Good afternoon. Thank you for attending today's Penguin Solutions first quarter fiscal 2025 earnings call. My name is Tamia, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an 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 pass the conference over to your host, Suzanne Schmidt, Investor Relations. 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' first quarter fiscal 2025 results. On the call today are Mark Adams, Chief Executive Officer, and Nate Olmsted, 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, business and strategy, and potential collaborations forward-looking statements are based on current beliefs and assumptions 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 accept 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 turn the call over to Mark Adams, CEO.

Thank you, Suzanne. Welcome, everyone, to our Q1 Fiscal 2025 earnings call. We hope you had a nice holiday season. For the first quarter of Fiscal 2025, We delivered strong financial results across a number of key metrics. Our revenue was $341 million, an increase of 24% compared to the same period last year. Non-GAAP earnings per share was $0.49, a 108% increase year-over-year. We achieved non-GAAP operating income of $41 million, up 53% from the prior year, and we improved non-GAAP operating income margin to 12%, up 2.3 percentage points year-over-year. These results are a testament to our strategic focus and operating discipline. We believe that Penguin Solutions is well positioned to capitalize on growing demand for high performance, high availability solutions that companies need to deploy AI infrastructure on premise, at the edge, and in the cloud. Penguin Solutions leverages its deep experience and its differentiated portfolio of hardware, software, and managed services to help its customers solve the complexity of deploying We work with our customers to design, build, deploy, and manage these environments with a focus on time to revenue, reliability, and the highest level of performance and availability. Our products and services are primarily sold to hyperscalers, cloud service providers, and large Fortune 500 corporations in the financial, energy, education, federal, consumer, and manufacturing sectors. At the core of Penland's success is over 25 years of experience in deploying large-scale complex data center clusters originating from our earlier days in high-performance computing, or HPC, which is the foundation of our migration to becoming a leader in AI infrastructure solutions. Whether a customer is looking for a ready-to-use solution like our Origin AI offering or a custom leading-edge offering, we are able to deliver the right solution to meet their needs. Before discussing our individual segments, I want to remind you that we've transitioned from providing a quarterly financial outlook to providing a full-year outlook. As mentioned in previous calls, we believe that a full-year outlook affords a broader perspective of our business, especially in relation to AI infrastructure where the timing of deployments can be unpredictable and that it aligns well with our emphasis on achieving long-term objectives. We also understand that our investors, customers, and partners appreciate commentary on our progress each quarter, which is what we hope to offer you today. With all that in mind, we are affirming our outlook for fiscal 2025, which Nate will discuss in more detail later. Let me now provide more detail on our business segments. Advanced computing, formerly called Intelligent Platform Solutions, or IPS, consists of our Penguin Computing, Stratus, and Penguin Embedded Brands. Advanced computing revenue for the first quarter of fiscal 2025 was up 49% year-over-year, representing 52% of Penguin Solutions revenue. We continue to make progress in expanding our customer engagements in end markets such as hyperscalers, cloud service providers, financial, energy, federal integrators, media and entertainment, and education. We feel that the AI markets in 2025 will begin shifting from early AI pilot systems to full scale AI production environments and expect Penguin's ability to successfully manage large-scale deployments to be in demand. We entered Q2 with a strong backlog, highlighted by large bookings at both an established hyperscaler and a federal systems integrator. Taking these and other developments into account, we expect advanced computing to grow sequentially in our second quarter. Integrated memory, formerly called Memory Solution, consists of our smart modular brand. In the first quarter of fiscal 2025, integrated memory revenue was up 13% compared to the same period last year, representing 28% of total Penguin Solutions revenue. Memory is a critical contributor to the AI ecosystem. Large enterprises have an insatiable need for high performance and higher reliability to support complex workloads. In addition to our customers in networking, telecom, compute servers, and defense, we are seeing growth in new segments such as hyperscalers, cloud service providers, and even large enterprises interested in CXL and higher-speed memory solutions. Our memory backlog heading into Q2 reflects improving demand as our core customers have continued to work through their higher levels of inventory accumulated in the first half of 2024. Optimized LED, formerly called LED Solutions, is marketed under the Cree LED brand. In the first quarter of fiscal 2025, optimized LED revenue declined by 4% as compared with a year-ago quarter, while gross and operating margins improved. approved. We have mentioned on prior calls that the LED industry remains in an oversupply capacity condition. As such, Cree's LED's capital light outsource model continues to be a competitive advantage and was a contributing factor to improving profitability in Q1. In December, we announced that we entered into a patent license agreement with Daktronics, a UA-spaced leader in large-scale LED displays. Our strong intellectual property, coupled with a cost-effective operating model, has contributed to some exciting new customer design win activity with larger LED lighting customers. Our strategic priorities this year include innovating relentlessly on differentiated technology increasing our software and services offerings and expanding our go-to-market partnerships let me briefly discuss our progress in each of these areas we continue to invest in research and development to further differentiate our products and services in compute memory and software for customers who are looking to accelerate ai deployment we are expanding our Origin AI offerings to include Dell servers, along with Penguin Software and Services, which can help expand our customer TAM for future engagements. In addition, we continue to work with leading chip providers such as NVIDIA, AMD, Intel, and early-stage chip technology companies to ensure qualification of the latest technologies as part of our data center solutions portfolio. For customers interested in cutting-edge memory, our CXL add-in card products offer greater density with higher bandwidth and performance. Recent customer qualifications and sample orders of CXL from OEMs and AI computing companies make us optimistic about its appeal to new types of customers. We have also been making progress towards release of an optical memory appliance, or OMA. We expect final specifications of the OMA in Q1 of calendar 2025, which will enable sampling by large hyperscalers, OEMs, and cloud service providers. These solutions will allow us to expand beyond our core specialty memory offerings in addressing the AI market's desire for faster and more reliable memory products. We have also intensified our focus on software. The Penguin software platform was developed for advanced cluster management environments for the more traditional IT systems administrator type user. Our next plan release is expected to introduce an improved user interface that is designed to simplify deployment and management for end users, an advancement that we expect to accelerate adoption, particularly as an enhancement to our ready-to-use Origin AI solution. We have also initiated work on multi-tenant capabilities, a critical feature designed to allow a single AI platform or service to be shared by multiple users or organizations while maintaining data isolation and security. Our software strategy promotes an open ecosystem through its compatibility with multiple chip vendors like AMD, NVIDIA, Intel, as well as with players of the software stack like Kubernetes and VM players, multiple schedulers like RunAI and ClearML. Our technology agnostic approach, whether in hardware or software, allows us to serve a broader set of use cases and offer our customers the most flexibility in defining their overall architecture. In addition to our investment into differentiated hardware, software, and services, we are expanding our strategic partnerships to enhance our offerings and increase our go-to-market capabilities. In mid-December, we announced the close of our investment from SK Telecom into Penguin Solutions. Beyond the financial benefit to our balance sheet, we are excited about the opportunities that we expect to come from collaborating with SK. Whether it is in advanced computing with next generation GPU offerings, or high performance memory solutions, or tapping into other technology areas in energy, cooling, or networking, all technologies that are part of the SK portfolio, we think there's an exciting potential to work together to differentiate our offerings in deploying premier AI infrastructure solutions. In November, we announced an agreement with Dell to deliver complete AI solutions combining Dell servers, storage, and networking with Penguin's management software platform and managed services. We expect Dell's distinguished go-to-market platform coupled with Penguin's ability to manage the most complex AI deployments to help us scale our customer reach across new industries and geographies. We will continue to evaluate new partnerships where we can accelerate new product time to market or potentially grow more quickly in helping large enterprises implement large AI infrastructure at scale. Given our experience with large-scale AI implementations at hyperscalers, energy companies, federal systems integrators, educational institutions, and cloud service providers, we feel now is the time to broaden our go-to-market efforts as AI moves from an early prototyping stage market to full-scale deployments of live production systems. As we have discussed in the past, our revenues and gross margins can fluctuate due to the nature of our business, where customer deployments and acceptances vary from period to period, as can the mix of hardware and software and services having said that given demand signals from our customers and current booking numbers we are optimistic about the growth profile of our business heading into view too we believe we offer compelling value proposition as a trusted advisor providing technology agnostic hardware software and managed service solutions that focused on solving the complexity of AI infrastructure. Let me now hand the call over to Nate for a more detailed look at our Q1 financial performance and commentary regarding our business for the remainder of fiscal 2025. Nate?

Thanks, Mark. I will focus my remarks on our non-GAAP results, which are reconciled to GAAP in our earnings release tables and in the investor relations materials on our website. it. Now let me turn to our first quarter results. Total Penguin Solutions revenues were $341 million, up 24% year-over-year, and up sequentially for the fourth consecutive quarter. Non-GAAP gross margin came in at 30.8%, which was down year-over-year due to higher hardware revenue mix. Non-GAAP operating margin was 12%, up 2.3 percentage points versus last year, and non-GAAP diluted earnings per share were 49 cents for the first quarter, more than double Q1 last year. In the first quarter of 2025, our overall services revenue totaled $71 million, or 21% of total company revenue, up 5% versus Q1 last year. Product revenues were $270 million in the first quarter, up 31% year over year. First quarter revenue by business segment was as follows advanced computing 177 million dollars or 52 percent of our total revenue and up 49 percent year-over-year integrated memory 97 million dollars which was 28 percent of our total revenue and up 13 percent year-over-year and optimized led 67 million dollars or 20 percent of our total revenue and down four percent year-over-year non-gap gross margin for penguin solutions in the first quarter was 30.8%, down 2.5 percentage points year over year, driven primarily by a higher mix of advanced computing hardware revenue compared to last year, partially offset by improved margins in LED. Gross margin was roughly flat sequentially, with lower advanced computing hardware margins offset by higher margins in both memory and LED. Non-GAAP operating expenses for the first quarter were $64 million, down 1% year over year and up 3% sequentially. Operating expenses as a percentage of sales were down both year over year and sequentially, driven by higher revenue volumes and disciplined expense management. Non-GAAP operating income was $41 million, up 53% year over year and up 21% versus last quarter. The combination of top-line growth and operating expense efficiencies translated into a 2.3 percentage point increase in operating margin versus Q1 last year. Non-GAAP diluted earnings per share for the first quarter of 2025 were 49 cents, up 108 percent versus the prior year and up 33 percent versus the prior quarter. The justitive adept for the first quarter of 2025 was 45 million dollars, up 30 percent year-over-year. Turning to balance sheet highlights, for working capital, our net accounts receivables totaled $276 million compared to $171 million a year ago, with the increase driven by higher sales volumes. A sales outstanding came in at 45 days, up from 41 days in the prior year quarter due to variations in sales linearity within the quarters. Inventory totaled $247 million at the end of the first quarter, up from $208 million at the end of Q1 a year ago due to higher sales volumes. Days of inventory were 49 days, down from 63 days a year ago, primarily due to the timing of receipts and shipments. Counts payable were $244 million at the end of the quarter, up from $182 million a year ago, due primarily to higher sales volumes. Days payable outstanding was 49 days compared to 55 days last year due to the timing of purchases and payments our cash conversion cycle was 46 days an improvement of three days compared to last year due to faster inventory turns consistent with past practice days sales outstanding days payables outstanding and inventory days are calculated on a gross sales and gross cost of goods sold basis which were 554 million and 456 million dollars respectively in the first quarter As a reminder, the difference between growth and net revenue is related to our memory businesses' logistics services, which is accounted for on an agent basis, meaning that we only recognize the net profit on logistics services as revenue. Cash and cash equivalents and short-term investments totaled $394 million at the end of the first quarter, down $159 million from Q1 last year and up slightly sequentially. The year-over-year fluctuation was due primarily to debt repayments for our term loan in fiscal year 2024. First quarter cash flows generated from operating activities totaled $14 million compared to $60 million generated by operating activities in the prior year quarter. The decrease was due primarily to increased investment in working capital to support business growth. We spent approximately $8 million to repurchase 467,000 shares in the first quarter under our share buyback program. Since our initial share repurchase authorization in April 2022, we have used a total of $80 million to repurchase 4.6 million shares through Q1 of fiscal year 2025. We did not make any debt prepayments in this past quarter, and the principal on our term loan remains at $300 million as of the end of the quarter. Our net debt at the end of Q1 was $276 million. For those of you tracking capital expenditures and depreciation, capital expenditures were $2 million in the first quarter and depreciation was $5 million. And now turning to our outlook. Given our strong Q1 performance, we are pleased to confirm our outlook for the year, which calls for revenue growth of 15% year-over-year, plus or minus 5 percentage points. By segment, our full-year revenue outlook reflects the following. For advanced computing, we expect full-year revenues to grow between 10% and 25% year-over-year. Based on a large customer order that partially shipped in Q1 and will finish shipping in Q2, we expect advanced computing growth to be higher in half-1 than in half-2. For memory, we expect revenues to grow between 10% and 20% year-over-year. And for LED, we expect revenues to be flat to up 10% year-over-year. Our non-GAAP gross margin for the full year is still expected to be 32% plus or minus one percentage point. We continue to expect our non-GAAP operating expenses for the full year will be $275 million, plus or minus $15 million. And our non-GAAP full-year diluted earnings per share, which includes the impact of the SK Telecom transaction, is expected to be approximately $1.50 plus or minus $0.20, which is unchanged from the revised outlook we provided on December 16 after incorporating the impact from the SK Telecom transaction. And finally, our non-GAAP diluted share count is still expected to be approximately 56.3 million shares for the year. As a reminder, we are utilizing a long-term projected non-GAAP tax rate of 28%, which reflects currently available information. While we expect to use this normalized non-GAAP tax rate through 2025, the long-term non-GAAP tax rate may be subject to changes for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix, or changes to our strategy or business operations. While we are providing a full-year outlook, I also want to provide some directional color on near-term expectations. We are pleased with our results in Q1, which were driven by strong hardware revenue growth in advanced computing and a return to growth in memory. We expect compute hardware and memory revenue to grow again in Q2. Remember that compute hardware revenue is recognized at the time of sale and comes at a lower margin than our compute services revenue, which is recognized over time. Our outlook for fiscal year 2025 is based on the current environment, which contemplates, among other things, the global macroeconomic headwinds and ongoing supply chain constraints, especially as it relates to our advanced computing business. This includes extended lead times for certain components that are incorporated into our overall solutions impacting how quickly we can ramp existing and new customer projects. We believe we are continuing to manage our operations in a prudent manner as we navigate a challenging environment while also investing in our long-term growth.

Please refer to the non-GAAP financial information section and the reconciliation of GAAP to non-GAAP measures tables in our earnings release and the investor materials on our website for further details with that operator we are ready for q a absolutely we will now begin the question and answer session if you would like to ask a question please press star followed by one on your telephone keypad if for any reason at all you would like to remove that question please press star followed by two again to ask a question please press star one as a reminder if you're using a speakerphone please remember to pick up your handset before asking your question The first comes from Michael Ng with Goldman Sachs. You may proceed.

Hey, good afternoon. Thank you very much for the questions. I just have two. First, on the Dell partnership, I was just wondering if you could expand a little bit around your comments about how that partnership could help you scale across new industries and geographies. You know, what about the Dell partnerships kind of open up new opportunities for you and then I just have a quick follow up.

Sure. Well, if you think about the value-add deployment of these systems utilizing and working together.

Thank you, Mark. And just for the second one, I was just wondering if you could comment a little bit more around the timing of advanced computing revenue for the year. you know was that large customer shipment this quarter and next more on the hyperscale or the CSP or enterprise side and you commented about the strong backlog going into the second quarter you know has the has the backlog been growing maybe you could just talk about some of the you know AI advanced computing demand trends you're seeing thank you Sure.

In the first quarter, a deployment at a deployment is physical. I mean, the ability to install, deploy, and get customer acceptance in the quarter in Q2 have expanded. Pipeline continues, and we're gaining more and more that we in our last call.

Great. Thank you for all the thoughts, Mark. Very helpful.

Thanks, Mike.

Thank you. The next question comes from Brian Chin with Stiefel. You may proceed.

Hi, good afternoon. Thanks for letting us ask a few questions. Maybe just building off that last part of the discussion, unofficially, it sounds like you expect fiscal second quarter revenue to be up a little bit. Yet even flatlining the fiscal 1Q revenue across the year, you'd be tracking above that 15% revenue growth midpoint in the fiscal 25.

So I guess given this and including your your backlog commentary is there some some conservatism now to the fiscal 25 revenue outlook hey brian it's nate you know i think what i would refer you back to is just comments we've made historically about the lumpiness in our business and as mark was referring we had you know a large customer uh order from hyperscaler in q1 and q2 which sort of indicates that those are not repeating in the second half so good news is the second half you know we do see some some good new opportunities um but we do not have the benefit of that large customer order that shifts in q1 and q2 really what the emphasis there is um but the the annual guide throughout the obviously too so there's what we've got tracking really well uh for q2 and as mark said we're building a good solid uh pipeline for the second half and hopefully in the fiscal year 26.

But that's helpful. And in terms of the Dell relationship, how many quarters or when do you think that could really start to hit its stride in terms of that channel and the ability to, you know, piggyback off of, you know, that kind of standardized Dell infrastructure, but really participate in what could be a higher margin business for you and kind of flow through the P&L better? yeah i don't think the sales motions differ from what we've articulated in the past which is kind of 12 to 18 months um and you know clearly we're not just starting here in january we've had some uh initially you know the earliest you might see something is towards the end of our fiscal year early fiscal year 26 but some really good uh momentum going into the announcement of the agreement maybe the last one for me and this this might also kind of orient towards maybe maybe at tail end, this current fiscal year, maybe more fiscal 26. But in terms of the closing of the SK Telecom investment, you know, CS booth is any indication. SK Telecom certainly seems to have a clear, maybe ambitious vision of the role they can play in developing the AI ecosystem. It sounds like they plan to build several large data centers in Korea from 2025 onward. Can you describe the role Penguin might play in these projects and what other revenue opportunities and synergies you expect from this relationship? Again, perhaps starting maybe later this year.

Yeah, and we've got to caution it that that totally closed in mid-December. With SK, for us now is that the elements of an AI infrastructure, and whether that be high bandwidth memory, their own version of a GPU for some of these customers and for their internal and building out cloud infrastructure so and um both of the transaction is with the nature of the agreement yeah much more to come on that i appreciate the color thanks thank you the following question comes from nick doyle with needham you may proceed hey guys thanks

for letting me ask a couple questions um could you give more details on the inventory increase it jumped about 100 million quarter per quarter so is that directly related to the strong bookings and backlog commentary in the advanced compute business and is that another data point we can lean on for confidence in the fiscal 25 outlook thanks yeah it is related to especially to that large customer order that i mentioned also keep in mind you know the timing of purchases can differ from quarter to quarter and the timing of shipments can differ from quarter to quarter so it's not unusual to see fluctuations like that but this uh the the customer order we've been

talking about is also a major factor that you see there but you know we expect that to shift through in in q2 so is there a you know a level of uh inventory dollars or days that we should be looking for maybe next quarter or towards the end of the year you know it's kind of hard to predict because the timing of when these orders come in when the inventory build happens you know those things those sorts of things can be difficult to predict you know we run a pretty tight ship i would say on inventory across all three of the businesses cash conversion cycle improved year over year so it's important i think to look at all the metrics also where possible we we work

with customers to get prepayment on inventory as well to manage cash impact okay thanks um for the led the operating margin increased again quarter over quarter you talked about how your capital light strategy you know helps your margins so can you talk about how the dactronics deal impacts gross margins going forward?

First of all, we've talked a little bit about just the broader LED market environment has not been super healthy. There's a massive oversupply and you've got some large companies really not able to compete effectively. Throughout this, I think I've also mentioned that subsidized by local indirect and long-term investment, we've made increase made in LEDs and in the innovation around market beyond notice that we're not going to allow

people to impringe and so thank you as a quick reminder if you'd like to ask a question please press star one the next question comes from alec valera with loop capital you may proceed hey guys

thank you for taking my questions this is alec on for ananda um my first question is can you do you guys provide any color as to what what kind of future partnerships you guys can potentially do with hyperscalers or telcos?

Yeah, I think we've talked about workload environment.

Got it. Thank you for that. Just a quick follow-up on the ESCII telecom transaction. Can you guys provide any color as to what use of proceeds you guys find most attractive?

Well, I think it's got a lot among the larger and the long-term.

Thank you, guys.

Thank you.

The next question comes from Rustam Conga with citizens jmp you may proceed good afternoon mark and nate this is russ congrats on the strong start to fiscal 25 especially the notable growth in advanced computing in the absence of a quarterly guide i'm curious on whether you can comment on if the quarter outperformed or was more in line with your own expectations relative to 90 days ago um i just say we're pretty pleased with the quarter um i think uh you know we get we get challenged sometimes when customer and in the

comments from name myself term selling cycle from time to time is like months or so plus or minus in q1 was something that was part of that guide so as mark said sometimes the timing can be a

challenge to predict because these are really large orders and they're complex and the timing of shipments and revenue recognition can be hard to nail down but um good solid execution in q1 consistent with the way we were thinking about it for the full year, and moving on to Q2.

That's great. Appreciate the comments from you both. Just one last one from me. Coming away from the SC24 event, which I know Penguin had a notable presence at, to what extent are you delivering or realizing ROI in the quarter and in fiscal 25 from that event in terms of evangelizing Penguin's solutions and services in the form of either pipe build, lead gen, or new customer pilots? Thanks.

I think the last piece is really helpful as you clarified the question. I mean, in terms of actually a financial return on the event in the quarter, that's probably not the way we look at it. But to your point, we had a great presence and the traffic was fantastic at the event. I think people are starting to understand the investment that we made and the differentiated solution model, which is really a combination of spending opportunities that are just really software and managed services as part of a So we think our value propositions, you know, in the back half of the year, bring to the table that we know exist in this complexity of, they know they have a trusted location like a...

Makes total sense. Thank you both.

Thank you. This is your final reminder that if you'd like to ask a question, please press star one. Our next question comes from Madison DePola with Rosenblatt Securities. You may proceed.

Hi, I just have one question about Daktronics. Is your licensing agreement exclusive, or can you license the technology to other companies?

Oh, sorry. I should have made that more clear in my earlier comments. That is just a transaction between Cree.

Okay, great.

Thank you. There are currently no other questions queued at this time. I will now pass it back over to CEO Mark Adams for closing remarks.

Well, thank you all again for joining us on today's call. This quarter has marked a strong beginning to a year where we continue to focus on capturing opportunities in AI infrastructure. Advanced memory solutions and high-performance computing have positioned us to address the rapidly growing demand for AI.

This concludes today's conference call. Thank you for your participation. You may now disconnect your line.