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Penguin Solutions, Inc. (PENG)·Q4 2025 Earnings Summary

Executive Summary

  • Q4 FY25 delivered $337.9M revenue (+8.6% YoY) and non-GAAP EPS of $0.43, with a modest revenue miss vs S&P Global consensus but a clean EPS beat (see Estimates Context) .
  • Segment mix drove flat non-GAAP gross margin YoY (30.9%) while non-GAAP operating margin reached 11.6% (+80 bps YoY) on disciplined OpEx; CFO flagged near-term margin pressure as hardware-heavy AI implementations ramp before higher-margin services attach .
  • FY26 outlook introduced: net sales +6% YoY (+/–10%), non-GAAP GM 29.5% (+/–1%), non-GAAP EPS $2.00 (+/–$0.25), tax rate lowered to 22%; assumptions include zero hyperscale hardware and wind-down of Penguin Edge by end-2025, creating a 14-pt headwind to total company growth and back-half weighted revenue profile .
  • Balance sheet strengthened via term loan payoff and new revolver; Board added $75M to buyback authorization (remaining ~$112M), and a new $75M program was disclosed in the 8‑K Exhibit; net debt ended FY25 at ~$16M, positioning flexibility for AI opportunities and capital returns .
  • Stock narrative catalysts: visible enterprise AI traction (Tier-1 U.S. bank, SK Telecom sovereign AI deployment), back-half weighted FY26 pipeline conversion, and a clearer software/services mix progression that may inflect margins over time .

What Went Well and What Went Wrong

What Went Well

  • Non-GAAP EPS beat consensus in Q4 despite a slight revenue miss; margins benefitted from OpEx control and segment margin improvements, with non-GAAP operating income up 16% YoY to $39.2M .
  • Enterprise AI progress: “selected by a Tier 1 U.S. financial institution to manage an AI infrastructure deployment… first on‑prem GenAI data center implementation,” and rapid SK Telecom deployment from order to go-live in ~2 months highlight execution and credibility .
  • Balance sheet de-risking and capital return: repaid $300M term loan using $200M cash + $100M new revolver, materially reducing gross debt; authorization increased by $75M, with ~$112M remaining to deploy . “This refinancing transaction significantly reduced our leverage… expected to lower our debt service costs” .

What Went Wrong

  • Top-line miss vs Street in Q4 (revenue $337.9M vs ~$342.1M*), reflecting ongoing lumpiness in Advanced Computing and a memory-heavy mix; CFO also noted sequential GM pressure in Advanced Computing .
  • FY26 guide embeds a 14-pt growth headwind from Edge wind-down and zero hyperscale hardware, and assumes a back-half weighted revenue cadence, elevating execution risk (bookings-to-revenue timing) .
  • Working capital/cash conversion: Q4 operating cash flow used $70M vs $12M used in prior-year Q4 due to inventory positioning for early Q1 shipments; inventory days rose to 51 (from 36) YoY in Q4 .

Financial Results

Consolidated Results (Actuals)

MetricQ2 2025Q3 2025Q4 2025
Net Sales ($M)$365.5 $324.3 $337.9
GAAP Gross Margin (%)28.6% 29.3% 28.6%
Non-GAAP Gross Margin (%)30.8% 31.7% 30.9%
Non-GAAP Operating Income ($M)$49.1 $38.5 $39.2
Non-GAAP Operating Margin (%)13.4% 11.9% 11.6%
GAAP Diluted EPS ($)$0.09 $(0.01) $0.11
Non-GAAP Diluted EPS ($)$0.52 $0.47 $0.43
Adjusted EBITDA ($M)$53.7 $44.7 $43.4

Actual vs S&P Global Consensus (Revenue, EPS)

MetricQ2 2025Q3 2025Q4 2025
Revenue – Actual ($M)$365.5 $324.3 $337.9
Revenue – Consensus ($M)*$344.7$328.1$342.1
Surprise ($M)+$20.8–$3.8–$4.2
EPS – Actual ($)$0.52 $0.47 $0.43
EPS – Consensus ($)*$0.382$0.323$0.375
Surprise ($)+$0.14+$0.15+$0.05

Values with “*” are retrieved from S&P Global.

Segment Revenue ($M)

SegmentQ4 2024Q3 2025Q4 2025
Advanced Computing$149.4 $132.5 $138.3
Integrated Memory$95.8 $130.1 $132.2
Optimized LED$66.0 $61.6 $67.4
Total$311.1 $324.3 $337.9

KPIs

KPIQ2 2025Q3 2025Q4 2025
Services Net Sales ($M)$64 $66 $63
Product Net Sales ($M)$302 $259 $275
Adjusted EBITDA ($M)$53.7 $44.7 $43.4

Notes: Management highlighted sequential GM pressure in Advanced Computing in Q4, offset by improved margin rates in Memory and LED; mix effects drove the small sequential non-GAAP GM dip .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales Growth (YoY)FY2026N/A+6% (+/–10%) New
Non-GAAP Gross MarginFY2026N/A29.5% (+/–1%) New
Non-GAAP OpExFY2026N/A$255M (+/–$10M) New
Non-GAAP Diluted EPSFY2026N/A$2.00 (+/–$0.25) New
Non-GAAP Tax RateFY2026 & LT25% (FY25) 22% Lowered
Diluted SharesFY2026N/A~55M New
Adv. Computing Net SalesFY2026N/A–15% to +15% New
Integrated Memory Net SalesFY2026N/A+10% to +20% New
Optimized LED Net SalesFY2026N/A–5% to +5% New
Hyperscale Hardware AssumptionFY2026N/AAssume $0 hardware; services continue New
Penguin EdgeFY2026N/ASales to essentially cease by end CY’25 New
Capital ReturnOngoing$37M remaining (Q3) +$75M authorization; remaining ~$112M Increased

Management: The Edge wind-down and zero hyperscale hardware create a ~14-pt headwind to total company net sales growth in FY26; year is expected to be back-half weighted .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2025)Previous Mentions (Q3 2025)Current Period (Q4 2025)Trend
Enterprise AI adoption & pipelineEarly-stage enterprise build-outs; added new logos; ICE Clusterware expansion incl. multi-tenancy; Dell channel 5 new bookings; growth in non-hyperscaler AI; channels (CDW/Dell) maturing Tier-1 U.S. bank on-prem GenAI; back-half weighted FY26 tied to pipeline conversion Strengthening, but timing risk persists
Hyperscale exposureStrong H1 from a large shipment; H2 lighter Visibility to H2 reduced; FY kept at 17% growth midpoint FY26 assumes zero hyperscale hardware; services continue Strategically de-emphasized hardware
Margins (mix)Lower GM YoY on higher AC hardware mix; OpEx disciplined GM down YoY on Memory mix; AC margin improved seq. FY26 GM guide 29.5% reflects Edge wind-down + hardware-led growth; longer-term services uplift Near-term pressure; medium-term uplift via services
Memory dynamicsStrong demand; CXL progress; OMA in dev for late ‘26/’27 Memory up 42% YoY; pricing stable; value-add model Memory up 30% FY25; +10–20% FY26 guide Structural growth driver
LED (Cree LED)Stronger profitability via capital-light model; tariffs managed Tariff uncertainty cited; modest growth Q4 revenue up QoQ; pursuing IP protection (lawsuit filed 11/12) Stabilizing; protective stance on IP
Supply chain & lead timesAC/LED constraints contemplated in outlook Similar comments; longer component lead times Supply constraints remain an assumption in FY26 outlook Persistent bottlenecks

Management Commentary

  • CEO: “Fiscal 2025 was a year of strong execution and meaningful progress in our transformation… into an enterprise AI infrastructure solutions company,” highlighting momentum in designing, building, deploying and managing enterprise AI implementations .
  • CEO on enterprise traction: “Selected by a Tier 1 U.S. financial institution to manage an AI infrastructure deployment… first on‑premise GenAI data center implementation” .
  • CFO on FY26 headwinds: “We have assumed zero hardware sales in FY26 to hyperscale customers… combined effect [with Edge wind-down] is a 14 percentage point unfavorable YoY impact to total company net sales growth” .
  • CFO on margins: “New AI customer wins typically begin with upfront hardware net sales at lower margin… we aim to follow… with higher margin recurring software and services sales,” underpinning a 29.5% non‑GAAP GM outlook .

Q&A Highlights

  • Hyperscale hardware: Management emphasized relationships remain intact, but FY26 assumes no hyperscale hardware revenue given limited visibility; services continue .
  • Edge wind-down: Two large Edge customers completed last-time buys; segment winds down by end of CY’25, contributing to FY26 headwind .
  • Back-half weighting: FY26 sales expected more back-end loaded vs FY25 due to timing of enterprise AI bookings and conversions; visibility stronger in Memory near term .
  • Memory pricing: Value-add model passes through commodity increases—revenue up but margin rate not levered to price spikes .
  • SK Telecom: Rapid deployment validated capability; added services to initial hardware transaction; future opportunities not disclosed .

Estimates Context

  • Q4 FY25 vs S&P Global consensus: Revenue $337.9M vs $342.1M* (miss ~$4.2M); EPS $0.43 vs $0.375* (beat ~$0.05) .
  • Q3 FY25: Revenue $324.3M vs $328.1M* (miss ~$3.8M); EPS $0.47 vs $0.323* (beat ~$0.15) .
  • Q2 FY25: Revenue $365.5M vs $344.7M* (beat ~$20.8M); EPS $0.52 vs $0.382* (beat ~$0.14) .
  • FY26 Street context: Consensus revenue ~$1.476B* and EPS ~$2.08*; company guides +6% YoY revenue growth (implies ~+$82M from FY25’s $1.369B baseline) and non‑GAAP EPS ~$2.00 (+/–$0.25), modestly below EPS consensus at the midpoint .

Values with “*” are retrieved from S&P Global.

Key Takeaways for Investors

  • Q4 delivered an EPS beat despite a slight revenue miss; mix and OpEx discipline supported non-GAAP operating margin expansion; watch for mix normalization and services attach in FY26 .
  • FY26 guide embeds conservative assumptions (no hyperscale hardware, Edge wind-down), creating a clearer baseline and back-half weighted setup; execution on enterprise bookings is the swing factor .
  • Margin pathway: near-term pressure from hardware-led implementations but a credible plan to expand recurring, higher-margin software/services over ensuing quarters .
  • Memory remains a growth engine (+30% in FY25; +10–20% FY26 guide) with CXL and OMA (late ‘26/early ‘27) as medium-term product catalysts .
  • Balance sheet and capital returns are supportive (term loan repaid, revolving facility in place; +$75M buyback authorization); net debt near neutral enhances flexibility .
  • Legal/IP vigilance at Cree LED underscores brand/IP protection; manageable revenue contribution but signals discipline in a challenging LED market .
  • Trading lens: back-half weighted FY26 creates timing risk; beats will likely require accelerated enterprise conversions and evidence of services attach that stabilize margins and free cash flow .

Citations:

  • Q4 FY25 8‑K/Press Release (financials, segments, reconciliations, FY26 outlook, buyback): .
  • Q4 FY25 Earnings Call (strategy, margins, guidance assumptions, pipeline, working capital): .
  • Q3 FY25 8‑K/Call (comparatives, guidance cadence, balance sheet progress): .
  • Q2 FY25 8‑K/Call (H1 strength, mix/margins, segment details, product roadmap): .
  • Other relevant press release: Cree LED patent suit (11/12/25): .

S&P Global disclaimer: All values marked with “*” in estimates tables or narrative are retrieved from S&P Global.