Penguin Solutions, Inc.

Good afternoon. Thank you for attending the Penguin Solutions Third Quarter Fiscal Year 2025 Earning Result Conference Call. My name is Cameron and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. And I would now like to pass the conference over to your host, Suzanne Schmidt with Investor Relations. 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' third 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, and existing and potential collaborations. Forward-looking statements are based on current beliefs and assumptions, 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 except as required by applicable law, we assume no responsibility to publicly update or revise any forward-looking statements. We 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. 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 third quarter fiscal 2025 Penguin Solutions earnings call. We are pleased with our Q3 financial results. Our revenue was $324 million. an increase of 7.9% compared to Q3 of fiscal year 2024. Non-GAAP gross margins came in at 31.7%. Non-GAAP diluted earnings per share was 47 cents, a 25% increase year over year. We achieved non-GAAP operating income of $38 million, up 15% from the prior year, And we delivered non-GAAP operating income margin of 11.9%. All in all, our Q3 results attest to our progress in transforming Penguin Solutions into a leader in high performance, high availability, enterprise infrastructure solutions. We continue to see signs of early stage enterprise AI adoption across vertical markets, such as financial services, energy, defense, education, and neo-cloud segments. As we have mentioned in the past, our belief is that the investment of AI pilot systems deployed throughout the industry in 23 and 24 would lead to growth in full production installs in 2025 and 2026. We are now seeing signs that we have entered the initial stages of that growth in corporate build-outs at scale. Penguin Solutions helps customers manage the complexity of AI adoption by leveraging both our proven know-how and advanced cluster build-outs and our 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 also targeting the highest level of performance and availability. Our products and services are primarily marketed to hyperscalers, NeoCloud service providers, and Fortune 500 companies. Historically, we have sold directly to our end customers. However, we are also investing in channel partnerships that we believe will provide new opportunities for growth over the long term. The foundation of Penguin Solutions' success is our expertise in large-scale deployments, which has been developed over a 25-plus year history implementing complex data-centered clusters beginning with our early days in high-performance computing, or HPC. Our expertise integrating advanced technologies such as power, cooling, AI compute, memory, storage, and networking enable us to deliver high-performance, high-reliability enterprise infrastructure solutions for our customers. As we've mentioned at the beginning of our fiscal 2025, we have transitioned from providing a quarterly financial outlook to providing a full year financial outlook. We believe that a full year outlook provides a broader perspective of our business, especially with regards to AI infrastructure engagements, where the timing of actual deployments and associated revenue recognition can be unpredictable and concentrated. This approach aligns well with our focus on long-term strategic objectives. At the same time, We know that our stakeholders appreciate commentary on our progress each quarter, and we will offer that today as well. On our Q2 fiscal year 2025 call in April, we raised our full year revenue growth outlook from 15% to 17% at the midpoint. Today, we are reaffirming that outlook. In addition, we are raising our full year non-GAAP diluted earnings per share outlook from $1.60 to $1.80 per share at the midpoint. As a reminder, we have shared previously that revenue and profits are likely to be weighted more towards the first half rather than the second half of fiscal 2025. I'd like to now provide additional detail on our business segments. Our advanced computing revenue for the third quarter of fiscal 2025 was $132 million, down compared to the prior quarter as expected. As we often highlight on our earnings calls, revenue recognition in advanced computing tends to be lumpy. This is due to factors like customer concentration, the timing of large project implementation for our major customers, and the timing and discretionary nature of our customer renewals. The decline in Q3 when compared to the prior quarter was largely due to the timing of a major deployment at a large hyperscale customer where we recognized the revenue in our second quarter. That said, this quarter we had some exciting wins at our existing customers and closed five new customer bookings, highlighted by wins in the federal, energy, and biotech segments. We continue to see increased interest at enterprise customers, as well as in NeoCloud customer opportunities, exemplifying the increased investments being made in large-scale AI infrastructure. Our core competency in successfully managing large-scale AI infrastructure build-outs helps customers accelerate their time to a live production environment. We believe our customers value our technology-agnostic approach, which allows us to create a unique overall solution that meets their specific AI infrastructure needs. Beyond our hardware building blocks, we are investing in the development of Penguin Ice Clusterware, a software platform that helps customers manage their infrastructure assets. Our Penguin Solutions Service Organization can assist companies in managing their post-deployment operations, supporting the high performance and high availability of their systems. Overall, we have seen growth in new customer bookings and have continued to expand our pipeline during the first three quarters of FOI 2025. Integrated memory under the Smart Modular brand achieved $130 million in revenue in Q3, up 24% compared to the prior quarter. We saw strong demand from our computing, networking, and telecommunications customers. Pricing in both DRAM and NAND appears relatively stable, and inventory levels appear balanced at our major customers. We are optimistic about memory demand in the near term, as large enterprises seek out higher performance and higher reliability memory to support both established workloads and new complex AI workloads. In line with this increasing demand for improved memory bandwidth and availability, we are seeing early adoption of our Compute Express Link or CXL family of products. Thanks in part to positive momentum in our customer qualification efforts, We have received early production orders of CXL from OEMs and an AI computing customer, which reinforces our optimism about CXL's appeal to new types of customers. From an R&D perspective, we are focused on products that enable higher bandwidth and larger memory access to and from a GPU via memory pooling. We continue to invest in the design of smart optical memory appliance, or OMA, with first product shipments targeted for late 2026, early 2027. Given the importance of memory to the AI ecosystem, we feel confident that smart modular continued to play a key role fulfilling our customers integrated memory requirements in the future. Optimized LED operates under the Cree LED brand. Cree's revenue came in at $62 million of slightly compared to the prior quarter. Our top line was constrained during the second half of Q3, largely due to increased cost and uncertainty related to tariffs on products shipped out of our Weizhou, China facility. Despite macro uncertainty in the LED market, we remain confident in our high-performance product portfolio, our strong intellectual property, and our cost-effective capital light operating models. In December of 2024, we closed a $200 million investment from SK Telecom. At the time, we explained that in addition to the investment, the opportunities to partner with SK Group and more specifically, SK Telecom and SK Hynix could offer strategic commercial benefits as well. We are making progress with SK Telecom on opportunities related to their AI strategy, including their AI data center infrastructure initiatives. The already strong relationship between SK Hynix and Smart Modular is evolving as we look at new ways to address markets with system level products and custom high value add memory related segments. Since our last call, there have been two other company developments that I would like to mention. First, on June 26th, we announced a refinancing that further strengthens our balance sheet by reducing our gross leverage and extending our overall debt maturity while establishing a $400 million credit facility. Nate will provide more details in his comments. Second, on June 30th, we completed the re-domiciliation of Penguin Solutions, Inc. from the Cayman Islands to the United States as a Delaware corporation. While our past structure served us well, we look forward to being a U.S.-based company as we continue our transformation. In closing, I want to thank our team for delivering strong results during a time of macro uncertainty. For Q4, we remain focused on short-term execution while also continuing to invest for longer-term growth. Penguin's value proposition of solving the complexity of AI infrastructure for our customers positions us well to address the increasing market opportunity being created by enterprise adoption at scale. Let me stop here and hand the call over to Nate, who will provide more color on our performance and outlook for the remainder of fiscal 2025. Nate?