What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-02-05 compared with 2020-11-06 · 136 added, 70 removed, 193 unchanged (52% of the section changed)

7 unchanged sentences

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, 2020 (the “2020 10-K”), which includes our consolidated financial statements for the fiscal years ended June 30, 2020 and 2019.

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, 2020 (the “2020 10-K”), which includes our condensed consolidated financial statements for the fiscal years ended June 30, 2020 and 2019.

We are a global leader and innovator of 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.

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We commenced operations in 1993 and have been profitable every year since inception.

Our net income for the three months ended September 30, 2020 increased to $26.6 million from $26.3 million for the corresponding period in the prior year.

Our net income for the three months ended December 31, 2020 increased to $27.7 million from $23.7 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.

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In this regard, we work closely with microprocessor 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 and storage technologies, and as a result, we monitor the introduction cycles of Intel Corporation, Advanced Micro Devices, Inc., Nvidia Corporation, Samsung Electronics Company Limited, Micron Technology, Inc.

Historically, our ability to introduce new products rapidly has allowed us to benefit from technology transitions such as the introduction of new microprocessors and storage technologies, and as a result, we monitor the introduction cycles of Nvidia Corporation, Intel Corporation, Advanced Micro Devices, Inc., Samsung Electronics Company Limited, Micron Technology, Inc.

and others closely and carefully.

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Our first priority is the safety of our workforce and we have implemented numerous health precautions and work practices to be in compliance with the law and to operate in a safe manner.

We quickly transitioned most of our indirect labor forces to work from home and continued to operate our local assembly in Taiwan and, after an initial period of disruption, in the United States and Europe.

We quickly transitioned certain of our indirect labor forces to work from home at the earlier phase of the pandemic and continued to operate our local assembly in Taiwan and, after an initial period of disruption, in the United States and Europe.

We operate in the critical industry of IT infrastructure and we assessed our customer base to identify priority customers who operate in critical industries.

10 unchanged sentences

In June 2020, we entered into a ten-year, non-revolving term loan facility with China Trust and Bank Corp ("CTBC Bank") to obtain financing for use in the expansion and renovation of the our Bade Manufacturing Facility located in Taiwan.

In December 2020, our Taiwan subsidiary entered into a general credit agreement with E.SUN Bank in Taiwan.

Such general credit agreement provides for the issuance of loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments up to a credit limit of $30 million.

The term of such general credit agreement is until September 18, 2021.

Our management team is focused on guiding our company through the ongoing challenges presented by COVID-19.

1 unchanged sentence

Financial Highlights

The following is a summary of our financial highlights of the first quarter of fiscal year 2021:

• Net sales decreased by 4.7% as compared to the three months ended September 30, 2019.

• Gross margin increased to 17.0% in the three months ended September 30, 2020 from 16.4% for the three months ended September 30, 2019.

• Operating expenses increased by 1.4% as compared to the three months ended September 30, 2019, and were equal to 13.0% and 12.3% of net sales in the three months ended September 30, 2020 and 2019, respectively.

• Effective tax rate decreased from 25.3% in the three months ended September 30, 2019 to 12.7% in the three months ended September 30, 2020.

The following is a summary of our financial highlights of the second quarter of fiscal year 2021:

• Net sales decreased by 4.7% in the three months ended December 31, 2020 as compared to the three months ended December 31, 2019.

• Gross margin increased to 16.4% in the three months ended December 31, 2020 from 15.9% in the three months ended December 31, 2019.

• Operating expenses decreased by 10.7% as compared to the three months ended December 31, 2019, and were equal to 11.9% and 12.7% of net sales in the three months ended December 31, 2020 and 2019, respectively.

• Effective tax rate increased from 7.9% in the three months ended December 31, 2019 to 14.9% in the three months ended December 31, 2020.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses.

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.

3 unchanged sentences

There have been no material changes to our critical accounting policies and estimates as compared to those disclosed in our 2020 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 the condensed consolidated financial statements in this Quarterly Report.

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.

Results of Operations

1 unchanged sentence

Three Months Ended

September 30,

December 31, Six Months Ended

2020 2019 2020 2020

Net sales 100.0 % 100.0 % 100.0 % 100.0 %

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Research and development

6.4 % 6.4 % 6.8 % 6.3 %

Sales and marketing

2.5 % 2.5 % 2.6 % 2.5 %

General and administrative

3.0 % 3.8 % 3.1 % 3.8 %

Total operating expenses 11.9 % 12.7 % 12.4 % 12.5 %

4 unchanged sentences

Income tax provision (0.6) % (0.2) % (0.6) % (0.6) %

Share of income from equity investee, net of taxes 0.2 % 0.1 %

Share of (loss) from equity investee, net of taxes (0.2) % (0.1) % — % — %

Net income 3.3 % 2.7 % 3.4 % 3.0 %

9 unchanged sentences

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 memory and SSDs.

The following table presents net sales by product type for the three months ended September 30, 2020 and 2019 (dollars in millions):

Three Months Ended September 30, Change

The following table presents net sales by product type for the three and six months ended December 31, 2020 and 2019 (dollars in millions):

Three Months Ended December 31, Change Six Months Ended December 31, Change

2020 2019 $ % 2020 2019 $ %

6 unchanged sentences

Subsystems and accessories are comprised of server-boards, chassis and accessories.

Comparison of Three Months Ended December 31, 2020 and 2019

The period-over-period decrease in net sales of our server and storage systems was due to a 17.1% decrease in the number of units of compute nodes sold offset by 16.0% i ncrease in the average selling price.

The decline in the number of units of compute nodes shipped was primarily due to fewer shipments of multinode systems compared to the same period last year.

The period-over-period decrease in net sales of our subsystems and accessories is primarily due to a decrease in the number of units of subsystems sold .

Comparison of Six Months Ended December 31, 2020 and 2019

The period-over-period decrease in net sales of our server and storage systems was due to a 18.1% decrease in the number of units of compute nodes sold offset by 17.9% increase in average selling price.

The decline in the number of units of compute nodes shipped was primarily due to fewer shipments of multimode systems compared to the same period last year.

The period-over-period decrease in net sales of our subsystems and accessories is primarily due to a decrease in the volume of subsystems and accessories units sold by approximately 24.4% which was offset by an approximately 16.7% increase in the average selling price.

The following table presents net sales by geographic region for the three months ended September 30, 2020 and 2019 (dollars in millions):

Three Months Ended September 30, Change Change

The decline in the number of units of compute nodes shipped was primarily due to fewer shipments of multinode systems compared to the same period last year.

The period-over-period decrease in net sales of our subsystems and accessories is primarily due to a decrease in the number of units of subsystems sold .

The following table presents net sales by geographic region for the three and six months ended December 31, 2020 and 2019 (dollars in millions):

Three Months Ended December 31, Change Change Six Months Ended December 31, Change Change

2020 2019 $ % 2020 2019 $ %

1 unchanged sentence

Percentage of total net sales 55.8 % 60.6 % 60.2 % 59.6 %

Europe 112.1 128.1 (16.0) (12.5) %

Percentage of total net sales 14.7 % 16.0 %

Asia 161.4 165.7 (4.3) (2.6) % 288.1 327.4 (39.3) (12.0) %

Percentage of total net sales 19.4 % 19.0 % 18.1 % 19.6 %

Europe 154.8 147.6 7.2 4.9 % 266.9 275.6 (8.7) (3.2) %

Percentage of total net sales 18.6 % 16.9 % 16.8 % 16.5 %

Others 51.0 30.2 20.8 68.9 % 78.4 71.5 6.9 9.7 %

1 unchanged sentence

Total net sales $ 830.3 $ 870.9 $ 1,592.6 $ 1,670.7

The period-over-period increase in net sales in the United States for the three months ended September 30, 2020 and 2019 was primarily due to higher sales from the expansion of our customer base.

The period-over-period decrease in net sales in Asia was due primarily to decreased sales in China, Japan and Korea and partially off-set by increased sales in Singapore and Taiwan.

The decrease of net sales in Europe was primarily due to lower sales in the United Kingdom, Germany, Russia, and the rest of other Europe, partially offset by increased sales in France and the Netherlands.

Comparison of Three Months Ended December 31, 2020 and 2019

The period-over-period decrease in net sales in the United States for the three months ended December 30, 2020 and 2019 was primarily due to lower sales driven by lower unit volume.

The period-over-period decrease in net sales in Asia was due primarily to decreased sales in Taiwan, Singapore and Korea and partially off-set by increased sales in China and Japan.

The increase of net sales in Europe was primarily due to higher sales in France, Germany, the United Kingdom, and the Netherlands, partially offset by lower sales in Russia.

The period-over-period increase in net sales in other countries was primarily due to increased sales in Brazil, Canada, South Africa and Middle East countries, partially offset by lower sales in Mexico.

Comparison of Six Months Ended December 31, 2020 and 2019

The period-over-period decrease in net sales in the United States for the six months ended December 31, 2020 and 2019 was primarily due to lower sales driven by lower unit volume.

The period-over-period decrease in net sales in Asia was due primarily to decreased sales in China, Taiwan, Korea, and India and partially off-set by increased sales in Singapore and Japan.

The decrease of net sales in Europe was primarily due to lower sales in the United Kingdom, Germany, Russia, and the rest of Europe, partially offset by increased sales in France and the Netherlands.

Cost of Sales and Gross Margin

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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 our manufacturing of components, particularly power supplies.

Cost of sales and gross margin for the three months ended September 30, 2020 and 2019 are as follows (dollars in millions):

Three Months Ended September 30, Change

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.

Cost of sales and gross margin for the three and six months ended December 31, 2020 and 2019 are as follows (dollars in millions):

Three Months Ended December 31, Change Six Months Ended December 31, Change

2020 2019 $ % 2020 2019 $ %

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Gross margin 16.4 % 15.9 % 0.5 % 16.7 % 16.1 % 0.6 %

The period-over-period decrease in cost of sales was primarily attributed t o a decrease of $17.2 million in costs of materials and contract manufacturing expenses primarily related to the decrease in net sales volume, a d ecrease of $10.3 million in overhead costs attributable primarily to a recovery of costs paid in prior periods and a decrease of excess and obsolete inventory charge of $9.1 million.

Comparison of Three Months Ended December 31, 2020 and 2019

The period-over-period decrease in cost of sales was primarily attributed t o a decrease of $21.5 million in costs of materials and contract manufacturing expenses primarily related to the decrease in net sales volume, a d ecrease of $13.2 million in overhead costs attributable primarily to a recovery of costs paid in prior periods, a decrease of excess and obsolete inventory charge of $3.3 million and a decrease of $1.9 million of warranty and repair costs, partially offset by service costs and freight charges.

The period-over-period increase in the gross margin percentage wa s primarily due to sales prices declining at a slower rate than the decline in the costs of components we purchased.

Comparison of Six Months Ended December 31, 2020 and 2019

The period-over-period decrease in cost of sales was primarily attributed t o a decrease of $40.7 million in costs of materials and contract manufacturing expenses primarily related to the decrease in net sales volume, a d ecrease of $23.6 million in overhead costs attributable primarily to a recovery of costs paid in prior periods and a decrease of excess and obsolete inventory charge of $12.3 million, partially offset by service costs and freight charges.

The period-over-period increase in the gross margin percentage was primarily due to sales prices declining at a slower rate than the decline in the costs of components we purchased.

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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 months ended September 30, 2020 and 2019 are as follows (dollars in millions):

Three Months Ended September 30, Change

Operating expenses for the three and six months ended December 31, 2020 and 2019 are as follows (dollars in millions):

Three Months Ended December 31, Change Six Months Ended December 31, Change

2020 2019 $ % 2020 2019 $ %

7 unchanged sentences

Percentage of total net sales 11.9 % 12.7 % 12.4 % 12.5 %

Comparison of Three Months Ended December 31, 2020 and 2019

Research and development expenses.

The period-over-period increase in research and development expenses was primarily due to an increase of $5.7 million in personnel expenses as a result of an increase in the number of personnel and an

increase of $1.2 million in costs mainly related to materials, supplies and equipment used in product development offset by an increase of $1.3 million research and development credits from certain suppliers and customers towards our development efforts.

The period-over-period decrease in research and development expenses was primarily due to an increase in research and development credits from certain suppliers and customers towards our development efforts of $4.3 million, a decrease of $1.9 million in costs mainly related to materials, supplies and equipment used in product development, and a decrease of $0.8 million of travel expenses as a result in a change in our operations in response to the COVID-19 pandemic, partially offset by an increase of $4.0 million in personnel expenses as a result of an increase in the number of personnel, mainly from the expansion of the Company's Taiwan subsidiary.

Sales and marketing expenses.

The period-over-period sales and marketing expenses for the three months ended September 30, 2020 remained flat as compared to the three months ended September 30, 2019.

The period-over-period sales and marketing expenses decreased primarily due to a $1.4 million decrease in expenses related to participation in trade shows and business travel as a result in a change in our operations in response to the COVID-19 pandemic, partially offset by increase in other sales and marketing expenses.

General and administrative expenses.

The period-over-period decrease in general and administrative expenses was primarily due to decrease of $6.7 million in professional fees 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 decrease of $1.0 million in other general and administrative expenses, offset by an increase of $3.7 million in compensation expense due to increased full time personnel and bonuses.

The period-over-period decrease in general and administrative expenses was primarily due to a decrease of $11.4 million in professional fees 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, a decrease of $1.1 million in travel expenses as a result in a change in our operations in response to the COVID-19 pandemic, and a decrease of $0.7 million in sales tax reserve and audit expense, offset by an increase of $6.5 million in compensation expense due to increased full time personnel and bonuses.

Comparison of Six Months Ended December 31, 2020 and 2019

Research and development expenses.

The period-over-period increase in research and development expenses was primarily due to an increase of $9.7 million in personnel expenses as a result of an increase in the number of personnel offset by an increase of $5.7 million in research and development credits from certain suppliers and customers towards our development efforts, a decrease of $1.3 million in travel expenses as a result in a change in our operations in response to the COVID-19 pandemic, and a decrease of $0.7 million in costs mainly related to materials, supplies and equipment used in product development.

Sales and marketing expenses.

The period-over-period sales and marketing expenses decreased primarily due to a decrease of $2.0 million expenses related to participation in trade shows and business travel as a result in a change in our operations in response to the COVID-19 pandemic, partially offset by an increase of $0.8 million in other sales and marketing expenses.

General and administrative expenses.

The period-over-period decrease in general and administrative expenses was primarily due to a decrease of $18.2 million in professional fees 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, a decrease of $2.1 million in travel expenses as a result in a change in our operations in response to the COVID-19 pandemic, a decrease of $0.8 million in sales tax reserve and audit expense, and a decrease of $0.5 million in bad debt expenses, offset by an increase of $10.4 million in compensation expense due to increased full time personnel and bonuses.

Interest and Other (Expense) Income, Net

1 unchanged sentence

Interest expense represents interest expense on our term loans and lines of credit.

Interest and other (expense) income, net for the three months ended September 30, 2020 and 2019 are as follows (dollars in millions):

Interest and other (expense) income, net for the three and six months ended December 31, 2020 and 2019 are as follows (dollars in millions):

Three Months Ended

September 30, Change

December 31, Change Six Months Ended

December 31, Change

2020 2019 $ % 2020 2019 $ %

2 unchanged sentences

Interest and other (expense) income, net $ (3.1) $ (1.0) $ (2.1) 210.0 % $ (4.6) $ 0.1 $ (4.7) (4,700.0) %

The change of $2.4 million in other (expense) income, net was attributable to a decrease of $1.0 million in interest income on our interest bearing deposits and a $1.5 million foreign exchange loss.

The period-over-period change in interest expense was due to an increase of $0.1 million in interest expense primarily as a result of increased interest rates on our loans in the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Comparison of Three Months Ended December 31, 2020 and 2019

The change of $2.1 million in other (expense) income, net was attributable to an increase of $1.4 million in foreign exchange loss due to unfavorable foreign currency fluctuations, and a decrease of $0.7 million in interest income on our interest bearing deposits due primarily to lower yields on investments.

Comparison of Six Months Ended December 31, 2020 and 2019

The change of $4.6 million in other (expense) income, net was attributable to an increase of $2.9 million in foreign exchange loss due to unfavorable foreign currency fluctuations, and a decrease of $1.7 million in interest income on our interest bearing deposits due primarily to lower yields on investments.

Provision for Income Taxes

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Our effective tax rate differs from the statutory rate primarily due to research and development tax credits, releases from uncertain tax positions, tax benefits from foreign derived intangible income and stock based compensation.

Provision for income taxes and effective tax rates for the three months ended September 30, 2020 and 2019 are as follows (dollars in millions):

Provision for income taxes and effective tax rates for the three and six months ended December 31, 2020 and 2019 are as follows (dollars in millions):

Three Months Ended

September 30, Change

December 31, Change Six Months Ended

December 31, Change

2020 2019 $ % 2020 2019 $ %

2 unchanged sentences

Effective tax rate 14.9 % 7.9 % 13.9 % 17.6 %

The income tax provision and effective tax rate change for the three months ended September 30, 2020 was primarily due to decrease in tax reserves for uncertain tax positions after settlement of certain tax audits and increase in tax benefit from employees’ stock based compensation.

Comparison of Three Months Ended December 31, 2020 and 2019

The income tax provision and effective tax rate for the three months ended December 31, 2020 was higher than that for the three months ended December 31, 2019 due to the release of tax reserves after the settlement of a Taiwan tax audit in 2019.

Comparison of Six Months Ended December 31, 2020 and 2019

The income tax provision and effective tax rate for the six months ended December 31, 2020 was lower than that for the six months ended December 31, 2019, primarily due to decrease in tax reserves after the settlement of a Taiwan tax audit and increase in tax benefit from employees’ stock based compensation.

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

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

Share of (loss) from equity investee, net of taxes for the three and six months ended December 31, 2020 and 2019 are as follows (dollars in millions):

Three Months Ended

December 31, Change Six Months Ended

December 31, Change

2020 2019 $ % 2020 2019 $ %

Share of (loss) from equity investee, net of taxes $ (1.5) $ (1.0) $ (0.5) 50.0% $ (0.1) $ — $ (0.1) —%

Percentage of total net sales (0.2) % (0.1) % — % — %

Comparison of Three Months Ended December 31, 2020 and 2019

The period-over-period increase of $0.5 million in share of (loss) from equity investee, net of taxes was primarily due to more net loss recognized by the Corporate Venture.

Comparison of Six Months Ended December 31, 2020 and 2019

The period-over-period increase of $0.1 million in share of (loss) from equity investee, net of taxes was primarily due to more net loss recognized by the Corporate Venture.

Liquidity and Capital Resources

We have financed our growth primarily with funds generated from operations, in addition to utilizing borrowing facilities, particularly in relation to the financing of real property acquisitions as well as working capital.

Our cash and cash equivalents were $300.1 million and $210.5 million as of September 30, 2020 and June 30, 2020, respectively.

Our cash in foreign locations was $87.7 million a nd $98.0 million as of September 30, 2020 and June 30, 2020, respectively.

Our cash and cash equivalents were $315.6 million and $210.5 million as of December 31, 2020 and June 30, 2020, respectively.

Our cash in foreign locations was $141.5 million a nd $98.0 million as of December 31, 2020 and June 30, 2020, respectively.

Amounts held outside of the U.S.

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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, continued remediation of the material weakness in the financial reporting, and maturing debt and interest payments for the twelve months following the issuance of these consolidated financial statements.

We expect to pay special performance bonuses of approximately $8.6 million to our CEO and certain members of the Board of Directors within the next two years when and if specified market and performance conditions are met.

In addition, we made a settlement payment of $17.5 million to the SEC in connection with the conclusion of the investigations in August 2020.

On October 31, 2020, our Board of Directors approved a share repurchase program to repurchase shares of our common stock for up to $50 million at prevailing prices in the open market.

The share repurchase program is effective until October 31, 2021 or until the maximum amount of common stock is repurchased, whichever occurs first.

I n addition, we made a settlement payment of $17.5 million to the SEC in connection with the conclusion of the investigations in August 2020.

On August 9, 2020, the Board approved a share repurchase program to repurchase shares of common stock for up to an aggregate of $30.0 million at market prices.

The program was effective until December 31, 2020 or if earlier, until the maximum amount of common stock is repurchased.

During the three months ended September 30, 2020, 1,142,294 shares of common stock were repurchased for $30.0 million and the program ended.

On October 31, 2020, the Board approved a share repurchase program to repurchase shares of common stock for up to an aggregate of $50.0 million at market prices.

The program is effective until October 31, 2021 or if earlier, until the maximum amount of common stock is repurchased.

During the three months ended December 31, 2020, 1,580,207 shares of common stock were repurchased for $47.0 million.

We repurchased 95,539 shares of our common stock for $3.0 million subsequent to December 31, 2020 and completed this share repurchase program on January 6, 2021.

On January 29, 2021, a duly authorized subcommittee of the Board approved a share repurchase program to repurchase shares of common stock for up to an aggregate of $200.0 million at market price.

The program is effective until July 31, 2022 or if earlier, until the maximum amount of common stock is repurchased.

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

Three Months Ended

September 30, Change

Six Months Ended

December 31, Change

Net cash provided by operating activities $ 183.8 $ 87.2 $ 96.6

1 unchanged sentence

Net cash used in financing activities $ (53.7) $ (2.1) $ (51.6)

Net increase (decrease) in cash, cash equivalents and restricted cash $ 89.6 $ (9.5) $ 99.1

Net increase in cash, cash equivalents and restricted cash $ 105.1 $ 61.9 $ 43.2

Operating Activities

Net cash provided by operating activities increased by $115.0 million for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

The increase was due primarily to an increase of cash provided by net working capital o f $121.2 million d riven by decreased accounts receivable as a result of increased collections, utilization of inventories and prepaid expenses and other current assets.

Net cash provided by operating activities increased by $96.6 million for the six months ended December 31, 2020 as compared to the six months ended December 31, 2019.

The increase was due primarily to a $4.2 million increase in net income and an increase of cash provided by net working capital o f $99.9 million d riven by decreased accounts receivable as a result of increased collections, utilization of inventories and prepaid expenses and other current assets.

Non-cash charges related to depreciation and amortization expense, stock-based compensation expense and unrealized losses on our foreign currency-denominated credit facilities increased $6.6 million.

1 unchanged sentence

Investing Activities

Net cash used in investing activities was $11.9 million and $13.3 million for the three months ended September 30, 2020 and 2019, respectively, as we continued to invest in expanding our manufacturing capacity and office space, including the expansion of our Green Computing Park in San Jose and Bade manufacturing facility in Taiwan.

Net cash used in investing activities was $25.6 million and $23.3 million for the six months ended December 31, 2020 and 2019, respectively, as we continued to invest in expanding our manufacturing capacity and office space, including the expansion of our Green Computing Park in San Jose and Bade manufacturing facility in Taiwan.

Financing Activities

Net cash used by financing activities for the three months ended September 30, 2020 was $19.3 million while net cash used in financing activities for the three months ended September 30, 2019 was $1.7 million.

The change in cash flows from financing activities was primarily due to stock repurchases of $28.5 million offset by cash received from the exercise of stock options of $5.0 million net of taxes and $6.4 million of debt proceeds from draws on our CTBC credit and term loan facilities.

Net cash used by financing activities for the six months ended December 31, 2020 was $53.7 million while net cash used in financing activities for the six months ended December 31, 2019 was $2.1 million.

The change in cash flows from financing activities was primarily due to stock repurchases of $74.8 million offset by the increase in cash received from the exercise of stock options of $7.9 million net of taxes, $14.7 million of debt proceeds from draws on our CTBC credit and term loan facilities and $0.5 million decrease in debt repayment.

Other Factors Affecting Liquidity and Capital Resources

2018 Bank of America Credit Facility

In April 2018, as amended in January and June 2019, we entered into a revolving line of credit with Bank of America (the "2018 Bank of America Credit Facility") for up to $250.0 million.

In May 2020, we entered into a third amendment to extend the maturity from June 30, 2020 to June 30, 2021, release the real property as a collateral, modify certain payments and covenants provisions, specify that LIBOR cannot be less than 1% for purposes of determining interest rates, and increase the unused line fee from 0.25% per annum to 0.375% per annum.

In April 2018, we entered into a revolving line of credit with Bank of America for up to $250.0 million (as amended from time to time, the "2018 Bank of America Credit Facility").

On May 12, 2020, the 2018 Bank of America Credit Facility was amended to, among other things, extend the maturity to June 30, 2021, release the real property as a collateral, modify certain payments and covenants provisions, specify that LIBOR cannot be less than 1% for purposes of determining interest rates, and increase the unused line fee from 0.25% per annum to 0.375% per annum.

Interest shall accrue at LIBOR plus 2.00% on outstanding borrowings less than $125.0 million and LIBOR plus 2.25% on outstanding borrowings in excess of $125.0 million.

As of September 30, 2020, we had no outstanding borrowings and we had a $6.4 million letter of credit outstanding under this facility.

As of December 31, 2020, we had no outstanding borrowings and we had a $6.4 million letter of credit outstanding under this facility.

Our available borrowing capacity was $243.6 million, subject to the borrowing base limitation and compliance with other applicable terms.

7 unchanged sentences

In August 2020, we entered into a credit agreement with CTBC Bank in Taiwan that provides for term loans of up to $50.0 million (the "2020 CTBC Credit Facility") and expires in August 2021.

During the three months ended September 30, 2020, we have not borrowed or repaid under the revolving line of credit.

There were no outstanding borrowings under the 2020 CTBC Credit Facility revolving line of credit as of September 30, 2020.

During the three months ended December 31, 2020, we have not borrowed or repaid under the revolving line of credit.

There were no outstanding borrowings under the 2020 CTBC Credit Facility revolving line of credit as of December 31, 2020.

The total outstanding borrowings under the 2020 CTBC Credit Facility term loan were denominated in NTD and remeasured into U.S.

dollars of $24.0 million at September 30, 2020.

The amount available for future borrowing was $26.3 million as of September 30, 2020.

The interest rate for these outstanding term loans was 0.73% per annum as of September 30, 2020.

Term loans are secured by certain of our assets, including certain property, plant, and equipment.

dollars of $24.9 million at December 31, 2020.

The amount available for future borrowing was $25.1 million as of December 31, 2020.

The interest rate for these outstanding term loans was 0.73% per annum as of December 31, 2020.Term loans are secured by certain of our assets, including certain property, plant, and equipment.

There are no financial covenants under the 2020 CTBC Credit Facility.

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Fees paid to the lender as debt issuance costs were immaterial.

We borrowe d $6.3 million in the three months ended September 30, 2020 with a rate of 0.45% per annum.

As of September 30, 2020, the amount outstanding under the 2020 CTBC Term Loan Facility was $12.0 million and the net book value of the property serving as collateral was $17.1 million.

We borrowed $8.6 million in the three months ended December 31, 2020 with a rate of 0.45% per annum.

As of December 31, 2020, the amount outstanding under the 2020 CTBC Term Loan Facility was $20.6 million and the net book value of the property serving as collateral was $29.2 million.

We have financial covenants requiring our current ratio, debt service coverage ratio, and financial debt ratio, to be maintained at certain levels.

We have been in compliance with all financial covenants under the 2020 CTBC Term Loan Facility.

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

As of December 31, 2020, we have been in compliance with all financial covenants under the 2020 CTBC Term Loan Facility.

E.SUN Credit Facility

In December 2020, Super Micro Computer Inc, Taiwan, a Taiwan subsidiary of the Company entered into a General Credit Agreement (the “E.SUN Credit Facility”) with E.SUN Bank in Taiwan.

Such Credit Facility provides for the issuance of

loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments up to a credit limit of $30.0 million.

Terms for specific drawdowns are set forth in separate Notification and Confirmation of Credit Conditions negotiated with E.

The term of the E.SUN Credit Facility is until September 18, 2021.

There are no financial covenants associated with the E.SUN Credit Facility.

A Notification and Confirmation agreement was entered into on December 2, 2020 for a $30.0 million import loan (the “Import Loan”) under the E.

SUN Credit facility with a tenor of 120 days and with an interest rate calculated based on LIBOR or TAIFX plus a fixed margin.

As of December 31, 2020, no drawings had been made from the Import Loan.

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.

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.

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 condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis