Supermicro (SMCI, Financial), a leading AI server manufacturer, announced its sales guidance, which fell short of expectations, resulting in a post-market share drop of over 17%. The company projected adjusted earnings per share for its first fiscal quarter ending September 30 to range between $0.75 and $0.76, with revenues between $5.9 billion and $6 billion. This is lower than the previous guidance of $6 billion to $7 billion but still represents a 181% increase from the same period last year. Analysts had anticipated earnings of $0.74 per share and revenue of $6.79 billion.
Supermicro also reported having $2.1 billion in cash and cash equivalents, with a total debt of $2.3 billion. However, the company warned that these preliminary results are unaudited, following its auditor's recent resignation, and may change.
Looking ahead, Supermicro expects second-quarter revenues to range between $5.5 billion and $6.1 billion, with a midpoint of $5.8 billion, below the market's expectation of $6.79 billion. Adjusted earnings per share are expected to be between $0.56 and $0.65, with a midpoint of $0.61, also below market expectations of $0.80.
Supermicro has faced a tumultuous year. Early in 2024, the company's stock surged due to enthusiasm surrounding AI-driven demand for its high-performance machines, and it was included in the S&P 500 index. However, scrutiny increased after a former employee accused the company of inflating revenue, leading to significant challenges. A short-selling firm highlighted these claims as accounting red flags and other compliance issues.
Recently, Supermicro confronted risks of delisting from Nasdaq and removal from the index due to its failure to file a 10-K financial disclosure and the resignation of Ernst & Young. Since the resignation, the company's stock has dropped 44%, more than 75% from its March peak.
In an effort to reassure investors, Supermicro addressed concerns related to the 10-K report delay, stating no evidence of fraud or misconduct was found, but it remains uncertain when the report will be filed. The company is taking steps to improve its internal governance and oversight functions.
Supermicro acknowledged Nasdaq compliance concerns, receiving a notice on September 17 regarding the 10-K delay. The company has 60 days to submit the 10-K or a compliance plan to Nasdaq, which if accepted, grants a 180-day period from the due date to regain compliance. If rejected, Supermicro can appeal to a Nasdaq hearings panel and intends to take all necessary actions to meet continued listing requirements.
In an analyst call, Supermicro did not discuss issues related to Ernst & Young's resignation but is actively recruiting a new auditing firm. CEO Charles Liang confirmed efforts to update financial reporting urgently.
Supermicro's uncertain outlook on future revenues and audit arrangements remains a concern for analysts, adding to the stock's challenges, as noted by Wedbush Securities analyst Matt Bryson.
