SGH - Earnings call transcript Q3 2022 | Penguin Solutions, Inc.

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Suzanne Schmidt

Thank you, operator. Good afternoon, and thank you for joining us on today's earnings conference call and webcast to discuss SGH's third quarter fiscal '22 results and the company's entered into a definitive agreement to acquire Stratus Technology.

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

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

or not and superior be We all measures over included call of to non-GAAP let discuss also when in analyzing measures. financial GAAP will is the reconciliation a results. turn to non-GAAP our Mark that, substitute our performance. measures With both as me to GAAP the A Adams, today's for CEO. in release. GAAP press encourage considered consider measures We isolation from, should Non-GAAP you to Mark?

Mark Adams

to Thank us Suzanne. thank you, And who have joined today. all you

quarter of to planned a start guidance excited review our and acquisition share will quarter. our results cover our Stratus for Ken are today's Technologies. of SGH's QX We and will financials our the for I third quarter. to third next discuss with operating call results

our Q&A. will range. as was line an then the for of acquisition another guidance Stratus revenue of of with We growth the before ninth call of the strong above overview of quarter consecutive our midpoint we opening top delivered planned quarter provide QX year-over-year million, $XXX

the at we at from guidance $X.XX grown high from In billion the early and in gross what end highlight our at than acquisition top long-term guidance end in line range success two expanded of EPS our of $X.X revenue acquisition XX.X% over a stages the years, want of we have our and quarterly strong to sheet, cash that less XX.X% Stepping with margins our generation per strengthening I our organic IPS, today range of to by with leveraging transformation non-GAAP over growth the billion of LED, came demonstrated our four the flow In addition, from accomplished More gross margins the planned as balance invest our back at last SGH. XX%. Stratus above $X.X and revenue on over Technologies. of were have bit. our in our announcement performance, continue non-GAAP quarters, of share. to in the to Diversified Cree high the

IPS. approximately third Now let to me brief third Revenue in quarter our the review turn $XX for quarter, at flat XXXX. each with for businesses. of and of sequentially XX% a of the million Starting came up

we fourth revenue in year. compared sales In IPS. quarter, expanded QX to customer in revenue for as addition, Heading growth of in for IPS, by our sequential base. strong quarter-over-quarter. grow sequentially north are to commercial revenue our the anticipated on QX we service $XX XX% our million, seeing demand Services the prior total percent Based primarily of of to a line QX is A top backlog, for into XX% of fiscal driven IPS our XXX% services revenue approximately third of XXXX. represented quarter record with up

a from intensive. in in services new that are rollouts by strong benefited we While is more QX mix QX, driven our growth product of hardware

existing customers XXXX, Looking half the continue and customers. we new we out as fiscal first ramp projects into expand seeing demand of are our strong at

is buy. an IPS's $X.X approximately While all-time not billion, providing current we backlog are guidance

performance proposition Cree the differentiated LED helped LED by chain by operating focus strong million solutions a strong value our technology by COVID-related networks. LED hampered solutions be supply the its affecting to in to in delivering strong continues QX, Revenue with customers. and on and which of region, had Asia performance. its softness turning EMEA, Southeast continues which China, policies Now innovation in Americas offset the with Cree partially $XXX another demand group. quarter Greater to

the enterprise and recognized mixing week, were the demand applications. Just confident In strong as Cree in anticipate we Brazil, the of and decline such the In key generating as We Edison PCs, a of our managing long-term Modular revenue the growth Memory remain storage family capital Solutions million, $XXX XX products was performance in Smart on flash delivering color Lightfair driven the at XE/GLED consumer our products continue into specialty customers focus LED's operating XXXX, DDRX, last LED and a telecom performance. and cash from segments from to group to by expense under We Report in DDRX memory memory we core computing performance and our in a in for remain networking softness product, operations. Brazil this persist business. we quarter. expenditures will smartphones Demand came fourth name, our for top offerings significant operating operating year-over-year disciplined in by XX%. advantage experienced of as at brand our must-see

employees results the benefiting machine third are for growth such markets, secular for a as believe data analytics, computing. learning, third cloud demonstrate I worldwide long-term nearly our quarter strategy. in right the we from recognize consolidated benefits our Our We AI, quarter. want strong to diversification of and the drivers high-performance and growth X,XXX

hand QX a transformation the future and our SGH. more for excited about and I guidance stages of of quarter. next to of detailed over the financial more in I'll now performance And major Ken our review We couldn't it are beginning a be for

overview an before of provide our opening Stratus acquisition then the announced Ken? Q&A. will line for We of

Ken Rizvi

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

for XXXX our demonstrating of diversified ahead quarter continues our benefits tremendous year-over-year yield SGH, across consecutive our We quarter strategy technology streams. to deliver from all for growth advanced ninth solutions our see results businesses. positive to of and the for The how customers revenue SGH three of is opportunities third

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

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

gross and part quarter, in service revenue Our per IPS, was in earnings expected margin in the were to third for higher originally due fourth timing which margin share of the quarter. the higher

IPS For billion, the revenue up of third growth by XX% $XX driven quarter, federal had in sales. and sequentially, commercial approximately

the in profile services In addition, IPS margin third which overall revenue SGH. we quarter for helped had the in record

strong earlier. demand We half first IPS quarter Mark fourth look we see into trends XXXX, continue as to highlighted the of strong demand and the remain as into for XXXX of

revenue greater of mix a quarter fourth IPS to hardware. expect have We

had impacted $XXX solutions the China with the LED group quarter. sales Greater LED lower XX% in Southeast the year million a region, Our Sales this were flat was of third relatively revenue ago. Asia which over demand from quarter of and in quarter, represented which same

of growth Group from Solutions million sales from per from third SGH approximately Brazil. Non-GAAP were financial quarter down quarter. quarter to share in a Adjusted third in credit of share, year, million in ago or diluted million Memory $XX.X were $X provide up businesses XX% due of third Memory $X.XX benefit quarter, benefited XX.X%, in which operating of of was was million our our for quarter to million in business. quarter quarter than sales revenue second compared XX.X% to expenses Brazil, $XX up in credits had the XXXX. up the higher $XX third previous the continued million which in $XX $X the XX% Our XXXX Non-GAAP quarter earnings million approximately up $XXX driven the fiscal was Operating of expenses in from XX% financial in of quarter. million, across quarter. for the This expected the fourth the quarter in $X.XX as Operating of EBITDA expenses from share ago the the was gross third third of for our well was Specialty reduction XX% $X.X in for third credit or XXXX from XXXX all in Non-GAAP of year by the per in per XXXX of the year the primarily as is XXXX. investments the quarter. third quarter three year-ago margin of

working turning capital. Now to

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

to prior $XXX that of we the accounted and gross As business, net basis million which a a for the compared our the meaning record quarter, $XXX between reminder, as net sales of logistics is only the difference equivalents an revenue the is the million related the on Cash totaled and agent profit quarter. logistics end services net sales. with at end at on recognize third

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

chain has capital been required past as the our supply of continued global IPS year. support With inventory in the constraints more tied demand, well capital over electronic the up as to working

the was continue $XX.X repurchased and million the CapEx the $XX.X repurchase third we share you into of repurchase spending depreciation quarter fourth those tracking million. our quarter. In $XX in approximately authorization, For shares, million we CapEx under third during million quarter, shares the and $X.X quarter, XXX,XXX depreciation, was to and

we such seek As organic for opportunities three an in further manner. capital is as our manner; diversification shareholders foremost, acquisition our allocation to a follows: opportunities provide our strategy significant Stratus see repurchases we first the to as disciplined capital will each businesses return and our to continue and price-sensitive invest and and share in second, segments; for we opportunistic finally, review of us in to a and scale continue flexibility further in growth business as reminder, will

we the acquire Technology, acquisitions. our of towards opportunity Stratus strategic capital share to today ahead authorization us repurchase suspended our effective the With align resources have to

Now our quarter let guidance. to fourth me turn

for range the that sales at expect million or million $XXX $XXX to the million, of approximately net XXXX will midpoint. We fourth our quarter approximately $XXX from

demand the Our IPS by demand guidance an slower business, in primarily memory. strong offset our in but incorporates

XX.X%, to Our GAAP quarter to as gross XX.X% XX.X% is mentioned the and XX.X%. mix our in is quarter, expected hardware to the due earlier. between gross in margin be business part fourth to quarter of greater fourth for in for the be expected Non-GAAP fourth IPS margin approximately the

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

share be million our benefit of current be the count expected And convertible million is XX the based share shares as non-GAAP diluted our on shares our GAAP diluted to price. approximately fourth Our includes it is note XX stock call. to for expected cap approximately count quarter

of non-GAAP which our Our refer the the and ongoing earnings fiscal financial section GAAP Please based supply current fourth release global for the is measure in chain economic on and information forecast tables further contemplates the details. reconciliation quarter of constraints. the 'XX environment our environment, non-GAAP to to for

of to Stratus. news acquisition the turn regarding Now exciting announced the let's

Mark Adams

Ken. Thanks,

in Stratus Technologies, Today's Now today's announcement I'd a the agreement and global into leader to presentation definitive the simplified, solutions data have computing a in discuss is protected acquire we our IR and autonomous on like at that entered center to website. edge.

framework. turn a transformation in please its diversified believe customers, We products, the acquisition leadership the to acquisition into very financials business, milestone Stratus X. those and aligned will with be significant much For that of Slide growth-oriented, company. SGH's a presentation, The following our

our base us higher solutions software SGH's annual Stratus Lead resulting free needs, at expect of bolster the specialty in we high-value the serves differentiated non-GAAP to million Specifically, at to XX% presence infrastructure, fault-tolerant in platforms, our the gross large-scale than $XX services, million allowing revenue cash set be in Strengthen revenue our data capabilities and to immediately our address offerings, a the Fortune including technology margin, with for of IPS. and of expand high Stratus estimated additional center customer global customer existing to more flow. IPS and services more margin recurring and industry availability, increase customers, edge. markets an in non-GAAP XXX $XXX an EPS and and as accretive comprehensively

you to turn me Let X. Slide

focusing in development services and Over which the more the as in and line our group. By compared with Solutions compared three our success last business XX% fiscal of revenue as first of successful The on 'XX. technology The up products years, XXXX our system, half a our half has us differentiated the our SGH allowing more strengthening Intelligent in a to acquisitions, made great organization. similar has acquisition of SGH had overall effectively the Leveraging integrated record four grown fiscal IPS Cree business. team we been XXXX track diversify first of of of Platform scale operating than top streams LED our 'XX IPS investing have and gains well. has scaling and make leadership revenues has to M&A,

we to our to complex exciting leading XX margin to for the team has transform of a as continue transformation, We shareholders value X,XXX close in another SGH. managed basis less expansion presents manufacturing believe points of Our acquisition to months. than opportunity Stratus create gross

on Now markets. diversification to end a developer Through transformed specialty specialty Slide memory strategy, has from products for computing, value-add differentiated a our to and and growth SGH LED manufacturer X. of solutions memory

tripled, XXXX. overall than from Our from less fiscal revenue well. down XXXX, was XX% in XX% And this the in of mix overall XXXX. as sales XX% has of and was changed past in Memory nearly our has dramatically QX XXX% down sales Brazil QX, Solutions

are adjusted sold in Silver have directors, XXXX, company and my less. fiscal on Our leverage EBITDA since for public cash a independent evolved significantly is role board the our in and flow SGH's comprised with higher, independent in SGH stake CEO. except and balance sheet significantly free myself, of remaining fully given a And as we Lake its exclusively

include part serving longtime enterprise nearly $XXX software and will and platform in in Next XXXX. slide, Please developing the innovator the Stratus The OT Stratus recognized the truly The is solutions technology for in the information address offering the fault-tolerant computing markets revenue company than the XX% operate large-scale as and gas, high-availability technology Fortune of Their set center in nearly of also XXX employees Slide please. portfolio. developed IP globe Stratus XX XX brings patents edge. that availability, the operational to over Fortune was U.S. approximately which oil Massachusetts company IT such XXX specifically based to customers. has a locations million or is to telecommunications, and SGH XX% retail, in systems, and high-margin in acquisition. X. applications with with its as a edge outside and high vertical in turn found government. the in of enterprises FDAs. customers, more Maine, data of fault-tolerant leader markets Stratus and revenue or has services diverse a It's transportation financial XXX, global, around of add

at and V-Series complement IPS and service Slide application-specific and is portfolio. and operations. platforms, strengthen edge Turning products. lines offers core and acquisition their on developing IPS' differentiated cloud. The to high-performance our with Stratus for FT product focused will IPS and Stratus' DTC software DC edge, serve X. the offerings the planned computing complement solutions edge server both products current

calls, have million As percentage revenue. in revenue a growing services we has bolster a Stratus set record for offerings quarter. our priority on maturing noted been a services IPS. We roughly $XX prior of adding high our third our for in as will scale IPS services

enterprise drive In as set. acquisition revenue the the future the profitability addition, Stratus IPS and our and products of We business. customer technologies and with of growth Stratus the The for services synergies we will margin track significant record gross IPS potential be company further and global higher and reach the addition to new model the believe of of us to our this a proven a winning customers, part expanded cross-selling can combined services, see shareholders. leadership and another new set confidence a of gives acquisition the for that and

for a overview. call Now back the Ken to let turn transaction me

Ken Rizvi

Mark. Thanks,

Let's turn the overview to X, Slide slide. transaction

intend hand a credit million, to and transaction be basis and forma record from this earn-out up at potential gross earn-out calendar can is in and or finance We our $XX to a cash the Pro million the combination to we We The to transaction. half which thereof as stock we and prudent up to cash facility. is be expect third up this at expect continue is million leverage targets option. to profit to second transaction gross an also any cash for expected remain revolving X.X our other on And by balance turn scale There and purchase post-closing. a leverage focused our million, times year We $XXX subject or and than to $XXX $XXX for to the cash in to with diversify Stratus on XX-months close customary of subject of less a achieving Stratus regulatory conditions. paid XXXX, SGH. with approvals closing. maintaining of sheet equivalents on gross this certain exited closing compared we quarter prior to quarter

turning Slide XX. to Now

more in recurring the diversification markets strategy. financial our data well margin specialty The its SGH capability a revenue, basis IPS. oriented the more improved addition gross XXX of It to expands our $XX to the framework. acquisition business, acquisition a On highlighted significant is non-GAAP pro at Mark margin adds transaction fits million $XXX Stratus Stratus and diversified From and annual aligns be SGH's SGH than further more forma within of and milestone than immediately high-value a is a non-GAAP and expected standpoint, growth It into strengthens products, million further by and overall of edge As than Stratus including EPS. earlier, revenue. points this accretive growth our leadership in center transform higher to company. and our for customers basis,

segment of with our SGH part the up becomes the to sales, Operator? XX% LTM larger XX% that, story revenues call IPS With of a questions. me to becoming acquisition. the Our open from prior let

Operator

[Operator Instructions] The first question Barclays. is line from with of O'Malley the Tom

Tom O'Malley

my Good into My outlook. just and afternoon guys question. the first for one taking thanks is August

have of the perspective August. guys you're like year-over-year sustained year-over-year looks going from guidance amount a You of talked here time It about with a growth in ex-growth.

through You Is strong about talk you you as out Can But XX%. you really -- segment. greater mentioned us driving just what's than called of IPS walk memory a could weaker that? it doing in what the consumer that a LED you into then business business. mention didn't just the is also anything on color August? on Brazil? business you Could little give And

Mark Adams

thanks. for Tom, Sure. thanks question. is Mark, and This the

it, make a to want I I Before just answer clarification.

not we continuing are I and did share again, we have suspend shares not share want we repurchase, misstated, Ken quarter. to presentation. But are that, repurchase I might program, the didn't but to to caught repurchase. repurchase suspend in fourth think continuing interrupt the and we our did

against to little as region, lot of the into quarter so as at feeding consumer we've environment about issues look Now is still demand at phones exclusively much and guide Brazil through business less is XX% biggest And the a demand tied And side, impact that lockdown got severe IPS pretty again, XX%, chain and forecast. positive the that the we're Pacific Tom's way headwind Tom, when in some is, the fourth that headwind given COVID our of facing quarter. mobile issues side the the the the our in headwind a question, of back notebooks. is to LED to impact SGH bit primarily but Asia considered I due supply well

LED of strength And broader relative think business again, Brazil be IPS. is I may so business by some trends single down And offset digits. the the flat in to look I at the I the to down discussed,

Ken Rizvi

fantastic trends growth it, to strong Tom, which but And margin into at they there going in see a business look and QX record And printed, the is half for there, you We're into QX. to just growth that QX, we talking the look year, highlight which to fantastic. quarter-to-quarter, is we've been first as of about demand profile. next IPS, services here we to the variability some we if saw look at great

we're in those IPS SGH seeing. to So are specific terms of specific to what and

in And so opportunity good that us of for a lot segment.

Tom O'Malley

would I you generally, that don't LED the Just seeing you're both next and on the you mean, -- why fiscal the comment reason see improve consumer-facing LED points any that data business year? into another just weaker for I further? can would any follow-up, deteriorate I -- there applications, and of on half Solutions guess, just memory commentary businesses. first is I have the Memory Or the do mean,

Mark Adams

the today. the tougher environment we We are LED little from predict is minus volatility sit stable, think to markets. in a obviously, relatively plus is the or Well, given bit where

markets actually play offset in or X, growth that that, out which actually, how things the was European down, segments just I depending Tom, guess, China U.S. data growth. I as China because and again, on point think a were

as we some the quarter entered the positives demand. thing just So on bigger China setting and expectations. was the LED appropriately again, It's

On the Brazil, hard that's one a in consumer business to call.

of our what working forecast the inventory their some that minimize a And which we're for us our work little forecast. mobile the of bit demand, reduce customer impacting of some is customers in seeing is inventory demand I through there's global are notebook. that issues think think through on quarter, I However,

as it's have to just that I try significant of be kind don't much don't more I they than enough uncertain it it's and think I but a we watch predict. because able through to working be of of inventory, -- think to ton transparent can. to impact as are we'll -- kind QX

Operator

The next Chin the of is proceed. question Please from Stifel. Brian with line

Brian Chin

Good Congratulations letting I the building the ask acquisition. us off of of Mark. more near bit a think Maybe kind on for afternoon thanks but question kind first again, that a lot little there commentary, was and term, few questions. Yes, of a weeks on companies of of realign reports of that production kind cutting big recent the be like towards one was back with would some of It July. handset that about in latter seems the their the to demand. part would largely over expectation weaker

And so that the XQ. would seem within to fall well fiscal

there And could bit. kind this word, the little the towards trend so year? a in a is early maybe business any sort would that would that of more maybe normalization low optimism Brazil, of maybe next a be kind tops of and quarter at shoe off there in rebound right but you Rebound not

Mark Adams

sitting sitting Yes, want -- I I customers like there is would our it's inventory. they're months it's be that I not are sense that again, careful. to me to say obviously, on But think argument makes the of

been has so a I of bit within the or built has supply system some there sheet, balance been think their own speak. side what little that demand inventory to has up shorter-term concern on

other in times broader demand the memory here from business. as that into the to don't given where inventory experienced my better here be go from in trying QX, and we QX, that But severe from So is get the could -- products. consumer just we're I but know the isn't I it believe think sense of we're I've do as QX we careful that

been it's as but cycles significant not real, it's some think through. I I've as other

enough So and could QX shorter, think to is the know argument I be predict don't we yet. just it

Brian Chin

with to that's enough. chain of you stronger which in pretty memory IPS, China. No, supply LED the also fair sounds fan clarify, out And exception it to to just than specialty

like doesn't of like you of markets? there. to maybe Sounds in but those I demand other downward Any demand wanted it, other sound in sort clarify. seen have It changes good telltale indications

Mark Adams

little about growth a for No, as and we're I the backlog you $X.X here that's Brazil bit and mean I of because question. telling we're the backlog XX-plus sitting it's LED we've in Yes, the of in consumer got a quarter-over-quarter billion interesting and kind mean -- IPS, the Brian. Thanks business, record China percent.

think. think So mixed By way, it the signals, I demand kind in market. broader of what's going is I the on that's

consumer at the some I markets, and these think and down And into enterprises in you and are bit, has and hit even terms technology especially, recent more enterprise learning hit that consumer space. you. little these announcements a what long-term sector, secular primarily tech look of their has I of but think broader been some the major AI of making and think if been retailers the then have large-scale investments the I machine

people think I feel are we pretty a -- And is invest balance of strong there with sheet. going to good. through cycle line the our sight

at look how we business that's So our today.

Brian Chin

It sounds of you any about, I think ask Maybe million? and more like of if Great. you provide bifurcated sort hardware services looks the I like. can X question sort $XXX versus what about the software Stratus the Can acquisition. details

like how else So you really the versus hardware? in or anything of as on annual can services what comment Stratus, And sort its the with want Penguin the been Solutions the you profile in terms business. it well of for give software to what for the growth an recent rates indication synergize is have delta measures margin

Mark Adams

Maybe I'll of the about. for take first, the and hand I'll to asked Ken part second over you metrics that it financial then some

investors 'XX you I had of growth, And many the after been Stratus, in little XX%, strong versus declining some the joined company. business has XX% the business know, 'XX in at more we've As IPS, years bit a few of since IPS the their as end base customers customers. has solutions XXX custom building roughly, first fault-tolerant very that to about And bullish innovator, been patent half. an high than have customer first portfolio way And and a half strategy 'XX. over a I 'XX of very business. for Stratus And availability, we of in similar and specialty out the at mentioned, the center to Fortune terms edge provider XX% the the a data Stratus, platforms, all loyalty their again, the fantastic. services, and and of software and are

the As edge we and that high-performance our infrastructure our compute in IPS, our serve about ability applications is their at scale scale into building brings to and and Stratus think capabilities our customers to out service customer base significant. to

you're and a two $XXX If over Ken in at million, bit. little you combined service of the a the that take million, $XXX can talk look to well companies, businesses

service you this the in mindset, our us serving to take make margins to going So can process maybe a enterprise is IPS customers and the scale overall from winning to here. it expand also solutions orientation differentiation, Ken, allow transaction. gross

Ken Rizvi

on Yes. this million going plus for we're is the Brian, than that. a about talked We think $XXX We the better side, of do revenues. revenue is financial fantastic transaction to SGH. just

that us On the we in great recurring both to terms the window just the margin out margins. look and profile, over revenue of as XX, XX-month visibility a adds

do gross into back at is you here, type If margin, and we XX% that. XX%, the of think margin can than gross better percent plus it business end this And the a we return north great of guess perspective. to the this investment. day, will cash-on-cash is from it's flow of My lot for a cash of financial a do going produce XX%

XX% as Cree high done past, cash-on-cash we've at what example, an returns. at if look teens, you the you in look that low has If

has been good. recent history And so acquisition our

results We are and positive be and flows, strong similar generating this terms of returns. great should cash on focused cash-on-cash in

that of edge, on has the your X, range in we we've get this Stratus market. of conference out range. business. talked over in a focus the in and of that at can question, have been edge strong can and up space, high time, that was of In And growing part to at look at you answer with even business, And low growth years. flat fantastic. two we the to which will spoken next overall, specific that look to your segments. That we the if just that you where think first differentiate look be as relatively when bifurcation areas the terms single-digit growth We profile, that's revenues that at business X the X, over the double-digit But one

Brian Chin

color. the for Thanks Great.

Operator

next Cassidy the from The of proceed. is question Rosenblatt. Please line with Kevin

Kevin Cassidy

the questions. Congratulations acquisition. my Thanks for taking on

thing. one Just

that the talked that XX% Are issues limited? about is you a resolved? issues still supply mention all last quarter-over-quarter. didn't with lot You about quarter much Or IPS the growing

Mark Adams

the for Kevin, thanks question.

I Similarly, mild would say out say from QX, to dynamic, QX been out had the woods yet. and we're some improvement, think best the of it's pushed not but there's into QX. this pushed that of that some QX to I demand we've

think from billion. roughly around the than doing And I $XXX-ish of a as backlog broader we've million is you can two tell business years remember, ago. less was $X.X backlog, a that got this

the contemplates still We're in But guidance that So our we're working think still is through constrained. that. considers QX confident I business and that.

Kevin Cassidy

scheduled Okay. of companies, services? time? What's for Great. Are with XX% Stratus. a they engagement the You And long just engagements customers? five their three top their at their those years out in on mentioned is how Fortune years XXX or

Mark Adams

had customers a a And customers a interesting. and software talk and known time large number at because need They chance and best-in-class. to platforms. that This It's since are for we just this type Yes. with architecture process. fall high company relative long mission-critical availability really these they their in specific a I've very require to tolerant in customer are of the my is of serve NCR, their a applications time relationships

And so do go out. agreements these

life somewhere think span somewhere the X years, is average in to XX customer neighborhood. that around I

example financial engage in you talked very these type think and institutions. customers, applications market high-performance doors the about we a we one us to really And end type so about that their further. markets of a machine portfolio processing our sticky of in you to, terms really the these are we and they credit logos The think, might for contemplated like names of and transaction. synergies is, talk services, about open AI lot even go allowing the And to base, imagine there's when and and is referring will with revenue imagine might have products learning retail card haven't investment good of how us the of to that compute that of I'm which that I user is operation,

has and this expand of long step anxious like and transaction to we're try a of service the those a just relationships. think got next at great we take applications history such large really to that So company a Stratus customer in is light enterprises, mission-critical

Kevin Cassidy

Thanks. great. sounds Okay,

Operator

proceed. is next from of Bank. Sidney Deutsche line question The with Please Ho the

Sidney Ho

my accretive. It's question taking the deal. and for see Thanks it congrats on great immediately to

here. consideration a gross It sounds quick like is of margin expansion key follow-up here. Just couple a

much You between you talked in And your about customer can think much significantly about expand this sales What's is do better. but through SGH you us or And improvement? driving at force overlap, the address organic cross-selling range XX% XX%, how product think their not assume you gross margin you and do overlap? margin that? expected gross the have there I service secondly, you there's to can to walk Stratus?

Mark Adams

and questions, the to for Thanks order. that them Okay. try I'll in address

from be his in Cree range part March closed of the I'd the in was As solutions. in that, came to 'XX, like transaction you the we of we Stratus overview we from. did that of gave walk carve-out through discussion transaction. that major where platform XX% far margin XX% a The gross of kind terms of as the a to will expansion back Ken where nature. intelligent of

both is this so of and And certainly of table. combination. that, the take to strength light each and on a opportunities more strengths in organization, there's of we the advantage sides of And some carve-out a less have of of

So a this is a combination of less more carve-out. and

new there's efficient more in about be opportunities So to as we there think of entity the IPS. combined

in think doesn't businesses exist you operating Stratus. combined of about two expense today, when Secondly, the IPS the

things. beyond XX types would the And modeling HR, think opportunities and we one accretion. legal, probably PLM, above in to of somewhere terms area finance, as the and services at is we of of And to shared there's marketing, OpEx that go months, it's an our come $XXX engagements think IT, how customer million. got supply And there. of of the corporate million, overlap day $XXX it about as probably management then over those some in chain neighborhood as You've in well there's we're in the XX conservatively, and XX% looking

over going business. business will want pretty at growth just continue scale a to model we what our overall leverage I as finally, grow. opportunities continues just look this We good repeat to And long so the to when this that Remember, And see term. grow forward, to I it we think is with said. scale

think IPS customer has existing Stratus organization haven't supporting that serving some Ken own portfolio. same And on we the and of Stratus' to account edge think our to IPS's high-performance compute convert But the relatively side, customer we modeled our teams likewise, opportunities market And opportunities customers. really mentioned we You sales the have Technologies in revenue into noted Stratus' customers. of accretion we any our discussed, base synergies, obviously, which haven't there's as as and we with base. there's on strong do into far

all, this to there, business the as we deal terms trying really scale to this with opportunities substantially. think analysis. here better and all relative synergies, mentioned haven't as going a in I which to in So growing efficiencies dollar well because our hard the quantified We from we're be of the get revenue is

Ken Rizvi

world, largest deployed, XX% four Mark the of customer credit about companies, and of customers. support terms of mentioned, just XXX, Brian XX,XXX of customer over I largest the mean, opportunities [ph], retailers -- card in of some the X,XXX the to systems in reiterate XX Fortune the over which And three five just

look So Stratus. is opportunity product to the very what across complementary between portfolio, Penguin overlap a it's fantastic really have really and there especially to this IPS Solutions we is And today, today. limited and at cross-sell if you

there's next hopefully, the so then share you opportunities we'll with some great XX XX, over able be And months. to

Sidney Ho

there Great. which staying the quite of do the see slowdown what you're a bit. think about to adjust impact But you pool? a and expect helpful. global with demand, overall business. IPS Bigger gears are recession in structure It profit that confident Investors Maybe in is If quarters. Thanks. which sounds most has the like can picture how quickly power? your of some are switching And metrics question. little generally super the to business That's worried your upcoming you do cost your businesses you key you're watching protect first?

Ken Rizvi

I today, at. the enterprise primarily rest where are it's we the discussed we're would I really and basis. that's is something trends a into see the our or spending. for and mean at That we I is the to look primarily PCs some business, Brazil and because question supply growth say that weekly daily into we we specific of good is us, The that area PC earlier market there consumer-oriented a on at look they're that handset markets in what that we and or where is if that think know market. is And seeing handsets sell we have. do chain. you at more enterprise today what that most

out and Now But next the or IPS compute only into we trends as into XX see to for the I are high-performance we XX fourth of demand an we can't large-scale, great something months these if example IPS, quarter call specific at first year, systems. look out. half look and not but do

line. that that have and so And business nice tailwinds specific to will us for some

I've other long been well. and time been Micron time, spending, semiconductors of terms has semis In a in for as at a long Mark

There benefit, soft, we've things and things cycle, down. if obviously, where been knobs adds and we come capital, are we take, positive I more quite there about more environment of There's that if ensure little can over be an a would benefit a come months. and bit working a will working will and the we last area cash to a the get the can travel expenses heavily terms say And invested the flow we cash will, here and our if would you that And XX down. if other that That's there's typically, in see we we've take sheet. would is are cash to which there get get balance actions And a that flow. that so that talked soft of if do next be X months generate good EBITDA over turned XX lot capital. to expenses variable take challenging good

Brian. So those be we'll as are going take and all correct and things to we of cognizant actions that needed, we're monitor, the

Sidney Ho

Okay, very great. much. Thank you

Operator

proceed. Co. line Please with Raji Gill & from of The Needham next question is the

Raji Gill

questions. my congrats acquisition. as taking on And for you thank the well Yes,

that couple near LED at in with digits, and outlook term IPS overall If in of maybe Stratus. question one low it of I of on to being looking and just kind between sequentially. memory XX% growth the down bit the so a near-term of August and single little sequential kind Just questions Specialty roughly or wanted Brazil being a on break down the implies we're then to further out XX% kind And Memory.

fact to enterprise focus commentary, previous to the Given that more spending. on your trying you're

are of is data related seeing tied which majority the sense to a get and center the in the a tied is memory, Or tied decline you and and also is server storage of within primarily to to to to sequentially wanted networking? I memory, So sequential decline specialty Brazil?

Mark Adams

and we're the into the our way our QX serviced we quarter customer thing. in that that we a the it's -- Yes. just perspective, is of Good QX, in I I the ran would in shipments doing because needed that quarter question. say and we pulled we From announced terms would more on Brazil. other that business as the say in just in of magnitude certainly had right consumer-facing it, the some business mindset customers thing more

did of might bit an on was on that some outstanding that little be in know, QX, But of timing a more in QX, specialty huge performer the of might really emphasis come sold And in again, and consumer There be specialty. has to general, as customer a quarter over in that some had and QX been revenue there us that issues space. year, you for on relative an so requirements. timing this it's because,

talk the space primarily haven't for But and in I us shifting we would And that could that. but in so seen maybe the like consumer-facing again, heavily be flat would on to just signals puts enterprise takes, say down especially say very been, Brazil. demand business specialty Ken I Brazil, the has to

Ken Rizvi

Yes.

Mark is demand seeing is that QX. in where where softness see is, It's it we we're into as primarily if So that handsets Raji, consumer-oriented market mobile It that is PC on which softening. and that Brazil. spend, highlighted, one, essentially

Raji Gill

increase. Thanks just the dollar the inventory, inventory Great. on And Okay. for absolute that.

quarter, revenue the for X%. inventory if on revenue year-over-year a year-over-year increased in absolute look grew, overall So grew you basis at XX% dollar and May it May the it looks like

specialty growth. Is terms the build your Ken you Brazil all know -- to preparation is in an maybe -- some wanted correction almost talked But some the part there of overbuild? portion to risk build. So Are to revenue kind the get capital outpacing IPS for in sense about for of about -- memory an But you related growth for management. there? the sort far there of excess there you IPS? And inventory is it build or that working of could any a your had the that's of that see I

Ken Rizvi

I'll of Yes. there. question. color give a little a you bit It's great

even look IPS. QX you to more build to If our of was QX, that XXX% specific our inventory

that. and segments, IPS the We've the went one about talked these profile. that systems. at week. we're in plus you it can't quarter-on-quarter other inventory growth to But order So quarter-on-quarter. down out it see business in That's week ship going just the looked building large two and you not XX% if next We're segment, their

custom for either are into look systems QX we not for specific so there, as And QX. are systems, large enterprises these that and is for QX, and out but demand only building we

demand. And of that to we have and But order so we bit have to it's a satisfy prepare inventory at. little look something in always

also have inventory, we're the over at We and to have not making We meet customer have ordering. to we supply -- looking the meetings weekly making sure needs our sure

into sight spend. of line that there's So

Mark Adams

backlog Yes. when get I from only the semiconductor broader Ken them would add supply now, you're take right that to chain there issues. to referenced, and able both parts as I the is supply thing and referenced, we environment in that we're the you know, The given

as only exciting positioning is on IPS, so that to again, And inventory further which that and grow. impacted us has largely continues our for business

Raji Gill

was mentioned, play what new million the we those revenue. then growing it you lag was hardware is will that contracts? at the of this million May, in the question I of in kind quarter, mentioned $XX services May The Do which And more installations be kind services. terms XX% hardware IPS on the IPS overlaid on versus the related a the of installations August services revenue, Even is almost the though you contracts XX%, quick of will into IPS. come on of as $XX new kind services those hardware, and being mean quarter? in February, to new of expect revenue new

Mark Adams

Yes, good it's a question.

it's of change. the the growing. when service especially talked growth question like to what a think element of new is the about, specifically have out testing in Because you're upfront then normally design installations, in to systems quite nature you as these line the pointing But we the around the terms a from top more lag agreements X- do that is portion the and contracts you kind to will. engineering system in we've mix X-quarter because your as what As service answer it's if revenue, business, a base on will we've of possible talked as I a manufacturing of increases the lot percentage about I transaction of think mix, and then higher the we're into service the kicks

Raji Gill

on... a just it. X Got And question

Mark Adams

said and asked customers I've our teams right to we our kind is, along, question more brought thought thought who a just all mindset. you competitors want the hardware -- of emphasize executed really as are about Thierry's of are another because way. you in there this I business in And and I are some of where well sorry, some

not That's on for our high-value to And competitors in think, kind of how from services. outgrowing I what sets today that's not apart, grow. we're And and We’re industry looking hardware-only delivering business. going focused transactions. the we're the us

you we services, of this as more profile And as and think and can scale see I only a so business. we capabilities our that become important as grow

Raji Gill

understand super talked what Based on lot main is, customers so for that. these That's on -- like commentary, this question Stratus. a Yes. add I to the for appears deploying this quick a differentiation mission-critical value guess, brings about. and your And helpful just it of applications company you

market for mission-critical of the mission landscape for and the long how data has company what's wondering the kind deployment applications edge. competitive that of center around -- for in Just been this

Mark Adams

was at tandem the since part is needs the and this data myself, enterprise So was XXXX. to I center XX.XXXX%. at NCR been Stratus the for in reward the And applications when and tolerant because mainframe around Fortune architectures used NCR market, it again, to risk status, stent Unisys and had mission-critical Stratus compete has dating of uptime, against a targeted these fall I of XXX%

companies history with Penguin the And XX-year about on to serving so cutting generation a of largest mission-critical the that and mission-critical world's And they when Solutions. applications, the have applications. think you we're next of

And just existing combination customer been what nearly here. platforms, Penguin can a a offers. like doing Solution And the do of this combination it companies we with of customers so great hardware, decades for service is is four installations, that from I business company think that grow we large-scale as just marriage expand go a at and the the relationships, innovation fantastic have relationships, of at

Raji Gill

Thank Appreciated. you. great. That’s

Operator

questions waiting CEO, remarks. time, turn so additional this no I for are call There back over Adams, closing the at will to the Mark

Mark Adams

SGH, At focused on for building value our operator. are you, Thank we long-term shareholders.

to compared operate generate a are growth to high-performance business throughout and market company more can We markets flows cash computing as each effectively positive to potential. analytics, when artificial our value. the attractive with such I maximize machine long-term while are more businesses. able that well compelling cycles learning, am positioned cloud and shareholder solutions, end in we with data to intelligence, in continue operating confident invest capital-light capital-intensive We model

flow in disciplined continue to strong short, investing for about We at and you while cash be our joining In generation future SGH. call. very be all appreciate continued of approach success. for long-term today's ensure our will excited We to I performance strong financial our

Operator

quarter your SGH fiscal call. for earnings That third the concludes Thank XXXX participation. you

may now You disconnect your lines.

Penguin Solutions (PENG) 30 Jun 222022 Q3 Earnings call transcript