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 December 31, 2022

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 January 31, 2023 there were 53,637,158 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 DECEMBER 31, 2022

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of December 31, 2022 and June 30, 2022	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2022 and 2021	2
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December 31, 2022 and 2021	3
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended December 31, 2022 and 2021	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2022 and 2021	6
	Notes to Condensed Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	44
ITEM 4.	Controls and Procedures	45
PART II	OTHER INFORMATION
ITEM 1.	Legal Proceedings	46
ITEM 1A.	Risk Factors	46
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
ITEM 3.	Defaults Upon Senior Securities	46
ITEM 4.	Mine Safety Disclosures	46
ITEM 5.	Other Information	46
ITEM 6.	Exhibits	47
	Signatures	48

    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 par value per share amounts)

 (unaudited) 

	December 31,		June 30,
	2022		2022
ASSETS
Current assets:
Cash and cash equivalents	$	304,595	$	267,397
Accounts receivable, net of allowance for credit losses of $180 and $1,753 at December 31, 2022 and June 30, 2022, respectively (including accounts receivable from related parties of $5,220 and $8,398 at December 31, 2022 and June 30, 2022, respectively)	768,167		834,513
Inventories	1,421,817		1,545,606
Prepaid expenses and other current assets (including receivables from related parties of $47,337 and $24,412 at December 31, 2022 and June 30, 2022, respectively)	154,924		158,799
Total current assets	2,649,503		2,806,315
Investment in equity investee	3,197		5,329
Property, plant and equipment, net	289,255		285,972
Deferred income taxes, net	95,741		69,929
Other assets	37,246		37,532
Total assets	$	3,074,942	$	3,205,077
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable (including amounts due to related parties of $88,106 and $87,355 at December 31, 2022 and June 30, 2022, respectively)	$	559,962	$	655,403
Accrued liabilities (including amounts due to related parties of $19,527 and $18,676 at December 31, 2022 and June 30, 2022, respectively)	169,866		212,419
Income taxes payable	38,713		41,743
Short-term debt	27,869		449,146
Deferred revenue	120,530		111,313
Total current liabilities	916,940		1,470,024
Deferred revenue, non-current	159,574		122,548
Long-term debt	142,273		147,618
Other long-term liabilities	37,313		39,140
Total liabilities	1,256,100		1,779,330
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock and additional paid-in capital, $0.001 par value
Authorized shares: 100,000; Outstanding shares: 53,400 and 52,311 at December 31, 2022 and June 30, 2022, respectively
Issued shares: 53,400 and 52,311 at December 31, 2022 and June 30, 2022, respectively	514,559		481,741
Accumulated other comprehensive income	612		911
Retained earnings	1,303,506		942,923
Total Super Micro Computer, Inc. stockholders’ equity	1,818,677		1,425,575
Noncontrolling interest	165		172
Total stockholders’ equity	1,818,842		1,425,747
Total liabilities and stockholders’ equity	$	3,074,942	$	3,205,077

See accompanying notes to condensed consolidated financial statements.

SMCI | Q2 2023 Form 10-Q | 1

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited) 

	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Net sales (including related party sales of $20,073 and $41,616 in the three months ended December 31, 2022 and 2021, respectively, and $45,126 and $72,538 in the six months ended December 31, 2022 and 2021, respectively)	$	1,803,195	$	1,172,419	$	3,655,325	$	2,205,149
Cost of sales (including related party purchases of $98,743 and $96,728 in the three months ended December 31, 2022 and 2021, respectively, and $195,279 and $184,415 in the six months ended December 31, 2022 and 2021, respectively)	1,465,773		1,008,676		2,970,368		1,903,267
Gross profit	337,422		163,743		684,957		301,882
Operating expenses:
Research and development	70,700		65,471		144,943		130,614
Sales and marketing	28,445		21,960		57,808		43,584
General and administrative	23,095		25,263		46,901		47,507
Total operating expenses	122,240		112,694		249,652		221,705
Income from operations	215,182		51,049		435,305		80,177
Other (expense) income, net	(6,335)		(607)		1,719		(557)
Interest expense	(1,756)		(1,150)		(5,694)		(1,954)
Income before income tax provision	207,091		49,292		431,330		77,666
Income tax provision	(29,573)		(7,599)		(68,507)		(10,924)
Share of (loss) income from equity investee, net of taxes	(1,351)		239		(2,240)		627
Net income	$	176,167	$	41,932	$	360,583	$	67,369
Net income per common share:
Basic	$	3.31	$	0.82	$	6.84	$	1.32
Diluted	$	3.14	$	0.78	$	6.51	$	1.27
Weighted-average shares used in the calculation of net income per common share:
Basic	53,160		51,314		52,726		51,055
Diluted	56,144		53,511		55,427		53,213

See accompanying notes to condensed consolidated financial statements.

SMCI | Q2 2023 Form 10-Q | 2

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited) 

	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Net income	$	176,167	$	41,932	$	360,583	$	67,369
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)	98		100		(299)		96
Total other comprehensive income (loss), net of tax	98		100		(299)		96
Total comprehensive income	$	176,265	$	42,032	$	360,284	$	67,465

See accompanying notes to condensed consolidated financial statements.

SMCI | Q2 2023 Form 10-Q | 3

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)

Three Months Ended December 31, 2022	Common Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income		Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
	Shares	Amount
Balance at September 30, 2022	52,851,469	$	497,183	$	514	$	1,127,339	$	167	$	1,625,203
Exercise of stock options, net of taxes	347,666	7,183		—		—		—		7,183
Release of common stock shares upon vesting of restricted stock units	290,471	—		—		—		—		—
Shares withheld for the withholding tax on vesting of restricted stock units	(89,305)	(6,788)		—		—		—		(6,788)
Stock-based compensation	—	16,981		—		—		—		16,981
Other comprehensive income	—	—		98		—		—		98
Net income (loss)	—	—		—		176,167		(2)		176,165
Balance at December 31, 2022	53,400,301	$	514,559	$	612	$	1,303,506	$	165	$	1,818,842

Three Months Ended December 31, 2021	Common Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income		Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
	Shares	Amount
Balance at September 30, 2021	51,071,844	$	448,976	$	449	$	683,197	$	176	$	1,132,798
Exercise of stock options, net of taxes	299,337	5,570		—		—		—		5,570
Release of common stock shares upon vesting of restricted stock units	199,825	—		—		—		—		—
Shares withheld for the withholding tax on vesting of restricted stock units	(62,390)	(2,732)		—		—		—		(2,732)
Stock-based compensation	—	9,176		—		—		—		9,176
Other comprehensive income	—	—		100		—		—		100
Net income	—	—		—		41,932		1		41,933
Balance at December 31, 2021	51,508,616	$	460,990	$	549	$	725,129	$	177	$	1,186,845

Six Months Ended December 31, 2022	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, 2022	52,311,014	$	481,741	$	911	$	942,923	$	172	$	1,425,747
Exercise of stock options, net of taxes	752,892	15,327		—		—		—		15,327
Release of common stock shares upon vesting of restricted stock units	484,003	—		—		—		—		—
Shares withheld for the withholding tax on vesting of restricted stock units	(147,608)	(10,504)		—		—		—		(10,504)
Stock-based compensation	—	27,995		—		—		—		27,995
Other comprehensive loss	—	—		(299)		—		—		(299)
Net income (loss)	—	—		—		360,583		(7)		360,576
Balance at December 31, 2022	53,400,301	$	514,559	$	612	$	1,303,506	$	165	$	1,818,842

SMCI | Q2 2023 Form 10-Q | 4

Six Months Ended December 31, 2021	Common Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income		Retained Earnings		Non-controlling Interest		Total Stockholders’ Equity
	Shares	Amount
Balance at June 30, 2021	50,582,078	$	438,012	$	453	$	657,760	$	173	$	1,096,398
Exercise of stock options, net of taxes	669,403	11,588		—		—		—		11,588
Release of common stock shares upon vesting of restricted stock units	373,596	—		—		—		—		—
Shares withheld for the withholding tax on vesting of restricted stock units	(116,461)	(4,801)		—		—		—		(4,801)
Stock-based compensation	—	16,191		—		—		—		16,191
Other comprehensive income	—	—		96		—		—		96
Net income	—	—		—		67,369		4		67,373
Balance at December 31, 2021	51,508,616	$	460,990	$	549	$	725,129	$	177	$	1,186,845

See accompanying notes to condensed consolidated financial statements.

SMCI | Q2 2023 Form 10-Q | 5

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended December 31,
	2022		2021
OPERATING ACTIVITIES:
Net income	$	360,583	$	67,369
Reconciliation of net income to net cash provided by (used in) operating activities:
Depreciation and amortization	17,196		15,681
Stock-based compensation expense	27,995		16,191
Allowance (recovery) for credit losses	1		(636)
Provision for excess and obsolete inventories	25,423		3,691
Share of loss (income) from equity investee	2,240		(627)
Foreign currency exchange (gain)	(4,614)		(2,738)
Deferred income taxes, net	(25,812)		1,451
Other	(430)		1,045
Changes in operating assets and liabilities:
Accounts receivable, net (including changes in related party balances of $3,178 and $(25,854) during the six months ended December 31, 2022 and 2021, respectively)	68,035		(33,491)
Inventories	98,366		(356,399)
Prepaid expenses and other assets (including changes in related party balances of $(22,925) and $(11,165) during the six months ended December 31, 2022 and 2021, respectively)	518		(24,481)
Accounts payable (including changes in related party balances of $751 and $25,940 during the six months ended December 31, 2022 and 2021, respectively)	(90,908)		83,188
Income taxes payable	(3,030)		1,723
Deferred revenue	46,243		50,235
Accrued liabilities (including changes in related party balances of $851 and $1,501 during the six months ended December 31, 2022 and 2021, respectively)	(44,092)		(2,507)
Other long-term liabilities (including changes in related party balances of $(168) and $0 during the six months ended December 31, 2022 and 2021, respectively)	(3,040)		(7,417)
Net cash provided by (used in) operating activities	474,674		(187,722)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (including payments to related parties of $4,514 and $1,770 during the six months ended December 31, 2022 and 2021, respectively)	(20,631)		(23,206)
Investment in a privately-held company	—		(1,100)
Net cash (used in) investing activities	(20,631)		(24,306)
FINANCING ACTIVITIES:
Proceeds from borrowings	144,037		587,719
Repayment of debt	(564,662)		(367,295)
Proceeds from exercise of stock options, net of taxes	15,327		11,588
Payment of withholding tax on vesting of restricted stock units	(10,504)		(4,801)
Other	(19)		(38)
Net cash (used in) provided by financing activities	(415,821)		227,173
Effect of exchange rate fluctuations on cash	(1,693)		(9)
Net increase in cash, cash equivalents and restricted cash	36,529		15,136
Cash, cash equivalents and restricted cash at the beginning of the period	268,559		233,449
Cash, cash equivalents and restricted cash at the end of the period	$	305,088	$	248,585
Supplemental disclosure of cash flow information:
Cash paid for interest	$	6,084	$	1,765

SMCI | Q2 2023 Form 10-Q | 6

Cash paid for taxes, net of refunds	$	96,156	$	7,270
Non-cash investing and financing activities:
Unpaid property, plant and equipment purchases (including due to related parties of $1,764 and $2,312 as of December 31, 2022 and 2021, respectively)	$	3,333	$	11,140
Right of use ("ROU") assets obtained in exchange for operating lease commitments	$	1,024	$	7,379

See accompanying notes to condensed consolidated financial statements.

SMCI | Q2 2023 Form 10-Q | 7

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 Part II, Item 8, Note 1, "Organization and Summary of Significant Accounting Policies," in its Annual Report on Form 10-K, filed on August 29, 2022, for the year ended June 30, 2022. Management's estimates take into consideration, as applicable, general macroeconomic conditions, inflation, changes in interest rates and geopolitical events.

Basis of Presentation

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

The unaudited condensed consolidated financial statements included herein reflect all adjustments, including normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The consolidated results of operations for the three and six months ended December 31, 2022 are not necessarily indicative of the results that may be expected for future quarters or for the fiscal year ending June 30, 2023.

Concentration of Supplier Risk

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 14.1% and 17.6% of total purchases for the three months ended December 31, 2022, and two suppliers accounted for 22.1% and 6.5% of total purchases for the three months ended December 31, 2021. Two suppliers accounted for 15.3% and 22.3% of total purchases for the six months ended December 31, 2022, and two suppliers accounted for 21.2% and 6.4% of total purchases for the six months ended December 31, 2021. Purchases from Ablecom, and Compuware, related parties of the Company (see Part I, Item 1, Note 8, "Related Party Transactions") accounted for a combined 6.7% and 9.4% of total cost of sales for the three months ended December 31, 2022 and 2021, respectively, and a combined 6.6% and 9.5% of total cost of sales for the six months ended December 31, 2022 and 2021, respectively.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents, restricted cash, investment in an auction rate security and accounts receivable. No single customer accounted for 10% or more of the net sales for the three months ended December 31, 2022, and one customer accounted for 15.8% of the net sales for the six months ended December 31, 2022. No single customer accounted for 10% or more of the net sales for the three and six months ended December 31, 2021. No single customer accounted for greater than 10% of the Company's accounts receivable, net as of December 31, 2022. One customer accounted for 21.7% of the Company's accounts receivable, net as of June 30, 2022.

Accounting Pronouncements Recently Adopted

There were no new pronouncements recently adopted.

SMCI | Q2 2023 Form 10-Q | 8

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued authoritative guidance, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The guidance also establishes (1) a general contract modification principle that entities can apply in other areas that may be affected by reference rate reform and (2) certain elective hedge accounting expedients. The amendments in this update do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022 that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship. The amendment is effective for all entities through December 31, 2022. In January 2021, the FASB issued further guidance on this topic, which clarified the scope and application of the original guidance. In December 2022, FASB issued an Accounting Standards Update (ASU) for the deferral of the sunset date of Topic 848 and amendments to the definition of secured overnight financing rate (“SOFR"). The ASU defers the sunset date of Topic 848 to December 31, 2024. The Company has loans and lines of credit with various financial institutions. Benchmark interest rates are used to calculate the interest on borrowings under the Chang Hwa Bank, CTBC, HSBC and Mega Bank Credit Facilities. LIBOR was used to calculate the interest on borrowings under the Company's 2018 Bank of America Credit Facility and E.SUN Credit Facility. The 2018 Bank of America Credit Facility was amended on June 28, 2021 to provide for a new maturity date of June 28, 2026 and fallback terms related to LIBOR replacement mechanics. 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 update provisions relating to payments and LIBOR replacement mechanics to SOFR. As these amendments had other contemporaneous changes to the facility, including the amount of borrowings permitted under the facility and not just directly related to LIBOR replacement, optional expedients under this guidance cannot be elected. The Company is currently evaluating the overall impact of the adoption of this guidance and does not expect it to have material impact on its consolidated financial statements and disclosures.

Note 2.         Revenue

Disaggregation of Revenue

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

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Server and storage systems	$	1,660,931	$	986,052	$	3,373,987	$	1,835,908
Subsystems and accessories	142,264		186,367		281,338		369,241
Total	$	1,803,195	$	1,172,419	$	3,655,325	$	2,205,149

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.

SMCI | Q2 2023 Form 10-Q | 9

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

International net sales are based on the country and geographic region to which the products were shipped. The following is a summary for the three and six months ended December 31, 2022 and 2021, of net sales by geographic region (in thousands):

	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
United States	$	1,091,391	$	638,207	$	2,386,895	$	1,199,155
Asia	330,711		284,107		600,735		547,193
Europe	312,533		215,451		547,607		395,145
Other	68,560		34,654		120,088		63,656
Total	$	1,803,195	$	1,172,419	$	3,655,325	$	2,205,149

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 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 advance consideration received from non-cancellable non-refundable contract liabilities relating to the sale of future products. Revenue recognized during the three and six months ended December 31, 2022, which was included in the deferred revenue balance as of June 30, 2022, of $233.8 million, was $27.5 million and $61.0 million, respectively.

Deferred revenue increased $46.2 million as of December 31, 2022 as compared to the fiscal year ended June 30, 2022 and was mainly due to the deferral on invoiced amounts for service contracts during the period exceeded the recognition of revenue from contracts entered into in prior periods. The service contracts deferral increase was offset partly by a $2.4 million decrease in non-cancellable non-refundable advance consideration or cash consideration received from customers which preceded the Company's satisfaction of the associated performance obligations relating to product sales expected to be fulfilled in the next 12 months.

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. The value of the transaction price allocated to remaining performance obligations as of December 31, 2022 was $280.0 million. The Company expects to recognize approximately 43% of remaining performance obligations as revenue in the next 12 months, and the remainder thereafter.

SMCI | Q2 2023 Form 10-Q | 10

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Capitalized Contract Acquisition Costs and Fulfillment Cost

Contract acquisition costs are those incremental costs that the Company incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. Contract acquisition costs consist primarily of incentive bonuses. Contract acquisition costs are considered incremental and recoverable costs of obtaining and fulfilling a contract with a customer and are therefore capitalizable. The Company applies the practical expedient to expense incentive bonus costs as incurred if the amortization period would be one year or less, generally upon delivery of the associated server and storage systems or components. Where the amortization period of the contract cost would be more than a year, the Company applies judgment in the allocation of the incentive bonus cost asset between hardware and service performance obligations and expenses the cost allocated to the hardware performance obligations upon delivery of associated server and storage systems or components and amortizes the cost allocated to service performance obligations over the period the services are expected to be provided. Contract acquisition costs allocated to service performance obligations that are subject to capitalization are insignificant to the Company’s condensed consolidated financial statements.

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

Note 3.        Net Income Per Common Share

The following table shows the computation of basic and diluted net income per common share for the three and six months ended December 31, 2022 and 2021 (in thousands, except per share amounts): 

	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Numerator:
Net income	$	176,167	$	41,932	$	360,583	$	67,369
Denominator:
Weighted-average shares outstanding	53,160		51,314		52,726		51,055
Effect of dilutive securities	2,984		2,197		2,701		2,158
Weighted-average diluted shares	56,144		53,511		55,427		53,213
Basic net income per common share	$	3.31	$	0.82	$	6.84	$	1.32
Diluted net income per common share	$	3.14	$	0.78	$	6.51	$	1.27

For the three and six months ended December 31, 2022 and 2021, the Company had stock options, restricted stock units ("RSUs") and performance based restricted stock units ("PRSUs") outstanding that could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net income per share in the periods presented, as their effect would have been anti-dilutive. The anti-dilutive common share equivalents resulting from outstanding equity awards were 211,729 and 419,423 for the three months ended December 31, 2022 and 2021, respectively, and 259,562 and 1,501,560 for the six months ended December 31, 2022 and 2021, respectively.

SMCI | Q2 2023 Form 10-Q | 11

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 4.        Balance Sheet Components

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

Inventories:

	December 31, 2022		June 30, 2022
Finished goods	$	972,150	$	1,025,555
Work in process	155,739		209,576
Purchased parts and raw materials	293,928		310,475
Total inventories	$	1,421,817	$	1,545,606

During the three and six months ended December 31, 2022, the Company recorded a net provision for excess and obsolete inventory to cost of sales totaling $15.8 million and $25.4 million, respectively, and $0.2 million and $3.7 million, for the three and six months ended December 31, 2021, respectively. The Company classifies subsystems and accessories that may be sold separately or incorporated into systems as finished goods.

Prepaid Expenses and Other Current Assets:

	December 31, 2022		June 30, 2022
Other receivables (1)	$	133,034	$	138,054
Prepaid expenses	9,507		5,632
Deferred service costs	6,626		5,562
Prepaid income tax	—		2,352
Restricted cash	—		251
Other	5,757		6,948
Total prepaid expenses and other current assets	$	154,924	$	158,799

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

Cash, Cash Equivalents and Restricted Cash:

	December 31, 2022		June 30, 2022
Cash and cash equivalents	$	304,595	$	267,397
Restricted cash included in prepaid expenses and other current assets	—		251
Restricted cash included in other assets	493		911
Total cash, cash equivalents and restricted cash	$	305,088	$	268,559

SMCI | Q2 2023 Form 10-Q | 12

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Property, Plant, and Equipment:

	December 31, 2022		June 30, 2022
Buildings	$	143,496	$	143,509
Machinery and equipment	122,634		113,665
Land	84,616		84,616
Furniture and fixtures	49,328		43,282
Building and leasehold improvements	45,812		45,169
Software	23,610		23,186
Building construction in progress	303		303
	469,799		453,730
Accumulated depreciation and amortization	(180,544)		(167,758)
Property, plant and equipment, net	$	289,255	$	285,972

Other Assets:

	December 31, 2022		June 30, 2022
Operating lease right-of-use asset	$	20,827	$	23,679
Deferred service costs, non-current	8,875		6,316
Prepaid expense, non-current	1,935		2,011
Deposits	1,685		1,069
Investment in auction rate security	1,590		1,590
Restricted cash, non-current	493		911
Other	1,841		1,956
Total other assets	$	37,246	$	37,532

Accrued Liabilities:    

	December 31, 2022		June 30, 2022
Accrued payroll and related expenses	$	51,400	$	57,736
Contract manufacturers liabilities	34,440		41,125
Customer deposits	24,136		30,421
Accrued legal liabilities (Note 11)	—		18,250
Accrued cooperative marketing expenses	9,973		8,757
Accrued warranty costs	8,668		9,073
Operating lease liability	7,117		7,139
Accrued professional fees	2,497		4,281
Other	31,636		35,637
Total accrued liabilities	$	169,866	$	212,419

SMCI | Q2 2023 Form 10-Q | 13

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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 total cash bonus opportunity was $8.1 million, divided into two equal tranches. Each tranche would be earned if the average closing price for the Company’s common stock reached specified targets. The Board retained the flexibility to reduce the amount payable under the first tranche (but not the second tranche) based on performance goals. Both price targets were reached during the fiscal year ended June 30, 2021, and the second tranche totaled $4.0 million was paid in full. As of June 30, 2021, the Company also expected it would likely pay the first tranche in full, and therefore recorded an expense of $3.6 million since March 2020 relating to the first tranche.

In September 2021, after the Company had closed its books for the year ended June 30, 2021, the Board decided to exercise its discretion to reduce the amount to be paid to the Chief Executive Officer for the first tranche to $2.0 million, which was paid in the quarter ended December 31, 2021. As a result of the Board’s decision to reduce the amount to be paid under the first tranche, the Company adjusted the $3.6 million expense previously recorded for the first tranche to the new amount of $2.0 million, which resulted in the Company recognizing a $1.6 million benefit from this adjustment during the quarter ended September 30, 2021. This performance award to the Chief Executive Officer was concluded in the year ended June 30, 2022. As such, there is no further transaction thereafter. There was no benefit recognized during the three and six months ended December 31, 2022. The benefit recognized during the three and six months ended December 31, 2021 was none and $1.6 million, respectively.

Other Long-term Liabilities:

	December 31, 2022		June 30, 2022
Accrued unrecognized tax benefits including related interests and penalties, non-current	$	18,315	$	18,866
Operating lease liability, non-current	13,924		16,661
Accrued warranty costs, non-current	4,608		3,064
Other	466		549
Total other long-term liabilities	$	37,313	$	39,140

Product Warranties:

	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Balance, beginning of the period	$	12,703	$	12,233	$	12,136	$	12,863
Provision for warranty	8,933		6,057		17,550		12,442
Costs utilized	(8,553)		(6,722)		(17,026)		(13,920)
Change in estimated liability for pre-existing warranties	193		15		616		198
Balance, end of the period