Q1 2024 Super Micro Computer Inc Earnings Call
Thank you for standing by my name is Brianna and I will be a conference operator today.
At this time I would like to welcome everyone to the Super Microcomputer at full first quarter, 20th 24 results Conference call.
With us today Charles Williams.
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N C F O and Michael Stagger, Vice President of corporate development.
All lines have been placed on mute to prevent any background noise.
The speaker's remarks, there will be a question and answer session.
If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Thank you.
I will now turn today's call over to Michael Sega. Please go ahead.
The afternoon and thank you for attending Supermicro call to discuss financial results for the first quarter was headed September 30th 2023 with me today I'm Charlie Chan.
Chairman and Chief Executive Officer and Chief.
G Financial officer by now you should have received a copy of the news release from the couch.
Company that was distributed regular training is available on the company's website.
And you're doing today's call. The company <unk> presentation that is available to participants the investor Relations actually the company website under the bench presentation stab. We've also published management scripting commentary on our website. Please note that some of the information.
<unk> consistent forward looking statements, including without limitation those regarding revenue gross margin operating expense other income.
Expensive taxes capital location in future business outlook, including guidance for the second quarter of fiscal 2024, and the full fiscal year 2024.
Number of risk factors that could cause supermicro speech results did you have or would you like from our expectations. You can learn more about these risks in the press release, we should early this afternoon. Most recent 10-K filing for fiscal 2023, and our other SEC filings. All these documents are available on the Investor Relations page Supermicro web site.
No obligation to update any forward looking statements.
And patients will refer to non-GAAP financial results in business outlook would expose explanation for it non-GAAP financial measures police reached refer to the accompanying presentation or two our press release published earlier today. In addition of reconciliation Captagon GAAP results contained in today's press release and supplemental information attached in today's presentation at the end of today.
Barry Marshall Q&A session for self an analyst ask questions I will now turn the call over to Charles.
Thank you Michael and good afternoon, everyone.
Today I'm pleased to announce that we are off to a good.
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Physical Q1, 2024 revenues were 2.12 billion.
Up 14% year over year.
One three per cent quarter over quarter.
Revenues were towards the end of our guidance range. The upper end of our guidance range of 1.9 to 2.2 billion driven by a I related platforms. Despite supply chain challenges in summer seasonality.
Next generation E. R. I N C. P. U card platforms continued to drive strong levels of design wins orders and backward.
We expect diversified growth in fiscal year 24, driven by top tier data centers emerging Csp's enterprise investments in new a I C. P U servers.
And S I O T chalk on markets.
We're also enhancing our offerings and storage switches software and services strengthen our total solution offerings.
During Q1, we recorded 917 million and the enterprise and channel vertical.
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10% year over year and down six per cent quarter over four.
Seasonally lower enterprise spending as customers focused on AI investments.
Oh, Yeah appliance and large data center vertical revenues were 1.17 billion.
Representing 55% of Q1 revenues versus 53% last quarter.
26 per cent, you over here and flat quarter over quarter.
One existing C. S. P. Large datacenter customer represented 25 per cent of total revenues for cheap.
Emerging five G telco edge I O T segment revenues were $31 million, which represented 2%.
Q1 revenues.
A I G. P U <unk> solutions again purpose in over 50 per cent of our total revenue this quarter with a I G. P U revenues info.
Price channel and the O M clients enlarge D as center verticals.
The mix of complete systems storage in rack scale total I T solutions has increased over the last two years.
Server and storage systems comprise 93% of two one revenue and subsystems and accessories represent 7%.
A S p's increased significantly on a year over year basis, and decreased slightly quarter over quarter, driven by product customer mix.
<unk> U S represented 76% of Q1 revenues Asia, 11%, Europe, 9% and the rest of the world 4%.
A year over year basis U S revenues increased 25%.
Decreased 17% Europe decreased 19% and the rest of the world increased 63 per cent.
Quarter over quarter basis U S revenues decreased three per cent.
Decreased four per cent Europe decreased 16% and the rest of the world increased 30 per cent.
Q1, non-GAAP gross margin was 17%.
And I'm slightly quarter over quarter from 17.1.
We continue to focus on winning strategic.
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Turning to operating expenses Q1, Opex on a gap basis increased by 25 per cent quarter over quarter at 42 per cent euro per year to 181 million driven by higher stock based compensation expenses and a head count.
Or a non-GAAP basis operating expenses decreased three per cent corner over quarter.
Increased 11% year over year to $130 million.
R Q1, non-GAAP operating margin was 10.8% versus 11% last quarter at 12.5% a year ago due to changes in revenues.
Margins and operating expenses.
Other income and expenses for Q1 was approximately $4.7 million consisting of $1.9 million in interest expense offset by a net gain of $6 6 million.
Simply from foreign exchange.
Our interest expense decreased sequentially as we pay down our debt during the quarter.
The income tax provision for Q1 was 22 million.
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The gas tax rate for Q1 was 11.4%.
Gas tax rate was 15.5%.
He delivered strong Q1 nine cab.
Earnings per share.
$3.43, which was at the high end of guidance range of $2.75 to $3.50 to the revenues towards the higher higher end of the guidance stable gross margins.
Lower non-GAAP Opex and foreign exchange gains.
Cash flow generated from from operations for Q1 was $271 million compared to cash flow used in operations.
9 million during the previous quarter due to continued strong profitability.
Which was offset by higher inventory requirements based on our bill transfer queue too.
Capex was 3 million for Q1.
And positive free cash flow of 268 million.
Versus negative free cash free cash flow of 17 million last quarter.
We have $50 million remaining under the authorized by that program, which expires on January 31 2024.
Closing balance sheet cash position was $543 million for a bank that was 146 million, resulting in a net cash position of $397.
Up from a net cash position of $150 million last quarter.
Generate a 271 million in operating cash flow.
Then pay down debt by $141 billion in coupons.
Turning to the balance sheet and working capital metrics compared to last quarter.
Q on cash conversion cycle was 86 days versus 77 days in Q4.
Days of inventory increased by 16 days to 91 persist the prior 475 days.
Rebuild inventory for seasonally strong Q too.
Days sales outstanding what's up by five days quarter over quarter to 43 days.
Is payable outstanding increased by 12 days 48 days.
Now turning to the outlook.
Remain enthusiastic about our diversified business model covering a wide range of G. P U E I R.
Or computing start Kirk computing storage five G telco edge and I O T solutions.
We expect a seasonally strong you too and are carefully observing.
Macro economic situations and continuing supply chain constraints, especially for leading a I platforms.
For the second quarter of fiscal 2024, ending December 31, 2023, we expect.
I was in the range of 2.7 to 2.9.
Yep diluted net income per share a 370 524 24.
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We expect gross margins to be similar to Q1 levels.
Operating expenses are expected to be approximately $191 million and include 49 million in stock based compensation expenses that are not included.
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Deluded gap EPS includes approximately 40 million and expected stock based compensation expenses net of tax effects of $13 million, which are excluded from now I get diluted that income per common sure.
We expect other income and expenses, including interest expense.
And that expense approximately $8 million.
Company's projections for Q2 cab and non-GAAP deluded net income per common sure assume a gas tax rate of 15.7%.
Yeah, a tax rate of 17.1% any fully diluted share count of 57.6 million for a cab and 58.3 million shares or not yet.
We expect Capex for the fiscal second quarter of 2024 to be in the range of 21 to 23 million and arrange of 105 to 115 million.
Fiscal year 2024.
For the fiscal year 2024 June 30, 2024, we are raising our guidance for revenues from arrange of 9.5 to 10.5.
To arrange a 10 billion 211.
Michael we're now ready for today.
Thank you.
Time, I'd like to remind everyone in order to ask a question. Please press <unk>.
We kindly ask that you limit yourself to one question and one <unk>.
Our first question comes from Amanda <unk> with your.
Your line is open.
A yeah. Good afternoon, guys. Thanks for taking the questions and and congrats on the on the strong an ongoing ongoing explication.
Uhm.
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Either are benefiting or anticipate the benefit from from the increased and videos supply that that was pointed to China, but now.
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Brianna: My name is Brianna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Supermicro computer, Citical First Quarter 2024 results conference call. With us today, Charles Liang, Fabra Venkateshwaran, Chief Executive Officer, David Venkateshwaran, CFO, and Michael Staiger, Vice President of Corporate Development.
And then you also made method of drove accelerating and so.
And it seems like supply is getting better you also <unk> capacity coming out going into the air. So I guess the question is is there conservatism built in.
All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad.
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Or is there some pull forward in December quarter that you think might be like a challenging to duplicate.
In the in the in the marching zoom cause it seems like in services I just wanted to check that.
Thank you.
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Our next question comes from George Wang with Barclays.
Your line is open.
Oh, Hey, Hey, guys.
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Michael Staiger: I will now turn today's call over to Michael Staiger. Please go ahead.
The afternoon, and thank you for attending Supermicro's call to discuss financial results for the first quarter, which ended September 30, 2023. With me today, our Charles Liang, founder, chairman, and Chief Executive Officer, David Wigan, Chief Executive Officer. By now, you should have received a copy of the news release from the company that was distributed to close regular trading and 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, the investor relations section, and actually the company's website under the events and presentations tab.
We've also published management, script and commentary on our website. Please note that some of the information you hear during discussion today will consist of forward-looking statements, including without limitation, those regarding revenue, gross margin, operating expense, other income, and expenses, taxes, capital allocation, and future business outlook, including guidance for the second quarter of fiscal 2024 and the full fiscal year 2024. There are a number of risk factors that could cause Supermicro's future results to differ material from our expectations.
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Hello, there. Thanks, I have a quick follow up if I can't.
<unk>, you know when Malaysia cutting out and also in the future kind of Tyler facility any thoughts on the kind of impact with the profit margin and kind of you know obviously with a much lower labor costs.
Okay. You are qualified maybe David some color just don't expect an operating modular Christian going forward.
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Pulling up the December quarter guards implies 57% year over year growth.
But after the emergence declining by about 100 vicious point I understand utilization rate is in the 60% ranch, but as you bring up utilization rate how should I think about the opex.
And the leverage from here on.
Yeah. So we we expect that we will continue to get operating leverage Betty.
We we were I think a little conservative in our in our guide for Opex and Q2. So we as we were in Q1 and so we came out a little bit we came in a little bit lower we're doing everything we can to do that and and Q2 as well.
So actually you're up to your operating Guy question. You know, we came down a little bit on gross margin year over year as you know, but we we expect S Trust mentioned, we expect some maybe some gross margin leverage as well as operating margin leverage S. We alright as our offer.
You can learn more about these risks. In the press release, we should draw it as afternoon, our most recent 10K filing for fiscal 0.2.3, and our other FTC filings. All these documents are available on the investor relations page, Supermicro's website. We assume no obligation to update any forward-looking statements, most of the city's presentations will refer to non-gap financial results and business outlook. For an explanation of our non-gap financial measures, please refer to the accompanying presentation or to our press release published earlier today. In addition, a reconciliation of gaps in non-gap results contained in today's press release and in the supplemental information attached to today's presentation.
Waiting expenses never increase at the rate that our revenues are.
At the end of today's very March, we'll have a Q&A session for some of the analysts to ask questions.
Alright, thank you.
A big part of your cause his memory and other components.
Charles Liang: I will now turn the call over to Charles. Thank you, Michael, and good afternoon, everyone. Today, I am pleased to announce that we are off to a good start for fiscal 2024. We're supposed to quarter-revenue of 2.12 billion. We navigate tied AI, GPU, and key components supply conditions to deliver total solutions and larger compute cluster. Especially for generative AI workload, we are our backup order, continue to expand faster than our forecast.
And everything we have heard from memory manufacturers suggest that they're not gonna still at prices that would.
Prevalent just a couple of months ago. So memory prices are going up and how do you alleviate that's <unk> to to be able to expand margins.
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That won't be impact too much.
Our next question.
Let's see J F K.
Your line is open.
Alright, Thanks for taking the question guys and Great Court and I might sound look just wanted a little more color on the grocery immersion guidance and outlook I mean.
I I assume you're getting better emergency room utilization and on your new facilities on the ramp or are you simply planning to give all that back with a shrug and initiatives in and I hope it scale mix or is there some input cost component and kind of when should we expect the timeframe for gross margin leverage to really become a parents.
Charles Liang: During the first quarter, the main for our leading AI platform, in Prague and Prague, a drag scale, especially for our LORM, optimized in video, HTTX, HTT-1 and distribution, was the primary growth drive. David, many customers have started to request direct attach, co-pray, eukarying solution to address the energy cost, power-gray constraint, and superchallenge of this new GPU infrastructure. In some cases, customers are able to double their data center AI computing capacity, using our PLC direct attach, difficulty installation, due to lower system power, deployment, lower PUE, and higher computing density for cluster.
Is it along with the new facilities or cannot happen a little sooner than that.
Charles Liang: To me, this is a strong demand. We have been continuously expanding our vegetation and production facilities. By the coming March quarter, we expect to complete a dedicated capacity for manufacturing 100 KWR for RAC with difficulty. That will further expand our total RAC, potential capacity to 5,000 RACs per month, in full of speed and mass production. The increased AI business also includes our new infrastructure platforms, and the tech-all-optimized H4DAS, based on Nvidia, R4DS, R4T, and R4.
Well, it's a it's a combination shaun of as we ramp revenues up we're gonna <unk>, we're gonna get leverage on the gross margin because that's Charles mentioned earlier, we're gonna get higher efficiency in fact in factories through put as we which will lower costs as we put more through the fat.
Charles Liang: And for sure, H1NDS will AI product-nice. Furthermore, the upcoming great-hopper superchip base, MGX, for both generative AI and imaging AI, are just ready for volume production. Our board is the AI solution portfolio, also includes Intel, 32, PCIe, FRAX, PVC, KONEM, from the BlackHill, as well as AMD, MI250, and MI300X, and MI300A based platforms. We fully expect many of these H4DAS to gain broad adoption and expand our share in the accelerated computing market.
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And I think that so that's why I have right now we are although you know very competitive situation, we're maintaining our marching guidance.
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Got it Okay and then just a question on the I think you said, you've you're building 72 buildings here in the U F. I know, you're expanding and looking for places to put to go is in North America with us.
The margin of creative or neutral or negative just given a higher cost or how do we think about the the facilities in there in fact.
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We want to stay in the next few months, but <unk> <unk> <unk> <unk>.
Our next question comes <unk> My friend Captain America.
Mine is open.
Yeah. Thank you.
They have already addressed this but what are your expectations for AI revenue contribution with respect to the mid point of December.
December quarter of guide being up 32% QQ.
Yeah. So I think we're expecting really the same performance Oh, well, we'll we'll expect it to be in the in the ranch.
50 per cent.
Okay and can you give it a little bit more precise number as far as what the exposure wasn't the September quarter other 150.
That's that's we're giving the approximate figure and that's.
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Our next question comes from.
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Yeah. Thanks for taking the question and then also congrats on the quarter I'm, just curious going back to the supply side of the discussion.
How would you as you're engaging with customers and thinking about their build out plans you know in their data set of footprints.
How how would you characterize the evolution of lead times.
On on these on these higher N G. P youth I mean, you know relative to what it was maybe.
90 days ago, how has that evolved and how are you seeing that evolve into the current quarter.
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And our conference call today. Thank you for joining US you may have.
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Charles Liang: Let's go over some key financial highlights. Critical Q1, net revenue total, 2.12 billion, up 14% year-on-year, and down 3% quarter-on-quarter. To world a high end of our guidance range of 1.9 to 2.2 billion, despite the GPU and key components shortage, during our traditional soft September quarter. Critical Q1, NGF, early of $3.43 per share, were in line with $3.42 a year ago, and towards the high end of our guidance range of $2.75 to $3.50.
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Charles Liang: Demonstrating continuous strong operating leverage during our traditional soft quarter. We don't share delivery end-to-end nuclear data center solution. We see up to 20% of our data center departments. We are moved to difficult and for the first time customer can get a completed Rack scale nuclear cooling solution from a single source with a maximum due time of with minimum due time of about two weeks. Supermicro is working hard to fully take the current AI growth of the unit by speeding up the development of more new AI optimized platform.
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Charles Liang: Supermicro is utilizing its video program architecture to continue our first to market DNA with the launch of Nvidia C-G-1, C-G-2, Grace Harper, Supertrip, and Nvidia Grace GPU Supertrip, as we speak. Supermicro's data is MGX system provided groundbreaking computing density, energy resources, and EG or data center for human and serviceability, ideal for hyperscale and H data center. I believe this on go and AI revolution will impact all industry and the world, possibly much more impactful than the industrial revolution over 200 years ago.
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Charles Liang: As most people know, the power consumption and so much energy of these new AI technologies are reaching dramatically. We are now shipping up to 80 KWR for Rack solution. With 100 KWRR, that's a wrong corner. For compute, intensive data center, CSP, and other industries, our high power efficient system, free AI and liquid cooling expertise have become one of our key differentiator of success. High anticipated that have to 20% or more of global data center where transition to liquid cool solution in just a few years.
Charles Liang: In addition, a combination of infringing computing density, reducing PCO, and liquid cooling reduced the environmental impact of data center significantly. This is where AI with Supermicro's green computing mission, as we improve data center performance power for square, food, and the tariffs. To better support traditional data center and the price and IoT takeoff industry. We have begun a seeding and early ship for the upcoming fifth generation into a geome process. Co-NM SPFY and SP6.
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Charles Liang: With more computing coal, PCIe Gen5, CX error and many other workload-optimative features. For customers, they want to test this data system. We offer our jump-start program with remote access to our high-end, PX13, PX13 and GPU systems for qualified customers, workload, meditation, testing, and benchmarking before podium deployment. Thus, the performance of CPU-GPU and memory technology in Greece, enhancing storage performance is also necessary. To feed massive data sets to computer applications without becoming a bottleneck, they slow the entire system more clasped down.
Charles Liang: Supermicro is a new PCIe Gen5 base, E1S, and E3S, PETA scale, over-fresh storage, over-industrial-leading storage performance and capacity. Together, with our UW-2 MVME, covered all the systems and traditional storage platforms, we are for fearing customers AI, CPU, and storage needs, with one-stop total storage shopping experience. Supermicro, the total ID storage is being recognized as saving customers from the complications of design, meditation, sourcing, integration, and on-site deployment. We are also deep-lining their networking, streaming, firmware, and software management challenges, covering it with our 24-7 global deployment and service skills.
Charles Liang: Essentially, our customers are now incorporating our capability into their long-term infrastructure plans, entrusting Supermicro to provide them with fully-optimized solutions, and with scale capacity to feed their long-term needs. Even our current customers' infrastructure demands, we have continued to evaluate our footprint beyond our ongoing expansion in Malaysia. We are adding seven new buildings close to our headquarters in Silicon Valley campus, and on track to surpass our current capacity. Of 4,000 rake per month.
Charles Liang: Today, we see a collaboration rate at about 60%, our USA quarter and Taiwan facility can easily support and at least 18 billion in revenue. The new Malaysia facility will serve within Bronx with high volume scale and improve coastal structure, while pushing our total revenue capacity to a much higher scale than 20 billion dollars. We are also continuing to work with some of our key partners and are deeply in the planning process of adding a new manufacturer campus in North America, outside of California for co-star.
Charles Liang: To work in the Trudy leadership position, we are facing cars for the portfolio, global scale, capability and capacity, and basically time to market, distinguished ourselves from the competition. Our IT industry leadership position will be even stronger in the near future. The population of Newport are in the coming quarters and never been stronger. We are gaining much momentum. I expect to build a deeper into 2024. Even me, Congress is the fiscal Q2 revenue, we are beginning the range of 2.7 to 2.9 billion dollars.
Charles Liang: Additionally, we are expecting continual strength for the second half of fiscal year of 2024 and now forecast revenue in the range of 10 billion to 11 billion dollars. Our position as the leading supplier of REC scale, product and play, total AI and IT solutions has just begun. Our growth will accelerate as we deliver more optimal AI infrastructure to existing and emerging markets along with our growing software and service value. I also look forward to providing more updates on our product line in the coming quarters. They will continue to extend our data center technology leadership for years to come. Each day in May, I expect our 20 billion dollars annual revenue target to be just a couple of years away.
Before passing the code to Babywagon, our CEO, I want to take this chance to thank you to our partners, our customers, our supermanagers and employees and our shareholders for your continuous support.
Thank you, baby. Thank you, Charles.
David Weigand: The fiscal Q1 2024 revenues were 2.12 billion, up 14% year over year and down 3% quarter over quarter. Revenues were towards the end of our guidance range, the upper end of our guidance range of 1.9 to 2.2 billion driven by AI related platforms, despite supply chain challenges and summer seasonality. Next generation AI and CPU platforms continue to drive strong levels of design wins, orders and backlogs. We expect diversified growth in fiscal year 24, driven by top-tier data centers, emerging CSPs, enterprise investments in new AI CPU servers, and Edge IoT Tuckle markets.
David Weigand: We're also enhancing our offerings in storage, switches, software, and services to strengthen our total solutions offerings. During Q1, we recorded 917 million in the enterprise and channel vertical, representing 43% of revenues versus 45% last quarter. This was up 10% year-over-year and down 6% quarter-over-quarter due to seasonally lower enterprise spending as customers focused on AI investments. The OEM appliance and large data center vertical revenues were 1.17 billion, representing 55% of Q1 revenues versus 53% last quarter.
David Weigand: So this was up 26% year-over-year and flat quarter-over-quarter. One existing CSP-large data center customer represented 25% of total revenues for Q1. Our emerging 5G telco Edge IoT segment revenues were 31 million, which represented 2% of Q1 revenues. AI, GPU, and Rackscale Solutions, again, represented over 50% of our total revenues as quarter with AI, GPU revenues in both the enterprise channel and the OEM appliance and large data center verticals. The mix of complete systems, storage, and Rackscale total IT solutions has increased over the last two years. Server and storage systems comprise 93% of Q1 revenue and sub-systems and accessories represent 7%. ASPs increased significantly on a year-over-year basis and decreased slightly quarter-over-quarter driven by product and customer mix.
By geography, the US represented 76% of Q1 revenues, Asia 11%, Europe 9%, and the rest of the world 4%. On a year-over-year basis, US revenues increased 25%, Asia decreased 17%, Europe decreased 19%, and the rest of the world increased 63%. On a quarter-over-quarter basis, US revenues decreased 3%, Asia decreased 4%, Europe decreased 16%, and the rest of the world increased 38%.
The Q1 non-GAP gross margin was 17%, and on slightly quarter-over-quarter from 17.1, we continue to focus on winning strategic new designs and gaining market share. Turning to operating expenses, Q1-OPX on a GAP basis increased by 25% quarter-over-quarter at 42% year-over-year to 181 million driven by higher stock phase compensation expenses and On a non-gap basis operating expenses decreased 3% core over quarter and increased 11% year over year to 130 million. Our Q1 non-gap operating margin was 10.8%, it was 11% less quarter and 12.5% a year ago due to changes in revenues, gross margins, and operating expenses.
Other income and expenses for Q1 was approximately 4.7 million, consisting of 1.9 million in interest expense offset by a net gain of 6.6 million principally from foreign exchange. Our interest expense decreased sequentially as we paid down our debt during the quarter. The income to the tax provision for Q1 was 20.2 million on gap basis and 36.2 million on a non-gap basis. The gap tax rate for Q1 was 11.4%, and the non-gap tax rate was 15.5%.
We delivered strong Q1 non-gap deluded earnings per share of $3.43, which was at the high end of the guidance range of $2.75 to $3.50 due to revenues toward the higher end of the guidance, stable gross margins, lower non-gap up-ex and foreign exchange gains. Cash flow generated from operations for Q1 was 271 million compared to cash flow used in operations of 9 million during the previous quarter due to continued strong profitability, which was offset by higher inventory requirements based on our income.
It resulted in positive free cash flow of 268 million versus negative free cash flow of 17 million last quarter. We have 50 million remaining under the authorized by-back program, which expires on January 31, 2024. The closing balance sheet cash position was 543 million, well, bank debt was 146 million, resulting in a net cash position of 397 million, up from a net cash position of 150 million last quarter. We generated 271 million in operating cash flow, and then paid down debt by 141 million in Q1.
Turning to the balance sheet and working capital metrics compared to last quarter, the Q1 cash conversion cycle was 86 days versus 77 days in Q4. Days of inventory increased by 16 days to 91 versus the prior quarter of 75 days as we built inventory for a seasonally strong Q2. Days sales outstanding was up by 5 days quarter over quarter to 43 days, while days payable outstanding increased by 12 days to 48 days.
David Weigand: Now turning to the outlook, we remain enthusiastic about our diversified business model, covering the wide range of GPU, AI, or computing storage, 5G telco edge, and IoT solutions. Solutions. We expect a seasonally strong Q2 and are carefully observing the global macroeconomic situation and continuing supply chain constraints, especially for leading AI platforms. For the second quarter of fiscal 2024 ending December 31, 2023, we expect net sales in the range of 2.7 to 2.9 billion.
David Weigand: GAP diluted net income per share of 3.75 to 4.24 and non-GAP diluted net income per share of $4.40 to $4.88. We expect gross margins to be similar to Q1 levels. GAP operating expenses are expected to be approximately $191 million and include $49 million in stock based compensation expenses that are not included in non-GAP operating expenses. The outlook for Q2 of fiscal year 2024 fully diluted GAP EPS includes approximately $40 million in expected stock based compensation expenses net of tax effects of $13 million which are excluded from non-GAP diluted net income per comment share.
David Weigand: We expect other income expenses including interest expense to be a net expense of approximately $8 million. The company's projections for Q2 GAP and non-GAP diluted net income per comment share assume a GAP tax rate of 15.7%, a non-GAP tax rate of 17.1%, and a fully diluted share count of 57.6 million for GAP and 58.3 million shares for non-GAP. We expect CAPEX for the fiscal second quarter of 2024 to be in the range of 21 to 23 million and a range of 105 to 115 million for the fiscal year 2024.
For the fiscal year 2024, James June 30, 2024, we are raising our guidance for revenues from a range of 9.5 to 10.5 billion to a range of 10 billion to 11 million.
Michael Staiger: Michael, we're now ready for Q&A. Thank you. At this time, I'd like to remind everyone in order to ask a question, please press star 1. We kindly ask that you limit yourself to one question and one follow-up.
Ananda Barua: Our first question comes from Ananda Barua with Loop Capital. Your line is open. Good afternoon, guys. Thanks for taking the questions and congrats on the strong and ongoing execution. I guess, yeah, a couple of the stars. Charles, can you talk about the degree to which you guys either are benefiting or anticipate the benefits from the increased and video supply that was pointed to China, but now you need to find other places to go.
Ananda Barua: And to the degree you think you might benefit, you can give us some sense of. You know, it was great that benefit made this way, you know, out of China and into other countries. And then I have a follow-up thanks. Thank you for the question. Again, it's a complicated situation. But at this moment, we believe December quarter, our supply from the media will be much better than last quarter. And that's one reason why we are able to fulfill more percentage of customer demand.
Ananda Barua: And that's why we say 2.7 to 2.9 billion should be our target. So basically the supply condition has been improved. That's actually really helped the context. I appreciate it. And then I guess, you know, sort of dovetailing from that, Charles. So the midpoint of the implied guide for the fiscal year, the raised guide, 10 and a half, implies that the March quarter and June quarter would also be about 2.8 billion. Which is the midpoint of your December quarter guide.
Ananda Barua: And then you also, though, made mention of growth accelerating. And so, and it seems like supply is getting better. You also have co-op capacity coming on going into the air. So I guess the question is, is there conservatism built in into even the implied fiscal year guide that's been raised? Or is there some pull forward in December quarter that you think might be might be challenging to duplicate in the in the March and June quarter seems like conservatism. But just wanted to check that. Thanks. Thank you. Again, we continue to gain lots of the language. So our pack of order have been growing faster than what we forecast in reality.
Charles Liang: So at this moment, 2.7 to 2.9 billion or December should be a very conservative number. And for a whole fiscal year, 10 billion to 11 billion. Again, should be a conservative number. So I feel very optimistic to continue to grow quickly. And that's why we continue to grow our rack scale, including the difficulty rack scale, rather than production capacity. And I know why this year before we have a 4,000 rack per month capacity. And now pretty much we will grow to a 5,000 rack per month capacity. So we are really optimistic for the huge outcomes.
George Wang: Our next question comes from George Wang with Barclays. Your line is open. Okay. Hey, guys. Hey, Charles. Thanks for taking my question.
I just just maybe you can give some coloring in some of the education from other suppliers and partners, you know, kind of maybe in the near term, kind of for the future, like a new AMD and my 300, which is expected launching the first quarter. 24 and also find it from H100 from the video, any other upside when the L4DS from Nvidia is renting just curious and also including a goldie from Intel.
Maybe you can give some color on kind of an allocation from kind of additional suppliers. Yeah, thank you for the question. Yes, I mean, as you know, we have a very strong video partner nine, including the telephoto is like, and including the CG one, CG two on the way. And M, E, M, actually, Andrew X, also getting ready. And India got it too, it's ready to, to,[inaudible] Thank you.
Unknown Executive: Charles, a big part of your cause is memory and other components. And everything we have heard from memory manufacturers are just that they're not going to sell at prices that were prevalent just a couple of months ago. So memory prices are going up. And how do you alleviate that inflationary trend to be able to expect? Thank you. I mean, basically, we are able to pass through our cost to customers. So for that question, basically, we are kind of okay, we won't be impacted by that. At least, they won't be impacted too much.
John Teneng: Our next question comes from John Teneng with CJS Securities. Your line is open. Thanks for taking the question guys in great quarter and a nice outlook. Just wanted a little more color on the gross margin guidance and outlook. I mean, I assume you're getting better margin and utilization and on your new facilities on the ramp. Are you simply planning to give all that back with the share gain initiatives and the hyperskill mix or there's an input cost component and kind of when should we expect the timeframe for gross margin leverage to really become apparent?
John Teneng: Is it only with any facilities or can that happen a little sooner than that? Well, it's a combination, John, as we ramp revenues up, we're going to get leverage on the gross margin because Charles mentioned earlier, we're going to get higher efficiency and factory throughput as we, which will lower costs as we put more through the factories. We'll get some benefit there. We'll also get benefit as we transition more manufacturing over to Taiwan and I think that so that's why right now, we are although very competitive situation, we're maintaining our margin guidance for Q2.
John Teneng: Yeah, I can add a little bit of some kind. I mean, kind of our sort of way of being is growing together, our service, including on slightly premium. Oh, those were half our gross margin, our very relatively. So at this moment, we should be on the right track. I'll see a direction. Got it. Okay, and then just a question on the, I think you said you're building seven buildings here in the US.
John Teneng: I know you're expanding and looking for places for facilities in North America. Would those would those all be margin of creative or neutral or negative, just given the higher cost here, how do we think about those facilities in their impact? Oh, very good question. Indeed, we are adding some more building in area and most of those will be rental, rental building because how gross is faster than what we can build a building. So it will be a rental facility. And then I did mention about we were looking for another location, hopefully in a little bit of a cost stay in North America.
So we are planning for building a new campus in, we want to start next few months, I believe, but the short term few building in Silicon Valley, where we rent top off.
Nehal Chokshi: Our next question comes from Nehal Chokshi, Northland Capital Market. Your line is open. Yeah, thank you.
You may have already addressed this, but what are your expectations for AI revenue contribution with respect to the midpoint of December quarter of a guide being up 32% and QVQ? Yeah, so I think we're expecting really the same performance, Nehal. Well, we'll expect it to be in a range over 50%. Okay, I can give a little bit more precise number as far as what the exposure was in the September quarter, other than greater than 50. That's, that's we're giving out of that approximate figure, and that's as our guide. Yeah, basically, AI revenue percentage is a continuous growth, but hopefully in the AOC and consistently.
Aaron Rakers: Our next question comes from Aaron Rakers with Wells Fargo.
Your line is open. Yeah, thanks for taking the question and also congrats on the quarter. I'm just curious going back to the supply side of the discussion. How would you as you're engaging with customers and thinking about their build out plans in their data center footprints for AI, how would you characterize the evolution of lead times on these on these higher and GPUs. I mean, relative to what it was, maybe 90 days ago, how has that evolved and how are you seeing that evolve into the current quarter?
Yes, it's a complicated job. However, because our building box solution and our global footprint together, we have a huge stage. We support the hundreds of cars, so it's all perfect. Indeed, relatively, we are able to take care of our location at the time, the inventory control. Both are more efficient than our competitors, and we are continue in the area.
So you would say that lead times have improved throughout this course of the last quarter, and you'd expect that it sounds like the continuing proven in the December course, kind of a fair characterization. Yes, and that's why our inventory, the adoration to a web API for me. So before I guess we have about 90 days, I've done our own time. Yes, and I guess that web he improved when that scale can be out of control. And when we can be mental with the data that we got, we can evolve solution. Situation will continue to improve. Yep.
And then the follow up, the follow up, the follow up question would be is like, you know, as the market evolves more competitively, and you see, I know a prior question on the MI 300. You've got the gaudy silicon. I guess the way I think about it is these customer deployments are, you know, longer cycle. It's not like these decisions are made in a given quarter. So as we look to these products, particularly the MI 300 X ramping, you know, really starting early part of next year and through the course of next year.
Are those projects that you're already seeing visibility into and that actually adds another layer of growth to the pipeline? Are those projects that you've already been designed in and you're just waiting for those products to kind of launch to really start to see that incremental revenue for those competitive offerings? Yeah, Aaron, you are right. Because of our building bulk solutions, so we are able to design all that and make a new technology available, earlier than the market, basically.
So, usually we send our solution to customer for evaluation. So our customer can make a decision earlier and then allow people Michael, they'll be earlier time to prepare. Now, put up prepare the inventory. So, there's a matter. We need a solution in this solution or in their solution, we provided a simply broke solution and we gain time to market advantage. We provide a customer earlier seeding earlier system, so that they can meditate in advance.
Michael Staiger: This will conclude our question and answer session and our conference call today.
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