Alpha and Omega Semiconductor Limited

Good day, ladies and gentlemen, and welcome to Alpha and Omega Semiconductor Reports Financial Results for the Fiscal Second Quarter of 2019, ended December 31, 2018. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Soyeon Jeong, ma'am, you may begin.

Thank you. Good afternoon, everyone, and welcome to the Alpha and Omega Semiconductors conference call for fiscal 2019 second quarter results. This is Soyeon Jeong, investor relations representative for the company. With me today are Dr. Mike Chang, our CEO, and Yifan Liang, our CFO. I would like to take this time to welcome Stephen Chang, who is joining us on today's call as a speaker. Stephen is the Senior Vice President of Marketing and he has been with the company since 2004. Yifan will begin the call with the review of the financial results for the quarter. Then Mike will review the business highlights, followed by Stephen who will provide a detailed segment report. After that, Yifan will follow up with the guidance for the next quarter. Finally, we'll reserve time for questions and answers. This call is being recorded and broadcasted live over the web and can be accessed for seven days following the call via the link in the investor relations section of our website at www.aosmd.com. The earnings release was distributed by Business Wire today, February 6, 2019, after the market closed. 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 our earnings release. We would like to remind you that during the course of this conference call, we'll make certain forward-looking statements including discussions of 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 subsequent filings with the SEC. We assume no obligations to update the information provided in today's call. Now, I'll turn the discussion over to Yifan, our CFO, to provide an overview of the second fiscal quarter financial results. Yifan?

Thank you, Soyoung. Good afternoon and thank you for joining us. Revenue for the December quarter was $114.9 million, essentially flat when compared to the prior quarter and up 10.6% from the same quarter last year. We performed well on the top line and overcame market challenges as a result of growing momentum in our higher value new products. In terms of product mix, MOSFET revenue was $93.3 million, up 1.1% sequentially, and up 9.6% year over year. RIC revenue was $19.4 million flat from the prior quarter and up 23% from a year ago. Assembly service revenue was $2.2 million as compared to $3.4 million for the prior quarter and $3 million for the same quarter last year. Regarding the segment mix, computing segment represented 48.5% of the total revenue, consumer 16.2%, power supply and the industrial 19.4%, communications 13.8%, service 2% and others 0.1%. Non-GAAP gross margin for the December quarter was 29.2% as compared to 29.7% in the prior quarter and 27.4% for the same quarter last year. The sequential decrease of 50 basis points in non-GAAP growth margin was primarily impacted by the fluctuation of production and operation expenses. Non-GAAP growth margin excluded $0.5 million of share-based compensation charge for the December quarter as compared to 0.5 for the prior quarter and $0.4 million for the same quarter last year. Non-GAAP gross margin also excluded $3.5 million of production ramp-up costs related to the Chongqing joint venture for the December quarter as compared to $1.1 million for the prior quarter. Non-GAAP operating expenses were $25.1 million compared to $24.5 million for the prior quarter and $21.3 million for the same quarter last year. Non-GAAP operating expenses excluded $3.9 million of share-based compensation charge as compared to $2.6 million in the prior quarter and $3.6 million for the same quarter last year. Non-GAAP operating expenses also excluded $3.7 million of pre-production expenses related to our Chongqing joint venture, as compared to $4.6 million in the prior quarter and $0 for the same quarter last year. Both GAAP and non-GAAP operating expenses included $3.1 million of digital power controller team expenses for the quarter, as compared to $2.7 million for the prior quarter and $0.4 million for the same quarter last year. Our digital power controller team continues to work with customers in product designs and is making steady progress toward our product roadmap. Income tax expense was $0.7 million for the quarter compared to $0.6 million for the prior quarter. and a tax benefit of $2.1 million for the same quarter last year due to a one-time tax benefit of $2.7 million as a result of the U.S. tax reform. Non-GAAP EPS attributable to AOS for the quarter was 30 cents per share as compared to 36 cents per share for the prior quarter and 32 cents per share for the same quarter last year. AOS continued to generate positive operating cash flow. In the December quarter, we generated $22.1 million operating cash flow attributable to AOS as compared to $18.4 million for the prior quarter and $12.2 million for the same quarter last year. The $22.1 million operating cash flow included $5 million customer deposit for securing more future shipment from us. Cash flow used in operations attributable to our Chongqing joint venture was $9.1 million for the December quarter, compared to $0.4 million for the prior quarter and $2.6 million for the same quarter last year. EBITDA for the December quarter was $13.5 million compared to $15.4 million for the prior quarter and $16 million for the same quarter last year. Moving on to the balance sheet, we completed the December quarter with cash and cash equivalent balance of $146.6 million, including $53 million cash balance at our Chongqing joint venture. as compared to $113.2 million at the end of last quarter, which included $32 million cash balance at the JV Company. Our cash balance a year ago was $146.2 million, including $57.1 million at the JV Company. During the quarter, our JV Company borrowed a working capital loan of approximately $14.5 million against the future value-added tax refunds. In addition, our joint venture partners contributed additional $24 million cash to the JV Company at the end of December 2018, which changed the AOS ownership back to 51% on the joint venture partners ownership to 49%. Net trade receivables were $33.9 million as compared to $37.1 million at the end of last quarter and $24.3 million for the same quarter last year. Day sales outstanding for the quarter was 23 days compared to 27 days in the prior quarter. Net inventory was $103 million at the quarter end, up from $98 million last quarter and from $85.7 million in the prior year. The inventory increase was primarily occurred at the JV company as we are ramping up mass production of assembly and test and preparing inventories for the 12-inch fab. Average days in inventory for the quarter as compared to 103 days in the prior quarter. Net property plant and equipment balance was $380.8 million as compared to $358.5 million last quarter and $193.3 million last year. Capital expenditures were $16.5 million for the quarter including $8.5 million from the JV company and $8 million from AOS. Before I turn the call over to Mike, I would like to say a few words on the update of our Chongqing joint venture. We are pleased that both the assembly and test production ramp and 12-inch fab 12 production were on track during the December quarter. will continue to ramp up our assembly and test production in the March quarter to reach our targeted production level in the June quarter. We expect to start the product sampling and customer qualification process with our 12-inch fab in the March 2019 quarter. With that, now I would like to turn the call over to our CEO, Dr. Mike Chen. who will provide the business highlights for the quarter. Mike.