Allegro Microsystems Q3 2026 Allegro MicroSystems Inc Earnings Call | AllMind AI Earnings | AllMind AI
Q3 2026 Allegro MicroSystems Inc Earnings Call
Operator: Good morning, and welcome to the Allegro MicroSystems Q3 fiscal year 2026 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 this session, please press star one one on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jalene Hoover, Vice President of Investor Relations and Corporate Communications. Please go ahead, ma'am.
Operator: Good morning, and welcome to the Allegro MicroSystems Q3 fiscal year 2026 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 this session, please press star one one on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jalene Hoover, Vice President of Investor Relations and Corporate Communications. Please go ahead, ma'am.
Speaker #1: After the speakers' presentation, there will be a question-and-answer session. To ask a question during this session, please press star 1-1 on your telephone.
Speaker #1: You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.
Speaker #1: I would now like to hand the conference over to your speaker today, Jalene Hoover, Vice President of Investor Relations and Corporate Communications. Please go ahead.
Speaker #1: ma'am. Thank you,
Jalene Hoover: Thank you, Michelle. Good morning, and thank you for joining us today to discuss Allegro's fiscal Q3 2026 results. I'm joined today by Allegro's President and Chief Executive Officer, Mike Doogue, and Allegro's Chief Financial Officer, Derek D'Antilio. They will provide highlights of our business, review our quarterly financial performance, and share our Q4 outlook. We will follow our prepared remarks with the Q&A session. Today's call includes remarks about future expectations, plans, and prospects, which are forward-looking statements. Such statements are based on current expectations and assumptions as of today's date and are subject to risks and uncertainties that could cause actual results and events to differ materially from those anticipated or projected on today's call. The company assumes no obligation to update these statements except as required by law.
Jalene Hoover: Thank you, Michelle. Good morning, and thank you for joining us today to discuss Allegro's fiscal Q3 2026 results. I'm joined today by Allegro's President and Chief Executive Officer, Mike Doogue, and Allegro's Chief Financial Officer, Derek D'Antilio. They will provide highlights of our business, review our quarterly financial performance, and share our Q4 outlook. We will follow our prepared remarks with the Q&A session. Today's call includes remarks about future expectations, plans, and prospects, which are forward-looking statements.
Speaker #2: Michelle: Good morning, and thank you for joining us today to discuss Allegro's fiscal third quarter 2026 results. I'm joined today by Allegro's President and Chief Executive Officer, Vineet Nargolwala, and Allegro's Chief Financial Officer, Derek D'Antilio.
Speaker #2: They will provide highlights of our business, review our quarterly financial performance, and share our fourth quarter outlook. We will follow our prepared remarks for the Q&A session.
Speaker #2: Today's call includes remarks about future expectations, plans, and prospects, which are forward-looking statements. Such statements are based on current expectations and assumptions as of today's date and are subject to risks and uncertainties that could cause actual results and events to differ materially from those anticipated or projected on today's call.
Such statements are based on current expectations and assumptions as of today's date and are subject to risks and uncertainties that could cause actual results and events to differ materially from those anticipated or projected on today's call. The company assumes no obligation to update these statements except as required by law.
Speaker #2: The company assumes no obligation to update these statements, except as required by law. For a discussion of these risks and uncertainties, please refer to today's press release and the risk factors contained in our periodic filings with the SEC.
Jalene Hoover: For a discussion of these risks and uncertainties, please refer to today's press release and the risk factors contained in our periodic filings with the SEC. Additionally, we will refer to non-GAAP financial measures during today's call. Today's earnings press release, which is available on the Investor Relations page of our website at www.allegromicro.com, contains important information about our non-GAAP financial presentation and also includes reconciliations of our non-GAAP financial measures to the most directly comparable GAAP measures. This call is also being webcast, and a replay will be available in the Events and Presentation section of our IR page shortly. It is now my pleasure to turn the call over to Allegro's President and CEO, Mike Doogue. Mike?
For a discussion of these risks and uncertainties, please refer to today's press release and the risk factors contained in our periodic filings with the SEC. Additionally, we will refer to non-GAAP financial measures during today's call. Today's earnings press release, which is available on the Investor Relations page of our website at www.allegromicro.com, contains important information about our non-GAAP financial presentation and also include
Speaker #2: Additionally, we will refer to non-GAAP financial measures during today's call. Today's earnings press release, which is available on the investor relations page of our website at www.allegromicro.com, contains important information about our non-GAAP financial presentation and also includes reconciliations of our non-GAAP financial measures to the most directly comparable GAAP measures.
s reconciliations of our non-GAAP financial measures to the most directly comparable GAAP measures. This call is also being webcast, and a replay will be available in the Events and Presentation section of our IR page shortly. It is now my pleasure to turn the call over to Allegro's President and CEO, Mike Doogue. Mike?
Speaker #2: This call is also being webcast in a replay will be available in the events and presentation section of our IR page shortly. It is now my pleasure to turn the call over to ALLEGRO's President and CEO, Mike Duke.
Speaker #2: Mike?
Speaker #3: Thank you very much, Jalene, and good morning, and thank you all for joining our third quarter earnings conference call. We continue to see positive momentum across the business once again achieving growth in bookings and backlog to multi-quarter highs.
Michael Doogue: Thank you very much, Jalene, and good morning, and thank you all for joining our Q3 Earnings Conference Call. We continue to see positive momentum across the business, once again achieving growth in bookings and backlog to multi-quarter highs and securing significant design wins in our strategic focus areas, led by ADAS, XEV, and Data Center. This momentum has enabled us to deliver strong Q3 results, with sales above the high end of our guidance range at $229 million, and EPS above the midpoint of our guidance range at $0.15. e-mobility led continued growth in Q3 automotive sales. Our automotive sales growth was once again fueled by Allegro content gains and the increased adoption of XEV and ADAS systems in cars.... This momentum is reflected in our Q3 automotive design wins, where e-mobility led the quarter.
Mike Doogue: Thank you very much, Jalene, and good morning, and thank you all for joining our Q3 Earnings Conference Call. We continue to see positive momentum across the business, once again achieving growth in bookings and backlog to multi-quarter highs and securing significant design wins in our strategic focus areas, led by ADAS, XEV, and Data Center. This momentum has enabled us to deliver strong Q3 results, with sales above the high end of our guidance range at $229 million, and EPS above the midpoint of our guidance range at $0.15.
Speaker #3: And securing significant design wins in our strategic focus areas led by ADAS, xEV, and Data Center. This momentum has enabled us to deliver strong third quarter results, with sales above the high end of our guidance range at $229 million, and EPS above the midpoint of our guidance range at 15 cents.
Speaker #3: E-mobility led continued growth in third quarter automotive sales, our automotive sales growth was once again fueled by ALLEGRO content gains, and the increased adoption of XEV and ADAS systems in cars.
e-mobility led continued growth in Q3 automotive sales. Our automotive sales growth was once again fueled by Allegro content gains and the increased adoption of XEV and ADAS systems in cars.... This momentum is reflected in our Q3 automotive design wins, where e-mobility led the quarter.
Speaker #3: This momentum is reflected in our third quarter automotive design wins, where e-mobility led the quarter, and ADAS, we secured key wins for position sensors and motor drivers in electronic power steering systems, we also had several design wins for higher dollar content steer-by-wire systems with OEMs in North America, China, and Europe.
Michael Doogue: In ADAS, we secured key wins for position sensors and motor drivers in electronic power steering systems. We also had several design wins for higher dollar content steer-by-wire systems with OEMs in North America, China, and Europe. In XEV, we won several designs with our current sensor ICs and onboard charging systems, and high-voltage traction inverters. In our industrial and other end markets, sales growth was again led by Data Center, establishing a new quarterly record at 10% of sales, up 31% sequentially. The rapid expansion of higher power AI servers continues to drive increased demand for our fan driver ICs. Additionally, our market-leading high-speed current sensors are ramping in Data Center power supply applications, where we enable crucial improvements in efficiency and power density. We are pleased to report that current sensors were a growing contributor to Data Center sales growth.
In ADAS, we secured key wins for position sensors and motor drivers in electronic power steering systems. We also had several design wins for higher dollar content steer-by-wire systems with OEMs in North America, China, and Europe. In XEV, we won several designs with our current sensor ICs and onboard charging systems, and high-voltage traction inverters. In our industrial and other end markets, sales growth was again led by Data Center, establishing a new quarterly record at 10% of sales, up 31% sequentially.
Speaker #3: In XEV, we won several designs with our current sensor ICs and onboard charging systems, as well as high voltage traction inverters. In our industrial and other end markets, sales growth was again led by Data Center, establishing a new quarterly record at 10% of sales, up 31% sequentially.
Speaker #3: The rapid expansion of higher-power AI servers continues to drive increased demand for our fan driver ICs. Additionally, our market-leading high-speed current sensors are ramping in data center power supply applications, where we enable crucial improvements in efficiency and power density.
The rapid expansion of higher power AI servers continues to drive increased demand for our fan driver ICs. Additionally, our market-leading high-speed current sensors are ramping in Data Center power supply applications, where we enable crucial improvements in efficiency and power density. We are pleased to report that current sensors were a growing contributor to Data Center sales growth.
Speaker #3: We are pleased to report that current sensors were a growing contributor to Data Center sales growth. Looking ahead, we are also building another growth vector in the Data Center with our isolated gate driver ICs.
Michael Doogue: Looking ahead, we are also building another growth vector in the data center with our isolated gate driver ICs. We recently released our first isolated gate driver IC for silicon carbide transistors, and we are broadly sampling this new IC to market leaders in the data center power supply market. Our growing product portfolio and strong market pull were also evident in our industrial design wins, where data center continued to lead third quarter wins. Our motor drivers for cooling fans represent the majority of data center wins in the quarter, with current sensors also securing meaningful wins and driving future content gains. Sales for many of these new wins will ramp within calendar year 2026. To further capitalize on our industrial opportunities, we conducted a robotics roadshow in the US, Japan, and China.
Looking ahead, we are also building another growth vector in the data center with our isolated gate driver ICs. We recently released our first isolated gate driver IC for silicon carbide transistors, and we are broadly sampling this new IC to market leaders in the data center power supply market. Our growing product portfolio and strong market pull were also evident in our industrial design wins, where data center continued to lead third quarter wins. Our motor drivers for cooling fans represent the majority of data center wins in the quarter,
Speaker #3: We recently released our first isolated gate driver IC for silicon carbide transistors, and we are broadly sampling this new IC to market leaders in the data center power supply market.
Speaker #3: Our growing product portfolio and strong market pull were also evident in our industrial design wins, where Data Center continued to lead third quarter wins.
Speaker #3: Our motor drivers for cooling fans represent the majority of Data Center wins in the quarter, with current sensors also securing meaningful wins and driving future content gains.
with current sensors also securing meaningful wins and driving future content gains. Sales for many of these new wins will ramp within calendar year 2026. To further capitalize on our industrial opportunities, we conducted a robotics roadshow in the US, Japan, and China.
Speaker #3: Sales for many of these new wins will ramp within calendar year 2026. To further capitalize on our industrial opportunities, we conducted a robotics roadshow in the US, Japan, and China.
Speaker #3: This focused customer activity confirmed new wins and pilot production ramps with market leaders in quadruped and humanoid robots. Our customer engagements ements validated our high content opportunity in robots including up to 150 ALLEGRO sensor ICs, and 50 of our power ICs in advanced humanoid robots.
Michael Doogue: This focused customer activity confirmed new wins and pilot production ramps with market leaders in quadruped and humanoid robots. Our customer engagements validated our high content opportunity in robots, including up to 150 Allegro sensor ICs and 50 of our power ICs in advanced humanoid robots. Let me now pivot to our focus on relentless innovation. During the quarter, we introduced an innovative current sensor that cuts power-related losses by up to 90%, enabling new levels of power density in xEV and data center applications. This IC can measure up to 200A of current in a very tiny form factor and is gaining broad customer interest while deepening our competitive advantage.
This focused customer activity confirmed new wins and pilot production ramps with market leaders in quadruped and humanoid robots. Our customer engagements validated our high content opportunity in robots, including up to 150 Allegro sensor ICs and 50 of our power ICs in advanced humanoid robots. Let me now pivot to our focus on relentless innovation. During the quarter, we introduced an innovative current sensor that cuts power-related losses by up to 90%, enabling new levels of power density in xEV and data center applications.
Speaker #3: Let me now pivot to our focus on relentless innovation, during the quarter we introduced an innovative current sensor that cuts power-related losses by up to 90%, enabling new levels of power density in XEV and Data Center applications.
Speaker #3: This IC can measure up to 200 amperes of current in a very tiny form factor and is gaining broad customer interest while deepening our competitive advantage.
This IC can measure up to 200A of current in a very tiny form factor and is gaining broad customer interest while deepening our competitive advantage.
Speaker #3: For some perspective, the maximum current consumed by the average American household is 200 amperes, and our new sensor can measure 200 amps of current in a package form factor that is less than half the size of a postage stamp.
Michael Doogue: For some perspective, the maximum current consumed by the average American household is 200 amperes, and our new sensor can measure 200 amps of current in a package form factor that is less than half the size of a postage stamp. As I mentioned earlier, we also expanded our Power-Thru isolated gate driver portfolio by releasing our first IC that drives a broad array of silicon carbide transistors. Our isolated gate driver ICs present a significant content uplift opportunity in automotive and industrial markets. We have sampled our new silicon carbide driver to a broad group of industrial customers, and we are also sampling market leaders in the xEV charger and inverter markets. We also attended CES this quarter. Robotics was the highlight of the show and a hot topic of conversation with our customers.
For some perspective, the maximum current consumed by the average American household is 200 amperes, and our new sensor can measure 200 amps of current in a package form factor that is less than half the size of a postage stamp. As I mentioned earlier, we also expanded our Power-Thru isolated gate driver portfolio by releasing our first IC that drives a broad array of silicon carbide transistors. Our isolated gate driver ICs present a significant content uplift opportunity in automotive and industrial markets.
Speaker #3: As I mentioned earlier, we also expanded our power through our isolated gate driver portfolio by releasing our first IC that drives a broad array of silicon carbide transistors.
Speaker #3: Our isolated gate driver ICs present a significant content uplift opportunity in automotive and industrial markets. We have sampled our new silicon carbide driver to a broad group of industrial customers, and we are also sampling market leaders in the XEV charger and inverter markets.
We have sampled our new silicon carbide driver to a broad group of industrial customers, and we are also sampling market leaders in the xEV charger and inverter markets. We also attended CES this quarter. Robotics was the highlight of the show and a hot topic of conversation with our customers.
Speaker #3: We also attended CES this quarter, Robotics was the highlight of the show and a hot topic of conversation with our customers. We had dozens of customer meetings at the show, and it is clear that customers' view are highly differentiated, market-leading, TMR sensors as a key enabler for their next generation platforms.
Michael Doogue: We had dozens of customer meetings at the show, and it is clear that customers view our highly differentiated, market-leading TMR sensors as a key enabler for their next-generation platforms. Additionally, existing and new customers confirmed our belief that Allegro's unique motor driver ICs allow them to make smaller, quieter, and more efficient electric motors in both automotive and industrial applications. In summary, we are seeing positive momentum across the business and continue to execute on our strategic priorities. We are excited to share more regarding our strategy, growth drivers, and target financial model at our upcoming Analyst Day in a couple of weeks. I'll now turn the call over to Derek to review the Q3 2026 financial results and provide our outlook for the quarter.
We had dozens of customer meetings at the show, and it is clear that customers view our highly differentiated, market-leading TMR sensors as a key enabler for their next-generation platforms. Additionally, existing and new customers confirmed our belief that Allegro's unique motor driver ICs allow them to make smaller, quieter, and more efficient electric motors in both automotive and industrial applications. In summary, we are seeing positive momentum across the business and continue to execute on our strategic priorities.
Speaker #3: Additionally, existing and new customers confirmed our belief that ALLEGRO's unique motor driver ICs allow them to make smaller, quieter, and more efficient electric motors, in both automotive and industrial applications.
Speaker #3: In summary, we are seeing positive momentum across the business and continue to execute on our strategic priorities. We are excited to share more regarding our strategy, growth drivers, and target financial model at our upcoming analyst day, in a couple of weeks.
We are excited to share more regarding our strategy, growth drivers, and target financial model at our upcoming Analyst Day in a couple of weeks. I'll now turn the call over to Derek to review the Q3 2026 financial results and provide our outlook for the quarter.
Speaker #3: I'll now turn the call over to Derek to review the Q3 2026 financial results. And provide our outlook for the
Speaker #3: quarter. Thank you, Mike, and good morning
Derek D’Antilio: Thank you, Mike, and good morning, everyone. Starting with our third quarter results, net sales were $229 million, and non-GAAP earnings per share were $0.15. As a percentage of sales, gross margin was 49.9%, operating margin was 15.4%, and adjusted EBITDA was 20.1% of sales. Total Q3 sales increased by 7% sequentially and 29% year-over-year. Sales to our automotive customers increased by 6% sequentially and 28% year-over-year. And within auto, e-mobility sales increased by 46% year-over-year. Industrial and other sales increased by 11% sequentially and 31% year-over-year, led by continued strength in data center to record levels. Distribution sales increased by 11% sequentially and 39% year-over-year.
Derek D’Antilio: Thank you, Mike, and good morning, everyone. Starting with our third quarter results, net sales were $229 million, and non-GAAP earnings per share were $0.15. As a percentage of sales, gross margin was 49.9%, operating margin was 15.4%, and adjusted EBITDA was 20.1% of sales. Total Q3 sales increased by 7% sequentially and 29% year-over-year. Sales to our automotive customers increased by 6% sequentially and 28% year-over-year. And within auto, e-mobility sales increased by 46% year-over-year. Industrial and other sales increased by 11% sequentially and 31% year-over-year,
Speaker #2: everyone. Starting with our third quarter results, net sales were 229 million dollars, and non-GAAP earnings per share were 15 cents. As a percentage of sales, gross margin was 49.9%, operating margin was 15.4%, and adjusted EBITDA was 20.1% of sales.
Speaker #2: Total Q3 sales increased by 7% sequentially, and 29% year over year. Sales to our automotive customers increased by 6% sequentially, and 28% year over year.
Speaker #2: And within auto, e-mobility sales increased by 46% year over year. Industrial and other sales increased by 11% sequentially, and 31% year over year, led by continued strength in Data Center to record levels.
led by continued strength in data center to record levels. Distribution sales increased by 11% sequentially and 39% year-over-year.
Speaker #2: Distribution sales increased by 11% sequentially, and 39% year over year. End market demand remained robust in both sell-in and POS increased in the quarter.
Derek D’Antilio: End market demand remained robust, and both sell-in and POS increased in the quarter. From a product perspective, magnetic sensor sales increased by 5% sequentially and 21% year-over-year, and sales of our power products increased by 9% sequentially and 43% year-over-year. Sales by geography on a ship to basis were as follows: 30% of sales in China, 27% in the rest of Asia, 17% in Japan, 15% in the Americas, and 11% of sales in Europe. Now turning to Q3 profitability. Gross margin was 49.9%, an increase of another 30 basis points sequentially. Operating expenses were $79 million, an increase of approximately $3 million compared to Q2, largely due to variable compensation.
End market demand remained robust, and both sell-in and POS increased in the quarter. From a product perspective, magnetic sensor sales increased by 5% sequentially and 21% year-over-year, and sales of our power products increased by 9% sequentially and 43% year-over-year. Sales by geography on a ship to basis were as follows: 30% of sales in China, 27% in the rest of Asia, 17% in Japan, 15% in the Americas, and 11% of sales in Europe. Now turning to Q3 profitability. Gross margin was 49.9%, an increase of another 30 basis points sequentially.
Speaker #2: From a product perspective, magnetic sensor sales increased by 5% sequentially, and 21% year over year, and sales of our power products increased by 9% sequentially, and 43% year over year.
Speaker #2: Sales by geography on a ship-to basis were as follows: 30% of sales in China, 27% in the rest of Asia, 17% in Japan, 15% in the Americas, and 11% of sales in Europe.
Speaker #2: Now turning to Q3 profitability, gross margin was 49.9%, and increase of another 30 basis points sequentially. Operating expenses were 79 million dollars, and increase of approximately 3 million dollars compared to Q2, largely due to variable compensation.
Operating expenses were $79 million, an increase of approximately $3 million compared to Q2, largely due to variable compensation.
Speaker #2: Operating margin was 15.4% of sales, an increase of 150 basis points, compared to 13.9% in Q2 and 10.8% a year ago. The effective tax rate for the quarter was 7%.
Derek D’Antilio: Operating margin was 15.4% of sales, an increase of 150 basis points compared to 13.9% in Q2 and 10.8% a year ago. The effective tax rate for the quarter was 7%. Third quarter interest expense was $4.7 million. Third quarter diluted share count was 186 million shares, and net income was $29 million, or $0.15 per diluted share. EPS increased by 15% sequentially and 114% year-over-year on sales increases of 7% and 29%, demonstrating the significant operating leverage in our business model. Moving to the balance sheet and cash flow. We ended Q3 with cash of $163 million, and our term loan balance was $285 million.
Operating margin was 15.4% of sales, an increase of 150 basis points compared to 13.9% in Q2 and 10.8% a year ago. The effective tax rate for the quarter was 7%. Third quarter interest expense was $4.7 million. Third quarter diluted share count was 186 million shares, and net income was $29 million, or $0.15 per diluted share. EPS increased by 15% sequentially and 114% year-over-year on sales increases of 7% and 29%, demonstrating the significant operating leverage in our business model. Moving to the balance sheet and cash flow.
Speaker #2: Third quarter interest expense was $4.7 million, third quarter diluted share count was 186 million shares, and net income was $29 million, or $0.15 per diluted share.
Speaker #2: EPS increased by 15% sequentially and 114% year over year, on sales increases of 7% and 29%, respectively. This demonstrates the significant operating leverage in our business model.
Speaker #2: Moving to the balance sheet and cash flow, we ended Q3 with cash of $163 million, and our term loan balance was $285 million.
We ended Q3 with cash of $163 million, and our term loan balance was $285 million.
Speaker #2: Cash flow from operations was 45 million dollars, CAPEX was 4 million dollars, and free cash flow was 41 million dollars, or 18% of Q3 sales.
Derek D’Antilio: Cash flow from operations was $45 million, CapEx was $4 million, and free cash flow was $41 million, or 18% of Q3 sales. From a working capital perspective, DSO was 40 days compared to 45 in Q2, and inventory days were 133 days, compared to 135 in Q2. Finally, I'll turn to our Q4 2026 outlook. We expect fourth quarter sales to be in the range of $230 to $240 million. The midpoint of this range equates to a 22% year-over-year increase. Additionally, we expect the following, all on a non-GAAP basis. Gross margin to be between 49% and 51%. The midpoint of this range equates to an increase of 440 basis points compared to Q4 of FY 2025, again, showing the operating leverage in our business.
Cash flow from operations was $45 million, CapEx was $4 million, and free cash flow was $41 million, or 18% of Q3 sales. From a working capital perspective, DSO was 40 days compared to 45 in Q2, and inventory days were 133 days, compared to 135 in Q2. Finally, I'll turn to our Q4 2026 outlook. We expect fourth quarter sales to be in the range of $230 to $240 million. The midpoint of this range equates to a 22% year-over-year increase. Additionally, we expect the following, all on a non-GAAP basis. Gross margin to be between 49% and 51%.
Speaker #2: From a working capital perspective, DSO was 40 days compared to 45 in Q2, and inventory days were 133 days compared to 135 in Q2.
Speaker #2: Finally, I'll turn to our Q4 2026 outlook. We expect fourth quarter sales to be in the range of $230 to $240 million. The midpoint of this range equates to a 22% year-over-year increase.
Speaker #2: Additionally, we expect the following all on a non-GAAP basis: gross margin to be between 49 and 51%, the midpoint of this range equates to an increase of 440 basis points compared to Q4 of FY25, again showing the operating leverage in our business.
The midpoint of this range equates to an increase of 440 basis points compared to Q4 of FY 2025, again, showing the operating leverage in our business.
Speaker #2: Operating expenses are expected to increase by approximately 3% sequentially, largely due to annual payroll tax resets. And earlier this month, we repriced our term loan down another 25 basis points, to sow for plus 175 basis points.
Derek D’Antilio: Operating expenses are expected to increase by approximately 3% sequentially, largely due to annual payroll tax resets. Earlier this month, we repriced our term loan down another 25 basis points to SOFR plus 175 basis points. This repricing reflects our lender's confidence in our business model and our financial discipline. Interest expense is projected to be $5 million in Q4, which includes approximately $700,000 of expenses related to this repricing. We expect our tax rate for the quarter and the full year to be 8%. We estimate that our weighted average diluted share count will be 186 million shares, and as a result, we expect non-GAAP EPS to be between 14 and 18 cents per share. Now I'll turn the call back over to Jalene for Q&A.
Operating expenses are expected to increase by approximately 3% sequentially, largely due to annual payroll tax resets. Earlier this month, we repriced our term loan down another 25 basis points to SOFR plus 175 basis points. This repricing reflects our lender's confidence in our business model and our financial discipline. Interest expense is projected to be $5 million in Q4, which includes approximately $700,000 of expenses related to this repricing. We expect our tax rate for the quarter and the full year to be 8%.
Speaker #2: This repricing reflects our lenders' confidence in our business model and our financial discipline. Interest expense is projected to be $5 million in Q4, which includes approximately $700,000 of expenses related to this repricing.
Speaker #2: We expect our tax rate for the quarter and the full year to be 8%. We estimate that our weighted average diluted share count will be 186 million shares, and as a result, we expect non-GAAP EPS to be between 14 and 18 cents per share.
We estimate that our weighted average diluted share count will be 186 million shares, and as a result, we expect non-GAAP EPS to be between 14 and 18 cents per share. Now I'll turn the call back over to Jalene for Q&A.
Speaker #2: Now I'll turn the call back over to Jalene
Speaker #2: for Q&A.
Speaker #3: Thank
Speaker #3: Thank you, Derek. This concludes management's prepared remarks. Before we open the call for your questions, I'd like to share our fourth fiscal quarter conference lineup with you.
Jalene Hoover: Thank you, Derek. This concludes management's prepared remarks. Before we open the call for your questions, I'd like to share our fourth fiscal quarter conference lineup with you. We will attend Morgan Stanley's Technology, Media, and Telecom Conference on 2 March in San Francisco, and Loop Capital Markets' Seventh Annual Investor Conference virtually on 9 March. Finally, we are excited to host our upcoming Analyst Day event on 18 February in Boston and look forward to seeing many of you there. We will now open the call for your questions. Michelle, please review Q&A instructions.
Jalene Hoover: Thank you, Derek. This concludes management's prepared remarks. Before we open the call for your questions, I'd like to share our fourth fiscal quarter conference lineup with you. We will attend Morgan Stanley's Technology, Media, and Telecom Conference on 2 March in San Francisco, and Loop Capital Markets' Seventh Annual Investor Conference virtually on 9 March. Finally, we are excited to host our upcoming Analyst Day event on 18 February in Boston and look forward to seeing many of you there. We will now open the call for your questions. Michelle, please review Q&A instructions.
Speaker #3: We will attend Morgan Stanley's technology media and telecom conference on March 2nd in San Francisco, and Loop Capital Market's seventh annual investor conference virtually on March 9th.
Speaker #3: And finally, we are excited to host our upcoming analyst day event on February 18th in Boston, and look forward to We will now open the call for your questions.
Speaker #3: Michelle, please review Q&A
Speaker #3: instructions. Thank you.
Operator: Thank you. As a reminder to ask a question, please 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. To provide the opportunity for everyone to ask a question, please limit to one question and one follow-up. One moment while we compile our Q&A roster. Our first question comes from the line of Timothy Arcuri with UBS. Your line is open. Please go ahead.
Operator: Thank you. As a reminder to ask a question, please 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. To provide the opportunity for everyone to ask a question, please limit to one question and one follow-up. One moment while we compile our Q&A roster. Our first question comes from the line of Timothy Arcuri with UBS. Your line is open. Please go ahead.
Speaker #4: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Speaker #4: To provide the opportunity for everyone to ask a question, please limit to one question and one follow-up. One moment while we compile our Q&A roster.
Speaker #4: Our first question comes from the line of Timothy Arkery with UBS. Your line is open. Please go ahead.
Speaker #5: Thanks a lot. Derek, if I look at gross margin revenue came in above the high end, but gross margin was barely at the midpoint, and then in the guidance, it's a little the, you know, the sort of incrementals are a bit below the 60 to 65 you've been talking about.
Timothy Arcuri: Thanks a lot. Derek, if I look at gross margin, revenue came in above the high end, but gross margin was barely at the midpoint, and then in the guidance, it's a little, you know, the sort of incrementals are a bit below the 60 to 65 you've been talking about. Can you talk about that?
Timothy Arcuri: Thanks a lot. Derek, if I look at gross margin, revenue came in above the high end, but gross margin was barely at the midpoint, and then in the guidance, it's a little, you know, the sort of incrementals are a bit below the 60 to 65 you've been talking about. Can you talk about that?
Speaker #5: Can you talk about that?
Speaker #6: Yeah, sure, Tim. So, in the quarter, I would say that the gross margin was largely geographic and product mix. What I mean by that is China was 30% of our sales in the third quarter, and so that drives the gross margins down a bit—about 10 basis points below the midpoint of our guidance, still 30 basis points above last quarter.
Derek D’Antilio: Yeah, sure, Tim. So in the quarter, I would say that the gross margin was largely geographic and product mix. What I mean by that is China was 30% of our sales in the third quarter, and so that drives the gross margins down a bit, about 10 basis points below the midpoint of our guidance, still 30 basis points above last quarter. And on a positive note, as I've talked about in the past, we're expecting gross margins to be between 49 and 51 for the March quarter, which is actually better than we expected originally, because coming into that March quarter, we always expect to have some pricing friction. But two things are happening in this March quarter. One is, with Chinese New Year, China is a smaller piece of the overall mix.
Derek D’Antilio: Yeah, sure, Tim. So in the quarter, I would say that the gross margin was largely geographic and product mix. What I mean by that is China was 30% of our sales in the third quarter, and so that drives the gross margins down a bit, about 10 basis points below the midpoint of our guidance, still 30 basis points above last quarter. And on a positive note, as I've talked about in the past, we're expecting gross margins to be between 49 and 51 for the March quarter, which is actually better than we expected originally, because coming into that March quarter, we always expect to have some pricing friction.
Speaker #6: And on a positive note, as I've talked about in the past, we're expecting gross margins to be between 49 and 51 for the March quarter, which is actually better than we expected originally because coming into that March quarter, we always expect to have some pricing friction.
But two things are happening in this March quarter. One is, with Chinese New Year, China is a smaller piece of the overall mix.
Speaker #6: things are happening in this March quarter. One But two is, with Chinese New Year, China is a smaller piece of the overall mix, and number two is we've talked about in the past, we expect pricing this year to be far less pronounced than it was last year.
Derek D’Antilio: Number two, as we've talked about in the past, we expect pricing this year to be far less pronounced than it was last year.
Number two, as we've talked about in the past, we expect pricing this year to be far less pronounced than it was last year.
Speaker #5: Thanks. And then can you just talk about sell-in versus sell-through, and whether that's, you know, that's kind of been a tailwind, but it seems like that tailwind, you know, sounds like they were about equal, so that, you know, tailwind's kind of, you know, gone away, so you're going to get back to shipping to, you know, to
Speaker #5: Thanks. And then can you just talk about sell-in versus sell-through, and whether that's, you know, that's kind of been a tailwind, but it seems like that tailwind, you know, sounds like they were about equal, so that, you know, tailwind's kind of, you know, gone away, so you're going to get back to shipping to, you know, to sell-through?
Thomas O'Malley: ... Thanks. And then, can you just talk about sell-in versus sell-through, and whether that's, you know, that's kind of been a tailwind, but it seems like that tailwind, you know, sounds like they were about equal, so that tailwind's kind of, you know, gone away, so you're gonna get back to shipping to, you know, to sell-through?
Timothy Arcuri: ... Thanks. And then, can you just talk about sell-in versus sell-through, and whether that's, you know, that's kind of been a tailwind, but it seems like that tailwind, you know, sounds like they were about equal, so that tailwind's kind of, you know, gone away, so you're gonna get back to shipping to, you know, to sell-through?
Speaker #6: That's exactly right. For the past about four quarters leading up to this, we had a significant, you know, POS far exceeded sell-in, right, as they were burning down inventories.
Derek D’Antilio: That's exactly right. For the past about 4 quarters leading up to this, we had a significant, you know, POS far exceeded sell-in, right? As they were burning down inventories. Our distributor inventories are down nearly 50% over the last almost 5 quarters right now. This quarter, POS and sell-in were close to each other. Sell-in was slightly higher than POS. Going forward, I'd expect those two to be about equal. Regions will vary.
Derek D’Antilio: That's exactly right. For the past about 4 quarters leading up to this, we had a significant, you know, POS far exceeded sell-in, right? As they were burning down inventories. Our distributor inventories are down nearly 50% over the last almost 5 quarters right now. This quarter, POS and sell-in were close to each other. Sell-in was slightly higher than POS. Going forward, I'd expect those two to be about equal. Regions will vary.
Speaker #6: Our distributor inventory is a down nearly 50% over the last almost five quarters right now. This quarter, POS and sell-in were close to each other.
Speaker #6: Sell-in was slightly higher than POS, going forward I'd expect those two to be about equal, regions will vary.
Speaker #5: Thanks a lot,
Thomas O'Malley: Thanks a lot, Derek.
Timothy Arcuri: Thanks a lot, Derek.
Speaker #5: Derek. And I should just
Derek D’Antilio: And I should just say, Tim, too, on distribution, it's maybe a little bit less indicative of actually what's happening in markets, because all of our sales in Japan are serviced through distribution, and about a little bit more than half of our sales in China are serviced through distribution. So that also includes auto, of course, and 90% of our industrial sales, including Data Center, are serviced through distribution.
Derek D’Antilio: And I should just say, Tim, too, on distribution, it's maybe a little bit less indicative of actually what's happening in markets, because all of our sales in Japan are serviced through distribution, and about a little bit more than half of our sales in China are serviced through distribution. So that also includes auto, of course, and 90% of our industrial sales, including Data Center, are serviced through distribution.
Speaker #6: say, Tim, too, on distribution, it's maybe a little bit less indicative of actually what's happening in markets because all of our sales in Japan are serviced through distribution.
Speaker #6: In about a little bit more than half of our sales in China are serviced through distribution. So that also includes auto, of course, and 90% of our industrial sales, including data center, are serviced through distribution.
Speaker #5: Excellent.
Thomas O'Malley: Thanks a lot.
Timothy Arcuri: Thanks a lot.
Speaker #4: Thank you. And one moment for our next question. Our next question comes from the line of Joe Quattrocchi with Wells Fargo. Your line is open.
Operator: Thank you, and one moment for our next question. Our next question comes from the line of Joe Quattrocchi with Wells Fargo. Your line is open. Please go ahead.
Operator: Thank you, and one moment for our next question. Our next question comes from the line of Joe Quattrocchi with Wells Fargo. Your line is open. Please go ahead.
Speaker #4: Please go ahead.
Speaker #7: Hey, thanks for taking the question. I know you don't give, like, segment guidance, but I'm just trying to think about how to think about automotive growth into the March quarter relative to, you know, the continued strength you're seeing in Industrial and Data Center.
Joe Quattrocchi: Hey, thanks for taking the question. I know you don't give, like, segment guide, but just trying to think about how to think about automotive growth into the March quarter relative to, you know, the continued strength you're seeing in industrial and data center.
Joe Quattrocchi: Hey, thanks for taking the question. I know you don't give, like, segment guide, but just trying to think about how to think about automotive growth into the March quarter relative to, you know, the continued strength you're seeing in industrial and data center.
Speaker #6: Yeah. So for the March quarter, it will absolutely be led by industrial. So industrial will be up in the March quarter, the midpoint of the guidance is up about two and a half percent in total for the company, led by industrial.
Derek D’Antilio: Yeah. So for the March quarter, it will absolutely be led by industrial. So industrial will be up in the March quarter. The midpoint of the guidance is up about 2.5% in total for the company, led by industrial. I expect auto to be about flat to marginally down again, led by Chinese New Year. Really, the Chinese New Year drives that. And I should say, we're also right now still shipping 20% below our peak in automotive at this point, even in this Q3.
Derek D’Antilio: Yeah. So for the March quarter, it will absolutely be led by industrial. So industrial will be up in the March quarter. The midpoint of the guidance is up about 2.5% in total for the company, led by industrial. I expect auto to be about flat to marginally down again, led by Chinese New Year. Really, the Chinese New Year drives that. And I should say, we're also right now still shipping 20% below our peak in automotive at this point, even in this Q3.
Speaker #6: I expect auto to be about flat to marginally down, again, led by Chinese New Year, really the Chinese New Year drives that. And I should say we're also right now still shipping 20% below our peak in automotive at this point, even in this
Speaker #6: Q3. Yeah, and maybe
Michael Doogue: Yeah, maybe not sure, Joe, this is Mike. Not sure if there's a deeper question just about automotive in general, but I, I do wanna point out, we feel good about what we're seeing in automotive, strong bookings and backlog, great design win activity across xEV and ADAS, and actually great design wins in China as well. So we are feeling good overall about automotive.
Mike Doogue: Yeah, maybe not sure, Joe, this is Mike. Not sure if there's a deeper question just about automotive in general, but I, I do wanna point out, we feel good about what we're seeing in automotive, strong bookings and backlog, great design win activity across xEV and ADAS, and actually great design wins in China as well. So we are feeling good overall about automotive.
Speaker #5: Not sure, Joe, this is Mike. Not sure if there's a deeper question just about automotive in general, but I do want to point out we feel good about what we're seeing in automotive—strong bookings and backlog, great design win activity across XEV and ADAS, and actually great design wins in China as well.
Speaker #5: So, we are feeling good overall about—
Speaker #5: So, we are feeling good overall about automotive. That's helpful.
Joe Quattrocchi: That, that's helpful. Yeah, as a follow-up, just kind of maybe double-clicking on the automotive. I mean, are you seeing any propensity from your customers to maybe build a little bit of inventory, just given there's been some disruptions across, like, kind of the auto supply chain, from a component standpoint?
Joe Quattrocchi: That, that's helpful. Yeah, as a follow-up, just kind of maybe double-clicking on the automotive. I mean, are you seeing any propensity from your customers to maybe build a little bit of inventory, just given there's been some disruptions across, like, kind of the auto supply chain, from a component standpoint?
Speaker #7: Yeah, as a follow-up, just kind of maybe double-clicking on the automotive, I mean, are you seeing any propensity from your customers to maybe build a little bit of inventory, just given there's been some disruptions across like kind of the auto supply chain from a component standpoint?
Speaker #6: Yeah, the instructions are out there. We have yet to see any meaningful increases in inventory at the tier ones in automotive. I've stated in prior calls we see fairly lean inventory out there in automotive, and that's what we continue to see.
Michael Doogue: Yeah, the instructions are out there. We have yet to see any meaningful increases in inventory at the Tier 1s in automotive. I've, I've stated in prior calls, we see fairly lean inventory out there in automotive, and that's what we continue to see.
Mike Doogue: Yeah, the instructions are out there. We have yet to see any meaningful increases in inventory at the Tier 1s in automotive. I've, I've stated in prior calls, we see fairly lean inventory out there in automotive, and that's what we continue to see.
Speaker #5: Thank you.
Joe Quattrocchi: Thank you.
Joe Quattrocchi: Thank you.
Speaker #4: Thank you. And one moment for our next question. Our next question will come from the line of Blaine Curtis with Jefferies. Your line is open.
Operator: Thank you, and one moment for our next question. Our next question will come from the line of Blayne Curtis with Jefferies. Your line is open. Please go ahead.
Operator: Thank you, and one moment for our next question. Our next question will come from the line of Blayne Curtis with Jefferies. Your line is open. Please go ahead.
Speaker #4: Open. Please go ahead. Hey, morning,
Blayne Curtis: Hey, morning, guys. A couple questions. I just wanna ask on the data center business. I think you mentioned fan drivers still kind of driving the majority of the growth, but obviously, you know, big opportunity with the gate drivers as well as current sensors. Can you just talk about that pipeline a little bit more, when that revenue kind of layers in and how big that opportunity is for you?
Blayne Curtis: Hey, morning, guys. A couple questions. I just wanna ask on the data center business. I think you mentioned fan drivers still kind of driving the majority of the growth, but obviously, you know, big opportunity with the gate drivers as well as current sensors. Can you just talk about that pipeline a little bit more, when that revenue kind of layers in and how big that opportunity is for you?
Speaker #8: guys. A couple of questions. I just want to ask on the data center business. I think you mentioned fan drivers still kind of driving the majority of the growth, but obviously, you know, big opportunity with the gate drivers as well as current sensors.
Speaker #8: Can you just talk about that pipeline a little bit more? When that revenue kind of layers in and how big that opportunity is for you?
Speaker #6: Sure. So thanks, Blaine. Yeah, as you know and as we stated, the biggest piece of the business today in our data center area continues to be the fan drivers.
Michael Doogue: Sure. So thanks, Blayne. Yeah, as you, as you know, and as we stated, the biggest piece of the business today in our data center area continues to be the fan drivers. There's just really continued to be a larger number of fans going into these data center racks as power levels increase. What started about a year ago, that's when we started ramping our current sensor business in the power supplies for these higher power data center installations. That business is growing nicely. I mentioned in the prepared remarks the, the record-setting levels of data center that we achieved this quarter. Current Sensors played a role in that, so it's nice to see that ramping significantly. On the gate drivers, big opportunity there. We're excited about it. We have truly unique products.
Mike Doogue: Sure. So thanks, Blayne. Yeah, as you, as you know, and as we stated, the biggest piece of the business today in our data center area continues to be the fan drivers. There's just really continued to be a larger number of fans going into these data center racks as power levels increase. What started about a year ago, that's when we started ramping our current sensor business in the power supplies for these higher power data center installations. That business is growing nicely. I mentioned in the prepared remarks the, the record-setting levels of data center that we achieved this quarter.
Speaker #6: There’s just really continued to be a larger number of fans going into these data center racks as power levels increase. What started about a year ago—that’s when we started ramping our current sensor business in the power supplies for these higher-power data center installations.
Speaker #6: That business is growing nicely. I mentioned in the prepared remarks, the record-setting levels of data center that we achieved this quarter current sensors played a role in that.
Current Sensors played a role in that, so it's nice to see that ramping significantly. On the gate drivers, big opportunity there. We're excited about it. We have truly unique products.
Speaker #6: So it's nice to see that ramping significantly. On the gate drivers, big opportunity there. We're excited about it. We have truly unique products. We are in the design-in phase with some of the biggest customers in the marketplace.
Michael Doogue: We are in the design end phase with some of the biggest customers in the marketplace. We would expect to see revenue in that space start to ramp somewhere in the 18 to 24 months time frame.
We are in the design end phase with some of the biggest customers in the marketplace. We would expect to see revenue in that space start to ramp somewhere in the 18 to 24 months time frame.
Speaker #6: We would expect to see revenue in that space start to ramp somewhere in the 18 months to 24 months
Speaker #6: timeframe. Thanks.
Blayne Curtis: Thanks. And then maybe just a follow-up for Derek on the gross margin. So as we think about data center increasing as a percent of the overall mix, how do you think about that impacting gross margins?
Blayne Curtis: Thanks. And then maybe just a follow-up for Derek on the gross margin. So as we think about data center increasing as a percent of the overall mix, how do you think about that impacting gross margins?
Speaker #5: And then maybe just a follow-up for Derek on the gross margin. So as we think about data center increasing as a percent of the overall mix, how do you think about that impacting gross margins?
Speaker #5: And then maybe just a follow-up for Derek on the gross margin. So as we think about data center increasing as a percent of the overall mix, how do you think about that impacting gross margin?
Speaker #6: Yeah, as I've talked about in the past, the majority of what we're shipping to data center today as Mike talked about is motor drivers or fans, which are slightly below fleet average from a gross margin standpoint.
Derek D’Antilio: Yeah, as I've talked about in the past, the majority of what we're shipping to data center today, as Mike talked about, is motor drivers or fans, which are slightly below fleet average from a gross margin standpoint. But what's actually impacting the March quarter slightly is, to a positive basis, is more of the current sensors we sell on there have slightly better gross margins. So as we continue to move in that direction with current sensors and of course, isolated gate drivers, the margin will continue to improve within data center for us.
Derek D’Antilio: Yeah, as I've talked about in the past, the majority of what we're shipping to data center today, as Mike talked about, is motor drivers or fans, which are slightly below fleet average from a gross margin standpoint. But what's actually impacting the March quarter slightly is, to a positive basis, is more of the current sensors we sell on there have slightly better gross margins. So as we continue to move in that direction with current sensors and of course, isolated gate drivers, the margin will continue to improve within data center for us.
Speaker #6: But what's actually impacting the March quarter slightly is to a positive basis is more of the current sensors we sell on that have slightly better gross margins.
Speaker #6: So as we continue to move in that direction with current sensors and, of course, isolated gate drivers, the margin will continue to improve within data center for
Speaker #6: us. Thanks,
Blayne Curtis: Thanks, guys.
Blayne Curtis: Thanks, guys.
Speaker #4: Thank you. And one moment for our guys. Next question. Our next question will come from the line of Tom O'Malley with Barclays. Your line is open.
Operator: Thank you, and one moment for our next question. Our next question will come from the line of Tom O'Malley with Barclays. Your line is open. Please go ahead.
Operator: Thank you, and one moment for our next question. Our next question will come from the line of Tom O'Malley with Barclays. Your line is open. Please go ahead.
Speaker #4: Please go ahead.
Speaker #8: Hey, guys. Thanks for taking my question. When I look at the e-mobility business and the general broad trucking, SAR business, it looks like both are seeing a bit of growth here in the quarter.
Thomas O'Malley: Hey, guys. Thanks for taking my question. When I look at the e-mobility business and the general broad trucking SAM business, it looks like both are seeing a bit of growth here in the quarter. Can you talk about, in the guidance, what's assumed between those two and where you're seeing some of the additional growth?
Tom O'Malley: Hey, guys. Thanks for taking my question. When I look at the e-mobility business and the general broad trucking SAM business, it looks like both are seeing a bit of growth here in the quarter. Can you talk about, in the guidance, what's assumed between those two and where you're seeing some of the additional growth?
Speaker #8: Can you talk about in the guidance what's assumed between those two and where you're seeing some of the additional growth?
Speaker #7: I actually didn't catch your question, Tom.
Michael Doogue: I actually didn't catch your question, Tom. I'm sorry. There was a little-
Mike Doogue: I actually didn't catch your question, Tom. I'm sorry. There was a little-
Speaker #7: I'm sorry. There was a little... I'll start, Tom.
Derek D’Antilio: I'll start, Tom. We're not gonna really guide, you know, parse out the guidance between e-mobility within auto, you know, and ICE business. That can vary depending on what's scheduled to ship within the quarter. As I said, in total, I expect the March quarter to be up 2.5% at the midpoint of guidance. Within that, industrial will certainly lead the way, led by data center. I expect auto to be, flat to down marginally, really just because of Chinese New Year. The biggest portion of our e-mobility business continues to be ADAS applications, both from a revenue standpoint and from a design win standpoint.
Derek D’Antilio: I'll start, Tom. We're not gonna really guide, you know, parse out the guidance between e-mobility within auto, you know, and ICE business. That can vary depending on what's scheduled to ship within the quarter. As I said, in total, I expect the March quarter to be up 2.5% at the midpoint of guidance. Within that, industrial will certainly lead the way, led by data center. I expect auto to be, flat to down marginally, really just because of Chinese New Year. The biggest portion of our e-mobility business continues to be ADAS applications, both from a revenue standpoint and from a design win standpoint.
Speaker #6: We're not going to really guide parse out the guidance between e-mobility within auto, you know, and ICE business. That can vary depending on what schedule to ship within the quarter.
Speaker #6: As I said, in total, I expect the March quarter to be up two and a half percent at the midpoint of guidance. Within that, industrial will certainly lead the way, led by data center.
Speaker #6: be flat to down marginally, I expect auto to really just because of Chinese New Year. The biggest portion of our e-mobility business continues to be ADAS applications, both from a revenue standpoint and from a design win
Speaker #6: standpoint.
Speaker #8: Gotcha. I guess, yeah,
[Analyst] (Needham & Company): Gotcha. I guess, and, yeah, inherent in the question is, you've heard others this earnings period already talk about the health of auto, maybe a little bit slower off the bottom than on the industrial side. It sounds like you've got some really good trends in your specific industrial verticals, but, just anything on the health of the broader auto market. Are you seeing customers behave any differently? Are you starting to see any inventory built there, and then customers, just anything on the, on the broader health of auto would be helpful, is I guess, where I'm getting at.
Tom O'Malley: Gotcha. I guess, and, yeah, inherent in the question is, you've heard others this earnings period already talk about the health of auto, maybe a little bit slower off the bottom than on the industrial side. It sounds like you've got some really good trends in your specific industrial verticals, but, just anything on the health of the broader auto market. Are you seeing customers behave any differently? Are you starting to see any inventory built there, and then customers, just anything on the, on the broader health of auto would be helpful, is I guess, where I'm getting at.
Speaker #8: heard others this earnings period already talk inherent in the question is you've about the health of auto, maybe a little bit slower off the bottom than on the industrial side.
Speaker #8: It sounds like you've got some really good trends in your specific industrial verticals, but just anything on the health of the broader auto market, are you seeing customers behave any differently?
Speaker #8: Are you starting to see any inventory built there and customers, just anything on the broader health of auto would be helpful as I guess where I'm getting at.
Speaker #7: Yeah, sure. I can take that one. So when we look at our automotive SAM, it's about $8 billion; $5 billion of which is the e-mobility portion of the business.
Michael Doogue: Yeah, sure. I can take that one. So you know, when we look at our automotive SAM, it's about $8 billion, $5 billion of which is the e-mobility portion of the business, so that would be our xEV and our ADAS business. And we see strong momentum, not only for Allegro there, but strong activity from our customers. No signs of slowing down, generally, when you look on a global perspective across ADAS and EV. When we look at the stats for EV growth going forward, taking them from S&P, the growth rates for electrified vehicles continue to be around 20%. Some people say high teens. We're seeing that activity both in hybrid, where we do very well, and battery electric vehicles, where we also do very well.
Mike Doogue: Yeah, sure. I can take that one. So you know, when we look at our automotive SAM, it's about $8 billion, $5 billion of which is the e-mobility portion of the business, so that would be our xEV and our ADAS business. And we see strong momentum, not only for Allegro there, but strong activity from our customers. No signs of slowing down, generally, when you look on a global perspective across ADAS and EV. When we look at the stats for EV growth going forward, taking them from S&P, the growth rates for electrified vehicles continue to be around 20%. Some people say high teens.
Speaker #7: So that would be our XEV and our ADAS business. And we see strong momentum not only for Allegro there, but strong activity from our customers, no signs of slowing down generally when you look on a global perspective across ADAS and EV.
Speaker #7: When we look at the stats for EV growth going forward, taking them from S&P the growth rates for electrified vehicles continue to be around 20%, some people say high teens, we're seeing that activity both in hybrid where we do very well and battery electric vehicles where we also do very well.
We're seeing that activity both in hybrid, where we do very well, and battery electric vehicles, where we also do very well.
Speaker #7: And ADAS adoption is starting to enter a broader swath of cars, which is a good tailwind for us. So we see the design work continuing to be very robust.
Michael Doogue: And ADAS adoption is starting to enter a broader swath of cars, which is a good tailwind for us. So we see the design work continuing to be very robust. It's a good sign for the future. We have a lot more dollar content as a company in these future design wins, so we're pleased there. Like I said earlier, from an inventory perspective, we still see people holding very thin inventory in automotive as well.
And ADAS adoption is starting to enter a broader swath of cars, which is a good tailwind for us. So we see the design work continuing to be very robust. It's a good sign for the future. We have a lot more dollar content as a company in these future design wins, so we're pleased there. Like I said earlier, from an inventory perspective, we still see people holding very thin inventory in automotive as well.
Speaker #7: It's a good sign for the future. We have a lot more dollar content as a company in these future design-ins, so we're pleased there.
Speaker #7: Like I said, still see people holding very thin earlier. From an inventory perspective, we inventory, and automotive as—
Speaker #7: well. Thank you.
Operator: Thank you, and one moment for our next question. Our next question comes from the line of Gary Mobley with Loop Capital. Your line is open. Please go ahead.
Operator: Thank you, and one moment for our next question. Our next question comes from the line of Gary Mobley with Loop Capital. Your line is open. Please go ahead.
Speaker #4: And one moment for our next question. Our next question comes from the line of Gary Mobley with Loop Capital. Your line is open. Please go
Speaker #4: ahead. Good morning, everybody.
Gary Mobley: Good morning, everybody. First of all, let me extend my congratulations on the good top-line execution. If we nitpick on any, you know, anything in particular, which is, I guess, is what we're paid to do, you know, it might be the OpEx discipline. I understand that you guys need to reward yourselves for, for execution, and hence the variable compensation recognition in, in the quarter in the guide. But, you know, as we look into fiscal year 2027, how should we think about, you know, the OpEx growth relative to, to sales growth?
Gary Mobley: Good morning, everybody. First of all, let me extend my congratulations on the good top-line execution. If we nitpick on any, you know, anything in particular, which is, I guess, is what we're paid to do, you know, it might be the OpEx discipline. I understand that you guys need to reward yourselves for, for execution, and hence the variable compensation recognition in, in the quarter in the guide. But, you know, as we look into fiscal year 2027, how should we think about, you know, the OpEx growth relative to, to sales growth?
Speaker #7: First of all, let me extend my congratulations on the good top-line execution. If we nitpick on anything in particular, which is I guess is what we're paid to do, it might be the OPEX discipline.
Speaker #7: I understand that you guys need to reward yourselves for execution, and hence the variable compensation recognition in the quarter and the guide. But as we look into fiscal year '27, how should we think about the OPEX growth relative to sales?
Speaker #7: growth?
Speaker #6: Yeah,
Derek D’Antilio: Yeah, Gary, this is Derek. If you look at our OpEx, you're absolutely right. The increase in the quarter was almost entirely variable compensation, and, you know, without that, we're kind of on our plan for OpEx. The increase in the March quarter is simply the payroll tax resets. As we roll into the June quarter, which I'm not really giving guidance for, but as I've said before, we're built our OpEx to service well over $1 billion. So as we reset our variable compensation in that June quarter, we also have merit increases, you should expect inflationary, only inflationary increases within OpEx.
Derek D’Antilio: Yeah, Gary, this is Derek. If you look at our OpEx, you're absolutely right. The increase in the quarter was almost entirely variable compensation, and, you know, without that, we're kind of on our plan for OpEx. The increase in the March quarter is simply the payroll tax resets. As we roll into the June quarter, which I'm not really giving guidance for, but as I've said before, we're built our OpEx to service well over $1 billion. So as we reset our variable compensation in that June quarter, we also have merit increases, you should expect inflationary, only inflationary increases within OpEx.
Speaker #6: Gary, this is Derek. If you look at our OPEX, you're absolutely right. The increase in the quarter was almost entirely variable compensation. And without that, we're kind of on our plan for OPEX.
Speaker #6: The increase in the March quarter is simply the payroll tax resets. As we roll into the June quarter, which I'm not really giving guidance for, but as I said before, we're built our OPEX to service well over a billion dollars.
Speaker #6: So as we reset our variable increases. You should expect inflationary only inflationary increases within OPEX. And some other things, we've been able to really keep our G&A flat for about five years.
Derek D’Antilio: Some other things, we've been able to really keep our G&A flat for about five years, and those dollars have been reallocated into where you'd want them to be reallocated, into research and development, into some of these high-growth areas like isolated gate drivers, TMR. And over those last three years, we've brought those two acquisitions largely into R&D. So it's really all about reallocation. I expect going forward, after we get through Q4, that OpEx will increase at about the rate of inflation.
Some other things, we've been able to really keep our G&A flat for about five years, and those dollars have been reallocated into where you'd want them to be reallocated, into research and development, into some of these high-growth areas like isolated gate drivers, TMR. And over those last three years, we've brought those two acquisitions largely into R&D. So it's really all about reallocation. I expect going forward, after we get through Q4, that OpEx will increase at about the rate of inflation.
Speaker #6: And those dollars have been reallocated into where you'd want them to be reallocated into research and development, into some of these high-growth areas like isolated gate drivers, TMR, and over those last three years, we've bought those two acquisitions into largely into R&D.
Speaker #6: So it's really all about reallocation. I expect going forward, after we get through Q4, that OPEX will increase at about the rate of
Speaker #6: inflation. Thank
Speaker #7: you. This is my follow-up. I want to ask about the lifetime value of design wins. I have no doubt that you track the lifetime value of all these design wins on a quarter-by-quarter basis.
Gary Mobley: Thank you. As my follow-up, I wanted to ask about, you know, the, the lifetime value of design wins. I have no doubt that you track the lifetime value of all these design wins on a quarter-by-quarter basis. Maybe you're not willing to share, you know, what the, what the value is and, and whatnot, but can you at least give us an idea of what type of revenue growth, you know, supported by the trends that you're seeing in, you know, lifetime value design wins, say, over the last 12 months?
Gary Mobley: Thank you. As my follow-up, I wanted to ask about, you know, the, the lifetime value of design wins. I have no doubt that you track the lifetime value of all these design wins on a quarter-by-quarter basis. Maybe you're not willing to share, you know, what the, what the value is and, and whatnot, but can you at least give us an idea of what type of revenue growth, you know, supported by the trends that you're seeing in, you know, lifetime value design wins, say, over the last 12 months?
Speaker #7: Maybe you're not willing to share what the value is and whatnot, but can you at least give us an idea of what type of revenue growth supported by the trends that you're seeing in lifetime value of design wins say over the last 12 months?
Speaker #6: Yeah, so good question, Gary. This is Mike. So we do track that, of course. A couple of quick points. We're not going to give numbers, but when we look at this year, we're seeing much higher intensity—meaning higher dollar values—for design wins, which is a positive sign for an accelerating business.
Michael Doogue: Yeah, so good question, Gary. This is Mike. So we do track that, of course. A couple of quick points. We're not gonna give numbers, but when we look at this year, we're seeing much higher intensity, meaning higher dollar values for design wins, which is a positive sign for an accelerating business. The funnel that we see, the results of all these design wins, it does support our double-digit sales growth number. What I can say, this is a good plug. You're a good setup person for this one. We're gonna have a deep discussion at our Analyst Day in a few weeks that will actually show you some data and walk you through how our funnel and how the design wins support a robust growth number.
Mike Doogue: Yeah, so good question, Gary. This is Mike. So we do track that, of course. A couple of quick points. We're not gonna give numbers, but when we look at this year, we're seeing much higher intensity, meaning higher dollar values for design wins, which is a positive sign for an accelerating business. The funnel that we see, the results of all these design wins, it does support our double-digit sales growth number. What I can say, this is a good plug. You're a good setup person for this one.
Speaker #6: The funnel that we see, the results of all these design wins, it does support our double-digit sales growth number. What I can say, this is a good plug.
Speaker #6: You're a good setup person for this one. We're going to have a deep discussion at our analyst day in a few weeks. That will actually show you some data, and walk you through how our funnel and how the design wins support a robust growth number.
We're gonna have a deep discussion at our Analyst Day in a few weeks that will actually show you some data and walk you through how our funnel and how the design wins support a robust growth number.
Speaker #6: So we're going to make you wait a few weeks for the numbers. But we appreciate the question, and you'll see a better answer at Analyst Day.
Michael Doogue: So we're gonna make you wait a few weeks for the numbers, but we appreciate the question, and you'll see a better answer at Analyst Day.
So we're gonna make you wait a few weeks for the numbers, but we appreciate the question, and you'll see a better answer at Analyst Day.
Speaker #7: I look forward to it. Thank you, guys.
Gary Mobley: Look forward to it. Thank you, guys.
Gary Mobley: Look forward to it. Thank you, guys.
Michael Doogue: Welcome.
Mike Doogue: Welcome.
Speaker #4: And one moment for our next Welcome. question. Our next question comes from the line of Quinn Bolton with Needham & Company LLC. Your line is open.
Operator: One moment for our next question. Our next question comes from the line of Quinn Bolton with Needham & Company. Your line is open. Please go ahead.
Operator: One moment for our next question. Our next question comes from the line of Quinn Bolton with Needham & Company. Your line is open. Please go ahead.
Speaker #4: Please go ahead.
Speaker #7: Hey, guys. Let me offer my congratulations as well. I guess, Mike, one question I've gotten from investors is: you look at—sort of across the auto analog landscape—some of your peers are sort of back, if not at record auto levels.
[Analyst] (Needham & Company): Hey, guys. Let me offer my congratulations as well, I guess. Mike, one question I've gotten from investors is, as you look at sort of across the auto analog landscape, some of your peers are sort of back, if not at record auto levels. You're kind of still 20% below peak. Why do you think you're slower to get back to peak? And, you know, I guess the real concern is: Do you think there's any evidence of share loss to the broader analog peer group?
Quinn Bolton: Hey, guys. Let me offer my congratulations as well, I guess. Mike, one question I've gotten from investors is, as you look at sort of across the auto analog landscape, some of your peers are sort of back, if not at record auto levels. You're kind of still 20% below peak. Why do you think you're slower to get back to peak? And, you know, I guess the real concern is: Do you think there's any evidence of share loss to the broader analog peer group?
Speaker #7: You're kind of still 20% below peak. Why do you think you're slower to get back to peak? And I guess the real concern is, do you think there's any evidence of share loss to the broader analog peer group?
Speaker #6: Yeah. Thanks for the question, Quinn. So no, we don't think there's any evidence of share loss. In fact, we feel like we're driving the opposite.
Michael Doogue: Yeah, thanks for the question, Quinn. So no, we don't think there's any evidence of share loss. In fact, we feel like we're driving the opposite, so share loss is not even a part of the conversation for us. You know, I think every company has different situations. There were relationships with customers, where you have some customers that were just happy to build much larger than expected levels of inventory. That's what we were impacted by, and now we're working closely with those customers, and we feel good about the growth future of automotive in our e-mobility SAM, 16% CAGR, driven largely on the backs of automotive dollar content gains. So we are at this measured pace that you've been seeing roll out quarter-over-quarter. We continue to increase. We have the bookings and backlog to keep that happening in automotive.
Mike Doogue: Yeah, thanks for the question, Quinn. So no, we don't think there's any evidence of share loss. In fact, we feel like we're driving the opposite, so share loss is not even a part of the conversation for us. You know, I think every company has different situations. There were relationships with customers, where you have some customers that were just happy to build much larger than expected levels of inventory. That's what we were impacted by, and now we're working closely with those customers, and we feel good about the growth future of automotive in our e-mobility SAM, 16% CAGR,
Speaker #6: So share loss is not even a part of the conversation for us. I think every company has different situations. There were relationships with customers where you have some customers that were just happy to build much larger than expected levels of inventory.
Speaker #6: That's what we were impacted by. And now we're working closely with those customers, and we feel good about the growth future of automotive. In our e-mobility SAM, 16% CAGR, driven largely on the backs of automotive dollar content gains.
driven largely on the backs of automotive dollar content gains. So we are at this measured pace that you've been seeing roll out quarter-over-quarter. We continue to increase. We have the bookings and backlog to keep that happening in automotive.
Speaker #6: So we are at this measured pace that you've been seeing roll out quarter over quarter. We continue to increase. We have the bookings and backlog to keep that happening in automotive.
Speaker #6: But I want to reiterate, we don't think share loss is any part of the story. When we tell Allegro's automotive story, in fact, again, ours is one of share
Michael Doogue: But I want to reiterate, we don't think share loss is any part of the story when we tell Allegro's automotive story. In fact, again, ours is one of share gain.
But I want to reiterate, we don't think share loss is any part of the story when we tell Allegro's automotive story. In fact, again, ours is one of share gain.
Quinn Bolton: No, thank you for that. And then, Derek, I guess just, you know, looking at the variable comp, usually as you go into the next fiscal year, that resets. You talked about March, ticking higher because of FICA and payroll taxes. I guess, is there any opportunity for a step down in OpEx, once you get into the June quarter? Or is 81 sort of the right base to be thinking about as we head into June, and as you said, to grow that base at a sort of inflationary rate, sort of on a sequential basis through the year?
Quinn Bolton: No, thank you for that. And then, Derek, I guess just, you know, looking at the variable comp, usually as you go into the next fiscal year, that resets. You talked about March, ticking higher because of FICA and payroll taxes. I guess, is there any opportunity for a step down in OpEx, once you get into the June quarter? Or is 81 sort of the right base to be thinking about as we head into June, and as you said, to grow that base at a sort of inflationary rate, sort of on a sequential basis through the year?
Speaker #7: But no, thank you for that. gain. the variable comp, usually as you go into the next fiscal year, that resets. You talked about March ticking higher.
Speaker #7: And then, Derek, I guess just looking at
Speaker #7: Because of FICE and payroll taxes, I guess, is there any opportunity for a step down in OPEX once you get into the June quarter?
Speaker #7: Or is 81 sort of the right pace to be thinking about as we head into June? And as you said, grow that base at a sort of inflationary rate sort of on a sequential basis through the year?
Speaker #6: Yeah, Quinn, absolutely. So what I talked to earlier to Gary about is I expect year over year inflationary increases in OPEX. So mathematically, as we get past this March quarter, there'll be a couple of million dollars step down in OPEX.
Derek D’Antilio: Yeah, Quinn, absolutely. So what I talked to earlier to Gary about is I expect year-over-year inflationary increases in OpEx. So mathematically, as we get past this March quarter, there'll be a $2 million step-down in OpEx. One, as we reset variable compensation, offsetting that is merit increases that happen in that June quarter. But net-net, I expect OpEx to be marginally down in that June quarter, and then growing from an inflationary after that.
Derek D’Antilio: Yeah, Quinn, absolutely. So what I talked to earlier to Gary about is I expect year-over-year inflationary increases in OpEx. So mathematically, as we get past this March quarter, there'll be a $2 million step-down in OpEx. One, as we reset variable compensation, offsetting that is merit increases that happen in that June quarter. But net-net, I expect OpEx to be marginally down in that June quarter, and then growing from an inflationary after that.
Speaker #6: One, as we reset variable compensation, offsetting that is merit increases that happen in that June quarter. But net net, I expect OPEX to be marginally down in that June quarter.
Speaker #6: And then growing from an inflationary after that.
Speaker #7: Okay. Thank you for the clarification, Derek.
Quinn Bolton: Okay, thank you for the clarification, Derek.
Quinn Bolton: Okay, thank you for the clarification, Derek.
Derek D’Antilio: You're welcome.
Derek D’Antilio: You're welcome.
Speaker #4: And one You're welcome. moment for our next question. Our next question comes from the line of Chris Castle with Wolf Research. Your line is open.
Operator: One moment for our next question. Our next question comes from the line of Chris Caso with Wolfe Research. Your line is open. Please go ahead.
Operator: One moment for our next question. Our next question comes from the line of Chris Caso with Wolfe Research. Your line is open. Please go ahead.
Speaker #4: Please go ahead.
Speaker #8: Yeah. Thank you. Good morning. I want to talk a little bit more about the data center business. And how you're thinking about growth in that going forward.
Chris Caso: Yeah, thank you. Good morning. I want to talk a little bit more about the data center business and how you're thinking about growth in that going forward. And I guess there's two aspects to that business. One is the fan business, which is existing, and then some of the other things you're layering on top of that. You know, for that existing business, you know, should we expect that that's growing, you know, sort of at or a little above a rate of what we're expecting for that data center business, and then we're growing on top of that? Just maybe just some clarification on how you're thinking about that growth going forward.
Chris Caso: Yeah, thank you. Good morning. I want to talk a little bit more about the data center business and how you're thinking about growth in that going forward. And I guess there's two aspects to that business. One is the fan business, which is existing, and then some of the other things you're layering on top of that. You know, for that existing business, you know, should we expect that that's growing, you know, sort of at or a little above a rate of what we're expecting for that data center business, and then we're growing on top of that? Just maybe just some clarification on how you're thinking about that growth going forward.
Speaker #8: And I guess there are two aspects to that business. One is the fan business, which is existing, and then some of the other things you're layering on top of that.
Speaker #8: For that existing business, should we expect that that's growing sort of at or a little above the rate of what we're expecting for that data center business?
Speaker #8: And then we're growing on top of that. Maybe just some clarification on how you're thinking about that growth going
Speaker #8: forward. Absolutely, Chris.
Michael Doogue: Absolutely, Chris. This is Mike. So good question. So as we all know, Data Center is a growth market. It is for us as well. So when we look at profiling our business, we expect the business to grow at sort of a typical market rate with a CAGR north of 20%, at least on a short-term basis. And as you're- you've suggested, we have a growing dollar content story as well, so we have the capability to grow higher than that. So we think it will be a robust growth business for Allegro for many quarters to come. One thing I want to point out, we've been getting a lot of questions that there have been comments and releases about increased prevalence of liquid cooling.
Mike Doogue: Absolutely, Chris. This is Mike. So good question. So as we all know, Data Center is a growth market. It is for us as well. So when we look at profiling our business, we expect the business to grow at sort of a typical market rate with a CAGR north of 20%, at least on a short-term basis. And as you're- you've suggested, we have a growing dollar content story as well, so we have the capability to grow higher than that. So we think it will be a robust growth business for Allegro for many quarters to come. One thing I want to point out,
Speaker #6: This is Mike. So good question. So as we all know, data center is a growth market. It is for us as well. So when we look at profiling our business, we expect the business to grow at sort of the typical market rate with a CAGR north of 20%, at least on a short-term basis.
Speaker #6: And as you've suggested, we have a growing dollar content story as well. So we have the capability to grow higher than that. So we think it will be a robust growth business for Allegro for many quarters to come.
Speaker #6: One thing I want to point out, we've been getting a lot of questions that there have been comments and releases about increased prevalence of liquid cooling we believe that the dollar content expansion story we have in data center, which I'll share in a minute, holds true, even with all these new levels of liquid cooling architectures out there.
we've been getting a lot of questions that there have been comments and releases about increased prevalence of liquid cooling.
Michael Doogue: We believe that the dollar content expansion story we have in data center, which I'll share in a minute, holds true even with all these new levels of liquid cooling architectures out there. So if you look in our investor presentation today, you'll see our dollar content opportunity per rack for Allegro at around $150 today, growing to $425 in the future. And we maintain those numbers even in the face of increased liquid cooling. There's just a lot of potential for Allegro products in the data center, so it will remain a growth story.
We believe that the dollar content expansion story we have in data center, which I'll share in a minute, holds true even with all these new levels of liquid cooling architectures out there. So if you look in our investor presentation today, you'll see our dollar content opportunity per rack for Allegro at around $150 today, growing to $425 in the future. And we maintain those numbers even in the face of increased liquid cooling. There's just a lot of potential for Allegro products in the data center, so it will remain a growth story.
Speaker #6: So if you look in our investor presentation today, you'll see our dollar content opportunity per rack for Allegro at around 150 dollars today. Growing to 425 dollars in the future.
Speaker #6: And we maintain those numbers even in the face of increased liquid cooling. There's just a lot of potential for Allegro products in the data center.
Speaker #6: So it will remain a growth story.
Speaker #8: Thank you. As a follow-up, and this is something I'm sure you're going to touch on the analyst day, but maybe I'll ask a preview question.
Chris Caso: Thank you. As a follow-up, and this is something I'm sure you're gonna touch on, on the, at the Analyst Day, but, I'll maybe ask a preview question. With regard to the operating leverage that you folks would have in recovery, and, you know, not just for a quarter or two, but, you know, as we look out, like, kind of over the next, you know, two, three years or so, you know, what should we expect with regard to operating leverage? And I mean, one is the ability to absorb some of the fixed costs on the gross margin side and, you know, OpEx growth as a, you know, in, in comparison to the revenue growth.
Chris Caso: Thank you. As a follow-up, and this is something I'm sure you're gonna touch on, on the, at the Analyst Day, but, I'll maybe ask a preview question. With regard to the operating leverage that you folks would have in recovery, and, you know, not just for a quarter or two, but, you know, as we look out, like, kind of over the next, you know, two, three years or so, you know, what should we expect with regard to operating leverage? And I mean, one is the ability to absorb some of the fixed costs on the gross margin side and, you know, OpEx growth as a, you know, in, in comparison to the revenue growth.
Speaker #8: With regard to the operating leverage that you folks would have in recovery, and not just for a quarter or two, but as we look out kind of over the next two, three years or so, what should we expect with regard to operating leverage?
Speaker #8: And I mean, one is the ability to absorb some of the fixed costs in the gross margin side and OPEX growth as a comparison to the revenue
Speaker #8: growth. Yeah, Chris.
Derek D’Antilio: Yeah, Chris. So this is Derek. So you can already see it in FY 2026, right? If you use the midpoint of our Q4 guidance, the sales growth is expected to be just over 20%, and on that, we'll more than double our non-GAAP EPS. That's all operating leverage from two things. One, that's that 60% drop through on gross margin, where gross margins at the midpoint of Q4 are improving 440 basis points above the trough four quarters ago. And then two, as I mentioned, we'll be pretty disciplined, continue to be very disciplined on OpEx and reallocation. And remember, we did $1.048 billion in revenue in FY 2024 with the fixed cost that we have in the COGS and also the OpEx that we have. So there's significant operating leverage in the model.
Derek D’Antilio: Yeah, Chris. So this is Derek. So you can already see it in FY 2026, right? If you use the midpoint of our Q4 guidance, the sales growth is expected to be just over 20%, and on that, we'll more than double our non-GAAP EPS. That's all operating leverage from two things. One, that's that 60% drop through on gross margin, where gross margins at the midpoint of Q4 are improving 440 basis points above the trough four quarters ago. And then two, as I mentioned, we'll be pretty disciplined, continue to be very disciplined on OpEx and reallocation.
Speaker #6: So this is Derek. So you can already see in an FY26, right? If you use the midpoint of our Q4 guidance, the sales growth is expected to be just over 20%.
Speaker #6: And on that, we'll more than double our non-GAAP EPS. That's all operating leverage from two things. One, that's that 60% drop through on gross margin, where gross margins at the midpoint of Q4 are improving 440 basis points above the trough four quarters ago.
Speaker #6: And then two, as I mentioned, we'll be pretty disciplined, continue to be very disciplined on OPEX and reallocation. And remember, we did 1048 billion in revenue in FY24 with the fixed costs that we have in the COGS and also the OPEX that we have.
And remember, we did $1.048 billion in revenue in FY 2024 with the fixed cost that we have in the COGS and also the OpEx that we have. So there's significant operating leverage in the model.
Speaker #6: So the significant operating leverage in the model.
Speaker #8: Thank you.
Chris Caso: Thank you.
Chris Caso: Thank you.
Speaker #6: You're welcome.
Derek D’Antilio: You're welcome.
Derek D’Antilio: You're welcome.
Speaker #4: Thank you. One moment for our next question. Our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open. Please go ahead.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open. Please go ahead.
Speaker #4: Please go ahead.
Vivek Arya: Thanks for taking my question. For the first one, I just wanted to dig into the industrial segment. So first, on the data center, if you could quantify how much it was as a percentage of sales in December. I think in the past you said it was about 8% for the September quarter, I believe. So how much, how large was it in December? And then, outside of the data center, what trends, Mike, are you seeing in the rest of your industrial business? You know, recently we have seen very positive commentary from the likes of, you know, TI and Microchip and others. So I'm curious, what are you seeing outside of the data center in your industrial segment?
Speaker #9: Thanks for taking my question. For the first one, I just wanted to dig into the industrial segment. So first on the data center, if you could quantify how much it was as a percentage of sales in December.
Vivek Arya: Thanks for taking my question. For the first one, I just wanted to dig into the industrial segment. So first, on the data center, if you could quantify how much it was as a percentage of sales in December. I think in the past you said it was about 8% for the September quarter, I believe. So how much, how large was it in December? And then, outside of the data center, what trends, Mike, are you seeing in the rest of your industrial business? You know, recently we have seen very positive commentary from the likes of, you know, TI and Microchip and others.
Speaker #9: I think in the past, you said it was about 8% for the September quarter, I believe. So how large was it in December? And then outside of the data center, what trends, Mike, are you seeing in the rest of your very positive commentary from the likes industrial business?
Speaker #9: Recently, we have seen of TI and Microchip and others. So I'm curious, what are you seeing outside of the data center in your industrial
So I'm curious, what are you seeing outside of the data center in your industrial segment?
Speaker #6: Sure.
Michael Doogue: Sure. Thanks, Vivek. On the first one, that, that's easy. I did say in my prepared remarks that the data center business was 10% of total sales for Allegro in the quarter, so you see a nice increase from 8% last quarter. Any, any further questions on that, Vivek?
Mike Doogue: Sure. Thanks, Vivek. On the first one, that, that's easy. I did say in my prepared remarks that the data center business was 10% of total sales for Allegro in the quarter, so you see a nice increase from 8% last quarter. Any, any further questions on that, Vivek?
Speaker #6: Thanks, Vivek. The first segment? one, that's easy. I did say in my prepared remarks that the data center business was 10% of total sales for Allegro in the quarter.
Speaker #6: So you see a nice increase from 8% last quarter. Any further questions on that,
Speaker #6: Vivek? And what are you expecting for March
Vivek Arya: And what are you expecting for March, if you could give us that?
Vivek Arya: And what are you expecting for March, if you could give us that?
Speaker #9: if you could give us that?
Speaker #6: Yeah. We're not guiding forward other than I sort of gave the answer just a few questions ago that if you look at the growth rate of data center, we expect and we believe we have the potential to grow at about that growth rate going forward.
Michael Doogue: Yeah, we're not guiding forward other than I sorta gave the answer just a few questions ago, that if you look at the growth rate of data center, you know, we expect, and we believe we have the potential to grow at about that growth rate going forward. Moving on to the trends that we're seeing, you know, there's an interesting storyline here. So Allegro developed a large array of unique technologies, whether it's precision sensing, 48-volt, 800-volt, isolated gate drivers. And as we were developing that tech, we had automotive at the front of our mind, but we knew that all of that technology was going over into the industrial market. So 48-volt technologies went to the data center. It's actually roughly 48 volts is the preferred voltage rail for humanoid robots, for example.
Mike Doogue: Yeah, we're not guiding forward other than I sorta gave the answer just a few questions ago, that if you look at the growth rate of data center, you know, we expect, and we believe we have the potential to grow at about that growth rate going forward. Moving on to the trends that we're seeing, you know, there's an interesting storyline here. So Allegro developed a large array of unique technologies, whether it's precision sensing, 48-volt, 800-volt, isolated gate drivers. And as we were developing that tech, we had automotive at the front of our mind,
Speaker #6: Moving on to the trends that we're seeing, there's an interesting storyline here. So, Allegro developed a large array of unique technologies—whether it's precision sensing, 48-volt, 800-volt isolated gate drivers—and as we were developing that tech, we had automotive at the front of our mind, but we knew that all of that technology was going over into the industrial market.
but we knew that all of that technology was going over into the industrial market. So 48-volt technologies went to the data center. It's actually roughly 48 volts is the preferred voltage rail for humanoid robots, for example.
Speaker #6: So, 48-volt technologies went to the data center. It's actually roughly 48 volts that is the preferred voltage rail for humanoid robots, for example. Isolated gate drivers are all throughout the EV with the 800-volt battery.
Michael Doogue: Isolated gate drivers are all throughout the EV with the 800-volt battery. They're all throughout the data center. So from a general trend perspective, we see very positive signals from the industrial market. It really matches the unique technologies that we have very, very well. So we see very good customer activity, design and activity in the industrial market. Perhaps your question was more in the short term in terms of the health of customers. Certainly, we see robust growth in our data center customers. Beyond that, it certainly, we see growth from the broader swath of industrial customers, but not at the same level of data center. The rest of the market is at a more muted growth level, but it is growing.
Isolated gate drivers are all throughout the EV with the 800-volt battery. They're all throughout the data center. So from a general trend perspective, we see very positive signals from the industrial market. It really matches the unique technologies that we have very, very well. So we see very good customer activity, design and activity in the industrial market. Perhaps your question was more in the short term in terms of the health of customers. Certainly, we see robust growth in our data center customers. Beyond that, it certainly,
Speaker #6: They're all throughout the data center. So from a general trend perspective, we see very positive signals from the industrial market. It really matches the unique technologies that we have very, very well.
Speaker #6: So we see very good customer activity, design and activity in the industrial market. Perhaps your question was more in the short-term in terms of the health of customers.
Speaker #6: Certainly, we see robust growth in our data center customers. Beyond that, it certainly we see growth from the broader swath of industrial customers. But not at the same level of data center.
we see growth from the broader swath of industrial customers, but not at the same level of data center. The rest of the market is at a more muted growth level, but it is growing.
Speaker #6: The rest of the market is at a more muted growth level, but it is
Speaker #6: growing. Got it.
Vivek Arya: Got it. For my follow-up, maybe one for Derek on gross margins. So the last time you were at these revenue levels, you know, gross margins were in the mid-fifties. I realize that was an extraordinary time, but I was just hoping, Derek, you would contrast, you know, where you are now versus the situation then. And more importantly, what are the next levers you have to take gross margins towards your target model? Is it volume? Is it mix? Is it utilization? Like, just what does the roadmap look like from here in the near to medium term? Thank you.
Vivek Arya: Got it. For my follow-up, maybe one for Derek on gross margins. So the last time you were at these revenue levels, you know, gross margins were in the mid-fifties. I realize that was an extraordinary time, but I was just hoping, Derek, you would contrast, you know, where you are now versus the situation then. And more importantly, what are the next levers you have to take gross margins towards your target model? Is it volume? Is it mix? Is it utilization? Like, just what does the roadmap look like from here in the near to medium term? Thank you.
Speaker #9: For my follow-up, maybe one for Derek on gross margins. So the last time you were at these revenue levels, gross margins were in the mid-50s.
Speaker #9: I realize that was an extraordinary time. But I was just hoping, Derek, you would contrast where you are now versus the situation then. And more importantly, what are the next levers you have to take gross margins towards your target model?
Speaker #9: Is it volume? Is it mix? Is it utilization? Just what does the roadmap look like from here in the near to medium term? Thank you.
Speaker #6: Sure. When gross margins were at their peak, right, obviously volumes were at their peak and we were at peak in terms of pricing in the industry and those sort of things, both of those things have come down over the last few years.
Derek D’Antilio: Sure. When gross margins were at their peak, right, obviously, volumes were at their peak, and we were at peak in terms of pricing in the industry and those sort of things. Both of those things have come down over the last few years, while costs have gone up, right? So our costs have gone up. We continue now to start to get cost mitigations or cost reductions from our vendors, which is really, really helpful. Going forward, what I'd expect really is the large majority of it is gonna be led by leverage, as we talked about improving 440 basis points just over the last 12 months. That's all leverage. The second piece is factory efficiencies. We continue to do a lot of things in our own factory to be far more efficient.
Derek D’Antilio: Sure. When gross margins were at their peak, right, obviously, volumes were at their peak, and we were at peak in terms of pricing in the industry and those sort of things. Both of those things have come down over the last few years, while costs have gone up, right? So our costs have gone up. We continue now to start to get cost mitigations or cost reductions from our vendors, which is really, really helpful. Going forward, what I'd expect really is the large majority of it is gonna be led by leverage, as we talked about improving 440 basis points just over the last 12 months.
Speaker #6: While costs have gone up, right? So our costs have gone up. We continue now to start to get cost mitigations or cost reductions from our vendors, which is really, really helpful.
Speaker #6: Going forward, what I'd expect really is the large majority of it is going to be led by leverage, as we talked about improving 440 basis points just over the last 12 months.
Speaker #6: That's all leverage. The second piece is factory efficiencies. We continue to do a lot of things in our own factory. We fire more efficient.
That's all leverage. The second piece is factory efficiencies. We continue to do a lot of things in our own factory to be far more efficient.
Speaker #6: And then the third piece is maintain that very healthy variable contribution margin between 60 and 65 percent that we've talked about in sort of held in that range, generally speaking, year over year, since we've been public.
Derek D’Antilio: And then the third piece is to maintain that very healthy variable contribution margin between 60% and 65% that we've talked about and sort of held in that range, generally speaking, year-over-year, since we've been public. That requires, you know, continued more mix of industrial, these higher margin parts that we keep releasing with TMR and some of these other things. It requires geographic mix. It requires cost reductions, product cost reductions that Mike's been talking about with some things like copper to gold and gold to copper and those sort of things, and then managing ASPs, which I think we're doing quite well this year.
And then the third piece is to maintain that very healthy variable contribution margin between 60% and 65% that we've talked about and sort of held in that range, generally speaking, year-over-year, since we've been public. That requires, you know, continued more mix of industrial, these higher margin parts that we keep releasing with TMR and some of these other things. It requires geographic mix. It requires cost reductions, product cost reductions that Mike's been talking about with some things like copper to gold and gold to copper and those sort of things, and then managing ASPs, which I think we're doing quite well this year.
Speaker #6: That requires continued more mix of industrial, these higher margin parts that we keep releasing, with TMR and some of these other things. It requires geographic mix.
Speaker #6: It requires cost reductions, product cost reductions that Mike's been talking about with some things like copper to gold and gold to copper and those sort of things.
Speaker #6: And then managing ASPs, which I think we're doing quite well this
Speaker #6: year. Thank
Speaker #9: you.
Vivek Arya: Thank you.
Vivek Arya: Thank you.
Derek D’Antilio: You're welcome.
Derek D’Antilio: You're welcome.
Speaker #4: One moment for You're welcome. our next question. Our next question is from the line of Joshua Buck Alter with TD Cowan. Your line is open.
Operator: One moment for our next question. Our next question is from the line of Joshua Buchalter with TD Cowen. Your line is open. Please go ahead.
Operator: One moment for our next question. Our next question is from the line of Joshua Buchalter with TD Cowen. Your line is open. Please go ahead.
Speaker #4: Please go ahead.
Speaker #8: Hey, guys. Thanks for taking my question, and congrats on the results and guide. Maybe following up a bit on that last one, it seems like there's a lot of optimism in particular on current sensing in both auto and data center and industrial.
Joshua Buchalter: Hey, guys. Thanks for taking my question, and congrats on the results and guide. Maybe following up a bit on that last one, you know, it seems like there's a lot of optimism, in particular, around current sensing in, in both auto and, you know, data center, and industrial. Any way to sort of help us better understand how much of this is sort of the legacy Hall effect portfolio versus some of the TMR stuff, layering in, in particular, the IP you got from Crocus? Thank you.
Joshua Buchalter: Hey, guys. Thanks for taking my question, and congrats on the results and guide. Maybe following up a bit on that last one, you know, it seems like there's a lot of optimism, in particular, around current sensing in, in both auto and, you know, data center, and industrial. Any way to sort of help us better understand how much of this is sort of the legacy Hall effect portfolio versus some of the TMR stuff, layering in, in particular, the IP you got from Crocus? Thank you.
Speaker #8: Any way to sort of help us better understand how much of this is sort of the legacy hall effect portfolio versus some of the TMR stuff layering in, in particular, the IP you got from Crocus?
Speaker #8: Thank you.
Speaker #6: Thanks, Josh. This is Mike. And I'm always happy to talk about current sensors for lots of reasons. So when we look at the growth of magnetic sensors, current sensing, we believe that's the highest area of growth, both for the market and for us.
Michael Doogue: Thanks, Josh. This is Mike, and I'm always happy to talk about current sensors for lots of reasons. So when we look at the growth of magnetic sensors, current sensing, we believe that's the highest area of growth, both for the market and for us. There's a number of reasons for that. When you think about power management in general, whether it's cars, electrifying power levels in the data center, robotics, you have these... Even energy infrastructure, there's so many areas of power conversion, and people want to measure current to have active information for the control of this power conversion step. We offer products, whether they're Hall or TMR, they can increase the efficiency of a power conversion system.
Mike Doogue: Thanks, Josh. This is Mike, and I'm always happy to talk about current sensors for lots of reasons. So when we look at the growth of magnetic sensors, current sensing, we believe that's the highest area of growth, both for the market and for us. There's a number of reasons for that. When you think about power management in general, whether it's cars, electrifying power levels in the data center, robotics, you have these... Even energy infrastructure, there's so many areas of power conversion, and people want to measure current to have active information for the control of this power conversion step.
Speaker #6: There's a number of reasons for that. When you think about power management in general, whether it's cars, electrifying, power levels in the data center, robotics, you have these even energy infrastructure.
Speaker #6: There's so many areas of power conversion. And people want to measure current to have active information for the control of this power conversion step.
Speaker #6: We offer products, whether they're hall or TMR, they can increase the efficiency of a power conversion system. We were the first company to come to market with these innovative magnetic current sensors.
We offer products, whether they're Hall or TMR, they can increase the efficiency of a power conversion system.
Michael Doogue: We were the first company to come to market with these innovative magnetic current sensors, and we have continued to just layer innovation upon innovation into the current sensor space. In terms of the predominance of revenues today, it's mostly Hall today, and we've actually been pushing the boundaries of efficiency gains through optimized packaging, through higher bandwidth or speed of operation. So we were leading the market with those, in terms of those attributes, with Hall sensors and getting increased levels of design wins. We talked recently about our 10MHz TMR current sensor, a newer product for Allegro. This now starts to take the current sensor capability beyond what can be achieved with Hall ICs, and it is actually very important to have a fast current sensor to make power conversion more efficient.
We were the first company to come to market with these innovative magnetic current sensors, and we have continued to just layer innovation upon innovation into the current sensor space. In terms of the predominance of revenues today, it's mostly Hall today, and we've actually been pushing the boundaries of efficiency gains through optimized packaging, through higher bandwidth or speed of operation. So we were leading the market with those, in terms of those attributes, with Hall sensors and getting increased levels of design wins.
Speaker #6: And we have continued to just layer innovation upon innovation into the current sensor space. In terms of the predominance of revenues today, it's mostly hall today.
Speaker #6: And we've actually been pushing the boundaries of efficiency gains through optimized packaging, through higher bandwidth or speed of operation. So we were leading the market with those in terms of those attributes with hall sensors and getting increased levels of design wins.
Speaker #6: We talked recently about our 10 megahertz TMR current sensor, a newer product for Allegro. This now starts to take the current sensor capability beyond what can be achieved with hall ICs.
We talked recently about our 10MHz TMR current sensor, a newer product for Allegro. This now starts to take the current sensor capability beyond what can be achieved with Hall ICs, and it is actually very important to have a fast current sensor to make power conversion more efficient.
Speaker #6: And it is actually very important to have a fast current sensor to make power conversion more efficient. So we're starting to accelerate activity with customers, accelerate share gains through the use of TMR and current sensing.
Michael Doogue: So we're starting to accelerate activity with customers, accelerate share gains through the use of TMR and current sensing, and that's actually a strategy or a playbook that we plan to step and repeat in other areas of our sensor business as well.
So we're starting to accelerate activity with customers, accelerate share gains through the use of TMR and current sensing, and that's actually a strategy or a playbook that we plan to step and repeat in other areas of our sensor business as well.
Speaker #6: And that's actually a strategy or a playbook that we plan to step and repeat in other areas of our sensor business as well.
Speaker #8: Thank you for all the detail there and glad you could talk about your favorite topic. Maybe one for Derek: you guys have done a nice job delivering both by paying down debt and by having EBITDA move higher.
Joshua Buchalter: Thank you for all the detail there, and glad you could talk about your favorite topic. Maybe one for Derek. You guys have done a nice job delevering, both by paying down debt and by having EBITDA move higher. Saw that you didn't pay down any in the December quarter for the first time in a while. Are you guys comfortable with the amount of debt on the balance sheet here? And, you know, how should we think about capital allocation going forward? Thank you both.
Joshua Buchalter: Thank you for all the detail there, and glad you could talk about your favorite topic. Maybe one for Derek. You guys have done a nice job delevering, both by paying down debt and by having EBITDA move higher. Saw that you didn't pay down any in the December quarter for the first time in a while. Are you guys comfortable with the amount of debt on the balance sheet here? And, you know, how should we think about capital allocation going forward? Thank you both.
Speaker #8: Saw that you didn't pay down any in the December quarter for the first time in a while. Are you guys comfortable with the amount of debt on the balance sheet here?
Speaker #8: And how should we think about capital allocation going forward? Thank you both.
Speaker #6: Yeah. Thanks, Josh. Yeah. So we built a little bit of cash this quarter. We built about $40 million of cash end of the quarter with 163 million, which interestingly kind of equates to about six months' worth of sort of OPEX plus CAPEX, which is just one benchmark for liquidity.
Derek D’Antilio: Yeah, thanks, Josh. Yeah, so we built a little bit of cash this quarter. We built about $40 million of cash, end of the quarter with $163 million, which interestingly, kind of equates to about 6 months worth of sort of OpEx plus CapEx, which is just one benchmark for liquidity. We have an untapped line of credit for $256 million, which we don't plan to tap. So I feel like we have a good amount of liquidity, which is obviously one of our priorities. We have $285 million in term loan exiting the quarter, and we refinanced that here to a fairly tight, so SOFR plus 175. You know, exiting Q4 at the midpoint of our guidance, the net leverage ratio is just slightly below 1 to 1.
Derek D’Antilio: Yeah, thanks, Josh. Yeah, so we built a little bit of cash this quarter. We built about $40 million of cash, end of the quarter with $163 million, which interestingly, kind of equates to about 6 months worth of sort of OpEx plus CapEx, which is just one benchmark for liquidity. We have an untapped line of credit for $256 million, which we don't plan to tap. So I feel like we have a good amount of liquidity, which is obviously one of our priorities. We have $285 million in term loan exiting the quarter, and we refinanced that here to a fairly tight, so SOFR plus 175.
Speaker #6: We have an untapped line of credit for $256 million, which we don't plan to tap. So I feel like we have a good amount of liquidity, which is obviously one of our priorities.
Speaker #6: We have 285 million in term loan exiting the quarter. And we refinanced that here to a fairly tight SOFR plus 175. Exiting Q4 at the midpoint of our guidance, the net leverage ratio is just slightly below one to one.
You know, exiting Q4 at the midpoint of our guidance, the net leverage ratio is just slightly below 1 to 1.
Speaker #6: There's no metric for where we're trying to get to. I think that's a pretty healthy number. We will continue to balance liquidity on the balance sheet with paying down debt because I think that's just a creative to EPS and it moves some of the enterprise value, of course, to the shareholders.
Derek D’Antilio: There's no metric for where we're trying to get to. I think that's a pretty healthy number. We will continue to balance liquidity on the balance sheet with paying down debt, because I think that's just accretive to EPS, and it moves some of the enterprise value, of course, to the shareholders. So we'll continue to look at that each quarter.
There's no metric for where we're trying to get to. I think that's a pretty healthy number. We will continue to balance liquidity on the balance sheet with paying down debt, because I think that's just accretive to EPS, and it moves some of the enterprise value, of course, to the shareholders. So we'll continue to look at that each quarter.
Speaker #6: So we'll continue to look at that each quarter.
Speaker #8: Thank you.
Joshua Buchalter: Thank you.
Joshua Buchalter: Thank you.
Speaker #6: You're Thank you.
Speaker #6: welcome.
Derek D’Antilio: You're welcome.
Derek D’Antilio: You're welcome.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Vijay Rakesh with Mizuho. Your line is open. Please go ahead.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Vijay Rakesh with Mizuho. Your line is open. Please go ahead.
Speaker #4: One moment for our next question. Our next question comes from the line of VJ Rakesh with Mizuho. Your line is open. Please go ahead.
Speaker #9: Yeah. Hi, thanks. Good quarter, Mike, and Derek. Just on the e-mobility side, obviously nice step up in the December quarter. Was that a pull in there, or do you see that growing at kind of similar rates as you go through 2026?
Vijay Rakesh: Yeah, hi, thanks. Good quarter, Mike and Derek. Just on the e-mobility side, obviously, nice step up in the December quarter. Was there any pull-in there, or do you see that, you know, growing at kind of similar rates as you go through 2026? I know you mentioned big driver was ADAS and the current sensing, but just wondering how you look at that through 2026. Thanks. And a follow-up.
Vijay Rakesh: Yeah, hi, thanks. Good quarter, Mike and Derek. Just on the e-mobility side, obviously, nice step up in the December quarter. Was there any pull-in there, or do you see that, you know, growing at kind of similar rates as you go through 2026? I know you mentioned big driver was ADAS and the current sensing, but just wondering how you look at that through 2026. Thanks. And a follow-up.
Speaker #9: I know you mentioned big driver was ADAS. And the current sensing, but just wondering how you look at that through 2026. Thanks. And a
Speaker #9: follow-up. Thanks, VJ.
Michael Doogue: Thanks, Vijay. This is Mike. Yeah, so, you know, sometimes new programs pop, so I don't talk too much about quarter-to-quarter dynamics. But in general, in e-mobility, yes, we've had a lot of strength in ADAS. Recently, we see a lot of wins as well in the xEV space. You know, we see going forward a 16% growth rate for our SAM in the e-mobility space. So we continue to believe this will be a long-term growth driver, and we have the design wins to back it up, both across ADAS and EV.
Mike Doogue: Thanks, Vijay. This is Mike. Yeah, so, you know, sometimes new programs pop, so I don't talk too much about quarter-to-quarter dynamics. But in general, in e-mobility, yes, we've had a lot of strength in ADAS. Recently, we see a lot of wins as well in the xEV space. You know, we see going forward a 16% growth rate for our SAM in the e-mobility space. So we continue to believe this will be a long-term growth driver, and we have the design wins to back it up, both across ADAS and EV.
Speaker #6: This is Mike. Yeah. So sometimes new programs pop. So I don't talk too much about quarter to quarter dynamics. But in general, in e-mobility, yes, we've had a lot of strength in ADAS recently.
Speaker #6: We see a lot of wins as well in the XEV space. We see going forward a 16% growth rate for our SAM in the e-mobility space.
Speaker #6: So we continue to believe this will be a long-term growth driver, and we have the design wins to back it up, both across ADAS and
Speaker #6: EV. Got it.
Vijay Rakesh: Got it. And I saw you mentioned robotics in your slide deck. Just wondering, and also you mentioned the remarks that you have been doing the customer engagements in US, Japan, et cetera. Just wondering how you see the revenues there as you look out 2026, 2027, 2028 in terms of mix or dollars. Thanks.
Vijay Rakesh: Got it. And I saw you mentioned robotics in your slide deck. Just wondering, and also you mentioned the remarks that you have been doing the customer engagements in US, Japan, et cetera. Just wondering how you see the revenues there as you look out 2026, 2027, 2028 in terms of mix or dollars. Thanks.
Speaker #9: And I saw you mentioned robotics in your slide deck. Just wondering, and also you mentioned the remarks that you have been doing the customer engagements in US, Japan, etc.
Speaker #9: Just wondering, how are you seeing the revenues there as you look out '26, '27, '28, in terms of mix or dollars?
Speaker #9: Thanks. Yeah,
Speaker #6: absolutely. This is Mike again. So I mentioned sort of the potential unit count in humanoids. And the robotics market is about a lot more than humanoids, but certainly humanoids are where the real dollar content's at.
Michael Doogue: Yeah, absolutely. This is Mike again. So, you know, I mentioned sort of the potential unit count in humanoids, and the robotics market is about a lot more than humanoids, but certainly humanoids are where the real dollar content's at. So as we work with customers, the trend I would say we're seeing is you have customers talking about tens of thousands of robots per year in the near term. Over the next few years, maybe that ramps up to hundreds of thousands of humanoids, and you have some companies which are talking about numbers much bigger than that as well. So we see revenue ramp starting to happen probably two or three years out. It really comes down to how the market develops, but internally, this is how we're looking at it. We are out there talking to the lead robotics manufacturers.
Mike Doogue: Yeah, absolutely. This is Mike again. So, you know, I mentioned sort of the potential unit count in humanoids, and the robotics market is about a lot more than humanoids, but certainly humanoids are where the real dollar content's at. So as we work with customers, the trend I would say we're seeing is you have customers talking about tens of thousands of robots per year in the near term. Over the next few years, maybe that ramps up to hundreds of thousands of humanoids, and you have some companies which are talking about numbers much bigger than that as well.
Speaker #6: So as we work with customers, the trend I would say we're seeing is you have customers talking about tens of thousands of robots per year in the near term.
Speaker #6: Over the next few years, maybe that ramps up to hundreds of thousands of humanoids. And you have some companies which are talking about numbers much bigger than that as well.
Speaker #6: So we see revenue ramp starting to happen probably two or three years out. It really comes down to how the market develops. But internally, this is how we're looking at it.
So we see revenue ramp starting to happen probably two or three years out. It really comes down to how the market develops, but internally, this is how we're looking at it. We are out there talking to the lead robotics manufacturers.
Speaker #6: We are out there talking to the lead robotics manufacturers. I mentioned in the prepared remarks, we've confirmed numerous times 150 sensor sockets for both our position and current sensors in a humanoid robot, up to 50 of our motor drivers.
Michael Doogue: I mentioned in the prepared remarks, we've confirmed numerous times, 150 sensor sockets for both our position and current sensors in a humanoid robot, up to 50 of our motor drivers. So the dollar content is high, but as I said, you'll start to see tens of thousands of robots in the next year, then that ramps to hundreds of thousands, and hopefully we get to millions over the three-year period, but that's really up to the market. We just plan to be prepared for the ramp, and we have ideal technologies and products to support that ramp.
I mentioned in the prepared remarks, we've confirmed numerous times, 150 sensor sockets for both our position and current sensors in a humanoid robot, up to 50 of our motor drivers. So the dollar content is high, but as I said, you'll start to see tens of thousands of robots in the next year, then that ramps to hundreds of thousands, and hopefully we get to millions over the three-year period, but that's really up to the market. We just plan to be prepared for the ramp, and we have ideal technologies and products to support that ramp.
Speaker #6: So the dollar content is high, but as I said, you'll start to see tens of thousands of robots in the next year, then that ramps to hundreds of thousands, and hopefully we get to millions over the three-year period.
Speaker #6: But that's really up to the market. We just plan to be prepared for the ramp, and we have ideal technologies and products to support
Speaker #6: But that's really up to the market. We just plan to be prepared for the ramp, and we have ideal technologies and products to support that ramp.
Derek D’Antilio: And, Vijay, this is Derek. Maybe this touches on some of the OpEx investments, right? What's really nice about this is much of the robotics space, particularly the humanoids, a lot of that is automotive type of customers and automotive customers. So in many cases, it's existing products to existing customers. So we really get to continue to leverage that OpEx and their existing customers, which is probably the best tangential sale you can have.
Derek D’Antilio: And, Vijay, this is Derek. Maybe this touches on some of the OpEx investments, right? What's really nice about this is much of the robotics space, particularly the humanoids, a lot of that is automotive type of customers and automotive customers. So in many cases, it's existing products to existing customers. So we really get to continue to leverage that OpEx and their existing customers, which is probably the best tangential sale you can have.
Speaker #3: And VJ, this is Derek. Maybe this touches on some of the OPEX investments, right? What's really nice about this is much of the robotics space, particularly the humanoids, a lot of that is automotive type of customers and automotive customers.
Speaker #3: So in many cases, it's existing products to existing customers. So we really get to continue to leverage that OPEX and their existing customers, which is probably the best tangential sale you can have.
Speaker #9: Got it. Great. Thanks a lot, Derek and Mike.
Vijay Rakesh: Got it. Great. Thanks a lot, Derek and Mike. Thanks.
Vijay Rakesh: Got it. Great. Thanks a lot, Derek and Mike. Thanks.
Speaker #9: Thanks. You're welcome.
Derek D’Antilio: You're welcome.
Derek D’Antilio: You're welcome.
Speaker #4: Thank you. And one moment for our next question. Our next question comes from the line of Joe Moore with Morgan Stanley. Your line is open.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Joe Moore with Morgan Stanley. Your line is open. Please go ahead.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Joe Moore with Morgan Stanley. Your line is open. Please go ahead.
Speaker #4: Please go ahead.
Speaker #10: Great. Thank you. First, I wanted to follow up. You sort of mentioned average selling prices moving in a good direction. Can you talk about any changes in like-for-like pricing, any difference in how those negotiations are going, customer behavior, anything like that?
Joe Moore: Great. Thank you. First I want to follow up. You, you sort of mentioned average selling prices moving in a good direction. Can you talk about any changes in like-for-like pricing? Any difference in, in how those negotiations are going, customer behavior, anything like that?
Joe Moore: Great. Thank you. First I want to follow up. You, you sort of mentioned average selling prices moving in a good direction. Can you talk about any changes in like-for-like pricing? Any difference in, in how those negotiations are going, customer behavior, anything like that?
Speaker #6: Sure, Joe. This is Mike. So in the prior call, we even talked about pricing dynamics. They stay the same, but I'll repeat them that as we enter calendar year 2026 with our customers, we would normally be looking at a low single-digit reduction in ASPs and I've characterized this year's pricing are very low single-digit environment as one where the reductions reductions.
Michael Doogue: Sure, Joe. This is Mike. So in the prior call, we even talked about pricing dynamics. They stay the same, but I'll repeat them, that as we enter calendar year 2026 with our customers, we would normally be looking at a low single-digit reduction in ASPs, and I've characterized this year's pricing environment as one where the reductions are very low, single-digit reductions. That's for a number of different reasons. I think we're all aware of some of the pricing dynamics from competitors in the marketplace. There have been other signals in terms of... tight supply, et cetera, that allow us to have a more favorable than normal pricing environment as we enter 2026.
Mike Doogue: Sure, Joe. This is Mike. So in the prior call, we even talked about pricing dynamics. They stay the same, but I'll repeat them, that as we enter calendar year 2026 with our customers, we would normally be looking at a low single-digit reduction in ASPs, and I've characterized this year's pricing environment as one where the reductions are very low, single-digit reductions. That's for a number of different reasons. I think we're all aware of some of the pricing dynamics from competitors in the marketplace. There have been other signals in terms of... tight supply, et cetera, that allow us to have a more favorable than normal pricing environment as we enter 2026.
Speaker #6: That's for a number of different reasons. I think we're all aware of some of the pricing dynamics from competitors in the marketplace. There have been other signals in terms of tight supply, etc., that allow us to have a more favorable than normal pricing environment as we enter 2026.
Speaker #6: I will say we do have longer-term contracts with customers that do have some price declines built in. So that is why there's still a very low single-digit decline in pricing, but more favorable in 2026 than historical.
Michael Doogue: I will say we do have longer-term contracts with customers that do have some price declines built in, so that is why there's still a very low single-digit decline in pricing, but more favorable in 2026 than historical.
I will say we do have longer-term contracts with customers that do have some price declines built in, so that is why there's still a very low single-digit decline in pricing, but more favorable in 2026 than historical.
Speaker #10: Great. Thank you for that. And then on the robotics piece, I wanted to ask about that as well. Who should we think of as the major customers there?
Joe Moore: Great. Thank you for that. And then, on the robotics piece, I wanted to ask about that as well. You know, who, who should we think of as the major customers there? You talked about automotive customers, which there's some clear examples of that, but are you seeing the sort of traditional industrial robotics companies make investments in humanoid? And just, you know, is this an evolution from existing robots or an entirely new space? Just how, how do you think about all of that?
Joe Moore: Great. Thank you for that. And then, on the robotics piece, I wanted to ask about that as well. You know, who, who should we think of as the major customers there? You talked about automotive customers, which there's some clear examples of that, but are you seeing the sort of traditional industrial robotics companies make investments in humanoid? And just, you know, is this an evolution from existing robots or an entirely new space? Just how, how do you think about all of that?
Speaker #10: You talked about automotive customers, which there's some clear examples of that. But are you seeing the sort of traditional industrial robotics companies make investments in humanoid and just is this an evolution from existing robots or an entirely new space?
Speaker #10: Just how do you think about all of that?
Speaker #6: Yeah, thanks, Joe. It's Mike. I can't mention names, of course, but unfortunately, the answer to your question is a little bit all of the above, right?
Michael Doogue: Yeah, thanks, Joe. It's Mike. You know, I can't mention names, of course, but unfortunately, the answer to your question is a little bit all of the above, right? I, I think so many of these companies that have motor manufacturing and motor control expertise are looking to get into the humanoid space, and that's fantastic for us because as Derek mentioned, not only do we sell motor drivers to many of the leading motor companies out there, but many of them need position sensor feedback, current sensor feedback. So we see a broad swath of customers, which would include many of the automotive players, but also just major motor manufacturers, some of the bigger industrial companies in general, all trying to dip their toe into the water. And I think there's such an array of robots and so many components in those robots that there's room for various players.
Mike Doogue: Yeah, thanks, Joe. It's Mike. You know, I can't mention names, of course, but unfortunately, the answer to your question is a little bit all of the above, right? I, I think so many of these companies that have motor manufacturing and motor control expertise are looking to get into the humanoid space, and that's fantastic for us because as Derek mentioned, not only do we sell motor drivers to many of the leading motor companies out there, but many of them need position sensor feedback, current sensor feedback. So we see a broad swath of customers,
Speaker #6: I think so many of these companies that have motor manufacturing and motor control expertise are looking to get into the humanoid space. And that's fantastic for us because as Derek mentioned, not only do we sell motor drivers to many of the leading motor companies out there, but many of them need position sensor feedback, current sensor feedback.
Speaker #6: So we see a broad swath of customers which would include many of the automotive players, but also just major motor manufacturers, some of the bigger industrial companies in general all trying to dip their toe into the water.
which would include many of the automotive players, but also just major motor manufacturers, some of the bigger industrial companies in general, all trying to dip their toe into the water. And I think there's such an array of robots and so many components in those robots that there's room for various players.
Speaker #6: And I think there's such an array of robots and so many components in those robots that there's room for various players. But our strategy is just to make sure that we're participating and securing design-ins with the winners, which will probably include some of the new innovative players that we're working with as well.
Michael Doogue: But our strategy is just to make sure that we're participating and securing design wins with the winners, which will probably include some of the new innovative players that we're working with as well. So it's a dynamic space, a very interesting one as well, and we're happy to have such high-dollar content and be participating in the market.
But our strategy is just to make sure that we're participating and securing design wins with the winners, which will probably include some of the new innovative players that we're working with as well. So it's a dynamic space, a very interesting one as well, and we're happy to have such high-dollar content and be participating in the market.
Speaker #6: So it's a dynamic space, a very interesting one as well. And we're happy to have such high dollar content and be participating in the
Speaker #6: market. Great.
Joe Moore: Great. Thank you.
Joe Moore: Great. Thank you.
Speaker #10: Thank
Speaker #10: you. You're
Michael Doogue: You're welcome.
Mike Doogue: You're welcome.
Speaker #3: welcome. Thank
Operator: Thank you. At this time, I'm showing no further questions in the queue. I would now like to hand the conference back to Jalene for closing remarks.
Operator: Thank you. At this time, I'm showing no further questions in the queue. I would now like to hand the conference back to Jalene for closing remarks.
Speaker #4: you. At this time, I'm showing no further questions in the queue. I would now like to hand the conference back to Jalene for closing remarks.
Speaker #1: Thank you, Michelle. This concludes today's call. Thanks to all of you for taking the time to join us this morning. We look forward to seeing you at various investor events in the coming
Jalene Hoover: Thank you, Michelle. This concludes today's call. Thanks to all of you for taking the time to join us this morning. We look forward to seeing you at various investor events in the coming weeks.
Jalene Hoover: Thank you, Michelle. This concludes today's call. Thanks to all of you for taking the time to join us this morning. We look forward to seeing you at various investor events in the coming weeks.
Speaker #1: weeks. This concludes today's conference call.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
