[FORM 10-Q](index=1&type=section&id=FORM%2010-Q) This is Allegro MicroSystems, Inc.'s Quarterly Report on Form 10-Q for the period ended September 29, 2023. - **Filing Type**: **Quarterly Report on Form 10-Q** for the period ended **September 29, 2023**[1](index=1&type=chunk) - **Registrant**: **ALLEGRO MICROSYSTEMS, INC. (ALGM)**[2](index=2&type=chunk)[3](index=3&type=chunk) - **Filer Status**: **Large accelerated filer**[3](index=3&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section cautions that forward-looking statements are subject to risks, with no public update planned. - Report contains **forward-looking statements** subject to known and unknown **risks**, uncertainties, and other important factors that may cause **actual results to differ materially**[5](index=5&type=chunk)[6](index=6&type=chunk) - **Forward-looking statements** are based on management's beliefs and assumptions, which may or may not prove to be correct[6](index=6&type=chunk) - The company does not plan to publicly update or revise any **forward-looking statements**, except as required by applicable law[6](index=6&type=chunk) [PART I. Financial Information](index=4&type=section&id=PART%20I.%20Financial%20Information) Part I includes unaudited condensed consolidated financial statements, management's discussion, market risk, and controls. [Item 1. Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This item presents Allegro MicroSystems' unaudited condensed consolidated financial statements and notes for the specified periods. [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20September%2029,%202023%20and%20March%2031,%202023%20(Unaudited)) | Metric | Sep 29, 2023 | Mar 31, 2023 | Change | % Change | | :------------------------------------- | :----------- | :----------- | :----- | :------- | | **Total Assets** | $1,284,937 | $1,181,155 | $103,782 | **8.8%** | | **Total Liabilities** | $186,649 | $214,340 | $(27,691) | **-12.9%** | | **Total Stockholders' Equity** | $1,098,288 | $966,815 | $131,473 | **13.6%** | | **Cash and Cash Equivalents** | $370,013 | $351,576 | $18,437 | **5.2%** | | **Inventories** | $173,089 | $151,301 | $21,788 | **14.4%** | | **Property, Plant and Equipment, net** | $312,047 | $263,099 | $48,948 | **18.6%** | | **Current Liabilities** | $134,241 | $165,325 | $(31,084) | **-18.8%** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20for%20the%20three-%20and%20six-month%20periods%20ended%20September%2029,%202023%20and%20September%2023,%202022%20(Unaudited)) | Metric | 3 Months Ended Sep 29, 2023 | 3 Months Ended Sep 23, 2022 | Change | % Change | 6 Months Ended Sep 29, 2023 | 6 Months Ended Sep 23, 2022 | Change | % Change | | :---------------------------------------- | :-------------------------- | :-------------------------- | :----- | :------- | :-------------------------- | :-------------------------- | :----- | :------- | | **Total Net Sales** | $275,509 | $237,666 | $37,843 | **15.9%** | $553,802 | $455,419 | $98,383 | **21.6%** | | **Gross Profit** | $159,503 | $132,022 | $27,481 | **20.8%** | $317,453 | $250,396 | $67,057 | **26.8%** | | **Operating Income** | $72,915 | $59,838 | $13,077 | **21.9%** | $143,661 | $74,575 | $69,086 | **92.6%** | | **Net Income attributable to Allegro MicroSystems, Inc.** | $65,617 | $50,614 | $15,003 | **29.6%** | $126,467 | $60,861 | $65,606 | **107.8%** | | **Diluted EPS** | $0.34 | $0.26 | $0.08 | **30.8%** | $0.65 | $0.32 | $0.33 | **103.1%** | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20for%20the%20three-%20and%20six-month%20periods%20ended%20September%2029,%202023%20and%20September%2023,%202022%20(Unaudited)) | Metric | 3 Months Ended Sep 29, 2023 | 3 Months Ended Sep 23, 2022 | Change | % Change | 6 Months Ended Sep 29, 2023 | 6 Months Ended Sep 23, 2022 | Change | % Change | | :------------------------------------------------ | :-------------------------- | :-------------------------- | :----- | :------- | :-------------------------- | :-------------------------- | :----- | :------- | | **Net income attributable to Allegro MicroSystems, Inc.** | $65,617 | $50,614 | $15,003 | **29.6%** | $126,467 | $60,861 | $65,606 | **107.8%** | | **Foreign currency translation adjustment, net of tax** | $(4,348) | $(7,899) | $3,551 | **-44.9%** | $(4,806) | $(14,717) | $9,911 | **-67.3%** | | **Comprehensive income attributable to Allegro MicroSystems, Inc.** | $61,306 | $42,784 | $18,522 | **43.3%** | $121,742 | $46,281 | $75,461 | **163.0%** | [Condensed Consolidated Statements of Changes in Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity%20for%20the%20three-%20and%20six-month%20periods%20ended%20September%2029,%202023%20and%20September%2023,%202022%20(Unaudited)) | Metric | Sep 29, 2023 | Mar 31, 2023 | Change | % Change | | :------------------------------------------ | :----------- | :----------- | :----- | :------- | | **Total Stockholders' Equity** | $1,098,288 | $966,815 | $131,473 | **13.6%** | | **Common Stock Shares Outstanding** | 192,469,731 | 191,754,292 | 715,439 | **0.4%** | | **Additional Paid-In Capital** | $683,891 | $674,179 | $9,712 | **1.4%** | | **Retained Earnings** | $436,782 | $310,315 | $126,467 | **40.7%** | | **Accumulated Other Comprehensive Loss** | $(25,509) | $(20,784) | $(4,725) | **22.7%** | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20six-month%20periods%20ended%20September%2029,%202023%20and%20September%2023,%202022%20(Unaudited)) | Metric | 6 Months Ended Sep 29, 2023 | 6 Months Ended Sep 23, 2022 | Change | % Change | | :--------------------------------------------------------- | :-------------------------- | :-------------------------- | :----- | :------- | | **Net cash provided by operating activities** | $96,393 | $91,804 | $4,589 | **5.0%** | | **Net cash used in investing activities** | $(59,926) | $(54,948) | $(4,978) | **9.1%** | | **Net cash used in financing activities** | $(15,767) | $(14,596) | $(1,171) | **8.0%** | | **Net increase in cash and cash equivalents and restricted cash** | $19,726 | $13,483 | $6,243 | **46.3%** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures and explanations for the unaudited condensed consolidated financial statements. [1. Nature of the Business and Basis of Presentation](index=10&type=section&id=1.%20Nature%20of%20the%20Business%20and%20Basis%20of%20Presentation) - **Allegro MicroSystems, Inc.** is a **leading global designer**, developer, fabless manufacturer, and marketer of sensing and power solutions for the automotive and industrial markets[29](index=29&type=chunk) - The unaudited condensed consolidated financial statements are prepared in accordance with **U.S. GAAP** and include all necessary adjustments for fair presentation[29](index=29&type=chunk) - The second quarter of **fiscal 2024** ended **September 29, 2023** (**13-week period**), and the second quarter of **fiscal 2023** ended **September 23, 2022** (**13-week period**)[30](index=30&type=chunk) [2. Summary of Significant Accounting Policies](index=10&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) - Financial statements require management to make estimates and assumptions that affect reported amounts, and **actual results could differ materially**[31](index=31&type=chunk) - As of **September 29, 2023**, two customers accounted for **26.2%** of the Company's outstanding trade accounts receivable, net[33](index=33&type=chunk) - The adoption of **ASU No. 2022-06, Reference Rate Reform**, did not have a **material impact** on the Company's financial position, results of operations, cash flows, or related disclosures[36](index=36&type=chunk) [3. Revenue from Contracts with Customers](index=11&type=section&id=3.%20Revenue%20from%20Contracts%20with%20Customers) | Application | 3 Months Ended Sep 29, 2023 | 3 Months Ended Sep 23, 2022 | Change | % Change | 6 Months Ended Sep 29, 2023 | 6 Months Ended Sep 23, 2022 | Change | % Change | | :---------- | :-------------------------- | :-------------------------- | :----- | :------- | :-------------------------- | :-------------------------- | :----- | :------- | | **Automotive** | $205,936 | $157,398 | $48,538 | **30.8%** | $395,634 | $307,047 | $88,587 | **28.9%** | | **Industrial** | $51,114 | $48,176 | $2,938 | **6.1%** | $119,298 | $88,316 | $30,982 | **35.1%** | | **Other** | $18,459 | $32,092 | $(13,633) | **-42.5%** | $38,870 | $60,056 | $(21,186) | **-35.3%** | | **Total Net Sales** | $275,509 | $237,666 | $37,843 | **15.9%** | $553,802 | $455,419 | $98,383 | **21.6%** | | Product | 3 Months Ended Sep 29, 2023 | 3 Months Ended Sep 23, 2022 | Change | % Change | 6 Months Ended Sep 29, 2023 | 6 Months Ended Sep 23, 2022 | Change | % Change | | :------------------------ | :-------------------------- | :-------------------------- | :----- | :------- | :-------------------------- | :-------------------------- | :----- | :------- | | **Power integrated circuits** | $99,737 | $97,327 | $2,410 | **2.5%** | $203,725 | $177,987 | $25,738 | **14.5%** | | **Magnetic sensors** | $175,772 | $140,339 | $35,433 | **25.2%** | $350,077 | $277,432 | $72,645 | **26.2%** | | **Total Net Sales** | $275,509 | $237,666 | $37,843 | **15.9%** | $553,802 | $455,419 | $98,383 | **21.6%** | | Geography | 3 Months Ended Sep 29, 2023 | 3 Months Ended Sep 23, 2022 | Change | % Change | 6 Months Ended Sep 29, 2023 | 6 Months Ended Sep 23, 2022 | Change | % Change | | :---------------- | :-------------------------- | :-------------------------- | :----- | :------- | :-------------------------- | :-------------------------- | :----- | :------- | | United States | $47,724 | $25,131 | $22,593 | **89.9%** | $96,548 | $53,522 | $43,026 | **80.4%** | | Other Americas | $9,539 | $7,244 | $2,295 | **31.7%** | $18,047 | $13,731 | $4,316 | **31.4%** | | Europe | $46,951 | $40,710 | $6,241 | **15.3%** | $102,339 | $76,043 | $26,296 | **34.6%** | | Japan | $47,275 | $45,026 | $2,249 | **5.0%** | $88,855 | $86,735 | $2,120 | **2.4%** | | Greater China | $69,463 | $63,203 | $6,260 | **9.9%** | $131,679 | $118,319 | $13,360 | **11.3%** | | South Korea | $29,054 | $20,931 | $8,123 | **38.8%** | $58,567 | $41,910 | $16,657 | **39.7%** | | **Other Asia** | $25,503 | $35,421 | $(9,918) | **-28.0%** | $57,767 | $65,159 | $(7,392) | **-11.3%** | [4. Fair Value Measurements](index=12&type=section&id=4.%20Fair%20Value%20Measurements) | Asset Type | Sep 29, 2023 (Level 1) | Mar 31, 2023 (Level 1) | | :------------------------- | :--------------------- | :--------------------- | | Money market fund deposits (Cash equivalents) | $105,012 | $102,019 | | Money market fund deposits (Restricted cash) | $8,418 | $7,129 | | Investments in marketable securities (Other assets) | — | $19,929 | | Total Assets | $113,430 | $129,077 | - **No transfers** among **Level 1, Level 2, and Level 3 assets or liabilities** occurred during the six-month periods ended **September 29, 2023**, and **September 23, 2022**[46](index=46&type=chunk) [5. Trade Accounts Receivable, net](index=12&type=section&id=5.%20Trade%20Accounts%20Receivable,%20net) | Metric | Sep 29, 2023 | Mar 31, 2023 | Change | % Change | | :------------------------------------------------ | :----------- | :----------- | :----- | :------- | | Gross trade accounts receivable | $154,867 | $150,914 | $3,953 | **2.6%** | | Less: Provision for expected credit losses | $(88) | $(102) | $14 | **-13.7%** | | Less: Provision for returns and sales allowances | $(35,257) | $(26,269) | $(8,988) | **34.2%** | | Less: Related party trade accounts receivable allowances | $(575) | $(13,253) | $12,678 | **-95.7%** | | Total Trade Accounts Receivable, net | $118,947 | $111,290 | $7,657 | **6.9%** | | Description | Expected Credit Losses (Sep 29, 2023) | Returns and Sales Allowances (Sep 29, 2023) | Total (Sep 29, 2023) | Expected Credit Losses (Sep 23, 2022) | Returns and Sales Allowances (Sep 23, 2022) | Total (Sep 23, 2022) | | :------------------------------ | :------------------------------------ | :------------------------------------------ | :------------------- | :------------------------------------ | :------------------------------------------ | :------------------- | | Balance at March 31, 2023 / March 25, 2022 | $102 | $26,269 | $26,371 | $105 | $14,819 | $14,924 | | Provisions | $(14) | $90,373 | $90,359 | $84 | $52,630 | $52,714 | | Deductions | — | $(81,385) | $(81,385) | — | $(47,884) | $(47,884) | | Balance at September 29, 2023 / September 23, 2022 | $88 | $35,257 | $35,345 | $189 | $19,565 | $19,754 | [6. Inventories](index=13&type=section&id=6.%20Inventories) | Category | Sep 29, 2023 | Mar 31, 2023 | Change | % Change | | :----------------------- | :----------- | :----------- | :----- | :------- | | Raw materials and supplies | $12,276 | $15,049 | $(2,773) | **-18.4%** | | Work in process | $114,766 | $98,836 | $15,930 | **16.1%** | | Finished goods | $46,047 | $37,416 | $8,631 | **23.1%** | | **Total Inventories** | $173,089 | $151,301 | $21,788 | **14.4%** | - **Inventory provisions** totaled **$4.36 million** for the three-month period and **$9.44 million** for the six-month period ended **September 29, 2023**, compared to **$2.95 million** and **$5.06 million** for the respective prior-year periods[53](index=53&type=chunk) [7. Property, Plant and Equipment, net](index=13&type=section&id=7.%20Property,%20Plant%20and%20Equipment,%20net) | Category | Sep 29, 2023 | Mar 31, 2023 | Change | % Change | | :------------------------------------ | :----------- | :----------- | :----- | :------- | | Land | $20,137 | $15,384 | $4,753 | **30.9%** | | Buildings, building improvements and leasehold improvements | $61,028 | $61,500 | $(472) | **-0.8%** | | Machinery and equipment | $657,734 | $611,459 | $46,275 | **7.6%** | | Office equipment | $6,463 | $6,119 | $344 | **5.6%** | | Construction in progress | $55,242 | $48,378 | $6,864 | **14.2%** | | Total Gross | $800,604 | $742,840 | $57,764 | **7.8%** | | Less accumulated depreciation | $(488,557) | $(479,741) | $(8,816) | **1.8%** | | **Total Net** | $312,047 | $263,099 | $48,948 | **18.6%** | - Total depreciation expense amounted to **$13.59 million** for the three-month period and **$26.35 million** for the six-month period ended **September 29, 2023**, an increase from **$10.98 million** and **$21.83 million** in the prior-year periods, respectively[55](index=55&type=chunk) [8. Goodwill and Intangible Assets](index=13&type=section&id=8.%20Goodwill%20and%20Intangible%20Assets) | Metric | Sep 29, 2023 | Mar 31, 2023 | Change | % Change | | :-------------------------- | :----------- | :----------- | :----- | :------- | | Balance at Period End | $27,707 | $27,691 | $16 | **0.1%** | | Description | Sep 29, 2023 Net Carrying Amount | Mar 31, 2023 Net Carrying Amount | Change | % Change | Weighted-Average Lives (Sep 29, 2023) | | :------------------------------------- | :------------------------------- | :------------------------------- | :----- | :------- | :------------------------------------ | | Patents | $22,444 | $21,878 | $566 | **2.6%** | 4 years | | Customer relationships | $141 | $166 | $(25) | **-15.1%** | 3 years | | Process technology | $24,329 | $25,545 | $(1,216) | **-4.8%** | 10 years | | Indefinite-lived and legacy process technology | $4,689 | $4,696 | $(7) | **-0.1%** | N/A | | Trademarks and other | $74 | $93 | $(19) | **-20.4%** | 2 years | | Total | $51,677 | $52,378 | $(701) | **-1.3%** | | - Intangible assets amortization expense was **$1.51 million** for the three-month period and **$3.01 million** for the six-month period ended **September 29, 2023**, an increase from **$1.19 million** and **$2.23 million** for the respective prior-year periods[60](index=60&type=chunk) [9. Debt and Other Borrowings](index=14&type=section&id=9.%20Debt%20and%20Other%20Borrowings) - On **October 31, 2023**, the Company entered into a new **$250.00 million Term Loan** maturing in **2030**, which refinanced the outstanding balance of the previous **Term Loan Facility** and partially financed the **Crocus acquisition**[64](index=64&type=chunk) - The new **Term Loan** amortizes at **1.00% per annum**, with an initial margin of **2.75%** for SOFR-based loans and **1.75%** for base rate loans[64](index=64&type=chunk) - A new **$224.00 million 2023 Revolving Credit Facility** was established on **June 21, 2023**, replacing the **2020 facility**, with no outstanding borrowings as of **September 29, 2023**[62](index=62&type=chunk)[65](index=65&type=chunk) [10. Commitments and Contingencies](index=15&type=section&id=10.%20Commitments%20and%20Contingencies) - The Company is subject to various legal proceedings but does not believe any current matters could have a **material adverse effect** on its financial position, results of operations, or cash flows[66](index=66&type=chunk) - Accruals for legal contingencies are recorded when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated[66](index=66&type=chunk) [11. Net Income per Share](index=15&type=section&id=11.%20Net%20Income%20per%20Share) | Metric | 3 Months Ended Sep 29, 2023 | 3 Months Ended Sep 23, 2022 | Change | % Change | 6 Months Ended Sep 29, 2023 | 6 Months Ended Sep 23, 2022 | Change | % Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :----- | :------- | :-------------------------- | :-------------------------- | :----- | :------- | | **Basic EPS** | $0.34 | $0.26 | $0.08 | **30.8%** | $0.66 | $0.32 | $0.34 | **106.3%** | | **Diluted EPS** | $0.34 | $0.26 | $0.08 | **30.8%** | $0.65 | $0.32 | $0.33 | **103.1%** | | **Basic Weighted Average Shares Outstanding** | 192,431,094 | 191,284,631 | 1,146,463 | **0.6%** | 192,214,210 | 190,959,616 | 1,254,594 | **0.7%** | | **Diluted Weighted Average Shares Outstanding** | 195,100,855 | 192,639,576 | 2,461,279 | **1.3%** | 195,055,495 | 192,654,097 | 2,401,398 | **1.2%** | - Certain contingently issuable shares under RSUs (**22,706**) and PSUs (**3,695**) were excluded from the three-month **diluted EPS** computation due to their antidilutive effect[70](index=70&type=chunk) [12. Common Stock and Stock-Based Compensation](index=16&type=section&id=12.%20Common%20Stock%20and%20Stock-Based%20Compensation) | Metric | Shares | Weighted-Average Grant Date Fair Value | | :-------------------------- | :------- | :------------------------------------- | | Outstanding at March 31, 2023 | 2,251,224 | $23.85 | | Granted | 907,364 | $38.32 | | Issued | (782,561) | $24.11 | | Forfeited | (60,452) | $25.65 | | Outstanding at September 29, 2023 | 2,315,575 | $29.41 | | Metric | Shares | Weighted-Average Grant Date Fair Value | | :-------------------------- | :------- | :------------------------------------- | | Outstanding at March 31, 2023 | 2,748,347 | $23.47 | | Granted | 298,783 | $40.56 | | Excess shares issued due to achievement of performance condition | 462,739 | $24.99 | | Issued | (215,883) | $24.79 | | Forfeited | (47,414) | $23.28 | | Outstanding at September 29, 2023 | 3,246,572 | $24.32 | | Category | 3 Months Ended Sep 29, 2023 | 3 Months Ended Sep 23, 2022 | Change | % Change | 6 Months Ended Sep 29, 2023 | 6 Months Ended Sep 23, 2022 | Change | % Change | | :---------------------------------------- | :-------------------------- | :-------------------------- | :----- | :------- | :-------------------------- | :-------------------------- | :----- | :------- | | Cost of sales | $946 | $1,124 | $(178) | **-15.8%** | $3,552 | $1,956 | $1,596 | **81.6%** | | Research and development | $3,602 | $1,711 | $1,891 | **110.5%** | $6,470 | $2,839 | $3,631 | **127.9%** | | Selling, general and administrative | $6,329 | $5,369 | $960 | **17.9%** | $11,897 | $37,545 | $(25,648) | **-68.3%** | | Total stock-based compensation | $10,877 | $8,204 | $2,673 | **32.6%** | $21,919 | $42,340 | $(20,421) | **-48.2%** | [13. Income Taxes](index=17&type=section&id=13.%20Income%20Taxes) | Metric | 3 Months Ended Sep 29, 2023 | 3 Months Ended Sep 23, 2022 | Change | % Change | 6 Months Ended Sep 29, 2023 | 6 Months Ended Sep 23, 2022 | Change | % Change | | :----------------------- | :-------------------------- | :-------------------------- | :----- | :------- | :-------------------------- | :-------------------------- | :----- | :------- | | **Provision for income taxes** | $7,400 | $8,438 | $(1,038) | **-12.3%** | $14,615 | $10,403 | $4,212 | **40.5%** | | **Effective tax rate** | **10.1%** | **14.3%** | **-4.2%** | **-29.4%** | **10.4%** | **14.6%** | **-4.2%** | **-28.8%** | - The **effective tax rate (ETR)** year-over-year was primarily impacted by reductions in **global intangible low-tax income (GILTI)**, **Subpart F**, and non-deductible stock-based compensation charges, offset by a decrease in **FDII benefits**[79](index=79&type=chunk) - The **ETR** was also reduced by discrete tax benefits related to stock-based compensation windfalls realized in the period ended **September 29, 2023**[79](index=79&type=chunk) [14. Related Party Transactions](index=17&type=section&id=14.%20Related%20Party%20Transactions) - **Sanken Electric Co., Ltd.**, a related party, held approximately **51.2%** of the Company's outstanding common stock as of **September 29, 2023**[80](index=80&type=chunk) | Metric | 3 Months Ended Sep 29, 2023 | 3 Months Ended Sep 23, 2022 | Change | % Change | 6 Months Ended Sep 29, 2023 | 6 Months Ended Sep 23, 2022 | Change | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :----- | :------- | :-------------------------- | :-------------------------- | :----- | :------- | | Net sales to Sanken | $3,579 | $45,026 | $(41,447) | **-92.0%** | $3,579 | $86,735 | $(83,156) | **-95.9%** | - The distribution agreement with Sanken was terminated effective **March 31, 2023**, involving a one-time payment of **$5.00 million** to Sanken and a **$4.20 million** sales return[80](index=80&type=chunk) | Metric | 3 Months Ended Sep 29, 2023 | 3 Months Ended Sep 23, 2022 | Change | % Change | 6 Months Ended Sep 29, 2023 | 6 Months Ended Sep 23, 2022 | Change | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :----- | :------- | :-------------------------- | :-------------------------- | :----- | :------- | | Purchases from PSL | $14,630 | $14,479 | $151 | **1.0%** | $30,732 | $29,150 | $1,582 | **5.4%** | - As of **September 29, 2023**, the outstanding balance of PSL Promissory Notes was **$10.31 million**[81](index=81&type=chunk) [15. Acquisition Related](index=19&type=section&id=15.%20Acquisition%20Related) - On **October 31, 2023**, the Company completed the **acquisition** of **Crocus Technology International Corp.** for an aggregate purchase price of **$420.00 million** in cash[84](index=84&type=chunk) - Prior to the **acquisition**, **Allegro MicroSystems, LLC** provided Crocus with **$7.00 million** in subordinated promissory notes (**Crocus Loans**), which were repaid in full upon the closing of the transaction[85](index=85&type=chunk) - The purchase accounting for the **acquisition** has not yet been completed and will be finalized within the measurement period[84](index=84&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operations, cash flows, business updates, performance, and liquidity. [Overview](index=20&type=section&id=Overview) - **Allegro MicroSystems** is a **leading global designer**, developer, fabless manufacturer, and marketer of sensor ICs and application-specific analog power ICs for the automotive and industrial markets[88](index=88&type=chunk) - The company is a **leading supplier** of magnetic sensor IC solutions worldwide, based on market share, particularly in the automotive market[88](index=88&type=chunk) | Metric | 3 Months Ended Sep 29, 2023 | 3 Months Ended Sep 23, 2022 | 6 Months Ended Sep 29, 2023 | 6 Months Ended Sep 23, 2022 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | **Total Net Sales** | $275,509 | $237,666 | $553,802 | $455,419 | | **Net Income** | $65,671 | $50,648 | $126,560 | $60,931 | [Business Updates](index=20&type=section&id=Business%20Updates) - On **October 31, 2023**, the Company completed the **acquisition** of **Crocus Technology International Corp.** for **$420.00 million** in cash[89](index=89&type=chunk) - A new **$250.00 million Term Loan** maturing in **2030** was entered into on **October 31, 2023**, to refinance existing term loans and partially finance the **Crocus acquisition**[91](index=91&type=chunk) - Prior to the **acquisition**, the company provided Crocus with **$7.00 million** in subordinated promissory notes, which were repaid upon closing[89](index=89&type=chunk) [Other Key Factors and Trends Affecting our Operating Results](index=21&type=section&id=Other%20Key%20Factors%20and%20Trends%20Affecting%20our%20Operating%20Results) Operating results are influenced by inflation, design wins, demand seasonality, product mix, and tax law changes. [Inflation](index=21&type=section&id=Inflation) - Inflation has led to higher costs, including labor, wafer, materials, transportation, and energy costs[93](index=93&type=chunk) - The company has generally offset cost increases through productivity, cost reduction initiatives, price adjustments, and new products with improved gross margins[93](index=93&type=chunk) - Sustained high inflation could **materially adversely affect** business if price increases cannot fully recover costs[93](index=93&type=chunk) [Design Wins with New and Existing Customers](index=21&type=section&id=Design%20Wins%20with%20New%20and%20Existing%20Customers) - Future sales are **highly dependent** on continued success in winning design mandates from customers[94](index=94&type=chunk) - The time from design initiation to sales can be lengthy (typically 2-4 years), requiring significant design and development expenditures without assurance of selection[94](index=94&type=chunk) - Average selling prices (ASPs) are expected to decline over time, making new design wins **critical for future success**[94](index=94&type=chunk) [Customer Demand, Orders and Forecasts](index=21&type=section&id=Customer%20Demand,%20Orders%20and%20Forecasts) - Demand for products is **highly dependent** on market conditions in end markets, which are generally subject to seasonality, cyclicality, and competitive conditions[95](index=95&type=chunk) - Customer forecasts do not commit to minimum purchases and can be revised or canceled, posing **risks** of lost sales or excess inventory[95](index=95&type=chunk) - Most of the current customer order backlog is noncancellable, which helps mitigate exposure to unforeseen order cancellations[95](index=95&type=chunk) [Manufacturing Costs and Product Mix](index=21&type=section&id=Manufacturing%20Costs%20and%20Product%20Mix) - **Gross margin** is affected by ASPs, product mix, material costs, yields, and manufacturing efficiencies[96](index=96&type=chunk) - Long-term ASP declines are expected to coincide with improvements in manufacturing yields and lower wafer, assembly, and testing costs, offsetting margin reduction[97](index=97&type=chunk) - **Gross margin** fluctuates quarterly, generally decreasing with lower production volumes and increasing with higher volumes[97](index=97&type=chunk) [Cyclical Nature of the Semiconductor Industry](index=22&type=section&id=Cyclical%20Nature%20of%20the%20Semiconductor%20Industry) - The **semiconductor industry** is **highly cyclical**, characterized by rapid technological change, product obsolescence, competitive pricing pressures, and fluctuations in supply and demand[98](index=98&type=chunk) - Periods of rapid growth and capacity expansion are often followed by **significant market corrections**, leading to sales declines, inventory accumulation, and underutilized facilities[98](index=98&type=chunk) - Margins generally improve during expansion cycles and decline during periods of slower growth or industry contractions[98](index=98&type=chunk) [2017 Tax Cuts and Jobs Act](index=22&type=section&id=2017%20Tax%20Cuts%20and%20Jobs%20Act) - The **2017 Tax Cuts and Jobs Act** requires capitalization and amortization of domestic and foreign R&D expenditures, increasing annual cash taxes by approximately **$20.00 million** for **fiscal 2024**[99](index=99&type=chunk) - This tax impact is partially offset by an **FDII benefit** of **$9.00 million**[99](index=99&type=chunk) - There is no assurance that Congress will modify or reverse this provision, despite potential retroactive effects[99](index=99&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) This section analyzes financial performance for three- and six-month periods, detailing sales, costs, and income drivers. [Three-Month Period Ended September 29, 2023 Compared to Three-Month Period Ended September 23, 2022](index=22&type=section&id=Three-Month%20Period%20Ended%20September%2029,%202023%20Compared%20to%20Three-Month%20Period%20Ended%20September%2023,%202022) For the three months, net sales and income increased significantly, driven by e-Mobility products and improved margins. [Total net sales](index=23&type=section&id=Total%20net%20sales) - **Total Net Sales increased by $37.84 million** (**15.9%**) to **$275.51 million** for the three-month period[101](index=101&type=chunk)[103](index=103&type=chunk) - The **increase was primarily attributable to higher shipments of e-Mobility products** (**ADAS**, **EV**, and **safety, comfort, and convenience applications**)[103](index=103&type=chunk) - **Growth** was partially offset by **declines in consumer and smart home markets**[103](index=103&type=chunk) [Sales Trends by Market](index=23&type=section&id=Sales%20Trends%20by%20Market) | Market | Sep 29, 2023 | Sep 23, 2022 | Change | % Change | | :--------- | :----------- | :----------- | :----- | :------- | | **Automotive** | $205,936 | $157,398 | $48,538 | **30.8%** | | **Industrial** | $51,114 | $48,176 | $2,938 | **6.1%** | | **Other** | $18,459 | $32,092 | $(13,633) | **-42.5%** | - **Automotive net sales increased primarily due to higher demand for ADAS**, **EV**, and **safety, comfort, and convenience applications**[105](index=105&type=chunk) - **Industrial net sales increased due to demand for clean energy and automation applications**, partially offset by **declines in data center applications**[105](index=105&type=chunk

Financial Data and Key Metrics Changes - Sales for Q2 2024 were $276 million, representing a 16% year-over-year increase, with non-GAAP earnings per share reaching a record $0.40, up 29% year-over-year [7][17] - Gross margin was 58.3%, operating income was 31.3%, and adjusted EBITDA was 37.1% of sales [17][19] - Automotive sales accounted for $206 million, or 75% of total sales, increasing 31% year-over-year [17] Business Line Data and Key Metrics Changes - E-Mobility sales increased by 60% year-over-year, now representing 50% of automotive sales, up from 41% a year ago [8][17] - Industrial sales were $51 million, declining 25% sequentially but increasing 6% year-over-year [12][17] - Other sales, including consumer applications, were down 42% year-over-year, reflecting inventory destocking [17] Market Data and Key Metrics Changes - Sales by geography were balanced, with 25% in China, 21% in the Americas, 20% in the rest of Asia, and 17% each in Europe and Japan [18] - Japan saw a 14% sequential growth, while China experienced a 12% sequential growth [18] Company Strategy and Development Direction - The company continues to focus on growth in e-mobility and select industrial markets, including clean energy and automation [7][10] - The recent acquisition of Crocus is expected to enhance Allegro's magnetic sensing capabilities and accelerate the deployment of TMR technology [15][21] - The company aims for low double-digit sales growth and above 32% operating margin in the long term [14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about opportunities in e-mobility and clean energy despite macroeconomic challenges in China [9][10] - The company anticipates a sequential decline in industrial sales due to cautious behavior from OEMs and inventory management [12][13] - Management remains confident in the long-term growth model established in March 2023 [12][14] Other Important Information - The company expects Q3 sales to be in the range of $250 million to $260 million, reflecting normal seasonality and impacts from the UAW strike [22][23] - Gross margin for Q3 is projected to be approximately 54%, with operating expenses expected to decline by 4% sequentially [23] Q&A Session Summary Question: Trends in bookings in China and impact of UAW strike - Management noted a strong return in bookings in China and acknowledged some order movement due to the UAW strike, but the overall impact is not material [28][30] Question: Distribution inventory levels - Current distribution inventory is at the higher end of the target range of 10 to 12 weeks, with stabilization observed [33][34] Question: Industrial inventory correction - Management indicated that industrial sales are expected to be muted in Q3 due to inventory levels and cautious demand [36][37] Question: Gross margin guidance - Gross margin is expected to be around 54% in Q3, with impacts from product mix and channel inventory management [42][43] Question: Auto segment outlook - Management expects e-Mobility to remain strong, while ICE shipments may see a decline, but overall auto sales are projected to grow year-over-year [46][50] Question: Crocus acquisition rationale - The acquisition is aimed at accelerating the roadmap for TMR technology and enhancing the product portfolio for automotive applications [60][62]

Financial Performance - Net sales increased to $278.3 million in Q2 2023, up from $217.8 million in Q2 2022, representing a 27.8% year-over-year growth[12] - Gross profit rose to $157.9 million in Q2 2023, compared to $118.4 million in Q2 2022, reflecting a 33.4% increase[12] - Operating income surged to $70.7 million in Q2 2023, a significant jump from $14.7 million in Q2 2022, marking a 380% increase[12] - Net income attributable to Allegro MicroSystems, Inc. reached $60.9 million in Q2 2023, up from $10.2 million in Q2 2022, a 494% increase[12] - Net income for the three months ended June 30, 2023, was $60.889 million, compared to $10.283 million for the same period in 2022[21] - Comprehensive income attributable to Allegro MicroSystems, Inc. reached $60.4 million in Q2 2023, compared to $3.5 million in Q2 2022[15] - Net income attributable to common stockholders for the three months ended June 30, 2023, was $60.889 million, compared to $10.283 million for the same period in 2022[53] - Basic net income per share for the three months ended June 30, 2023, was $0.32, compared to $0.05 for the same period in 2022[53] - Diluted net income per share for the three months ended June 30, 2023, was $0.31, compared to $0.05 for the same period in 2022[53] Cash and Assets - Cash and cash equivalents stood at $353.4 million as of June 30, 2023, slightly up from $351.6 million as of March 31, 2023[9] - Total assets increased to $1.23 billion as of June 30, 2023, compared to $1.18 billion as of March 31, 2023[9] - The company's cash and cash equivalents and restricted cash at the end of the period on June 30, 2023, were $362.321 million[21] - Total equity as of June 30, 2023, was $1,027.765 million, compared to $763.360 million as of June 24, 2022[18] - The company's total assets measured at fair value were $117,796 million as of June 30, 2023, compared to $129,077 million as of March 31, 2023, with a decrease in marketable securities from $19,929 million to $5,222 million[35] Liabilities and Equity - Total liabilities decreased to $206.3 million as of June 30, 2023, down from $214.3 million as of March 31, 2023[9] - Retained earnings increased to $371.2 million as of June 30, 2023, up from $310.3 million as of March 31, 2023[9] - Trade accounts receivable, net, increased to $121,506 million as of June 30, 2023, from $111,290 million as of March 31, 2023, with returns and sales allowances rising to $37,094 million from $26,269 million[37] Research and Development - Research and development expenses grew to $43.0 million in Q2 2023, up from $33.9 million in Q2 2022, reflecting a 26.9% increase[12] Sales Breakdown - Total net sales for the three months ended June 30, 2023, were $278.293 million, with automotive sales contributing $189.698 million and industrial sales contributing $68.184 million[31] - Power integrated circuits sales were $103.988 million, and magnetic sensors sales were $174.305 million for the three months ended June 30, 2023[32] - Net sales in the Americas increased to $57,332 million in Q2 2023, up from $34,878 million in Q2 2022, driven by strong growth in the United States ($48,824 million vs. $28,391 million) and Other Americas ($8,508 million vs. $6,487 million)[33] - EMEA net sales grew to $55,388 million in Q2 2023, compared to $35,333 million in Q2 2022, with Europe being the primary contributor[33] - Asia net sales reached $165,573 million in Q2 2023, up from $147,542 million in Q2 2022, led by Greater China ($62,216 million vs. $55,116 million) and South Korea ($29,513 million vs. $20,979 million)[33] - Total net sales for Q2 2023 were $278,293 million, a significant increase from $217,753 million in Q2 2022[33] Inventory and Property - Inventories grew to $174,170 million as of June 30, 2023, up from $151,301 million as of March 31, 2023, with work in process increasing to $119,630 million from $98,836 million[40] - Property, plant, and equipment, net, increased to $285,200 million as of June 30, 2023, from $263,099 million as of March 31, 2023, with machinery and equipment being the largest component at $641,453 million[41] Goodwill and Intangible Assets - Goodwill increased to $28,048 million as of June 30, 2023, from $27,691 million as of March 31, 2023, due to adjustments and foreign currency translation[44] - Intangible assets, net, were $51,969 million as of June 30, 2023, with patents being the largest component at $22,105 million[45] Credit and Financing - The company entered into a $224 million secured revolving credit facility with a $20 million letter of credit subfacility, maturing on June 21, 2028[47] - Interest on the 2023 Revolving Credit Agreement ranges from Term SOFR plus 1.50% to 1.75% or the highest of Federal funds rate plus 0.50%, prime lending rate, or one-month Term SOFR plus 1.0% plus 0.50% to 0.75%[48] - The company is required to maintain a Total Net Leverage Ratio of no more than 4.00 to 1.00, which can be increased to 4.50 to 1.00 for four fiscal quarters after an acquisition exceeding $500 million[48] Stock-Based Compensation - Stock-based compensation for the three months ended June 30, 2023, was $11.042 million, compared to $34.136 million for the same period in 2022[21] - Total stock-based compensation expense for the three months ended June 30, 2023, was $11.042 million, compared to $34.136 million for the same period in 2022[60] Tax and Shareholder Information - The company's effective tax rate for the three months ended June 30, 2023, was 10.6%, compared to 16.0% for the same period in 2022[61] - Sanken holds approximately 51.2% of the company's outstanding common stock as of June 30, 2023[62] Customer and Supplier Relationships - One customer accounted for 14.8% of the company's outstanding trade accounts receivable as of June 30, 2023[27] - For the three months ended June 30, 2023, one customer accounted for 12.2% of total net sales[27] - Net sales to Sanken dropped to $0 in Q2 2023 from $41,709 in Q2 2022, reflecting the termination of the distribution agreement[63] - The company made a one-time payment of $5,000 to Sanken for the cancellation of exclusive distribution rights in Japan[63] - Purchases from PSL increased to $16,102 in Q2 2023 from $14,671 in Q2 2022[63] - The outstanding balance of the PSL Promissory Notes was $11,250 as of June 30, 2023[64] - PSL made quarterly payments totaling $1,005, including $67 of interest, in Q2 2023[64] - The new Wafer Foundry Agreement with PSL has a three-year term with auto-renewal for subsequent one-year terms[63] - The company will provide a rolling annual forecast for three years, with the first two years being binding under the WFA[63] - Accounts payable to PSL totaled $5,091 as of June 30, 2023, up from $4,682 as of March 31, 2023[63] - The company allowed a one-time sales return from Sanken of resalable inventory worth $4,200[63] Market Risk - No material changes in market risk exposures since March 31, 2023[101]

Financial Data and Key Metrics - Q1 2024 sales reached a record $278 million, up 28% YoY, with trailing 12-month sales hitting $1 billion [6] - Non-GAAP earnings per share were $0.39, a 63% YoY increase [6] - Gross margin was 57.8%, operating expenses were 27% of sales, and operating income was 30.8% [12] - Adjusted EBITDA was 36.3% of sales [12] - Automotive revenue grew 27% YoY, outpacing auto production growth of approximately 6% [7] - Industrial sales increased 70% YoY, driven by Clean Energy and Automation [8] - Magnetic sensor sales were $174 million, up 27% YoY, while power product sales were $104 million, up 29% YoY [13] Business Line Performance - Automotive sales accounted for 68% of total Q1 sales, with e-Mobility applications representing 48% of automotive sales, up from 39% in Q1 2023 [7][12] - Industrial sales reached a record $68 million, driven by Clean Energy and Automation [8][13] - Sales in Consumer and Computer Applications declined 30% sequentially and 27% YoY to $20 million [13] Market Performance - Sales in China declined 13% sequentially or 7% on a comparable 13-week basis, impacted by higher OEM finished goods inventory and emission standard transitions [17][18] - Sales by geography were balanced: 22% in China, 22% in the rest of Asia, 21% in the Americas, 20% in Europe, and 15% in Japan [14] Strategic Direction and Industry Competition - The company is focusing on e-Mobility, Clean Energy, and Automation, with sales in these areas increasing 63% YoY to $159 million, representing 57% of total sales [6] - The launch of the Power-Thru isolated gate driver, with a 50% smaller footprint and 40% efficiency improvement, highlights the company's commitment to innovation [9] - The company released its inaugural ESG report, aligning its corporate strategy with sustainability goals [10] Management Commentary on Business Environment and Outlook - Management expressed confidence in long-term growth targets, citing double-digit market growth projections for strategic areas and strong design win momentum [16] - Near-term caution was noted due to macroeconomic uncertainty, including rising interest rates, inflation, and geopolitical concerns, particularly in China [17][18] - Q2 2024 sales are expected to be between $270 million and $280 million, with gross margins projected between 56% and 57% [19] Other Key Information - The company closed a new $224 million revolving credit facility, enhancing liquidity [15] - Lead times declined by approximately 30% in Q1, with inventory levels expected to stabilize [15][34] - The effective tax rate for Q1 was 12.6%, slightly higher than guidance due to geographical income mix [15] Q&A Session Summary Question: Customer order lead times and backlog status [21] - Lead times have normalized to industry standards, with backlog now at normal levels [22] - Q2 guidance is largely covered by the existing backlog, with auto sales expected to increase marginally and Industrial/Other sales to remain flat or decline slightly [24] Question: Gross margin drivers and FX impact [25] - Q1 gross margin beat was primarily driven by favorable product mix and the transition in Japan's distribution channel, with FX impact expected to normalize in Q2 [26] Question: Industrial and Other segment performance [27] - Industrial segment growth is expected to moderate after strong quarters, with distribution channel inventory at target levels [28] Question: China market dynamics [29] - China's auto production declined 15% in H1 2023, with near-term choppiness expected due to emission standard transitions and elevated inventory levels [30][31] Question: Lead times and inventory levels [33] - Lead times have improved significantly, with further reductions planned, particularly for Industrial customers [34] - Inventory levels are expected to stabilize, with sufficient die bank to support customer needs [35] Question: Pricing and foundry costs [36] - Pricing in the automotive segment is value-based, with long-term agreements providing stability [37] - Input cost inflation has moderated, but ongoing discussions with suppliers are in place to manage future cost changes [38] Question: China inventory levels and EV market [42] - Dealer inventory in China is elevated due to the transition to stricter emission standards, but EV market growth remains strong [43] Question: Wafer allocation and margin impact [44] - Wafer allocation among suppliers (Polar, UMC, TSMC) is stable, with no significant impact expected on gross margins [45]

Automotive and Industrial Markets - The company's portfolio includes more than 1,000 products, focusing on sensor and power ICs for automotive and industrial markets[10] - The company's devices are critical for ADAS applications, enabling features like collision avoidance and automatic emergency braking[15] - The company's solutions are already used in vehicles with Level 1 ADAS features, with significant annual shipments[15] - The company's products are foundational to automotive and industrial electronic systems, enabling precise measurement of motion, speed, position, and current[10] - The company's innovations in Hall-effect and xMR magnetic sensors and BCD power ICs support increased driving range for EVs and improved energy efficiency[10] - The company's net sales in new areas such as automotive ADAS and data center markets have grown approximately 50% faster than the overall growth of the BLDC motor market over the last five years[21] - The company's content per vehicle increased by over 50% in a popular mid-sized 2022 model sedan as it transitioned from ICE to a battery EV[21] - The company's opportunity for content per vehicle in a standard ICE model is approximately $39, increasing to approximately $100 in an EV[21] - The company's current sensors, motor drivers, and position sensors are uniquely capable of delivering energy efficiency and motion control in clean energy and automation markets[21] - The company's ADAS-related content opportunity is expected to nearly double as systems transition to electromechanical braking and steer-by-wire[21] - Magnetic sensor ICs are used in automotive applications to improve safety and fuel efficiency, with current sensor ICs improving energy efficiency in EV powertrains[34][39] - Position sensor ICs are used in ADAS systems, HEV powertrains, and ICE powertrains for precise position measurement[34] - Speed sensor ICs reduce CO2 emissions and improve fuel economy in combustion engines[35] - Power ICs include motor driver ICs, regulator and LED driver ICs, and isolated gate drivers, used in automotive, industrial, and other markets[36] Electric Vehicle (EV) Market - The company's September 2022 acquisition of Heyday Integrated Circuits provides additional content opportunities in every fully electric vehicle[14] - The company expects its content per vehicle to increase due to research and development innovation in the EV market[14] - The company's 100V BCD wafer process technology and galvanically isolated current sensors are suited for higher voltage operation in solar and EV applications[16] Manufacturing and Operations - The company's strategic transition includes a fabless and asset-lite manufacturing model, reducing fixed costs[12] - The company's proprietary wafer fabrication processes are employed through subcontractor manufacturers, balancing flexibility and scale[12] - The company's gross margins have improved from a 40% range to the 56% range over the last several years due to its fabless strategy[26] - The company's manufacturing footprint has been reduced by approximately half over the last three years, with an additional 45% reduction from the closure of the AMTC Facility[26] - Gross margin improved from a historical range of 40% to 56%[30] - The company targets higher ASPs and gross margins by developing new products for growth markets[30] - The company's AMPI Facility is certified to ISO 45001 for environmental management and occupational health and safety[61] Research and Development - The company had 655 employees dedicated to research and development as of March 31, 2023[44] - The company owned 1,371 patents, including 742 active U.S. patents, as of March 31, 2023[53] - The company's intellectual property portfolio nearly doubled over the last three years[44] Sales and Distribution - Net sales to distributors accounted for 39.3%, 36.8%, and 37.3% of total net sales in fiscal years 2023, 2022, and 2021, respectively[40] - Sales to the largest non-affiliated distributor represented 10.8%, 11.0%, and 11.4% of net sales in fiscal years 2023, 2022, and 2021, respectively[40] - The company sold products to over 10,000 end customers annually in fiscal years 2023, 2022, and 2021[42] - Approximately half of net sales in fiscal years 2023, 2022, and 2021 were derived from the top 20 customers[42] - The company transitioned distribution in Japan from Sanken to third-party distributors and direct sales as of April 1, 2023[40] Environmental, Social, and Governance (ESG) - The company's ESG strategy includes reducing vehicle emissions, improving energy efficiency in EVs, and supporting renewable energy applications[39] - The company is a member of the Responsible Business Alliance (RBA) and requires suppliers to meet ISO 14001 and ISO 45001 standards[39] - The company has implemented energy, water, and waste reduction projects across facilities and participates in the CDP for climate change and water security[39] - The company faces increasing complexity in product design and procurement due to evolving environmental laws, regulations, and standards, such as the EU's RoHS Directive and China's RoHS equivalent[61][62] - Compliance with environmental and occupational health and safety laws could restrict the company's ability to expand or require modifications to processes, potentially incurring substantial expenses[61] Financial Performance and Risk Management - The company maintains a portfolio of cash and cash equivalents primarily in money market funds, with no investments exceeding a one-year maturity, limiting exposure to interest rate risk[166] - A 10% change in market interest rates is not expected to materially impact the company's financial position or results of operations[167] - The company reported foreign exchange gains of $1.0 million in fiscal 2023 and losses of $0.6 million in fiscal 2022[168] - A hypothetical 10% appreciation (decline) in the Euro against the U.S. dollar would have an immaterial impact on operating income[168] - A hypothetical 10% appreciation (decline) in the Philippine peso against the U.S. dollar would negatively (favorably) impact operating income by immaterial amounts[168] - The company has no foreign currency derivative instrument hedges as of March 31, 2023[168] - Inflationary factors, such as increases in overhead costs, may adversely affect the company's operating results, though historical impacts have not been material[169] Human Resources - The company employed 4,687 full-time employees as of March 31, 2023, with 3,578 in manufacturing and 655 in R&D[57] - In fiscal 2023, the company hired approximately 1,103 new employees[57]

Financial Data and Key Metrics Changes - Allegro MicroSystems reported record sales of $269 million in Q4 2023, representing a 35% year-over-year increase [7] - Non-GAAP earnings per share reached $0.37, an increase of over 75% year-over-year [7] - Full fiscal year 2023 sales totaled $974 million, up 27% year-over-year [17] Business Line Data and Key Metrics Changes - Automotive sales were $182 million in Q4, accounting for 68% of total sales, with a 29% year-over-year increase [14] - E-mobility sales within automotive increased to 47% of Q4 automotive sales, up from 36% in 2022 [8] - Industrial sales reached $58 million in Q4, a 67% year-over-year increase [15] Market Data and Key Metrics Changes - Sales in strategic growth areas, including e-mobility, clean energy, and automation, grew 46% year-over-year to $477 million, representing 49% of total sales [7] - Sales by geography were well balanced, with 26% in China, 24% in the rest of Asia, 17% in both Japan and Europe, and 16% in the Americas [18] Company Strategy and Development Direction - The company is focusing R&D investments on strategic growth areas, which now account for nearly half of total sales [10] - Allegro aims to benefit from megatrends in electrification and automation within automotive and industrial markets [12] - The company is committed to innovation, particularly in magnetic sensors, which represented approximately 60% of Q4 sales [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strategy and ability to execute, highlighting strong momentum in e-mobility and clean energy [13] - The company anticipates continued strength in automotive and industrial markets, with auto production growth projected at 4% and EV growth at approximately 30% for fiscal 2024 [19] - Management noted that they have largely overcome wafer capacity constraints and are aligning backend capacity with projected demand [19] Other Important Information - The effective tax rate for Q4 was 11.6%, and diluted share count was 195 million shares [16] - Cash flow from operations for the full year was $193 million, with free cash flow of $113 million [18] Q&A Session Summary Question: Can you provide more details on the increase in e-mobility? - Management noted that e-mobility is a strong focus, with significant design wins and customer investments in electrifying fleets and adding safety features [24] Question: What are the current lead times and delinquent backlog status? - The delinquent backlog peaked at about 30% but has been significantly reduced, with ongoing efforts to manage scheduling and cancellations [26] Question: Can you clarify the revenue guidance for Q1 and the factors driving it? - The sequential increase in Q1 is driven by strength in automotive and industrial markets, with inventory replenishment not being a primary driver [30] Question: How is the company performing in the China market? - The China market remains important, with consistent ordering patterns and strong design win performance, particularly in the EV segment [32] Question: What is the outlook for EV market share and design pipeline? - The company is pivoting R&D investments towards e-mobility, with over two-thirds of investment focused in this area, indicating strong growth potential [35] Question: Are there any indications of changing order patterns in China? - Management indicated that while normalization of order patterns is expected, high demand for products continues, particularly in the EV sector [48]

Financial Data and Key Metrics Changes - Allegro reported record sales of $249 million, a 5% sequential increase and a 33% year-over-year increase, near the high end of guidance [7][8] - Gross margin expanded to 58%, an increase of 180 basis points compared to Q2, driven by favorable product mix and foreign exchange [15][19] - Operating income reached 30.3%, up from 27.9% in Q2 and 23.1% a year ago, with earnings per share increasing 84% year-over-year to $0.35 [19][21] Business Line Data and Key Metrics Changes - Automotive sales increased 8% sequentially to $170 million, representing 68% of total sales, with e-Mobility sales growing 15% sequentially and 54% year-over-year [15][16] - Industrial sales grew 6% sequentially and 60% year-over-year to $51 million, driven by Clean Energy and Industrial Automation markets [11][15] - Magnetic sensor sales increased 10% sequentially and 25% year-over-year to $154 million, while power product sales declined 3% sequentially but increased 50% year-over-year [16] Market Data and Key Metrics Changes - Global auto production is projected to increase by 8% in fiscal 2023 and by another 4% in fiscal 2024, with EV production expected to rise by 50% in fiscal 2023 [14] - Sales by geography were well-balanced, with 26% in China, 24% in the rest of Asia, 18% in Japan, and 16% in both Europe and North America [17] Company Strategy and Development Direction - Allegro is focusing on e-Mobility and industrial markets, with a strategic emphasis on innovation and R&D investments to support growth [10][21] - The company plans to open a new R&D center in Richardson, Texas, to enhance its research and development efforts [11] - Allegro aims to improve lead times and reduce past due backlog by increasing wafer and die bank capacity [15][19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged macroeconomic uncertainties but noted robust demand and order patterns across focus areas [13][14] - The company expects sales in Q4 to be in the range of $260 million to $270 million, projecting a full-year sales increase of 26% [20] - Management expressed confidence in the company's ability to outperform market growth due to strong secular trends and innovative product offerings [21] Other Important Information - Allegro's backlog remains strong, with over a year of backlog and a decline in past due backlog as product shipments increase [9][26] - The company received recognition as the Best Cooperation Supplier of 2022 by Wodeer and Geely, highlighting its commitment to customer engagement [22] Q&A Session Summary Question: Update on backlog stress testing - Management confirmed that backlog stress testing continues, with cancellations slightly higher in Q3, but backlog remains above normalized levels [26] Question: Insights on gross margin performance - Management indicated that foreign exchange continued to be a tailwind in Q3, contributing to gross margin performance [27][28] Question: Timeline for Polar investment impact - Management expects the Polar investment to contribute meaningfully in two to three years, while working with other foundry partners for increased allocation in the short term [30][32] Question: Inventory targets and lead times - Management acknowledged the need to build wafer and die banks and indicated that a 100 to 110-day inventory target may be too low in the near term [33][34] Question: Data center business outlook - Management noted a pause in data center inventory digestion but remains optimistic about design wins and the 48-volt trajectory [36][37] Question: EV market growth expectations - Management is using third-party data for EV growth projections, indicating potential for faster expansion due to price cuts [48] Question: Foundry capacity allocation improvements - Management confirmed that foundry capacity allocation is incrementally improving, with a positive long-term outlook [51]

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 December 23, 2022 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: 001-39675 _________________ ALLEGRO MICROSYSTEMS, INC. (Exact name of registrant as specifie ...

Financial Data and Key Metrics Changes - Revenue reached a record $237.7 million, reflecting a 9% sequential increase and a 23% year-over-year growth [9][23] - Gross margin was 56.2%, with operating income increasing to 27.9% of sales, demonstrating strong operating leverage [22][25] - Net income was $59.8 million, or $0.31 per share, marking a 27% sequential increase [25][26] Business Line Data and Key Metrics Changes - Automotive sales increased by 5% sequentially and 25% year-over-year, with e-mobility representing 41% of automotive sales, up from 35% a year ago [23][17] - Industrial sales grew by 20% sequentially and 33% year-over-year, driven by Industry 4.0, clean energy, and data centers [23][18] - Power IC business saw a 21% sequential growth and nearly 50% year-over-year growth [18] Market Data and Key Metrics Changes - Sales by geography were balanced: 26% in China, 19% in Japan, 24% in the rest of Asia, 17% in Europe, and 14% in North America [24] - Demand in China remains strong, particularly in automotive and industrial markets, despite potential headwinds from export restrictions [38][37] Company Strategy and Development Direction - The company is focusing on enhancing customer intimacy by creating OEM-focused business development teams for automotive and industrial markets [12] - A new Chief Technology Officer has been appointed to accelerate innovation and enhance product roadmaps [13] - The acquisition of Heyday Integrated Circuits aims to expand the company's market presence in high voltage applications [14] Management's Comments on Operating Environment and Future Outlook - Management acknowledges increasing uncertainty in the macroeconomic environment but remains positive about growth expectations [19][30] - The company expects sales in Q3 to range from $240 million to $250 million, with an increased sales growth expectation for FY '23 to approximately 24% [27][30] Other Important Information - The company ended Q2 with cash and equivalents of $303 million, and free cash flow was $35 million [26] - The effective tax rate for the quarter was 10%, with an expectation of 12% for the full year [25][28] Q&A Session Summary Question: Growth projection for fiscal year '24 - Management indicated that the increase in growth projection is primarily due to additional supply from TSMC and other partners, with constrained supply expected to continue [34] Question: Exposure to China - Sales in China were robust, accounting for 26% of total sales, with strong demand in automotive and industrial sectors [37][38] Question: Gross margins improvement - The improvement in gross margins was largely attributed to favorable foreign exchange, with average selling price and product mix also playing a role [40][41] Question: Banking distribution agreement - The change in Japan aims to enhance customer intimacy and direct engagement with OEMs, allowing engineers to work closely with customers [42][43] Question: Automotive product demand changes - Demand remains strong across all automotive product segments, with backlog for automotive actually increasing [60] Question: Foreign exchange benefits - The foreign exchange benefit is expected to continue into Q3, with a potential impact on gross margins if the current rates stabilize [61] Question: Design win pipeline for xEV - The e-mobility design wins increased by 68% quarter-over-quarter, indicating strong engagement with major OEMs [71]