01—Abstract
Summary
Summary of the 10-K filed December 19, 2019. Cited figures are marked; the original filing is the authoritative source.
Super Micro Computer, Inc. (SMCI) filed this comprehensive Form 10-K for the fiscal year ended June 30, 2019, together with expanded disclosures covering fiscal 2018 and the prior-period quarters, in lieu of separate filings.
The company reported net sales of $3,500,360 thousanda in fiscal 2019, up from $3,360,492 thousand in fiscal 2018, with gross profit of $495,522 thousand, income from operations of $97,233 thousand and net income of $71,918 thousand (diluted EPS $1.39). Server and storage systems made up 81.7% of net sales, and cash and cash equivalents rose to $248,164 thousand from $115,377 thousand. Operating cash flow was $262,554 thousand.
The filing's central message for investors is the company's ongoing reporting and control problems. Management concluded that internal control over financial reporting was not effective as of June 30, 2019, citing material weaknesses across all five COSO components, and Deloitte & Touche issued an adverse opinion on internal control. The company's common stock was suspended from Nasdaq trading on August 23, 2018 and formally delisted on March 22, 2019, and it now trades on the OTC Market under the symbol "SMCI." The filing states that the company expects to file its Form 10-Q for the quarter ended September 30, 2019 in or before January 2020.
It also describes professional fees of approximately $67 millionb in fiscal 2019 and $42 million in fiscal 2018 tied to the investigation and remediation, along with pending securities class actions and SEC subpoenas. The filing also highlights a Bank of America credit facility that expires June 30, 2020 and, if the company does not become current in its SEC filings by that date, may not be convertible to a five-year revolving facility. As of November 30, 2019, no principal was outstanding under that facility.
02—Key points
Key Highlights
- Net sales were $3,500,360 thousand in fiscal 2019 versus $3,360,492 thousand in fiscal 2018; net income was $71,918 thousand versus $46,165 thousand, and the filing attributes the lower growth to a softening demand environment in the second half of fiscal 2019.
- Gross margin improved to 14.2% in fiscal 2019 from 12.8% in fiscal 2018, which the filing attributes mainly to lower prices for key components and a favorable geographic mix.
- Management concluded internal control over financial reporting was not effective as of June 30, 2019, with material weaknesses in all five COSO components; Deloitte issued an adverse opinion on internal control and an unqualified opinion on the financial statements.
- Common stock was suspended from Nasdaq on August 23, 2018 and delisted on March 22, 2019; it now trades on the OTC Market under SMCI, and the company intends to seek relisting after becoming current in SEC filings.
- Professional fees tied to the investigation and remediation were approximately $67 million in fiscal 2019 and $42 million in fiscal 2018, and the company expects to keep incurring significant legal expenses.
- Cash and cash equivalents increased to $248,164 thousand at June 30, 2019 from $115,377 thousand, with operating cash flow of $262,554 thousand, and short-term debt fell to $23,647 thousand from $116,181 thousand.
- The Bank of America credit facility expires June 30, 2020; the company may lose the right to convert it to a five-year revolving facility if it does not become current in its SEC filings by that date.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Super Micro Computer kept $0.02.
- Revenue$3.50B100.0%
- Cost of revenue−$3.00B85.8%
- Gross profit$495.5M14.2%
- Operating costs−$398.3M11.4%
- Operating income$97.2M2.8%
- Interest, other & tax−$25.3M0.7%
- Net income$71.9M2.1%
Where FY2019 revenue went
$3.50B- Cost of revenue: $3.00B, 86% of revenue
- Net income: $71.9M, 2.1% of revenue
- R&D: $179.9M, 5.1% of revenue
- Other operating costs: $218.4M, 6.2% of revenue
- Interest, other & tax: $25.3M, 0.7% of revenue
Kept 2.1% as net incomeNet income $71.9M · 2.1%Interest, other & tax $25.3M · 0.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed December 19, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $3.50B$3.36B | +4.2% |
| Cost of Revenue | $3.00B$2.93B | +2.5% |
| Gross Profit | $495.52M$429.99M | +15.2% |
| R&D Expenses | $179.91M$165.10M | +9.0% |
| Operating Expenses | $398.29M$335.28M | +18.8% |
| Operating Income | $97.23M$94.71M | +2.7% |
| Interest Expense | $6.69M$5.73M | +16.8% |
| Net Income | $71.92M$46.15M | +55.8% |
| EPS (Basic) | $1.44$0.94 | +53.2% |
| EPS (Diluted) | $1.39$0.89 | +56.2% |
| Shares Outstanding (Basic) | 49.92M49.34M | +1.2% |
| Shares Outstanding (Diluted) | 51.72M52.15M | −0.8% |
05—Questions
Frequently Asked Questions
Why is the company filing a combined 10-K covering multiple prior periods?
The filing states that it is a comprehensive annual report for fiscal 2019 with expanded disclosures, filed in lieu of a separate Form 10-K for fiscal 2018 and separate Forms 10-Q for the quarters ended September 30, 2017, December 31, 2017 and March 31, 2018. The delay was attributed to completing the restated 2017 reports and preparing the required financial statements for the omitted periods.
What is the status of the company's SEC reporting and when will it be current?
The company says its only remaining delinquent report after this filing will be the Form 10-Q for the quarter ended September 30, 2019, which it currently intends to file in or before January 2020. It cannot assure that timeline and says it will then resume timely filing.
What are the main effects of the Nasdaq delisting on investors?
The filing says the delisting has limited liquidity, reduced the number of institutional investors willing to consider the stock, reduced the availability of trading price information, and may restrict equity or debt financing. Trading has been on the OTC Market, which the company describes as significantly more limited than Nasdaq.
What legal and regulatory matters could affect the company?
The company is a defendant in putative securities class actions (Hessefort and United Union of Roofers, filed February 8, 2018), where a motion to dismiss filed July 26, 2019 remains pending. It has also received SEC subpoenas related to the matters underlying the delayed 2017 10-K and an October 2018 news article, and says it is cooperating fully. The filing states it cannot predict outcomes.
Does the company pay dividends, and what are the financing constraints?
The company has never declared or paid cash dividends and does not expect to in the foreseeable future. Under its Bank of America credit agreement it may not pay dividends or repurchase shares, and the filing notes that while it is not current in SEC filings it cannot register securities for offer and sale, which limits public debt or equity financing.
06—Continue