8-K

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):  May 4, 2023

Alpha and Omega Semiconductor Limited

(Exact name of registrant as specified in its charter)

Bermuda	001-34717	77-0553536
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

Clarendon House

2 Church Street

Hamilton HM 11

Bermuda

(Address of principal registered 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 exhibit, 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 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 May 4, 2023, Alpha and Omega Semiconductor Limited (the “Company”) issued a press release regarding its financial results for the fiscal third quarter of 2023 ended March 31, 2023.  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 May 4, 2023

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: May 4, 2023

Alpha and Omega Semiconductor Limited
By:	/s/    Yifan Liang
Name:	Yifan Liang
Title:	Chief Financial Officer and Corporate Secretary

EX-99.1

Exhibit 99.1

Alpha and Omega Semiconductor Reports Financial Results for the Fiscal Third Quarter of 2023 Ended March 31, 2023

SUNNYVALE, Calif.--(BUSINESS WIRE)--May 4, 2023--Alpha and Omega Semiconductor Limited (“AOS”) (NASDAQ: AOSL) today reported financial results for the fiscal third quarter of 2023 ended March 31, 2023.

The results for the fiscal third quarter of 2023 ended March 31, 2023 were as follows:

GAAP Financial Comparison
Quarterly
(in millions, except percentage and per share data)
(unaudited)
	Three Months Ended
	March 31, 2023			December 31, 2022			March 31, 2022
Revenue	$	132.6		$	188.8		$	203.2
Gross Margin		23.2	%		28.1	%		35.6	%
Operating Income (Loss)	$	(14.4	)	$	8.8		$	31.2
Net Income (Loss)	$	(18.9	)	$	6.3		$	31.7
Net Income (Loss) Per Share - Diluted	$	(0.68	)	$	0.21		$	1.11

Non-GAAP Financial Comparison
Quarterly
(in millions, except percentage and per share data)
(unaudited)
	Three Months Ended
	March 31, 2023			December 31, 2022			March 31, 2022
Revenue	$	132.6		$	188.8		$	203.2
Non-GAAP Gross Margin		25.1	%		29.5	%		36.7	%
Non-GAAP Operating Income (Loss)	$	(2.9	)	$	22.8		$	40.5
Non-GAAP Net Income (loss)	$	(5.9	)	$	20.0		$	38.2
Non-GAAP Net Income (Loss) Per Share - Diluted	$	(0.21	)	$	0.67		$	1.34

The non-GAAP financial measures in the schedule above and under the section “Financial Results for Fiscal Q3 Ended March 31, 2023” below exclude the effect of share-based compensation expenses, amortization of purchased intangible, legal costs related to government investigation, equity method investment (income) loss from equity investee, and income tax effect of non-GAAP adjustments in each of the periods presented, and gain on deconsolidation and changes of the equity interest in the JV Company for the three and nine months ended March 31, 2022. A detailed reconciliation of GAAP and non-GAAP financial measures is included at the end of this press release.

Financial Results for Fiscal Q3 Ended March 31, 2023

• Revenue was $132.6 million, a decrease of 29.8% from the prior quarter and a decrease of 34.8% from the same quarter last year.
• GAAP gross margin was 23.2%, down from 28.1% in the prior quarter and down from 35.6% in the same quarter last year.
• Non-GAAP gross margin was 25.1%, down from 29.5% in the prior quarter and down from 36.7% in the same quarter last year.
• GAAP operating expenses were $45.2 million, up from $44.3 million in the prior quarter and up from $41.2 million in the same quarter last year.
• Non-GAAP operating expenses were $36.2 million, up from $32.8 million from last quarter and up from $34.0 million in the same quarter last year.
• GAAP operating loss was $14.4 million, down from $8.8 million of operating income in the prior quarter and down from $31.2 million of operating income in the same quarter last year.
• Non-GAAP operating loss was $2.9 million as compared to $22.8 million of operating income for the prior quarter and $40.5 million of operating income for the same quarter last year.
• GAAP net loss per diluted share was $0.68, compared to $0.21 net income per share for the prior quarter, and $1.11 net income per share for the same quarter a year ago.
• Non-GAAP net loss per share was $0.21 compared to $0.67 net income per share for the prior quarter and $1.34 net income per share for the same quarter a year ago.
• Consolidated cash flow provided by operating activities was $11.6 million, as compared to $0.3 million in the prior quarter.
• The Company closed the quarter with $265.9 million of cash and cash equivalents.

AOS Chief Executive Officer Stephen Chang commented, “We closed fiscal Q3 near the high-end of our revenue and gross margin guidance. Revenue was $132.6 million, non-GAAP gross margin was 25.1% and non-GAAP EPS was negative $0.21. Our performance this quarter reflect our effort to bring customer inventory levels back into balance as quickly as possible in response to the sharp industry-wide inventory correction, particularly in PC and smartphones. Broader market consumer demand continues to be weak. However, we are optimistic that the worst is behind us given the intensity of the inventory correction, coupled with our proactive measures. Looking into the rest of the year, we expect to recover a good portion of the revenue decline in the upcoming June quarter, with further improvement expected in our seasonally strongest September quarter.”

Mr. Chang concluded, “As we stated last quarter, our business is affected by the economic environment and industry cycles. However, given our strong fundamentals, leading technology, more diversified product portfolio, Tier 1 customer base in all our business segments, expanding manufacturing capability and supply chain and robust balance sheet, we are in the best position we have ever been to continue our growth momentum once this downturn is past us. We are optimistic about the future and look towards executing on the opportunities ahead of us.”

Business Outlook for Fiscal Q4 Ending June 30, 2023

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.

Our expectations for the fourth quarter of fiscal year 2023 are as follows:

• Revenue to be approximately $160 million, plus or minus $5 million.
• GAAP gross margin to be 24.0%, plus or minus 1%. We anticipate non-GAAP gross margin to be 25.8%, plus or minus 1%.
• GAAP operating expenses to be in the range of $45.5 million, plus or minus $1 million. Non-GAAP operating expenses are expected to be in the range of $36.5 million, plus or minus $1 million.
• Interest expense to be approximately $1.2 million, and
• Income tax expense to be in the range of $1.3 million to $1.5 million.

Conference Call and Webcast

AOS plans to hold an investor teleconference and live webcast to discuss the financial results for the fiscal third quarter ended March 31, 2023 today, May 4, 2023 at 2:00 p.m. PT / 5:00 p.m. ET. To listen to the live conference call, please dial +1 (844) 200-6205 or +1 (929) 526-1599 if dialing from outside the United States and Canada. The access code is 358335. 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. The webcast replay will be available for seven days after the live call on the same website. 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, market trends in the semiconductor industry; our ability to mitigate economic downturns and expected recovery timeline; seasonality of our business, anticipated earnings power and non-GAAP EPS on an annual basis, our growth opportunities and new markets, our annual revenue target, projected amount of revenue, gross margin, operating income (loss), income tax expenses, net income (loss), and share-based compensation expenses, non-GAAP gross margin, non-GAAP operating expenses, income tax expenses, our objectives to achieve revenue target, our ability to continue to win and acquire market share and other information under the section entitled “Business Outlook for Fiscal Q4 Ending June 30, 2023”. 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 state of semiconductor industry and seasonality of our markets; government policies on our business operations in China; our lack of control over the joint venture in China; difficulties and challenges in executing our diversification strategy into different market segments; 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; 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, 2022 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 expenses, operating income (loss), net loss attributable to AOS, net income (loss), diluted earnings per share ("EPS") and EBITDAS. These supplemental measures exclude, among other items, share-based compensation expenses, legal and profession fees related to government investigation, amortization of purchased intangible, income tax effect of non-GAAP adjustments, equity method investment loss (income) from equity investee, and gain on deconsolidation and changes of the equity interest in the JV Company. We also disclose certain non-GAAP financial measures in our guidance for the next quarter, including non-GAAP gross margin and operating expenses. 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 the amount of income tax effect of non-GAAP adjustments in the non-GAAP net income (loss) 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 technologies, 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, quick chargers, home appliances, 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 condensed 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									Nine Months Ended
	March 31, 2023			December 31, 2022			March 31, 2022			March 31, 2023			March 31, 2022
Revenue	$	132,560		$	188,760		$	203,239		$	529,796		$	583,593
Cost of goods sold		101,774			135,719			130,837			374,841			378,259
Gross profit		30,786			53,041			72,402			154,955			205,334
Gross margin		23.2	%		28.1	%		35.6	%		29.2	%		35.2	%
Operating expenses:
Research and development		22,578			21,468			16,545			65,435			50,873
Selling, general and administrative		22,610			22,788			24,625			69,603			70,563
Total operating expenses		45,188			44,256			41,170			135,038			121,436
Operating income (loss)		(14,402	)		8,785			31,232			19,917			83,898
Other income (loss), net		(513	)		(903	)		263			(1,432	)		720
Interest income (expense), net		5			(397	)		(308	)		(1,000	)		(3,025	)
Gain on deconsolidation of the JV Company		—			—			—			—			399,093
Gain (loss) on changes of equity interest in the JV Company, net		—			—			4,501			—			(3,140	)
Net income (loss) before income taxes		(14,910	)		7,485			35,688			17,485			477,546
Income tax expense		2,517			1,659			2,902			5,550			38,318
Net income (loss) before income (loss) from equity method investment		(17,427	)		5,826			32,786			11,935			439,228
Equity method investment income (loss) from equity investee		(1,480	)		511			(1,136	)		1,533			(1,136	)
Net income (loss)		(18,907	)		6,337			31,650			13,468			438,092
Net loss attributable to noncontrolling interest		—			—			—			—			20
Net income (loss) attributable to Alpha and Omega Semiconductor Limited	$	(18,907	)	$	6,337		$	31,650		$	13,468		$	438,072
Net income (loss) per common share attributable to Alpha and Omega Semiconductor Limited
Basic	$	(0.68	)	$	0.23		$	1.18		$	0.49		$	16.47
Diluted	$	(0.68	)	$	0.21		$	1.11		$	0.46		$	15.58
Weighted average number of common shares attributable to Alpha and Omega Semiconductor Limited used to compute net income (loss) per share
Basic		27,710			27,511			26,829			27,537			26,596
Diluted		27,710			29,576			28,423			29,576			28,116

Alpha and Omega Semiconductor Limited
Condensed Consolidated Balance Sheets
(in thousands, except par value per share)
(unaudited)
	March 31, 2023			June 30, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	265,946		$	314,352
Restricted cash		218			299
Accounts receivable, net		19,434			65,681
Inventories		179,783			158,040
Other current assets		9,969			11,220
Total current assets		475,350			549,592
Property, plant and equipment, net		358,157			318,666
Operating lease right-of-use assets		22,962			23,674
Intangible assets, net		7,577			10,050
Equity method investment		368,042			378,378
Deferred income tax assets		561			592
Other long-term assets		20,658			17,677
Total assets	$	1,253,307		$	1,298,629
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	54,689		$	87,377
Accrued liabilities		90,029			116,893
Payable related to equity investee, net		18,393			28,989
Income taxes payable		6,651			4,248
Short-term debt		24,877			25,563
Deferred revenue		14,370			—
Finance lease liabilities		851			802
Operating lease liabilities		4,457			3,850
Total current liabilities		214,317			267,722
Long-term debt		41,237			42,486
Income taxes payable - long-term		2,261			2,158
Deferred income tax liabilities		27,764			28,757
Finance lease liabilities - long-term		3,439			3,932
Operating lease liabilities - long-term		19,332			20,878
Other long-term liabilities		57,699			78,603
Total liabilities		366,049			444,536
Equity:
Preferred shares, par value $0.002 per share:
Authorized: 10,000 shares; issued and outstanding: none at March 31, 2023 and June 30, 2022		—			—
Common shares, par value $0.002 per share:
Authorized: 100,000 shares; issued and outstanding: 34,575 shares and 27,858 shares, respectively at March 31, 2023 and 33,988 shares and 27,371 shares, respectively at June 30, 2022		69			68
Treasury shares at cost: 6,717 shares at March 31, 2023 and 6,617 shares at June 30, 2022		(68,605	)		(66,000	)
Additional paid-in capital		321,548			288,951
Accumulated other comprehensive income (loss)		(9,156	)		1,080
Retained earnings		643,402			629,994
Total equity		887,258			854,093
Total liabilities and equity	$	1,253,307		$	1,298,629

Alpha and Omega Semiconductor Limited
Selected Cash Flow Information
( in thousands, unaudited)
	Nine Months Ended March 31,
	2023			2022
Net cash provided by operating activities	$	48,654		$	193,196
Net cash used in investing activities		(90,603	)		(91,142	)
Net cash provided by (used in) financing activities		(6,417	)		16,351
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(121	)		152
Net increase (decrease) in cash, cash equivalents and restricted cash		(48,487	)		118,557
Cash, cash equivalents and restricted cash at beginning of period		314,651			204,813
Cash, cash equivalents and restricted cash at end of period	$	266,164		$	323,370

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									Nine Months Ended
	March 31, 2023			December 31, 2022			March 31, 2022			March 31, 2023			March 31, 2022
GAAP gross profit	$	30,786		$	53,041		$	72,402		$	154,955		$	205,334
Share-based compensation		1,723			1,748			1,282			5,259			3,560
Amortization of purchased intangible		812			811			812			2,435			2,435
Non-GAAP gross profit	$	33,321		$	55,600		$	74,496		$	162,649		$	211,329
Non-GAAP gross margin as a % of revenue		25.1	%		29.5	%		36.7	%		30.7	%		36.2	%
GAAP operating expense	$	45,188		$	44,256		$	41,170		$	135,038		$	121,436
Share-based compensation		8,709			11,343			6,990			28,860			17,894
Legal costs related to government investigation		304			110			221			556			946
Non-GAAP operating expense	$	36,175		$	32,803		$	33,959		$	105,622		$	102,596
GAAP operating income (loss)	$	(14,402	)	$	8,785		$	31,232		$	19,917		$	83,898
Share-based compensation		10,432			13,091			8,272			34,119			21,454
Amortization of purchased intangible		812			811			812			2,435			2,435
Legal costs related to government investigation		304			110			221			556			946
Non-GAAP operating income (loss)	$	(2,854	)	$	22,797		$	40,537		$	57,027		$	108,733
Non-GAAP operating margin as a % of revenue		(2.2	)%		12.1	%		19.9	%		10.8	%		18.6	%
GAAP net income (loss) attributable to AOS	$	(18,907	)	$	6,337		$	31,650		$	13,468		$	438,072
Share-based compensation		10,432			13,091			8,272			34,119			21,454
Amortization of purchased intangible		812			811			812			2,435			2,435
Gain on deconsolidation and changes of the equity interest in the JV Company		—			—			(4,501	)		—			(395,953	)
Equity method investment (income) loss from equity investee		1,480			(511	)		1,136			(1,533	)		1,136
Legal costs related to government investigation		304			110			221			556			946
Income tax effect of non-GAAP adjustments		3			122			630			244			33,431
Non-GAAP net income (loss) attributable to AOS	$	(5,876	)	$	19,960		$	38,220		$	49,289		$	101,521
Non-GAAP net margin attributable to AOS as a % of revenue		(4.4	)%		10.6	%		18.8	%		9.3	%		17.4	%
GAAP net income (loss) attributable to AOS	$	(18,907	)	$	6,337		$	31,650		$	13,468		$	438,072
Share-based compensation		10,432			13,091			8,272			34,119			21,454
Amortization and depreciation		11,006			10,804			8,603			31,162			34,263
Gain on deconsolidation and changes of the equity interest in the JV Company		—			—			(4,501	)		—			(395,953	)
Equity method investment (income) loss from equity investee		1,480			(511	)		1,136			(1,533	)		1,136
Interest expense (income), net		(5	)		397			308			1,000			3,025
Income tax expense		2,517			1,659			2,902			5,550			38,318
EBITDAS	$	6,523		$	31,777		$	48,370		$	83,766		$	140,315
GAAP diluted net income (loss) per share attributable to AOS	$	(0.68	)	$	0.21		$	1.11		$	0.46		$	15.58
Share-based compensation		0.38			0.44			0.29			1.15			0.76
Amortization of purchased intangible		0.03			0.03			0.03			0.08			0.09
Gain on deconsolidation and changes of the equity interest in the JV Company		—			—			(0.16	)		—			(14.08	)
Equity method investment (income) loss from equity investee		0.05			(0.02	)		0.04			(0.05	)		0.04
Legal costs related to government investigation		0.01			0.00			0.01			0.02			0.03
Income tax effect of non-GAAP adjustments		0.00			0.01			0.02			0.01			1.19
Non-GAAP diluted net income (loss) per share attributable to AOS	$	(0.21	)	$	0.67		$	1.34		$	1.67		$	3.61
Shares used to compute GAAP diluted net income (loss) per share		27,710			29,576			28,423			29,576			28,116
Shares used to compute Non-GAAP diluted net income (loss) per share		27,710			29,576			28,423			29,576			28,116

Contacts

Investor and media inquiries:

The Blueshirt Group
Gary Dvorchak, CFA
In US +1 323 240 5796
In China +86 (138) 1079-1480
gary@blueshirtgroup.com

Yujia Zhai
The Blueshirt Group
Yujia@blueshirtgroup.com
+1 (860) 214-0809

EX-99.2

Exhibit 99.2

Alpha and Omega Semiconductor Limited

Prepared Remarks for the Investor Conference Call

for the Quarter Ended March 31, 2023

May 4, 2023

Yujia Zhai

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor’s conference call to discuss fiscal 2023 third quarter financial results.  I am Yujia Zhai, 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 seven 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, provide strategic highlights, and a detailed segment report.  After that, Yifan will review the financial results and provide guidance for the June quarter.  Finally, we will have the Q&A session.

The earnings release was distributed over wire today, May 4, 2023, 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 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.

Now, I will turn the call over to our CEO, Stephen Chang.  Stephen?

Stephen Chang

Thank you, Yujia, and good afternoon, everyone.

I will begin today with a high-level overview of our results and then jump into segment details.

Our fiscal Q3 results were near the high-end of our revenue and gross margin guidance. Revenue was $132.6 million, non-GAAP gross margin was 25.1% and non-GAAP EPS was negative $0.21. As we indicated last quarter, our performance this quarter reflects our effort to bring customer inventory levels back into balance as quickly as possible in response to the sharp industry-wide inventory correction, particularly in PC and smartphones.

As for the broader market environment, end consumer demand continues to be weak. However, we are optimistic that the worst is behind us given the intensity of the inventory correction, coupled with our proactive measures. Looking into the rest of the year, we expect to recover a good portion of the revenue decline in the upcoming June quarter, with further improvement expected in our seasonally strongest September quarter.

In terms of our operations, our near-term focus is continuing to work with our customers through the inventory correction and preparing for peak season. We are looking forward to the upcoming fall flagship phone launches, and the holidays, all of which are big opportunities for us given our leading share with the leading OEMs in each of these end markets.

As I look to the long term, as the newly appointed CEO of AOS, I am positioning the company towards growth beyond our near-term $1 billion revenue target. Over the years, AOS has grown to be a major global power semiconductor supplier to Tier 1 players across PCs, Graphics, Gaming, Smartphones, Appliances, and Power Tools to name a few. However, we are just scratching the surface of potential opportunities in front of us. In the coming decade, the Electrification of Everything trend is set to accelerate and will shape our lives in profound ways:

● Growing concerns over climate change and the need to reduce dependence on fossil fuels will continue to drive the transition towards electric vehicles and clean energy.

● Advancement in generative AI will drive exponentially higher demand for high-performance computing data centers and spur advancements in robotics.

● Rapid progress in battery technology will likely usher in a growing array of higher-voltage portable electronics, similar to recent developments in power tools.

● Moreover, continued advancements in IoT and high-performance computing will pave the way for widespread adoption of new cutting-edge products such as smart devices for the home and work.

All of these new use cases will drive more demand for power management solutions and significantly expand the market opportunity from the $50 billion TAM today. Power semiconductors have become an essential part of our daily lives in our homes, in our workplaces, and in our communities.  AOS’ comprehensive range of products, which covers a wide voltage spectrum, positions us at the epicenter of this monumental trend that is set to transform every facet of our lives and the industries we know today. I am determined to drive AOS towards even greater success and capitalize on this exciting future and have my sights set on AOS becoming a multi-billion-dollar business by the end of this decade.

We plan to take our products deeper into our existing core markets like PCs and Smartphones with more integrated solutions and drive higher BOM content. We will leverage our core technology IP and strengths in advanced computing, battery, motor and power supply and continue to invest R&D in new adjacent markets like datacenters for AI, automotive, and energy generation.

Our supply chain strategy is another key piece of the puzzle that is critical to us reaching new heights over the coming decade. As we look towards the future, we remain committed to optimizing our supply chain strategy. We understand that diversification is key to maintaining reliability of supply, and that's why we are exploring additional foundry partnerships in new geographical locations to expand our production capabilities. Further, we will continue to balance between internal manufacturing and 3rd party foundries to ensure a more robust supply chain that delivers top-notch products to our customers.

Our success in attaining a record number of Tier 1 customers is no coincidence. It is a direct result of our unwavering focus on providing products that are both compelling and reliable, backed by unparalleled customer service and engineering support. We strive to solve our customer’s power problems with a user-friendly system approach by providing a total solution.  As CEO, I will continue to make sure this commitment to excellence remains one of our core values and constantly strive to exceed our customer’s expectations with every product and service we deliver.

Lastly, our talented and dedicated employees are who make our success possible.   As we build upon our strong foundation and momentum, I will continue to foster a work environment and culture in which our employees can fully unleash their talents with respect and care.

With that, let me now cover our segment results and provide some guidance by segment for the next quarter.

Starting with Computing. March quarter revenue was down 57.7% year-over-year and 40.4% sequentially and represented 28.7% of total revenue. These results were driven by lower shipments across all computing applications, magnified by March quarter being our seasonally weakest quarter. However, we believe inventory at some of our customers has been depleting and we are seeing a resumption of orders for the June quarter. Our current visibility sees encouraging demand recovery in some applications. For the June quarter, we expect total Computing segment revenue to be up about 40% sequentially.

Turning to the Consumer segment, March quarter revenue was up slightly year-over-year and decreased 5.5% sequentially and represented 33.6% of total revenue. These results were in-line with our expectations driven by strong Gaming volumes which grew 68.2% year-over-year and decreased 11.3% sequentially. In addition, we saw a 30% sequential recovery from both Home Appliances and E-Mobility, which includes E-Bikes and E-scooters, another application that AOS is addressing with our medium voltage solutions for motor and battery management. Looking ahead, we anticipate our Consumer segment revenue to be flattish or slightly drop sequentially.

Next, let’s discuss the Communications segment, revenue in the March quarter experienced a considerable decline of 33.7% year-over-year and 45.4% sequentially, making up only 14.5% of total revenue. The drop in revenue was primarily attributable to weak consumer demand and the ongoing inventory correction in smartphones across all regions. The correction seems to be taking longer than we initially expected, which will cause this segment to remain weak and we currently expect single-digit percentage decline in the June quarter. Despite these challenges, we remain optimistic about a rebound in the second half of the year in our seasonally strongest quarters for the fall launches and ahead of holiday sales.

Now, let’s talk about our last segment, Power Supply and Industrial, which accounted for 20% of total revenue. March quarter revenue decreased 29.6% year-over-year and 35.7% sequentially. The performance by applications in this segment was mixed. PC power supplies and quick chargers for smartphones were weak, consistent with the declining trend in PC and smartphone sales but Power Tools exhibited positive signs of recovery, growing 65% sequentially. For the June quarter, we anticipate this segment will rebound with about 50% sequential growth, primarily driven by increased demand by our Tier 1 U.S. smartphone customer and China’s high-end quick charger demand. Additionally, we anticipate continued strength in the Power Tools category.

In closing, as we stated last quarter, our business is affected by the economic environment and industry cycles. But given our strong fundamentals, leading technology, more diversified product portfolio, Tier 1 customer base in all our business segments, expanding manufacturing capability and supply chain and robust balance sheet, we are in the best position we have ever been to continue our growth momentum once this downturn is past us.  Moreover, the encouraging data from our backlog and constructive conversations with our customers leads us to believe that the March quarter was the bottom and that the worst is now behind us. As such, we are optimistic about the future and look towards executing on the opportunities ahead of us.

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

Yifan Liang (Chief Financial Officer)

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

Revenue for the quarter was $132.6 million, down 29.8% sequentially and 34.8% year-over-year, reflecting the current industry-wide inventory correction.

In terms of product mix, DMOS revenue was $81.0 million, down 41.2% sequentially and 42.2% over last year.  Power IC revenue was $47.4 million, down 5.1% from the prior quarter and 22.1% from a year ago.  Assembly service revenue was $0.6 million, as compared to $1.2 million last quarter and $2.3 million for the same quarter last year.  License and engineering service revenue was $3.6 million for the quarter. In February 2023, we entered into a license and engineering service agreement with a leading power semiconductor automotive supplier related to our Silicon Carbide (SiC) technology for a total amount of $45 million.  This contract further validates the technical leadership of our SiC technology. In the agreement, besides the license, we will also provide product development and engineering services over the next 24 months.  The revenue related to this agreement is recognized over the contract period.

Non-GAAP gross margin was 25.1%, compared to 29.5% in the prior quarter and 36.7% a year ago.  The quarter-over-quarter decrease in non-GAAP gross margin was mainly driven by less favorable mix and lower manufacturing efficiency.

Non-GAAP operating expenses were $36.2 million, compared to $32.8 million for the prior quarter and $34.0 million last year.  The quarter-over-quarter increase was primarily due to last quarter's reversal true-up in variable compensation accruals.

Non-GAAP tax expense was $2.5 million versus $1.5 million last quarter and $2.3 million in the prior year.  The quarter-over-quarter increase was due to the withholding tax on the $18.0 million payment received under the SiC license agreement mentioned previously.

Non-GAAP quarterly EPS was negative $0.21, compared to $0.67 last quarter and $1.34 a year ago.

Moving on to cash flow.  Operating cash flow was $11.6 million, which included $18 million first tranche payment received from our licensing deal and $8.9 million repayments of customer deposits.  By comparison, operating cash flow in the prior quarter was $0.3 million, which included $12.2 million net repayments of customer deposits.  Operating cash flow a year ago was $61.8 million, which included $6.4 million net customer deposits.  We expect to refund around a total of $30 million customer deposits in calendar year 2023.  Consolidated EBITDAS was $6.5 million, compared to $31.8 million last quarter and $48.4 million last year.  During the quarter we repurchased 107,000 shares of our stock for $2.7 million through our existing share repurchase program that was previously approved by the Board.  We also purchased 217,000 shares of employee restricted stock units (RSU) vested during the quarter by paying $5.5 million withholding tax on behalf of employees.

Now let me turn to our balance sheet.

We completed the March quarter with a cash balance of $265.9 million, compared to $287.8 million at the end of last quarter.  The cash balance a year ago was $323.1 million.

Net trade receivables were reduced to $19.4 million compared to $53.2 million at the end of the prior quarter.  Days Sales Outstanding were 30 days for both this and the prior quarter.

Net inventory was $179.8 million at quarter-end compared to $163.8 million at the end of the prior quarter and $143.5 million last year.  Average days in inventory were 152 days, compared to 109 days in the prior quarter.  We expect average days in inventory to improve along with our revenue recovery.

CapEx for the quarter was $22.7 million.  We expect CapEx for the June quarter to range from $15 - 20 million. Our Oregon fab expansion is complete and started ramping in March 2023.

Now, I would like to discuss June quarter guidance.

We expect:

● Revenue to be approximately $160 million, plus or minus $5 million.

● GAAP gross margin to be 24.0%, plus or minus 1%.  We anticipate non-GAAP gross margin to be 25.8%, plus or minus 1%.

● GAAP operating expenses to be in the range of $45.5 million, plus or minus $1 million.  Non-GAAP operating expenses are expected to be in the range of $36.5 million, plus or minus $1 million.

● Interest expense to be approximately $1.2 million, and

● Income tax expense to be in the range of $1.3 million to $1.5 million.

With that, we will now 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 expected financial performance of market segments; the macroeconomic conditions and our ability to mitigate economic downturns; the global capacity constraint; our ability and strategy to develop new products; the Oregon fab expansion project and anticipated timing; projected annual revenue target; fluctuation in customer demand and market segments; our share of Tier 1 customer, our ability to control and maintain manufacturing capacity; the execution of our business plan and strategies; 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 state of semiconductor industry and seasonality of our markets; our lack of control over the JV Company; 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, 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, 2022 to be filed by AOS. 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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