Super Micro Computer (SMCI) 5 May 212021 Q3 Earnings call transcript

Good day, thank you for standing by. Welcome to the Super Micro Fiscal Q3 2021 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] I would now like to turn the conference over to your host, Ms. Relations. Investor Noutsios, Nicole

should thank distributed results attending company's of for March trading the available now which and the is copy to release and the news fiscal Micro's close discuss website. ended from you By XXXX. financial the that XX, the received you afternoon a Super of was for company call XXXX have at Good on third regular quarter of

presentation company a company's available that during Presentations a call, refer As IR website the and is the participants of may the reminder, Events in tab. to to today's section under

factors We without of on the including taxes, potential commentary those number margin, gross limitation and of have capital of other discussion operations. our the There company's from some Micro's our hear differ you impact expectations. note, consist materially of risk during could regarding business the and and a business future revenue, to the that future results results management also expenses, expenses, that information published operating allocation today are including website. to cause income statements Super scripted outlook, will COVID-XX, Please of forward-looking

about our XXXX SEC we press in risks earlier this for issued filings. afternoon, more the and will most You filing these XX-K other recent release fiscal our

non-GAAP obligation to documents update Refer any on of Super Most results the no today's available We outlook. are presentation, assume to All Micro's forward-looking these IR and section website. of of business statements. financial

non-GAAP press published the presentation our accompanying explanation release of to our today. or For measures, financial refer please an earlier to

ask the At remarks, Q&A Chief I'll call will end Executive now Charles to in of over the is reconciliation of today's in to to sell today's a like Chairman questions. GAAP presentation. results a the contained In Officer. Liang, attached today's have for analysts in and press release information non-GAAP turn side supplemental session prepared you addition, to

performed, generation whole good customers our we and global a winning everyone. growth strategy hotels. Last our afternoon by have new new key of quarter, well, introduced extended you. Thank Nico and operation

our have fiscal results. financial released quarter We XXXX, third

a take Let's at look highlights. some

million, quarter Our X% sales fiscal XX% sequentially. totaled year-over-year up up third and net $XXX

For in quarter. history seasonally-weak since significantly surpassed from the quarter March the time of IPO, revenue the that our company first December

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Xth. recent execute We on continue March our strategy update in to our highlighted investor three-year growth

to rates, by Our industry growth the resume manufacturer. progress, judged propelled of has fastest historical U.S.-based us the growing position server/storage

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application-optimized Our are datacenters among solutions most traction enterprises. and gaining the advanced world's

several committed early server have units, by deployed have SuperBlade. thousands We our that led ship customers of

propel program. new or generation other in our artificial advantage calendar takes Japan We liquid-cooled this our products year. also of more. program growth new should solution, verticals through utilized and systems University sampling Hundreds with this ramp new These optimized example powerful intelligence, deployment already Lake of One systems accessed is as telco, processors. the for the online collaboration have with for which such of seed out many successful early accelerate the JumpStart Ice full Osaka of customers our and cloud our activities HPC

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robust We and importance and optimizing have with we chain. plan Taiwan customer a reducing years. recognize With been new strong efficiency attractive of executing in demand, cost, operational tighter few manufacturing the for especially a product supply lines a

ago. expansion As the deliver Manufacturing sales of strategy, operation, our Taiwan key was since painful of our cost one elements company cost-optimized and challenge production, engineering, our increase and XX offerings. been capabilities our capacity founded has campus to will in years more

agility. similar global the costs Taiwan ongoing and feet manufacturing which on with position our on focus advantages space scale the and time-to-market operational rising summer, expansion, security our of campus well will and square but U.S. more more and online further our emphasis be office more chain to these while will by control Made-In-U.S.A. will expansions the Taiwan will of having new goals Now The manufacturing this logistics and cost. the and production initiatives. profitable X added with we us expansion, shortly Again, supply million challenge over improving handle to become campus completion after

I We within investor of our getting critical are the the in we growth event, in segment key Cloud and Datacenter and making accounts. are mentioned progress factors Enterprise recent traction great

choosing for to We are the system breadth and AI, best and new portfolio Telco, deliver customers XG, both our public wins private orders their ability design the Super our optimized expanded certain Micro from based cloud workloads. high-profile seeing customers. of and securing and are These on

in we have We coming worldwide, double and efficiently accounts to accounts growing the years. these been aim high-profile our

a our growth big high-profile time. customer strategy organic is initiative that greater been and portion has evolved Our over of fine-tuned

technical automation gain will to more our is broadly in customers. This journey revenue many launch much is and sales, again. with selected sales I cost. our market is engineers, believe our communication, transformation at use and again share already fulfillment customers, Super among just building time which tool of positive QX it I auto-configurator with believe make and easier Strong accelerate data beginning momentum to will reduce Micro. the the share We which tool, also by product configurations BXB/BXC our continue and effort growth our

We the my package tied accepted $X billion are proposal board in price company's annual align our aggressive strategy, recent my salary an hallmark reducing to update, revenue consistent of growth $XX the growth. X returning our of talked compensation targets. path and interest of to directors investor our To the added to with to and in about X Also equity sales I in very stock annual years. to

to goal. Now have even stronger this I confidence achieve

market past others. year, segments successes has in Cloud, Over as XG/Telco the Machine such and Micro Learning, various AI, HCI, Storage, Super had

excited solutions. capacity booking to us established our have and through COVID am We that I activities, outlook initiatives QX give confidence recent optimized a server strong improving and with storage our provide the our technology expansion leadership guidance. along

getting $X.XX fiscal billion. Micro billion, surpass track revenue QX coming is faster million growth, $XXX rate details I $X now years. quarters coming Our to faster will for of back provide and range outlook. and on and Financial pass call our on growth the the Chief will am the David Super should and in I Weigand, confident our our in quarter additional finally to be that the to Officer,

in you, excited am the last Since than Super I of XXXX. Micro role joined the more about at Thank the CFO company moving future even quarter, when I Charles. to

pleased this and continued quarter are We our major results with the in to of company execute and outlook. all areas

all quarter increased X% up Our center increase comprised a an and saw From to year-on-year of of point quarter-on-quarter, fiscal second geographies. I Europe basis, discussing in forward, increased was AI From quarter-on-quarter. of customer World quarter revenue increased increases Asia point noted, the from On non-GAAP this Rest revenue sales performance data total year-over-year. we unless were Rest also Geographic last X% systems a World increased of major the increased of XX%. XX%, reflects quarter from otherwise year U.S. nodes be and and same year customers. and across $XXX X%, System strong XX%, fiscal increased XX% increased and third financial the a basis. metrics and XX%, volume Asia XXXX. totaled shipped XX%. will sales increase XX% This of year-on-year sequentially U.S. X%, on ASPs of a the view, decreased On decreased million. a sequential Europe basis, and large and year-over-year Systems

high other additional in do to demand higher our will expect our Due to further I mix. outlook, in and quarter-on-quarter. margin to the down stated working approximately we our margin gross expected down a sequentially headwinds cost to address costs. that XX.X%, gross product some year-on-year we of the supply P&L, and February products due the we and that decline this cost of In for quarter. we call, our these discrete QX points earnings of and So lack abate chain, the in coming as transportation basis XXX in was incurred QX XXX to recovery --

million. million. Turning year-on-year on increased basis, year $XXX increased $XX to were been have offset settlement operating X% to related by related to decreased quarter-on-quarter X% and after joint operating and development expenses, QX GAAP Recall, removing OpEx a product would quarter-on-quarter On but a basis million a expenses operating benefit last OpEx XX% year-on-year non-GAAP X% down fee, $X.X QX this increased X% expenses to year-on-year.

higher a a interest non-GAAP the products due income Milan new Intel, loss million OpEx on product $X.X to from product was related increase last The costs development lakes Nvidia. sequential and change from to to Other increased AMD outlined and $X.X February activity call, primarily sequential gain including AXXX is million from the compared payroll As due product FX. products from to the & mostly was R&D Ice in as earnings expense heightened taxes quarter. expense

$X.X our a $X.X expense quarter on, GAAP basis. This million million basis, gain million a tax an $X.X so non-GAAP on a was and on of

rate quarter. was the tax non-GAAP Our for X.X%

loss our $X.XX earnings last compared fiscal to free this of XXXX the inventory increases compared million in in in cash of compared receivables, quarter to capital as to $XXX share CapEx used Key non-GAAP flow of quarter QX. million cash diluted last in repurchases. operations venture resulting of totaled of during quarter QX million $XXX $XX year. per $X.XX flow of million. to as $XX a incurred of in million through used and stockholders million loss the a as Lastly, return as $X.X Cash and $X.X well to operations totaled flow $XX totaled cash quarter. QX same uses $X.XX from in million included joint share

million, debt in resulting while was sheet cash net million. $XX bank Our $XXX was balance of a million, $XX cash position balance closing

our cycle was Turning range to from and down days, XX compared to to conversion of metrics cash that's days, target XX within our last working capital days. quarter, XX QX XX

increased, sales While our XX outstanding inventory of was absolute XX days. outstanding of days payables inventory while XX at days totaled level days decreased. the Days

Now turning to the outlook for our business.

a quarter for fourth June to XXXX sales XX, million fiscal ending the $X.XX $XXX net expect We of in billion. range

due million sequentially, both in and improved chain points We expect operating GAAP costs. $X product million $XXX compensation basis to margins increase are non-GAAP gross our to expenses operating in approximately option supply and expected approximately $X XX expenses and expenses management million included other not in of mix be to stock expenses. include

and We NRE modestly the R&D expect from our quarter-over-quarter driven product be continued Intel to of lower expenses previously investment by new activity in operating mentioned. AMD, and up Non-GAAP Nvidia rollout with

approximately non-GAAP We QX tax be and XX% thereafter. expect to our rate approximately XX%

expect We including $X.X expense, and JV. and from roughly interest million income other contribution nominal expect to expense, our a total

fully to $X.XX. the to $X.XX fully range non-GAAP be in $X.XX expect GAAP to We diluted EPS range $X.XX of diluted of to EPS the in be and

million of CapEx quarter $XX the fiscal building range of the for our inclusive to of ongoing be $XX fourth expect We million Taiwan to XXXX project. in

for turn As back will you over Q&A. to Nicole, it

questions. can start we Operator, with

[Operator Mehdi from Hosseini Your SIG. is from first Instructions] question

strong drivers into the June guide A how December quarter. second data you look CPU you understand see couple like revenue follow-up. trying am especially momentum better half or of and do just the I September your your and the given servers, and of second some demand related revenues other the half, into a How impacting for quarter and you do follow-ups. to as new have cloud, drivers I into see center

to we X months achievement. you April as engage we achieved profile know, I'd accounts a spent we like in an mean, I it see share and as last high for local had Yes, to

from Shortage, our this home well. today, a see So see kind that reach is are quarter lot now the as our we home high strong, strong until we billion. September, profile very why soon our a a we long-term you Steel, those pipeline of we as start pattern our, be vendors is have March, first we quarter and praising is, already lots $X the account, be of closely strong account situation grow then In the to of them very would very over QX we and good. and shelter will and June it have continue time but tough, of in been August that's

feel I comfortable, So pretty everywhere. strategy are there although

increasing and for Okay. And into second in see profile you DRAM half. context, commodity the prices your that impacting how in do margin instance, storage

indeed For most kind our has basically viable been happy the price basically. it's most to we to of course, what pay pay customer happy chip healthy accept surprise account because the margin higher of expect and customer

were for based our for to will close. most Spain. negotiate, we sale valuable customers we this of So customer condition, but expect the our year, And that

you would to cost customer? over Just so and have higher as as quick that that benefit the a on build you a the let's inventory the six think think to able you about incremental from you the, next, say Have pass lower do buy then to follow-up. you strategic inventory of months been about cost shipment continue you or would cost,

Well this maturity, difficult many months Indeed we happen question. since have we is ago.

increased you right, three potentially would we So ago. inventory yes, months, say are I had since our

So higher area, we we lacking kind that pay newly entered have this had our our strong but for I We still saw very growing year. inventory to limited. demand, been mean, soon. very our of in

Your next from Ananda is question Baruah.

the taking Yes, good the on them you've putting up and after thanks and for analyst I'm afternoon and done the results just event. congratulations question

little see. But So seeing where to of little, guess context top options head, I the questions kind couple follow guess and and to have XG seeing know the or vertical most customers of, and of hyperscale two. for you the I you're was cloud could where the buckets. that in new pickup, activity Thanks. context the appreciate areas direction Mehdi of going premise pronounced in also that's kind exciting on of pick pronounced key pretty the I'm follow-one getting the a thinking, in in I customers versus further order off you're interested give large a asking And of a each I all enterprise like and on most carriers just to a more there's my it. up

Again, Yes, XG in you. thank and it well telco. have growing we our Yes, is. been

price not a some in more telco a volume quarter to more to So continued in didn't we demand, saw or dip and that, of of other kind time well. to for Other contact And our and very their have engage us. part XG March start and senior the good very medical improvement. prevalent we remedy grow know, that customer than you have a mega

cloud good come dip with some private and account some out well. there again Nvidia HPC much also than traction in We been high consume before performance we not GPU coding, power that isolate more especially, especially in and by of new new HPC and as Milan had

also very for solutions. with our it's So service is coding HPC cloud optimize customer dip

the imagine said And I in accelerating Charles you quarters. prepared in your you remarks, revenue think coming growth,

to I much, a next but pin quarters you feel As think the we let's like guess, don't is timeline want four situation well expect, of much or can that over do have currently coming to guess as how new do down account years do say, next, traction have, you should four the I it kind quarters, occur where coming you that that you the quarters does as like and I involve account. in you too

existing of new accounts penetration to that Or occur. conversations inside sort yet of have

again and high-profile growing we we accounts. we Beneath have our those IP, engage their in your and start also very high-profile we have especially account in Asia scale why so will and a demand. our to lots capacity, extend high counting mines those going higher are existing with are engaged sort continue order And in of quickly are that's

team enhanced automation and cut we our have are that We BXB sales. our sales here, system including all into

sales account now. So high-profile inputs our more

have So believe there year-over-year. I too quarter-after-quarter also very and up strongly that speeding

And for production. last the July, June, I up new is if am it one opening accurately is for me, remembering center Taiwan that

be it do not of situation. depends on we June can or yet, either July it final kind way,

[Operator Tanwanteng. next Instructions] from is Jonathan question Your

out Thank first think nice the My is of you quarter that do and and gross there. margins demand what you can the know facility given which to guys. a should question very taking but, lot see questions Hi for quarter you September the and nice parts kind inflationary costs. coming your get online I especially there's new environment, you in moving your of lower

and I'm quarter September have You which do improve you from puts into the sales just all quarter I the the new the think alluded your you're tools, costs, lower thinking your with also and so can you beyond that efficiency, through that. inventory you strategic takes, burning wondering improve

you did by the have lot parity. quarter, been feel I I and of of the you have mean say a satisfaction can part air March ship tell our we I product Yes. detail, because

So vendors. from our you air ship by buyer lot of of propulsion speak a and

March for So improved. have some something? David, would quarter we overhead faced you and forward there looking for September situation can been add much

Jon, Yes, as the we year-over-year. quarter-over-quarter and up ASPs so as are mentioned

back our XX%. as So of looking on forward March to to we margins toward us we improving Xth outlined XX% were

think that's I guidance. So our general

great, and about I of talk of expected we these couple you -- of more your actually next Okay, used cash using a you think on Do as cash, that see you or flow, know well, through expectations get you've David, quarter ramps. you as do for you quarters, lot that the can this alone, you thank your yourself back. buybacks collect types some demand as but

thoughts. general your Just

receivable in million to Sure. That's back quarter, good addition growing We question. the returned a to and accounts shareholders because this $XX we inventory.

Taiwan. improvements continuing And our in also so, and capital

$XXX million. Taiwan. complete now So will and in our already we've there over The over build-out also cash we demands abate our to as inventory grown

inventory the going during was we same it so, quarter. rate expect And this to growth that be as not of is the

such a had we quarter such we demand. was high this had especially -- So demanding because

of the don't, will not be same. acceleration rate we the so And

Do positive something be think I cash after quarter you in you'll that the there next flow guess Taiwan. in or

it's our to if our on we exceed down If go. growth and it so that's to we how is what to going Yes, target. comes it's -- depend is growth depend going on, really

to the stop cash and stock base business, buying need our region of our back got We will inventory, quarter this for strong flow we we more have that is because prepare

your and on that Good videos that that AMD AMD's, from digestion bit your Intel I forward? the seeing have. more is Are the think product it it. you center. all lineup, in are a mentioned driving me, seeing one problem are, Got to in going Last Intel products data if you're you at strength

right are You're over, for AMD CPU, CPU have GPU. we of require customer kind a and Intel NVIDIA

as feel, it's some, see So also and we demand well the it moment as year. a price changes this hopefully is strong

Your next question is from Nehal Chokshi.

is line Your open.

strong It's new was customers and the come customers using it rinelative guidance like the be to Do existing cloud midpoint on is the or products equally new new X% not results between and Congratulations with the of the the apps here. customers these products. AI. drivers

a It's combination.

need Nvidia I a has from in have GPUs lag. GPU now new We is lot Nidia, say, done the of customer solution the some so

believe our So I new of girls very existing shortage, improve even new product are the is a kind situation. whole yes, we a but product to with strong the limitation our hard so most of working demand see we

heavy storage demand What of the things. about on side

JBOF Nextgen storage. storage and

demand. to not as but say would XG see I not still us AI some us, we and to like hard careful

for lot call issue. have a discussion I lot companies able there's of you price been to an been of guys issue think there. about during been It that out sounds a then and inputs skirt But the that's like there,

reserves is a the has clear, pricing or because is there favorable Just to because of been be more it strategic inventory it environment.

input on customers. you to pass your increases these So price can

condition. our a kind except also both as mean cost most least long-term people feel happen I case yes, the the in I stable most or First, with a have we and with that and of at relationship contract are we or through of supplier that in our cost good so situation plasma

gross back tick what will And the confidence the underpins is margin June and quarter. up that in

of much pretty shipping ship It's because year. gross charge. some the margin of basically Now,

to grew there quarter cost that how As production but in ship so triple, in and and you had will few the case demand of got also strong, extra air we they situation COVID-XX, some own the and our that to is not we, be by our about we pay delivery. vendors because to know, the have the

at additional back closing the further conference showing question for to time. like I'm any the turn no this remarks. would company I or to

Thank you, good have today a time. for and everyone you listening next one. you. Thank us See

and gentlemen, Ladies this call. concludes conference today's

disconnect. now may You