Good day ladies and gentlemen, and welcome to the Alpha and Omega Semiconductor Conference Call. At this As a reminder, this conference will be recorded. I'd now like to introduce your host for today's conference Ms. Soe Young Zhang of Investor Relations. Ma'am, you may begin your conference.
Thank you. Good afternoon, everyone, and welcome to the Alpha And Omega Semiconductor's conference call for fiscal 2018 first quarter results. This is Soehan Zhang, investor relations representative for the company. With me today are Doctor. Mike Chang, our CEO and Yippany Yang, our CFO.
This call is being recorded and broadcasted live over the web and can be accessed for 7 days following the call, get a link in the Investor Relations section of our website at www.aosmd.com. The earnings release was distributed by GlobeNewswire today, November 2, 2017, 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 comparable GAAP measures is included in our earnings release. We would like to remind you that during the course of the conference call will 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. 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 Yifan?
Thank you, Soe Young. Good afternoon, and thank you for joining us. To begin, I will discuss financial results for the quarter Then I'll turn the call over to Mike, our CEO, who will review the company's business highlights. After that, I will follow-up with Revenue for the September quarter was $104,900,000, an increase of 7% from the prior quarter and an increase of 7.7 percent from the same quarter last year. Our diversified new products across all segments continue to show growing momentum.
In terms of product mix, MOSFET revenue was $83,700,000 up 9% sequentially and up 17.1% year over year. Power IC revenue was 18 $100,000, flat from the prior quarter and down 21.3% from a year ago. Service revenue was approximately $3,100,000 as compared to $3,000,000 for the prior quarter and $2,900,000 for same quarter last year. Computing segment represented 38.8 percent of the total revenue, consumer 24.6 percent, Power Supply And Industrial, 19.1%, communications, 14.5%, service 2.9% and others 0.1%. Gross margin for the September quarter was 26.3% as compared to 25.6% in the prior quarter and 22.5% for the same quarter last year.
The increase in gross margin quarter over quarter was mainly driven by the improved product mix and higher utilization. Partially offset by the cost increase in raw materials and foundry services as we had mentioned in our previous earnings call. Operating expenses for the quarter were $22,900,000 compared to $21,500,000 and $18,200,000 for the same quarter last year. The increase in operating expenses quarter over quarter was mainly due to an increase of annual merit based compensation adjustments that started in July more variable compensation accrual because of the higher profitability, the growing startup expenses associated with our Chongqing joint venture and the increased R and D engineering expenses to support our growth. Income tax expense was $1,300,000 for the quarter as compared to $800,000 for the prior quarter and $1,200,000 for the same quarter last year.
Net income attributable to AOS for the quarter was approximately $4,800,000 or $0.19 earnings per share as compared to $0.17 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 $0.27 earnings per share as compared to $0.25 earnings per share for the prior quarter and $0.19 earnings per share for the same quarter last year. Non GAAP EPS excluded the effect of share based compensation expenses of $2,000,000. The diluted Earnings per share calculation was based on approximately 25,000,000 weighted average shares. We continue to generate positive cash flow.
Cash flow from operations was $12,300,000 for the September quarter compared to $13,500,000 for the prior quarter and $9,300,000 for the same quarter last year. EBITDAS for the September quarter was $15,000,000 compared to $14,000,000 Moving on to the balance sheet. We completed the September quarter with cash and cash equivalents balance of 180 point $2,000,000 as compared to $115,700,000 at the end of last quarter and $118,800,000 a year ago. The $180,200,000 cash balance at September 30, 2017 consisted of $79,100,000 from our Chongqing joint venture, and $101,100,000 from AOS. During the quarter, the joint venture received $97,000,000 capital contribution, including $87,000,000 from the Chongqing Funds and $10,000,000 from AOS.
As of the September quarter end, the joint venture had received a total of $120,000,000 capital contribution from the Chongqing Funds and AOS capital contribution has been completed. Net Receivables were $25,400,000 as compared to $28,400,000 at the end of last quarter and $27,100,000 during the same quarter last year. Day sales outstanding for the quarter was 32 days same as the prior quarter. Net inventory was $79,200,000 at the quarter end up from $76,300,000 for last quarter and from $70,000,000 for last year. Average days in inventory were 90 days for the quarter compared to 92 days in the prior quarter.
Net property, plant and equipment balance was $159,000,000 as compared to $139,400,000 last quarter $123,000,000 for this prior year. Capital expenditures were $28,300,000 for the quarter, including $7,100,000 from AOS $21,200,000 from our Chongqing joint venture for building construction and purchase of equipment. We have made significant progress in construction of the joint venture's building infrastructure which is close to completion. We have included a picture of the building in our prepared remarks document, which can be found on our IR website under the Events and Presentations page. The next major step is expected to be completed by the first half of next calendar year.
The overall project is progressing well according to our plan. We expect to start calendar year. Net intangible asset balance was $13,000,000 for the quarter, including $12,600,000 license fee capitalized under the license agreement with STMicroelectronics that we entered in September $6,000,000 toward license fee. The remaining balance is expected to be paid in the next few quarters based on a payment schedule set forth in the license agreement. Also in September, reflecting increased confidence in AOS profitability and cash generation capability.
Our board approved a $30,000,000 share repurchase program, which underscores our commitment to enhance shareholder value. With that, now I would like to turn the call over to our CEO, Doctor. Max Chen, who will provide business highlights for the
AOS achieved another outstanding quarter and reached several important milestones. For September quarter, we have surpassed the $100,000,000 quarterly revenue mark for the 1st time. Driven by the new products across all market segments, the quarterly revenue came in at the top of our guidance range at $104,900,000, establishing an all time record. The favorable product mix contributed to the 10th consecutive quarter of gross margin expansion. Our gross margin improved 380 basis points year over year which resulted in a healthy bottom line.
Earlier this year, I shared our strategic vision of how we can achieve the ultimate goal of becoming a total powercell conductor solution provider. The first step was to develop and introduce differentiated products in 4 target markets. The next step was to grow the business on the strength of our new product cycle and the key product executions to turn into a larger, more sizable force in the Marketplace. The strong product momentum and healthy business pipeline presented us with the exciting opportunities that will further expand the addressable market and diversify our product offering. In support of our growth trajectory, we signed a joint venture agreement with Chongqing Government in 2016.
The JV project is moving well according to our plan, as E5 mentioned earlier. We expect the JV to improve and enhance our manufacturing capability and allow us to expand and diversify our market in China. I am very pleased to report that we recently took yet another quick step towards executing our strategic plan during the September quarter. We entered into a license agreement with 18 microelectronics, which will lead us to expand into new markets with digital interface controllers, primarily for applications in computer servers. By adding 18a moniphase controller product line to our power IC and MOSFET products we can offer a complete solution to customers in the server market.
The digital capability is one of the fundamental building blocks of AAOS strategic plan that will elevate us to become a total solution provider of power semiconductor. We plan to introduce new products addressing the server market in 2 to 3 years, and that the entire team at AAOS remains committed to deliver fine executions for our near and long term plans. Now let's move to a detailed review of our business. Beginning with computing segment, it represented 38.8 percent of total revenue in the September quarter. We posted a 1.4% sequential increase and a 16.2% growth year over year.
The increase from a year ago was driven by the continuous gains of market share in notebook applications. Considering the strong demand for our product, partially offset by a supply constraint, we expect the computing segment to maintain or slightly improve in the December quarter. 2nd, consumer. It was 24.6 percent of the total revenue. It grew 6.7 percent sequentially and a decrease 5.9% compared to the prior year.
The waiver shortage at third party foundries continued to affect our business. However, the rising shipment of our new products for home appliance that was developed and shipped from our own fab results in a sequential growth. As we look into the low seasonality for our consumer business, we anticipate this segment to decrease. In the coming quarter. 3rd, power supply and the industrial segment.
It was 19.1% of the total revenue which was up 14.6% sequentially and down 1.9% from the same quarter last year. We are encouraged by customer excitement for the recently introduced high book performance of almost 5 high voltage multi product platform. That offers high power density in smaller and more efficient packages. The solid sequential growth was attributable to the ended the low voltage products for various power tool applications. While we continue to be more selective in high voltage in industrial power supply applications to grow in the next quarter.
We anticipate that these segments revenue will maintain or slightly improve in the December quarter. Lastly, the communication segment, it represented 14.5 percent of total revenue, The increased 16.8% sequentially 32.6% year over year. The increased shipment of our Alpha, DF, and products for smartphone battery management applications and surge protection products drove the significant growth during the September quarter. As we see healthy design wins and wins with alpha DFM products, we expect to maintain the revenue level next quarter. In closing I am pleased with our sustainable growth and continued momentum.
As we are consistently delivering near term objectives we are also investing in long term initiatives that will ultimately transform AOS into a total power semiconductor solution provider. As we secured the right balance in near term map commitments, and long term investments, I believe we are well positioned to capture greater great opportunity today and many years to come. With this, I would like to turn over to Yifan, our CFO to give you next quarter guidance. Yifan?
Thank you, Mike. As we look forward to the second quarter of fiscal year 2018, we expect our December quarter's revenue to be in the range of $100,000,000 to $104,000,000. GAAP gross margin is expected to be approximately 26% plusor-1 percent. GAAP operating expenses are expected to be in the range of $23,500,000, plus or minus $1,000,000. As we expect, the Chongqing Joint Venture related expenses continue to increase to support our joint venture's development plan.
Tax expenses are expected to be about $900,000 to 1 $100,000. Loss attributable to non controlling interest is expected to be approximately $1,800,000. Our share based compensation should range from $2,000,000 to $2,200,000. As part of our normal practice, we're not assuming any obligations to update this information. With that, we will open
Our first question comes from Jeremy Kwan from Sidoti Nogue, Nicholas. Your line is open. Hi,
guys. This is Jeremy Klein calling from Stifel Nicholas. Congrats on the record quarter, you guys. Thank you.
Looking
at the STMicro digital power controller opportunity, it sounds like it could be a potentially nice new market for you I know it's still relatively new, but can you give us an update on this area in terms of progress in building the team and kind of what the R and D ramp we can expect coming from this.
Thank you. We definitely is very excited about this new venture and that was such a good partner with STMicroelectronics. This moment, we had a very lean skeleton. We just recruited, and we also actively recruit the rest of the team. So it's just the beginning, but it was a very strong healthy footing.
Great. Can you give us a sense of maybe the relative size of the team you want to build whether that's in terms of kind of engineers or
Okay. The team were how do I say? I would say probably it's 30 plus members here. The team will be. That's about our current plan.
We are so far away from that.
Okay. And in terms of the support you might expect to receive from STMicro, is there any other like transfer of expertise, maybe to help you kind of accelerate that R And D program.
Actually, we are very, very fortunate, okay. We got a few top notch guys in the field, okay. They They have the total knowledge, okay, on the scope of what we intend to participate in. And of course, we very much appreciate our partners ST microelectronics, Frank, they are very helpful. And so I would say this is a beautiful team altogether.
We're very, very happy here.
Well, Jeremy, let me add on a little bit color on a license agreement. I mean, based on this agreement, yes, we have a license and we also have some additional development agreement. So that ST will fulfill in the next few. Quarters. And then, that would give us additional support to our team very well building our own team right now.
The overall, I mean, this opportunity is very exciting. So I mean, that's a win stated in our press release and it will address primarily the sober market. And then with along with our on the power IC and the MOSFET products. And so that we're targeting to provide total solutions to our customers.
Great. Thank you. That's very helpful. And just one of the last question on this, if I may. It does sound like a very potentially transformative opportunity for you guys.
Can you give us, me an idea of what when we might expect initial product announcements. You might be targeting and what potential market size opportunity that you're trying to address with this? Thank you.
As we reported, we're going to expect to introduce the product in between 2 to 3 years. And the market side so far, like immediately with we're looking for at least a $300,000,000 size, okay, which our cost can be expand to even more, okay, with definitely. But we have to once every time, So that's what the current picture is. Does that answer your question?
Yes, it does. Thank you very much.
Thank you. Our next question is for Ed Roche
Yes. Hi. Congratulations, guys.
Thank you.
First question is just on the wafer cost increases. I know that that impacted you, but it seems like you passed them through pretty effectively because the gross margin still tread it up nicely. Did you see any moderation at all in the, in the ramp up in those costs
Yes. Actually, as we stated in the last earnings call, yes, starting the September quarter, we saw the wafer cost and the annual plus some other raw material costs also increased, started in the September quarter. This September quarter actually that impact is only partially flowed through because we still have previous quarters inventory. So that consumed in this quarter. So those inventories were purchased at a lower cost.
So actually, we are expecting starting the December quarter, we may see even more pressure on this cost.
Yes. Let me also add a little bit, okay. This raw material increase at which we had a phase 2 But on the other hand, okay, it's almost next impossible to pass down this increase to our customer. If we want to be here to be long, So what are we doing is really it was actively introduced or replaced with new product, which bring the benefit to post customer as well as to ourselves to offset this headwind, okay? So as going forward, if I mentioned, the China will be tougher, but we just have to manage it.
Okay. Thank you for that clarity. And then looking at the communication side and maybe on the computing side, have you seen USB power delivery designs really pick up? And when would you expect to see some shipments related to those designs in your business?
Actually, we already start to engage in the shipping, okay, of course, very small, very beginning. And we do expect next year, come to see quickly But on the quick charge area, which you didn't know, we already participated there. The area continue to grow, so which we are pretty well in very healthy position.
Add more like if you see the significant increased adoption of PD that type see and I would expect in the second half of next year is probably get to a more meaningful level. Right now, it's more like our customers has started than some designs and and on the USB PDs standards that kind of getting adopted by the ODM customers. And so I wouldn't if you'd ask us some meaningful impact, not probably, I would say, toward the second half of next calendar year.
Okay. And would you is it fair to characterize it as mainly a communications driver, but Or do you think on the computing side that that could also be, significant for you?
I think both. Yeah. Both. That was
Okay, great. And then looking at inventory, I know the days were in check, but It was up 13% year over year. It's about nearly double the sales increase. And know you have some more expensive wafers probably in there, but are you also feeling like you're getting caught up a bit on quantities? Because certainly had a nice revenue outlook for this December quarter.
Could you comment a little bit on that inventory increase, please?
Okay, sure. The major increase in the inventory is actually in the raw material and the production the yes, the cost that increased some, that also reflected attributed to the overall inventory increase. On the quality wise, increased slightly, but not so much. Yes. And then right now, if you ask me, I would rather to have more inventory to support us.
Understood. That's a good place to be. Thank you very much for the color.
Okay. Thank you.
Thank you. Our next question is from Tom Sapiensis from Northland. Your line is open, sir.
Hey, thanks for taking my questions. I was wondering if you could provide some color there was a nice jump in the communications business in the quarter. And I just want to make sure, I know what all the variables are there that's driving that.
Okay. Well, that's true. In the communication areas, I see you have been seen in the past few quarters. And yes, we grew nicely. Our Alpha DFN products and then got well accepted and recognized in the market field.
So for those battery management applications and we grow and continue to grow nicely. In this quarter, also contributed an to this quarter's growth in the communications segment and are some sockets from networking and also for the search protection sockets. So those are the areas that were picking up some additional shares.
And did you say that you expect that to continue to grow through the December quarter?
I would say maintain it in the range. Yes, and I mean, this right now is December quarter as the we enter into a little bit lower season and also right now, overall, on supply is tight. And so we got limited by the overall production, what we can do.
Sure. And then on that, how far along are you in terms of adding additional capacity to your current facility? And when do you think the capacity bottleneck starts to dissipate for you guys?
Okay. Yes, in the September quarter, you saw our revenue grew 7% quarter over quarter. And that was because of the expansion of our capacity. So we expanded some in the September quarter. And then, I would expect for the next couple of quarters, our capacity probably will stayed at this level relatively on and then next wave of expansion will come in probably more toward a couple of quarters later.
Okay. And did you say, well, two questions on the product with ST the products with STMicro on in servers. What's the impact for ASPs and gross margins for those products? And Did I hear you right when you said you wouldn't expect revenue for at least 2 to 3 years on this?
Right. I mean, meaningful revenue, yes, and we do expect that probably takes a couple of years 2 to 3 years to materialize. And then, yeah, in terms of the ASV, yes, the controller's ASV is higher, yes, definitely. And then margin, we would expect that it's higher at least higher than our corporate average for sure. And then The nice thing is we can sell total solutions.
So not just the controller and revenue. So it can also bring in our drivers and the milestones along with the controller revenue. So that's the piece on where we see that synergy.
Let me also just interject a little bit more. Just a follow-up. If I say, currently, our product in a way pretty much at the low end of food chain, okay? So basically, we don't have too much of a thing at the beginning. I mean, in the system, with a digital power controller over there, then we can participate with 4 total solution there.
Then we can suggest what's better for customer and enable to better utilize our technology.
Or otherwise.
Great. Thank you much.
Thank you. Our next question is from Craig Ellis from B. Riley. Sir, your line is open.
Hi guys, this is actually Thomas Ericoff calling for Craig Ellis. For taking my questions.
Hi, Tom.
First, a follow-up on the OpEx question. Could you clarify or possibly provide more color on how should we think about the step up in R&D related to the licensing agreement over the next couple of quarters? And is the OpEx trend we've seen over the last year or last couple of quarters indicative of that trajectory or, how should we and how should we look at that step of function?
Okay, sure. OpEx, then, in terms of the increase for the digital controller piece. And then I mean, we are in the process of assembled team. So in the September quarter was the minimum amount. So in the December quarter, we factored in some, yes, we have already hired afield people and then we'll continue to do that recruiting.
Next quarter, I would expect I can give you more color on the OpEx for the digital controller product line. Then in terms of the trajectory, I would expect our current for the AOS piece of the, all packs, I would expect in the, going forward, the two or three quarters, and that will be stable. Other than this digital power piece. And on the other hand, we also include the joint venture's startup expense also in our G And A. So For that piece, I would expect continued increase for the next few quarters.
Because as you can see, while gearing up to get us ready to do the trial production. So we're hiring people and train people and get equipment machine in and get materials in this. So right now there's a lot of activities in the joint venture happening. So I would expect that if you compare my guidance and the midpoint guidance with our September's actual number, not the incremental piece, and that's primarily from the Chongqing. Joint ventures, startup expense increase.
Okay. That's very helpful. And my last question relates to the supply environment tightness. Could you possibly characterize your market share position given the supply availability and how the current market dynamics are playing across your end markets?
Sure. I mean, this is an overall, I mean, that the, it depends on which segment. And I mean, you saw certain segments, we definitely gained shares. And then, if permitted by our supply capacity. Some areas and you saw that got hit a little bit because of the supply limitation.
So the overall, I mean, in the computing and communication areas. And I think if you look at it year over year, we grew nicely. And then we're rolling out a new high voltage platform of almost 5 products and as we speak. So we would expect it gradually then that plan formal will pick up more revenue in the into next year next calendar year.
Okay. That's very helpful. And just one last thing. Did you mention the computing? Are you expecting computing to be up next quarter or was that flat?
Yeah. I would say maintain into slightly up range. That's largely we saw pretty good demand on our products. Only thing is that if we can supply, we're starting pretty healthy demand, especially in the notebook areas. And so, overall, yes, we'll do whatever we can.
To manage the product mix.
In overall, there's some past due reason, but not as so encouraged area Some of maybe you can divide by 2 lines. 1 is what our internal manufacturing can support? What do we depend on outside that does somehow have a color about our performance of always. Great. Thanks guys.
Okay. Thank you.
Thank you. We do have a follow-up question from Mr. Jeremy Kwan from Stifel Nicolaus. Sir, your line is open.
Thank you. Yes, I just wanted to follow-up in terms of the capacity question. It sounds like you expect the capacity tightness to sits for the next couple of quarters. And on the CapEx side of things, do you expect should we see like a continued higher level of spending for the next few quarters, to alleviate that?
Yeah. I mean, for the overall, fiscal year 2018, I would expect in the CapEx in the range of like a $30,000,000 to $35,000,000 dollars. Yes, we have seen our new products and design units deadline wins and pipelines and so on, we do need to expand continue to expand our capacity to support our business growth. Yes, for the next few quarters, I would expect that CapEx will will be up there.
And then in terms of the long term trend, when do you expect kind of moderate down and what should that level be on a steady state basis?
Okay. In the long term, I would expect once on joint venture production capabilities goes up. And then gradually, I would expect that, yes, our west side of the CapEx investment may be started tapering a little bit. But we still need some CapEx to maintain on a maintenance basis. Thank you.
Thank you.
One for any closing remarks.
Okay. This concludes our earnings call today. Thank you for your interest in the OS and we look forward to talk to you again next quarter. Thank you.