Form 8-K ALPHA & OMEGA SEMICONDUC For: Feb 07

February 7, 2022 4:02 PM EST

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Exhibit 99.1

Alpha and Omega Semiconductor Reports Financial Results for the Fiscal Second Quarter of 2022 Ended December 31, 2021

SUNNYVALE, Calif.--(BUSINESS WIRE)--February 7, 2022--Alpha and Omega Semiconductor Limited (“AOS”) (NASDAQ: AOSL) today reported financial results for the fiscal second quarter of 2022 ended December 31, 2021.

The results for the fiscal second quarter of 2022 ended December 31, 2021 were as follows:

GAAP Financial Comparison

Quarterly

(in millions, except percentage and per share data)

(unaudited)

 

 

 

 

 

Three Months Ended

 

 

December 31,
2021

 

September 30,
2021

 

December 31,
2020

Revenue

 

$

193.3

 

 

$

187.0

 

 

$

158.8

 

Gross Margin

 

 

35.4

%

 

 

34.5

%

 

 

30.7

%

Operating Income

 

$

27.7

 

 

$

24.9

 

 

$

13.6

 

Net Income Attributable to AOS

 

$

383.0

 

 

$

23.4

 

 

$

12.9

 

Net Income Per Share Attributable to AOS - Diluted

 

$

13.54

 

 

$

0.85

 

 

$

0.47

 













 

Non-GAAP Financial Comparison

Quarterly

(in millions, except percentage and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

December 31,
2021

 

September 30,
2021

 

December 31,
2020

Revenue

 

$

193.3

 

 

$

187.0

 

 

$

158.8

 

Non-GAAP Gross Margin

 

 

36.7

%

 

 

35.3

%

 

 

31.4

%

Non-GAAP Operating Income

 

$

37.4

 

 

$

30.8

 

 

$

18.5

 

Non-GAAP Net Income Attributable to AOS

 

$

34.0

 

 

$

29.3

 

 

$

17.8

 

Non-GAAP Net Income Per Share Attributable to AOS - Diluted

 

$

1.20

 

 

$

1.06

 

 

$

0.65

 

The non-GAAP financial measures in the schedule above and under the section “Financial Results for Fiscal Q2 Ended December 31, 2021” below exclude the effect of share-based compensation expenses, amortization of purchased intangible, legal costs related to government investigation, and income tax effect of non-GAAP adjustments in each of the periods presented, as well as gain on deconsolidation and changes of equity interest in the JV Company for the three months ended December 31, 2021. A detailed reconciliation of GAAP and non-GAAP financial measures is included at the end of this press release.


Financial Results for Fiscal Q2 Ended December 31, 2021

  • Revenue was $193.3 million, an increase of 3.4% from the prior quarter and an increase of 21.7% from the same quarter last year.
  • GAAP gross margin was 35.4%, up from 34.5% in the prior quarter and up from 30.7% in the same quarter last year.
  • Non-GAAP gross margin was 36.7%, up from 35.3% in the prior quarter and up from 31.4% in the same quarter last year.
  • GAAP operating expenses were $40.6 million, up from $39.6 million in the prior quarter and up from $35.2 million in the same quarter last year.
  • Non-GAAP operating expenses were $33.5 million, a decrease of $1.6 million from last quarter and an increase of $2.0 million from the same quarter last year.
  • GAAP operating income was $27.7 million, up from $24.9 million in the prior quarter and up from $13.6 million in the same quarter last year.
  • Non-GAAP operating income was $37.4 million as compared to $30.8 million for the prior quarter and $18.5 million for the same quarter last year.
  • GAAP net income per diluted share attributable to AOS was $13.54 primarily due to gain on deconsolidation and changes of equity interest in the JV Company, compared to $0.85 net income per share for the prior quarter and $0.47 net income per share for the same quarter a year ago.
  • Non-GAAP net income per share attributable to AOS was $1.20 compared to $1.06 for the prior quarter and $0.65 for the same quarter a year ago.
  • Consolidated cash flow provided by operating activities was $50.8 million, compared to $80.6 million in the prior quarter.
  • The Company closed the quarter with $269.3 million of cash and cash equivalents.

AOS Chairman and Chief Executive Officer Dr. Mike Chang commented, “Last quarter, we crossed an important milestone of $1 quarterly non-GAAP EPS. This quarter, we are happy to report $1.20 non-GAAP EPS, which further reinforces our Company’s strong earnings power of $4.00 to $5.00 per share.”

Dr. Chang continued, “Looking back, calendar 2021 was an exceptional year for AOS. A few years ago, we set out to achieve a target annual revenue of $600 million in calendar year 2021. Today, the business that we have built has the product portfolio, customer relationships and production capacity to deliver well over our original revenue target, and our confidence in our business model and strategic positioning has never been greater. As we look to the future, we now have our sights set on actively planning and marching towards $1 billion annual revenues with much stronger and more sophisticated R&D capabilities and supply chain operations, and with most of our customers being the world’s leading OEMs in the markets that we serve.”

Business Outlook for Fiscal Q3 Ending March 31, 2022

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 third quarter of fiscal year 2022 are as follows:

  • Revenue is expected to be approximately $194 million, plus or minus $3 million.
  • GAAP gross margin is expected to be approximately 35.1% plus or minus 1%. Non-GAAP gross margin is expected to be approximately 36.0% plus or minus 1%. Non-GAAP gross margin excludes $0.8 million amortization of acquired IP and $1.0 million of estimated share-based compensation charge.
  • GAAP operating expenses are expected to be in the range of $41.9 million plus or minus $1 million. Non-GAAP operating expenses are expected to be in the range of $34.5 million plus or minus $1 million. Non-GAAP operating expenses exclude $7.0 million of estimated share-based compensation charge and $0.4 million of estimated professional fees related to the government investigation.
  • Interest expense is expected to be approximately $0.5 million.
  • Income tax expense is expected to be in the range of $1.2 million to $1.4 million.

Conference Call and Webcast

AOS plans to hold an investor teleconference and live webcast to discuss the financial results for the fiscal second quarter ended December 31, 2021 today, February 7, 2022 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 522169. 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, statements relating to 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, income tax expenses, net income, noncontrolling interest, and share-based compensation expenses, non-GAAP gross margin, non-GAAP operating expenses, tax expenses, and non-GAAP loss attributable to noncontrolling interest, our objectives to achieve long-term success, our ability to gain new customers and design wins, strategic partnership with customers, and other information under the section entitled “Business Outlook for Fiscal Q3 Ending March 31, 2022”. 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 impact of COVID-19 pandemic on our business; our lack of control over the joint venture in China; difficulties and challenges in executing our diversification strategy into different market segments; new 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; the state of semiconductor industry and seasonality of our markets; 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, 2021 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 income, net loss attributable to noncontrolling interest, net income, 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, as well as gain on deconsolidation and changes of 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, operating expenses and earnings/loss in equity method investment. 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 amount of income tax effect of non-GAAP adjustments in the non-GAAP net income 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 technology, product design, and advanced packaging know-how to develop high performance power management solutions. AOS’ portfolio of products targets high-volume applications, including personal and 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 consolidated financial statements are prepared in accordance with U.S. GAAP.


 

Condensed Consolidated Statements of Operations

(in thousands, except percentages and per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

December 31,
2021

 

September 30,
2021

 

December 31,
2020

 

December 31,
2021

 

December 31,
2020

 


 


 


 


 


 

Revenue


$

193,319

 


$

187,035

 


$

158,830

 


$

380,354

 


$

310,381

 

Cost of goods sold


 

124,954

 


 

122,468

 


 

110,081

 


 

247,422

 


 

219,109

 

Gross profit


 

68,365

 


 

64,567

 


 

48,749

 


 

132,932

 


 

91,272

 

Gross margin


 

35.4

%


 

34.5

%


 

30.7

%


 

34.9

%


 

29.4

%

 


 


 


 


 


 

Operating expenses:


 


 


 


 


 

Research and development


 

16,516

 


 

17,812

 


 

15,423

 


 

34,328

 


 

30,114

 

Selling, general and administrative


 

24,132

 


 

21,806

 


 

19,736

 


 

45,938

 


 

37,241

 

Total operating expenses


 

40,648

 


 

39,618

 


 

35,159

 


 

80,266

 


 

67,355

 

Operating income


 

27,717

 


 

24,949

 


 

13,590

 


 

52,666

 


 

23,917

 

 


 


 


 


 


 

Interest expense and other income (loss), net


 

(68

)


 

(2,192

)


 

(381

)


 

(2,260

)


 

(930

)

Gain on deconsolidation of the JV Company


 

399,093

 


 

 


 

 


 

399,093

 


 

 

Loss on changes of equity interest in the JV Company, net

(7,641

)









(7,641

)


Net income before income taxes


 

419,101

 


 

22,757

 


 

13,209

 


 

441,858

 


 

22,987

 

 


 

 



 


 


 


 

Income tax expense


 

34,096

 


 

1,320

 


 

669

 


 

35,416

 


 

1,680

 

Net income


 

385,005

 


 

21,437

 


 

12,540

 


 

406,442

 


 

21,307

 

Net gain (loss) attributable to noncontrolling interest


 

2,007

 


 

(1,987

)


 

(363

)


 

20

 


 

(1,170

)

Net income attributable to Alpha and Omega Semiconductor Limited


$

382,998

 


$

23,424

 


$

12,903

 


$

406,422

 


$

22,477

 

 


 


 


 


 


 

Net income per common share attributable to Alpha and Omega Semiconductor Limited


 


 


 


 


 

Basic


$

14.40

 


$

0.89

 


$

0.50

 


$

15.35

 


$

0.88

 

Diluted


$

13.54

 


$

0.85

 


$

0.47

 


$

14.53

 


$

0.84

 

 


 


 


 


 


 

Weighted average number of common shares attributable to Alpha and Omega Semiconductor Limited used to compute net income per share


 


 


 


 


 

Basic


 

26,593

 


 

26,365

 


 

25,672

 


 

26,479

 


 

25,506

 

Diluted


 

28,287

 


 

27,638

 


 

27,353

 


 

27,963

 


 

26,834

 

 


 


 


 


 


 


Alpha and Omega Semiconductor Limited

Condensed Consolidated Balance Sheets

(in thousands, except par value per share)

(unaudited)

 

 

 

 

 

 

 

December 31, 2021

 

June 30, 2021

ASSETS


 


 

Current assets:


 


 

Cash and cash equivalents


$

269,306

 


$

202,412

 

Restricted cash


 

314

 


 

233

 

Accounts receivable, net


 

31,661

 


 

35,789

 

Other receivable, equity investee


 

25,030

 


 

 

Inventories


 

129,084

 


 

154,293

 

Other current assets


 

11,312

 


 

14,595

 

Total current assets


 

466,707

 


 

407,322

 

Property, plant and equipment, net


 

196,743

 


 

436,977

 

Operating lease right-of-use assets, net


 

22,263

 


 

34,660

 

Intangible assets, net


 

11,730

 


 

13,410

 

Equity method investment


 

376,061

 


 

 

Deferred income tax assets


 

440

 


 

5,167

 

Restricted cash - long-term


 

 


 

2,168

 

Other long-term assets


 

37,931

 


 

18,869

 

Total assets


$

1,111,875

 


$

918,573

 

LIABILITIES AND EQUITY


 


 

Current liabilities:


 


 

Accounts payable


$

62,175

 


$

80,699

 

Accrued liabilities


 

95,212

 


 

69,494

 

Income taxes payable


 

7,337

 


 

2,604

 

Short-term debt


 

8,960

 


 

58,030

 

Finance lease liabilities


 

 


 

16,724

 

Operating lease liabilities


 

4,293

 


 

5,679

 

Total current liabilities


 

177,977

 


 

233,230

 

Long-term debt


 

13,707

 


 

77,990

 

Income taxes payable - long-term


 

1,345

 


 

1,319

 

Deferred income tax liabilities


 

27,742

 


 

2,448

 

Finance lease liabilities - long-term


 

 


 

12,698

 

Operating lease liabilities - long-term


 

19,430

 


 

30,440

 

Other long-term liabilities


 

77,684

 


 

44,123

 

Total liabilities


 

317,885

 


 

402,248

 

Equity:


 


 

Preferred shares, par value $0.002 per share:


 


 

Authorized: 10,000 shares; issued and outstanding: none at December 31, 2021 and June 30, 2021


 

 


 

 

Common shares, par value $0.002 per share:


 


 

Authorized: 100,000 shares; issued and outstanding: 33,329 shares and 26,706 shares, respectively at December 31, 2021 and 32,975 shares and 26,350 shares, respectively at June 30, 2021


 

67

 


 

66

 

Treasury shares at cost: 6,623 shares at December 31, 2021 and 6,625 shares at June 30, 2021


 

(66,046

)


 

(66,064

)

Additional paid-in capital


 

275,410

 


 

259,993

 

Accumulated other comprehensive income


 

1,260

 


 

2,315

 

Retained earnings


 

583,299

 


 

176,895

 

Total Alpha and Omega Semiconductor Limited shareholder's equity


 

793,990

 


 

373,205

 

Noncontrolling interest


 

 


 

143,120

 

Total equity


 

793,990

 


 

516,325

 

Total liabilities and equity


$

1,111,875

 


$

918,573

 









 

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

 

Six Months Ended

 

 

December 31,
2021

 

September 30,
2021

 

December 31,
2020

 

December 31,
2021

 

December 31,
2020

 


 


 


 


 


 

GAAP gross profit


$

68,365

 


$

64,567

 


$

48,749

 


$

132,932

 


$

91,272

 

Share-based compensation


 

1,709

 


 

569

 


 

383

 


 

2,278

 


 

768

 

Amortization of purchased intangible


 

811

 


 

812

 


 

811

 


 

1,623

 


 

1,623

 

Production ramp up costs related to joint venture


 

 


 

 


 

 


 

 


 

275

 

Non-GAAP gross profit


$

70,885

 


$

65,948

 


$

49,943

 


$

136,833

 


$

92,315

 

Non-GAAP gross margin as a % of revenue


 

36.7

%


 

35.3

%


 

31.4

%


 

36.0

%


 

30.3

%

 


 


 


 


 


 

GAAP operating expense


$

40,648

 


$

39,618

 


$

35,159

 


$

80,266

 


$

67,355

 

Share-based compensation


 

6,838

 


 

4,066

 


 

2,841

 


 

10,904

 


 

5,332

 

Legal costs related to government investigation


 

293

 


 

431

 


 

843

 


 

724

 


 

1,950

 

Non-GAAP operating expense


$

33,517

 


$

35,121

 


$

31,475

 


$

68,638

 


$

60,073

 

 


 


 


 


 


 

GAAP operating income


$

27,717

 


$

24,949

 


$

13,590

 


$

52,666

 


$

23,917

 

Share-based compensation


 

8,547

 


 

4,635

 


 

3,224

 


 

13,182

 


 

6,100

 

Amortization of purchased intangible


 

811

 


 

812

 


 

811

 


 

1,623

 


 

1,623

 

Production ramp up costs related to joint venture


 

 


 

 


 

 


 

 


 

275

 

Legal costs related to government investigation


 

293

 


 

431

 


 

843

 


 

724

 


 

1,950

 

Non-GAAP operating income


$

37,368

 


$

30,827

 


$

18,468

 


$

68,195

 


$

33,865

 

Non-GAAP operating margin as a % of revenue


 

19.3

%


 

16.5

%


 

11.6

%


 

17.9

%


 

10.9

%

 


 


 


 


 


 

GAAP net income attributable to AOS


$

382,998

 


$

23,424

 


$

12,903

 


$

406,422

 


$

22,477

 

Share-based compensation


 

8,547

 


 

4,635

 


 

3,224

 


 

13,182

 


 

6,100

 

Amortization of purchased intangible


 

811

 


 

812

 


 

811

 


 

1,623

 


 

1,623

 

Gain on deconsolidation and changes of the equity interest in the JV Company


 

(391,452

)


 

 


 

 


 

(391,452

)


 

 

Production ramp up costs related to joint venture


 

 


 

 


 

 


 

 


 

135

 

Legal costs related to government investigation


 

293

 


 

431

 


 

843

 


 

724

 


 

1,950

 

Income tax effect of non-GAAP adjustments


 

32,800

 


 

1

 


 

(1

)


 

32,801

 


 

(9

)

Non-GAAP net income attributable to AOS


$

33,997

 


$

29,303

 


$

17,780

 


$

63,300

 


$

32,276

 

Non-GAAP net margin attributable to AOS as a % of revenue


 

17.6

%


 

15.7

%


 

11.2

%


 

16.6

%


 

10.4

%

 


 


 


 


 


 

GAAP net income attributable to AOS


$

382,998

 


$

23,424

 


$

12,903

 


$

406,422

 


$

22,477

 

Share-based compensation


 

8,547

 


 

4,635

 


 

3,224

 


 

13,182

 


 

6,100

 

Gain on deconsolidation and changes of the equity interest in the JV Company


 

(391,452

)


 

 


 

 


 

(391,452

)


 

 

Amortization and depreciation


 

11,938

 


 

13,722

 


 

13,200

 


 

25,660

 


 

25,689

 

Interest expense (income), net


 

541

 


 

2,176

 


 

1,649

 


 

2,717

 


 

3,271

 

Income tax expense


 

34,096

 


 

1,320

 


 

669

 


 

35,416

 


 

1,680

 

EBITDAS


$

46,668

 


$

45,277

 


$

31,645

 


$

91,945

 


$

59,217

 

 


 


 


 


 


 

GAAP diluted net income per share attributable to AOS


$

13.54

 


$

0.85

 


$

0.47

 


$

14.53

 


$

0.84

 

Share-based compensation


 

0.30

 


 

0.16

 


 

0.12

 


 

0.47

 


 

0.23

 

Gain on deconsolidation and changes of the equity interest in the JV Company


 

(13.84

)


 

 


 

 


 

(14.00

)


 

 

Production ramp up costs related to joint venture


 

 


 

 


 

 


 

 


 

0.01

 

Legal costs related to government investigation


 

0.01

 


 

0.02

 


 

0.03

 


 

0.03

 


 

0.07

 

Amortization of purchased intangible


 

0.03

 


 

0.03

 


 

0.03

 


 

0.06

 


 

0.06

 

Income tax effect of non-GAAP adjustments


 

1.16

 


 

0.00

 


 

(0.00

)


 

1.17

 


 

(0.00

)

Non-GAAP diluted net income per share attributable to AOS


$

1.20

 


$

1.06

 


$

0.65

 


$

2.26

 


$

1.20

 

 


 


 


 


 


 

Shares used to compute GAAP diluted net income (loss) per share


 

28,287

 


 

27,638

 


 

27,353

 


 

27,963

 


 

26,834

 

Shares used to compute Non-GAAP diluted net income per share


 

28,287

 


 

27,638

 


 

27,353

 


 

27,963

 


 

26.834

 

 


 


 


 


 


 

 

Contacts

Investor and media inquiries:

The Blueshirt Group
Gary Dvorchak, CFA
In US +1 323 240 5796
In China +86 (138) 1079-1480
[email protected]

Yujia Zhai
The Blueshirt Group
[email protected]
+1 (860) 214-0809

Exhibit 99.2


Alpha and Omega Semiconductor Limited
Prepared Remarks for the Investor Conference Call
for the Quarter Ended December 31, 2021

February 7, 2022

Gary Dvorchak (Moderator)

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor’s conference call to discuss fiscal 2022 second quarter financial results.  I am Gary Dvorchak, Investor Relations representative for AOS.  With me today are Dr. Mike Chang, our CEO, Stephen Chang, our President, 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.  Mike will begin with strategic highlights.  Then, Stephen will provide business updates and a detailed segment report.  After that, Yifan will review the financial results and provide guidance for the March quarter.  Finally, we will have the question-and-answer session.

The earnings release was distributed over wire services today, February 7, 2022, after the close of market.  The release is also posted on the company's website.  Our earnings release and this presentation include certain 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 that we provide. 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, Dr. Mike Chang, to provide strategic highlights.  Mike?


Page 1


Mike Chang (Chief Executive Officer)

Thank you, Gary. I would like to welcome everyone to today's call. It is a pleasure to be speaking with all of you again today.

To begin, I would like to briefly summarize some of the major achievements from last year and outline why we believe we have achieved a critical milestone in our operations and are in a very strong position to deliver growth and value to our shareholders in the years to come.

Looking back, calendar year 2021 was an exceptional year for AOS, both in terms of our business execution as well as our financial results. Due to the global semiconductor supply shortage, we focused on executing our three-pronged production capacity strategy.

First, we made significant investments to expand our capacity and further enhance our R&D capabilities at our Oregon facility.

Second, the JV in Chongqing completed Phase 1 of its capacity ramp in September, and in December, we sold 3.2% of our equity interest in the JV for approximately $26 million. The strategic intent of this transaction was to reduce our ownership below 50% to allow the JV more flexibility to one, raise capital as a more independent company, two, accelerate future expansion plans and three, pave way for an eventual IPO on Shanghai’s STAR market. Additionally, I am delighted to see that less than two months after our initial sale transaction, the JV successfully raised $80 million from outside investors as part of Phase 2 of its expansion plan, which the JV expects to complete sometime in 2023.

To see the first part of our original plan for the JV Company come to fruition has been a joy. One of the core tenets of our 3-pronged capacity strategy is ensuring our supply security. Not only do we need to expand our capacity to meet our aggressive growth business plan, but we also need to manage unforeseen risks associated with today’s uncertain world such as natural disasters and geopolitical risks through diversification. In this regard, the JV Company will be one of our important foundry suppliers and on the flip side, AOS will continue to be a key customer of the JV Company.

Lastly but not the least, we are also actively expanding our relationships with multiple third-party foundry partners for additional capacity to meet the increasing demand for our products.

Another dimension of our business that has undergone significant change over the past year that may not be as obvious is the quality of the customers that we are serving. As an example, in our Computing business, we sell to the world’s leading PC brands. In our Communications segment, we sell to the #1 smartphone brand in the U.S., the #1 smartphone brand in Korea, and all the leading smartphone OEMs in China. In our other business segments, we sell to the #1 graphics card maker, the #1 gaming console manufacturer, #1 global home appliance manufacturer, and #1 power tools provider. In summary, Tier 1 OEMs now make up the majority of our revenue mix. The effect of this dynamic makes our business much more resilient to downturns, because during difficult economic conditions, consumer demand typically declines faster for lower tier brands than it does for premium brands.  In addition, due to the uncertainty created by the COVID pandemic, we have worked tirelessly with our customers over the past two years to avoid interruptions to their production lines. As a result of our efforts, our customers’ trust and respect for us as a strategic partner has deepened, and our relationship with them has never been stronger.


Page 2


Also in 2021, through multiple well-planned initiatives and diligent precise execution, our Power IC business finally has emerged to become a significant portion of our business, representing nearly $200 million annual revenue run rate. This greatly helps AOS pursue our utmost goal of providing system level total power solutions to our customers, going beyond our traditional pattern of just offering component sales. This not only offers more convenience and value to our customers but also improves our margin while enabling stickier design wins.

2021 was also a record year in each of our business segments financially. A few years ago, we set out to achieve a target annual revenue of $600 million in calendar year 2021. Today, our business has the product portfolio, customer relationships and production capacity to deliver well over our original revenue target. In addition, because end-market demand was strong across the board, we strategically optimized our product mix, which resulted in gross margin expansion in each consecutive quarter, with the December quarter coming in at 36.7%, on a non-GAAP basis, which is a record. All these factors significantly contributed to us crossing $1.00 quarterly non-GAAP EPS milestone last quarter. This quarter, we are happy to report non-GAAP earnings per share of $1.20, which further reinforces our Company’s strong earnings power of $4.00 to $5.00 annual EPS.

In summary, we achieved record results in 2021 thanks to our long-term planning and execution, our extensive product portfolio driven by our R&D capabilities and by serving as a dedicated and trusted partner to our customers. Our confidence in our business model and strategic positioning has never been greater than it is today. Now with most of our revenue coming from Tier 1 OEMs, I am proud to say that we believe we have crossed the chasm as an established company and are now a leading global power semiconductor supplier.

I want to thank our customers, business partners and shareholders for their support and confidence in the company. I also want to acknowledge our employees for an outstanding job and for staying focused and engaged with our customers while we navigate this challenging macro environment, especially in the midst of the continuing adversity of the pandemic. I am proud of the way we have come together while placing our employees’ health and safety at the center of our objectives in achieving our success.

As we look to the future, we now have our sights set on actively planning and marching towards $1 billion annual revenue with much stronger and more sophisticated R&D capabilities and supply chain operations, and with most of our customer base consisting of the world’s leading OEMs in the markets that we serve. We are excited about our growth trajectory.

Now, I will turn the call over to Stephen for an update on our business and a detailed segment report.  Stephen?


Page 3


Stephen Chang (President)

Thank you, Mike, and good afternoon, everyone.  I will start with an update on our business and then provide color on our segment results.

In the December quarter, demand for our products remained extremely strong and we continued to set new records in our revenues and profitability. We continued to work closely with our customers to strategically allocate our production capacity to help them avoid disruptions in the midst of a difficult environment, and at the same time, optimized for revenue and gross margins. While we do see some signs that historical seasonal patterns are beginning to return, which is healthy, at least for the remainder of this year, we expect global demand for semiconductors to remain stronger than the industry's ability to meet it.

Regarding our capacity plans, we continue to focus on strategically strengthening and diversifying our production capacity.

Our Oregon fab is currently undergoing a $100 million R&D facilities upgrade and capacity expansion project, which is expected to be completed in the December quarter of 2022. Equipment has already been ordered and the clean room expansion is in progress. When completed, we estimate the incremental revenue based on this new capacity to be approximately $70 million annually.

As Mike already mentioned, we reduced our equity ownership in our joint-venture fab in Chongqing below the controlling threshold of 50%, effectively allowing the joint venture to legally separate its operations as its own independent entity. Yifan will provide more details on this in his section of this call. This transaction marks an important step for both us and our joint venture. For the JV, this means greater flexibility in future capital raises to expand its manufacturing capabilities. For AOS, it allows us to focus our attention towards executing our Oregon fab expansion plans and further diversifying our supply chain across other foundry partnerships. In the years to come, we are looking forward to continuing to work closely with the JV as one of its key customers.

Finally, we are also focusing on expanding partnerships and increasing wafer supply from existing foundries as well as bringing on new foundries.

In summary, these efforts are all part of our long-term strategy for sustainable growth. With current challenges in the semiconductor industry, especially the global capacity shortages, we are thankful to own and control much of our supply chain, while also being strategic about our risk management and capital allocation decisions by diversifying our supply chain with contract foundries.  We believe this strategy provides the right balance of flexible capacity that allows us to be nimble during periods of industry overcapacity and economic slowdowns.

Now, let me drill down into each of our business segments.  Unless otherwise noted, the following figures refer to the December quarter of 2021.

Let’s start with Computing. Revenue was up 35.9% year over year and up 11.9% sequentially.   This segment represented 45.5% of our total revenue.  As expected, end demand for our products was strong. To best allocate capacity, we shifted resources and production to support the Computing segment, especially notebook and desktop applications as well as graphics cards.


Page 4


Looking ahead into the March quarter, which is typically our seasonally slowest quarter following strong holiday shipments, we expect Computing revenue to be slightly lower to about flat.  We expect strong demand to continue at our ODM customers for notebooks and desktop applications.  This will be partially offset by a slight decline in graphics cards following a strong shipment in calendar Q4 as we reallocate our resources to support demand in other areas such as client computing.

Turning to the Consumer segment, revenue grew 9.9% year over year and declined 4.6% sequentially, and represented 20.1% of our total revenue.  The year over year growth was primarily driven by strong demand in Home Appliances and share gains in Gaming, both at Tier 1 OEMs. The sequential results were lower than our original target primarily due to timing of shipments in Gaming, as one of our major customers pushed out orders for our MOSFET and Power IC products to the March quarter due to component delays from another supplier. Our total company revenue was not affected as we were able to quickly shift wafer capacity to other parts of the business.

Accordingly, we expect our Consumer segment will achieve strong double-digit sequential growth in the March quarter, as we re-accelerate shipments to this particular gaming customer after they resolve their other supply shortages.

Next, let’s discuss the Communications segment, which was 13.2% of total revenue, down 5.1% year-over-year and down 0.8% sequentially. This segment played out better than we anticipated last quarter as we saw stronger demand from the world’s two leading smartphone makers in the U.S. and Korea, which helped offset some weakness we expected from our China OEMs.  We continue to believe we are in an excellent position for growth in battery protection over the next couple of quarters as we have secured designs at all the major global smartphone makers.

Finally, let’s talk about the Power Supply and Industrial segment, which accounted for 19.5% of total revenue.  This segment was up 30.7% year-over-year and down 0.5% sequentially, which was largely in-line with our expectations.  In the December quarter, we slightly reduced allocation to our AC-DC power supply business following two consecutive quarters of strong shipments, however, demand for our power supplies, particularly laptops, remained strong relative to the prior year. Further, we resumed shipments to a top US solar microinverter maker and increased allocation to support the growing demand for our industrial solutions with a Tier 1 U.S. power tool manufacturer. Power tools is an emerging application for us with great synergy given our product strengths in low and medium voltage products targeting battery management and brushless DC motors.

Looking ahead, we expect our Power Supply and Industrial segment to decrease slightly in the March quarter due to a temporary slow-down in our AC-DC power supply business due to allocation while our recently ramped solar and power tools business remain elevated.

To wrap up, it was another outstanding quarter for AOS and our business continues to fire on all cylinders. We continue to work diligently to deliver products to our customers on time and stay laser focused on executing our capacity expansion and diversification plans.


Page 5


With that, I will now turn the call over to Yifan for a discussion of our fiscal second 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.

Before I start to discuss the financial results for the quarter, I would like to say a few words about the changes of our equity interest in the JV Company and related accounting and financial reporting.  As disclosed previously on our Form 8-K, we completed a sale of 2.1% of our equity interest in the JV Company for $16.9 million on December 2, 2021, which resulted in the deconsolidation of the financial statements of the JV Company as we were no longer the controlling shareholder.  Subsequently in December, we completed another sale of 1.1% equity interest for $9.4 million and the JV Company also issued approximately 4% equity interest to its employee stock ownership plan. With the above transactions, our equity interest in the JV Company at the end of December was 45.8% and our equity investment recorded on the balance sheet was $376.1 million.  In addition, an after-tax net gain of $358.7 million was recognized on the income statement for the quarter, and we excluded such gain from our non-GAAP financials as it was not related to our on-going business and operations.  Nevertheless, the gain indicated the equity value that we created during the last few years, while we built up the JV Company as one of our major suppliers.  Subsequent to the December quarter, the JV Company completed an equity financing transaction of $80 million, representing approximately 7.82% of post-transaction outstanding equity of the JV Company, which further diluted our equity interest to 42.2% as of January 26, 2022.  In our financial reports beginning with the month of December, we now account for our equity interest in the JV Company under the equity method of accounting.  We also elected to record our pro-rata share of the JV’s net earnings on a one-quarter lagging basis. We will exclude it from our non-GAAP results so it’s easier for our shareholders to see the financial performance of our ongoing business and operations.  Finally, going forward, because we are now a minority shareholder in the JV Company, we will no longer discuss the operations of the JV Company.

With that, let’s discuss the financial results for the quarter.  Unless otherwise noted, the following figures refer to the December quarter of 2021.

Revenue was $193.3 million, up 3.4% from the prior quarter and up 21.7% from the same quarter last year.

In terms of product mix, DMOS revenue was $135.0 million, up 3.3% sequentially and up 13.9% year-over-year.  Power IC revenue was $55.1 million, up 5.3% from the prior quarter and up 47.4% from a year ago.  Assembly service revenue was $3.2 million as compared to $4.0 million last quarter and $2.9 million for the same quarter last year.

Non-GAAP gross margin was 36.7%, up from 35.3% in the prior quarter and up from 31.4% in the same quarter last year.  The quarter-over-quarter increase in non-GAAP gross margin was mainly driven by better product mix.  Non-GAAP gross margin excluded $0.8 million of amortization of purchased IP for the December quarter, the prior quarter, and the same quarter last year, respectively.  In addition, non-GAAP gross margin excluded $1.7 million of share-based compensation charges, as compared to $0.6 million for the prior quarter and $0.4 million for the same quarter last year.


Page 6


Non-GAAP operating expenses were $33.5 million, compared to $35.1 million for the prior quarter and $31.5 million for the same quarter last year.  The quarter-over-quarter decrease was primarily due to the deconsolidation of one month of the JV Company’s operating expenses and lower variable compensation accruals this quarter.

Non-GAAP income tax expense was $1.3 million, which excluded $32.8 million of tax expense on the gain of our equity interest in the JV Company, compared to $1.3 million for the prior quarter and $0.7 million for the same quarter last year.

In sum, non-GAAP EPS attributable to AOS was $1.20 per share as compared to $1.06 for the prior quarter and 65 cents for the same quarter last year.

Now, let’s look at cash flow.  Consolidated operating cash flow was $50.8 million, including $11.2 million net customer deposits.  Operating cash flow in the prior quarter was $80.6 million, which included $40.2 customer deposits.  Operating cash flow a year ago was $36.1 million, which included $10 million customer deposits.

Consolidated EBITDAS was $46.7 million, compared to $45.3 million for the prior quarter and $31.6 million for the same quarter last year.

Let’s move on to the balance sheet.  Please note that the balance sheet accounts at December 31, 2021 no longer consolidated the JV Company anymore.

We completed the December quarter with cash balance of $269.3 million, compared to $252.5 million at the end of last quarter, which included $20.9 million cash balance at the JV Company.  The cash balance a year ago was $181.0 million, which included $38.7 million at the JV Company.

You will note that our bank borrowing balance was $22.7 million, compared to $159.2 million a quarter ago, which included $137.0 million from the JV Company.  During the quarter, we repaid $2.1 million of existing term loans and borrowed $2.5 million of working capital loan.

In terms of trade receivables and inventory, Days Sales Outstanding for the quarter was 27 days, flat as compared to the prior quarter.  Average days in inventory were 105 days for the quarter, compared to 117 days in the prior quarter.  The reduction in inventory days was mainly due to the deconsolidation of the JV Company.

Finally, our fixed assets balance was significantly reduced, again primarily due to the deconsolidation.  Net Property, Plant and Equipment was $196.7 million, down from $441.3 million last quarter and down from $430.8 million last year.  AOS capital expenditures for the quarter were $22.7 million.

The deconsolidation of our JV financials really shines light on the strength of our balance sheet which has relatively low fixed assets compared to our earnings power and very low debt.

Now, I would like to discuss March quarter guidance.


Page 7


We expect:

Revenue to be approximately $194 million, plus or minus $3 million.
GAAP gross margin to be 35.1% plus or minus 1%.  We anticipate non-GAAP gross margin to be 36.0% plus or minus 1%.  Non-GAAP gross margin excludes $0.8 million amortization of acquired IP and $1.0 million of estimated share-based compensation charges.
GAAP operating expenses to be in the range of $41.9 million plus or minus $1 million.  Non-GAAP operating expenses are expected to be in the range of $34.5 million plus or minus $1 million.  Non-GAAP operating expenses exclude $7.0 million of estimated share-based compensation charges and $0.4 million of estimated legal expenses relating to the government investigation.
Interest expense to be approximately $0.5 million.  And
Income tax expense to be in the range of $1.2 million to $1.4 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; our relationship with the JV Company and impact of deconsolidation; the global capacity constraint; our ability and strategy to develop new products; projected annual revenue target; fluctuation in customer demand and market segments; 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 impact of COVID-19 pandemic on our business operation; 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, the state of semiconductor industry and seasonality of our markets, 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, 2021 filed by AOS on August 30, 2021. 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.



Page 8


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