UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, ~~2021~~2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-33383

Super Micro Computer, Inc.

(Exact name of registrant as specified in its charter)


Delaware						77-0353939
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

980 Rock Avenue

San Jose, CA 95131

(Address of principal executive offices, including zip code)

(408) 503-8000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value per share	SMCI	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of January 31, ~~2022~~2023 there were ~~51,563,316~~53,637,158 shares of the registrant’s common stock, $0.001 par value, outstanding, which is the only class of common stock of the registrant issued.

SUPER MICRO COMPUTER, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS ENDED DECEMBER 31, ~~2021~~2022

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of ~~December 3~~1December 31 , ~~2021~~2022 and June 30, ~~2021~~2022	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended ~~December 3~~1December 31 , ~~2021~~2022 and ~~2020~~2021	2
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended ~~Decem~~Decemb ~~ber~~er 3 1 , ~~2021~~2022 and ~~2020~~2021	3
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended Decem ber 3 1 , ~~2021~~2022 and ~~2020~~2021	4
	Condensed Consolidated Statements of Cash Flows for the Six ~~Six~~ Months Ended ~~December 3~~1December 31 , ~~2021~~2022 and ~~2020~~2021	6
	Notes to Condensed Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3533
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	4844
ITEM 4.	Controls and Procedures	4945

PART II	OTHER INFORMATION
ITEM 1.	Legal Proceedings	5046
ITEM 1A.	Risk Factors	5046
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5046
ITEM 3.	Defaults Upon Senior Securities	5046
ITEM 4.	Mine Safety Disclosures	5046
ITEM 5.	Other Information	5046
ITEM 6.	Exhibits	5147
	Signatures	5348

Unless the context requires otherwise, the words “Super Micro,” “Supermicro,” “we,” “Company,” “us” and “our” in this document refer to Super Micro Computer, Inc. and where appropriate, our wholly owned subsidiaries. Supermicro, the Company logo and our other registered or common law trademarks, service marks, or trade names appearing in this Quarterly Report on Form 10-Q are the property of Super Micro Computer, Inc. or its affiliates. Other trademarks, service marks, or trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value per share amounts)

(unaudited)


		December 31,		June 30,			December 31,		June 30,
		2021		2021			2022		2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	247,407	$	232,266	Cash and cash equivalents	$	304,595	$	267,397
Accounts receivable, net of allowances of $1,949 and $2,591 at December 31, 2021 and June 30, 2021, respectively (including accounts receivable from related parties of $34,532 and $8,678 at December 31, 2021 and June 30, 2021, respectively)		497,431		463,834
Accounts receivable, net of allowance for credit losses of $180 and $1,753 at December 31, 2022 and June 30, 2022, respectively (including accounts receivable from related parties of $5,220 and $8,398 at December 31, 2022 and June 30, 2022, respectively)						Accounts receivable, net of allowance for credit losses of $180 and $1,753 at December 31, 2022 and June 30, 2022, respectively (including accounts receivable from related parties of $5,220 and $8,398 at December 31, 2022 and June 30, 2022, respectively)	768,167		834,513
Inventories	Inventories	1,393,672		1,040,964		Inventories	1,421,817		1,545,606

Prepaid expenses and other current assets (including receivables from related parties of $35,002 and $23,837 at December 31, 2021 and June 30, 2021, respectively)		154,778		130,195
Prepaid expenses and other current assets (including receivables from related parties of $47,337 and $24,412 at December 31, 2022 and June 30, 2022, respectively)						Prepaid expenses and other current assets (including receivables from related parties of $47,337 and $24,412 at December 31, 2022 and June 30, 2022, respectively)	154,924		158,799
Total current assets	Total current assets	2,293,288		1,867,259		Total current assets	2,649,503		2,806,315
Investment in equity investee	Investment in equity investee	4,459		4,578		Investment in equity investee	3,197		5,329

Property, plant and equipment, net	Property, plant and equipment, net	280,282		274,713		Property, plant and equipment, net	289,255		285,972
Deferred income taxes, net	Deferred income taxes, net	61,837		63,288		Deferred income taxes, net	95,741		69,929
Other assets	Other assets	36,736		32,126		Other assets	37,246		37,532
Total assets	Total assets	$	2,676,602	$	2,241,964	Total assets	$	3,074,942	$	3,205,077
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable (including amounts due to related parties of $96,036 and $70,096 at December 31, 2021 and June 30, 2021, respectively)		$	695,180	$	612,336
Accrued liabilities (including amounts due to related parties of $20,029 and $18,528 at December 31, 2021 and June 30, 2021, respectively)		171,010		178,850
Accounts payable (including amounts due to related parties of $88,106 and $87,355 at December 31, 2022 and June 30, 2022, respectively)						Accounts payable (including amounts due to related parties of $88,106 and $87,355 at December 31, 2022 and June 30, 2022, respectively)	$	559,962	$	655,403
Accrued liabilities (including amounts due to related parties of $19,527 and $18,676 at December 31, 2022 and June 30, 2022, respectively)						Accrued liabilities (including amounts due to related parties of $19,527 and $18,676 at December 31, 2022 and June 30, 2022, respectively)	169,866		212,419
Income taxes payable	Income taxes payable	14,464		12,741		Income taxes payable	38,713		41,743
Short-term debt	Short-term debt	176,904		63,490		Short-term debt	27,869		449,146
Deferred revenue	Deferred revenue	142,021		101,479		Deferred revenue	120,530		111,313
Total current liabilities	Total current liabilities	1,199,579		968,896		Total current liabilities	916,940		1,470,024
Deferred revenue, non-current	Deferred revenue, non-current	110,531		100,838		Deferred revenue, non-current	159,574		122,548
Long-term debt	Long-term debt	139,032		34,700		Long-term debt	142,273		147,618
Other long-term liabilities	Other long-term liabilities	40,615		41,132		Other long-term liabilities	37,313		39,140
Total liabilities	Total liabilities	1,489,757		1,145,566		Total liabilities	1,256,100		1,779,330
Commitments and contingencies (Note 11)	Commitments and contingencies (Note 11)	0		0		Commitments and contingencies (Note 11)
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock and additional paid-in capital, $0.001 par value	Common stock and additional paid-in capital, $0.001 par value					Common stock and additional paid-in capital, $0.001 par value
Authorized shares: 100,000; Outstanding shares: 51,509 and 50,582 at December 31, 2021 and June 30, 2021, respectively
Issued shares: 51,509 and 50,582 at December 31, 2021 and June 30, 2021, respectively		460,990		438,012
Authorized shares: 100,000; Outstanding shares: 53,400 and 52,311 at December 31, 2022 and June 30, 2022, respectively						Authorized shares: 100,000; Outstanding shares: 53,400 and 52,311 at December 31, 2022 and June 30, 2022, respectively
Issued shares: 53,400 and 52,311 at December 31, 2022 and June 30, 2022, respectively						Issued shares: 53,400 and 52,311 at December 31, 2022 and June 30, 2022, respectively	514,559		481,741

Accumulated other comprehensive income	Accumulated other comprehensive income	549		453		Accumulated other comprehensive income	612		911
Retained earnings	Retained earnings	725,129		657,760		Retained earnings	1,303,506		942,923
Total Super Micro Computer, Inc. stockholders’ equity	Total Super Micro Computer, Inc. stockholders’ equity	1,186,668		1,096,225		Total Super Micro Computer, Inc. stockholders’ equity	1,818,677		1,425,575
Noncontrolling interest	Noncontrolling interest	177		173		Noncontrolling interest	165		172
Total stockholders’ equity	Total stockholders’ equity	1,186,845		1,096,398		Total stockholders’ equity	1,818,842		1,425,747
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,676,602	$	2,241,964	Total liabilities and stockholders’ equity	$	3,074,942	$	3,205,077

See accompanying notes to condensed consolidated financial statements.

SMCI | Q2 2023 Form 10-Q | 1

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SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)
Three Months Ended
December 31, Six Months Ended
December 31,
2021 2020 2021 2020
Net sales (including related party sales of $41,616 and $18,706 in the three months ended December 31, 2021 and 2020, respectively, and $72,538 and $38,421 in the six months ended December 31, 2021 and 2020, respectively) $ 1,172,419 $ 830,306 $2,205,149 $1,592,556
Cost of sales (including related party purchases of $96,728 and $51,532 in the three months ended December 31, 2021 and 2020, respectively, and $184,415 and $110,392 in the six months ended December 31, 2021 and 2020, respectively) 1,008,676 694,211 1,903,267 1,326,546
Gross profit 163,743 136,095 301,882 266,010
Operating expenses:
Research and development 65,471 52,729 130,614 107,527
Sales and marketing 21,960 20,740 43,584 41,032
General and administrative 25,263 25,261 47,507 49,640
Total operating expenses 112,694 98,730 221,705 198,199
Income from operations 51,049 37,365 80,177 67,811
Other expense, net (607) (2,539) (557) (3,380)
Interest expense (1,150) (569) (1,954) (1,243)
Income before income tax provision 49,292 34,257 77,666 63,188
Income tax provision (7,599) (5,108) (10,924) (8,768)
Share of income (loss) from equity investee, net of taxes 239 (1,475) 627 (145)
Net income $ 41,932 $ 27,674 $ 67,369 $ 54,275
Net income per common share:
Basic $ 0.82 $ 0.54 $ 1.32 $ 1.05
Diluted $ 0.78 $ 0.52 $ 1.27 $ 1.00
Weighted-average shares used in calculation of net income per common share:
Basic 51,314 51,499 51,055 51,914
Diluted 53,511 53,584 53,213 54,005


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Net sales (including related party sales of $20,073 and $41,616 in the three months ended December 31, 2022 and 2021, respectively, and $45,126 and $72,538 in the six months ended December 31, 2022 and 2021, respectively)	$	1,803,195	$	1,172,419	$	3,655,325	$	2,205,149
Cost of sales (including related party purchases of $98,743 and $96,728 in the three months ended December 31, 2022 and 2021, respectively, and $195,279 and $184,415 in the six months ended December 31, 2022 and 2021, respectively)	1,465,773		1,008,676		2,970,368		1,903,267
Gross profit	337,422		163,743		684,957		301,882
Operating expenses:
Research and development	70,700		65,471		144,943		130,614
Sales and marketing	28,445		21,960		57,808		43,584
General and administrative	23,095		25,263		46,901		47,507
Total operating expenses	122,240		112,694		249,652		221,705
Income from operations	215,182		51,049		435,305		80,177
Other (expense) income, net	(6,335)		(607)		1,719		(557)
Interest expense	(1,756)		(1,150)		(5,694)		(1,954)
Income before income tax provision	207,091		49,292		431,330		77,666
Income tax provision	(29,573)		(7,599)		(68,507)		(10,924)
Share of (loss) income from equity investee, net of taxes	(1,351)		239		(2,240)		627
Net income	$	176,167	$	41,932	$	360,583	$	67,369
Net income per common share:
Basic	$	3.31	$	0.82	$	6.84	$	1.32
Diluted	$	3.14	$	0.78	$	6.51	$	1.27
Weighted-average shares used in the calculation of net income per common share:
Basic	53,160		51,314		52,726		51,055
Diluted	56,144		53,511		55,427		53,213

See accompanying notes to condensed consolidated financial statements.

SMCI | Q2 2023 Form 10-Q | 2

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SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

Three Months Ended
December 31, Six Months Ended
December 31,
2021 2020 2021 2020
Net income $ 41,932 $ 27,674 $ 67,369 $ 54,275
Other comprehensive income, net of tax:
Foreign currency translation gain 100 301 96 548
Total other comprehensive income 100 301 96 548
Total comprehensive income $ 42,032 $ 27,975 $ 67,465 $ 54,823


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Net income	$	176,167	$	41,932	$	360,583	$	67,369
Other comprehensive income (loss), net of tax:

Foreign currency translation gain (loss)	98		100		(299)		96
Total other comprehensive income (loss), net of tax	98		100		(299)		96
Total comprehensive income	$	176,265	$	42,032	$	360,284	$	67,465

See accompanying notes to condensed consolidated financial statements.

SMCI | Q2 2023 Form 10-Q | 3

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SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)

Three Months Ended December 31, 2021 Common Stock and
Additional Paid-In
Capital Treasury Stock Accumulated
Other
Comprehensive
Income Retained
Earnings Non-controlling Interest Total
Stockholders’
Equity
Shares Amount Shares Amount
Balance at September 30, 2021 51,071,844 $ 448,976 — $ — $ 449 $ 683,197 $ 176 $ 1,132,798
Exercise of stock options, net of taxes 299,337 5,570 — — — — — 5,570
Release of common stock shares upon vesting of restricted stock units 199,825 — — — — — — —
Shares withheld for the withholding tax on vesting of restricted stock units (62,390) (2,732) — — — — — (2,732)
Stock-based compensation — 9,176 — — — — — 9,176
Foreign currency translation gain — — — — 100 — — 100
Net income — — — — — 41,932 1 41,933
Balance at December 31, 2021 51,508,616 $ 460,990 — $ — $ 549 $ 725,129 $ 177 $ 1,186,845


Three Months Ended December 31, 2022	Common Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income	Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
	Shares	Amount
Balance at September 30, 2022	52,851,469	$	497,183		$	514	$	1,127,339	$	167	$	1,625,203
Exercise of stock options, net of taxes	347,666	7,183			—		—		—		7,183
Release of common stock shares upon vesting of restricted stock units	290,471	—			—		—		—		—
Shares withheld for the withholding tax on vesting of restricted stock units	(89,305)	(6,788)			—		—		—		(6,788)

Stock-based compensation	—	16,981			—		—		—		16,981



Other comprehensive income	—	—			98		—		—		98
Net income (loss)	—	—			—		176,167		(2)		176,165
Balance at December 31, 2022	53,400,301	$	514,559		$	612	$	1,303,506	$	165	$	1,818,842


Three Months Ended December 31, 2020		Common Stock and Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive Income		Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
Three Months Ended December 31, 2021																Three Months Ended December 31, 2021	Common Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income	Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
		Shares	Amount		Shares	Amount		Accumulated Other Comprehensive Income		Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity			Shares	Amount
Balance at September 30, 2020		54,241,046	$	400,157	(2,475,419)	$	(50,491)
Balance at September 30, 2021																Balance at September 30, 2021	51,071,844	$	448,976		$	449	$	683,197	$	176	$	1,132,798
Exercise of stock options, net of taxes	Exercise of stock options, net of taxes	332,783	5,747		—	—		—		—		—		5,747		Exercise of stock options, net of taxes	299,337	5,570			—		—		—		5,570
Release of common stock shares upon vesting of restricted stock units	Release of common stock shares upon vesting of restricted stock units	193,017	—		—	—		—		—		—		—		Release of common stock shares upon vesting of restricted stock units	199,825	—			—		—		—		—
Shares withheld for the withholding tax on vesting of restricted stock units	Shares withheld for the withholding tax on vesting of restricted stock units	(60,166)	(1,713)		—	—		—		—		—		(1,713)		Shares withheld for the withholding tax on vesting of restricted stock units	(62,390)	(2,732)			—		—		—		(2,732)
Stock repurchases and retirement		(4,055,626)	(122)		2,475,419	50,491		—		(97,357)		—		(46,988)

Stock-based compensation	Stock-based compensation	—	6,453		—	—		—		—		—		6,453		Stock-based compensation	—	9,176			—		—		—		9,176

Foreign currency translation gain		—	—		—	—		301		—		—		301
Other comprehensive income																Other comprehensive income	—	—			100		—		—		100
Net income	Net income	—	—		—	—		—		27,674		4		27,678		Net income	—	—			—		41,932		1		41,933
Balance at December 31, 2020		50,651,054	$	410,522	—	$	—	$	396	$	653,129	$	173	$	1,064,220
Balance at December 31, 2021																Balance at December 31, 2021	51,508,616	$	460,990		$	549	$	725,129	$	177	$	1,186,845


Six Months Ended December 31, 2022	Common Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)	Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
	Shares	Amount
Balance at June 30, 2022	52,311,014	$	481,741		$	911	$	942,923	$	172	$	1,425,747
Exercise of stock options, net of taxes	752,892	15,327			—		—		—		15,327
Release of common stock shares upon vesting of restricted stock units	484,003	—			—		—		—		—
Shares withheld for the withholding tax on vesting of restricted stock units	(147,608)	(10,504)			—		—		—		(10,504)

Stock-based compensation	—	27,995			—		—		—		27,995
Other comprehensive loss	—	—			(299)		—		—		(299)
Net income (loss)	—	—			—		360,583		(7)		360,576
Balance at December 31, 2022	53,400,301	$	514,559		$	612	$	1,303,506	$	165	$	1,818,842

SMCI | Q2 2023 Form 10-Q | 4

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Six Months Ended December 31, 2021 Common Stock and
Additional Paid-In
Capital Treasury Stock Accumulated
Other
Comprehensive
Income Retained
Earnings Non-controlling Interest Total
Stockholders’
Equity
Shares Amount Shares Amount
Balance at June 30, 2021 50,582,078 $ 438,012 — $ — $ 453 $ 657,760 $ 173 $ 1,096,398
Exercise of stock options, net of taxes 669,403 11,588 — — — — — 11,588
Release of common stock shares upon vesting of restricted stock units 373,596 — — — — — — —
Shares withheld for the withholding tax on vesting of restricted stock units (116,461) (4,801) — — — — — (4,801)
Shares repurchase and retirement — — — — — — —
Stock-based compensation — 16,191 — — — — — 16,191
Foreign currency translation gain — — — — 96 — — 96
Net income — — — — — 67,369 4 67,373
Balance at December 31, 2021 51,508,616 $ 460,990 — $ — $ 549 $ 725,129 $ 177 $ 1,186,845


Six Months Ended December 31, 2020		Common Stock and Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive Income		Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
Six Months Ended December 31, 2021																Six Months Ended December 31, 2021	Common Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income	Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
		Shares	Amount		Shares	Amount		Accumulated Other Comprehensive Income		Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity			Shares	Amount
Balance at June 30, 2020		53,741,828	$	389,972	(1,333,125)	$	(20,491)
Balance at June 30, 2021																Balance at June 30, 2021	50,582,078	$	438,012		$	453	$	657,760	$	173	$	1,096,398
Exercise of stock options, net of taxes	Exercise of stock options, net of taxes	683,613	10,767		—	—		—		—		—		10,767		Exercise of stock options, net of taxes	669,403	11,588			—		—		—		11,588
Release of common stock shares upon vesting of restricted stock units	Release of common stock shares upon vesting of restricted stock units	410,536	—		—	—		—		—		—		—		Release of common stock shares upon vesting of restricted stock units	373,596	—			—		—		—		—
Shares withheld for the withholding tax on vesting of restricted stock units	Shares withheld for the withholding tax on vesting of restricted stock units	(129,297)	(3,718)		—	—		—		—		—		(3,718)		Shares withheld for the withholding tax on vesting of restricted stock units	(116,461)	(4,801)			—		—		—		(4,801)
Share repurchase and retirement		(4,055,626)	(122)		1,333,125	20,491		—		(97,357)		—		(76,988)

Stock-based compensation	Stock-based compensation	—	13,623		—	—		—		—		—		13,623		Stock-based compensation	—	16,191			—		—		—		16,191
Foreign currency translation gain		—	—		—	—		548		—		—		548

Other comprehensive income																Other comprehensive income	—	—			96		—		—		96
Net income	Net income	—	—		—	—		—		54,275		6		54,281		Net income	—	—			—		67,369		4		67,373
Balance at December 31, 2020		50,651,054	$	410,522	—	$	—	$	396	$	653,129	$	173	$	1,064,220
Balance at December 31, 2021																Balance at December 31, 2021	51,508,616	$	460,990		$	549	$	725,129	$	177	$	1,186,845

See accompanying notes to condensed consolidated financial statements.

SMCI | Q2 2023 Form 10-Q | 5

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SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Six Months Ended
December 31,
2021 2020
OPERATING ACTIVITIES:
Net income $ 67,369 $ 54,275
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization 15,681 14,427
Stock-based compensation expense 16,191 13,623
Recovery of allowance for doubtful accounts (636) (476)
Provision for excess and obsolete inventories 3,691 1,740
Share of (income) loss from equity investee (627) 145
Foreign currency exchange (gain) loss (2,738) 2,905
Deferred income taxes, net 1,451 (883)
Other 1,045 (699)
Changes in operating assets and liabilities:
Accounts receivable, net (including changes in related party balances of $(25,854) and $(6,304) during the six months ended December 31, 2021 and 2020, respectively) (33,491) 81,156
Inventories (356,399) 42,327
Prepaid expenses and other assets (including changes in related party balances of $(11,165) and $7,629 during the six months ended December 31, 2021 and 2020, respectively) (24,481) 27,426
Accounts payable (including changes in related party balances of $25,940 and $(24,112) during the six months ended December 31, 2021 and 2020, respectively) 83,188 (25,296)
Income taxes payable 1,723 5,855
Deferred revenue 50,235 (8,864)
Accrued liabilities (including changes in related party balances of $1,501 and $(4,867) during the six months ended December 31, 2021 and 2020, respectively) (2,507) (20,619)
Other long-term liabilities (including changes in related party balances of $0 and $(1,671) during the six months ended December 31, 2021 and 2020, respectively) (7,417) (3,240)
Net cash provided by (used in) operating activities (187,722) 183,802
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (including payments to related parties of $1,770 and $3,058 during the six months ended December 31, 2021 and 2020, respectively) (23,206) (25,551)
Investment in a privately-held company (1,100) —
Net cash used in investing activities (24,306) (25,551)
FINANCING ACTIVITIES:
Proceeds from borrowings, net of debt issuance costs 587,719 14,669
Repayment of debt (367,295) (537)
Proceeds from exercise of stock options, net of taxes 11,588 10,767
Payment of withholding tax on vesting of restricted stock units (4,801) (3,718)
Stock repurchases — (74,824)
Payments of obligations under finance leases (38) (54)
Net cash provided by (used in) by financing activities
227,173 (53,697)
Effect of exchange rate fluctuations on cash (9) 540
Net increase in cash, cash equivalents and restricted cash 15,136 105,094
Cash, cash equivalents and restricted cash at the beginning of the period 233,449 212,390
Cash, cash equivalents and restricted cash at the end of the period $ 248,585 $ 317,484


	Six Months Ended December 31,
	2022		2021
OPERATING ACTIVITIES:
Net income	$	360,583	$	67,369
Reconciliation of net income to net cash provided by (used in) operating activities:
Depreciation and amortization	17,196		15,681
Stock-based compensation expense	27,995		16,191


Allowance (recovery) for credit losses	1		(636)
Provision for excess and obsolete inventories	25,423		3,691

Share of loss (income) from equity investee	2,240		(627)
Foreign currency exchange (gain)	(4,614)		(2,738)
Deferred income taxes, net	(25,812)		1,451
Other	(430)		1,045
Changes in operating assets and liabilities:
Accounts receivable, net (including changes in related party balances of $3,178 and $(25,854) during the six months ended December 31, 2022 and 2021, respectively)	68,035		(33,491)
Inventories	98,366		(356,399)
Prepaid expenses and other assets (including changes in related party balances of $(22,925) and $(11,165) during the six months ended December 31, 2022 and 2021, respectively)	518		(24,481)
Accounts payable (including changes in related party balances of $751 and $25,940 during the six months ended December 31, 2022 and 2021, respectively)	(90,908)		83,188
Income taxes payable	(3,030)		1,723
Deferred revenue	46,243		50,235
Accrued liabilities (including changes in related party balances of $851 and $1,501 during the six months ended December 31, 2022 and 2021, respectively)	(44,092)		(2,507)
Other long-term liabilities (including changes in related party balances of $(168) and $0 during the six months ended December 31, 2022 and 2021, respectively)	(3,040)		(7,417)
Net cash provided by (used in) operating activities	474,674		(187,722)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (including payments to related parties of $4,514 and $1,770 during the six months ended December 31, 2022 and 2021, respectively)	(20,631)		(23,206)


Investment in a privately-held company	—		(1,100)
Net cash (used in) investing activities	(20,631)		(24,306)
FINANCING ACTIVITIES:
Proceeds from borrowings	144,037		587,719
Repayment of debt	(564,662)		(367,295)


Proceeds from exercise of stock options, net of taxes	15,327		11,588
Payment of withholding tax on vesting of restricted stock units	(10,504)		(4,801)

Other	(19)		(38)
Net cash (used in) provided by financing activities	(415,821)		227,173
Effect of exchange rate fluctuations on cash	(1,693)		(9)
Net increase in cash, cash equivalents and restricted cash	36,529		15,136
Cash, cash equivalents and restricted cash at the beginning of the period	268,559		233,449
Cash, cash equivalents and restricted cash at the end of the period	$	305,088	$	248,585

Supplemental disclosure of cash flow information:
Cash paid for interest	$	6,084	$	1,765

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Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,765 $ 950
Cash paid for taxes, net of refunds 7,270 (698)
Non-cash investing and financing activities:
Unpaid property, plant and equipment purchases (including due to related parties of $2,312 and $3,056 as of December 31, 2021 and 2020, respectively) $ 11,140 $ 11,596
Right of use ("ROU") assets obtained in exchange for operating lease commitments 7,379 2,693
Unpaid stock repurchases — 2,164


Cash paid for taxes, net of refunds	$	96,156	$	7,270

Non-cash investing and financing activities:
Unpaid property, plant and equipment purchases (including due to related parties of $1,764 and $2,312 as of December 31, 2022 and 2021, respectively)	$	3,333	$	11,140
Right of use ("ROU") assets obtained in exchange for operating lease commitments	$	1,024	$	7,379

See accompanying notes to condensed consolidated financial statements.

SMCI | Q2 2023 Form 10-Q | 7

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Significant Accounting Policies and Estimates

No material changes have been made to the significant accounting policies of Super Micro Computer, Inc., a corporation incorporated under the laws of Delaware, and its consolidated entities (together, the “Company”), disclosed in Part II, Item 8, Note 1, "Organization and Summary of Significant Accounting Policies," in its Annual Report on Form 10-K, filed on August ~~27, 2021,~~29, 2022, for the year ended June 30, ~~2021.~~2022. Management's estimates ~~include,~~take into consideration, as applicable, ~~the anticipated impacts of the coronavirus ("COVID-19") pandemic.~~general macroeconomic conditions, inflation, changes in interest rates and geopolitical events.

Basis of Presentation

The unaudited condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations.

The unaudited condensed consolidated financial statements included herein reflect all adjustments, including normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The consolidated results of operations for the three and six months ended December 31, ~~2021~~2022 are not necessarily indicative of the results that may be expected for future quarters or for the fiscal year ending June 30, ~~2022.~~2023.

Concentration of Supplier Risk

Certain materials used by the Company in the manufacturing of its products are available from a limited number of suppliers. Shortages could occur in these materials due to an interruption of supply or increased demand in the industry. ~~One supplier~~Two suppliers accounted for ~~26.9%~~ 14.1% and ~~20.0%~~17.6% of total purchases for the three months ended December 31, ~~2021~~2022, and ~~2020, respectively,~~two suppliers accounted for 22.1% and ~~23.1%~~6.5% of total purchases for the three months ended December 31, 2021. Two suppliers accounted for 15.3% and ~~20.9%~~22.3% of total purchases for the six months ended December 31, ~~2021~~2022, and ~~2020, respectively.~~two suppliers accounted for 21.2% and 6.4% of total purchases for the six months ended December 31, 2021. Purchases from Ablecom, and Compuware, related parties of the Company (see Part I, Item 1, Note 8, "Related Party Transactions") accounted for a combined ~~9.4%~~6.7% and ~~7.3%~~9.4% of total cost of sales for the three months ended December 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and a combined ~~9.5%~~6.6% and ~~8.2%~~9.5% of total cost of sales for the six months ended December 31, 2022 and 2021, ~~and 2020,~~ respectively.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents, restricted cash, investment in an auction rate security and accounts receivable. No single customer accounted for 10% or more of the net sales for the three months ended December 31, 2022, and one customer accounted for 15.8% of the net sales for the six months ended December 31, 2022.No single customer accounted for 10% or more of the net sales for the three and six months ended December 31, ~~2021 and 2020.~~2021. No single customer accounted for greater than 10% of the Company's accounts receivable, net as of December 31, ~~2021, whereas one~~2022. One customer accounted for ~~13.5%~~ 21.7% of the Company's accounts receivable, net as of June 30, ~~2021.~~2022.

Accounting Pronouncements Recently Adopted

~~In December 2019, the FASB issued amended guidance,~~ ~~Simplifying the Accounting for Income Taxes, to remove certain exceptions to the general principles from~~ ~~ASC 740 - Income Taxes,~~ and to improve consistent application of U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. The guidance is effective for the Company from July 1, 2021. The adoption of the guidance did not have a material impact on its condensed consolidated financial statements and disclosures.There were no new pronouncements recently adopted.

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued authoritative guidance, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The guidance also establishes (1) a general contract modification principle that entities can apply in other areas that may be affected by reference rate reform and (2) certain elective hedge accounting expedients. The amendments in this update do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022 that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship. The amendment is effective for all entities through December 31, 2022. In January 2021, the FASB issued further guidance on this topic, which clarified the scope and application of the original guidance. In December 2022, FASB issued an Accounting Standards Update (ASU) for the deferral of the sunset date of Topic 848 and amendments to the definition of secured overnight financing rate (“SOFR"). The ASU defers the sunset date of Topic 848 to December 31, 2024. The Company has loans and lines of credit with various financial institutions. Benchmark interest rates are used to calculate the interest on borrowings under the Chang Hwa Bank, CTBC, HSBC and Mega Bank Credit Facilities. LIBOR iswas used to calculate the interest on borrowings under the Company's 2018 Bank of America Credit Facility and E.SUN Credit Facility. The 2018 Bank of America Credit Facility was amended on June 28, 2021 ~~which provided~~to provide for a new maturity date of June 28, 2026 and fallback terms related to LIBOR replacement mechanics. On March 3, 2022, the 2018 Bank of America Credit Facility was amended to, among other items, increase the size of the facility from $200.0 million to $350.0 million and update provisions relating to payments and LIBOR replacement mechanics to SOFR. As these amendments had other contemporaneous changes to the ~~amendment had changes~~facility, including the amount of borrowings permitted under the facility and not just directly related to LIBOR replacement, optional expedients under this guidance cannot be elected. The Company is currently evaluating the overall impact of the adoption of ~~the~~this guidance and does not expect it to have material impact on its consolidated financial statements and disclosures.

Note 2. Revenue

Disaggregation of Revenue

The Company disaggregates revenue by type of product and by the geographical market in order to depict the nature, amount, and timing of revenue and cash flows. Service revenues, which are less than 10%, are not a significant component of total revenue, and are aggregated within the respective categories.

The following is a summary of net sales by product type (in thousands):


		Three Months Ended December 31,				Six Months Ended December 31,			Three Months Ended December 31,				Six Months Ended December 31,
		2021		2020			2021			2020			2022		2021		2022		2021
Server and storage systems	Server and storage systems	$	986,052	$	642,711		$	1,835,908		$	1,260,499	Server and storage systems	$	1,660,931	$	986,052	$	3,373,987	$	1,835,908
Subsystems and accessories	Subsystems and accessories	186,367		187,595			369,241			332,057		Subsystems and accessories	142,264		186,367		281,338		369,241
Total	Total	$	1,172,419	$	830,306		$	2,205,149		$	1,592,556	Total	$	1,803,195	$	1,172,419	$	3,655,325	$	2,205,149

Server and storage systems constitute an assembly and integration of subsystems and accessories, and related services. Subsystems and accessories are comprised of server boards, chassis and accessories.

SMCI | Q2 2023 Form 10-Q | 9

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

International net sales are based on the country and geographic region to which the products were shipped. The following is a summary for the three and six months ended December 31, ~~2021~~2022 and ~~2020,~~2021, of net sales by geographic region (in thousands):

Three Months Ended
December 31, Six Months Ended
December 31,
2021 2020 2021 2020
United States $ 638,207 $ 463,102 $ 1,199,155 $ 959,188
Asia 284,107 161,415 547,193 288,121
Europe 215,451 154,819 395,145 266,908
Other 34,654 50,970 63,656 78,339
$ 1,172,419 $ 830,306 $ 2,205,149 $ 1,592,556


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
United States	$	1,091,391	$	638,207	$	2,386,895	$	1,199,155
Asia	330,711		284,107		600,735		547,193
Europe	312,533		215,451		547,607		395,145
Other	68,560		34,654		120,088		63,656
Total	$	1,803,195	$	1,172,419	$	3,655,325	$	2,205,149

Contract Balances

Generally, the payment terms of the Company’s offerings range from 30 to 60 days. In certain instances, customers may prepay for products and services in advance of delivery. Receivables relate to the Company’s unconditional right to consideration for performance obligations either partially or fully completed.

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~~SUPER MICRO COMPUTER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

Contract assets are rights to consideration in exchange for goods or services that the Company has transferred to a customer when such right is conditional on something other than the passage of time. Such contract assets are insignificant to the Company’s condensed consolidated financial statements.

Contract liabilities consist of deferred revenue and relate to amounts invoiced to or advance consideration received from customers, which precede the Company’s satisfaction of the associated performance ~~obligation(s).~~obligations. The Company’s deferred revenue primarily results from customer payments received upfront for extended warranties and on-site services because these performance obligations are satisfied over time. Additionally, at times, deferred revenue may fluctuate due to the timing of advance consideration received from non-cancellable non-refundable contract liabilities relating to the sale of future products. Revenue recognized during the three and six months ended December 31, ~~2021,~~2022, which was included in the ~~opening~~ deferred revenue balance as of June 30, ~~2021~~2022, of ~~$202.3~~$233.8 million, was ~~$26.7~~$27.5 million and ~~$56.7~~$61.0 million, respectively.

Deferred revenue increased ~~$50.2~~$46.2 million as of December 31, ~~2021~~2022 as compared to the fiscal year ended June 30, ~~2021~~ ~~of which $37.8 million~~2022 and was mainly due to the deferral on invoiced amounts for service contracts during the period exceeded the recognition of revenue from contracts entered into in prior periods. The service contracts deferral increase was offset partly by a $2.4 million decrease in non-cancellable non-refundable advance consideration or cash consideration received from customers which ~~precedes~~preceded the Company's satisfaction of the associated performance obligations relating to product sales ~~that the Company expects~~expected to ~~fulfill~~be fulfilled in the next 12 ~~months~~.months.

Transaction Price Allocated to the Remaining Performance Obligations

Remaining performance obligations represent in aggregate the amount of transaction price that has been allocated to performance obligations not delivered, or only partially ~~undelivered,~~delivered, as of the end of the reporting period. The Company applies the exemption to not disclose information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less. These performance obligations generally consist of services, such as on-site services, including integration services and extended warranty services that are contracted for one year or less, and products for which control has not yet been transferred. The value of the transaction price allocated to remaining performance obligations as of December 31, ~~2021~~2022 was $~~252.6~~280.0 million. The Company expects to recognize approximately ~~56%~~43% of remaining performance obligations as revenue in the next 12 months, and the remainder thereafter.

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Capitalized Contract Acquisition Costs and Fulfillment Cost

Contract acquisition costs are those incremental costs that the Company incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. Contract acquisition costs consist primarily of incentive bonuses. Contract acquisition costs are considered incremental and recoverable costs of obtaining and fulfilling a contract with a customer and are therefore capitalizable. The Company applies the practical expedient to expense incentive bonus costs as incurred if the amortization period would be one year or less, generally upon delivery of the associated server and storage systems or components. Where the amortization period of the contract cost would be more than a year, the Company applies judgment in the allocation of the incentive bonus cost asset between hardware and service performance obligations and expenses the cost allocated to the hardware performance obligations upon delivery of associated server and storage systems or components and amortizes the cost allocated to service performance obligations over the period the services are expected to be provided. Contract acquisition costs allocated to service performance obligations that are subject to capitalization are insignificant to the Company’s condensed consolidated financial statements.

Contract fulfillment costs consist of costs paid in advance for outsourced services provided by third parties to the extent they are not in the scope of other guidance. Fulfillment costs paid in advance for outsourced services provided by third parties are capitalized and amortized over the period the services are expected to be provided. Such fulfillment costs are insignificant to the Company’s condensed consolidated financial statements.

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~~SUPER MICRO COMPUTER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

Note 3. Net Income Per Common Share

The following table shows the computation of basic and diluted net income per common share for the three and six months ended December 31, ~~2021~~2022 and ~~2020~~2021 (in thousands, except per share amounts):

Three Months Ended
December 31, Six Months Ended
December 31,
2021 2020 2021 2020
Numerator:
Net income $ 41,932 $ 27,674 $ 67,369 $ 54,275
Denominator:
Weighted-average shares outstanding 51,314 51,499 51,055 51,914
Effect of dilutive securities 2,197 2,084 2,159 2,091
Weighted-average diluted shares 53,511 53,584 53,213 54,005
Basic net income per common share $ 0.82 $ 0.54 $ 1.32 $ 1.05
Diluted net income per common share $ 0.78 $ 0.52 $ 1.27 $ 1.00


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Numerator:
Net income	$	176,167	$	41,932	$	360,583	$	67,369

Denominator:
Weighted-average shares outstanding	53,160		51,314		52,726		51,055
Effect of dilutive securities	2,984		2,197		2,701		2,158
Weighted-average diluted shares	56,144		53,511		55,427		53,213

Basic net income per common share	$	3.31	$	0.82	$	6.84	$	1.32
Diluted net income per common share	$	3.14	$	0.78	$	6.51	$	1.27

For the three and six months ended December 31, ~~2021~~2022 and ~~2020,~~2021, the Company had stock options, restricted stock units ("RSUs") and performance based restricted stock units ("PRSUs") outstanding that could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net income per share in the periods presented, as their effect would have been anti-dilutive. The anti-dilutive common share equivalents resulting from outstanding equity awards were ~~419,423~~211,729 and ~~1,040,890~~419,423 for the three months ended December 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~1,501,560~~259,562 and ~~1,113,845~~1,501,560 for the six months ended December 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 4. Balance Sheet Components

The following tables provide details of the selected balance sheet items (in thousands):

Inventories:


		December 31, 2021		June 30, 2021			December 31, 2022		June 30, 2022
Finished goods	Finished goods	$	923,702	$	761,694	Finished goods	$	972,150	$	1,025,555
Work in process	Work in process	220,407		80,472		Work in process	155,739		209,576
Purchased parts and raw materials	Purchased parts and raw materials	249,563		198,798		Purchased parts and raw materials	293,928		310,475
Total inventories	Total inventories	$	1,393,672	$	1,040,964	Total inventories	$	1,421,817	$	1,545,606

During the three and six months ended December 31, ~~2021,~~2022, the Company recorded a net provision for excess and obsolete inventory to cost of sales totaling $15.8 million and $25.4 million, respectively, and $0.2 million and $3.7 ~~million, respectively, and $2.5 million and $1.7~~ million, for the three and six months ended December 31, ~~2020.~~2021, respectively. The Company classifies subsystems and accessories that may be sold separately or incorporated into systems as finished goods.

Prepaid Expenses and Other Current Assets:


	December 31, 2022		June 30, 2022
Other receivables (1)	$	133,034	$	138,054
Prepaid expenses	9,507		5,632
Deferred service costs	6,626		5,562
Prepaid income tax	—		2,352
Restricted cash	—		251
Other	5,757		6,948
Total prepaid expenses and other current assets	$	154,924	$	158,799

(1) Other receivables are receivables from contract manufacturers based on certain buy-sell arrangements of $116.3 million and $98.9 million as of December 31, 2022 and June 30, 2022, respectively.

Cash, Cash Equivalents and Restricted Cash:


	December 31, 2022		June 30, 2022
Cash and cash equivalents	$	304,595	$	267,397
Restricted cash included in prepaid expenses and other current assets	—		251
Restricted cash included in other assets	493		911
Total cash, cash equivalents and restricted cash	$	305,088	$	268,559

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

~~Prepaid Expenses~~Property, Plant, and ~~Other Current Assets:~~Equipment:

December 31, 2021 June 30, 2021
Other receivables (1) $ 120,085 $ 99,921
Prepaid income tax 13,686 12,288
Prepaid expenses 6,715 6,719
Deferred service costs 5,426 4,900
Restricted cash 251 251
Others 8,615 6,116
Total prepaid expenses and other current assets $ 154,778 $ 130,195

~~__________________________~~

~~(1) Includes other receivables from contract manufacturers based on certain buy-sell arrangements of~~ ~~$99.5 million~~ ~~and $76.2 million as of December 31, 2021 and June 30, 2021, respectively.~~


	December 31, 2022		June 30, 2022
Buildings	$	143,496	$	143,509
Machinery and equipment	122,634		113,665
Land	84,616		84,616
Furniture and fixtures	49,328		43,282
Building and leasehold improvements	45,812		45,169
Software	23,610		23,186
Building construction in progress	303		303
	469,799		453,730
Accumulated depreciation and amortization	(180,544)		(167,758)
Property, plant and equipment, net	$	289,255	$	285,972

~~Cash, cash equivalents and restricted cash:~~Other Assets:

December 31, 2021 June 30, 2021
Cash and cash equivalents $ 247,407 $ 232,266
Restricted cash included in prepaid expenses and other current assets 251 251
Restricted cash included in other assets 927 932
Total cash, cash equivalents and restricted cash $ 248,585 $ 233,449


	December 31, 2022		June 30, 2022
Operating lease right-of-use asset	$	20,827	$	23,679
Deferred service costs, non-current	8,875		6,316
Prepaid expense, non-current	1,935		2,011
Deposits	1,685		1,069
Investment in auction rate security	1,590		1,590
Restricted cash, non-current	493		911
Other	1,841		1,956
Total other assets	$	37,246	$	37,532

~~Property, Plant, and Equipment:~~Accrued Liabilities:

December 31, 2021 June 30, 2021
Buildings $ 143,509 $ 86,930
Land 84,616 76,421
Machinery and equipment 108,283 97,671
Building construction in progress (1) 303 87,438
Building and leasehold improvements 44,649 26,640
Software 23,178 22,592
Furniture and fixtures 32,602 22,843
437,140 420,535
Accumulated depreciation and amortization (156,858) (145,822)
Property, plant and equipment, net $ 280,282 $ 274,713

~~__________________________~~

~~(1) Primarily relates to the development and construction costs associated with the Company’s Green Computing Park located in San Jose, California, and a new building in Taiwan.~~


	December 31, 2022		June 30, 2022
Accrued payroll and related expenses	$	51,400	$	57,736
Contract manufacturers liabilities	34,440		41,125
Customer deposits	24,136		30,421
Accrued legal liabilities (Note 11)	—		18,250
Accrued cooperative marketing expenses	9,973		8,757
Accrued warranty costs	8,668		9,073
Operating lease liability	7,117		7,139
Accrued professional fees	2,497		4,281
Other	31,636		35,637
Total accrued liabilities	$	169,866	$	212,419

12SMCI | Q2 2023 Form 10-Q | 13

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

~~Other Assets:~~

December 31, 2021 June 30, 2021
Operating lease right-of-use asset $ 23,622 $ 20,047
Deferred service costs, non-current 5,896 5,421
Prepaid expense, non-current 1,914 1,973
Investment in auction rate security 1,556 1,556
Deposits 1,243 1,669
Restricted cash, non-current 927 932
Other 1,578 528
Total other assets $ 36,736 $ 32,126

~~Accrued Liabilities:~~

December 31, 2021 June 30, 2021
Accrued payroll and related expenses $ 45,315 $ 45,770
Contract manufacturing liabilities 41,049 45,319
Customer deposits 30,002 32,419
Accrued warranty costs 8,903 10,185
Accrued cooperative marketing expenses 8,459 5,652
Operating lease liability 6,431 6,322
Accrued professional fees 2,240 2,737
Other 28,612 30,446
Total accrued liabilities $ 171,010 $ 178,850

Performance Awards Liability

In March 2020, the Board of Directors (the “Board”) approved performance bonuses for the Chief Executive Officer, a senior executive and two members of the Board, which payments will be earned when specified market and performance conditions are achieved.

The Chief Executive Officer’s ~~aggregate~~total cash ~~bonuses of up to~~bonus opportunity was $8.1 million, ~~are~~divided into two equal tranches. Each tranche would be earned ~~in 2 tranches.~~ ~~The first 50% is payable~~ if the average closing price for the Company’s common stock ~~equals or exceeds $31.61 for any period of 20 consecutive trading days following~~reached specified targets. The Board retained the ~~date of~~flexibility to reduce the ~~agreement and ending prior to September 30, 2021 and~~amount payable under the ~~Chief Executive Officer remains employed with~~first tranche (but not the ~~Company through the date that such common stock~~second tranche) based on performance goals. Both price goal is determined to have been achieved. This payment can be reduced at the discretion of the Board to the extent the Company has not made adequate progress in remediating its material weaknesses in its internal control over financial reporting as determined by the Board. The second 50% is payable if the average closing price for the Company’s common stock equals or exceeds $32.99 for any period of 20 consecutive trading days following the date of the agreement and ending prior to June 30, 2022 and the Chief Executive Officer remains employed with the Company through the date that such common stock price goal is achieved.

~~During~~targets were reached during the fiscal year ended June 30, 2021, ~~the target average closing prices for both tranches were met~~ and ~~the cash payment under~~ the second tranche totaled $4.0 million was ~~made. On September 21,~~paid in full. As of June 30, 2021, the ~~Audit Committee~~Company also expected it would likely pay the first tranche in full, and therefore recorded an expense of $3.6 million since March 2020 relating to the ~~Board determined and advised the Board as to its view that~~first tranche.

In September 2021, after the Company had ~~made adequate progress in remediating~~closed its books for the ~~material weaknesses in its internal control over financial reporting. On September~~year ended June 30, 2021, the Board ~~considered and agreed with this assessment, but also considered the impact of accomplishments of Company employees other than Mr. Liang in achieving this adequate progress. The Board exercised~~decided to exercise its discretion ~~under the terms of the performance bonuses~~ to reduce the ~~payout~~amount to be paid to the Chief Executive Officer for the first tranche ~~from 50%~~ to ~~approximately 25% of $8.1 million, for an aggregate of $2.0 million. The payout of~~ $2.0 million, which was ~~made during~~paid in the quarter ended December 31, 2021.

~~Table of Contents~~

~~SUPER MICRO COMPUTER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~The Company previously expected that the full amount of the first tranche would be paid to its Chief Executive Officer and, accordingly, recorded~~ As a ~~liability of $3.6 million related to this tranche on its balance sheet as of June 30, 2021. In light~~result of the Board’s ~~action in September 2021~~decision to reduce the amount ofto be paid under the first tranche, ~~payout to $2.0 million,~~ the Company adjusted the $3.6 million expense previously recorded for the first tranche to the new amount of ~~this liability on its balance sheet as of September 30, 2021 to~~ $2.0 million, ~~and recognized~~which resulted in the Company recognizing a ~~benefit of~~ $1.6 million ~~in its consolidated statement of operations~~benefit from this adjustment during the quarter ended September 30, 2021. This performance award to the Chief Executive Officer was concluded in the year ended June 30, 2022. As such, there is no further transaction thereafter. There was no ~~expense for~~benefit recognized during the three and six months ended December 31, ~~2021~~2022. The benefit recognized during the three and ~~for three months ended December 31, 2020 $2.5 million expense was recognized. For the~~ six months ended December 31, 2021 was none and ~~2020,~~ $1.6 million, ~~and $2.6 million expense was recognized,~~ respectively.

Other Long-term Liabilities:


		December 31, 2021		June 30, 2021			December 31, 2022		June 30, 2022
Accrued unrecognized tax benefits including related interests and penalties, non-current	Accrued unrecognized tax benefits including related interests and penalties, non-current	$	19,203	$	17,841	Accrued unrecognized tax benefits including related interests and penalties, non-current	$	18,315	$	18,866
Operating lease liability, non-current	Operating lease liability, non-current	17,625		14,539		Operating lease liability, non-current	13,924		16,661
Accrued warranty costs, non-current	Accrued warranty costs, non-current	2,680		2,678		Accrued warranty costs, non-current	4,608		3,064
Other	Other	1,107		6,074		Other	466		549
Total other long-term liabilities	Total other long-term liabilities	$	40,615	$	41,132	Total other long-term liabilities	$	37,313	$	39,140

Product Warranties:


		Three Months Ended December 31,				Six Months Ended December 31,					Three Months Ended December 31,				Six Months Ended December 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Balance, beginning of the period	Balance, beginning of the period	$	12,233	$	13,727	$	12,863	$	12,379	Balance, beginning of the period	$	12,703	$	12,233	$	12,136	$	12,863
Provision for warranty	Provision for warranty	6,057		7,112		12,442		15,459		Provision for warranty	8,933		6,057		17,550		12,442
Costs utilized	Costs utilized	(6,722)		(7,453)		(13,920)		(15,060)		Costs utilized	(8,553)		(6,722)		(17,026)		(13,920)
Change in estimated liability for pre-existing warranties	Change in estimated liability for pre-existing warranties	15		118		198		726		Change in estimated liability for pre-existing warranties	193		15		616		198
Balance, end of the period	Balance, end of the period	11,583		13,504		11,583		13,504		Balance, end of the period	13,276		11,583		13,276		11,583
Current portion	Current portion	8,903		10,904		8,903		10,904		Current portion	8,668		8,903		8,668		8,903
Non-current portion	Non-current portion	$	2,680	$	2,600	$	2,680	$	2,600	Non-current portion	$	4,608	$	2,680	$	4,608	$	2,680

Note 5. Fair Value Disclosure

The financial instruments of the Company measured at fair value on a recurring basis are included in cash equivalents, other assets and accrued liabilities. The Company classifies its financial instruments, except for its investment in an auction rate security, within Level 1 or Level 2 in the fair value hierarchy because the Company uses quoted prices in active markets or alternative pricing sources and models using market observable inputs to determine their fair value.

SMCI | Q2 2023 Form 10-Q | 14

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The Company’s investment in an auction rate security is classified within Level 3 of the fair value hierarchy as the determination of its fair value was not based on observable inputs as of December 31, ~~2021~~2022 and June 30, ~~2021.~~2022. The Company is using the discounted cash flow method to estimate the fair value of the auction rate security at each period end and the following assumptions: (i) the expected yield based on observable market rate of similar securities, (ii) the security coupon rate that is reset monthly, (iii) the estimated holding period and (iv) a liquidity discount. The liquidity discount assumption is based on the management estimate of lack of marketability discount of similar securities and is determined based on the analysis of financial market trends over time, recent redemptions of securities and other market activities. The Company performed a sensitivity analysis and applying a change of either plus or minus 100 basis points in the liquidity discount does not result in a significantly higher or lower fair value measurement of the auction rate security as of December 31, 2021.

~~Table of Contents~~

~~SUPER MICRO COMPUTER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

Financial Assets and Liabilities Measured on a Recurring Basis

The following table sets forth the Company’s financial instruments as of December 31, ~~2021~~2022 and June 30, ~~2021,~~2022, which are measured at fair value on a recurring basis by level within the fair value hierarchy. These are classified based on the lowest level of input that is significant to the fair value measurement (in thousands):

December 31, 2021 Level 1 Level 2 Level 3 Asset at
Fair Value
Assets
Money market funds (1) $ 151 $ — $ — $ 151
Certificates of deposit (2) — 860 — 860
Auction rate security — — 1,556 1,556
Total assets measured at fair value $ 151 $ 860 $ 1,556 $ 2,567
June 30, 2021 Level 1 Level 2 Level 3 Asset at
Fair Value
Assets
Money market funds (1) $ 151 $ — $ — $ 151
Certificates of deposit (2) — 863 — 863
Auction rate security — — 1,556 1,556
Total assets measured at fair value $ 151 $ 863 $ 1,556 $ 2,570


December 31, 2022	Level 1		Level 2		Level 3		Asset at Fair Value
Assets
Money market funds (1)	$	20,419	$	—	$	—	$	20,419
Certificates of deposit (2)	—		573		—		573
Auction rate security	—		—		1,590		1,590
Total assets measured at fair value	$	20,419	$	573	$	1,590	$	22,582


June 30, 2022	Level 1		Level 2		Level 3		Asset at Fair Value
Assets
Money market funds (1)	$	20,220	$	—	$	—	$	20,220
Certificates of deposit (2)	—		832		—		832
Auction rate security	—		—		1,590		1,590
Total assets measured at fair value	$	20,220	$	832	$	1,590	$	22,642

(1) ~~$0.2~~$20.3 million and $20.0 million in money market funds are included cash and cash equivalents and $0.1 million and $0.2 million in money market funds are included in restricted cash, non-current in other assets in the condensed consolidated balance sheets as of December 31, ~~2021~~2022 and June 30, ~~2021,~~2022, respectively.

(2) $0.2 million and $0.2 million in certificates of deposit are included in cash and cash equivalents, ~~$0.3~~$0.1 million and $0.3 million in certificates of deposit are included in prepaid expenses and other assets, and ~~$0.4~~$0.3 million and ~~$0.4~~$0.3 million in certificates of deposit are included in restricted cash, non-current in other assets in the condensed consolidated balance sheets as of December 31, ~~2021~~2022 and June 30, ~~2021,~~2022, respectively.

On a quarterly basis, the Company also evaluates the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. ~~For~~Based on this assessment during the three and six months ended December 31, ~~2021, the credit losses related to~~2022, there were no indications that the Company’s investments ~~was not significant.~~had credit losses.

There was no movement in the balances of the Company's financial assets measured at fair value on a recurring basis, consisting of investment in an auction rate security, using significant unobservable inputs (Level 3) for the three and six months ended December 31, ~~2021~~2022 and ~~2020.~~2021.

There were no transfers between Level 1, Level 2 or Level 3 financial instruments in the three and six months ended December 31, ~~2021~~2022 and ~~2020.~~2021.

~~The following is a summary of the Company’s investment in an auction rate security as of December 31, 2021 and June 30, 2021 (in thousands):~~

Cost Basis Gross
Unrealized
Holding
Gains Gross
Unrealized
Holding
Losses Fair Value
Auction rate security $ 1,750 $ — $ (194) $ 1,556

SMCI | Q2 2023 Form 10-Q | 15

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The following is a summary of the Company’s investment in an auction rate security as of December 31, 2022 and June 30, 2022 (in thousands):


	Cost Basis		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
Auction rate security	$	1,750	$	—	$	(160)	$	1,590

No gain or loss was recognized in other comprehensive income for the auction rate security for the three and six months ended December 31, ~~2021~~2022 and ~~2020.~~2021.

The Company measures the fair value of outstanding debt for disclosure purposes on a recurring basis. As of December 31, ~~2021~~2022 and June 30, ~~2021,~~2022, total debt of ~~$315.9~~$170.1 million and ~~$98.2~~$596.8 million, respectively, was reported at amortized cost. This outstanding debt was classified as Level 2 as it was not actively traded. The amortized cost of the outstanding debt approximates the fair value.

Other Financial Assets - Investments into Non-Marketable Equity Securities

The Company's non-marketable equity securities are investments in privately held companies without readily determinable fair values in the amount of $1.2 million ~~and $0.1 million~~ as of December 31, ~~2021~~2022 and June 30, ~~2021, respectively.~~2022. The Company accounts for these investments at cost less impairment, if any, plus or minus changes from observable price changes in orderly transactions for the identical or similar investments by the same issuer. During the three and six months ended December 31, ~~2021~~2022 and ~~2020,~~2021, the Company did not record any upward or downward adjustments to the carrying values of the non-marketable equity securities related to observable price changes. The Company also did not record any impairment to the carrying values of the non-marketable equity securities during the three and six months ended December 31, ~~2021~~2022 and ~~2020.~~2021.

SMCI | Q2 2023 Form 10-Q | 16

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 6. Short-term and Long-term Debt

Short-term and long-term debt obligations as of December 31, ~~2021~~2022 and June 30, ~~2021~~2022 consisted of the following (in thousands):

December 31, June 30,
2021 2021
Line of credit:
Bank of America $ 60,588 $ —
CTBC Bank 97,000 18,000
E.SUN Bank 16,500 20,400
Total line of credit 174,088 38,400
Term loans:
CTBC Bank term loan, due August 31, 2022 $ — $ 25,090
CTBC Bank term loan, due June 4, 2030 40,435 34,700
CTBC Bank term loan, due December 27, 2027 3,522 —
E.SUN Bank term loan, due September 15, 2026 18,346 —
Mega Bank term loan, due September 15, 2026 43,388 —
Chang Hwa Bank term loan due October 15, 2026 36,157 —
Total term loans 141,848 59,790
Total debt 315,936 98,190
Short-term debt and current portion of long-term debt 176,904 63,490
Debt, Non-current $ 139,032 $ 34,700


	December 31,		June 30,
	2022		2022
Line of credit:
2018 Bank of America Credit Facility	$	—	$	268,245
2022 Bank of America Credit Facility	—		9,500
Cathay Bank Line of Credit	—		30,000
2021 CTBC Credit Lines	—		84,800
2022 CTBC Credit Line	—		—
HSBC Bank Credit Facility	—		30,000
2021 E.SUN Bank Credit Facility	—		7,800
Mega Bank Credit Facility	—		3,500
Total line of credit	—		433,845
Term loan facilities:
Chang Hwa Bank Credit Facility due October 15, 2026	31,070		33,643

CTBC Bank term loan, due June 4, 2030	38,904		40,372
2021 CTBC Credit Lines, due August 15, 2026	5,501		5,468
2021 E.SUN Bank Credit Facility, due September 15, 2026	38,904		43,064
2022 ESUN Bank Credit Facility, due August 15, 2027	16,859		—
Mega Bank Credit Facility, due September 15, 2026	38,904		40,372
Total term loans	170,142		162,919
Total debt	170,142		596,764
Short-term debt and current portion of long-term debt	27,869		449,146
Debt, non-current	$	142,273	$	147,618

SMCI | Q2 2023 Form 10-Q | 17

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Activities under Revolving Lines of Credit and Term Loans

~~Bank~~Available borrowings and interest rates as of ~~America~~December 31, 2022 and June 30, 2022 consisted of the following (in thousands except for percentages):

~~2018 Bank of America Credit Facility~~


	December 31, 2022			June 30, 2022
	Available borrowings		Interest rate	Available borrowings		Interest rate
Line of credit:
2018 Bank of America Credit Facility	$	350,000	5.56%	$	81,755	2.53%
2022 Bank of America Credit Facility	$	20,000	3.36%	$	10,500	1.85%
Cathay Bank Line of Credit	$	132,000	4.328%	$	102,000	4.004%
2021 CTBC Credit Lines	$	—	—	$	20,200	1.80% - 2.52%
2022 CTBC Credit Line	$	105,000	3.33%	$	—	—
Chang Hwa Bank Credit Facility	$	20,000	5.88%	$	20,000	3.50%
HSBC Bank Credit Facility	$	30,000	4.50%	$	—	1.95% - 2.20%
2021 E.SUN Bank Credit Facility	$	—	—	$	22,200	1.80%
2022 E.SUN Bank Credit Facility	$	30,000	4.18%	$	—	—
Mega Bank Credit Facility	$	20,000	2.55%	$	16,500	1.85%

Term loan facilities:
Chang Hwa Bank Credit Facility due October 15, 2026	$	—	1.425%	$	—	1.175%
CTBC Bank term loan, due June 4, 2030	$	—	1.075%	$	—	0.825%
2021 CTBC Credit Lines, due August 15, 2026	$	—	1.275%	$	6,308	1.025%
2021 E.SUN Bank Credit Facility, due September 15, 2026	$	2,594	1.62%	$	10,766	1.37%
2022 ESUN Bank Credit Facility, due August 15, 2027	$	—	1.62%	$	—	—
Mega Bank Credit Facility, due September 15, 2026	$	—	1.145% - 1.345%	$	—	1.02% - 1.22%

~~In April 2018,~~See “Part II. Item 8. Financial Statements and Supplementary Data – Note 9. Short-term and Long-term Debt” of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022 for a more complete description of the Company's credit facilities.

The Company entered into a ~~revolving line of credit~~new General Credit Agreement with ESUN Bank ~~of America for up to $250.0 million (as amended from time to time,~~during the ~~"2018 Bank of America Credit Facility"). On June 28, 2021,~~six months ended December 31, 2022 with the 2018 Bank of America Credit Facility was amended to, among other items, extend the maturity to June 28, 2026, reduce the size of the facility from $250.0 million to $200.0 million, increase the maximum amount that the Company can request the facility be increased from $100.0 million to $150.0 million, and update provisions relating to erroneous payments and LIBOR replacement mechanics. In addition, the amendment reduced both the unused line fee from 0.375% per annum to 0.2% or 0.3% per annum (depending upon amount drawn under the facility) and the interest rate applicable to the facility from LIBOR plus 2.00% or 3.00% per annum (depending upon amount drawn under the facility) to LIBOR plus 1.375% or 1.625% per annum. The amendment was accounted for as a modification and the impact was immaterial to the consolidated financial statements. Interest accrued on any loans under the 2018 Bank of America Credit Facility is due on the first day of each month, and the loans are due and payable in full on the termination date of the 2018 Bank of America Credit Facility. Voluntary prepayments are permitted without early repayment fees or penalties. Subject to customary exceptions, the 2018 Bank of America Credit Facility is secured by substantially all of Super Micro Computer’s assets, other than real property assets. Under the terms of the 2018 Bank of America Credit Facility, the Company is not permitted to pay any dividends. The 2018 Bank of America Credit Facility contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries and contains a financial covenant, which requires that the Company maintain a certain fixed charge coverage ratio, for each twelve-month period while in a Trigger Period, as defined in the agreement, is in effect.following terms:

17SMCI | Q2 2023 Form 10-Q | 18

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

As of December 31, 2021, the total outstanding borrowings under the 2018 Bank of America Credit Facility were $60.6 million. As of June 30, 2021, the Company had no outstanding borrowings under the 2018 Bank of America Credit Facility. The interest rates under the 2018 Bank of America Credit Facility as of December 31, 2021 and June 30, 2021 were 1.50%. The balance of debt issuance costs outstanding as of December 31, 2021 and June 30, 2021 were $0.5 million. The Company has been in compliance with all the covenants under the 2018 Bank of America Credit Facility, ~~and as of December 31, 2021, the Company's available borrowing capacity was~~ ~~$139.4 million, subject to the borrowing base limitation and compliance~~ ~~with other applicable terms.~~

~~CTBC Bank~~

~~2021 CTBC Credit Lines~~

The Company through its Taiwan subsidiary was party to (i) that certain credit agreement, dated May 6, 2020, with CTBC Bank Co., Ltd. (“CTBC Bank”), which provided for a ten-year, non-revolving term loan facility (the “2020 CTBC Term Loan Facility”) to obtain up to NTD1,200.0 million ($40.7 million U.S. dollar equivalent) and (ii) that certain credit agreement, dated August 24, 2020, with CTBC Bank (the “CTBC Credit Facility”), which provided for total borrowings of up to $50.0 million (collectively, the “Prior CTBC Credit Lines”).

On July 20, 2021 (the “Effective Date”), the Company through its Taiwan subsidiary entered into a general agreement for omnibus credit lines with CTBC Bank (the “2021 CTBC Credit Lines), which replaced the Prior CTBC Credit Lines in their entirety and permit borrowings, from time to time, pursuant to (i) a term loan facility of up to NTD 1,550.0 million ($55.4 million U.S. dollar equivalents) including the existing 2020 CTBC Term Loan Facility of NTD 1,200.0 million ($42.9 million~~U.S. dollar equivalents)and a new 75-month,~~ ~~non-revolving~~ ~~term loan facility of NTD 350.0 million ($12.5 million~~U.S. dollar equivalents) to use to purchase machinery and equipment for the Company’s Bade Manufacturing Facility located in Taiwan (the “2021 CTBC Machine Loan”), and (ii) a line of credit facility of up to $105.0 million (the “2021 CTBC Credit Facility”), which increased the borrowing capacity of CTBC Credit Facility. The 2021 CTBC Credit Facility provides (~~i) a 12-monthNTD 1,250.0 million ($44.7 million U.S. dollar equivalent) term loan facility secured by the land and building located in Bade,Taiwan with an interest rate equal to the lender's established NTD interest rate plus 0.50% per annum which is adjustedmonthly, which term loan facility also includes a 12-month guarantee of up to NTD 100.0 million ($3.6 million U.S. dollar~~equivalent) with an annual fee equal to 0.50% per annum, and (ii) a 12-month revolving line of credit of up to 100% of eligible accounts receivable in an aggregate amount of up to $105.0 million with an interest rate equal to the lender's established USD interest rate plus 0.70% to 0.75% per annum which is adjusted monthly.

Interest rates are to be established according to individual credit arrangements established pursuant to the 2021 CTBC Credit Lines, which interest rates shall be subject to adjustment depending on the satisfaction of certain conditions. Term loans made pursuant to the 2021 CTBC Credit Lines are secured by certain of the Taiwan subsidiary’s assets, including certain property, land, plant, and equipment. There are various financial covenants under the 2021 CTBC Credit Lines, including current ratio, debt service coverage ratio, and financial debt ratio requirements. Amounts outstanding under the Prior CTBC Credit Lines on the Effective Date were assumed by the 2021 CTBC Credit Lines.

As of December 31, 2021 and June 30, 2021, the amounts outstanding under the 2020 CTBC Term Loan Facility were $40.4 million and $34.7 million, respectively. The interest rates for these loans were 0.45% per annum as of December 31, 2021 and June 30, 2021. ~~Under the 2021 CTBC Machine Loan, the amounts outstanding were~~ ~~$3.5 million~~ ~~at December 31, 2021.~~ ~~The interest rates for this loan was 0.65% per annum as of December 31, 2021. As of December 31, 2021, there were no outstanding borrowings under the 2021 CTBC Machine Loan.~~

~~Table of Contents~~

~~SUPER MICRO COMPUTER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

The total outstanding borrowings under the 2021 CTBC Credit Facility term loan was denominated in NTD and remeasured into U.S. dollars of $0.0 million and $25.1 million at December 31, 2021 and June 30, 2021, respectively. The 2021 CTBC Credit Facility term loan was repaid on October 26, 2021. The interest rate for the 2021 CTBC Credit Facility term loan was 0.75% per annum as of June 30, 2021. As of December 31, 2021 and June 30, 2021, the outstanding borrowings under the 2021 CTBC Credit Facility revolving line of credit were $97.0 million and $18.0 million, respectively. The interest rates for these loans were ~~approximately~~ 1.00% per annum as of December 31, 2021. The interest rate was 0.98% per annum as of June 30, 2021. As of December 31, 2021, the amount available for future borrowing under the 2021 CTBC Credit Facility was $8.0 million. As of December 31, 2021, the net book value of land and building located in Bade, Taiwan, collateralizing the 2021 CTBC Credit Lines was $78.2 million.~~As of December 31, 2021, all financial covenants under the 2021 CTBC Credit Lines were satisfied.~~

E.SUN Bank

~~2021~~2022 E.SUN Bank Credit Facility

~~The Company through its Taiwan subsidiary was party to that certain General Credit Agreement, dated December 2, 2020, with~~On August 9, 2022 (the “New E.SUN Bank (“E.SUN Bank”), which provided for the issuance of loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments up to a credit limit of US$30 million (the “Prior E.SUN Bank Credit Facility”). The term of the Prior E.SUN Bank Credit Facility expired on September 18, 2021.

~~On September 13, 2021 (the “E.SUN~~ Bank Effective Date”), the Company through ~~its~~Super Micro Computer Inc., Taiwan, a Taiwan corporation and wholly-owned subsidiary of the Company (the “Taiwan Subsidiary”), entered into a new General Credit Agreement with E.SUN Bank, which replaced the ~~Prior~~2021 E.SUN Bank Credit Facility (the ~~“2021~~“New E.SUN Bank Credit Facility”). The ~~2021~~New E.SUN Bank Credit Facility permits borrowings of up to (i) NTD ~~1,600.0 million~~1.8 billion ($~~57.6~~61.0 million U.S. dollar equivalent) and (ii) US $30.0 ~~million as loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments.~~million. Other terms of the ~~2021~~New E.SUN Bank Credit Facility are substantially identical to the ~~Prior~~prior E.SUN Bank Credit Facility. Generally, interest for base rate loans made under the ~~2021~~New E.SUN Bank Credit Facility are based upon an average interbank overnight call loan rate in the finance industry (such as ~~LIBOR or~~ TAIFX) plus a fixed margin, and is subject to occasional adjustment. The ~~2021~~New E.SUN Bank Credit Facility has customary default provisions permitting E.SUN Bank to terminate or reduce the credit limit, shorten the credit period, or deem all liabilities due and payable, including in the event the Taiwan Subsidiary has an overdue liability at another financial organization. ~~There are various financial covenants under~~The Company is not a guarantor of the ~~2021~~New E.SUN Bank Credit ~~Facility, including current ratio, net debt ratio, and interest coverage requirements to be reviewed on a yearly basis at fiscal year end.~~Facility.

Terms for specific drawdown instruments issued under the ~~2021~~New E.SUN Bank Credit Facility, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, are to be set forth in Notifications and Confirmation of Credit Conditions (a “Notification and Confirmation”) negotiated with E.SUN Bank. AUnder a Notification and Confirmation ~~was~~ entered into on the New E.SUN Bank Effective Date, ~~for (i)~~the Taiwan Subsidiary and E.SUN Bank have agreed to both a ~~five-year, non-revolving~~medium term credit loan ~~facility to obtain up to~~of NTD ~~1,600.0~~680.0 million ($~~57.6~~23.0 million U.S. dollar equivalent) ~~in financing for use in research~~with a tenor of five years (the “Medium Term Loan”) and ~~development activities (the “Term Loan”), and (ii)~~ a drawdown of US $30.0 million under the New E.SUN Bank Credit Facility for an import loan ~~(the “Import Loan”)~~ with a tenor of 120 ~~days.~~days (the “Import O/A Loan”). With respect to the Medium Term Loan, the period of use is between April 28, 2022 and April 28, 2023. The interest rate thereunder is based upon a floating annual rate plus a fixed margin, subject to adjustment under certain circumstances. Interest payments are due on a monthly basis. Principal is amortized evenly on a monthly basis, with principal payments subject to a one year grace period prior to the commencement of repayment. The Medium Term Loan will be used by the Taiwan Subsidiary to support its manufacturing activities (such as purchase of materials and components) (“Use of Proceeds”). Drawdowns may be in amounts of up to 80% of permitted Use of Proceeds expenses. The Taiwan Subsidiary is subject to various financial covenants in connection with the Medium Term Loan, including a current ratio, net debt to equity ratio, and interest coverage ratio. The current Medium Term Loan and the prior medium term loan under the Prior E.SUN Bank Credit Facility shall not exceed in aggregate NTD 1.8 billion. With respect to the Import O/A Loan, the period of use is between April 28, 2022 and April 28, 2023. The interest rate thereunder is based on TAIFX3 plus a fixed margin, subject to negotiation on a monthly basis and adjustment under certain circumstances. Interest payments are due on a monthly basis, and principal is repayable on the due date. Neither the Medium Term Loan nor Import O/A loan are secured. As of December 31, ~~2021,~~2022, the ~~total~~amount outstanding ~~borrowings~~ under the ~~Term~~Import O/A Loan ~~were~~was denominated in NTD and remeasured into ~~U.S.~~US dollars of ~~$18.3 million and the~~$55.8 million. The interest ~~rates for these loans were 0.995%~~rate as of December 31, 2022 was 1.62% per annum. As of December 31, ~~2021~~2022 and June 30, ~~2021~~,2022, the amounts outstanding under the Import O/A Loan were ~~$16.5~~$0.0 million and ~~$20.4~~$7.8 million, respectively. The interest ~~rates for the quarter ended~~rate as of December 31, ~~2021 is~~ ~~0.96%. The interest rate for the quarter ended~~2022 and June 30, ~~2021 ranges approximately from~~ ~~1.00% to 1.29%~~2022 was 4.18% and 1.81% per annum,. At respectively. As of December 31, ~~2021,~~2022, the amount available for future borrowing under the Import O/A Loan was ~~$13.5 million~~.$30.0 million.

~~Mega~~CTBC Bank

~~Mega~~2022 CTBC Credit Line

Pursuant to banking practices in Taiwan to confirm loan agreements annually, on October 3, 2022, the Company through the Taiwan Subsidiary entered into an Agreement for Individually Negotiated Terms and Conditions with CTBC Bank Co., Ltd. (“CTBC Bank”) (such credit line, the “2022 CTBC Credit ~~Facilities~~Line”) related to the prior 2021 CTBC credit lines (the “2021 CTBC Credit Lines”). The terms of the 2022 CTBC Credit Line remain substantially similar to the 2021 CTBC Credit Line, except the 2022 CTBC Credit Line made certain minor amendments to the monthly interest payment date. The total borrowing cap under the whole arrangement is $105.0 million and NTD 1,550.0 million ($55.4 million U.S. dollar equivalent).

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

~~On September 13, 2021 (the “Mega Bank Effective Date”), the~~The Company, through ~~its~~the Taiwan ~~subsidiary entered into~~Subsidiary, was party to that certain credit agreement, dated May 6, 2020, with CTBC Bank, which provided for a ten-year, non-revolving term loan facility (the “2020 CTBC Term Loan Facility”) to obtain up to NTD 1,200.0 million ($~~43.2~~40.7 million U.S. dollar equivalent) ~~credit facility (the “Mega Bank Credit Facility”) with Mega International Commercial Bank (“Mega Bank”)~~. The Mega Bank Credit Facility will be used to support manufacturing activities (such as purchase of materials and components), and to provide medium-term working capital (the “Permitted Uses”). Drawdowns under the Mega Bank Credit Facility may be made through December 31, 2024, with the first drawdown date not later than November 5, 2021. Drawdowns may be in amounts of up to 80% of Permitted Uses certified to the Bank in drawdown certificates. The interest rate depends upon the amount borrowed under Mega Bank Credit Facility, and as of the Mega Bank Effective Date, ranged from 0.645% to 0.845% per annum. The interest rate is subject to adjustment in certain circumstances, such as events of default. Interest is payable monthly. Principal payments for amounts borrowed commence on the 15th day of the month following two years after the first drawdown, and are repaid in monthly installments over a period of three years thereafter. The Mega Bank Credit Facility is unsecured and has customary default provisions permitting Mega Bank to reduce or cancel the extension of credit, or declare all principal and interest amounts immediately due and payable. As of December 31, 2022 and June 30, 2022, the amounts outstanding under the 2020 CTBC Term Loan Facility were $38.9 million and $40.4 million, respectively. The interest rates for these loans were 1.075% per annum as of December 31, 2022 and 0.825% as of June 30, 2022.

The 2021 Credit Lines permitted borrowings, from time to time, pursuant to (i) a term loan facility of up to NTD 1,550.0 million ($55.4 million U.S. dollar equivalent) including the ~~total~~previously-existing ten-year, non-revolving term loan facility of NTD 1,200.0 million ($42.9 million U.S. dollar equivalent) and a new 75-month, non-revolving term loan facility of NTD 350.0 million ($12.5 million U.S. dollar equivalent) to use to purchase machinery and equipment for the Company’s Bade Manufacturing Facility located in Taiwan (the “2021 CTBC Machine Loan”), and (ii) a line of credit facility of up to $105.0 million (the “2021 CTBC Credit Facility”). As of December 31, 2022 and June 30, 2022, under the 2021 CTBC Machine Loan, the amounts outstanding were $5.5 million and $5.5 million, respectively. The interest rates for these loans were 1.275% per annum as of December 31, 2022 and 1.025% as of June 30, 2022. The 2021 CTBC Credit Facility term loan was repaid on October 26, 2021. As of December 31, 2022 and June 30, 2022, the outstanding borrowings under the ~~Mega Bank~~2021 CTBC Credit Facility revolving line of credit were ~~denominated in NTD~~none and ~~remeasured into U.S. dollars of $43.4~~$84.8 million, ~~and the~~respectively. The interest rates for these loans was 3.33% per annum as of December 31, 2022 and ranged is ~~0.65%~~from 1.80% to ~~0.85% per annum.~~2.52% as of June 30, 2022.

~~Chang Hwa Bank~~

~~Chang Hwa Bank Credit Facility~~

On October 5, 2021 (the “Chang Hwa Bank Effective Date”), the Company through its Taiwan subsidiary entered into a credit facility (the “Chang Hwa Bank Credit Facility”) with Chang Hwa Commercial Bank, Ltd. (“Chang Hwa Bank”). The Chang Hwa Bank Credit Facility permits borrowings of up to NTD 1,000.0 million ($36.0 million U.S. dollar equivalent), including up to $20.0 million as loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments. The Chang Hwa Bank Credit Facility has customary default provisions permitting Chang Hwa Bank to terminate or reduce the credit limit, shorten the credit period, or deem all liabilities due and payable, including in cross-default provisions with respect to the other Taiwan subsidiary debt obligations. Under the Chang Hwa Bank Credit Facility, Chang Hwa Bank has the right to demand collateral for debts owed. As of December 31, ~~2021,~~2022, the ~~total outstanding borrowings~~amount available for future borrowing under the ~~Chang Hwa Bank~~2022 CTBC Credit ~~Facility were denominated~~Line was $105 million. As of December 31, 2022, the net book value of land and building located in ~~NTD and remeasured into U.S. dollars~~Bade, Taiwan, collateralizing the 2022 CTBC Credit Line was $76.1 million. The Company was in compliance with all financial covenants under 2022 CTBC Credit Line as of ~~$36.2 million and the interest rate is0.8% per annum.~~December 31, 2022.

Terms for specific drawdown instruments issued under the Chang Hwa Bank Credit Facility, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, are to be set forth in separate loan contracts (each, a “Loan Contract”) negotiated with Chang Hwa Bank. On the Chang Hwa Bank Effective Date, 3 Loan Contracts were entered into. None of the three Loan Contracts are secured and there are no financial covenants.

~~HSBC Bank~~

~~HSBC Bank Credit Facility~~

On January 7, 2022 (the “HSBC Bank Effective Date”), the Company through its Taiwan subsidiary entered into a General Loan, Export/Import Financing, Overdraft Facilities and Securities Agreement (the “Loan Agreement”) with the Taiwan affiliate of HSBC Bank (“HSBC Bank”). The Loan Agreement provides for borrowings in the form of loans, export/import financings, overdrafts, commercial paper guaranties, and other types of drawdown instruments. The Loan Agreement has customary default provisions permitting HSBC Bank to terminate or reduce the credit limit, shorten the credit period, or deem all liabilities due and payable, including in the event its Taiwan subsidiary fails to make payment of sums under another agreement which permits acceleration of maturity of such indebtedness. The Company is not a guarantor of the Loan Agreement.

Terms for specific drawdown instruments issued under the Loan Agreement, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, may be set forth in Facility Letters (a “Facility Letter”) negotiated with the HSBC Bank. Under a Facility Letter entered into on the HSBC Bank Effective Date, its Taiwan subsidiary and the HSBC Bank have agreed to a $30.0 million export/seller trade facility under the Loan Agreement with a tenor of 120 days. The interest rate thereunder is based on the HSBC Bank’s base rate plus a fixed margin, subject to adjustment under certain circumstances. Interest payments are due on a monthly basis, and principal is repayable on the due date.

~~Table of Contents~~

~~SUPER MICRO COMPUTER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

Principal payments on short-term and long-term obligations are due as follows (in thousands):

Fiscal Year: Principal Payments


2022		$	174,088
2023		10,551
Remainder of 2023				Remainder of 2023	$	10,453
2024	2024	31,130		2024	38,776
2025	2025	34,746		2025	42,720
2026	2026	34,745		2026	42,720
2027 and thereafter		30,676
2027				2027	18,559
2028 and thereafter				2028 and thereafter	16,914
Total short-term and long-term debt	Total short-term and long-term debt	$	315,936	Total short-term and long-term debt	$	170,142

The Company is in compliance with all the covenants for the outstanding debt.

SMCI | Q2 2023 Form 10-Q | 20

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 7. Leases

The Company leases offices, warehouses and other premises, vehicles and certain equipment leased under non-cancelable operating leases. Operating lease expense recognized and supplemental cash flow information related to operating leases for the three and six months ended December 31, ~~2021~~2022 and ~~2020~~2021 were as follows (in thousands):

Three Months Ended
December 31, Six Months Ended
December 31,
2021 2020 2021 2020
Operating lease expense (including expense for lease agreements with related parties of $179 and $425 for the three and six months ended December 31, 2021, respectively, and $347 and $693 for the three and six months ended December 31, 2020, respectively) $ 1,983 $ 1,947 $ 4,166 $ 3,947
Cash payments for operating leases (including payments to related parties of $211 and $490 for the three and six months ended December 31, 2021; $347, and $693 for the three and six months ended December 31, 2020, respectively) 2,008 1,991 4,213 3,957
New operating lease assets obtained in exchange for operating lease liabilities 1,260 662 7,379 2,693


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Operating lease expense (including expense for lease agreements with related parties of $140 and $284 for the three and six months ended December 31, 2022, respectively, and $179 and $425 for the three and six months ended December 31, 2021, respectively)	$	2,115	$	1,983	$	4,225	$	4,166
Cash payments for operating leases (including payments to related parties of $127 and $257 for the three and six months ended December 31, 2022, respectively, and $211 and $490 for the three and six months ended December 31, 2021, respectively)	$	2,025	$	2,008	$	4,063	$	4,213
New operating lease assets obtained in exchange for operating lease liabilities	$	274	$	1,260	$	1,024	$	7,379

During the three and six months ended December 31, ~~2021~~2022 and ~~2020,~~2021, the Company's costs related to short-term lease arrangements for real estate and non-real estate assets were immaterial. ~~Variable~~Non-lease variable payments expensed in the three and six months ended December 31, 2022 were $0.4 million and $0.9 million, respectively. Non-lease variable payments expensed in the three and six months ended December 31, 2021 were $0.2 million and $0.5 million, respectively. ~~Variable payments expensed in the three and six months ended~~

As of December 31, ~~2020~~2022, the weighted average remaining lease term for operating leases was 3.4 years and the weighted average discount rate was 2.9%. Maturities of operating lease liabilities under noncancelable operating lease arrangements as of December 31, 2022 were ~~$0.4 million~~as follows (in thousands):


Fiscal Year:	Maturities of operating leases
Remainder of 2023	$	4,168
2024	6,927
2025	6,368
2026	2,625
2027	1,564
2028 and beyond	535
Total future lease payments	22,187
Less: Imputed interest	(1,146)
Present value of operating lease liabilities	$	21,041

As of December 31, 2022, commitments under short-term lease arrangements, and ~~$0.8 million, respectively.~~operating and financing leases that have not yet commenced were immaterial.

The Company has entered into lease agreements with related parties. See Part I, Item 1, Note 8, "Related Party Transactions," for a further discussion.

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

As of December 31, 2021, the weighted average remaining lease term for operating leases was 4.1 years and the weighted average discount rate was 3.0%. Maturities of operating lease liabilities under noncancelable operating lease arrangements as of December 31, 2021 were as follows (in thousands):

Fiscal Year: Minimum lease payments
2022 $ 3,575
2023 6,875
2024 5,685
2025 5,537
2026 2,213
2027 and beyond 1,776
Total future lease payments $ 25,661
Less: Imputed interest (1,605)
Present value of operating lease liabilities $ 24,056

~~As of December 31, 2021, commitments under short-term lease arrangements, and operating and financing leases that have not yet commenced were immaterial.~~

~~The Company has entered into lease agreements with related parties. See Note 8, "Related Party Transactions," for discussion.~~

Note 8. Related Party Transactions

The Company has a variety of business relationships with Ablecom and Compuware. Ablecom and Compuware are both Taiwan corporations. Ablecom is one of the Company’s major contract manufacturers; Compuware is both a distributor of the Company’s products and a contract manufacturer for the Company. Ablecom’s Chief Executive Officer, Steve Liang, is the brother of Charles Liang, the Company’s President, Chief Executive Officer and Chairman of the Board. Steve Liang and his family members owned approximately 28.8% of Ablecom’s stock and Charles Liang and his spouse, Sara Liu, who is also an officer and director of the Company, collectively owned approximately 10.5% of Ablecom’s capital stock as of December 31, ~~2021.~~2022. Bill Liang, a brother of both Charles Liang and Steve Liang, is a member of the Board of Directors of Ablecom. Bill Liang is also the Chief Executive Officer of Compuware, a member of Compuware’s Board of Directors and a holder of a significant equity interest in Compuware. Steve Liang is also a member of Compuware’s Board of Directors and is an equity holder of Compuware. Neither Charles Liang ~~and~~nor Sara Liu ~~do not~~ own any capital stock of Compuware and the Company does not own any of Ablecom or Compuware’s capital stock.

Dealings with Ablecom

The Company has entered into a series of agreements with Ablecom, including multiple product development, production and service agreements, product manufacturing agreements, manufacturing services agreements and lease agreements for warehouse space.

Under these agreements, the Company outsources to Ablecom a portion of its design activities and a significant part of its server chassis manufacturing as well as an immaterial portion of other components. Ablecom manufactured approximately ~~88.3%~~95.5% and ~~91.6%~~88.3% of the chassis included in the products sold by the Company during the three months ended December 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~90.3%~~91.8% and ~~92.6%~~90.3% of the chassis included in the products sold by the Company during the six months ended December ~~2021~~31, 2022 and ~~2020,~~2021, respectively. With respect to design activities, Ablecom generally agrees to design certain agreed-upon products according to the Company’s specifications, and further agrees to build the tools needed to manufacture the products. The Company pays Ablecom for the design and engineering services, and further agrees to pay Ablecom for the tooling. The Company retains full ownership of any intellectual property resulting from the design of these products and tooling.

~~Table of Contents~~

~~SUPER MICRO COMPUTER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

With respect to the manufacturing aspects of the relationship, Ablecom purchases most of materials needed to manufacture the chassis from third parties and the Company provides certain components used in the manufacturing process (such as power supplies) to Ablecom through consignment or sales transactions. Ablecom uses these materials and components to manufacture the completed chassis and then sell them back to the Company. For the components purchased from the Company, Ablecom sells the components back to the Company at a price equal to the price at which the Company sold the components to Ablecom. The Company and Ablecom frequently review and negotiate the prices of the chassis the Company purchases from Ablecom. In addition to inventory purchases, the Company also incurs other costs associated with design services, tooling and other miscellaneous costs from Ablecom.

The Company’s exposure to financial loss as a result of its involvement with Ablecom is limited to potential losses on its purchase orders in the event of an unforeseen decline in the market price and/or demand of the Company’s products such that the Company incurs a loss on the sale or cannot sell the products. Outstanding cancellable and non-cancellable purchase orders from the Company to Ablecom on December 31, 2022 were ~~$49.4~~$27.4 million and ~~$40.2~~$26.8 million, ~~at December 31, 2021~~respectively, and outstanding cancellable and non-cancellable purchase orders from the Company to Ablecom on June 30, ~~2021,~~2022 were $39.5 million and $36.0 million, respectively, effectively representing the exposure to financial loss. The Company does not directly or indirectly guarantee any obligations of Ablecom, or any losses that the equity holders of Ablecom may suffer. Since Ablecom manufactures substantially all the chassis that the Company incorporates into its products, if Ablecom were to suddenly be unable to manufacture chassis for the Company, the Company’s business could suffer if the Company is unable to quickly qualify substitute suppliers who can supply high-quality chassis to the Company in volume and at acceptable prices.

SMCI | Q2 2023 Form 10-Q | 22

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Dealings with Compuware

The Company has entered into a distribution agreement with Compuware, under which the Company appointed Compuware as a non-exclusive distributor of the Company’s products in Taiwan, China and Australia. Compuware assumes the responsibility to install the Company's products at the site of the end customer, if required, and administers customer support in exchange for a discount from the Company's standard price for its purchases.

The Company also has entered into a series of agreements with Compuware, including multiple product development, production and service agreements, product manufacturing agreements, and lease agreements for office space.

Under these agreements, the Company outsources to Compuware a portion of its design activities and a significant part of its power supplies manufacturing as well as an immaterial portion of other components. With respect to design activities, Compuware generally agrees to design certain agreed-upon products according to the Company’s specifications, and further agrees to build the tools needed to manufacture the products. The Company pays Compuware for the design and engineering services, and further agrees to pay Compuware for the tooling. The Company retains full ownership of any intellectual property resulting from the design of these products and tooling. With respect to the manufacturing aspects of the relationship, Compuware purchases most of materials needed to manufacture the power supplies from outside markets and uses these materials to manufacture the products and then sell those products to the Company. The Company and Compuware frequently review and negotiate the prices of the power supplies the Company purchases from Compuware.

Compuware also manufactures motherboards, backplanes and other components used on printed circuit boards for the Company. The Company sells to Compuware most of the components needed to manufacture the above products. Compuware uses the components to manufacture the products and then sells the products back to the Company at a purchase price equal to the price at which the Company sold the components to Compuware, plus a “manufacturing value added” fee and other miscellaneous material charges and costs including overhead and labor. The Company and Compuware frequently review and negotiate the amount of the “manufacturing value added” fee that will be included in the price of the products the Company purchases from Compuware. In addition to the inventory purchases, the Company also incurs costs associated with design services, tooling assets, and miscellaneous costs.

~~Table of Contents~~

~~SUPER MICRO COMPUTER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

The Company’s exposure to financial loss as a result of its involvement with Compuware is limited to potential losses on its purchase orders in the event of an unforeseen decline in the market price and/or demand of the Company’s products such that the Company incurs a loss on the sale or cannot sell the products. Outstanding cancellable and non-cancellable purchase orders from the Company to Compuware on December 31, 2022 were ~~$50.9~~$170.2 million and ~~$71.0~~$70.1 million, ~~at December 31, 2021~~respectively, and outstanding cancellable and non-cancellable purchase orders from the Company to Compuware on June 30, ~~2021,~~2022 were $213.3 million and $44.3 million, respectively, effectively representing the exposure to financial loss. The Company does not directly or indirectly guarantee any obligations of Compuware, or any losses that the equity holders of Compuware may suffer.

Dealings with Investment in a Corporate Venture

In October 2016, the Company entered into agreements pursuant to which the Company contributed certain technology rights in connection with an investment in a privately-held company (the "Corporate Venture") located in China to expand the Company's presence in China. The Corporate Venture is 30% owned by the Company and 70% owned by another company in China. The transaction was closed in the third fiscal quarter of 2017 and the investment is accounted for using the equity method. As such, the Corporate Venture is also a related party.

The Company recorded a deferred gain related to the contribution of certain technology rights. As of December 31, ~~2021~~2022 and June 30, ~~2021,~~2022, the Company had no unamortized deferred gain balance ~~of $0 million~~in accrued liabilities and ~~$1.0 million, respectively,~~none in ~~accrued~~other long-term liabilities in the Company’s condensed consolidated balance sheets.

SMCI | Q2 2023 Form 10-Q | 23

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The Company monitors the investment for events or circumstances indicative of potential impairment and makes appropriate reductions in carrying values if it determines that an impairment charge is required. In June 2020, the third-party parent company that controls the Corporate Venture was placed on a U.S. government export control list, along with several of ~~the~~such third-party parent's related entities and a separate listing for one of its subsidiaries. The Corporate Venture is not itself a restricted party. The Company has concluded that the Corporate Venture is in compliance with the new restrictions. The Company does not believe that the equity investment carrying value is impacted as of December 31, ~~2021.~~2022. No impairment charge was recorded for the three and six months ended December 31, ~~2021 and 2020, respectively.~~2022 or 2021.

The Company sold products worth $6.0 million and $38.3 million to the Corporate Venture during the three months ended December 31, 2022 and 2021, respectively, and sold products worth $17.3 million and $53.5 million to the Corporate Venture during the six months ended December 31, 2022 and 2021, respectively. The Company’s share of intra-entity profits on the products that remained unsold by the Corporate Venture as of December 31, 2022 and June 30, 2022 have been eliminated and have reduced the carrying value of the Company’s investment in the Corporate Venture. To the extent that the elimination of intra-entity profits reduces the investment balance below zero, such amounts are recorded within accrued liabilities.

~~Dealings with Monolithic Power Systems, Inc.~~

The Company ~~procures certain semiconductor products~~had $5.0 million and $8.0 million due from ~~Monolithic Power Systems, Inc. (“MPS”), a fabless manufacturer~~the Corporate Venture in accounts receivable, net as of ~~high-performance analog~~December 31, 2022 and ~~mixed-signal semiconductors, for use in its products. A member on the Board of Directors, also serves as an officer of MPS.~~June 30, 2022, respectively.

The Company had the following balances related to transactions with its related parties as of December 31, ~~2021~~2022 and June 30, ~~2021~~2022 (in thousands):


		Ablecom				Compuware				Corporate Venture				MPS				Total					Ablecom				Compuware				Corporate Venture				Total
		December 31, 2021		June 30, 2021		December 31, 2021		June 30, 2021		December 31, 2021		June 30, 2021		December 31, 2021		June 30, 2021		December 31, 2021		June 30, 2021			December 31, 2022		June 30, 2022		December 31, 2022		June 30, 2022		December 31, 2022		June 30, 2022			December 31, 2022		June 30, 2022

Accounts receivable	Accounts receivable	$	1	$	2	$	264	$	198	$	34,267	$	8,478	$	—	$	—	$	34,532	$	8,678	Accounts receivable	$	2	$	2	$	267	$	404	$	4,951	$	7,992		$	5,220	$	8,398
Other receivable (1)	Other receivable (1)	$	4,933	$	5,575	$	29,847	$	18,173	$	—	$	—	$	222	$	89	$	35,002	$	23,837	Other receivable (1)	$	3,452	$	4,816	$	43,885	$	19,596	$	—	$	—		$	47,337	$	24,412
Accounts payable	Accounts payable	$	41,725	$	38,152	$	54,311	$	31,944	$	—	$	—	$	—	$	—	$	96,036	$	70,096	Accounts payable	$	38,874	$	42,463	$	49,232	$	44,892	$	—	$	—		$	88,106	$	87,355
Accrued liabilities (2)	Accrued liabilities (2)	$	2,829	$	3,042	$	17,200	$	14,486	$	—	$	1,000	$	—	$	—	$	20,029	$	18,528	Accrued liabilities (2)	$	1,522	$	3,531	$	18,005	$	15,145	$	—	$	—		$	19,527	$	18,676

~~Table of Contents~~

~~SUPER MICRO COMPUTER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~


(1) Other receivables include receivables from vendors included in prepaid and other current assets.
(2) Includes current portion of operating lease liabilities included in other current liabilities.

The Company's results from transactions with its related parties for each of the three months ended December 31, ~~2021~~2022 and ~~2020,~~2021, are as follows (in thousands):


		Ablecom				Compuware				Corporate Venture				MPS				Total					Ablecom				Compuware				Corporate Venture				MPS (1)				Total
		Three months ended December 31,																					Three months ended December 31,
		2021		2020		2021		2020		2021		2020		2021		2020		2021		2020			2022		2021		2022		2021		2022		2021		2022		2021		2022		2021

Net sales	Net sales	$	3	$	(31)	$	3,302	$	5,572	$	38,311	$	13,165	$	—	$	—	$	41,616	$	18,706	Net sales	$	2	$	3	$	14,113	$	3,302	$	5,958	$	38,311	$	—	$	—	$	20,073	$	41,616
Purchases - inventory	Purchases - inventory	$	47,520	$	21,818	$	46,821	$	29,017	$	—	$	—	$	2,387	$	697	$	96,728	$	51,532	Purchases - inventory	$	46,715	$	47,520	$	52,028	$	46,821	$	—	$	—	$	—	$	2,387	$	98,743	$	96,728
Purchases - other miscellaneous items	Purchases - other miscellaneous items	$	2,867	$	2,762	$	347	$	626	$	—	$	—	$	—	$	—	$	3,214	$	3,388	Purchases - other miscellaneous items	$	2,763	$	2,867	$	279	$	347	$	—	$	—	$	—	$	—	$	3,042	$	3,214

~~The Company's results from transactions with its~~(1) MPS ceased to be a related ~~parties for each of~~party in the ~~six months~~quarter ended ~~December 31, 2021 and 2020, are as follows (in thousands):~~September 30, 2022.

Ablecom Compuware Corporate Venture MPS Total
Six months ended December 31, Six months ended December 31, Six months ended December 31, Six months ended December 31, Six months ended December 31,
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
Net sales $ 10 $ (27) $ 19,004 $ 18,871 $ 53,524 $ 19,577 $ — $ — $ 72,538 $ 38,421
Purchases - inventory $ 98,309 $ 45,689 $ 82,050 $ 63,215 $ — $ — $ 4,056 $ 1,488 $ 184,415 $ 110,392
Purchases - other miscellaneous items $ 4,983 $ 5,480 $ 686 $ 960 $ — $ — $ — $ — $ 5,669 $ 6,440

~~The Company’s cash flow impact from transactions with its related parties for each of the six months ended December 31, 2021 and 2020, are as follows (in thousands):~~

Ablecom Compuware Corporate Venture MPS Total
Six months ended December 31, Six months ended December 31, Six months ended December 31, Six months ended December 31, Six months ended December 31,
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
Changes in accounts receivable 1 $ (29) $ (66) $ 311 $ (25,789) $ (6,586) $ — $ — $ (25,854) $ (6,304)
Changes in other receivable $ 641 $ 308 $ (11,673) $ 7,246 $ — $ — $ (133) $ 75 $ (11,165) $ 7,629
Changes in accounts payable $ 3,573 $ (13,921) $ 22,367 $ (10,191) $ — $ — $ — $ — $ 25,940 $ (24,112)
Changes in accrued liabilities $ (212) $ 867 $ 2,713 $ (5,734) $ (1,000) $ — $ — $ — $ 1,501 $ (4,867)
Changes in other long-term liabilities $ — $ (513) $ — $ (158) $ — $ (1,000) $ — $ — $ — $ (1,671)
Purchases of property, plant and equipment $ 1,678 $ 2,968 $ 92 $ 90 $ — $ — $ — $ — $ 1,770 $ 3,058
Unpaid property, plant and equipment $ 2,312 $ 2,976 $ — 80 $ — $ — $ — $ — $ 2,312 $ 3,056

25SMCI | Q2 2023 Form 10-Q | 24

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The Company's results from transactions with its related parties for each of the six months ended December 31, 2022 and 2021, are as follows (in thousands):


	Ablecom				Compuware				Corporate Venture				MPS (1)				Total
	Six months ended December 31,				Six months ended December 31,				Six months ended December 31,				Six months ended December 31,				Six months ended December 31,
	2022		2021		2022		2021		2022		2021		2022		2021		2022		2021

Net sales	$	3	$	10	$	27,872	$	19,004	$	17,251	$	53,524	$	—	$	—	$	45,126	$	72,538
Purchases - inventory	$	94,562	$	98,309	$	100,717	$	82,050	$	—	$	—	$	—	$	4,056	$	195,279	$	184,415
Purchases - other miscellaneous items	$	7,526	$	4,983	$	537	$	686	$	—	$	—	$	—	$	—	$	8,063	$	5,669

(1) MPS ceased to be a related party in the quarter ended September 30, 2022.

The Company’s cash flow impact from transactions with its related parties for each of the six months ended December 31, 2022 and 2021, are as follows (in thousands):


	Ablecom				Compuware				Corporate Venture				MPS (1)				Total
	Six months ended December 31,				Six months ended December 31,				Six months ended December 31,				Six months ended December 31,				Six months ended December 31,
	2022		2021		2022		2021		2022		2021		2022		2021		2022		2021

Changes in accounts receivable	$	—	$	1	$	137	$	(66)	$	3,041	$	(25,789)	$	—	$	—	$	3,178	$	(25,854)
Changes in other receivable	$	1,364	$	641	$	(24,289)	$	(11,673)	$	—	$	—	$	—	$	(133)	$	(22,925)	$	(11,165)
Changes in accounts payable	$	(3,589)	$	3,573	$	4,340	$	22,367	$	—	$	—	$	—	$	—	$	751	$	25,940
Changes in accrued liabilities	$	(2,009)	$	(212)	$	2,860	$	2,713	$	—	$	(1,000)	$	—	$	—	$	851	$	1,501
Changes in other long-term liabilities	$	—	$	—	$	(168)	$	—	$	—	$	—	$	—	$	—	$	(168)	$	—
Purchases of property, plant and equipment	$	4,366	$	1,678	$	148	$	92	$	—	$	—	$	—	$	—	$	4,514	$	1,770
Unpaid property, plant and equipment	$	1,764	$	2,312	$	—	$	—	$	—	$	—	$	—	$	—	$	1,764	$	2,312

(1) MPS ceased to be a related party in the quarter ended September 30, 2022.

Tripartite Agreement

On November 8, 2021, Super Micro Computer Inc., Taiwan (the “Subsidiary”), a Taiwan corporation and wholly-owned subsidiary of the Company, entered into a Tripartite Agreement (the “Agreement”) with Ablecom and Compuware related to a three-way purchase of land.

~~Pursuant to the Agreement, the Subsidiary will participate in purchasing 33.33% of the 137,225.97 square meters (approximately 34 acres) of land~~ Ablecom has ~~agreed~~advised that its underlying agreements to acquire land from the third-party landowners in proximity to the Company’s campus in Bade, ~~Taiwan. Compuware will acquire 17.21% of such land~~Taiwan have been terminated, and ~~Ablecom will retain~~during the ~~remaining 49.46% of the land. Under~~quarter ended December 31, 2022, the Agreement fees and costs related to such land purchase would be borne by the parties according to their proportionate share of the land purchased. The Company intends to fund its proportionate share of the land purchased under the Agreement which is estimated to be approximately NTD789 million (or approximately US$28.3 million) from either available cash and/or borrowings under loan agreements the Subsidiary has in Taiwan. Amounts payable related to the purchase of the land are due in three installments based upon the achievement of specified milestones. The transaction is subject to various customary conditions precedent, including the receipt of government approvals, the discharge of mortgages and leases on the land, and the completion of due diligence. As of December 31, 2021, due diligence and discussions with government officials are continuing, and no installment payments have been made with respect to the transaction. If the transaction does not close within 12 months, Ablecom may offer the land to other parties.

was terminated.

26SMCI | Q2 2023 Form 10-Q | 25

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 9. Stock-based Compensation and Stockholders' Equity

Equity Incentive Plan

On June 5, 2020, the stockholders of the Company approved the 2020 Equity and Incentive Compensation Plan (the ~~"2020~~"Original 2020 Plan"). The maximum number of shares available under the Original 2020 Plan is 5,000,000 plus 1,045,000 shares of common stock that remained available for future awards under the 2016 Equity Incentive Plan (the “2016 Plan”), at the time of adoption of the Original 2020 Plan. No other awards can be granted under the 2016 ~~Plan.~~Plan and 7,246,000 shares of common stock remain reserved for outstanding awards issued under the Original 2016 Plan at the time of adoption of the Original 2020 Plan. On May 18, 2022, the stockholders of the Company approved an amendment and restatement of the Original 2020 Plan (as amended and restated, the “2020 Plan”) which, among other things, increased the number of shares available for award under the 2020 Plan by an additional 2,000,000 shares.

Under the 2020 Plan, the Company can grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, dividend equivalents, and certain other awards, including those denominated or payable in, or otherwise based on, the Company’s common stock. The exercise price per share for incentive stock options granted to employees owning shares representing more than 10% of the Company's outstanding voting stock at the time of grant cannot be less than 110% of the fair value of the underlying shares on the grant date. Nonqualified stock options and incentive stock options granted to all other persons are granted at a price not less than 100% of the fair value. Options generally expire ten years after the date of grant. Stock options and RSUs generally vest over four years; 25% at the end of one year and one sixteenth per quarter thereafter.

As of December 31, ~~2021,~~2022, the Company had ~~2,142,683~~2,711,240 authorized shares available for future issuance under the 2020 Plan.

Common Stock Repurchase

On ~~January 29, 2021,~~August 3, 2022, after the expiration of a prior share repurchase program on July 31, 2022, a duly authorized subcommittee of the Company's Board ~~of Directors~~ approved a new share repurchase program to repurchase shares of the Company’s common stock for up to ~~an aggregate of $200.0~~$200 million ofat prevailing prices in the ~~Company's common stock at market prices.~~open market. The share repurchase program is effective until ~~the earlier of July~~January 31, ~~2022~~2024 or ~~the date when~~until the maximum amount of common stock is ~~repurchased. The Company had $150.0 million of remaining availability~~repurchased, whichever occurs first. No shares were repurchased under ~~the~~any share repurchase ~~program as of December 31, 2021. There were no shares repurchased under the share repurchase program~~programs during the three and six months ended December 31, ~~2021.~~2022.

Determining Fair Value

The Company's fair value of RSUs and PRSUs is based on the closing market price of the Company's common stock on the date of grant. The Company estimates the fair value of stock options granted using the Black-Scholes-option-pricing model. This fair value is then amortized ratably over the requisite service periods of the awards, which is generally the vesting period. The key inputs in using the Black-Scholes-option-pricing model were as follows:

Expected Term—The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on the Company's historical experience.

Expected Volatility—Expected volatility is based on the Company's implied and historical volatility.

Expected Dividend—The Black-Scholes valuation model calls for a single expected dividend yield as an input and the Company has no plans to pay dividends.

Risk-Free Interest Rate—The risk-free interest rate used in the Black-Scholes valuation method is based on the United States Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

The fair value of stock option grants for the three and six months ended December 31, 2021 and 2020 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

Three Months Ended
December 31, Six Months Ended
December 31,
2021 2020 2021 2020
Risk-free interest rate 0.81% 0.45% 0.81% - 0.45% 0.27% - 0.45%
Expected term 6.09 years 5.98 years 6.09 years 5.98 years
Dividend yield —% —% —% —%
Volatility 49.69% 50.34% 49.69% - 49.71% 50.34% - 50.43%
Weighted-average fair value $17.94 $11.13 $17.59 $13.14

27SMCI | Q2 2023 Form 10-Q | 26

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The fair value of stock option grants for the three and six months ended December 31, 2022 and 2021 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:


	Three Months Ended December 31,		Six Months Ended December 31,
	2022	2021	2022	2021
Risk-free interest rate	4.16% - 4.25%	0.81%	2.81% - 4.25%	0.81% - 0.45%
Expected term	6.07 years	6.09 years	6.07 years	6.09 years
Dividend yield	—%	—%	—%	—%
Volatility	51.64% - 51.68%	49.69%	50.62% - 51.68%	49.69% - 49.71%
Weighted-average fair value	$36.37	$17.94	$34.60	$17.59

The following table shows total stock-based compensation expense included in the condensed consolidated statements of operations for the three and six months ended December 31, ~~2021~~2022 and ~~2020~~2021 (in thousands):


		Three Months Ended December 31,				Six Months Ended December 31,					Three Months Ended December 31,				Six Months Ended December 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Cost of sales	Cost of sales	$	471	$	407	$	918	$	910	Cost of sales	$	1,486	$	471	$	2,370	$	918
Research and development	Research and development	4,103		3,339		7,983		7,041		Research and development	9,334		4,103		15,452		7,983
Sales and marketing	Sales and marketing	496		497		1,013		1,014		Sales and marketing	1,448		496		2,257		1,013
General and administrative	General and administrative	4,106		2,210		6,277		4,658		General and administrative	4,713		4,106		7,916		6,277
Stock-based compensation expense before taxes	Stock-based compensation expense before taxes	9,176		6,453		16,191		13,623		Stock-based compensation expense before taxes	16,981		9,176		27,995		16,191
Income tax impact	Income tax impact	(2,310)		(1,732)		(4,198)		(3,687)		Income tax impact	(3,381)		(2,310)		(4,720)		(4,198)
Stock-based compensation expense, net	Stock-based compensation expense, net	$	6,866	$	4,721	$	11,993	$	9,936	Stock-based compensation expense, net	$	13,600	$	6,866	$	23,275	$	11,993

As of December 31, ~~2021, $9.4~~2022, $17.0 million of unrecognized compensation ~~expense~~cost related to stock options is expected to be recognized over a weighted-average period of ~~3.71~~3.01 years ~~$53.2~~and $78.8 million of unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted-average period of ~~2.77 years and unrecognized compensation cost of $0.1 million related to unvested PRSUs was recognized during the quarter ended December 31, 2021.~~2.63 years. Additionally, as described below, ~~$6.7~~$2.4 million of unrecognized compensation cost related to the 2021 CEO Performance Stock Option is expected to be recognized over a period of ~~5.0~~1.50 years.

Stock Option Activity

In March 2021, the Company’s Compensation Committee of the Board of Directors (the “Compensation Committee”) approved the grant of a stock option award for 1,000,000 shares of common stock ~~shares~~ to the Company’s CEO (the “2021 CEO Performance Stock Option”). The 2021 CEO Performance Stock Option has 5five vesting tranches with a vesting schedule based entirely on the attainment of operational milestones (performance conditions) and market conditions, assuming (1) continued employment either as the CEO or in such capacity as agreed upon between the Company’s CEO and the Board ~~of Directors~~ and (2) service through each vesting date. Each of the 5five vesting tranches of the 2021 CEO Performance Stock Option will vest upon certification by the Compensation Committee that both (i) the market price milestone for such tranche, which begins at $45.00 per share for the first tranche and increases up to $120.00 per share thereafter (based on a 60 ~~calendar~~trading day ~~trailing~~ average ~~counting only trading days)~~stock price), has been achieved, and (ii) any one of ~~the following 5~~five operational milestones focused on total revenue, as reported under U.S. GAAP, have been achieved for the previous 4four consecutive fiscal quarters. Upon vesting and exercise, including the payment of the exercise price of $45.00 per share, prior to March 2, 2024, the Company’s CEO must hold shares that he acquires until March 2, 2024, other than those shares sold pursuant to a cashless exercise where shares are simultaneously sold to pay for the exercise price and any required tax withholding.

~~The achievement status of the operational and stock price milestones as of December 31, 2021 was as follows:~~

Annualized Revenue Milestone Achievement Status Stock Price Milestone Achievement Status
(in billions)
$4.0
Achieved (1)
$45 Not met
$4.8 Probable $60 Not met
$5.8 Probable $75 Not met
$6.8 Probable $95 Not met
$8.0 Improbable $120 Not met

28SMCI | Q2 2023 Form 10-Q | 27

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The achievement status of the operational and stock price milestones as of December 31, 2022 was as follows:


Annualized Revenue Milestone (in billions)	Achievement Status	Stock Price Milestone	Achievement Status
$4.0	Achieved	$45	Achieved (1)
$4.8	Achieved	$60	Achieved (2)
$5.8	Achieved	$75	Achieved (3)
$6.8	Probable	$95	Not yet achieved
$8.0	Probable	$120	Not yet achieved

(1)The ~~Company has presented this revenue goal as having been “Achieved”, as its reported revenues for the four quarters ended December 31, 2021 were $4.17 billion.Under the terms~~vesting of the ~~agreement governing this~~first tranche of 200,000 option shares under the 2021 CEO Performance Stock Option, representing one-fifth of such award, was certified by the Company's Compensation Committee ~~must certify that the goal has been achieved after the Company files this Quarterly Report on Form 10-Q before the goal will be deemed achieved under that agreement.~~in August 2022.

(2)The ~~Company expects~~vesting of the second tranche of 200,000 option shares under the 2021 CEO Performance Stock Option representing one-fifth of such award was certified by the Company's Compensation Committee ~~to so certify shortly after~~in October 2022.

(3)The vesting of the ~~filing date~~third tranche of ~~this report and~~200,000 option shares under the ~~Company does not intend to file a Current Report~~2021 CEO Performance Stock Option representing one-fifth of such award was certified by the Company's Compensation Committee on ~~Form 8-K following such certification.~~January 4, 2023.

On the grant date, a Monte Carlo simulation was used to determine for each tranche (i) a fixed expense amount for such tranche and (ii) the future time when the market price milestone for such tranche was expected to be achieved, or its “expected market price milestone achievement time.” Separately, based on a subjective assessment of the Company’s future financial performance, each quarter, the Company will determine whether achievement is probable for each operational milestone that has not previously been achieved or deemed probable of achievement, and, if so, the future time when the Company expects to achieve that operational milestone, or its “expected operational milestone achievement time.” When the Company first determines that an operational milestone has become probable of being achieved, the Company will allocate the entire expense for the related tranche over the number of quarters between the grant date and the then-applicable “expected vesting time.” The “expected vesting time” at any given time is the later of (i) the expected operational milestone achievement time (if the related operational milestone has not yet been achieved) and (ii) the expected market price milestone achievement time (if the related market price milestone has not yet been achieved). The Company will immediately recognize a catch-up expense for all accumulated expenses from the grant date through the quarter in which the operational milestone was first deemed probable of being achieved. Each quarter thereafter, the Company will recognize the prorated portion of the then-remaining expense for the tranche based on the number of quarters between such quarter and the then-applicable expected vesting time, except that upon vesting of a tranche, all remaining expenses for that tranche will be immediately recognized.

During the three and six months ended December 31, 2022, the Company recognized compensation expense related to the 2021 CEO Performance Stock Option of $1.9 million and $3.2 million, respectively. During the three and six months ended December 31, 2021, the Company recognized compensation expense related to the 2021 CEO Performance Stock Option of $2.9 million and $3.8 million, respectively. ~~No compensation expense related to the 2021 CEO Performance Stock Option was recognized during the three and six months ended December 31, 2020.~~ As of December 31, ~~2021~~2022 and June 30, ~~2021,~~2022, the Company had ~~$6.7~~$2.4 million and ~~$10.5~~$5.6 million, respectively, in unrecognized compensation cost related to the 2021 CEO Performance Stock Option. The unrecognized compensation cost as of December 31, ~~2021~~2022 is expected to be recognized over a period of ~~five~~more than 1.50 years.

~~The following table summarizes stock option activity during the six months ended December 31, 2021 under all plans:~~

Options
Outstanding Weighted
Average
Exercise
Price per
Share Weighted
Average
Remaining
Contractual
Term (in Years)
Balance as of June 30, 2021 5,175,554 $ 26.17
Granted 193,620 $ 36.89
Exercised (669,403) $ 17.84
Forfeited/Cancelled (85,000) $ 29.84
Balance as of December 31, 2021 4,614,771 $ 27.82 5.49
Options vested and exercisable at December 31, 2021 2,876,247 $ 21.10 3.41

~~RSU and PRSU Activity~~

In January 2015, the Company began to grant RSUs to employees. The Company grants RSUs to certain employees as part of its regular employee equity compensation review program as well as to selected new hires. RSUs are typically service based share awards that entitle the holder to receive freely tradable shares of the Company's common stock upon vesting.

29SMCI | Q2 2023 Form 10-Q | 28

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

~~In March 2020,~~

The following table summarizes stock option activity during the ~~Compensation Committee granted a~~six months ended December 31, 2022 under all plans:


	Options Outstanding	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in Years)
Balance as of June 30, 2022	4,311,416	$	29.99
Granted	240,002	$	61.44
Exercised	(752,892)	$	20.36
Forfeited/Cancelled	(15,541)	$	25.10
Balance as of December 31, 2022	3,782,985	$	33.93	5.89

Options vested and exercisable at December 31, 2022	2,302,409	$	27.48	4.18

RSU and PRSU award to one of the Company's senior executives. The award vests in 2 tranches and includes service and performance conditions. Each tranche has 15,000 RSUs that vest in May 2021 and November 2021 based on service conditions only. Additional units can be earned based on revenue growth percentage in fiscal year 2020 compared to fiscal year 2019, which units would vest in May 2021, and based on revenue growth percentage in fiscal year 2021 compared to fiscal year 2020, which units have vested in November 2021. No additional units were earned for fiscal year 2020 as revenue decreased from fiscal year 2019. An additional 2,939 units were earned for fiscal year 2021 that vested on November 10, 2021.Activity

The following table summarizes RSU and PRSU activity during the six months ended December 31, ~~2021~~2022 under all plans:


		Time-Based RSUs Outstanding	Weighted Average Grant-Date Fair Value per Share		PRSUs Outstanding	Weighted Average Grant-Date Fair Value per Share			Time-Based RSUs Outstanding	Weighted Average Grant-Date Fair Value per Share
Balance as of June 30, 2021		1,854,956	$	26.79	15,000	$	34.27
Balance as of June 30, 2022								Balance as of June 30, 2022	1,879,073	$	33.72
Granted	Granted	641,195	$	36.81	2,939	$	34.27	Granted	745,937	$	62.77
Released	Released	(355,657)	$	22.19	(17,939)	$	34.27	Released	(484,003)	$	36.14
Forfeited	Forfeited	(185,036)	$	28.49	—	$	—	Forfeited	(77,613)	$	38.22
Balance as of December 31, 2021		1,955,458	$	30.69	—	$	—
Balance as of December 31, 2022								Balance as of December 31, 2022	2,063,394	$	43.49

30SMCI | Q2 2023 Form 10-Q | 29

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 10. Income Taxes

The Company recorded a provision for income taxes of $29.6 million and $68.5 million for the three and six months ended December 31, 2022, respectively, and $7.6 million and $10.9 million for the three and six months ended December 31, 2021, ~~respectively,~~respectively. The effective tax rate was 14.3% and ~~$5.1 million and $8.8 million~~15.9% for the three and six months ended December 31, ~~2020, respectively. The effective tax rate was~~2022, respectively, and 15.4% and 14.1% for the three and six months ended December 31, 2021, ~~respectively, and 14.9% and 13.9% for the three and six months ended December 31, 2020,~~ respectively. The effective tax rate for the three months ended December 31, 2022 is lower than that for the three months ended December 31, 2021, primarily due to an increase in the tax deduction for stock compensation, and a tax reserve release in the three months ended December 31, 2022. The effective tax rate for the six months ended December 31, 2022 is higher than that for the six months ended December 31, 2021, ~~is higher than that for the three and six months ended December 31, 2020,~~ primarily due to ~~a decrease~~the significant increase in taxable income in the first two quarters of fiscal year 2023, while the income tax deductions for items such as the R&D credit and foreign tax deduction ~~from foreign-derived intangible income and an~~in those quarters did not increase in ~~certain non-deductible expenses.~~the same proportion.

The Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development ("R&D") expenses in the year incurred and instead requires taxpayers to capitalize R&D expenses, including software development cost, and subsequently amortize such expenses over five years for R&D activities conducted in the United States and over fifteen years for R&D activities conducted outside of the United States beginning in the Company's fiscal year 2023. Although Congress has considered legislation that would defer, modify, and repeal the capitalization and amortization requirement, there is no assurance the provision will be deferred, repealed, or otherwise modified.

As of December 31, ~~2021,~~2022, the Company had gross unrecognized tax benefits of ~~$45.1~~$41.1 million, of which, ~~$28.4~~$23.4 million if recognized, would affect the Company's effective tax rate. During the six months ended December 31, ~~2021,~~2022, there was a ~~$4.4~~$3.9 million ~~increase~~decrease in gross unrecognized tax benefits. The ~~Company’s~~Company's policy is to include interest and penalties related to unrecognized tax benefits within the provision for taxes on the condensed consolidated statements of operations. As of December 31, ~~2021,~~2022, the Company had accrued ~~$2.9~~$3.3 million of interest and penalties relating to unrecognized tax benefits.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The CARES Act provides temporary relief from certain aspects of the 2017 Tax Reform Act that imposed limitations on the utilization of certain losses, interest expense deductions and alternative minimum tax credits and made a technical correction to the 2017 Tax Reform Act related to the depreciable life of qualified improvement property. The CARES Act does not have a material impact on the Company.

The Company has determined that its foreign undistributed earnings are indefinitely reinvested except for undistributed earnings related to the Company's operations in the Netherlands. The Company may repatriate certain foreign earnings from the Netherlands that have been previously taxed in the U.S. The tax impact of such repatriation is estimated to be immaterial.

The Company believes that it has adequately provided reserves for all uncertain tax positions; however, amounts that may be asserted by tax authorities could be greater or less than the ~~Company’s~~Company's current position. Accordingly, the ~~Company’s~~Company's provision onfor federal, state, and foreign tax related matters to be recorded in the future may change as revised estimates are made or as the underlying matters are settled or otherwise resolved.

The federal statute of limitations remains open in general for tax years ended June 30, ~~2018~~2019 through ~~2021.~~2022. Various states statutes of limitations remain open in general for tax years ended June 30, ~~2017~~2018 through ~~2021.~~2022. Certain statutes of limitations in major foreign jurisdictions remain open in general for the tax years ended June 30, ~~2016~~2017 through ~~2021.~~2022. It is reasonably possible that the Company's gross unrecognized tax benefits will decrease by approximately ~~$1.0~~$3.0 million, in the next 12 months, due to the lapse of the statute of limitations. These adjustments, if recognized, would positively impact the Company's effective tax rate, and would be recognized as additional tax benefits.

31SMCI | Q2 2023 Form 10-Q | 30

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 11. Commitments and Contingencies

Litigation and Claims— On February 8, 2018, 2two putative class action complaints were filed against the Company, the Company's Chief Executive Officer, and the Company's former Chief Financial Officer in the U.S. District Court for the Northern District of California (~~Hessefort~~(Hessefort v. Super Micro Computer, Inc., et al., No. 18-cv-00838 and United Union of Roofers v. Super Micro Computer, Inc., et al., No. ~~18-cv-00850~~)18-cv-00850). The complaints contain similar allegations, claiming that the defendants violated Section 10(b) of the Securities Exchange Act due to alleged misrepresentations and/or omissions in public statements regarding recognition of revenue. The court subsequently appointed New York Hotel Trades Council & Hotel Association of New York City, Inc. Pension Fund as lead plaintiff. The lead plaintiff then filed an amended complaint naming the Company's Senior Vice President of Investor Relations as an additional defendant. On June 21, 2019, the lead plaintiff filed a further amended complaint naming the Company's former Senior Vice President of International Sales, Corporate Secretary, and Director as an additional defendant. On July 26, 2019, the Company filed a motion to dismiss the complaint. On March 23, 2020, the Court granted the Company’s motion to dismiss the complaint, with leave for lead plaintiff to file an amended complaint within 30 days. On April 22, 2020, lead plaintiff filed a further amended complaint. On June ~~15,~~5, 2020, the Company filed a motion to dismiss the further amended complaint, the hearing for which was calendared for September 23, 2020; however, the Court held a conference on September 15 to discuss how the Court could efficiently address the recent SEC settlement agreement. The parties stipulated to allow plaintiffs to further amend the complaint solely to add allegations relating to the SEC settlement. On October 14, 2020, plaintiffs filed a Fourth Amended Complaint. On October 28, 2020, defendants filed a supplemental motion to dismiss. On March 29, 2021, the Court granted in part and denied in part defendants’ motions to dismiss. Plaintiffs’ claims under Sections 10(b) and 20 of the Exchange Act were dismissed with prejudice as against the Company’s former head of Investor Relations, Perry Hayes. Plaintiffs’ Section 10(b) claim, but not the Section 20 claim, was likewise dismissed as to Wally Liaw, a founder, former director, and former SVP of International Sales. The Court denied the motions to dismiss the Section 10(b) and Section 20 claims against the Company, Charles Liang, and Howard Hideshima, the Company’s former CFO. ~~Discovery has commenced,~~On March 11, 2022, the Company, together with the individual defendants, agreed in principle with plaintiff’s counsel to settle the action. On April 8, 2022, the parties entered into a stipulation of settlement, pursuant to which and subject to Court approval, plaintiff will dismiss with prejudice and release on behalf of a class of shareholders all claims against defendants, including the Company, in exchange for payment of $18,250,000, of which sum $2,000,000 will be funded by the Company. On May 25, 2022, the Court ~~has~~vacated the hearing on preliminary approval of the proposed settlement scheduled for June 2, 2022, stating that the unopposed motion was suitable for disposition without oral argument. All settlement funds have been transferred into an account controlled by the settlement’s escrow agent. No settlement funds will be distributed until the Court grants final approval. On November 8, 2022, the Court granted preliminary approval and calendared a hearing on ~~class certification~~March 2, 2023 for ~~April 21, 2022. The Company intends to defend the lawsuit vigorously.~~

On October 27, 2020, certain current and former directors and officers of the Company were named as defendants in a putative derivative lawsuit filed in the Superior Court of the State of California, County of Santa Clara (the “Court”), captioned Barry v. Liang, et al., 20-CV-372190. The Company was also named as a nominal defendant. The complaint purports to allege claims for breaches of fiduciary duties, waste of corporate assets, and unjust enrichment arising out of allegations that the Company’s officers and directors caused the Company to issue false and misleading statements about recognition of revenue and the effectiveness of its internal controls, failed to adopt and implement effective internal controls, and failed to timely file various reports with the Securities and Exchange Commission. Defendants filed demurrers, which were set for hearing on August 4, 2021, but which were continued to September 15, 2021. Following this continuance, on July 21, 2021, Plaintiffs' counsel filed an amended complaint in lieu of responding to the demurrer. The amended complaint added no new claims; primarily, the amendment added allegations describing the March 29, 2021 motion to dismiss decision in the ~~Hessefort~~ class action. Defendants demurred to the amended complaint on August 24, 2021, and the Court has continued the hearing to March 23, 2022. The case is otherwise currently stayed. The Company intends to defend the lawsuit vigorously.

On May 5, 2021, certain current and former directors and officers of the Company were named as defendants in a putative derivative lawsuit filed in the U.S. District Court for the Northern District of California, captioned ~~Stein v. Liang, et al~~., Case No. 3:21-cv-03357-KAW (the “Stein Derivative Action”). The Company was also named as a nominal defendant. The complaint purports to allege claims for breaches of fiduciary duties, waste of corporate assets, unjust enrichment, and contribution for violations of federal securities laws arising out of allegations that the Company’s officers and directors caused the Company to issue false and misleading statements about recognition of revenue and the effectiveness of its internal controls, failed to adopt and implement effective internal controls, and failed to timely file various reports with the Securities and Exchange Commission. The plaintiff seeks unspecified compensatory damages and other equitable relief. Defendants filed motions to dismiss the complaint on August 6, 2021. Rather than oppose defendants’ motions, plaintiff informed defendants that plaintiff was prepared to dismiss his action with prejudice. On September 29, 2021, the parties submitted a stipulation for dismissal with prejudice as to the named plaintiff to the Court for itsfinal approval. ~~On December 16, 2021, the Court issued an order for the parties to submit within 30 days a plan of notice of dismissal for the Court’s approval. The Company provided notice as required~~This settlement, if finally approved by the Court, on December 21, 2021. The Court order notes that, if no shareholder seeks to intervene during the 45-day notice period ending on February 4, 2022, plaintiff may file an administrative motion requesting that the Court dismiss the lawsuit with prejudice.

~~Table of Contents~~

~~SUPER MICRO COMPUTER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~SEC Matter—~~ The Company cooperated with the SEC in its investigation of marketing expenses that contained certain irregularities discovered by Company management, which irregularities were disclosed on August 31, 2015, and the Company cooperated with the SEC in its further investigation of the matters underlying the Company’s inability to timely file its Form 10-K for the fiscal year ended June 30, 2017 and concerning the publication of a false and widely discredited news article in October 2018 concerning the Company’s products. On August 25, 2020, towill fully resolve ~~all matters under investigation,~~ the Company consented to entry of an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order (“Order”), as announced by the SEC. The Company admitted the SEC’s jurisdiction over the Company and the subject matter of the proceedings, but otherwise neither admitted nor denied the SEC’s findings, as described in the Order. The Company agreed to cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and (3) of the Securities Act and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The Company agreed and paid a civil money penalty of $17,500,000 during the three months ended September 30, 2020, which was recorded to general and administrative expense in the Company's condensed consolidated statement of operations in the first quarter of fiscal 2021. In addition, the Company’s Chief Executive Officer concluded a settlement with the SEC on August 25, 2020, as announced by the SEC. The Company’s Chief Executive Officer paid the Company the sum of $2,122,000 as reimbursement of profits from certain stock sales during the relevant period, pursuant to Section 304 of the Sarbanes-Oxley Act of 2002. The settlement amount was paid during the first quarter of fiscal 2021 and the Company recorded the payment as a credit to general and administrative expense in the first quarter of fiscal 2021.action.

Other legal proceedings and indemnifications

From time to time, the Company has been involved in various legal proceedings arising from the normal course of business activities. The resolution of any such matters have not had a material impact on the Company’s consolidated financial condition, results of operations or liquidity as of December 31, ~~2021~~2022 and any prior periods.

The Company has entered into indemnification agreements with its current and former directors and executive officers.

Under these agreements, the Company has agreed to indemnify such individuals to the fullest extent permitted by law against liabilities that arise by reason of their status as directors or officers and to advance expenses incurred by such individuals in connection with related legal proceedings. It is not possible to determine the maximum potential amount of payments the Company could be required to make under these agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each claim. However, the Company maintains directors and officers liability insurance coverage to reduce its exposure to such obligations.

Purchase Commitments— The Company has agreements to purchase inventory and non-inventory items primarily through the next 12 months. As of December 31, ~~2021,~~2022, these remaining noncancelable commitments were ~~$816.0~~$422.9 million, including ~~$100.3~~$97.0 million for related parties.

Lease Commitments - See Part I, Item 1, Note 7, "Leases," for a discussion of the Company's operating lease and financing lease commitments.

SMCI | Q2 2023 Form 10-Q | 31

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 12. Segment Reporting

The Company operates in 1one operating segment that develops and provides ~~high performance~~high-performance server solutions based upon an innovative, modular and open-standard architecture. The Company’s chief operating decision maker is the Chief Executive Officer.

~~Table of Contents~~

~~SUPER MICRO COMPUTER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

The following is a summary of property, plant and equipment, net (in thousands):


		December 31,		June 30,			December 31,		June 30,
		2021		2021			2022		2022
Long-lived assets:	Long-lived assets:					Long-lived assets:
United States	United States	$	174,213	$	180,143	United States	$	181,754	$	180,846
Asia	Asia	103,268		91,640		Asia	104,724		102,241
Europe	Europe	2,801		2,930		Europe	2,777		2,885
		$	280,282	$	274,713		$	289,255	$	285,972

The Company’s revenue is presented on a disaggregated basis in Part I, Item 1, Note 2, “Revenue,” by type of product and by geographical market.

34SMCI | Q2 2023 Form 10-Q | 32

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This section and other parts of this Quarterly Report contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including “would,” “could,” “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of these terms or other comparable terminology. In evaluating these statements, you should specifically consider various factors, including the risks discussed under “Risk Factors” in Part II, Item 1A of this filing. These factors may cause our actual results to differ materially from those anticipated or implied in the forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We cannot guarantee future results, levels of activity, performance or achievements.

The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with our condensed consolidated financial statements and related footnotes included elsewhere in this Quarterly Report and included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021~~2022 (the ~~“2021~~“2022 10-K”), which includes our condensed consolidated financial statements for the fiscal years ended June 30, ~~2021~~2022 and ~~2020.~~2021.

Overview

We are a ~~global leader and innovator~~Silicon Valley-based provider of accelerated compute platforms that are application-optimized high performance and high-efficiency server and storage systems for a variety of markets, including enterprise data centers, cloud computing, artificial intelligence, 5G and edge computing. Our ~~solutions~~Total IT Solutions include complete servers, storage systems, modular blade servers, blades, workstations, full ~~racks,~~rack scale solutions, networking devices, server sub-systems, server management ~~software,~~ and ~~server sub-systems.~~security software. We also provide global support and services to help our customers install, upgrade and maintain their computing infrastructure.

We commenced operations in 1993 and have been profitable every year since inception. Our net income for the three months ended December 31, ~~2021~~2022 increased to ~~$41.9~~$176.2 million from ~~$27.7~~$41.9 million for the corresponding period in the prior year. In order to increase our sales and profits, we believe that we must continue to develop flexible and application optimized server and storage solutions and be among the first to market with new features and products. We also believe that we must ~~also~~ continue to expand our software and customer service and support offerings, particularly as we increasingly focus on AI/ML applications and larger enterprise customers. Additionally, we ~~must~~intend to focus on development of our sales partners and distribution channels to further expand our market share. We measure our financial success based on various indicators, including growth in net sales, gross profit margin and operating margin. Among the key non-financial indicators of our success is our ability to rapidly introduce new products and deliver the latest application-optimized server and storage solutions. In this regard, we work closely with microprocessor, GPU and other key component vendors to take advantage of new technologies as they are introduced. Historically, our ability to introduce new products rapidly has allowed us to benefit from technology transitions such as the introduction of new ~~microprocessors~~microprocessor, GPU, memory and storage technologies, and as a result, we monitor the introduction cycles of ~~Intel~~NVIDIA Corporation, ~~NVIDIA~~Intel Corporation, Advanced Micro Devices, Inc., Samsung Electronics Company Limited, Micron Technology, ~~Inc., Broadcom~~ Inc. and others closely and carefully. This also impacts our research and development expenditures as we continue to invest more in our current and future product development efforts.

~~Coronavirus (COVID-19) Pandemic Impact~~

SMCI | Q2 2023 Form 10-Q | 33

The global spread of the coronavirus (COVID-19) and the various attempts to contain it have created significant volatility, uncertainty and economic disruption for many businesses worldwide. In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, including orders that govern the operations of businesses, require masks be worn and define shelter in place and social distancing protocols. We are an essential critical infrastructure (information technology) business under the relevant federal, state and county regulations. Accordingly, in late March 2020, we responded to the directives from Santa Clara County and the State of California regarding instructions to combat the spread of COVID-19. Our first priority is the safety of our workforce and we have implemented numerous health precautions and work practices to be in compliance with the law and to operate in a safe manner.

Table of Contents

We quickly transitioned certain of our indirect labor forces to work from home at the earlier phase of the pandemic and continued to operate our local assembly in Taiwan and, after an initial period of disruption, in the United States and Europe. We operate in the critical industry of IT infrastructure and we assessed our customer base to identify priority customers who operate in critical industries. We continued to see ongoing demand and do not have significant direct exposure to industries which have been impacted the greatest. As time passes, we may discover greater indirect exposure to distressed industries through our channel partners and OEM customers.

We have actively managed our supply chain for potential shortage risk by building inventories of critical components required for our motherboards and other system printed circuit boards in response to the early outbreak of COVID-19 in China. Since that time, we have continued to add to our inventories of key components such as CPUs, memory, SSDs and GPUs to support our ability to fulfill customer orders.

Logistics has emerged as a new challenge as globally the transportation industry restricted the frequency of departures and increased logistics costs. We have experienced increased costs in freight as well as direct labor costs as we incentivized our employees to continue to work and assist us in serving our customers, many of whom are in critical industries. We expect this trend to continue for the duration of the COVID-19 pandemic.

We monitor the credit profile and payment history of our customers to evaluate risk in specific industries or geographic areas where cash flow may be disrupted. While we believe that we are adequately capitalized, we actively manage our liquidity needs. In June 2021, we negotiated an extension of our credit facility with Bank of America to extend the maturity date to June 2026. In July 2021, we replaced our prior credit facility and term loan facility with CTBC Bank, with a new facility for omnibus credit lines. In September 2021, we replaced our prior credit facility with E.SUN Bank, with new credit facility and term facility. In September 2021, we entered into a term loan facility with Mega Bank which will be used to support our manufacturing activities (such as purchase of materials and components) and provide medium-term working capital. In October 2021, we entered into a credit facility with Chang Hwa Bank and in January 2022 we entered into a loan agreement with HSBC Bank which will both be used to support the growth of our Taiwan business. See “- Liquidity and Capital Resources – Other Factors Affecting Liquidity and Capital Resources.”

Our management team is focused on guiding our company through the ongoing challenges presented by COVID-19, including the recent emergence of the omicron variant. There are positive signs with vaccine availability and the rollout of boosters; however, with the omicron variant and the possibility of the emergence of other new virus strains and vaccine supply constraints, we are unable to predict the ultimate extent to which the global COVID-19 pandemic may further impact our business operations, financial performance and results of operations within the next 12 months.

Financial Highlights

The following is a summary of our financial highlights of the second quarter of fiscal year ~~2022:~~2023:

•Net sales increased by ~~41.2%~~53.8% in the three months ended December 31, ~~2021~~2022 as compared to the three months ended December 31, ~~2020.~~2021.

•Gross margin ~~decreased~~increased to ~~14.0%~~18.7% in the three months ended December 31, ~~2021~~2022 from ~~16.4%~~14.0% in the three months ended December 31, ~~2020.~~2021.

•Operating expenses increased by ~~14.1%~~8.5% as compared to the three months ended December 31, ~~2020,~~2021 and were equal to ~~9.6%~~6.7% and ~~11.9%~~9.6% of net sales in the three months ended December 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

•Effective tax rate ~~increased~~decreased to 14.3% in the three months ended December 31, 2022 from 15.4% in the three months ended December 31, ~~2021 from 14.9% in the three months ended December 30, 2020.~~2021.

Critical Accounting Policies and Estimates

~~Table of~~ ~~Contents~~

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses. We evaluate our estimates and assumptions on an ongoing basis, and base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for the judgments we make about the carrying value of assets and liabilities that are not readily apparent from other sources. Because these estimates can vary depending on the situation, actual results may differ from these estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and statement of cash flows.

There have been no material changes to our critical accounting policies and estimates as compared to those disclosed in our ~~2021~~2022 10-K. For a description of our critical accounting policies and estimates, see Part I, Item 1, Note 1, "Summary of Significant Accounting Policies" in our notes to condensed consolidated financial statements in this Quarterly Report.

SMCI | Q2 2023 Form 10-Q | 34

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Results of Operations

The following table presents certain items of our condensed consolidated statements of operations expressed as a percentage of revenue.


		Three Months Ended December 31,				Six Months Ended December 31,					Three Months Ended December 31,				Six Months Ended December 31,
		2021		2020		2021		2021			2022		2021		2022		2021
Net sales	Net sales	100.0	%	100.0	%	100.0	%	100.0	%	Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	Cost of sales	86.0	%	83.6	%	86.3	%	83.3	%	Cost of sales	81.3	%	86.0	%	81.3	%	86.3	%
Gross profit	Gross profit	14.0	%	16.4	%	13.7	%	16.7	%	Gross profit	18.7	%	14.0	%	18.7	%	13.7	%
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	5.6	%	6.4	%	5.9	%	6.8	%	Research and development	3.9	%	5.6	%	4.0	%	5.9	%
Sales and marketing	Sales and marketing	1.9	%	2.5	%	2.0	%	2.6	%	Sales and marketing	1.6	%	1.9	%	1.6	%	2.0	%
General and administrative	General and administrative	2.2	%	3.0	%	2.2	%	3.1	%	General and administrative	1.2	%	2.2	%	1.2	%	2.2	%
Total operating expenses	Total operating expenses	9.6	%	11.9	%	10.1	%	12.4	%	Total operating expenses	6.7	%	9.6	%	6.8	%	10.1	%
Income from operations	Income from operations	4.4	%	4.5	%	3.6	%	4.3	%	Income from operations	12.0	%	4.4	%	11.9	%	3.6	%
Other (expense) income, net		(0.1)	%	(0.3)	%	—	%	(0.2)	%
Other income, net										Other income, net	(0.4)	%	(0.1)	%	0.1	%	—	%
Interest expense	Interest expense	(0.1)	%	(0.1)	%	(0.1)	%	(0.1)	%	Interest expense	(0.1)	%	(0.1)	%	(0.2)	%	(0.1)	%
Income before income tax provision	Income before income tax provision	4.2	%	4.1	%	3.5	%	4.0	%	Income before income tax provision	11.5	%	4.2	%	11.8	%	3.5	%
Income tax provision	Income tax provision	(0.6)	%	(0.6)	%	(0.5)	%	(0.6)	%	Income tax provision	(1.6)	%	(0.6)	%	(1.9)	%	(0.5)	%
Share of income (loss) from equity investee, net of taxes	Share of income (loss) from equity investee, net of taxes	—	%	(0.2)	%	—	%	—	%	Share of income (loss) from equity investee, net of taxes	(0.1)	%	—	%	(0.1)	%	—	%
Net income	Net income	3.6	%	3.3	%	3.1	%	3.4	%	Net income	9.8	%	3.6	%	9.8	%	3.1	%

Net Sales

Net sales consist of sales of our server and storage solutions, including systems and related services and subsystems and accessories. The main factors that impact ~~our~~ net sales of our server and storage systems are the number of systems and compute nodes sold and the average selling prices per system and node. The number of nodes and systems shipped will vary each quarter depending on our customers specific server application or workload. The main factors that impact ~~our~~ net sales of our subsystems and accessories are units shipped and the average selling price per unit. The prices for our server and storage systems range widely depending upon the configuration, including the number of compute nodes in a server system as well as the level of integration of key components such as GPUs, SSDs and memory. The prices for our subsystems and accessories can also vary widely based on whether a customer is purchasing power supplies, server boards, chassis or other accessories.

~~Table of~~ ~~Contents~~

A compute node is an independent hardware configuration within a server system capable of having its own CPU, memory and storage and that is capable of running its own instance of a non-virtualized operating system. The number of compute nodes sold, which can vary by product, is an important metric we use to track our business. ~~Measuring volume using compute nodes enables more consistent measurement across different server form factors and across different vendors.~~ As with most electronics-based product life cycles, average selling prices typically are highest at the time of introduction of new products that utilize the latest technology and tend to decrease over time as such products mature in the market and are replaced by next generation products. Additionally, in order to remain competitive throughout all industry cycles, we actively change our selling price per unit in response to changes in costs for key components such as CPU/GPU, memory and ~~SSDs.~~storage.

SMCI | Q2 2023 Form 10-Q | 35

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The following table presents net sales by product type for the three and six months ended December 31, ~~2021~~2022 and ~~2020~~2021 (dollars in millions):


		Three Months Ended December 31,						Change				Six Months Ended December 31,						Change					Three Months Ended December 31,						Change				Six Months Ended December 31,						Change
		2021			2020			$		%		2021			2020			$		%			2022			2021			$		%		2022			2021			$		%
Server and storage systems	Server and storage systems	$	986.1		$	642.7		$	343.4	53.4	%	$	1,835.9		$	1,260.5		$	575.4	45.6	%	Server and storage systems	$	1,660.9		$	986.1		$	674.8	68.4	%	$	3,374.0		$	1,835.9		$	1,538.1	83.8	%
Percentage of total net sales	Percentage of total net sales	84.1		%	77.4		%					83.3		%	79.1		%					Percentage of total net sales	92.1		%	84.1		%					92.3		%	83.3		%
Subsystems and accessories	Subsystems and accessories	$	186.4		$	187.6		$	(1.2)	(0.6)	%	$	369.2		$	332.1		$	37.1	11.2	%	Subsystems and accessories	$	142.3		$	186.3		$	(44.0)	(23.6)	%	$	281.3		$	369.2		$	(87.9)	(23.8)	%
Percentage of total net sales	Percentage of total net sales	15.9		%	22.6		%					16.7		%	20.9		%					Percentage of total net sales	7.9		%	15.9		%					7.7		%	16.7		%
Total net sales	Total net sales	$	1,172.4		$	830.3		$	342.1	41.2	%	$	2,205.2		$	1,592.6		$	612.6	38.5	%	Total net sales	$	1,803.2		$	1,172.4		$	630.8	53.8	%	$	3,655.3		$	2,205.1		$	1,450.2	65.8	%

Server and storage systems constitute an assembly and integration of subsystems and accessories and related services. Subsystems and accessories are comprised of server-boards, chassis and accessories.

Comparison of Three Months Ended December 31, ~~2021~~2022 and ~~2020~~2021

The period-over-period increase in net sales of our server and storage systems was due to a ~~30.7%~~20.6% increase in the number of units of compute nodes sold and a ~~19.5%~~41.1% increase in the average selling price.

The period-over-period decrease in net sales for our subsystems and accessories of 23.6% was primarily due to the focus on allocating constrained components as a result of supply chain shortage to build and ship server and storage systems rather than selling them as part of subsystems and accessories.

Comparison of Six Months Ended December 31, 2022 and 2021

The period-over-period increase in net sales of our server and storage systems was due to a 27.8% increase in the number of units of compute nodes sold and a 45.7% increase in the average selling price. The increase in the number of units of compute nodes shipped was primarily due to ~~more systems shipments compared to the same period last year.~~increased demand of GPU systems.

The period-over-period ~~increase~~decrease in net sales offor our subsystems and accessories isof 23.8% was primarily due to ~~an increase in~~ the ~~average selling price by 23.1% offset by~~focus on allocating constrained components as a ~~decrease in the number~~result of ~~units sold by 19.3%, driven by product mix.~~

~~Comparison of Six Months Ended December 31, 2021~~supply chain shortage to build and ~~2020~~

~~The period-over-period increase in net sales of our~~ship server and storage systems ~~was due to a 28.2% increase in the number~~rather than selling them as part of units of compute nodes sold and a 15.8% increase in the average selling price. The increase in the number of units of compute nodes shipped was primarily due to more systems shipments compared to the same period last year.

~~The period-over-period increase in net sales of our~~ subsystems and ~~accessories is primarily due to an increase in the average selling price by 23.1% due to favorable change in product mix offset by a decrease in the number of units sold by 9.7%.~~accessories.

~~Table of~~ ~~Contents~~

The following table presents net sales by geographic region for the three and six months ended December 31, ~~2021~~2022 and ~~2020~~2021 (dollars in millions):


		Three Months Ended December 31,						Change		Change		Six Months Ended December 31,						Change		Change			Three Months Ended December 31,						Change		Change		Six Months Ended December 31,						Change		Change
		2021			2020			$		%		2021			2020			$		%			2022			2021			$		%		2022			2021			$		%
United States	United States	$	638.2		$	463.1		$	175.1	37.8	%	$	1,199.2		$	959.2		$	240.0	25.0	%	United States	$	1,091.4		$	638.2		$	453.2	71.0	%	$	2,386.9		$	1,199.2		$	1,187.7	99.0	%
Percentage of total net sales	Percentage of total net sales	54.4		%	55.8		%					54.4		%	60.2		%					Percentage of total net sales	60.5		%	54.4		%					65.3		%	54.4		%
Asia	Asia	$	284.1		$	161.4		$	122.7	76.0	%	$	547.2		$	288.1		$	259.1	89.9	%	Asia	$	330.7		$	284.1		$	46.6	16.4	%	$	600.7		$	547.2		$	53.5	9.8	%
Percentage of total net sales	Percentage of total net sales	24.2		%	19.4		%					24.8		%	18.1		%					Percentage of total net sales	18.4		%	24.2		%					16.4		%	24.8		%
Europe	Europe	$	215.5		$	154.8		$	60.7	39.2	%	$	395.1		$	266.9		$	128.2	48.0	%	Europe	$	312.5		$	215.5		$	97.0	45.0	%	$	547.6		$	395.1		$	152.5	38.6	%
Percentage of total net sales	Percentage of total net sales	18.4		%	18.6		%					17.9		%	16.8		%					Percentage of total net sales	17.3		%	18.4		%					15.0		%	17.9		%
Others	Others	$	34.7		$	51.0		$	(16.3)	(32.0)	%	$	63.7		$	78.4		$	(14.7)	(18.8)	%	Others	$	68.6		$	34.7		$	33.9	97.7	%	$	120.1		$	63.7		$	56.4	88.5	%
Percentage of total net sales	Percentage of total net sales	3.0		%	6.1		%					2.9		%	4.9		%					Percentage of total net sales	3.8		%	3.0		%					3.3		%	2.9		%
Total net sales	Total net sales	$	1,172.4		$	830.3						$	2,205.1		$	1,592.6						Total net sales	$	1,803.2		$	1,172.4						$	3,655.3		$	2,205.1

SMCI | Q2 2023 Form 10-Q | 36

Table of Contents

Comparison of Three Months Ended December 31, ~~2021~~2022 and ~~2020~~2021

The period-over-period increase in overall net sales is the result of increased selling prices led primarily by higher priced GPU based products and increased quantity of overall product shipments. The increase in the United States ~~was~~is primarily due to higher sales driven by ~~higher~~high demand of GPU based server and storage systems unit volume combined with higher average selling price. The period-over-period increase in net sales in Asia was due primarily to increased sales in China, and Korea offset by decrease in sales in Taiwan.systems. The increase of net sales in Europe was primarily due to ~~higher sales in Netherlands, Germany, Russia, and the United Kingdom. The period-over-period decrease~~increases in net sales in ~~other countries was primarily due to decrease in sales in Saudi Arabia, South Africa, Mexico~~Netherlands, UK and ~~Australia.~~Germany.

Comparison of Six Months Ended December 31, ~~2021~~2022 and ~~2020~~2021

The period-over-period increase in overall net sales is the result of increased selling prices led primarily by higher priced GPU based products and increased quantity of overall product shipments. The increase in the United States ~~was~~is primarily due to higher sales driven by ~~higher~~high demand of GPU based server and storage ~~systems unit volume combined with higher average selling price.~~systems. The ~~period-over-period increase in net sales in Asia was due primarily to increased sales in China, Taiwan, Japan, Korea and Singapore. The period-over-period~~ increase of net sales in Europe was primarily due to ~~higher sales in Germany, the United Kingdom, the Netherlands and Russia, partially offset by lower sales in France. The period-over-period decrease~~increases in net sales in ~~other countries was primarily due to lower sales in Canada, Brazil, Mexico, Saudi Arabia,~~Netherlands, UK and ~~South Africa, partially offset by increased sales in Israel and U.A.E.~~Germany.

Cost of Sales and Gross Margin

Cost of sales primarily consists of the costs to manufacture our products, including the costs of materials, contract manufacturing, shipping, personnel expenses, including salaries, benefits, stock-based compensation and incentive bonuses, equipment and facility expenses, warranty costs and inventory excess and obsolescence provisions. The primary factors that impact our cost of sales are the mix of products sold and cost of materials, which include purchased parts and material costs, shipping costs, salary and benefits and overhead costs related to ~~production.~~production as well as efficiencies or leverage gained from higher production volume in our facilities. Cost of sales as a percentage of net sales may increase or decrease over time if ~~decreases~~the changes in average selling prices are not ~~offset~~matched by corresponding ~~decreases~~changes in our costs. Our cost of sales as a percentage of net sales is also impacted by the extent to which we are able to efficiently utilize our expanding manufacturing capacity. Because we generally do not have long-term fixed supply agreements, our cost of sales is subject to change based on the cost of materials and market conditions. ~~As a result, our cost of sales as a percentage of net sales in any period can increase due to significant component price increases resulting from component shortages.~~

We use several suppliers and contract manufacturers to design and manufacture subsystems in accordance with our specifications, with most final assembly and testing ~~predominantly~~ performed at our manufacturing facilities in the same region where our products are sold. We work with Ablecom, one of our key contract manufacturers and also a related party to optimize modular designs for our chassis and certain of other components. We also outsource to Compuware, also a related party, a portion of our design activities and a significant part of the manufacturing of components, particularly power supplies.

~~Table of~~ ~~Contents~~

Cost of sales and gross margin for the three and six months ended December 31, ~~2021~~2022 and ~~2020~~2021 are as follows (dollars in millions):


		Three Months Ended December 31,						Change				Six Months Ended December 31,						Change					Three Months Ended December 31,						Change				Six Months Ended December 31,						Change
		2021			2020			$		%		2021			2020			$		%			2022			2021			$		%		2022			2021			$		%
Cost of sales	Cost of sales	$	1,008.7		$	694.2		$	314.5	45.3	%	$	1,903.3		$	1,326.5		$	576.8	43.5	%	Cost of sales	$	1,465.8		$	1,008.7		$	457.1	45.3	%	$	2,970.4		$	1,903.3		$	1,067.1	56.1	%
Gross profit	Gross profit	$	163.7		$	136.1		$	27.6	20.3	%	$	301.9		$	266.0		$	35.9	13.5	%	Gross profit	$	337.4		$	163.7		$	173.7	106.1	%	$	685.0		$	301.9		$	383.1	126.9	%
Gross margin	Gross margin	14.0		%	16.4		%			(2.4)	%	13.7		%	16.7		%			(3.0)	%	Gross margin	18.7		%	14.0		%			4.7	%	18.7		%	13.7		%			5.0	%

Comparison of Three Months Ended December 31, ~~2021~~2022 and ~~2020~~2021

The period-over-period increase in cost of sales was primarily attributed to an increase of ~~$284.7~~$433.1 million in costs of materials and contract manufacturing expenses primarily related to the increase in net sales volume, a ~~$19.3~~$22.1 million increase in ~~freight~~overhead costs, a ~~$9.8~~$15.8 million increase ~~due to lower cost recovery of cost paid~~ in ~~prior periods, an increase of $2.5 million in overhead costs,~~inventory charges offset by a $13.9 million decrease ~~of $2.5 million~~ in ~~excess and obsolete inventory charges.~~freight costs.

The period-over-period ~~decrease~~increase in the gross margin percentage was primarily due to ~~sales prices increasing at~~ a ~~slower rate than the increase~~reduction in the ~~costs~~cost of ~~sales. Since the start of the COVID-19 pandemic, we have experienced an increase in costs of sales, logistics costs~~freight and certain key components as well as ~~direct labor costs as we incentivize~~efficiencies or leverage gained from higher production volume in our ~~employees. This increase in costs negatively impacts our gross margin,~~facilities. These key components included hard disk drives, solid-state drives, motherboards and ~~we expect these higher costs to continue for the duration of the COVID-19 pandemic.~~other components.

SMCI | Q2 2023 Form 10-Q | 37

Table of Contents

Comparison of Six Months Ended December 31, ~~2021~~2022 and ~~2020~~2021

The period-over-period increase in cost of sales was primarily attributed to an increase of ~~$519.4~~$1,017.2 million in costs of materials and contract manufacturing expenses primarily related to the increase in net sales volume, a ~~$34.3~~$41.5 million increase in ~~freight charges,~~overhead costs, a ~~$19.8~~$21.7 million increase ~~due to lower cost recovery of cost paid in prior periods, an increase of $1.8 million~~ in excess and obsolete inventory charges offset by a $13.3 million decrease ~~of $2.1 million~~ in ~~overhead~~freight costs.

Operating Expenses

Research and development expenses consist of personnel expenses, including salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our research and development personnel, as well as product development costs such as materials and supplies, consulting services, third-party testing services and equipment and facility expenses related to our research and development activities. All research and development costs are expensed as incurred. We occasionally receive non-recurring engineering funding from certain suppliers and customers for joint development. Under these arrangements, we are reimbursed for certain research and development costs that we incur as part of the joint development efforts with our suppliers and customers. These amounts offset a portion of the related research and development expenses and have the effect of reducing our reported research and development expenses.

Sales and marketing expenses consist primarily of personnel expenses, including salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our sales and marketing personnel, ~~costs~~cost for ~~trade-shows,~~tradeshows, independent sales representative fees and marketing programs. From time to time, we receive ~~cooperative~~ marketing development funding from certain suppliers. Under these arrangements, we are reimbursed for certain marketing costs that we incur as part of the joint promotion of our products and those of our suppliers. These amounts offset a portion of the related expenses and have the effect of reducing our reported sales and marketing expenses. The timing, magnitude and estimated usage of these programs can result in significant variations in reported sales and marketing expenses from period to period. Spending on cooperative marketing, reimbursed by our suppliers, typically increases in connection with new product releases by our suppliers.

General and administrative expenses consist primarily of general corporate costs, including personnel expenses such as salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our general and administrative personnel, financial reporting, information technology, corporate governance and compliance, outside legal, audit, tax fees, insurance and bad debt reserves on accounts receivable.

~~Table of~~ ~~Contents~~

Operating expenses for the three and six months ended December 31, ~~2021~~2022 and ~~2020~~2021 are as follows (dollars in millions):


		Three Months Ended December 31,						Change				Six Months Ended December 31,						Change					Three Months Ended December 31,						Change				Six Months Ended December 31,						Change
		2021			2020			$		%		2021			2020			$		%			2022			2021			$		%		2022			2021			$		%
Research and development	Research and development	$	65.5		$	52.7		$	12.8	24.3	%	$	130.6		$	107.5		$	23.1	21.5	%	Research and development	$	70.7		$	65.5		$	5.2	7.9	%	$	145.0		$	130.6		$	14.4	11.0	%
Percentage of total net sales	Percentage of total net sales	5.6		%	6.4		%					5.9		%	6.8		%					Percentage of total net sales	3.9		%	5.6		%					4.0		%	5.9		%
Sales and marketing	Sales and marketing	$	22.0		$	20.7		$	1.3	6.3	%	$	43.6		$	41.0		$	2.6	6.3	%	Sales and marketing	$	28.4		$	22.0		$	6.4	29.1	%	$	57.8		$	43.6		$	14.2	32.6	%
Percentage of total net sales	Percentage of total net sales	1.9		%	2.5		%					2.0		%	2.6		%					Percentage of total net sales	1.6		%	1.9		%					1.6		%	2.0		%
General and administrative	General and administrative	$	25.3		$	25.3		$	—	—	%	$	47.5		$	49.6		$	(2.1)	(4.2)	%	General and administrative	$	23.1		$	25.3		$	(2.2)	(8.7)	%	$	46.9		$	47.5		$	(0.6)	(1.3)	%
Percentage of total net sales	Percentage of total net sales	2.2		%	3.0		%					2.2		%	3.1		%					Percentage of total net sales	1.2		%	2.2		%					1.2		%	2.2		%
Total operating expenses	Total operating expenses	$	112.7		$	98.7		$	14.0	14.2	%	$	221.7		$	198.2		$	23.5	11.9	%	Total operating expenses	$	122.2		$	112.7		$	9.5	8.4	%	$	249.7		$	221.7		$	28.0	12.6	%
Percentage of total net sales	Percentage of total net sales	9.6		%	11.9		%					10.1		%	12.4		%					Percentage of total net sales	6.7		%	9.6		%					6.8		%	10.1		%

SMCI | Q2 2023 Form 10-Q | 38

Table of Contents

Comparison of Three Months Ended December 31, ~~2021~~2022 and ~~2020~~2021

Research and development expenses. The period-over-period increase in research and development expenses was primarily due to a ~~$7.8~~$12.6 million increase in personnel expenses primarily due to ~~merit increases~~increase in headcount and equity grants partially offset by $7.4 million higher ~~headcount, $2.8 million lower non-recurring engineering ("'NRE") payments~~in research and development credits provided from certain suppliers and customers ~~towards~~for our development ~~efforts and a $1.5 million increase in product development costs.~~efforts.

Sales and marketing expenses. The period-over-period increase in sales and marketing expenses was primarily due to a ~~$1.4~~$6.7 million increase in personnel expenses primarily due to increased headcount partially offset by $0.3 million lower in advertising and other expenses.

General and administrative expenses. The period-over-period ~~change~~decrease in general and administrative expenses was primarily due to a $2.3 million decrease in legal and litigation settlement expenses partially offset by an increase of ~~$0.6~~$0.1 million in ~~outside services offset by a $0.6 million decrease in compensation~~personnel related expenses and other expenses.

Comparison of Six Months Ended December 31, ~~2021~~2022 and ~~2020~~2021

Research and development expenses. The period-over-period increase in research and development expenses was primarily due to a ~~$15.8~~$20.3 million increase in personnel expenses, ~~due to merit increases and higher headcount, $3.7 million lower NRE payments from certain suppliers and customers towards our development efforts and~~ a ~~$2.3~~$1.4 million increase in product development ~~costs.~~costs partially offset by $7.3 million higher research and development credits provided by certain suppliers and customers for our development efforts.

Sales and marketing expenses. The period-over-period increase in sales and marketing expenses was primarily due to a ~~$3.4~~$12.2 million increase in personnel expenses ~~offset by~~as a ~~decrease~~result of a higher head count and an increase of $1.3 million in advertising and other expenses.

General and administrative expenses.The period-over-period decrease in general and administrative expenses was primarily due to a decrease of $1.0 million in professional fees driven by lower expenses incurred to investigate, assess and remediate the causes that led to the delay in filing our periodic reports with the SEC and the associated restatement of certain of our previously issued financial statements and a $1.1$2.3 million decrease in ~~compensation~~legal and litigation settlement expenses partially offset by an increase of $1.7 million in personnel expenses and other expenses.

Interest Expense and Other ~~Expense,~~(Expense) Income, Net

Other ~~expense,~~(expense) income, net consists primarily of interest earned on our investment and cash balances and foreign exchange gains and losses.

Interest expense represents interest expense on our term loans and lines of ~~credit and increased due to higher debt outstanding.~~credit.

~~Table of~~ ~~Contents~~

Interest expense and other (expense) income, ~~(expense),~~ net for the three and six months ended December 31, ~~2021~~2022 and ~~2020~~2021 are as follows (dollars in millions):

Three Months Ended
December 31, Change Six Months Ended
December 31, Change
2021 2020 $ % 2021 2020 $ %
Other expense, net $ (0.6) $ (2.5) $ 1.9 (76.0) % $ (0.6) $ (3.4) $ 2.8 (82.4) %
Interest expense $ (1.2) $ (0.6) $ (0.6) 100.0 % $ (2.0) $ (1.2) $ (0.8) 66.7 %
Interest and other expense, net $ (1.7) $ (3.1) $ 1.4 (45.2) % $ (2.5) $ (4.6) $ 2.1 (45.7) %


	Three Months Ended December 31,				Change				Six Months Ended December 31,				Change
	2022		2021		$		%		2022		2021		$		%
Other (expense) income, net	$	(6.3)	$	(0.6)	$	(5.7)	950.0	%	$	1.7	$	(0.6)	$	2.3	(383.3)	%
Interest expense	(1.8)		(1.2)		(0.6)		50.0	%	(5.7)		(2.0)		(3.7)		185.0	%
Interest expense and other (expense) income, net	$	(8.1)	$	(1.8)	$	(6.3)	350.0	%	$	(4.0)	$	(2.6)	$	(1.4)	53.8	%

SMCI | Q2 2023 Form 10-Q | 39

Table of Contents

Comparison of Three Months Ended December 31, ~~2021~~2022 and ~~2020~~2021

The change of ~~$1.9~~$6.3 million in interest expense and other expense, net was primarily attributable to a ~~decrease~~$5.7 million increase in foreign exchange loss due to ~~foreign~~unfavorable currency ~~fluctuations.~~fluctuations and $0.6 million increase in interest expense due to both an increase in average loan balances and interest rates.

Comparison of Six Months Ended December 31, ~~2021~~2022 and ~~2020~~2021

The change of ~~$2.8~~$1.4 million in interest expense and other ~~expense,~~(expense) income, net was primarily attributable to a ~~decrease~~$2.3 million increase in foreign exchange ~~loss~~gain due to ~~foreign~~favorable currency ~~fluctuations.~~fluctuations offset by a $3.7 million increase in interest expense due to both an increase in average loan balances and interest rates.

~~Provision for~~ Income ~~Taxes~~Tax Provision

Our income tax provision is based on our taxable income generated in the jurisdictions in which we operate, which primarily include the United States, Taiwan, and the Netherlands. Our effective tax rate differs from the statutory rate primarily due to research and development tax credits, certain non-deductible expenses, tax benefits from foreign derived intangible income and ~~stock based~~stock-based compensation.

Provision for income taxes and effective tax rates for the three and six months ended December 31, ~~2021~~2022 and ~~2020~~2021 are as follows (dollars in millions):


		Three Months Ended December 31,						Change				Six Months Ended December 31,						Change
		2021			2020			$		%		2021			2020			$		%			Three Months Ended December 31,						Change				Six Months Ended December 31,						Change
																							2022			2021			$		%		2022			2021			$		%
Income tax provision	Income tax provision	$	7.6		$	5.1		$	2.5	49.0	%	$	10.9		$	8.8		$	2.1	23.9	%	Income tax provision	$	29.6		$	7.6		$	22.0	289.5	%	$	68.5		$	10.9		$	57.6	528.4	%
Percentage of total net sales	Percentage of total net sales	0.6		%	0.6		%					0.5		%	0.6		%					Percentage of total net sales	1.6		%	0.6		%					1.9		%	0.5		%

Effective tax rate	Effective tax rate	15.4		%	14.9		%					14.1		%	13.9		%					Effective tax rate	14.3		%	15.4		%					15.9		%	14.1		%

Comparison of Three Months Ended December 31, ~~2021~~2022 and ~~2020~~2021

~~The~~Our quarterly effective income tax ~~provision~~rate is based on the estimated annual income tax rate forecast and discrete tax items recognized in the period. The effective tax rate for the three months ended December 31, ~~2021~~2022, is ~~higher~~lower than that for the three months ended December 31, ~~2020,~~2021, primarily due to ~~a decrease in the deduction from foreign-derived intangible income and~~ an increase ~~in certain non-deductible expenses~~.of stock compensation tax deduction for the three months ended December 31, 2022, and due to the release of tax reserves.

Comparison of Six Months Ended December 31, ~~2021~~2022 and ~~2020~~2021

The income tax provision and effective tax rate for the six months ended December 31, ~~2021~~2022 is higher than that for the six months ended December 31, ~~2020,~~2021, primarily due to ~~a decrease~~significant increase in taxable income in the first two quarters of fiscal year 2023, whereas the income tax deduction ~~from foreign-derived intangible income~~for items such as R&D credit and anforeign tax deduction comparably did not increase in ~~certain non-deductible expenses.~~the same proportion.

Share of (Loss) Income from Equity Investee, Net of Taxes

Share of (loss) income from equity investee, net of taxes represents ~~the Company’s~~our share of income from the Corporate Venture in which ~~the Company has~~we have 30% ownership.

42SMCI | Q2 2023 Form 10-Q | 40

Table of Contents

Share of (loss) income from equity investee, net of taxes for the three and six months ended December 31, ~~2021~~2022 and ~~2020~~2021 are as follows (dollars in millions):

Three Months Ended
December 31, Change Six Months Ended
December 31, Change
2021 2020 $ % 2021 2020 $ %
Share of income (loss) from equity investee, net of taxes $ 0.2 $ (1.5) $ 1.7 (113.3)% $ 0.6 $ (0.1) $ 0.7 —%
Percentage of total net sales — % (0.2) % — % — %


	Three Months Ended December 31,						Change			Six Months Ended December 31,						Change
	2022			2021			$		%	2022			2021			$		%
Share of (loss) income from equity investee, net of taxes	$	(1.4)		$	0.2		$	(1.6)	n/m (1)	$	(2.2)		$	0.6		$	(2.8)	n/m (1)
Percentage of total net sales	(0.1)		%	—		%				(0.1)		%	—		%

(1) n/m - Not meaningful

Comparison of Three Months Ended December 31, ~~2021~~2022 and ~~2020~~2021

The period-over-period ~~increase~~decrease of ~~$1.7~~$1.6 million in share of (loss) income from equity investee, net of taxes was primarily due to ~~more~~less net income recognized by the Corporate Venture.

Comparison of Six Months Ended December 31, ~~2021~~2022 and ~~2020~~2021

The period-over-period ~~increase~~decrease of ~~$0.7~~$2.8 million in share of (loss) income from equity investee, net of taxes was primarily due to ~~more~~less net income recognized by the Corporate Venture.

Liquidity and Capital Resources

We have financed our growth primarily with funds generated from increased profits from operations, in addition to utilizing borrowing facilities. We draw on our credit facilities ~~particularly in relation~~to fund working capital requirements due to the ~~financing~~higher level of ~~real property acquisitions~~inventories and accounts receivable based on increasing sales as well as ~~an increase in~~financing the ~~need for working capital due to longer supply chain manufacturing~~acquisition of property, plant and ~~delivery times.~~equipment. We also received funds from the exercise of employee stock options. Our cash and cash equivalents were ~~$247.4~~$304.6 million and ~~$232.3~~$267.4 million as of December 31, ~~2021~~2022 and June 30, ~~2021,~~2022, respectively. Our cash in foreign locations was ~~$156.5~~$168.5 million and ~~$152.6~~$169.5 million as of December 31, ~~2021~~2022 and June 30, ~~2021,~~2022, respectively.

Amounts held outside of the U.S. are generally utilized to support non-U.S. liquidity needs. Repatriations generally will not be taxable from a U.S. federal tax perspective but may be subject to state income or foreign withholding tax. Where local restrictions prevent an efficient intercompany transfer of funds, our intent is to keep cash balances outside of the U.S. and to meet liquidity needs through operating cash flows, external borrowings, or both. We do not expect restrictions or potential taxes incurred on repatriation of amounts held outside of the U.S. to have a material effect on our overall liquidity, financial condition or results of operations.

We believe that our current cash, cash equivalents, borrowing capacity available from our credit facilities and internally generated cash flows will be sufficient to support our operating businesses and maturing debt and interest payments for the ~~twelve~~12 months following the issuance of these ~~condensed~~ consolidated financial statements. In August 2022, we entered into a new general credit agreement with E.SUN Bank. This New E.SUN Bank Credit Facility permits borrowings of up to (i) NTD 1.8 billion ($61.0 million U.S. dollar equivalent) and (ii) US$30.0 million in loans that will support the growth of our Taiwan business.

On ~~January 29, 2021,~~August 3, 2022, after the expiration of a prior share repurchase program on July 31, 2022, a duly authorized subcommittee of ~~the~~our Board ~~of Directors~~ approved a new share repurchase program to repurchase shares of our common stock for up to ~~an aggregate of $200.0~~$200 million ofat prevailing prices in the ~~Company's common stock at market prices.~~open market. The share repurchase program is effective until ~~the earlier of July~~January 31, ~~2022~~2024 or ~~the date when~~until the maximum amount of common stock is ~~repurchased. The Company had $150.0 million of remaining availability under the share repurchase program as of December 31, 2021.~~repurchased, whichever occurs first.

SMCI | Q2 2023 Form 10-Q | 41

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Our key cash flow metrics were as follows (dollars in millions):


		Six Months Ended December 31,				Change			Six Months Ended December 31,				Change
		2021		2020					2022		2021
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	$	(187.7)	$	183.8	$	(371.5)	Net cash provided by (used in) operating activities	$	474.7	$	(187.7)	$	662.4
Net cash used in investing activities		$	(24.3)	$	(25.6)	$	1.3
Net cash provided by (used in) financing activities		$	227.2	$	(53.7)	$	280.9
Net cash (used in) investing activities								Net cash (used in) investing activities	$	(20.6)	$	(24.3)	$	3.7
Net cash (used in) provided by financing activities								Net cash (used in) provided by financing activities	$	(415.8)	$	227.2	$	(643.0)
Net increase in cash, cash equivalents and restricted cash	Net increase in cash, cash equivalents and restricted cash	$	15.1	$	105.1	$	(90.0)	Net increase in cash, cash equivalents and restricted cash	$	36.5	$	15.1	$	21.4

Operating Activities

~~Table of~~ ~~Contents~~

Net cash provided by operating activities ~~decreased~~increased by ~~$371.5~~$662.4 million for the six months ended December 31, ~~2021~~2022 as compared to the six months ended December 31, ~~2020.~~2021. The ~~decrease~~increase was primarily due to an increase ~~in net cash required for net working capital~~ of ~~$388.2~~$369.2 million ~~to meet customer demand, support expected business growth and mitigate~~of various non-cash items, including the collection of accounts receivables from the higher sales as well lower levels of inventory needed from an improved supply chain ~~risk due to~~in the ~~COVID-19 pandemic environment~~quarter ended December 31, 2022, and ~~$5.6 million decrease in unrealized gain and loss. These decreases are partially offset by~~an increase in net income of ~~$13.1~~$293.2 million.

Investing Activities

Net cash used in investing activities decreased by ~~$1.2~~$3.7 million for the six months ended December 31, ~~2021~~2022 as compared to the six months ended December 31, ~~2020 as~~ ~~we continued~~2021 primarily due to ~~invest~~decrease in ~~expanding our manufacturing capacity~~purchases of property, plant and ~~office space, including~~equipment in the ~~expansion of our Green Computing Park in San Jose and Bade manufacturing facility in Taiwan.~~six months ended December 31, 2022.

Financing Activities

Net cash used by financing activities for the six months ended December 31, 2022 was $415.8 million while net cash provided by financing activities for the six months ended December 31, 2021 was ~~$227.2 million~~ ~~while net cash used by financing activities for the six months ended December 31, 2020 was $53.7~~$227.2 million. The change in cash flows from financing activities of $643.0 million was primarily due to ~~an increase~~a decrease of ~~$206.3~~$443.7 million in proceeds from borrowings ~~net~~and an increase of $197.4 million in repayment ~~offset by a $74.8 million decrease in stock repurchases.~~of debt.

Other Factors Affecting Liquidity and Capital Resources

~~Bank of America~~

~~2018 Bank of America Credit Facility~~

In April 2018, the we entered into a revolving line of credit with Bank of America for up to $250.0 million (as amended from time to time, the "2018 Bank of America Credit Facility"). On June 28, 2021, the 2018 Bank of America Credit Facility was amended to, among other items, extend the maturity to June 28, 2026, reduce the size of the facility from $250.0 million to $200.0 million, increase the maximum amount that we can request the facility be increased from $100.0 million to $150.0 million, and update provisions relating to erroneous payments and LIBOR replacement mechanics. In addition, the amendment reduced both the unused line fee from 0.375% per annum to 0.2% or 0.3% per annum (depending upon amount drawn under the facility) and the interest rate applicable to the facility from LIBOR plus 2.00% or 3.00% per annum (depending upon amount drawn under the facility) to LIBOR plus 1.375% or 1.625% per annum. The amendment was accounted for as a modification and the impact was immaterial to the consolidated financial statements. Interest accrued on any loans under the 2018 Bank of America Credit Facility is due on the first day of each month, and the loans are due and payable in full on the termination date of the 2018 Bank of America Credit Facility. Voluntary prepayments are permitted without early repayment fees or penalties. Subject to customary exceptions, the 2018 Bank of America Credit Facility is secured by substantially all of Super Micro Computer’s assets, other than real property assets. Under the terms of the 2018 Bank of America Credit Facility, we are not permitted to pay any dividends. The 2018 Bank of America Credit Facility contains customary representations and warranties and customary affirmative and negative covenants applicable to us and its subsidiaries and contains a financial covenant, which requires us to maintain a certain fixed charge coverage ratio, for each twelve-month period while in a Trigger Period, as defined in the agreement, is in effect.

As of December 31, 2021, the total outstanding borrowings under the 2018 Bank of America Credit Facility were $60.6 million. As of June 30, 2021, we had no outstanding borrowings under the 2018 Bank of America Credit Facility. The interest rates under the 2018 Bank of America Credit Facility as of December 31, 2021 and June 30, 2021 were 1.50%. The balance of debt issuance costs outstanding as of December 31, 2021 and June 30, 2021 were $0.5 million. We have been in compliance with all the covenants under the 2018 Bank of America Credit Facility, ~~and as of December 31, 2021, our available borrowing capacity was~~ ~~$139.4 million, subject to the borrowing base limitation and compliance~~ ~~with other applicable terms.~~

~~CTBC Bank~~

~~2021 CTBC Credit Lines~~

We through our Taiwan subsidiary was party to (i) that certain credit agreement, dated May 6, 2020, with CTBC Bank Co., Ltd. (“CTBC Bank”), which provided for a ten-year, non-revolving term loan facility (the “2020 CTBC Term Loan Facility”) to obtain up to NTD 1,200.0 million ($40.7 million U.S. dollar equivalent) and (ii) that certain credit agreement, dated August 24, 2020, with CTBC Bank (the “CTBC Credit Facility”), which provided for total borrowings of up to $50.0 million (collectively, the “Prior CTBC Credit Lines”).

~~Table of~~ ~~Contents~~

On July 20, 2021 (the “Effective Date”), we through our Taiwan subsidiary entered into a general agreement for omnibus credit lines with CTBC Bank (the “2021 CTBC Credit Lines), which replaced the Prior CTBC Credit Lines in their entirety and permit borrowings, from time to time, pursuant to (i) a term loan facility of up to NTD 1,550.0 million ($55.4 million U.S. dollar equivalents) including the existing 2020 CTBC Term Loan Facility of NTD 1,200.0 million ($42.9 million~~U.S. dollar equivalents)and a new 75-month,~~ ~~non-revolving~~ term loan facility of NTD 350.0 million ($12.5 million U.S. dollar equivalents) to use to purchase machinery and equipment for our Bade Manufacturing Facility located in Taiwan (the “2021 CTBC Machine Loan”), and (ii) a line of credit facility of up to $105.0 million (the “2021 CTBC Credit Facility”), which increased the borrowing capacity of CTBC Credit Facility. The 2021 CTBC Credit Facility provides (~~i) a 12-monthNTD 1,250.0 million ($44.7 million U.S. dollar equivalent) term loan facility secured by the land and building located in Bade,Taiwan with an interest rate equal to the lender's established NTD interest rate plus 0.50% per annum which is adjustedmonthly, which term loan facility also includes a 12-month guarantee of up to NTD 100.0 million ($3.6 million U.S. dollar~~equivalent) with an annual fee equal to 0.50% per annum, and (ii) a 12-month revolving line of credit of up to 100% of eligible accounts receivable in an aggregate amount of up to $105.0 million with an interest rate equal to the lender's established USD interest rate plus 0.70% to 0.75% per annum which is adjusted monthly.

As of December 31, 2021 and June 30, 2021, the amounts outstanding under the 2020 CTBC Term Loan Facility were $40.4 million and $34.7 million, respectively. The interest rates for these loans were 0.45% per annum as of December 31, 2021 and June 30, 2021. ~~Under the 2021 CTBC Machine Loan, the amounts outstanding were~~ ~~$3.5 million~~ ~~at December 31, 2021.~~ ~~The interest rates for this loan was 0.65% per annum as of December 31, 2021. As of June 30, 2021, there were no outstanding borrowings under the 2021 CTBC Machine Loan.~~

The total outstanding borrowings under the 2021 CTBC Credit Facility term loan was denominated in NTD and remeasured into U.S. dollars of $0.0 million and $25.1 million at December 31, 2021 and June 30, 2021, respectively. The 2021 CTBC Credit Facility term loan was repaid on October 26, 2021. The interest rate for the 2021 CTBC Credit Facility term loan was 0.75% per annum as of June 30, 2021. As of December 31, 2021, and June 30, 2021, the outstanding borrowings under the 2021 CTBC Credit Facility revolving line of credit were $97.0 million and $18.0 million, respectively. The interest rates for these loans were ~~approximately~~ 1.00% per annum as of December 31, 2021. The interest rate was 0.98% per annum as of June 30, 2021. As of December 31, 2021, the amount available for future borrowing under the 2021 CTBC Credit Facility was $8.0 million. As of December 31, 2021, the net book value of land and building located in Bade, Taiwan, collateralizing the 2021 CTBC Credit Lines was $78.2 million.~~As of December 31, 2021, all financial covenants under the 2021 CTBC Credit Lines were satisfied.~~

~~E.SUN Bank~~

~~2021 E.SUN Bank Credit Facility~~

We through our Taiwan subsidiary was party to that certain General Credit Agreement, dated December 2, 2020, with E.SUN Bank (“E.SUN Bank”), which provided for the issuance of loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments up to a credit limit of $30 million (the “Prior E.SUN Bank Credit Facility”). The term of the Prior E.SUN Bank Credit Facility expired September 18, 2021.

On September 13, 2021 (the “E.SUN Bank Effective Date”), we through our Taiwan subsidiary entered into a new General Credit Agreement with E.SUN Bank, which replaced the Prior E.SUN Bank Credit Facility (the “2021 E.SUN Bank Credit Facility”). The 2021 E.SUN Bank Credit Facility permits borrowings of up to (i) NTD 1,600.0 million ($57.6 million U.S. dollar equivalent) and (ii) $30.0 million as loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments. Other terms of the 2021 E.SUN Bank Credit Facility are substantially identical to the Prior E.SUN Bank Credit Facility. Generally, interest for base rate loans made under the 2021 E.SUN Bank Credit Facility are based upon an average interbank overnight call loan rate in the finance industry (such as LIBOR or TAIFX) plus a fixed margin, and is subject to occasional adjustment. The 2021 E.SUN Bank Credit Facility has customary default provisions permitting E.SUN Bank to terminate or reduce the credit limit, shorten the credit period, or deem all liabilities due and payable, including in the event the Subsidiary has an overdue liability at another financial organization. There are various financial

~~Table of~~ ~~Contents~~

~~covenants under the 2021 E.SUN Bank Credit Facility, including current ratio, net debt ratio, and interest coverage requirements which are reviewed on a yearly basis at fiscal year end.~~

Terms for specific drawdown instruments issued under the 2021 E.SUN Bank Credit Facility, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, are to be set forth in Notifications and Confirmation of Credit Conditions (a “Notification and Confirmation”) negotiated with E.SUN Bank. A Notification and Confirmation was entered into on the E.SUN Bank Effective Date for (i) a five-year, non-revolving term loan facility to obtain up to NTD 1,600.0 million ($57.6 million U.S. dollar equivalent) in financing for use in research and development activities (the “Term Loan”), and (ii) a $30.0 million import loan (the “Import Loan”) with a tenor of 120 days. As of December 31, 2021, the total outstanding borrowings under the Term Loan were denominated in NTD and remeasured into U.S. dollars of $18.3 million and the interest rates for these loans were 0.995% per annum. As of December 31, 2021, and June 30, 2021~~, the amounts outstanding under the Import Loan were~~ ~~$16.5 million~~ ~~and $20.4 million, respectively. The interest rates for these loans as of December 31, 2021 was approximately~~ ~~0.96%.~~ ~~The interest rates as of June 30, 2021 ranges from 1.00% to 1.29%~~. ~~At December 31, 2021, the amount available for future borrowing under the Import Loan was~~ ~~$13.5 million~~.

~~Mega Bank~~

~~Mega Bank Credit Facilities~~

On September 13, 2021 (the “Mega Bank Effective Date”), we through our Taiwan subsidiary entered into a NTD 1,200.0 million ($43.2 million U.S. dollar equivalent) credit facility (the “Mega Bank Credit Facility”) with Mega International Commercial Bank (“Mega Bank”). The Mega Bank Credit Facility will be used to support manufacturing activities (such as purchase of materials and components), and to provide medium-term working capital (the “Permitted Uses”). Drawdowns under the Mega Bank Credit Facility may be made through December 31, 2024, with the first drawdown date not later than November 5, 2021. Drawdowns may be in amounts of up to 80% of Permitted Uses certified to the Bank in drawdown certificates. The interest rate depends upon the amount borrowed under Mega Bank Credit Facility, and as of the Mega Bank Effective Date, ranged from 0.645% to 0.845% per annum. The interest rate is subject to adjustment in certain circumstances, such as events of default. Interest is payable monthly. Principal payments for amounts borrowed commence on the 15th day of the month following two years after the first drawdown, and are repaid in monthly installments over a period of three years thereafter. The Mega Bank Credit Facility is unsecured and has customary default provisions permitting Mega Bank to reduce or cancel the extension of credit, or declare all principal and interest amounts immediately due and payable. As of December 31, 2021, the total outstanding borrowings under the Mega Bank Credit Facility were denominated in NTD and remeasured into U.S. dollars of $43.4 million and the interest rates ~~ranged is~~ ~~0.65% to 0.85% per annum.~~

~~Chang Hwa Bank~~

~~Chang Hwa Bank Credit Facility~~

On October 5, 2021 (the “Chang Hwa Bank Effective Date”), we through our Taiwan subsidiary entered into a credit facility (the “Chang Hwa Bank Credit Facility”) with Chang Hwa Commercial Bank, Ltd. (“Chang Hwa Bank”). The Chang Hwa Bank Credit Facility permits borrowings of up to NTD 1,000.0 million ($36.0 million U.S. dollar equivalent), including up to $20.0 million as loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments. The Chang Hwa Bank Credit Facility has customary default provisions permitting the Chang Hwa Bank to terminate or reduce the credit limit, shorten the credit period, or deem all liabilities due and payable, including in cross-default provisions with respect to the other Taiwan subsidiary debt obligations. Under the Chang Hwa Bank Credit Facility, Chang Hwa Bank has the right to demand collateral for debts owed. As of December 31, 2021, the total outstanding borrowings under the Chang Hwa Bank Credit Facility were denominated in NTD and remeasured into U.S. dollars of $36.2 million and the interest rate was~~0.8% per annum.~~

Terms for specific drawdown instruments issued under the Chang Hwa Bank Credit Facility, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, are to be set forth in separate loan contracts (each, a “Loan Contract”) negotiated with Chang Hwa Bank. On the Chang Hwa Bank Effective Date, three Loan Contracts were entered into. None of the three Loan Contracts are secured and there are no financial covenants.

~~HSBC Bank~~

~~HSBC Bank Credit Facility~~

~~Table of~~ ~~Contents~~

On January 7, 2022 (the “HSBC Bank Effective Date”), we through our Taiwan subsidiary entered into a General Loan, Export/Import Financing, Overdraft Facilities and Securities Agreement (the “Loan Agreement”) with the Taiwan affiliate of HSBC Bank (“HSBC Bank”). The Loan Agreement provides for borrowings in the form of loans, export/import financings, overdrafts, commercial paper guaranties, and other types of drawdown instruments. The Loan Agreement has customary default provisions permitting HSBC Bank to terminate or reduce the credit limit, shorten the credit period, or deem all liabilities due and payable, including in the event the Taiwan subsidiary fails to make payment of sums under another agreement which permits acceleration of maturity of such indebtedness. We are not a guarantor of the Loan Agreement.

Terms for specific drawdown instruments issued under the Loan Agreement, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, may be set forth in Facility Letters (a “Facility Letter”) negotiated with the HSBC Bank. Under a Facility Letter entered into on the HSBC Bank Effective Date, our Taiwan subsidiary and HSBC Bank have agreed to a $30.0 million export/seller trade facility under the Loan Agreement with a tenor of 120 days. The interest rate thereunder is based on the HSBC Bank’s base rate plus a fixed margin, subject to adjustment under certain circumstances. Interest payments are due on a monthly basis, and principal is repayable on the due date.

Refer to Part I, Item 1, Note 6, “Short-term and Long-term Debt,” in our notes to condensed consolidated financial statements in this Quarterly Report on Form 10-Q for further information on our outstanding debt.

Capital Expenditure Requirements

We ~~intend to continue to focus our capital expenditures in fiscal year 2022 to support the growth of our operations. We~~ anticipate our capital expenditures for the remainder of fiscal year ~~2022~~2023 will be approximately ~~$20 to $25~~ $33 million, relating primarily to costs associated with our manufacturing capabilities, including tooling for new products, new information technology investments, and facilities upgrades. We are evaluating an expansion of our manufacturing into Malaysia, and during the second quarter of fiscal year 2023 entered into a letter of understanding to acquire land in Malaysia. A definitive agreement to acquire such land, subject to various conditions, was subsequently executed in January 2023. In the event we acquire such land, we anticipate additional future capital expenditures for the remainder of fiscal year 2023 of approximately $14 million for such initiative. In addition, we will continue to evaluate new business opportunities and new markets. As a result, our future growth within the existing business or new opportunities and markets may dictate the need for additional facilities and capital expenditures to support that growth. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment.

We intend to continue to focus our capital expenditures in fiscal year 2023 to support the growth of our operations. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced software and services offerings ~~the~~and investments in our office facilities and our ~~information systems infrastructure, the continuing market acceptance of our offerings and our planned investments, particularly in our product development efforts, applications or technologies.~~IT system infrastructure.

SMCI | Q2 2023 Form 10-Q | 42

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Recent Accounting Pronouncements

For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our condensed consolidated financial statements, see Part I, Item 1, Note 1, “Summary of Significant Accounting Policies,” ~~in our notes~~ to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

47SMCI | Q2 2023 Form 10-Q | 43

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Item 3. Quantitative and Qualitative Disclosure About Market Risk

Interest Rate Risk

The primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without significantly increasing the risk. Some of the securities we invest in are subject to market risk. This means that a change in prevailing interest rates may cause the fair value of the investment to fluctuate. To minimize this risk, we maintain our portfolio of cash equivalents and short-term investments in money market funds and certificates of ~~deposit.~~deposit, all of which are held for purposes other than trading. Our investment in an auction rate security has been classified as non-current due to the lack of a liquid market for these securities. Since our results of operations are not dependent on investments, the risk associated with fluctuating interest rates is limited to our investment portfolio, and we believe that a 10% change in interest rates would not have a significant impact on our results of operations. As of December 31, ~~2021,~~2022, our investments were in money market funds, certificates of deposits and auction rate securities.

We are exposed to changes in interest rates as a result of our borrowings under our term loans and revolving lines of credit. The interest rates for the term loans and the revolving lines of credit ranged from ~~0.45%~~1.075% to ~~1.50%~~5.88% at December 31, ~~2021~~2022 and 0.825% to 4.004% at June 30, ~~2021.~~2022. Based on the outstanding principal indebtedness of ~~$315.9~~$170.1 million under our credit facilities as of December 31, ~~2021,~~2022, we believe that a 10% change in interest rates would not have a significant impact on our results of operations.

Foreign Currency Risk

To date, our international customer and supplier agreements have been denominated primarily in U.S. dollars and accordingly, we have limited exposure to foreign currency exchange rate fluctuations from customer agreements, and do not currently engage in foreign currency hedging transactions. The functional currency of our subsidiaries in the Netherlands and Taiwan is the U.S. dollar. However, certain loans and transactions in these entities are denominated in a currency other than the U.S. dollar, and thus we are subject to foreign currency exchange rate fluctuations associated with re-measurement to U.S. dollars. Such fluctuations have not been significant historically. ~~Foreign~~Realized and unrealized foreign exchange loss for the three months ended December 31, 2022 was $6.9 million and realized and unrealized gain for the six months ended December 31, 2022 was $0.9 million. Realized and unrealized foreign exchange loss for both the three and six months ended December 31, 2021 was ~~$3.8 million and for three and six months ended December 31, 2020 was $2.7 million and $3.6 million, respectively.~~$0.7 million.

48SMCI | Q2 2023 Form 10-Q | 44

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision, and with the participation, of our ~~current~~ management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), we evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, ~~2021.~~2022. Based on this evaluation, ~~of our disclosure controls and procedures,~~ our CEO and CFO have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, ~~2021.~~2022.

Changes in Internal Control over Financial Reporting

Under applicable SEC rules (Exchange Act Rules 13a-15(d) and 15d-15(d)), management is required to evaluate, with the participation of our CEO and CFO, any changes in internal control over financial reporting that occurred during each fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There were no changes in our internal control over financial reporting during the quarter ended December 31, ~~2021,~~2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting can only provide reasonable, not absolute, assurances that its objectives will be met. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but we cannot assure that such improvements will be sufficient to provide us with effective internal control over financial reporting.

49SMCI | Q2 2023 Form 10-Q | 45

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PART II: OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this item is incorporated herein by reference to the information set forth under the ~~captions~~caption “Litigation and Claims” in Part I, Item 1, Note 11 “Commitments and Contingencies” of our notes to condensed consolidated financial statements included in this quarterly report.

Due to the inherent uncertainties of such legal proceedings, we cannot predict the outcome of the proceedings at this time, and we can give no assurance that they will not have a material adverse effect on our financial position or results of operations.

Item 1A. Risk Factors

Important risk factors that could affect our operations and financial performance, or that could cause results or events to differ from current expectations, are described in Part I, Item 1A “Risk Factors” of our ~~2021~~2022 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

On January 29, 2021, a duly authorized subcommittee of the Company's Board approved a share repurchase program to repurchase up to $200 million of our common stock at prevailing prices in the open market. Thus far, $50 million has been purchased and the repurchase program is effective until the earlier of July 31, 2022 or the date when the maximum amount of common stock is repurchased.

During the three and six months ended December 31, ~~2021,~~2022, we did not repurchase shares of our common stock.

On August 3, 2022, after the expiration of a prior share repurchase program on July 31, 2022, a duly authorized subcommittee of our Board approved a new share repurchase program to repurchase shares of our common stock for up to $200 million at prevailing prices in the open market. The share repurchase program is effective until January 31, 2024 or until the maximum amount of common stock is repurchased, whichever occurs first.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

50SMCI | Q2 2023 Form 10-Q | 46

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Item 6. Exhibits

(a) Exhibits.

~~Table of~~ ~~Contents~~

Exhibit
Number

Description

10.1

~~English language translation of the Credit Authorization~~Second Amendment to Loan Agreement dated as of October ~~5, 2021~~13, 2022 by and between Cathay Bank and Super Micro Computer, Inc. ~~Taiwan and Chang Hwa Commercial Bank, Ltd. (incorporated~~(Incorporated by reference to Exhibit ~~10.1 from~~10.4 to the Company’s ~~Current~~Quarterly Report on ~~8-K~~10-Q (Commission File No. 001-33383) filed with the Securities and Exchange Commission on ~~October 12, 2021~~)November 4, 2022)

10.2

English language translation of the Imported Goods Loan Agreement dated as of October 5, 2021 between Super Micro Computer, Inc. Taiwan and Chang Hwa Commercial Bank, Ltd. (incorporated by reference to Exhibit 10.2 from the Company’s Current Report on 8-K (Commission File No. 001-33383) filed with the Securities and Exchange Commission on October 12, 2021)

~~10.3~~

~~English language translation of the Export Loan Agreement dated as of October 5, 2021 between Super Micro Computer, Inc. Taiwan and Chang Hwa Commercial Bank, Ltd.~~ ~~(incorporated by reference to Exhibit 10.3 from the Company’s Current Report on 8-K (Commission File No. 001-33383) filed with the Securities and Exchange Commission on October 12, 2021)~~

~~10.4~~

English language translation of the Loan Agreement for the Action Plan for Accelerated Investments by Domestic Corporations dated as of October 5, 2021 between Super Micro Computer, Inc. Taiwan and Chang Hwa Commercial Bank, Ltd. (incorporated by reference to Exhibit 10.4 from the Company’s Current Report on 8-K (Commission File No. 001-33383) filed with the Securities and Exchange Commission on October 12, 2021)

~~10.5~~

Tripartite Agreement dated as of November 8, 2021 between Ablecom Technology Inc., Super Micro Computer, Inc. Taiwan and Compuware Technology, Inc. (incorporated by reference to Exhibit 10.1 from the Company’s Current Report on 8-K (Commission File No. 001-33383) filed ~~with the Securities and Exchange Commission on November 12, 2021~~

~~10.6+~~

Agreement for Individually Negotiated Terms and Conditions dated as of ~~December 21,~~October 3, 2022 between Super Micro Computer, Inc. Taiwan and CTBC Bank Co., Ltd. (supersedes the Agreement for Individually Negotiated Terms and Conditions dated as of July 20, 2021 between Super Micro Computer, Inc. Taiwan and CTBC Bank Co., Ltd. ~~(amends~~previously filed as Exhibit ~~10.2 from~~10.6 to the Company’s ~~Current~~Quarterly Report on ~~8-K (Commission File No. 001-33383) previously filed with the Securities and Exchange Commission on July 26, 2021)~~

~~10.7~~

General Loan, Export/Import Financing, Overdraft Facilities and Securities Agreement dated as of January 7, 2022 between Super Micro Computer, Inc. Taiwan and HSBC Bank (Taiwan) Limited (incorporated by reference to Exhibit 10.1 from the Company’s Current Report on 8-K10-Q (Commission File No. 001-33383) filed with the Securities and Exchange Commission on ~~January 13,~~February 4, 2022)

~~10.8~~

~~Facility Letter dated as of January 7, 2022 between Super Micro Computer, Inc. Taiwan and HSBC Bank (Taiwan) Limited (incorporated~~ (Incorporated by reference to Exhibit ~~10.2 from~~10.5 to the Company’s ~~Current~~Quarterly Report on ~~8-K~~10-Q (Commission File No. 001-33383) filed with the Securities and Exchange Commission on ~~January 13,~~November 4, 2022)

~~31.1~~31.1+

Certification of Charles Liang, President and Chief Executive Officer of the Registrant pursuant to Section 302, as adopted pursuant to the Sarbanes-Oxley Act of 2002

~~31.2~~31.2+

Certification of David Weigand, Chief Financial Officer of the Registrant pursuant to Section 302, as adopted pursuant to the Sarbanes-Oxley Act of 2002

~~32.1~~32.1+

Certification of Charles Liang, President and Chief Executive Officer of the Registrant pursuant to Section 906, as adopted pursuant to the Sarbanes-Oxley Act of 2002

~~32.2~~32.2+

Certification of David Weigand, Chief Financial Officer of the Registrant pursuant to Section 906, as adopted pursuant to the Sarbanes-Oxley Act of 2002

~~101.INS~~101.INS+

XBRL Instance Document

~~101.SCH~~101.SCH+

XBRL Taxonomy Extension Schema Document

~~101.CAL~~101.CAL+

XBRL Taxonomy Extension Calculation Linkbase Document

~~101.DEF~~101.DEF+

XBRL Taxonomy Extension Definition Linkbase Document

~~101.LAB~~101.LAB+

XBRL Taxonomy Extension Label Linkbase Document

~~101.PRE~~101.PRE+

XBRL Taxonomy Extension Presentation Linkbase Document

~~104~~104+

The cover page from this Quarterly Report on Form 10-Q, formatted in Inline ~~XBRL.~~XBRL

~~+ Filed herewith~~

+ Filed herewith

SMCI | Q2 2023 Form 10-Q | 47

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SUPER MICRO COMPUTER, INC.


Date:	February ~~4, 2022~~3, 2023	/s/ CHARLES LIANG
		Charles Liang President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)


Date:	February ~~4, 2022~~3, 2023	/s/ DAVID WEIGAND
		David Weigand Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)

SMCI | Q2 2023 Form 10-Q | 48


Fiscal Year:	Minimum lease payments
2022	$	3,575
2023	6,875
2024	5,685
2025	5,537
2026	2,213
2027 and beyond	1,776
Total future lease payments	$	25,661
Less: Imputed interest	(1,605)
Present value of operating lease liabilities	$	24,056


Annualized Revenue Milestone	Achievement Status	Stock Price Milestone	Achievement Status
(in billions)
$4.0	Achieved (1)	$45	Not met
$4.8	Probable	$60	Not met
$5.8	Probable	$75	Not met
$6.8	Probable	$95	Not met
$8.0	Improbable	$120	Not met