Good day, ladies and gentlemen, and welcome to the Alpha And Omega Semiconductor Fiscal Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen only mode. I would now like to introduce your host for today's conference, Ms. Sue Young Jong, You may begin.
Thank you. Good afternoon, everyone, and welcome to the Alpha And Omega Semiconductors conference call for fiscal 2018 third quarter financial results. This is Soehan Zhang, Investor Relations Representative for the company. With me today are Doctor. 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 7 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 2, 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 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. Now I'll turn the discussion over to our CFO. To provide an overview of the 3rd fiscal
Good afternoon, and thank you for joining us. To begin, I will discuss financial results for the quarter. Then I'll turn it over to Mike, our CEO, who will review the company's business highlights and I will follow-up with our guidance for the next quarter. Finally, we will reserve time for questions and answers. Revenue for the March quarter was $102,900,000 down 1% sequentially and up 10.3% year over year.
Our new products continue to show strong momentum during our typically lowest season. In terms of product mix MOSFET revenue was $84,000,000, down 1.3% from the prior quarter and up 18.6 percent from the same quarter last year. Power IC revenue was $15,700,000, down 0.5% from the prior quarter and down 18.8% from the same quarter last year. Service revenue was $3,200,000 as compared to $3,000,000 for the prior quarter and $3,200,000 from the same quarter last Computing segment represented 41.3 percent of the total revenue, consumer 20.7 percent Power Supply And Industrial, 21.2%, communications, 13.5%, service 3.1% and 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 percent 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 $400,000 of share based compensation charge for the March quarter. As compared to $400,000 in the prior quarter $200,000 for the same quarter last year. Non GAAP operating expenses for the quarter were $21,700,000, compared to $21,300,000 expenses excluded $2,100,000 of share based compensation charge as compared to $3,600,000 in the prior quarter $1,500,000 for the same quarter last year. Non GAAP operating expenses also excluded $2,800,000 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 0.2 from $400,000 for the prior quarter 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 Income tax expense was $800,000 compared to income tax benefit of $2,100,000 for the prior quarter, which included $2,700,000 one time tax benefit from the impact of the tax reform as compared to income tax expense of $500,000 for the same quarter last year. Net income attributable to AOS for the quarter was approximately $1,700,000 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 excluded the effect of share based compensation expenses of $2,500,000 and preproduction expenses related to the joint venture of $1,600,000. The diluted earnings per share calculation was based approximately 24,800,000 shares.
We continue to generate positive operating cash flows attributed to AOS. Cash flow from operations attributable to AOS was $700,000 for the March quarter, compared to $12,200,000 for the prior quarter 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 $8,300,000 for the March quarter and $200,000 quarter was $12,300,000 compared to $16,000,000 for the prior quarter and $12,600,000 for the same quarter last year. Moving onto the balance sheet.
We completed the March quarter with cash and cash equivalents balance of $125,200,000, including $46,000,000 cash balance at our Chongqing Joint Venture as compared to $146,200,000 at the end of last quarter, and $116,200,000 a year ago. During the quarter, our Tongqing Joint Venture received $42,000,000 cash contribution from the Chongqing investment funds. And also, we drew down $13,200,000 loan from our equipment line of credit to fund our Oregon fab's capacity expansion. Net treat receivables were $28,900,000, as compared to $24,300,000 at the end of the last quarter and $22,500,000 for the same quarter last year. Days sales outstanding was 30 days for the quarter as compared to 33 days for the prior quarter.
Net inventory was $90,500,000 at the quarter end, compared to $85,700,000 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 raw materials and spare parts to support the production run expected in the June quarter and in the second half of twenty eighteen. Net property plant and equipment balance was $258,800,000, as compared to $193,300,000 last quarter and $126,100,000 for the prior year. Capital expenditures were $57,900,000 for the quarter including $45,500,000 from our Chongqing joint venture and $12,400,000 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 qualification. We expect to gradually ramp up mass production for assembly and test in the second half of twenty eighteen and start trial production for the joint ventures 12 inches fab toward the end of this year. When the phase 1 clean room is fully ramped, it can be it can support approximately 150,000,000 dollars of additional annual revenue. During the March quarter, we repurchased 402,000 shares of our stock for approximately $6,000,000 under our existing share repurchase program. With that, now I would like to turn the call over to our CEO, Doctor.
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 matrices exceeded the midpoint of our guidance range, reflecting year over year growth of 10.3% in revenue 220 basis points in the non GAAP gross margin and the 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 2 factors that contribute to our strengths.
1st, 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 pipeline does represent future revenue potential for multiple years has been growing steady fastly as demonstrated by the healthy revenue growth in the recent years. We are pleased that our design wins 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, technology.
And we believe that it will bring in meaningful revenue contribution and the profitability to AOS. We are also strategically executing our capacity schedule to accommodate the planned shipments. 2nd, from the market standpoint, we are increasingly encouraged about the developing trends that are driving sustainable growth in our market. The computing industry has expanded to applications beyond personal computing. To include artificial intelligence, big data and the 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 the process of 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'll now describe how we are positioned Beginning with computing segment, it represents 41.3 percent of total revenue in the March quarter, It decreased by 3.9% sequentially, but increased by 10.9% year over year.
The continued strength has continued strong share penetration of our competitive vehicle products into high end PCs and high performance graphics car, contributed to a healthy growth from a 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 higher value opportunities for many years to come Looking ahead, we expect to see another healthy lift in our Computing segment
2nd,
Consumer, it was 20.7 percent of total revenue. It improved 5.8% and 3.7% sequentially and year over year respectively. AOS IGBT product line continues to demonstrate solid improvement For the March quarter, this revenue increased more than enough to offset the decline in TV revenue, cost by the soft demand from one of our major TV OEM customers. Our IGBT product 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.
However, we are continuing to manage our mix under tight supply. We expect the consumer business as a whole to decline slightly in the June quarter. 3rd, power supply and 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 the 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. While the strength of the 1,000,000 voyage 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. While this segment was temporarily impacted by our product mix management, during the March quarter, we are optimistic about our outlook of the communications business, driven by the alpha DFN product line for smartphone battery management applications.
Since it's in drug introduction a couple of years ago, our alpha DFN technology has been highly regarded and steadily accepted by major smartphone OEMs and OTMs, expanding market reach year after a year. We are ramping up our DFM 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 $1,000,000 of shipment loss due to the 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 While 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 theendofJune 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 that 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 $106,000,000 Gross margin is expected to be approximately 26.5percentplusor-1 percent. Non GAAP gross margin is expected to be approximately 26.8percentplusor-1percent. Non GAAP gross margin excludes $300,000 of estimated share based compensation charge. Operating expenses are expected to be in the range of $29,300,000, plus or minus $1,000,000.
Non GAAP operating expenses are expected to be in the range of $23,000,000, plus or minus $1,000,000. Both GAAP and non GAAP operating expenses include $1,600,000 to $1,800,000 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 $2,300,000 and estimated pre production expenses relating to the Chongqing Joint Venture of $4,000,000. Tax expenses are expected to be in the range of $1,000,000 to $1,200,000. Loss attributable to non controlling interest is expected to be around $2,600,000, On a non GAAP basis, excluding the pre production expenses of the joint venture, this item is expected to be approximately $500,000.
The two $100,000 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. With that, we'll open up the floor
And 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 of 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 the calendar twenty eighteen? Maybe in terms of either utilization or in terms of like quarterly run rates?
Okay, sure. User relation is up to the highest level for sure now because one short of supply. In terms of CapEx expansion, yes, the June quarter, we see a little bit left. So that which is reflected in our guidance. So from our March quarter's revenue to our guidance range.
So 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 an increase in the June in the September quarter and onward.
And just to follow-up on that, so does that mean the CapEx spending you're planning to spend for the remainder of the year? Is that to keep pace with the time
that we grow.
What CapEx expenses or what Right now, the machines are then coming in. So some of them installed already. So we can benefit the in the June quarter. And during the June quarter, we expect the additional machines will continue to come in. And then we'll see some additional benefit in the September quarter.
So in terms of CapEx payment, I mean, March quarter, yes, we pay in June quarter, we need to pay similar level as March quarter. And then I would expect a cash payment starting from the September may start decreasing. I mean, that's just toward the tail end of of this expansion.
Great. And I guess in terms of the impacted gross margin, at least from the Chongqing fab as you ramp the 12 inches capacity there, how do you see that impacting your current gross margins?
Well, right now, I mean, right now, it's too early to give guidance on the Chongqing's fab ramp, we will provide more guidance in the later quarters when we close to the on trial production ramp up timeframe. But overall, yes, we're going to add the initial ramp up periods and we will carve out some production ramp costs. I mean, if I turn around the whole 12 inches fab and if I only produce a couple of hundred wafers. And I still have it that the full depreciation charge, but then we're going to perform out some production ramp costs. Until I wouldn't say for too long time, but 1st few quarters, we may do it.
Very good. Thank you very much.
Okay. Thank you.
And our next question comes from the line of Edgar Rose from Sidoti. Your line is now open.
Yes, 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 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 test the piece in that one, we're going to, one, 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 September quarter, even the December quarter throughout this year would going to transfer whatever the machines that we contributed to the joint venture. Right now, initially is a one to one moment from our Shanghai facility to the joint venture. During this process, yes, we're not going to move all the equipments at the same time. So that would impact on our deliveries.
So we're going to carefully unplanned and map it out and then it would move them batch by batch. Okay.
So on the initial transfer, no change in capacity for those operations. And then one other one question on your operating expenses. You're trending towards around maybe 87,000,000 non GAAP operating expenses this year, which would 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 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. I mean, this on we'll invest in our packs according with our business growth potential. I mean, we're not going to invest in that if we don't see the business opportunity, And then I would expect and 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. So I mean, maybe next quarter, we'll give more guidance and when we end fiscal year 2018.
Okay. So we're 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
Well, revenues and the growth right now, there's more like an hedged by the overall capacity. So in the June quarter, we expanded some and then we'll see additional benefits in the September quarter. And then starting next calendar year, we would expect, and our joint venture started taking over to provide capacity supply to our calendar year 2019 growth.
Okay, great. And, 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 with AOSL, ex the joint venture? I mean, it seems like you should have at least 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. I mean, but in the add, in the initial ramp up period, yes, and then we may see some cost increase. But then I would say we plan to perform it out for the 1st and the initial quarters.
Okay. And there's no sort of transfer pricing issues that would materially deviate, you don't foresee that at this point?
Well, one is any related party transactions wouldn't subject to transfer pricing. And that's not given. But overall, no matter which Countries nowadays the overall principle is based on market fair price. So I think that's the overarching principle.
Okay. That helps a lot. Thanks for the answers. Have a good afternoon.
Thank you. Thank you.
And our next question comes from the line of Craig Ellis from B. Riley. Your line is now open.
Hi guys. This is actually Thomas Jerkoff calling you for Craig. Thanks for taking my questions. First, I wanted to dive a little deeper on the end markets. As we look at where you guys participate with respect 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, I mean, 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 and as we saw in March quarter, our quick charging area, some high voltage areas as we load out our new platform, Altima 5 recently. So we would expect some pickup from there, providing healthy growth for the calendar year 2018. In the communications segment and we continue to see strong momentum in our battery pack management area and also in the in the Pentagon, those areas because of our good strong mid voltage product lines. So for those two segments are the major high growth areas.
In the computing area right now, we're seeing strong position in the from our new product platforms. So in the Sky Lake and Tavy Lake in the areas. We picked up some share gains in the high value on sockets such as Vicor and Farfetch cars and those areas. So We continue to believe in that we can further gain market share grow this segment. So I would say probably in the mid to high single digit growth for this calendar year 2018.
And then lastly, consumers, I mean, this segment, as Mike commented on, this segment subject to the more I can supply constraints because of some of the products from our on the outside foundries. So in this area, we're more like in the allocation mode. Within this segment, we see a bright spot for our IGBT product lines. I mean, last year, last calendar year, IGBT product line revenue crossed $10,000,000 mark and then 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.
Great. That's very helpful. And then going back to your commentary on the Digital Power team, you said that that OpEx inflection should or there should be an OpEx inflection only for the next quarter or will that continue for the balance of the calendar year?
Yes. As of the end of March, we hired about half of the team, and then we plan to build In the June quarter, we'll continue to recruit in Thailand. We estimate and about we can fill up up to like twothree of the team. So for the second half of the year, yes, we'll continue to the hire to build up this digital power team. This is a very the good opportunities for us.
And we have the commercially proven technologies and then We have a broad customer base and then there's a market opportunity, so pretty sizable. So we will continue to invest in this product line. Thank
And 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.