Earnings call transcript Q1 2023

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Operator

Good afternoon. Thank you for attending the SGH First Quarter Fiscal 2023 Earnings Call. My name is Matt, and I’ll be your moderator for today’s call. All lines will be muted during the presentation portion of the call, with an opportunity for questions-and-answers at the end. [Operator Instructions]

to conference like host, to now Schmidt. Suzanne would pass over the our I ahead. go please Suzanne,

Suzanne Schmidt

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

are Rizvi, On Ken Executive Officer; Officer; Financial Officer. Adams, Jack the Mark Chief Chief Pacheco, call Operating today Chief and

you the section press call on this throughout can the of website. for most You our for the find to accompanying release current slide the to We Company. statements I use like the also quarter note to the encourage would presentation. release Investor site forward-looking presentation press everybody read Relations go information on and call of in the to earnings remind included and that the is the

certain differ the forward-looking Company’s present today may that that statements events note actual materially. may that made of or are constitute these statements results expectations the and statements Please and

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

And Adams, the with that, call let me Mark Mark? CEO. turn over to

Mark Adams

a holiday. thank Thanks, hope you Suzanne, all you for nice and all joining I us had today.

from a businesses, company lighting years, two-plus specialty past memory. LED module we have transform been memory the and SGH journey a Over set compute, a more on into spanning of diversified to

in unique, all common. SGH While benefits each from have is line they of business what

specific all requirements. in the SGH’s design at competencies built order in world-class And technology second, First, to they developed advanced are system or manufacturing. all subsystem and engineering, core on they level customer address solutions

revenue quality gross SGH’s more higher attractive business model has margins. driven with diversified

has environment. us steadily macroeconomic in challenging diversity a Our perform helped

consumer-facing our enterprise-related declines in For businesses QX more to our able example, businesses. in offset our earnings, were

revenues XXXX, exceeded of our the midpoint our of range. In totaled fiscal guidance the which $XXX quarter first million,

non-GAAP achieved which above earnings record guidance also and of of of the share XX.X% range. of in per We high end our $X.XX, non-GAAP both gross margins came

I portion clear IPS, QX the represents overall increasing of our Intelligent demonstration integration business the that services record approximately or XX% a the are our providing Platform a into SGH to want of Solutions, of XX% of also now Stratus and highlight achievement revenues IPS revenues, value we with and customers. of Technologies

starting turn each IPS. me Now, to our businesses, of of let review a with brief

services high-performance group and Our to IPS and for complete the edge. HPC applications the computing from artificial and software intelligence or or the designs hardware, AI center and delivers cloud at data

compared and fiscal Technologies XX% revenue, in performed the sequentially largest In our business brands up And and in Stratus first up IPS XX% a of total record ‘XX. QX, revenue component QX. $XXX Penguin IPS Computing IPS represented came XX% million well. quarter, our for the QX of at to SGH

fiscal second federal continued we’ve our customer our fiscal indicated IPS ending primarily the In see by are calls, large business of by customers. February, hyperscale demand, in on and seeing half of first in some we installations. heading quarter particular, the stronger XXXX, driven installations strong hardware As we at previous driven into

though, have technology uncertain. overall from you of out remains XXXX other companies into As hearing late for been calendar visibility demand

common with provides gives across and management and strength International in which participated and Solutions on-premise our that Google environments; the The of pay-as-you-go Cloud Supercomputing announcements, or cloud-based to demonstrated Code rapid where portfolio. Penguin of launch Scyld software model; in with and a with orchestration HPC Central an several expand work collaboration for and control resources customers capabilities of key HPC and AI addition organization’s our and virtual November, and HPC partnership AI-enabled the deployments remote acquisition tools choices a create Craft, flexible Colorado new Colorado infrastructure solutions. VDI desktop services; plane, Penguin company hybrid XXXX of small point-and-click Craft safeguarded Annual a the Cloud applications, and Code cluster AI in more dozens Supercompute including and We to Penguin’s libraries; our In solutions private IP we specializing solutions. show, enhance made Conference, is Penguin’s expected integration the

integration remains on track. Stratus into Technologies The IPS of

and services addition of an IPS meet of has the to edge end-to-end broader cloud of Stratus, AI comprehensive even customer and With a the portfolio HPC needs solutions base.

synergies. Penguin identify revenue new opportunities and actively business and are together to Stratus working now

addition, priorities of component increase offer services businesses our is of as In to our the solutions we larger recurring our one top a customers.

LEDs our Now, displays, for application-optimized screens, lighting. like Group, products gaming Solutions to video lighting, LED and produces outdoor which architectural specialty turning

LED in COVID-related entire the industry. continued impacting China Cree faced contributing constraints policies supply chain with headwinds for demand to and

Europe. continuing to addition U.S. In in are seeing softening demand we the in and also weakness in China,

$XX first Solutions and reductions. In QX, expect totaled quarter lower, demand inventory the be declining fiscal million. to by XXXX, LED channel driven of revenues For revenue further we

LED been environment accordingly. ongoing Given proactively this costs and have expenses challenging the business, operating for we our containing macroeconomic adjusting

high-value general our optimizing environment, horticulture, premium current such as key applications, applications including as such outdoor lighting markets applications LED’s innovative the street lighting architectural developing invest pitch target Cree high-performance we of and business for lighting. continue While video and entertainment designs for to technologies in fine specialty and

intellectual remain recede. the of property, onboard devices. performance the launched higher During CMB applications once in platforms technology photo-fill a Cree and or operating horticultural the long-term XLamp business, introduced LEDs macroeconomic high- chip new mid-power higher remains for performance with first quarter, headwinds we LED family and with a LED the COB confident leader and product power, brand and across strong spectrum-optimized team

Solutions our Group, SGH XX% or Memory $XXX million sales. In in came revenue total at of

fiscal pricing in As reduction memory softening primarily levels, worldwide ‘XX expected, sales of demand. to due declined QX the from and a

specialty core end on enterprise which business, Our memory stable. relatively remains focused is markets,

Telecom Networking remains segments. and Demand solid the in

across growing Longer demand center factors. remain in within cloud the into business term, to applications see memory learning interest AI and PCIe to in SMART’s continue various new SATA form DuraFlash we we expanding of and front, our data focused meet for capabilities. technology growing the the compute the machine family On products and enterprise on NVMe

Customer or Link cloud Compute order designs underway to support expansion provider Express applications. as multiple CXL service data in have in continues and products to our and memory grow we interest for center acceleration

We also data data edge enterprise module blade for and hyper-converged, center applications storage of new computing expanded applications. hyperscaler, family recently introduced our and SSDs DDRX a for lineup and center computing

phones in mobile The global impacted weakness our in PCs and Brazil. business

softening, a also which Looking historically into lower demand further we seasonally quarter. is QX, expect

to term. the Brazil, long one As invest for memory of in the continue largest companies we

latest has product Brazil X ongoing calendar and with a for key of completed move factory we Manaus number to SSDs XXXX. Our year see in to the locally-produced certifications, preparing products demand Gen customers in

are calendar seeing market We year increasing XXXX. of adoption memory initial shipments for also mobile of in expectation the XG with phones

hand it to quarter. here a more and and detailed QX stop guidance our I’ll for over Ken? for next review of performance Ken our financial

Ken Rizvi

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

to Now, our quarter ‘XX fiscal results. first let me turn

IPS strong the fiscal a strong the headwinds, diversification of segment, our the Stratus. our and which our of QX by helped in acquisition execution reported includes recent we macroeconomic of strength business, quarter Despite

were above non-GAAP million. per also $X.XX guidance. our of $XXX margin Non-GAAP were for of share the at And in sales end XX.X%, end record diluted a first guidance. the came above earnings high quarter, our gross Net high the

in In and addition, overall we our revenue of XXXX, services. be sales first beginning product the and of will disclosing quarter cost SGH by

services as longer as revenue point-in-time services such includes services well implementation and term as Our services. logistics

service overall million With in XXXX reached up in the million, the the ago addition of quarter our from Stratus year quarter. revenues of $XX the first $XX

and were $XXX million. $XX First and revenues product revenues by follows. quarter Product service were revenue as services were million,

sales IPS, First This IPS million; and memory. LED mix memory, had quarter follows. unit LED, was business by record into million; $XXX translates of approximately XX% XX% a million. revenue XX% and $XXX as $XX a

Non-GAAP $XX.X in the offset gross year LED. quarter lower quarter. quarter XXXX of in up first record XX% million, the $XX.X SGH of were up the first quarter, but quarter in margin sales helped from within for operating for fourth from and year-ago from million $XX.X million IPS from Non-GAAP a in the ago expenses by XXXX by Stratus the XX.X%, inclusion of was the

in to fiscal the Operating which credits in Stratus, in first $X was benefited million quarter were $X.X for approximately XXXX. operating credit our million in up up of quarter the from expenses of in due but million to inclusion year-ago fiscal second of our fourth expenses in from $XX.X also XXXX accounted financial million the expenses of $X.X This quarter. primarily quarter is Operating ‘XX Brazil, to quarter first benefit the provide million from which in million of $X $X expected down of the

in first $X.XX share of share quarter. per or million sales $XX of compared year compared per XXXX share XX% quarter earnings million diluted Non-GAAP first of was for quarter. the the XXXX $XX the XX% sales EBITDA in of Adjusted quarter ago was with year-ago $X.XX or to for the per

to And turning working capital. now,

primarily $XXX totaled last came the down of at million million Days $XXX for to with XX XX compared quarter, collections receivables in XX accounts quarter. from] net [down due days timing days outstanding from Our last days, sales (sic) IPS.

revenue earnings significantly inventory end to prior million $XXX $XXX increase required call down the the come primarily the driven second the outlined IPS first quarter. quarter. support the the inventory of of totaled the end This quarter, would in by We million to last from by of our Inventory end at expect second our at up during quarter. was

$XXX past accounts turnover receivables in gross on in sold respectively, Inventory the cost times quarter. first turns times which versus a were X the and for And $XXX sales and net first with quarter were days practice, of million basis, goods X.X quarter. are prior calculated outstanding consistent and the million, inventory

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

$XXX Cash of and the prior the quarter. totaled compared the of end at cash quarter equivalents first with million million at the end $XXX

was First LED quarter. given a $XX.X cash used for prepayment the the The of primary million We it operations of reason acquisition. quarter million prepayment flow the consideration. Cree earn-out totaled compared operating contingent a this accounted cash by of was in our $XX flow the prior million for with in majority in operations note this cash provided from $XXX.X

quarter, for In addition, increased the expected inventories demand to fiscal IPS XXXX. overall we second quarter in of first the support in

In quarter, authorization repurchased quarter. spending approximately approximately In XXX,XXX our under $X.X repurchase $XX shares. million spent we during million the repurchasing share through shares the first quarter, the aggregate, we X.X million have first million $XX

capital expenditures For $XX.X expenditures million. depreciation was and quarter those first were tracking the capital of and in you $X.X depreciation, million

loan CRE term first facilities acquisition Term of proceeds LED on of total at with credit existing quarter the interest purchase $XXX The In along we the conjunction leverage the used outstanding of bears million. expanded the on with retire facility for also earn-out hand, A net Loan in note, to paid $XXX.X XXXX, by $XXX an cash a plus million and SOFR Stratus, our We based grid. X.XX% the million Stratus.

would the cash interest to For current our based million expense $X on net total we second quarter, SOFR approximately rates. expect be

to Turning our guidance. second quarter XXXX

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

quarter offset our lower strong demand for by the in guidance Our continued business LNG memory and IPS businesses. this our next in demand incorporates

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

operating quarter costs timing the are the first quarter, or of and second expected expenses business. to million, be due for in engineering plus to slightly up $XX approximately part to the $X support IPS our million, from nonrecurring non-GAAP Our minus

accounted million $X.XX. other or approximately nonoperating an adjustments, earnings expected for intangible approximately expense, earnings share-based per sale This discount income. And of per be GAAP approximately diluted expense, asset excluding is or quarter the to minus on non-GAAP includes second plus diluted expect asset debt $X.XX, a from amortization benefit $X share plus and in $X.XX, also basis, share for $X.XX. we will minus the be compensation

quarter GAAP part be Cree to LED XX second expected stock of current $XX non-GAAP million, its Our to own price. to to in second facility. shares million are $XX is range share our for quarter the and be migrate expenditures in diluted expected into capital the Cash due million to U.S. count expenditures based the approximately on for

as continue we operations We environment manage our manner in to to while continuing prudent challenging invest a in our growth. long-term a navigate also

to and details. Our continued of the Measures fiscal section our forecast second our for Please non-GAAP on tables headwinds and release of XXXX environment, earnings based supply to the in the constraints. for quarter Financial further is refer Reconciliation macroeconomic chain which global current GAAP Non-GAAP contemplates Information

Mark me for Now, over to Q&A. few remarks turn prior it let a to

Mark Adams

very Thanks, remain the Ken. We SGH. about future of excited

some mind, second half have we And technology we fiscal mentioned, installations. front-end have is the demand ‘XX companies, our into many in the we visibility like the while large in will that in success. limited operate As our of to shareholders loaded to with how that our With fiscal I XXXX. long-term our environment IPS term reiterate we in near remain investing vigilant Company commitment for the want

on performance our that whether margins. this operating delivering credit services I accomplished challenging non-GAAP of our record interest these demand want China’s set that quarter, our headwinds, solid do model, COVID value-added environment times. consumer to team or diverse the in weakening CapEx-light focus and products and highlight increasing enabled gross businesses rates, despite differentiated macroeconomic our continued our We

Q&A. Operator, ready we are for now

Operator

question [Operator Chin first of Brian Stifel. line is Instructions] the from from The

Brian Chin

Thanks service Good little some down then, like letting quarter, Is follow-up Maybe question. you the to just mix of question, It is or for there mix on and within in February a another consideration IPS, that congratulations hardware bit. the afternoon. quarter questions And a Hi. be versus fairly ask looks November margins expect there? and have with us consistent I sort results. first the Mark. on like

Mark Adams

Yes.

around Let question, of which me performance part take the the of business. the relative first is the just

and the business quarter business, business which into very characteristics. go LED mobile then a phone historically second a consumer-focused in we business And quarter, bit the have facing demonstrating the As PC anyway. been in Brazil obviously, has little our we very softer -- similar is

the on in. Ken of margins, to So, let to in overall trend is trajectory. QX QX same kind Relative mix chime from the line business I’ll the and

Ken Rizvi

there’s on business LED we from given on little is One QX, Hey couple QX the we’re piece. you call. the down if which it services very to look slightly the come Yes, to back And earlier, to QX, end. the profile, as highlighted, movement be a cost trajectory QX Brian, in but of thanks margins it’s fixed down expecting will two, and factors. margin the then for at hit there’s the the Mark being

We Company would some services for have to be the we more down slightly. services are onetime in nature, overall of the expect that so revenue

profile. on are those related so items mixed And both based the revenue

Brian Chin

are the of And think your softer little Solutions you in helpful. That’s or Okay. that will and kind quarters surprised prices headwind then February or for of anticipating more become business? are the pass-through Memory you memory follow-up, in either a your the to the a you customers? have May Do

is setting a second And get way could alluded severe half? some of idea the some are also, half fiscal those that of XX% I versus first stronger that sort of it’s for revenue you know how be. consistently you’ve I XX% half first of first commitment half on sort here. like based trying that think half-second the to Just up. of half-second sort know make to projects could of do mix IPS dynamic hard kind a But be first something half to firm

Mark Adams

I’ll to So, the first memory take the part market. relative

a revenue see terms As pure top and line in semi in We see we in overall memory of is challenging. you from see both the Brazil. pricing can broader And the environment environment that the space, the from demand it players pretty the also macro.

like So, -- challenging very a a it’s consumer-facing of kind in it’s business that.

Specialty as -- services provide. are gross versus in less slightly Gross gross And you not our referring Memory actually our in business. the the margins business, margin stability good to, provide so in consumer the Specialty the memory pretty look it’s specialty stabilizes revenue -- but have perfect, good our pricing that more sense. pretty pricing some are of margins at the that when in the value-add margins we The kind for you’re pricing of pricing. the actually we seen drive up we pressures stability, In contribution actually, but more

listen would larger memory it’s business the great stable. reports. the Specialty people in I our doesn’t and I space But in to more in just less so, semi the right has say if impactful, And consumer business, feel pricing been now their

Ken Rizvi

terms me of into the to bookings pretty out into too call you it’s had the early QX, QX still as probably in visibility pretty Yes. XXXX clear second the quarters. if have X little as and the head breakout, visibility in bit backlog XX-XX see today, half. visibility look But and Brian, I good good out But into IPS still it’s as or XX-XX we a ask as that well. and we we we in it don’t we’re today. range mentioned, we QX, building And as

Brian Chin

I that business, in in But terms component months position it. a kind guess of now did "turns" ago. of six availability, have you’d if probably better you be Got fulfill to than

Ken Rizvi

looked Yes. ago. was better if specific That’s better definitely parts, some say supply supply other much ago. much and than six the still is in right. today, chain today months there I There’s shortages chain semiconductor out the components than but months six today would it within was it at you

Operator

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

Kevin Cassidy

little Congratulations and go question. second go the for as into are seeing Thanks both the also, private the And the year. the I’ll RFQs into second and renewal half sector? maybe that the great give out there contracts what as taking are you’re as on up IPS year? you the public of of then for from more far Yes. service half you Can visibility description on us my a of stay results.

Mark Adams

Thanks for the questions, Kevin.

process RFQ that schedules the commercial, the fairly visibility implementation, both is suggest way stable. Where but I challenged, wouldn’t is it’s federal project the can’t stable. gets say I we fairly is just think in increasing, see. and the think I I that the would

We’re to understanding out. careful just quarters better and be cautious three trying on that

to but in looking go we’re giving half this will back the the deliveries And guidance we’re trying here, at QX careful planned. environment you some be that as to have just so, that we sure off we’re and on make

just monitoring right that kind in month-to-month. we’re so, the game week-to-week, And we’re That’s now. of of kind

more As kind of Ken a we we of a the not service a the let bit in of really I’ll are that’s where but to lot schedules. of that a to on them, business schedule. color services to the of to all lot piece business, of predictability talk on it have, nature second, that look a little strength build. services, they’re on recurring that’s and we’re those And but get the the and continuing relates

Ken Rizvi

Yes.

million period year. are range, a any you So, services that in I and the can or have in Kevin, and implementation more that I thanks have that at it’s services call. even come out a look probably looking plus those would or If we different annual $XX higher in in, on in but size, recurring basis or come minus, services visibility in exclude component look an for things logistics neighborhood, the we at say, like to the visibility, that would better

the think that’s we value our the base. we’re memory demonstrates the the build IPS of revenue which base. what lot trying one more Stratus, to has and the been So, a is within years hopefully along I with customer provides providing more have to value stickiness highlighted services, and even more last And and business more doing, team things at here with that X.X we’ve over recurring

Kevin Cassidy

turning to in specialty are the memory. There memory with Maybe happening market two also CXL. exciting Okay. and things DDRX, the

first? and as DDRX Is solutions as those custom a do see then, of staying for custom correct, CXL? you still products. You’re activity And that what for versions

Mark Adams

the specialty seen really today place pretty of think, memory broader kind long-term positive. us And demand-driven. there’s we’re adjusting a all in oversupply, markets, the cyclicality for Obviously, I memory Look, accordingly. really, pretty have the memory and players is the us of the are then in just of Kevin, view capacity where lot and of much that

challenge. a a longer-term there pretty short XG that broader high-bandwidth you’ve But specialty that high-performance positive that the be learning. a exposure the and good high-performance then, again, being a In And and horizon in trends are Demand pricing there’s number term, memory, a Penguin be challenges will of for space demand computing noted, said, that we as and enterprise driven business. being memory, will consumer over to speak as mobile, challenge. need machine we just with out that enabling even in terms the computing the compute, high-performance of by get and AI

on demands all lot the it’s on memory. able Express so tailwinds in But XG, automotive, are now, is CXL, they’re of to referring side. CXL-like And DDRX, will We not kind long-term to memory, see just the call you’re Link, good, that as be those speak. demand and the demands of A -- applications. oversupplied, compute we’re the the right market of a to turn, controller-based

term. so, careful we going how to we’re be it in see And on short the

business. pretty the we Jack’s But are that we’re we’re just it’s We to like and long-term think the call. the last better It’s Specialty the prognosis. conditions terms leadership, in over under years of of market in positive couple performed hard much about

Operator

is of Gill question with & next Raji line Company. The Needham the from

Raji Gill

Yes. Thank Year. and again, you. happy And New congrats

a Just the the services revenue. on in progression good question

numbers, break is quarters, about and probably talk tripled helping, think the starting to almost several that? last little contributing really you’re service Stratus has on a I over it doubled now based to revenue how Can you or my the grown, bit out.

point of of time, kind how I And then the and the mix mentioned of elaborate you services, you’re of services what you service you you’re you mentioned. within components two on maybe catering And on a go-forward in then Ken, have kind the of what believe, the Can seeing kind basis? contracts. the business is long-term further

Mark Adams

the talk half answer question. the part, I’ll back the Raji. and question, I’ll of first to Ken let the for thanks Well,

also tolerant-type remote they high availability. proactive they they lot management which for their doing is a so. have above of And maintain monitoring, that time. a the business, good been software The availability, it capabilities has value-add five platform called have, industry that Stratus’ XX.XXX% pretty ability system do and nines, to fault through

that IPS-specific we are to of take evaluating how scale advantage we definitely can environments. their platform, Stratus more so just customer beyond into And

position the two a us let I’ll to of combination nature these of Relative continued services. good in comment. drive value-added so, And Ken really to has the put really agreements,

Ken Rizvi

Yes.

at million and think I If longer to $XX services this than we look we it’s I of up providing of services, just mentioned it. there million kind year those to to can number the to that, just a type services Mark ago. had of for variety every in say, range that’s And a can there of has our some probably which services $XX are now $XX onetime mentioned more contracts. customers, a or about that are, million. occur before. then within point-in-time in a and -- transcript, longer-term in quarter, Raji, Kevin minutes sometimes a that of even year, we quarter, I are So provided ago, closer what would That’s million be $XX the longer-term few probably Those back And that, where we’re quarter.

rough so, And customers. It’s hopefully customer base. component, stickiness the a showcases really of services that’s or some hardware, our those the provide just that continue value with and beyond shows our split provide to we services but it

Raji Gill

associated margins guiding are strong my XX%, But we second to modeling longer-term the record, the to and of segment you. margins or lumpiness? go May of And at the the know I of should in Just the margins, Yes. and believe for drop-off you a the close kind into also that that the nearly of talked curious August with XX%. quarter, revenue kind in and follow-up, I long quarter are stream therefore, kind a think that at services more in the how when revenue, there we given IPS margins obviously be and of and I on Thank the is potential term. You November IPS? more appreciate term lumpy. given of the offsets half, services have seasonality short gross the that. kind you’re gross mix hit IPS lumpy, about

Ken Rizvi

Sure.

So services QX Raji, QX come the you transition expect to that is around component overall, to at of I look we’d from mentioned part bit think to as QX. a mix overall and the QX, the I services down that

other manufacturing, LED in of back fixed end have to into a to And we bit. the the was on the the is revenues QX. some piece costs we expected is that margins profile have be therefore, is down on down side, bit side, the though think even we a business expect the fixed the no we that that And given business come back highlighted for transcript QX end And I have to QX. costs so would that come down down driving margin front-end we as what some

still, But in of couple even XX% And years XX%, a mid. was guiding business back look you doing if margins. to QX, the a we’re this gross ago, XX% on non-GAAP at basis

business has in been it different much today margins, healthy very the past. than So,

will relates there it some lumpiness to time, IPS. still in out look as we be As

on business in But calls talked number which the point a I be we how how that have, much as profile well. guiding time about based plus much I we’ve our can or what think services margin state of we on based we have, of on which hardware we’re mentioned, that terms a QX, just like hopefully at are much a is, for to I in minus healthier XX%, point. for feel as

Raji Gill

talk anymore the just I’ll know in Brazil just don’t Got break And The step the you is Brazil if with in squeeze that it more XX%, trends then XX%, like the coming But in specialty. did to something you areas. some about in pressure looks Brazil XG it range, and in PC and down respect consumer. business I -- back looks challenges then it. also business, like curious, one more other out and queue. I I’m the could

and bit to business. a of the more secular XG world? So, of I’m there you about Brazil you’re push Thanks the Brazil rest rebuild again. Are a consumer? catches market, think -- we’re curious, the out inventory of a have how kind about cleared we’re I’m approaching then you’re of thinking to how bottom? Is a Brazil little and curious as going to the we thinking do the up

Mark Adams

Yes.

it and I way the look markets most is given consumer memory the is amount supply business of markets consume of the end in memory at with supply. the just the overall memory industry those the aligned think challenges dynamics, and broader we in terms the demand

their And sit memory that as the and to, demand our will positioned in competitors we the you the at hopefully so, looked see revenue and business normalizes, semiconductors yes, there. as recover, well of memory addition balance today, that we’re think and or And significantly, we business. we suppliers down think here consumer in that is you pretty supply down

the point coming is we’re to your us bounce for here out it and hoping XG visibility that and around is PCs of hard it’s to with us the as uptick. to the we’ll start where it’s the we is about inventory, tough holidays next into business a through -- the for and and memory but for see bottom to pure would hoping us I just as kind bottom. this an them build dynamics say as guys. It’s up of in demand, say house the back But to that SSDs get coming But that with able quarter be servers positive starting of

Operator

Ho is the question Bank. next [Operator Instructions] line The of with from Sidney Deutsche

Sidney Ho

few performed than QX to clarification looks more question. my the ask versus one. does taking like million expectation a organic about of million? with business for Thanks much And off contribute fiscal Maybe expected. questions better the you It in Stratus to Great. revenue How that. I’ll your $XX start $XX

Ken Rizvi

$XX very Sure. number for to in that It and That well QX. the margins million came did were... revenue closer

Mark Adams

the edge came really in is the growth business, also some play that highlighted Ken along just comment, tolerant there an got response, upgrades that are in there’s upside really business. and service-driven, And as just their which the the encouraged And edge his the something way. there fault the I about business we’ve two then growth in is is high-availability from long-term broadly, a And data parts the products. edge past. which in more we’re talked of Sidney, we’ve about One primarily center, would

Sidney Ho

of hyperscale versus million end are these customers QX. trends Great. $XXX end And us ordering federal Can versus in between you Maybe of on click for breakdown by IPS revenue the a terms markets entire you market commercial? revenue, between double the spending patterns? rough give seeing different just

Mark Adams

we’re say trends. level, give going we but second on question ask you at the I’d -- part break to of more the as out can not you the that your

stable what goes far we of building given relatively it been see. guidance certainly, as as funnel of to seeing and QX, -- think our But we’ve demand we’re stable. the kind I can given as has back Ken has for

of what in holds do conditions, earlier my process their around things question Again, and have out, from it’s do my budget in push the management market more still in that do they comment types they move you. -- project customer things what of terms earlier these from in, they

those particular again, what’s But not investment enterprises, see little play a had out they’re our any QX. maybe point going the the their years, government, first happen, and the half, been breaking investments. -- the of capital in muted their somewhat to and be dollars positive last has been the in see going with And which bit hard it across over during how the year to we it’s We -- to has to and continued environments couple customer highest think really commercial format. the really do so will of in COVID this COVID and

Sidney Ho

Okay. That’s switching Maybe LED the gears helpful. business. to

maybe May in or February more that of to great. the if be contain the you and seeing Will impacted U.S. you as going on Europe about what quarter China in business you the doing expect And guess? to impact that costs, the well. positively, by are China being start in talked business, How the of profitability would the and You touch you reopening benefit I business quarter? the do headwinds can in the

Mark Adams

in calling the we’ve about, bottom quarter. Well, not holidays we’re as the in the to fiscal our Chinese New given here seeing up of quarters, quarter. show that talked a Year kind -- this because same of quarter, February this is actually Yes. not in We’ve and we’re bounce guided

terms in quarter. call bottom here So, of the would bit I on a muted our in the be little

in bit, quarter. our of We’d third and you the still China open some we a up in think starting amount distribution to that a of inventory that we hopefully QX, little see QX like could fair -- burning in with as is and said,

of that we’re number. And lines business call, facilities capital our But market things in far type of deployment number we actually to at just and as at highlighted the back-end in line and gotten a schedules looking to costs, looked as similarly running and freeze, manage doing And you’ve meaningful that headcount we’ve it’s then, with have of Brazil. and thing, as maybe number then optimizing in highlighted support people hit type our dynamics pretty the can how has the we’re of very around when capital, and out we’re a the been we that the things. we’re LED there, running the move

containment think efforts So, cost because bounce with we’re the at some hurt term trying on do the business here. the it to long not for point back balancing out good we really will

Sidney Ho

Okay. Maybe for last one one me.

interest how of going is hedged think debt we portion expense forward? your about point? interest high rate, Given the And this should what at

Ken Rizvi

Yes.

I’ll So, that. this -- answer

script, at expense million. look in you expect $X to we’d net be interest formal If that the about at our

So, that’s about interest expense $X on basis, rate. interest based income and both on that’s cash a and today’s SOFR million, the

on fluctuate range over interest hand, it’s depending interest quarter, one would doing good can’t income will can we the that and is better have go. cash things does. a predict the the Fed now, net But I is per we time. rates assume that those for cash better But with been what job of on So, $X that at getting expense and where million of what

fixed at of and it’s then you of rate at that’s the SOFR is at the about about XX% of size, a XX% floating in And which that That’s If TLA, biggest fixed. our The X.XX%. X.XX%. convertible fixed note. look versus the $XXX piece kind on [million] is fixed debt, floating plus

Operator

Thank remarks. no so conference pass any additional Mark for you I this back time, CEO, for There your will waiting to questions. closing at Adams, the are questions

Mark Adams

Well, we’ll first for great worldwide attending a of you. will Have CES, you to for look Thank to a I’d all see our employees like seeing you again, And thank like I’d forward market us see various you then. you of those day. of great for all at us to conferences. conditions. for at thank joining today thank today. you and quarter, especially these in who

Operator

conference Thank call. for your the That you participation. concludes

lines. now disconnect may your You

Penguin Solutions (PENG) 3 Jan 232023 Q1 Earnings call transcript