Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Super Micro Computer, Incorporated First Quarter Fiscal 2018 Business update conference call. The company's news releases issued earlier today are available from its website at www.supermetro.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 Tuesday, August 21 2018. The replay of the call will be accessible through midnight, Tuesday, September 4 2018, by dialing 1844 5122921 and entering replay PIN, 3269159. 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, Industrial Relations.
And now I would like to turn the conference over to Mr. Hayes. Mr. Hayes, please go ahead, sir.
Good afternoon, and thank you for attending Super Micro's Business Update Conference Call for the fourth quarter fiscal 2018. Which ended June 30, 2018. During today's conference call, Super Micro will address the current state of the company's efforts. To file its delinquent SEC filings. The business and market trends from the 4th fiscal quarter of 2018 and the company's estimated financial results for the fourth quarter for fiscal year 2018.
References to any financial results are preliminary and subject to change based on finalized results contained in future filings with the SEC. By now, we should have received a copy of 2 news releases from the company. That were distributed at the close of regular trading and are 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 and the press release we issued earlier this afternoon, our most recent Form 10 K and our other SEC filings. All of those documents are available from the Investor Relations page of Super Micro's website. Please do no obligation to update any forward looking statements. Most of today's presentation will refer to non GAAP financial results and outlooks.
At the end of today's prepared I'll now turn the call over to Kevin Bauer, Chief Financial Officer.
Thank you Perry and good afternoon. Today is a frustrating day because our very good quarterly results are overshadowed by the news of our filing status. We remain undeterred in our efforts to complete our financial reports. We have worked diligently and deployed significant resources towards completing the 2017 in 2018 financial statements, but are not able to file by the deadline on August 24 2018. This was the deadline given to us by the Nasdaq appeal panel when they granted the company an exception to the listing standards requiring timely filing of SEC reports.
We have made tremendous progress on this matter, having completed the analysis of specific revenue transactions identified through our audit committee's investigation. To date, our cash flows have not been impacted by our findings and no transaction reviewed by the company as part of this process has involved revenue that could not ultimately be recognized. Nor have we concluded a federal statement to financial results if necessary. The question you must be asking is, why is this matter taking so long? The answer is that in order to be thorough, we are reviewing transactions near the end of each quarter for similar issues found in the earlier testing.
But particularly as it relates to the matching of purchase order and shipping terms for the timing of revenue. As we get our high volume business, This entails locating documentation that is on-site, archived, or third parties, and reviewing thousands of revenue transactions in detail using structured approach. There are a number of issues. However, let me share an example of an issue that has arisen in our reviews. We have from time to time offered free shipping to customers even though terms of our agreements with those customers provided that the customer would arrange for its own shipping company to pick the products up in our factory shipping dock.
This practice has the unintended accounting consequence of converting the transaction from an ex works transaction to an FOB transaction. If end of quarter shipments are adjusted in this way, It can cause the appropriate date for recognizing the revenue for those shipments to slip from 1 quarter into the next. This is one sample of what we are looking for as we review thousands of transactions. The company believes the revenue recognized For review transactions is valid revenue. The main issue is the quarter in which revenue must be recognized.
We have not yet determined whether the magnitude of any timing adjustment will be material to any of our previously filed financial statements. We continue to work diligently to complete the review, assess the impact, and complete our financial statements and assessments of internal controls over the financial report We have engaged KPMG to assist us with our review, and we are also working closely with our independent auditors to look to complete the job. We appreciate the efforts of both KPMG and Deloitte. Finally, we are also working closely with the agent of our bank group to inform on the testing process as well as our progress towards completing all the SEC filings. As a result, We expect to continue to have adequate lines of credit to fund the continued growth of the company.
We're not able today adjusted date by which we will complete this review and file all our delinquent SEC reports, but we believe that date is not too far in the future. Thankfully, however, our business remains healthy and has grown during this time as the results of our 4th quarter reflect. Turning to a brief overview of our financial performance during the fourth quarter of 2018, Super Micro had strong 4th quarter revenue and net profit. We estimate 4th quarter revenue was in the range of $986,000,000 to $996,000,000. It was roughly $3,300,000,000.
We estimate 4th quarter non GAAP fully diluted earnings per share was in the range of $0.75 to $0.79. We grew revenue in all market verticals with key markets growing significantly year over year. Global 2000 more than tripled year over year. Internet data center more than quadrupled year over year. And non Internet data center grew nearly 50% year over year.
Accelerated computing was up over 90%. Indebted grew 20%. Storage and channel were up 9% and 3%, respectively. On a year over year basis, the U. S.
Enjoyed the highest growth of 48% followed by EMEA that grew 28% and Asia Pac that was up 24%. Other regions grew 56%. Our estimated range of gross margin on both the GAAP and non GAAP basis was from 12.8% to 13%. Our customer mix primarily affected margin this quarter. We estimate non GAAP EPS range this quarter was $0.75 to $0.79, which was a record high and almost double year over year.
For the fourth quarter, we estimate cash generated from operations was $38,000,000. After deducting CapEx of $8,000,000, We estimate free cash flow of $30,000,000 for the 4th quarter. Last quarter, we mentioned our efforts to manage our working capital. This quarter, we reduced our cash conversion cycle to 82 days from 99 days in the prior quarter. We achieved improvements in day sales outstanding due to collections and improved shipment linearity and reduced inventory days by being more precisely tiny purchases that is offset by reducing date payable.
All in all, our business is strong and the improved performance white work in digital, diligently, become current on filing our financial reports. Let me now turn it over to Charles for his comments. Thank you, Kevin, and good afternoon, everyone. Please add our substantial effort and progress to complete with our AT and T filing. I'm very disappointed there with the land meter that are filing day 9.
Personally, I cannot convey how much pain I feel in this unfortunately, the development. However, there are no effects in my confidence in cheaper microwave stone foundation. In the meantime, we are achieving vehicle hire revenue and profitably. And I continue to introduce new unparalleled product innovation. We are committed to completing our SEC filing as soon as possible and making sure this program will never happen again.
Completion of our audit in the first full space. We have been investing to further improve our people's skill process and tours to meet in a high preferential standard and to meet the need of, graphical, growing USA based, Global Technology Company. We need to make sure our infrastructure is a strong asset. That's excellent. Our growth and deliver flawless customer experience, a change being met and already improved our business operations.
We have had email agreement across our business and financial operations for our company. Now he has seen police aware of industry knowledge and experience in large scale operations. We also add a new chief complaint officer and a new vice president of internal audit. And strengthen our revenue recognition team. Our company has grown over 31% in the last year.
It's either the disruption code by the the container today to our 10 K filing. Today, she will not be used. And product economic development shift enabled to be stronger. Our 4th quarter revenue represents a range of $986,000,000 to $996,000,000, approximately 39% higher year over year and was below the high. With this strong quarterly revenue, Chipon Ecoented3.3000000000 for fiscal 2018.
Record revenue and profit are strong indicators over continued success of our product and much focus. We continue to expand our technology leadership with new products that deliver than changing performance. Our market for now is between different. So challenges update from hyper converged systems and big data applications. So AI machine learning we have partnered with NVIDIA to do the world's most powerful platform.
They can find shipping Tesla V 100 GPU. Enter a quick afternoon super server. Partnering with India and Samsung. We delivered a new car of high data throughput, very loaded, and distorting for that matter. Let's then deliver up to a petabyte of high performance, old fridge, family, and storage, and I contact a 1 year system, and can deliver up to AT and T and I.
I'm more confident about our business and technical opportunities than at any time in our 25 years of history. We are following focus on meeting our obligations for SEC Depotsing and operating a low cost business. We have many great students going on at the Super Micro as we continue to bring to market our new innovation. Nagiso Savings Economics are enabling great opportunities for us, especially for our coming pricing transition, Enterprise Global 2000 and AM Machine Learning. I look forward to sharing more of these exciting opportunities, which we will be future quarters.
And now I will turn over to Kevin. As indicated previously, we will have a Q And A session where 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 related to the audit committee investigations or the delayed filing of our 10 k because of pending litigation. Operator, at this time, we are ready for questions.
To ask a And if you have found your question has been asked and answered before you could ask it. Also, if you're on a speaker phone, please make sure that your mute function is disengaged so your signal can reach our equipment. Finally, we ask that you limit yourself to one question and one follow-up until all of the queue has has an opportunity to ask a question. We will then come back for your additional questions. We'll go first to Newhall Talkcamp with Maxim Group.
Thank you. And really, phenomenal results. But, Kevin, as you know, the stock is reacting to the delayed filing and really great color on some of the examples that's going on. You made a statement at the end that you believe that the ability of all these songs is not too far away. But in the 2nd per press release of the day, it does say that there's still significant work to do.
So can you help bridge the delta between, you know, the verbal comment and what's in the file and and what's the 8 k?
Yeah. So I think, it is true that we still happen to potential amount of work to do. I think what we said in terms of being able to see it in the future is that now that we are later in the process. We actually have pretty good visibility on what it takes to remain, to be able to complete the process. So, that's how I would turning them together that it's one of, better visibility, but there's still a fair amount to do.
Okay. So the process that was defined on what needs to be done to review a transaction was established relatively late relative to lending investigation started about a year ago. Is that fair to say?
Well, certainly as, the results of the investigation came in, we were able to see a little bit more in terms of the processes that we were needing to do. So certainly it was evolving.
Okay. Okay. And just to be clear, you said significant transactions left to review, but you've already reviewed 100 of transactions. So Are you, you know, only a fraction of the way through? Are you, like, 10 to 20% the way through, or are you more, like, 80 to 90% the way through of what needs to be reviewed?
Yeah, we really can't go into that level of detail. What I can share with you is that we've taken the approach of largest transactions and are now going forward smaller transactions.
Okay. Understood. So on to the fundamental stuff, at the midpoint for the June quarter, you had 25% tier 2 growth, and that's about a 1000 basis points above your typical seasonality. And you did see gross margin ticked down a bit q with q. So can you parse that between potential drivers of mix, component input costs, competitor pricing, and then an upside lever that all these 3 should be also offset, setting should have been volume as well.
So maybe you can also comment on how much of a positive effect of volume would have been if the other three items were held constant.
That's a lot. So I'll tell you that we are certainly, certainly aware of the fact the industry is growing, we are benefiting from that. We are happy with the significant enterprise winds that we are getting. I will share with you that as I looked at the, the margin mix, a lot of it had to do with just a quarter over quarter mix in terms of some of our customers. So some of that is related to the products that they buy.
Others are related to you know, the aggressiveness sometimes that we have on larger deals. So I think that's those were the 2 primary factors.
Would you say that the pricing environment has become more competitive relative to a quarter ago?
I wouldn't say that universally, no.
Okay. Thank you. I'll get back in line. I do have a lot more questions.
Thank you.
We'll go next to Aaron Rakers with Wells Fargo.
Hi. This is Jake Wilhelm on behalf of Aaron Rakers. Congrats on the strong results. I was wondering if you could give me some color on, what you're seeing with a and b's traction
with their epics epics line? Yeah. You see the A and P product has been again popular and, we shipped, kind of a much more product than last quarter. So that change should be continuously. Thank
you. I was also wondering if you could give me some color on, intel's optane product and the traction you're seeing around that with, Intel's 10 nanometer challenges.
Yeah. We continue to shift our India offhand technology. Again, likewise, what I know, people want a lower latency kind of hire family and obtain technology provider excellent solution in that area. And we have, a great 2009 one of our earliest player in the market, up to 10 nanometer, catalysts from India, As of this moment, we try to. And, overall, we feel very optimistic still.
Great. Thank you so much.
We'll take a side rep from Nehaa Chokshi with Maxim Group.
Alright, thanks. So your midpoint guidance is down 15% QROCU, which is a a 1000 and 1500 basis points more than what I would consider seasonal. So can you give some color as far as what's below seasonal guidance? Obviously, you did have some incredible Q over the past few quarters, but just want to make sure there's nothing more to it than that.
No, I think, our primary view of this quarter is really seasonal. I don't think there's anything unusual as it relates to the guidance. Hopefully, we're doing well. Now we said our guidance, 800,000,000 to 817,000,000. Now, indeed, this quarter, September quarter, where it stands to quarter 33.
Okay. And non GAAP OpEx plans for September quarter. Can you give any color there?
Yeah. We're not giving any guidance other than revenue at the moment.
Okay. Alright. And, Are you gonna be able to provide, some color on the system volume, system ASP, node volume, and node ASP for the June quarter? No. Okay.
Alright. That's it for
me then. Thank you. Thanks.
Okay. Next is John Lopez with Vertical Group.
Hi. Thanks. I'm wondering if you could just spend a moment because
it's not really not apparent
to me by the wording that you offered in the release. So specifically, you referenced in the second press release the review of 100 of transactions. And then in the same sentence, the conclusion that you don't believe a restatement is necessary. So I guess what I'm hoping you can expand upon a little bit is what exactly have you found as you've gone through these hundreds of transactions? And what are the points of focus And what in that work has led you to conclude that a restatement is not necessary?
And then the last part of that, what would make you conclude, prospectively, that one might be necessary?
So the predominant pattern that we're seeing is that there are ins and outs across the quarter. And so, so far they've kind of netted each other out, to a great degree. And that's really what the primary, modus operandi is.
Okay.
And could you just speak
a little bit more to the progression of analysis over the period that you referenced, I. E. Fiscal 'fifteen through 'seventeen, I mean, is it fairly uniform across those periods do you see more congestion in one period versus another?
Yes, we really can't speak to that, but divert to the fact that There's not been significant distortions. It doesn't say that there's a a a big difference in the pattern.
Okay. Understood. The second clarification I was hoping you could offer is you don't reference fiscal 'eighteen at all. I understand that's not a period that you've provided SEC filings, but are you reviewing transactions for FY18 as part of this as well, or has FY18 been for lack of a better term immunized just based on some of the focus and and activities that went into motion when you discovered this issue?
Well, I can share with you that as we've gone through the year and, things have come to life in the investigation, we have had our eye on that as it relates to how we have estimated the quarters over 18. So, we have incorporated some of that. We still will have to go through the transactions, you know, at the end, but we've been improving as you go, so to speak.
Understood. The next question I had was just your commentary around that credit lines my recollection, and it's a little foggy. My recollection is that there was some contingency tied to the filing of the SEC documents. Can you just revisit that topic quickly? Are there procedures or do you have to go through separate processes on the credit side now that this deadline won't be met?
And then what would be the time frame over which those would be transition to outcomes?
Yeah. So, the credit line, the way that it was structured is is that it was a 1 year term. If you remember, we closed this in, in April. So therefore, it had 1 year term or, completion of our delinquent filings. And then upon the earlier of, one of those dates, we would be able to convert it into phase 2.
That phase 2 at allowed for an expanded credit facility. So, that's the nature of it. Continue to increase the healthy, right? That's right.
No, that's right, but that could change. Mean, your your access to credit card changes, positioning us driving that. And it sounds like what you're saying is that you still have some amount of duration on that 1 year term.
That's correct. Okay.
And sorry, could you just remind like approximately when does that duration end?
It's like, 3rd week of April, I believe. 2019. Yeah. 2019.
Okay, understood. And so at that point, for whatever reason, the situation is not resolved, then there would be a separate process you'd have to undertake from that perspective.
Yes, we're getting a little ahead of ourselves.
Sorry, just a couple of questions on the business. You in mind. Can you guys just offer a rough split between what your services and business did in June relative to the accessories portion of the
business? Or the subsystems?
Yes. So, our system business was roughly about 84% in the last quarter.
Okay. 84%. And would you expect a material change in the segment splits looking into September?
Let's see if until you continue on the growing stronger.
I'm sorry. The systems business will continue to upgrade as such systems business?
You're talking you're talking any most verticals?
No. No. I was
really just looking at the split between the 2 or 4 of the segments. You have a Service Systems segment. You have your subsystems business, so the other 16%. I'm just asking as we go into from June into September, are you anticipating any kind of sizable shift between those revenue buckets?
No. It's been a slow increase towards systems and it would continue to have that kind of movement.
Understood. And sorry, the last question on the gross margin side, I think I heard what you said earlier. I guess I'm just looking for a little bit more on trajectory. I mean, you've obviously seen some portions of the component bill of material become a little bit more favorable. Your gross margin obviously went the other way.
It sounds like that was, vertically related. I'm assuming that was hyperscale and to an extent that As we just think about the next several quarters, to the extent that bill of materials buckets continue to trend favorably, is there a reason that you wouldn't expect your gross margins are beginning to trend back up toward the mid 13s, low 14s? I mean, I'm not asking you to quantify that range. I'm just saying directionally, would you expect improvement the cost side continues to be a bit more favorable.
Modest improvement over time.
Okay. Thanks.
And it appears at this time we have no further questions. I would like to turn the call back over to Mr. Liang for any additional or closing comments.
Thank you everyone
for joining us. And see you very soon. Thank you. Have a great day.
Quarter of fiscal 2018 business update conference call. We do appreciate your participation. You may disconnect at this time. Thank you.