Michael Staiger:

Good afternoon, and thank you for attending Supermicro's call to discuss financial results for the third quarter, which ended March 31, 2024. With me today are Charles Liang, Founder, Chairman and Chief Executive Officer, and David Weigand, Chief Financial Officer. By now, you should have received a copy of the news release from the company that was distributed at the close of regular trading and is available on the company's website. As a reminder, during today's call, the company will refer to a presentation that is available to participants in the Investor Relations section of the company's website under the Investor -- excuse me, under the Events & Presentations tab. We have published management's scripted commentary on our website. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, and other income and expenses, taxes, capital allocation, and future business outlook, including guidance for the fourth quarter of fiscal year 2024 and the full fiscal year 2024. There are a number of risk factors that could cause Supermicro's future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal '23, and our other SEC filings. All of these documents are available on the Investor Relations page of Supermicro's website. We assume no obligation to update any forward-looking statements. Most of today's presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation or to our press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and in the supplemental information attached to today's presentation. At the end of today's prepared remarks, we will have a Q&A session for sell-side analysts to ask questions. I'll now turn the call over to Charles.

David Weigand:

Thank you, Charles. Fiscal Q3 2024 revenues were $3.85 billion, up 200% year-over-year and 5% quarter-over-quarter. Q3 growth was again led by AI GPU platforms which represented more than 50% of revenues with AI GPU customers in both the enterprise and cloud service provider markets. We expect strong growth in Q4 as the supply chain continues to improve with new air-cooled and liquid-cooled customer design wins. During Q3, we recorded $1.88 billion in the enterprise/channel vertical, representing 49% of revenues versus 40% last quarter, up 190% year-over-year and 26% quarter-over-quarter, driven by industry recognition of our solution price-performance metrics and reliability. The OEM appliance and large data center vertical revenues were $1.94 billion, representing 50% of Q3 revenues versus 59% in the last quarter, up 222% year-over-year and down 10% quarter-over-quarter. One existing CSP/large data center customer represented 21% of Q3 revenues and one existing enterprise/channel customer represented 17% of revenues. Emerging 5G/Telco/Edge/IoT revenues were $37 million or 1% of Q3 revenues. Server and Storage Systems comprised 96% of Q3 revenue and Subsystems and Accessories represented 4%. ASPs increased on a year-over-year and quarter-over-quarter basis. By geography, U.S. represented 70% of Q3 revenues, Asia 20%, Europe 7%, and Rest of World 3%. On a year-over-year basis, U.S. revenues increased 242%, Asia increased 257%, Europe increased 30%, and Rest of World increased 87%. On a quarter-over-quarter basis, U.S. revenues increased 3%, Asia increased 17%, Europe increased 3%, and Rest of World decreased 11%. The Q3 non-GAAP gross margin was 15.6%, up slightly quarter-over-quarter from 15.5% as we continued to focus on winning strategic new designs, gaining market share and improving manufacturing efficiencies. Q3 operating expenses on a GAAP basis increased by 14% quarter-over-quarter and 72% year-over-year to $219 million driven by higher compensation expenses and headcount. On a non-GAAP basis, operating expenses increased 8% quarter-over-quarter and 43% year-over-year to $166 million. Q3 non-GAAP operating margin was 11.3%, which was in-line with Q2 levels. Other income and expense for Q3 was $3.8 million, consisting of $6 million in interest expense and a gain of $10 million principally from foreign exchange. Interest expenses decreased sequentially as we paid down short-term bank credit facilities. The GAAP tax rate was negative 5.2% resulting in a tax benefit of $20 million for Q3. The non-GAAP tax rate for Q3 was 6% resulting in Q3 tax expense of $27 million. GAAP and non-GAAP tax rates were lower due to the impact of higher R&D tax credits and tax benefits from employee stock grants exercised. Q3 GAAP diluted EPS of $6.56 and Q3 non-GAAP diluted EPS of $6.65 exceeded the high end of guidance through record revenues, stable gross margins and operating margins and lower tax rates. The GAAP share count increased from 58.1 million to 61.4 million and the non-GAAP share count increased sequentially from 59 million to 62 million shares as a result of the two stock offerings and, to a lesser extent, the convertible bond offering. Cash flow used in operations for Q3 was $1.5 billion compared to cash flow usage of $595 million during the previous quarter as we grew inventory and accounts receivable for higher levels of business. Cash flows from strong profitability was offset by higher inventory, a large portion of which was received late in Q3, and higher accounts receivable from increasing revenues. Our Q3 closing inventory was $4.1 billion, which increased by 67% quarter-over-quarter from $2.5 billion in Q2 due to the purchase of key components. Capex was $93 million for Q3 resulting in negative free cash flow of $1.6 billion for the quarter. During the quarter, we raised $1.55 billion from a 0% coupon five-year convertible bond offering due in 2029, net of underwriting discounts and offering expenses. We also raised approximately $1.73 billion in net proceeds from the sale of 2 million shares at a price of $875 per share. The proceeds from these transactions will be used to strengthen our working capital, enable continued investments in R&D and expand global capacity to fulfill strong demand for our leading platforms. The closing balance sheet cash position was $2.1 billion, while bank and convertible note debt was $1.9 billion resulting in a net cash position of $252 million versus a net cash position of $350 million last quarter. Turning to the balance sheet and working capital metrics compared to last quarter, the Q3 cash conversion cycle was 96 days versus 61 days in Q2. Days of inventory increased by 25 days to 92 days compared to the prior quarter of 67 days due to key component purchases for higher expected Q4 revenues. Days sales outstanding increased by 8 days quarter-over-quarter to 37 days while Days Payables Outstanding decreased by two days to 33 days. Now turning to the outlook for Q4, we expect strong growth as the supply chain continues to improve with new air-cooled and liquid-cooled customer design wins. For the fourth quarter of fiscal 2024 ending June 30, 2024, we expect net sales in the range of $5.1 billion to $5.5 billion, GAAP diluted net income per share of $7.20 to $8.05 and non-GAAP diluted net income per share of $7.62 to $8.42. We expect gross margins to be down sequentially as we focus on driving strategic market share gains. GAAP operating expenses are expected to be approximately $226 million and include $55 million in stock-based compensation expenses that are not included in non-GAAP operating expenses. The outlook for Q4 of fiscal year 2024 fully diluted GAAP EPS includes approximately $30 million in expected stock-based compensation expenses, net of tax effects of $28 million, which are excluded from non-GAAP diluted net income per common share. We expect other income and expenses, including interest expense, to be a net expense of approximately $8 million. The company's projections for Q4 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of minus 2.9%, a non-GAAP tax rate of 2.6%, and a fully diluted share count of 64.8 million for GAAP and 65.3 million shares for non-GAAP. We expect CapEx for Q4 to be in the range of $55 million to $65 million. For fiscal year 2024 ending June 30, 2024, we are raising our guidance for revenues from a range of $14.3 billion to $14.7 billion to a range of $14.7 billion to $15.1 billion, and establishing guidance for GAAP net income per diluted share of $21.61 to $22.46, and non-GAAP net income per diluted share of $23.29 to $24.09. Our projections for GAAP and non-GAAP net income per diluted share assume a tax rate of approximately 3.6% and 9.2%, respectively, and a fully diluted share count of 61.2 million shares for GAAP and fully diluted share count of 61.8 million shares for non-GAAP. The outlook for fiscal year 2024 GAAP net income per diluted share includes approximately $116 million in expected stock-based compensation, net of related tax effects of $98 million that are excluded from non-GAAP net income per diluted share. We're now ready for Q&A.

Ruplu Bhattacharya:

Hi, thank you for taking my questions, and congrats on the strong guidance. I have two questions. First, I wanted to ask a question on liquid cooling. Do you design most of the components for liquid cooling racks in-house? And as such, do you think you would be able to charge more for liquid-cooled racks? And can this be accretive to gross margins?

Operator:

Thank you. [Operator Instructions] The next question is from the line of Samik Chatterjee with JPMorgan. Your line is now open.

Charles Liang:

Okay. Thank you. I mean, yes, we continue to gain market share, especially our rack-scale plug-and-play solution that reduce customers' lead time and also reduce customers' time to online. With our rack-scale plug-and-play, customer able to put the system -- deploy the system online in next day or next few days instead of the next few weeks. So, time to online saving is a big advantage to customer. At the same time, the liquid cooling, they help customer save energy power. So, customer can allocate, relocate the energy power to power more computing equipment instead of waste of power for air cool. So, same money, that benefit lots of leading customer, and also rack-scale plug-and-play that make customer time to online. So, we continue to gain more new customer. While our old customer continue to grow, started to grow faster with our beta offering. So, GB200 [indiscernible] right? GB200, each rack will be around 100 kilowatt. So, lots of customer like that. And we help them build their liquid cooling system and optimize their data center for liquid cooling. So, we are growing customer base strongly now.

Michael Ng:

Hey, good afternoon. Thank you very much for the question. I wanted to ask about gross margins. Strong gross margins for the quarter. I know you're guiding to a sequential decline in gross margins. If our math is right, I think that implies 13.5% to 14% gross margins for the June quarter -- sorry, for the June quarter. Is that the right way to think about gross margins on a go-forward basis? Do you still feel comfortable with the prior 14% to 17% long-term gross margins? And any comments just around AI server gross margins in general? And if there are any ancillary services and support that can help improve the margins on just the product sales? Thank you very much.

Operator:

Thank you. The next question is from the line of Aaron Rakers with Wells Fargo. Your line is now open.

Charles Liang:

Two reasons we had to increase inventory. One is because Q4, I mean, June quarter, we will have a strong revenue growth. Second reason, because we're preparing for high volume liquid cooling. Again, we have more than 1,000 of 100 kilowatt liquid cooling rack we had to ship to customer in Q4. And liquid cooling, as you know, is pretty new. So, we had to prepare enough inventory, so that we can deliver liquid cooling rack-scale product to customer on time or with minimum lead time. So, both factor, indeed, is a positive factor though. With our economic of scale continue to grow, indeed, our inventory average day, indeed, will slightly improve.

Operator:

Thank you. The next question is from the line of George Wang with Barclays. Your line is now open.

Charles Liang:

Yeah. As you know, we have a lot of new product coming soon, right, to support NVIDIA, H200, B100, B200, GB200, and AMD MI300 and Intel Gaudi2, Gaudi3. So, we have a lot of new product already, and plus, liquid cooling, DLC, we are ready to ship high volume product. So for sure, I mean, calendar -- I mean, fiscal year '25, I mean, for September, December quarter, we will be -- we will have a strong growth. And I believe this strong growth will continue for many quarter to come if not many years. I believe it will be many years.

Ananda Baruah:

Yeah. Thanks guys for taking the question. Really appreciate it. And Charles, let me maybe, the remarks you made a moment ago about the strong ongoing growth, does that -- could that mean that you could also grow sequentially from this point forward for a little bit, just given the market share gain opportunities, the components coming online that you talked about in the new products? Any context on the way to think about sequential growth sort of in the coming quarters would be helpful as well. Thanks.

Operator:

Thank you. The next question is from the line of Jon Tanwanteng with CJS Securities. Your line is now open.

Charles Liang:

Again, the AI platform is getting popular, right? So, there are more and more competitor as well. So, we will try to keep a balance. To grow market share, we may, sometimes, some deal, we may have to be a little bit more aggressive in pricing. But, overall, we try to keep a balance. David, you may add something.

Operator:

Thank you. The next question is from the line of Mehdi Hosseini with SIG. Your line is now open.

David Weigand:

So, this is an existing customer and we actually had a higher customer back in 2022, Mehdi, but I think they were around [22%] (ph). But this is still a really good customer, really good opportunity.

David Weigand:

Sure. We had a number of things that impacted us. I think in non-current assets, we had deferred taxes grew by quite a bit this year -- or this quarter, and so that was something unusual. And then, let's see, I think those are -- I think that's the only unusual item, was a deferred tax grew a lot and that's what lowered our tax rate -- our quarterly tax rate as well.

Nehal Chokshi:

Thank you, and congrats on a strong guide here. Talk about the guide here, inventory increased $1.5 billion Q-over-Q, and David, as you mentioned, you like to see inventory increase. I do too, because it's a strong indicator of things to come. And you've guided June quarter to increase by $1.6 billion Q-over-Q. If I do this math where I'm looking at the inventory at the quarter-end and then the four-quarter revenue, typically, it's around 60% to 70% of revenue. But with your March Q ending inventory and your current June Q guidance, that equates to about 85% of projected revenue. So, can you just explain what seems to be a little bit more usual inventory buildup given the revenue guidance range?

Charles Liang:

Yeah. Again, two reasons, right? Q4, we will have a strong revenue. So, we had to prepare with Q4. And, also, I mean, liquid cooling, I mean, it's new. So, we had to prepare enough safety inventory for liquid cooling demand for June quarter and September quarter as well. So that's another reason why we have a slightly higher inventory now.

Operator:

Thank you. The next question is from the line of Matt Bryson with Wedbush. Your line is now open.

Charles Liang:

Let me add a little bit. Because liquid cooling is new to us, so to speed up quick support for some of our very important customer on June quarter, indeed, we had to pay some premium to speed up the supply. So, we spend a bunch of [indiscernible].

Operator:

Thank you. The next question is a follow-up from Jon Tanwanteng with CJS Securities. Your line is now open.

David Weigand:

Yeah. So, the way I would answer that is that, I hope that I have -- that I need more capital, Jon, because that means that we're booking -- that we're growing revenues even faster. So, we've got capital adequate to get us through the current market, which means today. But in a week, that -- we hope that that changes, and we hope that we've got orders that require even more capital. So, all I can say is I hope that -- I'm hoping for the needs for more capital.

Operator:

Thank you. Our final question today is a follow-up from the line of Nehal Chokshi with Northland Capital. Your line is now open.

Charles Liang:

Yes. Indeed, our plan is very ambitious. Let me use that word. We have a very ambitious brand, so we try to continue grow very strong, kind of 3 times to 5 times faster than our industry's average. So, when that case happen, and we believe so, we hope so, then for sure we need more capital.

Charles Liang:

Thank you. I'll see you in next quarter.

Michael Staiger:

Good afternoon, and thank you for attending Supermicro's call to discuss financial results for the second quarter, which ended December 31, 2023. With me today are Charles Liang, Founder, Chairman, and Chief Executive Officer; and David Weigand, Chief Financial Officer. By now, you should have received a copy of the news release from the company that was distributed at the close of regular trading and is available on the company's website. As a reminder, during today’s call, the company will refer to a presentation that is available to participants in the Investor Relations section of the company’s website under the Events & Presentations tab. We have also published management’s scripted commentary on our website. Please note that some of the information you will hear during our discussion today will consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, and future business outlook, including guidance for the third quarter of fiscal year 2024 and the full fiscal year 2024. There are a number of risk factors that could cause Super Micro’s future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2023 and our other SEC filings. All of these documents are available on the Investor Relations page of Super Micro’s website. We assume no obligation to update any forward-looking statements. Most of today’s presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation or the press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today’s press release and in the supplemental information attached to today’s presentation. At the end of today’s prepared remarks, we will have a Q&A session for sell-side analysts to ask questions. I will now turn the call over to Charles.

David Weigand:

Thank you, Charles. Fiscal Q2 2024 revenues were $3.66 billion, up 103% year-over-year and up 73% quarter-over-quarter. Revenues were higher than our initial guidance of $2.7 billion to $2.9 billion and slightly above our recently updated guidance of $3.6 billion to $3.65 billion. Our growth was driven by demand from new and existing customers for our leading AI and rack-scale Total IT solutions and an improving supply chain. Next generation AI and CPU platforms continue to drive strong levels of design wins, orders and backlog from top-tier data centers, emerging cloud service providers, enterprise/channel, and edge/IoT/telco customers. During Q2, we recorded $1.48 billion in the enterprise/channel vertical, representing 40% of revenues versus 43% last quarter, up -- this was up 55% year-over-year and up 62% quarter-over-quarter, driven by enterprise AI and CPU upgrade programs. The OEM appliance and large data center vertical revenues were $2.15 billion, representing 59% of Q1 revenues versus 55% last quarter, up 175% year-over-year and up 83% quarter-over-quarter. Two existing CSP/large data center customers represented 26% and 11% of total revenues for Q2. Emerging 5G, Telco, Edge, IoT revenues were $35 million or 1% of Q2 revenues. Growth was driven by AI/GPU and rack-scale total IT solutions, which again represented over 50% of total revenues this quarter with AI/GPU revenues in both the enterprise/channel and the OEM appliance/large data center verticals. Server and Storage Systems comprised 94% of Q2 revenue and Subsystems and Accessories represented 6%. ASPs increased on a year-over-year and quarter-over-quarter basis, driven by product and customer mix. By geography, the US represented 71% of Q2 revenues, Asia 18%, Europe 8%, and rest of the world 3%. On a year-over-year basis, US revenues increased 139%, Asia increased 98%, Europe decreased 8%, and rest of the world increased 67%. On a quarter-over-quarter basis, US revenues increased 61%, Asia increased 191%, Europe increased 51%, and rest of the world increased 37%. The Q2 non-GAAP gross margin was 15.5%, which was down quarter-over-quarter from 17% as we continued to focus on winning strategic new designs and gaining market share. Turning to operating expenses, Q2 OpEx on a GAAP basis increased by 6% quarter-over-quarter and 58% year-over-year to $193 million, driven by higher compensation expenses and headcount. On a non-GAAP basis, operating expenses increased 18% quarter-over-quarter and 41% year-over-year to $153 million. Q2 non-GAAP operating margin was 11.3% versus 10.8% last quarter as we benefited from operating leverage driven by higher revenues. Other Income and Expense for Q2 was a net expense of approximately $16 million, consisting of $8 million in interest expense and a loss of $8 million principally from foreign exchange. Interest expense increased sequentially as we drew down on short-term bank credit facilities for working capital during the quarter. The tax provision for Q2 was $61.5 million on a GAAP basis and $71.1 million on a non-GAAP basis. The GAAP tax rate for Q2 was 17.3% and the non-GAAP tax rate was 17.8%. Q2 non-GAAP diluted EPS of $5.59 exceeded the high end of our initial guidance of $4.40 to $4.88 and slightly above our recently updated guidance of $5.40 to $5.55 due to operating leverage. Cash flow used in operations for Q2 was $595 million compared to cash flow generated by operations of $271 million during the previous quarter. Strong profitability and higher level of accounts payable was offset by higher inventory and accounts receivable due to build plans for Q3 and the timing of shipments during Q2. CapEx was $15 million for Q2 resulting in negative free cash flow of $610 million versus positive free cash flow of $268 million last Quarter. During the quarter, we executed an equity offering and raised approximately $583 million in net proceeds after underwriting discounts and other issuance costs from the sale of 2.3 million shares at a price of $262 per share. The proceeds will be used to strengthen our working capital, enable continued investments in R&D and expand global capacity to fulfill strong demand for our leading platforms. The closing balance sheet cash position was $726 million, while bank debt was $376 million resulting in a net cash position of $350 million versus a net cash position of $397 million last quarter. Turning to the balance sheet and working capital metrics compared to last quarter, the Q2 cash conversion cycle was 61 days versus 86 days in Q1. Days of Inventory decreased by 24 days to 67 days versus the prior quarter of 91 days due to the timing of shipments during the quarter. Days sales outstanding was down by 14 days quarter-over-quarter to 29 days while days payables outstanding decreased by 13 days to 35 days. Now, turning to the outlook, we expect a strong March quarter as we continue to gain momentum with new and existing customers for our AI and rack-scale total IT solutions. For the third quarter of fiscal 2024 ending March 31, 2024, we expect net sales in the range of $3.7 billion to $4.1 billion, GAAP diluted net income per share of $4.79 to $5.64 and non-GAAP diluted net income per share of $5.20 to $6.01. We expect gross margins to be slightly lower than Q2 levels. GAAP operating expenses are expected to be approximately $201 million and include $39 million in stock-based compensation expenses that are not included in non-GAAP operating expenses. The outlook for Q3 of fiscal year 2024 diluted GAAP EPS includes approximately $28 million in expected stock-based compensation expenses, net of tax effects of $14 million, which are excluded from non-GAAP diluted net income per common share. We expect other income and expenses, including interest expense, to be a net expense of approximately $9 million. The company's projections for Q3 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 13.8%, a non-GAAP tax rate of 15.8%, and a fully diluted share count of 60.1 million for GAAP and 61.0 million for non-GAAP. We expect CapEx for Q3 to be in the range of $18 million to $21 million and a range of $105 million to $115 million for the fiscal year 2024. For the fiscal year 2024 ending June 30, 2024, we are raising our guidance for revenues from a range of $10 billion to $11 billion to a range of $14.3 billion to $14.7 billion. Michael, we're now ready for Q&A

George Wang:

Hey guys, congrats on the quarter on a strong guide. I have two questions. Firstly, can you kind of supply versus demand, obviously for the December quarter probably driven by both including supply and also strong demand. So, if you can maybe you can talk about backlog level and also on the supply side, are they still ongoing constraints right now?

George Wang:

Okay, thank you. And quickly a follow-up just on the liquid cooling. You talked about kind of expanding to 1,500 racks per month after June this year, and maybe you can talk about your expectation for the total production mix from liquid-cooled racks by year-end, and also maybe you can parse out kind of difference, the configure within the liquid cooling. I know you guys have some immersion cooling and air to liquid cooling. So maybe you can double-click on this thematic topic going forward.

George Wang:

Okay great, thank you. I'll go back to the queue.

Operator:

Our next question is from Samik Chatterjee with J.P. Morgan. Your line is now open.

David Weigand:

Sure, thanks, Samik. So, when we win a new customer, we always try to go in and out. And so we go into the organization and try to spread out into the different divisions. And so, in order to do that as we take on new customers, we do evaluate and try to win the business, which requires us to be competitive. And so, we always are balancing in the interest of shareholder value, how to maximize that. And so, at this time we are we are growing really quickly. And in order to do that and in order to take market share, we will take opportunities by being more competitive on pricing.

Samik Chatterjee:

Got it. And then just this more near-term question when I look at the revenue guide for 3Q and 4Q. Is a step-up here in revenue of about sort of call it $0.5 billion a bit less going from 2Q to 3Q. And then a bigger step-up to get to the mid-point to be annual guide into 4Q, how much of that is driven by just being a bit more cautious about when supply comes in and pushing that the revenue guide a bit more to the 4Q or is that really what the visibility currently of supply of just trying to get sort of what's driving the cadence from 2Q to 3Q to 4Q. And the guide that you provided. Thank you.

Samik Chatterjee:

Thank you. Thanks for taking my questions.

Nehal Chokshi:

Yeah, thanks. Great impressive guidance and thanks for explanation regarding the dynamic on the forward guidance for both March quarter, plus the June Q guide. Looking at the incremental revenue for the December quarter. Dave, you already alluded to this, you're making shareholder accretive decision. So, that's what's driving the tick down in the gross margin, yet, your operating margin has improved, Q-over-Q. So just to be clear, when you're talking about making shareholder accretive decision, it's still with respect to current revenue not just simply looking at future free cash flows associated with future revenue follow-on from these lower-margin opportunities, is that correct?

Nehal Chokshi:

Got it. Okay. And then did you review the 10% revenue customers for the quarter?

Nehal Chokshi:

Great, thank you for taking my question. I'll get back in the queue.

Jon Tanwanteng:

Hey, good afternoon, and thank you for taking my questions. And really, congratulations on the fantastic growth. Charles, my first question is for you. I was wondering what gives you the confidence in the growth beyond this year. You mentioned -- inferenced the ecosystem potentially years and decades of demand. Where is the visibility to coming from, what are you seeing in your backlog and your order books and in conversations with customers that gives you that confidence?

Jon Tanwanteng:

Got it, and to ask one of the questions that's been mentioned in a different way, is there a gross margin floor as you pursue this share gain. And when do you see a possible inflection? I'm just wondering what is the limit. When you go in terms of gaining share versus the margin that you generate?

Charles Liang:

Yeah, especially we have so broad building block proud solution. So, economical scale will help our building block solution to be more efficient because there's lot of product in our volume were still in the middle size to small size volume and we [indiscernible] and will continue to be aggressive to grow to see every segment, every vertical, we have ALC, economies of scale.

Operator:

Our next question is from Quinn Bolton with Needham. Your line is now open.

David Weigand:

Yeah, for sure I'll -- most important principle is why would a base go for shareholder for our company. So, although we said of 14% to 17% as in that range in 2021, but if any change, any further adjustments would be the pace of a shareholder. We went to that change. And we are carefully evaluating that range kind of monthly.

Charles Liang:

You are right. In these current 600 watt, 700, watt module, people can still take care very well, we say air conditioning. And that's why people still are comfortable with our traditional air cooler. But when that system grows to 1,000 or even 1,000 watt per module, yes. I mean -- I think cooling becomes even much more critical. So, by that time, I believe. Most of the data center will have facility ready for that. So we are very optimistic and very patient to continue to improve our quality, especially that reliability and easy for maintenance. So when customers are ready, we can dwell quickly to support them.

David Weigand:

Thank you for the question.

Aaron Rakers:

Yeah, thanks for taking the questions and also great results. Just curious, when you talk about your customer concentration and the diversity of the business, when you talk about 26% and 11% of your revenue coming from two customers, are those the same customers, like last quarter I think you had a customer that was 25%, or are you seeing these customers kind of bounce around. I guess the simple question is just, is that the same customer 26% and 25%?

Charles Liang:

Yeah, and that's why the economies of scale is very important to us when we further grow our total revenue, we will have a more large scale customer and more middle-sized and small-sized customers as well.

David Weigand:

I guess in the next few years, our growth will be quicker in terms of unit number. So that volume growth will be quicker than ASP, because last two years, our ASP have been growing a lot, right. So, in next day, but I guess unit number, volume will grow faster.

Operator:

Our next question is from Ananda Baruah with Loop Capital. Your line is now open.

Charles Liang:

Yeah, again, we see, we recommend green computing everywhere. That's why wherever, whenever we can help a customer at base, we will. That's why we have been building really large-scale capacity for liquid cooling and other green computing solutions. So yes, that capacity will be huge, but its capacity there, when customer need, we are ready. And indeed our facility also very flexible. Lots of facility can support liquid cooling and air cooler, or combination cooling. So yes, we have a huge capacity ready for growth, but not necessarily all for liquid cooling, they support air cooler or combination hybrid cooling as well.

Charles Liang:

Yeah, thank you, I mean, we spend a lot of effort to make our sales and operational process, service process be automatic. So, those automation systems for sales, for production, for support, really enlarge our capacity. And that's why we have capacity to approach to support a more customer now. So -- and we need economies of scale, because economies of scale is very important to our operation margin and overall EPS. So, yes, we are ready to grow much quicker EBIT.

Charles Liang:

Thank you.

Jon Tanwanteng:

Hi, thank you for the follow-up. I was just wondering if there is any change to your OpEx growth formula. It's been on a trailing basis, less than half of our revenue growth is as you grow bigger and do you expect to run against any limit in supporting such a large customer base and potential customer base or are you getting more economies of scale as you grow larger with that?

Jon Tanwanteng:

Okay, great. And then I was just wondering at the rate of growth that you're seeing, do you expect to need more external financing? I know you talked about other sources of cash, I was wondering, if you are going into the debt markets, what the plans are to finance this growth.

David Weigand:

Yeah, so I'll just echo what Charles said, we're looking at a number of different things, Jon, and we -- but we are mindful of not having further dilution, as Charles said. So, we're -- but we're looking at a number of different opportunities. And the reason we have to is because we need more working capital for growth. And the reason that our cash flows were not -- did not -- were not as strong as last quarter was simply because we grew by so much. So if you -- when you grow by over $1 billion dollars in quarter, you've got to have additional working capital. So that's the plain and simple fact.

David Weigand:

Yes.

Jon Tanwanteng:

Got it, thank you very much.

Nehal Chokshi:

Yeah, great, thanks for the follow-up question. And I actually have two follow-up questions. First, at the September quarter earnings call I think you guys said the capacity was around $18 billion, that's up from $15 billion to June 2023 quarter. What's the driver of that actually increased capacity or increased ASPs. And then, in relation to that, your full-year guidance that implies a June Q guidance of around $4.7 billion, that implies that your annualized capacity is reaching $19 billion. And so as your capacity is increasing. Is this largely a mix-driven like-for-like ASP driven or how has your capacity actually gone up prior to Malaysia coming online?

David Weigand:

And one thing I'll add Nehal is that in December, we shipped over $1.7 billion -- $1.8 billion. And so that alone establishes a $19 billion capability.

Charles Liang:

Well. Yeah, because of the demand, it is very strong. So we believe this March quarter will be a strong quarter as well. David, is there anything to add to that?

Nehal Chokshi:

Okay, I'm talking about the December quarter, your cash conversion cycle was actually a lot better than what we had expected. And yes, I recognize there consumption of cash, but it was at least a lot better than what we had expected. Was that actually better than what you had expected given the significant revenue upside that you had delivered here.

Charles Liang:

Yeah, also when economies of scale [Multiple Speakers] grow, we can more efficiently leverage our inventory as well.

Operator:

That concludes today's conference call. Thank you all for your participation, you may now disconnect your line.

Michael Staiger:

Good afternoon and thank you for attending Super Micro’s call to discuss financial results for the first quarter, which ended September 30, 2023. With me today are Charles Liang, Founder, Chairman and Chief Executive Officer; and David Weigand, Chief Financial Officer. By now, you should have received a copy of the news release -- company that was distributed at the close of regular trading and is available on the company’s website. As a reminder, during today’s call, the company will refer to a presentation that is available to participants in the Investor Relations section of the company’s website under the Events & Presentations tab. We have also published management’s scripted commentary on our website. Please note that some of the information you will hear during our discussion today will consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, and future business outlook, including guidance for the second quarter of fiscal year 2024 and the full fiscal year 2024. There are a number of risk factors that could cause Super Micro’s future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2023 and our other SEC filings. All of these documents are available on the Investor Relations page of Super Micro’s website. We assume no obligation to update any forward-looking statements. Most of today’s presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation or to our press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today’s press release and in the supplemental information attached to today’s presentation. At the end of today’s prepared remarks, we will have a Q&A session for sell-side analysts to ask questions. I will now turn the call over to Charles.

David Weigand:

Thank you, Charles. Fiscal Q1 2024 revenues were $2.12 billion, up 14% year-over-year and down 3% quarter-over-quarter. Revenues were towards the end of our guidance range -- the upper end of our guidance range of $1.9 billion to $2.2 billion, driven by AI-related platforms despite supply-chain challenges and summer seasonality. Next generation AI and CPU platforms continue to drive strong levels of design wins, orders and backlog. We expect diversified growth in fiscal 2024, driven by top-tier datacenters, emerging CSPs, enterprise investments in new AI, CPU servers and edge, IOT, telco markets. We are also enhancing our offerings in Storage, Switches, Software and Services to strengthen our Total Solutions offerings. During Q1, we recorded $917 million in the Enterprise and Channel vertical, representing 43% of revenues versus 45% last quarter. This was up 10% year-over-year and down 6% quarter-over-quarter due to seasonally lower enterprise spending as customers focus on AI investments. The OEM appliance and large datacenter vertical revenues were $1.17 billion, representing 55% of Q1 revenues versus 53% last quarter. This was up 26% year-over-year and flat quarter-over-quarter. One existing CSP large datacenter customer represented 25% of total revenues for Q1. Our emerging 5G, telco, edge, IoT segment revenues were $31 million, which represented 2% of Q1 revenues. AI, GPU and rack-scale solutions again represented over 50% of our total revenues this quarter with AI, GPU revenues in both the enterprise channel and the OEM appliance and large data center verticals. The mix of complete systems, storage and rack-scale Total IT Solutions has increased over the last two years. Server and Storage Systems comprised 93% of Q1 revenue and Subsystems and Accessories represented 7%. ASPs increased significantly on a year-over-year basis and decreased slightly quarter-over-quarter driven by product and customer mix. By geography, U.S. represented 76% of Q1 revenues, Asia 11%, Europe 9% and Rest of World 4%. On a year-over-year basis, U.S. revenues increased 25%, Asia decreased 17%, Europe decreased 19% and Rest of World increased 63%. On a quarter-over-quarter basis, U.S. revenues decreased 3%, Asia decreased 4%, Europe decreased 16% and Rest of World increased 38%. The Q1 non-GAAP gross margin was 17%, down slightly quarter-over-quarter from 17.1%. We continue to focus on winning strategic new designs and gaining market share. Turning to operating expenses, Q1 OpEx on a GAAP basis increased by 25% quarter-over-quarter and 42% year-over-year to $181 million driven by higher stock-based compensation expenses and headcount. On a non-GAAP basis, operating expenses decreased 3% quarter-over-quarter and increased 11% year-over-year to $130 million. Our Q1 non-GAAP operating margin was 10.8% versus 11% last quarter and 12.5% a year ago due to changes in revenues, gross margins and operating expenses. Other income and expense for Q1 was approximately $4.7 million, consisting of $1.9 million in interest expense offset by a net gain of $6.6 million principally from foreign exchange. Our interest expense decreased sequentially as we paid down our debt during the quarter. The income -- the tax provision for Q1 was $20.2 million on a GAAP basis and $36.2 million on a non-GAAP basis. The GAAP tax rate for Q1 was 11.4% and the non-GAAP tax rate was 15.5%. We delivered strong Q1 non-GAAP diluted EPS of $3.43, which was at the high end of the guidance range of $2.75 to $3.50 due to revenues towards the higher end of guidance, stable gross margins, lower non-GAAP OpEx and foreign exchange gains. Cash flow generated from operations for Q1 was $271 million, compared to cash flow used in operations of $9 million during the previous quarter due to continued strong profitability offset by higher inventory requirements based on build plans for Q2. CapEx was $3 million for Q1 resulting in positive free cash flow of $268 million versus negative free cash flow of $17 million last quarter. We have $50 million remaining under the authorized buyback program which expires on January 31, 2024. The closing balance sheet cash position was $543 million, while bank debt was $146 million resulting in a net cash position of $397 million, up from a net cash position of $150 million last quarter. We generated $271 million in operating cash flow and paid down debt by $144 million in Q1. Turning to the balance sheet and working capital metrics compared to last quarter, the Q1 cash conversion cycle was 86 days versus 77 days in Q4. Days of inventory increased by 16 days to 91 days versus the prior quarter of 75 days as we built inventory for a seasonally strong Q2. Days sales outstanding was up by five days quarter-over-quarter to 43 days, while days payables outstanding increased by 12 days to 48 days. Now turning to the outlook, we remain enthusiastic about our diversified business model covering a wide range of GPU, AI, core computing, storage, 5G telco, edge and IOT solutions. We expect a seasonally strong Q2 and are carefully observing the global macro-economic situation and continuing supply-chain constraints especially for leading AI platforms. For the second quarter of fiscal 2024 ending December 31, 2023, we expect net sales in the range of $2.7 billion to $2.9 billion, GAAP diluted net income per share of $3.75 to $4.24 and non-GAAP diluted net income per share of $4.40 to $4.88. We expect gross margins to be similar to Q1 levels. GAAP operating expenses are expected to be approximately $191 million and include $49 million in stock-based compensation expenses that are not included in non-GAAP operating expenses. The outlook for Q2 of fiscal year 2024 fully diluted GAAP EPS includes approximately $40 million in expected stock-based compensation expenses, net of tax effects of $13 million, which are excluded from non-GAAP diluted net income per common share. We expect other income and expenses, including interest expense to be a net expense of approximately $8 million. The company’s projections for Q2 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 15.7%, a non-GAAP tax rate of 17.1% and a fully diluted share count of 57.6 million for GAAP and 58.3 million shares for non-GAAP. We expect CapEx for the fiscal second quarter of 2024 to be in the range of $21 million to $23 million and a range of $105 million to $115 million for the fiscal year 2024. For the fiscal year 2024 ending June 30, 2024, we are raising our guidance for revenues from a range of $9.5 billion to $10.5 billion to $10 billion to $11 billion. Michael, we are now ready for Q&A.

Ananda Baruah:

Hey. Yeah. Good afternoon, guys. Thanks for taking the questions and congrats on the strong and ongoing execution. I guess, yeah, just so a couple of the starts. Charles, can you talk about the degree to which you guys either are benefiting or anticipate the benefit from the increased NVIDIA supply that was pointed to China but now needs to find other places to go? And to the degree you think you might benefit, if you could give us some sense of at what rate that benefit makes its way out of China and into other countries. And then I have a follow-up. Thanks.

Ananda Baruah:

That’s actually really helpful context. I appreciate it. And then, I guess, sort of dovetailing from that, Charles. So the midpoint of the implied guide for the fiscal year, the raised guide, $10.5 billion, implies that the March quarter and June quarter would also be about $2.8 billion, which is the midpoint of your December quarter guide. And then you also, though, made mention of growth accelerating. And so -- and that -- and it seems like supply is getting better. You also have co-op capacity coming on, going into the year. So I guess the question is, is there conservatism built in into even the implied fiscal year guide that’s been raised or is there some pull-forward in December quarter that you think might be challenging to duplicate in the March and June quarter? It seems like conservatism, but just wanted to check that? Thanks.

Operator:

Our next question comes from George Wang with Barclays. Your line is open.

Charles Liang:

Yeah. Thank you for the question. Yes. I mean, as you know, we have a very strong NVIDIA product line, including the L40S, right, and including the CG1, CG2 on the way. And AMD MI300X also getting ready. And Intel Gaudi 2 is ready to volume production. So although we have a very good demand and very strong supply capacity. So, again, I feel very optimistic for a quicker growth.

Charles Liang:

Yes. I mean, as of what I just shared, our utilization rate for U.S. and Taiwan capacity today only about 60%. So when we have a higher utilization rate, our overall cost will be lower, right? So that’s why when we grow revenue, our profitability will increase. And Malaysia, as you know, is a lower cost campus. So once we start production in Malaysia, our cost will be better and profit margin will be slightly improved.

Mehdi Hosseini:

Yes. It’s actually Mehdi Hosseini. Thanks for taking my question. David, your midpoint of the December quarter guide implies 57% year-over-year growth, but operating margin declining by about 100-basis-point. I understand utilization rate is in the 60% range, but as you bring up utilization rate, how should I think about the OpEx and the leverage from here on?

Mehdi Hosseini:

Got it. Thank you. And Charles, a big part of your cause is memory and other components. And everything we have heard from memory manufacturers that they are not going to sell at prices that were prevalent just a couple of months ago. So memory prices are going up. And how do you alleviate that inflationary trend to be able to expand margins?

Operator:

Our next question comes from Jon Tanwanteng with CJS Securities. Your line is open.

David Weigand:

Well, it’s a combination, Jon, of -- as we ramp revenues up, we are going to get leverage on the gross margin because, as Charles mentioned earlier, we are going to get higher efficiency and factory throughput as we -- which will lower costs as we put more through the factories. So we will get some benefit there. We will also get benefit as we transition more manufacturing over to Malaysia and Taiwan. And I think that -- so that’s why right now we are, although, very competitive situation, we are maintaining our margin guidance for Q2.

Jon Tanwanteng:

Got it. Okay. And then just a question on the, I think you said, you are building seven new buildings here in the U.S. I know you are expanding and looking for places to put facilities in North America. Would those all be margin accretive or neutral or negative, just given the higher costs here? How do we think about those facilities and their impact?

Operator:

Our next question comes from Nehal Choski, Northland Capital Markets. Your line is open.

David Weigand:

Yeah. So I think we are expecting really the same performance, Nehal. We will expect it to be in a range of over 50%.

David Weigand:

That’s -- we are giving that approximate figure and that’s our guide.

Operator:

Our next question comes from Aaron Rakers with Wells Fargo. Your line is open.

Charles Liang:

Yes. It’s a complicated job. However, because our building-box solution and our global footprint together, we have a huge lead time. We support hundreds of customers. So [Technical Difficulty] indeed, relatively, we are able to take care of the allocation, the lead time, the inventory control, product flow-in, more efficient than our competitors. And we are continually improving in that area.

Charles Liang:

Yes. And that’s why our inventory utilization rate will be improving. So, before, I guess, we have about 90 days turnaround time.

Charles Liang:

And I guess that will be improved when the scale continues to grow and when we continue to…

Charles Liang:

… leverage our building-box solution, situation will continue to improve.

Charles Liang:

Yeah. You are right. Because our building-box solution, so we are able to design all that and make a new technology available earlier than the market, basically. So, usually we send our solution to customer for evaluation so our customer can make a decision earlier and that allows Super Micro, there will be an earlier time to prepare the product, prepare inventory. So, it doesn’t matter if we have a solution, AMD solution or Intel solution, we provide a same building-box solution and we gain time to market advantage. We provide a customer earlier seeding, earlier system so that they can validate in advance.

Michael Staiger:

Good afternoon and thank you for attending Supermicro's call to discuss financial results for the fourth quarter and full fiscal year, which ended June 30, 2023. With me today are Charles Liang, Founder, Chairman and Chief Executive Officer, and David Weigand, Chief Financial Officer. By now, you should have received a copy of the news release from the company that was distributed at the close of regular trading and is available on the company's website. As a reminder, during today's call, the company will refer to a presentation that is available to participants in the Investor Relations section of the company's website under the Events & Presentations tab. We have also published management's scripted commentary on our website. Please note that some of the information you’ll hear during our discussion today will consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, and future business outlook, including guidance for the first quarter of fiscal year 2024 and the full fiscal year 2024. There are a number of risk factors that could cause Supermicro's future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2022, and our other SEC filings. All of these documents are available on the Investor Relations page of Supermicro's website. We assume no obligation to update any forward-looking statements. Most of today's presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation or to our press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and in the supplemental information attached to today's presentation. At the end of today's prepared remarks, we will have a Q&A session for sell-side analysts to ask questions. I'll now turn the call over to Charles.

David Weigand:

Thank you, Charles. Fiscal fourth quarter revenues were $2.18 billion, up 34% year-over-year and up 70% quarter-over-quarter. Q4 revenues exceeded initial guidance range of $1.7 billion to $1.9 billion and were at the high end of the recently updated range of $2.15 to $2.18 billion. For Fiscal 2023, we reported revenues of $7.12 billion, representing 37% growth over FY'22 revenues of $5.20 billion. Next generation CPU and AI platforms continue to drive record levels of design wins and orders. Exiting fiscal year 2023 with a record backlog, we are well positioned for fiscal year '24 with an outlook for continued revenue growth and profitability. We expect diversified growth driven by top-tier datacenters, emerging CSPs, enterprise AI build-outs, CPU upgrades, and edge IOT and telco markets. We are also targeting new opportunities in adjacent markets such as Storage, Switches, Software & Services. We note that our shipments against a record backlog may continue to be constrained by supply chain bottlenecks for key new components for our advanced AI server platforms. Q4 results were driven by our high-growth AI/GPU and rack-scale solutions which represented 52% of our total revenues. We had two 10% customers for Q4 and did not have any 10% customers for fiscal year '23. During Q4, we recorded $976 million in the Enterprise and Channel vertical, representing 45% of revenues versus 50% last quarter. This was up 19% year-over-year and up 51% quarter-over-quarter as we ramped several key enterprise programs. The OEM appliance and large datacenter vertical achieved $1.17 billion in revenues, representing 53% of Q4 revenues versus 47% last quarter, up 59% year-over-year and up 94% quarter-over-quarter as we gained momentum from existing and new datacenter, CSP, and OEM cloud appliance customers. Our emerging 5G, Telco, Edge, IoT segment achieved $43 million in revenues, representing 2% of Q4 revenues versus 3% last quarter. For the fiscal year 2023, Organic Enterprise and Channel and AI/ML revenues grew 10% to represent 48% of total revenues. The OEM appliance and large datacenter segment grew 102% and represented 49% of total revenues. The emerging 5G Telco Edge IOT segment decreased 36% and represented 3% of total revenues. The mix of complete systems and rack-scale Total IT Solutions has increased over the last two years. Server and Storage Systems comprised 93% of Q4 revenue and Subsystems and Accessories represented 7%. ASPs continued to increase on a quarter-over-quarter and year-over-year basis driven by the value and complexity of our rack-scale Total IT Solutions. By geography, U.S. represented 76% of Q4 revenues, Asia 11%, Europe 10%, and Rest of World 3%. On a year-over-year basis, U.S. revenues increased 55%. Asia decreased 17%, and Europe increased 1%, and Rest of World increased 12%. On a quarter-over-quarter basis, U.S. revenues increased 112%, Asia increased 10%, Europe decreased 1%, and Rest of World increased 11%. The Q4 non-GAAP gross margin was 17.1%, down quarter-over-quarter from 17.7% in Q3 as we focused on winning strategic new designs and market share. For fiscal year '23, the non-GAAP gross margin of 18.1% versus 15.4% for fiscal year '22 was driven by an increased rack-scale product/customer mix and higher manufacturing efficiencies. Turning to operating expenses, Q4 Opex on a GAAP basis increased by 14% quarter-over-quarter and 19% year-over-year to $145 million driven by headcount and related expenses. On a non-GAAP basis, operating expenses increased 14% quarter-over-quarter and 17% year-over-year to $133 million. Our non-GAAP operating margin increased significantly to 11% for Q4 versus 8.7% last quarter due to operating leverage driven by higher revenues that outpaced increases in operating expenses. For fiscal year '23, we achieved a non-GAAP operating margin of 11.4% versus 7.2% in fiscal year '23 due to higher gross margins and operating leverage from higher revenues and expense controls. Other Income & Expense for Q4 was an expense of approximately $1.5 million consisting of $3.5 million in interest expense offset primarily by a net foreign-exchange gain of $2.0 million. Our interest expense increased sequentially as we utilized our short-term credit lines for working capital requirements along with higher short-term interest rates on our borrowings. The tax provision for Q4 was $31.3 million on a GAAP basis and $36.6 million on a non-GAAP basis. The GAAP tax rate for Q4 was 13.9% and the non-GAAP tax rate was 15.4%. The GAAP tax rate was 14.7% for fiscal year '23 versus 15.7% in fiscal year '22 and the non-GAAP tax rate was 15.9% versus 17.7% in fiscal year '22. We delivered strong Q4 non-GAAP diluted EPS of $3.51 which exceeded the high end of the original guidance range of $2.21 to $2.71 and the recently updated range of $3.35 to $3.45. The increase in Q4 EPS was due to a combination of higher revenues and operating leverage. For the full fiscal 2023, we reported non-GAAP diluted EPS of $11.81, up 109% year-over-year versus fiscal 2022 non-GAAP diluted EPS of $5.65 and higher than the FY'23 guidance of $10.50 to $11.00. Cash flow used in operations for Q4 was $9 million compared to cash flow generated by operations of $198 million in Q3 due to higher accounts receivable, offset by lower inventory and higher accounts payable from backend loaded shipments in the quarter due to supply constraints. CapEx was $8 million for Q4 resulting in negative free cash flow of $17 million versus positive free cash flow of $190 million last quarter. For fiscal year '23, we had free cash flow from operations of $664 million, CapEx of $37 million resulting in free cash flow of $627 million. We have $50 million remaining under the authorized buyback program which expires on January 31, 2024. The closing balance sheet cash position was $440 million, while bank debt was $290 million resulting in a net cash position of $150 million down from net cash position of $176 million last quarter as we utilized our bank lines of credit to support higher revenues and accounts receivable as we ramped up production of new AI/GPU design wins. Turning to the balance sheet and working capital metrics compared to last quarter, the Q4 cash conversion cycle improved to 77 days versus 126 days in Q3. Days of Inventory was 75, representing a decrease of 51 days versus the prior quarter of 126 days. Days Sales Outstanding was down 13 days quarter-over-quarter to 38 days while Days Payables Outstanding came down by 15 days to 36 days. Faster inventory turns contributed to the improvement in our cash conversion cycle. Now turning to the outlook, we remain enthusiastic about our diversified business model, covering a wide range of AI, core computing, storage, 5G telco edge and IOT applications. Design wins span across enterprise/channel, large datacenter/emerging AI CSP, and Telco and OEM customers. We are carefully observing the global macro-economic situation and continuing supply-chain constraints especially for leading AI platforms. For the first quarter of fiscal 2024 ending September 30, 2023, we expect net sales in the range of $1.9 billion to $2.2 billion, GAAP diluted net income per share of $2.02 to $2.80 and non-GAAP diluted net income per share of $2.75 to $3.50. We expect gross margins to be similar to Q4 levels. GAAP operating expenses are expected to be approximately $185 million and include $48 million in stock-based compensation and other expenses that are not included in non-GAAP operating expenses. GAAP and non-GAAP operating expenses are expected to increase due to continued investments in R&D and higher personnel costs adding to our great engineering and sales teams. The outlook for Q1 of fiscal year 2024 fully diluted GAAP EPS includes approximately $44 million in expected stock-based compensation and other expenses, net of tax effects of $9 million, which are excluded from non-GAAP diluted net income per common share. We expect other income and expense, including interest expense, to be a net expense of approximately $1.5 million. The company’s projections for GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 14.7%, a non-GAAP tax rate of 15.4%, and a fully diluted share count of 56 million for GAAP and 57 million shares for non-GAAP. We expect CapEx for the fiscal first quarter of 2024 to be in the range of $10 million to $12 million. For the fiscal year 2024 ending June 30, 2024, we are giving guidance -- I'm sorry, the first fiscal year 2024. Which ends June 30, 2024. We are giving guidance for revenues in the range $9.5 billion to $10.5 billion. Okay, Michael, we’re now ready for Q&A.

Operator:

[Operator Instructions]. Now we have the first question, comes from the line of Nehal Choski from Northland Capital Markets. Sir, Your line is open.

Charles Liang:

Yeah, thank you for your question. Yes, as AI has been our major focus is since a few years ago, and we work with AI chip company kind of very closely. And we could develop lots of our platform, including our MTX [ph]. Now coming MTX, as you know, to support a C2and CG1. So our AI solution with rack scale scale, or cloud scale, customer scale solutions that make our customers deploy even much easier. And full rehab, they also solution for energy cost as they've been for time to online. So I believe our AI product line will continuing to grow in the near future maybe continue to be more than 50% of our revenue.

Mehdi Hosseini:

Yes, thanks for taking my question. And Charles, I think it would be very helpful if you could [technical difficulty] $10 billion of revenue. And perhaps any kind of color on ASP increased that would capture your increased content would give us an insight unless you have other ways of explaining to get to $10 billion net.

Mehdi Hosseini:

Last question, your competitors also argue for innovative cooling? And they also argue for shagging? Is there something with your cooling technology that is better offers better cost performance, compared to some of the emerging cooling that your competitors are for marketing, are talking about?

Mehdi Hosseini:

Okay, maybe move on, because they are becoming more than 50% of your revenue. How is your pipeline as you look into the second half of calendar year? Do you already have a pipeline that gives you confidence, you're going to hit that 50% plus AI as the mix of revenue or you still have to go and qualify and win the business to hit that target.

Operator:

Your next question comes from the line of Jon from Tanwanteng. Your line is open.

Charles Liang:

Yeah, it's a complicated question. We have a very good product many product line for delta max for redstone max for grace for [indiscernible] and other solutions including error 40s. So the solution is really strong and supply chain we work with our vendor very closely every day. And so hopefully that situation will be consistently improve, but it's not 100% control of our sale. So although we have a good partnership but it's 100% controlled by our sales. So all though we have a good partnership, which vendor, which customer. So we work together very closely, And the situation will be continue to improve I believe

Operator:

Your next question, I will ready for the next question.

Jon Tanwanteng:

In order site, double protection against double and triple?

David Weigand:

Also, John, we have a lot of NCNR orders as well. That protects against double and triple booking.

Ananda Baruah:

Yeah. Good afternoon, guys. And thanks for taking the questions. Yeah, congrats on the strong results and the ongoing momentum. I have a couple if I could. Charles, you've talked in the prepared remarks about the unprecedented demand you're seeing and you guys have talked about actually adding new customers, including top tier data center customers, I think you mentioned and some of these gen AI server forecasts, for 2024 calendar are really, really strong. And you're also talking about gaining share, et cetera. And so I guess the first question is, is what's the opportunity do you see to maybe even do teach stronger than the fiscal '24 guidance. I guess, what would be the puts and takes there? And, if you were to be able to exceed the 2024 guidance, what would be some of the things you think would need to occur? And then I have a quick follow up. Thanks.

Ananda Baruah:

That's really helpful. And so, Charles, just to make sure that I understood that accurately, is that to say, if the supply chain -- so if you can, if you can get more from the supply chain, actually use it to say this way you have order visibility, such that if you can procure more, you would have the ability to share gains, exceed the fiscal '24 range that you provide is a really supply chain issue, I guess, is what I'm asking. Did I hear that accurately?

Ananda Baruah:

I got it. And then let me just ask a quick follow up to that one. Is there any way you guys could provide in context for us around I guess how constrained you are, like, what might the demand outlook sort of look like if you were not constrained? So not like a guidance, obviously, you gave your guidance to just content context for us and really getting a sense of what the structural positioning of the company is, if there were not constraints?

Ananda Baruah:

Charles, I have one more quick one, I appreciate it. Sounds like the gross margin guidance for the September quarter is a pretty solid most attractive guide. For fiscal '24, should we assume that same 17% kind of gross margin range or what's the right way to think about that? And that's it for me. Thanks.

Operator:

Your next question comes from the line of Adam [Indiscernible] from Wells Fargo. Your line is open.

David Weigand:

Yeah, Adam. Charles, in his script said approximately 50% and I clarified 52%.

Charles Liang:

Yeah, now AI server storage, IoT telco, we keep involve and a bit blend. Understand that industry has been declining, we are not declining, above Fed. And we try to grow as well. And that's why we are growing in many directions kind of manufacturing, kind of like Taiwan and Malaysia. And we may have another North America campus. So that's all to increase our capacity, so that we can grow traditional data center business as well, instead of omni focus on that, growing AI.

Charles Liang:

Not exactly impacted, but not exactly. Indeed, as traditional server, traditional datacenter business, and a bit bland from the demand side. So we face into similar experience as well, but not declining to ---

Charles Liang:

Yeah, in retail solutions, [Indiscernible] and people are really waiting for NVIDIA more supply. And other solution from Intel, from AMD, because our box [ph] solution we have a solution ready for show up again. So that's the advantage we have. So we just waiting for their solution to be available in production.

Charles Liang:

Thanks.

Jon Tanwanteng:

Hi, thanks for the follow up. Dave, I was wondering if you could talk about your working capital needs in the sort of environment. Can you generate positive cash flow going forward? Are you going to be using cash as you as you try to fulfill this OpEx demand?

Jon Tanwanteng:

Okay, great. And then could you guys give a little bit more detail on the capacity expansion, and then when those various facilities come online, and what exactly they add?

Jon Tanwanteng:

Got it? And then last one, for me. Maybe a more detailed question, what percentage of your AI sales right now are liquid cooling basin? Do you expect that percentage to increase as you go forward?

Jon Tanwanteng:

Okay, great. Thanks. Charles.

Operator:

Your next question from the line of Nehal Choski from Northland Capital Markets. Your line is open.

Charles Liang:

We believe their capacity are growing. And that's why we talk to them every day asking for more. So hopefully we can gather more support from them. And hopefully their capacity that grows mostly quickly. So that's all I can say now. Okay.

David Weigand:

We don't have --- we're not going to go into offer a market share for the June quarter. You can make some assumptions by looking at the results of others. But, we have we sell different GPUs as Charles mentioned. So, there is a direct correlation.

Nehal Choski:

Yep, understood. And how should we think about distributing the remaining 8 million across the final three quarters here?

Charles Liang:

Yeah, basically in NVIDIA we have a more capacity for sure. And we're really happy to wait over there. And besides other than the alternates our residental mix next is a company that is already in our CG-1 solution is pretty much ready as well. So we believe we can ship much more and not less situation. So in next four quarter I believe will continue to grow quarter after quarter.

Charles Liang:

And even a supply condition, I believe we can surpass $10.5 million for sure easily.

Michael Staiger:

Good afternoon. And thank you for attending Supermicro’s call to discuss financial results for the third quarter, which ended March 31, 2023. With me today are Charles Liang, Founder, Chairman and Chief Executive Officer; and David Weigand, Chief Financial Officer. By now, you should have received a copy of the news release from the company that was distributed at the close of regular trading and is available on the company’s website. As a reminder, during today’s call, the company will refer to a presentation that is available to participants in the Investor Relations section of the company’s website under the Events & Presentations tab. We have also published management’s scripted commentary on our website. Please note that some of the information you’ll hear during our discussion today will consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, and future business outlook, including guidance for the fourth quarter of fiscal year 2023 and the full fiscal year 2023. There are a number of risk factors that could cause Supermicro’s future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2022 and our other SEC filings. All of these documents are available on the Investor Relations page of Supermicro’s website. We assume no obligation to update any forward-looking statements. Most of today’s presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation or to our press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today’s press release and in the supplemental information attached to today’s presentation. At the end of today’s prepared remarks, we will have a Q&A session for sell-side analysts to ask questions. I’ll now turn the call over to Charles.

David Weigand:

Thank you, Charles. Fiscal Q3, 2023 revenues were $1.28 billion, down 5% year-over-year and down 29% quarter-over-quarter, which was below our initial guidance range of $1.42 billion to $1.52 billion. The shortfall was primarily due to key new component shortages for Supermicro’s new generation server platforms which have been mostly resolved to-date. Our next generation AI platforms are driving record levels of design wins along with strong orders from top-tier customers and a record backlog. We are well positioned for a strong finish to our fiscal year 2023 as we rank up -- wrap up -- ramp up deliveries of our new platforms to key customers. We note that our shipments against a record backlog may be constrained by supply chain bottlenecks due to high demand for our advanced AI server platforms. Q3 results were driven by our high growth AI/GPU and rack-scale solutions which represented approximately 29% of our total revenues and we expect significant future growth. An existing Cloud Service Provider customer represented more than 10% of revenues for the first time. On a quarter-over-quarter basis, key new platform component shortages and seasonality impacted our three end market verticals. On a year-over-year basis, we had growth in our OEM appliance and large datacenter vertical reflecting momentum with new datacenter and CSP customers. We recorded $646 million in the Enterprise and Channel vertical, representing 50% of Q3 revenues versus 53% last quarter. This was down 22% year-over-year and down 32% quarter-over-quarter due to new platform component shortages. The OEM appliance and large datacenter vertical achieved $601 million in revenues, representing 47% of Q3 revenues versus 43% last quarter. This was up 30% -- 37% year-over-year as we gained momentum with existing and new datacenter, CSP, and OEM cloud appliance customers and down 23% quarter-over-quarter due to new platform component shortages. Our emerging 5G/Telco/Edge/IoT segment achieved $36 million in revenues, which represented 3% of Q3 revenues versus 4% last quarter. Systems comprised 91% of total revenue and was up 2% year-over-year and down 30% quarter-over-quarter. Subsystems/accessories represented 9% of Q3 revenues and were down 43% year-over-year and down 16% quarter-over-quarter. On a year-over-year basis, the volume of systems and nodes shipped decreased while System node ASPs increased due to higher product ASPs, especially for AI product offerings. On a quarter-over-quarter basis, the volume of systems and nodes shipped decreased due to lower shipments from component shortages while system node ASPs increased. Geographically, during Q3 the U.S. market represented 61% of revenues, Asia 17%, Europe 18% and Rest of World 4%. On a quarter-over-quarter basis, U.S. revenues increased 3%, Asia decreased 31%, Europe increased 11% and Rest of World decreased 29%. On a quarter-over-quarter basis, U.S. revenues decreased 28%, Asia decreased 35%, Europe decreased 27% and Rest of World decreased 20%. The Q3 non-GAAP gross margin was 17.7%, down 110 basis points quarter-over-quarter and up 210 basis points year-over-year. The decline in the non-GAAP gross margin was due to, one, our efforts to gain market share in the rapidly growing AI server platform market with aggressive pricing targeting strategic large enterprises, data center and CSP customers; secondly, lower factory efficiency from smaller sales volume and a learning curve in the production ramp of new platforms. The company’s mainstream server business margin profiles were generally on par with last quarter. As we focus on gaining market share with our new AI platforms, we will target the optimal mix of revenue growth, gross margin and operating profit growth to create long-term value for our shareholders. Turning to operating expenses, Q3 OpEx on a GAAP basis increased by 4% quarter-over-quarter and increased 5% year-over-year to $127 million. On a non-GAAP basis, operating expenses increased 7% quarter-over-quarter and increased 6% year-over-year to $116 million. OpEx increased sequentially due to lower NRE and marketing credits for new platform launches and higher headcount. The non-GAAP operating margin was 8.7% for the quarter versus 12.8% last quarter and 7.5% a year ago due to lower revenues and lower gross margins. Other income and expense was approximately $1.4 million in expense primarily consisting of interest expense of $1.3 million and a small FX loss, as compared to $1.8 million in interest expense and $6.3 million FX losses last quarter. Interest expense decreased sequentially as we paid down some of -- some working capital loans last quarter. The tax provision for Q3 was $11 million on a GAAP basis and $15 million on a non-GAAP basis. The GAAP tax rate for Q3 was 11% and non-GAAP tax rate was 14%. Our tax rates were lower sequentially due to higher discrete tax benefits realized in Q3. Lastly, our share of income from our joint venture was a loss of $1 million this quarter, as compared to a loss of $1.4 million last quarter. We delivered Q3 non-GAAP diluted EPS of $1.63, which was up 5% year-over-year and down 50% quarter-over-quarter due to the lower revenues, lower gross margins and higher operating expenses quarter-over-quarter. Turning to the balance sheet and working capital metrics compared to last quarter, our Q3 cash conversion cycle was 126 days versus 95 days in Q2. Days of inventory was 126, which was up by 27 as we built inventory to fulfill large new customer orders. Days sales outstanding rose 13 days quarter-over-quarter to 51 days, while days payables outstanding increased by nine days to 51 days. Working capital metrics were impacted by the -- again by the new platform component shortages, which increased inventory and lengthened the cash conversion cycle as we could not fulfill all our sales demand. In fiscal Q3, we generated positive cash flow from operations of $198 million versus $161 million in Q2. Despite our Q -- quarter-over-quarter revenue decline, our operating cash flow benefited from continued profitability and the conversion of accounts receivables to cash. CapEx was $8 million for Q3 resulting in positive free cash flow of $190 million versus positive free cash flow of $151 million last quarter. The closing balance sheet cash position was $363 million. Total bank debt increased to $187 million as we increased our debt by $17 million during the quarter, while net cash increased to $176 million in Q3 from $135 million in Q2 due to strong operating cash flow. During Q3 we repurchased 1.55 million shares of our common stock for approximately $150 million leaving $50 million remaining under our current $200 million share repurchase authorization which goes until January 31, 2024. Our Board will determine the timing and amount of any future share repurchases. Now turning to the outlook for our business, we have a strong backlog of orders for new platforms entering the seasonally strong June quarter. We are working diligently with our strategic partners and customers to fulfill their requirements and are making steady progress in easing key supply constraints. For the fourth quarter of fiscal 2023 which ended --ending June 30, 2023, we expect net sales in the range of $1.7 billion to $1.9 billion, GAAP diluted net income per share of $2.13 to $2.65 and non-GAAP diluted net income per share of $2.21 to $2.71. We expect gross margins to be approximately 17% as we focus on gaining market share with our strategic new customers and platforms. As we improve our production efficiencies on the new platforms and gain scale with our customers, we expect our gross margins to improve. However, in the current AI growth, AI market environment, we will continue to balance market share gains with gross margins. GAAP operating expenses are expected to be $145 million, which includes approximately $10 million in expected stock-based compensation and other expenses that are excluded from non-GAAP diluted net income per common share. GAAP and non-GAAP operating expenses are expected to increase in Q4 due to lower R&D NRE credits and higher personnel and marketing costs. We expect other income and expenses, including interest expense, to be a net expense of approximately $4 million and expect a nominal loss from our joint venture. The company’s projections for GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 14.7%, a non-GAAP tax rate of 15.7% and a fully diluted share count of 56 million for GAAP and 57 million shares for non-GAAP. The outlook for the fiscal fourth quarter of 2023 fully diluted GAAP EPS includes approximately $7 million in expected stock-based compensation and other expenses, net of tax effects that are excluded from non-GAAP diluted net income per common share. We expect CapEx for the fiscal fourth quarter of 2023 to be in the range of $11 million to $14 million. For the fiscal year 2023 ending June 30, 2023, we are tightening our guidance for revenues for a range -- from a range of $6.5 billion to $7.5 billion to a range of $6.6 billion to $6.8 billion, which would represent year-over-year growth of 27% to 31%. GAAP diluted net income per share from a range of $8.50 to $11 to a range of $10.14 to $10.66 and non-GAAP diluted net income per share from a range of $9 to $11.30 to a range of $10.50 to $11. The GAAP -- the company’s projections for GAAP annual net income assume a tax rate of 14.9% and a rate of 16% for non-GAAP net income. For fiscal year 2023, we are assuming a fully diluted share count of 56 million shares for GAAP and 57 million shares for non-GAAP. The outlook for fiscal year 2023 fully diluted GAAP earnings per share includes approximately $33 million in expected stock-based compensation and other expenses, net of tax effects that are excluded from non-GAAP diluted net income per common share. For fiscal year 2024 we are expecting revenue growth of at least 20% based on strong customer demand for our best-in-class new AI platforms and Total IT solutions. We remain confident in our long-term outlook for robust revenue growth and profitability driven by our leading-edge new platforms, design wins with significant new customers, our efficient global manufacturing capacity and continued market share gains. And Michael, we are now ready for Q&A.

Operator:

Thank you. [Operator Instructions] And we will take our first question from Nehal Chokshi with Northland Capital Markets. Your line is open.

David Weigand:

So…

Nehal Chokshi:

And what about with respect to gross margin?

Nehal Chokshi:

Okay. Great. And are you guys seeing any signs of general corporate IT demand weakening -- weakness as the CDW preannounced has indicated?

Nehal Chokshi:

Okay. And then do you guys have any 10%-plus customers in the quarter and any expectations that, that would contribute within the June quarter as well?

Nehal Chokshi:

And is that the expectation that there will likely be a new 10% customer pop up within the June quarter?

Charles Liang:

Yeah. But at the same time, we are also greatly growing our operating NIM through our channel, through retail and also through online business. So we try to balance the growth between the large accounts and a lot of small account. And so we are…

Charles Liang:

Thank you.

Mehdi Hosseini:

Yes. Thanks for taking my question. A couple of follow-ups for me. I want to better understand. I remember last earnings conference call, you discussed your confidence in the backlog, and back then, there was a little bit of a pushout of revenue opportunities from perhaps March into June, but you were very confident that as we approach June and September, it should materialize and now that the magnitude of the revenue push was more than expected. So what happened if you if you were confident with the backlog in January, what prevented you to procure the key components? And I have a follow-up.

Charles Liang:

Yeah. I’m going to Q1, we have some customer postponed shipping right? But at the same time, some other customers growing and they want a high-end, especially GPU product line. And for those high-end GP product line and new design, yes, we have some key component shortage, including GPU/CPU combination and kind of high power thermal solution. So we did a very big effort to prove in those components and now situation have been dramatically improved. That’s why we are pleased for June quarter.

David Weigand:

Yeah. I think, as we go out, Mehdi, I think, that’s a good question, because we will -- working capital wise is this fourth quarter is going to be challenging for me, because we are going to be moving -- acquiring a lot of inventory. And so it will -- that will challenge our cash flows during this quarter. So that’s something -- the timing of inventory and shipments is critical. And as going into this Q4 or ending Q3, we were building inventory, and yet at the same time, as Charles mentioned, we couldn’t ship things, because we didn’t have every -- all the parts that we needed. So we’re growing inventory at the same time that we’re constrained on shipping. So what that does is it caused our working capital metrics to go down a little bit and that’s evident in our cash conversion cycle. But I would say that in spite of that, we generated some of our best cash flow. We generated $200 -- almost $200 million in cash flow and we returned $150 million of that to the shareholders. So, what I would say is that, yeah, going into Q4, we -- cash flow is very important. But, I think, ultimately, the business has shown that it generates very good cash flows.

Mehdi Hosseini:

Okay. Thank you. I will go back in the queue.

Ananda Baruah:

Yeah. Good afternoon, guys. Thanks for taking the question. I really appreciate it. Two, if I could. At the risk of asking maybe the, obvious, I think, 90 days ago, you guys had, Charles said on your earnings call that, you had expected in the second half of this calendar year. So September, December quarter to be in a position to start -- this is the way that I interpreted Charles, making a regular part of your book of business, the layering in of larger projects from the cloud cadre from the AI cadre, like that. And I guess my question is, are you seeing -- is what we’re seeing in the June quarter that you’re talking about, is that a pull forward of what 90 days ago we anticipating later this year? So is that dynamic happening sooner kind of as you would describe it holistically or is this something different than that? And then I have a follow-up. I appreciate it. Thanks.

Ananda Baruah:

Really appreciate that. That’s helpful context. And then I guess the follow-up is for Dave -- Dave, for you. Just with regard to your gross margin comments. Any greater context you can share that’s responsible. I realize that this is sort of at the front end of beginning to mix in some of this larger footprint business. But I would love to get a better understanding of how you guys are thinking about sort of the gross margin manifestation if we think about the continued layering in of larger footprint, which may come at a slightly lower margin. Is it really that over time, we just expect a greater presence of that lower margin business with some efficiency gains or is it just in the beginning here, the margin will be lower for the new business, but then collectively, the P&L gross margin expands over time?

Charles Liang:

Yeah.

Charles Liang:

I can add some color. I mean, as I shared, I mean, we are building a $20 billion of revenue, hopefully in midterm and that’s why a grow our capacity and support a large customer is very important to us. Once our volume becomes higher, our costs will be improved and then business operation efficiency will be higher. So we are doing better great way to grow our revenue. And so, I mean, once we start to reach that number under $10 billion to $20 billion, I guess, our gross margin will start to grow, because we won’t always invest for big growth after that.

Operator:

And we will take follow-up questions from Mehdi Hosseini with SIG. Your line is open.

David Weigand:

Let’s see. That sounds about -- on a non-- we have -- we gave both GAAP and non-GAAP guidance, Mehdi.

David Weigand:

So our...

David Weigand:

Yeah. Let’s see. Just a second. Yeah. Yeah. $145 million for GAAP.

David Weigand:

Sure.

David Weigand:

It was -- GAAP is going to be $145 million.

David Weigand:

And that includes $10 million in expected stock-based comp. So that would -- that means $135 million for non-GAAP.

David Weigand:

Yeah. We said $11 million to $14 million.

Operator:

And ladies and gentlemen, this concludes our question-and-answer session and today’s conference call. We thank you for your participation and you may now disconnect.

Michael Staiger:

Good afternoon and thank you for attending Supermicro’s call to discuss financial results for the second quarter, which ended December 31, 2022. With me today are Charles Liang, Founder, Chairman and Chief Executive Officer, and David Weigand, Chief Financial Officer. By now, you should have received a copy of the news release from the Company that was distributed at the close of regular trading and is available on the Company’s website. As a reminder, during today’s call, the Company will refer to a presentation that is available to participants in the Investor Relations section of the Company’s website under the Events & Presentations tab. We’ve also published management’s scripted commentary on our website. Please note that some of the information you’ll hear during our discussion today will consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, and future business outlook, including guidance for the third quarter of fiscal 2023 and the full fiscal year 2023. There are a number of risk factors that could cause Supermicro’s future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2022, and other SEC filings. All of these documents are available on the Investor Relations page of Supermicro’s website. We assume no obligation to update any forward-looking statements. Most of today’s presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation or to our press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today’s press release and in the supplemental information attached to today’s presentation. At the end of today’s prepared remarks, we will have a Q&A session for sell-side analysts to ask questions. And I’ll now turn the call over to Charles.

David Weigand:

Thank you, Charles. I am pleased to report Q2 fiscal 2023 revenues of $1.8 billion, up 54% year-on-year and down 3% sequentially. Revenues were at the high end of our initial guidance range of $1.7 billion to $1.8 billion and our recently updated range of $1.77 billion to $1.8 billion. Our year-over-year revenue growth continued to be driven by new and existing customers widely adopting our GPU/AI systems and rack-scale Total IT Solutions which contributed to solid gross margins and record operating margins. In fiscal Q2, we had good growth in our two largest verticals

Nehal Chokshi:

Yes. Thank you. And congratulations on the strong results, especially gross margin, and the guidance that implies very resilient gross margin. Dave, you did mention that you’re expecting 30 basis points of the Q-over-Q downtick due to macro pressures. I mean, that’s a de minimis amount. Can you discuss why only that amount?

Nehal Chokshi:

So then, can you talk about why you think your margins are indeed holding up in what appears to be pretty quickly deteriorating macro environment?

Nehal Chokshi:

Got it. That’s great. And then, you’re maintaining your fiscal year ‘23 guidance despite outperformance in the December quarter and you’re providing at least March guidance that’s above my expectations. So, how should we be reading that implied June Q guidance, basically? Should we be -- if we take at the low end of the fiscal year ‘23 guidance, you could be looking at a pretty dire gross margin situation within June Q, is that the correct interpretation?

Nehal Chokshi:

Okay. So just to be clear, there is no reasonable basis for believing that gross margin would drop to the low-end of your what’s arguably a sale target model of 14% to 17% in the June quarter, or lower, is that correct?

Nehal Chokshi:

And then, Charles made a comment that he expects fiscal year ‘23 revenue be taking at least 30% year-over-year growth or mid-30%. But your overall fiscal year ‘23 guidance range is still a pretty large bracket. So, how should we be reconciling these two things here?

Nehal Chokshi:

Absolutely.

Operator:

Our next question comes from Ananda Baruah with Loop Capital.

David Weigand:

Sure. So again, I’ll kind of go back and we’re -- because things have been changing economically and we had some -- we’ve seen some push-outs, not cancellations, again, push-outs, we feel like, we shouldn’t be adding more details on Q4 or annual guidance. And so, really, we feel like the guidance ranges that we gave allow for where we think performance will land. And so, to give more specificity to that, at a time when details are not easy to -- are not as clear to see, we think is the wrong way to go. And so instead, we’re giving good guidance on what we see in the quarter ahead. But again, we’re still comfortable with our annual guidance.

Charles Liang:

Yes. Macroeconomic headwind issue is some concern to everyone now. So other than that, indeed, our demand is still pretty strong, especially as you know, Intel just announced Sapphire Rapids; AMD, Genoa; and NVIDIA, Hopper, H100. So we have very strong products available. And this time, we saw a customer very aggressively asking was simple for early seeding. So, we believe these were put in big growth. And -- however the very big growth in model should be in about summer or even after summer timeframe. So long-term, we have a very strong confidence, especially after summer. Before summer, depends on macroeconomic headwinds. We try to be more cautious.

Charles Liang:

Yes. I mean, as you know, we start to approach large accounts since maybe one year ago. So, we continue to gain interest from those CSP and larger accounts. And that’s why we increased having capacity for lower production cost to support those larger accounts. And we even started a big campus in Malaysia. So, the goal is to increase our production capacity and lower our operation and production costs, so that we are able to support those larger accounts with reasonable profitability. So, we continue to gain some engagement and interest from larger accounts around the world. And also at the same time, we also started to engage with lots of mini size accounts, especially those through B2B and B2C. So, we are engaging with much broader customer base now.

Mehdi Hosseini:

Couple of follow-ups. It seems like the price decline in the December quarter has more to do with the mix. And I am assuming that the OEM and large data center mix went down from 15, September to 42% in December. And in that context, my question to you is how should I think of the mix in the March quarter, and how will that impact unit and ASP trends?

Mehdi Hosseini:

So, Charles, I just want to understand, would the mix of revenue from OEM and large data center decline again in the March quarter?

Mehdi Hosseini:

And then, I also want to understand how you see the ramp of these three different CPUs. You have always -- you’ve historically been a close partner of Intel, AMD and NVIDIA. How long in advance do you actually procure those components in advance of building the boxes? How much of the inventory commitment or working capital commitment do you have to make before the actual high volume manufacturing takes place?

David Weigand:

Yes. Many things have improved recently, as you know, on the supply chain side. So, we used to procure further in advance. And so one of the reasons our inventories have come down, one of the reasons our cash flows have been -- have increased. And by the way, we had net income the last two quarters of $360 million, we had free cash flow of $454 million. And so, again, the reason for that is we had to invest less money in inventory. So, our ability to produce products is faster now, because we can buy later in the cycle. But to your point on the timing, some of it’s going to be dependent on when in the quarter our customers are taking the bulk of their products. So, if we have early quarter shipments versus late quarter shipments, that can affect the timing of our inventory and accounts payable.

David Weigand:

Yes, so, fair question. So, we’re going to add in -- for Q3, we’re adding a $4 million of CapEx for Malaysia, and we’ll add $9 million in our Q4, for Malaysia. So that’ll be $13 million for our fiscal second half. And then, this is going to be an investment over a couple -- over several years. And so, we’ll make another $13 million in the first half of fiscal ‘24. So, that’s not -- that’s given you a little more insight on that investment.

David Weigand:

Yes, that’s correct. So, your question, yes, you can maintain the 45 and just add in the figures that I just gave you.

Nehal Chokshi:

Great, thanks. I get to leadoff and cleanup, awesome. So, relative to seasonal patterns, and excluding the 21.9% customer from the September quarter, how did the business actually perform in the December quarter then?

Nehal Chokshi:

I mean, my interpretation here is that the core business excluding that 120%-plus customer from the September quarter was up more than seasonal. Is that a correct interpretation?

Charles Liang:

Yes. Basically, in ‘22, we had some larger accounts, but in fiscal year ‘23, now we are adding more larger accounts. So we are growing in more largely accounts and more midsize accounts, and also B2B, B2C. So, indeed, our customer mix is becoming much more diversified, much more healthier, and for sure the volume will be bigger. That’s why we extend to Malaysia for really lower cost operation and campus.

Charles Liang:

We hope so. So anyway, that’s -- we feel we still have a lot of room to add more customers. And once we have a higher capacity in USA, Taiwan, Malaysia, our plan is to add a lot of more customers.

Charles Liang:

Data center. Right.

David Weigand:

Well, he was saying that they were in large data center, but so…

David Weigand:

Yes.

David Weigand:

So Nehal, if you look back pre-COVID, our typical Q3 decline was 12%. Okay. So, that was during the time of normal seasonal patterns. During COVID, there was a different dynamic of course, because our supply was scarce. But we think as we return to normalized supply that we will have this kind of seasonality.

David Weigand:

Well, we’re engaging with new customers all the time. And so, we’re not looking to be declining, and in fact, just the opposite. So, while we will have some seasonality as in a stable supply chain, we still have our growth plans that are intact and that we remain confident in.

David Weigand:

No, that’s the existing, already approved buyback.

David Weigand:

Yes, it’s completely up to the Board, completely up to the Board. But, I think it’s certainly unreasonable.

Charles Liang:

You know, as why I say, the PE is still low and cash flow is strong, why not?

Mehdi Hosseini:

Yes. So, just a quick follow-up, just a clarification. David, did you employ or did you say that the 10% plus customers that you had in September quarter of last year is going to come back or you’re going to have another 10% plus customer in the coming quarters? It was very confusing.

Mehdi Hosseini:

Sure. Just as a follow-up, do you expect that particular customer to come back, is that what the confidence behind the June quarter is?

Charles Liang:

Indeed with our new product, indeed very strong offering. So we expect any time we will have a more new larger customer or old customer coming back is always very high possibility. And we are working with them very closely there, the partnership would come stronger ever.

Charles Liang:

Yes.

Mehdi Hosseini:

Thank you for clarification.

Michael Staiger:

Good afternoon and thank you for attending Supermicro's call to discuss financial results for the first quarter, which ended September 30, 2022. With me today are Charles Liang, Founder, Chairman and Chief Executive Officer, and David Weigand, Chief Financial Officer. By now, you should have received a copy of the news release from the Company that was distributed at the close of regular trading and is available on the Company's website. As a reminder, during today's call, the Company will refer to a presentation that is available to participants in the Investor Relations section of the Company's website under the Events & Presentations tab. We have also published management's scripted commentary on our website. Please note that some of the information you’ll hear during our discussion today will consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, and future business outlook, including guidance for the second quarter of fiscal year 2023 and the full fiscal year. There are a number of risk factors that could cause Supermicro's future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2022, and our SEC filings. All these documents are available on the Investor Relations page of Supermicro's website. We assume no obligation to update any forward-looking statements. Most of today's presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation or to our press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and in the supplemental information attached to today's presentation. At the end of today's prepared remarks, we will have a Q&A session for sell-side analysts to ask questions. I'll now turn the call over to Charles.

David Weigand:

Thank you, Charles. I'm pleased to report Q1 fiscal 2023 revenues of $1.85 billion, a 79% year-on-year and 13% quarter-on-quarter increase. Revenues exceeded our initial guidance range of $1.52 billion to $1.62 billion and our recently updated range of $1.78 billion to $1.82 billion. Our growth momentum continued with our rack-scale Total IT Solutions targeting growing markets and customers with accelerated GPU/AI workloads, software-defined storage and networking, public and hybrid cloud, and 5G/Edge/IoT Platforms. Our Green Computing Solutions helped us gain market share as customers valued both generating less carbon in our environment and reducing their operating costs. These growth drivers have resulted in accelerated revenues with expanding margins and operating leverage. In fiscal Q1, Super Micro again recorded strong revenues across all three of our market verticals demonstrating the value we bring to our end markets and customers. We achieved $840 million in our Enterprise and Channel vertical, representing 45% of Q1 revenues versus 51% last quarter, that vertical was up 16% year-over-year and 1% quarter-over-quarter. The year-over-year growth in this segment was driven by our new product offerings. Our OEM appliance and large datacenter segment achieved $921 million in revenues, representing 50% of Q1 revenues versus 44% last quarter. This vertical was up 268% year-over-year and up 28% quarter-over-quarter with strong growth coming from design wins from datacenter and OEM appliance customers. Our 5G/Telco/Edge/IoT Segment achieved $90 million in revenues representing 5% of Q1 revenues, which was the same as last quarter. This was also – this vertical was also up 58% year-over-year and 9% quarter-over-quarter. Our mix of complete systems and rack-scale Total IT Solutions has been increasing steadily. Systems comprised 92% of total revenues and was up 102% year-over-year and 16% quarter-over-quarter as we saw growing success with our high-value rack-scale Total IT Solutions for emerging applications. Subsystems/accessories represented 8% of Q1 revenues and was down 24% year-over-year and down 9% quarter-over-quarter as we prioritized our key customers with high-growth rack-scale applications. On a year-over-year basis, the volume of systems and nodes shipped as well as system node ASPs increased due to product and customer mix. On a quarter-over-quarter basis, the volume of systems shipped decreased while nodes shipped and system node ASPs increased again due to product and customer mix. During fiscal Q1, we observed strength in the U.S. market with U.S. representing 70% of revenues; Asia represented 14%, Europe 13%, and Rest of World 3%. On a year-on-year basis, U.S. revenues increased 131% as we gained market share with our advanced rack-scale Total IT Solutions for high-growth server workloads. Asia increased 3%, Europe increased 31% and Rest of World increased 78%. On a quarter-over-quarter basis, U.S. revenues increased 21%, Asia decreased 4%, Europe increased 5%, and Rest of World decreased 5%. The Q1 non-GAAP gross margin was 18.8%, up 120 basis points quarter-over-quarter from Q4 and up 540 basis points year-on-year due to price discipline, lower freight costs and leverage from higher factory utilization. Our Q1 gross margin demonstrates the success of our high-value rack-scale Total IT Solutions. Turning to operating expenses, Q1 OpEx on a GAAP basis increased by 4% quarter-on-quarter and 17% year-on-year to $127.4 million. On a non-GAAP basis, operating expenses increased 3% quarter-on-quarter and increased 16% year-on-year to $117.3 million. Our non-GAAP operating margin increased significantly to 12.5% for the quarter versus 10.7% last quarter and 3.7% a year ago, demonstrating both improvements in gross margins and operating leverage. Other Income & Expense was approximately $4.1 million in income primarily consisting of $7.8 million in foreign-exchange gains offset by interest expense of $3.9 million as compared to $4 million in FX gain and $2.9 million in interest expense last quarter. Interest expense increased sequentially as we reduced short-term credit lines while interest rates increased. The tax provision for Q1 was $38.9 million on a GAAP basis and $42.1 million on a non-GAAP basis. The GAAP tax rate for Q1 was 17.4% and non-GAAP tax rate was 17.9%. Our GAAP and non-GAAP tax expenses increased due to the higher level of pre-tax profits. Lastly, our share of income from our JV was a loss of $0.9 million this quarter as compared to a gain of $0.3 million last quarter. We delivered strong Q1 non-GAAP diluted EPS of $3.42 which was up 490% year-over-year and up 31% quarter-over-quarter and exceeded the high end of the original guidance range of $2.07 to $2.32 and the recently updated range of $3.05 to $3.20. The increases to earnings per share were due to a combination of higher revenues, higher gross margins from manufacturing efficiency, price discipline and operating leverage. Turning to the balance sheet and working capital metrics compared to last quarter, our Q1 cash conversion cycle improved to 95 days versus 100 days in Q4, still above our target range of 85 days to 90 days. Days of inventory was 100, representing a decrease of seven days versus the prior quarter of 106 days as we managed our inventory more efficiently. Accounts receivable decreased sequentially by $98 million from strong collections, while accounts payable increased sequentially by $130 million due to the timing of payments to our vendors. Days sales outstanding was down by three days quarter-on-quarter to 39 days while days payables outstanding came down by four days to 44 days. For fiscal Q1, we generated positive cash flow from operations of $314 million versus cash used in operations of $25 million last quarter. The positive operating cash flow was due to higher profitability along with better management of inventory and working capital. Revenue growth was 79% year-over-year and 13% quarter-over-quarter, while inventory grew 47% year-over-year and 12% quarter-over-quarter. CapEx was $10.8 million for Q1 resulting in positive free cash flow of $303 million versus negative free cash flow of $36 million last quarter. The closing balance sheet cash position was $238 million, while bank debt was reduced to $250 million as we paid down $347 million in short-term debt during the quarter. We did not buy back any shares during the quarter and have $200 million in share repurchase authorization until January 31, 2024. Now turning to the outlook for our business, we are carefully watching the global macro-economic situation and supply-chain dynamics. For the second quarter of fiscal 2023 ending December 31, 2022 we expect net sales in the range of $1.7 billion to $1.8 billion, GAAP diluted net income per share of $2.54 to $2.81 and non-GAAP diluted net income per share of $2.64 to $2.90. We expect gross margins to be down 75 basis points to 100 basis points due to competition from a strong U.S. dollar and macro-economic conditions. GAAP operating expenses are expected to be approximately $133 million and include $11.8 million in stock-based compensation that is not included in non-GAAP operating expenses. GAAP and non-GAAP operating expenses are expected to increase in Q2 due to continued investments in R&D and higher personnel costs. We expect other income and expense, including interest expense to be a net gain of approximately $1.6 million and expect a nominal contribution from our joint venture. The company's projections for GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 17.4%, a non-GAAP tax rate of 17.9%, and a fully diluted share count of 55.7 million for GAAP and 57.0 million shares for non-GAAP. We expect CapEx for the fiscal second quarter of 2023 to be in the range of $7 million to $10 million. For the fiscal year 2023 ending June 30, 2023 we are raising our guidance for revenues from a range of $6.2 billion to $7 billion to a range of $6.5 billion to $7.5 billion. GAAP diluted net income per share from at least $7.27 to a range of $8.50 to $11, and non-GAAP diluted net income per share from at least $7.50 to a range of $9 to $11.30. The company's projections for GAAP annual net income assumes a tax rate of 19.2% and a rate of 19.8% for non-GAAP net income. For fiscal year 2023, we are assuming a fully diluted share count of 57 million shares for GAAP and 58.4 million shares for non-GAAP. The outlook for fiscal year 2023 fully diluted GAAP EPS includes approximately $32.7 million in expected stock-based compensation and other expenses, net of tax effects that are excluded from non-GAAP diluted net income per common share. As we look ahead to the rest of fiscal 2023, we expect that our improved profitability together with good working capital management will lead to operating cash flow in line with net income. We remain confident in our long-term outlook for robust revenue growth and profitability driven by our leading-edge new platforms, design wins, market share gains and engagement with significant new global customers. Michael, we're now ready for Q&A.

Operator:

[Operator Instructions] Your first question comes from the line of Jon Tanwanteng from CJS Securities. Your line is open.

Charles Liang:

Yes, very good question as the macroeconomic condition is how to predict at this moment look like there will be some headwind for sure. But with the coming soon several rapid new technology from Intel, AMD, Genoa and NVIDIA H100, so there are lots of new opportunity for us whenever the market have a new technology, Supermicro [indiscernible] chance to gain mark share. So with that, indeed, I believe our business in next 12 months should be not too – not too much impact. And also our business automation like in the last few quarters I mentioned about our auto configurator, our online automation that will help ourselves to service customer better. And with those offset the new product, the better tool, I believe our next 12 months business won't be too bad.

David Weigand:

So we haven't changed our CapEx allocation strategy. We still have a repurchase plan in place as market – and the board review that policy. And otherwise our CapEx for next quarter was listed as $7 million to $10 million and so we don't anticipate large increases in inventory.

Jon Tanwanteng:

Got it. One more if I could. Did you see any weakness in the quarter from any end markets or customers or geographies?

Jon Tanwanteng:

Okay, great. Thank you very much guys.

Operator:

Your next question comes from the line of Nehal Choski from Northland Capital Markets. Your line is open.

Charles Liang:

Supply chain has been dramatically improved, as you may know, right. Three months ago, they have seen a shortage everywhere, but as of today, the shortage problem has been dramatically improved, so not much shortage at this moment. And we believe looking for growth in the coming quarters we won't have a shortage problem. After this, that won't be too bad and that's why we prepared to grow market share.

Charles Liang:

Indeed since quickly improved in about last two months.

David Weigand:

Sure, absolutely. You can see our cash conversion cycle came down and that was a result of, we were able to speed collections and also we did receive some advance customer payments and we'll have a little bit more color on that in our 10-Q, which should be filed in the next few days. But we received about $70 million in advance payments from customers, so that helped us out. But still our cash flow from operations greatly exceeded our net income.

Nehal Choski:

Got it. Understood. Okay. And then Dave, did I hear you correctly that you expect free cash generation to be close to that non-GAAP net income for fiscal 2023?

Nehal Choski:

Great. And then finally your updated low end of guidance implies and I think if we look at your prior low end of guidance implied that maybe you'd have a slightly negative year-over-year growth in the back half fiscal year 2023. Now this new updated guidance implies 10% to 15% revenue growth. So again, I'm sure you would stress this during the script, but what is driver of this improving growth outlook despite worsening macro that you're providing here at the low end of guidance by the way?

Nehal Choski:

Yes, understood. I guess my point is that the updated low end actually implies an improved year-over-year growth outlook on the back half of the year. This is despite a worsening macro. So what are you guys seeing that's effectively driving a raise in your back half revenue growth expectations?

Nehal Choski:

Excellent. Fantastic job. Thank you for taking my questions.

Jon Tanwanteng:

Hi, thanks for taking my follow up. I was wondering if you were seeing any kind of impacts on the sanctions on China by the U.S. if there are any. I know earlier in the quarter, there's NVIDIA news; I know a lot of companies got added to the entry list where any of those are customers. How should we think about the consequences of those actions?

David Weigand:

Yes. So by the way, we didn’t have any customers that were added, however, as everyone knows the GPU sales became limited. China sales last quarter were less than 3%. So we don’t consider this to be a significant issue for us going forward.

David Weigand:

Most of our contracts are invoices are U.S. dollar denominated. We – our FX really comes from the fact that we have some Taiwan dollar denominated loans, and that’s what causes the quarterly fluctuation in our FX is just marking the dollar to – the U.S. dollar to the Taiwan dollar. So therefore, the only impacts on FX come from really a price setting issues as opposed to balance sheet issues.

David Weigand:

So we didn’t have any push outs. We had some customers, this will be in the 10-Q we had a couple customers who prepaid and whose shipments somewhat, which were made but were not – did not qualify for revenue recognition, others that would ship later. So that we didn’t have any push out, so.

Operator:

Your next question comes from the line of Mehdi Hosseini from SIGS. Your line is open.

David Weigand:

So Mehdi, probably may have heard that a lot of GPU prices and CPU prices are going up, especially with the new the new refreshes that are coming out. So we anticipate that ASPs will continue to go up.

Charles Liang:

It’s a big question. I mean again, they are lots of new technology, new CPU, new GPU, so that will be a positive side, but at the same time, the macro economy can be – can put in some negative impact. So at this moment, we try to play safe, so that’s why the number I will share is relatively conservative.

David Weigand:

Yes. So I think that I think my general comments apply that our – we see our cash flows as now more balanced with income – with net income. And so we’ll get a – we’ll have a few puts and takes where customers prepay more or less from quarter-to-quarter. But we went – we underwent a lot of heavy lifting Mehdi to get our revenue levels up and our AR levels up as we were growing. And so to the extent that we have more growth, we will face those challenges, but based on our current forecasts, we expect cash flows to be close to net income.

David Weigand:

So we haven’t given a guide for FY2023 just for the next quarter.

David Weigand:

I think we’ll come out with a little – with more of a guide later on.

Operator:

Your next question comes from the line of Ananda Baruah from Loop Capital. Your line is open.

Charles Liang:

Yes, very good question. As I earlier just mentioned, we just introduced a couple of business automation tool, including auto configurator, including auto online, online service. So all of those were ahead of our sales, make our sales and customer relationship become more efficient, more accurate and we expect we are able to gain more customer, hopefully many more customer because of the improvement of our automation tool.

Charles Liang:

Again, with our much stronger storage product now, right, including all kind of data center management tool, our security tool and other service and applications. So yes, so we are in much stronger position from this point of view with our kind of large-scale total solution.

Charles Liang:

For sure, customer will buy new product to replace that old product, right? But because we always have a stronger new product line, a new technology, that’s how we expect we will continue to gain customer base and also improve customer relationship because of a stronger product. And not just the hardware product like before, but now our total solution have customer a lot. And GreenComputing as you know, our GreenComputing is a total solution. And we make for example, water cooling much easier and much quicker delivery time. So all of those we believe will be a positive drive for our business growth.

Charles Liang:

Thank you.

Operator:

[Operator Instructions] There are no further questions at this time. Mr. Charles Liang, I turn the call back over to you.

Operator:

This concludes today’s conference call. You may now disconnect.

Nicole Noutsios:

Good afternoon. And thank you for attending Super Micro's call to discuss financial results for the fourth quarter, which ended June 30, 2022. With me today are Charles Liang, Founder, Chairman and Chief Executive Officer and Dave Weigand, Chief Financial Officer. By now, you should have received a copy of the news release from the company that was distributed at the close of regular trading and is available on the company's website. As a reminder, during today's call, the company will refer to a presentation that is available to participants on the Investor Relations section of the company's website under Events & Presentations tab. We have also published management's scripted commentary on our website. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation and future business outlook, including guidance for the first quarter of fiscal year 2023 and the full year of 2023 and the potential impact of COVID-19 on the company’s business and results of operations. There are a number of risk factors that could cause Super Micro's future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2021 and our other SEC filings. All of these documents are available on the IR page of Super Micro’s website. We assume no obligation to update any forward-looking statements. Most of today's presentation will refer to the non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation to our press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and the supplemental information attached to today's presentation. At the end of today's prepared remarks, we will have a Q&A session for sell-side analysts to ask questions. I will now turn the call over to Charles.

David Weigand:

Thank you, Charles. I'm pleased to report fiscal fourth quarter revenues of 1.64 billion or 53% year-on-year and 21% quarter-on-quarter increase. Our revenues exceeded our initial guidance range of 1.4 billion to 1.48 billion and our recently updated range of 1.58 billion to 1.63 billion. For fiscal year 22, we reported revenues of 5.2 billion representing 46% growth over fiscal year 21 revenues of 3.56 billion. Our growth initiatives are gaining momentum with our total IT solutions targeting fast growing markets and customers with accelerated GPU and AI workloads, software defined storage and networking, public and hybrid cloud and 5G Edge IoT platform. These new growth drivers complement our traditional strength, with enterprise channel and OEM customers, leading to accelerated revenue growth, expanding margins and operating leverage. In the fourth fiscal quarter Super Micro recorded balanced revenues across all three of our market verticals, demonstrating the resilient nature of our diversified end markets. We achieved 835 million in organic enterprise and channel and AI and revenues representing 51% of Q4 revenues versus 62% last quarter, up 24% year-over-year and flat quarter-over-quarter. The year-over-year growth in this segment was driven by our growing list of large enterprise customers and new product offerings. Our OEM appliance and large data center segments achieved 717 million in revenues representing 44% of Q4 revenues versus 32% last year, up 95% year-over-year and up 67% quarter-over-quarter with strong growth driven by large new and existing data center customers and OEM appliance customers. Our 5G telco edge IoT segment achieved 83 million in revenues representing 5% of Q4 revenue versus 6% last quarter and was up 172% year-over-year and down slightly by 4% quarter-over-quarter. For the full fiscal year 2022, our organic enterprising channel and AI and our revenues grew 40% to represent 61% of fiscal year 22 revenues. Our OEM appliance and large data center segment grew 44% and represent 32% of revenues. Our emerging 5G, telco edge and IoT segment grew 163% and represented 7% of total revenues. Our mix of complete systems and rack-scale total IT Solutions has been increasing steadily. Systems comprise 91% of total revenue and subsystem accessories represented 9% Q4 revenue. On a year-over-year basis and also on a quarter-over-quarter basis, the volume of systems and nodes shipped as well as system node ASP increased due to product and customer mix. We had a balanced distribution of Q4 revenues across geographies, with U.S. representing 66% of revenues, Asia 17%, Europe 14% and rest of the world 20%. On a year-on-year basis, U.S. revenues increased 65% as the gained market share with our advanced Rack-scale total IT solutions for emerging high growth server workloads. Asia increased 38%, Europe increased 21% and the rest of the world increased 8%. On a quarter-over-quarter basis, U.S. in revenues increased 41%, Asia decreased 9%, Europe increased 9% and the rest of the world 30%. In Q4 non-GAAP gross margin was 17.6% up 200 basis points quarter-over-quarter from Q3 and up 390 basis points year-on-year due to price discipline, lower freight costs, leverage from higher factor utilization, operating efficiencies and our continually improving product customer mix. While the supply chain disruptions achieved some success in controlling freight and other logistics costs through disciplined execution. Our Q4 gross margin was above the high-end of our long-term target model range of 14% to 17% and demonstrates the success of our new high value total IT solutions. Turning to operating expenses. Q4 OpEx on a GAAP basis increased slightly by 1% quarter-on-quarter and 15% year-on-year to 122 million. On a non-GAAP basis operating expenses increased 4% quarter-on-quarter and increased 15% year-on-year from 113.5 million. Our non-GAAP operating margin increased significantly to 10.7% for the quarter versus 7.5% last quarter and 4.4% a year ago, demonstrating both improvements in gross margin driven by new product and customer mix and operating leverage driven by higher revenue along with disciplined expense control. Our non-GAAP operating margin of 10.7% for Q4 was also above our target model range of 5% to 8%. Other income and expenses approximately $1 billion in income consisting of 4 million in foreign exchange gain offset by interest expense of 2.9 million as compared to 4.7 million in FX gain and 1.5 million in interest expense last quarter. Our interest expense increased sequentially as we utilize our short-term credit line before financing inventory and accounts receivable. We also experienced higher short-term interest rates on borrowings driven by recent fed-ex. This quarter the tax provision was 25.8 million on a GAAP basis 29.9 million on a non-GAAP basis. Our GAAP tax rate for Q4 was 15.5% and our non-GAAP tax rate was 17.1. Our GAAP and non-GAAP tax expenses increased higher levels of pre tax profit, but though the rates were lower sequentially. Lastly, our share of income from our JV was $0.3 million this quarter as compared to [Technical Difficulty] last quarter. We delivered strong Q4 non-GAAP diluted EPS of 262, which exceeded the high end of the original guidance range of 151 to 169 and our recently updated range of 230 to 240. The increases to EPS were due to a combination of higher revenues, higher gross margins from manufacturing efficiency, price discipline, product and customer mix and operating leverage. For the full fiscal year 2022, we reported non GAAP diluted EPS of $5.65 which was up 128% year-over-year versus fiscal 2021 non-GAAP diluted EPS of 248 and higher than our initial guidance of 471. Cash flow used in operations for Q4 was 25 million compared to cash flow used in operations of 228 million for Q3 due to our improved profitability, along with better management of our inventory and working capital. Despite the 21% quarter-over-quarter increase in revenues, trimmed our inventory by 3% quarter-over-quarter. Accounts receivable increased sequentially due to higher revenues, while accounts payable decreased sequentially due to the timing of payments to our vendors. Our CapEx was $11 million for Q4 bookings and negative free cash flow of 36 million versus negative free cash flow of 239 million last quarter. Our closing balance sheet cash position was 267 million while bank debt was 597 million, as we utilized our bank lines of credit for those higher revenues [Technical Difficulty] and accounts receivable as we ramped production of new design wins globally. As we look ahead to fiscal 2023, we expect that our continued growth in revenue and profitability together with improved working capital management leads to better operating and free cash flow. We're optimistic that some of the supply chain and logistic costs begin to stabilize. We remain confident in our long-term outlook for robust revenue growth and profitability driven by our leading-edge new platforms design win, market share gain and engagement with significant new global customers. We are announcing -- also attribute $200 million stock buyback program today [Technical Difficulty] through January 31, 1.4. Turning to the balance sheet and working capital metrics compared to last quarter, our Q4 cash conversion cycle was 100 days, versus 98 days in Q3 and above our target range of 85 to 90 Days. Days of inventory was 106 representing a decrease of 11 days versus the prior quarter of 117 that managed our inventory more efficiently. Day sales outstanding is up by three days quarter-on-quarter with 42 days, while days payable outstanding came down to [Technical Difficulty] by 10 days to 48 days. Now turning to the outlook for our business, we remain enthusiastic about design wins and plug and play flag sale total IT solutions ramping in multiple in markets. We're carefully watching the global macroeconomic situation, continuing supply chain disruptions for the first fiscal quarter 2023 ending September 30, 2022, we expect net sales in the range of 1.52 billion to 1.62 billion. GAAP diluted net income per share of $2.01 to $2.27 and non-GAAP diluted net income per share up to $2.07 to $2.32. We expect gross margins to be similar to Q4 levels. GAAP operating expenses are expected to be approximately 126 million and they include 8.6 million in stock-based compensation 1.5 million in other expenses that are not included in non-GAAP operating expenses. GAAP and non-GAAP operating expenses are expected to increase due to continued investment in R&D and higher personnel costs. We expect other income and expense, including interest expense to be a net expense of approximately 3.6 million and expect a nominal contribution from our joint venture. The company's projections for GAAP and non-GAAP diluted net income per share, assume a GAAP tax rate of 19.4%. Our non-GAAP tax rate of 20.3% and a fully diluted share count of 54.8 million for GAAP and 56.2 million shares for non-GAAP. We expect CapEx for the fiscal first quarter of 2023 be in the range of $6 billion to $8 billion. For the fiscal year 2023, ending June 30, 2023, we are giving guidance for revenues in a range of 6.2 billion to 7 billion. GAAP diluted net income per share of at least $7.27 and non-GAAP diluted net income per share of $7.50. The company's projections for GAAP annual net income procurement tax rate of 20.3 and a rate of 21.1 for non-GAAP net income. For fiscal year 23, we are assuming a fully diluted share count of 55.6 million shares for GAAP and 57 million shares for non-GAAP. The outlook for fiscal 2023 fully diluted, GAAP earnings per share includes approximately 35.4 million and expected stock-based compensation and other expenses net of tax effects that are excluded from non-GAAP net income per share. Now, Nicole, will turn it back to you..

Operator:

[Operator Instructions] Your first question comes from Nehal Chokshi with Northland Capital Markets. Your line is open.

David Weigand:

Okay. So I missed just a little bit of what you said Nehal. You said what was the question?

David Weigand:

Okay. Got you. So, we have -- it took us some time to adjust to the rising freight costs and another component costs and so we managed to adjust those properly. And then, we also got some tailwind from finally from freight costs coming down 20% in q4. So those two things combined allowed us to have a higher gross margin.

Nehal Chokshi:

Got it. Great. And then, can you give a little bit more detail on the driver of the -- strength in the quarter which was leading edge vertical solutions and OEM appliance in large data center segments?

Nehal Chokshi:

What about within the OEM side? Was the driver there on OEM side?

Nehal Chokshi:

Okay, great. And then finally, what are your expectations for cash conversion cycle is the semi cycle appears to be entering a down cycle now?

Nehal Chokshi:

Great, congratulations.

Ananda Baruah:

Hey, good afternoon, guys. Yes, thanks for taking the question. And congrats on strong results and very solid execution. Thanks. Congrats on that. So I guess a few if I could. Kind of piggybacking of Nehal's question, like in a bigger picture context, are there any other kinds of key aspects of what you guys seeing going on this leading to the ongoing acceleration in revenue generation? And I guess, Charles, is it all share gain? Are there other things that you guys are seeing that's been leaving the last couple quarters to the accelerated revenue generation run rate?

Ananda Baruah:

Hey, got it, I got it. So it sounds like it sounds like a big component in this share, and it is really continuing to resonate in the marketplace. Both of the total solutions and what you're able to actually provide to the customer with that total solution. So it sounds like it's just easier to use, and it's stronger product, those two things combined. And yes, I would just say, are you seeing parts of the marquee aspects of your end markets actually accelerate? Well, I guess I'd love to know, like, what's your opinion on kind of the tenor of demand in your key areas kind of the last 90 days versus the prior 90 days? It seems like you've actually seen some acceleration as the state from just shared gain. But how would you guys characterize that particularly in the macro backdrop?

Ananda Baruah:

Sorry, no, I don't want to cut you off. That's great content Charles. I'll see [indiscernible] for now. Thanks. Appreciate it.

Jon Tanwanteng:

Hi, guys. Thanks for taking my questions. Can you hear me?

Jon Tanwanteng:

Okay, great. The gross margins about 17%, the high-end of your range, is that sustainable over this year? And do you think that you should be changing your long-term target range a bit?

Jon Tanwanteng:

That's great news. Thanks. And then, do you see any indications of your customers being impacted by recessionary pressures at all? And maybe go along with that what assumptions, if any, are in your guidance regarding macroeconomic or geopolitical risk?

Jon Tanwanteng:

Okay, great. And the guidance that you gave for the next quarter that sequential decline at the midpoint? Is that more indication of just seasonality or supply? Or is it maybe more of this macro slowdown that maybe some of your customers are seeing?

Jon Tanwanteng:

Okay, understood. And last one if I may, just when do you need to think about investing in new capacity. I know you guys have up to 10 billion to 12 billion in your current facilities, but at your current growth rate, you probably have to start thinking about it pretty soon. So I was just wondering what your plans are, if you need to get there. And where you might start investing if you need to do so?

Jon Tanwanteng:

Okay, great. Thanks, guys. And again, congrats on a fantastic quarter.

Ananda Baruah:

Oh, God. Thanks, guys. I appreciate it. I just love to get a little more context on the mix dynamic. Charles that you guys you talked about in his remarks, it sounds like meaningful aspects of the mix is a total solution. Are there any other components of mix that we should be aware of and contributing to that dynamic? Or is it primarily the total solutions that are resonating increasingly?

Ananda Baruah:

That's really awesome. And are there any particular verticals that those rack scales tend to go into or targeted at more, or that they'll resonate with more or just sort of across all your verticals? Do you think the rack scale has a real place?

Ananda Baruah:

That's super helpful context as always. Just, I guess, just let me up to two last quick ones here. Sounds like the backlog probably grew again, over the last 90 days, given your comment around constraints. Is that accurate?

Ananda Baruah:

Great. And then last one for me, guys. Is Charles, just an update on Taiwan? How would you characterize the utilization level there now?

Ananda Baruah:

And so Dave? Dave, sort of 40 -- let's say 45% utilization. Does that mean when you guys get to sort of normalized utilization, which is still expected, Dave, what was it like 150 to a [indiscernible] before it's a gross margin contribution on top of where you guys are right now?

Ananda Baruah:

So 100 to 200 from Taiwan not 100 to 200. So it's not 100 to 200 to the overall P&L, it's 100 to 200...

Ananda Baruah:

Got you. Now Taiwan is going to be approaching half year volume at some point. So would that sort of be long-term 50 to 100 basis points to the overall P&L.

Ananda Baruah:

Okay, awesome. Thank you, guys. Appreciate it.

Nicole Noutsios:

Good afternoon. And thank you for attending Super Micro’s call to discuss financial results for the third quarter, which ended March 31, 2022. With me today are Charles Liang, Founder, Chairman and Chief Executive Officer; Patrick Wang, President, East Coast and SVP, Strategy and Corporate Development; and Dave Weigand, Chief Financial Officer. By now, you should have received a copy of the news release from the company that was distributed at the close of regular trading and is available on the company’s website. As a reminder, during today’s call, the company will refer to a presentation that is available to participants on the IR section of the company’s website under Events & Presentations tab. We have also published management’s scripted commentary on our website. Please note that some of the information you’ll hear during our discussion today will consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation and future business outlook, including guidance for the fourth quarter of fiscal year 2022 and the full fiscal year 2022, our long-term revenue goal and the potential impact of COVID-19 on the company’s business and results of operations. There are a number of risk factors that could cause Super Micro’s future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2021, the 10-Q filings made thereafter and our other SEC filings. All of these documents are available on the IR section of Super Micro’s website. We assume no obligation to update any forward-looking statements. Most of today’s presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation to our press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today’s press release and the supplemental information attached to today’s presentation. At the end of today’s prepared remarks, we will have a Q&A session for sell-side analysts to ask questions. I will now turn the call over to Charles. Charles?

David Weigand:

Thank you, Charles. I'm pleased to report solid fiscal third quarter revenue of $1.36 billion, 51% year-on-year increase and 16% quarter-on-quarter increase. Our revenue exceeded our initial guidance range of $1.1 billion to $1.2 billion and our recently updated range of $1.3 billion to $1.35 billion. This was our fourth consecutive quarter of revenues exceeding $1 billion. Year-to-date revenue through our fiscal third quarter, increased 43% year-over-year. Our growth initiatives with the total IT solutions targeting fast-growing markets and customers with accelerated GPU and AI workloads, software-defined storage and networking, public and hybrid cloud and edge IoT platforms are gaining momentum. These new growth drivers complement our traditional strength with enterprise, channel and OEM customers, leading to accelerating revenue growth, expanding margins and operating leverage. Revenues for the trailing four quarters of Q4 '21 through Q3 of fiscal year '22, totaled $4.63 billion. In the third fiscal -- Super Micro recorded balanced revenues across all three of our market verticals, demonstrating the resilient nature of our diversified end markets. We achieved $846 million in organic enterprise channel and AI and revenues, representing 62% of Q3 revenues versus 64% last quarter. It was up 44% year-over-year and 12% quarter-over-quarter, with growth driven both by our growing list of large enterprise customers and new product offerings. Our OEM clients and large data center segment achieved $423 million in revenues, representing 31% of Q3 revenues, versus 23% last quarter, which was up 54% year-over-year and up 54% quarter-over-quarter, with strong growth driven by our large, new and existing data center customers and OEM appliance customers. Our 5G/telco, Edge and IoT segment achieved $86 million in revenues, representing 7% of Q3 revenues versus 12% last quarter. This was up 159% year-over-year and down 39% quarter-over-quarter. This emerging segment represents a vast long-term opportunity for us and our design win momentum and backlog continues to grow, but short-term quarter-to-quarter result can fluctuate, depending on the timing of new customer adoption and qualification cycles. Systems comprised 85% of total revenue and subsystems and accessories represented 15% of Q3 revenues. On a year-over-year basis, the volume of systems and nodes shipped as well as system node ASPs increase. On a quarter-over-quarter basis, the volume of systems shipped and system node ASPs increased, while nodes shipped were lower due to product mix. We had a balanced distribution of revenues across geographies, with the US representing 56% of revenue; Asia, including Japan, 23% and Europe 15%, while rest of the world was 6%. On a year-on-year basis, US revenues increased 53%; Asia, including Japan increased 50%, Europe increased 27%, and the rest of the world increased 184%. On a sequential basis, gross revenues increased 19%. Asia, including Japan, increased 9%. Europe increased 5% and the rest of the world increased 124%. The Q3 gross margin was 15.6%, which was up 160 basis points quarter-over-quarter from Q2 and up 180 basis points year-on-year due to price discipline, leverage from higher factory utilization and operating efficiencies, and a continually improving product/customer mix. The quarter-on-quarter and year-on-year increase in gross margins was achieved despite continued elevated freight and supply chain costs. Turning to operating expenses. Q3 OpEx on a GAAP basis increased 7% quarter-on-quarter and 14% year-on-year to $121 million. On a non-GAAP basis, operating expenses increased 6% quarter-on-quarter and increased 15% year-on-year to $110 million. Our non-GAAP operating margin increased significantly to 7.5% for the quarter versus 5.2% last quarter and 3.2% a year ago, demonstrating both improvements in gross margins and operating leverage. The year-on-year and quarter-on-quarter increases on a GAAP and non-GAAP basis were driven by higher headcount and personnel costs and lower research and development NRE credits. Other income and expense was $3.1 million, in income, consisting of $4.6 million in foreign exchange gains, offset by interest expense of $1.5 million, as compared to a $1.8 million expense last quarter. This quarter, the tax provision was $16.2 million on a GAAP basis and $19.6 million on a non-GAAP basis. Our non-GAAP tax rate was 18.7% for the quarter. Our tax rate for GAAP and non-GAAP purposes increased again this quarter, primarily due to a significant increase in pre-tax income in fiscal 2022. Lastly, our share of income from our JV was $0.39 million this quarter as compared to $0.29 million last quarter. The Q3 non-GAAP diluted earnings per share totaled $1.55, which exceeded the high-end of the original guidance range of $0.70 to $0.90, our recently updated Q3 range of $1.40 to $1.50. The increases to EPS were due to a combination of higher revenues, manufacturing efficiency, price discipline, product and customer mix and operating leverage. Cash flow used in operations for Q3 was $228 million compared to cash flow used in operations of $53 in Q2, as accounts receivable and inventories grew due to increasing demand from our customers and to mitigate the continued impact of supply chain disruptions, including CapEx of $11 million, Q3 negative free cash flow totaled $239 million. Key uses of cash during the quarter included increases to inventory and accounts receivable and/or reductions in customer prepayments. This was offset by cash provided from increased accounts payable and short-term debt. We did not repurchase any shares in the quarter. Our closing balance sheet cash position was $247 million, while bank debt was $547 million as we drew down on our bank lines of credit to increase inventory levels as we ramp production of new platforms globally. Turning to the balance sheet and working capital metrics compared to last quarter, our Q3 cash conversion cycle was unchanged at 98 days relative to Q2 and above our target range of 85 to 90 days due to higher inventory. Days of inventory was $117, representing a slight decrease of one day versus the prior quarter. Days sales outstanding was up by two days quarter-on-quarter compared to 9 days, while days payable outstanding was up by 1 day to 58 days. Now turning to the outlook for our business. We note that our Q4 June quarter is typically seasonally strong, and we are enthusiastic about several new customers and innovative new leading-edge total IT solutions ramping in multiple end markets. We are carefully watching the global macro and economic situation and impacts to the supply chain from continuing COVID-19-related disruptions. For the fourth quarter of fiscal 2022, ending June 30, 2022, we expect net sales in the range of $1.4 billion to $1.48 billion, GAAP diluted net income per share of $1.45 to $1.64 and non-GAAP diluted net income per share of $1.51 to $1.69. We expect gross margins to be similar or slightly up from Q3 levels. GAAP operating expenses are expected to be approximately $121 million and include $8 million in stock-based compensation and $1 million in other expenses not included in non-GAAP operating expenses. We expect other income and expense, including interest expense, to be a net expense of approximately $2 million and expect a nominal contribution from our JV. Non-GAAP operating expenses are forecast to be up quarter-on-quarter from continued investment in R&D and higher personnel costs. The company's projections for GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 17.4%, a non-GAAP tax rate of 19.4%, and a fully diluted share count of $54.3 million for GAAP and 55.79% shares for non-GAAP. For the fiscal year ending June 30, 2022, we are raising our revenue guidance range from $4.2 billion, $4.6 billion to a new range of $4.96 billion to $5.04 billion and raising our GAAP diluted net income per share outlook from at least $2.77 to a range of $4.16 to $4.35, and our non-GAAP diluted net income per share from lease 320 to a range of $4.53 to $4.71. The company's projections for GAAP annual net income assumes a tax rate of 16.5% and a rate of 18.7% for non-GAAP net income. For fiscal year 2022, we are assuming a fully diluted share count of 53.6 million shares for GAAP and 55.1 million shares for non-GAAP. The outlook for fiscal year 2022 fully-diluted GAAP earnings per share includes approximately $39 million in expected stock-based compensation and other expenses. Net of tax effects, that are excluded from non-GAAP diluted net income per common share. Finally, we expect CapEx for the fiscal fourth quarter of 2022 to be in the range of $10 million to $15 million. Nicole, we’re ready for Q&A.

Operator:

[Operator Instructions] Your first question comes from the line of Ananda Baruah wit Loop Capital. Your line is open.

Charles Liang:

Yeah. That's been utilize because of the supply chain, because there are always some invisible factor. And that's why I mean earlier I mean in March quarter, we try to be conservative. But it's turn out, we have many customers really like our IP total solution, and we ship a lot of completed rig. Indeed, our direct scale PnP, plug and play rack solution, grew a lot year-over-year. Roughly, this year compared with last year, our rack product grew about 5 to 6 – 5 times to 6 times growth. And this momentum, I believe, will continue to be very strong in the next 12 months. So we expect another 3x to 5x direct scale PnP product line growth. So that's why, I mean, the growth has been a little bit surprised us.

Charles Liang:

Next couple of years can be very strong. But again, it depends on our global supply chain situation. As David has mentioned, COV19 still challenging us and also macroeconomic condition. So if in is not much worse, I believe our growth rate year-over-year virtually will continue to grow.

Charles Liang:

Thank you.

Charles Liang:

Yes. Next year, I mean, fiscal 2023 at this moment, I believe $6 billion to $7 billion will be relatively a very conservative estimation.

Mehdi Hosseini :

Yes. And thanks for taking my question and actually, I have a couple of follow-ups. Charles, as you look into next fiscal year, how do you see seasonal trend impacting your September quarter? And I asked that because you're doing really well, especially with diversification of revenue. And I think it would really help us how we should think about seasonal factor and how you would set up the company for $6 billion to $7 billion of revenue run rate in the fiscal year 2023? And I have a follow-up.

Mehdi Hosseini :

Okay. Thanks for that color. And then a question for David. You've had three consecutive quarter of cash burn. And given the strength and your backlog, should assume that you're going to burn cash again in the June quarter?

Mehdi Hosseini :

Okay. Thank you.

Nehal Chokshi :

Yes, thank you and congrats on the awesome results and amazing guidance. Would you say that the component availability situation has improved at all quarter-to-date or during the March quarter relative to the December quarter?

Nehal Chokshi:

Okay. And so clearly, guidance is indicating that there was no pull-in of demand, especially in the context of how Intel guide. And thus the share gains that you guys are putting up appear to be very sustainable. Still I'd like to hear your pushback that Super Micro's lower lead-time and better management of these constrained components are not leading to these massive share gains that you're seeing at this point in time?

Nehal Chokshi:

Okay, great. And then cash consumption was actually in line with what I had expected. And I presume that was also in line with what you guys had expected given the revenue outperformance, given the cash conversion cycle was flattish Q-to-Q. A, is that correct? Was it in line with what you had expected given the revenue outperformance?

Nehal Chokshi:

Yes, yes. And as such, there's been no share buybacks, right, because all the cash is needed to finance the growth at this point in time, the massive growth that you're seeing?

Nehal Chokshi:

Okay. And given that the cash consumption is tracking what you would expect given the revenue growth that you're putting up, does this give you incremental confidence to utilize debt to make capitalist turn track your non-GAAP earnings as opposed to waiting for a slowdown in the business before you can really start a share repurchase program in earnest?

Charles Liang:

Yes, we are talking about a possibility. But given the macroeconomic still have lots of unknown factors. That's why we try to be very careful.

Charles Liang:

Thank you.

Jon Tanwanteng:

Hi. Good afternoon, guys. Thank you for taking my question. And congrats on -- again, on a really great quarter and the outlook. First question is, well, it's great to hear your component supply is getting better. I was wondering how much of a corresponding drop you're seeing in component price? Is it that's the case? And should we think of improvement in the gross margins going forward as well, maybe towards the high end of the charge range?

David Weigand:

Yeah. So the second part of your question, Jon, we did experience some gross margin expansion from higher efficiency, which means that we actually -- we had higher throughput our factories at a lower per unit cost. And so, we do expect that to continue, especially as we ramp up production in Taiwan. And so, we do look forward to further margin expansion.

Jon Tanwanteng:

Got it. That's great color. Thank you. And it's really great to see that capacity. My second question is regarding cash flow and some people have touched on this a little bit. Is it in your interest to raise permanent financing to support the growth? Or you just continue to use the revolver? How should we think about your ability to just fund the growth that you've seen?

Jon Tanwanteng:

Okay, understood. Congrats again.

Ananda Baruah:

Hey, thanks guys for taking the follow-up. I guess, sort of, piggybacking Charles off of one of the last questions. I guess, how much of the revenue upside for the March and June quarter is from new demand that you may have been conservative about relative to how much do you think was demand that you have been getting indications about, but that supply chain became available for. And really, I guess what I'm trying to get a sense of is how much how much of this is supply chain related? And is the follow-through dependent to an extent on new supply chain continuing to get released? I appreciate that both.

Ananda Baruah:

That's really helpful. And just a quick follow-up there. I've been jumping between calls a little bit to see, so I apologize if it has already been answered or spoken to. But you -- in the prepared remarks, you mentioned the total IT solutions being a catalyst for demand in general. And I think actually, you completed racks, maybe even specifically in the prepared remarks. And so any context you can give us about what you're seeing, I guess, like engagement context. I suppose, with your customers that having the sort of IT Solutions can be a real catalyst to revenue right now? Okay, it looks like it may be -- and I guess is the implication if it's showing up in an increasingly bigger way, first half of this calendar year. Thanks a lot.

David Weigand:

Yeah. So we're seeing Ananda, we're seeing really a lot of high demand in the AI and ML area. And so those -- the workloads that are being addressed there and the solutions that we're providing are being well received by our customers. And so the engagements that we're in, that's the driver that we're seeing that AI has led our growth over the last three to four quarters.

Charles Liang:

So I agree supply chain and cash flow. In other areas, we will continue to bigot to start how can we that space utilize or how can we further grow the supply chain and more efficiently utilize our cash flow.

Operator:

There are no further questions at this time. Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You my now disconnect.

Nicole Noutsios:

Good afternoon. And thank you for attending Super Micro’s call to discuss financial results for the second quarter, which ended December 31, 2021. With me today are Charles Liang, Founder, Chairman and Chief Executive Officer; Patrick Wang, President, East Coast and SVP, Strategy and Corporate Development; and David Weigand, Chief Financial Officer. By now, you should have received a copy of the news release from the company that was distributed at the close of regular trading and is available on the company’s website. As a reminder, during today’s call, the company will refer to a presentation that is available to participants on the IR section of the company’s website under Events & Presentations tab. We have also published management’s scripted commentary on our website. Please note that some of the information you’ll hear during our discussion today will consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation and future business outlook, including guidance for the third quarter of fiscal year 2022 and the full fiscal year 2022, and the potential impact of COVID-19 on the company’s business and results of operations. There are a number of risk factors that could cause Super Micro’s future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2021 and our other SEC filings. All of these documents are available on the IR page of Super Micro’s website. We assume no obligation to update any forward-looking statements. Most of today’s presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation to our press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today’s press release and the supplemental information attached to today’s presentation. At the end of today’s prepared remarks, we will have a Q&A session for sell-side analysts to ask questions. I’ll now call the Charles -- call over to Charles.

David Weigand:

Thank you, Charles. I am pleased to report our third consecutive quarter of revenues exceeding $1 billion. We are seeing continued strength across all geographies and strong demand for our products and services, resulting in fiscal second quarter revenue of $1.17 billion, a 41% year-on-year increase and up 14% quarter-on-quarter. Our Q2 revenues were at the higher end of our guidance range of $1.1 billion to $1.2 billion. Revenues for the trailing four quarters in Q3 of fiscal year 2021 through Q of fiscal year 2022 totaled $4.17 billion. Super Micro’s Q2 FY 2022 recorded revenue growth across all three of our market verticals, achieving $756 million in the Organic Enterprise and Channel and AI/ML vertical, $274 million in OEM appliance and large data center vertical and $142 million in the 5G/telco and Edge/IoT vertical. The 5G/telco and Edge/IOT vertical more than doubled sequentially as new designs went into production. Systems comprised 84% of total revenue and subsystems and accessories represented 16% of Q2 revenues. The volume of systems and nodes shipped, as well as System node ASPs increased both year-over-year and quarter-on-quarter. On a year-on-year basis, Asia, including Japan, increased 76% as we saw continued growth with both new and existing and customers, Europe increased 39%, U.S. increased 38% and Rest of World decreased 32%. On a sequential basis, Asia including Japan increased 8%, U.S. sales increased 14%, Europe increased 20%, and Rest of World increased 19%. The Q2 gross margin was 14%, which was up 60 basis points quarter-over-quarter from Q1 due to price discipline and a better product/customer mix. This increase was achieved in spite of our increased use of air freight and higher supply chain costs. On a year-over-year basis gross margins were down 240 basis points due to a discrete cost recovery event in Q2 of last year and higher freight and supply chain costs in the current year. Turning to operating expenses, Q2 OpEx on a GAAP basis increased 3% quarter-on-quarter and 14% year-on-year to $113 million. On a non-GAAP basis, operating expenses increased 2% quarter-on-quarter and increased 15% year-on-year to $103 million. The year-on-year and quarter-on-quarter increases on a GAAP basis were driven by higher personnel costs and increased headcount; higher stock compensation expense and lower research and development NRE credits. The year-on-year and quarter-on-quarter increases on a non-GAAP basis were driven primarily by higher personnel costs and the increased headcount and lower research and development NRE credits. Other Income & Expense included interest -- including interest expense was a $1.8 million expense, as compared to a $0.8 million expense last quarter. The sequential change is mostly related to loss from remeasurement of our Taiwan Dollar loans to a weaker U.S. Dollar, so FX. This quarter the tax provision was $7.6 million on a GAAP basis and $10.9 million on a non-GAAP basis. Our non-GAAP tax rate was 18.5% for the quarter. Our tax rate for GAAP and non-GAAP purposes increased this quarter primarily due to a change in U.S. tax regulations. Lastly, our share of income from our JV was $0.2 million this quarter, as compared to $0.4 million last quarter. Q1 non-GAAP diluted EPS totaled $0.88, which was near the high end of the guidance range due to higher revenues and higher gross margins, partially offset by higher operating expenses. Cash flow used in operations was $53 million, compared to cash flow used in operations of $135 million in Q1, as we continued to build inventory to be in a position to meet the increasing levels of large orders from our customers and to mitigate the impact of supply chain disruptions. CapEx totaled $12 million for Q2 resulting in negative free cash flow of $65 million. Key uses of cash during the quarter included increases to inventory and accounts receivable, offset by cash provided from increased accounts payable, customer prepayments and deferred revenue. We did not repurchase any shares in the quarter. Our closing balance sheet cash position was $247 million, while bank debt was $100 -- was $316 million as we drew down on our bank lines of credit to increase inventory levels as we ramped production of new platforms globally. Turning to the balance sheet and working capital metrics compared to last quarter, our Q2 cash conversion cycle was 98 days, up from 94 days in Q1, which is above our target range of 85 days to 90 days due to higher inventories. Days of inventory was 118 days, representing an increase of four days versus the prior quarter. Days sales outstanding was down by four days to 37 days, while days payables outstanding was down by four days to 57 days. Now turning to the outlook for our business, we note that our Q3 March quarter typically has some seasonal impact from the Lunar New Year holiday and we are also carefully watching impacts to the supply chain from Covid-19 related disruptions. We expect net sales in the range of $1.1 billion to $1.2 billion, GAAP diluted net income per share of $0.58 to $0.81 and non-GAAP diluted net income per share of $0.70 to $0.90 for the third quarter of fiscal year 2022 ending March 31, 2022. We expect gross margins to be up slightly from Q2 levels. Our GAAP operating expenses are expected to be approximately $118 million and include $8.5 million in stock-based compensation and $1.7 million in other expenses not included in non-GAAP operating expenses. We expect other income and expense, including interest expense, to be a net expense of roughly $2 million and expect a nominal contribution from our joint venture. Non-GAAP operating expenses are forecasted to be up quarter-on-quarter from continued investment in R&D and higher personnel costs. The company’s projections for GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 15%, a non-GAAP tax rate of 16.5% and a fully diluted share count of 54.5 million for GAAP and 56 million shares for non-GAAP. The outlook for Q3 of fiscal year 2022 GAAP diluted net income per common share includes approximately $8.5 million in expected stock-based compensation and $1.7 million in other expenses, net of tax effects, that are excluded from our non-GAAP diluted net income per common share. We are maintaining our revenue guidance range of $4.2 billion to $4.6 billion for the fiscal year 2022 ending June 30, 2022, and our GAAP diluted net income per share outlook of at least $2.77 and non-GAAP diluted net income per share of at least $3.20. The company’s projections for GAAP net income assumes a tax rate of 15% and a rate of 17% for non-GAAP net income. For fiscal year 2022, we are assuming a fully diluted share count of 54.1 million shares for GAAP and 55.6 million shares for non-GAAP. The outlook for fiscal year 2022 fully diluted GAAP earnings per share includes approximately $37 million in expected stock-based compensation and other expenses, net of tax effects that are excluded from non-GAAP diluted net income per common share. We expect CapEx for the fiscal third quarter of ‘22 -- 2022 to be in the range of $5 million to $8 million. Nicole, I will turn it back to you.

Operator:

[Operator Instructions] Your first question comes from the line of Ananda Baruah with Loop Capital. Your line is open.

Charles Liang:

Yeah. Thank you for the question. As you know, we just migrating from a Hardware Solution company to a Total IT Solution company. So lots of customer like our complete solution for the auto-ID need. So we continue to gain some really large customer and some really technology leader. So we are very happy, very excited to service more partner in the industry. And that’s really help… D And then…

David Weigand:

Okay. I was just going to add that, customer wise we had really good growth in the telco and the 5G/telco vertical.

Charles Liang:

Essentially, like, as opposed to like an Omniverse, and Metaverse, lots of very exciting opportunity there.

Charles Liang:

I mean, March quarter, traditionally, is our kind of soft season, but this year is different, because we have very strong demand, especially likewise, say GPU, Metaverse, Omniverse, lots of opportunity there and we already have some large engagement just try to fulfill them.

Charles Liang:

Thank you.

Charles Liang:

Yeah. There is woman looks pretty commendable [ph], because of our strong product and Total IT Solution, lots of customer now have a bigger back order with us. So we are increasing our back order kind of in a very commendable way.

Operator:

Your next question comes from the line of Mehdi Hosseini with SIG. Your line is open.

Charles Liang:

Yeah. Indeed, I’m very happy with a big inventory now, with global supply chain difficulty. We build the inventory based on our back order. And at this moment, indeed, our back order have been very strong. And the reason why we did not update the whole year revenue and earnings, just because there are still certain uncertainty -- there’s still some uncertainty in terms of supply chain. Other than that, we feel very optimistic.

Charles Liang:

And…

Charles Liang:

Yeah. Our inventory indeed happened to have in a very healthy, very conservative way.

Mehdi Hosseini:

Got you. Okay. And then, excuse me, if I were to go back to the three buckets that you highlighted, organic OEM and 5G/telco. Thanks for providing the dollar revenue contribution. Can you also give us sequential and year-over-year changes for each bucket?

Mehdi Hosseini:

Okay. But can you -- maybe you can provide some qualitative comments as to which bucket was the strongest?

Mehdi Hosseini:

So the 5G…

Mehdi Hosseini:

Oh! Go ahead.

Mehdi Hosseini:

Okay. Thank you.

Mehdi Hosseini:

Got it.

Mehdi Hosseini:

Go ahead.

Mehdi Hosseini:

If I may just quickly, there’s also continued mismatch for components with supply and demand. There’s still some mismatches. So would it be fair to say that you’re also conservative, given the mismatches of availability of components?

Mehdi Hosseini:

Okay.

Mehdi Hosseini:

Got it. Thank you.

Nehal Choski:

Yeah. Sorry. Thank you. I was on mute here. Congrats on the solid results and well above difference March Q guidance. This question has already been partially answered by Patrick. But let me put a little bit finer point on this here. Why not at least narrow to fiscal year 2022 revenue guidance range given that the unchanged midpoint guidance does apply effectively about flat year-over-year for the June quarter?

Nehal Choski:

Understood. Okay. And then, yeah, slide nine is great. I love the fact that we’re getting five quarter back visibility into these three vertical markets and it certainly does imply that 5G/telco and Edge has very significant year-over-year growth. And Charles, you’ve mentioned that, part of this demand is Metaverse/Omniverse, not sure what Omniverse means, but I do know what Metaverse means. And I guess…

Nehal Choski:

…I was in impression that Metaverse at least would go under the rep category, i.e., large data center, not 5G/telco. Can you just give me a little bit more understanding as to why Metaverse potentially falling into the telecom here?

Nehal Choski:

Okay. So to be clear then the commentary about the strong demand for Metaverse is not related to 5G/telco, correct?

Nehal Choski:

Okay. Got it. Then, so at the Investor Day, about a year ago, you talked about the 5G/telco opportunity. There’s long design cycles, long qualification cycles. And it does look like this quarter the dam broke basically. What percentage of your telecom customers you’re engaged with went from qualifying to production ship?

Nehal Choski:

Okay. Great. And then my last question is that, also on these vertical markets, it does imply that the OEM appliance on large data center was up only 10% year-over-year, why is that?

Nehal Choski:

Okay. Thank you.

Nehal Choski:

Yeah.

Nehal Choski:

Great. Thank you.

Jon Tanwanteng:

Thank you. Good quarter guys and on the outlook, too, very fast. My question is, are inflation and supply chain headwind still accelerating in Q3 for you and that’s maybe matched by your pricing or was it roughly the same as Q2 and maybe as a subset to that could you tell us what were the friction in this quarter, if it’s any different and if you see any easing or things getting tougher?

Jon Tanwanteng:

Okay. Great. Any commentary on where the friction is in components and shipping?

Jon Tanwanteng:

Okay.

Jon Tanwanteng:

Got it. Charles, you spent a little time earlier in the call talking about the Total IT Solutions transition, could you just tell us what the margin is like in a typical Total IT Solution sale versus a historically pure hardware sale?

Jon Tanwanteng:

Okay. Great. And that’s -- that was part of your Investor Day target within the target model, correct?

Jon Tanwanteng:

Okay. Understood. Thank you.