01—Abstract
Summary
Summary of the 10-Q filed November 3, 2023. Cited figures are marked; the original filing is the authoritative source.
Super Micro Computer, Inc. reported net sales of $2.12 billiona for the three months ended September 30, 2023, up 14.4% from $1.85 billion a year earlier, driven mainly by strong demand for GPU, high performance computing (HPC) and rack-scale solutions that carry higher average selling prices.
Net income was $156.995 millionb, or $2.75 per diluted share, down from $184.4 million ($3.35 diluted) in the prior-year quarter. Gross margin fell to 16.7% from 18.8%, and operating expenses rose 42.2% to $181.2 million, with research and development up 49.6% to $111.0 million, largely from higher compensation and equity award costs. Stock-based compensation expense increased to $57.4 million from $11.0 million.
The balance sheet expanded materially. Inventories rose to $2.05 billionc from $1.45 billion at June 30, 2023, and accounts payable increased to $1.08 billion from $776.8 million. Cash and cash equivalents were $543.2 million, up from $440.5 million, while total debt declined to $146.2 million from $290.3 million after $138.9 million of repayments.
Operating cash flow was $270.5 milliond, down from $313.6 million, mainly because of a $416.8 million increase in cash used to purchase inventory. Management stated that current resources should be sufficient for the next 12 months. Concentration risk increased: one supplier accounted for 55.1% of total purchases, reflecting GPU purchases, and one customer accounted for 25.0% of net sales.
Remaining noncancelable purchase commitments were $1.4 billion. On September 28, 2023, the Taiwan subsidiary entered into a new CTBC Bank credit agreement that aggregates borrowings of up to $105.0 million, and the company had $50.0 million of share repurchase authorization remaining.
02—Key points
Key Highlights
- Net sales rose 14.4% to $2.12 billion, led by server and storage systems, which grew to $1.97 billion, with growth in the United States offset by declines in Asia and Europe.
- Gross margin declined to 16.7% from 18.8%, attributed to product and customer mix, partly offset by lower freight costs and inventory reserve charges.
- Net income fell to $157.0 million from $184.4 million; diluted EPS was $2.75 versus $3.35, and the effective tax rate dropped to 11.4% from 17.4%.
- Operating expenses rose 42.2% to $181.2 million, with research and development up 49.6% to $111.0 million, driven by compensation and equity award costs.
- Inventories more than doubled from the prior-year-end level to $2.05 billion, and operating cash flow declined to $270.5 million from $313.6 million.
- Total debt fell to $146.2 million from $290.3 million, and cash and cash equivalents increased to $543.2 million.
- One supplier accounted for 55.1% of total purchases, reflecting GPU purchases, and $1.4 billion of noncancelable purchase commitments were outstanding.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2024, Super Micro Computer kept $0.07.
- Revenue$2.12B100.0%
- Cost of revenue−$1.77B83.3%
- Gross profit$353.7M16.7%
- Operating costs−$181.2M8.5%
- Operating income$172.5M8.1%
- Interest, other & tax−$15.5M0.7%
- Net income$157.0M7.4%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed November 3, 2023Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $2.12B$1.85B | +14.4% |
| Cost of Revenue | $1.77B$1.50B | +17.4% |
| Gross Profit | $353.69M$347.54M | +1.8% |
| R&D Expenses | $111.03M$74.24M | +49.5% |
| Operating Expenses | $181.18M$127.41M | +42.2% |
| Operating Income | $172.51M$220.12M | −21.6% |
| Interest Expense | $1.86M$3.94M | −52.7% |
| Net Income | $157.00M$184.42M | −14.9% |
| EPS (Basic) | $0.30$3.51 | −91.5% |
| EPS (Diluted) | $0.27$3.35 | −91.9% |
| Shares Outstanding (Basic) | 530.93M52.60M | +909.4% |
| Shares Outstanding (Diluted) | 571.85M55.02M | +939.4% |
05—Questions
Frequently Asked Questions
What drove the revenue growth in the quarter?
Management attributed the increase in server and storage system sales to strong customer demand for GPU, high performance computing and rack-scale solutions, which carry higher average selling prices. Subsystems and accessories also rose 10.1%, as more accessories and spares were bought alongside full systems.
Why did gross margin decline?
The filing states that the decline from 18.8% to 16.7% was primarily due to product and customer mix. Lower freight costs, reduced inventory reserve charges and higher capitalized manufacturing overhead partly offset the decline.
Why did operating expenses increase so sharply?
Operating expenses rose 42.2% to $181.2 million, primarily from higher compensation expense related to salary increases, headcount growth and equity awards. Research and development expense rose $36.8 million, and management expects these expenses to keep increasing as the workforce expands.
Why did operating cash flow decline despite higher sales?
Net cash from operations fell $43.1 million to $270.5 million, mainly because cash used to purchase inventory increased by $416.8 million. This was partly offset by a $207.4 million increase from collecting accounts receivable.
How is the company's debt and liquidity position?
Total debt decreased to $146.2 million from $290.3 million, and cash and cash equivalents rose to $543.2 million. Management believes current cash, borrowing capacity and operating cash flows will be sufficient for the next 12 months, and it entered a new CTBC Bank credit agreement allowing up to $105.0 million in aggregate borrowings.
06—Continue