Supermicro Announces Pricing of Private Offering of $1.5 Billion of Convertible Senior Notes Due 2029

Rhea-AI Summary

Super Micro Computer, Inc. (SMCI) announced the pricing of $1.5 billion convertible senior notes due 2029 for qualified institutional buyers. The notes have an initial conversion rate of 0.7455 shares per $1,000 principal amount, with a conversion price of approximately $1,341.38 per share. The company granted an option to purchase up to an additional $225.0 million aggregate principal amount of notes. The offering is expected to close on February 27, 2024.

Insights

Financial Analyst

Super Micro Computer, Inc.'s announcement of a $1.5 billion convertible senior notes offering, with an option for an additional $225 million, is a significant capital market transaction that could influence the company's capital structure and financial flexibility. The use of convertible notes, which can be converted into equity at a later date, often reflects a strategic financing decision that balances dilution and capital cost. The initial conversion premium of approximately 37.5% above the current stock price suggests confidence in the company's future stock performance, indicating an expectation of stock price appreciation.

From a financial analyst's perspective, the decision to enter into capped call transactions is a hedge against dilution for existing shareholders. The capped call transactions, by potentially offsetting dilution upon conversion, can be seen as a move to protect shareholder value while still raising necessary capital. The cap price, set at a 100% premium to the current stock price, further emphasizes expectations for substantial stock growth. However, this transaction could also signal that the company is seeking to take advantage of favorable market conditions or has significant capital needs that may not be fully apparent to the market.

The net proceeds of approximately $1.47 billion to $1.70 billion, after accounting for the cost of the capped call transactions, will bolster the company's liquidity and support its general corporate purposes, including working capital for growth and business expansion. This influx of capital can be a positive signal to investors regarding the company's growth prospects but also warrants monitoring for how effectively the capital is deployed to generate returns.

Market Research Analyst

The issuance of convertible notes by Super Micro Computer, Inc. is a strategic move within the IT solutions sector, which is characterized by rapid innovation and the need for continuous investment in research and development. The company's focus on AI, Cloud, Storage and 5G/Edge technologies positions it within high-growth markets, where access to capital is crucial for maintaining competitive advantage and funding expansion efforts.

Market research analysts would examine the potential impact of this capital raise on the company's market positioning, particularly how the additional funds could enable Super Micro to accelerate its product development cycles, expand its market reach, or invest in strategic partnerships. The IT solutions industry is experiencing intense competition and consolidation and Super Micro's ability to successfully leverage the raised capital could determine its long-term market share and revenue growth. The timing and size of the offering might also reflect an assessment of market conditions and the company's capital needs in relation to its growth trajectory and investment opportunities.

Legal Expert

The legal aspects of Super Micro Computer, Inc.'s convertible notes offering are critical to ensuring compliance with securities regulations. The offering is being made to 'qualified institutional buyers' under Rule 144A, which allows for the sale of securities to sophisticated institutional investors without the need for a public offering registration. This approach is often faster and less costly than a public offering, but it limits the potential investor base.

Additionally, the legal stipulations surrounding the capped call transactions and the convertible notes' terms, including the conversion rate, conversion price and conditions for redemption and repurchase, are complex contractual elements that require careful structuring to align with the company's strategic financing goals and protect against legal risks. The legal framework governing these transactions must also account for potential adjustments and the rights of noteholders in the event of a fundamental change, ensuring that all actions are within the bounds of the Securities Act and other relevant laws.

SAN JOSE, Calif.--(BUSINESS WIRE)-- Super Micro Computer, Inc. (NASDAQ: SMCI) (“Supermicro” or the “Company”), a Total IT Solution Manufacturer for AI, Cloud, Storage, and 5G/Edge, today announced the pricing of $1.5 billion aggregate principal amount of convertible senior notes due 2029 (the “Convertible Notes”). The Convertible Notes are being offered and sold to “qualified institutional buyers” pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The Company also granted a 13-day option to the initial purchasers to purchase up to an additional $225.0 million aggregate principal amount of the Convertible Notes.

The Convertible Notes will be senior, unsecured obligations of the Company. The Convertible Notes will not bear regular interest, and the principal amount of the Convertible Notes will not accrete. The Convertible Notes have an initial conversion rate of 0.7455 shares of the Company's common stock per $1,000 principal amount of Convertible Notes (which is equivalent to an initial conversion price of approximately $1,341.38 per share of the Company’s common stock, representing an initial conversion premium of approximately 37.5% above the closing price of $975.52 per share of the Company’s common stock on February 22, 2024). The conversion rate and conversion price will be subject to adjustment upon the occurrence of certain events.

The Convertible Notes will be redeemable, in whole or in part (subject to certain limitations), for cash at the Company’s option at any time, and from time to time, on or after March 1, 2027 and on or before the 20th scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for a specified period of time. The redemption price will be equal to the principal amount of the notes to be redeemed, plus accrued and unpaid special and additional interest, if any, to, but excluding, the redemption date.

Holders of the Convertible Notes will have the right to require the Company to repurchase all or a portion of their Convertible Notes upon the occurrence of a fundamental change (as defined in the indenture governing the Convertible Notes) at a cash repurchase price of 100% of their principal amount plus any accrued and unpaid special and additional interest, if any, to, but excluding the applicable repurchase date. The Convertible Notes will mature on March 1, 2029, unless earlier redeemed, repurchased or converted in accordance with their terms prior to such date. Prior to the close of business on the business day immediately preceding September 1, 2028, the Convertible Notes will be convertible only upon the satisfaction of certain conditions and during certain periods, and on and after September 1, 2028, at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, the Convertible Notes will be convertible regardless of these conditions. The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock at the Company’s election. The Company expects to close the offering on February 27, 2024, subject to the satisfaction of various customary closing conditions.

In connection with the pricing of the Convertible Notes, the Company entered into privately negotiated capped call transactions with certain of the initial purchasers or their affiliates and other financial institutions (the “option counterparties”). The capped call transactions will cover, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes, the number of shares of the Company’s common stock underlying the Convertible Notes.

The capped call transactions are expected generally to reduce the potential dilution to the Company’s common stock upon conversion of the Convertible Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of the Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap. The cap price of the capped call transactions is initially $1,951.04 per share of the Company’s common stock, which represents a premium of 100% above the last reported sale price per share of the Company’s common stock on Nasdaq on February 22, 2024, and is subject to customary adjustments.

In connection with establishing their initial hedges of the capped call transactions, the option counterparties or their respective affiliates expect to enter into various derivative transactions with respect to the Company’s common stock and/or purchase shares of the Company’s common stock concurrently with or shortly after the pricing of the Convertible Notes. This activity could increase (or reduce the size of any decrease in) the market price of the Company's common stock or the Convertible Notes at that time. In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to the Company's common stock and/or purchasing or selling the Company’s common stock or other securities of the Company in secondary market transactions following the pricing of the Convertible Notes and prior to the maturity of the Convertible Notes (and are likely to do so during any observation period related to a conversion of the Convertible Notes or following any repurchase of the Convertible Notes by the Company to the extent the Company elects to unwind a corresponding portion of the capped call transactions in connection with such repurchase). This activity could also cause or avoid an increase or a decrease in the market price of the Company’s common stock or the Convertible Notes, which could affect noteholders’ ability to convert the Convertible Notes, and, to the extent the activity occurs during any observation period related to a conversion of the Convertible Notes, it could affect the amount and value of the consideration that noteholders will receive upon conversion of the Convertible Notes.

The Company will receive net proceeds from the offering of approximately $1.47 billion (or approximately $1.70 billion if the initial purchasers exercise their option to purchase additional Convertible Notes in full). The Company expects to use $123.6 million (or approximately $142.1 million if the initial purchasers exercise their option to purchase additional Convertible Notes in full) of the net proceeds of the offering to fund the cost of entering into the capped call transactions. The Company intends to use the remainder of the net proceeds from the offering for general corporate purposes, including to fund working capital for growth and business expansion. If the initial purchasers exercise their option to purchase additional Convertible Notes, the Company intends to use a portion of the net proceeds from the sale of additional Convertible Notes to fund the cost of entering into additional capped call transactions.

This press release is neither an offer to sell nor a solicitation of an offer to buy the Convertible Notes or the shares of the Company’s common stock issuable upon conversion of the Convertible Notes, if any, nor shall there be any sale of these securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state or jurisdiction. Any offer of these securities will be made only by means of a private offering memorandum.

The offer and sale of the Convertible Notes and the shares of the Company’s common stock issuable upon conversion of the Convertible Notes, if any, have not been registered under the Securities Act, or the securities laws of any other jurisdiction, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

Forward-looking Statements:

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the planned offering. Words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “will,” “believes” and words and terms of similar substance used in connection with any discussion identify forward-looking statements. These forward-looking statements are based on management’s current expectations and beliefs about future events and are inherently susceptible to uncertainty and changes in circumstances. Except as required by law, the Company is under no obligation to, and expressly disclaims any obligation to, update or alter any forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise. With respect to the planned offering, such uncertainties and circumstances include whether the Company will offer the notes or consummate the offering; and the anticipated terms of the notes and the use of the net proceeds from the offering. Various factors could also adversely affect the Company’s operations, business or financial results in the future and cause the Company’s actual results to differ materially from those contained in the forward-looking statements, including those factors discussed in detail in the “Risk Factors” sections contained in the Company’s Annual Report on Form 10-K for the year ended June 30, 2023 and the Company’s Quarterly Reports on Form 10-Q for the quarters ended September 30, 2023 and December 31, 2023, which are filed with the Securities and Exchange Commission.

About Super Micro Computer, Inc.

Supermicro (NASDAQ: SMCI) is a global leader in Application-Optimized Total IT Solutions. Founded and operating in San Jose, California, Supermicro is committed to delivering first to market innovation for Enterprise, Cloud, AI, and 5G Telco/Edge IT Infrastructure. We are a Total IT Solutions manufacturer with server, AI, storage, IoT, switch systems, software, and support services. Supermicro's motherboard, power, and chassis design expertise further enables our development and production, enabling next generation innovation from cloud to edge for our global customers. Our products are designed and manufactured in-house (in the US, Taiwan, and the Netherlands), leveraging global operations for scale and efficiency and optimized to improve TCO and reduce environmental impact (Green Computing). The award-winning portfolio of Server Building Block Solutions® allows customers to optimize for their exact workload and application by selecting from a broad family of systems built from our flexible and reusable building blocks that support a comprehensive set of form factors, processors, memory, GPUs, storage, networking, power, and cooling solutions (air-conditioned, free air cooling or liquid cooling).

View source version on businesswire.com: https://www.businesswire.com/news/home/20240222607331/en/

Investor Relations Contact:

Nicole Noutsios

email: ir@supermicro.com

Source: Super Micro Computer, Inc.

FAQ

What is the total principal amount of convertible senior notes due 2029 announced by Super Micro Computer, Inc. (SMCI)?

Super Micro Computer, Inc. (SMCI) announced the pricing of $1.5 billion aggregate principal amount of convertible senior notes due 2029.

What is the initial conversion rate of the convertible notes?

The convertible notes have an initial conversion rate of 0.7455 shares of the Company's common stock per $1,000 principal amount of notes.

When is the expected closing date for the offering of convertible notes by Super Micro Computer, Inc. (SMCI)?

The company expects to close the offering on February 27, 2024.

What is the conversion price per share of the Company's common stock for the convertible notes?

The conversion price per share of the Company's common stock for the convertible notes is approximately $1,341.38.

What option did the company grant to the initial purchasers in relation to the convertible notes?

The company granted a 13-day option to the initial purchasers to purchase up to an additional $225.0 million aggregate principal amount of the convertible notes.