Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Super Micro Computer, Inc. Filings 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 Analyst 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 Friday, December 20, 2019, A replay of the call will be accessible until midnight on Friday, January 3, 2020, by dialing 1844512 2921 and entering replay PIN 6731615. International callers should dial 1412317 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.
And now I'd like to turn the conference over to Mr. Hayes. Mr. Hayes, please go ahead, sir.
Good morning, and thank you for attending Super Micro's update conference call to discuss the company's recent filings of its comprehensive Super 10 K for its 2019 fiscal year ending June 30, 2019. During today's conference call, Tito Marco will address the cease and SEC filings and our efforts to file the last outstanding SEC documents required for relisting, our Q1 fiscal 202010 Q. At this point, with over 10 days left in our fiscal Q2 ending December 31, we will not be updating our second quarter outlook. By now, you should have received a copy of the news releases and supporting materials that the company distributed after the close of regular trading yesterday, and that are available on the company's website. These materials include a slide that highlights key information related to yesterday's filings, and Excel spreadsheet, quarterly GAAP and non GAAP financial information and non GAAP reconciliations.
And a PDF of the same information. Before we start, I'll remind you that our remarks may include forward looking statements. 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 and the press release we issued earlier yesterday and in our most recent ten K filed yesterday. All of those documents are available from the Investor Relations page of Super Micro's website.
We assume no obligation to update any forward looking statement most of today's presentation will refer to non GAAP financial results. And the end of today's prepared remarks, will have a Q And A session. During which sell side analysts will be committed to ask questions. I'll now turn the call over to Saul Liang, our Chairman and Chief Executive Officer. Thank you, Perry, and good morning everyone.
Today marks another significant Matt from Sichibanco. I'm pleased to, before we had successfully fired our annual and quarterly filings through fiscal year 2019. This filing reflects the accretive and continued enhancement of our internal control over financial reporting. These efforts, including a point in a slate of in universities over the past 3 years to help us manage the Surubi challenges and build a stronger project required for continued growth. We continue to provide our customers with leading solutions for enterprise, car, artificial intelligence, machinery, while maintaining ALC financial results and a ALC balance sheet.
Since our funding in the half of Silicon Valley, 20 years ago, we achieved a broken stream of year over year revenue growth, continuing even pet certificate here. And in the pet certificate, they achieved an organic compound annual growth rate of over 20%. Our company continues to demonstrate it to the war. That high quality economic system can see both environmental responsible and economic. Reducing both your cost and your impact on mother earth.
We developed a total cost to demand. PCB concept to help IT professionals understand the energy details of their system and overall impact from in our vendor. We also offer a resource saving architecture to have a customer sales growth and hardware acquisition costs, while reducing IP waste and environmental impact. As we emerge from this challenges period and wait for our Safe Foster customers committed their employees and investors. I do hope for all, we're leading Cboe Mago to even greater growth and positivity.
In the year ahead, we believe that strong long term mass demand drivers application optimizer Karl and IoT products. And our team, we have writer a new and exciting chapter in Sequo Medical Research. And now, I will hand over to Steven Powell of Chief Financial Officer. Thank you, Charles. Before beginning the Q And A session, I'd like to make a few key points as highlighted in the slides that can be found on the Investor Relations portion of our company's website.
1st, we have filed a comprehensive 10 K covering both twenty 20182019 results. We additionally have filed the 10 Qs associated with 1st 3 quarters of fiscal 2019. We are not filing a separate 10 K for fiscal 2018 or the 10 Q for any of the 2018 fiscal quarter. 2nd, we have shown a 2 separate charge our audited financial results compared to the estimated results we shared on a quarterly update call over the last few years. 3rd, while the filing of our 10 Ks with the filing of our 10 Ks, we now only need to file our fiscal first quarter 2020 as we currently have the annual and quarterly SEC report which is a prerequisite for applying for relisting on NASDAQ.
We expect that the 10 K will be filed soon. We have already applied to NASDAQ for relisting, and we expect that NASDAQ will focus on our application. Lastly, we currently plan to hold our conference call on our second quarter earnings in the 1st week of February. So to wrap up, as in these kids earlier, we'll now have a Q and A session with sell side analysts. Barry?
Thanks, Kevin. We ask that participants in today's question and answer session constrain your questions to those relating to our recent filing. We may decline to answer questions related to recent business trends, and we will not provide any further detail regarding when you will file our fiscal Q1 ten Q.
Sir. Ladies and gentlemen, our question and answer session will be conducted electronically The last we would take your questions in the order that you signal. And if you've found your question has been asked and answered before you could ask it, or would like to remove yourself in the queue, discuss the Also, if you are using a speaker phone, please make sure that your mute function is disengaged so that your signal can reach out for Finally, we ask that you limit yourself to one question and one follow-up until all in the queue have been asked and had an opportunity to ask the question. We'll take our first question from y'all Chokshi with Maxim Group.
Yes, thank you and congrats on getting
all the filings on
it except for the last one to go. So great job. Really fantastic to see that. In the auditor letter, it, did say that the internal controls that happen place, there hasn't been enough time to judge whether or not they have been effective. Could you just review what does that really mean there?
Yes. Sure, Nehal. This is Kevin. Certainly, as we have gone through the, the preparation of the financial statement, we've put in new controls over the course of time. And, so therefore, they are operating and they we use them as we prepare these financials.
The process that you have to go through to be able to say that you fully remediated in internal control is that you need to designing them, they need to be operating for a period of time. The company needs custom, and then the audit firm does that same work. So they would be observing how the new controls have been designed And then depending upon the frequency of control, it takes a certain amount of time to prove out to show that it is, but it's working effectively. So, as you, if you were to look into 9a, you'd see quite a number of things that we've done, over the course of times that are operating that way. I think the key is that we've designed a lot and we're working a lot.
We just need some more cycles of performance to be able to declare victory. And that will take some time.
Okay. In your prior experiences, do you have a sense as far as usually how long does it take for new internal controls to be proven to be effective?
So I'll say that I've never had an experience like this before, so I'll get into. However, I think in our minds, our goal is that we would like to have remediated material weaknesses as we exit fiscal 2020.
Okay. And, what should be the key metrics that you got what are the key metrics that you intend to share on a go forward basis and what would you suggest as the key things that we should be looking at going forward?
You mean in terms of operating performance or related to internal controls?
No. Operating cost performance. So one of the things that you guys used to give were ASPs per server, then
I think you moved to ASP per node and
you used to also give units and things like that. So that's sort of, and then also the second patient information?
Yes. I think if you notice in the most current filings, we have kind of converted to discussions of ASC movement as well as volume movement. And I think we'll continue to go forward. We have, with that level of disclosure, However, one thing that's important is that we are trying to look at how we describe, our growth in terms of products, in terms of channel, in terms of end market. And we will be doing that on a go forward basis to be able to get more color.
We will acknowledge the fact that we've kind of gone dark on that as we've done business up date. But our intention is to resurface with that kind of information as we exit the this quarter in the upcoming call.
So does that mean that you're going to go back and provide that segmentation detail, and the periods that were dark or we're just going to be getting that presentation detail as you report the new sets of results?
Yes. Certainly, we'll do that as we go forward, we look to see how far we, recast the path. Thank you so
We'll go next to Ananda Baruah with Loop Capital.
Hi, guys. Good morning. I appreciate you taking the questions here. Just a couple for me, if I could, and congrats on continuing to move on this evolve forward here, and good stuff. In your picture, do you guys have any sense of what the business impact has been from key customers as a result of the situation of the filing, and then I have a follow-up in that regard as well.
Yes. I mean, yes, some impact for sure. And lastly, you're still in a difficult time However, our foundation has been a much stronger now, capacity, solar energy in core, So I believe overall, TV's foundation has been a much stronger than before. That's great. And I guess that begins to answer what was my follow-up, but I was going to ask if in conversations with customers, you've been able to get a sense to develop a view on the degree to which their confidence could increase as you continue to get the filings out.
I need to continue to work with the knee health question, the dynamic around sort of not having to say you have a material weakness with the financing controls. Have you we had those kinds of conversations with them at the end of the year. Yes. Although, I mean, our partner from customer style from our vendor, both kind of excited to see how we get out of this period of time. And we see a much stronger system, including SAP system in implementation.
We could be for CJL, probably get back to the normal group. I'm going to answer your question in a little bit different way. Not night, we had an opportunity to talk to our key leaders in the company. And one of the key elements that I played sales was Okay. We've just taken one pledge factor out of the mouth of the salespeople at our competitors to go out and compete for business now.
Bring it home. Yes. That's great. That's good context. I appreciate that.
Thanks. I'll get back in the queue. I'll keep it for now. Thanks guys. Thank you.
We'll go next to Aaron Ryker with Wells Fargo. Stryker, your line is open. Please check your mute function.
Sorry about that guys. Thanks for taking the questions and also congrats on getting through this. I guess back on the segmentation question, just kind of curious, I mean, if you're going to give the actual numbers retrospectively on the adjusted revenue between systems revenue and sub systems, over the period that you've just restated. And then also, could you just remind us again of where you stand as far as your capacity footprint in terms of the overall business and how we should think about that? Maybe going forward, how much do you think you can grow going forward and where do you stand on the current capacity of sports, that growth?
Yes, good question. Again, during the last 3 years, we continue to grow our capacity. So I would have to say we have, at least 30%, 40% HR capacity to growth. For both, complete a system and subsystem. And, with our maintenance, Ottawa studies, very well operations, much stronger than before.
So I believe the growth trend, is pretty strong. Yes. And then to get to your segmentation question, obviously, we've had quite a bit of revenue moving around it. We'll put together the segment plays in going back at least through, through fiscal 'eighteen, but yes, 'eighteen.
Okay. And then as a real quick follow-up, if I'm doing the math correctly, it looks like on the restated basis for the March. And it looks like the June quarters this year, you saw a decent move higher in terms of gross margin. I think you were call it 13%, 14% move to north of 15% here in those 2 quarters. Can you just looking backwards help us understand or appreciate the drivers of that, you know, gross margin?
Is that just, you know, component cost dynamics? If so, how do we think about those component cost dynamics hitting the P and L going forward?
Yes, certainly, as we've talked we have time, we've said that we've had, improved product mix. We've had improved customer mix as well as the geographical mix. So if you look in the final days over the course of time, the portion of our sales that are in Asia have decreased and that usually is a very competitive part of the bill that you know. I think one element that I should mentioned here as well is that I haven't in the past is that, our service business is growing and it's beginning to contribute to that element as well. So, I think those are the main dynamics in terms of growth in the margin line.
And I, services, services has been driven by, driven by enterprise customers and how much is services as a percentage of revenue, can you help us understand that comment?
Yes, it's still a very, very modest number, and it is really driven by enterprises.
Okay. I'll get back in queue.
Hey, good morning. Thanks for taking the question. Congratulations. I had 2 quick ones if I could. The first one is my recollection and I haven't gotten all three the language, but what the environment correction was when you guys entered into a couple of your credit line renegotiations over the last year or 2.
Based on restrictions in terms of what you could do in terms of working capital and also in terms of capital return, So my question is, Jason, with the completion of these filings, does the term do the terms of your credit arrangements change or will you be renegotiating those or just
a quick update on that topic would be great?
Yes. Thanks for noting that. And, in fact, the meta milestone, by filing before the end of the year, so that takes, any need away for any kind of renegotiation. Yes, the terms of the credit agreement remain in place, but certainly, as we, as we move forward, from here, the credit facility expired in June. And between now and then, I think we have opportunities to renegotiate, for what we would like the credit facility to look like going forward.
Okay, that's great. My second question, I'm wondering, just if you can speak a bit, I know there's been a couple on this, but if we just look at the detailed metal we've gathered geographically, UFSO-nineteen, not unsurprisingly featured headwinds in Asia Pacific, but growth everywhere else. And this trend has changed a little bit through the course of the fiscal year, but less at a high level, can you just talk a bit about what you're seeing in Asia Pacific? And then within that, what you're seeing specifically within China? And if there's been any change in your view of that market like strategically?
Is it a place you're devoting us resources to intentionally or otherwise And just how we think about that as we think about a potential market recovery in 2020 and beyond?
Yes. Thank you for the question. It seems that we still have a lot of room to grow, right? For example, in Asia, we had started focusing much more in Japan, Korea, and in Europe, East Coast, especially restarting our invest in more sales and promotion in April, supporting function in this post. So we believe, overall, global wise, we will have a loss of room to go in the coming quarters.
And E.
That's really helpful. Would you mind just spending a second on China specifically though, Asia Pac
is about 20% in total?
You guys historically have suggested China was like 10% and that was admittedly back in 2017. But would
you just flush out China briefly, if you don't mind?
China may drop a little bit, hopefully not so too much. Then, although in Sierra market, I believe we were fighting maintained. Along 20%
I'll take a follow-up from Ananda Baru with Loop Capital.
Just a couple on the P and Ls I could. Could you talk to me what our expectation is or how we should think about how you guys are thinking about driving driving operating leverage, drilling forward and what we should think about, from an expense OpEx structure perspective, the revenue would be growing the leverage hasn't kicked in yet. What have been the drivers of that? And what are your expectations as we go forward? Thanks.
Yes. So I think in the GAAP to non GAAP reconciliation, we have broken out the costs that we had to endure through this process to give you a feeling of how things are going to drop up over the course of time. But as it relates to the leverage question that you have, we will continue to try in since we have our operating leverage, we are very cognizant of the fact that we want to return to be a growth company, so we'll be continuing front desk in that area more prudently. But I think, magnitude and those kind of things will lead to questions when we come out on an Investor Day. Got it.
And so have you guys, you just answered the Investor Day. Have you made a decision yet? Around the Investor Day. And if you have, can we share in the details? No, we haven't we do know that once we get finally done and we get relisted, we need to come back out and have an Analyst Day investor day for the space in terms of, who is super micro now and what is it that, we're modeling for, our performance.
Okay. That's helpful. Thanks. And just one real quick one for me. Do customers still bring up, specifically, the Bloomberg story from kind of 12 months ago, very more than 12 months ago, I just talked to 3 months ago.
And if they do bring it up, how big of a sticking port do you think it might be So I think as it relates to our customer base, we've been in constant conversations with them. And my sense is that, that continues to fade in the rearview mirror. When we, if you read our filings, do acknowledge in the risk factors that there are some unknowns. And then the unknowns are related to what are the decisions being made at new customers, that we are bidding for. So definitely, if we have some ability to approach key architects and have deeper discussions with the engineering teams on that site.
We have ability to influence those perceptions. Time will tell. So I think, from our current customers, it's a little bit quieted down certainly, but it's for new customers that we have to continue to win. Yes. We've now 10 Ks become current in, company operated with this, the next second reason.
So only those, puts these facts to the market, to our customer base. So we are kind of, we have to pay for a new stage, I mean, for get back to you to pass through those populations. That's great. Very helpful. Thank you guys.
And it appears at this time, we have no further questions. I'd like to turn the call back over to Mr. Liang for any additional or closing comments.
Thank you very much for joining us today and looking forward to talking to you in the coming quarter end coming. Thank you. Have a good day. Thank you all.
Thank you,
ladies and gentlemen. That does conclude the Super Micro SEC filings update conference call. We do appreciate your participation. You may disconnect at this time. Thank you.