UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________________________________

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

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

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	x	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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of April 30, 2021 there were 49,934,337 shares of the registrant’s common stock, $0.001 par value, outstanding, which is the only class of common stock of the registrant issued.

SUPER MICRO COMPUTER, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, 2021

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of March 31, 2021 and June 30, 2020	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2021 and 2020	3
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended March 31, 2021 and 2020	4
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended March 31, 2021 and 2020	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2021 and 2020	7
	Notes to Condensed Consolidated Financial Statements	9
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	45
ITEM 4.	Controls and Procedures	46
PART II	OTHER INFORMATION
ITEM 1.	Legal Proceedings	47
ITEM 1A.	Risk Factors	47
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
ITEM 3.	Defaults Upon Senior Securities	47
ITEM 4.	Mine Safety Disclosures	47
ITEM 5.	Other Information	47
ITEM 6.	Exhibits	48
	Signatures	49

    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 Quarterly Report on Form 10-Q are the property of Super Micro Computer, Inc. or its affiliates. Other trademarks, service marks, or trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

PART I: FINANCIAL INFORMATION

Item 1.        Financial Statements

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

 (unaudited) 

	March 31,		June 30,
	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	177,894	$	210,533
Accounts receivable, net of allowances of $2,784 and $4,586 at March 31, 2021 and June 30, 2020, respectively (including accounts receivable from related parties of $12,244 and $8,712 at March 31, 2021 and June 30, 2020, respectively)	407,365		403,745
Inventories	903,903		851,498
Prepaid expenses and other current assets (including other receivables from related parties of $20,298 and $19,791 at March 31, 2021 and June 30, 2020, respectively)	150,488		126,985
Total current assets	1,639,650		1,592,761
Investment in equity investee	3,637		2,703
Property, plant and equipment, net	265,566		233,785
Deferred income taxes, net	57,624		54,898
Other assets	32,363		34,499
Total assets	$	1,998,840	$	1,918,646
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable (including amounts due to related parties of $54,072 and $72,368 at March 31, 2021 and June 30, 2020, respectively)	$	465,012	$	417,673
Accrued liabilities (including amounts due to related parties of $16,026 and $16,206 at March 31, 2021 and June 30, 2020, respectively)	153,742		155,401
Income taxes payable	9,616		4,700
Short-term debt	57,503		23,704
Deferred revenue	96,123		106,157
Total current liabilities	781,996		707,635
Deferred revenue, non-current	93,920		97,612
Long-term debt, net of debt issuance costs	27,867		5,697
Other long-term liabilities (including related party balance of $0 and $1,699 at March 31, 2021 and June 30, 2020, respectively)	41,109		41,995
Total liabilities	944,892		852,939
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock and additional paid-in capital, $0.001 par value
Authorized shares: 100,000,000; Outstanding shares: 50,036,368 and 52,408,703 at March 31, 2021 and June 30, 2020, respectively
Issued shares: 50,036,368 and 53,741,828 at March 31, 2021 and June 30, 2020, respectively	425,489		389,972
Treasury stock (at cost), 0 and 1,333,125 shares at March 31, 2021 and June 30, 2020, respectively	—		(20,491)
Accumulated other comprehensive gain (loss)	362		(152)
Retained earnings	627,929		696,211
Total Super Micro Computer, Inc. stockholders’ equity	1,053,780		1,065,540
Noncontrolling interest	168		167
Total stockholders’ equity	1,053,948		1,065,707
Total liabilities and stockholders’ equity	$	1,998,840	$	1,918,646

1

See accompanying notes to condensed consolidated financial statements.

2

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited) 

	Three Months Ended March 31,				Nine Months Ended March 31,
	2021		2020		2021	2020
Net sales (including related party sales of $20,432 and $21,528 in the three months ended March 31, 2021 and 2020, respectively, and $58,853 and $70,974 in the nine months ended March 31, 2021 and 2020, respectively)	$	895,881	$	772,408	$2,488,437	$2,443,155
Cost of sales (including related party purchases of $64,787 and $60,387 in the three months ended March 31, 2021 and 2020, respectively, and $177,821 and $200,753 in the nine months ended March 31, 2021 and 2020, respectively)	772,864		639,048		2,099,410	2,040,462
Gross profit	123,017		133,360		389,027	402,693
Operating expenses:
Research and development	57,912		49,586		165,439	154,730
Sales and marketing	21,826		21,886		62,858	64,057
General and administrative	26,224		46,342		75,864	107,680
Total operating expenses	105,962		117,814		304,161	326,467
Income from operations	17,055		15,546		84,866	76,226
Other (expense) income, net	2,017		937		(1,363)	2,110
Interest expense	(607)		(518)		(1,850)	(1,630)
Income before income tax provision	18,465		15,965		81,653	76,706
Income tax benefit (provision)	227		899		(8,541)	(9,782)
Share of (loss) from equity investee, net of taxes	(264)		(1,057)		(409)	(1,066)
Net income	$	18,428	$	15,807	$72,703	$65,858
Net income per common share:
Basic	$	0.36	$	0.31	$1.41	$1.30
Diluted	$	0.35	$	0.29	$1.35	$1.26
Weighted-average shares used in calculation of net income per common share:
Basic	50,553		51,526		51,465	50,591
Diluted	53,218		53,693		53,747	52,399

See accompanying notes to condensed consolidated financial statements.

3

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited) 

	Three Months Ended March 31,				Nine Months Ended March 31,
	2021		2020		2021		2020
Net income	$	18,428	$	15,807	$	72,703	$	65,858
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)	(34)		(31)		514		(86)
Total other comprehensive income (loss)	(34)		(31)		514		(86)
Total comprehensive income	$	18,394	$	15,776	$	73,217	$	65,772

See accompanying notes to condensed consolidated financial statements.

4

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)

Three Months Ended March 31, 2021	Common Stock and Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive (Loss) Gain		Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2020	50,651,054	$	410,522	—	$	—	$	396	$	653,129	$	173	$	1,064,220
Exercise of stock options, net of taxes	511,801	9,577		—	—		—		—		—		9,577
Release of shares of common stock upon vesting of restricted stock units	186,034	—		—	—		—		—		—		—
Shares of common stock withheld for the withholding tax on vesting of restricted stock units	(61,982)	(2,062)		—	—		—		—		—		(2,062)
Stock repurchases and retirement	(1,250,539)	(42)		—	—		—		(43,628)		—		(43,670)
Stock-based compensation	—	7,494		—	—		—		—		—		7,494
Foreign currency translation loss	—	—		—	—		(34)		—				(34)
Net income	—	—		—	—		—		18,428		(5)		18,423
Balance at March 31, 2021	50,036,368	$	425,489	—	$	—	$	362	$	627,929	$	168	$	1,053,948

Three Months Ended March 31, 2020	Common Stock and Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive (Loss) Gain		Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2019	51,923,260	$	360,060	(1,333,125)	$	(20,491)	$	(135)	$	661,954	$	165	$	1,001,553
Exercise of stock options, net of taxes	1,163,309	19,120		—	—		—		—		—		19,120
Release of shares of common stock upon vesting of restricted stock units	262,742	—		—	—		—		—		—		—
Shares of common stock withheld for the withholding tax on vesting of restricted stock units	(100,540)	(2,860)		—	—		—		—		—		(2,860)
Stock-based compensation	—	4,805		—	—		—		—		—		4,805
Foreign currency translation loss	—	—		—	—		(31)		—		—		(31)
Net income	—	—		—	—		—		15,807		1		15,808
Balance at March 31, 2020	53,248,771	$	381,125	(1,333,125)	$	(20,491)	$	(166)	$	677,761	$	166	$	1,038,395

5

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)

Nine Months Ended March 31, 2021	Common Stock and Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive (Loss) Gain		Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at June 30, 2020	53,741,828	$	389,972	(1,333,125)	$	(20,491)	$	(152)	$	696,211	$	167	$	1,065,707
Exercise of stock options, net of taxes	1,195,414	20,344		—	—		—		—		—		20,344
Release of shares of common stock upon vesting of restricted stock units	596,570	—		—	—		—		—		—		—
Shares of common stock withheld for the withholding tax on vesting of restricted stock units	(191,279)	(5,780)		—	—		—		—		—		(5,780)
Share repurchase and retirement	(5,306,165)	(164)		1,333,125	20,491				(140,985)				(120,658)
Stock-based compensation	—	21,117		—	—		—		—		—		21,117
Foreign currency translation gain	—	—		—	—		514		—		—		514
Net income	—	—		—	—		—		72,703		1		72,704
Balance at March 31, 2021	50,036,368	$	425,489	—	$	—	$	362	$	627,929	$	168	$	1,053,948

Nine Months Ended March 31, 2020	Common Stock and Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive (Loss) Gain		Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at June 30, 2019	51,289,413	$	349,683	(1,333,125)	$	(20,491)	$	(80)	$	611,903	$	161	$	941,176
Exercise of stock options, net of taxes	1,447,296	23,053		—	—		—		—		—		23,053
Release of shares of common stock upon vesting of restricted stock units	771,721	—		—	—		—		—		—		—
Shares of common stock withheld for the withholding tax on vesting of restricted stock units	(259,659)	(6,434)		—	—		—		—		—		(6,434)
Stock-based compensation	—	14,823		—	—		—		—		—		14,823
Foreign currency translation loss	—	—		—	—		(86)		—		—		(86)
Net income	—	—		—	—		—		65,858		5		65,863
Balance at March 31, 2020	53,248,771	$	381,125	(1,333,125)	$	(20,491)	$	(166)	$	677,761	$	166	$	1,038,395

See accompanying notes to condensed consolidated financial statements.

6

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended March 31,
	2021		2020
OPERATING ACTIVITIES:
Net income	$	72,703	$	65,858
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization	21,304		20,972
Stock-based compensation expense	21,117		14,823
Allowances for (recovery of) doubtful accounts	(629)		1,544
Provision for excess and obsolete inventories	4,844		18,093
Share of loss from equity investee	409		1,066
Foreign currency exchange (gain) loss	1,097		311
Deferred income taxes, net	(2,726)		(4,436)
Other	(792)		1,105
Changes in operating assets and liabilities:
Accounts receivable (including changes in related party balances of $(3,532) and $1,612 during the nine months ended March 31, 2021 and 2020, respectively)	(3,036)		58,935
Inventories	(57,249)		(214,131)
Prepaid expenses and other assets (including changes in related party balances of $(507) and $(52) during the nine months ended March 31, 2021 and 2020, respectively)	(25,039)		(34,790)
Accounts payable (including changes in related party balances of $(18,296) and $(4,685) during the nine months ended March 31, 2021 and 2020, respectively)	45,301		103,880
Income taxes payable	4,916		(11,042)
Deferred revenue	(13,726)		2,063
Accrued liabilities (including changes in related party balances of $(180) and $9,734 during the nine months ended March 31, 2021 and 2020, respectively)	(5,807)		49,924
Other long-term liabilities (including changes in related party balances of $(1,699) and $(129) during the nine months ended March 31, 2021 and 2020, respectively)	(3,295)		(8,459)
Net cash provided by operating activities	59,392		65,716
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (including payments to related parties of $5,845 and $4,384 during the nine months ended March 31, 2021 and 2020, respectively)	(44,627)		(34,886)
Proceeds from sale of investment in a privately-held company	—		750
Net cash used in investing activities	(44,627)		(34,136)
FINANCING ACTIVITIES:
Proceeds from debt	62,225		10,000
Repayment of debt	(7,300)		—
Net repayment on asset-backed revolving line of credit	—		(1,116)
Proceeds from exercise of stock options	20,344		23,053
Payment of withholding tax on vesting of restricted stock units	(5,780)		(6,434)
Stock repurchases	(117,968)		—
Payments of obligations under finance leases	34		(122)
Net cash (used in) provided by financing activities	(48,445)		25,381
Effect of exchange rate fluctuations on cash	362		163
Net (decrease) increase in cash, cash equivalents and restricted cash	(33,318)		57,124
Cash, cash equivalents and restricted cash at the beginning of the period	212,390		262,140
Cash, cash equivalents and restricted cash at the end of the period	$	179,072	$	319,264

7

Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,400	$	1,651
Cash paid for taxes, net of refunds	2,213		42,516
Non-cash investing and financing activities:
Unpaid property, plant and equipment purchases (including due to related parties of $1,502 and $215 as of March 31, 2021 and 2020, respectively)	$	7,662	$	12,609
New operating lease assets obtained in exchange for operating lease liabilities	2,715		—
Unpaid stock repurchases	2,690		—

See accompanying notes to condensed consolidated financial statements.

8

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.        Summary of Significant Accounting Policies

Significant Accounting Policies and Estimates

No material changes have been made to the significant accounting policies of Super Micro Computer, Inc., a corporation incorporated under the laws of Delaware, and its consolidated entities (together, the “Company”), disclosed in Note 1, "Organization and Summary of Significant Accounting Policies", in its Annual Report on Form 10-K, filed on August 28, 2020, for the year ended June 30, 2020. Management's estimates include, as applicable, the anticipated impacts of the coronavirus ("COVID-19") pandemic.

Basis of Presentation

The unaudited condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations.

The unaudited condensed consolidated financial statements included herein reflect all adjustments, including normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The consolidated results of operations for the three and nine months ended March 31, 2021 are not necessarily indicative of the results that may be expected for future quarters or for the fiscal year ending June 30, 2021.

Investment in a Corporate Venture

    In October 2016, the Company entered into agreements pursuant to which the Company contributed certain technology rights in connection with an investment in a privately-held company (the "Corporate Venture") located in China to expand the Company's presence in China. The Corporate Venture is 30% owned by the Company and 70% owned by another company in China. The transaction was closed in the third fiscal quarter of 2017 and the investment is accounted for using the equity method. As such, the Corporate Venture is also a related party.

    The Company recorded a deferred gain related to the contribution of certain technology rights. As of March 31, 2021 and June 30, 2020, the Company had unamortized deferred gain balance of $1.5 million and $2.0 million, respectively, in accrued liabilities and $0.0 million and $1.0 million, respectively, in other long-term liabilities in the Company’s condensed

consolidated balance sheets.

    The Company monitors the investment for events or circumstances indicative of potential impairment and makes appropriate reductions in carrying values if it determines that an impairment charge is required. In June 2020, the third-party parent company that controls the Corporate Venture was placed on a U.S. government export control list, along with

several of the parent's related entities and a separate listing for one of its subsidiaries. The Corporate Venture is not itself a restricted party. The Company is working with the Corporate Venture's management to ensure that the Corporate Venture remains in compliance with the new restrictions. The Company does not believe that the equity investment carrying value is impacted as of March 31, 2021. No impairment charge was recorded for the three and nine months ended March 31, 2021 and 2020, respectively.

The Company sold products worth $16.8 million and $14.0 million to the Corporate Venture in the three months ended March 31, 2021 and 2020, respectively, and $36.4 million and $51.5 million for the nine months ended March 31, 2021 and 2020, respectively. The Company’s share of intra-entity profits on the products that remained unsold by the Corporate Venture as of March 31, 2021 and June 30, 2020 have been eliminated and have reduced the carrying value of the Company’s investment in the Corporate Venture. To the extent that the elimination of intra-entity profits reduces the investment balance below zero, such amounts are recorded within accrued liabilities. The Company had $11.4 million and $7.8 million due from the Corporate Venture in accounts receivable, net as of March 31, 2021 and June 30, 2020, respectively.

9

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Concentration of Supplier Risk

    Certain materials used by the Company in the manufacturing of its products are available from a limited number of suppliers. Shortages could occur in these materials due to an interruption of supply or increased demand in the industry. One supplier accounted for 21.4% and 26.1% of total purchases for the three months ended March 31, 2021 and 2020, respectively, and 21.1% and 27.9% for the nine months ended March 31, 2021 and 2020, respectively. Purchases from Ablecom and Compuware, related parties of the Company (see Note 8, "Related Party Transactions") accounted for a combined 8.4% and 9.4% of total cost of sales for the three months ended March 31, 2021 and 2020, respectively, and a combined 8.5% and 9.8% for the nine months ended March 31, 2021 and 2020, respectively.

Concentration of Credit Risk

    Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents, restricted cash, investment in an auction rate security and accounts receivable. No single customer accounted for 10% or more of the net sales for the three and nine months ended March 31, 2021 and 2020. No customer accounted for greater than 10% of the Company's accounts receivable, net as of March 31, 2021, whereas one customer accounted for 10.1% of accounts receivable, net as of June 30, 2020.

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 Recently Adopted

In June 2016, the FASB issued authoritative guidance, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. Under this new guidance, a company is required to estimate credit losses on certain types of financial instruments using an expected-loss model, replacing the current incurred-loss model, and record the estimate through an allowance for credit losses, which results in more timely recognition of credit losses. The Company adopted this guidance on July 1, 2020 using the modified retrospective transition method, which requires a cumulative-effect adjustment, if any, to the opening balance of retained earnings to be recognized on the date of adoption with prior periods not restated. The adoption of the guidance had no material impact on the Company’s condensed consolidated financial statements as of July 1, 2020.

The Company maintains an allowance for credit losses for accounts receivable and the investment in an auction rate security. The allowance for credit losses is estimated using a loss rate method, considering factors such as customers’ credit risk, historical loss experience, current conditions, and forecasts. The allowance for credit losses is measured on a collective (pool) basis by aggregating customer balances with similar risk characteristics. The Company also records a specific allowance based on an analysis of individual past due balances or customer-specific information, such as a decline in creditworthiness or bankruptcy. The new guidance has no material impact on the Company's condensed consolidated financial statements for the three and nine months ended March 31, 2021.

In August 2018, the FASB issued amended guidance, Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements based on the concepts in the FASB Concepts Statements, including the consideration of costs and benefits. The Company adopted this guidance on July 1, 2020. As of March 31, 2021, the Company’s investment in an auction rate security is the only Level 3 investment measured at fair value on a recurring basis. Changes to the disclosures in the condensed consolidated financial statements were immaterial. See Note 5, "Fair Value Disclosure".

In August 2018, the FASB issued authoritative guidance, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract as well as hosting arrangements that include an internal use software license with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of

10

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

a hosting arrangement that is a service contract is not affected by the new guidance. The Company adopted this guidance on July 1, 2020, prospectively. The adoption of this guidance did not have a material impact on the Company's condensed consolidated financial statements and disclosures.

Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued amended guidance, Simplifying the Accounting for Income Taxes, to remove certain exceptions to the general principles from ASC 740 - Income Taxes, and to improve consistent application of U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. The guidance is effective for the Company from July 1, 2021; early adoption is permitted. The adoption of the guidance is not anticipated to have a material impact on its condensed consolidated financial statements and disclosures.

    In March 2020, the FASB issued authoritative guidance, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.  The guidance also establishes (1) a general contract modification principle that entities can apply in other areas that may be affected by reference rate reform and (2) certain elective hedge accounting expedients. The amendment is effective for all entities through December 15, 2022. In January 2021, the FASB issued further guidance on this topic, which clarified the scope and application of the original guidance. LIBOR is used to calculate the interest on borrowings under the Company's 2018 Bank of America Credit Facility and E.SUN Credit Facility. The 2018 Bank of America Credit Facility, as amended, will terminate on June 30, 2021 and E.SUN Credit Facility will terminate on September 18, 2021. As both credit facilities will expire before the phase out of LIBOR, the Company does not expect the adoption of the guidance to have an impact on its condensed consolidated financial statements and disclosures.

Note 2.         Revenue

    Disaggregation of Revenue

The Company disaggregates revenue by type of product and by geographical market in order to depict the nature, amount, and timing of revenue and cash flows. Service revenues, which are less than 10%, are not a significant component of total revenue, and are aggregated within the respective categories.

The following is a summary of net sales by product type (in thousands):

	Three Months Ended March 31,				Nine Months Ended March 31,
	2021		2020		2021		2020
Server and storage systems	$	693,339	$	571,291	$	1,953,838	$	1,880,043
Subsystems and accessories	202,542		201,117		534,599		563,112
Total	$	895,881	$	772,408	$	2,488,437	$	2,443,155

Server and storage systems constitute an assembly and integration of subsystems and accessories, and related services. Subsystems and accessories are comprised of server boards, chassis and accessories.

International net sales are based on the country and geographic region to which the products were shipped. The following is a summary for the three and nine months ended March 31, 2021 and 2020, of net sales by geographic region (in thousands):

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(Unaudited)

	Three Months Ended March 31,				Nine Months Ended March 31,
	2021		2020		2021		2020
United States	$	499,061	$	422,872	$	1,458,249	$	1,419,117
Asia	207,204		160,472		495,326		487,827
Europe	162,285		158,144		429,193		433,767
Others	27,331		30,920		105,669		102,444
	$	895,881	$	772,408	$	2,488,437	$	2,443,155

Starting July 1, 2020, the Company no longer separately discloses revenue by products sold to indirect sales channel partners or direct customers and original equipment manufacturers because management does not make business operational decisions based on this set of disaggregation so the disclosure is no longer material to investors.

Contract Balances

Generally, the payment terms of the Company’s offerings range from 30 to 60 days. In certain instances, customers may prepay for products and services in advance of delivery. Receivables relate to the Company’s unconditional right to consideration for performance obligations either partially or fully completed.

Contract assets are rights to consideration in exchange for goods or services that the Company has transferred to a customer when such right is conditional on something other than the passage of time. Such contract assets are insignificant to the Company’s condensed consolidated financial statements.

    Contract liabilities consist of deferred revenue and relate to amounts invoiced to or advance consideration received from customers, which precede the Company’s satisfaction of the associated performance obligation(s). The Company’s deferred revenue primarily results from customer payments received upfront for extended warranties and on-site services because these performance obligations are satisfied over time. Revenue recognized during the three and nine months ended March 31, 2021, which was included in the opening deferred revenue balance as of June 30, 2020 of $203.8 million, was $24.1 million and $79.6 million, respectively.

Deferred revenue decreased $13.7 million during the nine months ended March 31, 2021 because the recognition of revenue from contracts entered into in prior periods was greater than the invoiced amounts for service contracts during the period.

    Transaction Price Allocated to the Remaining Performance Obligations

Remaining performance obligations represent in aggregate the amount of transaction price that has been allocated to performance obligations not delivered, or only partially undelivered, as of the end of the reporting period. The Company applies the optional exemption to not disclose information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less. These performance obligations generally consist of services, such as on-site services, including integration services and extended warranty services that are contracted for one year or less, and products for which control has not yet been transferred. The value of the transaction price allocated to remaining performance obligations as of March 31, 2021 was $190.0 million. The Company expects to recognize approximately 51% of remaining performance obligations as revenue in the next 12 months, and the remainder thereafter.

Capitalized Contract Acquisition Costs and Fulfillment Cost

Contract acquisition costs are those incremental costs that the Company incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. Contract acquisition costs consist primarily of incentive bonuses. Contract acquisition costs are considered incremental and recoverable costs of obtaining and fulfilling a contract with a customer and are therefore capitalizable. The Company applies the practical expedient to expense incentive bonus costs as incurred if the amortization period would be one year or less, generally upon delivery of the associated server and storage systems or components. Where the amortization period of the contract cost would be more than a year, the Company applies

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(Unaudited)

judgment in the allocation of the incentive bonus cost asset between hardware and service performance obligations and expenses the cost allocated to the hardware performance obligations upon delivery of associated server and storage systems or components and amortizes the cost allocated to service performance obligations over the period the services are expected to be provided. Contract acquisition costs allocated to service performance obligations that are subject to capitalization are insignificant to the Company’s condensed consolidated financial statements.

Contract fulfillment costs consist of costs paid in advance for outsourced services provided by third parties to the extent they are not in the scope of other guidance. Fulfillment costs paid in advance for outsourced services provided by third parties are capitalized and amortized over the period the services are expected to be provided. Such fulfillment costs are insignificant to the Company’s condensed consolidated financial statements.

Note 3.        Net Income Per Common Share

    The following table shows the computation of basic and diluted net income per common share for the three and nine months ended March 31, 2021 and 2020 (in thousands, except per share amounts):

	Three Months Ended March 31,				Nine Months Ended March 31,
	2021		2020		2021		2020
Numerator:
Net income	$	18,428	$	15,807	$	72,703	$	65,858
Denominator:
Weighted-average shares outstanding	50,553		51,526		51,465		50,591
Effect of dilutive securities	2,665		2,167		2,282		1,808
Weighted-average diluted shares	53,218		53,693		53,747		52,399
Basic net income per common share	$	0.36	$	0.31	$	1.41	$	1.30
Diluted net income per common share	$	0.35	$	0.29	$	1.35	$	1.26

    For the three and nine months ended March 31, 2021 and 2020, the Company had stock options, restricted stock units ("RSUs") and performance based restricted stock units ("PRSUs") outstanding that could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net income per share in the periods presented, as their effect would have been anti-dilutive. The anti-dilutive common share equivalents resulting from outstanding equity awards were 578,892 and 1,882,238 for the three months ended March 31, 2021 and 2020, respectively, and 617,807 and 2,305,538 for the nine months ended March 31, 2021 and 2020, respectively.

Note 4.        Balance Sheet Components

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

Inventories:

	March 31, 2021		June 30, 2020
Finished goods	$	634,032	$	656,817
Work in process	120,374		38,146
Purchased parts and raw materials	149,497		156,535
Total inventories	$	903,903	$	851,498

The Company recorded a provision for excess and obsolete inventory to cost of sales totaling $2.9 million and $4.6 million in the three and nine months ended March 31, 2021 and $4.7 million and $21.6 million for the three and nine

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(Unaudited)

months ended March 31, 2020, respectively. These amounts exclude a provision (recovery) for adjusting the cost of certain inventories to net realizable value of $(0.8) million and $0.2 million for the three and nine months ended March 31, 2021, respectively, and $(0.8) million and $(3.5) million for the three and nine months ended March 31, 2020, respectively. The recovery is recognized when previously reserved inventories are sold.

Prepaid Expenses and Other Current Assets:

	March 31, 2021		June 30, 2020
Other receivables (1)	$	118,371	$	96,669
Prepaid income tax	12,963		14,323
Prepaid expenses	6,612		7,075
Deferred service costs	4,764		4,161
Restricted cash	251		250
Others	7,527		4,507
Total prepaid expenses and other current assets	$	150,488	$	126,985

__________________________

(1) Includes other receivables from contract manufacturers based on certain buy-sell arrangements of $73.3 million and $83.8 million as of March 31, 2021 and June 30, 2020, respectively.

Cash, cash equivalents and restricted cash:

	March 31, 2021		June 30, 2020
Cash and cash equivalents	$	177,894	$	210,533
Restricted cash included in prepaid expenses and other current assets	251		250
Restricted cash included in other assets	927		1,607
Total cash, cash equivalents and restricted cash	$	179,072	$	212,390

Property, Plant, and Equipment:

	March 31, 2021		June 30, 2020
Buildings	$	86,930	$	86,930
Land	75,265		75,251
Machinery and equipment	94,735		85,381
Buildings construction in progress (1)	80,217		46,311
Building and leasehold improvements	25,147		24,517
Software	22,855		20,597
Furniture and fixtures	22,107		21,544
	407,256		360,531
Accumulated depreciation and amortization	(141,690)		(126,746)
Property, plant and equipment, net	$	265,566	$	233,785

__________________________

(1) Primarily relates to the development and construction costs associated with the Company’s Green Computing Park located in San Jose, California, and new building in Taiwan.

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(Unaudited)

Other Assets:

	March 31, 2021		June 30, 2020
Operating lease right-of-use asset	$	21,245	$	23,784
Deferred service costs, non-current	5,531		4,632
Prepaid expense, non-current	2,007		1,576
Investment in auction rate security	1,571		1,571
Deposits	955		1,201
Restricted cash, non-current	927		1,607
Non-marketable equity securities	128		128
Total other assets	$	32,363	$	34,499

Accrued Liabilities:    

	March 31, 2021		June 30, 2020
Accrued payroll and related expenses	$	43,789	$	33,577
Contract manufacturing liabilities	38,176		36,249
Customer deposits	15,744		9,942
Accrued warranty costs	10,813		9,984
Operating lease liability	6,797		6,310
Accrued cooperative marketing expenses	6,436		5,925
Accrued professional fees	2,238		5,661
Accrued legal liabilities (Note 11)	—		18,114
Others	29,749		29,639
Total accrued liabilities	$	153,742	$	155,401

Performance Awards Liability

    In March 2020, the Board of Directors (the “Board”) approved performance bonuses for the Chief Executive Officer, a senior executive and two members of the Board, which payments will be earned when specified market and performance conditions are achieved.

The Chief Executive Officer’s aggregate cash bonuses of up to $8.1 million are earned in two tranches. The first