What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-06 compared with 2024-02-02 · 109 added, 102 removed, 199 unchanged (51% of the section changed)

20 unchanged sentences

This also impacts our research and development expenditures as we continue to invest more in our current and future product development efforts.

Financial Highlights

The following is a summary of our financial highlights of the second quarter of fiscal year 2024:

• Net sales increased by 103.2% in the three months ended December 31, 2023 as compared to the three months ended December 31, 2022.

• Gross margin de creased to 15.4% in the three months ended December 31, 2023 from 18.7% in the three months ended December 31, 2022.

• Operating expense s increased by 57.8% as compared to the three months ended December 31, 2022 and were equal to 5.3% and 6.7% of net sales in the three months ended December 31, 2023 and 2022, respectively.

• Effective tax rate increased to 17.3% in the three months ended December 31, 2023 from 14.3% in the three months ended December 31, 2022 .

SMCI | Q3 2024 Form 10-Q | 33

Financial Highlights

The following is a summary of our financial highlights of the third quarter of fiscal year 2024:

• Net sales increased by 200.0% in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

• Gross margin de creased to 15.5% in the three months ended March 31, 2024 from 17.6% in the three months ended March 31, 2023.

• Operating expense s increased by 72.1% as compared to the three months ended March 31, 2023 and were equal to 5.6% and 9.9% of net sales in the three months ended March 31, 2024 and 2023, respectively.

• Effective tax rate decreased to (5.2%) in the three months ended March 31, 2024 from 11.1% in the three months ended March 31, 2023.

• Issued $1,695.8 million of convertible notes and issued 2,000,000 common shares for $1,731.5 million to fund the growth of our business.

Critical Accounting Policies and Estimates

7 unchanged sentences

For a description of our critical accounting policies and estimates, see Part I, Item 1, Note 1, "Summary of Significant Accounting Policies" in our notes to condensed consolidated financial statements in this Quarterly Report.

SMCI | Q3 2024 Form 10-Q | 34

Results of Operations

1 unchanged sentence

Three Months Ended

December 31, Six Months Ended

March 31, Nine Months Ended

2024 2023 2024 2023

11 unchanged sentences

Income from operations 9.9 % 7.7 % 9.6 % 10.8 %

Other (expense) income, net

Other income, net

0.3 % — % 0.1 % — %

1 unchanged sentence

Income before income tax provision 10.0 % 7.6 % 9.5 % 10.7 %

Income tax provision (1.7) % (1.6) % (1.4) % (1.9) %

Income tax benefit (provision)

0.5 % (0.8) % (0.6) % (1.6) %

Share of income (loss) from equity investee, net of taxes

6 unchanged sentences

Additionally, in order to remain competitive throughout all industry cycles, we actively change our selling price per unit in response to changes in costs for key components such as CPUs, GPUs, SSDs and memory.

SMCI | Q2 2024 Form 10-Q | 33

The following table presents net sales by product type for the three and six months ended December 31, 2023 and 2022 (dollars in millions):

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

The following table presents net sales by product type for the three and nine months ended March 31, 2024 and 2023 (dollars in millions):

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

2024 2023 $ % 2024 2023 $ %

6 unchanged sentences

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

Comparison of Three Months Ended December 31, 2023 and 2022

The period-over-period increase in net sales of our server and storage systems was primarily due to the strong demand from customers for GPU, high performance computing (“HPC"), and rack-scale solutions which are generally more complex and of higher value, resulting in an increase of average selling price ("ASP").

SMCI | Q3 2024 Form 10-Q | 35

Comparison of Three Months Ended March 31, 2024 and 2023

The period-over-period increase in net sales of our server and storage systems was primarily driven by an increase in the demand from customers for GPU servers, high performance computing (“HPC"), and rack-scale solutions which are generally more complex and of higher value, resulting in an increase of average selling price ("ASP").

We expect net sales and ASPs to continue to increase in the near future, particularly in the United States and Asia, as demand from customers for these solutions continue to increase as a result of adoption of more advanced technologies including but not limited to liquid cooling solutions .

The period-over-period increase in net sales for our subsystems and accessories is primarily due to increased demand of accessories sold to data center customers as more accessories and spares were purchased in conjunction with the strong sales of full systems and servers.

Comparison of Six Months Ended December 31, 2023 and 2022

Comparison of Nine Months Ended March 31, 2024 and 2023

The period-over-period increase in net sales of our server and storage systems was primarily driven by an increase in the demand from customers for GPU servers, HPC, and rack-scale solutions which are generally more complex and of higher value, resulting in an increase of ASP.

The following table presents net sales by geographic region for the three and six months ended December 31, 2023 and 2022 (dollars in millions):

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

Change Change

The following table presents net sales by geographic region for the three and nine months ended March 31, 2024 and 2023 (dollars in millions):

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

2024 2023 $ % 2024 2023 $ %

8 unchanged sentences

Total net sales $ 3,850.1 $ 1,283.3 $ 9,634.7 $ 4,938.6

Comparison of Three Months Ended March 31, 2024 and 2023

The period-over-period increase in overall net sales is driven by an increase in demand from customers for GPU servers, HPC, and rack-scale solutions which have higher ASPs, especially for large enterprise and data center customers from the United States and Asia sales where they have experienced significant growth.

The period-over-period increase of net sales in Asia, Europe and other regions is mainly due to an increase in net sales in Singapore, Taiwan, Germany and South Africa.

Customer A accounted for 21.2% and customer B accounted for 16.8% of the net sales for the three months ended March 31, 2024.

Customer A accounted for 10.7% of the net sales for the three months ended March 31, 2023.

We expect to continue to have customers exceeding 10% of net sales in future quarters.

Comparison of Nine Months Ended March 31, 2024 and 2023

SMCI | Q3 2024 Form 10-Q | 36

Comparison of Three Months Ended December 31, 2023 and 2022

The period-over-period increase in overall net sales is the result of higher ASPs, especially for large enterprise and data center customers.

United States sales experienced significant growth due to increased demand from data center customers for GPU, HPC, and rack-scale solutions.

The period-over-period increase in overall net sales is driven by an increase in demand from customers for GPU servers, HPC and rack-scale solutions which have higher ASPs, especially for large enterprise and data center customers from the United States.

The period-over-period increase of net sales in Asia and other regions is mainly due to an increase in net sales in Taiwan, Singapore, Canada and South Africa.

The period-over-period decrease in sales in Europe is mainly due to decreases in net sales in Germany, United Kingdom, and France.

Two customers accounted for 25.5% and 10.4% of the net sales for the three months ended December 31, 2023.

We had no customers with net sales over 10% for the three months ended December 31, 2022, however, we expect to continue to have customers exceeding 10% of net sales in future quarters.

Comparison of Six Months Ended December 31, 2023 and 2022

The period-over-period increase in overall net sales is the result of higher ASPs, especially for large enterprise and data center customers.

United States sales experienced significant growth due to increased demand from data center customers for GPU, HPC, and rack-scale solutions.

The period-over-period increase of net sales in Asia and other regions is mainly due to an increase in net sales in Taiwan, Canada and South Africa.

The period-over-period decrease in sales in Europe is mainly due to decreases in net sales in Germany, United Kingdom, and France.

One customer accounted for 25.3% of the net sales for the six months ended December 31, 2023.

The same customer accounted for 15.8% of net sales for the six months ended December 31, 2022.

Customer A accounted for 23.7% of the net sales for the nine months ended March 31, 2024.

C ustomer C accounted for 11.8% of the net sales for the nine months ended March 31, 2023.

We expect to continue to have customers exceeding 10% of net sales in future quarters.

6 unchanged sentences

Because we generally do not have long-term fixed supply agreements, our cost of sales is subject to frequent change based on the availability of materials and other market conditions.

We expect inventory levels to continue to increase to support the future growth of our business.

Certain materials used in the manufacturing of our products are available from a limited number of suppliers and we expect that this trend will continue in the future.

2 unchanged sentences

We also outsource to Compuware, also a related party, a portion of our design activities and a significant part of the manufacturing of certain components, particularly power supplies.

Cost of sales and gross margin for the three and six months ended December 31, 2023 and 2022 are as follows (dollars in millions):

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

Cost of sales and gross margin for the three and nine months ended March 31, 2024 and 2023 are as follows (dollars in millions):

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

2024 2023 $ % 2024 2023 $ %

2 unchanged sentences

Gross margin 15.5 % 17.6 % (2.1) % 15.7 % 18.5 % (2.8) %

Comparison of Three Months Ended March 31, 2024 and 2023

The period-over-period increase in cost of sales was primarily attributed to an increase of $2,172.7 million in costs of materials and contract manufacturing expenses primarily related to the increase in net sales volume, $9.4 million increase in inventory reserve charges, a $8.5 million increase in overhead cost and a $5.2 million increase in freight costs.

The period-over-period decrease in the gross margin percentage was primarily due to competitive pricing to win new design wins, product and customer mix, partially offset by higher efficiency in manufacturing operational costs.

Comparison of Nine Months Ended March 31, 2024 and 2023

The period-over-period increase in cost of sales was primarily attributed to an increase of $4,090.5 million in costs of materials and contract manufacturing expenses primarily related to the increase in net sales volume, a $10.1 million increase in overhead costs partially offset by a $5.3 million decrease in freight costs due to an improved supply chain and a $3.3 million decrease in inventory reserve charges.

SMCI | Q3 2024 Form 10-Q | 37

Comparison of Three Months Ended December 31, 2023 and 2022

The period-over-period increase in cost of sales was primarily attributed to an increase in sales volume, which resulted in an increase of $1,639.1 million in costs of materials and contract manufacturing expenses, and a $3.1 million increase in overhead costs, partially offset by a $7.4 million decrease in inventory reserve charges.

The period-over-period decrease in the gross margin percentage was primarily due to product and customer mix, partially offset by lower cost of goods sold from manufacturing efficiency and other factors.

Comparison of Six Months Ended December 31, 2023 and 2022

The period-over-period increase in cost of sales was primarily attributed to an increase in sales volume, which resulted in an increase of $1,918.6 million in costs of materials and contract manufacturing expenses, and a $0.9 million increase in overhead costs, partially offset by a $12.7 million decrease in inventory reserve charges and a $10.6 million decrease in freight costs due to an improved supply chain.

Operating Expenses

11 unchanged sentences

General and administrative expenses consist primarily of general corporate costs, including personnel expenses such as salaries, benefits, stock-based compensation and incentive bonuses for our general and administrative personnel, financial reporting, information technology, corporate governance and compliance, outside legal, audit, tax fees, insurance and bad debt reserves on accounts receivable.

SMCI | Q2 2024 Form 10-Q | 36

Operating expenses for the three and six months ended December 31, 2023 and 2022 are as follows (dollars in millions):

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

Operating expenses for the three and nine months ended March 31, 2024 and 2023 are as follows (dollars in millions):

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

2024 2023 $ % 2024 2023 $ %

7 unchanged sentences

Percentage of total net sales 5.6 % 9.9 % 6.1 % 7.6 %

Comparison of Three Months Ended December 31, 2023 and 2022

SMCI | Q3 2024 Form 10-Q | 38

Comparison of Three Months Ended March 31, 2024 and 2023

Research and development expenses.

The period-over-period increase in research and development expenses was primarily driven by a $33.5 million increase in compensation expenses due to salary increases, higher headcount and the cost of equity awards as we expanded our workforce and invested in key talent, a $1.0 million increase in product development costs to support the development of next generation products and technologies and a $3.6 million decrease in research and development credits received from certain suppliers and customers.

The period-over-period increase in research and development expenses was driven by a $36.2 million increase in employee related costs primarily due to stock-based compensation increases of $16.8 million, salary increases and higher headcount as we expanded our workforce and invested in key talent, a $3.6 million increase in product development costs to support the development of next generation products and technologies offset by a $1.1 million increase in research and development credits received from certain suppliers and customers.

We believe that research and development expenses will continue to increase as we continue to expand our workforce and invest in key talent to stay at the forefront of development of next generation products and technologies.

Sales and marketing expenses.

The period-over-period increase in sales and marketing expenses was primarily driven by a $14.9 million increase in compensation expenses due to salary increases, higher headcount and cost of equity awards, a $5.5 million increase in advertising and other expenses and a $1.9 million decrease in marketing development funds received.

The period-over-period increase in sales and marketing expenses was driven by a $19.5 million increase in employee related costs primarily due to stock-based compensation increases of $3.8 million, salary increases and higher headcount as we expanded our workforce and invested in key talent, a $6.1 million increase in advertising and other expenses and a $1.2 million decrease in marketing development funds received.

We believe that sales and marketing expenses will continue to increase as we continue to expand our workforce and invest in key talent.

General and administrative expenses.

The period-over-period increase in general and administrative expenses was primarily due to a $7.8 million increase in compensation expenses associated with higher headcount and the cost of equity awards and a $6.3 million increase in professional and service fees and other expenses.

The period-over-period increase in general and administrative expenses was driven by a $23.2 million increase in employee related costs primarily due to stock-based compensation increases of $19.9 million, salary increases and higher headcount as we expanded our workforce and invested in key talent and a $5.4 million increase in professional and service fees and other expenses.

We believe that general and administrative expenses will continue to increase as we continue to expand our workforce and invest in key talent.

SMCI | Q2 2024 Form 10-Q | 37

Comparison of Six Months Ended December 31, 2023 and 2022

Comparison of Nine Months Ended March 31, 2024 and 2023

Research and development expenses.

The period-over-period increase in research and development expenses was primarily driven by a $72.4 million increase in compensation expenses due to salary increases, higher headcount and the cost of equity awards as we expanded our workforce and invested in key talent, a $1.9 million increase in product development costs to support the development of next generation products and technologies and a $0.5 million decrease in research and development credits received from certain suppliers and customers.

The period-over-period increase in research and development expenses was driven by a $108.8 million increase in employee related costs primarily due to stock-based compensation increases of $62.5 million, salary increases and higher headcount as we expanded our workforce and invested in key talent, a $5.5 million increase in product development costs to support the development of next generation products and technologies offset by a $0.6 million increase in research and development credits received from certain suppliers and customers.

Sales and marketing expenses.

The period-over-period increase in sales and marketing expenses was primarily driven by a $24.0 million increase in compensation expenses due to salary increases, higher headcount and the cost of equity awards, a $3.5 million increase in advertising and other expenses and a $1.2 million decrease in marketing development funds received.

The period-over-period increase in sales and marketing expenses was driven by a $43.5 million increase in employee related costs primarily due to stock-based compensation increases of $11.5 million, salary increases and higher headcount as we expanded our workforce and invested in key talent, a $9.6 million increase in advertising and other expenses and a $2.4 million decrease in marketing development funds received.

We believe that sales and marketing expenses will continue to increase as we continue to expand our workforce and invest in key talent.

General and administrative expenses.

The period-over-period increase in general and administrative expenses was primarily due to a $16.4 million increase in compensation expenses associated with higher headcount and the cost of equity awards and a $3.8 million increase in professional and service fees and other expenses.

The period-over-period increase in general and administrative expenses was driven by a $39.6 million increase in employee related costs primarily due to stock-based compensation increases of $31.8 million, salary increases and higher headcount as we expanded our workforce and invested in key talent and a $12.2 million increase in professional and service fees and other expenses.

We believe that general and administrative expenses will continue to increase as we continue to expand our workforce and invest in key talent.

Interest Expense and Other Expense, Net

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

Interest Expense and Other Income (Expense), Net

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

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

Interest expense and other income (expense), net for the three and six months ended December 31, 2023 and 2022 are as follows (dollars in millions):

SMCI | Q3 2024 Form 10-Q | 39

Interest expense and other income, net for the three and nine months ended March 31, 2024 and 2023 are as follows (dollars in millions):

Three Months Ended

December 31, Change Six Months Ended

December 31, Change

March 31, Change Nine Months Ended

March 31, Change

2024 2023 $ % 2024 2023 $ %

Other (expense) income, net

Other income (expense), net

$ 10.0 $ (0.1) $ 10.1 (10,100) % $ 8.8 $ 1.6 $ 7.2 450.0 %

Interest expense (6.2) (1.3) (4.9) 376.9 % (16.2) (6.9) (9.3) 134.8 %

Interest expense and other expense, net

Interest expense and other income (expense), net

$ 3.8 $ (1.4) $ 5.2 (371.4) % $ (7.4) $ (5.3) $ (2.1) 39.6 %

Comparison of Three Months Ended December 31, 2023 and 2022

The increase of $7.9 million in interest expense and other expense, net was primarily attributable to an increase in interest expense of $6.3 million due to an increase in outstanding loan balances and a $1.6 million increase in other expense driven by increase in foreign exchange losses of $3.0 million due to weakening of US dollars offset by a $1.4 million increase in interest and other income.

Comparison of Six Months Ended December 31, 2023 and 2022

The increase of $7.3 million in interest expense and other expense, net was primarily attributable to an increase in interest expense of $4.3 million due to an increase in outstanding loan balances and a $3.0 million increase in other expense driven by investment impairment and increase in foreign exchange losses of $6.0 million due to weakening of US dollars offset by an increase of $3.0 million in interest and other income.

SMCI | Q2 2024 Form 10-Q | 38

Income Tax Provision

Our income tax provision is based on our taxable income generated in the jurisdictions in which we operate, which primarily include the United States, Taiwan, and the Netherlands.

Comparison of Three Months Ended March 31, 2024 and 2023

The increase of $5.2 million in interest expense and other income (expense), net was primarily attributable to a $10.1 million increase in other income (expense) driven by an increase in foreign currency exchange gain of $7.7 million due to a strong US dollar, and an increase of $3.9 million in interest income, offset by $1.5 million investment loss in marketable securities and a $4.9 million higher interest expense due to higher borrowing during the period.

Comparison of Nine Months Ended March 31, 2024 and 2023

The decrease of $2.1 million in interest expense and other income (expense), net was primarily attributable to a $9.3 million increase in interest expense due to higher borrowing during the period, offset by a $7.2 million increase in interest income and other income (expense) driven by an increase of $6.9 million in interest income and other income, an increase in foreign currency exchange gain of $4.4 million due to a strong US dollar, offset by $4.1 million investment loss in marketable securities.

Income Tax (Benefit) Provision

Our income tax (benefit) provision is based on our taxable income generated in the jurisdictions in which we operate, which primarily include the United States, Taiwan, and the Netherlands.

Our effective tax rate differs from the statutory rate primarily due to research and development tax credits, certain non-deductible expenses, tax benefits from foreign derived intangible income and stock-based compensation.

Provision for income taxes and effective tax rates for the three and six months ended December 31, 2023 and 2022 are as follows (dollars in millions):

Income tax (benefit) provision for income taxes and effective tax rates for the three and nine months ended March 31, 2024 and 2023 are as follows (dollars in millions):

Three Months Ended

December 31, Change Six Months Ended

December 31, Change

March 31, Change Nine Months Ended

March 31, Change

2024 2023 $ % 2024 2023 $ %

Income tax provision $ 61.5 $ 29.6 $ 31.9 107.8 % $ 81.7 $ 68.5 $ 13.2 19.3 %

Income tax (benefit) provision

$ (20.0) $ 10.9 $ (30.9) (283.5) % $ 61.7 $ 79.4 $ (17.7) (22.3) %

Percentage of total net sales (0.5) % 0.8 % 0.6 % 1.6 %

Effective tax rate (5.2) % 11.1 % 6.7 % 15.0 %

Comparison of Three Months Ended December 31, 2023 and 2022

Comparison of Three Months Ended March 31, 2024 and 2023

Our quarterly effective income tax rate is based on the estimated annual income tax rate forecast and discrete tax items recognized in the period.

The income tax provision and effective tax rate for the three months ended December 31, 2023 is higher than that for the three months ended December 31, 2022, primarily due to a 2% increase caused by a reduction of foreign derived intangible income which is subject to lower income tax rate than a statutory tax rate of 21%.

In addition, there was a 1% increase caused by more non tax deductible stock-based compensation for officers over one million dollars threshold.

Comparison of Six Months Ended December 31, 2023 and 2022

The effective tax rate for the three months ended March 31, 2024, is lower than that for the three months ended March 31, 2023, primarily due to the significant increase in stock-based compensation tax deduction, and research and development tax credits.

Comparison of Nine Months Ended March 31, 2024 and 2023

Our quarterly effective income tax rate is based on the estimated annual income tax rate forecast and discrete tax items recognized in the period.

The income tax provision for the six months ended December 31, 2023 is higher than that for the six months ended December 31, 2022, primarily due to a significant increase in annual forecasted taxable income.

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

The effective tax rate for the nine months ended March 31, 2024, is lower than that for the nine months ended March 31, 2023, primarily due to the significant increase in stock-based compensation tax deduction, and research and development tax credits.

SMCI | Q3 2024 Form 10-Q | 40

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

Share of income (loss) from equity investee, net of taxes represents our share of income (loss) from the Corporate Venture in which we have 30% ownership.

Share of income (loss) from equity investee, net of taxes for the three and six months ended December 31, 2023 and 2022 are as follows (dollars in millions):

Share of income (loss) from equity investee, net of taxes for the three and nine months ended March 31, 2024 and 2023 are as follows (dollars in millions):

Three Months Ended

Change Six Months Ended

March 31, Change Nine Months Ended

March 31, Change

2024 2023 $ % 2024 2023 $ %

4 unchanged sentences

(1) n/m - Not meaningful

SMCI | Q2 2024 Form 10-Q | 39

Comparison of Three Months Ended December 31, 2023 and 2022

The period-over-period increase of $3.4 million in share of income from equity investee, net of taxes was primarily due to a net income recognized by the Corporate Venture.

Comparison of Six Months Ended December 31, 2023 and 2022

The period-over-period increase of $4.2 million in share of income from equity investee, net of taxes was primarily due to a net income recognized by the Corporate Venture.

Comparison of Three Months Ended March 31, 2024 and 2023

The period-over-period increase of $1.4 million in share of income from equity investee, net of taxes was primarily due to improvement in profitability of the Corporate Venture.

Comparison of Nine Months Ended March 31, 2024 and 2023

The period-over-period increase of $5.6 million in share of income from equity investee, net of taxes was primarily due to improvement in profitability of the Corporate Venture.

Liquidity and Capital Resources

1 unchanged sentence

Our recent drivers of liquidity changes have included an increase in the need for working capital due to higher levels of inventory required by growing revenues and to a lesser extent, longer supply chain lead times on certain key components.

Our cash and cash equivalents were $725.7 million and $440.5 million as of December 31, 2023 and June 30, 2023, respectively.

Our cash and cash equivalents in foreign locations were $193.8 million a nd $192.3 million as of December 31, 2023 and June 30, 2023, respectively.

Our cash and cash equivalents were $2,115.5 million and $440.5 million as of March 31, 2024 and June 30, 2023, respectively.

Our cash and cash equivalents in foreign locations were $262.1 million a nd $192.3 million as of March 31, 2024 and June 30, 2023, respectively.

Amounts held outside of the U.S.

8 unchanged sentences

We believe that our current cash, cash equivalents, borrowing capacity available from our credit facilities and internally generated cash flows will be sufficient to support our operating businesses and maturing debt and interest payments for the 12 months following the filing of this Quarterly Report on Form 10-Q.

On December 7, 2023, our Taiwan subsidiary entered into a new Facility Letter with the Taiwan affiliate of HSBC Bank.

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 and an export/seller facility with a sub-limit of $50 million.

We continue to evaluate financing options that may be required to support the growth of our business, if it occurs more rapidly than anticipated.

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

The share repurchase program was effective until January 31, 2024.

We repurchased 1,553,350 shares of common stock for $150 million during the fiscal year ended June 30, 2023 under this program and had $50.0 million of remaining availability as of December 31, 2023 and at the time the program expired on January 31, 2024.

On December 5, 2023, the Company completed a public offering of 2,415,805 shares of the Company's common stock at $262.00 per share, with 2,315,105 shares sold by the Company and 100,700 shares sold by selling stockholders.

We continue to evaluate financing options that may be required to support the growth of our business.

On December 5, 2023, we completed a public offering of 2,415,805 shares of the our common stock at $262.00 per share, with 2,315,105 shares sold by us and 100,700 shares sold by selling stockholders.

We received net proceeds of approximately $582.8 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

2 unchanged sentences

SMCI | Q3 2024 Form 10-Q | 41

On February 16, 2024, our Taiwan subsidiary entered into a new general agreement for omnibus credit lines with CTBC Bank, which increased the aggregate total borrowings from time to time under the various individual credit arrangements with CTBC Bank from $105.0 million to $185.0 million.

Our Taiwan subsidiary intends to use borrowings under the increased CTBC credit lines in connection with financing of eligible accounts receivable and accounts payable (vendor invoices).

On February 27, 2024, we issued $1,725.0 million aggregate principal amount of 0.00% Convertible Senior Notes due 2029 (the “Convertible Notes”) in a private offering.

The Convertible Notes, which are our senior unsecured obligations, will mature on March 1, 2029.

They may be repurchased, redeemed, or converted in accordance with their terms before that date.

The Convertible Notes do not bear regular interest, and the principal amount of the Convertible Notes will not accrete.

The net proceeds from the issuance of the Convertible Notes were $1,553.7 million, net of debt issuance costs of $29.2 million and the related capped call transactions of $142.1 million.

The Convertible Notes and capped call transactions are discussed further in Part I, Item 1, Note 7, “Convertible Notes".

As of March 31, 2024, none of the conditions permitting the holders of the Convertible Notes to convert their notes early had been met.

On March 22, 2024, we completed a public offering of 2,000,000 shares of our common stock at $875.00 per share.

We received net proceeds of approximately $1.73 billion, after deducting underwriting discounts and commissions and offering expenses payable by us.

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

Six Months Ended

December 31, Change

Nine Months Ended

March 31, Change

Net cash (used in) provided by operating activities

7 unchanged sentences

Operating Activities

Net cash provided by operating activities decreased by $799.3 million for the six months ended December 31, 2023 as compared to the six months ended December 31, 2022.

Net cash provided by operating activities decreased by $2,517.1 million for the nine months ended March 31, 2024 as compared to the nine months ended March 31, 2023.

The decrease was primarily due to an increase in net cash required for net working capital of $2,978.8 million to manufacture products in order to meet customer demand and support expected business growth and a $62.2 million decrease in non-cash items.

2 unchanged sentences

Investing Activities

Net cash used in investing activities increased by $1.9 million for the six months ended December 31, 2023 as compared to the six months ended December 31, 2022 primarily due to an increase in investment of $5.2 million made in the six months ended December 31, 2023 offset by a decrease of $3.3 million in purchases of property, plant and equipment.

Net cash used in investing activities increased by $103.4 million for the nine months ended March 31, 2024 as compared to the nine months ended March 31, 2023 primarily due to an increase in purchases of property, plant and equipment of $82.0 million made in the nine months ended March 31, 2024 and an increase in investments of $21.4 million in the nine months ended March 31, 2024.

Increase in property, plant and equipment is primarily related to the acquisition of previously leased real estate in San Jose, California, for $80 million.

Financing Activities

Net cash provided by financing activities increased by $1,048.0 million for the six months ended December 31, 2023 as compared to the six months ended December 31, 2022 primarily due to proceeds from our offering of common stock, net of issuance costs of $582.8 million and an increase of $501.3 million in proceeds from borrowings, net of repayment.

Net cash provided by financing activities increased by $4,200.1 million for the nine months ended March 31, 2024 as compared to the nine months ended March 31, 2023.

The increase was primarily due to proceeds of $2,314.0 million from our offerings of common stock, net of issuance costs, $1,695.8 million of proceeds from the sale of our Convertible Notes, net of debt issuance costs, an increase of $285.4 million in proceeds from borrowings, net of repayment, and stock repurchases of $146.5 million in the nine months ended March 31, 2023, offset by $142.1 million entering into capped call transactions related to our 2029 Convertible Notes and a higher withholding tax payment for equity compensation related activities of $99.5 million in the nine months ended March 31, 2024.

SMCI | Q3 2024 Form 10-Q | 42

Other Factors Affecting Liquidity and Capital Resources

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

Refer to Part I, Item 1, Note 6, “Lines of Credit and Term Loans,” in our notes to condensed consolidated financial statements in this Quarterly Report on Form 10-Q for further information on our outstanding bank debt.

Capital Expenditure Requirements

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We obtained early access to such land prior to the acquisition, and we anticipate additional capital expenditures for the remainder of fiscal year 2024 of $24.0 million (included in the above range) for such initiati ve.

In addition, in January 2024, we entered into a purchase and sale agreement (the “Purchase Agreement’) to purchase real estate comprising approximately 19.72 acres of land and 293,906 square feet of buildings and improvements located in proximity to the Company’s headquarters space in San Jose, California “as is” for an aggregate purchase price of $80.0 million, subject to certain adjustments to be determined at closing.

Under the Purchase Agreement, we made a deposit of $10.0 million which is non-refundable except in limited circumstances.

The transaction, currently expected to close in February 2024, is subject to customary closing conditions.

In addition, in February 2024, we consummated the purchase of real estate comprising approximately 19.72 acres of land and 293,906 square feet of buildings and improvements located in proximity to the Company’s headquarters space in San Jose, California “as is” for an aggregate purchase price of $80.0 million.

W e will also continue to evaluate new business opportunities and new markets.

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We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment.

SMCI | Q2 2024 Form 10-Q | 41

We intend to continue to focus our capital expenditures in fiscal year 2024 to support the growth of our operations.

4 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis