Penguin Solutions Reports Q4 2026 Results: Full Earnings Call Transcript

Penguin Solutions (NASDAQ: PENG ) reported fourth-quarter financial results on Tuesday. The transcript from the company's fourth-quarter earnings call has been provided below. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

View the webcast at Summary Full Transcript OPERATOR After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Lana Adair, Investor Relations.

Please go ahead. Lana Adair, Investor Relations Thanks, everyone, for joining us. With me today are Cash Sheikh, Stephen Cumming, and Erin Johnson. Our earnings materials are available on the Investor Relations section of our website, and I encourage you to review these materials.

Also, please take some time to review the presentation, which includes additional content to complement our discussion today. During this call, unless otherwise indicated, all references to financial measures refer to non-GAAP financial measures. Non-GAAP measures should not be considered in isolation from, as a substitute for, or superior to our GAAP results. A reconciliation of these measures to their most directly comparable GAAP measures can be found in our press release and accompanying slide presentation.

Statements made during this call that relate to future results and events are forward-looking statements based on current beliefs and assumptions and are not guarantees of future performance. Actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our press release, our earnings call presentation, and our SEC filings. Except as required by applicable law, we assume no obligation to update our forward-looking statements. Now I'll turn it over to Cash.

Aaron Johnson, Interim Chief Financial Officer Thank you, Kashmir. I'll begin with our fourth quarter and full year fiscal 2026 results and then turn to our outlook for fiscal 2027. In the fourth quarter, net sales and earnings per share exceeded our outlook, reflecting growing adoption of our AI infrastructure solutions and continued AI-driven demand for data center memory. Strong net sales growth, disciplined expense management and improved profitability drove meaningful operating leverage.

We set company records for net sales, gross profit dollars, operating income, operating margin, net income, and adjusted EBITDA for the full year. We also set records for gross profit dollars and operating income. Starting with the fourth quarter, net sales were $567 million, up 68% year over year and up 18% sequentially. 8% and diluted earnings per share was $1, up 133% year over year.

87, roughly twice the rate of net sales growth, demonstrating the operating leverage in our model. Fourth quarter product net sales were $510 million, or 90% of total company net sales, up 86% year over year. Services net sales were $57 million, or 10% of total net sales, down 11% year over year, reflecting lower hyperscale services volumes partially offset by growth in multi-year AI factory managed services. Net sales by business segment were as follows.

For Advanced Computing, fourth quarter net sales were $154 million, up 11% year over year and 12% sequentially. For the full year, Advanced Computing net sales were $559 million, down 14%, reflecting the wind down of Penguin Edge and lower hyperscale hardware sales. Non-hyperscale AI infrastructure business grew 99% in the fourth quarter and represented 66% of segment net sales, while growing 72% for the year and reinforcing its position as the segment's primary growth driver. For Integrated Memory, fourth quarter record net sales were $341 million, representing 60% of total company net sales, up 158% year over year and 24% sequentially.

For the full year, Integrated Memory net sales were $924 million, up 99% and represented 53% of total company net sales, up from 34% in fiscal 2025. The growth reflects strong demand for memory supporting AI-driven data center applications, consistent with our strategic focus on this market. For Optimized LED, fourth quarter net sales were $72 million, representing 13% of total company net sales, up 7% year over year. For the full year, net sales were $249 million, down 3%.

The business delivered improved profitability as we continued to execute with discipline and focus on profitable opportunities. 8%, up 70 basis points sequentially, supported by improved profitability in Integrated Memory, partially offset by lower Advanced Computing margins. Together with strong net sales growth, this drove record gross profit of $163 million, up 21% sequentially and 57% year over year. For the full year, gross profit reached a record $508 million.

7 percentage points, primarily due to a greater contribution from AI infrastructure hardware, even with stronger margins in Integrated Memory. The growth in gross profit dollars demonstrates the leverage generated by our increased scale. Fourth quarter operating expenses were $73 million, up 4% sequentially and 13% year over year. The sequential increase primarily reflects higher incentive compensation associated with our strong financial results.

For the full year, operating expenses increased 4% to $267 million, well below our 26% growth in net sales. 4 percentage points as a percentage of net sales, reflecting a structural improvement in the scalability of our operating model. That combination of higher gross profit dollars and expense discipline drove record fourth quarter operating income of $90 million, up 39% sequentially and 129% year over year, with net sales growth significantly outpacing operating expense growth. 8%.

9%. These results demonstrate how scale and disciplined spending are translating growth into higher profitability. Fourth quarter diluted earnings per share was $1, up 19% sequentially and 133% year over year. The sequential EPS growth rate trails our 39% operating income growth, reflecting a higher share count following our convertible notes offering.

22 above the high end of our July outlook. Adjusted EBITDA was a record $93 million in the fourth quarter, up 115% year over year and 38% sequentially. Full year adjusted EBITDA was $256 million, up 37%. Before I walk through working capital, a reminder that we calculate days sales outstanding, days payables outstanding and inventory days on a gross sales and gross cost of goods sold basis.

42 billion in the fourth quarter. The difference between gross and net sales relates primarily to our memory businesses’ logistics services, which are accounted for on an agent basis. Turning to working capital, net accounts receivable increased to $796 million from $308 million a year ago, reflecting the growth in our memory business and the associated gross billings. Despite the higher balance, days sales outstanding improved to 46 days from 53 days last quarter and 51 days a year ago.

We are managing these investments against customer deployment schedules and supply availability as we support growth. Inventory increased to $749 million from $255 million a year ago, reflecting purchases to support record backlog and expected customer deployments across our memory and AI infrastructure businesses, as well as higher memory costs. Inventory days were 48, up from 42 last quarter as we positioned inventory against a record backlog, and down from 51 a year ago.

Accounts payable increased to $817 million from $267 million a year ago, reflecting purchasing activity to support the growth of our memory and AI infrastructure businesses, as well as higher memory costs. Days payable outstanding was 52, down from 62 last quarter and 54 a year ago, primarily reflecting the timing of purchases within the quarter. Our cash conversion cycle was 42 days compared with 33 days last quarter and 49 days a year ago. Funding growth efficiently and maintaining disciplined working capital management remain important priorities.

Moving to our broader capital structure, during the quarter we completed a significantly oversubscribed $750 million 0% convertible note offering due in 2031, which we believe reflects strong investor confidence in our business and long-term strategy. 70 per share, representing an approximately 50% premium to our share price at pricing. 05 per share. Concurrently, we exchanged approximately $296 million principal amount of our 2029 and 2030 convertible notes for a combination of cash and shares of common stock and used a portion of the proceeds to fully repay the $100 million outstanding under our credit agreement.

This disciplined and proactive approach extended our maturity profile and strengthened our capital structure, providing additional flexibility to invest behind our AI factory platform strategy and the growth opportunities ahead. Following these actions, we ended the fourth quarter with cash and cash equivalents of $647 million, which is up $207 million from the third quarter and $193 million from a year ago. We remain focused on managing liquidity and the working capital required to support our growth.

Cash used in operating activities was $163 million in the fourth quarter and $152 million for the full year, primarily reflecting working capital investments to support growth in our memory and AI infrastructure businesses. This compares with cash used of $70 million in the prior year quarter and cash provided of $113 million in fiscal 2025. We believe our capital structure and liquidity provide flexibility to fund this growth, while improving working capital efficiency remains an important priority.

For fiscal 2027, capital expenditures were $4 million in the quarter and $12 million for the year, well under 1% of net sales, with depreciation expense of $5 million and $20 million, respectively. Our asset-light model allows us to scale without significant capital spending, and we expect that to continue in fiscal 2027. Now turning to our outlook, we enter fiscal 2027 with strong momentum supported by our second half performance, record backlog, bookings growth, continued Integrated Memory strength, and further acceleration in demand for our AI infrastructure business.

We expect strong net sales growth to increase gross profit dollars while operating expenses grow at a considerably slower rate. That combination is expected to expand operating margin and drive diluted EPS growth that outpaces net sales growth for fiscal year 2027. 43 billion at the midpoint. Last quarter we shared a preliminary view of approximately 30% growth from the midpoint of our then-current fiscal 2026 outlook.

Using that same fiscal 2026 outlook midpoint as the starting point, our current fiscal 2027 midpoint represents growth of approximately 45%. The range reflects different growth expectations across our businesses as well as variability in customer deployment schedules and the availability, lead times and cost of certain products and components. Our record backlog, together with the demand we are seeing across the business, provides a strong foundation for our fiscal 2027 growth expectations. At the same time, customer deployment schedules, product availability and evolving memory market conditions could affect the mix and cadence of net sales throughout the year.

We believe the range appropriately balances the opportunities ahead with these execution and market variables. Looking at the net sales outlook by segment: For Advanced Computing, we expect full year net sales to grow approximately 40% at the midpoint, plus or minus 10 percentage points, driven by continued momentum in non-hyperscale AI infrastructure, partially offset by the absence of Edge sales and lower expected hyperscale sales. For Integrated Memory, we expect full year net sales to grow approximately 50% at the midpoint, plus or minus 10 percentage points, driven by continued strong demand for memory supporting AI-driven data center applications.

And for Optimized LED, we expect full year net sales to be relatively flat year over year as we continue to manage the business with discipline. We expect full year gross margin of approximately 28%, plus or minus 2 percentage points. Our outlook reflects the expected mix across our businesses, including the mix of hardware, software and services, as well as our current assumptions for memory pricing and costs. While these factors influence the gross margin rate, we expect net sales growth and scale to drive higher gross profit dollars.

We expect full year operating expenses of approximately $275 million, plus or minus $10 million. Within that range, we are reallocating resources toward our highest-return AI infrastructure and memory programs while holding total spending growth well below net sales growth. This disciplined investment approach, together with higher gross profit dollars, is expected to drive further operating margin expansion. 70, representing growth of approximately 55% at the midpoint and exceeding our expected rate of net sales growth.

The EPS outlook reflects higher gross profit dollars, disciplined operating expense growth, and further operating margin expansion. The range also allows for variability in the timing of large customer deployments as individual project schedules can shift between quarters. Our EPS outlook assumes a diluted share count of approximately 63 million shares and an effective tax rate of approximately 20%. S.

tax environment. Our fiscal 2027 outlook is based on the current demand environment, backlog, customer deployment schedules, expected product mix, and our present assumptions regarding supply, availability and costs. The timing of customer deployments and product availability may create variability between quarters, and certain components continue to have extended lead times that can affect project and shipment timing. Our outlook also incorporates current assumptions for memory supply and costs, which may evolve during the year, including the expected impact of new memory and AI infrastructure suppliers that strengthen our overall supply position and support growth.

These factors may affect quarterly cadence and mix, but are reflected in our full year planning assumptions. Overall, our outlook reflects the momentum in our AI-driven businesses and the benefits of a more scalable operating model. We plan to invest selectively behind our highest-return opportunities while maintaining expense discipline. Our objective is to convert strong net sales growth into higher gross profit dollars, operating margin expansion, and earnings growth that outpaces net sales growth.

Please refer to the Non-GAAP Financial Information section and the reconciliations of GAAP to non-GAAP measures in our earnings release and the investor materials available on our website for additional detail. With that, operator, we are ready for Q&A. OPERATOR We will now begin the question and answer session. Please limit yourself to one question to ensure everyone in the queue has a chance to ask.

If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device.

Please stand by while we compile the Q and A roster. Your first question comes from the line of Catherine Murphy with Goldman Sachs. Katherine, your line is now open. Catherine Murphy, Analyst at Goldman Sachs Great.

Thank you for the question. Very helpful to see the improved advanced computing segment guidance for 40% plus or minus 10% for fiscal 2027. I think last quarter you had talked about mid-teens growth as being the preliminary starting point for your outlook there. My first question would be, can you help us think about what has improved in the last 90 days that allows you to take up your outlook for advanced computing?

And as a follow-up, as Penguin Solutions expands more into the NEO cloud customer type, how does that change the unit economics relative to some of the enterprise customers and quant wins that you had in the first part of 2026? Is there more hardware? How do we think about the margin impacts? Anything that you can share to help us from a modeling perspective would be helpful.

Thank you very much. Aaron Johnson, Interim Chief Financial Officer Thanks, Kat, for the questions.