Super Micro Computer, Inc.

Good day, ladies and gentlemen, and welcome to the Supermicro's second quarter fiscal 2021 financial results conference call. At this time, all participants are in listen-only mode. Later, we'll conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchstone telephone. I would now like to turn the conference over to your host, Mr. James Kistner, Vice President of Investor Relations. Please go ahead, sir.

Good afternoon. Thank you for attending Supermicro's call to discuss financial results for the second quarter of fiscal 2021, which ended December 31st, 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. 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 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 fiscal year 2020, 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 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-taught analysts to ask questions. I'll now turn the call over to Charles Liang, Chairman and Chief Executive Officer. Charles.

Thank you, James, and good afternoon, everyone. Today, we have released our fiscal 2021 second quarter financial results. Now, let's take a look at some highlights from the quarter. Our fiscal second quarter net sales total 830 million, down 5% year-over-year and up 9% screenshot, landing at the midpoint of our guidance range. Our fiscal Q2 non-GAAP earning per share was 63 cents compared to 55 cents in fiscal Q1 of 2021 and 57 cents in the same quarter of last year. As we expected, Q2 improved after a seasonally weak Q1. We are proud that we achieved these results despite a very challenging environment as the impact of COVID-19 was significantly worse since early November, which impacted our operations, especially in the USA headquarters. Over the same period, however, we had significant international growth to offset the weakness in the United States. Quarterly sales in many Asian and European countries were up double digits, and in some cases, very high double digits, which demonstrates the strength and the improvement of our global sales organization and channel partners around the world. I expect this strong international business growth to continue in March quarter and the future. On the topic of our aggressive growth strategy, our new high-profile customers mentioned on our last earnings call digest their recent purchases in Q2, and we remain excited about our relationship with these customers. Additionally, our sales team are continuing their efforts to expand and nurture new opportunities in these accounts for the next few quarters. and EOS. While these efforts have been on track with our internal goal, we have recently speeded up our effort to win new accounts in recent months. We plan to further accelerate these goals with new incentive programs and executive action. The purpose of these actions other than supercharge our sales force, is to restore our original winning culture. We have set a great goal for ourselves, and my team is deeply committed to Supermicro's future with more and more passion. To support this international and global growth strategy, we have aggressively expanded our Taiwan campus capacity and capability in production, operation, engineering, and sales. The new Building 62 at our Taiwan Science and Technology Park will be online early this summer, which will add another 1 million square feet of manufacturing and office space, efficiently doubling our production capacity within next six to eight months. In the short term, this effort will alleviate some logistic production and engineering impact caused by COVID-19. In the long term, I believe that our Taiwan campus start to reach a higher economical scale. Revenue and profitability growth will become much stronger in the coming quarters and years. To complement our effort in Taiwan, our Building 23 in San Jose is on schedule to become online in the next quarter, which will further boost our strong American manufacturing credentials. I'm confident these actions will help us capitalize on many new key market opportunities in our approximately $100 billion tent. Let's move on to our technology and products. With the unique building blocks solution product approach, our R&D organizations are hard at work to expand our optimized Intel, AMD, and NVIDIA portfolios. In addition, we have doubled our software and service headcount and resource over the past two years. These investments are making a great impact on improving customer experience in both solution quality and security. With the upcoming new Intel i7 processor, we again bring the time-to-market advantage, high product quality, and application-optimal solution to our customers. We are pleased to see a strong trend in terms of customer seeding and early deployment requests. And we have started some of our early deployments to our key customers recently. True to our application optimized product strategy, we believe our IceBag product line will provide precisely the best hardware platforms to telco, 5G, and AI, as well as data center applications. As such, we are prepared for our IceBag product line to become a key growth drive in the coming quarters. Although COVID-19 continues to disrupt us badly, our strong foundation has safely supported our company and business. As I have mentioned, we have taken decisive actions to expand our operations, engineering, and sales term our sales team in Taiwan to further reduce the COVID-19 impact. These efforts, together with our application optimization solution, have resulted in great progress with our focused business vertical. First, our organic business gained more than 10% new major customer server account in the last few quarters. benefiting from our strong product line and expanding Taiwan operations. Our B2B automation, auto calculators, as well as software and service enhancements will continue this growth momentum. Second, we start to refocus on our large data center and OEM since about three months ago, right after our 10K was filed. Two high-profile customers have started to ship in small volume recently, and we are ramping up to a larger scale later this calendar year. We plan to add one or two more large DC, large data centers, or OEM customers in this category before the end of this calendar year. Third. On 5G telco and IoT, we have won a handful of new telco customers last year. They are currently starting to ship small volume with upside, and we expect high volume shipment to these customers. We have started this kind of year as well. And number four, our B2B and B2C automation with autocamulator. have been greatly improved in the past three quarters, which is even more critical as COVID-19 forced a more remote working environment for lots of customers and our own employees. We have been developing this powerful project for the past five years, and it will be ready to go live by this quarter end. This will make it much easier to share communication and product configuration among ourselves, engineers, and our customers. As discussed in our last earning call, we believe that Q1 of fiscal 2021 will prove to be a near-term bottom in our business. And our Q2 results are the first proof that Supermicro is indeed back on the growth track. I'm excited that our recent booking activity, along with our new business initiative, give us the confidence to provide Q3 guidance that, if achieved, will reflect a resumption of a quick growth on a year-on-year basis. Furthermore, we are pleased to announce a newly approved $200 million of share repurchase program, which investors should view as a sign of our commitment to enhance stockholder value and our confidence in our long-term business success. I will share more detail about our strong growth plan, business scale, our unique momentum, and when and how will we reach $10 billion revenue in the coming soon investor event. As the only fast-growing server solution hardware design and manufacturer company in the U.S. in the last 27 years, Supermicro 3.0 is nearly 100% ready. That means we are ready to grow quickly. But before I pass on, I'd like to take this chance to announce the appointment of David Wagon as our Senior Vice President and Chief Financial Officer. David joined the company in May 2018 as Senior Vice President and Chief Compliance Officer, a CPA and native of Silicon Valley. David came to Supermicro from HP Enterprise, where he who works as the vice president. He was previously the CFO of Renaissance Electronics America Inc. David succeeded Kevin Bauer, who is our current CFO, and is leaving the company to pursue his passion at a not-for-profit organization at the end of this month. It has been a privilege working with Kevin And I appreciate his great leadership, hardworking, and dedication to Supermicro over the past four years. Kevin is credited for improvement over our financial system and many system automation. I wish him a great success in his new venture. I will now pass the call to Kevin one last time to provide additional detail on the quarter and our