Penguin Solutions, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Results: Q3 2025 revenue was $324 million, an increase of 7.9% compared to Q3 of fiscal year 2024. Non-GAAP gross margins were 31.7%, non-GAAP diluted earnings per share was 47¢ (a 25% increase year over year), and non-GAAP operating income was $38 million (up 15% from the prior year).
• AI Adoption: Early stages of growth in corporate build-outs for AI infrastructure, with solutions targeting hyperscalers, Neo Cloud service providers, and Fortune 500 companies.
• Business Segments: Advanced Computing had lumpy revenue due to project timings but saw new customer bookings in federal, energy, and biotech. Integrated Memory saw strong demand, including CXL products. Optimize LED faced constraints from tariffs but remained confident in its product portfolio.
• Company Developments: Refinancing in June 2025 strengthened the balance sheet, and redomiciliation from the Cayman Islands to the US as a Delaware corporation was completed.

Segment Performance

• Advanced Computing: Q3 2025 revenue was $132 million, accounting for 41% of total net sales, a 9% year-over-year decrease. Full-year net sales are expected to grow between 15-25% year over year.
• Integrated Memory (Smart Modular): Q3 revenue was $130 million, 40% of total net sales, a 42% year-over-year increase. Full-year net sales are expected to grow between 25-30% year over year.
• Optimize LED (Cree LED): Q3 revenue was $62 million, 19% of total net sales, a 4% year-over-year decrease. Full-year net sales are expected to be approximately flat year over year.

Guidance

• Net Sales: Maintaining the midpoint of net sales outlook at 17% year-over-year growth with a tighter range of ±2 percentage points. Advanced Computing: 15-25% year-over-year growth. Memory: 25-30% year-over-year growth. LED: approximately flat.
• Gross Margin: Full-year non-GAAP gross margin outlook is 31% with a tighter range of ±0.5 percentage points.
• Earnings Per Share: Raising non-GAAP full-year diluted earnings per share outlook to approximately $1.80 ±5¢, up from prior $1.60 ±10¢. Non-GAAP share count expected at 54 million. Lowering FY '25 non-GAAP tax rate to 25%.

Risks

• Optimize LED: Constrained by tariffs on products shipped from the Weizhou, China facility.
• Supply Chain: Extended lead times for components impacting the ramp of projects.
• Macro Uncertainty: Uncertainty in the LED market due to macroeconomic factors.

Question and Answer

Q: Details on the five new customer bookings in Advanced Computing A: Length of sales motions typically 12-18 months from engagement to shipment. Bundled solutions with hardware upfront and software/services over time.

Q: SK Telecom collaboration A: Progress on AI data center initiatives, global opportunities with SK Telecom and SK Hynix, with positive momentum in their AI strategy.

Q: Memory segment growth and potential pull forwards A: No significant pull forwards seen; pipeline remains healthy with no observed inventory builds.

Q: Advanced Computing Q4 strength and mix A: More diversified bookings, not driven by one large deployment; strength in federal, energy, biotech, and financial sectors.

Q: Memory segment verticals and gross margins A: Strong demand from computing, networking, and telecom; DRAM pricing stable, memory gross margins slightly impacted by DRAM pricing but offset by unit growth.

Q: Production inference and market capacity A: High availability solutions key for production inference, leveraging expertise in large-scale AI infrastructure deployments