Q2 2022 Super Micro Computer Inc Earnings Call
Speaker 1: Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the Supermicro second quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise.
Ladies and gentlemen, thank you for standing by my name is Brent and I will be your conference operator today.
At this time I would like to welcome everyone to the Super Micro second quarter 2022 earnings Conference call.
All lines have been placed on mute to prevent any background noise.
Speaker 1: after the speaker's remarks. There will be a question and answer session. If you'd like to ask a question, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. It's now my pleasure to turn the call over to Nicole Nutis investor relations. Please go ahead.
After the Speakers' remarks, there will be a question and answer session.
If you'd like to ask a question simply press star followed by the number one on your telephone keypad.
I would like to withdraw your question again press Star one. Thank you. It is now my pleasure to turn the call over to Nicole <unk> Investor Relations. Please go ahead.
Speaker 2: Good afternoon and thank you for attending Super Migros Call to discuss financial results for the second quarter which ended December 31st.
Good afternoon, and thank you for attending Super Micro's call to discuss financial results for the second quarter, which ended December 31 two.
Speaker 2: 2021 with me today are Charles Liang founder chairman and chief executive officer Patrick Wang president East Coast and SDP Draghi Incorporated Development and David Wingland chief financial officer.
'twenty one with me today are Chao, Wang founder Chairman and Chief Executive Officer, Patrick Wang President East Coast, and SVP of strategy and corporate development and David Wang Chief Financial Officer by now you received a copy of the news release from the company that debuted at the close of regular trading and is avail.
Speaker 2: By now you should receive a copy of the news release from the company that is distributed at the close of regular trading and is available on the company's website. As a reminder, during today's call, the company referred to a presentation that is available to participants.
<unk> on the company's website as a reminder, during today's call the company refer to a presentation that's available to participants.
Speaker 2: on the IR section of the company's website under Events and Presentations tab.
On the IR section of the company's website under events and presentations tab.
Speaker 2: We have also published management scripted commentary on our website. Please note that some of the information you'll hear...
Also published management's scripted commentary on our website.
Some of the information Youll hear during our discussion today will consist of forward looking statements, including without limitation. Those regarding revenue gross margin margin operating expenses other income and expenses taxes capital allocation and future business outlook, including guidance for the third quarter of fiscal year.
Speaker 2: Our discussion today will consist of four looking statements, including without limitation, those regarding revenue, gross margin, margin, operating expenses, other income and expenses, taxes, capital allocation and future business outlook, including guidance for the third quarter fiscal year 2022 and the full year 2022 and the potential impact of COVID-19 on the company's business and results of operations.
<unk> 2022, and the full year 2022, and the potential impact of COVID-19 on the company's business and results of operations. 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 issued earlier this afternoon.
Speaker 2: There are a number of risk factors that can cause Super Micro's future results to differ maturely from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon.
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Speaker 2: Our most recent 10k filings of Disco 2021 in our other SEC filing.
Our most recent 10-K filing for fiscal 2021, and our other SEC filings.
Speaker 2: All of these documents are available on the IAR page at SuperMegra's website. We assume no obligations to update any foreign looking statement. Most of today's presentation are for a non-GAAP financial result and business outlook. For an explanation for non-GAAP financial measures, please refer to the company presentation to our press release published earlier today.
All of these documents are available on the IR page at Super Micros 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.
Explains of our non-GAAP financial measures please refer to the accompanying presentation.
Our press release published earlier today.
Speaker 3: In addition, a reconciliation of gaps, non-gap results is contained in today's press release and the supplemental information attached to today's presentation. At the end of today's prepared remarks, we'll have a Q&A session for self-analysis to ask questions. I now call the trial, call over to Charles. Thank you, Nicole.
In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and 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 call the call over to Charles.
Thank you Nicole and good afternoon, everyone.
Speaker 4: Today, I'm pleased to announce our quarterly revenue of $1.17 billion for fiscal Q2 2022, which was 41% year-over-year growth. And our sequential growth was 14%.
I am pleased to announce our quarterly revenue of 1.17, Cdos full fiscal Q2, 2010 through which it was 41%.
Growth in our sequential growth was.
14%.
Speaker 4: We have seen strong growth in all our key verticals and geographically despite the challenge of global component shortage and COVID impact.
We have seen strong growth in our key verticals and geographies.
These pilot challenge.
Global component shortage and Covid impact.
Speaker 4: More importantly, our total IP solution strategy have been empowering us to continuously make sure. Oh, thanks to our dedicated employee, powerful server-building broke solutions, and finally, our fast-progrowing start-away products.
More importantly, our total IP solution strategy have been empowering us to continuously gain market share.
Thanks to our dedicated employee.
Powerful thermal appealing broke solutions and finally, our faster growing total Airpods.
Speaker 4: with the bigger 10 and potential for my total artist's audience, I believe our growth trend will continue for many years to come and getting stronger quarter out of the quarter. Now let's look at some key highlights from the quarter. First.
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Bigger picture.
Potential total IV solutions I believe our growth trend will continue for many years to come.
Getting stronger quarter after quarter.
No not to look at some key highlights from the quarter.
First.
Speaker 4: Again, our physical second quarter, net revenue total 1.17 billion, up 41% year on year, and up 40% quarter on quarter. At the higher end of our guidance range of 1.1 to 1.2 billion.
Again, our fiscal second quarter.
Revenue totaled $1 7 billion up 41%.
And up 40% quarter on quarter at the higher end of our guidance range of $1 one to one 2 billion.
Speaker 4: It's superman code force consecutive quarter of our faster revenue progression as we continue our growth trajectory at multiple times that in the true growth rate.
<unk> closed the first quarter of faster revenue.
Question.
Companion grows.
Trajectory.
At multiple times the industry the growth rate.
Our physical second quarter non-GAAP earnings per share was <unk> <unk> compared to <unk> in the same quarter.
Speaker 4: Our physical second quarter, Nangev Ernie's, the show was 88 cents compared to a 60 cents in the same quarter, last year, which was 40 percent growth and a higher end of our guidance range of a 70 cents to 96.
Most of the year, which was 40% growth.
The higher end of our guidance range of 70 to improve my Tc.
All of our major geographies contributed significantly to our year over year growth, especially in the APAC region, which grew 76%.
Speaker 4: All our major geographies contribute significantly to our year-over-year growth, especially in the APEC region, which grew 76% year-over-year. The Taiwan expansion boosts our APEC and EMEA growth momentum by providing additional capacity, enduring operational costs.
The Taiwan expansion pushed our APAC and EMEA growth momentum by providing the <unk>.
<unk> capacity and lowering our operational cost.
Speaker 4: We continue to expand our B2B auto-congrelated program to service significant more customers during the quarter. Our innovation common center based on online business system have been improving our sales, FAPM, PMS efficiency, as well as our key customers satisfaction.
We continue to expand the hallo b to B.
Total calculator program through service significantly more customers.
During the quarter, our innovative <unk> Commerce center.
Based on our mines feeding system has been improving.
Sales.
Pete.
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As well as our key customer satisfaction.
Speaker 4: Recent multi-convisions that present a visa better opportunity to accelerate our business transition from a hardware company to a total IT solution company. The transition enables you from Michael to all four customers, higher value and poor availability with optimal.
Listen the market conditions.
Put agenda as we saw a bit of opportunity to exited our business.
Issue from a hardware company to a total IP solution company <unk>.
Transition.
Super micro to offer customers higher value.
<unk> pulled out of their ability.
Optimal.
Speaker 4: hardware, software, service, switch, and more. I love these outs.
Hardware software service suite Chiefs and Mon.
Our results have shown that.
Speaker 4: has shown that our outperform
Outperform.
Uh huh.
Speaker 4: We have performed our previous 10 billion dollars annual revenue target, timeline we share in FIU quarter-hour goal. More in card of jimli, we are observing by diversified growth across our target verticals, which are large-year enterprise AI, machine learning, cloud, FIU vertical and IOT.
We have outperformed our previous <unk> annual.
Annual revenue target.
We share in a few quarter ago.
No.
Encouragingly, we have adobe.
Diversified growth across our targeted verticals.
Larger enterprise AI machine learning cloud.
Telco and Iot.
Speaker 4: Our defense and engagement with the full-channel of customers continues to grow quickly with our total IT distribution.
Our design win.
Engagement with <unk> customers continue to grow quickly with our total IP solutions.
Hello, pushing for war total IV solutions is benefiting supermicro and our customers in multiple ways, most notably our customers aware these fees are higher quality powder and played with.
Speaker 4: Our push for war, our proto-artist emotions is benefiting Shippo-Michael and our customers in multiple ways. Most of not only our customers will receive a higher quality program, they are fully optimized, integrated and validated in-house.
The profiles that are floating optimize integrated embedded data in house.
Speaker 4: This April is also helping Shubu Michael and our customer mitigate the impact of the global supply chain disruptions by accurately forecasting building inventory in scale and part of tight with our strategic cardinal. As a result, our total IV solution dramatically improve our customers' time to market and increase Shubu Michael's value.
Therefore, we are also happy supermicro, and our customer mitigated the impact to the global supply chain disruptions.
Or is it a forecasting building inventory and scale and pretty tight.
Solid strategic partner.
As a result, our total IV solution dramatically improve our customers' time to market and increased Super micros value.
Our total IP solution.
Speaker 4: Our total IT submission is built upon the possible knowledge of system architecture and building blocks that can be optimized for most of the market verticals.
Upon go parts of the noted your overall system.
Sure.
Beat in Bronx that can be optimized for most of the market verticals.
Speaker 4: We saw rise over the omnivores and metaphors. We have recently introduced the flavor new architectures to enhance our GPU product offerings. Our new universal GPU architecture allows customer to choose the basic CPU, GPU, switches, and the IO configuration to fully optimize their applications and workloads.
Through advice over the only voice and metallo as we have recently introduced several new architectures.
Our GPU product offerings, our new Universal GPU architecture allows the customer to choose that basically CPU GPU Sioux chief in the Io calculation to fully optimize their applications and workloads.
Speaker 4: Debris gene is an entire genome scale process or AMB process. In both GPU system, enable customers to spend products, configuration in their customers for the desire, workload, on single platform.
Leveraging.
In <unk> Zealand scale.
As posted so E&P closes.
Universal GPU system enabled customers to <unk> com.
Duration in their car.
<unk> for the desire workflow on a single platform.
Speaker 4: This unique world-supply on-season support of various GPUs, in Goldema, in Libya, A-19 GPUs, Nanyunia, Alance, AMD, MI200, CVS, X-R-R-D.
This unique.
Was the pilot system support of various GPU, including in Libya.
<unk> Gpus, the newly announced <unk> et cetera.
Speaker 4: many other AOPGA products from different companies and other GPs from other companies. I'm glad to announce that we already have many major customers and industry leaders are committing to this new platform. And the only major limitation is the supply chain challenge.
Other PGA products from Stephen Company, and other GPU from other companies.
Red to Atlanta that we already have a minute major customer and industry EBIT.
Getting to this new platform and the only major auto mutation is a supply chain challenge.
Speaker 4: Pardon me, closely with leading technology provider in the emerging metabas and home inverse ecosystem. Super microhead, double our GPU product line to surprise these three things and emulsify for our workload. Our tool to know GPU system, provider and optimal mix of CPU to GPU ratio. with resource and saving feature.
Pannone closely with.
Leading technology provider in the emerging metabo.
Omi was.
Ecosystem Supermicro ahead, Pablo our GPU product.
To surprise this facility and in most of the globe.
Our <unk> two now GPU system provider, an optimal mix of CPU GPU ratio with.
Resource saving features.
Speaker 4: our high performance and the highly configurable hyper and hyper-e-server. The product multiple GPUs in a single system. And I feel for use case such as distributed AI influencing application content delivery, vehicle, micro-virus center, FIG call, and many other mission critical enterprise workloads.
Our high performance and highly Configurable hypo and <unk> server.
Multiple gpus in the sequel system and IPL for use.
Cases, such as our distributed AI.
Are you seeing.
Application.
Content delivery.
Nicole may cope with us into <unk> and many other mission critical enterprise workloads.
Speaker 4: Along with our in VDIA A&J data and response platforms, SIPO Micro's comprehensive AI system, building progress support, everything from advancing at a peak to a high performance computing data center for the metaverse or omniverse kind of application, and everything in the three.
Along with our <unk> and <unk>.
Based on platforms Super Micro's comprehensive AI system through them for all the support heavy shameful.
You're seeing it.
Key to our high performance computing data center for the metals Omi was.
Kind of application and everything in between.
Speaker 4: Not recorded, we had redefined our growth drivers to speed up our growth strategy, which included a sub-system and components, complete system, total IT solutions, and fly a system.
Last quarter, we have redefined our growth drivers to speed up our growth strategy, which include in a subsystem and component.
The season.
Total IV solutions.
Fly is.
Speaker 4: Our building block and computer system business have been steadily growing over the decades with the help of our partners. And this still serves the backbone of our revenue growth.
Our opinion broke and complete their system.
These have been.
Stably growing over.
We see that half of our partners.
This dsos.
The backbone of our revenue grows.
Speaker 4: We are at a large enterprise customer top technology being a partner in appliance customers engagement. I would like to emphasize again that total ID solution business is our new major growth driver now.
With other large enterprise customer tough.
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Partner.
Our price customers the engagement I would like to emphasize again that total solution business is our new major growth driver now.
Speaker 4: Going forward, our investment in software products, our service, and networking will be the key to improve our margin and profitability in the coming quarters and years.
<unk> for our investment even started way of products service and networking whether it be the key to improve our margin and probably the PDP in the coming quarters and years.
Speaker 4: In summary, SimpleMicro is rapidly growing and transforming into a total IT solution company from a server hardware company.
In summary, Super micro is the rapidly growing and transforming into a total IP solution company BOMA silver hardware company.
Speaker 4: We are accelerating our design width and much more. Again, as a key large global customers in COVID-19 enterprise, AI, machine learning, Fragitech, H and IoT.
We are accelerating our design wins.
Im not sure again.
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Large global customers, including our enterprise.
Machine learning <unk>.
<unk> and Iot.
Speaker 4: And we are improving our productivity and duplicating our market share of success in the US to APEC and email. With the completion of our APEC expansion and rapid production group in Taiwan.
And we are improving our profitability.
<unk> our market share success in the U S to APAC and EMEA with the completion of our APAC expansion and rapid production ramp in Taiwan.
Speaker 4: Our new command center-based auto-calculator and B2B automation platform are improving our operation efficiency and customer satisfaction while accelerating our market share gain.
Our new committee centerpiece, <unk> and Pvp automation platform improving.
In our operation efficiency.
Customer satisfaction, while accelerating our market share gain.
Speaker 4: In closing, our 41% year-over-year revenue growth is a solid proof that Supermicro's business is taking off quickly now. I am confident that our market presence, time, and profitability will continue to increase.
In closing, our 41% year over year revenue growth is it solely to prove that Super Micro's business is picking up quickly now.
Funded debt, our much praises Tim and probably the PDT will continue to increase.
Speaker 4: strongly, and we invest more.
Strongly and we.
Invest more.
Speaker 4: as we invest more resources in software as a total IP solution company.
As we invest Lamar vessels installed.
Total IP solution company.
Speaker 4: My team and I have been diligently executing our growth strategy and accelerating the timeline to pull in our $10 billion revenue goal. I will now pass the call to David Wagen, our chief financial officer, to provide additional detail on the quarter. Thank you.
My team and I have been diligently executing our growth strategy and accelerating the timeline.
To put in our $10 billion revenue goal.
I will now pass without co to February again Hello.
Financial.
Chief Financial officer to provide additional detail on the quarter. Thank you.
Thank you Charles.
Speaker 5: I'm pleased to report our third consecutive quarter of revenues exceeding $1 billion. We are seeing continued strength across all geographies and strong demand for our products and services, resulting in fiscal second quarter revenue of $1.17 billion, a 41% year-on-year increase and up 14% quarter-on-quarter. Our Q2 revenues were at the higher end of our guidance range of $1.1 to $1.2 billion.
I am pleased to report our third consecutive quarter of revenues exceeding $1 billion.
We are seeing continued strength across all geographies and strong demand for our products and services, resulting in fiscal second quarter revenue of $1 7 billion, a 41% year on year increase and up 14% quarter on quarter.
Our Q2 revenues were at the higher end of our guidance range of $1, one to $1 2 billion.
Speaker 5: Revenues for the trailing four quarters, being Q3, a fiscal year 21 through Q2, a fiscal year 22 totaled $4.17 billion.
Revenues for the trailing four quarters being Q3 of fiscal year 'twenty, one through Q2 of fiscal year 'twenty two totaled $4 $1 7 billion.
Speaker 5: Supermicro's Q2 fiscal year 22 recorded revenue growth was across all three of our market verticals, achieving $756 million in the organic enterprise and channel and AML vertical, $274 million in the OEM appliance and large data center vertical, and $142 million in the 5G, Telco, and Edge IoT vertical.
Super Micro's Q2 fiscal year 'twenty two recorded revenue growth was across all three of our market verticals achieving $756 million in the.
Organic enterprise and channel and AML political.
$274 million and the OEM appliance and large data center vertical and $142 million and the <unk> telco and edge Iot vertical.
Speaker 5: The 5G telco and edge IoT vertical more than doubled sequentially as new designs went into production.
The <unk> telco and edge Iot vertical more than doubled sequentially as new designs went into production.
Systems comprised 84% of total revenue and subsystems and accessories represented 16% of Q2 revenues.
Speaker 5: Systems comprised 84% of total revenue and subsystems and accessories represented 16% of Q2 revenues. The volume of systems and nodes shipped as well as the system node ASPs increased both year over year and quarter on quarter.
<unk> of systems and nodes shipped as well as the system node ASP.
Increased both year over year and quarter on quarter.
Speaker 5: On a year-on-year basis, Asia, including Japan, increased 76% as we saw continued growth with both new and existing customers.
On a year on year basis, Asia, including Japan increased 76% as we saw continued growth with both new and existing customers.
Speaker 5: Europe increased 39%, the U.S. increased 38%, and the rest of the world decreased 32%.
Europe increased to 39%.
U S increased 38% and the rest of the world decreased 32%.
Speaker 5: On a sequential basis, Asia, including Japan, increased 8%, the US increased 14%, Europe increased 20%, and the rest of the world increased 19%.
On a sequential basis Asia, including Japan increased 8% the U S increased 14% Europe increased 20% and the rest of the world increased 19%.
Speaker 5: The Q2 margin was 14%, which was up 60 basis points quarter over quarter from Q1 due to price discipline and a better product-customer mix.
The Q2 margin was 14%, which was up 60 basis points quarter over quarter from Q1, due to price discipline and a better product customer mix.
Speaker 5: This increase was achieved in spite of our increased use of air freight and higher supply chain costs.
This increase was achieved in spite of our increased use of air freight and higher supply chain costs.
Speaker 5: On a year-over-year basis, gross margins were down 240 points due to a discrete cost recovery event in Q2 of last year and higher freight and supply chain costs in the current year.
On a year over year basis gross margins were down 240 points due to a discrete cost recovery event in Q2 of last year and higher freight and supply chain costs.
Current year.
Speaker 5: Turning to operating expenses, Q2 optics on a gap basis increased 3% quarter on quarter and 14% year on year to 113 million.
Turning to operating expenses Q2, opex on a GAAP basis increased 3% quarter on quarter, and 14% year on year to $113 million.
On a non-GAAP basis operating expenses increased 2% quarter on quarter and increased 15% year on year to $103 million.
Speaker 5: On a non-GAAP basis, operating expenses increased 2% quarter-on-quarter and increased 15% year-on-year to $103 million. The year-on-year and quarter-on-quarter increases on a GAAP basis were driven by higher personnel costs and increased ed count, higher stock compensation expense, and lower research and development NRE credits.
The year on year and quarter on quarter increases on a GAAP basis were driven by higher personnel costs.
An increased head count.
Stock compensation expense, and lower research and development and our a credit.
Speaker 5: The year-on-year and quarter-on-quarter increases on a non-GAAP basis were driven primarily by higher personnel costs and the increased headcount and lower research and development in our e-credits.
The year on year and quarter on quarter increases on a non-GAAP basis were driven primarily by higher personnel costs.
And the increased head count and lower research and development and our credits.
Other income and expenses included interest.
Speaker 5: Other income and expenses, including an interest expense, was a $1.8 million expense as compared to a $0.8 million expense last quarter. The sequential change is mostly related to a loss from remeasurement of our Taiwan dollar loans to a weaker U.S. dollar, so FX.
<unk> interest expense was a $1 $8 million expense.
As compared to a <unk> $8 million expense last quarter.
The sequential change is mostly related to a loss from remeasurement of our Taiwan dollar loans to a weaker U S dollar.
Thanks.
Speaker 5: This quarter the tax provision was $7.6 million on a gap basis and $10.9 million on a non-gap basis. Our non-gap tax rate was 18.5% for the quarter.
This quarter the tax provision was $7 6 million on a GAAP basis, and $10 9 million on a non-GAAP basis, our non-GAAP tax rate was 18, 5% for the quarter.
Our tax rate for GAAP and non-GAAP purpose purposes increased this quarter, primarily due to a change in U S tax regulation.
Speaker 5: Our tax rate for GAAP and non-GAAP purposes increased this quarter primarily due to a change in U.S. tax regulations.
Speaker 5: Lastly, our share of income from our JD was $0.2 million this quarter as compared to $0.4 million last quarter.
Lastly, our share of income from our JV with <unk> 2 million this quarter as compared to <unk> 4 million last quarter.
Speaker 5: Q1 non-GAAP diluted earnings per share totaled $0.88, which was near the high end of the guidance range due to higher revenues and gross margins, partially offset by higher operating costs.
Q1, non-GAAP diluted earnings per share totaled 88.
Which was near the high end of our guidance range due to higher revenues and gross margin.
Partially offset by higher operating expenses.
Cash flow used in operations was $53 million compared to cash flow used in operations of $135 million in Q1 as.
Speaker 5: Cash flow used in operations was $53 million compared to cash flow used in operations of $135 million in Q1 as we continue to build inventory to be in a position to meet the increasing levels of large orders from our customers and to mitigate the impact of supply chain disruption.
As we continue to build inventory to be in a position to meet the increasing levels of large orders from our customers and to mitigate the impact of supply chain disruption.
Speaker 5: CapEx totaled $12 million for Q2, resulting in a negative free cash flow of $65 million.
Capex totaled $12 million for Q2, resulting in a negative free cash flow of $65 million.
Speaker 5: Key uses of cash during the quarter included increases in inventory and accounts receivable offset by cash provided from increased accounts payable, customer prepayments, and deferred revenue. We did not repurchase any shares in the quarter.
Key uses of cash during the quarter included increases in inventory and accounts receivable offset by cash provided from increased account accounts payable customer prepayments and deferred revenue, we did not repurchase any shares in the quarter.
Speaker 5: Our closing balance sheet cash position was $247 million, while bank debt was $316 million, as we drew down on our bank lines of credit to increase inventory levels as we ramped production of new platforms globally.
Our closing balance sheet cash position was $247 million while bank.
Bank debt was 100 $316 million as we drew down on our bank lines of credit to increase inventory levels.
We ramped production of new platforms globally.
Turning to the balance sheet and working capital metrics compared to last quarter. Our Q2 cash conversion cycle was 98 days up from 94 days in Q1, which is above our target range of 85 to 90 days.
Speaker 5: Turning to the balance sheet and working capital metrics compared to last quarter, our Q2 cash conversion cycle was 98 days up from 94 days in Q1, which is above our target range of 85 to 90 days due to the higher inventory levels. Days of inventory was 118, representing an increase of four days versus the prior quarter.
Due to the higher inventory levels.
Days of inventory was 118, representing an increase of four days versus the prior quarter Dave.
Speaker 5: Days sales outstanding was down by four to 37 days, while days payable outstanding was down by four to 57 days.
Days sales outstanding was down by four to 37 days, while days payable outstanding was down by 4% to 57 days.
Now turning to the outlook for our business we.
Speaker 5: Now, turning to the outlook for our business, we note that our Q3 March quarter typically has some season of...
We note that our Q3 March quarter typically has some seasonal.
Speaker 5: impact from the Lunar New Year holiday and we are also carefully watching impacts to this our supply chain from COVID related disruption.
No impact from the lunar new year holiday and we are also carefully watching impacts.
Our supply chain from Covid related disruptions.
We expect net sales in the range of $1, one to $1 2 billion.
Speaker 5: We expect net sales in a range of 1.1 to 1.2 billion. GAP, the looted net income per share of 58 cents to 81 cents, and non-GAP, deluded net income per share of 70 cents.
GAAP diluted.
Diluted net income per share of 58 to 81.
And non-GAAP diluted net income per share of <unk> 70.
Our GAAP operating.
Speaker 5: expenses are expected to be approximately $118 million and include $8.5 million in stock-based compensation and $1.7 million in other expenses not included in non-GAAP operating expenses.
Expenses are expected to be approximately $118 million and include $8 5 million in stock based compensation and $1 $7 million in other expenses not included in non-GAAP operating expenses.
Speaker 5: We expect other income expense, including interest expense, to be a net expense of roughly $2 million and expect a nominal contribution from our joint venture.
We expect other income and expense, including interest expense to be a net expense of roughly $2 million and expect a nominal contribution from our joint venture.
Speaker 5: non-GAAP operating expenses are forecasted to be up quarter on quarter from continued investment in R&D and higher personnel costs.
non-GAAP operating expenses are forecasted to be.
Quarter on quarter from continued investment in R&D and higher personnel costs.
GAAP and non-GAAP dilutive.
Speaker 5: net income per common share. Assume a gap tax rate of 15%, a non-gap tax rate of
Net income per common share assume a GAAP tax rate of 15%.
non-GAAP tax rate.
Share count of $54 5 million for GAAP, and 56 million shares for non-GAAP .
Speaker 5: share count of 54.5 million for GAAP and 56 million shares for non-GAAP .
Full year 2020 to gap.
Speaker 5: year includes approximately $8.5 million in expected stock-based compensation and $1.7 million are excluded from our non-GAAP saluted.
<unk> includes approximately $8 5 million in expected stock based compensation and $1 7 million.
Excluded from our non-GAAP diluted.
Net income per common share.
Speaker 5: We are maintaining our revenue guidance range of 4.2 billion to 4.6 billion for the fifth file.
We are maintaining our revenue guidance range of $4 2 billion to $4 6 billion for the fiscal year 2000.
Speaker 5: ending June 30, 2022, and our GAAP diluted net income per share outlook of at least $2.77 and non-GAAP diluted net income per share of at least $3.20. The company's projections for GAAP net income assumes a tax rate of 15% and a tax rate of 17% for non-GAAP net income.
22, ending June 32022.
And our GAAP diluted net income per share outlook of at least $2 77.
And non-GAAP diluted net income per share of at least $3 25.
The companys projections for GAAP net income assumes a tax rate of 15% and a tax rate of 17% for non-GAAP net income for.
Speaker 5: For fiscal year 22, we are assuming a fully diluted share count of 54.1 million shares per GAAP and 55.6 million shares for non-GAAP . The outlook for fiscal year 22 fully diluted GAAP earnings per share includes approximately $37 million in expected stock-based compensation and other expenses, net of tax effects that are excluded from non-GAAP diluted net income per common share.
For fiscal year 'twenty, two we are assuming a fully diluted share count of $54 1 million shares for GAAP and $55 6 million shares for non-GAAP .
Outlook for fiscal year, 'twenty, two fully diluted GAAP earnings per share.
<unk> approximately $37 million in expected stock based compensation and other expenses.
Net of tax effects that are excluded from non-GAAP diluted net income per common share.
Speaker 5: We expect Capix for the fiscal third quarter of 2022 to be in the range of $5 to $8 million. Nicole.
We expect Capex for the fiscal third quarter of 2002 2022 to be in the range of $5 million to $8 million.
Nicole ill turn it back to you.
Speaker 1: Operator, we can now open the line up for questions. That is time I would like to remind everyone in order to ask a question, press star followed by the number one on your telephone key bag. If you would like to withdraw your question, again, press star one. Your first question comes from the line of an end of Baroo with loop capital. Your line is open.
Operator, we can now open the line up for questions.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad. If you would like to withdraw your question again Press Star. One. Your first question comes from the line of Ananda Baruah with loop capital. Your line is open.
Okay.
Speaker 6: Yeah, hey, good afternoon. Thanks for taking the question and to grab on the ongoing event and the nice results. Congratulations on the presentation. A couple of points to fight for.
Hey, guys. Good afternoon, thanks for taking the question.
Congrats on the on the ongoing.
Nicely done.
Congratulations on the domestic diesel.
A couple if I if I can.
Speaker 6: So how's learning something in here is going to go to theof
So.
Linearity through the quarter.
Revenue linearity.
Is that.
Speaker 6: And any context around new kinds of like new customer, like customer expansion, workload expansion, things of that nature will be really helpful than I have a quick follow up. Thanks.
Any context around.
You kind of like new customer like customer.
Expansionary.
Workload expansion.
Things of that nature would be really helpful. And then I have a quick follow up.
Speaker 4: Yeah, thank you for the question. As you know, we just migrated from hardware solution company to a total IT solution company. So lots of customers like our completed solution for their total IT need. So we continue to gain some really large customer and some really technology leader. So we are very happy, very excited to serve with more partner in the industry.
Thank you Ron a question.
You know, we guess migrating from hardware solution company.
Total IP solution company, so lotto customer <unk>.
Complete solution for the auto device.
Need so we continue to gain.
Some are larger.
Our largest customer and some really at <unk>.
So we are very happy very exciting to our service model partner.
Industry.
And Thats really helpful.
Yes go for it.
Speaker 7: Yeah, go for it.
Okay, I was just going to add that.
Speaker 5: Okay, I was just going to add that, you know, customer wise, we had really good growth in the TELCO and the 5G TELCO vertical.
Customer wise, we had really good growth in the telco.
<unk> telco vertical.
Hey, Julie Mega.
As opposed to like a.
Speaker 4: Especially like Omnibus, Metabus, you know, lots of very exciting opportunities there.
<unk>.
<unk> notes.
Very exciting the opportunity there.
Speaker 6: Charles, do you think that it sounds like, correct me if this is not an accurate interpretation, but is that to say that...
Channel.
So it sounds like.
And correct me, if thats not accurate.
Is that to say that.
Speaker 6: SELCO takes up in from METALY into the sub-recorder and you know that new energy you think is going to continue at least the kind of March quarter that first half of the calendar year here.
It's also ticked up incrementally in the December quarter.
Yes.
Yes.
Do you think is going to continue to kind of March quarter first half of the first half.
Calendar year here.
Speaker 4: You know, I mean, a much cooler tradition is our kind of soft season, but this year is different. Because we have very strong demand, especially likewise, a GPU, Metaverse, Ominiverse, lots of opportunity there. And we already have some large engagement. Just try to fulfill it.
I mean March quarter traditionally is a low kind of soft season by Dci deepen you hear that we have very strong demand, especially with <unk> GPU meta versus own universe.
Lots of opportunity there and we already have this time largely engagement that's tied to fulfill it.
Okay, Great that's helpful.
Speaker 6: Okay, great, that's helpful. Quick follow-up, Charles. Any comments on demand after the June quarter? I just ask that since we're coming up on it. Second half of the year, any context you can provide. Second half of the calendar year on your thoughts on demand.
Follow up Charles.
Any comments on.
On demand App.
After the June quarter.
Ask that since we're coming up on it.
Second half of the year any any context, you can give I think you have the calendar year.
I just touched on demand.
Speaker 4: Yeah, at this moment, look, it's pretty comfortable. Because of our strong product and total IT solution, lots of customers now have a big, a big order with us. So we are increasing our, a tech order kind of in a very commissary.
Thanks, Yes that this woman who is pretty comfortable.
Because of our stone product in total IV solution Lotto customer now.
Big pecking order with us. So we are increasing mallow peck of older kind of in a very commercially.
Excellent okay. Thanks, a lot I'll get back into queue.
Speaker 1: Your next question comes from the line of METI, who hosting eight with SIG. Your line is open. Yes.
Your next question comes from the line of maybe Hosseini with <unk>. Your line is open.
Yes, thanks for taking my question.
Speaker 8: Just want to get an understanding how you're managing the inflationary trend in component prices. Your inventory has gone up for two consecutive years and by about $350 million over the past six months. But when I look at your revenue guide...
Just wondering if this.
It is our understanding.
We're managing that.
Inflationary trend in component prices and your inventory has gone up for two consecutive year and by about $350 million over the past six months, but when I look at your revenue guide for March and implied guide for June taking the midpoint of the fiscal year guide.
Speaker 8: for March and implied guide for June taking the midpoint of the fifth earlier guide. It does suggest a sequence of decline.
Does suggest a sequential decline.
Speaker 8: And is that because you're not able to pass on extra costs?
Is that because you're not able to pass on fixed store cost.
Speaker 8: or you just being conservative despite the fact that you have built inventory or is there something that I missed you here and I have a follow.
Or you're just being conservative despite the fact that you have built.
Inventory or is there something else that I'm missing here I don't have the final.
Speaker 4: Yeah, indeed, I'm very happy with the inventory now. We saw global start-up price chain difficulty. We built the inventory based on our backup order. And at this moment, indeed, our backup order have been very strong. And I really know why we did not update the whole year revenue and early, just because there's pure certain uncertainty. In the most price chain, other than that, we feel very up to.
Yes indeed.
We're happy we have inventory now with our global supply chain activity.
Because we.
Bill.
Inventory based on our pickled and at this moment.
And <unk> also have been very strong and the reason why we did not update now.
<unk>.
Revenue in <unk>.
Yes, because the Sps.
Uncertainty there is still some uncertainty in terms of the supply chain.
Other than that we feel very optimistic.
Okay.
Speaker 8: I will be right back over here nextreet. Just a minute. This last?s. Oh good, shall And glory be our letting go.
Great Sorry go ahead.
Speaker 4: Yeah, our inventory, indeed, have been to you in a very HLC, very conservative way.
Yes ill, let you maintain and be the <unk> in a very healthy very conservative way.
Yes.
Speaker 5: Yeah, and Betty, this is David just to answer your question. Another question that you had, our ability to pass on cost is really reflected in our increased gross margin. So those increased component costs are being passed on.
Yes.
This is David just to answer your question. Another question that you had our ability to pass on costs is really reflected in our increased gross margin.
So those those increased component costs are being passed on.
Got you okay.
Speaker 8: Okay, and then Excuse me, if I were to go back to this
Then.
If I go to.
Go back to there.
Speaker 9: The three buckets that you highlighted, organic OEM and 5G telco, thanks for providing the dollar revenue contribution. Can you also give us sequential and nearer when your changes for each bucket?
The three buckets that you highlighted organic OEM non <unk> telco, thanks for providing the dog.
Revenue contribution can you also give us sequential and year over year changes for each bucket.
So many we didn't go back to.
Speaker 5: So, Maddie, we didn't go back to the Q2 of last year, I don't believe, although in our, we have guidance in our, in our, the slides that we have by quarter. Yeah, that's that's available.
The Q2.
Last year I don't believe that although.
We have guidance.
The slides that we have by quarter.
Yes, that's available on our website.
Okay.
Speaker 9: OK, but you can provide some qualitative comment as to which bucket was the strongest.
Maybe.
You can provide some qualitative comments.
Which bucket was the strongest.
Absolutely so our.
Speaker 5: Absolutely. So our organic enterprise and channel and AIML constitutes approximately 65% of our revenues. The OEM appliance bucket comprises about 25% and the 5% in the prior quarters, the 5G TELCO and Edge bucket. So that's the way that's kind of been the trend, you know.
Our organic enterprise and channel in AI ml constitutes approximately 65% of our revenues.
The OEM appliance bucket comprises about 25% and 5% in the prior quarters <unk> took on edge bucket. So that's the way that's kind of been the trend.
Speaker 5: I think the chain was the big change for the inside. Yeah, it was from really from from big growth and traction with a telco customer. Okay. Thank you.
But the big change though.
The big change for us in five.
Yes, it was from really some.
From big growth and traction with telco customers.
Okay. Thank you.
Speaker 10: Hey, Hey, many. This is this is Patrick. I want to just come back to one thing that you mentioned earlier, your question, which is the implied guide for June . I wouldn't read what we've done here as implied guidance for June . What we said was, you know, we've given guidance for what we expected March.
Hey, Matt. This is patrik I wanted to just come back to one thing that you mentioned earlier in your question, which is.
The implied guide for June I wouldn't read what we've got here implied guidance with what we said was.
We've given guidance for what we expect in March.
Speaker 10: Just given our situation today, we're actually just maintaining the four-year guidance there. We feel very comfortable with it, of course, but we're not actually guiding another quarter out, which is why we just kept it where it was.
Given.
Just given our situation today, we're not we're actually just maintaining that full year guidance that we feel very comfortable with it of course, but we're not actually.
Guiding another quarter out which is why we just.
Yes.
Got it.
And again the thing.
Okay, Yes, Im sorry, this is David.
Speaker 9: Yeah, I'm sorry, this is David. I'll add to that, that we have, you know, we have a range, we put out a range of 4.2 to 4.6. So, so we're very comfortable there. Sure. If I may just quickly, there is also continued mismatch.
But we have we have a range, we put out a range of four to $4 six so.
So we're very comfortable with their chip if.
If I may just quickly there is also continued mismatch.
For components with supply and demand.
Some expenses so would it be fair to say that you also conservative.
Given the mismatches of availability of components.
You can say that we've had.
The first order is stronger, but we tried to be.
Paul most conservative case.
<unk>.
Got it thank you.
Your next question comes from the line of Chuck <unk> with Northland Capital markets. Your line is open.
Now Chuck ski with Northland capital markets. Your line is open.
Speaker 1: Nihal Chokshi with Northland Capital Markets. Your line is open. Yes. Sorry. Thank you.
Alright, Thank you I was on mute.
Speaker 1: It results in well above-the-cusp of SMART-SKU guidance. This question has already been partially answered by Patrick, but let me put out a little bit of a finer point on this here. Why not at least narrow the fiscal year 2022 revenue guidance range, given that the unchanged midpoint guidance does apply effectively about a flat year for the June quarter?
The results in well above guidance.
Guidance.
This question has already been partially answered by Patrick but.
Let me put a little bit finer point on this year.
Why not at least narrowed our fiscal year 'twenty two revenue guidance range.
Given.
Unchanged midpoint guidance does imply.
About flat your fridge headquarters.
Okay.
Yeah.
So our.
Speaker 5: So our, now our demand has never been stronger. And so we have obtained some new logos, new customers, which have designed in our products. And so we feel very strong about our back order and our demand. But this is a more, about forecasting two quarters of ours out.
Now our demand has never been stronger and so we have.
Obtained.
Some new new logos, new customers, which have designed in our products.
And so we feel very strong about our.
Back order on our and our demand but this is this is.
How about forecasting two quarters.
Or is out on.
So thats really thats.
For our range.
Speaker 11: Okay. And then, yeah, slide 9.
Understood Okay.
Slide nine.
Speaker 11: It's great. I love the fact that we're getting five quarter back visibility into these three vertical markets And it certainly does imply that 5G Telecom edge has very
That's great I Love. The fact that we're getting five quarterback visibility into these three vertical markets certainly it does imply that <unk> telephone edge.
Various.
Speaker 1: significant year of year growth. And Charles, you mentioned that part of this demand is bediverse on the verse, not usually on the verse means, but I do know what bediverse means. And again, I was in her impression.
This significant year over year growth and Charles you mentioned that.
Part of this demand is better versus omni versus largely short entourage.
None of our stance and I guess I was under impression.
Speaker 1: that, uh, metaverse at least would go under the, uh, red category on e-march data center, not 5-3 telekil. He just gave me a little bit more understanding as to why metaverses potentially falling into telecom here.
That.
Better versus at least what bill under the bread category I E. Large data center not <unk> Telecom can you just give me a little bit more understanding as to why that versus potentially falling into telecom here.
Speaker 4: or metaphors, right? So we have a very strong engagement.
Only versus metabolism.
So we have a very strong engagement with.
Some will move in.
Speaker 4: some of them. So in terms of AI, GPU, Metaverse, we have a very strong back order now indeed. And let's try to work out components to fulfill all of the demand. As to 5G telco, you know, it's a relatively new territory for us.
No.
In terms of.
AI.
<unk> metals.
Have a very strong pekka oil denali data and that's tied to.
We will call.
Components to fulfill.
That demand as to <unk>.
Is it relatively new territory for us we start <unk> ago, and now we have a manner.
Speaker 4: We start 5G tail call about all 10 years ago. And now we have a many big engagement. So we are very excited for 5G tail call proposals we have.
Figure engagement. So we are very excited for <unk> for those as well.
Speaker 11: Okay, so to be clear, then the commentary about the strong demand for metagross is not related to 5G telethode correct.
Okay. So to be clear then the commentary about the strong demand for metal is not related to <unk> telco correct.
Not necessary is it kind of.
Speaker 4: Not necessary. It's kind of not much related.
Not much of it.
Speaker 1: Okay, got it. And then so at the investor day about a year ago, you talked about the 5GTELCAL opportunity for long design cycles, long qualification cycles, and it does look like this quarter, the dam broke.
Okay got it.
And then.
So at the Investor day about a year ago, you talked about the <unk> telco opportunity.
Long design cycles long qualification cycles and it does look like this quarter the dam broke.
Basically.
What percent of your telecom customers that youre engaged with one from quad.
Qualifying production chip.
Big portion and feed.
We saw <unk> three years ago, and then we have a very strong engagement so far to start to move certain podium.
Some load in we are move <unk> data.
As a new territory, but we.
Overall, very satisfied and we see that peak engagement from those partner.
Okay, Great and then my last question is that.
Also on this vertical markets. It does imply that the OEM clients on large data center was up almost 10% year over year why is that.
Indeed, we have some larger engagements and Monday, our kinds of high value product at night.
As we mentioned Ford really.
And the met high scale data center, we are selective.
When does that demand high end kind of high value products. So we are indeed, a very exciting we start to gain.
Some of those opportunities.
Okay.
Yes.
Yeah, I'll add that.
Pat.
The large data center vertical I think is going to there is going to be very a little bit by digestion to us because we have we have some regular customers that are purchasing.
They will purchase for two or three quarters, and then they will take us and they'll take a pause but the good thing about our business is that it's grown to the point, where we have enough momentum.
All areas that.
That one vertical.
Offset the other.
Great. Thank you.
Your next question comes from the line of John Ken Cheng with C. J S. Your line is open.
Thank you good quarter, guys and on the outlook very fast.
My question is are inflation was supply chain headwinds still accelerating in Q3 for you in that maybe masked by your pricing.
Is it roughly the same as Q2 and maybe Thats a subset of that could you tell us where the friction as this quarter was any different and if you've seen any easing or getting tougher.
The Gucci and we knew that most of our customer already get used to.
End of.
Take that.
<unk> for the excellent cost so that's why our.
Gross margin on the margin, we are basically getting us stabilized.
Including a higher transportation charge basically customer already accepted it.
Okay great.
Commentary on where the friction isn't in components and shipping.
Overall in our supply chain.
Situations have been I would have to see gradually improving.
Martin Bloom, a gradually improving so we are getting more comfortable than last quarter or before.
Okay.
Our bigger concern here.
Got it.
Charles you spend a little time earlier in the call talking about the total IC solutions.
Transition could you just tell us what the margin is like in a typical total solution sale versus.
Historically pure hardware sale.
Okay, I mean total hardware that's what our model we have as you know we had to compete with <unk>.
Competition, and those are competitive, but total IP solution email customer needed Lotto saadawi out lots of security feature.
Kind of.
Tao pattern play cloud <unk>, <unk>, <unk> and UTD there today, so we invest a lot in this territory in last three years and now we start to harvest.
The <unk> zone, and we continue we will continue invest amongst all the way up so allo.
So to add value.
Total solution value will continue to grow.
I can say.
Great Gerry we may be able to add a 1%, 2% or even 3% excellent policy nando <unk> to our revenue in next.
Few quarter of Evs.
Okay, Great and Thats that was part of your Investor day targets anything within the target model correct.
Yes.
Okay understood. Thank you.
Thank you.
Your next question comes from the line of Ananda Baruah with loop capital. Your line is open.
Hey, guys. Thanks for the follow ups.
Okay.
Just going back to your comments just about ready to go.
It's all about.
I'm totally constraints.
I hear you accurately said, they're actually they're actually becoming less insane.
Right now.
Just a clarification.
Our data feed.
At Anvil comfortable must be some concern.
Please go ahead.
For a complete.
IP solution even.
From your desk about one component.
And you can actually put a hole.
Our product line.
<unk> solution. So that's why it <unk> mean that steel local content.
Understood understood helpful and then.
And then on the gross margin you guys had talked about reaching 14% in June so it sounds like you are tracking ahead of that.
And then your guidance sequentially.
How should we think about gross margin going forward.
Post the March quarter, I guess trajectory wise and what are the puts and takes but I think you guys have talked about sequential up December sequential up by.
14% and so now that you're already there.
Yes.
Give us some sense of what the personality that gross margins should look like in the coming quarters appreciate it.
Yes, basically when our.
Total IV solution become more mature.
Gross margin and net margin whale.
And it is growing.
<unk> benefited.
There is nobody that I mentioned, but.
In some time.
And I hope it would happen, sometimes when we engage with large scale CSP OEM and Judy.
Revenue appeal that may impact at all.
Gross margin and net margin.
Although it's still our overall margin, but when it's posted here with the company overall.
Future, we USDA selectively pick some P&L today.
Okay, great. Thanks, Thanks, guys I appreciate it.
Thank you.
Your final question comes from the line of Mehdi Hosseini with <unk>. Your line is open.
Yes, thanks for the follow up.
Monitoring and follow up if I take.
Corey.
The minimum of $3 <unk> EPS guidance for FY 'twenty two.
And assume 80 certain skill March then.
Morning June EPS.
Over 90 cents.
So you are.
Expecting margin expansion from March to June .
Is that the right way of thinking about.
To get to the 320 minimum EPS for FY 'twenty two.
So.
Go ahead Jim.
Yes basically June .
With our kind of harvest season, So Dci believe Sam opportunity June with a very strong quarter I believe.
So as to.
Gross margin may be a little it'd be lower but even that happen.
Net policy.
<unk> more than 90 sites.
Maybe more than $1 Debbie you may add some come in there yeah. Yeah. So we're very comfortable being inside 14% to 17% that's our target we guided up for Q3.
Sure.
With higher margin, we said should be up slightly in Q3 and.
For for Q4.
<unk>.
We're not giving updates on Q4.
For the full year as we said before very very comfortable with.
The guidance that's out there because it's got it has a low range and high range.
Got it thank you.
There are no further questions at this time, ladies and gentlemen, thank you for your participation. This concludes today's conference call you may now disconnect.
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