Super Micro Computer, Inc.: Form 10-Q for the period ended Dec 31, 2025

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 Annual Report on Form 10-K for the fiscal year ended June 30, 2025, which includes our consolidated financial statements for the fiscal years ended June 30, 2025 and 2024.

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, AI, and 5G Telco/Edge IT Infrastructure. As a Total IT Solutions manufacturer, our offerings include server, artificial intelligence (“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, and the Netherlands. Leveraging our global operations for scale and efficiency, we optimize solutions to improve 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, 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 December 31, 2025 and 2024, our net income was $400.6 million and $320.6 million, respectively. For the six months ended December 31, 2025 and 2024, our net income was $568.8 million and $744.9 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 also recognize the need 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 margin, operating margin, 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 and 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.

AI and Data Centers

The growing use of AI, which requires enhanced datacenter capabilities, has substantially increased demand for our products. We expect this trend to continue, with further demand for datacenter 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 datacenter 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 and value of our investments. 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.

Financial Highlights

The following is a summary of our financial highlights for the three months ended December 31, 2025 and 2024:

• Net sales increased by 123.4% in the three months ended December 31, 2025 as compared to the three months ended December 31, 2024 primarily driven by fulfillment and shipment of orders to support our customers' datacenter deployment, including a large design win from one customer, during the second quarter, some of which were originally delayed in the previous quarter, due to customer configuration upgrades and data center readiness matters. An increase in our average selling price also contributed modestly by product mix.
• Gross margin decreased to 6.3% in the three months ended December 31, 2025 from 11.8% in the three months ended December 31, 2024, primarily due to our strategy to offer competitive pricing to gain market share and a change in product and customer mix.
• Operating expenses increased by 7.6% in the three months ended December 31, 2025 as compared to the three months ended December 31, 2024, primarily due to higher headcount and increases in salary and stock-based compensation.
• Net income increased to $400.6 million in the three months ended December 31, 2025 as compared to $320.6 million in the three months ended December 31, 2024, which was primarily due to a higher increase in net sales.

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 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 inventories, revenue recognition, 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, 2025.

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 reserve charges.

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 1.6% and 2.1% of cost of sales on our condensed consolidated statements of operations for the three and six months ended December 31, 2025, respectively, and 2.7% and 3.7% of cost of sales on our condensed consolidated statements of operations for the three and six months ended December 31, 2024, respectively. For further details on our dealings with related parties, see Note 10, “Related Party Transactions” in the notes to the condensed consolidated financial statements.

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 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 Income, Net, Interest Income, and Interest Expense

Other income, net, interest income, and interest expense consists 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 research and development tax credits, certain non-deductible expenses, tax benefits from foreign derived intangible income, and stock-based compensation.

The following table presents certain items of our condensed consolidated statements of operations for the three and six months ended December 31, 2025 and 2024 (in millions):

The following table presents certain items of our condensed consolidated statements of operations expressed as a percentage of net sales for the three and six months ended December 31, 2025 and 2024:

*Represents an amount less than 0.1%.

Net Sales

The following table presents net sales for the three and six months ended December 31, 2025 and 2024 (dollars in millions):

Comparison of the Three Months Ended December 31, 2025 and 2024

The $7,004.5 million or 123.4% increase in net sales was primarily due to fulfillment and shipment of orders to support our customers' datacenters deployment, including a large design win from a customer, during the three months ended December 31, 2025, some of which were originally delayed due to customer configuration upgrades and data center readiness matters. An increase in our average selling price compared to the prior quarter ended December 31, 2024 also contributed modestly by product mix. This was most pronounced in increased billings for AI GPU related products of $7,398.2 million or 169.7% year over year, including liquid-cooled and air-cooled servers that are generally more complex and of higher average selling price. This was partially offset by decreased sales across other product categories by $475.9 million, or 42.5% as we continue to focus on gaining market share from our AI GPU platforms.

Comparison of the Six Months Ended December 31, 2025 and 2024

The $6,085.1 million or 52.4% increase in net sales was primarily due to fulfillment and shipment of orders to support our customers' datacenters deployment, including a large design win from a customer, during the six months ended December 31, 2025. An increase in our average selling price compared to the six months ended December 31, 2024 also contributed modestly by product mix. This was most pronounced in increased billings for AI GPU related products of $6,870.4 million or 77.4% year over year, including liquid-cooled and air-cooled servers that are generally more complex and of higher average selling price. This was partially offset by decreased sales across other product categories by $784.5 million, or 34.3% as we continue to focus on gaining market share from our AI GPU platforms.

Cost of Sales, Gross Profit, and Gross Margin

Cost of sales and gross margin for the three and six months ended December 31, 2025 and 2024 are as follows (dollars in millions):

SMCI | Q2 2026 Form 10-Q | 42

Comparison of the Three Months Ended December 31, 2025 and 2024

The $6,876.0 million or 137.3% increase in cost of sales was primarily driven by an increase of approximately $6,429.2 million or 119.2% in certain products including GPU servers, HPC systems, and rack-scale solutions, consistent with the higher shipment volume during the three months ended December 31, 2025 as compared to the three months ended December 31, 2024. The remaining increases in cost of sales were driven by a $142.0 million or 2621.0% increase in tariff expenses driven by new trade policies, a $107.3 million or 419.8% increase in inventory write-down adjustments resulting from excess and obsolete inventory with either insufficient demand or reduced realizable value, and a $197.4 million or 47.5% increase due to a decrease in vendor rebates.

The 5.5% decrease in the gross margin was due to a change in product and customer mix, higher production and expedite costs as we began to ship new AI GPU platforms on a large scale and the increases in tariff expense and inventory write-down adjustments described above.

Comparison of the Six Months Ended December 31, 2025 and 2024

The $6,264.7 million or 61.6% increase in cost of sales was primarily driven by an increase of approximately $5,657.2 million or 52.2% in certain products including GPU servers, HPC systems, and rack-scale solutions, consistent with the higher shipment volume during the six months ended December 31, 2025 as compared to the six months ended December 31, 2024. The remaining increases in cost of sales were driven by a $184.2 million or 1151.3% increase in tariff expenses driven by new trade policies, a $134.7 million or 388.0% increase in inventory write-down adjustments resulting from excess and obsolete inventory with either insufficient demand or reduced realizable value, and a $288.6 million or 40.0% increase due to a decrease in vendor rebates.

The 5.2% decrease in the gross margin was due to a change in product and customer mix, higher production and expedite costs as we began to ship new AI GPU platforms on a large scale and the increases in tariff expense and inventory write-down adjustments described above.

Operating Expenses

Operating expenses for the three and six months ended December 31, 2025 and 2024 are as follows (dollars in millions):

SMCI | Q2 2026 Form 10-Q | 43

Comparison of the Three Months Ended December 31, 2025 and 2024

Research and development expenses. The $22.6 million or 14.3% increase in research and development expenses was primarily driven by an increase in employee-related costs of $20.0 million, or 13.6%, mainly comprised of a $14.4 million, or 17.0%, increase in salaries, and a $8.7 million, or 17.2%, increase in stock-based compensation, as we expanded our workforce and invested in key talent to support our global growth across regions.

Sales and marketing expenses. The $6.5 million or 8.2% decrease in sales and marketing expenses was primarily driven by a $11.6 million, or 240.8%, higher marketing development fund received from certain business partners related to co-marketing and advertising events to promote products, which reduced sales and marketing expense, and $13.1 million, or 48.6%, decrease in standard marketing and advertising activities during the three months ended December 31, 2025 as compared to the three months ended December 31, 2024. These decreases along with other minor cost decreases were partially offset by an increase in employee-related costs, mainly due to a $17.0 million, or 41.2%, increase in salaries and a $0.8 million, or 8.0%, increase in stock-based compensation, similar to our research and development expenses as we expanded our workforce and invested in key talent company-wide.

General and administrative expenses. The $6.8 million or 10.7% increase in general and administrative expenses was primarily attributable to a $6.4 million or 567.4% increase in excise and franchise tax expense directly related to the increase in sales compared to prior-year quarter which increased the related tax expense, and an increase of $3.5 million or 30.3% in indirect facilities costs such as rental costs, utility costs, and depreciation costs. Additionally, there was a $0.8 million or 15.2% increase in consulting fees, driven by greater use of external consultants to support and enhance our financing activities and other initiatives. These increases were partially offset by a $4.6 million or 39.5% reduction in legal fees driven by the absence of litigation fees due to resolved legal matters.

Comparison of the Six Months Ended December 31, 2025 and 2024

Research and development expenses. The $63.6 million or 21.9% increase in research and development expenses was primarily driven by an increase in employee-related costs of $60.1 million, or 22.1%, mainly comprised of a $36.2 million, or 21.8%, increase in salaries, and a $29.6 million, or 33.9%, increase in stock-based compensation, as we expanded our workforce and invested in key talent to support our global growth across regions.

Sales and marketing expenses. The $27.4 million or 18.5% decrease in sales and marketing expenses was primarily driven by a $28.8 million, or 268.3%, higher marketing development fund received from certain business partners related to co-marketing and advertising events to promote products, which reduced sales and marketing expense, and a $15.7 million, or 36.7%, decrease in normal marketing and advertising activities the six months ended December 31, 2025 as compared to the six months ended December 31, 2024. These decreases along with other minor cost decreases were partially offset by an increase in employee-related costs, mainly due to a $12.2 million, or 14.1%, increase in salaries and a $4.1 million, or 23.7%, increase in stock-based compensation, similar to our research and development expenses as we expanded our workforce and invested in key talent company-wide.

General and administrative expenses. The $5.4 million or 4.2% increase in general and administrative expenses was primarily attributable to a $7.1 million or 30.3% increase in indirect facilities costs such as rental costs, utility costs, and depreciation costs, a $4.3 million or 104.7% increase in excise and franchise tax expense directly related to the increase in sales compared to prior-year quarter which increased the related tax expense, a $2.9 million or 27.3% increase in consulting fees, driven by greater use of external consultants to support and enhance our financing activities and other initiatives. Additionally, there was a $1.9 million or 3.2% net increase in employee-related costs including salaries, bonus, and stock-based compensation as we expanded our workforce and invested in key talent. These increases were partially offset by a $6.6 million or 51.3% reduction in audit and tax fees, driven by an absence of additional costs related to the delayed filing of our fiscal 2024 Form 10-K, and a $5.3 million or 30.0% reduction in legal fees driven by the absence of litigation fees due to resolved matters.

Other Income, Net, Interest Income, and Interest Expense

Other income, net, interest income, and interest expense for the three and six months ended December 31, 2025 and 2024 are as follows (dollars in millions):

Comparison of the Three Months Ended December 31, 2025 and 2024

The $4.0 million or 95.2% decrease in other income, net was primarily driven by unfavorable foreign currency exchange rate fluctuations resulting from a weaker U.S. dollar during the three months ended December 31, 2025.

The $42.2 million or 479.5% increase in interest income, net for the three months ended December 31, 2025 as compared to the three months ended December 31, 2024, was primarily driven by higher interest income as a result of increased cash deposits funded by the proceeds from our convertible notes issuance.

The $18.8 million or 289.2% increase in interest expense was primarily driven by a $22.7 million or 2012.3% increase in interest and amortization related to the amendment of the 2029 Convertible Notes and new issuance of the 2028 Convertible Notes and the 2030 Convertible Notes during the second half of fiscal 2025. This increase was partially offset by a $3.6 million or 70.6% decrease in interest expense associated with our Bank of America line of credit and term loans, which were fully repaid in November 2024.

Comparison of the Six Months Ended December 31, 2025 and 2024

The $3.3 million or 97.1% decrease in other income, net was primarily driven by a $13.7 million impairment loss related to our non-marketable investments during the six months ended December 31, 2025. This decrease along with other minor decreases were partially offset by a $7.9 million or 755.0% gain from mark-to-market adjustments on a marketable equity securities investment for the six months ended December 31, 2025 as compared to the six months ended December 31, 2024.

The $85.6 million or 509.5% increase in interest income was primarily driven by higher interest income. This is mainly comprised of an increase of $85.6 million or 510.1% in interest income for the six months ended December 31, 2025 as compared to the six months ended December 31, 2024, reflecting increased cash deposits funded by the proceeds from our convertible notes issuance.

The $26.4 million or 110.5% increase in interest expense was primarily driven by a $44.5 million or 1500.0% increase in interest and amortization related to the amendment of the 2029 Convertible Notes and new issuance of the 2028 Convertible Notes and the 2030 Convertible Notes during the second half of fiscal 2025. This increase was partially offset by a $17.9 million or 88.3% decrease in interest expense associated with our Bank of America line of credit and term loans, which were fully repaid in November 2024.

Income Tax Provision

Income tax provision and effective tax rates for the three months ended December 31, 2025 and 2024 are as follows (dollars in millions):

Comparison of the Three Months Ended December 31, 2025 and 2024

Income tax provision increased by $42.1 million or 73.9% primarily due to an increase in worldwide income before income tax provision that increased tax expense by $26.4 million, and a lower tax benefit from stock-based compensation of approximately $9.2 million, an increase of state tax expense by $11.8 million, and offset by the effects of other immaterial tax items of approximately $5.2 million. The income before income tax provision for the second quarter of fiscal 2026 was $500.2 million, which is an increase of $125.0 million or 33.4%.

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 December 31, 2025, is higher than that for the three months ended December 31, 2024, 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 December 31, 2025.

Comparison of the Six Months Ended December 31, 2025 and 2024

Income tax provision increased by $7.6 million or 5.8% primarily due to a decline in worldwide income before income tax provision that reduced tax expense by $33.7 million which was offset by a lower tax benefit from stock-based compensation of approximately $23.7 million, an increase of state tax expense by $10.9 million, and the effects of other immaterial tax items of approximately $6.7 million. The income before income tax provision for the six months ended December 31, 2025 was $708.8 million, which is a decrease of $165.3 million or 18.9%.

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 six months ended December 31, 2025, is higher than that for the six months ended December 31, 2024, 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 six months ended December 31, 2025.

Liquidity and Capital Resources

We have financed our growth primarily with funds generated from operations, as well as utilizing borrowing facilities, selling our common 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 required to support future growing revenues, greater requests for longer payment terms from customers due to increasing system costs and to a lesser extent longer supply chain lead times on certain key components. Our cash and cash equivalents were $4.1 billion and $5.2 billion as of December 31, 2025 and June 30, 2025, respectively. Our cash and cash equivalents held in foreign locations was $616.3 million and $607.2 million as of December 31, 2025 and June 30, 2025, respectively.

Amounts held outside of the United States are typically used to meet non-U.S. liquidity needs. 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.

We believe that our current cash, cash equivalents, borrowing capacity available from our credit facilities and internally generated cash flows will be sufficient to support our operating businesses and maturing debt and interest payments for the 12 months following the issuance of these condensed consolidated financial statements. We continue to assess financing options that may be necessary to support the growth of our business.

Our key cash flow metrics were as follows (in millions):

Operating Activities

Net cash used in operating activities during the six months ended December 31, 2025 mostly consisted of $568.8 million net income adjusted for certain non-cash items, such as $179.6 million of stock-based compensation expense, $25.4 million of depreciation and amortization expense, and changes in working capital. The decrease in cash flows from operating activities during the six months ended December 31, 2025 compared to the six months ended December 31, 2024 was due to an increase in inventory purchases, accounts receivables from customers, and other operational spending, partially offset by higher stock-based compensation and an increase in net income.

Investing Activities

Net cash used in investing activities during the six months ended December 31, 2025 mostly consisted of $53.5 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 $25.0 million. The increase in cash used in investing activities during the six months ended December 31, 2025 compared to the six months ended December 31, 2024, was mostly due to increases in purchases of property, plant, and equipment.

Financing Activities

Net cash provided by financing activities during the six months ended December 31, 2025 mostly consisted of net proceeds from lines of credit and term loans of $115.4 million, partially offset by payment for withholding taxes related to settlement of equity awards of $71.1 million. The increase in cash provided by financing activities during the six months ended December 31, 2025 compared to the six months ended December 31, 2024, was mostly due to an increase in net proceeds from lines of credits and term loans.

Other Factors Affecting Liquidity and Capital Resources

Refer to Note 7, “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 8, “Convertible Notes”, in the notes to the condensed consolidated financial statements in this Quarterly Report for further information on the amendment of the terms of the 2029 Convertible Notes, and the issuance of the 2028 Convertible Notes and the 2030 Convertible Notes.

Capital Expenditure Requirements

We anticipate our capital expenditures for the remainder of fiscal year 2026 will be in range of $200.0 million to $220.0 million, primarily relating to costs associated with our global manufacturing capabilities, including tooling for new products, new information technology 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.

Contractual Obligations

Our estimated future obligations as of December 31, 2025, include both current and long-term obligations. For our long-term debt, as noted in Note 7, “Lines of Credit, Revolving Credit Facilities, and Term Loans” in the notes to the condensed consolidated financial statements, we have a current obligation of $201.8 million and a long-term obligation of $21.4 million. Additionally, as noted in Note 8, “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 9, “Leases” in the notes to the condensed consolidated financial statements, we have a current obligation of $31.8 million and a long-term obligation of $354.1 million. As noted in Note 13, “Commitments and Contingencies” in the notes to the condensed consolidated financial statements, we have current obligations related to non-cancelable purchase commitments of $3.9 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.

Investment and Interest Rate Risk

We are exposed to interest rate risk related to our fixed-rate investment portfolio and outstanding debt. The investment portfolio is managed consistent with our overall liquidity strategy in support of both working capital needs and growth of our businesses.

The primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without significantly increasing the risk. Some of the securities we invest in are subject to market risk. This means that a change in prevailing interest rates may cause the fair value of the investment to fluctuate. To minimize this risk, we maintain our portfolio of cash equivalents and short-term investments in money market funds and certificates of deposit. Our investment in an auction rate security has been classified as non-current due to the lack of a liquid market for these securities. Since our results of operations are not dependent on investments, the risk associated with fluctuating interest rates is limited to our investment portfolio, and we believe that a 10% change in interest rates would not have a significant impact on our results of operations. As of December 31, 2025, our investments were in money market funds, certificates of deposits and auction rate securities.

We are exposed to changes in interest rates as a result of our borrowings under our term loans and revolving lines of credit. The interest rates for the term loans and the revolving lines of credit ranged from 1.3% to 5.9% at December 31, 2025 and 1.3% to 5.8% at June 30, 2025. Based on the outstanding principal indebtedness of $223.2 million under our credit facilities as of December 31, 2025, we believe that a 10% change in interest rates would not have a significant impact on the results of operations.

Foreign Exchange Rate Risk

We consider our direct exposure to foreign exchange rate fluctuations to be minimal as substantially all of our sales and purchases are in United States dollars. To date, our international customer and supplier agreements have been denominated primarily in U.S. dollars and accordingly, we have limited exposure to foreign currency exchange rate fluctuations from customer agreements. The functional currency of our subsidiaries in the Netherlands, Taiwan and Malaysia is the U.S. dollar. However, certain loans and transactions in these entities are denominated in a currency other than the U.S. dollar, and thus we are subject to foreign currency exchange rate fluctuations associated with re-measurement to U.S. dollars. Such fluctuations have not been significant historically, and a 10% change in foreign currency exchange rates would not have a significant impact on the results of operations. Gains or losses from foreign currency remeasurement are included in other income or expenses.

Attached as exhibits to this Quarterly Report on Form 10-Q are certifications of our Chief Executive Officer and Chief Financial Officer, which are required in accordance with Rule 13a-14 of the Exchange Act. This “Controls and Procedures” section includes information concerning the internal controls and controls evaluation referred to in the certifications.

(a) Management’s Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, is responsible for evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2025. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that their objectives are met. Because of the inherent limitations in all control systems, no evaluation of disclosure controls and procedures can provide absolute assurance that all disclosure control issues, if any, have been detected. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2025 due to the material weaknesses in our internal control over financial reporting, described below, that were previously identified in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025 filed on August 28, 2025. Notwithstanding the identified material weaknesses, management believes and has concluded that the condensed consolidated financial statements included in this Quarterly Report fairly present, in all material respects, our financial condition, results of operations, and cash flows for the periods presented in conformity with U.S. GAAP.

(b) Material Weakness in Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2025. In making this assessment, our management used the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected in a timely basis.

As previously reported in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, the following material weaknesses in internal control over financial reporting first identified in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 filed on February 25, 2025, remain unremediated as of December 31, 2025:

(i) information technology general controls ("ITGC") for certain systems that support our financial reporting process were not appropriately identified, designed or implemented; (ii) controls to address segregation of duties conflicts were not properly designed and appropriately implemented; (iii) controls over the completeness and accuracy of information we produce, impacting multiple financial statement areas were not properly implemented or documented; and (iv) we did not design, implement and retain appropriate documentation of control procedures to achieve timely, complete and accurate recording and disclosures across multiple financial statement areas including the timely identification and disclosure of new related party transactions.

The above material weaknesses could have increased the risk of unauthorized access to certain information technology systems that support our financial reporting processes, manipulation of data that we use to produce our financial statements, and/or lack of complete and accurate information, which could lead to financial misstatements and affect our ability to report our information on a timely basis.

Notwithstanding the material weaknesses in internal control over financial reporting described above, management believes and has concluded that the condensed consolidated financial statements included in this Quarterly Report fairly present, in all material respects, our financial condition, results of operations, and cash flows for the periods presented in conformity with U.S. GAAP.

(c) Inherent Limitations on Effectiveness of Controls

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements and projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

(d) Remediation Plan and Status

We have identified and implemented specific actions intended to improve the effectiveness of our internal control over financial reporting and disclosure controls and procedures and will continue to do so until the remediation of the material weaknesses identified above is complete, and we are able to conclude that both our internal control over financial reporting and our disclosure controls and procedures are effective. During the quarter and six months ended December 31, 2025, we made significant progress on our remediation efforts and began to implement additional changes designed to improve our internal controls over financial reporting and to remediate the material weaknesses, including, but not limited to:

• Successfully implemented a full redesign of our Enterprise Resource Planning (“ERP”) system security role structure and segregation of duties (“SOD”) rulesets, to address issues relating to access which were not appropriately aligned with the defined role, including lack of visibility into SOD conflicts related issues that collectively contributed to the material weakness. This redesign has significantly simplified our security design. We believe this redesign will likely successfully remediate the SOD-related material weakness and results in a less complex, sustainable, compliant access model that reduces high-risk SOD conflicts across the company, also supported by an enhanced detective and monitoring mechanism to review all ruleset changes, subject to the completion of operating effectiveness testing during fiscal year 2026;
• Continued to implement enhancements to our global learning management and communication system, to develop and roll out numerous compliance and other mandatory training courses, across various areas, including Finance, Compliance, Information Technology and Sales, to our global workforce with an expanded focus on key areas such as Related party transactions, Cyber security matters, Revenue recognition and Internal controls over financial reporting among others, to ensure that our personnel have the appropriate training to execute their job responsibilities;
• Successfully completed a transition to a best in class Information Technology Service Management (“ITSM”) tool thereby enhancing change management practices across all our IT applications, including our infrastructure and security thereby ensuring standardization of processes, applying a risk based approval workflow model, and establishing stronger governance protocols as it relates to our overall change management processes. We believe these actions will assist with the successful remediation of the material weakness we previously identified relating to the deficiencies noted in the design and implementation of ITGC controls for systems that support our financial reporting processes; and
• Continuing to enhance our accounting policies and related information provided by entity (“IPE”) documentation, and, as part of the financial reporting process, implementing the use of supplementary checklists as well as conducting additional reviews and evaluations of transactions to improve the accuracy and reliability of our financial information. We also have designed and implemented additional control procedures, including a more comprehensive review of transactions as part of our close process, to achieve timely, complete and accurate recording and disclosures across multiple financial statement areas including but not limited to the timely identification and disclosure of new related party transactions, leases among other areas.

Implementing and maintaining an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and in the economic and regulatory environments, and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. As we continue to evaluate and take actions to improve our internal control over financial reporting, we may take additional actions to address control deficiencies or modify certain of the remediation measures described above.

While we have made significant progress to enhance our internal control over financial reporting, we are still in the process of implementing certain additional processes, procedures and controls. We will require additional time to complete implementation, to complete testing and to assess and ensure the long-term sustainability of these procedures. We believe the above actions will be effective in remediating the material weaknesses described above, and we will continue to devote significant time and attention to these remedial efforts. However, the material weaknesses cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded after completion of appropriate testing that these controls are operating effectively.

(e) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the quarter ended December 31, 2025 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

However, as noted above, we will continue implementing changes to our internal control over financial reporting to address the material weaknesses described above.

Our operations and financial results are subject to various risks and uncertainties, including the factors discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, which are incorporated herein by reference, and which could adversely affect our business, financial conditions, and future results. There have been no material changes from the risk factors discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025.