Thank you for standing by. My name is Ana, and I will be your conference operator today. At this time, I would like to welcome everyone to the Super Micro Computer Fiscal Fourth Quarter 2023 results conference. With us today, Charles Liang, Founder, President and Chief Executive Officer; David Weigand, CFO and Michael Staiger, Vice President of Corporate Development. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] thank you. Michael Staiger, you may begin your conference.

Good afternoon and thank you for attending Supermicro's call to discuss financial results for the fourth quarter and full fiscal year, which ended June 30, 2023. With me today are Charles Liang, Founder, Chairman and Chief Executive Officer, and David Weigand, Chief Financial Officer. 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 & Presentations tab. We have also published management's scripted commentary on our website. Please note that some of the information you’ll hear during our discussion today will consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, and future business outlook, including guidance for the first quarter of fiscal year 2024 and the full fiscal year 2024. There are a number of risk factors that could cause Supermicro'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 fiscal 2022, and our other SEC filings. All of these documents are available on the Investor Relations page of Supermicro'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 business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation or to our press release published earlier today. In addition, 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.

Thank you, Michael, and good afternoon, everyone. Today, I am pleased to announce a new record fiscal result of $7.12 billion annual revenue, a 37% year-over-year growth rate. We have also achieved our first landmark $2.18 billion quarter, which is 34% growth year-over-year and 70% quarter-on-quarter. We are continuing to exceed both top and bottom-line results and performing well beyond our previously guided ranges. It’s no secret that our strong growth has been driven by the demand for our leading AI platforms in plug-and-play rack-scale, especially for the large language model-optimized NVIDIA HGX-based Delta Next solution. Our engineering capability enabled us to deliver optimized, first-to-market AI products and solutions to our customers, distinguishing us from the competition and empowering us to take market share. I am also proud of our logistics and production teams’ execution to maintain our time to market advantage and deliver our total solution to our key partners much sooner than competition. Our investment of 4,000 racks-per-month state-of-the-art validation and production facility in Silicon Valley is one of the major factors in delivering high-performance AI racks quickly with both air-cooled and liquid-cooled options. Let’s go over some key financial highlights: We enter FY24 with record-high backorders, many more new design wins and new customers. Again, our fiscal year 2023 net revenue totaled $7.12 billion, up 37% year-on-year, above our mid-point guidance range of $6.7 billion. Fiscal year 2023 non-GAAP earnings per share grew 109% year-over-year to $11.81, compared to $5.65 a year ago, exceeding the higher end of our revised guidance range of $10.50 to $11.00. Fiscal Q4 net revenue totaled $2.18 billion, up 34% year-on-year and up 70% quarter-on-quarter, above our guidance range of $1.7 billion to $1.9 billion. Fiscal Q4 non-GAAP earnings of $3.51 per share grew 34% year-over-year compared to $2.62 a year ago,…

Thank you, Charles. Fiscal fourth quarter revenues were $2.18 billion, up 34% year-over-year and up 70% quarter-over-quarter. Q4 revenues exceeded initial guidance range of $1.7 billion to $1.9 billion and were at the high end of the recently updated range of $2.15 to $2.18 billion. For Fiscal 2023, we reported revenues of $7.12 billion, representing 37% growth over FY'22 revenues of $5.20 billion. Next generation CPU and AI platforms continue to drive record levels of design wins and orders. Exiting fiscal year 2023 with a record backlog, we are well positioned for fiscal year '24 with an outlook for continued revenue growth and profitability. We expect diversified growth driven by top-tier datacenters, emerging CSPs, enterprise AI build-outs, CPU upgrades, and edge IOT and telco markets. We are also targeting new opportunities in adjacent markets such as Storage, Switches, Software & Services. We note that our shipments against a record backlog may continue to be constrained by supply chain bottlenecks for key new components for our advanced AI server platforms. Q4 results were driven by our high-growth AI/GPU and rack-scale solutions which represented 52% of our total revenues. We had two 10% customers for Q4 and did not have any 10% customers for fiscal year '23. During Q4, we recorded $976 million in the Enterprise and Channel vertical, representing 45% of revenues versus 50% last quarter. This was up 19% year-over-year and up 51% quarter-over-quarter as we ramped several key enterprise programs. The OEM appliance and large datacenter vertical achieved $1.17 billion in revenues, representing 53% of Q4 revenues versus 47% last quarter, up 59% year-over-year and up 94% quarter-over-quarter as we gained momentum from existing and new datacenter, CSP, and OEM cloud appliance customers. Our emerging 5G, Telco, Edge, IoT segment achieved $43 million in revenues, representing 2% of Q4…

Operator?

[Operator Instructions]. Now we have the first question, comes from the line of Nehal Choski from Northland Capital Markets. Sir, Your line is open.

Thank you. And congratulations on an amazing quarter and amazing fiscal year '24 revenue guidance of $9.5 billion. Definitely want to dig into. First off, Charlie, I think he said you have 50% in revenue exposure AI for the June quarter. That's incredible makes a very strong statement that Super Micro, indeed the leader in AI systems. What do you think is a sustainable differentiation that you guys are wielding with rack-scale AI systems that's driving that incredibly fast increase in revenue exposure AI systems?

Yeah, thank you for your question. Yes, as AI has been our major focus is since a few years ago, and we work with AI chip company kind of very closely. And we could develop lots of our platform, including our MTX [ph]. Now coming MTX, as you know, to support a C2and CG1. So our AI solution with rack scale scale, or cloud scale, customer scale solutions that make our customers deploy even much easier. And full rehab, they also solution for energy cost as they've been for time to online. So I believe our AI product line will continuing to grow in the near future maybe continue to be more than 50% of our revenue.

Next question comes from line of Mehdi Hosseini from Susquehanna International Group. Your line is open.

Yes, thanks for taking my question. And Charles, I think it would be very helpful if you could [technical difficulty] $10 billion of revenue. And perhaps any kind of color on ASP increased that would capture your increased content would give us an insight unless you have other ways of explaining to get to $10 billion net.

We continue to get lots of new customer or partner continue to like our solution. And we continue to gain new customer with our rack scale, cloud scale, total solution, including [Indiscernible]. So we see a very strong demand and growing very fast order. So $10 billion should be kind of a short term target this year.

Last question, your competitors also argue for innovative cooling? And they also argue for shagging? Is there something with your cooling technology that is better offers better cost performance, compared to some of the emerging cooling that your competitors are for marketing, are talking about?

Yeah, indeed, our engineering team is strong and dedicated. Everyone can design systems, our system simply better than others, not just better in quality, performance, but also earlier time to market. And together with service, software, system management. So it's a total solution and service. So we feel pretty confident that we will continue to gain market share.

Okay, maybe move on, because they are becoming more than 50% of your revenue. How is your pipeline as you look into the second half of calendar year? Do you already have a pipeline that gives you confidence, you're going to hit that 50% plus AI as the mix of revenue or you still have to go and qualify and win the business to hit that target.

Indeed, our pipeline I believe is very strong. And that is momentum, its ability is very clear. So we are very confident especially with another chemical customer too.

Your next question comes from the line of Jon from Tanwanteng. Your line is open.

Hi, good afternoon. Thank you for taking my questions and congrats on a really strong quarter outlook again. My first one, is I just wanted to dig into your confidence for the outlook. Can you just in various parts, maybe talk about your confidence in supply chain, being able to supply that maybe 40% growth guidance at the midpoint? Maybe talk about your ability to get allocations from key suppliers. And then within your order book and backlog? What is your assurance? Or how can you identify if there's double or triple ordering? And how do you protect yourself against that if they do exist?

Yeah, it's a complicated question. We have a very good product many product line for delta max for redstone max for grace for [indiscernible] and other solutions including error 40s. So the solution is really strong and supply chain we work with our vendor very closely every day. And so hopefully that situation will be consistently improve, but it's not 100% control of our sale. So although we have a good partnership but it's 100% controlled by our sales. So all though we have a good partnership, which vendor, which customer. So we work together very closely, And the situation will be continue to improve I believe

On the order side

Your next question, I will ready for the next question.

John, did you ever follow up question?

In order site, double protection against double and triple?

Yeah, and see the other side? I mean, the tech order had been continued growing strongly. Every month I see older growth.

Also, John, we have a lot of NCNR orders as well. That protects against double and triple booking.

Your next question comes from Ananda Baruah from Loop Capital, your line is open.

Yeah. Good afternoon, guys. And thanks for taking the questions. Yeah, congrats on the strong results and the ongoing momentum. I have a couple if I could. Charles, you've talked in the prepared remarks about the unprecedented demand you're seeing and you guys have talked about actually adding new customers, including top tier data center customers, I think you mentioned and some of these gen AI server forecasts, for 2024 calendar are really, really strong. And you're also talking about gaining share, et cetera. And so I guess the first question is, is what's the opportunity do you see to maybe even do teach stronger than the fiscal '24 guidance. I guess, what would be the puts and takes there? And, if you were to be able to exceed the 2024 guidance, what would be some of the things you think would need to occur? And then I have a quick follow up. Thanks.

Yeah, thank you. Very good question. Again, we continue to gain generative AI innovator, and we have a very good partnership. We partnership with some small OEM. And for sure, they need 10 times 20 time more system. And we just cannot ship at this moment, because of supply chain. And at the same time, we also continue to engage with large CSP, in large data centers. So we continue to gain more customer from I read who say, all given political. So yes, hard to work out which supply chain, three party regime, our supplier, our customer in our sales. And that's have been our major focus now. Although we continue to improve our total datacenter solution included in DRC, direct liquid cooling and liquid immersive solution. So I mean, we are on the right track, yes expecting supply chain can improve so that we can grow our revenue.

That's really helpful. And so, Charles, just to make sure that I understood that accurately, is that to say, if the supply chain -- so if you can, if you can get more from the supply chain, actually use it to say this way you have order visibility, such that if you can procure more, you would have the ability to share gains, exceed the fiscal '24 range that you provide is a really supply chain issue, I guess, is what I'm asking. Did I hear that accurately?

Yeah, absolutely. I mean, we continue to prove to our customer and our vendor, say, hey, we have a business solution. So okay with us, that's where we went wherever you went.

I got it. And then let me just ask a quick follow up to that one. Is there any way you guys could provide in context for us around I guess how constrained you are, like, what might the demand outlook sort of look like if you were not constrained? So not like a guidance, obviously, you gave your guidance to just content context for us and really getting a sense of what the structural positioning of the company is, if there were not constraints?

Yeah, I can. We have a very good product. And we have a very good partner customer. And we, we pushed our vendor. And we know our vendor doing their best to support us at the same time as well. So we just have to continue to work together.

Charles, I have one more quick one, I appreciate it. Sounds like the gross margin guidance for the September quarter is a pretty solid most attractive guide. For fiscal '24, should we assume that same 17% kind of gross margin range or what's the right way to think about that? And that's it for me. Thanks.

Sure, Ananda, this is David. So we're targeting to hold our margins. And that's all the guidance that will give right now.

Your next question comes from the line of Adam [Indiscernible] from Wells Fargo. Your line is open.

Yeah, thanks for taking the questions. And also congrats on the results tonight. So I first of all, I just want to clarify, I want to make sure I heard the number. Yeah, the 50% or 52% of the revenue that was from your AI and rack scale solutions as last quarter?

Yeah, Adam. Charles, in his script said approximately 50% and I clarified 52%.

Okay, so I guess the question isn't either that is that, one of the questions I get asked a lot about, is the spend around AI being so strong. And it sounds like obviously, you're carrying a pretty good backlog looking out over the next several quarters, given the supply dynamics. But if I take that number and I say the non-AI business, how has that trended or basically, are you reallocating capacity away from more of the non or traditional compute side to satisfy demand on the AI side? Or have you seen spending slowdown outside of these AI investments that you're clearly benefiting from?

Yeah, now AI server storage, IoT telco, we keep involve and a bit blend. Understand that industry has been declining, we are not declining, above Fed. And we try to grow as well. And that's why we are growing in many directions kind of manufacturing, kind of like Taiwan and Malaysia. And we may have another North America campus. So that's all to increase our capacity, so that we can grow traditional data center business as well, instead of omni focus on that, growing AI.

Okay. So just to be clear, I mean, so you're limiting -- you're limited on your supply, on the traditional compute side, because of the AI demand that you're seeing. Is that fair?

Not exactly impacted, but not exactly. Indeed, as traditional server, traditional datacenter business, and a bit bland from the demand side. So we face into similar experience as well, but not declining to ---

Yep. Okay. And then the final question for me is just thinking about the AI opportunity. And I think you alluded to this a little bit your prepared comments you mentioned positioning around I think it was the Intel, Ivy chip and then also I think another vendor coming to market the MI300 from AMD. How do you see that playing out for your opportunity? Does it help satisfy the man are you seeing indicators that, this AI opportunity is going to be much more diversified here as we move into '24 versus what you've seen on the NVIDIA side at this point? Just curious how you're seeing kind of the competitive landscape or maybe opportunities that expand for you guys with those newer other solutions coming to market?

Yeah, in retail solutions, [Indiscernible] and people are really waiting for NVIDIA more supply. And other solution from Intel, from AMD, because our box [ph] solution we have a solution ready for show up again. So that's the advantage we have. So we just waiting for their solution to be available in production.

Thank you very much.

Thanks.

Your next question comes from the line of Jon from Tanwanteng. Your line is open.

Hi, thanks for the follow up. Dave, I was wondering if you could talk about your working capital needs in the sort of environment. Can you generate positive cash flow going forward? Are you going to be using cash as you as you try to fulfill this OpEx demand?

Yeah, John. We see the business generating good cash flows, as it has historically. And we think that the --- especially in this constrained supply market, where we could deliver more if we had more supply. But we're so really, the constrained supply ends up moderating the working capital. And so we grew our business last quarter quite a bit and grew our ARR. So that utilized a lot of working capital, but we have no concerns about working capital.

Okay, great. And then could you guys give a little bit more detail on the capacity expansion, and then when those various facilities come online, and what exactly they add?

Sure, we have Malaysia, which is expected to come online in around 12 to 15 months. And that's going to --- that will eventually double our capacity. And we also have additional capacity coming online in our building 23, here in our Social Valley campus. And we've also added, as Charles mentioned, another site in in San Jose, with intentions to add another site in the Americas.

Got it? And then last one, for me. Maybe a more detailed question, what percentage of your AI sales right now are liquid cooling basin? Do you expect that percentage to increase as you go forward?

This is very new questions. So we have a very good DLC, direct liquid cooling solution ready to go now. And it's all depends on customer demand. And at the same time, the big emotions solution also getting ready. So we have all three solution and depends on customer's demand. At this moment, for sure [indiscernible] still a majority, as you know.

Okay, great. Thanks. Charles.

Thanks.

Your next question from the line of Nehal Choski from Northland Capital Markets. Your line is open.

Yeah, thank you for the follow up question. So NVIDIA was guided their July quarter data center revenue up 2x QonQ. What does that mean for Super Micro in terms of GPU systems? Especially what I'm trying to drive is that is there a lag between when a video that's recognized revenue and when to rest from server OEMs gets revenue recognized revenue?

We believe their capacity are growing. And that's why we talk to them every day asking for more. So hopefully we can gather more support from them. And hopefully their capacity that grows mostly quickly. So that's all I can say now. Okay.

Okay. You have a -- I guess on, what is your AI-related market share during the June quarter and what they're not that was up QonQ?

We don't have --- we're not going to go into offer a market share for the June quarter. You can make some assumptions by looking at the results of others. But, we have we sell different GPUs as Charles mentioned. So, there is a direct correlation.

Yeah, basically we have a strong order backorder. And we still have not full capacity. We are waiting for more AI chip. That's our situation.

Yep, understood. And how should we think about distributing the remaining 8 million across the final three quarters here?

We're not going to announce quarter-by-quarter our guidance. But we're expecting this to be a robust year and has tempered by the natural supply constraints because of the popularity of these new platforms,

Yeah, basically in NVIDIA we have a more capacity for sure. And we're really happy to wait over there. And besides other than the alternates our residental mix next is a company that is already in our CG-1 solution is pretty much ready as well. So we believe we can ship much more and not less situation. So in next four quarter I believe will continue to grow quarter after quarter.

Thank you very much,

And even a supply condition, I believe we can surpass $10.5 million for sure easily.

Thank you, everyone for joining time for question at this time. And this will conclude today's conference call. You may now disconnect. Thank you, everyone.