Q1 2025 Penguin Solutions Inc Earnings Call
Thank you for joining 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 like to pass the conference over to your host, Suzanne Schmidt, Investor Relations.
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 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.
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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.
Speaker Change: And with that let me turn the call over to Mark Adams CEO Mark.
Mark Adams: Thank you Suzanne.
Mark Adams: Welcome everyone to our Q1 fiscal 2025 earnings call we.
Mark Adams: We hope you had a nice holiday season.
Mark Adams: For the first quarter of fiscal 2025.
Mark Adams: We delivered strong financial results across a number of key metrics.
Mark Adams: Our revenue was $341 million an increase of 24%.
Third to the same period last year.
Mark Adams: non-GAAP earnings per share was <unk> 49.
Mark Adams: A 108% increase year over year.
Mark Adams: 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 two three percentage points year over year.
Mark Adams: These results are testament to our strategic focus and operating discipline.
Mark Adams: We believe the Penguins solutions.
Mark Adams: Well positioned to capitalize on growing demand for high performance high availability solutions that companies need to deploy AI infrastructure on premise.
Mark Adams: And in the cloud.
Mark Adams: Hanging solutions Leverages, <unk> deep experience and its differentiated portfolio of hardware software and managed services.
Mark Adams: To help us customers solve the complexity of deploying AI.
Mark Adams: We work with our customers to design build deploy and manage these environments with a focus on time to revenue.
Mark Adams: Liability and the highest level of performance and availability.
Mark Adams: Our products and services are primarily sold to Hyperscale.
Mark Adams: Service providers and large fortune 500 corporations, and the financial energy education, federal consumer and manufacturing sectors.
Mark Adams: At the core apparel success is over 25 years of experience and.
Mark Adams: And deploying large scale complex data center clusters originating from our earlier days and high performance computing, our HBC, which is the foundation of our migration to becoming a leader in AI infrastructure solutions.
Mark Adams: Whether a customer is looking for a ready to use solution like our origin AI offering.
Mark Adams: Or a custom leading edge offering we were able to deliver the right solutions to meet their needs.
Mark Adams: Before discussing our individual segments.
Mark Adams: I want to remind you that we've transitioned from providing quarterly financial outlook to providing a full year outlook.
Mark Adams: As mentioned in previous calls.
Mark Adams: We believe that our full year outlook affords a broader perspective of our business, especially in relation to AI infrastructure, where the timing of deployments can be unpredictable.
Mark Adams: And that aligns well with our emphasis on achieving long term objectives.
Mark Adams: We also understand that our investors customers and partners appreciate the commentary on our progress each quarter.
Which is what we hope to offer you today.
Mark Adams: With all that in mind, we are affirming our outlook for fiscal 2025, which Nathan will discuss in more detail later.
Speaker Change: Let me now provide more detail on our business segments.
Mark Adams: Advanced computing.
Mark Adams: Formerly called intelligent platform solutions or Ips consists of our Penguin computing Stratus and Penguin embedded brands.
Mark Adams: Advanced computing revenue for the first quarter of fiscal 2025 was up 49% year over year.
Mark Adams: Representing 52% of Penguin solutions revenue.
Mark Adams: We continue to make progress in expanding our customer engagements and end markets such as Hyperscale.
Mark Adams: Cloud service providers financial energy Federal integrators media and entertainment and education.
Mark Adams: We feel that the AI markets in 2025, we will begin shifting from early AI pilot systems.
Mark Adams: The full scale AI production environments.
Mark Adams: And expect Penguins ability to successfully manage large scale deployments to be in demand.
Mark Adams: We entered Q2 with a strong backlog.
Mark Adams: By large bookings at both in established hyper scaler and a federal systems integrator.
Mark Adams: Taking these and other developments in new account.
Mark Adams: We expect advanced computing to grow sequentially in our second quarter.
Mark Adams: Integrated memory, formerly called memory solution consist of our smart modular brand.
Mark Adams: In the first quarter of fiscal 2025.
Mark Adams: Integrated memory revenue was up 13% compared to the same period last year.
Mark Adams: Representing 28% of total payment solutions revenue.
Memory is a critical contributor to the AI ecosystem.
Mark Adams: Large enterprises.
Abbott Associable need for high performance and higher reliability memory to support complex workflows. In addition to our customers in networking telecom compute servers and defense, we're seeing growth in new segments, such as Hyperscale.
Cloud service providers, and even large enterprises interested in CSL and higher speed memory solutions.
Mark Adams: 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.
Mark Adams: Optimize led formerly called led solutions.
Mark Adams: Is marketed under the Cree led brand.
Mark Adams: In the first quarter of fiscal 2025 Optum.
Mark Adams: Optimize led <unk>.
Mark Adams: Revenue declined by 4% as compared with the year ago quarter.
Mark Adams: While gross and operating margins improved.
Mark Adams: We have mentioned on prior calls that the led industry remains in an oversupply of capacity condition.
As such increase.
Kris Leds capital light outsource model continues to be a competitive advantage and was a contributing factor to improving profitability in Q1.
Mark Adams: In December.
Mark Adams: We announced that we entered into a patent license agreement with Tektronix are U S based leader in large scale led displays.
Mark Adams: Our strong intellectual property, coupled with our cost effective operating model.
Mark Adams: Has contributed to some exciting new customer design win activity with larger led lighting customers.
Mark Adams: Our strategic priorities. This year include innovating relentlessly on differentiated technology.
Mark Adams: Increasing our software and services offerings and.
Mark Adams: And expanding our go to market partnerships.
Mark Adams: Let me briefly discuss our progress in each of these areas.
Mark Adams: We continue to invest in research and development to further differentiate our products and services and compute memory and software.
Mark Adams: For customers, who are looking to accelerate AI deployment.
Mark Adams: We are expanding our origin AI offerings to include Dell servers, along with Penguin software and services.
Mark Adams: Which can help expand our customer Tam for future engagements.
Mark Adams: In addition, we continue to work with leading supervisors, such as Nvidia and Intel.
Mark Adams: And early stage chip technology companies to ensure a qualification of our latest technologies as part of our datacenter solutions portfolio.
Mark Adams: For customers interested in cutting edge memory.
Mark Adams: Our CSL added and card products offered greater density with higher bandwidth and performance.
Mark Adams: Recent customer gratification and sample orders of CSL from Oems and AI computing companies make us optimistic about its appeal to new types of customers.
Mark Adams: We have also been making progress towards release of an optical memory appliance or OSA.
Mark Adams: We expect final specifications of the Ooma in Q1 of calendar 2025.
Mark Adams: Which will enable sampling by large hyperscale, there's Oems and cloud service providers.
Mark Adams: These solutions will allow us to expand beyond our core specialty memory offerings and addressing the AI market desire for faster and more reliable memory products.
Mark Adams: We have also intensified our focus on software.
Mark Adams: Penguin software platform was developed for advanced cluster management environments for the more traditional systems administrator type user.
Mark Adams: Our next planned release is expected to introduce an improved user interface that is designed to simplify deployment and management for end users and advancement that we expect to accelerate adoption, particularly as an enhancement to our ready to use origin AI solution.
Mark Adams: We have also initiated work on multi tenant capabilities are critical feature designed to allow a single AI platform our service to be shared by multiple users where organizations, while maintaining data isolation and security.
Mark Adams: Our software strategy promotes an open ecosystem through its compatibility with multiple chip vendors like AMD Nvidia Intel.
Mark Adams: As well as with players up the software stack like Cooper Daddies, and VM players multiple schedules like run AI and clear ml.
Mark Adams: Our technology agnostic approach, whether in hardware or software.
Mark Adams: How's us to serve a broader set of use cases and offer our customers. The most flexibility in defining their overall architecture.
Mark Adams: In addition to our investment into differentiated hardware software and services.
Mark Adams: We are expanding our strategic partnerships to enhance our offerings and increase our go to market capabilities.
Mark Adams: In mid December.
Mark Adams: We announced the close of our investment from SK Telecom independent solutions.
Mark Adams: Beyond the financial benefit to our balance sheet.
Mark Adams: We are excited about the opportunities that we expect to come from collaborating with SK.
Mark Adams: Whether it is in advanced computing with next generation GPU offerings.
Mark Adams: High performance memory solutions, we're tapping into other technology areas and energy cooling a networking all technologies that are part of the SK portfolio.
Mark Adams: We think there is an exciting potential to work together to differentiate our offerings and deploying premier AI infrastructure solutions.
Mark Adams: In November.
Mark Adams: We announced an agreement with Dell.
Mark Adams: To deliver complete AI solutions, combining Dell servers storage and networking with Penguin management software platform and managed services.
Mark Adams: We expect Dell has distinguished go to market platform, coupled with penguins 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.
Mark Adams: Given our experience with large scale AI implementations at Hyperscale.
Mark Adams: Energy companies.
Mark Adams: Fuel systems integrators educational institutions and cloud service providers.
Mark Adams: 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 deployment of live production systems.
Mark Adams: As we have discussed in the past.
Mark Adams: Our revenues and gross margins can fluctuate due to the nature of our business, where our customer deployments and acceptances vary from period to period as can the mix of hardware and software and services.
Mark Adams: Having said that.
Mark Adams: Given demand signals from our customers and current booking numbers, we are optimistic about the growth profile of our business heading into Q2.
Mark Adams: We believe we offer compelling value proposition as a trusted advisor providing technology agnostic hardware software and managed service solutions that focus on solving the complexity of AI infrastructure.
Mark Adams: 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.
Mark Adams: Okay.
Nate: Thanks, Mark I'll 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.
Mark Adams: Now, let me turn to our first quarter results totaled.
Mark Adams: Total Penguin solutions revenues were $341 million up 24% year over year and up sequentially for the fourth consecutive quarter.
Mark Adams: non-GAAP gross margin came in at 38%, which was down year over year due to higher hardware revenue mix.
Mark Adams: non-GAAP operating margin was 12% up two three percentage points versus last year and non-GAAP diluted earnings per share were <unk> 49 for the first quarter more than double Q1 last year.
Mark Adams: 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.
Mark Adams: Product revenues were $270 million in the first quarter up 31% year over year.
Mark Adams: First quarter revenue by business segment was as follows advanced computing $177 million or 52% of our total revenue and up 49% year over year.
Mark Adams: Integrated memory $97 million, which was 28% of our total revenue and up 13% year over year.
And optimize led $67 million or 20% of our total revenue and down 4% year over year.
Mark Adams: non-GAAP gross margin for Penguin solutions in the first quarter was 38% down two five 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.
Mark Adams: Gross margin was roughly flat sequentially with lower advanced computing hardware margins offset by higher margins in both memory and LCD.
non-GAAP operating expenses for the first quarter were $64 million down 1% year over year and up 3% sequentially.
Mark Adams: Operating expenses as a percentage of sales were down both year over year and sequentially driven by higher revenue volumes and disciplined expense management.
Mark Adams: non-GAAP operating income was $41 million up 53% year over year and up 21% versus last quarter.
Mark Adams: The combination of top line growth and operating expense efficiencies translated into a two three percentage point increase in operating margin versus Q1 last year.
Mark Adams: non-GAAP diluted earnings per share for the first quarter of 2025 were <unk> 49.
Mark Adams: Up 108% versus the prior year and up 33% versus the prior quarter.
Mark Adams: Adjusted EBITDA for the first quarter of 2025 was $45 million up 30% year over year.
Mark Adams: Turning to balance sheet highlights for working capital our net accounts receivables totaled $276 million.
Mark Adams: Compared to $171 million, a year ago with the increase driven by higher sales volumes.
Ace 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.
Mark Adams: 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.
Mark Adams: Days of inventory were 49 days down from 63 days, a year ago, primarily due to the timing of receipts and shipments.
Mark Adams: Accounts payable were $244 million at the end of the quarter up from $182 million a year ago, due primarily to higher sales volumes.
Mark Adams: Days payable outstanding was 49 days compared to 55 days last year due to the timing of purchases and payments.
Mark Adams: Our cash conversion cycle was 46 days, an improvement of three days compared to last year due to faster inventory turns.
Mark Adams: Consistent with past practice days sales outstanding as 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 respectively in the first quarter.
Mark Adams: 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.
Mark Adams: The year over year fluctuation was due primarily to debt repayments for our term loan in fiscal year 2024.
Mark Adams: First quarter cash flows generated from operating activities totaled $14 million compared to $60 million generated by operating activities in the prior year quarter.
Mark Adams: The decrease was due primarily to increased investment in working capital to support business growth.
Mark Adams: We spent approximately $8 million to repurchase 467000 shares in the first quarter under our share buyback program.
Mark Adams: Since our initial share repurchase authorization in April 2022.
Mark Adams: We have used a total of $80 million to repurchase $4 6 million shares through Q1 of fiscal year 2025.
Mark Adams: 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.
Mark Adams: Our net debt at the end of Q1 was $276 million.
Mark Adams: For those of you tracking capital expenditures and depreciation capital expenditures were $2 million in the first quarter and depreciation was $5 million.
Mark Adams: 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 five percentage points.
Mark Adams: Bye.
Mark Adams: Our full year revenue outlook reflects the following.
Mark Adams: For advanced computing, we expect full year revenues to grow between 10 and 25% year over year.
Mark Adams: Just on a large customer order that partially shipped in Q1, and we will finished shipping in Q2, we expect advanced computing growth to be higher in half one and half two.
Mark Adams: For memory, we expect revenues to grow between 10% and 20% year over year.
Mark Adams: And for <unk>, we expect revenues to be flat to up 10% year over year.
Mark Adams: Our non-GAAP gross margin for the full year is still expected to be 32% plus or minus one percentage point.
Mark Adams: We continue to expect our non-GAAP operating expenses for the full year will be $275 million plus or minus $15 million.
Mark Adams: 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 <unk> 20.
Mark Adams: Which is unchanged from the revised outlook, we provided on December 16th after incorporating the impact from the SK Telecom transaction.
Mark Adams: And finally, our non-GAAP diluted share count is still expected to be approximately $56 3 million shares for the year.
Mark Adams: As a reminder, we are utilizing in our long term projected non-GAAP tax rate of 28%, which reflects currently available information.
Mark Adams: 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.
Mark Adams: Our changes to our strategy or business operations.
Mark Adams: While we are providing our 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.
Mark Adams: We expect compute hardware in 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.
Mark Adams: 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.
Mark Adams: 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.
Mark Adams: 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.
Mark Adams: 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.
Mark Adams: With that operator, we are ready for Q&A.
Speaker Change: Absolutely we will now begin the question and answer session.
Speaker Change: We'd 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.
Speaker Change: Mind, you if youre using a speakerphone, please remember to pick up your handset before asking your question.
Michael: The first comes from Michael <unk> with Goldman Sachs. You May proceed.
Speaker Change: Hey, good afternoon, and thank you very much for the questions I just have two.
Speaker Change: 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.
Speaker Change: What about the Dell partnership kind of open up new opportunities for you and then I just have a quick follow up thank you.
Speaker Change: Sure Michael.
Speaker Change: If you think about the value add that we're able to add on top of our.
Speaker Change: Clustered hardware.
Nvidia or other technology server.
Speaker Change: It's really in the <unk>.
Speaker Change: Design and.
Speaker Change: The deployment of these systems utilizing our.
Speaker Change: Software and our managed services.
Speaker Change: And as we think about some of the trends that we've seen in our customer conversations over the last six to 12 months.
Speaker Change: At times, they want to utilize existing hardware, they procured or they've got.
Speaker Change: Access to.
Speaker Change: More of a.
Speaker Change: Standard configuration.
And then we get called in to bring this value add.
This is a differentiator for us and companies like Dell.
Speaker Change: They have approached us in our conversations to see if there might be collaborations ongoing to market together, where we bring 25 years of history and.
Speaker Change: Advanced computing solutions.
Speaker Change: In data center environments.
Speaker Change: Know how to deploy.
Speaker Change: Utilizing software and services with there.
Speaker Change: Really incredible go to market engine on a global basis and so.
Speaker Change: When it is.
Speaker Change: And.
Speaker Change: And like that.
We're anxious to leverage.
Speaker Change: The potential.
Speaker Change: Benefits of both.
Speaker Change: In payment solutions, and working together to drive more scale in our business and to help differentiate their overall go to market offering.
Speaker Change: Great. Thank you Marc and just for the second one I was just wondering if you could comment a little bit more around the <unk>.
Speaker Change: The timing of the dance community competing revenue for the year.
Speaker Change: Was that large customer shipment this quarter and next.
Speaker Change: More on the hyperscale or the CSP or enterprise side.
Speaker Change: And you commented about the strong backlog going into the second quarter.
Speaker Change: Has that has the backlog has been growing maybe you could just talk about some of the.
Speaker Change: AI advanced computing demand trends youre seeing thank you.
Speaker Change: Sure.
Speaker Change: The.
In the first quarter.
Speaker Change: We benefited from.
Speaker Change: A deployment at a major hyperscale customer that we have.
That was one of a number of key deployments, but.
Speaker Change: That's a good opportunity for us and were.
I'm very excited to execute on that.
Speaker Change: In the second quarter.
Speaker Change: It's a combination beyond the hyper scaler.
Speaker Change: Positioned to.
Speaker Change: There is also.
Speaker Change: A large federal integrator the deployment there.
Speaker Change: So that's really kind of physical revenue recognition opportunities when I say physical I mean the <unk>.
The ability to install deploy and get customer acceptance in the quarter in Q2 those are the opportunities that we have.
Speaker Change: Taking a step back when you think about backlog and pipeline.
Speaker Change: <unk>.
Speaker Change: This is really.
Speaker Change: No.
Speaker Change: The strongest.
Speaker Change: Pipeline, we've had at <unk>.
Speaker Change: Penguin solutions.
Speaker Change: We've kind of built up our AI practice.
Speaker Change: And when I think about that I can say I have to caution that obviously.
Speaker Change: Bookings and pipeline.
Speaker Change: Can vary quarter to quarter as both Nate and I talked about in our prepared comments, but.
Speaker Change: In financial institutions and energy.
Speaker Change: Yes.
Speaker Change: As well as in the federal space.
Speaker Change: Those are three examples.
Speaker Change: The market segments, where our customer engagements have expanded.
Proposals and overall pipeline continue to expand.
Speaker Change: We're getting more and more.
Speaker Change: Confidence in our ability to compete for larger business over time, and I think when Nate.
Speaker Change: Earlier.
Speaker Change: We affirmed our.
Speaker Change: Our forecast for the year, it's a good signal that we not only see.
Speaker Change: A strong Q2, but we believe in the initial forecast that we've provided in our last call.
Yeah.
Speaker Change: Great. Thank you for all the thoughts Mark very helpful.
Mike: Thanks, Mike.
Speaker Change: Thank you. The next question comes from Brian Chin with Stifel. You May proceed.
Brian Chin: Hi, good afternoon, thanks for letting us ask a few questions.
Speaker Change: And maybe just building off that.
Speaker Change: Yes.
Speaker Change: Part of the discussion.
Speaker Change: Officially.
Speaker Change: It sounds like you expect fiscal second quarter revenue to be up a little bit.
Speaker Change: Yet even flatlining the fiscal <unk> revenue across the year you'd be tracking above that 15% revenue growth midpoint.
Speaker Change: Fiscal 'twenty fives, so I guess, given this and including your backlog commentary is there still some conservatism now to the fiscal 'twenty revenue outlook.
Nate: Hey, Brian it's Nate.
Speaker Change: I would refer you back to Rich's comments, we've made historically about the lumpiness in our business and as Mark was referring to.
Speaker Change: Large customer order.
Speaker Change: Her from hyper scaler in Q1 and in Q2.
Speaker Change: Which sort of indicates that those are not repeating in the second half. So good news in the second half we do see some good new opportunities.
We do not have the benefit of that large customer order that shipped in Q1 and Q2 really what the emphasis there is.
Speaker Change: It just goes back to them.
Speaker Change: The feeling of a really good pipeline process evolving for us, but the inability right now here in January to call the back half and so.
Speaker Change: They said.
Speaker Change: We're trying to give a little more color, even though we're doing an annual guide.
We're trying to give a little more color about the short term and as some of these transactions come to fruition, we'll be able to provide updates as we go throughout the.
Speaker Change: Next quarter call and beyond.
Speaker Change: And Brian there's a range on that revenue number obviously too so there is.
Speaker Change: Many different outcomes that are possible, we've got tracking really well for Q2 and as Mark said, we're building a good solid pipeline.
Speaker Change: Pipeline for the second half and hopefully into fiscal year 'twenty six.
Speaker Change: Hum.
Speaker Change: And.
Speaker Change: The Dell relationship.
How many quarters or when do you think that could really start to hit its stride in terms of that channel.
Speaker Change: And the ability to.
Speaker Change: Piggy back off of.
Speaker Change: Is that kind of standardized all infrastructure.
Speaker Change: Really participate in what could be a higher margin.
Speaker Change: Business for you and kind of flow through the P&L better.
Speaker Change: Yes, I don't think the sales motion is different from what we've articulated in the past, which is kind of 12 to 18 months.
Speaker Change: Clearly, we're not just starting here in January we've had some.
Speaker Change: Initial efforts.
Speaker Change: The back half of 2024 calendar.
Speaker Change: So I would think towards the earliest you might see something is towards the end of our fiscal year early fiscal year 'twenty six but.
Speaker Change: You can imagine that we've had some really good momentum.
Speaker Change: Momentum going into the announcement of the agreement.
Speaker Change: Okay, maybe last one for me.
And this might also kind of orient towards maybe tailwind just this current fiscal year, maybe more fiscal 'twenty six but.
Speaker Change: In terms of the closing of the SK telecom.
Speaker Change: Investment.
Speaker Change: <unk> booth isn't any indication SK telecom certainly seems to have a clear maybe ambitious vision of the role they can play in developing the AI ecosystem.
Speaker Change: It sounds like they plan to build several large data centers in Korea from 2025 onward.
Speaker Change: 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 fiscal year.
Speaker Change: Yes, we've got a caution that that transaction just literally closed in mid December.
Speaker Change: But.
Speaker Change: Uh huh.
Speaker Change: We've had very good preliminary discussions with SK.
Speaker Change: What I said at the time of the announcement of the transaction.
Speaker Change: I'll reinforce now is that they have a very large portfolio in terms of the elements of an AI infrastructure.
Speaker Change: <unk> solution and whether that be high bandwidth memory their own version of a GPU architecture.
All the way down to networking and power and cooling.
Speaker Change: They've invested heavily and.
Speaker Change: I think where we could be very helpful for them.
Speaker Change: A company that can bring it all together.
Speaker Change: In terms of.
Speaker Change: Integrated solution for for some of these customers and for their internal.
Speaker Change: Interest in building out cloud infrastructure so.
Speaker Change: Those are the conversations.
Speaker Change: Youll see us having with them and.
Speaker Change: As I said out of the gates prelimit since that since the close of the transaction.
Speaker Change: And even carefully beforehand, they've been very progressive in we're very pleased with the nature of the agreement.
Speaker Change: Okay.
Speaker Change: To come on that I appreciate the color. Thanks.
Speaker Change: Thank you.
Speaker Change: Okay.
Thank you. The following question comes from Nick Doyle with Needham You May proceed.
Speaker Change: Okay.
Hey, guys. Thanks for letting me ask a couple of questions.
Speaker Change: Could you give more details on the inventory increase jumped about 100 million quarter corridor.
Speaker Change: So is that directly related to the strong bookings and backlog commentary.
Speaker Change: In the advanced compute business.
Speaker Change: And is that another data point, we can lean on for confidence in the fiscal 'twenty outlook.
Speaker Change: Yes, it is related to especially to that large customer order that I mentioned.
Speaker Change: Also keep in mind, 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.
Speaker Change: <unk>.
Speaker Change: The customer order we've been talking about is also a major factor that you see there, but we expect that to ship through in Q2.
Speaker Change: So is there a level of inventory.
Speaker Change: Our days that we should be looking for maybe next quarter or two.
Speaker Change: Towards the end of the year.
Speaker Change: It's kind of hard to predict because the timing of when these orders come in when the inventory build happens those things.
Speaker Change: Those sorts of things can be difficult to predict.
Speaker Change: Had a pretty tight ship I would say on inventory across all three of the businesses.
Speaker Change: Cash conversion cycle improved year over year. So it's important I think to look at all the metrics also where possible we worked with customers get prepayment on inventory as well to manage cash impact.
Speaker Change: Okay. Thanks.
Speaker Change: For the LCD the operating margin increased again quarter over quarter, you talked about how you are capital light strategy helps your margins.
Speaker Change: So can you talk about how the DAC tronox deal impacts gross margins going forward.
Speaker Change: Sure.
Speaker Change: First of all we've talked a little bit about just the broader led market environment has not been super healthy.
Speaker Change: There is a massive oversupply and you've got some some large companies really not.
Speaker Change: Not able to compete effectively.
Speaker Change: Throughout this I think I've also mentioned that there has been.
Speaker Change: Foreign investment and capacity subsidized by local government and that's put the industry and further the recipe will.
Speaker Change: Part of that has also led to.
Speaker Change: Indirect and direct.
Speaker Change: Uh huh.
Violation.
Speaker Change: What we believe is violations of our intellectual property and so.
Speaker Change: As part of trying to protect the long investment.
Speaker Change: Long term investments we've made inquiries made in Leds.
Speaker Change: And the innovation around OLED technology.
Speaker Change: We're going to protect that and so.
But that product announcement is really a validation of our.
Speaker Change: Our ability to work with a leading.
Speaker Change: Leds systems provider.
Speaker Change: In this case, a large display device.
Speaker Change: Provider and it really validates our differentiation of our technology and.
Speaker Change: The ability to license our technology to someone like a <unk> only validates our position, but also less the market beyond notice that we're not going to allow people to infringe and so.
Speaker Change: It won't be the last.
Speaker Change: Likely won't be the last thing here on this topic, we will continue to be.
Protective of our investments both in the past and current.
Speaker Change: On innovation as Korea has been a leader in OLED.
Speaker Change: And so I.
Speaker Change: I think there's more to come over time.
Speaker Change: But we're going to defend our IP and that's important to us.
Great. Thanks, Nick.
Speaker Change: Thank you.
Speaker Change: As a quick reminder, if you'd like to ask a question. Please press star one. The next question comes from Alex <unk> with loop capital you May proceed.
Speaker Change: Hey, guys. Thank you for taking my questions just the ILEC constant number.
Speaker Change: My first question is.
Speaker Change: Can you can you guys provide any color so what what kind of future partnerships you guys can potentially do with hyper scaler or telcos.
Speaker Change: Yes, I think.
Speaker Change: It's kind of a broad question.
Speaker Change: We've talked about Hyperscale, there's in general as being less strategic for us because we perceive that we can add more value with cloud service providers and large enterprise and the enterprise could be anywhere from financial services.
Speaker Change: Two energy to education.
Speaker Change: The federal sector.
Speaker Change: I guess, what I would say is that.
Speaker Change: The value proposition, we bring to market.
Speaker Change: It's pretty unique and.
Speaker Change: As we invest in differentiated solutions across hardware software and services.
Speaker Change: I think we positioned ourselves pretty well and that's the brand the penguins developed.
Speaker Change: More as a trusted adviser technology agnostic not trying to push a hardware solution on somebody but really working.
Speaker Change: Design, the right solution for a particular.
Speaker Change: Workload environment.
Speaker Change: I think hyperscale there's.
Speaker Change: Tend to be a little bit more commodity based.
And don't require the value that we bring as much where.
Speaker Change: Enterprises looking to deploy.
Speaker Change: And the.
Speaker Change: On Prem private cloud environment.
Speaker Change: Don't necessary think.
Speaker Change: And the same terms and value the differentiation that we bring to the table.
Speaker Change: Yes.
Speaker Change: Got it thank you for that.
Speaker Change: Just a quick follow up on the SK Telecom transaction.
Speaker Change: You guys provide any color as to.
Speaker Change: What do you use the use of proceeds you guys find most attractive.
Speaker Change: Well I think it's.
Speaker Change: It's an exciting time in the industry.
Speaker Change: And you've got.
Speaker Change: <unk> got a lot of investment in the market.
Speaker Change: AI solutions broadly.
And so.
Nothing to signal or announce but.
We will continue to look at M&A as a tool to scale, our offering and thus scale the business.
Speaker Change: Of course continue to invest organically and go to market and new product development.
Obviously, we've got a very very strong balance sheet when you factor in.
Speaker Change: The money that was received in December.
Speaker Change: <unk>.
Speaker Change: By the close of SK and so.
Speaker Change: We will continue to take a look at our balance sheet.
From a capital allocation perspective.
Speaker Change: But I would say we are in a growth mindset and we feel we really have a very unique position in the market when compared to some of the larger.
Speaker Change: Corporate brands and AI.
Speaker Change: Look at the gross margin compare and where somewhere between two to three times.
Speaker Change: Gross margin versus versus these companies and so.
Speaker Change: We feel it's important now for us to be able to accelerate our business and continue to develop <unk>.
Technology and solutions allow us to further differentiate ourselves over the long term.
Great. Thanks Al Thank you guys.
Thank you.
Speaker Change: Your next question comes from Mr. Conga with citizens JMP you May proceed.
Speaker Change: Good afternoon, Mark and Nathan This is Brad congrats on the strong start to fiscal 'twenty five, especially the notable growth in advanced computing and 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 their own expectations relative to 90 days.
Speaker Change: So.
Speaker Change: I would just say we are pretty pleased with the quarter.
Speaker Change: I think on the last call.
Speaker Change: Sure.
Speaker Change: We get we get challenged sometimes win.
Speaker Change: Shipment goes to a customer and.
Speaker Change:
Speaker Change: The timing of the actual customer acceptance.
Speaker Change: Is unknown or uncertain relative to the end of the quarter day and so.
Speaker Change: I'd say the quarter was.
Speaker Change: Relatively good relatively solid.
Speaker Change: And I would say that.
Speaker Change: Our commentary today on Q2 reflects continued.
Speaker Change: Our optimism in the business.
Speaker Change: For the quarter for Q2.
Speaker Change: As you can see in the guide and then the comments from named myself.
Speaker Change: And again a lot of this is the work we've done.
Speaker Change: And over the last.
One to two years on building up relationships in the file this as a longer term selling cycle.
Speaker Change: And as we talk about from time to time is like.
Speaker Change: Whether it's 12 to 18 months or so plus or minus we're starting to see that pay off and with some really exciting opportunities.
Speaker Change: And we will see bookings and we believe our backlog will allow us to.
Speaker Change: To deliver a pretty good quarter in Q2.
Speaker Change: Yes, Brian I would add.
Speaker Change: Offset.
Speaker Change: We gave you a guide for the year.
Speaker Change: <unk>.
Speaker Change: Yeah.
Mark Adams: We recognized in Q1 was something that was part of that guidance. So as Mark said, sometimes the timing can be a challenge to predict because these are really large orders in the complex.
Mark Adams: Timing of shipments and revenue recognition can be hard to nail down but.
Mark Adams: Good solid execution in Q1, consistent with the way we were thinking about it for the full year.
Mark Adams: And moving on to Q2.
Speaker Change: That's great appreciate the comments from you about just one last one for me coming away from the SC 24 event, which I know Penguin had a notable presence at to what extent are you delivering are realizing ROI in the quarter and fiscal 'twenty five from that event in terms of evangelizing.
Speaker Change: Penguin solutions and services in the form of either pipe build lead gen or new customer pilots.
Speaker Change: Thanks, I think.
Speaker Change: The last piece is really helpful. Whereas you clarify the question I mean in terms of actual real financial return on the event in the quarter.
Speaker Change: That's probably not the way we look at it but to your point, we had a great presence in the traffic was fantastic.
Speaker Change: At the event.
Speaker Change:
Speaker Change: And I think people are starting to understand the investment we made and the differentiated.
<unk> solution model, which is really a combination of managed services and software on top of hardware and in some cases as we did in the back half of 'twenty four.
Speaker Change: We're winning opportunities that are just really software and managed services as part of a solution. So.
Speaker Change: Those conversations.
And the excitement as the market moves away from what has been really kind of an early stage <unk>.
Speaker Change: Infrastructure deployment of getting.
Speaker Change: The hardware setup.
Speaker Change: Or have you in terms of pilots and early stage modeling.
Think that youre starting to see more.
Larger scale deployments.
Speaker Change: And production ready environments.
Speaker Change: And that's kind of where we think our value proposition is most valuable.
Speaker Change: And so I would say that.
Speaker Change: The customer lead generation.
Speaker Change: The ability to really just tell the story and with more proof points as we were winning more customers in the back half of the year.
Speaker Change: I think we.
Speaker Change: We're starting to see larger enterprises take notice.
Speaker Change: Again this complexity we talk about.
Speaker Change: A lot of times companies think they can do it on their own and they run into a hurdle on that come.
Speaker Change: Come back and say Hey, we have hardware, we've got things doing and but we want to learn more about what you bring to the table and when they get to the.
Speaker Change: The pain points that we know exist and this complexity deploying AI.
Speaker Change: They know they have a trusted partner ready to help them and so these conversations all on one.
Speaker Change: Location like a.
Speaker Change: Supercomputer is really a great opportunity for us.
And we've got some interesting awards coming out of that.
Speaker Change: Just a very powerful thing for us and we think it's a great investment for us, but from a quarterly return in the short term, it's hard to kind of make that claim.
Speaker Change: It makes total sense. Thank you both.
Speaker Change: Thank you.
Speaker Change: 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, The polar with Rosenblatt Securities You May proceed.
Hi, I just have one question.
Speaker Change: About that Tronox has your licensee same agreement exclusive or can you license the technology to the company.
Oh, sorry.
Speaker Change: I should have made that more clear in my earlier comments that is just a.
Speaker Change: The transaction between crew.
Speaker Change: Cree led the <unk> products, that's not exclusive.
Speaker Change: And so that agreement is just between the two parties, we have the ability because we own our own IP, obviously that we can enforce that IP or licensed whichever.
Speaker Change: To other parties.
Speaker Change: Okay, great. Thank you ask your question.
Speaker Change: Okay. Okay.
Speaker Change: Yes.
Speaker Change: Thank you very much.
Speaker Change: 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.
Mark Adams: Well. Thank you all again for joining us on today's call.
Mark Adams: This quarter has marked a strong beginning to a year, where we continue to focus.
Mark Adams: On capturing opportunities and AI infrastructure advanced memory solutions and high performance computing.
Our investments in hardware software and managed services.
Mark Adams: Have positioned us to address the rapidly growing demand for AI across on Prem cloud and edge environments.
Mark Adams: With a strong portfolio of innovative products, our strengthened financial foundation.
Mark Adams: And growing partnerships, we remain confident in our ability to lead in this evolving market.
Mark Adams: Thank you again for your continued support and confidence in our vision.
We look forward to sharing updates on our progress in the coming quarters.
Mark Adams: This concludes today's conference call. Thank you for your participation you may now disconnect your line.
Mark Adams: Yeah.
Mark Adams: Today's conference call. Thank you for your participation you may now.