Q4 2023 SMART Global Holdings Inc Earnings Call
Speaker 1: Welcome to the Smart Global Holdings fourth quarter and full year fiscal 2023 earnings call. My name is Victoria and I'll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Suzanne Schmidt with Investor Relations. Thank you. You may proceed, Suzanne.
Welcome to the Smart Global Holdings fourth quarter and full year fiscal 2023 earnings call. My name is Victoria and I'll be your moderator today, all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end I would now like to pass the conference I forget host Susie.
Instrument with Investor Relations. Thank you you May proceed Suzanne.
Speaker 1: Thank you, operator. Good afternoon and thank you for joining us on today's earnings conference call and webcast to discuss SGH's fourth quarter and full year fiscal 2023 results.
Thank you operator, good afternoon, and thank you for joining us on today's earnings conference call and webcast to discuss F. G. H S fourth quarter and full year fiscal 2023 results.
Speaker 1: On the call today are Mark Adams, Chief Executive Officer, Jack Pacheco, Chief Operating Officer, and Ken Risby, Chief Financial Officer.
On the call today are Mark Adams, Chief Executive Officer, Jack Pacheco, Chief operating Officer, and Ken RISC V Chief Financial Officer.
Speaker 1: You can find the accompanying slide presentation and press release for this call on the investor relations section of our website. We encourage you to go to the site throughout the quarter for the most current information on the company.
You can find the accompanying slide presentation and press release for this call on the Investor Relations section of our website. We encourage you to go to the site throughout the quarter for the most current information on the company.
Speaker 1: I would also like to remind everyone to read the note on the use of forward-looking statements that is included in the press release and the earnings call presentation.
I would also like to remind everyone to read the note on the use of forward looking statements that is included in the press release and the earnings call presentation.
Speaker 1: Please note that during this conference call, the company will make projections and forward-looking statements, including statements about the company's growth trajectory and financial outlook.
Please note that during this conference call the company will make projections and forward looking statements, including statements about the company's growth trajectory and financial outlook.
Speaker 1: Forward-looking statements are based on current beliefs and assumptions, are not guarantees of future performance, and are subject to risks and uncertainties, including, without limitation, the risks and uncertainties reflected in the press release and the earnings call presentation filed today, as well as in the company's most recent annual and quarterly reports.
Forward looking statements are based on current beliefs and assumptions are not guarantees of future performance and are subject to risks and uncertainties, including without limitation, the risks and uncertainties reflected in the press release and the earnings call presentation filed today as well as in the company's most recent annual.
<unk> and quarterly reports.
Speaker 1: The forward looking statements are representative only as of the date they are made and accept as required by applicable law. We assume no responsibility to publicly update or revise any forward looking statements.
The forward looking statements are representative only as of the date, they are made and except as required by applicable law, we assume no responsibility to publicly update or revise any forward looking statements.
Speaker 1: We will also discuss both GAAP and non-GAAP financial measures.
We will also discuss both GAAP and non-GAAP financial measures non.
Speaker 1: non-GAAP measures should not be considered in isolation from, as a substitute for, or superior to our GAAP results.
non-GAAP measures should not be considered in isolation from as a substitute for or superior to our GAAP results.
Speaker 1: We encourage you to consider all measures when analyzing our performance. A reconciliation of the GAP to non- GAAP measures is included in today's press release and accompanying slide presentation.
We encourage you to consider all measures when analyzing our performance a reconciliation of the GAAP to non-GAAP measures is included in today's press release and accompanying slide presentation.
Speaker 1: As a reminder, on June 13, 2023, we entered into an agreement to sell an 81% interest in our smart Brazil operation.
As a reminder, on June 13, 2023, we entered into an agreement to sell an 81% interest in our smart Brazil operation.
Speaker 1: The transaction is expected to close at the end of calendar 23 or early 24, subject to required regulatory approvals and satisfaction of customary closing conditions.
The transaction is expected to close at the end of calendar 'twenty three or early 'twenty four subject to required regulatory approvals and satisfaction of customary closing conditions occur.
Speaker 1: Accordingly, smart Brazil operations are classified as discontinued operations in our financial statements where all periods presented and the following discussion of our financial results relate to our continuing operations, which excludes smart Brazil unless otherwise noted. And with that, let me turn the call over to Mark Adams CEO . Mark.
Accordingly, Smart, Brazil operations are classified as discontinued operations in our financial statements for all periods presented in the following discussion of our financial results relates to our continuing operations, which exclude smart, Brazil, unless otherwise noted.
And with that let me turn the call over to Mark Adams CEO Mark.
Speaker 2: Thanks, Suzanne. Over the last few years, we've been on a journey to transform SGH.
Thanks Suzanne.
Over the last few years.
Been on a journey to transform S. G H.
Speaker 2: from a memory module company into an enterprise solutions company focused on high performance high availability solutions for our valued customers
Memory module company.
Enterprise solutions company focused on high performance.
High availability solution.
Our valued customers.
Speaker 2: I am proud of what we accomplished in fiscal 2023. And I look forward to sharing how we are positioned to the opportunity ahead.
I am proud of what we accomplished in fiscal 2023.
And I look forward to sharing how we are positioned for the opportunities ahead.
Speaker 2: In fiscal 2023, two important transactions furthered our transformation.
And our fiscal 2023, two important transactions.
Our transformation.
And at the beginning of this fiscal year.
Speaker 2: We acquired stratas technologies, a leading provider of high availability, fault-tolerant computing platforms, software and services.
We acquired Stratus technologies, a leading provider of high availability fault tolerant computing platforms software and services.
Speaker 2: This transaction expanded our IPS offerings at the edge and core.
This transaction expanded our Ips offerings at the edge and core.
Speaker 2: added to our large scale global customer base and delivered significant high margin recurring services revenue.
Added to our large scale global customer base and deliver significant high margin recurring services revenue.
Speaker 2: In June 2023, we announced an agreement to divest an 81% stake in smart Brazil.
In June 2023, we announced an agreement to divest and 81% stake in smart Brazil.
Speaker 2: Smart Brazil manufactures high volume standards-based memory products for consumer electronics sold in Brazil.
Smart, Brazil manufacturers high volume standards based memory products for consumer electronics sold in Brazil.
Speaker 2: The completion of this transaction would further align our resources and investments towards developing high performance, high availability, enterprise solutions.
The completion of this transaction will further align our resources and investments towards developing high performance high availability enterprise solutions.
Speaker 2: And from the reporting perspective, because we anticipate closing the Brazil de Vessager in calendar 2023 or early 2024. And from the reporting perspective, we anticipate closing the Brazil de Vessager in calendar 2020 or early 2024.
And.
From a reporting perspective.
We anticipate closing that Brazil divestiture in calendar 2023 or early 2024.
Speaker 2: We are now reporting the results of the Brazil business as discontinued operations for all periods presented in today's earnings announcement.
We are now reporting the results of the Brazil business.
Discontinued operations for all periods presented in today's earnings announcement.
Our commentary today.
Speaker 2: including comparisons to past period will focus on FGH excluding Brazil, which we will further to as our continuing operations. Can we prove-
Including comparing to past period will focus on SDH, excluding Brazil, which.
We refer to as our continuing operations.
Ken will provide more detail.
Speaker 2: As we enter fiscal 2024, we are continuing our transformation.
As we enter fiscal 2024.
We are continuing our transformation.
Speaker 2: At the time of SDH's IPO in May 2017, memory solutions represented 100% of our revenue. You.
At the pilot <unk> IPO in May 2017.
Memory solutions represented 100% of our revenue.
Today, we have significantly expanded beyond memory.
Speaker 2: of the 1.44 billion in total SCH sales for fiscal 0.23. 52% came from IPS. 31% came from memory solution.
Of the $1 4 billion in total SBA sales for fiscal 2023.
52% came from Ips.
31% came from memory solutions.
And 17% from Leds solution.
Speaker 2: In addition, services revenue is now a much larger portion of our total revenue. It has grown from 100-
In addition.
Services revenue is now a much larger portion of our total revenue.
Unknown Executive: Welcome to the Smart Global Holdings fourth quarter and full year fiscal 2023 earnings call. My name is Victoria and I'll be your moderator today. All lines will be needed during the presentation portion of the call with an opportunity for questions and answers at the end.
It has grown from $148 million.
Speaker 2: or 11% of overall sales in fiscal year 22 to 248 million, or 17% of SGH sales, inclusive of a stratus services in FY 23.
We're 11% of overall sales in fiscal year, 'twenty, two to 248 million or 17% of FCA sales inclusive of our strata services in FY2023.
Unknown Executive: I would now like to pass the conference over to your host, Suzanne Schmidt with investor relations. Thank you. You may proceed to Zan.
Speaker 2: Gross profit margins have also improved as we prioritize growing customer engagements where we provide differentiated solutions.
Gross profit margins have also improved as we prioritize growing customer engagement.
We provide differentiated solutions.
Speaker 2: Non-GAT gross margins increased from 29.2% and FY22 to 31.7 and FY23, a record-crested GH.
Suzanne Schmidt: Thank you operator. Good afternoon and thank you for joining us on today's earnings conference call and webcast to discuss SGH's fourth quarter and full year fiscal 2023 results.
non-GAAP gross margins increased from 29, 2% in FY 'twenty two.
To 31, seven in FY2023 a record for sth.
Speaker 2: as part of our strategy to provide high performance, high availability enterprise solutions.
As part of our strategy to provide high performance high availability enterprise solutions.
Suzanne Schmidt: On the call today are Mark Adams, Chief Executive Officer, Jack Pacheco Chief Operating Officer, and Ken Rizvi, Chief Executive Officer. You can find the accompanying slide presentation and press release for this call on the investor relations section of our website. We encourage you to go to the site throughout the quarter for the most current information on the company. I would also like to remind everyone to read the note on the use of forward looking statements that is included in the press release and the earnings call presentation.
Speaker 2: We're aligning each of our three businesses to best serve our customers.
We are aligning each of our three businesses to best serve our customers.
Speaker 2: For IPS, we design, build, deploy, and manage high performance, high availability computing solutions that span the edge, core, and clouds.
For Ips, we design build deploy and manage high performance high availability computing solutions.
Span the edge core and cloud.
Speaker 2: We continue to build our capabilities internally and through partnerships to meet our customers at the AS Computing Needs.
We continue to build our capabilities internally and through partnerships to meet our customers' advanced computing needs.
Speaker 2: For our memory solutions business, we provide customers with high performance, high reliability memory solutions for specialty markets such as Telecom, Datacom, Storage, Data Center, Industrial and other applications.
For our memory solutions business, we provide customers with high performance high reliability memory solutions.
Suzanne Schmidt: Please note that during this conference call, the company will make projections and forward looking statements, including statements about the company's growth trajectory and financial outlook. Forward looking statements are based on current beliefs and assumptions are not guaranteed to use a future performance and are subject to risks and uncertainties, including without limitation, the risks and uncertainties reflected in the press release and the earnings call presentation file today. As well as in the company's most recent annual and quarterly report.
Our specialty markets, such as telecom Datacom storage data center industrial and other applications.
Speaker 2: We are making investments in technologies such as compute, express link, or CXL, and high bandwidth memory, or HBM, to capture opportunities in the most advanced memory applications.
We are making investments in technologies, such as compute express link or CSL and high bandwidth memory or HBM to capture opportunities in the most advanced memory applications.
Speaker 2: For LED solutions, we are focused on delivering high performance, high reliability LEDs to our enterprise customers, leveraging our commitment to innovation, research and development, and our strong and electoral property portfolio.
Probably these solutions, we are focused on delivering a high performance hybrid liability Leds to our enterprise customers leveraging our commitment to innovation.
Suzanne Schmidt: The forward looking statements are representative only as of the date they are made and, except as required by applicable law, we assume no responsibility to publicly update or revise any forward looking statements. We will also discuss both gap and non-gap financial measures. Non-gap measures should not be considered in isolation from as a substitute for or superior to our gap results. We encourage you to consider all measures when analyzing our performance. A reconciliation of the gap to non-gap measures is included in today's press release and accompanying slide presentation.
Search and development and our strong intellectual property portfolio.
Speaker 2: Now let me turn to our results for the fourth quarter.
Now, let me turn to our results for the fourth quarter.
Speaker 2: sales told 317 million excluding Brazil.
Sales totaled $317 million, excluding Brazil.
Speaker 2: Non-GAP gross margin was 31.7% up 460 basis points from the year ago quarter, and non-GAP diluted earnings per share totaled 35 cents. We generated approximately 38 million in cash flow from operations in the quarter.
non-GAAP gross margin was 31, 7%.
Up 460 basis points from the year ago quarter, and non-GAAP diluted earnings per share totaled 35.
We generated approximately $38 million in cash flow from operations in the quarter.
Speaker 2: An exited Q4 with a strong balance sheet, including cash and cash equivalence and short-term investments of $391 million. Now let me review each of our business lines.
And exited Q4 with a strong balance sheet, including cash and cash equivalents and short term investments of $391 million.
Suzanne Schmidt: As a reminder, on June 13, 2023, we entered into an agreement to sell an 81% interest in our smart Brazil operations. The transaction is expected to close at the end of calendar, 23 or early 24, subject to required regulatory approvals and satisfaction of customary closing conditions. Accordingly, smart Brazil operations are classified as discontinued operations in our financial statements where all periods presented and the following discussion of our financial results relate to our continuing operations, which excludes smart Brazil unless otherwise noted.
Now, let me review each of our business lines.
Starting with Ips.
Speaker 2: which is made up of our Penguin Solutions and Stratus Technology Product Lines.
Which is made up of our Penguin solutions, and Stratus technology product lines.
Speaker 2: We design, build, deploy and provide managed services for both high performance computing and the high reliability fault tolerance solutions on premise at the edge and in the cloud.
We design build deploy and provide managed services for both high performance computing.
Our high reliability fault tolerant solutions on premise at the edge and in the cloud.
Speaker 2: Our business model centers on building customer relationships where we serve as a trusted advisor, providing solutions for customer-specific workloads in IT environments.
Our business model centers on building customer relationships, where we serve as a trusted adviser providing solutions for customer specific workloads and <unk> environments.
Mark Adams: And with that, let me turn the call over to Mark Adams CEO Mark. Thanks, Suzanne. Over the last few years, we've been on a journey to transform SGH from a memory module company into an enterprise solutions company focused on high performance, high availability solutions for our valued customers.
Speaker 2: Our goal is to sell a total infrastructure solution from planning all the way through post-inflation managed services.
Our goal is to sell a total infrastructure solution from planning all the way through post installation managed services.
Speaker 2: As we have discussed on prior calls, our revenues may fluctuate from quarter to quarter, depending on factors such as customer engagement, deployment schedules, product scope, supply time, lead times and capital budgets
As we have discussed on prior calls our revenues may fluctuate from quarter to quarter, depending on factors such as customer engagements deployment schedules product scope supply chain lead times and capital budgets.
Mark Adams: I am proud of what we accomplished in fiscal 2023, and I look forward to sharing how we are positioned for the opportunities ahead. In fiscal 2023, two important transactions furthered our transformation. In the beginning of this fiscal year, we acquired strategy technologies, a leading provider of high availability, fault tolerant computing platforms, software, and services. This transaction expanded our IPS offerings at the edge and core, added to our large scale, global customer base, and delivered significant high margin, recurring services revenue.
Speaker 2: We also can have revenue move between quarters from time to time.
We also can have revenue moved between quarters from time to time.
Speaker 2: For example, we received an IPS order in the first week of fiscal 2024 rather than in the last week of fiscal 2023 as we had previously expected.
For example, we received an Ips order in the first week of fiscal 2024.
Rather than in the last week of fiscal 2023, as we had previously expected.
Speaker 2: In the fourth quarter, IPS sales totaled 145 million, which represented 46% of total SJH sales.
In the fourth quarter Ips sales totaled 145 million, which represented 46% of total <unk> sales.
Speaker 2: Our service is revenue, the majority of which is generated at IPS.
Our services revenue.
The majority of which is generated at Ips.
Speaker 2: represented 19% of total SGH revenue in the quarter.
Representing 19% of total <unk> revenue in the quarter.
Speaker 2: Our services include point-time services such as design and implementation.
Our services include point in time services, such as design and implementation.
Speaker 2: as well as longer-term managed services that are typically subject to renewal after an initial term of a year or sometimes longer.
As well as longer term managed services that are typically subject to renewal after an initial term of a year or sometimes longer.
Mark Adams: In June 2023, we announced an agreement to divest an 81% stake in smart Brazil. Smart Brazil manufactures high volume, standards-based memory products for consumer electronics sold in Brazil. The completion of this transaction would further align our resources and investments towards developing high performance, high availability, enterprise solutions. And from the reporting perspective, because we anticipate closing the Brazil divestiture in calendar 2023 or early 2024, we are now reporting the results of the Brazil business as discontinued operations for all periods presented in today's earnings announcement. Our commentary today, including comparisons to past period, will focus on SGH excluding Brazil, which we will further furthered as our continuing operations can provide more detail.
Speaker 2: Penguin Solutions continues to focus on expanding its customer reach and mix in markets such as ultra-scale, financial services, government, healthcare, education, research, and oil and gas.
Penguins solutions continues to focus on expanding its customer reach and mix in markets such as ultra scale financial services government healthcare education and research in oil and gas.
Speaker 2: across each of these verticals, we're seeing interest in next generation AI platform.
Across each of these verticals, we're seeing interest in next generation AI platforms and.
Speaker 2: And we believe Penguin is positioned to provide these solutions given our extensive experience in HPC partnering with some of the leading companies in AI.
And we believe Penguin is positioned to provide these solutions given our extensive experience in HBC.
Partnering with some of the leading companies in AI.
As an example of our strong partnerships.
Speaker 2: Last month, Penguin Solutions was named a channel partner by Nvidia under the Nvidia DGX Ready Managed Services Program.
Last month Penguin solutions was named a channel partner by Nvidia under the Nvidia D. G X ready managed services program.
Speaker 2: Through this program, Penguin Solutions will be able to help customers deploy and manage advanced supercomputing platforms for large-scale AI deployment.
Through this program payment solutions will be able to help customers deploy and manage advance supercomputing platform for large scale AI deployments.
Speaker 2: Customers will benefit from the leadership class performance of DGX platforms combined with an innovative customer first, service oriented approach that penguin solution strives to deliver.
Customers will benefit from our leadership class performance at the Gx platforms combined with an innovative customer first service oriented approach that payment solutions strives to deliver.
Mark Adams: As we enter fiscal 2024, we are continuing our transformation. At the time of SGH's IPO in May 2017, memory solutions represented 100% of our revenue. Today, we have significantly expanded beyond memory. Of the 1.44 billion in total SGH sales for fiscal 2023, 52% came from IPS. 31% came from memory solutions, and 17% from LED solutions. In addition, services revenue is now a much larger portion of our total revenue. It has grown from 148 million or 11% of overall sales in fiscal year 22 to 248 million, or 17% of SGH sales, inclusive of a stratus services in FY23. Gross profit margins have also improved as we prioritize growing customer engagements where we provide differentiated solutions. Non-gap gross margins increased from 29.2% in FY22 to 31.7 in FY23, a record for SGH.
Speaker 2: Moving on to stratus technologies, which continues to perform well with new customer wins for the ZTC Edge product, a secure, rugged and highly automated computing platform that runs business critical applications quickly, reliably and efficiently.
Moving on the Stratus technologies, which continues to perform well with new customer wins for the DTC as product a secure rugged and highly automated computing platform that runs business critical applications quickly reliably and efficiently.
Speaker 2: Additionally, a new generation of stratus fault power computing platforms is targeted for launch later this calendar year.
Additionally, a new generation of Stratus fault tolerant computing platforms is targeted for launch later this calendar year.
Speaker 2: Looking ahead, Stratus is well positioned to leverage its long-standing expertise in advance, highly reliable edge computing to develop AI solutions at the edge.
Looking at Stratasys is well positioned to leverage its long standing expertise and advanced highly reliable edge computing to develop AI solutions at the edge.
Speaker 2: As I have mentioned on prior calls, our IPS business, specifically with regards to HPC, is lumpy in nature with high customer concentration.
As I had mentioned on prior calls.
Our Ips business.
<unk> with regards to HBC is lumpy in nature with high customer concentration.
Speaker 2: Well, we continue to deeply engage with our existing customers. We are also focused on reducing customer concentration over the next few years.
While we continue to deeply engage with our existing customers. We are also focused on reducing customer concentration over the next few years.
Speaker 2: We are prioritizing driving higher quality revenue through a customer-focused products and services approach.
We are prioritizing driving higher quality revenue through a customer focused products and services approach.
Speaker 2: We anticipate IPS revenue will be somewhat weighted towards a second half of fiscal year 2024 based on our current visibility, which is affected by factors such as time have customer deployments, supply chain challenge, and customer capital budgets.
We anticipate Ips revenue will be somewhat weighted towards the second half of fiscal year 2024 based on our current visibility, which is affected by factors such as timing of customer deployments supply chain challenge and customer capital budgets.
Mark Adams: As part of our strategy to provide high performance, high availability, enterprise solutions, we are aligning each of our three businesses to best serve our customers. For IPS, we design, build, deploy, and manage high performance, high availability, computing solutions that span the edge, core, and clouds. We continue to build our capabilities internally and through partnerships to meet our customers advanced computing needs. For our memory solutions business, we provide customers with high performance, high reliability memory solutions for especially markets such as telecom, datacom, storage, data center, industrial, and other applications.
Shifting to memory.
Speaker 2: Our memory solutions group, which operates under the smart modular brand, is focused on enterprise-special memory applications.
Our memory solutions group, which operates under the smart modular brand is focused on enterprise specialty memory applications.
Speaker 2: As a reminder, my comments today are limited to our continuing operations.
As a reminder, my comments today are limited to our continuing operations.
Speaker 2: and therefore pertained especially memory only excluding Brazil.
And therefore pertained to specialty memory, only excluding Brazil.
Speaker 2: And the fourth quarter, especially memory revenue came in at 105 million for 33% of total SGA sales and was relatively flat with the third quarter.
In the fourth quarter specialty memory revenue came in at $105 million or 33% of total SBA sales and was relatively flat with the third quarter.
Speaker 2: Well, we are starting to see some early signs of price stabilization in the memory markets going into the first quarter of fiscal 2024. Demand for specialty products is
While we are starting to see some early signs of price stabilization in the memory markets going into the first quarter of fiscal 2024.
Mark Adams: We are making investments in technologies such as compute, express link, or CXL, and high bandwidth memory, or HBN, to capture opportunities in the most advanced memory applications. For LED solutions, we are focused on delivering high performance, high reliability LEDs to our enterprise customers, leveraging our commitment to innovation, research and development, and our strong intellectual property portfolio.
Demand for specialty products is lower than expected.
Speaker 2: Inventories are elevated at a number of our key customers and lead times are lower, affecting customers buying patterns and making forecasting difficult.
Inventories are elevated at a number of our key customers and lead times are lower affecting customers' buying patterns and making forecasting difficult.
Speaker 2: That said, qualifications of new products are progressing, both for our 64 GB DDR4 and our 32 GB DDR5, very low profile or VLP R-DM products.
That said qualifications of new products are progressing both for our 64 gigabyte DVR for and our 32 gigabyte DDR five very low profile or a V. L. P R them products.
Mark Adams: Now let me turn to our results for the fourth quarter. Sales told 317 million, excluding Brazil. Non-GAP gross margin was 31.7%, up 460 basis points from the year ago quarter, and non-GAP diluted earnings per share totaled 35 cents. We generated approximately 38 million and cash flow from operations in the quarter, and exited Q4 with a strong balance sheet, including cash, and cash equivalence, and short-term investments of 391 million.
Speaker 2: Our growth strategy remains in place to focus on hyperscalers and data centers in addition to our current customer base and more specifically AI, machine learning, and data analytics applications, where high performance memory is essential.
Our growth strategy remains in place to focus on Hyperscale and data centers. In addition to our current customer base and more specifically AI machine learning and data analytics applications, where high performance memory is essential.
Speaker 2: CXL remains a key technology standard for memory expansion and memory pooling.
<unk> remains a key technology standard for memory expansion and memory pooling.
Speaker 2: facilitating breakthrough performance for data intensive usage models.
Philip hitting breakthrough performance for data intensive usage models.
Speaker 2: One example of how we are leveraging our know-how is Smart's CXL Type 3 memory products, which address the industry's need for more memory per processor core.
One example of how we are leveraging our Knowhow is smarts CSL type three memory products, which address the industry's need for more memory per processor core.
Mark Adams: Now let me review each of our business lines. Starting with IPS, which is made up of our penguins solutions and stratus technology product lines, we design, build, deploy, and provide managed services for both high performance computing, and the high reliability fault tolerance solutions on premise, at the edge, and in the cloud. Our business model centers on building customer relationships where we serve as a trusted advisor providing solutions for customer specific workloads and IT environments.
Speaker 2: This approach allows for more flexible and scalable memory architecture.
This approach allows for a more flexible and scalable memory architecture.
Speaker 2: where memory devices can be added or removed as needed without the need to replace or upgrade the entire system.
Where memory devices can be added or removed as needed without the need to replace or upgrade the entire system.
Speaker 2: We are also releasing new specially products for the data center, including Smart DC 4800 data center SSDs. A family of PCIe Gen 4 data center class drives designed to the Open Compute Project or OCP standards.
We are also releasing new specialty products for the data center, including Smart D. C 4800 data Center Ssds, a family of Pcie Gen. Four datacenter class drives designed to the open compute project or Otp standards.
Speaker 2: This design expands the base of potential customers and helps drive a greater level of standardization for data center and even classic enterprise storage applications. Despite.
This design expand the base of potential customers and helped drive a greater level of standardization for data center, and even classic enterprise storage applications.
Mark Adams: Our goal is to sell a total infrastructure solution from planning all the way through post-installation managed services. As we have discussed on prior calls, our revenues may fluctuate from quarter to quarter depending on factors such as customer engagements, deployment schedules, product scope, supply chain lead times, and capital budgets. We also can have revenue move between quarters from time to time. For example, we received an IPS order in the first week of fiscal 2024, rather than in the last week of fiscal 2023, as we had previously expected.
Despite continued headwinds in memory overall.
Speaker 2: We believe our especially memory business perform well financially, achieving 14% operating margins in the fourth quarter.
We believe our specialty memory business performed well financially achieving 14% operating margins in the fourth quarter.
Speaker 2: Now turning to our LED solutions group, which operates under the Cree LED brand and produces application optimized LEDs for specially lighting, video screens, gaming displays, portable, outdoor and architectural lighting.
Now turning to our OLED solutions group, which operates under the Cree led brand and produces application optimize Leds for specialty lighting video screens gaming displays horticulture outdoor and architectural lighting.
Mark Adams: In the fourth quarter, IPS sales totaled 145 million, which represented 46% of total SGH sales. Our services revenue, the majority of which is generated IPS, represented 19% of total SGH revenue in the quarter. Our services include point-time services, such as design and implementation, as well as longer-term managed services that are typically subject to renewal after an initial term of a year or sometimes longer. Penguin Solutions continues to focus on expanding its customer reach and mix in markets such as ultra-scale, financial services, government, healthcare, education, research, and oil and gas.
Speaker 2: For the fourth quarter of fiscal 2023, LED solutions totaled 66 million, or 21% of overall SGH sales, and we're up 3% sequentially.
For the fourth quarter of fiscal 2023, Leds solutions totaled $66 million or 21% of overall SDA itself.
And we're up 3% sequentially.
Speaker 2: We continue to see customer design activity improving, heading into fiscal year 24. In particular, the product launch of our X-LAMP XPG4 is another innovation in a long line of high-performance LEDs from CREAT.
We continue to see customer design activity, improving heading into fiscal year 'twenty four.
In particular, the product launch of our ex lamp X P. G. Four is another innovation in a long line of high performance Leds from Cree.
Speaker 2: The XPG-4 provides improved performance for a wide range of both indoor and outdoor directional lighting applications.
The X P. G. Four it provides improved performance for a wide range of both indoor and outdoor directional lighting applications.
Speaker 2: requiring precise light control, long-term reliability, and exceptional color over angle performance.
Requiring precise light control long term reliability and exceptional color over annual performance.
Speaker 2: with Creed LEDs commitment to customer-focused innovation.
Mark Adams: Across each of these verticals, we are seeing interest in next generation AI platforms, and we believe Penguin is positioned to provide these solutions given our extensive experience in HPC partnering with some of the leading companies in AI. As an example of our strong partnerships, last month Penguin Solutions was named a channel partner by NVIDIA, under the NVIDIA DGX Ready Managed Services Program. Through this program, Penguin Solutions will be able to help customers deploy and manage advanced supercomputing platforms for large-scale AI deployments.
With Cree Leds commitment to customer focused innovation.
Speaker 2: We are confident that our technology leadership, strong IP, and capital-light outsourced manufacturing model combined with a discipline expense management has positioned the business to succeed as the market recovers.
We are confident that our technology leadership strong IP and capital light outsourced manufacturing model combined with a disciplined expense management has.
It has positioned the business to succeed as the market recovers.
Speaker 2: Before I hand it over to Ken, I'd like to call your attention to our third annual ESG report, which was published last week and is available now on our website.
Before I hand, it over to Ken I'd like to call your attention to our third annual ESG report.
Which was published last week and is available now on our website.
Speaker 2: I am proud of the team's progress towards achieving our goal of net zero corporate emissions by 2030.
I am proud of the team's progress towards achieving our goal of net zero carbon emissions by 2030.
Speaker 2: And now, Ken will provide a more detailed review of our fourth quarter and full year fiscal 2023 financial performance and our guidance for next quarter. Ken?
And now Kevin will provide a more detailed review of our fourth quarter and full year of fiscal 2023 financial performance and.
Mark Adams: Customers will benefit from the leadership class performance of DGX platforms combined with an innovative customer-first service-oriented approach that Penguin Solutions strives to deliver, moving on to stratus technologies which continues to perform well with new customer wins for the ZTC Edge product, a secure, rugged, and highly automated computing platform that runs business-critical applications quickly, reliably, and efficiently. Additionally, a new generation of stratus-called current computing platforms is targeted for launch later this calendar year. Looking ahead, stratus is well-positioned to leverage its long-standing expertise in advance, highly reliable edge computing to develop AI solutions at the edge.
And our guidance for next quarter Ken.
Speaker 3: Thanks Mark. As a reminder, we anticipate completing the sale of 81% of our smart Brazil operations by the end of this calendar year or early 2024. And have classified our smart Brazil operations as discontinued operations for all periods present.
Thanks, Mark as a reminder, we anticipate completing the sale of 81% of our smart Brazil operations by the end of this calendar year or early 2024 and have classified our smart Brazil operations as discontinued operations for all periods presented.
Speaker 3: I would like to address a few items related to our discontinued and continuing operations before moving on to our results.
I would like to address a few items related to our discontinued and continuing operations before moving onto our results.
Speaker 3: First, our fourth quarter and fiscal year 2023 results were impacted by a number of gap items related to the contemplated sale and migration of smart Brazil into discontinued operation.
First our fourth quarter and fiscal year 2023 results were impacted by a number of GAAP items related to the contemplated sale and migration of smart Brazil into discontinued operations.
Mark Adams: As I have mentioned on prior calls, our IPS business, specifically with regards to HPC, is lumpy in nature with high customer concentration. While we continue to deeply engage with our existing customers, we are also focused on reducing customer concentration over the next few years. We are prioritizing driving higher-quality revenue through a customer-focused products and services approach. We anticipate IPS revenue will be somewhat weighted towards a second half of fiscal year 2024 based on our current visibility which is affected by factors such as time-to-have customer deployments, supply chain challenge, and customer capital budgets.
Speaker 3: These items include the right down to smart Brazil's assets and recognition of a one-time non-cash loss primarily related to the historical effects, cumulative translation adjustments at smart Brazil.
These items include the write down of smart Brazil's assets in recognition of a one time noncash loss primarily related to the historical FX cumulative translation adjustments at smart Brazil.
Speaker 3: Second, in our earnings release and on our website, we have provided a table showing historical financials for our continuing operations back to fiscal 2021 by quarter.
Second in our earnings release and on our website, we have provided a table showing historical financials for our continuing operations back to fiscal 2021 by quarter we.
Speaker 3: We believe recasting our historical financials to show continuing operations provides supplementary information that our investors may find useful in comparing our results to prior periods.
We believe recasting our historical financials to show continuing operations provide supplementary information that our investors may find useful in comparing our results to prior periods.
Mark Adams: Shifting to memory, our memory solutions group, which operates under the smart modular brand, is focused on enterprise-specialty memory applications. As a reminder, my comments today are limited to our continuing operations and therefore pertained to specially memory-only excluding Brazil. In the fourth quarter, specially memory revenue came in at 105 million or 33% of total SGH sales and was relatively flat with the third quarter. While we are starting to see some early signs of price stabilization in the memory markets, going into the first quarter of fiscal 2024, demand for specially products is lower than expected.
Speaker 3: Additionally, information regarding our historical continuing operations will be included in our 10K, which we will file later this month.
Additionally, information regarding our historical continuing operations will be included in our 10-K, which we will file later this month.
Speaker 3: Finally, in the fourth quarter in our continuing operations and on a gap space...
And finally in the fourth quarter in our continuing operations and on a GAAP basis, we recognized a onetime noncash income tax benefit of approximately $70 million from the release of our valuation allowance on our U S deferred tax assets.
Speaker 3: We recognize a one-time non-cash income tax benefit of approximately $70 million from the release of our valuation allowance on our US deferred tax at $1 million.
Speaker 3: As a result, our ending net deferred tax assets on our balance sheet for continuing operations, as of the end of our fiscal year is approximately $74 million versus the $1 million we had at the end of the prior year.
As a result, our ending net deferred tax assets on our balance sheet for continuing operations as of the end of our fiscal year is approximately $74 million.
Versus the $1 million, we had at the end of the prior year.
Mark Adams: Inventories are elevated at a number of our key customers and lead times are lower, affecting customers buying patterns and making forecasting difficult. That said, qualifications of new products are progressing, both for our 64 GB DDR4 and for our 32 GB DDR5, very low profile, or VLP RDM products. Our growth strategy remains in place to focus on hyperscalers and data centers, in addition to our current customer base, and more specifically AI, machine learning, and data analytics applications where high performance memory is essential.
Speaker 3: Given our financial performance and expected financial performance going forward, we expect to generate future taxable income to be able to recover and use our deferred tax assets.
Given our financial performance and expected financial performance going forward, we expect to generate future taxable income to be able to recover and use our deferred tax assets.
Speaker 3: This tax benefit for US valuation allowance.
This tax benefit for U S valuation allowance release is excluded in our non-GAAP results for the fourth quarter and for fiscal 2023.
Speaker 3: excluded in our non-GAB results for the fourth quarter and for fiscal 2020.
Speaker 3: I will now focus my remarks on our non-gap results for continuing operations, which are reconciled to Gap in our earnings release tables and in the investor materials on our website.
I will now focus my remarks on our non-GAAP results for continuing operations, which are reconciled to GAAP in our earnings release tables and in the investor materials on our website.
Speaker 3: I would like to begin by reviewing some historical financial data recast on a continuing operation basis to exclude Smart Brazil to aid in the comparison of our fiscal year 2023 results to prior periods.
Mark Adams: CXL remains a key technology standard for memory expansion and memory pooling, facilitating breakthrough performance for data-intensive usage models. One example of how we are leveraging our know-how is Smart CXL Type 3 memory products, which address the industry's need for more memory per processor core. This approach allows for more flexible and scalable memory architecture, where memory devices can be added or removed as needed without the need to replace or upgrade the entire system.
I would like to begin by reviewing some historical financial data recast on a continuing operations basis to exclude smart Brazil to aid in the comparison of our fiscal year 2023 results to prior periods.
Speaker 3: Net sales excluding Smart Brazil or 1.06 billion in fiscal 2021, 1.4 billion in fiscal 2022, and 1.44 billion in fiscal 2023.
Net sales, excluding smart, Brazil, or 1.06 billion in fiscal 2020 114 billion in fiscal 2022, and 144 billion in fiscal 2023.
Speaker 3: non-gap gross margin excluding smart Brazil was 24.4% in fiscal 2020.
non-GAAP gross margin, excluding smart, Brazil was 24, 4% in fiscal 2021.
Mark Adams: We are also releasing new specially products for the data center, including Smart DC 4800 data center SSDs, a family of PCIe Gen 4 data center class drives designed to the Open Compute Project or OCP standards. This design expands the base of potential customers and helps drive a greater level of standardization for data center and even classic enterprise storage applications.
Speaker 3: 29.2% in fiscal 2022 and a record 31.7% in fiscal 2023.
29, 2% in fiscal 2022, and a record 31, 7% in fiscal 2023.
Speaker 3: non-gap operating margins, excluding smart Brazil, were 7.9% in fiscal 2021, 12.7% in fiscal...
And non-GAAP operating margins, excluding smart, Brazil were seven 9% in fiscal 2021.
<unk>, 7% in fiscal 2022, and 12, 5% in fiscal 2023.
Speaker 3: and 12.5% in fiscal 2023.
Mark Adams: Despite continued headwinds and memory overall, we believe our specially memory business performed well financially, achieving 14% operating margins in the fourth quarter.
Speaker 3: Non-GAP earnings per share, excluding smart Brazil, were $1.23 in fiscal 2021, $2.65 in fiscal 2022, and $2.52 in fiscal 2023.
non-GAAP earnings per share, excluding smart, Brazil, where $1 and 23 in fiscal 2021 and $2 65 in fiscal 2022 and $2 52 in fiscal 2023.
Mark Adams: Now turning to our LED solutions group, which operates under the Cree LED brand and produces application optimized LEDs for specially lighting, video screens, gaming displays, horticulture, outdoor and architectural lighting. For the fourth quarter of fiscal 2023, LED solutions totaled 66 million or 21% of overall SGH sales, and we're up 3% sequentially. We continue to see customer design activity improving heading into fiscal year 24. In particular, the product launch of our XLAMP XPG4 is another innovation in a long line of high performance LEDs from Cree.
Speaker 3: and our sales mix was as follows. For fiscal 2021, IPS was 33%, memory 46% and LED 21.
And our sales mix was as follows for fiscal 2021, Ips was 33% memory, 46% and 21% for.
Speaker 3: For fiscal 2022, IPS was 32%, memory 40%, and LED 29%.
For fiscal 2022, Ips was 32% memory, 40% and led the 29%.
Speaker 3: For fiscal 2023, IPS was 52%, memory 31%, and LED 17%.
And for fiscal 2023, Ips was 52% memory, 31% and led the 17%.
Mark Adams: The XPG4 provides improved performance for a wide range of both indoor and outdoor directional lighting applications, requiring precise light control, long-term reliability, and exceptional color over-angle performance. With Cree's LED's commitment to customer-focused innovation, we are confident that our technology leadership, strong IP, and capital-light outsourced manufacturing model combined with a discipline expense management, has positioned the business to succeed as the market recovers.
Speaker 3: net sale from product excluding smart Brazil.
Net sales from product, excluding smart Brazil.
Speaker 3: were as follows. 959 million in fiscal 2021, 1.25 billion in fiscal 2022, and 1.19 billion in fiscal 2023.
Or as follows $959 million in fiscal 2021 125 billion in fiscal 2022 and $1. One 9 billion in fiscal 2023.
Speaker 3: Net sale from services excluding Smart Brazil were as follows. 96.2 million in fiscal 2021 or 9.1% of net sale.
Net sales from services, excluding smart, Brazil, whereas follows $96 2 million in fiscal 2021 or nine 1% of net sales.
Speaker 3: 148.4 million in fiscal 2022 or 10.6% of net sales and a record 248.4 million in fiscal 2023 or 17.2% of net sales.
$148 4 million in fiscal 2022, or 10, 6% of net sales and a record $248 4 million in fiscal 2023 or 17, 2% of net sales.
Mark Adams: Before I hand it over to Ken, I'd like to call your attention to our third annual ESG report, which was published last week and is available now on our website. I am proud of the team's progress towards achieving our goal of net zero carbon emissions by 2030.
Speaker 3: Our historical financials recasts to exclude smart Brazil highlight the strong gross margin progression in our continuing operations over the last two years, with gross margins exceeding 30% in fiscal 2023. In addition, we have seen significant growth from services revenue, which totaled close to a quarter of a billion dollars in fiscal 2023.
Our historical financials recast to exclude smart, Brazil highlight the strong gross margin progression in our continuing operations over the last two years with gross margins exceeding 30% in fiscal 2023.
Ken Rizvi: And now, Ken will provide a more detailed review of our fourth quarter and full year fiscal 2023 financial performance and our guidance for next quarter. Ken? Thanks, Mark.
In addition, we have seen significant growth from services revenue, which totaled close to a quarter of a $1 billion in fiscal 2023.
Ken Rizvi: As a reminder, we anticipate completing the sale of 81% of our Smart Brazil operations by the end of this calendar year or early 2024. And have classified our Smart Brazil operations as discontinued operations for all periods presented. I would like to address a few items related to our discontinued and continuing operations before moving on to our results. First, our fourth quarter and fiscal year 2023 results were impacted by a number of gap items related to the contemplated sale and migration of Smart Brazil into discontinued operations.
Speaker 3: Now let me turn to our fiscal 2023 four year and fourth quarter 2023 results from our continuing operation.
Now, let me turn to our fiscal 2023 full year and fourth quarter 2023 results from our continuing operations.
Speaker 3: Overall revenues for fiscal 2023 were up approximately 3% from fiscal 2022 to 1.44 billion up from 1.4 billion in fiscal 2022, driven by the strong growth in our IPS segment, offset by some headwinds in our memory and LED segments.
Overall revenues for fiscal 2023 were up approximately 3% from fiscal 2022 to 1.4 dollars 4 billion up from $1 4 billion in fiscal 2022, driven by the strong growth in our Ips segment offset by some headwinds in our memory and led segments.
Ken Rizvi: These items include the right down to Smart Brazil's assets and recognition of a one-time non-cash loss primarily related to the historical FX cumulative translation adjustments at Smart Brazil. Second, in our earnings release and on our website we have provided a table showing historical financials for our continuing operations back to fiscal 2021 by quarter. We believe recasting our historical financials to show continuing operations provides supplementary information that our investors may find useful in comparing our results to prior periods.
Speaker 3: yearly sales by Business Unit, where it follows, IPS 750 million in fiscal 2023, up from 441 million in fiscal 22, and IPS benefited from the inclusion of Stratus, which contributed $173 million of sales in fiscal 2023.
Yearly sales by business unit, whereas follows Ips $750 million in fiscal 2023 up from $441 million in fiscal 'twenty, two and Ips benefited from the inclusion of Stratus, which contributed $173 million of sales in fiscal 2023.
Speaker 3: memory 443 million at fiscal 2020.
Memory $443 million in fiscal 2023 down from $552 million in fiscal 2022.
Speaker 3: down from 552 million in fiscal 2022.
Speaker 3: And as a reminder, this excludes smart Brazil. LED was $248 million in fiscal 2020.
And as a reminder, this excludes smart Brazil.
<unk> was $248 million in fiscal 2023 down from $403 million in fiscal 2022.
Speaker 3: down from 403 million in fiscal 2020.
Speaker 3: This translates into a sales mix of approximately 52% IPS, 31% memory, and 17%.
This translates into a sales mix of approximately 52% Ips, 31% memory and 17% led.
Ken Rizvi: Additionally, information regarding our historical continuing operations will be included in our 10K, which we will file later this month. And finally, in the fourth quarter, in our continuing operations and on a gap basis, we recognized a one-time non-cash income tax benefit of approximately $70 million from the release of our valuation allowance on our U.S, deferred tax assets. As a result, our ending net deferred tax assets on our balance sheet for continuing operations as of the end of our fiscal year is approximately $74 million versus the $1 million we had at the end of the prior year.
Speaker 3: Our overall product and services were as follows. Products 1.19 billion in fiscal 2023 versus 1.25 billion in fiscal 2022 down approximately 4%. And services at 248 million in fiscal 2023 versus 148 million in fiscal 2022 up approximately 100 million or 67.
Our overall product and services were as follows products was $1 9 billion in fiscal 2023 versus 125 billion in fiscal 2022 down approximately 4%.
In services at $248 million in fiscal 2023 versus $148 million in fiscal 2022 up approximately 100 million or 67%.
Speaker 3: As previously noted, our services revenue includes longer-term services as well as point-time services, such as logistics and implementation service.
As previously noted our services revenue includes longer term services as well as point in time services, such as logistics and implementation services.
Speaker 3: The growth of our services revenue in fiscal 2023 highlights are continued focused on delivering value-added solutions to our enterprise cuts.
The growth of our services revenue in fiscal 2023 highlights our continued focus on delivering value added solutions to our enterprise customers.
Ken Rizvi: Given our financial performance and expected financial performance going forward, we expect to generate future taxable income to be able to recover and use our deferred tax assets. This tax benefit for U.S, valuation allowance release is excluded in our non-gap results for the fourth quarter and for fiscal 2023. I will now focus my remarks on our non-gap results for continuing operations, which are reconciled to gap in our earnings release tables and in the investor materials on our website.
Speaker 3: Non-Gap gross margins in fiscal 2023, or 31.7% up from 29.2% in fiscal 2022, driven by margin improvements from IPS and them...
non-GAAP gross margins in fiscal 2023, or 31, 7% up from 29, 2% in fiscal 2022, driven by margin improvements from Ips in memory.
Speaker 3: And in fiscal 2023 are non-GAF diluted earnings per share from continuing operations or $2.52 down from $2.65 in fiscal 2020.
And in fiscal 2023, our non-GAAP diluted earnings per share from continuing operations were $2 52.
Down from $2 65 in fiscal 2022, and adjusted EBITDA was $209 million up from $199 million in fiscal 2022.
Speaker 3: and adjusted EBITDA with $200 and $9 million up from $199 million in fiscal 2022. In addition, we exhibited
Ken Rizvi: I would like to begin by reviewing some historical financial data recast on a continuing operations basis to exclude Smart Brazil to aid in the comparison of our fiscal year 2023 results to prior periods. Net sales excluding Smart Brazil were $1.06 billion in fiscal 2021, $1.4 billion in fiscal 2022 and $1.44 billion in fiscal 2023. Non-GAAP gross margin, excluding Smart Brazil, was 24.4% in fiscal 2021, 29.2% in fiscal 2022, and a record 31.7% in fiscal 2023, and non-GAAP operating margins, excluding Smart Brazil, were 7.9% in fiscal 2021, 12.7% in fiscal 2022, and 12.5% in fiscal 2023.
In addition, we exited the year with a strong balance sheet, including year end cash and short term investments of $391 million.
Speaker 3: including your end cash and short term investments of $391 million.
Speaker 3: As a reminder, this excludes any cash at Smart Brazil, which was reflected in our discontinued operation.
As a reminder, this excludes any cash at smart, Brazil, which was reflected in our discontinued operations.
Speaker 3: Now let me turn to our fourth quarter results from continuing operations. Total SGA revenues were $317 million and non-GAP gross margin came in at 31.7%. Non-GAP diluted earnings per share or 35 cents per share for the fourth quarter.
Now, let me turn to our fourth quarter results from continuing operations total <unk> revenues were $317 million in non-GAAP gross margin came in at 31, 7% non.
non-GAAP diluted earnings per share or <unk> 35 per share for the fourth quarter.
Speaker 3: In the fourth quarter, our overall service is revenue totaled $60 million up from 31 million in the year ago quarter, helped by the inclusion of Stratus, which we acquired in the beginning of our fiscal 2023. Product revenues were 200 and 50-
In the fourth quarter, our overall services revenue totaled $60 million up from $31 million in the year ago quarter helped by the inclusion of Stratus, which we acquired in the beginning of our fiscal 2023.
Product revenues were $257 million.
Speaker 3: and fourth quarter revenues by business unit were as follows.
And fourth quarter revenues by business unit were as follows.
Speaker 3: IPS $145 million, memory $105 million, and LED at $66 million.
Ips $145 million memory $105 million and led at $66 million.
Ken Rizvi: Non-GAAP earnings per share, excluding Smart Brazil, were $1.23 in fiscal 2021, $2.65 in fiscal 2022, and $2.52 in fiscal 2023. And our sales mix was as follows, for fiscal 2021, IPS was 33%, memory 46%, and LED 21%. For fiscal 2022, IPS was 32%, memory 40%, and LED 29%. And for fiscal 2023, IPS was 52%, memory 31%, and LED 17%. Net sales from product, excluding Smart Brazil, were as follows, 959 million in fiscal 2021, 1.25 billion in fiscal 2022, and 1.19 billion in fiscal 2023.
Speaker 3: This translates into a sales mix of approximately 46% IPS, 33% memory, and 21% L.
This translates into a sales mix of approximately 46% Ips, 33% memory and 21% led.
Speaker 3: Nongat Gross Margin for SGH in Q4 was 31.7% up from 27.1% in the year ago quarter, primarily driven by IPS.
non-GAAP gross margin for <unk> in Q4 was 31, 7% up from 27, 1% in the year ago quarter, primarily driven by Ips.
Speaker 3: and non-gap operating expenses for the fourth quarter were $70 million up from $66.7 million. Primarily due to third party spend and personnel related expense.
non-GAAP operating expenses for the fourth quarter were $70 million up from $66 7 million <unk>.
Primarily due to third party spend and personnel related expenses.
Speaker 3: and operating expenses were up from $56.5 million in the year ago quarter, primarily due to the inclusion of stress.
And operating expenses were up from $56 5 million in the year ago quarter, primarily due to the inclusion of stratus.
Speaker 3: Non-Gaeth diluted earnings per share for the fourth quarter of 2023 with 35 cents compared with 63 cents per share in the year ago quarter.
non-GAAP diluted earnings per share for the fourth quarter of 2023 was <unk> 35, compared with 63.
Per share in the year ago quarter.
Speaker 3: An adjusted EBITDA for the fourth quarter of 2023 was $38 million or approximately 12% of sales compared with $47 million or 13% of sales in the year ago quarter.
And adjusted EBITDA for the fourth quarter of 2023 was $38 million or approximately 12% of sales compared with $47 million or 13% of sales in the year ago quarter.
Ken Rizvi: Net sales from services excluding Smart Brazil were as follows, 96.2 million in fiscal 2021, or 9.1% of net sales, 148.4 million in fiscal 2022, or 10.6% of net sales, and a record 248.4 million in fiscal 2023, or 17.2% of net sales. Our historical financials recasts to exclude Smart Brazil highlight the strong gross margin progression in our continuing operations over the last two years, with gross margins exceeding 30% in fiscal 2023. In addition, we have seen significant growth from services revenue, which totaled close to a quarter of a billion dollars in fiscal 2023.
Speaker 3: Now turning to our balance sheet highlights. For working capital, our net account receivables totaled $219 million compared with $222 million last quarter. And day sales outstanding came in at approximately 48 days up from 41 days in the last quarter, primarily due to the timing of invoicing and collecting.
Now turning to our balance sheet highlights for working capital our net accounts receivables totaled $219 million compared with $222 million last quarter and days sales outstanding came in at approximately 48 days up from 41 days in the last quarter primarily.
<unk> due to the timing of invoicing and collections.
Speaker 3: Inventory told 175 million at the end of the fourth quarter, down from 204 million at the end of the prior quarter.
Inventory totaled $175 million at the end of the fourth quarter down from $204 million at the end of the prior quarter.
Speaker 3: The decrease in inventory was driven primarily by a reduction in IPS and memory inventories in the fourth quarter.
The decrease in inventory was driven primarily by a reduction in Ips and memory inventories in the fourth quarter.
Speaker 3: In inventory turns, we're 7.5 times in the fourth quarter, approximately flat versus the 7.6 times in the prior quarter.
And inventory turns were seven five times in the fourth quarter approximately flat versus the seven six times in the prior quarter.
Ken Rizvi: Now, let me turn to our fiscal 2023 four-year and fourth quarter, 2023 results from our continuing operations. Overall, revenues for fiscal 2023 were up approximately 3% from fiscal 2022 to 1.44 billion, up from 1.4 billion in fiscal 2022, driven by the strong growth in our IPS segment, offset by some headwinds in our memory and LED segments. Yearly sales by business unit were as follows, IPS 750 million in fiscal 2023, up from 441 million in fiscal 2022, and IPS benefited from the inclusion of Stratis, which contributed $173 million of sales in fiscal 2023.
Speaker 3: and consistent with past practice, net accounts receivables, day sales, upstanding, and inventory turnover are calculated on a gross sale and cost of goods sold basis, which were 418 million and 326 million, respectively, for the four.
And consistent with past practice net accounts receivables days sales outstanding and inventory turnover are calculated on a gross sales and cost of goods sold basis, which were $418 million and $326 million, respectively for the fourth quarter.
Speaker 3: As a reminder, the difference between our gross and net revenues related to our logistic services, which is accounted for on an agent-based meaning, that we only recognize the net profit on logistic services as revenue.
As a reminder, the difference between our gross and net revenues related to our logistics services, which is accounted for on an agent basis, meaning that we only recognize the net profit on logistics services as revenue.
Speaker 3: Cash and cash of global insurance and short-term investments total a record 391 million at the end of the fourth quarter. Up 44 million compared with 347 million at the end of the prior quarter.
Cash and cash equivalents and short term investments totaled a record $391 million at the end of the fourth quarter up $44 million compared with $347 million at the end of the prior quarter.
Ken Rizvi: Memory, $443 million in fiscal 2023, Down from $552 million in fiscal 2022. And as a reminder, this excludes Smart Brazil. LED was $248 million in fiscal 2023, down from $403 million in fiscal 2022. This translates into a sales mix of approximately 52 percent IPS, 31 percent memory, and 17 percent LED.
Speaker 3: fourth quarter cash flows from operating activities totaled $38 million compared with $33 million in the prior quarter
Fourth quarter cash flows from operating activities totaled $38 million compared with $33 million in the prior quarter.
Speaker 3: And for those of you tracking capital expenditures and depreciation, CAPX was 7.7 million in the fourth quarter, and depreciation was 7.3 million.
And for those of you tracking capital expenditures and depreciation Capex was $7 7 million in the fourth quarter and depreciation was $7 3 million and.
Speaker 3: For fiscal 2023, capital expenditures were approximately 39.4 million versus 20.4 million in fiscal 2020.
And for fiscal 2023 capital expenditures were approximately $39 4 million versus $20 4 million in fiscal 2022.
Speaker 3: For reference, Smart Brazil failed total 185 million for fiscal 2023 and 32 million in the fourth fiscal quarter.
For reference Smart, Brazil sales totaled $185 million for fiscal 2023, and $32 million in the fourth fiscal quarter.
Ken Rizvi: Our overall product and services were as follows. Products 1.19 billion in fiscal 2023 versus 1.25 billion in fiscal 2022, down approximately 4 percent, and services at $248 million in fiscal 2023 versus $148 million in fiscal 2022 up approximately 100 million or 67 percent. As previously noted, our services revenue includes longer-term services as well as point-time services such as logistics and implementation services. The growth of our services revenue in fiscal 2023 highlights our continued focus on delivering value-added solutions to our enterprise customers.
Speaker 3: Transaction is expected to close by the end of calendar year 2023 or early 2024 subject to required regulatory approvals and satisfaction of customary closing
The transaction is expected to close by the end of calendar year 2023, or early 2024 subject to required regulatory approvals and satisfaction of customary closing conditions.
Speaker 3: Now let me turn to our first quarter, 2024 guidance, which excludes our discontinued operations for smart Brazil.
Now, let me turn to our first quarter 2024 guidance, which excludes our discontinued operations for smart Brazil.
Speaker 3: We expect that revenues for the first quarter of 2024 will be approximately $275 million at the midpoint plus or minus $25 million. Our guidance for the first-
We expect that revenues for the first quarter of 2024 will be approximately $275 million at the midpoint plus or minus $25 million.
Our guidance for the first quarter reflects the following.
Speaker 3: For IPS, which has variability related to factors like the timing of hardware sales, deployment schedules, and longer lead times, we expect revenues to be down sequentially at the mid-
For Ips, which has variability related to factors like the timing of hardware sales deployment schedules and longer lead times, we expect revenues to be down sequentially at the midpoint.
Ken Rizvi: Non-gap growth margins in fiscal 2023 were 31.7 percent up from 29.2 percent in fiscal 2022, driven by margin improvements from IPS and memory. And in fiscal 2023, our non-gap diluted earnings per share from continuing operations were $2.52, down from $2.65 in fiscal 2022, and adjusted EBITDA was $209 million up from $199 million in fiscal 2022. In addition, we exited the year with a strong balance sheet, including urine cash and short-term investments of $391 million. As a reminder, this excludes any cash at Smart Brazil which was reflected in our discontinued operations.
Speaker 3: memory which excludes Brazil, we expect revenues to be sequentially down as we are seeing headwinds from continued markets offness, as well as certain customers working to...
For memory, which excludes Brazil, we expect revenues to be sequentially down as we are seeing headwinds from continued market softness as well as certain customers working through finished goods inventory.
Speaker 3: And for LED, we currently expect revenues to be up slightly.
And for OLED, we currently expect revenues to be up slightly in Q1.
Speaker 3: Our gap gross margin for the first quarter is expected to be approximately 28.5% at the midpoint plus or minus 1%. Non-gap gross margin for the first quarter is expected to be approximately 31.5% at the midpoint plus or minus 1%.
Our GAAP gross margin for the first quarter is expected to be approximately 28, 5% at the midpoint plus or minus 1% non.
non-GAAP gross margin for the first quarter is expected to be approximately 31, 5% at the midpoint plus or minus 1%.
Speaker 3: And our non-GAP operating expenses for the first quarter are expected to be approximately $67 million plus or minus $1 million and down from the prior quarter.
And our non-GAAP operating expenses for the first quarter are expected to be approximately $67 million, plus or minus $1 million and down from the prior quarter.
Ken Rizvi: Now, let me turn to our fourth quarter results from continuing operations. Total SGA revenues were $317 million in non-gap growth margin came in at 31.7 percent. Non-gap diluted earnings per share were 35 cents per share for the fourth quarter. In the fourth quarter, our overall service is revenue totaled $60 million up from 31 million in the year ago quarter, helped by the inclusion of Stratus, which we acquired in the beginning of our fiscal 2023.
Speaker 3: Gap deluded earnings per share for the first quarter is expected to be approximately negative 16 cents plus or minus 50.
GAAP diluted earnings per share for the first quarter is expected to be approximately negative 16, plus or minus <unk> 15.
Speaker 3: However, on a non-gap basis, excluding share-based compensation expense, intangible acid amurization expense, debt discount, and another just-
However, on a non-GAAP basis, excluding share based compensation expense intangible asset amortization expense debt discount and other adjustments, we expect diluted earnings per share will be approximately 15.
Speaker 3: We expect diluted earnings per share will be approximately 15 cents plus or minus 15 cents.
Plus or minus <unk> 15.
Ken Rizvi: Product revenues were $257 million. And fourth quarter revenues by business unit were as follows. IPS $145 million, memory $105 million, and LED at $66 million. This translates into sales mix of approximately 46 percent IPS, 33 percent memory, and 21 percent LED. Non-gap growth margin for SGH in Q4 was 31.7 percent up from 27.1 percent in the year ago quarter, primarily driven by IPS. In non-gap operating expenses for the fourth quarter were $70 million up from $66.7 million, primarily due to third-party spend and personnel related expenses.
Speaker 3: Our GAMP diluted share count for the first quarter is expected to be approximately 56 million shares based on our current stock.
Our GAAP diluted share count for the first quarter is expected to be approximately 56 million shares based on our current stock price or.
Speaker 3: Our non-gap diluted share count is expected to be approximately 54 million shares as it includes the benefit of our convertible note cap call.
Our non-GAAP diluted share count is expected to be approximately 54 million shares as it includes the benefit of our convertible note capped calls.
Speaker 3: Cash capital expenditures for the first quarter are expected to be in the range of four to $6 million and approximately 20 to 25 million per fiscal 2024. Our non-gap taxes for the first quarter are expected to be in the 25 percent range as we have fully consumed the majority of our available US tax attributes in fiscal.
Cash capital expenditures for the first quarter are expected to be in the range of $4 million to $6 million and approximately $20 million to $25 million for fiscal 2024.
Our non-GAAP taxes for the first quarter are expected to be in the 25% range as we have fully consume the majority of our available U S tax attributes in fiscal 2023.
Speaker 3: Our forecast for the first quarter of 2024 is based on the current environment, which contemplates the global macroeconomic headwinds and ongoing supply chain constraints, especially as it relates to our IPS business.
Our forecast for the first quarter of 2024 is based on the current environment, which contemplates the global macroeconomic headwinds and ongoing supply chain constraints, especially as it relates to our Ips business. This.
Speaker 3: This includes extended lead times for certain components that are incorporated into our overall solutions impacting how quickly we can ramp existing and new customer products.
This includes extended lead times for certain components that are incorporated into our overall solutions impacting how quickly we can ramp existing and new customer projects.
Ken Rizvi: It was compared with $63 per share in the year ago quarter. An adjusted EBITDA for the fourth quarter of 2023 was $38 million or approximately 12% of sales compared with $47 million or 13% of sales in the year ago quarter.
Speaker 3: continue to manage our operations in a prudent manner as we navigate a challenging environment while also continuing to invest in our long-term growth.
We continue to manage our operations in a prudent manner as we navigate a challenging environment, while also continuing to invest in our long term growth.
Speaker 3: Please refer to the Non- GAAP financial Information section and the reconciliation of GAP to Non-GAP Measure Tables in our earnings release for further.
Please refer to the non-GAAP financial information section.
And the reconciliation of GAAP to non-GAAP measure tables in our earnings release for further detail.
Ken Rizvi: Now turning to our balance sheet highlights, for working capital, our net account receivables totaled $219 million, compared with $222 million last quarter. And day sales outstanding came in at approximately 48 days up from 41 days in the last quarter, primarily due to the timing of invoicing and collections. Inventory told 175 million at the end of the fourth quarter, down from 204 million at the end of the prior quarter. The decrease in inventory was driven primarily by a reduction in IPS and memory inventories in the fourth quarter.
Speaker 3: Now let me turn it over to Mark for a few remarks prior to Q&A.
Now, let me turn it over to Mark for a few remarks prior to Q&A.
Thanks, Ken.
Speaker 2: In closing, I want to thank the over 3,000 employees at SGH for their effort.
In closing I want to thank the over 3000 employees at <unk> for their efforts.
Speaker 2: At a time when some of the semiconductor industry's largest companies are operating at a loss, the team was able to deliver another quarter of profitability.
At a time when some of the semiconductor industry's largest companies are operating at a loss.
Team was able to deliver another quarter of profitability.
Speaker 2: We are optimistic that we are well positioned to deliver long-term value to our shareholders based on our strategy of providing high performance, high availability solutions to enterprise customers to capitalize on the growing AI, machine learning, and data analytics and markets while continuing our strong operating discipline during these challenging economic times. With that operator,
We are optimistic that we are well positioned to deliver long term value to our shareholders based on our strategy of providing high performance high availability solutions to enterprise customers to capitalize on the growing AI machine learning and data analytics and markets, while continuing our strong operating discipline during these challenging.
Ken Rizvi: And inventory turns were 7.5 times in the fourth quarter, approximately flat versus the 7.6 times in the prior quarter. And consistent with past practice, net accounts receivables, day sales outstanding and inventory turnover are calculated on a gross sale and cost of goods sold basis, which were 418 million and 326 million, respectively for the fourth quarter. As a reminder, the difference between our gross and net revenues related to our logistics services, which is accounted for on an agent basis, meaning that we only recognize the net profit on logistics services as revenue.
<unk> economic times.
With that operator, we're now ready for Q&A.
Yeah.
Speaker 4: Of course, we will now begin the question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speaker phone, please remember to pick up your handset before asking a question.
Of course, we will now begin the question and answer session. If you'd like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to admit that question. Please press star followed by two again to ask a question press Star one.
As a reminder, if you are using a speakerphone. Please remember to pick up your handset before asking a question.
Speaker 4: Our first question comes from a line of Kevin Cassidy with Rosenblatt Security. Your line is now open. Thank you for your foremost on this torture
Our first question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line is now open.
Okay.
Speaker 5: Yes, thanks for taking my question. Just the questions around IPF and the demand that you're seeing or maybe Mark, I missed it. Did you say there was a bookings that was going to happen on the third quarter and it happened in the fourth quarter? And when would that be deployed? And then also the inventory coming down in IPF is that suggesting that visibility is still fairly low?
Yes, thanks for taking my question.
Ken Rizvi: In cash equivalents, in short term investments, total a record 391 million at the end of the fourth quarter, up 44 million, compared with 347 million at the end of the prior quarter. Fourth quarter, cash flows from operating activities totaled $38 million, compared with $33 million in the prior quarter. And for those of you tracking capital expenditures and depreciation, capex was 7.7 million in the fourth quarter and depreciation was 7.3 million. And for fiscal 2023, capital expenditures were approximately 39.4 million versus 20.4 million in fiscal 2022. For reference, Smart Brazil sale totaled $185 million for fiscal 2023 and 32 million in the fourth fiscal quarter.
Just a questions around Ips.
The demand that youre seeing or.
Maybe mark I missed it did you say there was a bookings what's going to happen in the third quarter and it happened in the fourth quarter.
When would that be deployed and then also.
The inventory coming down in Ips is that suggesting that visibility is still.
Fairly low.
Hi, Kevin Thanks for the question.
Speaker 2: Yeah, on the first question, we had a... Or...
Yeah.
First question.
Had a or billing that.
Speaker 2: building that we got on actually the first week of Q1, 24, that did not get registered in our Q4 of 23.
We got on actually the first week of Q1 'twenty four.
That did not get registered in Q4 of 'twenty three and so that's confirm that's what I commented on in my earlier comments and secondly around Ips inventory.
Speaker 3: So that's confirmed that's what I comment on in my earlier comments. And secondly around IPS inventory. Yeah, these are times like where as I comment on our last call that visibility is a little choppy right now for certain components. I think Ken mentioned that in his script, but I'll let him also talk to this. Yeah. So Kevin on that poll, but you know, I would expect actually as we move through Q1 that our inventories will start.
Ken Rizvi: The transaction is expected to close by the end of calendar year 2023 or early 2024, subject to required regulatory approvals and satisfaction of customary closing conditions.
Yes. These are these are our.
Times like whereas I as I commented on our last call that the visibility is a little choppy right now for certain components I think Ken mentioned that in his script, but I'll, let Ed also talked to this so Kevin on that Paul, but I would expect actually as we move through Q1.
Ken Rizvi: Now, let me turn to our first quarter, 2024 guidance, which excludes our discontinued operations for Smart Brazil. We expect that revenues for the first quarter of 2024 will be approximately 275 million at the midpoint plus or minus 25 million dollars. Our guidance for the first quarter reflects the following. For IPS, which has variability related to factors like the timing of hardware sales, deployment schedules, and longer lead times, we expect revenues to be down sequentially at the midpoint.
Our inventories will start to increase a little bit that will be a use of working capital.
That you should expect.
In terms of net working capital.
Throughout Q1.
Speaker 5: Okay, maybe just as a follow up on that, it's pretty well known that the Nvidia GPUs are sold out. How much is that affecting some of your visibility?
Okay, maybe just as a follow up on that you know, it's pretty well known that the.
Nvidia Gpus are sold out how much is that affecting some of your visibility.
Speaker 2: I think how longer term...
I think our.
Ken Rizvi: For memory, which excludes Brazil, we expect revenues to be sequentially down as we are seeing headwinds from continued market softness, as well as certain customers working through Finnish goods inventory. And for LED, we currently expect revenues to be up slightly in Q1. Our gap gross margin for the first quarter is expected to be approximately 28.5% at the midpoint plus or minus 1%. Non-gap gross margin for the first quarter is expected to be approximately 31.5% at the midpoint plus or minus 1%.
Longer term.
Speaker 2: We think that can smooth that a little bit. Right now, Kevin, as you're suggesting, it's a little bit constrained and it's affecting a little bit in the short term. But as is, like I just to be kind of repetitive here, the selling cycle we're involved in is somewhat longer from a solutions perspective than just people buying and selling hardware. And so some of that is our selling cycle and in the timing of our customer engagement.
We think that can smooth it out a little bit right now Kevin as you're suggesting.
It's a little bit constrained and it's.
It's affecting a little bit in the short term.
But as is the guide just to be kind of repetitive here.
The selling cycle. We're involved in is somewhat longer from a solutions perspective than just.
People buying and selling hardware and so.
Some of that is our selling cycle and the timing of our customer engagements.
Speaker 2: being a little bit off what you'd like to see in Quarter League.
Being a little bit off of.
What you'd like to see and quarterly reporting perspective.
Speaker 2: and supporting perspectives. And so some of it is what you're just identifying. It's not just the GPUs, it's also some networking components, as you know, and all that combined, as I mentioned, and we saw this coming into our quarter, our Q4, and I can comment on the last call, it's just the visibility's a little choppy, and that's what kind of led into our guidance today.
Perspectives and so some of it is what you are identifying is not just the Gpus is also some networking components as you know and so.
Ken Rizvi: And our non-gap operating expenses for the first quarter are expected to be approximately 67 million dollars plus or minus 1 million dollars and down from the prior quarter. Gap diluted earnings per share for the first quarter is expected to be approximately negative 16 cents plus or tamarization expense, debt discount, and other adjustments. We expect diluted earnings per share will be approximately 15 cents plus or minus 15 cents. Our gap diluted share count for the first quarter is expected to be approximately 56 million shares based on our current stock price.
All of that combined.
As I mentioned and we saw this coming into our.
Quarter.
Our Q4 and I comment on the last call is just the visibility is a little choppy and.
Got.
Kind of led into our guidance today.
Okay. Thanks.
Thank you.
Speaker 4: Thank you for your question. The next question comes from a line of Sydney Health with Deutsche Bank. Your line is now open.
Thank you for your question.
The next question comes from the line of Sidney Ho with Deutsche Bank. Your line is now open.
Speaker 6: Great, thanks. Just a quick clarification. If I look at the FISCO 4Q guidance result, and if you need to be exclude Brazil, it's still a little bit weaker than I would have expected. Is that mostly reflecting the IPS order being pushed out by maybe a week or two weeks? Is there any other dynamics I'd like?
Great. Thanks, just a quick.
Indication as I look at the Cisco for Q guidance.
And if the either the <unk>.
<unk>, Brazil is still a little bit weaker than I would've expected is that mostly reflecting the ips orders being pushed out by maybe a week or two weeks is there any other dynamics at play.
Ken Rizvi: Our non-gap diluted share count is expected to be approximately 54 million shares as it includes the benefit of our convertible note cap calls. Cash capital expenditures for the first quarter are expected to be in the range of 4 to 6 million dollars in approximately 20 to 25 million per fiscal 2024. Our non-gap taxes for the first quarter are expected to be in the 25% range as we have fully consumed the majority of our available US tax attributes in fiscal 2023.
Speaker 3: Actually, yeah, Sydney, that's a good question. And let me try to address that here for you. So you are correct. When we had originally guided, we had a Brazil as part of our continuing operation.
Actually yeah sitting here that's a good question and let me try to address that here for you. So you are correct. When we had originally guided.
We had a Brazil as part of our continuing operations.
And continuing business.
Speaker 3: We move that into discontinued ops and as we highlighted on the call the revenues were about 32.
We've moved that into discontinued ops as we highlighted on the call. The revenues were about $32 million reality is as we were heading into our.
Speaker 3: Reality is as we were heading into our
Ken Rizvi: Our forecast for the first quarter of 2024 is based on the current environment which contemplates the global macroeconomic headwinds and ongoing supply chain constraints, especially as it relates to our IPS business. This includes extended lead times for certain components that are incorporated into our overall solutions impacting how quickly we can ramp existing and new customer projects.
Speaker 3: into the guidance. We were anticipating a much higher revenue stream from Brazil. And so we were expecting that to be a bit higher. In addition to that, there was a myth as we talked about in terms of IPS and some of the orders.
Q4 into the guidance, we were anticipating a much higher revenue stream from Brazil, and so we're expecting that to be a bit higher in addition to that.
There was a miss as we talked about in terms of Ips and some of the orders moving from Q4 into Q1.
Speaker 3: Those are the two factors relative to our original.
So those are the two factors relative to our original guidance for Q4.
Ken Rizvi: We continue to manage our operations in a prudent manner as we navigate a challenging environment while also continuing to invest in our long term growth.
Speaker 6: Okay, that's helpful. Thanks. Maybe you just a follow up on the IPS question from Kevin. Talking about visibility into Fisco 24, you can talk about being more weighted to with the back half of the year. Just curious, if you can add any color on the trends you are seeing, what is by end market, by size of customers, maybe is there a growth rate that you are now expecting for the full year based on your current visibility?
Okay. That's helpful. Thanks, maybe just a follow up on the Ips question from from Kevin.
Ken Rizvi: Please refer to the non-gap financial information section and the reconciliation of gap to non-gap measure tables in our earnings release for further, details.
Can you about visibility into fiscal 'twenty four.
You talked about being more weighted towards the back half of the year. Just curious if you can add any color on the trends you are seeing what is by end market by size of customers. Maybe is there maybe there is that kind of growth rate that you are now expecting for the full year based on your current visibility.
Mark Adams: Now, let me turn it over to Mark for a few remarks prior to Q&A. Thanks, Ken. In closing, I want to thank the over 3,000 employees at SGH for their efforts. At a time when some of the semiconductor industry's largest companies are operating at a loss, the team was able to deliver another quarter of profitability. We were optimistic that we were well positioned to deliver long-term value to our shareholders, based on our strategy of providing high performance, high availability solutions to enterprise customers to capitalize on the growing AI, machine learning, and data analytics and markets while continuing our strong operating discipline during these challenging economic times.
Speaker 2: Sydney has Mark, I would just suggest that for us, like trying to peg a certain growth rate is kind of difficult giving the lumpiness of the business. We're encouraged by the level of customer engagement that we're having. And as we convert those, you know, kind of into proposals and closing business, we'll have better visibility. Obviously, there's a lot of market...
Sidney This is mark I would just suggest that for.
For us like trying to peg a certain growth rate is kind of differ.
Difficult, giving the lumpiness of the business, we're encouraged by the level of customer engagement that we're having.
And as we convert those are kind of into proposals and closing business.
We'll have better visibility.
Obviously, theres a lot of market.
Speaker 2: enthusiasm for AI, the deployments are kind of in front of us, it's early innings, and what I would say is as we go through this, it's hard to just pick a number, say, this is what our growth rate will be like. We...
Enthusiasm for AI the deployments.
Or are kind of in front of us it's early innings and.
Unknown Executive: With that operator, we are now ready for Q&A. Of course, we will now begin the question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speaker phone, please remember to pick up your handset before asking a question.
What I would say is as we go through this.
It's a it's hard to just pick a.
Numbers. This is about our growth rate will be like we we see some positive signs on our engagements that lead us to believe that second half will be stronger.
Speaker 2: We see some positive signs on our engagements that lead us to believe that second half will be stronger than the first half.
Stronger than the first half.
Speaker 6: Okay, maybe one last question from me. If I look at the announcement you talked about with Nvidia, the DJX Ready Managed Services, can you walk us through the advantages of being certified with them? Does that expand your TAM? Does that replace some of the services that you already provide to your customers? And how should we think about that partnership showing up in your financials? Thanks.
Okay, maybe one last question from me and I look at.
The announcement you talked about with Nvidia. The DJ is already managed services can you walk us through the advantages of being certified with them does that expand your Tam does that replace some of the services that you already provide to your customers and how should we think about that partnership showing up in your financials. Thanks.
Kevin Cassidy: Our first question comes from a line of Kevin Cassidy with Rosenblatt Security. Your line is now open. Yes, thanks for taking my question. Just the questions around IPF and the demand that you're seeing, or maybe Mark, I missed it. Did you say there was a bookings that was going to happen on the third quarter and it happened in the fourth quarter, and when would that be deployed? And then also the inventory coming down in IPF is that suggesting that visibility is still fairly low?
Well I again.
Speaker 2: Our strategy of how we engage with customers, we come out of from a total solutions. And when we say design and build, deploy, and manage,
Our strategy.
Of.
How we engage with customers we come at it from a.
Total solutions and.
And when we say design.
<unk> build deploy and manage.
Kevin Cassidy: Hey, Kevin, thanks for the question. Yeah, on the first question, we had a order of billing that we got on actually the first week of Q1, 24, that did not get registered in our Q4 of 23. And so that's confirmed. That's what I commented on in my earlier comments. And secondly, around IPF inventory, yeah, these are times where as I comment on our last call, that visibility is a little choppy right now for certain components. I think Ken mentioned that in his script, but I'll let him also talk to this.
Speaker 2: And I talked about this before. We're just not a company that deals and hard-wornly approach to the market. And. And. You need use today.
I've talked about this before we're just not we're not a company that deals and hardware only approach to go to the market and.
These type of initiatives like the one you asked about in terms of our managed service.
Speaker 2: These type of initiatives, like the one you asked about in terms of our managed service announcement, it gives us a chance to actually focus on customers who buy into that and require that. And that's really where we're leaning. We're not...
Announcement.
It gives us a chance to actually focus on customers, who buy into that and require that and that's really where we're leaning we're not.
Speaker 2: We're not in the position that we're going to be selling things sub 20% gross margins. That's just not a good business model for us. And quite frankly, it would be experience that Penguin has over more than two decades of HPC that apply to all the learnings we've had in the more recent years on AI initiatives.
We're not in a position that we're going to be selling things sub 20% gross margins. That's just not a good business model for us and quite frankly with the experience that Penguin has over more than two decades of HBC that apply to all the learnings we've had in the more recent years on an AI initiatives.
Mark Adams: So Kevin, on that fold, I would expect actually, as we move through Q1, that our inventories will start to increase a little bit, that will be a use of working capital that you should expect in terms of networking capital throughout Q1. Okay, maybe just as a follow-up on that, it's pretty well known that the Nvidia GPUs are sold out. How much is that affecting some of your visibility? I think, a longer term, we think that can smooth that a little bit.
Speaker 2: The services that we have, the lessons learned that we've incorporated into helping our customers deploy these systems, it's a real advantage for us and
The services that we had to learn the lessons learned that we've incorporated into helping our customers deploy these systems. It's a real advantage for us and so if you factor in how that shows up for US it shows up in gross margin.
Speaker 2: So if you factor in how that shows up for us, it shows up in Gross Margin.
Speaker 2: and it'll show up in terms of how we expand our customer base.
And it'll show up in terms of how we expand our customer base.
Speaker 2: you know in the near to long term these things take time and
In the near to long term these things take time, and we've talked about the customer concentration we've talked about lumpiness.
Speaker 2: You know, we've talked about the customer concentration, we've talked about lumpiness repeatedly, but...
Repeatedly, but we're optimistic because of the level of excitement and investment into long term AI that we're in a good position.
Speaker 6: We're optimistic because of the level of excitement and investment into long-term AI that we're in a good position. Great, thank you very much. Thank you. Thank you.
Great. Thank you very much.
Mark Adams: Right now, Kevin, as you're suggesting, it's a little bit constrained, and it's affecting a little bit in the short term. But as is, like I just to be repetitive here, the selling cycle we're involved in is somewhat longer from a solutions perspective than just people buying and selling hardware. And so some of that is our selling cycle, and in the timing of our customer engagements, being a little bit off what you'd like to see in Core League, and reporting perspectives.
Thank you.
Thank you for your question.
The next question comes from the line of Brian Chin with Stifel.
Your line is now open.
Speaker 7: Hi there. Thanks for letting us ask a few questions. Maybe a couple of things, maybe to start off with.
Hi, there thanks for letting us ask a few questions maybe a couple of things maybe to start off with.
Speaker 7: Can if we include Brazil in the fiscal 4Q and fiscal 1Q outlook, what would the top and bottom line results and guides have looked like?
Hi, Ken.
Include Brazil, and the fiscal <unk> and fiscal <unk> outlook, what would the top and bottom line results and guidance have looked like.
Speaker 3: Yeah, so for Q4, we outlined that Brazil represented $30 million for actual sales of Q4. Now what I just mentioned on the part of questions was that coming into order, we were in.
Yes, so for Q4.
We outlined that Brazil represented.
Mark Adams: And so some of it is what you're just identifying. It's not just the GPUs, it's also some networking components, as you know. And you know, all that combined, as I mentioned, and we saw this coming into our quarter, our Q4, and I come in on the last call, just the visibility is a little choppy, and you know, that's what kind of kind of led into our guidance today.
$30 million from actual sales or before now.
As mentioned on the prior question was that coming into the quarter, we were anticipating.
Speaker 3: Q4 fails for Brazil would have been higher than that number, but that's not going to be a bit light. We're not guiding the business. The Brazil business is going forward in Q1. This is now part of this.
Q4 sales for Brazil.
There have been higher than that number.
But there's not been a bit light.
Not guiding the business.
The Brazil business.
Unknown Executive: Okay, thanks. Thank you. Thank you for your question.
Going forward in Q1.
Now part of discontinued operations.
Speaker 3: For guiding for what is contin.
Sydney Hill: The next question comes from a line of Sydney Hill with Deutsche Bank. Your line is now open. Great. Thanks. Just a quick clarification. If I look at the fiscal 4Q guidance result, and even to be exclude Brazil, it's still a little bit weaker than I would have expected. Is that mostly reflecting the IPS order being pushed out by maybe a week or two weeks? Is there any other dynamics that like? Actually, Sydney, that's a good question.
We're guiding for what is continuing operation.
Speaker 3: which is now inclusive of IPS, specialty memory.
Which is now inclusive of Ips.
Specialty memory.
Speaker 2: Yeah, I mean, just to, in just to further clarify that, Brazil come and just didn't add a lot of colors as can clarify, as can mention, because
Yes, I mean, just and just to further clarify that.
Bill.
Isn't that a lot of colors as can clarify as Ken mentioned.
Okay.
The consumer.
Speaker 2: memory market and the demand for the end product's phones and just out notebooks Global basis is down dramatically and then we saw it down even more than a initial forecast for the computer and that was a substantial change in the performance and as I can said That changed and that impacted if you include them in our two-board number How we came in kind of around the bottom end of the guide.
Memory market.
And the demand for the end product pounds.
Notebooks.
On a global basis is down dramatically and then we saw it.
Sydney Hill: And let me try to address that here for you. So you are correct. When we had originally guided, we had a Brazil as part of our continuing operations and continuing business. We moved that into discontinued ops and as we highlighted on the call, the revenues were about 32 million. Reality is, as we were heading into our Q4 into the guidance, we were anticipating a much higher revenue stream from Brazil. And so we were expecting that to be a bit higher.
Down even more than initial forecast for the quarter.
And that was a substantial change in the performance and as I can said.
That changed in that in fact, if you included them in our Q4 number.
And kind of around the bottom end of the guidance.
Yes.
Speaker 8: No good
Thanks.
Speaker 7: Um, and then in terms, thank you. And then in terms of physical one Q
And then in terms. Thank you and then in terms of physical <unk>.
Speaker 7: And the outlook, it seems to suggest maybe memory, especially memory, and IPS down somewhere kind of in the mid to upper teens, something like that, Q1Q. Maybe one of those businesses is a little softer sequentially. Do you feel that those levels revenue run rates for those two segments? Do you feel those are at bottom relative to sort of the commentary around inventory burn off on the memory side of customers and giving the oscillations of projects in IPS?
And the outlook it seems to suggest.
Maybe memory, especially memory and Ips down somewhere kind of in the mid mid to upper teens something like that.
Sydney Hill: In addition to that, there was a miss as we talked about in terms of IPS and some of the orders moving from Q4 into Q1. So those are the two factors relative to our original guidance for Q4.
<unk>, maybe one of those businesses is a little softer sequentially do you feel that those levels.
Run rates for those two segments do you feel those are at bottom relative to sort of the commentary around inventory burn off on.
On the memory side of customers and given the oscillations our projects and Ips.
Mark Adams: Okay, that's helpful. Thanks. Maybe just a follow-up on the IPS question from Kevin. Talking about visibility into fiscal 24, you can talk about being more weighted towards the back half of the year. Just curious, if you can add any color on the trends you are seeing, what is by end market, by size of customers, is there a kind of growth rate that you are now expecting for the full year based on your current visibility?
Speaker 2: Let me take that first and I'll let Ken add as needed. If I take the memory part first, as you can tell from the Sony conductor players and the memory business, and I'm not gonna single out anyone, but across the board, they're still operating at a significant loss. And I'm hearing and we're seeing initial signs of price stabilization.
Let me take that first and I'll, let Ken add as needed.
If I take the memory part first.
As you can tell from the.
The semiconductor players in the memory business and I'm not going to single out anyone but.
Across the board they are still operating at a significant loss and I'm hearing and we're seeing initial signs of price stabilization.
Mark Adams: Sitting as Mark, I would just suggest that for us like trying to peg a certain growth rate is kind of difficult giving the lumpiness of the business. We're encouraged by the level of customer engagement that we're having. And as we convert those kind of into proposals and closing business, we'll have better visibility. Obviously, there's a lot of market enthusiasm for AI. The deployments are kind of in front of us, it's early innings.
Speaker 2: But I also know that this takes a little time to get through the market. Now,
But I also know that this takes a little time to get through the market now.
Speaker 2: We haven't seen as much of a price impact per se as we've seen demand.
We haven't seen as much of a price impact per se as we've seen demand.
Speaker 2: Soften a bit as we head into Q1. You know, it kind of as we're in the quarter now, we've seen that really some of our key customers inventory levels are relatively high. And the indication is that that'll burn down, burn off in the next quarter or so. And we just have to stay close to that to see how that plays out. But, but.
Soften a bit as we head into Q1.
Kind of as were in the quarter now we've seen that.
Some of our key customers' inventory levels are relatively high and the indication is that that will burn down burn off in the next quarter or so.
And we just have to stay close to that to see how that plays out but but.
Speaker 2: You know, the other side of it also is, and we talked about this,
Mark Adams: And what I would say is as we go through this, it's hard to just pick a number. This is where our growth rate will be like. We see some positive signs on our engagements that lead us to believe that second half will be stronger than the first half.
The other side of it also is and we've talked about this.
Speaker 2: from the get go back in early times when
From the from the get go back in early times.
Speaker 2: 2021, this is not a revenue play only for us and that's why I'm really proud of the team for generating an operating income of 14% at a time that the innovators, the technology innovators in this category are operating a loss, we run the business pretty well and I can't really call the timing per se, but...
In 2020 and 21. This is not a revenue play only for us and that's why I'm really proud of the team for generating operating income of 14% at a time that the innovators the technology innovators in this category are.
Mark Adams: Okay, maybe one last question from me. If I look at the announcement you talked about within video, the DJX Ready Managed Services, can you walk us through the advantages of being certified with them? Does that expand your tam? Does that replace some of the services that you already provide to your customers? And how should we think about that partnership showing up into your financials? Thanks. Well, again, our strategy of how we engage with customers, we come out of from a kind of total solutions.
Operating loss, we've run the business pretty well and I see it.
I can't really call the timing per se, but.
Speaker 2: Pricing scenes to be stabilizing a little bit. So that's early and we think the inventory burn-off will be in the next quarter or two and should be back in a very good shape. On the IPS side
Pricing seems to be stabilizing a little bit.
So thats early and we think the inventory burn off will be in the next quarter or two and should be back in a good shape on the Ips side.
Speaker 2: For us, it's a little bit of a different story. It's just more of the, it's a combination of the customer concentration and the lumpiness and the timing of some of our engagements with, you know, a little bit of visibility challenge in the supply chain.
For us, it's a little bit of a different story, it's just more of a it's a combination of the customer concentration in the lumpiness and the timing of some of our engagements.
Mark Adams: And, you know, when we say design and build, deploy and manage, and I've talked about this before, we're just not, we're not a company that deals with hardware-only approaches, go to the market. And these type of initiatives, like we, the one you asked about in terms of our managed service announcement, it gives us a chance to actually focus on customers who buy into that and require that. And that's really where we're leaning.
With a little bit of visibility challenge in the supply chain. If you combine all of that it's just where we ended up for the quarter and that in that business. We still are very enthused about the business like our place.
Speaker 2: If you combine all that, it's just where we ended up to the quarter in that business. We still are very entused about the business, like our place in the ecosystem of offering differentiated value services, and being able to deploy complex systems.
System offering differentiated value services.
Being able to deploy complexes.
Speaker 7: Okay, maybe if I can ask one more thing related to the comment of sort of a physical second half.
Okay, maybe if I can ask one more thing related to the comment of sort of a physical second half.
Speaker 7: snapback or improvement on the IPS business. Obviously, Cisco first has this upcoming fiscal year versus last year, pretty difficult comparison, given the timing and strength in some of the IPS deployment.
Matt back or improvement.
Mark Adams: We're not, we're not in a position that we're going to be selling things sub 20% gross margins. That's just not a good business model for us. And quite frankly, with the experience that Penguin has over more than two decades of HPC that apply to all the learnings we've had in the more recent years on AI initiatives, the services that we have to learn, lessons to learn that we've incorporated into helping our customers deploy these systems, it's a real advantage for us.
On the Ips business.
Obviously your fiscal first half this upcoming fiscal year versus last year, a pretty difficult comparison, given the timing and strength in some of the Ips deployments.
Speaker 7: But what kind of backlog or pretty firm indications do you have in hand or close to it to give you that confidence that you'll see the snapback and physical second half? And probably for the year, IPS revenue can't be up for the fiscal year, but do you see year-to-year growth in the physical second half? Good luck, yes.
But what what kind of backlog or pretty firm indications do you have in hand or close to it that gives you that confidence.
Youll see the snapback in fiscal second half and probably for the year Ips revenue can't be up for the fiscal year, but do you see year over year growth in the fiscal second half.
Mark Adams: And so, if you factor in, you know, how that shows up for us, it shows up in gross margin. And it'll show up in terms of how we expand our customer base, you know, in the near to long term. These things take time. And, you know, we've talked about the customer concentration. We've talked about lumpiness repeatedly, but we're optimistic because of the level of excitement and investment into long-term AI that we're in a good position.
And I guess.
Sure.
Speaker 2: Brian , we're not able to forecast per se at this point, and that's something we haven't done. We're just gonna keep forecasting for the quarter in advance. But let me just give you a couple things. We have visibility to a run rate business, and then we also have increased our efforts in bringing in new resources to drive, new customer acquisition.
Brian we're not able to forecast per se at this point and that's something we haven't done and we're just going to keep forecasting for the quarter.
In advance, but let me just give you a couple of things we have.
We have visibility to a run rate business and then we also have.
<unk> increased our efforts in bringing new resources to drive new customer acquisition.
Speaker 2: And I can say qualitatively speaking, the customer engagements are pretty exciting. And so converting that into revenue and then also trying to predict when that's going to land, it'll get clearer as we go through Q2, Q3. But right now we're gonna stay away from forecasting out there. But as I said, there's a lot of enthusiasm around AI. What I would say is,
And I can say qualitatively speaking the customer engagements are pretty exciting and so converting that into revenue and then also trying to predict when that's going to land.
Unknown Executive: Great, thank you very much. Thank you. Thank you for your question.
Ryan Tim: The next question comes from Ryan Tim, Steve. Your line is now open. Hi there. Thanks for laying us ask a few questions. Maybe a couple of things, maybe to start off with. It can, if we include Brazil in the fiscal 4Q and fiscal 1Q outlook, what would the top and bottom line results and guides have looked like? Yeah, so for Q4, we outlined that Brazil represented $30 million dollars for actual sales of Q4. Now, what I just mentioned on the part of the question is that coming into order, we were anticipating Q4 sales for Brazil would have been higher than that number, but there's been a bit light.
It'll get clearer as we go through Q2 Q3, but.
Right now, we're going to stay away from forecasting out there, but as I said.
There is a lot of enthusiasm around AI.
What I would say is it seems like a lot of technologies hardware is being sold in a lot of people are now looking for capabilities and assistance and deploying it.
Speaker 2: seems like a lot of technologies hardware is being sold and a lot of people are now looking for capabilities and assistance into playing it.
Speaker 2: And that's where I think you're gonna see us focus our efforts.
And that's where I think youre going to see us focus our efforts.
Speaker 2: And as we gain successes, we'll be able to communicate them.
And as we gain successes will be able to communicate them.
Speaker 2: Just a data point I can't get into really more specifics, but in this last quarter we added two significant logos in terms of the the brand name
Just a data point I can't get into really more specifics, but in this last quarter, we added two.
Significant logos in terms of the brand name.
Speaker 9: in one narrow space and one in education.
And one in aerospace and one in education and a.
Speaker 2: And a couple of others that are not signed, but looking very favorable, that we can communicate on our next call in the quarter, but it's still kind of in flux as far as when that timing will be. And that's just what we're dealing with a little bit uncertain around recognizing the timing. But again, the customer engagements are, are ones that we're really excited about helping these people, helping these companies deploy AI in their own
Ken Rizvi: We're not guiding the business. The Brazil business going forward in Q1, because it's now part of discontinued operations, and it's there for guiding for what is continuing operation, which is now inclusive of IPS, specialty memory, energy. Yeah, I mean, just to further clarify that Brazil come, I just didn't add a lot of colors, as Ken mentioned. The consumer memory market and the demand for the end product's phones and just out notebooks, a global basis is down dramatically, and then we saw it down even more than a initial forecast for the computer, and that was a substantial change in the performance.
A couple of others that are not signed but looking very favorable that we can communicate on our next call in the quarter, but it's still.
Kind of influx as far as when that timing will be and that's just what we're dealing with a little bit uncertain around recognizing the timing, but again the customer engagements R. R.
One's that we're really excited about helping these people helping these companies deploy.
AI in their own environment.
Speaker 7: Great sounds. Good. Any of those last synergies with Stratus by any chance, customer synergies?
Yeah.
Great sounds good synergies.
Synergies with stratus by any chance.
Customer synergies.
Speaker 9: early stages in terms of being able to quantify that for you. What we are seeing is that the customer interest in some of stratusist products more around the edge, twofold, there is a
Early stages in terms of being able to quantify that for you. What we are seeing is that.
The customer.
The interest in some of the Stratasys products.
Ken Rizvi: And as Ken said, that changed and that impacted, if you include Q4 number, how we came in kind of around the bottom end of the guide now. Thank you. And then in terms of physical one cue and the outlook, it seems to suggest maybe memory, especially memory and IPS down somewhere kind of in the mid, mid to upper teen, something like that, Q and Q, maybe one of those businesses is a little softer sequentially.
More around the edge.
Twofold.
There is a kind of a super early stage belief and AI at the edge.
Speaker 9: Super early states belief in AI at the end.
Speaker 10: And when you think about some of these markets oil and gas or financial services or even retail, the ability to have autonomous, unmanned computing out in the field is something that plays a strategy of strength and has more applications are able to be delivered generating potential AI applications at the edge, I think we're going to be pretty well positioned. So thank you.
And when you think about some of these markets oil and gas or financial services or even retail.
The ability to have autonomous unmanned.
Computing out in the field.
It's something that plays the stratasys strengthen as more applications.
Are able to be delivered generating potential AI applications at the edge I think we're gonna be pretty well positioned.
Ken Rizvi: Do you feel that those levels revenue run rates for those two segments? Do you feel those are at bottom relative to sort of the commentary around inventory burn off? On the memory side of customers and given the oscillations of projects and IPS? Let me take that first and I'll let Ken add as needed. If I take the memory part first, as you can tell from the semiconductor players and the memory business, I'm not going to single out anyone, but across the board, they're still operating at a significant loss.
Alright, thank you.
Thank you for your question.
The next question comes from the line of Tom O'malley with Barclays.
Speaker 4: quando alateur
Your line is now open.
Speaker 11: Hey, good afternoon guys. Thanks for taking my question. You gave the LED business up slightly in the November quarter. Could you just give a little more color between IPS and memory solutions sequentially on what gets it to your guidance?
Hey, good afternoon, guys. Thanks for taking my question you.
You gave us.
Up slightly in the November quarter could you just give a little more color between Ips and memory solutions sequentially on what gets you to your guidance. Thank you.
Ken Rizvi: And I'm hearing and we're seeing initial signs of price stabilization, but I also know that this takes a little time to get through the market now. We haven't seen as much of a price impact per se as we've seen demand soften a bit as we had in the Q1, you know, it kind of as we're in the quarter now, we've seen that really some of our key customers inventory levels are relatively high and the indication is that that'll burn down burn off in the next quarter or so.
Speaker 3: Sure, yeah, so your right Tom, the LED business should be up a little bit Q4 in the Q1 and then
Sure Yeah, So you're right Tom the led business should be up a little bit Q4 into Q1, and then we don't.
Speaker 3: to specify by IPS or memory, but if you look at the guide, they're down in that kind of music.
Specify by Ips or memory, but.
If you if you look at the guide there they're down.
In that kind.
Kind of mid teens level, plus or minus combined to get to.
That 275 midpoint of guidance.
And there's a little movement.
And that's part of the reason why we provide a range.
Ken Rizvi: And we just have to stay close to that to see how that plays out, but the other side of it also is, and we talked about this from the get go back in early times when in 2021, this is not a revenue play only for us. And that's why I'm really proud of the team for generating an operating income of 14% at a time that the innovators, the technology innovators in this category are, you know, operating a loss.
In terms of how projects can land for Ips or on the memory side, how how things go through the rest of the quarter.
But that gets you towards that midpoint.
Okay, and then just a little clarification. So you mentioned a project move from Q4 to Q1 and timing in terms of booking I would expect that Q.
Speaker 11: Okay, and then just a little clarification. So you mentioned a project move from Q4 to Q1 on timings in terms of booking. I would expect that Q1 would be a little higher on the IPS side, just given the change in timing. You just talk about what's going on in that business such that even X, that deal moving, that you're seeing such a weakness there both in August and November .
Q1 will be a little higher on the IPO side, just given the change in <unk>.
Can you just talk about what's going on in that business such that even ex that deal moving that youre seeing such weakness there both in August and November .
Ken Rizvi: We've run the business pretty well and I see, you know, yeah, I can't really call the timing per se, but pricing seems to be stabilizing a little bit, so that's early. And we think the inventory burn off will be in the next quarter or two and should be back in a very good shape on the IPS side.
Speaker 9: Sure, I think it really goes back to my commentary, Tom, about the lumpiness and customer concentration that we've had at that business. If you take a step back.
Sure I think it really goes back to my commentary Tom about.
The lumpiness in customer concentration that we've had in that business. If you take a step back.
Mark Adams: For us, it's a little bit of a different story. It's just more of the, it's a combination of the customer concentration and the lumpiness and the timing of some of our engagements with, you know, a little bit of visibility challenge in the supply chain. And if you combine all that, it's just where we ended up to the quarter in that, in that business, we still are very infused about the business like our place in the ecosystem of offering differentiated value services and the other deploy complex system.
Speaker 9: This is a business that was doing less than $50 million as a quarter when I joined. And the teams are a fantastic job building up the business. And that doesn't exclude us from the lumpiness and HPC and the customer concentration that we do have. And we've been pretty clear about that. And this is a time that the deployments are lining up as such and
This is a business that was doing less than $50 million a quarter when I joined and.
The team's done a fantastic job building up the business.
And you know.
That doesn't exclude us from a lumpiness in HBC and and the customer concentration that we do have.
And we've been pretty clear about that and this is.
Time that the deployments are lining up as such in.
Speaker 9: kind of all considered as part of our forecast. As I said, one of the earlier questions, we think this is a quarter where that's occurring, but we're still very bullish on the business longterm. And our recent interactions with our existing customers and new targeted customers lead us to be cautiously optimistic in the longterm.
Kind of all considered as part of our forecast.
As I said to one of the earlier questions.
Mark Adams: Okay, maybe if I can ask one more thing related to the comment of sort of a physical second half, snapback or improvement on the IPS business. Obviously, fiscal first half, this upcoming fiscal year versus last year, pretty difficult comparison, given the timing and strength and some of the IPS deployments. But what kind of backlog or, you know, pretty firm indications, do you have in hand or close to it to give you that confidence that you'll see the snapback and fiscal second half and probably for the year IPS revenue can't be up for the fiscal year, but you see year after year growth in the fiscal second half.
We think this is a.
A quarter, where that's occurring but we're still very bullish on the business long term.
Our recent interactions with our customer with our existing customers and new targeted customers.
Lead us to be.
Cautiously optimistic.
<unk> term.
Speaker 11: And just one more, you know, most peers generally don't take out businesses until the full sale is complete. You guys decided to move the Brazil business into discontinued operations. Can you just walk through the rationale for that decision in recorder? Thanks.
And just one more.
Most peers generally don't take out businesses until the full sale is complete you guys decided to move the Brazil business into discontinued operations can you just walk through the rationale for that decision in two quarter. Thank you.
Mark Adams: Brian, we're not able to forecast, per se at this point, but that's something we haven't done. We're just going to keep forecasting for the quarter in advance. But let me just give you a couple things. We have visibility to a run rate business. And then we also have increased our efforts in bringing in new resources to drive new customer acquisition. And I can say qualitatively speaking, the customer engagements are pretty exciting.
Speaker 3: Yeah, sure, Tom. So a couple of things. One, there's kind of two step process. One, we look at.
Yes, sure Tom So a couple of things one.
There's kind of two step process. One you look at held.
Speaker 3: help for sale and look at the asset as such. And then there's another step in terms of looking at the significance, like we could to close the transaction.
Held for sale.
Look at this asset as such and then there's another step in terms of looking at the significant likelihood to close the transaction and those are the two factors from an accounting standpoint.
To drive this business migrating towards to discontinued operations.
Mark Adams: And so converting that into revenue and then also trying to predict when that's going to land, it'll get clearer as we go through Q2, Q3. But right now, we're going to stay away from forecasting out there. But as I said, there's a lot of enthusiasm around AI. What I would say is, it seems like a lot of technologies hardware is being sold and a lot of people are now looking for capabilities and assistance in deploying it.
And that's part of the reason why in.
In Q4, it is now discontinued operations and <unk>.
That's part of the reason also why we recast the historical in the go forward.
The continuing operations of the business.
Yeah.
Mark Adams: And that's where I think you're going to see us focus our efforts. And as we gain successes, we'll be able to communicate them. Just a data point, I can't get into really more specifics, but in this last quarter, we added two significant logos in terms of the brand name. In one narrow space, in one in education, and a couple of others that are not signed but looking very favorable that we can communicate on our next call in the quarter.
Okay. Thank you thanks, Phil.
Speaker 4: Thank you for your question. The next question comes from a line of Quinn Bolton with Needham. Your line is now open.
Thank you for your question. The next question comes from the line.
Clinton Quinn Bolton with Needham Your line is now open.
Speaker 12: Hey guys, thanks for taking my questions. I guess just thinking through the comments, obviously you've talked about based on customer budgets and visibility, you think IPS is probably stronger the second half of fiscal year verse, but first.
Hey, guys. Thanks for taking my questions I guess, just thinking through the comments, obviously, you've talked about based on customer budgets and visibility you think Ips is probably stronger in the second half of the fiscal year versus the first your comments around inventory burn on memory.
Speaker 12: Your comments around inventory burn on memory, taking another quarter to make me think that memory solutions probably also better in the second half for the first half, but wondering if you would comment on that. And then similarly, that the Cree or the LED business looks like it's more stable here in the near term, but if you have any sort of first half for the second half commentary, you can give on the LED business.
Mark Adams: But it's still kind of influx as far as when that timing will be. And that's just what we're dealing with a little bit uncertain around recognizing the timing. But again, the customer engagements are one that we're really excited about helping these people, helping these companies deploy AI in their own environment. Great sounds. Any of those synergies with Stratus by any chance, customer synergies? Early stages in terms of being able to quantify that for you.
Taken in another quarter or two makes me think that memory solutions, probably also better in the second half versus the first half, but I'm wondering if you would comment on that and then similarly, the decree or the led business looks like it's more stable here in the near term, but do you have any sort of first half versus second half commentary you can give on the.
La <unk> business.
Speaker 9: Let me start again, I'll have 10 jump in. Let me just tackle memory first. Memory, recovery, pray
Let me start again I'll have Ken jump in let me just tackle memory first.
Memory pricing.
Mark Adams: What we are seeing is that the customer interest in some of Stratus products more around the edge, twofold, there is a kind of a super early stage belief in AI at the edge. And when you think about some of these markets oil and gas or financial services, or even retail, the ability to have autonomous unmanned computing out in the field is something that plays the stratific strength. And as more applications are able to be delivered generating potential AI applications at the edge, I think we're going to be pretty well positioned. Thank you.
Factored into the memory reporting public reports on earnings what have your memory pricing is reflective is down.
Speaker 9: Public reports on earnings and what have you memory pricing is reflective is down
Speaker 9: significantly and revenues at the memory players down Sum is down as much as over 50% revenue in negative gross margins and negative EPS When we see memory pricing
Significantly and revenues at the memory players down.
Some as down as much as over 50% revenue and negative gross margins and negative EPS.
When we see memory pricing stabilizing it takes a little time to flow through to the performance and so I think on the memory <unk>.
Speaker 9: And so I think on the memory perspective, while we're not gonna forecast the number, we would agree with your sentiment that second half could potentially be better than the first.
Perspective.
While we're not going to forecast a number we would agree with your sentiment that second half could potentially be better than the first half.
Speaker 2: LED, similarly, is...
D a similarly.
As a trend.
Speaker 9: training better for us than say Q2.
Trending better for us than say Q2 of 'twenty three.
Speaker 9: 23 and We're hopeful that that will continue. I think
And we're hopeful that that will continue I think we do see that some times.
Speaker 9: you do see that sometimes there is a little bit more sickle-cality in the LED business, given some of the regional holidays and holiday line up and the lights.
Tom O'malley: Thank you for your question. The next question comes from a line of Tom O'Malley with Barclays. Your line is now open. Hey, good afternoon guys. Thanks for taking my question. You gave the elite business up slightly in the November quarter. Could you just give a little more color between IPS and memory solutions sequentially on what gets it to your guidance? Thank you. Sure, yeah, so you're right, Tom, the LED business should be up a little bit Q4 in the Q1, and then, you know, we don't specify by IPS or memory, but if you look at the guide, they're down in that kind of mid-teens level, plus or minus combined to get to that 275 mid-point of guidance.
There is a little bit more cyclicality in the led business.
Given.
Some of the regional holidays, and how they line up in the lakes speaking more towards again not forecasting, but just the trends we've seen in the past in Q2.
Speaker 9: Speaking more towards, again, not forecasting, but just the trends we've seen in the past.
Speaker 9: But again, that business is recovering. We've seen back to back quarters of some incremental growth. And we're favorable on the design improvements with some of our customers. So again, that's what we're counting on and hopeful for that the LED business will continue to rebound from where it is today. And then on IPS.
But again that that business is recovering and we have seen back to back quarters.
Some incremental growth and where.
Were.
Favorable on the design.
Improvements with some of our customers. So again, that's that's what we're counting on and hopeful for that the led business will continue to revert rebound from where it is today.
And then on Ips.
Speaker 9: The market is favorable that way and given the lumpiness of the business.
The market is favorable that way and.
Given the Lumpiness.
<unk> of the business and the timing of deployments and some of the variables that go in including things like supply chain.
Tom O'malley: And, you know, there's a little movement, and that's part of the reason why we provide a range in terms of how projects can land for IPS or on the memory side, how things go through the rest of the quarter, but that gets you towards that mid-point. Okay, and then just a little clarification, so you mentioned a project move from Q4 to Q1 on timings in terms of booking, I would expect that Q1 would be a little higher on the IPS side, just given the change in timing.
Speaker 9: of the time of deployments and some of the variables that go in, including things like supply chain. Yeah, we're signaling that our current view of the world is that the second half will be better than the first.
Yes, we are signaling that a.
Our current view of the World is that the second half will be better than the first half.
Speaker 3: The only thing on the LED sub-quin is that if we looked in 2023, we did see...
Yeah, no the only thing there on the OLED side Quinn is that if we looked in 2023, we did see the distribution network reduce inventories quite a bit in the neighborhood of call it $18 million and that is now at a more normalized level. So.
That's healthy helping us.
Tom O'malley: You just talk about what's going on in that business, such as even X, that deal moving that you're seeing such a weakness there, both in August and November. Sure, I think it really goes back to my commentary, Tom, about, you know, the lumpiness and customer concentration that we've had at that business, if you take a step back, this is a business that was doing less than $50 million a quarter when I joined.
Healthy.
Entry point as we head into 2024 for Leds specifically.
Speaker 9: Yeah, I guess I would also add to the, like,
Yes, I guess I would also add.
Ken's commentary.
Speaker 9: That inventory level is not contributing all to any of the revenue growth that creeps generating from Q2 to Q3, Q3 to Q4.
That inventory level is not contributing at all to any of the revenue growth that Kris generating.
From Q2 to Q3 Q3 to Q4.
Speaker 12: Got it. Okay. But the second question maybe for Ken, you know, now that you've classified the Brazil, smart Brazil as discontinued operations, can you give us sort of a new targets for, you know, long-term growth margin and op margin, excluding smart Brazil?
Got it Okay second question, maybe for Ken now that you've classified.
Tom O'malley: And, you know, the teams have done a fantastic job building up the business, and, you know, that doesn't exclude us from the lumpiness and HPC and the customer concentration that we do have. And we've been pretty clear about that, and this is a time that the deployments are lining up as such and, you know, kind of all considered as part of our forecast. As I said to one of the earlier questions, you know, we think this is, you know, a quarter where that's occurring, but we're still very bullish on the business long term.
The Brazil Smart, Brazil as discontinued operations can you give us sort of a new targets for.
Long term gross margin and op margin, excluding smart Brazil.
Speaker 5: Yeah, so we have an outline the long term margin.
Yeah. So we haven't we haven't outlined the long term margin expectations I think the.
Speaker 5: The thought will be, as we move into calendar year 24, we'll outline that once that transaction closes. But I think what you can see, and even if you look at the recasting,
The thought would be as we move into calendar year 'twenty four we'll outline that.
Once that transaction closes, but I think what you can see and even if you look at the recasting of our historical is that in the last year.
Tom O'malley: And, you know, our recent interactions with our customers and new targeted customers lead us to be cautiously optimistic in the long term. And just one more, you know, most peers generally don't take out businesses until the full sale is complete. You guys decided to move the Brazil business into discontinued operations. Can you just walk through the rationale for that decision and recorder? Thank you. Yeah, sure, Tom. So, a couple of things.
Running.
North of that 30% margin level.
Which is a substantial improvement relative to where we were a couple of years ago inclusive or exclusive for excluding Brazil, and so the business is just a much different business model today.
Speaker 3: relative to where we were a couple of years ago, inclusive or exclusive.
Speaker 5: Business is just a much different business model today.
Speaker 3: not only from the overall margin perspective, but also if you look at the services component with...
Not only from the overall margin perspective, but also if you look at the services component, which last year was running close to a quarter billion dollars that margin profile.
Speaker 3: close to a quarter billion dollars. That margin profile is in, you know, that 55, 60% range, you know, plus or minus a bit, as well, so that's fairly healthy. And that provides some stickiness in the sense that we have, you know, reasonable.
Tom O'malley: One, you know, there's kind of two-step process. One, we look at help for sale and look at the asset as such. And then, there's another step in terms of looking at the significance, likelihood to close the transaction. And those are the two factors from an accounting standpoint that drive this business migrating towards two discontinued operations. And that's part of the reason why in Q4, it is now discontinued operations. And that's part of the reason also why we recast the historicals and the go-forward for the continuing operations of the business. Thank you. Thank you very much. Thanks so. Thank you for your question.
Is in that 50, 560% range plus or minus a bit.
Well, so that is fairly healthy and that provides.
Some stickiness in the sense that.
We have reasonable visibility on a large portion of that services revenue up to a year and sometimes a bit a bit longer. So we will as we.
We're able to.
Execute and finalize the Brazil transaction will come back to investors after that and we can outline where our targets are but I think based on where the businesses.
Speaker 3: investors after that and we can outline where our targets are, but I think based on where the business is, we shoot for something much.
Shoot for something higher than that where we are today and as revenues grow we would expect that we can also scale to not only the gross margins, but have reasonable fall through down to the op income margins as well.
Speaker 12: And then lastly, maybe a longer term question mentioned CXL in the prepared comment.
Got it and then lastly, maybe a longer term question you mentioned CSL in the prepared comments is there.
Mark Adams: The next question comes from the line of Quinten, Quint Bolton with Needham. Your line is now open. Hey guys, thanks for taking my questions. I guess just thinking through the comments, obviously you've talked about based on customer budgets and visibility. I think IPS is probably stronger than the second half of the fiscal year, versus the first. Your comments around inventory burn on memory, you know, taking another quarter to make me think that memory solutions probably also better in the second half for the first half, but wondering if you would comment on that.
Speaker 12: Is there, you know, any way that you guys could size that opportunity, you know, do you think it ramps with CXL 1.1, you know, if those processors ramped, you need to wait for CXL version 2 with granite rapids next year before you start to see, you know, that business really beginning to ramp any thoughts on timing as 20 certain monetize the CXL opportunity. Thanks. Thanks.
Any way you guys could size that opportunity do you think it ramps with <unk>. So one one as those processors ramp do you need to wait for <unk>. So version two with Grand Rapids next year before you start to see that business really begin.
To ramp any any thoughts on timing as to when you start to monetize the CSL opportunity. Thanks.
Yes based on our very first of all I think we're in a really good position in a very unique position for us to to drive revenue growth I think as I think about it.
Mark Adams: And then similarly, you know, that the Cree or the LED business looks like it's more stable here in the near term, but if you have any, you know, sort of first half versus second half commentary, you can give on the LED business.
Speaker 9: of revenue growth. I think as I think about it, your questions are really good.
Your questions are really good one around is there a kind of a overnight.
Or is it at evolution to new product development and revenue recognition. That's how I interpreted your question and what I would say is it's probably more evolutionary in 'twenty five 'twenty six meaningful revenue. We've got some good early qualifications on on products on test products and.
Mark Adams: Let me start again. I'll have Ken jump in. Let me just tackle memory first. Memory pricing affected into the memory reporting, public reports on earnings and what have you memory pricing is reflective is down, you know, significantly. And revenues at the memory players down, some is down as much as over 50% revenue in negative gross margins and negative EPS. When we see memory pricing stabilizing, it takes a little time to flow through to the performance.
Speaker 9: product development and revenue recognition. That's how I interpreted your question, and what I would say is it's probably more evolutionary in 25, 26.
Mark Adams: And so I think on the memory perspective, while we're not going to forecast the number, we would agree with your sentiment that second half could potentially be better than the Q2 of 23. And we're hopeful that that will continue. I think we do see that sometimes there is a little bit more cyclicality in the in the LED business given some of the regional holidays and how they line up and the likes, speaking more towards again, not forecasting, but just the trends we've seen in the past in Q2.
Speaker 9: revenue. We've got some good early qualifications on products, on test products, and we're encouraged by where we sit in terms of the development timeline. But because of processor and memory delivery and some of the new memory architectures that are needed to support this.
We're encouraged by where we sit in terms of the development timeline.
Because of the processor and memory.
Delivery and some of the new memory architectures that are needed to support this.
Speaker 9: version one, version two, version three of six, well, only add to what I think will be a growing tan. And I'd like Jack, if you have any other comments around it, go ahead. No, just your quick thing was, you know, we do need to get...
Version one version two version three of six L will only add to what I think will be a growing tam.
And I'll, let Jack if you have any other comments around it go ahead. Just a quick thing was you know it is we do need to get to.
Six <unk>.
Before we will start seeing any kind of meaningful revenue kind of shakes out and what we will ship. Some revenue. This year will actually released our first <unk> product coming.
Speaker 3: We'll ship some revenue to this year. We'll actually release our first Excel product.
Speaker 12: Here another. You know this year, but you know we won't anything- cycle till our fiscal 25 and grow to get into three.
Coming up here this year, but we won't see anything saiful until our fiscal 'twenty five.
Grow as we get into three data as well after that.
Mark Adams: But again, that business is recovering. We've seen back-to-back quarters of some incremental growth. And we're favorable on the design improvements with some of our customers. So again, that's what we're counting on and hopeful for that the LED business will continue to rebound from where it is today. And then on IPS, the market is favorable that way and given the lumpiness of the business and the timing of deployments and some of the variables that go in, including things like supply chain.
Speaker 9: So again, more of an evolutionary approach to how that marker will grow. And I think we have a good road in that to support that.
So again more of an evolutionary.
The approach to how that market will grow and I think we have a good roadmap to support that.
Thank you.
Your question Okay.
Sorry about that.
Speaker 13: Okay, the question's waiting at the time. I know that's the conference over at Margarita. And further remarks.
Real quick question.
I'll now pass the conference over to Matt Gannon for further remarks.
Speaker 9: Well thank you all again for joining today. We look forward to updating you on our next learning school.
Well. Thank you all again for joining today, we look forward to updating you on our next earnings call.
Okay.
Yeah.
Speaker 13: That concludes today's call. Thank you for your participation and enjoy the rest of your day.
That concludes today's call. Thank you for your participation and enjoy the rest of your day.
Mark Adams: Yeah, we're signaling that our current view of the world is that the second half will be better than the first half. Yeah, the only thing there on the LED side, Quinn, is that if we looked in 2023, we did see the distribution network reduce inventory quite a bit in the neighborhood of, call it $18,000,000. And that is now at a more normalized level. So that's healthy. Helping. Dawson is in a healthy entry point as we head into 2024 for LED specifically.
Mark Adams: Yeah, I guess I would also add, as I listen to the comments commentary, that inventory level is not contributing all to any of the revenue growth that crease generating from Q2 to Q3, Q3 to Q4. Got it.
Ken Rizvi: Okay, the second question maybe for Ken, you know, now that you've classified the Brazil, Smart Brazil as discontinued operations, can you give us sort of a new targets for, you know, long-term growth margin and out margin, excluding Smart Brazil? Yeah, so we haven't, we haven't outlined the long-term margin expectations. I think the thought will be as we move into calendar year 24, we'll outline that once that transaction closes, but I think what you can see, and even if you look at the recasting of our historicals, is that in the last year we're running north of that 30% margin level, which is a substantial improvement relative to where we were a couple of years ago, inclusive or exclusive or excluding Brazil.
Ken Rizvi: And so the business is just a much different business model today, not only from the overall margin perspective, but also if you look at the services component, which last year was running close to quarter billion dollars. There's that margin profile is in, you know, that 55, 60% range, you know, plus or minus a bit, as well so that's fairly healthy. And that provides some stickiness in the sense that we have, you know, reasonable visibility on a large portion of that services revenue up to a year and sometimes a bit longer.
Ken Rizvi: So we will as we are able to execute and finalize the Brazil transaction, we'll come back to investors after that and we can outline where our targets are, but I think based on where the business is, we shoot for something higher than where we are today. And as revenues grow, we would expect that we can also scale the not only the gross margins, but have reasonable fall through down to the off income margins as well. Got it.
Mark Adams: And then lastly, maybe as a longer term question mentioned, CXL and the prepared comments, is there, you know, anyway, you guys could size that opportunity, you know, do you think it, it ramps with CXL 1.1, you know, as those processors ramp, do you need to wait for CXL in a version two with with granite rapids next year before you start to see, you know, that business really beginning. I mean, to ramp any, any thoughts on timing is 20 certain monetize the CXL opportunity.
Mark Adams: Thanks. Yeah, based on the right, first of all, I think we're in a really good position, a very unique position for us to drive revenue growth. I think as I think about it, your questions are really good one around. Is it kind of an overnight sensation or is it an evolution? and Revenue Recognition. That's how I interpreted your question and what I would say is it's probably more evolutionary and 25, 26 meaningful revenue.
Mark Adams: We've got some good early qualifications on products, on test products, and we're encouraged by where we sit in terms of the development timeline, but because of processor and memory delivery and some of the new memory architectures that are needed to support this, version 1, version 2, version 3 of CXL, we'll only add to what I think will be a growing tan, and I let Jack, if you have any other comments around it, go ahead. No, just your quick thing was, we do need to get to CXL 2.0 right before we'll start seeing any meaningful revenue out of CXL.
Mark Adams: Well, we'll ship some revenue this year, we'll actually release our first CXL product coming up here another year, but we won't change anything, so I will tilt our fiscal 25 and it will grow as we get into 3.0 as well, after that. So again, more of an evolutionary approach to how that marker will grow, and I think we have a good road in that to support that. Thank you.
Mark Adams: Your question? Okay. Sorry about that. Okay, the question is waiting at the time, I'll pass the conference over to Mark Adam, and further remarks. Well, thank you all again for joining today. We look forward to updating you on our next learning school. That concludes today's call. Thank you for your participation and enjoy the rest of your day.