Financial Results for Fiscal Q3 Ended March 31, 2019

• Revenue was $109.1 million, a decrease of 5.1% quarter-over-quarter and an increase of 6.0% from the same quarter last year. The quarter-over-quarter decrease was mainly due to the impact of worse than expected PC CPU shortage.
• GAAP gross margin was 23.5%. Non-GAAP gross margin was 27.0%, a decrease of 220 basis points quarter-over-quarter and an increase of 20 basis points year-over-year. The quarter-over-quarter decrease was primarily due to the lower factory utilization of back-end operations largely attributable to the decrease in revenue and the Lunar New Year holiday.
• GAAP operating expenses were $29.4 million. Non-GAAP operating expenses were $23.2 million, a decrease of $1.9 million quarter-over-quarter and an increase of $1.5 million from the same quarter last year. The quarter-over-quarter decrease was primarily due to the lower variable compensation accruals and fluctuation of engineering expenses.
• GAAP operating loss was $3.7 million. Non-GAAP operating income was $6.3 million as compared to $8.5 million for the prior quarter and $5.9 million for the same quarter last year.
• GAAP loss per share attributable to AOS was $0.06. Non-GAAP earnings per share attributable to AOS was $0.22 compared to $0.30 for the prior quarter and $0.23 for the same quarter a year ago.
• Consolidated cash flow used in operating activities was $7.9 million, compared to $7.6 million in the same quarter a year ago. Operating cash flow generated by AOS alone was $9.5 million, compared to $0.7 million in the same quarter a year ago.
• The Company closed the quarter with $139.1 million of cash and cash equivalents, including $48.2 million cash balance at the Chongqing Joint Venture.

“AOS demonstrated solid execution in a challenging near-term market environment, with financial performance largely in-line with our expectations. We posted year-over-year revenue growth for the thirteenth straight quarter while prudently managing our operating expenses. Although the CPU shortage is expected to cause a temporary slowdown in our Computing business in the first half of calendar 2019, we believe a recovery of CPU supply will be a tailwind for us in the second half,” stated Dr. Mike Chang, chairman and CEO of the company.

“Our business momentum continues, as we capitalize on our multi-year, high-value growth opportunities, including smartphone battery packs, quick chargers and home appliances. We have started ramping production of these product lines and expect to accelerate production ramp in the coming quarters. To support our overall growth as well as the anticipated rebound of the Computing business, we remain focused on ramping up the Chongqing Joint Venture to secure much-needed capacity. We believe we are executing the right strategy for continuing growth, and we are committed to achieving our mid-term target of $600 million in annual revenue by calendar year 2021."

Business Outlook for Fiscal Q4 Ending June 30, 2019

The following statements are based on management's current expectations. These statements are forward-looking, and actual results may differ materially. AOS undertakes no obligation to update these statements.

• Revenue is expected to be in the range of $110 million to $114 million as we assume the CPU shortage will continue in the June quarter.
• Gross margin is expected to be approximately 22.3% plus or minus 1%. Non-GAAP gross margin is expected to be approximately 27.3% plus or minus 1%. Non-GAAP gross margin excludes $0.5 million of estimated share-based compensation charge and $5.1 million of estimated production ramp-up costs relating to the Chongqing Joint Venture.
• Operating expenses are expected to be in the range of $30.4 million plus or minus $1 million. Non-GAAP operating expenses are expected to be in the range of $24.8 million plus or minus $1 million. Both GAAP and non-GAAP operating expenses include $2.8 million to $3.0 million of estimated expenses relating to the development of our digital power controller business. Non-GAAP operating expenses exclude $2.5 million of estimated share-based compensation charge and $3.1 million of estimated pre-production expenses relating to the Chongqing Joint Venture.
• Tax expenses are expected to be in the range of $0.5 million to $0.7 million.
• Chongqing Joint Venture’s loss attributable to noncontrolling interest is expected to be around $5.6 million. On a non-GAAP basis, excluding estimated production ramp-up costs and pre-production expenses, this item is expected to be approximately $1.2 million.