Good day. Thank you for standing by. Welcome to the Super Micro Fiscal Q3 20 21 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.
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would now like to turn the conference over to your host, Ms. Nicole Matias,
Good afternoon and thank you for attending Super Micro's call to discuss financial results 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 referred to a presentation that's available to participants in the IR section of the company's Please note that some of the information you hear during the discussion today will consist of forward looking statements, including, without limitation, This is regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, Future business outlook, including the potential impact of COVID-nineteen, the company's business and results of operations. There are a number of risk factors that can cause Super Micro's future results to differ materially from our expectations. You'll learn more about these risks in the press release we issued earlier this afternoon, our most recent 10 ks filing for fiscal 2020 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 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 I'd now like to turn the call over to Charles Liang, Chairman and Chief Executive Officer.
Thank you, Nico, and good afternoon, everyone. Last quarter, we have performed our growth strategy well by winning New key customers extended our global operation and introduced a whole new generation of products. Today, we have released our fiscal 2021 Q3 financial results. Let's take a look at some highlights. Our fiscal 3rd quarter net sales totaled RMB896 1,000,000, up 16% year over year and up 8% sequentially.
For the first time in our company history Since IPO, revenue from seasonally weaker March quarter significantly surpassed that of December quarter. Our fiscal 3rd quarter non GAAP earnings per share was $0.50 above the midpoint of our Previously, guide range of RMB0.37 to RMB0.57. In this quarter, we also generated Record revenue from the Asia Pacific region, demonstrating our continued and expanding traction in Asia. We continue to execute our 3 year growth strategy highlights in our recent investor update on March 4. Our progress, judged by historical industry growth rate, has prepared us to resume the position of the fastest growing EUSA based service storage manufacturer.
Most importantly, We achieved at least despite so much of our focus have been on growing the company's long term foundation. Earlier this quarter, we introduced The industry's most comprehensive server portfolio, leveraging the data processors from both Intel and AMD. Our application optimized solutions are gaining traction among the world's most advanced data center and enterprise. We have several committees earlier to customers. That had decreased 1,000 of server units led by our superstructure.
We also speed up optimizing systems for many verticals such as artificial intelligence, One successful example is our operation with Osaka University in Japan with our liquid core HPC solutions, which take full advantage of our new Powerful isolated processors. Hundreds of other customers have already utilized our early sampling program or access the new system online through our Jumper Start program. These activities to accelerate the deployment ramp of these new generation products and prepare growth for this calendar year. In addition to the system based on the new CPUs, we released an Innovative new GPU system architecture last quarter with Resource79. With very strong global demand, the optimized 2u2 non GPU solution delivers greater cost saving, utilized share of power and cooling.
This 2U2 NOS system supports 3 double width Our 6 single use PCI Gen 4 GPUs and is the best platform for video streaming, high end, cloud gaming and We have been executing robust Manufacturing plant in Taiwan for a few years. With attractive new product lines And strong customer demand, we recognize the importance of optimizing operational efficiency and reduce cost, especially with tighter supply chain. As one of the key Elements of our strategy, our Taiwan campus expansion will increase our capacity and capability in production, Operation, engineering and sales to deliver more cost optimized offerings. Manufacturing costs have been our painful challenge since the company was founded 27 years ago. Now with the new 1,000,000 square feet of manufacturing and office space headed to our Taiwan campus this summer.
We will become more and profitable by having more control over our global supply chain and manufacturing cost. Now U. S. Campus expansion, which will be online shortly after the completion of the Taiwan expansion, We are focused on similar operation goal, but with more emphasize on security and Made in USA initiatives. Again, this expansion will position us well to handle the ongoing logistic challenge and rising cost, while further improve our time to market advantage and production scale and agility.
We are making progress in the key growth factors, as I mentioned in our recent investor And we are getting greater traction within the critical segment of our cloud data center and enterprise accounts. We are securing new design wins and seeing expanded orders from certain high profile customers. These customers are choosing Sifu Micro based on the place of our portfolio and our ability to deliver the Basically, optimized system for their 5 gs, telco AI and both public and private cloud workload, We have been efficiently growing our high profile account worldwide, and we aim to double these accounts in the coming 2 years. Our high profile customer initiatives is a big portion of our organic growth strategy That has evolved and been fine tuned over time. We also continue our sales transformation Ifo, by broadly launched our B2B and B2C automation with the auto configurator tool, which is already in use with many selective customers.
This tool will make it much easier to share Communication, technical data and product communications among our sales, engineer and customers, which I believe will accelerate revenue and reduce our fulfilling time and cost. To align my interest with the company's growth strategy, the Board of Directors except for the proposal of reducing my NSCR to $1 and add an equity compensation package tied to very aggressive revenue and stock price target. Also in our recent Investor update, I talked about our path to $10,000,000,000 in annual sales in 3 to 6 years. Now I have been I have even stronger confidence to achieve this goal. Over the past years, Cipomango had success in various market segments such as storage, HCI, Cloud, AI, machine learning, 5 gs telco and others, we have established our technology leadership through optimized server and storage solutions.
I'm excited that our recent booking activity Along with our capacity expansion initiative and improving COVID outlook give us the Confidence to provide a strong Q4 guidance. Our coming fiscal Q4 revenue To surpass $1,000,000,000 in the range of 980,000,000 to 1,080,000,000. Jupo Micro is finally back on track for faster growth, and I'm confident that Our growth rate will be getting faster and faster in the coming quarters years. I will now pass the call to David Reagan, Our Chief Financial Officer to provide additional detail
on
the quarter and our outlook.
Thank you, Charles. Since moving to the CFO role at Super Micro last quarter, I'm even more excited about the future of the company than when I joined In 2018, we continued to execute in all major areas of the company this quarter and are pleased with our results And outlook. Our fiscal 3rd quarter revenue totaled $896,000,000 This reflects a 16% year on year increase from the same quarter of last year and an 8% increase from the Q2 of fiscal year 2021. Systems comprised 77% of total revenue and the volume of systems and nodes shipped were up Sequentially and year over year, system ASPs also increased year over year and quarter over quarter. Geographic performance was strong across all major geographies.
On a year over year basis, the U. S. Increased 18%, Asia increased 29% and Europe increased 3%. Rest of the world decreased 12%. On a sequential basis, U.
S. Sales increased 8% quarter over quarter, Asia increased 28% And Europe increased 5%, with the rest of the world decreasing 46%. From a customer point of view, We saw increases in sales to large data center and AI customers. From this point forward, Unless otherwise noted, I will be discussing financial metrics on a non GAAP basis. So working down the P and L, Q3 gross margin was 13.8%, down year over year and quarter over quarter.
In our February earnings call, we stated that we expected gross margin to decline approximately 120 And product mix. Due to the very high demand in our for our products And in our supply chain, we incurred higher transportation and other additional costs. I will further address this in the outlook as we do expect some of these cost headwinds to abate in the current quarter. Turning to operating expenses. Q3 OpEx On a GAAP basis, increased 7% quarter over quarter and decreased 10% year over year to 106,000,000 On a non GAAP basis, operating expenses increased 6% quarter over quarter and increased 9% year over year to 95,000,000 Recall last year's operating expenses were offset by $9,500,000 related to a joint Product development related settlement fee.
So after removing this benefit, Q3 OpEx would have been down 1% year over year. As outlined in the February earnings call, the sequential increase in non GAAP OpEx was primarily due to higher payroll taxes And increased R and D product development costs due to the heightened new product activity from the isolate products from Intel, The Milan products from AMD and the A100 products from NVIDIA. Other income and expense, excluding interest expense, Recorded a $1,400,000 gain as compared to a $3,100,000 loss last quarter. The sequential change is mostly related to FX. This quarter, our tax gain was $200,000 on a GAAP basis and an expense of 2 point Our joint venture incurred a loss of $300,000 this quarter as compared to a loss of $1,500,000 last quarter.
Q3 non GAAP diluted earnings per share totaled $0.50 as compared to $0.63 in Q2 of fiscal $2,021.84 in the same quarter of last year. Cash flow used in operations totaled 124,000,000 compared to cash flow from operations of $63,000,000 in Q2. CapEx totaled $19,000,000 resulting in free cash as well as capital return to shareholders through a $43,000,000 in share repurchases. Our closing balance sheet cash position was $179,000,000 while bank debt was $85,000,000 resulting in a net cash balance of 94,000,000 Turning to working capital metrics compared to last quarter. Our Q3 cash conversion cycle was 86 days.
That's down from 92 days and within our target range of 85 to 90 days. While the absolute level of our inventory increased, Days of inventory at 99 decreased. Days sales outstanding was 37 days, while days payable Outstanding total 50 days. Now turning to the outlook for our business. We expect net sales For the fiscal Q4 ending June 30, 2021, in a range of $980,000,000 to $1,080,000,000 or 1,080,000,000 We expect gross margins to increase approximately 70 basis points sequentially due to both product mix and improved management of our supply chain costs.
GAAP operating expenses are expected to be approximately $108,000,000 and includes $7,000,000 in stock option compensation expenses and $2,000,000 in other expenses not included in non GAAP operating We expect our non GAAP operating expenses to be up modestly quarter over quarter, driven by lower NRE And continued investment in R and D with the rollout of the new product activity from AMD, Intel and NVIDIA previously mentioned. We expect our GAAP and non GAAP Q4 tax rate to be approximately 13% And approximately 16% thereafter. We expect other income and expense, including interest expense, to total roughly 1,000,000 To be in the range of $0.56 to $0.77 and fully diluted non GAAP EPS to be in the range of $0.70 to $0.90 We expect CapEx for the fiscal Q4 of 2021 to be in the range of $15,000,000 to $20,000,000 inclusive of our ongoing Taiwan building project. Nicole, I'll turn it back over to you for Q and A.
Operator, we can start with questions.
Your first question is from Mehdi Hosseini from SIG. Your line is open.
Yes. Thanks for taking my question. A couple of follow ups. I am just trying to better understand as you look into the second half, Especially given your strong revenue guide for the June quarter, how do you see Momentum into September December quarter, and how do you see some of the demand drivers like new servers, CPU and other cloud or data center related drivers impacting your revenues into the second half? And I have a follow-up.
Yes. I mean, as you know, We have spent a lot of effort to engage high profile accounts In the last few months, and I'd like to share with you that we achieved achievement. So now we grow a lot of high profile accounts. And those accounts, lots of them start older. And that's why we see March, we already have a strong quarter.
And then June, indeed, our June quarter will be very strong. We'll be first time over $1,000,000,000 In September, still we see the pipeline is strong as well. As to the shortage, We're working with our kind of long term partner very closely and the shortage of situation Continue will be very tough. But as of today, our promise from our vendor I've been pretty new good. So I feel pretty comfortable, although the answer is everywhere.
Okay. And in that context, how do you see increasing commodity prices, for instance, Storage and DRAM impacting your margin profile into the second half?
For most of our accounts, indeed, our customers are happy to accept the higher price. Basically, we keep about the same profit margin. And whatever higher cost we pay, Most of the customers are happy to accept because it's kind of a supplier of the market basically. So we were too wide or possible to negotiate based condition for ourselves, for our customers. But this year, most of the customer understand and we expect the cost adjustment.
Just a quick follow-up. Have you been able to build a strategic inventory So that you would benefit from lower costs as you think about the as you think about the shipment over the next, let's say, 6 months? Or Do you have to continue to buy higher cost inventory and then you would pass on that incremental cost
Many months ago. So yes, you are right. We had increased our inventory since our registration months ago. So We have seen nothing in that area, but still remain in the vicinity. With our growing very strong demand very soon, I mean now
Your next question is from Ananda Baruah. Your line is open.
Yes, good afternoon. Thanks for taking the question and congratulations on the results And putting them up just after you've done the analyst event. So that's pretty exciting to see. I guess a couple of follow ons The direction that Mehdi was kind of asking questions, could you give a little more context In the key vertical areas where you're seeing the most pronounced order pickups and I guess Kind of off the top of my head, I'm thinking hyperscale cloud customers versus large enterprise customers like on premise And also the carriers for 5 gs, and I know there's new activity going on in all of the in each of those buckets. We're just interested in getting context to the way you're seeing The most pronounced pickup.
Appreciate it. I have a follow-up for Q. Thanks.
Yes. Thank you. Yes, it is Again, we have been going very well in 5 gs and telco. So we started to ship some volume in March quarter, And we have more and more Tier four 5 gs customer continue to engage or Start to grow, then pass their demand. That's a very good sign for us, and that part of our trend really well.
Other than that, kind of like appliance for kind of semiconductor equipment, for other medical We also gained some good traction there and high performance cloud, especially a private cloud. And some HPC has especially HPC with NIO Ice Lake and Milan And NVIDIA, new GPU, that consumes much more power than before. And that's why deep cooling has been our Become our advantage as well. So we started to service a lot of HPC customer with our very optimized I think we're putting solutions.
And Charles, in your prepared remarks, you mentioned Accelerating revenue growth, I think you said in the coming quarters, as well as kind of in the coming years. So I guess coming quarters, I don't want to pin you down too much, but should we expect can that occur over the next 4 quarters? And how much I guess, do you have the if It is a situation where you think like timeline next few, let's say, 4 quarters. Do you feel like you have the account traction currently to do that? Or does that involve new account work or sort of new penetration conversations inside of existing accounts that have yet to occur.
Very lucky. We saw that existing account are growing their demand, And that's why we have extended our capacity, especially in Asia, quickly And with higher very high scale. So also we are again engaged in a lot of high profile companies in the last 12 months And those accounts are to order. And we will continue to engage those high profile accounts. We have enhanced our sales team, including our B2B automation system that we have under our current sales effort,
And last one. Thanks, Charles. And last one for me is, is it June am I remembering Actually, it's June that the new Taiwan Center is opening up for production?
In June or July, we did not final year. It
Your next question is from Jonathan Tanwanteng. Your line is open. Hi,
guys. Thank you for taking the questions and very nice quarter. It's nice to see that demand out there. My first question is what kind of gross margins do you think you can get in the September quarter? And I know there's a lot of moving parts, But especially given the inflationary environment, you have your new facility coming online, which should lower your cost.
You have the new sales tools, which improve your efficiency. I think you alluded also that you're burning through your inventory will be lower cost. So I'm just wondering, with all the puts and takes, do you think you can improve from the current quarter into the September quarter and beyond that?
Yes, I can say a little bit and David will follow-up by detail. I mean, March quarter, we had a lot of products shipped by air Because customer satisfaction has been our priority, so we ship some by air and I love it by speed of production, phone out and so we see some overhead there for March quarter.
Yes. So as John, as we mentioned, the ASPs are up quarter over quarter and year over year. So we're looking forward to improving our margins toward our target As we outlined back on March 4 of 14% to 17%. So I think that's our general guidance.
Okay, great. Thank you for that. And David, can you actually talk about your expected Your expectations on cash flow as we get through the next couple of quarters, I know you've a lot this quarter, it's nice to see buybacks as well. As demand ramps, do you see yourself giving more cash or do you think you'll collect some of that back? Just your general thoughts.
Sure. That's a good question. We because we returned $43,000,000 back to the shareholders this quarter in to growing accounts receivable and inventory and so and also continuing our capital improvements in Taiwan. So as we complete our build out in Taiwan, the cash demands will abate over there. And also, we've already grown our inventory now to over $900,000,000 And so we expect that The growth rate of inventory is not going to be the same as it was during this quarter.
So this quarter was especially Demanding because we had such high demand. And so we don't the rate of acceleration will not be the same.
Do you think you'll be cash flow positive in the next quarter or after, I guess, in Taiwan?
Yes, it's going to depend on our growth. And so that's really the What it comes down to is how is if we go if we exceed our growth targets.
I think we will stop buying StarTech for this quarter. The vision is we said our vision is well below the install, And we need more cash flow to prepare inventory.
Got it. Good problem to have. Last one for me. Line up and if you are, is it your other products, the AMDs, the NVIDIA that are driving the strength that you're seeing going forward?
Duke rides are overly hard. We have a customer kind of require
Okay, great. Thank you.
Your next question is from Nehal Chokshi. Your line is open. Yes. Thank you. Congratulations on the strong results here.
It It sounds like the drivers of the 8% beat relative to midpoint guidance was the new customers equally between CloudAds and customers in AI, do these new customers come with the new products Or is it using existing products?
It's a combination. We have a lot of Customer need a new GPU solution from NVIDIA, right? So that NVIDIA new GPU and some is iState, some is in NAND. So, yes, most of the growth, I believe, is new product. But even existing products, we see a strong demand.
The whole Limitation is kind of shortage. So we ultimately have to improve that situation.
What about demand on the storage heavy side of things, next gen storage and JVOD storage?
I wouldn't say not to as not as hard as AI and 5 gs Careful, but still
Okay. And then I think there's been a lot of discussion during the call about Price inputs and that's been an issue for a lot of companies out there. Sounds like you guys have been able to skirt that issue. Just to be clear, is it because of the strategic inventory reserves
That helps us keep the cost finally smooth or at least stable. And yes, most of the customers also So in both Situation, I feel we are in good condition.
And is that what underpins the confidence and gross margin will tick back up in the same quarter?
Now gross margin pretty much because of Shipping charge, especially some ship by air. As you know, after COVID-nineteen, the ship by air cost grow above I never believe on that, but in last few quarters and other situations. And also Because our demand was strong, so we speed up the production and we in some case, we have to pay extra to our vendor
Okay, great. Thanks. Good quarter.
Thank you. I'm showing no further questions at this time. I would like to turn the conference back to the company for any additional or closing remarks.
Thank you everyone for joining us today and have a good one. See you next time. Thank you.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.