PART I. FINANCIAL INFORMATION [Condensed Consolidated Financial Statements](index=3&type=section&id=Condensed%20Consolidated%20Financial%20Statements) Unaudited condensed consolidated financial statements are presented, significantly impacted by the Chongqing Joint Venture deconsolidation Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | June 30, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$1,209,169** | **$918,573** | | Cash and cash equivalents | $323,134 | $202,412 | | Equity method investment | $379,824 | $0 | | **Total Liabilities** | **$382,268** | **$402,248** | | **Total Equity** | **$826,901** | **$516,325** | Condensed Consolidated Statement of Income Highlights (in thousands) | Metric | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Nine Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | **$203,239** | **$169,212** | **$583,593** | **$479,593** | | **Gross Profit** | **$72,402** | **$52,691** | **$205,334** | **$143,963** | | **Operating Income** | **$31,232** | **$17,796** | **$83,898** | **$41,713** | | Gain on deconsolidation of the JV Company | $0 | $0 | $399,093 | $0 | | **Net Income Attributable to AOS** | **$31,650** | **$16,100** | **$438,072** | **$38,577** | | **Diluted EPS** | **$1.11** | **$0.58** | **$15.58** | **$1.42** | - Net cash provided by operating activities for the nine months ended March 31, 2022, was **$193.2 million**, a significant increase from **$84.5 million** in the prior-year period. This was driven by higher net income, although adjusted for a large non-cash gain on the JV Company deconsolidation[24](index=24&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed explanations of accounting policies and financial results are provided, highlighting the JV deconsolidation gain, customer concentrations, COVID-19 impacts, and a cybersecurity incident loss [Note 1: The Company and Significant Accounting Policies](index=9&type=section&id=Note%201%3A%20The%20Company%20and%20Significant%20Accounting%20Policies) This note outlines the company's business and accounting policies, focusing on the Chongqing JV deconsolidation and significant COVID-19 impacts, including the Shanghai lockdown - Effective December 1, 2021, the Company sold a **2.1%** equity interest in its JV Company, reducing its stake from **50.9%** to **48.8%** and losing its controlling financial interest. Consequently, the JV Company was deconsolidated and is now accounted for using the equity method[31](index=31&type=chunk) - In April 2022, operations at two Shanghai packaging and testing facilities were suspended due to a government-imposed COVID-19 lockdown. This is expected to adversely affect revenue and results for the quarter ending June 30, 2022, due to production halts and logistical challenges[36](index=36&type=chunk) [Note 2: Equity Method Investment in Equity Investee](index=15&type=section&id=Note%202%3A%20Equity%20Method%20Investment%20in%20Equity%20Investee) This note details the financial impact of the JV Company deconsolidation, including a $399.1 million gain and subsequent ownership reduction to 42.2% Gain on Deconsolidation of the JV Company (in thousands) | Item | Amount | | :--- | :--- | | Cash received for sales of shares | $16,924 | | Fair value of retained equity method investment | $393,124 | | Carrying amount of non-controlling interest | $143,889 | | Cumulative translation adjustment removal | $1,793 | | Carrying amount of net assets of the JV Company | ($156,637) | | **Gain on deconsolidation of the JV Company** | **$399,093** | - Following the initial sale, further transactions reduced the Company's ownership in the JV to **42.2%** as of March 31, 2022. These changes resulted in a net loss of **$3.1 million** for the nine-month period[68](index=68&type=chunk)[69](index=69&type=chunk)[72](index=72&type=chunk) [Note 5: Concentration of Credit Risk and Significant Customers](index=19&type=section&id=Note%205%3A%20Concentration%20of%20Credit%20Risk%20and%20Significant%20Customers) The company exhibits significant customer concentration, with two distributors accounting for 63.5% of revenue and five customers representing 83.1% of accounts receivable Revenue Concentration | Customer | % of Revenue (Nine Months Ended Mar 31, 2022) | % of Revenue (Nine Months Ended Mar 31, 2021) | | :--- | :--- | :--- | | Customer A | 24.8% | 29.1% | | Customer B | 38.7% | 34.9% | Accounts Receivable Concentration | Customer | % of A/R (March 31, 2022) | % of A/R (June 30, 2021) | | :--- | :--- | :--- | | Customer A | 21.2% | 12.4% | | Customer B | 20.4% | 22.1% | | Customer C | 13.7% | 21.9% | | Customer D | 12.8% | * | | Customer E | 15.0% | * | [Note 9: Shareholders' Equity and Share-based Compensation](index=28&type=section&id=Note%209%3A%20Shareholders%27%20Equity%20and%20Share-based%20Compensation) This note details equity activities, including the share repurchase program and increased share-based compensation expense of $21.5 million for the nine-month period - The company did not repurchase any shares during the nine months ended March 31, 2022. Approximately **$13.4 million** remains available under the existing repurchase program[132](index=132&type=chunk) Share-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Nine Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Cost of goods sold | $1,282 | $427 | $3,560 | $1,195 | | Research and development | $1,814 | $1,316 | $4,769 | $3,639 | | Selling, general and administrative | $5,177 | $2,082 | $13,125 | $5,091 | | **Total** | **$8,273** | **$3,825** | **$21,454** | **$9,925** | - As of March 31, 2022, total unrecognized compensation cost was **$86.2 million**, expected to be recognized over a weighted-average period of 3.5 years[147](index=147&type=chunk) [Note 11: Segment and Geographic Information](index=32&type=section&id=Note%2011%3A%20Segment%20and%20Geographic%20Information) The company operates as a single segment, with Hong Kong as the largest revenue region and Power Discretes as the primary product type Revenue by Geographical Location (Nine Months Ended Mar 31, in thousands) | Region | 2022 | 2021 | | :--- | :--- | :--- | | Hong Kong | $472,399 | $396,879 | | China | $91,958 | $74,250 | | South Korea | $8,862 | $4,069 | | United States | $9,004 | $3,683 | | Other countries | $1,370 | $712 | | **Total** | **$583,593** | **$479,593** | Revenue by Product Type (Nine Months Ended Mar 31, in thousands) | Product Type | 2022 | 2021 | | :--- | :--- | :--- | | Power discrete | $406,235 | $355,487 | | Power IC | $167,782 | $115,224 | | Packaging and testing services | $9,576 | $8,882 | | **Total** | **$583,593** | **$479,593** | [Note 12: Commitments and Contingencies](index=33&type=section&id=Note%2012%3A%20Commitments%20and%20Contingencies) The company has significant purchase and capital commitments, and is under an ongoing DOJ investigation regarding Huawei export control compliance - As of March 31, 2022, the company had purchase commitments of **$106.6 million** for materials/services and **$102.7 million** for property and equipment[165](index=165&type=chunk) - The company is under an ongoing investigation by the U.S. Department of Justice (DOJ) regarding compliance with export control regulations related to business with Huawei. The company has suspended shipments to Huawei since December 31, 2019, and the outcome and potential loss from the investigation are currently unknown[168](index=168&type=chunk) [Note 13: Cybersecurity Incident](index=34&type=section&id=Note%2013%3A%20Cybersecurity%20Incident) A cybersecurity incident in April 2022 resulted in a $1.5 million loss due to unauthorized payments, prompting an investigation and security enhancements - The company recorded a loss of **$1.5 million** for the three months ended March 31, 2022, due to a cybersecurity incident where payments were misdirected to unauthorized bank accounts[173](index=173&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses record quarterly revenue, the Chongqing JV deconsolidation, and significant operational challenges including the Shanghai COVID-19 lockdown [Results of Operations](index=41&type=section&id=Results%20of%20Operations) Q3 FY2022 revenue increased 20.1% to $203.2 million with improved gross margin, while operating expenses rose due to share-based compensation and a cybersecurity incident Revenue by Product Type (Three Months Ended March 31) | Product Type | 2022 (in thousands) | 2021 (in thousands) | Change (in percentage) | | :--- | :--- | :--- | :--- | | Power discrete | $140,572 | $122,615 | 14.6% | | Power IC | $60,359 | $43,385 | 39.1% | | Packaging and testing services | $2,308 | $3,212 | (28.1)% | | **Total** | **$203,239** | **$169,212** | **20.1%** | - Gross margin for the three months ended March 31, 2022, increased to **35.6%** from **31.1%** year-over-year, primarily due to a better product mix[219](index=219&type=chunk)[221](index=221&type=chunk) - Selling, general and administrative expenses for Q3 FY2022 increased by **$5.3 million** (**27.3%**) YoY, driven by a **$3.1 million** increase in share-based compensation and a **$1.5 million** loss from a cybersecurity incident[225](index=225&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity improved with $323.4 million in cash and strong operating cash flow, supported by a new $45.0 million term loan for facility expansion Cash Flow Summary (Nine Months Ended March 31, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $193,196 | $84,524 | | Net cash used in investing activities | ($91,142) | ($40,412) | | Net cash provided by (used in) financing activities | $16,351 | ($16,323) | - In February 2022, the company's subsidiary Jireh drew down **$45.0 million** from a new term loan agreement to fund the expansion and upgrade of its Oregon fabrication facility[240](index=240&type=chunk) - Net cash from operating activities was **$193.2 million** for the nine months ended March 31, 2022, primarily resulting from net income of **$438.1 million**, adjusted for non-cash items like the **$399.1 million** gain on JV deconsolidation and a **$42.9 million** increase in inventories[253](index=253&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) No material changes in market risks have occurred since the last annual report - There have been no material changes in market risks since the last annual report filed on August 30, 2021[261](index=261&type=chunk) [Controls and Procedures](index=50&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting - Management concluded that as of March 31, 2022, the company's disclosure controls and procedures were effective[262](index=262&type=chunk) - No material changes to the internal control over financial reporting occurred during the quarter[263](index=263&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=51&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company provides an update on the ongoing DOJ investigation regarding Huawei export control compliance, with shipments suspended since December 31, 2019 - The company is cooperating with an ongoing DOJ investigation into its compliance with export control regulations concerning business with Huawei[266](index=266&type=chunk) - At the request of the Department of Commerce, the company has suspended all product shipments to Huawei since December 31, 2019[266](index=266&type=chunk) [Risk Factors](index=51&type=section&id=ITEM%201A.%20RISK%20FACTORS) Key business risks include significant COVID-19 impacts, particularly the Shanghai lockdown affecting Q2 FY2022 revenue, and potential cybersecurity incident disruptions - The COVID-19 pandemic continues to pose a significant risk. A strict lockdown in Shanghai in April 2022 forced the shutdown of the company's two packaging and testing facilities, which is expected to adversely affect revenue and results for the quarter ending June 30, 2022[273](index=273&type=chunk)[274](index=274&type=chunk)[278](index=278&type=chunk) - The company's operations are dependent on its information technology systems, which are vulnerable to cyberattacks. A recent cybersecurity incident in April 2022 resulted in a **$1.5 million** loss[284](index=284&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=54&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company reports no share repurchases during the quarter, with $13.4 million remaining available under the program - No shares were repurchased during the three months ended March 31, 2022[286](index=286&type=chunk) - As of March 31, 2022, approximately **$13.4 million** remained available under the company's share repurchase program[286](index=286&type=chunk)

Financial Data and Key Metrics Changes - Revenue reached a record $203 million, representing a 20% year-over-year growth and the first time exceeding $200 million [6][22] - Non-GAAP gross margin was 36.7%, flat quarter-over-quarter and up from 31.9% a year ago [22] - Non-GAAP EPS was $1.34, reflecting a 74% growth year-over-year [7][22] Business Line Data and Key Metrics Changes - Computing segment revenue increased by 28% year-over-year, accounting for 44% of total revenue [16] - Consumer segment revenue grew 24% year-over-year, representing 22% of total revenue [18] - Communications segment revenue was up 6% year-over-year, making up 14% of total revenue [19] - Power Supply and Industrial segments accounted for 19% of total revenue, with a 16% year-over-year increase [20] Market Data and Key Metrics Changes - Early signs of market demand slowdown were noted in end markets such as PC, smartphones, and home appliances [14] - Total backlog remains significantly higher than current capacity, indicating strong demand despite market softness [14][55] Company Strategy and Development Direction - The company is diversifying its packaging and testing operations and has begun outsourcing some steps to contract manufacturers [11] - The goal is to achieve $1 billion in annual revenue and beyond, with ongoing investments in R&D and sales [12][34] Management's Comments on Operating Environment and Future Outlook - The Shanghai lockdown has impacted operations, with an estimated revenue loss of $20 million to $25 million for the June quarter [9] - The company expects to recover a portion of lost revenue in the second half of the year as operations normalize [10] - Management remains optimistic about long-term growth driven by the global trend of electrification [11] Other Important Information - The company has a strong cash balance of $323.1 million, up from $269.3 million at the end of the previous quarter [25] - Capital expenditures for the March quarter were $43.4 million, with similar levels expected for the June quarter [26] Q&A Session Summary Question: Insights on the appliance market slowdown - Management noted that the slowdown is more from the demand side and not geographically concentrated [32] Question: OpEx increase in June - The increase is primarily due to investments in R&D and sales and marketing to support business growth [34] Question: Recovery of gross margin post-lockdowns - Management expects a return to normal gross margin levels in the second half of the year, depending on production dynamics [38] Question: Revenue recapture from Shanghai production loss - A portion of the production loss is expected to be recaptured, with ongoing wafer production unaffected [41] Question: Design win activity - Design wins remain steady, with a focus on both core and emerging markets [74]

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