Q2 2021 Allegro Microsystems Inc Earnings Call

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Be advised on today's conference maybe recorded and now.

And the conference over to your Speaker today, Mr. <unk> senior director of Investor Relations. Thank you you come on.

Good morning, and thank you for joining us today for like on second quarter results for fiscal year 2021.

I'm joined today by <unk>, President and Chief Executive Officer, Rob He think and alike on the Chief Financial Officer, Paul Walsh.

We'll review our quarterly financial performance and provide a summary of our outlook.

Our earnings release, and the accompanying financial tables and available on the Investor Relations page of our website and call is being webcast and and a recording will be available on our IR page shortly.

Please note that comments made during this conference call include forward looking statements look and the meaning of federal Securities laws. These.

Forward looking statements include projections and other statements about future events that are based on current expectations and assumptions that the results are subject to risks and uncertainties that could cause actual results to vary true from our projections.

Please refer to the earnings press release, we issued today and other documents filed by asking on PC, putting the risk factors discussed in detail and on site IPO.

Prospectus filed on October three yes 2020.

The company and seems no obligation to update any forward looking information presented and.

Non-GAAP financial measures that are discussed today are not intended to replace or be a substitute for the presentation of the Lakers GAAP financial results and may be calculated differently than from wind measures used by other companies.

We are providing this supplemental information because it may enable investors to make meaningful comparisons of core operating results and more clearly highlight the results of our core ongoing operations, a reconciliation of GAAP and non-GAAP financial measures referenced during today's call can be found on the tables provided in our earnings press release and posted to our IR page.

I'll now turn the call over to Legras, President and CEO, Bobby sake Robby.

Thank you Katie and good morning, everyone.

Revenue in fiscal Q2 exceeded our expectations and demonstrated strong recovery off our cobot quarters slows.

Revenue grew 21 million or approximately 19% on a sequential basis to 136.6 million flat with the prior year.

As a result of strength across all end markets.

We're forecasting healthy sequential growth again for our fiscal Q3 with revenues of 149 million plus or minus 2 million.

Our automotive business has benefited from the global automotive production rebound, but solid upside at the automakers came back online.

We also benefited from ramping blends and actually be which we expect to accelerate as many automakers have recently presented plants that further buys vehicle lineups towards Zeevi powertrain.

And our eight and story continues to strengthen with our latest went on increasing our total content per vehicle.

And the and advanced safety critical steering and breaking applications.

Last quarter, we closed on our acquisition of Boxtel, a developer photonics components for lighter.

The acquisition parents, leading IC photonics technology with our extensive portfolio of products optimized for Adas applications.

Overall, it's important to remember that we believed that position right and the sweet spot and the up the most significant trends and the auto market.

Giving us a good launch pad and some market recovers.

Our industrial and other business also saw strength during the quarter.

We believe the industrial market and a growing portfolio on power and sensor products represent high quality growth sectors, and we continue to see healthy demand in factory automation and datacenter applications.

Reinforcing our healthy outlook is the acceleration and customer bookings during the second quarter.

Particularly in August and September across all end markets, we believe our business recovery shaping up and we are preparing for upside scenarios.

I'll provide more color on our view of the current health and positive trajectory of our business.

After we review the financial results Paul.

Thank you Robbie and that.

Sales or revenue in fiscal two Q1 hundred 36.6 million was up 18.8% sequentially.

Rebounding strongly off from cold it impacted first quarter we.

We entered two true with a solid backlog and bookings continued to accelerate particularly from our automotive customers.

Oh and market revenue mix for the quarter began to return to a more normal ratio automotive revenue was 89.5 million and debt.

Just real revenue was 21.7 million and other was 25.5 million for the quarter.

We did not have any and customers.

That 10% during the quarter our business is reasonably first.

Even considering the market share we enjoy among tier one automotive and industrial customers.

Our GAAP gross margin for the quarter was 45.2% 300 basis points higher than the same period a year ago.

Consistent with our preliminary Flash report and in our IPO prospectus, our non-GAAP gross margin was 47.7%, which does not include adjustments of approximately $3 million or expenses related to the Thai facility consolidation and a onetime adjustment for depreciation of GE on board.

Assets as noted in our press release.

We expect our non-GAAP gross margins in Threeq and to be in the range of 50% to 51%, which also does not include the impact of these and trust.

Total GAAP operating expenses decreased sequentially by 1.8 million and 49.4 million with R&D of 25.1 million and EPS DNA at 24.2 million.

Non-GAAP operating expenses were 45.2 million, which does not include adjustments of 0.4 million for expenses related to the tide facility consolidation.

These unique costs associated with our various trends from a transformational activities and not expected to be meaningful beyond fiscal 2021.

We expect that non-GAAP operating expenses will be up modestly and reach your mainly driven by variable compensation as our business continues to improve.

GAAP operating income for the quarter was 12.4 million or 9.1% of revenue.

Fiscal two Q effective tax rate was 17.8% and GAAP net income for the second fiscal quarter was up sequentially to 9.6 million.

Non-GAAP operating income was $20.0 million or 14.6% of revenue, which also does not include adjustments.

Actually really 3.4 million related to the type facility consolidation and a onetime adjustment for depreciation of GMR assets.

The Twoq non-GAAP effective tax rate was approximately 15% and is expected to be 15% to 17% and fiscal Threeq true.

Our share count for the quarter as a private company was 10 million, but it's not meaningful as a comparison to future periods.

Our diluted share count for Threeq, you will be approximately 189.4 million shares.

We're not providing GAAP earnings per share guidance due to the impact of the following significant three fewer bench.

Not determinable at this point decent.

These include the singular investing event on pre IPO class a shares held by employees and the years issuances of New equity awards each in connection with our IPO. The planned retirement of at least 75% about 325 million dollar term loan and the associated deferred financing costs.

$400 million dividend prior to our IPO and the tax consequences on each of these material events.

Our strong execution and business fundamentals continue to be evident and our balance sheet cash and equivalents of 208 million and to cure were down 12 million sequentially, primarily due to the block sale acquisition and incentive payouts.

Accounts receivable balances were 77.5 million and we ended the quarter with DSL, what 51 days, which was down seven days compared to the first quarter and consistent with historical norms.

Net inventory decreased by $3 million as anticipated to finish up from 105 million.

Based on the information, we have we believe inventories and the channel or a desirable levels and and.

And customer demand appears strong.

In summary, we experienced a significant recovery on our top line during the quarter exceeding our expectations. We believe our operational efficiencies and balance sheet Foundation are indicative of the strength and our underlying business I'll now turn it back over to Robby.

Thank you Paul.

It's great to see the positive results from the business transformation that we began four years ago debt.

The transformation included strategic objectives that visibly paying off from.

First we focused on extending market leadership through targeted portfolio expansion you will hear today about increased traction and next CB eight ass factory automation and datacenter applications second.

Second we have been developing a more nimble manufacturing strategy to improve the operating model. The benefits of these actions are evident and the strong fiscal Q2 performance.

Along with that topline recovery, we have seen continued momentum and a key sales metrics fiscal year to date, but design wins up 20%.

The vast majority of these design wins on for new business with a concentration and not target high growth applications.

Some other notable design win activity in the quarter included significant wins at a major tier one from current sensors and actually be inverters.

We also secured wins from motor drivers and white goods programs, and Korea, and China, which we expect will ramp and then you near term.

As you know we have the market leading magnetic sensor rights fees.

We have focused primarily on the high value opportunities and the auto and industrial markets magnetic sensor IC revenue represented 63% of revenue in fiscal Q2 growing 17% sequentially. After the trust created by the COVID-19 and pandemic.

Our growth was driven by the and recovery and automotive, particularly for speed and position sensors power prices were up 21% sequentially, representing 37% of revenue in fiscal Q2.

We believe this growth was due in part to expanding content and systems, where we already have an incumbent positions with our sensors.

And on that note, we recently announced our latest family of power products. The industry's largest portfolio up 80, both motor drivers for advanced 48 volt automotive systems like battery electric and hybrid electric vehicles.

These products provide and world class safety diagnostics and ultra small packages.

Enabling smaller more efficient designs.

We already have great engagement on these products with tier one customers globally, and we are leveraging our high voltage power expertise beyond automotive to industrial applications from 48 volt power Inverters to E bikes.

Now, let's take a closer look at our end markets starting with automotive.

Automotive represented 65% of total revenue down from historical levels and the low to mid Seventys range.

Q2 revenue grew 17% sequentially.

Looking back to Q1 on on.

And what of revenue did not decline and sharply at the overall automotive market due in part to a slow responding customer supply chain and a global diversification.

This soften the impact of the production volume decline on our automotive sales and the first quarter, but also created some pockets of inventory and our customers that we believe was subsequently depleted during Q2.

We do expect that inventories have balanced out and <unk> and <unk> and are at reasonable levels.

On auto revenue growth reflects a market recovery and I see E X.

Zeevi, Ada Es and safety comfort and convenience businesses.

Which all grew double digits in the second quarter.

I revenue and next CV was up more than 35% sequentially and nearly 100% year over year, which speaks to the momentum in the space.

We win when cars electrify.

And were seeing on content per vehicle increase rapidly from battery Chargers and inverters to battery cooling Forex TV.

Beyond those types of electrified powertrain applications, we are growing our HCV related content with a quite motions and family office and drivers power products and systems like in cabin heating and cooling, which now have to be quieter more efficient and run off the battery.

We currently have programs ramping across a broad range of applications and actually be around the world and we expect to see double digit sequential growth again for the coming quarter.

And the other space, where we are seeing our content opportunity increases Ada es.

In Q2 and demand recovered and eat ask applications on our revenue was up 12% sequentially.

We expect to see strong double digit growth in Q3.

With our latest new program wins now ramping we're increasing our overall content from our power products alongside a market leading sensors.

For example, one of our latest program wins for for breaking and Korea includes floor apartment net expense crises and two power devices.

Now I'll cover our industrial business for Q2.

This business consists of some of our strategic focus areas outside of automotive.

Such as industry, 4.0, renewable energy and infrastructure, including data center.

In Q2, I mean, just industrial business was up 6% sequentially and.

And up 20% year over year as the business continues its transition to new growth markets.

Broad based.

Category traditionally serviced through the distribution channel.

Grew 10% sequentially EPS factorys reopened and production accelerated.

Within our industry 4.0 category, which makes up 7% reported revenue building and factory automation was up double digit sequentially.

And just three 4.0 continues to be a major focus area for us as we align on technologies with increasing applications demand for precision.

Fish and see and reliability.

We've also been strategic about applying a power technology to take advantage up on disruptive trend and growth markets such as data centers converting to 48 volt and our customers are taking notice of that.

We now count most other Hyperscale data center providers as our customers.

This is an area that continues to offer diversification and augment growth for us in Q2 data center revenue was up and the high single digits sequentially, reaching another quarterly record.

The outlook for our industrial business remains strong for Q3, we expect to see double digit growth and not broad industrial business offer.

Offsets some watch by the build cycle and Datacenters, which are expected to be flat to down sequentially.

Finally, we had a strong quarter and other business, which represents on non focus markets, including white goods printers and peripherals.

The other was 25.5 million in the quarter due in part to a cold and related surge in demand for our products supporting a variety of white goods and printers.

We expect this business to remain around this run rate and the near term.

Now for the fiscal Q3 guidance.

Reflecting the late timing of the Q2 earnings announcement, we are providing a narrow than typical range.

Automotive revenue growth and the high teens sequentially and industrial revenue growth and the mid single digits sequentially. We expect revenue to be in the range on 147 to 151 million.

Operating expenses are expected to be up modestly and we expect non-GAAP gross margin to be in the range of 50% to 51%.

We expect non-GAAP earnings per share to be in the range of 11 to 12 cents.

Given the proximity to our recently completed IPO, we will not be taking any questions today.

I want to leave you with our confidence and the recovery cycle of our business based on the strength of Pud bookings, giving us optimism for the future Katy.

Thank you brought on.

And now conclude their call. Thank you for joining us today and your interest and the like on micro system.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may now disconnect.

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