Super Micro Computer (SMCI), a retailer of high-performance servers and liquid-cooled AI racks, has effectively transitioned from a darling of the market and an emblem of the ongoing AI gold rush to a veritable pariah, all in a matter of just a few short weeks. Yet, the company's travails might still have further room to grow, if its latest debt covenant change is anything to go by.
To wit, Super Micro Computer has now announced three major changes to its existing loan agreement with Cathay Bank:
- An extension in the date by which the audited financial statements for FY 2024 have to be delivered from the 28th of October to the 31st of December, 2024.
- An extension in the date by which the income statement and the balance sheet for the quarter ending on the 30th of September have to be furnished from the 29th of November to the 31st of December, 2024.
- Super Micro Computer must now maintain a minimum unrestricted cash balance of $150 million "at all times."
Back in August, Super Micro Computer delayed the filing of its annual report for the fiscal year that ended on the 30th of June, 2024, in the aftermath of a hard-hitting report from Hindenburg Research, which detailed instances of alleged accounting fraud and corporate governance malfeasance. The delay was presumably in a bid to undertake a comprehensive internal review.
Bear in mind that under the prevailing statutory requirements, Super Micro Computer had to file its annual report by the 30th of August. However, SMCI's continuing dilatory tactics have now been formally flagged by the Nasdaq exchange, which recently warned of a potential de-listing action should the firm fail to file the requisite annual report by the 16th of November.
This brings us to the crux of the matter. Under the terms of its loan agreement with Cathay Bank, Super Micro Computer needs to furnish audited financial statements for its recently concluded fiscal year. That undertaking, however, has been complicated by the exit of the firm's designated auditor, Ernst & Young (EY).
Also, the fact that SMCI has extended the deadline - as mandated under its loan covenants - for furnishing its audited financial statements to the end of the calendar year strongly suggests that an imminent resolution to this crisis remains only a remote possibility. As such, the company remains at risk of breaching the Nasdaq exchange's grace period that ends on the 16th of November, increasing the probability of a punitive clampdown.
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