Ladies and gentlemen, thank you for standing by, and welcome to the Super Micro 4th quarter fiscal 2020 financial results. At this time, Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, James Kissner, vice president, investor relations. Thank you. Please go ahead.
Good afternoon, and thank you for attending Super Micro's call to discuss financial results for the fourth quarter of fiscal 2020, which ended June 30, 2020. 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 and Presentations tab. We have also published management 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, in future business outlook, including the potential impact of COVID-nineteen 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 2019 our March 2020 10 Q 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'll have a Q and A session for self set analysts to ask questions. I'll now turn the call over to Charles Yang, chairman and chief executive officer.
Thank you, James, and good afternoon, everyone. Today, we had released our fiscal 4th quarter and full year fiscal 2020 financial results. Now let's take a look at some highlights from the quarter. Our fiscal 1st quarter net sales totaled $896,000,000, up 5% year over year. And 16% sequentially.
Our fiscal Q4 earnings per share was 0.68 dollars We saw double digit growth in edge applications and some key data center and cloud customers. This was offset by softness from some customers who are seeing the worst effect of the COVID-nineteen straight. Before we dive into the financial details, I want to provide you an update on our business strategy. Last quarter, we talked about our 4 strategic, high growth market segments, and we are aligning our resource accordingly to speed up our growth for the coming quarter and years. These 4 strategic markets are: 1st, organic enterprise and channel business, including server, storage, IoT and AI.
Which are our historical growth areas. 2nd, our new 5G edge and telco business. 3rd, our new large data center and public cloud. And 1st, Solar And Global Service. I'm pleased to share that we have made good progress in 3 of these 4 market categories this quarter.
The strategy enables us to win more high profile customers among enterprise datacenter and 5g Tierco infrastructure Builders. In addition, we have continued our investment and growth trend in SolarWinds And Service. By doubling these teams headcount over the past year to prepare a series of higher value product lines. Unfortunately, COVID-nineteen posts significant disruption on our organic enterprise and channel business and slowed their growth in the near term. But we are encouraged by our progress in our 2 new strategic drivers this quarter, the large DC and cloud as well as 5G and telco.
And they proved that our overall growth strategy is working well and will drive much stronger results in the future. Going forward, we also plan to accelerate our unique online business into an official phase to complement our strategy. We have been preparing and fine tuning this business for a few years. And I am optimistic that it will speed up bringing new revenue growth and profitability to us. How do we move this business into an official phase?
Schuplemicro pride its sale in product innovation, which have been the key to our success in the past 27 years. Our services computing products, application optimization and resources savings design vision. Separate us from our competitors. And we are very excited by our recent product introductions. Last quarter, we announced a new AI and machine learning system portfolio that supports the new NVIDIA A-one hundred and three tensor core GPUs based on the latest AMB EPYC processor.
And Intel Commission Processors, armed with up to 5 petaflopes our performance per 4U system with optimal thermal solution. These systems enabled researchers to train the most sophisticated AI networks at an unprecedented speed. Next, we are introduced a new 4 way enterprise platform based on the 3rd generation Intel GeoM Scal scalable processor. Which is optimized to take on deep analytics and mission critical applications Most importantly, this quarter, R and D is hard at work to expand our extensive AMD product lines. And working closely with our partners to seed our next generation X12.
Intel processor base for dynamite. These engagements will enhance the strong foundation for our growth in the coming quarters and years. At our recent virtual stories summit, co hosted with our partner, Nutanix And Intel. We discussed our completely refreshed storage portfolio. At the event, we introduced storage systems that offer highs the data density and optimize system performance for our customers, including our brand new second generation travel loading 60 and 90 base storage, petascaleedsff.
High performance storage and software defined solutions, switching gear to 5G We have also been recognized recently by VDC Research as the top 5G Pearco And Edge solution provider based on the highest customer satisfaction for its application optimized products. As distributed, compute, become more critical for 5g Infrastructure implementations, our edge solutions optimized to be deployed, managed, maintained, and secure on a mass scale. We see that still in the early phase of deployments. This represents greater market share opportunities for Super Micro. I want to get back and talk a bit more about our current quarter and business outlook.
The logistical issues, rising shipping costs and employee working home home caused by the spread of COVID-nineteen in US to disrupt our business in short term. It will lower our business and revenue by some points and increase our business cost in short term. And at this time, we have been aggressively shifting and growing certain operation and R and D works to Taiwan. By aggressively and efficiently growing our operation in Taiwan, I'm confident that this big step of change, we are here, bigger long term as our overall cost will be much lower when our operation and production volume in Taiwan ramp However, we will also continue to optimize our operation in US by better business and production automation to address the ever changing market dynamics. In summary, we are able to continue our growth moderately despite the continued disruption caused by COVID-nineteen.
We will provide a near term outlook today that reflects some readouts from those rates of COVID-nineteen. However, we are very encouraged as we look into the future as the district will continue to progress, evolve and grow. Rest assured We are using this period of disruption as an opportunity to improve our business, global structure by shifting and growing certain portion of operation, production and R and D to Taiwan. A much lower cost of the country and less COVID-nineteen disrupted area. In this change, we have resulted in our midterm and long term business revenue and profitability growth.
Our enhanced mix of hardware, solarware, and service, hybrid focus is the path for world for us to build higher product value, gross margin and revenue growth over time. Our strategy will empowered SchipoManko to accelerate our revenue growth and resume our long history of strong market share again. With that, we remain very bullish on our long term opportunity. To penetrate our roughly 100000000010. Finally, we are pleased to announce today a $30,000,000 starter repurchase program, although the starting amount is a modest We would like to start utilizing our cash on hand to increase shareholders' value while maintaining a sufficient cash resource to fund our operation and aggressive growth plan.
The stock repurchase program reflects our ongoing commitment to improve the value of our common stock and will help us to offset dilution from our equity plan. I will now hand the call over to Kevin to review the results of the quarter in more detail.
Thank you, Charles. First, I'd like to thank our employees, customers, investors, and partners for their support as we navigate the ongoing challenges of the COVID-nineteen pandemic. Before jumping into the details of the quarter, we'd like to provide a brief update on Recall our largest production and employee presences in San Jose, California. We continue to operate under increased safety measures for the health of our employees. While we have adapted well to current conditions we continue to maintain a higher level of inventory and are adjusting our logistics to moderate costs.
All that said while we aren't satisfied with our operating profitability this quarter, we are proud of our results under these unprecedented times. While we don't have unique insight into the long term trajectory, of a global economic recovery from COVID-nineteen, we believe that much of the effects we are seeing on our financials today and over the near term will likely prove transitory. Now let me turn to the details of the quarter. Our fiscal 4th quarter revenue totaled $896,000,000. This reflects a 16% quarter on quarter increase from the third quarter of fiscal 2020 and a 5% increase from the same quarter of last year.
Systems comprised 83 percent of total revenue and volumes of systems and nodes shipped were up sequentially and year over year. System ASPs increased quarter on quarter, but declined year over year. Turning to geographic performance, on a year on year basis, the US was up 4%. EMEA grew 13% and Asia was flat. On a sequential basis, U.
S. Sales grew 27% as we saw strength at a number of internet data center and enterprise customers. EMEA grew 3% and Asia grew discrete items worth noting for investors. 1st, we recorded $17,400,000 in expense related to incentive awards to our employees On our February call, we mentioned that we had expected to incur additional one time charges of $35,000,000 to $40,000,000. 2nd, we paid out approximately $26,000,000 for those awards whose performance criteria was achieved in this quarter 3rd, we recovered $4,800,000 from customers related to previously reserved bad debt.
Lastly, we released $3,300,000 in tax reserves following the finalization of certain foreign tax returns for prior years, and our tax Turning back to our non and 3 seventy basis points quarter on quarter. As you've likely heard from other market participants, commodity costs have been volatile. Gross margin was impacted by commodity costs, COVID related costs and customer mix in that order of magnitude. Turning to operating expenses, Q4 OpEx on a GAAP basis decreased 3 percent quarter on quarter to $114,000,000. On a non GAAP basis, operating expenses increased 5 The sequential increase in non GAAP OpEx was primarily due to the absence of $9,800,000 in R and D credits the previous quarter.
G and A also benefited from the aforementioned debt recovery. Other income and expense was a $700,000 loss as compared to a $900,000 gain last quarter related to the foreign exchange re measurement of our Taiwan dollar denominated loans. This quarter, our taxes were a $7,000,000 benefit on a GAAP basis and a greet items mentioned earlier. Lastly, our joint venture contributed income of $3,500,000 this quarter, as compared to a $1,100,000 less in the previous quarter and income of $900,000 in the same quarter a year ago. Q44 non GAAP earnings per share totaled $0.68 per diluted share compared to $0.84 last quarter and $0.69 last year.
Cash used from operations totaled $96,000,000 as we paid out $26,000,000 related to the one time employee bonuses and our accounts receivable was up $71,000,000 sequentially on increased sales. Timing factors contributed to the large use of cash in Q4, and we currently expect cash flow from operations to improve in Q1. CapEx totaled $9,000,000, resulting in free cash outflow of $105,000,000. Our closing balance sheet cash position which excludes restricted cash was $211,000,000. This quarter, our cash conversion cycle was 87 days down from 92 days last quarter and within our target range of 85 to 90 days.
Days sales outstanding was 37 days, day payables outstanding totaled 52 days and inventory days was 101. Now turning to the outlook for our business. The company expects net sales for the quarter ending September 30, 2020, in the range of $720,000,000 to $800,000,000 in addition to typically somewhat weaker seasonal trends we are cautious given significant economic uncertainty. We expect gross margins to improve roughly 70 to 125 basis points sequentially as commodity cost pressures abate. With regard to operating expense, the $4,800,000 debt recovery will not repeat and we expect sequential increases in compensation, product development and the completion of our year end audit.
We expect auto costs to revert to normal levels in the December quarter. We anticipate the GAAP and non GAAP tax rate to be 18% for the year. We expect earnings per share of $0.10 to $0.35 both on a diluted basis. Our management team is focused on guiding our company through the continuing challenges presented by COVID-nineteen. Although we're unable to predict the extent to which COVID-nineteen may further impact our business operations, financial performance and results of operations, we believe we're well positioned financially and strategically as we continue to serve our customers.
Finally, as Charles mentioned earlier, we currently announced that our Board of Directors has authorized the company to repurchase up to $30,000,000 of its common stock in a new share repurchase program. The program is effective until December 31, 2020 or until the authorized funds are exhausted under a 10b5-one plan. With this small step, we are signaling to investors that we are committed to
Thank you, Kevin.
And your first question comes from the line of Aaron Rakers from Wells Fargo. Your line is open.
Yeah, thanks for taking the question. Maybe the first question, if you can just talk a little bit about the demand environment There's been a lot of discussion out there about, you know, kind of the cloud, the internet data center, large data center customers going through some level of a digestion phase. So I'm curious what your insight is in terms of the demand profile there that you're seeing into the current quarter and whether or not you have any kind of, you know, indicators of of a digestion phase materializing and any extent in terms of how, how material that might be or how long could last?
Yes. Very good question. We did see a large data center, especially those social networking, those steaming, even gaming, large data center have a strong demand during this, a COVID 19 period, especially. And we have most of the folks on the other side, enterprise the channel. So that kind of, it really is demand indeed that did not have us a lot in the in the June.
But, likewise, say, now we are extending our operation and, business to Taiwan, over there, our cost So we will be able to more aggressively participate in those large data center and cloud. And I believe this vision is the main last thing for another few quarters.
Yeah, Aaron, I can augment that describing a little bit of what we're seeing in the current quarter. So, I think evidence that would align with what you're hearing from other parties is that as we entered into July, we definitely saw that our customers were taking a pause after having a strong June. And So I think as opposed to last quarter's comments where I said we started off strong and let's see where we go. This quarter, we're seeing a pause in July yet. Just currently now, we're starting to see an order, a flow an order flow pickup.
So we hope that that is a good turn to our July results. So a little bit different topology as compared to last quarter.
Okay. That's helpful. And then you talked a little bit, I think in your prepared remarks about kind of significant component cost headwinds, but it sounds like those might be abating here as we move into this current quarter. Can you help us understand or appreciate how, you know, how you're kind of seeing component cost trends into this current quarter and kind of how much of that, you know, 70 to a 100 basis point improvement in gross margin might be might be, you know, assumed from component cost dynamics?
Sure. I think what we're seeing is that, you know, that it got a little bit heated with component costs and things are moderating a little bit. For us, Aaron, it takes time for us to kind of digest inventories that we have on hand. And we believe that towards the end of the quarter, we'll be able to see some moderation in component costs. I think that's a fair portion of what we described in terms of our expectations for GM improvement.
Other things that we continue to battle our the momentary high cost of logistics and freight. As we kind of mentioned earlier, it was tough in the last quarter. It kind of loosened up in June. It was looser in July and seems to be tightening up a little bit. But beyond that, what we've done is we've looked at some of our components that we bring from Asia to look at what are those that we can start shipping by C might take a little bit more in terms of inventory holding.
But it's definitely worth it when it comes to some components like motherboards and those kind of things we can afford to do by seat. We're kind of managing that. Hopefully, we'll have some improvement in that arena as well.
Okay. Very helpful. And then a final quick question. There's a lot of discussion out there about intel, you know, timing, and I know it might be longer term in nature around the cadence of their product cycles. But any thoughts that you guys might offer in terms of how the cadence of intel's moves, product cycle wise, 10 nanometer, 7 nanometer, you know, affects your kinda outlook and appreciating that's probably a longer term question.
Yeah. I mean, Intel, as you know, the postpone, their 10 nanometer and also a coming 7 nanometer technology. So that did impact some to us. However, we also grow, AMD product line. They are graciously.
So overall, there are some impact for our maybe September quarter, but long term, we should be able to adjust, efficiently.
Yeah, Aaron, that's one of the considerations as we look forward when I said that product development costs may increase a little bit is that Now we have to think about multiple platforms given the dynamics of Intel's timing and pushing the pedal to the middle a little bit more on alternate processors.
Very good. Thank you very much.
Your next question comes from the line of Amanda Baruah from Loop Capital. Your line is open.
Hi. Good afternoon. You guys. Appreciate you taking taking the questions. A few, if I could, Charles and Kevin.
Kevin, to start, just a point of clarification, when you were talking about sort of seeing, seeing a pause in July after June and now seeing order flow pickup. Was that your enterprise and channel business or was that the hyperscale public cloud business?
I think it's we're seeing it on multiple fronts. So not necessarily the hyperscale, but probably more traditional
Okay. Okay. Great. Got it. So you're starting to see a pickup again.
And I was going to the linearity of slowing, but it sounds like it was really a month of July dynamic. Are you do you any context that you can provide for, for how we should think about, like, seasonality into December? I know it's probably probably lack of visibility a little murky right now, but any context just for our modeling would probably be useful for us.
Yeah, that's, that's a little bit hard to call right now. I believe that we all are are hoping that things return to normal a little bit and that we have some seasonality certainly in December and maybe a little bit better than normal. I don't know, Charles, do you have anything to augment that?
Yes. I mean, September tradition in our soft quarter. In December, you already 20% higher than September in the history. So this year, I believe we will have some, impact like that. Although, coronavirus is impacting us, but, we are, doing whatever possible to adjust our globe.
We we we were filed December. We have been much stronger quarter. Yes. That web is still the case.
Really helpful. Thanks a lot. And I guess, just with regards to the cost, sort of the cost optimizing And you highlighted shift to kind of production shift to Taiwan. You guys, you also mentioned accelerating your online business. Could could you just walk us through the different initiatives, that will help optimize the cost base and then maybe give us some sense of timing of how, you know, sort of you might begin to be able to benefit from from those optimization efforts?
Yeah. I mean, since, about 9 months ago or even 3 months ago, we started grow in Taiwan aggressively, including engineering and the, operate and even sales, even customer service. So that, transition will speed up now especially for coronavirus. As you may know, the coronavirus impact in Taiwan is much best than United States. So we we are moving to Taiwan for coastal region and for coronavirus impact reason as well.
And, that result is, virtually, helping us And I would like to say by December quarter, it will have more next year for sure will be much more efficient. And it's a kind of midterm and long term investment by the December quarter, we will see some help. As to our online business, it's basically a complimentary business to help our customers to get a support, especially spare parts or when they need mobile remote system, they can order from online. And that system we have been preparing for many years, and now it is getting very mature. So we start to, small scale, business, last few quarters.
And then we will have a formal official release medicine.
That's really helpful, Charles. I really appreciate that. Let me just sneak one more in here. This is on 5g your 5g initiative. And then you had made mention a couple of times on the call about seeing public cloud progress Could you just give us put some context around, you know, what what's going on right now, what you're seeing and experiencing in your 5 g and public cloud initiatives.
And then appreciating that, you know, Kevin, you said that it's been sort of stop start of, you know, sort of stop start again. But we'd love to get a sense of, potentially, what you guys see going on, the the progress that you've made. And then you know, do you think these can be, I don't know, have an impact, in the December quarter if if things come together for you?
Good. Thank you for the question. Yes, we started focused on 5G telco about 12 months ago. And now we are already engaged handful of a a good sized customer. And they are very happy, very committed, with all for that.
So we see some, a pile on some mobile ram, moving since last quarter. And those volumes to ramp up in this quarter December quarter and especially for next year. And with our operation, growing in Taiwan, aggressively now, we soon will be able to ship really high volume products from Taiwan operation. And that's why it's, the time, it's mature for us to start service a large size, cloud and data center. And we are already, working with, couple of, lost, financial customer.
And, again, so far, have been very commendable. So we will continue to push, those opportunities.
And your next question comes from the line of Nehal Chorsky from Northland Capital Markets. Your line is open.
All right. Thank you. Really nice June quarter results by the way. To me, you know, significant narrative of the investment theme here is, what you guys have been talking about, returning to our heritage of gaining market share. So within that investment theme, can you characterize how you think you did in the June quarter and what embedded in your September quarter, in terms of a market share trajectory?
Yeah. I mean, last quarter I started to share, we engaged with, another 3 business drive, right, large 5 g telco, large data center and cloud. And then, solar air and service. So indeed, the older 3 new drivers we have been growing pretty healthy way. For 5 g telco, we already have some, handle for customer engaged.
Large cloud, we have some customer engaged. And then, store the warehouse service. We continue to gain a customer's, satisfaction, and that's why we like to, further promote the scope to service all the customer around the world. And we expect that these tanks the feedback will be prettier, a hell of a seat for our business plan.
Okay. And then for September quarter, you expect that, outperformance to, continuing, that's what's embedded in your guidance. And therefore, you're actually expecting the overall market to be down as much as 15% year over year.
To be very directly, I mean, we just move, lots of, business to Taiwan, especially operation. And September that impact the advantage from the SUV. December, I would I would like to say, we'll be much more significant in the same And then next year, we're sure we will see a a lot of benefit from that.
I see. Okay. And then take
some time to warm up.
Yeah, understood. And then Kevin, you mentioned, gave some additional detail regarding order trends being relatively weak in July. Is it fair to say it was actually trending down more than 10% year over year during the month of July?
Well, I'm not going to give a specific number like that, but in July was one where it was certainly a weak month. And so we're glad that we've seen the trajectory turn here. So all of that is embedded in terms of the revenue range that we've given.
Okay. And, why was there a lack of the 9 and a half $1,000,000 R and D credit? Can you give more detail on that and how should we think about going forward?
Yes. So last quarter, if you recall, we had a significant one time event where we received $9,500,000 from a partner for a cancellation of a program. And that's all we're just saying.
Gotcha.
Okay. Thanks. Significant magnitude last quarter.
And there are no further questions at this time. I'll turn the call back over to our presenters for some closing remarks.
Thank you. I would like to thank you our employee customers and investors, for their continuous support. And thank you for joining us today and see you next quarter. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.