What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2024-02-07 · 114 added, 113 removed, 301 unchanged (43% of the section changed)

3 unchanged sentences

the expected ramp up timeline of the 12-inch fab at the JV Company;

the impact of government investigation and coronavirus on our financial performance;

and other statements and information set forth under the heading “Factors Affecting Our Performance”.

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Unless the context otherwise requires, the words “AOS,” the “Company,” “we,” “us” and “our” refer to Alpha and Omega Semiconductor Limited and its subsidiaries.

This management’s discussion should be read in conjunction with the management’s discussion included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, filed with the Securities and Exchange Commission on August 29, 2023.

Management’s discussion should be read in conjunction with management’s discussion included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, filed with the Securities and Exchange Commission on August 29, 2023.

We are a designer, developer and global supplier of a broad portfolio of power semiconductors.

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

During the nine months ended March 31, 2024, we introduced an additional 80 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 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 have an extensive patent portfolio that consists of 931 patents and 43 patent applications in the United States as of March 31, 2024.

We also have a total of 1,009 foreign patents, which were based primarily on our research and development efforts through March 31, 2024.

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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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 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.

During the fiscal quarter ended March 31, 2024, 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.

1 unchanged sentence

As of December 1, 2021, we owned 50.9%, and the Chongqing Funds owned 49.1% of the equity interest in the JV Company.

The Joint Venture was accounted under the provisions of the consolidation guidance since we had controlling financial interest until December 1, 2021.

The Joint Venture was accounted under the provisions of the consolidation guidance since we had controlling financial interests until December 1, 2021.

On December 1, 2021 (the “Effective Date”), Alpha & Omega Semiconductor (Shanghai) Ltd.

Company's equity interest in the JV Company which consists of a power semiconductor packaging, testing and 12-inch wafer fabrication facility in Chongqing, China (the “Transaction”).

(“AOS SH”) and Agape Package Manufacturing (Shanghai) Limited (“APM SH” and, together with AOS SH, the “Sellers”), each a wholly-owned subsidiary of the Company, entered into a share transfer agreement ("STA") with a third-party investor to sell a portion of the Company's equity interest in the JV Company which consists of a power semiconductor packaging, testing and 12-inch wafer

fabrication facility in Chongqing, China (the “Transaction”).

The Transaction closed on December 2, 2021 (the “Closing Date”), which reduced the Company’s equity interest in the JV Company from 50.9% to 48.8%.

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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.

In February 2024, the JV Company repurchased certain shares that were previously issued to employees under the employee equity incentive plan for $5.4 million, which increased the Company’s percentage of equity ownership in the JV Company by 0.54%.

As of March 31, 2024, the percentage of outstanding JV equity interest beneficially owned by the Company was 42.8%.

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.

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

Since mid-2022, we have experienced an industry-wide decline of customer demand for semiconductor products, which resulted in inventory corrections and reduction of sales by our major customers that has negatively affected our recent financial performance.

The prolonged and extended downturn in the semiconductor industry have a substantial impact on our operating results and financial conditions.

A significant amount of our revenue is derived from sales of products in the PC markets, such as notebooks, motherboards and notebook battery packs.

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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.

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.

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.

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We estimate the price adjustments for inventory at the distributors based on factors such as distributor inventory levels, pre-approved future distributor selling prices, distributor margins and demand for our products.

In February 2023, we entered into a license agreement with a customer to license our proprietary SiC technology and to provide 24-months of engineering and development services for a total fee of $45 million, consisting of an upfront fee of $18 million and $6.8 million paid to us in the March and July 2023, with the remaining amount to be paid upon the achievement of specified engineering services and product milestones.

In February 2023, we entered into a license agreement with a customer to license our proprietary SiC technology and to provide 24-months of engineering and development services for a total fee of $45.0 million, consisting of fees of $18.0 million, $6.8 million and $9.0 million paid to us in the March 2023, July 2023 and February 2024, respectively, with the remaining amount to be paid upon the achievement of specified engineering services and product milestones.

The license and development fee is determined to be one performance obligation and is recognized over the 24 months during which we perform the engineering and development services.

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

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.

During the three and nine months ended March 31, 2024, we recorded $5.1 million and $16.2 million of license and development revenue, respectively.

During the three and nine months ended March 31, 2023, the Company recorded $3.6 million of license and development revenue.

As of March 31, 2024, we had recorded a total of $26.1 million of license and development revenue.

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

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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.

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.

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

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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.

As we have previously disclosed, the Government of Bermuda announced in December 2023 that it enacted the Corporate Income Tax Act 2023, potentially imposing a 15% corporate income tax (CIT) on Bermuda companies that are within the scope of the CIT, that will be effective for tax years beginning on or after January 1, 2025.

In particular, the CIT applies to multinational companies with annual revenue of 750 million euros or more in the consolidated financial statements of the ultimate parent entity for at least two of the four fiscal years immediately preceding the fiscal year when the CIT may apply.

The Company is not in a position to determine whether the annual revenues may meet and/or cross the 750 million Euro threshold for at least two of the four fiscal years immediately preceding the fiscal year when CIT may apply.

The Company continues to monitor and assess if and when it may be within the scope of the CIT.

If we become subject to the Bermuda CIT, we may be subject to additional income taxes, which may adversely affect our financial position, results of operations and our overall business.

Equity method investment income/loss from equity investee

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Since we are unable to obtain accurate financial information from the JV Company in a timely manner, we record our share of earnings or losses of such affiliate on a one quarter lag.

We record our interest in the net earnings of the equity method investee, along with adjustments for unrealized profits or losses on intra-entity transactions and amortization of basis differences, within earnings or loss from equity interests in the Consolidated Statements of Income.

Profits or losses related to intra-entity sales with the equity method investee are eliminated until realized by the investor or investee.

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Results of Operations

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.

The following tables set forth statements of income, also expressed as a percentage of revenue, for the three and nine months ended March 31, 2024 and 2023.

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,

2024 2023 2024 2023 2024 2023 2024 2023

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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,

2024 2023 2024 2023 2024 2023 2024 2023

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Total $ 8,465 $ 10,432 5.6 % 7.9 % $ 18,074 $ 34,119 3.6 % 6.5 %

Three and Six Months Ended December 31, 2023 and 2022

Three and Nine Months Ended March 31, 2024 and 2023

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,

2024 2023 Change 2024 2023 Change

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Power IC 49,990 47,416 2,574 5.4 % 153,032 159,708 (6,676) (4.2) %

Packaging and testing services 744 1,206 (462) (38.3) % 1,489 2,789 (1,300) (46.6) %

Packaging and testing services and other

1,204 552 652 118.1 % 2,694 3,341 (647) (19.4) %

License and development services 5,051 3,630 1,421 39.1 % 16,159 3,630 12,529 345.2 %

1 unchanged sentence

The following is a summary of revenue by end market:

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

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

2024 2023 2024 2023 2024 2023 2024 2023

4 unchanged sentences

Power Supply and Industrial 24,759 26,475 16.5 % 20.1 % 101,400 108,601 20.4 % 20.5 %

Packaging and testing services 744 1,206 0.4 % 0.7 % 1,489 2,789 0.4 % 0.6 %

Packaging and testing services and other

1,204 552 0.7 % 0.4 % 2,694 3,341 0.5 % 0.6 %

License and development services 5,051 3,630 3.4 % 2.7 % 16,159 3,630 3.3 % 0.7 %

$ 150,060 $ 132,560 100.0 % 100.0 % $ 495,978 $ 529,796 100.0 % 100.0 %

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.

Total revenue was $150.1 million for the three months ended March 31, 2024, an increase of $17.5 million, or 13.2%, as compared to $132.6 million for the same quarter last year.

The increase was primarily due to an increase of $12.9 million and $2.6 million in sales of power discrete products and sales of power IC products, respectively, as well as an increase of $1.4 million in license and development services.

The increase in power discrete and power IC product sales was primarily due to a 46.9% increase in unit shipments, partially offset by a 23.7% decrease in average selling prices compared to same quarter last year due to a shift in product mix.

The increase in revenues was primarily driven by a significant increase in the computing markets, particularly in notebook and motherboard products, partially offset by decreased sales in the consumer market, particularly in gaming products.

The revenue of packaging and testing services and other for the three months ended March 31, 2024, as compared to same quarter last year, remained flat.

The increase in license and development services for the three months ended March 31, 2024 was related to the license agreement signed in February 2023 with a customer to license our proprietary SiC technology and to provide 24-month engineering and development services.

Total revenue was $496.0 million for the nine months ended March 31, 2024, a decrease of $33.8 million, or 6.4%, as compared to $529.8 million for the same period last year.

The decrease was primarily due to a decrease of $39.0 million and $6.7 million in sales of power discrete products and sales of power IC products, respectively, as well as a decrease of $0.6 million in revenue of packaging and testing services, offset by an increase of $12.5 million in license and development services.

The decrease in power discrete and power IC product sales was primarily due to a 19.1% decrease in average selling prices compared to same period of last year due to a shift in product mix, partially offset by a 12.2% increase in unit shipments.

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

The decrease in revenue of packaging and testing services and other for the nine months ended March 31, 2024, as compared to same period last year, was primarily due to decreased demand.

The increase in license and development services for the nine months ended March 31, 2024 was related to the license agreement, signed in February 2023, 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 December 31, Six Months Ended December 31,

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

2024 2023 Change 2024 2023 Change

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Percentage of revenue 23.7 % 23.2 % 26.3 % 29.2 %

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 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.

Cost of goods sold was $114.5 million for the three months ended March 31, 2024, an increase of $12.7 million, or 12.5%, as compared to $101.8 million for the same quarter last year.

The increase was primarily due to 13.2% increase in revenue.

Gross margin increased by 0.5 percentage points to 23.7% for the three months ended March 31, 2024, as compared to 23.2% for the same quarter last year.

The gross margin for the three months ended March 31, 2024, as compared to same quarter last year, remained flat.

Cost of goods sold was $365.5 million for the nine months ended March 31, 2024, a decrease of $9.3 million, or 2.5%, as compared to $374.8 million for the same period last year.

The decrease was primarily due to 6.4% 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.

Gross margin decreased by 2.9 percentage points to 26.3% for the nine months ended March 31, 2024, as compared to 29.2% 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 December 31, Six Months Ended December 31,

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

2024 2023 Change 2024 2023 Change

1 unchanged sentence

Research and development expenses $ 23,095 $ 22,578 $ 517 2.3 % $ 68,127 $ 65,435 $ 2,692 4.1 %

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.

Research and development expenses were $23.1 million for the three months ended March 31, 2024, an increase of $0.5 million, or 2.3%, as compared to $22.6 million for the same quarter last year.

The increase was primarily attributable to a $0.9 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 and a $0.8 million in allocation, partially offset by a $0.8 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, as well as a $0.4 million decrease in consulting fees.

Research and development expenses were $68.1 million for the nine months ended March 31, 2024, an increase of $2.7 million, or 4.1%, as compared to $65.4 million for the same period last year.

The increase was primarily attributable to a $3.1 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 $0.7 million increase in depreciation expenses, a $0.9 million increase in product prototyping engineering expense as a result of increased engineering activities, and a $2.3 million in allocation, partially offset by a $4.2 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, as well as a $0.1 million decrease in recruiting fees

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,

2024 2023 Change 2024 2023 Change

1 unchanged sentence

Selling, general and administrative $ 22,964 $ 22,610 $ 354 1.6 % $ 64,611 $ 69,603 $ (4,992) (7.2) %

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.

Selling, general and administrative expenses were $23.0 million for the three months ended March 31, 2024, an increase of $0.4 million, or 1.6%, as compared to $22.6 million for the same quarter last year.

The increase was primarily due to a $0.2 million increase in employee compensation and benefits expenses primarily due to increased headcount and higher bonus expense, offset by lower business insurance expenses, a $0.4 million increase in consulting fees and a $0.9 million increase in allocation, partially offset by a $0.8 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 and $0.4 million decrease in legal fees.

Selling, general and administrative expenses were $64.6 million for the nine months ended March 31, 2024, a decrease of $5.0 million, or 7.2%, as compared to $69.6 million for the same period last year.

The decrease was primarily attributable to a $9.7 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 $0.5 million increase in employee compensation and benefit expense mainly due to increased headcount and higher bonus expenses, offset by lower business insurance expenses, a $0.9 million increase in consulting fees, $0.6 million increase in audit and tax consulting fees, a $0.3 million increase in depreciation expenses, a $0.5 million increase in facility expenses as a result of more rent expenses, and $1.9 million increase in allocation.

Other income (loss), net

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

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

2024 2023 Change 2024 2023 Change

1 unchanged sentence

Other income (loss), net $ 308 $ (513) $ 821 (160.0) % $ (138) $ (1,432) $ 1,294 (90.4) %

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.

Other income (loss), net increased in the three and nine months ended March 31, 2024 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 December 31, Six Months Ended December 31,

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

2024 2023 Change 2024 2023 Change

1 unchanged sentence

Interest income (expense), net $ 271 $ 5 $ 266 5,320.0 % $ 774 $ (1,000) $ 1,774 (177.4) %

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.

Interest income (expense), net increased by $0.3 million during the three months ended March 31, 2024 as compared to the same quarter last year primarily due to a $0.3 million decrease in interest expense as a result of less outstanding loan balance in current quarter.

Interest income (expense), net increased by $1.8 million during the nine months ended March 31, 2024 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 $0.5 million decrease in interest expense as a result of less outstanding loan balance in the current periods.

Income tax expense

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

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

2024 2023 Change 2024 2023 Change

1 unchanged sentence

Income tax expense $ 611 $ 2,517 $ (1,906) (75.7) % $ 2,643 $ 5,550 $ (2,907) (52.4) %

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 recognized income tax expense of approximately $0.6 million and $2.5 million for the three months ended March 31, 2024 and 2023, respectively.

The income tax expense of $0.6 million for the three months ended March 31, 2024 included a $0.1 million discrete tax expense.

The income tax expense of $2.5 million for the three months ended March 31, 2023 included a $0.03 million discrete tax expense.

Excluding the discrete income tax items, the income tax expense for the three months ended March 31, 2024 and 2023 was $0.6 million and $2.5 million, respectively, and the effective tax rate for the three months ended March 31, 2024 and 2023 was (5.3)% and (15.2)%, 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 $10.6 million for the three months ended March 31, 2024 as compared to $16.4 million of pretax book loss for the three months ended March 31, 2023.

The Company recognized income tax expense of approximately $2.6 million and $5.6 million for the nine months ended March 31, 2024 and 2023, respectively.

The income tax expense of $2.6 million for the nine months ended March 31, 2024 included a $0.2 million discrete tax expense.

The income tax expense of $5.6 million for the nine months ended March 31, 2023 included a $0.1 million discrete tax expense.

Excluding the discrete income tax items, the income tax expense for the nine months ended March 31, 2024 and 2023 was $2.5 million and $5.4 million, respectively, and the effective tax rate for the nine months ended March 31, 2024 and 2023 was (43.4)% and 28.4%, 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 $5.7 million for the nine months ended March 31, 2024 as compared to $19.0 million of pretax book income for the nine months ended March 31, 2023.

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

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These assessments can require considerable estimates and judgments.

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.

As of March 31, 2024, the gross amount of unrecognized tax benefits was approximately $9.5 million, of which $6.4 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.

If the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary.

If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary.

The Company does not anticipate any material changes to its uncertain tax positions during the next twelve months.

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To date, we finance our operations and capital expenditures primarily through funds generated from operations and borrowings under our term loans, financing lease and other debt agreements.

In March 2024, one of the Company's subsidiaries in China entered into a line of credit facility with Bank of Communications Limited in China.

The purpose of the credit facility is to provide working capital borrowings.

The Company could borrow up to approximately RMB 140 million or $19.4 million based on currency exchange rate between RMB and U.S.

Dollar on March 31, 2024 with a maturity date of March 15, 2025.

As of March 31, 2024, there was no outstanding balance for this loan.

On February 6, 2023, we entered into a license and engineering service agreement with a leading power semiconductor automotive supplier related to our Silicon Carbide (SiC) MOSFET and diode technology.

Pursuant to the agreement, we license and provide 24-month engineering support for our proprietary SiC technology to the supplier for a total fee of $45 million, consisted of an upfront fees of $18 million and $6.8 million paid to us in the March and July 2023, respectively, and the remaining amount to be paid upon our achievements of specified business and product milestones.

Pursuant to the agreement, we license and provide 24-month engineering support for our proprietary SiC technology to the supplier for a total fee of $45.0 million, consisted of an upfront fees of $18.0 million, $6.8 million and $9.0 million paid to us in the March, July 2023 and February 2024, respectively, and the remaining amount to be paid upon our achievements of specified business and product milestones.

In addition, we entered an accompanying supply agreement with the supplier to provide it with limited wafer supply.

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

The purpose of the credit facility is to provide working capital borrowings.

In December 2023, one of the Company's subsidiaries in China entered into a line of credit facility with Industrial and Commercial Bank of China.

The purpose of the credit facility was to provide working capital borrowings.

The Company could borrow up to approximately RMB 72.0 million, or $10.2 million based on currency exchange rate between RMB and U.S.

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

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.

Dollar on December 31, 2023, with a maturity date of December 31, 2024.

As of March 31, 2024, there was no outstanding balance for this loan .

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

The purpose of the credit facility is to provide working capital borrowings.

The Company could borrow up to approximately RMB 50 million or $6.8 million based on currency exchange rate between RMB and U.S.

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

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.

The purpose of the credit facility was to provide working capital borrowings.

The Company could borrow up to approximately RMB 72.0 million, or $10.3 million based on currency exchange rate between RMB and U.S.

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

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

As of March 31, 2024, there was no outstanding balance for this loan.

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.

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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.

net book value of $14.0 million as of March 31, 2024.

As of March 31, 2024, the outstanding balance of this debt financing was $9.8 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.

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Jireh is required to make consecutive quarterly payments of principal and interest.

The loan accrues interest based on adjusted LIBOR plus the applicable margin based on the outstanding balance of the loan.

The loan accrues interest based on adjusted Secured Overnight Financing Rate ("SOFR)" plus the applicable margin based on the outstanding balance of the loan.

This agreement contains customary restrictive covenants and includes certain financial covenants that the Company is required to maintain.

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

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

As of March 31, 2024, Jireh was in compliance with these covenants and the outstanding balance of this loan wa s $31.5 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.

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.

The interest rate is based on one month London Interbank Offered Rate (“LIBOR”) plus 1.75% per annum.

The interest rate is based on the SOFR plus 2.01% per annum.

The Company is the guarantor for this agreement.

The Company is accounting for this transaction as a secured borrowing under the Transfers and Servicing of Financial Assets guidance.

The Company is accounting for this transaction as a secured borrowing.

In addition, any cash held in the restricted bank account controlled by HSBC has a legal right of offset against the borrowing.

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Other terms remain the same.

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.

As of March 31, 2024, the Borrower was in compliance with these covenants.

As of March 31, 2024, 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.

In addition, we commenced an investment plan to expand the manufacturing capacity and upgrade the operational capabilities of our Oregon Fab.

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.

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Cash, cash equivalents and restricted cash

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.

As of March 31, 2024 and June 30, 2023, we h a d $174.6 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.

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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)

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

Net cash provided by operating activities $ 18,591 $ 48,654

Net cash used in investing activities (28,593) (90,603)

Net cash provided by (used in) financing activities (2,146) 4,526

Net cash used in financing activities (10,923) (6,417)

Effect of exchange rate changes on cash, cash equivalents and restricted cash (83) (121)

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Cash flows from operating activities

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.

Net cash provided by operating activities of $18.6 million for the nine months ended March 31, 2024 resulted primarily from net loss of $8.3 million and non-cash expenses of $61.2 million, partially offset by net changes in assets and liabilities using cash of $34.2 million.

The non-cash expenses of $61.2 million primarily included $18.1 million of share-based compensation expense, $39.8 million of depreciation and amortization expenses, $4.1 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.

The net changes in assets and liabilities of $34.2 million were primarily due to a $4.3 million decrease in accounts payable due to timing of payments, and $0.4 million decrease in deferred revenue, a $14.9 million increase in inventories as a result of our inventories built up for preparation of uncertainty of supply chains, a $0.9 million decrease in income taxes payable, and a $28.9 million decrease in accrued and other liabilities, partially offset by a $9.2 million decrease in accounts receivable as a result of timing of the shipments and payments collected, a $3.6 million decrease in other current and long-term assets due to decrease in advance payments to vendors, and a $2.3 million increase in net payable to equity investee.

Net cash provided by operating activities of $48.7 million for the nine months ended March 31, 2023 resulted primarily from net income of $13.5 million and non-cash expenses of $63.2 million, partially offset by net changes in assets and liabilities using cash of $28.0 million, The non-cash expenses of $63.2 million primarily included $34.1 million of share-based compensation expense, $31.2 million of depreciation and amortization expenses, $0.4 million of loss on disposal of property and equipment, $1.5 million of income from equity investment and $1.0 million of deferred income taxes.

The net changes in assets and liabilities of $28.0 million were primarily due to a $10.6 million decrease in net payable to equity investee, a $21.6 million decrease in accounts payable due to timing of payments, a $21.7 million increase in inventories as a result of our inventories built up for preparation of uncertainty of supply chains, $7.8 million increase in other current and long-term assets due to increase in advance payments to vendors, and a $29.4 million decrease in accrued and other liabilities, partially offset by a $46.2 million decrease in accounts receivable as a result of timing of the shipments and payments collected, a $14.4 million increase in deferred revenue, and a $2.5 million increase in income taxes payable.

Cash flows from investing activities

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.

Net cash used in investing activities of $28.6 million for the nine months ended March 31, 2024 was primarily attributable to $29.8 million in purchases of property and equipment, partially offset by $0.8 million government grants related to fixed assets and $0.4 million of proceeds from the sale of property and equipment.

Net cash used in investing activities of $90.6 million for the nine months ended March 31, 2023 was primarily attributable to $91.3 million in 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 $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.

Net cash used in financing activities of $10.9 million for the nine months ended March 31, 2024 was primarily attributable to $8.6 million in repayments of borrowings, $0.6 million in payment of finance lease obligations, and $7.3 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, partially offset by $5.7 million of proceeds from exercise of stock options and ESPP.

Net cash used in financing activities of $6.4 million for the nine months ended March 31, 2023 was primarily attributable to $10.3 million in repayments of borrowings, $0.6 million in payment of finance lease obligations, $6.2 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, and $2.7 million payment for repurchases of common shares, partially offset by $8.6 million proceeds from borrowings and $4.6 million of proceeds from exercise of stock options and ESPP.

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

As of March 31, 2024, we had no off-balance sheet 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