Good day, ladies and gentlemen, welcome to the Alpha and Omega Semiconductor fiscal third quarter 2018 earnings conference call. At this time, all participants are in 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. I would now like to introduce your host for today's conference, Ms. So-Yeon Jeong. You may begin.
Thank you. Good afternoon, everyone, welcome to the Alpha and Omega Semiconductor conference call for fiscal 2018 third quarter financial results. This is So-Yeon Jeong, investor relations representative for the company. With me today are Dr. Mike Chang, our CEO, and Yifan Liang, our CFO. 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, May 2nd, 2018, 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 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 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. I'll turn the discussion over to our CFO to provide an overview of the third fiscal quarter financial results. Yifan?
Thank you, So-Yeon. Good afternoon, thank you for joining us. To begin, I will discuss financial results for the quarter. I'll turn it over to Mike, our CEO, who will review the company's business highlights, I will follow up with our guidance for the next quarter. We will reserve time for questions and answers. Revenue for the March quarter was $102.9 million, down 1% sequentially and up 10.3% year-over-year. Our new products continued to show strong momentum during our typically lowest season. In terms of product mix, MOSFET revenue was $84 million, down 1.3% from the prior quarter and up 18.6% from the same quarter last year. Power IC revenue was $15.7 million, down 0.5% from the prior quarter and down 18.8% from the same quarter last year.
Service revenue was $3.2 million as compared to $3 million for the prior quarter and $3.2 million from the same quarter last year. In terms of segment mix, this quarter's computing segment represented 41.3% of the total revenue. Consumer, 20.7%. Power supply and industrial, 21.2%. Communications, 13.5%. Service, 3.1%. Others, 0.2%. Non-GAAP gross margin was 26.8% for the March quarter as compared to 27.4% in the prior quarter and 24.6% for the same quarter last year. The decrease in non-GAAP gross margin quarter-over-quarter was mainly driven by the lower factory utilization due to the Chinese New Year holiday. Non-GAAP gross margin excluded $0.4 million of share-based compensation charge for the March quarter as compared to $0.4 million in the prior quarter and $0.2 million for the same quarter last year.
Non-GAAP operating expenses for the quarter were $21.7 million compared to $21.3 million for the prior quarter and $18.2 million for the same quarter last year. Non-GAAP operating expenses excluded $2.1 million of share-based compensation charge as compared to $3.6 million in the prior quarter and $1.5 million for the same quarter last year. Non-GAAP operating expenses also excluded $2.8 million of pre-production expenses related to the Chongqing joint venture for the March quarter. The higher non-GAAP operating expenses quarter-over-quarter were mainly due to the expense increase related to our digital power team from $0.4 million for the prior quarter to $1 million for the current quarter. As of the end of the March quarter, we had hired about a half of the team that we plan to build for the digital power business.
We expect to recruit up to two-thirds of the team by the end of the June quarter. Income tax expense was $28 million compared to income tax benefit of $2.1 million for the prior quarter, which included $2.7 million one-time tax benefit from the impact of the tax reform, as compared to income tax expense of $20.5 million for the same quarter last year. Net income attributable to AOS for the quarter was approximately $1.7 million, or $0.07 earnings per share, as compared to $0.27 earnings per share for the prior quarter and $0.14 earnings per share for the same quarter last year. Non-GAAP EPS attributable to AOS for the quarter was $0.23 earnings per share, as compared to $0.32 earnings per share for the prior quarter and $0.21 earnings per share for the same quarter last year.
Non-GAAP EPS for the quarter excluded the effect of share-based compensation expenses of $2.5 million and pre-production expenses related to the joint venture of $1.6 million. The diluted earnings per share calculation was based on approximately 24.8 million shares. We continue to generate positive operating cash flows attributed to AOS. Cash flow from operations attributable to AOS was $20.7 million for the March quarter, compared to $12.2 million for the prior quarter and $11.2 million for the same quarter last year. The lower operating cash flow attributable to AOS was due to the fluctuation in working capital, such as accrued expenses and accounts receivable. We expect to return to a normal cash generation level in the June quarter.
Cash flow used in the operations attributed to our Chongqing joint venture was $8.3 million for the March quarter, compared to $2.6 million for the prior quarter and $20.2 million for the same quarter last year. EBITDA for the March quarter was $12.3 million, compared to $16 million for the prior quarter and $12.6 million for the same quarter last year. Moving on to the balance sheet. We completed the March quarter with cash and cash equivalents balance of $125.2 million, including $46 million cash balance at our Chongqing joint venture, as compared to $146.2 million at the end of last quarter and $116.2 million a year ago. Also, we drew down $13.2 million loan from our equipment line of credit to fund our Oregon fabs capacity expansion.
Net trade receivables were $28.9 million as compared to $24.3 million at the end of the last quarter and $22.5 million for the same quarter last year. Day sales outstanding was 30 days for the quarter as compared to 33 days for the prior quarter. Net inventory was $90.5 million at the quarter end, compared to $85.7 million for the last quarter and $73.3 million for the prior year. Average days in inventory were 105 days for the quarter, compared to 98 days in the prior quarter. The increase in inventory was mainly in the raw materials and spare parts to support the production ramp expected in the June quarter and in the second half of 2018. Net property, plant, and equipment balance was $258.8 million as compared to $193.3 million last quarter and $126.1 million for the prior year.
Capital expenditures were $57.9 million for the quarter, including $45.5 million from our Chongqing joint venture and $12.4 million from AOS. We expect AOS Capital expenditures for the June quarter to be at a similar level as the March quarter. With respect to the Chongqing joint venture, the construction of the phase 1 clean rooms was completed by the end of the March quarter, and we are now in the process of installing equipment and conducting internal qualifications. We expect to gradually ramp up mass production for assembly and test in the second half of 2018, and start trial production for the joint venture's 12-inch fab toward the end of this year. When the phase 1 clean room is fully ramped, it can support approximately $150 million of additional annual revenue.
During the March quarter, we repurchased 402,000 shares of our stock for approximately $6 million under our existing share repurchase program. With that, now I would like to turn the call over to our CEO, Dr. Mike Chang, who will provide the business highlights for the quarter. Mike?
Thank you, Yifan. I am delighted to report solid performance for the March 2018 quarter. All of the key financial metrics exceeded the midpoints of our guidance range, reflecting year-over-year growth of 10.3% in revenue, 220 basis points in the non-GAAP gross margin, and 9.5% in non-GAAP earnings per share. We are consistently delivering the results that underscore our fine execution on our strategy in both long-term initiatives as well as the core business plans. Our core business momentum continues to gain robust traction. I will elaborate on two factors that contribute to our strengths. First, specific to AOS, we are now clearly seeing the benefits of the market-driven R&D investments that we started several years ago. Our design pipelines that represent future revenue potential for multiple years has been growing steadfastly, as demonstrated by the healthy revenue growth in the recent years.
We are pleased that our design-ins and design wins are now at the highest level in the company's history and continue to scale. Perhaps more exciting, some of the earlier investments we made are scheduled to ramp up in the second half of this calendar year. The scaling of new products demonstrated the competitiveness of our technology, and we believe that it will bring in meaningful revenue contribution and profitability to AOS. We are also strategically executing our capacity schedule to accommodate the planned shipments. Second, from the market standpoint, we are increasingly encouraged about developing trends that are driving sustainable growth in our markets. The computing industry has expanded to applications beyond personal computing to include artificial intelligence, big data, and Internet of Things. We have seen generation after generation of new mobile devices with increased functionality and power requirements.
The next level of networking offers a new world of connectivity to drive the digital economy and society. The proliferation of new devices and applications translates into more content and process power, creating the need for more sophisticated power management. As leader of power management, especially in the computing area, AOS is well-positioned to benefit from the new development of the large and fast-growing markets. Against this backdrop, I will now describe how we are positioned in each market we serve. Beginning with computing segment, it represents 41.3% of total revenue in the March quarter. It decreased by 3.9% sequentially, but increased by 10.9% year-over-year. The continued strong share penetration of our competitive Vcore products into high-end PCs and high-performance graphics card contributed to a healthy growth from year ago.
Our focus on R&D investments, coupled with the dedication to serve our customers, are bearing fruit, as exemplified by the ongoing double-digit year-over-year growth in this segment since December 2016 quarter. We believe that the emerging market trend will continue to present us with high-value opportunities for many years to come, and we remain committed to drive innovations to better support our customers. Looking ahead, we expect to see another healthy lift in our computing segment in the June quarter. Second, consumer. It was 20.7% of total revenue. It improved by 0.8% and 3.7% sequentially and year-over-year, respectively. AOS IGBT product line continues to demonstrate solid improvement. For the March quarter, its revenue increased more than enough to offset the decline in TV revenue caused by the soft demand from one of our major TV OEM customers.
Our IGBT products garnered more design wins and expanded further into new applications, including air conditioning. We are excited about the growing pipeline of this new product line. We are continued to manage our mix under tight supply. We expect the consumer business as a whole to decline slightly in the June quarter. Third, power supply in the industrial segment, it was 21.2% of the total revenue, which was up 4.6% sequentially and up 19.1% from the same quarter last year. Despite low seasonality, this segment performed stronger than we expected, driven by the increased shipment in medium voltage products for quick charger and various power supply applications. The superior performance of our medium voltage products enable us to penetrate the market and firmly secure our positions at key manufacturers.
The strength of the medium voltage products continues into June quarter, we expect overall revenue of this segment to slightly decrease in accordance with our allocation plan. Lastly, the communications segment. It represents 13.5% of the total revenue. It decreased 5% sequentially, but increased 9.1% year-over-year. This segment was temporarily impacted by our product mix management during the March quarter, we are optimistic about the outlook of the communications business, driven by the AlphaDFN product line for smartphone battery management applications. Since its introduction a couple of years ago, our AlphaDFN technology has been highly regarded and steadily accepted by major smartphone OEMs and ODMs, expanding market reach year after year. We are ramping up AlphaDFN production from this quarter and expect to continue to expand through the second half of calendar 2018.
With respect to the recent ZTE export ban, although we anticipate approximately $1 million of shipment loss due to this ZTE ban, we expect this segment to grow modestly in the June quarter. All in all, I am pleased with the exciting momentum underpinned by the record high of our design activities. Delivering consistent results, we have been carefully planning and investing in the capacity expansion of our Oregon fab. A great deal of heavy lifting will be substantially completed by the end of June quarter. The increased capacity from the second half of this year will enable us to not only realize more of revenue potential, but also cultivate deeper relationships with key customers. We are optimistic about the opportunities in front of us and remain committed to execute on our business plans to invigorate our earnings power.
With that, now let Yifan, our CFO, to give you June quarter guidance. Yifan.
Thank you, Mike. As we look forward to the fourth quarter of fiscal year 2018, revenue is expected to be in the range of $106 million to $110 million. Gross margin is expected to be approximately 26.5% ±1%. Non-GAAP gross margin is expected to be approximately 26.8% ±1%. Non-GAAP gross margin excludes $0.3 million of estimated share-based compensation charge. Operating expenses are expected to be in the range of $29.3 million ±$1 million. Non-GAAP operating expenses are expected to be in the range of $23 million ±$1 million. Both GAAP and non-GAAP operating expenses include $1.6 million to $1.8 million of estimated expenses relating to the development of our digital power team. Non-GAAP operating expenses exclude an estimated share-based compensation charge of approximately $2.3 million and estimated pre-production expenses relating to the Chongqing joint venture of $4 million.
Tax expenses are expected to be in the range of $1 million to $1.2 million. Loss attributable to non-controlling interest is expected to be around $2.6 million. On a non-GAAP basis, excluding the pre-production expenses of the joint venture, this item is expected to be approximately $0.5 million. The $2.1 million difference is due to the exclusion of estimated pre-production expenses in non-GAAP operating expenses. As per our regular practice, we're not assuming any obligations to update this information. We'll open up the floor for questioning. Operator?
Ladies and gentlemen, if you have a question at this time, please press star one on your touchtone telephone. If your question has been answered, or you wish to remove yourself from the queue, please press the pound key. Our first question comes from the line of Jeremy Kwan from Stifel. Your line is now open.
Yes, thank you. Congrats on a solid quarter. A couple questions. I guess first, if we can take a look at the capacity increase that you have for your Oregon fab. Can you give us a sense of how much headroom you currently have, and how much you expect to have by the second half of calendar 2018?
Sure.
Maybe in terms of either utilization or in terms of quarterly run rates.
Okay, sure. Utilization is up to the highest level for sure now, because we weren't short of supply. In terms of CapEx expansion, yeah, the June quarter, we see a little bit lift, which is reflected in our guidance. From our March quarter's revenue to our guidance range. You can see that's pretty much the contribution from the additional CapEx expansion. In terms of second half of the year, we would expect a similar scale of increase in the September quarter and onward.
Just to follow up on that, does that mean the CapEx spending you're planning to spend for the remainder of the year, is that to keep pace with the planned revenue growth?
Well, the CapEx expenses, right now the machines are coming in. Some of them installed already, so we can benefit some in the June quarter. During the June quarter, we'll expect the additional machines will continue to come in, we'll see some additional benefit in the September quarter. In terms of CapEx payment, I mean, March quarter, yes, we paid. In the June quarter, we need to pay similar level as March quarter. I would expect a cash payment, starting from the September may start decreasing. I mean, that's just toward the tail end of this expansion.
Great. I guess in terms of the impact to gross margin, at least from the Chongqing fab, as you ramp the 12-inch capacity there, how do you see that impacting your current gross margins?
Well, right now it's too early to give guidance on the Chongqing fab ramp. We will provide more guidance in the later quarters when we're close to the trial production ramp-up timeframe. Overall, yes, at the initial ramp-up periods, we will carve out some production ramp costs. I mean, if I turn on the whole 12-inch fab, and if I only produce a couple hundred wafers, I still have the full depreciation charge. We're going to perform out some production ramp costs until, I wouldn't say for too long time, but the first few quarters, we may do it.
Very good. Thank you very much.
Okay, thank you.
Our next question comes from the line of Edgar Rose from Sidoti. Your line is now open.
Yes, hi, nice quarter.
Thank you.
Yeah. Well, I did want to ask you about the transferring existing packaging and test equipment to the joint venture. Is it safe to say that that was sort of a one for one transition, and that you didn't have any change in capacity for those operations when you made that switchover? Or was there some sort of pickup that I'm not understanding?
Well, overall, for the assembly and test piece, actually we started transferring a little bit machines in the March quarter already for them to set up a production line to do the internal qualification. In the June quarter and September quarter, even the December quarter, throughout this year, we're going to transfer whatever the machines we contributed to the joint venture. Right now, initially, it's in a one-to-one movement from our Shanghai facility to the joint venture. During this process, yes, we're not going to move all the equipment at the same time, so that would impact on our delivery. No, we're going to carefully plan and map it out, and then we'll move them batch by batch.
Okay. On the initial transfer, no change in capacity for those operations. One question on your operating expenses. You're trending towards around maybe $87 million non-GAAP operating expenses this year, which, if that occurred, would be up about 20%. Do you think the fiscal 2019 number might be something below 5% increase? Because you've absorbed a lot of increases, even in a non-GAAP basis. Would you expect that the next fiscal year, it starts to flatten a little bit, or there's still so much investment to come?
Well, right now, as Mike mentioned, we're seeing good business opportunities in front of us. We'll invest in OPEX according with our business growth potential. We're not going to invest if we don't see the business opportunities. I would expect we'll continue to invest some, and then as far as percentage of the increase, it may come down a little bit. That's my current feeling. Maybe next quarter we'll give more guidance when we ended fiscal year 2018.
Okay. It seems pretty safe to say that 2X the revenue increase that we're kind of in the midst of this fiscal year would presumably flatten out a little bit, even if you continue to see the opportunities that you have.
Revenue growth right now is more hinged by the overall capacity. In the June quarter, we expanded some, we'll see additional benefit in the September quarter. Starting next calendar year, we would expect our joint venture started then taking over to provide the capacity supply to our calendar year 2019 growth.
Okay, great. I know it's a little bit early, but is there any reason to think that your joint venture margin structure wouldn't at least be on par with AOSL ex the joint venture? It seems like you should have at least a sort of on-par margin structure, if not maybe a little bit better because of the cost advantages. Is that fair to say?
Yes, I agree. In the initial ramp-up period, yes, we may see some cost increase. I would say we plan to perform it out for the first initial quarters.
Okay, there's no sort of transfer pricing issues that would materially deviate? You don't foresee that at this point?
Well, any related party transactions wouldn't subject to transfer pricing rules.
Okay.
That's a given. Overall, no matter which countries, nowadays, the overall principle is based on market fair price. That's the overarching principle.
Okay, that helps a lot. Thanks for the answers. Have a good afternoon.
Thank you.
Thank you.
Our next question comes from the line of Craig Ellis from B. Riley. Your line is now open.
Hi, guys. This is actually Plamen Zarkov calling in for Craig. Thanks for taking my questions.
Hi, Plamen.
Thank you. First, I wanted to dive a little deeper on the end markets. As we look at where you guys participate with respect to PCs, consumers, and more specifically, power supply and industrial segment, can you reconcile for us where you're seeing growth that is in line or above kind of the high single-digit rates that you've previously stated as far as your targets?
Okay, sure. In terms of segment, for calendar year 2018, we would expect our communication segment and the power supply segments are in the double-digit growth range. Particularly for the power supply industrial segment, as we saw in March quarter, our quick charging area, some high voltage areas as we rolled out our new platform, Ultimus V, recently. We would expect some pickup from there, providing healthy growth for the calendar year 2018. In the communications segment, we continue to see strong momentum in our battery pack management area, and also in the telecom, those areas, because of our good, strong mid-voltage product lines. For those two segments are the major high growth areas. In the computing area right now, we're seeing strong position from our new product platforms.
In the Skylake and Coffee Lake areas, we've picked up some share gains in the high-value sockets, such as Vcore and graphics cards, those areas. We continue to believe we can further gain market share, grow this segment. I would say probably in the mid to high single digit in the growth for this calendar year 2018. Lastly, the consumers, this segment, as Mike commented on, this segment subject to more supply constraints because of some of the products from our outside foundries. In this area, they're more in the allocation mode. Within this segment, we see a bright spot for our IGBT product lines.
Last calendar year, IGBT product line revenue crossed the $10 million mark, we would expect this year continue to grow in the IGBT product lines, as we can see a lot of design wins now started materializing.
That's very helpful. Going back to your commentary on the digital power team, you said that there should be an OpEx inflection only for the next quarter, or will that continue for the balance of the calendar year?
As of the end of March, we hired about half of the team than we plan to build. In the June quarter, we'll continue to recruit in Thailand. We estimate we can fill up to two-third of the team. For the second half of the year, yes, we'll continue to hire to build up this digital power team. This is very good opportunities for us and we have the commercially proven technologies and we have a broad customer base. This market opportunities are pretty sizable. We will continue to invest in this product line.
Great. Thank you.
Thank you.
Once again, if you have a question at this time, please press star then one. I'm showing no further questions at this time.
Okay. 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. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.