UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended February 27, 2026
OR
For the transition period from to
Commission File Number 001-38102
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| (Address of Principal Executive Offices) | (Zip Code) | ||||
Registrant’s telephone number, including area code: (510 ) 623-1231
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging growth company | |||||||||||
| ☒ | ☐ | ☐ | ||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of March 27, 2026, the registrant had 50,747,508 shares of common stock outstanding.
Table of Contents
| Page | ||||||||
2 | | ||||
Explanatory Note
On June 30, 2025, we completed the redomiciliation of the parent company of our corporate group, Penguin Solutions (Cayman), Inc. (formerly known as Penguin Solutions, Inc.), a Cayman Islands exempted company (“Penguin Solutions Cayman”), from the Cayman Islands to the State of Delaware in the United States, resulting in Penguin Solutions, Inc., a Delaware corporation (“Penguin Solutions Delaware”), becoming our publicly traded parent company (the “U.S. Domestication”). Penguin Solutions Delaware is the successor issuer to Penguin Solutions Cayman. The U.S. Domestication was approved by the shareholders of Penguin Solutions Cayman and effected via a court-sanctioned scheme of arrangement under Cayman Islands law, pursuant to which each ordinary share of Penguin Solutions Cayman was exchanged for one share of common stock of Penguin Solutions Delaware, and each convertible preferred share of Penguin Solutions Cayman was exchanged for one share of convertible preferred stock of Penguin Solutions Delaware. Additional information about the U.S. Domestication was included in Penguin Solutions Cayman’s definitive proxy statement on Schedule 14A, filed with the Securities and Exchange Commission (the “SEC”) on May 2, 2025.
The common stock of Penguin Solutions Delaware began trading on The Nasdaq Global Select Market on July 1, 2025 (the first trading day following the U.S. Domestication) under the symbol “PENG”, which is the same symbol under which Penguin Solutions Cayman ordinary shares previously traded.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains “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 that are not historical in nature, that are predictive or that depend upon or refer to future events or conditions. These statements may include, but are not limited to, statements regarding future events or our future financial or operating performance, the extent and timing of, and expectations regarding, our future revenues and expenses and customer demand, statements regarding our objectives and development of our services and capabilities, statements regarding the deployment of our products and services, statements regarding our reliance on third parties, statements regarding our rebranding initiatives and strategy, and statements using words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “plan,” “target,” “commit,” “potential,” “should” and similar words and the negatives thereof. These forward-looking statements are based on our current expectations or forecasts of future events, circumstances, results or aspirations and are subject to a number of significant risks, uncertainties and other factors, many of which are outside of our control, including but not limited to, global business and economic conditions, including the impact on the financial condition of our customers, particularly in challenging macroeconomic environments, growth and demand trends in technology industries (including trends and markets related to artificial intelligence (“AI”)), our customer markets and various geographic regions; uncertainties in the geopolitical environment, including those related to global conflicts, such as those in the Middle East and Ukraine, and the global effects thereof on international relations, transport, and trade; our ability to manage our cost structure; disruptions in our operations or supply chain as a result of global pandemics, tariffs, or other factors; changes in trade regulations and tariffs or adverse developments in international trade relations and agreements; changes in currency exchange rates; overall information technology spending, including changes in customer spending on our products and services; appropriations for government spending; the success of our strategic initiatives including our U.S. Domestication and our ability to realize the anticipated benefits thereof, our rebranding and related strategy, any existing or potential collaborations, and additional investments in new products and additional capacity; acquisitions of companies or technologies and the failure to successfully integrate and operate them or customers’ negative reactions to them; issues, delays or complications in integrating the operations of Storm Private Holdings I Ltd. (together with its subsidiaries, “Stratus Technologies”); the failure to achieve the intended benefits of the sale of Zilia Technologies Indústria e Comércio de Componentes Eletrônicos Ltda. (formerly SMART Modular Technologies do Brasil - Indústria e Comércio de Componentes Ltda.) and its business, including the sale of our remaining 19% interest therein; the impact of and expected timing of winding down the manufacturing and discontinuing the sale of products offered through our Penguin Edge business; limitations on or changes in the availability of supply of materials and components; fluctuations in material costs; the temporary or volatile nature of pricing trends in memory or elsewhere; deterioration in customer relationships; our dependence on a select number of customers, and the timing and volume of customer orders and renewals; the impact of customer churn rates, including discounting and churn of significant customers from whom we derive a significant percentage of our revenue; changes in customer demand and sales mix; production or manufacturing difficulties; competitive factors; technological changes; difficulties with, or delays in, the introduction of new products; slowing or contraction of growth in the memory market, LED market or other
3 | | ||||
markets in which we participate; changes to applicable tax regimes or rates; changes to the valuation allowance for our deferred tax assets, including any potential inability to realize these assets in the future; prices for the end products of our customers; strikes or labor disputes; deterioration in or loss of relations with any of our limited number of key vendors; the inability to maintain or expand government business; potential sales of our common stock by the holder of our Issued CPS (as defined below) or the anticipation of such sales; and the continuing availability of borrowings under revolving lines of credit or other debt arrangements and our ability to raise capital through debt or equity financings. These and other risks, uncertainties and factors are described in greater detail under the sections titled “Risk Factors,” “Critical Accounting Estimates,” “Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk” and “Liquidity and Capital Resources” contained in our Annual Report on Form 10-K for the fiscal year ended August 29, 2025 (the “2025 Annual Report”), this Quarterly Report and the risks discussed in our other SEC filings. Such risks, uncertainties and factors as outlined above and in such filings could cause actual results of Penguin Solutions to be materially different from such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on any forward-looking statements.
The forward-looking statements included in this Quarterly Report are made only as of the date of this Quarterly Report. We do not intend, and have no obligation, to update or revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this Quarterly Report, except as required by law.
About This Quarterly Report
As used herein, unless stated otherwise or the context requires otherwise, the terms “Penguin Solutions,” “Company,” “Registrant,” “we,” “our,” “us” or similar terms (i) for periods prior to the consummation of the U.S. Domestication, refer to Penguin Solutions Cayman and its consolidated subsidiaries and (ii) for periods at or after the consummation of the U.S. Domestication, refer to Penguin Solutions Delaware and its consolidated subsidiaries. Throughout this Quarterly Report, we refer to our equity securities (i) for periods prior to the consummation of the U.S. Domestication, as ordinary shares and/or convertible preferred shares and (ii) for periods at or after the consummation of the U.S. Domestication, as shares of common stock and/or shares of convertible preferred stock.
Our fiscal year is the 52- or 53-week period ending on the last Friday in August. Fiscal years 2026 and 2025 each contain 52 weeks. All period references are to our fiscal periods unless otherwise indicated.
Penguin Solutions, Penguin Computing, Penguin Edge, the Penguin Solutions logo, SMART Modular Technologies, SMART, Cree LED, Stratus, Stratus Technologies, and our other trademarks or service marks appearing in this Quarterly Report are our trademarks or registered trademarks. Trade names, trademarks and service marks of other companies appearing in this Quarterly Report are the property of their respective holders.
Certain information included herein or elsewhere, such as on our website or related materials, is disclosed in response to certain third-party frameworks or stakeholder expectations. However, such information, even if significant, is not necessarily material for purposes of our SEC filings, even if we use “material” or similar language. Particularly in the sustainability context, “materiality” is subject to multiple definitions that differ from — and are often more expansive than — the definition under U.S. federal securities laws.
4 | | ||||
PART I. Financial Information
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
| Page | |||||
5 | | ||||
Penguin Solutions, Inc.
Consolidated Balance Sheets
(In thousands, except par value amounts)
(Unaudited)
| As of | February 27, 2026 | August 29, 2025 | |||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Accounts receivable, net - related party | |||||||||||
| Inventories | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Deferred tax assets | |||||||||||
| Other noncurrent assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities, Temporary Equity and Stockholders' Equity | |||||||||||
| Accounts payable and accrued expenses | $ | $ | |||||||||
| Current debt | |||||||||||
| Deferred revenue | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Noncurrent operating lease liabilities | |||||||||||
| Other noncurrent liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Temporary equity | |||||||||||
Preferred stock, $ | |||||||||||
| Penguin Solutions stockholders’ equity: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
Treasury stock, | ( | ( | |||||||||
| Accumulated other comprehensive income | |||||||||||
| Total Penguin Solutions stockholders’ equity | |||||||||||
| Noncontrolling interest in subsidiary | |||||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities, temporary equity and stockholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6 | | ||||
Penguin Solutions, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| February 27, 2026 | February 28, 2025 | February 27, 2026 | February 28, 2025 | ||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Products | $ | $ | $ | $ | |||||||||||||||||||
| Services | |||||||||||||||||||||||
Related party | |||||||||||||||||||||||
| Total net sales | |||||||||||||||||||||||
| Cost of sales: | |||||||||||||||||||||||
| Products | |||||||||||||||||||||||
| Services | |||||||||||||||||||||||
| Total cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Impairment of goodwill | |||||||||||||||||||||||
| Other operating expense | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Non-operating (income) expense: | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Other non-operating (income) expense | ( | ( | ( | ||||||||||||||||||||
| Total non-operating (income) expense | ( | ( | |||||||||||||||||||||
| Income (loss) before taxes | |||||||||||||||||||||||
| Income tax provision (benefit) | |||||||||||||||||||||||
| Net income (loss) | |||||||||||||||||||||||
| Net income (loss) attributable to noncontrolling interest | |||||||||||||||||||||||
| Net income (loss) attributable to Penguin Solutions | |||||||||||||||||||||||
| Preferred stock dividends | |||||||||||||||||||||||
| Income available for distribution | |||||||||||||||||||||||
| Income allocated to participating securities | |||||||||||||||||||||||
| Net income available to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
Earnings (loss) per share | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Common stock used in per share calculations: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7 | | ||||
Penguin Solutions, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| February 27, 2026 | February 28, 2025 | February 27, 2026 | February 28, 2025 | ||||||||||||||||||||
| Net income (loss) | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Gain (loss) on investments | ( | ( | |||||||||||||||||||||
| Comprehensive income (loss) | |||||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interest | |||||||||||||||||||||||
| Comprehensive income (loss) attributable to Penguin Solutions | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
8 | | ||||
Penguin Solutions, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
Common | Additional Paid-in-capital | Accumulated Other Comprehensive Income (Loss) | Total Penguin Solutions Stockholders’ Equity | Non- controlling Interest in Subsidiary | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares Issued | Amount | Retained Earnings | Treasury Stock | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| As of August 29, 2025 | $ | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued under equity plans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of shares | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| As of November 28, 2025 | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued under equity plans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of shares | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| As of February 27, 2026 | $ | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Penguin Solutions, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
| Common | Preferred | Additional Paid-in-capital | Accumulated Other Comprehensive Income (Loss) | Total Penguin Solutions Stockholders’ Equity | Non- controlling Interest in Subsidiary | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares Issued | Amount | Shares Issued | Amount | Retained Earnings | Treasury Shares | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| As of August 30, 2024 | $ | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued under equity plans | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of shares | — | — | — | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| As of November 29, 2024 | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued under equity plans | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of shares | — | — | — | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred shares | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred share dividends | — | — | — | — | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| As of February 28, 2025 | $ | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
9 | | |||||||
Penguin Solutions, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Six Months Ended | February 27, 2026 | February 28, 2025 | |||||||||
| Cash flows from operating activities | |||||||||||
| Net income (loss) | $ | $ | |||||||||
| Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities: | |||||||||||
| Depreciation expense and amortization of intangible assets | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Stock-based compensation expense | |||||||||||
| Impairment of goodwill | |||||||||||
| Loss on impairment of non-marketable equity investment | |||||||||||
| Gain on disposition of equity investment | ( | ||||||||||
| Deferred income taxes, net | |||||||||||
| Other | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Other assets | ( | ||||||||||
| Accounts payable and accrued expenses and other liabilities | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities | |||||||||||
| Capital expenditures and deposits on equipment | ( | ( | |||||||||
| Proceeds from sales and maturities of investment securities | |||||||||||
| Purchases of held-to-maturity investment securities | ( | ||||||||||
| Proceeds from disposition of equity investments | |||||||||||
| Other | ( | ( | |||||||||
| Net cash provided by (used for) investing activities | ( | ||||||||||
| Cash flows from financing activities | |||||||||||
Proceeds from issuance of preferred shares, net of $ | |||||||||||
| Repayments of debt | ( | ||||||||||
| Payments to acquire common stock | ( | ( | |||||||||
| Payment of preferred stock cash dividends | ( | ( | |||||||||
| Proceeds from issuance of common stock | |||||||||||
| Net cash (used for) provided by financing activities | ( | ||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | |||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
10 | | ||||
Penguin Solutions, Inc.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except per share amounts)
(Unaudited)
Significant Accounting Policies
Basis of Presentation
U.S. Domestication: On June 30, 2025, we consummated the redomiciliation of the parent company of our corporate group, Penguin Solutions (Cayman), Inc., formerly known as Penguin Solutions, Inc., a Cayman Islands exempted company (“Penguin Solutions Cayman”), from the Cayman Islands to the State of Delaware in the United States, resulting in Penguin Solutions, Inc., a Delaware corporation (“Penguin Solutions Delaware”), becoming our publicly traded parent company (the “U.S. Domestication”). The U.S. Domestication was approved by the shareholders of Penguin Solutions Cayman and effected via a court-sanctioned scheme of arrangement under Cayman Islands law, pursuant to which each ordinary share of Penguin Solutions Cayman was exchanged for one share of common stock of Penguin Solutions Delaware, and each convertible preferred share of Penguin Solutions Cayman was exchanged for one share of convertible preferred stock of Penguin Solutions Delaware.
The accompanying consolidated financial statements include the accounts of Penguin Solutions Cayman and its consolidated subsidiaries prior to the consummation of the U.S. Domestication, and the accounts of Penguin Solutions Delaware and its consolidated subsidiaries after the consummation of the U.S. Domestication. Unless stated otherwise or the context otherwise requires, references to “Penguin Solutions,” “we,” “us,” “our,” and the “Company” in the accompanying consolidated financial statements (i) for periods prior to the consummation of the U.S. Domestication refer to Penguin Solutions Cayman and its consolidated subsidiaries and (ii) for periods at or after the consummation of the U.S. Domestication refer to Penguin Solutions Delaware and its consolidated subsidiaries.
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) consistent in all material respects with those applied in our Annual Report on Form 10-K for the fiscal year ended August 29, 2025 (the “2025 Annual Report”) and the applicable rules and regulations of the SEC regarding interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of our management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, consisting of a normal recurring nature, to fairly state the financial information set forth herein. These consolidated interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the 2025 Annual Report.
Fiscal Year: Our fiscal year is the 52- or 53-week period ending on the last Friday in August. Fiscal years 2026 and 2025 each contain 52 weeks. All period references are to our fiscal periods unless otherwise indicated.
Recently Adopted Accounting Standards
In September 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-07, Derivatives and Hedging and Revenue from Contracts with Customers, which refines the scope of the guidance on derivatives in Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, and clarifies the guidance on share-based payments from a customer in ASC 606, Revenue from Contracts with Customers. We adopted this standard at the beginning of the second quarter of fiscal 2026 on a prospective basis and in connection with the contingent consideration arrangement received as part of the disposition of our investment in Celestial AI, as described under “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Cash and Investments – Celestial AI.” The adoption of ASU 2025-07 enabled us to determine that the contingent consideration arrangement qualified for the scope exception under ASC 815 and was not accounted for as a derivative instrument at the transaction date. Instead, we have elected a policy to recognize any gain from this arrangement when the consideration becomes realizable. The adoption of this standard did not
11 | | ||||
have a material impact on our financial position or results of operations upon adoption but will affect the timing of recognition of any future gains related to this contingent consideration.
Recently Issued Accounting Standards
In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Improvements to the Accounting for and Disclosure of Internal-Use Software, which replaces the previous stage-based model for capitalizing internal-use software development costs with a principles-based approach. Under the new guidance, capitalization begins when management authorizes and commits to funding a project and it is probable the project will be completed and used as intended. The ASU also incorporates website development guidance into ASC 350-40 and introduces the concept of “significant development uncertainty,” which, if present, would delay capitalization. ASU 2025-06 is effective for fiscal years beginning after December 15, 2027, including interim periods within those years, with early adoption permitted at the beginning of an annual period. The new guidance may be applied prospectively, retrospectively, or using a modified prospective approach. We are currently evaluating the impact of this guidance on our consolidated financial statements and related disclosures, though we do not expect there to be a material impact.
In July 2025, the FASB issued ASU 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. ASU 2025-05 provides a practical expedient that all entities can use when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under ASC 606, Revenue from Contracts with Customers. Under this practical expedient, an entity is allowed to assume that the current conditions it has applied in determining credit loss allowances for current accounts receivable and current contract assets remain unchanged for the remaining life of those assets. ASU 2025-05 is effective for fiscal years beginning after December 15, 2025, and interim reporting periods in those years. Entities that elect the practical expedient and, if applicable, make the accounting policy election are required to apply the amendments prospectively. We are currently evaluating the potential impact of adopting ASU 2025-05 on our consolidated financial statements and disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosure (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments in this ASU require disclosure, in the notes to the financial statements, of specified information about certain costs and expenses, as well as a qualitative description of amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. This ASU also requires disclosure of the total amount of selling expenses and an entity’s definition of selling expenses. The amendments in this ASU are effective for us in 2028 for annual reporting and in 2029 for interim reporting, with early adoption permitted and may be applied prospectively or retrospectively. We do not expect ASU 2024-03 to have an impact on our financial position, results of operations and cash flows. We are currently evaluating the impact on our consolidated financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU are intended to increase transparency through improvements to annual disclosures primarily related to income tax rate reconciliation and income taxes paid. The amendments in this ASU are effective for us in 2026 for annual reporting, with early adoption permitted. The ASU may be applied on a prospective basis, although retrospective application is permitted. We are evaluating the timing and effects of this ASU on our income tax disclosures.
Cash and Investments
As of February 27, 2026 and August 29, 2025, for all of our investments, the fair values approximated their carrying values. As of February 27, 2026, restricted cash, which is included in other noncurrent assets, was $0.3 million. Cash, cash equivalents were as follows:
| As of | February 27, 2026 | August 29, 2025 | |||||||||
| Cash | $ | $ | |||||||||
| Level 1: | |||||||||||
| Money market funds | |||||||||||
| $ | $ | ||||||||||
12 | | ||||
Non-marketable Equity Investments
As of February 27, 2026 and August 29, 2025, other noncurrent assets included $37.8 million and $53.0 million, respectively, of non-marketable equity investments, which are accounted for under the measurement alternative at cost less impairment, if any. In the event an observable price change occurs in an orderly transaction for an identical or a similar investment, the carrying value of investments would be remeasured to fair value as of the date that the observable transaction occurred, with any resulting gains or losses recorded in net income (loss).
Celestial AI
As of August 29, 2025, our non-marketable equity investments included preferred shares of Celestial AI, a privately held artificial intelligence company, with a carrying value of $5.2 million. On February 2, 2026, Marvell Technology, Inc. (“Marvell”) completed its acquisition of Celestial AI. In connection with the transaction, the Company’s equity interest in Celestial AI was canceled and converted into the right to receive merger consideration.
At closing, the Company received $10.5 million in cash and 281,834 shares of Marvell common stock with a fair value of $22.2 million based on the closing price of Marvell’s publicly traded common stock on the transaction date. The shares received were recorded at fair value as of the closing date.
The Company recognized a gain of $27.5 million, representing the excess of the fair value of the consideration received over the carrying value of the Celestial AI investment. This gain was recorded in other non-operating (income) expense in the Consolidated Statements of Operations.
On February 23, 2026, the Company sold all 281,834 shares of Marvell common stock in a single transaction for total proceeds of $21.7 million. The Company recognized a loss on the sale of $0.5 million, representing the difference between the sale proceeds and the carrying value of the shares at the time of sale. This loss was recorded in other non-operating (income) expense in the Consolidated Statements of Operations.
Under the terms of the merger agreement, the Company is eligible to receive additional consideration contingent upon Celestial AI achieving specific revenue-based milestones. The first milestone will be achieved if Celestial AI reaches cumulative revenue of at least $500.0 million by the end of the Marvell’s fiscal year 2029. Additional amounts will become receivable if cumulative revenue exceeds $500.0 million with the full earnout due if Celestial’s cumulative revenue exceeds $2 billion by the end of Marvell’s fiscal 2029. Any consideration earned will be received through the issuance of a variable number of shares of Marvell common stock, the quantity of which is determined based on the achievement of cumulative revenue milestones.
The right to receive this contingent consideration has been evaluated under ASC 815, Derivatives and Hedging. While the arrangement meets the definition of a derivative instrument, it qualifies for the scope exception under ASC 815-10-15-59, because the dominant underlying is determined to be the cumulative revenue milestone targets. Accordingly, the arrangement is not accounted for as a derivative instrument. We elected, as an accounting policy, to recognize the contingent consideration portion of the arrangement when the consideration is determined to be realizable. Under this policy, no asset has been recognized as of February 27, 2026 for the milestone-based contingent consideration. We will recognize contingent consideration as income in the period in which achievement of the applicable milestone becomes probable and the amount is reasonably estimable (i.e., when realizable).
Zilia Technologies
On December 29, 2025, the Company entered into a certain Stock Transfer Agreement (the “Stock Transfer Agreement”), by and among the Company, Lexar Europe B.V., a company organized under the laws of the Netherlands (“Buyer”), Zilia Technologies Indústria e Comércio de Componentes Eletrônicos Ltda., a sociedade limitada governed by the laws of Brazil (“Zilia Technologies”), Shenzhen Longsys Electronics Co., Ltd., a company limited by shares governed by the laws of the People’s Republic of China (“Parent”), and Shanghai Intelligent Memory Semiconductor Co., Ltd., a limited liability company governed by the laws of the People’s Republic of China (“Parent Funding Entity”, together with Buyer and Parent, the “Parent Group Companies” and each a “Parent Group Company”).
Pursuant to the Stock Transfer Agreement, the Company sold its equity interest in Zilia Technologies to the Buyer for a gross cash purchase price of $46.1 million (the “Transaction”). The Company’s equity investment in Zilia
13 | | ||||
Technologies is accounted for under the measurement alternative accordance with ASC 321, Investments – Equity Securities, and had a carrying value of $37.8 million as of February 27, 2026. As of February 27, 2026, the Transaction had not closed and the investment is carried on the Consolidated Balance Sheet at its historical cost basis, adjusted for any previously recognized impairments or observable price changes, as applicable. On March 30, 2026, the transaction closed and cash proceeds of $39.6 million, net of withholding taxes of $6.5 million, were received.
Other Non-Marketable Equity Investments
During the quarter ended November 28, 2025, the Company identified several significant qualitative impairment indicators related to one of its non-marketable equity investments. These indicators included substantial deterioration in the investee’s financial condition, liquidity position, and operating performance, as well as significant leadership and governance changes. Collectively, these factors raised substantial doubt regarding the Company’s ability to recover the carrying value of the investment.
In accordance with ASC 321, the Company evaluated the fair value of the investment, taking into consideration the investee’s financial condition, operational viability, and overall governance environment. Based on this assessment, the Company concluded that the fair value of the investment was effectively zero as of the reporting date.
As a result, the Company recognized a full impairment charge of $10.0 million during the quarter ended November 28, 2025. The impairment is recorded within Other non-operating expense in the Consolidated Statements of Operations. Following the impairment, the carrying amount of the investment is zero .
The Company may have certain rights or claims in the event the investee pursues a formal restructuring or bankruptcy process. However, due to significant uncertainty regarding the recoverability of any amounts and the investee’s insolvency, no potential recoveries have been recognized as of the reporting date. The Company will continue to monitor developments and will recognize any future proceeds, if realized, in the period received within net income (loss).
Accounts Receivable
We continue to maintain a trade receivable sales program that allows us to sell certain of our trade receivables up to $60.0 million, on a non-recourse basis to a third-party financial institution. As of February 27, 2026, there have been no trade accounts receivable sold under this program.
Inventories
| As of | February 27, 2026 | August 29, 2025 | |||||||||
| Raw materials | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| $ | $ | ||||||||||
As of February 27, 2026 and August 29, 2025, 14 % and 21 %, respectively, of total inventories were owned and held under our logistics services program.
14 | | ||||
Property and Equipment
| As of | February 27, 2026 | August 29, 2025 | |||||||||
| Equipment | $ | $ | |||||||||
| Buildings and building improvements | |||||||||||
| Furniture, fixtures and software | |||||||||||
| Land | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| $ | $ | ||||||||||
Depreciation expense for property and equipment was $5.0 million and $10.1 million in the second quarter and first six months of 2026, respectively, and $5.0 million and $10.0 million in the second quarter and first six months of 2025, respectively.
Intangible Assets and Goodwill
Gross Amount | Accumulated Amortization | Gross Amount | Accumulated Amortization | ||||||||||||||||||||
As of | February 27, 2026 | August 29, 2025 | |||||||||||||||||||||
| Intangible assets: | |||||||||||||||||||||||
| Technology | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Customer relationships | ( | ( | |||||||||||||||||||||
| Trademarks/trade names | ( | ( | |||||||||||||||||||||
| $ | $ | ( | $ | $ | ( | ||||||||||||||||||
| Goodwill by segment: | |||||||||||||||||||||||
| Advanced Computing | $ | $ | |||||||||||||||||||||
| Integrated Memory | |||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||
In the first six months of 2026 and 2025, we capitalized $1.2 million and $0.8 million, respectively, for intangible assets with weighted-average useful lives of 18.7 years and 18.5 years, respectively. Amortization expense for intangible assets was $7.7 million and $15.5 million in the second quarter and first six months of 2026, respectively, and $9.0 million and $19.0 million in the second quarter and first six months of 2025, respectively. Amortization expense is expected to be $19.7 million for the remainder of 2026, $29.8 million for 2027, $10.0 million for 2028, $6.2 million for 2029, $5.4 million for 2030 and $2.3 million for 2031 and thereafter.
Accounts Payable and Accrued Expenses
| As of | February 27, 2026 | August 29, 2025 | |||||||||
Accounts payable (1) | $ | $ | |||||||||
| Salaries, wages and benefits | |||||||||||
| Income and other taxes | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
(1)Included in accounts payable for property and equipment of $1.5 million and $1.7 million as of February 27, 2026 and August 29, 2025, respectively.
15 | | ||||
Debt
| As of | February 27, 2026 | August 29, 2025 | |||||||||
| 2030 Notes | |||||||||||
| 2029 Notes | |||||||||||
| 2026 Notes | |||||||||||
| 2025 Loans | |||||||||||
| Less current debt | ( | ||||||||||
| Long-term debt | $ | $ | |||||||||
Credit Agreement
On February 7, 2022, Penguin Solutions and SMART Modular Technologies, Inc. (collectively, the “Borrowers”) entered into a credit agreement, subsequently amended (the “2022 Amended Credit Agreement”), with a syndicate of banks and Citizens Bank, N.A., as administrative agent that provided for a term loan credit facility (the “Amended 2022 TLA”) and a revolving credit facility (the “2022 Revolver”), in each case, maturing on February 7, 2027.
On June 24, 2025 (the “Refinancing Closing Date”), the Borrowers entered into a new Credit Agreement (the “2025 Credit Agreement”) by and among the Borrowers, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent, collateral agent and an issuing bank.
The 2025 Credit Agreement provides for a revolving credit facility in an aggregate principal amount of $400.0 million (the “2025 Credit Facility” and the revolving loans thereunder, the “2025 Loans”), maturing on June 24, 2030. The 2025 Credit Agreement provides that up to $35.0 million of the 2025 Credit Facility is available for issuances of letters of credit.
On the Refinancing Closing Date, we borrowed $100.0 million under the 2025 Credit Facility, and simultaneously applied such proceeds, together with $200.0 million cash on hand, to repay in full all borrowings and terminate all commitments under the 2022 Amended Credit Agreement. Immediately prior to the repayment and termination of the 2022 Amended Credit Agreement, we had $300.0 million of principal outstanding under the Amended 2022 TLA, with unamortized issuance costs of $1.8 million and the effective interest rate was 7.17 %, and no amounts outstanding under the 2022 Revolver, with unamortized issuance costs of $1.5 million. Following the extinguishment of the 2022 Amended Credit Agreement, we recognized a loss on extinguishment of $2.9 million.
As of February 27, 2026, there was $100.0 million of principal amount outstanding under the 2025 Loans, and unamortized issuance costs were $3.3 million.
Convertible Senior Notes
The Convertible Senior Notes due 2026 (the “2026 Notes”) were senior unsecured obligations of the Company that matured on February 15, 2026. Per the terms of an indenture (the “2026 Indenture”) between the Company and U.S. Bank Trust Company National Association, as trustee, the Company elected to settle the principal portion of the 2026 Notes in cash and the excess conversion value in shares of the Company’s common stock. At maturity, the outstanding principal amount of $20.0 million was paid in cash with no excess conversion value.
Concurrently with the expiration of the 2026 Notes, the associated capped call transactions were settled pursuant to their terms and, as a result, the Company received approximately 13,000 shares of its common stock, which have been recorded as treasury stock.
Convertible Senior Notes Interest
Unamortized debt discount and issuance costs are amortized over the terms of our 2026 Notes, our 2.00 % Convertible Senior Notes due 2029 (the “2029 Notes”) and our 2.00 % Convertible Senior Notes due 2030 (the “2030 Notes,” and together with the 2026 Notes and the 2029 Notes, the “Convertible Senior Notes”) using the effective interest method. As of August 29, 2025 and up through the date of maturity, the effective interest rate for
16 | | ||||
our 2026 Notes was 2.83 %. As of February 27, 2026 and August 29, 2025, the effective interest rate for our 2029 Notes was 2.40 2.65 Aggregate interest expense for our Convertible Senior Notes consisted of contractual stated interest and amortization of issuance costs and included the following:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| February 27, 2026 | February 28, 2025 | February 27, 2026 | February 28, 2025 | ||||||||||||||||||||
| Contractual stated interest | $ | $ | $ | $ | |||||||||||||||||||
| Amortization of debt issuance costs | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Maturities of Debt
As of February 27, 2026, maturities of debt were as follows:
| Remainder of 2026 | $ | ||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| 2030 | |||||
| 2031 and thereafter | |||||
| Less unamortized discount and issuance costs | ( | ||||
| $ | |||||
Leases
We have operating leases through which we utilize facilities, offices, and equipment in our manufacturing operations, research and development activities and selling, general and administrative functions. Sublease income was not significant in any period presented. The components of operating lease expense were as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| February 27, 2026 | February 28, 2025 | February 27, 2026 | February 28, 2025 | ||||||||||||||||||||
| Fixed lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Variable lease cost | |||||||||||||||||||||||
| Short-term lease cost | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Cash flows from operating activities included payments for operating leases of $2.7 million and $4.3 million in the first six months of 2026 and 2025, respectively.
As of February 27, 2026 and August 29, 2025, the weighted-average remaining lease term for our operating leases was 9.4 years and 9.0 years, respectively, and the weighted-average discount rate was 6.1 2 years to 5 years. In determining the present value of our operating lease liabilities, we have assumed we will not extend any lease terms.
17 | | ||||
As of February 27, 2026, minimum payments of lease liabilities were as follows:
| Remainder of 2026 | $ | ||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| 2030 | |||||
| 2031 and thereafter | |||||
| Less imputed interest | ( | ||||
| Present value of total lease liabilities | $ | ||||
Commitments and Contingencies
Product Warranty and Indemnities
We generally provide a limited warranty that our products are in compliance with applicable specifications existing at the time of delivery. Under our standard terms and conditions of sale, liability for certain failures of product during a stated warranty period is usually limited to repair or replacement of defective items or return of amounts paid for such items. Our warranty obligations are not material.
We are party to a number of agreements in which we have agreed to defend, indemnify and hold harmless our customers and suppliers from damages and costs, which may arise from product defects as well as from any alleged infringement by our products of third-party patents, trademarks or other proprietary rights. We believe our internal development processes and other policies and practices limit our exposure related to such indemnities. Maximum potential future payments cannot be estimated because many of these agreements do not have a maximum stated liability. However, to date, we have not had to reimburse any of our customers or suppliers for any significant losses related to these indemnities. We have not recorded any liability for such indemnities.
Contingencies
From time to time, we may be involved in legal matters that arise in the normal course of business. Litigation in general, and intellectual property, employment and shareholder litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. We regularly review contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made.
Temporary Equity
Convertible Preferred Stock
On December 13, 2024, we closed the SKT Investment (as defined below). Pursuant to the terms of the Securities Purchase Agreement (the “SKT Purchase Agreement”) by and between Penguin Solutions and SK Telecom Co., Ltd. (“SKT”), we sold to Astra AI Infra LLC (“Astra AI Infra”), an affiliate of SKT, 200,000 convertible preferred shares, par value $0.03 per share, of Penguin Solutions (the “Issued Cayman CPS”) at a price of $1,000 per share or an aggregate price of $200.0 million (the “SKT Investment”).
Additionally, on the closing date of the SKT Investment, we and Astra AI Infra entered into an Investor Agreement (the “Investor Agreement”), and the Certificate of Designation relating to the Issued Cayman CPS (the “CPS Certificate of Designation”) became effective. The Investor Agreement and the CPS Certificate of Designation provide for certain rights and restrictions relating to the SKT Investment, including but not limited to board representation rights, pro rata rights, registration rights and consent rights, and standstill provisions, disposition restrictions and voting obligations.
At the time of issuance, we evaluated the terms and conditions of the Issued Cayman CPS. Based on this evaluation, we determined that the Issued Cayman CPS did not contain redemption features that were outside the
18 | | ||||
Company’s control and therefore initially classified the Issued Cayman CPS as permanent equity within the consolidated balance sheet.
On June 30, 2025, we completed the U.S. Domestication, at which time each ordinary share of Penguin Solutions Cayman was exchanged for one share of common stock of Penguin Solutions Delaware, and each convertible preferred share of Penguin Solutions Cayman was exchanged for one share of convertible preferred stock of Penguin Solutions Delaware. In connection with the U.S. Domestication, Penguin Solutions Delaware executed and adopted a Certificate of Designation of Convertible Preferred Stock (the “CPS Delaware Certificate of Designation”) that sets forth the terms, rights and obligations of a series of 200,000 shares of preferred stock of Penguin Solutions Delaware, par value $0.03 per share, designated as convertible preferred stock (the “Issued CPS”). In connection with this event, we reassessed the classification of the Issued CPS.
The terms of the Issued CPS are substantially the same as those of the Issued Cayman CPS. However, the Cayman governing documents included protective provisions that set forth the Company's ability to solely control redemption features. These provisions are not explicitly included in the Company's amended and restated certificate of incorporation or the CPS Delaware Certificate of Designation. The Company evaluated the absence of these provisions in the Delaware governing documents and determined that the CPS should be classified as temporary equity beginning June 30, 2025. Accordingly, the Issued CPS was reclassified to temporary equity effective June 30, 2025.
In accordance with SEC guidance on redeemable equity securities, we reclassified the Issued CPS out of permanent equity at its fair value as of the date of the U.S. Domestication. The reclassification resulted in an adjustment to additional paid-in capital, representing the difference between the historical carrying amount and the fair value at the reclassification date. This adjustment had no impact on the Company’s net income, comprehensive income, or cash flows.
On June 30, 2025, we recorded $202.7 million of Issued CPS within temporary equity on the consolidated balance sheet. As of August 29, 2025 and February 27, 2026, we did not adjust the carrying values of the Issued CPS to the redemption values of such shares because a deemed liquidation event did not occur and the shares were not probable of becoming redeemable in the future as of the consolidated balance sheet date.
Amended and Restated Investor Agreement
On June 30, 2025, effective upon consummation of the U.S. Domestication, Penguin Solutions Delaware assumed the Investor Agreement from Penguin Solutions Cayman and Penguin Solutions Delaware and SKT amended and restated the Investor Agreement such that the rights and restrictions relating to SKT’s beneficial ownership of the Issued Cayman CPS in place prior to the U.S. Domestication apply in respect of SKT’s holdings of Issued CPS following consummation of the U.S. Domestication.
Delaware Certificate of Designation for Convertible Preferred Stock
On June 27, 2025, in connection with the U.S. Domestication, Penguin Solutions Delaware executed and adopted the CPS Delaware Certificate of Designation that sets forth the terms, rights and obligations of the Issued CPS. The principal attributes of the Issued Cayman CPS and the Issued CPS are substantially the same, subject to changes to give effect to requirements of Delaware law. Refer to the Certificate of Designation of Penguin Solutions, Inc., effective as of June 27, 2025, filed as Exhibit 3.3 hereto, to the description of the Issued CPS contained in the description of the Registrant’s capital stock, filed as Exhibit 4.1 to the 2025 Annual Report, and to the information under the heading “Comparison of Rights of Cayman Islands Shareholders and Delaware Stockholders” in Penguin Solutions Cayman’s definitive proxy statement on Schedule 14A filed with the SEC on May 2, 2025.
Conversion
A holder of Issued CPS may convert such holder’s Issued CPS into common stock at any time, provided that the shares of Issued CPS may, at our option, automatically be converted into common stock on any date following the second anniversary of the closing of the SKT Investment upon which the volume-weighted average price of the common stock for any fifteen consecutive trading day period equals or exceeds 150 % of the then-applicable conversion price. The shares of Issued CPS are convertible into common stock at an initial conversion price of $32.81 , subject to customary adjustment upon the occurrence of certain events (including share subdivision and consolidation, certain dividends and distributions, and any reclassification or share exchange).
19 | | ||||
Dividends
The shares of Issued CPS entitle the holder to receive dividends of six percent per annum, cumulative, and payable quarterly in-kind or in cash at our option, subject to certain conditions, including a stock issuance limitation. We declared and paid preferred cash dividends of $3.1 million and $6.2 million in the second quarter and first six months of 2026, respectively, and $2.2 0.4 million.
Liquidation Preference
In case of a Liquidation Trigger Event (as defined in the CPS Delaware Certificate of Designation), each holder of Issued CPS will be entitled to receive, in preference to holders of common stock, the greater of (i) the original issue price plus accrued but unpaid dividends (whether or not declared) to the date of the applicable Liquidation Trigger Event to the extent such accrued but unpaid dividends are not compounded dividends as of such time and (ii) the amount such holder of Issued CPS would receive had such holder, immediately prior to such Liquidation Trigger Event, converted the shares of Issued CPS into shares of common stock. The liquidation preference associated with the Issued CPS was $1,000 per share at August 29, 2025.
Voting Rights
Except as specified under applicable law, each holder of Issued CPS will be entitled to vote or consent as a single class with the holders of common stock on all matters submitted for a vote of or consent by holders of common stock, such number of votes equal to the largest number of whole shares of common stock in which all Issued CPS held of record by such holder could then be converted.
Director Designation Rights
SKT (through Astra AI Infra) is entitled to nominate one director if the total number of directors of the Company is eleven or less, and two directors if the total number of directors of the Company is twelve or more, to be elected or appointed to the Board of Directors of the Company (any such director, an “Investor Designee”). The right to nominate an Investor Designee continues until such time as SKT and its subsidiaries and affiliates (including Astra AI Infra) beneficially own less than five percent of the common stock then issued and outstanding (calculated on a fully-diluted basis) directly or by holding Issued CPS.
Company Redemption Rights
Holders of Issued CPS do not have pre-emptive, subscription, or redemption rights. We may repurchase the Issued CPS in one installment upon notice to the holders of Issued CPS, provided that no such notice shall be sent until at least five years after the date of the closing of the SKT Investment.
Equity
Penguin Solutions Stockholders’ Equity
Common Stock Repurchase Authorization
On April 4, 2022, our Board of Directors approved a $75.0 million stock repurchase authorization (the “2022 Authorization”), under which we may repurchase our outstanding common stock from time to time through open market purchases, privately-negotiated transactions or otherwise. On each of January 8, 2024 and October 6, 2025, the Audit Committee of the Board of Directors approved additional $75.0 million stock repurchase authorizations (the “2024 Authorization” and “2025 Authorization,” respectively, and together, the “Current Authorizations”). The Current Authorizations, which consist solely of amounts approved pursuant to the 2024 Authorization and 2025 Authorization as all amounts under the 2022 Authorization have been utilized, have no expiration date but may be suspended or terminated by the Board of Directors at any time. In the first six months of 2026 and 2025, we repurchased 2,463 thousand and 634 thousand shares of common stock for $47.0 million and $11.1 million, respectively, under the Current Authorizations. As of February 27, 2026, an aggregate of $64.5 million remained available for the repurchase of our common stock under the Current Authorizations. Certain of our agreements, including the 2025 Credit Agreement, the SKT Purchase Agreement and the CPS Delaware Certificate of Designation, contain restrictions that limit our ability to repurchase our common stock.
20 | | ||||
Other Stock Repurchases
Common stock withheld as payment of withholding taxes and exercise prices in connection with the vesting or exercise of equity awards are treated as common stock repurchases. In the first six months of 2026 and 2025, we repurchased 491 thousand and 368 thousand shares of common stock as payment of withholding taxes for $10.1 million and $6.5 million, respectively.
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component in the second quarter of 2026 were as follows:
Gains (Losses) on Investments | ||||||||
| As of August 29, 2025 | $ | |||||||
| Other comprehensive income (loss) before reclassifications | ( | |||||||
| Reclassifications out of accumulated other comprehensive income | ||||||||
| Other comprehensive income (loss) | ( | |||||||
| As of February 27, 2026 | $ | |||||||
Fair Value Measurements
| Fair Value | Carrying Value | Fair Value | Carrying Value | ||||||||||||||||||||
As of | February 27, 2026 | August 29, 2025 | |||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| 2030 Notes | $ | $ | $ | $ | |||||||||||||||||||
| 2029 Notes | $ | $ | $ | $ | |||||||||||||||||||
| 2026 Notes | $ | $ | $ | $ | |||||||||||||||||||
The deferred cash adjustment resulting from the divestiture of an 81 % interest in Zilia Technologies Indústria e Comércio de Componentes Eletrônicos Ltda. (formerly SMART Modular Technologies do Brasil - Indústria e Comércio de Componentes Ltda.) is accounted for as a derivative financial instrument and is revalued at the end of each reporting period. The asset’s fair value, as measured on a recurring basis, was based on Level 2 measurements, including market-based observable inputs of interest rates and credit-risk spreads.
The fair value of the Amended 2022 TLA, as measured on a non-recurring basis, was estimated based on Level 2 measurements, including discounted cash flows and interest rates based on similar debt issued by parties with credit ratings similar to ours. The fair values of our Convertible Senior Notes, as measured on a non-recurring basis, were determined based on Level 2 measurements, including the trading prices of the Convertible Senior Notes.
Equity Plans
As of February 27, 2026, 7.1 million shares of our common stock were available for future awards under our equity plans.
21 | | ||||
Restricted Stock Awards and Restricted Stock Units Awards (“Restricted Awards”)
Restricted Award activity was as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| February 27, 2026 | February 28, 2025 | February 27, 2026 | February 28, 2025 | ||||||||||||||||||||
| Restricted awards granted | |||||||||||||||||||||||
| Weighted-average grant date fair value per share | $ | $ | $ | $ | |||||||||||||||||||
| Aggregate vesting date fair value of shares vested | $ | $ | $ | $ | |||||||||||||||||||
As of February 27, 2026, total unrecognized compensation costs for unvested Restricted Awards were $88.8 million, which were expected to be recognized over a weighted-average period of 2 years, 11 months .
Employee Stock Purchase Plan (“ESPP”)
Under our ESPP, employees purchased 247 thousand shares of common stock for $3.3 million in the first six months of 2026 and 253 thousand shares of common stock for $3.2 million in the first six months of 2025, respectively.
Stock-Based Compensation Expense
Stock-based compensation expense for our continuing operations was as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| February 27, 2026 | February 28, 2025 | February 27, 2026 | February 28, 2025 | ||||||||||||||||||||
| Stock-based compensation expense by caption: | |||||||||||||||||||||||
| Cost of sales | $ | $ | $ | $ | |||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Income tax benefits for stock-based awards were $1.4 million and $2.7 million in the second quarter and first six months of 2026, respectively, and $1.4 million and $2.9 million in the second quarter and first six months of 2025, respectively.
Revenue and Customer Contract Balances
Net Sales and Gross Billings
We provide certain services on an agent basis, whereby we procure product, materials and services on behalf of our customers and then resell such product, materials or services to our customers. As a result, we recognize only the amount related to the agent component as revenue in our results of operations. The cost of products, materials and services invoiced to our customers under these arrangements, but not recognized as revenue or cost of sales in our results of operations, were as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| February 27, 2026 | February 28, 2025 | February 27, 2026 | February 28, 2025 | ||||||||||||||||||||
| Cost of materials and services invoiced in connection with logistics services | $ | $ | $ | $ | |||||||||||||||||||
22 | | ||||
Customer Contract Balances
| As of | February 27, 2026 | August 29, 2025 | |||||||||
Contract assets (1) | $ | $ | |||||||||
Contract liabilities: (2) | |||||||||||
| Deferred revenue | $ | $ | |||||||||
| Customer advances | |||||||||||
| $ | $ | ||||||||||
(1)Contract assets are included in other current and noncurrent assets.
(2)Contract liabilities are included in other current and noncurrent liabilities based on the timing of when our customers are expected to take control of the asset or receive the benefit of the service.
Contract assets represent amounts recognized as revenue for which we do not have the unconditional right to consideration.
Deferred revenue represents amounts received from customers in advance of satisfying performance obligations. As of February 27, 2026, we expect to recognize revenue of $81.6 million of the balance of $111.2 million in the next 12 months and the remaining amount thereafter. In the first six months of 2026, we recognized revenue of $21.0 million from satisfying performance obligations related to amounts included in deferred revenue as of August 29, 2025. In addition, as of February 27, 2026, other current liabilities included $13.1 million that is not included in the above remaining performance obligations. While this liability relates to amounts received from customers in connection with arrangements that are cancellable at the customer’s discretion, we have not had to refund any such amounts to our customers in the periods presented.
Customer advances, which are included in other current liabilities in the accompanying consolidated balance sheets, represent amounts received from customers for advance payments to secure product. In the first six months of 2026, we recognized revenue of $18.9 million from satisfying performance obligations related to amounts included in customer advances as of August 29, 2025.
As of February 27, 2026 and August 29, 2025, other current liabilities included $13.5 million and $17.7 million, respectively, for estimates of consideration payable to customers, including estimates for pricing adjustments and returns.
Other Operating (Income) Expense
In recent periods, we executed plans that included the elimination of certain projects across our businesses, which resulted in workforce reductions. In connection therewith, we recorded restructuring charges of $5.8 million and $1.0 million in the first six months of 2026 and 2025, respectively, consisting solely of employee severance costs and other benefits, reflected in Other Operating (Income) Expense in the Consolidated Statements of Operations. These charges were primarily concentrated in the period management defined, committed, and communicated the plan, and therefore, they were accrued and recorded in the respective period announced. We anticipate there will be additional restructuring activities in future quarters, for which we will record additional charges.
The following table summarizes the liabilities directly attributable to us that were recognized under the plans discussed above:
| As of August 29, 2025 | $ | |||||||
| Additions | ||||||||
| Cash payments | ( | |||||||
| As of February 27, 2026 | $ | |||||||
The 2026 beginning restructuring liability balance was $1.1 million, of which $0.3 million remained outstanding as of February 27, 2026. The total unpaid balance as of February 27, 2026 was $1.0 million, and it is expected to be fully paid by the end of 2026.
23 | | ||||
Other Non-operating (Income) Expense
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| February 27, 2026 | February 28, 2025 | February 27, 2026 | February 28, 2025 | ||||||||||||||||||||
| Loss (gain) from changes in foreign currency exchange rates | ( | ||||||||||||||||||||||
| Loss (gain) on disposition of assets | ( | ||||||||||||||||||||||
| Loss on non-marketable equity investments | |||||||||||||||||||||||
| Gain on disposition of equity securities | ( | ( | |||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||
| $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||
Income Taxes
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| February 27, 2026 | February 28, 2025 | February 27, 2026 | February 28, 2025 | ||||||||||||||||||||
| Income (loss) before taxes | $ | $ | $ | $ | |||||||||||||||||||
| Income tax provision (benefit) | $ | $ | $ | $ | |||||||||||||||||||
| Effective tax rate | % | % | % | % | |||||||||||||||||||
Income taxes include a provision (benefit) for federal, state and foreign taxes based on the annual estimated effective tax rate applicable to us and our subsidiaries, adjusted for certain discrete items, which are fully recognized in the period they occur. We have determined our interim income tax provision (benefit) by applying the annual estimated effective income tax rate expected to be applicable for the full fiscal year to the income (loss) before taxes for jurisdictions which are subject to income tax. In determining the full year estimate, we do not include the impact of unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax provision (benefit) and income (loss) before taxes. Accordingly, the interim effective tax rate may not be reflective of the annual estimated effective tax rate. Additionally, our income tax provision (benefit) is subject to volatility and could be impacted by changes in our geographic earnings, non-deductible share-based compensation and certain tax credits.
The effective tax rate was 27.2 % and 26.7 % in the second quarter and first six months of 2026, respectively, and was higher than the U.S. statutory tax rate of 21.0% primarily due to cross border tax costs, state income taxes, and foreign withholding tax, partially offset by tax credits. The effective tax rate was 46.3 % and 48.6 % in the second quarter and first six months of 2025, respectively, and differed from the U.S. statutory rate primarily due to losses generated in a jurisdiction where no tax benefit can be recognized, withholding taxes, state income taxes, and nondeductible compensation paid to officers, partially offset by tax credits.
Determining the consolidated income tax provision (benefit), income tax liabilities and deferred tax assets and liabilities involves judgment. We calculate and provide for income taxes in each of the tax jurisdictions in which we operate, which involves estimating current tax exposures as well as making judgments regarding the recoverability of deferred tax assets in each jurisdiction. The estimates used could differ from actual results, which may have a significant impact on operating results in future periods.
24 | | ||||
Earnings Per Share
We calculate basic earnings per common share (“EPS”) pursuant to the two-class method as a result of the issuance of the Issued CPS. The two-class method is an earnings allocation formula that determines EPS for common shares and participating securities according to dividend and participation rights in undistributed earnings. Under this method, all current period earnings, distributed and undistributed, are allocated to common stock and participating securities based on their respective rights to receive dividends. The Issued CPS is considered a participating security. The Issued CPS is not included in the computation of basic EPS in periods in which we have a net loss, as the Issued CPS is not contractually obligated to share in our net losses.
With respect to the Issued CPS, diluted EPS is calculated using the more dilutive of the two-class method or if-converted method. The two-class method uses net income available to common stockholders and assumes conversion of all potential shares other than the participating securities. The if-converted method uses net income and assumes conversion of all potential shares including the participating securities.
Dilutive potential common stock includes outstanding share options, unvested restricted share units, Convertible Senior Notes and Convertible Preferred Shares.
The following table summarizes the computation of basic and diluted EPS under the two-class or if-converted method in applicable periods, as well as the anti-dilutive shares excluded:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| February 27, 2026 | February 28, 2025 | February 27, 2026 | February 28, 2025 | ||||||||||||||||||||
| Net income (loss) attributable to Penguin Solutions – Basic and Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Less: Preferred stock dividends | |||||||||||||||||||||||
| Income available for distribution | |||||||||||||||||||||||
| Income allocated to participating securities | |||||||||||||||||||||||
| Net income available to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average shares outstanding – Basic | |||||||||||||||||||||||
| Dilutive effect of equity plans and Convertible Senior Notes | |||||||||||||||||||||||
| Weighted-average shares outstanding – Diluted | |||||||||||||||||||||||
| Earnings (loss) per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Unweighted anti-dilutive shares: | |||||||||||||||||||||||
| Equity plans | |||||||||||||||||||||||
| Convertible Senior Notes | |||||||||||||||||||||||
| Preferred stock | |||||||||||||||||||||||
Upon any conversion of our Convertible Senior Notes, we will be required to pay cash in an amount at least equal to the principal portion and have the option to settle any amount in excess of the principal portion in cash and/or shares of common stock. As a result, only the amounts expected to be settled in excess of the principal portion are considered in calculating diluted earnings per share under the if-converted method.
25 | | ||||
Segment and Other Information
Segment information presented below is consistent with how our Chief Operating Decision Maker (“CODM”), the Chief Executive Officer, evaluates our results of operations to make decisions about allocating resources and assessing performance using segment net sales, cost of sales, operating expenses, and operating income (loss). The CODM is regularly provided this segment information to assess relative segment performance and allocate resources to the segment in the annual planning process.
We have the following three business units, which are our reportable segments:
•Advanced Computing: Our Advanced Computing segment, under our Penguin Computing and Stratus brands, offers specialized platform solutions and services for artificial intelligence, high-performance computing, machine learning, advanced modeling and the internet of things that span the continuum of edge, core and cloud. Our solutions are designed specifically for customers across multiple markets, including hyperscale, neocloud, financial services, energy, government, education, healthcare and others.
•Integrated Memory: Our Integrated Memory segment, under our SMART Modular Technologies brand, provides high-performance and reliable integrated memory solutions through the design, development and advanced packaging of leading-edge to extended lifecycle products. These specialty products are tailored to meet customer-specific requirements across networking and communications, enterprise storage and computing, including server applications and other vertical markets. These products are marketed to original equipment manufacturers and to commercial and government customers. The Integrated Memory segment also offers SMART Supply Chain Services, which provides customized, integrated supply chain services to enable our customers to better manage supply chain planning and execution, reduce costs and increase productivity.
•Optimized LED: Our Optimized LED segment, under our Cree LED brand, offers a broad portfolio of application-optimized LEDs focused on improving lumen density, intensity, efficacy, optical control and/or reliability. Backed by expert design assistance and superior sales support, our LED products enable our customers to develop and market LED-based products for general lighting, video displays and specialty lighting applications.
Segments are determined based on sources of sales, types of customers and operating performance.
There are no differences between the accounting policies for our segment reporting and our consolidated results of operations. Operating expenses directly associated with the activities of a specific segment are charged to that segment. Certain other indirect operating income and expenses are generally allocated to segments based on their respective percentage of net sales. We do not identify (other than goodwill) or report internally our assets nor allocate certain expenses and amortization, interest, other non-operating (income) expense or taxes to segments.
26 | | ||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| February 27, 2026 | February 28, 2025 | February 27, 2026 | February 28, 2025 | ||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Advanced Computing | $ | $ | $ | $ | |||||||||||||||||||
| Integrated Memory | |||||||||||||||||||||||
| Optimized LED | |||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
| Costs of Goods Sold | |||||||||||||||||||||||
| Advanced Computing | $ | $ | $ | $ | |||||||||||||||||||
| Integrated Memory | |||||||||||||||||||||||
| Optimized LED | |||||||||||||||||||||||
| Total Costs of Goods Sold | |||||||||||||||||||||||
| Operating Expense | |||||||||||||||||||||||
| Advanced Computing | $ | $ | $ | $ | |||||||||||||||||||
| Integrated Memory | |||||||||||||||||||||||
| Optimized LED | |||||||||||||||||||||||
| Total Operating Expenses | |||||||||||||||||||||||
| Segment operating income: | |||||||||||||||||||||||
| Advanced Computing | $ | $ | $ | $ | |||||||||||||||||||
| Integrated Memory | |||||||||||||||||||||||
| Optimized LED | |||||||||||||||||||||||
| Total segment operating income | |||||||||||||||||||||||
| Reconciliation of profit (loss) | |||||||||||||||||||||||
| Stock-based compensation expense | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of acquisition-related intangibles | ( | ( | ( | ( | |||||||||||||||||||
| Cost of sales-related restructuring | ( | ( | |||||||||||||||||||||
| Diligence, acquisition and integration expense | ( | ( | |||||||||||||||||||||
Redomiciliation costs | ( | ( | |||||||||||||||||||||
| Impairment of goodwill | ( | ( | |||||||||||||||||||||
| Restructuring charges | ( | ( | ( | ( | |||||||||||||||||||
| Other | ( | ( | ( | ( | |||||||||||||||||||
| Total unallocated | ( | ( | ( | ( | |||||||||||||||||||
| Total non-operating income (expense) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Income (loss) before taxes | $ | $ | $ | $ | |||||||||||||||||||
Depreciation included in segment operating income was as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| February 27, 2026 | February 28, 2025 | February 27, 2026 | February 28, 2025 | ||||||||||||||||||||
Advanced Computing | $ | $ | $ | $ | |||||||||||||||||||
Integrated Memory | |||||||||||||||||||||||
Optimized LED | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Related Party Transactions
From time to time, we may enter into an agreement with a related party in the ordinary course of business. These agreements are reviewed and approved or ratified by the Audit Committee of the Board pursuant to our related person transaction policy. We follow ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions, under which related parties are defined as members of our Board of
27 | | ||||
Directors, affiliates of the Company, management and principal owners of our outstanding stock and members of their immediate families. Related parties also include any other person or entity with significant influence over our management or operations. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. We assess related parties each reporting period.
28 | | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report and in the 2025 Annual Report. This discussion contains forward-looking statements that involve risks, uncertainties and other factors. Our actual results could differ materially from those contained in these forward-looking statements due to a number of risks, uncertainties and other factors, including those discussed below and elsewhere in this Quarterly Report and in the 2025 Annual Report. See also “Cautionary Note Regarding Forward-Looking Statements.”
Our fiscal year is the 52- or 53-week period ending on the last Friday in August. Fiscal years 2026 and 2025 each contain 52 weeks. All period references are to our fiscal periods unless otherwise indicated. All tabular amounts are in thousands, except percentages.
Overview
On June 30, 2025, we completed the U.S. Domestication of the parent company of our corporate group, Penguin Solutions Cayman, from the Cayman Islands to the State of Delaware in the United States, resulting in Penguin Solutions Delaware becoming our publicly traded parent company and the successor issuer to Penguin Solutions Cayman. The financial information in this Quarterly Report for periods prior to the completion of the U.S. Domestication relates to Penguin Solutions Cayman. Unless stated otherwise or the context requires otherwise, the terms “Penguin Solutions,” “Company,” “we,” “our,” “us” or similar terms (i) for periods prior to the effectiveness of the U.S. Domestication, refer to Penguin Solutions Cayman and its consolidated subsidiaries and (ii) for periods at or after the completion of the U.S. Domestication, refer to Penguin Solutions Delaware and its consolidated subsidiaries. See “Explanatory Note” and “About this Quarterly Report” above.
For an overview of our business, see “PART I - Item 1. Business” of the 2025 Annual Report.
Factors Affecting Our Operating Performance
Macro-Economic Demand Factors: Our business segments each have their own unique set of demand factors. Our Advanced Computing business is driven by demand for our High Performance Computing (HPC) and AI products, as well as traditional workload optimization and efficiency applications. We expect increased AI adoption and broader implementation by enterprises within but not limited to verticals such as financial services, oil and gas, telecommunications, manufacturing and education, as well as increased neocloud and sovereign AI adoption, as organizations seek scalable infrastructure solutions, though the extent and timing of such adoption and implementation may vary and may affect our results of operations. Demand in our Integrated Memory segment is driven by end-market demand from OEMs for customer-specific solutions in vertical markets such as industrial, government, networking, HPC and enterprise storage, as well as emerging demand for higher density and greater bandwidth solutions for AI deployments, and we anticipate growing demand for higher performance and reliability memory solutions, such as our CXL family of products, to support both traditional use cases and increasingly complex AI applications, although there can be no assurance that such demand will materialize as expected or at all. Finally, demand for our Optimized LED products is derived from targeted end-market applications, such as general high-power and mid-power lighting and specialty lighting, including video display and horticulture applications. However, broader macro-economic trends, including regional market demand and the global macro-economic environment, including those related to global conflicts, such as those in the Middle East and Ukraine, and the global effects thereof on international relations, transport and trade, recessionary indicators, high inflation rates, uncertainty and costs associated with trade policies and tariffs, and interest rates, can adversely affect all three segments concurrently.
Shifts in the Mix and Timing of Our Net Sales: Shifts in the mix of net sales from our operating segments, and in the timing of net sales, which can vary significantly from period to period, have impacted and can continue to impact our business and results of operations, including gross and operating margins. For example, our Advanced Computing segment has shown solid growth, but is subject to variability in its sales and margin profile from period to period due to factors such as the following: recognition of revenue sometimes being tied to customer decisions as to the completion of delivery and system go-live events; certain sales being affected by the timing of customer deployments and shipments or customer budget considerations; changes in customer spending on our products and services (including as a result of the macro-economic demand factors discussed above); the impact of
29 | | ||||
customer churn rates (including discounting and churn of significant customers from whom we derive a significant percentage of our net sales); discontinuation of certain of our products from time to time; shifts in our customer mix, including expected trends with respect to growth in demand from non-hyperscaler customers for HPC and AI solutions; and margin being driven by the proportion of higher margin software and managed services within our Advanced Computing sales. In particular, our AI infrastructure business is transitioning from a hyperscaler concentration toward a more diversified non-hyperscaler customer base across enterprise, neocloud, and sovereign AI, which may negatively impact our net sales during the transition. Additionally, our net sales and margins will be negatively impacted by the winding down of our Penguin Edge business, which we expect to wind down and discontinue prior to the end of fiscal 2026. The comparability of our results of operations against prior periods will also be affected following the wind down of our Penguin Edge business. Our resource commitments and planning for each segment are relatively fixed in the short term, and as such, variability in expected net sales mix may have direct implications for our operating income and margins. Our Integrated Memory business has gross margins which are lower than the Company average and if net sales from this business grows faster than net sales for the Company overall, it may negatively impact total Company gross margins.
Our Ability to Identify, Complete and Successfully Integrate Acquisitions: A substantial portion of our growth over the last several years has been driven by acquisitions, and we intend to continue to use corporate development as an engine for growth. Within our existing segments, we plan to pursue acquisitions to expand features and functionality, expand into adjacent businesses and grow our customer base and geographic footprint. From time to time, we may seek to expand our addressable market by entering new business segments where, as we did with our Cree LED and Stratus Technologies acquisitions, we identify a business opportunity at scale with a path to being accretive to our overall operations in the near term. If we are unable to identify and complete attractive acquisitions and successfully integrate such businesses, we may not be successful in growing our net sales and/or expanding our margins. Any acquisitions we do complete may require us to incur debt or raise capital through equity financings or may subject us to unforeseen liabilities or costs, or operational challenges, that in turn impede our ability to realize the expected returns on our investment.
Disruptions in Our Supply Chain May Adversely Affect Our Businesses: We depend on third-party suppliers for key components of our products as well as certain raw materials, such as commodity DRAM components from offshore foundries that we use in our specialty memory products, third-party wafers that we use in our memory and LED businesses and HPC and AI components for our Advanced Computing business; the costs of such components and raw materials may fluctuate from time to time due to market conditions. In our memory and LED businesses, we have adopted a “Fab-Light” business model to reduce our capital expenditures and operating expenses, while affording greater flexibility in adapting to shifts in demand and other market trends. Our Fab-Light business model contributed to margin expansion in our overall business. However, our reliance on third-party manufacturers exposes us to risk of supply chain disruption and lost business. For example, constrained memory supply may affect our ability to meet demand in our Integrated Memory business on a timely basis or at all, and the global semiconductor shortage, particularly during its peak, has adversely affected our results of operations. In addition, in our Advanced Computing business, where we source components from third parties, the high demand for and limited supply of AI components globally, as well as any delays in the production of such components, continues to affect our sourcing of these components and the timing of deployments. In particular, we continue to experience extended lead times for certain components that are incorporated into our overall solutions, which impacts how quickly we are able to ramp existing and new customer projects and may negatively affect gross margins due to changes in shipment timing and product mix. If such disruptions worsen or are prolonged, or if there is meaningful disruption in our supply arrangement with any of our third-party suppliers, our results of operations and financial condition may continue to be adversely affected.
30 | | ||||
Results of Operations
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| February 27, 2026 | February 28, 2025 | February 27, 2026 | February 28, 2025 | ||||||||||||||||||||||||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||||||||||||||||||||||||||
| Advanced Computing | $ | 115,715 | 33.7 | % | $ | 200,157 | 54.8 | % | $ | 267,167 | 38.9 | % | $ | 377,583 | 53.4 | % | |||||||||||||||||||||||||||||||
| Integrated Memory | 171,629 | 50.0 | % | 105,260 | 28.8 | % | 308,150 | 44.9 | % | 201,966 | 28.6 | % | |||||||||||||||||||||||||||||||||||
| Optimized LED | 55,655 | 16.2 | % | 60,102 | 16.4 | % | 110,753 | 16.1 | % | 127,072 | 18.0 | % | |||||||||||||||||||||||||||||||||||
| Total net sales | 342,999 | 100.0 | % | 365,519 | 100.0 | % | 686,070 | 100.0 | % | 706,621 | 100.0 | % | |||||||||||||||||||||||||||||||||||
| Cost of sales | 249,297 | 72.7 | % | 260,871 | 71.4 | % | 496,259 | 72.3 | % | 504,161 | 71.3 | % | |||||||||||||||||||||||||||||||||||
| Gross profit | 93,702 | 27.3 | % | 104,648 | 28.6 | % | 189,811 | 27.7 | % | 202,460 | 28.7 | % | |||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Research and development | 18,976 | 5.5 | % | 19,907 | 5.4 | % | 37,669 | 5.5 | % | 39,718 | 5.6 | % | |||||||||||||||||||||||||||||||||||
| Selling, general and administrative | 47,989 | 14.0 | % | 59,315 | 16.2 | % | 101,081 | 14.7 | % | 119,851 | 17.0 | % | |||||||||||||||||||||||||||||||||||
| Impairment of goodwill | — | — | % | 6,079 | 1.7 | % | — | — | % | 6,079 | 0.9 | % | |||||||||||||||||||||||||||||||||||
| Other operating expense | 1,048 | 0.3 | % | 859 | 0.2 | % | 5,790 | 0.8 | % | 968 | 0.1 | % | |||||||||||||||||||||||||||||||||||
| Total operating expenses | 68,013 | 19.8 | % | 86,160 | 23.6 | % | 144,540 | 21.1 | % | 166,616 | 23.6 | % | |||||||||||||||||||||||||||||||||||
| Operating income | 25,689 | 7.5 | % | 18,488 | 5.1 | % | 45,271 | 6.6 | % | 35,844 | 5.1 | % | |||||||||||||||||||||||||||||||||||
| Non-operating (income) expense: | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 721 | 0.2 | % | 2,183 | 0.6 | % | 768 | 0.1 | % | 6,579 | 0.9 | % | |||||||||||||||||||||||||||||||||||
| Other non-operating (income) expense | (27,983) | (8.2) | % | (209) | (0.1) | % | (16,308) | (2.4) | % | 427 | 0.1 | % | |||||||||||||||||||||||||||||||||||
| Total non-operating (income) expense | (27,262) | (7.9) | % | 1,974 | 0.5 | % | (15,540) | (2.3) | % | 7,006 | 1.0 | % | |||||||||||||||||||||||||||||||||||
| Income (loss) before taxes | 52,951 | 15.4 | % | 16,514 | 4.5 | % | 60,811 | 8.9 | % | 28,838 | 4.1 | % | |||||||||||||||||||||||||||||||||||
| Income tax provision (benefit) | 14,410 | 4.2 | % | 7,643 | 2.1 | % | 16,215 | 2.4 | % | 14,003 | 2.0 | % | |||||||||||||||||||||||||||||||||||
| Net income (loss) | 38,541 | 11.2 | % | 8,871 | 2.4 | % | 44,596 | 6.5 | % | 14,835 | 2.1 | % | |||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | 1,089 | 0.3 | % | 789 | 0.2 | % | 1,874 | 0.3 | % | 1,536 | 0.2 | % | |||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to Penguin Solutions | 37,452 | 10.9 | % | 8,082 | 2.2 | % | 42,722 | 6.2 | % | 13,299 | 1.9 | % | |||||||||||||||||||||||||||||||||||
| Preferred stock dividends | 3,033 | 0.9 | % | 2,600 | 0.7 | % | 6,066 | 0.9 | % | 2,600 | 0.4 | % | |||||||||||||||||||||||||||||||||||
| Income available for distribution | 34,419 | 10.0 | % | 5,482 | 1.5 | % | 36,656 | 5.3 | % | 10,699 | 1.5 | % | |||||||||||||||||||||||||||||||||||
| Income allocated to participating securities | 3,594 | 1.0 | % | 482 | 0.1 | % | 3,808 | 0.6 | % | 492 | 0.1 | % | |||||||||||||||||||||||||||||||||||
| Net income available to common stockholders | $ | 30,825 | 9.0 | % | $ | 5,000 | 1.4 | % | $ | 32,848 | 4.8 | % | $ | 10,207 | 1.4 | % | |||||||||||||||||||||||||||||||
Percentages represent percentage of total net sales. Summations of percentages may not compute precisely due to rounding.
31 | | ||||
Net Sales, Cost of Sales and Gross Profit
Net sales decreased by $22.5 million, or 6.2%, and $20.6 million, or 2.9%, in the second quarter and first six months of 2026, respectively, compared to the same periods in the prior year, primarily driven by lower hardware sales for our Advanced Computing segment, partially offset by strong growth for our Integrated Memory segment. Integrated Memory net sales increased by $66.4 million, or 63.1%, and $106.2 million, or 52.6%, in the second quarter and first six months of 2026, respectively, compared to the same periods in the prior year, primarily due to higher sales volumes of Flash and DRAM products stemming from improved market demand and higher pricing. Advanced Computing net sales decreased by $84.4 million, or 42.2%, and $110.4 million, or 29.2%, in the second quarter and first six months of 2026, respectively, compared to the same periods in the prior year, reflecting the ongoing wind down of our Penguin Edge business and hyperscale hardware sales in 2025 that did not occur in 2026. Optimized LED net sales decreased by $4.4 million, or 7.4%, and $16.3 million, or 12.8%, in the second quarter and first six months of 2026, respectively, compared to the same periods in the prior year, reflecting a broad-based decline in demand across the business.
Cost of sales decreased by $11.6 million, or 4.4%, and $7.9 million, or 1.6%, in the second quarter and first six months of 2026, respectively, compared to the same periods in the prior year. The decrease was primarily driven by lower sales from our Advanced Computing segment in the second quarter of 2026, partially offset by a one-time $5.8 million inventory write-off related to goods stolen in transit, for which an insurance claim is pending; no comparable events occurred in prior periods.
Gross margin decreased to 27.3% in the second quarter of 2026 compared to 28.6% in the same period in 2025, and to 27.7% in the first six months of 2026 compared to 28.7% in the same period in 2025, primarily attributable to the ongoing wind down of our Penguin Edge business, a shift in the overall mix of sales across our business units, along with inventory write-off noted above.
Non-GAAP Measure of Segment Operating Income
Below is a table of our operating income, measured on a non-GAAP basis, which Penguin Solutions management uses to supplement Penguin Solutions’ financial results under GAAP to analyze its operations and make decisions as to future operational plans and which management believes provides supplemental non-GAAP information that is useful to investors in analyzing and assessing our past and future operating performance. These non-GAAP measures exclude certain items, such as stock-based compensation expense; amortization of acquisition-related intangible assets (consisting of amortization of developed technology, customer relationships, trademarks/trade names and backlog acquired in connection with business combinations); acquisition-related inventory adjustments; inventory write-off, stolen in transit shipment; cost of sales-related restructuring; diligence, acquisition and integration expense; restructuring charges; impairment of goodwill; changes in the fair value of contingent consideration; redomiciliation costs; and other infrequent or unusual items. While amortization of acquisition-related intangible assets is excluded, the revenues from acquired companies is reflected in our non-GAAP measures and these intangible assets contribute to revenue generation. See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Segment and Other Information.”
Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP, as they exclude important information about our financial results, as noted above. The presentation of these adjusted amounts varies from amounts presented in accordance with GAAP and therefore may not be comparable to amounts reported by other companies.
32 | | ||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| February 27, 2026 | February 28, 2025 | February 27, 2026 | February 28, 2025 | ||||||||||||||||||||
| GAAP operating income | $ | 25,689 | $ | 18,488 | $ | 45,271 | $ | 35,844 | |||||||||||||||
| Stock-based compensation expense | 5,119 | 11,580 | 15,199 | 23,111 | |||||||||||||||||||
| Amortization of acquisition-related intangibles | 7,509 | 8,839 | 15,017 | 18,594 | |||||||||||||||||||
| Inventory write-off, stolen in-transit shipment | 5,783 | — | 5,783 | — | |||||||||||||||||||
| Cost of sales-related restructuring | — | 77 | (483) | 35 | |||||||||||||||||||
Diligence, acquisition and integration expense | — | 567 | — | 1,400 | |||||||||||||||||||
| Redomiciliation costs | — | 2,359 | — | 3,602 | |||||||||||||||||||
| Impairment of goodwill | — | 6,079 | — | 6,079 | |||||||||||||||||||
| Restructuring charges | 1,048 | 859 | 5,790 | 968 | |||||||||||||||||||
| Other | 106 | 242 | 205 | 375 | |||||||||||||||||||
| Non-GAAP operating income | $ | 45,254 | $ | 49,090 | $ | 86,782 | $ | 90,008 | |||||||||||||||
Non-GAAP operating income by segment: | |||||||||||||||||||||||
| Advanced Computing | $ | 13,076 | $ | 36,933 | $ | 35,195 | $ | 67,050 | |||||||||||||||
| Integrated Memory | 27,655 | 10,970 | 43,587 | 18,086 | |||||||||||||||||||
| Optimized LED | 4,523 | 1,187 | 8,000 | 4,872 | |||||||||||||||||||
Total non-GAAP operating income by segment | $ | 45,254 | $ | 49,090 | $ | 86,782 | $ | 90,008 | |||||||||||||||
Advanced Computing operating income decreased by $23.9 million, or 64.6%, and $31.9 million, or 47.5%, in the second quarter and first six months of 2026, respectively, as compared to the same periods in the prior year, primarily driven by the continued wind down of our Penguin Edge business and hyperscale hardware sales recognized in 2025 that did not recur in 2026.
Integrated Memory operating income increased by $16.7 million, or 152.1%, and $25.5 million, or 141.0%, in the second quarter and first six months of 2026, respectively, as compared to the same periods in the prior year, primarily due to increased net revenue stemming from growth in market demand and increased pricing for Flash and DRAM products.
Optimized LED operating income increased by $3.3 million, or 281.0%, and $3.1 million, or 64.2%, in the second quarter and first six months of 2026, respectively, as compared to the same periods in the prior year, primarily due to lower personnel-related expenses due to headcount reductions and improved gross profit, stemming from more favorable product mix and tariff recoveries.
Operating and Non-operating (Income) Expense
Research and Development
Research and development expense decreased by $0.9 million, or 4.7%, and $2.0 million, or 5.2%, in the second quarter and first six months of 2026, respectively, as compared to the same periods in the prior year, primarily due to lower personnel-related expenses mainly driven by headcount reductions, as well as lower subcontract services for our Advanced Computing segment.
Selling, General and Administrative
Selling, general and administrative expense decreased by $11.3 million, or 19.1%, and $18.8 million, or 15.7%, in the second quarter and first six months of 2026, respectively, as compared to the same periods in the prior year, primarily due to lower personnel-related expenses mainly driven by headcount reductions as well as lower subcontract services following the completion of our U.S. Domestication in 2025.
Other Operating (Income) Expense
Other operating expenses in the first six months of 2026 and 2025 included restructuring charges of $5.8 million and $1.0 million, respectively, primarily for employee severance costs and other benefits resulting from workforce reductions, the elimination of certain projects across our businesses and other costs associated with the ongoing
33 | | ||||
wind down of our Penguin Edge business. We anticipate that such activities will continue into future quarters, for which we expect to record additional restructuring charges.
Interest Expense, Net
Net interest expense decreased by $5.8 million in the first six months of 2026 compared to the same period in the prior year, primarily due to the full repayment of the Amended 2022 TLA (as defined below) in the fourth quarter of 2025.
Other Non-operating (Income) Expense
Other non-operating (income) expense in the first six months of 2026 includes a net gain of $27.0 million from the disposition of equity investments, partially offset by a $10.0 million charge on impairment of a non-marketable equity investment. See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Cash and Investments – Non-Marketable Equity Investments.”
In addition, other non-operating (income) expense in the first six months of 2026 and 2025 included foreign currency gains (losses). See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Other Non-operating (Income) Expense.”
Income Tax Provision (Benefit)
Income tax provision in the second quarter and first six months of 2026 increased by $6.8 million and by $2.2 million, respectively, as compared to the same periods in the prior year, primarily due to an increase in profit before tax partially offset by the benefits from the U.S. Domestication.
Our effective tax rate was 27.2% and 26.7% in the second quarter and first six months of 2026, respectively, and was higher than the U.S. statutory tax rate of 21.0%, primarily due to cross border tax costs, state income taxes, and foreign withholding tax partially offset by tax credits. The effective tax rate was 46.3% and 48.6% in the second quarter and first six months of 2025, respectively, and differed from the U.S. statutory rate primarily due to losses generated in a jurisdiction where no tax benefit can be recognized, withholding taxes, state income taxes, and nondeductible compensation paid to officers, partially offset by research and development tax credits.
The global minimum tax under the Pillar Two framework became effective for us in the first quarter of 2025. While the impact on our consolidated financial statements is not expected to be material, our analysis is ongoing as the Organisation for Economic Co-operation and Development continues to release additional guidance and countries enact related legislation.
See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Income Taxes.”
Liquidity and Capital Resources
As of February 27, 2026, we had cash, cash equivalents and short-term investments of $489.2 million, of which $269.4 million was held by subsidiaries outside of the United States. Our principal uses of cash and capital resources have been acquisitions, debt service requirements, capital expenditures, investments in working capital, research and development expenditures, and other operation expenses. We expect that future capital expenditures will focus on expansion of our research and development activities, manufacturing equipment upgrades, acquisitions and IT infrastructure and software upgrades. Cash and cash equivalents generally consist of funds held in demand deposit accounts, money market funds and time deposits. We do not acquire investments for trading or speculative purposes.
We may from time to time seek additional equity or debt financing. Any future equity or debt financing may be dilutive to our existing investors and may include debt service requirements and financial and other restrictive covenants that may constrain our operations and growth strategies. In the event that we seek additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued product innovation, we may not be able to compete successfully, which would harm our business, operations and financial condition.
34 | | ||||
We expect that our existing cash and cash equivalents, short-term investments, borrowings available under our credit facilities and cash generated by operating activities will be sufficient to fund our operations for at least the next 12 months.
Entry Into 2025 Credit Agreement and Repayment of 2022 TLA
On February 7, 2022, Penguin Solutions Cayman and SMART Modular Technologies, Inc. (the “Borrowers”) entered into a credit agreement (the “2022 Original Credit Agreement”) with a syndicate of banks and Citizens Bank, N.A., as administrative agent that provided for (i) a term loan credit facility in an aggregate principal amount of $275.0 million (the “2022 TLA”) and (ii) a revolving credit facility in an aggregate principal amount of $250.0 million (the “2022 Revolver”), in each case, maturing on February 7, 2027. The 2022 Original Credit Agreement provided that up to $35.0 million of the 2022 Revolver was available for issuances of letters of credit. On August 29, 2022, the 2022 Original Credit Agreement was amended (the “2022 Amended Credit Agreement”) to, among other things, provide for incremental term loans so that the aggregate amount of term loans was $300.0 million (together with the 2022 TLA, the “Amended 2022 TLA”), amend the First Lien Leverage Ratio (as defined in the 2022 Amended Credit Agreement) and increase the aggregate amount of unrestricted cash and permitted investments netted from the definitions of Consolidated First Lien Debt and Consolidated Net Debt. As of November 29, 2024, there was $300.0 million of aggregate principal amount outstanding under the Amended 2022 TLA and there were no amounts outstanding under the 2022 Revolver.
On June 24, 2025 (the “Refinancing Closing Date”), the Borrowers entered into a new Credit Agreement (the “2025 Credit Agreement”) by and among the Borrowers, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent, collateral agent and an issuing bank. The 2025 Credit Agreement provides for a revolving credit facility in an aggregate principal amount of $400 million (the “2025 Credit Facility” and the revolving loans thereunder, the “2025 Loans”), maturing on June 24, 2030 (subject to certain earlier “springing maturity” dates upon certain conditions specified in the 2025 Credit Agreement). The 2025 Credit Agreement provides that up to $35.0 million of the 2025 Credit Facility is available for issuances of letters of credit.
On the Refinancing Closing Date, we borrowed $100 million under the 2025 Credit Facility and simultaneously applied such proceeds, together with $200 million cash on hand, to repay in full all borrowings and terminate all commitments under the 2022 Amended Credit Agreement. Immediately prior to the repayment and termination of the 2022 Amended Credit Agreement, we had $300 million of principal outstanding under the Amended 2022 TLA, with unamortized issuance costs of $1.8 million and an effective interest rate of 7.17%, and no amounts outstanding under the 2022 Revolver, with unamortized issuance costs of $1.5 million. Following the termination of the 2022 Amended Credit Agreement, we recognized a loss on extinguishment of debt of $2.9 million.
Under the 2025 Credit Agreement, 2025 Loans bear interest at a rate per annum equal to either, at the Borrowers’ option, Term Secured Overnight Financing Rate (“Term SOFR”) rate or a base rate, in each case plus an applicable margin based on the Total Leverage Ratio (as defined in the 2025 Credit Agreement) and ranges from 1.25% to 3.00% per annum with respect to Term SOFR borrowings and from 0.25% to 2.00% per annum with respect to base rate borrowings. In addition, we are required to pay a quarterly unused commitment fee at an initial rate of 0.25%, which may increase up to a rate of 0.35% based on certain Total Leverage Ratio levels specified in the 2025 Credit Agreement.
For additional details regarding the 2025 Credit Agreement, refer to “PART II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt – Credit Agreement” in the 2025 Annual Report and “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt – Credit Agreement” in this Quarterly Report.
Convertible Senior Notes
2026 Notes
In February 2020, we issued $250.0 million in aggregate principal amount of 2.25% Convertible Senior Notes due 2026 (the “2026 Notes”) pursuant to an indenture (the “2026 Indenture”) between us and U.S. Bank Trust Company National Association, as trustee. The 2026 Notes matured on February 15, 2026.
On January 18, 2023, we exchanged $150.0 million principal amount of 2026 Notes for $150.0 million principal amount of new 2029 Notes (as defined below). On August 6, 2024, we repurchased $80.0 million aggregate principal amount of our 2026 Notes for $100.6 million cash (including payment for accrued interest) in privately-
35 | | ||||
negotiated transactions. In the second quarter of 2026, the 2026 Notes matured and we paid the remaining principal balance of $20.0 million, plus $0.3 million of accrued and unpaid interest. As of February 27, 2026, there were no 2026 Notes outstanding.
2029 Notes
In February 2023, we issued $150.0 million in aggregate principal amount of 2.00% Convertible Senior Notes due 2029 (the “2029 Notes”) pursuant to an indenture (the “2029 Indenture”), dated as of January 23, 2023, between the Company and U.S. Bank Trust Company, National Association, as trustee. The 2029 Notes will mature on February 1, 2029, unless earlier converted, redeemed or repurchased. As of February 27, 2026, $150.0 million in aggregate principal amount of 2029 Notes were outstanding.
2030 Notes
On August 6, 2024 and August 14, 2024, we issued $175.0 million and $25.0 million aggregate principal amount, respectively, of our 2.00% Convertible Senior Notes due 2030 (collectively, the “2030 Notes,” and together with the 2026 Notes and the 2029 Notes, the “Convertible Senior Notes”) pursuant to, and governed by, an indenture (the “2030 Indenture”), dated August 6, 2024, between us and U.S. Bank Trust Company, National Association, as trustee. The 2030 Notes will mature on August 15, 2030, unless earlier converted, redeemed or repurchased. As of February 27, 2026, $200.0 million in aggregate principal amount of 2030 Notes were outstanding.
For additional details of the terms of our Convertible Senior Notes, refer to “PART II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt – Convertible Senior Notes” in the 2025 Annual Report and “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt – Convertible Senior Notes” in this Quarterly Report.
Capped Calls
In connection with our Convertible Senior Notes, we have entered into privately-negotiated capped call transactions, which are intended to reduce the effect of potential dilution upon conversion of our Convertible Senior Notes. The capped calls provide for our receipt of cash or shares, at our election, from counterparties if the trading price of our common stock is above the strike price on the expiration date.
For additional information on our capped call transactions, refer to “PART II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity – Capped Calls” in the 2025 Annual Report.
Preferred Stock Investment
On December 13, 2024, we closed the SKT Investment (as defined below) by SK Telecom Co., Ltd. (“SKT”). Pursuant to the SKT Purchase Agreement, we sold to Astra AI Infra LLC, an affiliate of SKT (“Astra AI Infra”), 200,000 convertible preferred shares, par value $0.03 per share, of Penguin Solutions (the “Issued Cayman CPS”), at a price of $1,000 per share or an aggregate price of $200.0 million (the “SKT Investment”).
On the closing date of the SKT Investment, we and Astra AI Infra entered into an Investor Agreement (the “Investor Agreement”), and the Certificate of Designation of Convertible Preferred Shares setting forth the terms, rights, and obligations of the Issued Cayman CPS (the “CPS Cayman Certificate of Designation”) became effective. The Investor Agreement and the CPS Cayman Certificate of Designation provided for certain rights and restrictions relating to the SKT Investment, including but not limited to board representation rights, pro rata rights, registration rights and consent rights, and standstill provisions, disposition restrictions and voting obligations.
On June 27, 2025, in connection with the U.S. Domestication, Penguin Solutions Delaware executed and adopted a Certificate of Designation of Convertible Preferred Stock (the “CPS Delaware Certificate of Designation”) that sets forth the terms, rights and obligations of a series of 200,000 shares of preferred stock of Penguin Solutions Delaware having a par value of $0.03 per share, designated as convertible preferred stock (the “Issued CPS”), which principal attributes remain substantially the same as prior to the U.S. Domestication, subject to changes to give effect to requirements of Delaware law. The shares of Issued CPS are convertible into shares of common stock at an initial conversion price of $32.81, subject to adjustment upon the occurrence of certain events, have an initial liquidation preference of 1x and are only redeemable at our option, subject to certain conditions. The
36 | | ||||
holder of Issued CPS may convert such holder’s Issued CPS into shares of common stock at any time, provided that the Issued CPS may, at our option, automatically be converted into shares of common stock on any date following the second anniversary of the closing upon certain conditions. The Issued CPS entitles the holder to receive dividends of six percent per annum, cumulative, and payable quarterly in-kind or in cash at our option. Shares of Issued CPS are not redeemable upon or repurchased upon the election of the holders of Issued CPS. Refer to the CPS Delaware Certificate of Designation of Penguin Solutions, Inc., effective as of June 27, 2025, filed hereto as Exhibit 3.3, and to the section entitled “Comparison of Rights of Cayman Islands Shareholders and Delaware Stockholders” contained in Penguin Solutions Cayman’s definitive proxy statement filed with the SEC on May 2, 2025.
On June 30, 2025, effective upon consummation of the U.S. Domestication, Penguin Solutions Delaware assumed the Investor Agreement from Penguin Solutions Cayman, and Penguin Solutions Delaware and SKT amended and restated the Investor Agreement (as amended and restated, the “Amended and Restated Investor Agreement”) such that the rights and restrictions relating to SKT’s beneficial ownership of the Issued Cayman CPS in place prior to the U.S. Domestication apply in respect of SKT’s holdings of the Issued CPS following consummation of the U.S. Domestication.
See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Temporary Equity – Convertible Preferred Stock.”
Cash Flows
| Six Months Ended | |||||||||||
| February 27, 2026 | February 28, 2025 | ||||||||||
| Net cash provided by operating activities | $ | 86,010 | $ | 86,696 | |||||||
| Net cash provided by (used for) investing activities | 26,890 | (23,271) | |||||||||
| Net cash (used for) provided by financing activities | (77,482) | 175,096 | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 35,418 | $ | 238,521 | |||||||
Operating Activities: Cash flows from operating activities reflects net income, adjusted for certain non-cash items, including depreciation and amortization expense, stock-based compensation, gains and losses from investing or financing activities, and from the effects of changes in operating assets and liabilities.
Net cash provided by operating activities in the first six months of 2026 consisted primarily of net income of $44.6 million, adjusted for non-cash and non-operating items of $26.0 million. Operating cash flows were positively affected by a $15.4 million net change in our operating assets and liabilities, primarily from the effects of an increase of $148.1 million in accounts payable and accrued expenses and other liabilities primarily due to an increase in trade purchasing activities as well as an increase in deferred revenue from customer services, partially offset by an increase of $62.7 million in accounts receivable, driven by increased Integrated Memory sales, and $67.2 million in inventories to support future demand across all business units.
Net cash provided by operating activities in the first six months of 2025 consisted primarily of net income of $14.8 million, adjusted for non-cash items of $58.8 million. Operating cash flows were positively affected by a $13.0 million net change in our operating assets and liabilities, primarily from the effects of an increase of $122.1 million in accounts payable and accrued expenses and other liabilities primarily due to an increase in deferred revenue from customer services and higher accounts payable related to the timing of trade purchases, and a decrease of $15.7 million in other assets, partially offset by an increase of $46.2 million in inventories, primarily to support future demand across both Advanced Computing and Integrated Memory, and an increase of $78.6 million in accounts receivable primarily due to increased sales.
Investing Activities: Net cash provided by investing activities in the first six months of 2026 consisted primarily of $32.2 million from proceeds from the disposition of equity investments partially offset by $4.5 million for capital expenditures and deposits on equipment.
Net cash used for investing activities in the first six months of 2025 consisted primarily of $18.6 million net purchase of marketable investment securities and $4.2 million for capital expenditures and deposits on equipment.
37 | | ||||
Financing Activities: Net cash used for financing activities in the first six months of 2026 consisted primarily of $57.1 million of payments to acquire our common stock (including $47.0 million under our stock repurchase program), $20.0 million of repayments on our 2026 Notes, and $6.2 million in payments of preferred stock cash dividends, partially offset by $5.9 million in proceeds from the issuance of common stock from our equity plans.
Net cash provided by financing activities in the first six months of 2025 consisted primarily of $191.2 million of proceeds from the issuance of preferred shares, net of issuance costs of $8.8 million, and $3.7 million in proceeds from the issuance of ordinary shares from our equity plans, partially offset by $17.6 million of payments to acquire our ordinary shares (including $11.1 million under our share repurchase program).
Critical Accounting Estimates
The preparation of these financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We evaluate our estimates and judgments on an ongoing basis. Estimates and judgments are based on historical experience, forecasted events and various other assumptions that we believe to be reasonable under the circumstances; however, actual results could differ from those estimates. Our management believes our critical accounting estimates require management’s most difficult, subjective or complex judgments and are critical in the portrayal of our financial condition and results of operations. Our discussion of critical accounting estimates is intended to supplement our summary of significant accounting policies so that readers will have greater insight into the uncertainties involved in applying our critical accounting policies and estimates.
For a summary of our critical accounting estimates, see “PART II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” of the 2025 Annual Report. There have been no material changes to our critical accounting estimates from those described in the 2025 Annual Report.
For a summary of our significant accounting policies, see “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Significant Accounting Policies” of this Quarterly Report and “PART II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Significant Accounting Policies” of the 2025 Annual Report. There have been no material changes to our significant accounting policies from those described in the 2025 Annual Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Risk
We are subject to inherent risks attributed to operating in a global economy. Our international sales and our operations in foreign countries subject us to risks associated with fluctuating currency values and exchange rates. Because a significant portion of our sales are denominated in U.S. dollars, increases in the value of the U.S. dollar could increase the price of our products so that they become relatively more expensive to customers in a particular country, possibly leading to a reduction in sales and profitability in that country. In addition, we have certain costs that are denominated in foreign currencies and decreases in the value of the U.S. dollar could result in increases in such costs, which could have a material adverse effect on our results of operations.
As a result of our international operations, we generate a portion of our net sales and incur a portion of our expenses in currencies other than the U.S. dollar, such as the Japanese yen, Malaysian ringgit and Chinese renminbi. We present our consolidated financial statements in U.S. dollars and remeasure certain assets and liabilities into U.S. dollars at applicable exchange rates. Consequently, increases or decreases in the value of the U.S. dollar may affect the value of these items with respect to our non-U.S. dollar businesses in our consolidated financial statements, even if their value has not changed in their local currency. Our customer pricing and material cost of sales are generally based on U.S. dollars. Accordingly, the impact of currency fluctuations to our consolidated statements of operations is primarily to our other costs of sales (i.e., non-material components) and our operating expenses as those items are typically denominated in local currency. Our consolidated statements of operations are also impacted by foreign currency gains and losses arising from transactions denominated in a currency other than the U.S. dollar. These translations could significantly affect the comparability of our results
38 | | ||||
between financial periods or result in significant changes to the carrying value of our assets and liabilities. As a result, changes in foreign currency exchange rates impact our reported results.
Based on our monetary assets and liabilities denominated in foreign currencies as of February 27, 2026 and August 29, 2025, we estimate that a 10% adverse change in exchange rates versus the U.S. dollar would result in losses recorded in non-operating expense of $4.4 million and $2.7 million, respectively, to revalue these assets and liabilities.
Interest Rate Risk
We are subject to interest rate risk in connection with our variable-rate debt. As of February 27, 2026, we had $100.0 million outstanding under the 2025 Credit Agreement. In addition, the 2025 Credit Facility under the 2025 Credit Agreement provides for additional borrowings of up to $300.0 million for a total commitment of $400.0 million. Assuming that we would satisfy the financial covenants required to borrow and that the amounts available under the 2025 Credit Facility were fully drawn, a 1.0% increase in interest rates would result in an increase in annual interest expense and a decrease in our cash flows of $4.0 million per year.
As of February 27, 2026, we had cash, cash equivalents and short-term investments of $489.2 million. We maintain our cash and cash equivalents in deposit accounts, money market funds with various financial institutions and in short-duration fixed income securities. Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of these investments as a result of changes in interest rates. Increases or decreases in interest rates would be expected to augment or reduce future interest income by an insignificant amount.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective as of February 27, 2026 to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
During the second quarter of 2026, there were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
39 | | ||||
PART II. Other Information
Item 1. Legal Proceedings
For a discussion of legal proceedings, see “PART I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Commitments and Contingencies” and “Item 1A. Risk Factors.”
Item 1A. Risk Factors
There have been no material changes to the risks described in “PART I – Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended August 29, 2025 (the “2025 Annual Report”). You should carefully consider the risks and uncertainties and the other information in our 2025 Annual Report and in this Quarterly Report, including “PART I. Financial Information – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occur and, as a result, the market price of our common stock could decline and you could lose all or part of your investment.
This Quarterly Report also contains forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” for additional information. Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including the risks facing our Company described in our 2025 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On April 4, 2022, our Board of Directors approved a $75.0 million stock repurchase authorization (the “2022 Authorization”), under which we may repurchase our outstanding common stock from time to time through open market purchases, privately-negotiated transactions or otherwise. On each of January 8, 2024 and October 6, 2025, the Audit Committee of the Board of Directors approved additional $75.0 million stock repurchase authorizations (the “2024 Authorization” and “2025 Authorization,” respectively, and together, the “Current Authorizations”). The Current Authorizations, which consist solely of amounts approved pursuant to the 2024 Authorization and 2025 Authorization as all amounts under the 2022 Authorization have been utilized, have no expiration date but may be suspended or terminated by the Board of Directors at any time. As of February 27, 2026, an aggregate of $64.5 million remained available for the repurchase of our common stock under the Current Authorizations. Certain of our agreements, including the 2025 Credit Agreement, the SKT Purchase Agreement and the CPS Delaware Certificate of Designation, contain restrictions that limit our ability to repurchase our common stock.
The following table sets forth information relating to repurchases of our equity securities during the three months ended February 27, 2026:
| Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under the plans or programs | ||||||||||
| November 29, 2025 - December 26, 2025 | — | $ | — | — | $ | 96,510,000 | ||||||||
| December 27, 2025 - January 23, 2026 | 261,605 | $ | 19.91 | 261,605 | $ | 91,302,000 | ||||||||
| January 24, 2026 - February 27, 2026 | 1,410,712 | $ | 18.99 | 1,410,712 | $ | 64,512,000 | ||||||||
| 1,672,317 | $ | 19.13 | 1,672,317 | |||||||||||
Item 3. Defaults Upon Senior Securities
None.
40 | | ||||
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the fiscal quarter ended February 27, 2026, no officers or directors of Penguin Solutions adopted terminated
Item 6. Exhibits
INDEX TO EXHIBITS
41 | | ||||
| Incorporated by Reference | ||||||||||||||||||||
| Exhibit No. | Description | Filed Herewith | Form | File No. | Exhibit | Filing Date | ||||||||||||||
| 3.1 | 8-K12B | 001-38102 | 3.1 | 06/30/2025 | ||||||||||||||||
| 3.2 | 8-K12B | 001-38102 | 3.3 | 06/30/2025 | ||||||||||||||||
| 3.3 | 8-K12B | 001-38102 | 3.2 | 06/30/2025 | ||||||||||||||||
| 4.1 | S-8 POS | 333-286347 | 4.1 | 06/30/2025 | ||||||||||||||||
| 4.2 | 8-K12B | 001-38102 | 4.4 | 06/30/2025 | ||||||||||||||||
10.1* | X | |||||||||||||||||||
10.2* | X | |||||||||||||||||||
10.3** | 10-Q | 001-38102 | 10.2 | 01/06/2026 | ||||||||||||||||
| 31.1 | X | |||||||||||||||||||
| 31.2 | X | |||||||||||||||||||
32.1*** | X | |||||||||||||||||||
32.2*** | X | |||||||||||||||||||
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document | X | ||||||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | X | ||||||||||||||||||
42 | | ||||
| * | Constitutes a management contract or compensatory plan or arrangement. | ||||
** | Certain schedules and exhibits have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of any omitted attachment to the SEC on a confidential basis upon request. | ||||
*** | The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Quarterly Report on Form 10-Q are deemed furnished and not filed with the SEC and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report, irrespective of any general incorporation language contained in such filing. | ||||
43 | | ||||
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Penguin Solutions, Inc. | ||||||||
Date: April 1, 2026 | By: | /s/ Kash Shaikh | ||||||
Kash Shaikh | ||||||||
| President and Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
Date: April 1, 2026 | By: | /s/ Nate Olmstead | ||||||
| Nate Olmstead | ||||||||
| Senior Vice President and Chief Financial Officer | ||||||||
| (Principal Financial and Accounting Officer) | ||||||||
44 | | ||||