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Penguin Solutions, Inc. (PENG)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY25 delivered mixed results: non-GAAP EPS of $0.47 beat consensus, while revenue of $324.3M came in modestly below estimates; management raised FY25 non-GAAP EPS guidance to ~$1.80 and tightened ranges, citing execution and disciplined OpEx .
  • Advanced Computing revenues fell sequentially on timing/lumpiness after a major Q2 deployment; Integrated Memory grew strongly on stable DRAM/NAND pricing and early CXL orders; LED faced tariff-related headwinds; non-GAAP gross margin improved sequentially to 31.7% .
  • Balance sheet strengthened via June refinancing: $400M revolver, term loan retired using $200M cash + $100M revolver, lowering leverage and extending maturities; cash/short-term investments reached $736M, cash conversion cycle improved to 30 days .
  • Catalysts: FY25 EPS guidance raise/tightening, lowered non-GAAP tax rate to 25%, accelerating enterprise AI deployments, SK partnerships, and leadership additions (CRO and SVP Strategy) to scale go-to-market .

What Went Well and What Went Wrong

What Went Well

  • Non-GAAP EPS $0.47 up 27% YoY and above consensus; non-GAAP operating margin 11.9% marked the fourth consecutive YoY expansion; adjusted EBITDA $44.7M up ~15% YoY .
  • Memory strength: Integrated Memory revenue $130.1M up 42% YoY and 24% QoQ; stable DRAM/NAND pricing, early CXL production orders from OEMs and an AI customer .
  • Strategic/financial actions: Redomiciliation to Delaware completed; refinancing reduced gross leverage, extended maturities, and established $400M revolver; FY25 non-GAAP EPS guidance raised to ~$1.80 .
    • Quote: “We are now seeing signs that we have entered the initial stages of that growth in corporate build outs at scale” – CEO Mark Adams .
    • Quote: “We are…raising our outlook for our non GAAP full year diluted earnings per share…approximately $1.8 plus or minus $0.05” – CFO Nate Olmstead .

What Went Wrong

  • Revenue miss vs consensus and sequential decline: $324.3M vs $328.1M estimate (see table), down from $365.5M in Q2 due to timing/lumpiness of Advanced Computing deployments .
  • LED tariff impacts: Optimized LED revenue $61.6M down 4% YoY, constrained by increased cost/uncertainty from tariffs on products from Huizhou, China .
  • Gross margin YoY compression: non-GAAP GM 31.7% down 60 bps YoY on higher memory mix; GAAP GM 29.3% down 30 bps YoY; GAAP EPS negative due to adjustments (SBC, amortization, goodwill impairment, redomiciliation costs) .

Financial Results

Headline Metrics vs prior periods and consensus

MetricQ3 2024Q2 2025Q3 2025
Revenue ($USD Millions)$300.6 $365.5 $324.3
Non-GAAP Gross Margin %32.3% 30.8% 31.7%
Non-GAAP Operating Income ($USD Millions)$33.3 $49.1 $38.5
Non-GAAP Operating Margin %11.1% 13.4% 11.9%
GAAP Diluted EPS ($USD)$0.10 $0.09 $(0.01)
Non-GAAP Diluted EPS ($USD)$0.37 $0.52 $0.47
Adjusted EBITDA ($USD Millions)$38.8 $53.7 $44.7

Consensus vs Actual (S&P Global; asterisk indicates values from S&P Global)

MetricQ1 2025Q2 2025Q3 2025
Revenue Consensus Mean ($USD Millions)*320.0344.7328.1
Revenue Actual ($USD Millions)$341.1 $365.5 $324.3
Primary EPS Consensus Mean ($USD)*0.3910.3820.323
Non-GAAP EPS Actual ($USD)$0.49 $0.52 $0.47
EBITDA Consensus Mean ($USD Millions)*42.046.039.5
Adjusted EBITDA Actual ($USD Millions)$44.7 $53.7 $44.7

Values retrieved from S&P Global.

Key comparison takeaways:

  • EPS: beat in all three quarters; Q3 EPS $0.47 vs 0.323 consensus.
  • Revenue: beat in Q1 and Q2; Q3 revenue slight miss ($324.3M vs $328.1M).
  • EBITDA: Adjusted EBITDA exceeded consensus each quarter (note definitional differences vs S&P’s EBITDA series).

Segment Net Sales

Segment ($USD Millions)Q3 2024Q2 2025Q3 2025
Advanced Computing$145.0 $200.2 $132.5
Integrated Memory$91.6 $105.3 $130.1
Optimized LED$64.0 $60.1 $61.6
Total$300.6 $365.5 $324.3

KPIs and Balance Sheet/Cash Flow

KPIQ3 2024Q2 2025Q3 2025
Net Accounts Receivable ($M)$212 $330 $293
Days Sales Outstanding (days)42 50 47
Inventory ($M)$177 $200 $184
Days of Inventory (days)43 37 36
Accounts Payable ($M)$192 $238 $272
Days Payables Outstanding (days)47 44 50
Cash & Short-term Investments ($M)$467 $647 $736
Cash Flows from Operations ($M)$80 $73 $97
CapEx ($M)$4 $2 $2
Depreciation ($M)$6 $5 $5
Cash Conversion Cycle (days)38 43 30

Note: Slides show DPO at 53 days in Q3; CFO remarks indicate 50 days, reflecting timing differences in purchases/payments .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales Growth (YoY, non-GAAP)FY2517% +/- 3% 17% +/- 2% Maintained midpoint; tightened range
Gross Margin (non-GAAP)FY2531% +/- 1% 31% +/- 0.5% Tightened range
Operating Expenses (non-GAAP)FY25$265M +/- $5M $260M +/- $5M Lowered
Diluted EPS (non-GAAP)FY25$1.60 +/- $0.10 $1.80 +/- $0.05 Raised and tightened
Diluted Shares (non-GAAP)FY2555M 54M Lowered
Diluted EPS (GAAP)FY25-$0.02 +/- $0.10 $0.04 +/- $0.05 Raised
Non-GAAP Tax RateFY2528% (normalized) 25% (normalized) Lowered
Advanced Computing Net Sales GrowthFY2515–25% 15–25% Maintained
Integrated Memory Net Sales GrowthFY2520–30% 25–30% Raised low end
Optimized LED Net Sales GrowthFY25~Flat ~Flat Maintained

Earnings Call Themes & Trends

TopicQ1 2025Q2 2025Q3 2025 (Current)Trend
Enterprise AI adoptionEmphasized growth from PoC to production; 24% revenue growth Raised FY25 revenue midpoint to 17%; major hyperscaler deployment in H1 “Initial stages of growth in corporate build outs at scale”; 5 new bookings (federal, energy, biotech) Accelerating adoption; diversified wins
Channel partnershipsOrigin AI + Dell services sellable via Dell; training/co-marketing Continued partner expansion Investing in channel partnerships; CDW referenced in Q&A Expanding GTM leverage
Supply chain & tariffsLead times and constraints flagged Ongoing constraints in AC and LED; higher tariffs included in outlook LED constrained by tariffs from Huizhou facility; AC built primarily in U.S. Persistent headwind in LED; AC insulated
Product performance (segments)AC +49% YoY; Memory +13% YoY; LED -4% YoY AC +42% YoY; Memory +26%; LED flat AC down QoQ (timing), Memory +24% QoQ and +42% YoY; LED -4% YoY Mix shifting to Memory
R&D executionICE Clusterware expansion roadmap noted ICE Clusterware multi-tenancy & AIM optimization launched Penguin ICE Clusterware investments; services majority in AC Strengthening software/services
Memory tech (CXL/OMA)CXL sampling; OMA roadmap, late ’26–’27 revenue Dell added SMART CXL; early CXL orders; OMA timeline reiterated Early CXL production orders; OMA timeline maintained Positive momentum
Financing/Balance sheetTerm loan activity in FY24 Cash up; no debt prepayments in Q2 Refinancing: $400M revolver; paid off $300M term loan; net debt negative $66M Lower leverage; improved flexibility
Corporate structureCayman entity in Q1 Redomiciliation planned Redomiciliation to Delaware completed Simplified structure

Management Commentary

  • Strategic positioning: “Our Q3 results attest to our progress in transforming Penguin Solutions into a leader in high performance, high availability enterprise infrastructure solutions.” – CEO Mark Adams .
  • Segment mix: “The decline in Q3…was largely due to the timing of a major deployment at a large hyperscale customer…this quarter…closed five new customer bookings…federal, energy and biotech.” – CEO .
  • Memory outlook: “Pricing in both DRAM and NAND appears relatively stable…received early production orders of CXL from OEMs and an AI computing customer.” – CEO .
  • LED tariffs: “Our top line was constrained…due to increased cost and uncertainty related to tariffs on products shipped out of our Huizhou, China facility.” – CEO .
  • Financial discipline: “Non GAAP operating margin was 11.9%…fourth consecutive quarter of non GAAP operating margin expansion year over year.” – CFO .
  • Guidance and tax rate: “We are…raising…non GAAP diluted EPS…~$1.8…lowering our FY 2025 non GAAP tax rate to 25%.” – CFO .

Q&A Highlights

  • Bookings composition & revenue recognition: New bookings typically 12–18 month sales motions; hardware revenue recognized upfront; software/services ratable over time – supports margin mix over periods .
  • Partnerships: Progress with SK Telecom on AI data center initiatives and evolving relationship with SK hynix for system-level memory opportunities; efforts are global in nature .
  • AC outlook: Q4 deployments expected to be more diversified, not reliant on a single large project; ongoing lumpiness inherent to AC .
  • Services mix: Majority of services revenue is Advanced Computing; services renew annually, creating recurring recognition .
  • Memory dynamics: No evidence of pull-forward; pipeline healthy; DRAM price increases can slightly compress memory GM as DRAM becomes a higher proportion of value add .
  • Production inference & availability: Emphasis on high availability, diagnostics, and fault repair to maximize uptime for enterprise inference – core to Penguin’s HPC heritage .

Estimates Context

  • EPS beat/miss: Q3 non-GAAP EPS $0.47 vs 0.323 consensus; Q1 and Q2 also beat, implying upward pressure on EPS estimates going forward .
  • Revenue: Q3 revenue $324.3M vs $328.1M consensus; prior quarters beat, suggesting AC lumpiness/tariffs drove the modest miss; memory strength partially offset .
  • EBITDA: Company’s adjusted EBITDA exceeded S&P Global consensus across periods (definitions differ); analysts may need to align models with company adjustments .

Values retrieved from S&P Global.

Key Takeaways for Investors

  • FY25 EPS outlook raised and ranges tightened; positive catalyst with disciplined OpEx and normalized 25% non-GAAP tax rate enhancing earnings quality .
  • Near-term trading: Expect sensitivity to AC deployment timing; diversified Q4 AC pipeline reduces single-project risk; memory strength supports top line and sequential margin stabilization .
  • Medium-term thesis: Enterprise AI adoption at scale, software/services ramp (ICE Clusterware, AIM), and CXL/OMA roadmap create multi-year growth and margin mix tailwinds .
  • LED headwind watch: Tariff environment remains a constraint; monitor policy developments and potential footprint adjustments .
  • Balance sheet optionality: Post-refinancing, net cash position (negative net debt), $400M revolver provides flexibility for growth investments and potential opportunistic buybacks/M&A .
  • Organizational scaling: New CRO and SVP Strategy positions aim to accelerate GTM and corporate development; departure of AC SVP reflects structural realignment .
  • Estimate revisions: Given consistent EPS beats and elevated memory growth, consensus EPS likely moves higher; revenue forecasts should incorporate AC lumpiness and LED tariff impacts (see tables).

Appendix: Non-GAAP adjustments and reconciliation pointers

  • Non-GAAP EPS/operating income exclude SBC, amortization of intangibles, restructuring, goodwill impairment, redomiciliation costs, debt extinguishment/losses, FX and other items (full tables in 8-K) .
  • Adjusted EBITDA bridges include taxes, interest, D&A, SBC, restructuring, redomiciliation costs and other items .