8-K
ALPHA & OMEGA SEMICONDUCTOR Ltd (AOSL)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM 8-K
_________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 5, 2020
________________________________
Alpha and Omega Semiconductor Limited
(Exact name of registrant as specified in its charter)
| Bermuda | 001-34717 | 77-0553536 |
|---|---|---|
| (State or other jurisdiction<br><br> <br>of incorporation) | (Commission<br><br> <br>File Number) | (I.R.S. Employer<br><br> <br>Identification No.) |
Clarendon House
2 Church Street
Hamilton HM 11
Bermuda
(Address of principal executive offices)
(408) 830-9742
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Shares | AOSL | The NASDAQ Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
| Item 2.02. | Results of Operations and Financial Condition. |
|---|
The information in Item 2.02 of this Current Report, including the accompanying exhibits, is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of Section 18. The information in Item 2.02 of this Current Report on Form 8-K shall not be incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language contained in such filing.
On February 5, 2020, Alpha and Omega Semiconductor Limited (the “Company”) issued a press release regarding its financial results for the fiscal second quarter of 2020 ended December 31, 2019. A copy of the press release is furnished herewith as Exhibit 99.1 and is incorporated by reference herein.
| Item 9.01 | Financial Statements and Exhibits. |
|---|
(d) Exhibits.
| 99.1 | Press Release dated February 5, 2020 |
|---|---|
| 99.2 | Script of Prepared Remarks for Earnings Call |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: February 5, 2020
| Alpha and Omega Semiconductor Limited | |
|---|---|
| By: | /s/ Yifan Liang |
| Name: | Yifan Liang |
| Title: | Chief Financial Officer and Corporate Secretary |
Exhibit 99.1
Alpha and Omega Semiconductor Reports Financial Results for the Fiscal Second Quarter of 2020 Ended December 31, 2019
SUNNYVALE, Calif.--(BUSINESS WIRE)--February 5, 2020--Alpha and Omega Semiconductor Limited (“AOS”) (NASDAQ: AOSL), today reported financial results for the fiscal second quarter of 2020 ended December 31, 2019.
The results for the fiscal second quarter of 2020 ended December 31, 2019 were as follows:
| GAAP Financial Comparison | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Quarterly | |||||||||
| (in millions, except percentage and per share data) | |||||||||
| (unaudited) | |||||||||
| Three Months Ended | |||||||||
| December 31, <br><br> 2019 | September 30, <br><br> 2019 | December 31, <br><br> 2018 | |||||||
| Revenue | $ | 117.9 | $ | 117.8 | $ | 114.9 | |||
| Gross Margin | 20.7 | % | 22.9 | % | 25.7 | % | |||
| Operating Loss | $ | (3.4 | ) | $ | (0.6 | ) | $ | (3.2 | ) |
| Net Income (Loss) Attributable to AOS | $ | (1.0 | ) | $ | 1.0 | $ | (1.5 | ) | |
| Net Income (Loss) Per Share Attributable to AOS - Diluted | $ | (0.04 | ) | $ | 0.04 | $ | (0.06 | ) | |
| Non-GAAP Financial Comparison | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Quarterly | |||||||||
| (in millions, except percentage and per share data) | |||||||||
| (unaudited) | |||||||||
| Three Months Ended | |||||||||
| December 31, <br><br> 2019 | September 30, <br><br> 2019 | December 31,<br><br> <br>2018 | |||||||
| Revenue | $ | 117.9 | $ | 117.8 | $ | 114.9 | |||
| Non-GAAP Gross Margin | 28.3 | % | 28.3 | % | 29.2 | % | |||
| Non-GAAP Operating Income | $ | 7.6 | $ | 7.7 | $ | 8.5 | |||
| Non-GAAP Net Income Attributable to AOS | $ | 5.8 | $ | 6.5 | $ | 7.2 | |||
| Non-GAAP Net Income Per Share Attributable to AOS - Diluted | $ | 0.23 | $ | 0.26 | $ | 0.30 |
The non-GAAP financial measures in the schedule above and under the section “Financial Results for Fiscal Q2 Ended December 31, 2019” below exclude the effect of share-based compensation expenses and production ramp up costs in each of the periods presented, as well as pre-production costs relating to the Chongqing Joint Venture for the three and six months ended December 31, 2018. A detailed reconciliation of GAAP and non-GAAP financial measures is included at the end of this press release.
Financial Results for Fiscal Q2 Ended December 31, 2019
- Revenue was $117.9 million, flat quarter-over-quarter and an increase of 2.6% from the same quarter last year.
- GAAP gross margin was 20.7%. Non-GAAP gross margin was 28.3%, flat quarter-over-quarter and a decrease of 90 basis points year-over-year.
- GAAP operating expenses were $27.8 million. Non-GAAP operating expenses were $25.7 million, flat from last quarter and an increase of $0.6 million from the same quarter last year.
- GAAP operating loss was $3.4 million. Non-GAAP operating income was $7.6 million as compared to $7.7 million for the prior quarter and $8.5 million for the same quarter last year.
- GAAP net loss per share attributable to AOS was $0.04. Non-GAAP earnings per share attributable to AOS was $0.23 compared to $0.26 for the prior quarter and $0.30 for the same quarter a year ago.
- Consolidated cash flow provided by operating activities was $8.9 million, compared to cash flow used in operating activities of $1.2 million last quarter. Operating cash flow provided by AOS alone was $12.5 million, compared to $4.2 million cash flow used in the prior quarter.
- The Company closed the quarter with $107.2 million of cash and cash equivalents, including $21.1 million cash balance at the JV Company.
“Despite the challenging conditions, we remained focused and continued to execute well during the December quarter. Overall, our results came in within the expectations, and AOS's core business generated strong operating cash flow,” stated Dr. Mike Chang, Chairman and CEO of AOS.
The Company notes that Department of Justice recently commenced an investigation into the Company’s compliance with export control regulations relating to certain business transactions with Huawei and its affiliates (“Huawei”), which were added to the “Entity List” by the Department of Commerce (“DOC”). The Company is cooperating fully with federal authorities in the investigation. The Company has maintained an export control compliance program and has been committed to comply fully with all applicable laws and regulations. In connection with this investigation, DOC has requested the Company to suspend shipments of its products to Huawei, and the Company is currently working with DOC to resolve this issue. Accordingly, we expect the financial performance in the March quarter will be negatively impacted by the Huawei shipment interruption and by additional professional fees incurred in connection with the investigation. We note that the DOC order applies to only our shipment to Huawei and sales to other non-Huawei customers are expected to continue, unaffected by the order. Since this is a pending and confidential matter, the Company does not intend to comment further on the status of this investigation except as required by law.
Dr Chang continues “While we expect weaker than normal seasonality in our business during the March quarter due to the estimated production loss in China caused by the coronavirus outbreak and the suspension of shipments to Huawei, our momentum in design wins and market share gains at multiple customers continues to build across our key market segments. With added capacity at our Chongqing Joint Venture this year, we look forward to better supporting our multiple global OEM and ODM customers across mobile, PC and home appliance applications to bring up their production volumes toward peak season. We remain encouraged by the opportunities ahead of us and are fully committed to moving forward with our growth plans and navigating the headwinds and volatility we are facing in the near-term.”
Business Outlook for Fiscal Q3 Ending March 31, 2020
The following statements are based on management's current expectations. These statements are forward-looking, and actual results may differ materially. AOS undertakes no obligation to update these statements.
Based on this development and the estimated production loss in China due to the coronavirus outbreak and extended Chinese New Year holiday, our expectations for the third quarter of fiscal year 2020 are as follows:
- Revenue is expected to be between $106 million and $110 million. We estimate that the loss of production due to the coronavirus outbreak and extended Chinese New Year holiday will reduce revenue by $6 million to $7 million for the March quarter, based on the information we have as of today. The interruption of shipments to Huawei is expected to reduce revenue for the March quarter by approximately $4 million to $5 million.
- GAAP gross margin is expected to be approximately 17.3% plus or minus 1%. Non-GAAP gross margin is expected to be approximately 26.0% plus or minus 1%. Note that non-GAAP gross margin excludes $0.4 million of estimated share-based compensation and $8.5 million of estimated production ramp-up costs relating to the JV Company.
- GAAP operating expenses is expected to be in the range of $29.0 million plus or minus $1 million. Non-GAAP operating expenses are expected to be in the range of $25.5 million plus or minus $1 million. Both GAAP and non-GAAP operating expenses include $3.0 million to $3.3 million of estimated expenses relating to the development of our digital power controller business. Non-GAAP operating expenses exclude $1.0 million to $2.0 million of estimated professional fee related to the government investigation and $2.0 million of estimated share-based compensation charge.
- Tax expense is expected to be approximately $0.4 million to $0.6 million.
- Loss attributable to noncontrolling interest is expected to be around $4.7 million. On a non-GAAP basis, excluding estimated production ramp-up costs relating to the JV Company, this item is expected to be approximately $0.3 million.
Conference Call and Webcast
AOS plans to hold an investor teleconference and live webcast to discuss the financial results for the fiscal second quarter of 2020 ended December 31, 2019 today, February 5, 2020 at 2:00 p.m. PT / 5:00 p.m. ET. To participate in the live call, analysts and investors should dial 866-393-4306 (or 734-385-2616 if dialing from outside the United States and Canada). The conference ID number is 1193408. In addition, a copy of the script of management's prepared remarks and a live webcast of the call will also be available in the "Events & Presentations" section of the company's investor relations website, http://investor.aosmd.com/.
Forward-Looking Statements
This press release contains forward-looking statements that are based on current expectations, estimates, forecasts and projections of future performance based on management's judgment, beliefs, current trends, and anticipated product performance. These forward-looking statements include, without limitation, statements relating to expected growth rate, our product portfolios, projected amount of revenue, gross margin, operating income (loss), income tax expenses, net income (loss), noncontrolling interest, and share-based compensation expenses, non-GAAP gross margin, non-GAAP operating expenses, tax expenses, and non-GAAP loss attributable to noncontrolling interest, anticipated annual revenue target, our ability and strategy to develop new products including digital power controller products, the ability to expand our sales and market share, increase our capacity and achieve sustained growth and profitability, our ability to support global OEM and ODM customers, the expected ramp-up schedule of the 12 inch fab at the JV Company and target run rate, the development of digital power business, partnership with global brands, the relationship with key customers, business pipeline from design wins, the growth in mobile business, our ability to provide power solutions and reliable supply chains, government investigation and shipments to Huawei, impact of coronavirus outbreak on our business, and other information under the section entitled “Business Outlook for Fiscal Q3 Ending March 31, 2020”. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These factors include, but are not limited to, our ability to successfully operate our joint venture in China; our ability to develop and succeed in the digital power business; difficulties and challenges in executing our diversification strategy into different market segments; new tariffs on goods from China; ordering pattern from distributors and seasonality; our ability to introduce or develop new and enhanced products that achieve market acceptance; decline of PC markets; the actual product performance in volume production; the quality and reliability of our product, our ability to achieve design wins; the general business and economic conditions; the state of semiconductor industry and seasonality of our markets; our ability to maintain factory utilization at a desirable level; and other risks as described in our SEC filings, including our Annual Report on Form 10-K for the fiscal year ended June 30, 2019 filed on August 23, 2019. Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. You should not place undue reliance on these forward-looking statements. All information provided in this press release is as of today's date, unless otherwise stated, and AOS undertakes no duty to update such information, except as required under applicable law.
Use of Non-GAAP Financial Measures
To supplement our unaudited consolidated financial statements presented on a basis consistent with U.S. GAAP, we disclose certain non-GAAP financial measures for our historical performance, including non-GAAP gross profit, gross margin, operating income (loss), net loss attributable to noncontrolling interest, net income (loss) and diluted earnings per share ("EPS"). These supplemental measures exclude share-based compensation expenses and production ramp up costs for all periods presented, as well pre-production expenses related to the JV Company for the three and six months ended December 31, 2018. We also disclose certain non-GAAP financial measures in our guidance for the next quarter, including non-GAAP gross margin, operating expenses and loss attributable to noncontrolling interest. These forecast supplemental measures exclude estimated pre-production expenses and production ramp-up costs relating to our JV Company and estimated share-based compensation expenses. We believe that these historical and forecast non-GAAP financial measures can provide useful information to both management and investors by excluding certain items and expenses that are not indicative of our core operating results or do not reflect our normal business operations. In addition, our management uses non-GAAP measures to compare our performance relative to forecasts and to benchmark our performance externally against competitors. Our use of non-GAAP financial measures has certain limitations in that the non-GAAP financial measures we use may not be directly comparable to those reported by other companies. For example, the terms used in this press release, such as non-GAAP net income (loss) or non-GAAP operating expenses, do not have a standardized meaning. Other companies may use the same or similarly named measures, but exclude different items, which may not provide investors with a comparable view of our performance in relation to other companies. We seek to compensate for the limitation of our non-GAAP presentation by providing a detailed reconciliation of the non-GAAP financial measures to the most directly comparable U.S. GAAP measures both in the text in this press release and in the tables attached hereto. Investors are encouraged to review the related U.S. GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures.
About Alpha and Omega Semiconductor
Alpha and Omega Semiconductor Limited, or AOS, is a designer, developer and global supplier of a broad range of power semiconductors, including a wide portfolio of Power MOSFET, IGBT, IPM, TVS, HVIC, GaN/SiC, Power IC and Digital Power products. AOS has developed extensive intellectual property and technical knowledge that encompasses the latest advancements in the power semiconductor industry, which enables us to introduce innovative products to address the increasingly complex power requirements of advanced electronics. AOS differentiates itself by integrating its Discrete and IC semiconductor process technology, product design, and advanced packaging know-how to develop high performance power management solutions. AOS’ portfolio of products targets high-volume applications, including portable computers, flat-panel TVs, LED lighting, smart phones, battery packs, consumer and industrial motor controls and power supplies for TVs, computers, servers, and telecommunications equipment. For more information, please visit www.aosmd.com.
The following unaudited consolidated financial statements are prepared in accordance with U.S. GAAP.
| Alpha and Omega Semiconductor Limited | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Condensed Consolidated Statements of Operations | |||||||||||||||
| (in thousands, except percentages and per share amounts) | |||||||||||||||
| (unaudited) | |||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||
| December 31, 2019 | September 30, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | |||||||||||
| Revenue | $ | 117,860 | $ | 117,802 | $ | 114,925 | $ | 235,662 | $ | 229,997 | |||||
| Cost of goods sold | 93,454 | 90,870 | 85,423 | 184,324 | 167,884 | ||||||||||
| Gross profit | 24,406 | 26,932 | 29,502 | 51,338 | 62,113 | ||||||||||
| Gross margin | 20.7 | % | 22.9 | % | 25.7 | % | 21.8 | % | 27.0 | % | |||||
| Operating expenses: | |||||||||||||||
| Research and development | 12,147 | 12,368 | 12,600 | 24,515 | 23,984 | ||||||||||
| Selling, general and administrative | 15,629 | 15,185 | 20,104 | 30,814 | 40,456 | ||||||||||
| Total operating expenses | 27,776 | 27,553 | 32,704 | 55,329 | 64,440 | ||||||||||
| Operating loss | (3,370 | ) | (621 | ) | (3,202 | ) | (3,991 | ) | (2,327 | ) | |||||
| Interest expense and other income (loss), net | (635 | ) | (827 | ) | (1,632 | ) | (1,462 | ) | (2,860 | ) | |||||
| Loss before income taxes | (4,005 | ) | (1,448 | ) | (4,834 | ) | (5,453 | ) | (5,187 | ) | |||||
| Income tax expense | 568 | 410 | 701 | 978 | 1,261 | ||||||||||
| Net loss including noncontrolling interest | (4,573 | ) | (1,858 | ) | (5,535 | ) | (6,431 | ) | (6,448 | ) | |||||
| Net loss attributable to noncontrolling interest | (3,568 | ) | (2,867 | ) | (3,990 | ) | (6,435 | ) | (7,319 | ) | |||||
| Net income (loss) attributable to Alpha and Omega Semiconductor Limited | $ | (1,005 | ) | $ | 1,009 | $ | (1,545 | ) | $ | 4 | $ | 871 | |||
| Net income (loss) per common share attributable to Alpha and Omega Semiconductor Limited | |||||||||||||||
| Basic | $ | (0.04 | ) | $ | 0.04 | $ | (0.06 | ) | $ | 0.00 | $ | 0.04 | |||
| Diluted | $ | (0.04 | ) | $ | 0.04 | $ | (0.06 | ) | $ | 0.00 | $ | 0.04 | |||
| Weighted average number of common shares attributable to Alpha and Omega Semiconductor Limited used to compute net income per share | |||||||||||||||
| Basic | 24,701 | 24,538 | 23,887 | 24,620 | 23,865 | ||||||||||
| Diluted | 24,701 | 25,130 | 23,887 | 25,362 | 24,513 |
| Alpha and Omega Semiconductor Limited | |||||
|---|---|---|---|---|---|
| Condensed Consolidated Balance Sheets | |||||
| (in thousands, except par value per share) | |||||
| (unaudited) | |||||
| June 30, 2019 | |||||
| ASSETS | |||||
| Current assets: | |||||
| Cash and cash equivalents | 107,249 | $ | 121,893 | ||
| Restricted cash | 364 | ||||
| Accounts receivable, net | 24,296 | ||||
| Inventories | 111,643 | ||||
| Other current assets | 37,102 | ||||
| Total current assets | 295,298 | ||||
| Property, plant and equipment, net | 409,737 | ||||
| Operating lease right-of-use assets, net | — | ||||
| Intangible assets, net | 16,882 | ||||
| Deferred income tax assets | 4,822 | ||||
| Restricted cash - long-term | 2,038 | ||||
| Other long-term assets | 10,617 | ||||
| Total assets | 763,140 | $ | 739,394 | ||
| LIABILITIES AND EQUITY | |||||
| Current liabilities: | |||||
| Accounts payable | 89,741 | $ | 94,384 | ||
| Accrued liabilities | 44,075 | ||||
| Income taxes payable | 1,541 | ||||
| Short-term debt | 26,609 | ||||
| Finance lease liabilities | 11,355 | ||||
| Operating lease liabilities | — | ||||
| Total current liabilities | 177,964 | ||||
| Long-term debt | 59,380 | ||||
| Income taxes payable - long-term | 993 | ||||
| Deferred income tax liabilities | 466 | ||||
| Finance lease liabilities - long-term | 43,381 | ||||
| Operating lease liabilities - long-term | — | ||||
| Other long-term liabilities | 13,921 | ||||
| Total liabilities | 296,105 | ||||
| Equity: | |||||
| Preferred shares, par value 0.002 per share: | |||||
| Authorized: 10,000 shares; issued and outstanding: none at December 31, 2019 and June 30, 2019 | — | ||||
| Common shares, par value 0.002 per share: | |||||
| Authorized: 100,000 shares; issued and outstanding: 31,420 shares and 24,776 shares, respectively at December 31, 2019 and 31,163 shares and 24,517 shares, respectively at June 30, 2019 | 62 | ||||
| Treasury shares at cost, 6,644 shares at December 31, 2019 and 6,646 shares at June 30, 2019 | ) | (66,240 | ) | ||
| Additional paid-in capital | 234,410 | ||||
| Accumulated other comprehensive loss | ) | (2,693 | ) | ||
| Retained earnings | 125,485 | ||||
| Total Alpha and Omega Semiconductor Limited shareholder's equity | 291,024 | ||||
| Noncontrolling interest | 152,265 | ||||
| Total equity | 443,289 | ||||
| Total liabilities and equity | 763,140 | $ | 739,394 |
All values are in US Dollars.
| Supplemental disclosures of financial information: | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | ||||||||||||||||||||||||||
| As of December 31, 2019 | As of June 30, 2019 | |||||||||||||||||||||||||
| AOS | CQJV | Consolidated | AOS | CQJV | Consolidated | |||||||||||||||||||||
| Cash and cash equivalents | $ | 86,194 | $ | 21,056 | $ | 107,249 | $ | 100,733 | $ | 21,160 | $ | 121,893 | ||||||||||||||
| Bank borrowings liabilities | $ | 36,878 | $ | 111,614 | * | $ | 148,492 | $ | 41,048 | $ | 99,865 | * | $ | 140,913 | ||||||||||||
| Inventory | $ | 90,010 | $ | 27,581 | $ | 117,591 | $ | 93,852 | $ | 17,791 | $ | 111,643 | ||||||||||||||
| Property, plant and equipment, net | $ | 155,215 | $ | 260,840 | $ | 416,055 | $ | 148,497 | $ | 261,240 | $ | 409,737 | ||||||||||||||
| Total assets | $ | 369,429 | $ | 393,711 | $ | 763,140 | $ | 375,004 | $ | 364,390 | $ | 739,394 | ||||||||||||||
| Total equity | $ | 338,073 | $ | 102,077 | $ | 440,150 | $ | 325,240 | $ | 118,049 | $ | 443,289 | ||||||||||||||
| * AOS is not a guarantor of CQJV's (Chongqing Joint Venture) debts. | ||||||||||||||||||||||||||
| Three Months Ended December 31, <br><br> 2019 | Three Months Ended September 30, <br><br> 2019 | Three Months Ended December 31, <br><br> 2018 | ||||||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| AOS | CQJV | Consolidated | AOS | CQJV | Consolidated | AOS | CQJV | Consolidated | ||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | 12,470 | $ | (3,532 | ) | $ | 8.938 | $ | (4,225 | ) | $ | 2,998 | $ | (1,227 | ) | $ | 22,149 | $ | (9,055 | ) | $ | 13,094 | ||||
| Purchase of property and equipment, net of government grant | $ | 12,062 | $ | 3,307 | $ | 15,309 | $ | 8,292 | $ | 7,506 | $ | 15,798 | $ | 8,002 | $ | 8,451 | $ | 16,453 | ||||||||
| EBITDAS | $ | 12,538 | $ | (2,214 | ) | ** | $ | 13,892 | $ | 13,813 | $ | (2,208 | ) | ** | $ | 14,472 | $ | 15,662 | $ | (6,135 | ) | ** | $ | 13,517 | ||
| ** CQJV EBITDAS includes amounts attributable to noncontrolling interest. |
| Alpha and Omega Semiconductor Limited | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Reconciliation of Condensed Consolidated GAAP Financial Measures to Non-GAAP Financial Measures | |||||||||||||||
| (in thousands, except percentages and per share data) | |||||||||||||||
| (unaudited) | |||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||
| December 31, 2019 | September 30, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | |||||||||||
| GAAP gross profit | $ | 24,406 | $ | 26,932 | $ | 29,502 | $ | 51,338 | $ | 62,113 | |||||
| Share-based compensation | 404 | 436 | 541 | 840 | 1,038 | ||||||||||
| Production ramp up costs related to joint venture | 8,486 | 5,991 | 3,516 | 14,477 | 4,633 | ||||||||||
| Non-GAAP gross profit | $ | 33,296 | $ | 33,359 | $ | 33,559 | $ | 66,655 | $ | 67,784 | |||||
| Non-GAAP gross margin as a % of revenue | 28.3 | % | 28.3 | % | 29.2 | % | 28.3 | % | 29.5 | % | |||||
| GAAP operating loss | $ | (3,370 | ) | $ | (621 | ) | $ | (3,202 | ) | $ | (3,991 | ) | $ | (2,327 | ) |
| Share-based compensation | 2,487 | 2,369 | 4,418 | 4,856 | 7,547 | ||||||||||
| Pre-production expenses related to joint venture | — | — | 3,734 | — | 8,361 | ||||||||||
| Production ramp up costs related to joint venture | 8,486 | 5,991 | 3,516 | 14,477 | 4,633 | ||||||||||
| Non-GAAP operating income | $ | 7,603 | $ | 7,739 | $ | 8,466 | $ | 15,342 | $ | 18,214 | |||||
| Non-GAAP operating margin as a % of revenue | 6.5 | % | 6.6 | % | 7.4 | % | 6.5 | % | 7.9 | % | |||||
| GAAP net income (loss) attributable to AOS | $ | (1,005 | ) | $ | 1,009 | $ | (1,545 | ) | $ | 4 | $ | 871 | |||
| Share-based compensation | 2,487 | 2,369 | 4,418 | 4,856 | 7,547 | ||||||||||
| Pre-production expenses related to joint venture | (25 | ) | 49 | 2,458 | 24 | 5,120 | |||||||||
| Production ramp up costs related to joint venture | 4,319 | 3,049 | 1,912 | 7,368 | 2,494 | ||||||||||
| Non-GAAP net income attributable to AOS | $ | 5,776 | $ | 6,476 | $ | 7,243 | $ | 12,252 | $ | 16,032 | |||||
| Non-GAAP net margin attributable to AOS as a % of revenue | 4.9 | % | 5.5 | % | 6.3 | % | 5.2 | % | 7.0 | % | |||||
| GAAP net income (loss) attributable to AOS | $ | (1,005 | ) | $ | 1,009 | $ | (1,545 | ) | $ | 4 | $ | 871 | |||
| Share-based compensation | 2,487 | 2,369 | 4,418 | 4,856 | 7,547 | ||||||||||
| Amortization and depreciation | 10,850 | 10,904 | 8,279 | 21,754 | 16,149 | ||||||||||
| Interest expense (income), net | 992 | (220 | ) | 1,664 | 772 | 3,088 | |||||||||
| Income tax expense | 568 | 410 | 701 | 978 | 1,261 | ||||||||||
| EBITDAS | $ | 13,892 | $ | 14,472 | $ | 13,517 | $ | 28,364 | $ | 28,916 | |||||
| GAAP diluted net income (loss) per share attributable to AOS | $ | (0.04 | ) | $ | 0.04 | $ | (0.06 | ) | $ | 0.00 | $ | 0.04 | |||
| Share-based compensation | 0.10 | 0.10 | 0.18 | 0.19 | 0.31 | ||||||||||
| Pre-production expenses related to joint venture | — | — | 0.10 | — | 0.21 | ||||||||||
| Production ramp up costs related to joint venture | 0.17 | 0.12 | 0.08 | 0.29 | 0.09 | ||||||||||
| Non-GAAP diluted net income per share attributable to AOS | $ | 0.23 | $ | 0.26 | $ | 0.30 | $ | 0.48 | $ | 0.65 | |||||
| Shares used to compute GAAP diluted net income per share | 24,701 | 25,130 | 23,887 | 25,362 | 24,513 | ||||||||||
| Shares used to compute Non-GAAP diluted net income per share | 25,594 | 25,130 | 24,432 | 25,362 | 24,513 |
Contacts
Alpha and Omega Semiconductor Limited
Investor Relations
So-Yeon Jeong
408-789-3172
investors@aosmd.com
Exhibit 99.2
Alpha and Omega Semiconductor Limited
Prepared Remarks for the Investor Conference Call
for the Quarter Ended December 31, 2019
February 5, 2020
So-Yeon Jeong (Moderator)
Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor’s conference call to discuss fiscal 2020 second quarter financial results. I am So-Yeon Jeong, Investor Relations representative for the company. With me today are Dr. Mike Chang, our CEO, Yifan Liang, our CFO, and Stephen Chang, our executive vice president. This call is being recorded and broadcasted live over the Web and can be accessed for seven days following the call via the link in the Investor Relations section of our website at www.aosmd.com.
Yifan will begin with a review of financial results for the quarter. Then, Mike will review the business highlights, followed by Stephen who will provide a detailed segment report. After that, Yifan will conclude with guidance for the next quarter. Then, we will have the question-and-answer session.
The earnings release was distributed by business wire today, February 5, 2020, after the close of market. The release is also posted on the company's website. Our earnings release and this presentation include certain non-GAAP financial measures. We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with the GAAP measures that we provide. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release.
We remind you that during the course of this conference call, we will make certain forward-looking statements, including discussions of the business outlook and financial projections. These forward-looking statements are based on management's current expectations and involve risks and uncertainties that could cause our actual results to differ materially from such expectations. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC.
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We assume no obligations to update the information provided in today's call.
Now, I’ll turn the call over to our CFO Yifan to provide an overview of the second fiscal quarter financial results.
Yifan Liang (Chief Financial Officer)
Thank you, So-Yeon. Good afternoon everyone and thank you for joining us.
Revenue for the December quarter was $117.9 million, flat when compared to the prior quarter and up 2.6% from the same quarter last year.
In terms of product mix, MOSFET revenue was $101.5 million, up 0.9% sequentially and up 8.8% year-over-year. Power IC revenue was $14.7 million, down 6.8% from the prior quarter and down 24.4% from a year ago. Assembly service revenue was $1.7 million as compared to $1.6 million for the prior quarter and $2.2 million for the same quarter last year.
Regarding the segment mix, Computing represented 41.3% of the total revenue, Consumer 18.0%, Power Supply and Industrial 21.3%, Communications 17.9%, and Service 1.5%.
Non-GAAP gross margin for the December quarter was 28.3%, unchanged from the prior quarter and down from 29.2% for the same quarter last year. Non-GAAP gross margin excluded $0.4 million of share-based compensation charge for the December quarter, as compared to $0.4 million for the prior quarter and $0.5 million for the same quarter last year. Non-GAAP gross margin also excluded $8.5 million of production ramp-up costs related to the Chongqing Joint Venture (“JV Company”) for the December quarter, as compared to $6.0 million for the prior quarter and $3.5 million for the same quarter last year.
Non-GAAP operating expenses for the December quarter were $25.7 million, compared to $25.6 million for the prior quarter and $25.1 million for the same quarter last year. Non-GAAP operating expenses excluded $2.1 million of share-based compensation charge, as compared to $1.9 million for the prior quarter and $3.9 million for the same quarter last year. Both GAAP and Non-GAAP operating expenses included $3.0 million of digital power team expenses for the quarter, as compared to $2.8 million for the prior quarter and $3.1 million for the same quarter last year.
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Our digital power controller team continues to engage with customers in product designs and is making steady progress toward our product roadmap.
Non-GAAP EPS attributable to AOS for the quarter was 23 cents per share as compared to 26 cents for the prior quarter and 30 cents for the same quarter last year.
AOS generated $12.5 million operating cash flow in the December quarter, as compared to $4.2 million net cash used in operating activities and $22.1 million operating cash flow generated in the same quarter last year. Cash flow used in operations attributable to the JV Company was $3.5 million for the December quarter, compared to $3.0 million provided by operating activities for the prior quarter and $9.1 million used in operating activities for the same quarter last year.
Consolidated EBITDAS for the December quarter was $13.9 million, compared to $14.5 million for the prior quarter and $13.5 million for the same quarter last year. EBITDAS attributable to AOS for the quarter was $12.5 million as compared to $13.8 million for the prior quarter and $15.7 million for the same quarter last year.
Now let’s look at the balance sheet.
We completed the December quarter with cash and cash equivalents of $107.2 million, including $86.1 million at AOS and $21.1 million at the JV Company. This compares to $103.1 million at the end of last quarter, which included $88.0 million at AOS and $15.1 million at the JV Company. Our cash balance a year ago was $146.6 million, including $93.6 million at AOS and $53.0 million at the JV Company.
Bank borrowing balance at the end of the December quarter was $148.5 million, including $36.9 million at AOS and $111.6 million at the JV Company. In the December quarter, AOS and the JV Company repaid $4.1 million and $16.4 million of the existing loans, respectively. The JV Company also borrowed $30.9 million working capital.
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Net trade receivables were $33.9 million, as compared to $39.3 million at the end of last quarter and $33.9 million for the same quarter last year. Day Sales Outstanding for the quarter was 28 days, compared to 25 days in the prior quarter.
Net inventory was $117.6 million at the quarter-end, down from $118.6 million last quarter and up from $103.0 million in the prior year. Average days in inventory was 114 days for the quarter, flat as compared to the prior quarter.
Net Property, Plant and Equipment was $416.1 million, as compared to $404.0 million last quarter and $380.8 million last year. Capital expenditures were $15.4 million for the quarter, including $12.1 million at AOS and $3.3 million at the JV Company. We estimate that the capital expenditure for AOS core business to stay at 6% to 8% of the total revenue for the fiscal year 2020.
Before I turn the call over to Mike, I would like to update you on the progress at our JV Company. During the December quarter, the 12” fab and assembly and test production continued to make progress as expected. Our goal remains the same, that is, to ramp up the Phase 1 of the 12” fab to approach the target run rate by the September quarter of this calendar year, subject to general and overall market conditions.
With that, now I would like to turn the call over to our CEO, Dr. Mike Chang, who will provide the business highlights for the quarter.
Mike Chang (Chief Executive Officer)
Despite the challenging conditions, we remained focused and continued to execute well during the December quarter. Our revenue came in within the guidance range, achieving both year-over-year and sequential revenue growth. Meanwhile our gross margin benefited from improved operational efficiency. Most importantly, AOS reported healthy non-GAAP earnings, and our core business generated strong operating cash flow.
Looking ahead to the March quarter, we expect weaker than normal seasonality in our business. I’ll speak to one factor that is creating a headwind and Yifan will provide more details on the total outlook in his comments. There has been wide coverage of the coronavirus outbreak in China. Our employees’ well-being is our top priority, and all our employees are safe. In addition to the mandatory extended Chinese New Year holiday, we have implemented additional travel bans, screening procedures as well as self-quarantine measures. While we maintained partial production throughout the holiday, we anticipate that it will take longer for our factory to return to full production.We have factored the impact of this disruption into the guidance we are providing today. As you can imagine, this is a developing situation and so is its potential effect on the global supply chain. We will continue to evaluate the impact on our business as further developments warrant.
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Given the extended Chinese New Year holiday, we expect that it will take longer for our factory to return to full production. We have factored the impact of this disruption into the guidance we are providing today. As you can imagine, this is a developing situation and so is its potential effect on the global supply chain. We will continue to evaluate the impact on our business as further developments warrant.
We have been consistently pushing forward with our plan to create demand with the differentiated products across key market segments, and at the same time, we have been accelerating the penetration and diversification into multiple global brand customers. For computing, our customers increasingly value high-performance products as underlying trends such as artificial intelligence, big data and internet of things are reshaping the computing industry. With our highly efficient products, we were able to penetrate every single key PC OEM, maintaining a strong position at all of them. Coming to the IGBT business, we demonstrated solid traction by posting 40% year-over-year growth once again in calendar 2019. We continued to expand our footprint at a broad base of home appliance customers with both discrete and module solutions. Our mobile business, including smartphone battery pack and quick charger applications, was the fastest growing business in percentage terms last year, as we ramped the high-volume productions for multiple global OEMs. As we secure additional layers of business at multiple OEMs and ODMs, we remain confident about the strength of our mobile business.
In order to address this growing demand from global brand name customers, we carefully planned the supply chain expansion, which centers on the 12” fab and assembly and test facility in Chongqing. Our customers appreciate our commitment to enabling their growth and support our goals.
Looking beyond the March quarter, we think that we are well-positioned to capitalize on the demand we have created. Last year, although we garnered meaningful design wins, we were not able to fully satisfy peak season demand due to supply constraints at our Oregon fab. As a result, we had to make difficult allocation decisions as to which customers and applications to support, and this hindered our growth last year. This year, with added capacity at Chongqing JV, we are in a much better position to support our customers as they ramp up their production volumes, especially since both smartphone and PC applications are expected to hit their usual seasonal peak in the September quarter. Therefore, we still expect to approach the Phase 1 target run rate by the September quarter this year. This expanded capacity will allow us to better capture potential growth opportunities and fuel our diversification effort as we benefit from the momentum seen across a broader array of growing applications.
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We have the right strategy in place and an outstanding team to execute it. We have demonstrated remarkable progress especially in three key areas: creating demand, penetrating top-tier global OEMs with value-added solutions, and expanding production capacity to fulfill demand. This, in return, is building great momentum with ever increasing design wins in the pipeline and share gains at multiple customers across key market segments, which validates our confidence in driving sustainable growth. We remain encouraged by the opportunities ahead of us and are fully committed to moving forward with our growth plans and navigating the headwinds
and volatility we are facing in the near-term.
Now, I will turn the call over to Stephen for a detailed segment report.
Stephen Chang (Executive Vice President)
Thank you, Mike, and good afternoon!
Let me start with Computing. It represented 41.3% of our total revenue in the December quarter. Revenue was up 5.4% sequentially and down 12.8% year-over-year. During the quarter, the CPU supply eased a bit, but it was still not enough to fully satisfy the market demand. However, the ramp of high-end tablet application and the continued migration into high-value products such as Vcore and graphics cards enabled modest growth in this segment business. The CPU shortage is anticipated to persist at least through the first half of calendar 2020 especially with small core. This has been compounded by the impact of coronavirus on our PC customers, as a result, we are estimating a mid-single digit sequential decrease in the Computing segment.
Now turning to the Consumer segment, which represented 18.0% of total revenue in the December quarter. Revenue decreased 1.3% sequentially and was up 13.8% year-over-year. We had originally expected to see a double-digit sequential decrease due to TV seasonality, however, we saw healthy demand for various consumer applications during the quarter. As Mike mentioned earlier, strong customer momentum with our leading portfolio of IGBT solutions continued especially with home appliance applications. Bolstered by high performance and reliability required by these applications, our IGBT product line posted 40% annual increase in calendar year 2019, after growing 40% in calendar 2018 year-over-year.
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As we expand our customer base in home appliances and accelerate production ramp at global OEMs, we expect the IGBT business to increase another 40% in calendar year 2020. Looking into the March quarter, we expect a moderate seasonal decline in the Consumer segment.
Next, let’s discuss the Power Supply and Industrial Segment. This segment accounted for 21.3% of total revenue, down 7.6% sequentially and up 13.5% year-over-year. While we grew in applications such as solar power and industrial fans, the seasonal decrease in other AC/DC power supply applications was sharper than anticipated. As one of the key suppliers of quick charging solutions, we believe that we are well-positioned to benefit from the introduction of 5G phones with larger batteries paired with higher wattage power supply. However, entering into what is typically the seasonal low point for our quick charger business, we expect to see a double-digit revenue decline in this segment during the March quarter.
Finally, let’s move on to the Communications segment, which was 17.9% of revenue in the quarter, down 1.1% and up 32.5% year-over-year. Our highly efficient battery protection business continues to be strong during the December quarter, and we maintained this segment’s revenue similar to the peak level. Since each global smartphone OEM launches new models at different times throughout the year, serving multiple global OEMs helps us offset some seasonality. For the March quarter, we expect the recovery in 5G telecom to drive growth on top of continued strength in the battery pack protection products. Therefore, we anticipate a modest increase in the Communication segment in the March quarter.
With that, I will now turn the call over to Yifan for additional comments and guidance.
Yifan Liang: Guidance for the next quarter
Thank you, Stephen.
As disclosed in our press release, we are cooperating with federal authorities in their recent investigation of our export control practices with Huawei and its affiliates. We have maintained an export control compliance program and have been committed to fully complying with all applicable laws and regulations.
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In connection with this investigation, we have suspended shipment of our products to Huawei based on the order issued by Department of Commerce (DOC). This suspension is expected to reduce our revenue for the March quarter by approximately $4 million to $5 million. We are working with DOC to resolve this issue, although currently we do not know when we will be able to resume shipment to Huawei, if at all. In addition, we expect to incur $1 million to $2 million of professional fees during the March quarter in connection with the ongoing government investigation. Please note that the DOC order applies to only our shipments to Huawei. Our sales to other customers are expected to continue and grow beyond the March quarter, unaffected by the order.
Since this is a pending and confidential matter, we will not be making additional comments beyond the facts that we have shared with you on this call, in our press release, and the related financial impact that we can assess at this time, except as required by law. Future inquiries will be directed to these statements.
Based on this development and the estimated production loss in China due to the coronavirus outbreak and extended Chinese New Year holiday, our expectations for the third quarter of fiscal year 2020 are as follows:
We expect revenue to be between $106 million and $110 million. In addition to the impact of suspended shipment to Huawei, this guidance also reflects an estimate of $6 million to $7 million reduction in revenue due to the production loss resulted from the coronavirus outbreak and extended Chinese New Year holiday based on the information we have as of today. We expect GAAP gross margin to be 17.3%, plus or minus 1%. We anticipate non-GAAP gross margin to be 26.0%, plus or minus 1%. Gross margin guidance reflects the inefficiency caused by production disruptions as well as suspended shipment to Huawei. Note that non-GAAP gross margin excludes $0.4 million of estimated share-based compensation and $8.5 million of estimated production ramp-up costs relating to the JV Company.
We expect GAAP operating expenses to be in the range of $29.0 million plus or minus $1 million. Non-GAAP operating expenses are expected to be in the range of $25.5 million plus or minus $1 million. Both GAAP and non-GAAP operating expenses include $3.0 million to $3.3 million of estimated expenses relating to the development of our digital power business. Non-GAAP operating expenses exclude $1.0 million to $2.0 million of estimated professional fees related to the investigation and $2.0 million of estimated share-based compensation.
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Tax expense should be approximately $0.4 million to $0.6 million.
We anticipate a loss attributable to non-controlling interests to be around $4.7 million. On a non-GAAP basis, excluding estimated production ramp-up costs relating to the JV company, this item is expected to be approximately $0.3 million.
As part of our normal practice, we are not assuming any obligations to update this information.
With that, we will open up the floor for questions.
Closing:
This concludes our earnings call today. Thank you for your interest in AOS and we look forward to talking to you again next quarter.
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Special Notes Regarding Forward Looking Statements
This script contains forward-looking statements that are based on current expectations, estimates, forecasts and projections of future performance based on management's judgment, beliefs, current trends, and anticipated product performance. These forward looking statements include, without limitation, statements relating to projected amount of revenues, gross margin, operating expenses, operating income, tax expenses, net income, noncontrolling interest and share-based compensation expenses, production ramp up costs and annual revenue and growth objectives; statements regarding market segments, global brand name customers, diversification of products and new customers; expectation with respect to improvement in profitability; the expected trend on revenue and sales for each segment of our serviceable market and market shares; the progress of construction of Chongqing Joint Venture and timeline for production and operation, including the targeted run rate; government investigation and its impact on our financial results; the effect of coronavirus outbreak on our business; our ability and strategy to develop new products, expectation of the CPU shortage; adoption of low-voltage and power IC products; projected mid-term annual revenue target; expectation with respect to our digital power business; seasonality fluctuation in customer demand and market segments; our ability to manage supply constraints and the expectation with respect to capacity limitation; the execution of our business plan; international trade tension and geopolitical environment; and other information regarding the future development of our business. Forward looking statements involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These factors include, but are not limited to, our ability to successfully operate our joint venture in China; our ability to develop and succeed in the digital power business; difficulties and challenges in executing our diversification strategy into different market segments; new tariffs on goods from China; ordering pattern and seasonality; our ability to introduce or develop new and enhanced products that achieve market acceptance; decline of the PC industry and our ability to respond to such decline; the actual product performance in volume production, the quality and reliability of our product, our ability to achieve design wins, the general business and economic conditions, the state of semiconductor industry and seasonality of our markets, our ability to maintain factory utilization at a desirable level; and other risks as described in our SEC filings, including our Annual Report on Form 10-K for the fiscal year ended June 30, 2019 filed by AOS on August 23, 2019. Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. You should not place undue reliance on these forward-looking statements. All information provided in this press release is as of today's date, unless otherwise stated, and AOS undertakes no duty to update such information, except as required under applicable law.
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