What changed in Super Micro Computer,'s 10-K for the fiscal year ended June 30, 2026

[added] On March 19, 2026, the U.S. Attorney's Office for the Southern District of New York unsealed an indictment of three individuals either employed or associated with the Company at the time, including Yih-Shyan (Wally) Liaw, a former Senior Vice President, Business Development and director on our Board, in connection with an alleged conspiracy to commit export control violations (the "Indictment"). Although the Company is not named as a defendant or alleged to be a co-conspirator in the Indictment, and the three individuals are no longer employed or associated with the Company, the Company has been cooperating with the government's investigation. The Indictment, as well as the prior publication of the Report and our previous Delinquent Reports have all contributed to significant volatility in, and declines of, the trading price of our common stock, as well as harm to our reputation, and could continue to do so in the future.

In connection with the indictment of three former associates, the Company completed an independent investigation, which was jointly led by our Lead Independent Director and the Chair of the Board's Audit Committee. The independent investigation was conducted by Munger, Tolles & Olson LLP, and it engaged AlixPartners LLP as an independent forensic accounting consultant (collectively, the law firm and the accounting consultant are referred to as the "Independent Advisors"). The results of the investigation were reported to the entire Board. The investigation reviewed the customer transactions that were the subject of the Indictment, as well as transactions with a selection of other customers that purchased restricted products. The investigation did not find any evidence that any current member of senior management had knowledge of the alleged diversion scheme or of any actual diversion of restricted products by the Company. The investigation found no instance in which the Company directly sold export-controlled products to known restricted parties or locations, and found no basis for concluding that the Company's previously issued financial statements could not be relied upon based on the potential diversion of restricted products. The investigation also concluded that the Company had developed and maintained its export compliance program as its sales of restricted products increased during the period under review, and found that the Company's compliance personnel acted in good faith, with the support of management, to mitigate the risk of export-controlled products being diverted to restricted parties or locations. [added] In connection with the internal investigation, the Company took personnel actions, including terminations, with respect to its sales, technical support and business development functions staff for violations of various company policies. With the assistance of the Independent Advisors, the independent directors made recommendations to further enhance the Company's export compliance program, which the Board has adopted in full and is in the process of implementing. Notwithstanding the conclusion of this internal investigation, the government investigations and inquiries described above and below remain ongoing, are not bound by the conclusions of the internal investigation, and could result in enforcement actions, penalties, fines or other adverse consequences to the Company. In addition, although the Company has taken the measures described above and adopted the Independent Advisors' recommendations in full, there can be no assurance that such measures will be effective in preventing similar circumstances from arising in the future or that the Company will not become subject to similar lawsuits, legal proceedings, disputes, claims, government inquiries or investigations.

[added] In connection with the indictment of three former associates, the Company completed an independent investigation, which was jointly led by our Lead Independent Director and the Chair of the Board's Audit Committee. The independent investigation was conducted by Munger, Tolles & Olson LLP, and it engaged AlixPartners LLP as an independent forensic accounting consultant (collectively, the law firm and the accounting consultant are referred to as the "Independent Advisors"). The results of the investigation were reported to the entire Board. The investigation reviewed the customer transactions that were the subject of the Indictment, as well as transactions with a selection of other customers that purchased restricted products. The investigation did not find any evidence that any current member of senior management had knowledge of the alleged diversion scheme or of any actual diversion of restricted products by the Company. The investigation found no instance in which the Company directly sold export-controlled products to known restricted parties or locations, and found no basis for concluding that the Company's previously issued financial statements could not be relied upon based on the potential diversion of restricted products. The investigation also concluded that the Company had developed and maintained its export compliance program as its sales of restricted products increased during the period under review, and found that the Company's compliance personnel acted in good faith, with the support of management, to mitigate the risk of export-controlled products being diverted to restricted parties or locations. In connection with the internal investigation, the Company took personnel actions, including terminations, with respect to its sales, technical support and business development functions staff for violations of various company policies. With the assistance of the Independent Advisors, the independent directors made recommendations to further enhance the Company's export compliance program, which the Board has adopted in full and is in the process of implementing. Notwithstanding the conclusion of this internal investigation, the government investigations and inquiries described above and below remain ongoing, are not bound by the conclusions of the internal investigation, and could result in enforcement actions, penalties, fines or other adverse consequences to the Company. In addition, although the Company has taken the measures described above and adopted the Independent Advisors' recommendations in full, there can be no assurance that such measures will be effective in preventing similar circumstances from arising in the future or that the Company will not become subject to similar lawsuits, legal proceedings, disputes, claims, government inquiries or investigations.

[added] The Company also received a grand jury subpoena from the U.S. Attorney's Office for the Southern District of New York seeking documents and information relating to the individuals and facts referenced in the Indictment, as well as the Company's compliance program and internal controls, and related issues. The Company has also received other subpoenas, and inquiries from the Department of Justice, the Office of Export Enforcement ("OEE") of BIS, as well as foreign authorities requesting documents and information relating to certain other customers. The Company has not been informed that it is the target of any of these investigations to date, but if we become the target of any of these investigations, the Department of Justice could pursue civil or criminal enforcement actions against us, seek monetary or other penalties from us (including disgorgement), or require changes to our compliance program and internal controls.

[added] For example, the Company received a subpoena from the SEC requesting the production of documents relating to certain customers, including one customer that is the subject of the allegations in the Indictment, and the Company's controls and procedures. We are cooperating with the SEC's requests, but we cannot predict the scope, duration, or outcome of this matter, and the SEC may issue additional subpoenas or other information requests.

[added] The $135.0 million or 226.5% increase in interest expense was primarily driven by a $58.6 million or 160.5% 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 $83.0 million additional interest expense related to the drawdown on our revolving credit facilities during the second half 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 Bank line of credit and term loans, which were fully repaid during the first half of fiscal 2025.

[added] The $40.2 million or 207.2% increase in interest expense was primarily due to a $34.6 million or 1774.1% increase in interest and amortization related to the amended 2029 Convertible Note and newly issued 2028 Convertible Notes and 2030 Convertible Notes.

[added] 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.

No corresponding language in the FY2026 10-K.

No corresponding language in the FY2026 10-K.

No corresponding language in the FY2026 10-K.

No corresponding language in the FY2026 10-K.

No corresponding language in the FY2026 10-K.

We believe that our current cash, cash [added] equivalents and internally generated cash flows [added] that we expect to generate will be sufficient to support our operating businesses and maturing debt and interest payments for the 12 months following the issuance of the financial statements included in this Annual Report. Nevertheless, we intend to continue to grow our business, which could require additional capital. We may need to further expand our credit facilities, enter into new credit facilities or engage in additional equity, debt or other type of financings to secure additional capital to continue or increase our rate of growth. If we raise additional capital through additional future issuances of equity or equity-linked securities, our existing stockholders could suffer significant dilution, and any new equity securities we may issue could have rights, preferences and privileges superior to those holders of our common stock. Any credit facility or debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which could make it more difficult for us to raise additional capital and to pursue our growth strategies. If we are unable to secure additional funding on favorable terms, or at all, when we seek it, we may not be able to continue the rate of our growth. In addition, no assurances can be given that in the event that we secure such financing that the proceeds thereof will be used effectively or result in growth.

Although we attempt to ensure that we, our [added] customers, suppliers, resellers, and partners comply with the applicable import, export, and sanctions laws, we cannot guarantee full compliance by all. Actions of our [added] customers, suppliers, resellers and partners are not within our complete control, and our products could be re-exported to sanctioned persons or countries or provided by our retailers to third persons in contravention of our requirements or instructions or the laws. In addition, there are inherent limitations to the effectiveness of any policies, procedures, and internal controls relating to such compliance, and there can be no assurance that such procedures or internal controls will work effectively at all times or protect us against liability under [added] anti-corruption, sanctions or other laws for actions taken by us, our resellers or partners. [added] For example, the Indictment alleged that the three individuals employed or associated with the Company at the time worked closely with third-party brokers with customers based in China to commit export-control violations. Any such potential violation by us, our [added] customers, suppliers, resellers, or our partners could have negative consequences, including government inquiries, investigations, enforcement actions, monetary fines, or civil and/or criminal penalties, and our reputation, brand, and revenue may be harmed.

We had net income of [added] $2,230.5 million, $1,048.9 million, and [added] $1,152.7 million in fiscal years [added] 2026, 2025, and 2024, respectively. During fiscal year 2025, we issued $700.0 million aggregate principal amount of our 2028 Convertible Notes in a private placement, and we issued $2.3 billion aggregate principal amount of our 2030 Convertible Notes in a private placement. [added] During fiscal year 2026, we entered into a credit agreement with JP Morgan for a Revolving Credit Facility of $2,000.0 million. In addition, during fiscal year 2026, our Taiwan subsidiary, where we maintain significant operations, [added] increased its lines of credit, or entered into new lines of credit, with various commercial banks in [added] Taiwan, including also entering into a credit agreement with CTBC Bank Co., Ltd. ("CTBC") which provides for two revolving credit facilities totaling $1,765.0 million.

Net cash [added] (used in) provided by operating activities during fiscal [added] 2026 mostly consisted of [added] $2,230.5 million net income adjusted for certain non-cash items, such as [added] $412.1 million of [added] stock-based compensation expense, [added] $188.1 million of [added] inventory valuation adjustment write-downs, $95.4 million of deferred income taxes, net, $53.7 million of depreciation and amortization expense, and changes in working capital. The [added] decrease in cash flows from operating activities during fiscal [added] 2026, as compared to fiscal [added] 2025, was due to an increase in [added] inventory purchases, accounts receivable from customers, and increased operational spending.

Net cash provided by financing activities during fiscal [added] 2026 mostly consisted of [added] net proceeds from lines of credit and term loans of $3,948.3 million, as well as proceeds received from our equity offerings completed during the fourth quarter of fiscal 2026 of $5,638.6 million. These proceeds were partially offset by [added] payment for withholding taxes related to settlement of equity awards of $129.9 million. The increase in cash provided by financing activities during fiscal [added] 2026, as compared to fiscal [added] 2025, was mostly due to [added] this increase in net proceeds from lines of credit and term loans, as well as the proceeds received from our equity offerings completed during the fourth quarter of fiscal 2026.

General and administrative expenses. The [added] $65.8 million or 24.6% year-over-year increase in general and administrative expenses was [added] primarily driven by [added] an increase in legal and internal investigation-related expenses of $31.7 million or 98.4%, and an increase in employee-related costs of $14.5 million or 10.6%, mainly comprised of a $8.4 million or 10.4% increase in [added] salaries and benefits, and a $6.1 million or 10.8% increase in stock-based compensation, due to [added] stock awards granted related to hiring and retention of key talent. Additionally, there was a $13.4 million or 248.1% 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 $6.4 million or 711.1% increase in [added] financing charges primarily driven by a $5.7 million or 100.0% increase in factoring fees for the receivables sold under the Receivables Purchase Agreement, and an increase of a $7.1 million or 54.6% in indirect facilities costs such as rental costs, utility costs, and depreciation costs. These increases were partially offset by a $12.0 million or 48.8% reduction in audit and tax fees, which were driven by an absence of additional costs related to the delayed filing of our Annual Report on Form 10-K for fiscal year 2024. Looking ahead, we expect general and administrative expenses [added] to continue rising as we [added] invest in process improvements, expand our [added] workforce, and attract key talent to support our strategic initiatives and operational growth.

[added] Our effective tax rate also reflects our expectation that future income generated by our Malaysian subsidiary will substantially benefit from a Malaysian government tax incentive program for which we have applied but have not yet received final approval. Qualification is conditioned on satisfying a minimum eligible investment threshold by December 16, 2026. If we do not meet this threshold or the incentive is not otherwise granted, our Malaysian subsidiary's income would become subject to tax at the standard statutory rate rather than the anticipated exemption, which would increase our effective tax rate and cash tax payments in future periods. We continue to monitor administrative guidance from the OECD and [added] Malaysian tax authorities regarding the interaction between the [added] anticipated incentive and the 15% minimum tax requirement under Pillar Two and will evaluate the impact [added] when the outcome of our application and such guidance are known.

Our estimated future obligations as of June 30, [added] 2026, include both current and long-term obligations. For our long-term debt as noted in Note [added] 8, "Lines of [added] Credit, Revolving Credit Facilities, and Term Loans" in the notes to the consolidated financial statements, we have a current obligation of [added] $2,039.8 million and a long-term obligation of [added] $2,016.4 million. Additionally, as noted in Note [added] 9, "Convertible Notes" in the notes to the consolidated financial statements, we have a convertible debt obligation of $4,725.0 million. Under our operating leases as noted in Note [added] 10, "Leases" in the notes to the consolidated financial statements, we have a current obligation of [added] $40.6 million and a long-term obligation of [added] $499.0 million. As noted in Note [added] 15, "Commitments and Contingencies" in the notes to the consolidated financial statements, we have current obligations related to non-cancelable purchase commitments of [added] $34.2 billion.

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 [added] equipment, the value of our [added] investments, revenue and competitive position. During fiscal year 2026, the computer server industry experienced supply constraints for certain components, including memory and storage, as well as GPU and CPU availability, which affected the timing of certain of our product deliveries, as well as the pricing of these items. Further, while many of these macroeconomic factors could have a [added] long-term impact, others may have a [added] short-term impact which could lead to our financial results not being comparable on a [added] period-to-period basis. Within our supply chain, we continuously manage product availability and costs with our vendors.

We anticipate our [added] total capital expenditures for the fiscal year [added] 2027 will be in [added] the range of [added] $380.0 million to [added] $400.0 million, primarily relating to costs associated with our global manufacturing capabilities, including tooling for new products, new [added] 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).

Revenue is recognized either over time or at a point in time, depending on when control of the underlying products or services are transferred to the customer, which may require judgment. Revenue is recognized at a point in time for products. Revenue is recognized over time for extended [added] warranty, on-site services [added] provided. Revenue related to system rack installation and integration services is recognized over time when services are performed and the customer receives and consumes the benefits.

The period-over-period [added] decrease of $3.7 million or 59.7% in share of [added] loss from equity [added] investees, net of taxes was primarily due to [added] the impairment of the Corporate Venture investment in fiscal year 2025, which did not recur in fiscal year 2026. This was partially offset by losses of $2.5 million from our equity method investees recorded in fiscal year 2026. Refer to Note 11, "Related Party Transactions" in the notes to the consolidated financial statements in this Annual Report for more details on the impairment of our Corporate Venture investment.

The year-over-year [added] increase in the effective tax rate is attributable to [added] a decrease in the [added] stock-based compensation tax deduction and lower U.S. federal research tax credit, both driven by the decrease in our stock price. The total effective tax rate [added] increased by 7.0%, from 12.9% in the fiscal year [added] ended June 30, 2025, to 19.9% in the fiscal year [added] ended June 30, 2026.

[added] Accordingly, we believe that our current [added] and forecasted sources of funds will provide us with adequate liquidity during the 12-month period following the issuance of these consolidated financial [added] statements, to meet our working capital, committed capital expenditures and contractual obligations.

The [added] $67.8 million or 164.2% year-over-year increase in [added] other income (expense), net was primarily driven by a $14.3 million or 550.0% gain from mark-to-market adjustments on a marketable equity security investment for fiscal year 2026, as compared to fiscal year 2025, a $17.5 million or 150.9% increase due to favorable foreign currency exchange [added] rate fluctuations during fiscal year 2026, and a $30.3 million loss on extinguishment of our Original 2029 Convertible Notes resulting from the 2029 Convertible Notes Amendments (see Note 9, "Convertible Notes" in the notes to the consolidated financial statements in this Annual Report) recorded during fiscal year 2025 which did not recur in fiscal year 2026.

We apply judgment in determining the transaction price as we may be required to estimate variable consideration when determining the amount of revenue to recognize. [added] We include estimated variable consideration in the transaction price [added] only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are reassessed each reporting period and recorded as an adjustment to revenue, as applicable.

[added] Gross margin decreased to 10.8% in the [added] fiscal year 2026, from 11.1% in the fiscal year 2025, primarily due to our strategy to offer competitive pricing to gain market share, change in product and customer [added] mix, and higher manufacturing related expenses.

• Net sales increased by [added] 77.8% in fiscal year [added] 2026, as compared to fiscal year [added] 2025, primarily driven by [added] fulfillment and shipment of orders to support our customers' data center deployment, including large design wins from a few customers. The strong year-on-year growth was driven by our product mix, customer diversification, growth in enterprise and channel revenues and an increase in our average selling prices.

Share of [added] (loss) income from equity [added] investees, net of taxes represents our share of income (loss) from the Corporate Venture in which we [added] had a 30% [added] ownership, prior to the divestiture in fiscal 2026, as well as our investments in privately held companies without readily determinable fair values that are measured using the equity method.

The [added] $15,293.7 million or 78.3% year-over-year increase in cost of sales was primarily [added] driven by an increase of [added] $14,699.8 million or 73.3% in certain products including GPU servers, HPC systems, and rack-scale solutions, consistent with the higher shipment volume during fiscal year 2026, as compared to fiscal year 2025. The remaining increases in cost of sales were driven by a $237.7 million or 228.3% increase in tariff expenses driven by new trade policies enacted during the year and a $312.9 million or 24.9% increase due to a decrease in vendor rebates, partially offset by a $43.8 million or 18.8% decrease in inventory write-down adjustments resulting from increased sales related to some of our aged inventory products during the year.

During fiscal year [added] 2026, we continued to experience increased net sales from server [added] rack and storage [added] systems due to fulfillment and shipment of orders to support our customers' data centers deployment, including large design wins from a few customers. The [added] $17,091.1 million or 77.8% year-over-year increase in net sales of server and storage systems was primarily due to strong demand [added] and increased billing for Hyper Servers, GPU & Super Racks of $15,261.5 million or 83.4% compared to prior year, including liquid-cooled and air-cooled servers [added] that are generally more complex and of higher value, [added] primarily related to our GB200, and GB300 systems. Our services and software net sales increased from $330.5 million, in fiscal year 2025, to $538.3 million, in fiscal year 2026, and contributed to overall growth, although product revenue remained the primary driver.

• Net income [added] increased to $2,230.5 million in fiscal year [added] 2026, as compared to [added] $1,048.9 million in fiscal year [added] 2025, as the increase in net sales was greater than the increase in operating [added] costs, and was also sufficient to offset the decline in gross margin percentage.

The [added] $35.0 million or 555.6% year-over-year decrease in other [added] income (expense), net was primarily attributable to a $30.3 million or 100.0% increase for loss on extinguishment of our Original 2029 Convertible Notes resulting from the 2029 Convertible Notes Amendments (see Note [added] 9, "Convertible Notes" in the notes to the consolidated financial statements in this Annual Report), and a $17.9 million or [added] 283.8% increase in [added] foreign exchange losses. These increases in expense were partially offset by a $15.7 million or 119.5% net movement in investment gains/(loss), as we incurred a loss in [added] fiscal 2024 of $13.1 million and a gain in [added] fiscal 2025 of $2.6 [added] million.

Sales and marketing expenses. The [added] $79.5 million or 29.1% year-over-year increase in sales and marketing expenses was [added] primarily driven by [added] an increase in employee-related costs of $112.7 million or 54.1%, mainly comprised of a $105.5 million or 61.9% increase in [added] salaries and benefits, and a $7.2 million or 19.0% increase in stock-based compensation, similar to our research and development expenses as we expanded our workforce and invested in key [added] talent company-wide. These increases were partially offset by $29.8 million or 81.6% higher 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 $3.3 million or 4.1% decrease in standard marketing and advertising activities during fiscal 2026 as compared to fiscal 2025. Looking ahead, we expect sales and marketing expenses [added] to continue to [added] rise as we expand our workforce and invest in key talent.

[added] On July 4, 2025, the OBBBA was enacted [added] into law and contains several changes to key U.S. federal income tax laws, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. [added] As of June 30, 2026, we have recognized the tax effects of certain OBBBA provisions. We will continue to evaluate the impact of the OBBBA upon our future effective tax rate, tax liabilities, and cash taxes.

We have financed our growth primarily with funds generated from operations, as well as utilizing borrowing facilities, selling our common stock, [added] 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 [added] and accounts receivable required to support future revenue growth. Our cash and cash equivalents were [added] $7,521.5 million and [added] $5,169.9 million as of June 30, [added] 2026 and 2025, respectively. Our cash and cash equivalents held in foreign locations [added] were $870.5 million and [added] $607.2 million as of June 30, [added] 2026 and 2025, respectively.

Research and development expenses. The [added] $134.6 million or 21.1% year-over-year increase in research and development expenses was [added] primarily driven by [added] an increase in [added] employee-related costs of $128.2 million or 22.8%, mainly comprised of a $74.5 million or 38.1% increase in stock-based compensation, and a $53.7 million or 14.6% increase in salaries and benefits as we expanded our workforce and invested in key [added] talent to support our global growth across regions. These increases, along with other immaterial cost increases, were partially offset by a [added] $6.1 million or 9.7% decrease in product development costs. 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.

General and administrative expenses. The [added] $69.8 million or 35.4% year-over-year increase in general and administrative expenses was primarily driven by a $74.0 million or 241.0% increase in professional and service fees, reflecting higher costs for external accounting, audit, tax, legal, and advisory services, primarily driven by the Special Committee investigation and the delay in filing our Annual Report on Form 10-K for fiscal year 2024. These services were necessary to support enhancements in our external reporting processes and compliance activities during fiscal year ended 2025. Additionally, there was a $20.7 million or 37.5% increase in facilities costs such as rental costs, utility costs, and indirect depreciation costs, which are related to our efforts to expand our production capacity in order to support growing customer demands. These increases, along with other immaterial cost increases, were partially offset by a $22.8 million or 28.6% decrease in employee-related costs related to stock-based compensation.

Research and development expenses. The [added] $173.1 million or 37.3% year-over-year increase in research and development expenses was primarily driven by a $153.2 million or 34.7% increase in employee-related costs, mainly comprised of a $81.0 million or 70.0% increase in stock-based compensation, and $60.2 million or 20.2% increase in salaries, as we expanded our workforce and invested in key talent. Additionally, there was a $28.3 million or 78.3% increase in product development costs to support the development of next-generation products and technologies. These increases along with other immaterial cost increases were partially offset by an $11.0 million or 50.9% increase in research and development fees received from certain suppliers and customers.

Net cash used in investing activities during fiscal [added] 2026 mostly consisted of [added] $162.0 million of purchases of property, plant, and equipment as we continued to invest in [added] real estate, servers, data centers, and network infrastructure, [added] as well as investments made in equity securities of $51.6 million. The increase in cash used in investing activities during fiscal [added] 2026, as compared to fiscal [added] 2025, was mostly due to [added] an increase in purchases of property, plant, and equipment.

Sales and marketing expenses. The [added] $83.4 million or 44.0% year-over-year increase in sales and marketing expenses was primarily driven by a $53.5 million or 30.9% increase in employee-related costs, mainly due to a $30.9 million or 23.0% increase in salaries and a $16.6 million or 78.3% increase in stock-based compensation, similarly to our research and development expenses as we expanded our workforce and invested in key talent company-wide. Additionally, there was a $50.0 million or 164.6% increase in advertising, travel, and other related expenses due to an increase in our marketing efforts to support the launch and promotion of new products. These increases, along with other immaterial cost increases, were partially offset by a $20.8 million or 132.6% increase in additional marketing development [added] funds received from certain [added] business partners.

Amounts held outside of the United States are typically used to meet non-U.S. liquidity [added] 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.

We measure our financial success based on various key indicators, including growth in net sales, gross [added] profit, income from operations, and net income per common share. In [added] 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 [added] 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.

We charge cost of sales for inventory provisions to write-down our inventory to the lower of cost or net realizable value or for obsolete or excess inventory, and for excess product purchase commitments. Most of our inventory provisions relate to excess quantities of products or components, based on our inventory levels and future product purchase commitments compared to assumptions about future demand and market conditions, which requires management [added] judgment, that vary based on inventory aging. Situations that may result in excess or obsolete inventory or excess product purchase commitments include changes in business and economic conditions, changes in market conditions, sudden and significant decreases in demand for our products, including potential cancellation or deferral of customer purchase orders, inventory obsolescence because of changing technology and customer requirements, new product introductions resulting in less demand for existing products or inconsistent spikes in demand, failure to estimate customer demand properly, ordering in advance of historical lead-times, government regulations and the impact of changes in future demand, or increase in demand for competitive products, including competitive actions. Net realizable value is the estimated selling price of our products in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

In order to increase our sales and profits, we believe that we must continue to develop flexible application optimized server and storage solutions while being among the first to market with new features and products. Our focus is on delivering Total IT Solutions that integrate, validate, and deliver server, storage, networking and software at the rack and cluster (multi-rack) level. Additionally, we will continue to expand our software offerings and enhance customer service and support, particularly as we increase our focus on large enterprise and data center customers. A key component of our strategy is our DCBBS, which significantly reduces data center build time and enables full integration of AI computing, server, storage, networking, rack, cabling, liquid cooling, end-to-end management software, onsite deployment services, and ongoing maintenance. To further expand our market share, we [added] intend to strengthen our network of sales partners and distribution channels.