Thank you for standing by. My name is Cole and I'll be your conference operator today. At this time, I would like to welcome everyone to Super Micro Computer Fiscal Second Quarter 2024 Results. With us today, Charles Liang, Founder, President, and Chief Executive Officer; David Weigand, CFO; and Michael Staiger, 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. [Operator Instructions] And with that, I'd like to pass the call over to Michael Staiger..

Good afternoon, and thank you for attending Supermicro's call to discuss financial results for the second quarter, which ended December 31, 2023. With me today are Charles Liang, Founder, Chairman, and Chief Executive Officer; and David Weigand, Chief Financial Officer.

By now, you should have received a copy of the news release from the company that was distributed at the close of regular trading and is available on the company's website.

As a reminder, during today’s call, the company will refer to a presentation that is available to participants in the Investor Relations section of the company’s website under the Events & Presentations tab. We have also published management’s scripted commentary on our website.

Please note that some of the information you will hear during our discussion today will consist of forward-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 third quarter of fiscal year 2024 and the full fiscal year 2024.

There are a number of risk factors that could cause Super Micro’s future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2023 and our other SEC filings.

All of these documents are available on the Investor Relations page of Super Micro’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 accompanying presentation or the press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today’s press release and in the supplemental information attached to today’s presentation.

At the end of today’s prepared remarks, we will have a Q&A session for sell-side analysts to ask questions. I will now turn the call over to Charles..

Thank you, Michael and good afternoon everyone. I'm delighted to share our second quarter results, which show a record-breaking performance for Super Micro. We achieved revenue of $3.66 billion, a 133% increase from last year, and earnings per share of $5.59. This is our first quarter ever with over $3 billion revenue.

More importantly, this single quarter's revenue surpassed our annual revenue for 2021. This fantastic quarterly result was driven by strong demand and improving supply conditions for GPU and related key system components.

Our rack-scale plug-and-play IT and AI Total Solution continues to gain more new customers, along with their confidence in Super Micro as their go-to infrastructure partner. Our AI rack-scale solutions, especially the Deep-Learning and LLM-optimized based on NVIDIA HGX-H100, continue gaining high popularity.

The demand for AI inferencing systems and mainstream compute solutions has also started to grow. The exciting news is that, finally, we are entering an accelerating demand phase now from many more customer wins. To support faster growth, we have increased our working capital recently by raising about $600 million with an equity offering.

Moreover, we have other programs to increase our cashflow without additional equity dilution to support short and long-term sustainable growth. Overall, I feel very confident that this AI boom will continue for another many quarters, if not many years.

And together with the related inferencing and other computing eco system requirements, demand can last for even many decades to come, we may call this an AI revolution. Let’s go over some key financial highlights.

First, fiscal Q2 net revenue totaled $3.66 billion, up 103% year-on-year and up 73% quarter-on-quarter, exceeding the top end of our original guidance of $2.9 billion for December quarter. Second.

Fiscal Q2 non-GAAP earnings of $5.59 per share were well above $3.26 a year ago and exceeded the guidance range of $4.40 to $4.88, further demonstrating continued strong operating leverage. Economy of scale is important to us for continue strong growth. Supermicro is at the forefront of the AI revolution, where the pace of innovation is accelerating.

We are leading the race by developing the most innovative AI infrastructure on many platforms at rack scale, for almost any industry, and for any market vertical.

As the market leader, we have been preparing to more than double the size of our current AI portfolio with the coming soon NVIDIA CG1, CG2 Grace Hopper Superchip, H200 and B100 CPUs -- GPUs, L40S Inferencing-optimized GPUs, AMD MI300X/MI300A, and Intel’s Gaudi 2 and Gaudi 3.

All these new platforms will be ready for high volume production in the coming month and quarters. Moreover, we are adding further optimized new architectures for the upcoming NVIDIA GPU product lines. Our AMD MI300X systems are sampling now, and our Intel Gaudi 3 system is coming soon.

More importantly, we are continuing to invest and innovate in datacenter and enterprise liquid-cooling technology to make sure these high-power AI platforms are in line with our green computing methodology, while improving the performance, efficiency, and reliability of systems in a datacenter.

As a Total IT Solutions innovator, manufacturer and provider, more and more of the major deployments is being delivered as an integrated rack solution, particularly for the AI cluster deployments.

Servers, networking, storage, security features, and software are optimized, validated, delivered, and serviced as an integrated rack cluster from Supermicro’s manufacturing facilities worldwide.

Leveraging our building block architecture and operation/production automation systems, we can deliver optimized rack solutions with time-to-market and quality advantages for our customers more efficiently than competition. Our TTD, Time-to-Delivery factor has been in a continuous improvement.

By this June quarter, we will have high volume, dedicated capacity for manufacturing 100 kilowatt to 120 kilowatt racks with liquid-cooling capabilities, providing DLC, direct liquid cooling racks capacity up to 1,500 racks per month and our total rack production capacity will be up to 5,000 racks per month by then.

At the same time, our volume -- high volume clean room rack-scale production facility will be ready to service critical customers very soon. The rapid growth of our business is driving the need for additional R&D, solution optimization, manufacturing and service capacity.

Today, our production utilization rate is about 65% across our USA, Netherlands and Taiwan facilities, and they are quickly filling. To address this immediate capacity challenge, we are adding two new production facilities and warehouses near our Silicon Valley headquarter, which will be operating in a few months.

The new Malaysia facility will focus on expanding our building blocks with lower costs and increased volume, while other new facility will support our annual revenue capacity above $25 billion.

To summarize, our record quarterly performance demonstrates our Building Block rack scale plug-and-play IT and AI industry leadership, which continues to accelerate and shows signs of strong market share gains.

The continued strength of existing customer builds and ramp of newly acquired customers, and the robust pipeline of new products coming in 2024 gives me confidence that fiscal Q3 revenue will be in the range of $3.7 billion to $4.1 billion.

Additionally, we are expecting continued strength for the second half of fiscal 2024, and now forecast revenue for the full fiscal year ending in June to be in the range of $14.3 billion to $14.7 billion. We are in overdrive to accelerate Supermicro 3.0 business model with this AI boom.

At the meantime, we are preparing ourselves for the next phase of Supermicro business growth with Supermicro 4.0 and its expanding TAM. Now is certainly the most exciting time yet for Supermicro.

Before passing the call to David Weigand, our Chief Financial Officer, I want to thank again to our partners, our customers, our Supermicro employees and our shareholders for your strong support. Now, let me pass to our CFO David, for more financial details..

Thank you, Charles. Fiscal Q2 2024 revenues were $3.66 billion, up 103% year-over-year and up 73% quarter-over-quarter. Revenues were higher than our initial guidance of $2.7 billion to $2.9 billion and slightly above our recently updated guidance of $3.6 billion to $3.65 billion.

Our growth was driven by demand from new and existing customers for our leading AI and rack-scale Total IT solutions and an improving supply chain.

Next generation AI and CPU platforms continue to drive strong levels of design wins, orders and backlog from top-tier data centers, emerging cloud service providers, enterprise/channel, and edge/IoT/telco customers.

During Q2, we recorded $1.48 billion in the enterprise/channel vertical, representing 40% of revenues versus 43% last quarter, up -- this was up 55% year-over-year and up 62% quarter-over-quarter, driven by enterprise AI and CPU upgrade programs.

The OEM appliance and large data center vertical revenues were $2.15 billion, representing 59% of Q1 revenues versus 55% last quarter, up 175% year-over-year and up 83% quarter-over-quarter. Two existing CSP/large data center customers represented 26% and 11% of total revenues for Q2.

Emerging 5G, Telco, Edge, IoT revenues were $35 million or 1% of Q2 revenues. Growth was driven by AI/GPU and rack-scale total IT solutions, which again represented over 50% of total revenues this quarter with AI/GPU revenues in both the enterprise/channel and the OEM appliance/large data center verticals.

Server and Storage Systems comprised 94% of Q2 revenue and Subsystems and Accessories represented 6%. ASPs increased on a year-over-year and quarter-over-quarter basis, driven by product and customer mix. By geography, the US represented 71% of Q2 revenues, Asia 18%, Europe 8%, and rest of the world 3%.

On a year-over-year basis, US revenues increased 139%, Asia increased 98%, Europe decreased 8%, and rest of the world increased 67%. On a quarter-over-quarter basis, US revenues increased 61%, Asia increased 191%, Europe increased 51%, and rest of the world increased 37%.

The Q2 non-GAAP gross margin was 15.5%, which was down quarter-over-quarter from 17% as we continued to focus on winning strategic new designs and gaining market share.

Turning to operating expenses, Q2 OpEx on a GAAP basis increased by 6% quarter-over-quarter and 58% year-over-year to $193 million, driven by higher compensation expenses and headcount. On a non-GAAP basis, operating expenses increased 18% quarter-over-quarter and 41% year-over-year to $153 million.

Q2 non-GAAP operating margin was 11.3% versus 10.8% last quarter as we benefited from operating leverage driven by higher revenues. Other Income and Expense for Q2 was a net expense of approximately $16 million, consisting of $8 million in interest expense and a loss of $8 million principally from foreign exchange.

Interest expense increased sequentially as we drew down on short-term bank credit facilities for working capital during the quarter. The tax provision for Q2 was $61.5 million on a GAAP basis and $71.1 million on a non-GAAP basis. The GAAP tax rate for Q2 was 17.3% and the non-GAAP tax rate was 17.8%.

Q2 non-GAAP diluted EPS of $5.59 exceeded the high end of our initial guidance of $4.40 to $4.88 and slightly above our recently updated guidance of $5.40 to $5.55 due to operating leverage. Cash flow used in operations for Q2 was $595 million compared to cash flow generated by operations of $271 million during the previous quarter.

Strong profitability and higher level of accounts payable was offset by higher inventory and accounts receivable due to build plans for Q3 and the timing of shipments during Q2. CapEx was $15 million for Q2 resulting in negative free cash flow of $610 million versus positive free cash flow of $268 million last Quarter.

During the quarter, we executed an equity offering and raised approximately $583 million in net proceeds after underwriting discounts and other issuance costs from the sale of 2.3 million shares at a price of $262 per share.

The proceeds will be used to strengthen our working capital, enable continued investments in R&D and expand global capacity to fulfill strong demand for our leading platforms.

The closing balance sheet cash position was $726 million, while bank debt was $376 million resulting in a net cash position of $350 million versus a net cash position of $397 million last quarter. Turning to the balance sheet and working capital metrics compared to last quarter, the Q2 cash conversion cycle was 61 days versus 86 days in Q1.

Days of Inventory decreased by 24 days to 67 days versus the prior quarter of 91 days due to the timing of shipments during the quarter. Days sales outstanding was down by 14 days quarter-over-quarter to 29 days while days payables outstanding decreased by 13 days to 35 days.

Now, turning to the outlook, we expect a strong March quarter as we continue to gain momentum with new and existing customers for our AI and rack-scale total IT solutions.

For the third quarter of fiscal 2024 ending March 31, 2024, we expect net sales in the range of $3.7 billion to $4.1 billion, GAAP diluted net income per share of $4.79 to $5.64 and non-GAAP diluted net income per share of $5.20 to $6.01. We expect gross margins to be slightly lower than Q2 levels.

GAAP operating expenses are expected to be approximately $201 million and include $39 million in stock-based compensation expenses that are not included in non-GAAP operating expenses.

The outlook for Q3 of fiscal year 2024 diluted GAAP EPS includes approximately $28 million in expected stock-based compensation expenses, net of tax effects of $14 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 $9 million. The company's projections for Q3 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 13.8%, a non-GAAP tax rate of 15.8%, and a fully diluted share count of 60.1 million for GAAP and 61.0 million for non-GAAP.

We expect CapEx for Q3 to be in the range of $18 million to $21 million and a range of $105 million to $115 million for the fiscal year 2024. For the fiscal year 2024 ending June 30, 2024, we are raising our guidance for revenues from a range of $10 billion to $11 billion to a range of $14.3 billion to $14.7 billion. Michael, we're now ready for Q&A.

[Operator Instructions]. It's also been asked to keep yourself to one question with one follow-up question. We'll pause here briefly as questions are registered. Our first question is from George Wang with Barclays. Your line is now open..

Hey guys, congrats on the quarter on a strong guide. I have two questions. Firstly, can you kind of supply versus demand, obviously for the December quarter probably driven by both including supply and also strong demand.

So, if you can maybe you can talk about backlog level and also on the supply side, are they still ongoing constraints right now?.

Yeah, thank you for the question. Indeed, the demand is still stronger than supply. So, we have a more supply, we would be able to ship more and we are very happy to continue and grow our capacity, work out betas, even higher support so to grow business even quicker..

Okay, thank you. And quickly a follow-up just on the liquid cooling.

You talked about kind of expanding to 1,500 racks per month after June this year, and maybe you can talk about your expectation for the total production mix from liquid-cooled racks by year-end, and also maybe you can parse out kind of difference, the configure within the liquid cooling.

I know you guys have some immersion cooling and air to liquid cooling. So maybe you can double-click on this thematic topic going forward..

Yeah. Thank you George for the question. In the liquid cooling, we are beating the industry. So, we have a huge capacity ready and have very mature total solution ready, but lots of customer, already rack liquid cooling by their data center, needed some more time to be to ready. I mean their infrastructure needed some more time.

So, we believe -- I think liquid cooling will be the trend and we continue to make ourselves ready and try our best to support the customer, including providing some help to their data center infrastructure. So, I believe liquid cooling percentage will continue to grow, but at this moment most of the shipping is still air cooled..

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

Thank you..

Our next question is from Samik Chatterjee with J.P. Morgan. Your line is now open..

Thanks for taking my questions and congrats on the strong results here. Maybe, if I can just start with the gross margin. You did have a step-down here in 2Q, you're guiding to a slight moderation in 3Q.

Maybe just help me understand, as a management team, how do you think about balancing the opportunities that you've going forward in terms of market-share wins and design-wins relative to sort of big growing profitably over the long-run, how you sort of evaluating those opportunities side-by-side and then I have a follow-up. Thank you..

Sure, thanks, Samik. So, when we win a new customer, we always try to go in and out. And so we go into the organization and try to spread out into the different divisions. And so, in order to do that as we take on new customers, we do evaluate and try to win the business, which requires us to be competitive.

And so, we always are balancing in the interest of shareholder value, how to maximize that. And so, at this time we are we are growing really quickly. And in order to do that and in order to take market share, we will take opportunities by being more competitive on pricing..

The good thing is that when we continue to grow our economies of scale, our operation margin indeed will be still able to keep in healthy position..

Got it. And then just this more near-term question when I look at the revenue guide for 3Q and 4Q. Is a step-up here in revenue of about sort of call it $0.5 billion a bit less going from 2Q to 3Q.

And then a bigger step-up to get to the mid-point to be annual guide into 4Q, how much of that is driven by just being a bit more cautious about when supply comes in and pushing that the revenue guide a bit more to the 4Q or is that really what the visibility currently of supply of just trying to get sort of what's driving the cadence from 2Q to 3Q to 4Q.

And the guide that you provided. Thank you..

Yeah, so Samik, we have a very large and growing backlog, which grew again this quarter. And so really as Charles mentioned earlier, our only constraint is supply. However, the good news is, supply is improving. And so to your point, we have to be somewhat conservative, because we are constrained still by supply..

Thank you. Thanks for taking my questions..

Our next question is from Nehal Chokshi with Northland. Your line is now open..

Yeah, thanks. Great impressive guidance and thanks for explanation regarding the dynamic on the forward guidance for both March quarter, plus the June Q guide. Looking at the incremental revenue for the December quarter. Dave, you already alluded to this, you're making shareholder accretive decision.

So, that's what's driving the tick down in the gross margin, yet, your operating margin has improved, Q-over-Q.

So just to be clear, when you're talking about making shareholder accretive decision, it's still with respect to current revenue not just simply looking at future free cash flows associated with future revenue follow-on from these lower-margin opportunities, is that correct?.

It's really about trying to return the most shareholder value. So back to your point, we know that with -- because of our tight control over operating expenses, if we get more volume from a large customer, we're going to be able to bring more EPS to our shareholders.

So that's really the -- it's really the decision to partner with a really good customer..

Got it. Okay.

And then did you review the 10% revenue customers for the quarter?.

We did, where we said we had two, one 25 and one 11, both in the CSP large data center vertical..

Great, thank you for taking my question. I'll get back in the queue..

Our next question is from Jon Tanwanteng with CJS Securities. Your line is now open..

Hey, good afternoon, and thank you for taking my questions. And really, congratulations on the fantastic growth. Charles, my first question is for you. I was wondering what gives you the confidence in the growth beyond this year. You mentioned -- inferenced the ecosystem potentially years and decades of demand.

Where is the visibility to coming from, what are you seeing in your backlog and your order books and in conversations with customers that gives you that confidence?.

Yeah, thank you for the question. Yes, I mean, other than generative deep learning segment continue to grow very strong. Our inferencing opportunity in general CPU customer base also growing.

So with AI continuing to be more popular, indeed, so many vertical around the world need more inferencing solutions as well, including private cloud, private kind of data center and [indiscernible]. So, we are approaching continue to grow in [indiscernible] of direction and we see positive feedback, a convincing feedback..

Got it, and to ask one of the questions that's been mentioned in a different way, is there a gross margin floor as you pursue this share gain. And when do you see a possible inflection? I'm just wondering what is the limit.

When you go in terms of gaining share versus the margin that you generate?.

Sure, so we set out a target back in March of 2021 of 14% to 17%. But that's and we've actually done pretty well against that target. But one thing I'll say is that we have a lot of -- there's a lot of initiatives that play into our favor. Number one, we're doing a lot in terms of expansion to lower our cost envelope.

Number two, we are -- our advantage is our building block solutions and what that means is, we're the fastest to market because of the way that we have architected our products. So what that means is there's a lot of new technologies that are coming out from many different technology providers.

And we expect to again, as we work with AI, be first-to-market with those. And that first-to-market advantage helps us -- helps to differentiate ourselves as we come out with a complete set of solutions. So, we think that's another thing that will that is always going to play to Super Micro's advantage..

Yeah, especially we have so broad building block proud solution.

So, economical scale will help our building block solution to be more efficient because there's lot of product in our volume were still in the middle size to small size volume and we [indiscernible] and will continue to be aggressive to grow to see every segment, every vertical, we have ALC, economies of scale..

Okay great, thank you. I will turn back in the queue..

Our next question is from Quinn Bolton with Needham. Your line is now open..

Thanks for taking my question. I mean congratulations on the very strong results. I guess I wanted to ask a gross margin question too, obviously it's moderated here in the current quarter and the forward quarter. As you guys position yourself to further market-share gains.

I guess my question is, what sort of the midpoint of that 14% to 17% level that you set back in 2021, is that sort of the right level to be thinking about as you guys stay aggressive and try to drive market-share gains? And maybe -- sorry about the twist in the question, to the extent that.

Supply catches up to demand and growth rates slow, would you then start to focus more perhaps on higher-margin business, just any sort of thoughts, wherein that 14% to 17% range margin may trend over the next year or two would be helpful?.

Yeah, for sure I'll -- most important principle is why would a base go for shareholder for our company. So, although we said of 14% to 17% as in that range in 2021, but if any change, any further adjustments would be the pace of a shareholder. We went to that change. And we are carefully evaluating that range kind of monthly..

Okay, got it and then as Charles said, question on liquid cooling. Just as you look forward, you guys are ready, it sounds like the infrastructure may still need some improvements, but I guess as you look at data center customers CSPs that are looking to deploy liquid cooling.

Is that sort of does that include current-generation sort of 700-watt, GPUs are, is it really the next generation, the B100s and sort of the 1,000 watt GPU class that really drives the adoption at your CSP customers, drives that need for liquid cooling..

You are right. In these current 600 watt, 700, watt module, people can still take care very well, we say air conditioning. And that's why people still are comfortable with our traditional air cooler. But when that system grows to 1,000 or even 1,000 watt per module, yes. I mean -- I think cooling becomes even much more critical.

So, by that time, I believe. Most of the data center will have facility ready for that. So we are very optimistic and very patient to continue to improve our quality, especially that reliability and easy for maintenance. So when customers are ready, we can dwell quickly to support them..

Excellent. Thank you..

Thank you for the question..

Our next question is from Aaron Rakers with Wells Fargo. Your line is now open..

Yeah, thanks for taking the questions and also great results.

Just curious, when you talk about your customer concentration and the diversity of the business, when you talk about 26% and 11% of your revenue coming from two customers, are those the same customers, like last quarter I think you had a customer that was 25%, or are you seeing these customers kind of bounce around.

I guess the simple question is just, is that the same customer 26% and 25%?.

So, Aaron. The 26% customer is the same customer. But the 11% customer is not a new customer, and it's a longer-term customer. But first time in 11% and to your point, yes, we do see a bouncing in and out, and we're very happy. Anytime they do bounce about by the way..

Yeah, and that's why the economies of scale is very important to us when we further grow our total revenue, we will have a more large scale customer and more middle-sized and small-sized customers as well..

Yeah, and then as a quick follow-up, I'm just curious as we look at the AI kind of evolution from here. There's a lot more kind of product diversity itself coming out, B100s, GH-200s. AMD's product lineup.

As you think about the growth going forward, would you say that the growth is more ASP expansion driven, as we think about these next-generation platforms for this diversity driving more of the growth being driven by unit volume growth? I'm just curious on how you would kind of characterize the growth driver from here going forward on those two Inputs..

I guess in the next few years, our growth will be quicker in terms of unit number. So that volume growth will be quicker than ASP, because last two years, our ASP have been growing a lot, right. So, in next day, but I guess unit number, volume will grow faster..

Thank you..

Our next question is from Ananda Baruah with Loop Capital. Your line is now open..

Yeah, good afternoon guys. And thanks for taking the question. Appreciate it. Congrats on the really solid execution. Yeah, congrats on that. I guess, two if I could, Charles. And maybe a clarification, I did some math on the 15,000 racks per month. And they came up with -- I guess $5.6 billion a quarter, let's call it 5.5%.

I guess, plus or minus but that came to $5.6 billion, is that kind of accurate and I guess the question is -- if it stood at midyear, you're talking about getting to that point.

Is that the kind of run-rate opportunity that we can be thinking about quarterly and not like a guidance, but like an opportunity when you get into sort of the back half of the calendar year. Just wanted to make sure that we're interpreting that kind of accurately and then I have a quick follow-up. Thanks..

Yeah, again, we see, we recommend green computing everywhere. That's why wherever, whenever we can help a customer at base, we will. That's why we have been building really large-scale capacity for liquid cooling and other green computing solutions. So yes, that capacity will be huge, but its capacity there, when customer need, we are ready.

And indeed our facility also very flexible. Lots of facility can support liquid cooling and air cooler, or combination cooling. So yes, we have a huge capacity ready for growth, but not necessarily all for liquid cooling, they support air cooler or combination hybrid cooling as well..

Awesome. Thanks for that. And then could you just, I guess the follow-up is, you guys have mentioned a couple of times on the call today, sort new customers as part of -- and I think Charles, your words were accelerated growth.

And so any complexion, I guess any -- sort of any context on the new customers that you guys are wrapping into run-rate kind of would be useful. Anything about them, like what kind of industries, I guess like sort of industries, projects, anything like that would be helpful. Thanks..

Yeah, thank you, I mean, we spend a lot of effort to make our sales and operational process, service process be automatic. So, those automation systems for sales, for production, for support, really enlarge our capacity. And that's why we have capacity to approach to support a more customer now.

So -- and we need economies of scale, because economies of scale is very important to our operation margin and overall EPS. So, yes, we are ready to grow much quicker EBIT..

Yeah, that's super helpful. Okay guys, thanks a lot. Congratulations..

Thank you..

Our next question is from Jon Tanwanteng with CJS Securities. Your line is now open..

Hi, thank you for the follow-up. I was just wondering if there is any change to your OpEx growth formula.

It's been on a trailing basis, less than half of our revenue growth is as you grow bigger and do you expect to run against any limit in supporting such a large customer base and potential customer base or are you getting more economies of scale as you grow larger with that?.

Yeah, indeed we had been some low-volume company for too long, a 30 years old company. So our volumes just started to grow in kind of good economical scale just recently. And we like to take this chance to continue and grow our economies of scale.

So when our economies of scale grow, we leverage automation system again for sales, for operation, and for service. And that's why, I mean, we are in good position to continue growing quickly..

Okay, great. And then I was just wondering at the rate of growth that you're seeing, do you expect to need more external financing? I know you talked about other sources of cash, I was wondering, if you are going into the debt markets, what the plans are to finance this growth..

Yeah, our financial team have been very diligently working now more source, especially try to minimize dilute the stock equity. So we have a [indiscernible] program kind of we're steady and ready there. So when we need more capital, we are ready. David, you may add something..

Yeah, so I'll just echo what Charles said, we're looking at a number of different things, Jon, and we -- but we are mindful of not having further dilution, as Charles said. So, we're -- but we're looking at a number of different opportunities. And the reason we have to is because we need more working capital for growth.

And the reason that our cash flows were not -- did not -- were not as strong as last quarter was simply because we grew by so much. So if you -- when you grow by over $1 billion dollars in quarter, you've got to have additional working capital. So that's the plain and simple fact..

Our inventory had been growing more than $1 billion..

Yes..

And we are continuing to grow..

Got it, thank you very much..

Our last question will be from Nehal Chokshi with Northland. Your line is now open..

Yeah, great, thanks for the follow-up question. And I actually have two follow-up questions. First, at the September quarter earnings call I think you guys said the capacity was around $18 billion, that's up from $15 billion to June 2023 quarter. What's the driver of that actually increased capacity or increased ASPs.

And then, in relation to that, your full-year guidance that implies a June Q guidance of around $4.7 billion, that implies that your annualized capacity is reaching $19 billion. And so as your capacity is increasing.

Is this largely a mix-driven like-for-like ASP driven or how has your capacity actually gone up prior to Malaysia coming online?.

Yeah. I mean our ASP gradually continued to grow while that unit number will grow much faster from now on now I guess. So that's why we need more capacity..

And one thing I'll add Nehal is that in December, we shipped over $1.7 billion -- $1.8 billion. And so that alone establishes a $19 billion capability..

Okay. And then my other question is that typically going into the March quarter revenue is seasonally down Q-o-Q, guiding to be up Q-o-Q.

Usually when the revenue is down seasonally quarter-on-quarter, your cash conversion cycle goes on a Q-o-Q basis, this March quarter because you're projecting a Q-o-Q revenue increase, does that change your expectations on cash conversion cycle seasonality dynamics?.

Well. Yeah, because of the demand, it is very strong. So we believe this March quarter will be a strong quarter as well.

David, is there anything to add to that?.

Yeah, so it really comes down, Nehal to timing. When we receive inventory and when we ship out, so as I mentioned in the December quarter, you can have big activity even within a month, within the quarter, and so that will affect your metrics..

Okay, I'm talking about the December quarter, your cash conversion cycle was actually a lot better than what we had expected. And yes, I recognize there consumption of cash, but it was at least a lot better than what we had expected. Was that actually better than what you had expected given the significant revenue upside that you had delivered here..

It absolutely was, yeah. Yeah, we had some that some customer prepayments and things which helped us out..

Yeah, also when economies of scale [Multiple Speakers] grow, we can more efficiently leverage our inventory as well..

Okay, great. Congrats guys. Thank you..

That concludes today's conference call. Thank you all for your participation, you may now disconnect your line..