Allegro MicroSystems(ALGM) - 2022 Q1 - Quarterly Report

FORWARD-LOOKING STATEMENTS This section outlines forward-looking statements and the various known and unknown risks and uncertainties that could cause actual results to differ materially - This report contains forward-looking statements covered by safe harbor provisions, and actual results may differ materially due to known and unknown risks and uncertainties[7] - Key risks include downturns or volatility in general economic conditions (especially automotive), ability to compete effectively, manage average selling price decreases, cyclical nature of the semiconductor industry, shifts in product/customer mix, supply chain disruptions, reliance on third-party facilities/suppliers, dependence on manufacturing operations in the Philippines, reliance on distributors, indebtedness, loss of significant customers, ability to develop new products, meet quality requirements, uncertainties in design win process, changes in government trade policies, warranty/product liability claims, intellectual property protection, IT system disruptions, governmental regulation, international operations, currency exchange rate volatility, risks related to acquisitions, ability to raise capital, manage growth and retain personnel, changes in tax rates, litigation, and market opportunity estimation[7][9] PART I. FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Condensed Consolidated Financial Statements This section provides the unaudited condensed consolidated financial statements, including the Balance Sheets, Statements of Operations, Comprehensive Income, Changes in Equity, and Cash Flows, along with detailed notes, for the specified interim periods Consolidated Balance Sheets This section presents the company's unaudited condensed consolidated balance sheets, highlighting key asset, liability, and equity figures Consolidated Balance Sheet Highlights (in thousands) | Metric | June 25, 2021 | March 26, 2021 | Change ($) | Change (%) | | :-------------------------- | :------------ | :------------- | :--------- | :--------- | | Total Assets | $796,887 | $747,678 | $49,209 | 6.58% | | Cash and Cash Equivalents | $221,934 | $197,214 | $24,720 | 12.53% | | Total Current Assets | $452,527 | $430,564 | $21,963 | 5.10% | | Total Liabilities | $177,508 | $160,807 | $16,701 | 10.39% | | Total Stockholders' Equity | $619,379 | $586,871 | $32,508 | 5.54% | Consolidated Statements of Operations This section details the company's unaudited condensed consolidated statements of operations, including net sales, gross profit, operating income, and net income Consolidated Statements of Operations Highlights (in thousands) | Metric | Three-Month Period Ended June 25, 2021 | Three-Month Period Ended June 26, 2020 | Change ($) | Change (%) | | :------------------------------------------ | :------------------------------------- | :------------------------------------- | :--------- | :--------- | | Total Net Sales | $188,142 | $115,001 | $73,141 | 63.6% | | Gross Profit | $94,160 | $55,701 | $38,459 | 69.0% | | Operating Income | $32,242 | $4,532 | $27,710 | 611.4% | | Net Income attributable to Allegro MicroSystems, Inc. | $27,669 | $4,820 | $22,849 | 474.0% | | Diluted EPS | $0.14 | $0.48 | $(0.34) | -70.8% | | Weighted Average Diluted Shares Outstanding | 191,163,074 | 10,000,000 | 181,163,074 | 1811.63% | - Diluted EPS decreased despite higher net income due to a significant increase in weighted average diluted shares outstanding following the IPO[13][88] Consolidated Statements of Comprehensive Income This section presents the company's unaudited condensed consolidated statements of comprehensive income, including net income and other comprehensive income components Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric | Three-Month Period Ended June 25, 2021 | Three-Month Period Ended June 26, 2020 | Change ($) | Change (%) | | :------------------------------------------ | :------------------------------------- | :------------------------------------- | :--------- | :--------- | | Comprehensive Income attributable to Allegro MicroSystems, Inc. | $27,669 | $8,794 | $18,875 | 214.6% | | Foreign currency translation adjustment | $(30) | $4,280 | $(4,310) | -100.7% | Consolidated Statements of Changes in Equity This section outlines the changes in the company's unaudited condensed consolidated equity, reflecting net income, stock-based compensation, and foreign currency adjustments Consolidated Statements of Changes in Equity Highlights (in thousands) | Metric | June 25, 2021 | March 26, 2021 | Change ($) | Change (%) | | :-------------------------- | :------------ | :------------- | :--------- | :--------- | | Total Equity | $619,379 | $586,871 | $32,508 | 5.54% | | Net income | $27,669 | N/A | N/A | N/A | | Stock-based compensation, net of forfeitures | $4,831 | N/A | N/A | N/A | | Foreign currency translation adjustment | $(30) | N/A | N/A | N/A | Consolidated Statements of Cash Flows This section presents the company's unaudited condensed consolidated statements of cash flows, detailing cash generated from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three-Month Period Ended June 25, 2021 | Three-Month Period Ended June 26, 2020 | Change ($) | Change (%) | | :------------------------------------------ | :------------------------------------- | :------------------------------------- | :--------- | :--------- | | Net cash provided by operating activities | $38,495 | $25,666 | $12,829 | 50.0% | | Net cash used in investing activities | $(15,346) | $(24,309) | $8,963 | -36.9% | | Net cash provided by financing activities | $0 | $0 | $0 | 0.0% | | Net increase in Cash and cash equivalents and Restricted cash | $25,757 | $88 | $25,669 | 29169.3% | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed notes explaining the significant accounting policies, estimates, and specific financial statement line items 1. Nature of the Business and Basis of Presentation This note describes the company's core business, global operations, and the basis for preparing its consolidated financial statements - Allegro MicroSystems, Inc. is a global leader in designing, developing, and manufacturing sensing and power solutions for motion control and energy-efficient systems in automotive and industrial markets[23] - The company is headquartered in Manchester, New Hampshire, with a global footprint of 16 locations across four continents[23] - The company completed its initial public offering (IPO) on November 2, 2020[23] 2. Summary of Significant Accounting Policies This note outlines the key accounting policies and estimates used in the preparation of the consolidated financial statements - The preparation of consolidated financial statements requires management to make estimates and assumptions that affect reported amounts[25] Concentrations of Credit Risk and Significant Customers (Sanken Electric Co., Ltd.) | Metric | June 25, 2021 | March 26, 2021 | | :-------------------------------- | :------------ | :------------- | | % of outstanding trade accounts receivable, net | 23.2% | 22.7% | | % of total net sales (3 months ended) | 18.8% | 20.5% | Sales from customers located outside of the United States accounted for 85.7% of total net sales for the three months ended June 25, 2021, and 88.7% for the three months ended June 26, 2020 - The company early adopted ASU 2016-02 (Leases) and ASU 2016-13 (Credit Losses) effective March 27, 2021, with no material impact on financial position, results of operations, or cash flows[30][32] 3. Revenue from Contracts with Customers This note details the company's revenue recognition policies and disaggregates net sales by application, product, and geographic location - Revenue is generated from the sale of magnetic sensor integrated circuits (ICs) and application-specific analog power semiconductors[34] Net Sales by Application (in thousands) | Application | Three-Month June 25, 2021 | Three-Month June 26, 2020 | | :---------- | :------------------------ | :------------------------ | | Automotive | $133,523 | $76,378 | | Industrial | $30,309 | $20,406 | | Other | $24,310 | $18,217 | | Total Net Sales | $188,142 | $115,001 | Net Sales by Product (in thousands) | Product | June 25, 2021 | June 26, 2020 | | :------------------------ | :------------ | :------------ | | Power integrated circuits | $66,672 | $41,599 | | Magnetic sensors | $120,642 | $73,402 | | Photonics | $828 | $0 | | Total Net Sales | $188,142 | $115,001 | Net Sales by Geographic Location (in thousands) | Region | Three-Month June 25, 2021 | Three-Month June 26, 2020 | | :---------------- | :------------------------ | :------------------------ | | Americas: United States | $26,841 | $12,996 | | Americas: Other | $6,349 | $1,928 | | EMEA: Europe | $34,751 | $17,846 | | Asia: Japan | $35,453 | $23,620 | | Asia: Greater China | $42,779 | $32,071 | | Asia: South Korea | $21,933 | $13,612 | | Asia: Other | $20,036 | $12,928 | | Total Net Sales | $188,142 | $115,001 | 4. Fair Value Measurements This note provides information on assets and liabilities measured at fair value, categorized by valuation input levels Fair Value Measurements (in thousands) | Item | June 25, 2021 (Level 1) | June 25, 2021 (Level 3) | Total June 25, 2021 | | :-------------------------------- | :---------------------- | :---------------------- | :------------------ | | Cash equivalents: Money market fund deposits | $16,334 | $0 | $16,334 | | Restricted cash: Money market fund deposits | $7,698 | $0 | $7,698 | | Liabilities: Contingent consideration | $0 | $5,100 | $5,100 | Contingent consideration increased by $300 thousand from March 26, 2021 ($4,800 thousand) to June 25, 2021 ($5,100 thousand) 5. Trade Accounts Receivable, net This note details the composition of trade accounts receivable, including provisions for credit losses and sales allowances Trade Accounts Receivable, net (in thousands) | Metric | June 25, 2021 | March 26, 2021 | Change ($) | Change (%) | | :------------------------------------------ | :------------ | :------------- | :--------- | :--------- | | Trade accounts receivable, net | $77,843 | $69,500 | $8,343 | 12.0% | | Provision for expected credit losses and allowance for doubtful accounts | $(773) | $(138) | $(635) | 460.1% | | Returns and sales allowances | $(13,026) | $(15,274) | $2,248 | -14.7% | - For the three months ended June 25, 2021, $635 thousand was charged to costs and expenses for doubtful accounts, and $40,582 thousand for returns and sales allowances[47] 6. Inventories This note provides a breakdown of inventory components and discusses inventory provisions Inventories (in thousands) | Category | June 25, 2021 | March 26, 2021 | Change ($) | Change (%) | | :--------------------- | :------------ | :------------- | :--------- | :--------- | | Raw materials and supplies | $9,295 | $9,629 | $(334) | -3.5% | | Work in process | $44,739 | $50,095 | $(5,356) | -10.7% | | Finished goods | $28,322 | $27,774 | $548 | 2.0% | | Total | $82,356 | $87,498 | $(5,142) | -5.9% | - Inventory provisions totaled $3,189 thousand for the three months ended June 25, 2021, primarily due to impairment charges for inventory related to a discontinued Voxtel product line[48] 7. Assets Held for Sale This note describes assets classified as held for sale, primarily related to the Thailand-based facility - Assets held for sale amounted to $25,309 thousand as of June 25, 2021, related to the Thailand-based facility (AMTC Facility) after production was transferred to the Manila, Philippines facility[12][49] - The sale of the AMTC Facility is expected to close within the calendar year, subject to government approvals[49] 8. Property, Plant and Equipment, net This note provides a breakdown of property, plant, and equipment, net, and associated depreciation expense, categorized by physical location Property, Plant and Equipment, net (in thousands) | Category | June 25, 2021 | March 26, 2021 | Change ($) | Change (%) | | :------------------------------------------ | :------------ | :------------- | :--------- | :--------- | | Total Property, Plant and Equipment, net | $196,993 | $192,393 | $4,600 | 2.4% | | Total Depreciation Expense (3 months ended) | $11,120 | N/A | N/A | N/A | Long-Lived Assets by Physical Location (in thousands) | Location | June 25, 2021 | March 26, 2021 | | :------------- | :------------ | :------------- | | Philippines | $153,282 | $148,374 | | United States | $36,726 | $36,529 | | Thailand | $0 | $1,698 | | Other | $7,331 | $7,190 | | Total | $197,339 | $193,791 | 9. Goodwill and Intangible Assets This note details the company's goodwill and intangible assets, including their carrying amounts and amortization expense Goodwill (in thousands) | Metric | June 25, 2021 | March 26, 2021 | Change ($) | Change (%) | | :--------------------- | :------------ | :------------- | :--------- | :--------- | | Total Goodwill | $20,118 | $20,106 | $12 | 0.1% | Goodwill increased by $12 thousand due to currency translation Intangible Assets, net (June 25, 2021, in thousands) | Description | Net Carrying Amount | Weighted-Average Lives | | :------------------------------------------ | :------------------ | :--------------------- | | Patents | $20,690 | 10 years | | Process technology | $12,176 | 12 years | | Indefinite-lived and legacy process technology | $2,400 | N/A | | Total | $36,301 | | Intangible assets amortization expense was $1,019 thousand for the three months ended June 25, 2021, up from $713 thousand in the prior year period 10. Accrued Expenses and Other Current Liabilities This note provides a detailed breakdown of accrued expenses and other current liabilities, including management incentives, salaries, and income taxes Accrued Expenses and Other Current Liabilities (in thousands) | Category | June 25, 2021 | March 26, 2021 | Change ($) | Change (%) | | :------------------------------------------ | :------------ | :------------- | :--------- | :--------- | | Total Accrued Expenses and Other Current Liabilities | $76,771 | $78,932 | $(2,161) | -2.7% | | Accrued management incentives | $8,013 | $21,538 | $(13,525) | -62.8% | | Accrued salaries and wages | $22,282 | $15,060 | $7,222 | 47.9% | | Accrued income taxes | $3,711 | $514 | $3,197 | 622.0% | 11. Leases This note describes the company's operating lease agreements for real estate, equipment, and vehicles, and related liabilities - The company leases real estate, equipment, and vehicles under operating lease agreements with initial terms ranging from 1 to 11 years, and has no finance leases[63] Operating Lease Liabilities (June 25, 2021, in thousands) | Metric | Amount | | :------------------------------------------ | :----- | | Total undiscounted lease payments | $20,295 | | Total operating lease liabilities (present value) | $17,694 | Weighted-average remaining lease term is 5.97 years, and the weighted-average discount rate is 4.6% 12. Debt and Other Borrowings This note outlines the company's debt obligations, including its senior secured Term Loan Facility and Revolving Credit Facility - The company has a $325 million senior secured Term Loan Facility due in 2027 and a $50 million senior secured Revolving Credit Facility expiring in 2023[69] - As of June 25, 2021, $25 million was outstanding under the Term Loan Facility, bearing an interest rate of 4.25%, and no borrowings were outstanding on the Revolving Credit Facility[69] - Two Philippine peso lines of credit (approximately $1.2 million and $1.5 million) had no outstanding borrowings as of June 25, 2021[69] 13. Other Long-Term Liabilities This note details other long-term liabilities, including accrued retirement, contingent consideration, and uncertain tax positions Other Long-Term Liabilities (in thousands) | Category | June 25, 2021 | March 26, 2021 | Change ($) | Change (%) | | :------------------------------------------ | :------------ | :------------- | :--------- | :--------- | | Total Other Long-Term Liabilities | $19,244 | $19,133 | $111 | 0.6% | | Accrued retirement | $10,810 | $10,656 | $154 | 1.4% | | Accrued contingent consideration | $5,100 | $4,800 | $300 | 6.3% | | Provision for uncertain tax positions (net) | $2,791 | $2,774 | $17 | 0.6% | 14. Retirement Plans This note provides information on the company's retirement plans, including net periodic pension expense and plan assets Net Periodic Pension Expense (Non-U.S. Defined Benefit Plan, in thousands) | Metric | Three-Month June 25, 2021 | Three-Month June 26, 2020 | Change ($) | Change (%) | | :------------------------------------------ | :------------------------ | :------------------------ | :--------- | :--------- | | Net periodic pension expense | $523 | $380 | $143 | 37.6% | Plan Assets of Non-U.S. Defined Benefit Plan (June 25, 2021, in thousands) | Category | Total | | :-------------------------- | :---- | | Government securities | $1,832 | | Unit investment trust fund | $1,079 | | Loans | $633 | | Bonds | $983 | | Stocks and other investments | $2,568 | | Total | $7,095 | - The company contributed $353 thousand to its non-U.S. pension plan for the three months ended June 25, 2021, and expects to contribute $943 thousand in fiscal year 2021[79] - Matching contributions to the 401(k) plan totaled $1,256 thousand for the three months ended June 25, 2021, and contributions to the AME Plan totaled $218 thousand for the same period[81] 15. Commitments and Contingencies This note discloses the company's commitments and contingencies, including self-insurance liabilities and potential intellectual property indemnifications - The accrued liability related to self-insurance for employee health programs was $1,585 thousand as of June 25, 2021[84] - The company is not currently party to any material legal proceedings and has no environmental accruals established[85][87] - The company indemnifies certain customers for potential intellectual property infringement, but has not incurred any costs to date[86] 16. Net Income per Share This note presents the basic and diluted net income per share, along with the weighted average shares outstanding Net Income per Share (Attributable to Allegro MicroSystems, Inc.) | Metric | Three-Month June 25, 2021 | Three-Month June 26, 2020 | | :------------------------------------------ | :------------------------ | :------------------------ | | Basic EPS | $0.15 | $0.48 | | Diluted EPS | $0.14 | $0.48 | | Basic Weighted Average Shares Outstanding | 189,585,381 | 10,000,000 | | Diluted Weighted Average Shares Outstanding | 191,163,074 | 10,000,000 | - The significant increase in weighted average shares outstanding following the IPO on November 2, 2020, led to a decrease in EPS despite higher net income[88][91] 17. Common Stock and Stock-Based Compensation This note details common stock activity and the accounting for stock-based compensation expense - The company granted 894,876 Restricted Share Units (RSUs) to employees with an estimated grant date fair value of $24.79 during the three months ended June 25, 2021[93] - Stock-based compensation expense related to non-vested awards not yet recorded was $31,320 thousand, expected to be recognized over a weighted-average of 1.78 years[93] Total Stock-Based Compensation Expense (in thousands) | Metric | Three-Month June 25, 2021 | Three-Month June 26, 2020 | Change ($) | Change (%) | | :------------------------------------------ | :------------------------ | :------------------------ | :--------- | :--------- | | Total stock-based compensation | $4,831 | $445 | $4,386 | 985.6% | 18. Income Taxes This note provides information on the company's income tax provision and effective tax rate, explaining the factors influencing fluctuations Income Tax Provision (in thousands) | Metric | Three-Month June 25, 2021 | Three-Month June 26, 2020 | Change ($) | Change (%) | | :------------------------------------------ | :------------------------ | :------------------------ | :--------- | :--------- | | Income tax provision | $4,263 | $528 | $3,735 | 707.4% | | Effective tax rate | 13.3% | 9.8% | 3.5% | 35.7% | - The fluctuation in the effective income tax rate is primarily due to differences in U.S. taxable income, estimated FDII benefits, research credits, non-deductible stock-based compensation charges, and discrete tax items[97] 19. Related Party Transactions This note discloses transactions with related parties, including sales to Sanken and purchases from PSL Related Party Transactions (in thousands) | Metric | Three-Month June 25, 2021 | Three-Month June 26, 2020 | Change ($) | Change (%) | | :------------------------------------------ | :------------------------ | :------------------------ | :--------- | :--------- | | Net sales to Sanken | $35,453 | $23,620 | $11,833 | 50.1% | | Purchases of various products from PSL | $13,380 | $11,923 | $1,457 | 12.2% | Trade accounts receivables from Sanken totaled $23,545 thousand as of June 25, 2021 - The company has a sublease agreement with Sanken for office space in Japan, with payments of approximately $56 thousand for the three months ended June 25, 2021[101] - Payments to Reza Kazerounian (board executive advisor) under a consulting agreement totaled $56 thousand for the three months ended June 25, 2021[104] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and future outlook, including a detailed analysis of operating results, growth strategies, recent initiatives, and key factors affecting the business, along with non-GAAP financial measures and liquidity assessment Overview This overview introduces Allegro MicroSystems as a global leader in sensor and power ICs for automotive and industrial markets, highlighting key financial performance and recent IPO - Allegro MicroSystems is a leading global designer, developer, manufacturer, and marketer of sensor ICs and application-specific analog power ICs for automotive and industrial markets, holding the number one market share position in magnetic sensor IC solutions worldwide[107] Key Financial Highlights (in millions) | Metric | Three Months Ended June 25, 2021 | Three Months Ended June 26, 2020 | | :---------------- | :------------------------------- | :------------------------------- | | Total Net Sales | $188.1 | $115.0 | | Net Income | $27.7 | $4.9 | | Adjusted EBITDA | $53.8 | $26.2 | - The company completed its initial public offering (IPO) on November 2, 2020, raising approximately $321.4 million in net proceeds[107] Our Growth Strategies and Outlook This section outlines the company's strategic initiatives focused on R&D investment, automotive-first product development, gross margin improvement, and selective acquisitions for growth - Invest in market-aligned research and development (R&D) focused on targeted portfolio expansion in areas like electrified vehicles (xEVs), advanced driver assistance systems (ADAS), Industry 4.0, data centers, and green energy applications[108] - Emphasize an 'automotive first' philosophy for product development to meet stringent automotive operating voltages, temperature ranges, and safety/reliability standards, which also benefits industrial customers[110] - Improve gross margins through product innovation (new products with value-added features, higher ASPs) and cost optimization (fabless manufacturing model, strategic foundry suppliers, cost-effective packaging)[110] - Pursue selective acquisitions and other strategic transactions to enter new applications, add intellectual property, and accelerate growth, such as the acquisition of Voxtel for LiDAR technology[110] Recent Initiatives to Improve Results of Operations This section highlights recent strategic actions, including the acquisition of Voxtel and the consolidation of manufacturing facilities, aimed at enhancing operational results - Acquired Voxtel, Inc. on August 28, 2020, a technology company specializing in components for eye-safe LiDAR used in ADAS, autonomous vehicles, and industrial automation[113] - Completed the consolidation of assembly and test facilities into the Philippines (AMPI Facility) by closing the Thailand manufacturing facility (AMTC Facility) in March 2021, expecting a significant reduction in cost of goods sold[113] Other Key Factors and Trends Affecting our Operating Results This section discusses critical external and internal factors influencing the company's operating results, including design wins, market conditions, gross margin drivers, and industry cyclicality - Future revenue is highly dependent on continued success in winning design mandates from customers, with a typical lead time of two to four years from design initiation to revenue generation[115] - Demand for products is highly dependent on market conditions in end markets, which are generally subject to seasonality, cyclicality, and competitive conditions[116] - Gross margin is affected by average selling prices (ASPs), product mix, material costs, yields, and manufacturing costs; ASPs are expected to decline over time[117][119] - The semiconductor industry is highly cyclical, characterized by rapid technological change, product obsolescence, competitive pricing pressures, and fluctuations in product supply and demand[120] Components of Our Results of Operations This section defines and explains the key components of the company's statements of operations, including net sales, cost of goods sold, R&D, SG&A, and income tax provision - Total net sales are derived from product sales to direct customers and distributors globally, recognized when control of products is transferred[121] - Cost of goods sold includes raw materials, manufacturing, personnel, depreciation, and logistics costs; expected to decrease due to AMTC closure and PSL distribution business transfer[122] - Research and development (R&D) expenses are primarily for personnel, wafer/mask development, and testing, and are expected to increase with new product offerings[125] - Selling, General and Administrative (SG&A) expenses include personnel, sales commissions, and professional fees; anticipated to increase due to sales force expansion and public company costs[126] - Income tax provision fluctuates based on the mix of U.S. and foreign income, discrete transactions, foreign derived intangible income deduction (FDII) benefits, research credits, and global intangible low-tax income (GILTI)[130] Results of Operations This section provides a detailed analysis of the company's financial performance for the period, examining changes in sales, costs, and profitability metrics Total net sales Total net sales increased significantly due to economic recovery and heightened demand across various applications - Total net sales increased by $73.1 million, or 63.6%, to $188.1 million for the three months ended June 25, 2021, from $115.0 million in the prior year period[137] - This increase was primarily due to continued economic recovery and increased demand for advanced driver assistance systems, data center, industrial automation, gaming, and other consumer applications[137] Sales Trends by Market This section analyzes net sales performance across automotive, industrial, and other market segments Net Sales by Market (in thousands) | Market | Three-Month June 25, 2021 | Three-Month June 26, 2020 | Change ($) | Change (%) | | :--------- | :------------------------ | :------------------------ | :--------- | :--------- | | Automotive | $133,523 | $76,378 | $57,145 | 74.8% | | Industrial | $30,309 | $20,406 | $9,903 | 48.5% | | Other | $24,310 | $18,217 | $6,093 | 33.4% | | Total | $188,142 | $115,001 | $73,141 | 63.6% | - Automotive net sales increased due to customers' increased vehicle production, higher content in xEV, and strong recoveries in ADAS, comfort and convenience, and internal combustion engine (ICE) applications[140] - Industrial and other net sales improved due to continued demand in data center applications, gaming, grid infrastructure (including renewable energy and EV charging), and COVID-related demand for printers and peripherals[140] Sales Trends by Product This section examines net sales performance categorized by product type, including power integrated circuits, magnetic sensors, and photonics Net Sales by Product (in thousands) | Product | Three-Month June 25, 2021 | Three-Month June 26, 2020 | Change ($) | Change (%) | | :------------------------ | :------------------------ | :------------------------ | :--------- | :--------- | | Power integrated circuits | $66,672 | $41,599 | $25,073 | 60.3% | | Magnetic sensors | $120,642 | $73,402 | $47,240 | 64.4% | | Photonics | $828 | $0 | $828 | N/A | | Total | $188,142 | $115,001 | $73,141 | 63.6% | Sales Trends by Geographic Location This section analyzes net sales performance across various geographic regions, highlighting growth drivers Net Sales by Geographic Location (in thousands) | Region | Three-Month June 25, 2021 | Three-Month June 26, 2020 | Change ($) | Change (%) | | :---------------- | :------------------------ | :------------------------ | :--------- | :--------- | | Americas: United States | $26,841 | $12,996 | $13,845 | 106.5% | | EMEA: Europe | $34,751 | $17,846 | $16,905 | 94.7% | | Asia: Japan | $35,453 | $23,620 | $11,833 | 50.1% | | Asia: Greater China | $42,779 | $32,071 | $10,708 | 33.4% | | Total | $188,142 | $115,001 | $73,141 | 63.6% | - Net sales increased across all geographic locations due to economic expansion and market share gains, with Europe and the United States showing the highest percentage growth[142][143] Cost of goods sold, gross profit and gross margin This section analyzes changes in cost of goods sold, gross profit, and gross margin, identifying key drivers - Cost of goods sold increased by $34.7 million, or 58.5%, to $94.0 million, primarily due to higher production volume and $2.8 million in expenses related to the discontinuation of a Voxtel product line[146] - Gross profit increased by $38.5 million, or 69.0%, to $94.2 million, driven by the operational increase in net sales[146] Gross Margin | Metric | Three-Month June 25, 2021 | Three-Month June 26, 2020 | | :---------------- | :------------------------ | :------------------------ | | Gross Margin | 50.0% | 48.4% | R&D expenses This section analyzes changes in research and development expenses, highlighting key drivers such as personnel costs - R&D expenses increased by $5.2 million, or 21.2%, to $29.6 million, primarily due to a $4.4 million increase in personnel costs and general operating expenses, and $0.2 million in stock-based compensation[147] R&D Expenses as % of Total Net Sales | Metric | Three-Month June 25, 2021 | Three-Month June 26, 2020 | | :---------------- | :------------------------ | :------------------------ | | R&D Expenses as % of Total Net Sales | 15.7% | 21.1% | SG&A expenses This section analyzes changes in selling, general, and administrative expenses, identifying key drivers such as stock-based compensation and personnel costs - SG&A expenses increased by $5.3 million, or 19.7%, to $32.1 million, driven by increases in stock-based compensation ($3.2 million), contract labor ($3.2 million), and personnel costs ($2.5 million), partially offset by lower facilities costs and professional fees[148] SG&A Expenses as % of Total Net Sales | Metric | Three-Month June 25, 2021 | Three-Month June 26, 2020 | | :---------------- | :------------------------ | :------------------------ | | SG&A Expenses as % of Total Net Sales | 17.0% | 23.3% | Interest (expense) income, net This section analyzes the company's net interest expense or income, primarily influenced by debt obligations - The company recorded net interest expense of $0.3 million for the three months ended June 25, 2021, compared to net interest income of $0.3 million in the prior year, primarily due to mandatory interest payments on the Term Loan Facility[149] Foreign currency transaction (loss) gain This section analyzes the company's foreign currency transaction gains or losses, primarily from international operations - A foreign currency transaction loss of $0.3 million was recorded for the three months ended June 25, 2021, primarily due to losses from the UK location, a reversal from a gain of $0.1 million in the prior year[150] Income in earnings of equity investment This section reports the income recognized from the company's equity investment in PSL - Income in earnings of equity investment reflected a $0.3 million gain for the three months ended June 25, 2021, representing earnings on the 30% investment in PSL[152] Other, net This section reports miscellaneous gains or losses not categorized elsewhere - Other, net, decreased by $0.2 million to less than $0.1 million in miscellaneous gains for the three months ended June 25, 2021, from $0.2 million in the prior year period[153] Income tax provision This section analyzes the income tax expense and effective tax rate, explaining the factors influencing their fluctuations - Income tax expense was $4.3 million, with an effective income tax rate of 13.3%, for the three months ended June 25, 2021, compared to $0.5 million and 9.8% in the prior year period[154] - The fluctuation in the effective income tax rate is primarily due to differences in U.S. taxable income, estimated FDII benefits, research credits, non-deductible stock-based compensation charges, and discrete tax items[154] Non-GAAP Financial Measures This section provides reconciliations and explanations for non-GAAP financial measures used by management to assess performance Non-GAAP Gross Profit and Non-GAAP Gross Margin This section presents non-GAAP gross profit and gross margin, adjusted for specific non-recurring or non-cash items - Non-GAAP Gross Profit and Gross Margin exclude items such as Voxtel inventory impairment, PSL and Sanken distribution agreement costs, stock-based compensation, AMTC Facility consolidation costs, acquisition-related intangible asset amortization, and COVID-19 related expenses[158] Non-GAAP Gross Profit and Gross Margin (in thousands) | Metric | Three-Month June 25, 2021 | Three-Month June 26, 2020 | Change ($) | Change (%) | | :------------------------ | :------------------------ | :------------------------ | :--------- | :--------- | | Non-GAAP Gross Profit | $98,276 | $59,725 | $38,551 | 64.5% | | Non-GAAP Gross Margin | 52.2% | 51.9% | 0.3% | 0.6% | Non-GAAP Operating Expenses, non-GAAP Operating Income and non-GAAP Operating Margin This section presents non-GAAP operating expenses, income, and margin, adjusted for specific non-recurring or non-cash items - Non-GAAP Operating Expenses and Income exclude items like stock-based compensation, AMTC facility costs, acquisition-related amortization, COVID-19 expenses, transaction fees, severance, impairment of long-lived assets, and changes in contingent consideration[159][160] Non-GAAP Operating Income and Margin (in thousands) | Metric | Three-Month June 25, 2021 | Three-Month June 26, 2020 | Change ($) | Change (%) | | :------------------------ | :------------------------ | :------------------------ | :--------- | :--------- | | Non-GAAP Operating Income | $41,894 | $14,519 | $27,375 | 188.5% | | Non-GAAP Operating Margin | 22.3% | 12.6% | 9.7% | 77.0% | EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin This section defines and reconciles EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin, excluding specific non-core items - Adjusted EBITDA is calculated by excluding non-core loss/gain on sale of equipment, foreign currency translation loss/gain, income in earnings of equity investment, and other non-GAAP adjustments from EBITDA[161] Adjusted EBITDA (in thousands) | Metric | Three-Month June 25, 2021 | Three-Month June 26, 2020 | Change ($) | Change (%) | | :------------------------ | :------------------------ | :------------------------ | :--------- | :--------- | | Adjusted EBITDA | $53,777 | $26,213 | $27,564 | 105.2% | Non-GAAP Profit before Tax, Non-GAAP Net Income, and Non-GAAP Basic and Diluted Earnings Per Share This section presents non-GAAP profit before tax, net income, and basic and diluted EPS, adjusted for various non-GAAP items and their tax effects - Non-GAAP Net Income and EPS are calculated by adjusting GAAP Net Income for various non-GAAP items and their tax effects[161] Non-GAAP Net Income and EPS | Metric | Three-Month June 25, 2021 | Three-Month June 26, 2020 | Change ($) | Change (%) | | :------------------------------------------ | :------------------------ | :------------------------ | :--------- | :--------- | | Non-GAAP Net Income (in thousands) | $35,208 | $12,651 | $22,557 | 178.3% | | Non-GAAP Basic EPS | $0.19 | $1.27 | $(1.08) | -85.0% | | Non-GAAP Diluted EPS | $0.18 | $1.27 | $(1.09) | -85.8% | Non-GAAP EPS decreased despite higher non-GAAP net income due to the significant increase in weighted average common shares outstanding post-IPO Non-GAAP Provision for Income Tax This section details the non-GAAP provision for income tax, adjusted for the tax effects of non-GAAP items and discrete tax adjustments - Non-GAAP Provision for Income Tax is calculated by adding back the tax effect of adjustments to GAAP results and eliminating discrete tax adjustments from GAAP Income Tax Provision[162] Non-GAAP Provision for Income Taxes | Metric | Three-Month June 25, 2021 | Three-Month June 26, 2020 | Change ($) | Change (%) | | :------------------------------------------ | :------------------------ | :------------------------ | :--------- | :--------- | | Non-GAAP Provision for Income Taxes (in thousands) | $6,354 | $2,336 | $4,018 | 172.0% | | Non-GAAP effective tax rate | 15.3% | 15.6% | -0.3% | -1.9% | Liquidity and Capital Resources This section assesses the company's liquidity position, cash flow activities, and debt obligations, outlining how it plans to meet its financial commitments - As of June 25, 2021, the company had $221.9 million in cash and cash equivalents and $333.5 million in working capital, indicating a strong liquidity position[177] - Primary liquidity requirements include working capital, capital expenditures, principal and interest payments on debt, and general corporate needs, which are expected to be met by existing cash, IPO proceeds, and access to capital markets for at least the next twelve months[177][179] Cash Flows from Operating, Investing and Financing Activities This section summarizes the company's cash flows from operating, investing, and financing activities for the period Summary of Cash Flows (in thousands) | Metric | Three-Month June 25, 2021 | Three-Month June 26, 2020 | | :------------------------------------------ | :------------------------ | :------------------------ | | Net cash provided by operating activities | $38,495 | $25,666 | | Net cash used in investing activities | $(15,346) | $(24,309) | | Net cash provided by financing activities | $0 | $0 | | Effect of exchange rate changes on cash and cash equivalents | $2,608 | $(1,269) | | Net increase in Cash and cash equivalents and restricted cash | $25,757 | $88 | Operating Activities This section details the net cash provided by operating activities, driven by net income and noncash charges, offset by changes in operating assets and liabilities - Net cash provided by operating activities was $38.5 million for the three months ended June 25, 2021, driven by net income of $27.7 million and noncash charges of $17.5 million, partially offset by a net decrease in operating assets and liabilities of $6.7 million[181] - Changes in operating assets and liabilities included a $10.0 million increase in trade accounts receivable, a $2.4 million decrease in accrued expenses, and a $3.0 million decrease in trade accounts payable, partially offset by a $5.1 million decrease in inventories[181] Investing Activities This section details the net cash used in investing activities, primarily for purchases of property, plant, and equipment - Net cash used in investing activities was $15.3 million for the three months ended June 25, 2021, consisting of purchases of property, plant, and equipment[184] - In the prior year period, net cash used was $24.3 million, which included $8.0 million of property, plant, and equipment purchases and $16.3 million of cash removed due to the PSL Divestiture[184] Financing Activities This section reports the net cash provided by or used in financing activities for the period - Net cash provided by financing activities was $0 for both the three months ended June 25, 2021, and June 26, 2020[185] Debt Obligations This section outlines the company's outstanding debt under its Senior Secured Credit Facilities - As of June 25, 2021, the company had $25.0 million in aggregate principal amount of debt outstanding under its Senior Secured Credit Facilities, which include a $325.0 million Term Loan Facility and a $50.0 million Revolving Credit Facility[186] Description of Credit Facilities This section describes the terms and conditions of the company's Term Loan Facility and Revolving Credit Facility - The Term Loan Facility bears interest at LIBOR plus 3.75% to 4.00% (4.25% at June 25, 2021) and is secured by 100% of the stock of domestic subsidiaries and portions of foreign subsidiaries, and substantially all other property and assets[187][189] - The Revolving Credit Facility bears interest at various rates (e.g., Base Rate plus 1.5%) and includes a non-refundable commitment fee of 0.50% per year on unused commitments[190] AMPI Credit Facilities This section details the credit facilities available to Allegro MicroSystems Philippines, Inc. (AMPI) - Allegro MicroSystems Philippines, Inc. (AMPI) has two lines of credit with maximum borrowing capacities of 60.0 million Philippine pesos (approx. $1.2 million) and 75.0 million Philippine pesos (approx. $1.5 million), with no outstanding borrowings as of June 25, 2021[190] Recent Accounting Pronouncements This section discusses the company's evaluation of recently issued accounting pronouncements and their potential impact - The company is currently evaluating the impact of ASU No. 2021-04 (Earnings Per Share, Debt Modifications, Stock Compensation, and Derivatives) on its consolidated financial statements and related disclosures[33][191] Critical Accounting Policies and Estimates This section confirms that there have been no material changes to the company's critical accounting policies and estimates - There have been no material changes in the company's critical accounting policies and estimates since March 26, 2021[193] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's exposures to market risk, including interest rate, foreign currency exchange, and inflation risks, since March 26, 2021 - No material changes in exposures to market risk (interest rate, foreign currency exchange, and inflation risks) since March 26, 2021[194] Item 4. Controls and Procedures Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 25, 2021, with no material changes in internal control over financial reporting during the period - The company's disclosure controls and procedures were effective at the reasonable assurance level as of June 25, 2021[196] - There was no change in internal control over financial reporting that materially affected, or is reasonably likely to materially affect, internal control over financial reporting during the period[197] PART II. OTHER INFORMATION This part contains disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings and is unaware of any pending or threatened legal actions that could have a material adverse effect on its business, operating results, cash flows, or financial condition - The company is not currently party to any material legal proceedings[199] - There are no pending or threatened legal proceedings against the company that are believed to have a material adverse effect on its business, operating results, cash flows, or financial condition[199] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2021 Annual Report - No material changes to the 'Risk Factors' disclosed in Item 1A of the 2021 Annual Report[200] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None[200] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - None[200] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[200] Item 5. Other Information There is no other information to report for the period - None[200] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report, including certifications from principal officers, an addendum to a stockholders agreement, and various Inline XBRL documents - Includes certifications of Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2)[202] - Includes an Addendum to Stockholders Agreement (Exhibit 10.1)[202] - Includes Inline XBRL Instance Document and Taxonomy Extension Documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[202] SIGNATURES This section provides the official signatures of the company's principal executive and financial officers, certifying the report - The report was signed by Ravi Vig, President and Chief Executive Officer, and Paul V. Walsh, Jr., Senior Vice President, Chief Financial Officer and Treasurer, on July 30, 2021[204]