Alpha and Omega Semiconductor Limited — Form 10-Q Summary
Business and period. AOS designs, develops and supplies power semiconductors for computing, consumer electronics, communications and industrial applications. This unaudited report covers the three and six months ended December 31, 2014, compared with the same periods in 2013. The company reports one operating segment.
Financial performance
Amounts are in U.S. dollars; financial statement amounts below are in millions except per-share data.
| Metric | Three months ended Dec. 31, 2014 | Three months ended Dec. 31, 2013 | Six months ended Dec. 31, 2014 | Six months ended Dec. 31, 2013 |
|---|---|---|---|---|
| Revenue | $81.3 | $76.3 | $169.5 | $160.4 |
| Gross profit / margin | $15.2 / 18.7% | $13.6 / 17.9% | $33.4 / 19.7% | $30.8 / 19.2% |
| Operating income (loss) | $(0.3) | $1.3 | $1.4 | $2.7 |
| Net income (loss) | $(1.3) | $0.2 | $(0.7) | $0.5 |
| Diluted EPS | $(0.05) | $0.01 | $(0.03) | $0.02 |
| Operating cash flow | Not provided for the quarter | $15.1 | $15.0 |
- Quarterly revenue increased 6.6%; six-month revenue increased 5.7%. Power IC revenue rose 21.8% for the quarter and 31.4% for six months, while power discrete revenue grew more modestly. Packaging and testing revenue declined 13.4% for six months.
- Unit shipments increased, but average selling prices fell 2.6% for the quarter and 4.6% for six months. Higher factory utilization and cost controls helped lift gross margin.
- Operating expenses grew faster than revenue: quarterly R&D increased 29.3% and SG&A 25.0%. The quarter consequently moved from operating profit to a loss. Six-month operating income also declined despite higher revenue and gross margin.
- Income tax expense was $1.0 million for the quarter and $2.1 million for six months. The reported effective tax rates were unusually high—281.5% and 152.5%, respectively—principally reflecting the geographic mix of earnings.
Financial position and liquidity
- At December 31, 2014, cash and cash equivalents were $120.6 million, versus $117.8 million at June 30, 2014. Current assets were $224.1 million and current liabilities $62.4 million.
- Total debt was $7.1 million, down from $13.8 million at June 30; capital lease liabilities totaled $1.5 million. The term loan was due in May 2015, and the company reported compliance with its financial covenants.
- Six-month investing cash outflow was $6.9 million, mainly capital expenditures; financing cash outflow was $5.2 million, chiefly debt repayments and lease payments. Cash increased $2.9 million over the six months.
- Purchase commitments were $21.7 million and capital commitments $9.9 million at December 31. The filing reports no material off-balance-sheet arrangements.
Outlook, commentary and risks
- Management said existing cash and operating cash flows should cover anticipated working capital and capital expenditure needs for at least the next 12 months. No revenue, earnings or margin guidance was provided.
- Management described ongoing product and market diversification, continued investment in R&D, and efforts to improve factory utilization and control costs. AOS introduced 45 new products during the six-month period.
- Key risks include continued PC-market weakness, which management said affected demand, utilization and margins; dependence on consumer electronics; ongoing selling-price erosion; fluctuating distributor orders and seasonality; and execution risks in new products and market diversification.
- Customer concentration is substantial: three customers accounted for 72.8% of quarterly revenue. Management also noted that PC-market sales represented 46.7% of quarterly revenue.
- In September 2014, Oregon forgave a $0.3 million training loan after the company met the conditions; the forgiveness reduced cost of goods sold. No material legal proceedings were pending. The company reported no material changes to previously disclosed risk factors.
Investor verification points
- Confirm the near-term repayment or refinancing of the $7.1 million term loan due in May 2015.
- Assess whether higher unit shipments and improved utilization can offset price erosion and PC-market weakness.
- Review the rapid increase in quarterly R&D and SG&A against revenue growth and operating profitability.
- Examine the tax-rate drivers, including the $7.0 million of unrecognized tax benefits and the company’s stated expectation of no material change in uncertain tax positions over the next 12 months.
- Monitor customer concentration, inventory growth, and the $9.9 million of capital commitments alongside planned cash needs.