What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-10-21 compared with 2024-10-24 · 175 added, 112 removed, 270 unchanged (52% of the section changed)

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For an overview of our business, see “PART I – Item 1.

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 Annual 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 “About this Annual Report,” above.

Divestiture of SMART Brazil

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Unless otherwise noted, discussion within this Annual Report relates solely to our continuing operations and excludes the SMART Brazil operations.

See “PART II – Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Divestiture of SMART Brazil.”

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Our business segments each have their own unique set of demand factors.

Our Advanced Computing business is driven by demand for high-performance compute solutions across AI and machine learning initiatives, as well as traditional workload optimization and efficiency applications.

as well as emerging demand for higher density and greater bandwidth solutions for AI deployments.

Our Advanced Computing business is driven by demand for our 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, energy, government and education, as well as increased 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.

We believe our diversified business segments may sometimes provide a natural hedge against downturns in any particular industry.

However, broader macro-economic trends can adversely affect all three segments concurrently.

However, broader macro-economic trends, including global conflicts impacting international relations, 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 Revenue.

Shifts in the mix of revenue from our operating segments, and in the timing of revenue, which can vary significantly from period to period, can impact our business and operating results, 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 for reasons such as:

recognition of revenue is sometimes tied to customer decisions as to the completion of delivery and system go-live events, sales can be affected by the timing of customer deployments or customer budget considerations and margin is driven by the extent to which higher margin software and managed services comprise Advanced Computing sales.

Our resource commitments and planning for each segment are relatively fixed in the short term, and as such, variability in expected revenue mix will have direct implications for our operating income and margins.

Shifts in the mix of revenue from our operating segments, and in the timing of revenue, 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 customer churn rates (including discounting and churn of significant customers from whom we derive a significant percentage of our revenue);

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.

Our resource commitments and planning for each segment are relatively fixed in the short term, and as such, variability in expected revenue mix may have direct implications for our operating income and margins.

Additionally, our revenue and margins will be negatively impacted by the winding down of our Penguin Edge business, which we expect to wind down and discontinue by approximately the end of calendar 2025.

The comparability of our results of operations against prior periods will also be affected following the wind down of our Penguin Edge business.

Our Ability to Identify, Complete and Successfully Integrate Acquisitions.

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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, we may not be successful in growing our revenue and/or expanding our margins.

From time to time, we may seek to expand our addressable market by entering new business segments where 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 revenue 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, 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.

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.

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, the recent global semiconductor shortage has adversely affected our operating results.

For example, 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.

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 operating results and financial condition may continue to be adversely affected.

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.

Results of Operations

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Change in fair value of contingent consideration — — % — — % 29,000 2.0 %

Other operating (income) expense 7,064 0.6 % 7,047 0.5 % 234 — %

Other operating expense 2,098 0.2 % 7,064 0.6 % 7,047 0.5 %

Total operating expenses 336,139 24.6 % 322,481 27.5 % 406,426 28.2 %

Operating income (loss) 18,295 1.6 % 8,745 0.6 % 67,176 4.8 %

Operating income 58,135 4.2 % 18,295 1.6 % 8,745 0.6 %

Non-operating (income) expense:

Interest expense, net 7,305 0.5 % 28,378 2.4 % 36,421 2.5 %

Other non-operating (income) expense 21,084 1.8 % 11,837 0.8 % 350 — %

Total non-operating (income) expense 49,462 4.2 % 48,258 3.3 % 24,695 1.8 %

Other non-operating expense 1,929 0.1 % 21,084 1.8 % 11,837 0.8 %

Total non-operating expense 9,234 0.7 % 49,462 4.2 % 48,258 3.3 %

Income (loss) before taxes 48,901 3.6 % (31,167) (2.7) % (39,513) (2.7) %

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Net income (loss) from continuing operations 28,835 2.1 % (41,785) (3.6) % 9,690 0.7 %

Net income (loss) from discontinued operations (8,148) (0.7) % (195,384) (13.6) % 44,185 3.2 %

Net loss from discontinued operations — — % (8,148) (0.7) % (195,384) (13.6) %

Net income (loss) 28,835 2.1 % (49,933) (4.3) % (185,694) (12.9) %

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Net Sales, Cost of Sales and Gross Profit

Net sales increased by $198.0 million, or 16.9%, in 2025 compared to the prior year, primarily due to higher sales from our Advanced Computing and Integrated Memory business segment.

Advanced Computing net sales increased by $93.9 million, or 16.9%, compared to the same period in the prior year, primarily due to higher hardware sales driven by increased demand for AI solutions and HPC.

Integrated Memory net sales increased by $107.8 million, or 30.3%, compared to the same period in the prior year, primarily due to higher sales volumes of flash and DRAM products stemming from improved market demand.

Optimized LED net sales decreased by $3.7 million, or 1.4%, compared to the same period in the prior year, primarily due to lower direct sales across China and Europe.

Net sales decreased by $270.5 million, or 18.8%, in 2024 compared to the prior year, primarily due to lower sales and weakness in our Advanced Computing and Integrated Memory segments, partially offset by moderate growth in our Optimized LED segment.

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Optimized LED net sales increased by $11.5 million, or 4.6%, primarily due to higher demand as channel partners addressed low inventory carrying levels .

Net sales increased by $45.4 million, or 3.3%, in 2023 compared to the prior year, due to strong performance in our Advanced Computing business, partially offset by weakness in both our Integrated Memory and Optimized LED segments.

Advanced Computing net sales increased by $308.7 million, or 70.0%, primarily due to $172.7 million of revenue from our Stratus Technologies acquisition in August 2022, as well as higher volumes of sales in our Penguin Computing business.

Optimized LED net sales decreased by $154.9 million, or 38.4%, primarily due to continued demand challenges in China.

Integrated Memory sales decreased by $108.4 million, or 19.7%, primarily due to lower sales volume and pricing of DRAM products.

Cost of sales increased by $144.5 million, or 17.4%, in 2025 compared to the prior year, primarily due to our Advanced Computing and Integrated Memory segments having increased products sales for the year.

Cost of sales decreased by $196.1 million, or 19.1%, in 2024 compared to the prior year, primarily due to our Advanced Computing and Integrated Memory segments, which had lower material and production costs from lower sales, as well as lower personnel-related expenses mainly driven by cost reduction efforts.

Cost of sales increased by $21.2 million, or 2.1%, in 2023 compared to the prior year, primarily due to the Stratus Technologies

acquisition and from higher costs of materials and production costs due to higher sales for our Advanced Computing segment.

Gross margin decreased to 28.8% in 2025 compared to 29.1% in 2024 primarily due to unfavorable mix from higher product revenue in our Advanced Computing segment and a higher mix of Integrated Memory sales.

Gross margin increased to 29.1% in 2024 compared to 28.8% in 2023 primarily due to favorable mix from higher service revenue in our Advanced Computing segment.

Gross margin increased to 28.8% in 2023 compared to 28.0% in 2022 primarily due to the inclusion of higher margin Stratus products, as well as process and efficiency improvements in the Integrated Memory and Advanced Computing segments compared to the prior year.

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 believes that this supplemental non-GAAP information is useful to investors in analyzing and assessing the company’s past and future operating performance.

These non-GAAP measures exclude certain items, such as share-based compensation expense;

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 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);

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diligence, acquisition and integration expense;

restructure charges;

restructuring charges;

impairment of goodwill;

changes in the fair value of contingent consideration;

redomiciliation costs;

and other infrequent or unusual items.

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2024 August 25,

GAAP operating income (loss) $ 18,295 $ 8,745 $ 67,176

Share-based compensation expense 43,160 39,228 37,284

GAAP operating income $ 58,135 $ 18,295 $ 8,745

Stock-based compensation expense 41,176 43,160 39,228

Amortization of acquisition-related intangibles 34,838 39,272 44,601

Flow-through of inventory step up — — 2,599

Cost of sales-related restructure 2,136 6,813 —

Cost of sales-related restructuring 746 2,136 6,813

Diligence, acquisition and integration expense 1,829 8,772 20,869

Redomiciliation costs (1)

Impairment of goodwill 16,063 — 19,092

Change in fair value of contingent consideration — — 29,000

Restructure charge 7,064 7,047 234

Other 1,558 1,800 624

Restructuring charges 2,098 7,064 7,047

2,729 1,088 1,800

Non-GAAP operating income $ 167,652 $ 120,257 $ 179,794

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Total non-GAAP operating income by segment $ 167,652 $ 120,257 $ 179,794

(1) In 2025 we began breaking out costs related to the U.S.

Domestication from “Other.” All periods presented have been adjusted to reflect this change.

Advanced Computing operating income in creased by $19.7 million, or 20.7%, in 2025 compared to the prior year primarily due to increased net sales driven by increased demand for AI solutions , as well as lower subcontract services, partially offset by increased operating expenses, mainly driven by increased personnel-related expenses stemming from bonus achievement.

Advanced Computing operating income decreased by $15.7 million, or 14.1%, in 2024 compared to the prior year primarily due to lower sales from our Penguin Computing business, partially offset by lower operating expenses, mainly driven by personnel-related expenses due to lower headcount and lower subcontract services.

Advanced Computing operating income increased by $61.5 million, or 124.4%, in 2023 compared to the prior year primarily due to higher sales mainly due to the Stratus Technologies acquisition and gross margin expansion, partially offset by higher operating expenses due to the Stratus Technologies acquisition as well as personnel-related expenses due in part to increased headcount to support the revenue growth.

Integrated Memory operating income increased by $21.2 million, or 94.7%, in 2025 compared to the prior year primarily due to increased net revenue, partially offset by increased operating expenses, mainly driven by

increased personnel costs stemming from bonus achievement.

Integrated Memory operating income decreased by $51.2 million, or 69.6%, in 2024 compared to the prior year primarily due to lower sales and gross profit due to lower sales volumes of flash and DRAM products.

Memory operating income decreased by $5.2 million, or 6.6%, in 2023 compared to the prior year primarily due to lower sales, partially offset by a favorable product mix and lower personnel-related costs driven in part by cost containment actions.

Optimized LED operating income increase d by $6.5 million, or 252.7%, in 2025 primarily due to higher gross profit, stemming from a more favorable product mix.

Optimized LED operating loss improved by $7.4 million, or 153.0%, in 2024 primarily due to higher revenue from increased demand, better factory leverage and product mix and lower personnel-related expenses due to headcount reductions.

Optimized LED operating income decreased by $54.0 million, or 109.8%, in 2023 compared to the prior year primarily due to lower sales from demand challenges in China, partially offset by lower personnel-related costs driven in part by cost reduction actions.

Operating and Non-operating (Income) Expense

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Research and development expense decreased by $1.7 million, or 2.1%, in 2025 compared to the prior year, primarily due to lower personnel-related expenses mainly driven by headcount reductions, as well as lower subcontract services mainly driven by Advanced Computing.

Research and development expense increased by $13.1 million, or 16.9%, in 2023 compared to the prior year, primarily due to additional costs from the Stratus Technologies acquisition, offset by lower personnel-related expenses mainly driven by bonus and headcount reductions.

Research and development expense decreased by $9.0 million, or 10.0%, in 2024 compared to the prior year, primarily due to lower personnel-related expenses mainly driven by headcount reductions, as well as lower subcontract services mainly driven by Advanced Computing.

Selling, General and Administrative

Selling, general and administrative expense increased by $4.3 million, or 1.8%, in 2025 compared to the prior year, primarily due to higher personnel-related expenses stemming from increased bonus achievement as a result of Company performance, partially offset by decreased professional services driven by increased cost in the

prior year due to the SMART Brazil divestiture referenced above.

Selling, general and administrative expense decreased by $26.8 million, or 10.3%, in 2024 compared to the prior year, primarily due to lower diligence, acquisition and integration expense, lower personnel-related expenses, mainly driven by headcount reductions, and lower amortization expense of intangible assets.

Selling, general and administrative expense increased by $55.9 million, or 27.3%, in 2023 compared to the prior year, primarily due to additional costs from the Stratus Technologies acquisition as well as higher diligence, acquisition and integration expense, partially offset by lower personnel-related expenses driven by bonus and headcount reductions.

Impairment of Goodwill

In the second quarter of 2023, we initiated a plan pursuant to which we intend to wind down manufacturing and discontinue the sale of certain legacy products offered through our Penguin Edge business by approximately the end of 2025.

We recorded impairment charges of $19.1 million in 2023 to impair the carrying value of Penguin Edge goodwill.

We currently anticipate that the remaining goodwill of the Penguin Edge reporting unit of $16.1 million as of August 30, 2024 may become further impaired in future periods.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Intangible Assets and Goodwill – Impairment of Penguin Edge Goodwill.”

In the second quarter of 2023, we initiated a plan pursuant to which we intend to wind down manufacturing and discontinue the sale of certain products offered through our Penguin Edge business by approximately the end of calendar 2025.

In connection therewith and with the preparation of the financial statements included in this Annual Report, we assessed goodwill associated with our Penguin Edge business within our Advanced Computing segment and concluded it is now fully impaired.

As a result, we recorded impairment charges of $16.1 million and $19.1 million in 2025 and 2023, respectively , to impair the carrying value of Penguin Edge goodwill.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Intangible Assets and Goodwill.”

Change in Fair Value of Contingent Consideration

Our acquisitions of Stratus Technologies in the first quarter of 2023 and our Optimized LED business in the third quarter of 2021 each included contingent consideration.

Our acquisitions of Stratus Technologies in the first quarter of 2023 included contingent consideration.

We estimate the fair value of the contingent consideration as of the date of acquisition and subsequently recognize changes in the fair value in results of operations.

During 2023 and 2022, we recorded charges of $29.0 million and $41.3 million, respectively, to adjust the fair value of the contingent consideration.

During 2023, we recorded charges of $29.0 million to adjust the fair value of the contingent consideration.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Business Acquisitions.”

Other Operating (Income) Expense

Other operating expense in 2024 and 2023 included restructure charges of $7.1 million and $7.0 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 wind down of our Penguin Edge business.

We anticipate that such activities will continue into future quarters and anticipate recording additional restructure charges.

Other operating expense in 2025, 2024, and 2023 included restructuring charges of $2.1 million, $7.1 million, and $7.0 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 wind down of our Penguin Edge business.

We anticipate that such activities will continue into future quarters and anticipate recording additional restructuring charges.

Interest Expense, Net

Net interest expense decreased by $8.0 million, or 22.1%, in 2024 compared to the prior year, primarily due to higher interest income resulting from higher cash and investment balances, partially offset by higher interest expense from the Amended 2027 TLA (as defined below).

Net interest expense increased by $12.1 million, or 49.6%, in 2023 compared to the prior year, primarily due to higher interest expense from the Amended 2027 TLA, partially offset by higher interest income resulting from higher cash and investment balances.

Net interest expense decreased by $21.1 million, or 74.3%, in 2025 compared to the prior year, primarily due to principal payments made on the Amended 2022 TLA (as defined below) during the last half of fiscal 2024 along with the full repayment in the last quarter of fiscal 2025.

Other Non-operating (Income) Expense

Other non-operating (income) expense in 2024 and 2023 included losses of $22.8 million and $15.9 million, respectively, from the extinguishment or prepayment of debt.

Other non-operating (income) expense in 2025, 2024 and 2023 included losses of $2.9 million, $22.8 million, and $15.9 million, respectively, from the extinguishment or prepayment of debt.

Other non-operating (income) expense in 2024 also included net gains of $0.2 million from the disposition of assets.

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Income Tax Provision (Benefit)

Our provision for income taxes increased by $59.8 million in 2024, or 121.6%, compared to the prior year primarily due to a decrease in tax benefit for the 2023 U.S.

federal and state valuation allowance release.

Our provision for income taxes decreased by $67.3 million in 2023, or 372.2%, compared to the prior year primarily due to the tax benefit on the release of the U.S.

federal and state valuation allowance in 2023, partially offset by tax add backs for nondeductible goodwill impairment in 2023 and additional uncertain tax positions recorded in 2023.

In 2024, our tax expense of $10.6 million and effective tax rate of (34.1)%, which was different from the U.S.

statutory tax rate primarily due to losses, generated in a jurisdiction where no tax benefit can be recognized, and foreign withholding taxes, partially offset by benefits associated with decreases in reserves for uncertain tax provisions and U.S.

Our provision for income tax es increased by $9.4 million, or 89.0%, in 2025 compared to 2024 primarily due to an increase in profit before tax in jurisdictions subject to income tax.

Our provision for income taxes increased by $59.8 million, or 121.6%, in 2024 compared to 2023 primarily due to the tax benefit on the release of the U.S.

federal and state valuation allowance in 2023, partially offset by tax addbacks for nondeductible goodwill impairment and additional uncertain tax positions recorded in 2023.

In 2025, our tax expense of $20.1 million and effective tax rate of 41.0% differed from the U.S.

statutory tax rate primarily due to losses generated in a jurisdiction where no tax benefit can be recognized, non-deductible expenses, return to provision adjustments, and foreign withholding taxes, offset in part by benefits from the U.S.

Domestication (net of valuation allowance) and tax credits.

In 2024, our tax expense of $10.6 million and effective tax rate of (34.1)% differed from the U.S.

statutory tax rate primarily due to losses generated in a jurisdiction where no tax benefit can be recognized, non-deductible expenses and foreign withholding taxes, offset in part by benefits associated with decreases in reserves for uncertain tax provisions and U.S.

federal and state tax credits.

In 2023, our tax benefit of $49.2 million and effective tax rate of 124.5%, which was different from the U.S.

In 2023, our tax benefit of $49.2 million and effective tax rate of 124.5% differed from the U.S.

statutory tax rate primarily due to a release of the U.S.

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statutory tax rate, increases in reserves for uncertain tax provisions, foreign withholding taxes and goodwill impairment for financial reporting purposes with no tax basis.

In 2022, our tax expense of $18.1 million and effective tax rate of 42.5%, which was different from the U.S.

statutory tax rate primarily due to losses generated in jurisdictions with rates lower than the U.S.

statutory tax rate, nondeductible expenses and additional valuation allowance recorded against U.S.

federal and state deferred tax assets.

We have operations in Malaysia, where we have tax incentive arrangements for our pioneer status activities and our global supply chain operations.

We have operations in Malaysia, where we have tax incentive arrangements for our pioneer status activities and our global supply chain business.

The statutory tax rate for Malaysia is 24%.

These arrangements are scheduled to expire in August 2028 and are subject to certain conditions, with which we have partially complied in 2024 and fully complied in 2023 and 2022.

The impact of partial compliance is reflected within the 2024 income tax provision.

Our effective income tax rate in the future may be higher depending on a combination of our overall and jurisdictional profitability, the expectation that future tax holidays will have tax rates greater than our prior approved tax holidays and the impact of the OECD’s Pillar Two model rules, which aims to implement a global minimum tax rate of 15%.

This Malaysia arrangement for the pioneer status activities is scheduled to expire in August 2028 and is subject to certain conditions, with which we have fully complied in 2025, 2024, and 2023.

This Malaysia arrangement for the global supply chain activities is scheduled to expire in August 2028 and is subject to certain conditions, with which we have partially complied in 2025 and 2024 and fully complied in 2023.

The impact of partial compliance is reflected within the 2025 and 2024 income tax provisions.

Our effective income tax rate in the future may be higher depending on a combination of our overall and jurisdictional profitability, the general expectation that future tax holidays may have tax rates greater than our prior approved tax holidays, and the impact of the Organisation for Economic Co-operation and Development's Pillar Two Model rules which aims to implement a global minimum tax of 15%.

For additional information, see “Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Income Taxes.”

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As of August 25, 2023, SMART Brazil was classified as held for sale.

Accordingly, in 2023 we evaluated the carrying value of the net assets of SMART Brazil (including $206.3 million recognized within shareholder’s equity related to the cumulative translation adjustment from SMART Brazil), estimated costs to sell and expected proceeds and concluded the net assets were impaired.

Accordingly, in 2023 we evaluated the carrying value of the net assets of SMART Brazil (including $206.3 million recognized within stockholder’s equity related to the cumulative translation adjustment from SMART Brazil), estimated costs to sell and expected proceeds and concluded the net assets were impaired.

As a result, we recognized an impairment charge of $153.0 million in 2023 to write down the carrying value of the net assets of SMART Brazil.

In addition, we concluded that the outside basis of SMART Brazil inclusive of any withholding taxes should be recognized upon the classification as held for sale as of August 25, 2023.

Accordingly, we recognized withholding taxes on the expected capital gain and deferred tax liabilities of $28.6

million in 2023.

Accordingly, we recognized withholding taxes on the expected capital gain and deferred tax liabilities of $28.6 million in 2023.

In the first quarter of 2024, we completed the divestiture, and in connection therewith, recognized an additional loss of $8.9 million.

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As of August 29, 2025, we had cash, cash equivalents and short-term investments of $453.8 million , of which $315.5 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, research and development expenditures and working capital requirements.

We expect that future capital expenditures will focus on expanding our research and development activities, manufacturing equipment upgrades, acquisitions and IT infrastructure and software upgrades.

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 operating 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.

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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.

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.

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.

Credit Facility

On February 7, 2022, Penguin Solutions and SMART Modular Technologies, Inc.

(collectively, the “Borrowers”) entered into a credit agreement (the “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 “2027 TLA”) and (ii) a revolving credit facility in an aggregate principal amount of $250.0 million (the “2027 Revolver”), in each case, maturing on February 7, 2027.

The Original Credit Agreement provides that up to $35.0 million of the 2027 Revolver is available for issuances of letters of credit.

The Original Credit Agreement has subsequently been amended to, among other things, provide for incremental term loans in an aggregate amount of $300.0 million (together with the 2027 TLA, the “Amended 2027 TLA”), amend the First Lien Leverage Ratio (as defined in the 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.

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 of $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 August 30, 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.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt – Credit Facility.”

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.”

Convertible Senior 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 the Company and U.S.

Bank Trust Company National Association, as trustee.

The 2026 Notes will mature on February 15, 2026, unless earlier converted, redeemed or repurchased.

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-negotiated transactions.

Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Debt - Convertible Senior Notes - Repurchase of Convertible Senior Notes” in this 2025 Annual Report.

As of August 29, 2025, $20.0 million in aggregate principal amount of 2026 Notes were outstanding.

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 August 29, 2025, $150.0 million in aggregate principal amount of 2029 Notes were outstanding.

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 August 29, 2025, $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 this 2025 Annual Report.

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 this 2025 Annual Report.

Divestiture of SMART Brazil

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At the closing of the transaction, we received cash of $143.0 million, net of tax, from the sale.

In addition, we have the right to receive a deferred payment of $28.4 million in May 2025.

In addition, we received a deferred payment of $24.3 million (net of $4.2 million withholding tax) in May 2025.

Refer to “PART II – Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Divestiture of SMART Brazil.”

Preferred Share Investment

In July 2024, we entered into the SKT Purchase Agreement for the Investment, pursuant to which we agreed to sell to SK the CPS.

The CPS will be convertible into ordinary shares at a conversion price of $32.81 per preferred share, subject to adjustment upon the occurrence of certain events, will have an initial liquidation preference of 1x and will only be redeemable at our option, subject to certain conditions.

The holder of the CPS may convert such holder’s CPS into ordinary shares at any time, provided that the CPS may, at our option, automatically be converted into ordinary shares on any date following the second anniversary of the closing upon certain conditions.

The CPS will entitle the holder to receive dividends of six percent per annum, cumulative, and payable quarterly in-kind or in cash at our option.

The SKT Purchase Agreement may be terminated by either SK or us if the closing has not occurred by April 14, 2025, subject to extension to July 14, 2025 in the event certain approvals have not been obtained.

The Investment is expected to close by the end of calendar 2024 or early in calendar 2025.

Because the transaction is subject to regulatory clearances and approvals, there can be no assurance that the transaction will close in calendar 2024 or 2025, or at all.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Preferred Share Investment.”

Preferred Stock Investment

On December 13, 2024, we closed the SKT Investment (as defined below) by SK Telecom Co., Ltd.

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 (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 the Issued CPS, which principal attributes remain substantially the same as prior to the U.S.

Domestication, with changes to give effect to requirements of Delaware law.

The shares of Issued CPS are convertible into shares of common stock of Penguin Solutions at an initial conversion price of $32.81 per ordinary share, subject to adjustment upon the occurrence of certain events, have an initial liquidation preference of 1x and are only be redeemable at our option, subject to certain conditions.

The 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 entitle 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 filed as Exhibit 3.3 hereto, and to the section entitled “Comparison of Rights of Cayman Islands Shareholders and Delaware Stockholders” contained in Penguin Solutions Cayman’s definitive proxy statement on Schedule 14A 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.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Preferred Stock Investment.”

Contractual Obligations

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Operating Activities :

Cash flows from operating activities reflects net income, adjusted for certain non-cash items, including depreciation and amortization expense, share-based compensation, changes in the fair value of contingent consideration, 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 from continuing operations in 2024 was $105.5 million, comprised primarily of a net loss of $41.8 million, adjusted for non-cash items of $121.6 million.

Cash flows from operating activities reflects net income, adjusted for certain non-cash items, including depreciation and amortization expense, stock-based compensation, changes in the fair value of contingent consideration, 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 from continuing operations in 2025 was $113.2 million, comprised primarily of net income of $28.8 million, adjusted for non-cash items of $103.5 million .

Oper ating cash flows were negatively affected by a $19.1 million net change in our operating assets and liabilities, primarily from the effects of an increase of $101.6 million of inventories primarily to support future demand across both Advanced Computing and Integrated Memory and an increase of $56.2 million in accounts receivable primarily due to timing of cash receipts, partially offset by an increase of $131.0 million in accounts payable and accrued expenses and other liabilities primarily due to higher accounts payable related to the timing of purchases from suppliers and an increase in deferred revenue from customer services, along with a decrease o f $7.7 million in other assets.

Net cash provided by operating activities from continuing operations in 2024 was $105.5 million, comprised primarily of net loss of $41.8 million, adjusted for non-cash items of $121.6 million.

Operating cash flows were favorably affected by a $25.7 million net change in our operating assets and liabilities, primarily from the effects of an increase of $54.3 million in accounts payable and accrued expenses and other liabilities and a decrease of $23.8 million inventories, partially offset by an increase of accounts receivable of $32.5 million and the payment of $29.0 million of contingent consideration, which related to our 2023 acquisition of Stratus Technologies.

The increase in accounts payable and accrued expenses and other liabilities was primarily due to timing of payments, as well as higher deferred revenue resulting from amounts received from customers in advance of satisfying performance obligations.

Net cash provided by operating activities from continuing operations in 2023 was $63.7 million, comprised primarily of a net income of $9.7 million, adjusted for non-cash items of $119.3 million.

Net cash provided by operating activities from continuing operations in 2023 was $63.7 million, comprised primarily of net income of $9.7 million, adjusted for non-cash items of $119.3 million.

Operating cash flows were adversely affected by a $65.4 million net change in our operating assets and liabilities, primarily from the effects of decreases of $256.1 million in accounts payable and accrued expenses and other liabilities and the payment of $73.7 million of contingent consideration, which related to our 2021 acquisition of the Optimized LED business, partially offset by the effect of decreases of $162.5 million in accounts receivable and $95.2 million in inventories.

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The decrease in accounts receivable was primarily due to lower gross sales in our Integrated Memory segment.

Net cash provided by operating activities from continuing operations in 2022 was $38.9 million, resulting primarily from net income of $24.4 million, adjusted for non-cash items of $136.8 million.

Operating cash flows were adversely affected by a $122.3 million net change in our operating assets and liabilities, primarily from the effects of an increase of $97.8 million in accounts receivable and a decrease of $44.9 million in accounts payable and accrued expenses and other liabilities, partially offset by a decrease of $30.7 million in inventories.

in accounts receivable was primarily due to higher gross sales primarily in our Integrated Memory and Advanced Computing segments.

The decreases in both accounts payable and accrued expenses and in inventories were primarily due to lower inventories in our Integrated Memory and Advanced Computing segments.

Investing Activities :

Net cash used for investing activities from continuing operations in 2025 consisted primarily of $9.0 million used for capital expenditures and deposits on equipment, partially offset by net sales of marketable investment securities of $7.3 million.

Net cash used for investing activities from continuing operations in 2024 consisted primarily of $19.4 million used for capital expenditures and deposits on equipment and $11.0 million of purchases of non-marketable investment securities, partially offset by net maturities of marketable investment securities of $19.9 million.

Net cash used for investing activities from continuing operations in 2023 was $281.2 million, consisted primarily of $213.1 million net cash used for the acquisition of Stratus Technologies, $39.4 million used for capital expenditures and deposits on equipment and $25.0 million used for the purchases of marketable investment securities.

Net cash used for investing activities from continuing operations in 2022 consisted primarily of $20.4 million used for capital expenditures and deposits on equipment.

Net cash used for investing activities from continuing operations in 2023 consisted primarily of $213.1 million net cash used for the acquisition of Stratus Technologies, $39.4 million used for capital expenditures and deposits on equipment and $25.0 million used for the purchases of marketable investment securities.

Financing Activities :

Net cash used for financing activities from continuing operations in 2025 was $63.5 million , consisting primarily of $300.0 million in principal payments of debt, $52.3 million of payments to acquire common stock (including $41.2 million under our stock repurchase program), and $7.9 million cash paid for dividends to the holder of Issued CPS, partially offset by $191.2 million of proceeds from the issuance of the Issue CPS, $100.0 million of proceeds from amounts drawn from the 2025 Credit Facility, and $8.8 million in proceeds from the issuance of common stock from our equity plans.

Net cash used for financing activities from continuing operations in 2024 was $209.5 million, consisting primarily of $351.3 million in principal repayment of debt, $21.3 million of payments to acquire ordinary shares, $21.0 million payment of contingent consideration related to our 2023 acquisition of Stratus Technologies and $16.3 million of payments to acquire capped calls in connection with the issuance of our 2030 Notes, partially offset by $192.7 million in net proceeds from the issuance of our 2030 Notes and $9.8 million in proceeds from the issuance of ordinary shares from our equity plans.

Net cash provided by financing activities from continuing operations in 2023 was $237.2 million, consisting primarily of $295.3 million in net proceeds from our term loan and $43.0 million in proceeds from the issuance of ordinary shares from our equity plans, partially offset by a $28.1 million payment of contingent consideration related to our 2021 acquisition of our Optimized LED business, $24.7 million of payments to acquire ordinary shares, $21.6 million in principal repayment of debt and $14.1 million payment of premium in connection with our convertible note exchange.

Net cash provided by financing activities from continuing operations in 2022 was $60.6 million, consisting primarily of $270.8 million in net proceeds from issuance of a term loan and $12.1 million in proceeds from the issuance of ordinary shares from our equity plans, partially offset by $126.7 million in principal repayment of debt, primarily the LED Purchase Price Note, $57.2 million of payments to acquire ordinary shares and $25.0 million in net repayments of borrowings under our line of credit.

Net cash provided by financing activities from continuing operations in 2023 was $237.2 million, consisting primarily of $295.3 million in net proceeds from our term loan and $43.0 million in proceeds from the issuance of ordinary shares from our equity plans, partially offset by $28.1 million payment of contingent consideration related to our 2021 acquisition of our Optimized LED business, $24.7 million of payments to acquire ordinary shares, $21.6 million in principal repayment of debt, and $14.1 million payment of premium in connection with our convertible note exchange.

Critical Accounting Estimates

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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;

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.

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Inventory levels may fluctuate based on inventory held under service arrangements.

Our provision for excess and obsolete inventory are also impacted by our arrangements with our customers and/or suppliers, including our ability or inability to resell such inventory to them.

Our provision for excess and obsolete inventory is also impacted by our arrangements with our customers and/or suppliers, including our ability or inability to resell such inventory to them.

Goodwill and Intangible Assets :

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These estimates and assumptions include revenue growth rates, forecasted manufacturing costs, budgets and other expenses developed as part of our long-range planning process.

We test the reasonableness

of the output of our long-range planning process by calculating an implied value per share and comparing that to current share prices, analysts’ consensus pricing and management’s expectations.

We test the reasonableness of the output of our long-range planning process by calculating an implied value per share and comparing that to current stock prices, analysts’ consensus pricing and management’s expectations.

These estimates and assumptions are used to calculate projected future cash flows for the reporting unit, which are discounted using a risk-adjusted rate to estimate a fair value.

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(1) identification of a contract with a customer, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract and (5) recognition of revenue as performance obligations are satisfied.

Applying the five-step approach in determining whether to recognize revenue at a point in time or over time requires significant judgement.

Applying the five-step approach in determining whether to recognize revenue at a point in time or over time requires significant judgment.

A portion of our revenue is from sales of customized product which, in some cases, are non-cancellable and/or non-refundable.

Significant judgement is required to determine when control passes to the customer and whether and when our performance obligations have been satisfied.

Significant judgment is required to determine when control passes to the customer and whether and when our performance obligations have been satisfied.

This determination can significantly affect the timing of recognizing revenue.

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and we have a present right to payment.

Under the terms of these arrangements, we cannot repurpose products without the customer’s consent and accordingly, we recognize revenue at the point in time when products are completed and made available to the customer.

Under the terms of

these arrangements, we cannot repurpose products without the customer’s consent and accordingly, we recognize revenue at the point in time when products are completed and made available to the customer.

Service Revenue :

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Professional services include solution design, system installation, software automation and managed support services related to HPC and storage systems.

Supply chain services includes procurement, logistics, inventory management, temporary warehousing, kitting and packaging.

Supply chain services include procurement, logistics, inventory management, temporary warehousing, kitting and packaging.

While we take title to inventory under such arrangements, control of such inventory does not transfer to us as we do not, at any point, have the ability to direct the use, and thereby obtain the benefits, of the inventory.

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We generally recognize revenue for these procurement, logistics and inventory management services upon the completion and/or acceptance of such services, which typically occurs at the time of shipment of product to the customer.

we invoice to customers for the cost of product, materials and services performed, which remain unpaid as of the end of a reporting period, are included in accounts receivable.

Amounts we invoice to customers for the cost of product, materials and services performed, which remain unpaid as of the end of a reporting period, are included in accounts receivable.

Additionally, the cost of product and materials procured for customers under these agent services, which remain on hand as of the end of a reporting period, are included in inventories.

Amounts in accounts receivable and inventories impact the determination of cash flows from operating activities.

Determining whether we are the principal or agent in these transactions requires significant judgement.

Determining whether we are the principal or agent in these transactions requires significant judgment.

This determination affects the amount of revenue we recognize;

a principal recognizes revenues at the gross amount received for the goods and services, while an agent recognizes revenue at the net amount.

The impact of this determination significantly impact the amount of revenue and cost of sales we recognize.

The impact of this determination significantly impacts the amount of revenue and cost of sales we recognize.

Transaction Price :

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Each contract may contain multiple performance obligations, which requires the transaction price to be allocated to each performance obligation.

We allocate the consideration to each performance obligation based on the relative selling price, determined as the best estimate of the price at which we would transact if it sold the deliverable regularly on a stand-alone basis.

We allocate the consideration to each performance obligation based on the relative selling price, determined as the best estimate of the price at which we would transact if we sold the deliverable regularly on a stand-alone basis.

Contract Costs :

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis