I agree, that’s very interesting. Accounting violations typically mean securities fraud, which typically involves the SEC – so this is odd.
My instinct here is to hang on to get more info – but the DOJ involvement makes me think twice about that.
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First off, I will try and clear up the apparent confusion about which government entity is investigating what, as best I can and within the limits of my experience and knowledge, which, quite honestly is not extensive.
At this juncture, it is unlikely that the DoJ has taken an interest in inappropriate accounting practices by SMCI, if any. Unless there’s some evidence of massive fraud that has damaged the general public, this is just not their province. I can say with some degree of confidence that the DoJ is investigating apparent violations of export controlled technology. I can also say with some degree of confidence that an investigation would not be undertaken just because a former employee with a whistle walked into a field office. They would need at least some circumstantial evidence that a violation has occurred prior to investing any resources in a follow-up. There’s absolutely no way of knowing how long this might take. I doubt that the DoJ even knows how long it might take. A preliminary study might be sufficient to suggest further investigation is required, but it’s equally likely that they may determine that no further effort is warranted.
When I worked at Boeing there was one instance of an export controls violation with which I am familiar. Some aircraft that The Boeing Company sold to China contained some avionics equipment manufactured by a 3rd party which contained some chips that had been restricted. Boeing took the hit because they sold the planes to a Chinese airline. The fact that Boeing did not design or make the gear was irrelevant. Boeing had sold the airplanes containing the controlled technology without a license to do so. Boeing was forced to pay a significant fine (even for Boeing).
From what I understand, SMCI did not sell any equipment containing controlled technology to a foreign entity. A reseller is the accused with respect to the sale. However, this does not automatically let SMCI off the hook for the offense. Did the reseller have a history of dealing with a banned party (this may be as granular as a named person)? Has the reseller been charged with such sales in the past? And so forth, any transactions with which SMCI should have been aware would possibly be sufficient to charge SMCI with a violation. I don’t know if that explanation illuminates the situation, but that’s as much as I know about it.
Separately, the SEC has sent SMCI notification that they have 180 days in which to submit their 10-K. Should they fail to do so, they are at risk of delisting. However, there is an appeal process should SMCI believe they have sufficient justification for further delay with respect to filing. This is all routine, such notification goes out to every listed company that has missed a 10-K filing date.
Without any inside knowledge I am reasonably confident that the filing will be completed within the stipulated time frame. SMCI was delisted for similar cause not very long ago. We can only assume that they would do everything in their power to file prior to the deadline expiring. OTOH, there is a possibility that they may request additional time. I have no idea how the SEC makes a decision to delist or grant additional time.
The unofficial date for SMCI to report earnings for 1Q25 is 10/30. One would think that they would want this reporting problem cleared up prior to the quarterly earnings report. While the 10/30 date has not been confirmed by SMCI, I don’t think that they could slide it by very much. Therefore, I for one feel that it’s likely that the 10-K will be filed this month or early November at the latest. That’s just my guess, nothing more.
While all of this is a mess and reflects poorly on the company. I think it’s valid to ask how it may impact SMCI’s sales and general ability to carry out business. I would posit that immediate sales would not be impacted at all. I think it’s safe to say that they will report another outstanding quarter of revenue and hopefully show some margin improvement.
But, there is another problem which should not be dismissed. SMCI has been running with negative OCF and FCF. In simple terms, they have a need for money in order to keep operations operating. Their ability to borrow may be constrained until the financial clouds are dispersed. The DoJ problem may also impact their ability to obtain loans. This would be quite troubling. Of course they could issue stock, but existing stockholders would be required to handle the dilution. That may well be a stretch. I don’t have any words to soften this potential problem. In fact, I’m not sure it is a problem, it is nothing more than my assessment. I’m not an underwriter. I really don’t know what factors are within the boundaries of consideration.
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“Super Micro Computer (SMCI) was temporarily delisted from the Nasdaq in 2018 for failing to file financial statements.”
“In 2020, the SEC charged SMCI with accounting violations, including: Prematurely recognizing revenue, Understating expenses, and Shipping goods to customers before authorization.”
Then they missed filing financial statements again in 2024?
A bit much for me.
Kindest regards,
Happyhunting
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I didn’t find this anywhere. Link?
What I did find was from SuperMicro itself:
Super Micro Computer, Inc. (NASDAQ:SMCI) (“SMCI” or the “Company”), a Total IT Solution Provider for AI, Cloud, Storage and 5G/Edge, today announced that the Company received a notification letter from Nasdaq stating that the Company is not in compliance with Nasdaq listing rule 5250(c)(1), which requires timely filing of reports with the U.S. Securities and Exchange Commission. The September 17, 2024 letter was sent as a result of the Company’s delay in filing its Annual Report on Form 10-K for the period ending June 30, 2024 (the “Form 10-K”). The Form 10-K was due on August 29, 2024. The Company filed a Form 12b-25 on August 30, 2024.
and
Under the Nasdaq rules, the Company has 60 days from the date of the notice either to file the Form 10-K or to submit a plan to Nasdaq to regain compliance with Nasdaq’s listing rules. If a plan is submitted and accepted, the Company could be granted up to 180 days from the Form 10-K’s due date to regain compliance.
So, they have 60 days from 17Sept to submit or file a plan to submit. If a plan, then only if the SEC accepts it do they have 180 days.
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They filed an 8k on September 30 that talks about the stock split and the loan agreement, and it also talks about when they might file their 10K. The relevant part is below:
The ABL Amendment, among other things, extends the date by which the Company is required to deliver its audited financial statements for its fiscal year ending June 30, 2024 (the “FY2024 Financial Statements”) under the ABL Agreement from September 28, 2024 to November 27, 2024 and adds a $70 million availability block to the U.S. borrowing base thereunder.
So they seem to be saying that they have until Nov 27 to submit their 10k.
Jonathan
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Thanks for that. Link to the 8K here: SMCI 8-K & SEC Filings - Yahoo Finance
The sentence before the one you quoted says:
On September 27, 2024, Super Micro Computer, Inc. (the “Company”) entered into a Ninth Amendment to Loan and Security Agreement (the “ABL Amendment”), by and among the Company, the lenders party thereto, and Bank of America, N.A., as administrative agent for the lenders, which amends the Loan and Security Agreement, dated as of April 19, 2018 (as amended, the “ABL Agreement”).
My read is that the date extension (“ABL Amendment”) described in the 8K is NOT something the SEC approved, but something SMCI loan-holders (including BofA) are OK with. That Nov 27th date is just 10 days beyond the SEC standard 10K extension deadline of 60 days from Sept 17.
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Smorg, I agree with you. I had it wrong. I thought I read that they had a routine 180 days to file, but based on your note they get 60 days in which they must file the 10-K or appeal to the SEC for an extension. The extension, if granted, allows another 180 days. It’s not totally clear if they get as much as 240 days, or if they get 180 days from the grant date. Presumably, they will appeal for more time if they need it prior to the 60 day deadline.
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The article SMCI released says “could be granted up to 180 days from the Form 10-K’s due date.”
I think missing the 60-day November date and asking for more time would not be good.
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