Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Super Micro Computer Incorporated second quarter fiscal 2020 earnings 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 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. As a reminder, this call is being recorded Thursday, February 6th, 2020. A replay of the call will be accessible until midnight, Thursday, February 20th, 2020 by dialing 1-844-512-2921 and entering replay pin 9606207. International callers should dial in at 1-412-317-6671.
With us today are Charles Liang, Chairman and Chief Executive Officer, Kevin Bauer, Senior Vice President and Chief Financial Officer, and Perry Hayes, Senior Vice President, Investor Relations. I would now like to turn the conference over to Mr. Hayes. Mr. Hayes, please go ahead, sir.
Good afternoon. Thank you for attending Superm icro's financial results conference call for the second quarter of fiscal 2020, which ended December 31st, 2019. 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's scripted commentary on this quarter's results on our website. Before we start, I'll remind you that our remarks include forward-looking statements. There are a number of risk factors that could cause Superm icro'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, and our other SEC filings. All of these documents are available on the investor relations page of Superm icro'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 outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation or to our press release covered earlier today. A reconciliation of GAAP to non-GAAP results is contained in today's press release and in the supplemental information attached to today's presentation. At the end of today's prepared remarks, we will have a Q&A session for sell-side analysts to ask questions. I'll now turn the call over to Charles Liang, Chairman and Chief Executive Officer.
Thank you, Perry. Good afternoon, everyone. Over the last couple of years, Superm icro has been continuing our journey of becoming a strong global leader of server and storage solutions. We have added many new product lines and roughly doubled our operational capacity worldwide to build our products more efficiently and with high quality. Now, Superm icro is the most complete company it's ever been. Supporting enterprise customers and data centers with optimized solutions, plus management software and services, and providing the industry's best system building blocks to the channel. Simpler, faster, and greener. It is what our customers demand, and it's exactly what we deliver. Today is also an important milestone for our company as we give our first quarter earnings release on the Nasdaq stock exchange.
We begin this new era with Superm icro, a stronger company with better financial and operational controls, combined with the latest technology and total solutions for our customers. We are more optimistic than ever about the business opportunities ahead. I can confidently say that we are back stronger and ready for growth. Before we discuss this quarter's results, let me remind our shareholders about what makes Superm icro unique in our industry. First, total innovation is our DNA. We are the only server and storage solutions provider with a majority of our engineering, product development, and final assembly based in the USA. With over 1,700 engineering staff, mostly in the heart of Silicon Valley and some worldwide. Our dedicated engineering strength allows us to quickly offer the most advanced technology with the broadest range of products in our industry.
We have capitalized on the industry's convergence of cloud, artificial intelligence, and 5G from data center to edge. These emerging technologies enable businesses and industries to utilize their growing pools of data and data analytics. Superm icro has the technology innovation DNA uniquely positioned us to provide the timing and optimized solutions to service these key high-growth markets. We are delivering world-class solutions for global enterprise, from the private to the public cloud. Our enterprise data center solutions have been widely deployed around the world as a certified provider of enterprise solutions for leading software applications such as SAP, Oracle, Red Hat, to name a few. We offer complete end solution based on our hardware profile, storage, and firmware software design capability. Finally, we are positioned to be one of the fastest-growing solution providers in the growing $100 billion server storage market.
Superm icro's growth strategy is based on our involved solutions in this market, which contributes solutions directly to enterprise companies, data centers, OEMs, and also indirectly to the channel. We plan to discuss our business opportunities and strategy in more detail with investors at our event later this year. Now turning to our Q2 results. Our second quarter net sales were $871 million, which exceeded the high end of our initial guidance and up 9% sequentially, consistent with typical season pattern. Sales were down 6.5% year-over-year, in large part due to steep declines in component pricing. Our indirect or channel business grew to represent 15% of this quarter's revenue and grew both sequentially and year-over-year. This quarterly result follows our successful launch of improved channel partner programs.
At the same time, our direct and OEM business also grew sequentially, with most of the growth coming from large enterprise accounts. Other than our current market focus, we are also enhancing our product offering to hyperscale installation with highly optimized Cloud PC and Mini PC product line. Here are some key product highlights. We saw growth for our Rackmount and Multi-Node product lines in data centers. This quarter, Rackmount grew sequentially, primarily due to our strong growth in our [inaudible] platform, which was up 30% sequentially, and BigTwin , which grew over 10% quarter-over-quarter. Many of AMD products and some other new Intel processor-based systems were helped continue this strong momentum. We saw sequential growth in accelerated computing and launched multiple new GPU-based product offerings.
Our customers choose Superm icro GPU solutions over the competition because they provide the best pure performance with the fastest GPU interconnect and highest performance per dollar. Our 5G embedded and IoT solutions for edge computing, telco data center, and appliance also grew, and we anticipate these product lines to grow significantly later this calendar year. We announced new solutions for 5G cell tower deployments, leveraging fully configurable SuperServer to the edge, bringing standard x86 compute design to a traditional proprietary telco market. We also grow AI to the edge, combining broad-based hardware and optimized software stack to accelerate the most demanding AI workloads at the network edge.
We continue to focus on our mission to be the IT leader in green computing solutions and resource-saving platforms, including the introduction of the first premier year of [inaudible] product line, a new path for the with every data architecture.
With investor attention on ESG considerations, we anticipate increased demand for resource-saving solutions. Summarizing this quarter, we were pleased to see our revenue start to re-accelerate. We are also pleased to be able to move forward this quarter as a Nasdaq-traded public company. We will continue to focus on transforming server and storage technologies by building upon our robust engineering fundamentals. Superm icro is ready to provide the best products to customers who are demanding innovation, quality, lower TCO, and environmental friendly solutions. I will now hand the call over to Kevin to review the results for the quarter in more detail.
Thank you, Charles Our fiscal second quarter revenue was $871 million, exceeding the upper end of our prior guidance range. This reflects a 9% quarter-on-quarter increase from the first quarter of fiscal 2020 and a 6.5% decrease from the same quarter of last year. Systems comprised 77% of total revenue, and volumes of systems and node shifts were up sequentially and year-over-year. However, ASPs for systems fell due to declines in commodity component costs. Geographic performance was mixed on a challenging year-over-year comparison with the U.S. up 3%, EMEA down 20%, and Asia 15% lower. On a sequential basis, the U.S. market continued to be our strongest market, with sequential growth of 12%. However, this quarter, EMEA also grew sequentially, increasing by 12%. Asia had modest sequential growth, with Taiwan, Korea, and other Asian countries offsetting weakness in China.
Working down the P&L, our gross margin on a GAAP and non-GAAP basis was 15.9%, 210 basis points higher than last year, driven by lower key component costs as well as favorable customer geographic and product mix. Q2 operating expenses increased quarter-on-quarter and year-on-year, primarily due to higher employee costs, including higher R&D expense targeting new opportunities. We have a strong sense of urgency to get current with our SEC filings by concluding the fiscal 2018, 2019, and 2019 10-K audits, as well as the first quarter 2020 10- Q review. We also concluded a tax restructuring project on December 1st, 2019, that results in a lower corporate tax rate of approximately 20% on a go-forward basis. Concluding these three projects increased G&A expense by approximately $6.4 million in the December quarter as compared to the September quarter of 2019.
Other income and expense was a $1 million loss as compared to a $1 million gain last quarter, primarily related to the foreign exchange impact on our Taiwan dollar-denominated term loan. Our tax rate for this quarter was 8% on a GAAP basis and 12% on a non-GAAP basis, both of which benefited from a release of reserves following the conclusion of a tax audit in a foreign jurisdiction of $1.6 million. Lastly, our share of earnings in the joint venture was a $1 million loss this quarter, as compared to a $1 million gain in the previous quarter and a $1.8 million loss in the same quarter a year ago. Second quarter non-GAAP diluted earnings per share totaled $0.57 per diluted share, compared to $0.68 last quarter and $0.66 last year. Cash flow generated from operations totaled $82 million.
After deducting for CapEx and investments of $11 million, we generated free cash flow of $71 million, and our closing cash position was $309 million. This quarter, our cash conversion cycle was 80 days, which is below our target of 85-90 days. Days sales outstanding was 38 days payable outstanding totals 46 days, and inventory days was 87. In summary, we are pleased to see revenues re-accelerate. We are also pleased to be able to report this quarter as a Nasdaq-traded public company with stronger financial controls. Now, turning to our outlook. The company expects net sales for the quarter ending March 31st, 2020, in a range of $770 million-$830 million. In addition to typically weaker seasonal trends, we are increasingly cautious given the unfolding impacts of the coronavirus outbreak.
Barring further significant disruption from the outbreak, we expect this quarter to represent a trough and see consecutive trends fueling healthy year-over-year growth going forward. In particular, we're encouraged by a healthy customer pipeline supported by a number of technology refreshes and product cycles in the second half of calendar 2020. With regard to operating expenses, we will continue to invest in personnel to fuel growth. We are also aggressively remediating material weaknesses with the goal of full remediation by June 2020. Therefore, while OpEx will decline sequentially in the March quarter, it'll grow sequentially in the June and September quarter due to the audit of our financials and testing of our remediation efforts. We expect audit and remediation costs to revert to normal levels after the September quarter.
We also announced that we expect to incur additional charges of $35 million-$40 million in the third or fourth fiscal quarter that are one-time in nature. These one-time charges address residual cleanup matters from our extended blackout period. We are taking actions to address benefits that were not able to be realized by certain of our long-term and most dedicated key employees. The board is considering an additional retention bonus to certain employees. Lastly, our board is considering appropriate forms of compensation for both of these matters. Regarding the use of cash through the rest of fiscal 2020, we will apply cash to completing two buildings, one in San Jose and the other in Taiwan, which will be completed over two years. As I mentioned earlier, we expect higher than normal costs related to audit and remediation for several more quarters.
Assuming this revenue range, we expect non-GAAP earnings per diluted share of approximately $0.35-$0.55 for the quarter. As a reminder, these one-time charges are not included in the non-GAAP EPS range. In closing, let me highlight an upcoming event for the financial community. We will be attending Susquehanna's ninth annual technology conference in New York City on March 12th. With that, I'll turn it back to Perry for Q&A.
Thank you, Kevin. I would just like to remind shareholders who are listening in on the call, I understand that the audio may not have been very clear. I just want to remind you that the transcript will be available on our website. In fact, it is at this time. If you had any questions understanding part of it, please refer to the transcript. Operator, we're now ready for questions.
Thank you, sir. Ladies and gentlemen, a question-and-answer session will be conducted electronically. To ask a question, firmly press the star key followed by the digit one on your telephone. If you find your question has been asked or answered before you could ask it, or would like to remove yourself from the queue, please press star two. If you're on a speakerphone, please make sure that your mute function is designated so that your signal can reach our equipment. We ask that you limit yourself to one question and one follow-up until all in the queue have had an opportunity to ask a question. We will then come back to you for additional questions. Again, that is star one if you'd like to ask a question.
Our first question will go to Ananda Baruah with Loop Capital.
Hi, good afternoon, you guys. Thanks for taking my questions, and congratulations on continued progress forward. This could be for both Charles and Kevin. Just starting with the revenue trajectory, there's two comments. Kevin, I believe you said Q over Q growth going forward, and then you also talked about, I think, in the second half of the year, a stronger R&D expense. I'm paraphrasing here, the speed of revenue opportunities and the guide for the March quarter is 7%-8% at midpoint. Could you talk about how you'd like us to think about sequential revenue kind of tempo and trajectory in the coming quarters to the extent that you're comfortable, just so we can get a sense of that, and then what some of those upcoming revenue opportunities are?
As we highlighted this quarter, we have cause for caution a little bit with the coronavirus that is out there. What I tried to convey is that, once we get through this quarter and say there are no residual effects of that, then we like what we see in terms of what our new customer pipeline looks like, as well as knowing that there's technology refreshes towards the end of the year. We don't normally give longer term guidance, but just giving a little bit of color for the investment community and for yourself.
Appreciate that. That's the end of the calendar year?
Correct.
Got it. Great. Thanks. Then just quickly on OpEx, if I could. You mentioned OpEx increasing. There's actually a couple of moving parts, it sounds like, to the OpEx. You mentioned magnitude of OpEx increasing, or you mentioned OpEx increasing in the second half of the year. Can you give us a sense, just for modeling purposes out of the gate here, how you'd like us to think about magnitude? Then, I missed the part with regards to audit costs. I think it's December quarter, it sounds like you're saying, that normalizes. I just want to get a sense of how we should expect the impact on when that rolls off as well, or normalizes as well. Thanks.
Let's first talk about our R&D investments. We mentioned that we continue to invest in R&D for future products. Another thrust of the company is to enhance our software capabilities. Some of that is really focused on software engineers. We are signaling that we continue to invest there. As it relates to OpEx, I understand that certainly, as we really focused on getting compliance in this quarter, that $6.5 million was maybe not comprehensive in model. Therefore, I wanted to address that, saying that when we had our audit team working concurrently on both 2018, 2019, as well as first quarter of 2020, we went through a siege, and that's why I tried to call that out. That $6.4 million, I think, it is safe to model that will not occur in the March quarter.
Kind of set your base with that in mind. I was trying to give you the topology of the way audits go thereafter. Therefore, we're going to be doing a lot of remediation activity internally. As time goes by, we'll be working with the audit firm to both audit the 2020 results as well as the intensity of their auditing our performance on internal controls, hopefully, that will be remediated by 2020. That's the shape that I tried to give you. A reset into the March quarter, and then kind of a nice increasing through the September. Okay, great. Thanks. I appreciate that. No problem. It does. I appreciate it, Kevin. Yeah, thanks, guys.
Thank you. We'll take our next question from Mehdi Hosseini with SIG.
Yes, sir. Thanks for taking my question. A couple of follow-ups. First one is for both Charles and Kevin. Commodity prices are on the rise. Your OpEx is also going to increase that June and September quarter. You're also talking about our revenue opportunities. When I look at the trend, it seems like we shouldn't really expect any margin expansion until like a year from now or early 2021, given the commodity prices that would cap gross margin expansion and also the increasing OpEx. Am I thinking that it's the right way, or am I missing something? I have a follow-up.
Well, I think, we're always looking for ways to improve, but I think maybe with increasing commodity prices as a margin percentage, I think, I've articulated that could be a little bit of a headwind. I think you're on track there.
This is since many quarter, maybe two years ago, we start to invest much more in firmware, so Super M icro Computer will provide lots of total solution to our enterprise customer. Not like 10 years ago, we pretty much focused on hardware only. We can see Super Micro Computer as a total solution company. This year for growth, we will add more value to our product.
Sure. That's actually a good point, and it leads to my second question. That's for Charles. It's good that you're now currently filing and relisted Nasdaq, and there's significant growth opportunity, and hopefully we get the margin expansion, if not this year, next year. Can you share with us, Charles, what are you doing to improve governance? What are you doing so that as you grow the business, there's also checks and balances that would help with increased confidence, so that we could look forward and the path will be just a real view?
Yeah. That is why we are saying, in that few years, we start to invest more and more in firmware, software, and total solution. We are ready to focus much more on enterprise, including government and some other mission-critical customers. From this point of view, we feel very comfortable to grow our business both in volume and in value.
Sure. That's well understood. What are the key checks and balances that you're putting in place so as you grow, there's also a more systematic approach in scaling your business so that your top line and bottom line are consistent?
Kevin, you share.
Yeah, sure. Mehdi, I think I can share with you that Charles has been very forward and very supportive in terms of investing in the team, and ensuring that, for instance, the internal audit and the compliance group are all joined at the hip. I will tell you that, now, with Don at the helm as Sales and Alex being our COO, the communication and training across the entire organization is light years ahead of what it was a year or two ago. To give you a little bit of color, I think just this quarter, we were very enhanced in terms of the way that we closed this quarter, and being very interactive with the operational people to understand everything that's going on, to make sure that we are fully aware of what impacts the financials.
Charles certainly helps us make sure that we have all the resources to be able to do that. As you know, we have other remediation efforts that we need to attend to. We've brought on a wonderful AC chair that has helped us, in terms of helping to get and understand ideas of how an [inaudible] company needs to perform revenue on a daily basis, as well as follow up with requisite investments in IT. There's a lot going on in the ecosystem, Mehdi.
Yeah. Especially the SAP system has been much mature than two years ago or three years ago. Now adding professional headcount in financial team and kind of compliance team. I would like to say we pretty much double our headcount in compliance and financial department compared with two years ago. All those kind of dramatically improve our operation and financial function.
Okay. Thank you.
Thank you. We'll now move on to our next question from Aaron Rakers with Wells Fargo.
Yeah. Thanks for taking the questions. Also, congratulations on being out on the results and stuff. Yeah. Kind of building on Mehdi's question. I am just curious, I heard the comment in the prepared remarks about positive views on the pipeline as opportunities looking through the course of this year, and I guess the simple question to that is, Kevin, how would you define pipeline? How has the methodology around looking at the pipeline changed? Again, what is pipeline to you guys, given obviously the nature of your business is fairly turns oriented. I am just curious of what underlies that comment as we look forward. I do have a follow-up.
Yeah. I think it's probably pretty traditional in that the pipeline that I was referring to is really the targeted customers that we're trying to obtain, understanding what is in front of us and the level of effort that is trying to land new customers. Sometimes pipeline is referred to growing backlog and all those kind of things, which is not our business. What we're talking about is landing new customers.
Okay.
Yeah. Especially in last two years, we start to have a more enterprise account. Those enterprise value accounts usually continue to buy the product from us. Not like distribution and regular data center. They change vendor kind of more dynamically.
Okay. The follow-up question is kind of tied to the pipeline commentary is that, as we move through the course of 2020, there seems to be a little bit of a different cadence to kind of server cycle dynamics, and I guess particularly around the cadence of Intel's product cycles and what that means for your business. There's a lot of discussion out there around Cascade Lake and the ramp of that going to Cooper Lake and whether or not there could be any kind of delays on Ice Lake. How do you see the cadence of kind of the server CPU cycle through the course of this year, and how relevant has AMD as competitor become in the context of your business?
Obviously AMD is growing quickly. Intel also has a more dynamic new product. Things to like that. When there are new technology, new generation product always outperform the old product. We have a very strong engineering team and fully focused on delivering the new technology to the market. Doesn't matter AMD Rome or Intel Cooper Lake, Cascade Lake Refresh, or coming Ice Lake, we are well prepared. That's why we believe the rest of this calendar year and next year, I believe we will have a good chance to grow much faster.
Okay. Just to slip in one other question, how quickly can you pass through upward pricing on the component front?
Your question again?
As we look at component pricing potentially moving higher, I guess particularly around DRAM, as we move through the course of this year, how do I think about your guys' ability to pass through pricing on the way up? Obviously, it's had an impact on ASPs on the way down. As pricing comes back, how quickly do I think in your business model you pass that back through from a pricing perspective?
Okay. Yeah. Basically, we have a much stronger relationship with our vendor already. Pretty much we are able to reflect also a new price to our customers. The overall impact should be limited.
Okay. Thank you very much.
We're trying to understand the delay, and I think there is always a delay, but we try to be very nimble in that, and we quote frequently.
Okay. Thank you.
Thank you. I'll now move on to our next question from Nehal Chokshi with Maxim Group. Please go ahead.
All right. Thank you. Congratulations on a really strong cash from operations quarter. Looks like the drivers were across the board in terms of the cash conversion cycle. Is this now at a level where you expect it to be, or did you guys actually [inaudible] a little bit on the contraction of the cash conversion cycle?
Yeah, I think we had a good quarter, and I did refer to the fact that it was better than what our near-term target range was. Like every new watermark, I'm not sure that we'll be there forever because we have seasonality that we have to live with. I think what we'll do now is kind of re-look at our targets and, over the course of time, see if that target can be shifted to a little bit better performance, and we'll give an update on that.
Okay. I apologize if this has been asked earlier. I am having trouble hearing you guys clearly. Did you guys give any metrics on the large enterprise customer segment?
No, we did not. We broke it down basically in terms of our direct and then indirect channels.
I've got a couple more questions. On the performance within the quarter, obviously, you guys came in just above the high end of your guidance. That's great to see. What do you think was the delta relative to your performance? Do you think it was the industry performed better, or you guys performed better than what you had expected? Relative to the prior few quarters, Superm icro revenue year-over-year growth had been underperforming the industry. Do you have a sense as far as how you guys did perform relative to the industry for the December quarter?
Yeah. Indeed, before, we always grew much faster than the industry. The 10-8-year period, we were slowed down. Now it's time to get back to our faster growth again. We expect that we will be able to grow better than the industry.
Is that what's embedded in the March Q guidance?
I'm sorry. Your question was a little muffled. Can you repeat it?
Yeah. Charles mentioned that expect to grow faster than the industry going forward now, is that embedded in the March Q guidance?
I think March was a very difficult quarter. I think we're talking about beyond the March quarter, just given all of the macro dynamics that we talked about.
Okay, good. Then could you comment particularly on, you did mention that geographic performance was uneven, but what was the reason behind that? Was that industry or Superm icro specific?
I think we haven't seen everyone else's industry breakout. We haven't compared it necessarily. In Europe, I think we were a little soft from data center customers.
Okay. Thank you.
Thank you. We'll now take our next question from John Lopez with Vertical Group.
Hi, thanks so much. I have three. I hope you can bear with me. The first one, the deferred revenue continues to grow a lot and it's comfortably over $200 million. Can you just remind us, what's driving that? Then does that yield you any different or better visibility looking forward than was the case before the deferred balance really started to come up?
I think, first and foremost, it's good that we're starting to get stronger service business. Certainly, when you're attacking enterprise customers who want that white glove performance or rather, expectation, that helps do that. It is a little bit of a proxy for that. There's a lot going on in that deferred service revenue in terms of the length of contracts that people are signing up for. Also, pricing over the course of time ends up being in the service revenue line item as well. I think, you're right in terms of it growing is a healthy thing for Superm icro. What I've said in past calls is that so far it is a small number from a revenue perspective, but it hopefully will be giving us some buffer in the margin area as time goes by.
It's all just a good directional sign for Supermicro and is a proof point to a certain degree of the increase in software and service focus of the company that Charles outlined earlier.
Yeah, additionally, we started to see service business growing about more than 50% a year. We believe the trend will continue for next many years to come.
Okay, great. That's helpful. Thanks. My second one, if we just look at the December quarter, I know I don't have the exact numbers here, but if I kind of ballpark your commentary, it looks like the non-server systems business, that subsystems and accessories segment, was up a lot. A, do I have that right? B, what was driving that to kind of a disproportionately high level of growth relative to server systems?
The indirect channel was higher than what we've typically seen. I just want to call out, though, that both the direct and OEM business and the indirect channel business both grew sequentially. The indirect channel, we've had a number of programs that we've launched in support of the channel. That, I think, has been helpful. Also, we've seen that the channel also includes the distributor part where we sell subsystems, but it also includes VARs where they have some larger customers buying systems from them. That's primarily what we saw, larger purchases through the indirect channel from some of our larger customers.
Yeah. I think, the key thing there that Perry kind of broke out a little bit is that one cannot make a direct connection to systems versus subsystems and channel versus direct. It is quite a bit of a mix in there.
That makes sense. Just thinking about the March, I am not looking for segment guidance, but would you expect that growth rate to kind of normalize between the two segments looking into March?
I think we'll see contribution from both probably in the same degree.
Yeah, that would be a sequential comment. We might see the same kind of mix shift when we compare year-over-year, however.
Okay, gotcha. Thanks. The last one, I'm hoping to come back to the OpEx real quick, because there's a lot of moving pieces here. If I could just ask it this way. The March quarter looks like you're guiding us to something in the high 80s, excuse me, on a non-GAAP basis. From there, what level of increase should we expect for the balance of the year? I'm trying to parse what you're saying qualitatively. Is there a scenario where OpEx actually declines from the calendar third to the calendar fourth as some of these one-time things move to completion?
Well, I'm glad you asked that question because you misinterpreted what I said.
Okay, great.
We had non-GAAP OpEx in the quarter be a little over $100 million, right?
Yep.
What I tried to say is that $6.5 million was a peak that we will come off for the March quarter. Strip off six and a half million. From that new baseline, we would have some trending upward expense from that. Glad you asked that one.
Okay. Sorry, just the last part about, are you guys embedding some kind of interim peak here in the middle to late part of the second, third quarter that then declines into the fourth? Or we just continue to ramp through the year?
It'll be continuing to ramp. Actually, first quarter 2021, I think, will be a peak from the audit cost perspective.
First quarter calendar 2021?
Yeah, that's when the bulk of the work of the audit is done on June 5th.
Okay.
So.
Great. Thanks for that. Appreciate it.
Thank you. Once again, if you'd like to ask a question, that is star one. We'll take our next question from Ananda Baruah with Loop Capital.
So I just want to-
Hi. Thank you.
That I was speaking in fiscal quarter year ending. one through 2021 would be September of 2021.
Cool. Thank you. Hey, Kevin, just sort of sticking with that theme. This is more of a, well, definitely calendar 2021 going to calendar 2022 question: more philosophically about how you would like us to think about business model evolution once sort of all the audit costs have rolled off, and you have these new programs running, then how would you like us to think about the sort of op margin, not guidance, but sort of leveraging the model, how you guys are thinking about anecdotally and philosophically funding new programs? It sounds like you have at least a handful of things you're pretty excited about right now. What's the right way for us to think about as we think about calendar 2021 and moving towards normalized in different levers?
It's a little bit premature for us to be able to call that out right now. In our interactions, in the past quarter or so, we've mentioned that now that we're back on the market, that we want to take a little bit of time, re-describing the company and preparing for an Analyst Day in which we would then present a model going forward. Not quite ready to answer that question for you.
Okay, got it. Have you guys decided upon doing an Analyst Day at some point this year?
Yeah, we've kind of said late spring, early summer.
Okay, great.
We would do so in New York.
Excellent. Awesome. Look forward to it. Thanks.
As you may know, right, I mean, from last few years, we see at Super Micro gradually and extend our business to a total solution. Not like five years ago, when it's pretty much a pure hardware company. Now we are moving to a not just hardware company, but total solution, including a firmware, software, and service. That will bring more value to our business.
Thank you. I'm going to take our next question from Nehal Chokshi.
Yeah. Thank you. On your last slide of your presentation deck, you have three data solutions, management software, and then global services and support that has been driving this for the past three years. What is the level of your global services and support personnel to date?
Our global support team is getting stronger, too. Kind of, in terms of hardware, for sure we are more completed system, higher value system, including security, management feature, and kind of the whole cloud infrastructure. Other than that, we started offer on-site support and some other software integration as well.
Okay. Can you give any commentary as far as how large is the global support staff at this point in time?
Yeah. We don't have that number on our fingertips. What I can tell you is, there are some regions that we work with partners to offer service as well. Our strategy is to work with partners in new markets and then work with our teams where we have a scale, so to speak.
Understood.
We'll take that question back and answer it next time. I think you're right in that there's going to be increasing questions about our service capabilities as it becomes more meaningful to the company.
Right. Okay. Thank you.
Thank you. It appears at this time we have no further questions. At this time, I'd like to turn the comments back over to Mr. Liang for any additional closing remarks.
Yeah. Thank you for joining us today and have a great one. Thank you.
Thank you. Ladies and gentlemen, that does conclude the Superm icro second quarter fiscal 2020 earnings conference call. We do appreciate your participation. You may disconnect at this time.