Perry Hayes - SVP, IR Charles Liang - Chairman and CEO Howard Hideshima - CFO.

Alex Kurtz - Sterne Agee Rich Kugele - Needham & Company Mark Kelleher - D.A. Davidson Aaron Rakers - Stifel.

Good day ladies and gentlemen. Thank you for standing-by. Welcome to the Super Micro Computer Incorporated Third Quarter Fiscal 2015 Conference Call. The company’s news release issued earlier today, is available from its website at www.supermicro.com.

In addition, during today’s call the company will refer to slide presentation that has been made available to participants which can be access and downloadable PDF format on its website at www.supermicro.com in the Investor Relations section under the Events and Presentations tab.

During the company’s presentation all participants will be in a listen only mode. Afterwards security analyst and institutional portfolio manager will be invited to participate in the question-and-answer session. But the entire call is open to all participants on a listen only basis. As a reminder this call is being recorded Tuesday, April 21, 2015.

A replay of the call will be accessible until mid-night May 5th by dialing 1-877-870-5176 and entering conference ID number 7827500. International callers should dial 1-858-384-5517.

With us today are Charles Liang, Chairman and Chief Executive Officer; Howard Hideshima, Chief Financial Officer, and Perry Hayes, Senior Vice President, Investor Relations. At this time I would like to turn the call over to Mr. Hayes. Please go ahead, sir..

Good afternoon and thank you for attending Super Micro’s conference call and financial results for the third quarter fiscal year 2015 which ended March 31, 2015. By now you have received the copy of today’s news release that was distributed at the close of regulatory 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 Presentation’s tab. Please turn to slide two. Before we start I’ll remind you that our remarks include forward-looking statements.

There are number of risk factors that could cause Super Micro’s future results to differ materially from our expectations. You can learn more about these risk factors in the press release we issued earlier this afternoon, our Form 10-K for fiscal 2014 and our other SEC filings.

All of those documents are available from Investor Relations page or Super Micro’s website at www.supermicro.com. We assume no obligation to update any forward-looking statements. Most of today's presentation will refer to non-GAAP financial results and outlooks.

For an explanation of our non-GAAP financial measures, please refer to Slide three of this presentation or to our press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and in the supplemental information attached to today's presentation.

I'll now turn the call over to Charles Liang, Chairman and Chief Executive Officer..

Thank you, Perry, and good afternoon everyone. Please turn to Slide four. First, let me provide you with the highlights of our fiscal third quarter. We are pleased to announce that we had another strong quarter of growth as our revenue reached $471.2 million. It's 6.3% lower quarter-over-quarter and 26.1% higher year-over-year.

Non-GAAP net income was $24.9 million or 25.6% lower quarter-over-quarter and 40.3% higher compared to last year. Super Micro's non-GAAP earnings per share was $0.47 per diluted share, compared to $0.65 last quarter or $0.37 last year. Please turn to Slide five.

We are pleased that during this traditionally [sought much] quarter, Super Micro again achieved strong year-over-year growth of 26.1% and our growth potential remained on track as we now head into the June quarter.

Growth this quarter was primarily led by a high systems solution demand from key segment of storage, data center and card HPC and Enterprise. Geographically, revenue in the North America was 58.1%, Europe was 18.7%, Asia was 15.9%, and other region was 7.3% of total sales.

Our geographic revenue and percentage remains consistent from our previous quarters, but the lower overall revenue was a result of West Coast Harbor Strike and some projects minor postponement. Fortunately, these issues had been resolved and we have confidence that our strong growth position will carry into the June quarter.

Last dive into our products, our service system contribute 64.1% of our total revenue which is another record high for our system business. Our record growth in OEM and direct accounts 53.9% of total revenue was also in line with our strong system demand.

In particular the internet data center and cost segment had maintained their recent growth momentum and reached 20.7% of total revenue. The service system business growth indicate our transition into a total solution provider have been successful.

As I have mentioned before, more and more customers make our computer system integrated with software and management utility offerings. In addition, our faster growing service business had increased the value proposition of our total solution.

With our expanding on size and upcoming online services, customers need new and current are attracted to our service capability as we enabled them to achieve better term to market, higher quality, lower TCO than our traditional hardware business model.

This is the result of the significant investment we had made recently in both software and service business unit as they [have] quickly. But most importantly our software as a service gave our customer a piece of mind that exceeds the cost of the investment.

As for our optimized hardware solutions, the transition to our X10 generation of products based on Intel Haswell DP processors is ramping organically as expected, growing 26% quarter-on-quarter.

In particular the new Ultra server architecture and hot swappable NVMe technology among others, has strongly encouraged customer to move ahead, also our twin architecture including FatTwin and TwinPro Solutions grew 43% year-over-year. Our mature FatTwin product line had undergo further optimization and refinement to serve different verticals.

We now have all [30] battery variation of FatTwin models many of which are being deployed in hyper-scale open environment because of their high performance, high density, higher efficiency and lower TCO.

This successful product proved that our [billion box] business model is a perfect match to create application optimized solutions in the emerging technologies. We are continuing to optimize the twin architecture with new and exciting feature [commission.

Storage continues to be a leading market vertical with Super Micro with 57% growth year-over-year and up 7% sequentially which indicate a great product momentum in this seasonally third quarter. On a combined base our storage solution was almost 20% of total revenue.

As I have mentioned last quarter we are partnering with technology providers to create the next generation of hyper-converged solutions such as EVO RAIL and Virtual SAN. We are also collaborating with partners on the new hybrid storage solutions for example [now recently announced] Ethernet based kinetic open storage platform.

Moreover to speed up the strong growth momentum we have just released our planning for [indiscernible] storage in gradual that [suppose] up to 93.5 inch hard drive for a total of 720 kilobyte [indiscernible] gigabyte per second performance. This huge storage capacity is in close in easily traceable top loaded hot swappable architecture.

It also feature [indiscernible] hot swappable expandable module with four [indiscernible] HD port to maximize throughput and [free] redundancy. This new for use storage solution is a perfect for [media streaming] [indiscernible] and archive storage applications.

It is just the beginning of our new generation storage products from Super Micro and we are looking forward to bring this high performance optimal storage solution to our customers starting this quarter. On the competing side GPUs for Xeon Phi solutions for HPC and enterprise continue to grow consistently and grew by 67% year-over-year.

We will deliver a brand new architecture with four GPU or Xeon Phi solutions in one unit this quarter. This in line bear our architecture enable our GPU be directly connected to a CPU PCI-E length without a driver or any cables achieving the best signal integrity and minimum dependency.

Now optimized there is also advantageous in performance and power efficiency with its [non pre-heated] GPU Xeon Phi that minimizes cooling power consumption. This design defines Super Micro's new cooling computing commitment while reaching high level of performance to meet the phase and tomorrow’s supercomputing demands.

To summarize we continue to outpace the industry growth by growing 26.1% year-over-year this quarter.

We will stay on close and evolve Super Micro into a server storage total solution provider with our strong growth trend driven by technology innovation in our hardware we are expanding our average to new markets with our software products and service offering.

With that said we are well positioned to finish the fiscal year 2015 on that very strong note. For more specifics on that third quarter let me turn it over to Howard..

Thank you Charles and good afternoon everyone. I will focus my remarks on earnings, gross margins, operating expenses and similar items on a non-GAAP basis, which reflects adjustments to exclude stock compensation expenses.

Reconciliation of GAAP to non-GAAP is included in the financial statements of the company in today’s earnings release and in the supplemental detail in the slide presentation accompanying this conference call. Let me begin with a review of the second quarter income statement. Please turn to slide seven.

Revenue was 471.2 million, up 26.1% from the same quarter a year ago and down 6.3% sequentially. The increase in revenue from last year was primarily due to our increase in server solutions. On a geographical basis, we had strong growth in the U.S. of 34.4% followed by Europe at 8.7%.

Although Asia was down 4.6%, we see great opportunities for growth in the June quarter. Other regions grew 24 million or 226.7% which includes Australia and Canada. The sequential decrease in revenue was primarily due to seasonal weak quarter compounded by the effects of the West Coast [indiscernible].

There are a number of projects which were delivered late in the quarter and not recognized as revenue. Slide eight. Turning to product mix, the proportion of revenues from server systems was 64.1% of total revenues, which was up from 50.1% the same quarter a year ago and from 60.1% last quarter.

ASP for servers was $3,900 per unit, which is up from $2,600 last year and the same as last quarter. We shipped approximately 77,000 servers in the quarter and 1,007,000 subsystems and accessories. We continue to maintain our diverse revenue base with over 700 customers. One customer did represent more than 10% of our quarterly revenues.

Cloud Internet datacenter revenue was 20.7% which is an increase from 20.3% in the prior quarter and an increase from 15.9% in the prior year, 58.1% of our revenues came from the U.S. and 46.1% from our distribution and resellers.

Slide 9, non-GAAP gross profit was $77 million, up 34% from 57.5 million in the same quarter last year and down 9% from 84.7 million sequentially. On a percentage basis, gross margin was 16.3%, up from 15.4% a year ago and down from 16.8% sequentially.

Price changes from Ablecom resulted in a no basis point change to gross profit in the quarter with total purchases representing approximately 14.7% of total cost of goods sold, compared to 14.4% a year ago and 13.7% sequentially.

The year-over-year increase in gross margins resulted from the ramp of new technology as well as from more complete server sales and increased scale of our business. Sequentially gross margins were down due to seasonal weakness in the quarter and lower utilization for the Taiwan facility.

Slide 10 and 11, operating expenses were 42 million, up from 33.2 million in the same quarter a year ago and up from 38.6 million sequentially. As a percentage of revenue, operating expenses was 8.9%, same as year-over-year and up from 7.7% sequentially.

Operating expenses were higher on an absolute basis year-over-year primarily in R&D as we invest in personnel expenses to support development of our total solutions. Sequentially, operating expenses were higher due to about 1.5 million of payroll taxes as they are reassessed at the beginning of the year.

In addition, we had a foreign exchange loss of 732,000 compared to a foreign exchange gain of 844,000 primarily from our Taiwan dollar based loans. Historically, foreign exchange was 637,000 gain year to date in fiscal year 2015 compared to 103,000 gain for the same period in fiscal 2014.

The company's headcount increased by 153 sequentially to 2,144 total employees to support the expansion of the business such as enterprise software and services. Operating profit was 35 million, up by 44.2% from 24.3 million a year ago and down by 24% from 46.1 million sequentially.

On a percentage basis, operating margin was 7.4%, up from 6.5% a year ago and down from 9.1% sequentially. We continue to focus on the many market opportunities we have while leveraging the investments we have made in our infrastructure to continue to deliver our operating margins and profits.

Net income was 24.9 million or 5.3% of revenues, up 40.3% from 17.8 million a year ago and down 25.6% from 33.5 million sequentially. On a non-GAAP fully diluted basis EPS was $0.47 per share, up from $0.37 per share a year ago and down from $0.65 per share sequentially. The number of fully diluted shares used in the third quarter was 52,680,000.

The tax rate in the third quarter with on a non-GAAP basis was 28.3% compared to 26.4% a year ago and 27% sequentially. The rate was higher sequentially due to the retroactive reinstatement of the R&D tax credit in December 2014. We expect the tax rate on a non-GAAP basis to be approximately 32% for the June quarter.

Turning to the balance sheet on a sequential basis, cash and cash equivalents and short and long term investments were 112 million, up 26.1 million from 85.9 million in the prior quarter and up 7.6 million from 104.4 million in the same quarter last year.

In the third quarter, free cash flow was a positive 4.1 million, primarily due to our net income of 23.1 million, a decrease in accounts receivable all set in part by an increase in inventory described below as well as building investments of 8.5 million to support the continued growth of our business.

Slide 13, accounts receivable decreased by 37.2 million to 221.6 million due to less revenues sequentially. DSOs was 46 days, an increase of 5 days from 41 days in the prior quarter. Inventory decreased by 21.2 million to 430.4 million to support the growth of the business in a seasonally strong quarter as well as the effects of the [port strike].

Days in inventories were 96, an increase of 13 days from 83 days in the prior quarter. Accounts payable was 261.6 million, which was 62 days, an increase of six days from the 56 days in the prior quarter. Overall, cash conversion cycle days was 80 days, which is 12 days higher than the prior quarter.

Now for a few comments on our outlook, during the third quarter, we continued our strong growth in a seasonally challenging quarter and more so by the [west coast port] strike.

As we enter the fourth quarter, we look to take advantage of our broad breadth of solutions, which have expanded beyond hardware to include software as a service to drive our strong growth and profitability in the seasonally strong quarter for the industry.

We will build upon our experiences during the past quarter to improve, to continue our delivery of product and services to our customers and partners. Therefore the Company currently expects net sales for the quarter ending June 30, 2015, in a range of 510 million to 560 million.

Assuming this revenue range that the Company expects non-GAAP earnings per diluted share of approximately $0.53 to $0.62 for the quarter. At the mid-point this will represent a growth of 25% and 45% in revenue and EPS respectively from the prior year.

This would make fiscal year 2015 revenue of about 2 billion and about $2.16 EPS which will represent growth from the prior year approximately 33% and 61% respectively. This currently expected that the outlook will not be updated until the release of the company’s next quarterly earnings announcement.

Notwithstanding subsequent developments however, the company may update the outlook, or any portion thereof, at any time. With that let me turn it back to Charles for some closing remarks..

Thank you, Howard. With more than 26% revenue and growth year-over-year Super Micro is again one of the fastest growing company in the IT industry if not the fastest. Despite the seasonally [softness] our long-term growth trend remains intact with our robust products and service as we’re looking forward to a strong finish this fiscal year.

We are well positioned with [prepared foundation] rapidly expanding customer base and that the most leading edge product [indiscernible] Operator at this time we are ready for questions..

Thank you. [Operator Instructions] We’ll go first to Alex Kurtz with Sterne Agee..

Thanks guys for taking a couple of questions here. First Howard it looks like the port of Oakland will shut down for four days that’s generally what I’m seeing here and if I just think about your daily revenue either internationally or domestically on a daily basis excluding weekends obviously it’s like $4 million to $7 million a day.

So I mean could this have been $10 million to $15 million of revenue that got delayed out of the quarter or just kind of vaporized to a certain degree..

Yes, Alex actually [port strike] was much longer than that but to get back to what direct effects we saw, we saw our pushed out revenues approximately about 5.5 million and that doesn’t count some of the other projects that we had also that were delayed because we didn’t have 'chassis' if you want to call t to fully complete our things.

But the direct effect of this revenue that we did not recognize that we shift was about 5.5 million. .

And how does that impact the June quarter if at all, I mean the next question will be well why won't you get that back in the June quarter so how would you --?.

[Multiple Speakers] come back in the June quarter.

So when you think about the June quarter guidance is there some kind of conservativism that you’re putting in around the [grandly] uptake or just general macro concerns, I think some of us were just expecting a little bit healthier guide on the June quarter.

So just trying to understand if that has any kind of -- is anything else beyond this harbor strike that you’re seeing that’s impacting the macro outlook for the June quarter..

Seasonally I think we’re just coming out of this seasonally weak quarter. We do see a lot of projects out, there a lot of opportunities for us to further capitalize upon and at the mid-point of the guidance [indiscernible] we got about we see it about 26% --25%. .

Okay. And just last question for me, then I’ll pass it on.

If you were to think about, you obviously got -- you shift a lot of systems this quarter and it would seem that that if you’re normalizing this quarter’s revenue for say December because of volume would you have eclipsed 17% gross margin if you were looking at this quarter’s mix [indiscernible] system the components if you did that mix back into December quarter..

I think you’re going to see likely seasonally we guided the weak quarter and it usually has an impact into our margin per se as we get into a strong quarter you typically do see a pick-up in margins there.

We have a lot of grid factors that are going on as we get the capacity utilization of Taiwan up, seasonally strong quarter, continuing growth of our business in the server side of it; those are all [play] factors that will help us grow our margins in our operating [point]. .

All right. Thanks guys..

We’ll hear next from Rich Kugele with Needham & Company..

Thank you. Good afternoon gentlemen.

Can you get into a little bit of color around the inventory, it increased again in the quarter, you talked about some of the port strike being related to that as well as growth in the business but that was two quarters in a row of increasing inventory, is there anything unusual going on with the composition of that inventory and then I have a follow up..

Yes, for the March quarter [indiscernible] port strike so we have some half time of getting a chassis especially, but now all the programs have been pretty much fixed. So our inventory now grow into a very healthy position. So it will be very [half of our] June quarter..

You would expect the inventory to exit at a lower level from June?.

Yes, that June quarter will ensure I mean inventory the kind of enough so the business grow..

Okay.

And then in terms of the sub system business was most of the push out in project on that side and can you just elaborate a little bit maybe about the end markets that are buying those sub systems?.

Yes, it's postponed because no one in our chassis basically, so customers still -- indeed we ship most of them in April and somewhere being maximized May..

Okay and then just lastly given the significant improvement on the storage side for multiple quarters now does it change your long-term views on what you think the operating margin can deliver or should we think of the storage business as being more comparable with the overall system side from margin [for us]?.

Storage product might continue to be much stronger right, especially this quarter we just introduced our [indiscernible] in a really high density hot swappable kind of storage solution and this -- again that's why that's the first beginning we have a much stronger storage product line will be available month after month..

We'll hear now from Mark Kelleher with D.A. Davidson..

How about if we talk a little bit about the Grantley cycle, it's something we usually talk about on this call, how much of your server sales are total sales are now Grantley based? And how do see that cycle playing out over the next few quarters?.

Yes, Mark this is Howard. Again we saw a good growth in that side as we expected, it quarter-to-quarter went up about 26%, for us again and that's kind of is in line with what Intel was talking about with regards to their conversion of their processor output to about half over the last six months. So it's coming out nicely for us.

We have a lot of new products; a lot of products were adopted new processor that Charles talked about a bit out there, so we see great potential in the ramp coming..

So would you say that half of your sales are based on that right now in line with Intel?.

Not quite half again, not quite half..

Can you just describe how you picture this cycle playing out; does this give you a surge for the next couple of quarters and then kind of plateau and pull in, how do you anticipate that effecting?.

At this next two coming quarters, we will continue to see the beneficial from the hardware and then Grantley side and platform. That is in June quarter, September quarter..

We'll move next to [Mette Hosinie with FIG]..

Would it be possible to elaborate on the mix of the storage either as overall revenue or part of this up component?.

Yes, around 20% of our revenues now, a little bit above 20% of revenues, it's a mix of basically the -- if you want to call it the hyper-scale next gen type of storage applications as well as our traditional JBOD and had no type of storage, so we've got some very exciting products as Charles mentioned earlier on the other side of the box with regards to JBOD at those size as well as increasing our partnership base out there on the next gen and hyper converge markets..

Sure so to that extent and with some of your component vendors also talking about a strength in the near line looking in to the second half of calendar year, would there be any conflict of interest that would actually slow down or be viewed as a headwind as you try to expand the storage business line?.

Yes, there must always a competitive right, so Super Micro has advantage since 10 years ago since the day we was founded, our advantage always better product better architecture, term to market, better quality and now better total solution including system management software and home-site service and also customer online service..

Sure and then just one follow-up, how should we think about the ASP trend for both server and subcomponent looking into the June and September quarters?.

Yes, I think as we see density increasing and our ability to provide the best dense solutions out there in the market.

Historically, you've seeing our ASP continue to grow quite frankly we're at 3,900 this quarter, prior year was 2,600 and if you want to go back a couple of years it was down 1,900 back in fiscal, so you've see continued trend, this increasing quite frankly because of the density of the box and solutions that we're offering, that we're pushing more performance per box into each one of the solutions that we're delivering.

And then we add software and support services on to that, that again increases value add to that box..

Sure and can I ask one other follow-up question?.

Yes..

In the prepared remark you talked about the postponement of a project and I perceived that as completely independent of a port shutdown, would you be able to elaborate on what this project entails to and has this been back on track again?.

I've been -- I will obviously say pretty much 100% back on track, so the postponement [for March] for sure will increase our June revenue..

Okay.

I’m just curious why this project was delayed, was that due to customer changing --?.

Because no enough components especially chassis. Q - Unidentified Analyst Okay. So it was tied into the port shut down..

Yes, we did ship some charging by air and that’s why it of course has more for March. .

[Operator Instructions] We’ll move on to Aaron Rakers of Stifel. .

Yes, thanks for taking the questions. I want to follow up on that last question, just to clear the 5.5 million impact in the quarter is related to the port shut down, is there a separate impact specific to the project delay in to new size that impact. .

Indeed the project delayed mainly because of the port strike and that’s why we had no way to deliver on time. So however those have been improved in April and coming May. And the total port strike 5.5 million indeed it also closed also other deal that we cannot ship in March quarter. However, most of them will be shipped in June quarter.

Q - Aaron Rakers So just to be clear, so the -- there is a bigger impact in just the 5.5 million or 5.5 million is the total impact for the quarter. .

5.5 Aaron is basically what we did ship but we couldn’t not recognize because of the [kept in] terms or what have you that were sent out in the but weren't able to recognize because of the delay caused in late deliveries there.

The other part that Charles is alluding to is other projects that we have not fulfilled yet because of the product delay, components delays that is a larger number..

That’s a larger number but you can’t quantify that number. .

We haven’t quantified that, that’s correct. .

Okay I just wanted to be clear. Real quickly couple of other questions, you guys when you look at the model in what you’ve outlined for this next quarter, it looks like you’re going to be at if not above the high end of what you previously talked about 6% to 8% operating margin range.

Where do you stand on providing a longer term update to that, should we think about 8% plus as being the new target model or any kind of framework of how we should think about that longer term would be helpful?.

Aaron I think like I said as you look at the numbers I look at presenting some of that as far as reaching the $2 billion target if we hit the mid-point and then with our EPS growth would be at about $2.15 there. We will take a look at our model at the end of this quarter and then take a look at providing some guidance. .

That’s helpful.

And then final other two questions, why was G&A expense up in March sequentially, is there any kind of one-time nature to that or is that a new level to consider going forward?.

It’s primarily in the foreign ex I’d like to characterize that as I mentioned we took foreign ex loss this quarter of approximately 700,000 versus about $800,000 gain. So if you flip those two around again those two caused the majority of the change sequentially in our G&A expenses.

Typically it’s been fairly stable over the course of the last few quarters that do not. If I had to measure it today we measure it on today’s rate that that would probably turn into about $3,000 gain. So again we’ll take a look at breaking it out separately and looking at other means to potentially hedge it what have you..

Okay.

And then the final real quick question is, how do you think about the long-term model from a cash conversion cycle basis? I know that’s been obviously impacted by some of the items that hit this quarter but longer term, how should we think about cash conversion cycle?.

Well I think today in my cash conversion should hopefully come down I think was impacted a bit by the inventory this time around, also I wanted to note the property itself we spent about 8.5 million during the quarter in property and we will continue to make some investments there but we do believe it’s going to be a positive. .

[Operator Instructions] And we do have a follow up from Rich Kugele..

Yes, thank you.

Just the Taiwan utilization rate in the quarter I don’t know if I missed that and then what is the timing for your new California facility to be up and running?.

Okay. I mean for Taiwan facility in the last quarter the reason why it was lower because we had a one big deal postponed ship into I believe this month April, as for USA facility yes, the utilities get in ready, the [indiscernible] ready to move in by July. So up there that would be beneficial to our operation..

Okay.

And what was the utilization number exactly?.

46%, Rich it was the utilization number. I want to also tie back on a question you had earlier potentially was the operating expenses about. We do see leverage out there I talked a bit with Aaron with regards to the effect of foreign-ex. We do see, continue to see leverage out of that.

We are making investments in our software and support and those types of areas in sales people but we do continue to see and keep an eye on our operating expenses so we can get leverage there..

[indiscernible] your utilization fell that much down into 46% then you also were spending on things like airfreight you would think that next quarter on a much better revenue number perhaps for your margin and your OpEx would both be significantly better yes?.

Basically for sure..

And there appeared to be now further questions at this time. Mr. Liang, I'll turn this back to your close remarks..

Thank you for joining us today and we're looking forward to talking to you again at the end of this quarter. Thank you everyone. Have a great day..

Thank you, ladies and gentlemen, that does conclude the Super Micro third quarter fiscal year 2015 conference call. We appreciate your participation and you may now disconnect at this time. Thank you..