Super Micro Computer, Inc.

Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Supermicro Computer Inc. Third Quarter 2026 Earnings Call. With us today are Charles Liang, Founder, President, and Chief Executive Officer, David Wiegand, Chief Financial Officer, and Michael Sager, Senior Vice President of Corporate Development. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw your question, again, press star one. Thank you. I would now like to turn the conference over to Michael Steger. Please go ahead.

Hey, good afternoon. Thank you for attending Supermicro's call to discuss financial results for third quarter fiscal 2026, which ended March 31st, 2026. As you know, with me today are Charles Liang, founder, chairman, and chief executive officer, David Wiegand, chief financial officer. By now, you should have received a copy of the press release from the company that was distributed at the close of regular trading and is available on the company's website. As a reminder during today's call, the company will refer to a presentation that is available to participants in the investor relations section of the company's website under the events and presentations tab. We've also published management scripted commentary on our website. Please note that some of the information you'll hear during our discussion table consists of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, future business outlook, including guidance for the fourth quarter of fiscal year 2026 and the full fiscal year 2026. These statements and other comments are based on management's current expectations and assumptions and involve material risks and uncertainties that can cause actual results or even events to maturely differ from those anticipated, and you should not place undue reliance on forward-looking statements. You can learn more about these risks and uncertainties in the press release we issued earlier today, our most recent 10-K filing for fiscal 25, and other SEC filings. All these documents are available on the IR page of Supermicro's website. We assume no obligation to update any forward-looking statements. Most of today's presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, Please refer to the company presentation or to our press release published earlier today. The non-GAAP measures are presented as we believe that they provide investors with a means of evaluating and understanding how management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitute for, or superior to financial measures prepared in accordance with U.S. GAAP. In addition, a reconciliation of GAAP and 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 will have a Q&A session for sell-side analysts. Our fourth quarter fiscal 2026 quiet period begins at the close of business Friday, June 12, 2026. And for now, I will turn the call over to Charles.

Thank you, Michael, and thank you all for joining today's call. We had significant business value growth with our technology leadership and market expansion. However, before I discuss the specifically of the quarter, I want to provide an update on the recent development regarding the indictment of certain individuals formerly associated with the company. I must be clear, Shibu Micro is not a defendant, not a target for a grand jury investigation. And Shibu Micro has zero tolerance. to any employee who violated federal law and regulation. I am personally shocked and saddened by these illogical actions, which in no way represented the value or ethics of this company. We took immediate action by terminating our relationship with the defendants and are helping and covered in fully with the US government. Additionally, our independent directors had launched a thorough independent investigation with top forensic and legal forms to ensure we continue to maintain the highest standard of integrity. We are not waiting for this process to finish. We are further strengthening our global trade compliance program under expert leadership not only is shibu michael fully committed to protecting advanced american technology and following the highest edge and business standard but continue to extend our manufacturing footprint right here in united states again the allergic actions or few individuals do not define us. Our focus remains on doing extraordinary work for our customer and partner and leading the industry with transparency and excellence. Now let's talk about a quarter. This was a quarter defined by value and focus for Supermicro. Despite the industry wide shortage, of key components, including CPU, GPU, and memory. Our business continues to grow and expand. Indeed, our back order is now in another record high. We advance and optimize the orders data center infrastructure using our leading direct deep cooling DLC technology. Our focus remains on delivering the fastest time to online TTO in the industry, ensuring our customers can scale their AI factories quickly and most efficiently. While our fiscal Q3 revenue of $10.2 billion was impacted by customers' site readiness delay, our business fundamentals are stronger than ever. This is purely a short-term delay. Several customer sites were not yet equipped with the power and networking required for their cloud deployment, and we expect to capture this revenue in the coming quarters. One of the most significant achievements this quarter was our gross margin recovery, which increased significantly to 10.1% non-GAAP, representing a 58% improvement over the 6.4% non-GAAP reported in the previous quarter. We are committed to achieving a sustainable double-digital gross margin model by increasing our focus on enterprise market and our DCBPS business. Here are some key growth drivers. First, market strength. Business remains very strong in the near-cloud, solving AI, and authentic AI segment. We have been aggressively fostering the traditional enterprise and storage business for about one year, and we start to see strong growth. growing opportunities. Our data center building block solution, DCPBS, continues to attract old and new customers' interest and create new profitable streams by offering a total data center solution that includes completed liquid cooling facility, management software, networking, and service. We are providing much more value to our customers as they committed to our total solutions. Product mix and efficiency. We improve our product mix with some more unique value products in this quarter and thereafter. We also advance our design of manufacturing, BFM, and more automation in our factories to build products faster with higher ERA and quality and supply chain. We successfully manage inventory through a dynamic supply environment and took actions to reduce tariff related cost operation. These efforts have improved flexibility, compact margin, and supported customer delivery timeline. Here is the Bigger story. Supermicro is evolving from a US-based server designer and manufacturer into a total data center solution provider. We expand our business to have a customer planning, building, deploying, and servicing data center infrastructure for global enterprise and new cloud providers especially. Our DCPBS business is essential to this transformation, providing almost everything a customer needs to build an AI factory, including cooling units, networking, power cell, battery backup, management software, and many other data center subsystems. Our DCPBS business continues to grow exactly as while we played, showing a consistent and accelerating contribution to our top nine and bottom nine. A quarter over quarter. And I believe our DCPBS will soon contribute more than 25% of our total profit in the coming few years. As an IT technology leader for more than 30 years, We have consistently turned industry disruption into innovation and new strong opportunities. One of the key value and drivers of our DCPBS business is our data center end-to-end management software. We see significant demand for the super micro data center and cloud software suite, including our super cloud composer that manage tens of thousands of systems or racks in real time. It provides comprehensive control over system and rack level power usage, cooling status, safety condition, and device utilization, alongside many other critical features. Our management software feature also include advanced CPU and GPU workload orchestration which is a critical function for today's AI data center the revenue from this new software product line is finally growing at a tremendous pace increasing from less than 10 million dollars per quarter just a few quarter ago to 34 million last quarter and more than $46 million books for this quarter. By bundling subscription-based software and service alongside our hardware, we are strengthening our customer relationship and improving our long-term profitability. We expect DCPBS, including software and service, to continue its rapid growth and to become major part of our key value very soon. We continue to grow and expand our partnership with many key suppliers. Especially with NVIDIA, we are currently shipping many SKUs over the latest large-scale systems, including GB300MVL72, many B300HGX SKUs, B200MVL4, and the Influencing Application Optimizer, RTS, for that matter. And we are preparing to be among the first to market with the new Verilubin systems, including the MVL-72 Supercluster. We continue to build on strong momentum of our AMD MI350 platform as we prepare for the next generation of AMD Helios. solutions featuring APEC, Venus, and MI400 series of products. In addition, we are working closely with Intel and ARM on the development of upcoming Xeon 6 Plus platforms and a new addition to our portfolio, including ARM AGI GPU-based solutions. This system will deliver exceptional performance per watt, specifically optimal for the growing demand of agentic AI workloads. By leveraging ShibuMine's system building block solution right in data center scale building block architecture, we can efficiently support a wide variety of compute platform and optimize them for different business protocols. Moving on to our footprint. We are expanding our global production capacity with new facility to better support AI demand across the world. Our site in Taiwan, Malaysia and the Netherlands are all ramping up aggressively. Domestically, we recently announced our largest us site to date a new dc bbs campus in silicon valley just one mile away from our headquarters this brings our total bay area footprint to nearly four million square feet featuring a new buildings optimized for innovation design production and validation or a next generation end-to-end data center total solutions. Within this new campus, we are building multiple large-scale validation and production facilities, some of them including a clean room specifically to support our new DLLC2 subsystem and next-generation networking solutions, including advanced optical photonics-based device. With these expansions, we are on track to produce more than 6,000 of the world's most powerful state-of-the-art drugs per month. In closing, Supermicro continues to scale our revenue and scale our value. We have strengthened our governance, delivering a meaningful margin recovery and expanded DCPPS, growing in both volume and value through software, networking, service, and more. Our leadership in DLLC technology pair our ability to deliver large-scale, total solutions at the industry's fastest time to online will continue to fuel our strong growth, keeping Supermarket at the center of our AI revolution. With that, I remain very bullish about our growth in the AI and data center market. For the first quarter, we target $12 billion, given stable supply conditions. For the full year, we target $40 billion. I will turn this over to David.