Penguin Solutions, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Fiscal 2025 was transformational, with 17% top line growth, 190 basis points of non-GAAP operating margin expansion, and 53% increase in non-GAAP diluted EPS. Key accomplishments included expanding advanced computing pipeline, new customers, first international AI infrastructure deployment, partnerships, rebranding, U.S. domicile move, $200 million SK Telecom investment, debt refinancing, and leadership team additions.
• Q4 2025 revenue was $338 million, up 9% year-over-year; full year 2025 revenue was $1.37 billion, up 17% year-over-year.
• AI adoption is growing in verticals like financial services, energy, federal, and education; Penguin Solutions was selected by a Tier 1 U.S. financial institution for an AI infrastructure deployment.
• The company supports customers with deep technical expertise, hardware, software, and managed services, targeting Fortune 500 enterprises, educational institutions, government entities, and systems integrators. It is actively investing in strategic partnerships to expand reach.

Segment Performance

• Advanced Computing: Q4 2025 revenue was $138 million, 41% of total net sales, up 4% sequentially; full year 2025 revenue was $648 million, 47% of total net sales, up 17% year-over-year. HPC AI revenue from non-hyperscalers increased 75% full year.
• Integrated Memory: Q4 2025 revenue was $132 million, 39% of total net sales, up 38% year-over-year; full year 2025 revenue was $464 million, 34% of total net sales, up 30% year-over-year.
• Optimized LED (Cree LED): Q4 2025 revenue was $67 million, 20% of total net sales, up 2% year-over-year; full year 2025 revenue was $256 million, 19% of total net sales, roughly flat year-over-year

Guidance

• Fiscal 2026 net sales expected to grow 6% ±10%, excluding Penguin Edge and hyperscale hardware. Advanced computing net sales change is -15% to +15% year-over-year. Memory net sales growth is 10% to 20% year-over-year. LED net sales change is -5% to +5% year-over-year.
• Non-GAAP gross margin is expected to be 29.5% ±1 percentage point. Non-GAAP operating expenses are expected to be ~$255 million ±$10 million. Non-GAAP diluted EPS is expected to be ~$2 ±$0.25. The non-GAAP tax rate is lowered to 22% due to U.S. redomiciliation and geographic earnings mix.

Risks

• Global macroeconomic environment and supply chain constraints, including extended component lead times, impacting advanced computing and Optimized LED businesses.
• Phaseout of the Penguin Edge business, which could affect short-term performance despite being a smaller portion of the portfolio.
• Dependence on converting pipeline opportunities to bookings and revenue

Question and Answer

Q: Kevin Cassidy asks about hyperscale customer projects and participation in SK Telecom's relationship with OpenAI.

A: Mark Adams states there are ongoing services with the hyperscaler customer but no hardware revenue expected in 2026, and the company can't comment on SK Telecom's relationship with OpenAI but highlights the significant international deployment with SK Telecom.

Q: Michael Ng inquires about Penguin Edge impact and Advanced Computing growth next year.

A: Mark Adams and Nate Olmstead explain the 14% headwind to revenue growth and discuss the diversification of customer base and growing pipeline of AI compute opportunities.

Q: Samik Chatterjee asks about visibility in second half and Memory margin implications.

A: Nate Olmstead addresses Memory revenue growth and margin considerations, and the second half visibility tied to AI business pipeline.

Q: Ananda Baruah questions revenue growth backing out Edge and hyperscale business.

A: Nate Olmstead explains the 14% impact and the potential 20% apples-to-apples growth if excluding the mentioned elements.

Q: Rustam Kanga asks about accelerating services revenue after initial hardware deal.

A: Mark Adams clarifies that the overall solution includes hardware, software, and services with different revenue recognition timings, and the case with SK Telecom is part of the normal solution timing.

Q: Matthew Calitri asks about memory market differentiation.

A: Mark Adams explains the company differentiates through design, firmware, software, and performance reliability in memory solutions