Super Micro Computer, Inc 10-Q for FY2020 Q3

Super Micro Computer, Inc. (SMCI)

10-Q 2020-05-11 For: 2020-03-31

Added on April 10, 2026

About this 10-Q

Super Micro Computer, Inc filed this 10-Q on May 11, 2020, covering the quarter ended March 31, 2020 (FY2020 Q3).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $772.41M; up 3.9% from $743.5M a year earlier
Net income: $15.81M; up 48.5% from net income of $10.65M a year earlier
Diluted EPS: $0.29; up 38.1% from $0.21 a year earlier

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



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



Large accelerated filer	x	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐



		Page
PART I	FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of March 31, 2020 and June 30, 2019	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2020 and 2019	2
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended March 31, 2020 and 2019	3
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended March 31, 2020 and 2019	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2020 and 2019	6
	Notes to Condensed Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	45
ITEM 4.	Controls and Procedures	46
PART II	OTHER INFORMATION
ITEM 1.	Legal Proceedings	47
ITEM 1A.	Risk Factors	47
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
ITEM 3.	Defaults Upon Senior Securities	48
ITEM 4.	Mine Safety Disclosures	48
ITEM 5.	Other Information	48
ITEM 6.	Exhibits	49
	Signatures	49



	March 31,			June 30,
	2020			2019
ASSETS
Current assets:
Cash and cash equivalents	$	300,859		$	248,164
Accounts receivable, net of allowances of $10,317 and $8,906 at March 31, 2020 and June 30, 2019, respectively (including amounts receivable from related parties of $11,827 and $13,439 at March 31, 2020 and June 30, 2019, respectively)	333,172			393,624
Inventories	866,226			670,188
Prepaid expenses and other current assets (including receivables from related parties of $21,354 and $21,302 at March 31, 2020 and June 30, 2019, respectively)	148,102			109,795
Total current assets	1,648,359			1,421,771
Investment in equity investee	—			1,701
Property, plant and equipment, net	230,477			207,337
Deferred income taxes, net	45,562			41,126
Other assets	35,838			10,659
Total assets	$	1,960,236		$	1,682,594
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable (including amounts due to related parties of $55,124 and $59,809 at March 31, 2020 and June 30, 2019, respectively)	$	462,808		$	360,470
Accrued liabilities (including amounts due to related parties of $20,270 and $10,536 at March 31, 2020 and June 30, 2019, respectively)	177,148			114,678
Income taxes payable	1,979			13,021
Short-term debt	33,158			23,647
Deferred revenue	109,730			94,153
Total current liabilities	784,823			605,969
Deferred revenue, non-current	95,752			109,266
Other long-term liabilities (including related party balance of $2,871 and $3,000 at March 31, 2020 and June 30, 2019, respectively)	41,266			26,183
Total liabilities	921,841			741,418
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock and additional paid-in capital, $0.001 par value
Authorized shares: 100,000,000; Outstanding shares: 51,915,646 and 49,956,288 at March 31, 2020 and June 30, 2019, respectively
Issued shares: 53,248,771 and 51,289,413 at March 31, 2020 and June 30, 2019, respectively	381,125			349,683
Treasury stock (at cost), 1,333,125 shares at March 31, 2020 and June 30, 2019	(20,491		)	(20,491		)
Accumulated other comprehensive loss	(166		)	(80		)
Retained earnings	677,761			611,903
Total Super Micro Computer, Inc. stockholders’ equity	1,038,229			941,015
Noncontrolling interest	166			161
Total stockholders’ equity	1,038,395			941,176
Total liabilities and stockholders’ equity	$	1,960,236		$	1,682,594



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



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



	Three Months Ended March 31,						Nine Months Ended March 31,
	2020			2019			2020			2019
Net sales (including related party sales of $21,528 and $17,590 in the three months ended March 31, 2020 and 2019, respectively, and $70,974 and $48,849 in the nine months ended March 31, 2020 and 2019, respectively)	$	772,408		$	743,499		$	2,443,155		$	2,646,126
Cost of sales (including related party purchases of $60,387 and $62,624 in the three months ended March 31, 2020 and 2019, respectively, and $200,753 and $215,331 in the nine months ended March 31, 2020 and 2019, respectively)	639,048			631,172			2,040,462			2,282,638
Gross profit	133,360			112,327			402,693			363,488
Operating expenses:
Research and development	49,586			44,800			154,730			133,718
Sales and marketing	21,886			18,494			64,057			56,463
General and administrative	46,342			36,174			107,680			106,214
Total operating expenses	117,814			99,468			326,467			296,395
Income from operations	15,546			12,859			76,226			67,093
Other income (expense), net	937			(86		)	2,110			707
Interest expense	(518		)	(1,271		)	(1,630		)	(5,480		)
Income before income tax provision	15,965			11,502			76,706			62,320
Income tax benefit (provision)	899			(497		)	(9,782		)	(10,540		)
Share of loss from equity investee, net of taxes	(1,057		)	(359		)	(1,066		)	(3,572		)
Net income	$	15,807		$	10,646		$	65,858		$	48,208
Net income per common share:
Basic	$	0.31		$	0.21		$	1.30		$	0.97
Diluted	$	0.29		$	0.21		$	1.26		$	0.94
Weighted-average shares used in calculation of net income per common share:
Basic	51,526			49,988			50,591			49,845
Diluted	53,693			51,558			52,399			51,557



Three Months Ended March 31, 2020	Common Stock and Additional Paid-In Capital					Treasury Stock					Accumulated Other Comprehensive Loss			Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
	Shares		Amount			Shares		Amount			Accumulated Other Comprehensive Loss			Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
Balance at December 31, 2019	51,923,260		$	360,060		(1,333,125	)	$	(20,491	)	$	(135	)	$	661,954	$	165	$	1,001,553
Exercise of stock options, net of shares withheld for withholding taxes	1,163,309		19,120			—		—			—			—		—		19,120
Release of common stock shares upon vesting of restricted stock units	262,742		—			—		—			—			—		—		—
Shares withheld for the withholding tax on vesting of restricted stock units	(100,540	)	(2,860		)	—		—			—			—		—		(2,860		)
Stock-based compensation	—		4,805			—		—			—			—		—		4,805
Foreign currency translation loss	—		—			—		—			(31		)	—		—		(31		)
Net income	—		—			—		—			—			15,807		1		15,808
Balance at March 31, 2020	53,248,771		$	381,125		(1,333,125	)	$	(20,491	)	$	(166	)	$	677,761	$	166	$	1,038,395



Three Months Ended March 31, 2019	Common Stock and Additional Paid-In Capital					Treasury Stock					Accumulated Other Comprehensive Loss			Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
	Shares		Amount			Shares		Amount			Accumulated Other Comprehensive Loss			Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
Balance at December 31, 2018	51,136,062		$	341,070		(1,333,125	)	$	(20,491	)	$	(72	)	$	577,547	$	157	$	898,211
Release of common stock shares upon vesting of restricted stock units	118,617		—			—		—			—			—		—		—
Shares withheld for the withholding tax on vesting of restricted stock units	(39,640	)	(722		)	—		—			—			—		—		(722		)
Stock-based compensation	—		4,960			—		—			—			—		—		4,960
Foreign currency translation gain	—		—			—		—			60			—		—		60
Net income	—		—			—		—			—			10,646		3		10,649
Balance at March 31, 2019	51,215,039		$	345,308		(1,333,125	)	$	(20,491	)	$	(12	)	$	588,193	$	160	$	913,158



Nine Months Ended March 31, 2020	Common Stock and Additional Paid-In Capital					Treasury Stock					Accumulated Other Comprehensive Loss			Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
	Shares		Amount			Shares		Amount			Accumulated Other Comprehensive Loss			Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
Balance at June 30, 2019	51,289,413		$	349,683		(1,333,125	)	$	(20,491	)	$	(80	)	$	611,903	$	161	$	941,176
Exercise of stock options, net of shares withheld for withholding taxes	1,447,296		23,053			—		—			—			—		—		23,053
Release of common stock shares upon vesting of restricted stock units	771,721		—			—		—			—			—		—		—
Shares withheld for the withholding tax on vesting of restricted stock units	(259,659	)	(6,434		)	—		—			—			—		—		(6,434		)
Stock-based compensation	—		14,823			—		—			—			—		—		14,823
Foreign currency translation loss	—		—			—		—			(86		)	—		—		(86		)
Net income	—		—			—		—			—			65,858		5		65,863
Balance at March 31, 2020	53,248,771		$	381,125		(1,333,125	)	$	(20,491	)	$	(166	)	$	677,761	$	166	$	1,038,395



Nine Months Ended March 31, 2019	Common Stock and Additional Paid-In Capital					Treasury Stock					Accumulated Other Comprehensive Gain (Loss)			Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
	Shares		Amount			Shares		Amount			Accumulated Other Comprehensive Gain (Loss)			Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
Balance at June 30, 2018	50,914,571		$	331,550		(1,333,125	)	$	(20,491	)	$	165		$	532,271	$	157	$	843,652
Cumulative effective adjustment from adoption of standards, net of taxes	—		—			—		—			—			7,714		—		7,714
Release of common stock shares upon vesting of restricted stock units	439,379		—			—		—			—			—		—		—
Shares withheld for the withholding tax on vesting of restricted stock units	(138,911	)	(2,323		)	—		—			—			—		—		(2,323		)
Stock-based compensation	—		16,081			—		—			—			—		—		16,081
Foreign currency translation loss	—		—			—		—			(177		)	—		—		(177		)
Net income	—		—			—		—			—			48,208		3		48,211
Balance at March 31, 2019	51,215,039		$	345,308		(1,333,125	)	$	(20,491	)	$	(12	)	$	588,193	$	160	$	913,158



Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,651	$	3,402
Cash paid for taxes, net of refunds	42,516		21,657

Non-cash investing and financing activities:
Unpaid property, plant and equipment purchases (including due to related parties of $215 and $1,067 as of March 31, 2020 and 2019, respectively)	$	12,609	$	9,039
Contribution of certain technology rights to equity investee	—		3,000



	Options Outstanding		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in Years)
Balance as of June 30, 2019	7,374,635		$	18.02
Granted	251,930		$	19.39
Exercised	(1,454,507	)	$	15.98
Forfeited/Cancelled	(440,807	)	$	11.62
Balance as of March 31, 2020	5,731,251		$	19.09	4.11
Options vested and exercisable at March 31, 2020	4,988,991		$	18.88	3.54



	Time-Based RSUs Outstanding		Weighted Average Grant-Date Fair Value per Share		PRSUs Outstanding			Weighted Average Grant-Date Fair Value per Share
Balance as of June 30, 2019	1,873,102		$	20.25	120,000		(1)	$	27.10
Granted	841,880		$	20.24	30,000			$	20.37
Released	(669,721	)	$	20.79	(102,000	)		$	27.10
Forfeited	(126,039	)	$	18.88	—
Balance as of March 31, 2020	1,919,222		$	20.14	48,000			$	22.89



	Three Months Ended March 31,				Nine Months Ended March 31,
	2020		2019		2020		2019
United States	$	422,872	$	436,734	$	1,419,117	$	1,516,262
Europe	158,144		128,789		433,767		472,325
Asia	160,472		146,120		487,827		549,296
Others	30,920		31,856		102,444		108,243
	$	772,408	$	743,499	$	2,443,155	$	2,646,126



	Three Months Ended March 31,						Nine Months Ended March 31,
	2020			2019			2020			2019
Risk-free interest rate	0.53% - 1.49%			2.56		%	0.53% - 1.72%			2.56% - 2.97%
Expected term	6.27 years			6.05 years			6.27 years			6.05 years
Dividend yield	—		%	—		%	—		%	—		%
Volatility	49.61% - 50.46%			50.25		%	49.61% - 50.46%			47.34% - 50.25%
Weighted-average fair value	$	10.15		$	7.55		$	9.50		$	8.56


(1)	Reflects the number of PRSUs that have been earned based on the achievement of performance metrics.



	March 31, 2020		June 30, 2019
Finished goods	$	623,868	$	492,387
Work in process	82,108		43,598
Purchased parts and raw materials	160,250		134,203
Total inventories	$	866,226	$	670,188



	March 31, 2020		June 30, 2019
Receivables from vendors (1)	$	90,006	$	83,050
Prepaid income tax	15,483		607
Restricted cash	16,804		11,673
Prepaid expenses	9,704		7,269
Deferred service costs	3,790		3,374
Others (2)	12,315		3,822
Total prepaid expenses and other current assets	$	148,102	$	109,795



	March 31, 2020			June 30, 2019
Buildings	$	86,930		$	86,136
Machinery and equipment	84,711			79,946
Land	75,240			74,926
Buildings construction in progress (1)	41,637			14,189
Building and leasehold improvements	24,390			22,307
Furniture and fixtures	21,038			20,193
Software	20,619			18,415
	354,565			316,112
Accumulated depreciation and amortization	(124,088		)	(108,775		)
Property, plant and equipment, net	$	230,477		$	207,337



	March 31, 2020		June 30, 2019
Operating lease right-of-use asset	$	25,304	$	—
Deferred service costs, non-current	4,413		3,572
Prepaid expense, non-current	1,615		1,649
Restricted cash, non-current	1,601		2,303
Investment in auction rate security	1,571		1,571
Deposits	1,206		686
Non-marketable equity securities	128		878
Total other assets	$	35,838	$	10,659



	March 31, 2020	June 30, 2019
Contract manufacturing liabilities	48,835	25,308
Accrued payroll and related expenses	28,716	25,552
Accrued legal liabilities (Note 11)	17,500	—
Customer deposits	15,958	11,133
Performance awards liability, current	10,257	—
Accrued warranty costs	9,386	8,661
Accrued cooperative marketing expenses	6,649	5,830
Operating lease liability	6,103	—
Accrued professional fees	2,804	11,756
Others (accrued liabilities)	30,940	26,438
Total accrued liabilities	177,148	114,678



	March 31, 2020		June 30, 2019
Operating lease liability, non-current	$	19,488	$	—
Accrued unrecognized tax benefits including related interest and penalties	17,804		20,102
Accrued warranty costs, non-current	2,348		2,373
Others	1,626		3,708
Total other long-term liabilities	$	41,266	$	26,183



	Three Months Ended March 31,						Nine Months Ended March 31,
	2020			2019			2020			2019
Balance, beginning of the period	$	11,441		$	10,434		$	11,034		$	9,884
Provision for warranty	8,521			5,510			25,627			17,163
Costs utilized	(8,130		)	(6,346		)	(24,907		)	(18,083		)
Change in estimated liability for pre-existing warranties	(98		)	918			(20		)	1,552
Balance, end of the period	11,734			10,516			11,734			10,516
Current portion	9,386			8,200			9,386			8,200
Non-current portion	$	2,348		$	2,316		$	2,348		$	2,316



March 31, 2020	Level 1		Level 2		Level 3		Asset at Fair Value
Assets
Money market funds (1)	$	1,164	$	—	$	—	$	1,164
Certificates of deposit (2)	—		577		—		577
Auction rate security	—		—		1,571		1,571
Total assets measured at fair value	$	1,164	$	577	$	1,571	$	3,312

Liabilities
Performance awards liability (3)	$	—	$	2,344	$	—	$	2,344
Total liabilities measured at fair value	$	—	$	2,344	$	—	$	2,344

June 30, 2019	Level 1		Level 2		Level 3		Asset at Fair Value
Assets
Money market funds (1)	$	1,162	$	—	$	—	$	1,162
Certificates of deposit (2)	—		1,285		—		1,285
Auction rate security	—		—		1,571		1,571
Total assets measured at fair value	$	1,162	$	1,285	$	1,571	$	4,018



Stock Price as of Period End	Performance Period	Risk-free Rate	Volatility	Dividend Yield

$21.28	1.5 - 2.5 years	0.26%	53.8%	—%



	March 31, 2020 and June 30, 2019
	Cost Basis		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Fair Value
Auction rate security	$	1,750	$	—	$	(179	)	$	1,571



	Three Months Ended		Nine Months Ended
	March 31, 2020		March 31, 2020
Operating lease expense (including expense for lease agreements with related parties of $359 and $1,086 for the three and nine months ended March 31, 2019, respectively)	$	1,605	$	4,909
Cash payments for operating leases (including payments to related parties of $369 and $1,106 for the three and nine months ended March 31, 2019, respectively)	$	1,667	$	5,082
New operating lease assets obtained in exchange for operating lease liabilities	$	14,221	$	14,889



Fiscal Year:	Minimum lease payments
2020 (remainder)	$	2,208
2021	6,974
2022	5,613
2023	4,219
2024	4,204
2025 and beyond	5,232
Total future lease payments	$	28,450
Less: Imputed interest	(2,859		)
Present value of operating lease liabilities	$	25,591



	March 31, 2020		June 30, 2019
Ablecom
Accounts receivable and other receivables (1)	$	4,749	$	7,236
Accounts payable and accrued liabilities (2)	28,928		33,928
Other long-term liabilities (3)	1,036		—

Compuware
Accounts receivable and other receivables (1)	$	18,046	$	14,396
Accounts payable and accrued liabilities (2)	43,935		34,417
Other long-term liabilities (3)	335		—



	March 31,		June 30,
Long-lived assets:	2020		2019
United States	$	179,154	$	162,835
Asia	47,717		41,915
Europe	3,606		2,587
	$	230,477	$	207,337


•	Net sales increased by 3.9% as compared to the three months ended March 31, 2019. The increase was mainly due to an increase in the sales of subsystems and accessories and an increase in the volume of server and storage systems sold, partially offset by lower average selling prices per system.


•	Gross margin increased to 17.3% in the three months ended March 31, 2020 from 15.1% for the three months ended March 31, 2019, primarily due to a favorable geographic, customer and product mix.


•	Operating expenses increased by 18.4% as compared to the three months ended March 31, 2019, and were equal to 15.3% and 13.4% of net sales in the three months ended March 31, 2020 and 2019, respectively.


•	Effective tax rate decreased from 4.3% in the three months ended March 31, 2019 to (5.6)% in the three months ended March 31, 2020.



	Three Months Ended March 31,						Change					Nine Months Ended March 31,						Change
	2020			2019			$			%		2020			2019			$			%
Server and storage systems	$	571.3		$	592.8		$	(21.5	)	(3.6	)%	$	1,880.0		$	2,161.3		$	(281.3	)	(13.0	)%
Percentage of total net sales	74.0		%	79.7		%						77.0		%	81.7		%
Subsystems and accessories	$	201.1		$	150.7		$	50.4		33.4	%	$	563.1		$	484.8		$	78.3		16.2	%
Percentage of total net sales	26.0		%	20.3		%						23.0		%	18.3		%
Total net sales	$	772.4		$	743.5		$	28.9		3.9	%	$	2,443.1		$	2,646.1		$	(203.0	)	(7.7	)%


•	the extent and effectiveness of responsive actions by authorities and the impact of these and other factors on our employees, customers and vendors;


•	the rate of spending on server and storage solutions, including delays in prospective customers’ purchasing decisions, delays the provisioning of our products;