Q4 2025 Allegro MicroSystems Inc Earnings Call and Business Update

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Operator: Good morning and welcome to the Allegro Microsystems fourth quarter and full fiscal year 2025 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there'll be a question and answer session.

Good morning, and welcome to the La grille Microsystems fourth quarter and full fiscal year 'twenty 25 earnings conference call.

At this time all participants are in a listen only mode.

After the Speakers' presentation there'll be a question answer session.

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To ask a question. During this session you will need to press star one one on your telephone you will then wait for here an automated message advising your hand is raised to withdraw your question. Please press star one one again, please be advised that today's conference is being recorded.

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Jalene Hoover: I would now like to hand the conference over to Jalene Hoover, Vice President of Investor Relations and Corporate Communication. Thank you, Brianna. Good morning and thank you for joining us today to discuss Allegro's fiscal fourth quarter and full fiscal year 2025 results. I'm joined today by Allegro's President and Chief Executive Officer, Mike Doog, and Allegro's Chief Financial Officer, Derek D'Antilio. They will provide highlights of our business, review our quarterly and annual financial performance. and share our first quarter outlook.

Julian: I would now like to hand, the conference over to Julian who her.

Julian: Vice President of Investor Relations and corporate communications.

Julian: Thank you Breanna good morning, and thank you for joining us today to discuss the laggards fiscal fourth quarter and full fiscal year 2025 results.

Speaker Change: I'm joined today by <unk>, President and Chief Executive Officer, Mike <unk>.

Speaker Change: Oh, My Gosh, Chief Financial Officer Derek.

Speaker Change: They will provide highlights of our business review, our quarterly and annual financial performance.

Speaker Change: And share our first quarter outlook, we will follow our prepared remarks for the Q&A session.

Jalene Hoover: We will follow our prepared remarks for the 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 GAAP financial results.

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 GAAP financial results. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our.

Jalene Hoover: A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our Earnings for the For more information visit www.fema.gov which is available on the Investor Relations page of our website at www.allegromicro.com.

Speaker Change: Earnings release, which is available on the Investor Relations page of our website at www dot to like with micro Dot com.

Jalene Hoover: This call is also being webcast and a replay will be available in the events and presentations section of our IR page shortly. During the course of this conference call, we will make projections and other forward-looking statements regarding future events for the future financial performance of the company. We wish to caution that such statements are based on current expectations 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.

Speaker Change: This call is also being webcast and a replay will be available in the investor presentation section of our IR page shortly.

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 expectations and assumptions as of todays date and actual results 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 at fiscal 2025.

Jalene Hoover: 25, and in the most recent periodic and other filings with the Securities and Exchange Commission. Our estimates, expectations, 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.

Speaker Change: And in the most recent periodic and other filings with the Securities and Exchange Commission.

Speaker Change: Our estimates expectations 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.

Michael Doogue: It is now my pleasure to turn the call over to Allegro's president and CEO, Mike Doogue. Mike? Thank you very much, Jalene, and good morning, and thank you all for joining our fourth quarter in full fiscal year 2025 conference call.

Mike: It is now my pleasure to turn the call over to our language President and CEO, Mike <unk> Mike.

Mike: Thank you very much Duane and good morning, and thank you all for joining our fourth quarter and full fiscal year 2025 conference call.

Michael Doogue: And let me start by saying that it is truly an honor and a privilege to assume the role of president and CEO at Allegro. My journey started 27 years ago when I joined Allegro as a chip designer working on cutting edge technologies, which we then turned into disruptive product lines. I then expanded my focus into business leadership, eventually running all three of our business units as SDP of technology and products. And in this role, I led the growth of company revenue and grow smart. Following our IPO, I became Allegro's first ever Chief Technology Officer, responsible for technology development, corporate strategy, and M&A.

Mike: And let me start by saying that it is truly an honor and a privilege to assume the role of president and CEO at Allegro. My journey started 27 years ago. When I joined the Allegro laser chip designer working on cutting edge technologies, which we then turned into disruptive product lines.

Mike: And then expanded my phone.

Mike: And to business leadership eventually running all three of our business units as SVP of technology products and in this role I led the growth of company revenue and gross margin.

Mike: Following our IPO I became <unk> first ever Chief Technology Officer responsible for technology development corporate strategy and M&A.

Michael Doogue: Along the way, I also led our global operations teams, including oversight of our internal factory and quality teams, while also working closely with our OSAT and BAB partners. Collectively, I believe the breadth and depth of my experience provides a rich opportunity to accelerate and implement product, innovation, and efficiency initiatives that will drive sales growth and gross margin improvements for Allegro.

Mike: Along the way I also led our global operations teams, including oversight of our internal factory and quality teams.

Mike: Also working closely with our <unk> and <unk>.

Mike: Partners.

Mike: Collectively I believe the breadth and depth of my experience provides a rich opportunity to accelerate and implement product innovation and efficiency initiatives that will drive sales growth and gross margin improvements for allegro.

Michael Doogue: Recently, as you might imagine, I've been asked about my strategic priorities as CEO. And at the highest level, here is my response. I will work with our teams to accelerate new product development and unlock SAM expansion. to secure impactful design wins with leading customers in growth markets. and to leverage my innovation expertise to drive a meaningful impact on both top and bottom line growth. More specifically, relentless innovation that drives leadership in new and existing markets and applications will be a top priority. Innovation with purpose is central to everything we do at Allegro. And through innovation, we will strengthen our competitive advantages and drive double digit sales growth in automotive and industrial and market.

Mike: Recently as you might imagine I've been asked about my strategic priorities as CEO and at the highest level here is my response.

Mike: We work with our teams to accelerate new product development and unlock Sam expansion.

Mike: To secure impactful design wins with leading customers in growth markets and.

Mike: <unk> leveraged by innovation expertise to drive a meaningful impact on both top and bottom line growth.

Mike: More specifically relentless innovation that drives leadership in new and existing markets and applications will be a top priority <unk>.

Mike: Innovation with purpose is central to everything we do at Allegro and through innovation, we will strengthen our competitive advantages and drive double digit sales growth in automotive and industrial end markets.

Michael Doogue: During Fiscal 2025, we demonstrated accelerated innovation by releasing 50% more products compared to our IPO year. And these innovative new ICs are truly important to our journey as they will positively impact gross margins and help fuel our multi-billion dollar SAM expansion initiatives as we target a $12 billion market opportunity.

Mike: During fiscal 2025, we demonstrated accelerated innovation by releasing 50% more products compared to our IPO year.

Mike: I mean, its innovative new Ics are truly important to our journey as they will positively impact gross margins and help fuel our multibillion dollar Sam expansion initiatives as we target a $12 billion market opportunity.

Michael Doogue: It's also a priority to extend our leading magnetic sensing market position. With an estimated 30% CAGR through 2030, TMR magnetic sensors present a unique opportunity for continued share gains for Allegro. And we've recently demonstrated an ability to drive share gains through our ExtremeSense TMR technology. In fact, in Q4, we secured new TMR wins in the biomedical market and a new automotive win in an XEV thermal management application. We also released new XtremeSense™ TMR current sensors in the quarter. These ICs deliver high-precision current measurements and 4x noise reduction compared to competing Hall solutions.

Mike: It's also a priority to extend our leading magnetic sensitive market position with an estimated 30% CAGR through 2030, TMR magnetic sensors presents a unique opportunity for continued share gains for <unk>.

Mike: And we've recently demonstrated an ability to drive share gains through our extreme sets TMR technology. In fact in Q4, we secured new TMR wins in the biomedical market and a new automotive win in an ex EV thermal management application.

Mike: We also released new extreme sense TMR sensors in the quarter. These Ics deliver high precision current measurements and Forex noise reduction compared to competing solutions for these and many more reasons. We are deeply excited about the future of TMR.

Michael Doogue: For these and many more reasons, we are deeply excited about the future of TMR. Moving on to power, we will also expand our leadership in select power applications. For example, we are introducing a new family of high-voltage isolated gate driver ICs to the market. These gate drivers represent a nearly $3 billion SAM expansion opportunity for Allegro. It can significantly augment our long-term automotive and data center growth rate. At FY25, we launched initial drivers, enabling GAN solutions, and also began sampling our silicon carbide isolated gate drivers to market-leading customers. And in Q4, we were pleased to secure our first automotive isolated gate driver win in an exciting new XCV charging program in China.

Mike: Moving on to power, we will also expand our leadership in select power applications. For example, we are introducing a new family of high voltage isolated gate driver Ics to the market. He is gay drivers represent a nearly $3 billion Sam expansion opportunity for Allegro.

Mike: It can significantly augment our long term automotive and data center growth rates.

Mike: 2025, we launched initial drivers, enabling Gan solutions.

Mike: I also began sampling our silicon carbide isolated gate drivers and market leading customers.

Mike: And in Q4, we were pleased to secure our first automotive isolated gate driver to win and an exciting new ex EV charging program in China.

Michael Doogue: Now let's drill in on automotive. We have served the automotive market for more than 30 years. And in that time, we've established a reputation for offering premium solutions, and we've demonstrated a right to win. We continue to accelerate our wins in the e-mobility market, which offers a $5 billion SAM opportunity and an estimated 16% KG. And in Q4, we secured a new current sensor win in an XEV inverter application in Europe, which represents an important share gain for Allegro. Our e-mobility growth opportunity is supported by industry analysts' continued expectations for double-digit growth in XEV powertrain production, where our content is meaningfully greater compared to an ICE powertrain.

Mike: Now, let's drill in on automotive.

Mike: The automotive market for more than 30 years and in that time, we've established a reputation for offering premium solutions and we've demonstrated that right to win.

Mike: We continue to accelerate our wins in the E mobility market, which offers a $5 billion Sam opportunity at an estimated 16% CAGR and in Q4, we secured a new current sensor win and an ex TV further application in Europe.

Mike: Each represents an important share gain for allegro.

Mike: Already mobility growth opportunity is supported by industry analysts continued expectations for double digit growth in ex EV powertrain production, where our content is meaningfully greater compared to an ice powertrain.

Michael Doogue: Our content is also meaningfully greater in emerging ADAS applications, where we see significant opportunity in steer-by-wire and electromechanical braking systems, and where Allegro's dollar content per system can exceed $20. In Q4, we were thrilled to secure multiple new design wins in high-growth electromechanical braking systems that represent a strong new growth vector for Allegro.

Mike: Our content has also meaningfully greater than emerging Adas applications, where we see significant opportunity steer by wire and electromechanical braking systems, and where our land gross dollar content per system can exceed $20.

Mike: In Q4, we were thrilled to secure a multiple new design wins in high growth of electromechanical braking systems that represent a strong new growth vector for Allegro.

Michael Doogue: Pivoting now to industrial priorities, we will capitalize on emerging opportunities in high-growth sectors, including robotics, data center, clean energy, and medical markets. These markets offer an approximate $3 billion SAM opportunity and a 15% CAGR. Industrial customers, they value and recognize our differentiated automotive-grade technologies. For example, there is an ever-increasing need to efficiently manage server power demands. This need is driving a return to growth in our data center products. High-growth AI data centers require more of our motor drivers, current sensors, and isolated gate drivers. And we are excited about our data center future because AI servers have more than 2x the Allegro content opportunity relative to legacy servers.

Mike: Pivoting now to industrial priorities, we will capitalize on emerging opportunities in high growth sectors, including robotics datacenter clean energy and medical markets. These markets offer an approximate $3 billion, Sam opportunity and a 15% CAGR.

Mike: Industrial customers they value and recognize our differentiated automotive grade technologies. For example, there is an ever increasing need to efficiently manage server power demands. This need is driving a return to growth in our data center on our products.

Mike: High growth AI data centers require more of our motor drivers current sensors and isolated gate drivers and we are excited about our datacenter future because AI servers have more than two X the allegro content opportunity relative to legacy servers.

Michael Doogue: We continue to expand our TMR solutions into medical applications, and today are designed into leading blood glucose monitoring solutions with multiple customers. With a $300 million SAM, we see additional opportunities to expand our participation in this market.

Mike: We continue to expand our TMR solutions into medical applications and today are designed into a leading blood glucose monitoring solutions with multiple customers.

Mike: With a $300 million, Sam we see additional opportunities to expand our participation in this market.

Michael Doogue: As we look to the future, we have emerging business and excellent relationships with market-leading companies in the robotics market. where our price-precise motion control solutions and high-resolution sensors offer space and control advantages in every joint throughout a robot. And as humanoid robots are adopted in factories or in homes, a new rapid growth SAM will emerge for Allegro. Experts estimate the size of this robotic SAM to exceed $10 billion between 2030 and 2035, and we are establishing our leading products and technologies within the SAM and doubling down on our focus in this market.

Mike: As we look to the future, we have emerging business and excellent relationships with market leading companies the robotics market.

Mike: Where our price precise motion control solutions at high resolution sensors offer space and control advantages in every joy throughout a robot.

Mike: And as humanoid robots are adopted and factories are in homes, a new rapid growth Sam will emerge for Allegro.

Mike: Experts estimate the size of its robotic Sam to exceed $10 billion between 2030 in 2035, and we are establishing our leading products and technologies within the Sam and doubling down on our focus in this market.

Michael Doogue: And as a final priority as CEO, we will execute operational efficiency initiatives to enhance gross margins and profitability. One such initiative, in the next 12 to 18 months, we are excited to release a multitude of new products with optimized supply chain, test flow, bill of materials, or design architectures that unlock significant manufacturing cost reductions. These ICs represent cost innovations, a different but important type of innovation that has the potential to drive a meaningful gross margin uplift for Allegro starting in the very near future.

Michael Doogue: This is an exciting time with many growth opportunities ahead for Allegro. And while I don't expect to materially change the strategies which I helped develop as CTO, I believe that as Allegro's CEO, I can accelerate our strategies and unlock additional shareholder value. I will share more in the coming months and quarters, but we have a strong conviction in our near-term financial targets and our long-term model, which is based on double-digit sales growth, 58% or greater gross margins, and more than 32% operating margins. We see a credible path to progressing towards these targets over the next few years.

Mike: <unk> shareholder value.

Mike: I will share more in the coming months and quarters, but we have a strong conviction in our near term financial targets and our long term model, which is based on double digit sales growth, 58% or greater gross margins and more than 32% operating margins, we see a credible path to progressing towards these targets over the next few.

Mike: Years.

Michael Doogue: I'm thrilled to be back by an outstanding team here at Allegro, and I'm confident in our collective ability to advance our mission while creating value for stakeholders.

Mike: I'm thrilled to be back by an outstanding team here at Allegro and I'm confident in our collective ability to advance our mission, while creating value for stakeholders.

Michael Doogue: Turning now to fiscal fourth quarter results, we delivered strong execution overall with fourth quarter sales above the high end of our guidance at $193 million and non-GAAP EPS of six cents above the midpoint of our guidance. And it is worth noting that we do not have any indication that this upside revenue performance was due to any pull-ins in response to tariffs. In addition, during the quarter, automotive sales returned to growth, increasing 8% sequentially, led by e-mobility. In Q4, we saw particular strength in power solutions for ADAS applications, and we expect to continue to leverage our strong market position at applications, including electric power steering, advanced braking systems, and XED powertrains, as well as 48V.

Mike: Turning now to fiscal fourth quarter results, we delivered strong execution overall with fourth quarter sales above the high end of our guidance at $193 million and non-GAAP EPS was <unk> <unk> above the midpoint of our guidance.

Mike: And it is worth noting that we do not have any indication that this upside revenue performance was due to any pull ins in response to tariffs.

Mike: In addition, during the quarter automotive sales returned to growth increasing 8% sequentially led by E. Mobility. In Q4, we saw particular strength in power solutions for Adas applications, and we expect to continue to leverage our strong market position at Apple food applications, including electric power steering.

Mike: Earrings and advanced braking systems at FCB powertrains, as well as 48 volt systems.

Michael Doogue: In our industrial and other end markets, we saw growth in data center and robotics and automation revenue in the March quarter and are encouraged by continued signs of increasing activity in industrial markets.

Mike: In our industrial and other end markets, we saw growth in datacenter in robotics and automation revenue in the March quarter and are encouraged by continued signs of increasing activity in industrial markets.

Michael Doogue: Turning now to design wins. In the fourth quarter, we achieved record level design wins with more than 70% of those wins and strategic focus areas, which include e-mobility, robotics and automation, data center, clean energy, and medical. I'm pleased to see the diverse nature of these winds as this diversity highlights the resilience of our portfolio while also positioning us well for growth.

Mike: Turning now to design wins in the fourth quarter, we achieved record level design wins and with more than 70% of those wins and strategic focus areas, which include E mobility, robotics, and automation datacenter clean energy and medical.

Mike: I am pleased to see the diverse nature of these wins as this diversity highlights the resilience of our portfolio, while also positioning us well for growth.

Michael Doogue: I'm truly excited to lead Allegro through this next chapter of growth as we build on a strong foundation, accelerate our strategic priorities, and deliver on both our near and long-term financial targets. I'd like to thank Allegro's employees, partners, customers, and investors for their continued support.

Mike: I am truly excited to lead a leg grow through this next chapter of growth as we build on our strong foundation accelerate our strategic priorities and deliver on both our near and long term financial targets I'd like to thank <unk> employees partners customers and investors for their continued support.

Michael Doogue: Before I hand the call over to Derek, I'd like to briefly comment on recent ONSEMI dynamics to offer some further clarity on the situation. As you likely know, it became public knowledge during the quarter that we had received several proposals from ONSEMI to potentially acquire Allegro. Our board takes its fiduciary duties very seriously, and naturally our board will consider any credible outreach to acquire Allegro that might be in the best interest of our stockholders. Accordingly, our board spent extensive time considering OnSemi's proposals.

Speaker Change: Before I hand, the call over to Derek I would like to briefly comment on recent on semi dynamics to offer some further clarity on the situation as you likely know it became public knowledge during the quarter that we had received several proposals from on semi to potentially acquire allegro.

Speaker Change: Our board takes its fiduciary duties very seriously and naturally our board will consider any credible outreach to acquire allegro that might be in the best interest of our stockholders. Accordingly, our board spent extensive time considering on semi proposals we laid out a path to on semi for further engagement and on semi.

Michael Doogue: We laid out a path to OnSemi for further engagement, and OnSemi ultimately determined to withdraw its interest instead.

Speaker Change: Ultimately determined to withdraw its interest instead.

Derek D'Antilio: I'll now turn the call over to Derek to review the Q4 and full fiscal year 2025 financial results and provide our outlook for the first quarter. Thank you, Mike, and good morning, everyone.

Speaker Change: I'll now turn the call over to Derek to review, the Q4 and full fiscal year 2025 financial results and provide our outlook for the first quarter.

Derek: Thank you, Mike and good morning, everyone.

Derek D'Antilio: I'd like to start with a brief comment about tariff. It is obviously a rapidly evolving environment, and quantifying the potential impact of tariffs remains challenging. As of today, we believe there are currently immaterial direct impacts on Allegro. Our products are classified as semiconductors, and we ship all of our products from our back-end facility in the Philippines. Indirect impact of tariffs are just harder to predict. So far, we have not seen any abnormal customer behavior, which could be associated with any tariffs. We will, of course, continue to monitor this situation closely and expect to have better clarity moving forward.

Derek: I'd like to start with a brief comment about tariffs. It is obviously a rapidly evolving environment and quantifying the potential impact of tariffs remains challenging as of today. We believe there are currently immaterial direct impacts on Allegro.

Derek: Our products are classified as semiconductors, and we ship all of our products from a back end facility in the Philippines.

Derek: The indirect impact of tariffs are just harder to predict.

Derek: So far we have not seen any abnormal customer behavior.

Derek: Which could be associated with any tariffs.

Derek: We will of course continue to monitor the situation closely and expect to have better clarity moving forward.

Derek D'Antilio: Tariffs aside, we are encouraged by the positive, forward-looking indicators we are seeing across our business. I'll share a few data points that further reinforce our belief that we are entering the beginning of an upcycle. First, our customer inventories have continued to decline and our distributor inventory levels have actually declined 25 percent, exiting the fourth quarter compared to the beginning of FY25. Fourth quarter bookings were up another 20% sequentially and have now increased for the fifth consecutive quarter to the highest they've been in more than two years. Orders within lead time continue to increase. backlog has resumed growth, and we are actually starting to see select component or raw material shortage.

Derek: Tariffs aside we are encouraged by the positive forward looking indicators, we are seeing across our business.

Derek: I'll share a few data points that further reinforce our belief that we are entering the beginning of an up cycle.

Derek: First our customer inventories have continued to decline and the distributor inventory levels have actually declined 25%.

Derek: Exiting the fourth quarter compared to the beginning of FY 'twenty five.

Derek: Fourth quarter bookings were up another 20% sequentially and have now increased for the fifth consecutive quarter to the highest they've been in more than two years.

Derek: Orders within lead time continue to increase.

Derek: Backlog has resumed growth and we are actually starting to see select component or raw material shortages.

Derek D'Antilio: Now turning to a summary of our fourth quarter financial results. Sales were $193 million and non-GAAP earnings per share were $6 million. Gross Margin was 45.6%, Operating Margin was 9%, and Adjusted EBITDA was 14.8% of sales. Total Q4 sales increased by 8% sequentially. declined 20% year-over-year. Sales to automotive customers increased by 8% sequentially, led by e-mobility sales, which increased 16% sequentially. Auto sales declined 23% year-over-year. industrially and other sales increased by 9% sequentially and for the third consecutive quarter led by continued growth in data center as well as in robotics and automation. industrial and other sales declined 11% year-over-year.

Derek: Now turning to a summary of our fourth quarter financial results sale.

Derek: Sales were $193 million and non-GAAP earnings per share was <unk> <unk>.

Derek: Gross margin was 45, 6% operating margin was 9% and adjusted EBITDA was 14, 8% of sales.

Derek: Total Q4 sales increased by 8% sequentially, but declined 20% year over year.

Derek: Sales to automotive customers increased by 8% sequentially led by E mobility sales, which increased 16% sequentially.

Derek: Auto sales declined 23% year over year.

Derek: Industrial and other sales increased by 9% sequentially and for the third consecutive quarter led by continued growth in data center as well as in robotics and automation.

Derek: Industrial and other sales declined 11% year over year.

Derek D'Antilio: Sales throughout distribution channel increased by 4% sequentially and represented 50% of Q4 sales. This, combined with continued strong POS and normalizing inventory levels provides us additional evidence that we are coming off the bottom. From a product perspective, magnetic sense of sales increased by 3% sequentially to 61% of sales. Sales of our Apollo products increased 19% sequentially, led by growth in motor drivers for ADAS and data center applications. Sales by geography were, again, well-balanced, with 27% of sales in China, 24% in the rest of Asia, 20% in Japan. 16% in the Americas and 13% of sales in Europe.

Derek: Sales through our distribution channel increased by 4% sequentially and represented 50% of Q4 sales.

Derek: This combined with continued strong Pos and normalizing inventory levels provides us additional evidence that we are coming off the bottom.

Derek: From a product perspective, magnetics sensors sales increased by 3% sequentially to 61% of sales.

Derek: Those are our power products increased 19% sequentially led by growth in motor drivers for Adas and data center applications.

Derek: Sales by geography were again, well balanced with 27% of sales in China, 24% in the rest of Asia, 20% in Japan CIS.

Derek: 16% in the Americas, and 13% of sales in Europe.

Derek D'Antilio: Now turning to Q4 Profitability, gross margin was 45.6%. below our expectations due to a combination of mix and lower absorption as we fulfilled some orders from finished goods. Also, as we discussed in our last call, in our fourth quarter, we generally have customer price adjustments. for our cost reduction cycle through inventory and into the P&L. We expect to begin to see this normalize in Q1 and into Q2. Operating expenses were $70 million, up $2 million or 3% sequentially due to annual payroll tax receipts. Operating margin was 9% of sales compared to 10.8% in Q3 and 23.8% a year ago.

Derek: Now turning to Q4 profitability gross.

Derek: Gross margin was 45, 6%.

Derek: Below our expectations due to a combination of mix and lower absorption as we fulfilled some orders from finished goods.

Derek: Also as we discussed on our last call in our fourth quarter, we generally have customer price adjustments.

Derek: For our cost reduction cycle through inventory and into the P&L.

Derek: We expect to begin to see this normalize in Q1 and into Q2.

Derek: Operating expenses were $70 million up $2 million or 3% sequentially due to annual payroll tax resets.

Derek: Operating margin was 9% of sales compared to 10, 8% in Q3, and 23, 8% a year ago.

Derek D'Antilio: Throughout Fiscal 25, we took actions to optimize our cost structure, including rationalizing our global footprint, closing our photonics business, and moving functions to our shared services center in the Philippines. We also continue to implement operational efficiencies across the business. to drive gross and operating margin improvement. Ongoing initiatives include advancing our China for China localization efforts. continued rationalization of our global manufacturing and support footprint and executing our new manufacturing efficiency initiative.

Derek: Throughout fiscal 'twenty, five we took actions to optimize our cost structure, including rationalizing our global footprint closing, our photonics business and moving functions to our shared services center in the Philippines.

Derek: We also continue to implement operational efficiencies across the business to drive gross and operating margin improvements.

Derek: Ongoing initiatives include advancing our China for China localization efforts.

Derek: Continued rationalization of our global manufacturing and support footprint.

Derek: And executing on new manufacturing efficiency initiatives.

Derek D'Antilio: In the fourth quarter, we initiate a restructuring program which is expected to result in annualized cost savings of at least $15 million, beginning in FY26. We expect half of these savings to drive a reduction in our cost of goods sold and the other half will reduce op-ex. A portion of the savings is expected to fund strategic sales and R&D investments. In connection with this restructuring program, we incurred approximately $6 million in restructuring charges in the fourth quarter.

Derek: In the fourth quarter, we initiated a restructuring program, which is expected to result in annualized cost savings of at least $15 million beginning in FY 'twenty six.

Derek: We expect half of these savings to drive a reduction in our cost of goods sold.

Derek: And the other half will reduce opex.

Derek: A portion of the savings is expected to fund strategic sales and R&D investments.

Derek: In connection with this restructuring program, we incurred approximately $6 million in restructuring charges in the fourth quarter.

Derek D'Antilio: The effective tax rate for the quarter was 4%, resulting in a fully ineffective tax rate of 3%. Our effective tax rate was lower than the statutory rate, primarily due to research and development credit. The fourth quarter diluted share cut was 185 million shares and net income was $12 million, or $0.06 per diluted share.

Derek: The effective tax rate for the quarter was 4%.

Derek: <unk> on a full year effective tax rate of 3%.

Derek: Our effective tax rate was lower than the statutory rate, primarily due to research and development credits.

Derek: The fourth quarter diluted share count was 185 million shares and net income was $12 million or <unk> <unk> per diluted share.

Derek D'Antilio: Now turning to a brief summary of full year 2025 results. Fiscal 2025 sales was $725 million, a decline of 31% year-over-year, reflecting significant customer inventory reductions. Gross margin was 48%, operating margin was 9.5%. Adjusted EBITDA was 15.6% and earnings per share were 24.6%. Sales to automotive customers declined by 28% year-over-year and industrial and other sales declined 38% year-over-year.

Derek: Now turning to a brief summary of full year 2025 results.

Derek: Fiscal 2025 sales was $725 million, a decline of 31% year over year, reflecting significant customer inventory reductions.

Derek: Gross margin was 48%.

Derek: Operating margin was nine 5%.

Derek: Adjusted EBITDA was 15, 6% and earnings per share was <unk> 24.

Derek: Sales to automotive customers declined by 28% year over year, and industrial and other sales declined 38% year over year.

Derek D'Antilio: During Fiscal 25, we also entered a new phase as a public company with the repurchase of 39 million shares from our largest shareholder, Sengen Electric. Recall this transaction reduced Sankin's ownership from 51% to 33%, increased our free float by 30%, while also reducing the total shares outstanding by 5%, and continued to improve our corporate governance.

Derek: During fiscal 'twenty five we also entered a new phase as a public company with the repurchase of 39 million shares from our largest shareholders thinking electric.

Derek: Recall this transaction will reduce <unk> ownership from 51% to 33% increased.

Derek: Increased our free float by 3%, while also reducing the total shares outstanding by 5% and continue to improve our corporate governance.

Derek D'Antilio: Moving to the balance sheet and cash flow, we ended Q4 with cash at $131 million. in debt of $345 million. Cash flow from operations was $20 million, CapEx was $5 million, and free cash flow was $15 million. From a working capital perspective, DSO was 40 days compared to 43 days in Q3 and inventory days were 148 days compared to 182 days a quarter ago. Inventory dollars declined by $9 million sequentially, largely due to reductions in finished goods and wafer inventory. During Q4, we also made another voluntary debt payment of $30 million. and repriced our term loan down a further $25,000.

Derek: Moving to the balance sheet and cash flow, we ended Q4 with cash of $131 million.

Derek: And debt of $345 million.

Derek: Cash flow from operations was $20 million.

Derek: Capex was $5 million and free cash flow was $15 million.

Derek: From a working capital perspective, DSO was 40 days compared to 43 days in Q3 and.

Derek: And inventory days were 148 days compared to 182 days a quarter ago.

Derek: Inventory dollars declined by $9 million sequentially, largely due to reductions in finished goods and wafer inventories.

Derek: During Q4, we also made another voluntary debt payment of $30 million and.

Derek: And repriced our term loan down a further 25 basis points.

Derek D'Antilio: Finally, during fiscal 25, we made a total of $105 million of voluntary debt.

Derek: Finally during fiscal 'twenty five we made a total of $105 million of voluntary debt payments.

Derek D'Antilio: I'll now turn to our Q1 2026 Outlook. The following guidance range contemplates minimal direct impact of tariffs in Cuba. We expect first quarter sales to be in the range of $192 to $202 million. The midpoint of this range equates to an 18% year-over-year increase. It would be the first year-over-year increase since the third quarter of Fiscal 24.

Derek: I'll now turn to our Q1 2026 outlook.

Derek: The following guidance range contemplates minimal direct impact of tariffs in Q1.

Derek: We expect first quarter sales to be in the range of $190 million to $202 million.

Derek: The midpoint of this range equates to an 18% year over year increase it.

Derek: It would be the first year over year increase since the third quarter of fiscal 'twenty four.

Derek D'Antilio: Additionally, we expect the following, all on a non-gap basis. We expect gross margin to be between 46% and 48%, an increase of 140 basis points at the midpoint, which factors in anticipated cost reductions described earlier, as well as vendor pricing negotiated in Q4 that begins to impact the P&L in Q1. OPEX is expected to be approximately $72 million. an increase of $2 million or 3% sequentially due to planned annual salary increases and the reset of variable compensation plans with the start of our new fiscal year. We expect interest expense to be approximately $5 million, inclusive of a $25 million voluntary debt payment made on April 30th.

Derek: Additionally, we expect the following all on a non-GAAP basis.

Derek: We expect gross margin to be between 46% and 48% an increase of 140 basis points at the midpoint, which factors in anticipated cost reductions described earlier as well as vendor pricing negotiated in Q4 that begins to impact the P&L in Q1.

Derek: Opex is expected to be approximately $672 million.

Derek: An increase of $2 million with 3% sequentially due to planned annual salary increases and the reset of variable compensation plans with the startup of our new fiscal year.

Derek: We expect interest expense to be approximately $5 million inclusive of the $25 million voluntary debt payment made on April 30.

Derek D'Antilio: We expect our tax rate to be 8%, and our weighted average diluted share count to be $186 million. As a result, we expect non-GAAP EPS to be between $0.06 and $0.10 per share. At the midpoint, this equates to 1.7x improvement year over year on a sales increase of 18%. demonstrating the potential operating leverage in the business.

Derek: We expect our tax rate to be 8%.

Derek: And our weighted average diluted share count to be 186 million shares.

Derek: As a result, we expect non-GAAP EPS to be between six and 10 per share.

Derek: At the midpoint this equates to $1 seven X improvement year over year on a sales increase of 18% demonstrating the potential operating leverage in the business model.

Jalene Hoover: Now I'll turn the call back over to Jalene for questions. Thank you, Derek.

Julien: Now I'll turn the call back over to Julien for questions.

Jalene Hoover: This concludes management's prepared remarks.

Julien: Derrick This concludes management's prepared remarks before we open the call to your questions I'd like to share our first fiscal quarter conference lineup with Keith.

Jalene Hoover: Before we open the call for your questions, I'd like to share our first fiscal quarter conference lineup. We will attend TD Cowen's 53rd Annual TMT Conference on May 29. and the Intercontinental League of Arts Arts Life. and Mizuho's 2025 Technology Conference on June 10th at the Conrad New York Downtown.

Julien: Attend TD Cowen sticky third annual TMT conference on May 29.

Speaker Change: The Intercontinental New York Barclay.

Julien: And as you have is 2025 technology conference on June 10, the Conrad.

Speaker Change: New York downtown.

Jalene Hoover: Looking further into the year, we are targeting hosting an Analyst Day event following our 2025, October 2025 5th year anniversary as a public company. and we'll provide more details as we get closer to the event.

Speaker Change: Looking further into the year, we are targeting hosting an analyst day event. Following our 2025 October 2025, this year anniversary as a public company.

Speaker Change: And we will provide more details as we get closer to the event.

Operator: We will now open the call for your questions. As a reminder, with the primary purpose of today's call to discuss our fourth quarter and full fiscal year 2025 results and fiscal Q1 outlook, we appreciate you keeping your questions focused on these topics. Brianna, please review Q&A instructions. Thank you.

Speaker Change: We will now open the call for your questions. As a reminder, with the primary purpose of today's call to discuss our fourth quarter.

Speaker Change: Quarter and full fiscal year 2025 results and fiscal Q1 outlook. We appreciate you keeping your questions focused on these topics.

Liana: Liana Please review Q&A instructions.

Operator: At this time, we will conduct the 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. To provide the opportunity for everyone to ask a question, please limit to one question. Please stand by while we compile the Q&A roster.

Speaker Change: Thank you.

Speaker Change: At this time, we will 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 to withdraw. Your question. Please press star one one again to.

Speaker Change: To provide the opportunity for everyone to ask a question. Please limit to one question.

Speaker Change: Please standby will be compile the Q&A roster.

Timothy Arcuri: Our first question comes from Timothy Acura of UBS. Your line is now open. Thanks a lot. You did talk about your China for China strategy. I know you're working with SMIC. I think you're taping new products in that fab. Can you talk about that? I think you're supposed to get some chips from them by the end of last year. So can you just update us on that and sort of how that's, you know, going to progress and what the key milestones there are? Sure. Thanks, Timothy. We've been hard at work on our China for China supply chain initiative for a number of years now.

Speaker Change: Our first question comes from Timothy Akira of UBS. Your line is now open.

Timothy Akira: Thanks, a lot you did talk about your China for China strategy, I know Youre working with SMIC I think you are taking on new products in that fab.

Speaker Change: Can you talk about that I think you were supposed to get some chips from them.

Speaker Change: By the end of last year. So can you just update us on that and sort of how that's going to progress on what the key milestones there are.

Speaker Change: Sure. Thanks Timothy.

Speaker Change: Hard at work on our China for China supply chain initiative for a number of years now it's a multifaceted strategy with both wafer fab and backend partners all of which would be within the borders of China, which would largely meet the needs of our growth customers in China, we have made significant progress on.

Michael Doogue: It's a multifaceted strategy with both WaferFab and back-end partners, all of which would be within the borders of China, which would largely meet the needs of our growth customers in China. We've made significant progress on the wafer technology perspective, qualifying various products along the way. Additionally, we have a robust portfolio of products in China. We have various package types that we need to stand up in China. Those activities are going well, along with the activities testing products in China. So, across the board, we're feeling good about where we stand. As we progress through the year, we expect to have first revenues, meaningful revenues, shipping out of the China for China supply chain later in the year.

Speaker Change: The wafer technology perspective qualifying various products along the way. Additionally, we have a robust portfolio of products in China. We have various package types that we need to stand up and China. Those activities are going well along with the activities testing products in China, so across the <unk>.

Speaker Change: Board, we're feeling good about where we stand as we progress through the year. We expect to have first revenues meaningful revenue shipping out of China for China supply chain later in the year.

Timothy Arcuri: Got it. Thanks for that.

Derek D'Antilio: And then, Derek, just on the gross margin, it's a little less than what I had anyway. Can you talk about, I know that there's these, you know, pricing, you know, issues and it and and you had to, you know, negotiate price down and then cost take a while to catch up with that. Can you, is that still sort of, you know, weighing on March?

Speaker Change: Got it thanks for that and then.

Speaker Change: Gary just on the gross margin, it's a little less than what I had anyway can you talk about I know that there's these pricing.

Speaker Change: Issues and you had to negotiate price down and then cost take a while to catch up with that.

Derek D'Antilio: And when do you see the cost catching up to the, you know, price decline and sort of how, maybe like how to think about gross margin? I'm not asking you to, you know, guide for the, for the, you know, for the following quarter, but sort of, you know, what are some of the puts Tim, that's exactly right. So contemplated in our fourth quarter guidance here, when we got it to about a 47% midpoint, in that was the pricing negotiations that usually take place in the first calendar quarter of the year. We also negotiate lower costs with our vendors, but it takes about two quarters of the case and inventory to cycle into the P&L.

Speaker Change: Is that still sort of weighing on March and when do you see the cost catching up to the price decline and sort of how maybe like how to think about gross margin and I'm not asking you to guide.

Speaker Change: Guide for the for the for the following quarter, but sort of what is sort of the puts and takes thanks.

Speaker Change: Tim that's exactly where rates are contemplated in our fourth quarter guidance here when we guided to about a 47% midpoint in that was the pricing negotiations that usually take place in the first calendar quarter of the year. We also negotiate lower cost with our vendors, but it takes about two quarters of the case in inventory to cycle into the P&L and that dynamic happening.

Derek D'Antilio: And that dynamic happened the same a few years ago, if you went back and looked at our 22 and 23 years, we had the same dynamic on the upside, where we had an artificially high gross margin in the first, you know, calendar quarter of the year. Coupled with that, we've brought our production levels down pretty low in Q4, and we're able to reduce finished goods by more than 10%. So that's a good thing. So we're fulfilling orders from finished goods. As we go into Q1, we expect mix to start to normalize a little bit better.

Speaker Change: Sam a few years ago. If you went back and looked at our 22 and 'twenty three years, we had the same dynamic on the upside where we have that artificially higher gross margin in the first calendar quarter of the year, coupled with that we brought our production levels down pretty low in Q4, and we were able to reduce finished goods by more than 10%. So that's a good thing. So we are fulfilling orders from finished goods.

Speaker Change: As we go into Q1, we expect mix to start to normalize a little bit better. We do expect to continue to maintain our production levels at Q4 levels and continue to bring down our finished goods.

Derek D'Antilio: We do expect to continue to maintain our production levels at Q4 levels and continue to bring down finished goods. But we expect to start to see the benefit of those cost reductions we've negotiated start to impact the P&L in Q4, in addition to the restructuring program benefits in Q1. Beyond that, looking longer term, that 60 to 65% variable contribution margin that I've talked about, that still holds pretty well. It could actually be higher than that in the near term as we get these cost reduction benefits. Okay, Gary. Thank you.

Speaker Change: But we expect to start to see the benefit of those cost reductions with negotiated start to impact the P&L in Q4. In addition to the restructuring program benefits in Q1 beyond that looking longer term that 60% to 65% variable contribution margin that I talked about that's still holds pretty well it could actually be higher.

Speaker Change: Then that in the near term as we get these cost reduction benefits.

Speaker Change: Okay. Thank you.

Speaker Change: Okay.

Operator: In the interest of time, we will allow one question and one follow-up per participant.

Speaker Change: Thank you.

Speaker Change: In the interest of time, we will allow one question and one follow up per participant.

Joe Quatrochi: One moment for our next question. Our next question comes from Joe Quatrochi of Wells Fargo. Your line is now open. Yeah, thanks for taking the questions. I was curious, you know, you're talking about seeing some pretty good growth in your backlog or return to growth in backlog and starting to see that pull from customers. Can you talk about just the specific areas and how we think about that relative to, you know, the increased design wins and opportunities there versus just kind of seeing an improvement in the cycle? Yeah. Yeah, so thanks, Joe. The, you know, I'll start with a little more commentary on the design wins.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from.

Joe: Joe <unk> of Wells Fargo. Your line is now open.

Speaker Change: Yes, thanks for taking the question I was curious if you could.

Joe: Talking about.

Joe: Seeing some pretty good growth in your backlog a return to growth in backlog and starting to see that pull from customers can you talk about just the specific areas and how we think about that relative to the increased design wins.

Joe: And opportunities there versus just kind of seeing.

Joe: The cycle.

Joe: Yes, so thanks Joe.

Joe: I'll start with a little more commentary on the design wins, yet again, we continue to see more than 70% of those design wins exactly where we want to see.

Michael Doogue: Yet again, we continue to see more than 70% of those design wins, exactly where we want to see them in e-mobility and focused industrials. And when you think about how the backlog will then start to trend, you know, as you rack up wins, as the bookings come in strong, as Derek mentioned, they've been coming in strong. You obviously get the commensurate uplift and backlog, and it's where you'd expect to see it. We're seeing good gains in the e-mobility side of the business and particular strength in data center on the industrial side of the business.

Joe: E mobility and focus industrials and when you think about how the backlog will then start to trend.

Joe: As you rack up wins as the bookings come in strong as Derek mentioned, they've been coming in strong and you obviously get the commensurate uplift in backlog and it's where you would expect to see it.

Joe: We're seeing good gains in the E mobility side of the business and particular strength.

Joe: Data center on the industrial side of the business.

Derek D'Antilio: That's helpful. And then as a follow up, you know, on the tariffs, I think some of the tariffs are based on, you know, the location of where the wafer origin is. So can you can you remind us, you know, how to think about what's coming from the US and, you know, going into China, given that the SMIC relationship is still kind of ramping?

Joe: That's helpful.

Joe: Then as a follow up on the <unk>.

Joe: So I think some of the tariffs are based on the location of where the wafer origin is.

Joe: Can you remind us.

Joe: How to think about what's coming from the U S in going into China.

Joe: Given that snick snick relationships still kind of ramping.

Derek D'Antilio: Yeah, Joe, this is Derek. So right now we ship all of our products from our back end facility in the Philippines. And approximately 15% of our sales are shipped to the U.S., which currently those are exempted right now as semiconductors. And from a wafer perspective, about a little bit more than half of our wafers come from UMC in Taiwan, about 10 to 15% from TSMC in Taiwan. The remainder come about 35% from the U.S., from Polar Semiconductor. And so far, those have not been subject. So we have the ability to move wafers between fabs to satisfy different geographies.

Joe: Yes, Joe this is Derek so right now we ship all of our products from our back end facility in the Philippines.

Joe: And approximately 15% of our sales are shipped to U S, which currently those are exempted right now is semiconductors and from a wafer perspective about little bit more than half of all wafers come from UMC entitled One about 10% to 15% from TSMC in Taiwan the <unk>.

Joe: Remainder come about 35% from the U S from polar semiconductor and so far those have not been subject to tariffs.

Joe: So we have the ability to move wafers between fabs to satisfy different geographies.

Joe Quatrochi: Thank you.

Speaker Change: Thank you.

Joe: Thank you.

Gary Mobley: Our next question comes from Gary Mobley of Loop Capital. Your line is now open. Morning, everybody. Thanks for taking my question. I want to ask about inventory in the channel, in particular in the distribution channel. Did I hear correctly that point-of-sale was greater than point-of-purchase in the fourth quarter? And does your first quarter revenue outlook contemplate a continuation of undershipping into the distribution channel? And then maybe you can also comment on where your inventory is at.

Speaker Change: Our next question comes from Gary Mobley of Loop capital. Your line is now open.

Gary Mobley: Good morning, everybody. Thanks for taking my question want.

Speaker Change: To ask about inventory in the channel in particular in the distribution channel.

Gary Mobley: Did I hear correctly that point of sale was greater than point of purchase in the fourth quarter.

Speaker Change: And does your first quarter revenue outlook contemplate.

Speaker Change: Continuation of under shipping into the distribution channel and then maybe you can also comment on where your inventories.

Derek D'Antilio: direct-to-customer service. Yeah, I'll start with the distribution channel, Gary. So as I mentioned, exiting our Q4, our distribution channel inventories globally were down 25% year over year, which obviously is a good sign. It does vary a bit by region, as I talked about on our last call. So we think we're in really good shape in most parts of Asia from an inventory declining standpoint. There's still some work to be done in Europe, still a little bit of work to be done in the United States, I think. So on the distribution side, our guidance for Q1 contemplates that.

Speaker Change: Yes.

Speaker Change: The customer set.

Speaker Change: Yes, I'll start with the distribution channel Gary So as I've mentioned exiting our Q4 distribution channel inventories globally with down 25% year over year, which obviously is a good sign it does vary a bit by region as I talked about on our last call. So we think we're in really good shape in most parts of Asia from an inventory declining standpoint.

Speaker Change: There's still some work to be done in Europe still a little bit of work to be done in the United States I think so on the distribution side our guidance for Q1 contemplates that.

Derek D'Antilio: On the direct side, we continue to see the same dynamics. I think inventory has come down across the board a lot more in Q4, as we saw in our December quarter in the U.S. as sales were down 25% in the U.S. That rebounded nicely in Q4, up 23%. And we're seeing a lot of in-quarter orders, particularly in the United States and for autos. So that's also a good sign. So we think we're in pretty good shape in most regions.

Speaker Change: On the direct side, we continue to see the same dynamics I think inventory has come down across the board.

Speaker Change: <unk> in Q4, as we saw with <unk> and our December quarter in the U S. Our sales were down 25% in the U S that rebounded nicely in Q4 up 23% and we're seeing a lot of in quarter orders, particularly in United States and for example for auto. So that's also a good sign so we think we're in pretty good shape in most regions I think there's some work to be done in Europe.

Derek D'Antilio: I think there's some work to be done in Europe.

Gary Mobley: follow-up.

Speaker Change: Okay.

Derek D'Antilio: I want to circle back onto gross margin. We've already talked about a lot of the different variables to the improvement, but do you think, you know, given the axiom in the contribution, variable contribution margin, that assuming revenue continues to improve on a sequential basis, do you think a 50% gross margin is? possible as we move through the balance of fiscal year 26. Yes, certainly, the way we look at it, right, our long-term target is 58%, but internally, we've broken that down into time fences, and the immediate term goal was to get back to 50%. The guidance for Q1 is 47%, Gary, at the midpoint.

Speaker Change: Follow up.

Speaker Change: Want to circle back on the gross margin, we've already talked about a lot of the deferred.

Speaker Change: Variables too to the improvement, but do you think given the axiom and the contribution variable contribution margin that assuming revenue continues to improve on a sequential basis do you think a 50% gross margins.

Speaker Change: Possible as we move through the balance of fiscal year 'twenty six.

Speaker Change: Yes, certainly the way we look at it right. Our long term target is 58%, but internally we have broken that down in that time fences and the <unk>.

Speaker Change: Immediate term goal was to get back to 50% the guidance for Q1 is 47% Gary at the midpoint and as I mentioned the variable contribution margin on that you could take revenue at 65% and that holds pretty true I expect that 65% could be better here in the next couple of quarters, given those cost reductions both from the restructuring program the ongoing initiatives.

Derek D'Antilio: And as I mentioned, the variable contribution margin on that, you could take revenue at 65%. That holds pretty true. I expect that 65% could be even better here in the next couple of quarters, given those cost reductions, both from the restructuring program, the ongoing initiatives, and the vendor negotiated pricing that'll start to cycle into the P&L could be higher than that 65%. So it is plausible that it will be in the short term. Thank you.

Speaker Change: And the vendor negotiated pricing that'll start to cycle into the P&L could be higher than that 65%. So it is plausible that it will be in the short term that 50%.

Speaker Change: Thank you.

Speaker Change: Thank you.

Christopher Caso: Our next question comes from Chris Caso of Wolf Research. Your line is now open. Yes, thank you. Good morning. Mike, it's first one for you. I know you've been with the company for a while.

Chris Caso: Our next question comes from Chris Caso of Wolfe Research. Your line is now open.

Speaker Change: Yes. Thank you good morning.

Speaker Change: Mike just first one for you.

Speaker Change: <unk> been with the company for a while but.

Michael Doogue: But, you know, it kind of as you as you enter the seat here with CEO, just interested in You know, any kind of strategic changes or, you know, kind of different direction, anything you might do differently, you know, now that you've taken the seat, and obviously you've been with the company a long time, so, you know, whatever strategy has been in place, I'm sure you've had a hand on it, but just, you know, any kind of thoughts about the things that might be different going forward. For more information visit www.FEMA.gov Thanks, Chris. And now I'll summarize some of what I said in the prepared remarks saying that it's really a priority for me to lean in a bit more on innovation.

Speaker Change: It kind of as you as you entered the seat here with CEO just interested in.

Speaker Change: Any kind of strategic changes or kind of a different direction anything you might do differently.

Speaker Change: Now that you had taken a seat and obviously you've been with the company a long time. So whatever strategy has has been in place I'm sure you've had a handle on it.

Speaker Change: But just any kind of thoughts about the things that might be different going forward.

Chris Caso: Sure. Thanks, Chris.

Chris Caso: Ill summarize some of what I said in our prepared remarks, saying that it is really a priority for me to lean in a bit more on innovation and what I mean by that within the same R&D spending envelope I think we can re prioritize where we spend our money to make sure our products become even more differentiated and restate two.

Michael Doogue: And what I mean by that, within the same R&D spending envelope, I think we can reprioritize where we spend our money to make sure our products become even more differentiated and we stay two steps ahead of the competition. Thank you. I was part of the acquisition of the TMR technology through Crocus, the high-voltage isolated gate driver business through Hay Day. They're actually experiencing and demonstrating strong traction with customers. My priority is to accelerate the ramp of some of these exciting new areas. We're truly differentiated in those spaces, and they do represent new areas of high-growth SAM expansion.

Chris Caso: Steps ahead of the competition.

Chris Caso: I was part of the acquisition of the TMR technology through Crocus, the high voltage isolated gate driver business through heyday. They are actually experiencing in demonstrating strong traction with customers. My priority is to accelerate the ramp of some of these exciting new areas where truly differentiated in those.

Chris Caso: And they do represent new areas of high growth Sam expansion.

Michael Doogue: And then, you know, when I look at things we can do from an operational efficiency perspective, there's a lot we can do on the true, tried and true innovation side of the house, but on this cost innovation side of things that I mentioned. There's some low-hanging fruit, I'll just give one example, converting from gold wire to copper wire, that will drive margin benefits, both in the short, medium, and long-term gains. And I'm a hawk for things like that, I get excited about driving those changes, so we're going to accelerate some of those initiatives as well.

Chris Caso: And then when I look at things that we can do from an operational efficiency perspective, there's a lot. We can do on the true tried and true innovation side of the house, but on this cost innovation side of things that I mentioned, there is some low hanging fruit I'll just give one example, converting from gold wire to copper wire that.

Chris Caso: We will drive margin benefits, both in the short medium and long term gains.

Chris Caso: I have a hard for things like that I get excited about driving those changes so we're going to accelerate some of those initiatives as well. So that just gives you a bit of a feel scratches the surface on some of the priorities of differences.

Michael Doogue: So that just gives you a bit of a feel, scratches the surface, on some of the priorities. I got it.

Michael Doogue: Um, and I guess as a follow up, and I'll ask this, because, you know, I know you're going to get asked, and we're certainly asked, you know, quite a bit from from investors. But if you could revisit the on offer, and, you know, kind of what the thought process was around that, is it is it safe to say that, you know, simply, you know, the offer wasn't high enough value for what, you know, you thought the company was worth? And, you know, you said in your opening remarks, you know, the board and you folks are open to things, but maybe just kind of get now that it appears to be over, you know, just kind of some hindsight of what your thinking was with regard to Yeah, we've we've said to the largest extent what we're going to say today.

Chris Caso: Got it.

Chris Caso: And I guess as a follow up and I'll ask this because I know youre going to get asked and we're certainly asked.

Chris Caso: Quite a bit from from investors.

Chris Caso: If you could revisit.

Chris Caso: On offer and kind of what the thought process was around that is it is it safe to say that simply.

Chris Caso: The offer wasn't high enough value for what you thought the company was worth.

Chris Caso: You said in your opening remarks.

Chris Caso: The board and you folks are open to things, but maybe just kind of.

Chris Caso: Now that it appears to be over just kind of some hindsight of what youre thinking was with regard to that.

Chris Caso: Yes, we've said to the largest extent, what we're going to say today and what maybe what I'll. Just reiterate is that we really believe in our future.

Michael Doogue: And what maybe what I'll just reiterate is that we really believe in our future. have a strong growth potential ahead of us, both on the top line and on the gross margin line. As I said in the prepared remarks, the board was very mindful of their fiduciary duties, and we did lay out a clear and constructive path to engage with the other side. We opened doors for greater value, and ultimately, on semi-decline, to pursue that path, and that's really where it ends. Got it. Thank you.

Chris Caso: Have a strong growth potential ahead of us both on the top line and on the gross margin line.

Chris Caso: As I said in the prepared remarks, the board was very mindful of their fiduciary duties and we did lay out a clear and constructive path to engage with the other side, we opened door for greater value and ultimately.

Chris Caso: On semi declined to pursue that path and that's really where it ends.

Chris Caso: Got it thank you.

Chris Caso: Thank you.

Joshua Buchalter: Our next question comes from Joshua Buchalter of T.D. Cohen.

Chris Caso: Our next question comes from Joshua Buchalter of TD Cowen. Your line is now open.

Michael Doogue: Your line is now open. Hey guys, thanks for taking my question and Mike, congratulations on the CEO role. In your prepared remarks and in response to some earlier questions, you know, you mentioned leaning in on new products, in particular, TMR, Hay Day, and high-precision power and sensing parts on both sides of your house. It sounds like inventory is pretty much, is close to cleaned up. Like, are we at the point where you think those new products are hitting the model yet and you can hit that growth profile? You laid out your last analysis, you have, I think, 7% to 10% above SAR and 5% to 10% above GDP in industrial.

Joshua Buchalter: Hey, guys. Thanks for taking my question and Mike Congratulations on the CEO role.

Joshua Buchalter: And your parent repaired remarks, and in response to some earlier questions. You mentioned leaning in on new products in particular, TMR heyday, and high precision power and sensing parts on both sides of your house.

Joshua Buchalter: It sounds like inventory is pretty much close to cleaned up but are we at the point, where you think those new products there are alright.

Joshua Buchalter: Alright, hitting the model yet and you can hit that growth profile you laid out at your last analyst day of I think 7%, 10% above Saar in 5% to 10% above GDP and industrial thank you.

Michael Doogue: Thank you. Yeah, thanks for the kind words to start, Josh. And to start where you finished, we are confident in our ability on an automotive perspective to achieve SAR plus seven to 10%. And we remain confident in our ability to achieve SAR plus seven to 10%. overdrive growth relative to the broad industrial market by 5% to 10%. You know, a lot of it comes down to the SAM or the target markets we participate in. It's a $12 billion SAM, $8 billion is auto, but within that $8 billion, the $5 billion e-mobility SAM, it's growing with a growth rate of 16%.

Speaker Change: Yes, thanks for the kind words to start Josh.

Speaker Change: To start where you finished we are confident in our ability on an automotive perspective to achieve SAR four 7% to 10% and we remain confident in our ability to.

Speaker Change: Overdrive growth relative to the broad industrial market by 5% to 10% a lot of it comes down to the Sam or the target markets. We participate in it's a $12 billion to have $8 billion is auto but within that 8 billion to $5 billion E mobility, Sam it's growing with the growth rate of 16%.

Michael Doogue: Within that XEV powertrain growth rates approach 20%. If we switch over to the industrial side of the house, our focus markets, that's a $3 billion SAM growing at a 15% CAGR, but you look at data center, you look at robotics, these are not... futuristic applications or technologies. They're obviously here today, we're participating well, and they have a 20% growth Kager. And when you look at TMR and the isolated gate driver products, they just layer on more positivity on the story. So we remain committed and we remain confident in our ability to grow above market.

Speaker Change: Within that.

Speaker Change: Ex EV powertrain growth rates approached 20%, if we switch over to the industrial side of the house, our focus markets, that's a $3 billion and growing at a 15% CAGR, but you look at data Center you look at robotics these or not.

Speaker Change: Futuristic applications of our technologies are obviously here today, we're participating well and they have a 20% growth CAGR and when you look at TMR and the isolated gate driver products. They just layer on more positivity on the story. So we remain committed and we remain confident in our ability to grow above market.

Derek D'Antilio: Okay, thank you.

Derek D'Antilio: And Derek, I appreciate the color you gave on the restructuring, I think it was 15 million split between COGS and OPEX. Is that sort of immediate from the, where you just guided the June quarter and, you know, we should expect OPEX to be flattened down through the year? to be thinking about that layering in. Thank you. Yeah, Josh, good morning. So, as I mentioned, that $15 million, that's on an annualized basis. We'll start to see the benefit of that in Q1. And so, as I guided off X for Q1, I expect that to be up about $2 million or 3%.

Speaker Change: Okay. Thank you and Derek I appreciate the color you gave on the restructuring I guess 15 million split between Cogs and Opex is that sort of immediate from the where you just guided the June quarter, and we should expect opex to be flat to down through the year and how should we think be thinking about that layering in.

Speaker Change: <unk>.

Speaker Change: Yes, Josh good morning, So as I mentioned that $15 million, we start to it that's on an annualized basis, we'll start to see the benefit of that in Q1, and so as I guided opex for Q1, I expect that to be up about $2 million were 3%. That's really a result of the annual salary increases and the reset of variable compensation offsetting that is the beginning of these.

Derek D'Antilio: That's really a result of the annual salary increases and the reset of our variable compensation. Offsetting that is the beginning of these benefits from this restructuring program, which is really a repositioning. We opened the Shared Services Center in the Philippines about a year and a half ago now, and it's working out really, really well. And 70% of our customers are in Asia and the majority of our vendors. So, we've moved some of the footprint there, and it also has a cost benefit. So, we expect to continue to see those cost benefits throughout FY26 and into FY27.

Speaker Change: Benefits from this restructuring program, which is really a repositioning we opened the shared services center in the Philippines about a year and a half ago now and it's working out really really well and 70% of our customers are in Asia and the majority of our vendors. So we've moved some of the footprint there and it also has a cost benefits we expect to continue to see those cost benefits through.

Speaker Change: FY 'twenty six in FY <unk> into FY 'twenty seven.

Derek D'Antilio: But you could expect Off X won't grow significantly in FY26, low single digit. Got it. Thank you.

Speaker Change: You could expect Opex won't grow significantly in FY 'twenty six low single digits.

Speaker Change: Got it thank you.

Speaker Change: Hello.

Speaker Change: Thank you.

Vijay Rakesh: Our next question is from Vijay Rakesh of Missouri. Your line is now open. Hey Mike and Derek, just a quick housekeeping one, what was the e-mobility mix for the quarter, I guess, and a follow-up? The mobility mix of auto was about 50% of auto in the quarter, Vijay. And then, I think, as you look at China for China, you know, given all the geopolitical tensions, are you seeing a more increased competition in China from the domestic suppliers or are you seeing them insource more? What are you seeing in terms of those trends and especially, you have a good position there with BYD and others, but BYD is also a big insourcer, I guess, but any color there, thanks.

Speaker Change: Our next question is from Vijay Rakesh of Mizuho. Your line is now open.

Speaker Change: Hey, Mike.

Speaker Change: Just a quick housekeeping one.

Speaker Change: Even with the mix for the quarter I guess.

Speaker Change: And then a follow up.

Speaker Change: Mobility mix of.

Speaker Change: <unk> was above 52 was about 50% of auto in the quarter reject.

Speaker Change: Got it.

Speaker Change: And then I think as you look at China for China, given all the given the inflation that you're seeing.

Speaker Change: Increased competition in China from the domestic suppliers.

Speaker Change: <unk> seen them in source more what are you seeing in terms of our growth strengthened especially.

Speaker Change: Good question, David BYD, and others would be ready is also big in sourcing I guess, but any color there. Thanks.

Michael Doogue: Sure, Vijay, this is Mike. So relative to China, clearly a competitive market. Let me just start by saying we still continue to see very positive signs relative to growth in China. There's just myriad design wins and customer momentum. I can talk about, even within this quarter, off the top of my head, two large inverter design wins for our sensors in the XEV market. We have ADAS wins in China across sensing and power. I talked about an isolated gate driver win in China automotive. So we're still seeing good traction and momentum in China. Customers are having a very strong, positive response to our China for China initiatives.

Speaker Change: Sure Vijay this is Mike so relative to China, clearly a competitive market. Let me just start by saying, we still continue to see very positive signs relative to growth in China.

Speaker Change: Just myriad design wins and customer momentum I can talk about even within this quarter off the top of my head too large inverter design wins for our sensors in the HCV market, we have Adas wins in China across sensing and power I talked about an isolated gate driver win in.

Speaker Change: China automotive so we're still seeing good traction and momentum in China customers are having a very strong positive response to our China for China initiatives that all being said of course, there are local competitors in China, Therefore, our biddable and assess their relentless, but what we are.

Michael Doogue: That all being said, of course, there are local competitors in China. They're formidable in a sense. I mean, they're relentless. But what we're seeing with our premium products, with our temperature rugged, high automotive grade products, we are still differentiating ourselves both on actual performance of the IC itself, but also the quality levels we can achieve with our ICs. I met with the CEO of one of our leading China customers in the last few months, and he confirmed despite Plenty of approaches from local China market customers. He's staying with Allegro for the duration of the next cycle.

Speaker Change: Seeing with our premium products with our temperature rugged high automotive grade products, we are still differentiating ourselves both on.

Speaker Change: Actual performance of the IC itself, but also the quality levels, we can achieve with our Ics I met with the CEO of one of our leading China customers in the last few months and he confirmed despite.

Speaker Change: Plenty of approaches from local China market customers, he's staying with allegro for the duration of the next cycle, where we see strong business growth with that customer Thats, just an N of one but we see that same trend across a broader swath of customers as well.

Vijay Rakesh: We see strong business growth with that customer. That's just an N of one. But we see that same trend across a broader swath of customers as well. Got it. Thanks, Mike. Thank you.

Speaker Change: Got it thanks, Mike.

Speaker Change: Yeah.

Speaker Change: Thank you.

Quinn Bolton: Our next question comes from Quinn Bolton of Needham & Company. Your line is now open. I just wanted to ask, obviously gross margin has been under pressure and you've kind of gone through some of the factors there. I guess I'm just kind of wondering if pricing is continuing to be aggressive. You know, you haven't seen that 65% sort of fall through over the last two, three quarters as revenue has increased by about $30 million. You know, and so I'm just, you know, trying to reconcile why gross margin remains under such pressure as revenue has recovered over the past three quarters.

Speaker Change: Our next question comes from Quinn Bolton of Needham <unk> Company. Your line is now open.

Quinn Bolton: Hey, guys I wanted to ask.

Quinn Bolton: Obviously gross margin has been been under pressure and you've kind of gone through some of the factors. There I guess I'm just kind of wondering if pricing is continuing to be aggressive.

Quinn Bolton: The we haven't seen that 65% sort of fall through over the last two three quarters as revenue has increased by about $30 million.

Quinn Bolton: And so I'm just trying to reconcile why gross margin remains under such pressure as revenue has recovered over the past three quarters.

Quinn Bolton: Thanks, Quinn.

Michael Doogue: This is Mike. I can talk a bit about pricing. So, as you're aware, I think, as we stated in last quarter's call as well, in the automotive market, there's a general expectation in low single digit price reductions on a year over year basis. These are negotiated when you win large awards in automotive, and we didn't see anything abnormal as we entered 2025. Low single digit reductions are what we're seeing in automotive this year. In the channel, a little over a year ago, we talked about how channel pricing softened. It appears that that pricing has stabilized as well, but we're not seeing any abnormal pricing as we enter calendar year 2025 in our.

Quinn Bolton: Thanks, Colin this is Mike I can talk a bit about pricing. So as you are aware I think as we stated in last quarter's call as well in the automotive market. There is a general expectation and low single digit price reductions on a year over year basis. These are negotiated when you win large awards in automotive and <unk>.

Quinn Bolton: We didn't see anything abnormal as we entered 2025 low single digit reductions.

Quinn Bolton: What we're seeing in automotive this year and the channel a little over a year ago, we talked about how channel pricing softened. It appears that that pricing has stabilized as well.

Quinn Bolton: We're not seeing any abnormal pricing as we enter calendar year 2025, and our fiscal year.

Derek D'Antilio: The dynamic on the gross margin side is, as I mentioned in the prepared remarks, the last two quarters, we've been able to bring down finished goods. We expect to continue to do that in Q1. So while sales are up, production levels aren't necessarily up. So we have a little bit more under absorption. Got it. And then I guess there's been some concern by investors that with all of the auto tariff uncertainty and the potential for higher costs that, you know, auto guys may be coming back at a faster than annual cadence asking for additional price declines, you know, sort of outside of that normal annual cadence.

Quinn Bolton: So the dynamic on the gross margin side is as I mentioned in the prepared remarks. The last two quarters, we've been able to bring down finished curious can we expect to continue to do that in Q1. So while sales of our production levels are not necessarily up so we have a little bit more under absorption.

Speaker Change: Got it and then I guess, there's been some concern by investors that with all of the auto tariff on certain D and the potential for higher costs.

Speaker Change: Auto guys may be coming back at a faster than annual cadence asking for additional price declines.

Speaker Change: Sort of outside of that normal annual cadence have you guys seen any evidence of of auto customers coming back asking for further price declines are you sort of see a normal annual cadence in those negotiations. Thanks so much.

Derek D'Antilio: Have you guys seen any evidence of auto customers coming back asking for further price declines or do you sort of see a normal annual cadence in those negotiations? Thanks so much. We see a normal annual cadence. Nothing in response to tariffs relative to requests for a further price reduction. Perfect, okay, thank you. Thank you.

Speaker Change: We see a normal annual cadence.

Speaker Change: Nothing in terms in response to tariffs relative to requests for further price reductions.

Speaker Change: Perfect. Okay. Thank you.

Operator: 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. One moment for our next question.

Speaker Change: Thank you.

Speaker Change: 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.

Speaker Change: One moment for our next question.

Joseph Moore: Our next question comes from Joseph Moore of Morgan Stanley. Your line is now open. Great, thank you. You mentioned in your remarks that you're seeing some early signs of potential shortages. Can you elaborate on that?

Speaker Change: Our next question comes from Joseph Moore of Morgan Stanley. Your line is now open.

Joseph Moore: Great. Thank you.

Speaker Change: You mentioned in your prepared remarks that you are seeing some early signs of potential shortages can you elaborate on that.

Derek D'Antilio: You know, what are the signs and what any particular products Yeah, Joe, good morning. This is Derek. We're seeing potential signs of shortages for us and longer lead raw materials, in particular, where we see data center products for us coming back pretty fast and in-quarter lead times increasing, or in-quarter orders increasing, and many of our peers are seeing the same things. There starts to be a crunch on raw materials. We're, of course, managing that. We did do a pretty good job of building strategic wafer and dye bank. We've done that with some finished goods as well, and I think that's helping us now as we're starting to see the channel return and in-quarter orders return pretty fast.

Joseph Moore: The signs in any particular products or markets.

Joseph Moore: Yes, Joe Good morning. This is Derek we're seeing potential signs of shortages for us and longer lead raw materials in particular, where we see data center products for us coming back pretty fast in quarter lead times increasing.

Joseph Moore: Or in quarter orders, increasing in many of our peers are seeing the same things there starts to be a crunch on raw materials were of course, managing that we did do a pretty good job of building strategic strategic wafer in die Bank, we've done that with some finished goods as well and I think that's helping US now as we're starting to see the channel returning in quarter orders return pretty fast.

Joseph Moore: Okay, thank you.

Michael Doogue: And then with regards to automotive and the potential pull-ins, I mean, you've answered to this, but I guess just to characterize what those conversations are like, because I can't imagine running a business when the tariffs are kind of on again, off again in Canada and Mexico and then globally, and then, you know, you don't know where they're going to be and now they're temporarily suspended and stuff's going to get more expensive in a few weeks. And that all comes after, you know, over a year of inventory reduction. Like, aren't inventories just too lean to deal with all this?

Joseph Moore: Okay. Thank you and then with regards to automotive and the potential pull ins.

Speaker Change: The answer to this but I guess, just if you could characterize what those conversations are like because I can't imagine running.

Speaker Change: Running a business when the tariffs are kind of on again off again in Canada, and Mexico, and then globally and then you.

Speaker Change: You don't know where theyre going to be another temporarily suspended and so that's going to get more expensive.

Speaker Change: Few weeks and that all comes after over a year of inventory reduction.

Speaker Change: Inventory is just too lean to deal with all this and shouldn't there be some indication that those inventories youre going to have to start to come up.

Michael Doogue: And shouldn't there be some indication that those inventories are going to have to start to come up?

Michael Doogue: Yeah, I'll take that one, Joe. This is Mike. So, you know, we've talked at length about increased booking. So one thing we've done, we have close relationships with our customers. And what we've been doing when we see upside potential coming from customers, we've been having direct conversations to understand what's driving the upside. And we have not seen any material evidence that upside demand is coming from tariff situations. I know that's an awfully simple answer, but it happens to be a true one. I appreciate that. Thank you much.

Speaker Change: Yes, I'll take that one Joe this is Mike So we've talked at length about increased bookings. So one thing we've done we have close relationships with our customers and what we've been doing when we see upside potential coming from customers, we've been having direct conversations to understand what's driving the upside and we have.

Speaker Change: <unk> not seen any material evidence that upside demand is coming from tariff situations.

Speaker Change: That's awfully simple answer, but it happens to be a true yes.

Speaker Change: Yes, no I appreciate that thank you much.

Operator: At this time, I am showing no further questions.

Speaker Change: At this time I am showing no further questions.

Jalene Hoover: In the queue, I would now like to hand it back to Jalene for closing remarks. Thank you, Brianna. We appreciate you taking the time to join us.

Julian: In the queue I would now like to hand, it back to Julian for closing remarks.

Julian: Thank you Breanna. We appreciate you taking the time to join US. This concludes this mornings conference call.

Operator: This concludes this morning's conference call. Thank you for your participation in today's conference. This does conclude the program.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Operator: You may now disconnect.

Operator: 🎵Outro Music🎵

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: [music].