Penguin Solutions, Inc.

Good day and thank you for standing by. Welcome to the STH Third Quarter Fiscal 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, press star zero. I would now like to hand the conference over to your speaker today, Suzanne Smith with Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon, and thank you for joining us on today's earnings conference call to discuss Mark Global Holdings' third quarter fiscal 2021 results. On the call with me today are Mark Adams, Chief Executive Officer, Jack Pacheco, Chief Operating Officer, and Ken Risby, 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 remind everyone to read the forward-looking statements information that we have included in the earnings press release and the earnings call presentation. Please note that certain of these statements made today may constitute forward-looking statements and that these statements are our present expectations and that actual events or results may differ materially. 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 GAAP to non-GAAP measures is included in today's press release. We will begin the call with CEO Mark Adams, who will provide a business update, and then Ken Rizzi, CFO, will review the financials and forward guidance, after which we will take questions. Mark?

Thank you, Suzanne. We hope our U.S. listeners enjoyed the Fourth of July weekend and appreciate all of you joining today's call. We are excited to present our fiscal third quarter results and share with you our outlook for the fourth fiscal quarter. Business execution was strong across all of our companies as our financial results exceeded expectations. We achieved record quarterly revenues of approximately $438 million. We improved non-GAAP gross margins to approximately 22% up from 19.5% in Q2. And we generated $1.39 in non-GAAP earnings per share for the quarter, compared to $0.87 per share last quarter. Our team remains focused on the execution of our growth and diversification strategy. In our first full quarter with Cree LED as part of SGH, we are reporting a more diversified revenue mix. Memory Solutions, which includes Specialty Memory and Brazil, accounted for 55% of total revenues. Within Memory Solutions, Specialty Memory was 28% of total SGH revenues, and Brazil was 27% of total SGH revenues. LED Solutions came in at 23% of total revenues, and Intelligent Platform Solutions, or IPS, was 22% of revenues in Q3. Let me now cover some highlights for each of our businesses. Our IPS group turned in another strong quarter with revenue of approximately $96 million which was 12% higher than last quarter, in line with our expectations for double-digit growth and 57% higher than the same quarter a year ago. These results reflect growth across our key focus areas of core, edge, and cloud. For reference, IPS includes Penguin Computing and Penguin Edge, which is our new brand comprising the former smart-embedded and smart wireless businesses. Gross margin percentage was down sequentially due to a larger mix of hardware sales in the quarter. On prior earnings calls, we have discussed the potential variability of IPS gross margin percentages due to software and services movement quarter to quarter. That said, the IPS team is making very good progress on expanding software and services, which represents 20% of Penguin Computing's revenue on a year-to-date basis, up from low teens in the prior year-to-date period. Our Penguin computing team has a robust solutions roadmap focused on core data center, edge, and cloud offerings, targeting customer requirements in AI, high-performance data analytics, and traditional HPC workloads. We have a number of new platforms and solutions planned for introduction. in the second half of calendar year 21, including Penguin Computing's Origin AI, an AI platform targeting customer needs at the core data center for at-scale training and inference. Additionally, Penguin Edge released the PCIe 8130, which is a high-performance server add-in card used to accelerate and facilitate voice over 5G and LTE. IPS continues to focus on growing Penguin's cloud-based solutions business as evidenced by expanding engagements with existing and new customers in the financial, oil and gas, and federal sectors. We will continue to scale our investments in Penguin On Demand, or POD, and government POD cloud-based solutions to capitalize on future on-demand opportunities which have the potential to drive reoccurring revenues for IPS. We are excited about the recent performance of IPS and continue to strengthen our new business funnel to drive future growth potential in Q4 and beyond. Now turning to the memory solutions group, which encompasses specialty memory and our operations in Brazil. Revenue grew by over 10% sequentially to reach $240 million in Q3 and by 9% year over year in the same quarter. Gross margins expanded 240 basis points sequentially to 18.1% in the quarter, largely due to improved pricing and mix. Our specialty memory business executed well in a challenging supply environment. Beyond our core business with traditional customers in telecom, networking, and the enterprise, we are gaining traction in more data intensive applications. where new standards such as OpenCAPI are helping to drive performance improvements. OpenCAPI is an open interface architecture standard which supports very low latency and high bandwidth memory. We are seeing our DRAM OpenCAPI modules moving into production for compute-intensive applications and expect to ramp this business as we move into fiscal year 22. Backlog for our Flash product portfolio grew nicely in the quarter. and we anticipate strong quarter-over-quarter revenue performance in Q4. We are expanding our product development focus for customers across new and markets to meet their application-specific needs. We are in early production of many and very low-powered DIM modules for use in cybersecurity applications and custom SSD products used in surveillance as well as the transportation sector. Each of these areas represents new segment opportunities for specialty memory. Our strong results in Brazil were due primarily to increasing unit demand in PC notebook and server, which grew 26% from the previous quarter. Demand for mobile memory remained stable, while ASPs increased slightly when compared to Q2 ASPs. Additionally, our plans to build SSDs in-country remain on track, and we are optimistic about this new catalyst for growth in revenues during our next fiscal year. Now turning to Cree LED, which exceeded expectations, recording revenue of $102 million versus a guide of $90 to $95 million. Non-GAAP gross margins were almost 30% well ahead of guidance, despite operating in a supply-constrained environment, a testament to the team's focus and ability to execute. The manufacturing transformation that Claude outlined during our recent analyst day is progressing well. with the transition from silicon carbide to sapphire wafers and the migration to a fab light model with our key strategic partners driving our operating performance. The LED team continued to drive technology leadership across their product portfolio. For example, Cree LED's flagship outdoor lighting LED product, the X-Lamp XP-G3S line, is one of the brightest and most reliable LEDs available in its class. This product line is optimized for directional, high-lumen lighting applications where efficacy and optical control are critical. Demand across Cree LEDs targeted and market segments continues to improve. We saw new customer wins in general lighting, specialty lighting, video, and horticulture lighting. We remain confident in the team's ability to deliver strong results and couldn't be more excited to have the Crete team on board, fully engaged in driving growth and profitability as part of SGH. Let me stop here and hand the call over to Ken for a detailed look at our Q3 financials and Q4 forecast. Ken?