Q4 FY2022 Earnings Call
SMCI · Preprocessing Report
2022-08-09
Quality
100%
53
Turns
7
Speakers
5
Sections
4
Exchanges
340
Claims
Quality issues

Entities by group 17

company executives 2
David WeigandpersonCharles Liangperson
analysts 3
Ananda BaruahpersonJon TanwantengpersonNehal Chokshiperson
gpu accelerators 2
GPUtechnologyH100product
artificial intelligence 1
AItechnology
cloud orchestration 1
Super Cloud Composerproduct
system configuration software 1
Intelligent Auto Configuratortechnology
wireless connectivity 1
5Gtechnology
internet of things 1
IoTtechnology
3d simulation platform 1
Omniversetechnology
Ungrouped 4
Super Micro ComputercompanyIntelcompanyAMDcompanyFederal Reservecompany
REPORTING 102PROJECTING 36POSITIONING 83EXPLANATORY 14ANALYST 49

Topics 79

revenue×55earnings×16solution×13supply×10gross×10inventory×9taiwan×9capacity×8operating×8it solution×7demand×7tax×6guidance×6growth×5market×5customer×5cash flow×5data center×4automation×4pricing×4

Themes 219

guidance×8non-gaap×7growth×7oem appliance and large data center×5fiscal 2023 guidance×5working capital×4q1 fy2023 guidance×45g telco edge iot×3gaap×3design wins×2fiscal fourth quarter results×2ai platforms×2rack-scale solutions×2year over year growth×2organic enterprise channel and ai×2system and node×2geographic mix×2u.s. growth×2europe growth×2rest of world growth×2long-term target×2interest expense×2sequential increase×2share gains×2inventory management×2quarterly guidance×2pricing×2margin expansion×2rack-ready×2improvement×2share gain×2acceleration×2ai demand×2sustainability×2p&l impact×2annual performance×1quarterly performance×1estimate beat×1gpu and ai×1green computing adoption×1solution strategy and green computing×1beats guidance×1operating leverage and customer preference×1usa growth×1domestic demand×1international expansion×1rack-scale plug and play×1annual target×1mid-term target×1september quarter guidance×1full-year guidance×1issues easing×1seasonal growth×1lower infrastructure cost×1shortens lead times×1integrated control×1cloud orchestration and analytics×1workload efficiency tools×1infrastructure as a service×1customer adoption×1application-optimized solutions×1go-to-market efficiency×1customer growth×1capacity supports revenue×1shipments×1rack-scale expansion×1rack-scale output×1product line expansion×1early deployment programs for new processors×1green solutions to lower cost and environmental impact×1higher costs and power constraints×1high-temperature air and liquid cooling×1cooling options×1total cost of ownership×1industry savings×1environmental savings×1cost savings×1green rack-scale it×1industry growth×1year over year acceleration×1expansion outlook×1software enhancement×1new vertical expansion×1$10 billion target×1$20 billion target×1quarter over quarter growth×1above initial guidance×1above updated guidance×1annual growth×1fiscal 2022 increase×1gpu and ai, storage, cloud, and edge platforms×1enterprise channel and oem×1accelerated growth and expanding margins×1balanced across market verticals×1resilience in q4 fy2022×1organic enterprise and channel ai×1share of total revenue×1customer and product-driven growth×1emerging 5g telco edge and iot growth×1emerging 5g telco edge and iot share×1systems and rack-scale solutions mix×1systems share of sales×1revenue mix×1asia growth×1asia decline×1freight and logistics costs×1high-value total it solutions×1gross margin gains and operating leverage×1above target model range×1expenses×1short-term borrowings×1higher pretax profit and lower tax rates×1joint venture share×1higher revenue and gross margin×1operations×1quarterly decline×1sequential decrease×1bookings×1quarterly result×1closing balance×1bank debt×1cost stabilization×1long-term growth and profitability×1share repurchase program×1days of inventory×1days sales outstanding×1days payable outstanding×1product ramp×1rising costs and investment×1contribution×1tax rate assumption×1share count assumption×1q1 fy2023 outlook×1earnings×1repeat request×1discipline improvement×1cost offset×1cost decline×1vertical solutions and oem appliances×1high-end ai wins×1ai platform growth×1rack-install customer×1core offering×1top-value companies×1semiconductor cycle downturn×1margin improvement×1build ahead of launch×1traction and inventory balance×1strong quarterly results×1accelerating growth×1multiple growth drivers×1rack-scale solution×1geographic expansion×1ai high-end×1storage and switch capabilities×1customer value×1ease of use and strength×1recent trend×1macro backdrop×1investment growth×1rack-scale clusters×1rack-scale cluster shipping×1audio issue×1review×1customer-specific×1value proposition×1high value×1price discipline and value realization×1solution ramp-up×1positive update×1recessionary pressures×1macro and geopolitical risk×1impact on customers×1product cadence×1macro outlook×1sequential decline×1seasonality or supply×1macro slowdown×1constraints×1availability×1slow season×1conservative outlook×1new investment×1facility expansion×1expansion plans×1capital investment location×1global reach×1scalability×1manufacturing scale-up×1international diversification×1positive quarter×1product mix discussion×1total solutions contribution×1mix components×1total solutions adoption×1rack-scale plug-and-play×1training and facilities preparation×1continued momentum×1continued positive outlook×1rack-scale adoption across verticals×1rack-scale strategy and market fit×1local strength×1shipment constraints×1support growth demand×1healthy levels×1high volume under strong demand×1level management×1update×1utilization level×1shortage×1supply chain improvement×1rate×1taiwan manufacturing×1gross margin impact×1taiwan calculation basis×1taiwan outlook×1volume ramp×1long-term contribution×1company framing×1

Key Metrics 58

revenue×56gross margin×11inventory×9capacity×7earnings per share×5operating expenses×5diluted eps×5design wins×4shipments×4tax rate×4diluted net income per share×4guidance×4mix×4operating margin×3cash conversion cycle×3market share×3demand×3basis points×3electricity costs×2other income×2cash flow from operations×2free cash flow×2lead time×2backlog×2growth×1total cost of ownership×1revenue growth×1shipment volume×1asp×1freight and logistics costs×1interest expense×1interest rate×1tax provision×1tax expense×1income from equity method investee×1eps×1accounts receivable×1accounts payable×1capital expenditures×1cash balance×1debt×1share repurchases×1days sales outstanding×1days payable outstanding×1net sales×1other income and expense×1contribution×1capex×1share count×1pricing×1freight costs×1profitability×1cash flow×1target range×1utilization rate×1evaluation rate×1utilization×1volume×1

Entities 477

Super Micro Computer×278David Weigand×74Charles Liang×67Ananda Baruah×23Jon Tanwanteng×14Nehal Chokshi×7GPU×3AI×2Super Cloud Composer×1Intelligent Auto Configurator×1H100×1Intel×1AMD×15G×1IoT×1Federal Reserve×1Omniverse×1

Business Segments 41

Server and Storage Systems×33OEM Appliance and Large Data Center×3Subsystems and Accessories×1U.S.×1Asia×1Europe×1Rest of World×1

Sectors 97

computer hardware×51data center×10telecommunications×6cloud computing×5internet of things×5semiconductor×4software×2edge computing×2energy×1green computing×1supply chain logistics×1artificial intelligence×1cooling×1data storage×1original equipment manufacturing×1server×1extended reality×1networking equipment×1gaming×1automation×1

Regions 31

Taiwan×14Europe×4Asia×4U.S.×3rest of world×3USA×1geographies×1world×1

Metadata Distributions

Sentiment
positive 139negative 17neutral 128
Temporality
backward 103forward 57current 124
Certainty
definitive 86confident 85moderate 76tentative 37
Magnitude
major 87moderate 132minor 65
Direction
improvement 47decline 6flat 1mixed 4none 226
Time Horizon
immediate 92near_term 107medium_term 30long_term 6unspecified 49
Verifiability
quantitative 118event 12qualitative 154
Analyst Intent
probing 13challenging 2confirming 8seeking_detail 23seeking_guidance 3

Speakers

Executives
CLCharles LiangCEODWDavid WeigandCFO
Analysts
ABAnanda BaruahanalystJTJon TanwantenganalystNCNehal Chokshianalyst
Other
NNNicole NoutsiosirOPOperatoroperator

Sections

TypeLabelSpeaker
preamblePreambleNicole Noutsios
prepared_remarksPrepared RemarksCharles Liang, David Weigand, Nicole Noutsios
qa_sessionQ&A Session—
closing_remarksClosing RemarksAnanda Baruah
operator_signoffOperator Sign-offOperator

Q&A Exchanges 4

#AnalystFirmTurns
1
NCNehal Chokshi
Northland Capital Markets13
2
ABAnanda Baruah
Loop Capital6
3
JTJon Tanwanteng
CJS Securities12
4
ABAnanda Baruah
Loop Capital15

Claim Taxonomy 284

REPORTING102
resultFinancial outcome for a completed period89
metricNon-financial quantitative fact9
operationalDiscrete completed event4
PROJECTING36
guidanceQuantitative expectation with number + time30
commitmentPromise with binary verifiable outcome3
targetLong-term aspirational quantitative goal3
POSITIONING83
strategyPriority, direction, or initiative71
competitiveCompany's position or advantages0
opportunityMarket condition framed as growth driver4
riskHeadwind, constraint, or uncertainty8
EXPLANATORY14
attributionWhy a specific outcome happened7
contextNon-company macro/industry fact7
FRAMING0
thesisFalsifiable belief about how the world works0
ANALYST49
questionInterrogative seeking information32
observationRestates a fact or data point9
concernFlags a risk or challenge1
estimateAnalyst's own projection or calculation2
sentimentOpinion, praise, or critique5

Transcript

Preamble
OP
Operatoroperator
Ladies and gentlemen, thank you for standing by. And welcome to Super Micro Computer, Inc's Fiscal Fourth Quarter 2022 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Nicole Noutsios, Investor Relations, you may begin your conference.
NN
Nicole NoutsiosirSuper Micro Computer, Inc.
Good afternoon. And thank you for attending Super Micro's call to discuss financial results for the fourth quarter, which ended June 30, 2022. With me today are Charles Liang, Founder, Chairman and Chief Executive Officer and Dave Weigand, Chief Financial Officer. By now, you should have received a copy of the news release from the company that was distributed at the close of regular trading and is available on the company's website. As a reminder, during today's call, the company will refer to a presentation that is available to participants on the Investor Relations section of the company's website under Events & Presentations tab. We have also published management's scripted commentary on our website.
Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation and future business outlook, including guidance for the first quarter of fiscal year 2023 and the full year of 2023 and the potential impact of COVID-19 on 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 can learn more about these risks in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2021 and our other SEC filings. All of these documents are available on the IR page of Super Micro's website.
We assume no obligation to update any forward-looking statements. Most of today's presentation will refer to the non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation 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 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 will now turn the call over to Charles.
Prepared Remarks
CL
Charles LiangCEOSuper Micro Computer, Inc.
Thank you, Nicole, and good afternoon, everyone. Today, I'm pleased to announce record year ended out with annual revenue surpassing milestone of 5.2 billion growing 46% year-over-year. We ended the year with another great quarter with fiscal Q4 2022 revenues of 1.64 billion growing 53% year-over-year, and 21% quarter-on-quarter, surpassing both top and bottom-line estimates. Our quarterly and year end results are above our guidance given three months ago and exceed our recently obtained range given several weeks ago.
Our strong growth is fueled by recent run in design wins based on our rack scale total IT solutions, especially on GPU solutions and AI platforms. And I believe our solutions will continue to drive plenty of new design wins and accelerate our strong growth in the coming quarters and years. More customers are also recognizing and adopting the value of our green computing solutions, due to the rising environmental challenge and energy cost. The total solution strategy and green computing solution has resulted in our four consecutive quarters of growth at a minimum three times faster than competitors' growth story. Now, let's look at some of the key highlights from the year and quarter.
First, our quarter 2022, revenue totaled 5.2 billion up 46% year-on-year above our guidance range of prior year. Our fiscal year non-GAAP earnings per share of $5.65 grew 128% year-over-year compared $2.48 a year ago which exceeded the higher end of our guidance range of $4.53 to $4.71. Our fiscal fourth quarter net revenue totaled $1.6 4 billion up 53% year-on-year and up 21% quarter-on-quarter above our guidance range of $1.4 billion to $1.48 billion. Our fiscal fourth quarter non-GAAP earnings per share tripled year-over-year and was $2.62 compared to $0.81 a year ago and was way above the high-end of our guidance range of $1.51 to $1.59 and pretty much now strong operating leverage and has more preference to our rack scale total IT solutions.
With our total IT solutions experienced robust growth in USA this year. We will continue to gain even greater domestic attraction going forward. We will also expand our total IT solution to both Europe and Asia markets in the coming quarters and years. We are excited as of this generation opportunity to become a global leader of rack scale plug and play IT solutions.
Our robust fiscal year results reinforced our competence in achieving the $10 billion in annual revenue target much sooner than we guide last year. And we are now preparing for our $20 billion mid-term mission that we discussed last quarter. Based on our current supply and capacity, at least at a midpoint of our guidance range. We are forecasting 1.57 billion in revenue for the upcoming September quarter. I'm also confident that our full fiscal 2023 revenue will be above the prior guidance range of 6 billion to 7 billion. We now expect revenue to be in the range of 6.2 billion to 7 billion with EPS at least at $7.50, following the macroeconomic conditions uncertainty, we are optimistic that some order supply chain and logistics issue will begin to subside.
From a market perspective, we continue to see increasing demand for accelerating compute and AI platforms. We are meeting this demand at a both system and rack-scale level with our total IT solutions which are supported by our over 20 years of seasonal billing growth development. This billing growth products allow us to create highly optimized rack-scale plug and play direct single solutions for our customers with lower infrastructure cost and increase in significant TCO savings. Our total IT solution approach streamline design, dedication, solution and integration, resulting in a much shorter lead times for our customers which optimized quality and performance. Moreover, our total IT solution simplified integrated [inaudible] control. In addition, our super cloud composer, orchestrator, security and other products can help only manage compute, acceleration, storage and network building products at cloud-enabled including rich analytics. Data center operator can easily leverage these information to [inaudible] grow workload efficiency. So, we are expanding our investment in our data center management software stack that will enable to draw infrastructure as a service and secure monitoring as a service functionality for enhancing our total IT solution capability and value. This one stop shop approach we are aligned with emerging growth market across AI, machine learning, software defined storage, networking, public and hybrid cloud, and 5G, IoT and telco. We previously shared that we were certain that people in our community interface intelligent business automation, with new B2B B2C automation platform is being used and validated by more and more of our customer as we speak. These intelligent auto configurator will leverage our system building product methodology to carry out application optimized solutions to a much broader customer base. We expect that this tool will help tremendously grew our go-to-market initiatives, product design, operations, and service effectively. Most importantly, the automation process will considerably grow our customer base and improve customer satisfaction starting from pretty much this fiscal year. Our current manufacturing scale and capacity is a build to support between 10 billion to 12 billion in annual revenue as we continue to ramp up our next scale capabilities in our global facilities. During the June quarter, we shipped over 1000 plug and play rack, today — in the September quarter, we have double our rack-scale capacity with enhanced features at our new building [inaudible]. Our rack-scale capacity can be up to 6000 direct for quarter now. Our total development activities continue to grow strongly with close partnership with NVIDIA extending our GPU system product line including H100 very strong mix and very top product lines. Our early deployment programs with our upcoming Intel and AMD product lines are mostly ready just waiting for the new Intel and AMD processor to be available. Switching gear, we stay committed to lead the market in green computing solutions with our resource saving designs both to reduce environmental impact and of course our customers' operation. As we apply our green computing solutions at a rack-scale level, we can put in even better quality and time to market value to our customers. Higher energy costs and limitation on electricity usage will continue to strain many companies in the near future. We saw this dynamic and challenge since a decade ago, and we have been at the forefront with technology and solution that help customers go for higher temperature operation terra center, fully air cooling or liquid cooling. DNA of our customers achieved to getting TCO employee reduction in their data centers turn to 1.05 from the achieved evidence of 1.57 or even higher. By our calculations [inaudible] adoption of our green computing solutions or other suppliers' solution with similar energy visions will potentially save the IT industry more than $10 billion in electricity costs here or eliminating equivalent of more than 30 fossil fuel power plants equal to saving 8 billion trees of our planet. Personally, I'm very glad to see increased demand for energy efficient solutions for cost savings but more importantly, we must do this for our Mother Earth. Encouraging, we are focused on building and delivering much more greener rack-scale total IT solutions. From an industry perspective this is that greatest opportunity Super Micro has ever seen since our founding 29 years ago. Our year-over-year top and bottom-line performance is evidence that our total IT solution strategy is accelerating. I see our room to grow is at least another 4x in the coming years why we believe that our time will continue to expand with continued applications. We will continue to address these technology intersection by enhancing our total IT solutions, capability and capacity with the most software and we will continue to gain market share and extend it to new verticals, which increase our business scale and operating [Technical Difficulty]. My team and I will continue to escalate our growth strategies and accelerating the timeline to our 10 billion revenue target is short-term and $20 billion revenue in the future. I will now pass the call to Dave Weigand, our Chief Financial Officer to provide additional details of the quarter. Thanks.
#1
result#2
result#3
result#4
result#5
attribution#6
attribution#7
attribution#8
attribution#9
result#10
#11
result#12
result#13
result#14
result#15
result#16
result#17
result#18
strategy#19
strategy#20
strategy#21
strategy#22
strategy#23
result#24
guidance#25
result#26
guidance#27
guidance#28
strategy#29
strategy#30
metric#31
strategy#32
strategy#33
strategy#34
strategy#35
strategy#36
strategy#37
strategy#38
operational#39
strategy#40
strategy#41
strategy#42
result#43
metric#44
metric#45
metric#46
strategy#47
commitment#48
strategy#49
strategy#50
risk#51
context#52
strategy#53
metric#54
target#55
target#56
strategy#57
strategy#58
opportunity#59
result#60
guidance#61
strategy#62
strategy#63
guidance#64
guidance#65
#66
#67
DW
David WeigandCFOSuper Micro Computer, Inc.
Thank you, Charles. I'm pleased to report fiscal fourth quarter revenues of 1.64 billion or 53% year-on-year and 21% quarter-on-quarter increase. Our revenues exceeded our initial guidance range of 1.4 billion to 1.48 billion and our recently updated range of 1.58 billion to 1.63 billion. For fiscal year 22, we reported revenues of 5.2 billion representing 46% growth over fiscal year 21 revenues of 3.56 billion. Our growth initiatives are gaining momentum with our total IT solutions targeting fast growing markets and customers with accelerated GPU and AI workloads, software defined storage and networking, public and hybrid cloud and 5G Edge IoT platform. These new growth drivers complement our traditional strength, with enterprise channel and OEM customers, leading to accelerated revenue growth, expanding margins and operating leverage. In the fourth fiscal quarter Super Micro recorded balanced revenues across all three of our market verticals, demonstrating the resilient nature of our diversified end markets. We achieved 835 million in organic enterprise and channel and AI and revenues representing 51% of Q4 revenues versus 62% last quarter, up 24% year-over-year and flat quarter-over-quarter. The year-over-year growth in this segment was driven by our growing list of large enterprise customers and new product offerings. Our OEM appliance and large data center segments achieved 717 million in revenues representing 44% of Q4 revenues versus 32% last year, up 95% year-over-year and up 67% quarter-over-quarter with strong growth driven by large new and existing data center customers and OEM appliance customers. Our 5G telco edge IoT segment achieved 83 million in revenues representing 5% of Q4 revenue versus 6% last quarter and was up 172% year-over-year and down slightly by 4% quarter-over-quarter. For the full fiscal year 2022, our organic enterprising channel and AI and our revenues grew 40% to represent 61% of fiscal year 22 revenues. Our OEM appliance and large data center segment grew 44% and represent 32% of revenues. Our emerging 5G, telco edge and IoT segment grew 163% and represented 7% of total revenues.
Our mix of complete systems and rack-scale total IT Solutions has been increasing steadily. Systems comprise 91% of total revenue and subsystem accessories represented 9% Q4 revenue. On a year-over-year basis and also on a quarter-over-quarter basis, the volume of systems and nodes shipped as well as system node ASP increased due to product and customer mix. We had a balanced distribution of Q4 revenues across geographies, with U.S. representing 66% of revenues, Asia 17%, Europe 14% and rest of the world 20%. On a year-on-year basis, U.S. revenues increased 65% as the gained market share with our advanced Rack-scale total IT solutions for emerging high growth server workloads. Asia increased 38%, Europe increased 21% and the rest of the world increased 8%. On a quarter-over-quarter basis, U.S. in revenues increased 41%, Asia decreased 9%, Europe increased 9% and the rest of the world 30%. In Q4 non-GAAP gross margin was 17.6% up 200 basis points quarter-over-quarter from Q3 and up 390 basis points year-on-year due to price discipline, lower freight costs, leverage from higher factor utilization, operating efficiencies and our continually improving product customer mix.
While the supply chain disruptions achieved some success in controlling freight and other logistics costs through disciplined execution. Our Q4 gross margin was above the high-end of our long-term target model range of 14% to 17% and demonstrates the success of our new high value total IT solutions.
Turning to operating expenses. Q4 OpEx on a GAAP basis increased slightly by 1% quarter-on-quarter and 15% year-on-year to 122 million. On a non-GAAP basis operating expenses increased 4% quarter-on-quarter and increased 15% year-on-year from 113.5 million. Our non-GAAP operating margin increased significantly to 10.7% for the quarter versus 7.5% last quarter and 4.4% a year ago, demonstrating both improvements in gross margin driven by new product and customer mix and operating leverage driven by higher revenue along with disciplined expense control. Our non-GAAP operating margin of 10.7% for Q4 was also above our target model range of 5% to 8%. Other income and expenses approximately $1 billion in income consisting of 4 million in foreign exchange gain offset by interest expense of 2.9 million as compared to 4.7 million in FX gain and 1.5 million in interest expense last quarter. Our interest expense increased sequentially as we utilize our short-term credit line before financing inventory and accounts receivable. We also experienced higher short-term interest rates on borrowings driven by recent fed-ex. This quarter the tax provision was 25.8 million on a GAAP basis 29.9 million on a non-GAAP basis. Our GAAP tax rate for Q4 was 15.5% and our non-GAAP tax rate was 17.1. Our GAAP and non-GAAP tax expenses increased higher levels of pre tax profit, but though the rates were lower sequentially. Lastly, our share of income from our JV was $0.3 million this quarter as compared to [Technical Difficulty] last quarter. We delivered strong Q4 non-GAAP diluted EPS of 262, which exceeded the high end of the original guidance range of 151 to 169 and our recently updated range of 230 to 240. The increases to EPS were due to a combination of higher revenues, higher gross margins from manufacturing efficiency, price discipline, product and customer mix and operating leverage. For the full fiscal year 2022, we reported non GAAP diluted EPS of $5.65 which was up 128% year-over-year versus fiscal 2021 non-GAAP diluted EPS of 248 and higher than our initial guidance of 471. Cash flow used in operations for Q4 was 25 million compared to cash flow used in operations of 228 million for Q3 due to our improved profitability, along with better management of our inventory and working capital. Despite the 21% quarter-over-quarter increase in revenues, trimmed our inventory by 3% quarter-over-quarter. Accounts receivable increased sequentially due to higher revenues, while accounts payable decreased sequentially due to the timing of payments to our vendors. Our CapEx was $11 million for Q4 bookings and negative free cash flow of 36 million versus negative free cash flow of 239 million last quarter. Our closing balance sheet cash position was 267 million while bank debt was 597 million, as we utilized our bank lines of credit for those higher revenues [Technical Difficulty] and accounts receivable as we ramped production of new design wins globally.
As we look ahead to fiscal 2023, we expect that our continued growth in revenue and profitability together with improved working capital management leads to better operating and free cash flow. We're optimistic that some of the supply chain and logistic costs begin to stabilize. We remain confident in our long-term outlook for robust revenue growth and profitability driven by our leading-edge new platforms design win, market share gain and engagement with significant new global customers. We are announcing — also attribute $200 million stock buyback program today [Technical Difficulty] through January 31, 1.4.
Turning to the balance sheet and working capital metrics compared to last quarter, our Q4 cash conversion cycle was 100 days, versus 98 days in Q3 and above our target range of 85 to 90 Days. Days of inventory was 106 representing a decrease of 11 days versus the prior quarter of 117 that managed our inventory more efficiently. Day sales outstanding is up by three days quarter-on-quarter with 42 days, while days payable outstanding came down to [Technical Difficulty] by 10 days to 48 days. Now turning to the outlook for our business, we remain enthusiastic about design wins and plug and play flag sale total IT solutions ramping in multiple in markets. We're carefully watching the global macroeconomic situation, continuing supply chain disruptions for the first fiscal quarter 2023 ending September 30, 2022, we expect net sales in the range of 1.52 billion to 1.62 billion. GAAP diluted net income per share of $2.01 to $2.27 and non-GAAP diluted net income per share up to $2.07 to $2.32.
We expect gross margins to be similar to Q4 levels. GAAP operating expenses are expected to be approximately 126 million and they include 8.6 million in stock-based compensation 1.5 million in other expenses that are not included in non-GAAP operating expenses. GAAP and non-GAAP operating expenses are expected to increase due to continued investment in R&D and higher personnel costs. We expect other income and expense, including interest expense to be a net expense of approximately 3.6 million and expect a nominal contribution from our joint venture. The company's projections for GAAP and non-GAAP diluted net income per share, assume a GAAP tax rate of 19.4%.
Our non-GAAP tax rate of 20.3% and a fully diluted share count of 54.8 million for GAAP and 56.2 million shares for non-GAAP. We expect CapEx for the fiscal first quarter of 2023 be in the range of $6 billion to $8 billion. For the fiscal year 2023, ending June 30, 2023, we are giving guidance for revenues in a range of 6.2 billion to 7 billion.
GAAP diluted net income per share of at least $7.27 and non-GAAP diluted net income per share of $7.50. The company's projections for GAAP annual net income procurement tax rate of 20.3 and a rate of 21.1 for non-GAAP net income. For fiscal year 23, we are assuming a fully diluted share count of 55.6 million shares for GAAP and 57 million shares for non-GAAP. The outlook for fiscal 2023 fully diluted, GAAP earnings per share includes approximately 35.4 million and expected stock-based compensation and other expenses net of tax effects that are excluded from non-GAAP net income per share. Now, Nicole, will turn it back to you..
#68
result#69
result#70
result#71
result#72
result#73
result#74
strategy#75
strategy#76
strategy#77
guidance#78
strategy#79
strategy#80
result#81
result#82
result#83
attribution#84
result#85
result#86
result#87
result#88
result#89
result#90
result#91
result#92
result#93
result#94
result#95
result#96
strategy#97
result#98
result#99
attribution#100
result#101
result#102
result#103
result#104
strategy#105
result#106
result#107
result#108
result#109
result#110
result#111
result#112
result#113
strategy#114
result#115
strategy#116
#117
result#118
result#119
result#120
strategy#121
result#122
result#123
result#124
result#125
risk#126
result#127
result#128
result#129
result#130
result#131
result#132
result#133
result#134
result#135
result#136
result#137
strategy#138
result#139
result#140
result#141
result#142
result#143
result#144
result#145
guidance#146
guidance#147
guidance#148
result#149
strategy#150
guidance#151
result#152
result#153
strategy#154
result#155
result#156
strategy#157
guidance#158
guidance#159
guidance#160
guidance#161
guidance#162
guidance#163
guidance#164
guidance#165
guidance#166
guidance#167
guidance#168
guidance#169
guidance#170
guidance#171
guidance#172
guidance#173
guidance#174
guidance#175
#176
NN
Nicole NoutsiosirSuper Micro Computer, Inc.
Operator you can open the line up for questions.
#177
Q&A Session
Q&A 1/4
OP
Operatoroperator
[Operator Instructions] Your first question comes from Nehal Chokshi with Northland Capital Markets. Your line is open.
NC
Nehal ChokshianalystNorthland Capital Markets
Congratulations on amazing results. Amazing guidance clearly showing sustainable share gains story here. Let's talk about the gross margin, I think this is the first time I've heard Super Micro talk about better prices as a driver of gross margin expansion, which is great, but can you delve into why do you believe your existing prices for now versus in the past?
sentiment#178
observation#179
question#180
DW
David WeigandCFOSuper Micro Computer, Inc.
Okay. So I missed just a little bit of what you said Nehal. You said what was the question?
#181
#182
context#183
NC
Nehal ChokshianalystNorthland Capital Markets
I believe, this is the first time I've heard you guys talk about price discipline being a driver of gross margin expansion. And so I'd like to understand why is that happening now?
observation#184
question#185
DW
David WeigandCFOSuper Micro Computer, Inc.
Okay. Got you. So, we have — it took us some time to adjust to the rising freight costs and another component costs and so we managed to adjust those properly. And then, we also got some tailwind from finally from freight costs coming down 20% in q4. So those two things combined allowed us to have a higher gross margin.
#186
#187
risk#188
result#189
result#190
CL
Charles LiangCEOSuper Micro Computer, Inc.
Essentially our scale — building scale continue to grow and we maintain a very good product line and also when building scale growth, yes, we will have a higher gross margin and net margin.
result#191
NC
Nehal ChokshianalystNorthland Capital Markets
Got it. Great. And then, can you give a little bit more detail on the driver of the — strength in the quarter which was leading edge vertical solutions and OEM appliance in large data center segments?
#192
#193
question#194
CL
Charles LiangCEOSuper Micro Computer, Inc.
Yes. Recently we have indeed handled four of really a good product win including most of them indeed high-end AI platform. So our AI platform continue to gain market share and especially rack-scale plug and play.
We have a complete rack install customer so it's makes customers job much easier. And most of it and see what rack just starting to power cable then there are cable and then ready to run. So that really attract some customers.
#195
operational#196
metric#197
strategy#198
strategy#199
strategy#200
NC
Nehal ChokshianalystNorthland Capital Markets
What about within the OEM side? Was the driver there on OEM side?
question#201
#202
CL
Charles LiangCEOSuper Micro Computer, Inc.
[inaudible] indeed it's pretty much our standard product. Our standard product for customer, we want some really top 10 highest value company around the world.
strategy#203
context#204
NC
Nehal ChokshianalystNorthland Capital Markets
Okay, great. And then finally, what are your expectations for cash conversion cycle is the semi cycle appears to be entering a down cycle now?
#205
question#206
DW
David WeigandCFOSuper Micro Computer, Inc.
Well, we expect our cash conversion cycle to come down Nehal, for a couple of reasons. Number one, our profitability has been increasing. And secondly, we've been able to manage our inventories better. So and the reason for that is in Q3, we were building inventory as we were getting ready to start the launch of some design wins. And those design wins really, really got traction and that allowed us to kind of even out our inventory. So we expect our cash flow and cash conversion cycle to improve.
guidance#207
result#208
result#209
operational#210
result#211
strategy#212
NC
Nehal ChokshianalystNorthland Capital Markets
Great, congratulations.
#213
Q&A 2/4
OP
Operatoroperator
Your next question comes from the line of Ananda Baruah with Loop Capital. Your line is open.
AB
Ananda BaruahanalystLoop Capital
Hey, good afternoon, guys. Yes, thanks for taking the question. And congrats on strong results and very solid execution. Thanks. Congrats on that.
So I guess a few if I could. Kind of piggybacking of Nehal's question, like in a bigger picture context, are there any other kinds of key aspects of what you guys seeing going on this leading to the ongoing acceleration in revenue generation? And I guess, Charles, is it all share gain? Are there other things that you guys are seeing that's been leaving the last couple quarters to the accelerated revenue generation run rate?
#214
#215
sentiment#216
#217
#218
#219
question#220
question#221
question#222
CL
Charles LiangCEOSuper Micro Computer, Inc.
Thank you.
Indeed, we start to our folks on rack-scale total solution, rack-scale plug and play since the last three years ago, so it gets to the point where [inaudible] to make an order, how do we and sort of where, from where people were chained. So now we start again started remodeling more deal, especially top 10 or top 30 highest [inaudible] country around the world. So if we are very comfortable, we were convenient again, to win more in AI high-end platform and total solution, including storage, including switch, the kind of complete [inaudible] or using rack-scale plug and play solution?
#223
strategy#224
strategy#225
strategy#226
strategy#227
AB
Ananda BaruahanalystLoop Capital
Hey, got it, I got it.
So it sounds like it sounds like a big component in this share, and it is really continuing to resonate in the marketplace. Both of the total solutions and what you're able to actually provide to the customer with that total solution. So it sounds like it's just easier to use, and it's stronger product, those two things combined. And yes, I would just say, are you seeing parts of the marquee aspects of your end markets actually accelerate? Well, I guess I'd love to know, like, what's your opinion on kind of the tenor of demand in your key areas kind of the last 90 days versus the prior 90 days? It seems like you've actually seen some acceleration as the state from just shared gain. But how would you guys characterize that particularly in the macro backdrop?
#228
observation#229
observation#230
sentiment#231
question#232
question#233
estimate#234
question#235
CL
Charles LiangCEOSuper Micro Computer, Inc.
Yes, actually you may know, I mean, AI, deep learning, being compared to grow, including metaverse, lots of customer, lots of company continuing to invest heavily in those areas. And it's for now we have — I would like to say exactly that pace for AI platform around the world, doesn't matter, really high end, or all kinds of high volume platform enabled or rack-scale enabled or cloud enabled. So our investment in that three start to gain customers attention as we save their big time especially, most of the time in the industry, people take them maybe two miles to three miles to finish shipping, a rack scale, cluster, and it takes us much shorter, because we optimize the inventory and total solution and ship it to customer with a much shorter lead times and customer really appreciate that as well.
opportunity#236
opportunity#237
attribution#238
metric#239
AB
Ananda BaruahanalystLoop Capital
Sorry, no, I don't want to cut you off. That's great content Charles. I'll see [inaudible] for now. Thanks. Appreciate it.
#240
#241
#242
#243
#244
Q&A 3/4
OP
Operatoroperator
Your next question comes from Jon Tanwanteng with CJS Securities. Your line is open.
JT
Jon TanwantenganalystCJS Securities
Hi, guys. Thanks for taking my questions. Can you hear me?
#245
#246
question#247
CL
Charles LiangCEOSuper Micro Computer, Inc.
Yes, Jon.
#248
JT
Jon TanwantenganalystCJS Securities
Okay, great. The gross margins about 17%, the high-end of your range, is that sustainable over this year? And do you think that you should be changing your long-term target range a bit?
#249
question#250
question#251
DW
David WeigandCFOSuper Micro Computer, Inc.
The answer is, yes, it is sustainable. And we will be reviewing our new target levels.
But it's really, as Charles mentioned, we've had a lot of customers come to us, and we've design very special solutions for them. And these solutions have a value. And they're high value to the industry and to our customers. And so we are — when I say price discipline, and we've realized, higher value for some of our solutions. And we've had the good fortune of being able to secure enough supply to start to ramp up of those solutions.
result#252
strategy#253
strategy#254
strategy#255
strategy#256
strategy#257
commitment#258
JT
Jon TanwantenganalystCJS Securities
That's great news. Thanks. And then, do you see any indications of your customers being impacted by recessionary pressures at all? And maybe go along with that what assumptions, if any, are in your guidance regarding macroeconomic or geopolitical risk?
sentiment#259
#260
question#261
question#262
CL
Charles LiangCEOSuper Micro Computer, Inc.
It depends.
Some customers, we saw them slow down, but not for other customer, indeed, continue to increase their demand, especially for high-end AI platform for those future products. And, by the way, I mean, there a lot of new technology, coming out quarter-out-quarter or month-after-month. So at this moment, we believe our macro economy may slow down at ADP, but our demand should continue growing.
strategy#263
context#264
strategy#265
context#266
JT
Jon TanwantenganalystCJS Securities
Okay, great. And the guidance that you gave for the next quarter that sequential decline at the midpoint? Is that more indication of just seasonality or supply? Or is it maybe more of this macro slowdown that maybe some of your customers are seeing?
#267
question#268
question#269
question#270
CL
Charles LiangCEOSuper Micro Computer, Inc.
Two reasons, one is supply chain. We still facing some supply chain constraints.
Some parts have been more available than before last year, lots of past year in shortage that's one thing. Second thing, in our September quarter used to be our slow season. So both reason, and that's why we tried to be more conservative.
risk#271
risk#272
context#273
context#274
risk#275
JT
Jon TanwantenganalystCJS Securities
Okay, understood.
And last one if I may, just when do you need to think about investing in new capacity. I know you guys have up to 10 billion to 12 billion in your current facilities, but at your current growth rate, you probably have to start thinking about it pretty soon. So I was just wondering what your plans are, if you need to get there. And where you might start investing if you need to do so?
#276
question#277
observation#278
question#279
question#280
CL
Charles LiangCEOSuper Micro Computer, Inc.
In addition to that, because we [inaudible] really global market yet, we are very strong in some countries, some territory, but in other countries, we are still pretty mean. So our solution is able to grow with much higher scale.
We just need more warehouse, more production, making power and then we can achieve a more productive customer as far as how we, are far away from where product assumption has been ready. And we haven't replicated the end market to more countries and we already are a premium product.
strategy#281
strategy#282
strategy#283
strategy#284
JT
Jon TanwantenganalystCJS Securities
Okay, great. Thanks, guys. And again, congrats on a fantastic quarter.
#285
#286
sentiment#287
Q&A 4/4
OP
Operatoroperator
[Operator Instructions] Your next question comes from Ananda Baruah with Loop Capital. Your line is open.
AB
Ananda BaruahanalystLoop Capital
Oh, God. Thanks, guys. I appreciate it.
I just love to get a little more context on the mix dynamic. Charles that you guys you talked about in his remarks, it sounds like meaningful aspects of the mix is a total solution. Are there any other components of mix that we should be aware of and contributing to that dynamic? Or is it primarily the total solutions that are resonating increasingly?
#288
#289
#290
question#291
observation#292
question#293
question#294
CL
Charles LiangCEOSuper Micro Computer, Inc.
Very good question.
Indeed, that's why we start to prepare, rack-scale plug and play about three years ago. So it took us — acquired a lot of April to train our people to make it or facility or components ready, especially a street communication networking device. And finally every single ad we start to gain more customer, gain more design win. I believe those design wins will continue and at this moment, I feel pretty positive in the continued growth in those areas.
#295
strategy#296
operational#297
metric#298
commitment#299
strategy#300
AB
Ananda BaruahanalystLoop Capital
That's really awesome. And are there any particular verticals that those rack scales tend to go into or targeted at more, or that they'll resonate with more or just sort of across all your verticals? Do you think the rack scale has a real place?
#301
question#302
question#303
CL
Charles LiangCEOSuper Micro Computer, Inc.
AI, people learning, metaverse, omniverse and at the beginning, high end gaming, automation, scientific application. So it is a local area, even kind of lack of forecasting company, also having some strong demand.
opportunity#304
strategy#305
AB
Ananda BaruahanalystLoop Capital
That's super helpful context as always. Just, I guess, just let me up to two last quick ones here. Sounds like the backlog probably grew again, over the last 90 days, given your comment around constraints. Is that accurate?
#306
#307
concern#308
question#309
CL
Charles LiangCEOSuper Micro Computer, Inc.
Yes, because, they are not [inaudible].
And that's why we keep in our inventory, so that we can support a continual growth demand. Basically, our image here is pretty healthy. We have some high volume inventory, but they are under strong demand. So like, at this moment, I don't worry about inventory level.
risk#310
strategy#311
strategy#312
strategy#313
strategy#314
AB
Ananda BaruahanalystLoop Capital
Great. And then last one for me, guys. Is Charles, just an update on Taiwan? How would you characterize the utilization level there now?
#315
#316
question#317
question#318
CL
Charles LiangCEOSuper Micro Computer, Inc.
It's growing faster. But we always suffering supply chain shortage in that nine months, already. So I hope the supply chain will continue to get better.
And once that happen, I reckon Taiwan can be much improved. At the moment, I believe our evaluation rate in Taiwan, only about 45% or so.
strategy#319
risk#320
strategy#321
strategy#322
metric#323
AB
Ananda BaruahanalystLoop Capital
And so Dave? Dave, sort of 40 — let's say 45% utilization. Does that mean when you guys get to sort of normalized utilization, which is still expected, Dave, what was it like 150 to a [inaudible] before it's a gross margin contribution on top of where you guys are right now?
#324
observation#325
question#326
DW
David WeigandCFOSuper Micro Computer, Inc.
From their shipments. Yes, that's right. We said 100 to 200 from Taiwan.
strategy#327
#328
target#329
AB
Ananda BaruahanalystLoop Capital
So 100 to 200 from Taiwan not 100 to 200. So it's not 100 to 200 to the overall P&L, it's 100 to 200…
observation#330
observation#331
DW
David WeigandCFOSuper Micro Computer, Inc.
That's correct. Yes.
#332
#333
AB
Ananda BaruahanalystLoop Capital
Got you. Now Taiwan is going to be approaching half year volume at some point. So would that sort of be long-term 50 to 100 basis points to the overall P&L.
#334
estimate#335
question#336
DW
David WeigandCFOSuper Micro Computer, Inc.
That's a fair way of looking at it.
strategy#337
Closing Remarks
AB
Ananda BaruahanalystLoop Capital
Okay, awesome. Thank you, guys. Appreciate it.
Operator Sign-off
OP
Operatoroperator
There are no further questions at this time. This does conclude today's conference call. Thank you for joining. You may now disconnect.