Super Micro Computer, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Supermicro fourth quarter fiscal 2020 financial results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 in your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, James Kisner, Vice President, Investor Relations. Thank you. Please go ahead.

Good afternoon and thank you for attending Supermicro's call to discuss financial results for the fourth quarter of fiscal 2020, which ended June 30th, 2020. By now you should have received a copy of the news release from the company that was distributed at the close of regular trading and is available on the company's website. As a reminder, During today's call, the company will refer to a presentation that is available to participants in the investor relations section of the company's website under the events and presentations tab. We have also published management 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 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 Supermicro's future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon. Our most recent 10-K filing for 2019, our March 2020 10-Q, and our other SEC filings. All of these documents are available on the investor relations page of Supermicro's website. We assume no obligation to update any forward-looking statements. Most of today's presentation will refer to non-GAAP financial results in Business Outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation or to our press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and in the supplemental information attached to today's presentation. At the end of today's prepared remarks, we'll have a Q&A session for self-set analysts to ask questions. I'll now turn the call over to Charles Liang, Chairman and Chief Executive Officer.

Thank you, James, and good afternoon, everyone. Today, we have released our fiscal first quarter and full year fiscal 2020 financial results. Now, let's take a look at some highlights from the quarter. Our physical first quarter net sales totaled 896 million, up 5% year over year, and 16% sequentially. Our physical Q4 earnings per share was 68 cents. We saw double digital growth in edge applications and some key data center and cloud customers. This was offset by softness from some customers who are seeing the worst effects of the COVID-19 threat. Before we dive into the financial details, I want to provide you an update on our business strategy. Last quarter, we talked about our full strategic high-growth market segment, and we are unlocking our resource accordingly to speed up our growth for the coming quarter and years. These four strategic markets are, first, organic enterprise and channel business, including server, storage, IoT, and AI, which are our historical growth areas. Second, our new 5G, edge, and telco business. Third, our new large data center and public cloud. And fourth, software and global service, I am pleased to share that we have made good progress in three of these four market categories this quarter. The strategy enables us to win more high-profile customers among enterprise data center and 5G telco infrastructure builders. In addition, we have continued our investment and growth trend in software and service by doubling these teams over the past year to prepare a series of higher value product lines. Unfortunately, COVID-19 posed significant disruption on our organic enterprise and channel business and slow their growth in the near term. But we are encouraged by our progress in our two new strategic drivers. this quarter, the large DC and cloud, as well as 5G and telco. And they prove that our overall growth strategy is working well and will drive much stronger results in the future. Going forward, we also plan to accelerate our unique online business into an official phase to complement our strategy We have been preparing and fine-tuning this business for a few years, and I am optimistic that it will speed up bringing new revenue growth and profitability to us after we move this business into an official phase. Supermicro pride itself in product innovation, which has been the key to our success in the past 27 years. Our service system building blocks, application optimization, and resource savings design vision separate us from our competitors. And we are very excited by our recent product introductions. Last quarter, we announced a new AI and machine learning system portfolio that supports the new NVIDIA A193 Tensor Core GPUs based on the latest AMD EPYC processors and Intel Commusion processors. Armed with up to 5 petaflops of performance per 4U system with optimal thermal solution, these systems enable researchers to train the most sophisticated AI networks at an unprecedented speed. Next. we have introduced a new four-way enterprise platform based on the third-generation Intel Xeon scalable processor, which is optimized to take on deep analytics and mission-critical applications. Most importantly, this quarter, our R&D is hard at work to expand our extensive AMD product lines and working closely with our partners to seed our next generation X12 Intel processor-based product line. These engagements will enhance the strong foundation for our growth in the coming quarters and years. At our recent virtual storage summit, co-hosted with our partner Nutanix and Intel, we discussed our completely refreshed storage portfolio. As I mentioned, we introduced storage systems that offer highest data density and optimize system performance for our customers, including our brand-new second-generation top-loading 60- and 90-bit storage, petascale EDSFF, high-performance storage, and software-defined solutions. Switching gear to 5G, we have also been recognized recently by VDC Research as the top 5G telco and edge solution provider based on the highest customer satisfaction for its application-optimized products. As distributed compute becomes more critical for 5G infrastructure implementations. Our edge solutions are optimized to be deployed, managed, maintained, and secure on a mass scale. We see that most of the 5G telco and edge business opportunities are still in the early phase of deployment. These represent greater market share opportunities for Supermicro. I want to get back and talk a bit more about our current quarter and business outlook. The logistical issues, rising shipping costs, and employee working from home caused by the spread of COVID-19 in U.S. to disrupt our business in short term. It lower our business and revenue by some points and increase our business cost in short term. At this time, we have been aggressively shifting and growing certain operation and R&D works to Taiwan. By aggressively and efficiently growing our operation in Taiwan, I am confident that this big step of change will yield bigger long-term reward as our overall cost will be much lower when our operation and production volume in Taiwan ramps. However, we will also continue to optimize our operation in U.S. by better business and production automation to address the ever-changing market dynamics. In summary, we are able to continue our growth moderately despite the continued disruption caused by COVID-19. We will provide a near-term outlook today that reflects some results from the threats of COVID-19. However, we are very encouraged as we look into the future, as the digital world continues to progress, evolve, and grow. Rest assured, We are using this period of disruption as an opportunity to improve our business global structure by shifting and growing certain portion of operation, production, and R&D to Taiwan, a much lower cost country, and less COVID-19 disrupted area. This change will result in our midterm and long-term business revenue and profitability growth. Our enhanced mix of hardware, software, and service hybrid focus is the path forward for us to build higher product value, growth margin, and revenue growth over time. Our strategy will empower Supermicro to accelerate our revenue growth and resume our long-term history of strong market share gain. With that, we remain very bullish on our long-term opportunity to penetrate our roughly $100 billion term. Finally, we are pleased to announce today a $30 million stock repurchase program. Although the starting amount is modest, we would like to start utilizing our cash on hand to increase shareholders' value while maintaining sufficient cash resource to fund our operation and aggressive growth plan. The stock repurchase program reflects our ongoing commitment to improve the value of our common stock and will help us to offset dilution from our equity plan. I will now hand the call over to Kevin to review the results of the quarter in more detail.