Penguin Solutions, Inc. Ordinary Shares 2026 Q4 Earnings Call

Please go ahead. Thanks everyone for joining us.

With me today are Kash Shaikh, Stephen Cumming, and Aaron 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 Kash.

Good afternoon, everyone, and thank you for joining Penguin Solutions' Fiscal 2026 fourth quarter and year-end earnings call. Before we get into our results, I want to start with an important addition to our leadership team. Earlier today, we announced that Stephen Cumming has joined Penguin Solutions as our new Chief Financial Officer. Stephen is an experienced public company executive with a strong track record in financial leadership, operational scaling, and investor relations. We are pleased to welcome Stephen at an exciting time for Penguin, and investors will have the opportunity to get to know him in the coming months. For today's call, Aaron Johnson, who has served as our interim CFO since July, will walk you through our financial results and fiscal 2027 outlook as planned.

I want to thank Aaron for his leadership during the transition. I look forward to continuing to work with him as he returns to his role as Vice President of Finance and Accounting. Now let's turn to our results. Our team delivered an exceptional quarter, capping off a very strong fiscal year. In Q4, we set company records for net sales, gross profit dollars, operating income, operating margin, net income, and adjusted EBITDA. Net sales were $567 million, up 68% year-over-year, and EPS was $1, up 133%, reflecting strong operating leverage that enabled EPS to grow faster than net sales. I would also like to thank our customers for their continued confidence in Penguin. Our AI-driven businesses continued to scale. In Q4, non-hyperscale AI infrastructure and Integrated Memory represented 78% of company net sales and grew 141% year-over-year.

Our overall company performance accelerated meaningfully in the second half of fiscal 2026, following the launch of our AI factory platform strategy and increased focus on the data center market. We aligned the business more closely with strong AI-driven demand, increased investments in product innovation, and accelerated go-to-market execution with a focus on NeoCloud and enterprise customers. The proof is in the results. After relatively flat year-over-year net sales in the first half, growth accelerated to 48% in Q3 and 68% in Q4, driving second half growth of 58%. Full-year net sales were approximately $1.73 billion, up approximately 26% year-over-year. We also achieved record full-year operating income. In AI infrastructure and Integrated Memory, bookings grew faster than net sales in the fourth quarter, and we ended fiscal 2026 with record company backlog and strong momentum heading into fiscal 2027.

Based on our second half performance, bookings growth, continued strength of our memory business, and more importantly, accelerating demand from NeoCloud customers for our data center AI infrastructure solutions, we are increasing our fiscal 2027 growth outlook from the preliminary view we shared last quarter. We expect record fiscal 2027 net sales with EPS growth expected to outpace net sales growth as we continue to scale and drive operating leverage. I'll walk through what we are seeing in the market before turning to the outlook. AI is becoming super intelligence, SI, as it continues to move from chatbot advisor to agentic operator, executing tasks and workflows with increasing autonomy. This shift is driving inference at scale and creating increasingly memory-intensive workloads. Inference is increasing demand across the entire data center stack. GPUs remain critical, but CPUs and conventional memory, including DRAM, must also scale.

We believe Penguin is well positioned to lead in this market opportunity at the intersection of data center AI infrastructure and memory solutions. We are seeing enterprise and AI native companies address these AI compute infrastructure needs in a variety of ways, primarily consuming AI infrastructure from NeoCloud providers, and in some cases, building their own on-premises AI factories. For persistent high-utilization AI workloads such as inference, large enterprises are increasingly considering on-premises AI infrastructure, which can offer better token economics, data control, and performance. Our full stack AI factory platform combines five core elements with our partner ecosystem. First, ClusterWareAI operating system software for AI factories. Second, MemoryAI and Integrated Memory solutions. Third, GPU and CPU systems under our ComputeAI brand. Fourth, OriginAI factory architectures, and fifth, end-to-end design, build, deploy, and managed services.

What sets our platform apart is its rare combination of OEM-like differentiated product innovations and end-to-end AI infrastructure systems integration capabilities. This allows us to serve as the single builder and operator of AI factories across the entire life cycle for our customers. Customers need more than hardware and assembly. This is particularly important for NeoCloud providers, where we have seen a recent surge in interest that we believe reflects strong product-market fit for our full stack platform. For NeoClouds, we can serve as a single operating partner across the entire life cycle, helping customers meet SLAs and generate revenue faster while they focus on securing additional off-takers and scaling their businesses. Let me now turn to our business results, starting with Advanced Computing. In Q4, Advanced Computing net sales totaled $154 million, representing 27% of company net sales and growing 11% year-over-year.

Data center AI infrastructure growth within Advanced Computing, driven by our AI factory platform, was significantly stronger. Non-hyperscale AI infrastructure net sales grew 99% year-over-year and represented 66% of Advanced Computing net sales, up from 60% in the prior year quarter. This growth more than offset continued runoff from other traditional businesses and reflects the ongoing shift in Advanced Computing toward data center AI infrastructure. During the quarter, we added six new AI infrastructure customers, including four NeoClouds, a large quantitative trading firm, and an enterprise customer. We exited fiscal 2026 with strong momentum, and bookings have accelerated further entering fiscal 2027. Our land and expand model remains central to our go-to-market strategy. Successful initial deployments create opportunities to expand across our platform, including ClusterWareAI and multi-year managed services engagements that typically span three to five years.

Across fiscal 2026, we added 17 new AI infrastructure customers, while 12 customers expanded their business with Penguin. We are seeing strong momentum with NeoCloud customers, including a NeoCloud backed by a leading South Korean technology company selected us to design, build, deploy, and manage an NVIDIA GB300 NVL72-based platform with the initial deployment expected to support a broader GPU-as-a-service expansion. A publicly traded NeoCloud provider that has more than $3 billion in signed multi-year AI infrastructure contracts selected Penguin for a multi-year engagement to provide AI infrastructure deployment and 24/7 operation services supported by ClusterWareAI, our AI factory operating system software. Lektra, a NeoCloud, selected our full stack AI factory platform to deploy and optimize distributed AI micro data centers powered by existing carbon-free energy. We provide validated reference designs, NVIDIA-based AI GPUs and expert services with ClusterWareAI and support.

For another NeoCloud provider with $10 billion in contracted compute from a leading AI lab, we were selected to deploy and operate a 36,000 GPU AI factory in Norway. This multi-year engagement demonstrates the scale of our platform and our ability to bring large-scale AI infrastructure into production. These engagements demonstrate an important evolution in our business. Customers are increasingly selecting Penguin as an end-to-end partner to design, deploy, optimize, and operate AI infrastructure. We also continued to advance ClusterWareAI with new agentic AI capabilities that automate AI factory operations, remediation, and infrastructure monitoring. Our AI Factory Operations Agent provides administrators with a natural language interface for operational insights. Put simply, administrators can now talk to their AI factory.

We are also an NVIDIA AI Factory Specialized Partner, an invitation-only designation that reflects the depth of our partnership with NVIDIA, which continues to strengthen and more than a decade of experience building and managing NVIDIA-based AI factories. Finally, we established a relationship with another AI hardware supplier to help expand supply availability and support growing demand. Now turning to Integrated Memory. Fourth quarter net sales reached a record $341 million, representing 60% of company net sales, up 158% year-over-year and 24% sequentially. In Q4 fiscal 2026, we added two new memory customer logos. Our land and expand strategy also continues to produce results. Across fiscal 2026, we added 50 new customers, while 29 existing customers expanded their business with us. We are seeing an increase in both volume and pricing.