Earnings Call Transcript - SMCI Q2 2023

Operator, Operator

Good morning. My name is Devin and I will be your conference operator today. At this time I would like to welcome everyone to the Super Micro Computer, Inc. Fiscal Q2 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. Thank you for your patience. Mr. Michael Staiger, you may begin your conference.

Michael Staiger, Conference Host

Good afternoon and thank you for attending Supermicro’s call to discuss financial results for the second quarter, which ended December 31, 2022. With me today are Charles Liang, Founder, Chairman and Chief Executive Officer, and David Weigand, Chief Financial Officer. By now, you should have received a copy of the news 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 Investor Relations section of the Company’s website under the Events & Presentations tab. We’ve also published management’s scripted commentary on our website. Please note that some of the information you’ll hear during our 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 2023 and the full fiscal year 2023. There are a number of risk factors that could cause Supermicro’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 most recent 10-K filing for fiscal 2022, and other SEC filings. All of these documents are available on the Investor Relations page of Supermicro’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. 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 to ask questions. And I’ll now turn the call over to Charles.

Charles Liang, CEO

Thank you, Michael, and good afternoon, everyone. Today, I am pleased to announce another outstanding quarterly result for Supermicro, driven by contributions across our diversified customers, end markets, and strong products. No single customer contributed more than 10% of our revenue. This is the eighth consecutive quarter of outstanding growth that effectively doubled our annual revenue. Let me share some key highlights for the quarter. First, revenue for the second quarter of fiscal year 2023 totaled $1.803 billion, up 54% year-on-year, above our guidance range of $1.7 billion to $1.8 billion. Our fiscal second quarter non-GAAP earnings per share grew over 271% year-on-year at $3.26 compared to $0.88 a year ago, far exceeding the high end of our guidance range of $2.64 to $2.90. This great achievement is made possible by our much-improved operational and financial discipline, including our Taiwan campus that contributed to lower operation and production costs. With the increase of AI applications, our Plug-n-Play Rack-Scale Total IT solutions and GPU-based systems continue to be strong contributors with more than 100% year-on-year growth. Storage products are also gaining significant traction with 41% year-over-year growth as we continued to grow market share. We are mindful that many of our partners and customers have become increasingly more cautious with respect to macroeconomic headwinds, and we are prepared to deal with these uncertainties as we always have in the past. The strength of our products and business fundamentals keeps us confident in our ability to continue gaining market share from competition given the traditionally soft Q3 quarter. We expect the headwind may persist in the first half of calendar 2023, but we believe our business will recover quickly in the second half of the year as our new Sapphire Rapids, Genoa product and H100 product lines start to ramp in high volume. Having said that, our fiscal year 2023 revenue year-over-year growth should be in the middle 30% compared with last year without changing our business plan for strong growth in the coming years. For fiscal year 2024, we are targeting year-over-year revenue growth of at least 20%. We continue to see new customers and increased demands for energy-efficient rack-scale plug-and-play solutions across the tier-1, tier-2 datacenter ecosystems as well as other enterprise customers. Some of them are highly interested in our liquid cooling at the rack and system level for their green computing HPC, datacenter and cloud installations. In addition, our continuous investment in software, switches, and services are paying dividends to our Total IT strategy as they grow. Our Silicon Valley and Taiwan campuses continue to optimize their rack-scale production processes, ready to deliver L10, L11, and L12 systems in volume with software, networking, and services. Our U.S. facility still has 40% capacity while Taiwan still has 50% capacity headroom to grow for the next one to two years. To accommodate stronger growth in the near and midterm future, our recently broken-ground Malaysia new campus will start to contribute even better profit margin through economies of scale with our more and more new high-volume customers. I am very glad that the lower operation and production costs from our new Malaysia campus will be ready in just 4 to 5 quarters away. When the time gets tough, customers are looking for tangible value from their IT investment. With the power requirements rising with each new generation of technology, now up to 400 watts on the CPUs and 700 watts on the GPUs, we are seeing the true value of our Green Computing effort. We have added high ambient temperature operation and liquid cooling support for the new portfolio to reduce environmental impact, cooling-related infrastructure costs, and OpEx. We are happy to see many more cloud total solutions customers speeding up their deployments with our Green Computing methodology. Many of them have already saved tens of millions of dollars in electricity costs as a direct result. We expect them to grow even faster by the coming quarters and years as we deliver superior performance, performance per watt, and per dollar through new generations of products. As I have shared in the past, when the IT industry adopts our Green Computing solutions or develops green solutions like ours, it’s possible to save close to $10 billion in electricity costs per year, which is equivalent to eliminating about 30 fossil-fueled power plants and equating to the preservation of up to 8 billion trees for our planet. As we approach the second half of our fiscal 2023, we see opportunities for diversified growth across more large datacenters, enterprise, AI, machine learning, storage, cloud, 5G/Telco, and IOT markets. Our online B2C and B2B programs have finally started to ramp up and offer the convenience and quicker service of direct support from Supermicro to many customers around the world. With all the online automation and intelligent database-driven tools, we see many new customers that are really happy to order from our new platform. 24-hour round-the-clock services, real-time responses, precise communication, and cost efficiencies are just some of the advantages this program offers. With our industry’s most extensive product portfolio supporting the recently launched Intel 4th Gen Scalable Xeon processors, Sapphire Rapids; 4th Gen AMD EPYC, Genoa processors; and NVIDIA H100, Hopper, GPUs, we are confident to maintain and enhance our market-leading growth momentum in the coming quarters and years. Unlike the last few generations of steady product ramp-up, we currently see many more customers taking samples and seeding units of these new solutions. This demonstrates our customer base is strongly expanding now. We expect them to become a significant revenue stream by the June quarter and more so in the September quarter and beyond. With market excitement for the latest innovations from Intel, AMD, NVIDIA, and Supermicro, we remain optimistic that the demand will expand as new architectures developed for AI, Metaverse, Omniverse, and IoT/Edge applications will be strong in the foreseeable future. We had a better than expected December quarter. With the new generation of products in a strong position now, it will generate more demand, especially with our rack-scale solutions. Along with our stronger software, switch, and service offerings, our potential to gain market share has never been stronger than today despite the macroeconomic headwinds. With our strong cash position today, and especially total PE, we have allocated $200 million for the stock buyback program. We continue to emerge as one of the largest global suppliers of Total IT Solutions with market share gains. We are a Silicon Valley company focusing on green innovation and system technology. Our efforts have saved our customers’ OpEx tremendously. With our 50% still available capacity in Taiwan and the soon coming more cost-efficient campuses in Malaysia, we continue to expect a 20% to more than 50% year-over-year growth for the coming years, and we remain on track to reach our long-term growth objectives of $20 billion annual revenues in the long run. Now, I will pass the call to David Weigand, our Chief Financial Officer, to provide additional details on the quarter.

David Weigand, CFO

Thank you, Charles. I am pleased to report Q2 fiscal 2023 revenues of $1.8 billion, up 54% year-on-year and down 3% sequentially. Revenues were at the high end of our initial guidance range of $1.7 billion to $1.8 billion and our recently updated range of $1.77 billion to $1.8 billion. Our year-over-year revenue growth continued to be driven by new and existing customers widely adopting our GPU/AI systems and rack-scale Total IT Solutions, which contributed to solid gross margins and record operating margins. In fiscal Q2, we had good growth in our two largest verticals: enterprise/channel and OEM vertical. AI/GPU accelerated computing solutions represented more than 20% of our revenues over the past four quarters and is a significant growth opportunity based on our wide range of AI/GPU platforms. We achieved Q2 revenues of $1.8 billion with no customer representing more than 10% of revenues. We recorded $970 million in our Enterprise and Channel vertical, representing 54% of Q2 revenues versus 45% last quarter, up 29% year-over-year and up 15% quarter-over-quarter. The OEM appliance and large datacenter vertical achieved $766 million in revenues, representing 42% of Q2 revenues versus 50% last quarter. This was up 172% year-over-year and down 17% quarter-over-quarter. Our emerging 5G/Telco/Edge/IoT segment achieved $67 million in revenues, representing 4% of Q2 revenues versus 5% last quarter. Systems comprised 92% of total revenue and was up 68% year-over-year and down 3% quarter-over-quarter. Subsystems/accessories represented 8% of Q2 revenues and were down 24% year-over-year and up 2% quarter-over-quarter. On a year-over-year basis, the volume of systems and nodes shipped as well as system node ASPs increased due to product and customer mix, while on a quarter-over-quarter basis, the volume of systems shipped increased while nodes shipped and system node ASPs decreased, again, due to product and customer mix. Taking a look geographically in fiscal Q2, the U.S. market represented 61% of revenues, Asia 18%, Europe 17% and Rest of World 4%. On a year-on-year basis, U.S. revenues increased 71%, Asia increased 16%, Europe increased 45% and Rest of World increased 98%. On a quarter-over-quarter basis, U.S. revenues decreased 15%, Asia increased 23%, Europe increased 33% and Rest of World increased 33%. The Q2 non-GAAP gross margin was 18.8%, that was unchanged quarter-over-quarter and was up 480 basis points year-over-year due to price discipline, lower freight costs, and leverage from higher factory utilization. Taking a look at operating expenses, Q2 OpEx on a GAAP basis decreased by 4% quarter-over-quarter and increased 8% year-over-year to $122 million. On a non-GAAP basis, operating expenses decreased 7% quarter-over-quarter and increased 5% year-on-year to $109 million. OpEx decreased sequentially due to higher NRE and marketing credits that we received from the new platform launches. The non-GAAP operating margin was 12.8% for the quarter versus 12.5% last quarter and 5.2% a year ago as we benefited from lower operating expenses. Other income & expense was approximately $8 million in expense primarily consisting of $6 million in foreign-exchange losses as the dollar weakened during Q2 and interest expense of $2 million as compared to an $8 million in FX gain and $4 million of interest expense last quarter. Interest expense decreased sequentially as we reduced short-term credit lines, this was partially offset by increased interest rates. The tax provision for Q2 was $30 million on a GAAP basis and $34 million on a non-GAAP basis. The GAAP tax rate for Q2 was 14.3% and non-GAAP tax rate was 15.3%. Our tax rates were lower sequentially as we benefited from favorable discrete tax benefits. Lastly, our share of income from our joint venture was a loss of $1.4 million this quarter as compared to a loss of $0.9 million last quarter. We delivered strong Q2 non-GAAP diluted EPS of $3.26 which was up 271% year-over-year and down 5% quarter-over-quarter and exceeded the high end of the original guidance range of $2.64 to $2.90 and our recently updated guidance of $3.07 to $3.22. Our EPS outperformance was attributed to our ability to maintain gross margins, manufacturing efficiencies and higher NRE and marketing credits. Turning to the balance sheet and working capital metrics compared to last quarter, our Q2 cash conversion cycle was unchanged at 95 days versus Q1. Days of Inventory was 99, which is down by one day sequentially due to a more stable supply chain. Accounts receivable increased sequentially by $32 million while accounts payable decreased sequentially by $225 million. Days sales outstanding was down by 1 day quarter-over-quarter to 38 days while days payables outstanding came down by 2 days to 42 days. In fiscal Q2, we generated positive cash flow from operations of $161 million versus $314 million in Q1. Our operating cash flow continued to benefit from strong revenues and margins and an improved supply chain. We note that Q1 operating cash flow benefited from $70 million in customer pre-payments recorded as deferred revenues. CapEx was $10 million for Q2 resulting in positive free cash flow of $151 million versus positive free cash flow of $303 million last quarter. The closing balance sheet cash position was $305 million while bank debt was reduced to $170 million as we paid down $80 million in short-term debt during the quarter. We did not buy back any shares during the quarter and have $200 million in share repurchase authorization until January 31, 2024. Our Board will determine the timing and amount of share repurchases. Now turning to the outlook for our business, we continue to watch the global macroeconomic situation. Additionally, as the supply chain disruptions have eased and the industry transitions to new platforms from Intel, AMD, and NVIDIA during 2023, we anticipate a return to normal seasonal patterns. For the third quarter of fiscal 2023 ending March 2023, we expect net sales in the range of $1.42 billion to $1.52 billion, GAAP diluted net income per share of $1.75 to $2.02 and non-GAAP diluted net income per share of $1.88 to $2.14. We expect gross margins to be down 30 to 40 basis points due to macroeconomic conditions. GAAP operating expenses are expected to be $139 million, which includes approximately $12 million in expected stock-based compensation and other expenses that are excluded from non-GAAP diluted net income per common share. GAAP and non-GAAP operating expenses are expected to increase in Q3 due to lower R&D NRE credits and higher personnel costs. We expect other income and expenses, including interest expense, to be a net expense of approximately $3 million and expect a nominal loss from our joint venture. The Company’s projections for GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 15.9%, a non-GAAP tax rate of 16.9%, and a fully diluted share count of 57 million for GAAP and 58 million shares for non-GAAP. We expect CapEx for the fiscal third quarter of 2023 to be in the range of $11 million to $14 million. For the fiscal year 2023 ending June 30, 2023, we’re maintaining our guidance for revenues in a range of $6.5 billion to $7.5 billion, GAAP diluted net income per share from a range of $8.50 to $11.00 and non-GAAP diluted net income per share from a range of $9 to $11.30. The Company’s projections for GAAP annual net income assume a tax rate of 19.2% and a rate of 19.8% for non-GAAP net income. For fiscal year '23, we are assuming a fully diluted share count of 57 million shares for GAAP and 58 million shares for non-GAAP. The outlook for fiscal year 2023 fully diluted GAAP EPS includes approximately $33 million in expected stock-based compensation and other expenses, net of tax effects that are excluded from non-GAAP diluted net income per common share. We remain confident in our long-term outlook for robust revenue growth and profitability driven by our leading-edge new platforms, design wins, market share gains, and engagement with significant new global customers. Michael, we’re now ready for Q&A.

Operator, Operator

Our first question comes from Nehal Chokshi with Northland Capital Markets.

Nehal Chokshi, Analyst

Yes. Thank you. And congratulations on the strong results, especially gross margin, and the guidance that implies very resilient gross margin. Dave, you did mention that you’re expecting 30 basis points of the Q-over-Q downtick due to macro pressures. I mean, that’s a de minimis amount. Can you discuss why only that amount?

David Weigand, CFO

Our margins are holding steady. We anticipated a slight decrease in Q2, but that didn't occur. We are still prepared for a potential decline if we need to adjust some deals. Otherwise, our prices and margins remain stable.

Nehal Chokshi, Analyst

So then, can you talk about why you think your margins are indeed holding up in what appears to be a pretty quickly deteriorating macro environment?

David Weigand, CFO

Well, we have customers that have pushed out orders, certainly Nehal, but that we still bring value to our customers. And that value has not diminished. In fact, with all of the new designs that are coming out, we believe it has increased.

Nehal Chokshi, Analyst

Got it. That’s great. You are maintaining your fiscal year '23 guidance despite exceeding expectations in the December quarter, and you are providing guidance for March that exceeds my expectations. How should we interpret the implied June quarter guidance? If we consider the low end of the fiscal year '23 guidance, are we looking at a potentially concerning gross margin situation for the June quarter? Is that the correct interpretation?

David Weigand, CFO

No, I would say, Nehal, that really we don’t want to update our guidance. We’re confident in our guidance and in the ranges that we’ve given. And so really, we’re just watching the macroeconomic situation. But we remain confident in our basic business fundamentals and in the values that our products bring.

Nehal Chokshi, Analyst

Okay. So just to be clear, there is no reasonable basis for believing that gross margins would drop to the low-end of what’s arguably a sale target model of 14% to 17% in the June quarter, or lower, is that correct?

David Weigand, CFO

Currently, we do not see any decline in our gross margins, as I mentioned. We remain confident in our ranges and do not think this is the right time to update them.

Nehal Chokshi, Analyst

And then, Charles made a comment that he expects fiscal year '23 revenue to take at least 30% year-over-year growth or mid-30%. But your overall fiscal year '23 guidance range is still a pretty large bracket. So, how should we be reconciling these two things here?

David Weigand, CFO

Well, I think that number in the mid-30s still falls within the range. Right, Nehal?

Nehal Chokshi, Analyst

Absolutely.

David Weigand, CFO

Yes. So I think that’s an indication.

Operator, Operator

Our next question comes from Ananda Baruah with Loop Capital.

Ananda Baruah, Analyst

Yes, just a few questions if I could. I think we are slightly raising the midpoint of the fiscal year guidance, but March is lower than what analysts expect. This suggests that June will exceed analyst expectations. Is it simply that analysts have potentially underestimated March, and are we also underestimating June? To clarify, did we project March too high and are we now projecting June too low? I would like your thoughts on that, and I have a few follow-up questions. Thank you.

David Weigand, CFO

Sure. I want to reiterate that due to the changes in the economy and some push-outs we have observed, we believe it’s best not to provide additional details on our Q4 or annual guidance. We feel that the guidance ranges we provided are appropriate for our expected performance. To provide more clarity, during a time when details are not easy to discern, we believe that is not the right approach. Instead, we are offering solid guidance for the upcoming quarter. However, we remain confident in our annual guidance.

Ananda Baruah, Analyst

I believe Charles mentioned something about macro software and a recovery in the second half of calendar year '23. If I understood that correctly, does it mean that you expect the first half of the calendar year to be the weakest period in terms of macro for your company? And you also made comments, Dave, about returning calendar '23 to seasonality. And so first half is the soft spot, second half, you guys think sort of normal seasonality plus quote unquote, recovery begins, and that dovetails into your fiscal year '24 outlook? And so contextually, I just want to ask you, is that how you guys are thinking about it?

Charles Liang, CEO

Yes. Macroeconomic headwind issues are some concern to everyone now. So other than that, indeed, our demand is still pretty strong, especially as you know, Intel just announced Sapphire Rapids; AMD, Genoa; and NVIDIA, Hopper, H100. So we have very strong products available. This time, we saw a customer very aggressively asking for simple for early seeding. So we believe these were put in big growth. However, the very big growth in model should be in about summer or even after summer timeframe. So long-term, we have a very strong confidence, especially after summer. Before summer, it depends on macroeconomic headwinds. We try to be more cautious.

Ananda Baruah, Analyst

Very helpful, Charles. And, Charles, last for me, I believe you mentioned potential for more large data centers in the second half of calendar '23. Did I hear that accurately? And are those incremental data centers, if I heard it accurately? And any more context you could provide around that? Thanks.

Charles Liang, CEO

Yes. I mean, as you know, we start to approach large accounts since maybe one year ago. So, we continue to gain interest from those CSP and larger accounts. That’s why we increased having capacity for lower production cost to support those larger accounts. And we even started a big campus in Malaysia. So, the goal is to increase our production capacity and lower our operation and production costs, so that we are able to support those larger accounts with reasonable profitability. We continue to gain some engagement and interest from larger accounts around the world. At the same time, we also started to engage with lots of mini-sized accounts, especially those through B2B and B2C. So, we are engaging with a much broader customer base now.

Operator, Operator

Our next question comes from Mehdi Hosseini with SIG.

Mehdi Hosseini, Analyst

Couple of follow-ups. It seems like the price decline in the December quarter has more to do with the mix. And I am assuming that the OEM and large data center mix went down from 15%, September to 42% in December. And in that context, my question to you is how should I think of the mix in the March quarter, and how will that impact unit and ASP trends?

Charles Liang, CEO

In March quarter, because of the market headwind, we still tried to be cautious. But after summer, our feeling will become much stronger, because of a lot of good products and lots of engagement from larger accounts, middle-sized accounts, and even a lot of small accounts.

Mehdi Hosseini, Analyst

So, Charles, I just want to understand, would the mix of revenue from OEM and large data center decline again in the March quarter?

Charles Liang, CEO

Yes. I would say. Yes.

Mehdi Hosseini, Analyst

I would like to understand how you plan to ramp up these three different CPUs. Historically, you have been a close partner of Intel, AMD, and NVIDIA. How far in advance do you procure those components before building the units? What amount of inventory or working capital do you need to commit before high volume manufacturing begins?

Charles Liang, CEO

Indeed we have a very close partnership with all of our vendors. So, in this area, I believe we are similar to the industry standard or slightly better. David, you may…

David Weigand, CFO

Yes. Many things have improved recently, as you know, on the supply chain side. So, we used to procure further in advance. And so one of the reasons our inventories have come down, one of the reasons our cash flows have increased. By the way, we had net income the last two quarters of $360 million, we had free cash flow of $454 million. And so, again, the reason for that is we had to invest less money in inventory. So, our ability to produce products is faster now because we can buy later in the cycle. But to your point on the timing, some of it is going to be dependent on when in the quarter our customers are taking the bulk of their products. So, if we have early quarter shipments versus late quarter shipments, that can affect the timing of our inventory and accounts payable.

Mehdi Hosseini, Analyst

And then one last question for me on the balance sheet, especially with the Malaysia facility coming online, are you still targeting like a $45 million of CapEx for fiscal year '23, or more or less?

David Weigand, CFO

We’re planning to add $4 million in capital expenditures for Malaysia in Q3, and an additional $9 million in Q4 for Malaysia. So that will be $13 million for our fiscal second half. This is going to be an investment over several years. We’ll make another $13 million in the first half of fiscal '24. That gives you a little more insight on that investment.

Mehdi Hosseini, Analyst

Should I assume that just the maintenance CapEx out to the Malaysia is what, $8 million to $10 million a quarter?

David Weigand, CFO

Yes, that’s correct. So, your question, yes, you can maintain the 45 and just add in the figures that I just gave you.

Operator, Operator

Our final question comes from Nehal Chokshi with Northland Capital Markets.

Nehal Chokshi, Analyst

Great, thanks. I get to leadoff and cleanup, awesome. So, relative to seasonal patterns, and excluding the 21.9% customer from the September quarter, how did the business actually perform in the December quarter then?

David Weigand, CFO

The December quarter was exceptional in all aspects. Our free cash flow, inventory, and other metrics were all robust, and our cash position was solid. As noted, there was no customer concentration, and we believe it was a very successful quarter.

Nehal Chokshi, Analyst

I mean, my interpretation here is that the core business excluding that 120%-plus customer from the September quarter was up more than seasonal. Is that a correct interpretation?

David Weigand, CFO

We always have customers that will take shipments when we have design wins. From quarter to quarter, we will always have large shipments to customers. Sometimes, they change their forecast, and we ship a bit more in one quarter than another. So, we can’t control that always. But as we said, as the supply chain has improved, that dynamic was felt a lot harder during the supply chain crunch. Now that we’ve returned to a better supply chain, therefore, that’s why we feel we’ll return to more normal seasonality.

Charles Liang, CEO

Yes. Basically, in '22, we had some larger accounts, but in fiscal year '23, now we are adding more larger accounts. So we are growing in more larger accounts and more midsize accounts, and also B2B, B2C. So, indeed, our customer mix is becoming much more diversified, much healthier, and for sure the volume will be bigger. That’s why we extend to Malaysia for really lower-cost operation and campus.

Nehal Chokshi, Analyst

Presumably, just diversification with the larger customers is coming on the higher-margin plug-and-play rack-scale products. Is that correct?

Charles Liang, CEO

We hope so. So anyway, we feel we still have a lot of room to add more customers. And once we have a higher capacity in the USA, Taiwan, Malaysia, our plan is to add a lot more customers.

Nehal Chokshi, Analyst

Is there a particular vertical where you are noticing the push from that you mentioned for the quarter?

Charles Liang, CEO

Data center. Right.

Nehal Chokshi, Analyst

The push-outs were not in data, particularly large data centers.

David Weigand, CFO

Well, he was saying that they were in large data center, but so…

Charles Liang, CEO

In the large data centers?

David Weigand, CFO

Yes.

Charles Liang, CEO

Okay. All right. Very good. And then for the March quarter, you’re guiding to an 18% Q-over-Q decline in revenue. There’s clearly obviously some seasonality with March quarter. Then there might be, I guess, ongoing push-outs from the large data center customers and then there’s also a macro element. Are these the three major elements that are driving the 18% Q-over-Q decline? And then could you potentially help parse out what are rank order of these three drivers here?

David Weigand, CFO

Well, Nehal, if you look back pre-COVID, our typical Q3 decline was 12%. Okay. So, that was during the time of normal seasonal patterns. During COVID, there was a different dynamic of course, because our supply was scarce. But we think as we return to normalized supply that we will have this kind of seasonality.

Nehal Chokshi, Analyst

Okay. And then, as far as the potential runoff of the large customer versus macro, any input as far as what’s the driver there, as far as the above the 12% typical Q-over-Q decline?

David Weigand, CFO

Well, we’re engaging with new customers all the time. And so, we’re not looking to be declining, and in fact, just the opposite. So, while we will have some seasonality as in a stable supply chain, we still have our growth plans that are intact and that we remain confident in.

Nehal Chokshi, Analyst

And then my last question here is, did I hear correctly that there’s a new buyback that was implemented, something about $200 million buyback? Can you just clarify that?

David Weigand, CFO

No, that’s the existing, already approved buyback.

Nehal Chokshi, Analyst

So, now that you guys have worked yourself back to a net cash position with the strong free cash flow that you’ve highlighted over the past two quarters, is it reasonable to expect that you guys are going to put that back to work now?

David Weigand, CFO

Yes, it’s completely up to the Board, completely up to the Board. But, I think it’s certainly reasonable.

Nehal Chokshi, Analyst

We got one Board member here. Charles, your thoughts? Your thoughts on utilizing the buyback?

Charles Liang, CEO

You know, as why I say, the PE is still low and cash flow is strong, why not?

Operator, Operator

We have a question from Mehdi Hosseini with SIG.

Mehdi Hosseini, Analyst

Yes. So, just a quick follow-up, just a clarification. David, did you employ or did you say that the 10% plus customers that you had in the September quarter of last year is going to come back or you’re going to have another 10% plus customer in the coming quarters? It was very confusing.

David Weigand, CFO

Yes. So Mehdi, the 10% customer we had a year ago September is a different customer. The 22% customer that we had in the recent September quarter, again a different customer, did not constitute 10% of our revenues in Q2.

Mehdi Hosseini, Analyst

Sure. Just as a follow-up, do you expect that particular customer to come back, is that what the confidence behind the June quarter is?

David Weigand, CFO

Well, we have so...

Charles Liang, CEO

Indeed with our new product, indeed very strong offering. So, we expect any time we will have a new larger customer or an old customer coming back is always a very high possibility. And we are working with them very closely; their partnership would come stronger ever.

Mehdi Hosseini, Analyst

This is dynamic.

Operator, Operator

There are no further questions at this time. With that said, concludes today’s conference. Thank you for attending today’s presentation. You may now disconnect.