Good day, thank you for standing by. Welcome to the Super Micro Fiscal Q3 2021 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] I would now like to turn the conference over to your host, Ms. Nicole Noutsios, Investor Relations.

Good afternoon and thank you for attending Super Micro's call to discuss financial results for the third quarter of fiscal 2021 which ended March 31, 2021. 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 may refer to a presentation that is available to participants in the IR section of the company's website under Events and Presentations tab. We have also published management scripted commentary on our website. Please note, that some of the information you hear during the 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 the potential impact of COVID-19, to the company's business and results of operations. There are a number of risk factors that could cause Super Micro's future results to differ materially from our expectations. You will more about these risks in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2020 and our other SEC filings. All of these documents are available on the IR section of Super Micro's website. We assume no obligation to update any forward-looking statements. Most of today's presentation, 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 in the supplemental information attached in 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 like to turn the call over to Charles Liang, Chairman and Chief Executive Officer.

Thank you. Nico and good afternoon everyone. Last quarter, we have performed, our growth strategy well, by winning new key customers extended our global operation and introduced a whole new generation of hotels. We have released our fiscal 2021, third quarter financial results. Let's take a look at some highlights. Our fiscal third quarter net sales totaled $896 million, up 16% year-over-year and up 8% sequentially. For the first time in our company history since IPO, the revenue from seasonally-weak March quarter significantly surpassed that of the December quarter. Our fiscal third-quarter non-GAAP earnings per share was $0.50, above the midpoint of our previously guided range of $0.37 to $0.57. In this quarter, we also generated a record revenue from the Asia Pacific region, demonstrating our continued and expanding traction in Asia. We continue to execute our three-year growth strategy highlighted in our recent investor update on March 4th. Our progress, judged by historical industry growth rates, has propelled us to resume the position of the fastest growing U.S.-based server/storage manufacturer. More importantly, we achieved all this despite so much of our focus having been on growing the company's long-term foundation. Earlier this quarter, we introduced the industry's most comprehensive server portfolio leveraging the latest processors from both Intel and AMD. Our application-optimized solutions are gaining traction among the world's most advanced datacenters and enterprises. We have several committed early ship customers that have deployed thousands of server units, led by our SuperBlade. We also seed out optimized systems for many verticals such as artificial intelligence, telco, cloud and more. One successful example is our collaboration with Osaka University in Japan with our liquid-cooled HPC solution, which takes full advantage of the new powerful Ice Lake processors. Hundreds of other customers have already utilized our early sampling program or accessed…

Thank you, Charles. Since moving to the CFO role at Super Micro last quarter, I am even more excited about the future of the company than when I joined in 2018. We continued to execute in all major areas of the company this quarter and are pleased with our results and outlook. Our fiscal third quarter revenue totaled $896 million. This reflects a 16% year-on-year increase from the same quarter of last year and an 8% increase from the second quarter of fiscal year 2021. Systems comprised 77% of total revenue and the volume of systems and nodes shipped were up sequentially and year-over-year. System ASPs also increased year-over-year and quarter-on-quarter. Geographic performance was strong across all major geographies. On a year-on-year basis, the U.S. increased 18%, Asia increased 29%, and Europe increased 3%, Rest of World decreased 12%. On a sequential basis, U.S. sales increased 8% quarter-on-quarter, Asia increased 28%, and Europe increased 5%, Rest of World decreased 46%. From a customer point of view, we saw increases in sales to large data center and AI customers. From this point forward, unless otherwise noted, I will be discussing financial metrics on a non-GAAP basis. So working down the P&L, Q3 gross margin was 13.8%, down year-on-year and quarter-on-quarter. In our February earnings call, we stated that we expected gross margin to decline approximately 120 to 160 basis points sequentially due to the lack of a Q2 discrete cost recovery of that and product mix. Due to high demand in our -- for our products and in our supply chain, we incurred higher transportation and other additional costs. I will further address this in the outlook, as we do expect some of these cost headwinds to abate in the coming quarter. Turning to operating expenses, Q3 OpEx on a GAAP…

Operator, we can start with questions.

[Operator Instructions] Your first question is from Mehdi Hosseini from SIG.

A couple of follow-ups. I am just trying to better understand as you look into the second half, especially given your strong revenue guide for the June quarter. How do you see momentum into September and December quarter and how do you see some of the demand drivers like new servers, CPU and other cloud, or data center related drivers impacting your revenues into the second half and I have a follow-up.

Yes, I mean, as you know, we had spent a local for April to engage high profile accounts in last 3 months and I'd like to share we see it as we achieved an achievement. So now we grow a lot of high profile account and those account, lots of them start August and that's why we see March, we already have a strong quarter and then Q1 until our June quarter we are very strong, would it be the first time over $1 billion. In September, Steel, we see that pipeline is strong as well. Shortage, we will soon reach our, kind of a long-term pattern very closely and the shelter in this situation continue to be very tough, but as of today, our home is, the home is from our vendors have been praising you good. So I feel pretty comfortable, although there are strategy everywhere.

Okay. And in that context, how do you see increasing in commodity prices for instance, storage and DRAM impacting your margin profile into the second half.

For most account indeed our customer happy to accept the higher price basically chip what has been healthy margin and viable pay course, we pay most of the customer happy to expect because it's kind of surprise basically. So we were to valuable customers will negotiate, based condition, for our sale for our customer but this year, most of the Spain. And we expect that close.

Just a quick follow-up. Have you been able to build a strategic inventory so that you would benefit from lower cost, as you think about the, as you think about the shipment over the next, let's say six months or do you have to continue to buy higher cost inventory and then you would pass on that incremental cost of the customer?

Well this is difficult question. Indeed we happen maturity, we have since many months ago. So yes, you are right, we had increased our inventory since I would say three months, potentially ago. So we have been lacking in that area, but still our inventory limited. We saw growing very strong demand, very soon. I mean, we had to kind of our pay higher for our newly entered this year.

Your next question is from Ananda Baruah.

Yes, good afternoon and thanks for taking the question and congratulations on the results and I'm putting them up just after you've done the analyst event. So and that's pretty exciting to see. I guess a couple of follow-one to the direction that Mehdi was kind of asking questions could you give a little, a little more context in the key vertical areas where you're seeing the most pronounced order pick options and I guess kind of, off the top of my head, I'm thinking, hyperscale cloud customers versus large enterprise customers like on premise and also the carriers for 5G and I know there's new activity going on in all of in each of the buckets. But just interested in getting context to where you're seeing the most pronounced pickup, appreciate it. And I have a further follow up or two. Thanks.

Yes, thank you. Yes, it is. Again, we have been growing well in our 5G and telco. So we saw dip in some volume in March quarter and we have a more and more telco 5G customer continued to engage or start to grow didn't have their demand, not a very good time to us. And that part of our remedy well. Other than that, you know, kind of a mega price and the senior contact very prevalent for other medical improvement. We also again some good traction there and high performance account especially private cloud and some HPC especially, HPC with new isolate in Milan in Nvidia new GPU that consume much more power than before and not by dip coding, had been we come out of as well. So it's cloud service is also for HPC customer with our very optimize dip coding solutions.

And Charles in your prepared remarks, you imagine accelerating revenue growth, I think you said in the coming quarters. As well as kind of in the coming years as I guess coming quarters, I don't want to pin you down too much, but should we expect, can that occur over the next four quarters and how much I guess, do you have, it is a situation where you think like timeline next, let's say, four quarters do you feel like you have the account traction currently to do that or does that involve new account.

Or sort of new penetration conversations inside of existing accounts that have yet to occur.

Beneath IP, we sort our existing account are growing their demand. And that's why we have extend our capacity, especially in Asia quickly and with higher very high scale so also we are again engaged in a have lots of high-profile counting in your mines and those are going to start order and we will continue engage those high-profile accounts. We have enhanced our sales team including our B2B automation system that we are here, and all cut into sales. So our sales inputs more high-profile account now. So I too believe very strongly that there also have speeding up quarter-after-quarter and year-over-year.

And last one for me, is it July, if I am remembering accurately June, that the new Taiwan center is opening up for production.

June or July we do not final yet, it can be either way, it kind of depends on situation.

[Operator Instructions] Your next question is from Jonathan Tanwanteng.

Hi guys. Thank you for taking the questions and very nice quarter and nice to see that demand out there. My first question is what kind of gross margins do you think you can get in the September quarter and I know there's a lot of moving parts but, especially given the inflationary environment, you your new facility coming online which should lower your costs. You have the new sales tools, which improve your efficiency, I think you alluded also that you're burning through your strategic inventory lower costs, so I'm just wondering with all the puts and takes, do you thinking you can improve from the quarter into the September quarter and beyond that.

Yes. I can say I did feel you and tell you the part of detail, I mean the March quarter, we have a lot of product ship by air because our satisfaction have been parity. So you ship by air and a lot of buyer speak of propulsion from our vendors. So we faced some overhead there for March quarter and looking forward for September situation would have been much improved. David, you can add something?

Yes, so as Jon, as we mentioned the ASPs are up quarter-over-quarter and year-over-year. So we were looking forward to improving our margins toward us as we outlined back on March 4th of 14% to 17%. So I think that's our general guidance.

Okay, great, thank you for that and David, can you actually talk about your expected -- your expectations on cash flow, as we get through the next couple of quarters, I know you used a lot this quarter types of these buybacks as well, but as demand ramps. Do you see yourself using more cash, or do you think you alone, you've collect some of that back. Just your general thoughts.

Sure. That's a good question. We because we returned $43 million back to the shareholders this quarter, in addition to growing accounts receivable and inventory. And so, and also continuing our capital improvements in Taiwan. So as we complete our build-out in Taiwan. The cash demands will abate over there and also we've already grown our inventory now to over $900 million. And so, we expect that the growth rate of inventory is not going to be the same as it was during this quarter. So this quarter was especially demanding because we had such a -- we had such high demand. And so we don't, the rate of acceleration will not be the same.

Do you think you'll be cash flow positive in the next quarter or after I guess something that there in Taiwan.

Yes, it's going to depend on, it's going to depend on our growth and so that's really what it comes down to is how is -- if we go. If we exceed our growth target.

We will stop of buying the stock back for this quarter that region is because our business, we have got our base strong and we need more cash flow to prepare inventory,

Got it. Good problem to have. Last one from me, I think on Intel mentioned a bit more digestion in data center. Are you seeing that at all in your Intel product lineup, and if you are, is it your products the AMD's, AMD videos that are driving the strength that you're seeing going forward?

You're are right over, we have a customer kind of require for Intel CPU, AMD CPU and NVIDIA GPU. So as it is moment we feel, it's hopefully a strong demand and also see some, the price changes as well this year.

Your next question is from Nehal Chokshi. Your line is open.

Congratulations on the strong results here. It's not like the drivers of the 8% be rinelative to midpoint guidance was the new customers equally between cloud apps and the customers and AI. Do these new customers come with the new products or is it using existing products.

It's a combination. We have a lot of customer need new GPUs solution from Nidia, so now the Nvidia GPU has done is I say, some in the lag. So yes, most of the girls I believe with new our new product but even existing product we see a strong demand the whole limitation is kind of a shortage, so we are working very hard to improve our situation.

What about demand on the storage heavy side of things. Nextgen storage and JBOF storage.

I would like to say not to us, not hard as AI and 5G careful but still we see us some demand.

But then I think there, there's been a lot of discussion during the call about price inputs and that's been an issue for a lot of companies out there. It sounds like you guys have been able to skirt that issue. Just to be clear, is it because of the strategic inventory reserves or is it because there has been a more favorable pricing environment. So you can pass on these input price increases to your customers.

First, I mean that we have a long-term contract and relationship with our supplier that happen as people with cost or kind of most or at least a stable and yes, most of the plasma also except our case through the cost so in both situation I feel we are in good condition.

And is that what underpins the confidence and gross margin will tick back up in the June quarter.

Now, gross margin pretty much because of shipping charge. It's basically some ship of the year. As you know, how the COVID-19, the ship by air cost grew about got triple, and they will not be there but in that few quarter that is the situation and also because of demand strong, so we have the production and we, in some case we had to pay extra to our vendors to our own delivery.

I'm showing no further question at this time. I would like to turn the conference back to the company for any additional or closing remarks.

Thank you, everyone for listening us today and have a good one. See you next time. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.