Penguin Solutions, Inc.

Welcome to the FGH fourth quarter fiscal 2022 earnings call. My name is Dante and I'll be your operator for today's call. All lines will be muted during the presentation portion of the call with opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Ms. Suzanne Schmidt. Ms. Schmidt.

Thank you, operator. Good afternoon, and thank you for joining us on today's earnings conference call and webcast to discuss SDH's fourth quarter and full year fiscal 2022 results. 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 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 use of forward-looking statements note that is included in the 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 the company's 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 the GAAP to non-GAAP measures is included in today's press release. And with that, let me turn the call over to Mark Adams, CEO.

Mark? Thanks, Suzanne. Throughout fiscal 2022, we continued to transform SGH into a diversified, profitable company committed to growth and attractive long-term shareholder returns. During our FY22, we achieved strong results and accomplished a number of key milestones despite a challenging macroeconomic climate. Our fiscal 22 achievements included record annual revenues of $1.8 billion, record gross margins of 24.9% on a GAAP basis and 25.9% on a non-GAAP basis. Record annual adjusted EBITDA of $263 million and record annual non-GAAP earnings of $3.62 for share. And now, looking back over the past two years, we have grown the top line by over 60%, expanded non-GAAP gross margins by 610 basis points, increased adjusted EBITDA by over 150%, and grown non-GAAP earnings per share by over 175%. In addition, we completed our acquisition of Stratus Technologies just after our fiscal year end, better positioning the IPS group for continued growth in the years ahead. Now let me turn to the fourth quarter. SGH concluded fiscal 2022 with fourth quarter key financial metrics at or above the midpoint of our guidance. Fourth quarter revenues totaled $438 million and non-GAAP gross margins came in at 24.6%. These results combined with strong operating discipline and our share repurchase program resulted in non-GAAP earnings of 80 cents per share, which exceeded the upper end of our guidance range. Let me turn to a brief review of each of our businesses, starting with IPS. Revenue came in at a record $145 million from fourth quarter, up 52% sequentially, and up 48% from the year-ago quarter. New project rollouts were a major contributor to our revenue growth in the quarter. Despite the increased hardware shipments from these new installations, service revenues were up 11% Q4 when compared to Q4 fiscal year 21. On a year-over-year basis, Services grew 59% in fiscal year 2022 when compared to FY21. Services continues to be an exciting growth area for IPS. After designing and implementing an HPC solution, IPS offers additional value-added services to meet our customers' individualized needs, including system management, development and operations, or DevOps, and HPC AI optimization. These offerings demonstrate the differentiated value proposition we offer to our customers. What's more, a large portion of our services revenues for Penguin are based on longer term multi-year engagements that deliver more predictable revenue and higher margins. The market has taken notice of IBS success and we continue to garner industry recognition. This past quarter, Scientific Computing World highlighted Penguin Computing's cloud technology practice as part of a feature on cloud technologies available to researchers that use HPC. Heading into our first half of the year, we see continued strong demand across our IPS customer base. As we have mentioned on prior calls, IPS has traditionally been a somewhat lumpy business, and as a result, We will continue to monitor customer demand signals as we look further out into Q1 and into Q2. With the addition of Stratus, IPS is equipped with advanced high availability and fault tolerant capabilities that will expand our future IPS offerings and allow us to more comprehensively address our customers' needs. Now turning to our LED Solutions Group. Three LED face strong headwinds in China with COVID-related policies contributing to supply chain constraints and impacting demand. Revenue totals $83 million in the fourth quarter. Our business continues to be soft in China, and we are also seeing demand weakness in the U.S. and Europe. As such, we expect to see a sequential decrease in the LED business in Q1. The key target markets for our LED business remain specialty high-value applications such as entertainment and horticulture, premium video applications such as fine-pitch outdoor lighting designs, and high-performance general lighting applications such as architectural and street lighting. Free remains a technology and brand leader in the high-performance LED space, and we are confident in the long-term operating performance of the LED business as macro headwinds subside. In our memory solutions group operating under the Smart Modular brand, revenue came in at $210 million. We saw a strong demand for our core specialty memory offerings, such as DDR3, DDR4, and flash memory products from OEM customers in networking, telecom, enterprise computing, and storage segments. In the networking and storage markets, we are seeing an increased level of activity for our PCIe NVMe SSD products. In particular, design-ins are increasing for our SATA SSDs. We are also seeing strong design activity for specialty DRAM products spanning legacy technologies such as DDR3 and DDR4 to newer technologies such as DDR5 and Compute Express Link, commonly referred to as CXL. Additionally, on the DDR5 front, we are seeing strong customer interest for specialty form factors. The strength of specialty memory partially offset continued headwinds in Brazil. Brazilian smartphone and PC consumer markets were weaker in the fourth quarter, as anticipated and communicated on our last call. That said, we remain disciplined in our approach to introducing new products that meet the market demand, such as UMCPs, DDR5 modules, and Gen 4 SSDs, while managing our operating expenses and capital expenditures in order to continue generating positive free cash flows from our Brazil operations. Longer-term market trends remain favorable to our memory business, overall with data center proliferation supporting AI and machine learning application growth, industry migration to DDR5, and an increasing SSD attach rate in our Brazil business, all providing us with the foundation for longer-term growth as we capitalize on core competencies of engineering, manufacturing, and service to develop differentiated solutions for our valued customers. Now I'd like to take a step back and share some corporate-level news with you as we look ahead into fiscal 2023. First, I would like to officially welcome the Stratus team who joined us when the acquisition closed at the end of August. In fact, we are conducting this earnings call from the Stratus headquarters in Maynard, Massachusetts to celebrate this important milestone with a team in person. I'd also like to welcome Mark Papermaster, Chief Technology Officer at AMD, who joined our board of directors on August 22nd. We are thrilled to have Mark join the SGH board. With his 35 plus years of engineering and technology industry experience, Mark will be instrumental in helping to guide SGH as we continue our transformation and growth in the key markets such as AI, machine learning, data analytics, cloud, and high performance computing. Finally, I'm very proud to announce SGH's commitment to achieving net zero scope one and two emissions by 2030. You can read about this commitment as well as other environmental, social, and governance efforts and our second annual ESG report, which will be available on our website in the coming weeks. And now I'll hand it over to Ken for a more detailed review of our Q4 financial performance and our guidance for next quarter. Ken?