Penguin Solutions, Inc.

Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the SGH first quarter fiscal 2022 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remark, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Suzanne Schmidt, you may begin your conference.

Thank you, operator. Good afternoon, and thank you for joining us on today's earnings conference call and webcast to discuss SGH's first quarter fiscal 2022 results. Joining me on the call today are Mark Adams, Chief Executive Officer, Jack Pacheco, Chief Operating Officer, and Ken Risby, Chief Financial Officer. You can find the accompanying slide presentation and earnings 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, including information on the various financial conferences we will attend. I would also like to remind everyone to read the use of forward-looking statements note that we have included in the earnings press release and the earnings call presentation. Please note that certain of the 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 also discussed 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 Rizvi, CFO, will review the financials and forward guidance, after which we will take questions. Mark?

Thank you, Suzanne. We hope all of you had a nice holiday and appreciate you joining us today. We are off to a strong start to our fiscal 2022. Let me share some of the highlights from our first quarter results. We had record quarterly revenue, 470 million. Record non-GAAP gross margins of 27% and non-GAAP earnings per share of $2.16 which was at the upper end of our guidance range, with excellent performance across all of our businesses. Common to each of our businesses, Intelligent Platform Solutions, Memory Solutions, and LED Solutions is the focus on delivering operational excellence that leverages our SGH operating system. SGH is an engineering-driven set of businesses that delivers advanced technology solutions at the system or subsystem level, addressing the unique or specialty requirements of our customers, helping them compete in the markets they serve. I continue to be extremely proud of our team's execution, especially in light of the unprecedented challenges stemming from operating during the COVID pandemic era amidst microelectronics supply chain shortages. I'm excited to share some of the successes from each of our three businesses. starting with the Intelligent Platform Solutions Group, or IPS, which turned in another record quarter with revenue of approximately $119 million, 80% higher than the same quarter last year and more than 20% higher compared to the prior quarter, our Q4-21. Expanding customer engagements in ultra-scale, government, and the oil and gas end markets contributed to the strength in sales in Q1. Our managed services growth initiative is progressing well with revenues almost doubling in Q1 fiscal 22 as compared to Q1 fiscal 21. Software and services for IPS overall represented approximately 17% of total IPS Q1 fiscal 22 revenue. What I believe is still underappreciated in the world of high-performance computing is the complexity of integrating a myriad of technology components and subsystems, including GPUs and CPUs, advanced memory solutions, enterprise storage, networking systems, cooling systems, along with software and optimizing them for specific workloads within the data center. There are a few companies capable of both designing and delivering complete hardware infrastructure and software-based solutions while offering best-in-class support services to the extent we do at Penguin. With AI and machine learning still in their infancy, we are well positioned to capitalize on this growing trend. Our 20 years of experience in HPC enables us to design and manufacture best-in-class systems customize for our customers' workloads, implement the systems, optimize the systems for commercial scalable performance, and maintain the systems for maximum availability. Another strategic priority for our business is enhancing capabilities to service our customers via the cloud. At Super Compute 21, which took place in this past November, Penguin Computing announced the launch of its GovPod HPC AI Cloud solution, an on-demand, high-performance, secure environment that supports AI, traditional HPC, and continuous workflows. We continue to invest in offerings such as the GovPod HPC AI Cloud solution to address our customers' future needs for an as-a-service offering in a secure environment. The success of our unique workload-centric approach to solving our customers' HPC and AI challenges is garnering increasing industry recognition. In November, Hyperion Research declared that Penguin Computing was the fastest-growing major HPC solution provider of 2021. This is a testament to our team and the trust our customers have placed with us to help them maximize their compute, network, and storage infrastructure to solve complex problems. Now turning to LED Solutions Group, which had another strong quarter of operating performance. Revenues were $112 million in Q1, which is in line with our expectations and up substantially when compared with Q1 fiscal 2021, when this business was still part of Cree Wolfspeed. Revenue growth was driven by customer wins with our high-brightness products into the video, architectural, and landscape specialty lighting markets. We continued to execute on our manufacturing transformation plan. The transition from silicon carbide to sapphire wafers and from a captive manufacturing model to an outsourced capital light model strengthens our cost competitiveness in the markets we serve. On the product front, the team is focused on delivering innovative application optimized LEDs, enabling a variety of lighting designs while achieving the best overall system value. Recent highlights of these efforts include the launch of three new products in our extreme high power product line, which deliver improved brightness and efficiency. securing new design wins of our CD94D products, which are optimized for the video display market, such as billboard and traffic signs, and expanding our roadmap with exciting new products that leverage our cutting-edge packaging technology, addressing both high-power and custom mid-power lighting spaces. These products target I value color mixing applications, which will enable PreLED to deliver the next generation of premier lighting products for architectural, horticultural, medical, and stage lighting applications. We believe that Cree's focus on innovation, industry-leading intellectual property, and application-level differentiation will result in improved traction in our targeted market segments. In our memory solutions group, operating under the Smart Modular brand name, revenues grew by 6% to $239 million in fiscal Q1 of 2022 versus the same quarter a year ago. And on an apples-to-apples basis, revenues were actually up approximately 20% from the year-ago quarter and adjusted for the impact of customer revenue recognition that we reclassified beginning in our third quarter of fiscal 2021. Driving this strong year-over-year performance has been an increased sale of our core specialty solutions such as DDR3, DDR4, and Flash products to our Tier 1 networking and telecom customers. We are also beginning to see the benefits of the investments we've made in our memory product roadmap targeting new verticals such as data center and cloud. One example is our open CAPI DDIM products, which are now ramping at a leading data center customer. And on the SSD front, we remain on plan and expect to ramp production in Brazil during Q4 of the fiscal year. The team has also made great progress on developing solutions targeted for the upcoming DDR5 transitions. We are actively engaged with several Tier 1 customers on next-generation NV DIMMs and are in design of a CXL DDR5 memory module or system validation to address the industry's need for additional memory in both data center and cloud applications. We are developing the industry's first DDR5 very low profile or VLP RDIMM for industrial security and networking applications. These VLP modules for new DDR5 One-U Play computing and storage applications help customers maximize density and minimize system board space. We are excited about the opportunities ahead of us in our memory business and feel uniquely positioned to serve the needs of our expanding customer base. our 30 plus years of design engineering and manufacturing know-how providing custom solutions that incorporate hardware firmware and software as well as our expertise in controller-based memory products positions us for success particularly as memory has taken on a much more integral role in the overall compute ecosystem in the past I've discussed our goal of becoming a more independently governed public company. And in mid-December, we announced that as of our upcoming annual shareholder meeting on February 11th, our board will be entirely independent, with the exception of myself, and more diversified, with one-third of the board comprised of female directors. I also wanted to note the board has approved a two-for-one share split. We anticipate this being completed in our current quarter. This is intended to further improve our liquidity and to broaden our shareholder base. Ken will provide more detail in his commentary. We are off to a strong start in fiscal 2022 and remain focused on operational excellence across all of our businesses. We will continue to drive growth and diversification, strive to expand margins and efficiently run the company to deliver improved financial performance and increase value for our shareholders at this time i'll hand it over to ken for more detailed review of the financials and our guidance for next quarter ken thanks mark the first quarter of 2022 is the seventh consecutive quarter of year-over-year growth for sgh