Super Micro Computer Inc.
11/06/2026 | Press release | Distributed by Public on 11/06/2026 05:03
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the related footnotes included elsewhere in this Quarterly Report on Form 10-Q, and the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026.
Overview
We are a global leader in Application-Optimized Total IT Solutions. Founded and operating in San Jose, California, we are committed to delivering first-to-market innovation for Enterprise, Cloud, artificial intelligence ("AI"), and 5G Telco/Edge IT Infrastructure. As a Total IT Solutions manufacturer, our offerings include server, AI systems, storage, IoT devices, switches, software, and support services. Supermicro's expertise in motherboard, power, and chassis design drives our ability to develop and produce next-generation innovations, from cloud to edge, for our global customers. Our products are designed and manufactured in-house across facilities in the United States, Taiwan, the Netherlands, and Malaysia. Leveraging our global operations for scale and efficiency, we optimize solutions to improve total cost of ownership ("TCO") while reducing environmental impact through Green Computing initiatives. Our award-winning portfolio of Server Building Block Solutions empowers customers to tailor systems precisely to their exact workloads and applications. By selecting from a broad family of flexible and reusable building blocks, customers can configure a comprehensive range of form factors, processors, memory, graphics processing units ("GPUs"), storage, networking, power, and cooling solutions, including air-conditioned, free air, and liquid cooling solutions.
We commenced operations in 1993 and have been profitable every year since inception. For the three months ended September 30, 2026 and 2025, our net income was $1,594.2 million and $168.3 million, respectively.
In order to increase our sales and profits, we believe that we must continue to develop flexible application optimized server and storage solutions while being among the first to market with new features and products. Our focus is on delivering Total IT Solutions that integrate, validate, and deliver server, storage, networking and software at the rack and cluster (multi-rack) level. Additionally, we will continue to expand our software offerings and enhance customer service and support, particularly as we increase our focus on large enterprise and data center customers. A key component of our strategy is our Data Center Building Block Solutions ("DCBBS"), which significantly reduces data center build time and enables full integration of AI computing, server, storage, networking, rack, cabling, liquid cooling, end-to-end management software, onsite deployment services, and ongoing maintenance. To further expand our market share, we intend to strengthen our network of sales partners and distribution channels.
We measure our financial success based on various key indicators, including growth in net sales, gross profit, income from operations, and net income per common share. In addition to these financial metrics, a critical non-financial indicator of our success is our ability to rapidly introduce new products and deliver the latest application-optimized server and storage solutions. To support this, we work closely with the developers and manufacturers of key components, allowing us to integrate emerging technologies as they become available. Our ability to quickly bring new products to market, which we believe is enabled by our Building Block Solution architecture, has historically enabled us to capitalize on major technology transitions such as the launch of new GPUs, microprocessors and storage technologies. Accordingly, we closely monitor the product introduction cycles of industry leaders, including NVIDIA Corporation, Intel Corporation, Advanced Micro Devices, Inc., Broadcom Inc., Samsung Electronics Company Limited, Micron Technology, Inc. and others. This strategic focus directly informs our research and development investments, as we continue to allocate resources toward both our current initiatives and future product innovation.
SMCI | Q1 2027 Form 10-Q | 40
AI and Data Centers
The growing use of AI, which requires enhanced data center capabilities, has substantially increased demand for our products. We expect this trend to continue, with further demand for data center expansion driven by the AI market. As a result, we will continue to enhance our product capabilities and expand our service offerings, including DCBBS to address the growing demand in the AI market and data center markets. We believe that our ability to tailor certain products to the unique needs of these sectors sets us apart from many competitors and positions us to capture an even greater market share going forward.
Macroeconomic Factors
Macroeconomic factors, including inflation, interest rate changes, capital market volatility, global supply chain constraints, tariffs, and global economic and geopolitical developments, have had and may continue to have direct and indirect impacts on our business and results of operations, particularly demand for our products and net sales. While difficult to isolate and quantify, these macroeconomic factors have also impacted and may continue to impact our supply chain and manufacturing costs, employee wages, costs for capital equipment, the value of our investments, revenue and competitive position. Further, while many of these macroeconomic factors could have a long-term impact, others may have a short-term impact which could lead to our financial results not being comparable on a period-to-period basis. Within our supply chain, we continuously manage product availability and costs with our vendors.
Financial Highlights
The following is a summary of our financial highlights for the three months ended September 30, 2026 and 2025 (in thousands, except per share amounts):
| Three Months Ended September 30, | ||||||||||||||
| 2026 | 2025 | |||||||||||||
| Net sales | $ | 19,945,832 | $ | 5,017,790 | ||||||||||
| Gross profit | $ | 2,541,043 | $ | 467,373 | ||||||||||
| Total operating expenses | $ | 476,550 | $ | 285,117 | ||||||||||
| Income from operations | $ | 2,064,493 | $ | 182,256 | ||||||||||
|
Net income
|
$ | 1,594,205 | $ | 168,285 | ||||||||||
| Net income per common share - diluted | $ | 1.75 | $ | 0.26 | ||||||||||
•Net sales increased by 297.5% in the three months ended September 30, 2026, as compared to the three months ended September 30, 2025, primarily driven by increased demand for AI platforms.
•Gross margin increased to 12.7% in the three months ended September 30, 2026 from 9.3% in the three months ended September 30, 2025, primarily due to a change in product and customer mix.
•Operating expenses increased by 67.1% in the three months ended September 30, 2026, as compared to the three months ended September 30, 2025, primarily due to higher headcount and increases in salary and stock-based compensation as well as increase in product development costs to support our business growth.
•Net income increased to $1,594.2 million in the three months ended September 30, 2026, as compared to $168.3 million in the three months ended September 30, 2025, primarily due to a higher increase in net sales, as well as an increase in gross margin.
SMCI | Q1 2027 Form 10-Q | 41
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which are prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we regularly evaluate our accounting estimates based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The actual impact on our financial performance could differ from these estimates under different assumptions or conditions.
An accounting estimate is considered critical if both (i) the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment involved, and (ii) the impact within a reasonable range of outcomes of the estimates and assumptions is material to our condensed consolidated financial statements. Critical accounting estimates in the areas of revenue recognition, inventories, and income taxes, when applicable, have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting estimates.
There have been no material changes to our critical estimates as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026.
Results of Operations
Components of Results of Operations
Net Sales
Net sales primarily consist of sales of our server and storage solutions, including systems and related services, subsystems, and accessories. The key factors that impact net sales of our server and storage systems are the number of servers and racks sold, as well as the average selling prices per server or rack. For subsystems and accessories, the main drivers of net sales are the number of units shipped and the average selling price per unit. The prices for our server and storage systems can vary widely depending on the configuration, including factors such as speed, functionality and performance of key components, including CPUs, GPUs, SSDs, cooling systems, and memory. Similarly, the prices for our subsystems and accessories fluctuate depending on the relative value of the specific item being purchased, such as power supplies, server boards, chassis or other accessories.
Cost of Sales, Gross Profit, and Gross Margin
Cost of sales primarily consists of the costs to manufacture our products, which includes: the costs of components and materials, contract manufacturing, shipping, personnel expenses (salaries, benefits, stock-based compensation and incentive bonuses), equipment and facility expenses, warranty costs, and inventory valuation adjustment write-downs.
We use several suppliers and contract manufacturers to design and manufacture subsystems in accordance with our specifications, with most final assembly and testing performed at our manufacturing facilities in the region where our products are sold. We work with Ablecom, one of our key contract manufacturers and a related party, for our chassis and certain other components. We also outsource a significant part of the manufacturing of certain components, particularly power supplies, to Compuware, also a related party. We also collaborate on design and development activities with Ablecom and Compuware, where we substantially fund the design costs and retain the intellectual property rights. Our purchases of products from Ablecom and Compuware combined represented 1.1% and 3.4% of cost of sales on our condensed consolidated statements of operations for the three months ended September 30, 2026 and 2025, respectively. For further details on our dealings with related parties, see Note 11, "Related Party Transactions" in the notes to the condensed consolidated financial statements in this Quarterly Report.
SMCI | Q1 2027 Form 10-Q | 42
Research and Development
Research and development expenses consist of personnel expenses including salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our research and development personnel, as well as product development costs such as materials and supplies, consulting services, third-party testing services, and equipment and facility expenses related to our research and development activities.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel expenses including salaries, benefits, stock-based compensation, commissions and incentive bonuses, and related expenses for our sales and marketing personnel, cost for trade shows, sales representative fees, and marketing programs. From time to time, we receive marketing development funding from certain suppliers. Under these arrangements, we are reimbursed for certain marketing costs that we incur as part of the joint promotion of our products and those of our suppliers. These amounts offset a portion of the related expenses and have the effect of reducing our reported sales and marketing expenses.
General and Administrative
General and administrative expenses consist primarily of general corporate costs, including personnel expenses such as salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our general and administrative personnel, financial reporting, corporate governance and compliance, outside legal, audit, tax fees, insurance, and credit losses on accounts receivable.
Other Expense, Net, Interest Income, and Interest Expense
Other expense, net, interest income, and interest expense consist primarily of interest earned on our investments and cash balances, interest incurred on our debt, and foreign exchange gains and losses.
Income Tax Provision
Our income tax provision is based on our taxable income generated in the jurisdictions in which we operate, which primarily include the United States, Taiwan, and the Netherlands. Our effective tax rate differs from the statutory rate primarily due to state income taxes, and offset by research and development tax credits, and tax benefits from foreign-derived deduction eligible income.
SMCI | Q1 2027 Form 10-Q | 43
The following table presents certain items of our condensed consolidated statements of operations for the three months ended September 30, 2026 and 2025 (in millions):
| Three Months Ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Net sales | $ | 19,945.8 | $ | 5,017.8 | |||||||
| Cost of sales | 17,404.8 | 4,550.4 | |||||||||
| Gross profit | 2,541.0 | 467.4 | |||||||||
| Operating expenses: | |||||||||||
| Research and development | 227.3 | 173.3 | |||||||||
| Sales and marketing | 132.5 | 47.9 | |||||||||
| General and administrative | 116.7 | 63.9 | |||||||||
| Total operating expenses | 476.5 | 285.1 | |||||||||
| Income from operations | 2,064.5 | 182.3 | |||||||||
| Other expense, net | (5.5) | (0.1) | |||||||||
| Interest income | 54.2 | 51.3 | |||||||||
| Interest expense | (82.5) | (24.9) | |||||||||
| Income before income tax provision | 2,030.7 | 208.6 | |||||||||
|
Income tax provision
|
(435.5) | (40.2) | |||||||||
| Share of loss from equity investee, net of taxes | (1.0) | (0.1) | |||||||||
| Net income | $ | 1,594.2 | $ | 168.3 | |||||||
The following table presents certain items of our condensed consolidated statements of operations expressed as a percentage of net sales for the three months ended September 30, 2026 and 2025:
| Three Months Ended September 30, | ||||||||||||||
| 2026 | 2025 | |||||||||||||
| Net sales | 100.0 | % | 100.0 | % | ||||||||||
| Cost of sales | 87.3 | % | 90.7 | % | ||||||||||
| Gross profit | 12.7 | % | 9.3 | % | ||||||||||
| Operating expenses: | ||||||||||||||
| Research and development | 1.1 | % | 3.5 | % | ||||||||||
| Sales and marketing | 0.7 | % | 1.0 | % | ||||||||||
| General and administrative | 0.6 | % | 1.3 | % | ||||||||||
| Total operating expenses | 2.4 | % | 5.8 | % | ||||||||||
| Income from operations | 10.3 | % | 3.5 | % | ||||||||||
| Other expense, net | - | % | * | - | % | * | ||||||||
| Interest income | 0.3 | % | 1.0 | % | ||||||||||
| Interest expense | (0.4) | % | (0.5) | % | ||||||||||
| Income before income tax provision | 10.2 | % | 4.0 | % | ||||||||||
|
Income tax provision
|
(2.2) | % | (0.8) | % | ||||||||||
| Share of loss from equity investee, net of taxes | - | % | * | - | % | * | ||||||||
| Net income | 8.0 | % | 3.2 | % | ||||||||||
* Represents an amount less than 0.1%.
SMCI | Q1 2027 Form 10-Q | 44
Net Sales
The following table presents net sales for the three months ended September 30, 2026 and 2025 (dollars in millions):
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
|
Net sales
|
$ | 19,945.8 | $ | 5,017.8 | $ | 14,928.0 | 297.5 | % | |||||||||||||||
Comparison of the Three Months Ended September 30, 2026 and 2025
The $14,928.0 million or 297.5% increase in net sales was primarily due to strong demand for AI platforms including increased billing for Hyper Servers, GPU & Super Racks product lines of $12,534.8 million or 293.4% year-over-year. These include liquid-cooled and air-cooled servers that are generally more complex and of higher value, primarily related to our GB200 and GB300 systems, and resulted in higher shipment volumes and a favorable product mix, as well as a modest increase in our average selling prices.
Cost of Sales, Gross Profit, and Gross Margin
Cost of sales and gross margin for the three months ended September 30, 2026 and 2025 were as follows (dollars in millions):
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| Cost of sales | $ | 17,404.8 | $ | 4,550.4 | $ | 12,854.4 | 282.5 | % | |||||||||||||||
| Percentage of total net sales | 87.3 | % | 90.7 | % | |||||||||||||||||||
| Gross profit | $ | 2,541.0 | $ | 467.4 | $ | 2,073.6 | 443.6 | % | |||||||||||||||
| Gross margin | 12.7 | % | 9.3 | % | 3.4 | % | |||||||||||||||||
Comparison of the Three Months Ended September 30, 2026 and 2025
The $12,854.4 million or 282.5% increase in cost of sales was primarily driven by an approximately $12,811.4 million or 281.7% increase in certain products, including GPU servers, HPC systems, and rack-scale solutions, consistent with the higher shipment volume during the three months ended September 30, 2026, as compared to the three months ended September 30, 2025. The remaining increase in cost of sales was primarily attributable to a $223.1 million or 237.6% increase in manufacturing overhead, as well as a $38.3 million or 111.3% increase in freight costs which was primarily due to higher inbound material procurement volume required to support increased production and shipment levels associated with higher sales during fiscal 2027. These increases were partially offset by a $148.0 million or 280.8% increase in tariff recovery refunds received on imported products under the IEEPA, net of tariff expenses paid.
Gross margin increased to 12.7% in the three months ended September 30, 2026, from 9.3% in the three months ended September 30, 2025, primarily due to a change in product and customer mix.
SMCI | Q1 2027 Form 10-Q | 45
Operating Expenses
Operating expenses for the three months ended September 30, 2026 and 2025 were as follows (dollars in millions):
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| Research and development | $ | 227.3 | $ | 173.3 | $ | 54.0 | 31.2 | % | |||||||||||||||
| Percentage of total net sales | 1.1 | % | 3.5 | % | |||||||||||||||||||
| Sales and marketing | $ | 132.5 | $ | 47.9 | $ | 84.6 | 176.6 | % | |||||||||||||||
| Percentage of total net sales | 0.7 | % | 1.0 | % | |||||||||||||||||||
| General and administrative | $ | 116.7 | $ | 63.9 | $ | 52.8 | 82.6 | % | |||||||||||||||
| Percentage of total net sales | 0.6 | % | 1.3 | % | |||||||||||||||||||
| Total operating expenses | $ | 476.5 | $ | 285.1 | $ | 191.4 | 67.1 | % | |||||||||||||||
Comparison of the Three Months Ended September 30, 2026 and 2025
Research and development expenses. The $54.0 million or 31.2% increase in research and development expenses was primarily driven by an increase in employee-related costs of $32.2 million, or 19.9%, mainly comprised of a $9.8 million, or 17.1%, increase in stock-based compensation, and a $22.4 million, or 21.4%, increase in salaries and benefits as we expanded our workforce and invested in key talent to support our global growth initiatives. The remaining increase was primarily attributable to a $20.1 million, or 166.1%, increase in product development costs to support the development of next-generation products and technologies. We believe that research and development expenses will continue to increase as we continue to expand our workforce and invest in key talent to stay at the forefront of development of next generation products and technologies.
Sales and marketing expenses. The $84.6 million or 176.6% increase in sales and marketing expenses was primarily driven by an increase in employee-related costs of $62.8 million, or 115.9%, mainly comprised of a $64.5 million, or 149.7%, increase in salaries and benefits, partially offset by a $1.7 million, or 15.3%, decrease in stock-based compensation. Similar to research and development expenses, these higher personnel cost reflect investments in company-wide key talent and workforce expansion to support business growth. The remaining increase was primarily attributable to $17.9 million, or 75.5%, lower marketing development funds received from certain business partners, recorded as a reduction in expenses, related to co-marketing and advertising events to promote products that occurred during the three months ended September 30, 2026, as compared to the three months ended September 30, 2025.
General and administrative expenses. The $52.8 million or 82.6% increase in general and administrative expenses was primarily driven by an increase in legal and internal investigation-related expenses of $20.3 million, or 548.6%, as well as an increase in employee-related costs of $8.2 million, or 28.1%, mainly comprised of a $6.3 million, or 40.1%, increase in salaries and benefits and a $1.9 million, or 14.1% increase in stock-based compensation, due to the hiring of key talent and the refresh of grants. Additionally, there was a $9.1 million, or 58.0%, increase in indirect facilities costs as a result of new facilities expansion, including rental costs, utility costs, and depreciation expense, a $7.2 million, or 2400.0%, increase in excise and franchise tax expense directly related to higher sales during the three months ended September 30, 2026, as compared to the three months ended September 30, 2025, and a $3.9 million, or 95.1%, increase in professional and service fees primarily from additional subscription fees from increased licenses and services required to support business growth.
SMCI | Q1 2027 Form 10-Q | 46
Other Expense, Net, Interest Income, and Interest Expense
Other expense, net, interest income, and interest expense for the three months ended September 30, 2026 and 2025 were as follows (dollars in millions):
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| Other expense, net | $ | (5.5) | $ | (0.1) | $ | (5.4) | 5,400.0 | % | |||||||||||||||
| Percentage of total net sales | - | % | - | % |
*
|
||||||||||||||||||
| Interest income | 54.2 | 51.3 | 2.9 | 5.7 | % | ||||||||||||||||||
| Percentage of total net sales | 0.3 | % | 1.0 | % | |||||||||||||||||||
| Interest expense | (82.5) | (24.9) | (57.6) | 231.3 | % | ||||||||||||||||||
| Percentage of total net sales | (0.4) | % | (0.5) | % | |||||||||||||||||||
|
Other expense, net, interest income, and interest expense
|
$ | (33.8) | $ | 26.3 | $ | (60.1) | (228.5) | % | |||||||||||||||
*Represents an amount less than 0.1%.
Comparison of the Three Months Ended September 30, 2026 and 2025
The $5.4 million or 5,400.0% increase in other expense, net was primarily driven by $16.0 million or 200.0% loss from mark-to-market adjustments on a marketable equity security investment during the three months ended September 30, 2026 as compared to the three months ended September 30, 2025. This was partially offset by a $12.0 million impairment loss related to our non-marketable investment that was recorded during the first quarter of fiscal 2026 which did not recur in fiscal 2027.
The $2.9 million or 5.7% increase in interest income for the three months ended September 30, 2026, as compared to the three months ended September 30, 2025, was primarily driven by higher interest income as a result of increased cash deposits funded by the proceeds from our debt arrangements.
The $57.6 million or 231.3% increase in interest expense was primarily driven by $51.5 million additional interest expense related to the drawdown on our revolving credit facilities during the second half of fiscal 2026.
Income Tax Provision
Income tax provision and effective tax rates for the three months ended September 30, 2026 and 2025 were as follows (dollars in millions):
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
|
Income tax provision
|
$ | (435.5) | $ | (40.2) | $ | (395.3) | 983.3 | % | |||||||||||||||
| Percentage of total net sales | (2.2) | % | (0.8) | % | |||||||||||||||||||
| Effective tax rate | (21.4) | % | (19.3) | % | |||||||||||||||||||
SMCI | Q1 2027 Form 10-Q | 47
Comparison of the Three Months Ended September 30, 2026 and 2025
Income tax provision increased by $395.3 million or 983.3% primarily due to an increase in worldwide income before income tax provision that increased tax expense by $382.7 million, a lower tax benefit from stock-based compensation of approximately $15.4 million, an increase of state tax expense by $47.6 million, offset by a higher tax benefit from foreign-derived deduction eligible income by $44.3 million, and other miscellaneous immaterial tax items of approximately $6.0 million. The income before income tax provision for the first quarter of fiscal 2027 was $2,030.7 million, which is an increase of $1,822.1 million or 873.5%.
Our quarterly effective income tax rate is based on the estimated annual income tax rate forecast and discrete tax items recognized in the period. The effective tax rate for the three months ended September 30, 2026, is higher than that for the three months ended September 30, 2025, primarily due to a significant decrease in stock-based compensation tax deduction and lower research tax credit because of lower stock vesting price in the three months ended September 30, 2026.
Liquidity and Capital Resources
We have financed our growth primarily with funds generated from operations, as well as utilizing borrowing facilities, factoring our accounts receivable, selling our common stock, issuing our Mandatory Convertible Preferred Stock, and issuing convertible notes. Recent drivers of liquidity changes included an increase in the need for working capital due to higher levels of inventory and accounts receivable required to support future revenue growth. Our cash and cash equivalents were $6,897.5 million and $7,521.5 million as of September 30, 2026 and June 30, 2026, respectively. Our cash and cash equivalents held in foreign locations was $965.0 million and $870.5 million as of September 30, 2026 and June 30, 2026, respectively.
Amounts held outside of the United States are typically used to meet non-U.S. liquidity needs and to comply with the requirements of our credit facilities. Repatriations of these funds are generally not subject to U.S. federal income tax, though state income or foreign withholding taxes may apply. In cases where local restrictions prevent the intercompany transfer of funds, our strategy is to retain cash balances outside the U.S. and meet liquidity needs through operating cash flows, external borrowings, or both. We do not expect restrictions or potential taxes on the repatriation of amounts held outside the U.S. to materially affect our overall liquidity, financial condition, or results of operations.
In addition, because a large portion of our future expenditures will be to fund our growth, we expect that if needed we will be able to adjust our capital and operating expenditures as necessary. We continually evaluate our cash needs and may decide it is best to raise additional capital or seek alternative financing sources to fund the rapid growth of our business, including through drawdowns on existing or new debt facilities or financing funds. Conversely, we may also from time to time determine that it is in our best interests to voluntarily repay certain indebtedness early.
Accordingly, we believe that our current and forecasted sources of funds will provide us with adequate liquidity during the 12-month period following the issuance of these condensed consolidated financial statements, to meet our working capital, committed capital expenditures and contractual obligations.
SMCI | Q1 2027 Form 10-Q | 48
Our key cash flow metrics were as follows (in millions):
| Three Months Ended September 30, | Change | ||||||||||||||||
| 2026 | 2025 | $ | |||||||||||||||
| Net cash used in operating activities | $ | (434.0) | $ | (917.5) | $ | 483.5 | |||||||||||
| Net cash used in investing activities | (46.6) | (32.3) | (14.3) | ||||||||||||||
| Net cash used in financing activities | (135.3) | (18.7) | (116.6) | ||||||||||||||
| Effect of exchange rate fluctuations on cash | - | * | (4.6) | 4.6 | |||||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (615.9) | $ | (973.1) | $ | 357.2 | |||||||||||
* Represents an amount less than $0.1 million.
Operating Activities
Our largest source of operating cash flow is cash collections from our customers following the purchase of our products and service agreements. Our primary uses of cash from operating activities are typically for payments to suppliers for purchasing components for our inventory to support our manufacturing process, including prepayments for inventory, employee-related expenditures, expenses related to data center leases, taxes, and interest payments.
Net cash used in operating activities during the three months ended September 30, 2026 mostly consisted of $1,594.2 million net income adjusted for certain non-cash items, such as $100.2 million of stock-based compensation expense, $14.2 million of inventory valuation adjustment write-downs, $15.0 million of depreciation and amortization expense, and changes in working capital. The decrease in cash used in operating activities during the three months ended September 30, 2026, as compared to the three months ended September 30, 2025, was due to an increase in customer payments, partially offset by an increase in inventory purchases.
Investing Activities
The changes in cash flows from investing activities primarily relate to our investments in capital assets including property, plant, and equipment, to support the growth in business and purchases and sales of our investments in marketable securities and other instruments.
Net cash used in investing activities during the three months ended September 30, 2026 mostly consisted of $41.6 million of purchases of property, plant, and equipment as we continued to invest in real estate, servers, data centers, and network infrastructure, as well as investments made in equity securities of $5.0 million. The increase in cash used in investing activities during the three months ended September 30, 2026, as compared to the three months ended September 30, 2025, was mostly due to an increase in purchases of property, plant, and equipment.
Financing Activities
The changes in cash flows from financing activities primarily relate to borrowings and repayments related to our debt instruments, issuance of other financing or equity instruments, stock repurchases, dividend payments, and net proceeds related to employee stock programs.
Net cash used in financing activities during the three months ended September 30, 2026 mostly consisted of net repayment from lines of credit and term loans of $81.9 million, as well as dividends paid related to our Mandatory Convertible Preferred Stock of $63.7 million. These payments were partially offset by proceeds related to our Receivables Purchase Agreement, net of $43.4 million. The increase in cash used in financing activities during the three months ended September 30, 2026, as compared to the three months ended September 30, 2025, was mostly due to this increase in repayment of our lines of credit and term loans.
SMCI | Q1 2027 Form 10-Q | 49
Material Cash Requirements
Refer to Note 8, "Lines of Credit, Revolving Credit Facilities, and Term Loans", in the notes to the condensed consolidated financial statements in this Quarterly Report for further information on our outstanding debt.
Refer to Note 9, "Convertible Notes", in the notes to the condensed consolidated financial statements in this Quarterly Report for further information on the 2029 Convertible Notes, the 2028 Convertible Notes, and the 2030 Convertible Notes.
Refer to Note 13, "Stockholders' Equity", in the notes to the condensed consolidated financial statements in this Quarterly Report for further information on our equity offerings, including our Mandatory Convertible Preferred Stock, common stock offering, and the at-the-market equity offering program.
Capital Expenditure Requirements
We anticipate our total capital expenditures for the remainder of fiscal year 2027 will be in the range of $330.0 million to $350.0 million, primarily relating to costs associated with our global manufacturing capabilities, including tooling for new products, new IT investments, and facilities upgrades and expansion. We will also continue to evaluate new business opportunities and new markets. As a result, our future growth within the existing business or new opportunities and markets may dictate the need for additional facilities and capital expenditures to support that growth. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on net sales growth, productivity, expenses, service levels and customer retention).
Our future capital requirements will depend on a variety of factors, including our growth rate, the timing and scale of investments to support product development, the expansion of sales and marketing efforts, the launch of new and enhanced software and services offerings, and continued investments in our office facilities and IT system infrastructure.
Material Contractual Obligations
Our estimated future obligations as of September 30, 2026, include both current and long-term obligations. For our long-term debt, as noted in Note 8, "Lines of Credit, Revolving Credit Facilities, and Term Loans" in the notes to the condensed consolidated financial statements, we have a current obligation of $1,962.7 million and a long-term obligation of $2,014.4 million. Additionally, as noted in Note 9, "Convertible Notes" in the notes to the condensed consolidated financial statements, we have a convertible debt obligation of $4,725.0 million. Under our operating leases, as noted in Note 10, "Leases" in the notes to the condensed consolidated financial statements, we have a current obligation of $43.0 million and a long-term obligation of $489.6 million. As noted in Note 15, "Commitments and Contingencies", in the notes to the condensed consolidated financial statements, we have current obligations related to non-cancelable purchase commitments of $33.3 billion.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our condensed consolidated financial statements, see Note 1, "Organization and Summary of Significant Accounting Policies", in our notes to the condensed consolidated financial statements in this Quarterly Report.
SMCI | Q1 2027 Form 10-Q | 50
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