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Operator
Ladies and gentlemen, thank you for standing by and welcome to Supermicro first quarter fiscal 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To remove yourself from the queue, simply press star one again. At this time, I would like to turn the conference over to Nicole Nuccio, Investor Relations for Supermicro. Please go ahead.
Nicole Nuccio
Good afternoon, and thank you for attending Supermicro's call to discuss financial results for the first quarter, which ended September 30th, 2021. By now, you should have received a copy of the news release from the company that is distributed at the close of the regular trading is available on the company's website. As a reminder, during today's call, the company referred to its presentation that's available to participants in the IR section of the company's website under Events and Presentations tab. We've also published management scripted commentary on our website. Please note some of the information you hear during our discussion today will consist of four 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 second quarter of the fiscal year 2022, the full fiscal year 2022, and the potential impact of COVID-19 on the company's business and results of operations. There are a number of risk factors that can cause 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 these documents are available on the Best Relations page of Supermicro's website. We've seen no obligation to update any forward-looking statements. Most of today's presentation referred to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the company presentation and 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 in today's presentation. At the end of today's prepared remarks, we will have a Q and a session for cell side to ask questions. So that I'll now turn the call over to Charlie and founder chairman and chief executive officer, Charles.
Charlie
Thank you, Nicole. And good afternoon, everyone. I'm pleased to announce that our quarterly revenue exceed $1 billion, even during a traditional week, September quarter. Well, physical Q1, In 2022, we delivered strong year-over-year revenue growth of 35%. We continue to gain much share and are executing well against our plan to achieve $10 billion annual revenue. The revenue growth was driven by strong progress across many key customers. with our total i.t solution strategy now let's look at some highlights from the quarter first our first quarter net revenue total 1.03 billion it's our second consecutive quarter of one billion dollars plus in revenue up 35 percent year on year and down three percent quarter on quarter exceeding our guidance of $900 million to $980 million. Our efforts continue to enable our growth strategically at multiple times the average industry growth rate. Our fiscal first quarter non-get earning per share was 58 cents compared to 55 cents in the same period one year ago and higher than our guidance of 28 to 48 cents. All our major geographies contribute significant year-over-year growth, with the APEC region, including Japan, doubling year-over-year. The newly completed Taiwan expansion at Ba Tei is greatly helping our Asian email growth momentum. by providing additional capacity and lowering operation costs. These results show that we remain on track to achieve our $10 billion revenue target as we previously shared. We started our business with the basic system building block solution on the market 28 years ago. After many years of servicing the system integrators, and value-add reseller. We began to offer application-optimized computer systems to direct partners, including many appliance partners, OEM, and large enterprise accounts. In the past 10 years, we have continued to expand and begin our business transition from a hardware solution company to a total IT solution company. that combine hardware, software, service, and more features. This application optimizes total IT solutions for many vertical markets and a much broader technology footprint today. We are redefining our growth drivers to speed up our growth strategies. First, subsystem and components. We will continue to offer server-mageable enclosures, spare bones, and accessories to the market to continue to help growing our market share. And second, computer systems. We will continue to fully focus and expand on growing our complete hardware system with technologies co-developed with our key partners, including Intel, AMD, NVIDIA, Broadcom, and others. And third, total IT solutions. We are accelerating our broad development of appliance and plug-and-play large-scale solutions for AI, machine learning, industrial automation, IoT, 5G telco, and cloud products. And number four. YS. We are finally ready to aggressively promote our software service and switch product lines. And I will share more about the other two S when they are ready. Our building blocks and completed systems business have been stable and growing over the decades. And they serve the backbone of our revenue growth. With more enterprise customers and appliance partners engagement, our drug-scale total IT solution business is our new major focus now. To make our total IT solutions a stimulus experience for our customers, we have been increasing our R&D resource to focus on many software products service and networking for many years. These products as a higher value part of our total IT solutions will be the key to improve our margin and profitability in the coming quarters and years. Our new online auto calculator together with our new B2B program are now driving our business growth more efficiently than ever before. Our innovative new command center customer service system has been greatly helping our sales, FAE, PM, as well as our key customers. They are dramatically improving our business interactions with customers. much faster much accurate more optimized and more customer friendly while reducing manpower human delay and arrows our new intelligent database driven tools are indeed performing much smarter and faster than human efforts in most areas this automatic intelligence system is servicing our sales force and customers to their greatest satisfaction now, and it will be constantly upgraded and updated. Our push for world total IT solution is benefiting Supermicro and our customers in multiple ways. Most importantly, our customers will receive higher quality products They are fully optimized, integrated, and validated in-house. For the P&P plug-and-play black-scale products, our customers just need to connect network and power cable, and then ready to run their application. These shrink their deployment time for many weeks to just a few hours. The total IT solution is also helping Supermicro and our customers to mitigate the impact or the global shortage, the supply chain disruptions by accurately forecasting building inventory in scale and prioritizing with our strategic partners. The system building bulk solution allows us to utilize sets of common subsystems and components to create, design, and deliver first-to-market products with reduced manufacturing and supply chain complexity and risk. These will dramatically improve our customers' time-to-market, which is preferable to their success. The Total IT solution is indeed a win-win-win proposition for Supermicro. our customers and our supply chain partners. Customers can get a taste of our total IT solutions now by signing up for our new Jumpstart program. They can remotely run their software and applications on our customer pre-configured, pre-validated rack. powered by the latest technology from Intel, AMD, and Nvidia. We are also providing a hosted instance of plug and play cloud infrastructure with operating system and other tools that can be accessed remotely for development and testing. The program will instill more confidence in G4 Micro customers as it delivers the convenience, faster time-to-market, performance optimization, cost-saving, and security. In summary, G4 Micro is rapidly growing and is transforming into a total IT solution company from a server hardware company. In addition to providing the greenest hardware total solution, Our software, speech, and service products are now ready for any large enterprise, cloud, AI, and telco customers. Second, we are building on and expanding our successful product and technology leadership. Our new growth factors, including the total IT solutions and fast-growing 5S product lines, are key to achieve our $10 billion revenue target with higher portability. And third, replicating our market share success in the U.S. through APEC and email with the completion of our new APEC campus in Taiwan. And fourth, our new command center-based auto calculator and B2B automation platforms are getting broadly used by customers around the world now. And they are accelerating our market share and customer satisfaction. In closing, I'm getting much happier with the progress of our business transformation, which is resulting in the acceleration of our business in fiscal 2022 and beyond. As a total IT solution company, Our temp continues to increase as we invest our resource for growth. And I am optimistic about achieving our $10 billion annual revenue goal in a much sooner schedule. With that, I will now pass the call to David Wiggins, our CFO, to provide additional detail. Thank you.
Nicole
David Wiggins Thank you, Charles. We continue to experience diversified growth across our key market verticals, exceeding $1 billion in revenue for the quarter above the high end of our guidance range. This is the second consecutive quarter that revenues have exceeded $1 billion. Revenue growth was driven by sales to large enterprise, cloud, AI, and telco markets, continued strength across all geographies, and strong demand for our products and services. Our first fiscal quarter revenue totaled $1.03 billion, reflecting a 35% year-on-year increase and a 3% decrease on a quarter-over-quarter basis. Looking at Supermicro's Q1 revenue in our three market verticals, we achieved $725 million in the organic enterprise and channel AI ML vertical, $250 million in the OEM appliance and large data center vertical, and $58 million in the 5G, Telco, and Edge IoT vertical. Systems comprised 82% of total revenue, and the volume of systems and nodes shipped were up year over year. System node ASPs increased year over year and quarter on quarter. On a year-on-year basis, Asia increased 108% as we saw continued growth with both existing and new customers. Europe increased 60%, the U.S. increased 13%, and the rest of the world increased 6%. On a sequential basis, Asia increased 29%, U.S. sales decreased 14%, Europe decreased 3%, and the rest of the world decreased 1%. From this point forward, unless otherwise noted, I'll be discussing financial metrics on a non-GAAP basis. Working down the P&L, the Q1 gross margin was 13.4%, down 30 basis points quarter over quarter from Q4 due to higher freight and supply chain costs, as was also reported by many other companies around the world. On a year-over-year basis, gross margins were down 370 basis points, due to a discrete cost recovery event in Q1 of last year, while also incurring higher freight, supply chain, and other costs in Q1 of the fiscal year 2022. Turning to operating expenses, Q1 OPEX, on a gap basis, increased 2% quarter-on-quarter and 10% year-on-year to $109 million. On a non-gap basis, operating expenses increased 2%, quarter-on-quarter and increased 7% year-on-year to $101 million. The year-on-year and quarter-on-quarter increases on a GAAP and non-GAAP basis were driven primarily by higher personnel expenses due to increased headcount, especially in Asia. Other income and expense, including interest expense, was a $0.8 million expense as compared to a $2.1 million expense last quarter. The sequential change is mostly related to FX. This quarter the tax provision was $3.3 million on a GAAP basis and $6.2 million on a non-GAAP basis. Our non-GAAP tax rate was 16.6% for the quarter. Lastly, our share of income from our JV was 0.4 million this quarter as compared to 0.6 million last quarter. Q1 non-GAAP diluted earnings per share total 58 cents, which was higher than our midpoint guidance of 38 cents due to higher revenues and lower operating expenses offset by lower gross margins. Cash flow used in operations was 134.6 million compared to cash flow generated from operations of 63.6 million in Q4, as we built inventory ahead of a seasonally strong December quarter and positioned ourselves to mitigate the impact of supply chain disruptions. CapEx totaled 11.9 million, resulting in free cash flow consumption of 146.5 million. Key uses of cash during the quarter included increases to inventory, payments made to reduce accounts payable offset by an increase in deferred revenue. We did not repurchase any shares in the quarter. Our closing balance sheet cash position was $270 million. while bank debt was $279 million as we drew down on our bank lines of credit to increase inventory as we ramped production of new platforms globally. Turning to the balance sheet and working capital metrics compared to last quarter, our Q1 cash conversion cycle was 94 days, up from 80 days above our target range of 85 to 90 days due to higher inventories. Days of inventory was 114, representing an increase of 18 days versus the prior quarter. Days sales outstanding was up by 4 days to 41, while days payable outstanding was up by 8 to 61 days. Now, turning to the outlook for our business, we expect net sales in the range of $1.1 billion to $1.2 billion. diluted net income per share of $0.60 to $0.80, and non-GAAP diluted net income per share of $0.70 to $0.90 for the second quarter of fiscal year 2022, ending December 31, 2021. We expect gross margins to improve as we manage supply chain costs and maintain price discipline. Over the upcoming quarters, we continue to expect to achieve margins within our target model as we further scale our Taiwan operations and begin to gain traction from our new product offerings and auto configurator B2B, B2C solutions. GAAP operating expenses are expected to be approximately $112 million and include $7 million in stock option compensation expenses and $1 million in other expenses not included in non-GAAP operating expenses. We expect other income and expense, including interest expense, to be a net expense of roughly $1.5 million and expect a nominal contribution from our JV. Our non-GAAP operating expenses are forecasted to be up quarter on quarter from continued investment in R&D and higher personnel costs. The company's projections for GAAP and non-GAAP diluted net income per common share both assume a tax rate of approximately 16% and a fully diluted share count of 53.5 million shares for GAAP and 55 million shares for non-GAAP. The outlook for Q2 of fiscal year 2022 GAAP diluted net income per common share includes approximately $8 million in expected stock-based compensation and other expenses, net of tax effects that are excluded from non-GAAP diluted net income per common share. We are raising our guidance for the fiscal year 2022, ending June 30, 2022, and now expect net sales in a range of $4.2 billion to $4.6 billion versus our prior forecast of $4.1 to $4.5 billion. GAAP diluted net income per share is expected to be at least $2.77 versus our prior forecast of $2.60. And non-GAAP diluted net income per share of at least $3.20 versus our prior forecast of at least $3. The company's projections for GAAP and non-GAAP diluted net income per common share both assume a tax rate of approximately 16%. and a fully diluted share count of 54.1 million shares per GAAP and 55.6 million shares for non-GAAP. The outlook for fiscal year 2022 GAAP diluted net income per common share includes approximately $33 million in expected stock-based compensation and other expenses and net of tax effects that are excluded from non-GAAP diluted net income per common share. We expect CapEx for the fiscal second quarter of 2022 to be in the range of $3 to $5 million. I'll turn it back over to you now, Nicole.
Nicole Nuccio
Operator, now you can open up the line for questions.
Operator
The floor is now open for your questions. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. Again, that's star 1. Your first question comes from Anarua of Loop Capital.
Anarua
Hi, guys. Yeah, listen, good afternoon. Congrats, and thanks for taking the question. I guess a couple for me just to start off. Could you talk about – it seems like you're highlighting both in the press release and then in your remarks new design wins and speaking of them broadly and that they're across the business. Could you maybe talk to, you know, what you saw that was, you know, most exciting for you and most incremental to the business throughout the quarter? And then I have a couple follow-ups. Thanks.
Charlie
Yeah, thank you. A very good question. Yes, as I shared in the last few quarters, we started to engage more and more large enterprise accounts And we again, uh, Indeed, more than handle for a larger account in the last few quarters, including 5G telco, including AI machine learning, and including HPC as well. So pretty much across a broader range, we have more customers. And with our B2B automation, auto-congregator tool I just mentioned, now we are able to have sales. to communicate with Cosmos much more efficiently. So now we have more bandwidth to talk to more Cosmos, talk to more Cosmos application in more detail. So I believe we are continuing to gain Cosmos and gain design width.
Anarua
That's helpful context, Cheryl. Thanks. And how would you characterize, I guess, the I don't even know if I want to call it progress with the new Taiwan facility. Could you just describe for us the appropriate context so that we can understand what the operation feels like right now, both from a production perspective, but also from a revenue-generating perspective as well?
Charlie
Thank you for your question. As I shared with you in the last few quarters, the Asian campus production capacity is very important to our business. In the USA, especially our operations have been pretty much focused on the Bay Area in the last 28 years, and it really costs too high. So we are very happy, finally, we have a big campus in Taipei, Taiwan, And now we have a big capacity ready. Indeed, today we just utilize about less than 30% of our capacity. So we have a triple capacity available in Asia now. So we are very happy and we are start to very aggressively engage customer in Asia in email or even leverage Taiwan capacity to support a customer in USA. So that's a very positive change to us.
Anarua
And how long, Charles, any estimate on where you'll get the kind of normalized capacity utilization in the Taiwan facility?
Charlie
Okay, good. Because of the global shortage, right? Otherwise, our revenue must be much bigger than today. We are around 1.03 billion this quarter, pretty much because of our global shortage. Otherwise, that number should be much bigger. So at this moment, our iteration rate in Taiwan is about 30% or a little bit less. And we expect once the global shortage program is released, we will use country to 80% to 100% capacity in Taiwan almost in a few quarters. So we have a very strong demand and just need a supply chain to be improved.
Anarua
That's really helpful, Charles. I appreciate it. I'll get back into the queue. Thanks a lot for that. Thank you.
Operator
Your next question comes from Mahi Hosani of SIG.
Mahi Hosani
Yes, thanks for taking my question. A couple of follow-ups. Regarding the balance sheet and cash flow, can you remind me how much more line of credit you have that you can utilize?
Nicole
So we have a $200 million line of credit with the Bank of America. And we also have over $300 million in credit lines in Taiwan as well. Okay.
Mahi Hosani
So of the total $500 million, none of it is being utilized, right?
Nicole
Yeah. So as you see from our balance sheet, we're sitting at about $279 million. Gotcha. Okay. And then regarding the
Mahi Hosani
Can you maybe, Charles, or anybody else from the team, help me understand what were the key growth drivers in Asia, Asia more than doubled on a year-over-year basis, and the U.S., which is the largest market, had a double-digit growth, but Asia was up double-digit. What were the key drivers behind that growth?
Charlie
Yes. Indeed, in Asia, we did not have a really strong promotion before because our capacity before was limited in Asia. And all the time, we had to ship the product from USA to customer in Asia. That was our business before. Now, with Taiwan capacity much, much bigger, maybe, so we are very aggressive approaching customer in Asia. And indeed, not just in Asia. support European customer from Asia, also a very good arrangement. And we start to focus kind of our sales force in Asia. So that's the major reason. And we will continue to invest more sales marketing team in Asia and EMEA, as well as in East Coast. Indeed in USA, East Coast will be a very sweet spot for us as well. And we just have a strong team start to focus on the US East Coast now.
Mahi Hosani
Perhaps maybe if I rephrase the question, you highlighted three buckets of revenue, organic and organic enterprises, OEM and the telco. Was there any particular market that was particularly strong in Asia?
Charlie
AI, for example, and telco, 5G telco, for example. And indeed, because our Asia market share was small before. So basically, we have a lot of room to grow in Asia. Got it. Thank you. Thank you.
Operator
Next question, please. Your next question comes from Nehal Chaudhpy of Northland Capital Markets.
Nahal Chowski
Yeah, thank you. And fantastic results and very strong guidance. Great to see that. A couple questions for me. Charles, what's your perspective on whether the worst of the global supply chain issues have passed or not? And then related to that, how long do you think it will be prudent to continue carrying more base inventory than typical?
Charlie
Very good question and big question. As you know, we usually keep about $900 million inventory and now grow to almost $1.3 billion. So the reason why we grow inventory so quickly because we want to make sure we are doing our best to support the customers. and to support our growth. So we continue to improve our relationship with our supply chain. And it's a really big shortage, especially in chips, right? Those I.O. chips, especially small chips like what I mentioned before. And some CPU shortage as well. GPU, some slow delivery as well. So we are facing a lot of logistic delay. However, because we are providing IP total solution now, so we're taking care of all our difficulty portion and keep complete plug and play solution to our customer. So most of our customer now are very appreciate a total solution. And we just had to continue working with our supply chain to enable those shortage items. And how soon can we fix those problems? It's really a global problem. So people, including myself, I guess maybe at least another three months to four months. And hopefully after that, things will be improving.
Nahal Chowski
Great. Thank you for that perspective. And then, following on Mehdi's question regarding regional performance, helpful on what's driving Asia, David, you did say that the U.S. was down 14% Q2. Is that seasonal, or is there something more going on there?
Nicole
I think it's simply just a matter of digestion. We had some large, very large purchases, and there was some digestion of those purchases, and we expect those to return.
Nahal Chowski
Got it. All right. I'm going to get back into the queue, but everybody else has some good questions as well. Thank you.
Operator
Your next question comes from Aaron Rekers of Wells Fargo.
Aaron Rekers
Yeah, thanks for taking my questions and also congrats on the quarter in the guide. You know, just kind of dovetailing off the component, you know, question, you know, everybody, everybody definitely sees the bike and shade constraints. I guess my question on that is, can you comment on what you're seeing from a pricing perspective of some of the key components in the supply chain, be it memory or other components, and what you're doing to maybe pass through some of that pricing or how effective you've been there?
Charlie
Yeah, I mean, as you may know, right, DRAM price is dropping now since last month or maybe two months ago. The DRAM supply is getting a much better position than before. So other than DRAM and most other components, they all have a big shortage. And we foresee some IC price will continue going up As you know, even TSMC announced that on November 1st, some of their product line cost will increase to their customer. So overall, I feel things are improving, but won't be right away.
Aaron Rekers
And how are you reacting with your own pricing?
Charlie
We basically pass through to our customer whatever we can. And customer is getting used to this model because, you know, we just cannot afford to carry so much price waste. The customer pretty much understand that.
Aaron Rekers
Yeah, in this environment, you know, a lot of companies have seen, you know, are requested maybe their own customers to provide, you know, longer lead times on their own purchase commitments. Have you also asked your customers to lengthen out their lead times and therefore given you more visibility in the business beyond, you know, maybe just this next quarter?
Charlie
uh yes basically we hope so but the problem is we cannot deliver even our back order today so uh so that's why we did not push customer to uh place the order much earlier but we hope they can uh more transparent to us about their forecast about their po yes for sure But again, the current FACA order indeed has been a big demand, and we had to fulfill that as soon as possible.
Aaron Rekers
And then the final question, just kind of strategically, you know, I'm curious about is, you know, I think the company is fairly well positioned, given your engineering, you know, presence and breadth. you know, around the role of AI and the proliferation of AI, you know, from a compute layer perspective. Can you help us appreciate how material, you know, AI is? You know, I'm assuming that server platforms that are, you know, incorporating a GPU predominantly, how big that business is, how fast it's growing, and, you know, any kind of thoughts at a high level of how much that changes the richness of of the mix of your business on an AI-optimized server relative to more of a traditional server?
Charlie
Yeah, AI-optimized server for sure is a high value, high performance, high value, and we are very aggressive to continue to grow our AI machine. Indeed, our AI machine, including computer system and some vehicle, I believe our market share is still pretty much top one or top two. I hope top one. And I think it will continue to grow very strongly because we have been focused so much on those high-end products, including total solution, AI total solution. We start to ship kind of AI cloud to some of our partners. Again, that make our customers job much easier. So when we ship the direct to customer, customer able to get the parking, networking cable, power cable, and pretty much ready to run their application. So with total AI, cloud, total AI solution, I am very optimistic that our deep learning AI machine, even including a video streaming solution, will continue to grow very fast. Very helpful. Thank you, guys. Thank you.
Operator
Your next question comes from John Lopez of Vertical Group.
John Lopez
Hi, thanks very much. Can you hear me all right? Yes, John, we can. Oh, great. Thanks, David. Sorry, I had a couple of quick ones. I wanted to start on the inventory side as well, so I apologize for doing that. But if I remember correctly, I think your purchase commitments, your inventory purchase commitments as of June, excuse me, were up, you know, $550 million, $575 million, something in that ballpark, and it had doubled versus where they were at the end of 2020, calendar 2020. Can you give us a feel for where that stands now as of the end of September? And just given the size of those increases, does that ultimately find its way onto your balance sheet, or are you now at sort of a steady state level where what's going out is more being matched with what's coming in?
Nicole
Yeah, so I think the key is we're going into a seasonally strong December quarter. And so that, combined with the fact that we've got to make sure we get ahead of supply chain delays as much as possible, has really driven our decision to increase inventory levels up. So, therefore, in the current market, with the delays both on the delivery side as well as on the production side, and the delays in containers, making it to port, You've got to order earlier. So, therefore, we have to place orders in order to keep up with our customer demand. And that's why we increased our credit lines and used those to increase inventory.
John Lopez
Okay, gotcha. Just off the top of your head, David, do you know where that number stood as of September?
Nicole
No, I don't. I don't release that number on the quarter.
John Lopez
Okay. All right, great. Thanks for that. Secondly, I'm sorry, go ahead, please.
Nicole
We'll have a little more color in the 10K.
John Lopez
Sure, of course. Your deferred revenue actually jumped up quite nicely. The current deferred was up like double digits, which hasn't really been the case for the last couple of quarters. Why was that?
Nicole
So two reasons. Number one, we had some customers who prepaid. And number two, we had some additional services that were, you know, an increase in services that we had to defer.
Charlie
Yeah, in response to what I just mentioned, we started to focus on our 5S business, right, the software, bridge, and service. And those products have a higher profitability, but, you know, they are also generated before revenue.
John Lopez
Gotcha. That's really helpful. Thanks. Sorry, two other quick ones. The first one is, David, I think you made mention to gross margin. I think you said it was going to increase. I wasn't sure if that meant in the December quarter or that was just sort of an intermediate term comment. But can you remind us, A, what are the targets again? And B, just put some color around that comment and how we should think about maybe trending and trajectory.
Nicole
Sure, absolutely. So our target model gross margin is, of course, 14 to 17. And, you know, we mentioned that, you know, again, this quarter, our transportation costs, our freight costs went up by $3 million or 30 basis points. And that was on top of the increase from the prior quarter. Now, I can tell you that in my discussions with our operations people, it looks like that amount is starting to level off. The rates are leveling off. And so we are – so the guidance that we give is – our giving is to be up both in Q2 as well as, you know, in the second half.
John Lopez
Gotcha. Really helpful. Okay. And so out of curiosity, is that leveling off a relatively recent phenomenon, or is that something that you observed through the course of the quarter?
Nicole
That's just, I mean, there's only been one month in this quarter, but so far they don't seem to be increasing at the same rate that they were in prior quarters.
John Lopez
Gotcha. Okay. I was referencing the prior quarter. So they kept increasing through your fiscal year one.
Nicole
Through Q4, they continue to increase. And then in Q1, they also increased another 30 basis points. Think about it. It's 30 basis points on lower revenues that the trade costs went up. So I'm saying in the current Q2, we see that leveling off.
John Lopez
Gotcha. Really helpful. And so my very last one, just as we think about your fiscal 22 guidance, You mentioned that both units and prices increased in your September quarter. Excuse me. I'm wondering, as we think about this sort of, you know, let's call it 20-odd percent growth that you're building in for your fiscal 22, can you give us a rough sense for how much of that is going to come from pricing versus what's going to come from units?
Nicole
I think that's too hard to judge. Yeah. Yeah.
John Lopez
Okay. Okay. Would your gut be that it's going to be a combination of the two? Maybe I can leave it there.
Nicole
Absolutely. Absolutely. Okay. All right. Great. Thank you very much for all the thoughts.
Operator
Your next question comes from Nahal Chowski of Northland Capital Markets.
Nahal Chowski
Yeah. Thanks for taking my follow-up questions. And great on the breakout relative to the three colors of growth that you laid out at your analyst day. Really appreciate that. Do you have color on how each of these trended on a year-over-year basis relative to the overall year-over-year growth?
Nicole
Yeah, so we're actually on the verticals. We didn't – we're not going back on a year-over-year basis because we really started tracking this closely beginning with, you know, the fiscal year end. But as each quarter now, we'll give a little bit more insight. I can tell you that, you know, the one vertical that went down, which was in the 5G – I'm sorry, the OEM and OEM appliance was really, as I mentioned, that was the digestion that I referred to from a couple of customers, and we see that returning, that purchasing returning in Q2.
Nahal Chowski
Got it. Great. And then... What is the risk that the strong demand that you're seeing is a result of the supply chain disruptions and that you are having customers come to you, new customers come to you in an effort to dual or triple source or quadruple source and effectively alleviate their own supply chain issues?
Charlie
Yes, this is a very interesting question. important area. We watch very well. So most our order are pretty evenly come from our broad customer base. So at this moment, I did not see any specific risk there. uh so pretty evenly come from many customers and from many different uh vertical and by the way our freedom box solution you know my advantage is uh we can uh simply uh uh kind of uh the over a reconfigured system so even if one customer slow down we won't have to uh uh kind of really uh have a hard time for uh over inventory
Nahal Chowski
I think that latter point is an excellent point. So maybe to frame that up, of the incremental demand that you're seeing, how much of that is coming in the form of a configuration that your competitors typically would not satisfy with their much more limited configurations that they can provide?
Charlie
Yeah, indeed. I'm very happy to share. Most of our growth are from our building bulk distribution. After we continue to emphasize our feed-in bulk solution, indeed, most of the customers now prefer our feed-in bulk solution because it's easy to support their urgent demand and also less over-inventory risk for our sale and for themselves.
Nahal Chowski
Okay, great. And then my final follow-up question is for Dave. SG&A, I think, was down 4 million QQ. Is that correct, and why is that?
Nicole
So we had a little bit lower, we had, first of all, it was, we had increased personnel cost, and then we did have a little bit lower bonuses in Q2. I'm sorry, in Q1, I said Q2, in Q1. All right, got it.
Nahal Chowski
Thank you very much. Okay.
Operator
Your next question comes from John Tamuan Zhang of CGS Securities.
John Tamuan Zhang
Hi, everybody. Thank you for taking my questions. And great quarter and outlook. David, I was just wondering if you could clarify the sequential increase in gross margins. What's getting value? Where are you finding that? Is it mostly your selling prices catching up to inflation? Are you expecting to reduce some costs or realize some other efficiencies or is there a mixed improvement? As you go forward, just help me understand what the sequential increase is coming from.
Nicole
Sure, John. There's a number of factors. Number one, we expect to start gaining traction from our auto configurator B2B, B2C solutions. We also have been exercising more price discipline. And also we've learned how to manage, how to better manage the passing on of freight charges and other things and our cost increases to our customers. So that, along with some of the margins from our new product offerings, give us a little bit better insight into margin growth.
John Tamuan Zhang
Okay, perfect. And I wanted to touch on the auto-configuring and B2B. You mentioned, actually, what was the sales event through there? I don't know if you can quantify it exactly, but just give us a sense of how important that is to your growth and how big you expect it to be going forward in the next couple of quarters.
Charlie
It will be very important, especially for our long-term. You know, before, we pretty much counted on manpower, sales, FAE, and PM to work with customers one by one. But now, with intelligent database, the online facility are able to help customers figure out what's the basic configuration, what's the basic product for them, and then validate through our command center-based service. So almost all our customers and sales who have ever used that system are very happy with the service. Shrink the time to communicate and make the communication much more accurate, the product optimization much more cost down and better performance. So for mid-term, long-term, I'm very optimistic with auto calculator, command center-based B2B system.
John Tamuan Zhang
Great. Maybe just the last one for me. What is the margin of sales through that channel compared to your regular sales, maybe versus what it would normally have been?
Charlie
We did not share with that number yet, but basically, the portability will be higher. Because B2B auto calculator, we are able to work with many more customers, and especially lots of middle-sized enterprise customers now. Before, we can take care of only large-scale customers because we do not have the amount of power to take care of too many accounts. But now with automation help, we are able to reach many more middle-sized enterprise accounts. And for those accounts, as you know, the public margin will be better.
John Tamuan Zhang
Okay, great. Thank you.
Charlie
Thank you.
Operator
Again, as a reminder, to ask a question, please press star 1 on your telephone keypad. Again, to ask a question, please press star 1. We will pause for just a moment to compile the Q&A roster. At this time, there are no further questions. Ladies and gentlemen, this concludes today's event. Thank you for your participation. You may now disconnect. One moment.
Nicole Nuccio
Oh, wait, one moment. Charles, sorry. Charles, I apologize.
Charlie
Thank you so much for joining us. And very happy to see you next quarter again. Thank you. Have a good day.
Operator
Thank you, everyone. You may now disconnect.
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