Smart Global Holdings, Inc.(NASDAQ:SGH) reported Q1 FY2023 results this week, beating market expectations for both revenue and non-GAAP earnings (EPS). Q1 FY2023 revenue was $465.5M, above the midpoint of the company’s guidance and down from $469.9M in the same quarter prior year. Record non-GAAP gross margins were achieved at 27.8% and non-GAAP EPS was $0.79 – both were at the high end of SGH’s prior guidance. Approximately $45M of the Q1 revenue was contributed by the newly integrated Stratus Technologies (its first quarter as part of SGH.)
CEO Mark Adams attributed SGH’s success to the journey over the past 2+ years to transform the business from a memory module company into a more diversified set of specialty businesses “spanning compute, LED lighting and memory.” He noted that the diversity has driven higher quality revenue with improved gross margins, as well as steadying SGH’s overall performance in a “challenging macroeconomic environment” citing the example of Q1 earnings in the enterprise-related businesses offsetting declines in their consumer-facing businesses. 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 Q1 FY2023 for the three SGH business units:
Intelligent Platform Solutions (IPS) $211M (45% of total sales)
Memory Solutions $192M (41% of total sales)
LED Solutions (Cree LED) $62.5M (14% of total sales)
Total Q1 FY2023 net sales $465.5M
SGH noted that Cree LED faced ongoing strong headwinds in China during Q1 FY2023 with COVID-related policies contributing to supply chain constraints and impacting demand, as well as continued demand weakness in the US and Europe. Prior guidance for Q1 FY2023 indicated an anticipated revenue decline sequentially for Cree LED (the $63M Q1 FY2023 result was down from $83M in Q4 FY2022). CEO Adams indicated that SGH expects slightly lower revenue for Cree LED in Q2 FY2023, driven by continued declining demand and channel inventory reductions. He noted the company is proactively containing costs and adjusting operating expenses, and that SGH remains confident in the long-term operating performance of the LED business.
CFO Ken Rizvi gave added detail on SGH’s Q1 FY2023 performance, indicating that beginning with this first quarter of FY2023, SGH will be disclosing a breakdown of revenue and cost of sales by Product and Services. Q1 FY2023’s total revenue of $465M breaks down into Product revenues of $390M and Services revenues of $75M. The addition of the newly acquired Stratus provides a significant revenue increase in services. CFO Rizvi noted that the $75M in Services revenue in Q1 FY2023 was up from $33M in Q1 of FY2022.
Other updates from CFO Rizvi included that SGH had expanded its existing term loan credit facilities by $300M in conjunction with the acquisition of Stratus. Net proceeds were used to retire the $101.8M outstanding Cree LED earn-out note, with the remainder used along with cash on hand to pay for the $225M purchase of Stratus. He also noted that In Q1 FY2023 SGH spent approximately $2.8M to repurchase 182,000 shares.
Revenue guidance for Q2 FY2023 indicates expected net sales to range from $410M to $460M, incorporating continuing strong demand for the Intelligent Platform Solutions business, offset by lower demand in the Memory Solutions and Cree LED businesses. Cash capital expenditures for Q2 FY2023 are expected to be in the range of $12M to $15M, due in part to expenditures to migrate Cree LED into its own U.S. facility. CEO Adams closed the Earnings Q&A with a thank you to all SGH employees worldwide “for a great first quarter – especially in these market conditions.”
Go Deeper
SGH Q1 FY2023 Press Release: https://s27.q4cdn.com/987169844/files/doc_news/SGH-Reports-First-Quarter-Fiscal-2023-Financial-Results-2023.pd
SGH Q1 FY2023 Financial Results Presentation: https://s27.q4cdn.com/987169844/files/doc_financials/2023/q1/SGH-Q1-23-Earnings-Call-Presentation.FInal.1.3.23.v2.pdf