Super Micro Computer (NASDAQ: SMCI) has released preliminary financial data for its first fiscal quarter ending September 30, 2024. This update follows an unsettling period in which the company’s auditor, Ernst & Young LLP (EY), abruptly resigned, citing trust and transparency issues, leading to a sharp 35% drop in Super Micro’s stock price.
The company’s reported net sales for Q1 FY 2025 are projected between $5.9 billion and $6.0 billion. While substantial, this range falls short of the company’s own guidance of $6.0 billion to $7.0 billion and is only marginally improved from $5.7 billion in the previous quarter. Compared to the same period last year, this figure represents a modest year-over-year growth rate that may fail to justify the premium expectations often associated with high-growth tech firms.
The company’s gross margin is expected to hold at approximately 13.3%, an underwhelming figure by most standards in the technology sector. The quarter’s gross margin aligns closely with last quarter’s 13.2% but is a decline from the prior year’s quarter at 14.1%.
On the profitability side, Super Micro’s diluted GAAP net income per share is forecast to be between $0.68 and $0.70. This is only a slight increase from last quarter’s $0.65 but represents a significant drop from the $1.02 recorded in the first quarter of fiscal 2024. Even on a non-GAAP basis, where stock-based compensation and other adjustments are excluded, earnings per share are expected to range from $0.75 to $0.76, failing to meet the previous guidance of $0.67 to $0.83.
The company’s reliance on debt also raises financial stability concerns. Super Micro anticipates total debt of around $2.3 billion, with cash reserves of approximately $2.1 billion. This debt burden includes $600 million in bank loans and $1.7 billion in convertible notes. Furthermore, with interest rates elevated, such leverage could erode net income and further pressure margins in upcoming quarters. In comparison, last quarter’s debt was slightly lower at $2.1 billion, with a similar cash reserve.
Looking ahead, the company’s guidance for the second quarter of fiscal 2025 projects net sales between $5.5 billion and $6.1 billion, indicating a potential contraction in revenue from Q1 levels. Super Micro’s guidance on net income per share for the next quarter, projected to be $0.48 to $0.58 on a GAAP basis and $0.56 to $0.65 on a non-GAAP basis, also represents a decline from Q1 levels.
The recent resignation of EY as Super Micro’s auditor compounds these concerns. EY’s departure, reportedly due to issues with the company’s adherence to the COSO Framework for governance, reflects serious misgivings about the integrity of Super Micro’s financial controls.
According to a recent statement, the Special Committee investigating the issue, led by independent counsel, completed an initial three-month investigation. The committee said that it “has found that the Audit Committee has acted independently and that there is no evidence of fraud or misconduct on the part of management or the Board of Directors.” However, the Committee emphasized the need for enhanced governance and oversight practices, recommending a series of remedial actions aimed at fortifying internal controls.
Additionally, the risk of a Nasdaq delisting following the missed Form 10-K filing deadline only amplifies the financial risks, as delisting would limit Super Micro’s access to capital markets, complicating its debt serviceability and overall liquidity position.
Regarding this, the company declared that it “continues to work diligently on matters related to the Form 10-K for the fiscal year ended June 30, 2024, but remains unable at this time to predict when the Form 10-K will be filed.”
Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
