Allegro MicroSystems, Inc. — Q1 FY2022 Form 10-Q
Business context and period. Allegro designs and sells magnetic sensor, power IC and photonics products, primarily for automotive and industrial applications. This filing covers the 13 weeks ended June 25, 2021; the comparable period ended June 26, 2020.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Total net sales | $188.1 million | $115.0 million |
| Gross profit / gross margin | $94.2 million / 50.0% | $55.7 million / 48.4% |
| Operating income / margin | $32.2 million / 17.1% | $4.5 million / 4.0% |
| Net income | $27.7 million | $4.9 million |
| Adjusted EBITDA / margin (non-GAAP) | $53.8 million / 28.6% | $26.2 million / 22.8% |
| Operating cash flow | $38.5 million | $25.7 million |
| Capital expenditures | $15.3 million | $8.0 million |
Sales increased 63.6% year over year. Automotive sales rose 74.8% to $133.5 million; industrial sales rose 48.5% to $30.3 million; and other sales rose 33.4% to $24.3 million. Magnetic sensors generated $120.6 million and power ICs $66.7 million. GAAP diluted EPS was $0.14 versus $0.48; the comparison is not directly like-for-like because the prior-year period preceded the IPO and used a 10 million weighted-average share count, versus 191.2 million diluted shares in Q1 FY2022.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $221.9 million at June 25, 2021; restricted cash was an additional $7.7 million. Working capital was $333.5 million.
- Debt outstanding under the senior secured term loan was $25.0 million; the $50.0 million revolving facility was undrawn. The term loan bore interest at 4.25% and is due in 2027.
- Management said available resources were expected to fund operations, growth plans and planned capital expenditures for at least the next 12 months. It noted additional financing could be sought to support future growth.
Changes, outlook and risks
- Management attributed sales growth to economic recovery, vehicle production and demand for ADAS, electrified-vehicle, data-center and industrial automation applications, among other markets. Sales increased across all reported geographies.
- Gross margin improved to 50.0%. Operating expenses rose in dollars but declined as a share of sales. Management expects R&D spending to increase as it develops products and technology; it expects the Thailand facility closure and production transfer to the Philippines to reduce future cost of goods sold.
- No specific numerical revenue or earnings guidance was provided. Management described plans to invest in targeted markets and planned capital expenditures, and to pursue product innovation, cost optimization and selective acquisitions.
- Unusual items included $2.8 million of inventory impairment following discontinuation of a Voxtel product line and a $0.3 million charge for increased fair value of Voxtel contingent consideration. The sale of the Thailand facility remained subject to government approvals and customary closing conditions.
- Key exposures include semiconductor cyclicality, customer forecast and cancellation risk, reliance on third-party manufacturing and suppliers, and concentration in automotive demand. Sanken accounted for 18.8% of sales and 23.2% of trade receivables, including related-party receivables. The company reported no material legal proceedings and no material changes to its previously disclosed risk factors.
Important facts for investors to verify
- Whether strong automotive and industrial demand persists, and whether reported growth reflects sustained customer demand and design-win ramps.
- Gross-margin durability, including the effects of product mix, selling prices, manufacturing costs and the Philippines production transition.
- Cash conversion and capital needs, given increased capital expenditures and working-capital movements.
- Customer and supplier concentration, especially the related-party relationship with Sanken and dependence on third-party manufacturing.
- Progress and closing conditions for the Thailand facility sale, and the commercial outlook for Voxtel’s photonics products following the product-line discontinuation.
- Non-GAAP reconciliations and adjustments when comparing Adjusted EBITDA or margins with GAAP results or other companies.