Super Micro Computer, Inc.
For the period ended Sep 30, 2026. Filed Nov 6, 2026.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2026 · Filed Nov 6, 2026
SMCI$28.76+6.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2026-03-31; filed 2026-05-11.
0001375365-26-000014
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-09-30; filed 2026-11-06.
0001375365-26-000027
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 94 previous paragraphs and 90 current paragraphs.
36 unchanged; 38 reworded; 14 added; 16 removed; 4 previous and 2 current paragraphs rearranged.
Tables are not compared: 9 previous and 9 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (14)
Current report
•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.
Current report
Other Expense, Net, Interest Income, and Interest Expense
Current report
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.
Current report
Other Expense, Net, Interest Income, and Interest Expense
Current report
The $5.4 million or 5,400.0% increase inother 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.
Current report
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.
Current report
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.
Current report
Represents an amount less than $0.1 million.
Current report
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.
Current report
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.
Current report
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.
Current report
Material Cash Requirements
Current report
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.
Current report
Material Contractual Obligations
Removed paragraphs (16)
Previous report
•Net sales increased by 122.7% in the three months ended March 31, 2026, as compared to the three months ended March 31, 2025, primarily driven by fulfillment and shipment of orders to support our customers' data center deployment, including large design wins from a few customers, during the second and third quarters of fiscal 2026. An increase in our average selling price also contributed modestly by product mix.
Previous report
•Gross margin remained relatively flat in the three months ended March 31, 2026, as compared to the three months ended March 31, 2025.
Previous report
Other Income (Expense), Net, Interest Income, and Interest Expense
Previous report
The$5,643.1 million or 122.7% increase in net sales was primarily due to fulfillment and shipment of orders to support our customers' data centers deployment, including large design wins from a few customers, during the three months ended March 31, 2026. An increase in our average selling price compared to the quarter ended March 31, 2025 also contributed modestly by product mix. This was most pronounced in increased sales for AI GPU related products of $5,158.6 million or 150.5% year-over-year, including liquid-cooled and air-cooled servers that are generally more complex and of higher average selling price.
Previous report
The$11,728.2 million or 72.3% increase in net sales was primarily due to fulfillment and shipment of orders to support our customers' data centers deployment, including large design wins from a few customers, during the nine months ended March 31, 2026. An increase in our average selling price compared to the nine months ended March 31, 2025, also contributed modestly by product mix. This was most pronounced in increased sales for AI GPU related products of $12,028.9 million or 97.8% 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 $318.0 million, or 34.9% as we continue to focus on gaining market share from our AI GPU platforms.
Previous report
Gross margin remained relatively flat for the three months ended March 31, 2026, as compared to the three months ended March 31, 2025.
Previous report
The $11,329.4 million or 79.1% increase in cost of sales was primarily driven by an increase of approximately $10,636.2 million or 72.0% in certain products including GPU servers, HPC systems, and rack-scale solutions, consistent with the higher shipment volume during the nine months ended March 31, 2026, as compared to the nine months ended March 31, 2025. The remaining increases in cost of sales were driven by a $273.6 million or 891.0% increase in tariff expenses driven by new trade policies, a $79.9 million or 50.0% increase in inventory write-down adjustments resulting from excess and obsolete inventory with either insufficient demand or reduced net realizable value, and a $276.3 million or 29.2% increase due to a decrease in vendor rebates.
Previous report
Sales and marketing expenses. The $29.5 million or 49.2% increase in sales and marketing expenses was primarily driven by an increase in employee-related costs of $26.1 million, or 53.2%, mainly comprised of a $23.0 million, or 61.8%, increase in salaries, and a $2.4 million, or 24.2%, increase in stock-based compensation, similar to our research and development expenses as we expanded our workforce and invested in key talent company-wide. Other increases include a $3.4 million, or 57.6%, increase in standard marketing and advertising activities during the three months ended March 31, 2026, as compared to the three months ended March 31, 2025.
Previous report
General and administrative expenses. The $17.1 million or 24.3% increase in general and administrative expenses was primarily driven by an increase in employee-related costs of $6.1 million, or 16.4%, mainly comprised of a $5.5 million, or 41.4% increase in stock-based compensation, due to the hiring of key talent and the refresh of grants. Additionally, there was a $6.0 million, or 2000.0%, increase in financial fees primarily driven by a $5.7 million, or 100.0%, increase in factoring fees for the receivables sold under the Receivables Purchase Agreement, a $2.4 million or 133.3% 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 a $1.6 million, or 6.5%, increase in professional and service fees primarily from additional external accounting, tax, legal and advisory services to support our external reporting related activities.
Previous report
Research and development expenses. The $116.4 million or 25.7% increase in research and development expenses was primarily driven by an increase in employee-related costs of $107.9 million, or 26.6%, mainly comprised of a $58.5 million, or 41.3%, increase in stock-based compensation, a $39.4 million, or 17.0%, increase in salaries, and a $10.0 million, or 31.3% increase in benefits as we expanded our workforce and invested in key talent to support our global growth across regions.
Previous report
Other Income (Expense), Net, Interest Income, and Interest Expense
Previous report
The $37.2 million or 112.7% increase inother income (expense), net was primarily driven by one-time $30.3 million loss on extinguishment of our Original 2029 Convertible Notes resulting from the 2029 Convertible Notes Amendments (see Note 9, “Convertible Notes”) recorded during the three months ended March 31, 2025, as well as a $3.5 million or 1183.1% increase due to favorable foreign currency exchange rate fluctuations during the three months ended March 31, 2026.
Previous report
The $33.8 million or 114.6% decrease inother income (expense), net was primarily driven by one-time $30.3 million loss on extinguishment of our Original 2029 Convertible Notes resulting from the 2029 Convertible Notes Amendments (see Note 9, “Convertible Notes”) recorded during the nine months ended March 31, 2025, as well as a $8.7 million or 4242.4% gain from mark-to-market adjustments on a marketable equity securities investment for the nine months ended March 31, 2026, as compared to the nine months ended March 31, 2025, and a $3.9 million or 93.9% increase due to favorable foreign currency exchange rate fluctuations during the nine months ended March 31, 2026. These increases were partially offset by a $13.7 million impairment loss related to our non-marketable investments during the nine months ended March 31, 2026.
Previous report
The $77.5 million or 207.8% increase in interest expense was primarily driven by a $56.3 million or 377.3% 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, as well as $34.6 million additional interest expense related to the drawdown on our revolving credit facilities during the third quarter of fiscal 2026. These increases were partially offset by a $10.6 million decrease in interest expense associated with our Bank of America and Cathay line of credit and term loans, which were fully repaid during the first half of fiscal 2025.
Previous report
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 operations 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.
Previous report
Contractual Obligations
Reworded paragraphs (38)
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
We commenced operations in 1993 and have been profitable every year since inception. For the three months ended March 31, 2026 and 2025, our net income was $483.4 million and $108.8 million, respectively. For the nine months ended March 31, 2026 and 2025, our net income was $1,052.2 million and $853.7 million, respectively.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
The following is a summary of our financial highlights for the three months ended March 31, 2026 and 2025:
Current wording
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):
Previous wording
The 3.4% 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.
Current wording
•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.
Previous wording
•Operating expenses increased by 33.9% in the three months ended March 31, 2026, as compared to the three months ended March 31, 2025, primarily due to higher headcount and increases in salary and stock-based compensation.
Current wording
•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.
Previous wording
•Net income increased to $483.4 million in the three months ended March 31, 2026, as compared to $108.8 million in the three months ended March 31, 2025, which was primarily due to a higher increase in net sales.
Current wording
•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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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 2.2% and 2.1% of cost of sales on our condensed consolidated statements of operations for the three and nine months ended March 31, 2026, respectively, and 2.8% and 3.4% of cost of sales on our condensed consolidated statements of operations for the three and nine months ended March 31, 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.
Current wording
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.
Previous wording
Other income (expense), 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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
The following table presents certain items of our condensed consolidated statements of operations for the three and nine months ended March 31, 2026 and 2025 (in millions):
Current wording
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):
Previous wording
The following table presents certain items of our condensed consolidated statements of operations expressed as a percentage of net sales for the three and nine months ended March 31, 2026 and 2025:
Current wording
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:
Previous wording
The following table presents net sales for the three and nine months ended March 31, 2026 and 2025 (dollars in millions):
Current wording
The following table presents net sales for the three months ended September 30, 2026 and 2025 (dollars in millions):
Previous wording
Cost of sales and gross margin for the three and nine months ended March 31, 2026 and 2025 were as follows (dollars in millions):
Current wording
Cost of sales and gross margin for the three months ended September 30, 2026 and 2025 were as follows (dollars in millions):
Previous wording
The $5,064.6 million or 121.8% increase in cost of sales was primarily driven by an increase of approximately $5,047.8 million or 121.6% in certain products including GPU servers, HPC systems, and rack-scale solutions, consistent with the higher shipment volume during the three months ended March 31, 2026, as compared to the three months ended March 31, 2025, as well as a $89.4 million or 608.0% increase in tariff expenses driven by new trade policies from the government. These increases were partially offset by a $54.9 million or 43.9% decrease in inventory write-down adjustments resulting from increase in market price for some of our products in the quarter ended March 31, 2026, and a $12.3 million or 5.5% decrease due to an increase in vendor rebates.
Current wording
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.
Previous wording
Operating expenses for the three and nine months ended March 31, 2026 and 2025 were as follows (dollars in millions):
Current wording
Operating expenses for the three months ended September 30, 2026 and 2025 were as follows (dollars in millions):
Previous wording
Research and development expenses. The $52.8 million or 32.4% increase in research and development expenses was primarily driven by an increase in employee-related costs of $50.9 million, or 34.6%, mainly comprised of a $28.6 million, or 52.8%, increase in stock-based compensation, a $18.2 million, or 22.1%, increase in salaries, and a $4.1 million, or 10.4% increase in benefits as we expanded our workforce and invested in key talent to support our global growth across regions.
Current wording
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.
Previous wording
Sales and marketing expenses. The $2.1 million or 1.0% increase in sales and marketing expenses was primarily driven by an increase in employee-related costs of $42.9 million, or 27.6%, mainly comprised of a $34.7 million, or 28.4%, increase in salaries, a $6.5 million, or 27.2%, increase in stock-based compensation, and a $1.7 million, or 27.4%, increase in other personnel costs, similar to our research and development expenses as we expanded our workforce and invested in key talent company-wide. These increases were partially offset by a $28.9 million, or 111.2%, increase in marketing development funds received from certain business partners related to co-marketing and advertising events to promote products, which reduced sales and marketing expense, and a $12.2 million, or 19.1%, decrease in standard marketing and advertising activities during the nine months ended March 31, 2026, as compared to the nine months ended March 31, 2025.
Current wording
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.
Previous wording
General and administrative expenses. The $22.5 million or 11.3% increase in general and administrative expenses was primarily driven by an increase in employee-related costs of $9.5 million, or 9.2%, mainly comprised of a $7.5 million or 12.6% increase in salaries and benefits, and a $2.0 million, or 4.5% increase in stock-based compensation, due to the hiring of key talent and the refresh of grants. Additionally, there was a $7.2 million, or 124.1% increase in excise and franchise tax expense directly related to the increase in sales compared to prior-year which increased the related tax expense, a $6.0 million, or 857.1%, increase in financial fees primarily driven by a $5.7 million, or 100.0% increase in factoring fees for the receivables sold under the Receivables Purchase Agreement, a $6.0 million, or 12.3%, increase in professional and service fees primarily from additional external accounting, tax, legal and advisory services to support our external reporting related activities, and an increase of $5.6 million or 65.1% in indirect facilities costs such as rental costs, utility costs, and depreciation costs. These increases were partially offset by a $11.6 million or 56.9% 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.
Current wording
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.
Previous wording
Other income (expense), net, interest income, and interest expense for the three and nine months ended March 31, 2026 and 2025 were as follows (dollars in millions):
Current wording
Other expense, net, interest income, and interest expense for the three months ended September 30, 2026 and 2025 were as follows (dollars in millions):
Previous wording
The $30.7 million or 208.8% increase in interest income for the three months ended March 31, 2026, as compared to the three months ended March 31, 2025, was primarily driven by higher interest income as a result of increased cash deposits funded by the proceeds from our convertible notes issuance and financing arrangements with a customer.
Current wording
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.
Previous wording
The $51.1 million or 381.3% increase in interest expense was primarily driven by a $11.8 million or 98.6% 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, as well as $34.6 million additional interest expense related to the drawdown on our revolving credit facilities during the third quarter of fiscal 2026.
Current wording
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.
Previous wording
Income tax provision and effective tax rates for the three and nine months ended March 31, 2026 and 2025 were as follows (dollars in millions):
Current wording
Income tax provision and effective tax rates for the three months ended September 30, 2026 and 2025 were as follows (dollars in millions):
Previous wording
Income tax provision increased by $128.7 million or 93.6% primarily due to an increase in worldwide income before income tax provision that increased tax expense by $69.4 million, a lower tax benefit from stock-based compensation of approximately $35.2 million, a lower tax benefit from U.S. federal research tax credit of $12.2 million, an increase of state tax expense by $9.6 million, and other miscellaneous immaterial tax items of approximately $2.3 million. The income before income tax provision for the nine months ended March 31, 2026 was $1,319.7 million, which is an increase of $330.5 million or 33.4%.
Current wording
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%.
Previous wording
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 March 31, 2026, is higher than that for the three months ended March 31, 2025, primarily due to a significant decrease in stock-based compensation tax deduction and lower U.S. federal research tax credit because of lower stock vesting price in the three months ended March 31, 2026.
Current wording
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.
Previous wording
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 revenue growth, 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 $1.3 billion and $5.2 billion as of March 31, 2026 and June 30, 2025, respectively. Our cash and cash equivalents held in foreign locations was $617.3 million and $607.2 million as of March 31, 2026 and June 30, 2025, respectively.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
Net cash (used in) provided by operating activities during the nine months ended March 31, 2026 mostly consisted of $1,052.2 million net income adjusted for certain non-cash items, such as $305.6 million of stock-based compensation expense, $239.3 million of inventory valuation adjustment write-downs, $39.0 million of depreciation and amortization expense, and changes in working capital. The decrease in cash flows from operating activities during the nine months ended March 31, 2026, as compared to the nine months ended March 31, 2025, was due to an increase in inventory purchases, accounts receivables from customers, and increased operational spending.
Current wording
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.
Previous wording
Net cash used in investing activities during the nine months ended March 31, 2026 mostly consisted of $133.8 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 $42.0 million. The increase in cash used in investing activities during the nine months ended March 31, 2026, as compared to the nine months ended March 31, 2025, was mostly due to increases in purchases of property, plant, and equipment.
Current wording
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.
Previous wording
Net cash provided by financing activities during the nine months ended March 31, 2026 mostly consisted of net proceeds from lines of credit and term loans of $4,010.2 million, partially offset by payment for withholding taxes related to settlement of equity awards of $102.4 million. The increase in cash provided by financing activities during the nine months ended March 31, 2026, as compared to the nine months ended March 31, 2025, was mostly due to an increase in net proceeds from lines of credit and term loans.
Current wording
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.
Previous wording
Refer to Note 9, “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.
Current wording
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.
Previous wording
We anticipate our total capital expenditures for the fiscal year 2026 will be in range of$155.0 million to $175.0 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).
Current wording
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).
Previous wording
Our estimated future obligations as of March 31, 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 $2,095.1 million and a long-term obligation of$2,018.7 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$32.7 million and a long-term obligation of$345.4 million. As noted in Note 14, “Commitments and Contingencies”, in the notes to the condensed consolidated financial statements, we have current obligations related to non-cancelable purchase commitments of $10.1 billion.
Current wording
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.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
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.
Current report — wording carried from elsewhere
*Represents an amount less than 0.1%.
Rearranged previous paragraphs (4)
Previous report — wording carried elsewhere
The $116.4 million or 370.7% increase in interest income for the nine months ended March 31, 2026, as compared to the nine months ended March 31, 2025, was primarily driven by higher interest income as a result of increased cash deposits funded by the proceeds from our convertible notes issuance and financing arrangements with a customer.
Previous report — wording carried elsewhere
Income tax provision increased by $121.1 million or 2,087.9% primarily due to an increase in worldwide income before income tax provision that increased tax expense by $104.1 million, a lower tax benefit from stock-based compensation of approximately $11.5 million, a lower tax benefit from U.S. federal research tax credit of $3.5 million, and other miscellaneous immaterial tax items of approximately $2.0 million. The income before income tax provision for the third quarter of fiscal 2026 was $611.0 million, which is an increase of $495.9 million or 431.0%.
Previous report — wording carried elsewhere
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 nine months ended March 31, 2026, is higher than that for the nine months ended March 31, 2025, primarily due to a significant decrease in stock-based compensation tax deduction and lower U.S. federal research tax credit because of lower stock vesting price in the nine months ended March 31, 2026.
Previous report — wording carried elsewhere
Other Factors Affecting Liquidity and Capital Resources