超微電腦 (SMCI) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to today's Super Micro Computer Incorporated fourth quarter and full fiscal 2013 conference call. The Company's news release issued earlier today is available from its Website at www.supermicro.com.

In addition, during today's call, the Company will refer to a slide presentation that it has been made available to participants, which can be accessed in a downloadable PDF format on its Website at www.supermicro.com in the Investor Relations section under the Events and Presentations tab.

During the Company's presentation, all participants will be in a listen-only-mode. Afterwards, securities analysts and institutional portfolio managers will be invited to participate in a question-and-answer session, but the entire call is open to all participants on a listen-only basis.

As a reminder, this call is being recorded Tuesday, August 6th, 2013. A replay of the call will be accessible until midnight August 20th by dialing 1-877-870-5176 and entering conference ID number 1121163. International callers should dial 1-858-384-5517.

With us today are Charles Liang, Chairman and Chief Executive Officer; Howard Hideshima, Chief Financial 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 conference call and financial results for the fourth quarter and full fiscal year 2013, which ended June 30th, 2013. 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.

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.

Please turn to slide two. Before we start, I 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 2012, and our other SEC filings. All of those documents are available from the Investor Relations page of Super Micro's Website at www.supermicro.com. We assume no obligation to update any forward-looking statements.

Most of today's presentation will refer to non-GAAP financial results and outlooks. For an explanation of our non-GAAP financial measures, please refer to slide three of this 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 to today's presentation.

I'll now turn the call over to Charles Liang, Chairman and Chief Executive Officer.

Thank you, Perry, and good afternoon, everyone. Please turn to slide four. First, let me provide you with the highlights of our fourth fiscal quarter. We are pleased that our fourth quarter revenue was $322.3 million. It's 15.9% higher quarter-over-quarter and 16.8% higher year-over-year. This result was a record high for Super Micro.

Non-GAAP net income was $11.3 million or 12.6% higher quarter-over-quarter and 39.2% higher compared to last year. Super Micro's non-GAAP earnings per share was $0.26 per diluted share compared to $0.23 last quarter or $0.18 last year.

Slide five, please. In my comments today, I would like to discuss our results last quarter as well as our achievements during the past fiscal year before providing some insights on our plans for the upcoming year.

Last quarter, we achieved record high revenue, which was 16.8% higher than last year. This strong fourth quarter performance helped to push our full-year revenue to $1.16 billion, representing 14.7% growth over last year.

Although our growth occurred this year is a bit slower than past years, (inaudible) it was about three times higher than the industry average. This way, our growth indicates that we continued to take much share consistently.

Last quarter, our server systems contribute 47.4% of our total revenue. 43.3% of our business last quarter came from OEMs and direct customers. Moreover, Internet datacenter account for 9.5% of sales.

This result indicated that more and more of our partners choose our complete service solutions due to the overall quality and performance optimization.

Geographically, revenues in North America was 56.2%. Europe was 23%, and Asia was 18.6% of total sales. Our growth in North American continued to be strong and very consistent as we broadened our base in key regions in US and especially the East Coast.

Europe has been growing slowly and was good overall, considering the economic difficulties over the past year.

In China, business is growing strongly, while the rest of Asia has steady growth.

Last quarter, we saw strong growth from several product lines on a year-to-year basis. Storage remains our leading product in that category, which the growth was up to 46%. (inaudible) were very strong last quarter and were 179% higher. GPU and Xeon Phi solutions were also strong and continue to be a very key product line, with growth over 30% higher.

New products, such as Microcloud, grew 100% and ramping rapidly. Finally, our switch products seen good demand and were 139% higher.

Our bread-and-butter (inaudible) server products also grew strongly last quarter, led by our FatTwin products. Our twin solutions were up 200% year over year. This new product is quickly ramping as many of our customers recognize that many applications can be based optimized on FatTwin solutions.

Last quarter, we also launched the new [Houseware] UP server [bowl] and service solutions. (inaudible) of our next generation [IV Bridge BP] and [Ableton] UP platform is in progress as well.

Our target is, again, being the first to market with the broadest product line featuring these new processors.

Slide six, please. Looking back over fiscal 2013, we have many product highlights. One of the most significant highlights was the launch of our FatTwin product line. We launched FatTwin about nine months ago. And today, we have 15 SKU and growing.

Each of those SKU are optimized for their specific applications, such as Web hosting, storage, HPC, or even Hadoop.

With the leading storage density power efficiency performance and cost, the FatTwin 9 have been ramping quickly. And in the fourth quarter, it had really broke out by growing 179% sequentially.

Besides the FatTwin, we have many other key products that performed well in their respective verticals. For storage, the key product being the [SC847B], which features [hard] swap capability of up to 72 3.5-inch hard drive (inaudible).

The demand for high-density storage has been very high. And we will introduce yet even higher-density storage.

For HPC, Super Micro continued to be a major player in accelerate computing featured in a [409] of systems that are optimized for GPU Xeon Phi products.

For Cloud, our Microcloud product line enjoys a great success among customers with its 3U 8-node, 12-node, and (inaudible) 24-node configurations. Higher-node density solutions are coming soon with higher performance and efficiency based on the new Houseware and Ableton processors.

As for networking, we also launched several new layer 2, 3, 10G (inaudible), and SFP [product] switch solutions that provide cost-effective low-latency connectivity options.

This past year, we also launched our brand new Super Micro Server management utility software with many years of development and optimization. Our software allows IT managers to remotely manage servers [deployed] across the group with no impact to customer applications.

It also integrates easily with existing infrastructure cost effectively. The suite of software that has been launched include IPMI utilities, Super (inaudible) and Super Micro power manager, upgrade manager, and command manager.

Although fiscal 2013 was a challenging year in terms of softer IT spending, hard driver issue at the beginning of the year, and continuing economic weakness in Europe, Super Micro performed strongly and outgrew the industry and our competition with our great products.

Also, with our first full year of operation in our Taiwan facility under our belt, our Asia region grew approximately 24% year over year, driven by strong growth in China.

These efforts enabled us to take market share with all of our product line and build our foundation with strong product innovation and enhanced infrastructure.

Looking ahead to fiscal 2014, Super Micro's foundation has never been stronger. And our potential has never been greater. We believe we can continue the momentum and grow a pace that is several times faster than the industry.

With Houseware and the coming (inaudible) bridge new product launches as well as our much more efficient global operation today, Super Micro will again lead the industry with the advanced server and storage solutions that the IT industry demands.

For more specifics on the fourth quarter, let me turn it over to Howard.

Thank you, Charles, and good afternoon, everyone. I will focus my remarks on earnings, gross margins, operating expenses, and similar items on a non-GAAP basis, which reflects adjustment to exclude stock compensation expenses.

Reconciliation of GAAP to non-GAAP is included in the financial statements of the Company in today's earnings release and in the supplemental detail in the slide presentation accompanying this conference call.

Let me begin with the review of the fourth quarter income statement. Please turn to slide seven. Revenue was a record $322.3 million, up 16.8% from the same quarter a year ago and up 15.9%, sequentially.

The increase in revenues from last year was primarily due to our high-density energy-efficient storage products. We are confident that our rich platform of storage solutions will be able to take full advantage of this segment's growth. Also, our FatTwin platform continued its strong ramp. It offers a high-density energy-efficient solution geared toward HPC Cloud and Hadoop markets.

The sequential increase in revenue from last quarter was primarily due to seasonal strength, especially exhibited by the growth in our twin platform, such as 2U Twin Squared and FatTwin, which have been optimized by the HPC Cloud and Hadoop markets as well as our blade products in the HPC market.

We also saw a good launch in our UP household-based products late in the quarter.

We saw strength in all geos with business ending strongly in the month of June. And we continue to ramp our Taiwan facility.

Slide eight. Turning to product mix, the proportion of revenues from server systems was 47.4% of total revenues, which was up from 44.6%, the same quarter a year ago and up from 41.8% last quarter. ASPs for servers was $2,400 per unit, which is up from $2,000 last year and up from $2,100 last quarter.

We shipped approximately 64,000 servers in the fourth quarter and 1,270,000 subsystems and accessories. The increase in server units from the prior year and last quarter resulted in part from an increase in shipments of twin and blade solutions to HPC customers.

On a processing compute basis, we shipped more high-density solutions than in the prior year. This is reflective of the increase in density, which our customers as well as the rest of the industry are driving for.

We continue to maintain a diverse revenue base with over 600 customers and none of these customers representing more than 10% of our quarterly revenues. Internet datacenter revenue was 9.5%, which was a decrease from 10.8% in the prior quarter. Furthermore, 56.2% of our revenues came from the US and 56.7% from our distribution and resellers.

Slide nine and 10. Non-GAAP gross profit was $46.3 million, up 8.5% from $42.6 million in the same quarter last year and up 18.3% from $39.1 million sequentially. On a percentage basis, gross margin was 14.4%, down from 15.5% a year ago and up from 14.1% sequentially.

Price changes for Ablecom resulted in no basis points change to gross profit in the quarter with total purchases representing approximately 17% of total cost of goods sold compared to 22.6% a year ago and 18.7% sequentially.

The year-over-year decrease in gross margin resulted from price changes in hard disk drives since the flood in October of 2011, offset in part by favorable product mix in the current quarter when compared to the prior year.

Sequentially, gross margins were up due to favorable product mix and more complete server solutions and less Internet datacenter revenue.

In general, we have higher margins in complete server solutions than in subsystems and accessories.

Slide 11. Operating expenses were $31.2 million, up from $30.6 million in the same quarter a year ago and up from $30.8 million sequentially. As a percentage of revenues, operating expenses was 9.7%, down from 11.1% year-over-year and from 11.1% sequentially. Operating expenses was higher on an absolute dollar basis year over year and sequentially.

We saw year-over-year increases in absolute dollars, primarily in R&D, as we invested in headcount and materials to drive innovation in our product portfolio and to increase performance in density and power.

Sequentially, operating expenses was up due to higher prototype and material testing fees associated with the rollout of our X10 household-based products.

The Company's headcount increased by 27 sequentially to 1,595 total employees. We continue to focus on leveraging the investment we have made in our infrastructure while still making strategic investments in our product portfolio.

Operating profit was $15.1 million, or 4.7% of revenue, up by $3.1 million from $12 million a year ago and up by $6.8 million from $8.3 million sequentially. Net income was $11.3 million or 3.5% of revenues, up $3.2 million from $8.1 million a year ago and up $1.3 million from $10 million sequentially.

Our non-GAAP fully-diluted EPS was $0.26 per share, up from $0.18 per share a year ago and up from $0.23 per share sequentially. The number of fully diluted shares used in the fourth quarter was 44,171,000.

The tax rate in the fourth quarter was a non-GAAP basis was 24.7% compared to 31.6% a year ago and negative 23.1% sequentially. The tax rate was lower from last year due to the retroactive reinstatement of the R&D tax credit in January.

We expect the effective tax rate on a non-GAAP basis to be approximately 29% for the first quarter, which is down from 31.3% in the same quarter last year.

Turning to the balance sheet on a sequential basis, slide 12, cash and cash equivalents and short- and long-term investments were $95.7 million, down $1 million from $96.7 million in the prior quarter and up $11.9 million from $83.8 million in the same quarter last year.

In the fourth quarter, free cash flow was a negative $0.6 million, primarily due to the increase in accounts receivable to support growth in our revenue.

Slide 13. Accounts receivable increased by $27 million to $149.3 million. And DSO was 38 days, a decrease of one day from 39 days in the prior quarter.

Inventories decreased by $3.2 million to $254.2 million with the days in inventory decreasing by 10 days to 84 days. The decrease in inventory was due primarily to record revenues during the fourth quarter.

Accounts payable increased by $9.3 million to $172.9 million, with days payables outstanding decreasing by four days to 55 days, primarily due to the decrease of inventory in the quarter, as mentioned above. Overall, cash conversion cycle days were 67 days, a decrease of seven days from 74 days in the prior quarter.

Now, for a few comments on outlook, as indicated previously, during the fourth quarter, we saw a seasonally strong quarter in which we continued to benefit from our energy-efficient and high-density solutions we have pioneered for many years.

As we enter the first quarter, we continue to see this growing in importance as well as leveraging new technology launches from our partners. However, the first quarter is seasonally a weak quarter for the industry.

Therefore, the Company currently expects net sales for the quarter ending September 30th, 2013, in the range of $295 million to $315 million. Assuming this revenue range, the Company expects non-GAAP earnings per diluted share of approximately $0.17 to $0.23 for the quarter.

It is currently expected that the outlook will not be updated until the release of the Company's next quarterly earnings announcement. Notwithstanding subsequent developments, however, the Company may update the outlook or any portion thereof at any time.

With that, let me turn it back to Charles for some closing remarks.

Thank you, Howard. The first quarter was a record high for Super Micro with growth at 16.8% higher year over year and which again outpaced the industry's growth rate.

We saw new [fiscal] with the strongest product line in our history and with our global operation ready for growth. We believe that, with this strong [organization], we will continue our growth trend in fiscal 2014.

Operator, at this time, we are ready for questions.

(Operator Instructions). And we'll take our first question from Mark Kelleher with Dougherty & Company.

Great. Thanks. Congratulations, guys. Great quarter.

Wanted to look at the gross margins. You had a fairly strong server result for the quarter. Of course, that carries the higher gross margins. You've got some better utilization going on in the Taiwan manufacturing. You renegotiated some hard disk drive pricing during the quarter. And yet, we only had a couple, maybe 20 basis points of improvement in gross margin.

I'm just wondering if you could kind of give the puts and takes on gross margins and remind us what your longer-term goal is for gross margins.

Hi, Mark. This is Howard. And thank you, first, for the comment.

With regards to gross margins, the puts and takes, again, some of it was still -- if you're comparing from a sequential basis, you saw us basically have a higher mix of some of the storage products, which typically have a higher content of the [past recomponentry]. So, that kind of weighs in on the overall type of service solution type of margin. That was probably the biggest item in that particular point because, as we indicated, we had a pretty strong quarter with regards to our server products, our storage products, excuse me.

With regards to our guidance, it is 16% to 18% from -- in the next nine to 15 months.

Okay. And just as a follow-up question, in terms of the product roadmap that you're expecting this year as Intel rolls out some new products, can you maybe give us some hints on where your product roadmap is going to go over the next couple quarters?

Yes, we have a very strong new product line ready. Like, last month, we just launched Houseware UP product line. And that was a really big product line. And as you may know, Intel IV Bridge will be officially launched very soon, basically next month. So, we have a complete product line ready for that as well as FatTwin continue to grow and our Microcloud also continue to grow rapidly. So, in term of products, we are in a stronger position in our history.

Okay. Great. Thanks.

Thank you.

We'll take our next question from Aaron Rakers with Stifel.

Yes, thank you for taking the questions. First, just a clarification or maybe a longer-term model input. You're guiding 29% gross margin for the September quarter. How do we think about the progression -- I'm sorry, tax rate. How do we think about the progression of that tax rate beyond the September quarter?

I think, Aaron, we don't give the full guidance. But, if you look back historically, I think you'll probably see it within that range. We've got the R&D credit that's probably going to expire at the latter part of December. But, again, we've got the Taiwan facility also giving us some benefits going forward, too. So, first quarter 29% seems like a reasonable rate.

Okay. And what is the current utilization on the Asia facility?

Indeed, there has been improvement, steady, stably. Last quarter I guess was about 25%. And this quarter was about 35%. And next quarter, I believe we'll have even better.

Okay. And then also, on the Internet datacenter vertical, looks like you've declined about 20% the last two quarters on a year-over-year basis. Can you talk a little bit about what's happening in that vertical specifically? Have you started to see increased competition, or is there kind of inherent lumpiness that we should be thinking about that kind of snaps back over the next couple quarters?

It's kind of (inaudible) based. So, sometimes, it's higher. Sometimes, it's lower. But, with our Asia operation ready now, we have a much better cost structure now. So, we will be more aggressive in that segment in the near future.

Okay. And then final question from me is on the OEM plus the direct business. That looked particularly strong in the quarter. Was that more driven by OEM versus direct? Can you just talk about where exactly you're seeing -- it looks like it's up about 22% sequentially -- where you're seeing that relative strength on a sequential basis?

Basically, it's both. And I would like to say the most influence is products because we just have FatTwin, a brand new architecture available about nine months ago. And that architecture performed the best in terms of (inaudible) per watt and in term of density and higher performance. So, because of the strong product line, that's why we grow both in OEM and (inaudible) big corporate or datacenter.

Thank you.

Thank you.

And we'll go next to Glenn Hanus with Needham.

Yes, congrats from me as well. IV Bridge timing, you mentioned next month. Has that slipped a little bit nominally a couple weeks or anything, or is that pretty much timing the same as you thought it would be a few months back?

Looks like it will be the same, keep it the same. And this time, looks like our solution will be 100% ready. So, we are very optimistic for our ramping up.

Yes, so real healthy ramp I guess in the December quarter?

September quarter a little bit, yes, most though will be December quarter.

Yes, you want to spend a minute on operating expenses? Let's see. It came in -- at least according to my model, you came in $1 million or so under what I was expecting, some in sales and marketing, some in G&A. You were a little bit more than I thought in R&D.

Can you talk about the puts and takes on OpEx this quarter? Did you make some conscious effort to reduce anything? And any color you can give us over the next couple quarters on OpEx.

Yes, Glenn, with regards to some of the puts and takes, I think, last quarter, we were rolling out some of the household solutions, as I mentioned there. So, we incurred some more testing and materials expenses as we were rolling out that product. But, we are watching our overall operating expenses and trying to leverage it as best we can.

I think we'll have some annual increases that happen normally for us on a timing basis with regards to salary increases. But, that won't be huge. And going forward, I think we're going to still keep an eye on that and keep our -- trying to leverage our expenses.

Did you come in on OpEx below what you might've though of three months ago, or was it just my model was expecting too much?

I'm not -- I don't know if I can comment on your model. But, I think it's coming in where we're thinking about with regards to basically -- how do I want to put it -- leveraging our expenses.

So, the current R&D level in the recent quarter included some -- I don't -- call them one-time types of items. As we go into December with the IV Bridge launch, should we anticipate some incremental R&D there?

Yes, basically, like what we share in last few quarters, we grew indeed about 90-something percent engineering headcount in that three years. So, pretty much, (inaudible) become very strong. And we do not plan to hire many more people in the near future.

Okay. All right. Thank you very much.

(Operator Instructions). We'll go next to Ted Moreau with KCG.

Yes, thank you for taking my question. I was just wondering if you think today's announcement by IBM and their new open power consortium impacts your business at all, or are you agnostic to an x86 architecture versus the momentum in maybe ARM-based servers or even this new IBM announcement? Do you have any thoughts there?

We open our eye for all possibilities. But, basically, we are very concentrated on our expertise, our strengths as well. So, x86 for sure will continue to be our main focus. But, yes, we open our eyes for whatever new technology or product line the customer have demand.

Okay. So, would you then design products around this new potential, like, IBM opportunity or even what's going on with ARM then? Is that how it works?

Yes, it's possible. Like what I say, we -- our design depends on what customer need.

Sure. Okay. Thank you.

(Operator Instructions). And at this time, we have no further questions. So, I'd like to turn the call back over to your speakers for any additional or closing comments.

Thank you for joining us today, and we look forward to talking to you again at the end of this quarter. Thank you, everyone. Have a great day.

Thank you, ladies and gentlemen. That does concludes the Super Micro fourth quarter and full fiscal year 2013 conference call. We do appreciate your participation. You may now disconnect at this time. Thank you.