Earnings call transcript Q3 2023

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Operator

Good afternoon. Thank you for attending today’s SGH Third Quarter Fiscal 2023 Earnings Call. My name is Tana, I'll be your operator 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 with conference Investor like host, to now Schmidt Suzanne Relations. would turn over the our I

You may go ahead.

Suzanne Schmidt

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

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

the of You site on to on the call releases for can this you for quarter find the the the encourage Relations throughout accompanying our section the slide go information We presentation to and press current website. Investor most company.

call to trajectory everyone call company statements earnings the and and projections like growth also would including will of included outlook. release use press read presentation. forward-looking Please I about make that in the is the statements, remind company's conference forward-looking its to note the the statements financial that and XXXX note this during

beliefs of uncertainties are and based annual the are assumptions today, recent are the and press statements limitation, release without reports. in including, to quarterly guarantees not uncertainties subject presentation as company's risks and the the on reflected Forward-looking as filed call and and most in and performance risks current earnings future well and

forward-looking they any are statements. as statements update no assume representative by The forward-looking applicable we revise and of are the only except date made law, required publicly as responsibility or to

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

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

Mark Adams

you call. Suzanne, all fiscal third today XXXX joining quarter our for and us for thank Thanks,

three SGH. Over on years, transformation tremendous progress made we the past have the of

cash increased balance our flow. delivered by generating top our strong operating our strengthen gross positive sheet per share, We and have margins, grown line, earnings

enabling shift Earlier this availability stake agreed business to SGH towards our to month, that customers. for solutions memory high high Brazil a we had divest our we announced majority business, enterprise in consumer performance,

we we long-term success, secular machine data for Although learning, analytics. driven are believe well and headwinds AI, in macroeconomic persist, tailwinds by positioned

financials While will I highlights out detail, the our review performance. to in third would more Ken some like quarter from call

the global on Our exited gross approximately challenging economic cash team $X.XX diluted results the margins basis and ago achieved We cash $XX a non-GAAP cash of $XXX quarter and and XX%, of share XXX totaled very year strong up sheet, quarter remains for strong including environment. in what earnings Non-GAAP sales a flow strong from $XXX per was of the quarter record from generated points equivalents million operations and million. QX million. with balance third

lines. of edge. learning, comprised our set design, high AI and for positioned well manufacture, review for data and Solutions and each of XX-years cloud, Computing, data the has Now than enterprises and that which analytics IPS, of HPC at our the the the computing the Technologies of in for Computing and Stratus which of business the forefront more foundational is growing experience a We industries. are success technologies deployment becoming believe generative Systems across Penguin of revolution. deploy, performance of the provide services center, is AI, let me Penguin with Starting brands. machine We managed

training at largest some most world, and scale. Our the supercomputers has for more AI NVIDIA than designed in total managing a built of and XX,XXX GPUs the powerful team manage including of

HPC for and workload customers' networking on that our focused solutions is for compute, unique model and a architect We our engagement technologies developing such as tailored customers. system requirements. integrates optimize AI Our that storage

the way from customers and all to the from additional monitoring, phase, design while software management suite our provisioning, components. image implementation platform Our ability through we for the competition differentiates integration, customization, clusters. What intelligence our including and functionality Computing as management Scyld through an cluster of believe ClusterWare AI with software and node a work of to Penguin is large HPC provides serving

Additionally, XX% on-premise, Compared In Stratus. in quarter, the XX% by able million, the XX% $XXX solutions Technologies sales edge. sales were are year-ago transformation provide cloud, we Stratus at the quarter, the we're which to excluding sales, increased SGH IPS third by going and including represented total and of IPS up totaled the through. reinforcing with

we our and the value which revenue, is of generated service total the providing third IPS majority SGH XX% reflects of to customers. represented the in quarter Our are incremental in revenue

Our such include services. as point-in-time managed longer-term as well services implementation, services as and design

scalability, the the customers ease-of-use to for expand delivers quarter, boosts their version in market. During new that users. software Penguin flagship platform, Scyld is to management tool capabilities a of and greater new announced and and provides HPC powerful empowers version greater a introduce its This which performance, technologies monitoring new we clusters. ClusterWare continued own

Stratus computing and industrial processing announced and fault-tolerant platforms our edge. the at to to in enable the core, as business-critical of customers run next-generation at transaction such that the its automation payment applications the cloud,

quarter, completion SuperCluster of AI announced second their the the Meta phase Research for known as the RSC. During buildout

their implement to AI-optimized As design work partner, the our cluster and system. overall management implementation improving the infrastructure powers Penguin RSC, the Meta with that

named supercomputer XX scientists complex enables TrueHPC use The featuring modeling, about and earth's unlock newer and researchers a This providing system nodes. ocean predictive weather in climate Center's which DoD GPU Supercomputing Nautilus, sustainability. Penguin April, applications to final its to completed and Resource insights HPC patterns testing is Navy the system,

while enterprises, customer engagements in extensive experience roles Digital Prior technology executive and Corporation. at Dave serving We take at who expanded Stratus, and of Stratus help to role also building that of joined and teams, scale the leading of Pellegrino. will us announcing our Dave's also that President on we're Dave IPS, replacing believe overall as Thierry acquisition, time an will the us Laurello, as CEO XXX Equipment Lucent operations. Fortune Today, worked

to recognize that we learning. opportunities, While there still HPC, we with is in AI machine customer are AI generative of early a stages engagement heightened level the regards of and

deployment will lumpy of due we be to As installations. we and IPS customer on expect have the timeline large noted prior decisions sales cycles calls,

Dave's the position market believe on under we're we to Over capitalize in emerging trends. these long-term, leadership, a

Shifting two our quarter. enterprise; to Brazil total our relatively up Overall, quarter the Memory, is XX% of memory and businesses: Memory, SGH Specialty and the second the memory $XXX flat or made million Group sales business, focused serving currently primarily is third in in with of revenue which was Solutions at Memory consumer market. on specialty applications came Module

end-markets. of focus of leverage in area expertise going customers long AI subsystem history enterprise and is to learning. to the in forward have a machine We serving industrial drive this and memory networking help telecom An innovation

bottlenecks between CPUs, For removed example, HPC and performance and the CXL applications. and our GPUs, latency memory offerings

our We by design CXL strong to customers of plays customer architectures variety are activity interest and for seeing wide required CXL the our and strength. offerings

addition we and In with enterprise for efforts customers. to ensure development our continue our levels leading-edge of implement to quality CXL, to test reliability high processes

zero Zefr maximize customers as memory is gaining interest to failure failures rate utilization. system reduces Our offering it field significant or helps meaningfully and among major

a started DDRX modules, key Zefr quarter, shipping our products. the which Modular modules availability with combined memory we SMART gives differentiation memory memory when and high Zefr DDRX During

operating to In the memory current translated throughout relative margins demonstrate business nature to quarter, stability our due continues business third business. this X% memory cycle memory of into model. for the specialty the of Our approximately value-add our

Now under lighting. specialty produces turning LED Solutions application and Cree displays, to the brand optimized Group, for LED screens, video our architectural which gaming operates LEDs and outdoor lighting, horticulture,

what $XX Solutions LED third For second sequentially from overall quarter totaled of were bottom of quarter. fiscal million and the XXXX, the SGH in have could been sales or up XX% the XX%

the are cycles, continuing we a we Typically, seeing are precursor LED look will we market, we through demand And cyclical have recovery the fiscal are in days of these early we customers design to levels, activity are stronger for inventory this the a While improving. come optimistic XXXX. to improving. work down still business while as that customer as in

to be leader a recognized innovation. customer-focused as Cree in continues

LED's quarter, in horticulture, The the G XLAMP recognized LEDs third SSL, BrightStar LED LED category. of three ProX Element control were and Magazine recognized Awards LED select and innovative products. in the systems product while category, releases sources During awarded LEDs for with light the Cree Photophyll the latest were

invest technology, new LEDs By believe and empower a that combination the able industry-leading its disciplined innovative positioned these customers IP, achieve model capital-light is advanced to and challenging with to Cree of solutions. in has expense We Cree continuing technology in times. in system-level LED to well manufacturing control, outsourced remarkable

to customer demand improving of expect fourth revenue up the signs and see quarter. modestly to in be starting are We

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

Ken Rizvi

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

me third results. Now XXXX let to our fiscal turn quarter

diluted came and $X.XX began were SGH services. in revenue of per and the by of at XX% guidance. quarter. margins we providing revenues million at Total third product year, our Non-GAAP share this for breakdown midpoint earnings the beginning In the overall the $XXX of fiscal were gross non-GAAP our

As longer-term well services a reminder, our as as services. and as logistics point-in-time services includes revenue services, such implementation

in we acquired helped year. In QX, ago our Stratus, revenues quarter $XX by fiscal the Product million. which million, revenue of from year $XXX $XX in were beginning up inclusion totaled and million overall the services of this the

This IPS and was was LED in by approximately revenue memory as $XX quarter million. LED. sales IPS, Third came million; XX% translates into memory and a was follows: XX% at business of mix XX% unit $XXX $XXX million;

operating was $XX.X for in quarter, were SGH IPS. quarter Non-GAAP of driven XX%, XXXX. third up second the expenses primarily down from Non-GAAP in XX.X% QX for the $XX.X by gross million year-ago quarter in the million, margin from

expenses due bonus quarter containment the million benefited third were expenses from as in prior expected and from quarter provide accruals. Operating down cost the $X.X down XXXX This in primarily million quarter. initiatives, financial the million Brazil, $X.X down continued as credits from well to year-ago which second benefit of in in of quarter, credit lower of fourth from XXXX. our is XXXX was $X.X minimal to quarter in in Operating

benefit per earnings or the third or of year-ago we also the taxes of sales EPS XXXX as our the $XX for reduction net million taxes XX% diluted operating in using our quarter. ago with XXXX additional quarter taxable was compared in Adjusted reducing approximately non-GAAP of was of cash share, million XXXX, $X.XX Included in losses third Non-GAAP in the year anticipate per is to for the $X.XX quarter year offset year. quarter. the for of per diluted a EBITDA $XX which sales, to compared XX% for income third for U.S. has share million share per quarter or fiscal $X.XX $X.X prior the share of

quarter, XX at net working days sheet last in million totaled our balance last to our days, million, primarily quarter. from six prior $XXX collections $XXX the due by accounts the at million Inventory $XXX capital, timing third up IKEA of outstanding highlights, quarter, inventories Days a for and The the to driven decrease of million totaled sales the memory $XXX with receivable quarter. compared in the quarter. at the of Turning came inventory primarily in and down IPS. invoicing from was reduction end third in the end

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

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

the Third $XX $XX.X in for you was third activities and million, And capital tracking million in with $X.X expenditures from compared cash $XXX depreciation, flows capital those quarter operating million. of the quarter quarter. million were totaled expenditures depreciation prior and

values Brazil agreement of will solutions The commodity enable customers. disposition Brazil. announced SMART price focus XX% And enterprise to enterprise SGH Brazil majority high-performance, our XX% of the we to XXX% business million. value are initial divestiture to the our purchase high-availability million. $XXX values of strategy stake of SMART in and at delivering on an Modular module an of The proposed month, this divest $XXX Earlier

approximately post-closing. by feature payment approximately put-call the months net conditions. times will subject certain closing paid The calendar and receive cash satisfaction payment The its of X.X to the during for is an three of XXXX agreed close of customary of to and also The deferred year upfront adjustments to $XXX transaction We fiscal windows regulatory values parties XXXX. XXX% be the customary subject of a Brazil end business approvals million million, XXXX, have expected put-call cash exercise remaining $XX and a to to income. at exercisable XX%, between XX year

if For XXXX, would SGH the net value and the put put-call subject XXXX the of of is example, in the such fiscal or reference at the income time exercised receive be would of and exercise call. XX% to

totaled non-GAAP would per this points first rates accretive earnings For basis neutral quarters and our reference, also through current revenue over XXX immediately million the XXXX in business, non-GAAP business quarter. the for and million $XXX the on fiscal third slightly to Brazil share. be the expect to gross we of Based margins to approximately closing, divestiture at three positive run $XX to our by

Brazil. to fiscal quarter our turn fourth includes me let XXXX which guidance, Now,

expect million the midpoint minus $XX fourth will or for the quarter revenues approximately at We million. of XXXX that plus $XXX be

fourth Our following the guidance quarter assumptions. for the incorporates

IPS, more at hardware For timing the related sales, midpoint. variability is to with which the expect project-oriented down be slightly revenues of to sequential we

which to sequentially. flat in up expect for relatively the And we we quarter. includes be revenues revenues SMART modestly fourth memory, expect For to be total Brazil, LED,

expected Our for X%. fourth minus is midpoint the XX% the quarter gross minus gross X%. or or Non-GAAP for margin to margin midpoint, at is GAAP the fourth the be be to approximately plus XX% approximately plus expected at quarter

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

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

for be diluted shares be of of approximately to the benefit is count expenditures includes capped our to fourth are Cash as quarter the expected share calls. $XX in to non-GAAP million the million. Our $XX XX.X convertible expected note it range capital million

in And be taxes continued our the the for from quarter expected fourth get range operating our are benefit non-GAAP U.S. to carryforwards. XX% loss we net as

and the our expected to However, fiscal we as look effective tax U.S. into our rate the range. non-GAAP of we available XXXX, tax mid-XX% will used to have is attributes low to majority increase

our our in while section we growth. in continuing our tables non-GAAP operations of prudent a as earnings continue to for manage financial measures a reconciliation further non-GAAP navigate the and We to long-term refer manner challenging also environment, to release details. information the in to invest GAAP Please

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

Mark Adams

Thanks Ken.

we feel data next well-positioned While of in years. AI, the and to over are machine we the to early five learning grow deployment, SGH analytics stages is three

for the to a solve customers that solutions on our transform high-performance continue future. focused As such, we into enterprise delivering help high-availability, business

right performed are have model the end an of the operating well markets, tailwinds we cycle. terms that but in We not from has only secular throughout benefiting

combination discipline The about operate secular how enterprise solutions and the to our to and shareholders. shift the make towards tailwinds, us on this ability of optimistic we deliver coupled the our value long-term company, our with future

operator, that Q&A. for are With we ready now

Operator

Cassidy is from Rosenblatt Securities. [Operator Certainly. question first the Kevin line with The of Instructions]

proceed. may You

Kevin Cassidy

my pursue? there's I are the funnel which results taking funnel and the has or IPS questions how maybe of guess, question for say the how interest you and you great and addressing since Hi, the choosing beginning how now are Thanks good of customers of your business excuse in it? around guidance. grown, year RFQ to and Can right opportunity you Maybe, me. say AI. on the lot congratulations course

Mark Adams

on and customer model great. thanks the implementing for engagement them to this a because the Yes, your question. level will, really opportunity then us you solutions say, all our noticeably designing of the role We're a installation. them post the of activity want from and us is post beginning bit Mark, Kevin, from really is the question challenge managing uptick. different. the needless trusted deployment, to if and And adviser looking for a second of on for systems and that our Well, way part relationships is an is

do how really the is terms level activity model so, of it And with play. what's just criteria best role around the we the fit and can in a customer partnership given the we what of

just to trying might if relationships looking bit more oriented. we play, to a that with we're in you full And as that's little it, we're service type it's and so hardware at game of to engage select be don't imagine, that's how a those we want the a be are because,

Kevin Cassidy

just from are you And add seeing you are on more various cloud interest? to interest just broad maybe vertical markets? that, what than or seeing It's

Mark Adams

really watch. is for if the two Oil building on and that -- because just that's not the one the to to providers Tier environments, and cloud also would because call I us. terms which of is what second, that that's big think X, But gas Tier I'll class this names. it to of There's Yes, interesting market obviously back of to very data cloud of this are is be that of you type very health interesting taken I interesting some are custom Certainly, out to early very hyperscalers continues care application are for interesting it's a centers financial will. -- X kind us. and the it's vertical in a kind expansion, with in -- come off

for kind was is of taking the new And that and have we terms to looks look the while is in like a a original at of to what of research continue on and what say, science take opportunity over AI and one segment definition market expand that you. research, HPC I'd years. education just

And can their at AI mean, so, they but, in a is that look know I enable lot, everyone enterprise. a sounds I like how taking

been expansion it's the of So, to an watch horizontal interesting customer interest. year

Kevin Cassidy

Great. Thanks, Mark.

Mark Adams

Thank you.

Operator

Thank Mr. Cassidy. you,

is with of proceed. Barclays. Our the O'Malley next Tom question Please line from

Tom O'Malley

I have some Good you the question. to the have you afternoon, times. wanted possible exposure guys, Obviously, thanks AI taking hit business important Is the these Specialty “AI’ Memory very just for in obviously and again. -- then it Penguin. in to topic and to some on

you a for a that size you as view If what AI would of just assign of us? able terms you today, total percentage to be as were to in revenue percent

Mark Adams

one that. tougher to a kind That's us for of do

Let of and to like we definitions is have I include deployment play about just kind me -- the hard, of the got industry, when It's AI so GPUs. component, platform talk XX,XXX and level in you service with system And script, scale. component, our my and just mislead I as take I've component we roughly talked of about the out that metric at an GPUs you. scale, liberty kind if don't that the because or you can see over want in networking don't kind that of storage a good of really it to

gave of to looking more… But area. XX,XXX telling I GPUs the in be you grow NVIDIA index invest take that continue just will to bit that's we're a But, under little Ken and should that that management, --

Ken Rizvi

Yes, good Tom, it's a question.

million is of probably data My Specialty look systems ‘XX center of or a Memory are systems generative for and that number $XXX for is but guess million at as you of applications and could look business that that at if at basis. the if one north a our if I lot look it, north into either one, it's use on going Mark fiscal in in the and $XXX be mentioned, tough Jack's to it GPUs these trending think aggregate, AI decipher we for like. blended I that

Tom O'Malley

So fiscal exposure the greater million. than you're is $XXX saying ‘XX, AI

Ken Rizvi

the I'd approaching say two greater than $XXX $XXX million, million.

Tom O'Malley

remark you helpful. about back, you business. there for And on QX, in China, then Obviously better? the times seen gotten just talk trends what's made it, were Mark, LED terms you've bottom looking in you been what tough comment some Got but the could there. have of changing Could the that may

Mark Adams

Sure.

channel want been, the has us, where and and too I think activity revenue is don't the was good continued there celebrate I burn, two] bottom, look, [three, channel a up and And from that the was quarter-over-quarter customer the burn. much to activity, is XX%-ish design time primary despite index some at for still us (ph) positive. up a for but customer which more index precursor design

We we're the channel growth So, some we're still -- not to revenues. revenue burning it's is where the like bottom building inventory in not got a growth. the time good revenue achieve at channel in

coupled favorable. overall, I the with activity, So just say is design would that very

I thing other environment is, specific LED would germane or The say Cree. to market this not is

memory job it's performance fact, the of of I a navigating to they has faced to matter relative and environment, job But the Cree competitive Cree's has some business really environment very to been macroeconomic really they've navigated impressed and during a a would you a similar benchmark tough done landscape. the encourage how tough As gotten Tom. just Cree great headwinds to done just I'm kind and today. great

Tom O'Malley

I and if strong you one in just the into your then Traditionally, see for sneak very IPS business quarter. November seasonality Helpful some more. could

IPS than the would second what given be reason down? you've have SuperCluster. You why the seasonality any programs November that there any of wound for in your just commented Meta you different Is some seen phase with just there completed slides the historically on

Mark Adams

orders, the these those Well, to it's supply-chain when broadly. grown, piece the has get of even try how the timing customers somebody's with upfront question, mean, they large-scale challenges, to a kind we've supply-chain installed able I or lot, of allocating The when budgets, going just we've the the installed, and and once you're answer, being a customers growing deployments, but you deployments, it's tough I'm but timing to our that. also like loaded budgeting other but been navigate just question improved, get not get the of because a

everything capital leading-edge commit just I concentration, prior the going look GPUs you the through, certain as technologies to at the timing, budgets, can't networking key installations, supply-chain. at just of that the is industry, the deployment in went year, same that all if these availability component factors given I GPU be and the But lumpiness,

long-term believers. quarters calling think really to place, but we're short in that are in want far of We stop good We a I advance.

Tom O'Malley

color. Thank the all appreciate you guys. Really

Mark Adams

you. Thank

Operator

Thank line Deutsche Sidney of you, Mr. with the Ho The Bank. O'Malley. next is from question

proceed. may You

Sidney Ho

Thank great you. demand the about hear in to have you It's that strength seen guys AI.

a meaning do but questions of the spending AI not here. be for crowding it's couple servers, servers may out from on One, So you coming guys? traditional quick demand see out these to the you budget, impacting that same be fixed

second I as an -- are particularly on appetite great. But, question you it relates Penguin you market? versus consumption that update on give what if demand if the model, And kind HPC would AI for can traditional has, you of be the to customer us model could and CapEx seeing your solution,

Mark Adams

you restate first the of part just Can repeat, the question?

Sidney Ho

course, some Yes, is you a you to do coming in the first and the spending as traditional part is is that in on fixed But figure uptick lot demand more of the see that traditional servers? money the the spending -- IT from spending money AI see pulled of big just trying budget being basically a everybody from strength. -- out,

Mark Adams

these type of there really money fiscal guess, I in have answer I'm would can systems. ‘XX in house for the commercial production give of the not when reallocated I the in you there. sure success say, deployment definitive a that we I is side seen

enterprise process guess, shifting I largest probably, the next had budgets with our think far customers, of say, there yes, off-cycle budget As budget fiscal process years and be toward to our this. year's If would obviously of I some would as I

ultra-scale, AI, resource but of quite more woods the and to capabilities. environments headwinds. of of verticals, the to remember just they the pure have just newer lot have obviously overall got some customers, But, you're the a not map on customer macroeconomic type not and talking out-of-the about they different hyperscale that And heads build-out, cloud we're in we I up think infrastructure,

but be it's I'm a that such that shifted to question there'll needs just a so to want money little broad And answer appropriately, just be that cautiously I bit. guessing

go on ahead. thing The second [Multiple sorry Speakers]

Sidney Ho

on Penguin Yes, demand.

Mark Adams

Yes, We partnership on with slightly as Penguin an us, them. announced demand. this of and kind in that is model we're demand year partnership piece, Cloud with model shifting for the our fiscal on HP ‘XX, Google something our

in And so control-plane our capabilities part, addition software, Google have platform, infrastructure with on-demand in do to while leverage we is being of Penguin partnership our to our some and that, cycles really on our leverage used skilled that workloads the strategy their their that in where not software hybrid and cloud. workload carrying necessarily platform people focused processed. really allows cloud environment, their both a workloads on to just run And on-prem in optimization, the being

Sidney Ho

Okay, great. follow-up Maybe a question.

terms on how the your on Looking touch to you. enterprise M&A maybe at have proceeds included about talked the in that thinking the to that driven can are about now divested neutral you of in you of going-forward, divestiture talk Can Brazil Brazil Memory focus about other positive. that Thank use relate you to EPS assumption great. will memory slightly solutions, business that be being divestiture, you businesses, the what's strategy non-enterprise of kind from and you

Ken Rizvi

Yes, Sidney. you. question, sure, good Thank

we dilution, one, of formal that we would be accretion the the transcript portion expect the at gross look we of on north would accretion margin if said So XXX basis-points the proceeds on transaction-based does current not we EPS. the that the rates and net run slightly to receive. kind the what our would non-GAAP be include of to positive to neutral That

the is state it current just Brazil on so run-rate and business. based the of And

vectors question, net at to how we look in deploy where really look second of how we will say said, I four your think terms allocation. terms in we think of we the at that, three and capital we If have. this is we about proceeds, I would

in invest continue the foremost, and to First business.

M&A Number our segment. inorganic to additions this the in longer-term the segment. his platform I been overall think line. lots as two. closed and have business look formal is to of There's grow Mark opportunities which and Stratus, at ability that imagine our we opportunities similar great earlier to to highlighted you IPS could comments, Those It year. with our in here investment on continued fiscal

returning back is to capital three shareholders. Number

returned If months you gross last of terms four, $XX million or we've at And is also levels. looked repurchases. the I debt in so, XX would share our reducing say, over then about looking

are very but looking potentially just debt. at reasonable, gross levels reducing net-debt Our

So in look terms of opportunities. closes, the that at Brazil, those net would proceeds from transaction we once

Operator

Thank you, Mr. Ho.

is line with question Needham Co. the next and Our Gill of Raji from

proceed. may You

Raji Gill

Yes, the well business. thank A results. the again on congrats you and on question business, great AI as IPS

think So we're bottoms targeting. valuing thinking excluding it you based of that grew XX% size kind mentioned this market way overall of in terms the of are Are there is market you it of How kind projects you view? to When a about certain about valuing a for on up opportunity, verticals Stratus. overall potential year-over-year kind it you're opportunity? the from

You vertical mentioned conceptually financial services, you're focusing healthcare. here on, of some these

Just market thoughts how your in size pipeline identifying any quantifying of you're of want to terms the go on into the and that that you of try and after? kind business long-term of how to leads

Mark Adams

I'll in thanks as and start Sure, let the Ken jump warranted. question. for Raji,

to the and of can think that it opportunity game. those relative I can to look large not at. our to going a broad to that us like outside you we'd it where we're comparison -- one for that as what at is there's initial need and gross market a the game our that competitors, from is in. best systems kind really size want and there not be just mentioned up capabilities just or and on would about to That's that And way we will think margins play good deploy not you That's I've technologies are services I and provide. not good is companies we're a before, AI way see

and us as a trusted that's the the full-service to think of there we're the looking type AI subset not small bigger advisor that service have consulting of to we we're new There's way that model just own don't their customers with large that on eventually we're system I'd of about, end-to-end. our to that developer, business. designer look of market nature the continue to that's much that where our smaller And like that subset quite so subset of and -- are some will because the build of really to role deploy pie, And And companies something go-forward the the playing kind a are way. so, business. and capabilities of do excited more customers of their for dynamic activity and in-house bring or that's us frankly but capabilities

are whole the But, not going one we're end-of-the to going the not be competitive to be take I business. as are we a AI profitable nor want as model. to trusted hardware-only us at market and the just disciplined be day, want to we're transparent. because be don't That's going I We're core we be to in through to adviser very going

Raji Gill

it. Got

others. I think the to that's really helpful your understand distinction say to model versus between try

companies? that to the and head-to-head. winning. with the of, kind are competitive you lose? Where Penguin of, competitive solutions. competitive Just kind given the you. why all, think, why and can Are you of, are deployment more, advantage ultimate competitors advantage, inside thoughts of again who talk terms at what of Computing you And customized and Any smaller changing AI relative kind with your do to in Thank Computing Is you you about competitive you change? on competing are respect Penguin lose, mentioned might other do if advantage landscape you reasons being focus seeing the the of, you is kind

Mark Adams

kind do the if that’s customers Tier I let re-ask then what with major to deploy And don't, pyramid enterprises not get it of significantly my internally. that. large of look best again just we AI I at engagements necessarily that If the enterprises, with miss. the talking broke we level spend kind we down I the be everything But in tier at how of of Yes, have looking of and the that middle to the top-tier or but X the have, we're a might type me project.

applications there's project. it so a might getting test then, and considered be like I of And feet say, their really of wet. really tier of, kind but of And technology deployment, middle more course, would kind for early-stage

opportunities So in we think play at each tiers, look of the three them. and if at you we different how

differentiation competitors with large-scale substantially the asked margins out each And Supermicro. those business of Dell, a us about the lower The see hardware we think than are you player, I competitors. is today. one in and HP, there primary

we're argue to to se try models on. better. at what what here I'm good focused Now, whose and is we're not per just It's

they the someone business, only with set-up course, of game, I that's the are folks, compete three if their a mentioned to the the against. of Of on. examples And that’s margin not companies, are those the own line to win structure it's and roll they we companies what but are is trying AI hardware-only internal deployments

it not like, XX-years what of and these history type and of with deploying we're one application. server generic systems us, good we're about comes software talking For at and of

immersion That's we're lab, yesterday, Just differentiation our in one for big technology liquid ours. -- we our it. earliest the is I of front learning a customer over in out technology, of we're and deployments have of was the about of

environment can seen can to organization, XX-years, for of we over bring before, market it that So it and an we've because a know-how. design we lot

the and side, my this on experience you as to-date. It's connecting think of storage, XX-years design easy. is just some type of the networking mentioned making not the the and with probably I largest the in world with the mentioned, this deployments of with AI right and side, we've history and of of and with massive power Ken of amount in is the be sure deployment script, had datacenters infrastructure understated complexity place, it'd in whether when memory, power So of the the actual compute

how for manufacture products it. to to our that, And systems, all sure, design and how manage our you know-how when these customer so environment, value-add, is we yes, deploy it and combine but to them how to value-add

Raji Gill

appreciate model. that Ken, last just insight. on I that the from question, just And

you of drivers just that grew about, Is million ex-Stratus And of a the business? are like describe there run-rate Stratus business $XX -- like the you kind quarter. around how guys thinking growth it have IP the math, Stratus XX% do been that quarter. mentioned up so basic You looks the might maybe kind $XX in million, the in the some are of would that

Ken Rizvi

business Yes, million last closer did range. $XX it $XX been has right, just that to this so million, quarter, quarter, I it's in you $XX million, to put to it mean, are perspective, that closer

of bit it, on deployments a a leading move So But relative some to well. at where has they primarily does growing, solution we tolerant these has at applications. it business as hardware been quarter-to-quarter to Stratus based the been around extent some availability look It's for fault growing. that specifically little have if high edge where

does what so, that that important? why And is and mean

year, to retail. and to minutes why go types oil, oil water on can and of application an be for trying They last those oil Stratus is are you you be business-critical in run where than compute areas those more treatment and down If system can't go gas. But over can be applications can in five the a area, where it in growing run business applications go refining that That's the to Stratus. require They be you a to plants. months. rigs, has XX customers been can

Mark Adams

HPC over on-premise of follow-on, Raji, add Ken extend where the that, the relationships an and is have. the And to said and going is long-term, along We've be. be the okay. I'd And certainly to lot is if one to just like more AI to we enterprise at enterprise the and movement what give a will going AI more all the the edge. early us believe But environment described that's throughout customer broadly opportunity just AI we the comment, deployed sure,

Operator

Thank you, Mr. Gil.

with is line from the Mark question next Our Lipacis Jefferies. of

proceed. may You

Mark Lipacis

period. Mark, I'm it thanks described it to that undertake kind on you it service do lumpy each project that each expect kind you is in-house? my Can a these the Go for another one And sorry. that, you do describe IPS is then And that it as question. the stack-up taking up or you Hi, management time you less recurring a or being lumpy. of of business? for the then kind is to wondering, just process you of, a of top like -- a ends multi-year and that for transition stream business, project, ahead, become that over

Mark Adams

for out the Thanks long-term. great because us on the over achieving differentiation byproduct some said, kind of more are strategy, and question. to with that really services reinforces aspiration capabilities as you the it and these we our of a over become that very the It's think help recurring and lumpiness our of of our predictable. I is and should But question time much build more that

now, and us opposed transactions to give that to to guys. stability. time one-offs, and if we that be guys. substantially, because our when that's call to time. been And with going focus services I up, so on, about value and into that. but are to yes, us continued excited we given to able customers that it's customers, going earlier remember at, to years growing don't to engagements this going mean, we're we're of will be have ourselves? hardware-only do that with They take But that right tend build this select right skillsets, that execution had we're early select capabilities if And look two Well on, the I our we differentiate that only services continuing be we're how why we on as over to dramatically the asked grown tend our you have we're is our build been that

basis. compute about hard you percentages cycle. of we've a if divestiture people through business a has this builders we're where business. company come the long-term from, a think we're with up, and margin operating mean, as with in new mean, quarter-by-quarter mean, I is on the not it's that I transformation dramatically performance bad a got gross is been, to business the in as income and about stellar memory is memory guys, story, a I pretty we've Brazil, XX-years cash difficult Generating trying now this been one-off in investing

are We this excited about opportunity.

the for this machine is bottleneck learning business biggest memory high-performance solutions leader. is Memory well because compute in and a enterprise I connectivity now Modular AI, plays SMART right really Specialty into think the data analytics and The AI

can customer and bright we I So we put might get that as out and of think over a model have together, long-term, had all lumpiness but the quarter, be solutions aligned design of concentration pretty the if more with future. the some work you past. in the every issues perfect this services engagement to and It our lumpiness, because full we've relationships a not we

Mark Lipacis

you it like mean, do base management would of to you this. a out? Got only the and you. of couple break And care you're have years appreciate into starting I services and

Mark Adams

talked Ken think of of percentage let the our revenue. him and about I in terms clarify I'll it, topline

years remember big I a five ago. since we think multiple but this Now started a better I -- here four go, not three services up this, multiple to -- are times

Ken Rizvi

if think even year versus are services I so first-nine think you I first-nine look the Yes, nine months months last last about XX% up year-over-year. about months so, are up year-to-date, over the the or

implementation. in time Now then well. there And point there services been and as and that design services are within ongoing over logistics like that, time are we've growing

Mark Lipacis

you, helpful. thank Got it, very

Mark Adams

more comment, one the as Mark, asked you question.

the that's doing, hardware is -- to we bidding and value think what you're team what to something as on, this and committed continue system. customer I us to I'm the and think away working you're your the good to in one-offs. we going be is is, at where be overall design proven question offering I expand is with for discipline from super the We've we going invest does to do knitting in and focus IPS. stay the But and that continue that. stick the Do great can certainly

Mark Lipacis

you. Thank you. Got

Mark Adams

Thank you.

Operator

Lipacis. you, Mr. Thank

line Brian of Chin Our the last is question Stifel. from with

proceed. may You

Brian Chin

questions. afternoon, Brazil. Hi, but thanks limited consideration surprised I guess, backtrack impact you. the ops, strip to I'm for few ask you Maybe also reporting us a out great, when more importantly, letting guess job. in by Brazil, nice And thank Good EPS Brazil to I discontinued little any

op back was going quarters revenue the thinking margins the seemed also the to ago? to five Brazil slight business what was mid-teens. when margins across peak low-to cycle, But basically, Op four a be in in Brazil Memory. loss So at at rates in Specialty maybe run operating operating the

Ken Rizvi

Yes, at also and current of as so, of terms that range revenues. tried three Brian if in where Brazil million and we run-rate outline I today, look which $XX is first the think business was where it was quarters, the you the QX, to in

lowest has call a sense in But surprise that business margin and a the that where gross corporate basis has average. for margin lower profile is below Even above a not the on well been margins well the SGH, profile it profile was, always -- historical look that if year-ago. it the business it the a So the been margin below this peak average. it's the of at than for or corporate lower-end had you times,

is And but in terms the margin targeting higher-value on don't I added answers profile size and question, profile solution for where we've the Enterprise that's is today. our we done better customer-base. where in and gross business both the -- know segment the of operating that margin Solutions margin Specialty are where where if

Brian Chin

And about maybe and asking rebuild in quarter, a rather there a enough. you fair starting then the ahead ask full-year. speaking, are I to and kind about Okay, guess, of on just to than you funnel I'll be IPS. bit then IPS go broadly the direct point the

you in growth rates fiscal current on are based how about thinking visibility? IPS 'XX So

Mark Adams

and broader on. as of the issues through kind and timing of this Well, at future factors trends. We've are our we're year the macro relates the I we the deployments, deployments on right that a all supply-chain activity at lot the that being for We're how meaning the our it's There customers. how it that, we're of of long-term to and given timing are front-end budgets to fiscal obviously mentioned working are would I But Brian, call, activity. ready the impact point, forecast think tremendous that seeing got the working just now. of we're some look, budgeting the year at budgets bullish. difficult process not worked

sure environment. on not the macroeconomic woods out-of-the we're I'm

kind to of things customers are. about get process to we obviously future our more as So activity. and excited we're giving our and not budgeting QX just trying overstate and be careful where long-term QX color closer We're to be will you

Ken Rizvi

because -- deal about Brian, announced QX. the [Multiple That the in that take we was our you disc ops. here will Yes, Speakers] asked

not evaluate sale/disc end ops will that Brazil business will QX. available the held as as evaluate of we -- available-for we through we'll as that head We QX, be the for exit whether and or

Brian Chin

back sense. supply engagement it’s think design, in Okay, well the then guess constraints, and to implementation something like the be AI, those expect some of year around into next lastly, about hone maybe I to cycle, as middle revenue? to on of upswing your the maybe translate as reasonable possible in your this you sales, that when discussion And cycle, of sales makes just duration AI

Mark Adams

announcements seeing of and think hedge, some trying the customer and of the would industry, ramps as leaders I I'm industry. in here think areas fair technology in next do the that's you anticipate and as year lead in GPUs, shipping some technology little well in start favorable there's launches and based example. market I that's I sure in newer for the but over conditions not and follow sit supply. to the today what to of terms we're of early and core fair we bit times for from some of availability manufacturing on the a as middle we we been see I'm Brian, some more

Brian Chin

All That’s helpful. Thanks. right.

Operator

session. you, now Chin. the further to concludes Thank will call turn I Adams remarks. over That Mark for the any question-and-answer Mr.

Mark Adams

all for today. joining thank Well, you

about positive very the business. be to continuing are We

we lot in A the like ahead of both but and good the through been, at data our the analytics AI, looked ourselves And have here and the you on starting If We're different on for you Thank machine-learning, appreciate that last team in going going three we and of ‘XX. process. other you. as years, today's the for look-back have -- call. where we our way feel secular attending over transformation we're we of each like we're path might excited future in at tailwinds the directions, August other drive supporting have company. Brazil things each to we we

Operator

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

your may You lines. disconnect now

Penguin Solutions (PENG) 29 Jun 232023 Q3 Earnings call transcript