Q4 2021 Allegro Microsystems Inc Earnings Call

May 5, 2021

[music].

Good morning, ladies and gentlemen, and welcome to the Allegro micro systems fourth quarter and fiscal 2021 financial results conference call. At this time all participants are in a listen only mode. Later, we look and that day question and answer session and instructions will follow at that.

Time, if anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone.

I would now like turn the conference over to your host Ms. Catherine Blyth Senior director of Investor Relations.

Good morning, and thank you for joining us today for <unk> fourth quarter and full year results for fiscal year, 2020 one.

I'm joined today by the way gross President and Chief Executive Officer, Bobby Big and alike.

And our Chief Financial Officer, Paul Walsh will review, our quarterly and annual 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 all is being webcast and recording will be available on our IR page shortly.

Please note that comments made during this conference call include forward looking statements within 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 and as a result are subject to risks and uncertainties that could cause actual results to vary materially from our protection.

Please refer to the earnings press release issued today and other documents filed by us.

Including the risk factors discussed in detail and our most recent.

Mild February 2021.

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

And non-GAAP financial measures that are discussed today are not intended to replace or substitute because it couldn't piece and a couple of like gross GAAP financial results.

And maybe calculated differently and similar measures used by other companies.

And we're 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 to non-GAAP financial measures.

Today during the call can be found in our earnings press release and posted to our IR page.

I will now turn the call over to labor as President and CEO Ravi Big Ravi.

Thank you Katie and good morning, everyone.

We couldnt be more pleased with the company performance in fiscal 'twenty, one and the strong start and outlook our fiscal 'twenty two.

We had a tremendous year and fourth quarter exceeded our guidance with revenue, finishing up 6% sequentially due to the strength across all our businesses.

Profitability exceeded expectations due in part to further improvement and non-GAAP gross margins, which approached 51%.

This resulted in sequential fourth quarter non-GAAP earnings per share growth of 15% more than double of topline growth.

Consistent top and bottom line growth really speaks to our industry, leading technologies alignment to growth markets like electrification and data centers and the flexibility and resilience of our assets like manufacturing model.

These building blocks combined with design wins exceeding our target by 40% give us confidence and the long term outlook.

We're expecting another record revenue quarter for the core business and Q1 fueled by new customer program ramps and increased content the transition to feature rich vehicle production and.

And the global recovery.

And I'm proud of the team's execution and look forward to the future with considerable optimism as we focus on our commitment to customers and shareholders and navigate the supply balances and the industry.

I'll share more about the status of the business and the outlook. After we review the financial results.

And all.

Thank you Robbie we ended fiscal 'twenty, one with revenue of $591 $2 million and increase of our core business up 9% year over year.

Q4 was a record for the core business with revenue up six 5% sequentially to $175 $1 million.

And market, we grew sequentially and year over year across all of our primary focus areas, we delivered record revenue levels and both auto and industrial.

Demand continues to surge to new highs.

I'll order visibility now extends well into fiscal 'twenty two.

Automotive revenue increased 4% sequentially and fiscal Q4 to 100 and.

$18 $5 million up 12% year over year.

For fiscal 'twenty one.

Automotive revenue grew $3 million $398 $3 million up 1% year over year overcoming the softness of the COVID-19 impact early in the fiscal year.

And compares favorably to global car production, which declined 8% and our fiscal 'twenty one period supporting the content per vehicle growth that Ravi alluded to earlier.

Industrial revenue increased 23% sequentially and 31% year over year, reaching $29 $1 million for the quarter for the full year industrial grew 21% to $94 $9 million.

Our other business revenue grew 2% sequentially to $27.4 million up 80% year over year.

For the full year other grew 42% to and at $98 million.

Despite meaningful growth across our top customers, we did not have any and customers greater than 10% and Q4 or for the full year.

GAAP gross margin for the quarter was 49, 7% up sequentially again, and the highest level of fiscal 'twenty one.

For the year GAAP gross margin was 47, 2%.

Q4, non-GAAP gross margin of 59% was at the top end of our guidance and was up 135 basis points sequentially.

Non-GAAP gross margin was 50.0% for the full year net.

Non-GAAP adjustments include costs related to the poll of divestiture.

Thailand facility transition and stock compensation.

Gross margin improved and reflects the progress made on our manufacturing transfer formation and despite increasing input costs driven by supply constraints and other inflationary pressures.

And as you can see continued margin improvement throughout the coming year.

GAAP R&D expense was $28 $1 million declining by $2 $8 million sequentially.

GAAP net G&A expenses were 39 $4 million down from 67 point.

$7 million and Q3.

Total GAAP operating expenses for the quarter were $67 $6 million.

Because of outperformance on the top line and operating income variable compensation was about $2 million higher than we anticipated.

Total non-GAAP operating expenses for fiscal Q4, and were $54 $8 million or 31, three percentage of revenue and improvement of 150 basis points sequentially.

Non-GAAP R&D expense was $27 $6 million, which exclude stock based compensation expense.

Non-GAAP SG&A expenses were $27 $2 million, excluding impairment charges and fees associated with the planned sale of our Thailand facility transaction and one time consulting fees.

Compensation expense facility closure costs and a gain on the adjustment of contingent consideration for the box Hill acquisition.

We expect non-GAAP operating expenses to be and a range of 53 to $53 5 million and Q1.

GAAP operating income for the quarter increased to $19 $4 million or 11, one percentage of sales the highest level of fiscal 'twenty one.

Non-GAAP operating income increase of $34 4 million or 19, 7% of sales rising by an impressive 44% sequentially.

On top line growth of 6.5%.

Fourth quarter GAAP net income was $8 $6 million with an effective tax rate of 49%.

GAAP earnings per diluted share were 5%.

For fiscal 'twenty, one GAAP net income was $18 million with a tax benefit of $19 $5 million.

Fiscal 'twenty, one GAAP earnings per diluted share was 10 cents.

Non-GAAP net income increased to $28 $3 million non.

Non-GAAP earnings per diluted share was 15 cents up 15% over last quarter and at the top end of our guidance.

Q4, non-GAAP effective tax rate was 16% and is expected to be in the 16 and 17% range for the upcoming quarter and for.

Throughout fiscal 'twenty two.

Our current diluted share count is $199 million and is expect to be expected to rise to about 191, 4 million and Q1 and about $191 9 million for the year.

Our strong execution and business fundamentals continue to be evident and our balance sheet cash and equivalents from Q4 were up by $40 million sequentially and that $204 million, we generated $56 million and operating cash flow and the quarter.

Accounts receivable balances were $95 million and we ended the quarter with DSO of 49 days consistent with last quarter.

Net inventory decreased by $7 million to finish at $87 million.

<unk> strong demand and tight supply.

Channel inventories continued to hover at historic lows, while P. O S sell through was at historic highs.

In fiscal 'twenty, one capital expenditures totaled $41 million as we made strategic investments and back and capacity ahead of the anticipated recovery.

We expect capex to increase in fiscal 'twenty, 2% to 7% to 8% of revenue to support continued growth and the business.

We expect continued strength and cash flow throughout the year.

In summary, we ended fiscal 'twenty, one with strong results across all financial metrics, we expect to continue making progress towards our long term target model and fiscal 'twenty, two and look forward to benefiting from the structural changes and cheap for a strategic transformation I'll now turn the call back to Ravi to discuss the business highlights.

Ravi.

Thank you Paul.

We're proud to say our fiscal 'twenty, one, what's and metals and memorable here. Despite the challenges of the COVID-19 pandemic.

It was a year and which we executed our IPO and continue to make strong progress towards our strategic transformation and.

Execution on our four major areas of transformation manufacturing growth market alignment sales strategy and R&D strategy are effectively driving revenue and profitability acceleration.

As we wrap up the fiscal year I want to put that transformation and context.

First.

In terms of manufacturing footprint, we delivered ahead of schedule on our plans to streamline our backend operations.

We also announced the planned sale of our Thailand facility and important step to enhance our gross margins.

In parallel we supported record volumes, particularly in our strategic focus areas, while ramping up new suppliers.

Despite the pandemic has negative impact on the first half demand and the sharp second half recovery.

Experience team responded quickly with a well managed inventory and supply chain strategy, enabling us to support revenue levels nearly a year ahead of where we expected this time and 2020.

Second we strengthened our business and high growth markets.

Only 50% of our led gross design wins in fiscal 'twenty, one and we're in strategic markets and another step function increase.

Third our sales team realignment and increased our customer base to include more than 100 customers over $1 million of revenue.

Yeah.

Our increasing presence and the distribution channel directly contributed to the outsized growth and our industrial business channel revenue grew from 30% of revenue in fiscal 'twenty to 37% of revenue in fiscal 'twenty one.

Fourth is the successful execution of our transformational R&D strategy and fiscal 'twenty, one and the R&D team released major technology innovations on X EMR for ex EV transmission correlates current sensors for Inverters, and ex EV and solar and the industry's largest portfolio of automotive grade 48 volt power.

Products for FCB.

And the R&D funnel has never been better aligned with the strategic growth areas with roughly two thirds dedicated to new growth opportunities.

I'm also proud to report we reached a record total.

And for total patents issued bringing our total to 1117 and impressive number for a company of our size and a reflection of the strength of our IP.

The COVID-19 and the progress on our transformation and position for led growth to not only benefit from the COVID-19 recovery, but to deliver sustained growth through new products, new customers and high growth markets at a margin profile that drives leverage and strong bottom line growth and.

Now, let me turn to the business results of the fourth quarter.

Starting with product and magnetic sensor Ic's reached an all time record growing 7% sequentially and 16%.

So year over year.

This reflected strength in automotive, but also strong flow through and our industrial end markets.

For the full fiscal year magnetic sensor Ics grew 3% and represented 65% of revenue.

Our power Ics were up 5% sequentially and an impressive 36% year over year also achieving record revenue levels.

<unk> benefited from Tulsa, and automotive and contributing to system content gains and established beachheads and a variety of industrial applications through our expanding channel.

For the year power IC products grew 23% and represented 34% of revenue.

Our industrial revenue for the fourth quarter was up 23% well ahead of expectations.

Throughout the quarter demand momentum increased with increased with extended auto visibility from our large industrial customers and our distribution channel.

Outperformance was fueled by three applications up double digits sequentially data center building and the factory automation and clean energy.

And data centers customers are adopting our embedded fan controllers to replace more complex solutions.

At a faster rate than we anticipated. We're also benefiting from the customer transition from single phase two three phase architectures, resulting and nearly tripling of data center revenue for fiscal 'twenty one.

And building and factory automation and demand increased and warehouse robotics, and security and surveillance and we ramp new business and traditional applications like variable frequency drives and industrial motors.

And we had record demand for green energy applications, particularly solar as well as new business and EV charging stations.

Lastly, broad based industrial is coming off a strong Q3 declined sequentially, but grew significantly year over year and was up 13% for the full year.

Looking into fiscal 'twenty, two we expect all of our major industrial end markets. The growth, we expect outsized year over year growth and industry four <unk> applications, we expect our momentum to continue and datacenter at a faster pace and end market growth as we continue to increase share and content.

And we expect the broad based industrial business to benefit from our growing presence and the channel.

Turning to the automotive end market revenue increased sequentially by 4% to a new high for the business and excellent result, and an industry supply constrained environment.

We are benefiting from both demand recovery and our market leadership position.

Additionally, the strength of our customers' demand reflect three important market dynamics aligned exactly with our auto strategy.

Customer demand is shifting from car to light truck and SUV models, which benefits our lead growth given our high Adas content and these platforms.

Second carmakers and increasing value added features and current models to maximize the profit driving demand for our sensor and power products across a desk and comfort and convenience applications.

Third we are seeing a meaningful shift to TV and we expanded our <unk> customer penetration to more than 50 customers globally, including all of the market leaders.

Combined eight assets and FCB represented 33% of the automotive revenue and the fourth quarter and is expected to increase as a percentage of mix and fiscal 'twenty two.

As you know we have been working to bring the lidar products, we acquired last year to the automotive market and I'm pleased to report we are on track and customer interest is very high.

And the early stages of sampling to auto customers and expect to be able to report design win progress later this fiscal year.

We continue to target a lighter automotive revenue in calendar 'twenty four.

For the coming year, we expect continued growth and automotive driven by automakers increase investments and electrification and Adas, while also biasing vehicle production mix towards feature rich vehicles.

The supply demand imbalance will continue impacting our near term growth rate, but we continue to see strong market share gains.

And by a design win momentum.

Finally, our language and other business benefited from end market recovery, particularly and Iot applications growth will continue to be offset in the coming year as the COVID-19 specific momentum we experienced in fiscal 'twenty, one and printers and peripherals for example, revert to historical norms as a result.

And we would expect the other business to be down in fiscal 'twenty two.

Now for the outlook.

We believe we have demonstrated that we have a resilient supply chain between non immune of course.

And to foundry constraints, and the challenges of addressing quarter to quarter shifts and product mix and.

And our experience supply constraints, particularly if the magnitude currently facing the industry tend to get a little worse before getting better.

For that reason and we anticipate the industry will continue to struggle to meet both drilled demand and customer desire to build inventory throughout our fiscal 'twenty two.

We intend to invest where we can to satisfy customer demand and we will continue to make decisions to maximize the long term potential of the business versus solely capitalizing on near term opportunities.

Looking at the outlook for fiscal Q1, we expect revenue to be and the range of $176 million to $179 million.

Given current supply constraints, we expect the automotive and industrial business to be up we expect our other business to be down slightly we expect non-GAAP gross margin to be about flat, reflecting increasing input costs and a tight supply chain.

We anticipate non-GAAP earnings per diluted share up 15% to 17.

As we enter our new fiscal year with backlog and visibility at an all time high. We also have a good deal to be excited about in terms of our R&D pipeline and the impact of the ramp of our recent design wins and the differentiation we are delivering from process innovation to circuit design.

As we capitalized and this recovery, we expect that our <unk> technology content and market share expansion and gross margin acceleration will be the foundation of a long term story.

We will now be happy to take your questions Katie.

Thank you Robyn.

Greater we please review the question and answer instructions with our participants.

And yes, maybe at this time if you have a question. Please press star then and about one and our telephone keypad.

And your first question comes from Gary Mobley with Wells Fargo Securities.

Good morning, everybody and thanks for taking my question and congrats on a strong finish to the fiscal year.

To start asking about.

Your industrial mix and the impact perhaps that had on the gross margin or your quarter and your outlook.

And I believe you generate most of your revenue upside on the industrial side was that the main contributing factor.

To the gross margin upside in the quarter.

And perhaps maybe if you can give us a little more detail on how your manufacturing.

The allocation between polar and UMC.

It was impacting the overall gross margin.

Thank you Karen and Gary.

Glide path and all.

Hum.

So Gary and the quarter.

And what we began to see was the benefits of our manufacturing transformation divestiture with the closure of the Thailand fulfillment.

We can see that those benefits that benefits all of our businesses because it's a it's a process cost reduction.

Industrial strength.

It helps.

Industrial is a little bit higher than auto just because it goes through our distribution chain primarily.

And then as it relates to as it relates to wafer supply at this point or not.

Providing or we don't have pets.

Perfect.

Cost differentials between polar and <unk>.

UMC, but and this environment, we actually really Poland is really quite and asset to have as it provides them additional supply to us.

Thanks, I appreciate the color and as a follow up I wanted to ask you about where you stand with with respect to bringing up your manufacturing at TSMC.

Thank you.

Thank you Gary I'll take that so we continue to ramp TSMC.

We're on schedule. They are on track we had.

And previously provided color, stating that we would see us begin a ramp at the later part of this year and we would be in full swing by the middle of next year and we continue to be on that track.

Your next question comes from Quinn Bolton with Needham.

Yeah.

Hey, guys. This is Michel and Quinn and congrats on a nice results and thanks for taking the questions.

And so the first one with the Taiwan facility transition.

And we've previously stated that it should be and.

And 202 hundred 30 basis point and benefit to gross margin I guess, if you could just walk us through how you see that playing out over the year or will there be and step up and margins are you expecting it to be more linear progression just any color there would be helpful.

Sure.

As we've discussed in the past.

And the transition.

Single back and facility.

Internally, we will add about 200 basis points, what we anticipate is that that would be a steady progression throughout the coming year. So you know the Q1 basically is is evidence of a really good start to that by getting almost 51% and gross margin.

Okay great.

That's helpful and and for my follow up just with the polar facility.

And.

And we understand how that strategic asset.

No.

Benefiting you guys are doing these.

Uh huh.

Supply constrained.

The environment that we're currently and but.

But could you guys walk us through the expected impact to gross margin.

And as you.

Maybe hmm.

Using the port facility more and more so than previously expected.

So I'll take I'll start and somewhat Ravi.

Add on to it.

And as everyone is seeing or there were various cost pressure.

Pressures are input cost increases.

And certainly the mix and pull or add some of that but at this point, we're not without breaking those out and.

Specifically.

And we have a number of internal initiatives.

And are underway and at various stages that.

Really to offset a lot of those inflationary pressures so we feel.

We feel good that we have again, we feel.

And so fortunate to have this as a supply for us to serve our customer base.

And and rehab.

Number of internal initiatives to offset.

And the cost increases we might see.

And then if I could just take that on Michelle I think Paul correctly articulated I think.

Having this U S asset speaks to the resilience so far off our manufacturing model and.

And while other competitors may have a whole other companies and the industry may have been challenged with supply and we've been able to successfully wrap.

<unk> supply sources.

And to satisfy the market demands and respond to this.

And and provides these this extraordinary quarter in terms of top line.

What I would say is that as we bring on other sources, our blended costs would continue to decline and.

And these other sources, especially in Asia.

Provide us additional capacity.

And they allow us to respond to.

Two the continued growth vectors of the company, but also provide US a continued to improve our competitiveness and the marketplace.

Great.

Well, Thanks, again, guys and congrats again.

Thank you.

Your next question comes from Blayne Curtis with Barclays.

Hey, good morning, and thanks for taking my question wanted to ask you you mentioned.

Eight out and <unk> being about a third of revenue I think it's been in that range for a bit.

And then you talked about I guess, increasing still 22 I'm. Just curious is that a function of market share or is it.

Maybe just more adoption and things like SBB and have any perspective on how much that could change.

And so the plaintiff.

Yeah, So blayne and thank you for that question so yes.

Our Adas business is experiencing growth.

In.

And two of them two ways, we would say that the Adas business as we define it includes.

The drive portion of Aaas, which is steering and braking.

We are seeing that cars continue to of vehicles and light trucks, and Suvs and particular continue too.

To add more features associated with autonomous driving which is driving which is resulting in an increase and content from.

Both sensor and power drivers.

So there is a content increase story there is a feature rich production mix story from in terms of the car production, where the vehicles are moving from a vehicle production is moving from from small cars to light trucks, and Suvs, which further drives business and our direction and there is also a customer.

<unk> story that goes along with this where we expect to see.

As we continue to add on new customers for Adas products, and we expect to continue to see this.

And this trend ramping this year.

Thanks, and then I just wanted to circle back on the supply tightness.

And obviously everybody is seeing tightness and just kind of curious you mentioned that it's impacting growth.

Is it your partners or is it tightness of some other components that need to go into these cars that might be even tighter than you and if any way you can quantify how much that is taking from growth through the fiscal year.

Yes.

And like like most companies in this and our industry, we're experiencing order rates that far outstrip.

Outstrip capacity and some of this.

Previously discussed has been a function of the lead times of the orders that have come in and.

Where the demand has come in within our cycle times.

We intend to continue to add capacity too.

To help address this.

And and then and be.

We have we're pretty optimistic on the future as we as they move forward.

We do see.

And that the industry is is readjusting its manufacturing the automotive industry's adjusted readjusted its manufacturing base and components.

And we do not believe we have the source of any of this.

We continue to service our customers to the best of our abilities and work with them wherever their supply.

Wherever we have supply challenges.

Great. Thanks.

Yeah.

Your next question comes from John Pitzer with Credit Suisse.

Yes. Good morning, guys. Thanks for let me ask the question Robert just to pick up on your commentary around order visibility.

Ability extending well into fiscal year 'twenty two I'm wondering if you could put some context or elaborate on that.

Some metrics at and as you think about the supply demand imbalance and the industry.

When do you think we get more into balance at the industry level and do you have enough visibility and your current backlog to suggest up sequential and beyond the June quarter.

So.

Thanks, John so the.

And I could just take that and maybe Paul can add color to it.

Yes, we have substantial backlog, we have substantial backlog that goes way beyond the next couple of quarters.

And have great visibility on what the demand is what we can also say is that <unk>.

We shipped to our customers, we have visibility some visibility or limited visibility into.

Into the usage of the products and to our knowledge products are going right to the factory floors and that we do not see.

We are not aware of inventory builds occurring within our customer base.

So our demand is really coming from.

From just.

Great acceleration on design wins, and the impact of design wins, I think and the previous quarter, we have spoken about.

Our record design wins, some of which we're going to start up at this point and time and that would be ramping through this particular fiscal year. So we feel very good about the quarter and Paul do you have any more color on the backlog.

Yes.

We have a great visibility into the backlog as Ravi alluded to John.

Ordering patterns that are coming and now are primarily for orders themselves.

And out in the future.

And we look carefully at that.

And cost more or.

Further down the supply chain inventory levels and.

And as we noted in the and their remarks.

For instance, and the channel inventories are at historic lows and yes.

It's the pull through all of them.

Pos is.

Is that.

Stork highs so.

We feel good about the and <unk>.

Man situation and.

And we just.

And we'll continue to serve that.

That's helpful color and then Rob you as my follow up I, just wanted to unpack two of the opportunities within the industrial the first being kind of the data center opportunity, which you've talked a lot about in the past.

Can you help size that opportunity today, what it might look like three plus years out and then equally important and I think everyone understands your leverage to X C V on the auto side, but when you talked today about the EV charging stations and I'm kind of curious if you could unpack that a little bit, especially with some of the bills coming out of D. C.

Green infrastructure, what kind of opportunity that might that be and for you guys over a couple year period.

Yes, so datacenters are a really exciting area for us I think we had spoken in the past about the product lines that we offer that are related to both <unk>.

24 volt and 40 40 April fans.

Fees and.

Bedded fan controllers make.

And make products for our customers much.

Much simpler to design and and they also meet the customers' objectives.

Noise dampening audible noise dampening electrical noise dampening and electrical efficiency.

So all of these are a reason why these fans are becoming more rapidly.

Adopted within the within the industry. We are currently engaged with most.

Web dataset.

Data center providers and <unk>.

And including companies like Amazon and Microsoft et cetera.

And customers, we're engaged with most.

And manufacturers and the World now that are supporting these large.

Data center.

Companies, so and we are seeing.

And we are seeing very good.

Order patterns from these customers and we're seeing great visibility that this particular business for us is sustainable.

And hence our.

Guide that says that we will continue to see growth and this particular area.

Our 48 volt products will that we have discussed and datacenters will be coming out shortly and we expect that to continue to to drive and momentum.

So when we.

When we look at <unk>.

<unk> spoken about HCV, both in terms of the vehicles, where we are engaged with over 50 companies and the area of ex EV. It.

It is a fragmented supply chain in terms of.

Onboard Chargers.

Battery Chargers.

On Inverters et cetera, so, it's not simply and and Virtus story for us.

We see strong pull through and that particular area, but we also see within the industrial space, we see infrastructure associated with the ex EV charging as being a great area of growth for us. So we are engaged with multiple customers at this point in terms of infrastructure. We currently ship.

We've discussed the breadth of our current sensing portfolio and the past we provide.

Very user friendly extremely user friendly solutions.

And.

The and various current and voltage ranges and the breadth of our portfolio has enabled us to.

To secure sockets. So we feel very good about the industry trends, both in data center, as well as and <unk> and <unk>, whether it is and the charging side and the infrastructure side or whether it's in the vehicle side.

Thanks, guys I appreciate it.

Your next question comes from Sean <unk> with S. NBC Nikko Securities.

Thank you and good morning, guys Ravi I have a couple of longer term questions first.

Your auto business grew about 1% versus.

8% or so decline in volume so that kind of suggest that digital content is increasing and high single digits.

And you also mentioned that your design wins are you know 40% about target.

As you go through the next few years should we expect you know somewhat similar content increase for you or do you see an opportunity to even grow that high single digit Steve and a higher level.

Thank you <unk>.

So.

We've had a good year I think one of the.

The growth of.

This low single digit growth over a over an 8% market decline really speaks to the strength of our design wins and the strength of our acceleration and this particular market.

So now.

We continue to monitor the market, we continue to believe that we have a.

Low <unk>.

High single digit kind of content.

Expansion story for US, we expect that that story.

<unk> continues to offset.

Internal combustion with with Adas, and comfort and convenience and and <unk>. So.

So we do expect that our story is.

Quite robust and resilient and the future, but we still are targeting the mid to high.

Single digits in terms of content expansion and <unk>.

Thousand 24, as we've discussed we are targeting the lidar business, we expect in calendar 'twenty, four which is our fiscal 'twenty five four for some meaningful revenue and we will continue to report progress on that.

Got it and.

And then.

Ravi you know given all the supply issues and the auto industry I think there is.

At least some discussion about.

Moving away from J, I, T and adjust and time inventory practices and.

History. So I'm just curious you know what are you seeing any indication that your customers you know as we come out of this supply constrained environment.

Are your customers.

And are looking to kind of carry higher levels of inventory going forward and any discussions on that front as to how we might come out of that and how that might change your business going forward.

Great question, and so that story has still to be written.

So at this point they are our customers.

And that are in discussions with us about securing.

Creating a secure supply base for the next few years.

We're engaged with those customers on developing business conditions that.

And that allow us to fulfill their requirements.

Some of the car manufacturers are our initial <unk>.

Beginning and engagement with their supply base on how to secure semi capacity. They are recognizing that semiconductors are.

A different business than the traditional automotive supply model.

I don't believe that the industry is in position to fulfill very large inventory builds at this point given the large given the content expansion that's occurring so I think the first phase is going to be.

And to basically respond to what we would call a design wins.

And and be able to make sure that would be secure run rates for customers over the next year year and a half.

And they will be at some point and time and we're not sure when a layering off.

Some inventory, but but that's not in the near term.

Got it thank you.

Your next question comes from Mark <unk> with Jefferies.

Hi, good morning, and thanks for taking my question I had a question on your distribution strategy and and the industrial markets for you a lot of semiconductor companies seem to be deemphasizing and distributors.

Kind of trending to taking the distribution function that you seem to be embracing the channel can can you.

Just help us understand maybe.

Peel a layer of the onion here what are the distributors doing pre a day, creating demand or are they just don't and fulfillment.

Are they or are they helping you in particular geographic areas and and maybe as part of that second part of the question would be how should we think once we once we get through all the supply chain issues.

And how should we think about the growth of your industrial markets versus your your automotive markets. Once we get through all of this and Thats all I had thank you.

Thanks, Mark So distribution business is an extraordinarily valuable channel for the company.

And we do know that.

Larger competitors are bringing business back in house.

We look at distributors as a leverage of our selling channel they bring us opportunities. They provide additional touch points to customers that our direct sales team would not be able to achieve and they bring us.

Great margins in terms of gross margin for the company was standard margin as it turns for the company. So for US distribution is extraordinarily value channel we.

We do have some portion of distributions.

And that focuses on fulfillment.

We use distributors for fulfillment and areas where where.

We may have currency or exchange challenges et cetera, where a local warehousing and inventories are required and we do not have that infrastructure.

But in all cases, our distribution business is.

Is is is very profitable.

Now the benefit of distribution for us as it allows us to touch and access small customers.

Something that for a company our size would be extraordinarily difficult.

Given the size of our sales team.

As a follow on to that.

Yeah Mark.

Okay.

The second part of the question is how should we think about the growth of your industrial markets versus your automotive once we get through the supply chain issues, particularly what we're seeing and automotive side.

So our industrial market really and.

Thank you.

We've spoken about this before it's anchored on and on a really.

Great growth vectors. So it's.

We expect to be in that in the double digit range for our industrial market and we expect that this is going to be anchored on.

Really good basic foundations electrification within industrial data centers within industrial factory automation.

And and.

And then you're starting to move towards the two wheelers et cetera. So.

Great opportunities for Us I think we're looking at the double digit growth rates.

That's very helpful. Thank you very much.

Okay and for any questions. Please press Star then the bottom line and your telephone keypad.

And your next question comes from Vijay Rakesh with Mizuho.

Yeah.

Yeah, Hi, everyone, great quarter and guide here.

Question on the industrial side, obviously very strong numbers and you mentioned for new and pushing your on your growth and data center growing TX and year.

And just wondering what the mix was between <unk> and energy and data center and the factory automation side.

And how you see those going.

And if you look out.

Yep visionary, we don't really provide that level of detail and as you know all of these have mini cycles within them. So but on the long term perspective, we see datacenters as having a great strong growth vector, we expect to outperform the datacenter market and in general just because.

The conversion from single Phase three phase fans.

So and we've and our recent performance has proven that when I look at.

At factory automation et cetera, you can see that this great investment going on right now to increase manufacturing capacity worldwide and and we see that as being a good growth vector for us too so.

And for US industrial is.

And as strong a broad industrial is also strong as which is being serviced by our distribution business.

And again I'd say of a pack it all together, we expect the double digit growth.

Got it great and.

<unk>.

Good.

Okay.

And again on the mix side.

Obviously <unk> is the key driver.

The bigger market, where you dominate.

And good traction into sensing on E X T V and it as I was just wondering what the mix between if you look at legacy Hall.

Whereas this extra marks or U 200, and Autozone and.

Just for the company as a whole.

And your qualitative or quantitative and direction.

Yes, so xmr is.

Emerging segment for us refocus on Xmr on Silicon.

And where we add value to the technology as opposed to simple xmr elements, which are the current generation of products that are out in the marketplace.

<unk>, our own silicon and we believe is extraordinarily broad and its reach and we released products and and transmission. We've been working in terms of <unk> sensing. We are already shipping it's had tremendous year over year growth. It's a long term growth vector for us we will not see.

We will not see this as a near term, but we will continue to announce products and this area. We continue to invest and this particular area and we continue to secure sockets in this area.

Great. Thanks.

At this time there are no further questions I will now hand, the call back to Catherine for closing remarks.

Alright, Thank you everyone for joining us today and this concludes our call.

Thank you.

That concludes today's conference call. Thank you for your participation you may now disconnect.

[music].

Good morning, ladies and gentlemen, and welcome to the Allegra micro systems fourth quarter and fiscal 2021 financial results conference call. At this time all participants are in a listen only mode. Later, we look and that day question and answer session and instructions will follow at that time, it would be in and once you require assistance during the call.

Please press Star then zero on your Touchtone telephone.

I would now like to hand, the conference over to your host Ms. Catherine Blyth Senior director of Investor Relations.

Good morning, and thank you for joining us today for labor and the fourth quarter and full year results for fiscal year, 2020 one.

I'm joined today by Allegro, President and Chief Executive Officer, Bobby Greg and I like our Chief Financial Officer, Paul Walsh.

If you are a quarterly and annual financial performance and provide a summary of our outlook.

Our earnings release me, a couple of financial table and available on the Investor Relations page of our website.

This call is being webcast it and a recording will be available on our IR page shortly.

Please note that comments made during this profit car inquiry.

And then within 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 and the results are subject to risks and uncertainties and could cause actual results to vary materially from our projection.

Please refer to the earnings press release issued today and other documents filed by us.

And we're putting the risk factors and deep.

Taylor and her most recent.

Sales every eight 2021.

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

And non-GAAP financial measures that are discussed today are not intended to replace or substitute.

And so like gross GAAP financial results.

And maybe calculated differently and some of our metrics and pay other company.

And we're providing this supplemental information because it may enable and doctors to take local comparisons and core operating results and more clearly highlight the results of our core ongoing operations.

A reconciliation of GAAP to non-GAAP financial measures.

Today during the call can be found in our earnings press release posted to our IR page.

I will now turn the call over to labor as President and CEO, Bobby Big Robby.

And Katie and good morning, everyone.

We couldnt be more pleased with the company's performance in fiscal 'twenty, one and the strong start and outlook our fiscal 'twenty two.

We had a tremendous year and.

Fourth quarter and exceeded our guidance with revenue, finishing up 6% sequentially due to the strength across all our businesses.

Profitability exceeded expectations due in part to further improvement and non-GAAP gross margin, which approached 51%.

This is resulted in sequential fourth quarter non-GAAP earnings per share growth of 15%.

More than double of topline growth.

These building blocks combined with design wins exceeding our target by 40%.

Give us confidence and the long term outlook.

We're expecting another record revenue quarter for the core business and Q1 fueled by new customer program ramps and increased content or transition to feature rich vehicle production.

And the global recovery.

And I'm proud of the team's execution and look forward to the future with <unk>.

Considerable optimism as we focus on our commitment to customers and shareholders and navigate the supply imbalances and the industry.

I'll share more about the status of the business and the outlook. After we review the financial results.

Paul.

Thank you Robbie we ended fiscal 'twenty, one with revenue of $591 $2 million and increase in our core business up 9% year over year.

Q4 was a record for the core business with revenue up six 5% sequentially to $175 $1 million.

By end market, we grew sequentially and year over year across our primary focus areas, we delivered record revenue levels and both auto and industrial.

Demand continues to surge to new highs and all.

Bill Let me now extends well into fiscal 'twenty two.

Automotive revenue increased 4% sequentially and fiscal Q4, $218 $5 million up 12% year over year.

For fiscal 'twenty one.

Automotive revenue grew $3 million $398 $3 million up 1% year over year.

Overcoming the softness of the COVID-19 impact early in the fiscal year.

This compares favorably to global car production, which declined 8% and our fiscal 'twenty one period.

Appointing the content per vehicle growth that Robbie alluded to earlier.

Industrial revenue increased 23% sequentially, and 31% and year over year, reaching $29 $1 million for the quarter for the full year industrial grew 21% to $94 $9 million.

Our other business revenue grew 2% sequentially to $27.4 million up 80% year over year.

For the full year other grew 42% to and at $98 million.

Despite meaningful growth across our top customers, we did not have any and customers greater than 10% and Q4 or for the full year.

GAAP gross margin for the quarter was 49, 7% up sequentially again, and the highest level of fiscal 'twenty one.

For the year GAAP gross margin was 47, 2%.

Q4, non-GAAP gross margin of 59% was at the top end of our guidance and was up 135 basis points sequentially.

Non-GAAP gross margin was 50.0% for the full year non.

Non-GAAP adjustments include costs related to the poll of divestiture.

Thailand facility transition and stock compensation.

And this gross margin improvement reflects the progress made on our manufacturing transfer formation and.

And despite increasing input costs driven by supply constraints and other inflationary pressures, we expect to see continued margin improvement throughout the coming year.

GAAP R&D expense was $28 1 million declining by $2 $8 million sequentially GAAP SG&A expenses were 39 $4 million down from 67 seven.

$7 million and Q3.

Total GAAP operating expenses fourth quarter were $67 $6 million.

Cause of outperformance on the top line and operating income variable compensation was about $2 million higher than we anticipated.

Total non-GAAP operating expenses for fiscal Q4 were $54 $8 million or 31, three percentage of revenue and improvement of 150 basis points sequentially.

Non-GAAP R&D expense was $27 $6 million, which exclude stock based compensation expense.

Non-GAAP SG&A expenses were $27 $2 million, excluding impairment charges and fees and associated with the planned sale of our Thailand facility transaction and one time consulting fees.

Stock compensation expense facility closure costs and a gain on the adjustment to contingent consideration for the box Hill acquisition.

We expect non-GAAP operating expenses to be and a range of 53 to $53 $5 million and Q1.

GAAP operating income for the quarter increased to $19 4 million or 11, one percentage of sales.

This level of fiscal 'twenty one.

Non-GAAP operating income increase of $34 4 million or 19, 7% of sales rising by an impressive 24% sequentially.

On top line growth of six 5%.

Fourth quarter GAAP net income was $8 $6 million with an effective tax rate of 49%.

GAAP earnings per diluted share were $5 four.

For fiscal 'twenty, one GAAP net income was $18 million with a tax benefit of $19 $5 million.

<unk> 21, GAAP earnings per diluted share was <unk> 10.

Non-GAAP net income increased to $28 $3 million non-GAAP earnings per diluted share was 15 cents up 15% over last quarter and at the top end of our guidance.

The Q4 non-GAAP effective tax rate was 16% and is expected to be in the 16 and 17% range for the upcoming quarter and through.

We're out fiscal 'twenty two.

Our current diluted share count is $199 million and is expect to expected to rise to about $191 4 million and Q1 and about $191 9 million for the year.

Our strong execution and business fundamentals continue to be evident and our balance sheet cash and equivalents from Q4 were up by $40 million sequentially and that 204 million, we generated $56 million and operating cash flow and the quarter.

Accounts receivable balances were $95 million and we ended the quarter with DSO of 49 days consistent with last quarter.

Net inventory decreased by $7 million to finish at $87 million.

<unk> strong demand and tight supply.

Channel inventories continued to hover at historic lows, while P. O S sell through was at historic highs.

In fiscal 'twenty, one capital expenditures totaled $41 million as we made strategic investments and back and capacity ahead of the anticipated recovery.

We expect capex to increase in fiscal 'twenty, 2% to 7% to 8% of revenue to support continued growth and the business.

We expect continued strength and cash flow throughout the year.

In summary, we ended fiscal 'twenty, one with strong results across all financial metrics, we expect to continue making progress towards our long term target model and fiscal 'twenty, two and look forward to benefiting from the structural changes achieved through our strategic transformation I'll now turn the call back to Ravi to discuss the business highlights.

Ravi.

Thank you Paul.

We are proud to say our fiscal 'twenty, one what's and memorable here. Despite the challenges of the COVID-19 pandemic.

It was a year and which we executed our IPO and continue to make strong progress towards our strategic transformation.

Execution on our four major areas of transformation manufacturing growth market alignment sales strategy and R&D strategy are effectively driving revenue and profitability acceleration.

As we wrap up the fiscal year I wanted to put that transformation and context.

First.

In terms of manufacturing footprint, we delivered ahead of schedule on our plans to streamline our backend operations. We also announced the planned sale of our Thailand facility and important step to enhance our gross margins and.

In parallel we supported record volumes, particularly in our strategic focus areas, while ramping up new suppliers.

The pandemic has negative impact on the first half demand and the sharp second half recovery.

Experienced team responded quickly with a well managed inventory and supply chain strategy, enabling us to suppose revenue levels nearly a year ahead of where we expected at this time and 2020.

Second we strengthened our business and high growth markets.

And the 50% of a low growth design wins in fiscal 'twenty, one where and strategic markets and another step function increase.

Third our sales team realignment increased our customer base to include more than 100 customers over $1 million of revenue.

And fourth is the successful execution of our transformational R&D strategy and fiscal 'twenty, one and the R&D team released major technology innovations on extra Maher for HCV transmissions correlates current centers for Inverters, and <unk> and solar and the industry's largest portfolio of automotive grade 48 volt power.

Products for FCB.

R&D funnel has never been better aligned with strategic growth areas with roughly two thirds dedicated to new growth opportunities.

I'm also proud to report we reached a record total.

And for total patents issued and <unk>.

And our total to 1117 and impressive number for a company of our size and a reflection of the strength of our IP.

The COVID-19 and the progress on our transformation positions of low growth to not only benefit from the COVID-19 recovery, but to deliver sustained growth through new products, new customers and high growth markets at a margin profile that drives leverage and strong bottom line growth now.

Now, let me turn to the business results at the fourth quarter.

Starting with product magnetic sensor Ic's reached an all time record growing 7% sequentially and 16%.

So year over year.

This reflected strength in automotive, but also strong flow through and our industrial end markets.

For the full fiscal year magnetic sensor Ics grew 3% and represented 65% of revenue.

Our power Ics were up 5% sequentially and an impressive 36% year over year also achieving record revenue levels power Ics and benefited from pulse and automotive contributing consistent content gains and established beachheads and a variety of industrial applications expanding channel for.

The year power IC products grew 23% and represented 34% of revenue.

Our industrial revenue for the fourth quarter was up 23%.

Well ahead of expectations.

Throughout the quarter demand momentum increased with increased with extended auto visibility from our large industrial customers and our distribution channel.

And our performance was fueled by three applications up double digit sequentially data Center building and factory automation and Green energy.

And data centers customers adopting our embedded fan controllers to replace more complex solutions.

And at a faster rate than we anticipated.

And also benefiting from the customer transition from single Phase two three phase architectures, resulting and nearly tripling of data center revenue for fiscal 'twenty one.

And we had record demand for green energy applications, particularly solar as well as new business and EV charging stations.

Lastly, broad based industrial is coming off a strong Q3 declined sequentially, but grew significantly year over year and was up 13% for the full year.

Looking into fiscal 'twenty, two we expect all of our major industrial and market to grill, we expect outsized year over year growth and industry four <unk> applications, we expect our momentum to continue and datacenter at a faster pace and end market growth as we continue to increase share and content.

And we expect the broad based industrial business to benefit from our growing presence and the channel.

Turning to the automotive end market revenue increased sequentially by 4% to a new high for the business and excellent result, and an industry supply constrained environment.

We are benefiting from both demand recovery and our market leadership position.

Additionally, the strength of our customers' demand reflect three important market dynamics aligned exactly with our auto strategy.

First customer demand is shifting from car to light truck and SUV models, which benefits and led growth given our high Adas content and these platforms.

Second carmakers and increasing value added features and current models to maximize the profit driving demand for our sensor and power products across AWS and comfort and convenience applications.

Third we are seeing a meaningful shift to FCB, we expanded our <unk> TV customer penetration to more than 50 customers globally, including all of the market leaders.

Combined AOS and <unk> represented 33% of the automotive revenue and the fourth quarter and is expected to increase as a percentage of mix and fiscal 'twenty two.

As you know we have been working to bring the lidar products, we acquired last year to the automotive market and I'm pleased to report we are on track and customer interest is very high.

And the early stages of sampling to auto customers and expect to be able to report design win progress later this fiscal year.

We continue to target a lighter automotive revenue in calendar 'twenty four.

For the coming year, we expect continued growth and automotive driven by automakers increased investments and electrification and Adas, while also biasing vehicle production mix towards feature rich vehicles.

And the supply demand imbalance will continue impacting our near term growth rate, but we continue to see strong market share gains.

And by a design win momentum.

And finally, a Lego and other business benefited from end market recovery, particularly and Iot applications growth will continue to be offset in the coming year as the COVID-19 specific momentum we experienced in fiscal 'twenty, one and printers and peripherals for example, revert to historical norms as a result.

We would expect the other business to be down in fiscal 'twenty two.

Now for the outlook.

We believe we have demonstrated that we are a resilient supply chain between non immune of course to foundry constraints and the challenges of addressing quarter to quarter shifts and product mix and.

And our experience supply constraints, particularly of the magnitude currently facing the industry tend to get a little worse before getting better.

For that reason and we anticipate the industry will continue to struggle to meet both drill demand and customer desire to build inventory throughout our fiscal 'twenty two.

We intend to invest where we can to satisfy customer demand and will continue to make decisions to maximize the long term potential of the business versus solely capitalizing on near term opportunities.

Looking at the outlook for fiscal Q1, we expect revenue to be and the range of $176 million to $179 million.

We anticipate non-GAAP earnings per diluted share up 15% to 17.

As we enter our new fiscal year with backlog and visibility at an all time high and we also have a good deal to be excited about in terms of our R&D pipeline and the impact of the ramp of our recent design wins and the differentiation we are delivering from process innovation to circuit design.

As we capitalize and this recovery and we expect that our language technology content and market share expansion and gross margin acceleration will be the foundation of a long term story.

We will now be happy to take your questions Katie.

Thank you Robyn.

Greater we please review the question and answer instructions are participants.

And yes, ma'am at this time if you have a question. Please press Star then the number one and your telephone keypad.

And your first question comes from Gary Mobley with Wells Fargo Securities.

Good morning, everybody and thanks for taking my question and congrats on a strong finish to the fiscal year.

Well to start asking about.

Your industrial mix and the impact perhaps that had on the gross margin or your quarter and your outlook.

And I believe you generate most of your revenue upside on the industrial side was that the main contributing factor.

To the gross margin upside in the quarter and and perhaps maybe if you can give us a little more detail on how your manufacturing.

Acacia between polar and UMC.

Impacting the overall gross margin.

Thank you good morning, guys.

Go ahead Paul.

I'll I'll take this.

So Gary and the quarter.

We began to see was the benefits of our manufacturing transformation divestiture with the closure of the Thailand fulfill worthy.

We began to see that those benefits that benefits all of our businesses because it's a it's a process costs.

<unk>.

<unk> industrial strength and helps but.

Industrial is a little bit higher than auto just because it goes through our distribution chain primarily.

And then as it relates to as it relates to wafer supply at this point we're not.

Providing or we don't have puts and specific <unk>.

Cost differentials between polar and <unk>.

<unk> C. But in this environment, we actually really Paul or is really quite and asset to have as it provides additional supply to us.

Thanks, I appreciate the color and as a follow up but I wanted to ask you about where you stand with with respect to bringing up your manufacturing at TSMC.

Thank you.

Thank you Gary I'll take that Paul So we continue to ramp TSMC.

We're on schedule. They are on track we had.

And previously provided color, stating that we would see us begin a ramp at the later part of this year and we would be in full swing by the middle of next year and we continue to be on that track.

Your next question comes from Quinn Bolton with Needham.

Yeah.

Hey, guys. This is Michel and Glenn Congrats and nice results and thanks for taking the questions.

And so the first one with the Taiwan facility transition.

And we've previously stated that it should be.

And 200 to 280 basis point benefit to gross margin.

And I guess, if you could just walk us through how you see that playing out over the year or will there be a step.

About the margin are you expecting it to be more linear progression just any color there would be helpful.

Sure.

As we discussed and the path.

The transition to <unk>.

Single back and facility.

Internally, we will add about 200 basis points and what we anticipate is that that would be a steady progression throughout the coming year or so.

Q1, basically is is evidence of a really good start to that by getting almost 51% and gross margin.

Okay great.

That's helpful and for my follow up just with the polar facility.

We understand how that strategic asset.

Benefiting you guys are there and needs.

Supply constrained.

Environment that were currently and but.

But could you just walk us through the expected impact to gross margin.

And as you.

And may maybe.

Hmm.

Using the board facility and more more so than previously expected.

So.

I'll say I'll start this and I'll, let Ravi.

Add onto it.

And as everyone is seeing or there were various costs.

And pressures our input cost increases.

Certainly.

Mix and pole or add some of that but at this point, we're not without breaking those out.

Specifically and we have a number of internal initiatives that.

That are underway and at various stages.

Really to offset a lot of those inflationary pressures so we feel.

We feel good that we have again, we feel.

Fortunate to have this as a supply for us to serve our customer base.

And and.

And we have a number of internal initiatives to offset.

Any cost increases we might see.

And then if I could just take that on Michelle I think Paul correctly articulated I think.

Having this U S asset speaks to the resilience so far off our manufacturing model and.

While other competitors may have a whole other companies and the industry may have been been challenged with supply we've been able to successfully ramp supply sources.

To satisfy the market demands and respond to this.

And it provides these this extraordinary quarter in terms of top line.

What I would say is that as we bring on other sources, our blended costs would continue to decline and these these other sources, especially in Asia.

Provide us additional capacity.

They allow us to respond to.

Two the continued growth vectors of the company, but also provide US a continued to improve our competitiveness and the marketplace.

Great. That's helpful. Thanks, again, guys and congrats again.

Thank you.

Your next question comes from Blayne Curtis with Barclays.

Hey, good morning, and thanks for taking my question wanted to ask you you mentioned.

Eight out and <unk> being about a third revenue I think it's been in that range for a bit.

And then you talked about I guess, increasing for can spill and 22. So just curious is that a function of market share or is it.

Maybe just more adoption and things like SBB and have any perspective on how much that could change.

With one and two.

Yeah, So blayne and thank you for that question so yes.

And our Adas business is experiencing growth.

And in it.

And two have been two ways, we would say that the Adas business as we define it includes.

The drive portion of Aaas, which is carrying and braking.

We are seeing that cars continue to AV vehicles light trucks, and Suvs and particular continue too.

To add more features associated with autonomous driving which is driving which is resulting in an increase and content from.

Both sensor and power drivers so there.

And there is a content increase story there is a feature rich production mix story from in terms of the car production, where the vehicles are moving from a vehicle production is moving from from small cars to light trucks, and Suvs, which further drives business and our direction and there is also a customer.

<unk> story that goes along with this where we expect to see.

As we continue to add on new customers for Adas products, and we expect to continue to see this.

And this trend ramping this year.

Yes.

Thanks, and then I just wanted to circle back on the supply tightness.

Obviously, everybody is seeing tightness and just kind of curious you mentioned that it's impacting growth.

Is it your partners or is it tightness of.

Some other components that need to go into these cars that might be even tighter than you and if any way you can quantify how much that is taking from growth for the fiscal year.

Yes.

And like like most companies in this and our industry, we're experiencing order rates that far outstrip.

And yes, outstrip capacity and some of the SaaS.

Previously discussed has been a function of the lead time of day orders that have come in and where.

The demand has come in within our cycle times.

So we intend to continue to add capacity too.

To help address this.

And and then and be.

Pretty optimistic on the future as we as we move forward.

We do see.

And that the industry is.

Is readjusting its manufacturing the automotive industry has adjusted readjustments manufacturing base and components.

And we do not believe we have the source of any of this.

We continue to service our customers to the best of our abilities and and work with them wherever their supply.

But we have supply challenges.

Great. Thanks.

Yeah.

Your next question comes from John Pitzer with Credit Suisse.

Yes. Good morning, guys. Thanks for let me ask the question Robert just to pick up on your commentary around order visibility extending well into fiscal year 'twenty. Two I'm wondering if you could put some context or elaborate on that.

And with some metrics and as you think about the supply demand imbalance and the industry. When do you think we get more into balance at the industry level and do you have enough visibility and your current backlog to suggest up sequential and beyond the June quarter.

So.

Thanks, John So the if I could just take that and maybe Paul can add color to it.

Yes, we have substantial backlog, we have a substantial backlog that goes way beyond the next couple of quarters.

We have great visibility on what the demand is what we can also say is that as we shipped to our customers we have visibility some visibility or limited visibility into.

Into the usage of the products and to our knowledge products are going right to the factory floors and that we do not see.

We are not aware of inventory builds occurring within our customer base.

So our demand is really coming from.

Just.

Acceleration on design wins, and the impact of design wins, and I think and the previous quarter, we have spoken about.

And our record design wins, some of which we're going to start up at this point and time and that would be ramping through this particular fiscal year. So we feel very good about the quarter and Paul do you have any more color on the backlog.

Yes.

We have a great visibility into the backlog as Ravi alluded to John the.

And the ordering patterns that are coming and now are primarily for quarters and so.

And the future.

We look carefully at that.

And cost more or further down the supply chain the inventory levels and.

As we noted in the and their remarks.

For instance, and the channel.

Inventories are at historic lows and.

The pull through all of them is.

Is that his.

Historic highs so we.

We feel good about the and demand situation and.

And we just.

And we will continue to serve that.

That's helpful color and then Ravi as my follow up I just wanted to unpack.

Two of the opportunities within the industrial and the first being kind of the data center opportunity, which you've talked a lot about in the past.

Can you help size that opportunity today, what it might look like three plus years out and then equally important I think everyone understands your leverage to X CV on the auto side, but when you talked today about the EV charging stations and Im curious if you could unpack that a little bit, especially with some of the bills coming out of DC.

And green infrastructure, what kind of opportunity that might that be for you guys over a couple year period.

Yes, so data centers.

Really exciting area for us I think we had spoken in the past about the product lines that we offer that are related to both.

24 volt and 40 40 April fans.

These embedded fan controllers make make products for our customers much much.

It's simpler to design and and they also meet the customers' objectives.

Yeah.

Noise dampening audible noise dampening electrical noise dampening and electrical efficiency. So all of these are a reason why these fans are becoming more rapidly adopt.

Adopted within the within the industry. We are currently engaged with most.

Web dataset.

Data center providers and.

And including companies like Amazon and Microsoft et cetera.

And customers, we're engaged with most fan manufacturers and the world now that are supporting these large.

Data center companies.

Companies, so and we are seeing.

And we are seeing very good.

And.

Order patterns from these customers and we're seeing great visibility that this particular business for us is sustainable and.

Hence our are our guide.

Guide that says that we will continue to see growth and this particular area.

Our 48 volt products will that we have discussed and datacenters will be coming out shortly and we expect that to continue to to drive momentum.

So when we.

And when we look at <unk>, we have.

<unk> spoken about <unk>, both in terms of the vehicles, where we are engaged with over 50 companies and the area of ex EV. It.

It is a fragmented supply chain in terms of.

Onboard Chargers.

Battery Chargers.

On Inverters et cetera, so, it's not simply and and Virtus story for us.

And we've discussed at the breadth of our current sensing portfolio and the past we provide.

Very user friendly extremely user friendly solutions.

And.

The and various current and voltage ranges and this breadth of our portfolio has enabled us to.

Thanks, guys I appreciate it.

Your next question comes from Sean <unk> with NBC Nikko Securities.

Thank you and good morning, guys Ravi I have a couple of longer term questions first.

Your auto business grew about 1% versus as you said.

8% or so decline and volume so that kind of suggest that digital content is increasing and high single digits.

And you also mentioned that your design wins are 40% above target.

As you go through the next few years should we expect somewhat similar content increase for you or do you see an opportunity to even grow that high single digit Steve and a higher level.

Yes, thank you and <unk>.

So.

We've had a good year I think one of the.

The growth of.

This low single digit growth over a over an 8% market decline really speaks to the strength of our design wins the strength of our acceleration and this particular market.

So now.

We continue to monitor the market, we continue to believe that we have a.

Low <unk>.

High single digit kind of content.

Expansion story for Us and we expect that that story.

<unk> continues to offset internal combustion.

<unk> with with Adas, and comfort and convenience and and <unk>. So.

We do expect that our story is.

Robust and resilient and the future, but we still are targeting the mid to high.

Single digits in terms of content expansion.

For 2024, as we've discussed we are targeting the lidar business, we expect in calendar 'twenty, four which is our fiscal 'twenty five for some meaningful revenue and we'll continue to report progress on that.

Got it and.

And then.

Ravi you know given all the supply issues and the auto industry I think there is.

At least some.

Question about.

Moving away from <unk>, and adjust and time inventory practices and <unk>.

History. So I'm just curious are you seeing any indication that your customers as we come out of this supply constrained environment.

Are your customers.

And are looking to kind of carry higher levels of inventory going forward any any discussions on that front as to how we might come out of that and how that might change your business going forward.

Great question, and so that story has still to be written.

So at this point they are our customers.

That are in discussions with us about securing.

Creating a secure supply base for the next few years, we are we're engaged with those customers on developing business conditions that.

That allow us to fulfill their requirements I think some of the car manufacturers are our initiatives are beginning and engagement with their supply base on how to secure semi capacity, they're recognizing that semiconductors are.

<unk> business than the traditional automotive supply model.

Two basically respond to what we would call a design wins.

And and be able to make sure that we secure run rates for customers over the next year year and a half.

There will be at some point and time and we're not sure when a layering of.

Inventory, but but thats not in the near term.

Got it thank you.

Your next question comes from Mark <unk> with Jefferies.

Hi, good morning, and thanks for taking my question I had a question on your distribution strategy and and the industrial markets for you.

A lot of semiconductor companies seem to be deemphasizing and distributors.

Kind of trending to taking the distribution function back you seem to be embracing the channel can.

Can you just help us understand maybe.

Peel a layer of the onion here what are the distributors doing free or are they creating demand or are they just don't and fulfillment.

How should we think about the growth of your industrial markets versus your your automotive markets. Once we get through all of this and that's all I had thank you.

Thanks, Mark So distribution business is an extraordinarily valuable channel for the company and.

And we do know that larger competitors are bringing businesses back in house.

We look at distributors as a leverage of our selling channel and they bring us opportunities. They provide additional touch points to customers that our direct sales team would not be able to achieve and they bring us.

Great margins.

In terms of gross margins for the company with standard margins and turns for the company. So for US distribution is extraordinarily valued channel we.

We do have some portion of distributions.

And that focus on low and so filament.

We use distributors fulfill filament and areas where where.

We may have currency or exchange challenges et cetera, where a local warehousing and inventories are required and we do not have that infrastructure.

But in all cases, our distribution business is.

Is is is very profitable now.

Now the benefit of distribution for us as it allows us to touch and access small customers.

And that for a company our size would be extraordinarily difficult.

Given the size of our sales team.

Okay.

As a follow on to that.

Yes, Mark.

Okay Alright.

The second part of the question is how should we think about the growth of your industrial markets versus your automotive and once we get through the supply chain issues, particularly what we're seeing and automotive side.

So our industrial market really and I think we've spoken about this before it's anchored on and on a really great.

Great growth vectors. So it's.

We expect to be in that in the double digit range for our industrial market.

And we expect that this is going to be anchored on.

Really good basic foundations electrification.

And industrial data centers within industrial factory automation.

And and.

And then you are starting to move towards a two wheelers et cetera. So.

Great opportunities for Us I think we're looking at the double digit growth rates.

That's very helpful. Thank you very much.

Okay and for any questions. Please press star and so that number one and your telephone keypad and.

And your next question comes from Vijay Rakesh with Mizuho.

Yeah, Hi, Adobe and great.

Great quarter and guide here.

Just a question on the industrial side, obviously very strong numbers.

And for new and pushing year on year growth and data center growing TX year on year.

And wondering what the mix was between <unk> and energy and data center and the factory automation and site.

And how you see those three.

And you look out.

Yes, Vijay we don't really provide that level of detail.

And as you know all of these have mini cycles within them, so but on the long term perspective, we see data centers as having a great strong growth vector we expect to outperform the data center market and in general just because of the conversion from single phase three phase fans.

And we've and our recent performance has proven that when I look at.

At factory automation et cetera, you can see that there's great investment going on right now to increase manufacturing capacity worldwide and and we see that as being a good growth vector for us to sell.

And for US industrial is.

And as strong a broad industrial is also strong as which is being serviced by our distribution business.

And again I'd say of a pack it all together, we expect the double digit growth.

Got it great and.

<unk>.

Okay.

And again on the mix side.

Obviously ex Omar is.

The key driver.

And the bigger market, where you dominate and that you have.

And good traction into sensing on the ex TV and I was just wondering what the mix between if you look at legacy Hall.

And this extra margin or U 200, and.

And <unk> just for the company as a whole and.

And your qualitative or quantitative direction on that thanks.

Yes, So X EMR is emerging.

Emerging segment for us so we focus on Xmr on silicon.

And where we add value to the technology as opposed to simple xmr elements, which are the current generation of products that are out in the marketplace.

Rx Tomorrow, and Silicon and we believe is extraordinarily broad and its reach and we released products and and transmission. We've been working in terms of <unk> sensing. We are already shipping. It has had a tremendous year over year growth is a long term growth vector for us we will not see.

We will not see this as a near term but.

But we will continue to announce products and this area. We continue to invest and this particular area and we continue to secure sockets in this area.

Great. Thanks.

At this time there are no further questions I will now hand, the call back to Catherine O'brien for closing remarks.

Alright, Thank you everyone for joining us today and this concludes our call.

Thank you.

Okay.

That concludes today's conference call. Thank you for your participation you may now disconnect.

Q4 2021 Allegro Microsystems Inc Earnings Call

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