SMCI - Earnings call transcript Q2 2019 | Super Micro Computer, Inc.

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Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Super Micro Computer, Incorporated Second Quarter Fiscal 2019 Business Update Conference Call. The Company’s news releases issued earlier today are available from its website at www.supermicro.com.

During the Company’s presentation, all participants will be in a listen-only mode. Afterwards, securities, analysts, will be invited to participate in a question-and-answer session, but the entire call is open to all participants on a listen-only basis.

call recorded, this XXXX. February reminder, a is Thursday, being XX, As the replay be by XX, entering will the dialing pin until and A call February accessible of midnight, Thursday, X-XXX-XXX-XXXX replay XXXXXXX. XXXX, X-XXX-XXX-XXXX. dial should callers International Officer; With us today Senior Officer; Senior Charles Liang, Vice Financial President, President Chief Perry Kevin Chief and Chairman Vice and Bauer, and are Executive Hayes, Investor Relations. I conference over the like to turn to would And now, Mr. Hayes. Mr. go please ahead, sir. Hayes,

Perry Hayes

quarter call fiscal for you attending Micro’s for thank XX, the conference second which and afternoon, Good XXXX. XXXX, business Super December ended update

should copy available on at website. References change today’s will well By During financial as its regular is address subject Company’s efforts to second preliminary the and conference and have and distributed the SEC. trading There received the with close on was news you of release the market the future the that XXXX based a are any second now, filings, of preliminary of as Company’s results XXXX. for with results company current the fiscal to from call, the Company’s Super is financial earlier a We results quarter on the the our filed our delay understand with X-K SEC. was which volume was the the filings of from trends website, Micro at to SEC business heavy slight contained posting finalized due delay in the to fiscal quarter of today. become

from factors There future could Micro’s Before our a we cause start, I’ll risk materially our to forward-looking you remind that expectations. differ results are include that number of remarks statements. Super

and SEC issued risks in filings. earlier about more this press the learn these release can we our afternoon You

of Charles remarks, page Micro’s are session now presentation Liang, no the today’s with Investor the call today’s We of Most will any update of have those assume sell-side available forward-looking the to to outlooks. we of over turn Executive refer financial Chief prepared from statements. and Officer. results I’ll All non-GAAP analysts. Super documents At will obligation to Chairman website. end and a question-and-answer Relations

Charles Liang

and you, good Perry, Thank afternoon, everyone.

comment first Let call second of quarter me on briefly performance. our

will in million to which our It of guidance approximately $XXX Our and X% $XXX XXth the be range growth. year-over-year year-over-year represents quarter quarterly our consecutive is second revenue surpass growth. quarter million, of

Our growth by Global gain approximately total segments Computing. Computer and Enterprise, revenue the three XX% higher year-over-year, in momentum continued. growth driven was market continue ASP in with desperately XXXX revenue, XX% system Storage of up

in the fiscal growth Super drive We’re win rare continue and the both age of Data Center quarter. we as pleased growth quarter a did growth this the and macroeconomic despite business revenue on the to producing the – share challenges. continue to this our market is Micro

growth fiscal with in traditional approximately of Our XX% year, our last total line year ahead today revenue trend.

performance show Our XXXX strong business Global to year-over-year. growth with XX% continued

our significantly Our our Computer XX% this storage, in is compute, products. Twin which accelerating substantially Global grew the rate, quarter, XXXX Last achievable by our managing utilized a business year-over-year, networking, midstream and encompass service. entire ROI and grew Super supported Family computing, how Micro

use ownership is additional in top remains would environmental to We’re our trends like cycle. private life interest have of value saving opening the quality, cost consistently will along ROI significant resource our total TCO I to with based superior service impact and system, companies. customer with revenue our to provide through management which deliver total and ability the

environment our last TCE cost past lifecycle in saving our XX% development closures on aggregate invest data. type year, approximately We research revenue. we of reduce with improve IT and total lower on over XX% on comprising solution Storage and subsystem. total continue to both where hardware system their This the in in technology ROI and cost, customers Pentium which grew improving stays have this and our resource

Our based Super latency, generation factor U.X, in optimized storage to other such higher Petascale NVMe the market proprietary software bandwidth Samsung next as and remain cost Micro service over full-fledged performance hedge. enables storage according performance with form and storage offer technology SSD. EDSFF, industry-best with defined competitors only a systems, NFX, high delivered higher of unlike Intel Ruler who

accelerated We continue are artificial possibility value in generation a grow, many excited to both new and learning to and In strong their and making industry marketing time verticals. leaders technology intelligence, next this see adopted hedge a real scientific roadmap. to to machine see offering computing growth applications, over the detail new we advantage

accelerated in VXXX GPU GPUs numerous We system to of to additional AI capability core new supporting Micro’s with market a NVIDIA manage machine HGX-X and learning. and [indiscernible]. SuperSever Tesla designed phone XX,XXX center performance over Super up niche tech optimized delivering data NVIDIA for and XPetaFlop also for with computing cloud

customers, Last to for opportunities. we future processors key launched growth ahead Looking engineering and new We memory. new that Octane processor generation quarter. the later begin for the XX along Scalable we PC quarter, developments in to Scalable begin Intel Xeon programs system those seeding upcoming with

initial replace prepared field revenue the growth for positive we the and for Super cycle, very reaction upcoming anticipate from in are received customer have quarter. Micro we We upcoming the server

expanded network positioned wider We solution address AI the service XX% module, below cut order XG. IoT As to to selection market of to this wise in used including important virtualization defined moves XG, new year, cloud. security a delivering with for industry course to LPGN on and we networking, XX reporting. compact milestone SDA. edge Micro and the verticals industry put from up to prefer, according within address is networking totally systems of Super our network wide summary, automation achieved of and an operates communications, computing In below There’s to and uniquely range accelerated a to it network calls, solution market and is function market CPU [indiscernible]

their the such and as and while TCO scale, TCE. continue to will gain we U.S. and – position cost, acknowledge our optimized design verticals faster system resource-saving uniquely our With next gain and cloud, hardware growing and are improving We AI overall to of global cost and competitive manufacturing our save large producing XG. with year to headquarters

We new and technology NFX, large Kevin. momentum scale hardware including processor section and will This prepare in I storage generation Micro over decision [indiscernible] to scale compute, for design are Ruler win. also Super the second growth XXXX. it’s will large both on EDSFF. Intel hand the now, focusing And of to power Scalable

Kevin Bauer

Charles. you, Thank

few will providing I First on financial overview of performance health the of of our I a the SEC about by our XXXX. second the current business progress make for an will comments filing. then our quarter address

second we $XXX of three revenue $XXX million we revenue within the that fiscal have for results, over quarter past quarters. our million. earlier, range As my Charles mentioned the range tenure guidance to estimate With our exceeded

approximately continue approximately enjoy basis, U.S., customers digital growth with decline the business and highest a XX%. offset you to Micro’s which followed approximately cloud Our a On by drive using approximately transformation their portfolio. Other grew the regions may us in grew and Asia-Pac year-over-year grow of XX% Super edge XX%. by XX%

from Our estimated and range GAAP of to was gross margin on XX.X% both non-GAAP XX.X%. the basis

quarter this lower to non-GAAP provision diluted $X.XX earnings audit obsolete due mix, inventory. from to Operating within were quarter product a Our this a bonuses, the higher of per to $X.XX. bad related and fee share employee Asia customer sales improved materials, range for and to development provision We and lower estimate for partially excess margin expenses benefited debt.

us We from for million, three After continue to approximately and deducting $XX the loan, quarters, was quarter. flow to $XXX over On a operations $XX CapEx estimate the cash flow we $X cash last reach down free basis pay cumulative our estimate generate approximately million cash was cash generated free has of million. approximately cash That and allowed positive we estimate position. of million.

increased increased. in cash their cycle conversion from quarter. to quarter, inventory prior days sales days while outstanding our days decreased XX This Day slightly, XX

XX Our days. from target near remain term to XX

quarter range to are net of sales in million third We for $XXX the the million. $XXX guiding

We trends to We we business sizable every as are announcing believe from normal business that are back customer. business in usual. existing renewals fields

XXXX into are on turn let’s fiscal we Now our progress XX-K. making

restating deliver then was have company achieved If as diligently periods draft filed prior XX-K the quarter We report XXXX. X-K financial the independent concluded statements we of significant we XXXX XXXX working Form and our fiscal are necessary, announced the you with are XXXX They we draft on has restating and November XX-K complete XX, process. reviewing to January. and from our their a auditors in audit. in milestone Since recall, this that current worked to in late last integrated

our of our continue perform of our result conclusions, to As control assessment. analyzes and more internal auditors accounting independent a testing

closely working auditors are procedures. remaining complete our audit to independent with the day We each

from our team is address developing the to a audit assessments. prioritized internal remediation control internal weaknesses Our roadmap material

are making and financials We procedures on XXXX progress. continue fiscal in parallel our solid

So to focused filings. on close, our remain we SEC resolving laser

data industry-leading We technology world. hungry a continue to build for solutions

excited We’re of beyond. XXXX and the rest for

relating provided. filing which time, to be our audit to committee questions will we have analysts for this As indicated answer the ready may we’re to question Operator, previously, pending be you would the of I decline we of should will have Q&A session, or the sell-side update to ask your because business questions. delayed just investigation permitted We XX-K litigation. to at directed that like remind that questions. a

Operator

with [Operator our Mehdi be you, Susquehanna gentlemen, go Thank Hosseini we’ll electronically. And you. will Thank sir. Group. first Instructions] session conducted and Ladies question-and-answer to Financial

David Ryzhik

for Ryzhik This Mehdi. much. so Thanks David is

be you macro to a quarter? you’re few could, us in I talk the follow-ups. able current on the demand an maybe strength maybe EMEA the I would seeing give regions, what you – can environment, about had Just if drove across then and update and what few, Charles And

Charles Liang

Yes. have than will Yes. and observed and be we add question. Thank we macroeconomic you year. choppy last for weaker the did it We believe

Cascade and been very, storage Lake strong, new fallback very saw we However, get in other platform. have

see our believe we year we our of And mean, XXXX, Lake. at well point travel price share. careful to everything carefully Supermicro from happy under the this in Cascade in are of memory we market change growing our is I view. control And year, term So observed

David Ryzhik

on the you larger just enterprise scrutiny noted seen around of weakness with more curious. its was some this I enterprise as well? U.S., purchasing in elongated large yesterday systems. vendors, one the And decisions, call had Have earnings buying storage companies

Charles Liang

We – to our point Well, this over From year, history. is can Yes. so good. we all positive feel quarter in far so our deteriorate March been mean, change of us. quarter the I really result very had feel see we view,

David Ryzhik

And on paused article. you Bloomberg return customers made initially initially November, some were had continued? after update that this improvement a pause? that you have had the seen customers from beginning an to last Has see demand from in that noted the call you

Charles Liang

the fee. in business positive our from down, improvement see going the We and is and put normal it the Yes. cutting

David Ryzhik

server for ramping are. revenue Super Micro just year Cascade XXXX just your Lake, a when from this around it what you opinion And wondering calendar interesting on ramps love persistent made DC material be then in would Optane Thank Great. think you expectations start some a perspective, this or really And comments in from this that I perspective? subsequent does memory, cycles? guess could your on do cycle you. how

Charles Liang

big memory, way interest We customer kind and have in kind on area. a application. the side, big performance we’ve recently meeting customer Micro? database see because did really a applications and for this shipping Yes. case that some be the Cascade what as and niche in interest would not a change it’s would data we kind believe toward for that now thank some of DC good of be from We Super central customer of you. large Lake market our Although be persistent started would those

David Ryzhik

the per ASP compute And node? high what drove

Charles Liang

more a with of layout. sort solution, some the and hardware and not or including buy management compete More or customer really

this continue computer And instead higher So, to of system that of to grow this. to for after our especially move XXXX NVMe continue price, grow. because also will not ASP more platform our and ASP – higher people percentage of would percentage a much also trend

David Ryzhik

Thanks Great. in back I’ll much. the so get queue.

Charles Liang

you. Thank

Operator

Nehal Our Group. with next question comes from Maxim Chokshi

Nehal Chokshi

congrats Yes, you? you that, on between can give results, strong components, and thank you. strong not, systems did if And guidance. Difference

Charles Liang

not, second – the XX%. did were We systems but

Nehal Chokshi

or guidance reflects clear, XX%. just normal be saying seasonality to this not? a Great. you were that And

Kevin Bauer

last cognizant are the we Well, we certainly, that macros but it’s there. had seasonality, quarter, said normal as are of out

therefore so tried factor that we’ve to into thinking. And our

sometimes they And little decisions if some declining lastly, not, We components next in also technology recycle determine, bit. are that customers’ pause around that could time, or for know to their the value purchases that customers are certainly, then and a that. trying there are so their go

are that of those thought. the we So kinds the themes

Charles Liang

about Yes, CPU, talking Lake Intel, Zen about with new Cascade [ph] April our timeframe.

Nehal Chokshi

year-over-year Okay. And has it. XX% historically Got six to plus of then Micro quarters growth. had Super four

XXXX quarters of case, to I You the guys of that think and September it two just like XXXX. year-over-year looking you it looks at of that from; then sub-XX% we’re did have being XX% beginning years, we And to digestion XX% are well, all the But why this averages CAGR out a here? is to shouldn’t of XX the past incredible. over which a beginning point period we at what at growth believe

Charles Liang

March mean quarter, it as also and fresh I marcoeconomic guess about two one be memory now process until Again, this price conservative you’re the May, will sort beat and won’t on then that’s is quarter, to Yes. Aspeed quarter. lower with cascade what or March perhaps major try on drop, that NVMe price April aware in this quarter, impacts, I we ready be

Nehal Chokshi

or if sure million OpEx around that was let’s QX, give little color then, non-GAAP but it And versus expenses, just you is a right. All Okay. included it QX at a done about uptick? up non-GAAP not, was bit too $X some Kevin can look that not more OpEx

Kevin Bauer

Yes.

mentioned had products I were the there expenses certainly in developing related that Cascade for engineers, So, our Lake. call to first

that element for one so credit rather. did materials And unusual and And something often. we of company that. for a year doesn’t this the was had that I employee this have did that have we bonus mentioned we happen quarter for and we pulling have very which loss, reserve them

Nehal Chokshi

your was apparent reason what And loss? for

Kevin Bauer

customer having problems. a Just

Nehal Chokshi

Got you.

this march OpEx trend quarter? for gross how on margin the thoughts should And and Okay. also should trend

Kevin Bauer

Yes.

had pace remember as mix pretty good gross of gross on So that that did compared well have remember, at said about sure that what course quarter. always to we’ve that EN be is called work an excess into not inventory customer quarter margin we to to you I’ve had most uptick historically, modest that over certainly, I time. we our margin a as this recently the went favor would what as quite we but repeat I’m the was a going do as time, over for trying you

for good a quarter, the we we’re that this at trends, about certainly roughly period time. So, of a trying XX.X% modestly in to improve had one, been but over we’ve

Nehal Chokshi

Thank you very much.

Operator

[Operator Instructions]

Kevin Bauer

there’s I question one on think the Operator, more queue.

Operator

Group. take Hosseini Susquehanna follow-up We’ll with Mehdi from question our Yes. Financial

David Ryzhik

Kevin, Hi, in follow-up. Ryzhik gross as for you in kicking reason the quarter? Mehdi. for for pricing note in memory thanks. thanks a David the the margins. didn’t Was margins a gross memory strength to lower benefit

Kevin Bauer

terms customer really bit by little As we’ve mix I’ve our and I portfolio. said of gross Since a at looking gotten earlier, our customer margin here, it’s mix. done more in

way. the So, to of customers, a we want kind of be cognizant for banding of fact where we have in margin like

And we to of do context so from when that business, allows portfolio. us to entire the want win it in bid the time-to-time, we

a quarter. a think necessarily And significant in it’s bit from our customer impact more little looking so, really December mix the at sharply, not just memory I

David Ryzhik

inventory And any in days? tick-up reason the for

Kevin Bauer

Yes. quarter-end at We thought we advantageous. made some purchases were that

David Ryzhik

of I maybe within I versus that traditional on overall storage; And breakout believe and sense Great. I was just on, storage Any XX% the heard the growth year-over-year. curious NexGen?

Charles Liang

traditional our new SSD pressure generation to based, of we will new generation, we’re of much I be our grow. believe, especially grow higher with guess able most to it both NVMe and

Kevin Bauer

traditional Yes. grew a down little NexGen came handsomely. and bit

David Ryzhik

color drove Any that, that in great. what growth NexGen? Okay, around

Charles Liang

of I NexGen market we that kind as fourth company order NFX go to the with have as leader market to EDSFF response. new you customer and are Samsung the memory good delivers know, exactly on form and U.X, very mean, factor Ruler, the to

Kevin Bauer

with we’ve some stronger that we did talking now them those been we XX appreciably have, customers and months to have have addition ago. an in GXXXX think I we then customers left GXXXX of about as year, business

David Ryzhik

what past, is percent think that of the called in percentage maybe revenue enterprise, revenue of driving? is what is it I And you’ve GXXXX – overall but Great.

Kevin Bauer

not out we’re break going to probably Yes. right now. that

David Ryzhik

Okay.

last IDC, seen IDC then you And the what with any revenue overall Okay. that new wins percentage one, of was and space? in have customers

Perry Hayes

this David, Perry. is

group includes talking we IDC So, to now about that it of the about. that both we’re combination the used GXK also a talk enterprise is group And we talk about. that

already actually they’re Kevin’s provided. what So gathering

David Ryzhik

much. the really understood. so Thanks Thanks. appreciate understood, follow-ups. I

Operator

to And for to Liang additional comments. at I’d call like no Mr. back or turn appears any further time, the have it this we questions. closing

Charles Liang

you. you for day. today, joining Thank Thank a and have everyone us great

Operator

fiscal Thank you, participation. gentlemen, all. conference Super update does business conclude quarter We the XXXX that and your do ladies Micro appreciate second

time. disconnect you. this You may at Thank

Super Micro Computer (SMCI) 14 Feb 192019 Q2 Earnings call transcript