Super Micro Computer, Inc. 10-K

smci-20240630 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________________________________________________ Form 10-K ______________________________________________________________________ ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30 , 2024 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from___________to___________ Commission File Number 001-33383 ______________________________________________________________________ Super Micro Computer, Inc. (Exact name of registrant as specified in its charter) ______________________________________________________________________ Delaware 77-0353939 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 980 Rock Avenue San Jose , CA 95131 (Address of principal executive offices, including zip code) ( 408 ) 503-8000 (Registrant’s telephone number, including area code) __________________________________________________________________________ Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol Name of each exchange on which registered Common Stock, $0.001 par value per share SMCI NASDAQ Global Select Market Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No ☒ The aggregate market value of the registrant’s common stock held by non-affiliates, based upon the closing price of the common stock on December 31, 2023, as reported by the NASDAQ Global Select Market, was $ 13,520,556,853 . Shares of common stock held by each executive officer and director and by each person who owns 5% or more of the outstanding common stock, based on filings with the Securities Exchange Commission, have been excluded since such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of January 31, 2025, there were 593,481,352 shares of the registrant’s common stock, $0.001 par value, outstanding, which is the only class of common stock of the registrant issued. The foregoing reflects a forward stock split of the registrant’s common stock that became effective on September 30, 2024, and began trading on a post-split adjusted basis on October 1, 2024. DOCUMENTS INCORPORATED BY REFERENCE None SUPER MICRO COMPUTER, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 2024 TABLE OF CONTENTS Page PART I Item 1. Business 1 Item 1A. Risk Factors 11 Item 1B. Unresolved Staff Comments 43 Item 1C. Cybersecurity 43 Item 2. Properties 44 Item 3. Legal Proceedings 45 Item 4. Mine Safety Disclosures 45 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 46 Item 6. [Reserved] 48 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 49 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 62 Item 8. Financial Statements and Supplementary Data 63 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 121 Item 9A. Controls and Procedures 121 Item 9B. Other Information 126 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 126 PART III Item 10. Directors, Executive Officers and Corporate Governance 126 Item 11. Executive Compensation 135 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 169 Item 13. Certain Relationships and Related Transactions and Director Independence 170 Item 14. Principal Accountant Fees and Services 175 PART IV Item 15. Exhibits and Financial Statement Schedules 175 Signatures 181 Unless the context requires otherwise, the words “Super Micro,” “Supermicro,” “we,” “Company,” “us” and “our” in this document refer to Super Micro Computer, Inc. and where appropriate, our wholly owned subsidiaries. Supermicro, the Company logo and our other registered or common law trademarks, service marks, or trade names appearing in this Annual Report on Form 10-K (this “Annual Report”) are the property of Super Micro Computer, Inc. or its affiliates. Other trademarks, service marks, or trade names appearing in this Annual Report are the property of their respective owners. The information contained on our website, or available by hyperlink from our website, or in our social media posts is not incorporated into this Annual Report or other documents we file with, or furnish to, the Securities and Exchange Commission (the “SEC”). We intend to use our website and social media posts as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included in the "Investor Relations" section of our website. Accordingly, investors should monitor that section of our website, in addition to following our social media posts, press releases, investor presentations, SEC filings and public conference calls and webcasts. EXPLANATORY NOTE In late July 2024, our former registered public accounting firm, Ernst & Young LLP (“EY”), communicated to the Audit Committee (the “Audit Committee”) of our Board of Directors (the “Board”) concerns about certain matters related to governance, transparency, and our internal control over financial reporting. In response, the Board appointed a new director to the Board and formed an independent special committee (the “Special Committee”) to review these matters (the “Review”). The Special Committee engaged independent outside counsel Cooley LLP and forensic accounting firm Secretariat Advisors, LLC to aid in an investigation on behalf of and at the direction of the Special Committee. The Special Committee’s investigation was intended to assess whether the information brought to the Audit Committee’s attention by EY, and certain other matters identified during the Review, raised substantial concerns about (i) the integrity of our senior management and Audit Committee, (ii) the commitment of our senior management and Audit Committee to ensuring that the Company’s financial statements are materially accurate, (iii) the Audit Committee’s independence and ability to provide proper oversight over matters relating to financial reporting, and (iv) the tone at the top of the Company with regard to rehiring certain former employees and financial reporting. On October 2, 2024, the Special Committee reported its interim findings to EY and the Board. On October 24, 2024, EY resigned from its position as our independent public accounting firm. As described in the Form 8-K we filed on October 30, 2024 (“October 2024 8-K”), other than what’s described in the October 2024 8-K, during the fiscal years ended June 30, 2024 and 2023, and the subsequent interim period preceding EY’s resignation, (1) there were no “disagreements,” as defined in Item 304(a)(1)(iv) of Regulation S-K, with EY on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which if not resolved to EY’s satisfaction to our knowledge would have caused it to make reference to the subject matter thereof in connection with that report, and (2) there were no “reportable events” as described in Item 304(a)(1)(v) of Regulation S-K. We disagreed with EY’s decision to resign as our independent registered public accounting firm for a number of reasons, including that a significant number of audit procedures were incomplete and the Special Committee had not yet obtained all information relevant for the Review and had not concluded the Review. On November 18, 2024, the Audit Committee appointed BDO USA, P.C. (“BDO”) as our new independent registered public accounting firm. On December 2, 2024, we announced that the Special Committee completed its Review. Among the findings by the Special Committee were: • The evidence reviewed by the Special Committee did not give rise to any substantial concerns about the integrity of our senior management or the Audit Committee, or their commitment to ensuring that our financial statements are materially accurate. • With respect to the matters investigated by the Special Committee, the Audit Committee demonstrated appropriate independence and generally provided proper oversight over matters relating to financial reporting. • With respect to the rehiring of former employees, the tone at the top of our company was appropriate and fully consistent with a commitment to proper financial reporting and legal compliance. • The Special Committee did not believe that the resignation of EY or the conclusions reached by EY (as described in EY’s letter of resignation dated October 24, 2024 and described in our Current Report on Form 8-K filed October 30, 2024) were supported by the facts examined in the Review, the Special Committee’s interim findings reported to EY on October 2, 2024, or the Special Committee’s final findings. Due to EY’s stated concerns and subsequent resignation, we were unable to timely file our Annual Report and Quarterly Reports on Form 10-Q for the quarterly periods ended September 30, 2024 and December 31, 2024 (together the “Delinquent Reports”) as required under Nasdaq’s Listing Rule 5250(c)(1). On December 6, 2024, Nasdaq granted us an exception to Nasdaq’s Listing Rule 5250(c)(1), allowing us to file all the Delinquent Reports by February 25, 2025. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended that involve risks and uncertainties. These statements relate to future events or our future financial performance based on management’s beliefs and assumptions and on information currently available to management. In some cases, you can identify forward-looking statements by terminology including “would,” “could,” “may,” “will,” “goal,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “project,” “estimate,” “predict,” “potential,” “probable of achievement,” or “continue,” the negative of these terms or other comparable terminology. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. In evaluating these statements, you should specifically consider various factors, including the risks described below, under Part I, Item 1A, “Risk Factors”, and in other parts of this Annual Report as well as in our other filings with the Securities and Exchange Commission (the "SEC"). Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Annual Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this filing. We undertake no obligation to update or revise any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. We cannot guarantee future results, levels of activity, performance or achievements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. PART I Item 1. Business Our Company We are a Silicon Valley-based provider of total IT solutions which address demanding workloads from the enterprise and cloud to the intelligent edge. We deliver rack-scale solutions optimized for various workloads, including artificial intelligence (“AI”) and high-performance computing (“HPC”), where acceleration is critical and we also produce an extensive portfolio of server and storage solutions for enterprise data centers, cloud service providers, and edge computing (5G Telco, Retail and embedded). Our Total IT Solutions encompass complete servers, storage systems, modular blade servers, workstations, full-rack scale solutions, networking devices, server sub-systems, server management and security software. These turn-key solutions are designed, developed, validated and installed for leading AI datacenters. Our Total IT Solutions are designed for optimal power and thermal management, including using Supermicro’s state-of-the-art liquid cooling technologies. We also provide global support and services to help our customers install, upgrade and maintain their computing infrastructure, including liquid-cooling operations. We offer our customers a high degree of flexibility and customization by providing a broad array of server models and configurations from which they can choose the best solutions to fit their computing needs. Our server and storage systems, sub-systems and accessories are architecturally designed to provide high levels of reliability, quality, configurability, and scalability. Our in-house design competencies, design control over many of the sub-systems required within our server and storage systems, and our Server Building Block Solutions® (an innovative, modular and open architecture) enable us to rapidly develop, build and test complete solutions, which include servers, storage, software, and networking components. As a result, when new technologies are brought to market, we are generally able to quickly assemble a broad portfolio of solutions by leveraging common building blocks across product lines. We work closely with the leading microprocessor, graphics processing units (“GPU”), memory, disk/flash, and interconnect vendors and other hardware and software suppliers to coordinate our new products' design with their product release schedules. This enhances our ability to rapidly introduce new products by incorporating the latest technology, improve quality and reduce costs. We seek to be the first to market with superior product designs, and we have the ability to offer a broad selection of products using those technologies to our customers. SMCI | 2024 Form 10-K | 1 We conduct our operations principally from our Silicon Valley headquarters, Taiwan and Netherlands facilities. We are in the process of adding capacity at our existing sites and are adding a new facility in Malaysia. Our sales and marketing activities operate through a combination of our direct sales force and indirect sales channel partners. We work with distributors, value-added resellers, system integrators, and original equipment manufacturers ("OEMs") to market and sell our optimized solutions to their end customers in our indirect sales channels. Strategy Our objective is to be the world’s leading provider of Rack Scale Total IT Solutions leveraging our broad portfolio of platforms that are application-optimized high-performance server, storage and networking solutions. Achieving this objective requires continuous development and innovation of our Total IT Solutions portfolio with better price-performance and architectural advantages compared with our prior generation of solutions and our competitors' offerings. Through our strategy, we seek to maintain or improve our relative competitive position in many product areas and pursue markets that provide us with additional long-term growth opportunities. Key elements of our strategy include executing upon the following: Strong Internal Research and Development and Internal Manufacturing Capability We are continually investing in our engineering organization. As of June 30, 2024, we had over 2,800 employees in our research and development organization. These resources, along with our understanding of complex computing and storage requirements, enable us to deliver product innovation featuring advanced functionality and capabilities required by our customers. Also, we have worldwide manufacturing facilities which enable us to reduce the time to delivery in every geography around the world. Our engineers work directly with our manufacturing personnel to plan together and identify and correct issues together. Introducing Innovative Products, Faster We seek to sustain advantages in both time-to-market and breadth of products by incorporating the latest technological innovations, such as new processors, advancements in storage and evolving I/O technologies. We seek these advantages by leveraging our in-house design capabilities and our Building Block Solutions® architecture. This allows us to offer customers a broad choice of products to match their target application requirements. In particular, during the fiscal year ended June 30, 2024 (“fiscal year 2024”), • We delivered a comprehensive portfolio of solutions designed specifically for AI including products that support NVIDIA Hopper (H100/200) and Blackwell (GB200/B200) generation platforms; • We expanded our liquid cooled system offerings and our complete liquid cooling solutions to include an external cooling tower and more powerful Coolant Distribution Units ("CDUs") for the increased demand to cool the latest generations of GPUs and central processing units ("CPUs"); • We announced more than 100 products supporting Intel’s new 5 th Gen Intel® Xeon® Processor and Intel’s Xeon ® 6 data center CPU as well as the AMD EPYC™ 8004 Series and AMD EPYC™ 4004 Series Processors; • We announced a number of new edge and IoT systems that are specifically designed for environments where low-powered systems are required; and • We expanded our storage portfolio of products and solutions with an AI storage solution optimized for large-scale AI training workloads and introduced new storage products for enterprise scale-up storage. Capitalizing on New Applications and Technologies In addition to serving traditional needs for server and storage systems, we have devoted, and will continue to devote, substantial resources to developing systems that support emerging and growing applications including AI, cloud computing, 5G/edge computing, storage and others. We believe there are significant opportunities for us in each of these rapidly developing markets due to stringent design requirements for these applications that often require the use of the latest technologies, allowing us to leverage our capabilities in product innovation, superior time-to-market, and portfolio breadth. SMCI | 2024 Form 10-K | 2 Liquid Cooling To reduce the high cost of operating and address constraints on power and cooling in data centers, IT managers increasingly turn to suppliers of high-performance products that can also be cost-effective, energy-efficient, and green. Our resource saving architecture supports our efforts to lead in green IT innovation. We offer product lines that are designed to share common computing resources, thereby saving both valuable space and power as compared to general-purpose rackmount servers. In addition, due to the advanced power requirements of these systems we seek to provide end-to-end liquid cooling solutions across our designs to optimize the elevated power and thermal management requirements. We believe our approach of leveraging an overall architecture that balances data center power requirements, cooling, shared resources and refresh cycles helps the environment and provides total cost of ownership (“TCO”) savings for our customers. Supermicro anticipated the need for rack-scale integration and liquid cooling capabilities. We design, build, test, validate, and deliver complete in-house liquid-cooled direct-to-chip cold plate solutions for CPUs, GPUs, and memory. In addition, we manufacture the sophisticated management systems -- Cooling Distribution Units, Cooling Distribution Manifolds -- to regulate system temperatures for maximum performance. Liquid cooling can be easily included in rack-level integrations to further increase system efficiency, reduce instances of thermal throttling, and lower both the TCO and Total Cost to Environment ("TCE") of data center deployments. Driving Software and Services Sales to our Global Enterprise Customers We work closely with customers by offering total data center life-cycle management software. This enables data center operators to closely monitor the entire IT infrastructure to identify issues before failures. By offering management software and worldwide onsite and remote services to our customers we also increase our total IT solution revenue. These software products and services are required for large-scale deployments, help meet service level agreements and address uptime requirements. In addition to our internal software development efforts, we also integrate and partner with external software vendors to meet customer requirements. Leveraging Our Global Operating Structure We plan to continue to increase our worldwide manufacturing capacity and logistics abilities in the United States, Taiwan and the Netherlands and we plan to bring additional manufacturing capacity online in Malaysia. This strategic expansion aims to serve our customers more efficiently while reducing overall manufacturing costs. Products and Services We offer a broad range of compute, storage and edge platforms that are application-optimized server solutions, rackmount and blade servers, storage, and subsystems and accessories. These products are designed to serve a variety of markets, such as enterprise data centers, cloud computing, AI and 5G/edge computing. We complement our accelerated compute platforms inclusive of server and storage system offerings with software management/security solutions, global services and support, the revenue for which is included in our server and storage systems revenue. Server and Storage Systems We offer platforms in rackmount, blade, multi-node and embedded form factors, which support single, dual, and multiprocessor architectures. Our key product lines include: • Extensive portfolio of air cooled and liquid cooled AI Servers for Training and Inferencing with integrated GPUs or PCIe based architectures; • SuperBlade ® and MicroBlade ® system families are designed to share common computing resources, thereby saving space and power over standard rackmount servers; • SuperStorage systems that provide high-density storage while leveraging an efficient use of power to achieve performance-per-watt savings. Our storage systems are also designed for maximum performance for AI training environments; • Twin family of multi-node server systems designed for density, performance, and power efficiency; including FlexTwin™, GrandTwin®, and BigTwin®; SMCI | 2024 Form 10-K | 3 • Hyper, CloudDC, and WIO rackmount optimized systems deliver entire clusters of racks, with both liquid-cooled and air-cooled options, per customer requirements; • Embedded (5G/IoT/Edge) systems optimized for evolving networks and intelligent management of connected devices; and • MicroCloud server systems that deliver node density in environments with space and power constraints. In addition to our server and storage platforms business, we offer a large array of modular server subsystems and accessories, such as server boards, chassis, power supplies and other accessories. These subsystems are the foundation of platform solutions and span product offerings from the entry-level single and dual-processor server segment to the high-end multiprocessor market. The majority of the subsystems and accessories we sell individually are designed to work together to improve performance and are ultimately integrated into complete server and storage systems. Server Software Management Solutions Our open industry-standard remote system management solutions, such as our Server Management suite, including Supermicro Server Manager (“SSM”), Supermicro Power Management software (“SPM”), Supermicro Update Manager (“SUM”), SuperCloud Composer and SuperDoctor 5, have been designed to help manage large-scale heterogeneous data center environments, including liquid cooling. Supermicro Global Services We provide global service and support offerings for our direct and OEM customers and our indirect sales channel partners directly or through approved distributors and third-party partners. We also identify service requirements, create and execute project plans, conduct verification testing and training and provide technical documentation. Global Services: Our strategic direct and OEM customers may purchase a variety of on-site support service plans. Our service plans vary depending on specific services, response times, coverage hours and duration, repair priority levels, spare parts requirements, logistics, data privacy and security needs. Our Global Services team provides help desk services and on-site product support for our server and storage systems. Support Services: Our customer support services offer competitive market warranties, generally from one-to-three years, and warranty extension options for products sold by our direct sales team and approved indirect sales channel partners. Our customer support team provides ongoing maintenance and technical support for our products through our website and 24-hour continuous, direct phone-based support. Data Center Space Lease On June 14, 2024, we entered into a Master Colocation Services Agreement (the “MCSA”) with respect to a multi-tenanted facility located in Vernon, California. Concurrent with the execution of the MCSA, we entered into a service order to lease 21 Megawatt ("MW") of the multi-tenanted facility for a term of ten years. Our aggregate financial obligation for the term of the service order is estimated to be over $600 million, which includes the monthly recurring charges, power charges and other anticipated costs. Concurrent with the execution of the MCSA and the service order, we sublicensed all of our rights and obligations with respect to the data center space, pursuant to which the sublicensee agreed to assume and perform all of our obligations, covenants, representations and terms under the MCSA and service order. The sublicensee is obligated to pay to us the monthly recurring charges due from us under the service order plus an additional monthly charge. The payments owed by us under the service order (as governed by the MCSA) may be accelerated in the event of a default under the MCSA and/or the service order and the exercise of remedies in connection therewith. Upon such acceleration, we have a right to seek reimbursement for such accelerated payments from the sublicensee. SMCI | 2024 Form 10-K | 4 Research and Development We perform most of our research and development activities in-house in the United States at our facilities in San Jose, California, and in Taiwan, increasing the communication and collaboration between design teams to streamline the development process and reduce time-to-market. We believe that the combination of our focus on internal research and development activities, our close working relationships with local customers and vendors and our modular design approach allows us to decrease time-to-market, improve quality and deliver superior product designs. We continue to invest in reducing our design and manufacturing costs and improving the performance, cost-effectiveness and power- and space-efficiency of our Total IT Solutions. Our research and development teams focus on the development of new and enhanced products that can support emerging technological and engineering innovations while achieving high overall system performance. Much of our research and development activity relates to the new product cycles of leading processor vendors. We work closely with NVIDIA, Intel and AMD, among others, to develop products that are compatible with the latest generation of industry-standard technologies under development. Our collaborative approach with these vendors allows us to coordinate the design of our new products with their product release schedules, thereby enhancing our ability to rapidly introduce new products incorporating the latest technology. We work closely with their respective development teams to enhance system performance and reduce system-level issues. Similarly, we work very closely with our customers to identify their needs and develop our new product plans accordingly. Customers During fiscal year 2024, we sold to over 1,100 direct customers in over 110 countries. During each of the fiscal years ended June 30, 2023 (“fiscal year 2023”) and June 30, 2022 (“fiscal year 2022”), we sold to over 1,000 direct customers in over 100 countries. In addition, over the three years ended June 30, 2024, we have sold to thousands of end users through our indirect sales channel. These customers represent a diverse set of market verticals including enterprise data centers, cloud computing, AI, 5G and edge computing markets. One single customer accounted for 10% or more of the net sales in fiscal year 2024. No single customer accounted for 10% or more of the net sales in fiscal years 2023 and 2022. Sales and Marketing Our sales and marketing activities are conducted through a combination of our direct sales force and our indirect sales channel partners. Our direct sales force is primarily focused on selling Total IT Solutions, including management software and global services to large scale cloud, enterprise and OEM customers. In addition, we have a centralized command center, designed to assist customers with quick and accurate configurations. We work with distributors, value-added resellers, system integrators, and OEMs to market and sell our optimized solutions to their end customers. We provide sales and marketing assistance and training to our indirect sales channel partners and OEMs. We leverage our relationships in our indirect sales channel and with our OEMs to penetrate select industry vertical market segments where our products can provide better alternatives to existing solutions. We maintain close contact with our indirect sales channel partners and end customers. We often collaborate during the sales process with our indirect sales channel partners and the end customer’s technical staff to help determine the optimal system configuration for the customer’s needs. Our interaction with our indirect sales channel partners and end customers allows us to monitor customer requirements and develop new products to meet their needs. International Sales Our global sales efforts are supported both by our international offices in the Netherlands, Taiwan, South Korea, United Kingdom, China and Japan as well as by our United States based sales team. Product fulfillment and first level support for our international customers are provided by Supermicro Global Services and through our indirect sales channel and OEMs. Sales to customers located outside of the United States represented 32.0%, 32.1% and 41.6% of net sales in fiscal years 2024, 2023 and 2022, respectively. Marketing SMCI | 2024 Form 10-K | 5 Our marketing programs are designed to create a global awareness and branding for our company and products, as well as an understanding of the significant value we bring to customers. These programs also inform existing and potential customers, the trade press, market analysts, indirect sales channel partners and OEMs about the strong capabilities and benefits of using our products and solutions. Our marketing efforts support the sale and distribution of our products through both direct sales and indirect channels. We rely on a variety of marketing vehicles, including advertising, public relations, web, social media, collateral, and participation in industry events and tradeshows, to gain market awareness and generate new customer demand. We provide funds for cooperative marketing to our indirect sales channel partners to extend the reach of our marketing efforts. We also actively utilize our suppliers’ cooperative marketing programs and jointly benefit from their marketing development funds to which we are entitled. Intellectual Property We seek to protect our intellectual property rights with a combination of patents, trademarks, copyrights, trade secret laws, and disclosure restrictions. We rely primarily on trade secrets, technical know-how, and other unpatented proprietary information relating to our design and product development activities. We also enter into confidentiality and proprietary rights agreements with our employees, consultants, and other third parties and control access to our designs, documentation and other proprietary information. Manufacturing and Quality Control We manufacture the majority of our systems at our San Jose, California headquarters. We believe we are the only major server, storage and accelerated compute platform vendor that designs, develops, and manufactures a significant portion of their systems in the United States. Global assembly, test and quality control of our servers are performed at our manufacturing facilities in San Jose, California, Taiwan and the Netherlands, with plans to expand manufacturing to Malaysia. In each of our existing facilities, a Quality and Environmental Management System has been certified according to ISO 9001, ISO 14001 and/or ISO 13485 standards. Our suppliers and contract manufacturers are required to support the same standards to maintain consistent product and service quality and continuous improvement of quality and environmental performance. We use several third-party suppliers and contract manufacturers for materials and sub-assemblies. We believe that selectively using outsourced manufacturing services allows us to focus on our core competencies in product design and development and increases our operational flexibility. We believe our manufacturing strategy allows us to adjust manufacturing capacity in response to changes in customer demand and to rapidly introduce new products to the market. We use Ablecom Technology, Inc. (“Ablecom”) and its affiliate Compuware Technology, Inc. (“Compuware”), both of which are related parties, for contract design and manufacturing coordination support. We work with Ablecom to optimize modular designs for our chassis and several other components. Ablecom also coordinates the manufacturing of chassis for us. In addition to providing a large volume of contract manufacturing services to us, Ablecom warehouses multiple components and subassemblies manufactured by various suppliers before shipment to our facilities in the United States, Europe and Asia. We also have a series of agreements with Compuware, including multiple product development, production and service agreements, product manufacturing agreements and lease agreements for office space. See Note 10, “Related Party Transactions,” in the Notes to Consolidated Financial Statements and Part III, Item 13, “Certain Relationships and Related Transactions and Director Independence.” We monitor our inventory continuously to be able to meet customer delivery requirements and to avoid inventory obsolescence. Due to our building-block designs, our inventory can generally be used with multiple different products, lowering working capital requirements and reducing the risk of inventory write-downs. Competition The market for our products is highly competitive, rapidly evolving and subject to new technological developments, changing customer needs and new product introductions. We compete primarily with large vendors of x86-based general purpose servers and components. In addition, we also compete with smaller vendors that specialize in the sale of server components and systems. In recent years, we have experienced increased competition from original design manufacturers ("ODMs”) that benefit from their scale and very low-cost manufacturing and are increasingly offering their own branded products. We believe our principal competitors include: • Global technology vendors, such as Cisco, Dell, Hewlett-Packard Enterprise, and Lenovo; and • ODMs, such as Foxconn, Quanta Computer, and Wiwynn Corporation. The principal competitive factors in our market include the following: SMCI | 2024 Form 10-K | 6 • Rack Scale Total IT Solutions to reduce TCO for our customers; • First to market with new emerging technologies; • High product performance, efficiency and reliability; • Early identification of emerging opportunities; • Cost-effective design and manufacturing; • Sufficient manufacturing capacity necessary to support market demand; • Energy efficient (Green Computing) product designs that reduce environmental impact, overall power consumption, and costs; and • Localized and responsive customer support on a worldwide basis. We believe that we compete favorably with respect to most of these factors. However, most of our competitors have longer operating histories, significantly greater resources, greater name recognition and deeper market penetration. They may be able to devote greater resources to the development, promotion and sale of their products than we can, which could allow them to respond more quickly to new technologies and changes in customer needs. In addition, it is possible that new competitors could emerge and acquire significant market share. See Part I, Item 1A, "Risk Factors" risk titled “The market in which we participate is highly competitive, and if we do not compete effectively, we may not be able to increase our market penetration, grow our net sales or improve our gross margins.” Government Regulation Our worldwide business activities subject us to various federal, state, local, and foreign laws in the countries in which we operate, and our Total IT Solutions are subject to laws and regulations affecting their sale. To date, costs and expenses incurred to comply with these governmental regulations, including environmental regulations, have not been material to our business, financial condition, results of operations, and competitive position. Although there is no assurance that existing or future governmental laws and regulations, including environmental regulations, applicable to our operations or Total IT Solutions will not have a material adverse effect on our business, financial condition, results of operations, and competitive position, we do not currently anticipate material increases in expenditures for compliance with government regulations. We are subject to U.S. and other applicable trade control regulations that restrict with whom we may transact business, including the trade sanctions enforced by the U.S. Treasury, Office of Foreign Assets Control and the export controls enforced by the U.S. Commerce Department’s Bureau of Industry and Security. If we fail to comply with laws and regulations restricting dealings with sanctioned countries or companies and/or persons on restricted lists, we may be subject to enforcement actions, including civil or criminal penalties. The United States and other countries continually update their lists of export-controlled items and technologies and may impose new or more-restrictive export requirements on our products in the future. As a result of regulatory changes, we may be required to obtain licenses or other authorizations to continue supporting existing customers or to supply existing products to new customers in China, eastern Europe and elsewhere. Further escalations in trade restrictions or hostilities, particularly between the United States and China, could impede our ability to sell or support our products. Although we historically sold products into Russia before broad sanctions were imposed, we no longer sell products or provide services to Russia. We had last recorded revenue from Russia in February 2022. In October 2022, U.S. export restrictions and export licensing requirements were imposed targeting China’s semiconductor and supercomputing industries. These restrictions impact exports of software, hardware, equipment and technology used to develop, produce or manufacture certain chips in China (including Hong Kong). At the same time, export restrictions and export license requirements were also imposed on certain GPUs and advanced integrated circuits, as well as computing equipment containing such components, with a focus on China (including Hong Kong). These restrictions impacted certain of our products, including products that contain the NVIDIA A100 and H100 integrated circuits, among others. In November 2023, the export control restrictions on advanced integrated circuits, supercomputing and other end uses were revised and further expanded to cover additional countries where we sell our products, including in the Middle East, and additional parties based on the location of their headquarters, or the headquarters of their ultimate parent. Compliance with ever-changing regulations is complex and time consuming. We may experience delays in implementing procedures to address the changing regulatory requirements. In January 2025, the U.S. export control regulations targeting advanced integrated circuits and computing were further revised to include a worldwide authorization requirement for certain of our advanced computing products. New license exceptions were added to the regulations and allow us to export in some cases without the need for an export license, thus SMCI | 2024 Form 10-K | 7 expanding upon previous authorizations. However, these new regulations will, depending on the country and ultimate consignee, also place new limits on the number of advanced computing products that we can export to each ultimate consignee per calendar year, and the number of advanced computing products that the Commerce Department will license per-country over a given period to all exporters in the aggregate. These new limitations create a competitive process for obtaining the product allocation associated with these new government authorizations and therefore could disadvantage us against certain of our competitors. The limitations could also prevent us from selling our advanced computing products to the full extent of customer demand in certain countries that have not historically been subject to these limitations. The process to obtain licenses required under recently adopted export control regulations is complicated and time-consuming in the event we determine to pursue them, and there are no assurances they may be granted at all. Our competitive position and future results may be harmed, over the long-term, if there are further changes in export controls, including further expansion of the geographic, customer, end use, deemed export, or product scope of the controls, if customers purchase product from competitors, if customers develop their own internal solution, if we are unable to provide contractual warranty or other extended service obligations, if licenses are not granted in a timely manner or denied to significant customers or if we incur significant transition costs. Even if requested licenses are granted, the licenses may be temporary or impose burdensome conditions that we or our customers or end users cannot or choose not to fulfill. The licensing requirements may benefit certain of our competitors, as the licensing process will make our technical support efforts more cumbersome and less certain and encourage customers to pursue alternatives to our products. See “Risk Factors - Legal and Regulatory Risks” for additional discussion of risks related to government regulation. Human Capital Resources and Management Mission, Culture, and Engagement The key to success in technology is designing a company around people committed to work that they love. We aim to attract, develop, and retain a high performing and engaged global workforce. As of June 30, 2024, we employed 5,684 full-time employees, consisting of 2,885 employees in research and development, 632 employees in sales and marketing, 509 employees in general and administrative and 1,658 employees in manufacturing. Of these employees, 2,659 employees are based in our San Jose facilities. We consider our highly qualified and motivated employees to be a key factor in our business success. Our employees are not represented by any collective bargaining organization, and we have never experienced a work stoppage. We are committed to protecting the environment through our “We Keep IT Green” initiative as a first to market innovator in high-performance, high-efficiency server, storage, networking and management total solutions. We recognize the critical importance of talent and culture to our success and ability to fulfill this vision. We encourage opportunities for growth and conduct regular performance reviews that set clear expectations to motivate employees and align their performance with company objectives. We communicate to our employees through a secure intranet site, executive communications, company meetings, and business-related emails. Diversity, Equity, Inclusion, and Belonging We believe a workplace that encourages different voices, perspectives and backgrounds creates better teams, better solutions and more innovation. Employees should be treated fairly and respectfully despite differences and should feel accepted in the workplace to contribute their perspective and be valued. Talent Development, Acquisition, Retention and Rewards SMCI | 2024 Form 10-K | 8 Talent Strategy Our talent strategy focuses on attracting skilled, engaged employees who contribute the talent and skills critical to our innovative and forward-looking workforce. Our recruiting process actively sources talent supporting our ability to hire candidates with professional qualifications and potential. We identify opportunities through tracking and analyzing data from various sources such as annual performance reviews to assess our progress in ensuring critical talent are in critical roles. It is our policy to ensure equal employment opportunity for all applicants and employees without regard to prohibited considerations of race, color, religion, sex (including pregnancy, gender identity and sexual orientation), national origin, age, disability or genetic information, marital status or any other classification protected by applicable local, state or federal laws. All employees receive training in the prevention of sexual harassment and abusive conduct in the workplace. Total Rewards Program Our total rewards program is designed to attract and reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-term value for our stockholders. We provide employees with compensation packages that include base salary in the form of cash and representing fixed compensation to reward individual performance and contributions (“Base Salary”), incentive bonus programs, and long-term equity awards, including restricted stock units and options, tied to the value of our stock price. We believe that a compensation program with both short-term and long-term awards provides fair and competitive compensation and aligns employee and stockholder interests, including by incentivizing business and individual performance (pay for performance), motivating based on long-term company performance and integrating compensation with our business plans. In addition to cash and equity compensation, we also offer U.S. employees benefits such as life and health (medical, dental & vision) insurance, paid time off, sick leave, holiday pay, and a 401(k) plan. Outside of the U.S., we provide benefits based on local requirements and needs. Health, Safety & Wellness Throughout our history, we have maintained our commitment to providing a safe workplace that protects against and limits personal injury and environmental harm. We follow international standards and regulations for product safety and security. Our health and safety programs emphasize personal accountability, professional conduct, and regulatory compliance, while our culture fosters a sense of proactivity, caution, and communication. In the development of our products, we define and perform various tests to ensure Product Safety and Security. We evaluate risks using both government-required procedures and best practices to ensure we understand residual risk and appropriately protect our employees. We engage in proactive efforts to prevent occupational illnesses and injuries which allow us to maintain a safe, healthy, and secure workplace. We have a Safety Committee, which is designed to promote communication regarding health, safety, and emergency response procedures and to help implement improvements to our work areas and practices. We are committed to complying with applicable laws, including those associated with labor and employment, across all areas of our operations. In addition, we abide by global standards, irrespective of legal requirements, regarding the treatment of workers such as those detailed by the Responsible Business Alliance. These include prevention of excessive working hours and unfair wages, controls to prohibit child labor and human trafficking and bolstering workplace health and safety measures. Board Oversight of Human Capital Management Our Board of Directors, as a part of its overall responsibility to provide oversight, has purview over matters related to human capital management. Our Compensation Committee provides oversight of various matters related to human capital management, such as incentive compensation plans and equity compensation plans and the administration of such plans, compensation matters outside of the ordinary course, and compensation policies. Corporate Information We were founded in and maintain our worldwide headquarters and approximately half of our employees in San Jose, California. We are one of the largest employers in the City of San Jose and an active member of the San Jose and Silicon Valley community. SMCI | 2024 Form 10-K | 9 We were incorporated in California in September 1993. We reincorporated in Delaware in March 2007. Our common stock is listed on the Nasdaq Global Select Market under the symbol “SMCI.” Our principal executive offices are located at 980 Rock Avenue, San Jose, California 95131, and our telephone number is (408) 503-8000. Our website address is www.supermicro.com. Financial Information about Segments and Geographic Areas Please see Note 15, “Segment Reporting” in the Notes to the Consolidated Financial Statements in this Annual Report for information regarding segment reporting and Note 3, “Revenue - Disaggregation of Revenue” in the Notes to the Consolidated Financial Statements in this Annual Report for information regarding our net sales by geographic region. See Part I, Item 1A, “Risk Factors” for further information on risks associated with our international operations. Working Capital We focus considerable attention on managing our inventories and other working capital related items. We manage inventories by communicating with our customers and partners and using our industry experience to forecast demand. We place manufacturing orders for our products based on forecasted demand. We maintain substantial inventories of our products because the computer server industry is characterized by short lead-time orders and quick delivery schedules. Additionally, during fiscal year 2024, the computer server industry experienced global supply chain shortages, which requires us to carry more inventory to fulfill demand from our customers and partners. Forward Stock Split On September 30, 2024, we filed an amendment to our Amended and Restated Certificate of Incorporation (the “Amendment”) with the Secretary of State of the State of Delaware to effect a ten-for-one forward split (the “Stock Split”) of our common stock without any change to its par value. The Amendment also effected a proportionate increase in the number of shares of authorized common stock from 100,000,000 to 1,000,000,000. Pursuant to Section 242(d) of the General Corporation Law of the State of Delaware, stockholder approval was not required in connection with the foregoing. The Stock Split became effective at 5:00 p.m. Eastern Time on September 30, 2024 (the “Effective Time”). Trading in the common stock on the Nasdaq Global Select Market commenced on a Stock Split-adjusted basis at the market open on October 1, 2024, under the existing trading symbol “SMCI.” As a result of the Stock Split, every one (1) share of common stock issued and outstanding was automatically divided into ten (10) shares of common stock. The Stock Split did not modify any rights or preferences of the shares of the common stock. Proportionate adjustments were automatically made to the number of shares of common stock underlying the Company’s outstanding equity awards, equity incentive plans, and other existing agreements, as well as exercise or conversion prices, as applicable. Unless noted, all references to shares of common stock and per share amounts contained in this Annual Report on Form 10-K have been retroactively adjusted to reflect the Stock Split. Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge, on or through our website at www.supermicro.com as soon as reasonably practicable after we electronically file such reports with, or furnish those reports to, the SEC. Information contained on our website is not incorporated by reference in, or made part of, this Annual Report or our other filings with, or reports furnished to, the SEC. The SEC also maintains a website that contains our SEC filings. SMCI | 2024 Form 10-K | 10 Item 1A. Risk Factors Our business involves significant risks, some of which are described below. Other events that we do not currently anticipate or that we currently deem immaterial also may affect our business, financial condition, results of operations, cash flows, other key metrics and the trading price of our common stock. You should carefully consider the risks and uncertainties described below, together with all the other information in this Annual Report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes. If any of the following risks actually occurs, our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously harmed. In addition, you should consider the interrelationship and compounding effects of two or more risks occurring simultaneously. Unless otherwise indicated, references to our business being harmed in these risk factors will include harm to our business, reputation, financial condition, results of operations, revenue, and future prospects. In that event, the market price of our common stock could decline, and you could lose part or all of your investment. You should not interpret our disclosure of any of the following risks to imply that such risks have not already materialized. Risk Factor Summary The following is a summary of the most significant risks and principal factors that make an investment in our common stock speculative or risky. Risks Related to our Delinquent SEC Reporting Obligations • Circumstances discussed in the Explanatory Note in this Annual Report; • Our failure in timely filing our SEC reports; • The outcome of litigation and other legal proceedings, disputes, claims, as well as regulatory examinations, investigations, proceedings and orders arising out of the circumstances discussed in the Explanatory Note in this Annual Report, and any orders, actions or rulings not in our favor; • Significant expenses related to the circumstances discussed in the Explanatory Note in this Annual Report; • The remediation of material weaknesses and deficiencies in our internal control over financial reporting and disclosure controls and procedures, and any resulting litigation; • The absence of timely and accurate financial information has hindered and may in the future hinder our ability to effectively manage our business and the ability to issue stock-based compensation to our employees; • Our availability to access outside financing; • Negative publicity and potential customers’ concerns; Operational and Execution Risks • Volatility of our quarterly operating results; • Our ability to meet publicly announced financial guidance or other expectations about our business; • Timely development of new products and enhancements to our existing products; • Our ability to maintain sufficient inventory; • Shortfall in revenue or decline in margins; • The exercise of security interests we take in products sold; • Concentration of our customer base; • Our ability to secure additional financing on favorable terms; • Our cost structure, ability to deliver server solutions to customers, and ability to resolve warranty claims in a timely manner; • Our ability to enhance or upgrade our enterprise resource planning (“ERP”) systems and other IT applications, including challenges related to automating internal controls utilizing our ERP systems and maintaining internal controls over processes in other IT applications; • Increases in average selling prices for our solutions; • Changes in U.S. or foreign policies, geopolitical conditions, general economic conditions, and other factors beyond our control; • System security violations, data protection breaches, cyber-attacks, and other related cyber-security issues; • Failure to adequately expand or retain our sales force; • Potential conflicts of interest with Ablecom and Compuware; • Our reliance on a limited source of contract manufacturing services and inventory warehousing; • Our ability to attract and retain key personnel; SMCI | 2024 Form 10-K | 11 • Our direct sales efforts and relationships with our indirect sales channel and with our OEMs; • Our ability to maintain good publicity with respect to us, our employees, our third-party service providers or our partners; Strategic and Industry Risks • Our ability to work with suppliers to make timely new product introductions; • Our ability to manage our business for growth and expansion, including the expansion of our international manufacturing capacity and business operations; • Our reliance on a limited number of suppliers for certain components used to manufacture our products; • Our suppliers’ ability to improve the functionality and performance of materials and key components for our products; • Our ability to timely deliver high quality server and storage solutions; • Increased competition and our ability to compete effectively; • The AI industry has contributed to our success but also presents significant risks and uncertainties, including potential risks from its use by our workforce; • Our investments in corporate ventures and other investments; • Our growth into markets outside the United States; • Our reliance on indirect sales channels; Legal and Regulatory Risks • Lawsuits and other legal proceedings, disputes, claims, and government inquiries and investigations; • Compliance with laws, rules, regulations, as well as political and other actions related to export control to which our business is subject; • Compliance with laws and regulations regarding privacy, data protection and other matters; • Our ability to protect our intellectual property; • Compliance with environmental, health and safety laws, U.S. Foreign Corrupt Practices Act, other applicable anti-corruption and anti-bribery laws, outbound investment regulations, and other government regulation or laws related to our business; • Anti-takeover provisions in our charter and bylaws; Financial Risks • Our indebtedness, liabilities, and contractual obligations; • Our ability to raise the funds necessary to repurchase the convertible notes for cash following a fundamental change (including the delisting of our common stock), to repay the outstanding principal and accrued interest upon an event of default, or to pay any cash amounts due upon conversion; • Provisions in the indentures governing our convertible notes making it harder for a third-party to acquire us; • Risks associated with the capped call transactions; • Potential dilution caused by conversion of our convertible notes; • Our R&D expenditures, which are considerably higher than many of our competitors; • Change in our future effective income tax rates; • Our backlog amount; Risks Related to Owning our Stock • Volatility of the trading price of our common stock; • A decline in our stock price caused by future sales by existing stockholders; • The concentration of our capital stock ownership with insiders likely limits your ability to influence corporate matters; • No expectation in paying dividends in the foreseeable future; General Risks • Our products may not be viewed as supporting climate change mitigation in the IT sector; and • Enactment of or changes to government regulation or laws related to our business. Risks Related to our Delinquent SEC Reporting Obligations We face risks related to previously being delinquent in our SEC reporting obligations. Due to the circumstances discussed in the Explanatory Note in this Annual Report, our recent SEC filings, including this Annual Report, our Quarterly Reports on Form 10-Q for the quarterly periods ended September 30, 2024 and December 31, 2024 (the “Delinquent Reports”) were delinquent. On December 6, 2024, Nasdaq granted us an exception to Nasdaq’s Listing Rule 5250(c)(1), allowing us to file all the Delinquent Reports by February 25, 2025. SMCI | 2024 Form 10-K | 12 While we filed all of the Delinquent Reports on or before February 25, 2025, we expect to continue to face many of the risks and challenges related to previously being delinquent in our SEC reporting obligations, including the following: • We may fail to remediate material weaknesses in our internal control over financial reporting and other material weaknesses may be identified in the future, which could adversely affect the accuracy and timing of our financial reporting; • Failure to timely file our SEC reports and make our current financial information available has placed downward pressure on our stock price, which has adversely affected, and may continue adversely affect, hiring and employee retention; • Litigation and claims as well as regulatory examinations, investigations, proceedings and orders arising out of our failure to file SEC reports on a timely basis, including the reasons and causes for such failure to file, will continue to divert management attention and resources from the operation of our business; • We may not be able to recapture lost business or business opportunities due to ongoing reputational harm; and • Negative reports or actions on our commercial credit ratings would increase our costs of, or reduce our access to, future commercial credit arrangements and limit our ability to refinance existing indebtedness. The outcome of litigation and other legal proceedings, disputes, claims, as well as regulatory examinations, investigations, proceedings and orders arising out of the circumstances discussed in the Explanatory Note in this Annual Report, and any orders, actions or rulings not in our favor could have a material adverse effect on our business, results of operations and financial condition. Our company and certain of our current and former executive officers and directors are defendants in certain legal proceedings and putative class actions. Please see Part I, Item 3, “Legal Proceedings.” These proceedings have resulted in significant expenses and the diversion of management attention from our business. In addition, the circumstances which gave rise to the circumstances discussed in the Explanatory Note in this Annual Report continue to create the risk of additional litigation and claims by investors and examinations, investigations, proceedings and orders by regulatory authorities. These include a broad range of potential actions that may be taken against us by the SEC or other regulatory agencies, including a cease-and-desist order and/or the assessment of possible civil monetary penalties. Any such further actions could be expensive and damaging to our business, the results of operations, and financial condition. We have incurred and expect to continue to incur significant expenses related to the circumstances discussed in the Explanatory Note in this Annual Report, the remediation of deficiencies in our internal control over financial reporting and disclosure controls and procedures, and any resulting litigation. We have devoted and expect to continue to devote substantial internal and external resources towards remediation efforts relating to the circumstances discussed in the Explanatory Note in this Annual Report, the management review process and other efforts to regain timely compliance with the filing of our future SEC periodic and other reports. As a result of these efforts, we have incurred and expect that we will continue to incur significant incremental fees and expenses for additional accounting, financial and other consulting and professional services, as well as the implementation and maintenance of systems and processes that will need to be updated, supplemented or replaced. Specifically, in connection with the circumstances discussed in the Explanatory Note in this Annual Report, audit and compliance efforts and related litigation and other proceedings, claims, governmental inquiries or investigation, and other demands, we have incurred professional fees totaling $18.6 million through January 31, 2025. The expenses we are incurring in this regard, as well as the substantial time devoted by our management, could have a material adverse effect on our business, results of operations, and financial condition. The circumstances discussed in the Explanatory Note in this Annual Report have diverted, and continue to divert, management and other human resources from the operation of our business. The circumstances discussed in the Explanatory Note in this Annual Report have diverted, and continue to divert, management and other human resources from the operation of our business. The Board of Directors, members of management, and our accounting, legal, administrative and other staff have spent significant time on the circumstances discussed in the Explanatory Note in this Annual Report and will continue to spend significant time on related matters. These resources have been, and will likely continue to be, diverted from the strategic and day-to-day management of our business and may have an adverse effect on our ability to accomplish our strategic objectives. SMCI | 2024 Form 10-K | 13 Additionally, due to the delay in filing the Annual Report as discussed in the Explanatory Note, our registration statements on Form S-8 were ineffective until the Annual Report was filed with the SEC. This hindered the Company’s ability to grant certain stock-based compensation under its existing compensation programs. The delay also prevented the Company from holding its annual meeting of stockholders, which would have allowed an increase in the number of common stock shares available for grant under its amended and restated 2020 Equity and Incentive Compensation Plan. The inability to issue sufficient stock-based compensation could negatively impact our ability to attract and retain talent, potentially affecting our business growth, results of operations, and financial conditions. Our failure to file SEC reports timely has affected, and could continue to adversely affect our access to outside financing. As a result of the circumstances discussed in the Explanatory Note in this Annual Report, we chose to terminate our obligations under certain loan agreements early. The failure to timely file our Delinquent Reports also has resulted in an obligation to pay additional interest and special interest under the terms of the indenture governing our 0.00% Convertible Senior Notes due 2029 (the “2029 Convertible Notes”) (the “2029 Convertible Notes Indenture”), which was subsequently amended on February 20, 2025 to, among others, provide for the 2029 Convertible Notes to bear interest from February 20, 2025 at an annual rate of 3.50%. Please see Note 16, “Subsequent Events” in the Notes to the Consolidated Financial Statements in this Annual Report for information regarding the amendment of the terms of the 2029 Convertible Notes. While we have filed all the Delinquent Reports within the extension period granted by Nasdaq, if any of our SEC periodic or other reports becomes delinquent in the future, any sources of financing that may be available to us could also be at higher costs and require us to satisfy more restrictive covenants, which could limit or restrict our operations, cash flows and earnings. We cannot ensure that additional financing will be available to us or be sufficient or available on satisfactory terms. In addition, unless we have filed all required reports with the SEC, we will be precluded from registering our securities with the SEC for offer and sale, and the failure to timely file our SEC reports will limit our ability to use “short-form” Form S-3 registration statements for registering our securities for sale with the SEC until we again meet the timely filing requirements of Form S-3. If we are unable to access outside financing in a timely manner, or we are not able to obtain additional financing on terms favorable to us, our business, results of operations, and financial condition could be adversely affected. Matters relating to or arising from the circumstances discussed in the Explanatory Note in this Annual Report, including adverse publicity and potential concerns from our customers, have had and could continue to have an adverse effect on our business and financial condition. We have been and could continue to be the subject of negative publicity focused on the matters underlying the circumstances discussed in the Explanatory Note in this Annual Report. We may be adversely impacted by negative reactions to this publicity from our customers or others with whom we do business, who may have concerns including the time and effort required to address our accounting and control environment and our ability to be a long-term provider to our customers. The continued occurrence of any of the foregoing could harm our business and have an adverse effect on our financial condition. We have identified material weaknesses in our internal control over financial reporting, which could, if not remediated, adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our management is required to report on the effectiveness of our internal control over financial reporting in our annual reports, and annually our independent auditors must attest to and report on the effectiveness of our internal control over financial reporting. It is necessary for us to maintain effective internal control over financial reporting to prevent fraud and errors and to maintain effective disclosure controls and procedures so that we can provide timely and reliable financial and other information. A failure to maintain adequate internal controls may adversely affect our ability to provide financial statements that accurately reflect our financial condition and report information on a timely basis. SMCI | 2024 Form 10-K | 14 We have concluded that our internal control over financial reporting was not effective as of June 30, 2024 due to the existence of material weaknesses in such controls, and we have also concluded that our disclosure controls and procedures were not effective as of June 30, 2024 due to material weaknesses in our internal control over financial reporting, all as described in Part II, Item 9A, “Controls and Procedures” of this Annual Report. While we have initiated remediation measures to address the identified material weaknesses, we cannot provide assurance that our remediation efforts will be adequate to allow us to conclude that such controls will be effective in the future. We also cannot assure you that additional material weaknesses in our internal control over financial reporting will not arise or be identified in the future. We intend to continue our control remediation activities and to continue to improve our overall control environment and our operational, information technology, financial systems, and infrastructure procedures and controls, as well as to continue to train and develop our personnel who are essential to effective internal controls. In doing so, we will continue to incur expenses and expend management time on compliance-related issues. If we are unable to successfully complete our remediation efforts in a timely manner and are, therefore, not able to favorably assess the effectiveness of our internal control over financial reporting, this could further cause investors to lose confidence, and our operating results, financial position, ability to accurately report our financial results and timely file our SEC reports, and stock price could be adversely affected. Moreover, because of the inherent limitations of any control system, material misstatements due to error or fraud may not be prevented or detected on a timely basis, or at all. If we are unable to provide reliable and timely financial reports in the future or if our financial statements are restated, our business and reputation may be further harmed. Restated financial statements and failures in internal controls may also cause us to fail to meet reporting obligations, negatively affect investor and customer confidence in our management or result in adverse publicity and concerns from investors and customers, any of which could have a negative effect on the price of our common stock, subject us to further regulatory investigations, potential penalties or stockholder litigation, and have a material adverse impact on our business and financial condition. Operational and Execution Risks Our quarterly operating results have fluctuated and will likely fluctuate in the future, which could cause rapid declines in our stock price. We believe that our quarterly operating results will continue to be subject to fluctuation due to various factors, many of which are beyond our control. Factors that may affect quarterly operating results include: • The circumstances discussed in the Explanatory Note in this Annual Report; • Fluctuations in demand for our products, in part due to factors such as changes in emergent and rapidly evolving markets (such as AI) and changes in the global economic environment; • Fluctuations in availability and costs associated with key components, particularly semiconductors, memory, storage solutions, and other materials needed to satisfy customer requirements; • The timing of the introduction of new products by leading microprocessor vendors and other suppliers; • Fluctuations based upon seasonality, with the quarters ending March 31 and September 30 typically being weaker; • The ability of our customers and suppliers to obtain financing or fund capital expenditures; • Fluctuations in the timing and size of large customer orders, including with respect to changes in sales and implementation cycles of our products into our customers’ spending plans and associated revenue; • Variability of our margins based on the mix of server and storage systems, subsystems and accessories we sell and the percentage of our sales to internet data center, cloud computing customers or certain geographical regions; • The introduction and market acceptance of new technologies and products, and our success in emergent and rapidly evolving markets (such as AI), and incorporating emerging technologies in our products, as well as the adoption of new standards; • Changes in our product pricing policies, including those made in response to new product announcements and fluctuations in availability and costs of key components; • Mix of whether customer purchases are of partially or fully integrated systems or subsystems and accessories and whether made directly or through our indirect sales channel partners; • The effect of mergers and acquisitions among our competitors, suppliers, customers, or partners; • General economic conditions in our geographic markets; • Geopolitical tensions, including regional conflicts, trade wars, tariffs and/or sanctions in our geographic markets; and SMCI | 2024 Form 10-K | 15 • Impact of regulatory changes (including export control) on our cost of doing business. Customers may hesitate to purchase, or not continue to purchase, our products based upon the circumstances discussed in the Explanatory Note in this Annual Report. If we fail to meet expectations of investors or analysts, our stock price may fall rapidly and without notice. Furthermore, the fluctuation of quarterly operating results may render less meaningful period-to-period comparisons of our operating results, and you should not rely upon them as an indication of future performance. If we fail to meet any publicly announced financial guidance or other expectations about our business, it could cause our stock to decline in value. We generally provide forward-looking financial guidance when we announce our financial results for the prior quarter. No assurances can be given that we will continue to provide forward-looking financial guidance, and if we do issue forward looking guidance, the uncertainties related to these items could cause us to revise such guidance. If issued, we undertake no obligation to update any forward-looking guidance at any time. In the past, our financial results have failed from time to time to meet the guidance we provided. There are a number of reasons why we have at times failed to meet guidance in the past and might fail again in the future, including, but not limited to, the factors described in these Risk Factors. We depend upon the development of new products and enhancements to our existing products, and if we fail to predict or respond to emerging technological trends and our customers’ changing needs, our operating results and market share may suffer. The markets for our products are characterized by rapidly changing technology, evolving industry standards, new product introductions, and evolving methods of operations. While our revenues increased in fiscal year 2024, our operating results depend on our ability to develop and introduce new products into existing and emerging markets (such as AI) and to reduce the production costs of existing products. If our customers do not purchase our products, our business will be harmed. The process of developing products incorporating new technologies is complex and uncertain, and if we fail to accurately predict customers’ changing needs and emerging technological trends our business could be harmed. We must commit significant resources, including the investments we have been making in our strategic priorities to developing new products before knowing whether our investments will result in products and services the market will accept and investments to purchase inventory of key components for which there have been periods of supply constraint. If the industry does not evolve as we believe it will, or if our strategy for addressing this evolution is not successful, many of our strategic initiatives and investments may be of no or limited value. Suppliers of our key components may introduce new technologies that are critical to the functionality of our products more quickly than anticipated, which may render components we have on hand obsolete, saddling us with excess inventory which we may not be able to utilize in our products or sell at prices we had anticipated. Conversely, suppliers of our key components may also introduce new technologies that are critical to the functionality of our products at a slower rate than their competition, which could adversely impact our ability to timely develop and provide competitive offerings to our customers. Similarly, our business could be harmed if we fail to develop, or fail to develop in a timely fashion, offerings to address other transitions, or if the offerings addressing these other transitions that ultimately succeed are based on technology, or an approach to technology, different from ours. In addition, our business could be adversely affected in the periods surrounding our new product introductions if customers delay purchasing decisions to qualify or otherwise evaluate the new product offerings. Furthermore, we may not execute successfully on our vision or strategy because of challenges with regards to product planning and timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources. This could result in competitors, some of which may also be our suppliers, providing those solutions before we do and loss of market share, revenue, and earnings. The success of new products depends on several factors, including proper new product and service definition, component costs, timely completion and introduction of these products, differentiation of new products from those of our competitors, market acceptance of these products, and providing appropriate support of these products. There can be no assurance that we will successfully identify new product opportunities, develop and bring new products to market in a timely manner, or achieve market acceptance of our products or that products and technologies developed by others will not render our products or technologies obsolete or noncompetitive. The products and technologies in our other product categories and key priority and growth areas may not prove to have the market success we anticipate, and we may not successfully identify and invest in other emerging or new products. SMCI | 2024 Form 10-K | 16 We may lose sales or incur unexpected expenses relating to insufficient, excess or obsolete inventory. To offer greater choices and optimization of our products to benefit our customers, we maintain a high level of inventory. If we fail to maintain sufficient inventory, we may not be able to meet demand for our products on a timely basis, and our sales may suffer. If we overestimate customer demand for our products for whatever reason (including technology changing more rapidly than we anticipate), we could experience excess inventory of our products and be unable to sell those products at a reasonable price, or at all. As a result, we may need to record higher inventory reserves. In addition, from time to time we assume greater inventory risk in connection with the purchase or manufacture of more specialized components in connection with higher volume sales opportunities. In the past, we have taken certain actions including our increased purchase of certain critical materials and components as a part of our response planning for various uncertainties and risks, such as periods of supply constraint of key components and those related to lingering effects of the COVID-19 pandemic. Specifically, we sought to actively manage our supply chain for potential risks of shortage by building inventories of critical components required for our motherboards and other system printed circuit boards, as well as add to our inventories of key components such as GPUs, CPUs, memory, and solid state drives ("SSDs") so that customer orders can be fulfilled as rapidly as possible after they are received. We may continue to take similar actions in the future based upon our assessment of uncertainties and risks. Nevertheless, no assurances can be given that any such efforts will be successful to manage inventory, and we could be exposed to risks of insufficient, excess, or obsolete inventory. We have from time-to-time experienced inventory write downs associated with higher volume sales that were not completed as anticipated. We expect that we will experience such write downs from time-to-time in the future related to existing and future commitments, and potentially related to any proactive purchase of certain critical materials and components as part of our planning for uncertainties and risks. Excess or obsolete inventory levels for these or other reasons could result in unexpected expenses or increases in our reserves against potential future charges which would adversely affect our business, results of operations and financial condition. Our revenue and margins for a particular period are difficult to predict, and a shortfall in revenue or decline in margins may harm our operating results. Our revenue and margins for a particular quarter are difficult to predict, especially in light of the potential volatility in emergent and rapidly evolving markets (such as AI), increased competition, challenging and inconsistent global macroeconomic environment, and steps we are taking in response to each of the foregoing. Our revenue may grow at a slower rate than in past periods or decline. Our ability to meet financial expectations could also be adversely affected if the nonlinear sales pattern seen in some of our past quarters recurs in future periods. The timing of large orders can also have a significant effect on our business and operating results from quarter to quarter. From time to time, we receive large orders that have a significant effect on our operating results in the period in which the order is recognized as revenue. For instance, our larger customers may seek to fulfill all or substantially all of their requirements in a single or a few orders, and not make another significant purchase for a substantial period of time. The timing of such orders is difficult to predict, and the timing of revenue recognition from such orders may affect period to period changes in revenue. When we issue credit in connection with large orders, in the event customers do not pay or make timely payment, our ability to collect amounts owed to us creates risk. We have in the past, and may continue in the future, on a case-by-case basis, take steps to mitigate collection risks, such as seeking third party insurance with respect to credit issued and taking a security interest in goods we have sold to customers pending collection of any credit given. However, we cannot be assured that such measures will be effective to collect on all or part of any such credit issued. As a result, our operating results could vary materially from quarter to quarter based on the receipt of such orders and their ultimate recognition as revenue. We plan our operating expense levels based primarily on forecasted revenue levels. These expenses and the impact of long-term commitments are relatively fixed in the short term. A shortfall in revenue could lead to operating results being below expectations because we may not be able to quickly reduce these fixed expenses in response to short-term business changes. Any of the above factors could have a material adverse impact on our operations and financial results. SMCI | 2024 Form 10-K | 17 In some instances, we take security interests in the products sold. The exercise of such security interests, and the resale of our products, could negatively affect the results of operations and operating cash flows. To mitigate the collection risks associated with larger sales, we have, in some instances, taken security interests in our products sold pending the collection of outstanding accounts receivable. These security interests grant us priority as a secured creditor and entitle us to the recapture of the products sold in the event of customer default or bankruptcy. However, we cannot guarantee that we will be able to successfully recapture our products on exercise of our security interests. Even if we can recapture our products, we may not be able to successfully re-sell such products at a favorable price. The occurrence of any of these events could negatively affect the results of operations and operating cash flows. As we increasingly target larger customers and sales opportunities, our customer base may become more concentrated, our cost of sales may increase, our margins may be lower, our borrowings to fund purchases of key components may be higher, we are exposed to inventory risks and increased credit risks, and our sales may be less predictable. We have become increasingly dependent upon larger sales to grow our business. In recent years, we have completed larger sales to leading internet data center and cloud customers, large enterprise customers and OEMs. We had one customer account for 10% or more of our net sales in fiscal year 2024, while we had no single customer account for 10% or more of net sales in fiscal years 2023 or 2022. We anticipate we may continue to have customers account for 10% or more of net sales in the future, and the loss of such customers could have a material adverse effect on our business and results of operations. If customers buy our products in greater volumes and their business becomes a larger percentage of our net sales, we may grow increasingly dependent on those customers to maintain our growth. If our largest customers do not purchase our products, or we are unable to supply such customers with products, at the levels, in the timeframes or within the geographies that we expect, including as a result of a global economic downturn, excessive credit risk, or a belief by such customers of excessive dependency upon us as a supplier, our ability to maintain or grow our net sales will be adversely affected. Increased sales to larger customers may also cause fluctuations in the results of operations. Large orders are generally subject to intense competition and pricing pressure which can have an adverse impact on our margins and results of operations. Accordingly, a significant increase in revenue during the period in which we recognize the revenue from a large customer may be followed by a period during which the customer either does not purchase any products or only a small number of our products. Additionally, as we and our partners focus increasingly on selling to larger customers and attracting larger orders, we expect greater costs of sales. Our sales cycle may become longer, and more expensive, as larger customers typically spend more time negotiating contracts than smaller customers. Such larger orders may require greater commitments of working capital, which may require increased borrowings under our credit facilities to fund purchases of key components (such as CPUs, memory, SSDs and GPUs) necessary for such orders, which could adversely affect our cash flow and expose us to the risk of holding excess and obsolete inventory, if there are delays or cancellations. Furthermore, larger customers also often seek greater levels of support in the implementation and use of our server solutions. An actual or perceived inability to meet customer support demands may adversely affect our relationship with such customers, which may affect the likelihood of future purchases of our products. Larger customers may also request larger amounts of credit or longer payment terms, which, if granted, increases our risks in the event customers to do not pay or make timely payment, which risk is exacerbated in the event our payment terms with major suppliers of necessary components for such orders do not match the payment terms of our customers. As a result of the above factors, our quarter-to-quarter results of operations may be subject to greater fluctuation and our stock price may be adversely affected. SMCI | 2024 Form 10-K | 18 We may be unable to secure additional financing on favorable terms, or at all, which in turn could impair the rate of our growth. We had net income of $1.15 billion, $640.0 million and $285.2 million in fiscal years 2024, 2023 and 2022, respectively. During fiscal year 2024 we raised approximately $2.31 billion, after deducting underwriting discounts and commissions and offering expenses payable by us, in two equity offerings of our common stock and $1.55 billion, net of debt issuance costs and capped call transactions costs in an offering of convertible debt securities. In addition, we borrowed $500.0 million under our term loan facility in July 2024. Our Taiwan subsidiary, where we maintain significant operations, also increased their lines of credit, or entered into new lines of credit, with various commercial banks in Taiwan. In addition, on February 20, 2025, we issued $700.0 million aggregate principal amount of our 2.25% Convertible Senior Notes due 2028 (the “2028 Convertible Notes”) in a private placement. 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 issuance of the financial statements included in this Annual Report. Nevertheless, we intend to continue to grow our business, which could require additional capital. We may need to further expand our credit facilities, enter into new credit facilities or engage in additional equity, debt or other type of financings to secure additional capital to continue or increase our rate of growth. If we raise additional capital through additional future issuances of equity or equity-linked securities, our existing stockholders could suffer significant dilution, and any new equity securities we may issue could have rights, preferences and privileges superior to those holders of our common stock. Any credit facility or debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which could make it more difficult for us to raise additional capital and to pursue our growth strategies. If we are unable to secure additional funding on favorable terms, or at all, when we seek it, we may not be able to continue the rate of our growth. In addition, no assurances can be given that in the event that we secure such financing that the proceeds thereof will be used effectively or result in growth. Our cost structure, ability to deliver server solutions to customers, and ability to resolve warranty claims in a timely manner may be adversely affected by volatility of the market for core components and certain materials for our products. Prices of certain materials and core components utilized in the manufacture of our server and storage solutions, such as GPUs, server boards, chassis, CPUs, memory, hard drives and SSDs, represent a significant portion of our cost of sales. GPUs have represented an increasing portion of our cost of sales. While we have increased our purchases of certain critical materials and core components in response to the supply and demand uncertainties, we do not have long-term supply contracts for all critical materials and core components, but instead often purchase these materials and components on a purchase order basis. Prices and availability of these core components and materials are volatile, and, as a result, it is difficult to predict expense levels and operating results. For a variety of reasons, including supply constraints of some key components and forecasts for the demand for our products, the purchase orders we place for such components and materials have resulted in a growth of inventory. No assurances can be given that we will be able to enter into necessary long-term supply contracts for critical materials and core components, or, even if we are able to enter into such supply contracts, that they would be appropriate, or our costs, gross margins or inventory would improve. Because we often acquire materials and key components on an as needed basis, we may be limited in our ability to effectively and efficiently respond to customer orders and warranty claims, which in some cases require the provision of replacement solutions, because of the then-current availability or the terms and pricing of these materials and key components, particularly for GPUs during periods of growth of new emerging markets (such as for AI). While we have experienced an increase in demand for certain of our products in the recent past, our industry has experienced materials shortages and delivery delays in the past, including as a result of increased demand during periods of growth of new emerging markets (such as for AI), challenges in the global supply chain as a result of conflict and pandemic, and global economic downturn. We may have experienced, or continue to experience, shortages or delays of critical materials or increased logistics costs to obtain necessary materials in a timely manner to meet the needs of our increasing demand. From time to time, we have been forced to delay the introduction of certain of our products or the fulfillment of customer orders as a result of shortages of materials and key components, which can adversely impact our revenue. If shortages, supply or demand imbalances or delays arise, the prices of these materials and key components may increase or the materials and key components may not be available at all. In the event of shortages, some of our larger competitors may have greater abilities to obtain materials and key components due to their larger purchasing power. We may not be able to secure enough key components or materials at reasonable prices or of acceptable quality to build new products to meet customer demand or timely resolve warranty claims, which could adversely affect our business, results of operations and financial condition. In addition, from time to time, we have accepted customer orders with various types of component pricing protection. Such arrangements have increased our exposure to component pricing fluctuations and have adversely affected our financial results in certain quarters. SMCI | 2024 Form 10-K | 19 If we were to lose any of our current supply or contract manufacturing relationships, the process of identifying and qualifying a new supplier or contract manufacturer who meets our quality and delivery requirements, and who will appropriately safeguard our intellectual property, may require a significant investment of time and resources (if an alternative supplier is available at all), adversely affecting our ability to satisfy customer purchase orders and warranty claims and delaying our ability to rapidly introduce new products to market. Similarly, if any of our suppliers were to cancel, materially change contracts or commitments to us or fail to meet the quality or delivery requirements needed to satisfy customer demand for our products, whether due to shortages or other reasons, our reputation and relationships with customers could be damaged. In addition, changes in supplier credit terms may have impacts on our ability to acquire materials and key components needed to meet customer demand or required for growth. An inability to meet such customer demand may have adverse impacts on our growth or our ability to maintain or grow market share. We could also lose orders, be unable to develop or sell some products cost-effectively or on a timely basis, if at all, and have significantly decreased revenues, margins and earnings, which would have a material adverse effect on our business, results of operations and financial condition. Challenges we encounter in enhancing and updating ERP systems and other IP applications, including automating internal controls through our ERP systems and maintaining internal controls over processes in other IT applications, could adversely impact our controls environment. Many companies have experienced challenges with their ERP systems that have had a negative effect on their business. We have incurred and expect to continue to incur additional expenses related to our ERP systems, particularly as we continue to further enhance and develop them, including by automating certain internal controls and updating systems which are approaching the end of their service life or may no longer be supported. Any future disruptions, delays or deficiencies relating to automating internal controls utilizing our ERP systems, integrating processes that occur in other IT applications, or updating systems could adversely affect our ability to file reports with the SEC in a timely manner, deliver accurate financial statements and otherwise impact our controls environment. Any of these consequences could have an adverse effect on our business, results of operations and financial condition. Increases in average selling prices for our solutions have significantly contributed to increases in net sales in some of the periods covered by this Annual Report. Such prices are subject to decline if customers do not continue to purchase our latest generation products or additional components, or key components become more widely available and commoditized, which could harm the results of operations. Increases in average selling prices for our server solutions have significantly contributed to increases in net sales in some of the periods covered by this Annual Report. The market for key components became, and continues to be, volatile. As with most electronics-based products, average selling prices of server and storage products are typically highest at the time of introduction of new products, which utilize the latest technology, and tend to decrease over time as such products become commoditized and are ultimately replaced by even newer generation products. We cannot predict the timing or amount of any decline in the average selling prices of our server solutions that we may experience in the future, which may be exacerbated by factors such as global economic conditions, regional conflicts, and rapid developments in trade restrictions. In some instances, our agreements with our indirect sales channel partners limit our ability to reduce prices unless we make such price reductions available to them, or price protect their inventory. If we are unable to either (i) decrease the average per unit manufacturing costs faster than the rate at which average selling prices decline or (ii) increase the average selling prices at the same pace at which average per unit manufacturing costs increase, our business, financial condition and results of operations will be harmed. Changes in U.S. or foreign policies, geopolitical conditions, general economic conditions, and other factors beyond our control may adversely impact our business and operating results. Our business is subject to risks generally associated with doing business abroad, such as U.S. and foreign governmental regulation in the countries in which we operate and the countries in which our contract manufacturers, component suppliers, and other business partners are located. Our operations and performance depend significantly on global, regional, and U.S. economic and geopolitical conditions. For example, tensions between the United States and China have led to the United States’ imposition of a series of tariffs, sanctions, and other restrictions on imports from China and sourcing from certain Chinese persons or entities, as well as other business restrictions. Additionally, President Trump has indicated that his administration would potentially impose greater restrictions on trade with China through significant increases in tariffs on goods imported into the U.S., which could increase tensions and create greater uncertainty in our business dealings. Several countries are considering or have implemented tariffs or other trade barriers or restrictions, as well as other measures affecting cross-border commerce and the flow of information, which could have broad economic consequences, impact global supply chains and negatively affect our business, customers and partners. SMCI | 2024 Form 10-K | 20 Global events may present challenges and risks to us. For example, the crises in eastern Europe and the Middle East continues to pose challenges to global companies, including us, which have customers in the impacted regions. The U.S. and other global governments have placed restrictions on how companies may transact with businesses in these regions, particularly Russia, Belarus and restricted areas in Ukraine. Because of these restrictions and the growing logistical and other challenges, we have paused sales to Russia, Belarus and the restricted areas in Ukraine. This decision, which is in line with the approach of other global technology companies, helps us comply with our obligations under the various requirements in the U.S. and around the world. While it is difficult to estimate the impact on our business and financial position of both (i) our pause in sales to Russia, Belarus and the restricted areas in Ukraine and the current or future sanctions and (ii) tensions in the Taiwan strait, our pause in sales and these sanctions and continuing rising tensions could have adverse impacts on us in future periods, although they have not been material to date. For example, with respect to Russia, Belarus and the restricted areas in Ukraine, we did not, prior to the imposition of restrictions, make a material portion of our sales or acquire a material portion of our parts or components directly from impacted regions; however, our suppliers and their suppliers may acquire raw materials for parts or components from the impacted regions. Supply disruptions may make it harder for them to find favorable pricing and reliable sources for materials they need, which may put further upward pressure on their costs and increasing the risks that our costs may increase and that it may be more difficult, or we may be unable, to acquire materials needed. In addition, the crises may further exacerbate inflationary pressures that have indirect impacts on our business, such as further increasing our logistics costs from rising fuel prices and/or continuing to increase our compensation expenses. In addition, no assurances can be given that additional developments in the impacted regions, and responses thereto from the U.S. and other global governments, would not have a material adverse effect on our business, results of operations and financial condition. Our business depends on the overall demand for accelerated compute platforms. Global financial developments and downturns seemingly unrelated to us or our industry may harm us. If economic conditions, including inflation, increased interest rates, economic output and currency exchange rates, in these markets and other key potential markets for our Total IT Solutions remain uncertain or deteriorate, including as a result of a downturn in the global economy, regional conflicts, trade restrictions, or other reasons, customers may delay or reduce their spending. General economic weakness may also lead to longer collection cycles for payments due from our customers, an increase in customer bad debt, and impairment of investments. Furthermore, weakness and uncertainty in worldwide credit markets may harm our customers’ available budgetary spending, which could lead to cancellations or delays in planned purchases of our Total IT Solutions. If our customers or potential customers experience economic hardship, this could reduce the demand for our Total IT Solutions, delay and lengthen sales cycles, increase requests for customer credit which may increase our risks in the event customers do not pay or make timely payment, lower prices for our Total IT Solutions, and lead to slower growth or even a decline in our revenues, operating results and cash flows. While recently moderating, inflation in the U.S. had increased at a rate not seen in several decades. A recurrence of high inflation may result in decreased demand for our Total IT Solutions, increases in our operating costs including our labor costs, constrained credit and liquidity, reduced spending and volatility in financial markets. In response to inflation, the Federal Reserve had significantly raised, and may again raise, interest rates, which may increase our own borrowing costs and/or reduce our clients’ access to debt financing, reduce technology expenditures and demand for our Total IT Solutions. These and other geopolitical tensions, political or economic uncertainty can disrupt supply chains and increase the cost of our and our partners’ products, and have a negative impact on consumer confidence, which could impair our future growth and adversely affect our international operations, business, financial condition, and results of operations. SMCI | 2024 Form 10-K | 21 System security violations, data protection breaches, cyber-attacks and other related cyber-security issues could materially disrupt our internal operations or compromise the security of our products, and any such disruption could materially reduce our expected revenues, increase our expenses, damage our reputation and adversely affect our stock price. Malicious computer programmers, malicious insiders, criminals, hackers and sophisticated organizations (including nation states) may be able to penetrate our network and misappropriate or compromise our confidential information or that of third parties, create system disruptions or cause shutdowns that could have a material adverse effect on our business, operations, or products. Such computer programmers, hackers, and organizations also may be able to develop and deploy ransomware, network intrusions, exploitation of zero-day vulnerabilities, distributed denial of service, man-in-the-middle, phishing, vishing, domain name system spoofing, password spraying, viruses, worms and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our products that could likewise have a material adverse effect on our business. There have been increases in the frequency and sophistication of such attacks, and we expect that these activities will continue. We may also face cybersecurity threats due to error or intentional misconduct by employees, contractors or other third-party service providers. Certain aspects of effective cybersecurity are dependent upon our employees, contractors and/or other third-party service providers safeguarding our sensitive information and adhering to our security policies and access control mechanisms. While we employ a number of protective measures, including firewalls, anti-virus and endpoint detection and response technologies, regular annual training of employees with respect to cybersecurity, and testing employee competence with anti-phishing policies followed up by additional remedial training as needed, these measures may fail to prevent or detect significant attacks on our systems. Additionally, the costs associated with cybersecurity tools and infrastructure and fierce competition for scarce cybersecurity and IT talent have at times limited, and may in the future limit, our ability to efficiently identify, eliminate, or remediate cyber or other security vulnerabilities or problems or enact changes to minimize the attack surface of our network. While there have been unauthorized intrusions into our network in the past, none of these intrusions, individually or in the aggregate, had a material adverse effect on our business, operations, or products. We have taken steps to enhance the security of our network and computer systems and we provide regular updates to our Board at our quarterly meetings with respect to cybersecurity matters. Despite these efforts, we may experience future intrusions, which could materially and adversely affect our business, operations, or products. In addition, our hardware and software or third-party components and software that we utilize in our products may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation or security of the products, which could have a material adverse effect on our business, operations, or products. The costs to us to eliminate or mitigate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant and, if our efforts to address these problems are not successful, could result in material interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions. Any claim that our products or systems are subject to cybersecurity risk, whether valid or not, could damage our reputation and materially and adversely impact our revenues and results of operations. We manage and store various proprietary information and sensitive or confidential data relating to our business as well as information from our suppliers and customers. Breaches of our or any of our third party suppliers’ security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us or our customers or suppliers, including the potential loss or disclosure of such information or data as a result of fraud, trickery or other forms of deception, could expose us or our customers or suppliers to a material risk of loss or misuse of this information, result in litigation and potential material liability for us, materially damage our brand and reputation or otherwise materially harm our business. To the extent we experience cyber-security incidents in the future, our relationships with our customers and suppliers may be materially impacted, our brand and reputation may be materially harmed and we could incur substantial costs in responding to and remediating the incidents and in resolving any investigations or disputes that may arise with respect to them, any of which would cause our business, operations, or products to be materially and adversely affected. In addition, the cost and operational consequences of implementing and adding further data protection measures could be significant. SMCI | 2024 Form 10-K | 22 Any failure to adequately expand or retain our sales force will impede our growth. We expect that our direct sales force will continue to grow as larger customers increasingly require a direct sales approach. Competition for direct sales personnel with the advanced sales skills and technical knowledge we need is intense, and we face significant competition for direct sales personnel from our competitors. Our ability to grow our revenue in the future will depend, in large part, on our success in recruiting, training, retaining and successfully managing sufficient qualified direct sales personnel. New hires require significant training and may take six months or longer before they reach full productivity. Our recent hires and planned hires may not become as productive as we would like, we may be unable to hire enough qualified individuals in the future in the markets where we do business, and individuals we hire may not perform pursuant to our expectations in the event of inadequate supervision. If we are unable to hire, develop and retain enough productive sales personnel, our customer relationships and resulting sales of our server solutions will suffer. Conflicts of interest may arise with Ablecom and Compuware, and they may adversely affect our operations. We use Ablecom, a related party, for contract design and manufacturing coordination support and warehousing, and Compuware, also a related party and an affiliate of Ablecom, for distribution, contract manufacturing and warehousing. We work with Ablecom to optimize modular designs for our chassis and certain other components. We outsource to Compuware a portion of our design activities and a significant part of our manufacturing of subassemblies, particularly power supplies. Our purchases of products from Ablecom and Compuware represented 4.3%, 6.6% and 8.3% of our cost of sales for fiscal years 2024, 2023 and 2022, respectively. Ablecom and Compuware’s sales to us constitute a substantial majority of Ablecom’s and Compuware’s net sales. Ablecom and Compuware are both privately held Taiwan-based companies. In addition, we have appointed Compuware as a nonexclusive authorized distributor of our products in Taiwan, China and Australia. Each of Ablecom and Compuware are also developing campuses in close proximity to the campus we are developing in Malaysia to expand our manufacturing. Steve Liang, Ablecom’s Chief Executive Officer and largest shareholder, is the brother of Charles Liang, our President, Chief Executive Officer and Chairman of our Board of Directors (the “Board”). Steve Liang owned no shares of our common stock as of June 30, 2024, 2023 or 2022. Charles Liang and his spouse, Sara Liu, our Co-Founder, Senior Vice President and Director, jointly owned approximately 10.5% of Ablecom’s capital stock, while Mr. Steve Liang and his family members owned approximately 35.0% of Ablecom’s outstanding common stock as of June 30, 2024. Bill Liang, a brother of both Charles Liang and Steve Liang, is a member of the Board of Directors of Ablecom as well. In addition, a sibling of Yih-Shyan (Wally) Liaw, who is our Senior Vice President, Business Development and a director on our Board, owns approximately 11.7% of Ablecom’s capital stock and 8.7% of Compuware’s capital stock. In October 2018, our Chief Executive Officer, Charles Liang, personally borrowed approximately $12.9 million from Chien-Tsun Chang, the spouse of Steve Liang. The loan is unsecured, has no maturity date and bore interest at 0.8% per month for the first six months, increased to 0.85% per month through February 28, 2020, and reduced to 0.25% effective March 1, 2020. The loan was originally made at Mr. Liang's request to provide funds to repay margin loans to two financial institutions, which loans had been secured by shares of our common stock that he held. The lenders called the loans in October 2018, following the suspension of our common stock from trading on NASDAQ in August 2018 and the decline in the market price of our common stock in October 2018. As of June 30, 2024, the amount due on the unsecured loan (including principal and accrued interest) was approximately $16.4 million. Bill Liang is also the Chief Executive Officer of Compuware, Chairman of Compuware’s Board of Directors and a holder of equity interest in Compuware. Steve Liang is also a member of Compuware’s Board of Directors and is an equity holder of Compuware. Mr. Charles Liang is our Chief Executive Officer and Chairman of the Board, is a significant stockholder of our company, and has considerable influence over the management of our business relationships. Accordingly, we may be disadvantaged by the economic interests of Mr. Charles Liang and his spouse, Ms. Sara Liu, as stockholders of Ablecom and Mr. Charles Liang's personal relationship with Ablecom’s Chief Executive Officer and Compuware's Chief Executive Officer. We may not negotiate or enforce contractual terms as aggressively with Ablecom or Compuware as we might with an unrelated party, and the commercial terms of our agreements may be less favorable than we might obtain in negotiations with third parties. If our business dealings with Ablecom or Compuware are not as favorable to us as arms-length transactions, our results of operations may be harmed. SMCI | 2024 Form 10-K | 23 If Ablecom or Compuware are acquired or sold, new ownership could reassess the business and strategy of Ablecom or Compuware, and as a result, our supply chain could be disrupted or the terms and conditions of our agreements with Ablecom or Compuware may change. As a result, our operations could be negatively impacted or costs could increase, either of which could adversely affect our margins and the results of operations. Our reliance on Ablecom could be subject to risks associated with our reliance on a limited source of contract manufacturing services and inventory warehousing. We plan to continue to maintain our manufacturing relationship with Ablecom in Asia. In order to provide a larger volume of contract manufacturing services for us, we anticipate that Ablecom will continue to warehouse for us an increasing number of components and subassemblies manufactured by multiple suppliers prior to shipment to our facilities in the United States and Europe. We also anticipate that we will continue to lease office space from Ablecom in Taiwan to support our research and development efforts. We operate a joint management company with Ablecom to manage the common areas shared by us and Ablecom for our separately constructed manufacturing facilities in Taiwan. If our commercial relationship with Ablecom deteriorates, we may experience delays in our ability to fulfill customer orders. Similarly, if Ablecom’s facility in Asia is subject to damage, destruction or other disruptions, our inventory may be damaged or destroyed, and we may be unable to find adequate alternative providers of contract manufacturing services in the time that we or our customers require. We could lose orders and be unable to develop or sell some products cost-effectively or on a timely basis, if at all. Currently, we purchase contract manufacturing services primarily for our chassis products from Ablecom. If our commercial relationship with Ablecom were to deteriorate or terminate, establishing direct relationships with those entities supplying Ablecom with key materials for our products or identifying and negotiating agreements with alternative providers of warehouse and contract manufacturing services might take a considerable amount of time and require a significant investment of resources. Pursuant to our agreements with Ablecom and subject to certain exceptions, Ablecom has the exclusive right to be our supplier of the specific products developed under such agreements. As a result, if we are unable to obtain such products from Ablecom on terms acceptable to us, we may need to discontinue a product or develop substitute products, identify a new supplier, change our design and acquire new tooling, all of which could result in delays in our product availability and increased costs. If we need to use other suppliers, we may not be able to establish business arrangements that are, individually or in the aggregate, as favorable as the terms and conditions we have established with Ablecom. If any of these things should occur, our net sales, margins and earnings could significantly decrease, which would have a material adverse effect on our business, results of operations and financial condition. If we lose Charles Liang, our President, Chief Executive Officer and Chairman, or any other key employee or are unable to attract additional key employees, we may not be able to implement our business strategy in a timely manner. Our future success depends in large part upon the continued service of our current executive management team and other key employees. Charles Liang, our President, Chief Executive Officer and Chairman of the Board, is critical to the overall management of our company as well as to our strategic direction. Mr. Liang co-founded our company and has been our Chief Executive Officer since our inception. His experience in leading our business and his personal involvement in key relationships with suppliers, customers and strategic partners are extremely valuable to our company. We currently do not have a succession plan for the replacement of Mr. Liang if it were to become necessary. Additionally, we are particularly dependent on the continued service of our existing research and development personnel because of the complexity of our products and technologies. While the vesting of certain long-term performance-based option awards granted to Mr. Liang are tied to Mr. Liang remaining as our CEO (or such other position as the Board may agree), our employment arrangements with our executives and employees do not require them to provide services to us for any specific length of time, and they can terminate their employment with us at any time, with or without notice, without penalty. The loss of services of any of these executives or of one or more other key members of our team could seriously harm our business. SMCI | 2024 Form 10-K | 24 Our direct sales efforts may create confusion for our end customers and harm our relationships in our indirect sales channel and with our OEMs. We expect our direct sales force to continue to grow as our business grows. As our direct sales force becomes larger, our direct sales efforts may lead to conflicts in our indirect sales channel and with our OEMs, who may view our direct sales efforts as undermining their efforts to sell our products. If an indirect sales channel partner or OEM deems our direct sales efforts to be inappropriate, they may not effectively market our products, may emphasize alternative products from competitors, or may seek to terminate our business relationship. Disruptions in our indirect channels could cause our revenues to decrease or fail to grow as expected. Our failure to implement an effective direct sales strategy that maintains and expands our relationships in our indirect sales channel and with our OEMs could lead to a decline in sales, harm relationships and adversely affect our business, results of operations and financial condition. If negative publicity arises with respect to us, our employees, our third-party service providers or our partners, our business and operating results could be adversely affected, regardless of whether the negative publicity is true. Negative publicity about our company or our products, even if inaccurate or untrue, could adversely affect our reputation and confidence in our products, which could harm our business and operating results. For example, on August 27, 2024, a news article was published by a short seller alleging evidence of accounting manipulation, sibling self-dealing and sanctions evasion (the “Report”). We indicated that such Report contained false or inaccurate statements about us, including misleading presentations of information we previously shared publicly. However, despite these statements related to the allegations in the Report, and the announcement of the results of Special Committee investigation, the publication of the Report and the circumstances discussed in the Explanatory Note in this Annual Report contributed to a substantial negative impact on the trading price of our common stock and our reputation, and may continue to have a negative impact in the future. Harm to our reputation can also arise from many other sources, including employee misconduct, which we have experienced in the past, and misconduct by our partners, consultants and outsourced service providers. Additionally, negative publicity with respect to our partners or service providers could also affect our business and operating results to the extent that we rely on these partners or if our customers or prospective customers associate our company with these partners. If we are unable to attract and integrate additional key employees in a manner that enables us to scale our business and operations effectively, or if we do not maintain competitive compensation policies to retain our employees, our ability to operate effectively and efficiently could be limited. To execute our growth plan, we must attract additional highly qualified personnel, including a Chief Financial Officer, a Chief Compliance Officer, a General Counsel and additional in-house attorneys, additional engineers and executive staff. Competition for qualified personnel is intense, especially in Silicon Valley, where we are headquartered. We have experienced and may continue to experience difficulty in hiring and retaining highly skilled employees with appropriate qualifications. If we are unable to attract and integrate additional key employees in a manner that enables us to scale our business and operations effectively, or if we do not maintain competitive compensation policies to retain our employees, our ability to operate effectively and efficiently could be limited. Strategic and Industry Risks We must work closely with our suppliers to make timely new product introductions. We rely on our close working relationships with our suppliers, including Intel, AMD and NVIDIA, to anticipate and deliver new products on a timely basis when new generation materials and key components are made available. If we are not able to maintain our relationships with our suppliers or continue to leverage their research and development capabilities to develop new technologies desired by our customers, our ability to quickly offer advanced technology and product innovations to our customers would be impaired. We have no long-term agreements that obligate our suppliers to continue to work with us or to supply us with products. SMCI | 2024 Form 10-K | 25 If we do not successfully manage the expansion of our international manufacturing capacity and business operations, our business could be harmed. Since inception, we have conducted the majority of our manufacturing operations in San Jose, California. We continue to increase our manufacturing capacity in Taiwan and in the Netherlands and have sought to accelerate manufacturing in Taiwan to better diversify our geographical manufacturing concentration. In order to continue to successfully increase our operations in Taiwan, we must efficiently manage our Taiwan operations from our headquarters in San Jose, California and continue to develop a strong local management team. We are also pursuing an expansion of our manufacturing operations into Malaysia. If we are unable to successfully ramp up our international manufacturing capacity in Taiwan, the Netherlands, Malaysia, or any other jurisdictions we pursue, including the associated construction, increased logistics and warehousing, we may incur unanticipated costs, difficulties in making timely delivery of products or suffer other business disruptions which could adversely impact our results of operations. We may not be able to successfully manage our business for growth and expansion. We expect to continue to make investments to pursue new customers, expand our product and service offerings to grow our business, and pursue new business markets and opportunities. We also expect that our annual operating expenses will continue to increase as we invest in sales and marketing, research and development, manufacturing and production infrastructure, software and product service offerings, strengthen customer service and support resources for our customers, and pursue new business markets and opportunities. Our failure to expand operational and financial or internal control systems timely or efficiently could result in additional operating inefficiencies, which could increase our costs and expenses more than we had planned and prevent us from successfully executing our business plan. We may not be able to offset the costs of operation expansion by leveraging the economies of scale from our growth in negotiations with our suppliers and contract manufacturers. Additionally, if we increase our operating expenses in anticipation of the growth of our business and this growth does not meet our expectations, our financial results will be negatively impacted. There are also no assurances that investments we make to pursue new business markets and opportunities (such as ecommerce in B2B and B2C markets and data center offerings) will be successful or profitable, given the investment costs necessary to pursue these markets and opportunities, which includes investments in technology, people, time, and other overhead costs. As our business continues to grow, we will have to manage additional product design projects, materials procurement processes and sales efforts and marketing for an increasing number of SKUs, provide and update an increasing amount of software utilized in our hardware offerings, provide more sophisticated product service offerings to support our customers, expand the number and scope of our relationships with suppliers, distributors and end customers, and (for new business markets and opportunities we pursue) manage different and increasingly complex regulatory landscapes they are subject to. If we fail to manage these additional responsibilities and relationships successfully, we may incur significant costs, which may negatively impact our operating results. Additionally, in our efforts to be first to market with new products with innovative functionality and features, we may devote significant research and development resources to products and product features for which a market does not develop quickly, or at all. If we are not able to predict market trends accurately, we may not benefit from such research and development activities, and our results of operations may suffer. Managing our business for long-term growth also requires us to successfully manage our employee headcount. We must continue to hire, train and manage new employees as needed. If our new hires perform poorly, or if we are unsuccessful in hiring, training, managing and integrating these new employees, or if we are not successful in retaining our employees, our business may be harmed. A growth in headcount would continue to increase our cost base, which would make it more difficult for us to offset any future revenue shortfalls by offsetting expense reductions in the short term. If we fail to successfully manage our growth, we will be unable to execute our business plan. SMCI | 2024 Form 10-K | 26 We rely on a limited number of suppliers for certain components used to manufacture our products. Certain components used in the manufacture of our products are available from a limited number of suppliers. Shortages could occur in these essential materials due to an interruption of supply, including interruptions on the global supply chain (such as did occur in connection with the prior COVID-19 pandemic, prior global economic downturns, and emergence of regional conflicts) or increased demand in the industry (such as did occur due to volatility in emergent and rapidly evolving markets, including AI). Similar future events may cause additional interruptions in the global supply chain. Two of our suppliers accounted for 65.4% and 6.3% of total purchases for fiscal year 2024. The same two suppliers accounted for 30.7% and 13.5% of total purchases for fiscal year 2023. The same two suppliers accounted for 11.4% and 18.1% of total purchases for fiscal year 2022. Ablecom and Compuware, related parties, accounted for 4.3%, 6.6% and 8.3% of our total cost of sales for fiscal year 2024, 2023 and 2022, respectively. If any of our largest suppliers discontinue their operations, if our relationships with them are adversely impacted, or there are significant adverse changes to the terms upon which we do business, we could experience a material adverse effect on our business, results of operations and financial condition. See also “— Our cost structure, ability to deliver server solutions to customers, and ability to resolve warranty claims in a timely manner may be adversely affected by volatility of the market for core components and certain materials for our products.” Our suppliers’ failure to improve the functionality and performance of materials and key components for our products may impair or delay our ability to deliver innovative products to our customers. We need our material and key component suppliers, such as Intel, AMD and NVIDIA, to provide us with components that are innovative, reliable and attractive to our customers. Due to the pace of innovation in our industry, many of our customers may delay or reduce purchase decisions until they believe that they are receiving best of breed products that will not be rendered obsolete by an impending technological development. Accordingly, demand for new server and storage systems that incorporate new products and features is significantly impacted by our suppliers’ new product introduction schedules and the functionality, performance and reliability of those new products. If our materials and key component suppliers fail to deliver new and improved materials and components for our products, we may not be able to satisfy customer demand for our products in a timely manner, or at all. If our suppliers’ components do not function properly, we may incur additional costs and our relationships with our customers may be adversely affected. Our failure to deliver high quality server and storage solutions could damage our reputation and diminish demand for our products. Our server and storage solutions are critical to our customers’ business operations. Our customers require our server and storage solutions to perform at a high level, contain valuable features and be extremely reliable. The design of our server and storage solutions is sophisticated and complex, and the process for manufacturing, assembling and testing our server solutions is challenging. Occasionally, our design or manufacturing processes may fail to deliver products of the quality that our customers require. For example, in the past certain vendors have provided us with defective components that failed under certain applications. As a result, our products needed to be repaired, and we incurred costs in connection with the recall and diverted resources from other projects. New flaws or limitations in our server and storage solutions may be detected in the future. Part of our strategy is to bring new products to market quickly, and first-generation products may have a higher likelihood of containing undetected flaws. If our customers discover defects or other performance problems with our products, our customers’ business, and our reputation, may be damaged. Customers may elect to delay or withhold payment for defective or underperforming server and storage solutions, request remedial action, terminate contracts for untimely delivery, or elect not to order additional products, which could result in a decrease in revenue, an increase in our provision for doubtful accounts or in collection cycles for accounts receivable or subject us to the expense and risk of litigation. We may incur expense in recalling, refurbishing or repairing defective server and storage solutions sold to our customers or remaining in our inventory. If we do not properly address customer concerns about our products, our reputation and relationships with our customers may be harmed. For all of these reasons, customer dissatisfaction with the quality of our products could substantially impair our ability to grow our business. SMCI | 2024 Form 10-K | 27 The market in which we participate is highly competitive, and if we do not compete effectively, we may not be able to increase our market penetration, grow our net sales or improve our gross margins. The market for server and storage solutions is intensely competitive and rapidly changing, particularly with the emergence of new markets (such as AI). Barriers to entry in our market are relatively low and we expect increased challenges from existing as well as new competitors. Some of our principal competitors offer server solutions at a lower price, which has resulted in pricing pressures on sales of our server solutions. We expect further downward pricing pressure from our competitors and expect that we will have to price some of our server and storage solutions aggressively to increase our market share with respect to those products or geographies, particularly for data center and cloud customers and other large sale opportunities. If we are unable to maintain the margins on our server and storage solutions, our operating results could be negatively impacted. In addition, if we do not develop new innovative solutions, or enhance the reliability, performance, efficiency and other features of our existing server and storage solutions, our customers may turn to our competitors for alternatives. In addition, pricing pressures and increased competition generally may also result in reduced sales, less efficient utilization of our manufacturing operations, lower margins or the failure of our products to achieve or maintain widespread market acceptance, any of which could have a material adverse effect on our business, results of operations and financial condition. Our principal competitors include global technology companies such as Cisco, Dell, Hewlett-Packard Enterprise and Lenovo. In addition, we also compete with a number of other vendors who also sell application optimized servers, contract manufacturers/OEMs and ODMs, such as Foxconn, Inspur, Quanta Computer and Wiwynn Corporation. ODMs sell server solutions marketed or sold under a third-party brand. Many of our competitors enjoy substantial competitive advantages, such as: • Greater name recognition and deeper market penetration; • Longer operating histories; • Larger sales and marketing organizations and research and development teams and budgets; • More established relationships with customers, contract manufacturers and suppliers and better channels to reach larger customer bases and larger sales volume allowing for better costs; • Larger customer service and support organizations with greater geographic scope; • A broader and more diversified array of products and services; and • Substantially greater financial, technical and other resources. Some of our current or potential ODM competitors are also currently or have in the past been suppliers to us. As a result, they may possess sensitive knowledge or experience which may be used against us competitively and/or which may require us to alter our supply arrangements or sources in a way which could adversely impact our cost of sales or results of operations. Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. Competitors may seek to copy our innovations and use cost advantages from greater size to compete aggressively with us on price. Certain customers are also current or prospective competitors and as a result, assistance that we provide to them as customers may ultimately result in increased competitive pressure against us. Furthermore, because of these advantages, even if our application optimized server and storage solutions are more effective than the products that our competitors offer, potential customers might accept competitive products in lieu of purchasing our products. The challenges we face from larger competitors will become even greater if consolidation or collaboration between or among our competitors occurs in our industry. Also, initiatives to establish more industry standard data center configurations, could have the impact of supporting an approach which is less favorable to the flexibility and customization that we offer. These changes could have a significant impact on the market and impact the results of operations. For all these reasons, we may not be able to compete successfully against our current or future competitors, and if we do not compete effectively, our ability to increase our net sales may be impaired. SMCI | 2024 Form 10-K | 28 The AI industry has driven a portion of our recent success. The AI industry involves significant risks and uncertainties, and the use of AI by our workforce may present risks to our business. A portion of the recent success of our server and storage solutions has been dependent on the integration of our products and services within the AI industry. However, the global AI market is subject to significant risks and uncertainties, such as evolving regulatory constraints, industry standards and ethical and legal considerations. Additionally, the AI market itself has not yet been fully established and can be influenced by a multitude of factors, such as market needs, legal changes and economic conditions. To the extent the AI market changes or declines, our business and results of operations could be materially and adversely impacted. Our workforce may use AI tools on an unauthorized basis which poses additional risks relating to the protection of data, including the potential exposure of our proprietary confidential information to unauthorized recipients and the misuse of our or third-party intellectual property. Use of AI technology by our workforce may result in allegations or claims against us related to violation of third-party intellectual property rights, unauthorized access to or use of proprietary information and failure to comply with open-source software requirements. AI technology may also produce inaccurate responses that could lead to errors in our decision-making, solution development or other business activities, which could have a negative impact on our business, operating results and financial condition. Our ability to mitigate these risks will depend on our continued effective training, monitoring and enforcement of appropriate policies and procedures governing the use of AI technology, and compliance by our workforce. Our results of operations may be subject to fluctuations based upon our investment in corporate ventures and other investments we make. We have a 30% minority interest in a China corporate venture that was established to market and sell corporate venture branded systems in China based upon products and technology we supply. We record earnings and losses from the corporate venture using the equity method of accounting. Our loss exposure is limited to the remainder of our equity investment in the corporate venture which as of June 30, 2024 and 2023 was $4.6 million and $2.0 million, respectively. We currently do not intend to make any additional investment in this corporate venture. See Note 10, “Related Party Transactions” in the Notes to the Consolidated Financial Statements in this Annual Report. We do not control this corporate venture and any fluctuation in the results of operations of the corporate venture or any other similar transaction that we may enter into in the future could adversely impact, or result in fluctuations in, our results of operations. In June 2020, the third-party parent company that controls our corporate venture was placed on a U.S. government export control list, along with several related entities. In addition, the United States has further prohibitions on conducting business with certain entities in China, continued to impose additional tariffs, and has placed export control restrictions on products which contain high-end GPUs. If economic conditions or trade disputes, including trade restrictions and tariffs such as those between the United States and China, in the areas in which we market and sell our products and other key potential markets for our products continue to remain uncertain or deteriorate, or if additional export control restrictions are placed on additional products, it may further affect the value of our investment in the corporate venture. In addition, during fiscal year 2024, we made investments into additional companies, many of which are early stage companies or private companies still defining their strategic direction, several of which are also in emergent markets (such as AI). We may continue to invest in private companies to further our strategic objectives and to support certain key business initiatives. Many of the instruments in which we invest are non-marketable and illiquid at the time of our initial investment, and we are not always able to achieve a return. To the extent any of the companies in which we invest are not successful, we could recognize an impairment and/or lose all or part of our investment. In addition, we have also made some limited investments in public companies, and any investments we make in such companies could create volatility in our results and may generate losses up to the value of the investment. Our growth into markets outside the United States exposes us to risks inherent in international business operations. We market and sell our systems and subsystems and accessories both inside and outside the United States. We intend to expand our international sales efforts, especially into Asia, and we are expanding our business operations in Europe and Asia, particularly in Taiwan, Malaysia, the Netherlands and Japan. We have made, and continue to make, substantial investments for the purchase of land and the development of new facilities in Taiwan and Malaysia to accommodate our expected growth and the migration of a substantial portion of our contract manufacturing operations. SMCI | 2024 Form 10-K | 29 Our international expansion efforts may not be successful. Our international operations expose us to risks and challenges that we would otherwise not face if we conducted our business only in the United States, such as: • Heightened price sensitivity from customers in emerging markets; • Our ability to establish local manufacturing, support and service functions, and to form channel relationships with value added resellers in non-United States markets; • Localization of our systems and components, including translation into foreign languages and the associated expenses; • Compliance with multiple, conflicting and changing governmental laws and regulations (including rapid developments in the area of export control particularly for high-end restricted GPU products); • Foreign currency fluctuations and inflation; • Limited visibility into sales of our products by our channel partners; • Greater concentration of competitors in some foreign markets than in the United States; • Laws favoring local competitors; • Weaker legal protections of intellectual property rights and mechanisms for enforcing those rights; • Market disruptions created by world events, such as a global economic downturn, regional conflicts, or by other public health crises (such as COVID-19, avian flu, SARS and other diseases); • Import and export tariffs; • Difficulties in staffing and the costs of managing foreign operations, including challenges presented by relationships with workers’ councils and labor unions; and • Changing regional economic and political conditions. These factors could limit our future international sales or otherwise adversely impact our operations or our results of operations. Industry consolidation may lead to increased competition and may harm our operating results. There has been a trend toward consolidation in our industry. We expect this trend to continue as companies attempt to strengthen or hold their market positions in an evolving industry and as companies are acquired or are unable to continue operations. Companies that are suppliers in some areas of our business may acquire or form alliances with our competitors, thereby reducing their business with us. We believe that industry consolidation may result in stronger competitors that are more likely to compete as sole-source vendors for customers. Additionally, at times in the past, our competitors have acquired certain customers of ours and terminated our business relationships with such customers. As such, acquisitions by our competitors could also lead to more variability in our operating results and could have a material adverse effect on our business, operating results, and financial condition. We rely on indirect sales channels and any disruption in these channels could adversely affect our sales. We depend on our indirect sales channel partners to assist us in promoting market acceptance of our products. To maintain and potentially increase our revenue and profitability, we will have to successfully preserve and expand our existing distribution relationships as well as develop new channel relationships. Our indirect sales channel partners also sell products offered by our competitors and may elect to focus their efforts on these sales. If our competitors offer our indirect sales channel more favorable terms or have more products available to meet the needs of their customers or utilize the leverage of broader product lines sold through the indirect sales channel, those channel partners may de-emphasize or decline to carry our products. In addition, the order decision-making process in our indirect sales channel is complex and involves several factors, including end customer demand, warehouse allocation and marketing resources, which can make it difficult to accurately predict total sales for the quarter until late in the quarter. We also do not control the pricing or discounts offered by our indirect sales channel partners to the end customers. To maintain our participation in the marketing programs of our indirect sales channel partners, we have provided and expect to continue to offer cooperative marketing arrangements and offer short-term pricing concessions. The discontinuation of cooperative marketing arrangements or pricing concessions could have a negative effect on our business, results of operations and financial condition. Our indirect sales channel partners could also modify their business practices, such as payment terms, inventory levels or order patterns. Our business may suffer if we are unable to maintain relationships or expand our indirect sales channel. We may experience unexpected changes in payment terms, inventory levels or other practices. SMCI | 2024 Form 10-K | 30 Legal and Regulatory Risks We have been, are currently, and may in the future be subject to various lawsuits and other legal proceedings, disputes, claims, and government inquiries and investigations, which could cause us to incur substantial costs or require us to change our business practices in a way that could seriously harm our business. We have been, are currently, and may in the future be subject to various lawsuits, stockholder derivative actions, class action lawsuits, individual or mass arbitration proceedings, and other types of legal proceedings, as well as other disputes, claims, and regulatory or governmental inquiries and investigations, including with regard to contract or commercial disputes, consumer protection, privacy, data protection, intellectual property, tax, employment, and corporate governance, among other matters. For example, in late 2024, the Company received subpoenas from the Department of Justice and the Securities and Exchange Commission seeking a variety of documents following the publication in a short seller report which was published in August 2024. The Company is cooperating with these document requests and no charges have been brought as of the date of this filing. In addition, if we fail to meet our contractual commitments or otherwise fail to comply with our contractual obligations, then we could be subject to breach of contract or other claims. Any claims, proceedings, individual or mass arbitration demands, or inquiries or investigations initiated by or against us, whether successful or not, may be time-consuming, subject us to damage awards, regulatory orders, consent decrees, injunctive relief, fines, or other penalties or sanctions, require us to change our policies or practices, result in increased operating costs, divert management’s attention, harm our reputation, and require us to incur significant legal fees, other litigation costs and settlement costs, as well as other expenses. In addition, our insurance may not be adequate to protect us from all material expenses related to pending and future claims. Any of these factors could materially and adversely affect our business, financial condition, and results of operations. Our operations are impacted by complex laws, rules and regulations related to export control to which our business is subject, and rapid changes in such laws, rules, and regulations as well as political and other actions related thereto may adversely impact our business. We are subject to U.S. and other applicable trade control regulations that restrict with whom we may transact business, including the trade sanctions enforced by the U.S. Treasury, Office of Foreign Assets Control and the export controls enforced by the U.S. Commerce Department’s Bureau of Industry and Security. If we fail to comply with laws and regulations restricting dealings with sanctioned countries or companies and/or persons on restricted lists, we may be subject to civil or criminal penalties. Any future violations could have an adverse impact on our ability to sell our products to United States federal, state and local government and related entities. We have business relationships with companies in China and elsewhere in eastern Europe who have been, or may in the future be, added to a restricted party list. We take steps to minimize business disruption when these situations arise; however, we may be required to terminate or modify such relationships if our activities are prohibited by U.S. or other applicable laws. Further, our association with these parties could subject us to greater scrutiny or reputational harm among current or prospective customers, partners, suppliers, investors, other parties doing business with us or using our products, government enforcement agencies, or the general public. The United States and other countries continually update their lists of export-controlled items and technologies, and may impose new or more-restrictive export requirements on our products in the future. As a result of regulatory changes, we may be required to obtain licenses or other authorizations to continue supporting existing customers or to supply existing products to new customers in China, eastern Europe and elsewhere. Further escalations in trade restrictions or hostilities, particularly between the United States and China, could impede our ability to sell or support our products. Although we historically sold products into Russia before broad sanctions were imposed, we no longer sell products or provide services to Russia. We had last recorded revenue from Russia in February 2022. Moreover, the increasing focus on the risks and strategic importance of AI technologies has resulted in regulatory restrictions that target products and services capable of enabling or facilitating AI and may in the future result in additional restrictions impacting some or all of our product and service offerings. Concerns regarding third-party use of AI for purposes contrary to local governmental interests, including concerns relating to the misuse of AI applications, models, and solutions, has resulted in and could in the future result in unilateral or multilateral restrictions on products that can be used for training, modifying, tuning, and deploying large language models (“LLMs”). Such restrictions have limited and could in the future limit the ability of downstream customers and users worldwide to acquire, deploy and use systems that include our products, software, and services, and negatively impact our business and financial results. SMCI | 2024 Form 10-K | 31 Such restrictions could include additional unilateral or multilateral export controls on certain products or technology, including but not limited to AI technologies and high-performance computing. As geopolitical tensions have increased, products containing semiconductors associated with AI, including GPUs and associated products, are increasingly the focus of export control restrictions proposed by stakeholders in the U.S. and its allies. The United States has imposed unilateral controls restricting GPUs and associated products, and it is likely that additional unilateral or multilateral controls will be adopted. Such controls have been and may again be very broad in scope and application, prohibit us from exporting our products to any or all customers in one or more markets, including but not limited to China, and could tangentially negatively impact our warehousing locations and options, or could impose other conditions that limit our ability to serve demand abroad and could negatively and materially impact our business, revenue and financial results. Export controls targeting products containing GPUs and semiconductors associated with AI, which have been imposed and are increasingly likely to be further tightened, would further restrict our ability to export our technology, products, or services even though competitors may not be subject to similar restrictions, creating a competitive disadvantage for us and negatively impacting our business and financial results. Export controls targeting products containing GPUs and semiconductors associated with AI have subjected and may in the future subject downstream users of our products to additional restrictions on the use, resale, repair, or transfer of our products, negatively impacting our business and financial results. Controls could negatively impact our cost and/or ability to provide services. Export controls could disrupt our supply chain and distribution channels, negatively impacting our ability to serve demand, including in markets outside China. Repeated changes in the export control rules are likely to impose compliance burdens on our business and our customers, negatively and materially impacting our business. Increasing use of economic sanctions and export controls has impacted and may in the future impact demand for our products or services, negatively impacting our business and financial results. Reduced demand due to export controls could also lead to excess inventory or cause us to incur related supply charges. Additional unilateral or multilateral controls are also likely to include deemed export control limitations that may also have negative impacts. Additional export restrictions may not only impact our ability to serve overseas markets, but also provoke responses from foreign governments, including China, that negatively impact our supply chain or our ability to provide our products and services to customers in all markets worldwide, which could also substantially reduce our revenue. In October 2022, U.S. export restrictions and export licensing requirements were imposed targeting China’s semiconductor and supercomputing industries. These restrictions impact exports of software, hardware, equipment and technology used to develop, produce or manufacture certain chips in China (including Hong Kong). At the same time, export restrictions and export license requirements were also imposed on certain GPUs and advanced integrated circuits, as well as computing equipment containing such components, with a focus on China (including Hong Kong). These restrictions impacted certain of our products, including products that contain the NVIDIA A100 and H100 integrated circuits, among others. In November 2023, the export control restrictions on advanced integrated circuits, supercomputing and other end uses were revised and further expanded to cover additional countries where we sell our products, including in the Middle East, and additional parties based on the location of their headquarters, or the headquarters of their ultimate parent. Compliance with ever-changing regulations is complex and time consuming. We may experience delays in implementing procedures to address the changing regulatory requirements. In January 2025, the U.S. export control regulations targeting advanced integrated circuits and computing were further revised to include a worldwide authorization requirement for certain of our advanced computing products. New license exceptions were added to the regulations and allow us to export in some cases without the need for an export license, thus expanding upon previous authorizations. However, these new regulations will, depending on the country and ultimate consignee, also place new limits on the number of advanced computing products that we can export to each ultimate consignee per calendar year, and the number of advanced computing products that the Commerce Department will license per-country over a given period to all exporters in the aggregate. These new limitations create a competitive process for obtaining the product allocation associated with these new government authorizations and therefore could disadvantage us against certain of our competitors. The limitations could also prevent us from selling our advanced computing products to the full extent of customer demand in certain countries that have not historically been subject to these limitations. In some cases, we rely on channel partners and third parties to distribute and resell our products globally. If channel partners, or their customers, do not adhere to the applicable trade compliance requirements, this can subject us to greater scrutiny or reputational harm among current or prospective customers, partners, suppliers, investors, other parties doing business with us or using our products, government enforcement agencies, or the general public. SMCI | 2024 Form 10-K | 32 In the event export controls require us to transition some operations out of certain geographies, such transitions could be costly and time consuming, and adversely affect our operations during any such transition period. To the extent that a customer requires products covered by the licensing requirements, we may seek a license for the customer. However, the licensing process is time-consuming. We have no assurance that any such license will be granted or that the license application will be acted upon in a timely manner or at all. Even if a license is offered, it may impose burdensome conditions that we or our customer or end users cannot or decide not to accept. The process to obtain licenses required under recently adopted export control regulations is complicated and time consuming in the event we determine to pursue them, and there are no assurances they may be granted at all. Our competitive position and future results may be harmed, over the long-term, if there are further changes in export controls, including further expansion of the geographic, customer, end use, deemed export, or product scope of the controls, if customers purchase product from competitors, if customers develop their own internal solution, if we are unable to provide contractual warranty or other extended service obligations, if licenses are not granted in a timely manner or denied to significant customers or if we incur significant transition costs. Even if requested licenses are granted, the licenses may be temporary or impose burdensome conditions that we or our customers or end users cannot or choose not to fulfill. The licensing requirements may benefit certain of our competitors, as the licensing process will make our technical support efforts more cumbersome and less certain and encourage customers to pursue alternatives to our products. Given the increasing strategic importance of AI and rising geopolitical tensions, the export control rules may change again at any time and further subject a wider range of our products to export restrictions and licensing requirements, negatively impacting our business and financial results. In the event of such change, we may be unable to sell our inventory of such products and may be unable to develop replacement products not subject to the licensing requirements, effectively excluding us from markets subject to such restrictions, as well as other impacted markets. Any new control that impacts a wider range of our products would likely have a disproportionate impact on us and may disadvantage us against certain of our competitors that sell products that are outside the scope of such control. Finally, our business depends on our ability to receive consistent and reliable supplies from our overseas partners, especially in Taiwan. Any new restrictions that negatively impact our ability to receive supply of components, parts, or services from Taiwan, would negatively impact our business and financial results. Although we attempt to ensure that we, our suppliers, resellers, and partners comply with the applicable import, export, and sanctions laws, we cannot guarantee full compliance by all. Actions of our suppliers, resellers and partners are not within our complete control, and our products could be re-exported to sanctioned persons or countries or provided by our retailers to third persons in contravention of our requirements or instructions or the laws. In addition, there are inherent limitations to the effectiveness of any policies, procedures, and internal controls relating to such compliance, and there can be no assurance that such procedures or internal controls will work effectively at all times or protect us against liability under anti-corruption, sanctions or other laws for actions taken by us, our resellers or partners. Any such potential violation by us, our suppliers, resellers, or our partners could have negative consequences, including government inquiries, investigations, enforcement actions, monetary fines, or civil and/or criminal penalties, and our reputation, brand, and revenue may be harmed. Because our products and services may store, process and use data, some of which contains personal information, we are subject to complex and evolving domestic and international laws and regulations regarding privacy, data protection and other matters, which are subject to change. Because our products and services store, process and use data, some of which contains personal information, we are subject to complex and evolving domestic and international laws and regulations regarding privacy, data protection, rights of publicity, content, protection of minors and consumer protection. Many of these laws and regulations, which can be particularly restrictive outside of the U.S., are subject to change and uncertain interpretation. Even our inadvertent failure to comply with such laws and regulations could result in investigations, claims, damages to our reputation, changes to our business practices, increased cost of operations and declines in user growth, retention or engagement, any of which could materially adversely affect our business, results of operations and financial condition. Costs to comply with and implement these privacy-related and data protection measures could be significant. SMCI | 2024 Form 10-K | 33 Global privacy legislation, enforcement, and policy activity for privacy and data protection are rapidly expanding and creating a complex regulatory compliance environment. Costs to comply with and implement these privacy-related and data protection measures could be significant. For example, the EU General Data Protection Regulation 2016/679 (“GDPR”), and further amendments and interpretations thereof, impose stringent EU data protection requirements on companies established in the European Union or companies that offer goods or services to, or monitor the behavior of, individuals in the European Union. The GDPR establishes a robust framework of data subjects’ rights and imposes onerous accountability obligations on companies, including certain data transfer and security mechanisms. Noncompliance with the GDPR can trigger steep fines of up to the greater of 20 million euros or four percent of annual global revenue. Jurisdictions outside of the European Union are also considering and/or enacting comprehensive data protection legislation. For example, on July 8, 2019, Brazil enacted the General Data Protection Law, or the LGPD, and on June 5, 2020, Japan passed amendments to its Act on the Protection of Personal Information, or the APPI. Both laws broadly regulate the processing of personal information in a manner comparable to the GDPR, and violators of the LGPD and APPI face substantial penalties. We also continue to see jurisdictions, such as Russia, imposing data localization laws, which under Russian laws require personal information of Russian citizens to be, among other data processing operations, initially collected, stored, and modified in Russia. Similarly, on November 1, 2021, China’s Personal Information Protection law came into effect, which places restrictions on the transfer of personal information to third parties within China or overseas. These regulations may deter customers from using services such as ours and may inhibit our ability to expand into those markets or prohibit us from continuing to offer services in those markets without significant financial burden. In addition, numerous states in the U.S. are also expanding data protection through legislation. For example, California’s Consumer Privacy Act (“CCPA”) gives California residents expanded privacy rights and protections and provides for civil penalties for violations and a private right of action for data breaches. Further, California voters approved the ballot initiative known as the California Privacy Rights Act of 2020 (“CPRA”), enforcement of which began on July 1, 2023. The CPRA significantly expands privacy rights for California consumers and creates additional obligations on businesses, which could subject us to additional compliance costs as well as potential fines, individual claims and commercial liabilities. The CPRA also establishes the California Privacy Protection Agency, which has the power to implement and enforce the CCPA and CPRA through administrative actions, including administrative fines. The effects of the CCPA and the CPRA are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses to comply and increase our potential exposure to regulatory enforcement and/or litigation. Other U.S. states have also enacted data privacy laws that began to take effect in 2023 and impose similar privacy obligations to the CCPA and CPRA. We anticipate that more states may enact legislation similar to these laws, by providing consumers with new privacy rights and increasing the privacy and security obligations of entities handling certain personal information of such consumers. The CCPA continues to prompt a number of proposals for new federal and state-level privacy legislation. Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies. We have developed and implemented policies and procedures to address applicable data privacy and protection law requirements. However, because the interpretation and application of many privacy and data protection laws, commercial frameworks, and standards are uncertain, it is possible that these laws, frameworks, and standards may be interpreted and applied in a manner that is inconsistent with our existing data protection practices. If so, we and our customers are at risk of enforcement actions taken by data protection authorities or litigation from consumer advocacy groups acting on behalf of data subjects. In addition to the possibility of fines, lawsuits, breach of contract claims, and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our solutions, which could materially adversely affect our business, results of operations and financial condition. Furthermore, applicable data privacy and security obligations may require us to notify relevant stakeholders, including affected individuals, customers, regulators and investors, of security incidents, and mandatory disclosure of such incidents could lead to negative publicity. SMCI | 2024 Form 10-K | 34 Any failure to protect our intellectual property rights, trade secrets and technical know-how could impair our brand and our competitiveness. Our ability to prevent competitors from gaining access to our technology is essential to our success. If we fail to protect our intellectual property rights adequately, we may lose an important advantage in the markets in which we compete. Trademark, patent, copyright and trade secret laws in the United States and other jurisdictions as well as our internal confidentiality procedures and contractual provisions are the core of our efforts to protect our proprietary technology and our brand. Our patents and other intellectual property rights may be challenged by others or invalidated through administrative process or litigation, and we may initiate claims or litigation against third parties for infringement of our proprietary rights. Such administrative proceedings and litigation are inherently uncertain and divert resources that could be put towards other business priorities. We may not be able to obtain a favorable outcome and may spend considerable resources in our efforts to defend and protect our intellectual property. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our products are available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property and using our technology for their competitive advantage. Any such infringement or misappropriation could have a material adverse effect on our business, results of operations and financial condition. Our operations could involve the use of regulated materials, and we must comply with environmental, health and safety laws and regulations, which can be expensive, and may affect our business, results of operations and financial condition. We are subject to federal, state and local regulations relating to the use, handling, storage, disposal and human exposure to materials, including hazardous and toxic materials. If we were to violate or become liable under environmental, health and safety laws in the future as a result of our inability to obtain permits, human error, accident, equipment failure or other causes, we could be subject to fines, costs or civil or criminal sanctions, face third-party property damage or personal injury claims or be required to incur substantial investigation or remediation costs, any of which could have a material adverse effect on business, results of operations and financial condition. We also face increasing complexity in our product design as we adjust to new requirements relating to the materials composition, energy efficiency and recyclability of our products, including EU eco-design requirements for servers and data storage products (Commission Regulation (EU) 2019/424). We are also subject to laws and regulations providing consumer warnings, such as California’s “Proposition 65” which requires warnings for certain chemicals deemed by the State of California to be dangerous. We expect that our operations will be affected by other new environmental laws and regulations on an ongoing basis that will likely result in additional costs and could require that we change the design and/or manufacturing of products, and could have a material adverse effect on business, results of operations or financial condition. We are also subject to the Section 1502 of the Dodd Frank Act concerning the supply of certain minerals coming from the conflict zones in and around the Democratic Republic of Congo and adhere to broader industry best practices to source minerals responsibly from all Conflict-Affected and High-Risk Areas ("CAHRA"). These requirements and best practices can affect the cost and ease of sourcing minerals used in the manufacture of electronics. SMCI | 2024 Form 10-K | 35 Failure to comply with the U.S. Foreign Corrupt Practices Act, other applicable anti-corruption and anti-bribery laws, and applicable trade control laws could subject us to penalties and other adverse consequences. We manufacture and sell our products in several countries outside of the United States, both to direct and OEM customers as well as through our indirect sales channel. Our operations are subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”) as well as the anti-corruption and anti-bribery laws in the countries where we do business. The FCPA prohibits covered parties from offering, promising, authorizing or giving anything of value, directly or indirectly, to a “foreign government official” with the intent of improperly influencing the official’s act or decision, inducing the official to act or refrain from acting in violation of lawful duty or obtaining or retaining an improper business advantage. The FCPA also requires publicly traded companies to maintain records that accurately and fairly represent their transactions, and to have an adequate system of internal accounting controls. In addition, other applicable anti-corruption laws prohibit bribery of domestic government officials, and some laws that may apply to our operations prohibit commercial bribery, including giving or receiving improper payments to or from non-government parties, as well as so-called “facilitation” payments. In addition, while we have implemented policies, internal controls and other measures reasonably designed to promote compliance with applicable anti-corruption and anti-bribery laws and regulations, our employees or agents may engage in improper conduct for which we could be held responsible. If we, or our employees or agents acting on our behalf, are found to have engaged in practices that violate these laws and regulations, we could suffer severe fines and penalties, profit disgorgement, injunctions on future conduct, securities litigation, bans on transacting government business and other consequences that may have a material adverse effect on our business, results of operations and financial condition. In addition, our brand and reputation, our sales activities or our stock price could be adversely affected if we become the subject of any negative publicity related to actual or potential violations of anti-corruption, anti-bribery or other similar applicable laws and regulations. Provisions of our certificate of incorporation and bylaws and Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, as a result, depress the trading price of our common stock. Our certificate of incorporation and bylaws contain provisions that could discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions: • Establish a classified Board of Directors so that not all members of our Board are generally elected at one time; • Require super-majority voting to amend some provisions in our certificate of incorporation and bylaws; • Authorize the issuance of “blank check” preferred stock that our Board could issue to increase the number of outstanding shares and to discourage a takeover attempt; • Limit the ability of our stockholders to call special meetings of stockholders; • Prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • Provide that our Board is expressly authorized to adopt, alter or repeal our bylaws; and • Establish advance notice requirements for nominations for election to our Board or for proposing matters that can be acted upon by stockholders at stockholder meetings. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which, subject to some exceptions, prohibits “business combinations” between a Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date that the stockholder became an interested stockholder. Section 203 could have the effect of delaying, deferring or preventing a change in control that our stockholders might consider to be in their best interests. These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and cause us to take corporate actions other than those stockholders’ desire. SMCI | 2024 Form 10-K | 36 The U.S. Government implemented an outbound investment review mechanism effective January 2, 2025, which may prevent us from taking advantage of investment opportunities outside the United States that could otherwise be advantageous to our stockholders. On October 28, 2024, the Office of Investment Security of the U.S. Department of the Treasury issued a final rule to implement President Biden’s August 2023 Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern (the “EO”). The EO provided for the establishment of a new and targeted national security regulatory framework directed at controlling outbound investment from the United States in certain sensitive industry sectors in China (including Hong Kong and Macau), effective January 2, 2025. The new framework imposes notification requirements and prohibitions on specified investments by U.S. persons in the semiconductor and microelectronics sector, quantum information technologies, and artificial intelligence systems. Within the semiconductor and microelectronics sector, prohibited investments will include certain covered investments in electronic design automation software; certain fabrication and advanced packaging tools; the design, fabrication, or packaging of certain advanced integrated circuits, and supercomputers. Notifiable investments will include any covered investments related to the design, fabrication, or packaging of integrated circuits not otherwise covered by the prohibition. Given the breadth of the notification requirement as applicable within the semiconductor industry, we will likely be subject to increased regulatory burden to engage in certain investments in China. Such a mechanism could negatively impact our ability to realize value from certain existing and future investments, including by limiting exit opportunities or causing us to favor buyers that may avoid complex notification requirements, even in circumstances where other buyers may offer better terms or more consideration. There can be no assurances that we will be able to maintain or proceed with investments on terms acceptable to us. It is possible that the outbound investment reporting requirements and prohibitions could adversely affect our business, financial condition, and operating results. Financial Risks Our indebtedness, liabilities, and other contractual obligations could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to meet those obligations. As of June 30, 2024, we had approximately $2.2 billion of consolidated indebtedness, including $1.7 billion principal amount of the 2029 Convertible Notes. As of January 31, 2025, we had approximately $1.9 billion of consolidated indebtedness, including $1.7 billion principal amount of our 2029 Convertible Notes and on February 20, 2025, we issued $700.0 million aggregate principal amount of our 2028 Convertible Notes. We may also incur additional indebtedness to meet future financing needs. Our indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things: • Increasing our vulnerability to adverse economic and industry conditions; • Limiting our ability to obtain additional financing; • Requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes • Limiting our flexibility to plan for, or react to, changes in our business; • Diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the 2029 Convertible Notes or 2028 Convertible Notes, as applicable; and • Placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital. SMCI | 2024 Form 10-K | 37 Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves to pay amounts due under our indebtedness, including the Convertible Notes, as well as other contractual obligations. For example, in connection with the MCSA we entered into in June 2024, we executed a long-term data center space from a supplier and concurrently sublicensed all of our rights and obligations related to such data center space to another party. While we are charging an additional monthly charge to the party to whom we are sublicensing the data center space, on top of the estimated over $600.0 million financial obligation we have to the supplier for the term of the lease for the data center space, no assurances can be given that this arrangement will be successful or profitable, particularly if the party to whom we are sublicensing the data center space defaults on its obligations to us. If we are unsuccessful in recovering our costs related to our lease of data center space, or if we are otherwise unable to meet our obligations under the MCSA, our business, financial condition, and results of operations may be adversely affected. For more information about the MCSA and the data center space lease arrangements, see Part I, Item 1. “Business - Data Center Space Lease” and Note 13, “Commitments and Contingencies” in the Notes to the Consolidated Financial Statements. Additionally, we plan to continue making significant investments to support our business growth and may require additional funds to address business challenges. Our future capital requirements may vary materially from those currently planned and will depend on many factors including our growth rate and the continuing market acceptance of our products. Any future indebtedness that we may incur may contain financial and other restrictive covenants and obligations that limit our ability to operate our business, raise capital or make payments under our other indebtedness or contractual obligations. Failure to comply with these covenants or obligations, or to make required payments on time, could result in a default or material breach, potentially accelerating the repayment of that debt or resulting in the breach of contracts, which could in turn harm our business. See also, “Risks Related to our Delinquent SEC Reporting Obligations.” We may be unable to raise the funds necessary to repurchase the 2029 Convertible Notes or the 2028 Convertible Notes for cash following a fundamental change, to repay the outstanding principal and accrued interest upon an event of default, or to pay any cash amounts due upon conversion, and there may be other limits on our ability to repurchase the 2029 Convertible Notes or 2028 Convertible Notes or pay cash upon their conversion. Noteholders may require us to repurchase their 2029 Convertible Notes or 2028 Convertible Notes, as applicable, following a fundamental change (as defined in the respective indenture for such notes, which includes the delisting of our common stock) at a cash repurchase price generally equal to the principal amount of the relevant series of convertible notes to be repurchased, plus accrued and unpaid interest. Upon an event of default (as defined in the indenture for such notes), we may be required to repay the outstanding principal amount of the 2029 Convertible Notes or the 2028 Convertible Notes, plus accrued and unpaid interest. In addition, upon conversion, we will satisfy part or all of our conversion obligations in cash unless we elect to settle conversions solely in shares of our common stock (other than cash in lieu of any fractional shares). We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the 2029 Convertible Notes or the 2028 Convertible Notes, repay the amounts owed under the relevant convertible notes in an event of default, or pay any cash amounts due upon conversion. Our ability to pay cash upon conversion of the relevant series of convertible notes depends in part on our future performance, which is subject to economic, financial, competitive and other factors including, but not limited to, rising inflation, elevated interest rates, and other negative macroeconomic factors, some of which are out of our control. Our business may not generate cash flow to service our debt. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive, which could have a material adverse effect on our financial condition. In addition, applicable law, regulatory authorities and agreements governing our other indebtedness may restrict our ability to repurchase the 2029 Convertible Notes or 2028 Convertible Notes, as applicable, or pay any cash amounts due upon conversion. Our failure to repurchase the 2029 Convertible Notes or 2028 Convertible Notes, as applicable, or pay any cash amounts due upon conversion when required will constitute a default under the 2029 Convertible Notes Indenture or the indenture governing the 2028 Convertible Notes (the “2028 Convertible Notes Indenture”), as applicable. A default under the 2029 Convertible Notes Indenture or the 2028 Convertible Notes Indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the 2029 Convertible Notes or the 2028 Convertible Notes. See also, “Risks Related to our Delinquent SEC Reporting Obligations.” SMCI | 2024 Form 10-K | 38 Provisions in the 2029 Convertible Notes Indenture and the 2028 Convertible Notes Indenture could delay or prevent an otherwise beneficial takeover of us. Certain provisions in the 2029 Convertible Notes, the 2028 Convertible Notes, and the indentures governing such convertible notes could make a third-party attempt to acquire us more difficult or expensive. For example, if a takeover constitutes a fundamental change, then noteholders will have the right to require us to repurchase their convertible notes for cash. In addition, if a takeover constitutes a make-whole fundamental change (as defined in the 2029 Convertible Notes Indenture and the 2028 Convertible Notes Indenture, as applicable), then we may be required to temporarily increase the conversion rate of the 2029 Convertible Notes or 2028 Convertible Notes, as applicable, which could increase the cash cost of acquiring us or increase dilution to the potential acquiror. In either case, and in other cases, our obligations under the 2029 Convertible Notes, the 2028 Convertible Notes, the 2029 Convertible Notes Indenture, and the 2028 Convertible Notes Indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that noteholders or holders of our common stock may view as favorable. The capped call transactions entered into in connection with the issuance of the 2029 Convertible Notes may affect our common stock. In connection with the offering of the 2029 Convertible Notes, we entered into privately negotiated capped call transactions with the capped call counterparties. The capped call transactions are expected generally to reduce the potential dilution to our common stock upon any conversion of the 2029 Convertible Notes or offset any potential cash payments we are required to make in excess of the principal amount of converted 2029 Convertible Notes, as the case may be, with such reduction or offset subject to a cap. In connection with the amendment of the 2029 Convertible Notes, we entered into agreements to amend certain terms of the capped call transactions. Following such amendment of the capped call transactions, the capped call counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the 2029 Convertible Notes (and are likely to do so during any observation period related to a conversion of 2029 Convertible Notes or following any repurchase of the 2029 Convertible Notes by us to the extent we elect to unwind a corresponding portion of the capped call transactions in connection with such repurchase). This activity could also cause or avoid an increase or a decrease in the market price of our common stock. In addition, if any capped call counterparties or their respective affiliates unwind their hedge positions with respect to our common stock, it could adversely affect the value of our common stock. We do not make any representation or prediction as to the direction or magnitude of any potential effect that the transactions described above may have on the price of our common stock. In addition, we do not make any representation that the capped call counterparties will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice. We are subject to counterparty risk with respect to the capped call transactions, and the capped call transactions may not operate as planned. The capped call counterparties are, or are affiliates of, financial institutions, and we will be subject to the risk that they might default under the capped call transactions. Our exposure to the credit risk of the capped call counterparties will not be secured by any collateral. Global economic conditions have from time to time resulted in the actual or perceived failure or financial difficulties of many financial institutions. If a capped call counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under our transactions with that capped call counterparty. Our exposure will depend on many factors, but, generally, the increase in our exposure will be correlated with increases in the market price or the volatility of our common stock. In addition, upon a default by a capped call counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of any capped call counterparty. In addition, the capped call transactions are complex, and they may not operate as planned. For example, the terms of the capped call transactions may be subject to adjustment, modification or, in some cases, renegotiation if certain corporate or other transactions occur, including in connection with the amendment to the 2029 Convertible Notes, which lowered the applicable cap price to align with the amended terms of the 2029 Convertible Notes. Accordingly, these transactions may not operate as we intend if we are required to adjust their terms as a result of transactions in the future or upon unanticipated developments that may adversely affect the functioning of the capped call transactions. SMCI | 2024 Form 10-K | 39 Conversion of our 2029 Convertible Notes or 2028 Convertible Notes may dilute the ownership interest of existing stockholders or may otherwise depress the price of our common stock. Despite the entry into the capped call transactions in connection with the 2029 Convertible Notes, the conversion of some or all of the 2029 Convertible Notes or the conversion of some or all of the 2028 Convertible Notes, to the extent we deliver shares upon conversion, will likely dilute the ownership interests of existing stockholders. We did not enter into equivalent capped call transactions with respect to the 2028 Convertible Notes, so we do not have any protection against dilution or cash payments upon conversion of the 2028 Convertible Notes above the applicable conversion price. Any sales in the public market of the 2029 Convertible Notes or the 2028 Convertible Notes or our common stock issuable upon conversion of the relevant convertible notes could adversely affect prevailing market prices of our common stock. In addition, the existence of the 2029 Convertible Notes or the 2028 Convertible Notes may encourage short selling by market participants because the conversion of the 2029 Convertible Notes or the 2028 Convertible Notes could be used to satisfy short positions, or anticipated conversion of the 2029 Convertible Notes or the 2028 Convertible Notes into shares of our common stock could depress the price of our common stock. Our research and development expenditures, as a percentage of our net sales, are considerably higher than many of our competitors and our earnings will depend upon maintaining revenues and margins that offset these expenditures. One of our key strategies is to focus on being consistently first-to-market with flexible and application optimized server and storage systems that take advantage of our own internal development and the latest technologies offered by microprocessor manufacturers and other component vendors. Consistent with this strategy, we believe we spend higher amounts, as a percentage of revenues, on research and development costs than many of our competitors. If we cannot sell our products in sufficient volume and with adequate gross margins to compensate for such an investment in research and development, our earnings may be materially and adversely affected. Our future effective income tax rates could be affected by changes in the relative mix of our operations, our relative income among different geographic regions and domestic and foreign income tax laws, which could affect our future operating results, financial condition and cash flows. We receive significant tax benefits from sales to our non-U.S. customers. These benefits are contingent upon existing tax laws and regulations in the U.S. and in the countries in which our international operations are located. Future changes in domestic or international tax laws and regulations or a change in how we manage our international operations could adversely affect our ability to continue realizing these tax benefits. In recent years, numerous legislative, judicial, and administrative changes have been made to tax laws applicable to us and similar companies. The Organization for Economic Co-operation and Development (the “OECD”) has introduced a framework to implement a global minimum corporate tax of 15% applicable to large multinational corporations, referred to as Pillar Two or the minimum tax directive. Many countries, including countries in which we operate, have enacted or are in the process of enacting laws based on the Pillar Two proposal that will start to become effective for our fiscal year ending June 30, 2025 (“fiscal year 2025”). While we do not currently expect the minimum tax directive to have a material impact on our effective tax rate, our analysis is ongoing as the OECD continues to release additional guidance and countries implement legislation. To the extent additional changes take place in the countries in which we operate, it is possible that these legislative changes and efforts may increase uncertainty and have an adverse impact on our effective tax rates or operations. Our future effective tax rate may also be affected by a variety of factors, including changes in our business or statutory rates, our mix of earnings in countries with differing statutory tax rates, available tax incentives, credits and deductions, the expiration of statutes of limitations, changes in accounting principles, adjustments to income taxes upon finalization of tax returns, increases in expenses not deductible for tax purposes, the estimates of our deferred tax assets and liabilities and deferred tax asset valuation allowances, changing interpretation of existing laws or regulations, the impact of accounting for business combinations, as well as changes in the domestic or international organization of our business and structure. Furthermore, the tax effects of accounting for stock-based compensation and volatility in our stock price may significantly impact our effective tax rate in the period in which they occur. An increase in our stock price may result in increased future tax benefits from stock-based compensation, decrease our effective tax rate and positively affect our financial results. Conversely, a decline in our stock price may result in reduced future tax benefits from stock-based compensation, increase our effective tax rate and adversely affect our financial results. SMCI | 2024 Form 10-K | 40 Backlog does not provide a substantial portion of our net sales in any quarter. While we had greater than normal backlog during certain periods of fiscal year 2024, historically, our net sales are difficult to forecast because we do not have sufficient backlog of unfilled orders or sufficient recurring revenue to meet our quarterly net sales targets at the beginning of a quarter. Rather, a majority of our net sales in any quarter depend upon customer orders that we receive and fulfill in that quarter. Because our expense levels are based in part on our expectations as to future net sales and to a large extent are fixed in the short term, we might be unable to adjust spending in time to compensate for any shortfall in net sales. Accordingly, any significant shortfall of revenues in relation to our expectations would harm our operating results. Risks Related to Owning Our Stock The trading price of our common stock has been and is likely to be volatile. The trading prices of technology company securities historically have been highly volatile. In addition, the global markets have been volatile, and experienced volatility as a result of matters such as the prior COVID-19 pandemic, a global economic downturn and regional conflict. The trading price of our common stock has been and is likely to continue to be subject to wide fluctuations. Factors, in addition to those outlined elsewhere in this filing, that may affect the trading price of our common stock include: • The circumstances discussed in the Explanatory Note in this Annual Report; • If our common stock is delisted or the possibility thereof; • False or misleading press releases or articles regarding our company or our products, including the Report and similar publications; • Actual or anticipated variations in our operating results, including failure to achieve previously provided guidance; • Announcements of technological innovations, new products or product enhancements, strategic alliances or significant agreements by us or by our competitors; • Continued rapid evolution of the markets in which we compete, including AI; • Changes in recommendations by any securities analysts that elect to follow our common stock; • The financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • The loss of a key customer or supplier; • The loss of key personnel; • Technological advancements rendering our products less valuable; • Lawsuits filed against us; • Changes in laws or regulations applicable to us (including export control regulations) ; • Increased scrutiny from stockholders, regulators, and others regarding our corporate sustainability practices; • Changes in operating performance and stock market valuations of other companies that sell similar products; • Price and volume fluctuations in the overall stock market; • Market conditions in our industry, the industries of our customers and the economy as a whole; and • Other events or factors, including those resulting from war, incidents of terrorism, political instability, pandemics or responses to these events. SMCI | 2024 Form 10-K | 41 Future sales of shares by existing stockholders, including any shares that have vested or may in the future vest under each of the 2021 CEO Performance Award and the 2023 CEO Performance Award, could cause our stock price to decline. Attempts by existing stockholders to sell substantial amounts of our common stock on the public market could cause the trading price of our common stock to decline significantly. All our shares are eligible for sale in the public market, including shares held by directors, executive officers and other affiliates, sales of which are subject to volume limitations and other requirements under Rule 144 under the Securities Act. In addition, shares subject to outstanding options and reserved for future issuance under our stock option plans, including those underlying each of the 2021 CEO Performance Award and the 2023 CEO Performance Award that have vested or vest in the future, are eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements. See “Item 11. Executive Compensation – Compensation Discussion and Analysis (“CD&A”) – Fiscal Year 2024 CEO Compensation – Discussion and Analysis of 2023 CEO Performance Award.” If these additional shares are sold, or if it is perceived that they will be sold in the public market, the trading price of our common stock could decline. The 10,000,000 shares of our common stock underlying the 2021 CEO Performance Award have fully vested and are subject to the risks discussed above. Furthermore, tranches of the 2023 CEO Performance Award may vest, subject to the achievement of specified annualized revenue milestones (the “Annualized Revenue Milestones”) and a matching stock price milestone, and if such tranches do vest, they would be subject to the risks discussed above. In connection therewith, the Company has determined that all five Annualized Revenue Milestones specified in the 2023 CEO Performance Award are “probable of achievement,” for purposes of determining whether to recognize expense associated with the applicable tranche. Such determination is based upon management’s subjective judgment and is not a guarantee that it will be achieved. See Note 11, "Stock-based Compensation and Stockholders’ Equity" in the Notes to Consolidated Financial Statements. The concentration of our capital stock ownership with insiders likely limits your ability to influence corporate matters. As of January 31, 2025, our executive officers, directors, current five percent or greater stockholders and affiliated entities together beneficially owned 38.5% of our common stock, net of treasury stock. As a result, these stockholders, acting together, have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial. We do not expect to pay any cash dividends in the foreseeable future. We do not anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable future. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends in the foreseeable future should not purchase our common stock. General Risks Our products may not be viewed as supporting climate change mitigation in the IT sector. Our ability to create energy saving products will be a part of climate change mitigation, and we believe it is one of the keys to our business success. In addition, climate change reporting and product certification are increasingly sought by customers and regulators. If we do not satisfy customer requirements for products that help mitigate climate change, and document how they contribute to such change, it could have a material adverse impact on our business, operating results, and financial conditions. SMCI | 2024 Form 10-K | 42 Expectations and evolving laws and regulations relating to environmental, social and governance considerations expose us to potential liabilities, reputational harm and other unforeseen adverse effects on our business. Many governments, regulators, investors, employees, customers and other stakeholders are increasingly focused on environmental, social and governance considerations relating to businesses, including climate change and greenhouse gas emissions, human capital and diversity, equity and inclusion. We make statements about our environmental, social and governance goals and initiatives through information provided on our website, press statements and other communications. Responding to these environmental, social and governance considerations and implementation of these goals and initiatives involves risks and uncertainties and requires ongoing investments. The success of our goals and initiatives may be impacted by factors that are outside our control. In addition, some stakeholders may disagree with our goals and initiatives and the focus and views of stakeholders may change and evolve over time and vary depending on the jurisdictions in which we operate. Also, we and our suppliers are subject to, and may become subject to, evolving laws and regulations pertaining to ESG matters. Changing rules and regulations have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting such regulations. Any failure, or perceived failure, by us to achieve our goals, further our initiatives, adhere to our public statements, make complete or accurate statements with respect to such matters, comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and varied stakeholder expectations and views could materially adversely affect our business, reputation, results of operations, financial position and stock price. Our business and operations may be impacted by natural disaster events, including those brought on by climate change. Land, sea and air routes between economic centers are subject to weather events exacerbated by climate change and can disrupt commercial activity. Our most significant business offices, research and development, and manufacturing locations, are in the San Jose, California area and in Taiwan. We are also in the process of developing manufacturing operations in Malaysia. Each region is subject to climate change events and is known for earthquakes. For example, extreme heat and wind coupled with dry conditions in Northern California may lead to power safety shut offs due to wildfire risk, which can have adverse implications for our San Jose, California headquarter offices, including impairing the ability of our employees to work effectively. While we have adopted a business continuity plan and are taking steps to further diversify our manufacturing locations, there is no certainty it will be effective for significant natural disasters, which could have a material adverse impact on business, operating results, and financial condition. Growing concerns over climate change may also lead to transition risks, such as changes in customer preferences or changing regulatory and legal requirements. Shifts in customer preferences could increase demand for more sustainable solutions and services, potentially forcing us to incur additional costs or alter our operations to meet these demands. Additionally, we may face increased costs for supplies or components that meet specific regulatory standards, potentially affecting the pricing of our products. If we fail to manage these transition risks, customer demand for our products and services could decrease. Item 1B. Unresolved Staff Comments None. Item 1C. Cybersecurity Risk Management and Strategy We have in place certain infrastructure, systems, policies, and procedures that are designed to proactively and reactively address risks from cybersecurity threats. Our information security management program seeks to follow processes set forth in recognized industry standards, and we evaluate and evolve our security measures as appropriate. We maintain a cybersecurity incident response plan that we periodically practice and update as needed. The identification, assessment and management of cybersecurity risk is integrated into our overall enterprise risk management program that is ultimately overseen by the Board. We consult with external parties, such as third-party cybersecurity firms, to provide, among other things, monitoring of systems, threat intelligence, and employee cybersecurity training. We also use third parties to assist our risk management processes by conducting security assessments. SMCI | 2024 Form 10-K | 43 We have a vendor risk assessment process to oversee and identify risks from cybersecurity threats associated with our use of third-party service providers. These processes consist of the distribution and review of questionnaires designed to identify cybersecurity risks associated with the engagement of third parties. We also periodically audit cybersecurity practices of certain third-party service providers. We employ a number of protective measures, including firewalls, anti-virus and endpoint detection and response technologies, regular annual training of employees with respect to cybersecurity and testing employee competence with anti-phishing policies followed up by additional remedial training as needed. While there have been cyber incidents in the past, none of these incidents, individually or in aggregate, had a material adverse effect on our business strategy, operations, or financial conditions. Refer to “Risk factors” in Item 1A of this Form 10-K for additional information about cybersecurity-related risks. Governance As part of its broader risk oversight activities, our Board maintains oversight of cybersecurity matters, including managing and assessing risks from cybersecurity threats. The Audit Committee also reviews the adequacy and effectiveness of our information security policies and practices and the internal controls regarding information security risks. The Audit Committee receives updates relating to cybersecurity risk from management, including from our Director of Information Security. The Board also periodically receives reports on risks from cybersecurity threats from our Director of Information Security. Cybersecurity risk is primarily managed by our Directors of Information Security and Information Technology. These individuals have decades of experience in managing cybersecurity risk for public companies. Additionally, we have established a cross-functional Cybersecurity Committee, consisting of executive-level leadership, including representatives from the Finance, Marketing, IT, Legal, Internal Audit, and other teams, that meets periodically to review cybersecurity risks, incidents, and assess emerging threats. The Committee is also informed of our responses to such risks, incidents and threats. Our cybersecurity incident response plan also contains mechanisms to notify executive management of cybersecurity incidents. As part of the plan, an executive-level leadership team may be activated and can act to direct our response efforts, to include mitigation and remediation activities, when appropriate. Item 2. Properties As of June 30, 2024, we owned approximately 2,483,000 square feet and leased approximately 1,046,000 square feet of office and manufacturing space, which does not include any leases executed but not commenced. Our long-lived assets, excluding leases, located outside of the United States represented 31.9% of total value of long-lived assets in fiscal year 2024. In addition, we lease various offices, warehouses and other premises in United States and throughout the world. See Note 15, “Segment Reporting” in the Notes to the Consolidated Financial Statements in this Annual Report for a summary of long-lived assets by geographic region. Our principal executive offices, research and development center and production operations are in San Jose, California where we own approximately 1,517,000 square feet of office and manufacturing space. We lease approximately 259,000 square feet of warehouse space in San Jose, California under a lease that expires in October 2030, lease approximately 246,000 square feet of warehouse space in Fremont, California under a lease that expires in July 2025, lease approximately 46,000 square feet of office space in San Jose, California under a lease that expires in January 2028, lease approximately 28,000 square feet of warehouse space in Milpitas, California under a lease that expires in March 2027, and lease approximately 5,000 square feet of office space in Jersey City, New Jersey under a lease that expires in July 2025. On February 9, 2024, we consummated the purchase of certain real estate for $80.0 million in San Jose, California. Such purchased real estate was previously under lease, leading to the de-recognition of the related ROU asset of $7.9 million and lease liability of $8.3 million. On September 18, 2024, we entered into an agreement for approximately 63,177 square feet of office and manufacturing space in Milpitas, California under a new lease that expires in August 2035. Additionally, we own 36 acres of land in San Jose, California that would allow us to expand our Green Computing Park. We completed the construction of our third new manufacturing and warehouse building with approximately 209,000 square feet of space in June 2021. We financed this development through our operating cash flows and borrowings from banks. See Note 7, “Lines of Credit and Term Loans” in the Notes to the Consolidated Financial Statements in this Annual Report for a discussion of our debt. SMCI | 2024 Form 10-K | 44 Our European headquarters for manufacturing and service operations is located in Den Bosch, the Netherlands where we own approximately 12,000 square feet of office space and lease approximately 203,000 square feet of office and manufacturing space under five leases, which expire in June 2026. As of August 1, 2024, we took possession of an additional approximately 147,000 square feet of office and warehouse space under a new lease that expires in August 2029. In Asia, our manufacturing facilities are in Taoyuan County, Taiwan where we own approximately 954,000 square feet of office and manufacturing space on 6.77 acres of land. These manufacturing facilities are pledged as security under the existing loans with $55.7 million remaining outstanding as of June 30, 2024. Our research and development center, service operations, and warehouse space in Asia are in an approximately 133,000 square feet facility in Taipei and Hsinchu, Taiwan under sixteen leases that expire at various dates ranging from February 2025 through March 2029 and an approximately 93,000 square feet facility in Taoyuan, Taiwan under four leases that expire from at various dates ranging from June 2026 through December 2028. We are also adding a new manufacturing facility in Malaysia. We believe that our existing facilities in San Jose, California, Taiwan, and Netherlands and the development of our new facility in Malaysia are suitable and adequate for our present purposes and that the productive capacity of such facilities is substantially being utilized or we have plans to utilize such capacity. Item 3. Legal Proceedings The information required by this item is incorporated herein by reference to the information set forth in Note 13 “Commitments and Contingencies” in the Notes to the Consolidated Financial Statements included in this Annual Report. Due to the inherent uncertainties of legal proceedings, we cannot predict the outcome of these proceedings at this time, and we can give no assurance that they will not have a material adverse effect on our financial position or results of operations. Item 4. Mine Safety Disclosures Not applicable. SMCI | 2024 Form 10-K | 45 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information We became a public company in March 2007, prior to which there was no public market for our common stock. On January 14, 2020, our common stock was relisted on the NASDAQ Global Select Market under the symbol “SMCI". Holders As of January 31, 2025, there were 19 registered stockholders of record of our common stock. Because most of our shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial stockholders represented by these holders of record. Dividend Policy We have never declared or paid cash dividends on our capital stock. We intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Equity Compensation Plan Please see Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report for disclosure relating to our equity compensation plans. Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be "filed" with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Super Micro Computer, Inc. under the Securities Act of 1933, as amended, (the “Exchange Act”). The following graph compares our cumulative five-year total stockholder return on our common stock with the cumulative return of the Nasdaq Computer Index and Nasdaq Composite Index. The graph reflects an investment of $100 (with reinvestment of all dividends, if any) in our common stock, the Nasdaq Computer Index and the Nasdaq Composite Index on June 30, 2019, and our relative performance tracked through June 30, 2024. The stockholder return shown on the graph below is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns. SMCI | 2024 Form 10-K | 46 6/30/2019 6/30/2020 6/30/2021 6/30/2022 6/30/2023 6/30/2024 Super Micro Computer, Inc. 100.00 146.72 181.81 208.53 1,288.11 4,234.37 Nasdaq Composite Index 100.00 125.64 181.16 137.75 172.21 221.48 Nasdaq Computer Index 100.00 143.26 215.38 175.67 241.06 348.47 Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities During the three months ended June 30, 2024, we did not repurchase any shares of our common stock. SMCI | 2024 Form 10-K | 47 Item 6. [Reserved] SMCI | 2024 Form 10-K | 48 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements and related notes which appear elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report, particularly under the heading "Risk Factors." Overview We are a Silicon Valley-based provider of Rack Scale Total Solutions built from our extensive portfolio of server and storage systems. Our systems are application-optimized high performance and high-efficiency server and storage systems developed for a variety of markets, including the cloud service provider market, the enterprise market, the OEM appliance and large data center market, and the emerging 5G/Telco/Edge/IOT market. Our Total IT Solutions include direct liquid-cooled and air-cooled rack-scale solutions, complete servers, storage systems, modular blade servers, blades, workstations, networking devices, server sub-systems, server management and security software. We also provide global support and services to help our customers install, upgrade and maintain their computing infrastructure. We commenced operations in 1993 and have been profitable every year since inception. For fiscal years 2024, 2023 and 2022, our net income was $1.15 billion, $640.0 million and $285.2 million, respectively. In order to increase our sales and profits, we believe that we must continue to develop flexible and application optimized server and storage solutions and be among the first to market with new features and products and deliver Total IT Solutions that combine server, storage, networking and software that is integrated, validated and delivered at the rack and cluster (multi-rack) level. We must also continue to expand our software and customer service and support offerings, particularly as we increasingly focus on larger enterprise and large data center customers. Additionally, we must focus on development of our sales partners and distribution channels to further expand our market share. We measure our financial success based on various indicators, including growth in net sales, gross profit margin, operating margin, and growth in net income per common share. Among the key non-financial indicators of our success is our ability to rapidly introduce new products and deliver the latest application-optimized server and storage solutions. In this regard, we work closely with microprocessor and other key component vendors to take advantage of new technologies as they are introduced. Historically, our ability to introduce new products rapidly has allowed us to benefit from technology transitions such as the introduction of new GPUs, microprocessors and storage technologies. As a result, we monitor the product introduction cycles of NVIDIA Corporation, Intel Corporation, Advanced Micro Devices, Inc., Broadcom Inc., Samsung Electronics Company Limited, Micron Technology, Inc. and others closely and carefully. This also impacts our research and development expenditures as we continue to invest more in our current and future product development efforts. Artificial Intelligence and Data Centers The increased use of AI, which has required increased datacenter capabilities, has substantially increased demand for our products in the recent past. We expect that the AI market, and thus the need for additional datacenter capabilities and liquid cooling, will continue to strengthen, and we will continue to enhance our product capabilities and breadth of our service offerings to meet the demand of the AI market and datacenters. We believe that time to market, quality and optimized design of our AI products meet the unique needs of the AI market, which differentiates us from many of our competitors and will lead us to secure an even greater market share going forward. Macroeconomic Factors Our business and financial outlook have experienced, and may continue to face, challenges due to adverse macroeconomic conditions and uncertainties. These factors encompass labor shortages, disruptions in the supply chain, inflation, higher interest rates, and fluctuations in capital markets. Financial Highlights The following is a summary of financial highlights of fiscal years 2024 and 2023: • Net sales increased by 110.4% in fiscal year 2024 as compared to fiscal year 2023. • Gross margin declined to 13.8% in fiscal year 2024 from 18.0% in fiscal year 2023, primarily due to our strategy to offer competitive pricing to gain market share, change in product and customer mix, and higher manufacturing related expenses. SMCI | 2024 Form 10-K | 49 • Operating expenses increased by 63.0% in fiscal year 2024 as compared to fiscal year 2023, primarily due to higher headcount including salary increases and stock-based compensation. • Net income increased to $1,152.7 million in fiscal year 2024 as compared to $640.0 million in fiscal year 2023, which was primarily due to the higher net sales, partially offset by lower gross margin and higher operating expenses in fiscal year 2024 as compared to fiscal year 2023. • Our cash and cash equivalents were $1,669.8 million and $440.5 million at the end of fiscal years 2024 and 2023, respectively. In fiscal year 2024, net increase in cash, cash equivalents and restricted cash of $1,229.3 million, comprised of $3,911.7 million provided by financing activities primarily due to proceeds from our offerings of common stock and sale of our 2029 Convertible Notes offset by $2,486.0 million used in operating activities primarily due to cash required for working capital, and $194.2 million cash used in investing activities primarily due to $124.3 million in purchases of property and equipment. Critical Accounting Estimates General Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, net sales and expenses. We evaluate our estimates on an on-going basis based on a) historical experience, and b) assumptions we believe to be reasonable under the circumstances and are not readily apparent from other sources, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Because these estimates can vary depending on the situation, actual results may differ from the estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and statement of cash flows. These estimates have not fluctuated significantly for fiscal year 2024 compared to prior fiscal years. A summary of significant accounting policies is included in Note 1, “Organization and Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in this Annual Report. Management believes the following are the most critical accounting policies and reflect the significant estimates and assumptions used in the preparation of the consolidated financial statements. Revenue Recognition We generate revenue from the sale of server and storage systems, including systems and related services, subsystems and accessories. We apply judgment in determining the transaction price as we may be required to estimate variable consideration when determining the amount of revenue to recognize. As part of determining the transaction price in contracts with customers, we estimate reserves for future sales returns based on a review of our history of actual returns for each major product line. Based upon historical experience, a refund liability is recorded at the time of sale for estimated product returns and an asset is recognized for the amount expected to be recorded in inventory upon product return, less the expected recovery costs. SMCI | 2024 Form 10-K | 50 We allocate the transaction price of each customer contract to each performance obligation based on the relative standalone selling price ("SSP") for each performance obligation within each contract. We recognize the amount of transaction price allocated to each performance obligation within a customer contract as revenue at the time the respective performance obligation is satisfied by transferring control of the promised good or service to a customer. Determining the relative SSP for contracts that contain multiple performance obligations requires significant judgment. We determine standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we apply judgment to estimate the SSP. For substantially all of the performance obligations, we are able to establish the SSP based on the observable prices of products or services sold separately in comparable circumstances to similar customers. We typically establish an SSP range for our products and services, which is reassessed on a periodic basis or when facts and circumstances change. SSP for our products and services can evolve over time due to changes in our pricing practices, internally approved pricing guidelines with respect to geographies, customer type, internal costs, and gross margin objectives for the related performance obligations which can also be influenced by intense competition, changes in demand for our products and services, economic and other factors. Revenue is recognized either over time or at a point in time, depending on when control of the underlying products or services are transferred to the customer, which may require judgment. Revenue is recognized at a point in time for products. Revenue is recognized over time for services provided. Inventories Inventories are stated at lower of cost, using weighted average cost method, or net realizable value. Net realizable value is the estimated selling price of our products in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventories consist of raw materials (principally electronic components), work in process (principally products being assembled) and finished goods (principally finished products and products ready for sale). We evaluate inventory on a quarterly basis for lower of cost or net realizable value and excess and obsolescence and, as necessary, write down the valuation of inventories based upon our inventory aging, forecasted sales, anticipated selling price, product obsolescence and other factors. Once inventory is written down, its new value is maintained until it is sold or scrapped. We receive various rebate incentives from certain suppliers based on our contractual arrangements, including volume-based rebates. The rebates earned are recognized as a reduction of cost of inventories and reduce the cost of sales in the period when the related inventory is sold. Income Taxes As part of the process of preparing our consolidated financial statements, we are required to estimate our taxes in each of the jurisdictions in which we operate. We estimate actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as accruals and allowances not currently deductible for tax purposes. These differences result in deferred tax assets, which are included in our consolidated balance sheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our consolidated statements of income become deductible expenses under applicable income tax laws, or when loss or credit carryforwards are utilized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We continue to assess the need for a valuation allowance on the deferred tax assets by evaluating both positive and negative evidence that may exist. Any adjustment to the valuation allowance on deferred tax assets would be recorded in the consolidated statements of income for the period that the adjustment is determined to be required. We recognize tax liabilities for uncertain income tax positions on the income tax return based on the two-step process. The first step is to determine whether it is more likely than not that each income tax position would be sustained upon audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. Estimating these amounts requires us to determine the probability of various possible outcomes. We evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of several factors, including changes in facts or circumstances, changes in applicable tax law, settlement of issues under audit and new exposures. If we later determine that our exposure is lower or that the liability is not sufficient to cover our revised expectations, we adjust the liability and reflect a related charge in our tax provision during the period in which we make such a determination. SMCI | 2024 Form 10-K | 51 Stock-Based Compensation We measure and recognize compensation expenses for all share-based awards made to employees and non-employees, including stock options, restricted stock units ("RSUs") and performance-based restricted stock units (“PRSUs”). We recognize the grant date fair value of all share-based awards over the requisite service period and account for forfeitures as they occur. Stock option and RSU awards are recognized to expense on a straight-line basis over the requisite service period. PRSU awards are recognized to expense using an accelerated method only when it is probable that a performance condition is met during the vesting period. If it is not probable, no expense is recognized and the previously recognized expense is reversed. We base initial accrual of compensation expense on the estimated number of PRSUs that are expected to vest over the requisite service period. That estimate is revised if subsequent information indicates that the actual number of PRSUs is likely to differ from previous estimates. The cumulative effect on current and prior periods of a change in the estimated number of PRSUs expected to vest is recognized in stock-based compensation expense in the period of the change. Previously recognized compensation expense is not reversed if vested stock options, RSUs or PRSUs for which the requisite service has been rendered and the performance condition has been met expire unexercised or are not settled. The fair value of RSUs and PRSUs is based on the closing market price of our common stock on the date of the grant. The fair value of stock options with a market condition is estimated, at the date of grant, using the Monte Carlo Simulation model. We estimate the fair value of stock options granted using a Black-Scholes option pricing model. This model requires us to make estimates and assumptions with respect to the expected term of the option and the expected volatility of the price of our common stock. The expected term represents the period that our stock-based awards are expected to be outstanding and was determined based on our historical experience. The expected volatility is based on the historical volatility of our common stock. The assumptions used to determine the fair value of the option awards represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. Our use of the Black-Scholes option-pricing model requires the input of highly subjective assumptions. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. Results of Operations The following table presents certain items of our consolidated statements of operations expressed as a percentage of net sales. Years Ended June 30, 2024 2023 2022 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 86.2 % 82.0 % 84.6 % Gross profit 13.8 % 18.0 % 15.4 % Operating expenses: Research and development 3.1 % 4.3 % 5.2 % Sales and marketing 1.3 % 1.6 % 1.7 % General and administrative 1.3 % 1.4 % 2.0 % Total operating expenses 5.7 % 7.3 % 8.9 % Income from operations 8.1 % 10.7 % 6.5 % Other income, net 0.1 % 0.1 % 0.2 % Interest expense (0.1) % (0.1) % (0.1) % Income before income tax provision 8.1 % 10.7 % 6.6 % Income tax provision (0.4) % (1.6) % (1.0) % Share of income (loss) from equity investee, net of taxes — % * (0.1) % — % * Net income 7.7 % 9.0 % 5.6 % * Represents an amount less than 0.1%. SMCI | 2024 Form 10-K | 52 Net Sales Net sales primarily consist of sales of our server and storage solutions, including systems and related services, subsystems and accessories. The main factors that impact net sales of our server and storage systems are the number of servers and racks sold and the average selling prices per server or rack. The main factors that impact net sales of our subsystems and accessories are units shipped and the average selling price per unit. The prices for our server and storage systems range widely depending upon the configuration, including the speed, functionality and performance of key components such as CPUs, GPUs, SSDs and memory. The prices for our subsystems and accessories can also vary widely based on whether a customer is purchasing power supplies, server boards, chassis or other accessories. As with most electronics-based product life cycles, average selling prices typically are highest at the time of introduction of new products that utilize the latest technology and tend to decrease over time as such products mature in the market and are replaced by next generation products. 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. The percentage of our net sales represented by sales of server and storage systems increased to 94.6% in fiscal year 2024 compared to 92.2% in fiscal year 2023 and 85.9% in fiscal year 2022, and the percentage of our net sales represented by sales of subsystems and accessories was 5.4% in fiscal year 2024, 7.8% in fiscal year 2023 and 14.1% in fiscal year 2022. During fiscal year 2024 we experienced increased revenue from server and storage systems, particularly from our large enterprise and datacenter customers. The year-over-year increase in net sales for our subsystems and accessories is primarily due to increased demand for accessories sold to data center customers as more accessories and spares were purchased in conjunction with the increased volume of full systems and servers. The following table presents net sales by product type for fiscal years 2024, 2023 and 2022 (dollars in millions): Years Ended June 30, 2024 over 2023 Change 2023 over 2022 Change 2024 2023 2022 $ % $ % Server and storage systems $ 14,185.2 $ 6,569.8 $ 4,463.8 $ 7,615.4 115.9 % $ 2,106.0 47.2 % Percentage of total net sales 94.6 % 92.2 % 85.9 % Subsystems and accessories 804.0 553.7 732.3 250.3 45.2 % (178.6) (24.4) % Percentage of total net sales 5.4 % 7.8 % 14.1 % Total net sales $ 14,989.2 $ 7,123.5 $ 5,196.1 $ 7,865.7 110.4 % $ 1,927.4 37.1 % Fiscal Year 2024 Compared with Fiscal Year 2023 During fiscal year 2024 we experienced increased net sales from server and storage systems, particularly from our large enterprise and datacenter customers. The year-over-year increase in net sales of server and storage systems was primarily due to the strong demand for GPU based rack-scale solutions, including liquid-cooled and air-cooled servers which are generally more complex and of higher value, resulting in an increase of average selling prices ("ASP"). The year-over-year increase in net sales for our subsystems and accessories is primarily due to increased demand of accessories sold to our larger enterprise and data center customers as more accessories and spares were purchased in conjunction with the increased volume of full systems and servers. Our services and software net sales, included in server and storage systems net sales, increased by $53.8 million year-over-year. Fiscal Year 2023 Compared with Fiscal Year 2022 During fiscal year 2023 we experienced increased revenue from server and storage systems, particularly from our large enterprise and datacenter customers. The year-over-year increase in net sales of server and storage systems was primarily due to the strong demands from such customers for GPU, HPC, and rack-scale solutions which are generally more complex and of higher value, resulting in an increase of average selling prices. The year-over-year decrease in net sales of subsystems and accessories was primarily due to our emphasis on selling full systems and servers. Our services and software revenue, included in server and storage systems revenue, increased by $28.0 million year-over-year. SMCI | 2024 Form 10-K | 53 The following table presents percentages of net sales by geographic region for fiscal years 2024, 2023 and 2022 (dollars in millions): Years Ended June 30, 2024 over 2023 Change 2023 over 2022 Change 2024 2023 2022 $ % $ % United States $ 10,187.2 $ 4,834.1 $ 3,035.5 $ 5,353.1 110.7 % $ 1,798.6 59.3 % Percentage of total net sales 68.0 % 67.9 % 58.4 % Asia 2,912.6 1,050.8 1,139.9 1,861.8 177.2 % (89.1) (7.8) % Percentage of total net sales 19.4 % 14.7 % 21.9 % Europe 1,294.0 1,003.1 825.2 290.9 29.0 % 177.9 21.6 % Percentage of total net sales 8.6 % 14.1 % 15.9 % Others 595.4 235.5 195.5 359.9 152.8 % 40.0 20.5 % Percentage of total net sales 4.0 % 3.3 % 3.7 % Total net sales $ 14,989.2 $ 7,123.5 $ 5,196.1 $ 7,865.7 110.4 % $ 1,927.4 37.1 % Fiscal Year 2024 Compared with Fiscal Year 2023 The year-over-year 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 year-over-year increase of net sales in the regions outside the United States is mainly due to an increase in net sales in Singapore, Taiwan, South Africa and Germany, including the increase in demand from customers for GPU servers in those countries. Fiscal Year 2023 Compared with Fiscal Year 2022 The year-over-year increase in overall net sales is the result of increased selling prices and units shipped of product sold especially to large enterprise and datacenter customers. The United States experienced the highest percentage growth among all regions. This is due to increased demand from datacenter customers in the United States for GPU, HPC, and rack-scale solutions. The year-over-year decrease in Asia is mainly due to economic slowdown in China and Japan during fiscal year 2023 which heavily reduced the sales activities in that region. Cost of Sales, Gross Profit and Gross Margin Cost of sales primarily consists of the costs to manufacture our products, which includes: the costs of components and materials, contract manufacturing, shipping, personnel expenses (salaries, benefits, stock-based compensation and incentive bonuses), equipment and facility expenses, warranty costs and inventory reserve charges. The primary factors that impact our cost of sales are the volume and mix of products sold, changes in the cost of components, changes in logistic costs, changes in salary and benefits and overhead costs related to production as well as economies of scale gained from higher production volume in our facilities. Cost of sales as a percentage of net sales may increase or decrease over time if the changes in our costs are not matched by corresponding changes in our ASPs. Our cost of sales as a percentage of net sales is also impacted by the timing and extent to which we add to, and are able to efficiently utilize, our manufacturing capacity. 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. We use several suppliers and contract manufacturers to design and manufacture subsystems in accordance with our specifications, with most final assembly and testing performed at our manufacturing facilities in the region where our products are sold. We work with Ablecom, one of our key contract manufacturers and a related party, for our chassis and certain other components. We also outsource a significant part of the manufacturing of certain components, particularly power supplies, to Compuware, also a related party. We also collaborate on design and development activities with Ablecom and Compuware, where we substantially fund the design costs and retain the intellectual property rights. Our purchases of products from Ablecom and Compuware combined represented 4.3%, 6.6% and 8.3% of our cost of sales for fiscal years 2024, 2023 and 2022, respectively. For further details on our dealings with related parties, see Note 10, “Related Party Transactions” in the Notes to the Consolidated Financial Statements. SMCI | 2024 Form 10-K | 54 Cost of sales and gross margin for fiscal years 2024, 2023 and 2022 are as follows (dollars in millions): Years Ended June 30, 2024 over 2023 Change 2023 over 2022 Change 2024 2023 2022 $ % $ % Cost of sales $ 12,927.8 $ 5,840.5 $ 4,396.1 $ 7,087.3 121.3 % $ 1,444.4 32.9 % Gross profit 2,061.4 1,283.0 800.0 778.4 60.7 % 483.0 60.4 % Gross margin 13.8 % 18.0 % 15.4 % (4.2) % 2.6 % Fiscal Year 2024 Compared with Fiscal Year 2023 The year-over-year increase in cost of sales was primarily attributed to an increase of $7,006.7 million in costs of components, materials and contract manufacturing expenses primarily related to the increase in shipments of GPU servers, HPC, and rack scale solutions which have higher costs, a $52.3 million increase in inventory write-down adjustments, a $19.6 million increase in overhead costs which includes labor costs attributed to increase of operation activities and a $8.7 million increase in freight charges. The year-over-year decrease in the gross margin percentage was primarily due to our strategy to offer competitive pricing to gain market share, increased competition and a change in product and customer mix. Fiscal Year 2023 Compared with Fiscal Year 2022 The year-over-year increase in cost of sales was primarily attributed to an increase of $1,379.6 million in costs of components, materials and contract manufacturing expenses primarily related to the increased shipments of our products, a $59.2 million increase in overhead costs which includes labor costs attributed to increase of operation activities, a $36.6 million increase in inventory reserves, and a $13.6 million increase in other cost of sales partially offset by a $44.6 million decrease in freight charges due to a reduced need to expedite shipments caused by disruptions in the supply chain caused by the COVID-19 pandemic. The year-over-year increase in the gross margin percentage was primarily due to favorable product and customer mix and lower other cost of goods sold as a percentage of sales, based on higher volumes. Operating Expenses Research and development expenses consist of personnel expenses, including salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our research and development personnel, as well as product development costs such as materials and supplies, consulting services, third-party testing services and equipment and facility expenses related to our research and development activities. All research and development costs are expensed as incurred. We occasionally receive non-recurring engineering funding from certain suppliers and customers for joint development. Under these arrangements, we are reimbursed for certain research and development costs that we incur as part of the joint development efforts with our suppliers and customers. These amounts offset a portion of the related research and development expenses and have the effect of reducing our reported research and development expenses. Sales and marketing expenses consist primarily of personnel expenses, including salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our sales and marketing personnel, cost for tradeshows, sales representative fees and marketing programs. From time to time, we receive marketing development funding from certain suppliers. Under these arrangements, we are reimbursed for certain marketing costs that we incur as part of the joint promotion of our products and those of our suppliers. These amounts offset a portion of the related expenses and have the effect of reducing our reported sales and marketing expenses. The timing, magnitude and estimated usage of these programs can result in significant variations in reported sales and marketing expenses from period to period. Spending on cooperative marketing, reimbursed by our suppliers, typically increases in connection with new product releases by our suppliers. General and administrative expenses consist primarily of general corporate costs, including personnel expenses such as salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our general and administrative personnel, financial reporting, corporate governance and compliance, outside legal, audit, tax fees, insurance and credit losses on accounts receivable. Operating expenses for fiscal years 2024, 2023 and 2022 are as follows (dollars in millions): SMCI | 2024 Form 10-K | 55 Years Ended June 30, 2024 over 2023 Change 2023 over 2022 Change 2024 2023 2022 $ % $ % Research and development $ 463.5 $ 307.3 $ 272.3 $ 156.2 50.8 % $ 35.0 12.9 % Percentage of total net sales 3.1 % 4.3 % 5.2 % Sales and marketing 189.7 115.0 90.1 74.7 65.0 % 24.9 27.6 % Percentage of total net sales 1.3 % 1.6 % 1.7 % General and administrative 197.4 99.6 102.4 97.8 98.2 % (2.8) (2.7) % Percentage of total net sales 1.3 % 1.4 % 2.0 % Total operating expenses $ 850.6 $ 521.9 $ 464.8 $ 328.7 63.0 % $ 57.1 12.3 % Fiscal Year 2024 Compared with Fiscal Year 2023 Research and development expenses. The year-over-year increase in research and development expenses was driven by a $140.4 million increase in employee related costs primarily due to stock-based compensation increases of $84.2 million, salary increases and higher headcount as we expanded our workforce and invested in key talent, a $17.1 million increase in product development costs to support next generation products and technologies, offset by a $1.3 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 year-over-year increase in sales and marketing expenses was driven by a $64.8 million increase in employee related costs primarily due to stock-based compensation increases of $16.6 million, salary increases and higher headcount as we expanded our workforce and invested in key talent, a $10.6 million increase in advertising and other expenses offset by a $0.7 million increase 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 year-over-year increase in general and administrative expenses was driven by a $74.4 million increase in employee related costs primarily due to stock-based compensation increases of $65.0 million, salary increases and higher headcount as we expanded our workforce and invested in key talent, and a $23.4 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. Fiscal Year 2023 Compared with Fiscal Year 2022 Research and development expenses. The year-over-year increase in research and development expenses was driven by a $43.5 million increase in employee related costs primarily due to stock-based compensation increases, salary increases and higher headcount as we expanded our workforce and invested in key talent, a $2.6 million increase in product development costs to support the development of next generation products and technologies, offset by a $11.1 million increase in research and development credits received from certain suppliers and customers. Sales and marketing expenses. The year-over-year increase in sales and marketing expenses was driven by a $23.8 million increase in employee related costs primarily due to stock-based compensation increases, salary increases and higher headcount as we expanded our workforce and invested in key talent and a $4.6 million increase in travel and trade show expenses to drive new sales opportunities for our products and customer support, offset by a $3.5 million increase in marketing development funds received. General and administrative expenses. The year-over-year decrease in general and administrative expenses was primarily due to a $5.2 million decrease in professional fees and other, a $2.0 million decrease in litigation settlement expenses relating to a derivative lawsuit, partially offset by an increase of $4.4 million in compensation expenses associated with the cost of equity awards. Interest Expense and Other Income, Net Other income, net consists primarily of interest earned on our investment and cash deposits and foreign exchange gains and losses. SMCI | 2024 Form 10-K | 56 Interest expense represents interest expense on our term loans and lines of credit and amortization of the 2029 Convertible Notes issuance costs. Interest expense and other income, net for fiscal years 2024, 2023 and 2022 are as follows (dollars in millions): Years Ended June 30, 2024 over 2023 Change 2023 over 2022 Change 2024 2023 2022 $ % $ % Other income, net $ 22.7 $ 3.6 $ 8.1 $ 19.1 530.6 % $ (4.5) (55.6) % Interest expense (19.4) (10.5) (6.4) (8.9) 84.8 % (4.1) 64.1 % Interest expense and other income (expense), net $ 3.3 $ (6.9) $ 1.7 $ 10.2 (147.8) % $ (8.6) (505.9) % Fiscal Year 2024 Compared with Fiscal Year 2023 The increase in Other income, net of $19.1 million was driven by an increase of $26.1 million in interest income due to higher balances held in interest-bearing deposit accounts during the year, and an increase in foreign currency exchange gain of $6.1 million due to a strong US dollar, offset by a $13.1 million investment and impairment loss in equity securities. The increase in interest expense of $8.9 million was due to higher borrowing and higher interest rates on our outstanding line of credit and term loan balances. Fiscal Year 2023 Compared with Fiscal Year 2022 The change of $8.6 million in interest and other income (expense), net was primarily attributable to a $4.5 million decrease in foreign exchange gain due to unfavorable currency fluctuations primarily related to our borrowing facilities in Taiwan and a $4.1 million increase in interest expense due to an increase in interest rates on our outstanding loan balances. Provision for Income Taxes Our income tax provision is based on our taxable income generated in the jurisdictions in which we operate, which primarily include the United States, Taiwan, and the Netherlands. Our effective tax rate differs from the statutory rate primarily due to research and development tax credits, certain non-deductible expenses, tax benefits from foreign derived intangible income and stock-based compensation. A reconciliation of the federal statutory income tax rate to our effective tax rate is set forth in Note 12, “Income Taxes” in the Notes to the Consolidated Financial Statements in this Annual Report. Provision for income taxes and effective tax rates for fiscal years 2024, 2023 and 2022 are as follows (dollars in millions): Years Ended June 30, 2024 over 2023 Change 2023 over 2022 Change 2024 2023 2022 $ % $ % Income tax provision $ 63.3 $ 110.7 $ 52.9 $ (47.4) (42.8) % $ 57.8 109.3 % Percentage of total net sales 0.4 % 1.6 % 1.0 % Effective tax rate 5.2 % 14.7 % 15.7 % SMCI | 2024 Form 10-K | 57 Fiscal Year 2024 Compared with Fiscal Year 2023 The year-over-year decrease in the effective tax rate is attributable to higher tax deductions from stock-based compensation, an increase in the R&D tax credit. As a result of these favorable elements which were partially offset by certain unfavorable items including an increase in IRC section 162(m) officers' compensation tax add back, the total effective tax rate decreased by 9.5%, from 14.7% in fiscal year 2023, to 5.2% in fiscal year 2024. The Organization for Economic Co-operation and Development (the “OECD”) has announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules for a new 15% global minimum tax applicable to large multinational corporations. Certain jurisdictions, including many countries in which we operate, have enacted Pillar Two legislation that will start to become effective for our fiscal year 2025. The OECD, and its member countries, continue to release new guidance and legislation on Pillar Two and we continue to evaluate the impact on our financial position of the global implementation of these rules. Based on enacted laws, Pillar Two is not expected to materially impact our effective tax rate or cash flows in the next fiscal year. We continue to evaluate the impact of proposed and enacted legislative changes on our effective tax rate and cash flows as new guidance becomes available. New legislation or guidance could change our current assessment. Fiscal Year 2023 Compared with Fiscal Year 2022 The year-over-year decrease in the effective tax rate is attributable to higher tax deductions from disqualified disposition of stock-based compensation of $20.8 million, an increase in the R&D tax credit of $11.5 million, and a $4.1 million increase in foreign-derived income. As a result of these favorable elements which were partially offset by certain unfavorable items including an increase in state taxes, the total effective tax rate decreased by 1%, from 15.7% in fiscal year 2022, to 14.7% in fiscal year 2023. 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 a 30% ownership. Share of income (loss) from equity investee, net of taxes for fiscal years 2024, 2023 and 2022 are as follows (dollars in millions): Years Ended June 30, 2024 over 2023 Change 2023 over 2022 Change 2024 2023 2022 $ % $ % Share of income (loss) from equity investee, net of taxes $ 1.8 $ (3.6) $ 1.2 $ 5.4 (150.0) % $ (4.8) (400.0) % Percentage of total net sales — % * (0.1) % — % * * Represents an amount less than 0.1%. Fiscal Year 2024 Compared with Fiscal Year 2023 The period-over-period increase of $5.4 million in share of income from equity investee, net of taxes was primarily due to improvement in profitability from increased sales of the Corporate Venture. Fiscal Year 2023 Compared with Fiscal Year 2022 The period-over-period decrease of $4.8 million in share of income from equity investee, net of taxes was primarily due to lower net income recognized by the Corporate Venture. SMCI | 2024 Form 10-K | 58 Liquidity and Capital Resources We have financed our growth primarily with funds generated from operations, utilizing borrowing facilities, selling our common stock, and issuing convertible notes. 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 $1,669.8 million and $440.5 million as of June 30, 2024 and 2023, respectively. Our cash and cash equivalents in foreign locations was $337.3 million and $192.3 million as of June 30, 2024 and 2023, respectively. Amounts held outside of the U.S. are generally utilized to support non-U.S. liquidity needs. Repatriations generally will not be taxable from a U.S. federal tax perspective but may be subject to state income or foreign withholding tax. Where local restrictions prevent intercompany transfer of funds, our intent is to keep cash balances outside of the U.S. and to meet liquidity needs through operating cash flows, external borrowings, or both. We do not expect restrictions or potential taxes incurred on repatriation of amounts held outside of the U.S. to have a material effect on our overall liquidity, financial condition or results of operations. We believe that our current cash, cash equivalents, borrowing capacity available from our credit facilities and internally generated cash flows will be sufficient to support our operating businesses and maturing debt and interest payments for the 12 months following the issuance of these consolidated financial statements. Throughout the past fiscal year, we have strategically enhanced our liquidity by securing and expanding several of our credit facilities. These include obtaining a $50 million facility with HSBC Bank on December 7, 2023, increasing our CTBC Bank credit lines from $105 million to $185 million on February 16, 2024, renewing a $50 million credit agreement with Mega Bank on April 17, 2024, and establishing a $60 million Import and Export Trade Facility with E.SUN Bank on April 19, 2024. Additionally, on April 26, 2024, we entered into new credit facilities with Chang Hwa Bank for $20 million and NTD 300 million, as well as a $30 million loan agreement with First Commercial Bank. On November 20, 2024, we prepaid in full and terminated the 2018 Bank of America Credit Facility, the Cathay Bank Credit Agreement and the Bridge Term Loan Facility. 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 24,158,050 shares of common stock at $26.20 per share, with 23,151,050 shares sold by us and 1,007,000 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. We did not receive any proceeds from the sale of the shares of common stock by the selling stockholders. We intend to utilize the proceeds to support our operations, including working capital needs, manufacturing capacity expansion and increased R&D investments. On February 27, 2024, we issued $1,725.0 million aggregate principal amount of 2029 Convertible Notes in a private offering. The 2029 Convertible Notes are senior unsecured obligations and will mature on March 1, 2029. They may be repurchased, redeemed, or converted in accordance with their terms before that date. The 2029 Convertible Notes, when issued, did not bear regular interest, and the principal amount of the 2029 Convertible Notes did not accrete. The net proceeds from the issuance of the 2029 Convertible Notes were $1,553.7 million, net of debt issuance costs of $29.2 million and related capped call transactions of $142.1 million. The 2029 Convertible Notes and capped call transactions are discussed further in Note 8, “Convertible Notes" in the Notes to the Consolidated Financial Statements. As of June 30, 2024, we believe that none of the conditions permitting the holders of the 2029 Convertible Notes to convert their notes early had been met. On March 22, 2024, we completed a public offering of 20,000,000 shares of our common stock at $87.50 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): Years Ended June 30, 2024 over 2023 2023 over 2022 2024 2023 2022 Net cash (used in) provided by operating activities $ (2,486.0) $ 663.6 $ (440.8) $ (3,149.6) $ 1,104.4 Net cash used in investing activities $ (194.2) $ (39.5) $ (46.3) $ (154.7) $ 6.8 Net cash provided by (used in) financing activities $ 3,911.7 $ (448.3) $ 522.9 $ 4,360.0 $ (971.2) Effect of exchange rate fluctuations on cash $ (2.2) $ (3.4) $ (0.7) $ 1.2 $ (2.7) Net increase in cash, cash equivalents and restricted cash $ 1,229.3 $ 172.4 $ 35.1 $ 1,056.9 $ 137.3 SMCI | 2024 Form 10-K | 59 Operating Activities Net cash used in operating activities increased by $3,149.6 million for fiscal year 2024 as compared to fiscal year 2023. The increase was primarily due to an increase in working capital required for customer demand and business growth. The key changes in net working capital of $3,779.5 million include increases in inventory of $3,000.0 million and accounts receivable of $1,277.3 million driven by customer demand, offset by an increase in accounts payable of $552.1 million due to increase in inventory and timing of purchases and payments to vendors. The net cash used in operating activities was partially offset by a $117.2 million increase in non-cash items, including stock-based compensation expense of $177.1 million, and an increase in net income of $512.7 million. Net cash provided by operating activities increased by $1,104.4 million for fiscal year 2023 as compared to fiscal year 2022. The increase was primarily due to an increase in net cash provided from net working capital of $796.7 million, a $354.8 million increase in net income due to the increase in sales of our products and solutions, a $21.6 million increase in stock-based compensation expense as a result of an increase in the cost of equity awards, a $11.1 million decrease in unrealized gain due to currency fluctuation, and a $6.4 million increase in other non-cash items. These changes are offset by an increase of $86.2 million in deferred income taxes primarily due to an increase in capitalized research and development costs. Investing Activities Net cash used in investing activities increased by $154.7 million for fiscal years 2024 as compared to fiscal year 2023 primarily due to an increase in property, plant and equipment of $87.5 million, and an increase in investments in equity securities of early stage companies of $67.3 million. Increase in property, plant and equipment is primarily related to the acquisition of previously leased real estate in San Jose, California, for $80 million. Net cash used in investing activities was $39.5 million and $46.3 million for fiscal years 2023 and 2022, respectively, as we invested in our Green Computing Park in San Jose to expand our manufacturing capacity and office space, expanded our Bade Facility in Taiwan and made purchases of property, plant and equipment. Financing Activities Net cash provided by financing activities increased by $4,360.0 million for fiscal year 2024 as compared to fiscal year 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 2029 Convertible Notes, net of debt issuance costs, an increase of $489.5 million in proceeds from borrowings, net of repayment, and stock repurchases of $150.0 million in the fiscal year 2023, offset by $142.1 million cost of entering into capped call transactions related to our 2029 Convertible Notes and a higher withholding tax payment for equity compensation related activities of $146.2 million in the fiscal year 2024. Net cash used in financing activities increased by $971.2 million for fiscal year 2023 as compared to fiscal year 2022 primarily due to repurchases of our common stock for $150.0 million reflecting our commitment to return value to our shareholders and repayment of net borrowings of $813.2 million. Other Factors Affecting Liquidity and Capital Resources Refer to Note 7, “Lines of Credit and Term Loans” in the Notes to the Consolidated Financial Statements in this Annual Report for further information on our outstanding debt. On February 11, 2025, we announced that we had entered into privately negotiated agreements with certain holders of the 2029 Convertible Notes to (i) purchase $700.0 million aggregate principal amount of newly issued 2.25% Convertible Senior Notes due 2028 (the “2028 Convertible Notes”), and (ii) amend certain terms of and obtain waivers with respect to the 2029 Convertible Notes. On February 20, 2025, we executed a first supplemental indenture and second supplemental indenture related to the 2029 Convertible Notes that implemented the amendments to the 2029 Convertible Notes and we executed an indenture related to the 2028 Convertible Notes and issued the 2028 Convertible Notes pursuant to the terms of such indenture. Refer to Note 16, “Subsequent Events,” in the Notes to the Consolidated Financial Statements in this Annual Report for further information on the issuance of the 2028 Convertible Notes and the amendment of the terms of the 2029 Convertible Notes. SMCI | 2024 Form 10-K | 60 Capital Expenditure Requirements We anticipate our capital expenditures for the fiscal year 2025 will be in range of $140.0 million to $150.0 million, relating primarily to costs associated with our global manufacturing capabilities, including tooling for new products, new information technology investments including a major upgrade of our ERP system and automating certain key internal controls, and facilities upgrades and expansion. We will also continue to evaluate new business opportunities and new markets. As a result, our future growth within the existing business or new opportunities and markets may dictate the need for additional facilities and capital expenditures to support that growth. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on net sales growth, productivity, expenses, service levels and customer retention) and our expected return on investment. We intend to continue to focus our capital expenditures in fiscal year 2025 to support the growth of our operations. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced software and services offerings and investments in our office facilities and our IT system infrastructure. Contractual Obligations Our estimated future obligations as of June 30, 2024, include both current and long-term obligations. For our long-term debt as noted in Note 7, “Lines of Credit and Term Loans” in the Notes to the Consolidated Financial Statements, we have a current obligation of $402.3 million and a long-term obligation of $74.1 million. Additionally, as noted in Note 8, “Convertible Notes” in the Notes to the Consolidated Financial Statements, we have a convertible debt obligation of $1,725.0 million. Under our operating leases as noted in Note 9, "Leases", in the Notes to the Consolidated Financial Statements we have a current obligation of $9.3 million and a long-term obligation of $26.1 million. In June 2024, we executed a data center lease agreement and concurrently sublicensed it to another unrelated party (the “Sublicensee”) which is not reflected in the Consolidated Balance Sheets as the lease has not commenced. The future undiscounted fixed non-cancelable payment obligations pertaining to the data center lease is approximately $411.8 million. As noted in Note 13, "Commitments and Contingencies" in the Notes to the Consolidated Financial Statements, we have current obligations related to non-cancelable purchase commitments of $6.2 billion. We have not provided a detailed estimate of the payment timing of unrecognized tax benefits due to the uncertainty of when the related tax settlements will become due. See Note 12, “Income Taxes” in the Notes to the Consolidated Financial Statements in this Annual Report for a discussion of income taxes. Recent Accounting Pronouncements For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see Note 1, “Organization and Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in this Annual Report. SMCI | 2024 Form 10-K | 61 Item 7A. Quantitative and Qualitative Disclosure About Market Risk Interest Rate Risk The primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without significantly increasing the risk. Some of the securities we invest in are subject to market risk. This means that a change in prevailing interest rates may cause the fair value of the investment to fluctuate. To minimize this risk, we maintain our portfolio of cash equivalents and short-term investments in money market funds and certificates of deposit. Our investment in an auction rate security has been classified as non-current due to the lack of a liquid market for these securities. Since our results of operations are not dependent on investments, the risk associated with fluctuating interest rates is limited to our investment portfolio, and we believe that a 10% change in interest rates would not have a significant impact on our results of operations. As of June 30, 2024, our investments were in money market funds, certificates of deposits and auction rate securities. We are exposed to changes in interest rates as a result of our borrowings under our term loan and revolving lines of credit. The interest rates for the term loans and the revolving lines of credit ranged from 1.33% to 7.33% at June 30, 2024. Based on the outstanding principal indebtedness of $476.4 million under our credit facilities as of June 30, 2024, we believe that a 10% change in interest rates would not have a significant impact on the results of operations. Foreign Currency Risk To date, our international customer and supplier agreements have been denominated primarily in U.S. dollars and accordingly, we have limited exposure to foreign currency exchange rate fluctuations from customer agreements, and do not currently engage in foreign currency hedging transactions. The functional currency of our subsidiaries in the Netherlands and Taiwan is the U.S. dollar. However, certain loans and transactions in these entities are denominated in a currency other than the U.S. dollar, and thus we are subject to foreign currency exchange rate fluctuations associated with re-measurement to U.S. dollars. Such fluctuations have not been significant historically, and a 10% change in foreign currency exchange rates would not have a significant impact on the results of operations. Realized and unrealized foreign exchange gain for fiscal years 2024, 2023 and 2022 was $6.3 million, $0.2 million and $7.7 million, respectively. SMCI | 2024 Form 10-K | 62 Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID : 243 ) 64 Report of Independent Registered Public Accounting Firm (PCAOB ID: 34 ) 66 Consolidated Balance Sheets 67 Consolidated Statements of Operations 68 Consolidated Statements of Comprehensive Income 69 Consolidated Statements of Stockholders’ Equity 70 Consolidated Statements of Cash Flows 71 Notes to Consolidated Financial Statements 73 SMCI | 2024 Form 10-K | 63 Report of Independent Registered Public Accounting Firm Stockholders and Board of Directors Super Micro Computer, Inc. San Jose, California Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Super Micro Computer, Inc. (the “Company”) as of June 30, 2024, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2024, and the results of its operations and its cash flows for the year then ended , in conformity with accounting principles generally accepted in the United States of America. We also have audited the adjustments to the 2023 and 2022 consolidated financial statements to retrospectively apply the stock split, as discussed in Note 1. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2023 and 2022 consolidated financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2023 and 2022 consolidated financial statements taken as a whole. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of June 30, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 25, 2025 expressed an adverse opinion thereon. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. SMCI | 2024 Form 10-K | 64 Valuation of Inventories As described in Notes 1 and 5 to the consolidated financial statements, the Company’s consolidated inventories balance, which is stated at lower of cost, using weighted average cost method, or net realizable value, was $4.33 billion as of June 30, 2024. The Company evaluates inventories for excess and obsolescence and lower of cost or net realizable value and, as necessary, writes down the valuation of inventories based on the Company’s review of inventory quantities on hand as compared with inventory aging, forecasted usage and sales, anticipated selling price, product obsolescence and other factors. We identified the valuation of inventories as a critical audit matter. Auditing the valuation of inventories, which includes write-down percentages applied to the different inventory categories for the adjustments for excess and obsolescence, involved especially challenging and subjective auditor judgments due to the nature and extent of effort required to address this matter. The primary procedures we performed to address this critical audit matter included: • Inquiring of various personnel in the Company including but not limited to finance and operations personnel about the expected product lifecycles and product development plans to understand and evaluate the Company’s methodology for determining inventory that is excess or obsolete and the key assumptions and judgments made as part of the process, including the write-down percentages used to write down the valuation of inventory. • Assessing management’s estimate of write-down percentages by recalculating inventory turns and historical write-down percentages across multiple fiscal periods and comparing it with the write-down percentages used by management to evaluate management’s ability to accurately estimate excess and obsolete inventory. • Testing the completeness and accuracy of the underlying data utilized in management’s excess and obsolescence analysis, including the classification of inventory by aging category. • Assessing the existence of contradictory evidence based on reading the Company’s press releases and industry reports, as well as our observations and inquiries as to changes within the business. Revenue Recognition from Contracts with Customers As described in Notes 1 and 3 to the consolidated financial statements, the Company’s total revenue was $14.99 billion for the year ended June 30, 2024. The Company recognizes revenue upon transfer of control of promised goods or services in a contract. Transfer of control generally occurs at the point of shipment or upon delivery to the customer. We identified the auditing of revenue recognition from contracts with customers as a critical audit matter because it involved especially challenging auditor judgment due to the high degree of auditor effort required in performing audit procedures. The primary procedures we performed to address this critical audit matter included: • Evaluating revenue transactions on a sample basis by obtaining and inspecting source documents, such as purchase orders, contracts, invoices, proof of shipment or proof of delivery, and proof of subsequent cash receipts. • Inspecting a sample of credit memos and the related invoice to assess whether they were recorded in the appropriate period. • Evaluating the completeness and accuracy of information produced by the entity. • Evaluating the completeness and accuracy of the terms and conditions in certain customer contracts, including confirming the terms and conditions of contracts. /s/ BDO USA, P.C. We have served as the Company's auditor since 2024. San Jose, California February 25, 2025 SMCI | 2024 Form 10-K | 65 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Super Micro Computer, Inc. Opinion on the Financial Statements We have audited, before the effects of the adjustments to retrospectively apply the stock split discussed in Note 1 to the consolidated financial statements, the consolidated balance sheet of Super Micro Computer, Inc. and subsidiaries (the "Company") as of June 30, 2023, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows, for the years ended June 30, 2023 and 2022, and the related notes (collectively referred to as the "financial statements") (the June 30, 2023 and 2022 financial statements before the effects of the retrospective adjustments discussed in Note 1 to the financial statements are not presented herein). In our opinion, the 2023 and 2022 financial statements, before the effects of the adjustments to retrospectively apply the stock split discussed in Note 1 to the financial statements, present fairly, in all material respects, the financial position of the Company as of June 30, 2023, and the results of its operations and its cash flows for the years ended June 30, 2023 and 2022, in conformity with accounting principles generally accepted in the United States of America. We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the stock split discussed in Note 1 to the financial statements, and accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by the successor auditor. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ DELOITTE & TOUCHE LLP San Jose, California August 25, 2023 We began serving as the Company’s auditor in 2003. In 2023, we became the predecessor auditor. SMCI | 2024 Form 10-K | 66 SUPER MICRO COMPUTER, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par value per share amounts) June 30, June 30, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 1,669,766 $ 440,459 Accounts receivable, net of allowance for credit losses of $ 73 and $ 82 at June 30, 2024 and 2023, respectively (including amounts receivable from related parties of $ 6,194 and $ 5,473 at June 30, 2024 and 2023, respectively) 2,737,331 1,148,259 Inventories 4,333,029 1,445,564 Prepaid expenses and other current assets (including receivables from related parties of $ 11,939 and $ 27,732 at June 30, 2024 and 2023, respectively) 191,834 145,144 Total current assets 8,931,960 3,179,426 Property, plant and equipment, net 414,008 290,240 Deferred income taxes, net 365,172 162,654 Other assets 114,952 42,409 Total assets $ 9,826,092 $ 3,674,729 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable (including amounts due to related parties of $ 165,295 and $ 89,134 at June 30, 2024 and 2023, respectively) $ 1,472,381 $ 776,831 Accrued liabilities (including amounts due to related parties of $ 170 and $ 14,017 at June 30, 2024 and 2023, respectively) 259,674 163,865 Income taxes payable 18,268 129,166 Lines of credit and current portion of term loans 402,346 170,123 Deferred revenue 193,052 134,667 Total current liabilities 2,345,721 1,374,652 Deferred revenue, non-current 223,324 169,781 Term loans 74,083 120,179 Convertible notes 1,697,716 — Other long-term liabilities 67,878 37,947 Total liabilities 4,408,722 1,702,559 Commitments and contingencies (Note 13) Stockholders’ equity: Common stock and additional paid-in capital, $ 0.001 par value Authorized shares: 1,000,000 ; Issued and outstanding shares: 588,087 and 529,014 at June 30, 2024 and 2023, respectively 2,830,820 538,352 Accumulated other comprehensive income 706 639 Retained earnings 2,585,680 1,433,014 Total Super Micro Computer, Inc. stockholders’ equity 5,417,206 1,972,005 Noncontrolling interest 164 165 Total stockholders’ equity 5,417,370 1,972,170 Total liabilities and stockholders’ equity $ 9,826,092 $ 3,674,729 See accompanying notes to consolidated financial statements. SMCI | 2024 Form 10-K | 67 SUPER MICRO COMPUTER, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Years Ended June 30, 2024 2023 2022 Net sales (including related party sales of $ 69,791 , $ 60,537 , and $ 147,091 in fiscal years 2024, 2023 and 2022, respectively) $ 14,989,251 $ 7,123,482 $ 5,196,099 Cost of sales (including related party purchases of $ 552,136 , $ 384,762 , and $ 371,076 in fiscal years 2024, 2023 and 2022, respectively) 12,927,841 5,840,470 4,396,098 Gross profit 2,061,410 1,283,012 800,001 Operating expenses: Research and development 463,548 307,260 272,273 Sales and marketing 189,738 115,025 90,126 General and administrative 197,350 99,585 102,435 Total operating expenses 850,636 521,870 464,834 Income from operations 1,210,774 761,142 335,167 Other income, net 22,717 3,646 8,079 Interest expense ( 19,352 ) ( 10,491 ) ( 6,413 ) Income before income tax provision 1,214,139 754,297 336,833 Income tax provision ( 63,294 ) ( 110,666 ) ( 52,876 ) Share of income (loss) from equity investee, net of taxes 1,821 ( 3,633 ) 1,206 Net income $ 1,152,666 $ 639,998 $ 285,163 Net income per common share: Basic $ 2.07 $ 1.21 $ 0.55 Diluted $ 1.92 $ 1.14 $ 0.53 Weighted-average shares used in calculation of net income per common share: Basic 555,878 529,249 514,785 Diluted 602,146 559,704 536,155 See accompanying notes to consolidated financial statements. SMCI | 2024 Form 10-K | 68 SUPER MICRO COMPUTER, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Years Ended June 30, 2024 2023 2022 Net income $ 1,152,666 $ 639,998 $ 285,163 Other comprehensive income (loss), net of tax: Foreign currency translation gain (loss) and other 24 ( 223 ) ( 247 ) Net change in defined benefit obligations 43 ( 49 ) 705 Total other comprehensive income (loss), net of tax 67 ( 272 ) 458 Total comprehensive income $ 1,152,733 $ 639,726 $ 285,621 See accompanying notes to consolidated financial statements. SMCI | 2024 Form 10-K | 69 SUPER MICRO COMPUTER, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share amounts) Common Stock and Additional Paid-In Capital Accumulated Other Comprehensive Income (loss) Retained Earnings Non-controlling Interest Total Stockholders’ Equity Shares Amount Balance at June 30, 2021 505,820,780 $ 438,012 $ 453 $ 657,760 $ 173 $ 1,096,398 Exercise of stock options 11,977,560 20,994 — — — 20,994 Release shares of common stock upon vesting of restricted stock units 7,636,410 — — — — — Shares withheld for the withholding tax on vesting of restricted stock units ( 2,324,610 ) ( 10,081 ) — — — ( 10,081 ) Stock-based compensation — 32,816 — — — 32,816 Other comprehensive income — — 458 — — 458 Net income (loss) — — — 285,163 ( 1 ) 285,162 Balance at June 30, 2022 523,110,140 $ 481,741 $ 911 $ 942,923 $ 172 $ 1,425,747 Exercise of stock options 14,548,110 30,466 — — — 30,466 Release of shares of common stock upon vesting of restricted stock units 9,936,350 — — — — — Shares withheld for the withholding tax on vesting of restricted stock units ( 3,047,520 ) ( 28,197 ) — — — ( 28,197 ) Share repurchase and retirement ( 15,533,500 ) ( 91 ) — ( 149,907 ) — ( 149,998 ) Stock-based compensation — 54,433 — — — 54,433 Other comprehensive loss — — ( 272 ) — — ( 272 ) Net income (loss) — — — 639,998 ( 7 ) 639,991 Balance at June 30, 2023 529,013,580 $ 538,352 $ 639 $ 1,433,014 $ 165 $ 1,972,170 Exercise of stock options 8,725,220 29,453 — — — 29,453 Release of shares of common stock upon vesting of restricted stock units 10,340,470 — — — — — Shares withheld for the withholding tax on vesting of restricted stock units ( 3,142,910 ) ( 174,354 ) — — — ( 174,354 ) Issuances of common stock in public offerings, net of issuance costs 43,151,050 2,313,983 — — — 2,313,983 Purchase of capped calls, net of tax — ( 108,121 ) — — — ( 108,121 ) Stock-based compensation — 231,507 — — — 231,507 Other comprehensive gain — — 67 — — 67 Net income (loss) — — — 1,152,666 ( 1 ) 1,152,665 Balance at June 30, 2024 588,087,410 $ 2,830,820 $ 706 $ 2,585,680 $ 164 $ 5,417,370 See accompanying notes to consolidated financial statements. SMCI | 2024 Form 10-K | 70 SUPER MICRO COMPUTER, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended June 30, 2024 2023 2022 OPERATING ACTIVITIES: Net income $ 1,152,666 $ 639,998 $ 285,163 Reconciliation of net income to net cash (used in) provided by operating activities: Depreciation, amortization and non-cash interest 40,985 34,904 32,471 Stock-based compensation expense 231,507 54,433 32,816 Share of (income) loss from equity investee ( 1,821 ) 3,633 ( 1,206 ) Unrealized foreign currency exchange gain ( 531 ) ( 2,619 ) ( 13,747 ) Deferred income taxes, net ( 168,499 ) ( 92,969 ) ( 6,817 ) Other 12,343 ( 668 ) 368 Changes in operating assets and liabilities: Accounts receivable, net (including changes in related party balances of $( 721 ), $ 2,925 and $ 280 in fiscal years 2024, 2023 and 2022, respectively) ( 1,589,187 ) ( 311,897 ) ( 372,438 ) Inventories ( 2,899,996 ) 100,042 ( 504,642 ) Prepaid expenses and other assets (including changes in related party balances of $ 15,793 , $( 3,320 ) and $( 575 ) in fiscal years 2024, 2023 and 2022, respectively) ( 44,646 ) 8,313 ( 28,794 ) Accounts payable (including changes in related party balances of $ 76,161 , $ 1,779 and $ 17,259 in fiscal years 2024, 2023 and 2022, respectively) 679,190 127,135 50,145 Accrued liabilities (including changes in related party balances of $( 13,847 ), $( 4,659 ) and $ 148 in fiscal years 2024, 2023 and 2022, respectively) 92,942 ( 50,311 ) 35,891 Income taxes payable ( 110,897 ) 87,423 29,002 Deferred revenue 111,927 70,587 31,544 Other long-term liabilities (including changes in related party balances of $( 178 ), $( 321 ) and $ 499 in fiscal years 2024, 2023 and 2022, respectively) 8,045 ( 4,424 ) ( 10,557 ) Net cash (used in) provided by operating activities ( 2,485,972 ) 663,580 ( 440,801 ) INVESTING ACTIVITIES: Purchases of property, plant and equipment (including payments to related parties of $ 10,625 , $ 7,844 and $ 4,818 in fiscal years 2024, 2023 and 2022, respectively) ( 124,279 ) ( 36,793 ) ( 45,182 ) Investment in equity securities ( 69,673 ) ( 500 ) ( 1,100 ) Acquisition, net of cash acquired ( 296 ) ( 2,193 ) — Net cash used in investing activities ( 194,248 ) ( 39,486 ) ( 46,282 ) FINANCING ACTIVITIES: Proceeds from lines of credit and term loans 2,156,529 1,093,860 1,153,317 Repayment of lines of credit and term loans ( 1,967,545 ) ( 1,394,391 ) ( 640,695 ) Payment of other fees for debt financing — — ( 592 ) Proceeds from exercise of stock options 29,453 30,466 20,994 Payment of withholding tax on vesting of restricted stock units ( 174,354 ) ( 28,197 ) ( 10,081 ) Stock repurchases — ( 149,998 ) — Issuances of common stock in public offerings, net of issuance costs of $ 42,575 2,313,983 — — Proceeds from issuance of 2029 Convertible Notes, net of issuance costs of $ 29,232 1,695,768 — — Purchase of capped calls ( 142,140 ) — — Other 30 ( 33 ) ( 72 ) Net cash provided by (used in) financing activities 3,911,724 ( 448,293 ) 522,871 Effect of exchange rate fluctuations on cash ( 2,191 ) ( 3,400 ) ( 678 ) Net increase in cash, cash equivalents and restricted cash 1,229,313 172,401 35,110 Cash, cash equivalents and restricted cash at beginning of year 440,960 268,559 233,449 Cash, cash equivalents and restricted cash at end of year $ 1,670,273 $ 440,960 $ 268,559 SMCI | 2024 Form 10-K | 71 Supplemental disclosure of cash flow information: Cash paid for interest $ 16,015 $ 8,541 $ 5,492 Cash paid for taxes, net of refunds $ 392,020 $ 114,963 $ 19,690 Non-cash investing and financing activities: Unpaid property, plant and equipment purchases (including due to related parties of $ 2,339 , $ 810 and $ 689 as of June 30, 2024, 2023 and 2022, respectively) $ 19,613 $ 2,181 $ 7,825 Right of use ("ROU") assets obtained in exchange for operating lease commitments $ 32,581 $ 3,197 $ 11,151 Transfer of inventory to property, plant and equipment, net $ 12,535 $ — $ — See accompanying notes to consolidated financial statements. SMCI | 2024 Form 10-K | 72 SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Organization and Summary of Significant Accounting Policies Organization Super Micro Computer, Inc. (“Super Micro Computer” or the “Company”) was incorporated in 1993. Super Micro Computer is a global leader in server technology and green computing innovation. Super Micro Computer develops and provides high performance server and storage solutions based upon an innovative, modular and open-standard architecture. Super Micro Computer has operations primarily in the United States, Taiwan, the Netherlands, China and Japan. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The consolidated financial statements of Super Micro Computer include the accounts of Super Micro Computer and entities consolidated under the variable interest model or the voting interest model. Noncontrolling interests are not presented separately in the consolidated statements of operations and consolidated statements of comprehensive income as the amounts are immaterial. All intercompany accounts and transactions of Super Micro Computer and its consolidated entities (collectively, the "Company") have been eliminated in consolidation. For equity investments over which the Company is able to exercise significant influence over the investee but does not control the investee and is not the primary beneficiary of the investee’s activities are accounted for using the equity method. Investments in equity securities which do not have readily determinable fair values and for which the Company is not able to exercise significant influence over the investee are accounted for under the measurement alternative which is the cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar securities of the same investee. During the year ended June 30, 2023, the Company acquired 100 % of Gemini Open Cloud Computing Inc. ("Gemini") for $ 2.5 million. The purchase price was allocated to tangible and intangible assets and liabilities based on fair values and goodwill of $ 1.8 million, attributed to planned growth, was recorded within other assets and reviewed annually for impairment. Goodwill is not expected to be tax-deductible. Acquisition-related costs were immaterial and included in general and administrative expenses. Gemini's post-acquisition revenue and results were immaterial. Pro forma earnings and revenues are not presented as they were not material. On June 28, 2024, Gemini was merged with and into our Taiwan operations, further integrating its capabilities within our global framework. The Company has agreements with certain contract manufacturers that allow the Company to offset receivables and payables with those counterparties. As of June 30, 2024 the gross amount recorded within the consolidated balance sheet in Other receivable and Accounts Payable was $ 14.0 million and $ 38.3 million, respectively. Forward Stock Split On September 30, 2024, the Company completed a 10 -for-1 forward split of its common stock. Trading on a split-adjusted basis commenced on October 1, 2024. All references to shares of common stock and per share amounts contained in this Annual Report have been retroactively adjusted to reflect the stock split. SMCI | 2024 Form 10-K | 73 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Use of Estimates U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates include, but are not limited to revenue recognition, allowances for credit losses and sales returns, inventory valuation, useful lives of property, plant and equipment, product warranty accruals, stock-based compensation, impairment of investments, and income taxes. The Company’s estimates are evaluated on an ongoing basis and changes in the estimates are recognized prospectively. Actual results could differ materially from those estimates. These estimates and judgments are based on historical facts and various other assumptions that the Company believes are reasonable. Fair Value of Financial Instruments The Company accounts for certain assets and liabilities at fair value, which is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly arms-length transaction between market participants. When measuring fair value, the Company takes into account the characteristics of the asset or liability that a market participant would consider when pricing the asset or liability at the measurement date. The Company considers one or more techniques for measuring fair value: market approach, income approach, and cost approach. The valuation techniques include inputs that are based on three different levels of observability to the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are: • Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; • Level 2 - Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly; and • Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. Accounts receivable, other assets, accounts payable and accrued liabilities are carried at cost, which approximates fair value due to the short maturity of these instruments. Cash equivalents, certificates of deposit and the investment in an auction rate security are carried at fair value. Short-term and long-term debt and 2029 Convertible Notes are all carried at amortized cost. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid instruments with an original maturity of three months or less from the date of purchase to be cash equivalents. Cash equivalents consist primarily of money market funds and certificates of deposit with original maturities of less than three months. Restricted cash is comprised of amounts held in bank accounts which are controlled by the lenders pursuant to the terms of certain debt agreements, certificates of deposit primarily related to leases and customs requirements, and money market accounts held in escrow pursuant to the Company’s workers’ compensation program. These restricted cash balances have been excluded from the Company's cash and cash equivalents balance and are included in Other assets on the Company’s consolidated balance sheet. June 30, 2024 June 30, 2023 Cash and cash equivalents $ 1,669,766 $ 440,459 Restricted cash included in other assets 507 501 Total cash, cash equivalents and restricted cash $ 1,670,273 $ 440,960 SMCI | 2024 Form 10-K | 74 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Inventories Inventories are stated at lower of cost, using weighted average cost method, or net realizable value. Net realizable value is the estimated selling price of the Company's products in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventories consist of raw materials (principally electronic components), work in process (principally products being assembled) and finished goods. The Company evaluates inventory on a quarterly basis for excess and obsolescence and lower of cost or net realizable value and, as necessary, writes down the valuation of inventories based upon the Company's inventory aging, forecasted usage and sales, anticipated selling price, product obsolescence and other factors. Once inventory is written down, its new value is maintained until it is sold or scrapped. The Company receives various rebate incentives from certain suppliers based on its contractual arrangements, including volume-based rebates. The rebates earned are recognized as a reduction of cost of inventories and reduce the cost of sales in the period when the related inventory is sold. Property, Plant and Equipment Property, plant and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets as follows: Software 3 to 5 years Machinery and equipment 5 to 7 years Furniture and fixtures 5 years Buildings 39 years Building improvements Up to 20 years Land improvements 15 years Leasehold improvements Shorter of lease term or estimated useful life Long-Lived Assets The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount, an impairment loss would be measured based on the fair value of the asset compared to the carrying amount. No impairment charge for long-lived assets has been recorded in any of the periods presented. Revenue Recognition The Company generates revenues from the sale of server and storage systems, subsystems, accessories and services. Product sales . The Company recognizes revenue from sales of products as control is transferred to customers, which generally happens at the point of shipment or upon delivery, unless customer acceptance is required. Determining the point in time that control transfers to the customer requires judgment. Products sold by the Company are shipped from the Company’s facilities or drop shipped from the Company's vendors. The Company may use distributors to sell products to end customers. Revenue from distributors is recognized when the distributor obtains control of the product, which generally happens at the point of shipment or upon delivery. The Company applies judgment in determining the transaction price as the Company may be required to estimate variable consideration when determining the amount of revenue to recognize. Variable consideration is estimated using either the expected value or most likely amount method, depending on which method better predicts the amount of consideration to which we may be entitled. As part of determining the transaction price in contracts with customers, the Company estimates reserves for future sales returns based on a review of its history of actual returns for each major product line. Based upon historical experience, a refund liability is recorded at the time of sale for estimated product returns and an asset is recognized for the amount expected to be recorded in inventory upon product return, less the expected recovery costs. SMCI | 2024 Form 10-K | 75 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Services sales . The Company’s sale of services mainly consists of extended warranty and on-site services. Revenue related to extended warranty commences upon the expiration of the standard warranty period and is recognized ratably over the contractual period as the Company stands ready to perform any required warranty service. Revenue related to on-site services commences upon recognition of the product sale and is recognized ratably over the contractual period as the on-site services are made available to the customer. These service contracts are typically one to five years in length. Service revenue has been less than 10% of net sales for all periods presented and is not separately disclosed. Contracts with multiple promised goods and services. Certain of the Company’s contracts contain multiple promised goods and services. The Company assesses whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment requires management to make judgments about the individual promised goods or services and whether such goods or services are separable from the other aspects of the contractual relationship. Performance obligations in a contract are identified based on the promised goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. For contracts that contain multiple performance obligations, the Company allocates the transaction price for each customer contract to each performance obligation based on the relative standalone selling price ("SSP") for each performance obligation within each contract. The Company recognizes the amount of transaction price allocated to each performance obligation within a customer contract as revenue at the time the related performance obligation is satisfied by transferring control of the promised good or service to a customer. Determining the relative SSP for contracts that contain multiple performance obligations requires significant judgment. The Company determines SSP based on the price at which the performance obligation is sold separately. If the SSP is not observable through past transactions, the Company applies judgment to estimate the SSP. For all performance obligations, the Company is able to establish the SSP by maximizing the use of observable inputs. The Company typically establishes an SSP range for its products and services, which is reassessed on a periodic basis or when facts and circumstances change. SSP for the Company’s products and services can evolve over time due to changes in its pricing practices, internally approved pricing guidelines with respect to geographies, customer type, internal costs, and gross margin objectives for the related performance obligations which can also be influenced by intense competition, changes in demand for the Company’s products and services, economic and other factors. When the Company receives consideration from a customer prior to transferring goods or services to the customer, the Company records a contract liability (deferred revenue). The Company also recognizes deferred revenue when it has an unconditional right to consideration (i.e., a receivable) before transfer of control of goods or services to a customer. Shipping and handling fees collected from customers are included in net sales when control of the product is transferred to the customer, and the related shipping and handling costs are included in cost of sales. The Company has elected to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost rather than as an additional promised service. Taxes imposed by governmental authorities on the Company's revenue producing activities with customers, such as sales taxes and value added taxes, are excluded from net sales. Accounts Receivable and Allowance for Credit Losses The Company records amounts as accounts receivable when the Company’s right to consideration is unconditional. Accounts receivable are recorded at the invoiced amount. For certain customers, we require payment before the products or services are delivered to the customer. Customers are subjected to a credit review process that evaluates each customer’s financial position and ability and intent to pay. On a quarterly basis, the Company makes estimates of its uncollectible accounts receivable by analyzing the aging of accounts receivable, history of bad debts, customer creditworthiness, current economic trends, and reasonable economic forecasts that affect collectability to evaluate the adequacy of the allowance for credit losses. For further details on the Company's allowance for credit losses, see Note 4, “Accounts Receivable Allowances” in the Notes to the Consolidated Financial Statements. SMCI | 2024 Form 10-K | 76 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Cost of Sales Cost of sales primarily consists of the costs of materials, contract manufacturing, in-bound shipping, personnel and related expenses including stock-based compensation, equipment and facility expenses, warranty costs and provision for lower of cost or net realizable value and excess and obsolete inventory. Product Warranties The Company offers product warranties typically ranging from 15 to 39 months against any defective products. These standard warranties are assurance type warranties, and the Company does not offer any services beyond the assurance that the product will continue working as specified. Therefore, these warranties are not considered separate performance obligations in the arrangement. Based on historical experience, the Company accrues estimated returns of defective products at the time revenue is recognized. The Company monitors warranty obligations and may revise its warranty reserve if actual costs of product repair and replacement are significantly higher or lower than estimated. Accruals for anticipated future warranty costs are recorded to cost of sales and included in accrued liabilities and other long-term liabilities. Warranty accruals are based on estimates that are updated on an ongoing basis taking into consideration inputs such as new product introductions, changes in the volume of claims compared with the Company's historical experience, and the changes in the cost of servicing warranty claims. The Company accounts for the effect of such changes in estimates prospectively. The following table presents for the fiscal years ended June 30, 2024, 2023 and 2022, the reconciliation of the changes in accrued warranty costs which is included as a component of accrued liabilities and other long-term liabilities (in thousands): Years Ended June 30, 2024 2023 2022 Balance, beginning of the year $ 14,859 $ 12,137 $ 12,863 Provision for warranty 52,253 35,407 28,150 Costs utilized ( 49,204 ) ( 33,784 ) ( 29,872 ) Change in estimated liability for pre-existing warranties ( 93 ) 1,099 996 Balance, end of the year $ 17,815 $ 14,859 $ 12,137 Current portion 10,009 9,079 9,073 Non-current portion $ 7,806 $ 5,780 $ 3,064 Research and Development Research and development expenses consist of personnel expenses including salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for the Company's research and development personnel, as well as materials and supplies, consulting services, third-party testing services and equipment and facility expenses related to the Company's research and development activities. All research and development costs are expensed as incurred. The Company occasionally receives funding from certain suppliers and customers towards its development efforts and such amounts are recorded as a reduction of research and development expenses and were $ 21.5 million, $ 20.0 million, and $ 8.2 million for the fiscal years ended June 30, 2024, 2023 and 2022, respectively. Software development costs, including costs to develop software sold, leased, or otherwise marketed, that are incurred subsequent to the establishment of technological feasibility are capitalized if significant. Costs incurred during the application development stage for internal-use software are capitalized if significant. Capitalized software development costs are amortized using the straight-line amortization method over the estimated useful life of the applicable software. Such software development costs required to be capitalized have not been material to date. Advertising Costs Advertising costs, net of reimbursements received under the cooperative marketing arrangements with the Company's vendors, are expensed as incurred. Total advertising and promotional expenses were $ 10.7 million, $ 2.0 million and $ 0.1 million for the fiscal years ended June 30, 2024, 2023 and 2022, respectively. SMCI | 2024 Form 10-K | 77 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Stock-Based Compensation The Company measures and recognizes compensation expense for all share-based awards made to employees and non-employees, including stock options, restricted stock units ("RSUs") and performance-based restricted stock units (“PRSUs”). The Company recognizes the grant date fair value of all share-based awards over the requisite service period and accounts for forfeitures as they occur. Stock option and RSU awards are recognized to expense on a straight-line basis over the requisite service period. PRSU awards are recognized to expense using an accelerated method only when it is probable that a performance condition is met during the vesting period. If it is not probable, no expense is recognized and the previously recognized expense is reversed. The Company bases initial accrual of compensation expense on the estimated number of PRSUs that are expected to vest over the requisite service period. That estimate is revised if subsequent information indicates that the actual number of PRSUs is likely to differ from previous estimates. The cumulative effect on current and prior periods of a change in the estimated number of PRSUs expected to vest is recognized in stock-based compensation expense in the period of the change. Previously recognized compensation expense is not reversed if vested stock options, RSUs or PRSUs for which the requisite service has been rendered and the performance condition has been met expire unexercised or are not settled. The fair value of RSUs and PRSUs is based on the closing market price of the Company's common stock on the date of the grant. The fair value of stock options with a market condition is estimated, at the date of grant, using the Monte Carlo Simulation model. The Company estimates the fair value of stock options granted using a Black-Scholes option pricing model. This model requires the Company to make estimates and assumptions with respect to the expected term of the option and the expected volatility of the price of the Company's common stock. The expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on the Company's historical experience. The expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the United States Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Leases The Company has arrangements for the right to use its office, warehouse spaces and other premises, and equipment. The Company determines at inception if an arrangement is or contains a lease. When the terms of a lease effectively transfer control of the underlying asset to the Company, it is classified as a finance lease. All other leases are classified as operating leases. Operating Leases Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments over the lease term. Operating lease ROU assets and liabilities are recognized at lease commencement based on the present value of the remaining lease payments discounted using the Company’s incremental borrowing rate as the interest rate implicit in the lease arrangements is not readily determinable. The incremental borrowing rate is estimated to be the interest rate that the Company would have to pay to borrow on a fully collateralized basis with similar terms and payments and in the economic environment where the leased asset is located. Operating lease ROU assets also include initial direct costs incurred, prepaid lease payments, minus any lease incentives. Operating lease expense is recognized on a straight-line basis over the lease term. The Company accounts for fixed payments for lease and non-lease components as a single lease component which increases the amount of ROU assets and liabilities. Non-lease components that have variable costs, such as common area maintenance, are expensed as incurred and not included in the ROU assets and lease liabilities. SMCI | 2024 Form 10-K | 78 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) For operating leases with lease terms of more than 12 months, operating lease ROU assets are recorded in other assets, and lease liabilities are recorded in accrued liabilities and other long-term liabilities on the consolidated balance sheet. ROU assets recorded in Other assets as of June 30, 2024 and 2023 were $ 34.6 million and $ 18.9 million, respectively. The Company's lease term includes periods covered by options to extend the lease when it is reasonably certain that it will exercise that option. The Company’s lease term includes periods covered by an option to terminate the lease when it is reasonably certain that it will not exercise that option. The Company elected to apply the short-term lease recognition exemption and does not recognize ROU asset and lease liabilities for leases with an initial term of 12 months or less and recognizes as expense the payments under such leases on a straight-line basis over the lease term. The Company's leases with an initial term of 12 months or less are immaterial. Finance Leases ROU assets under finance leases are recorded in property, plant and equipment, net and lease liabilities are included in accrued liabilities and other long-term liabilities on the consolidated balance sheet. Finance lease interest expense is recognized based on an effective interest method and depreciation of assets is recorded on a straight-line basis over the shorter of the lease term and useful life of the asset. The Company's finance leases are immaterial. Income Taxes The Company accounts for income taxes under an asset and liability approach. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax reporting purposes, net of operating loss carry-forwards and other tax credits measured by applying enacted tax laws related to the financial statement periods. Valuation allowances are provided when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized. The Company recognizes tax liabilities for uncertain income tax positions on the income tax return based on the two-step process. The first step is to determine whether it is more likely than not that each income tax position would be sustained upon audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. Estimating these amounts requires the Company to determine the probability of various possible outcomes. The Company evaluates these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of several factors, including changes in facts or circumstances, changes in applicable tax law, settlement of issues under audit and new exposures. If the Company later determines that its exposure is lower or that the liability is not sufficient to cover its revised expectations, the Company adjusts the liability and effects a related charge in its tax provision during the period in which the Company makes such a determination. Variable Interest Entities The Company determines at the inception of each arrangement whether an entity in which the Company holds an investment or in which the Company has other variable interests is considered a variable interest entity ("VIE"). The Company consolidates VIEs when it is the primary beneficiary. The primary beneficiary of a VIE is the party that meets both of the following criteria: (1) has the power to make decisions that most significantly affect the economic performance of the VIE and (2) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Periodically, the Company assesses whether any changes in the interest or relationship with the entity affect the determination of whether the entity is still a VIE and, if so, whether the Company is the primary beneficiary. If the Company is not the primary beneficiary in a VIE, the Company accounts for the investment or other variable interest in accordance with applicable GAAP. The Company has concluded that Ablecom Technology, Inc. (“Ablecom”) and its affiliate, Compuware Technology, Inc. ("Compuware"), are VIEs; however, the Company is not the primary beneficiary as it does not have the power to direct the activities that are most significant to the entities and therefore, the Company does not consolidate these entities. In performing its analysis, the Company considered its explicit arrangements with Ablecom and Compuware, and all contractual arrangements with these entities. Also, because of the substantial related party relationships between the Company and these entities, the Company considered whether any implicit arrangements exist that would cause the Company to protect these related parties’ interests from suffering losses. The Company determined it has no material implicit arrangements with Ablecom, Compuware or their shareholders. SMCI | 2024 Form 10-K | 79 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The Company and Ablecom jointly established Super Micro Asia Science and Technology Park, Inc. (the "Management Company") in Taiwan to manage the common areas shared by the Company and Ablecom for its separately constructed manufacturing facilities. In fiscal year 2012, each party contributed $ 0.2 million for a 50 % ownership interest of the Management Company. The Company has concluded that the Management Company is a VIE, and the Company is the primary beneficiary as it has the power to direct the activities that are most significant to the Management Company. For the fiscal years ended 2024, 2023 and 2022, the accounts of the Management Company were consolidated with the accounts of Super Micro Computer, and a noncontrolling interest was recorded for Ablecom's interest in the net assets and operations of the Management Company. Net income (loss) attributable to Ablecom's interest was not material for the periods presented and was included in general and administrative expenses in the Company's consolidated statements of operations. Foreign Currency Transactions The functional currency of the Company’s international subsidiaries is the U.S. dollar, except for Super Micro Asia and Technology Park, Inc., a consolidated variable interest entity. Monetary assets and liabilities of the Company's international subsidiaries that are denominated in foreign currency are remeasured into U.S. dollars at period-end exchange rates. Non-monetary assets and liabilities that are denominated in the foreign currency are remeasured into U.S. dollars at the historical rates. Revenue and expenses that are denominated in the foreign currency are remeasured into U.S. dollars at the average exchange rates during the period. Remeasurement of foreign currency accounts and resulting foreign exchange transaction gains and losses, are reflected in the consolidated statements of operations in other income (expense), net. Realized and unrealized foreign exchange gain for fiscal years 2024, 2023 and 2022 was $ 6.3 million, $ 0.2 million and $ 7.7 million, respectively. The functional currency of Super Micro Asia and Technology Park, Inc. is New Taiwanese Dollar (“NTD”). Assets and liabilities are translated to U.S. dollars at the period-end exchange rate. Revenues and expenses are translated using the average exchange rate for the period. The effects of foreign currency translation are included in stockholders’ equity as a component of accumulated other comprehensive (loss) income in the accompanying consolidated balance sheets and periodic movements are summarized as a line item in the consolidated statements of comprehensive income. The Company has an investment in a privately held company that is accounted for under the equity method (the "Corporate Venture"). The functional currency of the Corporate Venture is the Chinese Yuan. Adjustments for the Company's share of the effects of foreign currency translation from local currency to U.S. dollars are recorded as increases or decreases to the carrying value of the investment and included in stockholders’ equity as a component of accumulated other comprehensive (loss) income in the accompanying consolidated balance sheets and periodic movements are summarized as a line item in the consolidated statements of comprehensive income. Net Income Per Common Share Basic net income per common share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, unvested RSUs and PRSUs and a 0.00 % Convertible Senior Notes due 2029 (the "2029 Convertible Notes"). Contingently issuable shares are included in computing basic net income per common share as of the date that all necessary conditions, including service vesting conditions have been satisfied. Contingently issuable shares are considered for computing diluted net income per common share as of the beginning of the period in which all necessary conditions have been satisfied and the only remaining vesting condition is a service vesting condition. Under the treasury stock method, an increase in the fair market value of the Company's common stock results in a greater dilutive effect from outstanding stock options and RSUs and PRSUs. Additionally, the exercise of stock options and the vesting of RSUs results in a further dilutive effect on net income per share. SMCI | 2024 Form 10-K | 80 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The computation of basic and diluted net income per common share is as follows (in thousands, except per share amounts): Years Ended June 30, 2024 2023 2022 Numerator: Net income - basic $ 1,152,666 $ 639,998 $ 285,163 Convertible Notes interest charge, net of tax 1,480 — — Net income - diluted $ 1,154,146 $ 639,998 $ 285,163 Denominator: Weighted-average shares outstanding - basic 555,878 529,249 514,785 Effect of dilutive Convertible Notes 4,392 — — Effect of dilutive securities 41,876 30,455 21,370 Weighted-average shares outstanding - diluted 602,146 559,704 536,155 Net income per common share - basic $ 2.07 $ 1.21 $ 0.55 Net income per common share - diluted $ 1.92 $ 1.14 $ 0.53 For the fiscal years ended June 30, 2024, 2023 and 2022, the Company had stock options, RSUs and 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 2,700,010 , 1,777,950 , and 4,755,290 for the fiscal years ended June 30, 2024, 2023 and 2022, respectively. Potentially dilutive shares of common stock issuable upon conversion of the Company's outstanding 2029 Convertible Notes are determined using the if-converted method. For the fiscal year ended June 30, 2024, all such shares issuable upon conversion of the 2029 Convertible Notes, were dilutive. Concentration of Supplier Risk Certain materials used by the Company in the manufacturing of its products are available from a limited number of suppliers. Shortages could occur in these materials due to an interruption of supply or increased demand in the industry. Two suppliers accounted for below percentage of total purchases: June 30, 2024 June 30, 2023 June 30, 2022 Percentage of total purchases Supplier A 65.4 % 30.7 % 11.4 % Supplier B 6.3 % 13.5 % 18.1 % The increase in the concentration of the Company's total purchases from supplier A to 65.4 % of total purchases for the year ended June 30, 2024 is as a result of the purchase of key components to build its solutions for the Company's customers. Purchases from Ablecom and Compuware, related parties of the Company as noted in Note 10, "Related Party Transactions" in the Notes to the Consolidated Financial Statements, accounted for a combined 4.3 %, 6.6 %, and 8.3 % of total cost of sales for the fiscal years ended June 30, 2024, 2023 and 2022, respectively. SMCI | 2024 Form 10-K | 81 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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 and accounts receivable. The Company deposits cash with high-quality financial institutions. These deposits are guaranteed by the federal deposit insurance corporation up to an insurance limit. Significant customer information is as follows: June 30, 2024 June 30, 2023 Percentage of accounts receivable Customer A 15.4 % 22.9 % Customer B * 19.3 % Customer G 44.8 % * * Below 10% These accounts receivable represent a concentration of credit risk to the Company. Concentration of Customer Risk One single customer accounted for 20 % of the net sales in fiscal year 2024. No single customer accounted for 10% or more of the net sales in fiscal year 2023 and 2022. 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. Accounting Pronouncements Not Yet Adopted In November 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures. This ASU requires that a public entity provide additional segment disclosures on an interim and annual basis. The amendments in this ASU should be applied retrospectively to all prior periods presented in the financial statements unless impracticable. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The ASU is effective for the Company’s fiscal year beginning July 1, 2024, and for the interim period beginning July 1, 2025. The Company is currently evaluating this guidance and the impact it may have on its financial statement disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The standard is effective for annual periods beginning after December 15, 2024. Early adoption is permitted and should be applied prospectively, with retrospective application permitted. The ASU is effective for the Company’s fiscal year beginning July 1, 2025. The Company is currently evaluating this guidance and the impact it may have on its financial statement disclosures. SMCI | 2024 Form 10-K | 82 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires disaggregated disclosure of income statement expenses for public business entities. The ASU does not change the expense captions an entity presents on the face of the income statement, but it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. The ASU may be applied prospectively or retrospectively and is effective for fiscal years beginning after December 15, 2026 and for the interim periods beginning after December 15, 2027. Early adoption is permitted. The ASU is effective for the Company’s fiscal year beginning July 1, 2027, and for the interim period beginning July 1, 2028. The Company is currently evaluating this guidance and the impact it may have on its financial statement disclosures. Note 2. Financial Instruments and Fair Value Measurements The Company classifies its financial instruments, except for its investment in an auction rate security and other investments in privately held companies, within Level 1 or Level 2 in the fair value hierarchy because the Company uses quoted prices in active markets or alternative pricing sources and models using market observable inputs to determine their fair value. Financial Instruments Measured on a Recurring Basis The financial instruments of the Company measured at fair value on a recurring basis are included in cash equivalents and other assets. The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, other assets, accounts payable and accrued liabilities approximate their fair values due to their relatively short maturities. The following table sets forth the Company’s financial instruments as of June 30, 2024 and 2023, 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): June 30, 2024 Level 1 Level 2 Level 3 Asset at Fair Value Assets Money market funds (1) $ 340 $ — $ — $ 340 Certificates of deposit — 486 — 486 Investment in marketable equity security 3,686 — — 3,686 Auction rate security — — 1,829 1,829 Total assets measured at fair value $ 4,026 $ 486 $ 1,829 $ 6,341 June 30, 2023 Level 1 Level 2 Level 3 Asset at Fair Value Assets Money market funds (1) $ 20,823 $ — $ — $ 20,823 Certificates of deposit — 462 — 462 Auction rate security — — 1,843 1,843 Total assets measured at fair value $ 20,823 $ 462 $ 1,843 $ 23,128 (1) $ 0.1 million and $ 20.6 million in money market funds are included in cash and cash equivalents and $ 0.2 million and $ 0.2 million in money market funds are included in restricted cash, non-current in Other assets in the consolidated balance sheets as of June 30, 2024 and 2023, respectively. The carrying amounts of money market funds and certificates of deposit approximate their fair values due to their relatively short maturities. The investment in marketable equity security is carried at fair value using values available on a public exchange and is based on a Level 1 input. The unrealized gains and losses of the investment are included in earnings. During the fiscal year ended June 30, 2024, the Company invested $ 5.0 million in a marketable equity security recorded in Prepaid expenses and other SMCI | 2024 Form 10-K | 83 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) current assets on the consolidated balance sheets. An unrealized loss of $ 1.3 million has been recorded in other income, net in the consolidated statement of operations for the fiscal year ended June 30, 2024. The Company’s investment in an auction rate security is classified as an available for sale security within Level 3 of the fair value hierarchy as the determination of its fair value was not based on observable inputs as of June 30, 2024 and June 30, 2023. See Note 1, "Organization and Summary of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements for a discussion of the Company’s policies regarding the fair value hierarchy. The Company is using the discounted cash flow method to estimate the fair value of the auction rate security at each period end and using the following assumptions: (i) the expected yield based on observable market rate of similar securities, (ii) the security coupon rate that is reset monthly, (iii) the estimated holding period and (iv) a liquidity discount. The liquidity discount assumption is based on the management estimate of lack of marketability discount of similar securities and is determined based on the analysis of financial market trends over time, recent redemptions of securities and other market activities. The Company performed a sensitivity analysis and applying a change of either plus or minus 100 basis points in the liquidity discount does not result in a significantly higher or lower fair value measurement of the auction rate security as of June 30, 2024. For the fiscal year ended June 30, 2024, 2023 and 2022, the unrealized gains and losses for the auction rate security in other comprehensive income are immaterial . On a quarterly basis, the Company also evaluates the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, current economic conditions, and reasonable economic forecasts that affect collectability. For the fiscal year ended June 30, 2024 and 2023, the credit losses related to the Company’s investments were not material. There were no transfers between Level 1, Level 2 or Level 3 financial instruments in fiscal years 2024 and 2023. Financial Instruments Measured at Fair Value on a Non-Recurring Basis The Company's non-marketable equity securities consist of investments in privately held companies without readily determinable fair values and are classified as Level 2 in the fair value hierarchy. The Company invested $ 64.5 million during the fiscal year ended June 30, 2024 and an immaterial amount in the fiscal year ended June 30, 2023. 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. The Company performed a qualitative assessment to identify impairment indicators and recorded an impairment of $ 11.6 million during the fiscal year ended June 30, 2024 and $ 0 during the fiscal years ended June 30, 2023 and 2022, in other income, net on the consolidated statement of operations. As of June 30, 2024, the Company had $ 54.6 million of investments in privately held companies recorded in Other assets on the consolidated balance sheets for which the measurement alternative was elected. As of June 30, 2023, the investment in privately held companies is immaterial . Financial Instruments Not Recorded at Fair Value The Company estimates the fair value of outstanding debt and 2029 Convertible Notes for disclosure purposes on a recurring basis. As of June 30, 2024 and 2023, total debt of $ 476.4 million and $ 290.3 million, respectively, is reported at amortized cost. The outstanding debt is categorized as Level 2 as it is not actively traded. The carrying value approximates fair value. The estimated fair value of the 2029 Convertible Notes was $ 1,734.6 million as of June 30, 2024. The 2029 Convertible Notes are categorized as Level 2 since their fair value is based on Level 2 inputs of quoted prices. Note 3. Revenue Disaggregation of Revenue SMCI | 2024 Form 10-K | 84 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The Company disaggregates revenue by type of product and geographical region to depict the nature, amount, and timing of revenue and cash flows. Service and software revenues, which are less than 10%, are not a significant component of total revenue and are aggregated with server and storage systems revenue. The following is a summary of net sales by product type (in thousands): Years Ended June 30, 2024 2023 2022 Server and storage systems $ 14,185,220 $ 6,569,814 $ 4,463,833 Subsystems and accessories 804,031 553,668 732,266 Total $ 14,989,251 $ 7,123,482 $ 5,196,099 Server and storage systems constitute an assembly and integration of subsystems and accessories, software, and related services. Subsystems and accessories are comprised of server boards, chassis and accessories. Revenue related to services for fiscal year June 30, 2024 was $ 152.1 million, which is recognized over time ratably over the contract term. International net sales are based on the country and geographical region to which the products were shipped. The following is a summary of net sales by geographic region (in thousands): Years Ended June 30, 2024 2023 2022 United States $ 10,187,331 $ 4,834,061 $ 3,035,523 Asia 2,912,570 1,050,837 1,139,898 Europe 1,293,959 1,003,046 825,200 Other 595,391 235,538 195,478 Total $ 14,989,251 $ 7,123,482 $ 5,196,099 Contract Balances Generally, the payment terms of the Company’s offerings range from 30 to 60 days. In certain instances, customers may prepay for products and services in advance of delivery. Receivables represent the Company’s unconditional right to consideration for performance obligations that are either partially or fully completed. Contract assets are rights to consideration in exchange for goods or services that the Company has transferred to a customer when such right is conditional on something other than the passage of time. Such contract assets are insignificant to the Company’s consolidated financial statements. Contract liabilities consist of deferred revenue and relate to amounts invoiced to or advance consideration received from customers, which precede the Company’s satisfaction of the associated performance obligations. The Company’s deferred revenue primarily results from customer payments received upfront for extended warranties and on-site services because these performance obligations are satisfied over time. Additionally, at times, deferred revenue may fluctuate due to the timing of non-refundable advance consideration received from non-cancelable contracts relating to the sale of future products. Revenue recognized during fiscal year ended June 30, 2024, which was included in the opening deferred revenue balance as of June 30, 2023, of $ 304.4 million, was $ 130.7 million. Revenue recognized during fiscal year ended June 30, 2023, which was included in the opening deferred revenue balance as of June 30, 2022, of $ 233.8 million, was $ 109.0 million. Deferred revenue increased $ 111.9 million as of June 30, 2024, as compared to the fiscal year ended June 30, 2023. This increase was mainly due to a deferral of invoiced amounts for service contracts during the period exceeding the recognized revenue from service contracts entered into in prior periods. This was accompanied by a $ 9.3 million increase in 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. SMCI | 2024 Form 10-K | 85 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Transaction Price Allocated to the Remaining Performance Obligations Remaining performance obligations represent in aggregate the amount of transaction price that has been allocated to performance obligations not delivered, or only partially delivered, as of the end of the reporting period. The Company applies the exemption to not disclose information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less. These performance obligations generally consist of services, such as on-site services, including integration services and extended warranty services, that are contracted for one year or less, and products for which control has not yet been transferred. For contracts with a duration of more than one year, the value of the transaction price allocated to deferred revenue as of June 30, 2024, was approximately $ 416.4 million. The Company expects to recognize approximately 46 % of this deferred revenue in the next 12 months, and the remainder thereafter. Capitalized Contract Acquisition Costs and Fulfillment Cost Contract acquisition costs are 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 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. The Company applies the practical expedient to expense contract acquisition costs as incurred if the amortization period would be one year or less, generally upon delivery of the associated server and storage systems or components. Where the amortization period of the contract cost would be more than a year, the Company applies judgment in the allocation of the contract acquisition costs asset between hardware and service performance obligations and expenses the cost allocated to the hardware performance obligations upon delivery of associated server and storage systems or components and amortizes the cost allocated to service performance obligations over the period the services are expected to be provided. Contract acquisition costs allocated to service performance obligations that are subject to capitalization are insignificant to the Company’s consolidated financial statements. Contract fulfillment costs consist of costs paid in advance for outsourced services provided by third parties to the extent they are not in the scope of other guidance. Fulfillment costs paid in advance for outsourced services provided by third parties are capitalized and amortized over the period when the services are expected to be provided. Such fulfillment costs are insignificant to the Company’s consolidated financial statements. Revenue is recognized either over time or at a point in time, depending on when the underlying products or services are transferred to the customer. Revenue is recognized at a point in time for products upon transfer of control. Revenue is recognized over time for support and services provided. Note 4. Accounts Receivable Allowances The Company has established an allowance for credit losses. The allowance for credit losses is based upon the age of outstanding receivables, credit risk of specific customers, historical trends related to past losses and other relevant factors. Accounts receivable allowances as of June 30, 2024, 2023 and 2022 consisted of the following (in thousands): Beginning Balance Charged to Cost and Expenses (Recovered), net Write-offs Ending Balance Allowance for credit losses Year ended June 30, 2024 $ 82 $( 9 ) $ — $ 73 Year ended June 30, 2023 $ 1,753 $( 13 ) $( 1,659 ) $ 82 Year ended June 30, 2022 $ 2,591 $( 840 ) $ 2 $ 1,753 Note 5. Inventories Inventories as of June 30, 2024 and 2023 consisted of the following (in thousands): SMCI | 2024 Form 10-K | 86 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) June 30, 2024 2023 Finished goods $ 3,312,768 $ 1,045,177 Work in process 450,993 71,874 Raw materials 569,268 328,513 Total inventories $ 4,333,029 $ 1,445,564 The amount of stock-based compensation capitalized in inventories as of June 30, 2024, 2023 and 2022 was immaterial . During the fiscal years ended June 30, 2024, 2023, and 2022, the Company recorded a net provision for excess and obsolete inventory to cost of sales totaling $ 83.0 million, $ 30.8 million, and $ 15.1 million, respectively. Note 6. Property, Plant, and Equipment, net Property, plant and equipment as of June 30, 2024 and 2023 consisted of the following (in thousands): June 30, 2024 2023 Land $ 150,137 $ 86,642 Buildings 163,764 143,496 Machinery and equipment 156,496 130,151 Building and leasehold improvements 72,075 59,634 Furniture and fixtures 46,241 36,303 Software 24,363 23,098 Buildings construction in progress 14,828 303 627,904 479,627 Accumulated depreciation and amortization ( 213,896 ) ( 189,387 ) Property, plant and equipment, net $ 414,008 $ 290,240 Depreciation and amortization expense for fiscal years 2024, 2023 and 2022 was $ 30.1 million, $ 26.9 million, and $ 24.8 million, respectively. SMCI | 2024 Form 10-K | 87 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Note 7. Lines of Credit and Term Loans Short-term and long-term loan obligations as of June 30, 2024 and 2023 consisted of the following (in thousands): June 30, 2024 2023 Line of credit: Cathay Bank Line of Credit $ — $ 131,583 CTBC Credit Lines 184,573 — Chang Hwa Bank Credit Lines 9,215 — HSBC Bank Credit Lines 30,000 — E.SUN Bank Credit Lines 60,000 — Mega Bank Credit Lines 50,000 — First Bank Credit Lines 28,084 — Total line of credit 361,872 131,583 Term loan facilities: Chang Hwa Bank Credit Facility due October 15, 2026 17,918 26,853 CTBC Term Loan Facility, due June 4, 2030 31,155 38,208 CTBC Term Loan Facility, due August 15, 2026 3,079 4,721 E.SUN Bank Term Loan Facility, due September 15, 2026 22,116 33,513 E.SUN Bank Term Loan Facility, due August 15, 2027 12,645 16,756 Mega Bank Term Loan Facility, due October 3, 2026 27,644 38,668 Total term loans 114,557 158,719 Total lines of credit and term loans 476,429 290,302 Lines of credit and current portion of term loans 402,346 170,123 Term loans, non-current $ 74,083 $ 120,179 SMCI | 2024 Form 10-K | 88 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Activities under Revolving Lines of Credit and Term Loans Available borrowings and interest rates as of June 30, 2024 and June 30, 2023 consisted of the following (in thousands except for percentages): June 30, 2024 June 30, 2023 Available borrowings Interest rate Available borrowings Interest rate Line of credit: 2018 Bank of America Credit Facility $ 350,000 6.82 % $ 350,000 6.57 % 2022 Bank of America Credit Facility $ 20,000 6.49 % $ 20,000 3.36 % Cathay Bank Line of Credit $ 132,000 7.33 % $ 417 7.08 % CTBC Credit Lines $ 427 2.09 % - 6.13 % $ 105,000 3.33 % Chang Hwa Bank Credit Lines $ 20,000 1.88 % - 6.33 % $ 20,000 6.58 % HSBC Bank Credit Lines $ 20,000 2.03 % - 6.28 % $ 50,000 4.50 % E.SUN Bank Credit Lines $ — 2.02 % - 6.17 % $ 30,000 4.18 % Mega Bank Credit Lines $ — 1.90 % - 5.80 % $ 20,000 2.55 % First Bank Credit Lines $ 1,916 2.03 % - 6.19 % $ — — % Yuanta Bank Credit Lines $ 47,610 2.32 % - 6.33 % $ — — % Term loan facilities: Chang Hwa Bank Credit Facility due October 15, 2026 $ — 1.68 % $ — 1.55 % CTBC Term Loan Facility, due June 4, 2030 $ — 1.33 % $ — 1.20 % CTBC Term Loan Facility, due August 15, 2026 $ — 1.53 % $ — 1.40 % E.SUN Bank Term Loan Facility, due September 15, 2026 $ — 1.87 % $ 7,734 1.75 % E.SUN Bank Term Loan Facility, due August 15, 2027 $ — 1.87 % $ — 1.75 % Mega Bank Term Loan Facility, due October 3, 2026 $ — 1.52 % - 1.72 % $ — 1.40 % - 1.60 % Bank of America 2018 Bank of America Credit Facility In April 2018, the Company entered into a revolving line of credit with Bank of America for up to $ 250.0 million (as amended from time to time, the "2018 Bank of America Credit Facility"). On March 3, 2022, the 2018 Bank of America Credit Facility was amended to, among other items, increase the size of the facility from $ 200.0 million to $ 350.0 million and change provisions relating to payments and LIBOR replacement mechanics to SOFR. The obligations bear a base interest rate plus 0.5 % to 1.5 % based on the SOFR availability. The amendment was accounted for as a modification and the impact was immaterial to the consolidated financial statements. Prior to that, on June 28, 2021, the 2018 Bank of America Credit Facility was amended to, among other items, extend the maturity to June 28, 2026, reduce the size of the facility from $ 250.0 million to $ 200.0 million and increase the maximum amount that the Company can request the facility be increased from $ 100 million to $ 150 million. Interest accrued on any loans under the 2018 Bank of America Credit Facility is due on the first day of each month, and the loans are due and payable in full on the termination date of the 2018 Bank of America Credit Facility. Voluntary prepayments are permitted without early repayment fees or penalties. Subject to customary exceptions, the 2018 Bank of America Credit Facility is secured by substantially all of Super Micro Computer’s assets, other than real property assets. Under the terms of the 2018 Bank of America Credit Facility, the Company is not permitted to pay any dividends. The 2018 Bank of America Credit Facility contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries and contains a financial covenant, which requires that the Company maintain a certain fixed charge coverage ratio, for each twelve-month period while in a Trigger Period, as defined in the agreement, is in effect. SMCI | 2024 Form 10-K | 89 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) As of June 30, 2024 and 2023, the total outstanding borrowings under the 2018 Bank of America Credit Facility were $ 0.0 million and $ 0.0 million , respectively. The interest rate under the 2018 Bank of America Credit Facility as of June 30, 2024 and 2023 was 6.82 % and 6.57 %, respectively. The balance of debt issuance costs outstanding as of June 30, 2024 and June 30, 2023 was $ 0.5 million and $ 0.7 million, respectively. As of June 30, 2024, the Company was in compliance with all covenants under the 2018 Bank of America Credit Facility, with an available borrowing capacity of $ 350.0 million, subject to the borrowing base limitation and compliance with other applicable terms. 2022 Bank of America Credit Facility On March 23, 2022, the Company through its Taiwan subsidiary entered into an Uncommitted Facility Agreement for credit lines with Bank of America – Taipei Branch (the “2022 Bank of America Credit Facility”), for an amount not to exceed in aggregate $ 20.0 million. The interest rate will be quoted by Bank of America - Taipei Branch for each drawdown. As of June 30, 2024 and 2023, the Company had no outstanding borrowings under the 2022 Bank of America Credit Facility. As of June 30, 2024, the amount available for future borrowing under the 2022 Bank of America Credit Facility was $ 20.0 million. Cathay Bank Cathay Bank Line of Credit On May 19, 2022 (the “Cathay Bank Effective Date”), the Company entered into a Loan Agreement (the “Cathay Bank Loan Agreement”) with Cathay Bank pursuant to which Cathay Bank has agreed to provide a revolving line of credit of up to $ 132 million (the “Commitment”) for the five-year period following the Cathay Bank Effective Date. On the fifth anniversary of the Cathay Bank Effective Date, the total outstanding borrowings under the Cathay Bank Loan Agreement will automatically be converted into a five-year term loan. The interest rate under the Cathay Bank Loan Agreement is based upon either the SOFR index or prime rate index, at the Company’s quarterly election, plus a tiered spread that is based upon the average amounts deposited by the Company at Cathay Bank as a percentage of the Commitment. The spread is either 1.65 % or 2.0 % if the index is SOFR index, or 1.25 % or 1.00 % if the spread is the prime rate index with the higher spread applying in each case if an amount less than 25% of the Commitment is on deposit with Cathay Bank. Interest is payable monthly during the five-year period following the Cathay Bank Effective Date. After conversion to a term loan on the fifth anniversary of the Cathay Bank Effective Rate, interest is payable monthly based on a 20-year amortization schedule with the unpaid balance due at maturity. The Cathay Bank Loan Agreement has customary default provisions and is cross defaulted with other indebtedness to the extent such default causes a material adverse effect with respect to the Commitment. The Company is required to comply with certain covenants, including maintaining a fixed charge coverage ratio of at least 1.15 :1.00. The Company is required to pay Cathay Bank an unused facility fee in the amount of 0.15 % per annum of the undrawn Commitment payable quarterly in arrears. The Company is in compliance with all covenants under the Cathay Bank Loan Agreement. Borrowings under the Cathay Bank Loan Agreement are secured against certain of the Company’s properties located in San Jose, California (the “Collateral”). The Company has agreed to indemnify Cathay Bank with respect to certain environmental matters with respect to the Collateral. The Collateral is subject to re-appraisal every two years at the election of Cathay Bank, and Cathay Bank reserves the right to reduce the Commitment in accordance with such appraised values. As of June 30, 2024 and 2023 the outstanding borrowings under the Cathay Bank Loan Agreement were $ 0.0 million and $ 131.6 million, respectively. As of June 30, 2024, the Company's available borrowing capacity was $ 132.0 million under the Cathay Bank Loan Agreement and the net book value of the property collateralizing the Cathay Bank Line of Credit was $ 88.4 million. SMCI | 2024 Form 10-K | 90 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) CTBC Bank CTBC Credit Lines On September 28, 2023, the Company's Taiwan subsidiary entered into a general agreement for omnibus credit lines with CTBC Bank (the “2023 CTBC Agreement”), which replaces the prior CTBC credit lines in their entirety and permits for borrowings, from time to time, thereunder pursuant to various individual credit arrangements and includes the previously issued long and medium term loan facility of NTD 1,550.0 million entered in 2021 and 2020 (the “Long and Medium Loan Facility”), and each of (i) a short-term loan and guarantee line providing credit of up to NTD 1,250.0 million and NTD 100.0 million, respectively (the “NTD Short Term Loan/Guarantee Line”), (ii) a short-term loan providing a line of credit of up to $ 40.0 million (the “USD Short Term Loan Line”), and (iii) an export/import o/a loan line providing a line of credit of up to $ 105.0 million for exports and $ 50.0 million for imports (the “Export/Import Line,” and, together with the NTD Short Term Loan/Guarantee Line and the USD Short Term Loan Line, the “New CTBC Credit Lines”). Aggregate borrowings under the New CTBC Credit Lines together is subject to a cap of $ 105.0 million. On February 16, 2024, the Company's Taiwan subsidiary entered into a new general agreement for omnibus credit lines with CTBC Bank (the “2024 CTBC Agreement”). This agreement (which changed arrangements under the 2023 CTBC Agreement), increased the aggregate total borrowings under the various individual credit arrangements with CTBC Bank from $ 105.0 million to $ 185.0 million. The credit arrangements under the 2024 CTBC Agreement now include the previous issued long and medium term loan facility of NTD 1,550.0 million entered in 2021 and 2020 (the “Long and Medium Loan Facility”), and each of (i) a short-term loan and guarantee line providing credit of up to NTD 1,250.0 million and NTD 100.0 million, respectively (the “New NTD Short Term Loan/Guarantee Line”), (ii) a short-term loan providing a line of credit of up to $ 40.0 million (the “New USD Short Term Loan Line”), (iii) an export/import o/a loan line providing a line of credit of up to $ 105.0 million for exports and $ 50.0 million for imports (the “New Export/Import Line”) and (iv) an import o/a loan line of credit of up to $ 80.0 million available through August 31, 2024 (the “Incremental Import Line,” and, together with the New NTD Short Term Loan/Guarantee Line, the New USD Short Term Loan Line, and the New Export/Import Line, the “Increased CTBC Credit Lines”). Aggregate borrowings under all the Increased CTBC Credit Lines are subject to a cap of $ 185.0 million. Interest rates under each of the individual Increased CTBC Credit Lines are to be established according to individual credit arrangements, which interest rates shall be subject to adjustment depending on the satisfaction of certain conditions. Each of the New NTD Short Term Loan/Guarantee Line and the New USD Short Term Loan Line continue to be secured by certain of the Company's Taiwan subsidiary’s assets, including certain property, land, and plant. The tenor of the Incremental Import Line provides for availability until August 31, 2024, with a final drawdown date of February 28, 2025. Such Incremental Import Line, which is reviewed quarterly for cancellation by the CTBC Bank, is also subject to an average usage requirement and fee for retaining the underutilized portion of such line. For the Long and Medium Loan Facility, the Taiwan subsidiary is subject to various financial covenants, including current ratio, debt service coverage ratio, and financial debt ratio requirements. In the event the Taiwan subsidiary does not satisfy such financial covenants, CTBC Bank is permitted to, among other things, reduce the permitted total borrowings to a cap of $ 70.0 million from $ 105.0 million. Additional covenants require, among other things, the Company to maintain ownership of all of the capital stock of the Taiwan subsidiary and prohibit secondary mortgages on certain assets securing various of the Increased CTBC Credit Lines. The Increased CTBC Credit Lines have customary default provisions permitting CTBC Bank to suspend the extension of credit, reduce the credit line, shorten the credit extension term, or declare all principal and interest amounts immediately due and payable. As of June 30, 2024 and 2023, the outstanding borrowings under the CTBC Bank Credit Lines were $ 184.6 million and $ 0.0 million , respectively. The interest rate for these loans ranged from 2.09 % to 6.13 % per annum as of June 30, 2024. SMCI | 2024 Form 10-K | 91 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) CTBC Term Loan Facility The Company, through its Taiwan subsidiary, entered into certain credit agreement, dated May 6, 2020, with CTBC Bank Co., Ltd. (“CTBC”), which provided for a ten-year , non-revolving term loan facility (the “2020 CTBC Term Loan Facility”) to borrow up to NTD 1,200.0 million ($ 40.7 million U.S. dollar equivalent). On July 20, 2021, the Company, through its Taiwan subsidiary, entered into a general agreement for omnibus credit lines with CTBC (the “2021 CTBC Credit Facility"), which replaced the prior CTBC credit facilities, other than the 2020 CTBC Team Loan Facility, in their entirety and permit borrowings, from time to time, pursuant to a term loan facility of up to NTD 1,550.0 million ($ 55.4 million U.S. dollar equivalent) including the existing 2020 CTBC Term Loan Facility of NTD 1,200.0 million ($ 42.9 million U.S. dollar equivalent) and a new 75-month , non-revolving term loan facility of NTD 350.0 million ($ 12.5 million U.S. dollar equivalent) to use to purchase machinery and equipment for the Company’s Bade Manufacturing Facility located in Taiwan (the “2021 CTBC Machine Loan”). As of June 30, 2024 and 2023, the amounts outstanding under the 2020 CTBC Term Loan Facility were $ 31.2 million and $ 38.2 million, respectively. The interest rates for these loans were 1.33 % per annum as of June 30, 2024 and 1.20 % per annum as of June 30, 2023. As of June 30, 2024 and 2023, under the 2021 CTBC Machine Loan, the amounts outstanding were $ 3.1 million and $ 4.7 million, respectively. The interest rates for these loans were 1.53 % per annum as of June 30, 2024 and 1.40 % per annum as of June 30, 2023. The Company was in compliance with all financial covenants under 2020 CTBC Term Loan Facility and 2021 CTBC Machine Loan as of June 30, 2024. As of June 30, 2024, the net book value of land and building located in Bade, Taiwan, collateralizing the CTBC Credit Line and Term Loan Facility was $ 72.9 million. Chang Hwa Bank Chang Hwa Bank Credit Lines On October 5, 2021 (the “Chang Hwa Bank Effective Date”), the Company, through its Taiwan subsidiary, entered into a credit facility (the “Chang Hwa Bank Credit Facility”) with Chang Hwa Commercial Bank, Ltd. (“Chang Hwa Bank”). The Chang Hwa Bank Credit Facility permits borrowings of up to NTD 1,000.0 million ($ 36.0 million U.S. dollar equivalent), including up to $ 20.0 million as loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments. Terms for specific drawdown instruments issued under the Chang Hwa Bank Credit Facility, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, are set forth in the Import O/A Loan Contract and Export O/A Loan Contract, which were entered into on the Chang Hwa Bank Effective Date None of these Loan Contracts are secured and there are no financial covenants. The Company is not a guarantor under the Chang Hwa Bank Credit Facility. On May 13, 2022, Chang Hwa Bank notified that it increased the borrowing capacity limit by $ 20.0 million. On April 26, 2024 (the “CHB Effective Date”), our Taiwan subsidiary entered into a credit facility (the “New Credit Facility”) with Chang Hwa Commercial Bank, Ltd. (“Chang Hwa Bank”) which was substantially similar to the Chang Hwa Bank Credit Facility, except the credit limit thereunder was updated to include, in addition to US$ 20 million from the Chang Hwa Bank Credit Facility, an additional credit limit of NTD 300 million (together, the “CHB Credit Lines”). The Company is not a guarantor of the New Credit Facility. SMCI | 2024 Form 10-K | 92 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Terms for specific drawdown instruments issued under the New Credit Facility, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, are to be set forth in separate loan contracts (each, a “Loan Contract”) negotiated with the Chang Hwa Bank. Under three Loan Contracts entered into on the CHB Effective Date, our Taiwan subsidiary and the Bank have agreed to each of the following: (a) our Taiwan subsidiary may choose one of the following, subject to a cap of US$ 20 million under the CHB Credit Lines: (i) a Loan Contract providing for the drawdown of up to US$ 20 million for an import loan (the “Import O/A Loan”), with the interest rate thereunder is based on TAIFX plus a fixed margin; or (ii) a Loan Contract providing for the drawdown of up to US$ 20 million for an export loan (the “Export O/A Loan”). with the interest rate thereunder is based on TAIFX plus a fixed margin; and (b) a Loan Contract for a general working capital loan (the “General Working Capital Loan”), subject to a cap of NTD 300 million under the CHB Credit Lines, with the interest rate set at a fixed premium to a specified 1-year time savings deposit rate, subject to a floor of 1.4 %. None of the Import O/A Loan, Export O/A Loan, or General Working Capital Loan are secured and there are no financial covenants. Under the New Credit Facility, the Bank has the right to demand collateral for debts owed. As of June 30, 2024, the outstanding borrowings under CHB Credit Lines were $ 9.2 million. The interest rate was 1.88 % per annum as of June 30, 2024. As of June 30, 2024, the amount available for future borrowing under the CHB Credit Lines was $ 20.0 million. As of June 30, 2024 and 2023, the total outstanding borrowings under the Chang Hwa Bank Term Loan Facility were denominated in NTD and remeasured into U.S. dollars at $ 17.9 million and $ 26.9 million, respectively. The interest rate under the Chang Hwa Bank Credit Facility as of June 30, 2024 and 2023 was 1.68 % per annum and 1.55 % per annum, respectively. E.SUN Bank E.SUN Bank Credit Lines On June 17, 2023, the Company through the Taiwan subsidiary, entered into a Notification and Confirmation pursuant to which the Taiwan subsidiary and E.SUN Bank agreed to drawdowns of up to US$ 30 million for an import o/a financing loan with a tenor of 120 days (the “2023 Import O/A Loan”). The period of use is between May 16, 2023 and May 16, 2024. 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 the principal is repayable on the due date. The 2023 Import O/A Loan is not secured. Such Notification and Confirmation replaced the Notification and Confirmation entered into on the 2022 E.SUN Bank Effective Date related to the 2022 Import O/A Loan. On April 19, 2024, the Company’s Taiwan subsidiary entered into a Notification and Confirmation of Credit Conditions with E.SUN Bank. Pursuant to the Notification and Confirmation, our Taiwan subsidiary and E.SUN Bank agreed to the following: (i) A comprehensive credit facility of up to US$ 60 million (the “Import and Export Trade Facility). The Import and Export Trade Facility is comprised of both an Import O/A Financing Loan and an Export O/A Financing Loan (the “O/A Loan") which share the US$ 60 million limit. The interest rate for the O/A Loan is based on TAIFX3 plus a fixed margin, which may be negotiated, and is subject to adjustment under certain circumstances (including in the event that certain thresholds with respect to remittances and average deposits are not met by specified time periods). The loan period tenor for drawdowns under the O/A Loan is 120 days. (ii) A Short Term loan of up to NT$ 800 million (the “Short Term Loan”) ($ 25.0 million U.S. dollar equivalent). The interest rate for the Short Term Loan is based upon E.SUN Bank’s one-month time savings deposit rate index plus a fixed margin, may be negotiated, is subject to adjustment under certain circumstances (including in the event that certain thresholds with respect to remittances and average deposits are not met by specified time periods), and may not be lower than 1.9 %. The loan period tenor for drawdowns under the Short Term Loan is 180 days. ESUN Bank credit lines with a period of use from March 14, 2024 through March 14, 2025 may be drawn on a revolving basis. The first drawdown is required to be made by March 14, 2025. Neither the O/A Loan nor Short Term Loan are secured, and the Company is not a guarantor. The total outstanding balance of facilities (i) and (ii) shall not exceed US$ 60 million. SMCI | 2024 Form 10-K | 93 Table of Contents SUPER MICRO COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) As of June 30, 2024 and 2023, the amounts outstanding under the ESUN Bank credit lines were $ 60.0 million and $ 0.0 million , respectively. The interest rate for the fiscal year ended June 30, 2024 was 6.17 % per annum. As of June 30, 2024, the amount available for future borrowing under the Import O/A Loan was $ 0.0 million . E.SUN Bank Term Loan Facility On September 13, 2021 (the “Old E.SUN Bank Effective Date”), the Company through its Taiwan subsidiary entered into a new General Credit Agreement with E.SUN Bank, which replaced the Prior E.SUN Bank Credit Facility (the “2021 E.SUN Bank Credit Facility”). The 2021 E.SUN Bank Credit Facility permitted borrowings of up to NTD 1,600.0 million ($ 57.6 million U.S. dollar equivalent). Terms for specific drawdown instruments issued under the 2021 E.SUN Bank Credit Facility, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, were to be set forth in Notifications and Confirmation of Credit Conditions (a “Notification and Confirmation”) negotiated with E.SUN Bank. A Notification and Confirmation was entered into on the Old E.SUN Bank Effective Date for a five-year , non-revolving term loan facility to obtain up to NTD 1,600.0 million ($ 57.6 million U.S. dollar equivalent) in financing for use in research and development activities (the “Term Loan”). As of June 30, 2024 and 2023, the total outstanding borrowings under the Term Loan were denominated in NTD and remeasured into U.S. dollars of $ 22.1 million and $ 33.5 million, respectively. On August 9, 2022 (the “2022 E.SUN Bank Effective Date”), the Company through its Taiwan subsidiary, entered into a new General Credit Agreement with E.SUN Bank, which replaced the 2021 E.SUN Bank Credit Facili