What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-06 compared with 2024-11-05 · 133 added, 129 removed, 258 unchanged (50% of the section changed)

1 unchanged sentence

Except for the historical information contained herein, the matters addressed in this Item 2 constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

These forward looking statements include, but are not limited to, statements regarding future financial performance of the Company;

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

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

These forward looking statements include information set forth under the heading “Factors Affecting Our Performance”.

Such forward-looking statements are subject to a variety of risks and uncertainties, including those discussed below under the heading “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, that could cause actual results to differ materially from those anticipated by the Company’s management.

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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 three months ended September 30, 2024, we introduced an 29 new products.

During the six months ended December 31, 2024, we introduced 55 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 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 have an extensive patent portfolio that consists of 940 patents and 58 patent applications in the United States as of December 31, 2024.

We also have a total of 1,050 foreign patents, which were based primarily on our research and development efforts through December 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 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.

During the fiscal quarter ended December 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.

On March 29, 2016, we formed a joint venture (the “JV Company”) with two investment funds owned by the Municipality of Chongqing (the “Chongqing Funds”), for the purpose of constructing and operating a power semiconductor packaging, testing and 12-inch wafer fabrication facility (“Fab”) in the LiangJiang New Area of Chongqing, China.

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 interests until December 1, 2021.

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

(“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%.

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 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.

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

In addition, the JV Company adopted an employee equity incentive plan and issued an equity interest equivalent to 3.99% of the JV Company in exchange for cash.

As a result of these two transactions, the Company owned 45.8% of the equity interest in the JV Company as of December 31, 2021.

On January 26, 2022, the JV Company completed a financing transaction pursuant to a corporate investment agreement (the “Investment Agreement”) between the JV Company and certain third-party investors (the “New Investors”).

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

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

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.

As of December 31, 2024, we owned approximately 42.8% of outstanding equity interest in a joint venture company (the “JV Company”) that operates a power semiconductor packaging, testing and 12-inch wafer fabrication facility (“Fab”) in the LiangJiang New Area of Chongqing, China, and we relied on the Fab to manufacture wafers to develop our products.

On December 30, 2024, the JV Company signed an investment agreement with an investor, pursuant to which the investor agreed to invest RMB 500 million (or $68.5 million based on currency exchange rate between RMB and U.S.

Dollar on December 31, 2024) in the JV Company.

The funding of the investment will be made in three installments.

The JV Company received the first installment of RMB 40 million (or $5.5 million) on December 31, 2024.

The remaining installments are expected to be paid by July 31, 2025.

This transaction was considered as closed when the JV Company completed the registration of the issuance of equity interest to the investor with the local government authority on January 15, 2025, at which time, the percentage of outstanding JV Company’s equity interest owned by the Company was reduced to approximately 39.2%.

In the past three years, we have been reducing our ownership of the JV Company to increase the flexibility of the JV Company to raise capital to fund its future expansion.

The JV Company is also contemplating an eventual listing on the Science and Technology Innovation Board, or STAR Market, of the Shanghai Stock Exchange.

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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 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.

Pursuant to an agreement with the JV Company and other shareholders of the JV Company, the JV Company is committed to provide us with a specified level of monthly wafer production capacity.

Other Factors affecting our Performance

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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.

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.

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 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.

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

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

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

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

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.

Typically, we generate lower revenue during the first quarter of the calendar year as compared to other quarters.

However, 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.

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

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.

During the three and six months ended December 31, 2024, we recorded $5.4 million and $11.0 million of license and development revenue, respectively, and during the three and the 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, 2024, we had recorded a total of $42.2 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.

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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.

The Company’s interim period tax provision for (or 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.

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 forecasting 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.

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enacted the Chip and Science Act of 2022 (the Chips Act).

The Chips Act provides incentives to semiconductor chip manufacturers in the United States, including providing manufacturing investment credits of 25% for investments in semiconductor manufacturing property placed in service after December 31, 2022, for which construction begins before January 1, 2027.

The Chips Act provides incentives to semiconductor chip manufacturers in the United States, including providing a 25% manufacturing investment credits for investments in semiconductor manufacturing property placed in service after December 31, 2022, for which construction begins before January 1, 2027.

Property investments qualify for the 25% credit if, among other requirements, the property is integral to the operation of an advanced manufacturing facility, defined as having a primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment.

Currently, we are evaluating the impact of the Chips Act to us.

“The Inflation Reduction Act”, Enacted August 16, 2022

In August 2022 the United States enacted tax legislation through the Inflation Reduction Act (IRA).

The IRA introduces a 15% corporate alternative minimum tax (CAMT) for corporations whose average annual adjusted financial statement income (AFSI) for any consecutive three-tax-year period preceding the applicable tax year exceeds $1 billion.

The CAMT is effective for tax years beginning after 31 December 2022.

The CAMT is currently not applicable to the Company.

Bermuda Corporate Income Tax for Tax Years Beginning in 2025

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

The Company is subject to income tax expense or benefit based upon pre-tax income or loss reported in the Condensed Consolidated Statements of Income (Loss) and the provisions of currently enacted tax laws.

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

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

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.

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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 Operations.

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.

Instead the total equity method investment balance, including equity method goodwill, is tested for impairment.

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 Operations.

We review for impairment whenever factors indicate that the carrying amount of the investment is determined to be other than temporary.

In such a case, the decrease in value is recognized in the period the impairment occurs in the Condensed Consolidated Statements of Income (Loss).

Results of Operations

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.

The following tables set forth statements of income (loss), also expressed as a percentage of revenue, for the three and six months ended December 31, 2024 and 2023.

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

Three Months Ended September 30,

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

2024 2023 2024 2023 2024 2023 2024 2023

(in thousands) (% of revenue)

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

Revenue $ 173,156 $ 165,285 100.0 % 100.0 % $ 355,043 $ 345,918 100.0 % 100.0 %

Cost of goods sold

133,145 121,284 76.9 % 73.4 % 270,506 250,992 76.2 % 72.6 %

Gross profit 40,011 44,001 23.1 % 26.6 % 84,537 94,926 23.8 % 27.4 %

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Other income (loss), net 663 (472) 0.4 % (0.3) % 13 (446) 0.0 % (0.1) %

Interest income, net 453 229 0.2 % 0.1 %

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

Interest income 1,135 1,323 0.6 % 0.8 % 2,400 2,644 0.7 % 0.8 %

Interest expenses (701) (1,049) (0.4) % (0.6) % (1,513) (2,141) (0.4) % (0.7) %

Net income (loss) before income taxes and loss from equity method investment (4,811) (1,332) (2.8) % (0.8) % (5,260) 8,304 (1.5) % 2.4 %

Income tax expense 1,242 894 0.7 % 0.5 % 2,282 2,032 0.6 % 0.6 %

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Share-based compensation expense was recorded as follows:

Three Months Ended September 30,

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

2024 2023 2024 2023 2024 2023 2024 2023

(in thousands) (% of revenue)

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

Cost of goods sold $ 1,123 $ 1,504 0.6 % 0.9 % $ 2,138 $ 1,716 0.6 % 0.5 %

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Total $ 7,950 $ 8,691 4.6 % 5.3 % $ 14,852 $ 9,609 4.2 % 2.8 %

Three Months Ended September 30, 2024 and 2023

Three and Six Months Ended December 31, 2024 and 2023

The following is a summary of revenue by product type:

Three Months Ended September 30,

2024 2023 Change

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

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

2024 2023 Change 2024 2023 Change

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

Power discrete $ 112,956 $ 108,780 $ 4,176 3.8 % $ 235,410 $ 230,280 $ 5,130 2.2 %

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The following is a summary of revenue by end market:

Three Months Ended September 30,

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

2024 2023 2024 2023 2024 2023 2024 2023

(in thousands) (% of revenue)

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

Computing $ 76,034 $ 71,756 43.9 % 43.4 % $ 152,445 $ 142,106 42.9 % 41.1 %

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$ 173,156 $ 165,285 100.0 % 100.0 % $ 355,043 $ 345,918 100.0 % 100.0 %

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 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.

Total revenue was $173.2 million for the three months ended December 31, 2024, an increase of $7.9 million, or 4.8% as compared to $165.3 million for the same quarter last year.

The increase was primarily due to an increase of $4.2 million and $3.4 million in sales of power discrete products and sales of power IC products, respectively, as well as an increase of $0.3 million in packaging and testing services and other, partially offset by a decrease of $0.1 million in license and development services.

The net increase in power discrete and power IC product sales was primarily due to a 18.8% increase in unit shipment, partially offset by a 11.8% decrease in average selling price as compared to same quarter last year due to a shift in product mix.

The net increase in revenues was primarily driven by a significant increase in the computing markets, particularly in graphics cards products, as well as an increase in the communication markets, particular in battery, partially offset by a decrease in consumer markets, particularly in home appliances products.

The increase in revenue of packaging and testing services for the three months ended December 31, 2024, as compared to same quarter last year, was primarily due to increased demand.

The decrease in license and development services for the three months ended December 31, 2024 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 $355.0 million for the six months ended December 31, 2024, an increase of $9.1 million, or 2.6%, as compared to $345.9 million for the same period last year.

The increase was primarily due to an increase of $5.1 million and $3.6 million in sales of power discrete products and sales of power IC products, respectively, as well as an increase of $0.4 million in packaging and testing services and other, partially offset by a decrease of $0.1 million in license and development services.

The net increase in power discrete and power IC product sales was primarily due to a 17.2% increase in unit shipment, partially offset by a 12.4% decrease in average selling price as compared to same period last year due to a shift in product mix.

The net increase in revenues was primarily driven by a significant increase in the computing markets, particularly in graphics cards products, as well as an increase in the communication markets, particular in battery and mobile phone products, partially offset by a decrease in power supply and industrial markets, particularly in quick charger products.

The increase in revenue of packaging and testing services for the six months ended December 31, 2024, as compared to same period last year, was primarily due to increased demand.

The decrease in license and development services for the six months ended December 31, 2024 was related to the license agreement with a customer to license our proprietary SiC technology and to provide 24-month engineering and development services.

Cost of goods sold and gross profit

Three Months Ended September 30,

2024 2023 Change

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

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

2024 2023 Change 2024 2023 Change

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

Cost of goods sold $ 133,145 $ 121,284 $ 11,861 9.8 % $ 270,506 $ 250,992 $ 19,514 7.8 %

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Percentage of revenue 23.1 % 26.6 % 23.8 % 27.4 %

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 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.

Cost of goods sold was $133.1 million for the three months ended December 31, 2024, an increase of $11.9 million or 9.8%, as compared to $121.3 million for the same quarter last year.

The increase was primarily due to 4.8% increase in sales.

Gross margin decreased by 3.5 percentage points to 23.1% for the three months ended December 31, 2024, as compared to 26.6% for the same quarter last year.

The decrease in gross margin was primarily due to average selling pricing erosion, higher material costs and less favorable product mix during the three months ended December 31, 2024.

Cost of goods sold was $270.5 million for the six months ended December 31, 2024, an increase of $19.5 million, or 7.8%, as compared to $251.0 million for the same period last year.

The increase was primarily due to 2.6% increase in sales.

Gross margin decreased by 3.6 percentage points to 23.8% for the six months ended December 31, 2024, as compared to 27.4% for the same period last year.

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

Research and development expenses

Three Months Ended September 30,

2024 2023 Change

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

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

2024 2023 Change 2024 2023 Change

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

Research and development expenses $ 23,968 $ 22,919 $ 1,049 4.6 % $ 46,446 $ 45,032 $ 1,414 3.1 %

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.

Research and development expenses were $24.0 million for the three months ended December 31, 2024, an increase of $1.0 million, or 4.6%, as compared to $22.9 million for the same quarter last year.

The increase was primarily attributable to a $0.5 million increase in employee compensation and benefit expense mainly due to higher bonus expense, as well as a $0.7 million increase in product prototyping engineering expense as a result of increased engineering activities, partially offset by a $0.2 million decrease in share-based compensation expense primarily due to less ESPP expenses in current quarter.

Research and development expenses were $46.4 million for the six months ended December 31, 2024, an increase of $1.4 million, or 3.1%, as compared to $45.0 million for the same period last year.

The increase was primarily attributable to a $1.7 million increase in share-based compensation as a result of a modification of market-based restricted stock units in August 2024, partially offset by a $0.2 million decrease in product prototyping engineering expense as a result of decreased engineering activities, as well as a $0.1 million decrease in employee compensation and benefit expense mainly due to less headcount, partially offset by higher business and medical insurance expenses.

Selling, general and administrative expenses

Three Months Ended September 30,

2024 2023 Change

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

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

2024 2023 Change 2024 2023 Change

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

Selling, general and administrative $ 21,951 $ 22,216 $ (265) (1.2) % $ 44,251 $ 41,647 $ 2,604 6.3 %

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.

Selling, general and administrative expenses were $22.0 million for the three months ended December 31, 2024, a decrease of $0.3 million, or 1.2%, as compared to $22.2 million for the same quarter last year.

The decrease was primarily due to a $0.1 million decrease in share-based compensation expense as a result of less ESPP expenses, a $0.4 million decrease in audit fees, and $0.3 million decrease in consulting fees, partially offset by $0.6 million increase in employee compensation and benefits expenses primarily due to increased headcount.

Selling, general and administrative expenses were $44.3 million for the six months ended December 31, 2024, an increase of $2.6 million, or 6.3%, as compared to $41.6 million for the same period last year.

The increase was primarily attributable to a $3.1 million increase in share-based compensation as a result of a modification of market-based restricted stock units in August 2024, and $0.8 million increase in employee compensation and benefits expenses primarily due to increased headcount, partially offset by $0.8 million decrease in audit fees and $0.4 million decrease in consulting fees.

Other income (loss), net

Three Months Ended September 30,

2024 2023 Change

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

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

2024 2023 Change 2024 2023 Change

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

Other income (loss), net $ 663 $ (472) $ 1,135 (240.5) % $ 13 $ (446) $ 459 (102.9) %

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.

Other income (loss), net was increased in the three and six months ended December 31, 2024 as compared to the same periods last year primarily due to decrease in foreign currency exchange loss as a result of the depreciation of RMB against USD.

Interest income

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

2024 2023 Change 2024 2023 Change

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

Interest income $ 1,135 $ 1,323 $ (188) (14.2) % $ 2,400 $ 2,644 $ (244) (9.2) %

Interest income was decreased in the three and six months ended December 31, 2024 as compared to the same periods last year primarily due to lower interest rates in the current periods.

Interest expense

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

2024 2023 Change 2024 2023 Change

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

Interest expenses $ (701) $ (1,049) $ 348 (33.2) % $ (1,513) (2,141) $ 628 (29.3) %

Interest expense was decreased in the three and six months ended December 31, 2024 as compared to the same periods last year primarily due to less outstanding loan balance in the current periods.

Income tax expense

Three Months Ended September 30,

2024 2023 Change

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

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

2024 2023 Change 2024 2023 Change

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

Income tax expense $ 1,242 $ 894 $ 348 38.9 % $ 2,282 $ 2,032 $ 250 12.3 %

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 recognized income tax expense of approximately $1.2 million and $0.9 million for the three months ended December 31, 2024 and 2023, respectively.

The income tax expense of $1.2 million for the three months ended December 31, 2024 included a $0.1 million discrete tax expense.

The income tax expense of $0.9 million for the three months ended December 31, 2023 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, 2024 and 2023 was $1.2 million and $0.8 million, respectively, and the effective tax rate for the three months ended December 31, 2024 and 2023 was (22.1)% and (41.2%), 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 $5.4 million for the three months ended December 31, 2024 as compared to $2.0 million of pretax book loss for the three months ended December 31, 2023.

The Company recognized income tax expense of approximately $2.3 million and $2.0 million for the six months ended December 31, 2024 and 2023, respectively.

The income tax expense of $2.3 million for the six months ended December 31, 2024 included a $0.1 million discrete tax expense.

The income tax expense of $2.0 million for the six months ended December 31, 2023 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, 2024 and 2023 was $2.1 million and $1.9 million, respectively, and the effective tax rate for the six months ended December 31, 2024 and 2023 was (31.4%) and 39.2%, 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 $6.8 million for the six months ended December 31, 2024 as compared to $4.9 million of pretax book income for the six months ended December 31, 2023.

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

5 unchanged sentences

These assessments can require considerable estimates and judgments.

As of September 30, 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.

As of December 31, 2024,

the gross amount of unrecognized tax benefits was approximately $10.2 million, of which $7.0 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.

8 unchanged sentences

The Company could borrow up to approximately RMB 140 million or $19.2 million based on currency exchange rate between RMB and U.S.

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.

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

As of December 31, 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

2 unchanged sentences

The Company could borrow up to approximately RMB 72.0 million, or $9.9 million based on currency exchange rate between RMB and U.S.

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 .

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

As of December 31, 2024, there was no outstanding balance for this loan and this loan expired .

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

1 unchanged sentence

The Company could borrow up to approximately RMB 50 million or $6.9 million based on currency exchange rate between RMB and U.S.

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

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

Dollar on December 31, 2024 with a maturity date of September 8, 2025.

As of December 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.

14 unchanged sentences

The purchase price of this hardware was $0.2 million.

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

The financing arrangement is secured by this equipment and other equipment which had the net book value of $12.8 million as of December 31, 2024.

As of December 31, 2024, the outstanding balance of this debt financing was $7.9 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.

The obligation under the loan agreement is secured by substantially all assets of Jireh and guaranteed by the Company.

The agreement has a 5.5 year term and matures on February 16, 2027.

The agreement has a

5.5 year term and matures on February 16, 2027.

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

2 unchanged sentences

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

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

As of December 31, 2024, Jireh was in compliance with these covenants and the outstanding balance of this loan w as $24.7 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.

7 unchanged sentences

Other terms remain the same.

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.

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

As of December 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.

5 unchanged sentences

Cash, cash equivalents and restricted cash

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.

As of December 31, 2024 and June 30, 2024, we h a d $182.8 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:

Three Months Ended September 30,

Six Months Ended December 31,

(in thousands)

Net cash provided by operating activities $ 11,021 $ 13,823

Net cash provided by (used in) operating activities $ 25,126 $ (9,628)

Net cash used in investing activities (14,100) (21,431)

4 unchanged sentences

Cash flows from operating activities

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.

For the six months ended December 31, 2024, the $34.8 million increase in cash provided by operating activities compared to the same period last year was primarily due to a decrease of $20.5 million in inventory purchases and a decrease of $13.2 million in other receivables related to a long-term wafer supply agreement.

This increase was also affected by changes in other working capital.

Cash flows from investing activities

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.

For the six months ended December 31, 2024, the $7.3 million decrease in cash used in investing activities compared to the same period last year was primarily due to less purchases of property and equipment in the six months ended December 31, 2024 compared to the same period last year.

Cash flows from financing activities

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.

For the six months ended December 31, 2024, the $1.6 million increase in cash used in financing activities compared to the same period last year was primarily due to $1.1 million decrease in proceeds from exercise of stock options and ESPP, and $0.4 million increase in common shares acquired to settle withholding tax related to vesting of restricted stock.

See Note 12 of the Notes to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for a description of commitments.

Off-Balance Sheet Arrangements

As of September 30, 2024, we had no off-balance sheet arrangements.

Contractual Obligations

5 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis