What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2021-02-08 · 122 added, 111 removed, 312 unchanged (43% of the section changed)

13 unchanged sentences

Our portfolio of power semiconductors includes approximately 2,300 products, and has grown significantly with the introduction of over 160 new products in the fiscal year ended June 30, 2020, and over 200 new products in each of the fiscal year ended June 30, 2019 and 2018, respectively.

During the six months ended December 31, 2020, we introduced an additional 96 new products.

During the nine months ended March 31, 2021, we introduced an additional 136 new products.

Our teams of scientists and engineers have developed extensive intellectual properties and technical knowledge that encompass major aspects of power semiconductors, which we believe enables us to introduce and develop innovative products to address the increasingly complex power requirements of advanced electronics.

We have an extensive patent portfolio that consists of 845 patents and 67 pa tent applications in the United States as of December 31, 2020.

We also have a total o f 876 foreign patents, which were based primarily on our research and development efforts through December 31, 2020.

We have an extensive patent portfolio that consists of 893 patents and 65 patent applications in the United States as of March 31, 2021.

We also have a total of 885 foreign patents, which were based primarily on our research and development efforts through March 31, 2021.

We differentiate ourselves by integrating our expertise in technology, design and advanced manufacturing and packaging to optimize product performance and cost.

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While the JV Company is our consolidated subsidiary for purpose of financial reporting, it operates as an independent and separate legal entity.

As a result, the JV Company’s assets and liabilities are generally segregated from our company's assets and liabilities.

As a result, the JV Company’s assets and liabilities are segregated from our company's assets and liabilities.

For example, the JV Company incurs debt through its own financing and bank loan agreements, and our parent company and other subsidiaries are not parties to these agreements and do not provide any guarantee or security for the JV Company’s debt, nor do we have direct access to any cash proceeds borrowed from such loan agreements.

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We expect the joint venture to provide much needed capacity to support our future growth, enhance our market positions in China, and drive improvements in capital expenditures.

During the six months ended December 31, 2020, the additional capacity at the JV Company contributed

During the nine months ended March 31, 2021, the additional capacity at the JV Company contributed

significantly to meeting the increasing demand for our products.

The JV Company has reached its targeted production of assembly and testing and is currently ramping up its Phase I of the 12-inch wafer fabrication.

During the three and six months ended December 31, 2020, we recorded $0.4 million and $1.2 million in net loss attributable to the noncontrolling interest in the JV Company.

Our current goal is to achieve Phase I target run rate in the quarter ending September 30, 2021, but our goal may be affected by the impact of the global COVID-19 pandemic and related economic downturn, intensified geopolitical tensions between China and U.S., logistical difficulties and other factors beyond our control.

During three and nine months ended March 31, 2021, we recorded $1.1 million and $2.3 million in net loss attributable to the noncontrolling interest in the JV Company.

We will continue to monitor and evaluate market conditions closely during this period and react quickly to the changing environment as necessary to achieve an optimal production level at the JV Company.

During the fiscal quarter ended December 31, 2020, we continued our diversification program by developing new silicon and packaging platforms to expand our serviceable available market, or SAM and offer higher performance products.

During the fiscal quarter ended March 31, 2021, we continued our diversification program by developing new silicon and packaging platforms to expand our serviceable available market, or SAM and offer higher performance products.

Our metal-oxide-semiconductor field-effect transistors, or MOSFET, and power IC product portfolio expanded significantly.

Our high performance products and deepened customer relationships with our OEM and ODM customers have contributed to us achieving our record high quarterly revenue of $158.8 million for the three months ended December 31, 2020, a 34.8% growth compared to the same quarter last year.

Our high performance products and deepened customer relationships with our OEM and ODM customers have contributed to the achievement of our record high quarterly revenue of $169.2 million for the three months ended March 31, 2021, a 58.4% growth compared to the same quarter last year.

Impact of COVID-19 Pandemic to our Business

3 unchanged sentences

Such orders and restrictions have resulted in business closures, work stoppages, slowdowns and delays in commercial activities, unprecedented and widespread unemployment, disruptions to ports and other shipping infrastructure, border closures, and other travel or health-related restrictions, thereby negatively impacting our customers, suppliers, distributors, employees, offices, and the entire semiconductor ecosystem.

As a result of the COVID-19 pandemic and changing consumer behaviors due to various government restrictions, including "stay-at-home" orders, we have experienced shifting market trends, including an increasing demand in markets for notebooks, PCs and gaming devices and decreasing demand for mobile phone products.

While we have recently benefited from the increasing demand for PC related products, there is no guarantee that this trend will continue, and such increasing demand may discontinue or decline as government authorities relax COVID-19 related restrictions.

While we have recently benefited from the increasing demand for PC related products, there is no guarantee that this trend will continue, and such increasing demand may discontinue or decline if government authorities relax or terminate COVID-19 related restrictions and consumer behaviors change in response to the reopening of certain economic activities.

Furthermore, as the COVID-19 pandemic continues and global economic downturn and high unemployment persist, consumer spending in general may slow down substantially, in which case we may experience a significant decline of customer orders for our products, including those designed for PC-related applications, and such decline is expected to adversely affect our financial conditions and results of operations.

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In addition to the impact of the COVID-19 pandemic as described above, our performance is affected by several key factors, including the following:

The global, regional economic and PC market conditions :

Because our products primarily serve consumer electronic applications, any significant change in global and regional economic conditions could materially affect our revenue and results of operations.

For example, because a significant amount of our revenue is derived from sales of products in the personal computing ("PC") markets, such as notebooks, motherboards and notebook battery packs, a substantial decline or downturn in the PC market can have a material adverse effect on our revenue and results of operations.

The PC markets have experienced a modest global decline in recent years due to continued growth of demand in tablets and smart phones, worldwide economic conditions and the industry inventory correction which had and may continue to have a material impact on the demand for our products.

However, we recently have experienced a significant increase of demand in PC market due to the impact of the COVID-19 pandemic and resulting shift in market trend and consumer behaviors.

We cannot predict whether and how long this trend will continue due to the uncertainty and unpredictability of COVID-19 pandemic.

A decline of the PC market may have a negative impact on our revenue, factory utilization, gross margin, our ability to resell excess inventory, and other performance measures.

We have executed and continue to execute strategies to diversify our product portfolio, penetrate other market segments, including the consumer, communications and industrial markets, and improve gross margins and profit by implementing cost control measures.

While making efforts to reduce our reliance on the computing market, we continue to support our computing business and capitalize on the opportunities in this market with a more focused and competitive PC product strategy to gain market share.

Manufacturing costs :

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These strategies may cause the average selling price of our products to fluctuate significantly from time to time, thereby affecting our financial performance and profitability.

The global, regional economic and PC market conditions :

Because our products primarily serve consumer electronic applications, a deterioration of the global and regional economic conditions could materially affect our revenue and results of operations.

For example, because a significant amount of our revenue is derived from sales of products in the personal computing ("PC") markets, such as notebooks, motherboards and notebook battery packs, a significant decline or downturn in the PC market can have a material adverse effect on our revenue and results of operations.

However, we recently have experienced an increase of demand in PC market due to the impact of the COVID-19 pandemic and resulting shift in market trend and consumer behavior.

We cannot predict whether and how long this trend will continue.

A decline of the PC market may have a negative impact on our revenue, factory utilization, gross margin, our ability to resell excess inventory, and other performance measures.

Product introductions and customers' product requirements :

5 unchanged sentences

However, the ramp-activities and production schedule of our JV Company have been impacted by the COVID-19 pandemic and related events, as discussed above.

Even if we are able to ramp up the operation of the JV Company timely, we may not be successful in acquiring a sufficient number of new customers to offset additional costs due to various factors, including but are not limited to, competition from other semiconductor companies in the region, our lack of history and prior relationships with customers as a new entrant, difficulties in executing our joint venture strategies and the general economic conditions in Chongqing and China.

Even if we are able to ramp up the operation of the JV Company timely, we may not be successful in acquiring or maintaining a sufficient number of new customers to offset additional costs due to various factors, including but are not limited to, competition from other semiconductor companies in the region, our lack of history and prior relationships with customers as a new entrant, difficulties in executing our joint venture strategies and the general economic conditions in Chongqing and China.

Distributor ordering patterns, customer demand and seasonality :

Our distributors place purchase orders with us based on their forecasts of end customer demand, and this demand may vary significantly depending on the sales outlook and market and economic conditions of end customers.

Because these forecasts may not be accurate, channel inventory held at our distributors may fluctuate significantly, which in turn may prompt distributors to make significant adjustments to their purchase orders placed with us.

placed with us.

As a result, our revenue and operating results may fluctuate significantly from quarter to quarter.

because our products are used in consumer electronics products, our revenue is subject to seasonality.

In addition, because our products are used in consumer electronics products, our revenue is subject to seasonality.

Our sales seasonality is affected by numerous factors, including global and regional economic conditions as well as the PC market conditions, revenue generated from new products, changes in distributor ordering patterns in response to channel inventory adjustments and end customer demand for our products and fluctuations in consumer purchase patterns prior to major holiday seasons.

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Our failure to do so may negatively impact our revenue and profitability.

Furthermore, the Company is expected to incur significant costs and expenses, including legal and professional fees, in connection with the government investigation, which may reduce our profitability and margin.

Principal line items of statements of operations

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As the volume of sales increases, we expect cost of goods sold to increase.

Our Oregon fab was running at full capacity during the quarter ended December 31, 2020.

We continued to ramp up the 12-inch fab at the JV Company to meet the increasing demand on our products.

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federal tax rate were revalued to the U.S.

tax rates in effect for the June 2015 to June 2017 tax years due to the ability of receiving tax refunds for the taxes paid in these years.

Accordingly, we reported a discrete tax benefit of $1.1 million in the quarter ended March 31, 2020

related to the re-measurement of the net operating losses that could be realized via the new net operating loss carryback provisions.

tax rates in effect for the June 2015 to June 2017 tax years due to the ability of receiving tax refunds for the

taxes paid in these years.

Accordingly, we reported a discrete tax benefit of $1.1 million in the quarter ended March 31, 2020 related to the re-measurement of the net operating losses that could be realized via the new net operating loss carryback provisions.

Consolidated Appropriations Act, 2021” (“CAA 2021”), Enacted December 27, 2020

1 unchanged sentence

There was no material impact of the tax law changes included in the Consolidated Appropriations Act, 2021 to the Company.

“The American Rescue Plan Act of 2021”, Enacted March 11, 2021

On March 11, 2021, the United States enacted the American Rescue Plan Act of 2021, which made changes to existing U.S.

There was no material impact of the tax law changes included in the American Rescue Plan Act of 2021 to the Company.

Results of Operations

The following tables set forth statements of operations, also expressed as a percentage of revenue, for the three and six months ended December 31, 2020 and 2019.

The following tables set forth statements of operations, also expressed as a percentage of revenue, for the three and nine months ended March 31, 2021 and 2020.

Our historical results of operations are not necessarily indicative of the results for any future period.

Three Months Ended December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2021 2020 2021 2020 2021 2020 2021 2020

6 unchanged sentences

Selling, general and administrative 19,338 16,909 11.4 % 15.8 % 56,579 47,723 11.8 % 13.9 %

Impairment of privately-held investment — 600 — % 0.6 % — 600 — % 0.2 %

Total operating expenses 34,895 31,078 20.6 % 29.1 % 102,250 86,407 21.3 % 25.2 %

2 unchanged sentences

Income (loss) before income taxes 15,981 (10,901) 9.3 % (10.2) % 38,968 (16,354) 8.1 % (4.8) %

Income tax expense 669 568 0.4 % 0.5 % 1,680 978 0.5 % 0.4 %

Income tax expense (benefit) 1,014 (1,015) 0.6 % (0.9) % 2,694 (37) 0.6 % — %

Net income (loss) including noncontrolling interest 14,967 (9,886) 8.7 % (9.3) % 36,274 (16,317) 7.5 % (4.8) %

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Share-based compensation expense was recorded as follows:

Three Months Ended December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2021 2020 2021 2020 2021 2020 2021 2020

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Total $ 3,825 $ 2,876 2.3 % 2.6 % $ 9,925 $ 7,732 2.1 % 2.2 %

Three and Six Months Ended December 31, 2020 and 2019

Three and Nine Months Ended March 31, 2021 and 2020

The following is a summary of revenue by product type:

Three Months Ended December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2021 2020 Change 2021 2020 Change

4 unchanged sentences

$ 169,212 $ 106,852 $ 62,360 58.4 % $ 479,593 $ 342,514 $ 137,079 40.0 %

Total revenue wa s $158.8 million for the three months ended December 31, 2020, an increase of $41.0 million, or 34.8%, as compared to $117.9 million for the same quarter last year.

Total revenue wa s $169.2 million for the three months ended March 31, 2021, an increase of $62.4 million, or 58.4%, as compared to $106.9 million for the same quarter last year.

The increase was primarily due to an increase of $35.1 million and $25.3 million in sales of power discrete products and sales of power IC products, respectively.

The increase in power discrete and power IC product sales was primarily due to a 32.7% increase in unit shipments and a 18.4% increase in average selling price as compared to same quarter last year due to a shift in product mix.

The increase in revenue of packaging and testing services for the three months ended December 31, 2020, as compared to same quarter last year, was primarily due to increased demand.

Total revenue was $310.4 million for the six months ended December 31, 2020, an increase of $74.7 million, or 31.7%, as compared to $235.7 million for the same period last year.

The increase in revenue of packaging and testing services for the three months ended March 31, 2021, as compared to same quarter last year, was primarily due to increased demand.

Total revenue wa s $479.6 million fo r the nine months ended March 31, 2021, an increase of $137.1 million, or 40.0%, as compared to $342.5 million for the same period last year.

The increase was primarily due to an increase of $70.0 million and $62.7 million in sales of power discrete products and sales of power IC products, respectively.

The increase in power discrete and power IC product sales was primarily due to a 29.3% increase in unit shipments and a 8.1% increase in average selling price as compared to same period last year due to a shift in product mix.

The increase in revenue of packaging and testing services for the six months ended December 31, 2020, as compared to same period last year, was primarily due to increased demand.

The increase in revenue of packaging and testing services for the nine months ended March 31, 2021, as compared to same period last year, was primarily due to increased demand.

Cost of goods sold and gross profit

Three Months Ended December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2021 2020 Change 2021 2020 Change

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Percentage of revenue 31.1 % 21.0 % 30.0 % 21.5 %

Cost of goods sold was $110.1 million for the three months ended December 31, 2020, an increase of $16.6 million, or 17.8%, as compared to $93.5 million for the same quarter last year.

Cost of goods sold was $116.5 million for the three months ended March 31, 2021, an increase of $32.1 million, or 38.1%, as compared to $84.4 million for the same quarter last year.

The increase was primarily due to 58.4% increase in revenue.

Gross margin increased by 10 percentage points to 30.7% for the three months ended December 31, 2020, as compared to 20.7% for the same quarter last year.

Our JV Company continued its ramp during the three months ended December 31, 2020, which contributed to gross margin increased.

Cost of goods sold was $219.1 million for the six months ended December 31, 2020, an increase of $34.8 million, or 18.9%, as compared to $184.3 million for the same period last year.

Gross margin increased by 10.1 percentage points to 31.1% for the three months ended March 31, 2021, as compared to 21.0% for the same quarter last year.

Our JV Company continued its ramp during the three months ended March 31, 2021, which contributed to the increase in gross margin.

Cost of goods sold was $335.6 million for the nine months ended March 31, 2021, an increase of $66.9 million, or 24.9%, as compared to $268.7 million for the same period last year.

The increase was primarily due to 40.0% increase in revenue.

Gross margin increased by 7.6 percentage points to 29.4% for the six months ended December 31, 2020, as compared to 21.8% for the same period last year.

The increase in gross margin was primarily due to a reduction of production ramp-up costs in our JV Company during the six months ended December 31, 2020.

Gross margin increased by 8.5 percentage points to 30.0% for the nine months ended March 31, 2021, as compared to 21.5% for the same period last year.

The increase in gross margin was primarily due to a reduction of production ramp-up costs in our JV Company during the nine months ended March 31, 2021.

Research and development expenses

Three Months Ended December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2021 2020 Change 2021 2020 Change

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Research and development $ 15,557 $ 13,569 $ 1,988 14.7 % $ 45,671 $ 38,084 $ 7,587 19.9 %

Research and development expenses were $15.4 million for the three months ended December 31, 2020, an increase of $3.3 million, or 27.0%, as compared to $12.1 million for the same quarter last year.

The increase was primarily attributable to a $1.2 million increase in employee compensation and benefits expense mainly due to higher bonuses, a $0.8 million increase in product prototyping engineering expense as a result of increased engineering activities, a $0.2 million increase in professional services expense as a result of higher consulting fees, as well as a $0.8 million increase in share-based compensation expense due to an increase in stock awards granted during the current quarter.

Research and development expenses were $30.1 million for the six months ended December 31, 2020, an increase of $5.6 million, or 22.8%, as compared to $24.5 million for the same period last year.

The increase was primarily attributable to a $1.8 million increase in employee compensation and benefits expense mainly due to higher bonuses, a $1.6 million increase in product prototyping engineering expense as a result of increased engineering activities, a $0.5 million increase in professional services expense as a result of higher consulting fees, partially offset by lower recruiting fees, as well as a $1.3 million increase in share-based compensation expense due to an increase in stock awards granted during the current period.

Research and development expenses were $15.6 million for the three months ended March 31, 2021, an increase of $2.0 million, or 14.7%, as compared to $13.6 million for the same quarter last year.

The increase was primarily attributable to a $0.8 million increase in employee compensation and benefits expense mainly due to higher bonuses, a $1.2 million increase in product prototyping engineering expense as a result of increased engineering activities, and a $0.3 million increase in share-based compensation expense due to an increase in stock awards granted, partially offset by a $0.3 million decrease in professional services expense as a result of lower consulting fees during the current quarter.

Research and development expenses were $45.7 million for the nine months ended March 31, 2021 , an increase of $7.6 million, or 19.9%, as compared to $38.1 million for the same period last year.

The increase was primarily attributable to a $2.6 million increase in employee compensation and benefits expense mainly due to higher bonuses, a $2.9 million increase in product prototyping engineering expense as a result of increased engineering activities, a $1.7 million increase in share-based compensation expense due to an increase in stock awards granted, as well as a $0.1 million increase in professional services expense as a result of higher consulting fees, partially offset by lower recruiting fees during the current period.

Selling, general and administrative expenses

Three Months Ended December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2021 2020 Change 2021 2020 Change

1 unchanged sentence

Selling, general and administrative $ 19,338 $ 16,909 $ 2,429 14.4 % $ 56,579 $ 47,723 $ 8,856 18.6 %

Selling, general and administrative expenses were $19.7 million for the three months ended December 31, 2020, an increase of $4.1 million, or 26.3%, as compared to $15.6 million for the same quarter last year .

The increase was primarily attributable to a $3.5 million increase in employee compensation and benefits expenses, mainly due to increased headcount, higher bonus expenses and increased employee insurance expenses.

The increase was also attributable a $0.6 million increase in legal expenses related to the government investigation and a $0.4 million increase in audit costs.

These increases were partially offset by a $0.5 million decrease in employee business expenses due to decreased travel expenses as a result of the COVID-19 pandemic.

Selling, general and administrative expenses were $37.2 million for the six months ended December 31, 2020, an increase of $6.4 million, or 20.9%, as compared to $30.8 million for the same period last year.

Selling, general and administrative expenses were $19.3 million for the three months ended March 31, 2021, an increase of $2.4 million, or 14.4%, as compared to $16.9 million for the same quarter last year .

The increase was primarily attributable to a $4.3 million increase in employee compensation and benefits expenses, mainly due to increased headcount, higher bonus expenses and increased employee insurance expenses.

The increase was also attributable to a $1.8 million increase in legal expenses related to the government investigation and $0.5 million increase in audit and tax related costs.

These increases were partially offset by a $0.9 million decrease in employee business expenses due to decreased travel expenses as a result of the COVID-19 pandemic.

The increase was partially offset by a $1.7 million decrease in legal expense related to the government investigation, and $0.2 million decrease in marketing demo and trade shows costs as a result of the COVID-19 pandemic.

Selling, general and administrative expenses were $56.6 million for the nine months ended March 31, 2021 , an increase of $8.9 million, or 18.6%, as compared to $47.7 million for the same period last year.

The increase was primarily attributable to a $9.4 million increase in employee compensation and benefits expenses, mainly due to increased headcount, higher bonus expenses and increased employee insurance expenses, and $0.7 million increase in audit and tax related costs.

These increases were partially offset by a $1.0 million decrease in employee business expenses due to decreased travel expenses, as well as $0.3 million decrease in marketing demo and trade shows costs as a result of the COVID-19 pandemic.

Impairment of privately-held investmen t

Three Months Ended March 31, Nine Months Ended March 31,

2021 2020 Change 2021 2020 Change

(in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)

Impairment of privately-held investment $ — $ 600 $ (600) (100.0) % $ — $ 600 $ (600) (100.0) %

During the quarter of March 31, 2020, we recorded an other-than temporary impairment charge for our investment of $0.6 million in a privately-held start-up company.

As of March 31, 2021, we have $0.1 million of privately-held investment.

Interest expense and other income (loss), net

Three Months Ended December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended December 31,

2021 2020 Change 2021 2020 Change

2 unchanged sentences

Interest expense was primarily related to bank borrowings.

The increase in interest expenses during the three and six months ended December 31, 2020 as compared to the same period last year was primarily due to an increase in bank borrowings, partially offset by interest refund from the Chinese government in the JV Company in the same period last year.

The increase in interest expense during the three and nine months ended March 31, 2021 as compared to the same period last year was primarily due to an increase in bank borrowings, partially offset by an interest refund from the Chinese government in the JV Company in the same period last year.

Interest income and others were primarily related to interest earned from cash and cash equivalents, as well as foreign exchange gains (losses).

The decrease in interest income and others, net during the three and six months ended December 31, 2020 as compared to the same period last year was primarily due to higher foreign currency exchange gains as a result of the depreciation of USD against RMB.

The decrease in interest income and others, net during the three and nine months ended March 31, 2021 as compared to the same period last year was primarily due to higher foreign currency exchange gains as a result of the depreciation of USD against RMB.

Income tax expense

Three Months Ended December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2021 2020 Change 2021 2020 Change

(in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)

Income tax expense $ 669 $ 568 $ 101 17.8 % $ 1,680 $ 978 $ 702 71.8 %

The Company recognized income tax expense of approxim ately $0.7 million and $0.6 million for the three months ended December 31, 2020 and 2019, respectively.

The income tax expense of $0.7 million for the th ree months ended December 31, 2020 included a $0.01 million discrete tax expense.

The income tax expense of $0.6 million for the three months ended December 31, 2019 included a $0.01 million discrete tax expense.

Excluding the discrete income tax items, the effective tax rate for the three months ended December 31, 2020 and 2019 was 5 .0% and (13.8)%, respectively.

The changes in the effective tax rate and tax expense between the periods resulted primarily from the Company reporting pretax book incom e of $13.2 million for the three months ended December 31, 2020 as compared to a pretax book loss of $4.0 million for the three months ended December 31, 2019.

The Company recognized income tax expense of approximate ly $1.7 million and $1.0 million for the six months ended December 31, 2020 and 2019, respectively.

The income tax expense of $1.7 million for the s ix months ended December 31, 2020 included a $0.02 million discrete tax benefit.

The income tax expense of $1.0 million for the six months ended December 31, 2019 included a $0.03 million discrete tax expense.

Excluding the discrete income tax items, the effective tax rate for the six months ended December 31, 2020 and 2019 was 7.4 % and (17.4)%, respectively.

The changes in the effective tax rate and tax expense between the periods resulted primarily from the Company reporting pretax book inc ome of $23.0 m illion for the six months ended December 31, 2020 as compared to a pretax book loss of $5.5 million for the six months ended December 31, 2019.

Income tax expense (benefit) $ 1,014 $ (1,015) $ 2,029 (199.9) % $ 2,694 $ (37) $ 2,731 (7,381.1) %

The Company recognized income tax expense of approximately $1.0 million and income tax benefit of approximately $1.0 million for the three months ended March 31, 2021 and 2020, respectively.

The income tax expense of $1.0 million for the three months ended March 31, 2021 included immaterial discrete tax benefit.

The income tax benefit of $1.0 million for the three months ended March 31, 2020 included a $1.3 million discrete tax benefit, $1.1 million benefit of related to re-measuring the tax benefit of net operating losses that can be carried back to prior years following the passage of the U.S.

CARES Act, and $0.2 million related primarily to a prior year reserve release.

Excluding the discrete income tax items, the effective tax rate for the three months ended March 31, 2021 and 2020 was 6.3% and (2.3)%, respectively.

The changes in the effective tax rate and tax expense between the periods resulted primarily from the Company reporting pretax book income of $16.0 million for the three months ended March 31, 2021 as compared to a pretax book loss of $10.9 million for the three months ended March 31, 2020.

The Company recognized income tax expense of approximately $2.7 million and income tax benefit of $0.04 million for the nine months ended March 31, 2021 and 2020, respectively.

The income tax expense of $2.7 million for the nine months ended March 31, 2021 included a $0.04 million discrete tax benefit.

The income tax benefit of $0.04 million for the nine months ended March 31, 2020 included a $1.3 million discrete tax benefit, a $1.1 million of which related to remeasuring the tax benefit of net operating losses that can be carried back to prior years following the passage of the U.S.

CARES Act, and $0.2 million of which primarily related to a prior year reserve release.

Excluding the discrete income tax items, the effective tax rate for the nine months ended March 31, 2021 and 2020 was 7.4% and (7.4)%, respectively.

The changes in the effective tax rate and tax expense between the periods resulted primarily from the Company reporting pretax book income of $39.0

million for the nine months ended March 31, 2021 as compared to a pretax book loss of $16.4 million for the nine months ended March 31, 2020.

Liquidity and Capital Resources

7 unchanged sentences

In October 2020, this line of credit was renewed with the same terms and a maturity date of April 21, 2022.

As of December 31, 2020, there was no outstanding balance under the loan.

As of March 31, 2021, there wa s no ou tstanding balance under the loan.

On November 16, 2018, our subsidiary in China entered into a line of credit facility with Industrial and Commercial Bank of China, which expired on September 30, 2019.

3 unchanged sentences

In December 2020, this line of credit was renewed with the same terms and a maturity date of December 31, 2021.

As of December 31, 2020, there was no outstanding balance under the loan.

On August 9, 2019, one of our wholly-owned subsidiaries (the "Borrower") entered into a factoring agreement with the Hongkong and Shanghai Banking Corporation Limited ("HSBC"), whereby the Borrower assigns certain of its accounts

receivable with recourse.

As of March 31, 2021, there wa s no ou tstanding balance under the loan.

This factoring agreement allows the Borrower to borrow up to 70% of the net amount of its eligible accounts receivable of the Borrower with a maximum amount of $30.0 million.

4 unchanged sentences

This agreement, with certain financial covenants required, has no expiration date.

The Borrower was in compliance with these covenants as of December 31, 2020.

During the three and six months ended December 31, 2020, the Borrower borrowed $7.0 million and $36.7 million, respectively, and repaid each amount in full.

As of December 31, 2020, there was no outstanding balance and the Borrower had unused credit of approximately $30.0 million.

The Borrower was in compliance with these covenants as of March 31, 2021.

During three and nine months ended March 31, 2021, the Borrower borrowed $10.0 million and $46.7 million, respectively, and repaid each amount in full.

As of March 31, 2021, there was no outstanding balance and the Borrower had unused credit of approximately $30.0 million.

On May 1, 2018, Jireh Semiconductor Incorporated ("Jireh"), a wholly-owned subsidiary of the Company, entered into a loan agreement with a financial institution (the "Bank") that provided a term loan in the amount of $17.8 million.

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The loan agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain, on a consolidated basis, specified financial ratios.

We were in compliance with these covenants as of December 31, 2020.

As of December 31, 2020, the outstanding balance of the term loa n was $15.5 million.

We were in compliance with these covenants as of March 31, 2021.

As of March 31, 2021, the outstanding balance of the term loa n wa s $15.3 million.

On August 15, 2017, Jireh entered into a credit agreement with the Bank that provided a term loan in an amount up to $30.0 million for the purpose of purchasing certain equipment for our fabrication facility located in Oregon.

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The credit agreement contains customary restrictive covenants and includes certain financial covenants that require us to maintain, on a consolidated basis, specified financial ratios and fixed charge coverage ratio.

We were in compliance with these covenants as of December 31, 2020.

As of December 31, 2020, the outstanding balance of the term loan wa s $13.0 million.

In September 2017, the Board of Directors approved a repurchase program (the “Repurchase Program”) that allowed us to repurchase our common shares from the open market pursuant to a pre-established Rule 10b5-1 trading plan or through privately negotiated transactions up to an aggregate of $30.0 million.

We were in compliance with these covenants as of March 31, 2021.

As of March 31, 2021, the outstanding balance of the term loan wa s $11.2 million.

privately negotiated transactions up to an aggregate of $30.0 million.

The amount and timing of any repurchases under the Repurchase Program depend on a number of factors, including but not limited to, the trading price, volume and availability of our common shares.

Shares repurchased under this program are accounted for as treasury shares and the total cost of shares repurchased is recorded as a reduction of shareholders' equity.

We did not repurchase any shares pursuant to the Repurchase Plan during the six months ended December 31, 2020.

We did not repurchase any shares pursuant to the Repurchase Plan during the nine months ended March 31, 2021.

Since the inception of the program, we repurchased an aggregate of 6,784,648 shares for a total cost of $67.3 million, at an average price of $9.92 per share, excluding fees and related expenses.

As of December 31, 2020, of the 6,784,648 repurchased shares, 155,670 shares with a weighted average repurchase price of $10.19 per share, were reissued at an average price of $5.37 per share pursuant to option exercises and vested restricted share units.

We had $13.4 million remained available under the Repurchase Program as of December 31, 2020.

As of March 31, 2021, of the 6,784,648 repurchased shares, 159,645 shares with a weighted average repurchase price of $10.15 per share, were reissued at an average price of $5.24 per share pursuant to option exercises and vested restricted share units.

We had $13.4 million remained available under the Repurchase Program as of March 31, 2021.

We believe that our current cash and cash equivalents and cash flows from operations will be sufficient to meet our anticipated cash needs, including working capital and capital expenditures, for at least the next twelve months.

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Other terms of this agreement remain the same.

As of December 31, 2020, the outstanding balance of the Lease Financing was approxima tely $37.4 million b ased on the currency exchange rate as of December 31, 2020.

As of March 31, 2021, the outstanding balance of the Lease Financing was approxima tely $33.1 million b ased on the currency exchange rate as of March 31, 2021.

On November 29 and December 4, 2018, the JV Company entered into two, one-year loan agreements with China Merchant Bank and Chongqing LiangJiang New District China Merchants Group Limited Company in China to provide loans for RMB 80 million and RMB 20 million, respectively, or $14.5 million in total based on the currency exchange rate between RMB and U.S.

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Interest payments are due monthly and quarterly with the entire principal due not later than January 21, 2021.

As of December 31, 2020, there was no outstanding balance under the loan.

As of March 31, 2021, there was no outstanding balance under the loan.

On March 12, 2019, the JV Company entered into a loan agreement with The Export-Import Bank of China in the aggregate principal amount of RMB 200 million (approximately $29.8 million based on currency exchange rate between RMB and U.S.

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The loan will mature on February 20, 2025.

The JV Company drew down RMB 190 million and RMB 10 million in March 2019 and December 2019, respectively.

The JV Company drew down RMB 190

million and RMB 10 million in March 2019 and December 2019, respectively.

The loan withdraw window expired on February 28, 2020.

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Other terms of this loan remain the same.

As of December 31, 2020, the outstanding balance of the l oan was 189 million RMB (equivalent of $28.9 million based on the currency exchange rate as of December 31, 2020).

As of March 31, 2021, the outstanding balance of the l oan was 189 million RMB (equivalent of $28.8 million based on the currency exchange rate as of March 31, 2021).

In December 2019, the JV Company entered into a loan agreement with China Development Bank in the amount of $24.0 million.

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The interest is required to be paid March 21 and September 21 each year.

As of December 31, 2020, the outstanding balance of the loan w as $21.6 million.

As of March 31, 2021, the outstanding balance of the loan w as $21.6 million.

On April 15, 2020, the JV Company entered into a one-year loan agreement with China Everbright Bank in China to borrow a maximum of RMB 100.0 million (approximately $14.3 million based on the currency exchange rate between RMB and U.S.

Dollar on April 15, 2020) in the amount in RMB or USD.

Interest payments are due on the 20th of each month, and

the entire principal is due on April 16, 2021.

Interest payments are due on the 20th of each month, and the entire principal is due on April 16, 2021.

The loan consists of RMB 20 million for working capital borrowing in Chinese yuan and RMB 80 million for borrowing in US dollars that is collateralized by eligible accounts receivable.

During the three months ended December 31, 2020, the JV Company borrowed $12.1 million at a fixed interest rate of 2.7% per annum.

As of December 31, 2020, the total outstanding balance under the loan wa s $15.2 mi llion which included RMB 20 million or $3.1 million borrowed during the three months ended June 30, 2020.

During the three months ended March 31, 2021, the JV Company borrowed $11.9 million at a fixed interest rate of 2.7% per annum.

As of March 31, 2021, the total outstanding balance under the loan was $14.9 million which included RMB 20 million or $3.0 million borrowed during the three months ended June 30, 2020.

On April 26, 2020, the JV Company entered into a loan agreement with China Development Bank, Agricultural Bank of China, China Merchants Bank and Chongqing Rural Commercial Bank (collectively, "the Banks") in the aggregate principal amount of RMB 250 million, (approximately $35.7 million based on the currency exchange rate between RMB and U.S.

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Dollar on June 30, 2020) in April 2020.

As of December 31, 2020, the outstanding balance of the loan wa s $36.0 million .

As of March 31, 2021, the outstanding balance of the loan wa s $35.8 million.

On November 13, 2020, the JV Company entered into a one-year loan agreement with China Merchant Bank in China.

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During the three months ended December 31, 2020, the JV Company borrowed RMB 50.0 million, or $7.6 million, at an interest rate of 5.25% per annum.

As of December 31, 2020, the outstanding balance of this loan was $7.7 million.

As of March 31, 2021, the outstanding balance of this loan was $7.6 million .

Cash, cash equivalents and restricted cash

As of December 31, 2020 and June 30, 2020, we h ad $183.3 million a nd $162.7 million of cash, cash equivalents and restricted cash, respectively.

As of March 31, 2021 and June 30, 2020, we h ad $194.5 million a nd $162.7 million of cash, cash equivalents and restricted cash, respectively.

Our cash, cash equivalents and restricted cash primarily consist of cash on hand, restricted cash, and short-term bank deposits with original maturities of three months or less.

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The following table shows our cash flows from operating, investing and financing activities for the periods indicated:

Six Months Ended December 31,

Nine Months Ended March 31,

(in thousands)

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Cash flows from operating activities

Net cash provided by operating activities of $45.9 million for the six months ended December 31, 2020 resulted primarily from net income of $21.3 million and non-cash expenses of $32.1 million, partially offset by net changes in assets and liabilities using cash of $7.5 million.

Net cash provided by operating activities of $84.5 million for the nine months ended March 31, 2021 resulted primarily from net income of $36.3 million and non-cash expenses of $50.1 million, partially offset by net changes in assets and liabilities using cash of $1.9 million.

The non-cash expenses of $50.1 million primarily included $39.4 million of depreciation and amortization expenses, $9.9 million of share-based compensation expense and $0.7 million of deferred income taxes.

The net changes in assets and liabilities of $1.9 million were primarily due to a $20.4 million increase in accounts receivable as a result of higher revenue, a $9.6 million increase in inventories due to a continued ramp of the JV Company, a $2.3 million increase in other current and long-term assets due to increase in advance payments to vendors, and a $0.2 million decrease in accounts payable due to timing of payments, partially offset by a $29.6 million increase in accrued and other liabilities and a $1.1 million increase in income taxes payable.

Net cash provided by operating activities of $7.7 million for the six months ended December 31, 2019 resulted primarily from non-cash expenses of $26.6 million, partially offset by net loss of $6.4 million and net changes in assets and liabilities using cash of $12.4 million.

The non-cash expenses of $26.6 million primarily included $21.8 million of depreciation and

amortization expenses and $4.9 million of share-based compensation expense.

The net changes in assets and liabilities of $12.4 million were primarily due to a $4.9 million increase in inventories, a $9.6 million increase in accounts receivable from timing of billings and collection of payments, and a $5.7 million decrease in accounts payable due to timing of payment, partially offset by a $6.3 million increase in accrued and other liabilities, a $0.9 million decrease in other current and long-term assets due to decrease in advance payments to vendors, and a $0.5 million increase in income taxes payable.

Net cash used in operating activities of $22.0 million for the nine months ended March 31, 2020 resulted primarily from net loss of $16.3 million and net changes in assets and liabilities of $3.4 million, partially offset by non-cash expenses of $41.7 million.

The non-cash expenses of $41.7 million primarily included $33.5 million of depreciation and amortization expenses, $7.7 million of share-based compensation expense, $0.6 million of impairment of our investment in a privately-held start-up company and $0.2 million of gain on disposal of property and equipment.

The net changes in assets and liabilities of $3.4 million were primarily due to a $14.7 million increase in inventories, a $3.4 million decrease in accounts payable due to timing of payment, and $1.3 million decrease in income taxes payable, partially offset by a $6.8 million decrease in accounts receivable from timing of billings and collection of payments as well as lower revenue, a $2.7 million decrease in other current and long term assets due to decrease in advance payments to vendors, and a $6.3 million increase in accrued and other liabilities.

Cash flows from investing activities

Net cash used in investing activities of $24.6 million fo r the six months ended December 31, 2020 was primarily attributable to $24.8 million purchases of property and equipment, including $9.9 million purc hased by the JV Company.

Net cash used in investing activities of $31.2 million for the six months ended December 31, 2019 was primarily attributable to $32.4 million purchases of property and equipment, including $12.1 million purchased by the JV Company, partially offset by $1.3 million government grant related to equipment in the JV Company.

Net cash used in investing activities of $40.4 million fo r the nine months ended March 31, 2021 was primarily attributable to $40.5 million purchases of property and equipment, including $15.6 million purc hased by the JV Company.

Net cash used in investing activities of $47.7 million for the nine months ended March 31, 2020 was primarily attributable to $49.2 million purchases of property and equipment, including $15.8 million purchased by the JV Company, partially offset by $1.3 million government grant related to equipment in the JV Company and $0.3 million of proceeds from sale of property and equipment.

Cash flows from financing activities

Net cash used in financing activities of $4.8 mil lion for the six months ended December 31, 2020 was primarily attributabl e to $29.9 million in repayments of borrowings, $8.1 million in payment of finance lease obligations, and $1.0 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, partially offset by $31.0 million proceeds from borrowings and $3.2 million of proceeds from exercise of stock options and ESPP.

Net cash provided by financing activities of $11.0 million for the six months ended December 31, 2019 was primarily attributable to $33.7 million proceeds from borrowings and $1.7 million of proceeds from ESPP, partially offset by $20.9 million in repayments of borrowings, $3.4 million in payment of finance lease obligations, and $0.2 million in common shares acquired to settle withholding tax related to vesting of restricted stock units.

Net cash used in financing activities of $16.3 million for the nine months ended March 31, 2021 was primarily attributable to $44.1 million in repayments of borrowings, $12.3 million in payment of finance lease obligations, and $6.2 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, partially offset by $42.9 million proceeds from borrowings and $3.3 million of proceeds from exercise of stock options and ESPP.

Net cash provided by financing activities of $16.5 million for the nine months ended March 31, 2020 was primarily attributable to $49.1 million proceeds from borrowings and $1.7 million of proceeds from exercise of stock options and ESPP, partially offset by $25.8 million in repayments of borrowings, $7.2 million in payment of finance lease obligations, and $1.4 million in common shares acquired to settle withholding tax related to vesting of restricted stock units.

See Note 10 of the Notes to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for a description of commitments.

Off-Balance Sheet Arrangements

As of December 31, 2020, we had no material off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii) arrangements.

As of March 31, 2021, we had no material off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii) arrangements.

Contractual Obligations

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis