What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-05 compared with 2024-05-08 · 120 added, 148 removed, 267 unchanged (50% of the section changed)

12 unchanged sentences

Our portfolio of power semiconductors includes approximately 2,700 products, and has grown significantly with the introduction of over 100 new products in the fiscal year ended June 30, 2024, and over 60 and 130 new products in the fiscal years ended June 30, 2023 and 2022, respectively.

During the nine months ended March 31, 2024, we introduced an additional 80 new products.

During the three months ended September 30, 2024, we introduced an 29 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 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 have an extensive patent portfolio that consists of 935 patents and 53 patent applications in the United States as of September 30, 2024.

We also have a total of 1,039 foreign patents, which were based primarily on our research and development efforts through September 30, 2024.

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 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.

During the fiscal quarter ended September 30, 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.

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.

As a result of the Transaction and other factors, the Company no longer had 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.

5 unchanged sentences

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.

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%.

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

As of September 30, 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.

3 unchanged sentences

In addition, the JV Company will continue to provide us with significant level of foundry capacity to enable us to develop and manufacture our products.

On July 12, 2022, the current shareholders of the JV Company entered into a shareholders contract, pursuant to which the JV Company provided us with a monthly wafer production capacity guarantee, subject to future increase when the JV Company’s production capacity reaches certain specified level.

On July 12, 2022, the current shareholders of the JV Company entered into a shareholders contract, pursuant to which the JV Company committed to provide us with a monthly wafer production capacity until December 2023, and additional commitment to provide wafer capacity after December 2023 if the JV Company’s production capacity reaches certain specified level.

Other Factors affecting our Performance

11 unchanged sentences

If we are unable to utilize our manufacturing facilities at a desired level, our gross margin may be adversely affected.

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.

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.

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.

We also rely on the JV

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

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

On July 12, 2022, we entered into an agreement with the JV Company, pursuant to which the JV Company agrees to provide us with a monthly wafer production capacity guarantee, subject to future increase when the JV Company’s production capacity reaches certain specified level.

Because we continue to rely on the JV Company to provide us with manufacturing capacity, if the JV Company take actions or make decisions that prevents us from accessing required capacity, our operations may be adversely affected.

1 unchanged sentence

Erosion of average selling prices of established products is typical in our industry.

Consistent with this historical trend, we expect our average selling prices of existing products to decline in the future.

Consistent with this historical trend, we expect our average selling prices of our existing products to decline in the future.

However, in the normal course of business, we seek to offset the effect of declining average selling price by introducing new and higher value products, expanding existing products for new applications and new customers and reducing the manufacturing cost of existing products.

11 unchanged sentences

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

In recent periods, broad fluctuations in the semiconductor markets and the global and regional economic conditions, in particular the decline of the PC market conditions, have had a more significant impact on our results of operations than seasonality.

recent periods, broad fluctuations in the semiconductor markets and the global and regional economic conditions, in particular the changing PC market conditions, have had a more significant impact on our results of operations than seasonality.

Furthermore, our revenue may be impacted by the level of demand from our major customers due to factors outside of our control.

If these major customers experience significant decline in the demand of their products, encounter difficulties or defects in their products, or otherwise fail to execute their sales and marketing strategies successfully, it may adversely affect our revenue and results of operations.

Principal line items of condensed consolidated statements of income

The following describes the principal line items set forth in our Condensed Consolidated Statements of Income.

Principal line items of condensed consolidated statements of income (loss)

The following describes the principal line items set forth in our Condensed Consolidated Statements of Income (loss).

We generate revenue primarily from the sale of power semiconductors, consisting of power discretes and power ICs.

2 unchanged sentences

We believe that expanding the breadth of our product portfolio is important to our business prospects, because it provides us with an opportunity to increase our total bill-of-materials within an electronic system and to address the power requirements of additional electronic systems.

In addition, a small percentage of our total revenue is generated by providing packaging and testing services to third parties through one of our subsidiaries.

In addition, a small percentage of our total revenue is generated by providing packaging and testing services to third parties through one of our in-house facilities.

Our product revenue is reported net of the effect of the estimated stock rotation returns and price adjustments that we expect to provide to our distributors.

1 unchanged sentence

At our discretion or upon our direct negotiations with the original design manufacturers (“ODMs”) or original equipment manufacturers (“OEMs”), we may elect to grant special pricing that is below the prices at which we sold our products to the distributors.

In these situations, we will grant price adjustments to the distributors reflecting such special pricing.

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 $45.0 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.

In certain situations, we will grant price adjustments to the distributors reflecting such special pricing.

We estimate the price adjustments for inventory at the distributors based on factors such as distributor inventory levels, forecasted 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 $45.0 million, consisting of an upfront fee and milestone payments 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 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.

During three months ended September 30, 2024 and 2023, we recorded $5.6 million and $5.6 million of license and development revenue, respectively.

As of September 30, 2024, we had recorded a total of $36.8 million of license and development revenue.

When our performance under the contract precedes our receipt of consideration from the customer, and the receipt of consideration is conditional upon factors other than the passage of time, a contract asset is recorded.

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.

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.

1 unchanged sentence

We are subject to income taxes in various jurisdictions.

The Company’s interim period tax provision for (benefit from) income taxes is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that arise during the period.

Each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period.

The Company’s quarterly tax provision and estimate of its annual effective tax rate are subject to variation due to several factors, including variability in accurately predicting its pre-tax income or loss and the mix of jurisdictions to which they relate, and changes in how the Company does business.

Significant judgment and estimates are required in determining our worldwide income tax expense.

8 unchanged sentences

Our effective tax rate is highly dependent upon the geographic distribution of our worldwide profits or losses, the tax laws and regulations in each geographical region where we have operations, the availability of tax credits and carry-forwards and the effectiveness of our tax planning strategies.

Tax Cuts and Jobs Act", Enacted December 22, 2017

On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act (“the Tax Act”), which significantly changes the existing U.S.

tax laws, including, but not limited to, (1) a reduction in the corporate tax rate from 35% to 21%, (2) a shift from a worldwide tax system to a territorial system, (3) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized, (4) bonus depreciation that will allow for full expensing of qualified property, (5) creating a new limitation on deductible interest expense and (6) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

The Company is not currently subject to the Base Erosion and Anti-Abuse (BEAT) tax, which is a tax imposed on certain entities who make payments to their non U.S.

affiliates, where such payments reduce the U.S.

The BEAT tax is imposed at a rate of 10% on Adjusted Taxable Income, excluding certain payments to foreign related entities.

It is an incremental tax over and above the corporate income tax and is recorded as a period cost.

It is possible that this tax could be applicable in future periods, which would cause an increase to the effective tax rate and cash taxes.

“The Chip and Science Act of 2022”, Enacted August 2, 2022

13 unchanged sentences

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

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.

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.

7 unchanged sentences

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 Condensed 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.

Basis differences represent differences between the cost of the investment and the underlying equity in net assets of the investment and are generally amortized over the lives of the related assets that gave rise to them.

Basis differences represent differences between the cost of the

investment and the underlying equity in net assets of the investment and are generally amortized over the lives of the related assets that gave rise to them.

Equity method goodwill is not amortized or tested for impairment.

1 unchanged sentence

We review for impairment whenever factors indicate that the carrying amount of the investment might not be recoverable.

In such a case, the decrease in value is recognized in the period the impairment occurs in the Consolidated Statement of Income.

In such a case, the decrease in value is recognized in the period the impairment occurs in the Consolidated Statement of Operations.

Results of Operations

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.

The following tables set forth statements of income (loss), also expressed as a percentage of revenue, for three months ended September 30, 2024 and 2023.

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

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

Three Months Ended September 30,

2024 2023 2024 2023

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

(in thousands) (% of revenue)

Revenue $ 181,887 $ 180,633 100.0 % 100.0 %

8 unchanged sentences

Other income (loss), net (650) 26 (0.4) % — %

Interest income (expense), net 271 5 0.2 % — % 774 (1,000) 0.2 % (0.2) %

Interest income, net 453 229 0.2 % 0.1 %

Net income (loss) before income taxes (449) 9,636 (0.4) % 5.3 %

Income tax expense 1,040 1,138 0.6 % 0.6 %

Net income (loss) before income (loss) from equity method investment (10,536) (17,427) (7.0) % (13.2) % (4,264) 11,935 (0.7) % 2.2 %

Equity method investment income (loss) from equity investee (676) (1,480) (0.5) % (1.1) % (4,085) 1,533 (0.8) % 0.3 %

Net income (loss) before loss from equity method investment (1,489) 8,498 (1.0) % 4.7 %

Equity method investment loss from equity investee (1,007) (2,712) (0.6) % (1.5) %

Net income (loss) $ (2,496) $ 5,786 (1.6) % 3.2 %

Share-based compensation expense was recorded as follows:

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

Three Months Ended September 30,

2024 2023 2024 2023

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

(in thousands) (% of revenue)

Cost of goods sold $ 1,015 $ 212 0.6 % 0.1 %

2 unchanged sentences

Total $ 6,902 $ 918 3.9 % 0.5 %

Three and Nine Months Ended March 31, 2024 and 2023

Three Months Ended September 30, 2024 and 2023

The following is a summary of revenue by product type:

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

2024 2023 Change 2024 2023 Change

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

Three Months Ended September 30,

2024 2023 Change

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

Power discrete $ 122,454 $ 121,500 $ 954 0.8 %

5 unchanged sentences

The following is a summary of revenue by end market:

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

Three Months Ended September 30,

2024 2023 2024 2023

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

(in thousands) (% of revenue)

Computing $ 76,411 $ 70,350 42.0 % 38.9 %

6 unchanged sentences

$ 181,887 $ 180,633 100.0 % 100.0 %

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.

Total revenue was $181.9 million for the three months ended September 30, 2024, an increase of $1.3 million, or 0.7%, as compared to $180.6 million for the same quarter last year.

The increase was primarily due to an increase of $1.0 million and $0.2 million in sales of power discrete products and sales of power IC products, respectively.

The increase in power discrete and power IC product sales was primarily due to a 15.8% increase in unit shipments, partially offset by a 13.1% 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.

The increase in revenues was primarily driven by a significant increase in the computing markets, particularly in artificial intelligence and tablet products, as well as an increase in the communication markets, particular in battery, partially offset by a decrease in power supply and industrial markets, particularly in quick chargers.

The revenue of packaging and testing services and other for the three months ended September 30, 2024, as compared to same quarter last year, remained flat.

The license and development services for the three months ended September 30, 2024 and 2023 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 March 31, Nine Months Ended March 31,

2024 2023 Change 2024 2023 Change

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

Three Months Ended September 30,

2024 2023 Change

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

Cost of goods sold $ 137,361 $ 129,708 $ 7,653 5.9 %

2 unchanged sentences

Percentage of revenue 24.5 % 28.2 %

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.

Cost of goods sold was $137.4 million for the three months ended September 30, 2024, an increase of $7.7 million or 5.9%, as compared to $129.7 million for the same quarter last year.

The increase was primarily due to 0.7% 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 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.

Gross margin decreased by 3.7 percentage points to 24.5% for the three months ended September 30, 2024, as compared to 28.2% 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, 2024.

Research and development expenses

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

2024 2023 Change 2024 2023 Change

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

Three Months Ended September 30,

2024 2023 Change

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

Research and development expenses $ 22,478 $ 22,113 $ 365 1.7 %

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

Research and development expenses were $22.5 million for the three months ended September 30, 2024, an increase of $0.4 million, or 1.7%, as compared to $22.1 million for the same quarter last year.

The increase was primarily attributable to a $1.9 million increase in share-based compensation expense as a result of a modification of market-based restricted stock units in August 2024, partially offset by a $0.9 million decrease in product prototyping engineering expense as a result of decreased engineering activities, as well as a $0.6 million decrease in employee compensation and benefit expense mainly due to decreased headcount and lower bonus expense.

Selling, general and administrative expenses

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

2024 2023 Change 2024 2023 Change

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

Three Months Ended September 30,

2024 2023 Change

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

Selling, general and administrative $ 22,300 $ 19,431 $ 2,869 14.8 %

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.

Selling, general and administrative expenses were $22.3 million for the three months ended September 30, 2024, an increase of $2.9 million, or 14.8%, as compared to $19.4 million for the same quarter last year.

The increase was primarily due to a $3.3 million increase in share-based compensation expense as a result of a modification of market-based restricted stock units in August 2024, and $0.2 million increase in employee compensation and benefits expenses primarily due to increased headcount, partially offset by a $0.4 million decrease in audit fees, a $0.2 million decrease in legal fees and $0.1 million decrease in consulting fees.

Other income (loss), net

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

2024 2023 Change 2024 2023 Change

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

Three Months Ended September 30,

2024 2023 Change

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

Other income (loss), net $ (650) $ 26 $ (676) (2,600.0) %

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 March 31, Nine Months Ended March 31,

2024 2023 Change 2024 2023 Change

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

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

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.

Other income (loss), net decreased by $0.7 million in the three months ended September 30, 2024 as compared to the same period last year primarily due to $0.1 million of an impairment of a privately-held investment, as well as an increase in foreign currency exchange loss as a result of the depreciation of RMB against USD.

Interest income, net

Three Months Ended September 30,

2024 2023 Change

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

Interest income, net $ 453 $ 229 $ 224 97.8 %

Interest income (expense), net increased by $0.2 million during the three months ended September 30, 2024 as compared to the same quarter last year primarily due to lower interest expense as a result of less outstanding loan balance in current quarter.

Income tax expense

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

2024 2023 Change 2024 2023 Change

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

Three Months Ended September 30,

2024 2023 Change

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

Income tax expense $ 1,040 $ 1,138 $ (98) (8.6) %

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 recognized income tax expense of approximately $1.0 million and $1.1 million for the three months ended September 30, 2024 and 2023, respectively.

The income tax expense of $1.0 million for the three months ended September 30, 2024 included a $0.08 million discrete tax expense.

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

Excluding the discrete income tax items, the income tax expense for the three months ended September 30, 2024 and 2023 was $1.0 million and $1.1 million, respectively, and the effective tax rate for the three months ended September 30, 2024 and 2023 was (65.8)% and 15.7%, 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 $1.5 million for the three months ended September 30, 2024 as compared to $6.9 million of pretax book income for the three months ended September 30, 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 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.

As of September 30, 2024, the gross amount of unrecognized tax benefits was approximately $10.1 million, of which $6.9 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.

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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.

In March 2024, Bank of Communications Limited in China provided a line of credit facility to one of the Company's

subsidiaries 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 $20.0 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 $45.0 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 December 2023, one of the Company's subsidiaries in China entered into a line of credit facility with Industrial and Commercial Bank of China.

Dollar on September 30, 2024 with a maturity date of March 15, 2025 .

As of September 30, 2024, there was no outstanding balance for this loan.

In December 2023, Industrial and Commercial Bank of China provided a line of credit facility to one of the Company's

subsidiaries in 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 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.

Dollar on September 30, 2024, with a maturity date of December 31, 2024.

As of September 30, 2024, there was no outstanding balance for this loan .

In September 2023, China Construction Bank provided a line of credit facility to one of the Company's subsidiaries in

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

1 unchanged sentence

Dollar on September 30, 2024 with a maturity date of September 8, 2025.

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

As of September 30, 2024, there was no outstanding balance for this loan.

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 fee and milestone payments 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 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 purchase price of this hardware was $0.2 million.

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

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.

The financing arrangement is secured by this equipment and other equipment which had the net book value of $13.2 million as of September 30, 2024.

As of September 30, 2024, the outstanding balance of this debt financing was $8.5 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 Secured Overnight Financing Rate ("SOFR)" plus the applicable margin based on the outstanding balance of the loan.

The loan accrues interest based on adjusted 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 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.

As of September 30, 2024, Jireh was in compliance with these covenants and the outstanding balance of this loan wa s $27.0 million.

On August 9, 2019, one of the Company's wholly-owned subsidiaries (the “Borrower”) entered into a factoring agreement with 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 the SOFR plus 2.01% per annum.

The interest rate is based on the Secured Overnight Financing Rate (“SOFR”), plus 2.01% per annum.

The Company is the guarantor for this agreement.

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Other terms remain the same.

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.

As of September 30, 2024, the

Borrower was in compliance with these covenants.

As of September 30, 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 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.

The sale of additional equity securities could result in dilution to our shareholders.

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

The incurrence of indebtedness would result in increased debt service obligations and may include operating and financial covenants that would restrict our operations.

If we decide to raise capital through equity financing, the issuance of additional equity may result in dilution to our shareholders.

We cannot be certain that any financing will be available in the amounts we need or on terms acceptable to us, if at all.

Cash, cash equivalents and restricted cash

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.

As of September 30, 2024 and June 30, 2024, we h a d $176.2 million and $175.5 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:

Nine Months Ended March 31,

Three Months Ended September 30,

(in thousands)

3 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents and restricted cash 105 (135)

Net decrease in cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

$ 682 $ (1,821)

Cash flows from operating activities

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 $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.

Net cash provided by operating activities of $11.0 million for the three months ended September 30, 2024 resulted primarily from net loss of $2.5 million and non-cash expenses of $22.4 million, partially offset by net changes in assets and liabilities using cash of $8.8 million.

The non-cash expenses of $22.4 million primarily included $6.9 million of share-based compensation expense, $14.6 million of depreciation and amortization expenses, $1.0 million of loss from equity investment, $0.1 million of impairment of a privately-held investment and $0.2 million of deferred income taxes.

The net changes in assets and liabilities of $8.8 million were primarily due to a $12.0 million increase in accounts receivable as a result of timing of the shipments and payments collected, a $3.1 million increase in contract assets, a $0.1 million increase in other current and long-term assets due to increase in advance payments to vendors, a $2.6 million decrease in deferred revenue, a $4.7 million decrease in accrued and other liabilities, and a $1.5 million decrease in accounts payable due to timing of payments, partially offset by $10.8 million decrease in inventories, a $3.5 million increase in net payable to equity investee, and $0.6 million increase in income taxes payable.

Cash flows from investing activities

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.

Net cash used in investing activities of $6.7 million for the three months ended September 30, 2024 was primarily attributable to $6.9 million in purchases of property and equipment, partially offset by $0.2 million government grants related to equipment.

Cash flows from financing activities

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.

Net cash used in financing activities of $3.7 million for the three months ended September 30, 2024 was primarily attributable to $2.9 million in repayments of borrowings, $0.2 million in payment of finance lease obligations, and $0.7 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, partially offset by $0.1 million of proceeds from exercise of stock options.

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 March 31, 2024, we had no off-balance sheet arrangements.

As of September 30, 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