SMART Global Holdings, Inc.

Q1 2022 Earnings Conference Call

1/4/2022

spk_0: good afternoon my name is emma and i will be or conference operator today at this time i would like to welcome everyone to the as th first quarter fiscal twenty twenty two earnings call alliance have been placed on you to prevent any background noise after the speakers or mark there will be a question and answer session if you're like to ask a question during this time simply press star followed by the number one on your telephone keypad if you'd like to withdraw your question again press the star one think you eventually you may begin your conference thank you operator good afternoon and thank you for joining us on today's earning clinton call and webcast to the front of you can first quarter to go twenty twenty two legal join me on the call today are more got him chief executive officer jackie keiko keep operating laughter and can link the chief financial officer
spk_1: you can find the accompanying fly presentation and earning press release for the call on the investor relations function of our website we encourage you to go to the site throughout the corner for the most current information on the company including information on the various than it'll come from for google it and i would also like to remind everyone to read the youth of forward looking statements note that we've included in the earnings principally and the earnings call presentation please note that certain understatement made today may constitute forward looking statements and that lifting with our our prevalent expectation and an actual a plan or reward may differ materially we also discussed both gap and non get financial measures non gap measure should not be considered in isolation from as a substitute for or superior to our gap result we encourage you to consider all measures when analyzing of a performer
spk_0: a reconciliation of gap to non get measures is included in today's prince really
spk_1: we will begin the call would feel more got him to provide a business update and then can really see fo will review the financials and forward guidance after which we will a question mark
spk_2: beg you to them we hope all of you had a nice somebody and appreciate you joining us today we're off to a strong start to work at school twenty twenty two many shares similar highlights the mercury square result we had record quarterly revenue one hundred and seventy million record non gap gross margins of twenty seven percent and non gaap earnings per share of to the i think them we do that be upper end of our guidance range
spk_3: excellent performance across all of our businesses
spk_2: come into each of our businesses and flap on solutions memory solutions and ellie be solutions is the focus on delivering operational excellent that leverages our as gh agree with them as she age is an engineering driven set have been to that delivers advanced technology solution
spk_3: at the system or such that been level addressing the unique or specially requirements of our customers
spk_2: helping them compete in the market rate there i country to be extremely proud of our teens execution especially in light of the unprecedented geologists dunning from operating during the cold and pandemic era mit migrant drowning supply chain shortages i'm excited to share some success with a directory didn't it starting with intelligent platform shoes and group were ideas which turned in another record quarter with revenue of approximately one hundred ninety nine dollars eighty percent higher than the same quarter last year and more than twice and higher compared to the prior quarter our cue for twenty one expanding an interesting or engagements and ultra scale government and the oil and gas and market contributed to strike a deal with you want our managed services group initiative is progressing well with reviews almost doubling and q one this between two as compared to que one difficult way one chopper inserted surgery for i get overall represented approximately seventy percent of total idea que one at gunpoint you revenue what i believe still under appreciated in the world of headphones computing is the complexity of integrating a myriad of technology components and suggested
spk_4: looting vp use and few beers
spk_1: advanced memory solution and a bright storage networking sites
spk_3: cooling system
spk_2: along the software and optimizing them that workloads within the data there
spk_1: there are few companies capable about the dining and delivering complete hardware infrastructure and software based solution with while auburn best in class the fortune buses to each that we do a penguin
spk_2: with a i and machine learning bill in their infancy we are well positioned to capital and this growing trend our twenty years of experience and a apc enabled us to design and manufacture that been blacklisted customized for our customers workloads and and the pistons up the my the citizens for commercial scale the performance and maintain the systems for maximum availability not a strategic priority for i did this isn't have been capabilities to service our customers be at the cloud at supercomputer thousand one which took place in the past november
spk_1: penguin computing and out the large of it's got pod h b c a i cloud solution and on demand i performance secure environment that supports a i traditional hpc and continue raise workflows
spk_2: you continue to invest in offering such as the get thought h b c i cloud solution to address our customers future needs or and as a service offering and a secure environment the success of our unique workload centric approach to solving our customers h b c they i challenge it is garnering increasing industry recognition
spk_3: in november
spk_2: i during research declared that penguin computing with the fastest growing major hpc solution provider of twenty twenty one it's a testament to our team and the trust our customers with place without the help and mac the neither computer network storage infrastructure to solve complex problem now turning to l e d solutions route chat another strong quarter of operating performance revenues were one hundred and twelve million and q one which is in line with our expectation and up substantially when compared with you want this will twenty twenty one when it begins with still part of creed warp speed revenue growth was driven by just my when with our hide like that products and the video architectural and landscapes actually lady markets we can lead to execute on our manufacturing transformation plan the transition from silicon carbide that are waiters and from a captive manufacturing model to outsource capital light model clinton's our cost competitiveness and the markets we serve on the product from came shoulders and living innovative application of the night l e be enabling a variety of lighting design while achieving the best overall system died we can highlight of the efforts include a launch of three new products in our extreme high power product line which deliver improve brightness and efficiency securing new design when about see the ninety four d products which are optimized for the video display markets such a billboard and trackside and expanding our road map with exciting new products that leverage are cutting edge packaging technology addressing both high power and custom made power lighting status these products target i you color nick me applications which will enable really deep deliver the next generation a premier lighting products for architectural horticultural medical stays lighting applications
spk_3: we believe the crease focus on innovation
spk_2: industry leading collect your property and application level differentiation will result in a contraction and are targeted market segments and remember solutions group operating under the smart modular brand name revenue grew by six percent to two hundred and thirty nine million in fiscal que one a twenty twenty two or to the same quarter a year ago rotten apples to apples status revenues were actually up approximately twenty percent from the year ago quarter when adjusted for the impact of customer reading in recognition that we reclassified beginning in our third quarter of fiscal twenty twenty one riding the strong year over year performance has been increased fail of our core specialty solution such as ddr three the board and flash products to work tier one networking and telkom customers you're also began to be the benefit of the indefinite we'd need and our memory product roadmap targeting new bible such as data center and cloud one example is are open chappie didn't products which are now ramping at a leading to that a customer
spk_1: and on the as of different we remain on plan and expect to ramp production in brazil during you for of the fiscal year
spk_2: the team has also made great progress on developing solutions targeted for the upcoming ddr by transition
spk_1: we were actively engage with several tier one customers or next generation and begin
spk_2: and are in design of as the xl didier five memory model what if invalidation to drive the industry need for additional memory and both the the center and glad application you're developing the and shoot first ddr by very low profile or the lp are them for industrial security and networking applications the to the lp models for new pdr five one you play computing and stored applications help customers maximize density and minimize his been bored space we're excited about the opportunities ahead of us are memory business and feel uniquely positioned to serve need of about spending custom base or thirty plus years of design engineering and manufacturing know how providing has been solution that incorporate hardware for more in software and well or their expertise and controller based memory products but this investors except particularly as memory has taken on a much more integral role in the overall compute the ecosystem in the past i discussed our goal of becoming more independent government public company and in mid december we announced that as of our upcoming annual shareholder meeting on february eleventh our board will be entirely independent with the exception myself and more diversified one third of the board and dry that female directors i also wanted to note board the proved a two for one cares what
spk_1: we anticipated being completed in our drink longer
spk_2: it was intended to further improve our liquidity the broaden our shareholder base kenmore provide more detail in his commentary you're off to a strong start in fiscal twenty twenty two remain focused on operational excellent across all of our businesses we will continue to drive growth and diversification tried to ban margins and efficient run the company deliver improve financial performance and increase value for our shareholders
spk_1: at this time or handed over to can or more detail be of the financials and are guidance next quarter can
spk_2: thanks marked the first quarter of twenty twenty two is the seventh consecutive quarter of year over year growth for as gh and demonstrate our strategy continuing to play out with strong performance across all three of our businesses a year ago close to eighty percent of our net
spk_1: sales came from memory solutions and nearly ninety percent of our operating income today in the first quarter twenty twenty two memory solutions represent approximately fifty percent of our overall net sale and operating income we see tremendous opportunity to head for as gh and twenty twenty two and beyond to deliver advanced technology solutions for our customers across all three of our did with it let me turn to our fiscal first quarter twenty twenty two results i will focus my remarks on our non gap result which are reconciled the gap in our earnings release table we reported another strong quarter in fiscal que one net feel for the first quarter work or hundred and seventy million dollars another record for the company and an increase of sixty one percent on a year over year basis
spk_5: from the first quarter of fiscal twenty twenty one and up slightly from que for
spk_1: in addition non gap gross margin came in at a record twenty seven percent a non gath eluded earnings per share was two dollars and fifteen cents for the first quarter o at the higher end of our guidance ranges
spk_3: on a year over year basis as gh revenue growth of sixty one percent would help by the incorporation of korea we'd be in the as gh
spk_4: excluding clearly the our revenues grew approximately twenty three percent on a year over year basis
spk_1: mainly driven by year which grew eighty percent in memory solutions which grew six percent
spk_2: for the first quarter ikea ad revenues of approximately one hundred and nineteen million dollars another record for that business
spk_1: as we have discussed in our previous earnings call the idea that this will continue to have quarter to quarter variability in revenue and gross margins based on the timing of hardware software and managed services in any given corner
spk_2: er l e d solutions girl had revenues of one hundred and twelve million dollars in the first quarter
spk_1: this will be in line with our commentary last quarter as we head into the second quarter of fiscal twenty twenty two
spk_2: we anticipate revenues or l e d solution could come down to quench only primarily due to seasonality in the second fiscal quarter
spk_1: we continue to migrate towards the bad light structure and a blank a more flexible operational model to better manage fluctuations of demand and supply or memory solutions group ad revenues of two hundred and thirty nine million dollars in the first quarter
spk_4: revenue grew year over year from growth in both our specialty memory in brazil business
spk_1: and overall by approximately twenty percent when adjusted for the and path of the customer revenue reclassification from a gross the net basis that we discussed a few quarters ago
spk_2: non gap gross margin for sg age in the first quarter was a record twenty seven percent up from twenty six point four percent in the prior quarter and up from eighteen point six percent in the first fiscal quarter of twenty twenty one gross margins for as th or help i stronger margin performance from our memory solutions good and gross margins from both l e the solutions group in ikea also remained relatively strong
spk_1: or i p a and continue to benefit from higher margin managed services and software next in the first quarter as we have discussed in the past or ikea business will have variability in it's gross margin profile quarter to quarter based on the next of hardware managed services and software
spk_3: operating expenses for the first quarter or approximately fifty seven point nine million dollars up from thirty point four million dollars in the first quarter of twenty twenty one
spk_2: operating expenses were primarily due to the inclusion of l e d to lucian and continued investment in our memory solutions in idea businesses in addition operating expenses benefited in the first fiscal quarter of twenty twenty two from approximately five point nine million dollars in financial credit in brazil this help thought that or brazil aren't be spending which is required to realize that credit as we have previously indicated
spk_1: the law enabling this credit is currently that to expired in january of twenty twenty two non gaffe deluded earnings per share for the first quarter of fiscal twenty twenty two one two dollars and fifteen cents per share equal to the record two dollars and fifteen cents achieved in the prior quarter and up one hundred and seventy seven percent from seventy eight cents per share in the year ago quarter
spk_2: adjusted ebitda for the first fiscal quarter of fiscal twenty twenty two was seventy six point seven million dollars or sixteen point three percent of sale
spk_1: compared to twenty nine point five million dollars or ten point one percent of failed in the first quarter of twenty twenty one
spk_2: or breakdown of net sales by and market or the first fiscal quarter at twenty twenty two was as follows
spk_1: mobile and pcs was twenty one percent
spk_2: work and telecom was ten percent
spk_3: servers and storage was twelve percent
spk_1: ai data analytics and machine learning what good pin percent advanced lighting was twenty four percent and industrial that them and other was eighteen percent now turning to working capital net accounts receivable totaled three hundred and forty four million dollars compared with three hundred and thirteen million dollars last quarter they failed outstanding came in at thirty nine day
spk_2: plan with the last quarter on a daily basis
spk_1: inventory totaled three hundred and eighteen million dollars at the end of the first quarter
spk_2: down from three hundred and sixty four million dollars at the end of the prior quarter
spk_3: this reduction was driven by lower inventory for memory solutions an idea
spk_2: inventory turns work eight point six time in the first quarter vs six point eight times in the prior quarter and consistent with pass practice accounts receivable days outstanding in inventory turnover are calculated on a gross sales and cost of goods or basis
spk_1: which were eight hundred and six million dollars and six hundred and eighty four million dollars respectively for the first quarter
spk_2: as a reminder the difference between gross revenue and net sale is related to our supply chain services business
spk_4: which is accounted for on an agent basis
spk_1: meaning that we only recognize the net profit on a supply chain services transaction as net fail
spk_2: cash equivalents totaled two hundred and thirty three million dollars at the end of the first quarter compared with two hundred and twenty three million dollars in the prior quarter
spk_1: first quarter cash flow from operation ogle fifteen point one million dollars compared with forty eight million dollars in the prior quarter
spk_2: during the quarter given the timing of our november quarter and as well as the constraint in the overall global electronics supply chain more of our capital was tied up in working capital to help ensure we continue to meet the needs of our customers
spk_1: for those of you tracking combat back with appreciation catholics was twelve point eight million dollars for the first quarter in depreciation was nine point five million dollars before turning to our guide i wanted to highlight that the company is announcing a two for one shares were in the form of a shared didn't have one ordinary share per one outstanding ordinary share a shares like is the significant milestone for the company in intended to improve or liquidity and brought in our shareholder base the additional shares are expected to be distributed on february first one he twenty two to shareholders of record as the january twenty fifth only twenty two the give given in will double the number of outstanding ordinary shares note that ordinary shares in per share data in this call in in our earnings we we have not been adjusted for the impact of the shares with
spk_2: also or guidance than not incorporate the impact from the share split
spk_1: now turning to our fiscal second quarter twenty twenty two guidance we expect that net field for the second quarter of twenty twenty two will range from approximately four hundred and fifteen to four hundred and fifty five million dollars lower than the first quarter primarily due to seasonality from our ellie edith it as well as expected quarter to quarter variability of our idea prison
spk_2: our gap gross margin for the second quarter of twenty twenty two is expected the be between twenty three and twenty five percent non gap gross margin for the second quarter a twenty twenty two is expected to be approximately twenty four to twenty six percent driven primarily by lower overall sequential sale and lowered next from fell in our l e d an idea didn't said
spk_3: our non gap operating expenses are expected to be in a range of fifty five sixty two million dollars in the second quarter a twenty twenty two
spk_1: gap eluded earnings per share expected to be approximately seventy seven plus reminded that fifteen cents
spk_5: on a non get basis
spk_1: excluding share based compensation expand intangible assets amortization expense and available that count in other adjustment
spk_5: we expect non gap eluded earnings per share will be approximately one dollar and forty five cents plus or minus fifteen cents
spk_2: again or second quarter apia guiding does not include the and at for march share split announcement which is expected to be affected the beginning of february
spk_1: cash capital expenditures for the second fiscal quarter are expected to be in the range of twelve to fifteen million dollars
spk_3: our gas diluted share kill for the second quarter of fiscal twenty two is expected to be approximately twenty nine million shares based on our current stock price
spk_2: or not get diluted share account or the second quarter of fiscal twenty twenty two is expected to be approximately twenty eight million shares in it includes the benefit of our convertible notes
spk_6: capt call
spk_1: our share count guiding the not incorporate that shares blood which will be effective from the beginning of february our forecasts for the second fiscal quarter is based on the current environment which contemplate the constraints in the global supply chain please refer to the non gap financial information faction and the reconciliation of gap with non gap measure tables in our earnings release for further details with that let me turn the call back to mark for some concluding comments before we open the called question mark
spk_2: thanks again and thanks to all of you for your sport look forward to meeting with you in the coming months virtually or in person
spk_1: and ability you if we continue to execute a hair grew up and diversification strategy
spk_2: we appreciate all of you for going today's call operator please open the line for tonight
spk_0: at this time i would like to remind everyone in order to ask a question has star than the number one on your telephone keypad your first question comes on a line of tom a molly with barclays your line is now open
spk_7: good afternoon guys in thanks for taking my question than from rather than those without our mothers' wasn't me just about the performance during the corner i look like the idea doesn't have some for far feeder expectations and you he said it was up laughing with a greater than twenty percent you agree with you talking from about them us government awards tolling on the seventy million dollars in the timing of
spk_5: those awards the different their own was talking with new customers the kind of light of outside any kind of be helpful sure mm
spk_1: the the award that you're referring to close to the exactly sixty eight million times
spk_2: the is more likely a second half a cute three to four timing last not contemplated in our results today
spk_5: today was
spk_8: a little bit of a
spk_3: increase in somebody bizarre to me that are just and gutters as well as a new development a counselor the that he says and run options for us
spk_7: helpful and then you mention the preamble ah that your efforts for the apathy the business organ or anything to for during the fiscal year could you give us some perspective on what you think the five have that opportunity is on you know how big can that be for you guys obviously the little bit later the fears all over there our budget overtime no more kinda look like for your business
spk_4: you just broccoli you can can help me
spk_5: to this the the brazil loses the somewhere in the for fifty four seventy five million dollar range
spk_2: from the scale respect and honor the kind of a backwards looking in a kind of the last twelve months a face and the look at that meeting the as the business is been something against grandpa in the short term over the next know the review for out onto on mondays it's abruptly under forty four eleven billion dollar range and respect to hit a run rate you know of of a quarterly run matter rally can name by keyboard now let me call my also that know this is an area that we have seen some constraints omnia that electronic supply chain shortage the had been in there are are one that could be in our
spk_3: our way of getting there but we don't worry about it today as we sit here and he won and overall like our business in a relative to the market and i may have actually and others days in country
spk_2: the to be added it faces and broccoli and thing about you for charter roughly ten million dollars i run my goodness of not forty four hundred dollars
spk_7: great the telephone combat when i smoked got
spk_9: that job
spk_0: your next question comes on the line of fine chen at least i found your line is now open
spk_1: hi there are happy new year to everyone and conventional i get ask a you questions maybe even mccullers gosh in my view
spk_2: that thanks
spk_5: matters question on it is about the financial credits in brazil on tied to id and so i guess based on our understanding that there's been some progress their it towards a possible extension of the am
spk_10: or of of the program that underlies nose and college that you benefit from and so going forward on the may not be such an increase in your our acts as you've talked to here in the past or i'm curious do you share that view that there's a high probability of an expansion into mom what would your abs guys in february february quoted be
spk_3: assuming that know that told them is extended let me take the front half of that now as can maybe to quantify it and he added a goal changes like that that could depending on as you know we we can and i both
spk_2: have articulated when the current law said that the expiration of these just roads and january twenty two
spk_7: needless to say in the background
spk_3: we've been working with the government
spk_1: and and the largest
spk_3: the memory many basher in country
spk_2: i a pretty and prisons are the matter fact the president about his own business as the head of what their of semiconductor so station in brazil and so we've been lobbying pretty hard and i think the government
spk_8: has recently
spk_1: contemplated
spk_3: and you know the impact of thing like the supply constraints in the industry and they understand the value and so we think there is a
spk_8: a probability that they want to stand the tax credits in some way shape or form
spk_3: albeit it has not been done timing of our call today
spk_2: so we think is a lot of progress specially of the last thirty days were very much part of the lobbying to the government for these tax close to be extended
spk_1: and will soon they keep you posted can maybe you can you get discounted get a sense than one that my lip liner and juliet chew
spk_2: yes sir brian and queue to their there isn't an impact on for us even yeah that law gets extended in it's just based on the timing of one quarter hand or to brazil business it's actually not one month ahead of far
spk_1: order and or are the days of the decks outlined in our in our lives there is no impact here and que to on if it does get expanded in cute reports you know a bit v ninety depending on our what the specific long of like so after now i think what we've outlined to on the analyst into the street on our last call now based on the current law would i would just keep it as live in terms of
spk_3: that credit going away as we will get que three and keyboard but things change obviously a weekend we can have an update after that that the law changes
spk_10: no can start that are not present time the color actual state do not know that probably and new champ
spk_2: i'm never gonna be more broadly and our focus has a bit out on the i guess doesn't specifically that cuckoo there's some challenges out there you learned to them in terms of labor and hardware availability and cost a agis specifically get an idea business can you give us an idea and quantify what these headlines one growth and operating margin extent
spk_3: might be interface right now over the duration of the fiscal year i'm beginning to play the results but obviously this is something that you're having to to can work through in your inventory in announcing my bow on high revenue but also maybe even have that available lot higher and it's nine
spk_2: yeah i think he get all those to the past experience or you should go back and say well as the light level gonna pre all this because as we as been mentioned on our last call from an invite respected
spk_5: we had a a hold over i should have them went out earlier and you one so i wouldn't read too much into the inventory movement per se i anywhere of knowledge in bad as near the supply chain constraints are real alexander
spk_3: record quarter and as londoners i think as i mentioned before like grew substantially and you into and twenty one and a pretty bullish on twenty two so i don't look at it like a headwind per se i think that the complexity of the systems just been better than the depth of the technology and we in a hurry and leave
spk_5: his understood systems and and the overlying software and services all and has to come together with the
spk_2: the tiny of deliveries and which is working with the constraints that everybody else did under imminent india
spk_3: andy intel a number of different suppliers are are tied only times and and we're working on that having said that he really hasn't had a massive impact on our business and i'm we expected in a stronger oh dear and and i p s in the that guy again to the record quarter or so
spk_2: we're or just cautious to than that of the world operating in these
spk_10: certain times of love constraints and we want to call that out
spk_11: fair enough to appreciate all the color like much
spk_12: thank you
spk_0: next one
spk_7: your next question comes in the line of right i guess what need hand company your line is now open
spk_5: yes i beg you and i echo much regulation and really good result momentum and just on the the i s segment the the lumpy notion that i'm obviously very strong quarter november you're looking for to be down and in february under is or away to to think about some he an alley on a corner by corner basis
spk_7: are always on the top line
spk_13: and yet and what respect to the gross margin for i p s and you mention some people percent are only coming from from services that are selling in his harem a volatile and a in there a goal to increase the percentage of i p s than that come from services and and if so you know how do you tend to do that
spk_3: and and and one of the stat
spk_2: only start with that the back far that question are like can talk to some of the seasonality and i used my one model that of think about that a job and service i think we've retired and over the next two years we like you get his business
spk_3: somewhere in the neighborhood a twenty five percent plus or minus and now mind you want been is growing last year over thirty percent and we consider this to be as still have a very strong growth goodness for us in the trying to leon you know clear your services are doing well just to keep up with the the aggressive revenue growth
spk_2: so that we see a top line but of bad part of what we're doing as we think about a year ago during that is being a little and selective in ah in which were perfect breeding in det v and very low and gross margin than as good as only hardware and those are not bitter about perjury the one of the as i talked about in my commentary we get a lot of value
spk_1: creation with our customers from the design inside of the business of a friend and he and the system with the line optimize around the word loads of each of our customers specific to their needs and so it starts with their the actual integration services to blend and services and and posts l maintenance break exorcist
spk_2: and these are all part of the elements that were and was dialing in our proposal of france and each customers a little bit different so it's hard for us to give you are exact canada precise measurement on
spk_5: how each customer will engage with us but whether you know why don't we better france
spk_2: answer and transaction is really driven by the full engagement model that we have with these customers were not going to be we're only shop now but he beforehand and again on his i'll just i'll just mention view that this lovely has and next issue shows up because in certain quarters were installing the system the and
spk_3: some the larger deployments can dominating as distilled a quarter hardware wise or services why depending on which quarter as we mentioned that argued for call we had had benefit of a number of services that helped i'm next and are gross margin as they didn't you one and so we will do our best guide to that but there will be hoarders bad are very service rich and know the score is that were under armour deployment in the beginning of a new installation and the
spk_2: services will follow on in due course of jen maybe it'd be okay he just die little bit about being the quarter my critter overall trend line of business yeah so raunchy and to the question as we look at it's business sweetly trying to highlight that there is barry diller the quarter to quarter
spk_1: he and to the business overall as grown dramatically talked about eighty percent type of girl year over year in even as we look at the pipeline into the second half of the year and that still remains very strong so while we do expect oh and a little bit of a down taken sales you want a queue to based on the very believe
spk_3: our expectations are and as we head into the back half of the year now he should see some girl continued growth in this business in the back half of the fiscal year now when i could provide any specifics but i would say the pipeline don't look good as we head into keep three and queue for up with a back
spk_13: catholics of twenty twenty two
spk_14: in a good in and from my follow up on the l d
spk_13: a business
spk_5: in that and the convention you mention be is shift over to said campfire and family miles from be completed and can twenty two once that happens once than me can be normalized d gross margin gonna go for bases
spk_4: other other other lever than you can you could pull to to drive the only margins above and beyond that or or that canada level be won you maintain that business at once you achieve you know the the treadmill matching transition
spk_2: i think out and again camel job on the number side i'm just so it's always making we got some him gallo run to go on the the transition itself and then the on sundays have a do with how we designed future products for your customer environments and which products get a uses the base by on so if we think that is cost as me that she will not only that it as a as enclosure a transitions oh allow us to use some of
spk_1: this new technology and new a market opportunities can they do you call on the becca yeah yeah in in in terms of the margin of while in one word me that that we done here he is focus on the three segments it an aggregate as gh margin which we've outlined the for this business you know i would expect that the margin profile is in that loaded thirty percent range over time
spk_3: but we won't give specifics on on any good core
spk_13: they let that cellphone and just wanted one mahajan imagine the now out of that back in england courting love and a quarter the a role model for it were twenty one percent you mention that was the a lotta and given by charm are you from memory i'm wondering if you could describe what's going on in in in in memory that it dependent obviously in the alley be manufacturing transition an independent of the ip as ah
spk_1: given the percentage of the of the services but know about one of the statue taken to improve the the martin specialty memory and kind your memory
spk_3: well i think is similar to how are shooting i'd have yes
spk_2: emily all our businesses l e d's done a great job on as as well as really looking at it has opportunities where we can you know that read some additional value and dry better next
spk_7: when we saw a better and market opportunities in memory and especially
spk_2: and then also i will say harmonix towards flash was a little stronger and you one and it was in dryer quarters and so are custom last business
spk_1: ah is one that's a lot more attractive given the configuration
spk_2: the control and products other on the solution standpoint is a little bit more yeah especially major differentiates and so that makes can hello and so when you combine kind of the market i can you go after them to the and markets and allocating kind of limited resources and just enjoy
spk_3: to the right out tomorrow products the all in all i think it's a nexus you that your identifying and really the and markets items that were prior diving down to developments away from canada commodities i a business
spk_1: the weather be
spk_13: standard products to more differentiated especially products
spk_3: gotta congratulations again
spk_0: a nice gift that or the floor
spk_1: your next question and comes on the line at funny how would i spank your line is now open our eighth and that picture taking my question that i have couple questions on the have memory solution is it can you're preparing marching up that ramping up this open cappy game at a meeting data customer is that a new opportunity for you like a that replace existing product that you're already offers and maybe can you help
spk_5: better state how big this opportunity sure it's a really good example to the to the questionnaire
spk_2: raj he was that asking basically his blade new customer socket opportunity this is not or inflation and and the dj an application that he described is one that he stepped in the derided a value add in terms of engineering and testing reliability as well as kind of engineering design and it started out to be in low single digits billion dollars in a prior quarter
spk_4: and we think that is can grow in chesley you're trying to in the range of the tend to have been reasonably specially memory business so somewhere and the or to fifty nine dollar range
spk_5: and that kind of engagement in sydney is one that the company hasn't really done
spk_3: super well on the customs died
spk_15: in a newer application violence of lady and team that a great job this year out cultivating opportunities for starters the the a bit of seventies and days that a club and and and and even the hype for has to do
spk_2: that's helpful thanks
spk_1: my wash it and last quarter you tell apart a big increase in your inventory was trained by your supply chain the case where you are not a risk taker i seen they they they may be worried about couple in showed he gets a one that has your has getting any changes in the conversations with those customers can turns out there procurement strategy
spk_2: now i i'm and to the on on that and from on
spk_1: and i would say that the supply chain it's still really tight i think it's it's no different than probably what you're hearing from other folks that are supplying to the global electronic industry in so it's tight on various components and and i our customers are are doing it to us and we're doing it to our suppliers
spk_2: his and so we're just navigating through that
spk_3: the new season ebbs and flows as we move through this year
spk_2: i think like all companies your are are we believe our supply gp the turn a great job in terms of ensuring that we can get components we need to service our customers
spk_5: and so what were navigating and like everybody else but the too tight
spk_3: hygiene overall okay maybe one last one for me if i if i may appreciate you guys start providing operating margin bites it does affect effect your last a annual report our data going back for few years can you talk about how we should think about operating margin on just by segment going forward i know in the past you talk about that gross margin
spk_1: by segment i just started figure out now that a new disclosure debris margins are striking about how how to keep a good thought yeah we have an outline specific targets on on impaired by by each of the business segments i think an aggregate we talked about
spk_2: i'm just a while ago at least achieving in this kind of twelve thirteen fourteen fifteen percent had it target
spk_3: which is where we're at today so i think over the course of the next twelve months or so now we can outlined simpson higher targets but now in aggregate them
spk_1: we feel like a businesses operating very well
spk_2: wait for current ebitda or edit time levels and that we've been able to achieve i think it one of the think that we've outlined on that prepared remarks and in the a q and a is that there will be variability ability specifically as a relates to the i guess business and the margin profile quarter to quarter on you seen that as we migrated from que one and towards or guide you to
spk_3: that there's some variability in in the overall gross margins which that into the operating margins but but overall businesses tremendously healthy he look at where we are today is just twelve months ago in terms of both the gross margin profile and the operating margin profile the this as were just so different today
spk_5: the as a company that twelve months ago
spk_0: great thank you very much
spk_7: your next question comes from the line of kevin cassidy with rosenblatt your line of now open
spk_10: thank you and congratulations else on the great results
spk_5: he be a gov pat or the up the penguin on demand oak an interesting note
spk_3: product line i pay them to me anyway and a can you give us a little more description of what that is and how many agencies year addressing and move would there be a commercial version of this
spk_2: no something besides just the a public sector by private sure a good question thanksgiving and we're gonna apply for us is really an extension of our partnership that we have with the government and her clients and the government is what was happening is were saying in high performance computing mentioned as on prior cause know think this is kind of a binary we think is a hybrid model as evolving and this extension of our on premise
spk_3: the relationship with with these plans is that they wanna utilize and benefit from the economics engine the flexibility
spk_2: elaborating in an as there as model for certain applications and so with extension really is for our existing customers and potentially new customers to use his platform sometimes early on the development of testing our applications and sometimes because it out
spk_5: occasionally are not wonderfully whom they used or the overhead it doesn't warrant a full on dram system
spk_1: so from that perspective a worse than the government the as and works we also had a platform called penguin on demand just try to be a day and that is one never lead guy that it up and running today
spk_3: again very small and gentlemen revenue contribution that want to say couple million dollars a quarter
spk_2: in the business and both something that we're trying to cultivate a more and more as a at our clients want to have the flexibility or a future development as well as new customers that we enjoyed it that is quite frankly are going to go and make a an investment in their own data center implementation of add ons few day i so it isn't an opportunity for as it's early going and we're investing in it
spk_3: and so as you look into a penguin i go forward by is you'll hear more about that and in our efforts to dried a hybrid model both on pram
spk_16: and and in the glove
spk_5: okay great thanks and an explanation and what what he is here that competitive landscape up for that's are are you seeing your competitors coming and similar products or are you ahead of the that the competition
spk_2: well anger to the there's kind of two parts of that question one is our our current on from customers
spk_1: we are looking at elements of the strategy and and they're investing
spk_3: and then there's odyssey the cloud service providers themselves who are developing a high performance computing approach not a wanna the latter the cloud service providers the top we're for of those parties are potential partners of ours activated
spk_2: well we're in discussions with those title providers where we can provide design and the system utilization advisory gallup capabilities to our customers in a cloud environment so
spk_3: at the end of a day this vertical that we operate in we're we're gonna have a trusted advisor and i did go see elements of our on on the man and the service as well as potentially utilizing somebody to cloud providers are the bag and to or to are offering so it's a it's pretty good flexibility
spk_16: the that were there were developing here relative to a customer engagement is a while we've always radius of before
spk_11: okay great faggot
spk_0: thank you
spk_1: there are no further questions at a time mr mac and i turn to call back off again
spk_2: full again i'd like to thank everyone for joining our call today
spk_1: the gene did a great job at a new one with record revenue man gas rhetoric gross margins of fines and percent
spk_5: and in a p s two dollars and sixteen cents time and better we just that and you for twenty one guy who got a lot of momentum and look forward to reporting on our future growth and success
spk_0: with that to call when thank you
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