Q4 2024 Allegro MicroSystems Inc Earnings Call
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Operator: Good morning, and welcome to the Allegro Microsystems fourth quarter and fiscal 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw a question, simply press star 1-1 again.
Speaker Change: Good morning, and welcome to the Allegro micro systems fourth quarter and fiscal 'twenty 'twenty four earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask.
Speaker Change: A question. During this session you will need to press star one one on your telephone you want.
Speaker Change: Then here an automated message advising that your hand is raised to withdraw a question simply press star one one again.
Operator: Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker for today, Jalene Hoover, Vice President of Investor Relations and Corporate Communications. Please go ahead.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand, the conference over to our first speaker for today.
Speaker Change: Charlene Hoover, Vice President of Investor Relations and corporate Communications. Please go ahead.
Jalene Hoover: Thank you, Crystal. Good morning, and thank you for joining us today to discuss Allegro's fiscal fourth quarter and full year 2024 results. I'm joined today by Allegro's President and Chief Executive Officer, Vineet Nargolwala, who will provide highlights of our business, review our quarterly financial performance, and share our first quarter 2025 outlook. Allegro's Chief Financial Officer, Derek D'Antilio, is not in attendance today due to a personal matter.
Jalene Hoover: Thank you Crystal good morning, and thank you for joining us today to discuss <unk>.
Jalene Hoover: Fiscal fourth quarter and full year 2024 results.
Jalene Hoover: I'm joined today by <unk>, President and Chief Executive Officer, Vineet Naga wallet.
Jalene Hoover: I'll provide highlights of our business review, our quarterly financial performance and share our first quarter 2025 outlook.
Jalene Hoover: And like Rose Chief Financial Officer, Derek Jeong.
Jalene Hoover: Right.
Speaker Change: Due to a personal matter.
Jalene Hoover: We will follow our prepared remarks with a Q&A session. Our earnings release and prepared remarks include certain non-GAAP financial measures. The non-GAAP financial measures that are discussed today are not intended to replace or be a substitute for our GAAP financial results. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included in our earnings release, which is also available on the Investor Relations page of our website at www.allegromicro.com. This call is also being webcast, and a replay will be available in the events and presentations section of our IR page shortly.
Speaker Change: We will follow our prepared remarks for the Q&A session.
Speaker Change: Our earnings release and prepared remarks include certain non-GAAP financial measures. The non-GAAP financial measures that are discussed today are not intended to replace or be a substitute for our GAAP financial results.
Speaker Change: A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release, which is also available in the Investor Relations page of our website at Www Dot Allegro micro dot com.
Speaker Change: This call is also being webcast and a replay will be available in the events and presentations section of our IR page shortly.
Jalene Hoover: During the course of this conference call, we will make projections and other forward-looking statements regarding future events or the future financial performance of the company. However, we wish to caution that such statements are based on current projections and assumptions as of today's date and, as a result, are subject to risks and uncertainties that could cause actual results or events to differ materially from projections. Important factors that can affect our business, including factors that could cause actual results to differ from our forward-looking statements, are described in detail in our earnings release for the fourth quarter of fiscal year 2024 and in our most recent periodic filings with the SEC (Securities and Exchange Commission).
Speaker Change: During the course of this conference call, we will make projections and other forward looking statements regarding future events or the future financial performance of the company.
Speaker Change: We wish to caution that such statements are based on current projections and assumptions as of todays date and as a result are subject to risks and uncertainties that could cause actual results or events to differ materially from projections.
Speaker Change: Important factors that can affect our business, including factors that could cause actual results to differ from our forward. Looking statements are described in detail in our earnings release for the fourth quarter and fiscal year 2024.
Speaker Change: In our most recent periodic filings with the SEC Securities and Exchange Commission.
Jalene Hoover: Our estimates or other forward-looking statements may change, and the company assumes no obligation to update forward-looking statements to reflect actual results, changes to assumptions, or other events that may occur, except as required by law. I will now turn the call over to Allegro's President and CEO, Vineet Nargolwala. Vineet?
Speaker Change: Our estimates or other forward looking statements may change and the company assumes no obligation to update forward looking statements to reflect actual results changes to assumptions or other events that may occur except as required by law.
Vinny: I'll now turn the call over to <unk>, President and CEO Vinny nautical wallet Denise.
Vineet A. Nargolwala: Thank you, Jalene, and good morning all, and thank you for joining our fourth quarter and full year fiscal year 2024 conference call. We are pleased to have delivered fourth quarter revenue and EPS above the high end of our guidance range despite a challenging macro environment. This is a testament to the hard work and dedication of our Allegro team that always puts customers first and innovates with purpose. For full year fiscal 2024, we delivered 8% revenue growth, with e-mobility growing 38% and 5% EPS growth.
Vinny Denise: Thank you Julian and good morning, all and thank you for joining our fourth quarter and full year fiscal year 2024 conference call.
Vinny Denise: We are pleased to have delivered fourth quarter revenue and EPS above the high end of our guidance range, despite a challenging macro environment.
Speaker Change: This is a testament to the hard work and dedication of our metro team that always sports customers first and innovate with purpose.
Speaker Change: For full year fiscal 2024, we delivered 8% revenue growth with E mobility, growing 38% and 5% EPS growth.
Vineet A. Nargolwala: I'm proud of the above-market performance the company has delivered and the progress we have made in serving our customers and positioning the company for sustained long-term growth. We delivered record annual sales of more than a billion dollars, a company first, as well as record-level design wins of more than a billion dollars. E-mobility, which includes increasing electrification of vehicles and the higher adoption of ADAS features, continues to drive Allegro's upper market growth and accounted for more than half of our design wins in fiscal year 2024.
Speaker Change: I'm proud of the above market performance. The company has delivered and the progress we have made in serving our customers and positioning the company for sustained long term growth.
Speaker Change: We delivered record annual sales of more than $1 billion company first.
Speaker Change: What is a record level of design wins of more than $1 billion.
Speaker Change: E mobility, which includes increasing electrification of vehicles and higher adoption of Adas features continues to drive a lakers above market growth and accounted for more than half of our design wins in fiscal year 2024.
Vineet A. Nargolwala: From a new product standpoint, we kicked off a record number of products and introduced over 30 new products to the market, emphasizing our ongoing commitment to innovation. We extended our leadership in magnetic sensing with the acquisition of Crocus.
Speaker Change: From a new product standpoint, we kicked off a record number of products introduced over 30, new products to the market emphasizing our ongoing commitment to innovation.
Speaker Change: We extended our leadership in magnetic sensing with the acquisition of <unk>, we're seeing great excitement from our customers for our highly differentiated extreme sense TMR technology.
Vineet A. Nargolwala: We're seeing great excitement from our customers for a highly differentiated, extreme sense TMR technology that presents the greatest accuracy, lowest power, and highest sensitivity for the world's most demanding applications. Not only are we deploying TMR across our automotive and industrial products, but we are also excited about expanding into medical applications such as continuous glucose monitoring with a leading biomedical OEM. We have made significant strides in expanding our operational capabilities, building supply chain resilience, and improving delivery and quality experiences for our customers.
Speaker Change: The greatest accuracy lowest power and highest sensitivity for the worlds most demanding applications.
Speaker Change: Not only are we finding TMR across our automotive and industrial products.
Speaker Change: We are also excited about expanding into medical applications, such as continuous glucose monitoring with a leading biomedical Oems.
Speaker Change: We have made significant strides in expanding our operational capabilities building supply chain resilience and improving delivery and quality experiences for our customers.
Vineet A. Nargolwala: Through our continuous portfolio review process, we also made the decision to cease investment in our photonics to prioritize resources and investments on continued innovation and development of our leading magnetic sensing and power portfolios. In summary, fiscal year 2024 was a successful year with much to be proud of and celebrate for Team Allegro. Now there's been a lot of discussion on whether XCV momentum is slow. The facts are that battery electric vehicles are only 15% of global production and growing at 25%, while hybrids are 22% of global production and growing at 16%, and every OEM is working furiously to bring new XCV models to market.
Speaker Change: Through our continuous portfolio review process.
Speaker Change: <unk> made the decision to seize investment in our photonics business.
Speaker Change: To prioritize resources and investments on continued innovation and development of our leading magnetic sensing and power portfolios.
Speaker Change: In summary fiscal year 2024, it was a successful year with much to be proud off and celebrate 14 milagro.
Speaker Change: Yeah.
Speaker Change: No theres been a lot of discussion on whether X TV momentum is slowing.
Speaker Change: The facts are that battery electric vehicles, there are only 15% of global production and growing at 25%.
Speaker Change: With hybrid or 22% of global production and growing at 16%.
Speaker Change: And every OEM is working furiously to bring new SUV models to market.
Vineet A. Nargolwala: The good news for Allegro is that our content on both platforms is equally strong and much higher than that on ice. So Allegro wins no matter which platform OEMs choose to invest in. And the geographical lens is very important too.
Speaker Change: The good news for Allegro is that our content on both platforms is equally strong.
Speaker Change: And much higher than that on ice breakers.
Speaker Change: So electrical wins, no matter, which platforms Oems choose to invest in and grow.
Speaker Change: And the geographical lens is very important too.
Vineet A. Nargolwala: XCVs now represent nearly half of total Chinese auto sales, and Chinese OEMs are expanding their global share with economical and compelling products. This is why continuing to win with Chinese OEMs is increasingly important and why we have doubled down on our presence with our China for China manufacturing initiative. I was in China a few weeks ago, and I'm pleased with the progress we are making and the continued strong support we have from Chinese OEMs and Tier 1s for Allegro's unique value proposition. And we are making great progress outside of China as well with global OEMs that are shaping the future of e-mobility.
Speaker Change: <unk> now represent nearly half of total China auto sales and Chinese Oems that are expanding their global share with economical and compelling products. This.
Speaker Change: This is why continuing to win with Chinese Oems is increasingly important and why we have doubled down on our presence with our China for China and manufacturing initiatives.
Speaker Change: I wasn't China, a few weeks ago and I am pleased with the progress we are making and the continued strong support we have with Chinese Oems and tier ones for <unk> unique value proposition.
Speaker Change: And we're making great progress outside of China, as well with global Oems that are shaping the future of E mobility.
Vineet A. Nargolwala: Our magnetic sensing and power solutions are finding great resonance with customers in a broad range of applications, and the Allegro team remains focused on executing a product strategy, continuing to win in the target markets, and serving our customers. Now, let me spend some time discussing what we're seeing in our end market. Our first quarter sales outlook contemplates ongoing inventory rebalancing in the automotive and inventory digestion in the channel, resulting in what we expect to be a trough revenue quarter before returning to sequential growth thereafter.
Speaker Change: Our magnetic sensing and power solutions are finding great residents with customers.
Speaker Change: Broad range of applications.
Speaker Change: The electric team remains focused on executing our product strategy continuing to win in the target markets and serving our customers.
Speaker Change: Now, let me spend some time discussing what we're seeing in our end markets.
Speaker Change: Our first quarter sales outlook comprehensive ongoing inventory rebalancing in automotive and inventory digestion of the channel, resulting in what we expect to be a trough revenue quarter before returning to sequential growth thereafter.
Vineet A. Nargolwala: We are working closely with customers and channel partners to manage orders to reduce inventory and return to normalized business levels as quickly as possible. In specific instances, we are providing pricing support to the channel to help clear inventory. Our OEM contract renewals have taken place with pricing largely in line with historical patterns. At a macro level, auto production is expected to be stable with double-digit growth in XEV. Industrial land markets are generally expected to remain muted, with lower demand and broader market recovery expected in the second half of the calendar year or later.
Speaker Change: We are working closely with customers and channel partners to manage orders to reduce inventory and return to normalized business levels as quickly as possible.
Speaker Change: And specific instances, we are providing pricing support to the channel to help clear inventory.
Speaker Change: Our OEM contract renewals have taken place with pricing largely in line with historical patterns.
Speaker Change: At a macro level auto production are expected to be stable with double digit growth in X series.
Speaker Change: Industrial end markets are generally expected to remain muted with lower demand and broader market recovery expected in the second half of the calendar year or later.
Vineet A. Nargolwala: Against this backdrop, we are really excited about a slew of innovative new product launches for Fiscal 2025. These include our highly anticipated silicon carbide high-voltage gate driver this quarter, as well as new high-speed current sensors and position sensors, including TMR.
Speaker Change: Against this backdrop, we are really excited about a slew of innovative new product launches for fiscal 2025.
Speaker Change: These include our highly anticipated silicon carbide high voltage gate driver this quarter.
Speaker Change: New high speed current sensors and position sensors, including TMR.
Vineet A. Nargolwala: A New Portfolio of Intelligent Motor Drivers with Risk Architecture, and an expansion of our TMR portfolio into a broader set of low-power medical applications. And later this month, we will be launching a portfolio of products to support the 48-volt transition in vehicles as well as in industrial applications like data center and clean energy. These new products and record-level design wind pipeline reinforce our confidence in the ability to grow above market over the mid to long term, consistent with our target financial model.
Speaker Change: Our new portfolio of intelligent motor drivers with risk architecture.
Speaker Change: Expansion of our TMR portfolio into a broader set of low power medical applications.
Speaker Change: And later this month, we will be launching a portfolio of products to support the 48 more transitioning vehicles as well as in industrial applications like data center and clean energy.
Speaker Change: These new products and record level of design win pipeline reinforce our confidence in the ability to grow above market or the mid to long term consistent with our target financial model.
Vineet A. Nargolwala: And we continue to invest in R&D and sales while we navigate near-term inventory corrections to maximize growth in strategic focus areas. I will now review the Q4 financial results. Sales were $241 million, gross margin was 53.8%, operating income was 23.8%, and adjusted EBITDA was 30.7% of sales. As a result, earnings were $0.25 per share. Q4 sales declined by 6% sequentially and 11% year-over-year. Sales to automotive customers were $182 million, down 7% sequentially and up 2% year-over-year, representing 76% of Q4 sales. E-mobility sales declined by 14% sequentially and were 49% of fourth quarter auto sales.
Speaker Change: And we continue to invest in R&D and sales, while we navigate near term inventory corrections to maximize growth.
Speaker Change: <unk> focus areas.
Speaker Change: I will now review the Q4 financial results.
Speaker Change: Sales were $241 million gross margin was 53, 8% operating income was 23, 8% and adjusted EBITDA was 37% of sales.
Speaker Change: As a result earnings were <unk> 25 per share.
Speaker Change: Q4 sales declined by 6% sequentially and 11% year over year.
Speaker Change: Sales to automotive customers with $182 million.
Speaker Change: Down, 7% sequentially and up 2% year over year, representing 76% of Q4 sales.
Speaker Change: E mobility sales declined by 14% sequentially and were 49% of fourth quarter auto sales.
Vineet A. Nargolwala: Industrial sales were $44 million, declining 5% sequentially and 29% year-over-year. Other sales, which include consumer applications, were $15 million, up 4% sequentially and down 48% year-over-year. From a product perspective, magnetic sensor sales were $146 million, declining 5% sequentially and 13% year-over-year. Sales of our power products were $94 million, declining 7% sequentially and 9% year-over-year. Sales by geography were again well-balanced, with 27% of sales in China, 26% in the rest of Asia, 18% in Japan, 16% in Europe, and 13% in the Americas.
Speaker Change: Industrial sales were $44 million declining, 5% sequentially and 29% year over year.
Speaker Change: Other sales, which includes consumer applications were $15 million up 4% sequentially and down 48% year over year.
Speaker Change: From a product perspective magnetic sensor sales were $146 million.
Speaker Change: Declining, 5% sequentially and 13% year over year.
Speaker Change: Sales of our power products were $94 million declining, 7% sequentially and 9% year over year.
Speaker Change: Sales by geography, where again, well balanced with 27% of sales in China, 26% of the rest of Asia.
Speaker Change: 8% in Japan, 16%, and Europe, and 13% of the Americas.
Vineet A. Nargolwala: Operating expenses were $72 million, a decrease of $2 million or 3% from a year ago, and inclusive of a full quarter of crockery. Fourth Core R&D expenses were 17% of sales, and SG&A was 13% of sales. Operating margin was 23.8% of sales compared to 27.2% in Q3 and 30.2% a year ago. The effective tax rate for the full year was 11 percent. The effective tax rate for the quarter was 9.5 percent, down sequentially, primarily as a result of the R&D tax credit.
Speaker Change: Operating expenses were $72 million, a decrease of $2 million or 3% from a year ago and inclusive of a full quarter of progress.
Speaker Change: Fourth quarter R&D expenses were 17% of sales and SG&A was 13% of sales.
Speaker Change: Operating margin was 28 23, 8% of sales compared to 27, 2% in Q3, and 32% a year ago.
Speaker Change: The effective tax rate for the full year was 11%.
Speaker Change: The effective tax rate for the quarter was nine 5% down sequentially, primarily as a result of R&D tax credits.
Vineet A. Nargolwala: The fourth quarter diluted share count was 194.5 million shares, and net income was $48 million, or 25 cents per diluted share. Turning to full year 2024 results. Fiscal 2024 was another strong year for Allegro, with sales increasing 8% year over year to a record $1.05 billion, and gross margin was 56.3%. Operating margin was 28.5% of sales. Adjusted EBITDA was 34.7%, and earnings per share were a record $1.35 per share. Sales to automotive customers increased by 17%, led by a 38% increase in e-mobility sales. Industrial sales increased by 7% year-over-year, and other sales declined by 44% during the year. Moving on to product sales, magnetic sensor sales increased by 9% year-over-year to $650 million, or 62% of total sales.
Speaker Change: The fourth quarter diluted share count was $194 5 million shares and net income was $48 million or <unk> 25 per diluted share.
Speaker Change: Turning to full year 2024 results Chris.
Speaker Change: Fiscal 2024 was another strong year for Allegro with sales, increasing 8% year over year to a record $1.05 billion.
Speaker Change: Gross margin was 56, 3%.
Speaker Change: Operating margin was 28, 5% of sales.
Speaker Change: <unk> EBITDA was 34, 7% and earnings per share with a record dollar and <unk> 35 per share.
Speaker Change: Sales to automotive customers increased by 17% led by a 38% increase in E mobility sales.
Speaker Change: Industrial sales increased by 7% year over year and other sales declined by 44% during the year.
Speaker Change: Moving on to product sales magnetic sensor sales increased by 9% year over year to $650 million or 62% of total sales.
Vineet A. Nargolwala: Sales of our power products increased by 7% year-over-year to $399 million. Moving on to the balance sheet and cash flow. We ended Q4 with cash of $222 million. Cash flow from operations in the fourth quarter was $13 million, and capital expenditures were $14 million. During the quarter, we made a tax payment of $41 million to repatriate Crocus IP, which we expect to largely recover through U.S. tax credits in fiscal 25. Excluding this payment, Q4 operating cash flow was $54 million, and free cash flow was $40 million, or 17% of sales.
Speaker Change: Sales of our power products increased by 7% year over year to $399 million.
Speaker Change: Moving to the balance sheet and cash flow.
Speaker Change: We ended Q4 with cash of $222 million.
Speaker Change: Cash flow from operations in the fourth quarter was $13 million and capital expenditures were $14 million.
Speaker Change: During the quarter, we made a tax payment of $41 million to repatriate Crocus, IP, which we expect to largely recover through U S tax credits in fiscal 'twenty five.
Speaker Change: Excluding this payment Q4 operating cash flow was $54 million and free cash flow was $40 million or 17% of sales.
Vineet A. Nargolwala: Full-year cash flow from operations was $182 million, capital expenditures were $125 million, and free cash flow was $57 million, or $98 million excluding the Crocus-related tax. From a working capital perspective, Q4, they say it's outstanding, was 45 days compared to 41 days in Q3. Inventory declined by another 3 million sequentially, and days of inventory were 126 days compared to 124 days in Q3.
Speaker Change: Full year cash flow from operations was $182 million.
Speaker Change: Capital expenditures were $125 million.
Speaker Change: And free cash flow was $57 million or $98 million, excluding the crocus related tax payment.
Speaker Change: From a working capital perspective, Q4 days sales outstanding was 45 days compared to 41 days in Q3.
Speaker Change: Inventory declined by another 3 million sequentially and days of inventory were 102006 days compared to 124 days in Q3.
Vineet A. Nargolwala: Finally, I'll turn to our Q1 audience. We expect first quarter sales to be in the range of $160 to $170 million as we work with customers to reduce their inventory levels. Based upon our backlog, fill rates, and customer demand, we anticipate low double-digit sequential growth going into Q2. Additionally, we expect Q1 gross margin to be between 49 and 50%, which reflects a combination of capacity underutilization, product mix, and price adjustments primarily in distribution.
Speaker Change: Finally, I'll turn to our Q1 outlook.
Speaker Change: We expect Q first quarter sales to be in the range of $160 million to $170 million as we worked with customers to reduce their inventory levels.
Speaker Change: Based upon our backlog fill rates and customer demand.
Speaker Change: We anticipate low double digit sequential growth going into Q2.
Speaker Change: We expect Q1 gross margin to be between 49 and 50%.
Speaker Change: Which reflects a combination of capacity under utilization product mix and price adjustments primarily in distribution.
Vineet A. Nargolwala: We expect operating expenses to be between $72 and $73 million. We project our non-gap tax rate to be 12%, and our diluted share count to be approximately 196 million. In April, we also made a $50 million voluntary payment on our $250 million term loan, which is projected to reduce our annual interest expense by approximately $4 million. As a result, we expect non-GAAP EPS to be between a cent and three cents per share.
Speaker Change: We expect operating expenses to be between 72 and $73 million.
Speaker Change: We project, our non-GAAP tax rate to be 12% and our diluted share count to be approximately 196 million shares.
Speaker Change: In April we also made a $50 million voluntary payment on our $250 million term loan, which is projected to reduce our annual interest expense by approximately $4 million.
Speaker Change: As a result, we expect non-GAAP EPS.
Speaker Change: <unk> between <unk> and <unk> per share.
Vineet A. Nargolwala: Recall that we have been taking actions over the past year to reposition our company for long-term growth, which contributed approximately $15 million or a 10% decline in organic operating expenses during the second half of fiscal 24 compared to the first half of the year. So we enter fiscal 25 with an optimized footprint and are ready to serve our customers and grow. I am very proud of what we've achieved over the past year to navigate inventory dynamics while delivering record financial results. I would like to thank the entire Allegro team for this terrific performance and their dedication to serving our customers. I'll now turn the call back to Jalene for questions. Thank you, Vineet.
Speaker Change: Recall that we have been taking actions over the past year to reposition our company for long term growth, which contributed approximately $15 million or.
Vineet A. Nargolwala: Or 10% decline in organic operating expenses during the second half of fiscal 'twenty four compared to the first half of the year.
Speaker Change: So we enter fiscal 'twenty, five with an optimized footprint and ready to serve our customers and grow.
Speaker Change: I am very proud of what we've achieved over the past year to navigate inventory dynamics.
Vineet A. Nargolwala: Levering record financial results.
Jalene Hoover: I would like to thank the entire electric team for this terrific performance and a dedication in serving our customers.
Speaker Change: I'll now turn the call back to Lee for questions Julien. Thank you Bonnie. This concludes management's prepared remarks before we open the call for your questions I'd like to share our first fiscal quarter conference lineup with you.
Jalene Hoover: Thank you, Vinnie. This concludes management's prepared remarks. Before we open the call for your questions, I'd like to share our first fiscal quarter conference lineup with you. We are attending T.D. Cowan's 52nd Annual TMT Conference on May 29th at the Intercontinental New York Barclay and Mizuho's 2024 Technology Conference at the J.W. Mary Essex House, New York on June 12th.
Jalene Hoover: We are attending TD Cowens second annual TMT conference on May 29 at the Intercontinental New York Barclay.
Jalene Hoover: <unk> 2024 technology conference at the J W. Marriott, Essex House, New York on June 12.
Operator: We will now open up the call for your questions. Operator, please review the Q&A instructions. Thank you. We will now conduct our question and answer session.
Speaker Change: We will now open up the call for your questions operator.
Operator, Please review Q&A instructions.
Operator: We will now conduct our question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. We do ask that all participants limit themselves to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of Gary Mobley of Wells Fargo Security. Your line is now open.
Speaker Change: Thank you.
Operator: We will now conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
Operator: To withdraw your question. Please press star one again, we do ask that all participants limit themselves to one question and one follow up.
Operator: Please standby, while we compile the Q&A roster.
Operator: Okay.
Gary Wade Mobley: Thanks for taking my question. My thoughts are with Derek, his presence on the call is missed, and my question is this outlook for low double-digit percent sequential revenue growth in Q2, which presumably puts the number at about 180 million dollars in revenue or more. Is that representative of true end demand, or is that still under shipping and demand, and maybe you can just give us a sense of the, maybe the continued rate of revenue recovery after the second quarter? and I have a follow-up. Hey Gary,
Operator: Our first question comes from the line of Gary Mobley of Wells Fargo Securities. Your line is now open.
Gary: Good morning, everybody.
Speaker Change: Thanks for taking my question.
Gary Wade Mobley: Dr with Derek is present on the call list.
Speaker Change: And my question is.
Gary Wade Mobley: This outlook for low double digit percent sequential revenue growth into Q2, which presumably puts that number at about $180 million in revenue or more is that representative of true end demand or is that still under shipping in demand and maybe you can just give us a sense of.
Speaker Change: Maybe the continued rate of revenue recovery after the second quarter. Thank you and have a.
Vineet A. Nargolwala: Hey Gary, this is Vidae. Thanks for your question. Thanks for your kind comments as well. We do expect things to start to return to normal. Demand Ordering Patterns. You know, we've talked about how automotive was the last and Markit to enter into an inventory rebalancing mode. We believe it's going to be the first one coming out of it. I think this quarter is going to be instrumental in getting it there for us. And we expect order to return to sequential growth coming out of Q1. And I think the low to mid-double-digit is the right way to think about it.
Speaker Change: A follow up.
Gary Wade Mobley: Hey, Gary This is bill Thanks for your question and thanks for your.
Vineet A. Nargolwala: <unk> comments as well.
Vineet A. Nargolwala: We do expect to start to return to normal.
Vineet A. Nargolwala: Ordering patterns.
Vineet A. Nargolwala: We've talked about automotive was lost.
Vineet A. Nargolwala: And market to enter into an inventory rebalancing mode.
Vineet A. Nargolwala: We believe it's going to be the first one coming out of it I think this quarter is going to be instrumental in getting it there for us.
Vineet A. Nargolwala: And we expect order to return to sequential growth coming out of Q1.
Vineet A. Nargolwala: And I think the.
Vineet A. Nargolwala: Mid.
Vineet A. Nargolwala: As a low to mid double digit.
Vineet A. Nargolwala: It's the right way to think about it.
Vineet A. Nargolwala: Okay.
Gary Wade Mobley: Now, some of the factors, pressure, and gross margin that you admitted to are, you know, a little bit concerning, right? Especially with respect to quote, unquote, price support to clear the channel. And I was hoping to flesh out some additional details there.
Vineet A. Nargolwala: Now.
Gary Wade Mobley: Some of the factors pressuring gross margin that you needed to.
Gary Wade Mobley: I guess, a little bit concerned right, especially with respect to quote unquote price support to clear the channel.
Gary Wade Mobley: I was hoping to flush out some additional details there is.
Gary Wade Mobley: Is that going to be indicative of the pricing trend going forward is that something customers and distributors are going to grow accustomed to maybe you can just give us some level of comfort that.
Speaker Change: Temporary pricing situation, yes.
Vineet A. Nargolwala: Yeah Gary, it's a great question and it's a fair question. I would characterize our pricing support as temporary and really very targeted at certain distributors. When you look at our Q4 to Q1 transition on the gross margin, only about 100 basis points is due to price and mix. Okay? The vast majority, I would say about 300 basis points, is really underutilization, which is temporary here in the first quarter. We've taken prudent actions to obviously, you know, around direct labor and so on and so forth.
Vineet A. Nargolwala: Is, you know, is that going to be indicative of the pricing trend going forward? Is that something customers and distributors are going to grow accustomed to? Maybe you can just give us some level of comfort that, you know, it's a temporary pricing situation. Yeah, Gary, it's a great question and it's a fair question.
Vineet A. Nargolwala: Yeah, Gary It's a great question and it's a fair question.
Speaker Change: I would characterize our pricing support is temporary and really very targeted with certain distributors.
Speaker Change: When you look at our Q4 to Q1 transition on the gross margin only about 100 basis points is due to price and mix okay.
Speaker Change: Majority or I would say about 300 basis points is really the under utilization, which is temporary here in the first quarter, we've taken prudent actions to obviously.
Speaker Change: Around direct labor and so on and so forth, but obviously there is a certain amount of fixed cost that doesn't go away and so that's really representative of that.
Vineet A. Nargolwala: But obviously, there's a certain amount of fixed costs that don't go away. And so that's really representative of that. And it's largely been in our distribution channel, again, that's where we believe the bulk of the inventory problem resides.
Vineet A. Nargolwala: <unk> largely been in our distribution channel again, that's where we believe bulk of the inventory problem resides.
Speaker Change: Thank you.
Operator: Thank you for your questions. Please stand by for our next question. Thank you. Our next question comes from the line of Chris Caso of Wolf Research. Your line is now open.
Speaker Change: Thanks, Gary.
Christopher Caso: For your question Sam.
Christopher Caso: Standby for our next question.
Operator: Thank you. Our next question comes from the line of Chris Caso of Wolfe Research. Your line is now open.
Christopher Caso: Yeah, thank you. Good morning.
Christopher Caso: Yes. Thank you. Good morning wondering if you could give a little more color on.
Christopher Caso: What was discussed on pricing and more specifically.
Christopher Caso: In terms of the guidance here, how much of the sequential decline is driven by units.
Christopher Caso: <unk>, reducing inventory in the channel.
Christopher Caso: As compared to pricing.
Christopher Caso: And then maybe similar with with the visibility for.
Christopher Caso: The September quarter, an indication you provided there is that more of a function of pricing coming back into September or kind of resumption in unique orders.
Christopher Caso: I wonder if you could give a little more color on, you know, what was discussed about pricing. And more specifically, you know, in terms of the guidance here, how much of the sequential decline is driven by units, presumably, you know, reducing inventory in the channel as compared to pricing. And then, you know, maybe similar to, with, you know, the visibility for, you know, the September quarter and the indicators you provided there, is that more of a function of pricing coming back into September or, you know, some kind of resumption of unit orders?
Speaker Change: Yeah, Hi, Chris Thanks for the question.
Speaker Change: I mentioned earlier pricing is actually the smallest part of the transition and so we really think.
Christopher Caso: It's volume here in Q1, and as that starts to come back as we get out of this inventory digestion mode.
Christopher Caso: Getting back to sequential growth going into Q2, we expect that to moderate right. So our utilization is going to get.
Christopher Caso: Increased and we should start to see the margins come back as well.
Christopher Caso: Okay.
Christopher Caso: With.
Christopher Caso: With respect to the comments on <unk>.
Christopher Caso: <unk> versus hybrid.
Christopher Caso: <unk>.
Christopher Caso: The slowdown in EV has been kind of well documented here you've pointed out that hybrid you've got equal content, there, but I imagine there's got to be some transition as some of the Oems kind of shift that around can you speak to that.
Christopher Caso: To what extent is some of the slowdown youre seeing now attributed to slowdown in EV.
Christopher Caso: And how.
Christopher Caso: How do you see that transition to hybrid as we have heard that the number of Oems have has accelerated the hybrid programs, but it probably is an immediate effect.
Christopher Caso: Okay. With respect to the comments on, you know, EV versus hybrid, the slowdown in EV has been, you know, kind of well documented here. You've pointed out that the hybrid, you've got equal content there, but I imagine there's got to be some transition as, you know, some of the OEMs kind of shift that around. Can you speak to that of, you know, to what extent is some of the slowdown you're seeing now true?
Vineet A. Nargolwala: Yeah, hi Chris. Thanks for the question. As I mentioned earlier, pricing is actually the smallest part of the transition, and so we really think about volume here in Q1, and as that starts to come back as we get out of this inventory digestion mode and get back to sequential growth going into Q2, we expect that to moderate, right? So our utilization is going to get increased, and we should start to see the margins come back as well.
Christopher Caso: to slow down an EV. And, you know, how do you see that transition of hybrids as, you know, we have heard that the number of OEMs have accelerated their hybrid programs, but it probably isn't an immediate effect. Yeah, Chris.
Christopher Caso: Exactly a park might end up but a hybrid platform benefits from Bolton EEV powertrain as well as a tradition ice powertrain and we think that that's actually.
Christopher Caso: Net positive for Allegro.
Christopher Caso: Same as the same continent as we see in a pure battery electric vehicle is just that the reading of the power unit might be a little different so the reading on our parts might be a little different but other than that we really don't see any difference in the content, we shipped to a BB or two.
Christopher Caso: Do a hybrid of course when it comes to the actual logistics of part numbers and making sure you go to the right part.
Christopher Caso: Obviously, some considerations that and our belief is that our customers and our tier ones are pulling the right strings to make sure that the right inventory is getting to the right customer for the right program hopefully that answers the question.
Speaker Change: It does thank you.
Vineet A. Nargolwala: Yeah, Chris, so it's a great question, and we have a really global perspective on the automotive market. And when you look at our geographical balance, it's really indicative of how the automotive world sort of splits out by region. I will tell you that outside of the U.S., we really don't see any slowdown in both EV production and the design of new EV programs. Regarding your question regarding a shift between EVs and hybrids, I will tell you that the components that we ship into hybrids and EVs are largely the same.
Speaker Change: Thank you for your question <unk>, our next question.
Vineet A. Nargolwala: It's just a matter of, and in a lot of cases, we don't know exactly where they end up, because other than a few customers where they only have a few products on the market, most of our customers have a very broad portfolio under multiple brands in multiple regions.
Vineet A. Nargolwala:
Vineet A. Nargolwala: Comes from the line of Joshua Buckhalter at T be calling your line is now open.
Vineet A. Nargolwala: So it's very hard to figure out where exactly a part might end up. But a hybrid platform benefits from both an EV powertrain as well as a traditional ICE powertrain. And we think that that's actually a net positive for Allegro, the same content as we see in a pure battery electric vehicle. It's just that the rating of the power unit might be a little different, so the rating on our parts might be a little different.
Speaker Change: Thanks for taking my question in the morning, and Yeah, Let me Echo the thoughts that.
Vineet A. Nargolwala: His family hopefuls Okay.
Vineet A. Nargolwala: If I look at the June guidance, you know you'd previously flag that you're expected that quarter down and.
Vineet A. Nargolwala: Street things all wrong, all the time, but.
Vineet A. Nargolwala: Really below the street and it seems like at least.
Speaker Change: I'm speaking with you last order worse than you were originally expected maybe you could spend a couple of minutes I'm just talking about what changing my lot worse, and that's that's driving the week or outlook and viewed at least versus certainly versus what the street was expecting and I think versus what you guys were expecting as well. Thank you.
Vineet A. Nargolwala: But other than that, we really don't see any difference in the content we ship to a PEV or to a hybrid. Of course, when it comes to the actual logistics of part numbers and making sure you've got the right part, there are obviously some considerations there. And our belief is that our customers and our tier ones are pulling the right strings to make sure that the right inventory is getting to the right customer for the right program. Hopefully, that answers your question. It does. Thank you. Thank you for your question.
Vineet A. Nargolwala: Josh Thanks for the question and kind of thoughts as well you know a b as we said in the last quarter we started.
Operator: Thank you for your questions. Please stand by for our next question. Our next question comes from the line of Joshua Buchalter of TV Cohen. Your line is now open.
Joshua Louis Buchalter: Seeing automotive enter into inventory rebound in school that was reflected in our queue for the guidance. It ended up being a little bit better than expected R. Q1, as we talk to our customers and their tier ones.
Joshua Louis Buchalter: Hey Vineet, Jalene, thanks for taking my question in the morning, and yeah, let me echo the thoughts to Derek and his family. I hope all's okay. I guess if I look at the June guidance, you know, you had previously flagged that you expected that quarter to be down, and Street gets things all wrong all the time, but this is materially below the street, and it seems, at least from speaking with you last quarter, worse than you originally expected.
Joshua Louis Buchalter: We noticed that there was an opportunity and some of this is related to the push pull between different parts and so on remember we don't actually plan for each quarter right. We plan for the year and between quarters, there's a lot of push and pull between within with customers on ordering one part horses pulling another part and so what we're seeing in Q1 as a result.
Joshua Louis Buchalter: Maybe you could spend a couple of minutes just talking about what changed and what worsened that's driving the weaker outlook in June, at least, certainly versus what the street was expecting, and I think versus what you guys were expecting as well. Thank you.
Vineet A. Nargolwala: George, thanks for the question and the thoughts as well. You know, as we said in the last quarter, we started seeing the automotive industry enter into an inventory rebalance mode that was reflected in our Q4 guidance. It ended up being a little bit better than expected. In our Q1, as we talked to our customers and their Tier 1s, we noticed that there was an opportunity, and some of this is related to the push-pull between different parts and so on.
Joshua Louis Buchalter: Things one is us working very actively with our customers to actually make sure that inventory levels at the tier ones and the C. M's come down to normal levels as quickly as possible. So we can all get back to sequential growth and a second I think is a reflection off the normal pushing for that happens between quarters on orders.
Vineet A. Nargolwala: Remember, we don't actually plan for each quarter, right? We plan for the year, and between quarters, there's a lot of push and pull between within with customers on ordering one part versus pulling another part. And so what we're seeing in Q1 is a result of two things. One is us working very actively with our customers to actually make sure that inventory levels at the Tier 1s and the CMs come down to normal levels as quickly as possible so we can all get back to sequential growth.
Vineet A. Nargolwala: And the second, I think, is a reflection of the normal push and pull that happens between quarters on orders. Okay. And so that's really the difference versus what perhaps we had signaled in the last quarter, in the last earnings call.
Vineet A. Nargolwala: And so that's that's really the different horses, perhaps we had signalled.
Vineet A. Nargolwala: And the last quarter and the last training school.
Joshua Louis Buchalter: Thanks for the color there. I guess my follow-up, you know, unless I'm doing it wrong, it looks like e-mobility was actually materially worse than the legacy auto parts this quarter. Anything to read there? And then, you know, any, I guess, metrics you can give us, whether bookings, backlog, book to bill, things like that, to sort of help us with the, you know, better understand the return to double-digit sequential growth in the September quarter.
Speaker Change: Thanks for that color than a semi follow up.
Joshua Louis Buchalter: Unless I'm doing it wrong. So it looks like he mobility was actually.
Joshua Louis Buchalter: Really worse than the legacy auto parts this quarter anything to read there and then you know any I guess metrics you can give us where their bookings backlog spoke to build things like that to sort of help us with the.
Joshua Louis Buchalter: Better understand the return to double digit sequential growth in the September quarter. Thank you yeah.
Vineet A. Nargolwala: Thank you. Yeah. Yeah. Thanks.
Vineet A. Nargolwala: Yeah, thanks, Josh. So I would tell you that it's really an artifact of the normal push-up that happens between quarters. You know, we look at the full year, and when we look at full-year 24, e-mobility grew 38%. So, almost 40% on a year-over-year basis, really powering our growth in the automotive industry, which overall grew 17%. So we really have no complaints about our performance in e-mobility, and we continue to see great momentum over half our design wins in fiscal 24 came from e-mobility and automotive. So they have great momentum.
Vineet A. Nargolwala: Yeah. Thanks, Josh So I will tell you that it's really an artifact of the normal push pull that happens between quarters.
Vineet A. Nargolwala: Look at the full year and when we look at full year 2024, immobility grew 38%, so almost 40% on a year over year basis really following I brought an automotive, which overall grew 17%. So we really have no complaints about our performance and he mobility and we continue to seek create momentum over half our design.
Vineet A. Nargolwala: <unk> wins in fiscal 2004 came from immobility in automotive so great momentum game continues to do a great job of executing a new products really well aligned with the customer needs and really out integrating whatever is out there on the market place and the design wins give us a lot of confidence in the metro locked them. So I'm not worried at all about our ability to execute our.
Vineet A. Nargolwala: The team continues to do a great job of executing new products, really well-aligned with customer needs and really out-innovating whatever is out there in the marketplace. And the design wins give us a lot of confidence in the mid-to-long-term. So I'm not worried at all about our ability to execute our strategy and e-mobility and really outperform the market. You know, when we look at our Q1 to Q2, as I mentioned before, it's really a function of what our customers want us to ship to them.
Vineet A. Nargolwala: Strategy immobility, and really outperformed the market.
Vineet A. Nargolwala: When we look at our queue want to cute too as I mentioned before it's really a function of what our customers want us to ship to them.
Vineet A. Nargolwala: As I said before, the auto industry was the last one to go into inventory rebalance mode, and we believe it will be the first one to come out of it. And we expect the auto industry to return to sequential growth going from Q1 to Q2. And, you know, industrial, it's still too early to tell. We think it's stable at lower levels now, and recovery is potentially in the second half, but it could be later. But really, our return to sequential growth is going to be driven by the auto industry. And within that, I think e-mobility is going to lead the way. Thank you for your time.
Vineet A. Nargolwala: I said before.
Vineet A. Nargolwala: What's the last industry to go into inventory Rebalanced Board, we believe it will be the first one to come out of it and we expect order to return to sequential growth.
Vineet A. Nargolwala: Going from Q1 Q2.
Vineet A. Nargolwala: And industrial it's still too early to tell we think it's stable at the lower levels now recoveries potentially in the second half could be later.
Vineet A. Nargolwala: But really are for donors sequential growth is going to be driven by auto and within that I think evil, but it is going to lead the way.
Speaker Change: Thank you.
Operator: Thank you for your time. Thank you for your question. Please stand by for our next question. Our next question comes from the line of Quinn Bolton of Needham and Company. Your line is now open.
Vineet A. Nargolwala: Okay.
Nathaniel Quinn Bolton: Thank you for your question please stand Alpha.
Operator: Paul.
Nathaniel Quinn Bolton: Our next question comes from the line at <unk> at <unk> uncomfortable your line.
Nathaniel Quinn Bolton: Hey, thank you for taking my question. I'll also offer my best wishes to Derek and his family. Vanita, I guess I have two questions for you. One, on the price adjustments in the channel, can you say, is this a one-time price adjustment on things that you've already shipped where you're going to take an adjustment to prices one time to sort of clear the channel? Or will you be taking lower prices on a go-forward basis on new products shipped into the channel? And then I've got a follow-up question.
Nathaniel Quinn Bolton: Hey, Thank you for taking my question also.
Nathaniel Quinn Bolton: Offer my my best wishes to Derek and his family.
Nathaniel Quinn Bolton: They need I guess two two questions for you one on the price adjustment and the channel.
Nathaniel Quinn Bolton: You say is this a one time price adjustment on things that you've already shipped where you're gonna take an adjustment to prices one time to sort of clearer the channel or will you be taking lower prices on a go forward basis on new products shipped into the channel.
Nathaniel Quinn Bolton: And then I've got a follow up question.
Vineet A. Nargolwala: Gwen, thanks for the question and also for the kind thoughts. It is It is exactly the one-time phenomenon that you pointed out. So we recognize as we work with our distributors, particularly in Asia, that they need support to clear their inventory. And we've been very targeted. And so we've given one-time price support in a very targeted fashion to help our distributors clear their inventory. I will tell you that, you know, we launched over 30 new products into the market in fiscal 24. The ASPs on those new products are higher than our fleet and are holding up really well. So we don't expect the pricing phenomenon that I highlighted here to be an ongoing phenomenon.
Vanita: Thanks for the question and also the the Guy talks.
Vineet A. Nargolwala: It is it is exactly the one time phenomenon that you pointed out so we recognize as we work with our distributors.
Vineet A. Nargolwala: Particularly in Asia.
Vineet A. Nargolwala: At they needed support to clear clear the inventory.
Vineet A. Nargolwala: And we've been very targeted and so we were given one time price support and very targeted fashion to help our distributors clearly inventory I will tell you that we launched over 30, new products to the market.
Vineet A. Nargolwala: In fiscal 24, B esp's on those new products are higher than our fleet and are holding up really well. So we don't expect the pricing phenomenon that I highlighted here to be an ongoing phenomenon.
Nathaniel Quinn Bolton: And then just, you know, I know you're not getting out, you know, kind of beyond the first quarter, but you sort of talked about the return to low double digits and potential growth. Obviously, you know, where that implies revenue would be for the September quarter is still well below the run rates that you've been running at for the past several quarters. Do you expect that low double-digit growth rate to continue for multiple quarters? Yeah, Quinn.
Speaker Change: Understood and then just you know I know, you're not getting out kind of beyond.
Quinn: The first quarter, but that you sort of talked about the return of low double digit sequential growth.
Quinn: Obviously, you know where that implies revenue would be for September.
Quinn: September quarter is still well below the run rates that you'd been running at for the past several several quarters.
Quinn: That low double digit growth rate to continue for multiple quarters.
Vineet A. Nargolwala: Yeah, Quinn, we do, right? So I think it's going to be a bit of a climb back to our, what I would call our normal operating quarterly run rates. We feel really good about getting there in this fiscal year, but it might take us a couple of quarters to get there. So I think thinking about it in terms of, you know, low to mid, double-digit growth rates, sequentially, is the right way to think about it. Got it. Thank you.
Quinn: Yeah Quinn.
Vineet A. Nargolwala: Do right. So I think I think that's going to be a bit of a climbed back to or what I would call a normal operating quarterly run rates, we feel really good about getting there in this fiscal year, but it might take us a couple of quarters forget there. So I think thinking about it in terms of low to mid.
Vineet A. Nargolwala: Double digit growth rates sequentially is the right way to think about it.
Speaker Change: Got it thank you.
Operator: Thank you. Please stand by for our next question. Thank you. Our next question comes from the line of Vijay Rakesh of Mizzou Hope. Your line is now open.
Speaker Change: Thank you please stand by for our next question.
Vijay Raghavan Rakesh: Oh yeah.
Operator: Question.
Vijay Raghavan Rakesh: The lines at <unk> <unk>.
Operator: Mmm.
Vijay Raghavan Rakesh: Your line now okay.
Vijay Raghavan Rakesh: I would like to echo a prayer for Derek as well. Just a question, on the guide, what did you miss there? Was there something that you missed for the guide down that you probably would have seen before? And was the inventory primarily all disked inventory?
Vijay Raghavan Rakesh: Yeah.
Vijay Raghavan Rakesh: <unk>.
Vijay Raghavan Rakesh: Question on the guide.
Vijay Raghavan Rakesh: Mmm.
Vijay Raghavan Rakesh: Mishandling, most need something that you've missed.
Vijay Raghavan Rakesh: <unk>.
Vijay Raghavan Rakesh: <unk> and mostly <unk>.
Vineet A. Nargolwala: So we're not sure about your first question in terms of a miss. We expected some level of inventory correction. Let's come back to what we said in the last earnings call. We said we're seeing Auto enter into an inventory rebalance mode. Typically, tier ones and CMs hold about four to six weeks of inventory. During the supply crisis, they have been asked by the OEMs to hold 10 to 12 weeks of inventory, and we're actually getting some price support and incentives to hold. That inventory
Vijay Raghavan Rakesh: So we got not sure about your first question in terms of a miss we expected some level of inventory correction.
Vineet A. Nargolwala: Let's come back to what we said in the lost earnings call. We said, we're seeing auto now enter into an inventory rebalanced mode typically tier once in CMS hold about four to six weeks of inventory through the supply crisis. They had been asked by the Oems to whore 10 to 12 weeks of inventory and we're actually getting some price support and incentives to hold.
Vineet A. Nargolwala: As the supply crisis abated, those incentives went away, and as interest rates went higher and stayed higher, the cost of carrying that inventory started to bite. And so the CMs and Tier 1 started to pare back their inventory levels back to four to six weeks. And so we expected that to happen over a couple of quarters. It's happening a little sharper, you know, sooner than we, or I think we had originally thought about it. But what it does from a positive standpoint is it creates a clearing event where we can now start to get back to sequential. And what was your second question, Vijay?
Vineet A. Nargolwala: That inventory as the supply crisis debated those incentives went away and it's the interest rates went higher than stay at higher.
Vineet A. Nargolwala: Cost of carrying that inventory starter to bite and so the <unk> in the tier one starter to bear the imagery levels back to four to six weeks and so we expected that to happen over a couple of quotas is happening a little sharper sooner than we then I think we had originally thought about it but but what it does from a positive standpoint it creates.
Vineet A. Nargolwala: Create a clearing away and we are now we can start to get back to sequential growth.
Vijay: And what is your throat a question region.
Vijay Raghavan Rakesh: Yeah, I think it is more on, I just want to add another question to it. If you look at the inventor, you mentioned automotive and Distee and Asia as well. If there's any concern about that, I mean, is it a particular customer or competitive issue? If we can talk about that, or this is just primarily a very broad auto, Asia, and Distee inventor.
Vineet A. Nargolwala: Yeah.
Vijay Raghavan Rakesh: I think it is more on.
Vijay Raghavan Rakesh: I just wanted to add a question if you look at the inventor.
Speaker Change: <unk>, you mentioned <unk> any kind of send it.
Vijay Raghavan Rakesh: Customer that accompany the issue you can talk to that understands this plan, let me pretty broad <unk> <unk>.
Vineet A. Nargolwala: Yeah, so it's actually more broadly industrial inventory in the channel. And as we know, and some of our peers have also called out, that industrial continues to be in this sort of long U-shaped or bathtub-shaped inventory correction, which is compounded by lower demand. Our industrial OEMs are probably most sensitive to interest rates, Vijay, and so we think there's actually lower demand as well. So we've really been giving price support to our distributors in Asia, where most of the electronics manufacturing happens for our industrial customers, right?
Vineet A. Nargolwala: Yeah, So it's actually more broadly industrial inventory in the channel and as we know and some of our fears of also called out that industrial continues to.
Vineet A. Nargolwala: B and this sort of long you shaped or a bathtub shaped inventory correction, which is compounded by lower demand industrial.
Vineet A. Nargolwala: Our industrial Oem's are probably more sensitive to interest rates.
Vineet A. Nargolwala: Alright, So we think that's actually lower demand as well. So we have really been giving price support to our our distributors in Asia, where most of the electronics manufacturing happens for industrial customers right. So that's the that's the way to think about and that sort of geographical connection.
Vineet A. Nargolwala: So that's the way to think about in that sort of geographical connection with an automotive company. We are mostly direct to the OEM or direct to the Tier 1 model. In Asia, there's a little bit of inventory in China and Japan that is used to service our OEMs there, mainly because they hold the paper and they do first-level quality support. There is a little bit of inventory there, but it's not something that keeps us up at night.
Vineet A. Nargolwala: Within automotive.
Vineet A. Nargolwala: We are mostly Ah direct to Oriental directed a tier one.
Vineet A. Nargolwala: Model in Asia, there's a little bit of inventory in China, and Japan that is used to service are.
Vineet A. Nargolwala: They're mainly because they hold the paper ended do first level quantities aboard there's a little bit of inventory there, but it's not something that keeps us up at night.
Vijay Raghavan Rakesh: Got it. Thanks. And last question, I think on fiscal 25, I know you're not given the full year guide yet, but how would you see that year-on-year versus, you know, I think you talked about 25% immobility growth and 18% female energy automation. But any thoughts on that?
Speaker Change: Got it thanks and last question I think I'm, just basically 25, I know you're not giving guidance.
Speaker Change: Oh did you see that.
Vijay Raghavan Rakesh:
Vijay Raghavan Rakesh: Can get back to work or anything like this <unk>.
Speaker Change: <unk> <unk>.
Vineet A. Nargolwala: Yeah, Vijay, we're not guiding for the full year. I think the best we can talk about now is what we see sort of sequentially from Q1 to Q2. And we think it's going to be, you know, that trend is probably going to continue for the next couple of quarters, in terms of low to mid double digit sequential growth.
Vijay Raghavan Rakesh: Yeah.
Vineet A. Nargolwala: We're not guiding for the full year I think the best we can talk about now is what we see sort of sequentially from Q1, Q2, and we think it's going to be that trend is probably going to for.
Vineet A. Nargolwala: For the next couple of quarters in terms of low to mid double digit sequential growth okay.
Vijay Raghavan Rakesh: Okay. I got it. Thank you.
Vijay: Got it thank you.
Operator: Thank you for your question. As a reminder, to ask a question, simply press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by for our next question. Our next question comes from the line of Mark Lipacis of Evercore ISI. Your line is now open.
Speaker Change: Thank you for your question.
Operator: Reminder, to ask the question simply <unk>, one one on your telephone and wait for nine people amount to withdraw your question. Please <unk> one one again.
Operator: Please stand by our our neck.
Operator: Tim.
Mark John Lipacis: Our next question comes from.
Mark John Lipacis: <unk> <unk> <unk> at Evercore I F I.
Mark John Lipacis: Mine is now open.
Mark John Lipacis: Hi, thanks for taking my question. Vineet, how does ramping utilization rates down and then back up again work operationally? Is this a FAB shutdown, or are you to take utilization rates way down? And then I guess the question then becomes like how quickly do you get back to, you know, whatever the normalized loadings are? And I imagine there may be residual underutilization charges as you kind of ramp back up in Q2, is that a reasonable expectation? And then I had a follow-up question, thanks.
Mark John Lipacis: Hi, Thanks for taking my question.
Mark John Lipacis: How does ramping utilization rates.
Mark John Lipacis: Down and then back up again work operationally is this.
Mark John Lipacis: <unk> sat down you just are you to take utilization Raceway low.
Mark John Lipacis: And and then I guess the question then becomes like how quickly do you get back to.
Mark John Lipacis: Whatever the normalized loadings are and I imagine there may be still residual under utilization charges as you kind of ramp back up in it.
Vineet: You too is that is that a reasonable expectation and then I had to follow up thanks sure Mark. Thanks for the question. So we don't have five not anymore. So really the under utilization is happening in our assembly operations in test operations in the Philippines. As a reminder, redo only 50 per cent of for Assembly.
Vineet A. Nargolwala: Sure, Mark. Thanks for the question. So, Mark, we don't own a fab, not anymore, so really, the underutilization is happening in our assembly operations and test operations in the Philippines. As a reminder, we do only 50% of our assembly at our factory in the Philippines, and we do 100% of our tests. And so the underutilization really is happening there.
Vineet A. Nargolwala: In our factory in the Philippines, and we do 100 per cent of our test.
Vineet A. Nargolwala: So the under utilization release happening there.
Vineet A. Nargolwala: And I would say that our team has done a terrific job of managing the short-term costs, you know, whether it's shifts, whether it's, you know, furloughs and so on. And so we retain the ability to snap back very quickly, as we have seen, and we believe that auto is going to come back here very quickly on a sequential basis. We have the ability to support that. In addition, we've been continuing to bank build in Dibank, which gives us the ability
Speaker Change: And I would say that our team has done a terrific job of managing the short term costs, whether it's shifts whether it's it's a.
Vineet A. Nargolwala: Furloughs and so on and so we we retain the ability to snap back very quickly as we have seen and we believe that auto is going to come back to your very quickly on a sequential basis, we have the ability.
Vineet A. Nargolwala: Do do support that in addition, we've been continuing to bank billed and die Bank, which gives us the ability to pretty quickly and so it reduces the lead time that we have internally.
Vineet A. Nargolwala: To respond to our customers.
Mark John Lipacis: That's helpful. And a follow-up, if I may, separately, a lot of times, you know, you have an overbuild followed by an overcorrection, and everybody lowers utilization, and then there's a restock, and then you have tightness, and you start the overbuild process again. And when you said that, you know, six weeks is normal in the channel, now they're shooting for four to six weeks in a lower demand environment. It sounds like it might be setting up for that classic cycle.
Vineet A. Nargolwala: Okay.
Mark John Lipacis: But that's helpful and follow up if I may <unk>.
Mark John Lipacis: Separately, a lotta times you you know you have an overbilled is followed by an over correction and everybody lowers utilization and then there's restock and then you have tightness and you start to overbuild process again, and when you said that six weeks as normal and the channel now they're shooting to four to six weeks and a lower demand environment.
Mark John Lipacis: So I guess my question is, what is your feelings on this situation? Is that drop to four to six weeks? Does that kind of set us up? Like, how do you manage that, you know, operationally for Allegro? Thank you.
Mark John Lipacis: Sounds like it might be setting up for that classic cycle. So I guess my question is do you. What is your feel on this situation is that is that dropped to 46 weeks is that.
Mark John Lipacis: Is that kind of set us up like how do you manage that operation.
Vineet A. Nargolwala: Yeah, so Mark, it's a great question, and frankly, I would tell you that most of my peers in the industry are really trying to get their arms around this. So the way to think about it for us is this.
Speaker Change: R like Robert Thank you yeah cause the market is a great question and frankly I will tell you that that most of my peers in the industry are are really trying to get their arms around with so the way to think about it for US is this our auto customers.
Vineet A. Nargolwala: Our auto customers, especially the tier ones and the CMs, are very comfortable operating at four to six weeks. That's been their normal mode. The OEMs, however, believe that's a little undercooked, so they would like them to hold a little bit more.
Vineet A. Nargolwala: Especially the tier ones or the CMS are very comfortable operating at four to six weeks that's been their normal mode.
Vineet A. Nargolwala: <unk> believe that's a little under Cook, so they would like them to hold a little bit more so I think we get back into balance here over the next couple of quarters.
Vineet A. Nargolwala: So I think we'll get back into balance here over the next couple of quarters. Our distribution channel, which largely serves industrial and consumer and a little bit of auto inertia, is very comfortable in the 10 to 12-week range. And we know that because of lower industrial demand and a little bit of overordering, I would say, in industrial and consumer, that is definitely higher than the 10 to 12 weeks. And so we think that they will come back into balance here through the year.
Vineet A. Nargolwala: Our distribution channel, which largely so industrial and consumer and a little bit of water in Asia is very comfortable in the 10 to 12 week range, and we know that because of lower industrial demand and and.
Vineet A. Nargolwala: Little bit of ordering I would say, an industrial and consumer that is definitely higher than the 10 to 12 weeks and so we think that they will come back into balance here through the year.
Vineet A. Nargolwala: And really, industrial demand needs to pick up in order for that inventory to start, the POS to start flowing again. We're still seeing some green shoots, to be honest, in our POS. But, you know, a couple of months don't make a trend, but we're optimistic that this will start to form a true demand pattern. I think, coming back to the question you raised, are we going to be ready for the upcycle?
Vineet A. Nargolwala: And really the industrial day managed to pick up an order for that inventory to stock. The appeal is to start flowing again, we're seeing seeing some green shoots to be honest and up to us.
Vineet A. Nargolwala: But you know a couple of months don't make a trend.
Vineet A. Nargolwala: We are optimistic that this will start start to form a true demand pattern I think coming back to the question. You raised are we going to be ready for the upcycle I think that's what you were hinting at.
Vineet A. Nargolwala: I think that's what you were hinting at, you know, our ability to work very closely with our supply chain, the process improvements, the cycle time improvements we've made internally, the banknote build we've done, the geographical resilience we've built into our supply chain. We've actually gone from a monolithic supply chain to a pretty diversified supply chain in the last 18 months. So I'm really proud of what the team has done there, and that sets us up really well to respond to any snapback in demand here in the future.
Vineet A. Nargolwala: Our ability to work very closely with our supply chain.
Vineet A. Nargolwala: The process improvements to Cyclothyme improvements, we've made internally the bank manager Bill we've done.
Vineet A. Nargolwala: The geographical resilience, we built into our supply chain, we've actually gone from a monolithic supply chain to a pretty diversified supply chain in the last 18 months. So I'm really proud of what the team has done that and that sets us up really well to respond to any snap back and demand here in the near term.
Vineet A. Nargolwala: Very helpful. Thank you, Beneath. Thanks, Mark. Thank you for your question.
Speaker Change: Very helpful. Thank you.
Speaker Change: Thanks Mark.
Operator: Thank you for your question. Please stand by for our next question. Our next question comes from the line of Thomas O'Malley of Barclays. Your line is now open.
Speaker Change: Thank you for your question. Please stand by for our next question.
Thomas O'malley: Hey guys, thank you. This is Kyle Belucinon on behalf of Tom O'Malley. Thank you for taking my question. So I was kind of wondering, for the June decline, how much of that would you attribute to volume versus pricing support?
Thomas O'malley: Our next question comes from the line at Thomas O'malley at <unk>.
Vineet A. Nargolwala: It's mostly volume.
Thomas O'malley: Okay.
Kyle Belucinon: Hey, guys. Thank you. This is <unk> valley. Thank you for taking my question. So I was kind of wondering for the tune decline how much is that would you attribute to volume versus pricing support.
Thomas O'malley: Mostly volume? All right, thank you.
Thomas O'malley: It's mostly volume.
Vineet A. Nargolwala: And then for my follow-up, you characterize industrial as improving later this calendar year. But can you give an idea of the kind of that recovery? Like, would you extract strong growth off the bottom, as we've typically seen in prior cycles, or do you expect just modest improvement initially? It's hard to tell, Kyle.
Thomas O'malley: Alright. Thank you and then for my follow up you characterize industrialists improving later this county here. So can you give an idea of kind of the shape of that recovery like would you extract stronger is off the bottom sv's typically seen in prior cycles or do you expect just modest improvement initially.
Vineet A. Nargolwala: It's hard to tell, Kyle. You know, at this point, we are very targeted in our exposure to industrial markets. So it's very focused on clean energy, including data centers, EV charging, and industrial automation. And we see some really good design momentum there. And certainly, there are a lot of regulations and government investment and incentives that are driving momentum in those markets. We feel reasonably confident that as the inventory position starts to work down, those industrial markets will get back to growth in a meaningful way.
Vineet A. Nargolwala: It's hard to tell Kyle at this point, we are very targeted at our exposure to industrial markets. So it's a very focused on.
Vineet A. Nargolwala: Clean energy, including data centers.
Vineet A. Nargolwala: To be charging.
Vineet A. Nargolwala: Restaurant automation and we see some really good designers momentum there and certainly there's a lot of regulations and.
Vineet A. Nargolwala: Government investment and incentives that are driving Ah Ah momentum in those markets, where we feel reasonably confident that as the inventory position starts to walk down.
Vineet A. Nargolwala: During that those industrial markets will get back to growth in a meaningful way.
Vineet A. Nargolwala: It's hard to call the timing, though, but we've been sort of in this inventory correction mode for a few quarters now. We expect it to continue for another couple. But optimistic here that in the second half of our fiscal 25, we should start to see the industrial markets come back to growth.
Vineet A. Nargolwala: It's hard to call the timing, though but we've been sort of in the signature collection multiple a few quarters now we expected to continue for another couple opt.
Vineet A. Nargolwala: Optimistic here that are in the second half of our fiscal 25, we should start to see the industrial markets come back to growth.
Speaker Change: Awesome. Thank you.
Operator: Thank you for your question. I am showing no further questions at this time. I would now like to turn the call back over to Jalene Hoover for closing remarks.
Speaker Change: Thank you for your question.
Jalene Hoover: I am showing no further questions at this time I would now like to turn the call back Okay <unk> foreclosing on like.
Jalene Hoover: Thank you, Crystal. We appreciate you taking the time to join us this morning. This concludes this morning's conference call.
Jalene Hoover: Thank you Chrystal. We appreciate you taking the time to join US. This morning. This can click this morning's conference call.
Jalene Hoover: [music].