Allegro MicroSystems(ALGM) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the company's first fiscal quarter Item 1. Condensed Consolidated Financial Statements This section presents Allegro MicroSystems' unaudited condensed consolidated financial statements for Q1 FY2023, including balance sheets, income statements, cash flows, and accompanying notes Condensed Consolidated Balance Sheets As of June 24, 2022, total assets increased to $926.1 million, driven by cash, receivables, and inventories, with liabilities and equity also growing Key Balance Sheet Items (in thousands) | Account | June 24, 2022 | March 25, 2022 | | :--- | :--- | :--- | | Total Current Assets | $529,034 | $511,692 | | Total Assets | $926,113 | $892,620 | | Total Current Liabilities | $111,804 | $104,223 | | Total Liabilities | $162,753 | $157,257 | | Total Stockholders' Equity | $763,360 | $735,363 | Condensed Consolidated Statements of Operations For Q1 FY2023, total net sales increased to $217.8 million, but net income significantly decreased to $10.3 million due to a substantial rise in Selling, General and Administrative expenses Quarterly Performance Comparison (in thousands, except per share data) | Metric | Q1 FY2023 (ended June 24, 2022) | Q1 FY2022 (ended June 25, 2021) | | :--- | :--- | :--- | | Total Net Sales | $217,753 | $188,142 | | Gross Profit | $118,374 | $94,160 | | Operating Income | $14,737 | $32,242 | | Net Income | $10,283 | $27,707 | | Diluted EPS | $0.05 | $0.14 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities for Q1 FY2023 was $36.6 million, with $14.4 million used in investing and $9.1 million in financing activities, primarily for equity award tax settlements Cash Flow Summary (in thousands) | Activity | Three Months Ended June 24, 2022 | Three Months Ended June 25, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $36,553 | $38,495 | | Net cash used in investing activities | $(14,389) | $(15,346) | | Net cash used in financing activities | $(9,137) | $0 | | Net increase in cash | $6,473 | $25,757 | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail significant accounting policies, revenue recognition, and fair value measurements, highlighting Sanken Electric as a key customer and automotive as the largest revenue sector - Sanken Electric Co., Ltd. accounted for 19.2% of total net sales for the three months ended June 24, 2022, and 18.8% for the same period in 2021[28] - Sales to customers outside the United States accounted for 87.0% of total net sales for the three months ended June 24, 2022, with Greater China (25.3%) and Japan (19.2%) being the largest regions[29] Net Sales by Application (in thousands) | Application | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | Automotive | $149,649 | $133,523 | | Industrial | $40,140 | $30,309 | | Other | $27,964 | $24,310 | | Total | $217,753 | $188,142 | - Stock-based compensation expense totaled $34.1 million for the quarter, a significant increase from $4.8 million in the prior-year quarter. This was largely due to modifications to the former CEO's equity awards upon his retirement, which accounted for $26.3 million of the expense[79] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 FY2023 results, highlighting a 15.7% net sales increase and improved gross margin, but notes operating income declined due to one-time SG&A expenses Results of Operations Q1 FY2023 net sales grew 15.7% to $217.8 million, with gross margin improving, but operating and net income declined due to a significant SG&A expense surge from a one-time CEO retirement charge Total Net Sales Growth (YoY, in thousands) | Metric | Q1 FY2023 (ended June 24, 2022) | Q1 FY2022 (ended June 25, 2021) | Change (%) | | :--- | :--- | :--- | :--- | | Total Net Sales | $217,753 | $188,142 | 15.7% | Net Sales by Market (in thousands) | Market | Q1 FY2023 | Q1 FY2022 | Change (%) | | :--- | :--- | :--- | :--- | | Automotive | $149,649 | $133,523 | 12.1% | | Industrial | $40,140 | $30,309 | 32.4% | | Other | $27,964 | $24,310 | 15.0% | - Gross margin improved to 54.4% in Q1 FY2023 from 50.0% in Q1 FY2022, attributed to operational transformation, improved product mix with higher ASPs, and manufacturing efficiencies[90][111] - SG&A expenses increased by $38.0 million (118.3%), primarily due to a $28.6 million increase in stock-based compensation, which included approximately $26.3 million in accelerated expense from the retirement of the former CEO[119] Non-GAAP Financial Measures The company presents non-GAAP financial measures, with Q1 FY2023 non-GAAP Net Income at $47.1 million and Adjusted EBITDA at $66.7 million, providing a supplemental view of core operating performance GAAP vs. Non-GAAP Reconciliation (Q1 FY2023, in thousands) | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Gross Profit | $118,374 | $1,105 | $119,479 | | Operating Income | $14,737 | $40,312 | $55,049 | | Net Income | $10,283 | $36,835 | $47,118 | Adjusted EBITDA Reconciliation (Q1 FY2023, in thousands) | Metric | Amount | | :--- | :--- | | GAAP Net Income | $10,283 | | Interest expense, net | $120 | | Income tax provision | $1,965 | | Depreciation & amortization | $11,918 | | EBITDA | $24,286 | | Other Adjustments* | $42,440 | | Adjusted EBITDA | $66,726 | | Adjusted EBITDA Margin | 30.6% | *Other Adjustments include stock-based compensation ($34.1M), severance ($4.2M), unrealized investment loss ($3.5M), and other items. Liquidity and Capital Resources As of June 24, 2022, the company maintained $286.6 million in cash and $417.2 million in working capital, with $36.6 million in operating cash flow, sufficient to fund future operations and capital expenditures - Cash and cash equivalents stood at $286.6 million as of June 24, 2022[142] - Net cash provided by operating activities was $36.6 million for the three months ended June 24, 2022[146] - As of June 24, 2022, the company had $25.0 million in aggregate principal amount of debt outstanding under its Senior Secured Credit Facilities[150] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in its market risk exposures, including interest rate, foreign currency, and inflation risks, since its last Annual Report - There have been no material changes in the company's exposures to market risk since March 25, 2022[154] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 24, 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 24, 2022, the company's disclosure controls and procedures were effective at the reasonable assurance level[156] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[157] PART II. OTHER INFORMATION This section provides additional information including legal proceedings, updated risk factors, equity sales, and a list of exhibits filed with the report Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings and is unaware of any pending actions that could significantly impact its business or financial condition - The company is not currently party to any material legal proceedings[159] Item 1A. Risk Factors This section updates risk factors from the 2022 Annual Report, specifically adding the potential adverse effects of sustained inflation on the company's business and financial health - A new risk factor was added highlighting that sustained inflation could lead to higher labor, material, and transportation costs, which may not be fully passed on to customers, potentially harming gross margins and profitability[160] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[161] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including executive severance and employment agreements, an amended stockholders agreement, and officer certifications - Key exhibits filed include the Second Amended and Restated Severance Agreement with former CEO Ravi Vig and the Employment Agreement with new CEO Vineet Nargolwala[163]