Penguin Solutions, Inc.

Good afternoon. Thank you for attending the Smart Global Holdings First Quarter Fiscal 2024 Earnings Call. My name is Victoria, and I'll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Suzanne Schmidt. Thank you. You may proceed, Suzanne.

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 2024 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 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. Forward-looking statements are based on current beliefs and assumptions and 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 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 the accompanying slide presentation. As a reminder, at the end of calendar 2023, SGH completed the sale of an 81% interest in its Smart Brazil operation. Accordingly, Smart Brazil operations are classified as discontinued operations in the company's financial statements for all periods presented, and the following discussion of financial results relates to continuing operations, which excludes Smart Brazil unless otherwise noted. And with that, let me turn the call over to Mark Adams, CEO. Mark?

Thank you, Suzanne, and thanks to all of you for joining us today. I hope you all had a nice holiday season. We have made tremendous progress in our journey towards becoming a high performance, high availability enterprise solutions company. In our first quarter, as part of our continued transformation, we completed the majority divestiture of our Brazil-based consumer memory module business. We now have a much higher quality revenue mix than when we started this journey more than three years ago, as demonstrated by our record non-GAAP gross margins in the first quarter. And strategically, we believe that we are uniquely positioned to capitalize on the growing demand for high performance, high availability solutions that enterprise customers need in order to deploy AI on premise, at the edge, and in the cloud. In our first quarter of 2024, we delivered strong operating results. Revenues totaled $274 million in line with the midpoint of our guidance range, and we achieved record non-GAAP gross margins for the first quarter of 33.3% above the high end of our guidance range. Non-GAAP earnings per share was 24 cents, which is at the higher end of our guidance range. These achievements were driven by a greater mix of services revenue, which represented approximately 25% of overall SGH revenues, another record, and a demonstration of the value we provide our customers. We generated approximately $60 million in cash flow from operations in the quarter and exited Q1 with a strong balance sheet. Cash and short-term investments totaled a record $553 million. 2023 has been called the iPhone moment in AI. The year was defined by extraordinary advancements in AI, with hyperscalers and other early adopters investing heavily in this new computing paradigm. As we head into 2024, signs of market adoption of AI are expanding to include large enterprises with a focus on deployment. Most enterprises will need a trusted advisor in compute, software, and services solutions, and we believe SGH is uniquely positioned to play this role. In conversations with existing customers and in engagements with potential customers, we are seeing an increasing need to help companies manage the complexity of AI implementations at scale. This is true across a broad range of industries, including defense, finance, tier one and two cloud service providers, healthcare, energy, and education. Each of these sectors is reimagining its future through the lens of AI, and we can play a vital role in this developing ecosystem. At SGH, we provide enterprises with more than just hardware. We differentiate ourselves with our total solutions approach that encompasses design, deployment, integration and managed services we have helped our customers deploy some of the most scaled and innovative ai factories to date our strategy of combining a solutions and service mindset with a technology agnostic approach means that our customers needs are where they should be first now let me start our business review with the intelligent platform solutions group Our IPS team designs, builds, deploys, and manages a complete portfolio of hardware, software, and managed services solutions for HPC and AI applications on premise, at the edge, and in the cloud. In Q1, IPS revenue came in at $119 million, or 43% of total SGH revenue, making it the largest component of our business in Q1. In this era of technological transformation and AI proliferation across the enterprise, we are seeing growing interest in Penguin's AI factory solutions from both existing and potential customers. While we don't provide specific customer names for confidentiality and competitive reasons, we are seeing increasing traction across defense, finance, tier one and two cloud service providers, healthcare, oil and gas, and other major verticals. In addition, we continue to invest in next generation technologies so our customers can stay at the forefront of tomorrow's HPC and AI systems. To take one example, we are working with a leading energy conglomerate to develop and deploy a new emerging cooling system whereby computing clusters are immersed in recycled oil. This approach enables much lower and more efficient power consumption, something that is in and of itself a very positive outcome, while also lowering costs and allowing for increased compute density within the data center. We believe this is the first deployment in North America of oil-based immersion cooling for AI. During Q1, we also launched our next-generation fault-tolerant computing solution, the Stratus ZTC Endurance Server. This new platform delivers predictable, protected performance in the data center and at the edge, which enables our customers to run applications with targeted unplanned downtime of less than one minute per year. We believe this type of reliability is critical for enabling AI at the edge and our customers seem to agree. We have secured initial orders for Stratus ETC Endurance, and are actively expanding our pipeline, laying the groundwork for future growth. Our memory solutions group, which operates under the Smart Modular brand name, provides customers with high-performance, high-reliability memory solutions for specialty markets such as supercomputing, network and telecom, storage, data center, industrial, and other applications. For Q1, revenue came in at $86 million, or 31% of total SGH revenues. Sales declined from Q4 levels as expected, primarily due to elevated inventory levels at a number of our large customers, and visibility into future demand remained somewhat muted. At the same time, we are seeing early signs that the cyclical downturn in memory is abating, and we feel confident about our position. We believe DRAM and NAND ASPs have reached the bottom of the cycle, and in fact, we are starting to see prices increase for certain memory skews. While unit demand at some of our large enterprise customers has been affected by inventory bills, we are optimistic about the outlook for the second half of our fiscal year. Our confidence stems from the increased customer interest we are seeing in our next generation solutions such as Compute Express Link or CXL, enterprise SSDs with storage endurance tiering, and our Zephyr ZDIMM ultra high reliability memory modules for cloud service provider applications. Now turning to our LED solutions group, which produces application optimized LED products in markets such as specialty lighting, video screens, gaming displays, and outdoor horticulture and architectural lighting under our Cree LED brand. For the first quarter of fiscal 2024, LED revenue totaled $70 million, or 25% of total SGH sales, making this the third consecutive quarter of top line improvement. We expect to build on this revenue momentum over the course of fiscal 2024. That said, as we have stated in the past, Q2 tends to be a lighter quarter due to seasonality, so we expect revenue to be lower in the second quarter as compared to Q1. While we believe that the gradual recovery in the overall LED market will continue, we are proactively managing our Cree LED operating expenses in order to improve the profitability of this business line. This prudence in our short-term operating approach does not diminish our focus on shaping the future of LEDs by continuing to invest in pioneering technologies for our customers with emphasis on high-value specialty applications. As both a technology and brand leader with a robust portfolio of intellectual property, Cree is at the forefront of lighting innovation. We remain confident about the long-term performance of our LED business line, given improvements in the macro environment. I'll stop here and hand it over to Ken for a more detailed review of our Q1 financial performance and our guidance for next quarter. Ken?