ALLEGRO MICROSYSTEMS, INC. - Quarter Report: 2023 June (Form 10-Q)
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 June 30, 2023
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 specified in its charter)
_________________
| Delaware | 46-2405937 | |||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| 955 Perimeter Road | ||||||||
| Manchester, | New Hampshire | 03103 | ||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(603) 626-2300
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
_________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Common Stock, par value $0.01 per share | ALGM | The Nasdaq Global Select Market | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
| Emerging growth company | ☐ | |||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 1, 2023, the registrant had 192,376,420 shares of common stock, par value $0.01 per share, outstanding.
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TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, prospective products and the plans and objectives of management for future operations, may be forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
Statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, including, among others, statements regarding the liquidity, growth and profitability strategies and factors and trends affecting our business are forward-looking statements. Without limiting the foregoing, in some cases, you can identify forward-looking statements by terms such as “aim,” “may,” “will,” “should,” “expect,” “exploring,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “would,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “seek,” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. No forward-looking statement is a guarantee of future results, performance, or achievements, and one should avoid placing undue reliance on such statements.
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to us. Such beliefs and assumptions may or may not prove to be correct. Additionally, such forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” in this Quarterly Report and Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2023, on Form 10-K filed with the SEC on May 25, 2023 (the “2023 Annual Report”) as any such factors may be updated from time to time in our Quarterly Reports on Form 10-Q, and our other filings with the SEC.
You should read this Quarterly Report and the documents that we reference completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. All forward-looking statements speak only as of the date of this Quarterly Report, and except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements, whether as a result of any new information, future events, changed circumstances or otherwise.
Unless the context otherwise requires, references to “we,” “us,” “our,” the “Company” and “Allegro” refer to the operations of Allegro MicroSystems, Inc. and its consolidated subsidiaries.
2
PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ALLEGRO MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
(Unaudited)
| June 30, 2023 | March 31, 2023 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 353,408 | $ | 351,576 | |||||||
| Restricted cash | 8,913 | 7,129 | |||||||||
Trade accounts receivable, net | 121,506 | 111,290 | |||||||||
| Trade and other accounts receivable due from related party | 175 | 13,494 | |||||||||
| Inventories | 174,170 | 151,301 | |||||||||
| Prepaid expenses and other current assets | 38,382 | 27,289 | |||||||||
| Current portion of related party note receivable | 3,750 | 3,750 | |||||||||
| Total current assets | 700,304 | 665,829 | |||||||||
| Property, plant and equipment, net | 285,200 | 263,099 | |||||||||
| Operating lease right-of-use assets | 20,693 | 16,866 | |||||||||
| Deferred income tax assets | 58,684 | 50,359 | |||||||||
| Goodwill | 28,048 | 27,691 | |||||||||
| Intangible assets, net | 51,969 | 52,378 | |||||||||
| Related party note receivable, less current portion | 7,500 | 8,438 | |||||||||
| Equity investment in related party | 26,980 | 27,265 | |||||||||
| Other assets | 54,712 | 69,230 | |||||||||
| Total assets | $ | 1,234,090 | $ | 1,181,155 | |||||||
| Liabilities, Non-Controlling Interests and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Trade accounts payable | $ | 65,382 | $ | 56,256 | |||||||
| Amounts due to related party | 6,465 | 9,682 | |||||||||
| Accrued expenses and other current liabilities | 76,691 | 94,894 | |||||||||
| Current portion of operating lease liabilities | 5,007 | 4,493 | |||||||||
| Total current liabilities | 153,545 | 165,325 | |||||||||
| Obligations due under Senior Secured Credit Facilities | 25,000 | 25,000 | |||||||||
| Operating lease liabilities, less current portion | 16,383 | 13,048 | |||||||||
| Other long-term liabilities | 11,397 | 10,967 | |||||||||
| Total liabilities | 206,325 | 214,340 | |||||||||
| Commitments and contingencies (Note 10) | |||||||||||
| Stockholders' Equity: | |||||||||||
Preferred Stock, $0.01 par value; 20,000,000 shares authorized, no shares issued or outstanding | — | — | |||||||||
Common stock, $0.01 par value; 1,000,000,000 shares authorized, 192,371,784 shares issued and outstanding at June 30, 2023; 1,000,000,000 shares authorized, 191,754,292 issued and outstanding at March 31, 2023 | 1,924 | 1,918 | |||||||||
| Additional paid-in capital | 674,692 | 674,179 | |||||||||
| Retained earnings | 371,165 | 310,315 | |||||||||
| Accumulated other comprehensive loss | (21,198) | (20,784) | |||||||||
| Equity attributable to Allegro MicroSystems, Inc. | 1,026,583 | 965,628 | |||||||||
| Non-controlling interests | 1,182 | 1,187 | |||||||||
Total stockholders’ equity | 1,027,765 | 966,815 | |||||||||
| Total liabilities, non-controlling interests and stockholders’ equity | $ | 1,234,090 | $ | 1,181,155 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
ALLEGRO MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
| Three-Month Period Ended | |||||||||||
| June 30, 2023 | June 24, 2022 | ||||||||||
| Net sales | $ | 278,293 | $ | 176,044 | |||||||
| Net sales to related party | — | 41,709 | |||||||||
| Total net sales | 278,293 | 217,753 | |||||||||
| Cost of goods sold | 120,343 | 79,067 | |||||||||
| Cost of goods sold to related party | — | 20,312 | |||||||||
| Gross profit | 157,950 | 118,374 | |||||||||
| Operating expenses: | |||||||||||
| Research and development | 42,975 | 33,857 | |||||||||
| Selling, general and administrative | 44,229 | 69,780 | |||||||||
| Total operating expenses | 87,204 | 103,637 | |||||||||
| Operating income | 70,746 | 14,737 | |||||||||
| Other (expense) income: | |||||||||||
| Interest expense | (769) | (278) | |||||||||
| Interest income | 843 | 158 | |||||||||
| Other expense, net | (2,716) | (2,369) | |||||||||
| Income before income taxes | 68,104 | 12,248 | |||||||||
| Income tax provision | 7,215 | 1,965 | |||||||||
| Net income | 60,889 | 10,283 | |||||||||
| Net income attributable to non-controlling interests | 39 | 36 | |||||||||
| Net income attributable to Allegro MicroSystems, Inc. | $ | 60,850 | $ | 10,247 | |||||||
| Net income per common share attributable to Allegro MicroSystems, Inc.: | |||||||||||
| Basic | $ | 0.32 | $ | 0.05 | |||||||
| Diluted | $ | 0.31 | $ | 0.05 | |||||||
| Weighted average shares outstanding: | |||||||||||
| Basic | 191,997,330 | 190,638,135 | |||||||||
| Diluted | 194,991,906 | 192,406,276 | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ALLEGRO MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
| Three-Month Period Ended | |||||||||||
| June 30, 2023 | June 24, 2022 | ||||||||||
| Net income | $ | 60,889 | $ | 10,283 | |||||||
| Net income attributable to non-controlling interests | 39 | 36 | |||||||||
| Net income attributable to Allegro MicroSystems, Inc. | 60,850 | 10,247 | |||||||||
| Other comprehensive loss: | |||||||||||
| Foreign currency translation adjustment, net of tax | (458) | (6,818) | |||||||||
| Comprehensive income | 60,392 | 3,429 | |||||||||
| Other comprehensive gain attributable to non-controlling interests | 44 | 68 | |||||||||
| Comprehensive income attributable to Allegro MicroSystems, Inc. | $ | 60,436 | $ | 3,497 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ALLEGRO MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except share amounts)
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Non-Controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 25, 2022 | — | $ | — | 190,473,595 | $ | 1,905 | $ | 627,792 | $ | 122,958 | $ | (18,448) | $ | 1,156 | $ | 735,363 | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 10,247 | — | 36 | 10,283 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of forfeitures | — | — | 706,584 | 7 | 34,131 | — | — | — | 34,138 | ||||||||||||||||||||||||||||||||||||||||||||
| Payments of taxes withheld on net settlement of equity awards | — | — | — | — | (9,606) | — | — | — | (9,606) | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | (6,750) | (68) | (6,818) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 24, 2022 | — | $ | — | 191,180,179 | $ | 1,912 | $ | 652,317 | $ | 133,205 | $ | (25,198) | $ | 1,124 | $ | 763,360 | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Non-Controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | — | $ | — | 191,754,292 | $ | 1,918 | $ | 674,179 | $ | 310,315 | $ | (20,784) | $ | 1,187 | $ | 966,815 | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 60,850 | — | 39 | 60,889 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of forfeitures | — | — | 541,288 | 5 | 11,037 | — | — | — | 11,042 | ||||||||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan issuances | — | — | 76,204 | 1 | 1,898 | — | — | — | 1,899 | ||||||||||||||||||||||||||||||||||||||||||||
| Payments of taxes withheld on net settlement of equity awards | — | — | — | — | (12,422) | — | — | — | (12,422) | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | (414) | (44) | (458) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | — | $ | — | 192,371,784 | $ | 1,924 | $ | 674,692 | $ | 371,165 | $ | (21,198) | $ | 1,182 | $ | 1,027,765 | |||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
ALLEGRO MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Three-Month Period Ended | |||||||||||
| June 30, 2023 | June 24, 2022 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | 60,889 | $ | 10,283 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 14,273 | 11,918 | |||||||||
| Amortization of deferred financing costs | 34 | 24 | |||||||||
| Deferred income taxes | (8,362) | (7,784) | |||||||||
| Stock-based compensation | 11,042 | 34,136 | |||||||||
| Gain on disposal of assets | — | (3) | |||||||||
| Change in fair value of contingent consideration | — | (200) | |||||||||
| Provisions for inventory and expected credit losses | 5,183 | 2,640 | |||||||||
| Change in fair value of marketable securities | 3,651 | 3,486 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Trade accounts receivable | (10,321) | (4,718) | |||||||||
| Accounts receivable - other | (1,421) | 2,714 | |||||||||
| Inventories | (27,947) | (4,888) | |||||||||
| Prepaid expenses and other assets | (8,779) | (13,102) | |||||||||
| Trade accounts payable | 18,431 | 4,075 | |||||||||
| Due to/from related parties | 10,102 | (3,267) | |||||||||
| Accrued expenses and other current and long-term liabilities | (17,112) | 1,239 | |||||||||
| Net cash provided by operating activities | 49,663 | 36,553 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchases of property, plant and equipment | (44,910) | (14,389) | |||||||||
| Proceeds from sales of marketable securities | 9,971 | — | |||||||||
| Net cash used in investing activities | (34,939) | (14,389) | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Receipts on related party notes receivable | 938 | 469 | |||||||||
| Payments for taxes related to net share settlement of equity awards | (12,422) | (9,606) | |||||||||
| Proceeds from issuance of common stock under employee stock purchase plan | 1,899 | — | |||||||||
| Payments for debt issuance costs | (1,450) | — | |||||||||
| Net cash used in financing activities | (11,035) | (9,137) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | (73) | (6,554) | |||||||||
| Net increase in cash and cash equivalents and restricted cash | 3,616 | 6,473 | |||||||||
| Cash and cash equivalents and restricted cash at beginning of period | 358,705 | 289,799 | |||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD: | $ | 362,321 | $ | 296,272 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
1. Nature of the Business and Basis of Presentation
Allegro MicroSystems, Inc., together with its consolidated subsidiaries (the “Company”), is a leading global designer, developer, fabless manufacturer and marketer of sensing and power solutions for motion control and energy-efficient systems in the automotive and industrial markets. The Company is headquartered in Manchester, New Hampshire and has a global footprint across multiple continents.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements include the Company’s accounts and those of its subsidiaries. All intercompany balances have been eliminated in consolidation. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023. In the opinion of the Company’s management, the financial statements for the interim periods presented reflect all adjustments necessary for a fair statement of the Company’s financial position, results of operations and cash flows. The results reported in these unaudited condensed consolidated financial statements are not necessarily indicative of results that may be expected for the entire year.
Financial Periods
The Company’s first quarter three-month period is a 13-week period. The Company’s first quarter of fiscal 2024 ended June 30, 2023, and the Company’s first quarter of fiscal 2023 ended June 24, 2022.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingencies at the date of the unaudited condensed consolidated financial statements and the reported amounts of net sales and expenses during the reporting period. Such estimates relate to useful lives of fixed and intangible assets, provisions for expected credit losses and customer returns and sales allowances. Such estimates also relate to accrued liabilities, the valuation of stock-based awards, deferred tax valuation allowances, the net realizable value of inventory, and other reserves. On an ongoing basis, management evaluates its estimates. Actual results could differ from those estimates, and such differences may be material to the unaudited condensed consolidated financial statements.
Reclassifications
Certain reclassifications have been made to prior-period amounts to conform to current-period reporting classifications.
Concentrations of Credit Risk
As of June 30, 2023, one customer accounted for 14.8% of the Company’s outstanding trade accounts receivable, net. As of March 31, 2023, Sanken Electric Co., Ltd. (“Sanken”) and another customer accounted for 10.6% and 17.3%, respectively, of the Company’s outstanding trade accounts receivable, net, including related party trade accounts receivable. No other customers accounted for 10% or more of outstanding trade accounts receivable, net as of such dates.
For the three months ended June 30, 2023, one customer accounted for 12.2% of total net sales. For the three months ended June 24, 2022, Sanken accounted for 19.2% of total net sales. No other customers accounted for 10% or more of total net sales for either of the three months ended June 30, 2023 or June 24, 2022.
Recent Accounting Pronouncements
In December 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-06, Reference Rate Reform (Topic 848), Deferral of the Sunset Date of Topic 848. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provided temporary relief when transitioning from the London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”) or another applicable rate during the original transition period ending on December 31, 2022. In March 2021, the UK Financial Conduct Authority announced that the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of U.S. dollar LIBOR would be June 30, 2023, which is beyond the
8
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
current sunset date of Topic 848. In light of this development, the FASB issued this update to defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The adoption of this new guidance did not have a material impact on the Company’s financial position, results of operations, cash flows, or related disclosures.
3. Revenue from Contracts with Customers
The following tables summarize net sales disaggregated by application, by product and by geography for the three months ended June 30, 2023 and June 24, 2022. The categorization of net sales by application is determined using various characteristics of the product and the application into which the Company’s product will be incorporated. The categorization of net sales by geography is determined based on the location to which the products are shipped.
Net sales by application:
| Three-Month Period Ended | |||||||||||
| June 30, 2023 | June 24, 2022 | ||||||||||
| Automotive | $ | 189,698 | $ | 149,649 | |||||||
| Industrial | 68,184 | 40,140 | |||||||||
| Other | 20,411 | 27,964 | |||||||||
| Total net sales | $ | 278,293 | $ | 217,753 | |||||||
Net sales by product:
| Three-Month Period Ended | |||||||||||
| June 30, 2023 | June 24, 2022 | ||||||||||
| Power integrated circuits | $ | 103,988 | $ | 80,660 | |||||||
| Magnetic sensors | 174,305 | 137,093 | |||||||||
| Total net sales | $ | 278,293 | $ | 217,753 | |||||||
Net sales by geography:
| Three-Month Period Ended | |||||||||||
| June 30, 2023 | June 24, 2022 | ||||||||||
| Americas: | |||||||||||
| United States | $ | 48,824 | $ | 28,391 | |||||||
| Other Americas | 8,508 | 6,487 | |||||||||
| EMEA: | |||||||||||
| Europe | 55,388 | 35,333 | |||||||||
| Asia: | |||||||||||
| Japan | 41,580 | 41,709 | |||||||||
| Greater China | 62,216 | 55,116 | |||||||||
| South Korea | 29,513 | 20,979 | |||||||||
| Other Asia | 32,264 | 29,738 | |||||||||
| Total net sales | $ | 278,293 | $ | 217,753 | |||||||
The Company recognizes sales net of returns and sales allowances, which are comprised of credits issued, price protection adjustments and stock rotation rights. At June 30, 2023 and March 31, 2023, the liability associated with returns and sales allowances, inclusive of related party adjustments, was $37,300 and $30,571, respectively, and were netted against trade accounts receivable in the unaudited condensed consolidated balance sheets.
9
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. The Company elected not to disclose the amount of unsatisfied performance obligations as these contracts have original expected durations of less than one year.
4. Fair Value Measurements
The following tables present information about the Company’s financial assets and liabilities as of June 30, 2023 and March 31, 2023, measured at fair value on a recurring basis:
| Fair Value Measurement at June 30, 2023: | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market fund deposits | $ | 103,661 | $ | — | $ | — | $ | 103,661 | |||||||||||||||
| Restricted cash: | |||||||||||||||||||||||
| Money market fund deposits | 8,913 | — | — | 8,913 | |||||||||||||||||||
| Other current assets: | |||||||||||||||||||||||
| Investments in marketable securities | 5,222 | — | — | 5,222 | |||||||||||||||||||
| Total assets | $ | 117,796 | $ | — | $ | — | $ | 117,796 | |||||||||||||||
| Fair Value Measurement at March 31, 2023: | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market fund deposits | $ | 102,019 | $ | — | $ | — | $ | 102,019 | |||||||||||||||
| Restricted cash: | |||||||||||||||||||||||
| Money market fund deposits | 7,129 | — | — | 7,129 | |||||||||||||||||||
| Other assets: | |||||||||||||||||||||||
| Investments in marketable securities | 19,929 | — | — | 19,929 | |||||||||||||||||||
| Total assets | $ | 129,077 | $ | — | $ | — | $ | 129,077 | |||||||||||||||
As of July 2023, the Company has sold all investments in marketable securities.
Assets and liabilities measured at fair value on a recurring basis also consist of marketable securities, unit investment trust funds, loans, bonds, stock and other investments which constitute to the Company’s defined benefit plan assets.
During the three months ended June 30, 2023 and June 24, 2022, there were no transfers among Level 1, Level 2 and Level 3 assets or liabilities.
5. Trade Accounts Receivable, net
Trade accounts receivable, net (including related party trade accounts receivable) consisted of the following:
| June 30, 2023 | March 31, 2023 | ||||||||||
| Trade accounts receivable | $ | 158,806 | $ | 150,914 | |||||||
| Less: | |||||||||||
| Provision for expected credit losses | (206) | (102) | |||||||||
| Returns and sales allowances | (37,094) | (26,269) | |||||||||
| Related party trade accounts receivable, net of returns and sales allowances | — | (13,253) | |||||||||
| Total | $ | 121,506 | $ | 111,290 | |||||||
10
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
Changes in the Company’s expected credit losses and returns and sales allowances, exclusive of related party adjustments, were as follows:
| Description | Provision for Expected Credit Losses | Returns and Sales Allowances | Total | |||||||||||||||||
| Balance at March 31, 2023 | $ | 102 | $ | 26,269 | $ | 26,371 | ||||||||||||||
| Provisions | 104 | 41,811 | 41,915 | |||||||||||||||||
| Deductions | — | (30,986) | (30,986) | |||||||||||||||||
| Balance at June 30, 2023 | $ | 206 | $ | 37,094 | $ | 37,300 | ||||||||||||||
| Balance at March 25, 2022 | $ | 105 | $ | 14,819 | $ | 14,924 | ||||||||||||||
| Provisions | 44 | 27,753 | 27,797 | |||||||||||||||||
| Deductions | — | (28,322) | (28,322) | |||||||||||||||||
| Balance at June 24, 2022 | $ | 149 | $ | 14,250 | $ | 14,399 | ||||||||||||||
6. Inventories
Inventories include material, labor and overhead and consisted of the following:
| June 30, 2023 | March 31, 2023 | ||||||||||
| Raw materials and supplies | $ | 13,690 | $ | 15,049 | |||||||
| Work in process | 119,630 | 98,836 | |||||||||
| Finished goods | 40,850 | 37,416 | |||||||||
| Total | $ | 174,170 | $ | 151,301 | |||||||
The Company recorded inventory reserves totaling $5,076 and $2,115 for the three months ended June 30, 2023 and June 24, 2022, respectively.
7. Property, Plant and Equipment, net
Property, plant and equipment, net is stated at cost, and consisted of the following:
| June 30, 2023 | March 31, 2023 | ||||||||||
| Land | $ | 19,522 | $ | 15,384 | |||||||
| Buildings, building improvements and leasehold improvements | 60,991 | 61,500 | |||||||||
| Machinery and equipment | 641,453 | 611,459 | |||||||||
| Office equipment | 6,109 | 6,119 | |||||||||
| Construction in progress | 46,087 | 48,378 | |||||||||
| Total | 774,162 | 742,840 | |||||||||
| Less accumulated depreciation | (488,962) | (479,741) | |||||||||
| Total | $ | 285,200 | $ | 263,099 | |||||||
Total depreciation expense amounted to $12,767 and $10,850 for the three months ended June 30, 2023 and June 24, 2022, respectively.
11
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
8. Goodwill and Intangible Assets
The table below summarizes the changes in the carrying amount of goodwill as follows:
| Total | |||||
| Balance at March 31, 2023 | $ | 27,691 | |||
| Adjustments | 280 | ||||
| Foreign currency translation | 77 | ||||
| Balance at June 30, 2023 | $ | 28,048 | |||
Intangible assets, net were as follows:
| June 30, 2023 | ||||||||||||||||||||||||||
| Description | Gross | Accumulated Amortization | Net Carrying Amount | Weighted- Average Lives | ||||||||||||||||||||||
| Patents | $ | 41,305 | $ | 19,200 | $ | 22,105 | 10 years | |||||||||||||||||||
| Customer relationships | 3,307 | 3,154 | 153 | 3 years | ||||||||||||||||||||||
| Process technology | 28,508 | 3,571 | 24,937 | 10 years | ||||||||||||||||||||||
| Indefinite-lived and legacy process technology | 4,690 | — | 4,690 | |||||||||||||||||||||||
| Trademarks and other | 287 | 203 | 84 | 2 years | ||||||||||||||||||||||
| Total | $ | 78,097 | $ | 26,128 | $ | 51,969 | ||||||||||||||||||||
| March 31, 2023 | ||||||||||||||||||||||||||
| Description | Gross | Accumulated Amortization | Net Carrying Amount | Weighted- Average Lives | ||||||||||||||||||||||
| Patents | $ | 40,213 | $ | 18,335 | $ | 21,878 | 10 years | |||||||||||||||||||
| Customer relationships | 3,281 | 3,115 | 166 | 9 years | ||||||||||||||||||||||
| Process technology | 28,508 | 2,963 | 25,545 | 12 years | ||||||||||||||||||||||
| Indefinite-lived and legacy process technology | 4,696 | — | 4,696 | |||||||||||||||||||||||
| Trademarks and other | 287 | 194 | 93 | 5 years | ||||||||||||||||||||||
| Total | $ | 76,985 | $ | 24,607 | $ | 52,378 | ||||||||||||||||||||
Intangible assets amortization expense was $1,506 and $1,036 for the three months ended June 30, 2023 and June 24, 2022, respectively.
9. Debt and Other Borrowings
Term Loan Facility
As of June 30, 2023, the principal maturities of debt obligations outstanding of $25,000 will be due for repayment in fiscal year 2028 under our Term Loan Facility (as defined below).
On September 30, 2020, the Company entered into a term loan credit agreement with Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and the other agents, arrangers and lenders party thereto, providing for a $325,000 senior secured term loan facility due in fiscal 2028 (the “Term Loan Facility”). On June 28, 2023, the Company entered into a First Amendment of the Term Loan Facility, which replaces the LIBOR rate with a Term SOFR-based rate as the applicable interest rate benchmark.
2023 Revolving Credit Facility
On June 21, 2023, the Company entered into a revolving facility credit agreement (the “2023 Revolving Credit Agreement”) with Morgan Stanley Senior Funding, Inc., as administrative agent (in such capacity, the “Agent”), collateral agent, a letter of credit issuer and a lender, and the other agents, lenders and letter of credit issuers parties thereto (the “Lenders”). The 2023 Revolving Credit Agreement provides for a $224 million secured revolving credit facility (the “2023 Revolving Credit Facility”), which includes a $20 million letter of credit subfacility. The 2023 Revolving Credit Facility is available until, and loans made thereunder will mature on, June 21, 2028. Interest on the 2023 Revolving Credit Agreement is calculated at a rate equal to (i) Term SOFR (as defined in the 2023 Revolving Credit Agreement) in effect from time to time, plus the applicable spread (ranging from 1.50% to 1.75%) or (ii) the highest of (x) the Federal funds rate, as published by the
12
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
Federal Reserve Bank of New York, plus 0.50%, (y) the prime lending rate or (z) the one-month Term SOFR plus 1.0% in effect from time to time, plus the applicable spread (ranging from 0.50% to 0.75%). The applicable spreads are based on the Company’s Total Net Leverage Ratio (as defined in the 2023 Revolving Credit Agreement) at the time of the applicable borrowing. As of June 30, 2023, there were no outstanding borrowings.
The Company will also pay a quarterly commitment fee of 0.20% to 0.25% on the daily amount by which the commitments under the 2023 Revolving Credit Facility exceed the outstanding loans and letters of credit under the 2023 Revolving Credit Facility. The 2023 Revolving Credit Agreement contains certain covenants applicable to the Company and its Restricted Subsidiaries (as defined in the 2023 Revolving Credit Agreement), including, without limitation, limitations on additional indebtedness, liens, various fundamental changes, dividends and distributions, investments (including acquisitions), transactions with affiliates, asset sales, prepayment of junior financing, changes in business and other limitations customary in senior secured credit facilities. In addition, the Company is required to maintain a Total Net Leverage Ratio of no more than 4.00 to 1.00 at the end of each fiscal quarter, which may, subject to certain limitations, be increased to 4.50 to 1.00 for four fiscal quarters subsequent to the Company completing an acquisition for consideration in excess of $500 million.
The 2023 Revolving Credit Agreement provides for customary events of default. Upon an event of default, the Agent with the consent of, or at the request of, the holders of more than 50% in principal amount of the loans and commitments, may terminate the commitments and accelerate the maturity of the loans and enforce certain other remedies under the 2023 Revolving Credit Agreement and the other loan documents. In the ordinary course of their respective businesses, one or more of the Lenders under the 2023 Revolving Credit Agreement, or their affiliates, have or may have various relationships with the Company and the Company’s subsidiaries involving the provision of a variety of financial services, including cash management, commercial banking, investment banking, advisory or other financial services, for which they received, or will receive, customary fees and expenses.
2020 Revolving Credit Facility
On September 30, 2020, the Company entered into a revolving facility credit agreement with Mizuho Bank, Ltd., as administrative agent and collateral agent, and the other agents, arrangers and lenders party thereto, providing for a $50,000 senior secured revolving credit facility expiring in 2023 (the “2020 Revolving Credit Facility”). The 2020 Revolving Credit Facility was secured by a lien on the same collateral and on the same basis as the Term Loan Facility. Interest on the Term Loan Facility was calculated at LIBOR plus 3.75% to 4.00% based on the Company’s net leverage ratio, and LIBOR is subject to a 0.5% floor. Following entry into the 2023 Revolving Credit Agreement on June 21, 2023, the Company repaid any outstanding loans and terminated all commitments and obligations under the 2020 Revolving Credit Facility, and the 2020 Revolving Credit Facility was replaced by the 2023 Revolving Credit Facility.
10. Commitments and Contingencies
Legal proceedings
The Company is subject to various legal proceedings, and claims, and regulatory examinations or investigations arising in the normal course of business, the outcomes of which are subject to significant uncertainty, and the Company’s ultimate liability, if any, is difficult to predict. The Company records an accrual for legal contingencies when it is determined that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In making such determinations, the Company evaluates, among other things, the degree of probability of an unfavorable outcome and, when it is probable that a liability has been incurred, the ability to make a reasonable estimate of the loss. If the occurrence of liability is probable and estimable, the Company will disclose the nature of the contingency and, if estimable, will provide the likely amount of such loss or range of loss. The Company does not believe there are any current matters that could have a material adverse effect on its financial position, results of operations or cash flows.
13
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
11. Net Income per Share
The following table sets forth the basic and diluted net income per common share attributable to Allegro MicroSystems, Inc.
| Three-Month Period Ended | |||||||||||
| June 30, 2023 | June 24, 2022 | ||||||||||
| Net income attributable to common stockholders | $ | 60,889 | $ | 10,283 | |||||||
| Basic weighted average shares of common stock | 191,997,330 | 190,638,135 | |||||||||
| Dilutive effect of common stock equivalents | 2,994,576 | 1,768,141 | |||||||||
| Diluted weighted average shares of common stock | 194,991,906 | 192,406,276 | |||||||||
| Basic net income attributable to common stockholders per share | $ | 0.32 | $ | 0.05 | |||||||
| Diluted net income attributable to common stockholders per share | $ | 0.31 | $ | 0.05 | |||||||
The computed net income per share for the three months ended June 30, 2023 and June 24, 2022 does not assume conversion of securities that would have an antidilutive effect on income per share. The following represents contingently issuable shares under the restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”) excluded from the computation of net income per share, as such securities would have an antidilutive effect on net income per share:
| Three-Month Period Ended | |||||||||||
| June 30, 2023 | June 24, 2022 | ||||||||||
| Restricted stock units (RSUs) | — | 19,272 | |||||||||
| Performance stock units (PSUs) | 65,943 | 46,991 | |||||||||
The following table represents issued and issuable weighted average share information underlying our outstanding RSUs, PSUs and participation in our employee stock purchase plan for the respective periods:
| Three-Month Period Ended | |||||||||||
| June 30, 2023 | June 24, 2022 | ||||||||||
| Restricted stock units | 1,163,894 | 668,259 | |||||||||
| Performance stock units | 1,809,200 | 1,080,201 | |||||||||
| Employee stock purchase plan | 21,482 | 19,681 | |||||||||
| Total | 2,994,576 | 1,768,141 | |||||||||
12. Common Stock and Stock-Based Compensation
Restricted Stock Units
The following table summarizes the Company’s RSU activity for the three months ended June 30, 2023:
| Shares | Weighted-Average Grant Date Fair Value | ||||||||||
| Outstanding at March 31, 2023 | 2,251,224 | $ | 23.85 | ||||||||
| Granted | 848,711 | 37.99 | |||||||||
| Issued | (684,245) | 24.27 | |||||||||
| Forfeited | (24,100) | 23.68 | |||||||||
| Outstanding at June 30, 2023 | 2,391,590 | $ | 28.78 | ||||||||
As of June 30, 2023, total unrecognized compensation expense for awards issued was $61,087, which is expected to be recognized over a weighted-average period of 2.63 years. The total grant date fair value of RSUs vested was $16.5 million for the three months ended June 30, 2023.
14
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
Performance Stock Units
The following table summarizes the Company’s PSU activity for the three months ended June 30, 2023:
| Shares | Weighted-Average Grant Date Fair Value | ||||||||||
| Outstanding at March 31, 2023 | 2,748,347 | $ | 23.47 | ||||||||
| Granted | 292,985 | 40.50 | |||||||||
| Excess shares issued due to achievement of performance condition | 454,947 | 25.00 | |||||||||
| Issued | (181,050) | 25.76 | |||||||||
| Forfeited | (36,985) | 22.89 | |||||||||
| Outstanding at June 30, 2023 | 3,278,244 | $ | 24.23 | ||||||||
Included in the outstanding shares are 396,171 and 486,299 shares as of March 31, 2023 and June 30, 2023, respectively, that have vested but have not been issued. PSUs are included at 0% - 200% of target goals. The total compensation cost related to unvested awards not yet recorded at June 30, 2023 was $25,613, which is expected to be recognized over a weighted average period of 2.45 years.
The Company recorded stock-based compensation expense in the following expense categories of its unaudited condensed consolidated statements of operations:
| Three-Month Period Ended | ||||||||||||||
| June 30, 2023 | June 24, 2022 | |||||||||||||
| Cost of sales | $ | 2,606 | $ | 832 | ||||||||||
| Research and development | 2,868 | 1,128 | ||||||||||||
| Selling, general and administrative | 5,568 | 32,176 | ||||||||||||
| Total stock-based compensation | $ | 11,042 | $ | 34,136 | ||||||||||
13. Income Taxes
The Company recorded the following tax provision in its unaudited condensed consolidated statements of operations:
| Three-Month Period Ended | ||||||||||||||
| June 30, 2023 | June 24, 2022 | |||||||||||||
| Provision for income taxes | $ | 7,215 | $ | 1,965 | ||||||||||
| Effective tax rate | 10.6% | 16.0% | ||||||||||||
The Company’s provision for income taxes is comprised of the year-to-date taxes based on an estimate of the annual effective tax rate plus the tax impact of discrete items.
The Company is subject to tax in the U.S. and various foreign jurisdictions. The Company’s effective income tax rate fluctuates primarily because of: the change in the mix of our U.S. and foreign income; the impact of discrete transactions and law changes; state tax impacts and tax benefits generated by the foreign derived intangible income deduction (“FDII”), including permanent impacts of Internal Revenue Code (“IRC”) Section 174 Capitalization (“174 Capitalization”), and research credits; offset by non-deductible stock-based compensation charges.
The effective tax rate (“ETR”) year-over-year was primarily impacted by discrete tax benefits related to stock-compensation windfalls, a decrease in FDII deductions offset by reductions in state taxes, global intangible low-tax income (“GILTI”), Subpart F, and non-deductible stock-based compensation charges.
14. Related Party Transactions
Transactions involving Sanken
The Company sells products to, and purchases in-process products from, Sanken. As of June 30, 2023, Sanken held approximately 51.2% of the Company’s outstanding common stock.
15
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
Net sales of the Company’s products to Sanken totaled $0 and $41,709 during the three months ended June 30, 2023 and June 24, 2022, respectively. Although certain costs are shared or allocated, cost of goods sold and gross margins attributable to related party sales are consistent with those of third-party customers. Trade accounts receivables, net of allowances from Sanken, totaled $0 and $13,253 as of June 30, 2023 and March 31, 2023, respectively. Other accounts receivable from Sanken totaled $113 and $241 as of June 30, 2023 and March 31, 2023, respectively. Accounts payable to Sanken totaled $1,373 and $0 as of June 30, 2023 and March 31, 2023, respectively.
On March 30, 2023, the Company entered into a termination of the distribution agreement with Sanken (the “Termination Agreement”). The Termination Agreement formally terminated the distribution agreement dated as of July 5, 2007, by and between the Company and Sanken (the “Distribution Agreement”), effective March 31, 2023. The Distribution Agreement provided Sanken the exclusive right to distribute the Company’s products in Japan. In connection with the termination of the Distribution Agreement, and, as provided for in the Termination Agreement, the Company made a one-time payment of $5,000 to Sanken in exchange for the cancellation of Sanken’s exclusive distribution rights in Japan, which was recorded in selling, general and administrative expenses in the consolidated statements of operations. Concurrent with the Termination Agreement, AML and Sanken also entered into a short-term, nonexclusive distribution agreement (the “Short-Term Distribution Agreement”) and a consulting agreement (the “Consulting Agreement”), each of which were effective April 1, 2023. In addition, the Company allowed a one-time sales return from Sanken of resalable inventory of $4,200. The Short-Term Distribution Agreement provides for the management and sale of Company product inventory for a period of twenty-four months. Under the terms of the Consulting Agreement, Sanken agreed to continue to provide transition services for a period of six months to a strategic customer as orders for the customer are transitioned from Sanken to the Company, and the Company agreed to pay Sanken for providing these transition services.
Transactions involving Polar Semiconductor, LLC (“PSL”)
The Company purchases in-process products from PSL. PSL is a subsidiary of Sanken, 70% owned by Sanken and 30% owned by the Company.
Purchases of various products from PSL totaled $16,102 and $14,671 for the three months ended June 30, 2023 and June 24, 2022, respectively. Accounts payable to PSL included in amounts due to a related party totaled $5,091 and $4,682 as of June 30, 2023 and March 31, 2023, respectively.
Effective January 26, 2023, the Company and PSL entered into a new Wafer Foundry Agreement (“WFA”) for the fabrication of wafers. The WFA replaces the previous Wafer Foundry Agreement with PSL, dated April 12, 2013, which was due to expire on March 31, 2023.
The WFA has a three-year term, and auto renews for subsequent one-year terms, unless terminated by either party providing two years notice. Pursuant to the WFA, the Company will provide a rolling annual forecast for three years, the first two years of which will be binding. The Company plans to purchase the forecast volume of wafers; however, if the Company fails to purchase the forecasted number of wafers for either of the first two years, it will pay a penalty for any shortfall for the given year. The parties also agreed upon production lead-times, as well as wafer, alignment, and mask pricing for the first two years of the term. Any changes to such pricing are subject to mutual agreement.
Notes Receivable from PSL
On December 2, 2021, AML entered into a loan agreement with PSL wherein PSL provided an initial promissory note to AML for a principal amount of $7,500 (the “Initial PSL Loan”). The Initial PSL Loan will be repaid in equal installments, comprising principal and interest accrued at 1.26% per annum, over a term of four years, with payments due on the first day of each calendar year quarter (April 1, July 1, October 1, and January 1). On July 1, 2022, PSL borrowed an additional $7,500 under the same terms of the PSL Loan (the “Secondary PSL Loan” and, together with the Initial PSL Loan, the “PSL Promissory Notes”). The Secondary PSL Loan will be repaid in equal installments, comprising of principal and interest accrued at 2.99% per annum, over a term of four years, with payments due on the first day of each calendar year quarter (April 1, July 1, October 1, and January 1). The loan funds were used by PSL to procure a deep ultraviolet scanner and other associated manufacturing tools necessary to increase wafer fabrication capacity in support of the Company’s increasing wafer demand. As of June 30, 2023, the outstanding balance of the PSL Promissory Notes was $11,250. During the three months ended June 30, 2023, PSL made required quarterly payments to AML totaling $1,005, which included $67 of interest.
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other information included elsewhere in this Quarterly Report, as well as the audited financial statements and the related notes thereto, and the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” included in our Annual Report on Form 10-K for the year ended March 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on May 25, 2023 ( the “2023 Annual Report”).
In addition to historical data, this discussion contains forward-looking statements about our business, results of operations, cash flows, financial condition and prospects based on current expectations that involve risks, uncertainties and assumptions. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the section titled “Forward-Looking Statements” and in Part I, Item 1A. “Risk Factors” of our 2023 Annual Report and Part II, Item 1A. “Risk Factors” of this Quarterly Report. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.
We operate on a 52- or 53-week fiscal year ending on the last Friday of March. Each fiscal quarter has 13 weeks, except in a 53-week year, when the fourth fiscal quarter has 14 weeks. All references to the three months ended June 30, 2023 and June 24, 2022 relate to the 13-week periods ended June 30, 2023 and June 24, 2022, respectively. All references to “2024,” “fiscal year 2024” or similar references relate to the 53-week period ended March 29, 2024. All references to “2023,” “fiscal year 2023” or similar references relate to the 52-week period ended March 31, 2023.
Overview
We are a leading global designer, developer, fabless manufacturer and marketer of sensor integrated circuits (“ICs”) and application-specific analog power ICs enabling the most critical technologies in the automotive and industrial markets. We are a leading supplier of magnetic sensor IC solutions worldwide based on market share, driven by our market leadership in the automotive market. Our products are foundational to automotive and industrial electronic systems. Our sensor ICs enable our customers to precisely measure motion, speed, position and current, while our power ICs include high-temperature and high-voltage capable motor drivers, power management ICs, light emitting diode driver ICs and isolated gate drivers. We believe that our technology expertise, combined with our deep applications knowledge and strong customer relationships, enable us to develop solutions that provide more value to customers than typical ICs. Compared to a typical IC, our solutions are more integrated, intelligent and sophisticated for complex applications and are easier for customers to use.
We are headquartered in Manchester, New Hampshire and have a global footprint across multiple continents. Our portfolio now includes more than 1,500 products, and we ship over 1.5 billion units annually to more than 10,000 customers worldwide. During the three months ended June 30, 2023 and June 24, 2022 we generated $278.3 million and $217.8 million in total net sales, respectively, with $60.9 and $10.3 million in net income, respectively.
Business Updates
On June 21, 2023, we entered into a revolving facility credit agreement (the “2023 Revolving Credit Agreement”) with Morgan Stanley Senior Funding, Inc., as administrative agent, collateral agent, a letter of credit issuer and a lender, and the other agents, lenders and letter of credit issuers parties thereto. The 2023 Revolving Credit Agreement provides for a $224,000 secured revolving credit facility (the “2023 Revolving Credit Facility”), which includes a $20,000 letter of credit subfacility. The 2023 Revolving Credit Facility is available until, and loans made thereunder will mature on, June 21, 2028. The Company may borrow under the 2023 Revolving Credit Facility for working capital and general corporate purposes, including the financing of transactions that are permitted under the 2023 Revolving Credit Agreement.
Other Key Factors and Trends Affecting our Operating Results
Our financial condition and results of operations have been, and will continue to be, affected by numerous other factors and trends, including the following:
Inflation
Inflation rates in the markets in which we operate continued to increase and may continue to rise. Inflation over the last several quarters has led us to experience higher costs, including higher labor costs, wafer and other costs for materials from suppliers, and transportation and energy costs. Our suppliers have raised their prices and may continue to raise prices, and in
17
the competitive markets in which we operate, we may not be able to make corresponding price increases to preserve our gross margins and profitability. If inflation rates continue to rise or remain elevated for a sustained period of time, they could have a material adverse effect on our business, financial condition, results of operations and liquidity. While we have generally been able to offset increases in these costs through various productivity and cost reduction initiatives, as well as adjusting our selling prices and releasing new products with improved gross margins, our ability to increase our average selling prices depends on market conditions and competitive dynamics. Given the timing of our actions compared to the timing of these inflationary pressures, there may be periods during which we are unable to fully recover the increases in our costs.
Design Wins with New and Existing Customers
Our end customers continually develop new products in existing and new application areas, and we work closely with our significant original equipment manufacturer customers in most of our target markets to understand their product roadmaps and strategies. For new products, the time from design initiation and manufacturing until we generate sales can be lengthy, typically between two and four years. As a result, our future sales are highly dependent on our continued success at winning design mandates from our customers. Further, despite current inflationary and pricing conditions, we expect the average sales prices (“ASPs”) of our products to decline over time, and we consider design wins to be critical to our future success. We anticipate being increasingly dependent on revenue from newer design wins for our newer products. The selection process is typically lengthy and may require us to incur significant design and development expenditures in pursuit of a design win, with no assurance that our solutions will be selected. As a result, the loss of any key design win or any significant delay in the ramp-up of volume production of the customer’s products into which our product is designed could adversely affect our business. In addition, volume production is contingent upon the successful introduction and market acceptance of our customers’ end products, which may be affected by several factors beyond our control.
Customer Demand, Orders and Forecasts
Demand for our products is highly dependent on market conditions in the end markets in which our customers operate, which are generally subject to seasonality, cyclicality and competitive conditions. In addition, a substantial portion of our total net sales is derived from sales to customers that purchase large volumes of our products. These customers generally provide periodic forecasts of their requirements. However, these forecasts do not commit such customers to minimum purchases, and customers can revise these forecasts without penalty. In addition, as is customary in the semiconductor industry, customers are generally permitted to cancel orders for our products within a specified period. While we historically we have permitted order cancellations for most customers, most of our current customer order backlog is noncancellable, which helps mitigate our exposure to unforeseen order cancellations. However, cancellations of orders could result in the loss of anticipated sales without allowing us sufficient time to reduce our inventory and operating expenses. In addition, changes in forecasts or the timing of orders from customers expose us to the risks of inventory shortages or excess inventory. We are currently operating in an inflationary environment.
Manufacturing Costs and Product Mix
Gross margin has been, and will continue to be, affected by a variety of factors, including the ASPs of our products, product mix in a given period, material costs, yields, manufacturing costs and efficiencies. We believe the primary driver of gross margin is the ASP negotiated between us and our customers relative to material costs and yields. Our pricing and margins depend on the volumes and the features of the products we produce and sell to our customers. As our products mature and unit volumes increase, despite current price leverage, we expect their ASPs to decline in the long term. We continually monitor and work to reduce the cost of our products and improve the potential value our solutions provide to our customers, as we target new design win opportunities and manage the product life cycles of our existing customer designs. We also maintain a close relationship with our suppliers and subcontractors to improve quality, increase yields and lower manufacturing costs. As a result, these declines often coincide with improvements in manufacturing yields and lower wafer, assembly, and testing costs, which offset some or all of the margin reduction that results from declining ASPs. However, we expect our gross margin to fluctuate on a quarterly basis as a result of changes in ASPs due to product mix, new product introductions, transitions into volume manufacturing and manufacturing costs. Gross margin generally decreases if production volumes are lower as a result of decreased demand, which leads to a reduced absorption of our fixed manufacturing costs. Gross margin generally increases when the opposite occurs.
Cyclical Nature of the Semiconductor Industry
The semiconductor industry has historically been highly cyclical and is characterized by increasingly rapid technological change, product obsolescence, competitive pricing pressures, evolving standards, short product life cycles in consumer and other rapidly changing markets and fluctuations in product supply and demand. New technology may result in sudden changes in system designs or platform changes that may render some of our products obsolete and require us to devote significant research and development resources to compete effectively. Periods of rapid growth and capacity
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expansion are occasionally followed by significant market corrections in which sales decline, inventories accumulate, and facilities go underutilized. During periods of expansion, our margins generally improve as fixed costs are spread over higher manufacturing volumes and unit sales. In addition, we may build inventory to meet increasing market demand for our products during these times, which serves to absorb fixed costs further and increase our gross margins. During an expansion cycle, we may increase capital spending and hiring to add to our production capacity. During periods of slower growth or industry contractions, our sales, production and productivity suffer, and margins generally decline.
2017 Tax Cuts and Jobs Act
Pursuant to the 2017 Tax Cuts and Jobs Act (the “Jobs Act”), beginning in fiscal year 2023, U.S. tax law now requires us to capitalize and amortize domestic and foreign research and development expenditures over 5 and 15 years, for domestic and foreign research, respectively (“174 Capitalization”). The impact of 174 Capitalization for fiscal year 2024 is an increase in annual cash taxes of approximately $20 million and an FDII benefit of $9 million. While it is possible that Congress may modify this provision, potentially with retroactive effect, we have no assurance that this provision will be reversed. Additionally, the Internal Revenue Service (“IRS”) is expected to issue guidance which may modify this law change or its impact.
Results of Operations
Three-Month Period Ended June 30, 2023 Compared to Three-Month Period Ended June 24, 2022
The following table summarizes our results of operations and our results of operations as a percentage of total net sales for the three-month periods ended June 30, 2023 and June 24, 2022.
| Three-Month Period Ended | Three-Month Period Ended | Change | |||||||||||||||||||||||||||||||||
| June 30, 2023 | As a % of Net Sales | June 24, 2022 | As a % of Net Sales | $ | % | ||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
Total net sales (1) | $ | 278,293 | 100.0 | % | $ | 217,753 | 100.0 | % | $ | 60,540 | 27.8 | % | |||||||||||||||||||||||
Cost of goods sold (1) | 120,343 | 43.2 | % | 99,379 | 45.6 | % | 20,964 | 21.1 | % | ||||||||||||||||||||||||||
| Gross profit | 157,950 | 56.8 | % | 118,374 | 54.4 | % | 39,576 | 33.4 | % | ||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Research and development | 42,975 | 15.4 | % | 33,857 | 15.5 | % | 9,118 | 26.9 | % | ||||||||||||||||||||||||||
| Selling, general and administrative | 44,229 | 15.9 | % | 69,780 | 32.0 | % | (25,551) | (36.6) | % | ||||||||||||||||||||||||||
| Total operating expenses | 87,204 | 31.3 | % | 103,637 | 47.5 | % | (16,433) | (15.9) | % | ||||||||||||||||||||||||||
| Operating income | 70,746 | 25.4 | % | 14,737 | 6.9 | % | 56,009 | 380.1 | % | ||||||||||||||||||||||||||
| Other income (expense), net: | |||||||||||||||||||||||||||||||||||
| Interest expense | (769) | (0.3) | % | (278) | (0.1) | % | (491) | 176.6 | % | ||||||||||||||||||||||||||
| Interest income | 843 | 0.3 | % | 158 | 0.1 | % | 685 | 433.5 | % | ||||||||||||||||||||||||||
| Other, net | (2,716) | (1.0) | % | (2,369) | (1.1) | % | (347) | 14.6 | % | ||||||||||||||||||||||||||
| Total other income, net | (2,642) | (0.9) | % | (2,489) | (1.1) | % | (153) | 6.1 | % | ||||||||||||||||||||||||||
| Income before income tax provision | 68,104 | 24.5 | % | 12,248 | 5.6 | % | 55,856 | 456.0 | % | ||||||||||||||||||||||||||
| Income tax provision | 7,215 | 2.6 | % | 1,965 | 1.0 | % | 5,250 | 267.2 | % | ||||||||||||||||||||||||||
| Net income | 60,889 | 21.9 | % | 10,283 | 4.7 | % | 50,606 | 492.1 | % | ||||||||||||||||||||||||||
| Net income attributable to non-controlling interests | 39 | — | % | 36 | — | % | 3 | 8.3 | % | ||||||||||||||||||||||||||
| Net income attributable to Allegro MicroSystems, Inc. | $ | 60,850 | 21.9 | % | $ | 10,247 | 4.7 | % | $ | 50,603 | 493.8 | % | |||||||||||||||||||||||
(1)Our total net sales and cost of goods sold for the periods presented above include related party net sales and costs of goods sold generated with Sanken. See our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information regarding our related party net sales for the periods set forth above.
Total net sales
Total net sales increased in the three-month period ended June 30, 2023 in the three-month period ended June 24, 2022. This increase was primarily attributable to higher shipments of our e-Mobility products, which includes our advanced
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driver assistance systems (“ADAS”), electrified vehicle (“EV”), and broad-based industrial applications, which includes clean energy and automation offset by declines in our consumer and smart home markets.
Sales Trends by Market
The following table summarizes total net sales by market. The categorization of net sales by market is based on the characteristics of the end product and application into which our product will be designed.
| Three-Month Period Ended | Change | ||||||||||||||||||||||
| June 30, 2023 | June 24, 2022 | Amount | % | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Automotive | $ | 189,698 | $ | 149,649 | $ | 40,049 | 26.8 | % | |||||||||||||||
| Industrial | 68,184 | 40,140 | 28,044 | 69.9 | % | ||||||||||||||||||
| Other | 20,411 | 27,964 | (7,553) | (27.0) | % | ||||||||||||||||||
| Total net sales | $ | 278,293 | $ | 217,753 | $ | 60,540 | 27.8 | % | |||||||||||||||
Automotive net sales increased in the three-month period ended June 30, 2023 compared to the three-month period ended June 24, 2022, primarily due to higher demand for our ADAS, EV and safety, comfort and convenience applications.
Industrial net sales increased in the three-month period ended June 30, 2023 compared to the three-month period ended June 24, 2022, primarily due to increases in demand for clean energy and automation. This increase was partially offset by declines in our data center applications.
Other net sales decreased in the three-month period ended June 30, 2023 compared to the three-month period ended June 24, 2022, primarily due to lower demand for our Energy Star household appliance applications, including consumer and smart home offerings.
Sales Trends by Product
The following table summarizes net sales by product.
| Three-Month Period Ended | Change | ||||||||||||||||||||||
| June 30, 2023 | June 24, 2022 | Amount | % | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Magnetic sensors (“MS”) and other | $ | 174,305 | $ | 137,093 | $ | 37,212 | 27.1 | % | |||||||||||||||
| Power integrated circuits (“PIC”) | 103,988 | 80,660 | 23,328 | 28.9 | % | ||||||||||||||||||
| Total net sales | $ | 278,293 | $ | 217,753 | $ | 60,540 | 27.8 | % | |||||||||||||||
The increase in net sales by product was driven by a relatively even increase in both PIC and MS product sales. MS sales were driven primarily by our current and isolator products as well our magnetic position sensors, while PIC sales were driven by our motors and high performance power products.
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Sales Trends by Geographic Location
The following table summarizes net sales by geographic location based on ship-to location.
| Three-Month Period Ended | Change | ||||||||||||||||||||||
| June 30, 2023 | June 24, 2022 | Amount | % | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Americas: | |||||||||||||||||||||||
| United States | $ | 48,824 | $ | 28,391 | $ | 20,433 | 72.0 | % | |||||||||||||||
| Other Americas | 8,508 | 6,487 | 2,021 | 31.2 | % | ||||||||||||||||||
| EMEA: | |||||||||||||||||||||||
| Europe | 55,388 | 35,333 | 20,055 | 56.8 | % | ||||||||||||||||||
| Asia: | |||||||||||||||||||||||
| Greater China | 62,216 | 55,116 | 7,100 | 12.9 | % | ||||||||||||||||||
| Japan | 41,580 | 41,709 | (129) | (0.3) | % | ||||||||||||||||||
| South Korea | 29,513 | 20,979 | 8,534 | 40.7 | % | ||||||||||||||||||
| Other Asia | 32,264 | 29,738 | 2,526 | 8.5 | % | ||||||||||||||||||
| Total net sales | $ | 278,293 | $ | 217,753 | $ | 60,540 | 27.8 | % | |||||||||||||||
Net sales increased across all locations in the three-month period ended June 30, 2023 compared to the three-month period ended June 24, 2022, primarily due to content and market share gains across all geographies, except for Japan, which continues to transition from our termination of the Sanken distribution agreement, which provided Sanken the exclusive right to distribute our products to Japan.
Our largest growth was in North America and Europe driven by our broad-based industrial markets, industrial automation and e-Mobility applications. Growth in Asia was driven by both China and South Korea which included growth in all areas of the automotive market, including internal combustion engine (“ICE”), safety, comfort and convenience, ADAS, and EV.
Cost of goods sold and gross profit
Cost of goods sold increased in the three-month period ended June 30, 2023 compared to the three-month period ended June 24, 2022, primarily attributable to higher production volume in support of higher product sales, and to a lesser extent additional inventory reserves and stock-based compensation.
Gross profit increased in the three-month period ended June 30, 2023 compared to the three-month period ended June 24, 2022, driven by a $60.5 million increase in net sales across all markets, partially offset by the impacts to cost of goods sold discussed above.
R&D expenses
R&D expenses increased in the three-month period ended June 30, 2023 in comparison to the comparable period in fiscal year 2023, primarily due to a combined increase in personnel and outside service costs, and an increase in general operating expenses.
R&D expenses as a percentage of our total net sales remained relatively consistent at 15.4% and 15.5% for the three-month periods ended June 30, 2023 and June 24, 2022, respectively.
SG&A expenses
SG&A expenses decreased in the three-month period ended June 30, 2023 compared to the three-month period ended June 24, 2022, primarily due to the inclusion of accelerated stock-based compensation expense of $26.3 million related to the retirement of our former chief executive officer and $3.8 million of severance due to changes in leadership in the period ending June 24, 2022. These decreases were partially offset by increased professional fees and outside services costs of $2.4 million and personnel increases.
SG&A expenses as a percentage of our total nets sales decreased to 15.9% from 32.0% in the three-month periods ended June 30, 2023 and June 24, 2022, respectively. The decrease was primarily due to the impacts noted above.
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Interest expense and interest income
Interest expense increased in the three-month period ended June 30, 2023 compared to the three-month period ended June 24, 2022, due to higher interest payments on the Term Loan Facility. Interest income increased compared to the three-month period ended June 24, 2022, primarily due to higher cash balances maintained.
Other, net
We recorded a foreign currency transaction loss in the three-month period ended June 30, 2023 compared to a foreign currency transaction gain in the three-month period ended June 24, 2022. The foreign currency transaction loss recorded in the three-month period ended June 30, 2023 was primarily due to the realized and unrealized losses from our United Kingdom location due to the strengthening of the British Pound.
We recognized unrealized losses of $8.9 million, offset by $5.2 million of realized gains related to our investment in marketable securities in the three-month period ended June 30, 2023, compared to unrealized losses of $3.4 million during the three-month period ended June 24, 2022.
Income tax provision
Income tax provision and the effective income tax rate were $7.2 million and 10.6%, respectively, in the three-month period ended June 30, 2023 and $2.0 million and 16.0%, respectively, in the three-month period ended June 24, 2022. The effective tax rate (“ETR”) year-over-year was primarily impacted by discrete tax benefits related to stock-based compensation windfalls and a decrease in FDII deductions offset by reductions in state taxes, GILTI, Subpart F, and non-deductible stock-based compensation charges.
Liquidity and Capital Resources
As of June 30, 2023, we had $353.4 million of cash and cash equivalents and $546.8 million of working capital compared to $351.6 million of cash and cash equivalents and $500.5 million of working capital as of March 31, 2023. Working capital is impacted by the timing and extent of our business needs.
Our primary requirements for liquidity and capital resources are working capital, capital expenditures, principal and interest payments on our outstanding debt and other general corporate needs. Historically, these cash requirements have been met through cash provided by operating activities and cash and cash equivalents. Our current capital deployment strategy for fiscal 2024 is to utilize cash on hand and capacity under our 2023 Revolving Credit Facility to support our continued growth initiatives into select markets, planned capital expenditures, as well as consider potential acquisitions. As of June 30, 2023, the Company was not party to any off-balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. The cash requirements for the upcoming fiscal year relate to our operating leases, operating and capital purchase commitments and expected contributions to our defined benefit and contribution plans. Additionally, we expect to invest in expanding our operations in China, Europe and Japan in order to directly manage and service our customers in these markets, which could result in increases in our total net sales, cost of goods sold and operating expenses. For information regarding the Company’s expected cash requirements and timing of payments related to leases, noncancellable purchase commitments and pension and defined contribution plans, see Note 12, “Leases,” Note 16, “Commitments and Contingencies” and Note 15 “Retirement Plans” to the audited consolidated financial statements in the Company’s 2023 Annual Report.
We believe that our existing cash will be sufficient to finance our continued operations, growth strategy, planned capital expenditures and the additional expenses that we expect to incur during the next 12 months. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through equity or debt financing. We believe that our current operating structure will facilitate sufficient cash flows from operations to satisfy our expected long-term liquidity requirements beyond the next 12 months. If these resources are not sufficient to satisfy our liquidity requirements due to changes in circumstances, we may be required to seek additional financing. If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, may contain covenants that significantly restrict our operations or our ability to obtain additional debt financing in the future. Any additional financing that we raise may contain terms that are not favorable to us or our stockholders. We cannot assure you that we would be able to obtain additional financing on terms favorable to us or our existing stockholders, or at all.
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Cash Flows from Operating, Investing and Financing Activities
The following table summarizes our cash flows for the three months ended June 30, 2023 and June 24, 2022:
| Three-Month Period Ended | |||||||||||
June 30, 2023 | June 24, 2022 | ||||||||||
| (dollars in thousands) | |||||||||||
| Net cash provided by operating activities | $ | 49,663 | $ | 36,553 | |||||||
| Net cash used in investing activities | (34,939) | (14,389) | |||||||||
| Net cash used in financing activities | (11,035) | (9,137) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (73) | (6,554) | |||||||||
| Net increase in cash and cash equivalents and restricted cash | $ | 3,616 | $ | 6,473 | |||||||
Operating Activities
Net cash provided by operating activities was $49.7 million in the three-month period ended June 30, 2023, resulting primarily from net income of $60.9 million and noncash charges of $25.8 million, partially offset by a net decrease in cash from an increase in net operating assets and liabilities of $37.0 million. The net increase in operating assets and liabilities consisted of a $27.9 million increase in inventories, a $8.8 million increase in prepaid expenses and other assets, a $17.1 million decrease in accrued expenses and other current and long-term liabilities, and a $10.3 million increase in trade accounts receivable, net, partially offset by a $18.4 million increase in trade accounts payable, and a $10.1 million increase in net amounts due from related parties. The increase in inventories was primarily the result of inventory builds to support anticipated sales growth for the remainder of fiscal 2024. The increase in prepaid expenses and other assets were mostly due to higher long-term deposits and the timing of tax payments, including value-added taxes receivable, insurance and contract costs. The decrease in accrued expenses and other current and long-term liabilities was primarily the result of a reduction in accrued personnel costs due to timing of payments pursuant to our annual incentive compensation plan. The increase in trade accounts receivable, net was primarily a result of increased sales year-over-year, as well as the timing of receipts. Accounts payable increased primarily due to the timing of payments to suppliers and vendors, partially offset by higher operating purchases, including unpaid capital expenditures of $11.7 million. The increase in net amounts due to related parties was primarily due to variations in the timing of such payments in the ordinary course of business.
Net cash provided by operating activities was $36.6 million in the three months ended June 24, 2022, resulting primarily from our net income of $10.3 million and noncash charges of $44.2 million, partially offset by a net decrease in operating assets and liabilities of $17.9 million. Net changes in operating assets and liabilities consisted of a $13.1 million increase in prepaid expenses, a $4.9 million increase in inventories, a $4.7 million increase in trade accounts receivable, net, and a $3.3 million decrease in net amounts due from related parties, partially offset by a $1.2 million increase in accrued expenses and other current and long-term liabilities, a $4.1 million increase in trade accounts payable and a $2.7 million decrease in other accounts receivable. The increase in prepaid expenses and other assets was primarily due to higher long-term deposits and the timing of tax payments, including value-added taxes receivable, insurance and contract costs. The increase in inventories was primarily the result of inventory builds to support anticipated sales growth in the remainder of fiscal 2023. The increase in trade accounts receivable, net was primarily a result of increased sales year-over-year, as well as the timing of receipts from customers. The decrease in net amounts due to related parties was primarily due to variations in the timing of such payments in the ordinary course of business. The increase in accrued expenses and other current and long-term liabilities was primarily the result of higher accrued income taxes and accrued personnel costs, partially offset by higher management incentive payments. Accounts payable increased mainly due to the timing of payments to suppliers and vendors, partially offset by higher operating purchases, including unpaid capital expenditures of $2.6 million. The decrease in accounts receivable - other was primarily due to increased distributor sales year-over-year, as well as the timing of receipts from Sanken.
Investing Activities
Net cash used in investing activities was $34.9 million in the three-month period ended June 30, 2023, consisting of purchases of property, plant and equipment of $44.9 million and proceeds from the sale of marketable securities of $10.0 million.
Net cash used in investing activities was $14.4 million in the three-month period ended June 24, 2022, consisting of purchases of property, plant and equipment.
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Financing Activities
Net cash used in financing activities was $11.0 million in the three-month period ended June 30, 2023, primarily consisting of taxes related to the net settlement of equity awards and payments of debt issuance costs in connection with the 2023 Revolving Credit Facility, partially offset by proceeds received in connection with the issuance of common stock under our employee stock purchase plan.
Net cash used in financing activities was $9.1 million in the three-month period ended June 24, 2022, primarily consisting of taxes related to the net settlement of equity awards.
Debt Obligations
See Note 9, “Debt and Other Borrowings” in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for information regarding our debt obligations.
Recent Accounting Pronouncements
See Note 2, “Summary of Significant Accounting Policies” in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for a full description of recent accounting pronouncements, including the respective dates of adoption or expected adoption and effects on our condensed consolidated financial statements contained in Item 1 of this Quarterly Report.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies” to our consolidated financial statements included in our 2023 Annual Report. There have been no material changes in our critical accounting policies and estimates since March 31, 2023.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in our exposures to market risk since March 31, 2023. For details on the Company’s interest rate, foreign currency exchange, and inflation risks, see “Part I, Item 7A. “Quantitative and Qualitative Information About Market Risks” in our 2023 Annual Report.
Item 4. Controls and Procedures.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2023. Based on the evaluation of our disclosure controls and procedures as of June 30, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may be involved in claims, regulatory examinations or investigations and proceedings arising in the ordinary course of our business. The outcome of any such claims or proceedings, regardless of the merits, and the Company’s ultimate liability, if any, is inherently uncertain. We are not currently party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.
Item 1A. Risk Factors.
There have been no material changes in the risk factors previously disclosed in Item 1A. of our 2023 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 5. Other Information.
During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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Item 6. Exhibits
(a) Exhibits
Exhibit No. | Description of Exhibit | |||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 10.3 | ||||||||
| 10.4 | ||||||||
| 10.5 | ||||||||
| 10.6 | ||||||||
| 10.7 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1** | ||||||||
| 32.2** | ||||||||
| 101.INS | Inline XBRL Instance Document. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101 filed herewith). | |||||||
*Indicates management contract or compensatory plan, contract or arrangement.
** Furnished herewith.
† Portions of this exhibit (indicated by “[XXX]”) have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K under the Securities Act of 1933, as
amended, because they are both (i) not material and (ii) would likely cause competitive harm to the registrant if publicly disclosed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ALLEGRO MICROSYSTEMS, INC. | |||||||||||
| Date: August 4, 2023 | By: | /s/ Vineet Nargolwala | |||||||||
| Vineet Nargolwala | |||||||||||
| President and Chief Executive Officer (principal executive officer) | |||||||||||
| Date: August 4, 2023 | By: | /s/ Derek P. D’Antilio | |||||||||
| Derek P. D’Antilio | |||||||||||
| Senior Vice President, Chief Financial Officer and Treasurer (principal financial officer) | |||||||||||
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