Alpha and Omega Semiconductor Limited (NASDAQ:AOSL) Q1 2024 Earnings Call Transcript

Alpha and Omega Semiconductor Limited (NASDAQ:AOSL) Q1 2024 Earnings Call Transcript November 6, 2023

Alpha and Omega Semiconductor Limited beats earnings expectations. Reported EPS is $0.33, expectations were $0.32.

Operator: Good afternoon. Thank you for attending today’s Alpha and Omega Semiconductor Fiscal Q1 2024 Earnings Call. My name is Cole and I’ll be the moderator for today’s call. [Operator Instructions] I would now like to pass the conference over to our host, Yujia Zhai. Please go ahead.

Yujia Zhai: Good afternoon, everyone and welcome to Alpha and Omega Semiconductor’s conference call to discuss fiscal 2024 first quarter financial results. I am Yujia Zhai, 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 7 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 with business updates, including strategic highlights and a detailed segment report. After that, Yifan will review the financial results and provide guidance for the December quarter. Finally, we’ll have the Q&A session.

The earnings release was distributed over the wire today, November 6, 2023, after the markets close. The release is also posted on the company’s website. Our earnings release and this 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 certain forward-looking statements, including discussions of the bins 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.

For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We assume no obligation to update the information provided in today’s call. With that, I will now turn the call over to our CEO, Stephen Chang. Stephen?

Stephen Chang: Thank you, Yujia and good afternoon, everyone. I will begin today with a high-level overview of our results and then jump into segment details. We delivered fiscal Q1 results in line with our guidance. Revenue was $180.6 million. Non-GAAP gross margin was 28.8% and non-GAAP EPS was $0.33. These results were driven by strong shipments across notebooks, desktop computing and smartphones for fall device launches and the Q4 holiday season. I am pleased that our team delivered solid execution amid macroeconomic headwinds and inventory corrections in some end markets. We have been managing our business through various cycles and coping with an ever-changing business environment but our principle remains unchanged. AOS is committed to building towards long-term growth.

We are steadily extending the reach of our business into future and new applications and broadening our product portfolio to address increasing global power trends. As an example, we are leveraging our core technology IP and strength in advanced computing, battery, motor and power supply and continue to invest in new adjacent markets like data centers for AI, automotive and energy generation. In addition, we are taking products deeper into our existing core markets with more integrated solutions that will drive higher BOM content. By investing in new adjacent markets as well as going deeper into our core markets, we believe we will be well positioned to emerge stronger than ever on the other side of this cycle. The rebound in PCs and smartphones is encouraging following multiple quarters of inventory correction.

However, we remain cautious about a sustained broader recovery as we are seeing signs of demand constraints in other end markets which are feeling the effects of the persistent high interest rate environments and geopolitical uncertainties. Moreover, gaming which has been a significant revenue driver for us is now going through an inventory correction as we indicated last quarter. While we cannot be immune to the macroeconomic headwinds, it is important to reiterate that our core fundamentals remain strong. Many of our strategic investments over the past years have better positioned us for sustainable growth. We are excited to have a record number of Tier 1 customer partnerships and growing market share in strategic applications across many of our end markets.

We continue to expect to navigate the current environment better than the broader market that we serve. With that, let me now cover our segment results and provide some guidance by segment for the next quarter. Starting with computing. September quarter revenue was down 21.2% year-over-year but up 35.1% sequentially and represented 38.9% of total revenue. These results were driven by solid recovery in shipments across notebooks, tablets and desktop computing applications. The recovery has been driven by high-end driver ICs and MOSFETs for powering CPUs. Looking forward into the December quarter, we expect this segment to be down low single digits following a strong September quarter. Turning to the consumer segment. September quarter revenue was down 31.3% year-over-year and down 28.9% sequentially and represented 17.2% of total revenue.

As we indicated last quarter, gaming is going through an inventory correction after an extremely strong 12 months of shipments into the number one console manufacturer. Similar to what we saw in PCs and smartphones earlier this year, given the speed of the current correction, we believe demand will revert back to a new normal in a couple of quarters, factoring in that the console is now in its midlife part of the platform cycle. However, we do see opportunities to increase BOM content within the current console platform as part of its refresh next year. Longer term, our relationship with this customer is very strong. and we are already engaged in discussions for their next model design. For the December quarter, we anticipate a further mid-20% decline in this segment.

Next, let’s discuss the communications segment. Revenue in the September quarter was down 1.3% year-over-year but up 8.2% sequentially and represented 17.2% of total revenue. These results were driven by strong shipments to the number one U.S. smartphone manufacturer for their fall phone launch and continued strong demand from Chinese smartphone OEMs for their high-end devices. Looking ahead, we anticipate this segment to remain at current healthy levels, driven by continued strong shipments to Chinese OEMs ahead of their winter and spring launches. Now let’s talk about our last segment, power supply and industrial which accounted for 23.1% of total revenue. September quarter revenue was slightly below our prior expectations, increasing 2.1% year-over-year and 0.5% sequentially.

These results were driven by strong shipments for quick chargers for peak season to our Tier 1 U.S. smartphone customer but offset by weakness in power tools. For the December quarter, we expect this segment to decline in the low teens sequentially mainly due to reduced quick chargers following the peak season and lower solar demand. In closing, we delivered a solid fiscal Q1. We are closely monitoring market dynamics and macro headwinds. However, our fundamentals are strong and we are focused on positioning the company towards growth beyond our $1 billion revenue target on the other side of the cycle, driven by our leading technology, more diversified product portfolio, Tier 1 customer base in all our business segments and expanding manufacturing capability and supply chain.

With that, I will now turn the call over to Yifan for a discussion of our fiscal first quarter financial results and our outlook for the next quarter.

Yifan Liang: Thank you, Stephen. Good afternoon, everyone and thank you for joining us. Revenue for the quarter was $180.6 million, up 11.8% sequentially and down 13.4% year-over-year. In terms of product mix, DMOS revenue was $121.5 million, up 27% sequentially and down 16% over last year. Power IC revenue was $52.7 million, down 10.5% from the prior quarter and 15.4% from a year ago. Assembly service revenue was $0.7 million as compared to $0.6 million last quarter and $1.6 million for the same quarter last year. License and engineering service revenue was $5.6 million for the quarter versus $6.3 million in the prior quarter. Non-GAAP gross margin was 28.8% compared to 28.5% in the prior quarter and 35.4% a year ago. The quarter-over-quarter increase in non-GAAP gross margin was mainly driven by the mix improvement.

Non-GAAP operating expenses were $40.8 million compared to $39.1 million for the prior quarter and $36.6 million last year. The quarter-over-quarter increase was primarily due to higher R&D engineering expenses and professional service fees. Non-GAAP quarterly EPS was $0.33 compared to $0.19 last quarter and $1.20 a year ago. Moving on to cash flow. Operating cash flow was $13.8 million, including $8.6 million of repayment of customer deposits. By comparison, operating cash flows was negative $28.2 million in the prior quarter and positive $36.7 million a year ago. EBITDAS for the quarter was $23.3 million compared to $17.7 million last quarter and $45.5 million for the same quarter last year. Now let me turn to our balance sheet. We completed September quarter with a cash balance of $193.6 million compared to $195.2 million at the end of last quarter.

Net trade receivables were $34.4 million compared to $22.4 million at the end of the prior quarter. Days sales outstanding were 18 days for the quarter versus 19 days for the prior quarter. Net inventory was $187.8 million at quarter end compared to $183.2 million at the end of the prior quarter. Average days in inventory were 129 days compared to 140 days in the prior quarter. CapEx for the quarter was $12.5 million compared to $19.2 million for the prior quarter. We expect CapEx for the December quarter to range from $10 million to $15 million. Now I would like to discuss December quarter guidance. We expect revenue to be approximately $165 million, plus or minus $10 million; GAAP gross margin to be 27.1% plus or minus 1%. We anticipate non-GAAP gross margin to be 28.5%, plus or minus 1%; GAAP operating expenses to be in the range of $48 million, plus or minus $1 million.

Non-GAAP operating expenses are expected to be in the range of $40.3 million, plus or minus $1 million; interest expense to be approximately $1.1 million and income tax expense to be in the range of $0.8 million to $1.2 million. With that, we will open up the call for questions. Operator, please start the Q&A session.

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Q&A Session

Operator: [Operator Instructions] Our first question is from Jeremy Kwan with Stifel.

Jeremy Kwan: Maybe a first question on the gaming market that you talked about maybe of potentially hitting a new normalized run rate. Can you just help us understand how big is gaming as a percent of the consumer revenue, what it was at the peak and maybe where you expect that to kind of settle out? And finally, where you might see this new normalized run rate, where could it go, I guess, as we push the mid- to end of this gaming cycle?

Stephen Chang: Sure, Jeremy. Yes, gaming is an important segment for us and we’re excited about the segment in general because there’s quite a bit of content going into these systems, pretty much like a specialized PC. So all the solutions we have going into PC also goes into gaming. The console that we sell into generally has a lifetime of up to about 7 years. And right now, we’re in about years 4 of that 7-year life cycle. And it’s about the time, if you look at the previous consoles, that annual shipments start to drop some. And that correction was taking in place now. And just like we saw a correction in some of the other markets that we’re in, even gaming has to go to that correction. But right now, it’s in the middle of that correction.

So when we see that it’s going to revert back, we believe that it’s going to — it will be above the current rate but below the peak from a few quarters ago. So I would say somewhere in between is probably about right. And we continue to work closely with this particular console maker with opportunities also to designing more content. But overall, I think in the peak, to answer your question, it was up to maybe about almost half of our total consumer segment. Right now, maybe it’s somewhere around 30% or something in that range, 20% and 30% of the consumer business. But that’s just during the correction. We do expect it to bounce back up again.

Operator: Our next question is from David Williams with Benchmark.

David Williams: Congrats on navigating the challenging environment. So a couple of quick things. You talked a little bit about the data center and AI opportunity there in your script. And I know this is an area you’ve been working on for some time. But just you talked about having good controllers and power stage to address this market. Just wondering if there’s anything new there that you can share or just generally how you’re seeing your opportunity in that market.

Stephen Chang: How we’re seeing it, we’re getting some business today. The type of applications in terms of the circuit topologies that AI addresses is very similar to that being used in graphics cards and actually any kind of point of load such as for the CPU but especially for graphics card because you’re basically powering a highly parallel processor. And we have good solutions from controller to the power stage that can address high computing applications, including artificial intelligence type of hardware. So for us, we do have some small business now. We do see the potential for a lot more going forward. But for us, we’re also working on transitioning from addressing client side to moving over to the data center AI side. So that and all those efforts are in process.

David Williams: Great, that helps. And then, maybe just on the PC side and the client side. Can you talk a little bit about the content increases between Raptor Lake and Metor Lake and if you should begin to see those benefits pull in during the December period as we get ready for that next release slated for the end of the year.