What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-02-07 compared with 2023-11-07 · 121 added, 107 removed, 293 unchanged (44% of the section changed)

13 unchanged sentences

Our portfolio of power semiconductors includes approximately 2,600 products, and has grown significantly with the introduction of over 60 new products in the fiscal year ended June 30, 2023, and over 130 and 160 new products in the fiscal years ended June 30, 2022 and 2021, respectively.

During the three months ended September 30, 2023, we introduced an additional 23 new products.

During the six months ended December 31, 2023, we introduced an additional 49 new products.

Our teams of scientists and engineers have developed extensive intellectual property 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 923 patents and 53 patent applications in the United States as of September 30, 2023.

We also have a total of 986 foreign patents, which were based primarily on our research and development efforts through September 30, 2023.

We have an extensive patent portfolio that consists of 929 patents and 43 patent applications in the United States as of December 31, 2023.

We also have a total of 999 foreign patents, which were based primarily on our research and development efforts through December 31, 2023.

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

7 unchanged sentences

We believe our in-house packaging and testing capability provides us with a competitive advantage in proprietary packaging technology, product quality, cost and sales cycle time.

During the fiscal quarter ended September 30, 2023, we continued our product 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 December 31, 2023, we continued our product 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 also expanded.

7 unchanged sentences

Also, the Company’s right to designate directors on the board of JV Company was reduced to three (3) out of seven (7) directors, from four (4) directors prior to the Transaction.

As a result of the Transaction and other factors, the Company no longer has a controlling financial interest in the JV Company and has determined that the JV Company was deconsolidated from the Company’s Consolidated Financial Statements effective as of the Closing Date.

As a result of the Transaction and other factors, the Company no longer has a controlling financial interest in the JV Company.

The JV Company was deconsolidated from the Company’s Consolidated Financial Statements effective as of the Closing Date.

On December 24, 2021, the Company entered into a share transfer agreement with another third-party investor, pursuant to which the Company sold to this investor 1.1% of outstanding equity interest held by the Company in the JV Company.

3 unchanged sentences

Under the Investment Agreement, the New Investors purchased newly issued equity interest of the JV Company, representing approximately 7.82% of post-transaction outstanding equity interests of the JV Company, for a total purchase price of RMB 509 million (or approximately USD 80 million based on the currency exchange rate as of January 26, 2022) (the “Investment”).

Following the closing of the January 26, 2022 Investment, the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42.2% at both June 30, 2022 and September 30, 2023.

Following the closing of the January 26, 2022 Investment, the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42.2% at June 30, 2022.

As of December 31, 2023, the Company owned 42.2% equity interest in the JV Company.

We reduced our ownership of the JV Company to below 50% to increase the flexibility of the JV Company to raise capital to fund its future expansion.

20 unchanged sentences

In addition, from time to time, we may experience wafer capacity constraints, particularly at third party foundries, that may prevent us from meeting fully the demand of our customers.

For example, the recent global shortage of semiconductor manufacturing capacity has provided us with both challenges and opportunities in the market, and highlighted the importance of maintaining sufficient and independent in-house manufacturing capabilities to meet increasing customer demands.

While we can mitigate these constraints by increasing and re-allocating

capacity at our own fab, we may not be able to do so quickly or at sufficient level, which could adversely affect our financial conditions and results of operations.

example, the recent global shortage of semiconductor manufacturing capacity has provided us with both challenges and opportunities in the market, and highlighted the importance of maintaining sufficient and independent in-house manufacturing capabilities to meet increasing customer demands.

While we can mitigate these constraints by increasing and re-allocating capacity at our own fab, we may not be able to do so quickly or at sufficient level, which could adversely affect our financial conditions and results of operations.

In addition, we enhanced the manufacturing capability and capacity of our Oregon Fab by investing in new equipment and expanding our factory facilities, which we expect will have a positive impact on our future new product development and revenue, particularly during the period of global shortage of capacity.

We also rely substantially on the JV Company to provide foundry capacity to manufacture our products, therefore it is critical that we maintain continuous access to such capacity, which may not be available at sufficient level or at a pricing terms favorable to us because of lack of control over the JV Company’s operation.

As a result of sales of our JV Company equity interests and issuance of additional equity interests by the JV Company to third-party investors in financing transactions, our equity interest in the JV Company was reduced to 42.2%, which resulted in the loss of control and reduced influence over the JV Company.

We continue to maintain a business relationship with the JV Company to ensure uninterrupted supply of manufacturing capacity.

35 unchanged sentences

We use the input method to measure progression of the transfer of services.

As of September 30, 2023, the Company had recorded $15.6 million of license and development revenue.

During the three and six months ended December 31, 2023, we recorded $5.5 million and $11.1 million of license and development revenue, respectively.

As of December 31, 2023, we had recorded $21.1 million of license and development revenue.

We also entered an accompanying supply agreement to provide limited wafer supply to the customer.

13 unchanged sentences

Selling, general and administrative expenses.

Our selling, general and administrative expenses consist primarily of salaries, bonuses, benefits, share-based compensation expense, product promotion costs, occupancy costs, travel expenses, expenses related to sales and marketing activities, amortization of software, depreciation of equipment, maintenance costs and other expenses for general and administrative functions as well as costs for outside professional services, including legal, audit

and accounting services.

other expenses for general and administrative functions as well as costs for outside professional services, including legal, audit and accounting services.

We expect our selling, general and administrative expenses to fluctuate in the near future as we continue to exercise cost control measures.

30 unchanged sentences

The CAMT is currently not applicable to the Company.

Altera Litigation

On July 27, 2015, in Altera Corp.

Commissioner, the U.S.

Tax Court issued an opinion related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement.

In the July 2015 ruling, the Tax Court concluded that the sharing of the cost of employee stock compensation in a company’s cost-sharing arrangement was invalid under the U.S.

Administrative Procedures Act.

In June 2019, a panel of the Ninth Circuit of the U.S.

Court of Appeals reversed this decision.

In July 2019, Altera petitioned U.S.

Court of Appeals for the Ninth Circuit to hold an en banc rehearing of the case.

The petition was subsequently denied by the Ninth Circuit.

Altera appealed the case to the U.S.

Supreme Court in February 2020, but the U.S.

Supreme Court declined to hear the case in June 2020, leaving intact the U.S.

Court of Appeals for the Ninth Circuit’s decision.

AOS has not recorded any benefit related to the Altera Corporation Tax Court decision in any period through December 2022.

The Company will continue to monitor ongoing developments and potential impact to its financial statements.

Bermuda Corporate Income Tax for Tax Years Beginning in 2025

The Company is subject to income tax expense or benefit based upon pre-tax income or loss reported in the consolidated statements of income (loss) and the provisions of currently enacted tax laws.

The parent company is incorporated under the laws of Bermuda and is subject to Bermuda law with respect to taxation.

Under current Bermuda law, the Company is not subject to any income or capital gains taxes in Bermuda.

In recent months, the Government of Bermuda announced that it has enacted the Corporate Income Tax Act 2023, potentially imposing a 15% corporate income tax (CIT) that would be taken into account in calculating the effective tax rate of Bermuda businesses under the Organization for Economic Cooperation and Development’s global minimum tax rules, that will be effective for tax years beginning on or after January 1, 2025.

The Company is closely analyzing the recently enacted Corporate Income Tax Act 2023 and the related potential tax and financial statement consequences.

The new Bermudian CIT may subject us to additional income taxes, which may adversely affect our results of operations.

Equity method investment income/loss from equity investee

11 unchanged sentences

Results of Operations

The following tables set forth statements of income, also expressed as a percentage of revenue, for the three months ended September 30, 2023 and 2022.

The following tables set forth statements of income, also expressed as a percentage of revenue, for the three and six months ended December 31, 2023 and 2022.

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

Three Months Ended September 30,

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

2023 2022 2023 2022 2023 2022 2023 2022

(in thousands) (% of revenue)

(in thousands) (% of revenue) (in thousands) (% of revenue)

Revenue $ 165,285 $ 188,760 100.0 % 100.0 % $ 345,918 $ 397,236 100.0 % 100.0 %

5 unchanged sentences

Total operating expenses 45,135 44,256 27.3 % 23.5 % 86,679 89,850 25.0 % 22.6 %

Operating income

Operating income (loss)

(1,134) 8,785 (0.7) % 4.6 % 8,247 34,319 2.4 % 8.7 %

1 unchanged sentence

Interest income (expense), net 274 (397) 0.2 % (0.2) % 503 (1,005) 0.1 % (0.3) %

Net income before income taxes 9,636 24,910 5.3 % 11.9 %

Net income (loss) before income taxes (1,332) 7,485 (0.8) % 3.9 % 8,304 32,395 2.4 % 8.2 %

Income tax expense 894 1,659 0.5 % 0.8 % 2,032 3,033 0.6 % 0.8 %

Net income before income (loss) from equity method investment 8,498 23,536 4.7 % 11.3 %

Net income (loss) before income (loss) from equity method investment (2,226) 5,826 (1.3) % 3.1 % 6,272 29,362 1.8 % 7.4 %

Equity method investment income (loss) from equity investee (697) 511 (0.4) % 0.3 % (3,409) 3,013 (1.0) % 0.8 %

Net income $ 5,786 $ 26,038 3.2 % 12.5 %

Net income (loss) $ (2,923) $ 6,337 (1.7) % 3.4 % $ 2,863 $ 32,375 0.8 % 8.2 %

Share-based compensation expense was recorded as follows:

Three Months Ended September 30,

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

2023 2022 2023 2022 2023 2022 2023 2022

(in thousands) (% of revenue)

(in thousands) (% of revenue) (in thousands) (% of revenue)

Cost of goods sold $ 1,504 $ 1,748 0.9 % 0.9 % $ 1,716 $ 3,536 0.5 % 0.9 %

2 unchanged sentences

Total $ 8,691 $ 13,091 5.3 % 6.9 % $ 9,609 $ 23,687 2.8 % 6.0 %

Three Months Ended September 30, 2023 and 2022

Three and Six Months Ended December 31, 2023 and 2022

The following is a summary of revenue by product type:

Three Months Ended September 30,

2023 2022 Change

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

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

2023 2022 Change 2023 2022 Change

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

Power discrete $ 108,780 $ 137,582 $ (28,802) (20.9) % $ 230,280 $ 282,155 $ (51,875) (18.4) %

4 unchanged sentences

The following is a summary of revenue by end market:

Three Months Ended September 30,

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

2023 2022 2023 2022 2023 2022 2023 2022

(in thousands) (% of revenue)

(in thousands) (% of revenue) (in thousands) (% of revenue)

Computing $ 71,756 $ 63,879 43.4 % 33.8 % $ 142,106 $ 153,143 41.1 % 38.6 %

5 unchanged sentences

$ 165,285 $ 188,760 100.0 % 100.0 % $ 345,918 $ 397,236 100.0 % 100.0 %

Total revenue was $180.6 million for the three months ended September 30, 2023, a decrease of $27.8 million, or 13.4%, as compared to $208.5 million for the same quarter last year.

The decrease was primarily due to a decrease of $23.1 million and $9.6 million in sales of power discrete products and power IC products, respectively.

The decrease in power discrete and power IC product sales was primarily due to a 21.7% decrease in average selling price as compared to same quarter last year due to a shift in product mix, offset by a 7.5% increase in unit shipments.

The decrease in revenues was primarily driven by the significant decrease in the computing market, reflecting weaker demand for computers and inventory correction by our customers, and decreased in the consumer markets, particularly in gaming products.

The decrease in revenue of packaging and testing services for the three months ended September 30, 2023, as compared to same quarter last year, was primarily due to decreased demand.

The increase in license and development services for the three months ended September 30, 2023 was related to the license agreement with a customer to license our proprietary SiC technology and to provide 24-month engineering and development services.

Total revenue was $165.3 million for the three months ended December 31, 2023, a decrease of $23.5 million, or 12.4%, as compared to $188.8 million for the same quarter last year.

The decrease was primarily due to a decrease of $28.8 million in sales of power discrete products, offset by an increase of $0.3 million in sales of power IC products and an increase of $5.5 million in license and development services.

The net decrease in power discrete and power IC product sales was primarily due to a 11.2% decrease in average selling price as compared to same quarter last year due to a shift in product mix and a 4.5% decrease in unit shipments.

The net decrease in revenues was primarily driven by a significant decrease in consumer markets, particularly in gaming products, partially offset by increase in the computing market.

The decrease in revenue of packaging and testing services for the three months ended December 31, 2023, as compared to same quarter last year, was primarily due to decreased demand.

The increase in license and development services for the three months ended December 31, 2023 was related to the license agreement with a customer to license our proprietary SiC technology and to provide 24-month engineering and development services.

Total revenue was $345.9 million for the six months ended December 31, 2023, a decrease of $51.3 million, or 12.9%, as compared to $397.2 million for the same period last year.

The decrease was primarily due to a decrease of $51.9 million and $9.3 million in sales of power discrete products and sales of power IC products, respectively, offset by an increase of $11.1 million in license and development services.

The decrease in power discrete and power IC product sales was primarily due to a 16.7% decrease in average selling price as compared to the same period of last year due to a shift in product mix, partially offset by a 1.5% increase in unit shipments.

The decrease in revenues was primarily driven by a decrease in consumer markets, particularly in gaming products, and a decrease in computing market, reflecting weaker demand for computers.

The decrease in revenue of packaging and testing services for the six months ended December 31, 2023, as compared to same period last year, was primarily due to decreased demand.

The increase in license and development services for the six months ended December 31, 2023 was related to the license agreement with a customer to license our proprietary SiC technology and to provide 24-month engineering and development services.

Cost of goods sold and gross profit

Three Months Ended September 30,

2023 2022 Change

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

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

2023 2022 Change 2023 2022 Change

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

Cost of goods sold $ 121,284 $ 135,719 $ (14,435) (10.6) % $ 250,992 $ 273,067 $ (22,075) (8.1) %

2 unchanged sentences

Percentage of revenue 26.6 % 28.1 % 27.4 % 31.3 %

Cost of goods sold was $129.7 million for the three months ended September 30, 2023, a decrease of $7.6 million, or 5.6%, as compared to $137.3 million for the same quarter last year.

Cost of goods sold was $121.3 million for the three months ended December 31, 2023, a decrease of $14.4 million, or 10.6%, as compared to $135.7 million for the same quarter last year.

The decrease was primarily due to 12.4% decrease in revenue.

Gross margin decreased by 5.9 percentage points to 28.2% for the three months ended September 30, 2023, as compared to 34.1% for the same quarter last year.

The decrease in gross margin was primarily due to higher material costs and less favorable product mix during the three months ended September 30, 2023.

Gross margin decreased by 1.5 percentage points to 26.6% for the three months ended December 31, 2023, as compared to 28.1% for the same quarter last year.

The decrease in gross margin was primarily due to higher material costs and less favorable product mix during the three months ended December 31, 2023.

Cost of goods sold was $251.0 million for the six months ended December 31, 2023, a decrease of $22.1 million, or 8.1%, as compared to $273.1 million for the same period last year.

The decrease was primarily due to 12.9% decrease in revenue.

Gross margin decreased by 3.9 percentage points to 27.4% for the six months ended December 31, 2023, as compared to 31.3% for the same period last year.

The decrease in gross margin was primarily due to higher material costs and less favorable product mix during the periods.

Research and development expenses

Three Months Ended September 30,

2023 2022 Change

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

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

2023 2022 Change 2023 2022 Change

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

Research and development expenses $ 22,919 $ 21,468 $ 1,451 6.8 % $ 45,032 $ 42,857 $ 2,175 5.1 %

Research and development expenses were $22.1 million for the three months ended September 30, 2023, an increase of $0.7 million, or 3.4%, as compared to $21.4 million for the same quarter last year.

The increase was primarily attributable to $1.1 million increase in product prototyping engineering expense as a result of increased engineering activities, a $0.7 million increase in employee compensation and benefit expense mainly due to increased headcount and higher business and medical insurance expenses, partially offset by lower bonus accrual, a $0.2 million increase in depreciation expenses, a $0.2 million increase in consulting fees and a $1.1 million in allocation, partially offset by a $2.5 million decrease in share-based compensation expense as a result of more cancellation of performance-based restricted stock units and a modification of market-based restricted stock units.

Research and development expenses were $22.9 million for the three months ended December 31, 2023, an increase of $1.5 million, or 6.8%, as compared to $21.5 million for the same quarter last year.

The increase was primarily attributable to a $1.5 million increase in employee compensation and benefit expense mainly due to increased headcount and higher business and medical insurance expenses as well as higher bonus expenses, a $0.3 million increase in depreciation expenses, a $0.1 million increase in consulting fees and a $0.4 million in allocation, partially offset by a $0.9 million decrease in share-based compensation expense as a result of a cancellation of performance-based restricted stock units and a modification of market-based restricted stock units in September 2023 quarter.

Research and development expenses were $45.0 million for the six months ended December 31, 2023, an increase of $2.2 million, or 5.1%, as compared to $42.9 million for the same period last year.

The increase was primarily attributable to a $2.2 million increase in employee compensation and benefit expense mainly due to increased headcount, higher business and medical insurance expenses as well as higher bonus expenses, a $0.5 million increase in depreciation expenses, a $0.2 million increase in consulting fees, a $1.1 million increase in product prototyping engineering expense as a result of increased engineering activities, and a $1.5 million in allocation, partially offset by a $3.4 million decrease in share-based compensation expense as a result of a cancellation of performance-based restricted stock units due to failure to meet performance objectives and a modification of market-based restricted stock units in current periods.

Selling, general and administrative expenses

Three Months Ended September 30,

2023 2022 Change

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

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

2023 2022 Change 2023 2022 Change

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

Selling, general and administrative $ 22,216 $ 22,788 $ (572) (2.5) % $ 41,647 $ 46,993 $ (5,346) (11.4) %

Selling, general and administrative expenses were $19.4 million for the three months ended September 30, 2023, a decrease of $4.8 million, or 19.7%, as compared to $24.2 million for the same quarter last year.

The decrease was primarily due to a $1.2 million decrease in employee compensation and benefits expenses primarily due to lower bonus expenses accrual, partially offset by increased medical and business insurance expenses, as well as a $5.6 million decrease in share-based compensation expense as a result of more cancellation of performance-based restricted stock units and a modification of market-based restricted stock units, partially offset by a $0.5 million increase in legal expenses, a $0.6 million increase in audit fees, a $0.5 million increase in consulting fees, a $0.3 million increase in employee business expenses and a $0.3 million increase in facility expenses as a result of more rent expenses.

Selling, general and administrative expenses were $22.2 million for the three months ended December 31, 2023, a decrease of $0.6 million, or 2.5%, as compared to $22.8 million for the same quarter last year.

The decrease was primarily due to a $3.2 million decrease in share-based compensation expense as a result of a cancellation of performance-based restricted stock units and a modification of market-based restricted stock units in September 2023 quarter, partially offset by a $1.5 million increase in employee compensation and benefits expenses primarily due to increased headcount and higher bonus expense, offset by lower business insurance expenses, a $0.1 million increase in depreciation expenses, a $0.1 million increase in tax consulting fees, a $0.2 million increase in employee business expenses, a $0.2 million increase in facility expenses as a result of more rent expenses, as well as $0.5 million increase in allocation.

Selling, general and administrative expenses were $41.6 million for the six months ended December 31, 2023, a decrease of $5.3 million, or 11.4%, as compared to $47.0 million for the same period last year.

The decrease was primarily attributable to a $8.9 million decrease in share-based compensation expense as a result of a cancellation of performance-based restricted stock units due to failure to meet performance objectives and a modification of market-based restricted stock units in current periods, partially offset by a $0.3 million increase in employee compensation and benefit expense mainly due to increased headcount and higher bonus expenses, offset by lower business insurance expenses, a $0.2 million increase in depreciation expenses, a $0.6 million increase in consulting fees, $0.7 million increase in audit and tax consulting fees, a $0.5 million increase in employee business expenses, a $0.4 million increase in facility expenses as a result of more rent expenses, and $1.0 million increase in allocation.

Other income (loss), net

Three Months Ended September 30,

2023 2022 Change

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

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

2023 2022 Change 2023 2022 Change

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

Other income (loss), net $ (472) $ (903) $ 431 (47.7) % $ (446) $ (919) $ 473 (51.5) %

Other income (loss), net in the three months ended September 30, 2023 and 2022 was flat.

Other income (loss), net was increased in the three and six months ended December 31, 2023 as compared to the same periods last year primarily due to decrease in foreign currency exchange loss as a result of the appreciation of RMB against USD.

Interest income (expense), net

Three Months Ended September 30,

2023 2022 Change

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

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

2023 2022 Change 2023 2022 Change

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

Interest income (expense), net $ 274 $ (397) $ 671 (169.0) % $ 503 $ (1,005) $ 1,508 (150.0) %

Interest income (expense), net increased by $0.8 million during the three months ended September 30, 2023 as compared to the same quarter last year primarily due to a $0.9 million increase in interest income as a result of higher interest rates, partially offset by a $0.1 million increase in interest expense as a result of an increase in bank borrowings.

Interest income (expense), net increased by $0.7 million during the three months ended December 31, 2023 as compared to the same quarter last year primarily due to a $0.4 million increase in interest income as a result of higher interest rates and a $0.2 million decrease in interest expense as a result of less outstanding loan balance in current quarter.

Interest income (expense), net increased by $1.5 million during the six months ended December 31, 2023 as compared to the same period last year was primarily due to a $1.3 million increase in interest income as a result of higher interest rate and a $0.2 million decrease in interest expense as a result of less outstanding loan balance in the current periods.

Income tax expense

Three Months Ended September 30,

2023 2022 Change

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

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

2023 2022 Change 2023 2022 Change

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

Income tax expense $ 894 $ 1,659 $ (765) (46.1) % $ 2,032 $ 3,033 $ (1,001) (33.0) %

The Company recognized income tax expense of approximately $1.1 million and $1.4 million for the three months ended September 30, 2023 and 2022, respectively.

The income tax expense of $1.1 million for the three months ended September 30, 2023 included a $0.05 million discrete tax expense.

The income tax expense of $1.4 million for the three months ended September 30, 2022 included a $0.07 million discrete tax expense.

Excluding the discrete income tax items, the income tax expense for the three months ended September 30, 2023 and 2022 was $1.1 million and $1.3 million, respectively, and the effective tax rate for the three months ended September 30, 2023 and 2022 was 15.7% and 4.8%, respectively.

The Company recognized income tax expense of approximately $0.9 million and $1.7 million for the three months ended December 31, 2023 and 2022, respectively.

The income tax expense of $0.9 million for the three months ended December 31, 2023 included a $0.1 million discrete tax expense.

The income tax expense of $1.7 million for the three months ended December 31, 2022 included a $0.1 million discrete tax expense.

Excluding the discrete income tax items, the income tax expense for the three months ended December 31, 2023 and 2022 was $0.8 million and $1.6 million, respectively, and the effective tax rate for the three months ended December 31, 2023 and 2022 was (41.2)% and 20.2%, respectively.

The changes in the tax expense and effective tax rate between the periods resulted primarily from changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year as well as from reporting pretax book loss of $2.0 million for the three months ended December 31, 2023 as compared to $8.0 million of pretax book income for the three months ended December 31, 2022.

The Company recognized income tax expense of approximately $2.0 million and $3.0 million for the six months ended December 31, 2023 and 2022, respectively.

The income tax expense of $2.0 million for the six months ended December 31, 2023 included a $0.1 million discrete tax expense.

The income tax expense of $3.0 million for the three months ended December 31, 2022 included a $0.1 million discrete tax expense.

Excluding the discrete income tax items, the income tax expense for the six months ended December 31, 2023 and 2022 was $1.9 million and $2.9 million, respectively, and the effective tax rate for the six months ended December 31, 2023 and 2022 was 39.2% and 8.2%, respectively.

The changes in the tax expense and effective tax rate between the periods resulted primarily from changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year as well as from reporting pretax book income of $4.9 million for the six months ended December 31, 2023 as compared to $35.4 million of pretax book income for the six months ended December 31, 2022.

The Company files its income tax returns in the United States and in various foreign jurisdictions.

5 unchanged sentences

These assessments can require considerable estimates and judgments.

As of September 30, 2023, the gross amount of unrecognized tax benefits was approximately $9.4 million, of which $6.3 million, if recognized, would reduce the effective income tax rate in future periods.

As of December 31, 2023, the gross amount of unrecognized tax benefits was approximately $9.5 million, of which $6.3 million, if recognized, would reduce the effective income tax rate in future periods.

If the Company's estimate of income tax liabilities proves to be less than the ultimate assessment, then a further charge to expense would be required.

11 unchanged sentences

Dollar on September 30, 2023 with a maturity date of September 8, 2025.

As of September 30, 2023, there was no outstanding balance for this loan.

As of December 31, 2023, there was no outstanding balance for this loan.

In January 2023, one of the Company's subsidiaries in China entered into a line of credit facility with Bank of Communications Limited in China.

2 unchanged sentences

Dollar on January 31, 2023 with a maturity date of December 1, 2023.

As of September 30, 2023, there was no outstanding balance for this loan.

As of December 31, 2023, there was no outstanding balance for this loan and this loan expired.

In September 2022, one of the Company's subsidiaries in China entered into a line of credit facility with Industrial and Commercial Bank of China.

2 unchanged sentences

Dollar on September 20, 2022, with a maturity date of September 30, 2023.

As of September 30, 2023, there was no outstanding balance and this loan expired.

As of December 31, 2023, there was no outstanding balance and this loan expired.

In September 2021, Jireh Semiconductor Incorporated (“Jireh”), one of the wholly-owned subsidiaries, entered into a financing arrangement agreement with a company (“Lender”) for the lease and purchase of a machinery equipment manufactured by a supplier.

11 unchanged sentences

The purchase price of this hardware was $0.2 million.

The financing arrangement is secured by this equipment and other equipment which had the carrying amount of $14.8 million as of September 30, 2023.

As of September 30, 2023, the outstanding balance of this debt financing was $11.0 million.

The financing arrangement is secured by this equipment and other equipment which had the

carrying amount of $14.4 million as of December 31, 2023.

As of December 31, 2023, the outstanding balance of this debt financing was $10.4 million.

On August 18, 2021, Jireh entered into a term loan agreement with a financial institution (the "Bank") in an amount up to $45.0 million for the purpose of expanding and upgrading the Company’s fabrication facility located in Oregon.

5 unchanged sentences

Jireh drew down $45.0 million on February 16, 2022 with the first payment of principal beginning in October 2022.

As of September 30, 2023, Jireh was in compliance with these covenants and the outstanding balance of this loan wa s $36.0 million.

As of December 31, 2023, Jireh was in compliance with these covenants and the outstanding balance of this loan wa s $33.8 million.

On August 9, 2019, one of the Company's 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.

7 unchanged sentences

Other terms remain the same.

As of September 30, 2023, the Borrower was in compliance with these covenants.

As of September 30, 2023, there was no outstanding balance and the Company had unused credit of approximately $8.0 million.

As of December 31, 2023, the Borrower was in compliance with these covenants.

As of December 31, 2023, there was no outstanding balance and the Company had unused credit of approximately $8.0 million.

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.

1 unchanged sentence

We intend to fund the costs by a combination of cash reserve, bank loans and equipment leases.

In the long-term, we may require additional capital due to changing business conditions or other future developments, including any investments or

acquisitions we may decide to pursue.

In the long-term, we may require additional capital due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue.

If our cash is insufficient to meet our needs, we may seek to raise capital through equity or debt financing.

3 unchanged sentences

Cash, cash equivalents and restricted cash

As of September 30, 2023 and June 30, 2023, we h a d $193.8 million and $195.6 million of cash, cash equivalents and restricted cash, respectively.

As of December 31, 2023 and June 30, 2023, we h a d $162.5 million and $195.6 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.

1 unchanged sentence

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

Three Months Ended September 30,

Six Months Ended December 31,

(in thousands)

Net cash provided by operating activities $ 13,823 $ 36,675

Net cash provided by (used in) operating activities $ (9,628) $ 37,015

Net cash used in investing activities (21,431) (67,935)

1 unchanged sentence

Effect of exchange rate changes on cash, cash equivalents and restricted cash 80 (164)

Net increase (decrease) in cash, cash equivalents and restricted cash $ (1,821) $ 1,746

Net decrease in cash, cash equivalents and restricted cash

$ (33,125) $ (26,558)

Cash flows from operating activities

Net cash provided by operating activities of $13.8 million for the three months ended September 30, 2023 resulted primarily from net income of $5.8 million and non-cash expenses of $15.4 million, partially offset by net changes in assets and liabilities using cash of $7.4 million, The non-cash expenses of $15.4 million primarily included $0.9 million of share-based compensation expense, $13.0 million of depreciation and amortization expenses, $2.7 million of loss from equity investment and $1.2 million of deferred income taxes.

The net changes in assets and liabilities of $7.4 million were primarily due to a $8.2 million increase in net payable from equity investee, a $3.1 million increase in accounts payable due to timing of payments, and $1.1 million increase in deferred revenue, partially offset by a $4.5 million increase in inventories as a result of our inventories built up for preparation of uncertainty of supply chains, $1.3 million increase in other current and long-term assets due to increase in advance payments to vendors, and a $1.1 million decrease in accrued and other liabilities, a $12.0 million increase in accounts receivable as a result of timing of the shipments and payments collected, and a $0.8 million decrease in income taxes payable.

Net cash provided by operating activities of $36.7 million for the three months ended September 30, 2022 resulted primarily from net income of $26.0 million and non-cash expenses of $17.7 million, partially offset by net changes in assets and liabilities using cash of $7.1 million, The non-cash expenses of $17.7 million primarily included $10.6 million of share-based compensation expense, $9.4 million of depreciation and amortization expenses, $0.4 million of loss on disposal of property and equipment, and $2.5 million of income on equity investment.

The net changes in assets and liabilities of $7.1 million were primarily due to a $9.5 million decrease in other payable from equity investee, a $6.0 million decrease in accounts payable due to timing of payments, a $6.9 million increase in inventories as a result of our inventories built up for preparation of uncertainty of supply chains, and a $0.5 million increase in other current and long-term assets due to increase in advance payments to vendors, partially offset by a $9.9 million decrease in accounts receivable as a result of timing of the shipments and payments collected, a $0.5 million increase in income taxes payable, and a $5.5 million increase in accrued and other liabilities.

Net cash used in operating activities of $9.6 million for the six months ended December 31, 2023 resulted primarily from net income of $2.9 million and non-cash expenses of $38.7 million, partially offset by net changes in assets and liabilities using cash of $51.2 million.

The non-cash expenses of $38.7 million primarily included $9.6 million of share-based compensation expense, $26.5 million of depreciation and amortization expenses, $3.4 million of loss from equity investment and $0.9 million of deferred income taxes.

The net changes in assets and liabilities of $51.2 million were primarily due to a $3.2 million decrease in accounts payable due to timing of payments, and $4.4 million increase in deferred revenue, a $8.5 million increase in inventories as a result of our inventories built up for preparation of uncertainty of supply chains, $10.7 million increase in other current and long-term assets due to increase in advance payments to vendors, and a $15.2 million decrease in accrued and other liabilities, a $9.5 million increase in accounts receivable as a result of timing of the shipments and payments collected, and a $0.8 million decrease in income taxes payable, partially offset by a $1.0 million increase in net payable from equity investee,

Net cash provided by operating activities of $37.0 million for the six months ended December 31, 2022 resulted primarily from net income of $32.4 million and non-cash expenses of $39.6 million, partially offset by net changes in assets and liabilities using cash of $35.0 million.

The non-cash expenses of $39.6 million primarily included $23.7 million of share-based compensation expense, $20.2 million of depreciation and amortization expenses, $0.4 million of loss on disposal of property and equipment, $1.6 million of deferred income taxes, and $3.0 million of income from equity investment.

The net changes in assets and liabilities of $35.0 million were primarily due to a $7.4 million decrease in net payable from equity investee, a $14.1 million decrease in accounts payable due to timing of payments, a $5.8 million increase in inventories as a result of our inventories built up for preparation of uncertainty of supply chains, $8.4 million increase in other current and long-term assets due to increase in advance payments to vendors, and a $13.2 million decrease in accrued and other liabilities, partially offset by $12.5 million decrease in accounts receivable as a result of timing of the shipments and payments collected, and a $1.4 million increase in income taxes payable.

Cash flows from investing activities

Net cash used in investing activities of $12.5 million for the three months ended September 30, 2023 was primarily due to purchases of property and equipment,

Net cash used in investing activities of $40.0 million for the three months ended September 30, 2022 was primarily attributable to $40.3 million purchases of property and equipment, partially offset by $0.3 million government grants related to fixed assets.

Net cash used in investing activities of $21.4 million for the six months ended December 31, 2023 was primarily attributable to $22.0 million purchases of property and equipment, partially offset by $0.4 million government grants related to fixed assets.

Net cash used in investing activities of $67.9 million for the six months ended December 31, 2022 was primarily attributable to $68.6 million purchases of property and equipment, partially offset by $0.6 million government grants related to fixed assets.

Cash flows from financing activities

Net cash used in financing activities of $3.0 million for the three months ended September 30, 2023 was primarily attributable to $2.9 million in repayments of borrowings, $0.2 million in payment of finance lease obligations, and $0.4 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, partially offset by $0.4 million of proceeds from exercise of stock options and ESPP.

Net cash provided by financing activities of $5.5 million for the three months ended September 30, 2022 was primarily attributable to $8.6 million proceeds from borrowings, partially offset by $2.6 million in repayments of borrowings, $0.2 million in payment of finance lease obligations, and $0.4 million in common shares acquired to settle withholding tax related to vesting of restricted stock units.

Net cash used in financing activities of $2.1 million for the six months ended December 31, 2023 was primarily attributable to $5.7 million in repayments of borrowings, $0.4 million in payment of finance lease obligations, and $0.6 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, partially offset by $4.6 million of proceeds from exercise of stock options and ESPP.

Net cash used in financing activities of $4.5 million for the six months ended December 31, 2022 was primarily attributable to $8.6 million proceeds from borrowings and $4.1 million of proceeds from exercise of stock options and ESPP, partially offset by $7.2 million in repayments of borrowings, $0.4 million in payment of finance lease obligations, and $0.6 million in common shares acquired to settle withholding tax related to vesting of restricted stock units.

See Note 12 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 September 30, 2023, we had no off-balance sheet arrangements.

As of December 31, 2023, we had no off-balance sheet arrangements.

Contractual Obligations

5 unchanged sentences

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