Q1 2024 SMART Global Holdings Inc Earnings Call
Good afternoon. Thank you for attending the smart global holdings first quarter fiscal 2024 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. I would now like to pass the conference over to your host. Thank you. You may proceed to the end.
Good afternoon.
And thank you for attending the Smart Global Holdings first quarter fiscal 2024 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 I would now like to pass the conference over to your host Suzanne Schmidt. Thank you.
You May proceed Suzanne.
Victoria: Thank you, operator. Good afternoon, and thank you for joining us on today's earnings conference call and webcast to discuss SGH's first quarter fiscal 2024 results.
Thank you operator, good afternoon, and thank you for joining us on today's earnings conference call and webcast to discuss <unk> first quarter fiscal 2024 results.
Victoria: On the call today are Mark Adams, Chief Executive Officer, Jack Pacheco, Chief Operating Officer, and Ken Lizzie, Chief Financial Officer.
On the call today are Mark Adams, Chief Executive Officer, Jack Pacheco, Chief operating Officer, and Ken <unk>, Chief Financial Officer.
Victoria: 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.
Victoria: 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.
Victoria: Please note that during this conference call, the company will make projections and forward looking statements, including but not limited to 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 but not limited to statements about the company's growth trajectory and financial outlook.
Victoria: Forward-looking statements are based on current belief send assumptions and are not guarantees 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.
Forward looking statements are based on current beliefs and assumptions and 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 <unk>.
<unk> report.
Victoria: 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 statement.
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.
Victoria: We will also discuss the gap and on- GAAP financial measures. Non- GAAP 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- GAAP measures is included in today's press release and the accompanying slide presentation.
We will also discuss both GAAP and non-GAAP financial measures non-GAAP measures should not be considered in isolation from as a substitute for or superior to our GAAP results.
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 the accompanying slide presentation.
Victoria: As a reminder, at the end of calendar 2023, SGH completed the sale of an 81% interest in its smart Brazil operation. Accordingly, smart Brazil operations are classified as discontinued operations in the company's financial statements for all periods presented, and the following discussion as financial results relates to continuing operations, which excludes smart Brazil unless otherwise noted.
As a reminder, at the end of calendar 2023 S. G. H completed the sale of an 81% interest in its smart Brazil operation.
Accordingly, Mark Brazil operations are classified as discontinued operations in the company's financial statements for all periods presented in the following discussion of financial results relates to continuing operations, which exclude smart, Brazil, unless otherwise noted.
Victoria: And with that, let me turn the call over to Mark Adam CEO , Mark.
And with that let me turn the call over to Mark Adams CEO Mark.
Thank you Suzanne.
Mark W. Adams: And thanks to all of you for joining us today. I hope you all had a nice holiday season.
Thanks to all of you for joining us today I.
I Hope you all had a nice holiday season.
Mark W. Adams: We have made tremendous progress in our journey towards becoming a high performance, high availability and a prize solutions company. In our first quarter, as
We have made tremendous progress in our journey towards becoming a high performance high availability Enterprise solutions company.
And our first quarter as part of our continued transformation.
Mark Adam: We completed the majority divestiture of our Brazil-based consumer memory module business.
We completed the majority divestiture of our Brazil based consumer memory module business.
Mark Adam: We now have a much higher quality of revenue mix than when we started this journey more than three years ago, as demonstrated by our record non-gap gross margins in the first quarter. And strategically, we believe that we are uniquely positioned
We now have a much higher quality revenue mix than when we started this journey more than three years ago.
As demonstrated by our record non-GAAP gross margins in the first quarter.
And strategically we believe that we are uniquely positioned to capitalize on the growing demand for high performance high availability solutions that enterprise customers need in order to deploy AI on premise at the edge and in the cloud.
Mark Adam: capitalize on the growing demand for high performance, high availability solutions that enterprise customers need in order to deploy AI on premise at the edge and in the cloud.
Mark Adam: In our first quarter of 2024, we delivered strong operating results.
And our first quarter of 2024, we delivered strong operating results.
Mark Adam: revenues totaled 274 million in line with the midpoint of our guidance range.
Revenues totaled $274 million in line with the midpoint of our guidance range and we achieved record non-GAAP gross margins for the first quarter up 33, 3% above the high end of our guidance range.
Mark Adam: And we achieved record non-Gaprose margins for the first quarter of 33.3 percent above the high end of our guidance range.
Mark Adam: Non-Gap earnings per share was $0.24, which is at the higher end of our guidance range.
non-GAAP earnings per share was 24, which is at the higher end of our guidance range.
Mark Adam: These achievements were driven by a greater mix of services revenue, which represented approximately 25% of overall SGH revenues, another record, and a demonstration of the value we provide our customers.
These achievements were driven by a greater mix of services revenue, which represented.
And approximately 25% of overall <unk> revenues.
Other record and a demonstration of the value we provide our customers.
Mark Adam: We generated approximately $60 million in cash flow from operations in the quarter and X to the Q1 with a strong balance
We generated approximately $60 million in cash flow from operations in the quarter and exited Q1 with a strong balance sheet.
Mark Adam: Cash and short-term investments told a record $553 million.
Cash and short term investments totaled a record $553 million.
Mark Adam: 2023 has been called the iPhone Moment and AI. The year was defined by its
2023 has been called the iPhone moment in AI.
The year was defined by extraordinary advancements in AI with.
Mark Adam: with hyperscalers and other early adopters investing heavily in this new computing paradigm. As we head in,
With Hyperscale and other early adopters investing heavily in this new computing paradigm.
As we head into 2024.
Mark Adam: Science of market adoption of AI are expanding to include large enterprises with a focus on deployment.
The market adoption of AI are expanding to include large enterprises with a focus on deployment.
Mark Adam: Most enterprises will need a trusted advisor and compute, software, and services solutions, and we believe SGH is uniquely positioned to play this role.
Most enterprises will need a trusted adviser and compute software and services solutions and we believe <unk> is uniquely positioned to play this role.
Mark Adam: in conversations with existing customers and in engagements with potential customers.
In conversations with existing customers and engagements with potential customers.
Mark Adam: We're seeing an increasing need to help companies manage the complexity of AI implementations at scale.
We are seeing an increasing need to help companies manage the complexity of AI implementations at scale.
Mark Adam: This is true across a broad range of industries, including defense, finance, tier one and two cloud service providers, healthcare, energy, and education.
This is true across a broad range of industries, including defense finance tier one and to cloud service providers healthcare energy and education.
Mark Adam: Each of these sectors is reimagining its future through the lens of AI.
Each of these sectors is re imagining its future through the lens of AI.
Mark Adam: And we can play a vital role in this developing ecosystem.
We can play a vital role in this developing ecosystem.
Mark Adam: At SGH, we provide enterprises with more than just hardware.
At Sch, we provide enterprises with more than just hardware, we differentiate ourselves with our total solutions approach that encompasses design deployment integration and managed services.
Mark Adam: We differentiate ourselves with our total solutions approach that encompasses design, deployment, integration, and managed services.
Mark Adam: We have helped our customers deploy some of the most skilled and innovative AI factories to date.
We have helped our customers deploy some of the most scaled and innovative AI factories to date.
Mark Adam: Our strategy of combining a solutions and service mindset with the technology-agnostic approach means that our customers' needs are where they should be first.
Our strategy of combining our solutions and service mindset with a technology agnostic approach means that our customers' needs are where they should be first.
Mark Adam: Now, let me start our business review with the Intelligent Platform Solutions Group.
Now, let me start our business review with the intelligent platform solutions group.
Mark Adam: Our IPS team designs, builds, deploys, and manages the complete portfolio of hardware, software, and managed services solutions for HBC and AI applications on premise, at the edge, and in the cloud.
Our Ips team designed build deploy and manage it as a complete portfolio of hardware software and managed services solutions for HBC and AI applications on premise at the edge.
And in the cloud and.
Mark Adam: In Q1, IPS revenue came in at $119 million, or 43% of total SGH revenue, making it the largest component of our business in Q1.
In Q1, Ips revenue came in at $119 million or 43% of total <unk> revenue, making it the largest component of our business in Q1.
In this era of technological transformation and AI proliferation across the enterprise.
Mark Adam: We are seeing growing interest in penguins AI factory solutions from both existing and potential customers.
We are seeing growing interest in Penguins, AI factory solutions from both existing and potential customers.
Mark Adam: While we don't provide specific customer names for confidentiality and competitive reasons.
While we don't provide specific customer names for confidentiality and competitive reasons.
Mark Adam: We are seeing increasing traction across defense, finance, tier one and two cloud service providers, healthcare, oil and gas, and other major verticals.
We are seeing increasing traction across defense.
Tier one and to cloud service providers healthcare oil and gas and other major verticals.
In addition.
Mark Adam: We continue to invest in next generation technologies so our customers can stay at the forefront of tomorrow's HPC and AI systems.
We continue to invest in next generation technologies. So our customers can stay at the forefront of Tomorrow's HBC and AI systems.
Mark Adam: To take one example, we are working with a leading energy conglomerate to develop and deploy a new emerging cooling system whereby computing clusters are immersed in recycled oil.
To take one example, we are working with a leading energy conglomerate to develop and deploy a new emerging cooling system, whereby computing clusters are immersed in recycled oil.
Mark Adam: This approach enables much lower and more efficient power consumption, something that is in and of itself a very positive outcome, while also lowering costs and allowing for increased compute density within the data center.
This approach enables much lower and more efficient power consumption something that is in of itself a very positive outcome.
While also lowering costs, allowing for increased compute density within the data center.
Mark Adam: We believe this is the first deployment in North America of oil-based immersion cooling for AI.
We believe this is the first deployment in North America of oil based emerging cooling for AI.
During Q1, we.
Mark Adam: We also launched our next generation fault-tolerant computing solution, the Stratus ZPC Endurance Server.
We also launched our next generation fault tolerant computing solution, the Stratus VTC endurance server.
Mark Adam: This new platform delivers predictable protected performance in the data center and at the edge.
This new platform delivers predictable protected performance in the data center at the edge, which enables our customers to run applications with targeted unplanned downtime of less than one minute per year.
Mark Adam: which enables our customers to run applications with targeted, unplanned downtime of less than one minute per year.
Mark Adam: We believe this type of reliability is critical for enabling AI at the edge, and our customers seem to agree.
We believe this type of reliability is critical for enabling AI at the edge and our customers seem to agree.
Mark Adam: We have secured initial orders for Stratus DTC Endurance and are actively expanding our pipeline, laying the groundwork for future growth.
We have secured initial orders for Stratus DTC endurance.
Actively expand our pipeline laying the groundwork for future growth.
Mark Adam: Our memory solutions group, which operates under the smart modular brand name, provides customers with high-performance, high-reliability memory solutions for specialty markets such as supercomputing, network and telecom, storage, data center, industrial, and other applications.
Our memory solutions group, which operates under the smart modular brand name <unk>.
Provides customers with high performance high reliability memory solutions.
For specialty markets, such as supercomputing networking telecom storage data center industrial and other applications.
Mark Adam: For Q1, revenue came in at $86 million, or 31% of total SGH revenue.
For Q1 revenue came in at $86 million or 31% of total <unk> revenues.
Mark Adam: Sales declined from Q4 levels as expected, primarily due to elevated inventory levels at a number of our large customers, and visibility into future demand remained somewhat muted.
Sales decline from Q4 levels as expected primarily due to elevated inventory levels at a number of our large customers and visibility into future demand remained somewhat muted.
Mark Adam: At the same time, we are seeing early signs that the cyclical downturn in memory is abating, and we feel confident about our position.
At the same time, we are seeing early signs that the cyclical downturn and memory is abating and we feel confident about our position.
Mark Adam: We believe DRAM and NAND ASPs have reached the bottom of the cycle. And in fact, we are starting to see prices increase for certain memory SKUs.
We believe DRAM and NAND asps.
Have reached the bottom of the cycle and in fact, we are starting to see prices increase for certain memory skus.
Mark Adam: While unit demand at some of our large enterprise customers has been affected by inventory bills.
While unit demand at some of our large enterprise customers has been affected by inventory builds.
Mark Adam: We are optimistic about the outlook for the second half of our fiscal year.
We are optimistic about the outlook for the second half of our fiscal year.
Mark Adam: Our confidence stems from the increased customer interest we are seeing in our next generation solutions, such as Compute Express Link or CXL, enterprise SSDs with storage endurance tiering, and our Zephyr Z-DIMM Ultra High Reliability Memory Models for cloud service provider applications.
Our confidence stems from the increased customer interest we are seeing in our next generation solutions, such as compute express link or CSL enterprise Ssds with storage endurance, tearing and our zipper <unk> Ultra high reliability memory modules for cloud service provider applications.
Mark Adam: Now turning to our LED Solutions Group, which produces application-optimized LED products.
Now turning to our led solutions group, which produces application optimize led products and markets such as specialty lighting video screens gaming displays and outdoor horticulture and architectural lighting under our Cree led brand.
Mark Adam: in markets such as specialty lighting, video screens, gaming displays, and outdoor horticulture and architectural lighting under our Cree LED brand.
Mark Adam: For the first quarter of fiscal 2024, LED revenue totaled 70 million or 25% of total SDH sales, making this the third consecutive quarter of top line improvement.
For the first quarter of fiscal 2024.
Revenue totaled $70 million or 25% of total SBA sales.
Making this the third consecutive quarter of top line improvement.
Mark Adam: We expect to build on this revenue momentum over the course of fiscal 2024.
We expect to build on this revenue momentum over the course of fiscal 2024.
Mark Adam: That said, as we have stated in the past, Q2 tends to be a lighter quarter due to seasonality. So we expect revenue to be lower in the second quarter as compared to Q1.
Said.
We have stated in the past Q2 tends to be a lighter quarter due to seasonality. So we expect revenue to be lower in the second quarter as compared to Q1.
Mark Adam: While we believe that the gradual recovery in the overall LED market will continue, we are proactively managing our Cree LED operating expenses in order to improve the profitability of this business line.
While we believe that the gradual recovery in the overall led market will continue we are proactively managing our operating expenses in order to improve the profitability of this business line.
Mark Adam: This prudence in our short-term operating approach does not diminish our focus on shaping the future of LEDs by continuing to invest in pioneering technologies for our customers with emphasis on high-value specialty applications.
This prudence in our short term operating approach does not diminish our focused on shaping the future of Leds by continuing to invest in pioneering technologies for our customers with emphasis on high value specialty applications.
Mark Adam: As both a technology and brand leader with a robust portfolio of intellectual property, CRE is at the forefront of lighting innovation.
As both a technology and brand leader with a robust portfolio of intellectual property created at the forefront of lighting innovation.
Mark Adam: We remain confident about the long-term performance of our LED business line, given improvements in the macro environment.
We remain confident about the long term performance of our OLED business line given improvements in the macro environment.
Speaker Change: I'll stop here and hand it over to Ken for a more detailed review of our Q1 financial performance and our guidance for next quarter.
I'll stop here and hand, it over to Ken for a more detailed review of our Q1 financial performance and our guidance for next quarter.
Ken.
Ken Lizzie: Thanks, Mark. We completed the sale of 81% of our Smart Brazil operations at the end of our fiscal first quarter, receiving gross proceeds inclusive of working capital adjustments and less taxes paid of approximately $140 million.
Thanks, Mark we completed the sale of 81% of our smart Brazil operations at the end of our fiscal first quarter received gross proceeds inclusive of working capital adjustments.
Less taxes paid of approximately $140 million.
Ken Lizzie: As a reminder, Brazil was classified as discontinued operations from the end of our fiscal 2023 and for all periods presented beginning in the second quarter of fiscal 2024 smart Brazil will no longer be consolidated with the results of SGA.
As a reminder, Brazil was classified as discontinued operations from the end of our fiscal 2023 and for all periods presented.
Beginning in the second quarter of fiscal 2024, Smart, Brazil will no longer be consolidated with the results of SG H.
Ken Lizzie: Given the completion of the majority sale of Brazil, I will focus my remarks on our non-GAAP results for continuing operations, which are reconciled to GAAP in our earnings release table and in the investor material on our website.
Given the completion of the majority sale of Brazil, I will 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 now.
Ken Lizzie: Now let me turn to our first quarter results from our continuing operation.
Now, let me turn to our first quarter results from our continuing operations.
Ken Rizvi: Total SGH revenues were $274 million and non-GAAP gross margin came in at a record 33.3% above the high end of our guidance, primarily driven by improved product and service revenue mix.
Total SGA revenues were $274 million and non-GAAP gross margin came in at a record $33, 3% above the high end of our guidance, primarily driven by improved product and service revenue mix.
Ken Rizvi: non-GAAP diluted earnings per share was 24 cents for the first quarter, which was at the higher end of our guidance rate.
non-GAAP diluted earnings per share was 24 for the first quarter, which was at the higher end of our guidance range.
Ken Rizvi: In the first quarter, our overall services revenue totaled $68 million, down from $75 million in the year-ago quarter. Product revenues were $206 million.
In the first quarter, our overall services revenue totaled $68 million down from $75 million in the year ago quarter.
Product revenues were $206 million.
Ken Rizvi: First quarter revenue by business unit was as follows.
First quarter revenue by business unit was as follows.
Ken Rizvi: IPS 119 million dollars, memory 86 million dollars, and LED at 70 million dollars. This translates into a sales mix of approximately 43 percent IPS, 31 percent memory, and 25 percent LED.
$119 million memory $86 million and lead at $70 million. This translates into a sales mix of approximately 43% Ips.
31% memory and 25%.
Ken Rizvi: Non-gap gross margin for SGH in Q1 was 33.3 percent, up from 31.3 percent in the year ago quarter, primarily driven by IPS.
non-GAAP gross margin for SG H in Q1 was 33, 3% up from 31, 3% in the year ago quarter, primarily driven by Ips.
Ken Rizvi: non-GAAP operating expenses for the first quarter were $64.6 million, down from $70 million in the fourth quarter of 2023, primarily due to lower variable expenses and cost reduction action.
non-GAAP operating expenses for the first quarter were $64 $6 million down from $70 million in the fourth quarter of 2023, primarily due to lower variable expenses and cost reduction actions operating expenses were down from $71 4 million in the year ago quarter.
Ken Rizvi: operating expenses were down from $71.4 million in the year ago quarter.
Ken Rizvi: non-GAAP diluted earnings per share for the first quarter of 2024 was $0.24 per share, compared with $0.75 in the year-ago quarter.
non-GAAP diluted earnings per share for the first quarter of 2024 was <unk> 24 per share compared with 75 in the year ago quarter.
Ken Rizvi: Adjusted EBITDA for the first quarter of 2024 was $34 million, or 13% of sales, compared to $58 million, or 15% of sales in the year ago quarter.
Adjusted EBITDA for the first quarter of 2024 was $34 million or 13% of sales compared to $58 million or 15% of sales in the year ago quarter.
Ken Rizvi: Turning to balance sheet highlights, for working capital, our net accounts receivable totaled $171 million, compared with $219 million last quarter. Days sales outstanding came in at 44 days, down from 48 days last quarter, primarily due to the timing of invoicing and collection.
Turning to balance sheet highlights, where working capital our net accounts receivable totaled $171 million compared with $219 million last quarter.
Days sales outstanding came in at 44 days down from 48 days last quarter, primarily due to the timing of invoicing and collections.
Ken Rizvi: Inventory totaled $208 million at the end of the first quarter, up from $175 million at the end of the prior quarter.
Inventory totaled $208 million at the end of the first quarter up from $175 million at the end of the prior quarter.
Ken Rizvi: The increase in inventory was driven primarily by inventory growth in IPS to support upcoming bills.
The increase in inventory was driven primarily by inventory growth in Ips to support upcoming builds.
Ken Rizvi: Inventory turns were 5.8 times in the first quarter down from 7.5 times in the prior quarter.
Inventory turns were five eight times in the first quarter down from seven five times in the prior quarter.
Ken Rizvi: And consistent with past practice, net accounts receivables, days outstanding, and inventory turnover are calculated on a gross sales and cost of goods sold basis.
And consistent with past practice net accounts receivables.
Days outstanding and inventory turnover are calculated on a gross sales and cost of goods sold basis.
Ken Rizvi: which were $383 million and $300 million respectively for the first quarter.
Which were $383 million and $300 million.
Respectively for the first quarter.
Ken Rizvi: And as a reminder, the difference between our gross and net revenue is related to our logistic services, which is accounted for on an agent basis, meaning we only recognize the net profit on logistic services as revenue.
And as a reminder, the difference between our gross and net revenue is related to our logistics services, which is accounted for on an agent basis, meaning we only recognize the net profit on logistics services as revenue.
Ken Rizvi: Cash, cash equivalents, and short-term investments totaled a record $553 million at the end of the first quarter, up $163 million compared with $391 million at the end of our prior quarter.
Cash cash equivalents and short term investments totaled a record $553 million at the end of the first quarter.
$163 million compared with $391 million at the end of our prior quarter.
Ken Rizvi: First quarter cash flows from operating activities totaled $60 million compared to $38 million in the prior quarter.
First quarter cash flows from operating activities totaled $60 million <unk>.
Compared to $38 million in the prior quarter.
Ken Rizvi: During the first quarter, gross proceeds inclusive of working capital adjustments, less taxes paid for approximately $140 million from the 81% divestiture of Smart Brazil.
During the first quarter gross proceeds inclusive of working capital adjustments less taxes paid were approximately $140 million from the 81% divestiture of smart Brazil.
Ken Rizvi: And also, for reference, in the beginning of our second quarter, we made a $50 million cash payment for the earn out of Strata.
And also for reference in the beginning of our second quarter, we made a $50 million cash payment for the earn out of Stratus.
Ken Rizvi: During the first quarter, we repurchased approximately 825,000 shares of our common stock using $12.1 million.
During the first quarter, we repurchased approximately 825000 shares of our common stock using $12 1 million.
Ken Rizvi: Since our initial 75 million authorization in April of 2022, we have used a total of $70.5 million to repurchase 4 million shares through the end of our first fiscal quarter under our share repurchase authorization.
Our initial 75 million authorization in April of 2022, we have used a total of $75 million to repurchase 4 million shares through the end of our first fiscal quarter under our share repurchase authorization.
Ken Rizvi: Today, we announced that the Audit Committee of the Board of Directors has approved another $75 million share repurchase authorization.
Today, we announced that the audit committee of the board of directors as approved another $75 million share repurchase authorization.
Ken Rizvi: bringing the total share repurchase authorization over the last two years to $150 million.
The total share repurchase authorization over the last two years to $150 million.
Ken Rizvi: And to remind everyone, our capital allocation strategy remains the same. First and foremost, we will continue to invest in our business as we see significant opportunities for further organic growth.
And to remind everyone. Our capital allocation strategy remains the same first and foremost we will continue to invest in our business as we see significant opportunities for further organic growth.
Ken Rizvi: Second, we will continue to evaluate acquisition opportunities in a disciplined manner, similar to our most recent acquisition of Stratus.
We will continue to evaluate acquisition opportunities in a disciplined manner.
Similar to our most recent acquisition of Stratus.
Ken Rizvi: Third, the incremental share repurchase authorization provides us flexibility to return capital to our shareholders in an opportunistic and price sensitive manner. And finally, we would look to retire debt to keep our gross leverage at reasonable level.
Third the incremental share repurchase authorization provides us flexibility to return capital to our shareholders in an opportunistic and price sensitive manner and finally, we would look to retire debt to keep our gross leverage at reasonable levels.
Ken Rizvi: For those of you tracking capital expenditures and depreciation, CapEx was approximately $4.6 million in the first quarter and depreciation was $7.5 million.
For those of you tracking capital expenditures and depreciation Capex was approximately $4 $6 million in the first quarter and depreciation was $7 5 million.
Ken Rizvi: Now, let me turn to our second fiscal quarter 2024 guidance.
Now, let me turn to our second fiscal quarter 2024 guidance.
Ken Rizvi: We expect that revenues for the second quarter of 2024 will be approximately $285 million at the midpoint, plus or minus $25 million.
We expect that revenues for the second quarter of 2024 will be approximately $285 million at the midpoint plus or minus $25 million.
Ken Rizvi: Our guidance for the second quarter reflects the following.
Our guidance for the second quarter reflects the following.
Ken Rizvi: For IPS, we expect revenues to increase sequentially by 15% or more at the midpoint.
Our Ips, we expect revenues to increase sequentially by 15% or more at the midpoint.
Ken Rizvi: For memory, we expect revenues to be approximately flat sequentially at the midpoint as we continue to see certain customers working through finished goods inventory.
For memory, we expect revenues to be approximately flat sequentially at the midpoint as we continue to see certain customers working through finished goods inventories.
Ken Rizvi: And for LED, we currently expect revenues to be down in Q2, primarily due to normal seasonality.
<unk>, we currently expect revenues to be down in Q2, primarily due to normal seasonality.
Ken Rizvi: Our gap gross margin for the second quarter is expected to be approximately 29.5 percent at the midpoint, plus or minus one percent.
Our GAAP gross margin for the second quarter is expected to be approximately 29, 5% at the midpoint plus or minus 1%.
Ken Rizvi: Non-Gaferous margin for the second quarter is expected to be approximately 32.5% at the midpoint plus or minus 1%.
non-GAAP gross margin for the second quarter is expected to be approximately 32, 5% at the midpoint plus or minus 1%.
Ken Rizvi: or non-GAAP operating expenses for the second quarter are expected to be approximately $66 million, plus or minus $3 million, and in line with the prior quarter.
Our non-GAAP operating expenses for the second quarter are expected to be approximately $66 million plus or minus $3 million.
And in line with the prior quarter.
Ken Rizvi: gap diluted earnings per share in the second quarter is expected to be approximately negative 15 cents, plus or minus 10 cents.
GAAP diluted earnings per share for the second quarter is expected to be approximately negative 15, plus or minus 10.
Ken Rizvi: on a non-GAAP basis, excluding share-based compensation expense, intangible asset amortization expense, debt discount, and other adjustments, we expect the looted earnings per share will be approximately 25 cents plus or minus 10 cents.
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 25, plus or minus <unk> 10.
Ken Rizvi: Our GAP diluted share count for the second quarter is expected to be approximately 52 million shares based on our current stock price, while our non-GAP diluted share count is expected to be approximately 53 million shares.
Our GAAP diluted share count for the second quarter is expected to be approximately 52 million shares based on our current stock price, while our non-GAAP diluted share count is expected to be approximately 53 million shares.
Ken Rizvi: Cash capital expenditures for the second quarter are expected to be in the range of $4 to $6 million.
Cash capital expenditures for the second quarter are expected to be in the range of $4 million to $6 million.
Ken Rizvi: And beginning in 2024, we are utilizing a long-term projected non-gap tax rate of 28%, which reflects currently available information, including the sale of Smart Brazil, which was completed in the first quarter, as well as other factors and assumptions.
And beginning in 2024, we are utilizing a long term projected non-GAAP tax rate of 28%, which.
Which reflect currently available information, including the sale of Smart, Brazil, which was completed in the first quarter as well as other factors and assumptions.
Ken Rizvi: While we expect to use this normalized non-gap tax rate through 2024, the long-term non-gap tax rate may be subject to changes for a variety of reasons.
While we expect to use this normalized non-GAAP tax rate through 2020 for the long term non-GAAP tax rate may be subject to changes for a variety of reasons, including the rapidly evolving global tax environment significant changes in our geographic earnings mix or changes to our.
Ken Rizvi: including the rapidly evolving global tax environment, significant changes in our geographic learning mix or changes to our strategy or business operations.
<unk> or business operations are.
Ken Rizvi: Our forecast for the second quarter of 2024 is also based on the current environment which contemplates the global macro economic headwinds and ongoing supply chain constraints, especially as it relates to our IPS business.
Our forecast for the second quarter of 2024 is also based on the current environment, which contemplates the global macro economic headwinds and ongoing supply chain constraints, especially as it relates to our Ips business.
Ken Rizvi: 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.
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: 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.
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.
Ken Rizvi: please refer to our non-GAAP financial information section and the reconciliation of GAAP to non-GAAP measures tables in our earnings release for further details.
Please refer to our non-GAAP financial information section and the reconciliation of GAAP to non-GAAP measures tables in our earnings release for further details.
Ken Rizvi: Now, let me turn it over to Mark for a few remarks prior to Q&A. Thanks, Ken. As CEO of SGH, my confidence in our future is based on our past performance.
Now, let me turn it over to Mark for a few remarks prior to Q&A. Thanks, Ken.
As CEO of SDH.
My confidence in our future is based on our past performance and.
And our solid track record of execution.
Mark: It is also grounded in the measurable advances we have made on our transformation journey.
It is also grounded in the measurable advances we have made on our transformation journey.
Mark: Consider the following milestones we achieved in just over three years.
Consider the following milestones we achieved in just over three years.
Mark: Gross margin expansion from below 20% in fiscal year 2020 to 33.3% in Q1 fiscal 24, a record.
Gross margin expansion from below 20% in fiscal year 2020.
233, 3% in Q1 fiscal 'twenty four a record.
Mark: Cash on the balance sheet of over $550 million, another record.
Cash on the balance sheet of over $550 million another record.
Mark: Diversification away from a memory module business to a provider of high-performance, high-reliability enterprise solutions.
Diversification away from a memory module business to a provider of high performance high reliability enterprise solutions.
Mark: Memory has gone from 76% of revenue at the end of fiscal year 2020 to 31.3% in our
Memory has gone from 76% of revenue at the end of fiscal year 2022.
<unk> to 31, 3% and our current quarter.
Mark: Successful M&A, as most recently demonstrated by our acquisition of Stratus in August of 2022.
Successful M&A as most recently demonstrated by our acquisition of Stratus in August of 2022.
Mark: This acquisition both added scale for our services capabilities and also expanded our compute solutions to include future AI at the edge fault tolerant offerings.
This acquisition both at scale for our services capabilities and also expanded our compute solutions to include future AI at the edge fault tolerant offerings.
Mark: Investiture of our consumer module business in Brazil at a valuation of greater than 1.2 times revenue based on the trailing year's revenue numbers, which is actually higher than our current revenue multiple for all of SDH, an incredible outcome.
Divestiture of our consumer module business in Brazil at a valuation of greater than one two times revenue based on the trailing years revenue numbers, which is actually higher than our current revenue multiple for all of SDH an incredible outcome.
Mark: And most importantly, we have a clear strategy focused on providing differentiated solutions in the early endings of the AI era on premise in the cloud and at the edge.
And most importantly, we have a clear strategy focused on providing differentiated solutions in the early innings of the AI era.
On premise in the cloud and at the edge.
Operator, we are now ready for Q&A.
Mark: 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 question press star one.
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.
Any reason you would like to remove that question. Please press star followed by two again to ask question Press Star one.
Mark: As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question.
As a reminder, if you are using a speakerphone. Please remember to pick up your handset before asking a question.
Mark: Our first question comes from a line of Kevin Caffity with the Rosenblatt security.
Our first question comes from the line of Kevin Cassidy with Rosenblatt Securities.
Your line is now open.
Kevin Edward Cassidy: Thanks for taking my question, and congratulations on the strong results, especially the gross margin. Very impressive. The IPS, you're guiding that for up 15% quarter-over-quarter, which is great news, but can you talk a little more about the visibility going into the second half of 2024 and, you know, even the mix that you're expecting to see, hardware versus software and services? Hey, Kevin, happy New Year.
Thank you. Thanks for taking my question and congratulations on the strong results, especially the gross margin.
Very impressive.
The Ips youre guiding effort up 15% quarter over quarter, which is great news and.
But can you talk a little more about the visibility going into the second half of 2024, and even the mix that youre expecting to see hardware versus software and services.
Hey, Kevin Happy New year. Thanks for the question this is mark.
Mark: You know, as we articulated on our last call, we've really invested pretty heavily in the go-to-market piece of our business. We actually just brought in a new head of sales for Penguin and driving a lot of good customer engagement.
As we articulated on our last call.
We've really invested pretty heavily in the go to market piece of our business. We actually just brought in a new head of sales for Penguin.
And driving a lot of good customer engagement.
Mark: pretty optimistic about the funnel we're building in the business.
We're pretty optimistic about the funnel we're building in the business.
Mark: You know, we haven't really forecasted beyond a quarter in advance.
We haven't really forecasted beyond a quarter in advance of the conversations are exciting the models are evolving what I mean by that is it's not just purely buy and sell there is co location opportunities for us.
Mark: Conversations are exciting the models are evolving what I mean by that is it's not just purely buy and sell there's co-location opportunities for us There's opportunities for us to help You know one
There's opportunities for us to help.
One new potential customer has come to us already bought competitive hardware and said they couldnt get to work.
Mark: customer has come to us already bought competitive hardware and said they couldn't get it to work and they know that our focus is on managed services, software, the likes and so we remain pretty confident in a strong second half and again the difficulty is we're not trying to be evasive the difficulty guys is that
Know that our focus is on managed services software likes and so.
We remain pretty confident in a strong second half.
Again, the difficulty is we're not trying to be evasive the difficulty guys is that.
Mark: You know, getting things lined up into 13-month periods for this business can be challenging, and so that's why we don't, you know, kind of give numbers, so to speak. We remain pretty confident. We obviously feel pretty, pretty strong about...
Getting things lined up into the 13 month period for this business can be challenging and so that's why we don't give numbers so to speak.
We remain pretty confident.
Obviously, I feel pretty pretty strong about.
Mark: Q2, as Ken just guided, and in the midst of continued choppiness in LED and memory, IPS is going to, it looks, you know, we're forecasting a pretty strong Q2, and I'm going to leave it at that. But again, I'm
Q2, as Ken just guided.
And in the midst of continued choppiness in led and memory.
Ips is going to it looks we're forecasting a pretty strong Q2, and I'm going to leave.
Even at that but but again.
Mark: Excited about the opportunity, I've been out with the team in front of a lot of customers, including Supercars.
Excited about the opportunity set out with the team in front of a lot of customers, including supercomputer and I remain pretty bullish and Kevin on your first question in terms of the margins as well. It is a record for US 33, 3% and just to add to Mark's comments.
Mark: And I remain pretty bullish. Yeah, and Kevin, on your first question, in terms of the margins as well, it is a record for us, 33%.
Speaker Change: add to Mark's comments earlier, you look at where the business was just a few years
Comments earlier, if you look at where the business was just a few years ago, that's a significant delta.
From three or four years ago in terms of where the businesses. The other thing is mix and that can move around we had a significant mix associated with services. This quarter at about $68 million of service revenue that comes with with it a higher gross margin.
Speaker Change: That can move around we had a significant mix associated with services this quarter at about
Speaker Change: that comes with it a higher gross margin.
You can recall based on our guidance for Q2, the guidance is slightly below at 32 and a half at midpoint and that's just a factor that we expect to have a little bit of higher hardware mix relative to services mix in Q2.
Speaker Change: the guidance is slightly below at 32 and a half at an hour.
Speaker Change: And that's just a factor that we expect to have a little bit higher hardware mix relative
Okay.
Speaker Change: Okay, great. Thanks for that extra color. And maybe just to talk about the memory solutions group, but your specialty memory, a lot of that is, we'll just say, you know, five-year-old type of memories. And are you seeing prices changing on those? Or maybe the question would be, what percentage of your business would be affected by the increase in prices we've seen in the last month or so?
Okay, great. Thanks for that extra color.
And maybe just talk about the memory solutions group, but.
Your specialty memory a lot of that.
Let's just say five year old type of thing.
Memories.
Are you seeing prices changing on those or maybe a question to be what percentage of your business would be affected by the increase in prices we've seen in the last month or so.
Speaker Change: Kevin, we have Jack Pacheco here, you know, runs the business. I'll have Jack comment first, and maybe Ken can follow up.
Kevin we have Jack Pacheco here, who runs the business I'll have Jack comment first and then maybe Kevin can follow up.
Hello, Kevin how are you.
Jack A. Pacheco: We're seeing prices go up even on the legacy memory and we're seeing 5-10% kind of increases on certain types of legacy memory along with the leading edge memory.
Hi, Jeff.
We're seeing prices go up even on the legacy memory I mean, we're seeing it in the 5% to 10% kind of increases on certain types of legacy memory along with.
Leading edge memory, that's going up in price, but we will we will see some revenue go up maybe over time as we start to ship.
Based on that memory, a lot of stuff. We're shipping today is still a lot of the other.
The lower price memory that were shipped.
To our customers.
Speaker Change: Yeah, Kevin, I think if you if you looked at our commentary earlier in the prepared remarks for the memory business, we're expecting that to be.
Yes, Kevin I think if you if you looked at our commentary earlier in the prepared remarks.
For the memory business, we're expecting that to be.
Relatively flat here sequentially Q1 to Q2.
Speaker Change: And that just relates to what we've discussed in the past, which is...
That just relates to what we've discussed in the past, which is in Q1 and continuing here into Q2 not a surprise.
Speaker Change: not a surprise. Some of our customers are still working through some inventory that they purchased in the late summer time frame. We hope that they start to work through that through QT.
Some of our customers are still working through some inventory that they purchased in the late summer timeframe.
We would hope that they start to work through that through Q2, and then as we head into Q3 Q4.
We will start to see a little bit broader skies out there.
Okay, great Thanks, and congratulations again.
Thank you.
Thank you for your question.
Speaker Change: The next question comes from the line of Brian Chen with Stiefel.
The next question comes from the line of Brian Chin with Stifel.
Your line is now open.
Brian Edward Chin: Hi there. Good afternoon. Thanks for allowing us to ask a few questions. Sorry, this one's kind of pointed, but maybe just to kickstart.
Okay.
Hi, there good afternoon, and thanks for letting us ask a few questions.
So I just want to kind of pointed but maybe just two.
Kickstart.
Brian Edward Chin: here. Relative to how you've worked with Meta in the past, and there's been a lot of
Here relative to how you've worked with met in the past and Theres been a lot of.
Brian Edward Chin: articles and blogs, you know, discussing this relationship before, right? But you're a key partner, especially in their initial phases of the RSC buildout. And I guess the question is, you generally see continuity in this relationship moving forward, and how do you envision this relationship maybe evolving over time on successive sort of buildouts and expansions? Yeah, let me take that one.
Articles and blogs.
Discussing this relationship before right.
A key partner, especially in their initial phases of the RSC buildout.
I guess the question is do you generally see continuity in this relationship moving forward and how do you envision this relationship may be evolving over time on success in sort of.
Build out.
Expansion.
Yes.
Let me take that one.
First of all.
Speaker Change: met as a true innovator in the space of AI, and they've been
Thanks, Matt.
True innovator in the space of AI.
Hey.
Then at the bleeding edge and I think if you asked me.
Speaker Change: and I think if you ask me what company has innovated the most in terms of the commercial
What company has innovated the most in terms of the commercial side of AI, where there's a lot of tire kicking.
Speaker Change: folks have applications like AI running and generating profitability. I mean they're at the forefront. They have used us in the past in certain situations.
Folks have applications on the AI running and generating profitability I mean, they are at the forefront.
They have used us.
In the past in certain situations, where the complexity of the deployment.
Outstrips their internal capabilities.
Speaker Change: And that led to some really amazing opportunity to live.
And.
That led to some really amazing opportunities last year.
Speaker Change: still doing business with that customer. I'm not going to comment on the nature of the agreement what have you. We still are in providing support. We're still talking about expansion opportunities. We won't get everyone. I don't think that's possible.
We're still doing business with that customer I'm not going to comment on the nature of the agreement and what have you.
Stiller in providing support.
Still talking about expansion opportunities.
We won't get every one I don't think thats possible, but.
Relationships are very good we think they've been a great customer to us and I.
Speaker Change: I think they'll still be a great customer to us this year. That's really all I can tell you. OK.
I think there'll still be a great customers to us this year, that's really all I can tell you.
Okay.
Fair enough I appreciate that.
And then.
Speaker Change: Can you provide a little bit more insight into the types of maybe AI oriented applications that you're engaging the customers.
Can you provide us maybe a little bit more insight into the types of maybe AI oriented applications that you are engaging with customers.
Speaker Change: you know, across the many verticals that you referenced earlier. Yeah, maybe any sort of, helping us sort of understand sort of what's contributing to your optimism, you know, not just kind of fiscal second half of this year, but clearly in the out years as well in terms of the type of funnel that you're building.
Across the many verticals that you referenced earlier.
Yes, maybe any sort of.
Helping us sort of understand sort of whats contributing to your optimism.
That's the second half of this year, but clearly in the out years as well in terms of.
Type of funnel that Youre building.
Speaker Change: Yeah, if you look at, by the way, my next comment isn't about
Yes, if you look at by the way My next comment isn't about stuff, we deploy today, but where we're seeing a lot of.
Speaker Change: stuff we've deployed today, but where we're seeing a lot of discussions around happening.
Discussions around applications with customers.
Speaker Change: and the energy sector, things like oil and gas exploration.
In the energy sector things like oil and gas exploration.
Speaker Change: in the financial markets. We all know that the financial markets, you know, a tenth of a second is worth
And.
The financial markets, we all know that the financial markets.
A 10th of a second is worth something in the trading world.
Speaker Change: If you think about healthcare and genetics, if you think about applications like retail and ATMs and decision around how to serve their customer, if you think about social media.
If you think about health care and <unk>.
<unk>.
Do you think about applications like retail and Atms and decision around how to serve their customer.
You think about social media.
And advertising and knowing you know.
Speaker Change: exactly what your behaviors are, matching that to the buying opportunities out in e-commerce on the web. There's just endless applications that are in front of us, and that's how we're working, you know, and by the way, I haven't even mentioned that.
Exactly what youre behaviors are matching that to the buying opportunities out e-commerce on the web.
I missed applications that are in front of us and that's that's how we're working by the way I haven't even mentioned.
Speaker Change: the federal opportunities around defense and the likes.
The federal opportunities around defense.
And the likes so.
Speaker Change: I think what I do want to mention, by the way, and it rhymes with what we've said on the last call is, I think 2023.
I think what I do.
You want to mention by the way.
Brian with what we've said on the last call is.
I think 2023.
Yes, it was the iPhone moment.
Speaker Change: But people didn't really know how to use it until later. And that's true now. I think there was a lot of sales of GPUs to infrastructure people starting to lay the pipes
But people didn't really know how to use it until later and Thats true now.
Think there was a lot of sales of Gpus to infrastructure people starting to lay the pipes.
Speaker Change: And I'm not even sure all the people who bought GPUs know how to use it.
And I'm not even sure all the people who bought Gpus knowhow to know how to use them.
Speaker Change: And I think 2024, 2025, it's going to be the year
And I think 2024 and 2025.
It's going to be the year, where two things happen.
Speaker Change: A, businesses get a little bit more clear on what they're going to get out of AI, and two, A, businesses get a little bit more clear on what they're going to get out of AI, and
<unk> business has got a little bit more clear on what they're going to get out of AI and too.
They're going to realize that they need deployment and management expertise to make sure that these AI systems perform as they thought.
Speaker Change: and management expertise to make sure that these AI systems perform as they thought as they invested in. And so I think that's going to play very well to us from our managed service and software approach.
<unk> invested in and so I think that's going to play very well to us from our managed service and software approach.
That's very helpful. Thanks Martin.
Of course.
Yeah.
Thank you for your question.
Speaker Change: As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad.
As a reminder, if you would like to ask a question. Please press star followed by one.
On your telephone keypad.
Operators are another question here in the Q E. Yes, Yes give me one.
Speaker Change: Yes, give me one. I'm sorry about that. Our next question comes from line of Quinn Bolton with Needham.
Sorry about that our next question comes from the line of Quinn Bolton with Needham. Your line is now open.
Speaker Change: Hey guys, this is Nick Doyle on Perclin. Thanks for letting us ask a question.
Hey, guys. This is Nick <unk> on for Glenn Thanks for letting me ask a question.
Nick Doyle: Could you give a little more detail on maybe how much inventory is left in the end market? I know you talked about inventory and memory solutions and the remarking guide. Maybe is there more in the channel versus then customer and then
Could you give a little more detail on maybe how much inventory is left in the end market I know you talked about inventory and memory solutions in their remarks and guide maybe is there more in the channel versus end customer and then any detail on inventory I mean, I know we're going.
Nick Doyle: retail and LED inventory. I mean, I know we're going into seasonality next quarter and China has kind of negative.
The seasonality next quarter, and you know China has kind of negative.
Nick Doyle: news coming out, so not surprising there, but are we still kind of pretty clean inventory on the LED side as well?
News coming out so not surprising there but.
Are we still kind of pretty clean inventory on the led side as well.
Speaker Change: Yeah, so let me take the kind of the market update on that piece and I'll hand it to Ken for kind of the quantitative parameters and the memory side. I'm taking to what I said on our last quarter's call that it kind of feels like spring at the earliest when we start to see.
Yes, So let me take the kind of the market update on that piece and I'll hand, it to Ken for kind of a quantitative.
Parameters.
And the memory side.
Sticking to what I said on our last quarter's call that it kind of feels like spring at the earliest when we start to see the demand piece of memory contribute to the recovery.
Speaker Change: As I said, last quarter, the dynamic going on now is just a little bit of game of chicken where pricing is going up on certain SKUs, there's inventory in the channel, and they're kind of like slogging it out a little bit in negotiation, and I mean they, the big semiconductor guys. We're not impacting as much about the price, more on the demand, and I see that the inventory, I believe the inventory is like a spring calendar year timing to get back to regular levels. But I think we can start to see some good.
As I said last last quarter.
The dynamic going on now is just a little bit of a game of chicken where pricing is going up on certain skus. There is inventory in the channel in there and they are kind of like slogging it out a little bit in negotiation, but I mean, the big semiconductor guys. We're not impacted as much about the price more on the demand and I see that the inventory I believe the inventory is like a spring calendar year.
Year.
The timing to get back to regular levels I think we can start to see some.
Good solid foundation and demand generation.
Speaker Change: On the LED side, it's actually been less of an inventory in the channel dynamic and more of an end-market demand, as a matter of fact, our channel is pretty lean, I'll let Ken talk to that. So I'll head over to him, but you know, all in all, obviously our inventory, we feel pretty good about our own downsides.
Led side.
It's actually Ben.
Less of a inventory in the channel dynamic and more of our end market demand as a matter of fact, our channels pretty lean I'll, let Ken talk to that so I'll hand, it over to him.
All in all obviously, our inventory we felt pretty good about our own balance sheet, but the memory thing will play out I speculate as probably spring and led one more demand generation and some things going on in the broader macro environment. Yes. So it is as mark outlined and just to give you a data point on the OLED side, if we look.
Ken: The memory thing will play out. I speculate it's probably spring. And the LED one, more demand generation and some of the things going on in the broader macro environment. Yeah, so it has marked outlines. And just to give you a data point on the LED side, if we look at the distribution inventory, we've probably burned off north of $20 million.
At the distribution inventory, we probably burned off north of $20 million getting close to $25 million.
From in the last five quarters, or so and so we've leaned out we're at now normal turns levels within the distribution channels.
It's essentially around sort of north of four times and so as mark highlighted the inventory ethylene down in OLED within the distributors and it is really a function of demand Q2 have are just one way to think about it is we do have Chinese new year typically things shut down.
Ken Rizvi: shut down for the better part of one week to
For the better part of one week to 10 days.
What we're seeing in terms of the impact of the business Q1 to Q2.
In terms of sales and the big driver as we head into Q3 and beyond is going to be demand.
Speaker Change: Okay, that makes sense. Looking at IPS, maybe a little different angle. You have this press release last November talking about a partnership with Google Cloud. Could you talk about how that relationship is progressing and maybe where you use that control plane technology? Yeah.
Okay that makes sense.
Looking at Ips, maybe a little different angle you have the press release last November talking about a partnership with Google Cloud could you talk about how that relationship is progressing and maybe where you use that control plane technology.
Yeah. This is Marc.
Speaker Change: We remain in good partnership with Google Cloud. I think the interesting dynamic for us, and it's early, but the interesting dynamic for us is that
We remain in good partnership with Google Cloud I think the interesting dynamic for us and it's early but the interesting dynamic for us is that.
It's becoming more of a two way street and the dynamic is.
Speaker Change: coming more of a two-way street and the dynamic is
Speaker Change: Yeah, there's some companies that have their own on-premise environment, and they're looking for surge capacity at a Google.
Yes, there are some companies that have their own on premise environment and theyre looking for surge capacity.
Out of Google Cloud and the likes there are other companies who are just figuring this out and we want to test some application environment in the cloud and eventually <unk>.
Speaker Change: There are other companies who are just figuring this out and want to test some application environment in the cloud and eventually want to bring things back in-house and have a bit of a hybrid on-prem deployment, and in that situation
<unk> two <unk>.
Things back in house and have a bit of a hybrid.
On Prem deployment and in that situation I.
Speaker Change: pretty confident with our ability and our relationship that we can be the conduit between the cloud and delivering on-prem capabilities, as well as bringing some of our customer-based
I think google's pretty confident with our ability and our relationship that we can be the conduit between the cloud and delivering on prem capabilities as well as bringing some of our customer base into.
Speaker Change: that environment. And I said it's early stages of the model, but very happy with the relationship and I think there's good opportunities to leverage that for future growth.
That environment as I said its early stages.
The model, but very happy with the relationship and.
I think there's good opportunities to leverage that for future growth.
Thank you.
Thank you for your question.
Speaker Change: There are no additional questions waiting at this time. I would now like to pass the conference back to Mark Adams for closing remarks.
There are no additional questions waiting at this time I would now like to pass the conference back to Mark Adams for closing remarks.
Mark W. Adams: Well, thanks everyone for attending today's call. I know there's a number of events in January . We look forward to seeing you on the roads. In the meantime,
Well, thanks, everyone for attending today's call.
There's a number of events in January and we look forward to seeing you on the road in the meantime stay safe. Thank you.
Mark W. Adams: That concludes today's call. Thank you for your participation and have a good day.
That concludes today's call. Thank you for your participation and have a good day.
Okay.