Penguin Solutions outlines 6% sales growth outlook for FY 2026 amid customer diversification and AI infrastructure expansion

Earnings Call Insights: Penguin Solutions, Inc. (PENG) Q4 2025

MANAGEMENT VIEW

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CEO Mark Adams described fiscal 2025 as a "transformational year" marked by a 17% top-line growth, 190 basis points of non-GAAP operating margin expansion, and a 53% increase in non-GAAP diluted EPS. Adams highlighted the company’s evolution toward becoming a "leading provider of AI infrastructure solutions" and noted progress in expanding the advanced computing pipeline, securing new customers, executing its first international AI infrastructure implementation, and rebranding as Penguin Solutions. The company also moved its corporate domicile to the United States, closed a $200 million investment from SK Telecom, refinanced its debt, and made key leadership hires, including Tony Fry as SVP and Chief Revenue Officer and Ted Gillick as SVP of Strategy and Corporate Development.

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Adams stated, “Revenue for Q4 was $338 million, an increase of 9% year-over-year. Non-GAAP gross margin was 30.9%. Non-GAAP operating income reached $39 million, a 16% increase year-over-year with non-GAAP operating margin at 11.6% up 80 basis points. Non-GAAP diluted earnings per share was $0.43, up 18% from the prior year.”

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CFO Nate Olmstead reported, “In the quarter, total Penguin Solutions net sales were $338 million, up 9% year-over-year. Non-GAAP gross margin came in at 30.9%, which was flat year-over-year. Non-GAAP operating margin was 11.6%, up 0.8 percentage points versus last year, and non-GAAP diluted earnings per share were $0.43, up 18% from last year.”

OUTLOOK

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Olmstead announced an initial outlook for fiscal 2026, projecting net sales to grow 6%, plus or minus 10% versus the prior year. The outlook assumes the wind-down of the Penguin Edge business and zero hardware sales to hyperscale customers, resulting in a 14 percentage point unfavorable impact to total company net sales growth. Segment outlooks include Advanced Computing net sales change between minus 15% and plus 15% year-over-year, Memory net sales growth between 10% and 20% year-over-year, and LED net sales change between minus 5% and plus 5% year-over-year. The non-GAAP gross margin outlook for the full year is 29.5%, plus or minus 1 percentage point, and full-year non-GAAP diluted EPS is expected to be approximately $2 plus or minus $0.25.

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Management explained that the wider net sales growth range for FY '26 reflects a stronger pipeline of AI compute opportunities but expects higher sales volumes in the second half of the year.

FINANCIAL RESULTS

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Penguin Solutions reported Q4 revenue of $338 million, non-GAAP gross margin of 30.9%, and non-GAAP operating margin of 11.6%. Non-GAAP diluted EPS for Q4 was $0.43. Full-year net sales totaled $1.37 billion with non-GAAP diluted EPS at $1.90. Cash, cash equivalents, and short-term investments were $454 million at the end of Q4, with net debt at $16 million. The company repurchased 16,000 shares for approximately $296,000 in Q4, and the Board authorized a $75 million increase in the stock repurchase program.

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Advanced Computing segment net sales for Q4 were $138 million, Memory segment net sales were $132 million, and Optimized LED segment net sales were $67 million. Full-year Advanced Computing net sales were $648 million, Memory $464 million, and LED $256 million.

Q&A

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Kevin Cassidy, Rosenblatt Securities: Asked about the future of hyperscale customer hardware projects. CEO Adams said, “We don't look at it like the project's over. We have ongoing services with the customer...we don't anticipate any non-service revenue or systems hardware revenue in the year.”

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Michael Ng, Goldman Sachs: Inquired about the impact of winding down Penguin Edge and hardware sales to hyperscalers. CFO Olmstead confirmed, “Advanced Computing is about 47% or 50% of total company sales. So that 14 points all sits within Advanced Computing, which means it's about 28% to 30% of Advanced Computing revenue from FY '25.”

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Samik Chatterjee, JPMorgan: Asked about second half versus first half sales and Memory outlook. Olmstead explained, "I think I put a little bit of price increase probably into the high end of the range for Memory, but not a lot. We'll see how things play out there."

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Ananda Baruah, Loop Capital: Sought clarification on pro forma growth. Olmstead said, “If you wanted to remove [Penguin Edge and hyperscale hardware] from FY '25 and have apples-to-apples with FY '26, you would have a calculated growth rate around 20%.”

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Matthew Calitri, Needham: Asked about AI build-outs and memory differentiation. Adams noted, “It's largely a differentiation model. If we're not differentiating on the design wins, we're not going to get a lot of them.”

SENTIMENT ANALYSIS

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Analysts pressed for specifics on growth, customer mix, and the impact of winding down certain business lines, displaying a neutral to slightly negative tone, especially regarding visibility and revenue headwinds.

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Management maintained a confident but cautious tone during prepared remarks, emphasizing strategic wins, pipeline strength, and operational discipline, but frequently clarified assumptions in responses. Adams stated, “We believe we are well positioned for future success in FY '26 and beyond.”

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Compared to the previous quarter, analyst questions were more focused on headwinds and the sustainability of growth, while management’s confidence appeared steady but more measured.

QUARTER-OVER-QUARTER COMPARISON

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Guidance shifted from a 17% growth outlook for FY 2025 to a 6% growth projection for FY 2026, reflecting the wind-down of Penguin Edge and reduced hyperscale hardware sales.

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Management’s tone evolved from optimism about broad-based growth and new customer wins in Q3 to a more nuanced approach, emphasizing customer diversification and pipeline opportunities in Q4.

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Analysts in Q4 were more concerned with the impact of the Penguin Edge wind-down and the sustainability of Memory and Advanced Computing growth, compared to broader questions on segment momentum and partnerships in Q3.

RISKS AND CONCERNS

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Management identified the wind-down of the Penguin Edge business and lack of hardware sales to hyperscalers as key headwinds for FY 2026, and included these impacts in their outlook.

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Extended lead times for certain components, especially in Advanced Computing and Optimized LED, were noted as ongoing supply chain constraints.

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Analysts raised concerns about revenue concentration, the timing of pipeline conversion, and margin pressures from memory pricing.

FINAL TAKEAWAY

Penguin Solutions emphasized that fiscal 2025 was a defining year, with significant operational improvements and strategic pivots towards AI infrastructure. As the company enters fiscal 2026, it expects to navigate a year of transition marked by customer diversification and evolving revenue composition, while maintaining disciplined expense management and leveraging a robust pipeline of AI compute opportunities. Management believes these efforts collectively position Penguin Solutions for continued progress and long-term shareholder value.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/peng/earnings/transcripts]

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* Penguin Solutions, Inc. (PENG) Q4 2025 Earnings Call Transcript [https://seekingalpha.com/article/4828414-penguin-solutions-inc-peng-q4-2025-earnings-call-transcript]
* Penguin Solutions: I'm Not Convinced The AI Thesis Will Pan Out [https://seekingalpha.com/article/4826465-penguin-solutions-not-convinced-ai-thesis-will-pan-out]
* Penguin Solutions: Momentum Building Beyond The Noise [https://seekingalpha.com/article/4826110-penguin-solutions-stock-momentum-building-significant-re-rating-potential]
* Penguin Solutions Non-GAAP EPS of $0.43 beats by $0.06, revenue of $337.92M misses by $4.19M [https://seekingalpha.com/news/4502474-penguin-solutions-non-gaap-eps-of-0_43-beats-by-0_06-revenue-of-337_92m-misses-by-4_19m]
* Penguin Solutions FQ4 2025 Earnings Preview [https://seekingalpha.com/news/4502108-penguin-solutions-fq4-2025-earnings-preview]