Allegro MicroSystems(ALGM) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q2 fiscal 2022 was $193.6 million, a 3% sequential increase and exceeding expectations due to favorable inventory mix [8] - GAAP gross margin improved to 53%, up 300 basis points sequentially, while non-GAAP gross margin was 53.8%, up 160 basis points [13][15] - GAAP net income for Q2 was $33.2 million, with earnings per diluted share increasing to $0.17, while non-GAAP earnings per diluted share rose 11% to $0.20 [15][16] Business Line Data and Key Metrics Changes - Automotive revenue was $126 million, representing 65% of total revenue, down 6% sequentially but outperforming global car production, which declined 16% [10] - Magnetic sensor revenue increased nearly 50% year-over-year, while power ICs revenue rose 30% year-over-year [8][19] - Industrial revenue grew double digits sequentially to $36.3 million, accounting for 19% of total revenue [11] Market Data and Key Metrics Changes - Demand continues to exceed supply, with backlog at historic levels and extended visibility [11][12] - Automotive revenue growth was driven by a shift towards higher-value, feature-rich vehicles, with xEV and ADAS representing over 35% of automotive revenue [10][21] - Industrial performance was strong across categories, particularly in data center applications, with expectations for continued growth [20] Company Strategy and Development Direction - The company is focused on high-growth markets such as xEV, ADAS, Industry 4.0, and data centers, with a strategic emphasis on structural improvements in gross margins [17][23] - The transition to feature-rich vehicles and electrification is expected to drive content increases per vehicle, enhancing revenue potential [21][22] - The company aims for low to mid-teens annual revenue growth in fiscal 2023, supported by design wins and market demand [24][25] Management's Comments on Operating Environment and Future Outlook - Management anticipates a temporary impact on Q3 revenue due to supply chain disruptions but expects a return to growth in Q4 [24] - The company has confidence in its ability to achieve approximately 28% annual growth in fiscal 2022, despite current challenges [9][24] - Management highlighted the importance of maintaining pricing power to offset rising input costs [11][12] Other Important Information - Cash and equivalents reached a historic high of $256 million, with operating cash flow of $31.4 million generated in the quarter [16] - The company has begun shipping products from TSMC, with supply recovery underway following COVID-related disruptions [12][24] Q&A Session Summary Question: Capacity support for fiscal 2023 revenue growth - Management confirmed that commitments from foundry partners support growth projections for fiscal 2023 [29] Question: Inventory accumulation concerns - Management clarified that the increase in automotive revenue is due to higher content in feature-rich vehicles, not inventory accumulation [30][31] Question: Impact of supply chain constraints on Q3 revenue - Management indicated that specific supply chain issues in Malaysia would affect Q3 revenue but expects recovery in Q4 [34][38] Question: Gross margin outlook and pricing strategies - Management expressed confidence in achieving a gross margin target of 55% and indicated ongoing price increases to mitigate rising costs [35][53] Question: Visibility on fiscal year 2023 growth - Management highlighted strong demand in automotive and data center sectors as key drivers for growth in fiscal 2023 [41][42] Question: Inventory levels and long-term targets - Management aims for on-balance sheet inventory levels of 100 to 110 days in the long term, currently at 77 days [44][45]