Matthew Calitri

Matthew Calitri inquired about Penguin Solutions' perspective on the progression of AI buildouts, the observed rotation of CapEx and revenue among a few companies, recent reports on AMD's involvement with OpenAI, and the profitability challenges in Oracle's GPU strategy. He also asked how Penguin Solutions differentiates its memory offering in a heating market, beyond mere availability.

Answer

Mark Adams, President and CEO, stated that Penguin Solutions believes the market is still in the early stages of broad enterprise AI rollouts, distinguishing it from earlier hyperscaler investments. He noted that the AMD/OpenAI news reinforces significant CapEx spending in LLM training and inferencing. Regarding GPU profitability, Mark Adams suggested that commoditization occurs when many entities sell the same basic solution, impacting gross margins for hardware-only companies. For memory differentiation, Mark Adams explained that Penguin Solutions adds value by designing system/subsystem level solutions using memory silicon from suppliers like SK Hynix, achieving margins above commodity memory. Differentiation is achieved through design, firmware, software, performance, and reliability.

Matthew Calitri inquired about Penguin Solutions' perspective on the progression of AI buildouts, the rotation of CapEx and revenue among a few companies, and recent reports concerning AMD/OpenAI and Oracle's GPU strategy profitability. He also asked how Penguin differentiates its memory offerings beyond mere availability in a heating market.

Answer

Mark Adams, President and CEO, stated that the company believes it's still in the early stages of broad enterprise AI rollouts, distinguishing it from earlier hyperscaler investments. He noted that the AMD/OpenAI announcement reflects continued CapEx spending in LLM training and inferencing. Regarding GPU gross margins, he suggested that commoditization occurs when many entities sell similar underlying solutions. For memory, Mark Adams explained that Penguin Solutions differentiates through value-add at the system/subsystem level, leveraging design, firmware, software, performance, and reliability to achieve margins above commodity memory chip prices.

Matthew Calitri from Needham & Company inquired about Cognyte's updated assumptions regarding the U.S. federal environment, the contribution from the GroupSense acquisition, and the impact of large deals on the raised revenue outlook. He also asked about the current state of U.S. federal budgets and the confidence in the 87%/13% software/professional services revenue split for the year, particularly the expected increase in software mix in the second half.

Answer

CEO Elad Sharon explained that while the U.S. is a significant long-term opportunity with strong traction and partnerships like LexisNexis Risk Solutions, it currently represents a small portion of the business, and the guidance does not heavily rely on it due to temporary federal budget delays. He noted GroupSense integration is on track, aiming to expand cyber threat intelligence market access. CFO David Abadi clarified that professional services revenue fluctuates due to recognition timing, but strong visibility supports the 87% software mix target, contributing to improved gross margins.

Matthew Calitri asked about Cognyte's updated revenue outlook assumptions, specifically regarding the U.S. federal environment, the contribution from the GroupSense acquisition, and the impact of large deals signed during the quarter.

Answer

Elad Sharon, CEO of Cognyte, explained that while the U.S. is a significant long-term opportunity, it's a small portion of current business and not heavily relied upon for short-term guidance due to federal procurement delays. He noted GroupSense is on track with integration, aiming to expand cyber threat intelligence market access. David Abadi, CFO, added that confidence in the software mix and overall financial targets comes from strong visibility and fast software revenue growth.

Matthew Calitri inquired about Cognyte's updated assumptions for the U.S. federal environment, the contribution from the GroupSense acquisition, and any impact from large deals signed during the quarter. He also asked about the current state of U.S. federal budgets and the confidence in the software versus professional services revenue mix for the second half of the fiscal year.

Answer

CEO Elad Sharon explained that the U.S. represents a significant long-term opportunity, but its short-term contribution to guidance is limited due to budget issues and procurement delays, particularly in federal agencies. He highlighted successful POCs, new state and local customer acquisitions, and the strategic LexisNexis partnership. Sharon also noted that GroupSense is a relatively small acquisition, on track with integration, aiming to expand cyber threat intelligence market access. CFO David Abadi clarified that professional services revenue fluctuates but the company has strong visibility into the 87% software and 13% professional services mix for the year, driven by fast-growing software revenue and improving gross margins.

Matthew Calitri of Needham & Company inquired about the go-to-market traction with resellers, the initial focus of new CMO Vikram Ramesh, and the status of contract optimization headwinds.

Answer

CEO John Pagliuca explained that the reseller pipeline has doubled quarter-over-quarter, driven by the company's three-pillar platform. He noted new CMO Vikram Ramesh is focused on building the CyberResilience brand in the mid-market. Pagliuca also stated that the full-year ARR outlook resolves any noise from past contract optimizations and that customers are renewing annual commitments at a healthy clip of around 90%.

Matthew Calitri of Needham & Company, on for Mike Cikos, asked for details on the economics of the renewed Baker Hughes agreement and questioned the reasoning behind the considerably wider-than-usual revenue guidance for fiscal year 2026.

Answer

Thomas Siebel, Founder, CEO & Chairman, explained that specifics of the Baker Hughes deal are under NDA but confirmed the partnership was broadened, extended through 2028, and remains strong. He attributed the wide FY26 guidance range to prudence in the face of significant geopolitical and market risks, such as potential government shutdowns, which could create unanticipated adverse effects on the business.

Matthew Calitri asked for color on the full-year guidance construction, specifically how it was further derisked and whether macro headwinds were exacerbating delays in on-premise to cloud migrations.

Answer

CFO Ed Grabscheid explained that the full benefit of Q1's outperformance was not carried into the full-year guidance due to market uncertainty, and the company continues to exclude its largest, most complex deals from the forecast. He added that customer migration behavior in Q1 was consistent with trends observed throughout 2024.

Matthew Calitri, on for Mike Cikos, sought clarification on whether the commentary about Evergreen subscription TCV was a reiteration of previous expectations and asked for directional color on how subscription revenue might trend as a percentage of the total mix.

Answer

CFO Kevan Krysler confirmed the commentary reflects a recent shift where smaller Evergreen//One opportunities converted to traditional CapEx sales, boosting product revenue. CEO Charles Giancarlo added this is likely a temporary phenomenon driven by unexpected customer OpEx pressures from software costs and AI spending uncertainty, pushing them toward CapEx budgets which are under less pressure.

Matthew Calitri of Needham & Co. highlighted the record Q3 RPO growth and asked about its drivers, while also inquiring about the timeline for an inflection in net new customer additions.

Answer

CFO Mike Scarpelli attributed the strong RPO growth to the timing of large customer renewals rather than new commitments from top monthly-paying customers. CEO Sridhar Ramaswamy added that it reflects the sales team's success in driving value for customers. Regarding customer growth, Scarpelli anticipates a good net addition quarter in Q4 and expects the full benefits of their go-to-market changes to become more visible in fiscal 2026.

Inquired about the company's assumptions for the growth trajectory of net new ARR in the second half of the year and whether there were any deal pull-forwards or unusual linearity in Q1, similar to what was observed in the previous quarter.

Answer

Alpana Wegner responded that their assumptions for ARR growth are unchanged from the beginning of the year, expecting similar sequential performance based on a steady macro environment. Wendy Thomas added that, unlike Q4, there were no significant deal pull-forwards in Q1, which aligns with typical seasonality and does not raise concerns for Q2.