Alpha and Omega Semiconductor Limited — Form 10-Q Summary
Period: Fiscal first quarter ended September 30, 2019 (the quarter corresponds to FY2020 Q1, although the request metadata says 2019 Q1). Unaudited results; compared with the three months ended September 30, 2018. AOS designs, develops and supplies power semiconductors.
Financial results
| Metric | Quarter ended Sep. 30, 2019 | Prior-year quarter | Change / context |
|---|---|---|---|
| Revenue | $117.8 million | $115.1 million | Up 2.4% |
| Gross profit / margin | $26.9 million / 22.9% | $32.6 million / 28.3% | Gross profit down 17.4%; margin down 5.4 percentage points |
| Operating income (loss) | $(0.6) million | $0.9 million | Turned to operating loss |
| Net income attributable to AOS | $1.0 million; $0.04 per diluted share | $2.4 million; $0.10 per diluted share | Down from prior year |
| Consolidated net loss, including noncontrolling interest | $(1.9) million | $(0.9) million | Includes $2.9 million loss attributable to the JV’s noncontrolling interest |
| Operating cash flow | $(1.2) million | $18.0 million | Cash use this quarter |
| Cash, cash equivalents and restricted cash | $105.4 million | $124.3 million at June 30, 2019 | Down $18.9 million during the quarter |
| Debt | $85.3 million principal, net of issuance costs | — | Also had $51.1 million of finance lease liabilities |
Investing activities used $15.8 million, primarily for property and equipment, including $7.5 million at the joint venture. Financing activities used $1.1 million. Capital commitments were $28.6 million; outstanding purchase commitments were $52.9 million. Current assets were $294.4 million and current liabilities $189.5 million at quarter end.
Changes and management commentary
- Power discrete revenue rose 9.0% to $100.5 million; power IC revenue fell 19.0% to $15.7 million, and packaging and testing revenue fell 54.8% to $1.5 million. Management attributed the net product revenue increase to a 20.8% rise in average selling price, driven by mix, partly offset by a 13.8% decline in unit shipments.
- Management attributed lower gross margin mainly to low capacity utilization as the Chongqing joint venture began limited mass production at its 12-inch wafer fab in July 2019. The JV continued ramping assembly and testing. Management expects gradual ramp-up and says the JV may reduce manufacturing costs over the long term, but near-term ramp and digital-power development costs may weigh on profitability.
- SG&A declined 25.4% to $15.2 million, mainly due to lower JV pre-production costs; R&D increased 8.6% to $12.4 million. Depreciation and amortization rose to $10.9 million from $7.9 million.
- Other income/loss was $(1.0) million, primarily reflecting foreign-exchange losses as the U.S. dollar depreciated against the RMB. Interest income/expense was $0.2 million, versus $1.5 million of expense a year earlier; the comparison benefited from a $2.7 million Chinese government interest refund, partly offset by higher borrowing-related expense.
- Operating cash flow was pressured by working-capital needs, including higher receivables and inventory. Management said a $9.2 million receivable payment was delayed one day because of a Taiwan bank shutdown during Typhoon Mitag, alongside increased current-quarter billings.
Liquidity, outlook and risks
Management stated that cash and expected operating cash flows should be sufficient for anticipated needs, including working capital and capital spending, for at least the next 12 months. It cautioned that longer-term needs could require additional capital and that financing may not be available on acceptable terms. The filing provides no numerical revenue or earnings guidance.
- Customer concentration is significant: two customers accounted for 28.8% and 35.1% of quarterly revenue. The two largest also represented 36.9% and 25.9% of receivables at September 30.
- PC-related products represented approximately 39.3% of revenue, down from 43.8% a year earlier. Management cited PC-market conditions, distributor ordering and channel inventory as factors that can cause volatility.
- Potential additional U.S. tariffs on Chinese goods and possible Chinese responses could reduce demand or prompt pricing adjustments that pressure margins. The filing states the effects and scope were uncertain.
- Other risks include average selling price erosion, manufacturing utilization and capacity constraints, customer demand and product-introduction execution, and the costs and execution risks of the JV and digital-power business.
- The company reported no pending material legal proceedings and no material off-balance-sheet arrangements. It had $7.2 million of gross unrecognized tax benefits and did not anticipate material changes in uncertain tax positions over the next 12 months.
Other notable items
- AOS adopted lease accounting Topic 842 on July 1, 2019, recognizing approximately $21 million each of operating-lease right-of-use assets and liabilities. Prior-year figures were not adjusted.
- The company corrected a prior-year supplemental disclosure of property and equipment purchased but not yet paid, reducing the reported amount by $34.7 million to $22.5 million; it said the correction did not affect prior-period statements of operations or cash flows.
- In October 2019, the company renewed an expired China credit line and entered another China credit facility with capacity of approximately $8.5 million. These were subsequent events.
- Disclosure controls were assessed as effective, and management reported no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether JV utilization and the 12-inch fab ramp improve gross margin and reduce costs as planned.
- Whether customer concentration, distributor ordering, and the PC market affect shipments, receivables, or future revenue.
- Cash conversion and working-capital trends, including collection of the delayed receivable and inventory levels.
- Debt and lease obligations, upcoming maturities, covenant compliance, and availability and terms of credit facilities.
- Whether potential tariffs or currency movements materially affect demand, pricing, costs, or reported results.