Penguin Solutions · PENG
Penguin's 40% growth guide is mostly last quarter's pace repeated, and the growth so far has cost cash
Penguin Solutions raised next year's sales guidance to about 40% growth, but most of it is last quarter's pace held for a year, operations used $151.9 million of cash, and management put no dollar figure on memory backlog.
Published · Inve Research Desk
-$151.9M
cash from operations in the year just ended
Non-GAAP operating income reached a record while operations consumed cash, after cash-positive years in each of the four prior fiscal years shown: growth is absorbing cash faster than the business makes it, and debt rose.
How they did last quarter
Sales and non-GAAP EPS beat July's guide (fourth-quarter sales of $567 million against about $505 million implied, by our arithmetic; full-year EPS of $2.87 against the $2.60 midpoint), but operations used $163.1 million of cash.
- Sales$567 million, up 67.7% on a year agovs $337.9 million a year ago and $478.7 million the quarter beforeThe step up is large enough that repeating it for a year already beats the year just ended by 31.0%, by our arithmetic.
- Non-GAAP operating margin15.8%vs 13.4% the quarter before and 11.6% a year agoOperating profit grew faster than sales, both on the quarter before and on a year ago.
- Cash from operations-$163.1 millionvs -$74.8 million the quarter before and -$70.4 million a year agoThe weakest quarter on our record back to FY21; the previous low was -$74.8 million, in the quarter before.
- Working capital$728 million, by our arithmeticvs $296 million a year agoUp 146% on a year ago while quarterly sales rose 68%. Cash conversion takes 42 days against 49 a year ago, but 9 days longer than last quarter.
Most of the guide's growth is last quarter's pace repeated
On its results call, Penguin Solutions said it expects sales next year to grow about 40%. In July it had offered a preliminary view of growth from the midpoint of that year's then-current outlook, a lower base; on that same base the company restates the new midpoint as a larger raise. That reads as a large raise, and the way to test it is to set it beside the quarter just reported. Sales in the August quarter were $567 million. Repeat that for four quarters and the year comes to a figure 31.0% above the year just ended, by our arithmetic.
The new midpoint is only about 7.1% above that pace, by our arithmetic. So roughly three-quarters of the extra sales in the guide is the exit rate of the year just ended held for a full year, and only the remainder is growth still to be earned. The July figure was, in the words of Kash Shaikh, the chief executive, on this call, "more of a color and preliminary outlook than the actual outlook"; the October version is the plan with a very strong quarter inside it.
The last guide, scored: most lines beat, spending over
The last guide was given in July, with nine months of the year already reported, and had itself been raised from 12% sales growth and $2.15 of non-GAAP EPS. Against July's guide, sales grew 26.5% against a guided midpoint of 22%, and non-GAAP earnings per share of $2.87 finished above the $2.60 midpoint of July's guide; against the earlier outlook the beat is far larger. Each segment also finished above July's guide, Integrated Memory by the widest margin, and non-GAAP diluted shares matched it, as the evidence rows list. Non-GAAP operating spending was the one line to run over its guided range.
The new guide asks for different things from each segment. Advanced Computing and memory are both guided to grow fast, with the LED business roughly flat. That sounds like growth across the board, but the arithmetic in the next sections shows that the two big segments are being asked for very different things.
The profit is on the page; the cash has not followed
Non-GAAP operating income, operating profit before stock-based compensation, amortization of acquired intangibles, restructuring and other items the company excludes, was a record for the year, management said. Over the same twelve months operations used $151.9 million of cash. In each of the four fiscal years before it in the filed results, operations had produced cash.
Aaron Johnson, who was interim chief financial officer until the day of the call, put the cause down to working capital in its memory and AI infrastructure businesses, and said that "improving working capital efficiency remains an important priority for fiscal 2027". Receivables plus inventory less payables came to $728 million, against $296 million a year earlier, by our arithmetic from the company's reported figures.
Operating and free cash flow, FY22 to FY25
Cash from operations was positive in each of these four filed years, so the cash drain in the year just ended breaks the pattern the company had built before this growth.
$ million
| Operating cash flow | Free cash flow | |
|---|---|---|
| Aug 2022 | 105 | 85 |
| Aug 2023 | 104 | 65 |
| Aug 2024 | 77 | 58 |
| Aug 2025 | 109 | 100 |
What has to be true for the guide to hold
Take memory first. Its guided midpoint is only about 1.7% above last quarter's pace, by our arithmetic, though the low end of the range is below it. At the midpoint, the plan needs memory sales to hold at roughly last quarter's level for a full year, about 1.7% above it; a fall in memory prices would have to be made up in volume. Kash Shaikh, the chief executive, said memory backlog is much higher than the quarter's memory sales and runs at least four quarters ahead. On the call he gave no dollar figure for it, and no figures for how much of memory's growth is price and how much is volume. An analyst recalled July's point that, counting backlog that could not ship, the split leans even or toward volume, and Shaikh agreed that this was what the company had observed. That describes backlog, not reported sales, so a holder still cannot measure how much of the growth is a price that could fall.
Advanced Computing is the opposite case. Its guided midpoint needs sales about 27% above last quarter's pace, by our arithmetic, while Shaikh allowed, on segment margins, which the company did not give on the call, that "AI infrastructure may have some downward pressure". If a customer's deployment slips, this is where the shortfall would show first.
The company also borrowed, and the cash question is open
The company also borrowed. It sold $750 million of convertible notes in the quarter, used part of the proceeds to repay a credit line and to exchange older notes (the company's account). Debt less cash went from about $3 million to $142 million in the quarter, by our arithmetic. The notes carry no interest but can turn into shares, and the guide assumes slightly more shares than the company has now.
We do not know yet how much more cash next year's growth will absorb. The next data point is next quarter's cash flow, the first period with Stephen Cumming in the job; he was named permanent chief financial officer on the day of the call and did not speak on it.
Penguin Solutions stock page →
The record: notes, full financial tables
Notes
Impact 5/5 Guidance Positive
Penguin guides FY27 sales up about 40%; July's preliminary 30% was on a lower base
Penguin Solutions guided fiscal 2027 sales to grow about 40%, plus or minus 10 points, to roughly $2.43 billion, with non-GAAP earnings per share of about $4.45. In July its preliminary view was about 30% growth from that year's outlook midpoint; on that base the company calls the new midpoint about 45%. Last quarter's $567 million, repeated for four quarters, already sits 31.0% above fiscal 2026, so the midpoint is only about 7.1% above that pace, by our arithmetic. Advanced Computing is guided up about 40% and Integrated Memory about 50%.
“The booking strength, we have booked more than we expected, and we have a very strong pipeline”— Kash Shaikh, chief executive
Impact 5/5 Balance sheet Negative
Penguin's operations used $151.9M of cash in FY26, after cash-positive FY22-FY25
Operations used $163.1 million of cash last quarter and $151.9 million in fiscal 2026, which management attributed to working capital in its memory and AI infrastructure businesses. Operations produced cash in each year from FY22 to FY25, including $109.1 million in FY25, while non-GAAP operating income reached $241 million this year. Receivables plus inventory less payables was $728 million against $296 million a year earlier, by our arithmetic.
“improving working capital efficiency remains an important priority for fiscal 2027”— Aaron Johnson, interim chief financial officer until 6 October 2026
Impact 4/5 Demand Mixed
Penguin memory sales rose 158% on a year ago; price versus volume unquantified
Integrated Memory sales were $341 million last quarter, up 158% on a year ago and 60% of company sales. Management said volume and pricing both rose but did not quantify either on the call, as in July. The chief executive described memory backlog as much higher than the quarter's revenue and lasting at least four quarters, without a dollar figure, and agreed with an analyst that counting backlog the split leans even or toward volume.
“and the backlog now extend to at least 4 quarters, and it continues to strengthen”— Kash Shaikh, chief executive
Impact 3/5 Margin Mixed
Penguin gross margin rose to 28.8% despite July's warning; FY27 guided near 28%
Non-GAAP gross margin was 28.8% last quarter, up 0.7 points on the quarter before but below 30.9% a year earlier, though July's guidance had pointed to some pressure. Fiscal 2026 came in at 29.3%, above the top of July's range. Fiscal 2027 is guided at about 28%, plus or minus 2 points, with non-GAAP operating expenses of about $275 million against $266.9 million, over its guided range in fiscal 2026. On segment margins, which the company did not give on the call, the chief executive allowed some pressure in AI infrastructure.
“AI infrastructure may have some downward pressure”— Kash Shaikh, chief executive
Impact 2/5 Risk Mixed
Penguin names Stephen Cumming CFO on call day; interim CFO presented the guide
Penguin Solutions appointed Stephen Cumming senior vice president and chief financial officer, effective 6 October 2026, the day of its results call. Aaron Johnson, who had been interim CFO since July 2026, returned to vice president of finance and accounting after presenting the results and the fiscal 2027 guidance. Cumming was on the line but did not speak on the call.
“investors will have the opportunity to get to know him in the coming months”— Kash Shaikh, chief executive
Financials
Income statement, last 8 quarters
| Quarter end | Sales | YoY | Operating profit | Op. margin | Other income | PBT | Net profit |
|---|---|---|---|---|---|---|---|
| May 2026 | 479 | +47.6% | 50.9 | 10.6% | 2.8 | 53.7 | 44.7 |
| Feb 2026 | 343 | −6.2% | 25.7 | 7.5% | 27.3 | 53.0 | 37.5 |
| Nov 2025 | 343 | +0.6% | 19.6 | 5.7% | −11.7 | 7.9 | 5.3 |
| Aug 2025 | 338 | +8.6% | 12.4 | 3.7% | −3.1 | 9.4 | 9.4 |
| May 2025 | 324 | +7.9% | 9.8 | 3.0% | 0.9 | 10.7 | 2.7 |
| Feb 2025 | 366 | +28.3% | 18.5 | 5.1% | −2.0 | 16.5 | 8.1 |
| Nov 2024 | 341 | +24.4% | 17.4 | 5.1% | −5.0 | 12.3 | 5.2 |
| Aug 2024 | 311 | −1.8% | 8.8 | 2.8% | −26.4 | −17.6 | −24.5 |
Balance sheet
| As of | Equity | Debt | Cash | Investments | Fixed assets | Total assets |
|---|---|---|---|---|---|---|
| May 2026 | 439 | 443 | 440 | – | 85.2 | 2,191 |
| Feb 2026 | 395 | 443 | 489 | – | 86.9 | 1,750 |
| Nov 2025 | 390 | 462 | 462 | 0.0 | 90.4 | 1,598 |
| Aug 2025 | 394 | 462 | 454 | 0.0 | 92.6 | 1,617 |
Cash flow
| Year end | Operating | Investing | Financing | Free cash flow |
|---|---|---|---|---|
| Aug 2025 | 109 | 25 | −64 | 100 |
| Aug 2024 | 77 | 108 | −210 | 58 |
| Aug 2023 | 104 | −299 | 236 | 65 |
| Aug 2022 | 105 | −39 | 74 | 85 |