can are $X design $X wins

from order part so that all standpoint, need make up chain be to in just And system. of to supply those components we a that able

that's customers. are, the demands being where we customer we and strategic meet timelines a bit to Mark sure just so to just make the highlighted, as that could And our to committing we're continue

Operator

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

Sidney Ho

expectation? you you hear from side. probably calendar IPS just were what And some pushed for it a What XX% than got 'XX? in Maybe are then I year one on constraints? question How it of the of the that growth bit to be that a but in contracts you basically was half the quarter. like the especially we those number you full is were your IPS government expected. supply for would the year? next XQ some down -- talked you the XQ of quarter-over-quarter may rate about about I to right lot out know What -- thinking about growing contracts second think given the 'XX, lower more little IPS maybe constrained, without

Mark Adams

Yes. Fair enough.

a of couple things. think I So

So complete was the it's the we one order were and I for system. to would have that they into of QX. what pushouts million QX out, that as in some able highlighted except number. anything $XX at QX large of look the because because to is of movement being where together can moved not talked move -- is QX, some even we from get QX. all of into has example components that of about there pushed that specific I million constraints of reality And It say, just a that for $XX neighborhood, that,

I So back we look it But reality even it how that backlog into demand, got We've and to of beginning into about that's next talked IPS that the QX mean out into business, good we've in. we're is. -- the as as call good year.

And the we those -- can to so and trends. chain hopefully, able a fulfill we'll bit, be will supply ease demand

Sidney Ho

or comments as Maybe the don't how margin give margin segment Okay. can you have question gross margin know by gross the the us by but on some out done in side. anymore, to follow-up segment give you is qualitative gross I sequential my kind a impact cost that costs? software When basis? logistics put offset business with any side, on we And quarter increases? seeing from of higher is that input price most the you of to services mix which able are

Mark Adams

Yes.

we if -- So correct. you're

quarter-to-quarter terms a not of So we I if do kind actual But say bit come to for margins. up did provide flat gross margins, specifics the I little an in provide and the LED look QX was of a percent. gross IPS bit in pretty but was flat quarter-to-quarter. terms of to the margin we down don't memory QX, the overall would specifics margin

sorry, second of And question? that part the

Sidney Ho

increases? business of most it's And price is you that or more whether costs able impacted about to higher higher with logistics which any costs? input are offset from Yes, kind

Mark Adams

Yes.

So costs products, those we the bear terms of of on don't actually, in logistics. the some

So those costs are essentially. pass-through

guidance, gross side we to when both overall on in So that, and all side of think our the about into terms to the have we margin. that baked margin QX our COGS get guidance, our on of

So our been for QX. here into outlook those baked have

Operator

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

Raji Gill

margin, the gross Question the guidance. the congrats recent on Thank on on momentum. And you.

the the $X will mix So the revenue to If kind But million, the $X give IPS lumpiness component. about $X you're the effect May of is of be respect if you is XX%. terms fact then quarter? of with service incremental margin some software look Ken, that the seeing mix by I revenue, in kind wondering of clarity at the mentioned could mentioned kind know guide you on it despite of gross profit gross that's about million I you that in going -- million. the the implies in in up that about and down Since

Ken Rizvi

Yes, no problem.

question. good So

some from margins you've within the there's then at And even on to impact couple LED say One, the talked -- is IPS, some look we highlighted about the albeit memory there's business, even we would margin already in if QX there and before. a I So QX, factors. very side, of small. geographic mix. And within it, it

mixed or sales in can headwind, and geographically geographic XX% be Based bit mix, on there throughout X little a be that benefits headwinds there our where us to of plus some the will on the on are margins. quarter point this or depending that gets QX. a world, minus So

Raji Gill

you could quarter beyond the pushed half, kind a around and Great. saying next $XX a that vague third were of talked into about to million million into the into helpful. business. then second and and $XX worth IPS about you strong for fiscal looking it talked left When be being -- the the you sales of of little particularly it we're But second expectations quarter That's year. fiscal bit even pushed kind

more orders? maybe are acute with And of your most of my guess where confident government if constraints? are to detail around of And securing to is, little I the on components these you constraints respect in in in seeing you kind provide position? could components funnel, are you this certain specific this kind particularly meet order large So how terms the amount of what question demand a a

Ken Rizvi

Yes.

components, would chain. look we I semiconductor specific I say if at some you won't of supply are the but So around -- these give

electronics with I like impacted specific where think through the some can along ship That, like when you've won't in I systems. things have large and seen chipsets. cords of others power even the names, shortages there but we industries that make semiconductor it So these are out

ship So an large-scale the overall those an still of when small overall. But systems about you're we're these have looking system. out talking components impact to scheme in

Mark Adams

is comment some the the just to of only this that, also deployment. is I other due would add Raji, sequential the nature of

validated the that. something get the technology into And incremental add go that might of we're if so or to for capacity beginning QX, from a until quarter deploying beyond be only QX push moves we next because has system a that

lead deployments And be guidance; adding might want event. as working all QX impacting call up a pretty out fiscal business still capacity just you're not But I to to necessarily We're was a, hearing continues QX are within onetime are potentially getting to to these way, not a on everyone components a lined or just make the understands, a for a yet so of contemplated the we to the year. the this system in And and sure push QX QX the Ken's quarter is growth able robust. b, finishing commentary shipping. By bullish.

the And transparent so demand being that and good. being also about transparent we're challenges, we're just chain pretty the side supply looks

Operator

call There the closing further to turn questions. remarks. I'll Mark for no back Adams

Mark Adams

you, on all excellence. Thank your than focusing for support. started less on thanks diversification When years to operator, of committed and and operational to our I delivering continued and ago, growth interest by you X strategy we

to to our allows in expanded strong basis continues fiscal gross line XXX some margins all points, shareholders. than range we've Our deliver basis to XXX of mid-XX% year And points which us earnings results of less per top to grow. today to from the share XXXX XX%

ESG date goals. to are great our as performance Board company from and strides the ESG in We've we an of our a of we fall, including operate independent addition, perspective. In Directors governance, shifting delivered our highlighting to Chair. area the future in best-in-class an Penny Last our as delivering of on naming corporate to report, goal made also first ever

continuous commitment best-in-class and operate a SGH call. public We Our shareholders you to company. appreciate make to today's our for joining of is progress as all

Operator

conference today's concludes This call. joining. Thank you for

disconnect. now may You

Penguin Solutions (PENG) 5 Apr 222022 Q2 Earnings call transcript