What changed in this filing

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Item 1. Financial Statements

2023-05-05 compared with 2023-02-03 · 202 added, 182 removed, 746 unchanged (34% of the section changed)

3 unchanged sentences

(in thousands, except par value per share amounts)

December 31, June 30,

March 31, June 30,

Current assets:

Cash and cash equivalents $ 362,801 $ 267,397

Accounts receivable, net of allowance for credit losses of $ 180 and $ 1,753 at December 31, 2022 and June 30, 2022, respectively (including accounts receivable from related parties of $ 5,220 and $ 8,398 at December 31, 2022 and June 30, 2022, respectively)

Accounts receivable, net of allowance for credit losses of $ 168 and $ 1,753 at March 31, 2023 and June 30, 2022, respectively (including accounts receivable from related parties of $ 2,031 and $ 8,398 at March 31, 2023 and June 30, 2022, respectively)

672,055 834,513

Inventories 1,540,419 1,545,606

Prepaid expenses and other current assets (including receivables from related parties of $ 47,337 and $ 24,412 at December 31, 2022 and June 30, 2022, respectively)

Prepaid expenses and other current assets (including receivables from related parties of $ 32,985 and $ 24,412 at March 31, 2023 and June 30, 2022, respectively)

139,900 158,799

Total current assets 2,715,175 2,806,315

Investment in equity investee 3,197 5,329

Property, plant and equipment, net 290,038 285,972

4 unchanged sentences

Current liabilities:

Accounts payable (including amounts due to related parties of $ 88,106 and $ 87,355 at December 31, 2022 and June 30, 2022, respectively)

Accounts payable (including amounts due to related parties of $ 76,113 and $ 87,355 at March 31, 2023 and June 30, 2022, respectively)

$ 641,839 $ 655,403

Accrued liabilities (including amounts due to related parties of $ 19,527 and $ 18,676 at December 31, 2022 and June 30, 2022, respectively)

Accrued liabilities (including amounts due to related parties of $ 18,352 and $ 18,676 at March 31, 2023 and June 30, 2022, respectively)

155,224 212,419

12 unchanged sentences

Outstanding shares:

53,400 and 52,311 at December 31, 2022 and June 30, 2022, respectively

52,484 and 52,311 at March 31, 2023 and June 30, 2022, respectively

Issued shares:

53,400 and 52,311 at December 31, 2022 and June 30, 2022, respectively

52,484 and 52,311 at March 31, 2023 and June 30, 2022, respectively

528,279 481,741

12 unchanged sentences

Three Months Ended

December 31, Six Months Ended

March 31, Nine Months Ended

2023 2022 2023 2022

Net sales (including related party sales of $ 20,073 and $ 41,616 in the three months ended December 31, 2022 and 2021, respectively, and $ 45,126 and $ 72,538 in the six months ended December 31, 2022 and 2021, respectively)

Net sales (including related party sales of $ 9,188 and $ 47,669 in the three months ended March 31, 2023 and 2022, respectively, and $ 54,316 and $ 120,206 in the nine months ended March 31, 2023 and 2022, respectively)

$ 1,283,296 $ 1,355,490 $ 4,938,621 $ 3,560,639

Cost of sales (including related party purchases of $ 98,743 and $ 96,728 in the three months ended December 31, 2022 and 2021, respectively, and $ 195,279 and $ 184,415 in the six months ended December 31, 2022 and 2021, respectively)

Cost of sales (including related party purchases of $ 87,732 and $ 95,479 in the three months ended March 31, 2023 and 2022, respectively, and $ 283,010 and $ 279,893 in the nine months ended March 31, 2023 and 2022, respectively)

1,056,937 1,144,715 4,027,305 3,047,982

24 unchanged sentences

Three Months Ended

December 31, Six Months Ended

March 31, Nine Months Ended

2023 2022 2023 2022

9 unchanged sentences

(in thousands, except share amounts)

Three Months Ended December 31, 2022 Common Stock and

Three Months Ended March 31, 2023 Common Stock and

Additional Paid-In

4 unchanged sentences

Shares Amount

Balance at September 30, 2022 52,851,469 $ 497,183 $ 514 $ 1,127,339 $ 167 $ 1,625,203

Balance at December 31, 2022 53,400,301 $ 514,559 $ 612 $ 1,303,506 $ 165 $ 1,818,842

Exercise of stock options, net of taxes 452,835 9,495 — — — 9,495

1 unchanged sentence

Shares withheld for the withholding tax on vesting of restricted stock units ( 91,935 ) ( 8,938 ) — — — ( 8,938 )

Share repurchases, retirement and related taxes

( 1,553,350 ) ( 489 ) — ( 149,907 ) — ( 150,396 )

Stock-based compensation — 13,652 — — — 13,652

Other comprehensive income — — 71 — — 71

Net income (loss) — — — 176,167 ( 2 ) 176,165

Balance at December 31, 2022 53,400,301 $ 514,559 $ 612 $ 1,303,506 $ 165 $ 1,818,842

Three Months Ended December 31, 2021 Common Stock and

Net income — — — 85,846 1 85,847

Balance at March 31, 2023 52,483,741 $ 528,279 $ 683 $ 1,239,445 $ 166 $ 1,768,573

Three Months Ended March 31, 2022 Common Stock and

Additional Paid-In

4 unchanged sentences

Shares Amount

Balance at September 30, 2021 51,071,844 $ 448,976 $ 449 $ 683,197 $ 176 $ 1,132,798

Balance at December 31, 2021 51,508,616 $ 460,990 $ 549 $ 725,129 $ 177 $ 1,186,845

Exercise of stock options, net of taxes 251,598 4,363 — — — 4,363

3 unchanged sentences

Other comprehensive income — — 5 — — 5

Net income — — — 41,932 1 41,933

Balance at December 31, 2021 51,508,616 $ 460,990 $ 549 $ 725,129 $ 177 $ 1,186,845

Six Months Ended December 31, 2022 Common Stock and

Net income (loss) — — — 76,972 ( 1 ) 76,971

Balance at March 31, 2022 51,870,173 $ 471,088 $ 554 $ 802,101 $ 176 $ 1,273,919

SMCI | Q3 2023 Form 10-Q | 4

Nine Months Ended March 31, 2023 Common Stock and

Additional Paid-In

8 unchanged sentences

Shares withheld for the withholding tax on vesting of restricted stock units ( 239,543 ) ( 19,442 ) — — — ( 19,442 )

Share repurchases, retirement and related taxes

( 1,553,350 ) ( 489 ) — ( 149,907 ) — ( 150,396 )

Stock-based compensation — 41,647 — — — 41,647

1 unchanged sentence

Net income (loss) — — — 446,429 ( 6 ) 446,423

Balance at December 31, 2022 53,400,301 $ 514,559 $ 612 $ 1,303,506 $ 165 $ 1,818,842

SMCI | Q2 2023 Form 10-Q | 4

Six Months Ended December 31, 2021 Common Stock and

Balance at March 31, 2023 52,483,741 $ 528,279 $ 683 $ 1,239,445 $ 166 $ 1,768,573

Nine Months Ended March 31, 2022 Common Stock and

Additional Paid-In

11 unchanged sentences

Net income — — — 144,341 3 144,344

Balance at December 31, 2021 51,508,616 $ 460,990 $ 549 $ 725,129 $ 177 $ 1,186,845

Balance at March 31, 2022 51,870,173 $ 471,088 $ 554 $ 802,101 $ 176 $ 1,273,919

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

OPERATING ACTIVITIES:

3 unchanged sentences

Stock-based compensation expense 41,647 23,932

Allowance (recovery) for credit losses 1 ( 636 )

Recovery for credit losses ( 11 ) ( 815 )

Provision for excess and obsolete inventories 31,441 13,875

4 unchanged sentences

Changes in operating assets and liabilities:

Accounts receivable, net (including changes in related party balances of $ 3,178 and $( 25,854 ) during the six months ended December 31, 2022 and 2021, respectively)

Accounts receivable, net (including changes in related party balances of $ 6,367 and $( 25,405 ) during the nine months ended March 31, 2023 and 2022, respectively)

165,894 ( 216,464 )

Inventories ( 26,254 ) ( 561,453 )

Prepaid expenses and other assets (including changes in related party balances of $( 22,925 ) and $( 11,165 ) during the six months ended December 31, 2022 and 2021, respectively)

Prepaid expenses and other assets (including changes in related party balances of $( 8,573 ) and $( 5,726 ) during the nine months ended March 31, 2023 and 2022, respectively)

15,088 ( 32,750 )

Accounts payable (including changes in related party balances of $ 751 and $ 25,940 during the six months ended December 31, 2022 and 2021, respectively)

Accounts payable (including changes in related party balances of $( 11,242 ) and $ 17,170 during the nine months ended March 31, 2023 and 2022, respectively)

( 9,120 ) 173,031

1 unchanged sentence

Deferred revenue 76,062 27,434

Accrued liabilities (including changes in related party balances of $ 851 and $ 1,501 during the six months ended December 31, 2022 and 2021, respectively)

Accrued liabilities (including changes in related party balances of $( 324 ) and $( 3,213 ) during the nine months ended March 31, 2023 and 2022, respectively)

( 62,639 ) 4,644

Other long-term liabilities (including changes in related party balances of $( 168 ) and $ 0 during the six months ended December 31, 2022 and 2021, respectively)

Other long-term liabilities (including changes in related party balances of $( 241 ) and $ 596 during the nine months ended March 31, 2023 and 2022, respectively)

( 3,883 ) ( 8,892 )

1 unchanged sentence

INVESTING ACTIVITIES:

Purchases of property, plant and equipment (including payments to related parties of $ 4,514 and $ 1,770 during the six months ended December 31, 2022 and 2021, respectively)

Purchases of property, plant and equipment (including payments to related parties of $ 6,325 and $ 2,505 during the nine months ended March 31, 2023 and 2022, respectively)

( 28,618 ) ( 34,157 )

6 unchanged sentences

Payment of withholding tax on vesting of restricted stock units ( 19,442 ) ( 6,807 )

Stock repurchases ( 146,526 ) —

Other ( 25 ) ( 59 )

5 unchanged sentences

Supplemental disclosure of cash flow information:

Cash paid for interest $ 6,084 $ 1,765

SMCI | Q3 2023 Form 10-Q | 6

Cash paid for interest $ 7,223 $ 2,990

Cash paid for taxes, net of refunds $ 107,054 $ 11,623

Non-cash investing and financing activities:

Unpaid property, plant and equipment purchases (including due to related parties of $ 1,764 and $ 2,312 as of December 31, 2022 and 2021, respectively)

Unpaid property, plant and equipment purchases (including due to related parties of $ 1,391 and $ 729 as of March 31, 2023 and 2022, respectively)

$ 2,885 $ 7,464

Right of use ("ROU") assets obtained in exchange for operating lease commitments $ 1,679 $ 11,108

Unpaid stock repurchases $ 3,472 $ —

See accompanying notes to condensed consolidated financial statements.

11 unchanged sentences

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, 2022 are not necessarily indicative of the results that may be expected for future quarters or for the fiscal year ending June 30, 2023.

The consolidated results of operations for the three and nine months ended March 31, 2023 are not necessarily indicative of the results that may be expected for future quarters or for the fiscal year ending June 30, 2023.

Concentration of Supplier Risk

1 unchanged sentence

Shortages could occur in these materials due to an interruption of supply or increased demand in the industry.

Two suppliers accounted for 14.1 % and 17.6 % of total purchases for the three months ended December 31, 2022, and two suppliers accounted for 22.1 % and 6.5 % of total purchases for the three months ended December 31, 2021.

Two suppliers accounted for 15.3 % and 22.3 % of total purchases for the six months ended December 31, 2022, and two suppliers accounted for 21.2 % and 6.4 % of total purchases for the six months ended December 31, 2021.

Purchases from Ablecom, and Compuware, related parties of the Company (see Part I, Item 1, Note 8, "Related Party Transactions") accounted for a combined 6.7 % and 9.4 % of total cost of sales for the three months ended December 31, 2022 and 2021, respectively, and a combined 6.6 % and 9.5 % of total cost of sales for the six months ended December 31, 2022 and 2021, respectively.

Two suppliers accounted for 16.9 % and 26.9 % of total purchases for the three months ended March 31, 2023, and the same two suppliers accounted for 13.0 % and 19.4 % of total purchases for the three months ended March 31, 2022.

Two suppliers accounted for 15.8 % and 23.6 % of total purchases for the nine months ended March 31, 2023, and the same two suppliers accounted for 18.0 % and 11.4 % of total purchases for the nine months ended March 31, 2022.

Purchases from Ablecom, and Compuware, related parties of the Company (see Part I, Item 1, Note 8, "Related Party Transactions") accounted for a combined 8.3 % and 8.2 % of total cost of sales for the three months ended March 31, 2023 and 2022, respectively, and a combined 7.0 % and 9.0 % of total cost of sales for the nine months ended March 31, 2023 and 2022, 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 months ended December 31, 2022, and one customer accounted for 15.8 % of the net sales for the six months ended December 31, 2022.

No single customer accounted for 10% or more of the net sales for the three and six months ended December 31, 2021.

No single customer accounted for greater than 10% of the Company's accounts receivable, net as of December 31, 2022.

One customer accounted for 10.7 % of the net sales for the three months ended March 31, 2023, and one customer accounted for 11.8 % of the net sales for the nine months ended March 31, 2023.

One customer accounted for 10.2 % of the net sales for the three months ended March 31, 2022 and no single customer accounted for 10% or more of the net sales for the nine months ended March 31, 2022.

One customer accounted for 21.0 % of the Company's accounts receivable, net as of March 31, 2023.

One customer accounted for 21.7 % of the Company's accounts receivable, net as of June 30, 2022.

Accounting Pronouncements Recently Adopted

There were no new pronouncements recently adopted.

Treasury Stock

The Company accounts for treasury stock under the cost method.

Upon the retirement of treasury shares, the Company deducts the par value of the retired treasury shares from common stock and allocates the excess of cost over par as a deduction to additional paid-in capital based on the pro-rata portion of additional paid-in-capital, and the remaining excess as a deduction to retained earnings.

Retired treasury shares revert to the status of authorized but unissued shares.

SMCI | Q3 2023 Form 10-Q | 8

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Accounting Pronouncements Recently Adopted

There were no new pronouncements recently adopted.

Accounting Pronouncements Not Yet Adopted

3 unchanged sentences

The amendments in this update do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022 that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship.

The amendment is effective for all entities through December 31, 2022.

The amendment was 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.

2 unchanged sentences

The Company has loans and lines of credit with various financial institutions.

Benchmark interest rates are used to calculate the interest on borrowings under the Chang Hwa Bank, CTBC, HSBC and Mega Bank Credit Facilities.

LIBOR was used to calculate the interest on borrowings under the Company's 2018 Bank of America Credit Facility and E.SUN Credit Facility.

Benchmark interest rates are used to calculate the interest on borrowings under the Chang Hwa Bank, CTBC, HSBC, ESUN and Mega Bank Credit Facilities.

LIBOR was used to calculate the interest on borrowings under the Company's 2018 Bank of America Credit Facility.

The 2018 Bank of America Credit Facility was amended on June 28, 2021 to provide for a new maturity date of June 28, 2026 and fallback terms related to LIBOR replacement mechanics.

1 unchanged sentence

As these amendments had other contemporaneous changes to the facility, including the amount of borrowings permitted under the facility and not just directly related to LIBOR replacement, optional expedients under this guidance cannot be elected.

The Company is currently evaluating the overall impact of the adoption of this guidance and does not expect it to have material impact on its consolidated financial statements and disclosures.

The Company is currently evaluating the overall impact of the adoption of this guidance and does not expect it to have a material impact on its consolidated financial statements and disclosures.

Disaggregation of Revenue

3 unchanged sentences

Three Months Ended

December 31, Six Months Ended

March 31, Nine Months Ended

2023 2022 2023 2022

8 unchanged sentences

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, 2022 and 2021, of net sales by geographic region (in thousands):

The following is a summary for the three and nine months ended March 31, 2023 and 2022, of net sales by geographic region (in thousands):

Three Months Ended

December 31, Six Months Ended

March 31, Nine Months Ended

2023 2022 2023 2022

13 unchanged sentences

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, 2022, which was included in the deferred revenue balance as of June 30, 2022, of $ 233.8 million, was $ 27.5 million and $ 61.0 million, respectively.

Deferred revenue increased $ 46.2 million as of December 31, 2022 as compared to the fiscal year ended June 30, 2022 and was mainly due to the deferral on invoiced amounts for service contracts during the period exceeded the recognition of revenue from contracts entered into in prior periods.

The service contracts deferral increase was offset partly by a $ 2.4 million decrease in non-cancellable non-refundable advance consideration or cash consideration received from customers which preceded the Company's satisfaction of the associated performance obligations relating to product sales expected to be fulfilled in the next 12 months.

Revenue recognized during the three and nine months ended March 31, 2023, which was included in the deferred revenue balance as of June 30, 2022, of $ 233.8 million, was $ 25.2 million and $ 86.2 million, respectively.

Deferred revenue increased $ 76.1 million as of March 31, 2023 as compared to the fiscal year ended June 30, 2022 was mainly due to the deferral on invoiced amounts for service contracts during the period exceeding the recognized revenue from contracts entered into in prior periods.

This was accompanied by a $ 2.4 million increase in non-cancellable non-refundable advance consideration or cash consideration received from customers which preceded the Company's satisfaction of the associated performance obligations relating to product sales expected to be fulfilled in the next 12 months.

Transaction Price Allocated to the Remaining Performance Obligations

2 unchanged sentences

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, 2022 was $ 280.0 million .

The value of the transaction price allocated to remaining performance obligations as of March 31, 2023 was $ 309.9 million .

The Company expects to recognize approximately 48 % of remaining performance obligations as revenue in the next 12 months, and the remainder thereafter.

4 unchanged sentences

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 consist primarily of incentive bonuses paid to Company employees.

Contract acquisition costs are considered incremental and recoverable costs of obtaining and fulfilling a contract with a customer and are therefore capitalizable.

6 unchanged sentences

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, 2022 and 2021 (in thousands, except per share amounts):

The following table shows the computation of basic and diluted net income per common share for the three and nine months ended March 31, 2023 and 2022 (in thousands, except per share amounts):

Three Months Ended

December 31, Six Months Ended

March 31, Nine Months Ended

2023 2022 2023 2022

5 unchanged sentences

Diluted net income per common share $ 1.53 $ 1.43 $ 8.00 $ 2.70

For the three and six months ended December 31, 2022 and 2021, the Company had stock options, restricted stock units ("RSUs") and performance based restricted stock units ("PRSUs") outstanding that could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net income per share in the periods presented, as their effect would have been anti-dilutive.

The anti-dilutive common share equivalents resulting from outstanding equity awards were 211,729 and 419,423 for the three months ended December 31, 2022 and 2021, respectively, and 259,562 and 1,501,560 for the six months ended December 31, 2022 and 2021, respectively.

For the three and nine months ended March 31, 2023 and 2022, 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 187,358 and 452,611 for the three months ended March 31, 2023 and 2022, respectively, and 235,494 and 452,182 for the nine months ended March 31, 2023 and 2022, respectively.

SMCI | Q3 2023 Form 10-Q | 11

3 unchanged sentences

The following tables provide details of the selected balance sheet items (in thousands):

December 31, 2022 June 30, 2022

March 31, 2023 June 30, 2022

Finished goods $ 1,075,482 $ 1,025,555

2 unchanged sentences

Total inventories $ 1,540,419 $ 1,545,606

During the three and six months ended December 31, 2022, the Company recorded a net provision for excess and obsolete inventory to cost of sales totaling $ 15.8 million and $ 25.4 million, respectively, and $ 0.2 million and $ 3.7 million, for the three and six months ended December 31, 2021, respectively.

During the three and nine months ended March 31, 2023, the Company recorded a net provision for excess and obsolete inventory to cost of sales totaling $ 6.0 million and $ 31.4 million, respectively, and $ 10.2 million and $ 13.9 million, for the three and nine months ended March 31, 2022, respectively.

The Company classifies subsystems and accessories that may be sold separately or incorporated into systems as finished goods.

Prepaid Expenses and Other Current Assets:

December 31, 2022 June 30, 2022

March 31, 2023 June 30, 2022

Other receivables (1)

6 unchanged sentences

Total prepaid expenses and other current assets $ 139,900 $ 158,799

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

(1) Other receivables are receivables from contract manufacturers based on certain buy-sell arrangements of $ 81.0 million and $ 98.9 million as of March 31, 2023 and June 30, 2022, respectively.

Cash, Cash Equivalents and Restricted Cash:

December 31, 2022 June 30, 2022

March 31, 2023 June 30, 2022

Cash and cash equivalents $ 362,801 $ 267,397

6 unchanged sentences

Property, Plant, and Equipment:

December 31, 2022 June 30, 2022

March 31, 2023 June 30, 2022

Buildings $ 143,496 $ 143,509

1 unchanged sentence

Land 86,279 84,616

Furniture and fixtures 49,328 43,282

Building and leasehold improvements 52,295 45,169

Furniture and fixtures 42,318 43,282

Software 23,975 23,186

4 unchanged sentences

Other Assets:

December 31, 2022 June 30, 2022

March 31, 2023 June 30, 2022

Operating lease right-of-use asset $ 19,514 $ 23,679

Deferred service costs, non-current 9,315 6,316

Investment in equity investee 2,494 5,329

Prepaid expense, non-current 1,908 2,011

5 unchanged sentences

Accrued Liabilities:

December 31, 2022 June 30, 2022

March 31, 2023 June 30, 2022

Accrued payroll and related expenses $ 34,058 $ 57,736

1 unchanged sentence

Customer deposits 18,152 30,421

Accrued legal liabilities (Note 11) — 18,250

Accrued cooperative marketing expenses 9,973 8,757

Accrued warranty costs 9,704 9,073

Accrued cooperative marketing expenses 9,000 8,757

Operating lease liability 7,143 7,139

Accrued professional fees 1,867 4,281

Accrued legal liabilities (Note 11) — 18,250

Other 45,287 35,637

4 unchanged sentences

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.

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 would be earned when specified market and performance conditions are achieved.

The Chief Executive Officer’s total cash bonus opportunity was $ 8.1 million, divided into two equal tranches.

1 unchanged sentence

The Board retained the flexibility to reduce the amount payable under the first tranche (but not the second tranche) based on performance goals.

Both price targets were reached during the fiscal year ended June 30, 2021, and the second tranche totaled $ 4.0 million was paid in full.

Both price targets were reached during the fiscal year ended June 30, 2021, and the second tranche total of $ 4.0 million was paid in full.

As of June 30, 2021, the Company also expected it would likely pay the first tranche in full, and therefore recorded an expense of $ 3.6 million since March 2020 relating to the first tranche.

3 unchanged sentences

As such, there is no further transaction thereafter.

There was no benefit recognized during the three and six months ended December 31, 2022.

The benefit recognized during the three and six months ended December 31, 2021 was none and $ 1.6 million, respectively.

There was no expense or benefit recognized during the three and nine months ended March 31, 2023.

The benefit recognized during the three and nine months ended March 31, 2022 was none and $ 1.6 million, respectively.

Other Long-term Liabilities:

December 31, 2022 June 30, 2022

March 31, 2023 June 30, 2022

Accrued unrecognized tax benefits including related interests and penalties, non-current $ 18,865 $ 18,866

5 unchanged sentences

Three Months Ended

December 31, Six Months Ended

March 31, Nine Months Ended

2023 2022 2023 2022

12 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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, 2022 and June 30, 2022.

The Company is using the discounted cash flow method to estimate the fair value of the auction rate security at each period end and the following assumptions:

2 unchanged sentences

Financial Assets and Liabilities Measured on a Recurring Basis

The following table sets forth the Company’s financial instruments as of December 31, 2022 and June 30, 2022, which are measured at fair value on a recurring basis by level within the fair value hierarchy.

The following table sets forth the Company’s financial instruments as of March 31, 2023 and June 30, 2022, which are measured at fair value on a recurring basis by level within the fair value hierarchy.

These are classified based on the lowest level of input that is significant to the fair value measurement (in thousands):

December 31, 2022 Level 1 Level 2 Level 3 Asset at

March 31, 2023 Level 1 Level 2 Level 3 Asset at

Money market funds (1)

9 unchanged sentences

Total assets measured at fair value $ 20,220 $ 832 $ 1,590 $ 22,642

(1) $ 20.3 million and $ 20.0 million in money market funds are included cash and cash equivalents and $ 0.1 million and $ 0.2 million in money market funds are included in restricted cash, non-current in other assets in the condensed consolidated balance sheets as of December 31, 2022 and June 30, 2022, respectively.

(2) $ 0.2 million and $ 0.2 million in certificates of deposit are included in cash and cash equivalents, $ 0.1 million and $ 0.3 million in certificates of deposit are included in prepaid expenses and other assets, and $ 0.3 million and $ 0.3 million in certificates of deposit are included in restricted cash, non-current in other assets in the condensed consolidated balance sheets as of December 31, 2022 and June 30, 2022, respectively.

(1) $ 20.5 million and $ 20.0 million in money market funds are included cash and cash equivalents and $ 0.1 million and $ 0.2 million in money market funds are included in restricted cash, non-current in other assets in the condensed consolidated balance sheets as of March 31, 2023 and June 30, 2022, respectively.

(2) $ 0.2 million and $ 0.2 million in certificates of deposit are included in cash and cash equivalents, $ 0.1 million and $ 0.3 million in certificates of deposit are included in prepaid expenses and other assets, and $ 0.2 million and $ 0.3 million in certificates of deposit are included in restricted cash, non-current in other assets in the condensed consolidated balance sheets as of March 31, 2023 and June 30, 2022, 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.

Based on this assessment during the three and six months ended December 31, 2022, there were no indications that the Company’s investments had credit losses.

There was no movement in the balances of the Company's financial assets measured at fair value on a recurring basis, consisting of investment in an auction rate security, using significant unobservable inputs (Level 3) for the three and six months ended December 31, 2022 and 2021.

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

Based on this assessment during the three and nine months ended March 31, 2023, there were no indications that the Company’s investments had credit losses.

There were no transfers between Level 1, Level 2 or Level 3 financial instruments in the three and nine months ended March 31, 2023 and 2022.

SMCI | Q3 2023 Form 10-Q | 15

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following is a summary of the Company’s investment in an auction rate security as of December 31, 2022 and June 30, 2022 (in thousands):

The following is a summary of the Company’s investment in an auction rate security as of March 31, 2023 and June 30, 2022 (in thousands):

Cost Basis Gross

1 unchanged sentence

Auction rate security $ 1,750 $ — $ ( 160 ) $ 1,590

No gain or loss was recognized in other comprehensive income for the auction rate security for the three and six months ended December 31, 2022 and 2021.

No gain or loss was recognized in other comprehensive income for the auction rate security for the three and nine months ended March 31, 2023 and 2022.

The Company measures the fair value of outstanding debt for disclosure purposes on a recurring basis.

As of December 31, 2022 and June 30, 2022, total debt of $ 170.1 million and $ 596.8 million, respectively, was reported at amortized cost.

As of March 31, 2023 and June 30, 2022, total debt of $ 187.2 million and $ 596.8 million, respectively, was reported at amortized cost.

This outstanding debt was classified as Level 2 as it was not actively traded.

1 unchanged sentence

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 as of December 31, 2022 and June 30, 2022.

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 as of March 31, 2023 and June 30, 2022.

The Company accounts for these investments at cost less impairment, if any, plus or minus changes from observable price changes in orderly transactions for the identical or similar investments by the same issuer.

During the three and six months ended December 31, 2022 and 2021, the Company did not record any upward or downward adjustments to the carrying values of the non-marketable equity securities related to observable price changes.

The Company also did not record any impairment to the carrying values of the non-marketable equity securities during the three and six months ended December 31, 2022 and 2021.

During the three and nine months ended March 31, 2023 and 2022, the Company did not record any upward or downward adjustments to the carrying values of the non-marketable equity securities related to observable price changes.

The Company also did not record any impairment to the carrying values of the non-marketable equity securities during the three and nine months ended March 31, 2023 and 2022.

SMCI | Q3 2023 Form 10-Q | 16

2 unchanged sentences

Short-term and Long-term Debt

Short-term and long-term debt obligations as of December 31, 2022 and June 30, 2022 consisted of the following (in thousands):

December 31, June 30,

Short-term and long-term debt obligations as of March 31, 2023 and June 30, 2022 consisted of the following (in thousands):

March 31, June 30,

Line of credit:

3 unchanged sentences

2021 CTBC Credit Lines — 84,800

2022 CTBC Credit Line — —

HSBC Bank Credit Facility — 30,000

17 unchanged sentences

Activities under Revolving Lines of Credit and Term Loans

Available borrowings and interest rates as of December 31, 2022 and June 30, 2022 consisted of the following (in thousands except for percentages):

December 31, 2022 June 30, 2022

Available borrowings and interest rates as of March 31, 2023 and June 30, 2022 consisted of the following (in thousands except for percentages):

March 31, 2023 June 30, 2022

Available borrowings Interest rate Available borrowings Interest rate

21 unchanged sentences

Short-term and Long-term Debt” of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022 for a more complete description of the Company's credit facilities.

The Company entered into a new General Credit Agreement with ESUN Bank during the six months ended December 31, 2022 with the following terms:

SMCI | Q2 2023 Form 10-Q | 18

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company entered into new agreements during the nine months ended March 31, 2023 with the following terms:

2022 E.SUN Bank Credit Facility

6 unchanged sentences

The Company is not a guarantor of the New E.SUN Bank Credit Facility.

SMCI | Q3 2023 Form 10-Q | 18

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Terms for specific drawdown instruments issued under the New E.SUN Bank Credit Facility, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, are to be set forth in Notifications and Confirmation of Credit Conditions (a “Notification and Confirmation”) negotiated with E.SUN Bank.

1 unchanged sentence

dollar equivalent) with a tenor of five years (the “Medium Term Loan”) and a drawdown of US $ 30.0 million under the New E.SUN Bank Credit Facility for an import loan with a tenor of 120 days (the “Import O/A Loan”).

With respect to the Medium Term Loan, the period of use is between April 28, 2022 and April 28, 2023.

The interest rate thereunder is based upon a floating annual rate plus a fixed margin, subject to adjustment under certain circumstances.

With respect to the Medium Term Loan, the interest rate thereunder is based upon a floating annual rate plus a fixed margin, subject to adjustment under certain circumstances.

Interest payments are due on a monthly basis.

6 unchanged sentences

The interest rate thereunder is based on TAIFX3 plus a fixed margin, subject to negotiation on a monthly basis and adjustment under certain circumstances.

Interest payments are due on a monthly basis, and principal is repayable on the due date.

Interest payments are due on a monthly basis, and the principal is repayable on the due date.

Neither the Medium Term Loan nor Import O/A loan are secured.

As of December 31, 2022, the amount outstanding under the Import O/A Loan was denominated in NTD and remeasured into US dollars of $ 55.8 million.

The interest rate as of December 31, 2022 was 1.62 % per annum.

As of December 31, 2022 and June 30, 2022, the amounts outstanding under the Import O/A Loan were $ 0.0 million and $ 7.8 million, respectively.

The interest rate as of December 31, 2022 and June 30, 2022 was 4.18 % and 1.81 % per annum, respectively.

As of December 31, 2022, the amount available for future borrowing under the Import O/A Loan was $ 30.0 million.

As of March 31, 2023, the amount outstanding under the Medium Term Loan was denominated in NTD and remeasured into US dollars of $ 53.8 million.

The interest rate as of March 31, 2023 was 1.75 % per annum.

As of March 31, 2023 and June 30, 2022, the amounts outstanding under the Import O/A Loan were $ 0.0 million and $ 7.8 million, respectively.

The interest rate as of March 31, 2023 and June 30, 2022 was 4.18 % and 1.81 % per annum, respectively.

As of March 31, 2023, the amount available for future borrowing under the Import O/A Loan was $ 30.0 million.

2022 CTBC Credit Line

4 unchanged sentences

dollar equivalent).

SMCI | Q2 2023 Form 10-Q | 19

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company, through the Taiwan Subsidiary, was party to that certain credit agreement, dated May 6, 2020, with CTBC Bank, which provided for a ten-year , non-revolving term loan facility (the “2020 CTBC Term Loan Facility”) to obtain up to NTD 1,200.0 million ($ 40.7 million U.S.

dollar equivalent).

As of December 31, 2022 and June 30, 2022, the amounts outstanding under the 2020 CTBC Term Loan Facility were $ 38.9 million and $ 40.4 million, respectively.

The interest rates for these loans were 1.075 % per annum as of December 31, 2022 and 0.825 % as of June 30, 2022.

As of March 31, 2023 and June 30, 2022, the amounts outstanding under the 2020 CTBC Term Loan Facility were $ 39.4 million and $ 40.4 million, respectively.

The interest rates for these loans were 1.20 % per annum as of March 31, 2023 and 0.83 % as of June 30, 2022.

The 2021 Credit Lines permitted 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.

2 unchanged sentences

dollar equivalent) 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”).

As of December 31, 2022 and June 30, 2022, under the 2021 CTBC Machine Loan, the amounts outstanding were $ 5.5 million and $ 5.5 million, respectively.

The interest rates for these loans were 1.275 % per annum as of December 31, 2022 and 1.025 % as of June 30, 2022.

As of March 31, 2023 and June 30, 2022, under the 2021 CTBC Machine Loan, the amounts outstanding were $ 5.2 million and $ 5.5 million, respectively.

The interest rates for these loans were 1.40 % per annum as of March 31, 2023 and 1.03 % as of June 30, 2022.

The 2021 CTBC Credit Facility term loan was repaid on October 26, 2021.

As of December 31, 2022 and June 30, 2022, the outstanding borrowings under the 2021 CTBC Credit Facility revolving line of credit were none and $ 84.8 million, respectively.

The interest rates for these loans was 3.33 % per annum as of December 31, 2022 and ranged from 1.80 % to 2.52 % as of June 30, 2022.

As of December 31, 2022, the amount available for future borrowing under the 2022 CTBC Credit Line was $ 105 million.

As of December 31, 2022, the net book value of land and building located in Bade, Taiwan, collateralizing the 2022 CTBC Credit Line was $ 76.1 million.

The Company was in compliance with all financial covenants under 2022 CTBC Credit Line as of December 31, 2022.

As of March 31, 2023 and June 30, 2022, the outstanding borrowings under the 2021 CTBC Credit Facility revolving line of credit were none and $ 84.8 million, respectively.

The interest rates for these loans was 3.33 % per annum as of March 31, 2023 and ranged from 1.80 % to 2.52 % as of June 30, 2022.

SMCI | Q3 2023 Form 10-Q | 19

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of March 31, 2023, the amount available for future borrowing under the 2022 CTBC Credit Line was $ 105 million.

As of March 31, 2023, the net book value of land and building located in Bade, Taiwan, collateralizing the 2022 CTBC Credit Line was $ 75.4 million.

The Company was in compliance with all financial covenants under 2022 CTBC Credit Line as of March 31, 2023.

HSBC Bank Credit Facility

On February 7, 2023, the Company through the Taiwan subsidiary, entered into a new facility letter (the “New Facility Letter”) with the Taiwan affiliate of HSBC Bank which expanded the prior $ 30 million facility letter entered into with HSBC Bank on January 7, 2022.

The New Facility Letter permits borrowings up to a combined aggregate limit of $ 50 million which may be comprised of borrowings under a New Taiwan Dollar revolving facility with a sub-limit of NTD 300 million (the “NTD Revolver”) and an export/seller facility with a sub-limit of $ 50 million (the “Export/Seller Facility”).

Interest under both the NTD Revolver and Export/Seller Facility is based on HSBC Bank’s base rate plus a fixed margin, subject to adjustment under certain circumstances.

Interest payments thereunder are due on a monthly basis, or such other interest period as agreed by HSBC Bank, and principal is repayable on the due date.

Amounts due under the New Facility Letter are currently not secured, but subject to HSBC Bank’s right of set-off and right to repayment on demand and call for cash cover.

As of March 31, 2023 and June 30, 2022, the outstanding borrowings under the HSBC Credit Facility were $ 0.0 million and $ 30.0 million, respectively.

The interest rates for these loans were 4.50 % per annum as of March 31, 2023 and ranged from 1.95 % to 2.20 % as of June 30, 2022.

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

Principal Payments

Fiscal Year Principal Payments

Remainder of 2023 $ 25,526

6 unchanged sentences

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, 2022 and 2021 were as follows (in thousands):

Operating lease expense recognized and supplemental cash flow information related to operating leases for the three and nine months ended March 31, 2023 and 2022 were as follows (in thousands):

Three Months Ended

December 31, Six Months Ended

March 31, Nine Months Ended

2023 2022 2023 2022

Operating lease expense (including expense for lease agreements with related parties of $ 140 and $ 284 for the three and six months ended December 31, 2022, respectively, and $ 179 and $ 425 for the three and six months ended December 31, 2021, respectively)

Operating lease expense (including expense for lease agreements with related parties of $ 139 and $ 422 for the three and nine months ended March 31, 2023, respectively, and $ 143 and $ 568 for the three and nine months ended March 31, 2022, respectively)

$ 2,129 $ 2,017 $ 6,354 $ 6,183

Cash payments for operating leases (including payments to related parties of $ 127 and $ 257 for the three and six months ended December 31, 2022, respectively, and $ 211 and $ 490 for the three and six months ended December 31, 2021, respectively)

Cash payments for operating leases (including payments to related parties of $ 134 and $ 391 for the three and nine months ended March 31, 2023, respectively, and $ 141 and $ 631 for the three and nine months ended March 31, 2022, respectively)

$ 2,146 $ 1,854 $ 6,209 $ 6,067

New operating lease assets obtained in exchange for operating lease liabilities $ 655 $ 3,730 $ 1,679 $ 11,108

During the three and six months ended December 31, 2022 and 2021, the Company's costs related to short-term lease arrangements for real estate and non-real estate assets were immaterial.

Non-lease variable payments expensed in the three and six months ended December 31, 2022 were $ 0.4 million and $ 0.9 million, respectively.

Non-lease variable payments expensed in the three and six months ended December 31, 2021 were $ 0.2 million and $ 0.5 million, respectively.

As of December 31, 2022, the weighted average remaining lease term for operating leases was 3.4 years and the weighted average discount rate was 2.9 %.

Maturities of operating lease liabilities under noncancelable operating lease arrangements as of December 31, 2022 were as follows (in thousands):

During the three and nine months ended March 31, 2023 and 2022, the Company's costs related to short-term lease arrangements for real estate and non-real estate assets were immaterial.

Non-lease variable payments expensed in the three and nine months ended March 31, 2023 were $ 0.5 million and $ 1.3 million, respectively.

Non-lease variable payments expensed in the three and nine months ended March 31, 2022 were $ 0.2 million and $ 0.7 million, respectively.

As of March 31, 2023, the weighted average remaining lease term for operating leases was 3.2 years and the weighted average discount rate was 3.0 %.

Maturities of operating lease liabilities under noncancelable operating lease arrangements as of March 31, 2023 were as follows (in thousands):

Maturities of operating leases

4 unchanged sentences

Present value of operating lease liabilities $ 19,811

As of December 31, 2022, commitments under short-term lease arrangements, and operating and financing leases that have not yet commenced were immaterial.

As of March 31, 2023, 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.

9 unchanged sentences

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, 2022.

Bill Liang, a brother of both Charles Liang and Steve Liang, is a member of the Board of Directors of Ablecom.

5 unchanged sentences

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

Ablecom manufactured approximately 96.3 % and 88.8 % of the chassis included in the products sold by the Company during the three months ended March 31, 2023 and 2022, respectively, and 93.0 % and 82.5 % of the chassis included in the products sold by the Company during the nine months ended March 31, 2023 and 2022, 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.

7 unchanged sentences

The Company’s exposure to financial loss as a result of its involvement with Ablecom is limited to potential losses on its purchase orders in the event of an unforeseen decline in the market price and/or demand of the Company’s products such that the Company incurs a loss on the sale or cannot sell the products.

Outstanding cancellable and non-cancellable purchase orders from the Company to Ablecom on December 31, 2022 were $ 27.4 million and $ 26.8 million, respectively, and outstanding cancellable and non-cancellable purchase orders from the Company to Ablecom on June 30, 2022 were $ 39.5 million and $ 36.0 million, respectively, effectively representing the exposure to financial loss.

Outstanding cancellable and non-cancellable purchase orders from the Company to Ablecom on March 31, 2023 were $ 23.4 million and $ 23.6 million, respectively, and outstanding cancellable and non-cancellable purchase orders from the Company to Ablecom on June 30, 2022 were $ 39.5 million and $ 36.0 million, respectively, effectively representing the exposure to financial loss.

The Company does not directly or indirectly guarantee any obligations of Ablecom, or any losses that the equity holders of Ablecom may suffer.

19 unchanged sentences

The Company’s exposure to financial loss as a result of its involvement with Compuware is limited to potential losses on its purchase orders in the event of an unforeseen decline in the market price and/or demand of the Company’s products such that the Company incurs a loss on the sale or cannot sell the products.

Outstanding cancellable and non-cancellable purchase orders from the Company to Compuware on December 31, 2022 were $ 170.2 million and $ 70.1 million, respectively, and outstanding cancellable and non-cancellable purchase orders from the Company to Compuware on June 30, 2022 were $ 213.3 million and $ 44.3 million, respectively, effectively representing the exposure to financial loss.

Outstanding cancellable and non-cancellable purchase orders from the Company to Compuware on March 31, 2023 were $ 154.3 million and $ 59.7 million, respectively, and outstanding cancellable and non-cancellable purchase orders from the Company to Compuware on June 30, 2022 were $ 213.3 million and $ 44.3 million, respectively, effectively representing the exposure to financial loss.

The Company does not directly or indirectly guarantee any obligations of Compuware, or any losses that the equity holders of Compuware may suffer.

5 unchanged sentences

The Company recorded a deferred gain related to the contribution of certain technology rights.

As of December 31, 2022 and June 30, 2022, the Company had no unamortized deferred gain balance in accrued liabilities and none in other long-term liabilities in the Company’s condensed consolidated balance sheets.

As of March 31, 2023 and June 30, 2022, the Company had no unamortized deferred gain balance in accrued liabilities and none in other long-term liabilities in the Company’s condensed consolidated balance sheets.

SMCI | Q3 2023 Form 10-Q | 23

6 unchanged sentences

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, 2022.

No impairment charge was recorded for the three and six months ended December 31, 2022 or 2021.

The Company sold products worth $ 6.0 million and $ 38.3 million to the Corporate Venture during the three months ended December 31, 2022 and 2021, respectively, and sold products worth $ 17.3 million and $ 53.5 million to the Corporate Venture during the six months ended December 31, 2022 and 2021, respectively.

The Company’s share of intra-entity profits on the products that remained unsold by the Corporate Venture as of December 31, 2022 and June 30, 2022 have been eliminated and have reduced the carrying value of the Company’s investment in the Corporate Venture.

The Company does not believe that the equity investment carrying value is impacted as of March 31, 2023.

No impairment charge was recorded for the three and nine months ended March 31, 2023 or 2022.

The Company sold products worth $ 6.4 million and $ 43.7 million to the Corporate Venture during the three months ended March 31, 2023 and 2022, respectively, and sold products worth $ 23.6 million and $ 97.3 million to the Corporate Venture during the nine months ended March 31, 2023 and 2022, respectively.

The Company’s share of intra-entity profits on the products that remained unsold by the Corporate Venture as of March 31, 2023 and June 30, 2022 have been eliminated and have reduced the carrying value of the Company’s investment in the Corporate Venture.

To the extent that the elimination of intra-entity profits reduces the investment balance below zero, such amounts are recorded within accrued liabilities.

The Company had $ 5.0 million and $ 8.0 million due from the Corporate Venture in accounts receivable, net as of December 31, 2022 and June 30, 2022, respectively.

The Company had the following balances related to transactions with its related parties as of December 31, 2022 and June 30, 2022 (in thousands):

The Company had $ 1.9 million and $ 8.0 million due from the Corporate Venture in accounts receivable, net as of March 31, 2023 and June 30, 2022, respectively.

The Company had the following balances related to transactions with its related parties as of March 31, 2023 and June 30, 2022 (in thousands):

Ablecom Compuware Corporate Venture Total

December 31, 2022 June 30, 2022 December 31, 2022 June 30, 2022 December 31, 2022 June 30, 2022 December 31, 2022 June 30, 2022

March 31, 2023 June 30, 2022 March 31, 2023 June 30, 2022 March 31, 2023 June 30, 2022 March 31, 2023 June 30, 2022

Accounts receivable $ 2 $ 2 $ 111 $ 404 $ 1,918 $ 7,992 $ 2,031 $ 8,398

6 unchanged sentences

(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, 2022 and 2021, are as follows (in thousands):

The Company's results from transactions with its related parties for each of the three months ended March 31, 2023 and 2022, are as follows (in thousands):

Ablecom Compuware Corporate Venture MPS (1)

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,

Three months ended March 31, Three months ended March 31, Three months ended March 31, Three months ended March 31, Three months ended March 31,

2023 2022 2023 2022 2023 2022 2023 2022 2023 2022

6 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company's results from transactions with its related parties for each of the six months ended December 31, 2022 and 2021, are as follows (in thousands):

The Company's results from transactions with its related parties for each of the nine months ended March 31, 2023 and 2022, are as follows (in thousands):

Ablecom Compuware Corporate Venture MPS (1)

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,

Nine months ended March 31, Nine months ended March 31, Nine months ended March 31, Nine months ended March 31, Nine months ended March 31,

2023 2022 2023 2022 2023 2022 2023 2022 2023 2022

3 unchanged sentences

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

The Company’s cash flow impact from transactions with its related parties for each of the six months ended December 31, 2022 and 2021, are as follows (in thousands):

The Company’s cash flow impact from transactions with its related parties for each of the nine months ended March 31, 2023 and 2022, are as follows (in thousands):

Ablecom Compuware Corporate Venture MPS (1)

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,

Nine months ended March 31, Nine months ended March 31, Nine months ended March 31, Nine months ended March 31, Nine months ended March 31,

2023 2022 2023 2022 2023 2022 2023 2022 2023 2022

25 unchanged sentences

25 % at the end of one year and one sixteenth per quarter thereafter.

As of December 31, 2022, the Company had 2,711,240 authorized shares available for future issuance under the 2020 Plan.

Common Stock Repurchase

As of March 31, 2023, the Company had 2,438,619 authorized shares available for future issuance under the 2020 Plan.

Common Stock Repurchase and Retirement

On August 3, 2022, after the expiration of a prior share repurchase program on July 31, 2022, a duly authorized subcommittee of the Company's Board approved a new share repurchase program to repurchase shares of the Company’s common stock for up to $ 200 million at prevailing prices in the open market.

The share repurchase program is effective until January 31, 2024 or until the maximum amount of common stock is repurchased, whichever occurs first.

No shares were repurchased under any share repurchase programs during the three and six months ended December 31, 2022.

Under the common stock repurchase program, shares may be purchased from time to time in open market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise.

The number of shares purchased and the timing of such purchases are based on working capital requirements, market and general business conditions, and other factors, including alternative investment opportunities.

During the nine months ended March 31, 2023, the Company repurchased and retired 1,553,350 shares of common stock for an aggregated $ 150.0 million.

As of March 31, 2023, $ 50.0 million was available for additional repurchases of common stock.

Determining Fair Value

6 unchanged sentences

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.

SMCI | Q3 2023 Form 10-Q | 26

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The fair value of stock option grants for the three and six months ended December 31, 2022 and 2021 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

The fair value of stock option grants for the three and nine months ended March 31, 2023 and 2022 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

March 31, Nine Months Ended

2023 2022 2023 2022

8 unchanged sentences

Weighted-average fair value $ 41.50 $ 19.31 $ 35.06 $ 18.09

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, 2022 and 2021 (in thousands):

The following table shows total stock-based compensation expense included in the condensed consolidated statements of operations for the three and nine months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended

December 31, Six Months Ended

March 31, Nine Months Ended

2023 2022 2023 2022

6 unchanged sentences

Stock-based compensation expense, net $ 10,208 $ 5,310 $ 33,482 $ 15,855

As of December 31, 2022, $ 17.0 million of unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 3.01 years and $ 78.8 million of unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted-average period of 2.63 years.

As of March 31, 2023, $ 19.0 million of unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2.84 years and $ 82.5 million of unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted-average period of 2.70 years.

Additionally, as described below, $ 1.8 million of unrecognized compensation cost related to the 2021 CEO Performance Stock Option is expected to be recognized over a period of 1.25 years.

8 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The achievement status of the operational and stock price milestones as of December 31, 2022 was as follows:

The achievement status of the operational and stock price milestones as of March 31, 2023 was as follows:

Annualized Revenue Milestone (in billions) Achievement Status Stock Price Milestone Achievement Status

6 unchanged sentences

(2) The vesting of the second tranche of 200,000 option shares under the 2021 CEO Performance Stock Option representing one-fifth of such award was certified by the Company's Compensation Committee in October 2022.

(3) The vesting of the third tranche of 200,000 option shares under the 2021 CEO Performance Stock Option representing one-fifth of such award was certified by the Company's Compensation Committee on January 4, 2023.

(4) The $ 95 stock price milestone was achieved subsequent to March 31, 2023, and was certified by the Company’s Compensation Committee in April 2023.

On the grant date, a Monte Carlo simulation was used to determine for each tranche (i) a fixed expense amount for such tranche and (ii) the future time when the market price milestone for such tranche was expected to be achieved, or its “expected market price milestone achievement time.” Separately, based on a subjective assessment of the Company’s future financial performance, each quarter, the Company will determine whether achievement is probable for each operational milestone that has not previously been achieved or deemed probable of achievement, and, if so, the future time when the Company expects to achieve that operational milestone, or its “expected operational milestone achievement time.” When the Company first determines that an operational milestone has become probable of being achieved, the Company will allocate the entire expense for the related tranche over the number of quarters between the grant date and the then-applicable “expected vesting time.” The “expected vesting time” at any given time is the later of (i) the expected operational milestone achievement time (if the related operational milestone has not yet been achieved) and (ii) the expected market price milestone achievement time (if the related market price milestone has not yet been achieved).

1 unchanged sentence

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, 2022, the Company recognized compensation expense related to the 2021 CEO Performance Stock Option of $ 1.9 million and $ 3.2 million, respectively.

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.

As of December 31, 2022 and June 30, 2022, the Company had $ 2.4 million and $ 5.6 million, respectively, in unrecognized compensation cost related to the 2021 CEO Performance Stock Option.

The unrecognized compensation cost as of December 31, 2022 is expected to be recognized over a period of more than 1.50 years.

During the three and nine months ended March 31, 2023, the Company recognized compensation expense related to the 2021 CEO Performance Stock Option of $ 0.5 million and $ 3.8 million, respectively.

During the three and nine months ended March 31, 2022, the Company recognized compensation expense related to the 2021 CEO Performance Stock Option of $ 1.5 million and $ 5.3 million, respectively.

As of March 31, 2023 and June 30, 2022, the Company had $ 1.8 million and $ 5.6 million, respectively, in unrecognized compensation cost related to the 2021 CEO Performance Stock Option.

The unrecognized compensation cost as of March 31, 2023 is expected to be recognized over a period of more than 1.25 years.

SMCI | Q3 2023 Form 10-Q | 28

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes stock option activity during the six months ended December 31, 2022 under all plans:

The following table summarizes stock option activity during the nine months ended March 31, 2023 under all plans:

Outstanding Weighted

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Forfeited/Cancelled ( 21,568 ) $ 30.18

Balance as of December 31, 2022 3,782,985 $ 33.93 5.89

Options vested and exercisable at December 31, 2022 2,302,409 $ 27.48 4.18

Balance as of March 31, 2023 3,420,203 $ 36.87 6.32

Options vested and exercisable at March 31, 2023 2,136,763 $ 30.76 5.01

RSU and PRSU Activity

The following table summarizes RSU and PRSU activity during the six months ended December 31, 2022 under all plans:

The following table summarizes RSU and PRSU activity during the nine months ended March 31, 2023 under all plans:

Time-Based RSUs

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Forfeited ( 104,028 ) $ 41.65

Balance as of December 31, 2022 2,063,394 $ 43.49

Balance as of March 31, 2023 1,970,072 $ 47.25

SMCI | Q3 2023 Form 10-Q | 29

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company recorded a provision for income taxes of $ 29.6 million and $ 68.5 million for the three and six months ended December 31, 2022, respectively, and $ 7.6 million and $ 10.9 million for the three and six months ended December 31, 2021, respectively.

The effective tax rate was 14.3 % and 15.9 % for the three and six months ended December 31, 2022, respectively, and 15.4 % and 14.1 % for the three and six months ended December 31, 2021, respectively.

The effective tax rate for the three months ended December 31, 2022 is lower than that for the three months ended December 31, 2021, primarily due to an increase in the tax deduction for stock compensation, and a tax reserve release in the three months ended December 31, 2022.

The effective tax rate for the six months ended December 31, 2022 is higher than that for the six months ended December 31, 2021, primarily due to the significant increase in taxable income in the first two quarters of fiscal year 2023, while the income tax deductions for items such as the R&D credit and foreign tax deduction in those quarters did not increase in the same proportion.

The Company recorded a provision for income taxes of $ 10.9 million and $ 79.4 million for the three and nine months ended March 31, 2023, respectively, and $ 16.2 million and $ 27.1 million for the three and nine months ended March 31, 2022, respectively.

The effective tax rate was 11.1 % and 15.0 % for the three and nine months ended March 31, 2023, respectively, and 17.4 % and 15.9 % for the three and nine months ended March 31, 2022, respectively.

The effective tax rate for the three months ended March 31, 2023 is lower than that for the three months ended March 31, 2022, primarily due to an increase in the tax deduction for stock compensation in the three months ended March 31, 2023.

The effective tax rate for the nine months ended March 31, 2023 is lower than that for the nine months ended March 31, 2022, primarily due to a significant increase in tax deductible stock compensation expense in the third quarter of fiscal year 2023.

The Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development ("R&D") expenses in the year incurred and instead requires taxpayers to capitalize R&D expenses, including software development cost, and subsequently amortize such expenses over five years for R&D activities conducted in the United States and over fifteen years for R&D activities conducted outside of the United States beginning in the Company's fiscal year 2023.

Although Congress has considered legislation that would defer, modify, and repeal the capitalization and amortization requirement, there is no assurance the provision will be deferred, repealed, or otherwise modified.

As of December 31, 2022, the Company had gross unrecognized tax benefits of $ 41.1 million, of which, $ 23.4 million if recognized, would affect the Company's effective tax rate.

During the six months ended December 31, 2022, there was a $ 3.9 million decrease in gross unrecognized tax benefits.

As of March 31, 2023, the Company had gross unrecognized tax benefits of $ 41.3 million, of which, $ 23.5 million if recognized, would affect the Company's effective tax rate.

During the nine months ended March 31, 2023, there was a $ 2.4 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, 2022, the Company had accrued $ 3.3 million of interest and penalties relating to unrecognized tax benefits.

As of March 31, 2023, the Company had accrued $ 3.4 million of interest and penalties relating to unrecognized tax benefits.

The Company believes that it has adequately provided reserves for all uncertain tax positions;

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No settlement funds will be distributed until the Court grants final approval.

On November 8, 2022, the Court granted preliminary approval and calendared a hearing on March 2, 2023 for final approval.

This settlement, if finally approved by the Court, will fully resolve the action.

On November 8, 2022, the Court granted preliminary approval and calendared a hearing on March 2, 2023 for final approval, which the Court continued to May 4, 2023.

At the May 4, 2023 hearing, the Court indicated that it planned to grant final approval in a subsequent order, which will fully resolve the action.

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, 2022 and any prior periods.

The resolution of any such matters have not had a material impact on the Company’s consolidated financial condition, results of operations or liquidity as of March 31, 2023 and any prior periods.

The Company has entered into indemnification agreements with its current and former directors and executive officers.

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Purchase Commitments — The Company has agreements to purchase inventory and non-inventory items primarily through the next 12 months.

As of December 31, 2022, these remaining noncancelable commitments were $ 422.9 million, including $ 97.0 million for related parties.

Lease Commitments - See Part I, Item 1, Note 7, "Leases," for a discussion of the Company's operating lease and financing lease commitments.

As of March 31, 2023, these remaining noncancelable commitments were $ 932.8 million, including $ 83.3 million for related parties.

SMCI | Q3 2023 Form 10-Q | 31

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Lease Commitments - See Part I, Item 1, Note 7, "Leases," for a discussion of the Company's operating lease and financing lease commitments.

Segment Reporting

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

December 31, June 30,

March 31, June 30,

Long-lived assets:

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

What changed 10-Q

Item 1. Financial Statements