Penguin Solutions, Inc.

Thank you for standing by, and welcome to the Smart Global Holdings Second Quarter Fiscal 2021 Earnings Call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session, and to ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Suzanne Schmidt in Investor Relations. Thank you. Please go ahead.

Thank you, operator. Good afternoon and thank you for joining us on today's earnings conference call to discuss Smart Global Holdings second quarter fiscal 2021 results. On the call with me today are Mark Adams, Chief Executive Officer, Jack Pacheco, Chief Operating Officer, and Ken Rizvi, Chief Financial Officer. This call is being webcast from our website at smartgh.com. In addition, our website contains an accompanying slide presentation and the earnings press release. We encourage you to go to our website throughout the quarter for the most current information on the company, including information on the various financial conferences we will be attending. Before we begin the call, I would like to note that today's remarks and the answers to questions may include forward-looking statements. Any statement that refers to expectations, projections or other characterizations of future events, including financial projections and future market conditions, is a forward-looking statement. Actual results may differ materially from those expressed in these forward-looking statements. For more information, please refer to the forward-looking statements disclosures in our earnings press releases, as well as the risk factors discussed in the documents we file from time to time with the SEC, including our most recent Form 10-K and Form 10-Q. We assume no obligation to update these forward-looking statements, which speak as of today. Additionally, during this call, non-GAAP financial measures will be discussed. reconciliations to the comparable GAAP financial measures are included in today's earnings press release. We will begin the call with CEO Mark Adams, who will provide a business update, and then Ken Risby, CFO, will review the financials and forward guidance, after which we will take questions. Mark?

Thank you, Suzanne, and thanks to all of you on the call for joining us today. We've had a very successful second quarter of our fiscal year operationally, as well as strategically, where we continue to make significant strides on our growth and diversification initiatives. We believe we are set up for a great remainder of our fiscal year 21 and beyond. During our last earnings call, I highlighted my personal philosophy that performance is driven by people, purpose, planning, and process. At SGH, we are continuing to invest in these pillars to drive a new chapter for the company and all of our key constituents, including our employees, customers, suppliers, and shareholders. We made significant progress in terms of strengthening our management team this past quarter with the addition of several key leaders. I'm very pleased with the level of talent we've been able to attract to the company. Since our last earnings call, we have hired Ken Rizvi as our CFO, allowing Jack to focus on the joint roles of Chief Operating Officer and President of the Memory Solutions Group. Thierry Pellegrino is President of Intelligent Platform Solutions Group, formerly known as Specialty Compute and Storage Solutions. As you'll recall, Thierry comes to us from Dell, where he led their HPC and AI business. And with the addition of Cree LED, we are pleased to have Claude Demby as president to lead that business. Claude brings more than 25 years of leadership experience at companies such as Procter & Gamble, GE, and L&L Products. In addition, three new leaders have joined us as of April 1st. Anne K. Kendall is our new general counsel for SGH. and was most recently General Counsel and VP of HR for MariaDB Corporation, and before that held various senior legal management roles with Cloudera and Cadence Design Systems. Bruce Goldberg, our former General Counsel, will now take on a new role as Chief of Staff reporting to me, focused on building a winning culture and our overall human resource strategy. Joining us as VP of Marketing is Valerie Sassani, who comes to us after nearly two decades at LAM Research. Valerie will be instrumental in amplifying the SDH family of brands, leveraging her expertise in marketing and communications. And lastly, Jean McDaniel joins us as VP of the Office of Transformation. Jean most recently worked at Micron, where for 25 years she led teams focused on M&A and corporate integration. A major step in the next chapter of becoming a growing and diversified SGH is the completion of our acquisition of Cree LED, which closed at the beginning of March, just after the end of our fiscal second quarter. With Cree's outstanding customer relationships, industry-leading technology, new product development capabilities, and strong intellectual property portfolio, we are able to greatly expand our served addressable markets with differentiated offerings while leveraging our foundation of operational excellence. With the addition of CreeLED, we will now organize the company and do three primary lines of business. First, intelligent platform solutions, formerly called specialty compute and storage solutions. which consists of penguin computing and smart embedded and smart wireless. Next, memory solutions, which consists of smart modular technologies comprising our specialty memory business largely operated in the U.S. and our Brazil module business. And finally, LED solutions, which consists of Cree LED. By focusing on these three business segments, each with outstanding leadership in place, we are even better positioned to align our people, purpose, planning, and processes and execute on our strategy to address the tremendous market opportunities ahead of us. At our upcoming Analyst Day on April 20th, you'll have the opportunity to hear from many of these leaders as we outline our growth initiatives in more detail. During fiscal Q2, We remained focused on our growth and diversification strategy while achieving another strong quarter of financial results. All key metrics came in better than expected. Both revenue and non-GAAP gross margin for the second fiscal quarter were at the high end of guidance range provided at our last call, coming in at $304 million and 19.5% respectively. and non-GAAP earnings per share of 87 cents exceeded the high end of our guidance range. Ken will cover these financials in more detail later in the call. Let me now turn to our second quarter business performance, starting with our Intelligent Platform Solutions Group. This group, which includes Penguin Computing, along with Smart Embedded and Smart Wireless, had a very strong quarter. Revenues grew approximately 30% sequentially to reach $85.4 million, or 28% of total SGH revenues. Our performance has been driven by growth across high-performance computing, embedded computing, edge computing, and AI solutions. Demand continues to be fueled by key customers across vertical markets such as cloud service providers, financial services, energy, federal, and telecom. Gross margins in this group also improved in the quarter and reached 29.3% for the second fiscal quarter, up from 27.3% in the prior quarter. The Intelligent Platform Solutions team is making excellent progress on evolving and expanding software and services, which grew by more than 50% sequentially. We are proud of the recognition we continue to garner as a leader in HPC and embedded computing. One recent example was Penguin being named as one of the 10 hottest new enterprise servers of 2020 by CRN, a top technology news and information source for its highly dense Tundra AP platform for HPC and AI workloads. The team is focused on a number of new platforms and solutions in the areas of edge and AI analytics, which are slated for introduction in the second half of fiscal year 21. These platforms and solutions are targeted for military, retail, transportation, and 5G applications. We continue to have strong momentum heading into Q3 and the remainder of this fiscal year. Now turning to the memory solutions group, which encompasses specialty memory and our module business in Brazil. Specialty memory revenues total $115.5 million in the quarter, down slightly from the previous quarter as expected, and up 4% as compared to the year ago same quarter. As the market is showing optimism with regards to a potential COVID recovery, we are seeing demand returning from industrial customers. In addition, we are making good progress expanding into new vertical end markets, such as hyperscale cloud data centers and transportation. Our NVDEM controller-based memory products continue to gain traction in storage applications with customer applications such as cybersecurity and surveillance solutions. Our DDEM solution, which is open CAPI-based memory module, is showing some early success in HPC applications. Emerging memory and storage technology combined with growing computational demand from emerging workloads such as AI are driving the need for high-performance server designs utilizing advanced memory technologies. In addition, we recently introduced a new high-density DIMM module solution aimed at maximizing network bandwidth and reliability, which is critical for data center networking applications. In our Brazil operations, revenue totaled $103.1 million and were approximately flat compared to last quarter. On a year-over-year basis, revenues grew approximately 6%, and if we exclude the end-of-life of our battery business, revenue was up by 12% compared with last year due to increasing memory densities in mobile and stronger unit sales in notebook-related memory. We expect to generate higher revenues in Brazil in Q3 driven by increasing units of both mobile and notebook memory. Additionally, we continue to invest in capabilities to build SSDs in-country by leveraging our manufacturing know-how, our advanced packaging capabilities, and our strategic supplier relationships. We believe SSDs will be a growth catalyst for our Brazil business in fiscal year 2022. Now turning to CreeLED. We are thrilled to formally welcome the CreeLED team to SGH. The acquisition closed on March 1st, and the integration is off to a great start. The transition from using silicon carbide to sapphire wafers is progressing on plan, as well as the move to the outsourced wafer model. Over the next 18 months, we expect to substantially complete both of these transitions. We are excited about this manufacturing transformation to a SAFIRE-based fabless organization, which we believe will drive greater agility, resiliency, and create a platform accelerating technology leadership, all of which will contribute to profitable growth. Longer term, Cree LED will focus on markets such as high power and mid-power lighting, specialty lighting, and video screens, targeting key applications where we deliver a differentiated value proposition. Some specific examples of these applications include stadium and outdoor lighting, fine pitch video, horticulture, and architectural applications, as well as applications in the invisible spectra, including infrared and ultraviolet. You'll hear about these plans and more from Claude at our Analyst Day. And now I'd like to introduce you to Ken Risby, our new CFO, for a closer look at the financials and guidance for Q3. Ken?