Super Micro Computer, Inc.

and CFO, and Michael Steger, Vice President of Corporate Development. All lines have been placed on mute to prevent any background noise. After the speaker's remark, there will be a question and answer session. To enter the queue for questions, please dial star followed by one on your telephone keypad. Thank you.

Good afternoon, and thank you for attending Supermicro's call to discuss financial results for the fourth quarter, which ended June 30th, 2024. With me today are Charles Liang, Founder, Chairman, and Chief Executive Officer and David Wiegand, Chief Financial Officer. At the end of today's prepared remarks, we'll have a Q&A session for sell-side analysts. Our press release was issued after the close of market and is posted on our website where this call is being simultaneously webcast. The slides of the company that's webcast can be downloaded at ir.supermicro.com. These include statements regarding our financial outlook and operations, our strategy, technology, and its advantages, our current new product offerings, and competitive industry and economic trends. Any forward-looking statements that we make are based on facts and assumptions as of today, and we undertake no obligation to update them. Our actual results may differ materially from the results forecasted, and reported results should not be considered as an indication of future performance. A discussion of some of the risks and uncertainties related to our business is contained in our filings of the SEC, and we refer you to those public filings, including our most recent annual report on Form 10-K. During this call, all financial metrics and associated growth rates are non-GAAP measures other than revenue and cash and investments. Reconciliations to the most directly comparable GAAP measures are provided in our earnings press release and slides. This call is being broadcast live on the Supermicro Investor Relations website and is being recorded for playback purposes. An archive of the webcast will be available on the IR website and is the property of Supermicro. Our first quarter 2025 quiet period begins at the close of business Friday, September 13th, 2024. And with that, I will turn it over to Charles.

Thank you, Michael. Today, I'm pleased to announce another record quarterly result of $5.31 billion, 143% year-over-year growth. For fiscal 2024, we have achieved $14.94 billion in revenue, 110% year-over-year growth rate. To put this in perspective, our Q4 revenue exceeded the full year revenue of fiscal 2022. Our robust growth is driven by our technology and product leadership in the AI infrastructure market, especially with generative AI training and inventing. We have been scaling quickly to secure a large share of AI ASP opportunities deploying some of the largest AI supercast in the world leveraging our system building blocks we build and optimize the rock scale plug and play solutions with the latest dlc liquid cooling technology helping our customers achieve the best ttd come to deployment and pto come to online and lowest tco with their ai solutions here are some key quarterly highlights first super michael is pleased to be included in the net stack 100 index last quarter what's the q4 net revenue total 5.31 billion up 143 percent year on year with a strong record high backlog. We could ship more if not for DLC liquid cooling component shortage. Which the Q4 non-GAAP earning of $6.25 per share for well above $3.51 last year, which was 78% year-on-year growth. Our Q4 operating margin is 7.8%, which is lower than what we expected due to the higher mix of hyperscale data center business and expedite cost of our DLC liquid cooling components in June and September quarter. Some key new components shortage today about 800 million of revenue deep into July, which lower our EPS for June and will be recognized in our September quarter. The availability of our Malaysia facility data this calendar year and our dominating position in ELRC liquid cooling total solution will be instrumental in increasing our profitability. Hupo Micro is powering the largest AI factories around the world today. We believe more and more data centers will be opting for our largest DLC liquid cooling solution, which dramatically improve TCO relatively to a relative to a traditional air cooled data center and is less environmental taxing. We have proved that DLC solutions also offer higher performance and better uptime with advantages to support upcoming new AI chips. At Computex Taipei, I shared that boolean computing can be free with a big bonus. This means the cost of deploying liquid cooling, DLC, is on par with traditional air-cooled data center and significantly lowers the operational power cost. Since then, we have been delivering over 1,000 highly reliable DLC racks to multiple customers. Our goal is to quickly make a DLC liquid cooling to be a mainstream solution for most data centers and AI factories that focus on increasing efficiency and performance while reducing OPEX. We are targeting 25% to 30% of the new global data center deployments to use DLLC solutions in the next 12 months, with most of the deployments coming from Supermicro, we believe. We are happy to have any customers transforming and adapting their existing air-cooled data center to DLLC liquid cooling in the coming years. for four major reasons. First, it helps customers save energy costs up to 40%. Second, it boosts data center computing performance. And third, it helps growing customers' data center lead times, or to be more precisely, reduce their time to online because of less electrical power required. And fourth, It reduces carbon footprint for our one and only Mother Earth. As an end-to-end IT infrastructure solution company, our customers' experience is our number one priority. By leveraging our system building block and block-scale plug-and-play solutions, we help our customers achieve the best time-to-market advantage. with new and performance-optimized technologies. Now, we are further expanding this solution to the entire data center. With rapid deployment of large-scale AI infrastructure, data centers worldwide are facing power shortage and cooling inefficiency challenges. Building this new AI-ready data center traditionally takes a long time. averaging three years, for example. Our upcoming Supermicro 4.0 DCBBS data center building block solution will reduce customers' new data center build time from about three years to two years. For smaller facilities or older data center transformation, data center BBS can enable and optimize cost effective data center in less than one year, or even in just six months. This new offering will significantly improve data center's TTO, time to online, and cost. With full integration of AI compute, server, storage, networking, drag, tabling, DLCD cooling, facility water, power, end-to-end management software, on-site deployment service, and maintenance. We will start offering it later this calendar year. Creating a significant role in realizing our data center building block solution and providing additional economics of scale. Our new Malaysia campus will start production this November with its geographic advantages. We expect it to quickly ramp up shipping volume and improve our coastal structure. In the U.S., we are adding new buildings and production POC provisioning capacity, meaning our Silicon Valley headquarters as well. which will further boost our monthly DLOC deep cooling rack capacity and value this fiscal year. Moreover, we are on track to expand to a few other global manufacturing locations, leveraging our strengths in product design, build quality, supply chain, and deployment, positioning Supermicro as one of the largest IT infrastructure companies. In summary, we are entering fiscal 2025 with record high back orders, winning products, large volume, DLC liquid cooling capacity, data center, building block solutions, and more new customers. While our long-term investment impacts short-term profitability, their position as well for future success by providing a sustainable competitive advantage and necessary economics of scale. This has given me confidence to forecast the September quarter revenue between $6 billion to $7 billion and fiscal 2025 revenue between $26 billion to $30 billion. Again, We anticipate that the short-term margin pressure will ease and return to normal range before the end of fiscal year 2025, especially when our DLOC deep cooling and data center building block solution start to ship in high volume later this year. Lastly, I would like to announce a 10-for-1 forward stock split of Supermicro's common stock to make ownership of Supermicro stock more accessible. We are targeting trading on a split-adjusted basis. Commencing at market open on October 1st, 2024. Before passing the code to David Wagon, our CFO, I want to say thank you to our partners. customers, Supermicro employees on an incredible year where we were able to bring AI at a scale to the world and to our shareholders for your continuous support.

David. Thank you, Charles. We had robust growth in the fiscal year, and I'm pleased with the progress we made on our strategic initiatives. For fiscal year 24, we reported revenues of 14.9 billion, representing 110% growth over fiscal year 23 revenues of 7.1 billion. Fiscal year 24 non-GAAP diluted EPS of $22.09 grew 87% over fiscal year 23 non-GAAP diluted EPS of $11.81. Between fiscal year 21 and fiscal year 24, we achieved significant operating leverage with revenues growing at a compound annual growth rate of 61% per year, while non-GAAP operating expenses only grew at 19% per year. Between fiscal year 21 and fiscal year 24, gross margins have met or exceeded the target range of 14 to 17%. non-GAAP operating margins were above the target range of 5% to 8% between fiscal year 21 and fiscal year 24, and more than doubled from 4.4% in fiscal year 21 to 10% in fiscal year 24 due to strong revenue growth and operating leverage. Q4 revenues were $5.31 billion, up 143% year over year, and up 38% quarter over quarter and above the midpoint of guidance of 5.1 to 5.5 billion. Growth was driven by strong demand for next generation air cooled and direct liquid cooled rack scale AI GPU platforms representing over 70% of revenues across enterprise and cloud service provider markets where demand remains strong. We exited the year with an acceleration in innovative DLC products, a large design wind pipeline and a strong backlog, positioning us for continued growth in fiscal year 2025. We expect growth and operating margins to gradually increase in the year, driven by product and customer mix, manufacturing efficiencies for new DLC AI GPU clusters, and new platform introductions as charles discussed shipments may continue to be constrained in the short term by supply chain bottlenecks for key new components for our advanced platforms however long-term gross margins will benefit from lower manufacturing costs as we scale up production in malaysia and taiwan in addition to expansion in the americas and europe During Q4, we recorded $1.83 billion in the enterprise channel vertical, representing 34% of revenues versus 49% in the last quarter, up 87% year over year and down 3% quarter over quarter. The OEM appliance and large data center segment revenues were $3.41 billion, representing 64% of Q4 revenues versus 50% in the last quarter. up 192% year-over-year, and up 76% quarter-over-quarter. Emerging 5G telco edge IoT revenues were $75 million, or 2% of Q4 revenues. For fiscal year 24, enterprise channel revenues grew 79% to represent 41% of total revenues. The OEM appliance and large data center segment grew 149% and represented 58% of total revenues. The emerging 5G telco edge IoT segment represented 1% of total revenues. One CSP large data center customer represented approximately 20% of revenues for fiscal year 24. Server and storage systems comprised 95% of Q4 revenue and subsystems and accessories represented 5%. ASPs increased on a year over year and quarter over quarter basis, driven by the value and complexity of our rack scale total IT solutions. At geography, US represented 61% of Q4 revenues, Asia 24%, Europe 10%, and rest of world 5%. On a year over year basis, U.S. revenues increased 94%. Asia increased 437%. Europe increased 128%. And the rest of the world increased 386%. On a quarter-over-quarter basis, U.S. revenues increased 20%. Asia increased 66%. Europe increased 74%. And the rest of the world increased 187%. The Q4 non-GAAP gross margin was 11.3% versus 15.6% in Q3 due to product and customer mix focus on winning strategic new designs with competitive pricing and higher initial costs in ramping production of new DLC AI GPU clusters. For fiscal year 24, the non-GAAP gross margin was 14.2% versus 18.1% for fiscal year 23. We have a path to improve gross margins to the target range of 14 to 17% as we introduce innovative platforms based on multiple new technologies from our strategic partners and improved manufacturing efficiencies on our DLC solutions. View for operating expenses on a gap basis increased by 15% quarter over quarter and 75% year-over-year to $253 million driven by higher compensation expenses and headcount. On a non-GAAP basis, operating expenses increased 11% quarter-over-quarter and 39% year-over-year to $185 million. Q4 non-GAAP operating margin was 7.1% versus 11.3% in Q3 due to the lower gross margins. Other income and expense for Q4 was $11 million, consisting of $3 million in interest expense and $14 million from interest income on higher cash balances, offset by a loss from foreign exchange and other investments. Interest expenses decreased sequentially as we paid down short-term bank credit facilities. The tax provision for Q4 was $1 million on a GAAP basis and $21 million on a non-GAAP basis. The GAAP tax rate for Q4 was 0.3% and the non-GAAP tax rate was 5%. The GAAP tax rate was 4.9% for fiscal year 24 versus 14.7% in fiscal year 23. And the non-GAAP tax rate was 10.4% for fiscal year 24 versus 15.9% in fiscal year 23. Q4 GAAP diluted earnings per share of $5.51 was below the guidance of $7.20 to $8.05 and non-GAAP diluted EPS of $6.25 was below the guidance of $7.62 to $8.42 due to lower gross margins and higher operating expenses in the quarter. The GAAP fully diluted share count increased quarter over quarter from 61.4 million to 64.2 million And the non-GAAP share count increased sequentially from 62 million to 64.8 million shares, reflecting the effects of two recent stock offerings and the convertible bond offering. Q4 cash flow used in operations was 635 million compared to 1.52 billion in the previous quarter as inventory and accounts receivable grew due to higher levels of business and the timing of shipments. For fiscal year 24, cash used in operations was $2.5 billion due to strong revenue growth of 110% and working capital needs to support large customer design wins. Q4 closing inventory was $4.4 billion in anticipation of future growth. CapEx for Q4 was $27 million resulting in negative free cash flow of $662 million for the quarter. CapEx for fiscal year 24 was $137 million, up $37 million in fiscal year 23 as we invested in new property, plant, and equipment globally, including our Greenfield Malaysia plant. The Q4 closing balance sheet position was $1.7 billion, while bank and convertible note debt was 2.2 billion, resulting in a net cash position of negative 504 million versus a net cash position of 252 million last quarter. Turning to the balance sheet and working capital metrics compared to last quarter, the Q4 cash conversion cycle was 94 days versus 96 days in Q3. Days of inventory decreased by 10 days to 82 days, compared to the prior quarter of 92 days. Day sales outstanding was unchanged at 37 days, while days payables outstanding decreased by eight days to 25 days. Now, turning to the outlook for Q1 fiscal year 25. We expect strong growth as we ramp new air-cooled and DLC AI GPU design wins with new and existing customers. For the first quarter of fiscal 2025, we expect net sales in the range of 6 billion to 7 billion. GAAP diluted net income per share of $5.97 to $7.66, and non-GAAP diluted net income per share of $6.69 to $8.27. We expect gross margins to improve sequentially due to product and customer mix, and improving manufacturing efficiency. GAAP operating expenses are expected to be approximately $282 million and include $84 million in stock-based compensation expenses that are not included in non-GAAP operating expenses. The outlook for Q1 of fiscal year 2025, fully diluted GAAP EPS includes approximately $48 million and expected stock-based compensation expenses net of tax effects of $35 million, which are excluded from non-GAAP diluted net income per common share. We expect other income and expenses, including interest expense, to be a net expense of approximately $20 million. The company's projections for Q1 fiscal year 25 GAAP and non-GAAP diluted net income per common share Michael Leccese, Assume a gap tax rate of 9.9% and a non gap tax rate of 14.6% and a fully diluted share count of 65 million for gap and 66 million shares for non gap we expect capex for Q1 to be in the range of 45 million to 55 million. Michael Leccese, or fiscal year 2025 we are introducing guidance for revenues from 26 billion to 30 billion Michael we're not ready for QA.

Thank you. If you would like to ask a question, please dial star followed by 1 on your telephone keypad now. If you change your mind, please dial star followed by 2 to exit the queue. And finally, when preparing to ask your question, please ensure that your phone is unmuted locally. Our first question today is from the line of Michael Ng of Goldman Sachs. Please go ahead. Your line is now open.

Hey, good afternoon. Thank you very much for the question. I guess I have two. I'm encouraged to see the revenue guidance for $26 to $30 billion for fiscal 25. I was wondering if you could just provide a little bit of color around the assumptions underpinning that revenue guidance and any visibility that you have in terms of backlog and some of the contingencies you might be assuming in terms of supply availability. And then secondly, I was just wondering if you could provide a little bit more color around the gross and operating margin improvement throughout the year. Should we think about the long-term gross margin targets as applicable for the full year as well or exiting the year? Thank you.

Okay, thank you. I mean, as of what we share, I mean, we continue to gain design win, and we see lots of new products available, including DLC cooling and data center building block solution. We see a lot of customer engagement and also more new customers like to engage with us. So with our capacity container to grow, so 26 to $30 billion, that's our target for next 12 months. And as to a gross margin, As well, we just mentioned our DRC including now have been very mature. So we are able to take advantage from that and also data center building block solution that provide a much better value, improve customers data center time to online and also easy customers job to build their data center. So all of those will increase our profitability gradually.

Thank you, Charles.

Thank you. Our next question today is from the line of Samik Chatterjee of JPMorgan. Please go ahead. Your line is now open.

Hi. Thanks for taking my questions. I have a couple as well. Maybe if I can start with the gross margin performance in the quarter. I know you mentioned you had a hyperscale customer, which impacted product customer mix and margin impact there. how should we think about sustainability or sort of repeat orders from that customer? It sounds like you're saying that's part of the improvement and you probably don't see as much repeat, but just wanted to confirm if that's how we should be thinking about the hyperscale customer you had, which is that it doesn't really repeat through fiscal 25 and have a follow-up.

Yeah, we have been very consistent. I mean, before we are Silicon Valley based. Operation also in Silicon Valley based. So we focus on enterprise, high quality, high performance customer only, not before. But when we start to take production operation advantage from Taiwan, we start to grow a large scale data center customer. And now we have a huge capacity in Malaysia. We'll be ready by later this year. So with the economic growth, a large scale advantage we are ready for large customers so we will continue to grow with large customers at the same time we also continue to enhance our enterprise customer base so uh Recently, we also see the growth, the strong demand from our enterprise. With our software total solution, I mean, data center building block solution, we start to gain more attraction for the data center, I mean, enterprise customer as well. So we believe long-term, economical scale, enterprise customer base, and overall Taiwan and Malaysia advantage, coastal advantage. Now I have a way to grow gross margin and net quality.

Got it. And for my follow-up, Charles, there have been reports more recently about the delay of the GB200 from NVIDIA. Just wondering if you can share your thoughts of how that would impact the conversion of the robust backlog or pipeline that you're looking at revenue through the year, and is that accounted for when you talk about liquid cooling now being a materially higher portion than what you talked about at Computex? Are you taking some of those delays into account? Thank you.

Oh, yes. I mean, yes, we heard NVIDIA may have something there, right? And we treat that as a normal possibility. When vendors introduce new technology, new product, they always have a chance to push out a little bit. In this case, it pushed out a little bit. But to us, I believe we have no problem to provide the customer with a new solution like H210 cooling. We have lots of customers like that. So although we hope vendor pro in that schedule, that's good for a technology company. But this push out overall impact to us.

should be uh not too much okay thank you thanks for taking my question our next question today is from the line of rupalubasishaya of bank of america merrill lynch please go ahead your line is open hi thanks for taking my questions um i have two of them the first one relates to the gross margin performance in the quarter Vivek Murthy- David, can you specify of the 430 bit sequential decline, how much was the result of the customer mix, which is the higher hyperscale customer. Vivek Murthy- makes versus the impact of ramping liquid cooling solutions and how much was that impact to gross margins. Vivek Murthy- And in terms of I think Charles you said that you lost about 800 million of revenue in the quarter because of non availability of components. Is that all liquid cooling related or was that, you know, related to other things like GPUs as well? Thank you.

Pretty much liquid cooling key components related. But now it's much greater now. I mean, when we move to July, August, we have much liquid cooling key components available now.

It wasn't a loss. It was pushed out into the next quarter.

Yeah, and there was, this is David Grupp. Yeah, so there was, you know, we really were surprised by the amount of demand that we had in this market. And so we, our manufacturing efficiency improves, has been improving every day. And so we expect that to continue, and that's going to help our gross margins, you know, going forward. as we deploy liquid-cooled racks at scale.

And is that deployment expected to be linear for these liquid-cooled racks throughout the year, or is it more back-end loaded? Thanks for taking my questions.

Basically, we support a handful of customers for liquid cooling, and most of them, once they try our liquid cooling, they will continue to deploy a higher percentage with liquid cooling because the cost, the hardware acquisition cost is about the same, but they will save lots of energy costs. So I believe these growths will be consistently growing.

Thank you. Our next question today is from the line of Ananda Barua of Loop Capital. Please go ahead. Your line is open.

Yeah, good afternoon, guys. Thanks for taking the question. Charles, you said a lot of good stuff on this call. So I'll try to just ask about one or two things here. I guess to start, could you frame for us how the company is thinking about its liquid cooling capability relative to to others who are providing with cooling service as well. That's been a big topic of conversation. Sounds like you guys are really high on your capability and it seems to be showing up at least in the guidance. But I think additional context around how you guys are competitively positioned and maybe some of the technical reasons why would be super useful. But I just have a quick follow-up.

yeah yeah thank you i mean as you know liquid cooling have been in the market for 30 years and uh max share compared with uh overall data synthesizer always small less than one percent or close to one percent i would have to say but just uh june and july two months alone we ship more than one thousand rack to the market and if you calculate one thousand rack uh ai drag It's about more than 15% of the global data center's new deployment. So we are very happy. We have the industry push from air-cooled to liquid-cooled and to help Cosmos save energy costs and reduce carbon footprint. At the same time, because of the liquid-cooling, DRC liquid-cooling, data centers require 30% to 40% less power That's why it's make customers data center availability quicker because customers don't have to wait for higher power budget from a powering company. So overall, we see more and more customers like our liquid cooling solution.

And Charles, did I hear you accurately that you guys think you did 50% liquid cooling share?

in the june quarter uh i i believe for june and july in those two months we may ship at least 70 to 80 percent or a liquid cooling uh compared with the older liquid cooling network so for liquid cooling we have at least 70 80 percent maximum that's that's the useful that's useful thank you and then just real quick my follow-up is you've made uh you've made remarks

earlier this year in the recent past about how you envision expanding your rack capacity, you know, sort of over the time, sort of into the future. I was just wondering if you could give us an update on how to think about how you're thinking about rack capacity expansion for both liquid-cooled and air-cooled. And that's it for me. Thanks.

Yes. It's a very good question. I mean, last month we... we have about 1000 rack per month liquid cooling capacity and today we already grow another 50%. So now we have a 1500 rack per month capacity. By this year end we will grow that to 3000 rack per month. That's what liquid cooling at all. So we really believe liquid cooling is a much better choice for the market and we provide the uh kind of consultation to customer and most of the customer when discussed with our engineering team they love liquid cooling and again we are growing a customer base for liquid cooling very strongly and we're really happy for that because uh minimize the power consumption have been a common value to the world and especially safe operation cost and that's fiscal year

fiscal year, when you say end of year, end of fiscal year?

For the next 12 months, I believe, deep cooling will be a big portion of our business.

Thank you.

Thank you. Our next question today is from the line of Aaron C. Rakers of Wells Fargo. Please go ahead. Your line is open.

Yeah, thanks for taking the question. I've got two as well. I guess I want to go back to the earlier question on Blackwell, just because I think it's going to be a key focal point for a lot of investors here, especially as we kind of shape the full year guidance. So, Charles, I want to be clear. So has your guidance contemplated as we think about the December quarter? Do you believe that you'll be shipping the Blackwell platform solutions more revenue in the December quarter, or should we think about the full year guide as a bit more weighted to the back half of the fiscal year, given some of these concerns around the timing of Blackwell availability and, you know, NBL 36 and 72 platforms, et cetera. I'm just curious of how you want us to think or the street to think about the cadence of that full year guidance, you know, shaping up on a quarterly basis, appreciating you're not going to give quarter by quarter guidance, so.

Thank you. I mean, indeed, we are relatively very conservative. I understand Blackwell may postpone how much we don't exactly know because new technology always can be pushed out, right? So for Q3, for sure, we did not expect a Blackwell volume. For Q4, I mean, December quarter, I guess it will be very small. uh engineering sample small volume so that really volume i believe had to be a march quarter next year and uh and that's why we over uh only 26 to 30 billion dollars yeah that's that's very helpful and then as a as a quick follow-up i want to go back to kind of the gross margin discussion too we we talked about the impact of direct you know the dlc platforms

You talked about product mix. One of the other comments, David, you had made was that winning strategic new customers was a factor in that 430 basis point gross margin degradation. Can you help us appreciate what exactly the impact of that has been, how that might have changed this last quarter? And then I'll flip my final, final one in. Any disclosure on purchase obligations coming out of this last quarter? Thank you.

Yeah, thanks. I'll answer those in reverse order. We don't have any announcements in terms of purchase obligations, and so we'll point you to the 10-K for that. But with respect to your first question, I would say we prepared the market for a downturn in margins or a softening of margins in our guidance. last quarter, but even we were surprised by the acceleration that we saw, you know, in the liquid cooled rack market. And so we had to ramp up our supply chain. We paid a lot of expedite costs and higher supply chain costs. So I think as the supply chain improves, we expect those efficiencies to now come back out. But that impacted us you know, more than we had expected.

That's basically what June quarter.

Yeah, for the June quarter.

Was that the majority of the 430? Was that the majority of the 430 basis points declined?

No. So half was targeting specific accounts, like we announced last quarter, and the other half was really the higher, you know, higher supply costs that we encountered.

Yep, very helpful. Thank you, guys.

Our next question today is from the line of George Wang of Barclays. Please go ahead. Your line is now open.

Oh, hey, guys. Thanks for taking my question. I have two parts. Firstly, can you gain more color just in terms of share games, especially within the hyperscale arena? You know, traditionally, Super Hyper has been more tier two, tier three enterprise. And you guys talk about higher mix on hyperscale. Just curious, does that mean you guys are winning new penetration to the hyperscale space?

Yeah, again, like what I just mentioned, with our Taiwan capacity getting bigger and Malaysia capacity will be ready. So we are fully ready for large-scale data center customer. but we will be selective. So that's why we foresee only 26 billion to $30 billion. If we try to be more aggressive in a larger scale, our growth can be even faster than that. But we try to grow in both ways, enterprise and a large scale data center. Kind of try to balance to maintain our healthy profitability.

Okay, great. Just a second question, if I can squeeze in. Just, you know, as we enter the Blackwell era, you know, with liquid cooling kind of for larger deployments, higher ESP, but also come with some potential working capital needs. Just in terms of the capital rates, you know, is there a fair to say you guys are sufficient, or there could be some potential to come to the market? Just maybe you can talk about, you know, the kind of push and takes for the next 12 months.

Yeah, liquid cooling, I mean, for sure is necessary and is very helpful for black whale solution. Although black whale solution push out a little bit, but indeed, we enable liquid cooling for H100 and H200 as well. And also customer interest in our H100 and H200 liquid cooling now indeed. So, Dick, we call in to our position. We like to support the whole data center, not just Blackwell.

Okay. Can you address on the working capital, if you can give any comment on that?

Yes. So, we announced a $500 million credit line with a group led by the Bank of America. And so, we expect we are really – you know, working on our balance sheet and leveraging our balance sheet. And we expect to, you know, some announcements to be coming in terms of, you know, additional loan possibilities in the future.

Okay, great. I'll go back to the queue. Thank you.

Our next question today is from the line of John of CJS Securities. Please go ahead. Your line is open.

Hey, good afternoon. Thank you for taking my question. I was wondering if you could just talk, you know, given your time to market and volume capabilities and liquid cooling, the energy and compute advantages, can you walk through what your pricing strategy is and why not pass those costs on, especially relative to the value that you're providing? Is it, you know, a stronger competitive environment close to behind you, or are you effectively trying to get ahead of them and get that share first?

I mean, Indeed, liquid cooling, from our point of view, is really a good value to the whole market and our whole planet because that's energy consumption, right? So we enable liquid cooling primarily for blackware, right? Because blackware is a higher power than for sure. a lot of cases need liquid cooling. But we enable that for H100, H200, and regular CPU as well. Because overall, liquid cooling once mature, once economical scale is good enough, it's good for all different kind of computing. And that's exactly now we are deploying, we are promoting. Also our customers continue to interest in our liquid cooling, even not for

Got it. Thank you. And then you mentioned getting back to the gross margin target range by the fiscal year end. Can you help us narrow down a little bit more where in that target range you expect to be? Is it the low end? Is it more towards the middle? Kind of help us understand how you're getting there.

Okay, for June, it's really a unique quarter because we put in lots of liquid cooling and we pay lots of exploration for our coast. So, uh, that make a hot June, uh, uh, gross margin, uh, much worse, but now, uh, indeed our deep cooling technology have been getting very mature and we have a high volume now. So that though our, uh, liquid cooling coaster now, and however, we try to promote the cooling as a mainstream product. Uh, solution. So we try not to add the value too much to customer, but instead we try to gain max share and make a liquid cooling everywhere.

Okay, thank you. And any color just on where in the margin range you expect to end up?

Well, so we, I think if you look at the guidance that we gave for Q1, we expect to be above 12 in the first quarter. And we're doing, you know, we'll be working very hard to move back into the range, as we mentioned, you know, as soon as, as quickly as we can.

Especially with our communication data center building block solution with more software on site deployment, maintenance and kind of end to end management service. So our. Probably the margin should grow from a building block solution for data center very soon.

Great, thank you guys.

Our next question is from the line of Mehdi Hosseini of SIG. Please go ahead. Your line is open.

Yes. Thanks for taking my question. I just have two housekeeping items. David, what kind of other income did you have in the June quarter? You did say that you had an interest income of $12 million that you realized in June quarter.

That was a net figure, Mehdi. So we actually had $20 million of interest income, but that was offset by some adjustments to some investment adjustments, which brought it down lower. But the $20 million is the interest income?

So the $20 million is the interest income?

$20 million was interest income, yeah, from higher cash balances. That was offset by some investment. Correct.

Okay. All right. Okay. And then a question I have for Charles. Obviously, you have done a good job of doubling revenue in fiscal year 24, but you also had a negative free cash flow of 2.6. And if I were to look at the high end of your revenue guide for fiscal year 25, you're on track to double revenues again. Does that mean that you're going to need to burn another 2.5 to 2.6 billion of free cash flow to hit those revenue targets?

Not necessary. I mean, if we try to be very aggressively growing market share, maybe. For example, we forecast on $30-something billion, right? So in that case, we may need more. But if we try to focus on below $30, then not necessary.

And, Mehdi, one thing I would add to that is, you know, we believe that we have, you know, an IG profile. And as such, like I mentioned earlier, we're starting to leverage our balance sheet more with targeting toward unsecured debt. And so that will help us, you know, on an inter-quarter basis. Got you.

Thank you. What should I assume for 63025 CapEx?

We don't have a, we're not giving a guide at this time. Okay.

But would it be down on a year-over-year basis since most of the expansion in Malaysia and U.S. are behind us?

Well, we have other projects going on, you know, expansion here in the U.S., but we'll, nothing to announce today. Okay.

All right. Thank you, Dave. Our next question today is from the line of Nehal Chokshi of Northern Capital Markets. Please go ahead. Your line is now open.

Yeah, thank you. I want to talk about DLC and some of the chatter that's been out there from some competitors. And that sounds like failure rates for DLC, broadly speaking, not necessarily for Supermicro, is high relative to air-cooled. Can you comment on what is Supermicro's DLC failure rates relative to air-cooled, and then also relative to other DLC solutions? And I guess maybe we can do it on a per-node basis, annualized failure rates, or whatever basis you want to utilize.

Yeah, we spent a lot of April in last, I would like to say, two years. to prepare our optimized DRC solution, including lots of new design, redesign, refining the components of the system. So finally, I mean, about May this year, we have our DRC solution fully ready, and we have more than a handful of high-profile customer who really like our dlc solution that's why we pull in the solution to them and that's why we paid also exploration charge right but now the good thing is our whole dlc solution has been very mature and ready for really high volume production so now for any customer one dlc we are able to support them uh quickly and with a much reasonable cost now So, looking for work, I mean, DLG, I believe, will be a really popular solution for the world because it's more efficient, especially energy saving. So, we are really happy that we established DLG solution much ahead of anyone else. Again, like June and July, I believe we have at least 70% or 80%, maybe even higher market share in the world for DRC. And air-cooled, again, we have a very optimized air-cooled solution. So we continue to promote air-cooled solution for sure.

Do you have any thoughts on the actual failure rates relative to air-cooled and then relative to other

of suppliers dlc solutions yeah liquid cooling as you know because they're very high efficient in cooling right so they allow gpu gpu aura components running at a lower temperature and there in lots of case indeed are able to optimize customer data center performance by percentage right couple percentage to even a high single digital percentage so a lot of customers really like dlc at this moment okay so are you saying that you actually can achieve lower failure rates with dlc because you can run the gpus at lower temperatures uh cpu gpu and other components at a low temperature that which you have the

kind of the whole data center quality uptime availability time okay and then my follow-up question is that uh i think june 21st you did an 8k after market closed uh leasing significant data center space from prime data center and then you're leasing it back to lambda labs um it seems like a rather odd arrangement uh can you guys talk about the purpose of doing this

So we consider ourselves experts in data center, you know, data center solutions. And so this is really just one more facet of, you know, being a total provider.

Okay.

Thank you.

Thank you. And our next question is from the line of Thomas Blakey of Key Corp. Please go ahead. Your line is open.

Hi, guys. Thanks for taking my question. We have a few here. David, can you comment on the mixed gift and the mixed rather of AI rack scale revenue here in the quarter? Did it increase quarter on quarter in the June quarter?

Absolutely. I mean, you know, our revenues went up one and a half, over one and a half billion. And that was primarily driven by liquid cooled racks.

Okay, excellent. And an update maybe on the capacity utilization. Did that increase as well or decrease? And relatedly to that, you commented last quarter that there would be a number, I think it was about 1,000 of racks per month going out at a 64 GPU configuration. Could you give an update in terms of did you ship those to the three customers? One was new in the June quarter. And again, an update on the capacity utilization related to that question.

Yeah, customers like our high-density computing solution, especially ProRack. That's why you say 64 GPU or more GPU, right? So we are very efficiently providing customers for whatever configuration they like. And very soon, we will announce something even better for sure.

So to be clear, is that a yes that you ship 3,000 racks during the quarter at that configuration to those three customers?

We are building that capacity for that because how many customers will move to DLC, especially when Black-Away already So we are very optimistic for that, especially after black whale in high volume production. And we have many black whale fully optimized system and drive scale design.

Yeah, but Thomas, the 1,000 per month was the capacity. We're not saying that we shipped 1,000 per month. But one thing I can tell you is that the efficiency, yeah.

Okay.

Thank you, and we have run out of time for any further questions, so this will conclude the Supermicrocomputer Incorporated Q4 2024 earnings call. Thank you to everyone who was able to join us today. You may now disconnect your lines.