Perry Hayes - Senior Vice President-Investor Relations Charles Liang - Founder, President, Chief Executive Officer and Chairman Howard Hideshima - Chief Financial Officer

Rich Kugele - Needham & Company Nehal Chokshi - Maxim Group

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Super Micro Computer Incorporated First Quarter and Fiscal 2017 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 a slide presentation that is made available to participants, which can be accessed in a downloadable PDF format on its website at www.supermicro.com in the Investor Relations section under the Events & Presentations tab. During the company's presentation, all participants will be in a listen-only mode. Afterwards, security, analysts and institutional portfolio managers will be invited to participate in a 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 Thursday, October 27, 2016. A replay of the call will be accessible until midnight, Thursday, November 10, 2016, by dialing 1-844-512-2921 and entering replay pin 8620920. International callers should dial 1-412-317-6671. With us today are Charles Liang, Chairman and Chief Executive Officer; Howard Hideshima, Chief Financial Officer; and Perry Hayes, Senior Vice President, Investor Relations. And now, I'd like to turn the conference over to Mr. Hayes. Mr. Hayes, please go ahead, sir.

Good afternoon, and thank you for attending Super Micro's conference call on financial results for the first quarter fiscal 2017, which ended September 30, 2016. By now, you should have received a copy of today's news release 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. Please turn to slide two. Before we start, I'll remind you that our remarks include forward-looking statements. 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 Form 10-K and for fiscal 2015, and our other SEC filings. All of those documents are available from the Investor Relations page of Super Micro's website. We assume no obligation to update any forward-looking statements. Most of today's presentation we'll 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. And now, I'll turn the call over to Charles Liang, Chairman and Chief Executive Officer.

Thank you, Perry, and good afternoon, everyone. Please refer to slide four. Let me provide with summary of our first quarter. Revenue was $529 million. It's 0.9% higher than last quarter and 1.8% higher year-over-year. Non-GAAP net income was $16.7 million. It's 16.9% higher than last quarter and 1.1% higher year-over-year. Non-GAAP earnings per share was $0.32 per diluted share, compared to $0.20 last quarter and $0.32 last year. We are pleased that Super Micro was able to deploy revenues at above and probably at a higher end of our expectation for our first quarter. Last quarter, system sales were 67.6% of revenue, with 50% coming from direct customers. The key large segment that drive our systems business improved, starting with 23.5% of total revenue, up 10% from last year and 24% from last quarter, against average sales to the [indiscernible] decline in market those performed strongly. We are seeing an increased number of customers as up to all fresh NVM solution and expect strong NVM system growth in 2017. Internet data center and cloud comprised 12.8% of total revenue, down from 25% last year and down from 18% last quarter. We took some times in the past couple of quarters to review our pipeline in this segment. Now we are at with product therefore it would nice with better dilute. We are expecting win in this – in the near future in this large board of segment. Despite early fair in some margin pressure, we are confident that how datacenter will continue and grow our economical scale in last year. IoT and embedded comprised 10.7% of total revenue and was up 12.9% over last year and up 10.2% from last quarter. A key driver of our success is been the focus on that case in IoT and embedded themes that dive our business. From a geographical perspective, Europe and Asia show strong improvement from last year, with Europe contributing 21.5% of revenue and Asia contributing 18.2%. The US market was 55.0% of revenue, representing ARC balance of US and international revenue. Last quarter we discussed the restructuring of our global operation on inward ratio, including our new SAP implementation, tax restructure and bonded warehouse. This quarter was so much smoother operation and reduced impact from the transition. We expect to 100% complete of that transition in this December quarter and see sustained long-term improvement to our operational efficiency and probability. Now IoT us structural market is experiencing moderate growth according to most of the analyst. But particular segment of the market growing three to four times faster than the overall market. Most of our focus is on the faster growing market segment, like the next generation storage, high density and pre-architectural, rest to be our services embedded and IoT and X-rapid GPU computing. Not other company is better positioned in these market segment, which we are creating big growth opportunity for our business. Our portfolio of workload optimized systems deliver tangible performance and efficiency advantage and we are consistently foster to market with key new technology innovation, that enable our customer to deliver depreciative more powerful and efficient solution. Super Micro is a leader in the next generation storage market, providing NVM all fresh NVM and high storage solution to our customers, including the top storage OENs. We have most completed storage portfolio with more than 70 NVM server storage systems, that deliver all those magnitude better performance multiple times the price performance and vision and traditional storage solutions, including a simple pre-architecture and 60 page and 90 page capacity optimized storage platforms using that new tool and do the NVM interface. We continue to define the stay order at architecture by introducing the first 2U 4A fresh NVM solution with growth system and data pass redundancy bring all fresh NVM to the mission critical enterprise. As a result of our 20 year strategy and investment storage has become one of our largest revenue and faster growing segments. In Rack Scale data center we saw outstanding growth in the quarter while center introduced a micro pace of that. We have several major larger scale customers wins for micro [ph] that were based on micro combination of high performance, high density and networking and IoT efficiency. We also continue to offer most innovative multiple system portfolio including the twin family and [indiscernible] and had consistent growth of that portfolio with particularly strong growth for our micro pace. The rate IQ was special my next hearing market a gross according to most of the entities five particular segments of the Maki growing three full-time fosters in the overall market. Most of our focus is on the foster growing market segments next-generation stories-between potential Rexdale, solutions invented and IOT and X-rated GPU computing not the company is in addition to the things make segment visual Michael, which we have created the gross opportunity for our our credit portfolio of local optimized season fever principal performance and efficiency advantage and we are consistent at 84 circle Maki we skied knowledge innovations that enable our customer for the vitiated more powerful and efficient solutions, supermicro is either in the next generation story to my providing an BMD all flash and we in hybrid storage solution for our customers, including the hot storage organs in the war you have the most the company discourage for you. We want to 7 PM EMV the seasons that deliver orders of magnitude performance, multiple times the price performance and divisions traditional storage solutions including the simply double our actual and the CPP in that space capacity optimized us stories" using Matthew who and who and what have you interface defined us. They are actual by introducing the was to you 48 (and we have a solution. We system and then up as you bring in all trash and we in mission-critical enterprise as a result of follow and TES strategies and investment will become one of our largest is the revenue and foster growing segment in rack scale. How does it. So outstanding growth in the quarter, lower basin the use Michael Brady we had as they were amid your large-scale customers of for Michael Brady that will based on the MicroCloud combination of high-performance-and networking in I yields of low for the policies the most the innovative Maki Pelosi simple for you, including the Queen 73 and Michael Kyle and consistent most of that for weeks, particularly strong growth for Michael, that involve our new away as well underway, and we are starting the transition. I think for and I am working - we've got customers in our teeth amount is over 30 years and for of presentation order next-generation policies which we announced next year and we continue to see hundred percent gross of our software, especially as management sort away in global service portfolio, providing a deputy the speaking and 44 our expanding enterprise customer base our IOT and embedded again, a provider one or the right path or a quarter, we grew approximately three times faster than the overall IOT market as measured by IDC our new reform fiscal junkie and composite provide a higher performance that the The higher performance VCC do that I know you customer networking, communication and stories you reach your more powerful the solution. We also expanded our mine leasing you though power is one of solutions. We successful customer engagement including the medical imaging security is manufacturing and elsewhere. So we expect to see a 30% cost gross in IOT and embedded this fiscal year. We had every share leadership below in the computing and I and 30 in every all the any machine learning and I think we should solution and provide a complete portfolio almost Nvidia in base and what a broad scale adoption of X-rated. Market boasts we suppose that maximize the performance advantage of the most new Nvidia Pascal, if you a new Intel Canada and I think deposit we had I will walk you know optimize reforms that continue better performance, including our employees for you assistance up to what and PCIE it's not P100 accelerators for up to a 187 to grow performance for you. We see Intel introduces the new 5X 400 and in most 2U form factor. And then powerful the 2U form factors in the including for no of in lease integrated on and we are seeking the market that we saw the industry first 051 basis for the community and the seeking countries of Fargo season over the last how we see accelerated computing us. So those four major new innovation and focus to be that not system provider is transformational market. In summary, we are excited about our meeting for continuing gross and the Newport and the economic we had to we will continue to execute that could be was lucky we see that it is an outage I will in the Emmy and battery backup power right. The portfolio of choice for our customers and we expect to continue some of those going for foremost space, you know was quarter and it over to a house. Remarks on earnings, gross margins, operating expenses and similar are not basis, which reflects adjustments to exclude stock compensation expense reconciliation of Jeff and on gases included in financial statements of the company into a recently and he felt in the slide presentation of the conference call. Let me begin with review the first quarter, please turn to slide four. Revenue was 500.9 million of 1.8% for your help about .9% sequentially. The increase in revenue last year was primarily due to our increase in specific countries, which was up 4.9%. The significant increase in sales to distributors which was up 11.6%. In terms of vertical. We saw growth in that should sort enterprise and HPC of 36.9% are 27% and item .5% respectively. Also in part by decline our units in a 47.2% geographically strong growth in Europe of 31% while Asia 29%, while the US without thoughtful .7%. The sequential increase in revenue was primarily due to improving our server solutions, which was up 4.2% more sales from our NextGen have open for which grew 26.6% and 21.8% respectively, as well as growth in our enterprise business of 200, which was offset by decline in our cloud of 28.8% geographically to your point, up 24.2%. Asia was up 50.5% of US without 5.4% The higher performance VCC do that I know you customer networking, communication and stories you reach your more powerful the solution. We also expanded our mine leasing you though power is one of solutions. We successful customer engagement including the medical imaging security is manufacturing and elsewhere. So we expect to see a 30% cost gross in IOT and embedded this fiscal year. We had every share leadership below in the computing and I and 30 in every all the any machine learning and I think we should solution and provide a complete portfolio almost Nvidia in base and what a broad scale adoption of X-rated. Market boasts we suppose that maximize the performance advantage of the most new Nvidia Pascal, if you a new Intel Canada and I think deposit we had I will walk you know optimize reforms that continue better performance, including our employees for you assistance up to what and PCIE it's not P100 accelerators for up to a 187 to grow performance for you. We see Intel introduces the new 5X 400 and in most 2U form factor. And then powerful the 2U form factors in the including for no of in lease integrated on and we are seeking the market that we saw the industry first 051 basis for the community and the seeking countries of Fargo season over the last how we see accelerated computing us. So those four major new innovation and focus to be that did not - system provider is transformational market. In summary, we are excited about our meeting for continuing gross and the Newport and the economic we had to we will continue to execute that could be was lucky we see that it is an outage I will in the Emmy and battery backup power right. The portfolio of choice for our customers and we expect to continue some of those going for foremost space, you know was quarter and it over to a house. Remarks on earnings, gross margins, operating expenses and similar are not basis, which reflects adjustments to exclude stock compensation expense reconciliation of Jeff and on gases included in financial statements of the company into a recently and he felt in the slide presentation of the conference call. Let me begin with review the first quarter, please turn to slide four. Revenue was 500.9 million of 1.8% for your help about .9% sequentially. The increase in revenue last year was primarily due to our increase in specific countries, which was up 4.9%. The significant increase in sales to distributors which was up 11.6%. In terms of vertical. We saw growth in that should sort enterprise and HPC of 36.9% are 27% and item .5% respectively. Also in part by decline our units in a of 47.2% geographically strong growth in Europe of 31% while Asia 29%, while the US without thoughtful .7%. The sequential increase in revenue was primarily due to improving our server solutions, which was up 4.2% more sales from our NextGen have open for which grew 26.6% and 21.8% respectively, as well as growth in our enterprise business of 200, which was offset by decline in our cloud of 28.8% geographically to your point, up 24.2%. Asia was up 50.5% of US without 5.4% .5% of US was down 5.4 like six turning point to for revenue from server systems was 67.6% of total, down from 68.6% the same quarter a year ago and up from 65.5% last quarter, we would provide the commission notes, which we shipped during the quarter, we believe that idea of the increasing density with which our solutions are providing we pioneered the concept of multi-notes is about 10 years ago with the introduction of our twin architecture and continue to lead the way in this area. We shipped approximately hundred 22,000 node in the quarter, which compares to our 3000 in the prior quarter and 16,000 in the prior year. Please for compute notes was about $2900 per compute note 1st $2600 per node software and $3100 per node last year should probably 1,144,000 subsystems and accessories. We continue to maintain a diverse revenue base with over 700 customers. No customers represent more than 10% of our quarterly revenues. Cloud Internet data center revenue was 12.8%, which was a decrease from 18.1% of our core complaint .7% in the prior year 55.9% of our revenues came from the US 50% from our distributors and resellers 111. Non- gross profit was 80,000,000.4 million of 10.9% from 72.5 million in the same quarter last year and 8.5% from 74.1 million sequentially. On percentage basis, gross margin was 15.2%, up from 13.9% a year ago and up 14.1% sequentially. Price changes from, resulted in no basis point change to gross profit in the quarter, with total purchases representing approximately 11.2% of total confidence the compared to 13.2% year ago and 12.4% sequentially. The year-over-year increase in gross margin results from lower percent politics from our file revenue utilization article capacity basis was about 51% compared to about 71% a year ago. This resulted in 20 basis points of gross margin sequentially, gross margin was up 1.1% primarily due to product mix as well as lower warranty reserves of 10 basis point utilization of our global was about the same 51% compared to last quarter, like 12 and 13, operating expense was 55.7 million up from 47.1 million quarter a year ago and down from 57.9 million sequentially. As a percentage of revenues, operating expenses were 10.5% which is up from 9% same quarter a year ago and down from 11% sequentially. Operating were higher on asset dollar basis year-over-year primarily in R&D, as we invested in personnel expenses and materials to support development of our total solution increased hundred five in R&D, which is about 17.1% increase sequentially. Operating were lower due to lower material and testing fees of about 3.7 million lower marketing and promotion trade show cost of 2.6 million offsetting part by annual salary increases of 3.2 million of the sacred John increased by 33 sequentially .731 total employees, primarily in R&D. Operating profit was 21.7 million down by 2.4% from 25.3 million per year ago and up by 52.5% from 60.2 million sequentially. On percentage basis, operating margin was 4.7%, down from 4.9% a year ago and up from 3.1% sequentially. We continue our efforts to leverage the investments we have made during the past year. Net income was .7 million up 1.1% from €16.5 million ago and 60.9% from 10.4 million sequentially. I know you fully diluted EPS was $.32 per share to the same as cents per share a year ago and up from 20 per share sequentially. The number of fully diluted shares used in the first quarter was 52 million 199-2000 the tax rate in the first quarter. Our non-deaf basis was 31.7% compared to 34.2% a year ago and 34.4% sequentially. The effective tax rate for the first quarter of fiscal year 2017 was lower than last year's reinstatement of the R&D tax credit in December 2015. The sequential decrease in taxi with you to less impact from The sequential decrease in a taxi with due to less impact from the new global corporate structure which you plan on the first 2016, we expect our effective tax rate to be 32% in the second quarter of fiscal 17 as we continue to improve our execution of the new corporate structure grow our business overseas ship offshore business which are being served by the US from the US to our offshore location. Balance sheet on a sequential basis, slide 1450 cash and cash for the short and long-term investments were on 49.4 million, down 34.3 million from our 3.7 million in the prior quarter and up 35.8 million from our 13.6 million in the same quarter last year first quarter cash flow was -22.7 million from really an increase in inventory of 54.9 million an increase in your of 39.1 offset in part by an increase in accounts payable of 43.4 million net income of 13.5 million in addition, we repurchased 18.5 million. During the quarter. Accounts receivable increased by 3.3 million to 328.3 million due to higher revenue sequentially. The DSO was 54 days an increase of four days from 50 days in the prior quarter. Inventory increased by 51 million to 500 million for the higher revenue forecast for the second quarter days in inventory was 97 days an increase of three days from 94 days in the prior quarter and 95 days in the prior year. Accounts payable was 30.4 million, which was 55 days an increase of two days from 53 days in our core, and down three days from 58 days in the prior year. Overall, cash conversion cycle days was 96. Which is five days higher than prior quarter. We continue to guide that the cash conversion days in the racial the above your view on an annual basis is there a seasonality in our business, which affect the racial quarter to quarter first, our Outlook for the second quarter fiscal year 2017 saw growth and a number of market vertical which highlight the many options, and the diversity of the markets we can pursue we continue to drive on the strength leverage the investments we have made to grow topline and profitability in a seasonally strong quarter or the industry. Therefore, the company currently expects net sales for the quarter ending December 31, 2016 in a range of 570 million 40 million assuming this revenue range the company is not tampering per diluted share of approximately $.38 $.52 for the quarter. At the midpoint this will represent a decrease of about 5.3% revenue and 38.4% in EPS from the prior year. The target first the options we have March share growing full of our operating costs as of July 18, 2000, the company also announced the company's board of directors had adopted a program to repurchase from time on management's discretion, up to $100 million of the company's common stock in the open market or in the private transactions during the next 12 months at prevailing market prices as of September 30, 2016 repurchased DRD thousand 99 some share of our common stock: $18.5 million, an average price of $20.79 per share is currently expected that the Outlook will not be updated until the release of the company's next quarterly earnings announcement. Notwithstanding subsequent development however the company may update the Outlook or a portion thereof at any time without to Charles for some closing remarks.

Thank you, Howard. In summary our outlook for December quarter, we had a fixed our seasonality expectations. The backlog in a stronger gross now much segment we expect these quarter see you contribution and nine installment demand for modest always Michael Brady and that's you accelerated computing and not be surgeon not demand in the college and innocent mall over the expecting the completion of our new global operation was we were achieve that and some improvements to our efficiency in the public. Indeed, we are very excited about phase the market opportunity. And at the other companies in a position, we in the idea was special market. Operator, at this time, we are ready for questions.

Thank you, sir. [Operator Instructions] And we'll take our first question from Rich Kugele with Needham & Company.

Thank you. Good afternoon. A few questions, so I guess first clarification, Howard Can you repeat the growth rates for next in enterprise and HPC, HPC particular I didn't catch it sounded like it was some of the hundred percent is clarify that?

Rich, on a year-over-year basis NextGen towards enterprise and HTC in the 36.9% next doors are .7% for 597.5% for the cable and sequential bit NextGen NextGen storage grew at 26.6% and 21.8%. Our practice is to our point okay the PC side is there any commentary you can provide likely the particular environment is going into the unique configurations you can talk to really nice with educational area would think of the 51.

With regards HPC area that was on the out the platform and was very pleased okay. And then in terms of just where we are in the process recycle. Can you talk about demand for the current series of Intel products and any in the early indications on demand for the future launches next year earlier go and 95 most have been?

GPU and 900 and much and then you said available so we have a strong mine oboes the quarter was company and we expect that gross us to in the including not local and ENG for enterprise. We had a strongest product line that will not be the 40 great in growing model okay. And so your sense of how to LNG. Now with Nvidia and until most now we see excellent the queue. Thanks very much.

We'll go next to Nehal Chokshi with Maxim Group.

Thank you. And congratulations on a strong quarter. Great gross margin and good guidance here. impressive the concept of datacenter sales were down 47% year-over-year and 29% to so you talk a little further about why that ourselves continues to decline on a Q-o-Q basis?

Thank you for the kind remarks, we talked about it the quarter as we thought it build out and data centers all last year for cellulose build out that I have been gone for staying Outlook and will technology refresh and demand for your additional client into the data center again audio talk about that within our guided we have great opportunity there to grow as as we go pipeline in that area yeah. So, I like men know you have a one-off most those on the full view quarter. Mike stated, we did not I would say I'm not a couple of floods the site in the private I get into the local and the fees will be.

It appears at this time we have no further questions. I'd like to turn the call back over to Mr. Liang for additional or closing remarks.

Thank you for joining us today and we look forward to talking to you again at end of this quarter. Thank you, everyone, have a great day.

Thank you, ladies and gentlemen. That does conclude the Super Micro first quarter fiscal year 2017 call. We do appreciate your participation. You may disconnect at this time. Thank you.