• Revenue: $3.85 billion, up 200% year-on-year.

• Net Income: Non-GAAP earnings per share of $6.65, a 308% increase year-on-year.

• Gross Margin: Non-GAAP gross margin was 15.6%, slightly up from 15.5% quarter-over-quarter.

• Operating Expenses: GAAP operating expenses were $219 million, up 72% year-over-year; non-GAAP operating expenses were $166 million, up 43% year-over-year.

• Market Capitalization: Not directly mentioned, but significant financial activities include a $3.28 billion raise through convertible notes and secondary equity offerings.

• Free Cash Flow: Negative free cash flow of $1.6 billion for the quarter, influenced by increased inventory and accounts receivable.

• Future Outlook: Q4 revenue expected between $5.1 billion and $5.5 billion; full fiscal year revenue guidance raised to $14.7 billion to $15.1 billion.

• Warning! GuruFocus has detected 3 Warning Signs with SMCI.

Release Date: April 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Q & A Highlights

Q: Do you design most of the components for liquid cooling racks in-house? And as such, do you think you would be able to charge more for liquid-cooled racks? And can this be accretive to gross margins? A: (Charles Liang - CEO) Yes, we design many key components for our DLC liquid cooling systems to ensure quality, maintenance, and time-to-market. We charge a minimal premium for these systems, but they allow customers to save significantly on energy costs, up to 40%. This approach aligns with our slogan, "green computing can be free with a bonus," as the energy savings effectively offset the costs.

Q: Regarding the visibility into share gains as the new solutions ramp, can you provide more color on where these gains are coming from? Are they related to the next-generation GB200 product with NVIDIA? A: (Charles Liang - CEO) Our market share gains are primarily driven by our rack-scale plug and play solutions, which reduce deployment time and energy costs with efficient cooling. These advantages are appealing to new and existing customers, particularly as we introduce products like the GB200 that support high power densities and advanced cooling solutions.

Q: Can you discuss the expected trajectory of gross margins, particularly with the introduction of new technologies and the ramp-up in Malaysia? A: (David Weigand - CFO) We aim to maintain our gross margin within the 14% to 17% range. The introduction of new platforms and technologies, such as liquid cooling and advanced AI solutions, should support this goal. Additionally, our expansion in Malaysia is expected to contribute to economies of scale and potentially enhance margins.

Q: With the significant increase in inventory this quarter, how should we think about inventory levels moving forward? A: (Charles Liang - CEO) The increase in inventory is strategic, supporting anticipated revenue growth and the specific needs of liquid cooling solutions, which are relatively new and require careful stock management. This approach is expected to continue in the near term to ensure we meet customer demand promptly.

Q: Given the strong revenue guidance and the record backlog, what are your expectations for capital needs moving forward? A: (David Weigand - CFO) Our current capital is sufficient for now, but as we continue to grow and expand, particularly at rates significantly above industry averages, we anticipate the need for additional capital to support this growth.

Q: Can you provide any insights into how the fiscal year 2025 might unfold in terms of growth and product launches? A: (Charles Liang - CEO) We expect strong growth to continue into fiscal year 2025, driven by new product launches and our advanced liquid cooling technologies. These factors, combined with our strategic investments in production capacity and global expansion, particularly in Malaysia, position us well for sustained growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.