Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Super Micro Computer Inc. First Quarter Fiscal 2018 Business Update Conference Call. The company's news release issued earlier today is available from it's website at www.supermicro.com. [Operator Instructions] As a reminder, this call is being recorded, Thursday, October 26, 2017. A replay of this call will be accessible until midnight, Thursday, November 9, 2017, by dialing 1 (844) 512-2921 and entering replay pin 9330570. International callers should dial 1 (412) 317-6671. With us today are Charles Liang, Chairman and Chief Executive Officer; and Perry Hayes, Senior Vice President, Investor Relations. And now I'd like to turn the conference over to Mr. Hayes. Mr. Hayes, please go ahead, sir.

Good afternoon, and thank you for attending Super Micro's business update conference call for the first fiscal quarter 2018, which ended September 30, 2017. As previously disclosed by the company, additional time is needed for the company to compile and analyze certain information and documentation and finalize its financial statements as well as complete a related audit committee review in order to permit the company's independent registered public accounting firm to complete its audit of the financial statements to be incorporated in the Form 10-K and complete its audit of the company's internal controls over financial reporting as of June 30, 2017. Based on these delays, during today's conference call, Super Micro will address business and market trends from the first fiscal quarter of 2018 and will discuss estimated financial results -- but reference to any financial results are preliminary and subject to change based on finalized results contained in future filings with the SEC. By now you should have received a copy of today's news release that was distributed at the close of regular trading and is available on the company's website. Before we start, I'll remind you that our remarks include forward-looking statements. 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 Form 10-K for fiscal 2016 and our other SEC filings. All of those documents are available from the Investor Relations page at Super Micro's website. We assume no obligation to update any forward-looking statements. Most of today's presentation will refer to non-GAAP financial results and outlooks. At the end of today's prepared remarks, we will have a Q&A session, which sell-side analysts will be permitted to ask questions. Questions should be directed to the company's business update covered in today's call. The company will not address any questions regarding the delay in the filing of the company's 10-K. I'll now turn the call over to Charles Liang, Chairman and Chief Executive Officer.

Now thank you, Perry, and good afternoon, everyone. Let me summarizes our first quarter. [indiscernible] Super Micro launched last quarter. We have sped up our already strong growth in revenue market share and brand name value. Our new quarter results come from that we had been and continue to be the first tier, growing tier 1 [indiscernible] provider, capable of delivering first-to-market product innovation at a global scale with quality management software service and support. In addition to strong revenue growth, we kicked off several strategical product in strong margin technology market that should deliver significant future growth. Earlier in the quarter, we launched our complete portfolio of new X11 products based on the new Intel Xeon Scalable processor or Skylake family. This launch was the product of over 2 years of effort with about 2,000 of engineer. As a result, we were ready at the launch with over 100 product offering. The X11 business quickly ramp with new systems representing 12% of all processors shipped. The key to the successful ramp was the breadth of our portfolio and our time-to-market advantage with powerful new technology built into the new platform. We will continue to leverage our new product advantage in the coming quarter and ramp continuously. Computer system accounted for a great portion of our business at approximately 75% of our overall revenue. The growth of computer systems, it has been driven by new technologies, such as support of [indiscernible] NVMe, higher memory density, accelerated computing, higher TDP CPU support, and higher bandwidth connectivity. These technologies benefit from our in-house engineering, design and dedication to provide a customer with higher performance, visibility and quality solutions. Moreover, our computer system carry a higher average sales price ASP and strategically increase the opportunity for additional management software and global service revenue.…

Thank you, Charles. As indicated previously, we will have a Q&A session in which sell-side analysts would -- permitted to ask questions. I would like to remind you that your questions should be directed to the business update that we have provided. We will not answer any questions related to the delayed filing of our 10-K. Operator, at this time, we're ready for questions.

[Operator Instructions] We'll now take our first question from Alex Kurtz with KeyBanc Capital Markets.

I have to say, this is unusual circumstances. So I have to say the questions I need to ask are related to the business update. And hopefully, you can touch on them at some level. What gives you the confidence to provide forward guidance into the current quarter given that the audit committee is reviewing transactions that may still be part of the business today?

Thanks very much. It’s a good question. We feel pretty confident that in the revenue number that we've indicated today, that it is within a prudent range. And even though we really can't provide a total -- a complete baseline yet because 2017 isn't finalized, we do feel confident that within this range that we've indicated, at $675 million to $685 million, that it is an appropriate range. Going forward, we are continuing with the momentum of business that we've had in the past, if you look back to starting with last December, and it's based on a great mix of new customers and market verticals that are all growing, as you can see from what we've reported. So we feel pretty confident. In addition, as we've been saying for several quarters as well, we think that we'll end the calendar quarter at a $3 billion run rate. And Charles has just reiterated that in his remarks.

Okay. I'm just still a little confused by why even go out on a limb and provide December guidance. But maybe just it’s something you just can't talk to right now.

Well, we do think it's important to provide trend and the growth indicate -- direction of growth. And it was also indicated in the current quarter number, which we just provided you as well.

But again, I just mentioned, I mean, $3 billion run rate should be achievable.

Last question for me. Can you give us any update on your CFO, Howard, and his status with the company at this point?

Howard is working very hard on the issues related to the filing of the 10-K at this moment.

We'll now take our next question with Brian Alger with Roth Capital partners.

Just for a clarification point, reading through the release today and kind of going back to the delay that we're incurring here on the 10-K. To be clear, what's being evaluated by the audit committee isn't whether or not the revenues were real, but rather not the documentation around which period the revenues were recognized, is that the case?

Brian, as indicated, we're not going to answer any questions related to the filing of the 10-K.

Okay. I thought it was in the press release today, but okay. Coming back to the update with the margins that you guys -- the range of gross margins that you're providing, it would indicate that we're not seeing any improvement in the dynamics from the memory side of the equation. Is that still what's pressuring the gross margins at this point? Or has there been a shift from product dynamics?

Yes. I guess the memory price [indiscernible] is a little busy this quarter again. But this mean we have a good inventory, I mean, in good relationship with vendor. So we believe business will continue to grow smoothly.

Okay. And are you continuing to purchase inventory in advance for key customers, specifically memory inventory?

Kind of mixed. But the overall memory is in good condition -- in a good condition, I would like to say overall.

Yes, I think you can safely say what we've been doing over the past several quarters, we are continuing to do that. We are continuing to hold inventory going into the quarter. It's still not enough to see us through the whole quarter. As we've talked with investors previously, we are, during the quarter at some point, still acquiring inventory to support our customers.

Okay. And then other than the efforts going on surrounding the review here with the 10-K, has there been any structural changes that would affect the operating expenses of the company outside of normal business operations?

No. Everything is pretty much the same. We have a great business. We wanted to do this business update because it is a very strong business. It is growing very strongly, and we have tremendous opportunities. As Charles mentioned in his remarks, we have great opportunities in new projects with some of the leading semiconductor companies for revolutionary designs in AI. And as a result of that, we've added some engineering headcount in the previous quarter. That is one of the things that impacted operating expense somewhat this quarter. But no, everything is on track.

Especially the new processors, Skylake and NVMe product line have been all ready to ship. So we believe that business will continue to grow strongly.

Okay. And then just one final one. You mentioned IoT and data center each being roughly about 10% of the revenues. I'm curious how the storage business was tracking for the company, given how fast that's been growing for you guys over the past couple of quarters.

Yes. Storage business was -- we called out here that it's greater than 20% of the entire business. It continues to grow. In fact, I think you could say this quarter, we actually saw our open storage grow a bit faster based on some of these designs, which Charles called out, especially the top load, especially some of the NVMe solutions, they're growing very rapidly.

For the big data, AI, HPC, and we have been growing very well, including storage solution in -- for that market.

[Operator Instructions] We will now take our next question from Nehal Chokshi with Maxim Group.

There will be no presentation or CFO commentary because, obviously, the results have not been audited yet, correct?

That is correct.

Okay. Charles did run through some of the vertical data. But Perry, could you just run through that one more time real quickly. I'm sorry.

Yes, sure. We said storage was greater than 20% of our business; accelerated computing, also 11% -- well, greater than 11%. IDC was approximately 10%; IoT, again, approximately 10%; channel was sort of mid- to low 40% of total business; and enterprise was approximately mid single digit, call it, 5%, a little bit more than 5%.

Okay. And the reason why there's more uncertainty around what channel was as a percent of revenue is that that's where the uncertainty resides with the one revenue recognition. Should be getting done. Is that a correct interpretation?

Again, Nehal, we're not going to discuss anything related to the 10-K filing.

Okay. All right. And then what's the status of the repurchase program? I believe that it was -- it expired, and I think you repurchased close to $20 million at one point in time. Would you guys consider opening this back up?

Yes. Your numbers are correct. We did have it. It expired in June. It has not been reauthorized.

Would you consider -- is there a proposal on the table or consider proposing it to restart the repurchase program?

It always is something that's in the back of our minds. At this point in time, we want to invest in our business to provide a greater return for shareholders.

Okay. And it sounded like inventory is up Q-over-Q and, therefore, your cash conversion cycle continues [indiscernible] year-over-year. Because you're making sure that you have enough inventory to fill up demand, is that correct?

That is not correct, Nehal. We haven't provided that level of detail. Cash was up somewhat higher than it was on the previous quarter, and that's pretty much the extent of what we've provided.

We'll take our next question from Mark Kelleher with D.A. Davidson.

I know one of those numbers -- Perry, could you reiterate what percent of revenue was Skylake? I think that was given out.

Yes, what we talked about is X11 platforms. X11 platforms represents the Skylake. It also represents -- a portion of it is UP and DP. But overall, X11 represented approximately 12% of the total processors that we shipped out.

And those processors typically carry higher gross margins, those systems, correct?

Basically.

Yes, they do.

So that didn't seem to help the gross margins in the quarter. Is that being offset by the memory issue being a little bit more significant?

We can't -- well, as we've been saying, we're very much in the early days of the ramp, okay. And the DP portion of X11 is still ahead of us. We'll get a little bit more here in the December quarter, probably improve quite a bit. And then really, the ramp starts to take hold beginning the calendar year. As you know, that would be about 6 months since the launch, and that's when -- there starts to be a lot more allocation in the market. Gross margins, overall, were impacted by seasonal utilization, impacted by geographic mix with strong China revenue, impacted somewhat by product mix to more component-reliant systems. Plus, we're also in this transition phase from a mature Grantley life cycle technology to the new Xeon Skylake family, and so that's still going on. And yes, there were some continuing component pricing at SSD and DRAM issues.

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

Thank you for joining us today, and we're looking forward to talking to you at the end -- in the end of this quarter. Thank you, everyone. Have a great day.

Thank you, ladies and gentlemen. That does conclude the Super Micro First Quarter Fiscal 2018 Business Update Conference Call. We do appreciate your participation. You may disconnect at this time. Thank you.