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 ~~March~~December 31, 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 ~~April 30, 2022~~January 31, 2023 there were ~~51,906,873~~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 ~~MARCH~~DECEMBER 31, 2022

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of ~~March~~ ~~31, 202~~2December 31 , 2022 and June 30, ~~2021~~2022	1
	Condensed Consolidated Statements of Operations for the Three and Six ~~Nine~~Months Ended ~~March~~December 31 ~~31, 202~~2 , 2022 and ~~202~~1 2021	2
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six ~~Nine~~Months Ended ~~March~~Decemb ~~31, 202~~er 3 21 , 2022 and 2021	3
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Ni n e Months Ended ~~March~~Decem ~~31, 202~~ber 3 21 , 2022 and 20 212021	4
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~March~~December 31 ~~31, 202~~2 , 2022 and 20 212021	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	4944
ITEM 4.	Controls and Procedures	5045

PART II	OTHER INFORMATION
ITEM 1.	Legal Proceedings	5146
ITEM 1A.	Risk Factors	5146
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5146
ITEM 3.	Defaults Upon Senior Securities	5146
ITEM 4.	Mine Safety Disclosures	5146
ITEM 5.	Other Information	5246
ITEM 6.	Exhibits	5347
	Signatures	5448

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)


		March 31,		June 30,			December 31,		June 30,
		2022		2021			2022		2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	247,424	$	232,266	Cash and cash equivalents	$	304,595	$	267,397
Accounts receivable, net of allowances of $1,776 and $2,591 at March 31, 2022 and June 30, 2021, respectively (including accounts receivable from related parties of $34,084 and $8,678 at March 31, 2022 and June 30, 2021, respectively)		679,785		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	1,588,542		1,040,964		Inventories	1,421,817		1,545,606

Prepaid expenses and other current assets (including receivables from related parties of $29,561 and $23,837 at March 31, 2022 and June 30, 2021, respectively)		162,964		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	2,678,715		1,867,259		Total current assets	2,649,503		2,806,315
Investment in equity investee	Investment in equity investee	4,778		4,578		Investment in equity investee	3,197		5,329

Property, plant and equipment, net	Property, plant and equipment, net	282,319		274,713		Property, plant and equipment, net	289,255		285,972
Deferred income taxes, net	Deferred income taxes, net	66,518		63,288		Deferred income taxes, net	95,741		69,929
Other assets	Other assets	38,847		32,126		Other assets	37,246		37,532
Total assets	Total assets	$	3,071,177	$	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 $87,266 and $70,096 at March 31, 2022 and June 30, 2021, respectively)		$	779,561	$	612,336
Accrued liabilities (including amounts due to related parties of $15,315 and $18,528 at March 31, 2022 and June 30, 2021, respectively)		181,448		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	17,413		12,741		Income taxes payable	38,713		41,743
Short-term debt	Short-term debt	403,045		63,490		Short-term debt	27,869		449,146
Deferred revenue	Deferred revenue	114,688		101,479		Deferred revenue	120,530		111,313
Total current liabilities	Total current liabilities	1,496,155		968,896		Total current liabilities	916,940		1,470,024
Deferred revenue, non-current	Deferred revenue, non-current	115,063		100,838		Deferred revenue, non-current	159,574		122,548
Long-term debt	Long-term debt	144,423		34,700		Long-term debt	142,273		147,618
Other long-term liabilities	Other long-term liabilities	41,617		41,132		Other long-term liabilities	37,313		39,140
Total liabilities	Total liabilities	1,797,258		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: 51,870 and 50,582 at March 31, 2022 and June 30, 2021, respectively
Issued shares: 51,870 and 50,582 at March 31, 2022 and June 30, 2021, respectively		471,088		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	554		453		Accumulated other comprehensive income	612		911
Retained earnings	Retained earnings	802,101		657,760		Retained earnings	1,303,506		942,923
Total Super Micro Computer, Inc. stockholders’ equity	Total Super Micro Computer, Inc. stockholders’ equity	1,273,743		1,096,225		Total Super Micro Computer, Inc. stockholders’ equity	1,818,677		1,425,575
Noncontrolling interest	Noncontrolling interest	176		173		Noncontrolling interest	165		172
Total stockholders’ equity	Total stockholders’ equity	1,273,919		1,096,398		Total stockholders’ equity	1,818,842		1,425,747
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	3,071,177	$	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
March 31, Nine Months Ended
March 31,
2022 2021 2022 2021
Net sales (including related party sales of $47,669 and $20,432 in the three months ended March 31, 2022 and 2021, respectively, and $120,206 and $58,853 in the nine months ended March 31, 2022 and 2021, respectively) $ 1,355,490 $ 895,881 $ 3,560,639 $ 2,488,437
Cost of sales (including related party purchases of $95,479 and $57,454 in the three months ended March 31, 2022 and 2021, respectively, and $279,893 and $167,845 in the nine months ended March 31, 2022 and 2021, respectively) 1,144,715 772,864 3,047,982 2,099,410
Gross profit 210,775 123,017 512,657 389,027
Operating expenses:
Research and development 70,869 57,912 201,483 165,439
Sales and marketing 22,356 21,826 65,940 62,858
General and administrative 27,773 26,224 75,280 75,864
Total operating expenses 120,998 105,962 342,703 304,161
Income from operations 89,777 17,055 169,954 84,866
Other (expense) income, net 4,663 2,017 4,106 (1,363)
Interest expense (1,531) (607) (3,485) (1,850)
Income before income tax provision 92,909 18,465 170,575 81,653
Income tax benefit (provision) (16,192) 227 (27,116) (8,541)
Share of income (loss) from equity investee, net of taxes 255 (264) 882 (409)
Net income $ 76,972 $ 18,428 $ 144,341 $ 72,703
Net income per common share:
Basic $ 1.49 $ 0.36 $ 2.82 $ 1.41
Diluted $ 1.43 $ 0.35 $ 2.70 $ 1.35
Weighted-average shares used in calculation of net income per common share:
Basic 51,708 50,553 51,269 51,465
Diluted 53,786 53,218 53,401 53,747


	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 March 31,				Nine Months Ended March 31,					Three Months Ended December 31,				Six Months Ended December 31,
		2022		2021		2022		2021			2022		2021		2022		2021
Net income	Net income	$	76,972	$	18,428	$	144,341	$	72,703	Net income	$	176,167	$	41,932	$	360,583	$	67,369
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:									Other comprehensive income (loss), net of tax:

Foreign currency translation gain (loss)	Foreign currency translation gain (loss)	5		(34)		101		514		Foreign currency translation gain (loss)	98		100		(299)		96
Total other comprehensive income (loss)		5		(34)		101		514
Total other comprehensive income (loss), net of tax										Total other comprehensive income (loss), net of tax	98		100		(299)		96
Total comprehensive income	Total comprehensive income	$	76,977	$	18,394	$	144,442	$	73,217	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

Table of Contents

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)

Three Months Ended March 31, 2022 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 December 31, 2021 51,508,616 $ 460,990 — $ — $ 549 $ 725,129 $ 177 $ 1,186,845
Exercise of stock options, net of taxes 251,598 4,363 — — — — — 4,363
Release of common stock shares upon vesting of restricted stock units 161,873 — — — — — — —
Shares withheld for the withholding tax on vesting of restricted stock units (51,914) (2,006) — — — — — (2,006)
Stock-based compensation — 7,741 — — — — — 7,741
Foreign currency translation gain — — — — 5 — — 5
Net income — — — — — 76,972 (1) 76,971
Balance at March 31, 2022 51,870,173 $ 471,088 — $ — $ 554 $ 802,101 $ 176 $ 1,273,919


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 March 31, 2021		Common Stock and Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive (Loss) 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 (Loss) Income		Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity			Shares	Amount
Balance at December 31, 2020		50,651,054	$	410,522	—	$	—
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	511,801	9,577		—	—		—		—		—		9,577		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	186,034	—		—	—		—		—		—		—		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	(61,982)	(2,062)		—	—		—		—		—		(2,062)		Shares withheld for the withholding tax on vesting of restricted stock units	(62,390)	(2,732)			—		—		—		(2,732)
Stock repurchases and retirement		(1,250,539)	(42)		—	—		—		(43,628)		—		(43,670)

Stock-based compensation	Stock-based compensation	—	7,494		—	—		—		—		—		7,494		Stock-based compensation	—	9,176			—		—		—		9,176

Foreign currency translation loss		—	—		—	—		(34)		—		—		(34)
Other comprehensive income																Other comprehensive income	—	—			100		—		—		100
Net income	Net income	—	—		—	—		—		18,428		(5)		18,423		Net income	—	—			—		41,932		1		41,933
Balance at March 31, 2021		50,036,368	$	425,489	—	$	—	$	362	$	627,929	$	168	$	1,053,948
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

Table of Contents

Nine Months Ended March 31, 2022 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 921,001 15,951 — — — — — 15,951
Release of common stock shares upon vesting of restricted stock units 535,469 — — — — — — —
Shares withheld for the withholding tax on vesting of restricted stock units (168,375) (6,807) — — — — — (6,807)
Shares repurchase and retirement — — — — — — —
Stock-based compensation — 23,932 — — — — — 23,932
Foreign currency translation gain — — — — 101 — — 101
Net income — — — — — 144,341 3 144,344
Balance at March 31, 2022 51,870,173 $ 471,088 — $ — $ 554 $ 802,101 $ 176 $ 1,273,919


Nine Months Ended March 31, 2021		Common Stock and Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive (Loss) 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 (Loss) 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	1,195,414	20,344		—	—		—		—		—		20,344		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	596,570	—		—	—		—		—		—		—		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	(191,279)	(5,780)		—	—		—		—		—		(5,780)		Shares withheld for the withholding tax on vesting of restricted stock units	(116,461)	(4,801)			—		—		—		(4,801)
Share repurchase and retirement		(5,306,165)	(164)		1,333,125	20,491		—		(140,985)		—		(120,658)

Stock-based compensation	Stock-based compensation	—	21,117		—	—		—		—		—		21,117		Stock-based compensation	—	16,191			—		—		—		16,191
Foreign currency translation gain		—	—		—	—		514		—		—		514

Other comprehensive income																Other comprehensive income	—	—			96		—		—		96
Net income	Net income	—	—		—	—		—		72,703		1		72,704		Net income	—	—			—		67,369		4		67,373
Balance at March 31, 2021		50,036,368	$	425,489	—	$	—	$	362	$	627,929	$	168	$	1,053,948
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)


		Nine Months Ended March 31,					Six Months Ended December 31,
		2022		2021			2022		2021
OPERATING ACTIVITIES:	OPERATING ACTIVITIES:					OPERATING ACTIVITIES:
Net income	Net income	$	144,341	$	72,703	Net income	$	360,583	$	67,369
Reconciliation of net income to net cash provided by operating activities:
Reconciliation of net income to net cash provided by (used in) operating activities:						Reconciliation of net income to net cash provided by (used in) operating activities:
Depreciation and amortization	Depreciation and amortization	24,049		21,304		Depreciation and amortization	17,196		15,681
Stock-based compensation expense	Stock-based compensation expense	23,932		21,117		Stock-based compensation expense	27,995		16,191

Recovery of allowance for doubtful accounts		(815)		(629)
Allowance (recovery) for credit losses						Allowance (recovery) for credit losses	1		(636)
Provision for excess and obsolete inventories	Provision for excess and obsolete inventories	13,875		4,844		Provision for excess and obsolete inventories	25,423		3,691

Share of (income) loss from equity investee		(882)		409
Foreign currency exchange (gain) loss		(8,157)		1,097
Share of loss (income) from equity investee						Share of loss (income) from equity investee	2,240		(627)
Foreign currency exchange (gain)						Foreign currency exchange (gain)	(4,614)		(2,738)
Deferred income taxes, net	Deferred income taxes, net	(3,230)		(2,726)		Deferred income taxes, net	(25,812)		1,451
Other	Other	1,007		(792)		Other	(430)		1,045
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable, net (including changes in related party balances of $(25,405) and $(3,532) during the nine months ended March 31, 2022 and 2021, respectively)		(216,464)		(3,036)
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)						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	Inventories	(561,453)		(57,249)		Inventories	98,366		(356,399)
Prepaid expenses and other assets (including changes in related party balances of $(5,726) and $(442) during the nine months ended March 31, 2022 and 2021, respectively)		(32,750)		(25,039)
Accounts payable (including changes in related party balances of $17,170 and $(18,296) during the nine months ended March 31, 2022 and 2021, respectively)		173,031		45,301
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)						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)						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	Income taxes payable	4,672		4,916		Income taxes payable	(3,030)		1,723
Deferred revenue	Deferred revenue	27,434		(13,726)		Deferred revenue	46,243		50,235
Accrued liabilities (including changes in related party balances of $(3,213) and $(180) during the nine months ended March 31, 2022 and 2021, respectively)		4,644		(5,807)
Other long-term liabilities (including changes in related party balances of $596 and $(1,699) during the nine months ended March 31, 2022 and 2021, respectively)		(8,892)		(3,295)
Accrued liabilities (including changes in related party balances of $851 and $1,501 during the six months ended December 31, 2022 and 2021, respectively)						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)						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	Net cash provided by (used in) operating activities	(415,658)		59,392		Net cash provided by (used in) operating activities	474,674		(187,722)
INVESTING ACTIVITIES:	INVESTING ACTIVITIES:					INVESTING ACTIVITIES:
Purchases of property, plant and equipment (including payments to related parties of $2,505 and $5,845 during the nine months ended March 31, 2022 and 2021, respectively)		(34,157)		(44,627)
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)						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	Investment in a privately-held company	(1,100)		—		Investment in a privately-held company	—		(1,100)
Net cash used in investing activities		(35,257)		(44,627)
Net cash (used in) investing activities						Net cash (used in) investing activities	(20,631)		(24,306)
FINANCING ACTIVITIES:	FINANCING ACTIVITIES:					FINANCING ACTIVITIES:
Proceeds from borrowings, net of debt issuance costs		938,075		62,225
Proceeds from borrowings						Proceeds from borrowings	144,037		587,719
Repayment of debt	Repayment of debt	(480,795)		(7,300)		Repayment of debt	(564,662)		(367,295)

Proceeds from exercise of stock options, net of taxes	Proceeds from exercise of stock options, net of taxes	15,951		20,344		Proceeds from exercise of stock options, net of taxes	15,327		11,588
Payment of withholding tax on vesting of restricted stock units	Payment of withholding tax on vesting of restricted stock units	(6,807)		(5,780)		Payment of withholding tax on vesting of restricted stock units	(10,504)		(4,801)
Stock repurchases		—		(117,968)
Payments of obligations under finance leases		(59)		34
Net cash provided by (used in) by financing activities		466,365		(48,445)

Other						Other	(19)		(38)
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(415,821)		227,173
Effect of exchange rate fluctuations on cash	Effect of exchange rate fluctuations on cash	(304)		362		Effect of exchange rate fluctuations on cash	(1,693)		(9)
Net increase (decrease) in cash, cash equivalents and restricted cash		15,146		(33,318)
Net increase in cash, cash equivalents and restricted cash						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	Cash, cash equivalents and restricted cash at the beginning of the period	233,449		212,390		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	Cash, cash equivalents and restricted cash at the end of the period	$	248,595	$	179,072	Cash, cash equivalents and restricted cash at the end of the period	$	305,088	$	248,585

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

SMCI | Q2 2023 Form 10-Q | 6

Table of Contents

Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,990 $ 1,400
Cash paid for taxes, net of refunds 11,623 2,213
Non-cash investing and financing activities:
Unpaid property, plant and equipment purchases (including due to related parties of $729 and $1,502 as of March 31, 2022 and 2021, respectively) $ 7,464 $ 7,662
Right of use ("ROU") assets obtained in exchange for operating lease commitments 11,108 2,715
Unpaid stock repurchases — 2,690


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 ~~nine~~six months ended ~~March~~December 31, 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. Two suppliers accounted for ~~13.0%~~14.1% and ~~19.4%~~17.6% of total purchases for the three months ended ~~March~~December 31, 2022, and two suppliers accounted for ~~21.4%~~22.1% and ~~14.7%~~6.5% of total purchases for the three months ended ~~March~~December 31, 2021. Two suppliers accounted for ~~18.0%~~15.3% and ~~11.4%~~22.3% of total purchases for the ~~nine~~six months ended ~~March~~December 31, 2022, and two suppliers accounted for ~~21.1%~~21.2% and ~~13.8%~~6.4% of total purchases for the ~~nine~~six months ended ~~March~~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 ~~8.2%~~6.7% and ~~7.3%~~9.4% of total cost of sales for the three months ended ~~March~~December 31, 2022 and 2021, respectively, and a combined ~~9.0%~~6.6% and ~~7.9%~~9.5% of total cost of sales for the ~~nine~~six months ended ~~March~~December 31, 2022 and 2021, 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. ~~One~~No single ~~customer accounted for 10.2% of the net sales for the three months ended March 31, 2022 and no~~ customer accounted for 10% or more of the net sales for the ~~nine~~three months ended ~~March~~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 ~~nine~~six months ended ~~March~~December 31, 2021. No single customer accounted for greater than 10% of the Company's accounts receivable, net as of ~~March~~December 31, ~~2022, 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.

SMCI | Q2 2023 Form 10-Q | 8

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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 ~~amendments are effective for all entities on~~ASU defers the sunset date of Topic 848 to December 31, ~~2022, with early adoption permitted for an interim period beginning after March 12, 2020.~~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 ~~secured overnight financing rate (“SOFR").~~SOFR. As these amendments had other contemporaneous changes to the 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 March 31,				Nine Months Ended March 31,			Three Months Ended December 31,				Six Months Ended December 31,
		2022		2021			2022			2021			2022		2021		2022		2021
Server and storage systems	Server and storage systems	$	1,145,869	$	693,339		$	2,981,777		$	1,953,838	Server and storage systems	$	1,660,931	$	986,052	$	3,373,987	$	1,835,908
Subsystems and accessories	Subsystems and accessories	209,621		202,542			578,862			534,599		Subsystems and accessories	142,264		186,367		281,338		369,241
Total	Total	$	1,355,490	$	895,881		$	3,560,639		$	2,488,437	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 ~~nine~~six months ended ~~March~~December 31, 2022 and 2021, of net sales by geographic region (in thousands):


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended December 31,				Six Months Ended December 31,
		2022		2021		2022		2021			2022		2021		2022		2021
United States	United States	$	762,418	$	499,061	$	1,961,573	$	1,458,249	United States	$	1,091,391	$	638,207	$	2,386,895	$	1,199,155
Asia	Asia	309,972		207,204		857,165		495,326		Asia	330,711		284,107		600,735		547,193
Europe	Europe	205,444		162,285		600,589		429,193		Europe	312,533		215,451		547,607		395,145
Other	Other	77,656		27,331		141,312		105,669		Other	68,560		34,654		120,088		63,656
		$	1,355,490	$	895,881	$	3,560,639	$	2,488,437
Total										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.

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 ~~nine~~six months ended ~~March~~December 31, 2022, which was included in the deferred revenue balance as of June 30, ~~2021~~2022, of ~~$202.3~~$233.8 million, was ~~$23.0~~$27.5 million and ~~$79.7~~$61.0 million, respectively.

Deferred revenue increased ~~$27.4~~$46.2 million as of ~~March~~December 31, 2022 as compared to the fiscal year ended June 30, ~~2021~~ 2022 and was mainly ~~because~~ 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 preceded the Company's satisfaction of the associated performance obligations relating to product sales expected to be fulfilled in the next 12 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 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 ~~March~~December 31, 2022 was $~~229.8~~280.0 million. The Company expects to recognize approximately ~~50%~~43% of remaining performance obligations as revenue in the next 12 months, and the remainder thereafter.

SMCI | Q2 2023 Form 10-Q | 10

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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.

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 ~~nine~~six months ended ~~March~~December 31, 2022 and 2021 (in thousands, except per share amounts):


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended December 31,				Six Months Ended December 31,
		2022		2021		2022		2021			2022		2021		2022		2021
Numerator:	Numerator:									Numerator:
Net income	Net income	$	76,972	$	18,428	$	144,341	$	72,703	Net income	$	176,167	$	41,932	$	360,583	$	67,369

Denominator:	Denominator:									Denominator:
Weighted-average shares outstanding	Weighted-average shares outstanding	51,708		50,553		51,269		51,465		Weighted-average shares outstanding	53,160		51,314		52,726		51,055
Effect of dilutive securities	Effect of dilutive securities	2,079		2,665		2,132		2,282		Effect of dilutive securities	2,984		2,197		2,701		2,158
Weighted-average diluted shares	Weighted-average diluted shares	53,786		53,218		53,401		53,747		Weighted-average diluted shares	56,144		53,511		55,427		53,213

Basic net income per common share	Basic net income per common share	$	1.49	$	0.36	$	2.82	$	1.41	Basic net income per common share	$	3.31	$	0.82	$	6.84	$	1.32
Diluted net income per common share	Diluted net income per common share	$	1.43	$	0.35	$	2.70	$	1.35	Diluted net income per common share	$	3.14	$	0.78	$	6.51	$	1.27

For the three and ~~nine~~six months ended ~~March~~December 31, 2022 and 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 ~~452,611~~211,729 and ~~578,892~~419,423 for the three months ended ~~March~~December 31, 2022 and 2021, respectively, and ~~452,182~~259,562 and ~~617,807~~1,501,560 for the ~~nine~~six months ended ~~March~~December 31, 2022 and 2021, respectively.

SMCI | Q2 2023 Form 10-Q | 11

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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:


		March 31, 2022		June 30, 2021			December 31, 2022		June 30, 2022
Finished goods	Finished goods	$	994,184	$	761,694	Finished goods	$	972,150	$	1,025,555
Work in process	Work in process	253,246		80,472		Work in process	155,739		209,576
Purchased parts and raw materials	Purchased parts and raw materials	341,112		198,798		Purchased parts and raw materials	293,928		310,475
Total inventories	Total inventories	$	1,588,542	$	1,040,964	Total inventories	$	1,421,817	$	1,545,606

During the three and ~~nine~~six months ended ~~March~~December 31, 2022, the Company recorded a net provision for excess and obsolete inventory to cost of sales totaling ~~$10.2~~$15.8 million and ~~$13.9~~$25.4 million, respectively, and ~~$2.9~~$0.2 million and ~~$4.6~~$3.7 million, for the three and ~~nine~~six months ended ~~March~~December 31, 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:


		March 31, 2022		June 30, 2021			December 31, 2022		June 30, 2022
Other receivables (1)	Other receivables (1)	$	139,380	$	99,921	Other receivables (1)	$	133,034	$	138,054
Prepaid expenses	Prepaid expenses	7,302		6,719		Prepaid expenses	9,507		5,632
Deferred service costs	Deferred service costs	5,365		4,900		Deferred service costs	6,626		5,562
Prepaid income tax	Prepaid income tax	341		12,288		Prepaid income tax	—		2,352
Restricted cash	Restricted cash	251		251		Restricted cash	—		251
Others		10,325		6,116
Other						Other	5,757		6,948
Total prepaid expenses and other current assets	Total prepaid expenses and other current assets	$	162,964	$	130,195	Total prepaid expenses and other current assets	$	154,924	$	158,799

~~__________________________~~

(1) ~~Includes other~~Other receivables are receivables from contract manufacturers based on certain buy-sell arrangements of $~~96.0~~116.3 million and ~~$76.2~~$98.9 million as of ~~March~~December 31, 2022 and June 30, ~~2021,~~2022, respectively.

Cash, ~~cash equivalents~~Cash Equivalents and ~~restricted cash:~~Restricted Cash:


		March 31, 2022		June 30, 2021			December 31, 2022		June 30, 2022
Cash and cash equivalents	Cash and cash equivalents	$	247,424	$	232,266	Cash and cash equivalents	$	304,595	$	267,397
Restricted cash included in prepaid expenses and other current assets	Restricted cash included in prepaid expenses and other current assets	251		251		Restricted cash included in prepaid expenses and other current assets	—		251
Restricted cash included in other assets	Restricted cash included in other assets	920		932		Restricted cash included in other assets	493		911
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	248,595	$	233,449	Total cash, cash equivalents and restricted cash	$	305,088	$	268,559

SMCI | Q2 2023 Form 10-Q | 12

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Property, Plant, and Equipment:


		March 31, 2022		June 30, 2021			December 31, 2022		June 30, 2022
Buildings	Buildings	$	143,509	$	86,930	Buildings	$	143,496	$	143,509
Machinery and equipment	Machinery and equipment	111,714		97,671		Machinery and equipment	122,634		113,665
Land	Land	84,616		76,421		Land	84,616		84,616
Furniture and fixtures						Furniture and fixtures	49,328		43,282
Building and leasehold improvements	Building and leasehold improvements	48,846		26,640		Building and leasehold improvements	45,812		45,169
Furniture and fixtures		32,590		22,843
Software	Software	23,333		22,592		Software	23,610		23,186
Building construction in progress ~~(1)~~	Building construction in progress ~~(1)~~	303		87,438		Building construction in progress ~~(1)~~	303		303
		444,911		420,535			469,799		453,730
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(162,592)		(145,822)		Accumulated depreciation and amortization	(180,544)		(167,758)
Property, plant and equipment, net	Property, plant and equipment, net	$	282,319	$	274,713	Property, plant and equipment, net	$	289,255	$	285,972

~~__________________________~~

~~(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.~~

Other Assets:


		March 31, 2022		June 30, 2021			December 31, 2022		June 30, 2022
Operating lease right-of-use asset	Operating lease right-of-use asset	$	25,338	$	20,047	Operating lease right-of-use asset	$	20,827	$	23,679
Deferred service costs, non-current	Deferred service costs, non-current	6,170		5,421		Deferred service costs, non-current	8,875		6,316
Prepaid expense, non-current	Prepaid expense, non-current	1,911		1,973		Prepaid expense, non-current	1,935		2,011
Deposits						Deposits	1,685		1,069
Investment in auction rate security	Investment in auction rate security	1,556		1,556		Investment in auction rate security	1,590		1,590
Deposits		1,118		1,669
Restricted cash, non-current	Restricted cash, non-current	920		932		Restricted cash, non-current	493		911
Other	Other	1,834		528		Other	1,841		1,956
Total other assets	Total other assets	$	38,847	$	32,126	Total other assets	$	37,246	$	37,532

Accrued Liabilities:


		March 31, 2022		June 30, 2021			December 31, 2022		June 30, 2022
Accrued payroll and related expenses	Accrued payroll and related expenses	$	45,837	$	45,770	Accrued payroll and related expenses	$	51,400	$	57,736
Contract manufacturing liabilities		35,032		45,319
Contract manufacturers liabilities						Contract manufacturers liabilities	34,440		41,125
Customer deposits	Customer deposits	23,810		32,419		Customer deposits	24,136		30,421
Accrued legal liabilities (Note 11)						Accrued legal liabilities (Note 11)	—		18,250
Accrued cooperative marketing expenses						Accrued cooperative marketing expenses	9,973		8,757
Accrued warranty costs	Accrued warranty costs	9,322		10,185		Accrued warranty costs	8,668		9,073
Accrued cooperative marketing expenses		8,609		5,652
Operating lease liability	Operating lease liability	7,291		6,322		Operating lease liability	7,117		7,139
Accrued professional fees	Accrued professional fees	3,381		2,737		Accrued professional fees	2,497		4,281
Accrued legal liabilities		18,250		—
Other	Other	29,916		30,446		Other	31,636		35,637
Total accrued liabilities	Total accrued liabilities	$	181,448	$	178,850	Total accrued liabilities	$	169,866	$	212,419

SMCI | Q2 2023 Form 10-Q | 13

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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 total cash bonus opportunity was ~~$8.1~~$8.1 million, divided into 2two equal tranches. Each tranche would be earned if the average closing price for the Company’s common stock reached specified targets. The Board retained the flexibility to reduce the amount payable under the first tranche (but not the second tranche) based on performance goals. Both price targets were reached during the fiscal year ended June 30, 2021, and the second tranche totaled $4.0 million was paid in full. As of June 30, 2021, the 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 first tranche.

In September 2021, after the Company had closed its books for the year ended June 30, 2021, the Board decided to exercise its discretion to reduce the amount to be paid to the Chief Executive Officer for the first tranche to $2.0 million, which was paid in the quarter ended December 31, 2021. As a result of the Board’s decision to reduce the amount to be paid under the first tranche, the Company adjusted the $3.6 million expense previously recorded for the first tranche to the new amount of $2.0 million, which resulted in the Company recognizing a $1.6 million benefit from this adjustment during the quarter ended September 30, 2021. ~~For~~This performance award to the ~~three months and nine months~~Chief Executive Officer was concluded in the year ended ~~March 31, 2021, $2.5 million and $5.1 million of expense was recognized, respectively.~~June 30, 2022. As such, there is no further transaction thereafter. There was no ~~expense or~~ benefit ~~related to this bonus for~~recognized during the three and six months ended ~~March~~December 31, ~~2022. For~~2022. The benefit recognized during the ~~nine~~three and six months ended ~~March~~December 31, ~~2022, the~~2021 was none and $1.6 million, ~~benefit described above is included.~~ respectively.

Other Long-term Liabilities:


		March 31, 2022		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	$	19,427	$	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	18,416		14,539		Operating lease liability, non-current	13,924		16,661
Accrued warranty costs, non-current	Accrued warranty costs, non-current	2,673		2,678		Accrued warranty costs, non-current	4,608		3,064
Other	Other	1,101		6,074		Other	466		549
Total other long-term liabilities	Total other long-term liabilities	$	41,617	$	41,132	Total other long-term liabilities	$	37,313	$	39,140

Product Warranties:


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended December 31,				Six Months Ended December 31,
		2022		2021		2022		2021			2022		2021		2022		2021
Balance, beginning of the period	Balance, beginning of the period	$	11,583	$	13,503	$	12,863	$	12,379	Balance, beginning of the period	$	12,703	$	12,233	$	12,136	$	12,863
Provision for warranty	Provision for warranty	7,514		6,791		19,956		22,250		Provision for warranty	8,933		6,057		17,550		12,442
Costs utilized	Costs utilized	(7,797)		(7,441)		(21,717)		(22,501)		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	695		672		893		1,397		Change in estimated liability for pre-existing warranties	193		15		616		198
Balance, end of the period	Balance, end of the period	11,995		13,525		11,995		13,525		Balance, end of the period	13,276		11,583		13,276		11,583
Current portion	Current portion	9,322		10,813		9,322		10,813		Current portion	8,668		8,903		8,668		8,903
Non-current portion	Non-current portion	$	2,673	$	2,712	$	2,673	$	2,712	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 ~~March~~December 31, 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 March 31, 2022.

Financial Assets and Liabilities Measured on a Recurring Basis

The following table sets forth the Company’s financial instruments as of ~~March~~December 31, 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):

March 31, 2022 Level 1 Level 2 Level 3 Asset at
Fair Value
Assets
Money market funds (1) $ 152 $ — $ — $ 152
Certificates of deposit (2) — 847 — 847
Auction rate security — — 1,556 1,556
Total assets measured at fair value $ 152 $ 847 $ 1,556 $ 2,555
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 ~~March~~December 31, 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 ~~March~~December 31, 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 ~~nine~~six months ended ~~March~~December 31, 2022, ~~the credit losses related to~~there were no indications that the Company’s investments ~~were 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 ~~nine~~six months ended ~~March~~December 31, 2022 and 2021.

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

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 ~~March~~December 31, 2022 and June 30, ~~2021~~2022 (in thousands):

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


	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 ~~nine~~six months ended ~~March~~December 31, 2022 and 2021.

The Company measures the fair value of outstanding debt for disclosure purposes on a recurring basis. As of ~~March~~December 31, 2022 and June 30, ~~2021,~~2022, total debt of ~~$547.5~~$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 ~~March~~December 31, 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 ~~nine~~six months ended ~~March~~December 31, 2022 and 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 ~~nine~~six months ended ~~March~~December 31, 2022 and 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 ~~March~~December 31, 2022 and June 30, ~~2021~~2022 consisted of the following (in thousands):

March 31, June 30,
2022 2021
Line of credit:
Bank of America $ 241,469 $ —
CTBC Bank 101,000 18,000
HSBC Bank 30,000 —
E.SUN Bank 23,000 20,400
Total line of credit 395,469 38,400
Term loans:
CTBC Bank term loan, due August 31, 2022 $ — $ 25,090
CTBC Bank term loan, due June 4, 2030 41,718 34,700
CTBC Bank term loan, due December 27, 2027 5,505 —
E.SUN Bank term loan, due September 15, 2026 28,138 —
Mega Bank term loan, due September 15, 2026 41,803 —
Chang Hwa Bank term loan due October 15, 2026 34,835 —
Total term loans 151,999 59,790
Total debt 547,468 98,190
Short-term debt and current portion of long-term debt 403,045 63,490
Debt, non-current $ 144,423 $ 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 March 3,~~six months ended December 31, 2022 with 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 change provisions relating to payments and LIBOR replacement mechanics to secured overnight financing rate (“SOFR"). The obligations bear a base interest rate plus 0.5% to 1.5% based on the SOFR availability. The amendment was accounted for as a modification and the impact was immaterial to the consolidated financial statements. Prior to that, on June 28, 2021, the 2018 Bank of America Credit Facility was amended to, among other items, extend the maturity to June 28, 2026 and increase the maximum amount that the Company can request the facility be increased from $100 million to $150 million. 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 March 31, 2022, the total outstanding borrowings under the 2018 Bank of America Credit Facility were $241.5 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 March 31, 2022 and June 30, 2021 range from 1.50% to 1.54%. The balance of debt issuance costs outstanding as of March 31, 2022 and June 30, 2021 was $0.8 million and $0.5 million, respectively. The Company is in compliance with all the covenants under the 2018 Bank of America Credit Facility, ~~and as of March 31, 2022, the Company's available borrowing capacity was~~ ~~$108.5 million, subject to the borrowing base limitation and compliance~~ ~~with other applicable terms.~~

On March 23, 2022 (the “Effective Date”), the Company through its Taiwan subsidiary entered into an Uncommitted Facility Agreement for credit lines with Bank of America – Taipei Branch (the “2022 Bank of America Credit Facility”), for an amount not to exceed in aggregate $20.0 million. The interest rate will be quoted by Bank of America – Taipei Branch for each drawdown. As of March 31, 2022, there were no outstanding borrowings under this Bank of America Credit Facility.

~~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 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”).

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 March 31, 2022 and June 30, 2021, the amounts outstanding under the 2020 CTBC Term Loan Facility were $41.7 million and $34.7 million, respectively. The interest rates for these loans were 0.70% per annum as of March 31, 2022, and 0.45% as of June 30, 2021. ~~Under the 2021 CTBC Machine Loan, the amounts outstanding were~~ ~~$5.5 million~~ ~~on March 31, 2022.~~ ~~The interest rates for this loan was 0.90% per annum as of March 31, 2022. As of June 30, 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 were denominated in NTD and remeasured into U.S. dollars of $0.0 million and $25.1 million at March 31, 2022 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 March 31, 2022 and June 30, 2021, the outstanding borrowings under the 2021 CTBC Credit Facility revolving line of credit were $101.0 million and $18.0 million, respectively. The interest rates for these loans ranges from 0.94% to 1.40% per annum as of March 31, 2022 and 0.98% per annum as of June 30, 2021. As of March 31, 2022, the amount available for future borrowing under the 2021 CTBC Credit Facility was $4.0 million. As of March 31, 2022, the net book value of land and building located in Bade, Taiwan, collateralizing the 2021 CTBC Credit Lines was $77.7 million.~~The financial covenants under the 2021 CTBC Credit Lines will be reviewed by CTBC Bank every six months on June 30 and December 31.~~

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$30.0 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~~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 ~~March~~December 31, 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 ~~$28.1 million and the~~$55.8 million. The interest ~~rates for these loans were 1.245%~~rate as of December 31, 2022 was 1.62% per annum. As of ~~March~~December 31, 2022 and June 30, ~~2021~~,2022, the amounts outstanding under the Import O/A Loan were ~~$23.0~~$0.0 million and ~~$20.4~~$7.8 million, respectively. The interest rate ~~for the quarter ended March~~as of December 31, 2022 ~~ranges from 1.09% to~~ ~~1.33% per annum. The interest rate for the quarter ended~~and June 30, ~~2021 ranges from~~ ~~1.00% to 1.29%~~2022 was 4.18% and 1.81% per annum,. ~~At March~~ respectively. As of December 31, 2022, the amount available for future borrowing under the Import O/A Loan was ~~$7.0 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).

SMCI | Q2 2023 Form 10-Q | 19

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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~~As of ~~materials~~December 31, 2022 and ~~components), and to provide medium-term working capital (the “Permitted Uses”). Drawdowns~~June 30, 2022, the amounts outstanding under the ~~Mega Bank Credit~~2020 CTBC Term Loan Facility ~~may be made through~~were $38.9 million and $40.4 million, respectively. The interest rates for these loans were 1.075% per annum as of December 31, 2024, with the first drawdown date not later than November 5, 2021. The first drawdown date was on October 4, 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,2022 and 0.825% 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 March 31, 2022, the total outstanding borrowings under the Mega Bank Credit Facility were denominated in NTD and remeasured into U.S. dollars of $41.8 million and the interest rates ~~ranged from~~ ~~0.895% to 1.095% per annum.~~June 30, 2022.

The 2021 Credit ~~Agreement with Mega Bank~~

~~On April 25, 2022, the Company through its Taiwan subsidiary, entered into~~Lines permitted borrowings, from time to time, pursuant to (i) a $20.0 million (or foreign currency equivalent) (the “Credit Limit”) Omnibus Credit Authorization Agreement (the “Omnibus Credit Authorization Agreement”) with Mega Bank. The Omnibus Credit Authorization Agreement permits individual credit authorizations subject to specified drawdown conditions up to the Credit Limit (on a revolving basis) to be used as loans for the purchase of materials or supplies. During theterm loan ~~period, the Company is required to maintain 100% direct or indirect share ownership of the Taiwan subsidiary.~~

Pursuant to the Omnibus Credit Authorization Agreement, the Taiwan subsidiary also entered into both a Credit Authorization Agreement (the “Credit Authorization Agreement”) and Credit Authorization Approval Notice (the “Credit Authorization Approval Notice”) with Mega Bank and associated branch of Mega Bank, respectively. Pursuant to such Agreement and Notice, Mega Bank permits the Taiwan subsidiary to make drawdowns up to the Credit Limit for short-term loans for material purchases with a tenor not to exceed 120 days on a revolving basis. Drawdowns under the Mega Bank facility may be made through March 2023. The interest rate for each individual credit authorization is adjusted according to the Mega Bank’s USD basic loan interest rate at the time of signing the agreement which was 0.90% per annum. Interest on such drawdowns is based upon TAIFX OFFER for six months plus 0.23% and divided by 0.946, subject to periodic adjustment and adjustment in certain other circumstances, such as failure to maintain a sufficient balance in a demand deposit account with Mega Bank which are subject to the bank’s right of set off. The interest rate shall be adjusted once every month but shall not be lower than the USD basic loan interest rate plus 0.1%. If the loan involves the acceptance of bill of exchange, the Company would pay handling fee at the annual rate of 0.75% calculated based on the number of actual acceptance days. The fee is paid in full upon acceptance and a minimum handling fee of NTD 400 is charged for each transaction. Amounts borrowed are otherwise unsecured, and the Credit Authorization Agreement has customary default provisions permitting Mega Bank to reduce the extension of credit, shorten the term for loan repayment or declare all of the amounts immediately due and payable. The Company is not a guarantor under the Credit Authorization Agreement or Credit Authorization Approval Notice.

~~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~~1,550.0 million ($~~36.0~~55.4 million U.S. dollar equivalent) including the 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”), ~~including~~and (ii) a line of credit facility of up to ~~$20.0~~$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 ~~loans, advances, acceptances, bills, bank guarantees, overdrafts, letters~~ of ~~credit,~~December 31, 2022 and ~~other types~~1.025% as of ~~drawdown instruments.~~June 30, 2022. The ~~Chang Hwa Bank~~2021 CTBC 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.term loan was repaid on October 26, 2021. As of ~~March~~December 31, 2022 ~~the total outstanding borrowings under the Chang Hwa Bank Credit Facility were denominated in NTD~~ and ~~remeasured into U.S. dollars of $34.8 million and the interest rate is1.05% per annum.~~

~~Table of Contents~~

~~SUPER MICRO COMPUTER, INC.~~

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

~~(Unaudited)~~

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, the 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.

~~As of March 31,~~June 30, 2022, the outstanding borrowings under the ~~2022 HSBC Bank~~2021 CTBC Credit Facility revolving line of credit were ~~$30.0 million.~~none and $84.8 million, respectively. The interest rates for these loans ~~were approximately 0.96%~~was 3.33% per annum as of ~~March~~December 31, 2022 and ranged from 1.80% to 2.52% as of June 30, 2022.

As of ~~March~~December 31, 2022, ~~there was no~~the amount available for future borrowing under the 2022 ~~HSBC Bank~~CTBC Credit ~~Facility.~~Line was $105 million. As of December 31, 2022, the net book value of land and building located in 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 December 31, 2022.

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

Fiscal Year: Principal Payments


2022		$	377,969
2023		29,853
Remainder of 2023				Remainder of 2023	$	10,453
2024	2024	33,530		2024	38,776
2025	2025	37,014		2025	42,720
2026	2026	37,014		2026	42,720
2027 and thereafter		32,088
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	$	547,468	Total short-term and long-term debt	$	170,142

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

21SMCI | 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 ~~nine~~six months ended ~~March~~December 31, 2022 and 2021 were as follows (in thousands):

Three Months Ended
March 31, Nine Months Ended
March 31,
2022 2021 2022 2021
Operating lease expense (including expense for lease agreements with related parties of $143 and $568 for the three and nine months ended March 31, 2022, respectively, and $347 and $1,040 for the three and nine months ended March 31, 2021, respectively) $ 2,017 $ 1,952 $ 6,183 $ 5,900
Cash payments for operating leases (including payments to related parties of $141 and $631 for the three and nine months ended March 31, 2022, respectively, and $347 and $1,040 for the three and nine months ended March 31, 2021, respectively) 1,854 1,994 6,067 5,951
New operating lease assets obtained in exchange for operating lease liabilities 3,730 22 11,108 2,715


	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 ~~nine~~six months ended ~~March~~December 31, 2022 and 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 ~~nine~~six months ended ~~March~~December 31, 2022 were ~~$0.2~~$0.4 million and ~~$0.7~~$0.9 million, respectively. ~~Variable~~Non-lease variable payments expensed in the three and ~~nine~~six months ended ~~March~~December 31, 2021 were ~~$0.4~~$0.2 million and ~~$1.2~~$0.5 million, respectively.

As of ~~March~~December 31, 2022, the weighted average remaining lease term for operating leases was ~~4.0~~3.4 years and the weighted average discount rate was ~~3.0%~~2.9%. Maturities of operating lease liabilities under noncancelable operating lease arrangements as of ~~March~~December 31, 2022 were as follows (in thousands):


Fiscal Year:	Fiscal Year:	Minimum lease payments		Fiscal Year:	Maturities of operating leases
2022		$	2,004
2023		7,817
Remainder of 2023				Remainder of 2023	$	4,168
2024	2024	6,524		2024	6,927
2025	2025	6,122		2025	6,368
2026	2026	2,644		2026	2,625
2027 and beyond		2,084
2027				2027	1,564
2028 and beyond				2028 and beyond	535
Total future lease payments	Total future lease payments	$	27,195	Total future lease payments	22,187
Less: Imputed interest	Less: Imputed interest	(1,489)		Less: Imputed interest	(1,146)
Present value of operating lease liabilities	Present value of operating lease liabilities	$	25,706	Present value of operating lease liabilities	$	21,041

As of ~~March~~December 31, 2022, 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 Part I, Item 1, Note 8, "Related Party Transactions," for a further discussion.

22SMCI | Q2 2023 Form 10-Q | 21

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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 ~~March~~December 31, 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 ~~88.8%~~95.5% and ~~92.5%~~88.3% of the chassis included in the products sold by the Company during the three months ended ~~March~~December 31, 2022 and 2021, respectively, and ~~82.5%~~91.8% and ~~92.5%~~90.3% of the chassis included in the products sold by the Company during the ~~nine~~six months ended ~~March~~December 31, 2022 and 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.

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 ~~March~~December 31, 2022 were ~~$44.6~~$27.4 million and ~~$40.5~~$26.8 million, respectively, and outstanding cancellable and non-cancellable purchase orders from the Company to Ablecom on June 30, ~~2021~~2022 were ~~$44.9~~$39.5 million and ~~$40.2~~$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.

23SMCI | 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.

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 ~~March~~December 31, 2022 were ~~$192.4~~$170.2 million and ~~$42.3~~$70.1 million, respectively, and outstanding cancellable and non-cancellable purchase orders from the Company to Compuware on June 30, ~~2021~~2022 were ~~$123.3~~$213.3 million and ~~$71.0~~$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 ~~March~~December 31, 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.

24SMCI | 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 ~~March~~December 31, 2022. No impairment charge was recorded for the three and ~~nine~~six months ended ~~March~~December 31, 2022 ~~and 2021, respectively.~~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 of 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 ~~March~~December 31, 2022 and June 30, ~~2021~~2022 (in thousands):


		Ablecom				Compuware				Corporate Venture				MPS				Total					Ablecom				Compuware				Corporate Venture				Total
		March 31, 2022		June 30, 2021		March 31, 2022		June 30, 2021		March 31, 2022		June 30, 2021		March 31, 2022		June 30, 2021		March 31, 2022		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	$	381	$	198	$	33,702	$	8,478	$	—	$	—	$	34,084	$	8,678	Accounts receivable	$	2	$	2	$	267	$	404	$	4,951	$	7,992		$	5,220	$	8,398
Other receivable (1)	Other receivable (1)	$	2,415	$	5,575	$	27,105	$	18,173	$	—	$	—	$	41	$	89	$	29,561	$	23,837	Other receivable (1)	$	3,452	$	4,816	$	43,885	$	19,596	$	—	$	—		$	47,337	$	24,412
Accounts payable	Accounts payable	$	38,966	$	38,152	$	48,300	$	31,944	$	—	$	—	$	—	$	—	$	87,266	$	70,096	Accounts payable	$	38,874	$	42,463	$	49,232	$	44,892	$	—	$	—		$	88,106	$	87,355
Accrued liabilities (2)	Accrued liabilities (2)	$	982	$	3,042	$	14,333	$	14,486	$	—	$	1,000	$	—	$	—	$	15,315	$	18,528	Accrued liabilities (2)	$	1,522	$	3,531	$	18,005	$	15,145	$	—	$	—		$	19,527	$	18,676


(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 ~~March~~December 31, 2022 and 2021, are as follows (in thousands):


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

Net sales	Net sales	$	2	$	2	$	3,928	$	3,580	$	43,739	$	16,850	$	—	$	—	$	47,669	$	20,432	Net sales	$	2	$	3	$	14,113	$	3,302	$	5,958	$	38,311	$	—	$	—	$	20,073	$	41,616
Purchases - inventory	Purchases - inventory	$	49,472	$	32,150	$	43,989	$	24,115	$	—	$	—	$	2,018	$	1,189	$	95,479	$	57,454	Purchases - inventory	$	46,715	$	47,520	$	52,028	$	46,821	$	—	$	—	$	—	$	2,387	$	98,743	$	96,728
Purchases - other miscellaneous items	Purchases - other miscellaneous items	$	1,687	$	2,002	$	404	$	475	$	—	$	—	$	—	$	—	$	2,091	$	2,477	Purchases - other miscellaneous items	$	2,763	$	2,867	$	279	$	347	$	—	$	—	$	—	$	—	$	3,042	$	3,214

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

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 ~~nine~~six months ended ~~March~~December 31, 2022 and 2021, are as follows (in thousands):


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

Net sales	Net sales	$	12	$	(25)	$	22,932	$	22,451	$	97,262	$	36,427	$	—	$	—	$	120,206	$	58,853	Net sales	$	3	$	10	$	27,872	$	19,004	$	17,251	$	53,524	$	—	$	—	$	45,126	$	72,538
Purchases - inventory	Purchases - inventory	$	147,780	$	77,838	$	126,039	$	87,330	$	—	$	—	$	6,074	$	2,677	$	279,893	$	167,845	Purchases - inventory	$	94,562	$	98,309	$	100,717	$	82,050	$	—	$	—	$	—	$	4,056	$	195,279	$	184,415
Purchases - other miscellaneous items	Purchases - other miscellaneous items	$	6,671	$	7,482	$	1,090	$	1,434	$	—	$	—	$	—	$	—	$	7,761	$	8,916	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 ~~nine~~six months ended ~~March~~December 31, 2022 and 2021, are as follows (in thousands):


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

Changes in accounts receivable	Changes in accounts receivable	1		$	(30)	$	(182)	$	133	$	(25,224)	$	(3,635)	$	—	$	—	$	(25,405)	$	(3,532)	Changes in accounts receivable	$	—	$	1	$	137	$	(66)	$	3,041	$	(25,789)	$	—	$	—	$	3,178	$	(25,854)
Changes in other receivable	Changes in other receivable	$	3,159	$	(211)	$	(8,933)	$	(296)	$	—	$	—	$	48	$	65	$	(5,726)	$	(442)	Changes in other receivable	$	1,364	$	641	$	(24,289)	$	(11,673)	$	—	$	—	$	—	$	(133)	$	(22,925)	$	(11,165)
Changes in accounts payable	Changes in accounts payable	$	814	$	(8,768)	$	16,356	$	(9,528)	$	—	$	—	$	—	$	—	$	17,170	$	(18,296)	Changes in accounts payable	$	(3,589)	$	3,573	$	4,340	$	22,367	$	—	$	—	$	—	$	—	$	751	$	25,940
Changes in accrued liabilities	Changes in accrued liabilities	$	(2,060)	$	955	$	(153)	$	(635)	$	(1,000)	$	(500)	$	—	$	—	$	(3,213)	$	(180)	Changes in accrued liabilities	$	(2,009)	$	(212)	$	2,860	$	2,713	$	—	$	(1,000)	$	—	$	—	$	851	$	1,501
Changes in other long-term liabilities	Changes in other long-term liabilities	$	—	$	(513)	$	596	$	(186)	$	—	$	(1,000)	$	—	$	—	$	596	$	(1,699)	Changes in other long-term liabilities	$	—	$	—	$	(168)	$	—	$	—	$	—	$	—	$	—	$	(168)	$	—
Purchases of property, plant and equipment	Purchases of property, plant and equipment	$	2,365	$	5,675	$	140	$	170	$	—	$	—	$	—	$	—	$	2,505	$	5,845	Purchases of property, plant and equipment	$	4,366	$	1,678	$	148	$	92	$	—	$	—	$	—	$	—	$	4,514	$	1,770
Unpaid property, plant and equipment	Unpaid property, plant and equipment	$	681	$	1,434	$	48	68		$	—	$	—	$	—	$	—	$	729	$	1,502	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 NTD 789 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 March 31, 2022, 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 ~~March~~December 31, 2022, the Company had ~~1,979,112~~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 March 31, 2022. There were no shares repurchased under the share repurchase program~~programs during the three and ~~nine~~six months ended ~~March~~December 31, 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 nine months ended March 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
March 31, Nine Months Ended
March 31,
2022 2021 2022 2021
Risk-free interest rate 1.65% 0.58% 0.81% - 1.65% 0.27% - 0.58%
Expected term 6.09 years 5.98 years 6.09 years 5.98 years
Dividend yield —% —% —% —%
Volatility 49.99% 50.32% 49.69% - 49.99% 50.32% - 50.43%
Weighted-average fair value $19.31 $15.91 $18.09 $13.57

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 ~~nine~~six months ended ~~March~~December 31, 2022 and 2021 (in thousands):


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended December 31,				Six Months Ended December 31,
		2022		2021		2022		2021			2022		2021		2022		2021
Cost of sales	Cost of sales	$	460	$	402	$	1,378	$	1,312	Cost of sales	$	1,486	$	471	$	2,370	$	918
Research and development	Research and development	4,141		3,328		12,124		10,369		Research and development	9,334		4,103		15,452		7,983
Sales and marketing	Sales and marketing	504		503		1,517		1,517		Sales and marketing	1,448		496		2,257		1,013
General and administrative	General and administrative	2,636		3,261		8,913		7,919		General and administrative	4,713		4,106		7,916		6,277
Stock-based compensation expense before taxes	Stock-based compensation expense before taxes	7,741		7,494		23,932		21,117		Stock-based compensation expense before taxes	16,981		9,176		27,995		16,191
Income tax impact	Income tax impact	(2,431)		(2,389)		(8,077)		(6,080)		Income tax impact	(3,381)		(2,310)		(4,720)		(4,198)
Stock-based compensation expense, net	Stock-based compensation expense, net	$	5,310	$	5,105	$	15,855	$	15,037	Stock-based compensation expense, net	$	13,600	$	6,866	$	23,275	$	11,993

As of ~~March~~December 31, 2022, ~~$9.6~~$17.0 million of unrecognized compensation ~~expense~~cost related to stock options is expected to be recognized over a weighted-average period of ~~3.57~~3.01 years ~~$53.0~~and $78.8 million of unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted-average period of ~~2.72 years and unrecognized compensation cost of $0.1 million related to unvested PRSUs was recognized during the nine months ended March 31, 2022.~~2.63 years. Additionally, as described below, ~~$5.2~~$2.4 million of unrecognized compensation cost related to the 2021 CEO Performance Stock Option is expected to be recognized over a period of ~~2.75~~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 March 31, 2022 was as follows:~~

Annualized Revenue Milestone Achievement Status Stock Price Milestone Achievement Status
(in billions)
$4.0 Achieved $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 vesting of the 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 in August 2022.

(2)The 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 in October 2022.

(3)The vesting of the third 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 on 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 ~~nine~~six months ended ~~March~~December 31, 2022, the Company recognized compensation expense related to the 2021 CEO Performance Stock Option of ~~$1.5~~$1.9 million and ~~$5.3~~$3.2 million, respectively. During the three and ~~nine~~six months ended ~~March~~December 31, 2021, the Company recognized compensation expense related to the 2021 CEO Performance Stock Option of ~~$0.3~~$2.9 million and ~~$0.3~~$3.8 million, respectively. As of ~~March~~December 31, 2022 and June 30, ~~2021,~~2022, the Company had ~~$5.2~~$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 ~~March~~December 31, 2022 is expected to be recognized over a period of more than ~~2.75~~1.50 years.

~~The following table summarizes stock option activity during the nine months ended March 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, 2021 5,175,554 $ 26.17
Granted 286,000 $ 37.72
Exercised (921,001) $ 17.32
Forfeited/Cancelled (123,113) $ 29.48
Balance as of March 31, 2022 4,417,440 $ 28.64 5.50
Options vested and exercisable at March 31, 2022 2,700,170 $ 21.61 3.38

~~RSU and PRSU Activity~~

In March 2020, the Compensation Committee granted a 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.

29SMCI | Q2 2023 Form 10-Q | 28

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SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The following table summarizes stock option activity during the 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 Activity

The following table summarizes RSU and PRSU activity during the ~~nine~~six months ended ~~March~~December 31, 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	840,435	$	37.44	2,939	$	34.27	Granted	745,937	$	62.77
Released	Released	(517,530)	$	22.92	(17,939)	$	34.27	Released	(484,003)	$	36.14
Forfeited	Forfeited	(274,972)	$	29.44	—	$	—	Forfeited	(77,613)	$	38.22
Balance as of March 31, 2022		1,902,889	$	32.09	—	$	—
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 ~~$16.2~~$29.6 million and ~~$27.1~~$68.5 million for the three and ~~nine~~six months ended ~~March~~December 31, 2022, ~~respectively. The Company recorded a benefit for income taxes of $0.2~~respectively, and $7.6 million and $10.9 million for the three and six months ended ~~March~~December 31, 2021, ~~and a provision for income taxes of $8.5 million for the nine months ended March 31, 2021.~~respectively. The effective tax rate was ~~17.4%~~14.3% and 15.9% for the three and ~~nine~~six months ended ~~March~~December 31, 2022, respectively, and ~~(1.2)%~~15.4% and ~~10.5%~~14.1% for the three and ~~nine~~six months ended ~~March~~December 31, 2021, respectively. The effective tax rate for the three ~~and nine~~ months ended ~~March~~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 ~~same periods~~six months ended ~~March~~December 31, 2021, primarily due to athe significant increase in ~~pre-tax~~taxable income in the first two quarters of fiscal ~~2022~~year 2023, while the income tax deductions for items such as the R&D credit and ~~corresponding decreases~~foreign tax deduction in those quarters did not increase in the ~~effective tax rate benefits from~~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 ~~credits, deductions~~expenses, including software development cost, and subsequently amortize such expenses over five years for ~~foreign sales,~~R&D activities conducted in the United States and ~~windfall tax benefits.~~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 ~~March~~December 31, 2022, the Company had gross unrecognized tax benefits of ~~$38.9~~$41.1 million, of which, ~~$15.7~~$23.4 million if recognized, would affect the Company's effective tax rate. During the six months ended December 31, 2022, there was a $3.9 million 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 ~~March~~December 31, 2022, the Company had accrued ~~$3.1~~$3.3 million of interest and penalties relating to unrecognized tax benefits.

Under the 2017 Tax Reform Act, starting on July 1, 2018, the Company is no longer subject to federal income tax on earnings remitted from its foreign subsidiaries. As a result of the 2017 Tax Reform Act, 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, 2019 through ~~2021.~~2022. Various states statutes of limitations remain open in general for tax years ended June 30, 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. On March 11, 2022, the Company, together with the individual defendants, ~~entered into an agreement~~agreed in principle with plaintiff’s counsel to settle the action. On April 8, 2022, the parties entered into a stipulation of settlement, ~~with plaintiff's counsel. Pursuant~~pursuant to ~~the terms of the stipulation of settlement,~~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 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 March 2, 2023 for final approval. This settlement, if finally approved by the Court, will fully resolve the action. ~~A hearing on preliminary approval of the proposed settlement is scheduled for June 2, 2022.~~ ~~As of March 31, 2022, the Company recorded a liability of~~ $18,250,000 for the Hessefort case settlement in accrued liabilities and $16,250,000 of litigation settlement costs recovery in other receivables in its condensed consolidated balance sheets. The net Hessefort litigation settlement costs of $2,000,000 is recorded as a charge to general and administrative expense in the Company's condensed consolidated statement of operations for the three and nine months ended March 31, 2022.

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. Following a March 23, 2022 hearing, on March 25, 2022, the Court granted defendants’ demurrers on the grounds that plaintiffs had failed to allege demand futility and the Court dismissed the amended complaint, but with leave to amend by May 20, 2022. The case is otherwise currently stayed. The Company intends to defend the lawsuit vigorously if a second amended complaint is filed.

~~Table of Contents~~

~~SUPER MICRO COMPUTER, INC.~~

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

~~(Unaudited)~~

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 its 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 by the Court on December 21, 2021. No shareholder sought to intervene during the 45-day notice period ending on February 4, 2022, and on March 24, 2022, the Court issued an order dismissing the lawsuit with prejudice as to the named plaintiff.

~~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, to 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.

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 ~~March~~December 31, 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 ~~March~~December 31, 2022, these remaining noncancelable commitments were ~~$628.6~~$422.9 million, including ~~$82.8~~$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)

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

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.

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


		March 31,		June 30,			December 31,		June 30,
		2022		2021			2022		2022
Long-lived assets:	Long-lived assets:					Long-lived assets:
United States	United States	$	176,012	$	180,143	United States	$	181,754	$	180,846
Asia	Asia	103,476		91,640		Asia	104,724		102,241
Europe	Europe	2,831		2,930		Europe	2,777		2,885
		$	282,319	$	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 ~~March~~December 31, 2022 increased to ~~$77.0~~$176.2 million from ~~$18.4~~$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 coronavirus (COVID-19) and its variants have continued to create 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. We are an essential critical infrastructure (information technology) business under the relevant federal, state and county regulations. Our first priority is the safety of our workforce and we have therefore implemented numerous health precautions and work practices to be in compliance with the law and to operate in a safe manner.

We have continued to see ongoing demand for our IT solutions and do not have significant direct exposure to industries which have been impacted the greatest. The pandemic has created additional demand for many server applications, that support the global movement towards a digital economy. These applications include greater use of online transactions for everyday purchases by consumers of food, clothing, entertainment from gaming and video streaming, as well as tele-health, social networking, messaging, email, autonomous driving solutions and video conferencing companies.

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We have actively managed our supply chain for potential shortage risk by building inventories of critical components required such as CPUs, memory, SSDs and GPUs to support our ability to fulfill customer orders. Our architecture, which is based on a “Building Block Solutions” design approach, has also assisted us during the pandemic, to qualify different components for compatibility with our systems to help us overcome some shortages.

Logistics has continued to be a challenge during this pandemic as the global transportation industry, and particularly ocean transportation, has been challenged by shortages of containers, laborers, truckers and crowded ports. Shipping by air, has been used more frequently despite that it is more expensive and there are fewer flights during the COVID-19 pandemic than there were previously. 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 until the COVID-19 pandemic ends.

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 and, in March 2022, further negotiated an increase in the size of our credit facility with Bank of America from $200 million to $350 million. 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 and April 2022, we entered into a term loan facility and credit line, respectively, 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 emergence of any new variants. There are positive signs with the expiration of various COVID-19 mandates, vaccine availability and the rollout of boosters; however, with 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 ~~third~~second quarter of fiscal year ~~2022:~~2023:

•Net sales increased by ~~51.3%~~53.8% in the three months ended ~~March~~December 31, 2022 as compared to the three months ended ~~March~~December 31, 2021.

•Gross margin increased to ~~15.5%~~18.7% in the three months ended ~~March~~December 31, 2022 from ~~13.7%~~14.0% in the three months ended ~~March~~December 31, 2021.

•Operating expenses increased by ~~14.2%~~8.5% as compared to the three months ended ~~March~~December 31, 2021 and were equal to ~~8.9%~~6.7% and ~~11.8%~~9.6% of net sales in the three months ended ~~March~~December 31, 2022 and 2021, respectively.

•Effective tax rate ~~increased~~decreased to ~~17.4%~~14.3% in the three months ended ~~March~~December 31, 2022 from ~~(1.2)%~~15.4% in the three months ended ~~March~~December 31, 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 March 31,				Nine Months Ended March 31,					Three Months Ended December 31,				Six Months Ended December 31,
		2022		2021		2022		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	84.5	%	86.3	%	85.6	%	84.4	%	Cost of sales	81.3	%	86.0	%	81.3	%	86.3	%
Gross profit	Gross profit	15.5	%	13.7	%	14.4	%	15.6	%	Gross profit	18.7	%	14.0	%	18.7	%	13.7	%
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	5.2	%	6.5	%	5.7	%	6.6	%	Research and development	3.9	%	5.6	%	4.0	%	5.9	%
Sales and marketing	Sales and marketing	1.6	%	2.4	%	1.9	%	2.5	%	Sales and marketing	1.6	%	1.9	%	1.6	%	2.0	%
General and administrative	General and administrative	2.0	%	2.9	%	2.1	%	3.0	%	General and administrative	1.2	%	2.2	%	1.2	%	2.2	%
Total operating expenses	Total operating expenses	8.9	%	11.8	%	9.6	%	12.2	%	Total operating expenses	6.7	%	9.6	%	6.8	%	10.1	%
Income from operations	Income from operations	6.6	%	1.9	%	4.8	%	3.4	%	Income from operations	12.0	%	4.4	%	11.9	%	3.6	%
Other (expense) income, net		0.3	%	0.2	%	0.1	%	(0.1)	%
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	6.9	%	2.1	%	4.8	%	3.3	%	Income before income tax provision	11.5	%	4.2	%	11.8	%	3.5	%
Income tax provision	Income tax provision	(1.2)	%	—	%	(0.8)	%	(0.3)	%	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	—	%	—	%	—	%	—	%	Share of income (loss) from equity investee, net of taxes	(0.1)	%	—	%	(0.1)	%	—	%
Net income	Net income	5.7	%	2.1	%	4.1	%	2.9	%	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 ~~nine~~six months ended ~~March~~December 31, 2022 and 2021 (dollars in millions):


		Three Months Ended March 31,						Change				Nine Months Ended March 31,						Change					Three Months Ended December 31,						Change				Six Months Ended December 31,						Change
		2022			2021			$		%		2022			2021			$		%			2022			2021			$		%		2022			2021			$		%
Server and storage systems	Server and storage systems	$	1,145.9		$	693.3		$	452.6	65.3	%	$	2,981.8		$	1,953.8		$	1,028.0	52.6	%	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	84.5		%	77.4		%					83.7		%	78.5		%					Percentage of total net sales	92.1		%	84.1		%					92.3		%	83.3		%
Subsystems and accessories	Subsystems and accessories	$	209.6		$	202.5		$	7.1	3.5	%	$	578.9		$	534.6		$	44.3	8.3	%	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	15.5		%	22.6		%					16.3		%	21.5		%					Percentage of total net sales	7.9		%	15.9		%					7.7		%	16.7		%
Total net sales	Total net sales	$	1,355.5		$	895.9		$	459.6	51.3	%	$	3,560.7		$	2,488.4		$	1,072.3	43.1	%	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 ~~March~~December 31, 2022 and 2021

The period-over-period increase in net sales of our server and storage systems was due to a ~~19.7%~~20.6% increase in the number of units of compute nodes sold and a ~~41.0%~~41.1% increase in the average selling price.

The period-over-period ~~increase~~decrease in net sales for our subsystems and accessories ~~is only at 3.5% increase and this is~~of 23.6% was primarily ~~driven by an increase in the number of units sold and~~ due to ~~change in product mix, largely offset by lower pricing per unit.~~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 ~~Nine~~Six Months Ended ~~March~~December 31, 2022 and 2021

The period-over-period increase in net sales of our server and storage systems was due to a ~~25.2%~~27.8% increase in the number of units of compute nodes sold and a ~~24.3%~~45.7% increase in the average selling price.

The ~~period-over-period increase in net sales of our subsystems and accessories is primarily due to an~~ increase in the number of units ~~sold by 24.9% offset by a decrease in the average selling prices by 13.3%, driven by product mix.~~of compute nodes shipped was primarily due to increased demand of GPU systems.

38The period-over-period decrease in net sales for our subsystems and accessories of 23.8% 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.

~~Table of Contents~~

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


		Three Months Ended March 31,						Change		Change		Nine Months Ended March 31,						Change		Change			Three Months Ended December 31,						Change		Change		Six Months Ended December 31,						Change		Change
		2022			2021			$		%		2022			2021			$		%			2022			2021			$		%		2022			2021			$		%
United States	United States	$	762.4		$	499.1		$	263.3	52.8	%	$	1,961.6		$	1,458.2		$	503.4	34.5	%	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	56.2		%	55.7		%					55.1		%	58.6		%					Percentage of total net sales	60.5		%	54.4		%					65.3		%	54.4		%
Asia	Asia	$	310.0		$	207.2		$	102.8	49.6	%	$	857.2		$	495.3		$	361.9	73.1	%	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	22.9		%	23.1		%					24.1		%	19.9		%					Percentage of total net sales	18.4		%	24.2		%					16.4		%	24.8		%
Europe	Europe	$	205.4		$	162.3		$	43.1	26.6	%	$	600.6		$	429.2		$	171.4	39.9	%	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	15.2		%	18.1		%					16.9		%	17.2		%					Percentage of total net sales	17.3		%	18.4		%					15.0		%	17.9		%
Others	Others	$	77.7		$	27.3		$	50.4	184.6	%	$	141.4		$	105.7		$	35.7	33.8	%	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	5.7		%	3.0		%					4.0		%	4.2		%					Percentage of total net sales	3.8		%	3.0		%					3.3		%	2.9		%
Total net sales	Total net sales	$	1,355.5		$	895.9						$	3,560.6		$	2,488.4						Total net sales	$	1,803.2		$	1,172.4						$	3,655.3		$	2,205.1

SMCI | Q2 2023 Form 10-Q | 36

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Comparison of Three Months Ended ~~March~~December 31, 2022 and 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, driven by increased sales in the East Coast region 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 Singapore.systems. The increase of net sales in Europe was primarily due to ~~higher sales in the Netherlands and Germany, partially offset by lower sales in Russia. The period-over-period increase~~increases in net sales in ~~other countries was primarily due to higher sales in Brazil.~~Netherlands, UK and Germany.

Comparison of ~~Nine~~Six Months Ended ~~March~~December 31, 2022 and 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, driven by increased sales in the East Coast region 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, Singapore, Taiwan and Korea. The period-over-period~~ increase of net sales in Europe was primarily due to ~~higher sales in Germany and the Netherlands. The period-over-period increase~~increases in net sales in ~~other countries was primarily due to higher sales in Brazil~~Netherlands, UK and ~~U.A.E., partially offset by lower sales in Mexico.~~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 ~~nine~~six months ended ~~March~~December 31, 2022 and 2021 are as follows (dollars in millions):


		Three Months Ended March 31,						Change				Nine Months Ended March 31,						Change					Three Months Ended December 31,						Change				Six Months Ended December 31,						Change
		2022			2021			$		%		2022			2021			$		%			2022			2021			$		%		2022			2021			$		%
Cost of sales	Cost of sales	$	1,144.7		$	772.9		$	371.8	48.1	%	$	3,048.0		$	2,099.4		$	948.6	45.2	%	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	$	210.8		$	123.0		$	87.8	71.4	%	$	512.7		$	389.0		$	123.7	31.8	%	Gross profit	$	337.4		$	163.7		$	173.7	106.1	%	$	685.0		$	301.9		$	383.1	126.9	%
Gross margin	Gross margin	15.5		%	13.7		%			1.8	%	14.4		%	15.6		%			(1.2)	%	Gross margin	18.7		%	14.0		%			4.7	%	18.7		%	13.7		%			5.0	%

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

The period-over-period increase in cost of sales was primarily attributed to an increase of ~~$342.4~~$433.1 million in costs of materials and contract manufacturing expenses primarily related to the increase in net sales volume, a ~~$15.8 million increase in freight costs, a $2.7~~$22.1 million increase in overhead costs, ~~and~~ a ~~$8.1~~$15.8 million increase in ~~excess and obsolete~~ inventory ~~charges.~~charges offset by a $13.9 million decrease in freight costs.

The period-over-period increase in the gross margin percentage was primarily due to ~~sales price increases. Since~~a reduction in the ~~start~~cost 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.~~ ~~For the quarter ended March 31, 2022, we were able to mitigate the impact of these higher costs by charging higher prices for our products~~facilities. These key components included hard disk drives, solid-state drives, motherboards and ~~services.~~other components.

SMCI | Q2 2023 Form 10-Q | 37

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

The period-over-period increase in cost of sales was primarily attributed to an increase of ~~$854.8~~$1,017.2 million in costs of materials and contract manufacturing expenses primarily related to the increase in net sales volume, a ~~$48.3~~$41.5 million increase in ~~freight charges,~~overhead costs, a ~~$19.6 millionincrease due to lower cost recovery of cost paid in prior periods, a $9.9~~$21.7 million increase in excess and obsolete inventory charges ~~and~~offset by a ~~$7.2~~$13.3 million ~~increase~~decrease in ~~overhead~~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.

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.

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


	Three Months Ended December 31,						Change				Six Months Ended December 31,						Change
	2022			2021			$		%		2022			2021			$		%
Research and development	$	70.7		$	65.5		$	5.2	7.9	%	$	145.0		$	130.6		$	14.4	11.0	%
Percentage of total net sales	3.9		%	5.6		%					4.0		%	5.9		%
Sales and marketing	$	28.4		$	22.0		$	6.4	29.1	%	$	57.8		$	43.6		$	14.2	32.6	%
Percentage of total net sales	1.6		%	1.9		%					1.6		%	2.0		%
General and administrative	$	23.1		$	25.3		$	(2.2)	(8.7)	%	$	46.9		$	47.5		$	(0.6)	(1.3)	%
Percentage of total net sales	1.2		%	2.2		%					1.2		%	2.2		%
Total operating expenses	$	122.2		$	112.7		$	9.5	8.4	%	$	249.7		$	221.7		$	28.0	12.6	%
Percentage of total net sales	6.7		%	9.6		%					6.8		%	10.1		%

SMCI | Q2 2023 Form 10-Q | 38

Table of Contents

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

Three Months Ended March 31, Change Nine Months Ended March 31, Change
2022 2021 $ % 2022 2021 $ %
Research and development $ 70.9 $ 57.9 $ 13.0 22.5 % $ 201.5 $ 165.4 $ 36.1 21.8 %
Percentage of total net sales 5.2 % 6.5 % 5.7 % 6.6 %
Sales and marketing $ 22.4 $ 21.8 $ 0.6 2.8 % $ 65.9 $ 62.9 $ 3.0 4.8 %
Percentage of total net sales 1.6 % 2.4 % 1.9 % 2.5 %
General and administrative $ 27.8 $ 26.2 $ 1.6 6.1 % $ 75.3 $ 75.9 $ (0.6) (0.8) %
Percentage of total net sales 2.0 % 2.9 % 2.1 % 3.0 %
Total operating expenses $ 121.0 $ 106.0 $ 15.0 14.2 % $ 342.7 $ 304.2 $ 38.5 12.7 %
Percentage of total net sales 8.9 % 11.8 % 9.6 % 12.2 %

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

Research and development expenses. The period-over-period increase in research and development expenses was primarily due to a ~~$10.7~~$12.6 million increase in personnel expenses primarily due to ~~salary increases and a higher~~increase in headcount and ~~$2.1~~equity grants partially offset by $7.4 million ~~lower non-recurring engineering ("'NRE") payments~~higher in research and development credits provided from certain suppliers and customers ~~towards~~for our development efforts.

Sales and marketing expenses. The period-over-period increase in sales and marketing expenses was primarily due to a ~~$2.9~~$6.7 million increase in personnel expenses primarily due to increased headcount partially offset by ~~a $1.4~~$0.3 million ~~increase in marketing development funds received and a $1.4 million decrease~~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 ~~an increase of $1.5~~a $2.3 million decrease in ~~compensation and other expenses, $2.5 million increase in professional fees~~legal and litigation settlement expenses partially offset by ~~$2.5~~an increase of $0.1 million ~~decrease~~ in ~~expense relating to special performance awards.~~personnel related expenses and other expenses.

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

Research and development expenses.The period-over-period increase in research and development expenses was primarily due to a ~~$26.8~~$20.3 million increase in personnel expenses, ~~due to salary increases and~~ a ~~higher headcount, $5.8 million lower NRE payments from certain suppliers and customers towards our development efforts and a $2.5~~$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 ~~$6.5~~$12.2 million increase in personnel expenses ~~offset by~~as a ~~$2.9~~result of a higher head count and an increase of $1.3 million ~~increase in marketing development funds received and a $0.6 million decrease~~ 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 $2.6~~$2.3 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 $6.3 million decrease ~~in expense from special performance awards, offset by a $4.1 million increase~~ in legal and litigation settlement expenses ~~and $4.2~~partially offset by an increase of $1.7 million ~~increase~~ in ~~compensation~~personnel expenses and other expenses.

Interest Expense and Other (Expense) Income, Net

Other (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~~credit.

Interest expense and ~~increased due to higher debt outstanding.~~other (expense) income, net for the three and six months ended December 31, 2022 and 2021 are as follows (dollars in millions):


	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	%

41SMCI | Q2 2023 Form 10-Q | 39

Table of Contents

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

Three Months Ended
March 31, Change Nine Months Ended
March 31, Change
2022 2021 $ % 2022 2021 $ %
Other (expense) income, net $ 4.7 $ 2.0 $ 2.7 135.0 % $ 4.1 $ (1.4) $ 5.5 (392.9) %
Interest expense $ (1.5) $ (0.6) $ (0.9) 150.0 % $ (3.5) $ (1.8) $ (1.7) 94.4 %
Interest and other (expense) income, net $ 3.2 $ 1.4 $ 1.8 128.6 % $ 0.6 $ (3.2) $ 3.8 (118.8) %

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

The change of ~~$1.8~~$6.3 million in interest expense and other expense, net was primarily attributable to a $5.7 million increase in foreign exchange loss due to unfavorable currency 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, 2022 and 2021

The change of $1.4 million in interest expense and other (expense) income, net was primarily attributable to a ~~$2.7~~$2.3 million increase in foreign exchange gain due to favorable currency fluctuations offset by a ~~$0.9~~$3.7 million increase in interest expense due to both an increase in average loan balances and interest rates.

~~Comparison of Nine Months Ended March 31, 2022 and 2021~~

The change of $3.8 million in interest and other (expense) income, net was primarily attributable to a $5.5 million increase in foreign exchange gain due to favorable currency fluctuations offset by a $1.7 million increase in interest expense due to increase in 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 ~~nine~~six months ended ~~March~~December 31, 2022 and 2021 are as follows (dollars in millions):


		Three Months Ended March 31,						Change				Nine Months Ended March 31,						Change
		2022			2021			$		%		2022			2021			$		%			Three Months Ended December 31,						Change				Six Months Ended December 31,						Change
																							2022			2021			$		%		2022			2021			$		%
Income tax provision	Income tax provision	$	16.2		$	(0.2)		$	16.4	(8,200.0)	%	$	27.1		$	8.5		$	18.6	218.8	%	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	1.2		%	—		%					0.8		%	0.3		%					Percentage of total net sales	1.6		%	0.6		%					1.9		%	0.5		%

Effective tax rate	Effective tax rate	17.4		%	(1.2)		%					15.9		%	10.5		%					Effective tax rate	14.3		%	15.4		%					15.9		%	14.1		%

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

Our quarterly effective income tax 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, 2022, is lower than that for the three months ended December 31, 2021, primarily due to an increase 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, 2022 and 2021

The income tax provision and effective tax rate for the ~~three~~six months ended ~~March~~December 31, 2022 is higher than that for the ~~three~~six months ended ~~March~~December 31, 2021, primarily due to a significant increase in taxable income ~~while~~in the ~~deductible expenses stayed~~first two quarters of fiscal year 2023, whereas the ~~same as the same period for the prior year.~~

~~Comparison of Nine Months Ended March 31, 2022 and 2021~~

~~The~~ income tax ~~provision~~deduction for items such as R&D credit and ~~effective~~foreign tax ~~rate for the nine months ended March 31, 2022 is higher than that for the nine months ended March 31, 2021, primarily due to a significant~~deduction comparably did not increase in the ~~nine months taxable income and our forecast of annual taxable income, while the tax deductible expenses and R&D tax credit stayed the~~ same ~~as the same period for the prior year.~~proportion.

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

Share of (loss) income ~~(loss)~~ 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.

SMCI | Q2 2023 Form 10-Q | 40

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

Three Months Ended
March 31, Change Nine Months Ended
March 31, Change
2022 2021 $ % 2022 2021 $ %
Share of income (loss) from equity investee, net of taxes $ 0.3 $ (0.3) $ 0.6 (200.0)% $ 0.9 $ (0.4) $ 1.3 (325.0)%
Percentage of total net sales 0.02 % — % 0.02 % — %


	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 ~~March~~December 31, 2022 and 2021

The period-over-period ~~increase~~decrease of ~~$0.6~~$1.6 million in share of (loss) income ~~(loss)~~ from equity investee, net of taxes was primarily due to ~~more~~less net income recognized by the Corporate Venture.

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

The period-over-period ~~increase~~decrease of ~~$1.3~~$2.8 million in share of (loss) income ~~(loss)~~ 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 and~~equipment. We also received funds ~~received~~ 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 ~~March~~December 31, 2022 and June 30, ~~2021,~~2022, respectively. Our cash in foreign locations was ~~$150.6~~$168.5 million and ~~$152.6~~$169.5 million as of ~~March~~December 31, 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 March 31, 2022.~~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):

Nine Months Ended
March 31, Change
2022 2021
Net cash provided by (used in) operating activities $ (415.7) $ 59.4 $ (475.1)
Net cash used in investing activities $ (35.3) $ (44.6) $ 9.3
Net cash provided by (used in) financing activities $ 466.4 $ (48.4) $ 514.8
Net increase (decrease) in cash, cash equivalents and restricted cash $ 15.1 $ (33.3) $ 48.4


	Six Months Ended December 31,				Change
	2022		2021
Net cash provided by (used in) operating activities	$	474.7	$	(187.7)	$	662.4
Net cash (used in) investing activities	$	(20.6)	$	(24.3)	$	3.7
Net cash (used in) provided by financing activities	$	(415.8)	$	227.2	$	(643.0)
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 ~~$475.1~~$662.4 million for the ~~nine~~six months ended ~~March~~December 31, 2022 as compared to the ~~nine~~six months ended ~~March~~December 31, 2021. The ~~decrease~~increase was primarily due to an increase ~~in net cash required for net working capital~~ of ~~$552.5~~$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 ~~$8.5 million decrease~~an increase in ~~unrealized gain and loss. These decreases are partially offset by increases in provision for excess and obsolete inventories of $9.0 million and~~ net income of ~~$71.6~~$293.2 million. Since the beginning of the pandemic and resulting supply chain disruptions our management decided to increase all components of our inventory (finished goods, work in process and purchased parts and raw materials). This decision reflected our belief that we had opportunities to increase our net sales if we could mitigate the risks of being unable to satisfy customer demand because of these disruptions, including longer lead times. We expect disruption of the supply chain and longer lead times to continue for the foreseeable future and therefore expect to continue to carry larger amounts of inventory than we would if the supply chain were functioning more normally and predictably.

Investing Activities

Net cash used in investing activities decreased by ~~$9.3~~$3.7 million for the ~~nine~~six months ended ~~March~~December 31, 2022 as compared to the ~~nine~~six months ended ~~March~~December 31, 2021 as ~~we continued~~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 ~~nine~~six months ended ~~March 31, 2022 was~~ ~~$466.4 million~~ ~~while net cash used by financing activities for the nine months ended March~~December 31, 2021 was ~~$48.4~~$227.2 million. The change in cash flows from financing activities of $643.0 million was primarily due to ~~an increase~~a decrease of ~~$402.3~~$443.7 million in proceeds from borrowings ~~net~~and an increase of $197.4 million in repayment ~~offset by a $117.9 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 Company 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 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 change provisions relating to payments and LIBOR replacement mechanics to secured overnight financing rate (“SOFR"). The obligations bear a base interest rate plus 0.5% to 1.5% based on the SOFR availability. The amendment was accounted for as a modification and the impact was immaterial to the consolidated financial statements. Prior to that, on June 28, 2021, the 2018 Bank of America Credit Facility was amended to, among other items, extend the maturity to June 28, 2026 and increase the maximum amount that the Company can request the facility be increased from $100 million to $150 million. 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.

~~Table of Contents~~

amount not to exceed in aggregate $20.0 million. The interest rate will be quoted by Bank of America – Taipei Branch for each drawdown. As of March 31, 2022, there were no outstanding borrowings under this Bank of America Credit Facility.

~~CTBC Bank~~

~~2021 CTBC Credit Lines~~

~~E.SUN Bank~~

~~2021 E.SUN Bank Credit Facility~~

~~Table of Contents~~

The Company through its 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 US$30.0 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 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 Taiwan subsidiary has an overdue liability at another financial organization. There are various financial covenants under the 2021 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.

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 March 31, 2022, the total outstanding borrowings under the Term Loan were denominated in NTD and remeasured into U.S. dollars of $28.1 million and the interest rates for these loans were 1.245% per annum. As of March 31, 2022 and June 30, 2021~~, the amounts outstanding under the Import Loan were~~ ~~$23.0 million~~ ~~and $20.4 million, respectively. The interest rate for the quarter ended March 31, 2022 ranges from 1.09% to~~ ~~1.33%. The interest rate for the quarter ended June 30, 2021 ranges from~~ ~~1.00% to 1.29% per annum~~. ~~At March 31, 2022, the amount available for future borrowing under the Import Loan was~~ ~~$7.0 million~~.

~~Mega Bank~~

~~Mega Bank Credit Facilities~~

On September 13, 2021 (the “Mega Bank Effective Date”), the Company through its 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. The first drawdown date was on October 4, 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, ranges 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 March 31, 2022, the total outstanding borrowings under the Mega Bank Credit Facility were denominated in NTD and remeasured into U.S. dollars of $41.8 million and the interest rates ~~ranged from~~ ~~0.895% to 1.095% per annum.~~

~~Credit Agreement with Mega Bank~~

On April 25, 2022, the Company through its Taiwan subsidiary, entered into a $20.0 million (or foreign currency equivalent) (the “Credit Limit”) Omnibus Credit Authorization Agreement (the “Omnibus Credit Authorization Agreement”) with Mega Bank. The Omnibus Credit Authorization Agreement permits individual credit authorizations subject to specified drawdown conditions up to the Credit Limit (on a revolving basis) to be used as loans for the purchase of materials or supplies. During the loan period, the Company is required to maintain 100% direct or indirect share ownership of the Taiwan subsidiary.

~~Table of Contents~~

~~Chang Hwa Bank~~

~~Chang Hwa Bank Credit Facility~~

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~~

As of March 31, 2022, the outstanding borrowings under the 2022 HSBC Bank Credit Facility revolving line of credit were $30.0 million. The interest rates for these loans were approximately 0.96% per annum as of March 31, 2022. As of March 31, 2022, there was no amount available for future borrowing under the 2022 HSBC Bank Credit Facility.

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 ~~$10 to $15~~ $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.

48SMCI | 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 ~~March~~December 31, 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 ~~0.70%~~1.075% to ~~1.54%~~5.88% at ~~March~~December 31, 2022 and 0.825% to 4.004% at June 30, ~~2021.~~2022. Based on the outstanding principal indebtedness of ~~$547.5~~$170.1 million under our credit facilities as of ~~March~~December 31, 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 ~~nine~~six months ended ~~March 31, 2022 was $0.5 million and $4.3 million, respectively, and for three and nine months ended March~~December 31, 2021 was ~~$2.0 million and $(1.6) million, respectively.~~$0.7 million.

49SMCI | 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 ~~March~~December 31, 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 ~~March~~December 31, 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 ~~March~~December 31, 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.

50SMCI | 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 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. ~~In addition, we are subject to the following risks:~~

Recent events in eastern Europe present challenges and risks to us, and no assurances can be given that current or future developments would not have a material adverse effect on our business, results of operations and financial condition.

The crisis in eastern Europe continues to be a challenge to global companies, including us, which have customers in the impacted regions. The U.S. and other global governments have placed restrictions on how companies may transact with businesses in these regions, particularly Russia, Belarus and restricted areas in Ukraine. Because of these restrictions and the growing logistical and other challenges, we have paused sales to Russia, Belarus and the restricted areas in Ukraine. This decision, which is in line with the approach of other global technology companies, helps us comply with our obligations under the various requirements in the U.S. and around the world. While it is difficult to estimate the impact on our business and financial position of our pause in sales to Russia, Belarus and the restricted areas in Ukraine and the current or future sanctions, our pause in sales and these sanctions could have adverse impacts on us in future periods. For example, we do not make a material portion of our sales or acquire a material portion of our parts or components directly from impacted regions; however, our suppliers and their suppliers may acquire raw materials for parts or components from the impacted regions. Supply disruptions may make it harder for them to find favorable pricing and reliable sources for materials they need, which may put upward pressure on their costs and increasing the risks that our costs may increase and that it may be more difficult, or we may be unable, to acquire materials needed. As another example, the crisis may further exacerbate inflationary pressures that have indirect impacts on our business, such as further increasing our logistics costs from rising fuel prices and/or our compensation expense. In addition, no assurances can be given that additional developments in the impacted regions, and responses thereto from the U.S. and other global governments, would not have a material adverse effect on our business, results of operations and financial condition.

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 ~~March~~December 31, 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

~~Table of Contents~~

Not applicable.

Item 5. Other Information

None.

52SMCI | Q2 2023 Form 10-Q | 46

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Item 6. Exhibits

(a) Exhibits.

Exhibit
Number

Description

10.1

~~General~~Second Amendment to Loan ~~Export/Import Financing, Overdraft Facilities and Securities~~ Agreement dated as of ~~January 7,~~October 13, 2022 by and between Cathay Bank and Super Micro Computer, Inc. ~~Taiwan and HSBC Bank (Taiwan) Limited (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 ~~January 13,~~November 4, 2022)

10.2

~~Facility Letter~~Agreement for Individually Negotiated Terms and Conditions dated as of ~~January 7,~~October 3, 2022 between Super Micro Computer, Inc. Taiwan and ~~HSBC~~CTBC Bank ~~(Taiwan) Limited (incorporated by reference~~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. previously filed as Exhibit 10.6 to ~~Exhibit 10.2 from~~ 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,~~February 4, 2022)

~~10.3~~

Fifth Amendment to Loan and Security Agreement with Bank of America, N.A. dated to be effective as of March 3, 2022 by and among Super Micro Computer, Inc., the lenders party thereto, and Bank of America, N.A., as administrative agent for the lenders (incorporated (Incorporated by reference to Exhibit ~~10.1 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 ~~March~~November 4, 2022)

~~10.4~~

English language translation of the Omnibus Credit Authorization Agreement dated as of April 25, 2022 between Super Micro Computer, Inc. Taiwan and Mega International Commercial Bank (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 April 28, 2022)

~~10.5~~

English language translation of the Credit Authorization Agreement dated as of April 25, 2022 between Super Micro Computer, Inc. Taiwan and Mega International Commercial Bank (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 April 28, 2022 )

~~10.6~~

English language translation of the Credit Authorization Approval Notice dated as of March 4, 2022 between Super Micro Computer, Inc. Taiwan and Mega International Commercial Bank (Linkou Branch) (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 April 25, 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

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:	~~May 6, 2022~~February 3, 2023	/s/ CHARLES LIANG
		Charles Liang President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)


Date:	~~May 6, 2022~~February 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


Three Months Ended March 31, 2022	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 December 31, 2021	51,508,616	$	460,990	—	$	—	$	549	$	725,129	$	177	$	1,186,845
Exercise of stock options, net of taxes	251,598	4,363		—	—		—		—		—		4,363
Release of common stock shares upon vesting of restricted stock units	161,873	—		—	—		—		—		—		—
Shares withheld for the withholding tax on vesting of restricted stock units	(51,914)	(2,006)		—	—		—		—		—		(2,006)

Stock-based compensation	—	7,741		—	—		—		—		—		7,741



Foreign currency translation gain	—	—		—	—		5		—		—		5
Net income	—	—		—	—		—		76,972		(1)		76,971
Balance at March 31, 2022	51,870,173	$	471,088	—	$	—	$	554	$	802,101	$	176	$	1,273,919


Nine Months Ended March 31, 2022	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	921,001	15,951		—	—		—		—		—		15,951
Release of common stock shares upon vesting of restricted stock units	535,469	—		—	—		—		—		—		—
Shares withheld for the withholding tax on vesting of restricted stock units	(168,375)	(6,807)		—	—		—		—		—		(6,807)
Shares repurchase and retirement	—			—	—		—		—		—		—
Stock-based compensation	—	23,932		—	—		—		—		—		23,932
Foreign currency translation gain	—	—		—	—		101		—		—		101
Net income	—	—		—	—		—		144,341		3		144,344
Balance at March 31, 2022	51,870,173	$	471,088	—	$	—	$	554	$	802,101	$	176	$	1,273,919


Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,990	$	1,400
Cash paid for taxes, net of refunds	11,623		2,213

Non-cash investing and financing activities:
Unpaid property, plant and equipment purchases (including due to related parties of $729 and $1,502 as of March 31, 2022 and 2021, respectively)	$	7,464	$	7,662
Right of use ("ROU") assets obtained in exchange for operating lease commitments	11,108		2,715

Unpaid stock repurchases	—		2,690


Annualized Revenue Milestone	Achievement Status	Stock Price Milestone	Achievement Status
(in billions)
$4.0	Achieved	$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