Smart Global Holdings, Inc.(NASDAQ:SGH) reported on Q4 2022 results on October 5, 2022 showing annual revenue at a record $1.82B, although the Q4 revenue of $438M was down 6.4% over the prior year Q4. For Q4 FY2022 non-GAAP EPS of $0.80 beat market expectations, but Q4 revenue missed expectations by $2M. Non-GAAP gross margin in FY2022 was up 370 bps to 25.9% from 22.2% the prior year, driven by margin improvements in all three of SGH’s business segments. SGH’s key focus areas are: AI, Machine Learning, Data Analytics, HPC(high performance computing), Data Center Cloud and Advanced Lighting Solutions.
Annual Revenue in FY2022 for the three SGH business units:
Intelligent Platform Solutions (IPS) $441M (24% of total sales)
Memory Solutions $975M (54% of total sales)
LED Solutions (Cree LED) $403M (22% of total sales)
Total FY22 net sales $1.82B
FY2022 was the first full year for Cree LED as part of SGH. Cree LED faced strong headwinds in China during Q4 FY22 with COVID-related policies contributing to supply chain constraints and impacting demand according to CEO Mark Adams’ remarks on the Q4 and Full-Year Earnings Webcast. Revenue for Cree LED in Q4 totalled $83M (versus $123M in Q4 FY21).
CEO Adams noted that the LED Solutions Group’s business continues to be soft in China, as well as seeing demand weakness in the US and Europe. It’s anticipated that the LED business will decrease sequentially in Q1 of FY2023 as much as 20%, noting in the Q&A that the company expects that distributors will be burning through some inventory, with sell-in lower than the sell-through. He expressed confidence in the long-term operating performance of the LED business based on the macro headwinds subsiding. Key markets for the Cree LED business were reaffirmed in the CEO’s earnings remarks as specialty, high-value applications “such as entertainment and horticulture, premium video applications, and high-performance general lighting applications such as architectural and street lighting.”
In corporate level news, CEO Adams welcomed new Board member Mark Papermaster, CTO at AMD, who joined the SGH Board in August 2022. Adams also noted that the Stratus Technologies acquisition had been completed just after the FY2022 year-end. Stratus is a global provider of high availability fault-tolerant solutions for data centers and the Edge, and is expected to add more than $150M in annual revenues to SGH as part of the Intelligent Platforms business.
CFO Ken Rizvi reviewed SGH’s overall capital allocation strategy: first, continue to invest in opportunities for significant organic growth in each of their three business segments; second, review and seek acquisition opportunities; and third, capital return via share repurchases. In FY2022 SGH spent approximately $40M to repurchase 2.2 million shares.
Revenue guidance from CFO Rizvi for Q1 FY2023 indicated expected net sales to range from $425M to 475M, incorporating $35-40M in revenue expected from Stratus, but offset by the “macroeconomic headwinds impacting our LED business and our Memory business in Brazil.” Cash capital expenditures for FY2023 are expected to be $50M to $60M (versus $38M in FY2022) due in part to the migration of Cree LED into its own facility. CEO Adams closed the Earnings Q&A with an optimistic tone based on the record fiscal year 2022 and excitement for SGH’s future, while noting the need for operating with vigilance, keeping a “mindful eye on the current market headwinds.” Indeed.
Go Deeper:
SGH Q4 and Full Year Fiscal 2022 Press Release: https://ir.smartm.com/news/news-details/2022/SGH-Reports-Fourth-Quarter-and-Full-Year-Fiscal-2022-Financial-Results/default.aspx
SGH Q4 and Full Year Fiscal 2022 Financial Results Presentation: https://s27.q4cdn.com/987169844/files/doc_financials/2022/q4/Q4-22-Earnings-Call-Slides_vF.1.pdf