Supermicro's sales decline 9 percent

Super Micro Computer Inc has announced fourth quarter and full-year financial results for the fiscal year ended June 30, 2016. The final results are in line with the preliminary results announced by the Company on July 18, 2016.

Fiscal 4th Quarter Highlights

• Quarterly net sales of $524.3 million, down 1.6% from the third quarter of fiscal year 2016 and down 8.6% from the same quarter of last year.
• GAAP net income of $7.0 million, down 58.2% from the third quarter of fiscal year 2016 and down 73.9% from the same quarter of last year.
• GAAP gross margin was 14.1%, down from 14.9% in the third quarter of fiscal year 2016 and down from 15.6% in the same quarter of last year.
• Server solutions accounted for 65.5% of net sales compared with 69.9% in the third quarter of fiscal year 2016 and 61.7% in the same quarter of last year.

Net sales for the fourth quarter ended June 30, 2016 totaled $524.3 million, down 1.6% from $532.7 million in the third quarter of fiscal year 2016. No customer accounted for more than 10% of net sales during the quarter ended June 30, 2016.

GAAP net income for the fourth quarter of fiscal year 2016 was $7.0 million or $0.13 per diluted share, a decrease of 73.9% from net income of $26.7 million, or $0.51 per diluted share in the same period a year ago. Included in net income for the quarter is $4.4 million of stock-based compensation expense (pre-tax). Excluding this item and the related tax effect, non-GAAP net income for the fourth quarter was $10.4 million, or $0.20 per diluted share, compared to non-GAAP net income of $30.0 million, or $0.57 per diluted share, in the same quarter of the prior year. On a sequential basis, non-GAAP net income decreased from the third quarter of fiscal year 2016 by $8.6 million or $0.16 per diluted share.

GAAP gross margin for the fourth quarter was 14.1% compared to 15.6% in the same period a year ago. Non-GAAP gross margin for the fourth quarter was 14.1% compared to 15.7% in the same period a year ago. GAAP and Non-GAAP gross margin for the third quarter of fiscal year 2016 were both 14.9%.

The GAAP income tax provision was $4.5 million or 39.0% of income before tax provision compared to $13.8 million or 34.1% in the same period a year ago and $7.4 million or 30.7% in the third quarter of fiscal year 2016. The effective tax rate for the fourth quarter of fiscal year 2016 was higher due to higher tax expenses associated with the implementation of the Company’s new global corporate structure on May 1, 2016.

The Company's cash and cash equivalents and short and long term investments at June 30, 2016 were $183.7 million compared to $98.1 million at June 30, 2015. Free cash flow for the year ended June 30, 2016 was $73.4 million, primarily due to an increase in the Company's cash provided by operating activities and partially offset by the cash used in the development and construction of improvements on the Company's properties.

Fiscal Year 2016 Summary

Net sales for the fiscal year ended June 30, 2016 were $2,215.6 million, up 11.3% from $1,991.2 million for the fiscal year ended June 30, 2015. GAAP net income for fiscal year 2016 decreased to $72.0 million, or $1.39 per diluted share, a decrease of 29.3% from $101.9 million, or $2.03 per diluted share, for fiscal year 2015. Included in net income for the fiscal year ended June 30, 2016 is $16.1 million of stock-based compensation expense (pre-tax). Excluding this item and the related tax effect, non-GAAP net income for the fiscal year 2016 was $83.8 million or $1.59 per diluted share, a decrease of 24.9% compared to $111.6 million or $2.15 per diluted share for fiscal year 2015.

Business Outlook & Management Commentary

The Company expects net sales of $470 million to $550 million for the first quarter of fiscal year 2017 ending September 30, 2016. The Company expects non-GAAP earnings per diluted share of approximately $0.15 to $0.30 for the first quarter.

“As previously announced, this quarter our results were below expectations due to reduced demand from large datacenter customers and issues related to a global SAP and tax reorganization implementation that impacted our execution and pricing flexibility,” said Charles Liang, Chairman and Chief Executive Officer. “Our core strategy will be to continue to grow our technology leadership by offering the broadest array of first to market innovations in server, storage, cloud and IoT, by delivering leading architectures that leverage our building block solutions and partner strategy to provide total solutions with software and service. At the same time, we will take actions to leverage our capacity and improve operational efficiency to become more flexible and competitive in winning new business. By offering the best value for innovation and emphasizing strategic customer relationships, we are confident that we can achieve stronger growth and improve financial performance.”