Allegro MicroSystems, Inc. — Q3 FY2024 Form 10-Q
Reporting period: 13-week quarter ended December 29, 2023; nine-month period ended the same date. Comparatives are the quarter and nine months ended December 23, 2022. Allegro designs and sells sensing and power integrated circuits for automotive and industrial markets.
Key financial results
| Metric | Q3 FY2024 | Q3 FY2023 | Nine months FY2024 | Nine months FY2023 |
|---|---|---|---|---|
| Net sales | $255.0 million | $248.8 million | $808.8 million | $704.2 million |
| Gross profit / margin | $133.8 million / 52.5% | $142.6 million / 57.3% | $451.3 million / 55.8% | $393.0 million / 55.8% |
| Operating income / margin | $36.7 million / 14.4% | $65.6 million / 26.4% | $180.3 million / 22.3% | $140.2 million / 19.9% |
| Net income attributable to Allegro | $33.3 million | $64.5 million | $159.8 million | $125.4 million |
| Diluted EPS | $0.17 | $0.33 | $0.82 | $0.65 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $169.0 million | $145.7 million |
Quarterly sales rose 2.5%, while net income attributable to Allegro fell 48.3%. Nine-month sales rose 14.9% and attributable net income rose 27.5%. Q3 gross margin fell 4.8 percentage points year over year; nine-month gross margin was unchanged.
Q3 sales growth reflected higher automotive shipments, particularly e-Mobility, and higher power integrated circuit sales. Automotive revenue rose 18.2% in the quarter; industrial revenue fell 14.5% and Other revenue fell 53.0%. For the nine months, automotive and industrial sales rose 23.4% and 22.6%, respectively, while Other sales fell 42.7%.
Liquidity, cash flow and debt
- At December 29, 2023, cash and cash equivalents were $214.3 million, restricted cash was $9.4 million, and working capital was $429.3 million. At March 31, 2023, cash was $351.6 million and working capital was $500.5 million.
- Nine-month operating cash flow was $169.0 million. Investing activities used $502.4 million, including $408.1 million for the Crocus acquisition and $110.5 million of capital expenditures. Financing activities provided $198.1 million, primarily from new debt.
- Balance-sheet debt was $254.4 million, including $4.0 million current and $250.5 million long-term. Allegro had no borrowings under its $224 million revolving facility at quarter-end.
- Management stated that existing cash should fund operations, growth plans, capital expenditures and expected expenses for the next 12 months. It may use the revolver or seek additional financing if circumstances require.
Material changes and unusual items
- Allegro acquired Crocus Technology on October 31, 2023, for $412.3 million in cash, subject to working-capital adjustments. The preliminary allocation included $234.0 million of completed technology, $12.0 million of customer relationships and $186.5 million of goodwill. The allocation remains subject to finalization; Crocus’s post-acquisition revenue and earnings were not material.
- The acquisition was partly financed with a $250 million term loan maturing in 2030. The prior $25 million term-loan balance was repaid. Interest expense increased, and Q3 SG&A included $8.8 million of acquisition-related costs.
- Q3 operating income was pressured by higher cost of goods sold and operating expenses. SG&A increased 41.1% year over year, while R&D increased 12.1%. For the nine months, SG&A declined 2.5%, partly because the prior-year period included $26.3 million of accelerated stock compensation and $3.8 million of severance.
- Management disclosed an immaterial prior-period classification error in net sales by application; there was no impact on previously reported total sales or net income.
Outlook, commentary and risks
The filing provides no specific revenue or earnings guidance. Management cited inflation and supplier-cost pressure, product and customer mix, semiconductor-industry cyclicality, customer forecast changes and order cancellations, and the long lead time for design wins as factors that could affect results. Allegro expects product average selling prices to decline over time and gross margins to fluctuate with mix, volumes, manufacturing costs and yields.
Management expects approximately $20 million of additional fiscal 2024 cash taxes from the required capitalization and amortization of research and development costs, partly offset by an estimated $9 million foreign-derived intangible income benefit. The company reported no material changes to previously disclosed risk factors, no material legal proceedings, and effective disclosure controls as of December 29, 2023.
Most important facts for investors to verify
- Whether the Q3 gross-margin decline and earnings pressure persist, and how demand evolves across automotive, industrial and consumer-related markets.
- Crocus integration progress, realized commercial benefits, and final purchase-price allocation and working-capital adjustments.
- Debt costs, covenant compliance and liquidity after the acquisition and elevated capital spending.
- Inventory levels, customer concentration and the effects of supplier costs, customer forecasts and potential order changes.
- The reported tax outlook and the timing and amount of cash taxes related to R&D capitalization.