Good afternoon, thank you for attending Super Micro's business update conference call for the second quarter fiscal 2019, which ends December 31st, 2018. During today's conference call, Super Micro will address the company's efforts to become current with its SEC filings, the business and market trends from the second fiscal quarter of 2019, as well as the company's preliminary financial results for the second quarter of fiscal 2019. 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. There was a slight delay with the posting of our 8-K on our website, which was filed earlier today.
We understand the delay is due to heavy volumes at the SEC. 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 and our 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 statements. 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 question and answer session for sell-side analysts. I'll now turn the call over to Charles Liang, Chairman and Chief Executive Officer.
Thank you, Perry, good afternoon, everyone. Let me first comment briefly on our second quarter performance. Our second quarter revenue will be in the range of $915 million-$925 million, which surpassed our quarterly guidance and represents approximately 9% year-over-year growth. It is our tenth consecutive quarter of year-over-year growth. Our growth momentum in key market segments continue with gain in Global 2000 enterprise accounts, storage, and accelerated computing. Computer system revenue was approximately 82% of total revenue, up 16% year-over-year, driven by higher ASP per compute node. We are pleased to report continued growth of our business this quarter, both in the data center and the edge, despite the macroeconomic challenges. Super Micro is well-positioned to drive continued revenue growth and win market share as we did this fiscal quarter.
Our fiscal year to date total revenue are approximately 23% ahead of last year, in line with our traditional growth trend. Our Global 2000 business continued to show strong performance with 16% growth year-over-year. Our Global 2000 business utilizes the entire Super Micro portfolio, encompassing compute, storage, accelerated computing, networking, management software, and services. Last quarter, our SuperBlade business grew significantly, our Twin family grew 28% year-over-year, substantially supported by our BigTwin product. We are consistently strengthening our management software and service offerings to provide additional value and revenue streams throughout our customer product life cycles. Green IT remains a top priority. Our resource-saving system with the ability to deliver superior total cost of ownership, TCO, along with reduced environmental impact, were of significant interest with leading enterprise companies.
We continue to invest in our resource-saving solutions, including disaggregated system and research and development on 10-year life cycle enclosures, power supplies, and other subsystems. These technologies will help our customers save on both hardware and energy costs while reducing IT waste, which lower the total cost to environment, TCO, in their data center. Storage grew 24% over last year, comprising approximately 26% of total revenue. Our Petascale line of all-flash NVMe one storage service deliver the industry-best performance in latency, IOPS, and bandwidth, supporting next-generation flash technology such as Z-NAND, Samsung NF1, NL Ruler, and EDSFF form Factor SSD. Supermicro enables the software-defined storage market with optimized high-performance storage systems, unlike other competitors who offer higher cost with proprietary all-flash arrays. We are excited to see many industry leaders adopt these new on-premise technologies, offering a real time-to-value advantage to their next generation workloads.
In machine learning and artificial intelligence, we saw strong growth. Accelerated computing applications continue to grow, unlocking new possibility in automotive, retail, and scientific verticals. We offer many additional optimized multiple GPU systems in numerous form factors designed to accelerate data center capability and streamline deep learning workflow. Supermicro's new NVIDIA HGX-2-based SuperServer supports 16 NVIDIA Tesla V100 Tensor GPUs with over 80,000 cores, delivering unmatched performance of up to 2 petaFLOPS for AI and machine learning. Looking ahead to new engineering developments and growth opportunities. Last quarter, we began seeding the upcoming future generation Intel Xeon Scalable processors to key customers. As we began the current quarter, we launched early ship programs for those new Scalable processors, along with Optane DC persistent memory.
We have received very positive initial reaction from customer base, and we anticipate the upcoming server refresh cycle will prepare further revenue growth for Supermicro in the coming quarters. As the market moves to 5G, Supermicro is uniquely positioned to address solutions from the edge to the cloud. We expanded our selection of compact IoT server solutions to address a wide range of verticals, including networking, communications, security, and industry automation. Our flexible new 1U modularized network edge platform supports up to 36 network cores and is built for network function virtualization, NFV, and software-defined networking, SDN. They support multiple CPU cores and multiple FPGA cores as well, bringing AI and accelerated computing to 5G edge infrastructure. In summary, we achieved an important milestone this year, delivering 10% of the worldwide system and subsystem volume according to industry reporting.
We will continue to gain market share with our resource-saving technology to save customer hardware acquisition costs while improving their overall TCO and TCE. With our USA headquarter, R&D, and manufacturing and global scale, we are uniquely positioned to bring optimized designs and competitive value to the faster-growing and largest market verticals such as cloud, AI, and 5G. We are also positioned to market on hardware technology transitions for both compute, the new second generation Intel Scalable processors, and storage, including NF1, Ruler, and EDSFF. They will help us gain new large-scale design wins. I am fully confident that this momentum will prepare Supermicro to double-digit growth of its market share in 2019. 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 second quarter of 2019. I will then make a few comments about our progress on our SEC filings. As Charles mentioned earlier, we estimate our fiscal second quarter revenue within the range of $915 million-$925 million. With that result, we have exceeded our revenue guidance range over my tenure for the past three quarters. Our customers continue to grow their business with us and drive digital transformation using Supermicro's cloud and edge portfolios. On a year-over-year basis, EMEA enjoyed the highest growth at approximately 28%, followed by the U.S., which grew approximately 11%, offset by a decline in Asia PAC of approximately 11%. Other regions grew approximately 23%.
Our estimated range of gross margin on both a GAAP and non-GAAP basis was from 13.9%-14.1%. Our margin benefited from improved customer mix, partially due to lower sales to Asia and a lower provision for excess and obsolete inventory. Operating expenses were higher this quarter related to product development materials, employee bonuses, audit fees, and a provision for a bad debt. We estimate non-GAAP diluted earnings per share this quarter within the range of $0.57-$0.61. We continue to generate cash and estimate cash generated from operations was approximately $42 million. After deducting CapEx of $4 million, we estimate free cash flow of approximately $38 million for the quarter. On a cumulative basis over the last three quarters, we estimate free cash flow was approximately $114 million that has allowed us to pay down our loans and reach a positive cash position.
This quarter, our cash conversion cycle increased to 96 days from 92 days in the prior quarter. Days sales outstanding decreased slightly, while inventory days increased. Our near-term target remains from 85-90 days. We are guiding net sales for the third quarter in the range of $800 million-$860 million. We are now seeing normal business trends and have received some sizable business renewals at existing customers. We believe we are back to business as usual. Now let's turn to progress we are making on our fiscal 2017 10-K. If you recall, we concluded last quarter that restating prior periods was necessary, as we announced in our current report on Form 8-K filed November 15, 2018. Since then, we have worked diligently, and the company has achieved a significant milestone in this process.
We delivered a draft of the fiscal 2017 10-K with restated financial statements for 2015 and 2016 to our independent auditors in late January. They are reviewing the draft 10-K and are working to complete their integrated audit. As a result of our conclusions, our independent auditors continue to perform more testing of our accounting analyses and internal controls assessment. Our internal audit team is developing a prioritized remediation roadmap to address the material weaknesses from our internal controls assessment. We continue our procedures on fiscal 2018 financials in parallel and are making solid progress. To close, we remain laser-focused on resolving our SEC filings. We continue to build industry-leading technology solutions for a data-hungry world. We're excited for the rest of 2019 and beyond.
As indicated previously, we will have a Q&A session which sell-side analysts will be permitted to ask questions. I would like to remind you that your questions should be directed to the business update that we have just provided. We may decline to answer questions relating to the audit committee investigation or the delayed filing of our 10-K because of pending litigation. Operator, at this time, we're ready for questions.
Thank you. Thank you, sir. Ladies and gentlemen, our question-and-answer session will be conducted electronically. To ask a question, firmly press the star key followed by the digit 1 on your touch tone telephone. 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 star two. If you're on speakerphone, please make sure that your mute function is disengaged 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 come back to you for any additional questions. That is star one for you to ask a question.
We'll first go to Mehdi Hosseini with Susquehanna Financial Group.
Thanks so much. This is David Ruzek for Mehdi. Just a few if I could. Charles, maybe would you be able to give us an update on the macro environment, demand across regions, and what you're seeing in the current quarter? Maybe you can talk about what drove the EMEA strength, I had a few follow-ups.
Thank you for the question. Yes, we did observe the macroeconomic a little bit choppy and believe will be a little bit weaker than last year. However, with our new product, have been very, very strong, Cascade Lake and storage and other platform. We believe this year, I mean, 2019, will be still our growing year in terms of market share. We are carefully observe the change. The memory price drop a lot, but everything is under careful control from Super Micro point of view.
One of the larger enterprise storage vendors on its earnings call yesterday had noted some weakness with large enterprise companies in the U.S., elongated purchasing decisions, more scrutiny around buying systems. Have you seen this as well? Just curious.
From our point of view, March quarter had been a relatively soft quarter to us in history. This year, we do feel so far so good. We feel change is still pretty positive to us.
On the last update call in November, you had noted that you were beginning to see some demand return from customers that initially paused after the Bloomberg article. Has this continued? Have you seen an improvement from customers that initially had made a pause?
Yes, we can see the improvement. The business is going on pretty normal and positive from our current feeling.
Great. Just on Cascade Lake, just wondering what your expectations are, I guess, from a calendar year 2019 perspective. When does this start ramping for Supermicro from a revenue perspective? You made some interesting comments around Optane DC persistent memory. Would love your opinion on how material this could be in this cycle, or do you think that it really ramps in subsequent server cycles? Thank you.
Yeah, thank you. We believe Cascade Lake will be a big change for Supermicro. Although we just start shipping a sample recently, now we did see a interest from customer side because of the better performance. As to our DC persistent memory, yes, it's good for some niche market, and we do have some customer really interest for those application, kind of for large database and kind of big data kind of application. We did see some customer really interest on that area.
Mm-hmm. What drove the high ASP per compute node?
More and more customer buy our complete solution. That mean including all the hardware and some management software. Because much higher percentage of computer system instead of bare bone. That's why our ASP will continue to grow. More people move to Flash, especially NVMe. That also grow our ASP. This trend will continue for 2019, at least.
Great. Thanks so much. I'll get back in the queue.
Thank you.
Our next question comes from Nehal Chokshi with Maxim Group.
Yes, thank you. Congrats on strong results, strong guidance. The split between systems and components, did you give that? If not, can you?
We did not. Just a second here. Systems were-
82%.
Yeah, 82%.
82%. Okay, great. Just to be clear, were you saying that this guidance reflects a normal seasonality or not?
Well, certainly it's normal seasonality, as we had said last quarter, we are cognizant of the macros that are out there. Therefore, we've tried to factor that into our thinking. We also know that customers are trying to determine if they go for the next technology refresh cycle or not, so that could pause their decisions a little bit. Lastly, certainly there are some components that are declining in value, and customers time their purchases sometimes around that. Those are the kind of the themes that we saw.
Yeah. Talking about Intel, new CPU, Cascade Lake ramp up. I believe most will start about April timeframe.
Okay. Got it. Historically, Super Micro has had four to six quarters of 20%-plus year-over-year growth. You guys just did that, from I think, beginning of 2017 to September of 2018. You have sub 20% year-over-year growth, and it looks like we're looking at two quarters of that being the case. It all averages out to a 20% CAGR over, what, the past 12 years, which is incredible. Why shouldn't we believe we are at the beginning of a digestion period at this point here?
Again, this quarter, I mean, on the March quarter, I guess there are two major impact. One is the memory price and Flash NVMe price drop. That for sure will lower ASP a little bit, also the macro economy a little bit slow. Plus, Cascade won't be really ramped up until April or May. That's why we try to be conservative for this quarter, March quarter.
Okay. All right. Then, looks like non-GAAP OpEx was up about $6 million Q to Q. You did cite some expenses, Kevin, that I'm not too sure if that was included in non-GAAP OpEx or not, but can you just give a little bit more color around that Q to Q uptick?
I had mentioned in the call that there were expenses related to certainly our engineers developing first products for Cascade Lake. That was one element of them pulling materials for that. I mentioned that we had employee bonus this year, and we have this quarter, rather. We did have something unusual for the company in that we did have a reserve for credit loss, which doesn't happen very often.
What was the reason for the credit loss?
Just a customer having problems.
Got you. Okay. Thoughts on how this OpEx should trend and also gross margins should trend for the March quarter?
Yeah. Certainly, the gross margin for this quarter was quite an uptick as compared to what we've had historically. Most recently, as you remember, I called it out that we had customer mix that went into our favor. As well as we did have a pretty good excess inventory quarter. I'm not sure the E&O is going to repeat over the course of time, but do remember that what I've said is that we would be trying to work on gross margin at a modest pace over time. This quarter, we certainly had a good one, but in the trends, we're trying to improve modestly over roughly about that 13.5% that we've been at for a period of time.
Thank you very much.
As a reminder, that is star one if you would like to ask a question.
Operator, I think there's one more questioner in the queue.
Yes. We'll take our follow-up question from Mehdi Hosseini with Susquehanna Financial Group.
Hi. Thanks. David Ruzek again from Mehdi. Thanks for the follow-up. Kevin, you didn't note lower memory pricing as a reason for the strength in gross margins. Was memory a benefit to gross margins in the quarter? Did you pass it through?
I think by and large, as I said earlier, it's really customer mix. Since I've gotten here, we've done a little bit more in terms of looking at our gross margin mix by customer and our portfolio. We want to be cognizant of the fact of where we have margins for customers, kind of like in a banding way. That allows us from time to time, when we want to bid to win business, we do it in the context of the entire portfolio. I think it's just really looking at our customer mix a little bit more sharply. Not necessarily a significant impact from memory in the December quarter.
Mm-hmm. Any reason for the tick up in inventory days?
Yeah, we made some purchases at quarter end that we thought were advantageous.
Great. I'm just curious on the storage and overall storage, I believe I heard 20% growth year-over-year. Any sense on maybe the breakout within that of traditional versus next gen?
I guess both our traditional and new generation, we are both growing. For sure, our new generation, especially SSD, NVMe based, we believe will be a much higher potential to grow.
Yeah. Actually, traditional came down a little bit and next gen grew handsomely.
Okay, great. Any color around what drove that? That growth in next gen.
Next gen, as you know, I mean, we are the first company to deliver all the new form factor memory to the market, like a Ruler from Intel, NF1 from Samsung, and EDSFF. Super Micro is actually the market leader, and that kind of get customer very good response.
I think in addition to that, we've been talking about G2000 customers, and as we have now lapped a year, some of those G2000 customers, we have an appreciably stronger business with them than we did 12 months ago.
Great. What % of overall revenue is G2000? I think in the past, you've maybe called it enterprise, but what % of revenue is that driving?
We're probably not going to break that out right now.
Okay. Last one, IDC, what % of overall revenue was that, and have you seen any wins with new customers in the IDC space?
David, this is Perry. Just so you know, the G2K that we talk about is a combination of both the IDC group that we used to talk about, and it also includes the enterprise group that we're now talking about. They're together in what Kevin's already provided.
All right. Understood. Thanks so much. I really appreciate the follow-ups. Thanks.
It appears at this time we have no further questions. I'd like to turn the call back to Mr. Liang for any additional or closing comments.
Thank you, everyone, for joining us today, and have a great day. Thank you.
Thank you, ladies and gentlemen. That does conclude the Super Micro second quarter fiscal 2019 business update conference call. We do appreciate your participation. You may disconnect at this time. Thank you.