Penguin Solutions, Inc.

Welcome to the Penguin Solutions Fourth Quarter and Full Year Fiscal 2024 Earnings Conference Call. I would now like to pass the conference over to our host, Suzanne Schmidt of McMaster Relations. Suzanne, you may proceed.

Thank you, Operator. Good afternoon, and thank you for joining us on today's Earnings Conference Call and webcast to discuss Penguin Solutions Fourth Quarter and Full Year Fiscal 2024 results. On the call today are Mark Adams, Chief Executive Officer, Jack Pacheco, Chief Operating Officer, and Nate Olmstead, 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 accompanying slide presentation. And with that, let me now turn the call over to Mark Adams, CEO. Mark?

Thank you, Suzanne. Welcome, and thank you all for joining our earnings call. This is a significant day for us, as today we are officially Penguin Solutions, Inc., and our ticker symbol on NASDAQ is now PENG. Our rebranding is more than just a name change. It reinforces our ongoing transformation from a holding company structure into a global enterprise solution provider, tackling one of today's biggest business challenges, solving the complexity of AI infrastructure. Fiscal 2024 was a pivotal year for us. We achieved a number of key milestones and continued to strengthen our leadership team. In November, we concluded the majority stake divestiture of our Brazil business, dedicating our strategic focus to the enterprise market. In May, we announced that Pete Manka, formerly an executive at Dell, joined us as president of IPS, bringing a wealth of experience to our AI enterprise-focused business. In June, we further strengthened our leadership team with the appointment of Nate Olmsted, former Chief Financial Officer at Logitech, as our CFO, expanding the depth and breadth of our financial capabilities. And in July, we announced what we expect to be a transformative partnership with SK Telecom, helping position us for future global growth and innovation in AI and edge computing. In Q4, revenue, gross margin, and EPS were all within our guidance range, and we achieved our third consecutive quarter of sequential revenue growth. As we enter fiscal 2025, we remain optimistic about our ability to expand our customer engagements, and thus, Based on our outlook, we believe we are positioned for double-digit year-over-year growth in FY25. Now, let's take a look at the broader market landscape. 2024 has been a landmark year for AI infrastructure across all industries, marked by major technological advancements and significant hardware investments. We believe the next phase of this market evolution is shifting towards more production-ready AI deployments, integrating these advanced systems into business operations, enabling AI to drive high-impact commercial outcomes. This is where Penguin Solutions excels. With over 25 years of experience in high-performance computing, and more recently AI, we are a trusted partner that enterprises can depend on to navigate this new era of digital transformation. Next, let's turn to our financial performance. For fiscal 2024, we reported total revenues of $1.17 billion. Our managed services revenue now represents a larger share of our sales, growing from 17% in FY23 to 21% in FY24. Our growth profit has improved on a full year basis, with non-GAAP growth margins at 31.9%. In Q4, revenue across all three business segments grew sequentially from Q3. Non-GAAP growth margin for the quarter was down versus Q3, primarily due to product mix, but still within our guidance range. We delivered a non-GAAP EPS of 37 cents in line with last quarter. And our cash position remains strong, with approximately $389 million in cash and cash equivalents and short-term investments. Let me now provide more detail on our business segments. Intelligent Platform Solutions, or IPS, accounted for 48% of our Q4 revenue. reaching 149 million, driven by AI deployment and managed services across hyperscalers, cloud service providers, or CSPs, and enterprise customers. We continue to focus heavily on securing new customer wins. Examples of recent customer orders include a hardware, software, and service engagement at one of the world's largest gaming companies and a pilot program at a leading financial institution. Our strategy is clear. Penguin Solutions helps our customers manage the complexity of AI, from early-stage design work all the way through deployment and ongoing managed services. In line with this, we are increasing our investment in software development and AI-driven solutions. One area of particular focus is intelligent software, which can enhance how organizations build, deploy, and scale AI models, while also improving the efficiency of managing compute resources, including seamless workflow support across hybrid and multi-cloud environments. For example, we are scaling Pemling Solutions Clusterware, an Assured Infrastructure Module, or AIM, software which focuses on high-level system monitoring and management of large-scale AI infrastructures. As we advance our software and services capabilities, we are also enhancing our intellectual property portfolio by filing related patent applications, many of which are results of our robust IP capture program to secure the enduring value of our innovations. Our memory business contributed 31% of Q4 revenue, and we believe it is positioned for growth heading into FY25, driven by the recovery among networking and telecom customers, as well as increased demand from enterprise customers driven by AI workloads. In our traditional networking, telecom, and industrial markets, we saw significant DDR5 design inactivity. especially for very low-profile DIMMs and ECC SO DIMMs. We introduced our CFexpress product line leveraging PCIe Gen 4 technology to offer a compact form factor with exceptional endurance, performance, and reliability, important for customers seeking high-performance, low-density storage solutions. Specialty memory also has a critical role to play in emerging areas like AI, big data, and enterprise IT. As we develop future memory solutions to meet the performance demand for more complex workloads, we recognize that technologies like AI modeling and in-memory database are increasingly constrained by memory and capacity, a problem sometimes referred to as a memory wall. To address this market need, We have launched DDR5 CXL add-in card products, and we're seeing strong sampling activity and positive OEM customer feedback for both 4-DIMM and 8-DIMM models, positioning us to meet the growing demands of AI infrastructure. We are also actively investing in pioneering research in technological areas like silicon photonics and external memory appliances. As AI workloads continue to scale and become increasingly memory centric, our efforts will enable us to better meet future demands, positioning us to capitalize on emerging opportunities and deliver greater value to our customers. Additionally, our zero failure rate Zephyr technology is designed to provide high reliability for mission critical environments. By minimizing memory failures, Zephyr not only helps prevent delays in processing, but also can significantly improve our customers' ROI by producing more consistent, reliable outcomes. Our LED business showed 3% sequential growth in Q4 and 5% growth for the full year and represented 21% of total Q4 revenue. The Cree LED brand continues to lead in high performance lighting applications. With significant product launches and IP protection efforts, safeguarding is more than 1500 patents. We are seeing increasing design win activity and believe we can capture additional market share in FY 2025. As we look to fiscal year 25, Four key initiatives drive our overall company strategy. First, solve our customers' most complex AI challenges. Our rebranding to Penguin Solutions highlights our focus on AI and HPC, aligning us with the broader AI deployment trends, with 80% of enterprises expected to implement AI by 2026. Second, partner for growth and global expansion. We anticipate our planned partnership with SK Telecom will accelerate our growth and global reach, particularly in AI data centers and edge computing solutions. Third, expand our software and services offering. We will continue to focus on moving up the IT stack, investing in AI software solutions and services that help businesses better manage and orchestrate their AI infrastructure, enabling seamless workflows across hybrid and multi-cloud environments. With this focus, Penguin Solutions offers customers a more integrated and higher value AI infrastructure. And finally, number four, innovate relentlessly. Our ongoing commitment to innovation continues to drive our differentiation in the market. By solving for intense compute requirements and expanding our expertise in high capacity, high performance memory, we are continuing to enhance our value proposition. We're investing in new technologies such as low power compute architectures, high performing memory solutions, and advanced cooling products, helping us to stay at the forefront of industry trends. As processing and networking technologies evolve, we believe we are well positioned to integrate these innovations and help our customers harness the full potential of their IT investments. And with that, I will now turn the call over to Nate for the financial review.