Business context and reporting period
Alpha and Omega Semiconductor Limited designs, develops and supplies power semiconductors for computing, consumer electronics, communications and industrial applications. This Form 10-Q reports the fiscal third quarter ended March 31, 2015, and the nine months then ended. The request metadata says “2014 Q3,” but the filing itself is for fiscal Q3 2015.
Key financial results
Amounts below are in millions of dollars, except per-share data and percentages. Quarter comparisons are against the three months ended March 31, 2014; nine-month comparisons are against the corresponding 2014 period.
| Metric | Fiscal Q3 2015 | Fiscal Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $76.9 | $75.4 | $246.5 | $235.8 |
| Gross profit / margin | $12.8 / 16.6% | $12.3 / 16.3% | $46.2 / 18.7% | $43.1 / 18.3% |
| Operating loss | $(3.4) | $(2.9) | $(1.9) | $(0.2) |
| Net loss | $(4.1) | $(3.3) | $(4.8) | $(2.8) |
| Diluted loss per share | $(0.16) | $(0.13) | $(0.18) | $(0.11) |
Cash and cash equivalents were $112.9 million at March 31, 2015, down from $117.8 million at June 30, 2014. Total debt was $6.4 million, versus $13.8 million at June 30, 2014; capital-lease obligations were $1.3 million, including current and long-term portions. Current assets were $217.0 million and current liabilities $62.0 million.
For the nine months, operating cash flow was $17.7 million (versus $27.0 million), capital expenditures were $12.6 million (versus $6.5 million), and net cash used in financing was $10.0 million. Cash declined $4.9 million over the period. The filing reports no material off-balance-sheet arrangements.
Material changes and management commentary
- Quarterly revenue increased 2.0%; nine-month revenue rose 4.5%. Product shipments increased, but average selling prices declined 10.4% for the quarter and 6.5% for the nine months, primarily from price erosion in computing and consumer markets and, to a lesser extent, product mix.
- Power IC revenue grew 6.8% in the quarter and 23.4% for the nine months. Power discrete revenue rose 1.1% and 1.4%, respectively; packaging and testing revenue was flat for the quarter and down 9.3% year to date.
- Gross margin improved modestly, which management attributed to higher factory utilization and cost controls, partly offset by selling-price erosion. R&D expense increased 15.9% for the quarter, mainly on product prototyping; nine-month SG&A rose 9.6%, mainly due to compensation and share-based compensation costs.
- Management highlighted continued weakness in global PC markets. PC-related sales represented 47.3% of quarterly revenue and 47.1% of nine-month revenue. The company is pursuing diversification into consumer, communications and industrial markets and continued new-product introductions; it introduced 75 products during the nine-month period.
- Management said cash and operating cash flows should be sufficient for anticipated working-capital and capital-expenditure needs for at least the next 12 months, while noting that additional financing could be needed if business conditions or future investments change.
Outlook, risks and unusual items
- The filing provides no quantified revenue or earnings guidance. Management expects average selling prices for established products to continue declining and says results may fluctuate with distributor ordering, seasonality, end-market demand, PC conditions and factory utilization.
- Three customers accounted for 69.9% of quarterly revenue; two customers each represented at least 10% of receivables, and the largest represented 32.2%. Customer and distributor concentration, PC exposure, price erosion, utilization, and timely product launches are key risks.
- The $6.4 million term loan was due in May 2015, shortly after quarter-end. It was secured by substantially all assets of two subsidiaries and guaranteed by the company and certain subsidiaries. The company reported compliance with loan covenants at March 31.
- In September 2014, Oregon forgave a $0.3 million training loan; the forgiveness reduced cost of goods sold. The company incurred severance costs related to the CTO’s resignation during the current nine-month period.
- The company repurchased 449,247 shares for $4.0 million during the nine months. In April 2015, the board increased the program’s remaining authorization from approximately $17.8 million to $50.0 million. The filing says repurchases are not guaranteed and may not enhance share value.
- Outstanding purchase commitments were $31.6 million and capital commitments $5.8 million at March 31. No material legal proceedings were pending; the company described potential intellectual-property and other industry litigation risks. It reported no material change in previously disclosed risk factors.
Important facts for investors to verify
- Whether the $6.4 million term loan due in May 2015 was repaid, refinanced or otherwise addressed after quarter-end.
- Whether sales diversification is reducing PC-market exposure and whether shipment growth can offset persistent average-selling-price declines.
- The status and actual pace of repurchases under the increased $50.0 million authorization, alongside cash needs for capital spending and operations.
- Developments in customer concentration, distributor inventory and the company’s $6.3 million of gross unrecognized tax benefits.