Thank you for standing by. My name is Matt, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Super Micro Computer, Inc. Q2 Fiscal Year '26 Financial Results Call. With us today are Charles Liang, Founder, President and Chief Executive Officer; David Weigand, CFO; and Michael Staiger, Senior Vice President of Corporate Development. [Operator Instructions] Over to you, Michael.

Thank you. Good afternoon, and thank you for attending Super Micro's call to discuss financial results for the second quarter and full year fiscal 2026, which ended December 31, 2025. With me today, as you know, is Charles Liang, Founder, Chairman, Chief Executive Officer; and David Weigand, Chief Financial Officer. By now, you should have received a copy of the press 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 IR section of the company's website under Events and Presentations tab. We've also published management scripted commentary on our website. Please note that some of the information you'll hear during the 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 third quarter of fiscal 2026 and full fiscal year 2026. These statements and other comments are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. You can learn more about these risks and uncertainties in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2025 and other SEC filings. All these documents are available on the IR 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 business outlook. For an explanation of our non-GAAP financial measures, please refer to accompanying presentation or to our press release published earlier today. The non-GAAP measures are presented as we believe that they provide investors with the means of evaluating and understanding the companies management -- management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP. 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. Our third quarter fiscal 2026 quiet period ends at the close -- or begins at the close of business Friday, March 13, 2026. And for now, I will turn the call over to Charles.

Thank you, Michael, and thank you all for joining today's call. Super Micro delivered a strong fiscal Q2 as AI infrastructure demand continues to accelerate across every major customer segment. For the quarter, we achieved a record TWD $12.68 billion in revenue, including $1.5 billion before the former type of account last quarter, representing 123% year-over-year growth. This strong performance reflects the sustained momentum of our AI solutions and Rack Scale Systems as customers build out next-generation AI factories. Super Micro has been developing some of the largest and most complex AI cluster ever built, highlighting our unmatched capability in large-scale manufacturing on-site deployment and integration. Most notably, our data center building block solution or DCBBS has started to gain some key customers' preference as they look for quicker time-to-deployment, TTD and quicker time-to-online TTO. This predesign, prevalidate infrastructure building blocks, not only speed up customers' data center builds, but they also save cost with better workload optimization and with minimal power and water consumption. DCBBS will significantly help us gain market share in large, medium and small AI infrastructure deployments. With GP300 [indiscernible] platforms, we are also preparing for upcoming NVIDIA, Vera Rubin and AMD Helios solutions for the second half this year. While we continuously growing AI factory build-out customer and product mix are shifting -- shift more to large model builder who had pricing leverage pressuring gross margin. In Q2, especially the expedite transportation costs ongoing component shortage and their volatile pricing among with tariffs and impact our short-term gross margin. As such, I would like to take a moment to highlight our key strategies to address this and efficiently strengthen our long-term profitability. First and foremost, Super Micro undergoes its fourth phase of product evolution with DCBBS as its key focus. As these data center […

Thank you, Charles. We achieved record Q2 fiscal year '26 revenue of $12.7 billion, up 123% year-over-year and up 153% quarter-over-quarter compared to our guidance of $10 billion to $11 billion. Q2 revenue included approximately $1.5 billion in delayed Q1 shipments due to customer readiness. Growth was driven this quarter by the rapid ramp and deployment of our Rack Scale AI solutions. Despite supply chain challenges in the industry, our global manufacturing team executed well in delivering record revenue. Order strength remains strong from global large data center and enterprise customers. AI GPU platforms, which represent over 90% of Q2 revenue continue to be the key growth driver. During Q2, the enterprise channel revenue segment totaled $2 billion, representing about 16% of revenue versus 31% in the prior quarter. That's up 42% year-over-year and up 29% quarter-over-quarter. The OEM appliance and large data center segment revenue was $10.7 billion, representing approximately 84% of Q2 revenue versus 68% in the last quarter. This was up 151% year-over-year and up 210% quarter-over-quarter. For Q2 FY '26, one large data center customer represented approximately 63% of total revenue. By geography, the U.S. represented 86% of Q2 revenue, Asia 9%; Europe, 3%; and the rest of the world, 2%. On a year-over-year basis, U.S. revenue increased 184%. Asia grew 53%, Europe decreased 63% and the rest of the world increased 77%. On a quarter-over-quarter basis, U.S. revenue increased 496%, Asia decreased 49%, Europe decreased 51% and the rest of the world increased 53%. The Q2 non-GAAP gross margin was 6.4% versus 9.5% in Q1. Gross margins were impacted by customer and product mix as well as higher freight, production and expedite costs as we began to ship new platforms on a large scale. We had significant operating leverage during the quarter with total non-GAAP…

Great. Matthew, can you roll the queue?

[Operator Instructions] First question is from the line of Ananda Baruah with Loop Capital.

Yes, congrats on the solid results here relative to the guide. Just -- I want to just ask about margins. And I have a few day questions they want to ask you here, but they're all margin related. I guess the first is with regards to -- you mentioned, I think, 90 days ago that December quarter, you expect it to be the sort of the low watermark quarter in gross margins, and you're guiding for Q-over-Q improvement for the March quarter. Do you still think that things progress expansive from here, Charles, you made some comments around customer mix. It's been a headwind. Do you think it continues to improve? And I have 2 quick follow-ups, Dave, just margin related after that.

Yes. Thank you for the question. Yes, the customer mix, we are improving quarter after quarter. Now we have many more large-scale customer, I would like to say. So that will improve our profitability. The other factor is -- last quarter, I mean, December quarter, the GP300 was a little bit new to us. So a lot of expedite transportation cost. And now, I mean, product is getting mature. So those expedite transportation costs will be dramatically reduced and tariff impact also improving. And -- so overall, especially DCBBS also increasing for our -- for our gross margin. So I believe our gross margin will start to improve quarter after quarter.

Charles, that's great context. Really appreciate it. And actually, Charles, one of my 2 clarifications here is from something you said in your prepared remarks, you said higher net margin. And so I guess you just clarified you expect gross margin to go up. Maybe this is a Charles or Dave question. Dave, you mentioned OpEx leverage. The OpEx as a percentage of sales was really attractive this quarter. It's like 1.5% -- I guess, less than 2%. But should we expect -- I think it's the second quarter in a row, you drove OpEx leverage last quarter, this September quarter for the first time in a while. But now you have this really attractive -- the most attractive OpEx as a percentage of revenue in a while. So are you -- is the company entering a period of not only gross margin expansion, but OpEx dollar leverage as well structurally? And that's it for me guys.

Yes, exactly. I mean economical scale will help us to improve the cost -- our cost, right? So that will impact our gross margin and especially our operation margin. And again, DCBBS [indiscernible] Super Micro for more business in service, in software, in overall infrastructure service to customer. So all those factors are positive to our margin improvement.

Next question is from the line of Samik Chatterjee with JPMorgan.

This is MP on behalf of Samik Chatterjee. I just wanted to double-click on your full year guidance. You said $40 billion for FY '26. If I back into the implied 4Q number, that implies significant quarter-over-quarter moderation. So is that just conservatism being embedded into the full year outlook? Or like do you see definite indications from your order trends that 4Q will imply sequential moderation? And I have a follow-up as well.

Yes. I believe we say minimum $40 billion is a relatively conservative number. So our business indeed will continue to grow, especially our DCBBS that attract a lot of customers who want to build a data center quicker, less power consumption, less cost -- I mean, better cost and also more reliable and easy for management. So we are getting more and more customers come to us.

And for my follow-up, I wanted to ask about DCBBS. You highlighted it being 4% of profits in first half. Can you please help us understand like the contribution in terms of revenues? And then you also said it will increase to double-digit contribution by end of calendar year. So how does that translate to overall gross margin trajectory?

Yes. Thank you. I mean, as you know, DCBBS is still a new product line to us. We officially introduced that product about 6 months ago. So in the first 2 quarters, I mean, September quarter plus December quarter, indeed, it is our first 2 quarters. So the revenue is still relatively small, but because the profit is much better. So overall, it contributed about 4% to our overall profit in last 6 months. And looking forward, it will continue to grow very quickly. So we are very happy to see more and more customers like DCBBS to speed up their data center build-out with EDR for management, EDL for maintenance and our profit will continue to grow because of DCBBS especially.

Next question is from the line of Asiya Merchant with Citi.

Good results here relative to the guide. I just had 2 quick ones. One, just there's a lot of discussion about component availability, supply constraints. If you could just talk to us about your guide and relative to that, is that minimum $40 billion guide a constraining number -- given the supply constraints? In other words, if supply wasn't an issue, could that number be greater? And then just on customer concentration, I think the commentary suggested that some of the geos did decline on a year-on-year basis as well as on a quarter-on-quarter basis. So again, relative to the guide, how should we think about the ramp of DCBBS across those various geographies for the back half of this fiscal year and into -- through calendar '26?

Yes, you are right. We already consider component price keeping growing. So with that, that's why we try to be conservative kind of commit to $40 billion. If the cost -- if the shortage situation improve quickly, for sure, our [indiscernible] revenue will be more than that. And as to DCBBS is globally almost every region, customer like DCBBS because it helps them easier to build a data center. It's kind of like a one-stop shop. We provide not just computing node, I mean storage node, switch node and disk cooling subsystem including battery cell, including some energy backup. So it kind of makes customers' job to build a data center much easier. So the impact is global. We see global-wide more and more customers like our DCBBS solution, and we are aggressively preparing to grow the support.

Next question is from the line of Katherine Murphy with Goldman Sachs.

To ask another question on the new DCBBS disclosure. Encouraging to hear that growing to double-digit share of profit by the end of calendar '26. Can you talk about the investments that you need to make here to expand the capabilities? I know Charles, you mentioned some in the prepared remarks as well as your go-to-market offering to have this increased penetration of DCBBS? And then I have a quick follow-up as well.

Yes. Indeed, we started to develop our DCBBS pretty much about 12 months ago. So we already consistently invested in that area. And so far, we have about 10 items, including the CDU, including chilled door, including the power shelf, battery backup, water tower, management software. So we have about 10 items available now, and we will introduce another 3 to 5 items in the next few months or next few quarters. So the data center building block solution will be getting more complete, and that's why it will be easier for customers to build a data center. It's not just easier, quicker to build their data center, but also make their data center modularized. So it's easier for management, easier for maintenance and easier for scale up.

Great. And just on the margin profile of DCBBS, could you remind us what you've said in the past about what that looks like relative to the sales that you typically have towards your large Neo cloud and GPU as a Service customers?

It's for sure, gross margin -- net margin are much higher for DCBBS because it's so unique. And again, we are the first company to build predesigned, prevalidated, pre-optimized data center solution for customers. So the margin is much better, for sure, more than 20%. And we are happy to make the product line really strong, really complete as soon as possible.

The next question is from the line of Ruplu Bhattacharya with Bank of America.

For the first one, I'll ask a follow-up on margins. David, you mentioned expedite costs, component cost increases, shortages. And I think last quarter, you talked about increased investments in engineering support and services to help new customers. Can you help us size all of these things? How much did they impact gross margins in the December quarter? And what's baked into guidance as impact from these things in the March quarter? And I have a follow-up.

Yes. We don't break those things out, Ruplu, but we can just say that the costs were up in each of those areas. So in other words, higher transportation and expedite in order to move things around and get things delivered to the customer faster. But we have -- I can tell you that over the past year, we've had increases as we have ramped up the new technologies and prepared for mass shipments.

Okay. As a follow-up, can I ask, I think -- or Charles talked about component shortages and you're being a little conservative on the guide. Are component shortages, like which areas are they in? And then component cost increases, are they actually impacting data center demand, either on the AI side or on the regular non-GPU server side? A component cost increases a real factor? And if I can sneak one more in, this DCBBS product that you have, can we infer anything about the type of customers who are buying that? Like if you're thinking that you're going to sell more, it's going to be more -- a bigger percent of your sales. Does that mean that the customer mix is also changing? Do enterprise customers use more of these? Or what type of customer likes to use more of the DCBBS packaged solution?

Thank you for your question. Indeed, the key component shortage at this time is the main reason because the AI and the large data center demand are growing. So the shortage because the demand is getting so strong, not because of production capacity is reduced. So that's a good sign. So basically, it's because the industry are growing, and we are part of the major growing company. So that's why I believe the impact to us, yes, the cost will be impact, but won't hurt us too much. That's first question. And second, I mean, DCBBS, who need the DCBBS, I would like to say all the people like to build a data center. Doesn't matter they are large scale, middle-sized scale or small scale because our DCBBS just simply provide more choice for customers to go for one-stop shop or buy everything from everywhere by themselves. And obviously, one-stop shop save their time, make sure when they put the things together, it works. And quickly, when you put things together, it work and optimize. That's why it's optimized not just time to delivery, but time to online. Customers use our DCBBS, their data center can go for online, go for operation quickly. So I would like to say global people need DCBBS kind of building block solution.

The next question is from the line of Nehal Chokshi with Northland.

Congrats on the strong results and guidance. A little bit of different question here. So look, Super Micro brought DLC to the market one generation faster than when it became part of NVIDIA reference architecture. It's now apparent that Super Micro has brought to the market one generation faster, dry cooling towers, which is related to higher inlet temperatures as part of Blueprint reference design. My question is that do you expect Super Micro to continue to bring to the market one generation faster the power efficiency advantages before NVIDIA makes it part of their reference architecture? Is it going to be part of Super Micro's branding?

Yes. As you know, NVIDIA is a very strong company, and we work with them very closely. And, however, because of our strong engineering background, our big engineering team. So before we are able to make our total solution one generation or 6 months earlier than others. Now and in the future, I believe we will be still able to bring a total solution to market earlier than others, especially help customers build a data center, build their cloud -- AI cloud, time to online quicker than others, if not 6 months earlier, at least 3 months or 4 months earlier. And that's still a big help. So I'm very confident that our future growth should be still very strong.

Great. And then for my follow-up question, your 10% customer, -- was that the primary driver of the upside that you saw in the quarter? Do you expect them to remain a 10-plus percent customer in the March quarter? How should they traject? And then you also did sign Datavault, a pretty big contract with Datavault 6 or 9 months ago. Is that starting to ramp in as well?

Basically, because our foundation is getting much stronger than before ever, especially our kind of total solution, data center building block total solution is strong. So we are gaining broadly good customer from the older territory. So more than 10% or not is hard to say because now our revenue will grow very fast. Very soon, I hope I can say we have more than $50 billion or $60 billion revenue, not to pay, but hopefully very soon. So more and more large customer is working with us. So that's a very exciting condition.

Next question is from the line of Quinn Bolton with Needham & Company.

Let me add congratulations on the nice outlook. I guess, Charles, David, you had a 63% customer in the December quarter. As you look at sort of the second half of fiscal '26, do you expect revenue to diversify significantly? Or do you think that, that large customer continues to be pretty concentrated in the March and the June quarters? And then I've got a follow-up.

Sometimes it's not easy to predict because customers sometimes shift their schedule of pull in or push out. So -- but overall, we are very happy that now we have many more large-scale customers. So the customer is more diversified and overall revenue will grow quickly. And at the same time, DCBBS and [ software ] grow our value. So overall, we are on a very healthy track now.

Got it. So understanding that the customers can push and pull out, right now, the forecast shows increasing diversification over the next couple of quarters.

Yes. I mean because of growth still very fast, that's why now we are focused on more about how to kind of maybe -- what should I say, kind of how to grab more money to grow even faster, right? So if we have more cash for sure we can grow even faster. But even if we do not grab more money, I guess, because of more diversified customer base and also more higher-value system, more higher value to solution. So that will help us grow business.

Understood. And my follow-on, Charles, in your prepared comments, you mentioned the upcoming platform transition to Vera Rubin and the Helios system from AMD. I'm just wondering, have you guys started to get orders for those systems for delivery in the second half? Or is it too early to start to get orders for those systems?

Yes, we have a lot of highly interested customers, some already engaged, and we hope we can deliver as soon as possible. But still, it depends on our partner, depends on when their Vera Rubin or AMD solution will be ready. So we are working very closely with them. Once they are available, we like to deliver to customers quickly. And yes, today, we already have some good commitment from customers.

Next question is from the line of John Tanwanteng with CJS Securities.

Congrats on the nice quarter and outlook there. I just wanted to ask a little bit more about the big versus smaller customer mix that you're expecting in the future and the pipeline that you see. Are you expecting smaller customers to become a greater percentage of sales? Or is it the opposite? And the reason I ask that is because these bigger customers seem to have that pricing leverage you mentioned. If you could have any color there, that would be helpful.

Yes. Thank you for the question. Yes, we understand we need more customer, especially a more diversified customer base, enterprise. So we are very aggressively growing enterprise midsized or even kind of enterprise customers as well. So I mean, our customer diversified is a very important direction to us now. So I guess [indiscernible] large customer and lots of kind of high number of enterprise accounts.

Okay. Got it. And then just on the Vera Rubin question, and I guess the migration to the 800-volt data center. I was wondering if there's any opportunity for you to drive greater differentiation in this next cycle upgrade compared to the past couple. Is there anything about the whole platform and data center architecture that gives you more or less opportunity compared to the last cycle of Blackwell and Hopper?

Yes. I mean that's why I say NVIDIA provides a very good solution. And based on that, we optimize the whole data center building block solution for our customers and aim to help them build the data center quicker and more reliable, easy for management and [ lower cost ] including energy consumption, including energy backup and maybe too early to say, including energy kind of grid power replacement. So we have a complete plan for the whole solution, but some other systems are still too early to say too much at this moment.

Next question is from the line of Mark Newman with Bernstein.

Congrats on a great quarter and great outlook. Just curious, if you just take a step back, I mean, what's changed? You've got a big step-up here in sales, gross margins down quite a lot, but you're guiding forward for solid sales to continue. So is this just a reflection of a tougher pricing environment and Super Micro having to react to tougher pricing environment and thus winning back more share? Or is this just catching up to -- as you referred to the previous quarter -- previous couple of quarters, you mentioned about a few orders getting pushed out. So is this just catch-up of the orders? Or is this a reflection of a more aggressive pricing strategy? And I guess, importantly, for me, like trying to think about forward estimates going forward, I mean you guided for the short term, but how do we think about gross margins longer term? Is this -- this kind of range here to stay? Or are we looking at getting back to -- into the high single-digit, low double-digit range gross margin like you were before?

Thank you. As an engineering company, we, for sure, have some choice. We can continue to grow larger account aggressively or spend more effort to develop technology, the product and to grow more enterprise account. So we are doing both ways basically. And -- so the gross margin -- net margin ratio, we are expecting to grow to a double digit as soon as possible. David, you may add something.

Sure. We think that we've established ourselves with a number of deployments that we've made as being really the premier provider of the most current technologies that are available in the market. And we think with those strong installations, we've broadened our reach into the market. And so we think that we're trying to target both, as Charles mentioned, both large-scale and smaller scale customers and mid-tier customers. But we want to serve all the customer bases that are out there and that are attracted to our products with -- and bring them the very best technologies. We think ultimately, that drives the margins, yes.

The next question is from the line of Brandon Nispel with KeyCorp.

Just I think a couple of quick clarification questions. One for David. David, you raised some new capital this quarter. Maybe just help us understand how you're thinking about working capital for the rest of this year. And then other income came in about $50 million above your guide. Really what drove that? And then just one quick follow-up question.

Sure. The other income was just -- was higher interest income that we had because our cash reserves had grown. And so we were earning good interest income. However, that was quickly taken up by the fact that, as I mentioned last quarter, we had well in excess of $13 billion of orders for purchase orders for delivery. And so we immediately had to use that. That's why our accounts receivable, our inventory went up. And so we took in not only 2 different $2 billion or $2 billion and $1.8 billion credit facilities. We also set up an accounts receivable factoring. So we have access to over $5 billion of additional capital. And if we continue to have growth, then -- we have access to additional capital in the marketplace. But right now, we think that for the current outlook, we have adequate capital to meet our needs. And when I say current, I mean [indiscernible] the coming quarters.

Got it. Just on the factoring, the securitization facility, did you utilize that at all this quarter? And then on the 63% customer, was that a previous 10% customer?

So to the first question, we did not use it during the December quarter, but we have subsequently. To your second question, Super Micro has -- does most of its business with repeat customers. So I'll just leave it at that.

But at the same time, we add a lot of...

We've added a lot of new logos at the same time. That's right. And it's because of those successful customers.

Okay. But we don't know if the 63% customer is new to the 10% customer mix or if it's a previous 10% customer. Is that right?

Yes. I'll just refer you to the 10-Ks and Qs on that. Yes. By the way, I do want to clarify one thing in my narrative regarding the fully diluted share count. So the GAAP fully diluted share count increased sequentially from 663 million to 694 million shares. So -- and then the non-GAAP share count increased from 677 million to 709 million. So there was just a -- I noticed a typo on there. So please forgive the correction.

All right. Thank you, everyone, for joining. I just want to just inform you that we had heard there were some technical difficulties with the webcast provider. A replay will be provided after the call, so you can catch up on that. Thank you for joining today.

That concludes the conference call. Thank you for your participation. You may now disconnect.