Core Viewpoint - Penguin Solutions, Inc. (PENG) is experiencing significant selling pressure, with a 12.6% decline over the past four weeks, but is positioned for a potential trend reversal as it enters oversold territory, supported by analysts predicting better earnings than previously estimated [1]. Group 1: Technical Indicators - The Relative Strength Index (RSI) is utilized to identify oversold stocks, with a reading below 30 indicating oversold conditions [2]. - PENG's current RSI reading is 28.38, suggesting that the heavy selling may be exhausting, indicating a potential bounce back towards equilibrium [5]. Group 2: Fundamental Analysis - There is strong consensus among sell-side analysts to raise earnings estimates for PENG, with a 3.8% increase in the consensus EPS estimate over the last 30 days, which typically correlates with price appreciation [6]. - PENG holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimate revisions and EPS surprises, further indicating a potential turnaround [7].

Core Viewpoint - Penguin Solutions, Inc. (PENG) has received a Zacks Rank 2 (Buy) upgrade, indicating a positive outlook driven by rising earnings estimates, which are crucial for stock price movements [1][3][5]. Earnings Estimates and Stock Performance - The Zacks rating system emphasizes the importance of earnings estimate revisions, which have shown a strong correlation with near-term stock price movements [4][6]. - For the fiscal year ending August 2025, Penguin Solutions is expected to earn $1.59 per share, reflecting a year-over-year increase of 27.2% [8]. - Over the past three months, the Zacks Consensus Estimate for Penguin Solutions has risen by 2.8%, indicating a positive trend in earnings expectations [8]. Zacks Rating System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with only the top 20% receiving a 'Strong Buy' or 'Buy' rating, highlighting their potential for market-beating returns [9][10]. - Stocks rated Zacks Rank 1 (Strong Buy) have historically generated an average annual return of +25% since 1988, showcasing the effectiveness of the rating system [7].

Group 1 - Michael Wiggins De Oliveira is an inflection investor, focusing on buying undervalued companies at pivotal moments when their profitability is expected to increase significantly over the next year [1] - The investment strategy emphasizes technology and the Great Energy Transition, including uranium, with a concentrated portfolio of approximately 15 to 20 stocks and an average holding period of 18 months [1] - Michael has over 10 years of experience in analyzing companies, particularly in the tech and energy sectors, and has built a following of over 40,000 on Seeking Alpha [2] Group 2 - The Investing Group Deep Value Returns, led by Michael, offers insights through its concentrated portfolio of value stocks, timely updates on stock picks, and a weekly webinar for live advice [3] - The group provides "hand-holding" support for both new and experienced investors, fostering an active and vibrant community accessible via chat [3] - Seeking FCF is associated with Michael Wiggins De Oliveira, indicating a collaborative approach in investment strategies [3]

Company Overview - Penguin Solutions, Inc. (NASDAQ: PENG), formerly known as SMART Global Holdings, is a US-based company that specializes in high-performance computing infrastructure, memory products, and LED technologies [1]. Mission and Research Focus - The mission of Grassroots Trading emphasizes providing objective, unbiased, and balanced research, supported by solid data and free from emotional influences [1]. - The focus is primarily on small- to mid-cap companies, aiming to present compelling investment opportunities that are often overlooked [1]. - Additionally, the company periodically identifies potential opportunities in large- and mega-cap companies, broadening its coverage of the dynamic equity markets [1].

Financial Data and Key Metrics Changes - Total revenue for Q2 fiscal 2025 was $366 million, representing a 28% increase year-over-year [8][36] - Non-GAAP gross margin was 30.8%, down year-over-year but flat sequentially [37] - Non-GAAP operating income was $49 million, up 85% year-over-year, with an operating margin of 13.4%, an increase of 4.1 percentage points [10][41] - Non-GAAP diluted earnings per share were 52 cents, a 97% increase compared to the previous year [9][41] Business Segment Data and Key Metrics Changes - Advanced computing revenue was $200 million, up 42% year-over-year, accounting for 55% of total revenue [17][39] - Integrated memory revenue reached $105 million, a 26% increase year-over-year, representing 29% of total revenue [21][39] - Optimized LED revenue was $60 million, flat year-over-year, making up 16% of total revenue [24][39] Market Data and Key Metrics Changes - The market for artificial intelligence is expanding, with increasing corporate deployments expected in 2025 and 2026 [11] - Demand for higher performance and reliability in memory is growing, particularly in sectors like computing, networking, and telecommunications [21] Company Strategy and Development Direction - The company is focusing on expanding its go-to-market strategy through channel partnerships to drive long-term growth [13] - A strategic shift from quarterly to annual financial outlooks has been made to provide a broader perspective on business performance [14] - The company plans to re-domicile from the Cayman Islands to the United States to align operations with its strategic objectives [32] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth trajectory, raising the revenue outlook for fiscal 2025 from 15% to 17% year-over-year [16][48] - The company is navigating a dynamic economic environment but has not yet seen significant impacts on customer engagements [61] - Management highlighted the importance of managing supply chain constraints and tariffs affecting the LED business [53] Other Important Information - The company announced a patent license agreement with Daktronics, enhancing its position in the LED market [25] - An executive retirement was announced, with Jack Pacheco set to retire after 25 years with the company [33] Q&A Session Summary Question: What verticals will drive revenue in the second half for advanced computing? - Management indicated that while they do not forecast by vertical, sectors like federal, financial, and energy are expected to contribute [58] Question: Have economic uncertainties impacted enterprise and cloud customer engagements? - Management noted that while the environment is dynamic, they have not had significant discussions regarding impacts on infrastructure build-out plans [61] Question: How does the manufacturing footprint relate to tariffs? - The LED supply chain primarily operates in North Carolina and Taiwan, with most products built in the U.S. [66][70] Question: What is the status of the partnership with SK Telecom? - Management reported positive discussions and collaboration on AI infrastructure deployment, but specific customer goals were not disclosed [81] Question: How will the domicile change affect federal and state contract opportunities? - The move aims to align operations with future plans, simplifying the structure without significant impact on federal contracts [93] Question: What is the outlook for co-packaged optics and memory solutions? - The company is developing optical memory appliances to meet increasing AI demands, with potential revenues expected in late 2026 to early 2027 [95] Question: Can you elaborate on the deferred revenue increase? - The increase is primarily due to customer renewals in the services business, typically recognized over a year [105]

Core Insights - Penguin Solutions, Inc. reported quarterly earnings of $0.52 per share, exceeding the Zacks Consensus Estimate of $0.35 per share, and showing an increase from $0.27 per share a year ago, resulting in an earnings surprise of 48.57% [1] - The company achieved revenues of $365.52 million for the quarter ended February 2025, surpassing the Zacks Consensus Estimate by 5.31%, compared to $284.82 million in the same quarter last year [2] Earnings Performance - Over the last four quarters, Penguin Solutions has surpassed consensus EPS estimates three times [2] - The company had a previous quarter earnings expectation of $0.40 per share but reported $0.49, delivering a surprise of 22.50% [1] Stock Performance - Shares of Penguin Solutions have declined approximately 10% since the beginning of the year, while the S&P 500 has decreased by 4.2% [3] - The current Zacks Rank for the stock is 3 (Hold), indicating expected performance in line with the market in the near future [6] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $0.36 on revenues of $335 million, and for the current fiscal year, it is $1.58 on revenues of $1.37 billion [7] - The outlook for the Internet - Software industry is favorable, ranking in the top 31% of over 250 Zacks industries, suggesting potential for outperformance [8]

Q2 FY25 Financial Results Nasdaq: PENG April 2, 2025 Disclaimer This presentation and the oral communications made during the course of this presentation contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements concerning or regarding future events and future financial and ...

Financial Performance - Total net sales for the three months ended February 28, 2025, reached $365.5 million, a 28.3% increase from $284.8 million in the same period last year[13] - Gross profit for the six months ended February 28, 2025, was $202.5 million, compared to $164.8 million for the same period in 2024, reflecting a 22.8% increase[13] - Operating income for the three months ended February 28, 2025, was $18.5 million, a significant recovery from an operating loss of $3.3 million in the prior year[13] - Net income attributable to Penguin Solutions for the three months ended February 28, 2025, was $8.1 million, compared to a net loss of $13.6 million in the same period last year[13] - The comprehensive income attributable to Penguin Solutions for the six months ended February 28, 2025, was $13,306,000, compared to $172,529,000 for the same period in 2024, indicating a decrease of about 92%[14] - Basic earnings per share for continuing operations for the three months ended February 28, 2025, was $0.09, compared to a loss of $(0.26) for the same period in 2024[93] Cash and Assets - Cash and cash equivalents increased to $621.7 million as of February 28, 2025, up from $383.1 million as of August 30, 2024[12] - Total assets grew to $1.81 billion as of February 28, 2025, compared to $1.47 billion as of August 30, 2024, marking a 22.8% increase[12] - The company reported long-term debt of $638.900 million as of February 28, 2025, compared to $657.347 million as of August 30, 2024[49] - As of February 28, 2025, cash and cash equivalents were $596.5 million, with short-term investments totaling $25.3 million[41] Liabilities and Equity - The company reported a total current liabilities of $473.7 million as of February 28, 2025, compared to $327.6 million as of August 30, 2024, indicating a 44.5% increase[12] - The total shareholders' equity as of February 28, 2025, was $602,528,000, reflecting an increase from $399,208,000 as of August 30, 2024, which is an increase of approximately 51%[15] - Total liabilities increased to $1.20 billion, up from $1.08 billion in the previous reporting period[12] Research and Development - Research and development expenses for the three months ended February 28, 2025, were $19.9 million, slightly down from $20.5 million in the same period last year[13] - Research and development expenses for the six months ended February 28, 2025, totaled $39,718,000, slightly down from $41,915,000 in the same period of 2024[13] Share Repurchase and Dividends - The company issued 553 shares under equity plans, resulting in an increase of $382,000 in additional paid-in capital[16] - Penguin Solutions repurchased shares worth $6,472,000 during the reporting period, contributing to a reduction in treasury shares[15] - The company declared and paid preferred cash dividends of $2.2 million in the second quarter of 2025, with accrued preferred dividends of $0.4 million as of February 28, 2025[63] Segment Performance - Advanced Computing segment sales increased to $200.2 million, up 41.5% from $141.4 million year-over-year[95] - Integrated Memory segment sales rose to $105.3 million, a 26.4% increase compared to $83.3 million in the prior year[95] - Total segment operating income for the three months was $49.1 million, compared to $26.5 million in the same period last year, reflecting an increase of 85.2%[95] Future Outlook - The company anticipates continued growth in revenues driven by new product launches and market expansion initiatives[6] - The company anticipates continued growth in the Advanced Computing and Integrated Memory segments, driven by demand in AI and high-performance computing markets[96] - The company plans to continue focusing on advanced computing solutions across multiple markets, including financial services and healthcare, to drive future growth[96] Impairments and Restructuring - The company incurred an impairment of goodwill of $6,079,000 during the three months ended February 28, 2025[13] - Restructuring charges recorded in the first six months of 2025 amounted to $1.0 million, compared to $6.3 million in the same period of 2024[84] - The company anticipates recording additional restructuring charges in future quarters[84] Tax and Other Expenses - The effective tax rate for the second quarter of 2025 was 46.3%, significantly higher than the (20.3)% effective tax rate in the second quarter of 2024[87] - The total interest expense for convertible senior notes for the six months ended February 28, 2025, was $4.6 million, compared to $3.3 million for the same period in 2024, reflecting a year-over-year increase of 40.4%[52]

Financial Performance - Total net sales for Q2 fiscal 2025 reached $365.5 million, representing a 28.3% increase compared to the same quarter last year[5] - GAAP gross margin was 28.6%, a decrease of 20 basis points from the year-ago quarter, while non-GAAP gross margin was 30.8%, down 70 basis points[5] - GAAP diluted earnings per share (EPS) improved to $0.09 from a loss of $(0.26) in the year-ago quarter, while non-GAAP diluted EPS increased to $0.52 from $0.27[5] - Total net sales for the three months ended February 28, 2025, reached $365,519 thousand, a 7.5% increase from $341,102 thousand in the previous quarter[21] - Advanced Computing segment sales increased to $200,157 thousand, up 12.8% from $177,426 thousand in the prior quarter[21] - Gross profit for the three months ended February 28, 2025, was $104,648 thousand, representing a gross margin of 28.6%[22] - Operating income for the three months ended February 28, 2025, was $18,488 thousand, compared to $17,356 thousand in the previous quarter[21] - Net income attributable to Penguin Solutions for the three months ended February 28, 2025, was $8,082 thousand, an increase from $5,217 thousand in the prior quarter[21] - Non-GAAP gross profit for the three months ended February 28, 2025, was $112,408 thousand, with a non-GAAP gross margin of 30.8%[22] - GAAP net income for the three months ended February 28, 2025, was $8,082,000, compared to $5,217,000 for the same period in 2024, representing a 55.5% increase[23] - Non-GAAP net income attributable to Penguin Solutions for the six months ended February 28, 2025, was $60,354,000, up from $26,679,000 in the prior year, reflecting a 126.3% increase[23] Financial Outlook - The company raised its revenue outlook for fiscal year 2025 to a growth of 17% year-over-year, with a margin of +/- 3%[6] - Projected gross margin for fiscal year 2025 is set at 29% +/- 1% for GAAP and 31% +/- 1% for non-GAAP[6] - Operating expenses are expected to be approximately $336 million +/- $5 million for GAAP and $265 million +/- $5 million for non-GAAP[6] - The company anticipates a diluted EPS of $-0.02 +/- $0.10 for GAAP and $1.60 +/- $0.10 for non-GAAP in fiscal year 2025[6] Cash and Assets - Total current assets increased to $1,244,765,000 as of February 28, 2025, from $867,704,000 as of August 30, 2024, marking a 43.4% growth[24] - Cash and cash equivalents rose to $621,682,000 as of February 28, 2025, compared to $383,147,000 a year earlier, indicating a 62.2% increase[24] - Total assets reached $1,811,344,000 as of February 28, 2025, up from $1,474,506,000 as of August 30, 2024, representing a 22.8% increase[24] - Cash, cash equivalents, and restricted cash at the end of the period on February 28, 2025, totaled $621,998,000, up from $370,611,000 at the end of the previous period[26] Expenses and Liabilities - Research and development expenses for the three months ended February 28, 2025, totaled $19,907 thousand, slightly up from $19,811 thousand in the previous quarter[21] - Total operating expenses for the three months ended February 28, 2025, were $86,160 thousand, compared to $80,456 thousand in the prior quarter[21] - Interest expense for the three months ended February 28, 2025, was $2,183 thousand, down from $4,396 thousand in the previous quarter[21] - Long-term debt decreased to $638,900,000 as of February 28, 2025, from $657,347,000 as of August 30, 2024, a reduction of 2.1%[24] - Total liabilities increased to $1,199,453,000 as of February 28, 2025, from $1,075,298,000 as of August 30, 2024, indicating an 11.5% rise[24] Cash Flow - The company reported a net cash provided by operating activities from continuing operations of $72,877,000 for the three months ended February 28, 2025, significantly up from $13,819,000 in the prior year[25] - The net cash used for investing activities from continuing operations was $(4,349,000) for the three months ended February 28, 2025, compared to $(18,922,000) in the same period of 2024[26] - The company experienced a net cash used for financing activities from continuing operations of $182,859,000 for the three months ended February 28, 2025, compared to $(7,763,000) in the prior year[26] Special Events and Changes - The company plans to transition Jack Pacheco to a special advisor role following his retirement on December 31, 2025[10] - Non-GAAP adjustments for fiscal year 2025 include $31 million for share-based compensation and $48 million for amortization of acquisition-related intangibles[7] - The company incurred an impairment of goodwill amounting to $6,079,000 during the three months ended February 28, 2025[25] - The company raised $191,182,000 from the issuance of convertible preferred shares during the three months ended February 28, 2025[26] - Preferred shares increased to 6 as of February 28, 2025, from none as of August 30, 2024, reflecting a new issuance[24] Strategic Importance of Non-GAAP Measures - Penguin Solutions emphasizes the importance of non-GAAP measures for assessing operational performance and making strategic decisions[17]

Investment Thesis - Penguin Solution (NASDAQ: PENG) is well positioned to grow its revenue rapidly over the foreseeable future due to solid underlying demand growth momentum and supportive investments [1] - The company is viewed as a quality investment opportunity with long-term growth potential, aligning with value investing principles and a focus on compounding earnings and shareholder returns [1] Analyst's Perspective - The analyst has no stock, option, or derivative positions in Penguin Solution or any related companies, and no plans to initiate such positions within the next 72 hours [2] - The analysis is based on the analyst's independent opinion and is not influenced by compensation or business relationships with the mentioned companies [2]