This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Good afternoon, everyone, and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2023, fourth quarter, and fiscal year-end financial results. I am Eugene Zai, investor relations representative for AOS. With me today are Stephen Chang, our CEO, 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 today. Stephen will begin by providing business updates, followed by a detailed segment report. After that, Yifan will review financial results and provide guidance for the September quarter. Finally, we will have the Q&A session. The earnings release was distributed over the wire today, August 9, 2023, after the market closed. The release is also posted on the company's website. Our earnings release and the presentation include 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. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the earnings release. We remind you that during this conference call, we will make 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 are different materially from such expectations. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with SEC. We assume no obligations to update the information provided in today's call. Now, I will turn the call over to our CEO, Stephen Chang. Stephen?
spk04: Thank you, Eugia, and good afternoon, everyone. I will begin today with a high-level overview of our results and then jump into segment details. Our team executed well and delivered an excellent quarter. Our fiscal Q4 revenue was above the midpoint of our guidance, and gross margin was above the high end of our guidance, which resulted in a solid bottom line. Revenue was $161.5 million, down 16.7% year over year, and up 21.9% sequentially. Non-GAAP gross margin was 28.5%, and non-GAAP EPS was 19 cents. These results were driven by solid recovery across notebook and desktop computing applications and strength of our diversified customer base and product portfolio in power supply and industrial end markets. Recall from the prior quarter call, we said our calendar Q1 results reflected our efforts to bring customer inventory levels back into balance as quickly as possible. We were confident then that due to our resilient fundamentals, we would see a swift recovery in Q2 and continued recovery in Q3 as we go into our peak season. I am happy to report that it is playing out in line with our expectations. As for the broader market, end consumer demand continues to be soft. However, we are optimistic that the worst phase of the cycle is behind us. We anticipate further recovery in our September quarter, which seasonally has been our strongest quarter. driven by fall smartphone launches and back to school. While we remain cautious, we expect to navigate the current environment better than the broader market that we serve, thanks to our robust tier one customer partnerships leading market share, as well as a much more diversified total solutions product portfolio serving a broader set of end markets across consumer, commercial, and industrial applications. In terms of our operations, Our near-term focus is on maintaining close collaboration with our customers while gearing up for our peak season to provide the best customer service possible. As we see repeatedly, by ensuring our products remain highly competitive, prioritizing long-term customer relationships, and consistently upholding our commitment to excellence and reputation as a reliable supplier, we become a favorite partner of our customers. As a result, they entrust us with more share. This approach has served as a cornerstone of our growth. It has helped us expand our Tier 1 customers across all our end markets, which in turn creates a positive flywheel and marketing effect that propels us towards achieving our long-term goals. With that, let me now cover our segment results and provide some guidance by segment for the next quarter. Starting with computing, June quarter was down 41.8% year-over-year, but up 36.8% sequentially and represented 32.2% of total revenue. These results were driven by a solid recovery in shipments across notebook and desktop computing applications following the sharp correction in the March quarter, which drew down inventories at our key customers. Looking forward into September, which is our seasonally strongest quarter, we continue to see encouraging recovery and expect further sequential growth in the high teens. Turning to the consumer segment, June quarter revenue was up 18.8% year-over-year and down 1.9% sequentially and represented 27.1% of total revenue. Our year-over-year growth in this segment was driven by strong shipments into gaming, e-scooter, and wearable applications. These results reflect our diversified product portfolio. Over the last couple of years, we strategically focused on these consumer applications targeting leading customers with our highly competitive low to medium voltage products. These initiatives broaden our revenue streams in this segment and enhance our performance and helped us to diversify our more traditional consumer areas such as TVs. For the September quarter, We do anticipate a 30% pullback in this segment as gaming begins an inventory correction after an extremely strong 12 months of shipments into the number one console manufacturer. Next, let's discuss the communications segment. Revenue in the June quarter declined 42.4% year over year and declined 10.7% sequentially and represented 10.7% of total revenue. The drop in revenue was primarily attributable to the inventory correction in smartphones and 5G telecom infrastructure. Fortunately, based on conversations with our customers and channel partners, we believe the inventory correction in smartphones is starting to abate, particularly in the premium tiers, and we anticipate a solid recovery in the second half of 2023, driven by our US smartphone customer fall launch and further share gains with them. In the September quarter, which is our seasonally strongest quarter, we are expecting over a 70% recovery in revenue sequentially in this segment. Now let's talk about our last segment, power supply and industrial, which accounted for 25.7% of total revenue. June quarter revenue was better than our prior expectations, increasing 16.1% year over year and 57% sequentially. These results were driven by strong demand for high performance and medium voltage MOSFETs used in quick chargers by our tier one US smartphone customer and China's high end smartphone OEMs. In addition, we saw stronger demand come from other applications such as solar and power tools. For the September quarter, we expect this segment to continue to be solid and be up low single digits sequentially. In closing, As we stated last quarter, we believe the worst of the inventory correction in PCs and smartphones has passed, and we look forward to a solid second half of 2023. While we remain cautious beyond our near-term visibility, our fundamentals have never been stronger. Driven by our leading technology, more diversified product portfolio, Tier 1 customer base in all our business segments, expanding manufacturing capability and supply chain. As such, we are confident we will emerge as an even stronger company on the other side of this cycle. With that, I will now turn the call over to Yvonne for a discussion of our fiscal fourth quarter and fiscal year-end financial results and our outlook for the next quarter. Yvonne?
spk03: Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the quarter was $161.5 million, up 21.9% sequentially, but down 16.7% year over year. In terms of product mix, DMOS revenue was $95.7 million, up 18.2% sequentially, but down 30.8% over last year. PowerIC revenue was $58.9 million, 24.2% from the prior quarter and 9.8% from a year ago. Assembly service revenue was $0.6 million as compared to $0.6 million last quarter and $2 million for the same quarter last year. License and engineering service revenue was $6.3 million for the quarter versus $3.6 million in the prior quarter. Non-GAAP growth margin was 28.5% compared to 25.1% in the prior quarter and 33.8% a year ago. The quarter-over-quarter increase in non-GAAP growth margin was mainly driven by the mixed improvement and higher license and engineering service revenue. Non-GAAP operating expenses were $39.1 million compared to $36.2 million for the prior quarter and $36.7 million last year. The quarter-over-quarter increase was primarily due to higher R&D engineering expenses and last quarter's reversal true-up in variable compensation accrues. Non-GAAP tax expense was $0.8 million versus $2.5 million last quarter and $1.2 million in the prior year. The quarter-to-quarter decrease was mainly resulted from higher actual R&D credit and withholding tax paid last quarter related to the $18 million license fee we received. Non-GAAP quarterly EPS was $0.19 compared to negative $0.21 last quarter and $0.95 a year ago. fiscal year ended June 30, 2023 was $691.3 million with non-GAAP EPS of $1.86 as compared to revenue of $777.6 million and non-GAAP EPS of $4.56 for the prior fiscal year. The decrease in financial performance was largely due to the industry-wide inventory correction. Moving on to cash flow. Operating cash flow was negative $28.2 million, which reflected $3.8 million of repayment of customer deposits and $11.3 million deposits that we made to secure silicon carbide wafer supply and fluctuation in working capital. By comparison, operating cash flow in the prior quarter was positive $11.6 million and $25.7 million a year ago. We expect to see a positive operating cash flow for the September quarter. EBITDA for the quarter was $17.7 million compared to $6.5 million last quarter and $36.9 million for the same quarter last year. A couple of other items that impacted our cash balance this quarter worth mentioning are that during the quarter, we repurchased 441,000 shares of our stock for $10.8 million under our previously announced share repurchase program. In addition, we also repaid back $16.3 million of debt under bank loans that matured during the quarter. Now let me turn to our balance sheet. We completed the June quarter with a cash balance of $195.2 million compared to $265.9 million at the end of last quarter. Net trade receivables were $22.4 million compared to $19.4 million at the end of the prior quarter. Sales outstanding were 19 days for the quarter. versus 30 days for the prior quarter. Net inventory was $183.2 million at the quarter end compared to $179.8 million at the end of the prior quarter and $158 million last year. Average days in inventory were 140 days compared to 152 days in the prior quarter. We expect an average days in inventory continue to improve along with our revenue recovery. CapEx for the quarter was $19.2 million. We expected CapEx for the September quarter to range from $15 million to $20 million. We expect to complete our Oregon Fed expansion in the September quarter. Now I would like to discuss September quarter guidance. We expect revenue to be approximately $180 million plus or minus $10 million. Gap gross margin to be 27.2% plus or minus 1%. We anticipate a non-gap gross margin to be 28.5% plus or minus 1%. Gap operating expenses to be in the range of $48 million plus or minus $1 million. Non-gap operating expenses are expected to be in the range of $40 million plus or minus $1 million. Interest expense to be approximately $1.2 million, and income tax expense to be in the range of $0.8 million to $1.2 million. With that, we will open the call for questions. Operator, please start the Q&A session.
spk07: Thank you. We will now begin the Q&A session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by 2. Again, to ask a question, press star 1. We will pause here briefly as questions are registered. Our first question is from David Williams with Benchmark. Your line is now open.
spk02: Hey, good afternoon. Thanks for letting me ask the question, and congrats on the execution and really solid results here. I also wanted to congratulate you on the logo refresh and web page redesign. It looks really good.
spk04: We appreciate it.
spk02: Yeah. So it looks like you guys did a really good job on depleting the channel inventories over the last couple of quarters. Do you get a sense that now you're shipping to consumption, or is there a chance that we're seeing some pull-in for replenishment rather than for sell-through?
spk03: But right now, Dave, you know, our channel inventory, right, I mean, right now, you know, after March quarter's correction and June quarter's continued efforts, so now there's more that our channel inventory dollar amount is more in line with our revenue level. So, I mean, right now there's more we are, you know, going with market, I mean, whatever the demand is. we can see.
spk02: Okay, great. And maybe if you could just talk about the cadence of orders through the quarter and how those progressed. I know some peers have pointed to strong March, April, and May with a meaningful decline kind of in June. I wonder if you're seeing the same dynamics or if you're positioning it maybe just differently and you're not seeing those same impacts.
spk04: I think we're relatively fairly steady in terms of the revenue throughout the quarter. It's not any kind of hockey stick in any direction. Overall, in general, we do generally see that our business, as we predicted, as inventory correction got better, it would start to come back. So this is why we see the June number showing that partial recovery. And as we head into September, you know, we expect to see a little bit more recovery there as well, too. So overall, it's largely playing out as we're expecting it to. You know, certainly, you know, I'm we're we want to we want to come back stronger, faster. But we are encouraged to see the progress and the return to some of our business that was on hold back in the March quarter.
spk02: Okay, appreciate the color there. And then just one last one, if I can, real quick. You talked about the deposit for to supply some stick wafers. Just can you talk maybe about the tracks you're seeing within the silicon carbide market, where you're seeing the most activity, and how you think about that opportunity over the next few years?
spk04: Sure. For us, you know, we're excited about our silicon carbide business, our own business. You know, yes, we're also excited about the licensing deal, but really that's kind of the means to help us to really kickstart and to expand our own silken carbide business initiative. Right now, we're still in relatively early stages of the business portion of it. We've actually been working on the product and the portfolio release and the promotion on it of those products for quite a few years. And we're starting to see some revenue already, but it's still very small to start with. The type of business that we're trying to get into is automotive. This is one of our entry points to really get into the heart of automotive and especially going after the newer EV battery-powered vehicles. Our first products are targeted towards onboard charging. And as you can imagine, the design cycles for these types of critical applications are longer. They do take a few years to turn from design into revenue. We're starting to see some revenue now, but it will take some more time to see
spk07: to see more significant impact to our business thanks so much thank you david our next question is from craig ellis with b riley securities your line is now open yeah thanks for taking the question and congratulations on the execution guys
spk05: I wanted to start off with questions on the fiscal fourth quarter. So when I look at compute and industrial, we had expected those would be up, but they were both up significantly more than what I would have expected. So can you just clarify what the driver was for the upside strength in each of those end markets?
spk04: Sure. Well, let's talk about them in part. So the computing portion, was largely driven by inventory correction. That's where during the peak of the shortage period, several of our customers were very aggressive in accumulating supply. Those were the customers that had to work through their supply in order to match with the demand that they're currently seeing. When we made that adjustment back in the March quarter and going into the June quarter, it played out as we thought. Basically, the inventory correction is improving, and we see that because we started to see orders and started to fulfill orders for products that were on hold in the March quarter. So certainly computing, especially in the notebook side, even the motherboard desktop side, we saw recovery in those markets.
spk05: The other one you mentioned... And what about industrial, Stephen?
spk04: Industrial, yes. Industrial is a little bit tied to that also, but I think the bigger contribution is actually coming from quick chargers. The smartphone market itself is still rather slow in terms of the overall worldwide shipments, but the premium end phones seem to be doing better, and that's where we have more impact to our business. And for us, especially the high-end quick chargers, we started seeing more orders for that coming in fairly strong, especially when compared to the March quarter. So that's why we saw that bump up in the power supply and industrial. There were also other two subsegments within that sector that also grew in addition to Quick Charger, and that's on the power tools as well as on the solar power portions. So those also help a small degree, but the bigger portion is coming from the quickcharger side.
spk05: That's really helpful, Collar Steve. And the second question I wanted to ask is related to comments that the company feels like the inventory correction is moving along and we're behind. It seems like in many cases we are, but I wanted to ask the question this way. If we look beyond the fiscal first quarter to the fiscal second quarter, what are some of the gives and takes for growth across the businesses? Because when I look at some of our first quarter color with consumer off significantly as gaming console orders correct and inventory corrects, couldn't we be at risk for that same thing happening in PCs and smartphones as we move beyond their peak seasons. Can you just talk about the gives and takes there and what it means as you're looking beyond the fiscal first quarter to the fiscal quarter for growth gives and takes?
spk04: Sure. Each specific ed application has its own situation. And the gaming console, the difference there was that gaming actually never went into correction. It was actually About four full quarters, a very strong performance. Just keep in mind that this console maker, remember in the early days when they first released their platform, they had production issues. And because they couldn't source all the parts needed to build their consoles. But once the market slowed down and the supply chain eased up a bit, they quickly were able to catch up production. And that's what they were doing in the last 12 months. Going forward, they're about halfway through their whole product cycle for the lifetime of the console, and they never had to do any kind of correction before, and now this is the first quarter that they will have to do some production adjustments. So that's why we see specifically for gaming, their correction came late. We didn't see any correction in the past before until this coming quarter. Whereas the other segments, whether it's computing or smartphones, A lot of the inventory correction is already behind us. That happened already starting end of last calendar year and going into the March quarter of this year. So now it's more about the visibility of the market. And we're right in the middle of a full launch of the major U.S. filmmaker. It's also in the middle of the back-to-school time and in preparation for the holiday season. So our eyes are looking now more at the end markets with less of an impact from inventory control, at least for the computing and the smartphone markets.
spk05: And so with that being said, Stephen, does that mean since you feel like the business is recovering from inventory correction that the business should actually be up quarter on quarter in the December fiscal second quarter, or would you expect seasonal dynamics to be more at play and for the business overall to be down sequentially in fiscal 2Q?
spk04: Honestly, it's a little bit too early to tell right now. And our visibility is still looking at the current quarter that we're in. And we do need to see, again, how well the phones are received and how strong the holiday seasons are expected to be. So even in a normal year, and not in a downturn year, but a normal year, The calendar fourth quarter can go either way. It could remain strong, can go even stronger, or start to adjust because, again, March quarter is usually the seasonally low. So seasonality does play a factor, but for the December quarter, it simply just depends on the strength of those key drivers there with back-to-school and with the phone launches.
spk05: Got it. So we'll keep our eye on in-demand. That's helpful, Stephen. And then, Ifan, I want to just close out with you. So great to see the significant gross margin upside in the quarter, and it's guided to a high level, but it is flat when revenues are up significantly, so I would have expected a volume benefit to gross margin sequentially. Can you just talk about the gives and takes in gross margin quarter on quarter in fiscal 1Q? Thank you.
spk03: Sure. For the September quarter's margin right now, you can see those incremental revenue pretty much, the mix is in line with the June quarter. And then in terms of utilization, it's kind of largely muted compared to the June quarter. Because June quarter, we were ramping up our So, you know, overall our production level is expected to be relatively similar, at a similar level, you know, for the September quarter as compared to the June quarter.
spk05: Okay, so does that mean we'd need to see revenues materially above 180 million a quarter before we got that volume and utilization help to gross margin from here. Yifeng?
spk03: Right. I mean, for our Oregon FAB, you know, utilization actually in the June quarter was relatively good. I mean, not, you know, it was okay. So the benefit of incremental benefit and yet may not be as strong as the revenue recovery indicated.
spk05: Stephen, Yifan, thank you very much.
spk04: All right. Thank you, Craig.
spk07: Thank you, Craig. Our next question is from Kyle Smith with Stifel. Your line is now open.
spk06: Hey, everyone. Kyle Smith on for Tori Spanberg and Jeremy Kwan here at Stifel. Kind of going off that, I had a question on CapEx. So you mentioned last quarter your expectations to see your CapEx gradually decline, and it looks like you're guiding for the September quarter to be roughly similar to the June quarter. So do you have any update here as you think about the rest of the fiscal year?
spk03: Right. I mean, right now, the for the September quarter, we can see a relatively, yeah, $15 million to $20 million level, maybe a couple of million dollars lower than the June quarter, but still in that range. Yeah, I mean, our Oregon Fab extension right now is toward the tail end of the payment process. So going forward, it's more like for the maintenance, deep bottlenecking, depending on our product requirements. Right now, I would say overall, our target model is try to target CapEx within the 6% to 8% of our revenue range, and that's our normal CapEx target.
spk08: Great, thank you.
spk07: There are currently no further questions registered, so as a reminder, it is star 1 on your telephone keypad. Our next question is from David Williams with Benchmark. Your line is now open.
spk02: Hey, Jim. Thanks for letting me ask a question, a follow-up question here. I guess, Yvonne, if you kind of think about the mix this quarter, the IC business, power IC, was up quite a bit sequentially. Just wondering how much of the gross margin improvement was from that mix and how you think that mix will flow into the next quarter despite maybe the segment mix.
spk03: Sure. Our PowerIC product line generally carries at a higher margin. Yes, in the current quarter, the PowerIC revenue recovered relatively compared to the March quarter at a bigger pace. Yes, because, you know, Back to last year also, when the supply was constrained, and so we optimized our shipment and product mix quite a bit. So tentatively, those products accumulated more inventory at a different level, at an ODM level, at an OEM level. So then March quarter, kind of corrected that quite a bit. So in the quarter, the mix definitely improved along with revenue recovery. So that would contribute to our gross margin improvement in the quarter quite a bit.
spk02: OK. Understood. And then just one last one. From a geographic perspective, can you talk a little bit about what you're seeing coming out of Asia? And is China better, worse, maybe neutral? There's been some mixed messaging, I think, around that market in terms of whether it's improving or still down. So any color around what you're seeing would be very helpful. Thank you. Sure.
spk04: You know, we, you know, everyone was looking at China as their reopening as a potential kickstart, you know, to not only China, but maybe to the rest of the world. And so far, I think, you know, opening it up, you know, it is, you know, there is a lot more activity there. And there is, you know, if you travel there, this is kind of like what it was before. But I'm not sure whether it's, I don't think it's actually translated over into retail spending being up. And it is up, but I would say that, you know, the expectations were for it to be higher. For AOS ourselves, you know, we do see, China, just like all the other regions, also went through a correction in the March quarter, and that also came back in the June quarter. So they're part of that recovery. We are counting on China as well as the rest of the Asia region, especially Taiwan and Korea, Japan, also to grow going forward.
spk08: Thank you.
spk07: There are no additional questions waiting, so I'll pass the conference back to the management team for any closing remarks.
spk03: This concludes our earnings call today. Thank you for your interest in AOS, and we look forward to talking to you again next quarter. Thank you. Thank you.
spk07: That concludes today's conference call. Thank you for your participation. You may now disconnect your line.
Disclaimer