Penguin Solutions Q3 Earnings Call Highlights

Key Points

• Penguin Solutions delivered record fiscal Q3 results, with net sales rising 48% year over year to $479 million and non-GAAP EPS up 79% to $0.84. AI-related businesses made up 74% of sales and grew 104% from a year earlier.
• The company raised its full-year fiscal 2026 outlook, now targeting 22% net sales growth and non-GAAP diluted EPS of $2.60 at the midpoint, up from a prior forecast of 12% growth and $2.15 EPS. It also lifted its gross margin outlook to 28.5% plus or minus 0.5 percentage points.
• AI infrastructure and memory demand remain the main growth drivers, with Integrated Memory sales more than doubling and the company seeing stronger adoption of its AI factory platform. Penguin added four new AI infrastructure customer logos in the quarter and said it expects about 30% growth in both sales and EPS in fiscal 2027 from the midpoint of its updated 2026 outlook.

Penguin Solutions NASDAQ: PENG reported record fiscal third-quarter results and raised its full-year outlook, citing accelerating demand tied to artificial intelligence infrastructure and memory products.

Chief Executive Officer Kash Shaikh told investors that the company delivered “an exceptional quarter” with record net sales and “significantly higher than anticipated” earnings per share. He said Penguin’s AI-driven businesses accounted for 74% of total company net sales in the quarter and grew 104% year over year.

“This gives us confidence that the AI opportunity is expanding as enterprises increasingly adopt agentic AI workloads powered by inference at scale,” Shaikh said.

Revenue Jumps 48% as Memory Sales More Than Double

For the third quarter of fiscal 2026, Penguin Solutions reported total net sales of $479 million, up 48% from a year earlier and 40% sequentially. Non-GAAP operating income reached $64 million, a third-quarter record and up 67% year over year. Non-GAAP diluted earnings per share were $0.84, up 79% from the prior-year quarter and 62% from the previous quarter.

Chief Financial Officer Nate Olmstead said both sales and profits were “significantly higher than expected,” driven primarily by accelerating AI-related demand for memory products and continued adoption of AI infrastructure solutions.

By segment, Integrated Memory generated $275 million in net sales, representing 57% of total company sales and rising 111% year over year. Advanced Computing generated $138 million, up 4% year over year and 19% sequentially. Within Advanced Computing, the non-hyperscale AI infrastructure business grew 81% year over year and represented 58% of segment sales, compared with 33% a year earlier. Optimized LED sales totaled $66 million, up 7% year over year.

Non-GAAP gross margin was 28.1%, down 3.6 percentage points from the year-earlier quarter. Olmstead said the decline was primarily due to the ongoing wind down of the Penguin Edge business and changes in sales mix, partially offset by favorable pricing in Integrated Memory. Non-GAAP operating expenses rose 9% year over year to $70 million, reflecting seasonality, higher R&D spending and increased variable compensation tied to the company’s performance.

Company Raises Fiscal 2026 Outlook

Penguin increased its full-year fiscal 2026 outlook for both net sales and non-GAAP diluted EPS. At the midpoint, the updated outlook calls for 22% net sales growth and non-GAAP diluted EPS of $2.60, compared with the prior outlook of 12% sales growth and $2.15 in EPS.

Olmstead said the improved outlook reflects strong performance through the first nine months of the fiscal year and a better fourth-quarter outlook for the memory business. The company now expects Integrated Memory sales to grow 90% to 95% year over year, up from its previous outlook. Advanced Computing sales are expected to decline 15% to 20% year over year, reflecting the wind down of Penguin Edge and the absence of Advanced Computing AI hardware sales to hyperscale customers. Optimized LED sales are expected to decline about 5% for the full year.

The company also raised its full-year non-GAAP gross margin outlook to 28.5%, plus or minus 0.5 percentage points, citing favorable memory pricing in the third quarter. However, Olmstead said the fourth-quarter outlook assumes less pricing favorability than in the third quarter, creating some expected downward pressure on gross margins as the fiscal year ends.

Penguin also offered preliminary fiscal 2027 commentary, saying its initial planning view contemplates total company net sales growth and non-GAAP EPS growth of about 30% from the midpoint of the fiscal 2026 outlook. Olmstead said the company expects to provide a full fiscal 2027 outlook on its next earnings call.

AI Infrastructure and Memory Demand Drive Backlog

Shaikh framed the company’s growth around the shift from early AI use cases to production-scale inference and agentic AI. He said early AI systems largely answered questions, while agentic AI “performs work” across persistent, context-rich and task-oriented workflows.

According to Shaikh, this shift is increasing demand not only for GPUs and high-bandwidth memory, but also for CPUs, storage, networking and general-purpose memory. He said Penguin believes memory is becoming “one of the primary bottlenecks” for large-context AI inference performance.

The company highlighted its AI factory platform, which includes ClusterWareAI software, MemoryAI and integrated memory products, ComputeAI systems, OriginAI reference architectures and design, build, deploy and managed services. Shaikh said customers increasingly need more than hardware procurement and are seeking systems that can perform at production scale and improve time to revenue.

Penguin said it added four new AI infrastructure customer logos during the quarter. Shaikh said that among 13 AI infrastructure logos added over the trailing four quarters from the third quarter of fiscal 2025 through the second quarter of fiscal 2026, seven had already increased their business with the company.

The company also cited expanded engagements with Deepgram and a previously disclosed tier 1 financial institution. Shaikh said the financial customer purchased additional MemoryAI KV cache servers in the third quarter for an on-premises AI factory focused initially on inference and agentic AI for code generation using open-weight large language models.

Balance Sheet Reflects Growth Investments

Penguin ended the quarter with $440 million in cash, cash equivalents and short-term investments, down $49 million sequentially. Olmstead said the sequential decline was primarily due to working capital investments to support growth, partially offset by approximately $40 million in proceeds from the disposition of the company’s 19% equity investment in Zilia Technologies.

Net accounts receivable totaled $704 million, up from $293 million a year earlier, driven by higher memory sales volumes and prices. Inventory rose to $498 million from $184 million a year ago, reflecting higher memory costs, growth in the memory and AI infrastructure businesses and strategic purchases for anticipated future demand. Accounts payable increased to $736 million from $272 million.

Operating cash flow was a use of $75 million in the quarter, compared with $97 million provided by operations in the prior-year period. Penguin also repurchased approximately 466,000 shares for $9 million during the quarter and had $56 million remaining under its repurchase authorizations as of May 29, 2026.

CFO Transition Underway

Shaikh also addressed Penguin’s finance leadership transition. Olmstead will step down as CFO on July 8 to pursue an opportunity in a different industry. Aaron Johnson, vice president of finance and accounting, will serve as interim CFO beginning July 9 while the company searches for a permanent replacement.

Shaikh said the transition does not change Penguin’s operating priorities, financial discipline or focus on execution. During the question-and-answer session, he said the company is conducting a formal search with an executive search firm and is considering both internal and external candidates.

Olmstead said he expects a “very smooth transition” with Johnson, calling him his “right-hand person” over the past two years.

About Penguin Solutions NASDAQ: PENG

Penguin Solutions, Inc engages in the designing and development of enterprise solutions worldwide. It operates through three segments: Advanced Computing, Integrated Memory, and Optimized LED. It offers dynamic random access memory modules, solid-state and flash storage, and other advanced integrated memory solutions for networking and telecom, data analytics, artificial intelligence and machine learning applications; and supply chain services, including procurement, logistics, inventory management, temporary warehousing, programming, kitting, and packaging services.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.