Earnings Call Transcript - SMCI Q2 2026

Operator, Operator

Thank you for joining us. My name is Matt, and I will be your conference operator today. I would like to welcome everyone to the Super Micro Computer, Inc. Q2 Fiscal Year '26 Financial Results Call. Present with us today are Charles Liang, Founder, President and Chief Executive Officer; David Weigand, CFO; and Michael Staiger, Senior Vice President of Corporate Development. Now, I will hand it over to Michael.

Michael Staiger, Senior Vice President of Corporate Development

Thank you. Good afternoon, and thank you for attending Super Micro's call to discuss financial results for the second quarter and full year fiscal 2026, which ended December 31, 2025. With me today, as you know, is Charles Liang, Founder, Chairman, Chief Executive Officer; and David Weigand, Chief Financial Officer. By now, you should have received a copy of the press 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 IR section of the company's website under the Events and Presentations tab. We've also published management's scripted commentary on our website. Please note that some of the information you'll hear during the 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 2026 and full fiscal year 2026. These statements and other comments are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. You can learn more about these risks and uncertainties in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2025, and other SEC filings. All these documents are available on the IR 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 to our press release published earlier today. The non-GAAP measures are presented as we believe that they provide investors with the means of evaluating and understanding the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. 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. Our third quarter fiscal 2026 quiet period ends at the close of business on Friday, March 13, 2026. And for now, I will turn the call over to Charles.

Charles Liang, CEO

Thank you, Michael, and thank you all for joining today's call. Super Micro delivered a strong fiscal Q2 as AI infrastructure demand continues to accelerate across every major customer segment. For the quarter, we achieved a record TWD $12.68 billion in revenue, including $1.5 billion before the former type of account last quarter, representing 123% year-over-year growth. This strong performance reflects the sustained momentum of our AI solutions and Rack Scale Systems as customers build out next-generation AI factories. Super Micro has been developing some of the largest and most complex AI clusters ever built, highlighting our unmatched capability in large-scale manufacturing, on-site deployment, and integration. Most notably, our data center building block solution (DCBBS) has started to gain some key customers' preference as they look for quicker time-to-deployment (TTD) and quicker time-to-online (TTO). This pre-designed, pre-validated infrastructure building block not only speeds up customers' data center builds, but they also save costs with better workload optimization and with minimal power and water consumption. DCBBS will significantly help us gain market share in large, medium, and small AI infrastructure deployments. With GP300 platforms, we are also preparing for upcoming NVIDIA, Vera Rubin, and AMD Helios solutions for the second half of this year. While we continuously grow AI factory build-out, customer and product mix are shifting more to large model builders who have pricing leverage, pressuring gross margins. In Q2, especially the expedited transportation costs, ongoing component shortages, and their volatile pricing along with tariffs impacted our short-term gross margin. As such, I would like to take a moment to highlight our key strategies to address this and efficiently strengthen our long-term profitability. First and foremost, Super Micro undergoes its fourth phase of product evolution with DCBBS as its key focus. As these data centers deploy at scale, DCBBS is and will become an increasingly important part of our value. In the first half of fiscal year '26, DCBBS solutions accounted for 4% of our profit. We expect this part of our profit to grow and meaningfully contribute to the second half of fiscal '26, and we see that growth accelerate to at least a double-digit contribution by the end of calendar 2026. DCBBS becomes critical to the value of our server and storage products by enhancing the data center infrastructure's time to delivery and time to online, reducing power and water consumption, and cost-effectively simplifying data center management and maintenance. In just about a year, our DCBBS product lines grew to more than 10 key subsystems, including CDU, LR2A heat exchanger, chilled doors, power shelves, battery backup, water tower, dry-towers, high-speed switching, data center management software, and services. We are expanding this product line to include more new categories such as transformers, next-generation power generators, devices for energy backup, and grid power replacements, further strengthening customer value, accelerating deployment, and supporting long-term profit margin improvements for Super Micro. Other than developing DCBBS for better value and portability, we are also sharpening our focus on traditional enterprise, cloud, and edge IoT customers to further diversify revenue with higher margins. In addition, we have introduced our X14 and H14 solutions, featuring preconfigured systems that ship directly from our factory, enabling rapid deployment optimized for specific AI cloud storage and telco edge workloads. These servers are ready to power immediately and reinforce Super Micro's core value of time-to-market advantages for enterprise customers, channel partners, and SMB end users. We are also driving meaningful cost improvement through enhanced design for manufacturing (DFM) and quality-driven engineering. We have introduced more modularized subsystems and expanded automation across our facilities. These efforts increase yield rates, reduce waste, and enable us to bring new platforms to volume production even faster and with higher quality. As product cycles shorten and technical complexity increases, these design for manufacturing advancements are essential for scale, efficiency, and long-term margin improvement. While executing these DFM initiatives, we are also continuing to expand our global manufacturing footprint aggressively and strategically. Our Silicon Valley facility remains the cornerstone of our U.S. operation, delivering faster time to market, strong security, and higher quality integration. Internationally, new production sites in Taiwan, Malaysia, Netherlands, and the Middle East are ramping to increase capacity and support regional AI requirements, and most importantly, optimize our overall cost structure. In summary, as the only company with more than 32 years of robust server and storage focus, Super Micro is quickly evolving into a leading AI platform and data center infrastructure total solution provider. Strong Q2 performance, rapid expansion of the DCBBS product line, deeper and more customer engagement, and global capacity investment position us well for long-term growth, while near-term margin pressures from the customer mix, tariffs, international facility expansion, and key component shortages like memory and storage shortage. Our focus on enterprise business design for manufacturing improvements, along with the faster-growing DCBBS portfolio, all help us gain new customers, support higher growth, and net margin going forward. Lastly, based on our broad customer backlog forecast and commitment, we believe demand for AI and IT infrastructure remains unprecedentedly strong. Our DCBBS solution is exactly what customers need to build out their AI and cloud much faster, greener, and lower total cost. With that in mind, I'm confident to guide at least $12.3 billion for Q3 and up our full-year revenue guidance back to at least $40 billion. I look forward to sharing our progress with you next quarter. Thank you. Now I will turn it over to David.

David Weigand, CFO

Thank you, Charles. We achieved record Q2 fiscal year '26 revenue of $12.7 billion, up 123% year-over-year and up 153% quarter-over-quarter compared to our guidance of $10 billion to $11 billion. Q2 revenue included approximately $1.5 billion in delayed Q1 shipments due to customer readiness. Growth was driven this quarter by the rapid ramp and deployment of our Rack Scale AI solutions. Despite supply chain challenges in the industry, our global manufacturing team executed well in delivering record revenue. Order strength remains strong from global large data center and enterprise customers. AI GPU platforms, which represent over 90% of Q2 revenue, continue to be the key growth driver. During Q2, the enterprise channel revenue segment totaled $2 billion, representing about 16% of revenue versus 31% in the prior quarter. That's up 42% year-over-year and up 29% quarter-over-quarter. The OEM appliance and large data center segment revenue was $10.7 billion, representing approximately 84% of Q2 revenue versus 68% in the last quarter. This was up 151% year-over-year and up 210% quarter-over-quarter. For Q2 FY '26, one large data center customer represented approximately 63% of total revenue. By geography, the U.S. represented 86% of Q2 revenue, Asia 9%; Europe, 3%; and the rest of the world, 2%. On a year-over-year basis, U.S. revenue increased 184%. Asia grew 53%, Europe decreased 63%, and the rest of the world increased 77%. On a quarter-over-quarter basis, U.S. revenue increased 496%, Asia decreased 49%, Europe decreased 51%, and the rest of the world increased 53%. The Q2 non-GAAP gross margin was 6.4% versus 9.5% in Q1. Gross margins were impacted by customer and product mix as well as higher freight, production, and expedite costs as we began to ship new platforms on a large scale. We had significant operating leverage during the quarter with total non-GAAP operating expenses representing 1.9% of revenue versus 4.1% last quarter. Q2 GAAP operating expenses were $324 million, up 14% quarter-over-quarter and up 8% year-over-year. On a non-GAAP basis, operating expenses were $241 million, which was up 18% quarter-over-quarter and up 6% year-over-year. Operating expenses were up quarter-over-quarter, largely due to higher sales expenses. Non-GAAP operating margin for Q2 was 4.5% compared to 5.4% in Q1. Other income and expense for Q2 totaled a net income of $26 million, reflecting $51 million in interest income on higher cash balances, partially offset by $25 million in interest expense primarily related to our convertible notes. The tax provision for Q2 was $99 million on a GAAP basis and $122 million on a non-GAAP basis, resulting in a GAAP tax rate of 19.8% and a non-GAAP tax rate of 20.6%. Q2 GAAP EPS was $0.60 compared to guidance of $0.37 to $0.45, and non-GAAP diluted EPS was $0.69 versus guidance of $0.46 to $0.54 due to higher revenue and operating leverage. The GAAP fully diluted share count increased sequentially from 663 million in Q1 to 673 million in Q2, and the non-GAAP share count increased from 677 million to 688 million over the same period. Cash flow used in operations for Q2 was $24 million compared to $918 million used in the prior quarter. On a quarter-over-quarter basis, Q2 operating cash flow reflected higher net income, offset by higher accounts receivable and inventory levels and aided by higher accounts payables. Q2 closing inventory was $10.6 billion, up from $5.7 billion in Q1 as we prepared for continuing strength in Q3 shipments. CapEx for Q2 totaled $21 million, resulting in negative free cash flow of $45 million for the quarter. During the December quarter, we expanded our access to working capital to fund growth, executing a $2 billion cash flow-based secured revolving credit facility in the U.S. In January, we also closed an approximately $1.8 billion secured Taiwan revolving debt facility. At quarter end, our cash position totaled $4.1 billion, while bank and convertible note debt was $4.9 billion, resulting in a net debt position of $787 million compared to a net debt position of $579 million in the prior quarter. Turning to the balance sheet and working capital metrics. The cash conversion cycle significantly improved from 123 days in Q1 to 54 days in Q2. Days of inventory decreased by 42 days to 63 days versus 105 days in the prior quarter. Days sales outstanding increased by 6 days to 49 days versus 43 days in Q1, while days payables outstanding increased by 32 days to 58 days versus 26 days in Q1. Turning to the outlook for Q3 FY '26. We expect net sales to be at least $12.3 billion, GAAP diluted net income per share of at least $0.52, and non-GAAP diluted net income per share of at least $0.60. We expect gross margins to be up 30 basis points relative to Q2 FY '26 levels. GAAP operating expenses are expected to be around $354 million, which includes approximately $74 million in stock-based compensation expenses that are excluded from non-GAAP operating expenses. The outlook for Q3 of fiscal year 2026 fully diluted GAAP EPS includes approximately $62 million in expected stock-based compensation expenses, net of the tax effects of $19 million, which are excluded from non-GAAP diluted net income per common share. We expect other income and expenses, including interest expense, to result in a net expense of approximately $22 million. The company's projections for Q3 FY '26 GAAP and non-GAAP diluted net income per common share assume a tax rate of 19.6%, a non-GAAP tax rate of 20.2%, and a fully diluted share count of 684 million for GAAP and 699 million shares for non-GAAP. Capital expenditures for Q3 are expected to be in the range of $70 million to $90 million. For full fiscal year 2026, we expect at least $40 billion in net sales. Michael, we're now ready for Q&A.

Michael Staiger, Senior Vice President of Corporate Development

Great. Matthew, can you roll the queue?

Operator, Operator

First question is from Ananda Baruah with Loop Capital.

Ananda Baruah, Analyst

Congratulations on the strong results relative to the guidance. I have a few questions concerning margins. Firstly, about 90 days ago, you mentioned that you expect the December quarter to be the lowest point for gross margins, and that you're guiding for quarter-over-quarter improvement in the March quarter. Do you still believe that conditions will improve from here, Charles? You noted some challenges regarding customer mix. Do you anticipate that to get better? I also have two quick follow-up questions related to margins after that.

Charles Liang, CEO

Yes, thank you for the question. We are seeing improvements in our customer mix quarter after quarter, and we have many more large-scale customers now, which will enhance our profitability. In the previous December quarter, we faced some higher expedited transportation costs due to the GP300 being relatively new to us. However, as the product matures, those additional transportation costs will significantly decrease, and the impact of tariffs will also get better. Overall, particularly with the increase in DCBBS, I believe our gross margin will start to improve steadily each quarter.

Ananda Baruah, Analyst

Charles, that's valuable information. I appreciate it. One of my two clarifications comes from your prepared remarks where you mentioned higher net margin. You clarified that you expect gross margin to increase. This might be a question for either you or Dave. Dave, you discussed OpEx leverage. The OpEx as a percentage of sales was impressive this quarter, around 1.5%, which is under 2%. Should we anticipate that after achieving OpEx leverage for two consecutive quarters now, you also have the most favorable OpEx percentage of revenue in some time? Is the company entering a phase of both gross margin expansion and structural OpEx dollar leverage? That's all from me.

Charles Liang, CEO

Yes, exactly. I mean, economical scale will help us to improve our costs, right? So that will impact our gross margin and especially our operating margin. And again, DCBBS helps Super Micro with more business in services, in software, and in overall infrastructure services to customers. So all those factors are positive to our margin improvement.

Operator, Operator

Next question is from the line of Samik Chatterjee with JPMorgan.

Unknown Analyst, Analyst

This is MP on behalf of Samik Chatterjee. I just wanted to double-click on your full year guidance. You said $40 billion for FY '26. If I back into the implied 4Q number, that implies significant quarter-over-quarter moderation. So is that just conservatism being embedded into the full year outlook? Or do you see definite indications from your order trends that 4Q will imply sequential moderation? And I have a follow-up as well.

Charles Liang, CEO

Yes. I believe we say a minimum of $40 billion is a relatively conservative number. So our business indeed will continue to grow, especially our DCBBS that attract a lot of customers who want to build a data center quicker, with less power consumption, better costs, and also more reliable and easier for management. So we are getting more and more customers come to us.

Unknown Analyst, Analyst

And for my follow-up, I wanted to ask about DCBBS. You highlighted it being 4% of profits in the first half. Can you please help us understand the contribution in terms of revenues? And then you also said it will increase to double-digit contribution by the end of the calendar year. So how does that translate to overall gross margin trajectory?

Charles Liang, CEO

Yes. Thank you. I mean, as you know, DCBBS is still a new product line to us. We officially introduced that product about 6 months ago. So in the first 2 quarters, I mean, September quarter plus December quarter, indeed, it is our first 2 quarters. So the revenue is still relatively small, but because the profit is much better. So overall, it contributed about 4% to our overall profit in the last 6 months. Looking forward, it will continue to grow very quickly. So we are very happy to see more and more customers like DCBBS to speed up their data center build-out with effective management tools and maintenance, and our profits will continue to grow because of DCBBS especially.

Operator, Operator

Next question is from the line of Asiya Merchant with Citi.

Asiya Merchant, Analyst

Good results here compared to the guidance. I have two quick questions. First, there has been a lot of discussion about component availability and supply constraints. Can you talk to us about your guidance? Is the minimum $40 billion guidance a limiting factor due to the supply constraints? In other words, if supply were not an issue, could that number be higher? Secondly, regarding customer concentration, the commentary suggested some geographies experienced year-on-year and quarter-on-quarter declines. Relative to the guidance, how should we view the ramp-up of DCBBS across those geographies for the latter half of this fiscal year and into calendar 2026?

Charles Liang, CEO

Yes, you are right. We already consider component prices keeping growing. So with that, that's why we try to be conservative and commit to $40 billion. If the shortage situation improves quickly, for sure, our revenue will surpass that. And as to DCBBS, customers almost everywhere like DCBBS because it helps them build a data center more easily. It's kind of a one-stop shop. We provide not just computing nodes but also storage nodes, switch nodes, cooling subsystems, and energy backup. So it makes it easier for customers to build data centers. The impact is global. We see a global-wide interest in our DCBBS solution, and we are aggressively preparing to meet that demand.

Operator, Operator

Next question is from the line of Katherine Murphy with Goldman Sachs.

Katherine Murphy, Analyst

To ask another question on the new DCBBS disclosure. Encouraging to hear that growing to double-digit share of profit by the end of calendar '26. Can you talk about the investments that you need to make here to expand the capabilities? I know Charles, you mentioned some in the prepared remarks as well as your go-to-market offering to have this increased penetration of DCBBS? And then I have a quick follow-up as well.

Charles Liang, CEO

Yes. Indeed, we started to develop our DCBBS pretty much about 12 months ago. So we have been consistently investing in that area. So far, we have about 10 items, including the CDU, chilled door, power shelf, battery backup, water tower, management software, and others. We plan to introduce another 3 to 5 items in the next few months or next few quarters. The data center building block solution will be getting more complete, and that's why it will be easier for customers to build data centers. It's not just easier and quicker to build their data centers, but also makes their data centers modularized. So it's easier for management, easier for maintenance, and easier for scaling up.

Katherine Murphy, Analyst

Great. And just on the margin profile of DCBBS, could you remind us what you've said in the past about what that looks like relative to the sales that you typically have towards your large Neo cloud and GPU as a Service customers?

Charles Liang, CEO

It's for sure that gross margin and net margin are much higher for DCBBS because it's so unique. We are the first company to build pre-designed, pre-validated, pre-optimized data center solutions for customers. So the margin is much better, for sure, more than 20%. We are happy to make the product line really strong and complete as soon as possible.

Operator, Operator

The next question is from the line of Ruplu Bhattacharya with Bank of America.

Ruplu Bhattacharya, Analyst

For the first one, I'll ask a follow-up on margins. David, you mentioned expedite costs, component cost increases, shortages. And I think last quarter, you talked about increased investments in engineering support and services to help new customers. Can you help us size all of these things? How much did they impact gross margins in the December quarter? And what's baked into guidance as impact from these things in the March quarter? And I have a follow-up.

David Weigand, CFO

Yes. We don't break those things out, Ruplu, but we can just say that the costs were up in each of those areas. In other words, higher transportation and expedite in order to move things around and get things delivered to the customer faster. But I can tell you that over the past year, we've had increases as we have ramped up the new technologies and prepared for mass shipments.

Ruplu Bhattacharya, Analyst

Okay. As a follow-up, can I ask, Charles talked about component shortages, and you're being a little conservative on the guide. Are component shortages, like which areas are they in? And then component cost increases, are they actually impacting data center demand, either on the AI side or on the regular non-GPU server side? Are component cost increases a real factor? And if I can sneak one more in, this DCBBS product that you have, can we infer anything about the type of customers who are buying that? Like if you're thinking that you're going to sell more, is it going to be more of a bigger percent of your sales? Does that mean that the customer mix is also changing? Do enterprise customers use more of these? Or what type of customer likes to use more of the DCBBS packaged solution?

Charles Liang, CEO

Thank you for your question. Indeed, the key component shortage at this time is the main reason AI demand and large data center demand are growing. The shortage is due to the strong demand, not because of reduced production capacity. So that's a good sign. The demand growth is actually benefiting us, and we're part of that major growth. The impact may affect our costs, but it won't hurt us too much. That's the first question. And second, I mean, DCBBS, who needs the DCBBS? I would like to say everyone looking to build a data center. It doesn't matter if they are large scale, medium-sized, or small scale because our DCBBS provides customers with more choices for a one-stop shop, saving their time and ensuring they function as intended. Customers using our DCBBS can get their data centers online and operational quickly.

Operator, Operator

The next question is from the line of Nehal Chokshi with Northland.

Nehal Chokshi, Analyst

Congrats on the strong results and guidance. A little bit of a different question here. So look, Super Micro brought DCBBS to the market one generation faster than when it became part of NVIDIA reference architecture. It's now apparent that Super Micro has brought to the market one generation faster, dry cooling towers, which is related to higher inlet temperatures as part of Blueprint reference design. My question is that do you expect Super Micro to continue to bring to the market one generation faster with power efficiency advantages before NVIDIA makes it part of their reference architecture? Is it going to be part of Super Micro's branding?

Charles Liang, CEO

Yes. As you know, NVIDIA is a very strong company, and we work closely with them. However, because of our strong engineering background and team, we are able to deliver our total solution one generation or 6 months earlier than others. Now and in the future, I believe we will still be able to bring total solutions to market earlier than others, helping customers build their AI cloud data centers online quicker than others, if not 6 months earlier, at least 3 or 4 months earlier. I am very confident that our future growth should remain very strong.

Nehal Chokshi, Analyst

Great. And then for my follow-up question, your 10% customer, was that the primary driver of the upside that you saw in the quarter? Do you expect them to remain a 10-plus percent customer in the March quarter? How should they traject? And then you also signed a significant contract with Datavault 6 or 9 months ago. Is that starting to ramp in as well?

Charles Liang, CEO

Basically, our foundation is getting much stronger than ever, especially our total solution, the data center building block total solution is robust. We are gaining good customers across multiple segments. So it's hard to say whether we will always have a 10% customer or not, as our revenue grows very fast. I hope to soon report revenues over $50 billion or $60 billion, and we have more and more large customers working with us. So it's an exciting time.

Operator, Operator

Next question is from the line of Quinn Bolton with Needham & Company.

Quinn Bolton, Analyst

Let me add congratulations on the nice outlook. I guess, Charles, David, you had a 63% customer in the December quarter. As you look at the second half of fiscal '26, do you expect revenue to diversify significantly? Or do you think that large customer continues to be pretty concentrated in the March and the June quarters? And then I've got a follow-up.

Charles Liang, CEO

Sometimes it's not easy to predict because customers sometimes shift their schedule of pull-ins or push-outs. However, we are very happy that now we have many more large-scale customers. The customer base is becoming more diversified, and overall revenue will continue to grow quickly. At the same time, DCBBS and software enhance our value. Overall, we are on a very healthy track now.

Quinn Bolton, Analyst

Got it. So understanding that the customers can push and pull out, right now, the forecast shows increasing diversification over the next couple of quarters.

Charles Liang, CEO

Yes. The growth is still very fast, and that's why we are focused on how to grab more opportunities to grow even faster. With more cash on hand, we can definitely accelerate growth. Even without additional funding, I believe that the more diversified customer base and higher value solutions will help us to grow our business.

Quinn Bolton, Analyst

Understood. And my follow-on, Charles, in your prepared comments, you mentioned the upcoming platform transition to Vera Rubin and the Helios system from AMD. I'm just wondering, have you guys started to get orders for those systems for delivery in the second half? Or is it too early to start to get orders for those systems?

Charles Liang, CEO

Yes, we have a lot of highly interested customers, some already engaged, and we hope we can deliver as soon as possible. But still, it depends on our partner, depending on when their Vera Rubin or AMD solution will be ready. So we are working very closely with them. Once they are available, we'd like to deliver to customers quickly. Yes, we already received some good commitments from customers.

Operator, Operator

Next question is from the line of John Tanwanteng with CJS Securities.

Jonathan Tanwanteng, Analyst

Congrats on the nice quarter and outlook there. I just wanted to ask a little bit more about the big versus smaller customer mix that you're expecting in the future and the pipeline that you see. Are you expecting smaller customers to become a greater percentage of sales? Or is it the opposite? And the reason I ask is that these bigger customers seem to have that pricing leverage you mentioned. If you could provide any color there, that would be helpful.

Charles Liang, CEO

Yes. Thank you for the question. Yes, we understand we need more customers, especially a more diversified customer base of enterprises. We are very aggressively growing enterprise mid-sized and even larger enterprise customers as well. Our customer diversification is a very important direction for us now, aiming to balance large customers with additional enterprise accounts.

Jonathan Tanwanteng, Analyst

Okay. Got it. And then just on the Vera Rubin question, with the migration to the 800-volt data center, I was wondering if there's any opportunity for you to drive greater differentiation in this next cycle upgrade compared to the past couple. Is there anything about the whole platform and data center architecture that gives you more or less opportunity compared to the last cycle of Blackwell and Hopper?

Charles Liang, CEO

Yes. That's why I say NVIDIA provides a very good solution. Based on that, we optimize the whole data center building block solution for our customers, aiming to help them build their data centers quicker, more reliably, and easier for management, as well as lower costs including energy consumption, backup solutions, and maybe too early to say energy grid power replacements. We have a complete plan for the whole solution, but some other systems are still too early to discuss.

Operator, Operator

Next question is from the line of Mark Newman with Bernstein.

Mark Newman, Analyst

Congratulations on a strong quarter and positive outlook. I'm curious about the changes you've experienced. Sales have significantly increased, while gross margins have decreased noticeably, yet you're projecting continued solid sales. Is this mainly due to a tougher pricing environment, prompting Super Micro to adapt and regain market share? Or is this simply a catch-up from previous quarters when you mentioned some orders were delayed? Additionally, regarding your future estimates, you've provided guidance for the short term, but how should we view gross margins in the longer term? Will this range remain consistent, or are we likely to see a return to high single-digit or low double-digit gross margins like in the past?

Charles Liang, CEO

Thank you. As an engineering company, we certainly have some choices. We can continue to grow larger accounts aggressively or spend more effort to develop technology, products, and grow more enterprise accounts. So we are pursuing both approaches. We are expecting our gross margin and net margin ratio to grow to double digits as soon as possible.

David Weigand, CFO

Sure. We think that we've established ourselves with a number of deployments that we've made as being really the premier provider of the most current technologies available in the market. With those strong installations, we've broadened our reach into the market. We think that we're targeting both, as Charles mentioned, large-scale and smaller-scale customers, as well as mid-tier customers. We want to serve all the customer bases that are attracted to our products and bring them the very best technologies. We think ultimately, that drives the margins, yes.

Operator, Operator

The next question is from the line of Brandon Nispel with KeyCorp.

Brandon Nispel, Analyst

Just I think a couple of quick clarification questions. One for David. David, you raised some new capital this quarter. Maybe just help us understand how you're thinking about working capital for the rest of this year. And then other income came in about $50 million above your guide. Really what drove that? And then just one quick follow-up question.

David Weigand, CFO

Sure. The other income was just higher interest income that we had because our cash reserves had grown, and we were earning good interest income. However, that was quickly taken up by the fact that, as I mentioned last quarter, we had well in excess of $13 billion in purchase orders for delivery. So we immediately had to use that, which is why our accounts receivable and inventory went up. We took in both $2 billion and $1.8 billion credit facilities. We also set up an accounts receivable factoring. So we have access to over $5 billion of additional capital. If we continue to grow, we have access to additional capital in the marketplace. For the current outlook, we have adequate capital to meet our needs. And when I say current, I mean in the coming quarters.

Brandon Nispel, Analyst

Got it. Just on the factoring, the securitization facility, did you utilize that at all this quarter? And then on the 63% customer, was that a previous 10% customer?

David Weigand, CFO

So to the first question, we did not use it during the December quarter, but we have subsequently. To your second question, Super Micro does most of its business with repeat customers. I'll just leave it at that.

Charles Liang, CEO

But at the same time, we are adding a lot of new customers too.

David Weigand, CFO

We've added a lot of new logos at the same time. That's right. And it's because of those successful customers.

Brandon Nispel, Analyst

Okay. But we don't know if the 63% customer is new to the 10% customer mix or if it's a previous 10% customer. Is that right?

David Weigand, CFO

Yes. I'll just refer you to the 10-Ks and Qs on that. Yes. By the way, I do want to clarify one thing in my narrative regarding the fully diluted share count. The GAAP fully diluted share count increased sequentially from 663 million to 694 million shares. And then the non-GAAP share count increased from 677 million to 709 million. So there was just a typo in there. Please forgive the correction.

Michael Staiger, Senior Vice President of Corporate Development

All right. Thank you, everyone, for joining. I just want to inform you that we had heard there were some technical difficulties with the webcast provider. A replay will be provided after the call, so you can catch up on that. Thank you for joining today.

Operator, Operator

That concludes the conference call. Thank you for your participation. You may now disconnect.