Earnings Call Transcript - AOSL Q4 2024

Operator, Operator

Good afternoon, ladies and gentlemen. Thank you for joining today's Alpha and Omega Semiconductor Fiscal Q4 and Fiscal Year 2024 Earnings Call. My name is Tia and I will be your moderator for today's call. I would now like to pass the call over to your host, Steven Pelayo, with The Blueshirt Group. Please proceed.

Steven Pelayo, Investor Relations Representative

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor’s conference call to discuss fiscal 2024 fourth quarter and annual financial results. I am Steven Pelayo, Investor Relations representative for AOS. With me today are Stephen Chang, our CEO; and Yifan Liang, our CFO. This call is being recorded and broadcast live over the Web. A replay will be available for 7 days following the call via the link in the Investor Relations section of our website. Our call will proceed as follows today. Stephen will begin business updates including strategic highlights, and a detailed segment report. After that, Yifan will review the financial results and provide guidance for the September quarter. Finally, we will have the Q&A session. The earnings release was distributed over the wire today, August 7, 2024, after the market close. The release is also posted on the company's website. Our earnings release and this presentation include 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. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in the earnings release. We remind you that during 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. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We assume no obligations to update the information provided in today's call. Now, I’ll turn the call over to our CEO, Stephen Chang. Stephen?

Stephen Chang, CEO

Thank you, Steve. Welcome to Alpha and Omega’s fiscal Q4 earnings call. I will begin with a high-level overview of our results and then jump into segment details. We delivered fiscal Q4 results in line with our guidance for revenue and gross margin. Revenue was $161.3 million, non-GAAP gross margin was 26.4%. Non-GAAP EPS was $0.09. As we mentioned last quarter, inventory corrections across the majority of our end markets are now largely behind us, and seasonality is returning to more normalized trends. While visibility on the slope of the recovery is limited, the increasing breadth of demand is encouraging. For the June quarter, we saw sequential growth in each of our major segments with relative strength coming from tablets, AI, and graphics cards in our Computing segment; gaming and home appliances within Consumer; e-mobility, DC motors and quick chargers in the Industrial segment; and a regional shift towards a Tier 1 U.S smartphone customer within Communications. The PC segment, however, is taking longer to recover than originally expected. Looking into the September quarter, we expect PCs and servers to grow sequentially while tablets sustain the strong current run rate within Computing. The Consumer segment will likely see continued strength in gaming and a strong seasonal pickup from wearables, offset by slower home appliances. Smartphones will drive sequential growth in Communication, while AC-DC power supplies and quick chargers are relatively stronger in Industrial. Looking beyond 2024, AOS is transitioning from a component supplier to a total solutions provider in many areas where we can leverage our core strengths in high-performance silicon, advanced packaging and intelligent ICs to penetrate new opportunities and drive higher BOM content. We are building on customer relationships to capture market share with a broader product portfolio. For example, we are leveraging our strength in graphics cards and introducing new Vcore products for opportunities in advanced computing and AI datacenters. Within smartphones, we expect to benefit from trends towards foldable, flexible, and multiple screens; increasing AI integration; as well as dual-cell batteries and higher charging currents for faster charging times. Beyond Computing and Communication segments, we remain optimistic on the underlying power trends in adjacent markets such as solar, motors and e-mobility, gaming, home appliances and power tools. These examples all represent continued growth opportunities primarily driven by the global shift towards more efficient and sustainable energy solutions. With that, let me now cover our segment results and provide some guidance by segment for the next quarter. Starting with Computing. June quarter revenue was up 37.6% year-over-year and 4.4% sequentially and represented 44.4% of total revenue. These results were slightly below our original expectation for mid-to-upper single-digit growth. As mentioned before, we saw relative strength from tablets, AI, and graphics cards in the quarter, offset by a slower PC market recovery. Notably, tablet revenue was a record high, and the contribution from AI and datacenter-related applications continued to grow. We are excited about opportunities in AI. Demand for accelerator cards remains steady as the industry prepares for a platform transition ramping next year. We are working on multiple opportunities leveraging our existing relationship with a key graphics card maker, as well as our product portfolio including new multiphase Vcore controllers and power stage solutions for advanced computing. We are also seeing some ramp in September from a leading power supply maker that is a key supplier to the same AI/graphics customer. We are selling our high-performance medium voltage MOSFETs that go into intermediate bus converters for DC to DC power conversion. Looking forward into the September quarter, we expect the Computing segment to grow mid-single digits sequentially as PCs see a seasonal pickup, while tablets, AI accelerators, and graphics cards remain strong. Turning to the Consumer segment, June quarter revenue was down 35.5% year-over-year, but up 19.7% sequentially and represented 17.5% of total revenue. The results were in line with our forecast for double-digit sequential growth and were primarily driven by gaming and home appliances. It is now clear that the inventory correction in gaming is behind us and a seasonal build is underway. The strength in home appliances was better-than-expected as government incentives in China drove demand. For the September quarter, we forecast low double-digit sequential growth in the Consumer segment driven by strong seasonal pickup from wearables and continued strength in gaming, offset by slower home appliances. Next, let’s discuss the Communications segment. Revenue in the June quarter was up 59% year-over-year and 2.1% sequentially, and represented 17% of total revenue. These results were above our flattish sequential expectations as we began to see the seasonal pickup from a Tier 1 U.S smartphone customer, offset by sequential declines from Korean and Chinese OEMs. Looking ahead, we anticipate double-digit sequential growth in the September quarter on seasonal strength ahead of new smartphone launches in the U.S and increasing demand from Chinese smartphone OEMs. We are benefitting from a mix shift to more premium phones and we anticipate rising growth in BOM content as phone makers increase battery charging currents. Now, let’s talk about our last segment, Power Supply and Industrial, which accounted for 17.1% of total revenue and was down 33.7% year-over-year, but up 11.3% sequentially. The results were slightly ahead of our forecast for mid-to-upper single-digit sequential growth driven by strength in the e-mobility segment for e-bikes and e-scooters and DC fans for applications in areas such as datacenters. The inventory correction in quick chargers appears complete as we also saw the beginnings of recovery in the June quarter. Lastly, power tools continued at a steady pace in June. For the September quarter, we expect this segment to grow 15% to 20% sequentially primarily driven by a solid uptick from quick chargers, as well as strength from AC-DC power supplies tied to the seasonal build in PCs. In closing, the June quarter was in line with our expectations and marked a solid conclusion to our fiscal 2024 performance. The rolling inventory corrections we experienced over the past year in nearly every one of our end markets are now largely behind us and some markets like smartphones are starting to return, while new markets like AI are emerging. We expect seasonal growth in the September quarter primarily driven by PCs, smartphones, wearables, and gaming. Looking to the next cycle, we are poised for growth, bolstered by advanced technology, a diversified product portfolio addressing a broadening array of end markets, and a premier customer base across all business lines. Power management underpins key trends such as AI, digitalization, connectivity, and electrification, especially as we move towards a sustainable, low carbon society. We are steadfast in executing our technology roadmap. Customers increasingly view us as a total solutions provider, allowing us to capture a greater portion of the bill-of-materials, and ultimately supporting growth that outpaces the industry over the long run. With that, I will now turn the call over to Yifan for a discussion of our fiscal fourth quarter and fiscal year financial results and our outlook for the next quarter.

Yifan Liang, CFO

Thank you, Stephen. Good afternoon, everyone and thank you for joining us. Revenue for the quarter was $161.3 million, up 7.5% sequentially and flat year-over-year. Seasonal demand was relatively broad-based in the June quarter and confirmed the inventory correction is largely complete. In terms of product mix, DMOS revenue was $102.1 million, up 8.8% sequentially and 6.7% over last year. Power IC revenue was $52.7 million, up 5.5% from the prior quarter and down 10.5% from a year ago. Assembly service and other revenue was $1.4 million, as compared to $1.2 million last quarter and $0.6 million for the same quarter last year. License and engineering service revenue was $5.1 million for the quarter versus $5.1 million in the prior quarter and $6.3 million for the same quarter a year ago. Non-GAAP gross margin was 26.4%, compared to 25.2% last quarter and 28.5% a year ago. The quarter-over-quarter increase was mainly driven by the improved factory utilization. Non-GAAP operating expenses were $39.3 million, compared to $38.9 million for the prior quarter and $39.1 million last year. The slight quarter-over-quarter increase was primarily due to higher professional fees. Non-GAAP quarterly EPS was $0.09, compared to a $0.04 loss per share last quarter and $0.19 earnings per share a year ago. Moving on to cash flow. Operating cash flow was $7.1 million, including $4.5 million of repayment of customer deposits. By comparison, operating cash flow was $28.2 million in the prior quarter and negative $28.2 million last year. We expect to refund about $8.4 million in customer deposits in the September quarter. EBITDAS for the quarter was $16 million, compared to $11.6 million last quarter and $17.7 million for the same quarter a year ago. Now let me turn to our balance sheet. We completed the June quarter with a cash balance of $175.1 million, compared to $174.4 million at the end of last quarter. Net trade receivables decreased by $0.7 million sequentially. Days sales outstanding were 12 days for the quarter, compared to 15 days for the prior quarter. Net inventory decreased by $2.3 million quarter-over-quarter. Average days in inventory were 148 days, compared to 153 days in the last quarter. CapEx for the quarter was $7.2 million, compared to $7.4 million for the prior quarter. We expect CapEx for the September quarter to range from $6 million to $8 million. Now, I would like to discuss September quarter guidance. We expect revenue to be approximately $180 million, plus or minus $10 million. GAAP gross margin to be 25%, plus or minus 1%. We anticipate the non-GAAP gross margin to be 26.4%, plus or minus 1%. GAAP operating expenses to be in the range of $47 million, plus or minus $1 million. Non-GAAP operating expenses are expected to be in the range of $40 million, plus or minus $1 million. Interest expense to be approximately equal to interest income, and income tax expense to be in the range of $0.9 million to $1.1 million. With that, we will now open the call for questions. Operator, please start the Q&A session.

Operator, Operator

The first question comes from David Williams with Benchmark. Please proceed.

David Williams, Analyst

Good afternoon, and congratulations on successfully navigating this volatile macro environment. You're certainly performing better than many of your peers. With that, I wanted to ask about the graphics card and some of the datacenter accelerator products and GPUs. We've previously discussed this, and I'm beginning to see revenue from these areas, but I'm trying to understand the potential magnitude over time. Is there a way to evaluate this, considering the different types of products? It would be really helpful to hear your thoughts on what your offerings might look like and where you currently stand in the qualification process. Thank you.

Stephen Chang, CEO

Sure. The entry into artificial intelligence programs builds on our experience with graphics cards. Accelerator cards are similar to graphics cards as they both use high-performance GPUs. In datacenters, the performance demands are increasing. The power solutions for both are quite similar, involving multiple power stages and driver MOSFETs surrounding the GPU. However, with accelerator cards, the scale is larger. For instance, graphics cards typically feature between 9 to 16 driver MOSFETs per GPU, while AI accelerator cards can have up to 50 power stages for the GPU. These solutions are already being shipped in our current graphics card and AI customer platforms, and we are collaborating with them to transition to a new platform that will be launched soon. We expect the AI accelerator card segment to grow faster than other areas due to our established presence in both graphics cards and the AI accelerator card market.

David Williams, Analyst

Perfect. Good color there. Thank you. And then maybe just can you talk a little bit about the multiphase controller? I know you've mentioned this last quarter, but it sounds like you're getting some nice adoption there, some good traction. Just how is that helping you, I guess, across the breadth of your markets? What is the dollar opportunity there? And then maybe what are the benefits longer term as you introduce that multiphase controller?

Stephen Chang, CEO

Sure. So our multiphase controller, we first released and deployed that for our client PC business. And you remember that we've been talking about with Intel's latest platforms that BOM content is increasing because of what they're doing with bringing back more power rails. Our solution is actually a total solution. We offer both the multiphase controller, which is new for us, in addition to the power stage. That has helped us to expand the BOM content that we can address within a PC application. This is in a notebook or in a desktop type of application. And because we have that foundation, we are working on transitioning that over to the next generation of graphics as well as AI accelerator cards. So the business I talked about before, in the past we were only shipping driver MOSFETs and in the future we're expecting to ship and be able to ship both as a total solution. So it's important for us not only to expand the BOM content within our current PC application, but it's also allowing us to step into the more advanced, you can say advanced computing, high-performance GPU area as well.

David Williams, Analyst

And then maybe one last one for me for Yifan. If you kind of think about the gross margin, you're seeing a bit of an uplift here as we kind of move through the year, which is positive, but how do you think about the margin profile? And I'm sure I've asked you this almost every quarter, but just it seems like as that mix gets better, utilization comes back. And then especially as you become a larger player in some of these, the GPU market or the accelerator market, it seems like there's some nice room for margin appreciation. Is that fair to say? And maybe how do you think about the margin trending through your FY '25? Thank you.

Yifan Liang, CFO

Sure. As you know, our September quarter's margin guidance, we guided for a flattish quarter-over-quarter. This is mainly because we expected similar quarter-over-quarter factory utilization. And we plan to consume some inventories and reduce inventory balance in the September quarter. So other factors impacting the margin, like product mix and ASP erosion that we expect they're similar to the June quarter. So overall, we expect a flattish margin quarter-over-quarter for the September quarter. So going forward, yes, I mean, I would expect and as we grow our revenue and then our product mix will continue to improve and then factory utilization will be higher. So those factors will be contributing to our margin improvement.

David Williams, Analyst

Thank you. Appreciate it.

Operator, Operator

Thank you. The next question comes from B. Riley. Please proceed.

Unidentified Analyst, Analyst

Hi. Yes, I'm actually calling in for Craig Ellis. And I was really just wanting to think about this AI datacenter ramp that's coming up in the second half. So you guys obviously have a lot of work in some very similar environments and can really pursue this, I think, with a really great angle. So with all the different configurations and approaches to building these AI datacenters, are you guys seeing different design wins across the spectrum here with all the different ways that someone can approach these systems?

Stephen Chang, CEO

Yes, our major customer has a variety of end products and is catering to different needs, whether it's for those building systems or those wanting either the complete solution or just the accelerator card. We have numerous opportunities available, but we believe the updated accelerator card will take precedence since we already have experience shipping to their older platforms. Moving forward, both the graphics and the accelerator card are expected to use a similar architecture. We anticipate seeing revenue generation from design wins related to this area before the other business segments. Simultaneously, we are also working on products for different sockets and pursuing design wins in parallel.

Unidentified Analyst, Analyst

Okay. Yes, that's great. Just to kind of follow-up on that, do you guys have any quantification as far as kind of how many design wins you're on or how many sockets you've kind of tried to pursue to design wins upon?

Stephen Chang, CEO

We don't really quantify it that way. But in general, we are seeing design wins and progress on the accelerator card. This is why we're talking about that more now because that's, we believe, is much more tangible and near-term for us, and lines up the best for us with our end customer. I do also want to mention that in addition to this business, our business with this customer, we're also working with one of their suppliers that's producing and helping to supply into, I think we mentioned on the call, their intermediate bus converters. And we also have revenue even shipping today with our medium voltage MOSFETs. So powering, this is like the power stage before it gets to the point of load. And our customer is a big supplier to the AI accelerator card, AI/graphics card maker. So we also expect to see that business continue to grow beyond this year into next year as the AI customer moves into their new platform.

David Williams, Analyst

Okay. Yes, that's really a great color. If I could just ask one last thing, kind of just thinking about how margins are going to change as your business kind of picks up into this new realm, are we going to see normalization back to kind of historic peaks at around 30-ish, or is this sort of the new normal now with 25 to 28 kind of extending forward?

Stephen Chang, CEO

Our midterm target model remains above 30% non-GAAP gross margin with a revenue goal of $1 billion. We believe that as we continue to grow, we can achieve a better product mix through incremental business, which will help us improve gross margin gradually. Additionally, this incremental business will increase our utilization in factories.

David Williams, Analyst

Okay. Thanks so much.

Stephen Chang, CEO

Thank you.

Operator, Operator

Thank you. The next question comes from the line of Jeremy Guan, Thank you. The next question comes from the line of Jeremy Kwan with Stifel. Please proceed.

Jeremy Kwan, Analyst

Yes, good afternoon. There is significant interest in the AI accelerator cards. I have a couple of questions. First, can you clarify if these are consumer cards modified for enterprise or small datacenter applications, or was this architecture specifically designed for use in AI accelerators and datacenters?

Stephen Chang, CEO

Yes, our business today is mostly the first in that. They use a similar solution for their graphics cards from their previous platform to address some of the AI needs today. But what we're looking forward to and what I'm talking about is that with the new platform that's coming out from this customer, towards the end of this year, beginning of next year, that platform is a ground-up, complete design for AI. And that portion is also addressing AI accelerator cards in that respect, this is what we're looking forward to seeing the transition for.

Jeremy Kwan, Analyst

Got it. And then with this, the new architecture platform is the socket, it sounds like there's maybe three opportunities here, and please correct me if I'm wrong. But one would be the core power, multiphase controller. The second one would be the multiple power stages. That's the 50 kind of DMOS that you've been talking about. And then the third would be this intermediate bus converter, which is at the 48-volt to like 12-volt step down power. Am I framing that correctly?

Stephen Chang, CEO

The first two opportunities are quite similar. Whether it's on an AI accelerator card or a main board, powering the GPU still relies on up to 50 power stages. So, both of these options are alike. Our end customers will have varying configurations, but ultimately, it all comes down to the point of load when powering the GPU itself. As for the intermediate bus converter using our medium voltage products, we have several other products targeting the AI sector. AOS is already well-integrated into this ecosystem, primarily because we are already involved in the graphics and computing industries, where a lot of the components are shared. To support this OEM, we are collaborating with ODMs in Asia who produce the boards and systems for this end customer, as well as working with the power supply manufacturers creating the intermediate bus converters. We are even addressing various fan manufacturers concerning thermal management. Overall, AOS is well-positioned to pursue this market, both directly with OEMs and indirectly with their suppliers.

Jeremy Kwan, Analyst

Got it. That's very helpful. And just to clarify again, is the controller, the multiphase controller a piece of this or is that focused mainly on the multiple power stages?

Stephen Chang, CEO

It has been the leader product, and especially as we move into the new platform, we are selling the total solution controller, multiphase controller, in addition to the power stage.

Jeremy Kwan, Analyst

Got it. And could you size your opportunity here just from a potential SAM, whether it's on a per GPU basis? Any insight there would be very helpful.

Stephen Chang, CEO

Sure. I'll quantify more at the board level what the content increases, and then the SAM will really depend on how fast they deploy and how many models they extend our solutions to. But as I mentioned before, in a graphics card, you use anywhere from 9 to 16 of these on a board, this number can go up to 50, powering each GPU. So it really just depends on the performance requirements of the card that it's going into. So, on a whole, tripling at least per GPU, and then just based on configuration, that's how much the opportunity can increase.

Jeremy Kwan, Analyst

And how about the intermediate bus converter opportunity as well as the controller opportunity?

Stephen Chang, CEO

The controller is involved in that. Typically, one controller works with those power stages or multiple controllers work together with them. In our module solution, we are selling medium voltage MOSFETs for this purpose. I don't want to specify a dollar amount, but it's becoming significant enough for us to discuss in each of the segment reports.

Jeremy Kwan, Analyst

Got it. Very good. And just switching gears a little bit to the license and engineering. Is this from the license payment that you're receiving? I believe there was maybe $20 million left a couple quarters ago. Can you just give us an update on how much license payments you're still to receive and how much of this was engineering versus licensing? Thank you.

Stephen Chang, CEO

Sure. I mean, this contract is up to early 2025, so we still have like a couple of quarters to go. So that's the length of this agreement. This agreement in total is for a 24-month period. And is the payment on a pretty consistent quarterly basis? No. Actually, some tie to the products, once we qualify it, fully verified by our customer, and some portion is paid for our engineering services, which is based on an annual basis, like every 12 months they will pay.

Jeremy Kwan, Analyst

Got it. And is this figure included in the operating cash flow? Or is that kind of a different thing?

Stephen Chang, CEO

Yes, yes, yes that's in there. That's part of initially when we received the payment, we record it as deferred revenue. Because the revenue recognition is based on the engineering hours that we spend relative to the total estimated engineering hours. So that's kind of varying each quarter. So we recognize revenue from our deferred revenue.

Jeremy Kwan, Analyst

Great. Thank you. I'll get back in the queue. Thank you very much.

Stephen Chang, CEO

Thank you.

Yifan Liang, CFO

Thanks.

Operator, Operator

Thank you. There are no additional questions left at this time. I will now hand it back to the management team for closing remarks.

Steven Pelayo, Investor Relations Representative

Okay. Steven Pelayo here. Before we conclude, I’d like to briefly mention four upcoming events. The management team will be participating in and will be available for one-on-one meetings at the 5th Annual Needham Semiconductor and Semicap Conference on August 21 virtually, the 2024 Evercore ISI Semiconductor, IT Hardware & Networking Conference on August 27 in Chicago, the Jefferies Semiconductor, IT Hardware & Communication Tech. Summit on August 28 in Chicago, and the 2024 Benchmark Tech, Media & Telecom Conference on September 4 in New York. If you wish to request a meeting, please contact the institutional sales representative at each sponsoring bank. This concludes our earnings call today. Thank you for your interest in AOS and we look forward to talking to you again next quarter.

Stephen Chang, CEO

Thank you very much.

Yifan Liang, CFO

Thank you.

Operator, Operator

That concludes today's conference call. Thank you. You may now disconnect your line.