10-Q 1 aosl-20240331.htm 10-Q aosl-20240331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM 10-Q
_________________________________
(MARK ONE)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
        For the quarterly period ended March 31, 2024

OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM              TO             
Commission file number 001-34717
__________________________
Alpha and Omega Semiconductor Limited

(Exact name of Registrant as Specified in its Charter)
Bermuda77-0553536
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification Number)
Clarendon House, 2 Church Street
Hamilton HM 11, Bermuda
(Address of Principal Registered
Offices including Zip Code)
(408830-9742
(Registrant's Telephone Number, Including Area Code)
__________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filerAccelerated filerNon-accelerated filer
  (Do not check if a smaller reporting company)
Smaller reporting companyEmerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common SharesAOSLThe NASDAQ Global Select Market


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Number of common shares outstanding as of April 30, 2024: 28,701,746




Alpha and Omega Semiconductor Limited
Form 10-Q
Fiscal Second Quarter Ended March 31, 2024
TABLE OF CONTENTS
 
  Page
Part I.
    Item 1.
    Item 2.
    Item 3.
    Item 4.
Part II.
    Item 1.
    Item 1A.
    Item 2.
    Item 3.
    Item 4.
    Item 5.
    Item 6.




PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands except par value per share)
 March 31,
2024
June 30,
2023
ASSETS
Current assets:
Cash and cash equivalents$174,387 $195,188 
Restricted cash208 415 
Accounts receivable, net13,254 22,420 
Inventories198,098 183,247 
Other current assets8,604 22,666 
Total current assets394,551 423,936 
Property, plant and equipment, net339,515 357,831 
Operating lease right-of-use assets24,421 24,349 
Intangible assets, net4,328 6,765 
Equity method investment 359,244 366,617 
Deferred income tax assets 499 536 
Other long-term assets31,491 19,703 
Total assets$1,154,049 $1,199,737 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable$42,513 $50,775 
Accrued liabilities73,587 79,533 
Payable related to equity investee, net
14,275 11,950 
Income taxes payable4,490 5,546 
Short-term debt11,584 11,434 
Deferred revenue7,664 8,073 
Finance lease liabilities917 867 
Operating lease liabilities4,909 4,383 
Total current liabilities159,939 172,561 
Long-term debt29,653 38,360 
Income taxes payable - long-term2,978 2,817 
Deferred income tax liabilities26,337 27,283 
Finance lease liabilities - long-term2,522 3,216 
Operating lease liabilities - long-term20,099 20,544 
Other long-term liabilities23,584 51,037 
Total liabilities265,112 315,818 
Commitments and contingencies (Note 12)
Shareholders' Equity:
Preferred shares, par value $0.002 per share:
Authorized: 10,000 shares; issued and outstanding: none at March 31, 2024 and June 30, 2023
  
Common shares, par value $0.002 per share:
Authorized: 100,000 shares; issued and outstanding: 35,836 shares and 28,697 shares, respectively at March 31, 2024 and 34,811 shares and 27,654 shares, respectively at June 30, 2023
72 70 
Treasury shares at cost: 7,139 shares at March 31, 2024 and 7,157 shares at June 30, 2023
(79,220)(79,365)
Additional paid-in capital345,413 329,034 
Accumulated other comprehensive loss
(11,125)(8,111)
Retained earnings633,797 642,291 
Total shareholders' equity888,937 883,919 
Total liabilities and shareholders' equity$1,154,049 $1,199,737 

See accompanying notes to these condensed consolidated financial statements.
1

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited, in thousands except per share data)
Three Months Ended March 31,Nine Months Ended March 31,
 2024202320242023
Revenue$150,060 $132,560 $495,978 $529,796 
Cost of goods sold114,505 101,774 365,497 374,841 
Gross profit35,555 30,786 130,481 154,955 
Operating expenses
Research and development23,095 22,578 68,127 65,435 
Selling, general and administrative22,964 22,610 64,611 69,603 
Total operating expenses46,059 45,188 132,738 135,038 
Operating income (loss)(10,504)(14,402)(2,257)19,917 
Other income (loss), net308 (513)(138)(1,432)
Interest income (expense), net271 5 774 (1,000)
Net income (loss) before income taxes(9,925)(14,910)(1,621)17,485 
Income tax expense 611 2,517 2,643 5,550 
Net income (loss) before income (loss) from equity method investment(10,536)(17,427)(4,264)11,935 
Equity method investment income (loss) from equity investee(676)(1,480)(4,085)1,533 
Net income (loss)$(11,212)$(18,907)$(8,349)$13,468 
Net income (loss) per common share
Basic$(0.39)$(0.68)$(0.30)$0.49 
Diluted$(0.39)$(0.68)$(0.30)$0.46 
Weighted average number of common shares used to compute net income (loss) per share
Basic28,433 27,710 28,022 27,537 
Diluted28,433 27,710 28,022 29,576 



See accompanying notes to these condensed consolidated financial statements.

2

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)

Three Months Ended March 31,Nine Months Ended March 31,
2024202320242023
Net income (loss)$(11,212)$(18,907)$(8,349)$13,468 
Other comprehensive income (loss), net of tax
      Foreign currency translation adjustment2,812 3,748 (3,014)(10,236)
Comprehensive income (loss)
$(8,400)$(15,159)$(11,363)$3,232 
See accompanying notes to these condensed consolidated financial statements.



3

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited, in thousands)

Common SharesTreasury SharesAdditional Paid-In CapitalAccumulated Other Comprehensive Income ( Loss)Retained EarningsTotal Shareholders' Equity
Shares
Amount
Shares
Amount
Balance, December 31, 202234,181 $68 (6,616)$(65,990)$316,141 $(12,904)$662,359 $899,674 
Exercise of common stock options and release of restricted stock units611 1 — — 531 — — 532 
Reissuance of treasury stock upon exercise of common stock options and release of RSUs— — 6 50 — — (50)— 
Withholding tax on restricted stock units(217)— — — (5,556)— — (5,556)
Repurchase of common shares under shares repurchase program— — (107)(2,665)— — — (2,665)
Share-based compensation— — — — 10,432 — — 10,432 
Net loss— — — — — — (18,907)(18,907)
Foreign currency translation adjustment, net of tax— — — — — 3,748 — 3,748 
Balance, March 31, 202334,575 $69 (6,717)$(68,605)$321,548 $(9,156)$643,402 $887,258 
Common SharesTreasury SharesAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal Shareholders' Equity
Shares
Amount
Shares
Amount
Balance, June 30, 202233,988 $68 (6,617)$(66,000)$288,951 $1,080 $629,994 $854,093 
Exercise of common stock options and release of restricted stock units683 1 — — 550 — — 551 
Reissuance of treasury stock upon exercise of common stock options and release of RSUs— — 7 60 — — (60)— 
Withholding tax on restricted stock units(233)— — — (6,152)— — (6,152)
Issuance of shares under ESPP137 — — — 4,080 — — 4,080 
Repurchase of common shares under shares repurchase program— — (107)(2,665)— — — (2,665)
Share-based compensation— — — — 34,119 — — 34,119 
Net income— — — — — — 13,468 13,468 
Foreign currency translation adjustment, net of tax— — — — — (10,236)— (10,236)
Balance, March 31, 202334,575 $69 (6,717)$(68,605)$321,548 $(9,156)$643,402 $887,258 
See accompanying notes to these condensed consolidated financial statements.
4

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited, in thousands)
Common SharesTreasury SharesAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal Shareholders' Equity
Shares
Amount
Shares
Amount
Balance, December 31, 202335,205 $70 (7,154)$(79,343)$342,636 $(13,937)$645,132 $894,558 
Exercise of common stock options and release of restricted stock units918 2 — — 1,053 — — 1,055 
Reissuance of treasury stock upon exercise of common stock options and release of RSUs— 15 123 — — (123)— 
Withholding tax on restricted stock units(287)— — — (6,741)— — (6,741)
Issuance of shares under ESPP— — — — — — — — 
Share-based compensation— — — — 8,465 — — 8,465 
Net income— — — — — — (11,212)(11,212)
Foreign currency translation adjustment, net of tax— — — — — 2,812 — 2,812 
Balance, March 31, 202435,836 $72 (7,139)$(79,220)$345,413 $(11,125)$633,797 $888,937 
Common SharesTreasury SharesAdditional Paid-In Capital
Accumulated Other Comprehensive Loss
Retained EarningsTotal Shareholders' Equity
Shares
Amount
Shares
Amount
Balance, June 30, 202334,811 $70 (7,157)$(79,365)$329,034 $(8,111)$642,291 $883,919 
Exercise of common stock options and release of restricted stock units1,156 2 — — 2,225 — — 2,227 
Reissuance of treasury stock upon exercise of common stock options and release of RSUs— — 18 145 — — (145)— 
Withholding tax on restricted stock units(308)— — — (7,343)— — (7,343)
Issuance of shares under ESPP177 — — — 3,423 — — 3,423 
Share-based compensation— — — — 18,074 — — 18,074 
Net income— — — — — — (8,349)(8,349)
Foreign currency translation adjustment, net of tax— — — — — (3,014)— (3,014)
Balance, March 31, 202435,836 $72 (7,139)$(79,220)$345,413 $(11,125)$633,797 $888,937 



See accompanying notes to these condensed consolidated financial statements.

5

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended March 31,
20242023
Cash flows from operating activities
Net income (loss)$(8,349)$13,468 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization39,849 31,162 
Loss (income) from equity investment4,085 (1,533)
Share-based compensation expense18,074 34,119 
Deferred income taxes, net(910)(962)
Loss on disposal of property and equipment88 387 
Changes in operating assets and liabilities
Accounts receivable9,166 46,247 
Inventories(14,851)(21,744)
Other current and long-term assets3,637 (7,824)
Accounts payable(4,303)(21,581)
Net payable, equity investee2,325 (10,595)
Income taxes payable(895)2,506 
Increase (decrease) in deferred revenue(409)14,370 
Accrued and other liabilities(28,916)(29,366)
Net cash provided by operating activities18,591 48,654 
Cash flows from investing activities
Purchases of property and equipment (29,759)(91,261)
Proceeds from sale of property and equipment357 27 
Government grant related to equipment809 631 
Net cash used in investing activities(28,593)(90,603)
Cash flows from financing activities
Withholding tax on restricted stock units(7,343)(6,152)
Proceeds from exercise of stock options and ESPP5,650 4,631 
Payment for repurchases of common shares (2,665)
Proceeds from borrowings 8,632 
Repayments of borrowings(8,586)(10,260)
Principal payments on finance leases(644)(603)
Net cash used in financing activities(10,923)(6,417)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(83)(121)
Net decrease in cash, cash equivalents and restricted cash(21,008)(48,487)
Cash, cash equivalents and restricted cash at beginning of period195,603 314,651 
Cash, cash equivalents and restricted cash at end of period$174,595 $266,164 
Supplemental disclosures of non-cash investing and financing information:
Property and equipment purchased but not yet paid $3,906 $17,298 
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents$174,387 $265,946 
Restricted cash208 218 
Total cash, cash equivalents, and restricted cash$174,595 $266,164 
See accompanying notes to these condensed consolidated financial statements.
6

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. The Company and Significant Accounting Policies
The Company

Alpha and Omega Semiconductor Limited and its subsidiaries (the “Company”, “AOS”, “we” or “us”) design, develop and supply a broad range of power semiconductors. The Company's portfolio of products targets high-volume applications, including personal and portable computers, graphic cards, flat panel TVs, home appliances, smart phones, battery packs, quick chargers, home appliances, consumer and industrial motor controls and power supplies for TVs, computers, servers and telecommunications equipment. The Company conducts its operations primarily in the United States of America (“USA”), Hong Kong, China, and South Korea.
Basis of Preparation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Article 10 of Securities and Exchange Commission Regulation S-X, as amended. They do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. GAAP for complete financial statements. These Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the results of operations for the periods presented have been included in the interim periods. Operating results for the nine months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2024 or any other interim period. The consolidated balance sheet at June 30, 2023 is derived from the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

Joint Venture

On March 29, 2016, the Company entered into a joint venture contract (the “JV Agreement”) with two investment funds owned by the Municipality of Chongqing (the “Chongqing Funds”), pursuant to which the Company and the Chongqing Funds formed a joint venture, (the “JV Company”), for the purpose of constructing and operating a power semiconductor packaging, testing and 12-inch wafer fabrication facility in the Liangjiang New Area of Chongqing, China (the “JV Transaction”). Prior to December 1, 2021, the JV Company was accounted for under the provisions of the consolidation guidance since the Company had controlling financial interest. As of December 2, 2021, the Company ceased having control over the JV Company. Therefore, the Company deconsolidated the JV Company as of that date. Subsequently, the Company has accounted for its investment in the JV Company using the equity method of accounting. As of June 30, 2023, the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42.2%. 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%.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. To the extent there are material differences between these estimates and actual results, the Company's consolidated financial statements will be affected. On an ongoing basis, the Company evaluates the estimates, judgments and assumptions including those related to stock rotation returns, price adjustments, allowance for doubtful accounts, inventory reserves, warranty accrual, income taxes, leases, share-based compensation, recoverability of and useful lives for property, plant and equipment and intangible assets.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities and long-term operating lease liabilities on the Company's
7

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
consolidated balance sheets. Finance leases are included in property, plant and equipment, finance lease liabilities and long-term finance leases liabilities on the consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company determined its incremental borrowing rate based on the information available at the lease commencement date. The operating lease ROU assets also include any lease payments made and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Operating lease expense is generally recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred and are not included within the operating lease ROU asset and lease liability calculation. The Company does not record leases on the consolidated balance sheet with a term of one year or less. The Company elected to combine its lease and non-lease components as a single lease component for all asset classes.

Revenue recognition

The Company determines revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, a performance obligation is satisfied. The Company recognizes product revenue at a point in time when product is shipped to the customer, as determined by the agreed upon shipping terms, net of estimated stock rotation returns and price adjustments that it expects to provide to certain distributors. The Company presents revenue net of sales taxes and any similar assessments. Our standard payment terms range from 30 to 60 days.

The Company sells its products primarily to distributors, who in turn sell the products globally to various end customers. The Company allows stock rotation returns from certain distributors. Stock rotation returns are governed by contract and are limited to a specified percentage of the monetary value of products purchased by distributors during a specified period. The Company records an allowance for stock rotation returns based on historical returns, current expectations, and individual distributor agreements. The Company also provides special pricing to certain distributors, primarily based on volume, to encourage resale of the Company's products. Allowance for price adjustments is recorded against accounts receivable and the provision for stock rotation rights is included in accrued liabilities on the consolidated balance sheets.

The Company's performance obligations relate to contracts with a duration of less than one year. The Company elected to apply the practical expedient provided in ASC 606, “Revenue from Contracts with Customers”. Therefore, the Company is not required to disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

The Company recognizes the incremental direct costs of obtaining a contract, which consist of sales commissions, when control over the products they relate to transfers to the customer. Applying the practical expedient, the Company recognizes commissions as expense when incurred, as the amortization period of the commission asset the Company would have otherwise recognized is less than one year.

Packaging and testing services revenue is recognized at a point in time upon shipment of serviced products to the customer.

License and Development Revenue Recognition

In February 2023, the Company entered into a license agreement with a customer, pursuant to which the Company agreed to license its proprietary Silicon Carbide (SiC) technology to the customer and engineering and development services for 24 months for a total fee of $45.0 million, consisting of fees of $18.0 million, $6.8 million and $9.0 million paid to the Company in 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 the Company performs the engineering and development services. The Company uses the input method to measure progress, which method represents a faithful depiction of the transfer of services. During the three and nine months ended March 31, 2024, the Company recorded license and development revenue of $5.1 million and $16.2 million, respectively. During the three and nine months ended March 31, 2023, the Company recorded $3.6 million of license and development revenue. The amount of contract liability is recorded as deferred revenue on the consolidated balance sheets. As of March 31, 2024, the Company had recorded a total of $26.1 million of license and development revenue. In addition, the Company also entered an accompanying supply agreement to provide limited wafer supply to the customer.
8

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Share-based Compensation Expense

The Company maintains an equity-settled, share-based compensation plan to grant restricted share units and stock options. The Company recognizes expense related to share-based compensation awards that are ultimately expected to vest based on estimated fair values on the date of grant. The fair value of restricted share units is based on the fair value of the Company's common share on the date of grant. For restricted stock awards subject to market conditions, the fair value of each restricted stock award is estimated at the date of grant using the Monte-Carlo pricing model. The fair value of stock options is estimated on the date of grant using the Black-Scholes option valuation model. Share-based compensation expense is recognized on the accelerated attribution basis over the requisite service period of the award, which generally equals the vesting period. The Employee Share Purchase Plan (the “ESPP”) is accounted for at fair value on the date of grant using the Black-Scholes option valuation model.
Restricted Cash

The Company maintains restricted cash in connection with cash balances temporarily restricted for regular business operations. These balances have been excluded from the Company’s cash and cash equivalents balance and are classified as restricted cash in the Company’s Condensed Consolidated Balance Sheets. As of March 31, 2024 and June 30, 2023, the amount of restricted cash was $0.2 million and $0.4 million, respectively.
Equity method investment
The Company uses the equity method of accounting when it has the ability to exercise significant influence, but not control, as determined in accordance with generally accepted accounting principles, over the operating and financial policies of the investee. Effective December 1, 2021, the Company reduced its equity interest in the JV Company and no longer controls the JV Company. As a result, beginning December 2, 2021, the Company records its investment under the equity method of accounting. Since the Company is unable to obtain accurate financial information from the JV Company in a timely manner, the Company records its share of earnings or losses of such affiliate on a one quarter lag. The Company discloses and recognizes intervening events at the JV Company in the lag period that could materially affect its consolidated financial statements, if applicable.
The Company records its interest in the net earnings of the equity method investee, along with adjustments for unrealized profits or losses on intra-entity transactions and amortization of basis differences, within earnings or loss from equity interests in the Consolidated Statements of Income (loss). Profits or losses related to intra-entity sales with the equity method investee are eliminated until realized by the investor and 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. Equity method goodwill is not amortized or tested for impairment; instead the equity method investment is tested for impairment. The Company reviews 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 Condensed Consolidated Statements of Income (loss).
Valuation of inventories

The Company carries inventories at the lower of cost (determined on a first-in, first-out basis) or net realizable value. Cost primarily consists of semiconductor wafers and raw materials, labor, depreciation expenses and other manufacturing expenses and overhead, and packaging and testing fees paid to third parties if subcontractors are used. Valuation of inventories is based on its periodic review of inventory quantities on hand as compared with its sales forecasts, historical usage, aging of inventories, production yield levels and current product selling prices. If actual market conditions are less favorable than those forecasted by the Company, additional future inventory write-downs may be required that could adversely affect its operating results. Adjustments to inventory, once established are not reversed until the related inventory has been sold or scrapped. If actual market conditions are more favorable than expected and the products that have previously been written down are sold, our gross margin would be favorably impacted.
Fair Value of Financial Instruments

The fair value of cash equivalents is categorized in Level 1 in the fair value hierarchy. Cash equivalents consist primarily of short-term bank deposits. The carrying values of financial instruments such as cash and cash equivalents, accounts
9

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
receivable and accounts payable approximate their carrying values due to their short-term maturities. The carrying value of the Company's debt is considered a reasonable estimate of fair value which is estimated by considering the current rates available to the Company for debt of the same remaining maturities, structure, credit risk and terms of the debts.

Government Grants

The Company occasionally receives government grants that provide financial assistance for certain eligible expenditures in China. These grants include reimbursements on interest expense on bank borrowings, payroll tax credits, credit for property, plant and equipment in a particular geographical location, employment credits, as well as business expansion credits. Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attaching to it, and that the grant will be received. The Company records such grants either as a reduction of the related expense, a reduction of the cost of the related asset, or as other income depending upon the nature of the grant. As a result of such grants, during the three and nine months ended March 31, 2024, the Company reduced property, plant and equipment by $0.4 million and $0.8 million, respectively. During the three and nine months ended March 31, 2023, the Company reduced property, plant and equipment by nil and $0.6 million, and operating expenses by $0.0 million and $0.1 million, respectively.

Accounting for income taxes

Income tax expense or benefit is based on income or loss before income taxes. Deferred tax assets and liabilities are recognized principally for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts.

The Company is subject to income taxes in a number of jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company establishes accruals for certain tax contingencies based on estimates of whether additional taxes may be due. While the final tax outcome of these matters may differ from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

The Company is subject to income tax expense or benefit based upon pre-tax income or loss reported in the consolidated statements of income (loss) and the provisions of currently enacted tax laws. The parent company is incorporated under the laws of Bermuda and is subject to Bermuda law with respect to taxation. Under current Bermuda law, the Company is not subject to any income or capital gains taxes in Bermuda. As we have previously disclosed, the Government of Bermuda announced in December 2023 that it enacted the Corporate Income Tax Act 2023, potentially imposing a 15% corporate income tax (CIT) on Bermuda companies that are within the scope of the CIT, that will be effective for tax years beginning on or after January 1, 2025. In particular, the CIT applies to multinational companies with annual revenue of 750 million euros or more in the consolidated financial statements of the ultimate parent entity for at least two of the four fiscal years immediately preceding the fiscal year when the CIT may apply.

The Company is not in a position to determine whether the annual revenues may meet and/or cross the 750 million Euro threshold for at least two of the four fiscal years immediately preceding the fiscal year when CIT may apply. The Company continues to monitor and assess if and when it may be within the scope of the CIT. If we become subject to the Bermuda CIT, we may be subject to additional income taxes, which may adversely affect our financial position, results of operations and our overall business.

Significant management judgment is also required in determining whether deferred tax assets will be realized in full or in part. When it is more likely than not that all or some portion of specific deferred tax assets such as net operating losses or research and development tax credit carryforwards will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that cannot be realized. The Company considers all available positive and negative evidence on a jurisdiction-by-jurisdiction basis when assessing whether it is more likely than not that deferred tax assets are recoverable. The Company considers evidence such as our past operating results, the existence of cumulative losses in recent years and our forecast of future taxable income.

The Financial Accounting Standards Board (FASB), issued guidance which clarifies the accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the
10

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely to be realized upon ultimate settlement. Although the guidance on the accounting for uncertainty in income taxes prescribes the use of a recognition and measurement model, the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management. If the ultimate resolution of tax uncertainties is different from what is currently estimated, a material impact on income tax expense could result.

The Company's provision for income taxes is subject to volatility and could be adversely impacted by changes in earnings or tax laws and regulations in various jurisdictions. The Company is subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of changes to reserves, as well as the related net interest and penalties.

Long-lived Assets

The Company reviews all long-lived assets whenever events or changes in circumstance indicate that these assets may not be recoverable. When evaluating long-lived assets, if the Company concludes that the estimated undiscounted cash flows attributable to the assets are less than their carrying value, the Company recognizes an impairment loss based on the excess of the carrying amount of the assets over their respective fair values, which could adversely affect its results of operations.

Comprehensive Income
Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company's accumulated other comprehensive income consists of cumulative foreign currency translation adjustments. Total comprehensive income is presented in the Condensed Consolidated Statements of Comprehensive Income.

Recent Accounting Pronouncements
    
Recently Adopted Accounting Standards

None

Recently Issued Accounting Standards not yet adopted

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures”, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU also expands disclosure requirements to enable users of financial statements to better understand the entity’s measurement and assessment of segment performance and resource allocation. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of the ASU on its disclosures within the Consolidated Financial Statements.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740) – Improvements to Income Tax Disclosures”, which enhances the transparency, effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid. This guidance is effective for annual periods beginning after December 15, 2024 with early adoption permitted. The Company is currently evaluating the impact of the ASU on its income tax disclosures within the Consolidated Financial Statements.




11

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Equity Method Investment in Equity Investee

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 has a controlling financial interest in the JV Company and has determined that the JV Company was deconsolidated from the Company’s Consolidated Financial Statements effective as of the Closing Date.

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 to 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 Investment and as of June 30, 2022, the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42.2%.

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%.

The Company accounts for its investment in the JV Company as an equity method investment and reports its equity in earnings or loss of the JV Company on a three-month lag due to an inability to timely obtain financial information of the JV Company. During the three and nine months ended March 31, 2024, the Company recorded a $0.7 million loss and $4.1 million loss of its equity share of the JV Company, respectively, using lag reporting. During the three and nine months ended March 31, 2023, the Company recorded $1.5 million in loss and a $1.5 million income of its equity in income of the JV Company, respectively, using lag reporting.
12

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. Related Party Transactions

As of March 31, 2024, the Company owned a 42.8% equity interest in the JV Company, which, by definition, is a related party to the Company. The JV Company supplies 12-inch wafers and provides assembly and testing services to AOS. AOS previously sold 8-inch wafers to the JV Company for further assembly and testing services until January 1, 2023, when it changed to consign the 8-inch wafers to the JV Company. Due to the right of offset of receivables and payables with the JV Company, as of March 31, 2024, AOS recorded the net amount of $14.3 million as payable related to equity investee, net, in the Condensed Consolidated Balance Sheet. The purchases by AOS for the three and nine months ended March 31, 2024 were $22.4 million and $80.8 million, respectively, and the sales by AOS for the three and nine months ended March 31, 2024 were $2.6 million and $6.3 million, respectively. The purchases by AOS for the three and nine months ended March 31, 2023 were $20.2 million and $106.1 million, respectively, and the sales by AOS for the three and nine months ended March 31, 2023 were $4.0 million and $34.4 million, respectively.


13

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4. Net Income (Loss) Per Common Share
The following table presents the calculation of basic and diluted net income (loss) per share attributable to common shareholders:
 Three Months Ended March 31,Nine Months Ended March 31,
 2024202320242023
(in thousands, except per share data)
Numerator:
Net income (loss)
$(11,212)$(18,907)$(8,349)$13,468 
Denominator:
Basic:
Weighted average number of common shares used to compute basic net income (loss) per share
28,433 27,710 28,022 27,537 
Diluted:
Weighted average number of common shares used to compute basic net income (loss) per share
28,433 27,710 28,022 27,537 
Effect of potentially dilutive securities:
Stock options, RSUs and ESPP shares   2,039 
Weighted average number of common shares used to compute diluted net income (loss) per share
28,433 27,710 28,022 29,576 
Net income (loss) per share:
Basic$(0.39)$(0.68)$(0.30)$0.49 
Diluted$(0.39)$(0.68)$(0.30)$0.46 
The following potential dilutive securities were excluded from the computation of diluted net income (loss) per share as their effect would have been anti-dilutive:
 Three Months Ended March 31,Nine Months Ended March 31,
 2024202320242023
(in thousands)(in thousands)
Employee stock options and RSUs1,688 3,152 2,242 281 
ESPP1,008 767 1,046 279 
Total potential dilutive securities2,696 3,919 3,288 560 
14

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

5. Concentration of Credit Risk and Significant Customers
The Company manages its credit risk associated with exposure to distributors and direct customers on outstanding accounts receivable through the application and review of credit approvals, credit ratings and other monitoring procedures. In some instances, the Company also obtains letters of credit from certain customers.
Credit sales, which are mainly on credit terms of 30 to 60 days, are only made to customers who meet the Company's credit requirements, while sales to new customers or customers with low credit ratings are usually made on an advance payment basis. The Company considers its trade accounts receivable to be of good credit quality because its key distributors and direct customers have long-standing business relationships with the Company and the Company has not experienced any significant bad debt write-offs of accounts receivable in the past. The Company closely monitors the aging of accounts receivable from its distributors and direct customers, and regularly reviews their financial positions, where available.
Summarized below are individual customers whose revenue or accounts receivable balances were 10% or higher than the respective total consolidated amounts:
Three Months Ended March 31,Nine Months Ended March 31,
Percentage of revenue2024202320242023
Customer A25.0 %21.0 %26.1 %21.7 %
Customer B46.4 %28.7 %44.8 %35.5 %
Customer D*17.9 %*14.1 %

 March 31,
2024
June 30,
2023
Percentage of accounts receivable
Customer A*15.3 %
Customer B*17.6 %
Customer C23.9 %13.3 %
Customer D30.6 %30.9 %

* Less than 10%
15

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

6. Balance Sheet Components

Accounts receivable, net:
 March 31,
2024
June 30,
2023
(in thousands)
Accounts receivable$62,565 $62,426 
Less: Allowance for price adjustments(49,281)(39,976)
Less: Allowance for doubtful accounts(30)(30)
Accounts receivable, net$13,254 $22,420 

Inventories:
 March 31,
2024
June 30,
2023
(in thousands)
Raw materials$83,535 $86,620 
Work-in-process88,808 69,426 
Finished goods25,755 27,201 
 $198,098 $183,247 

Other current assets:
March 31,
2024
June 30,
2023
(in thousands)
Value-added tax receivable$280 $275 
Other prepaid expenses2,911 3,863 
Prepaid insurance693 4,162 
Prepaid maintenance1,496 1,697 
Prepayment to supplier115 10,689 
Prepaid income tax2,326 707 
Interest receivable364 135 
Other receivables419 1,138 
$8,604 $22,666 



16

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Property, plant and equipment, net:
 March 31,
2024
June 30,
2023
(in thousands)
Land$4,877 $4,877 
Building and building improvements26,970 26,478 
Manufacturing machinery and equipment415,598 398,757 
Equipment and tooling35,553 32,737 
Computer equipment and software51,870 49,890 
Office furniture and equipment3,264 3,087 
Leasehold improvements41,521 38,787 
 579,653 554,613 
Less: accumulated depreciation and amortization(308,439)(272,503)
 271,214 282,110 
Equipment and construction in progress68,301 75,721 
Property, plant and equipment, net$339,515 $357,831 

Intangible assets, net:
March 31,
2024
June 30,
2023
(in thousands)
Patents and technology rights$18,037 $18,037 
Trade name268 268 
Customer relationships1,150 1,150 
19,455 19,455 
Less: accumulated amortization(15,396)(12,959)
4,059 6,496 
Goodwill269 269 
Intangible assets, net$4,328 $6,765 

Estimated future minimum amortization expense of intangible assets is as follows (in thousands):
Year ending June 30,
2024 (Remaining)$812 
20253,247 
$4,059 
17

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Other long-term assets:
March 31,
2024
June 30,
2023
(in thousands)
Prepayments for property and equipment$3,229 $1,717 
Investment in a privately held company100 100 
Customs deposit651 931 
Deposit with supplier23,342 12,290 
Other long-term deposits37 37 
Office leases deposits1,347 1,274 
Other2,785 3,354 
 $31,491 $19,703 
Accrued liabilities:
March 31,
2024
June 30,
2023
(in thousands)
Accrued compensation and benefits$15,407 $15,627 
Warranty accrual2,282 1,674 
Stock rotation accrual4,678 5,588 
Accrued professional fees2,188 2,458 
Accrued inventory565 1,597 
Accrued facilities related expenses2,117 2,327 
Accrued property, plant and equipment5,756 6,402 
Other accrued expenses4,138 4,401 
Customer deposits33,085 38,082 
ESPP payable3,371 1,377 
 $73,587 $79,533 
Short-term customer deposits are payments received from customers for securing future product shipments. As of March 31, 2024, $10.0 million were from Customer A, $8.9 million were from Customer B, and $14.2 million were from other customers. As of June 30, 2023, $13.5 million were from Customer A, $9.2 million were from Customer B, and $15.4 million were from other customers.
The activities in the warranty accrual, included in accrued liabilities, are as follows:
Nine Months Ended March 31,
20242023
(in thousands)
Beginning balance$1,674 $2,650 
Additions 773 2,915 
Utilization(165)(1,750)
Ending balance$2,282 $3,815 
18

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The activities in the stock rotation accrual, included in accrued liabilities, are as follows:
Nine Months Ended March 31,
20242023
(in thousands)
Beginning balance$5,588 $4,798 
Additions7,849 9,187 
Utilization(8,759)(9,904)
Ending balance$4,678 $4,081 
Other long-term liabilities:
 March 31,
2024
June 30,
2023
(in thousands)
Customer deposits$22,361 $46,393 
Computer software liabilities1,223 4,644 
Other long-term liabilities$23,584 $51,037 

Customer deposits are payments received from customers for securing future product shipments. As of March 31, 2024, $12.0 million were from Customer A, $3.0 million were from Customer B, and $7.4 million were from other customers. As of June 30, 2023, $21.0 million were from Customer A, $11.7 million were from Customer B, and $13.7 million were from other customers.
19

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Bank Borrowings

Short-term borrowings

In March 2024, one of the Company's subsidiaries in China entered into a line of credit facility with Bank of Communications Limited in China. The purpose of the credit facility is to provide working capital borrowings. The Company could borrow up to approximately RMB 140 million or $19.4 million based on currency exchange rate between RMB and U.S. Dollar on March 31, 2024 with a maturity date of March 15, 2025. As of March 31, 2024, there was no outstanding balance for this loan.

In December 2023, one of the Company's subsidiaries in China entered into a line of credit facility with Industrial and Commercial Bank of China. The purpose of the credit facility was to provide working capital borrowings. The Company could borrow up to approximately RMB 72.0 million, or $10.2 million based on currency exchange rate between RMB and U.S. Dollar on December 31, 2023, with a maturity date of December 31, 2024. As of March 31, 2024, there was no outstanding balance for this loan.

In September 2023, one of the Company's subsidiaries in China entered into a line of credit facility with China Construction Bank. The purpose of the credit facility is to provide working capital borrowings. The Company could borrow up to approximately RMB 50 million or $6.8 million based on currency exchange rate between RMB and U.S. Dollar on September 30, 2023 with a maturity date of September 8, 2025. As of March 31, 2024, there was no outstanding balance for this loan.

Accounts Receivable Factoring Agreement

On August 9, 2019, one of the Company's wholly-owned subsidiaries (the “BorrowerR