Alpha and Omega Semiconductor Limited — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 30, 2016; comparative period is the three months ended September 30, 2015. The interim statements are unaudited. AOS designs and supplies power semiconductors and reports as one operating segment.
Financial performance
| Metric | Quarter ended Sep. 30, 2016 | Quarter ended Sep. 30, 2015 | Change |
|---|---|---|---|
| Revenue | $97.4 million | $81.4 million | Up 19.6% |
| Gross profit / margin | $21.9 million / 22.5% | $15.1 million / 18.5% | Margin up 4.0 percentage points |
| Operating income (loss) | $3.7 million | $(0.6) million | Returned to operating profit |
| Net income (loss), including noncontrolling interest | $2.4 million | $(2.0) million | Improved |
| Net income (loss) attributable to AOS | $3.3 million; $0.14 per diluted share | $(2.0) million; $(0.09) per diluted share | Improved |
| Cash provided by operating activities | $9.3 million | $7.8 million | Up $1.5 million |
| Capital expenditures | $17.4 million | $6.0 million | Up $11.4 million |
Revenue growth reflected an 18.7% increase in unit shipments and a 2.8% increase in average selling price, primarily from product mix. Power discrete revenue rose 19.2% to $71.4 million and Power IC revenue rose 31.3% to $23.0 million; packaging and testing revenue fell 26.8% to $2.9 million. Management attributed improved gross margin mainly to product mix and higher factory utilization. R&D expense increased 13.9% to $7.0 million and SG&A increased 17.8% to $11.2 million.
Balance sheet, liquidity and funding
- Cash and cash equivalents were $118.8 million at September 30, versus $87.8 million at June 30, 2016; $77.7 million was held by foreign subsidiaries. Cash increased $31.0 million during the quarter, including a $33.0 million cash contribution from the Chongqing joint venture’s noncontrolling investors and $6.0 million from option exercises.
- Current assets were $221.4 million and current liabilities $69.1 million, or approximately 3.2 times current-liability coverage. Total liabilities were $75.8 million. Reported capital lease obligations totaled approximately $2.3 million; the filing reports no material off-balance-sheet arrangements.
- Operating cash flow less property and equipment purchases was negative $8.1 million. The company said current cash and operating cash flows should cover anticipated needs, including working capital and capital expenditures, for at least the next 12 months.
- Purchase commitments were $38.6 million and capital commitments $6.2 million at quarter-end. AOS expects to contribute $10.0 million in cash and certain intangible assets to the joint venture within one year from June 30, 2016.
Material changes, outlook and risks
- The Chongqing joint venture is consolidated because AOS owns 51%. During the quarter, the Chongqing Funds contributed $33.0 million and AOS transferred packaging equipment. The venture’s initial capitalization is planned at $330.0 million in stages. Initial packaging production is expected in the first half of fiscal 2018; a 12-inch wafer fab is a longer-term plan. AOS recorded a $0.9 million net loss attributable to noncontrolling interest for the quarter. On specified termination or insolvency events, the funds’ paid-in capital receives priority repayment with 10% simple annual interest before any remaining assets are distributed to AOS.
- No quantified revenue or earnings guidance is provided. Management expects long-term benefits from the joint venture, including lower manufacturing costs, stronger China market position and improved working capital and capital expenditures. It cautions that costs may rise in the short term as equipment is transferred and replacement packaging capacity is obtained.
- Key risks include PC-market weakness, product and customer concentration, distributor ordering and channel-inventory swings, seasonal demand, average selling-price erosion, manufacturing utilization and input costs, and timely execution and customer adoption of new products and the joint venture. PC-related revenue was 35.9% of total revenue, down from 46.0% a year earlier.
- Three customers represented 24.2%, 36.5% and 13.9% of revenue, respectively. Hong Kong shipments accounted for $82.8 million of quarterly revenue; shipment geography may not reflect end-customer locations.
- Income tax expense was $1.2 million. Unrecognized tax benefits totaled approximately $6.8 million, of which $4.4 million would reduce the effective tax rate if recognized; tax examinations remain possible across multiple jurisdictions. No material pending legal proceedings or material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether revenue growth, shipment gains and gross-margin improvement persist, particularly amid PC-market and pricing pressures.
- Customer concentration and end-market demand, including the effect of distributor inventory and ordering patterns.
- Joint-venture funding, AOS’s remaining contributions, construction and production milestones, and potential transition costs or delays.
- Cash conversion and capital-spending requirements, including the effect of foreign-held cash and outstanding commitments.
- Potential changes in uncertain tax positions and the realization of tax assets.