Penguin Solutions, Inc. (NASDAQ: PENG) Q3 2025 Earnings | 07/09/2025

Penguin Solutions, Inc. held its Q3 fiscal year 2025 earnings call, with CEO Mark Adams and CFO Nate Olmstead presenting strong financial results and strategic positioning in the high-performance computing and AI infrastructure markets.

Q3 2025 Financial Highlights:

• Revenue: Achieved $324 million, marking a 7.9% increase compared to Q3 fiscal year 2024.

• Non-GAAP Gross Margin: Came in at 31.7%.

• Non-GAAP Diluted Earnings Per Share (EPS): Increased by 25% year-over-year to $0.47.

• Non-GAAP Operating Income: Rose 15% from the prior year to $38 million, with an operating income margin of 11.9%.

• Segment Performance:

  • Advanced Computing: $132 million (41% of total net sales), down 9% year-over-year due to the timing of major deployments.

  • Integrated Memory (Smart Modular): $130 million (40% of total net sales), up 42% year-over-year due to strong demand and stable pricing in DRAM and NAND.

  • Optimized LED (Cree LED): $62 million (19% of total net sales), down 4% year-over-year, impacted by increased costs and tariff uncertainty from their China facility.

Fiscal 2025 Outlook (Reaffirmed/Raised):

• Revenue Growth: Maintained at the midpoint of 17% year-over-year (range of +/- 2 percentage points).

  • Advanced Computing: Expected to grow between 15% and 25% year-over-year.

  • Integrated Memory: Now expected to grow between 25% and 30% year-over-year (raised from prior outlook).

  • Optimized LED: Expected to be approximately flat year-over-year.

• Non-GAAP Gross Margin: Remains at 31% (+/- 0.5 percentage points).

• Non-GAAP Diluted EPS: Raised to approximately $1.80 (+/- 5 cents) from the prior outlook of $1.60 (+/- 10 cents).

• Non-GAAP Operating Expenses: Expected to be $260 million (+/- $5 million).

• Non-GAAP Tax Rate: Lowered to 25% due to changes in geographic mix of earnings.

Strategic Initiatives and Market Commentary:

• AI Adoption: Penguin Solutions is witnessing the initial stages of growth in corporate AI build-outs at scale, following pilot systems in 2023-2024. The company helps customers manage the complexity of AI adoption through its hardware, software (Penguin Ice Clusterware), and managed services, focusing on performance, availability, and time to revenue.

• Integrated Memory Innovation: Seeing early adoption of its Compute Express Link (CXL) products with early production orders, reinforcing optimism about CXL's appeal for higher performance and reliability memory in AI workloads. Investing in Smart Optical Memory Appliance (OMA) development for late 2026/early 2027 shipments.

• Strategic Partnership with SK Group: Making progress with SK Telecom on AI data center infrastructure initiatives and exploring new ways to address markets with SK Hynix through system-level products and custom memory solutions.

• Balance Sheet Strengthening: Completed a refinancing transaction, reducing gross leverage, extending debt maturity, and establishing a $400 million credit facility. Paid off $300 million term loan using cash and new borrowing, reducing total gross debt by $200 million.

• Re-domiciliation: Completed the re-domiciliation of Penguin Solutions, Inc. from the Cayman Islands to the United States (Delaware corporation).

• New Customer Acquisition: Secured five new customer bookings in Advanced Computing, notably in federal, energy, and biotech segments, with increased interest from enterprise and NeoCloud customers.

• Tariff Impact: Noted constraints on top-line revenue for Optimized LED due to increased costs and uncertainty from tariffs on products shipped from its China facility. The broader macroeconomic environment and supply chain constraints, including extended lead times for components, are ongoing challenges.

• Share Repurchase Program: Repurchased 1.8 million shares for $30 million in Q3, with $37 million remaining in the authorization.