Skip to content
    PENG
    Earnings call· May 2026(Q3 FY26)

    Penguin Solutions Q3 FY26 earnings call PENG

    Jul 7, 2026 Source

    Executive summary

    Penguin Solutions Q3 FY26 — Record Results Driven by AI Demand & Raised Outlook

    Penguin Solutions delivered record Q3 FY26 results, significantly raising its full-year outlook and providing a strong preliminary FY27 view, driven by robust AI-driven demand and its AI factory platform strategy. The company is strategically positioned at the intersection of memory and AI infrastructure, focusing on agentic AI workloads and production-scale inference, despite some gross margin pressure from business mix shifts and increased working capital investments.

    Highlights

    5

    • Delivered record net sales of $479 million, up 48% year-over-year and 40% sequentially.

    • AI-driven businesses represented 74% of total net sales and grew 104% year-over-year.

    • Achieved non-GAAP diluted EPS of $0.84, up 79% year-over-year and 62% sequentially.

    • Raised full-year FY26 net sales outlook to 22% growth and non-GAAP diluted EPS to $2.60.

    • Provided preliminary FY27 outlook contemplating approximately 30% growth for both total company net sales and non-GAAP EPS.

    Concerns

    5

    • Non-GAAP gross margin decreased 3.6 percentage points year-over-year to 28.1%, primarily due to the Penguin Edge wind-down and sales mix shift.

    • Services net sales totaled $65 million, down 1% versus the prior year.

    • Cash, cash equivalents, and short-term investments decreased $49 million sequentially to $440 million due to investments in working capital.

    • Cash flows used for operating activities totaled $75 million, compared to $97 million provided in the prior year quarter.

    • CFO Nate Olmstead will step down on July 8, necessitating a search for a permanent successor.

    Guidance & targets

    11
    CategoryTargetConfidence
    Full-year FY26 Net Sales Growth
    22%
    high materiality
    High
    Full-year FY26 Non-GAAP Diluted EPS
    $2.60
    high materiality
    High
    Full-year FY26 Advanced Computing Net Sales Growth
    decline 15% to 20% year-over-year
    medium materiality
    Medium
    Full-year FY26 Memory Net Sales Growth
    grow between 90% and 95% year-over-year
    high materiality
    High
    Full-year FY26 LED Net Sales Growth
    decline approximately 5% year-over-year
    medium materiality
    Medium
    Full-year FY26 Non-GAAP Gross Margin
    28.5%, plus or minus 0.5 percentage points
    medium materiality
    Medium
    Full-year FY26 Total Non-GAAP Operating Expenses
    $260 million, plus or minus $5 million
    medium materiality
    Medium
    Full-year FY26 Non-GAAP Diluted Share Count
    approximately 56 million shares
    medium materiality
    Medium
    Full-year FY26 Non-GAAP Tax Rate
    20%
    medium materiality
    Medium
    Preliminary FY27 Total Company Net Sales Growth
    approximately 30%
    high materiality
    Medium
    Preliminary FY27 Non-GAAP EPS Growth
    approximately 30%
    high materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Advanced Computing
    Reflects stronger AI infrastructure sales to enterprise customers, which more than offset reduced sales to hyperscale customers. Strong demand from enterprise, neocloud, and sovereign AI customers is expected to increase its share over time.
    Non-hyperscale AI infrastructure net sales: up 81% year-over-yearNon-hyperscale AI infrastructure as % of Advanced Computing net sales: 58% (vs 33% in Q3 FY25)
    		$138 million4%19%—
    Integrated Memory
    Supported by both higher volume and pricing. Strong results reflect a fundamental shift with agentic AI driving sustained structural demand for memory, anchoring the business on the data center market.
    		$275 million111%60%—
    Optimized LED
    Continues to be managed with discipline, generates positive cash flow, and executes against its innovation roadmap.
    		$66 million7%——

    Operational metrics

    27
    AI-driven businesses net sales
    74%104% year-over-year
    Q3 FY26

    Represented 74% of total company net sales of $479 million. Consist of integrated memory and non-hyperscale AI infrastructure solutions.

    Non-GAAP gross margin
    28.1%down 3.6 percentage points year-over-year
    Q3 FY26

    Primarily attributable to the ongoing wind down of Penguin Edge business and a shift in the overall mix of sales across business units, partially offset by AI-driven demand supporting favorable pricing in Integrated Memory.

    Non-GAAP operating income
    $64 millionup 67% year-over-year
    Q3 FY26

    A third quarter record, up 42% sequentially.

    Non-GAAP operating margin
    13.4%up 1.5 percentage points versus last year
    Q3 FY26

    Up 0.2 points sequentially, driven by strong operating leverage.

    Non-GAAP diluted EPS
    $0.84up 79% versus Q3 last year
    Q3 FY26

    Up 62% versus the prior quarter.

    Adjusted EBITDA
    $68 millionup 51% year-over-year
    Q3 FY26

    Up 34% versus the prior quarter.

    Product net sales
    $414 million60% versus the prior year
    Q3 FY26

    Representing 87% of total company net sales.

    Services net sales
    $65 milliondown 1% versus the prior year
    Q3 FY26

    Representing 13% of total net sales.

    Net accounts receivable
    $704 millioncompared to $293 million a year ago
    end of Q3 FY26

    Increase primarily driven by significantly higher memory sales volumes and prices.

    Days sales outstanding (DSO)
    53 daysup from 47 days a year ago
    Q3 FY26

    Up from 50 days last quarter. Calculated on a gross sales basis of $1.22 billion.

    Inventory
    $498 millionup from $184 million a year ago
    end of Q3 FY26

    Reflecting increased memory costs, growth in memory and AI infrastructure businesses, and strategic purchases to maximize supply for anticipated future memory demand.

    Days of inventory
    42 daysup from 36 days a year ago
    Q3 FY26

    Down from 51 days last quarter, primarily due to the timing of receipts and shipments. Calculated on a gross cost of goods sold basis of $1.09 billion.

    Accounts payable
    $736 millionup from $272 million a year ago
    end of Q3 FY26

    Due primarily to higher memory costs, growth in memory and AI infrastructure businesses, and the timing of purchases and payments.

    Days payable outstanding (DPO)
    62 dayscompared to 53 days last year
    Q3 FY26

    Compared to 63 days last quarter. Year-over-year and quarter-over-quarter movements due to timing of purchases and payments.

    Cash conversion cycle
    33 daysan improvement of 5 days compared to Q2
    Q3 FY26

    Up 3 days versus last year due to the timing of purchases and payments.

    Cash, cash equivalents and short-term investments
    $440 milliondown $295 million from Q3 last year
    end of Q3 FY26

    Down $49 million sequentially. Year-over-year decrease due to proceeds from preferred shares issuance in Q2 last year offset by debt repayments. Sequential decrease due to investments in working capital, partially offset by $40 million from disposition of Zilia Technologies equity investment.

    Cash flows used for operating activities
    $75 millioncompared to $97 million provided by operating activities in the prior year quarter
    Q3 FY26

    Decrease due to investments in net working capital to support growth in memory and AI infrastructure businesses.

    Capital expenditures
    $3 million
    Q3 FY26

    For the quarter.

    Depreciation
    $5 million
    Q3 FY26

    For the quarter.

    Shares repurchased
    466,000 shares
    Q3 FY26

    Under stock repurchase program.

    Amount spent on share repurchases
    $9 million
    Q3 FY26

    In the third quarter.

    Remaining share repurchase authorization
    $56 million
    as of May 29, 2026

    Aggregate amount available for repurchase of common stock under current authorizations.

    Non-hyperscale AI infrastructure business as % of Advanced Computing net sales
    58%versus 33% in the third quarter of last year
    Q3 FY26

    Reflects scaling rapidly and diversification to new customer categories.

    CFO transition
    —
    July 8, 2026

    Nate Olmstead to step down as Chief Financial Officer on July 8 to pursue an opportunity in a different industry. Aaron Johnson will serve as Interim CFO effective July 9. A search for a permanent CFO has been initiated.

    Penguin Edge business wind-down impact on FY26 growth
    approximately 14 percentage points
    FY26

    The combined effect of the Penguin Edge wind-down and no hyperscale AI hardware sales reduces the FY26 growth outlook.

    Penguin Edge business wind-down impact on Advanced Computing growth
    approximately 30 percentage points
    FY26

    The combined effect of the Penguin Edge wind-down and no hyperscale AI hardware sales reduces the FY26 growth outlook within Advanced Computing.

    Non-GAAP diluted share count
    approximately 62 million shares
    Q4 FY26

    Expected due to the dilutive impact from convertible debt as a result of higher share prices.

    Industry KPIs

    7
    MetricValueDetails
    Lead timesextended lead times
    Backlog order bookvery strong backlog
    Ai data center revenueAI-driven businesses represented 74% of total company net sales%
    Bookings net order intakenew bookings
    Design wins socket pipelinefour new AI infrastructure customer logoslogos
    Inventory channel inventory$498 millionUSD
    End market segment revenue mixAI-driven businesses represented 74% of total company net sales%

    Orderbook & backlog

    1
    Backlogvery strongend of Q3 FY26

    growing

    AI-driven demand continued to outpace net sales growth, contributing to a growing backlog and providing a strong backlog entering the fourth quarter.

    Product announcements

    3
    ProductTypeDetails
    MemoryAI KV Cache serverlaunch
    AI factory operations agentlaunch
    OriginAI inference solutionslaunch

    Deals & partnerships

    8
    DeepgramExpanded engagement to support additional production capacity for enterprise Voice-AI workloads.

    Penguin designed and deployed an optimized inference environment built with Dell infrastructure and NVIDIA technology. Deepgram also acquired ClusterWare product and additional services.

    Tier 1 financial institutionExpanded previously disclosed engagement for an on-prem AI factory.

    Expansion includes CXL-powered MemoryAI KV Cache server, ClusterWareAI software, and services, with Dell providing AI compute. Initially focused on inference and agentic AI for code generation using open-weight LLMs.

    HaeinDeployment to support AI infrastructure requirements for local neocloud CPU-as-a-Service.

    Demonstrates ability to support AI infrastructure requirements across a range of customer environments in South Korea.

    leading quantitative trading firmNew customer win for AI infrastructure.

    A recent Q3 customer win.

    Sandia National Laboratories and NextSiliconCollaboration to build and deploy the Spectra supercomputer system.

    Spectra demonstrates Penguin's ability to design and deploy complex systems in a demanding national security environment.

    Generative AI customerPurchasing CXL memory expansion cards.

    To support inference workload solutions, demonstrating continued expansion.

    NVIDIANamed an NVIDIA AI factory Specialized Partner.

    Recognition of expertise in designing, building, deploying, and managing full stack NVIDIA-based AI factory infrastructure.

    Dell TechnologiesRecognized as the 2026 Dell Technologies Global Alliances Americas AI Partner of the Year.

    Awarded for partnership in AI.

    Risks & headwinds

    6
    CFO transitionJuly 8, 2026

    Nate Olmstead to step down as Chief Financial Officer on July 8, 2026.

    Mitigation: Aaron Johnson, VP of Finance and Accounting, will serve as Interim CFO effective July 9. A formal search for a permanent CFO has been initiated, with no change to operating priorities, financial discipline, or focus on execution.

    Wind down of Penguin Edge businessby the end of fiscal 2026

    Expected to essentially cease by the end of fiscal 2026. Reduces FY26 growth outlook by approximately 14 percentage points at the total company level and approximately 30 percentage points within Advanced Computing.

    Mitigation: The impact is consistent with assumptions from last quarter and reflected in the FY26 financial outlook.

    Reduced sales to hyperscale customers in Advanced ComputingQ3 FY26 and ongoing

    Reduced sales to hyperscale customers in Q3 FY26.

    Mitigation: Offset by stronger AI infrastructure sales to enterprise customers. The full-year outlook assumes no Advanced Computing AI hardware sales to hyperscale customers.

    Extended lead times for certain componentsongoing

    Impacting how quickly the company can ramp existing and new customer projects and fulfill customer orders.

    Mitigation: Contemplated in the company's outlook for fiscal year 2026 and preliminary view of FY27.

    Industry-wide higher cost for memoryongoing

    May slow customer demand for products and solutions and may lower gross margins in Advanced Computing and Memory businesses.

    Mitigation: Contemplated in the company's outlook. Partially offset by AI-driven demand supporting favorable pricing in the Integrated Memory business.

    Downward pressure on gross marginsas we exit the year (Q4 FY26)

    Q4 outlook assumes less pricing favorability than experienced in Q3.

    Mitigation: The full-year non-GAAP gross margin outlook was adjusted up by 0.5 percentage point to 28.5% +/- 0.5% to account for Q3 favorability, but Q4 is expected to see some pressure.

    What to watch in Q4 FY26

    5

    CFO Transition

    Next quarter
    CurrentNate Olmstead stepping down July 8, Aaron Johnson interim CFO July 9
    TargetAppointment of permanent CFO

    Why it matters

    Ensures leadership stability and continued financial discipline during a period of significant growth and strategic focus on AI.

    I am also pleased that Aaron Johnson, our Vice President of Finance and Accounting, will serve as Interim CFO effective July 9. Aaron brings more than 16 years of public company experience in the technology sector and deep understanding of our business. We have also initiated a search for a permanent CFO.

    Q&A highlights

    7

    How much of the raised Memory guidance is due to pricing versus new products like CXL, and what hyperscale products are being shipped, contributing to the preliminary FY27 outlook?

    The higher Memory outlook considers both volumes and pricing, with CXL being a growing but smaller part of the data center-focused products. Hyperscale shipments are memory modules for data center products, but this is not a significant piece of the FY27 growth, consistent with the FY26 run rate.

    “So at the high level, for our Memory business, the higher outlook takes into consideration both the volumes as well as the pricing. And this is for the overall business. CXL is a part of our business. It's a new product line that is growing, but it is a part of the business versus majority of the business is the data center focused products.”

    asked by Katherine Campagna · answered by Kash Shaikh

    2 min read5 chapters

    Detailed Narrative

    01

    AI Market Evolution and Agentic AI

    The AI market is transitioning from early experimentation to production-scale inference and agentic AI, where AI performs work rather than just answering questions. This shift demands persistent, context-rich workloads, significantly increasing the need for memory capacity, faster access, and improved orchestration. Penguin Solutions believes this trend is strengthening demand for its memory solutions, as memory, not just compute, becomes a primary bottleneck for large context AI inference performance.

    02

    AI Factory Platform Strategy

    Penguin Solutions positions itself as a leading AI factory platform company, integrating five core elements: ClusterWareAI operating system software, MemoryAI integrated memory solutions, ComputeAI advanced computing systems, OriginAI factory architectures, and end-to-end design, build, deploy, and managed services. This comprehensive platform aims to provide customers with optimized architectures, accelerated deployment paths, and an operating model to generate profitable revenue and operational efficiencies, particularly for production AI environments.

    03

    Customer and Partner Momentum

    The company demonstrated strong customer traction, adding four new AI infrastructure customer logos in Q3 FY26. Notably, 7 of 13 new AI infrastructure logos acquired in the prior four quarters have already expanded their business. Key engagements include Deepgram, a Tier 1 financial institution (for CXL-powered MemoryAI KV Cache server), Haein (neocloud CPU-as-a-Service), and a quantitative trading firm. Penguin was also recognized as an NVIDIA AI factory Specialized Partner and Dell Technologies Global Alliances Americas AI Partner of the Year.

    04

    Product Innovation and Differentiation

    Penguin is investing in differentiated products like MemoryAI, which includes CXL-based KV Cache servers and the Photonic Memory appliance, to address the memory bottleneck in AI inference. ClusterWareAI, a hardware vendor-agnostic operating system, manages complex AI infrastructure, with a new AI factory operations agent simplifying administration. OriginAI reference architectures leverage the company's extensive GPU runtime experience to reduce deployment complexity and risk for customers.

    05

    Operational Execution and Financial Discipline

    Internally, Penguin is applying agentic AI to its own operations to accelerate product cycles and enhance supply chain responsiveness. The company maintains disciplined management of working capital and growth investments to meet AI-driven demand. While acknowledging extended lead times for certain components and higher memory costs, the company's outlook incorporates these factors, balancing growth investments with operational discipline for continued profitable growth.

    AI-generated summary of the company’s earnings call. Not investment advice.