Penguin Solutions, Inc.

attending today's Penguin Solutions Q2 Fiscal 2025 Earnings Call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to queue for a question on today's call, please dial star 1 on your telephone keypad. I'll now hand the call over to Suzanne Schmidt with Investor Relations to begin. Suzanne, you may proceed.

Thank you, Operator. Good afternoon, and thank you for joining us on today's earnings conference call and webcast. to discuss Penguin Solutions second quarter fiscal 2025 results. On the call today are Mark Adams, Chief Executive Officer, and Nate Olmstead, Chief Financial Officer. You can find the accompanying slide presentation and press release for this call on the investor relations section of our website. We encourage you to go to the site throughout the quarter for the most current information on the company. I would also like to remind everyone to read the note on the use of forward-looking statements that is included in the press release and the earnings call presentation. 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, business plans and strategy, proposed redomiciliation, and existing and potential collaborations. 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 quarterly reports. The forward-looking statements are representative only as of the date they are made and accept as required by applicable law we assume no responsibility to publicly update or revise any forward-looking statements. 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 accompanying slide presentation. And with that, let me turn the call over to Mark Adams, CEO. Mark? Thank you, Suzanne.

I'd like to welcome all of you to our Q2 fiscal 2025 Penguin Solutions earnings call. We are very pleased with our second quarter financial results. Our revenue was $366 million. an increase of 28% compared to the same period last year. Non-GAAP gross margins came in at 30.8%. Non-GAAP earnings per share was 52 cents, a 97% increase year over year. We achieved non-GAAP operating income of 49 million, up 85% from the prior year, and we improved non-GAAP operating income margin to 13.4%, up 4.1 percentage points year over year. All in all, our Q2 results demonstrate the progress we are making and the transformation of Penguin Solutions into a leader in high performance, high availability enterprise infrastructure solutions. The market for artificial intelligence is growing in the enterprise segment across a number of different industries. market research continues to reinforce the strategic value of AI to enhance corporate productivity, decision-making, and customer satisfaction. As we've mentioned in the past, our belief is that the GPU sales the industry saw in 2023 and 2024 would lead to growth in enterprise deployment in 2025 and 2026. As customers move from proof of concept to full-scale AI implementations, we're seeing signs that we have entered the early stages of growth in corporate build-outs at scale and are excited for what lies ahead. Penguin Solutions helps customers manage the complexity of AI adoption by leveraging our proven know-how and advanced cluster implementations in the data center coupled with our differentiated portfolio of hardware, software, and managed services. We work with our customers to design, build, deploy, and manage these environments with a focus on time to revenue and reliability while targeting the highest level of performance and availability. Our products and services are primarily sold to hyperscalers, cloud service providers, and Fortune 500 companies in the financial, energy, education, federal, consumer, and manufacturing sectors. Historically, we have sold directly to our end customers. However, we are also expanding our go-to-market breadth by focusing on developing channel partnerships, which we believe will provide new opportunities for growth longer term. The foundation of Penguin Solutions' success is our 25-plus year history of deploying large-scale complex data center clusters originating from our early days in high performance computing, or HPC. This expertise is integral to our AI infrastructure offering. Our experience understanding the complexity of how best to integrate advanced technologies such as power, cooling, AI compute, memory, storage, and networking enables us to deliver high performance high reliability enterprise infrastructure solutions. As we mentioned at the beginning of our fiscal year 2025, we have transitioned from providing a quarterly financial outlook to providing a full year financial outlook. We believe that a full year outlook affords a broader perspective of our business, especially in relation to AI infrastructure, where the timing of actual deployments and associated revenue recognition can be unpredictable. And that aligns well with our emphasis on achieving long-term strategic objectives. We also understand that our investors, customers, and partners appreciate commentary on our progress each quarter, and we intend to offer that as well today. On our Q4 fiscal 2024 call, we forecasted fiscal year 25 revenue to grow 15% at the midpoint. When discussing our full year outlook last quarter, we highlighted that a large advanced computing order would finish shipping in Q2. Due in large part to that shipment, we expect revenue and profits to be more first half weighted when compared to our second half. In light of our strong first half performance, we are raising the midpoint of our revenue outlook for full year fiscal 25 from 15% year over year growth to 17% year-over-year growth, which Nate will discuss in more detail later. Let me now provide more detail on our business segments. Our advanced computing revenue the second quarter of fiscal 2025 was $200 million, up 42% year-over-year when compared to Q2 fiscal 24, representing 55% of Penguin Solutions revenue. We had some exciting wins at our existing customers and added three new logos in the technology, telecom and media, and federal spaces. Our core competency in successfully managing large-scale infrastructure deployments helps customers accelerate their time to successful implementation. We believe our customers value our technology-agnostic approach to creating a unique, overall solution to meet their AI infrastructure needs. As a trusted advisor, we evaluate which technologies would best fit an individual customer requirement. Beyond the technology building blocks, we leverage Penguin's ICE clusterware in working with our clients to design the optimal software stack to enable a robust platform to manage their infrastructure. For many of our key customers, Our Penguin Services organization will help manage post-deployment operations to support continued high performance and availability. We have seen growth in our pipeline during the first half of fiscal year 2025 and remain focused on working to convert these opportunities into bookings over the remainder of the fiscal year and into fiscal year 2026. Integrated memory is represented by our smart modular brand. In our second quarter of fiscal 2025, integrated memory was $105 million, up 26% compared to the same period last year, representing 29% of total Penguin Solutions revenue. Memory is a critical component of our computing, networking, and telecommunications customers platform. Large enterprise require higher performance and higher reliability memory to support complex workloads. In line with this increasing demand for improved memory bandwidth and availability, we are executing on new product development plans for our Compute Express Link or CXL family of products. We are seeing positive momentum in our customer qualification efforts, resulting in sample orders of CXL from OEMs and AI computing companies, which reinforce our optimism about its appeal to a new type of customer. In addition, in March, Dell added Smart's CXL add-in card as part of their server configuration options program. We enter Q3 with a strong backlog buoyed by AI-related demand, improving market conditions and enterprise memory, and more stable inventory levels that keep customers in data center, networking, and telecommunications. Optimized LED operates under the Cree LED brand. In the second quarter of fiscal 2025, optimized LED revenue was flat as compared with the year-ago quarter, while non-GAAP operating margins were up nearly five points comparatively. Q2 has traditionally been a seasonally lower quarter due to the U.S. holidays coupled with the Chinese New Year holiday, and this year was no exception. We believe Cree LED's capital light outsource model was a contributing factor to our improved profitability in the first half of fiscal 2025 and will continue to be a competitive advantage longer term. In early Q2, we announced that we entered into a patent license agreement with Daktronics, a US-based leader in large-scale LED displays. Our strong intellectual property coupled with a cost-effective operating model has led to some exciting new customer design win activity. with larger LED lighting customers in the US and Western Europe. As we continue the transformation of Penguin Solutions, our strategic focus on research and development and partnerships will remain critical to our future success. Let me highlight three of our key initiatives and the progress we are making on each of them. First, in early March, Penguin Solutions announced that it has expanded its ICE Clusterware software platform with multi-tenancy support, streamlined workflows, and enhanced controls. We also announced the launch of ICE Clusterware AIM Service, an advanced optimization service that leverages prediction automation to enhance performance, availability, operational efficiency of our customers' AI infrastructure. These new software capabilities are compatible with multiple chip vendors such as NVIDIA, AMD, and Intel, enhancing our ability to successfully support customers' AI deployments across a broad set of technologies and use cases. Second, in memory, which continues to play an increasingly vital role in AI systems performance, the Smart Modular R&D team is focused on the development of a Smart Modular Optical Memory Appliance, or OMA, addressing the need for greater bandwidth performance and availability to support future AI compute requirements. While in our early stage of development, we believe this to be an exciting new market opportunity with first revenues anticipated to be late calendar 2026 to early calendar 2027. Finally, In the area of strategic partnerships, our relationships with SK and Dell are also expected to provide new opportunities for longer-term growth. We are in discussions with SK Telecom regarding potential collaborations related to their AI strategy, including AI data center infrastructure initiatives. In addition, an already strong relationship between SK Hynix and Smart Modular is evolving as we look at ways to address markets not historically served by SK Hynix in custom low-volume Hynix segments. Regarding the Dell partnership, Penguin's AI software and managed services are now being able to be sold by Dell's worldwide sales force, expanding our market reach. We are in the process of training Dell sales teams and are seeing favorable early response to co-marketing opportunities with large enterprise customers. As part of this relationship, we have also expanded our origin AI offerings to include Dell servers, along with Penguin software and services, which can help expand our customer TAM for future engagements. Combining our unique value proposition with larger go-to-market companies will remain a priority for us. We are evaluating both domestic and international partners who could benefit from working with Penguin Solutions to deliver world-class AI infrastructure solutions. More to come on future calls. We've also recently announced that we intend, subject to court and shareholder approval, to re-domicile our parent company from the Cayman Islands to the United States. We believe this aligns with our strategic objectives and reflect our increased business and operational focus in the United States. Additionally, before we conclude today's call, I'd like to share some important organization news. After close to 25 years with us, Jack Pacheco, our Executive Vice President, Chief Operating Officer, and President of Integrated Memory, has decided to retire at the end of our calendar year. Jack has been instrumental in our company's growth and success, particularly in strengthening our memory solutions business and building an outstanding operations team. We are grateful for Jack's contributions and appreciate his willingness to help with the transition. In closing, I want to thank our global team for the strong results in Q2. We are laser focused on short-term execution in Q3, while also expanding our pipeline for longer-term growth. Our first half results give us the confidence to raise the midpoint of our revenue outlook for the full year, fiscal year 2025. Edwin's value proposition of solving the complexity of AI infrastructure for our customers positions as well to address the increasing market opportunity of enterprise AI adoption at scale. Let me stop here and hand the call over to Nate to provide more color on our performance and outlook for the remainder of fiscal 2025. Nate?