Super Micro Computer, Inc. 10-Q

Item 1. Financial Statements SUPER MICRO COMPUTER, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (unaudited) December 31, June 30, 2021 2021 ASSETS Current assets: Cash and cash equivalents $ 247,407 $ 232,266 Accounts receivable, net of allowances of $ 1,949 and $ 2,591 at December 31, 2021 and June 30, 2021, respectively (including accounts receivable from related parties of $ 34,532 and $ 8,678 at December 31, 2021 and June 30, 2021, respectively) 497,431 463,834 Inventories 1,393,672 1,040,964 Prepaid expenses and other current assets (including receivables from related parties of $ 35,002 and $ 23,837 at December 31, 2021 and June 30, 2021, respectively) 154,778 130,195 Total current assets 2,293,288 1,867,259 Investment in equity investee 4,459 4,578 Property, plant and equipment, net 280,282 274,713 Deferred income taxes, net 61,837 63,288 Other assets 36,736 32,126 Total assets $ 2,676,602 $ 2,241,964 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable (including amounts due to related parties of $ 96,036 and $ 70,096 at December 31, 2021 and June 30, 2021, respectively) $ 695,180 $ 612,336 Accrued liabilities (including amounts due to related parties of $ 20,029 and $ 18,528 at December 31, 2021 and June 30, 2021, respectively) 171,010 178,850 Income taxes payable 14,464 12,741 Short-term debt 176,904 63,490 Deferred revenue 142,021 101,479 Total current liabilities 1,199,579 968,896 Deferred revenue, non-current 110,531 100,838 Long-term debt 139,032 34,700 Other long-term liabilities 40,615 41,132 Total liabilities 1,489,757 1,145,566 Commitments and contingencies (Note 11) Stockholders’ equity: Common stock and additional paid-in capital, $ 0.001 par value Authorized shares: 100,000 ; Outstanding shares: 51,509 and 50,582 at December 31, 2021 and June 30, 2021, respectively Issued shares: 51,509 and 50,582 at December 31, 2021 and June 30, 2021, respectively 460,990 438,012 Accumulated other comprehensive income 549 453 Retained earnings 725,129 657,760 Total Super Micro Computer, Inc. stockholders’ equity 1,186,668 1,096,225 Noncontrolling interest 177 173 Total stockholders’ equity 1,186,845 1,096,398 Total liabilities and stockholders’ equity $ 2,676,602 $ 2,241,964 See accompanying notes to condensed consolidated financial statements. 1 Table of Contents SUPER MICRO COMPUTER, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited) Three Months Ended December 31, Six Months Ended December 31, 2021 2020 2021 2020 Net sales (including related party sales of $ 41,616 and $ 18,706 in the three months ended December 31, 2021 and 2020, respectively, and $ 72,538 and $ 38,421 in the six months ended December 31, 2021 and 2020, respectively) $ 1,172,419 $ 830,306 $ 2,205,149 $ 1,592,556 Cost of sales (including related party purchases of $ 96,728 and $ 51,532 in the three months ended December 31, 2021 and 2020, respectively, and $ 184,415 and $ 110,392 in the six months ended December 31, 2021 and 2020, respectively) 1,008,676 694,211 1,903,267 1,326,546 Gross profit 163,743 136,095 301,882 266,010 Operating expenses: Research and development 65,471 52,729 130,614 107,527 Sales and marketing 21,960 20,740 43,584 41,032 General and administrative 25,263 25,261 47,507 49,640 Total operating expenses 112,694 98,730 221,705 198,199 Income from operations 51,049 37,365 80,177 67,811 Other expense, net ( 607 ) ( 2,539 ) ( 557 ) ( 3,380 ) Interest expense ( 1,150 ) ( 569 ) ( 1,954 ) ( 1,243 ) Income before income tax provision 49,292 34,257 77,666 63,188 Income tax provision ( 7,599 ) ( 5,108 ) ( 10,924 ) ( 8,768 ) Share of income (loss) from equity investee, net of taxes 239 ( 1,475 ) 627 ( 145 ) Net income $ 41,932 $ 27,674 $ 67,369 $ 54,275 Net income per common share: Basic $ 0.82 $ 0.54 $ 1.32 $ 1.05 Diluted $ 0.78 $ 0.52 $ 1.27 $ 1.00 Weighted-average shares used in calculation of net income per common share: Basic 51,314 51,499 51,055 51,914 Diluted 53,511 53,584 53,213 54,005 See accompanying notes to condensed consolidated financial statements. 2 Table of Contents SUPER MICRO COMPUTER, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited) Three Months Ended December 31, Six Months Ended December 31, 2021 2020 2021 2020 Net income $ 41,932 $ 27,674 $ 67,369 $ 54,275 Other comprehensive income, net of tax: Foreign currency translation gain 100 301 96 548 Total other comprehensive income 100 301 96 548 Total comprehensive income $ 42,032 $ 27,975 $ 67,465 $ 54,823 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents SUPER MICRO COMPUTER, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share amounts) (unaudited) Three Months Ended December 31, 2021 Common Stock and Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income Retained Earnings Non-controlling Interest Total Stockholders’ Equity Shares Amount Shares Amount Balance at September 30, 2021 51,071,844 $ 448,976 — $ — $ 449 $ 683,197 $ 176 $ 1,132,798 Exercise of stock options, net of taxes 299,337 5,570 — — — — — 5,570 Release of common stock shares upon vesting of restricted stock units 199,825 — — — — — — — Shares withheld for the withholding tax on vesting of restricted stock units ( 62,390 ) ( 2,732 ) — — — — — ( 2,732 ) Stock-based compensation — 9,176 — — — — — 9,176 Foreign currency translation gain — — — — 100 — — 100 Net income — — — — — 41,932 1 41,933 Balance at December 31, 2021 51,508,616 $ 460,990 — $ — $ 549 $ 725,129 $ 177 $ 1,186,845 Three Months Ended December 31, 2020 Common Stock and Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income Retained Earnings Non-controlling Interest Total Stockholders’ Equity Shares Amount Shares Amount Balance at September 30, 2020 54,241,046 $ 400,157 ( 2,475,419 ) $ ( 50,491 ) $ 95 $ 722,812 $ 169 1,072,742 Exercise of stock options, net of taxes 332,783 5,747 — — — — — 5,747 Release of common stock shares upon vesting of restricted stock units 193,017 — — — — — — — Shares withheld for the withholding tax on vesting of restricted stock units ( 60,166 ) ( 1,713 ) — — — — — ( 1,713 ) Stock repurchases and retirement ( 4,055,626 ) ( 122 ) 2,475,419 50,491 — ( 97,357 ) — ( 46,988 ) Stock-based compensation — 6,453 — — — — — 6,453 Foreign currency translation gain — — — — 301 — — 301 Net income — — — — — 27,674 4 27,678 Balance at December 31, 2020 50,651,054 $ 410,522 — $ — $ 396 $ 653,129 $ 173 $ 1,064,220 4 Table of Contents Six Months Ended December 31, 2021 Common Stock and Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income Retained Earnings Non-controlling Interest Total Stockholders’ Equity Shares Amount Shares Amount Balance at June 30, 2021 50,582,078 $ 438,012 — $ — $ 453 $ 657,760 $ 173 $ 1,096,398 Exercise of stock options, net of taxes 669,403 11,588 — — — — — 11,588 Release of common stock shares upon vesting of restricted stock units 373,596 — — — — — — — Shares withheld for the withholding tax on vesting of restricted stock units ( 116,461 ) ( 4,801 ) — — — — — ( 4,801 ) Shares repurchase and retirement — — — — — — — Stock-based compensation — 16,191 — — — — — 16,191 Foreign currency translation gain — — — — 96 — — 96 Net income — — — — — 67,369 4 67,373 Balance at December 31, 2021 51,508,616 $ 460,990 — $ — $ 549 $ 725,129 $ 177 $ 1,186,845 Six Months Ended December 31, 2020 Common Stock and Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income Retained Earnings Non-controlling Interest Total Stockholders’ Equity Shares Amount Shares Amount Balance at June 30, 2020 53,741,828 $ 389,972 ( 1,333,125 ) $ ( 20,491 ) $ ( 152 ) $ 696,211 $ 167 $ 1,065,707 Exercise of stock options, net of taxes 683,613 10,767 — — — — — 10,767 Release of common stock shares upon vesting of restricted stock units 410,536 — — — — — — — Shares withheld for the withholding tax on vesting of restricted stock units ( 129,297 ) ( 3,718 ) — — — — — ( 3,718 ) Share repurchase and retirement ( 4,055,626 ) ( 122 ) 1,333,125 20,491 — ( 97,357 ) — ( 76,988 ) Stock-based compensation — 13,623 — — — — — 13,623 Foreign currency translation gain — — — — 548 — — 548 Net income — — — — — 54,275 6 54,281 Balance at December 31, 2020 50,651,054 $ 410,522 — $ — $ 396 $ 653,129 $ 173 $ 1,064,220 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents SUPER MICRO COMPUTER, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Six Months Ended December 31, 2021 2020 OPERATING ACTIVITIES: Net income $ 67,369 $ 54,275 Reconciliation of net income to net cash provided by operating activities: Depreciation and amortization 15,681 14,427 Stock-based compensation expense 16,191 13,623 Recovery of allowance for doubtful accounts ( 636 ) ( 476 ) Provision for excess and obsolete inventories 3,691 1,740 Share of (income) loss from equity investee ( 627 ) 145 Foreign currency exchange (gain) loss ( 2,738 ) 2,905 Deferred income taxes, net 1,451 ( 883 ) Other 1,045 ( 699 ) Changes in operating assets and liabilities: Accounts receivable, net (including changes in related party balances of $( 25,854 ) and $( 6,304 ) during the six months ended December 31, 2021 and 2020, respectively) ( 33,491 ) 81,156 Inventories ( 356,399 ) 42,327 Prepaid expenses and other assets (including changes in related party balances of $( 11,165 ) and $ 7,629 during the six months ended December 31, 2021 and 2020, respectively) ( 24,481 ) 27,426 Accounts payable (including changes in related party balances of $ 25,940 and $( 24,112 ) during the six months ended December 31, 2021 and 2020, respectively) 83,188 ( 25,296 ) Income taxes payable 1,723 5,855 Deferred revenue 50,235 ( 8,864 ) Accrued liabilities (including changes in related party balances of $ 1,501 and $( 4,867 ) during the six months ended December 31, 2021 and 2020, respectively) ( 2,507 ) ( 20,619 ) Other long-term liabilities (including changes in related party balances of $ 0 and $( 1,671 ) during the six months ended December 31, 2021 and 2020, respectively) ( 7,417 ) ( 3,240 ) Net cash provided by (used in) operating activities ( 187,722 ) 183,802 INVESTING ACTIVITIES: Purchases of property, plant and equipment (including payments to related parties of $ 1,770 and $ 3,058 during the six months ended December 31, 2021 and 2020, respectively) ( 23,206 ) ( 25,551 ) Investment in a privately-held company ( 1,100 ) — Net cash used in investing activities ( 24,306 ) ( 25,551 ) FINANCING ACTIVITIES: Proceeds from borrowings, net of debt issuance costs 587,719 14,669 Repayment of debt ( 367,295 ) ( 537 ) Proceeds from exercise of stock options, net of taxes 11,588 10,767 Payment of withholding tax on vesting of restricted stock units ( 4,801 ) ( 3,718 ) Stock repurchases — ( 74,824 ) Payments of obligations under finance leases ( 38 ) ( 54 ) Net cash provided by (used in) by financing activities 227,173 ( 53,697 ) Effect of exchange rate fluctuations on cash ( 9 ) 540 Net increase in cash, cash equivalents and restricted cash 15,136 105,094 Cash, cash equivalents and restricted cash at the beginning of the period 233,449 212,390 Cash, cash equivalents and restricted cash at the end of the period $ 248,585 $ 317,484 6 Table of Contents Supplemental disclosure of cash flow information: Cash paid for interest $ 1,765 $ 950 Cash paid for taxes, net of refunds 7,270 ( 698 ) Non-cash investing and financing activities: Unpaid property, plant and equipment purchases (including due to related parties of $ 2,312 and $ 3,056 as of December 31, 2021 and 2020, respectively) $ 11,140 $ 11,596 Right of use ("ROU") assets obtained in exchange for operating lease commitments 7,379 2,693 Unpaid stock repurchases — 2,164 See accompanying notes to condensed consolidated financial statements. 7 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Summary of Significant Accounting Policies Significant Accounting Policies and Estimates No material changes have been made to the significant accounting policies of Super Micro Computer, Inc., a corporation incorporated under the laws of Delaware, and its consolidated entities (together, the “Company”), disclosed in Note 1, "Organization and Summary of Significant Accounting Policies," in its Annual Report on Form 10-K, filed on August 27, 2021, for the year ended June 30, 2021. Management's estimates include, as applicable, the anticipated impacts of the coronavirus ("COVID-19") pandemic. Basis of Presentation The unaudited condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial statements included herein reflect all adjustments, including normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The consolidated results of operations for the three and six months ended December 31, 2021 are not necessarily indicative of the results that may be expected for future quarters or for the fiscal year ending June 30, 2022. Concentration of Supplier Risk Certain materials used by the Company in the manufacturing of its products are available from a limited number of suppliers. Shortages could occur in these materials due to an interruption of supply or increased demand in the industry. One supplier accounted for 26.9 % and 20.0 % of total purchases for the three months ended December 31, 2021 and 2020, respectively, and 23.1 % and 20.9 % of total purchases for the six months ended December 31, 2021 and 2020, respectively. Purchases from Ablecom, and Compuware, related parties of the Company (see Note 8, "Related Party Transactions") accounted for a combined 9.4 % and 7.3 % of total cost of sales for the three months ended December 31, 2021 and 2020, respectively, and a combined 9.5 % and 8.2 % of total cost of sales for the six months ended December 31, 2021 and 2020, respectively. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents, restricted cash, investment in an auction rate security and accounts receivable. No single customer accounted for 10% or more of the net sales for the three and six months ended December 31, 2021 and 2020. No customer accounted for greater than 10% of the Company's accounts receivable, net as of December 31, 2021, whereas one customer accounted for 13.5 % of accounts receivable, net as of June 30, 2021. Accounting Pronouncements Recently Adopted In December 2019, the FASB issued amended guidance, Simplifying the Accounting for Income Taxes , to remove certain exceptions to the general principles from ASC 740 - Income Taxes, and to improve consistent application of U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. The guidance is effective for the Company from July 1, 2021. The adoption of the guidance did not have a material impact on its condensed consolidated financial statements and disclosures. 8 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Accounting Pronouncements Not Yet Adopted In March 2020, the FASB issued authoritative guidance, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The guidance also establishes (1) a general contract modification principle that entities can apply in other areas that may be affected by reference rate reform and (2) certain elective hedge accounting expedients. The amendment is effective for all entities through December 31, 2022. In January 2021, the FASB issued further guidance on this topic, which clarified the scope and application of the original guidance. LIBOR is used to calculate the interest on borrowings under the Company's 2018 Bank of America Credit Facility and E.SUN Credit Facility. The 2018 Bank of America Credit Facility was amended on June 28, 2021 which provided for a new maturity date of June 28, 2026 and fallback terms related to LIBOR replacement mechanics. As the amendment had changes not related to LIBOR replacement, optional expedients under this guidance cannot be elected. The Company is currently evaluating the overall impact of adoption of the guidance on its consolidated financial statements and disclosures. Note 2. Revenue Disaggregation of Revenue The Company disaggregates revenue by type of product and by geographical market in order to depict the nature, amount, and timing of revenue and cash flows. Service revenues, which are less than 10%, are not a significant component of total revenue, and are aggregated within the respective categories. The following is a summary of net sales by product type (in thousands): Three Months Ended December 31, Six Months Ended December 31, 2021 2020 2021 2020 Server and storage systems $ 986,052 $ 642,711 $ 1,835,908 $ 1,260,499 Subsystems and accessories 186,367 187,595 369,241 332,057 Total $ 1,172,419 $ 830,306 $ 2,205,149 $ 1,592,556 Server and storage systems constitute an assembly and integration of subsystems and accessories, and related services. Subsystems and accessories are comprised of server boards, chassis and accessories. International net sales are based on the country and geographic region to which the products were shipped. The following is a summary for the three and six months ended December 31, 2021 and 2020, of net sales by geographic region (in thousands): Three Months Ended December 31, Six Months Ended December 31, 2021 2020 2021 2020 United States $ 638,207 $ 463,102 $ 1,199,155 $ 959,188 Asia 284,107 161,415 547,193 288,121 Europe 215,451 154,819 395,145 266,908 Other 34,654 50,970 63,656 78,339 $ 1,172,419 $ 830,306 $ 2,205,149 $ 1,592,556 Contract Balances Generally, the payment terms of the Company’s offerings range from 30 to 60 days. In certain instances, customers may prepay for products and services in advance of delivery. Receivables relate to the Company’s unconditional right to consideration for performance obligations either partially or fully completed. 9 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Contract assets are rights to consideration in exchange for goods or services that the Company has transferred to a customer when such right is conditional on something other than the passage of time. Such contract assets are insignificant to the Company’s condensed consolidated financial statements. Contract liabilities consist of deferred revenue and relate to amounts invoiced to or advance consideration received from customers, which precede the Company’s satisfaction of the associated performance obligation(s). The Company’s deferred revenue primarily results from customer payments received upfront for extended warranties and on-site services because these performance obligations are satisfied over time. Additionally, at times, deferred revenue may fluctuate due to the timing of advance consideration received from non-cancellable non-refundable contract liabilities relating to the sale of future products. Revenue recognized during the three and six months ended December 31, 2021, which was included in the opening deferred revenue balance as of June 30, 2021 of $ 202.3 million, was $ 26.7 million and $ 56.7 million, respectively. Deferred revenue increased $ 50.2 million as of December 31, 2021 as compared to the fiscal year ended June 30, 2021 of which $ 37.8 million was due to the increase in non-cancellable non-refundable advance consideration received from customers which precedes the Company's satisfaction of the associated performance obligations relating to product sales that the Company expects to fulfill in the next 12 months . Transaction Price Allocated to the Remaining Performance Obligations Remaining performance obligations represent in aggregate the amount of transaction price that has been allocated to performance obligations not delivered, or only partially undelivered, as of the end of the reporting period. The Company applies the exemption to not disclose information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less. These performance obligations generally consist of services, such as on-site services, including integration services and extended warranty services that are contracted for one year or less, and products for which control has not yet been transferred. The value of the transaction price allocated to remaining performance obligations as of December 31, 2021 was $ 252.6 million . The Company expects to recognize approximately 56 % of remaining performance obligations as revenue in the next 12 months, and the remainder thereafter. Capitalized Contract Acquisition Costs and Fulfillment Cost Contract acquisition costs are those incremental costs that the Company incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. Contract acquisition costs consist primarily of incentive bonuses. Contract acquisition costs are considered incremental and recoverable costs of obtaining and fulfilling a contract with a customer and are therefore capitalizable. The Company applies the practical expedient to expense incentive bonus costs as incurred if the amortization period would be one year or less, generally upon delivery of the associated server and storage systems or components. Where the amortization period of the contract cost would be more than a year, the Company applies judgment in the allocation of the incentive bonus cost asset between hardware and service performance obligations and expenses the cost allocated to the hardware performance obligations upon delivery of associated server and storage systems or components and amortizes the cost allocated to service performance obligations over the period the services are expected to be provided. Contract acquisition costs allocated to service performance obligations that are subject to capitalization are insignificant to the Company’s condensed consolidated financial statements. Contract fulfillment costs consist of costs paid in advance for outsourced services provided by third parties to the extent they are not in the scope of other guidance. Fulfillment costs paid in advance for outsourced services provided by third parties are capitalized and amortized over the period the services are expected to be provided. Such fulfillment costs are insignificant to the Company’s condensed consolidated financial statements. 10 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Note 3. Net Income Per Common Share The following table shows the computation of basic and diluted net income per common share for the three and six months ended December 31, 2021 and 2020 (in thousands, except per share amounts): Three Months Ended December 31, Six Months Ended December 31, 2021 2020 2021 2020 Numerator: Net income $ 41,932 $ 27,674 $ 67,369 $ 54,275 Denominator: Weighted-average shares outstanding 51,314 51,499 51,055 51,914 Effect of dilutive securities 2,197 2,084 2,159 2,091 Weighted-average diluted shares 53,511 53,584 53,213 54,005 Basic net income per common share $ 0.82 $ 0.54 $ 1.32 $ 1.05 Diluted net income per common share $ 0.78 $ 0.52 $ 1.27 $ 1.00 For the three and six months ended December 31, 2021 and 2020, the Company had stock options, restricted stock units ("RSUs") and performance based restricted stock units ("PRSUs") outstanding that could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net income per share in the periods presented, as their effect would have been anti-dilutive. The anti-dilutive common share equivalents resulting from outstanding equity awards were 419,423 and 1,040,890 for the three months ended December 31, 2021 and 2020, respectively, and 1,501,560 and 1,113,845 for the six months ended December 31, 2021 and 2020, respectively. Note 4. Balance Sheet Components The following tables provide details of the selected balance sheet items (in thousands): Inventories: December 31, 2021 June 30, 2021 Finished goods $ 923,702 $ 761,694 Work in process 220,407 80,472 Purchased parts and raw materials 249,563 198,798 Total inventories $ 1,393,672 $ 1,040,964 During the three and six months ended December 31, 2021, the Company recorded a net provision for excess and obsolete inventory to cost of sales totaling $ 0.2 million and $ 3.7 million, respectively, and $ 2.5 million and $ 1.7 million for the three and six months ended December 31, 2020. respectively. The Company classifies subsystems and accessories that may be sold separately or incorporated into systems as finished goods. 11 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Prepaid Expenses and Other Current Assets: December 31, 2021 June 30, 2021 Other receivables (1) $ 120,085 $ 99,921 Prepaid income tax 13,686 12,288 Prepaid expenses 6,715 6,719 Deferred service costs 5,426 4,900 Restricted cash 251 251 Others 8,615 6,116 Total prepaid expenses and other current assets $ 154,778 $ 130,195 __________________________ (1) Includes other receivables from contract manufacturers based on certain buy-sell arrangements of $ 99.5 million and $ 76.2 million as of December 31, 2021 and June 30, 2021, respectively. Cash, cash equivalents and restricted cash: December 31, 2021 June 30, 2021 Cash and cash equivalents $ 247,407 $ 232,266 Restricted cash included in prepaid expenses and other current assets 251 251 Restricted cash included in other assets 927 932 Total cash, cash equivalents and restricted cash $ 248,585 $ 233,449 Property, Plant, and Equipment: December 31, 2021 June 30, 2021 Buildings $ 143,509 $ 86,930 Land 84,616 76,421 Machinery and equipment 108,283 97,671 Building construction in progress (1) 303 87,438 Building and leasehold improvements 44,649 26,640 Software 23,178 22,592 Furniture and fixtures 32,602 22,843 437,140 420,535 Accumulated depreciation and amortization ( 156,858 ) ( 145,822 ) Property, plant and equipment, net $ 280,282 $ 274,713 __________________________ (1) Primarily relates to the development and construction costs associated with the Company’s Green Computing Park located in San Jose, California, and a new building in Taiwan. 12 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Other Assets: December 31, 2021 June 30, 2021 Operating lease right-of-use asset $ 23,622 $ 20,047 Deferred service costs, non-current 5,896 5,421 Prepaid expense, non-current 1,914 1,973 Investment in auction rate security 1,556 1,556 Deposits 1,243 1,669 Restricted cash, non-current 927 932 Other 1,578 528 Total other assets $ 36,736 $ 32,126 Accrued Liabilities: December 31, 2021 June 30, 2021 Accrued payroll and related expenses $ 45,315 $ 45,770 Contract manufacturing liabilities 41,049 45,319 Customer deposits 30,002 32,419 Accrued warranty costs 8,903 10,185 Accrued cooperative marketing expenses 8,459 5,652 Operating lease liability 6,431 6,322 Accrued professional fees 2,240 2,737 Other 28,612 30,446 Total accrued liabilities $ 171,010 $ 178,850 Performance Awards Liability In March 2020, the Board of Directors (the “Board”) approved performance bonuses for the Chief Executive Officer, a senior executive and two members of the Board, which payments will be earned when specified market and performance conditions are achieved. The Chief Executive Officer’s aggregate cash bonuses of u p to $ 8.1 million are earned in two tranches. The first 50 % is payable if the average closing price for the Company’s common stock equals or exceeds $ 31.61 for any period of 20 consecutive trading days following the date of the agreement and ending prior to September 30, 2021 and the Chief Executive Officer remains employed with the Company through the date that such common stock price goal is determined to have been achieved. This payment can be reduced at the discretion of the Board to the extent the Company has not made adequate progress in remediating its material weaknesses in its internal control over financial reporting as determined by the Board. The second 50 % is payable if the average closing price for the Company’s common stock equals or exceeds $ 32.99 for any period of 20 consecutive trading days following the date of the agreement and ending prior to June 30, 2022 and the Chief Executive Officer remains employed with the Company through the date that such common stock price goal is achieved. During the fiscal year ended June 30, 2021, the target average closing prices for both tranches were met and the cash payment under the second tranche was made. On September 21, 2021, the Audit Committee of the Board determined and advised the Board as to its view that the Company had made adequate progress in remediating the material weaknesses in its internal control over financial reporting. On September 30, 2021, the Board considered and agreed with this assessment, but also considered the impact of accomplishments of Company employees other than Mr. Liang in achieving this adequate progress. The Board exercised its discretion under the terms of the performance bonuses to reduce the payout for the first tranche from 50 % to approximately 25 % of $ 8.1 million, for an aggregate of $ 2.0 million. The payout of $ 2.0 million was made during the quarter ended December 31, 2021. 13 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) The Company previously expected that the full amount of the first tranche would be paid to its Chief Executive Officer and, accordingly, recorded a liability of $ 3.6 million related to this tranche on its balance sheet as of June 30, 2021. In light of the Board’s action in September 2021 to reduce the amount of the first tranche payout to $ 2.0 million, the Company adjusted the amount of this liability on its balance sheet as of September 30, 2021 to $ 2.0 million and recognized a benefit of $ 1.6 million in its consolidated statement of operations during the quarter ended September 30, 2021. There was no expense for the three months ended December 31, 2021 and for three months ended December 31, 2020 $ 2.5 million expense was recognized. For the six months ended December 31, 2021 and 2020, $ 1.6 million and $ 2.6 million expense was recognized, respectively. Other Long-term Liabilities: December 31, 2021 June 30, 2021 Accrued unrecognized tax benefits including related interests and penalties, non-current $ 19,203 $ 17,841 Operating lease liability, non-current 17,625 14,539 Accrued warranty costs, non-current 2,680 2,678 Other 1,107 6,074 Total other long-term liabilities $ 40,615 $ 41,132 Product Warranties: Three Months Ended December 31, Six Months Ended December 31, 2021 2020 2021 2020 Balance, beginning of the period $ 12,233 $ 13,727 $ 12,863 $ 12,379 Provision for warranty 6,057 7,112 12,442 15,459 Costs utilized ( 6,722 ) ( 7,453 ) ( 13,920 ) ( 15,060 ) Change in estimated liability for pre-existing warranties 15 118 198 726 Balance, end of the period 11,583 13,504 11,583 13,504 Current portion 8,903 10,904 8,903 10,904 Non-current portion $ 2,680 $ 2,600 $ 2,680 $ 2,600 Note 5. Fair Value Disclosure The financial instruments of the Company measured at fair value on a recurring basis are included in cash equivalents, other assets and accrued liabilities. The Company classifies its financial instruments, except for its investment in an auction rate security, within Level 1 or Level 2 in the fair value hierarchy because the Company uses quoted prices in active markets or alternative pricing sources and models using market observable inputs to determine their fair value. The Company’s investment in an auction rate security is classified within Level 3 of the fair value hierarchy as the determination of its fair value was not based on observable inputs as of December 31, 2021 and June 30, 2021. The Company is using the discounted cash flow method to estimate the fair value of the auction rate security at each period end and the following assumptions: (i) the expected yield based on observable market rate of similar securities, (ii) the security coupon rate that is reset monthly, (iii) the estimated holding period and (iv) a liquidity discount. The liquidity discount assumption is based on the management estimate of lack of marketability discount of similar securities and is determined based on the analysis of financial market trends over time, recent redemptions of securities and other market activities. The Company performed a sensitivity analysis and applying a change of either plus or minus 100 basis points in the liquidity discount does not result in a significantly higher or lower fair value measurement of the auction rate security as of December 31, 2021. 14 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Financial Assets and Liabilities Measured on a Recurring Basis The following table sets forth the Company’s financial instruments as of December 31, 2021 and June 30, 2021, which are measured at fair value on a recurring basis by level within the fair value hierarchy. These are classified based on the lowest level of input that is significant to the fair value measurement (in thousands): December 31, 2021 Level 1 Level 2 Level 3 Asset at Fair Value Assets Money market funds (1) $ 151 $ — $ — $ 151 Certificates of deposit (2) — 860 — 860 Auction rate security — — 1,556 1,556 Total assets measured at fair value $ 151 $ 860 $ 1,556 $ 2,567 June 30, 2021 Level 1 Level 2 Level 3 Asset at Fair Value Assets Money market funds (1) $ 151 $ — $ — $ 151 Certificates of deposit (2) — 863 — 863 Auction rate security — — 1,556 1,556 Total assets measured at fair value $ 151 $ 863 $ 1,556 $ 2,570 (1) $ 0.2 million and $ 0.2 million in money market funds are included in restricted cash, non-current in other assets in the condensed consolidated balance sheets as of December 31, 2021 and June 30, 2021, respectively. (2) $ 0.2 million and $ 0.2 million in certificates of deposit are included in cash and cash equivalents, $ 0.3 million and $ 0.3 million in certificates of deposit are included in prepaid expenses and other assets, and $ 0.4 million and $ 0.4 million in certificates of deposit are included in restricted cash, non-current in other assets in the condensed consolidated balance sheets as of December 31, 2021 and June 30, 2021, respectively. On a quarterly basis, the Company also evaluates the current expected credit loss by co nsidering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. For the three and six months ended December 31, 2021, the credit losses related to the Company’s investments was not significant. There was no movement in the balances of the Company's financial assets measured at fair value on a recurring basis, consisting of investment in an auction rate security, using significant unobservable inputs (Level 3) for the three and six months ended December 31, 2021 and 2020. There were no transfers between Level 1, Level 2 or Level 3 financial instruments in the three and six months ended December 31, 2021 and 2020. The following is a summary of the Company’s investment in an auction rate security as of December 31, 2021 and June 30, 2021 (in thousands): Cost Basis Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value Auction rate security $ 1,750 $ — $ ( 194 ) $ 1,556 15 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) No gain or loss was recognized in other comprehensive income for the auction rate security for the three and six months ended December 31, 2021 and 2020. The Company measures the fair value of outstanding debt for disclosure purposes on a recurring basis. As of December 31, 2021 and June 30, 2021, total debt of $ 315.9 million and $ 98.2 million, respectively, was reported at amortized cost. This outstanding debt was classified as Level 2 as it was not actively traded. The amortized cost of the outstanding debt approximates the fair value. Other Financial Assets - Investments into Non-Marketable Equity Securities The Company's non-marketable equity securities are investments in privately held companies without readily determinable fair values in the amount of $ 1.2 million and $ 0.1 million as of December 31, 2021 and June 30, 2021, respectively. The Company accounts for these investments at cost less impairment, if any, plus or minus changes from observable price changes in orderly transactions for the identical or similar investments by the same issuer. During the three and six months ended December 31, 2021 and 2020, the Company did not record any upward or downward adjustments to the carrying values of the non-marketable equity securities related to observable price changes. The Company also did not record any impairment to the carrying values of the non-marketable equity securities during the three and six months ended December 31, 2021 and 2020. 16 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Note 6. Short-term and Long-term Debt Short-term and long-term debt obligations as of December 31, 2021 and June 30, 2021 consisted of the following (in thousands): December 31, June 30, 2021 2021 Line of credit: Bank of America $ 60,588 $ — CTBC Bank 97,000 18,000 E.SUN Bank 16,500 20,400 Total line of credit 174,088 38,400 Term loans: CTBC Bank term loan, due August 31, 2022 $ — $ 25,090 CTBC Bank term loan, due June 4, 2030 40,435 34,700 CTBC Bank term loan, due December 27, 2027 3,522 — E.SUN Bank term loan, due September 15, 2026 18,346 — Mega Bank term loan, due September 15, 2026 43,388 — Chang Hwa Bank term loan due October 15, 2026 36,157 — Total term loans 141,848 59,790 Total debt 315,936 98,190 Short-term debt and current portion of long-term debt 176,904 63,490 Debt, Non-current $ 139,032 $ 34,700 Activities under Revolving Lines of Credit and Term Loans Bank of America 2018 Bank of America Credit Facility In April 2018, the Company entered into a revolving line of credit with Bank of America for up to $ 250.0 million (as amended from time to time, the "2018 Bank of America Credit Facility"). On June 28, 2021, the 2018 Bank of America Credit Facility was amended to, among other items, extend the maturity to June 28, 2026, reduce the size of the facility from $ 250.0 million to $ 200.0 million, increase the maximum amount that the Company can request the facility be increased from $ 100.0 million to $ 150.0 million, and update provisions relating to erroneous payments and LIBOR replacement mechanics. In addition, the amendment reduced both the unused line fee from 0.375 % per annum to 0.2 % or 0.3 % per annum (depending upon amount drawn under the facility) and the interest rate applicable to the facility from LIBOR plus 2.00 % or 3.00 % per annum (depending upon amount drawn under the facility) to LIBOR plus 1.375 % or 1.625 % per annum. The amendment was accounted for as a modification and the impact was immaterial to the consolidated financial statements. Interest accrued on any loans under the 2018 Bank of America Credit Facility is due on the first day of each month, and the loans are due and payable in full on the termination date of the 2018 Bank of America Credit Facility. Voluntary prepayments are permitted without early repayment fees or penalties. Subject to customary exceptions, the 2018 Bank of America Credit Facility is secured by substantially all of Super Micro Computer’s assets, other than real property assets. Under the terms of the 2018 Bank of America Credit Facility, the Company is not permitted to pay any dividends. The 2018 Bank of America Credit Facility contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries and contains a financial covenant, which requires that the Company maintain a certain fixed charge coverage ratio, for each twelve-month period while in a Trigger Period, as defined in the agreement, is in effect. 17 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) As of December 31, 2021, the total outstanding borrowings under the 2018 Bank of America Credit Facility were $ 60.6 million. As of June 30, 2021, the Company had no outstanding borrowings under the 2018 Bank of America Credit Facility. The interest rates under the 2018 Bank of America Credit Facility as of December 31, 2021 and June 30, 2021 were 1.50 %. The balance of debt issuance costs outstanding as of December 31, 2021 and June 30, 2021 were $ 0.5 million. The Company has been in compliance with all the covenants under the 2018 Bank of America Credit Facility, and as of December 31, 2021, the Company's available borrowing capacity was $ 139.4 million , subject to the borrowing base limitation and compliance with other applicable terms. CTBC Bank 2021 CTBC Credit Lines The Company through its Taiwan subsidiary was party to (i) that certain credit agreement, dated May 6, 2020, with CTBC Bank Co., Ltd. (“CTBC Bank”), which provided for a ten-year , non-revolving term loan facility (the “2020 CTBC Term Loan Facility”) to obtain up to NTD 1,200.0 million ($ 40.7 million U.S. dollar equivalent) and (ii) that certain credit agreement, dated August 24, 2020, with CTBC Bank (the “CTBC Credit Facility”), which provided for total borrowings of up to $ 50.0 million (collectively, the “Prior CTBC Credit Lines”). On July 20, 2021 (the “Effective Date”), the Company through its Taiwan subsidiary entered into a general agreement for omnibus credit lines with CTBC Bank (the “2021 CTBC Credit Lines), which replaced the Prior CTBC Credit Lines in their entirety and permit borrowings, from time to time, pursuant to (i) a term loan facility of up to NTD 1,550.0 million ($ 55.4 million U.S. dollar equivalents) including the existing 2020 CTBC Term Loan Facility of NTD 1,200.0 million ($ 42.9 million U.S. dollar equivalents) and a new 75-month , non-revolving term loan facility of NTD 350.0 million ($ 12.5 million U.S. dollar equivalents) to use to purchase machinery and equipment for the Company’s Bade Manufacturing Facility located in Taiwan (the “2021 CTBC Machine Loan”), and (ii) a line of credit facility of up to $ 105.0 million (the “2021 CTBC Credit Facility”), which increased the borrowing capacity of CTBC Credit Facility. The 2021 CTBC Credit Facility provides ( i) a 12-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. Interest rates are to be established according to individual credit arrangements established pursuant to the 2021 CTBC Credit Lines, which interest rates shall be subject to adjustment depending on the satisfaction of certain conditions. Term loans made pursuant to the 2021 CTBC Credit Lines are secured by certain of the Taiwan subsidiary’s assets, including certain property, land, plant, and equipment. There are various financial covenants under the 2021 CTBC Credit Lines, including current ratio, debt service coverage ratio, and financial debt ratio requirements. Amounts outstanding under the Prior CTBC Credit Lines on the Effective Date were assumed by the 2021 CTBC Credit Lines. As of December 31, 2021 and June 30, 2021, the amounts outstanding under the 2020 CTBC Term Loan Facility were $ 40.4 million and $ 34.7 million, respectively. The interest rates for these loans were 0.45 % per annum as of December 31, 2021 and June 30, 2021. Under the 2021 CTBC Machine Loan, the amounts outstanding were $ 3.5 million at December 31, 2021. The interest rates for this loan was 0.65 % per annum as of December 31, 2021. As of December 31, 2021, there were no outstanding borrowings under the 2021 CTBC Machine Loan. 18 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) The total outstanding borrowings under the 2021 CTBC Credit Facility term loan was denominated in NTD and remeasured into U.S. dollars of $ 0.0 million and $ 25.1 million at December 31, 2021 and June 30, 2021, respectively. The 2021 CTBC Credit Facility term loan was repaid on October 26, 2021. The interest rate for the 2021 CTBC Credit Facility term loan was 0.75 % per annum as of June 30, 2021. As of December 31, 2021 and June 30, 2021, the outstanding borrowings under the 2021 CTBC Credit Facility revolving line of credit were $ 97.0 million and $ 18.0 million, respectively. The interest rates for these loans were approximately 1.00 % per annum as of December 31, 2021. The interest rate was 0.98 % per annum as of June 30, 2021. As of December 31, 2021, the amount available for future borrowing under the 2021 CTBC Credit Facility was $ 8.0 million. As of December 31, 2021, the net book value of land and building located in Bade, Taiwan, collateralizing the 2021 CTBC Credit Lines was $ 78.2 million. As of December 31, 2021, all financial covenants under the 2021 CTBC Credit Lines were satisfied. E.SUN Bank 2021 E.SUN Bank Credit Facility The Company through its Taiwan subsidiary was party to that certain General Credit Agreement, dated December 2, 2020, with E.SUN Bank (“E.SUN Bank”), which provided for the issuance of loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments up to a credit limit of US$ 30 million (the “Prior E.SUN Bank Credit Facility”). The term of the Prior E.SUN Bank Credit Facility expired on September 18, 2021. On September 13, 2021 (the “E.SUN Bank Effective Date”), the Company through its Taiwan subsidiary entered into a new General Credit Agreement with E.SUN Bank, which replaced the Prior E.SUN Bank Credit Facility (the “2021 E.SUN Bank Credit Facility”). The 2021 E.SUN Bank Credit Facility permits borrowings of up to (i) NTD 1,600.0 million ($ 57.6 million U.S. dollar equivalent) and (ii) $ 30.0 million as loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments. Other terms of the 2021 E.SUN Bank Credit Facility are substantially identical to the Prior E.SUN Bank Credit Facility. Generally, interest for base rate loans made under the 2021 E.SUN Bank Credit Facility are based upon an average interbank overnight call loan rate in the finance industry (such as LIBOR or TAIFX) plus a fixed margin, and is subject to occasional adjustment. The 2021 E.SUN Bank Credit Facility has customary default provisions permitting E.SUN Bank to terminate or reduce the credit limit, shorten the credit period, or deem all liabilities due and payable, including in the event the Subsidiary has an overdue liability at another financial organization. There are various financial covenants under the 2021 E.SUN Bank Credit Facility, including current ratio, net debt ratio, and interest coverage requirements to be reviewed on a yearly basis at fiscal year end. Terms for specific drawdown instruments issued under the 2021 E.SUN Bank Credit Facility, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, are to be set forth in Notifications and Confirmation of Credit Conditions (a “Notification and Confirmation”) negotiated with E.SUN Bank. A Notification and Confirmation was entered into on the E.SUN Bank Effective Date for (i) a five-year , non-revolving term loan facility to obtain up to NTD 1,600.0 million ($ 57.6 million U.S. dollar equivalent) in financing for use in research and development activities (the “Term Loan”), and (ii) a $ 30.0 million import loan (the “Import Loan”) with a tenor of 120 days. As of December 31, 2021, the total outstanding borrowings under the Term Loan were denominated in NTD and remeasured into U.S. dollars of $ 18.3 million and the interest rates for these loans were 0.995 % per annum. As of December 31, 2021 and June 30, 2021 , the amounts outstanding under the Import Loan were $ 16.5 million and $ 20.4 million, respectively. The interest rates for the quarter ended December 31, 2021 is 0.96 %. The interest rate for the quarter ended June 30, 2021 ranges approximately from 1.00 % to 1.29 % per annum . At December 31, 2021, the amount available for future borrowing under the Import Loan was $ 13.5 million . Mega Bank Mega Bank Credit Facilities 19 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) On September 13, 2021 (the “Mega Bank Effective Date”), the Company through its Taiwan subsidiary entered into a NTD 1,200.0 million ($ 43.2 million U.S. dollar equivalent) credit facility (the “Mega Bank Credit Facility”) with Mega International Commercial Bank (“Mega Bank”). The Mega Bank Credit Facility will be used to support manufacturing activities (such as purchase of materials and components), and to provide medium-term working capital (the “Permitted Uses”). Drawdowns under the Mega Bank Credit Facility may be made through December 31, 2024, with the first drawdown date not later than November 5, 2021. Drawdowns may be in amounts of up to 80 % of Permitted Uses certified to the Bank in drawdown certificates. The interest rate depends upon the amount borrowed under Mega Bank Credit Facility, and as of the Mega Bank Effective Date, ranged from 0.645 % to 0.845 % per annum. The interest rate is subject to adjustment in certain circumstances, such as events of default. Interest is payable monthly. Principal payments for amounts borrowed commence on the 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 December 31, 2021, the total outstanding borrowings under the Mega Bank Credit Facility were denominated in NTD and remeasured into U.S. dollars of $ 43.4 million and the interest rates ranged is 0.65 % to 0.85 % per annum. Chang Hwa Bank Chang Hwa Bank Credit Facility On October 5, 2021 (the “Chang Hwa Bank Effective Date”), the Company through its Taiwan subsidiary entered into a credit facility (the “Chang Hwa Bank Credit Facility”) with Chang Hwa Commercial Bank, Ltd. (“Chang Hwa Bank”). The Chang Hwa Bank Credit Facility permits borrowings of up to NTD 1,000.0 million ($ 36.0 million U.S. dollar equivalent), including up to $ 20.0 million as loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments. The Chang Hwa Bank Credit Facility has customary default provisions permitting Chang Hwa Bank to terminate or reduce the credit limit, shorten the credit period, or deem all liabilities due and payable, including in cross-default provisions with respect to the other Taiwan subsidiary debt obligations. Under the Chang Hwa Bank Credit Facility, Chang Hwa Bank has the right to demand collateral for debts owed. As of December 31, 2021, the total outstanding borrowings under the Chang Hwa Bank Credit Facility were denominated in NTD and remeasured into U.S. dollars of $ 36.2 million and the interest rate is 0.8 % per annum. Terms for specific drawdown instruments issued under the Chang Hwa Bank Credit Facility, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, are to be set forth in separate loan contracts (each, a “Loan Contract”) negotiated with Chang Hwa Bank. On the Chang Hwa Bank Effective Date, three Loan Contracts were entered into. None of the three Loan Contracts are secured and there are no financial covenants. HSBC Bank HSBC Bank Credit Facility On January 7, 2022 (the “HSBC Bank Effective Date”), the Company through its Taiwan subsidiary entered into a General Loan, Export/Import Financing, Overdraft Facilities and Securities Agreement (the “Loan Agreement”) with the Taiwan affiliate of HSBC Bank (“HSBC Bank”). The Loan Agreement provides for borrowings in the form of loans, export/import financings, overdrafts, commercial paper guaranties, and other types of drawdown instruments. The Loan Agreement has customary default provisions permitting HSBC Bank to terminate or reduce the credit limit, shorten the credit period, or deem all liabilities due and payable, including in the event its Taiwan subsidiary fails to make payment of sums under another agreement which permits acceleration of maturity of such indebtedness. The Company is not a guarantor of the Loan Agreement. Terms for specific drawdown instruments issued under the Loan Agreement, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, may be set forth in Facility Letters (a “Facility Letter”) negotiated with the HSBC Bank. Under a Facility Letter entered into on the HSBC Bank Effective Date, its Taiwan subsidiary and the HSBC Bank have agreed to a $ 30.0 million export/seller trade facility under the Loan Agreement with a tenor of 120 days. The interest rate thereunder is based on the HSBC Bank’s base rate plus a fixed margin, subject to adjustment under certain circumstances. Interest payments are due on a monthly basis, and principal is repayable on the due date. 20 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Principal payments on short-term and long-term obligations are due as follows (in thousands): Fiscal Year: Principal Payments 2022 $ 174,088 2023 10,551 2024 31,130 2025 34,746 2026 34,745 2027 and thereafter 30,676 Total short-term and long-term debt $ 315,936 Note 7. Leases The Company leases offices, warehouses and other premises, vehicles and certain equipment leased under non-cancelable operating leases. Operating lease expense recognized and supplemental cash flow information related to operating leases for the three and six months ended December 31, 2021 and 2020 were as follows (in thousands): Three Months Ended December 31, Six Months Ended December 31, 2021 2020 2021 2020 Operating lease expense (including expense for lease agreements with related parties of $ 179 and $ 425 for the three and six months ended December 31, 2021, respectively, and $ 347 and $ 693 for the three and six months ended December 31, 2020, respectively) $ 1,983 $ 1,947 $ 4,166 $ 3,947 Cash payments for operating leases (including payments to related parties of $ 211 and $ 490 for the three and six months ended December 31, 2021; $ 347 , and $ 693 for the three and six months ended December 31, 2020, respectively) 2,008 1,991 4,213 3,957 New operating lease assets obtained in exchange for operating lease liabilities 1,260 662 7,379 2,693 During the three and six months ended December 31, 2021 and 2020, the Company's costs related to short-term lease arrangements for real estate and non-real estate assets were immaterial. Variable payments expensed in the three and six months ended December 31, 2021 were $ 0.2 million and $ 0.5 million, respectively. Variable payments expensed in the three and six months ended December 31, 2020 were $ 0.4 million and $ 0.8 million, respectively. 21 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) As of December 31, 2021, the weighted average remaining lease term for operating leases was 4.1 years and the weighted average discount rate was 3.0 %. Maturities of operating lease liabilities under noncancelable operating lease arrangements as of December 31, 2021 were as follows (in thousands): Fiscal Year: Minimum lease payments 2022 $ 3,575 2023 6,875 2024 5,685 2025 5,537 2026 2,213 2027 and beyond 1,776 Total future lease payments $ 25,661 Less: Imputed interest ( 1,605 ) Present value of operating lease liabilities $ 24,056 As of December 31, 2021, commitments under short-term lease arrangements, and operating and financing leases that have not yet commenced were immaterial. The Company has entered into lease agreements with related parties. See Note 8, "Related Party Transactions," for discussion. Note 8. Related Party Transactions The Company has a variety of business relationships with Ablecom and Compuware. Ablecom and Compuware are both Taiwan corporations. Ablecom is one of the Company’s major contract manufacturers; Compuware is both a distributor of the Company’s products and a contract manufacturer for the Company. Ablecom’s Chief Executive Officer, Steve Liang, is the brother of Charles Liang, the Company’s President, Chief Executive Officer and Chairman of the Board. Steve Liang and his family members owned approximately 28.8 % of Ablecom’s stock and Charles Liang and his spouse, Sara Liu, who is also an officer and director of the Company, collectively owned approximately 10.5 % of Ablecom’s capital stock as of December 31, 2021. Bill Liang, a brother of both Charles Liang and Steve Liang, is a member of the Board of Directors of Ablecom. Bill Liang is also the Chief Executive Officer of Compuware, a member of Compuware’s Board of Directors and a holder of a significant equity interest in Compuware. Steve Liang is also a member of Compuware’s Board of Directors and is an equity holder of Compuware. Charles Liang and Sara Liu do not own any capital stock of Compuware and the Company does not own any of Ablecom or Compuware’s capital stock. Dealings with Ablecom The Company has entered into a series of agreements with Ablecom, including multiple product development, production and service agreements, product manufacturing agreements, manufacturing services agreements and lease agreements for warehouse space. Under these agreements, the Company outsources to Ablecom a portion of its design activities and a significant part of its server chassis manufacturing as well as an immaterial portion of other components. Ablecom manufactured approximately 88.3 % and 91.6 % of the chassis included in the products sold by the Company during the three months ended December 31, 2021 and 2020, respectively, and 90.3 % and 92.6 % of the chassis included in the products sold by the Company during the six months ended December 2021 and 2020, respectively. With respect to design activities, Ablecom generally agrees to design certain agreed-upon products according to the Company’s specifications, and further agrees to build the tools needed to manufacture the products. The Company pays Ablecom for the design and engineering services, and further agrees to pay Ablecom for the tooling. The Company retains full ownership of any intellectual property resulting from the design of these products and tooling. 22 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) With respect to the manufacturing aspects of the relationship, Ablecom purchases most of materials needed to manufacture the chassis from third parties and the Company provides certain components used in the manufacturing process (such as power supplies) to Ablecom through consignment or sales transactions. Ablecom uses these materials and components to manufacture the completed chassis and then sell them back to the Company. For the components purchased from the Company, Ablecom sells the components back to the Company at a price equal to the price at which the Company sold the components to Ablecom. The Company and Ablecom frequently review and negotiate the prices of the chassis the Company purchases from Ablecom. In addition to inventory purchases, the Company also incurs other costs associated with design services, tooling and other miscellaneous costs from Ablecom. The Company’s exposure to financial loss as a result of its involvement with Ablecom is limited to potential losses on its purchase orders in the event of an unforeseen decline in the market price and/or demand of the Company’s products such that the Company incurs a loss on the sale or cannot sell the products. Outstanding purchase orders from the Company to Ablecom were $ 49.4 million and $ 40.2 million at December 31, 2021 and June 30, 2021, respectively, effectively representing the exposure to financial loss. The Company does not directly or indirectly guarantee any obligations of Ablecom, or any losses that the equity holders of Ablecom may suffer. Since Ablecom manufactures substantially all the chassis that the Company incorporates into its products, if Ablecom were to suddenly be unable to manufacture chassis for the Company, the Company’s business could suffer if the Company is unable to quickly qualify substitute suppliers who can supply high-quality chassis to the Company in volume and at acceptable prices. Dealings with Compuware The Company has entered into a distribution agreement with Compuware, under which the Company appointed Compuware as a non-exclusive distributor of the Company’s products in Taiwan, China and Australia. Compuware assumes the responsibility to install the Company's products at the site of the end customer, if required, and administers customer support in exchange for a discount from the Company's standard price for its purchases. The Company also has entered into a series of agreements with Compuware, including multiple product development, production and service agreements, product manufacturing agreements, and lease agreements for office space. Under these agreements, the Company outsources to Compuware a portion of its design activities and a significant part of its power supplies manufacturing as well as an immaterial portion of other components. With respect to design activities, Compuware generally agrees to design certain agreed-upon products according to the Company’s specifications, and further agrees to build the tools needed to manufacture the products. The Company pays Compuware for the design and engineering services, and further agrees to pay Compuware for the tooling. The Company retains full ownership of any intellectual property resulting from the design of these products and tooling. With respect to the manufacturing aspects of the relationship, Compuware purchases most of materials needed to manufacture the power supplies from outside markets and uses these materials to manufacture the products and then sell those products to the Company. The Company and Compuware frequently review and negotiate the prices of the power supplies the Company purchases from Compuware. Compuware also manufactures motherboards, backplanes and other components used on printed circuit boards for the Company. The Company sells to Compuware most of the components needed to manufacture the above products. Compuware uses the components to manufacture the products and then sells the products back to the Company at a purchase price equal to the price at which the Company sold the components to Compuware, plus a “manufacturing value added” fee and other miscellaneous charges and costs including overhead and labor. The Company and Compuware frequently review and negotiate the amount of the “manufacturing value added” fee that will be included in the price of the products the Company purchases from Compuware. In addition to the inventory purchases, the Company also incurs costs associated with design services, tooling assets, and miscellaneous costs. 23 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) The Company’s exposure to financial loss as a result of its involvement with Compuware is limited to potential losses on its purchase orders in the event of an unforeseen decline in the market price and/or demand of the Company’s products such that the Company incurs a loss on the sale or cannot sell the products. Outstanding purchase orders from the Company to Compuware were $ 50.9 million and $ 71.0 million at December 31, 2021 and June 30, 2021, respectively, effectively representing the exposure to financial loss. The Company does not directly or indirectly guarantee any obligations of Compuware, or any losses that the equity holders of Compuware may suffer. Dealings with Investment in a Corporate Venture In October 2016, the Company entered into agreements pursuant to which the Company contributed certain technology rights in connection with an investment in a privately-held company (the "Corporate Venture") located in China to expand the Company's presence in China. The Corporate Venture is 30 % owned by the Company and 70 % owned by another company in China. The transaction was closed in the third fiscal quarter of 2017 and the investment is accounted for using the equity method. As such, the Corporate Venture is also a related party. The Company recorded a deferred gain related to the contribution of certain technology rights. As of December 31, 2021 and June 30, 2021, the Company had unamortized deferred gain balance of $ 0 million and $ 1.0 million, respectively, in accrued liabilities in the Company’s condensed consolidated balance sheets. The Company monitors the investment for events or circumstances indicative of potential impairment and makes appropriate reductions in carrying values if it determines that an impairment charge is required. In June 2020, the third-party parent company that controls the Corporate Venture was placed on a U.S. government export control list, along with several of the third-party parent's related entities and a separate listing for one of its subsidiaries. The Corporate Venture is not itself a restricted party. The Company has concluded that the Corporate Venture is in compliance with the new restrictions. The Company does not believe that the equity investment carrying value is impacted as of December 31, 2021. No impairment charge was recorded for the three and six months ended December 31, 2021 and 2020, respectively. The Company sold products to the Corporate Venture and the Company’s share of intra-entity profits on the products that remained unsold by the Corporate Venture have been eliminated and have reduced the carrying value of the Company’s investment in the Corporate Venture. To the extent that the elimination of intra-entity profits reduces the investment balance below zero, such amounts are recorded within accrued liabilities. Dealings with Monolithic Power Systems, Inc. The Company procures certain semiconductor products from Monolithic Power Systems, Inc. (“MPS”), a fabless manufacturer of high-performance analog and mixed-signal semiconductors, for use in its products. A member on the Board of Directors, also serves as an officer of MPS. The Company had the following balances related to transactions with its related parties as of December 31, 2021 and June 30, 2021 (in thousands): Ablecom Compuware Corporate Venture MPS Total December 31, 2021 June 30, 2021 December 31, 2021 June 30, 2021 December 31, 2021 June 30, 2021 December 31, 2021 June 30, 2021 December 31, 2021 June 30, 2021 Accounts receivable $ 1 $ 2 $ 264 $ 198 $ 34,267 $ 8,478 $ — $ — $ 34,532 $ 8,678 Other receivable (1) $ 4,933 $ 5,575 $ 29,847 $ 18,173 $ — $ — $ 222 $ 89 $ 35,002 $ 23,837 Accounts payable $ 41,725 $ 38,152 $ 54,311 $ 31,944 $ — $ — $ — $ — $ 96,036 $ 70,096 Accrued liabilities (2) $ 2,829 $ 3,042 $ 17,200 $ 14,486 $ — $ 1,000 $ — $ — $ 20,029 $ 18,528 24 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) (1) Other receivables include receivables from vendors included in prepaid and other current assets. (2) Includes current portion of operating lease liabilities included in other current liabilities. The Company's results from transactions with its related parties for each of the three months ended December 31, 2021 and 2020, are as follows (in thousands): Ablecom Compuware Corporate Venture MPS Total Three months ended December 31, Three months ended December 31, Three months ended December 31, Three months ended December 31, Three months ended December 31, 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Net sales $ 3 $ ( 31 ) $ 3,302 $ 5,572 $ 38,311 $ 13,165 $ — $ — $ 41,616 $ 18,706 Purchases - inventory $ 47,520 $ 21,818 $ 46,821 $ 29,017 $ — $ — $ 2,387 $ 697 $ 96,728 $ 51,532 Purchases - other miscellaneous items $ 2,867 $ 2,762 $ 347 $ 626 $ — $ — $ — $ — $ 3,214 $ 3,388 The Company's results from transactions with its related parties for each of the six months ended December 31, 2021 and 2020, are as follows (in thousands): Ablecom Compuware Corporate Venture MPS Total Six months ended December 31, Six months ended December 31, Six months ended December 31, Six months ended December 31, Six months ended December 31, 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Net sales $ 10 $ ( 27 ) $ 19,004 $ 18,871 $ 53,524 $ 19,577 $ — $ — $ 72,538 $ 38,421 Purchases - inventory $ 98,309 $ 45,689 $ 82,050 $ 63,215 $ — $ — $ 4,056 $ 1,488 $ 184,415 $ 110,392 Purchases - other miscellaneous items $ 4,983 $ 5,480 $ 686 $ 960 $ — $ — $ — $ — $ 5,669 $ 6,440 The Company’s cash flow impact from transactions with its related parties for each of the six months ended December 31, 2021 and 2020, are as follows (in thousands): Ablecom Compuware Corporate Venture MPS Total Six months ended December 31, Six months ended December 31, Six months ended December 31, Six months ended December 31, Six months ended December 31, 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Changes in accounts receivable 1 $ ( 29 ) $ ( 66 ) $ 311 $ ( 25,789 ) $ ( 6,586 ) $ — $ — $ ( 25,854 ) $ ( 6,304 ) Changes in other receivable $ 641 $ 308 $ ( 11,673 ) $ 7,246 $ — $ — $ ( 133 ) $ 75 $ ( 11,165 ) $ 7,629 Changes in accounts payable $ 3,573 $ ( 13,921 ) $ 22,367 $ ( 10,191 ) $ — $ — $ — $ — $ 25,940 $ ( 24,112 ) Changes in accrued liabilities $ ( 212 ) $ 867 $ 2,713 $ ( 5,734 ) $ ( 1,000 ) $ — $ — $ — $ 1,501 $ ( 4,867 ) Changes in other long-term liabilities $ — $ ( 513 ) $ — $ ( 158 ) $ — $ ( 1,000 ) $ — $ — $ — $ ( 1,671 ) Purchases of property, plant and equipment $ 1,678 $ 2,968 $ 92 $ 90 $ — $ — $ — $ — $ 1,770 $ 3,058 Unpaid property, plant and equipment $ 2,312 $ 2,976 $ — 80 $ — $ — $ — $ — $ 2,312 $ 3,056 25 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Tripartite Agreement On November 8, 2021, Super Micro Computer Inc., Taiwan (the “Subsidiary”), a Taiwan corporation and wholly-owned subsidiary of the Company, entered into a Tripartite Agreement (the “Agreement”) with Ablecom and Compuware related to a three-way purchase of land. Pursuant to the Agreement, the Subsidiary will participate in purchasing 33.33 % of the 137,225.97 square meters (approximately 34 acres) of land Ablecom has agreed to acquire from third-party landowners in proximity to the Company’s campus in Bade, Taiwan. Compuware will acquire 17.21 % of such land and Ablecom will retain the remaining 49.46 % of the land. Under the Agreement, fees and costs related to such land purchase would be borne by the parties according to their proportionate share of the land purchased. The Company intends to fund its proportionate share of the land purchased under the Agreement which is estimated to be approximately NTD 789 million (or approximately US$ 28.3 million) from either available cash and/or borrowings under loan agreements the Subsidiary has in Taiwan. Amounts payable related to the purchase of the land are due in three installments based upon the achievement of specified milestones. The transaction is subject to various customary conditions precedent, including the receipt of government approvals, the discharge of mortgages and leases on the land, and the completion of due diligence. As of December 31, 2021, due diligence and discussions with government officials are continuing, and no installment payments have been made with respect to the transaction. If the transaction does not close within 12 months, Ablecom may offer the land to other parties. 26 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Note 9. Stock-based Compensation and Stockholders' Equity Equity Incentive Plan On June 5, 2020, the stockholders of the Company approved the 2020 Equity and Incentive Compensation Plan (the "2020 Plan"). The maximum number of shares available under the 2020 Plan is 5,000,000 plus 1,045,000 shares of common stock that remained available for future awards under the 2016 Equity Incentive Plan (the “2016 Plan”), at the time of adoption of the 2020 Plan. No other awards can be granted under the 2016 Plan. 7,246,000 shares of common stock remain reserved for outstanding awards issued under the 2016 Plan at the time of adoption of the 2020 Plan. As of December 31, 2021, the Company had 2,142,683 authorized shares available for future issuance under the 2020 Plan. Common Stock Repurchase 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 December 31, 2021. There were no shares repurchased under the share repurchase program during the three and six months ended December 31, 2021. Determining Fair Value The Company's fair value of RSUs and PRSUs is based on the closing market price of the Company's common stock on the date of grant. The Company estimates the fair value of stock options granted using the Black-Scholes-option-pricing model. This fair value is then amortized ratably over the requisite service periods of the awards, which is generally the vesting period. The key inputs in using the Black-Scholes-option-pricing model were as follows: Expected Term—The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on the Company's historical experience. Expected Volatility—Expected volatility is based on the Company's historical volatility. Expected Dividend—The Black-Scholes valuation model calls for a single expected dividend yield as an input and the Company has no plans to pay dividends. Risk-Free Interest Rate—The risk-free interest rate used in the Black-Scholes valuation method is based on the United States Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option. The fair value of stock option grants for the three and six months ended December 31, 2021 and 2020 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: Three Months Ended December 31, Six Months Ended December 31, 2021 2020 2021 2020 Risk-free interest rate 0.81 % 0.45 % 0.81 % - 0.45 % 0.27 % - 0.45 % Expected term 6.09 years 5.98 years 6.09 years 5.98 years Dividend yield — % — % — % — % Volatility 49.69 % 50.34 % 49.69 % - 49.71 % 50.34 % - 50.43 % Weighted-average fair value $ 17.94 $ 11.13 $ 17.59 $ 13.14 27 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) The following table shows total stock-based compensation expense included in the condensed consolidated statements of operations for the three and six months ended December 31, 2021 and 2020 (in thousands): Three Months Ended December 31, Six Months Ended December 31, 2021 2020 2021 2020 Cost of sales $ 471 $ 407 $ 918 $ 910 Research and development 4,103 3,339 7,983 7,041 Sales and marketing 496 497 1,013 1,014 General and administrative 4,106 2,210 6,277 4,658 Stock-based compensation expense before taxes 9,176 6,453 16,191 13,623 Income tax impact ( 2,310 ) ( 1,732 ) ( 4,198 ) ( 3,687 ) Stock-based compensation expense, net $ 6,866 $ 4,721 $ 11,993 $ 9,936 As of December 31, 2021, $ 9.4 million of unrecognized compensation expense related to stock options is expected to be recognized over a weighted-average period of 3.71 years, $ 53.2 million of unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted-average period of 2.77 years and unrecognized compensation cost of $ 0.1 million related to unvested PRSUs was recognized during the quarter ended December 31, 2021. Additionally, as described below, $ 6.7 million of unrecognized compensation cost related to the 2021 CEO Performance Stock Option is expected to be recognized over a period of 5.0 years. Stock Option Activity In March 2021, the Company’s Compensation Committee of the Board of Directors (the “Compensation Committee”) approved the grant of a stock option award for 1,000,000 common stock shares to the Company’s CEO (the “2021 CEO Performance Stock Option”). The 2021 CEO Performance Stock Option has five vesting tranches with a vesting schedule based entirely on the attainment of operational milestones (performance conditions) and market conditions, assuming (1) continued employment either as the CEO or in such capacity as agreed upon between the Company’s CEO and the Board of Directors and (2) service through each vesting date. Each of the five vesting tranches of the 2021 CEO Performance Stock Option will vest upon certification by the Compensation Committee that both (i) the market price milestone for such tranche, which begins at $ 45.00 per share for the first tranche and increases up to $ 120.00 per share thereafter (based on a 60 calendar day trailing average, counting only trading days), has been achieved, and (ii) any one of the following five operational milestones focused on total revenue, as reported under U.S. GAAP, have been achieved for the previous four consecutive fiscal quarters. Upon vesting and exercise, including the payment of the exercise price of $ 45.00 per share, prior to March 2, 2024, the Company’s CEO must hold shares that he acquires until March 2, 2024, other than those shares sold pursuant to a cashless exercise where shares are simultaneously sold to pay for the exercise price and any required tax withholding. The achievement status of the operational and stock price milestones as of December 31, 2021 was as follows: Annualized Revenue Milestone Achievement Status Stock Price Milestone Achievement Status (in billions) $ 4.0 Achieved (1) $ 45 Not met $ 4.8 Probable $ 60 Not met $ 5.8 Probable $ 75 Not met $ 6.8 Probable $ 95 Not met $ 8.0 Improbable $ 120 Not met 28 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) (1) The Company has presented this revenue goal as having been “Achieved”, as its reported revenues for the four quarters ended December 31, 2021 were $ 4.17 billion. Under the terms of the agreement governing this award, the Compensation Committee must certify that the goal has been achieved after the Company files this Quarterly Report on Form 10-Q before the goal will be deemed achieved under that agreement. The Company expects the Compensation Committee to so certify shortly after the filing date of this report and the Company does not intend to file a Current Report on Form 8-K following such certification. On the grant date, a Monte Carlo simulation was used to determine for each tranche (i) a fixed expense amount for such tranche and (ii) the future time when the market price milestone for such tranche was expected to be achieved, or its “expected market price milestone achievement time.” Separately, based on a subjective assessment of the Company’s future financial performance, each quarter, the Company will determine whether achievement is probable for each operational milestone that has not previously been achieved or deemed probable of achievement, and, if so, the future time when the Company expects to achieve that operational milestone, or its “expected operational milestone achievement time.” When the Company first determines that an operational milestone has become probable of being achieved, the Company will allocate the entire expense for the related tranche over the number of quarters between the grant date and the then-applicable “expected vesting time.” The “expected vesting time” at any given time is the later of (i) the expected operational milestone achievement time (if the related operational milestone has not yet been achieved) and (ii) the expected market price milestone achievement time (if the related market price milestone has not yet been achieved). The Company will immediately recognize a catch-up expense for all accumulated expenses from the grant date through the quarter in which the operational milestone was first deemed probable of being achieved. Each quarter thereafter, the Company will recognize the prorated portion of the then-remaining expense for the tranche based on the number of quarters between such quarter and the then-applicable expected vesting time, except that upon vesting of a tranche, all remaining expenses for that tranche will be immediately recognized. During the three and six months ended December 31, 2021, the Company recognized compensation expense related to the 2021 CEO Performance Stock Option of $ 2.9 million and $ 3.8 million, respectively. No compensation expense related to the 2021 CEO Performance Stock Option was recognized during the three and six months ended December 31, 2020. As of December 31, 2021 and June 30, 2021, the Company had $ 6.7 million and $ 10.5 million, respectively, in unrecognized compensation cost related to the 2021 CEO Performance Stock Option. The unrecognized compensation cost as of December 31, 2021 is expected to be recognized over a period of five years . The following table summarizes stock option activity during the six months ended December 31, 2021 under all plans: Options Outstanding Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Term (in Years) Balance as of June 30, 2021 5,175,554 $ 26.17 Granted 193,620 $ 36.89 Exercised ( 669,403 ) $ 17.84 Forfeited/Cancelled ( 85,000 ) $ 29.84 Balance as of December 31, 2021 4,614,771 $ 27.82 5.49 Options vested and exercisable at December 31, 2021 2,876,247 $ 21.10 3.41 RSU and PRSU Activity In January 2015, the Company began to grant RSUs to employees. The Company grants RSUs to certain employees as part of its regular employee equity compensation review program as well as to selected new hires. RSUs are typically service based share awards that entitle the holder to receive freely tradable shares of the Company's common stock upon vesting. 29 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) In March 2020, the Compensation Committee granted a PRSU award to one of the Company's senior executives. The award vests in two tranches and includes service and performance conditions. Each tranche has 15,000 RSUs that vest in May 2021 and November 2021 based on service conditions only. Additional units can be earned based on revenue growth percentage in fiscal year 2020 compared to fiscal year 2019, which units would vest in May 2021, and based on revenue growth percentage in fiscal year 2021 compared to fiscal year 2020, which units have vested in November 2021. No additional units were earned for fiscal year 2020 as revenue decreased from fiscal year 2019. An additional 2,939 units were earned for fiscal year 2021 that vested on November 10, 2021. The following table summarizes RSU and PRSU activity during the six months ended December 31, 2021 under all plans: Time-Based RSUs Outstanding Weighted Average Grant-Date Fair Value per Share PRSUs Outstanding Weighted Average Grant-Date Fair Value per Share Balance as of June 30, 2021 1,854,956 $ 26.79 15,000 $ 34.27 Granted 641,195 $ 36.81 2,939 $ 34.27 Released ( 355,657 ) $ 22.19 ( 17,939 ) $ 34.27 Forfeited ( 185,036 ) $ 28.49 — $ — Balance as of December 31, 2021 1,955,458 $ 30.69 — $ — 30 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Note 10. Income Taxes The Company recorded a provision for income taxes of $ 7.6 million and $ 10.9 million for the three and six months ended December 31, 2021, respectively, and $ 5.1 million and $ 8.8 million for the three and six months ended December 31, 2020, respectively. The effective tax rate was 15.4 % and 14.1 % for the three and six months ended December 31, 2021, respectively, and 14.9 % and 13.9 % for the three and six months ended December 31, 2020, respectively. The effective tax rate for the three and six months ended December 31, 2021 is higher than that for the three and six months ended December 31, 2020, primarily due to a decrease in the deduction from foreign-derived intangible income and an increase in certain non-deductible expenses. As of December 31, 2021, the Company had gross unrecognized tax benefits of $ 45.1 million, of which, $ 28.4 million, if recognized, would affect the Company's effective tax rate. During the six months ended December 31, 2021, there was a $ 4.4 million increase in gross unrecognized tax benefits. The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the provision for taxes on the condensed consolidated statements of operations. As of December 31, 2021, the Company had accrued $ 2.9 million of interest and penalties relating to unrecognized tax benefits. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The CARES Act provides temporary relief from certain aspects of the 2017 Tax Reform Act that imposed limitations on the utilization of certain losses, interest expense deductions and alternative minimum tax credits and made a technical correction to the 2017 Tax Reform Act related to the depreciable life of qualified improvement property. The CARES Act does not have a material impact on the Company. The Company has determined that its foreign undistributed earnings are indefinitely reinvested except for undistributed earnings related to the Company's operations in the Netherlands. The Company may repatriate certain foreign earnings from the Netherlands that have been previously taxed in the U.S. The tax impact of such repatriation is estimated to be immaterial. The Company believes that it has adequately provided reserves for all uncertain tax positions; however, amounts asserted by tax authorities could be greater or less than the Company’s current position. Accordingly, the Company’s provision on federal, state and foreign tax related matters to be recorded in the future may change as revised estimates are made or as the underlying matters are settled or otherwise resolved. The federal statute of limitations remains open in general for tax years ended June 30, 2018 through 2021. Various states statutes of limitations remain open in general for tax years ended June 30, 2017 through 2021. Certain statutes of limitations in major foreign jurisdictions remain open in general for the tax years ended June 30, 2016 through 2021. It is reasonably possible that the Company's gross unrecognized tax benefits will decrease by approximately $ 1.0 million, in the next 12 months, due to the lapse of the statute of limitations. These adjustments, if recognized, would positively impact the Company's effective tax rate, and would be recognized as additional tax benefits. 31 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Note 11. Commitments and Contingencies Litigation and Claims— On February 8, 2018, two putative class action complaints were filed against the Company, the Company's Chief Executive Officer, and the Company's former Chief Financial Officer in the U.S. District Court for the Northern District of California ( Hessefort v. Super Micro Computer, Inc., et al. , No. 18-cv-00838 and United Union of Roofers v. Super Micro Computer, Inc., et al. , No. 18-cv-00850 ). The complaints contain similar allegations, claiming that the defendants violated Section 10(b) of the Securities Exchange Act due to alleged misrepresentations and/or omissions in public statements regarding recognition of revenue. The court subsequently appointed New York Hotel Trades Council & Hotel Association of New York City, Inc. Pension Fund as lead plaintiff. The lead plaintiff then filed an amended complaint naming the Company's Senior Vice President of Investor Relations as an additional defendant. On June 21, 2019, the lead plaintiff filed a further amended complaint naming the Company's former Senior Vice President of International Sales, Corporate Secretary, and Director as an additional defendant. On July 26, 2019, the Company filed a motion to dismiss the complaint. On March 23, 2020, the Court granted the Company’s motion to dismiss the complaint, with leave for lead plaintiff to file an amended complaint within 30 days. On April 22, 2020, lead plaintiff filed a further amended complaint. On June 15, 2020, the Company filed a motion to dismiss the further amended complaint, the hearing for which was calendared for September 23, 2020; however, the Court held a conference on September 15 to discuss how the Court could efficiently address the recent SEC settlement agreement. The parties stipulated to allow plaintiffs to further amend the complaint solely to add allegations relating to the SEC settlement. On October 14, 2020, plaintiffs filed a Fourth Amended Complaint. On October 28, 2020, defendants filed a supplemental motion to dismiss. On March 29, 2021, the Court granted in part and denied in part defendants’ motions to dismiss. Plaintiffs’ claims under Sections 10(b) and 20 of the Exchange Act were dismissed with prejudice as against the Company’s former head of Investor Relations, Perry Hayes. Plaintiffs’ Section 10(b) claim, but not the Section 20 claim, was likewise dismissed as to Wally Liaw, a founder, former director, and former SVP of International Sales. The Court denied the motions to dismiss the Section 10(b) and Section 20 claims against the Company, Charles Liang, and Howard Hideshima, the Company’s former CFO. Discovery has commenced, and the Court has calendared a hearing on class certification for April 21, 2022. The Company intends to defend the lawsuit vigorously. On October 27, 2020, certain current and former directors and officers of the Company were named as defendants in a putative derivative lawsuit filed in the Superior Court of the State of California, County of Santa Clara (the “Court”), captioned Barry v. Liang, et al., 20-CV-372190. The Company was also named as a nominal defendant. The complaint purports to allege claims for breaches of fiduciary duties, waste of corporate assets, and unjust enrichment arising out of allegations that the Company’s officers and directors caused the Company to issue false and misleading statements about recognition of revenue and the effectiveness of its internal controls, failed to adopt and implement effective internal controls, and failed to timely file various reports with the Securities and Exchange Commission. Defendants filed demurrers, which were set for hearing on August 4, 2021, but which were continued to September 15, 2021. Following this continuance, on July 21, 2021, Plaintiffs' counsel filed an amended complaint in lieu of responding to the demurrer. The amended complaint added no new claims; primarily, the amendment added allegations describing the March 29, 2021 motion to dismiss decision in the Hessefort class action. Defendants demurred to the amended complaint on August 24, 2021, and the Court has continued the hearing to March 23, 2022. The case is otherwise currently stayed. The Company intends to defend the lawsuit vigorously. On May 5, 2021, certain current and former directors and officers of the Company were named as defendants in a putative derivative lawsuit filed in the U.S. District Court for the Northern District of California, captioned Stein v. Liang, et al ., Case No. 3:21-cv-03357-KAW (the “Stein Derivative Action”). The Company was also named as a nominal defendant. The complaint purports to allege claims for breaches of fiduciary duties, waste of corporate assets, unjust enrichment, and contribution for violations of federal securities laws arising out of allegations that the Company’s officers and directors caused the Company to issue false and misleading statements about recognition of revenue and the effectiveness of its internal controls, failed to adopt and implement effective internal controls, and failed to timely file various reports with the Securities and Exchange Commission. The plaintiff seeks unspecified compensatory damages and other equitable relief. Defendants filed motions to dismiss the complaint on August 6, 2021. Rather than oppose defendants’ motions, plaintiff informed defendants that plaintiff was prepared to dismiss his action with prejudice. On September 29, 2021, the parties submitted a stipulation for dismissal with prejudice as to the named plaintiff to the Court for its approval. On December 16, 2021, the Court issued an order for the parties to submit within 30 days a plan of notice of dismissal for the Court’s approval. The Company provided notice as required by the Court on December 21, 2021. The Court order notes that, if no shareholder seeks to intervene during the 45 -day notice period ending on February 4, 2022, plaintiff may file an administrative motion requesting that the Court dismiss the lawsuit with prejudice. 32 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) SEC Matter— The Company cooperated with the SEC in its investigation of marketing expenses that contained certain irregularities discovered by Company management, which irregularities were disclosed on August 31, 2015, and the Company cooperated with the SEC in its further investigation of the matters underlying the Company’s inability to timely file its Form 10-K for the fiscal year ended June 30, 2017 and concerning the publication of a false and widely discredited news article in October 2018 concerning the Company’s products. On August 25, 2020, to fully resolve all matters under investigation, the Company consented to entry of an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order (“Order”), as announced by the SEC. The Company admitted the SEC’s jurisdiction over the Company and the subject matter of the proceedings, but otherwise neither admitted nor denied the SEC’s findings, as described in the Order. The Company agreed to cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and (3) of the Securities Act and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The Company agreed and paid a civil money penalty of $ 17,500,000 during the three months ended September 30, 2020, which was recorded to general and administrative expense in the Company's condensed consolidated statement of operations in the first quarter of fiscal 2021. In addition, the Company’s Chief Executive Officer concluded a settlement with the SEC on August 25, 2020, as announced by the SEC. The Company’s Chief Executive Officer paid the Company the sum of $ 2,122,000 as reimbursement of profits from certain stock sales during the relevant period, pursuant to Section 304 of the Sarbanes-Oxley Act of 2002. The settlement amount was paid during the first quarter of fiscal 2021 and the Company recorded the payment as a credit to general and administrative expense in the first quarter of fiscal 2021. Other legal proceedings and indemnifications From time to time, the Company has been involved in various legal proceedings arising from the normal course of business activities. The resolution of any such matters have not had a material impact on the Company’s consolidated financial condition, results of operations or liquidity as of December 31, 2021 and any prior periods. The Company has entered into indemnification agreements with its current and former directors and executive officers. Under these agreements, the Company has agreed to indemnify such individuals to the fullest extent permitted by law against liabilities that arise by reason of their status as directors or officers and to advance expenses incurred by such individuals in connection with related legal proceedings. It is not possible to determine the maximum potential amount of payments the Company could be required to make under these agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each claim. However, the Company maintains directors and officers liability insurance coverage to reduce its exposure to such obligations. Purchase Commitments — The Company has agreements to purchase inventory and non-inventory items primarily through the next 12 months. As of December 31, 2021, these remaining noncancelable commitments were $ 816.0 million, including $ 100.3 million for related parties. Lease Commitments - See Note 7, "Leases," for a discussion of the Company's operating lease and financing lease commitments. Note 12. Segment Reporting The Company operates in one operating segment that develops and provides high performance server solutions based upon an innovative, modular and open-standard architecture. The Company’s chief operating decision maker is the Chief Executive Officer. 33 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) The following is a summary of property, plant and equipment, net (in thousands): December 31, June 30, 2021 2021 Long-lived assets: United States $ 174,213 $ 180,143 Asia 103,268 91,640 Europe 2,801 2,930 $ 280,282 $ 274,713 The Company’s revenue is presented on a disaggregated basis in Note 2, “Revenue,” by type of product and by geographical market. 34 Table of Contents