管理層發言
Good afternoon. Thank you for attending the Penguin Solutions Third Quarter Fiscal Year 2025 Earnings Results Conference Call. My name is Cameron, and I'll be your moderator today. All lines are muted. If you would like to ask a question, press 1. Telephone. And I would now like to pass the call to your host, Suzanne Schmidt, Investor Relations.
Good afternoon, and thank you for joining us on today's earnings conference call and webcast to discuss Penguin Solutions' Third Quarter fiscal 2025 results. On the call today are Mark Adams, Chief Executive 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 visit 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 plans and strategy, and existing 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 report. 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 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. And with that, let me turn the call over to Mark Adams, CEO. Mark?
Thank you, Suzanne. I'd like to welcome all of you to our third quarter of fiscal 2025 Penguin Solutions earnings call. We are pleased with our Q3 financial results. Our revenue was $324 million, an increase of 7.9% compared to Q3 of fiscal year 2024. Non-GAAP gross margins came in at 31.7%. Non-GAAP diluted earnings per share was 47 cents, a 25% increase year over year. We achieved non-GAAP operating income of $38 million, up 15% from the prior year, and we delivered a non-GAAP operating income margin of 11.9%. All in all, our Q3 results attest to our progress in transforming Penguin Solutions into a leader in high-performance, high-availability enterprise infrastructure solutions. We continue to see signs of early-stage enterprise AI adoption across vertical markets such as financial services, energy, defense, education, and neo-cloud segments. As we have mentioned in the past, we believe that the investment in AI-powered systems deployed throughout the industry in '23 and '24 would lead to growth in full production installs in 2025 and 2026.
We are now seeing signs that we have entered the initial stages of that growth in corporate build-outs at scale. Payment solutions help customers manage the complexity of AI adoption by leveraging both our proven know-how and advanced cluster build-outs and our portfolio of hardware, software, and managed services. We work with our customers to design, build, deploy, and manage these environments with a focus on time to revenue and reliability while also targeting the highest level of performance availability. Our products and services are primarily marketed to hyperscalers, neo-cloud service providers, and Fortune 500 companies. Historically, we have sold directly to our end customers. However, we are also investing in channel partnerships that we believe will provide new opportunities for growth over the long term. The foundation of Penguin Solution's success is our expertise in large-scale deployments, developed over a 25-plus year history implementing complex data center clusters beginning with our early days in high-performance computing (HPC).
Our expertise in integrating advanced technologies such as power, cooling, AI compute, memory, storage, and networking enables us to deliver high-performance, high-reliability enterprise infrastructure solutions for our customers. As we've mentioned at the beginning of our fiscal 2025, we have transitioned from providing a quarterly financial outlook to providing a full-year financial outlook. We believe that a full-year outlook provides a broader perspective of our business, especially regarding AI infrastructure engagements, where the timing of actual deployments and associated revenue recognition can be unpredictable and concentrated. This approach aligns well with our focus on long-term strategic objectives. At the same time, we know that our stakeholders appreciate commentary on our progress each quarter, and we will offer that today as well. On our Q2 fiscal year 2025 call, in April, we raised our full-year revenue growth outlook from 15% to 17% at the midpoint.
Today, we are reaffirming that outlook. In addition, we are raising our full-year non-GAAP diluted earnings per share outlook from $1.60 to $1.80 per share at the midpoint. As a reminder, we have shared previously that revenue and profits are likely to be weighted more towards the first half rather than the second half of fiscal 2025. I'd like to now provide additional detail on our business segments. Our advanced computing revenue for the third quarter of fiscal 2025 was $132 million, down compared to the prior quarter as expected. As we often highlight on our earnings calls, revenue recognition in advanced computing tends to be lumpy. This is due to factors like customer concentration, the timing of large project implementation for our major customers, and the timing and discretionary nature of our customer renewals. The decline in Q3 compared to the prior quarter was largely due to the timing of a major deployment at a large hyperscale customer that we recognized revenue for in our second quarter.
That said, this quarter, we had some exciting wins at our existing customers and closed five new customer bookings highlighted by wins in the federal, energy, and biotech segments. We continue to see increased interest from enterprise customers as well as in neo-cloud opportunities, exemplifying the increased investments being made in large-scale AI infrastructure. Our core competency in successfully managing large-scale AI infrastructure build-outs helps customers accelerate their time to a live production environment. We believe our customers value our technology-agnostic approach, which allows us to create a unique overall solution that meets their specific AI infrastructure needs. Beyond our hardware building blocks, we are investing in the development of Penguin Ice Clusterware, a software platform that helps customers manage their infrastructure assets. Our Penguin Solutions service organization can assist companies in managing their post-deployment operations, supporting the high performance and high availability of their systems.
Overall, we have seen growth in new customer bookings and have continued to expand our pipeline during the first three quarters of FY 2025. Integrated memory under the Smart Modular brand achieved $130 million in revenue in Q3, up 24% compared to the prior quarter. We saw strong demand from our computing, networking, and telecommunications customers. Pricing in both DRAM and NAND appears relatively stable, and inventory levels appear balanced at our major customers. We are optimistic about memory demand in the near term as large enterprises seek higher performance and higher reliability memory to support both established workloads and new complex AI workloads. In line with this increasing demand for improved memory bandwidth and availability, we are seeing early adoption of our Compute Express Link (CXL) family of products. Thanks in part to positive momentum in our customer qualification efforts, we have received early production orders of CXL from OEMs and an AI computing customer which reinforces our optimism about CXL's appeal to new types of customers.
From a research and development perspective, we are focused on products that enable higher bandwidth and larger memory access to and from a GPU via memory pooling. We continue to invest in the design of SMART's optical memory appliance (OMA), with first product shipments targeted for late 2026 to early 2027. Given the importance of memory to the AI ecosystem, we feel confident that Smart Modular will continue to play a key role in fulfilling our customers' integrated memory requirements in the future. Optimize LED operates under the Cree LED brand. Cree's revenue came in at $62 million, up slightly compared to the prior quarter. Our top line was constrained during the second half of Q3, largely due to increased costs and uncertainty related to tariffs on products shipped out of our Weizhou, China facility. Despite macro uncertainty in the LED market, we remain confident in our high-performance product portfolio, our strong intellectual property, and our cost-effective capital-light operating model.
In February, we closed a $200 million investment from SK Telecom. At the time, we explained that in addition to the investment, the opportunities to partner with SK Group and more specifically, SK Telecom and SK Hynix could offer strategic commercial benefits as well. We are making progress with SK Telecom opportunities related to their AI strategy, including their AI data center infrastructure initiatives. The already strong relationship between SK Hynix and Smart Modular is evolving as we look at new ways to address market system-level products and custom high value-add memory-related segments. Since our last call, there have been two other company developments that I would like to mention. First, on June 26, we announced a refinancing that further strengthens our balance sheet by reducing our gross leverage and extending our overall debt maturity while establishing a $400 million credit facility.
Nate will provide more details in his comments. Second, on June 30, we completed the redomiciliation of Penguin Solutions Inc. from the Cayman Islands to the United States as a Delaware corporation. While our past structure served us well, we look forward to being a U.S.-based company as we continue our transformation. In closing, I want to thank our team for delivering strong results during a time of macro uncertainty. For Q4, we remain focused on short-term execution while also continuing to invest for long-term growth. Penguin's value proposition of solving the complexity of AI for our customers positions us well to address the increasing market opportunity being created by enterprise adoption at scale. Let me stop here and hand the call over to Nate, who will provide more color on our performance and outlook for the remainder of fiscal 2025.
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 materials on our website. Let me turn to our third-quarter results. Total Penguin Solutions net sales were $324 million, up 7.9% year over year. Non-GAAP gross margin came in at 31.7%, which was down year over year and up sequentially. Non-GAAP operating margin was 11.9%, up 0.8 percentage points versus last year. Non-GAAP diluted earnings per share were $0.47 for the quarter, up 25% from Q3 last year. In the third quarter of fiscal 2025, our overall services net sales totaled $66 million, down 3% versus Q3 last year. Product net sales were $259 million in the third quarter, up 11% versus the prior year. Third-quarter net sales by business segment were as follows: Advanced computing, $132 million, or 41% of our total net sales and down 9% year over year.
Integrated memory, $130 million, which was 40% of our total net sales and up 42% year over year. Optimized LED, $62 million, or 19% of our total net sales and down 4% year over year. Non-GAAP gross margin for Penguin Solutions in the third quarter was 31.7%, down 0.6 percentage points year over year driven primarily by a higher mix of integrated memory net sales compared to last year, partially offset by improved margin rate in integrated memory and optimized LED. Gross margin was up 0.9 percentage points sequentially with higher margin rates in advanced computing, partially offset by a higher mix of integrated memory net sales. Non-GAAP operating expenses for the third quarter were $64 million, up 1% year over year and up 2% sequentially. Operating expenses as a percentage of net sales were down year over year driven by higher net sales volumes and stable spending levels. Non-GAAP operating income was $38 million, up 15% year over year and down 22% versus last quarter.
The combination of top line growth and operating expense discipline translated into a 0.8 percentage point increase in operating margin versus Q3 last year. This is our fourth consecutive quarter of non-GAAP operating margin expansion year over year. Non-GAAP diluted earnings per share for the third quarter of fiscal 2025 were $0.47, up 25% versus the prior year and down 10% versus prior quarter. Adjusted EBITDA for the third quarter was $45 million, up 15% year over year. Turning to balance sheet highlights. For working capital, our net accounts receivables totaled $293 million, compared to $212 million a year ago with the increase driven by higher sales volumes. Days sales outstanding came in at 47 days, up from 42 days in the prior year quarter due to variations in sales linearity across the quarters. Inventory totaled $184 million at the end of the third quarter, up from $177 million at the end of Q3 a year ago due to higher sales volumes.
Days of inventory were 36 days, down from 44 days a year ago, primarily due to the timing of receipt and shipment. Accounts payable were $272 million at the end of the quarter, up from $192 million a year ago, due primarily to higher sales volumes. Days payable outstanding was 53 days compared to 47 days last year due to the timing of purchases and payments. Our cash conversion cycle was 30 days, an improvement of eight 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 $563 million and $468 million respectively in the third quarter. As a reminder, the difference between gross and net sales is primarily related to our memory business's logistics services accounted for on an agent basis, meaning we only recognize the net profit on logistics services as net sales.
Cash and cash equivalents and short-term investments totaled $736 million at the end of the third quarter, up $268 million from Q3 last year, and up $89 million sequentially. The year-over-year fluctuation was due primarily to proceeds from the issuance of preferred shares and cash generated by the business. Third-quarter cash flows generated from operating activities totaled $97 million compared to $80 million generated from operating activities in the prior year quarter. The increase year over year was due primarily to improved working capital efficiency. We spent approximately $30 million to repurchase 1,800,000 shares in the third quarter under our share buyback program. Since our initial share repurchase authorization in April 2022, we have used a total of $113 million to repurchase 6,600,000 shares through Q3 of fiscal year 2025, and we have $37 million remaining in our authorization.
We did not make any debt prepayments in this past quarter, and the principal on our term loan was at $300 million as of the end of the quarter. Our net debt at the end of Q3 was negative $66 million. Subsequent to the end of the quarter, we completed a refinancing of our existing credit facility. We paid off the $300 million remaining on our term loan using $200 million of cash from our balance sheet and $100 million of borrowing from a new revolving credit facility. This refinancing transaction significantly reduced our leverage, extended our debt maturities, and is expected to reduce our debt service costs as we reduced our total gross debt by $200 million. For those of you tracking capital expenditures and depreciation, capital expenditures were $2 million in the third quarter and depreciation was $5 million. Now turning to our outlook. Given our strong year-to-date performance, we are maintaining the midpoint of our net sales outlook for the year at 17% year over year and tightening the range to plus or minus two percentage points.
By segment, our full-year net sales outlook reflects the following: for advanced computing, we continue to expect full-year net sales to grow between 15% to 25% year over year. From memory, we now expect net sales to grow between 25% to 30% year over year. For LED, we continue to expect net sales to be approximately flat year over year. Our non-GAAP gross margin outlook for the full year remains 31% with a tighter range of plus or minus 0.5 percentage points. We now expect our non-GAAP operating expenses for the full year to be $260 million plus or minus $5 million. We are also raising our outlook for our non-GAAP diluted earnings per share, which is now expected to be approximately $1.80 plus or minus 5 cents. This is up from our prior outlook of $1.60 plus or minus 10 cents. Finally, our non-GAAP diluted share count is now expected to be 54 million shares for the year. Due primarily to changes in our geographic mix of our earnings, we are lowering our FY '25 non-GAAP tax rate to 25%, 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 and US tax environment, significant changes in our geographic earnings mix, or changes to our strategy or business operations. Our outlook for fiscal year 2025 is based on the current environment, which contemplates, among other things, the global macroeconomic and ongoing supply chain constraints, especially as they relate to our advanced computing and optimized LED businesses. 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, and higher tariffs in our optimized LED business. 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. Thank you.
分析師問答
We'll now begin the question and answer session. If you would like to ask a question, please press star followed by 1 on your telephone. Again, to ask a question, press star 1. And as a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. We will pause here briefly as questions are registered. The first question is from the line of Kevin Cassidy with Rosen Securities. You may proceed.
Yes. Thanks for taking my question. Congratulations on the good results and in particular, the five new customer bookings. I wonder if you could give us a little more detail on that. Are these customers that you got through partnerships? How long have you been working on booking these new customers? Is it software and services, or hardware, or both? Maybe just a few questions about that.
Hey, Kevin. Thanks. It's Mark. Let me see if I can break this down for you. The length of these sales motions typically range from twelve to eighteen months from the time we engage a customer to the time we ship, and the bookings often come somewhere around the twelve-month mark. I would say some of the new bookings fit that framework. You asked specifically about software and services relative to hardware. As mentioned on previous calls, the hardware is typically something that we recognize revenue upfront. The way software and services are recognized is more ratified over time. When we get these bundled solutions, so to speak, these integrated solutions of hardware, software, and services typically feature hardware upfront and have characteristics of being lower margin in nature, while the software and services come to us over time, and that's consistent with some of our more recent bookings.
Okay. Great. And maybe you said a little bit about the SK Telecom collaboration. Can you talk more about where you're seeing traction and potential new customers, which geographies or what?
Absolutely. At the time of the investment when we closed it back in December, we highlighted that this was really a relationship that transcended the financial investment element. We were excited about working with SK and, more specifically, SK Telecom and SK Hynix. We've had some early wins on the memory side and look forward to broadening that relationship with Hynix over time, focusing on more system-related products and helping enable some of their memory technologies for new application environments. We talked about higher bandwidth opportunities like the OMA we mentioned. We've actually had some early success on business opportunities with Hynix to date, and we are making good progress with SK Telecom as well. We are optimistic about the opportunities ahead with them in terms of AI data center infrastructure solutions. Our efforts there are truly global in nature, not just domestic, but also in other parts of the world. Overall, we are pleased about the progress we're seeing on their AI data center initiatives.
Okay. Great. Thanks for answering the question.
Hey, guys. Thanks for taking my questions. My first is on the memory side. I think that's the one segment that you're actually taking a bit higher for the full year. You saw some strong growth in May. August for your full-year guidance, implying kind of down in the mid-single digits range. Can you talk about the dynamic of potential pull forwards? If we look at other companies in the ecosystem, you’ve seen some really strong consumer demand. In the most recent quarter, you didn't mention that. Could you provide clarity on whether you're seeing any pull forwards?
Sure. And Tom, I think just one correction. I think you said that memory was the only one that was growing in the year, did I misunderstand?
No. You raised memory from, I think, your prior range for the full year, moving a little higher from 25% to 30%.
Right. Okay. Yes. Advanced computing is also up, the range is 15% to 25%, I believe. On the memory side, we are not seeing any necessary pull forwards, so to speak. We commented back in the fall about some inventory that we were working through. This quarter, we were really pleased with the growth opportunities as people started to resume ordering. We don't see any significant inventory builds or what have you. We monitor that from a customer discussion standpoint on their ordering patterns and what their requirements and forecasts are. Our pipeline in Q4 remains quite healthy. So we're generally very pleased with the direction of the business overall.
Helpful. And on the advanced computing side, you know, historically, large projects from big customers tend to slide around one to two quarters. Can you share insights on what's contributing to strength in Q4? Is it more broad-based strength across customers, and is that reflected in your full-year guidance?
We are seeing some uptick in terms of bookings. Some of which will be recognized through deployments by the end of the quarter. However, this quarter isn't just one major deployment; there is a bit more diversity in our customer base. Although, I’ll let Nate comment on the specific outlook. It's not solely reliant on one customer, but rather a broader base.
Hey, guys. Thanks for taking my question. Maybe if I can start on advanced computing and talk about the deployments for fiscal Q4 not being driven by one large deployment, but broad-based strength. Could you provide insight into that mix concerning what you're observing with the new cloud opportunity?
Certainly. As I commented earlier, we've seen strength in federal and energy sectors, had a win in biotech, and are observing increased interest in the financial sector as well. These are the key segments we're working within currently.
Got it. And while it's too early to talk about the next fiscal year, regarding the new customers you signed with five new customers and the potential pipeline, how should we think about fiscal 2026 relative to fiscal 2025?
Unfortunately, we're not providing guidance on that today. It’s simply too dynamic an environment for us to predict all the factors involved.
Hey, thanks for taking my questions. First, could you provide details on the CDW agreement or partnership? How does that approach differ from your collaboration with Dell, and what contributions do you expect in fiscal 2026?
Again, we're going to refrain from any fiscal 2026 commentary at this time. The framework we are exploring involves investing in partnerships outside of our direct customer engagements, which allows us to scale to a broader array of customers while focusing on our value add. Thus far, we've observed early success with both partners you mentioned. However, it is still in the early stages and the right strategy as we expand our reach not just in the US, but internationally.
Got it. For my second question, your services revenue grew quarter over quarter while overall advanced computing declined significantly. How did this occur? Was it driven more by point-in-time services, or did larger hardware deals translate to steady revenue growth?
It's a mixture of everything you've mentioned. The services revenue is recognized over time and is based on multiple periods of engagement. The mix of hardware in Q3 was lower than Q2, which contributes to the adjusted service mix. Just to clarify, we recognize services in a way that they are renewed annually, and if we receive new orders mid-year, we begin recognizing them upon shipment/signed order for those services. Thus, we strive to enhance that condition quarter to quarter.
Hi. This is Dennis on for Brian. Thanks for taking our questions. My first one is on advanced compute. For the five new customers that you won, are you expecting any change in the hardware and software mix over the life of these customers?
Typically, when we engage with new customers, the revenue recognition at the outset is hardware-related because that’s what we install and design solutions around. Software and services follow over time. We've seen several instances where customers have expanded the footprint of their rollout or implementation, which can lead to more hardware orders. However, we strive to ensure that we don’t engage in any hardware-only deals, as the hardware market is highly competitive in terms of margin. Our true value add lies in our services aspect. Although our hardware performance is best in class, the hardware market's margins tend to be lower, and we approach our business from a solutions perspective rather than just singular hardware sales.
Would you say that the majority of the $66 million in software and services sales comes from advanced computing, or is there a notable contribution from other segments as well?
Oh, a majority of the services—indeed, a healthy majority come from advanced computing. There is some contribution from memory, but it's certainly mostly advanced computing. Thank you, operator. In closing, we are pleased with our results through the third quarter. On today's call, we reconfirmed the midpoint of our revenue guidance, which we raised to 17% on our last call. We've also raised our earnings per share guidance range for fiscal 2025. We've strengthened our balance sheet and remain committed to our long-term investments in hardware, software, and services, positioning us to address the rapidly growing market demand for AI infrastructure solutions on-premise, in the cloud, and at the edge. Thank you all for joining today's call.
That concludes today's call. Thank you for your participation and enjoy the rest of your day.