Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Super Micro Computer, Inc. fourth quarter fiscal 2019 business update conference call. The company's news releases, issued earlier today, are available from its website at www.supermicro.com. During the company's presentation, all participants will be in a listen-only mode. Afterwards, securities analysts will be invited to participate in a question and answer session, but the entire call is open to all participants on a listen-only basis. As a reminder, this call is being recorded Thursday, August 15th, 2019. A replay of the call will be accessible until midnight, Thursday, August 29th, 2019 by dialing 1-844-512-2921 and entering replay pin 5585132. International callers should dial 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.
Now I would like to turn the conference over to Mr. Hayes. Mr. Hayes, please go ahead, sir.
Good afternoon, thank you for attending Super Micro's business update conference call for the fourth quarter fiscal 2019, which ended June 30th, 2019. During today's conference call, Super Micro will address the company's preliminary financial results for the fourth quarter of fiscal 2019 and the company's efforts to become more current with its remaining SEC filings. References to any financial results are preliminary and subject to change based on finalized results contained in future filings with the SEC. 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. Before we start, I'll remind you that our remarks 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 in the press release we issued earlier this afternoon, our most recent 10-K filing for 2017, and our other SEC filings. 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 outlook. 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. Our first quarter revenue will be in the range of $825 million-$835 million, which exceeds the midpoint of our quarterly guidance of $808 million. It is 15% lower than last year and 11% higher than last quarter. Full fiscal year revenue was approximately $3.5 billion and represents an increase of approximately 4% from last year. Non-GAAP earnings per share will be in the range of $0.57-$0.61, compared to the range of $0.75-$0.79 last year and a range of $0.48-$0.52 last quarter. System revenue was approximately 81% of total revenue. System ASP were a bit lower year-over-year, mostly due to lower DRAM and NAND price, which impact revenue.
We launched a comprehensive portfolio of over 100 new server and storage systems, supporting the new Intel second generation Xeon scalable processors, codename Cascade Lake. The new product brings world record performance and efficiency improvement to enterprise, cloud, 5G, and AI workloads, with up to 50% better TCO. We have seen strong interest in these new products, and the breadth of the new products has outpaced premium transition. It was a challenging period for a traditional strong quarter. Volatile market conditions, where documented trade tension and some key component price reduction impact our quarterly revenue. The trade challenge, including tariff impact, were minimized by our strong USA manufacturing presence and our distributed global manufacturing footprint in USA, Taiwan, and Netherlands. We also see positive signs with our key product lines, such as BigTwin and SuperBlade, which achieve higher sales on both quarterly and yearly basis.
Importantly, we see great opportunity as our long-term investment in operation and improve internal efficiency, and the growth of our key product line has shown the mass demand for application-optimized high-performance server products has not declined. On the product side, we remain focused on delivering solutions based on our new resource-saving architecture. Super Micro's unique architecture is aggregate major subsystems, separating compute, storage, IO, power, and cooling. Each resource can be refreshed or upgraded independently, allowing data centers to reduce refresh cycle costs and their impact to the environment by reducing power consumption and e-waste. Some components, such as longevity power supplies, enclosures, and IO devices, can remain in deployment for up to 12 years. Further savings are achieved through shared power and cooling, as well as free air cooling solutions.
On a typical three to four-year refresh cycle, Super Micro resource saving servers deliver up to 30% net hardware cost savings on each refresh cycle. We continue to deliver first-to-market products, introducing the first server and storage system that support all flash EDSFF storage drive. This optimized NVMe drive delivers up to 6x more throughput and up to 5x latency reduction over traditional flash storage. Which is ideal for the high-performing workload or application requiring high IOPS, such as autonomous driving, search engine, mission-critical database, artificial intelligence, HPC, scientific research, and more. We believe EDSFF will become a main common storage form factor in the near future. For 5G, Super Micro is committed to providing the most advanced solution for edge, remote micro data center, and core network that provide security, IoT, multiple access edge computing, and Open Radio Access Network.
The need for powerful servers across a wide variety of implementation will only increase with the continual roll out of 5G network. Super Micro edge servers aim to transform enterprise and empower them with intelligent connectivity from IoT device to cloud. AI on edge is also made possible as we provide optimized and validated NVIDIA GPU, cloud-ready, and DGX platform edge computing solution to our customers. Saving the best for last, let me have a brief preview of our brand new architectures with many innovations for high-speed connectivity design. This new product line are checking on doubling a system connectivity bandwidth and computing power and computing density. Two of these new x86 projects are called Hyper Rama and Wind River. The early availability is target on early Q1 2010.
In summary, we see tremendous potential opportunity in the enterprise, cloud, 5G, and AI that will benefit from Super Micro resource-saving solution. I am very confident in the strength of our product offering and the continual improvement of our operating fundamentals. Regardless of market cycle, our business model of first-to-market design that deliver breakthrough innovation in performance, efficiency, and TCO will achieve long-term success. Moreover, we will continue to invest more effort in our strategic relationships to build a stronger presence in key markets and target vertical customers. I expect these actions will result in continual market share growth and improvement of our financial performance. Now, I will hand the section over to Kevin.
Thank you, Charles. First, I will address the current health of the business by providing an overview of our financial performance for the fourth quarter of 2019. I will then make a few comments about our progress on our SEC filing. As Charles mentioned earlier, we estimate our fiscal fourth quarter revenue was within the range of $825 million-$835 million. Our geographies were lower on a year-over-year basis, with EMEA approximately 14% lower, Asia 19% lower, and the U.S. 14% lower. Our estimated range of gross margin on both a GAAP and non-GAAP basis was from 14.7%-14.9%. Our margins have steadily improved since last year and have benefited from improved customer mix, product mix, and better component pricing. Operating expenses were slightly lower this quarter due to lower reserves for bad debt, offset by higher sales and marketing expense.
We estimate non-GAAP diluted earnings per share range this quarter was within the range of $0.57 to $0.61 per share. We continue to generate cash and estimate cash generated from operations was approximately $81 million. After deducting CapEx of $11 million, we estimate free cash flow of approximately $70 million for the quarter. On a cumulative basis over the last four quarters, we estimate free cash flow of approximately $259 million. This quarter, our cash conversion cycle decreased to 91 days. The decrease was primarily due to a 21-day decrease in inventory days to 92 days. Actual inventory on a dollar basis declined sequentially. Our cash conversion cycle target remains 85 to 90 days. Let me comment on our progress on our remaining delinquent SEC filings. We recently completed our work on the fiscal 2018 financials and have submitted them for auditing.
We are now working on fiscal 2019, inclusive of the efforts to finalize revenue under both the ASC 605 and ASC 606 revenue recognition standards. We will be under a two-year engagement with our auditors for both fiscal years 2018 and 2019 that will enable some efficiency. The team remains focused on becoming fully current on our SEC filings. As indicated previously, we will have a Q&A session which outside analysts will be permitted to ask questions.
Thank you, sir. Ladies and gentlemen, our question and answer session will be conducted electronically. To ask a question, firmly press the star key following the digit one on your touch tone telephone. We will take your questions in the order that you signal. If you have found your question has been asked and answered before you could ask it or would like to remove yourself from the queue, please press the star two. If you are on a speakerphone, please make sure that your mute function is disengaged so that your signal can reach our equipment. Finally, 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 come back to you for your additional questions. Again, that is star one if you'd like to ask a question.
We'll go first to Mehdi Hosseini from Susquehanna Financial Group. Please go ahead, sir.
David Riddick for Mehdi. Thanks so much for taking the question. Just a quick question on gross margins. I believe they were down from the prior quarter, I guess from around 15.5% to 14.7% to 14.9%. Just wondering what the dynamics were over there. Obviously, revenue ticked up, components prices probably ticked down. Just wondering what was driving the decline, and I had a follow-up.
Sure, no problem. This is Kevin. Last quarter, when we highlighted the fact that we were in the mid-15, we cautioned the group that we looked like we had a very good quarter in terms of everything aligning up perfectly. As we talked to this same question last quarter, we highlighted the fact that we were in the mid-13s not too long ago, had broached 14 towards the mid-year of 2019, and we're in between 14 and 15. We highlighted that as being some steady progress as we went through the quarters. We highlighted that last quarter things lined up very well. I don't necessarily think it's decline. I think that our continued progress is not perfectly linear.
Perhaps, maybe you can talk about the overall server pricing environment, and maybe provide an overview of just demand trends that you're seeing in the current quarter and what your outlook is moving forward. I'd appreciate that. A follow-up.
Yeah. As you know, the market has been choppy and macroeconomic has been soft. However, our solution outperform others, especially with the K8s, very thick product line, just all available. We expect our business will be continue improving, although maybe not very fast, but the trend will be improving. And especially, the new technology will be a positive side for our business.
Yeah, this is Kevin. I think if we put our lens a little bit shorter in time, as we looked at this quarter's guidance, certainly we are observing and are part of the macro situation that many of our competitors have already voiced out. Usually, this quarter is seasonally down. When the macro conditions are like this, sometimes visibility is poor. So we have those three elements that were in our mind as we set guidance for this next quarter.
Got it. Thanks. Just last one. Would love to get an update on where you are in your enterprise efforts. This is something you've mentioned in the past as far as building out the enterprise effort, services, software, maybe Fortune 500 accounts. Just would love an update there. Maybe new customer account figures. Anything there would be helpful. Thank you.
Yeah, this is Perry. Yeah, our G2K portion of our business, which includes that enterprise section, was approximately a little bit better than 20% of the overall revenue. Within that, the enterprise section was actually up year-over-year by about 12%.
We're making steady progress in there with the number of customers that we have and the business that we're doing.
Thank you. I'll get back in the queue.
We'll take our next question from Nehal Chokshi from Maxim Group. Please go ahead.
Thanks, congrats on what I think is a fiscal year that represents records on cash from operations and non-GAAP net income. You now have a $36 million net cash position. That's 29% of your market cap. Based, I think, on your trailing 12-month midpoint EPS that you've provided for the past 12 months, looks like you're trading at 5x EV in net income. Are you guys willing to put that net cash to work in terms of buybacks once you're able to, i.e., once the 10-Ks are indeed up to date?
Yeah, I think, if you look at the cash that we have now, certainly we have harvested some of that from the balance sheet. I think roughly, out of that $259 million, working capital harvesting was roughly about $70 million of that. We know that we're going to need that soon when we continue to grow again. I know this is a question that came up last time. We are just going to continue to plot forward in terms of understanding what our working capital needs are as growth returns. We feel pretty strongly about that.
Okay. That's great that you've submitted the fiscal 2018 financials for finalization by your auditors. Can you confirm that the submitted financials are within the previously announced revenue and EPS ranges?
Yeah, no, I'm not going to be able to confirm that. That's not something to address at this moment.
Okay. I will get back in the queue. Thanks.
Again, it is star 1 if you'd like to ask a question. Our next question comes from Jon Lopez of Vertical Group. Please go ahead.
Hi. Thanks. I just have a couple of clarifications first. Did you guys give us, or would you give us the server system number, please, or the percentage of the business that was server systems?
Yeah, we said in the script that Charles would script, that was about 81% with services. I'm sorry, with servers. 81.
Okay, 81. I'm sorry, I missed that. Thanks. My second question, we don't really have all the moving pieces, I guess, but it looks like OpEx was kind of flattish sequentially. A, I'm wondering if you can confirm that, and then, B, just any thoughts on how that ought to trend. Obviously, you guys noted the environment's not terrific right now. I'm wondering if you guys are doing anything proactive for the balance of the year on the OpEx side.
It was relatively flattish. We talked about the two components that wiggled. I think, as we look forward, we have confidence in our long-term business continue to invest in. I don't see that we're going to see large increases in OpEx that are in line with what we think needs to be investment for the future.
Got you. Okay. Helpful. This applies to one of the comments you guys made. I apologize, I can't remember who made it, but some version of the Cascade Lake pacing is ahead of prior generations. I'm wondering if you could just flesh that out a little bit. Maybe not entirely consistent with what we're picking up elsewhere, so I'm wondering if it's specific to your mix, your SKUs. If you guys could just spend a second on that, and then in doing so, I know you're not going to give guidance, so I'm not asking for it, but as you think about trending toward the end of the calendar year, any thoughts on just seasonality and how applicable that may be given the environment and given what you're seeing with the Cascade Lake-based projects? Thanks.
Yeah. Thank you. As you know, we are technology-leading company. Whenever there are new technology, we have a chance to grow better. Given the macroeconomic will be a little bit choppy in the coming months, we try to be conservative. However, our Cascade Lake have been growing very well, especially the new platform, including BigTwin. That have been continually growing. SuperBlade, with resource-saving, that has started to gain more and more attraction. Like I just mentioned, we recently just launched another two new platform, including SuperBlade and Hyper. Although it's in early stage, now we believe in long run, those new technology will have all those dramatically.
If I could just follow up on that. You make a good point, which is you guys have put a lot of SKUs out around Cascade Lake. It appears as though significantly more on a relative basis than your peers have. I'm wondering, would you view Cascade Lake as perhaps an opportunity for maybe disproportionate share gain with this cycle? I.e., are your competitors perhaps less focused on this iteration of, or this portion of the Intel platform than you guys are?
Yeah. As you know, there are lots of technology kinds of just available, including, I just mentioned, EDSFF and Samsung's NF1. Those product lines continue to gain much share. Although they are pretty new technology, but we see a big potential in the midterm and later this year or early next year. There will be a big change with this. As to Cascade Lake, we still see a big room to grow.
That's great. Thanks very much. I appreciate it.
Thank you.
Our next question comes from Mehdi Hosseini of Susquehanna Financial Group. Please go ahead.
Hi, David Reddick for Mehdi again. Thanks for taking the follow-up. Just back to gross margins, I guess moving forward, with lower component prices, should we expect that to serve as a tailwind to gross margins moving forward?
Well, I think the reduction in component prices obviously has slowed down. We've gone through a pretty steep ramp as we went through the last two quarters. We're not going to have that same kind of ramp on a go-forward basis. I think, in terms of it helping us as one of the components in terms of improving our gross margins, I don't see that that's going to be a sustained uplift because the reduction in those prices is flattening out.
Has that altered your decision-making around inventory management as far as memory? Are you strategically adding components given the flattening out?
I would have to say we have been controlling well in this DRAM price drop period. We will continue to monitor very closely.
Great. Just a question on storage. Would you be able to share the growth in next-gen storage versus traditional storage and overall storage?
Yes, indeed. Especially our new storage form factor, the NF1, especially like EDSFF, SSA. We have a function of a new platform, and we have a good feeling about those products in near future and midterm.
Just lastly, Charles, would love to get your take on what you're seeing in hyperscale or internet data center. I know that's part of the G 2000, would love to hear what trends you're seeing amongst your customers there.
That's a little bit sensitive to us, but like what we share with you, we continue to grow our economical scale in Taiwan and also in U.S.A. When our scale continues to grow, we will be more competitive to beat those large-scale data centers. We are prepared enough.
Thanks very much.
Thank you.
Our next question comes from Nehal Chokshi of Maxim Group. Please go ahead.
Yeah. I think you stated that you expected to have gained market share during the quarter. What do you think the market actually did? Intel Data Center Group revenue was down 10% year-over-year about, but their enterprise and government was down 31% year-over-year, and you just said that you guys were up 12% year-over-year on the enterprise side. Just maybe give a sense as far as what do you think the market did, and what portions of that Intel Data Center Group metric are probably actually most relevant for gauging Super Micro performance?
Nehal, we don't always track one-to-one with what their group does. I mean, again, if you look at what they're tracking too, and a lot of it would be hyperscale, et cetera, and that's not a major part of our business, although we have some customers there. The enterprise would be a separate for the group there.
Okay. Thank you.
Yeah. What I would say, overall, I mean, with our economical scale continue to improve, we will be more aggressive in both enterprise and hyperscale data centers.
Got it. Thank you.
It appears at this time that 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 for joining us today, and have a great day.
Thank you, ladies and gentlemen. That does conclude the Super Micro fourth quarter fiscal 2019 business update conference call. We do appreciate your participation. You may disconnect at this time. Thank you.