Allegro MicroSystems(ALGM)2023-08-01 15:16Financial 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]