Q1 2020 Earnings Call

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Currently on hold for the Super Micro computer Inc. first quarter fiscal 2020 business update conference call. At this time, there's something keys audience and plan to be underway. Shortly we appreciate your patience and please remain on the line.

Good day, ladies and gentlemen, thank you for standing by welcome to the Super Microcomputer incorporated first quarter fiscal 2020 business update conference call. The company's news releases issued earlier today are available from its website at www Dot Super Micro's Dotcom.

During the company's presentation, all participants will be to listen only mode. Afterwards securities analysts will be invited to participate in a question answer session, but the entire call is open to all participants on the listen only basis. As a reminder, this call is being recorded Thursday November 14, 2019, a replay of the call will be access.

Until midnight Thursday November 28, 2019 by dialing 184451 to 290 to one and entering replay Penn 9981371 International callers should dial 1412317667.

Okay.

With us today, our Chiles Yanked, Chairman and Chief Executive Officer, Kevin Bowers, Senior Vice President and Chief Financial Officer, and Perry Hayes Senior Vice President Investor Relations and now I would like to turn the conference over to Mr. Hayes. Mr. Hazel. Please go ahead Sir.

Good afternoon, and thank you for attending Super Micro's business update conference call for the first quarter fiscal 2020, which ended September Thirtyth 2019.

During today's conference call Super Micro will address the company's preliminary financial results for the first quarter fiscal year 2020.

The company upwards to become current with its remaining FCC filings.

Robert said to any financial results our preliminary.

And subject to change based on finalized results contained in future filings with the FCC.

By now you shouldn't have received a copy of the news release from the company that was distributed at the close a regular trading and is available on the company's website.

Before we start I'll remind you that I'll remarks include forward looking statements.

There are a number of risk factors that could call it super micro's future results could differ materially from our expectations.

You can learn more about these risks and the press release, we issued earlier this afternoon.

Our most recent 10-K filing for 2017.

And our other SEC filings.

All of those documents are available on the Investor Relations page a 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 Q in a section for sell side analysts to ask questions.

I'll now turn the call over controls the on chairman and Chief Executive Officer.

Thank you Perry and good afternoon, everyone.

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Thank you Charles.

First I will address the current health of the business by providing an overview of our financial performance for the first quarter fiscal 2020.

Then make a few comments about are proud their summer as we see problems.

As Charles mentioned earlier, we estimate our fiscal first quarter revenues within the range of 788 million to $798 million.

Jogger fees lower on a year over year basis with email approximately 21% lower.

Asia, 22%, nor in the U.S., 18% lower.

Our estimated gross margin range on a GAAP and non-GAAP basis, well from 16% to 16.2%.

And 16.1% to 16.3% respectively.

Our margins improved from last year and benefited from lower key component costs.

What was favorable customer geographic and product mix.

Our operating expenses were slightly lower this quarter due to lower reserves for bad debt.

Offset by the effect of annual salary increases in higher research and development expenses.

We estimate our non-GAAP diluted EPS range. This quarter was from 61 cents to 65 cents per diluted share.

Each of the need to rebuild inventories this quarter for seasonal demand cash flow generated from operations was lower than recent quarters.

$5.5 million.

After deducting for Capex investments or 13.3 million, our free cash flow was negative $7.8 million.

Our closing cash position was a robust $239 million.

This quarter, our cash conversion cycle was 89 days.

Good day sales outstanding was 43 days what days payable outstanding was 48 days.

Inventory days, increasing Tonight easily.

Our cash conversion cycle target remains 85 to 90 days.

Now, let me comment on the progress of our remaining to linked FCC filings.

Last quarter, we reported that we got submitted our fiscal 2018 financials for audit.

We were out now able to report that we have also completed work on the fiscal 2019 financials under both the six so far in six so six revenue recognition standards and submitted member audit at the end of September .

Concurrent with the financial statement audit, we have continued the testing an assessment of our internal controls over financial reporting.

As a result.

We are prepared drafts of arc FCC filings.

The team remains laser focused on becoming well we current on our FCC filings, which also includes the 10-Q filing for this first quarter fiscal 2020.

As indicated previously we will have an abbreviated Cuban a session.

And which sell side analysts will be permitted to ask questions.

Operator at this time, we're ready for questions.

Thank you Sir.

Ladies and gentlemen are question answer session will be conducted electronically.

Good question firmly press the Star key followed by the digital one on your touched on telephoned we will take your questions any order that you're saying that you signal and if you have found your question has been asked and answered before you could ask it for would like to remove yourself from the Q. Please press the star and Q also if you are honest speakerphone. Please pick.

Sure that your mute function is disengage so that your single can reach or equipment. Finally, we ask that you limit yourself to one question and one follow up until all.

In the queue have been have had an opportunity to ask a question. We will then come back to you for your additional questions again.

That is sarwan, if you'd like to ask a question.

And we'll go first to.

The Hawk Choksi of Maxim Group. Please go ahead.

Yeah, Thanks, and congratulations on a.

Solid results relative to the guidance, especially on the gross margin very nicely done there.

On the guidance here.

Looks like a at the midpoint, you're guiding to up 5% to recoup how's that compare to your typical seasonality.

So in general we believe but it's similar to our normal seasonality as Charles outlined we saw some signs of stabilization and a little bit of growth as we enter into a it's in the next quarter. So we believe it's kind of in line.

Okay.

And I think you gave the color on why the <unk> gross margin was up year over year.

And I think the wanted to elements was.

Component costs, a declining rapidly and that's certainly.

True on a year over year basis, but I was under pressure to Cuba Q basis. There has been some pressure you didn't see strong gross margin or acute requeue basis. So could you at tease that out as far as why did you also see to strong Q, which you gross margin.

Yeah, I think we had mentioned last quarter that Oh, you know as compared to the quarter previous to that that still there was a mix and customer influences that are in there and certainly that was the case this quarter as it rebounded back I'm. So you know we continued.

No at that gross margin trying to ensure that.

We make some periodic part of this over time, but we have talked about the quarters on quarters, but yeah without getting into two specific details were really calling out. The fact that on a sequential basis. This is really going to be a customer and mix orientation and it'll be less of the impact on sequential basis related to the component.

Changes.

Understood Okay and.

Looks like there was about two and half million ours have a incremental opex or acute requeue basis.

Hey is that correct. He can you help guide us a which buckets we should attribute those two.

You mean in terms of.

Yeah for the September quarter Yep.

Yeah, so I called out that.

Keep things it sounds like the sequential basis will really that we've had less bad debt.

And then in addition to that as we go into the September quarter or annual Merit increases are always effective with our fiscal new here in January .

And then.

Charles and matching we got some new product development initiatives that were.

Actually increased quarter over quarter.

Okay, I know you'll before for now thank you.

And again it is star one if you'd like to ask a question. Our next question comes from Aaron Rakers of Wells Fargo. Please go ahead.

Yeah, Thanks for taking the questions.

I want a first just ask you kind of on that demand environment I know you talked about.

The man you know the demand environment being somewhat challenging but you also mentioned that you've started to see sides of improve that there's been some kind of mixed data points on some of the hyper scale.

Cloud demand you know some that suggesting that there might be a push out.

In server refresh cycles I'm, just curious of how would you characterize the cables.

Of your customers as it relates to kinda server.

Refreshes do you think that there could be any kind of a pause in front of some of the timing around things like Cooper like from Intel or even ice Lake.

Just any kind of color on what you're seeing as far as you know purchasing behavior for customers and particularly about you know some of the Hyperscale customers you have.

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Met coal Maki not holding that she a man of at least one name we feel it's a steel a kind of a hot dip, but overall, we feel I'm not too bad.

But I think on the back up you should we reminded you of this a number of times that nor exposure to hyperscalers is not.

As much as so some of the other compares that you may have in mind.

Okay Fair enough and then on on that.

As my follow up on the component pricing dynamics, you know I know you know.

Just kind of thinking about the progression as you see going forward between DRAM and SSD pricing, there's been some indication that the you know.

The pricing seems to be stabilizing and maybe turning a bit higher.

DRAM. However continues to be other downward trend just you know as you think about you know the current quarter, how would you characterize what you're seeing from a component pricing environment perspective.

Yeah, I mean, I'll put many of whom in our procurement department had been a much stronger than people Eva and those all I'll economies of scale hepatitis.

It's too and that's why the C N, he and especially as like a prices, you're getting a going and or even prize convenios slowly drop, but so both I guess a BOE about upset next few months I believe.

Okay I slipped one final one in you know that there's obviously you know some changes in the competitive landscape from a from a server CP perspective, you know you mentioned in the trends you know in your prepared remarks, you know the progression with you know Rome or the second generation and be processors.

How would you characterize your ability to maybe leverage.

A bit of a changing competitive landscape in server CP is what what are you seeing in terms of the demand profile profile the appetite for empty.

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Okay. Thank you I'll cede the floor. Thanks a lot.

Thank you.

[laughter].

It appears at this time, we have no further questions I'd like to turn the call back over to Mr., Jim Young for any additional or closing comments.

Thank you what you are not stupid and have a great that they see you next time.

Thank you, ladies and gentlemen that does conclude the Super micro first quarter fiscal 2020 business update conference call. We do appreciate your participation you may disconnect at this time. Thank you.