What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-05 compared with 2021-05-07 · 151 added, 169 removed, 170 unchanged (65% of the section changed)

12 unchanged sentences

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

Our net income for the three months ended March 31, 2021 increased to $18.4 million from $15.8 million for the corresponding period in the prior year.

Our net income for the three months ended September 30, 2021 decreased to $25.4 million from $26.6 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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Logistics has emerged as a new challenge as globally the transportation industry restricted the frequency of departures and increased logistics costs.

We 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 have experienced increased costs in freight as well as direct labor costs as we incentivized our employees to continue to work and assist us in serving our customers, many of whom are in critical industries.

We expect this trend to continue for the duration of the COVID-19 pandemic.

We monitor the credit profile and payment history of our customers to evaluate risk in specific industries or geographic areas where cash flow may be disrupted.

While we believe that we are adequately capitalized, we actively manage our liquidity needs.

In May 2020, we negotiated an extension of our credit facility with Bank of America to extend the maturity date to June 2021.

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.

This 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 this general credit agreement is through September 18, 2021.

We monitor the credit profile and payment history of our customers to evaluate risk in specific industries or

geographic areas where cash flow may be disrupted.

While we believe that we are adequately capitalized, we actively manage

our liquidity needs.

In June 2021, we negotiated an extension of our credit facility with Bank of America to extend the maturity date to June 2026.

In July 2021, we replaced our prior credit facility and term loan facility with CTBC Bank, with a new facility for omnibus credit lines.

In September 2021, we replaced our prior credit facility with E.SUN Bank, with new credit facility and term facility.

In September 2021, we entered into a term loan facility with Mega Bank which will be used to support our manufacturing activities (such as purchase of materials and components) and provide medium-term working capital.

In October 2021, we entered into a credit facility with Chang Hwa Bank which will be used to support the growth of our Taiwan business.

See “- Liquidity and Capital Resources – Other Factors Affecting Liquidity and Capital Resources.”

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Financial Highlights

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

• Net sales increased by 16.0% in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

• Gross margin decreased to 13.7% in the three months ended March 31, 2021 from 17.3% in the three months ended March 31, 2020.

• Operating expenses decreased by 10.1% as compared to the three months ended March 31, 2020, and were equal to 11.8% and 15.3% of net sales in the three months ended March 31, 2021 and 2020, respectively.

• Effective tax rate benefit decreased from 5.6% in the three months ended March 31, 2020 to 1.2% in the three months ended March 31, 2021.

The following is a summary of our financial highlights of the first quarter of fiscal year 2022:

• Net sales increased by 35.5% in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

• Gross margin decreased to 13.4% in the three months ended September 30, 2021 from 17.0% in the three months ended September 30, 2020.

• Operating expense s increased by 9.6% as compared to the three months ended September 30, 2020, and were equal to 10.6% and 13.0% of net sales in the three months ended September 30, 2021 and 2020, respectively.

• Effective tax rate decreased to 11.7% in the three months ended September 30, 2021 from 12.7% in the three months ended September 30, 2020.

Critical Accounting Policies and Estimates

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Three Months Ended

March 31, Nine Months Ended

2021 2020 2021 2020

September 30,

Net sales 100.0 % 100.0 %

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Research and development

6.5 % 6.4 % 6.6 % 6.3 %

Sales and marketing

2.4 % 2.8 % 2.5 % 2.6 %

General and administrative

2.9 % 6.0 % 3.0 % 4.5 %

Total operating expenses 10.6 % 13.0 %

4 unchanged sentences

Income tax provision (0.3) % (0.5) %

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

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

Net income 2.5 % 3.5 %

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 and nine months ended March 31, 2021 and 2020 (dollars in millions):

Three Months Ended March 31, Change Nine Months Ended March 31, Change

The following table presents net sales by product type for the three months ended September 30, 2021 and 2020 (dollars in millions):

Three Months Ended September 30, Change

2021 2020 $ %

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

Comparison of Three Months Ended March 31, 2021 and 2020

Comparison of Three Months Ended September, 2021 and 2020

The period-over-period increase in net sales of our server and storage systems was due to a 25.5% increase in the number of units of compute nodes sold and a 11.8% increase in the average selling price.

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

The period-over-period increase in net sales of our subsystems and accessories is primarily due to an increase in the average selling price .

Comparison of Nine Months Ended March 31, 2021 and 2020

The period-over-period increase in net sales of our server and storage systems was due to a 17.4% increase in the average selling price partially offset by a 11.1% decrease in the number of units of compute nodes sold.

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 nine months ended March 31, 2021 and 2020 (dollars in millions):

Three Months Ended March 31, Change Change Nine Months Ended March 31, Change Change

The period-over-period increase in net sales of our subsystems and accessories is primarily due to an increase in the average selling price by 19.6% and an increase in number of units by 5.9%.

The following table presents net sales by geographic region for the three months ended September 30, 2021 and 2020 (dollars in millions):

Three Months Ended September 30, Change Change

2021 2020 $ %

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Total net sales $ 1,032.7 $ 762.3

Comparison of Three Months Ended March 31, 2021 and 2020

The period-over-period increase in net sales in the United States for the three months ended March 31, 2021 and 2020 was primarily due to higher sales driven by higher server and storage systems unit volume.

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

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

The period-over-period decrease in net sales in other

countries was primarily due to decreased sales in Mexico and South Africa, partially offset by higher sales in Canada, Israel and other Middle East countries.

Comparison of Nine Months Ended March 31, 2021 and 2020

The period-over-period increase in net sales in the United States for the nine months ended March 31, 2021 and 2020 was primarily due to higher sales driven by higher server and storage systems unit volume.

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

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

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

Comparison of Three Months Ended September 30, 2021 and 2020

The period-over-period increase in net sales in the United States for the three months ended September 30, 2021 and 2020 was primarily due to higher sales driven by higher server and storage systems unit volume combined with higher average selling price.

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

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

The period-over-period increase in net sales in other countries was primarily due to higher sales in Australia, Israel, UAE, Saudi Arabia, and South Africa, partially offset by decreased sales in Canada, Brazil, Mexico and New Zealand.

Cost of Sales and Gross Margin

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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 nine months ended March 31, 2021 and 2020 are as follows (dollars in millions):

Three Months Ended March 31, Change Nine Months Ended March 31, Change

Cost of sales and gross margin for the three months ended September 30, 2021 and 2020 are as follows (dollars in millions):

Three Months Ended September 30, Change

2021 2020 $ %

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Gross margin 13.4 % 17.0 % (3.6) %

Comparison of Three Months Ended March 31, 2021 and 2020

The period-over-period increase in cost of sales was primarily attributed t o an increase of $131.9 million in costs of materials and contract manufacturing expenses primarily related to the increase in net sales volume and a $5.5 million increase in freight charges, partially offset by a decrease of excess and obsolete inventory charges of $1.7 million and a d ecrease of $3.0 million in overhead costs.

The period-over-period decrease in the gross margin percentage wa s primarily due to sales prices increasing at a slower rate than the increase in the costs of components purchased and higher freight costs.

Comparison of Nine Months Ended March 31, 2021 and 2020

The period-over-period increase in cost of sales was primarily attributed t o an increase of $91.2 million in costs of materials and contract manufacturing expenses primarily related to the increase in net sales volume, an increase of $6.0 million of freight charges and a $1.3 million increase in product service costs, partially offset by a d ecrease of $24.8 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 $14.0 million.

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

Comparison of Three Months Ended September 30, 2021 and 2020

The period-over-period increase in cost of sales was primarily attributed to an increase of $236.8 million in costs of materials and contract manufacturing expenses primarily related to the increase in net sales volume, a $15.0 million increase in freight charges, an increase in excess and obsolete inventory charges of $4.3 million, and a $10.0 million increase due to lower cost recovery of cost paid in prior periods offset by a decrease of $4.4 million in other overhead costs.

The period-over-period decrease in the gross margin percentage was primarily due to sales prices increasing at a slower rate than the increase in the costs of sales.

Since the start of the COVID-19 pandemic, we have experienced an increase in costs of sales, logistics costs as well as direct labor costs as we incentivize our employees.

This increase in costs negatively impacts our gross margin, and we expect these higher costs to continue for the duration of the COVID-19 pandemic.

Operating Expenses

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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 and nine months ended March 31, 2021 and 2020 are as follows (dollars in millions):

Three Months Ended March 31, Change Nine Months Ended March 31, Change

Operating expenses for the three months ended September 30, 2021 and 2020 are as follows (dollars in millions):

Three Months Ended September 30, Change

2021 2020 $ %

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Percentage of total net sales 10.6 % 13.0 %

Comparison of Three Months Ended March 31, 2021 and 2020

Research and development expenses.

The period-over-period increase in research and development expenses was primarily due to a $13.2 million increase in costs mainly related to materials, supplies and equipment used in product development.

During the three months ended March 31, 2020, we recorded a $9.5 million net settlement fee as a reduction in the research and development expenses related to the reimbursement of previously incurred materials, supplies and equipment costs for one canceled joint product development agreement.

This increase was partially offset by a $2.8 million increase in research and development credits from certain suppliers and customers towards our development efforts and a decrease of $2.3 million in personnel expenses.

Sales and marketing expenses.

The period-over-period sales and marketing expenses decreased primarily due to a $1.0 million decrease in personnel expenses as a result of a decrease in the number of personnel, a $0.2 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 an increase of $0.7 million in advertising expenses and a $0.4 million 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 a decrease of $19.1 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 $1.7 million in bad debt provision expenses and a $1.1 million decrease in other general and administrative expenses, partially offset by an increase of $3.1 million in personnel expenses due to increased full time personnel.

Comparison of Nine Months Ended March 31, 2021 and 2020

Comparison of Three Months Ended September 30, 2021 and 2020

Research and development expenses.

The period-over-period increase in research and development expenses was primarily due to an increase of $12.9 million in costs mainly related to materials supplies and equipment used in product development.

Personnel expenses increased $7.4 million as a result of an increase in the number of personnel.

These increases were partially offset by an increase of $8.5 million in research and development credits from certain suppliers and customers towards our development efforts and a decrease of $1.4 million in travel expenses as a result in a change in our operations in response to the COVID-19 pandemic.

The period-over-period increase in research and development expenses was primarily due to a $8.0 million increase in personnel expenses due to merit increases and higher headcount, a $0.9 million decrease in research and development credits from certain suppliers and customers towards our development efforts and a $0.8 million increase in product development costs.

Sales and marketing expenses.

The period-over-period sales and marketing expenses decreased primarily due to a decrease of $2.3 million 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 and a $0.7 million decrease in personal expenses due to decreased full time personnel, partially offset by a $0.7 million increase in facilities costs, an increase of $0.5 million in advertising expenses, and a $0.5 million increase in other sales and marketing expenses.

The period-over-period increase in sales and marketing expenses was primarily due to a $2.1 million increase in personnel expenses as a result of an increase in the number of personnel, partially offset by a decrease of $1.1 million in advertising and other expenses.

General and administrative expenses.

The period-over-period decrease in general and administrative expenses was primarily due to a decrease of $37.2 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 $3.1 million in travel expenses as a result in a change in our operations in response to the COVID-19 pandemic, a decrease of $2.2 million in bad debt provision expenses, a decrease of $1.2 million in supplies expenses, a decrease of $0.7 million in sales tax reserve and audit expenses and a $0.6 million decrease in facilities costs, partially offset by an increase of $13.5 million in compensation expense due to increased full time personnel and bonuses.

Interest 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.

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

The period-over-period decrease in general and administrative expenses was primarily due to a decrease of $1.6 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 $0.6 million decrease in compensation expenses and other expenses.

Interest and Other Income (Expense), Net

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

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

Interest and other income (expense), net for the three months ended September 30, 2021 and 2020 are as follows (dollars in millions):

Three Months Ended

March 31, Change Nine Months Ended

March 31, Change

September 30, Change

2021 2020 $ %

Other (expense) income, net $ 2.0 $ 0.9 $ 1.1 122.2 % $ (1.4) $ 2.1 $ (3.5) (166.7) %

Other income (expense), net $ 0.1 $ (0.8) $ 0.9 (112.5) %

Interest expense (0.8) (0.7) (0.1) 14.3 %

Interest and other (expense) income, net $ 1.4 $ 0.4 $ 1.0 250.0 % $ (3.2) $ 0.5 $ (3.7) (740.0) %

Comparison of Three Months Ended March 31, 2021 and 2020

The change of $1.1 million in other (expense) income, net was attributable to an increase of $1.7 million in foreign exchange gain due to favorable foreign currency fluctuations, partially offset by a decrease of $0.5 million in interest income on our interest-bearing deposits due primarily to lower yields on investments.

Comparison of Nine Months Ended March 31, 2021 and 2020

The change of $3.5 million in other (expense) income, net was attributable to a decrease of $2.3 million in interest income on our interest-bearing deposits due primarily to lower yields on investments and an increase of $1.2 million in foreign exchange loss due to unfavorable foreign currency fluctuations.

Interest and other income (expense), net $ (0.7) $ (1.5) $ 0.8 (53.3) %

Comparison of Three Months Ended September 30, 2021 and 2020

The change of $0.9 million in other income (expense), net was attributable to an increase of $0.9 million in foreign exchange gain due to favorable foreign currency fluctuations.

Provision for Income Taxes

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, 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 and nine months ended March 31, 2021 and 2020 are as follows (dollars in millions):

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 compensation.

Provision for income taxes and effective tax rates for the three months ended September 30, 2021 and 2020 are as follows (dollars in millions):

Three Months Ended

March 31, Change Nine Months Ended

March 31, Change

September 30, Change

2021 2020 $ %

Income tax (benefit) provision $ (0.2) $ (0.9) $ 0.7 (77.8) % $ 8.5 $ 9.8 $ (1.3) (13.3) %

Income tax provision $ 3.3 $ 3.7 $ (0.4) (10.8) %

Percentage of total net sales 0.3 % 0.5 %

Effective tax rate (benefit) (1.2) % (5.6) % 10.5 % 12.8 %

Comparison of Three Months Ended March 31, 2021 and 2020

The income tax provision and effective tax rate for the three months ended March 31, 2021 was higher than that for the three months ended March 31, 2020 due to the release of tax reserves after the settlement of a Taiwan tax audit in the prior year.

Comparison of Nine Months Ended March 31, 2021 and 2020

The income tax (benefit) provision and effective tax rate for the nine months ended March 31, 2021 was lower than that for the nine months ended March 31, 2020, primarily due to decrease in tax reserves after the settlement of a Taiwan tax audit and the SEC penalty assessment in 2020.

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 nine months ended March 31, 2021 and 2020 are as follows (dollars in millions):

Effective tax rate 11.7 % 12.7 %

Comparison of Three Months Ended September 30, 2021 and 2020

The income tax provision and effective tax rate for the three months ended September 30, 2021 is lower than that for the three months ended September 30, 2020, primarily due to a decrease in certain non-deductible expenses and a decrease in foreign tax liabilities.

Share of Income from Equity Investee, Net of Taxes

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

Share of income from equity investee, net of taxes for the three months ended September 30, 2021 and 2020 are as follows (dollars in millions):

Three Months Ended

March 31, Change Nine Months Ended

March 31, Change

September 30, Change

2021 2020 $ %

Share of (loss) from equity investee, net of taxes $ (0.3) $ (1.1) $ 0.8 (72.7)% $ (0.4) $ (1.1) $ 0.7 —%

Share of income from equity investee, net of taxes $ 0.4 $ 1.3 $ (0.9) (69.2)%

Percentage of total net sales — % 0.2 %

Comparison of Three Months Ended March 31, 2021 and 2020

The period-over-period decrease of $0.8 million in share of (loss) from equity investee, net of taxes was primarily due to less net loss recognized by the Corporate Venture.

Comparison of Nine Months Ended March 31, 2021 and 2020

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

Comparison of Three Months Ended September 30, 2021 and 2020

The period-over-period decrease of $0.9 million in share of income from equity investee, net of taxes was primarily due to less net income 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 $177.9 million and $210.5 million as of March 31, 2021 and June 30, 2020, respectively.

Our cash in foreign locations was $99.0 million a nd $98.0 million as of March 31, 2021 and June 30, 2020, respectively.

Our cash and cash equivalents were $270.0 million and $232.3 million as of September 30, 2021 and June 30, 2021, respectively.

Our cash in foreign locations was $107.1 million a nd $152.6 million as of September 30, 2021 and June 30, 2021, respectively.

Amounts held outside of the U.S.

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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.

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, 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 condensed consolidated financial statements.

We expect to pay a special performance bonus of approximately $8.1 million to our CEO within the next year in two equal tranches.

During the quarter ended March 31, 2021, the target average closing prices for both tranches were met but no determination has been made if the specified performance condition for the first tranche is met.

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 up to an aggregate of $50.0 million of the Company’s common stock at market prices.

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

As of March 31, 2021, 1,675,746 shares of common stock were repurchased and retired for $50.0 million and the program ended.

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

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

During the three months ended March 31 2021, 1,155,000 shares of common stock were repurchased for $40.7 million.

All repurchased shares have been retired as of March 31, 2021.

We repurchased 236,171 shares of our common stock for $9.3 million subsequent to March 31, 2021.

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 months following the issuance of these condensed consolidated financial statements.

We expect to pay a special performance bonus of approximately $2.0 million to our CEO in the fiscal year 2022.

On January 29, 2021, a duly authorized subcommittee of the Board of Directors approved a share repurchase program to repurchase up to an aggregate of $200.0 million of the Company's common stock at market prices.

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

The Company had $150.0 million of remaining availability under the share repurchase program as of September 30, 2021.

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

Nine Months Ended

March 31, Change

Net cash provided by operating activities $ 59.4 $ 65.7 $ (6.3)

Three Months Ended

September 30, Change

Net cash provided by (used in) operating activities $ (134.6) $ 120.6 $ (255.2)

Net cash used in investing activities $ (11.9) $ (11.9) $ —

Net cash used in financing activities $ (48.4) $ 25.4 $ (73.8)

Net cash provided by (used in) financing activities $ 184.3 $ (19.3) $ 203.6

Net increase in cash, cash equivalents and restricted cash $ 37.8 $ 89.6 $ (51.8)

Operating Activities

Net cash provided by operating activities decreased by $6.3 million for the nine months ended March 31, 2021 as compared to the nine months ended March 31, 2020.

The decrease was due primarily to a decrease of $13.2 million in the non-cash charges related to excess and obsolete inventories, an increase of cash used for net working capital o f $4.3 million primarily d riven by increased accounts receivable as a result of increased revenue and higher cash payments for inventory purchases to meet expected customer demands, and a $2.2 million decrease in the non-cash charges related to a llowances for doubtful accounts .

These decreases were partially offset by a $6.8 million increase in net income and a $6.3 million increase in non-cash charges related to stock-based compensation expenses.

Net cash provided by operating activities decreased by $255.2 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

The decrease was primarily due to an increase in net cash required for net working capital of $259.6 million to meet customer demand, support expected business growth and mitigate supply chain risk due to the COVID-19 pandemic environment and a $1.2 million decrease in net income.

These decreases are partially offset by increases in the non-cash charges, including a $4.4 million increase related to excess and obsolete inventories and $1.0 million related to share of income from our equity investee.

Investing Activities

Net cash used in investing activities was $44.6 million and $34.1 million for the nine months ended March 31, 2021 and 2020, 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 $11.9 million for both the three months ended September 30, 2021 and 2020, 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 nine months ended March 31, 2021 was $48.4 million while net cash provided by financing activities for the nine months ended March 31, 2020 was $25.4 million.

The change in cash flows from financing activities was primarily due to stock repurchases of $118.0 million, a $6.2 million increase in debt repayment, and a $2.7 million decrease in cash received from the exercise of stock options net of taxes, partially offset by a $52.2 million increase in debt proceeds from draws on our CTBC credit and term loan facilities and E.SUN credit facility.

Net cash provided by financing activities for the three months ended September 30, 2021 was $184.3 million while net cash used by financing activities for the three months ended September 30, 2020 was $19.3 million.

The change in cash flows from financing activities was primarily due to an increase of $174.2 million in proceeds from borrowings net of repayment, offset by a $28.5 million decrease in stock repurchases and an increase in cash receipts from exercises of stock options of $1.0 million.

Other Factors Affecting Liquidity and Capital Resources

2018 Bank of America Credit Facility

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 March 31, 2021, we had no outstanding borrowings and we had a $6.4 million letter of credit outstanding under this 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").

In June 2021, the 2018 Bank of America Credit Facility was amended to, among other items, extend the maturity to June 28, 2026 and reduce the size of the facility from $250.0 million to $200.0 million.

In addition, the amendment reduced both the unused line fee from 0.375% per annum to 0.2% or 0.3% per annum (depending upon amount drawn under the facility) and the interest rate applicable to the facility from LIBOR plus 2.00% or 3.00% per annum (depending upon amount drawn under the facility) to LIBOR plus 1.375% or 1.625% per annum.

As of September 30, 2021, the total outstanding borrowings under the 2018 Bank of America Credit Facility were $110.2 million and the interest rate was 1.50%.

Our available borrowing capacity was $89.8 million, subject to the borrowing base limitation and compliance with other applicable terms.

In the event of default or if outstanding borrowings are in excess of $220.0 million, we are required to grant the lenders a continuing security interest in and lien upon all amounts credited to any of our deposit accounts.

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.

The 2018 Bank of America Credit Facility is secured by substantially all of Super Micro Computer’s assets, other than real property assets.

In addition, we are not permitted to pay any dividends.

Under the terms of the 2018 Bank of America Credit Facility agreement, we are required to maintain a certain fixed charge ratio and we have been in compliance with all covenants under the 2018 Bank of America Credit Facility.

2020 CTBC Credit Facility

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.

As of March 31, 2021, the outstanding borrowings under the CTBC Credit Facility revolving line of credit were $18.0 million and the interest rates for these loans were from 1.03% to 1.26% per annum.

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

dollars of $24.5 million at March 31, 2021 and the interest rates for these loans were 0.74% per annum.

The amount available for future borrowing was $7.5 million as of March 31, 2021.

The 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.

2020 CTBC Term Loan Facility due June 4, 2030

In May 2020, we entered into a ten-year, non-revolving term loan facility (the “2020 CTBC Term Loan Facility”) to obtain up to NTD 1.2 billion ($40.7 million in U.S.

dollar equivalents) in financing for use in the expansion and renovation of our Bade Manufacturing Facility located in Taiwan.

Draw downs on the 2020 CTBC Term Loan Facility are based on 80% of balances owed on commercial invoices from the contractor and are drawn according to the progress of the renovations.

Borrowings under the 2020 CTBC Term Loan Facility are available through June 2022.

We are required to pay against total outstanding principal and interest in equal monthly installments starting June 2023 and continuing through the maturity date of June 2030.

The 2020 CTBC Term Loan Facility is secured by the Bade Manufacturing Facility, including any expansion.

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

We borrowed $7.3 million in the three months ended March 31, 2021

with a rate of 0.45% per annum.

As of March 31, 2021, the amount outstanding under the 2020 CTBC Term Loan Facility was $27.9 million and the net book value of the property serving as collateral was $38.1 million.

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

As of March 31, 2021, 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 March 31, 2021, the amounts outstanding under the E.SUN Credit Facility were $15.0 million and the interest rates for these loans were approximately 1.0% per annum.

At March 31, 2021, the amount available for future borrowing under the E.SUN Credit Facility was $15 million.

CTBC Credit Lines

We through our Taiwan subsidiary were party to (i) 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 NTD1,200.0 million ($40.7 million U.S.

dollar equivalent) and (ii) that certain credit agreement, dated August 24, 2020, with CTBC Bank (the “CTBC Credit Facility”), which provided for total borrowings of up to $50.0 million (collectively, the “Prior CTBC Credit Lines”).

On July 20, 2021 (the “Effective Date”), we through our Taiwan subsidiary entered into a general agreement for omnibus credit lines with CTBC Bank (the “2021 CTBC Credit Lines), which replaced the Prior CTBC Credit Lines in their entirety and permit borrowings, from time to time, pursuant to (i) a term loan facility of up to NTD 1,550.0 million ($55.4 million U.S.

dollar equivalents) including the existing 2020 CTBC Term Loan Facility of NTD 1,200.0 million ($42.9 million U.S.

dollar equivalents) and a new 75-month, non-revolving term loan facility of NTD 350.0 million ($12.5 million U.S.

dollar equivalents) to use to purchase machinery and equipment for our Bade Manufacturing Facility located in Taiwan (the “2021 CTBC Machine Loan”), and (ii) a line of credit facility of up to $105.0 million (the “2021 CTBC Credit Facility”), which increased the borrowing capacity of CTBC Credit Facility.

The 2021 CTBC Credit Facility provides ( i) a 12-month NTD 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 adjusted monthly, which term loan facility also includes a 12-month guarantee of up to NTD 100.0 million ($3.6 million U.S.

dollar equivalent) with an annual fee equal to 0.50% per annum, and (ii) a 12-month revolving line of credit of up to 100% of eligible accounts receivable in an aggregate amount of up to $105.0 million with an interest rate equal to the lender's established USD interest rate plus 0.70% to 0.75% per annum which is adjusted monthly.

As of September 30, 2021, the amounts outstanding under the 2020 CTBC Term Loan Facility were $39.0 million and the interest rates for these loans were 0.45% per annum.

Under the 2021 CTBC Machine Loan, the amounts outstanding were $1.4 million and the interest rates for these loans were 0.65% per annum at September 30, 2021 .

As of September 30, 2021, the total outstanding borrowings under the 2021 CTBC Credit Facility term loan were denominated in NTD and remeasured into U.S.

dollars of $25.2 million and the interest rate for these loans were 0.74% per annum.

As of September 30, 2021, the outstanding borrowings of 2021 CTBC Credit Facility revolving line of credit were $68.1 million and the interest rates for these loans ranged from approximately 0.94% to 0.95% per annum.

The amount available for future borrowing under the 2021 CTBC Credit Facility was $11.7 million as of September 30, 2021.

The net book value of land and building located in Bade, Taiwan, collateralizing the 2021 CTBC Credit Lines was $77.7 million and all financial covenants were satisfied under the 2021 CTBC Credit Lines as of September 30, 2021.

2021 E.SUN Bank Credit Facility

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

The term of the Prior E.SUN Bank Credit Facility was until September 18, 2021.

On September 13, 2021 (the “E.SUN Bank Effective Date”), we through our Taiwan subsidiary entered into a new General Credit Agreement with E.SUN Bank, which replaced the Prior E.SUN Bank Credit Facility (the “2021 E.SUN Bank Credit Facility”).

The 2021 E.SUN Bank Credit Facility permits borrowings of up to (i) NTD 1,600.0 million ($57.6 million U.S.

dollar equivalent) and (ii) $30.0 million as loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments.

Other terms of the 2021 E.SUN Bank Credit Facility are substantially identical to the Prior E.SUN Bank Credit Facility.

Generally, interest for base rate loans made under the 2021 E.SUN Bank Credit Facility are based upon an average interbank overnight call loan rate in the finance industry (such as LIBOR or TAIFX) plus a fixed margin, and is subject to occasional adjustment.

The 2021 E.SUN Bank Credit Facility has customary default provisions permitting E.SUN Bank to terminate or reduce the credit limit, shorten the credit period, or deem all liabilities due and payable, including in the event the 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 .

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 million U.S.

dollar equivalent) in financing for use in research & development activities (the “Term Loan”), and (ii) a $30.0 million import loan (the “Import Loan”) with a tenor of 120 days.

As of September 30, 2021, the total outstanding borrowings under the Term Loan were denominated in NTD and remeasured into U.S.

dollars of $4.9 million and the interest rates for these loans were 0.995% per annum.

As of September 30, 2021 , the amounts outstanding under the Import Loan were $30.0 million and the interest rates for these loans ranged approximately from 0.96% to 1.23% per annum.

At September 30, 2021, the amount available for future borrowing under the Import Loan was $0.0 million.

Mega Bank Credit Facilities

On September 13, 2021 (the “Mega Bank Effective Date”), we through our Taiwan subsidiary entered into a NTD1,200.0 million ($43.2 million U.S.

dollar equivalent) credit facility (the “Mega Bank Credit Facility”) with Mega International Commercial Bank (“Mega Bank”).

The Mega Bank Credit Facility will be used to support manufacturing activities (such as purchase of materials and components), and to provide medium-term working capital (the “Permitted Uses”).

Drawdowns under the Mega Bank Credit Facility may be made through December 31, 2024, with the first drawdown date not later than November 5, 2021.

Drawdowns may be in amounts of up to 80% of Permitted Uses certified to the Bank in drawdown certificates.

The interest rate depends upon the amount borrowed under Mega Bank Credit Facility, and as of the Mega Bank Effective Date, range 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 15 th 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 September 30, 2021, there were no outstanding borrowings under the Mega Bank Credit Facility.

Chang Hwa Bank Credit Facility

On October 5, 2021 (the “Chang Hwa Bank Effective Date”), we through our Taiwan subsidiary entered into a credit facility (the “Chang Hwa Bank Credit Facility”) with Chang Hwa Commercial Bank, Ltd.

(“Chang Hwa Bank”).

The Chang Hwa Bank Credit Facility, which is being used to support our growth, permits borrowings of up to NTD 1,000.0 million ($36.0 million U.S.

dollar equivalent) including up to $20.0 million as loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments.

The Chang Hwa Bank Credit Facility has customary default provisions permitting the Chang Hwa Bank to terminate or reduce the credit limit, shorten the credit period, or deem all liabilities due and payable, including in cross-default provisions with respect to the Company's other debt obligations.

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.

Under the Chang Hwa Bank Credit Facility, the Chang Hwa Bank has the right to demand collateral for debts owed.

Refer to Part I, Item 1, Note 7, “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 will be approximately $11 million, relating primarily to costs associated with our manufacturing capabilities, including tooling for new products, new information technology investments, and facilities upgrades.

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.

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 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.

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

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis