Alpha and Omega Semiconductor Reports Financial Results for Fiscal Fourth Quarter and Fiscal Year Ended June 30, 2020

SUNNYVALE, Calif.--(BUSINESS WIRE)--August 11, 2020--Alpha and Omega Semiconductor Limited (“AOS”) (NASDAQ: AOSL), today reported financial results for the fiscal fourth quarter and the fiscal year ended June 30, 2020.

The results for the fiscal fourth quarter of 2020 ended June 30, 2020 were as follows:

GAAP Financial Comparison
Quarterly
(in millions, except percentage and per share data)
(unaudited)
	Three Months Ended
	June 30, 2020			March 31, 2020			June 30, 2019
Revenue	$	122.4		$	106.9		$	111.9
Gross Margin	23.6		%	21.0		%	24.7		%
Operating Loss	$	(1.3	)	$	(8.6	)	$	(1.0	)
Net Income (Loss) Attributable to AOS	$	(0.1	)	$	(6.5	)	$	2.5
Net Income (Loss) Per Share Attributable to AOS - Diluted	$	0.00		$	(0.26	)	$	0.10

Non-GAAP Financial Comparison
Quarterly
(in millions, except percentage and per share data)
(unaudited)
	Three Months Ended
	June 30, 2020			March 31, 2020			June 30, 2019
Revenue	$	122.4		$	106.9		$	111.9
Non-GAAP Gross Margin	27.5		%	27.5		%	27.4		%
Non-GAAP Operating Income	$	8.4		$	3.5		$	8.0
Non-GAAP Net Income Attributable to AOS	$	7.4		$	2.9		$	8.8
Non-GAAP Net Income Per Share Attributable to AOS - Diluted	$	0.29		$	0.11		$	0.35

The non-GAAP financial measures in the schedule above exclude the effect of share-based compensation expenses and production ramp up costs in each of the periods presented; pre-production expenses relating to the Chongqing Joint Venture (the "JV Company") for the quarter ended June 30, 2019; impairment of privately-held investment for the quarter ended March 31, 2020; and legal costs related to government investigation for the quarters ended June 30, 2020 and March 31, 2020. A detailed reconciliation of GAAP and non-GAAP financial measures is included at the end of this press release.

The results for the fiscal year ended June 30, 2020 were as follows:

GAAP Financial Comparison
Annually
(in millions, except percentage and per share data)
(unaudited)
	Year Ended June 30,
	2020			2019
Revenue	$	464.9		$	450.9
Gross Margin	22.1		%	25.6		%
Operating Loss	$	(13.9	)	$	(7.0	)
Net Income (Loss) Attributable to AOS	$	(6.6	)	$	1.9
Net Income (Loss) Per Share attributable to AOS - Diluted	$	(0.27	)	$	0.08

Non-GAAP Financial Comparison
Annually
(in millions, except percentage and per share data)
(unaudited)
	Year Ended June 30,
	2020			2019
Revenue	$	464.9		$	450.9
Non-GAAP Gross Margin	27.9		%	28.4		%
Non-GAAP Operating Income	$	27.3		$	32.6
Non-GAAP Net Income Attributable to AOS	$	22.5		$	30.3
Non-GAAP Net Income Per Share Attributable to AOS - Diluted	$	0.88		$	1.23

The non-GAAP financial measures in the schedule above exclude the effect of share-based compensation expenses, pre-production expenses relating to the JV Company, and production ramp up costs for fiscal years ended June 30, 2020 and 2019, as well as legal costs related to government investigation and impairment of privately-held investment for fiscal year ended June 30, 2020. A detailed reconciliation of GAAP and non-GAAP financial measures is included at the end of this press release.

Financial Results for Fiscal Q4 Ended June 30, 2020

Revenue was $122.4 million, an increase of 14.5% quarter-over-quarter and an increase of 9.4% from the same quarter last year.
GAAP gross margin was 23.6%, up from 21.0% in the prior quarter and down from 24.7% year-over-year.
Non-GAAP gross margin was 27.5%, same as 27.5% in the prior quarter and up from 27.4% from the same quarter last year.
GAAP operating expenses were $30.3 million, down from $31.1 million in the prior quarter and up from $28.6 million from the same quarter last year.
Non-GAAP operating expenses were $25.3 million, a decrease of $0.5 million from last quarter and an increase of $2.7 million from the same quarter last year.
GAAP operating loss was $1.3 million, as compared to a loss of $8.6 million in the prior quarter and a loss of $1.0 million from the same quarter last year.
Non-GAAP operating income was $8.4 million as compared to $3.5 million for the prior quarter and $8.0 million for the same quarter last year.
GAAP net loss per share attributable to AOS was $0.00, compared to net loss per share of $0.26 for the prior quarter and $0.10 earnings per share for the same quarter last year.
Non-GAAP earnings per share attributable to AOS was $0.29, compared to $0.11 for the prior quarter and $0.35 for the same quarter last year.
Consolidated cash flow provided by operating activities was $40.3 million, compared to $14.3 million in prior quarter. Operating cash flow provided by AOS alone (excluding the JV Company) was $20.2 million, compared to $29.5 million in the prior quarter.
The Company closed the quarter with $158.5 million of cash and cash equivalents, including $48.2 million cash balance at the JV Company.

AOS Chairman and Chief Executive Officer Dr. Mike Chang commented: “Society faced unprecedented challenges over the past six months due to the COVID-19 pandemic and resulting economic recession. AOS has weathered the storm so far by achieving another increase in quarterly revenue and solid profitability. This demonstrates the resilience of our business model and the value of our unique company culture. Foremost, we implemented protective measures to ensure the health and safety of our employees, and adjusted our operations to continue serving effectively our customers and business partners. Our response enabled us to fully support our customers as their production plans changed to meet shifting consumer demand. We are succeeding in our strategy of deepening partnerships with our customers, thus driving closer engagement in the form of more design wins and increased AOS content per customer product.”

Chang continued, “We are pleased with our strong fiscal fourth quarter results, which reflects the value of our balanced business model that enabled us to achieve both sales growth and expense control. These results capped a solid fiscal year, creating a foundation for more success ahead. Having said that, we are still operating cautiously in a highly uncertain environment, and we will continue to be nimble, responsive, and as prepared as possible for any unforeseen challenges.”

Business Outlook for Fiscal Q1 Ending September 30, 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.

Revenue is expected to be in the range of $134 million to $138 million.
Gross margin is expected to be 26.0% plus or minus 1%. Non-GAAP gross margin is expected to be 27.7% plus or minus 1%. Note that non-GAAP gross margin excludes $0.4 million of estimated share-based compensation charges and $2.0 million of estimated production ramp-up costs relating to the JV Company.
GAAP operating expenses are expected to be in the range of $32.8 million plus or minus $1 million. Non-GAAP operating expenses are expected to be in the range of $27.8 million plus or minus $1 million. Both GAAP and non-GAAP operating expenses include $3.2 million to $3.5 million of estimated expenses relating to the development of our digital power business. Non-GAAP operating expenses exclude $2.5 million of estimated legal expenses related to the government investigation and $2.5 million of estimated share-based compensation charges.
Tax expense is expected to be $0.5 million to $0.7 million.
Loss attributable to noncontrolling interest is expected to be around $1.2 million. On a non-GAAP basis, excluding estimated production ramp-up costs related to the JV Company, this item is expected to be approximately $0.2 million.

Conference Call and Webcast

AOS plans to hold an investor teleconference and live webcast to discuss the financial results for the fiscal fourth quarter and the fiscal year ended June 30, 2020 today, August 11, 2020 at 2:00 p.m. PT / 5:00 p.m. ET. To participate in the live call, register in advance to join the conference call using the link provided below and dial in 10 minutes before the call is scheduled to begin. Conference call access information will be provided upon registration (Participant Online Registration: http://www.directeventreg.com/registration/event/3592646). 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, expected increase of demand in PC and gaming markets, our responses to the COVID-19 pandemic and related economic trends, the ability to expand our sales and market share, increase our capacity and achieve sustained growth and profitability, our ability to support our customers, our ability to provide power solutions and reliable supply chains, and other information under the section entitled “Business Outlook for Fiscal Q1 Ending September 30, 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, the impact of COVID-19 pandemic on our business; 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; changes in regulatory environment and government investigation; 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, 2020 to be filed by AOS with the SEC and other periodic reports we filed with the SEC. 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), diluted earnings per share ("EPS") and EBITDAS. These supplemental measures exclude, among other items, share-based compensation expenses, production ramp up costs and pre-production expenses related to the JV Company, as well as legal costs related to government investigation and impairment of privately-held investment. 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 production ramp-up costs relating to our JV Company, estimated share-based compensation expenses and legal costs related to the government investigation. We believe that these historical and forecast non-GAAP financial measures 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 such non-GAAP financial measures 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. In addition, we included amount of income tax effect of non-GAAP adjustments in the non-GAAP net income of reconciliation table for all periods presented as the management believes that such non-GAAP presentation provides useful information to investors, even though the amounts are not significant. 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, graphic cards, flat-panel TVs, home appliances, 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									Fiscal Year Ended
	June 30, 2020			March 31, 2020			June 30, 2019			June 30, 2020			June 30, 2019

Revenue	$	122,395		$	106,852		$	111,856		$	464,909		$	450,920
Cost of goods sold	93,461			84,393			84,220			362,178			335,542
Gross profit	28,934			22,459			27,636			102,731			115,378
Gross margin	23.6		%	21.0		%	24.7		%	22.1		%	25.6		%

Operating expenses:
Research and development	13,168			13,569			11,030			51,252			46,431
Selling, general and administrative	17,093			16,909			17,564			64,816			75,967
Impairment of privately-held investment	—			600			—			600			—
Total operating expenses	30,261			31,078			28,594			116,668			122,398
Operating loss	(1,327		)	(8,619		)	(958		)	(13,937		)	(7,020		)

Interest expense and other income (loss), net	(228		)	(2,282		)	(1,907		)	(3,972		)	(6,362		)
Loss before income taxes	(1,555		)	(10,901		)	(2,865		)	(17,909		)	(13,382		)

Income tax expense (income)	385			(1,015		)	(630		)	348			1,256
Net loss including noncontrolling interest	(1,940		)	(9,886		)	(2,235		)	(18,257		)	(14,638		)
Net loss attributable to noncontrolling interest	(1,835		)	(3,391		)	(4,780		)	(11,661		)	(16,499		)
Net income (loss) attributable to Alpha and Omega Semiconductor Limited	$	(105	)	$	(6,495	)	$	2,545		$	(6,596	)	$	1,861

Net income (loss) per common share attributable to Alpha and Omega Semiconductor Limited
Basic	$	0.00		$	(0.26	)	$	0.10		$	(0.27	)	$	0.08
Diluted	$	0.00		$	(0.26	)	$	0.10		$	(0.27	)	$	0.08

Weighted average number of common share attributable to Alpha and Omega Semiconductor Limited used to compute net income (loss) per share:
Basic	25,227			24,894			24,438			24,840			24,063
Diluted	25,227			24,894			24,996			24,840			24,698

Alpha and Omega Semiconductor Limited
Condensed Consolidated Balance Sheets
(in thousands, except par value per share)
(unaudited)
	June 30, 2020			June 30, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	158,536		$	121,893
Restricted cash	2,190			364
Accounts receivable, net	13,272			24,296
Inventories	135,528			111,643
Other current assets	8,807			37,102
Total current assets	318,333			295,298
Property, plant and equipment, net	412,340			409,737
Operating lease right-of-use assets, net	32,948			—
Intangible assets, net	16,770			16,882
Deferred income tax assets	4,766			4,822
Restricted cash - long-term	1,978			2,038
Other long-term assets	5,804			10,617
Total assets	$	792,939		$	739,394
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	86,181		$	94,384
Accrued liabilities	54,986			44,075
Income taxes payable	1,360			1,541
Short-term debt	30,114			26,609
Finance lease liabilities	15,258			11,355
Operating lease liabilities	4,159			—
Total current liabilities	192,058			177,964
Long-term debt	99,775			59,380
Income taxes payable - long-term	903			993
Deferred income tax liabilities	496			466
Finance lease liabilities - long-term	26,842			43,381
Operating lease liabilities - long-term	30,254			—
Other long-term liabilities	10,723			13,921
Total liabilities	361,051			296,105
Equity:
Preferred shares, par value $0.002 per share:
Authorized: 10,000 shares; issued and outstanding: none at June 30, 2020 and 2019	—			—
Common shares, par value $0.002 per share:
Authorized: 100,000 shares; issued and outstanding: 31,944 shares and 25,305 shares, respectively at June 30, 2020 and 31,163 shares and 24,517 shares, respectively at June 30, 2019	64			62
Treasury shares at cost; 6,639 shares at June 30, 2020 and 6,646 shares at June 30, 2019	(66,184		)	(66,240		)
Additional paid-in capital	246,103			234,410
Accumulated other comprehensive loss	(5,127		)	(2,693		)
Retained earnings	118,833			125,485
Total Alpha and Omega Semiconductor Limited shareholders’ equity	293,689			291,024
Noncontrolling interest	138,199			152,265
Total equity	431,888			443,289
Total liabilities and equity	$	792,939		$	739,394

Supplemental disclosures of financial information:
(in thousands)

	As of June 30, 2020							As of June 30, 2019
	AOS		CQJV			Consolidated		AOS		CQJV			Consolidated
Cash and cash equivalents	$	110,346	$	48,190		$	158,536	$	100,733	$	21,160		$	121,893
Bank borrowings liabilities	$	32,708	$	140,652	*	$	173,360	$	41,048	$	99,865	*	$	140,913
Inventory	$	97,593	$	37,935		$	135,528	$	93,852	$	17,791		$	111,643
Property, plant and equipment, net	$	162,833	$	249,507		$	412,340	$	148,497	$	261,240		$	409,737
Total assets	$	383,252	$	409,687		$	792,939	$	375,004	$	364,390		$	739,394
Total equity	$	341,973	$	89,915		$	431,888	$	325,240	$	118,049		$	443,289

* AOS is not a guarantor of CQJV's (Chongqing Joint Venture) debts.

	Three Months Ended June 30, 2020							Three Months Ended March 31, 2020								Three Months Ended June 30, 2019
	AOS		CQJV			Consolidated		AOS		CQJV				Consolidated		AOS		CQJV				Consolidated
Net cash provided by (used in) operating activities	$	20,167	$	20,125		$	40,292	$	29,545	$	(15,233	)		$	14,312	$	15,195	$	(6,930	)		$	8,265
Purchase of property and equipment, net of government grant	$	8,972	$	4,222		$	13,194	$	13,063	$	3,720			$	16,783	$	4,600	$	17,540			$	22,140
EBITDAS	$	11,979	$	1,078	**	$	14,892	$	6,487	$	(1,095	)	**	$	8,783	$	15,076	$	(5,625	)	**	$	14,231

	Year Ended June 30, 2020								Year Ended June 30, 2019
	AOS		CQJV				Consolidated		AOS		CQJV				Consolidated
Net cash provided by (used in) operating activities	$	57,957	$	4,358			$	62,315	$	65,287	$	(33,866	)		$	31,421
Purchase of property and equipment	$	42,389	$	20,009			$	62,398	$	36,002	$	76,049			$	112,051
EBITDAS	$	44,817	$	(4,439	)	**	$	52,039	$	61,012	$	(22,522	)	**	$	54,989

** 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									Fiscal Year Ended
	June 30, 2020			March 31, 2020			June 30, 2019			June 30, 2020			June 30, 2019

GAAP gross profit	$	28,934		$	22,459		$	27,636		$	102,731		$	115,378
Share-based compensation	333			357			431			1,530			1,963
Production ramp up costs related to joint venture	4,432			6,552			2,587			25,461			10,570
Non-GAAP gross profit	$	33,699		$	29,368		$	30,654		$	129,722		$	127,911
Non-GAAP gross margin as a % of revenue	27.5		%	27.5		%	27.4		%	27.9		%	28.4		%

GAAP operating loss	$	(1,327	)	$	(8,619	)	$	(958	)	$	(13,937	)	$	(7,020	)
Share-based compensation	2,722			2,876			2,518			10,454			13,177
Pre-production expenses related to joint venture	—			—			3,902			—			15,847
Production ramp up costs related to joint venture	4,432			6,552			2,587			25,461			10,570
Legal costs related to government investigation	2,551			2,133			—			4,684			—
Impairment of privately-held investment	—			600			—			600			—
Non-GAAP operating income	$	8,378		$	3,542		$	8,049		$	27,262		$	32,574
Non-GAAP operating margin as a % of revenue	6.8		%	3.3		%	7.2		%	5.9		%	7.2		%

GAAP net income (loss) attributable to AOS	$	(105	)	$	(6,495	)	$	2,545		$	(6,596	)	$	1,861
Share-based compensation	2,722			2,876			2,518			10,454			13,177
Pre-production expenses related to joint venture	—			—			2,413			24			9,748
Production ramp up costs related to joint venture	2,224			3,764			1,317			13,356			5,516
Legal costs related to government investigation	2,551			2,133			—			4,684			—
Impairment of privately-held investment	—			600			—			600			—
Income tax effect of non-GAAP adjustments	(4		)	0			21			(11		)	(9		)
Non-GAAP net income attributable to AOS	$	7,388		$	2,878		$	8,814		$	22,511		$	30,293
Non-GAAP net margin attributable to AOS as a % of revenue	6.0		%	2.7		%	7.9		%	4.8		%	6.7		%

GAAP net income (loss) attributable to AOS	$	(105	)	$	(6,495	)	$	2,545		$	(6,596	)	$	1,861
Share-based compensation	2,722			2,876			2,518			10,454			13,177
Amortization and depreciation	11,552			11,784			7,879			45,090			32,038
Interest expense (income), net	338			1,633			1,919			2,743			6,657
Income tax expense (income)	385			(1,015		)	(630		)	348			1,256
EBITDAS	$	14,892		$	8,783		$	14,231		$	52,039		$	54,989


GAAP diluted net income (loss) per share attributable to AOS	$	0.00		$	(0.26	)	$	0.10		$	(0.27	)	$	0.08
Share-based compensation	0.10			0.11			0.10			0.41			0.53
Pre-production expenses related to joint venture	—			—			0.10			0.00			0.40
Production ramp up costs related to joint venture	0.09			0.15			0.05			0.54			0.22
Legal costs related to government investigation	0.10			0.09			—			0.18			—
Impairment of privately-held investment	—			0.02			—			0.02			—
Income tax effect of non-GAAP adjustments	0.00			0.00			0.00			0.00			0.00
Non-GAAP diluted net income per share attributable to AOS	$	0.29		$	0.11		$	0.35		$	0.88		$	1.23


Shares used to compute GAAP diluted net income (loss) per share	25,227			24,894			24,996			24,840			24,698
Shares used to compute Non-GAAP diluted net income per share	25,895			25,889			24,996			25,627			24,698

Contacts

Investor and media inquiries:

In the United States: The Blueshirt Group
Ralph Fong
+1 (415) 489-2195
ralph@blueshirtgroup.com

In China: The Blueshirt Group Asia
Gary Dvorchak, CFA
+86 (138) 1079-1480
gary@blueshirtgroup.com

Alpha and Omega Semiconductor Limited

Prepared Remarks for the Investor Conference Call

for the Quarter and Fiscal Year Ended June 30, 2020

August 11, 2020

Gary Dvorchak (Moderator)

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor’s conference call to discuss fiscal 2020 fourth quarter and year-end financial results. I am Gary Dvorchak, 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.

Mike will begin with a review of business overview for the quarter. Then, Stephen will provide a detailed segment report. After that, Yifan will continue with a review of financial results for the quarter and fiscal year and provide guidance for the next quarter. Then, we will have the question-and-answer session.

The earnings release was distributed by business wire today, August 11, 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. We assume no obligations to update the information provided in today's call.

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Now, I’ll turn the call over to our CEO, Mike, to provide an overview of our business.

Mike Chang (Chief Executive Officer)

Before we discuss our fourth quarter results, I want to briefly address the COVID-19 situation, which continues to impact families, businesses and markets across the globe. I want to thank our employees for staying resilient and being flexible as we navigate this new working environment. Our primary focus is to ensure the safety and well-being of all our employees and their families. Meanwhile, we continue to work closely with customers to support them in every way we can during this challenging time.

Now, some key highlights of the June quarter. Solid execution enabled us to deliver results ahead of expectations. Fueled by our product strength and growing customer penetration, revenue of $122 million was up 9% year-over-year and above the high end of our guidance range. Coupled with tightly controlled operating expenses, this resulted in non-GAAP earnings per share that exceeded the consensus. Our core business generated solid operating cash flow of $20 million and free cash flow of $11 million. Yifan will provide details of our June quarter results later on the call.

The favorable financial results were driven by high demand in certain segments and solid operating execution. Shipments rebounded for our products in Computing and Gaming applications, driven by the recent shift to a “work, learn and entertain from home” environment. We also focused on our cost structure and prudently managed our expenses. We reduced non-essential spending and benefitted from travel bans, while still pursuing strategic and critical R&D projects to expand our market reach.

The strong fourth quarter capped a solid fiscal year. This is very encouraging, given the backdrop of COVID-19 pandemic, heightened trade tension between U.S. and China, and global economic uncertainty. Our results demonstrate the strength of our business strategy, diversified product portfolio and expanded customer base.

Next, I will discuss our strategic plan to further strengthen the foundation to achieve our longer-term objectives.

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First, our JV fab in Chongqing. As part of our strategic plan, we built this fab to fulfill growing customer demand. Indeed, during this quarter, the JV fab made a major contribution to capture surging demand. Even though the COVID-19 pandemic has slowed ramp-up production, we were able to make persistent progress. Importantly, these efforts allowed the JV to achieve positive EBITDAS for the June quarter. We expect to approach our target run rate by this time next year.

Second, our focused R&D is driving broader and better product innovation. As a solution provider, we are able to deepen our relationships with customers, becoming their trusted strategic partner. As such, our new products are driving growth primarily by expanding our BOM content in core applications. The design of our products--especially our Power IC solutions-- into an upcoming gaming system and a new PC graphics card demonstrates the opportunities created when we secure trust and confidence from our customers.

In looking back on the fiscal year, we are pleased with our accomplishments. The power semiconductor industry is a large market and we are making significant progress to capture opportunities and increase market share. We also recognize that conditions are still fragile. Economic conditions could change at any moment due to factors beyond our control, including the COVID-19 pandemic resurgence. Because of this, we continue to operate cautiously and take prudent actions, even as we identify and seize new opportunities.

I would like to thank our customers, business partners and shareholders for their continued support and confidence in AOS. I especially want to acknowledge our employees, as our success could not have been possible without their hard work, dedication and sacrifice in the past year.

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!

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Let me start with Computing. It represented 40.2% of our total revenue in the June quarter. Revenue was up 4.1% sequentially and flat year-over-year. While sell-in was OK, sell-through was quite dramatic. Many customers that had paused production in the first calendar quarter were catching up in the June quarter. End demand is strong, and we were able to meet it with ramping supply from our JV fab. With so many people around the world working, creating and learning from home, PCs have become even more indispensable. Because we did not shut down fully in the March quarter, we were able to meet this resurgence in demand. Going forward, we continue to optimize our production mix to satisfy the anticipated high demand for PC-related products. We are especially excited about the ramp of our high performance DrMOS and digital power solutions in some key customers’ upcoming graphics card platforms. We expect Computing revenue to be strong in the September quarter, with mid-teens sequential growth.

Now turning to the Consumer segment, it represented 22.5% of total revenue in the June quarter. Revenue increased 37.5% sequentially and was up 31.7% year-over-year. COVID-driven home-sheltering boosted sales of gaming, TVs and Home Appliances, enabling those segments to achieve healthy growth. Gaming was up significantly sequentially and is expected to grow rapidly. We have multiple sockets across multiple products—Power IC and MOSFET-- in an upcoming gaming system that is expected to launch in the second half of 2020. Looking to the September quarter, we anticipate strong double-digit growth in the Consumer segment, driven by home entertainment – gaming and TVs.

I want to note that Power IC is regaining traction. Since 2018, we re-aligned our Power IC product line by focusing on our core competencies of proprietary MOSFET technology, advanced packaging and intelligent ICs ideally suited for the application. We chose to go after high volume applications within the Computing and Consumer segments given our established MOSFET business. As a result, today, our multi-chip package products deliver the small size and high efficiency required in the latest gaming and graphics card platforms, as you can see in recent Computing and Consumer design wins.

Now let’s discuss the Power Supply and Industrial Segment. It accounted for 19.4% of total revenue, up 24.2% sequentially and up 3% year-over-year. After a pause in the March quarter, this segment rebounded in the June quarter, driven by higher demand for adapters used for PCs and gaming systems. Our AC-DC power supply business was up significantly versus the March quarter, tracking the surge in PC sales. Demand was good in medium and high voltage products. Once again, we were able to meet high voltage demand with supply from our JV fab. We expect this segment to be down somewhat in the September quarter, due to a bit softer demand for quick chargers and DC Fan.

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Finally, let’s move to the Communications segment, which was 16.2% of total revenue in the quarter, up 3% sequentially and up 16.1% year-over-year. Telecom drove the growth, although over time we expect unevenness as the 5G rollout advances. Meanwhile, the smartphone market was subdued. One large customer slowed production in the June quarter, so our battery protection line was down slightly sequentially. Looking to the September quarter, this segment appears to be resuming growth across all our core customers. We expect the Communications segment to be up single digits sequentially in the September quarter.

With that, I will now turn the call over to Yifan for a discussion of our fiscal fourth quarter financial results and our outlook.

Yifan Liang (Chief Financial Officer)

Thank you, Stephen. Good afternoon everyone and thank you for joining us.

Revenue for the June quarter was $122.4 million, up 14.5% from the prior quarter and up 9.4% from the same quarter last year.

In terms of product mix, MOSFET revenue was $100.0 million, up 11.2% sequentially and up 3.8% year-over-year. Power IC revenue was $20.3 million, up 29.2% from the prior quarter and up 47.1% from a year ago. As Stephen discussed earlier, this is a welcome reversal for our Power IC product line, the result of our focus on regaining traction with new and better solutions. Assembly service revenue was $2.1 million as compared to $1.3 million last quarter and $1.7 million for the same quarter last year.

For the fiscal year 2020, revenue was $464.9 million, up 3.1% from fiscal year 2019.

Non-GAAP gross margin for the June quarter was 27.5%, flat with the prior quarter and up slightly from 27.4% for the same quarter last year. Non-GAAP gross margin excluded $0.3 million of share-based compensation charges for the June quarter, as compared to $0.4 million for the prior quarter and for the same quarter last year. Non-GAAP gross margin also excluded $4.4 million of production ramp-up costs related to the JV Company for the June quarter, as compared to $6.6 million for the prior quarter and $2.6 million for the same quarter last year.

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For the fiscal year 2020, non-GAAP gross margin was 27.9% as compared to 28.4% for the prior year.

Non-GAAP operating expenses for the June quarter were $25.3 million, compared to $25.8 million for the prior quarter and $22.6 million for the same quarter last year. Non-GAAP operating expenses for the quarter excluded $2.4 million of share-based compensation charges and $2.6 million of legal expenses related to the government investigation. This compares to $2.5 million of share-based compensation charges, $2.1 million of legal expenses related to the investigation and $0.6 million impairment charge related to an investment in a privately held start-up company for the prior quarter, as well as $2.1 million of share-based compensation charges and $3.9 million of pre-production expenses related to the JV Company 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 $3.1 million for the prior quarter and $2.3 million for the same quarter last year. In July, we made the first shipment of our digital power product.

Non-GAAP operating expenses for the fiscal year 2020 were $102.5 million, compared to $95.3 million for the prior year. Non-GAAP operating expenses excluded $8.9 million of share-based compensation charges, $4.7 million of legal expenses related to the investigation, and $0.6 million for an impairment charge in the current fiscal year, as compared to $11.2 million of share-based compensation charges and $15.8 million of pre-production expenses related to our JV Company in the prior fiscal year.

Income tax expense for the quarter was $0.4 million, compared to a tax benefit of $1.0 million for the prior quarter and $0.6 million for the same quarter last year. The tax benefit in the prior quarter was primarily driven by relief from the CARES Act.

Income tax expense for the fiscal year was $0.3 million, compared to $1.3 million for the previous fiscal year.

Non-GAAP EPS attributable to AOS for the quarter was 29 cents per share as compared to 11 cents for the prior quarter and 35 cents for the same quarter last year.

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Non-GAAP EPS attributable to AOS for the fiscal year was $0.88 as compared to $1.23 for the prior fiscal year.

AOS continued to generate positive operating cash flow. AOS on a stand-alone basis generated $20.2 million of operating cash flow in the June quarter, as compared to $29.5 million in the prior quarter and $15.2 million in the same quarter last year. Cash flow provided by operations attributable to the JV Company was $20.1 million in the June quarter primarily due to a refund of the accumulated value-added tax paid previously. Cash flow used by the JV Company in the prior quarter and the same quarter last year was $15.2 million and $6.9 million, respectively.

Cash flow from operations attributable to AOS for the fiscal year was $58.0 million as compared to $65.3 million for the prior year. Cash flow provided by operations attributable to the JV Company was $4.4 million for the year, compared to $33.9 million of cash flow used in the prior year.

Consolidated EBITDAS for the June quarter was $14.9 million, compared to $8.8 million for the prior quarter and $14.2 million for the same quarter last year. EBITDAS attributable to AOS for the quarter was $12.0 million as compared to $6.5 million for the prior quarter and $15.1 million for the same quarter last year. The JV Company achieved its first positive quarterly EBITDAS of $1.1 million in the June quarter, as compared to negative $1.1 million for the prior quarter and negative $5.6 million for the same quarter last year.

Consolidated EBITDAS for the fiscal year was $52.0 million as compared to $55.0 million in the fiscal year 2019. EBITDAS attributable to AOS for the year was $44.8 million as compared to $61.0 million a year ago.

Now let’s look at the balance sheet.

We completed the June quarter with cash balance of $158.5 million, including $110.3 million at AOS and $48.2 million at the JV Company. This compares to $110.2 million at the end of last quarter, which included $99.5 million at AOS and $10.7 million at the JV Company. Our cash balance a year ago was $121.9 million, including $100.7 million at AOS and $21.2 million at the JV Company.

Page 7

The bank borrowing balance at the end of June was $173.4 million, including $32.7 million at AOS and $140.7 million at the JV Company. During the June quarter, the JV Company borrowed a total of $47.1 million. AOS and the JV Company repaid $2.1 million and $25.4 million of existing loans, respectively.

Net trade receivables were $13.3 million at the end of the June quarter, as compared to $17.5 million at the end of the prior quarter and $24.3 million for the same quarter last year. Days Sales Outstanding for the quarter were 18 days, compared to 22 days in the prior quarter.

Net inventory was $135.5 million at the quarter-end, up from $127.4 million last quarter and up from $111.6 million in the prior year. Average days in inventory was 127 days for the quarter, compared to 131 days in the prior quarter.

Net Property, Plant and Equipment was $412.3 million, flat compared to the prior quarter and up from $409.7 million last year. Capital expenditures were $13.2 million for the quarter, including $9.0 million at AOS and $4.2 million at the JV Company.

With that, now I would like to discuss the guidance for the next quarter.

We expect:

-	Revenue to be between $134 million and $138 million.

-	GAAP gross margin to be 26.0% plus or minus 1%. We anticipate non-GAAP gross margin to be 27.7% plus or minus 1%. Note that non-GAAP gross margin excludes $0.4 million of estimated share-based compensation charges and $2.0 million of estimated production ramp-up costs relating to the JV Company.

GAAP operating expenses to be in the range of $32.8 million plus or minus $1 million. Non-GAAP operating expenses are expected to be in the range of $27.8 million plus or minus $1 million. Both GAAP and non-GAAP operating expenses include $3.2 million to $3.5 million of estimated expenses related to the development of our digital power business. Non-GAAP operating expenses exclude $2.5 of estimated legal expenses related to the government investigation and $2.5 million of estimated share-based compensation charges.

-	Income tax expense to be approximately $0.5 million to $0.7 million.

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-	Loss attributable to non-controlling interests to be around $1.2 million. On a non-GAAP basis, excluding estimated production ramp-up costs relating to the JV company, this item is expected to be approximately $0.2 million.

As part of our normal practice, we are not obliged to update this information.

With that, we will open the call for questions. Operator, please start the Q&A session.

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.

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 and impact of COVID-19 pandemic on market demand; expectation with respect to ramp up activities and Phase 1 target run rate at the Chongqing Joint Venture and timeline for production and operation; our ability and strategy to develop new products; projected mid-term annual revenue target; our ability to obtain debt financing and working capital loans; expectation with respect to our digital power business; seasonality fluctuation in customer demand and market segments; 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, the impact of COVID-19 pandemic on our business operation; 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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Document and Entity Information

Aug. 11, 2020

Cover [Abstract]

Document Type

8-K

Amendment Flag

false

Document Period End Date

Aug. 11, 2020

Entity Registrant Name

Alpha and Omega Semiconductor Limited

Entity Incorporation, State or Country Code