Super Micro Computer (SMCI) Q2 2025 Earnings Call Transcript | The Motley Fool

SMCI earnings call for the period ending December 31, 2024.

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Super Micro Computer (SMCI -9.47%)
Q2 2025 Earnings Call
Feb 11, 2025, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by [Technical difficulty] Charles Liang, founder, president, and chief executive officer; David Weigand, CFO; and Michael Staiger, senior vice president of corporate development. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator instructions] Thank you.

Michael Staiger — Vice President of Corporate Development

Good afternoon, and thank you for attending Super Micro’s second quarter fiscal 2025 business update conference call for the second quarter, which ended December 31st, 2024. With me today are Charles Liang, founder, chairman, and chief executive officer; and David Weigand, chief financial officer. At the end of today’s prepared remarks, we will have a Q&A session for sell-side analysts. Additionally, the company will not address any questions regarding the delay in the filing of the company’s fiscal year 2024 10-K and 10-Qs due thereafter.

During today’s conference call, Super Micro will address business and market trends from the second quarter of fiscal ’25, including our financial outlook and operations, our strategy, technology and its advantages, our current and new product offerings and competitive industry and economic trends. We will discuss the estimated financial results but reference to any financial results are preliminary and subject to change based on finalized results contained in future filings with the SEC. By now, you should have received a copy of today’s news release that was issued after the close of market and is posted on our website where this call is being simultaneously webcast. 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 relating to our business is contained in our filings with 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 associated and growth rates are non-GAAP measures other than revenue and cash and investments. This call is being live broadcast and the Super Micro 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 Super Micro. Our third quarter fiscal 2025 quiet period begins at the close of business Friday, March 14th, 2025. With that, I will turn it over to Charles.

Charles Liang — Chairman, President & Chief Executive Officer

Thank you, Michael, and thank you to everyone for joining us. We have some important updates today on our financial filings, operational progress, technology innovation, and business opportunities as we cross the midpoint of our fiscal 2025, I will begin by reviewing some key financial highlights from the December quarter. Our preliminary fiscal Q2 net revenue is projected to range between $5.6 billion and $5.7 billion, making a 54% year-on-year increase at the midpoint. Despite some negative impacts on cash flow and market misperception due to the 10K delay, we achieved a fairly good quarter, driven by sustained AI demand from both existing and new customers.

Our growth trajectory for fiscal year ’25 remains promising. Highlighted by the beginning of our transition from Hopper to Blackwell GPUs, we expect the growth in new generation platform to accelerate as supply ramp this quarter and beyond. We have confidence that our calendar year ’25 growth could be a repeat of calendar year ’23, if not better, assuming that supply chain can keep pace with demand. Our preliminary fiscal Q2 non-GAAP earnings was in the range of $0.58 to $0.60 per share versus $0.56 last year, representing approximately a 5% year-on-year growth.

Non-GAAP gross margin was approximately 11.9% and non-GAAP operating margin was approximately 7.9%. Margin was temporarily under pressure due to the 10K delay disruption, the new product R&D investment, and customer and product mix. In a separate press release issued today, we announced a private placement of $700 million in new 2.25% convertible senior notes due in 2028 to support our rapid business growth immediately. We have also privately amended a portion of our existing convertible notes due in 2029 with almost all investors participating in the amended notes.

This will support our growth, including Super Micro 4.0 initiatives, DataCenter Building Block Solution, DCBBS, and some brand-new GPU platform architecture design. Before diving into the details of our operations progress, let me begin by sharing an update regarding our financial filings. Our financial team and our new auditor, BDO, have been fully engaged in completing the auditor process. Based on our progress to date, we are confident that our fiscal year ’24 Form 10-K and the first two quarters of fiscal year ’25 Form 10-Q will be filed by February 25th this year.

As previously stated, the special committee found no evidence to support the former auditor’s reasons for resignation. However, over the past two quarters, we have added senior leaders in corporate communication, operations, finance, legal and compliance departments. We will continue to add more top experienced leaders to build a stronger corporate foundation for our rapidly growing and expanding global business, including the CFO, CCO, and other positions. As you know when a company quickly grow 4x business in three years like Super Micro, adding more senior leaders is also a natural requirement.

Especially, we know, we will continue to grow strongly in the future. Moving on to our technology progress, we are excited to announce that our NVIDIA Blackwell products are shipping now. We have begun volume shipments of both air-cooled 10U and liquid-cooled 4U NVIDIA B200 HGX systems. Meanwhile our NVIDIA GB200 NVL72 racks are fully ready as well.

Utilizing our system building blocks, we are going to soon offer more brand-new platforms for customers seeking further optimized, higher-density, and even greener AI solutions. While most key component are ramping at full speed, it will take some time to fulfill our current AI solution backlogs. Some customers also need more time to finish their DLC datacenter buildout. At the same time, we see strong new demands keep coming in from enterprises, CSPs, sovereign entities, and hyperscalers.

We are expanding and enhancing our total liquid-cooled datacenter infrastructure solutions featuring the latest DLC technology, exemplified by the xAI Colossus, the world’s largest liquid-cooled AI supercomputer. Super Micro is the undisputed leader in driving industrywide adoption of DLC technology, which reduces customers’ opex and achieves green computing. We expect more than 30% of new data centers worldwide to adopt liquid-cooled infrastructure within the next 12 months, driven by the rapid and continued growth of AI. Green computing deserves to be everywhere.

Our DLC long-term investment and leadership provide a sustainable competitive edge and economies of scale, far ahead of competition. Super Micro’s DCBBS consolidates servers, racks, networks, storage, water towers, software management, and service for an end-to-end solution. The true value of DCBBS is to save power, reduce space, and decrease water consumption, resulting in up to 40% lower TCO for our customers according to our calculation. It accelerates new datacenter deployments and helps modernize existing infrastructure in weeks or months, rather than quarters and years, significantly improves datacenter TTD and TTO.

We are expanding our DCBBS to include more key subsystems quarter after quarter and will become a true one-stop-shop DC partner to the industry soon. On the production front, our new Malaysia campus will soon ship products to our regional partners. Our Taiwan and European production facilities are also experiencing significant growth. In Silicon Valley, we are rapidly expanding our manufacturing sites to increase our DLC rack-scale production capacity.

The U.S. campuses boast an impressive 20 megawatts of power, enabling us to produce over 1,500 DLC GPU per month in the U.S. To better support our key partners and align with current government initiatives, we are planning substantial domestic manufacturing expansions in various regions across the U.S. These strategic expansions will ensure we meet the increasing demand for our products and services, while maintaining our commitment to key partners for quality, security, TCO, TTD, and TTO.

To summarize, we have been a product and technology leader in the IT industry for over three decades. As we continue strengthen our internal operations and expand our U.S. and global manufacturing footprint, we aim to turn these progresses into value for shareholders, customers, and partners. Our first-to-market advantage of delivering the most innovative AI infrastructure technology with Blackwell, coupled with exceptional product quality, service, software, networking, and security with DCBBS, will continue to reinforce our leadership as the premier US-based datacenter infrastructure solution provider.

With our expanding technology leadership and today’s AI trend, we believe it will result in a similar growth trend for us like 2023. With that, I am confident we will finish this fiscal year strongly with revenue in the range of $23.5 billion to $25 billion. And I believe we have potential to reach $40 billion for fiscal year ’26. Before passing the call to David for the financial overview, I want to thank all of our partners, customers, investors, and Super Micro team members, and express my deep appreciation for their continued support.

With that, I will now turn the call over to David.

David Weigand — Chief Financial Officer

Thank you, Charles. Please note, these numbers are preliminary and unaudited, subject to some change upon completion of review by management, our audit committee. And additionally, our independent audit firm has not completed its review procedures with respect to this preliminary financial information. So, to start, again, we expect Q2 fiscal year ’25 revenues in the range of $5.6 billion to $5.7 billion, up 54% year over year.

Again, growth was driven by demand for air-cooled and DLC rack-scale AI GPU platforms. AI-related platforms, again contributed over 70% of revenue for Q2 across enterprise and cloud service provider markets. The Q2 non-GAAP gross margin is approximately 11.9% versus 13.1% last quarter…

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