Q2 2024 Super Micro Computer Inc Earnings Call
Thank you for standing by my name is cole and I'll be your conference operator today at this time I would like to welcome everyone to Super Micro computer fiscal second quarter 2024 results with US today, Charles Liang founder President and Chief Executive Officer.
Speaker Change: David Wigan CFO, and Michael Staiger, Vice President of corporate development all lines have been placed on mute to prevent any background noise. After the speakers' remarks will be a question and answer session. If you'd like to queue for a question. Please press star one on your telephone keypad.
Speaker Change: It has been asked that we keep ourselves to one question and one follow up question.
Speaker Change: And with that I'd like to pass the call over to Michael Staiger.
Good afternoon, and thank you for attending Super Micro's call to discuss financial results for the second quarter, which ended December 31, 2023 with me today are Charles Liang founder Chairman and Chief Executive Officer, and David We can Chief Financial Officer by now you should have received a copy of the news release from the company that was distributed at the close of regular trading and is available on the comp.
Speaker Change: <unk> web site.
Speaker Change: As a reminder, during today's call the company will refer to a presentation that is available to participants in the Investor Relations section of the company's website under the events and presentations tab. We've also published management's scripted commentary on our website. Please note that some of the information you'll hear during our discussion today will consist of forward looking statements, including without limitation those rigs.
<unk> revenue gross margin operating expenses, other income and expenses taxes capital allocation and future business outlook, including guidance for the third quarter of fiscal year 2024, and the full fiscal year 2024, 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.
Speaker Change: Press release, we issued earlier this afternoon, our most recent 10-K filing for fiscal 2023, and our other SEC filings. All of these documents are available on the Investor Relations page of 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.
Speaker Change: For an explanation of our non-GAAP financial measures. Please refer to the accompanying presentation or the press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and in the supplemental information attached to today's presentation at the end of today's prepared remarks, we will have a Q&A session for sell side analysts to ask questions.
I'll now turn the call over to Charles.
Charles: Thank you Michael and good afternoon, everyone.
I'm delighted to share our second quarter results, which show a record breaking performance. Once you blow mango, we achieved revenue of <unk> six 6 billion.
Charles: One day as to the percent increase from last year.
Charles: And earnings per share of $5 50, Nice thing this is our fourth quarter ever with over $3 billion of revenue.
More importantly, this single quarterly revenue surpassed our annual revenue for 2021.
Charles: This fantastic quota. These result was driven by strong demand and improving supply conditions.
Charles: GPU and related key system components.
Charles: Our rack scale, rather than play of IP and a total solution continues to gain more new customers along with their competence in shippable, Michael today I'll go to slide show a pattern.
Charles: Our AI at scale solutions, especially the <unk> and <unk>.
Charles: Optimize.
Peso Nvidia edge Gx H, one entry convene.
Charles: Continue.
Speaker Change: Hi popularity.
Speaker Change: That demand for AI in finishing systems and midstream computer solutions and <unk>.
So start to grow.
Speaker Change: The exciting news is that finally, we are entering an accelerating demand space.
Speaker Change: Hum.
Speaker Change: Many more customer wins.
Speaker Change: We used the pool.
Speaker Change: To support faster growth.
Speaker Change: <unk>, our working capital racing day by raising about $600 million.
Speaker Change: And equity offering.
Speaker Change: We have out there.
Speaker Change: Programs to increase our cash flow without additional equity dilution to step hole short and long term.
Speaker Change: So sustainable growth.
Speaker Change: So I feel very confident that this AI boom will continue for another minute quarters, if were not minute yes.
Speaker Change: And together, we used to the related in finishing and other computing ecosystem requirements.
In.
Speaker Change: And that's therefore, even many decades to come.
Speaker Change: EMEA code these AI revolution.
Speaker Change: Not to go over some key financial highlights plus physical Q2, net revenue totaled <unk> six expedient blending.
Speaker Change: And then there is 3% and 73% quarter on quarter exceeding the top end of our original guidance of two point in IBD in for December quarter.
Speaker Change: That.
Speaker Change: Fiscal Q2, non-GAAP earnings of <unk> 90 per share well above <unk> 26.
Speaker Change: A year ago and exceed that guidance range of $4 40 to $4 80 is dead.
Speaker Change: Oh, the demonstrating cause.
Speaker Change: <unk> strong operation leverage.
Speaker Change: Economic of scale is important to us for continued strong growth.
Speaker Change: Super Micro is a pull.
Speaker Change: So for them or AI Revolution, where the pace of innovation is accelerating.
Speaker Change: We had been the voice, but developing the most innovative AI English slideshow a minute films.
Speaker Change: As Rex scale for almost.
Speaker Change: And the industry.
Speaker Change: And then much political.
Speaker Change: As the market be there.
Speaker Change: We have been prepared into.
Speaker Change: More than double the size of our current portfolio, which does that come into sudden Nvidia C. G. One.
Speaker Change: T G tube harpoon Super cheap edge.
Speaker Change: Hedge to one P M B 100, Cpus and Gpus.
Speaker Change: I know what he is invention optimize gpus.
Speaker Change: M D MSC Henry.
Speaker Change: M S N E and entail Godley tool and obviously all these new platforms will be ready for high volume production in the coming months and quarters.
Speaker Change: Moreover, we are in Florida, optimizing new architectures coming in Libya, GPU put out nice.
However, in the MSC and the X.
Speaker Change: Susan simply now and now India, obviously see some coming soon.
Speaker Change: More importantly, we are continuing to invest and innovate in data center and enterprise, Nick recruiting pick an outage to make sure. These are high power AI platform I E.
We used our winning competing missile dollars, while improving the performance.
Speaker Change: This is Andrew that BP post system.
Speaker Change: Got it.
Speaker Change: Total IP solution innovator.
Speaker Change: Manufacturer and provider more and more manageable.
Speaker Change: <unk> is it being delivered.
Speaker Change: Integrated <unk>.
Speaker Change: Solution, particularly for the AI cluster debridement.
So it was networking storage security features and sort of optimize that he did.
Delivery and service.
Speaker Change: Integrated Iraq, Costa from <unk> manufacturing facility, all the way there.
Speaker Change: Leverage in our opinion broker architectural and operating production automation system, we can deliver optimizes rack solution.
Speaker Change: Come to market and quality advantages, while our customer more efficiently than competition.
Speaker Change: Our TPP come to delivery sector have been in continuous improvement.
Speaker Change: This June quarter, we were at high volume dedicated capacity for manufacturing 100 kilowatt to 100 and Dk, what Reg Zip code.
Speaker Change: Capability.
Speaker Change: Right.
Speaker Change: Yeah, I don't see a.
Speaker Change: Apache do recruiting.
Speaker Change: City up to 1500.
Speaker Change: Per month.
Speaker Change: Our total breath pedestrian capacity, whether it be up to 5000 blacks per months.
Speaker Change: At a certain time our volume.
Speaker Change: I brought him Kingdom rack scale upstream facility will be ready to service critical customer medicine.
Speaker Change: The rapid growth of our business is driven a need of additional.
Speaker Change: Solution optimization manufacturing and service capacity.
Speaker Change: But they have a production <unk> automation really is about 65% across our U S a less than and Taiwan facilities.
Speaker Change: And they are quickly feelings.
Speaker Change: We'll address these immediate.
Speaker Change: Capacity challenge, we are adding two new production facilities and warehouse near our Silicon Valley headquarters.
Speaker Change: You will be operating in a few months.
Speaker Change: New Malecha for CDP, we are also expanding our bid in Bronx, with lower cost and increase Vod well other NIM facility will support our annual.
Speaker Change: Annual revenue capacity about $25 billion.
Speaker Change: To summarize.
Speaker Change: Our record quarterly.
Speaker Change: Performance demonstrated outbidding pro rata scale program.
Speaker Change: And our industry leadership, which continues to accelerate and show signs of strong market share gains.
Speaker Change: The continued.
Speaker Change: Strength of existing customer built and rent of newly acquired <unk>.
Speaker Change: Customers and a robust pipeline of new products.
Speaker Change: Coming in 2024, even mean competence that fiscal Q3 revenue will be in the range of $3 7 billion to $1 billion.
Speaker Change: Additionally, we are expecting continued strength for the second half of fiscal 2024, and now full cost of revenue for the full fiscal year ending in June to be in the range of $14 3 billion to $14 7 billion.
Speaker Change: We are in overdrive to accelerated supermicro, three <unk> business model, which is a boom.
Speaker Change: And I mean time, we are preparing ourselves for that next wave of supermicro pages as it grows with supermicro and its expanding Tam.
Speaker Change: <unk> is certainly the most exciting time yet.
Michael.
Before passing the call to Debbie Wigan, our CFO I want two things.
Debbie Wigan: Again to our partners.
Debbie Wigan: Our customers, our supermicro employees and our shareholders for your strong support now let me pass to our CFO David for more financial details.
Debbie Wigan: Charles.
David Wigan: Fiscal Q2, 2024 revenues were $3, six 6 billion up 103% year over year and up 73% quarter over quarter.
Revenues were higher than our initial guidance of two seven to $2 9 billion and slightly above our recently updated guidance of three six to $3 65 billion.
Our growth was driven by demand from new and existing customers for our leading AI and rack scale total solutions and an improving supply supply chain.
David Wigan: Next generation AI and CPU platforms continue to drive strong levels of design wins.
David Wigan: Orders and backlog from top tier data centers emerging cloud service providers enterprise channel and edge Iot telco customers.
David Wigan: During Q2, we recorded $1 four 8 billion in the enterprise channel vertical.
David Wigan: Presenting 40% of revenues versus 43% last quarter.
This was up 55% year over year and up 62% quarter over quarter.
David Wigan: Driven by enterprise AI and CPU upgrade programs.
David Wigan: The OEM appliance and large data center vertical revenues were $2, one 5 billion, representing 59% of Q1 revenues versus 55% last quarter.
David Wigan: Up 75, 175% year over year, and up 83% quarter over quarter.
David Wigan: Two existing CSP slash large data center customers.
It presented 26% and 11% of total revenues for Q2.
David Wigan: Emerging <unk> telco edge, Iot revenues were $35 million or 1% of Q2 revenues.
David Wigan: Growth was driven by AI, GPU and rack scale total IC solutions, which again represented over 50% of total revenues this quarter with AI GPU revenues in both the enterprise channel and the OEM appliance slash large datacenter verticals.
David Wigan: Server and storage systems comprised 94% of Q2 revenue and subsystems and accessories represented 6%.
Asps increased on a year over year and quarter over quarter basis, driven by product and customer mix.
David Wigan: By geography, the U S represented 71% of Q2 revenues Asia, 18%, Europe, 8% and the rest of the world 3% on.
David Wigan: On a year over year basis U S revenues increased 139%.
David Wigan: Asia increased 98% Europe decreased 8% and the rest of the world increased 67%.
David Wigan: On a quarter over quarter basis U S revenues increased 61% Asia increased to 191% Europe increased 51% and the rest of the world increased 37%.
David Wigan: The Q2 non-GAAP gross margin was 15, 5%, which was down quarter over quarter from 17% as we continued to focus on winning strategic new designs and gaining market share.
David Wigan: Turning to operating expenses Q.
Q2, opex on a GAAP basis increased by 6% quarter over quarter.
David Wigan: 58% year over year to $193 million, driven by higher compensation expenses and head count.
David Wigan: On a non-GAAP basis, operating expenses increased 18% quarter over quarter, and 41% year over year to $153 million.
Q2, non-GAAP operating margin was 11, 3%.
David Wigan: Versus 10, 8% last quarter as we benefited from operating leverage driven by higher revenues.
David Wigan: Other income and expenses for Q2 was a net expense of approximately $16 million consisting of $8 million in interest expense and a loss of 8 million principally from foreign exchange.
David Wigan: Interest.
Expense increased sequentially as we drew down on short term bank credit facilities for working capital during the quarter.
David Wigan: The tax provision for Q2 was $61 5 million on a GAAP basis, and $71 1 million on a non-GAAP basis.
David Wigan: The GAAP tax rate for Q2 was $17 three and the non-GAAP tax rate was 17 eight.
David Wigan: Q2, non-GAAP diluted EPS of $5 59 <unk>.
David Wigan: Exceeded the high end of our initial guidance of $4 40.
David Wigan: To $4 88.
David Wigan: And slightly above our recently updated guidance of $5 40 to $5 55.
David Wigan: Due to operating leverage.
David Wigan: Cash flow used in operations for Q2 was $595 million compared to cash flow generated by operations of $271 million during the previous quarter.
David Wigan: Strong profitability and a higher level of accounts payable was offset by higher inventory and accounts receivable due to build plans for Q3 and the timing of shipments during Q2.
David Wigan: Capex was $15 million for Q2, resulting in negative free cash flow of $610 million.
David Wigan: Positive free cash flow of $268 million last quarter.
During the quarter, we executed an equity offering and raised approximately 583 million in net proceeds after underwriting discounts and other issuance costs from the sale of $2 3 million shares at a price of $2 62 per share.
David Wigan: Proceeds will be used to strengthen our working capital enabled continued investments in R&D and expand global capacity to fulfill strong demand for our leading platforms.
David Wigan: The closing balance sheet position was $726 million, while bank debt was $376 million, resulting in a net cash position of $350 million versus a net cash position of $397 million last quarter.
David Wigan: Turning to the balance sheet and working capital metrics compared to last quarter the.
David Wigan: Q2 cash conversion cycle was 61 days versus 86 days in Q1.
Days of inventory decreased by 24 days to 67 days versus the prior quarter of 91 days due to the timing of shipments during the quarter.
David Wigan: <unk> sales outstanding was down by 14 days quarter over quarter to 29 days, while days payables outstanding decreased by 13 days to 35 days.
Now turning to the outlook, we expect a strong march quarter to quarter as we continue to gain momentum with new and existing customers for our AI and rack scale total solutions.
David Wigan: For the third quarter of fiscal 2024, ending March 31, 2024, we expect net sales in the range of $3 7 billion to $4 1 billion.
David Wigan: GAAP diluted net income per share of $4 79 to $5 64.
David Wigan: And non-GAAP diluted net income per share of $5 20 to $6.01.
David Wigan: We expect gross margins to be slightly lower than Q2 levels.
GAAP operating expenses are expected to be approximately $201 million and include $39 million in stock based compensation expenses that are not included in non-GAAP operating expenses.
David Wigan: The outlook for Q3 of <unk>.
David Wigan: Fiscal year 2024 diluted GAAP EPS.
David Wigan: <unk>, approximately $28 million and expected stock based compensation expenses.
David Wigan: Net of tax effects of $14 million, which are excluded from non-GAAP diluted net income per common share.
David Wigan: We expect other income and expenses, including interest expense to be a net expense of approximately $9 million.
The companys projections for Q3, GAAP and non-GAAP diluted net income per share.
David Wigan: Our GAAP tax rate of 13, 8%.
David Wigan: non-GAAP tax rate of 15, 8%.
David Wigan: And our fully diluted share count of $60 1 million for GAAP.
$61 million for non-GAAP.
David Wigan: We expect Capex for Q3 to be in the range of $18 million to $21 million and a range of $105 million to $115 million for the fiscal year 2024.
David Wigan: For the fiscal year 2024, which ends June 32024, we are raising our guidance for revenues from a range of $10 billion to $11 billion to a range of $14 three to $14 7 billion.
Speaker Change: Michael we're now ready for Q&A.
Speaker Change: Paul.
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Speaker Change: Our first question is from George Wang with Barclays. Your line is now open.
Patrick Wang: Hey, Hey, guys congrats on the quarter and a strong guide I have.
Patrick Wang: Two questions Firstly can.
Patrick Wang: Can you talk about kind of supply versus demand.
Obviously for the December quarter.
Patrick Wang: They're probably driven by both kind of improving supply and also strong demand. So if you can maybe you can talk all backlog level and also on the supply side.
Patrick Wang: Still ongoing constraints right now.
Speaker Change: Yes. Thank you I had a question indeed.
Speaker Change: <unk>.
The men's feels stronger than surprise you.
We have a more surprise.
Speaker Change: Be able to ship them, all and we have been happy to.
Speaker Change: We continue to grow our capacity.
Speaker Change: Okay.
Speaker Change: Peter is even higher.
Speaker Change: So to go Lumpiness even quicker.
Speaker Change: Okay. Thank you and a quick follow up just on the liquid cooling.
You talked Paul kind of extending to 1500, Iraq pulled months. After June this year and maybe you can talk about your expectation for the total production mix from liquid cooled racks by year end.
Speaker Change: Also maybe you can.
Speaker Change: Talk about kind of the difference.
Speaker Change: The table within the liquid cooling.
Speaker Change: You guys have done some emotion cooling and air to liquid cooling. So maybe you can double click on this.
The medical topics going forward.
Speaker Change: Yes. Thank you George for the question indeed that the recruiting.
Deep in the industry. So we have a huge capacity.
Speaker Change: And have a very mature total solution ready, but also customer.
Speaker Change: Eroded decoding, but they update us into needed some more time to <unk>.
Speaker Change: Slide show.
Speaker Change: Neither some more time, so we believe I think we're putting we're happy that trend and we continue to make ourselves.
Speaker Change: And tie our base to support our customer.
Speaker Change: <unk> provided some have put out data center English slideshow, So I believe.
Speaker Change: Dave recruiting puts and he will come down to below <unk>.
Speaker Change: At this moment most of the ship in steel.
Speaker Change: Alcoa.
Speaker Change: Okay, great. Thank you I'll go back to the queue.
Speaker Change: Okay.
Speaker Change: Our next question is from <unk> <unk> with Jpmorgan. Your line is now open.
Hi, Thanks for taking my questions and.
Jpmorgan: Congrats on the strong result to maybe if I can just start with the gross margin.
Jpmorgan: You did have a step down here in Q youre guiding to a slight moderation from <unk>, maybe just help me understand as a management team. How do you think about balancing the opportunities that you're calling for in terms of market share wins and design wins.
Jpmorgan: Sort of.
Jpmorgan: Growing profitably over the long run how you sort of.
Evaluating those opportunities site by site and then I have a follow up thank you.
Speaker Change: Sure. Thanks, Smedes, so when we when we win a new customer we always try to go in and out and so we go into the end of the organization and tried to spread out and to a different divisions.
So in order to do that as we take on new customers, we do evaluate and try to try to win the business.
Speaker Change: Requires us to be competitive.
So we always are balancing and the <unk>.
Speaker Change: List of shareholder value.
To maximize that and so at this time.
Speaker Change: We are we are growing really quickly and in order to do that.
Speaker Change: Order to take market share and we will take opportunities.
Speaker Change: Bye bye.
Being more competitive on pricing.
Yes.
Speaker Change: Now Christian.
Speaker Change: One we continue to grow our economic of scale operation margin in Cid.
Speaker Change: Steel able to Cuba in a healthy position.
Christian: Okay got it.
And then just.
Christian: Near term question when I look at the revenue guidance.
Christian: Yeah.
Christian: There's a step up.
Christian: In revenue of about sort of call it half a billion of it less going from <unk> and then a bigger step up to get to the midpoint to be and we'll guide for Q. How much of that is driven by just being a bit more cautious about when supply comes in pushing back the revenue guide a bit more to the floor.
Christian: Or is that really what the visibility currently dose you in terms of supply I'm, just trying to get sort of what's driving the cadence from <unk>.
Christian: <unk> with the guide that you provided.
Yeah. So.
Christian: So we have we have a very large and growing backlog, which grew again this quarter and so so really.
As Charles mentioned earlier are only are only.
Christian: Constraint is supply however, the good news is that supply is improving.
Christian: So to your point, we have to be.
Christian: Somewhat conservative because we are constrained by supply.
Speaker Change: Okay. Thank you thanks for taking my questions.
Speaker Change: Our next question is from Newhall Chachi with Northland. Your line is now open.
Speaker Change: Yes.
Okay.
Nehal Sushil Chokshi: Yes, thanks, and great impressive great guidance.
Nehal Sushil Chokshi: Explanation regarding the dynamic on the forward guidance for both March quarter puts a treat to guide.
Nehal Sushil Chokshi: Looking at the incremental revenue for the December quarter.
Nehal Sushil Chokshi: David you already alluded to this youre, making shareholder accretive decision.
Nehal Sushil Chokshi: So that's what's driving the tick down in the gross margin yet your operating margin has improved Q over Q.
Nehal Sushil Chokshi: Just to be clear.
Nehal Sushil Chokshi: When you're talking about making shareholder accretive decision.
Nehal Sushil Chokshi: It's still with respect to current revenue not just simply.
Looking at future.
Nehal Sushil Chokshi: Sure.
Nehal Sushil Chokshi: Free cash flows associated with it.
Nehal Sushil Chokshi: Future revenue fall off from these lower margin opportunities is that correct.
Nehal Sushil Chokshi: It's really about trying to return the most shareholder value. So back to your point, we know that with because of our.
Our tight control over operating expenses, if we get if we get more volume from a large customer we're going to be able to bring more EPS to our shareholders. So that's really the it's really the decision to partner with a really good customer.
Speaker Change: Got it Okay, and then did you review the 10% revenue customers for the quarter.
Well, we did where we said we had we had two one.
Speaker Change: 25 and 111.
Both in the <unk>.
Speaker Change: The CSP large data center vertical.
Speaker Change: Great. Thank you for taking my question I'll get back in the queue.
Speaker Change: Our next question is from Jon <unk> with CJS Securities. Your line is now open.
Jon: Hey, good afternoon. Thank you for taking my questions and really congratulations on the fantastic growth.
Charles My first question is for you I was wondering what gives you the confidence in the growth beyond this year, you mentioned in the ecosystem potentially years and decades of demand.
Jon: Whereas the visibility coming from what are you seeing in your backlog in your order books in any conversations with customers that gives you that confidence.
Charles: Yes. Thank you for the question, yes, I mean other than their identity.
Charles: London.
Charles: Goodbye and casino the global very strong our infancy.
Charles: Opportunity in.
Charles: Jim.
Charles: CPU customer based also growing so.
Charles: AI container to be more popular in feed.
Charles: <unk> political around that we'll need a more information solution as well.
Including that.
Speaker Change: Private call.
Speaker Change: <unk> probably be the end.
Speaker Change: The data center and even pushing on that yeah. So we are approaching continue to grow.
Speaker Change: Okay, and kind of direction and we see.
Speaker Change: Positive feedback.
Speaker Change: Commission feedback.
Speaker Change: Got it.
Speaker Change: One of the questions that I mentioned in a different way is there a gross margin floor as you pursue this share gain and when do you see a possible inflection just.
Speaker Change: Just wondering what is the limit.
Then when you go in terms of gaining share versus the margin that you're generating.
Speaker Change: Sure. So we set out a target back in.
Speaker Change: March of 2021.
Speaker Change: 14% to 17, but that's and we've actually done done pretty well against that target, but one thing I'll say is that we have a lot of there's a lot of initiatives that play into our favor. Our number one we're doing a lot in terms of expansion to lower our cost envelope and number two.
Speaker Change: We are our advantage is our building block solutions and what that means is we're the fastest to market because of the way that we've architected our products. So what that means is there's a lot of new technologies that are coming out.
<unk>.
Speaker Change: Many different technology providers.
Speaker Change: And we expect to again.
Speaker Change: As we were with AI be first to market with those.
And that first to market advantage helps us helps to differentiate ourselves as we come out with a complete set of solutions. So we think that's another thing that will that is always going to play to Super Micro's advantage, yes.
Especially we have is so broad bidding bulk solution. So.
Speaker Change: Economic of scale, we are have been in both solution to be more efficient cars.
Speaker Change: They have lots of.
Speaker Change: And our volume.
Speaker Change: Steel in the middle sized with small size of the volume.
And we deserve and will continue to be aggressive.
Speaker Change: To go to see every segment every vertical we have a healthy economic of scale.
Speaker Change: Okay, great. Thank you I will jump back in queue.
Speaker Change: Our next question is from Quinn Bolton with Needham Your line is now open.
Quinn Bolton: Thanks for taking my question, let me Echo the congratulations on the very strong results I guess I wanted to say that gross margin question too.
Quinn Bolton: Obviously, it's moderated here in the current quarter and the forward quarter.
Quinn Bolton: As you guys position yourself for further market share gains I guess my question is.
What's sort of the midpoint of that 14% to 17% level that you set back in 'twenty. One is that sort of the right level to be thinking about as you guys stay aggressive and try to drive market share gains and maybe sort of a twist on the question you are to the extent that.
Quinn Bolton: Supply catches up to demand.
Quinn Bolton: And growth rates slow, which you then start to focus more perhaps on higher margin business, just any any sort of thoughts were on that 14% to 17% range.
Margin may trend over the next year or can be helpful.
Speaker Change: Yes for sure.
Speaker Change: Mostly important principle.
Speaker Change: With a base therefore shareholder for the company. So, although we set of 14% to 17% range in 2021, but and that change and therefore, the adjustment will be the basis of a shareholder we went through that change.
And we are carefully evaluating that range kind of monthly.
Speaker Change: Okay got it and then Charles question on liquid cooling just so you can look forward you guys are ready it sounded like the infrastructure may still need some some improvements, but I guess as you look at that.
Charles: Data center customers <unk> teams that are looking to deploy liquid cooling is that sort of does that include current generation 700 Watt Gpus or is it really the next generation to be one hundreds in sort of the 1000 Watt GPU class that really drives the adoption at.
At CSP customers.
Charles: It drives that need for liquid cooling.
Charles: Right and B the current 600 700.
Right.
Charles: Module people can still pick hail Mary, where we saw air condition and Thats why people feel comfortable with that traditional alcoa, but when.
Charles: Our system growth.
Charles: 1000, or even one at 1000 watt per module, yes, I mean, I think we could even become even much more critical so by that time I believe Dave.
Charles: That's the most of that they lost in the web facility.
Speaker Change: Good day for day.
Speaker Change: We are very optimistic and being patient to continue improve our quality, especially that readability and easy implement tenants. So when customers are ready we gained dwayne perhaps quickly could supplier today.
Speaker Change: Excellent. Thank you.
Speaker Change: Thank you for that question.
Our next question is from Aaron Rakers with Wells Fargo. Your line is now open.
Yes, thanks for taking the questions and also good.
Aaron Christopher Rakers: Great results.
Aaron Christopher Rakers: Just curious when you talk about your customer concentration in the diversity of the business when you talk about 26% and 11% of.
Of your revenue coming from two customers or are those the same customers like last quarter. I think you had a customer that was 25% or are you seeing these customers kind of bounce around I guess the simple question is is that the same customer that $26 25.
So so erin.
The 26% customer is the same customer, but the 11% customer is not a new customer and it's a longer term customer, but first time in 11% and two to your point, yes, we do see a bouncing in and out and we're very happy.
Anytime anytime they do bounce about by the way.
Speaker Change: Yes, and that's why the economics of scale is very important to us when we further grow our total revenue we will have a more larger scale.
Speaker Change: Scale customer and more minerals side, and so most of the customer as well.
Speaker Change: Yes.
Speaker Change: As a quick follow up I'm, just curious as we look at the AI kind of evolution from here, there's a lot more kind of product diversity itself coming out B 100, G. H 200, Amd's product lineup as you think about the growth going forward would you say that the growth is more ASP expansion driven as we think.
About these next generation platforms or does diversity drive more of the growth being driven by unit volume growth and I'm. Just curious on how you would kind of characterize the growth driver from here going forward on those.
Speaker Change: Those two.
Speaker Change: <unk>.
I guess in next few years, our gross Webby quickly in some of them, but so the volume growth will be quicker than that ESP because the last two years <unk> been Columbia anyway.
Speaker Change: A lot right. So the next day, but I guess that youll need a number.
Speaker Change: Volume growth.
Speaker Change: Foster.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Our next question is from PURA with loop capital. Your line is now open.
PURA: Yeah, good afternoon, guys and.
PURA: Thanks for taking the question I appreciate it.
PURA: And congrats on the really solid execution.
PURA: Yes, congrats on that.
PURA: I guess, Joe if I could Charles.
PURA: Maybe maybe a clarification I did I did some math on the 15000 rack for months.
PURA: And I came up less I.
I guess $5 6 billion.
PURA: Call. It five five I guess plus or minus $5 6 billion is is that is that kind of accurate and I guess the question is.
PURA: If it's sort of mid year, you were talking about getting to that point is that the kind of run rate opportunity that we can be thinking about quarterly and not let the guidance like an opportunity when you get into sort of the back half of the calendar year, just wanted to make sure that that we're interpreting that kind of a.
Speaker Change: Accurately and then I have a quick follow up thanks.
Speaker Change: Yes again.
Speaker Change: We say.
Speaker Change: Mega Green comes within everywhere that's why.
Speaker Change: <unk> will enable we can have a customer base that we will not is why we have been building that really.
<unk> scale.
Positive I think recruiting and other green computing solution.
Speaker Change: Yeah, so that capacity will be huge but.
Speaker Change: It's a capacity out when customer need we are ready.
Speaker Change: And indeed, all facility also very flexible.
Speaker Change: Lots of CVD can support a dip recording and Alcoa a combination cooling so.
Speaker Change: Yes, we have a huge capacity ready for growth, but not necessarily overall degree cooling days Dakota aircrew, all combination hybrid cooling as well.
Awesome awesome. Thanks for that and then could you guess I guess the follow up is you guys have mentioned a couple of times on the call today sort of new customers as part of.
Speaker Change: And I think I think Charles your your words were accelerating growth and so any any complexion, I guess any sort of any context on the new customers.
Speaker Change: As you are wrapping in Q.
Speaker Change: Run rate kind of would be useful.
Speaker Change: Anything about them likelihood.
Speaker Change: Kind of industry, I guess I sort of industry project.
Speaker Change: Anything like that would be helpful.
Thanks.
Speaker Change: Thank you.
Speaker Change: We spend it also April to make our sales.
Process and operation positive.
Speaker Change: So this proposal be automatic so those auto mentioned season pass sales for adoption.
Speaker Change: So Paul really nudge, our capacity and Thats why we have a capacity to approach.
Speaker Change: The mall customer now so.
Speaker Change: We need the economical scale because it didn't come on scale.
Speaker Change: Put into our operation margin in <unk>.
Speaker Change: So.
Speaker Change: Yes, we are ready to grow much quicker EBIT.
Yeah, that's super helpful. Okay, guys. Thanks, a lot congratulations.
Speaker Change: Thank you.
Speaker Change: Our next question is from John <unk> with CGS Securities.
John: Your line is now open.
Hi, Thank you for the follow up I was just wondering if there is any changes to your opex growth formula it's been on a trailing basis.
Less than half of our revenue growth is.
John: As you as you grow bigger and when do you expect to run against any limits and supporting such a large customer base and potential customer base or are you getting more economies of scale is even larger with that.
Speaker Change: Yes, Indeed, we have been.
Speaker Change: A small volume company for total.
Speaker Change: Okay. So I'll, let him start to grow in the kind of good economic of scale. That's recently and we like to take a needs to continue and grow our economies of scale. So we're not all economic of scale grow with diabetes, you automation system again for sales for operation emphasis.
Speaker Change: And that's why I mean.
Speaker Change: We are in good position to.
<unk> growing quickly.
Speaker Change: Yes.
Speaker Change: Okay, Great and then I was just wondering at the rate of growth that Youre seeing.
Speaker Change: Do you expect to need more external financing I know you talked about other sources of.
Speaker Change: Cash I'm, just wondering if youre going to the debt markets. What the plans are to finance this growth.
Speaker Change: Yes.
Speaker Change: And the team have been very diligent working now.
Speaker Change: Most of those especially try to minimize the diluted.
Speaker Change: Our equity so we have our Menin program.
Speaker Change: Kind of a way of Saudi in great detail. So when we need the more capital we already David <unk>, Matt Yeah. So I'll just echo what Charles said, we're looking at a number of different things John and.
Matt: But we are mindful of not having further dilution as Charles said.
Matt: So were we.
Matt: We're looking at a number of different opportunities and the reason that we have two is because we need more working capital for growth and the reason that our cash flows.
Matt: Did not were not as strong as last quarter was simply because we grew by so much.
So if you when you grow by over $1 billion.
In a quarter you've got to you've got to have additional working capital. So that's that.
Matt: That's the plain and simple fact inventory had been growing more than $1 billion yeah.
Matt: Right.
Matt: And we're continuing to grow.
Speaker Change: Got it thank you very much.
Northland: Our last question will be from the haul truck sheet with Northland. Your line is now open.
Northland: Oh, great. Thanks for the follow up question and I actually have two follow up questions.
Northland: First at the September quarter earnings call. I believe you guys said the capacity was around $18 billion. That's up from 15 billion as of June 2023 quarter.
Speaker Change: What's the driver of that actually increase capacity or increase ASP.
Speaker Change: And then.
Speaker Change: In relation to that you're.
Full your guidance that implies June two guidance of around $4 $7 billion that implies that your annualized capacity has reached 19 billion.
Speaker Change: So as your capacity is increasing is this largely a mixed driven.
Speaker Change: Like for like ASP, driven or have as your capacity actually gone up prior to Malaysia coming online.
Speaker Change: Yes.
Our ASP will gradually.
Speaker Change: <unk> continued to grow by at unit the number will grow much faster than the <unk>. So that's why we need more capacity.
Speaker Change: One thing I'll add there who is it in December we shipped over 171 8 billion and so that.
Speaker Change: That alone establishes a $19 billion.
Speaker Change: Capability.
Speaker Change: Okay.
Speaker Change: And then my other question is that.
Speaker Change: Typically going into the March quarter.
Speaker Change: Revenue was seasonally down here with you regarding ended up to be up Q O Q.
Speaker Change: Usually when the revenue is down seasonally core quarter. Your cash conversion cycle goes on a Q O Q basis.
Speaker Change: March quarter, how it because youre projecting our Q2 revenue increase does that change your expectations on cash conversion cycle seasonality dynamics.
Speaker Change: Go ahead, yes, because of that demand.
Speaker Change: It is very strong so we believe this.
Speaker Change: March quarter will be.
Speaker Change: Strong quarter as well.
Speaker Change: David you have anything to add to that.
David Wigan: Yeah, so it really comes down to.
David Wigan: Timing.
When we receive inventory and.
When we ship out so.
David Wigan: As I mentioned in the December quarter, you can have big you can have a big activity, even within a month within the quarter and so that will affect that.
David Wigan: That will affect your metrics.
David Wigan: Okay.
David Wigan: Talking about the December quarter, your cash conversion cycle was actually a lot better than what we had expected and yes I recognize there was a.
Consumption of cash, but it was at least a lot better than what we had expected was that actually better than what you had expected given the significant revenue upside that you delivered here.
Speaker Change: Yes, it absolutely was yes, yes, we had some.
Some customer prepayments and things.
Speaker Change: Is that.
Speaker Change: Yes.
Okay all right.
So an economical scale grow we can more efficiently leverage our inventory as well.
Speaker Change: Right, Okay, great Congrats guys. Thank you.
That concludes today's conference call. Thank you all for your participation you may now disconnect your line.
Speaker Change: Thank you.