Q3 2024 Super Micro Computer Inc Earnings Call
Operator: Thank you for standing by. My name is Joel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Super Micro Computer Fiscal Q3 2024 Results on April 30, 2024. With us today are Charles Liang, Founder, President, and Chief Executive Officer, David Weigand, CFO, and Michael Staiger, Vice President of Corporate Development.
Thank you for standing by my name is Joe and I'll be your conference operator today at this time I would like to welcome everyone to the Super Micro computer fiscal Q3 2024 results on April 32020 for it.
Joe: With us today, Charles Liang founder, President and Chief Executive Officer, David Weekend, CFO, and Michael Staiger, Vice President of corporate development all.
Operator: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to queue for a question during today's call, you can do so by dialing star one.
Speaker Change: 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'd like to queue for a question. During today's call you can do so by dialing star one thank.
Thank you.
Michael Thomas Staiger: Good afternoon, and thank you for attending Super Micro's call to discuss financial results for the third quarter, which ended March 31st, 2024. With me today are Charles Liang, Founder, Chairman, and Chief Executive Officer, and David Weigand, Chief Financial Officer.
Speaker Change: Good afternoon, and thank you for attending Super Micro's call to discuss financial results for the third quarter, which ended March 31, 2024 with me today are Charles Liang founder Chairman and Chief Executive Officer, and David Weekend, Chief Financial Officer by now you should have received a copy of the news release and the company that was distributed at the close of regular trading and is available on the Companys web.
Michael Thomas Staiger: 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 company's website. 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 have 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 regarding revenue, gross margin, operating expenses, and other income and expenses, taxes, cap allocation, and future business outlook, including guidance for the fourth quarter of fiscal year 2024 and the full fiscal year 2024.
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.
Speaker Change: Under the Investor excuse me under the events and presentations tab, we have published management stripping 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 regarding revenue gross margin operating expenses other income and expenses taxes capital allocation and future business outlook, including.
Guidance for the fourth 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 press release, we issued earlier. This afternoon. Our most recent 10-K filing for fiscal 'twenty, three and our other SEC filings.
Michael Thomas Staiger: There are a number of risk factors that can cause Supermicro's future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our most recent $10K filing for fiscal 2023, and our other SEC filings. All these documents are available on the investor relations page of Super Micro's website. We assume no obligation to update any forward-looking statements.
Speaker Change: 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 for an explanation of our non-GAAP financial measures. Please refer to the accompanying presentation or to our press release published earlier today. In addition, a reconciliation.
Michael Thomas Staiger: Most of today's presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation or to our 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.
Speaker Change: 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, you will have a Q&A session for sell side analysts to ask questions I'll now turn the call over to Charles.
Charles Liang: Thank you, Michael, and good afternoon, everyone. We achieved another record-breaking quarter with a revenue of $3.85 billion, a 20% increase from the same time last year. In the down gap, earnings per share of $6.65 at more than $3.85 billion, 308% year-on-year.
Charles Liang: Thank you Michael and good afternoon, everyone.
Charles Liang: We achieved another record breaking quarter with revenue of three point a fly vignette.
Charles Liang: 20% increase from the same.
Charles Liang: 7000 last year and non-GAAP earnings per share.
Charles Liang: $6.
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Charles Liang: Super Micro is at full form for the current AI revolution. These strong results reflect the continued demand for our large-scale project plan, Total AI Solution. We continue to face some supply chain challenges due to new products that require new key components, especially liquid cooling, DLSE-related components, and believe this situation will gradually improve in the coming quarters. To sustain this rapid growth, we are making significant investments in production, operation, management software, cloud features, and customer service to further increase our customer base and bring more value to them.
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Charles Liang: Full problem or a current day AI Revolution.
Charles Liang: This strong readouts would be frankly of the continued demand for our rack scale project in.
Charles Liang: Total AI solutions.
Charles Liang: We continue to face.
Place some supply chain challenges due to new products that require new key components, especially.
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Charles Liang: Zip coding.
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Charles Liang: These situations, where what age or improve in the coming quarters.
Charles Liang: To sustain this great. Peter grows we are making significant investment in production operation mandated Minnesota layout cloud features and customer service to further increase our customer base and put in more value to them.
Charles Liang: To support this scale-up, we raised an additional $3.28 billion through a convertible node and secondary equity offering in the quarter. We'd like to support strong short- and long-term growth with minimal equity dilution. Overall, I remain optimistic that AI growth will continue for many quarters, if not many years to come. We have long recognized that AI is accelerating the need for deep coding.
Charles Liang: To support these scale.
Charles Liang: In addition, Australia.
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Charles Liang: <unk> supporters strong short and long term growth with minimal equity dilution.
Charles Liang: So I remain optimistic that growth will continue for many quarters, if not many years to come.
Charles Liang: We have long recognized that AI is accelerating the need for quoting and we have invest heavily into.
Charles Liang: And we have invested heavily in high-quality, optimized, directly-coding DLLC solutions for high-end CSPs and NCPs. With GPUs reaching 700 watts and some more than 1,000 watts, efficiently managing the heat from this AI system has become critical for many customers, especially as a new data center. I am pleased to announce that our new TNLC, liquid cooling, spinning blocks, and large-scale total solution technology are finally fully ready for high-volume production with our DLC liquid cooling technology.
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Charles Liang: With GPU, reaching 790 watt and a sudden more than one southern what ifs.
Speaker Change: Isn't that a managing that heat.
Speaker Change: This AI system had become critical for many customers, especially as a new data centers.
Speaker Change: I'm pleased to announce that our new D C I think recruiting.
Speaker Change: When it broke and breadth scale total solution is an outage.
Speaker Change: Finally, we're already ready for high volume.
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Speaker Change: With our.
Speaker Change: So you couldn't pick on outage customer can do as they are expense on coding expense saving data center space and allocated a greater portion of they are finite powered resource to computing and the state of accordion, which.
Charles Liang: Customers can reduce their cooling expenses, saving data center space, and allocate a greater portion of their finite power resources to computing instead of cooling, aligned with our green computing DNA whale. Now, let's go over some key financial highlights. Super Micro is pleased to be included in the prestigious S&P 500 Index last quarter. Basically, Q3, net revenue total $3.85 billion, up 200% year-on-year, within our aggressive original guidance of much code, is not limited by some key components. We could have delivered more.
Speaker Change: At nine we used our green computing DNA way up.
Speaker Change: Now, let's go over some key financial highlights.
Speaker Change: Well, Michael the press.
Speaker Change: To be included in the police Tejas.
Speaker Change: S&P Plaza impacts last quarter.
Speaker Change: Physical Q3, net revenue totaled <unk> 85 up to 100% E. L F.
Speaker Change: Within our aggressive original guidance.
Speaker Change: March quarter.
Speaker Change: Even not limited by some key component shortage, we could head deliver more.
Charles Liang: Physical Q3 did get an earning of $6.65 per share, for well above $1,063 last year, which was about 308% year-on-year growth. Our increasing economy of scale contributed to better profits. Awaiyia o Waiyia, Operating margin and net income both continue to improve, and we continue to expect, for their benefit as we bring our Malaysia facility online later in this calendar year. This fast-growing quarter was driven by end-users wanting to accelerate their deployment of the latest generation AI platform.
Speaker Change: Basically Q3 doesn't get earning $6.65 per share.
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Speaker Change: Increasing.
Speaker Change: Pardon me of scale contributed who basically made a policy.
Speaker Change: Our year over year.
Speaker Change: Operating margin and net income both continued to improve and we continue to expect.
Speaker Change: A further benefit as we put in our Malaysia facility all my data in this calendar year.
Speaker Change: This part of the Golden quarter was driven by end user wanting to accelerate and theyre, putting them in all of the debt.
Speaker Change: <unk> PS generation AI.
Speaker Change: Grateful.
Charles Liang: Through our building block solution, we provide optimized AI solutions at scale, offering a time-to-market advantage and shorter lead time over our competition. Additionally, our large-scale plug-and-play total solutions, especially with liquid cooling, BLC, ensure optimal system performance while saving energy costs up to 40% at a data center scale, delivering much more value to customers. We are leading the AI revolution by deploying NVIDIA HGX H100 cheaper cluster solutions to our customers, housed in our new 100kW rack, with two to three times higher power density than traditional racks from others.
Speaker Change: So our PDP broker solution, we provide optimize the air solution at that scale opening that time to market advantage and.
Speaker Change: Go to the time over our competition.
Speaker Change: Additionally, our drive scale project total solutions as it basically.
Speaker Change: Decoding D N.
Speaker Change: Let's see ensure optimal system performance, while saving the NRG coast up to 40% at the.
Speaker Change: Demonstrating the scale.
Speaker Change: Delivering much more value to customers.
Speaker Change: We are leading the AI the evolution by deploying Nvidia <unk>, she will cost us solutions to our customers.
Speaker Change: Household in our new funding the Ky racks.
Speaker Change: Two to three times higher power density than traditional racks from others.
Charles Liang: At NVIDIA GTC last month, we unveiled our next generation black whale product, including the GB200MVL72 solution. To further grow our AI portfolio, we are now strongly focusing on delivering new generative AI and inferencing optimized systems based on the upcoming next-generation NVIDIA H200, B100, B200, GH200, and GP200 GPUs, as well as Intel Gaudi II, Gaudi III, Most of them support both air cooling and PLRC cooling.
Speaker Change: As I Nvidia GTC last advice.
Speaker Change: Our next generation Frac, well pull backs, including that GBP 200, and we at all 72 seven wishes.
Speaker Change: To further grow our portfolio, we are now strongly focusing on delivering neogen or deep AI and.
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Charles Liang: Super Micro is transitioning to our next generation of X14 and H14 product lines, featuring the interchangeability of Intel's Xeon-6 processor base and AMD's tubing base platform. We are fully ready for high-volume production and offer early online access for testing and validation through our Jumpstart cloud service. Meanwhile, our X14 and H14 storage solutions are addressing the specific requirements of accelerating the AI data pipeline with partners like Zika and, and many others. The growth of our business is raising the complexity to scale out.
Speaker Change: Super Micro is a transition into our next generation of X.
Speaker Change: I guess 14 and edge coating product lines, featuring the interchange the Powerpc Skus of Intel Xeon six.
Speaker Change: Also as a base and A&P tooling pace putting forms.
Speaker Change: We are really ready for high volume propulsion and awful early on that in excess for testing and validation through our jumpstart.
Speaker Change: Cost of service.
Speaker Change: Meanwhile, our X 14, and etch floating storage solutions.
Speaker Change: Jason the specific requirements of accelerating the AIA data pipe a ninth with partner like <unk>.
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Speaker Change: And.
Speaker Change: Our base.
Speaker Change: Invested ha and man hours.
Speaker Change: The rapid growth of our business is raising the complexity to scale out.
Speaker Change: Capacity, our production team are making a great progress.
Charles Liang: Our production team is making great progress on re-stocking the new Silicon Valley facility and scaling up our Taiwan and Malaysia factories. We have secured the path and acquired additional warehouse space for our next phase of enterprise and data center business. We are currently on track to produce over 2,000 deep-cooling DLSC racks for months of AI server with volumes steadily increasing. Each DL0x supports up to 100 KW or even 120 KW.
Speaker Change: Three chopping, the new Silicon Valley facility and scale, our Taiwan and Malaysia factories.
Speaker Change: We had secured the paths and.
Speaker Change: Acquire additional warehouse for our next phase of the enterprise and data Center business.
Speaker Change: We are currently on track to produce over 2000.
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Speaker Change: Absolutely.
Speaker Change: Volume.
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Charles Liang: At this moment, we are focusing on delivering more than 1,000 racks of NVIDIA HGX-AI supercomputers. HRAC supports 64-piece H100, H200, or B200 GPUs, which is a database, C-A-R-O-C, Indicative Coding Technology, to three industry-leading customers from April to June of this quarter. These three deployments will be among the world's largest DRSC-recruiting AI clouds, potentially saving our customer up to 40% of energy costs compared to standard air-cooled deployments by our competition. A special thank you to NVIDIA and our close technology partners for this fantastic collaboration. I believe this is just the beginning of our long-term high-volume liquid cooling mission. Green computing can be free with a big bonus. Let's go green.
Speaker Change: At this moment, we are focusing on delivering more than 1000 blacks Nvidia edge AI she woke up good.
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Speaker Change: From April to June of this quarter.
Speaker Change: This is to really put humans will yet be amanda or this largest DLC recruiting AI clouds.
Speaker Change: Potentially saving our customer up to 40% of energy coast compare the two standout alcoa deployment by our competition.
Speaker Change: Special Thank you to eat Nvidia and our economic Department for this fantastic collaboration.
Speaker Change: I believe this is just the beginning of our long term high bohrium.
Speaker Change: C link recruiting Michelle.
Speaker Change: Putting computing can be free we saw a big bonus.
Speaker Change: Gulf of Green.
Charles Liang: In summary, we have a strong quota, with more to come. Super Micro is uniquely capable of delivering new technologies to market faster with our integrated rack-scale program place that we engineer in-house, building block architecture, and building computing DNA. With a robust pipeline of new products in calendar year 2024, we are confident fiscal Q4 revenue will be in the range of $5.1 billion to $5.5 billion. This will raise our fiscal revenue guidance to $14.7 billion to $15.1 billion, an increase over our recent fiscal 2024 guidance.
Speaker Change: In summary, we had a strong quarter.
Speaker Change: More to come.
Michael Thomas Staiger: Michael It's <unk>.
Speaker Change: Equally capable of evolving.
Speaker Change: New technologies to market faster with our integrated rack scale program in place that wishes in house Engineering building broke architectural and Green computing DNA.
Speaker Change: We said robust pipeline of new products in calendar 2024, we are confident critical Q4 revenue will be in that range of $5 1 billion to $5 billion. This weird raised our fiscal <unk> revenue guidance to 14 point.
Speaker Change: So I wont beat into 15, putting $1 billion.
Speaker Change: An increase to our recent physical 2020 for guidance.
Charles Liang: We continue to win market share and remain committed to executing our growth plan across all body codes. This remains truly the most exciting time yet for Super Micro, and I believe this strong year-over-year growth will continue in our fiscal 2025, especially with our new leading and ready-to-ship DLC liquid cooling large-scale plug-and-play solution and technology. Before passing the call to David Weigand, our Chief Financial Officer, I want to thank you again to our partners, our customers, our employees, and our shareholders for your strong support. Thank you. Thank you, Charles.
Speaker Change: They know how to win market share and remain committed to our.
Speaker Change: Executing our growth plan across all verticals.
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Speaker Change:
Speaker Change: Rubin truly the mostly because I didnt time, yeah of course, Evo Banco and I believe this strong year over year growth will continue in our fiscal 2025.
Speaker Change: Especially we saw a new VP in and ready to ship.
Speaker Change: Rusty.
Speaker Change: Excluding rack scale plug and play solution and technologies.
Speaker Change: What pension cool that code to a baby wagon.
Speaker Change: Our Chief Financial Officer, I want to thank you again to our partner, how our customer our employees and our shareholders for your strong support.
Speaker Change: Thank you Charles.
David E. Weigand: Fiscal Q3 2024 revenues were $3.85 billion, up 200% year-over-year and 5% quarter-over-quarter. Q3 growth was again led by AIGPU platforms, which represented more than 50% of revenues with AIGPU customers in both the enterprise and Cloud Service Provider Market. We expect strong growth in Q4 as the supply chain continues to improve with new air-cooled and liquid-cooled customer designs.
Speaker Change: Fiscal Q3, 2024 revenues were $3 85 billion.
Speaker Change: 200% year over year, and 5% quarter over quarter.
Speaker Change: Q3 growth was again led by AI GPU platforms, which represented more than 50% of revenues with AIG Btu customers in both the enterprise and.
Speaker Change: Cloud service provider markets.
Speaker Change: We expect strong growth in Q4 as the supply chain continues to improve with new air cooled and liquid cooled customer design wins.
David E. Weigand: During Q3, we recorded $1.88 billion in the enterprise channel vertical, representing 49% of revenues versus 40% last quarter, up 190% year-over-year and 26% quarter-over-quarter, driven by industry recognition of our solution price performance metrics and reliability. The OEM appliance and large data center vertical revenues were $1.94 billion, representing 50% of Q3 revenues versus 59% in the last quarter, up 222% year-over-year and down 10% quarter- One existing CSP large data center customer represented 21% of Q3 revenues, and one existing enterprise channel customer represented 17% of revenues.
Speaker Change: During Q3, we recorded $1 8 billion in the enterprise channel vertical representing 49% of revenues versus 40% last quarter.
Speaker Change: 190% year over year, and 26% quarter over quarter, driven by industry recognition of our solution price performance metrics and reliability.
Speaker Change: The OEM appliance and large data center vertical revenues were $1 94 billion, representing 50% of Q3 revenues versus 59% in the last quarter.
Speaker Change: 222% year over year, and down 10% quarter over quarter.
Speaker Change: One existing CSP large datacenter customer represented 21% of Q3 revenues and one existing enterprise channel customer represented 17% of revenues.
David E. Weigand: Emerging 5G telco edge IoT revenues were 37 million, or 1% of Q3 revenues. Server and storage systems comprised 96% of Q3 revenues, and subsystems and accessories represented 4%. ASPs increased on a year-over-year and quarter-over-quarter basis, by geography.
Speaker Change: Emerging five G telco edge Iot revenues were $37 million or 1% of Q3 revenues.
Speaker Change: Server and storage systems comprised 96% of Q3 revenue and subsystems and accessories represented 4%.
Speaker Change: Asps increased on a year over year and quarter over quarter basis.
Speaker Change: By geography.
David E. Weigand: The U.S. represented 70% of Q3 revenues, Asia 20%, Europe 7%, and the rest of the world 3%, on a year-over-year basis. U.S. revenues increased 242 percent, Asia increased 257 percent, Europe increased 30 percent, and the rest of the world increased 87 percent.
Speaker Change: U S represented 70% of Q3 revenues Asia, 20%.
Speaker Change: Europe, 7% and rest of world 3%.
Speaker Change: On a year over year basis U S revenues increased 242%.
Speaker Change: Asia increased 257% Europe increased 30% and the rest of the world increased 87% on a quarter over quarter basis U S revenues increased 3% Asia increased 17% Europe increased 3% and the rest of the world decreased 11%.
David E. Weigand: On a quarter-over-quarter basis, U.S. revenues increased 3 percent, Asia increased 17 percent, Europe increased 3 percent, and the rest of the world decreased 11 percent. The Q3 non-GAAP gross margin was 15.6%, up slightly quarter over quarter from 15.5% as we continue to focus on winning strategic new designs, gaining market share, and improving manufacturing efficiency. Q3 operating expenses, on a gap basis, increased by 14% quarter over quarter and 72% year over year to $219 million, driven by higher compensation expenses and headcount.
Speaker Change: The Q3 non-GAAP gross margin was 15, 6%.
Speaker Change: Slightly quarter over quarter from 15, 15, 5% as we continued to focus on winning strategic new designs, gaining market share and improving manufacturing efficiencies.
Speaker Change: Q3 operating expenses on a GAAP basis increased by 14% quarter over quarter, and 72% year over year to $219 million driven by higher compensation expenses and head count.
David E. Weigand: On a non-GAAP basis, operating expenses increased 8% quarter over quarter and 43% year over year to $166 million. Q3 non-GAAP operating margin was 11.3%, which was in line with Q2 levels. Other income and expense for Q3 was $3.8 million, consisting of $6 million in interest expense and a gain of $10 million principally from foreign exchange. Interest expenses decreased sequentially as we paid down short-term bank credit facilities.
Speaker Change: On a non-GAAP basis, operating expenses increased 8% quarter over quarter, and 43% year over year to $166 million.
Speaker Change: Q3, non-GAAP operating margin was 11, 3%, which was in line with Q2 levels.
Speaker Change: Other income and expense for Q3 was $3 8 million consisting of $6 million in interest expense and a gain of $10 million principally from foreign exchange.
Speaker Change: Interest expenses decreased sequentially as we paid down short term bank credit facilities.
David E. Weigand: The GAAP tax rate was negative 5.2%, resulting in a tax benefit of $20 million for Q3. The non-GAAP tax rate for Q3 was 6%, resulting in a Q3 tax expense of $27 million. GAAP and non-GAAP tax rates were lower due to the impact of higher R&D tax credits and tax benefits from employee stock grants exercised.
Speaker Change: The GAAP tax rate was negative five 2%, resulting in a tax benefit of $20 million for Q3.
Speaker Change: non-GAAP tax rate for Q3 was 6%, resulting in Q3 tax expense of $27 million.
Speaker Change: GAAP and non-GAAP tax rates were lower due to the impact of higher R&D tax credits.
Speaker Change: And tax benefits from employee stock grants exercised.
David E. Weigand: Q3 GAAP diluted EPS of $6.56 and Q3 non-GAAP diluted EPS of $6.65 exceeded the high-end of guidance through record revenues, stable gross margins and operating margins, and lower tax rates. The GAAP share count increased from 58.1 million to 61.4 million, and the non-GAAP share count increased sequentially from 59 million to 62 million shares as a result of the two stock offerings and, to Cash flow used in operations for Q3 was $1.5 billion compared to cash flow usage of $595 million during the previous quarter as we grew inventory and accounts receivable for higher levels of business.
Speaker Change: Q3, GAAP EPS diluted EPS of $6 56, and Q3 non-GAAP diluted EPS of $6 65.
Speaker Change: Exceeded the high end of guidance through record revenues stable gross margins and operating margins and lower tax rates.
Speaker Change: The GAAP share count increased from $58 1 million to $61 4 million and a non-GAAP share count increased sequentially from 59 to 62 million shares as a result of the two.
Speaker Change: Stock offerings and to a lesser extent the convertible bond offering.
Speaker Change: Cash flow used in operations for Q3 was $1 5 billion compared to cash flow usage of $595 million during the previous quarter as we grew inventory and accounts receivable for higher levels of business.
David E. Weigand: Cash flows from strong profitability were offset by higher inventory, a large portion of which was received late in Q3, and higher accounts receivable from increasing revenue. Our Q3 closing inventory was $4.1 billion, which increased by 67% quarter-over-quarter from $2.5 billion in Q2 due to the purchase of key components. CapEx was $93 million for Q3, resulting in negative free cash flow of $1.6 billion for the quarter. During the quarter, we raised $1.55 billion from a zero-coupon, five-year convertible bond offering due in 2029, net of underwriting discounts and offering expenses.
Speaker Change: Cash flows from strong profitability was offset by higher inventory a large portion of which was received late in Q3 and higher accounts receivable from increasing revenues.
Speaker Change: Our Q3 closing inventory was $4 1 billion, which increased by 67% quarter over quarter from $2 5 billion in Q2 due to the purchase of key components.
Speaker Change: Capex was $93 million for Q3, resulting in negative free cash flow of $1 6 billion for the quarter.
Speaker Change: During the quarter, we raised $1 5 billion from a zero coupon five year convertible bond offering due in 2029.
David E. Weigand: We also raised approximately $1.73 billion in net proceeds from the sale of 2 million shares at a price of $875 per share. The proceeds from these transactions will be used to strengthen our working capital, enable continued investments in R&D, and expand global capacity to meet strong demand for our leading platforms. The closing balance sheet position was $2.1 billion, while bank and convertible note debt was $1.9 billion, resulting in a net cash position of $252 million versus a net cash position of $350 million last quarter.
Speaker Change: Net of underwriting discounts and offering expenses. We also raised approximately $1 $73 billion in net proceeds from the sale of 2 million shares at or at a price of $875 per share.
Speaker Change: Proceeds from these transactions will be used to strengthen our working capital.
Speaker Change: Enable continued investments in R&D.
Speaker Change: And expand global capacity to fulfill strong demand for our leading platforms.
Speaker Change: The closing balance sheet position was $2 1 billion bank and convertible note debt was $1 9 billion, resulting in a net cash position of $252 million versus a net cash position of $350 million last quarter.
David E. Weigand: Turning to the balance sheet and working capital metrics compared to last quarter, the Q3 conversion cycle was 96 days versus 61 days in Q2. Days of inventory increased by 25 days to 92 days compared to the prior quarter of 67 days due to key component purchases for higher expected Q4 revenue. Day sales outstanding increased by eight days, quarter over quarter, to 37 days, while days payables outstanding decreased by two days to 33 days. Now turning to the outlook for Q4. We expect strong growth as the supply chain continues to improve with new air-cooled and liquid-cooled customer designs.
Speaker Change: Turning to the balance sheet and working capital metrics compared to last quarter.
Speaker Change: Q3 conversion cycle was 96 days versus 61 days in Q2.
Speaker Change: Days of inventory increased by 25 days to 92 days compared to the prior quarter of 67 days due to two key component purchases.
Speaker Change: For higher expected Q4 revenues.
Speaker Change: Sales outstanding increased by eight days quarter over quarter to 37 days, while days payables outstanding decreased by two days to 33 days.
Speaker Change: Now turning to the outlook for Q4.
Speaker Change: We expect strong growth as the supply chain continues to improve with new air cooled and liquid cooled customer design wins.
David E. Weigand: For the fourth quarter of fiscal 2024, ending June 30, 2024, we expect net sales in the range of $5.1 billion to $5.5 billion, GAAP diluted net income per share of $7.20 to $8.05, and non-GAAP diluted net income per share of $7.62 to $8.42. We expect gross margins to be down sequentially as we focus on driving strategic market share gains. GAAP operating expenses are expected to be approximately $226 million and include $55 million in stock-based compensation expenses that are not included in non-GAAP operating expenses.
Speaker Change: For the fourth quarter of fiscal 2024, ending June 32024, we expect net sales in the range of $5 1 billion to $5 5 billion GAAP diluted net income per share of $7 20 to $8 five.
Speaker Change: And non-GAAP diluted net income per share of $7 62.
Speaker Change: To $8 and 42.
Speaker Change: We expect gross margins to be down sequentially as we focus on driving strategic market share gains.
Speaker Change: GAAP operating expenses are expected to be approximately $226 million and includes $55 million in stock based compensation expenses that are not included in non-GAAP operating expenses.
David E. Weigand: The outlook for Q4 of fiscal year 2024 fully diluted GAAP EPS includes approximately $30 million in expected stock-based compensation expenses, net of tax effects of $28 million, which are excluded from non-GAAP diluted net income per common share. We expect other income expenses, including interest expense, to be a net expense of approximately $8 million. The company's projections for Q4 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of minus 2.9 percent, a non-GAAP tax rate of 2.6%, and a fully diluted share count of $64.8 million for GAAP and $65.3 million shares for non-GAAP.
Speaker Change: Outlook for Q4 of fiscal year 2024 fully diluted GAAP EPS includes approximately $30 million in expected stock based compensation expenses net of tax effects of $28 million, which are excluded from non-GAAP diluted net income per common share.
Speaker Change: We expect other income and expenses, including interest expense to be a net expense of approximately $8 million.
Speaker Change: The companys projections for Q4, GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of.
Speaker Change: Minus two 9%.
Speaker Change: non-GAAP tax rate of two 6% and our fully diluted share count of $64 8 million for GAAP and $65 3 million shares for non-GAAP.
Speaker Change: We expect Capex for Q4 to be in the range of $55 million to $65 million.
David E. Weigand: We expect CapEx for Q4 to be in the range of $55 to $65 million. For fiscal year 2024, ending June 30, 2024, we are raising our guidance for revenues from a range of $14.3 billion to $14.7 billion to a range of $14.7 billion to $15.1 billion and establishing guidance for GAAP net income per diluted share of $21.61 to $22.46, and non-GAAP net income per diluted share of $23.29 to Our projections for GAAP and non-GAAP net income per diluted share assume a tax rate of approximately 3.6 percent and 9.2 percent, respectively, and a fully diluted share count of 61.2 million shares for GAAP and a fully diluted share count of 61.8 million shares for non-GAAP.
Speaker Change: For fiscal year 2024, ending June 32024, we are raising our guidance for revenues from a range of $14 3 billion to $14 7 billion to a range of $14 7 billion to $15 1 billion and establishing guidance for GAAP net income per diluted share.
Speaker Change: $21 61.
Speaker Change: 'twenty 'twenty $2, 46% and non-GAAP net income per diluted share of $23 29.
Speaker Change: $24 nine or.
Speaker Change: Our projections for GAAP and non-GAAP net income per diluted share assume a tax rate of approximately three 6% and nine 2% respectively.
Speaker Change: And a fully diluted share count of $61 2 million shares for GAAP and fully diluted share count of 61 8 million shares for non-GAAP.
David E. Weigand: The outlook for fiscal year 2024 GAAP net income per diluted share includes approximately $116 million in expected stock-based compensation, net of related tax effects of $98 million that are excluded from non-GAAP net income per diluted share. We're now ready for questions.
Speaker Change: The outlook for fiscal year 2024, GAAP net income per diluted share includes approximately $116 million in expected stock based compensation net of related tax effects of $98 million that are excluded from non-GAAP net income per diluted share.
Speaker Change: We're now ready for questions.
Operator: Absolutely. We will now begin the question and answer session. If you'd like to queue for a question, please dial star 1 on your telephone keypad. If, for any reason, you would like to remove a question, please dial star 2. Again, to ask a question, it is star 1. As a reminder, if you are using a speakerphone on today's call, please be sure to pick up your handset before asking your question. Our first question is from the line of Rupalu Bhattacharya with Bank of America. Your line is now open. Hi, thank you for taking the time to take
Speaker Change: Absolutely we will now begin the question and answer session, if you'd like to queue for a question. Please dial star one on your telephone keypad if for any reason that you'd like to remove that question. Please dial star two.
Speaker Change: Again to ask a question it is star one.
Speaker Change: As a reminder, if you are using a speakerphone on todays call. Please be sure to pick up your handset before asking your question.
Speaker Change: Our first question is from the line of Rich <unk> with Bank of America. Your line is now open.
Rich: Hi, Thank you for taking my questions and congrats on the strong guidance I have two questions first I wanted to ask a question on liquid cooling do you design most of the components, where liquid cooling racks in house and as such do you think you would be able to charge more for liquid cooled racks and Ken just be accretive to gross margin.
Rich: Yeah.
Charles Liang: Yes, very good question. Yes, we designed lots of key components for DLC, the liquid cooling system, because we care about quality, maintenance, and also time to market. So we designed lots of key components while we leveraged third-party components as well. So it's a combination.
Ken: Yes, very good question, yes.
Ken: We designed also key components of a floor.
Rich: DLC.
Rich: ZIP coding system, because we can't quote.
Rich: Maintenance and also time to market. So it would be dye lots of key components, while we beverage third party components as well so it's a combination.
Charles Liang: And yes, I mean liquid cooling. We try to charge the customer with a minimum premium, and customers can save some kind of air conditioning, equipment cost, because they are cooled down by liquid. So at the same time, customers will save lots of TCO, up to 40% of energy costs. That's why we try to promote a slogan. Green computing can be free, with a big bonus. Customers pay a very minimal premium, but they save up to 40% of their energy costs.
Speaker Change: <unk>.
Speaker Change: Yes, I mean, I think coding.
Speaker Change: We tried to charge a customer with a minimum but EMEA and customer can save.
Speaker Change: Kind of air condition equipment coast because.
Speaker Change: Pulled out by equally so.
Speaker Change: Sometimes cosmo as safe lots of our PCL up to 40% of energy coast that's why.
Speaker Change: We tried to promote a slogan.
Speaker Change: Good morning, competing can be free we speak bonus.
Speaker Change: Some of them are very minimal.
Speaker Change: Premium, but the save up to 40% of <unk>. So I believe another CASM well go with a direction and indeed, we already have a handful of customer have a big old. It then that's why this quarter alone.
Charles Liang: So I believe a lot of customers will go for that direction. And indeed, we already have a handful of customers who have big orders. That's why this quarter alone, I mean, the June quarter, we are preparing more than 1,000.
Speaker Change: June quarter, we are preparing our more than 1000 different coding black.
Speaker Change: Four.
Speaker Change: Those boats and that believe that demand will come down the Goldman very strong.
Speaker Change: Thank you.
Operator: Again, if you'd like to ask a question, please dial star one. We do ask that you limit yourself to one question so we can get to all of the analysts. The next question is from the line of Sameh Chatterjee with J.P. Morgan. Your line is now open.
Speaker Change: Again, if you'd like to ask a question. Please dial starwood, we do ask that you limit yourself to one question. So we can get to all of the analysts.
Speaker Change: The next question is from the line of semi strategy with J P. Morgan. Your line is now open.
Speaker Change: Yes.
Semi Strategy: Thanks for taking my question I guess in the press release, Charles you mentioned the visibility into share gains as the new solutions ramp, but I was curious if you can sort of give us a bit more color. There in terms of when youre thinking about share gains are these relative to the next generation of GBP 200 product within the media and is this more in relation.
Charles Liang: I was curious if you could sort of give us a bit more color there in terms of when you're thinking about share gains. Are these relative to the next generation GB200 product with NVIDIA? And is this more in relation to sort of hyperscalers? Are you expanding the number of hyperscalers that you're engaged with as you move to these new solutions? Could you please give more color in terms of the visibility on these share gains? Where is that coming from, and is that more in relation to the next product generation from NVIDIA? Thank you. Okay, thanks.
Speaker Change: Sort of Hyperscale orders that you're expanding the number of hyper scale. It was that you were engaged with as you move to these new solutions just any more color in terms of the visibility on these share gains where is that coming from and is that more information over the next product generation from ingredient. Thank you.
Charles Liang: Okay, thank you. I mean, yes, we continue to get a lot of share, especially our right-scale plug-and-play solution that reduces customers' lead time and also reduces customers' time to go online. With our right-scale plug-and-play, customers are able to put the system in place, and deploy the system online in the next day or next few days instead of next few weeks. So, time to online saving is a big advantage to customers. At the same time, deep cooling helps customers save energy power.
Speaker Change: Okay. Thank you I mean, yes, we continue to gain market share, especially I'll address scale PRASM place solution.
Speaker Change: Reduced customer.
Speaker Change: The time and also these customers the time to <unk>.
Speaker Change: Sowell rack scale program play Cosmo.
Speaker Change: <unk> to put to that system deeply that system online in next.
Speaker Change: Our next.
Speaker Change: What date is days the next few weeks so Pat.
Speaker Change: 219 savings is a big advantage to the customer and us.
Speaker Change: Same time decoding that have customer safe energy power, so a customer can allocate relocate energy power to power more computing.
Charles Liang: So, customers can allocate, or relocate the energy power to power more computing equipment instead of a waste of power for an air cooler. So, saving money that benefits lots of leading customers and also right scale plug-and-play that makes customers time to online. So, we continue to gain more new customers while our old customers continue to grow and start to grow faster with our beta offering. So GB200, same thing, right? GB200, each rack will be around 100 kilowatts.
Speaker Change: Instead of <unk>.
Speaker Change: As a waste of Paolo.
Speaker Change: Alcoa, so semi Monday that benefit.
Speaker Change: Lots of that.
Speaker Change: Leading customer and also.
Speaker Change: The breadth scale private and pray that the.
Speaker Change: That customer.
Speaker Change: Panel one night so.
Speaker Change: We continue to gain more.
Speaker Change: New customer <unk> customer continues to grow.
Speaker Change:
Speaker Change: Start grow faster, we saw would be the offering.
Speaker Change: So.
Speaker Change: <unk>.
Speaker Change: Since you're right GBP 200, it you're right we have BRL. One then the Ky, so a customer like that.
Operator: So lots of customers like that, and we help them build their liquid cooling system and optimize their data center for liquid cooling. So we are growing our customer base strongly now.
Speaker Change: We have them build a day all the recruiting.
Speaker Change: System and optimize their data center over the accordion, so we have their own customer base.
Speaker Change: Stronger demand.
Speaker Change: Thank you.
Operator: The next question is from the line of Michael Ng with Goldman Sachs. Your line is now open.
Speaker Change: The next question is from the line of Michael English Goldman Sachs. Your line is now open.
Operator: Hey, good afternoon. Thank you very much for the question. I wanted to ask about gross margins, you know, strong gross margins for the quarter. I know you're guiding to a sequential decline in gross margins. If our math is right, you know, I think that implies... 13.5% to 14% gross margins for the June quarter.
Michael Thomas Staiger: Hey, good afternoon. Thank you very much for the question.
Michael Thomas Staiger: I wanted to ask about gross margins.
Michael Thomas Staiger: Strong gross margins.
Michael Thomas Staiger: For the quarter I know youre guiding to a sequential decline in gross margins.
Michael Thomas Staiger: If our if our math is right I think that implies.
Michael Thomas Staiger: 13, 5% to 14% gross margins for the.
Michael Thomas Staiger: June quarter.
David E. Weigand: Is that the right way to think about, you know, gross margins on a go forward basis? You know, do you still feel comfortable with the prior 14 to 17% long term gross margins? And, you know, any comments just around AI server gross margins in general? And if there are any ancillary services and support that can help improve the margins on just the product sales?
Michael Thomas Staiger: Sorry for the June quarter is that is that the right way to think about gross margins on a on a go forward basis.
David E. Weigand: Thank you very much.
Michael Thomas Staiger: Do you still feel comfortable with the prior 2014% to 17% long term gross margins in any.
Michael Thomas Staiger: Any comments just around AI server gross margins in general.
Michael Thomas Staiger: And if there are any ancillary services and support that can help.
Speaker Change: The margin on the product sales. Thank you very much.
David E. Weigand: Yeah, so our target is still 14 to 17. You know, if you look at our guide for Q2, I'm sorry, for Q3, we actually, you know, guided slightly down, and we ended up, you know, slightly up. And so it's very hard to guide exactly on the margins. There is a range.
Speaker Change: Yes, so our target is still a 2014 to 17, if you look at our.
Speaker Change: Our guide for Q2.
Speaker Change: I'm sorry for Q3, we actually guided slightly down and we ended up.
Speaker Change: Slightly up.
David E. Weigand: And in fact, I think the guide, you know, the guide inside of the models last time was even more conservative. So I would say we build conservatively, we build conservatively, and then we seek to overachieve. So I think if you look at our guide for revenue and for OPEX, you'll be able to determine our guide there. But our target is definitely to stay in the 14 to 17 range.
Speaker Change: And so it's very hard to guide exactly on the margins. There is there is a range.
Speaker Change: And in fact, I think the guide.
Speaker Change: The guide inside of them inside the models last time was even more conservative. So I would say, we we build conservative we built conservatively and then seek to overachieve. So I think if you look at our guidance for revenue and for Opex.
Speaker Change: Youll be able to determine our our guide there.
Speaker Change: But our target is definitely to stay in the 14 to 17 range.
Speaker Change: Thank you.
Operator: The next question is from the line of Aaron Rakers with Wells Fargo. Your line is now open.
Speaker Change: The next question is from the line of Aaron Rakers with Wells Fargo. Your line is now open.
Operator: Yeah, thanks for taking the question. I'll try and slip in two here if I can.
Aaron Christopher Rakers: Yes, thanks for taking the question I'm trying to slip in two here if I can so I guess one of the just kind of housekeeping questions.
Aaron Christopher Rakers: A very significant increase in inventory this quarter I know you said it came in towards the end of the quarter. How do we think about the trajectory of inventory as the supply comes on do you expect inventory to stay at this level do you expect that to start to come down I'm, just kind of curious to how we think that flow through to kind of look as you take on more supply and then just a quick housekeeping.
Charles Liang: So I guess one of the just kind of housekeeping questions is, you know, a very significant increase in inventory this quarter. I know you said it came in towards the end of the quarter. How do we think about the trajectory of inventory as supply comes in? Do you expect inventory to stay at this level? Do you expect it to start to come down? I'm just kind of curious how we think that flow through kind of looks as you take on more supply. And then just a quick housekeeping thing, too, is the 21% customer you referenced in the prepared remark, is that the same customer, large customer, you had last quarter? Or how has that evolved?
Aaron Christopher Rakers: Thing two is that.
Aaron Christopher Rakers: The 21% customer you referenced in the prepared remarks is that.
Aaron Christopher Rakers: At the same customer large customer you have last quarter or how does that evolve. Thank you.
David E. Weigand: Thank you.
Aaron Christopher Rakers: Two reasons, we had to incur.
Aaron Christopher Rakers: Kris.
Charles Liang: Two reasons we have to increase inventory. One is because in Q4, I mean June quarter, we will have strong revenue growth. And second reason, because we're preparing for high-volume liquid cooling. Again, we have more than 1,000 100-kilowatt liquid cooling racks we had to ship to customers in Q4. And liquid cooling, as you know, is pretty new. So we had to prepare enough inventory so that we can deliver liquid cooling rack scale products to customers on time or with minimum lead time. So both factors, indeed, play a positive role. And with our economic scale continuing to grow, our inventory every day will, indeed, slightly improve. Yeah, so Aaron, my friend.
Aaron Christopher Rakers: Inventory or is it because the Q4.
Aaron Christopher Rakers: The June quarter, we have a strong <unk>.
Aaron Christopher Rakers: Gross a second reason because we are preparing for a high volume <unk>.
Aaron Christopher Rakers: Again, we have more than 1000.
Aaron Christopher Rakers: 100, <unk> I think.
Aaron Christopher Rakers: <unk>, we had to ship to customers in Q4, and deep liquidity and as you know is it <unk>. So we had to payout in now.
Aaron Christopher Rakers: Mentally.
Aaron Christopher Rakers: So that we can deliver that recruiting.
Aaron Christopher Rakers: Scale, both at the customer on time.
Aaron Christopher Rakers: We said many many times so.
Aaron Christopher Rakers: Both.
Aaron Christopher Rakers: Indeed, it is about Steve.
Aaron Christopher Rakers: Perfect.
Aaron Christopher Rakers: <unk>.
Aaron Christopher Rakers: We used our economic scale continues to grow and be the allo.
Aaron Christopher Rakers: Inventory average day, indeed, it will slightly improve.
David E. Weigand: Yeah. So, Aaron, my take on that is I hope that our inventory continues to grow because that means there's a reason behind it. So, it's tied to sales. So, to your second question, the 21% customer was the same as last quarter. And I wanted to let you know that in the queue, we're going to be moving to customer A, customer B, and customer C because as we add more customers, we'll try to make it easier to make those distinctions.
Aaron Christopher Rakers: Yes, so Aaron my my take on that is I hope that our inventory continues to grow because that that means theres a theres a reason behind it so it's and it's tied to sales.
Aaron Christopher Rakers: To your second question, the 21% customer was the same as last quarter and I wanted to I wanted to let you know that in the queue, we're going to be moving to a customer a customer b customers see because as we add more customers will try to make it easier to make those distinguishment.
Speaker Change: Thank you.
Operator: The next question is from the line of George Wang with Barclays. Your line is now open.
Speaker Change: The next question is from the line of George Wang with Barclays. Your line is now open.
Charles Liang: Oh, hey, guys. Congrats on the strong June guide. You know, I'd like to put it in two parts. Quickly, just not asking for specific guidance for FY25 or the September-December quarter, but any sort of high-level kind of color you can provide just to think about how to model the September-December and also FY25. And also kind of related, kind of, you know, can you please pass out the kind of utilization, you know, in the March quarter and also kind of what's the expected utilization kind of cadence, you know, for the next few quarters.
George Wang: Oh, Hey, guys. Congrats on the strong June guidance.
George Wang: Yes.
George Wang: I'd like to put in coupons quickly.
George Wang: Not asking for specific guidance for FY 'twenty five September December quarter, but any sort of high level kind of little color you can provide.
George Wang: To think about how to model. The September December and also the FY 'twenty five and also kind of related.
George Wang: Can you parse out kind of utilization.
George Wang: March quarter, and also what kind of what's the expected.
George Wang: Initially kind of cadence.
George Wang: For the next few quarters.
Charles Liang: Yeah, as you know, we have a lot of new products coming soon, right, to support NVIDIA H200, B100, B200, GB200, and AMD MI300, and Intel GALA2003. So we have a lot of new products already. And plus liquid cooling, DLC, we are ready to ship high-volume products. So for sure, I mean, Canada, I mean, fiscal year 2025, I mean, for the September and December quarters, we will have strong growth. And I believe this strong growth will continue for many quarters to come, if not many years. I believe it will be for many years.
George Wang: Yes.
George Wang: But lots of new products.
George Wang: To support our Nvidia.
George Wang: <unk> GP to one day and A&P.
George Wang: So the NPA and NPL got it was obviously, so we have enough new product ready and Plaza decoding.
Speaker Change: Let's see.
Speaker Change: Great deepest ship a high volume pulled that so for sure.
Speaker Change: Kennedy.
Speaker Change: Physically yes, 25 minute for September December quarter.
Speaker Change: We will have a strong growth and I believe this strong growth will continue.
George Wang: Minnesota.
George Wang: To come if not many yes.
George Wang: You have to be midnight, yes.
Speaker Change: Thank you.
Operator: The next question is from the line of Ananda Baruah with Loop Capital. Your line is now open.
George Wang: The next question is from the line of Ananda Baruah with loop capital. Your line is now open.
Operator: Yeah, thanks, guys, for taking the question. I really, really appreciate it.
Ananda Prosad Baruah: Yeah. Thanks, guys for taking the question really really appreciate it.
Charles Liang: And Charles, maybe the remarks you made a moment ago about the strong ongoing growth could mean that you could also grow sequentially from this point forward for a little bit, just given the market share gain opportunities, the components coming online that you talked about in the new products? Any context on a way to think about sequential growth, you know, sort of in the coming quarters would be helpful as well, thanks.
Ananda Prosad Baruah: And Charles let me maybe.
Ananda Prosad Baruah: The remark you made.
Ananda Prosad Baruah: A moment ago.
George Wang: <unk> is a strong ongoing growth.
George Wang: Does that could that mean that.
George Wang: You could also grow.
George Wang: Sequentially from this point forward for a little bit just given the.
George Wang: Market share gain opportunity the components coming online.
George Wang: Talk about the new product any context on the way to think about sequential growth.
Speaker Change: Yes sort of in the coming quarters would be helpful as well thanks.
Charles Liang: Yeah, as you know, traditionally, in the last 10 years, right, I mean, September quarter and March quarter, always our third quarter. But now, with AI, we've been growing so strong. So we basically are able to grow sequentially. So although March and September are still a little bit weak, but basically, because of strong AI growth and our market share growth, so that's crucial growth will become normal. Basically, I mean, we have even better technology than before, and now the economic scale has become much bigger. Malaysia's campus production will be ready by the end of this calendar year, so we see a lot of positive factors to grow our business.
George Wang: Yes.
George Wang: Additionally, in last 10 years right I mean that September quarter in the March quarter always sowell I'll start a quarter, but now at least the AI we've been growing so strong so.
George Wang: We basically are able to grow sequentially.
George Wang: Hello.
George Wang: <unk> and <unk>.
George Wang: Tim Buzby ought to be weak, but basically.
George Wang: Uh huh.
George Wang: Because I still get that grows and our market share growing so that screenshot grows will become.
George Wang: Normal.
George Wang: And.
George Wang: Basically I mean, we have <unk> and now achromic scale become much bigger.
George Wang: Manish yet a campus.
George Wang: We have been rated by end of these tenants. So we see lots of positive factor to grow our business.
Speaker Change: Thank you.
Operator: The next question is from the line of Jon Tanwanteng with CJS Securities. Your line is now open.
George Wang: The next question is from the line of Jon <unk> with CJS Securities. Your line is now open.
Operator: Hi, thank you for taking my question. I was wondering if you could talk a little bit more about gross margins and if you expect them to go structurally higher at some point in the near future, especially with the Malaysia ramps. You get economies of scale there as you transition to G2 products and you add more liquid cooling. Is there a point where that starts to revert higher, or do you expect it to remain at a relatively constant level for the foreseeable future?
Jon: Alright, Thank you for taking my questions.
Jon: I was wondering if you could talk a little bit more to the gross margin.
Jon: And if you expect them to go.
Jon: Structurally higher at some point.
Jon: And in the near future in the coming quarters, especially the Malaysian ramps you get economies of scale. There as you transition to GPU products and you add one more liquid cooling is there a point where that starts drove or higher or do you expect it to me.
George Wang: Again, a relatively constant level for the foreseeable future.
Charles Liang: Again, the AI platform is getting popular, right? So they are becoming more and more competitive as well. So we will try to keep a balance. To grow market share, sometimes, in some deals, we may have to be a little bit more aggressive in pricing, but overall, we try to keep a balance. Yeah, and also, I agree with your point that
George Wang: Again.
George Wang: I pray for them as it gets in the popular right. So they are more and more competitive as well. So we want to try to keep a balance.
George Wang: Uh huh.
George Wang: Ooh grow market share we may some time some deal we may have been more aggressive in pricing, but overall, we tried to keep a balance.
David E. Weigand: Yeah, and also, I agree with your point that Malaysia will also offer some opportunities for us. And, you know, we're also at a transition time when there's a lot of new things – we have a lot of new platforms that are coming out, and the customers are highly anticipating them. And those platforms are built on some emerging technologies that come from, you know, many different areas. And we – Super Micro's strength, again, is its fast time to market.
George Wang: <unk> medicines.
George Wang: And also I agree with your point that would that Malaysia will also offer some opportunity to us and we're also had a transition time when there's a lot of new we have a lot of new platforms that are coming out and the customers are.
George Wang: Highly anticipating and those those platforms are built on some emerging technologies.
George Wang: From many different areas and we are.
George Wang: Supermicro strength again is its fast time to market and we expect with these with the emerging technologies and our new platforms and our liquid cooling to be first out there with very compelling solutions.
David E. Weigand: And we expect with these emerging technologies and our new platforms and our liquid cooling to be the first out there with very compelling solutions. So we think those things are all going to be helping our margins.
George Wang: We think those things are all going to be helping our margins.
Speaker Change: Thank you Dean.
Operator: The next question is from the line of Mehdi Hosseini with SIG. Your line is now open.
George Wang: The next question is from the line of Mehdi Hosseini with Citi. Your line is now open.
David E. Weigand: Yes, sir. Thanks for taking the question. A couple for me. Regarding the channel customer, the 17% of the customer, have you ever had a channel customer that big? I believe in the past you've talked about a 21, 20% plus customer, but I think this is new. Can you clarify this?
Mehdi Hosseini: Yes, thanks for taking the question.
Mehdi Hosseini: For me.
Mehdi Hosseini: Yes.
Mehdi Hosseini: Regarding the kind of a customer that was 17% of the customer have you ever had the channel customer that big I believe in the past you've talked about the 21, 20% plus customer, but I think this is a new can you clarify this.
David E. Weigand: So this is an existing customer, and we actually had a higher customer back in 2022, Mehdi, but I think they were around 22. But this is still a really good customer, a really good opportunity.
Speaker Change: So this is an existing customer.
Mehdi Hosseini: And.
Mehdi Hosseini: We actually had a higher customer back in 2022.
Mehdi Hosseini: But I think they were around 22.
Mehdi Hosseini: But this is still.
Mehdi Hosseini: This is still a really good customer really good opportunity.
David E. Weigand: Okay, great. And then one question for you, David, on the cash flow. Actually, there was a, I believe there are two items. There is 110 million in cash burn in operation, and then there was also a non-current asset. Am I missing something here? These two items were big items that had an impact on overall cash flow. Is that correct?
Speaker Change: Okay, Great and then one question for you David.
Speaker Change: Cash flow.
Speaker Change: Okay.
David E. Weigand: There was I believe the two.
David E. Weigand: Items.
David E. Weigand: $110 million of cash burn.
Speaker Change: Creation and then there was also a non current asset am I missing something here.
Speaker Change: These two items would be guidance.
Speaker Change: The impact to overall cash flow is that correct.
David E. Weigand: Sure, we had a number of things that impacted us. I think in non-current assets, we had deferred taxes grow by quite a bit this year or this quarter, and so that was something unusual. I think that's the only unusual item was deferred taxes growing a lot, and that's what lowered our quarterly tax rate as well.
Speaker Change: Sure. We had we had a number of things that impacted us.
Speaker Change: I think.
Speaker Change: Non current assets we had.
Speaker Change: Deferred.
Speaker Change: Deferred taxes grew by by quite a bit.
Speaker Change: This year or this quarter and so that was something unusual.
Speaker Change: And then.
Speaker Change: Let's see I think those are the I think that's the only unusual item was the deferred taxes group grew a lot and that's what lowered our.
Speaker Change: Tax rate, our quarterly tax rate as well.
Operator: Thank you. The next question is from the line of Nehal Chokshi with Northland Capital. Your line is now open.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of Nihon <unk> with Northland Capital. Your line is now open.
Operator: Thank you and congrats on a strong guy here. Talk about the guy here.
Nihon: Thank you and congrats on a strong guy here.
Nihon: Talking about the guy here inventory.
Nihon: Inventory increased to one 5 billion cubic <unk> and David as you mentioned you'd like to see inventory increase I do too because it's the strongest hurricane or if things to come.
Operator: Inventory increased 1.5 billion Q-to-Q. And David, as you mentioned, you like to see inventory increase. I do too because it's a strong indicator of things to come.
David E. Weigand: And you've got it in June quarter to increase by 1.6 billion Q-to-Q. If I do this math where I'm looking at the inventory at the quarter end and then the four-quarter revenue, typically, it's around 60-70% of revenue. But with your March Q-ending inventory and your current Q-to-Q guidance, that equates to about 85% of projected revenue. So can you just explain what seems to be a little bit more usual inventory buildup given the revenue guidance range?
Speaker Change: You've got a June quarter to increase by $1 6 billion cubic cube.
Speaker Change: If I did this math what im looking at the inventory at the quarter end and then the fourth quarter revenue typically its around 60 or 70% of revenue, but what's your March two ending inventory and your current <unk> guidance that equates to about 85% of projected revenue. So can you just explain what seems to be a little bit more.
Nihon: The usual inventory buildup, given the revenue guidance range.
David E. Weigand: Absolutely. That's a fair question.
Speaker Change: Sure absolutely. It's a fair question, so we actually got.
Speaker Change: We actually got a substantial amount of inventory.
Nihon: In the last week of the quarter.
Nihon: Okay, which obviously, we're not going to be able to ship.
David E. Weigand: So we actually got a substantial amount of inventory in the last week of the quarter, okay, which obviously we're not going to be able to ship. But we took in $700 million in the last week of the quarter. So that's not something that, you know, that's something that has to do with when inventory arrives. And so, you know, it hurts our cash flow. But you know what? It doesn't matter, because we need that inventory for Q4 shipments.
Nihon: But we took in <unk>.
Nihon: 700 million in the last week of the quarter, So that's not something that.
Nihon: That's something that has to do with when inventory arrives and.
Nihon: And so we.
Nihon: Hurts our cash flow.
Nihon: It doesn't matter, because we need that inventory for Q4 shipments.
Charles Liang: Yeah, again, two reasons, right? Q4, we will have strong revenue, so we have to prepare for Q4. And also, I mean, liquid cooling, I mean, it's new, so we have to prepare enough safety inventory for liquid cooling demand for June quarter and September quarter as well. So that's another reason why we have a slightly higher inventory now.
Nihon: Again, two reason Q4, we will have is strong.
Nihon: <unk> now.
Nihon: So we had a prepay up with Q4 and also I mean, I think recruiting I mean, it's Neil So we had to prepare enough safety inventory.
Nihon: Including demand for the June quarter and September quarter as well. So that's another reason why we have a slightly higher inventory now.
David E. Weigand: Yeah, and I want to add, Nehal, that that's exactly why we did the capital raises too, to prepare for these Q4 shipments. And, you know, so that we could make those large purchases, and we hope to continue that.
Speaker Change: Yeah, and I want to add to hold that that's exactly why we why we did the capital raises two is to prepare for these these Q4 shipments and.
Speaker Change: And so that we could make those large purchases in weeks.
Speaker Change: We hope to continue that.
Speaker Change: Thank you.
Operator: The next question is from the line of Matt Bryson with Wedbush. Your line is now open.
Speaker Change: The next question is from the line of Matt <unk> with Wedbush. Your line is now open.
Operator: Hi, thanks for taking my question. I would be thinking with liquid cooling ramping up in fiscal Q4, not the part about the gross margin issue, but that you would be seeing a benefit to gross margins. And I guess my question is, is there any chance that either with the liquid cooling solutions or with your other solutions, you're again seeing some penetration into those larger customers, and specifically hyperscalers? And that's why we're seeing gross margins come down. And I guess just one clarification for Dave, any chance you can provide the magnitude of how revenues were affected by your inability to prepare components in fiscal Q3? Thanks.
Matt: Hi, Thanks for taking my question.
Matt: I wouldn't be thinking with weaker <unk> ramping in fiscal Q4 and not the harp on the gross margin issue, but.
Matt: You would be seeing a benefit to gross margins and I guess my question is.
Matt: Is there any chance of other with liquid cooling solutions or with your other solutions that youre getting some penetration there.
Matt: Those larger customers and specifically hyperscale or.
Matt: And Thats why were seeing gross margins come down.
Matt: Yes.
Matt: One clarification for Dave if you can provide the magnitude.
Matt: Revenues were affected by your inability to procure components in fiscal.
Matt: Fiscal Q3 thanks.
Charles Liang: Let me add a little bit, because liquid cooling is new to us, so to speed up quick support for some of our very important customers in the June quarter, we had to pay some premium to speed up the supply. So we put a lot of effort there.
Speaker Change: Let me add a little bit.
Speaker Change: Because of that.
Speaker Change: Including this new to us so to speak up.
Speaker Change: Quick support for some of our very important customer.
Speaker Change: June quarter, and see that we had to pay some premium to a speed up the sub high so.
Speaker Change: We spend a bunch of <unk>.
David E. Weigand: Maybe Mehdi. Yeah. So, uh, to the...
Matt: Maybe Matt yes.
David E. Weigand: Yeah, so to the two questions, Matt, I would say, first of all, to the gross margin question, you know, again, I try to give a, you know, my philosophy is, you know, give a conservative estimate. We were able to do that in Q3, and we'll do everything we can do to beat it in Q4. But it'll also depend on what we ship. As to the magnitude of revenue, I'll go back to the fact that our backlog is at a record high.
Matt: Yes so.
Matt: So the two questions, Matt I would say first of all to the gross margin question again I tried to give her my my philosophy is give a give a conservative.
Matt: And then were to beat that and we were able to do that.
Matt: In Q3, and we'll do everything we can do it can do to beat it in Q4, but it will it will depend also on what we ship.
Matt: As to the magnitude of revenue I'll go back to the fact that our backlog is at a record high and so what that means is that every quarter. We could have shipped more if we had more parts and so so therefore, it's an ongoing problem and we don't we don't rely on that as an excuse.
David E. Weigand: And so, what that means is that every quarter, we could have shipped more if we had more parts. So, it's an ongoing problem, and we don't rely on that as an excuse. The fact of the matter is, we're glad to be able to produce the products that we're producing for some of the best companies in the world. And so we will continue to do that, and we're very upbeat by the fact that the supply chain continues to improve each quarter.
Matt: Next matter is we're glad to be.
Matt: Able to produce the products that we're producing for some of the best companies in the world and so we we continue we will continue to do that and.
Matt: And and we were very upbeat by the fact that the supply chain continues to improve.
Matt: Each quarter.
Speaker Change: Thank you.
Operator: Thank you. The next question is a follow-up from Jon Tanwanteng with CJS Securities. Your line is now open.
Speaker Change: The next question is a follow up from Jon <unk> with CJS Securities. Your line is now open.
Operator: Hi, thanks for the follow-up. I was wondering if you could speak to your cash usage expectations over the next quarter or two. Are the proceeds from your recent capital raises all spoken for as you look to the growth in the pipeline and the record backlog you spoke about, or do you think that's more in reserve for growth further down the line?
Jon: Hi, Thanks for the follow up.
Jon: I was wondering if you could speak to your cash usage expectations over the next quarter or two.
Jon: Are the proceeds from your recent capital raises all spoken for.
Jon: As you look to the growth in the pipeline and the record backlog you spoke to or do you think thats more in reserve for growth further down the line.
David E. Weigand: Yeah, so the way I would answer that is that I hope that I need more capital, John, because that means that we're growing revenues even faster. So we've got capital adequate to get us through the current market, which means today.
Speaker Change: Yeah. So the way I would answer that is is that.
Jon: I hope that I have but.
Speaker Change: I need more capital John because.
Jon: That means that.
Jon: We're booking that were that were growing revenues even faster. So we've we've got.
Jon: Capital adequate to get us through.
Charles Liang: But in a week, we hope that that changes, and we hope that we've got orders that require even more capital. So all I can say is I'm hoping for the need for more capital. Yeah, we believe our revenue will continue to grow strongly, and that's why we need more capital to grow faster. If we grow 20 percent, or 30 percent, we may have enough capital now. But if we grow much faster, then for sure, we need more capital to grow stronger.
Jon: The current market.
Jon: Which means today, but.
Jon: In a week.
Jon: We hope that that changes and we hope that we've got orders that that require even more capital. So all I can say is I hope that I'm, hoping for for.
Jon: The needs for more capital, we believe our revenue will continue to grow strong and Thats, why we need more capital to grow faster.
Jon: If we grow 20%, 30%, we may have enough capital now, but it will grow much faster than say, Sheila we need more capital to grow stronger.
Speaker Change: Thank you.
Operator: Our final question today is a follow-up to the line from Nehal Chokshi with Northland Capital. Your line is now open.
Speaker Change: Final question today is a follow up from the line of Anyhow Doxie with Northland Capital. Your line is now open.
Operator: Hey, thanks. Thanks for the follow-up question. This is for Charles. Charles, you know, with the capital base that you have now, and I hear you, David, that you hope that you will need more capital, but with the capital base that you have now, the technology advantage that you've always had, that you've added to, is there anything else that you need in order to become the number one vendor?
Anyhow Doxie: Hey, Thanks, Thanks for the follow up question on this for Charles Charles.
Anyhow Doxie: What's the capital base that you have now and I hear you David that you hope that you will need more capital, but with the capital base that you have now technology advantage that you've always had that you've added to.
Anyhow Doxie: Is there anything else that you need in order to become the number one.
Anyhow Doxie: The vendor.
Charles Liang: Yes, indeed, our plan is very ambitious, let me use that word. We have a very ambitious plan, so we try to continue to grow very strongly, kind of three times to five times faster than the industry average. So when that happens, and we believe it will, and we hope it will, then for sure, we need more capital.
Speaker Change: Yes, indeed, our pain.
Speaker Change: Is it very.
Jon: Ambitious.
Jon: Well, we haven't been E&P chose a brand so we try to continue to grow very strong.
Jon: Kind of sort of lead time to five times faster than the industry average so.
Jon: In that case and that we believe is though we hope so.
Speaker Change: We need more capital.
Speaker Change: Thank you.
Charles Liang: Thank you. Thank you. With that, thank you. See you next quarter.
Speaker Change: Thank you with that thank you assume thanks nice quarter.
Operator: Thank you. That concludes today's conference call. Thank you all for your participation. Have an excellent rest of your day.
Speaker Change: Thank you that concludes today's conference call. Thank you all for your participation have an excellent rest of your day.