01—Abstract
Summary
Summary of the 10-K filed September 15, 2014. Cited figures are marked; the original filing is the authoritative source.
Super Micro Computer, Inc. (Nasdaq: SMCI) reported its 10-K for fiscal year ended June 30, 2014.
Net sales rose to $1,467.2 milliona from $1,162.6 million in fiscal 2013, and net income increased to $54.2 million from $21.3 million. The Company states it has been profitable every year since its 1993 inception. Gross profit was $225.5 million (15.4% of net sales) versus $160.1 million (13.8%) a year earlier, and income from operations was $80.3 million versus $27.2 million.
Growth was driven mainly by server systems, which rose to 50.5% of net sales from 43.2%, and by higher average selling prices. Balance sheet and liquidity remained modest. Cash and cash equivalents were $96.9 millionb, inventory $315.8 million, and accounts receivable $212.7 million.
Total debt was $46.3 millionc, and operating cash flow was only $6.5 million, held down by growth in receivables and inventory. Capital spending of $40.6 million included a $30.2 million purchase of real property in San Jose for a planned Green Computing Park. Stockholders' equity reached $469.2 million.
Investors should note the significant related-party relationship with Ablecom Technology Inc., a contract manufacturer whose founder's family is linked to the CEO. Purchases from Ablecom were $201.8 milliond, or 16.3% of cost of sales, and the auditor's report carries an explanatory paragraph on these related-party transactions. Customer concentration is low, with no customer at 10% or more of net sales, but the Company relies on indirect channels for 54.1% of sales and on a few suppliers, and notes that quarterly results may fluctuate.
02—Key points
Key Highlights
- Net sales increased 26.2% to $1,467.2 million; net income rose to $54.2 million from $21.3 million
- Gross margin improved to 15.4% of net sales from 13.8%; income from operations rose to $80.3 million from $27.2 million
- Server systems grew to 50.5% of net sales (from 43.2%); average selling price of server units rose 27.3% to $2,800
- Operating cash flow fell to $6.5 million from $13.6 million, as accounts receivable rose $64.9 million and inventory rose $63.9 million
- Cash and cash equivalents of $96.9 million against total debt of $46.3 million; stockholders' equity of $469.2 million
- Related-party reliance on Ablecom Technology Inc.: purchases of $201.8 million, 16.3% of cost of sales, with an explanatory paragraph in the auditor's report
- Purchased real property in San Jose for $30.2 million to develop a Green Computing Park; no customer represented 10% or more of net sales
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Super Micro Computer kept $0.04.
- Revenue$1.47B100.0%
- Cost of revenue−$1.24B84.6%
- Gross profit$225.5M15.4%
- Operating costs−$145.3M9.9%
- Operating income$80.3M5.5%
- Interest, other & tax−$26.1M1.8%
- Net income$54.2M3.7%
Where FY2014 revenue went
$1.47B- Cost of revenue: $1.24B, 85% of revenue
- Net income: $54.2M, 3.7% of revenue
- R&D: $84.3M, 5.7% of revenue
- Other operating costs: $61.0M, 4.2% of revenue
- Interest, other & tax: $26.1M, 1.8% of revenue
Kept 3.7% as net incomeNet income $54.2M · 3.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed September 15, 2014Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $1.47B$1.16B | +26.2% |
| Cost of Revenue | $1.24B$1.00B | +23.9% |
| Gross Profit | $225.54M$160.05M | +40.9% |
| R&D Expenses | $84.26M$75.21M | +12.0% |
| Operating Expenses | $145.29M$132.90M | +9.3% |
| Operating Income | $80.26M$27.16M | +195.5% |
| Interest Expense | $757K$610K | +24.1% |
| Net Income | $54.16M$21.28M | +154.5% |
| EPS (Basic) | $1.24$0.50 | +148.0% |
| EPS (Diluted) | $1.16$0.48 | +141.7% |
| Shares Outstanding (Basic) | 43.60M41.99M | +3.8% |
| Shares Outstanding (Diluted) | 46.51M43.91M | +5.9% |
05—Questions
Frequently Asked Questions
How did Super Micro's revenue and profitability change in fiscal 2014?
Net sales grew to $1,467.2 million from $1,162.6 million, and net income increased to $54.2 million from $21.3 million. The filing attributes the higher net income mainly to higher gross profit from server system sales and greater utilization of Taiwan manufacturing, partly offset by higher R&D expenses.
Why was operating cash flow weak despite higher net income?
Net cash provided by operating activities was $6.5 million. The filing cites a $64.9 million increase in accounts receivable and a $63.9 million increase in inventory, partly offset by a $46.3 million increase in accounts payable. The inventory increase supports anticipated fiscal 2015 sales growth.
How significant is the Ablecom relationship?
Ablecom Technology Inc. is a related party and a major contract manufacturer. Purchases from it were $201.8 million in fiscal 2014, or 16.3% of cost of sales. The CEO's brother runs Ablecom, and the Liang family holds about 10.5% of it. The auditor's report includes an explanatory paragraph on these related-party transactions.
What are the main risks highlighted in the filing?
The filing highlights quarterly fluctuations in results, dependence on volatile component prices with purchase-order-based supply, reliance on indirect distribution channels (54.1% of net sales), pricing pressure from competitors such as Dell, HP, IBM, Cisco and Intel, reliance on Intel, AMD and NVIDIA, and key-person dependence on CEO Charles Liang.
What did the company do with its capital in fiscal 2014?
The Company spent $40.6 million on property, plant and equipment, including $30.2 million to buy real property in San Jose, California. It plans to build five manufacturing buildings there over time, expected to cost about $22.1 million in fiscal 2015 for the first facility and warehouse remodel. It financed part of this with bank borrowings, and debt rose on net basis.
06—Continue