UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-Q
_________________
(Mark One)
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 23, 2022June 30, 2023
or
| | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-39675
_________________
ALLEGRO MICROSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
_________________
| | | | | | | | |
| | |
| Delaware | 46-2405937 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer
Identification No.) |
| | |
| 955 Perimeter Road | |
| Manchester, | New Hampshire | 03103 |
| (Address of principal executive offices) | (Zip Code) |
(603) 626-2300
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
_________________
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock, par value $0.01 per share | | ALGM | | The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
| Large accelerated filer | | ☒ | Accelerated filer | ☐ |
| Non-accelerated filer | | ☐ | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 24, 2022,August 1, 2023, the registrant had 191,308,141 shares192,376,420 shares of common stock, $0.01 par value $0.01 per share, outstanding.
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, the impact of the ongoing and global COVID-19 pandemic on our business, prospective products and the plans and objectives of management for future operations, may be forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
Statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, including, among others, statements regarding the liquidity, growth and profitability strategies and factors and trends affecting our business are forward-looking statements. Without limiting the foregoing, in some cases, you can identify forward-looking statements by terms such as “aim,” “may,” “will,” “should,” “expect,” “exploring,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “would,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “seek,” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. No forward-looking statement is a guarantee of future results, performance, or achievements, and one should avoid placing undue reliance on such statements.
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to us. Such beliefs and assumptions may or may not prove to be correct. Additionally, such forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II.II, Item 1A. “Risk Factors” in this Quarterly Report and Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended March 25, 2022, as amended by Amendment No. 131, 2023, on Form 10-K/A10-K filed with the SEC on August 29, 2022 (as amended, the “2022May 25, 2023 (the “2023 Annual Report”) as any such factors may be updated from time to time in our Quarterly Reports on Form 10-Q, and our other filings with the SEC. These risks and uncertainties include, but are not limited to:
•downturns or volatility in general economic conditions, including as a result of the COVID-19 pandemic, particularly in the automotive market;
•our ability to compete effectively, expand our market share and increase our net sales and profitability;
•our reliance on a limited number of third-party wafer fabrication facilities and suppliers of other materials;
•our failure to adjust purchase commitments, supply chain volume and inventory management based on changing market conditions or customer demand;
•shifts in our product mix or customer mix, which could negatively impact our gross margin;
•the cyclical nature of the analog semiconductor industry;
•our ability to compensate for decreases in average selling prices of our products and increases in input costs;
•increases in inflation rates or sustained periods of inflation in the markets in which we operate;
•any disruptions at our primary third-party wafer fabrication facilities;
•our ability to manage any sustained yield problems or other delays at our third-party wafer fabrication facilities or in the final assembly and test of our products;
•our ability to fully realize the benefits of past and potential future initiatives designed to improve our competitiveness, growth and profitability;
•our ability to accurately predict our quarterly net sales and operating results;
•our dependence on manufacturing operations in the Philippines;
•our reliance on distributors to generate sales;
•COVID-19 induced lock-downs and suppression on our supply chain and customer demand;
•our ability to develop new product features or new products in a timely and cost-effective manner;
•our ability to manage growth;
•any slowdown in the growth of our end markets;
•the loss of one or more significant customers;
•our ability to meet customers’ quality requirements;
•uncertainties related to the design win process and our ability to recover design and development expenses and to generate timely or sufficient net sales or margins;
•changes in government trade policies, including the imposition of tariffs and export restrictions;
•our exposures to warranty claims, product liability claims and product recalls;
•our dependence on international customers and operations;
•the availability of rebates, tax credits and other financial incentives on end-user demands for certain products;
•risks related to governmental regulation and other legal obligations, including privacy, data protection, information security, consumer protection, environmental and occupational health and safety, anti-corruption and anti-bribery, and trade controls;
•the volatility of currency exchange rates;
•our indebtedness may limit our flexibility to operate our business;
•our ability to retain key and highly skilled personnel;
•our ability to protect our proprietary technology and inventions through patents or trade secrets;
•our ability to commercialize our products without infringing third-party intellectual property rights;
•disruptions or breaches of our information technology systems or those of our third-party service providers;
•our principal stockholders have substantial control over us;
•the inapplicability of the “corporate opportunity” doctrine to any director or stockholder who is not employed by us;
•the dilutive impact on the price of our shares upon future issuance by us or future sales by our stockholders;
•our lack of intent to declare or pay dividends for the foreseeable future;
•anti-takeover provisions in our organizational documents and under the General Corporation Law of the State of Delaware;
•the exclusive forum provision in our Certificate of Incorporation for disputes with stockholders;
•our inability to design, implement or maintain effective internal control over financial reporting;
•changes in tax rates or the adoption of new tax legislation; and
•other events beyond our control.
Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.
You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. ExceptAll forward-looking statements speak only as of the date of this Quarterly Report, and except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements, contained in this Quarterly Report, whether as a result of any new information, future events, changed circumstances or otherwise.
Unless the context otherwise requires, references to “we,” “us,” “our,” the “Company” and “Allegro” refer to the operations of Allegro MicroSystems, Inc. and its consolidated subsidiaries.
PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ALLEGRO MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
(Unaudited)
| | | September 23,
2022 | | March 25,
2022 | | June 30,
2023 | | March 31,
2023 |
| Assets | Assets | | | | Assets | | | |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 293,588 | | | $ | 282,383 | | Cash and cash equivalents | $ | 353,408 | | | $ | 351,576 | |
| Restricted cash | Restricted cash | 9,694 | | | 7,416 | | Restricted cash | 8,913 | | | 7,129 | |
| Trade accounts receivable, net of provision for expected credit losses of $189 and $105 at September 23, 2022 and March 25, 2022, respectively | 86,669 | | | 87,359 | | |
| Trade accounts receivable, net | | Trade accounts receivable, net | 121,506 | | | 111,290 | |
| Trade and other accounts receivable due from related party | Trade and other accounts receivable due from related party | 32,528 | | | 27,360 | | Trade and other accounts receivable due from related party | 175 | | | 13,494 | |
| Accounts receivable – other | 1,598 | | | 4,144 | | |
| Inventories | Inventories | 98,426 | | | 86,160 | | Inventories | 174,170 | | | 151,301 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 19,232 | | | 14,995 | | Prepaid expenses and other current assets | 38,382 | | | 27,289 | |
| Current portion of related party note receivable | Current portion of related party note receivable | 3,750 | | | 1,875 | | Current portion of related party note receivable | 3,750 | | | 3,750 | |
| | Total current assets | Total current assets | 545,485 | | | 511,692 | | Total current assets | 700,304 | | | 665,829 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 219,240 | | | 210,028 | | Property, plant and equipment, net | 285,200 | | | 263,099 | |
| Operating lease right-of-use assets | Operating lease right-of-use assets | 14,002 | | | 16,049 | | Operating lease right-of-use assets | 20,693 | | | 16,866 | |
| Deferred income tax assets | Deferred income tax assets | 33,786 | | | 17,967 | | Deferred income tax assets | 58,684 | | | 50,359 | |
| Goodwill | Goodwill | 28,037 | | | 20,009 | | Goodwill | 28,048 | | | 27,691 | |
| Intangible assets, net | Intangible assets, net | 52,268 | | | 35,970 | | Intangible assets, net | 51,969 | | | 52,378 | |
| Related party note receivable, less current portion | Related party note receivable, less current portion | 10,313 | | | 5,625 | | Related party note receivable, less current portion | 7,500 | | | 8,438 | |
| Equity investment in related party | Equity investment in related party | 25,778 | | | 27,671 | | Equity investment in related party | 26,980 | | | 27,265 | |
| Other assets | Other assets | 50,893 | | | 47,609 | | Other assets | 54,712 | | | 69,230 | |
| Total assets | Total assets | $ | 979,802 | | | $ | 892,620 | | Total assets | $ | 1,234,090 | | | $ | 1,181,155 | |
| Liabilities, Non-Controlling Interest and Stockholders' Equity | | | | |
| Liabilities, Non-Controlling Interests and Stockholders’ Equity | | Liabilities, Non-Controlling Interests and Stockholders’ Equity | | | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Trade accounts payable | Trade accounts payable | $ | 40,620 | | | $ | 29,836 | | Trade accounts payable | $ | 65,382 | | | $ | 56,256 | |
| Amounts due to related party | Amounts due to related party | 4,709 | | | 5,222 | | Amounts due to related party | 6,465 | | | 9,682 | |
| Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 63,941 | | | 65,459 | | Accrued expenses and other current liabilities | 76,691 | | | 94,894 | |
| Current portion of operating lease liabilities | Current portion of operating lease liabilities | 3,484 | | | 3,706 | | Current portion of operating lease liabilities | 5,007 | | | 4,493 | |
| | Total current liabilities | Total current liabilities | 112,754 | | | 104,223 | | Total current liabilities | 153,545 | | | 165,325 | |
| Obligations due under Senior Secured Credit Facilities | Obligations due under Senior Secured Credit Facilities | 25,000 | | | 25,000 | | Obligations due under Senior Secured Credit Facilities | 25,000 | | | 25,000 | |
| Operating lease liabilities, less current portion | Operating lease liabilities, less current portion | 10,870 | | | 12,748 | | Operating lease liabilities, less current portion | 16,383 | | | 13,048 | |
| Deferred income tax liabilities | 4,140 | | | — | | |
| | Other long-term liabilities | Other long-term liabilities | 11,163 | | | 15,286 | | Other long-term liabilities | 11,397 | | | 10,967 | |
| Total liabilities | Total liabilities | 163,927 | | | 157,257 | | Total liabilities | 206,325 | | | 214,340 | |
| Commitments and contingencies (Note 14) | | |
| Commitments and contingencies (Note 10) | | Commitments and contingencies (Note 10) | |
| Stockholders' Equity: | Stockholders' Equity: | | Stockholders' Equity: | |
| | Preferred Stock, $0.01 par value; 20,000,000 shares authorized, no shares issued or outstanding at September 23, 2022 and March 25, 2022 | — | | | — | | |
| Common stock, $0.01 par value; 1,000,000,000 shares authorized, 191,308,141 shares issued and outstanding at September 23, 2022; 1,000,000,000 shares authorized, 190,473,595 issued and outstanding at March 25, 2022 | 1,913 | | | 1,905 | | |
| Preferred Stock, $0.01 par value; 20,000,000 shares authorized, no shares issued or outstanding | | Preferred Stock, $0.01 par value; 20,000,000 shares authorized, no shares issued or outstanding | — | | | — | |
| Common stock, $0.01 par value; 1,000,000,000 shares authorized, 192,371,784 shares issued and outstanding at June 30, 2023; 1,000,000,000 shares authorized, 191,754,292 issued and outstanding at March 31, 2023 | | Common stock, $0.01 par value; 1,000,000,000 shares authorized, 192,371,784 shares issued and outstanding at June 30, 2023; 1,000,000,000 shares authorized, 191,754,292 issued and outstanding at March 31, 2023 | 1,924 | | | 1,918 | |
| | Additional paid-in capital | Additional paid-in capital | 662,082 | | | 627,792 | | Additional paid-in capital | 674,692 | | | 674,179 | |
| Retained earnings | Retained earnings | 183,819 | | | 122,958 | | Retained earnings | 371,165 | | | 310,315 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (33,028) | | | (18,448) | | Accumulated other comprehensive loss | (21,198) | | | (20,784) | |
| Equity attributable to Allegro MicroSystems, Inc. | Equity attributable to Allegro MicroSystems, Inc. | 814,786 | | | 734,207 | | Equity attributable to Allegro MicroSystems, Inc. | 1,026,583 | | | 965,628 | |
| Non-controlling interests | Non-controlling interests | 1,089 | | | 1,156 | | Non-controlling interests | 1,182 | | | 1,187 | |
| Total stockholders’ equity | Total stockholders’ equity | 815,875 | | | 735,363 | | Total stockholders’ equity | 1,027,765 | | | 966,815 | |
| Total liabilities, non-controlling interest and stockholders' equity | $ | 979,802 | | | $ | 892,620 | | |
| Total liabilities, non-controlling interests and stockholders’ equity | | Total liabilities, non-controlling interests and stockholders’ equity | $ | 1,234,090 | | | $ | 1,181,155 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ALLEGRO MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
| | | | | | | | | | | | |
| Three-Month Period Ended | |
| June 30,
2023 | | June 24,
2022 | |
| Net sales | $ | 278,293 | | | $ | 176,044 | | |
| Net sales to related party | — | | | 41,709 | | |
| Total net sales | 278,293 | | | 217,753 | | |
| Cost of goods sold | 120,343 | | | 79,067 | | |
| Cost of goods sold to related party | — | | | 20,312 | | |
| Gross profit | 157,950 | | | 118,374 | | |
| Operating expenses: | | | | |
| Research and development | 42,975 | | | 33,857 | | |
| Selling, general and administrative | 44,229 | | | 69,780 | | |
| Total operating expenses | 87,204 | | | 103,637 | | |
| Operating income | 70,746 | | | 14,737 | | |
| Other (expense) income: | | | | |
| Interest expense | (769) | | | (278) | | |
| Interest income | 843 | | | 158 | | |
| Other expense, net | (2,716) | | | (2,369) | | |
| Income before income taxes | 68,104 | | | 12,248 | | |
| Income tax provision | 7,215 | | | 1,965 | | |
| Net income | 60,889 | | | 10,283 | | |
| Net income attributable to non-controlling interests | 39 | | | 36 | | |
| Net income attributable to Allegro MicroSystems, Inc. | $ | 60,850 | | | $ | 10,247 | | |
| Net income per common share attributable to Allegro MicroSystems, Inc.: | | | | |
| Basic | $ | 0.32 | | | $ | 0.05 | | |
| Diluted | $ | 0.31 | | | $ | 0.05 | | |
| Weighted average shares outstanding: | | | | |
| Basic | 191,997,330 | | | 190,638,135 | | |
| Diluted | 194,991,906 | | | 192,406,276 | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ALLEGRO MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCOMPREHENSIVE INCOME
(in thousands, except share and per share amounts)thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Month Period Ended | | Six-Month Period Ended |
| September 23,
2022 | | September 24,
2021 | | September 23,
2022 | | September 24,
2021 |
| Net sales | $ | 192,640 | | | $ | 156,445 | | | $ | 368,684 | | | $ | 309,134 | |
| Net sales to related party | 45,026 | | | 37,165 | | | 86,735 | | | 72,618 | |
| Total net sales | 237,666 | | | 193,610 | | | 455,419 | | | 381,752 | |
| Cost of goods sold | 83,962 | | | 72,254 | | | 163,029 | | | 148,136 | |
| Cost of goods sold to related party | 21,682 | | | 18,824 | | | 41,994 | | | 36,924 | |
| Gross profit | 132,022 | | | 102,532 | | | 250,396 | | | 196,692 | |
| Operating expenses: | | | | | | | |
| Research and development | 35,567 | | | 29,590 | | | 69,424 | | | 59,144 | |
| Selling, general and administrative | 39,117 | | | 34,088 | | | 109,097 | | | 66,152 | |
| | | | | | | |
| Change in fair value of contingent consideration | (2,500) | | | 300 | | | (2,700) | | | 600 | |
| Total operating expenses | 72,184 | | | 63,978 | | | 175,821 | | | 125,896 | |
| Operating income | 59,838 | | | 38,554 | | | 74,575 | | | 70,796 | |
| Other income (expense): | | | | | | | |
| | | | | | | |
| Interest expense | (531) | | | (1,228) | | | (968) | | | (1,654) | |
| Interest income | 467 | | | 78 | | | 784 | | | 159 | |
| Foreign currency transaction gain (loss) | 266 | | | 202 | | | 2,190 | | | (52) | |
| (Loss) income in earnings of equity investment | (1,029) | | | 226 | | | (1,893) | | | 505 | |
| Other, net | 75 | | | 1,534 | | | (3,354) | | | 1,582 | |
| Income before income taxes | 59,086 | | | 39,366 | | | 71,334 | | | 71,336 | |
| Income tax provision | 8,438 | | | 6,143 | | | 10,403 | | | 10,406 | |
| Net income | 50,648 | | | 33,223 | | | 60,931 | | | 60,930 | |
| Net income attributable to non-controlling interests | 34 | | | 37 | | | 70 | | | 75 | |
| Net income attributable to Allegro MicroSystems, Inc. | $ | 50,614 | | | $ | 33,186 | | | $ | 60,861 | | | $ | 60,855 | |
| Net income attributable to Allegro MicroSystems, Inc. per share: | | | | | | | |
| Basic | $ | 0.26 | | | $ | 0.17 | | | $ | 0.32 | | | $ | 0.32 | |
| Diluted | $ | 0.26 | | | $ | 0.17 | | | $ | 0.32 | | | $ | 0.32 | |
| Weighted average shares outstanding: | | | | | | | |
| Basic | 191,284,631 | | | 189,673,788 | | | 190,959,616 | | | 189,629,535 | |
| Diluted | 192,639,576 | | | 191,676,422 | | | 192,654,097 | | | 191,416,250 | |
| | | | | | | | | | | | |
| Three-Month Period Ended | |
| June 30,
2023 | | June 24,
2022 | |
| Net income | $ | 60,889 | | | $ | 10,283 | | |
| Net income attributable to non-controlling interests | 39 | | | 36 | | |
| Net income attributable to Allegro MicroSystems, Inc. | 60,850 | | | 10,247 | | |
| Other comprehensive loss: | | | | |
| Foreign currency translation adjustment, net of tax | (458) | | | (6,818) | | |
| Comprehensive income | 60,392 | | | 3,429 | | |
| Other comprehensive gain attributable to non-controlling interests | 44 | | | 68 | | |
| Comprehensive income attributable to Allegro MicroSystems, Inc. | $ | 60,436 | | | $ | 3,497 | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ALLEGRO MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMECHANGES IN EQUITY
(in thousands)thousands, except share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Month Period Ended | | Six-Month Period Ended |
| September 23,
2022 | | September 24,
2021 | | September 23,
2022 | | September 24,
2021 |
| Net income | $ | 50,648 | | | $ | 33,223 | | | $ | 60,931 | | | $ | 60,930 | |
| Net income attributable to non-controlling interest | 34 | | | 37 | | | 70 | | | 75 | |
| Net income attributable to Allegro MicroSystems, Inc. | 50,614 | | | 33,186 | | | 60,861 | | | 60,855 | |
| Other comprehensive loss: | | | | | | | |
| Foreign currency translation adjustment | (7,899) | | | (3,537) | | | (14,717) | | | (3,567) | |
| | | | | | | |
| Comprehensive income | 42,715 | | | 29,649 | | | $ | 46,144 | | | $ | 57,288 | |
| Other comprehensive loss attributable to non-controlling interest | 69 | | | 34 | | | 137 | | | 64 | |
| Comprehensive income attributable to Allegro MicroSystems, Inc. | $ | 42,784 | | | $ | 29,683 | | | $ | 46,281 | | | $ | 57,352 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Non-Controlling Interests | | Total Equity |
| | | | | | | | | | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at March 25, 2022 | | | | | | | | | | — | | | $ | — | | | 190,473,595 | | | $ | 1,905 | | | $ | 627,792 | | | $ | 122,958 | | | $ | (18,448) | | | $ | 1,156 | | | $ | 735,363 | |
| Net income | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | 10,247 | | | — | | | 36 | | | 10,283 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock-based compensation, net of forfeitures | | | | | | | | | | — | | | — | | | 706,584 | | | 7 | | | 34,131 | | | — | | | — | | | — | | | 34,138 | |
| Payments of taxes withheld on net settlement of equity awards | | | | | | | | | | — | | | — | | | — | | | — | | | (9,606) | | | — | | | — | | | — | | | (9,606) | |
| Foreign currency translation adjustment | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (6,750) | | | (68) | | | (6,818) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at June 24, 2022 | | | | | | | | | | — | | | $ | — | | | 191,180,179 | | | $ | 1,912 | | | $ | 652,317 | | | $ | 133,205 | | | $ | (25,198) | | | $ | 1,124 | | | $ | 763,360 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Non-Controlling Interests | | Total Equity |
| | | | | | | | | | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at March 31, 2023 | | | | | | | | | | — | | | $ | — | | | 191,754,292 | | | $ | 1,918 | | | $ | 674,179 | | | $ | 310,315 | | | $ | (20,784) | | | $ | 1,187 | | | $ | 966,815 | |
| Net income | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | 60,850 | | | — | | | 39 | | | 60,889 | |
| Stock-based compensation, net of forfeitures | | | | | | | | | | — | | | — | | | 541,288 | | | 5 | | | 11,037 | | | — | | | — | | | — | | | 11,042 | |
| Employee stock purchase plan issuances | | | | | | | | | | — | | | — | | | 76,204 | | | 1 | | | 1,898 | | | — | | | — | | | — | | | 1,899 | |
| Payments of taxes withheld on net settlement of equity awards | | | | | | | | | | — | | | — | | | — | | | — | | | (12,422) | | | — | | | — | | | — | | | (12,422) | |
| Foreign currency translation adjustment | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (414) | | | (44) | | | (458) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at June 30, 2023 | | | | | | | | | | — | | | $ | — | | | 192,371,784 | | | $ | 1,924 | | | $ | 674,692 | | | $ | 371,165 | | | $ | (21,198) | | | $ | 1,182 | | | $ | 1,027,765 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ALLEGRO MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Non-Controlling Interests | | Total Equity |
| | | | | | | | | | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at June 25, 2021 | | | | | | | | | | — | | | $ | — | | | 189,581,621 | | | $ | 1,896 | | | $ | 597,001 | | | $ | 31,220 | | | $ | (11,865) | | | $ | 1,127 | | | $ | 619,379 | |
| Net income | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | 33,186 | | | — | | | 37 | | | 33,223 | |
| Employee stock purchase plan issuances | | | | | | | | | | — | | | — | | | 59,563 | | | — | | | 1,291 | | | — | | | — | | | — | | | 1,291 | |
| Stock-based compensation, net of forfeitures | | | | | | | | | | — | | | — | | | 61,366 | | | 1 | | | 6,196 | | | — | | | — | | | — | | | 6,197 | |
| Foreign currency translation adjustment | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,503) | | | (34) | | | (3,537) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at September 24, 2021 | | | | | | | | | | — | | | $ | — | | | 189,702,550 | | | $ | 1,897 | | | $ | 604,488 | | | $ | 64,406 | | | $ | (15,368) | | | $ | 1,130 | | | $ | 656,553 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Non-Controlling Interests | | Total Equity |
| | | | | | | | | | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at June 24, 2022 | | | | | | | | | | — | | | $ | — | | | 191,180,179 | | | $ | 1,912 | | | $ | 652,317 | | | $ | 133,205 | | | $ | (25,198) | | | $ | 1,124 | | | $ | 763,360 | |
| Net income | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | 50,614 | | | — | | | 34 | | | 50,648 | |
| Employee stock purchase plan issuances | | | | | | | | | | — | | | — | | | 89,454 | | | 1 | | | 1,572 | | | — | | | — | | | — | | | 1,573 | |
| Stock-based compensation, net of forfeitures | | | | | | | | | | — | | | — | | | 38,508 | | | — | | | 8,193 | | | — | | | — | | | — | | | 8,193 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustment | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (7,830) | | | (69) | | | (7,899) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at September 23, 2022 | | | | | | | | | | — | | | $ | — | | | 191,308,141 | | | $ | 1,913 | | | $ | 662,082 | | | $ | 183,819 | | | $ | (33,028) | | | $ | 1,089 | | | $ | 815,875 | |
ALLEGRO MICROSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - continued
(in thousands, except share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Non-Controlling Interests | | Total Equity |
| | | | | | | | | | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at March 26, 2021 | | | | | | | | | | — | | | $ | — | | | 189,588,161 | | | $ | 1,896 | | | $ | 592,170 | | | $ | 3,551 | | | $ | (11,865) | | | $ | 1,119 | | | $ | 586,871 | |
| Net income | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | 60,855 | | | — | | | 75 | | | 60,930 | |
| Employee stock purchase plan issuances | | | | | | | | | | — | | | — | | | 59,563 | | | — | | | 1,291 | | | — | | | — | | | — | | | 1,291 | |
| Stock-based compensation, net of forfeitures | | | | | | | | | | — | | | — | | | 54,826 | | | 1 | | | 11,027 | | | — | | | — | | | — | | | 11,028 | |
| Foreign currency translation adjustment | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,503) | | | (64) | | | (3,567) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at September 24, 2021 | | | | | | | | | | — | | | $ | — | | | 189,702,550 | | | $ | 1,897 | | | $ | 604,488 | | | $ | 64,406 | | | $ | (15,368) | | | $ | 1,130 | | | $ | 656,553 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Non-Controlling Interests | | Total Equity |
| | | | | | | | | | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at March 25, 2022 | | | | | | | | | | — | | | $ | — | | | 190,473,595 | | | $ | 1,905 | | | $ | 627,792 | | | $ | 122,958 | | | $ | (18,448) | | | $ | 1,156 | | | $ | 735,363 | |
| Net income | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | 60,861 | | | — | | | 70 | | | 60,931 | |
| Employee stock purchase plan issuances | | | | | | | | | | — | | | — | | | 89,454 | | | 1 | | | 1,572 | | | — | | | — | | | — | | | 1,573 | |
| Stock-based compensation, net of forfeitures | | | | | | | | | | — | | | — | | | 745,092 | | | 7 | | | 42,324 | | | — | | | — | | | — | | | 42,331 | |
| Payments of taxes withheld on net settlement of equity awards | | | | | | | | | | — | | | — | | | — | | | — | | | (9,606) | | | — | | | — | | | — | | | (9,606) | |
| Foreign currency translation adjustment | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (14,580) | | | (137) | | | (14,717) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at September 23, 2022 | | | | | | | | | | — | | | $ | — | | | 191,308,141 | | | $ | 1,913 | | | $ | 662,082 | | | $ | 183,819 | | | $ | (33,028) | | | $ | 1,089 | | | $ | 815,875 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ALLEGRO MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| | | Six-Month Period Ended | | Three-Month Period Ended |
| | September 23,
2022 | | September 24,
2021 | | June 30,
2023 | | June 24,
2022 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
| Net income | Net income | $ | 60,931 | | | $ | 60,930 | | Net income | $ | 60,889 | | | $ | 10,283 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 24,125 | | | 24,511 | | Depreciation and amortization | 14,273 | | | 11,918 | |
| Amortization of deferred financing costs | Amortization of deferred financing costs | 49 | | | 25 | | Amortization of deferred financing costs | 34 | | | 24 | |
| Deferred income taxes | Deferred income taxes | (16,431) | | | (2,246) | | Deferred income taxes | (8,362) | | | (7,784) | |
| Stock-based compensation | Stock-based compensation | 42,340 | | | 11,027 | | Stock-based compensation | 11,042 | | | 34,136 | |
| Loss (gain) on disposal of assets | 250 | | | (330) | | |
| Gain on disposal of assets | | Gain on disposal of assets | — | | | (3) | |
| | Change in fair value of contingent consideration | Change in fair value of contingent consideration | (2,700) | | | 600 | | Change in fair value of contingent consideration | — | | | (200) | |
| | Provisions for inventory and receivables reserves | 232 | | | 2,869 | | |
| Unrealized loss (gain) on marketable securities | 3,458 | | | (978) | | |
| Provisions for inventory and expected credit losses | | Provisions for inventory and expected credit losses | 5,183 | | | 2,640 | |
| Change in fair value of marketable securities | | Change in fair value of marketable securities | 3,651 | | | 3,486 | |
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
| Trade accounts receivable | Trade accounts receivable | 5,520 | | | (2,299) | | Trade accounts receivable | (10,321) | | | (4,718) | |
| Accounts receivable - other | Accounts receivable - other | 2,546 | | | 181 | | Accounts receivable - other | (1,421) | | | 2,714 | |
| Inventories | Inventories | (17,328) | | | 4,415 | | Inventories | (27,947) | | | (4,888) | |
| Prepaid expenses and other assets | Prepaid expenses and other assets | (9,470) | | | (6,761) | | Prepaid expenses and other assets | (8,779) | | | (13,102) | |
| Trade accounts payable | Trade accounts payable | 8,928 | | | (6,188) | | Trade accounts payable | 18,431 | | | 4,075 | |
| Due to/from related parties | Due to/from related parties | (5,681) | | | 1,312 | | Due to/from related parties | 10,102 | | | (3,267) | |
| Accrued expenses and other current and long-term liabilities | Accrued expenses and other current and long-term liabilities | (4,965) | | | (17,192) | | Accrued expenses and other current and long-term liabilities | (17,112) | | | 1,239 | |
| | Net cash provided by operating activities | Net cash provided by operating activities | 91,804 | | | 69,876 | | Net cash provided by operating activities | 49,663 | | | 36,553 | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
| Purchases of property, plant and equipment | Purchases of property, plant and equipment | (35,220) | | | (33,821) | | Purchases of property, plant and equipment | (44,910) | | | (14,389) | |
| Acquisition of business, net of cash acquired | (19,728) | | | (12,549) | | |
| Proceeds from sales of property, plant and equipment | — | | | 27,407 | | |
| Investments in marketable securities | — | | | (4,334) | | |
| | Proceeds from sales of marketable securities | | Proceeds from sales of marketable securities | 9,971 | | | — | |
| | Net cash used in investing activities | Net cash used in investing activities | (54,948) | | | (23,297) | | Net cash used in investing activities | (34,939) | | | (14,389) | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
| Loans made to related party | (7,500) | | | — | | |
| | Receipts on related party notes receivable | Receipts on related party notes receivable | 937 | | | — | | Receipts on related party notes receivable | 938 | | | 469 | |
| Payments for taxes related to net share settlement of equity awards | Payments for taxes related to net share settlement of equity awards | (9,606) | | | — | | Payments for taxes related to net share settlement of equity awards | (12,422) | | | (9,606) | |
| Proceeds from issuance of common stock under employee stock purchase plan | Proceeds from issuance of common stock under employee stock purchase plan | 1,573 | | | 1,291 | | Proceeds from issuance of common stock under employee stock purchase plan | 1,899 | | | — | |
| | Net cash (used in) provided by financing activities | (14,596) | | | 1,291 | | |
| Effect of exchange rate changes on Cash and cash equivalents and Restricted cash | (8,777) | | | 3,939 | | |
| Net increase in Cash and cash equivalents and Restricted cash | 13,483 | | | 51,809 | | |
| Cash and cash equivalents and Restricted cash at beginning of period | 289,799 | | | 203,875 | | |
| Payments for debt issuance costs | | Payments for debt issuance costs | (1,450) | | | — | |
| Net cash used in financing activities | | Net cash used in financing activities | (11,035) | | | (9,137) | |
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | | Effect of exchange rate changes on cash and cash equivalents and restricted cash | (73) | | | (6,554) | |
| Net increase in cash and cash equivalents and restricted cash | | Net increase in cash and cash equivalents and restricted cash | 3,616 | | | 6,473 | |
| Cash and cash equivalents and restricted cash at beginning of period | | Cash and cash equivalents and restricted cash at beginning of period | 358,705 | | | 289,799 | |
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD: | CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD: | $ | 303,282 | | | $ | 255,684 | | CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD: | $ | 362,321 | | | $ | 296,272 | |
| RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: | | | | |
| Cash and cash equivalents at beginning of period | $ | 282,383 | | | $ | 197,214 | | |
| Restricted cash at beginning of period | 7,416 | | | 6,661 | | |
| Cash and cash equivalents and Restricted cash at beginning of period | $ | 289,799 | | | $ | 203,875 | | |
| Cash and cash equivalents at end of period | 293,588 | | | 248,579 | | |
| Restricted cash at end of period | 9,694 | | | 7,105 | | |
| Cash and cash equivalents and Restricted cash at end of period | $ | 303,282 | | | $ | 255,684 | | |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | |
| | Noncash transactions: | | |
| Property, plant and equipment purchases included in trade accounts payable | $ | (3,877) | | | $ | (3,183) | | |
| | Noncash lease liabilities arising from obtaining right-of-use assets | 374 | | | 699 | | |
| |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
1. Nature of the Business and Basis of Presentation
Allegro MicroSystems, Inc., together with its consolidated subsidiaries (the “Company”), is a leading global leader in designing, developingdesigner, developer, fabless manufacturer and manufacturingmarketer of sensing and power solutions for motion control and energy-efficient systems in the automotive and industrial markets. The Company is headquartered in Manchester, New Hampshire and has a global footprint across multiple continents.
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements include the Company’s accounts and those of its subsidiaries. All intercompany balances have been eliminated in consolidation. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended March 25, 2022 filed with the SEC on May 18, 2022, as amended by Amendment No. 1 on Form 10-K/A filed with the SEC on August 29, 2022 (as amended, the “2022 Annual Report”).31, 2023. In the opinion of the Company’s management, the financial informationstatements for the interim periods presented reflectsreflect all adjustments necessary for a fair statement of the Company’s financial position, results of operations and cash flows. The results reported in these unaudited condensed consolidated financial statements are not necessarily indicative of results that may be expected for the entire year.
Financial Periods
The Company’s secondfirst quarter three-month period is a 13-week period ending on the Friday closest to the last day in September.period. The Company’s secondfirst quarter of fiscal 2024 ended June 30, 2023, and the Company’s first quarter of fiscal 2023 ended September 23, 2022, and the Company’s second quarter of fiscal 2022 ended SeptemberJune 24, 2021.2022.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingencies at the date of the unaudited condensed consolidated financial statements and the reported amounts of net sales and expenses during the reporting period. Such estimates relate to useful lives of fixed and intangible assets, allowancesprovisions for expected credit losses and customer returns and sales allowances. Such estimates could also relate to the fair value of acquired assets and liabilities, including goodwill and intangible assets, net realizable value of inventory, accrued liabilities, the valuation of stock-based awards, deferred tax valuation allowances, the net realizable value of inventory, and other reserves. On an ongoing basis, management evaluates its estimates. Actual results could differ from those estimates, and such differences may be material to the unaudited condensed consolidated financial statements.
Reclassifications
Certain reclassifications have been made to prior-period amounts to conform to current-period reporting classifications.
Concentrations of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents with financial institutions, which management believes to be of a high credit quality. To manage credit risk related to accounts receivables, the Company evaluates the creditworthiness of its customers and maintains allowances, to the extent necessary, for potential credit losses based upon the aging of its accounts receivable balances and known collection issues. The Company has not experienced any significant credit losses during the prior two years.
As of September 23, 2022 andJune 30, 2023, one customer accounted for 14.8% of the Company’s outstanding trade accounts receivable, net. As of March 25, 2022,31, 2023, Sanken Electric Co., Ltd. (“Sanken”) and another customer accounted for 27.2%10.6% and 23.8%17.3%, respectively, of the Company’s outstanding trade accounts receivable, net, respectively, including related party trade accounts receivable. No other customers accounted for 10% or more of outstanding trade accounts receivable, net during those periods.as of such dates.
For the three- and six-month periodsthree months ended September 23,June 30, 2023, one customer accounted for 12.2% of total net sales. For the three months ended June 24, 2022, Sanken accounted for 18.9% and 19.0% for 19.2% of total net sales. No other customers accounted for 10% or more of total net sales respectively. Forfor either of the three-three months ended June 30, 2023 or June 24, 2022.
Recent Accounting Pronouncements
In December 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-06, Reference Rate Reform (Topic 848), Deferral of the Sunset Date of Topic 848. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provided temporary relief when transitioning from the London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”) or another applicable rate during the original transition period ending on December 31, 2022. In March 2021, the UK Financial Conduct Authority announced that the intended cessation date of the overnight 1-, 3-, 6-, and six-month periods ended September 24, 2021, Sanken accounted for 19.2% and 19.0%12-month tenors of U.S. dollar LIBOR would be June 30, 2023, which is beyond the
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
current sunset date of total net sales, respectively. No other customers accounted for 10% or moreTopic 848. In light of total net sales forthis development, the three- and six-month periods ended September 23,FASB issued this update to defer the sunset date of Topic 848 from December 31, 2022, and September 24, 2021. See Note 18, “Related Party Transactions” for a discussion of the transition agreement between Sanken and the Company to transition the marketing and sale of the Company’s products in Japan from Sanken to the Company during the twelve-month transition period beginning on September 29, 2022.
During the three-month period ended September 23, 2022, sales to customers located outside of the United States accounted for, in the aggregate, 89.4% of the Company’s total net sales, with Greater China accounting for 26.6% and Japan accounting for 18.9%. During the six-month period ended September 23, 2022, sales to customers located outside of the United States accounted for, in the aggregate, 88.2% of the Company’s total net sales, with Greater China accounting for 26.0% and Japan accounting for 19.0%. No other countries accounted for greater than 10% of total net sales for the three- and six-month periods ended September 23, 2022.
During the three-month period ended September 24, 2021, sales to customers located outside of the United States, in the aggregate, accounted for 85.6% of the Company’s total net sales, with Greater China accounting for 26.2%, Japan accounting for 19.2% and South Korea accounting for 10.2%. During the six-month period ended September 24, 2021, sales to customers located outside of the United States, in the aggregate, accounted for 85.7% of the Company’s total net sales, with Greater China accounting for 24.5%, Japan accounting for 19.0% and South Korea accounting for 10.9%. No other countries accounted for greater than 10% of total net sales for the three- and six-month periods ended September 24, 2021.
Recently Adopted Accounting Standards
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”),December 31, 2024, after which eliminates the diversity in practice and inconsistency related to the accounting for acquired revenue contracts with customers in a business combination. The amendments in ASU 2021-08 require an acquiring entityentities will no longer be permitted to apply ASCthe relief in Topic 606, Contracts with Customers (“ASC 606”), to recognize and measure contract assets and contract liabilities in a business combination as if the acquired contracts with customers were originated by the acquiring entity at the acquisition date. An acquirer may assess how the acquiree applied ASC 606 and generally should recognize and measure the acquired contract assets and contract liabilities consistent with the recognition and measurement in the acquiree’s financial statements, as prepared in accordance with U.S. GAAP. If unable to rely on the acquiree’s accounting due to errors, noncompliance with U.S. GAAP, or differences in accounting policies, the acquirer should consider the terms of the acquired contracts, such as timing of payment, identify each performance obligation in the contracts, and allocate the total transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception (that is, the date the acquiree entered into the contracts) or contract modification to determine what should be recorded at the acquisition date. 848. The Company early adopted ASU 2021-08, effective March 26, 2022 and concluded that adoption of this ASUnew guidance did not have a material impact on itsthe Company’s financial position, results of operations, cash flows, or related disclosures.
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2021-04”). ASU 2021-04 outlines how an entity should account for modifications made to equity-classified written call options, including stock options and warrants to purchase the entity’s own common stock. The guidance in the ASU requires an entity to treat a modification of an equity-classified written call option that does not cause the option to become liability-classified as an exchange of the original option for a new option. This guidance applies whether the modification is structured as an amendment to the terms and conditions of the equity-classified written call option or as termination of the original option and issuance of a new option. The Company adopted ASU 2021-04, effective March 26, 2022, and concluded that it did not have a material impact on its financial position, results of operations, cash flows, or related disclosures.
Recently Issued Accounting Standards Not Yet Adopted
None applicable.
3. Heyday Acquisition
On September 1, 2022, the Company completed its purchase of all of the equity interests in Heyday Integrated Circuits (“Heyday”), a privately held company specializing in compact, fully integrated isolated gate drivers that enable energy conversion in high-voltage gallium nitride and silicon carbide wide-bandgap semiconductor designs (the “Heyday Acquisition”). The Heyday Acquisition brings together Heyday’s isolated gate drivers and the Company’s isolated current sensors to enable potential development of some of the smallest high-voltage and high-efficiency power systems available on
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
the market today. Additionally, this acquisition is expected to increase the Company’s addressable market for electric vehicles (“xEV”), solar inverters, data center and 5G power supplies, and broad-market industrial applications. The total preliminary purchase price was $20,754, consisting of cash consideration paid directly to the owners of Heyday and paid on their behalf for the settlement of certain outstanding debts and other obligations.
The Heyday Acquisition was accounted for as a business combination, and the Company recorded the assets acquired and liabilities assumed at their respective fair values as of the date of acquisition. The allocation of purchase consideration to assets and liabilities is not yet finalized. The preliminary allocation of the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). The primary areas of the preliminary purchase price allocation that are not yet finalized are the working capital settlement, finalization of our review of the estimates and assumptions included in the valuation reports, determination of the tax basis of certain assets and liabilities and certain tax carry forwards, and residual goodwill. The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
| | | | | |
| |
| |
| |
| |
| |
Cash | $ | 325 | |
| |
Property and equipment | 22 | |
Completed technology | 15,100 | |
In-process research and development | 1,600 | |
Assets acquired | $ | 17,047 | |
Current liabilities assumed | (347) | |
Deferred tax liability | (4,175) | |
Net assets acquired | $ | 12,525 | |
Total estimated fair value of consideration | (20,754) | |
Goodwill | $ | 8,229 | |
| |
The significant intangible assets identified in the preliminary purchase price allocation consisted of completed technology and in-process research and development. Completed technology assets will be amortized over an estimated useful life of 12 years. An estimated fair value of $1,600 was assigned to acquired in-process research and development costs with an indefinite life.
Amortization of completed technology is included within cost of goods sold and consists of unique PowerThru technology that accomplishes gate driver power and signal transmission through an integrated transformer, reducing the size and complexity of the gate drive solution. The in-process research and development assets represent efforts to expand the power capability of these gate drivers for wide-bandgap semiconductor technology. To value the completed technology and the in-process research and development assets, the Company utilized the income approach, specifically a discounted cash-flow method known as the multi-period excess earnings method.
Goodwill was recognized for the excess purchase price over the fair value of the net assets acquired. The goodwill reflects the value of the synergies the Company expects to realize and the assembled workforce. Goodwill from the Heyday Acquisition is included within the Company’s one reporting unit and will be included in the Company’s enterprise-level annual review for impairment. Goodwill resulting from the Heyday Acquisition is not deductible for tax purposes.
The purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed based upon the respective estimates of fair value as of the date of the acquisition and using assumptions that the Company’s management believes are reasonable given the information available as of the date of the Heyday Acquisition. The final allocation of the purchase price may differ materially from the information presented in these condensed consolidated financial statements. Any changes to the preliminary estimates of the fair value of the assets acquired and liabilities assumed will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.
The revenues and income before income taxes from the Heyday Acquisition were immaterial to the Company’s consolidated results for the three- and six-month periods ended September 23, 2022. The Company has not presented pro forma results of operations for the Heyday Acquisition, because it is not material to the Company’s consolidated results of operations, financial position, or cash flows.
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
4. Revenue from Contracts with Customers
The Company generates revenue from the sale of magnetic sensor integrated circuits (“ICs”) and application-specific analog power semiconductors. The following tables summarize net sales disaggregated by application, by product and by geography for the three-three months ended June 30, 2023 and six-month periods ended September 23, 2022 and SeptemberJune 24, 2021.2022. The categorization of net sales by application is determined using various characteristics of the product and the application into which the Company’s product will be incorporated. The categorization of net sales by geography is determined based on the location to which the products are shipped.
Net sales by application:
| | | Three-Month Period Ended | | Six-Month Period Ended | | Three-Month Period Ended | |
| | September 23,
2022 | | September 24,
2021 | | September 23,
2022 | | September 24,
2021 | | June 30,
2023 | | June 24,
2022 | |
| | Automotive | Automotive | $ | 157,398 | | | $ | 126,031 | | | $ | 307,047 | | | $ | 259,554 | | Automotive | $ | 189,698 | | | $ | 149,649 | | |
| Industrial | Industrial | 48,176 | | | 36,321 | | | 88,316 | | | 66,630 | | Industrial | 68,184 | | | 40,140 | | |
| Other | Other | 32,092 | | | 31,258 | | | 60,056 | | | 55,568 | | Other | 20,411 | | | 27,964 | | |
| Total net sales | Total net sales | $ | 237,666 | | | $ | 193,610 | | | $ | 455,419 | | | $ | 381,752 | | Total net sales | $ | 278,293 | | | $ | 217,753 | | |
Net sales by product:
| | | Three-Month Period Ended | | Six-Month Period Ended | | Three-Month Period Ended | |
| | September 23,
2022 | | September 24,
2021 | | September 23,
2022 | | September 24,
2021 | | June 30,
2023 | | June 24,
2022 | |
| Power integrated circuits | Power integrated circuits | $ | 97,327 | | | $ | 65,523 | | | $ | 177,987 | | | $ | 132,195 | | Power integrated circuits | $ | 103,988 | | | $ | 80,660 | | |
| Magnetic sensors and other | 140,339 | | | 128,087 | | | 277,432 | | | 249,557 | | |
| Magnetic sensors | | Magnetic sensors | 174,305 | | | 137,093 | | |
| | Total net sales | Total net sales | $ | 237,666 | | | $ | 193,610 | | | $ | 455,419 | | | $ | 381,752 | | Total net sales | $ | 278,293 | | | $ | 217,753 | | |
Net sales by geography:
| | | Three-Month Period Ended | | Six-Month Period Ended | | Three-Month Period Ended | |
| | September 23,
2022 | | September 24,
2021 | | September 23,
2022 | | September 24,
2021 | | June 30,
2023 | | June 24,
2022 | |
| Americas: | Americas: | | | | | | | | Americas: | | | | |
| United States | United States | $ | 25,131 | | | $ | 27,785 | | | $ | 53,522 | | | $ | 54,626 | | United States | $ | 48,824 | | | $ | 28,391 | | |
| Other Americas | Other Americas | 7,244 | | | 5,427 | | | 13,731 | | | 11,776 | | Other Americas | 8,508 | | | 6,487 | | |
| EMEA: | EMEA: | | EMEA: | | |
| Europe | Europe | 40,710 | | | 32,466 | | | 76,043 | | | 67,217 | | Europe | 55,388 | | | 35,333 | | |
| Asia: | Asia: | | Asia: | | |
| Japan | Japan | 45,026 | | | 37,165 | | | 86,735 | | | 72,618 | | Japan | 41,580 | | | 41,709 | | |
| Greater China | Greater China | 63,203 | | | 50,683 | | | 118,319 | | | 93,462 | | Greater China | 62,216 | | | 55,116 | | |
| South Korea | South Korea | 20,931 | | | 19,746 | | | 41,910 | | | 41,679 | | South Korea | 29,513 | | | 20,979 | | |
| Other Asia | Other Asia | 35,421 | | | 20,338 | | | 65,159 | | | 40,374 | | Other Asia | 32,264 | | | 29,738 | | |
| Total net sales | Total net sales | $ | 237,666 | | | $ | 193,610 | | | $ | 455,419 | | | $ | 381,752 | | Total net sales | $ | 278,293 | | | $ | 217,753 | | |
The Company recognizes sales net of returns and sales allowances, which are comprised of credits issued, price protection adjustments and stock rotation rights. At September 23, 2022June 30, 2023 and March 25, 2022, these31, 2023, the liability associated with returns and sales allowances, inclusive of related party adjustments, were $19,754was $37,300 and $14,924,$30,571, respectively, and were netted against trade accounts receivable in the unaudited condensed consolidated balance sheets. These amounts represent charges of $4,830
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and $2,171 for the six-month periods ended September 23, 2022 and September 24, 2021, respectively.per share amounts)
Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. The Company elected not to disclose the amount of unsatisfied performance obligations as these contracts have original expected durations of less than one year.
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
5.4. Fair Value Measurements
The following tables present information about the Company’s financial assets and liabilities as of September 23, 2022June 30, 2023 and March 25, 202231, 2023, measured at fair value on a recurring basis and indicatebasis:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurement at June 30, 2023: |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | |
| Cash equivalents: | | | | | | | |
| Money market fund deposits | $ | 103,661 | | | $ | — | | | $ | — | | | $ | 103,661 | |
| Restricted cash: | | | | | | | |
| Money market fund deposits | 8,913 | | | — | | | — | | | 8,913 | |
| Other current assets: | | | | | | | |
| Investments in marketable securities | 5,222 | | | — | | | — | | | 5,222 | |
| Total assets | $ | 117,796 | | | $ | — | | | $ | — | | | $ | 117,796 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurement at March 31, 2023: |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | |
| Cash equivalents: | | | | | | | |
| Money market fund deposits | $ | 102,019 | | | $ | — | | | $ | — | | | $ | 102,019 | |
| Restricted cash: | | | | | | | |
| Money market fund deposits | 7,129 | | | — | | | — | | | 7,129 | |
| Other assets: | | | | | | | |
| Investments in marketable securities | 19,929 | | | — | | | — | | | 19,929 | |
| Total assets | $ | 129,077 | | | $ | — | | | $ | — | | | $ | 129,077 | |
As of July 2023, the level of the fair value hierarchy utilized to determine such fair values:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurement at September 23, 2022 Using: |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | |
| Cash equivalents: | | | | | | | |
| Money market fund deposits | $ | 171,705 | | | $ | — | | | $ | — | | | $ | 171,705 | |
| Restricted cash: | | | | | | | |
| Money market fund deposits | 9,694 | | | — | | | — | | | 9,694 | |
| Other assets, net (long-term): | | | | | | | |
| Investments in marketable securities | $ | 8,066 | | | $ | — | | | $ | — | | | $ | 8,066 | |
| Total assets | $ | 189,465 | | | $ | — | | | $ | — | | | $ | 189,465 | |
| Liabilities: | | | | | | | |
| Other long-term liabilities: | | | | | | | |
| Contingent consideration | $ | — | | | $ | — | | | $ | 100 | | | $ | 100 | |
| Total liabilities | $ | — | | | $ | — | | | $ | 100 | | | $ | 100 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurement at March 25, 2022 Using: |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | |
| Cash equivalents: | | | | | | | |
| Money market fund deposits | $ | 16,927 | | | $ | — | | | $ | — | | | $ | 16,927 | |
| Restricted cash: | | | | | | | |
| Money market fund deposits | 7,416 | | | — | | | — | | | 7,416 | |
| Other assets, net (long-term): | | | | | | | |
| Investments in marketable securities | 12,346 | | | — | | | — | | | 12,346 | |
| Total assets | $ | 36,689 | | | $ | — | | | $ | — | | | $ | 36,689 | |
| Liabilities: | | | | | | | |
| Other long-term liabilities: | | | | | | | |
| Contingent consideration | — | | | — | | | 2,800 | | | 2,800 | |
| Total liabilities | $ | — | | | $ | — | | | $ | 2,800 | | | $ | 2,800 | |
The following table represents the unrealized gains and losses onCompany has sold all investments in marketable securities held with a readily determinable fair value for the six-month periods ended September 23, 2022 and September 24, 2021:
| | | | | | | | | | | |
| Six-Month Period Ended |
| September 23,
2022 | | September 24,
2021 |
| Net gains and losses recognized during the period on equity securities | $ | (3,458) | | | $ | 978 | |
| Less: Net gains and losses recognized during the period on equity securities sold during the period | — | | | — | |
| Unrealized gains and losses recognized during the reporting period on equity securities still held at the reporting date | $ | (3,458) | | | $ | 978 | |
In addition to the unrealized gains in the table above, the change in fair value of the equity securities was impacted by unrealized foreign currency exchange losses of $822 and $25 for the six-month periods ended September 23, 2022 and September 24, 2021, respectively.
The following table shows the change in fair value of Level 3 contingent consideration in connection with the fiscal year 2021 purchase of Voxtel, Inc. (“Voxtel”), a privately-held technology company located in Beaverton, Oregon that
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
develops, manufactures and supplies photonic and advanced 3D imaging technologies (the “Voxtel Acquisition”), for the six-month periods ended September 23, 2022 and September 24, 2021:
| | | | | |
| Level 3
Contingent
Consideration |
Balance at March 25, 2022 | $ | 2,800 | |
Change in fair value of contingent consideration | (2,700) | |
| |
Balance at September 23, 2022 | $ | 100 | |
| |
Balance at March 26, 2021 | $ | 4,800 | |
Change in fair value of contingent consideration | 600 | |
| |
Balance at September 24, 2021 | $ | 5,400 | |
securities.Assets and liabilities measured at fair value on a recurring basis also consist of marketable securities, unit investment trust funds, loans, bonds, stock and other investments which areconstitute to the Company’s defined benefit plan assets. Fair value information for those assets and liabilities, including their classification in the fair value hierarchy, is included in Note 13, “Retirement Plans.”
During the six-month periodsthree months ended September 23,June 30, 2023 and June 24, 2022, and September 24, 2021, there were no transfers among Level 1, Level 2 and Level 3 assets or liabilities.
6.5. Trade Accounts Receivable, net
Trade accounts receivable, net (including related party trade accounts receivable) consisted of the following:
| | | | | | | | | | | |
| September 23,
2022 | | March 25,
2022 |
| Trade accounts receivable | $ | 138,834 | | | $ | 129,539 | |
| Less: | | | |
| Provision for expected credit losses | (189) | | | (105) | |
| Returns and sales allowances | (19,565) | | | (14,819) | |
| Related party trade accounts receivable | (32,411) | | | (27,256) | |
| Total | $ | 86,669 | | | $ | 87,359 | |
The Company is exposed to credit losses primarily through trade and other financing receivables arising from revenue transactions. The Company uses an aging schedule method to estimate current expected credit losses (“CECL”) based on days of delinquency, including information about past events and current economic conditions. The Company’s accounts receivable are separated into two categories using a portfolio methodology to evaluate the allowance under the CECL impairment model based on sales categorization and similar credit quality and worthiness of the customers: original equipment manufacturers (“OEMs”) and distributors. The receivables in each category share similar risk characteristics. The Company increases the provision for expected credits losses when the Company determines all or a portion of a receivable is uncollectible, and the Company recognizes recoveries as a decrease to the provision for expected credit losses. | | | | | | | | | | | |
| June 30,
2023 | | March 31,
2023 |
| Trade accounts receivable | $ | 158,806 | | | $ | 150,914 | |
| Less: | | | |
| Provision for expected credit losses | (206) | | | (102) | |
| Returns and sales allowances | (37,094) | | | (26,269) | |
| Related party trade accounts receivable, net of returns and sales allowances | — | | | (13,253) | |
| Total | $ | 121,506 | | | $ | 111,290 | |
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
Changes in the Company’s expected credit losses and returns and sales allowances, exclusive of related party adjustments, were as follows:
| | | | | | | | | | | | | | | | | | | | |
| Description | | Allowance for
Doubtful
Accounts | | Returns
and Sales
Allowances | | Total |
| Balance at March 25, 2022 | | $ | 105 | | | $ | 14,819 | | | $ | 14,924 | |
| Charged to costs and expenses or revenue | | 84 | | | 52,630 | | | 52,714 | |
| Write-offs, net of recoveries | | — | | | (47,884) | | | (47,884) | |
| Balance at September 23, 2022 | | $ | 189 | | | $ | 19,565 | | | $ | 19,754 | |
| | | | | | |
| Balance at March 26, 2021 | | $ | 138 | | | $ | 15,274 | | | $ | 15,412 | |
| Charged to costs and expenses or revenue | | 38 | | | 82,365 | | | 82,403 | |
| Write-offs, net of recoveries | | — | | | (80,232) | | | (80,232) | |
| Balance at September 24, 2021 | | $ | 176 | | | $ | 17,407 | | | $ | 17,583 | |
| | | | | | | | | | | | | | | | | | | | |
| Description | | Provision for Expected Credit Losses | | Returns
and Sales
Allowances | | Total |
| Balance at March 31, 2023 | | $ | 102 | | | $ | 26,269 | | | $ | 26,371 | |
| Provisions | | 104 | | | 41,811 | | | 41,915 | |
| Deductions | | — | | | (30,986) | | | (30,986) | |
| Balance at June 30, 2023 | | $ | 206 | | | $ | 37,094 | | | $ | 37,300 | |
| | | | | | |
| Balance at March 25, 2022 | | $ | 105 | | | $ | 14,819 | | | $ | 14,924 | |
| Provisions | | 44 | | | 27,753 | | | 27,797 | |
| Deductions | | — | | | (28,322) | | | (28,322) | |
| Balance at June 24, 2022 | | $ | 149 | | | $ | 14,250 | | | $ | 14,399 | |
7.6. Inventories
Inventories include material, labor and overhead and consisted of the following:
| | | September 23,
2022 | | March 25,
2022 | | June 30,
2023 | | March 31,
2023 |
| Raw materials and supplies | Raw materials and supplies | $ | 13,010 | | | $ | 11,941 | | Raw materials and supplies | $ | 13,690 | | | $ | 15,049 | |
| Work in process | Work in process | 61,520 | | | 55,855 | | Work in process | 119,630 | | | 98,836 | |
| Finished goods | Finished goods | 23,896 | | | 18,364 | | Finished goods | 40,850 | | | 37,416 | |
| | Total | Total | $ | 98,426 | | | $ | 86,160 | | Total | $ | 174,170 | | | $ | 151,301 | |
The Company recorded inventory write-offsreserves totaling $2,947$5,076 and $5,062$2,115 for the three-three months ended June 30, 2023 and six-month periods ended September 23,June 24, 2022, respectively, and $1,852 and $5,041 for the three- and six-month periods ended September 24, 2021, respectively.
8.7. Property, Plant and Equipment, net
Property, plant and equipment, net is stated at cost, and consisted of the following:
| | | September 23,
2022 | | March 25,
2022 | | June 30,
2023 | | March 31,
2023 |
| Land | Land | $ | 14,748 | | | $ | 15,775 | | Land | $ | 19,522 | | | $ | 15,384 | |
| Buildings, building improvements and leasehold improvements | Buildings, building improvements and leasehold improvements | 56,413 | | | 59,816 | | Buildings, building improvements and leasehold improvements | 60,991 | | | 61,500 | |
| Machinery and equipment | Machinery and equipment | 563,645 | | | 542,745 | | Machinery and equipment | 641,453 | | | 611,459 | |
| Office equipment | Office equipment | 5,927 | | | 6,247 | | Office equipment | 6,109 | | | 6,119 | |
| Construction in progress | Construction in progress | 31,940 | | | 22,428 | | Construction in progress | 46,087 | | | 48,378 | |
| Total | Total | 672,673 | | | 647,011 | | Total | 774,162 | | | 742,840 | |
| Less accumulated depreciation | Less accumulated depreciation | (453,433) | | | (436,983) | | Less accumulated depreciation | (488,962) | | | (479,741) | |
| Total | Total | $ | 219,240 | | | $ | 210,028 | | Total | $ | 285,200 | | | $ | 263,099 | |
Total depreciation expense amounted to $10,980$12,767 and $21,830$10,850 for the three-three months ended June 30, 2023 and six-month periods ended September 23,June 24, 2022, respectively, and $11,222 and $22,342 for the three- and six-month periods ended September 24, 2021, respectively.
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
Long-lived assets include property, plant and equipment and related deposits on such assets, and capitalized tooling costs. The geographic locations of the Company’s long-lived assets, net, based on physical location of the assets, as of September 23, 2022 and March 25, 2022 are as follows:
| | | | | | | | | | | |
| September 23,
2022 | | March 25,
2022 |
| United States | $ | 36,539 | | | $ | 35,221 | |
| Philippines | 174,835 | | | 167,488 | |
| | | |
| Other | 9,602 | | | 7,746 | |
| Total | $ | 220,976 | | | $ | 210,455 | |
Amortization of prepaid tooling costs amounted to $33 and $65 for the three- and six-month periods ended September 23, 2022, respectively, and $33 and $66 for the three- and six-month periods ended September 24, 2021, respectively.
9.8. Goodwill and Intangible Assets
The table below summarizes the changes in the carrying amount of goodwill as follows:
| | | | | |
| Total |
Balance at March 25, 202231, 2023 | $ | 20,00927,691 | |
Goodwill arising from acquisitionsAdjustments | 8,229280 | |
Currency translation | (201) | |
Balance at September 23, 2022 | $ | 28,037 | |
| |
Balance at March 26, 2021 | $ | 20,106 | |
| |
| Foreign currency translation | (13)77 | |
Balance at September 24, 2021June 30, 2023 | $ | 20,09328,048 | |
Intangible assets, net iswere as follows:
| | | September 23, 2022 | | June 30, 2023 |
| Description | Description | | Gross | | Accumulated
Amortization | | Net Carrying
Amount | | Weighted- Average Lives | Description | | Gross | | Accumulated
Amortization | | Net Carrying
Amount | | Weighted- Average Lives |
| Patents | Patents | | $ | 38,364 | | | $ | 16,649 | | | $ | 21,715 | | | 10 years | Patents | | $ | 41,305 | | | $ | 19,200 | | | $ | 22,105 | | | 10 years |
| Customer relationships | Customer relationships | | 6,542 | | | 6,344 | | | 198 | | | 9 years | Customer relationships | | 3,307 | | | 3,154 | | | 153 | | | 3 years |
| Process technology | Process technology | | 28,074 | | | 2,393 | | | 25,681 | | | 12 years | Process technology | | 28,508 | | | 3,571 | | | 24,937 | | | 10 years |
| Indefinite-lived and legacy process technology | Indefinite-lived and legacy process technology | | 5,636 | | | 1,650 | | | 3,986 | | | Indefinite-lived and legacy process technology | | 4,690 | | | — | | | 4,690 | | |
| Trademarks | | 200 | | | 84 | | | 116 | | | 5 years | |
| Legacy trademarks | | 630 | | | 58 | | | 572 | | | |
| Other | | 32 | | | 32 | | | — | | | |
| Trademarks and other | | Trademarks and other | | 287 | | | 203 | | | 84 | | | 2 years |
| Total | Total | | $ | 79,478 | | | $ | 27,210 | | | $ | 52,268 | | | Total | | $ | 78,097 | | | $ | 26,128 | | | $ | 51,969 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 25, 2022 |
| Description | | Gross | | Accumulated
Amortization | | Net Carrying
Amount | | Weighted- Average Lives |
| Patents | | $ | 36,577 | | | $ | 15,304 | | | $ | 21,273 | | | 10 years |
| Customer relationships | | 6,582 | | | 6,348 | | | 234 | | | 9 years |
| Process technology | | 13,100 | | | 1,742 | | | 11,358 | | | 12 years |
| Indefinite-lived and legacy process technology | | 4,050 | | | 1,650 | | | 2,400 | | | |
| Trademarks | | 200 | | | 64 | | | 136 | | | 5 years |
| Legacy trademarks | | 627 | | | 58 | | | 569 | | | |
| Other | | 32 | | | 32 | | | — | | | |
| Total | | $ | 61,168 | | | $ | 25,198 | | | $ | 35,970 | | | |
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 |
| Description | | Gross | | Accumulated
Amortization | | Net Carrying
Amount | | Weighted- Average Lives |
| Patents | | $ | 40,213 | | | $ | 18,335 | | | $ | 21,878 | | | 10 years |
| Customer relationships | | 3,281 | | | 3,115 | | | 166 | | | 9 years |
| Process technology | | 28,508 | | | 2,963 | | | 25,545 | | | 12 years |
| Indefinite-lived and legacy process technology | | 4,696 | | | — | | | 4,696 | | | |
| Trademarks and other | | 287 | | | 194 | | | 93 | | | 5 years |
| Total | | $ | 76,985 | | | $ | 24,607 | | | $ | 52,378 | | | |
Intangible assets amortization expense was $1,194$1,506 and $2,230$1,036 for the three-three months ended June 30, 2023 and six-month periods ended September 23,June 24, 2022, respectively, and $1,084 and $2,103 for the three- and six-month periods ended September 24, 2021, respectively.
As of September 23, 2022, annual amortization expense of intangible assets for the next five fiscal years is expected to be as follows:
| | | | | |
| Remainder of 2023 | $ | 2,027 | |
| 2024 | 3,859 | |
| 2025 | 3,591 | |
| 2026 | 3,318 | |
| 2027 | 2,999 | |
| Thereafter | 31,916 | |
| Total | $ | 47,710 | |
10. Accrued Expenses and Other Current Liabilities
The composition of accrued expenses and other current liabilities is as follows:
| | | | | | | | | | | |
| September 23,
2022 | | March 25,
2022 |
| | | |
| Accrued management incentives | $ | 19,031 | | | $ | 33,607 | |
| Accrued salaries and wages | 18,261 | | | 14,699 | |
| Accrued warranty costs | 3,745 | | | 541 | |
| | | |
| Accrued vacation | 7,404 | | | 5,715 | |
| Accrued severance | 2,500 | | | 839 | |
| Accrued professional fees | 3,014 | | | 1,252 | |
| Accrued income taxes | 2,467 | | | 1,831 | |
| Accrued utilities | 1,246 | | | 607 | |
| Other current liabilities | 6,273 | | | 6,368 | |
| Total | $ | 63,941 | | | $ | 65,459 | |
11.9. Debt and Other Borrowings
Term Loan Facility
As of June 30, 2023, the principal maturities of debt obligations outstanding of $25,000 will be due for repayment in fiscal year 2028 under our Term Loan Facility (as defined below).
On September 30, 2020, the Company entered into a term loan credit agreement with Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and the other agents, arrangers and lenders party thereto, providing for a $325,000 senior secured term loan facility due in fiscal 2028 (the “Term Loan Facility”). On June 28, 2023, the Company entered into a First Amendment of the Term Loan Facility, which replaces the LIBOR rate with a Term SOFR-based rate as the applicable interest rate benchmark.
2023 Revolving Credit Facility
On June 21, 2023, the Company entered into a revolving facility credit agreement (the “2023 Revolving Credit Agreement”) with Morgan Stanley Senior Funding, Inc., as administrative agent (in such capacity, the “Agent”), collateral agent, a letter of credit issuer and a lender, and the other agents, lenders and letter of credit issuers parties thereto (the “Lenders”). The 2023 Revolving Credit Agreement provides for a $224 million secured revolving credit facility (the “2023 Revolving Credit Facility”), which includes a $20 million letter of credit subfacility. The 2023 Revolving Credit Facility is available until, and loans made thereunder will mature on, June 21, 2028. Interest on the 2023 Revolving Credit Agreement is calculated at a rate equal to (i) Term SOFR (as defined in the 2023 Revolving Credit Agreement) in effect from time to time, plus the applicable spread (ranging from 1.50% to 1.75%) or (ii) the highest of (x) the Federal funds rate, as published by the
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
Federal Reserve Bank of New York, plus 0.50%, (y) the prime lending rate or (z) the one-month Term SOFR plus 1.0% in effect from time to time, plus the applicable spread (ranging from 0.50% to 0.75%). The applicable spreads are based on the Company’s Total Net Leverage Ratio (as defined in the 2023 Revolving Credit Agreement) at the time of the applicable borrowing. As of June 30, 2023, there were no outstanding borrowings.
The Company will also pay a quarterly commitment fee of 0.20% to 0.25% on the daily amount by which the commitments under the 2023 Revolving Credit Facility exceed the outstanding loans and letters of credit under the 2023 Revolving Credit Facility. The 2023 Revolving Credit Agreement contains certain covenants applicable to the Company and its Restricted Subsidiaries (as defined in the 2023 Revolving Credit Agreement), including, without limitation, limitations on additional indebtedness, liens, various fundamental changes, dividends and distributions, investments (including acquisitions), transactions with affiliates, asset sales, prepayment of junior financing, changes in business and other limitations customary in senior secured credit facilities. In addition, the Company is required to maintain a Total Net Leverage Ratio of no more than 4.00 to 1.00 at the end of each fiscal quarter, which may, subject to certain limitations, be increased to 4.50 to 1.00 for four fiscal quarters subsequent to the Company completing an acquisition for consideration in excess of $500 million.
The 2023 Revolving Credit Agreement provides for customary events of default. Upon an event of default, the Agent with the consent of, or at the request of, the holders of more than 50% in principal amount of the loans and commitments, may terminate the commitments and accelerate the maturity of the loans and enforce certain other remedies under the 2023 Revolving Credit Agreement and the other loan documents. In the ordinary course of their respective businesses, one or more of the Lenders under the 2023 Revolving Credit Agreement, or their affiliates, have or may have various relationships with the Company and the Company’s subsidiaries involving the provision of a variety of financial services, including cash management, commercial banking, investment banking, advisory or other financial services, for which they received, or will receive, customary fees and expenses.
2020 Revolving Credit Facility
On September 30, 2020, the Company also entered into a revolving facility credit agreement with Mizuho Bank, Ltd., as administrative agent and collateral agent, and the other agents, arrangers and lenders party thereto, providing for a $50,000 senior secured revolving credit facility expiring in 2023 (the “Revolving“2020 Revolving Credit Facility”). The 2020 Revolving Credit Facility was secured by a lien on the same collateral and together withon the same basis as the Term Loan Facility. Interest on the Term Loan Facility was calculated at LIBOR plus 3.75% to 4.00% based on the “Senior SecuredCompany’s net leverage ratio, and LIBOR is subject to a 0.5% floor. Following entry into the 2023 Revolving Credit Facilities”). The Company’s outstanding borrowings bore an interest rate of 6.27% at September 23, 2022. As of both September 23, 2022 and March 25, 2022,Agreement on June 21, 2023, the Company had $25,000repaid any outstanding loans and terminated all commitments and obligations under the Term Loan2020 Revolving Credit Facility, and had not borrowed on the Revolving Credit Facility. As of September 23, 2022 and March 25, 2022, the unamortized portion of the deferred financing costs associated with the2020 Revolving Credit Facility was $99 and $149, respectively, andreplaced by the related short-term and long-term portions were classified within “Prepaid expenses and other current assets” and “Other assets, net” on its unaudited condensed consolidated balance sheets.
On November 26, 2019, the Company, through its subsidiaries, entered into a line of credit agreement with a financial institution that provides for a maximum borrowing capacity of 60,000 Philippine pesos (approximately $1,036 at September 23, 2022) at the bank’s prevailing interest rate. The line of credit is due to expire on August 31, 2023. There were no borrowings outstanding under this line of credit as of September 23, 2022 and March 25, 2022.
On November 20, 2019, the Company, through its subsidiaries, entered into a line of credit agreement with a financial institution that provides for a maximum capacity of 75,000 Philippine pesos (approximately $1,295 at September 23, 2022) at
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
the bank’s prevailing interest rate. The line of credit is due to expire on June 30, 2023. There were no borrowings outstanding under this line of credit as of September 23, 2022 and March 25, 2022.2023 Revolving Credit Facility.
12. Other Long-Term Liabilities
The composition of other long-term liabilities is as follows:
| | | | | | | | | | | |
| September 23,
2022 | | March 25,
2022 |
| | | |
| Accrued management incentives | $ | 51 | | | $ | 826 | |
| Accrued retirement | 8,204 | | | 8,903 | |
| Accrued contingent consideration | 100 | | | 2,800 | |
| Provision for uncertain tax positions | 2,808 | | | 2,757 | |
| | | |
| Total | $ | 11,163 | | | $ | 15,286 | |
13. Retirement Plans
The Company recognizes the funded status (i.e., the difference between the fair value of plan assets and the benefit obligations) of its defined benefit pension plans in its unaudited condensed consolidated balance sheets with a corresponding adjustment to accumulated other comprehensive income, net of tax. These amounts will continue to be recognized as a component of future net periodic benefit costs consistent with the Company’s past practice. Further, actuarial gains and losses and prior service costs that arise in future periods and are not recognized as net periodic benefit costs in the same periods will be recognized as a component of other comprehensive income. Those amounts will also be recognized as a component of future net periodic benefit costs consistent with the Company’s past practice. The Company uses a measurement date for its defined benefit pension plans and other postretirement benefit plans that is equivalent to its fiscal year-end.
Plan Descriptions
Non-U.S. Defined Benefit Plan
The Company, through its wholly owned subsidiary, Allegro MicroSystems Philippines, Inc. (“AMPI”), has a defined benefit pension plan, which is a noncontributory plan that covers substantially all employees of the respective subsidiary. The plan’s assets are invested in common trust funds, bonds and other debt instruments and stocks.
Effect on the unaudited statements of operations
Expense related to the non-United States (“U.S.”) defined benefit plan was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Month Period Ended | | Six-Month Period Ended |
| September 23,
2022 | | September 24,
2021 | | September 23,
2022 | | September 24,
2021 |
| Service cost | $ | 307 | | | $ | 371 | | | $ | 635 | | | $ | 754 | |
| Interest cost | 185 | | | 161 | | | 382 | | | 327 | |
| Expected return on plan assets | (73) | | | (76) | | | (151) | | | (155) | |
| | | | | | | |
| | | | | | | |
| Amortization of prior service cost | (2) | | | — | | | (4) | | | — | |
| Actuarial loss | 19 | | | 52 | | | 40 | | | 105 | |
| Net periodic pension expense | $ | 436 | | | $ | 508 | | | $ | 902 | | | $ | 1,031 | |
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
Information on Plan Assets
The table below sets forth the fair value of the entity’s non-U.S. defined benefit plan’s plan assets as of September 23, 2022 and March 25, 2022, using the same three-level hierarchy of fair value inputs described in the significant accounting policies included in the Company’s 2022 Annual Report.
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at September 23,
2022 | | Level 1 | | Level 2 | | Level 3 |
| Assets of non-U.S. defined benefit plan: | | | | | | | |
| Government securities | $ | 2,077 | | | $ | 2,077 | | | $ | — | | | $ | — | |
| Unit investment trust fund | 1,004 | | | — | | | 1,004 | | | — | |
| Loans | 540 | | | — | | | — | | | 540 | |
| Bonds | 581 | | | — | | | 581 | | | — | |
| Stocks and other investments | 1,969 | | | 1,004 | | | 2 | | | 963 | |
| Total | $ | 6,171 | | | $ | 3,081 | | | $ | 1,587 | | | $ | 1,503 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at March 25,
2022 | | Level 1 | | Level 2 | | Level 3 |
| Assets of non-U.S. defined benefit plan: | | | | | | | |
| Government securities | $ | 1,920 | | | $ | 1,920 | | | $ | — | | | $ | — | |
| Unit investment trust fund | 1,165 | | | — | | | 1,165 | | | — | |
| Loans | 553 | | | — | | | — | | | 553 | |
| Bonds | 676 | | | — | | | 676 | | | — | |
| Stocks and other investments | 2,783 | | | 1,716 | | | 2 | | | 1,065 | |
| Total | $ | 7,097 | | | $ | 3,636 | | | $ | 1,843 | | | $ | 1,618 | |
The following table shows the change in fair value of Level 3 plan assets for the six-month periods ended September 23, 2022 and September 24, 2021:
| | | | | | | | | | | |
| Level 3 Non-U.S. Defined Benefit Plan Assets |
| Loans | | Stocks |
| Balance at March 25, 2022 | $ | 553 | | | $ | 1,065 | |
| Additions during the year | 253 | | | — | |
| Redemptions during the year | (216) | | | — | |
| Revaluation of equity securities | 3 | | | — | |
| Change in foreign currency exchange rates | (53) | | | (102) | |
| Balance at September 23, 2022 | $ | 540 | | | $ | 963 | |
| | | |
| Balance at March 26, 2021 | $ | 584 | | | $ | 1,133 | |
| Additions during the year | 273 | | | — | |
| Redemptions during the year | (214) | | | — | |
| Revaluation of equity securities | (1) | | | — | |
| Change in foreign currency exchange rates | (22) | | | (37) | |
| Balance at September 24, 2021 | $ | 620 | | | $ | 1,096 | |
The investments in the Company’s major benefit plans largely consist of low-cost, broad-market index funds to mitigate risks of concentration within the market sectors. In recent years, the Company’s investment policy has shifted toward a closer matching of the interest-rate sensitivity of the plan assets and liabilities. The appropriate mix of equity and bond investments is determined primarily through the use of detailed asset-liability modeling studies that look to balance the impact of changes in the discount rate against the need to provide asset growth to cover future service cost. The Company, through its wholly owned subsidiary, Allegro MicroSystems, LLC’s (“AML”), non-U.S. defined benefit plan, has added a
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
greater proportion of fixed income securities with return characteristics that are more closely aligned with changes in liabilities caused by discount rate volatility. There are no significant restrictions on the amount or nature of the investments that may be acquired or held by the plans.
During the three- and six-month periods ended September 23, 2022, the Company contributed approximately $327 and $699 to its non-U.S. pension plan, respectively. During the three- and six-month periods ended September 24, 2021, the Company contributed approximately $343 and $696 to its non-U.S. pension plan, respectively. The Company expects to contribute approximately $1,546 to its non-U.S. pension plan in fiscal year 2023.
Defined Contribution Plan
The Company has a 401(k) plan that covers all employees meeting certain service and age requirements. Employees are eligible to participate in the plan upon hire when the service and age requirements are met. Employees may contribute up to 35% of their compensation, subject to the maximum contribution allowed by the Internal Revenue Service. All employees are 100% vested in their contributions at the time of plan entry.
Eligible AML U.S. employees may contribute up to 50% of their pretax compensation to a defined contribution plan, subject to certain limitations, and AML may match, at its discretion, 100% of the participants’ pretax contributions, up to a maximum of 5% of their eligible compensation. Matching contributions by AML totaled approximately $1,052 and $2,482 for the three- and six-month periods ended September 23, 2022, respectively, and approximately $1,089 and $2,345 for the three- and six-month periods ended September 24, 2021, respectively.
14.10. Commitments and Contingencies
Insurance
The Company, through its subsidiaries, utilizes self-insured employee health programs for employees in the United States. The Company records estimated liabilities for its self-insured health programs based on information provided by the third-party plan administrators, historical claims experience and expected costs of claims incurred but not reported. The Company monitors its estimated liabilities on a quarterly basis. As facts change, it may become necessary to make adjustments that could be material to the Company’s unaudited condensed consolidated financial position and results of operations.
Legal proceedings
The Company is subject to various legal proceedings, and claims, and regulatory examinations or investigations arising in the normal course of business, the outcomes of which are subject to significant uncertainty, and the Company’s ultimate liability, if any, is difficult to predict. The Company records an accrual for legal contingencies when it is determined that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In making such determinations, the Company evaluates, among other things, the degree of probability of an unfavorable outcome and, when it is probable that a liability has been incurred, the ability to make a reasonable estimate of the loss. If the occurrence of liability is probable and estimable, the Company will disclose the nature of the contingency and, if estimable, will provide the likely amount of such loss or range of loss. The Company does not believe there are any current matters that could have a material adverse effect on its financial position, results of operations or cash flows.
Indemnification
From time to time, the Company has agreed to indemnify and hold harmless certain customers for potential allegations of infringement of intellectual property rights and patents arising from the use of its products. To date, the Company has not recognized or incurred any costs in connection with such indemnification arrangements; therefore, there was no accrual of such amounts at September 23, 2022 or March 25, 2022.
Environmental Matters
The Company establishes accrued liabilities for environmental matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. If the contingency is resolved for an amount greater or less than the accrual, or the Company’s share of the contingency increases or decreases or other assumptions relevant to the development of the estimate were to change, the Company would recognize an additional expense or benefit in the unaudited condensed consolidated statements of operations during the period such determination was made. No significant environmental accruals were established at September 23, 2022 or March 25, 2022.
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
15.11. Net Income per Share
The following table sets forth the basic and diluted net income per common share attributable to Allegro MicroSystems, Inc. per share.
| | | Three-Month Period Ended | | Six-Month Period Ended | | Three-Month Period Ended | |
| | September 23,
2022 | | September 24,
2021 | | September 23,
2022 | | September 24,
2021 | | June 30,
2023 | | June 24,
2022 | |
| Net income attributable to Allegro MicroSystems, Inc. | $ | 50,614 | | | $ | 33,186 | | | $ | 60,861 | | | $ | 60,855 | | |
| Net income attributable to common stockholders | Net income attributable to common stockholders | 50,648 | | | 33,223 | | | 60,931 | | | 60,930 | | Net income attributable to common stockholders | $ | 60,889 | | | $ | 10,283 | | |
| | Basic weighted average shares of common stock | Basic weighted average shares of common stock | 191,284,631 | | | 189,673,788 | | | 190,959,616 | | | 189,629,535 | | Basic weighted average shares of common stock | 191,997,330 | | | 190,638,135 | | |
| Dilutive effect of common stock equivalents | Dilutive effect of common stock equivalents | 1,354,945 | | | 2,002,634 | | | 1,694,481 | | | 1,786,715 | | Dilutive effect of common stock equivalents | 2,994,576 | | | 1,768,141 | | |
| Diluted weighted average shares of common stock | Diluted weighted average shares of common stock | 192,639,576 | | | 191,676,422 | | | 192,654,097 | | | 191,416,250 | | Diluted weighted average shares of common stock | 194,991,906 | | | 192,406,276 | | |
| Basic net income attributable to Allegro MicroSystems, Inc. per share | $ | 0.26 | | | $ | 0.17 | | | $ | 0.32 | | | $ | 0.32 | | |
| | Basic net income attributable to common stockholders per share | Basic net income attributable to common stockholders per share | $ | 0.26 | | | $ | 0.18 | | | $ | 0.32 | | | $ | 0.32 | | Basic net income attributable to common stockholders per share | $ | 0.32 | | | $ | 0.05 | | |
| Diluted net income attributable to Allegro MicroSystems, Inc. per share | $ | 0.26 | | | $ | 0.17 | | | $ | 0.32 | | | $ | 0.32 | | |
| Diluted net income attributable to common stockholders per share | Diluted net income attributable to common stockholders per share | $ | 0.26 | | | $ | 0.17 | | | $ | 0.32 | | | $ | 0.32 | | Diluted net income attributable to common stockholders per share | $ | 0.31 | | | $ | 0.05 | | |
The computed net income per share for the three-three months ended June 30, 2023 and six-month periods ended September 23,June 24, 2022 and September 24, 2021 does not assume conversion of securities that would have an antidilutive effect on income per share. The following table represents contingently issuable shares under the securitiesrestricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”) excluded from the computation of net income per share, as conversion of such securities would have an antidilutive effect on net income per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Month Period Ended | | Six-Month Period Ended |
| September 23,
2022 | | September 24,
2021 | | September 23,
2022 | | September 24,
2021 |
| Restricted stock units | 77,043 | | | — | | | 48,725 | | | — | |
| Performance stock units | 169,939 | | | — | | | 107,390 | | | — | |
| Employee stock purchase plan | — | | | 1,567 | | | — | | | 6,012 | |
| | | | | | | |
| Total | 246,982 | | | 1,567 | | | 156,115 | | | 6,012 | |
| | | | | | | | | | | | |
| Three-Month Period Ended | |
| June 30,
2023 | | June 24,
2022 | |
| Restricted stock units (RSUs) | — | | | 19,272 | | |
| Performance stock units (PSUs) | 65,943 | | | 46,991 | | |
| | | | |
| | | | |
| | | | |
| | | | |
The following table represents issued and issuable weighted average share information underlying our outstanding RSUs, PSUs and participation in our employee stock purchase plan for the respective periods:
| | | Three-Month Period Ended | | Six-Month Period Ended | | Three-Month Period Ended | |
| | September 23,
2022 | | September 24,
2021 | | September 23,
2022 | | September 24,
2021 | | June 30,
2023 | | June 24,
2022 | |
| Restricted stock units | Restricted stock units | 541,201 | | | 1,026,069 | | | 624,738 | | | 922,968 | | Restricted stock units | 1,163,894 | | | 668,259 | | |
| Performance stock units | Performance stock units | 810,426 | | | 976,565 | | | 1,066,425 | | | 863,747 | | Performance stock units | 1,809,200 | | | 1,080,201 | | |
| Employee stock purchase plan | Employee stock purchase plan | 3,318 | | | — | | | 3,318 | | | — | | Employee stock purchase plan | 21,482 | | | 19,681 | | |
| | Total | Total | 1,354,945 | | | 2,002,634 | | | 1,694,481 | | | 1,786,715 | | Total | 2,994,576 | | | 1,768,141 | | |
16.12. Common Stock and Stock-Based Compensation
Restricted Stock Units
The Company accountsfollowing table summarizes the Company’s RSU activity for stock-based compensation through the measurement and recognitionthree months ended June 30, 2023:
| | | | | | | | | | | |
| Shares | | Weighted-Average
Grant Date
Fair Value |
| Outstanding at March 31, 2023 | 2,251,224 | | | $ | 23.85 | |
| Granted | 848,711 | | | 37.99 | |
| Issued | (684,245) | | | 24.27 | |
| Forfeited | (24,100) | | | 23.68 | |
| Outstanding at June 30, 2023 | 2,391,590 | | | $ | 28.78 | |
As of June 30, 2023, total unrecognized compensation expense for share-based payment awards made to employees over the related requisite service period, including PSUs, RSUs and restricted shares (all part of our equity incentive plan).
During the six-month periods ended September 23, 2022 and September 24, 2021, the Company granted RSUs to employees of 2,144,417 and 960,031, respectively, with an estimated grant date fair value of $22.96 and $24.96, respectively. During the six-month periods ended September 23, 2022 and September 24, 2021, 1,070,849 and 64,583 shares vested, respectively, and 152,126 and 61,039 shares were cancelled, respectively. Stock-based compensation expense related to non-vested awards not yet recorded at September 23, 2022issued was $46,164,$61,087, which is expected to be recognized over a weighted-average period of 1.532.63 years.
PSUs are included at 100% - 200% of target goals. The intrinsictotal grant date fair value of RSUs vested was $16.5 million for the PSUs that were unvested during the six-month periodthree months ended September 23, 2022 was $63,476. A total of 855,916 and no shares vested during the six-month periodsJune 30, 2023.
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
Performance Stock Units
The following table summarizes the Company’s PSU activity for the three months ended June 30, 2023:
| | | | | | | | | | | |
| Shares | | Weighted-Average
Grant Date
Fair Value |
| Outstanding at March 31, 2023 | 2,748,347 | | | $ | 23.47 | |
| Granted | 292,985 | | | 40.50 | |
| Excess shares issued due to achievement of performance condition | 454,947 | | | 25.00 | |
| Issued | (181,050) | | | 25.76 | |
| Forfeited | (36,985) | | | 22.89 | |
| Outstanding at June 30, 2023 | 3,278,244 | | | $ | 24.23 | |
endedIncluded in the outstanding shares are 396,171 and 486,299 shares as of March 31, 2023 and June 30, 2023, respectively, that have vested but have not been issued. PSUs are includ September 23, 2022 and September 24, 2021, respectively.ed at 0% - 200% of target goals. The total compensation cost related to unvested awards not yet recorded at September 23, 2022 was $25,750,June 30, 2023 was $25,613, which is expected to be recognized over a weighted average of 2.88 years.
During the six-month periods ended September 23, 2022 and September 24, 2021, 23,425 and 59,201, respectively, shares of the Company’s restricted common stock vested. No shares and 9,757 shares, respectively, were forfeited, which reduced common stock outstanding during the same periods. The Company had 117,101 unvested shares of restricted common stock at September 23, 2022 with a weighted average grant date fair value of $14.00 and remaining vesting period of 0.582.45 years.
The Company recorded stock-based compensation expense in the following expense categories of its unaudited condensed consolidated statements of operations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Month Period Ended | | Six-Month Period Ended |
| September 23,
2022 | | September 24,
2021 | | September 23,
2022 | | September 24,
2021 |
| Cost of sales | $ | 1,124 | | | $ | 722 | | | $ | 1,956 | | | $ | 1,250 | |
| Research and development | 1,711 | | | 1,043 | | | 2,839 | | | 1,795 | |
| Selling, general and administrative | 5,369 | | | 4,431 | | | 37,545 | | | 7,982 | |
| Total stock-based compensation | $ | 8,204 | | | $ | 6,196 | | | $ | 42,340 | | | $ | 11,027 | |
During the first fiscal quarter of 2023, the Company’s (former) President and Chief Executive Officer, Ravi Vig, provided notice of his retirement from the Company and its board of directors (the “Board”), effective June 13, 2022. Additionally, the Company entered into a second amended and restated severance agreement (the “Second A&R Severance Agreement”) with Mr. Vig that amended and restated the amended agreement from September 30, 2020. As provided for in the Second A&R Severance Agreement, the Company agreed, in addition to other cash-settled and health insurance-related compensation, to modifications to Mr. Vig’s stock-based compensation, including: (i) acceleration of the vesting of all unvested RSUs, (ii) modification of certain PSUs with performance conditions that had been achieved as of the retirement date to permit these awards to remain outstanding and eligible to vest in accordance with their terms, and (iii) the forfeiture of certain unvested PSUs with performance conditions that had not been achieved as of the retirement date and replacement thereof with new immediately vesting RSUs. The impact of these modifications on stock-based compensation expense was $26,349 for the six-month period ended September 23, 2022, which was recorded in selling, general and administrative expense in the Company’s unaudited condensed consolidated statements of operations. | | | | | | | | | | | | | | |
| Three-Month Period Ended | |
| June 30,
2023 | | June 24,
2022 | |
| Cost of sales | $ | 2,606 | | | $ | 832 | | |
| Research and development | 2,868 | | | 1,128 | | |
| Selling, general and administrative | 5,568 | | | 32,176 | | |
| Total stock-based compensation | $ | 11,042 | | | $ | 34,136 | | |
1713. Income Taxes
The Company recorded the following tax provision in its unaudited condensed consolidated statements of operations:
| | Three-Month Period Ended | | Six-Month Period Ended | |
| | September 23,
2022 | | September 24,
2021 | | September 23,
2022 | | September 24,
2021 | | | | | | | | | | | | |
| | | Three-Month Period Ended | |
| | | June 30,
2023 | | June 24,
2022 | |
| Provision for income taxes | Provision for income taxes | $ | 8,438 | | $ | 6,143 | | $ | 10,403 | | $ | 10,406 | Provision for income taxes | $ | 7,215 | | $ | 1,965 | |
| | Effective tax rate | Effective tax rate | 14.3% | | 15.6% | | 14.6% | | 14.6% | Effective tax rate | 10.6% | | 16.0% | |
The Company’s provision for income taxes is comprised of the year-to-date taxes based on an estimate of the annual effective tax rate plus the tax impact of discrete items.
The Company is subject to tax in the U.S. and various foreign jurisdictions. The Company’s effective income tax rate can fluctuatefluctuates primarily based on:because of: the change in the mix of itsour U.S. and foreign income; the impact of discrete transactions;transactions and the difference between the amount oflaw changes; state tax benefitimpacts and tax benefits generated by the foreign derived intangible income deduction (“FDII”) and research credits offset by the additional tax from the global intangible low-tax income (“GILTI”).
The effective tax rate (“ETR”) was primarily impacted by, including permanent impacts of Internal Revenue Code (“IRC”) Section 174 Capitalization (“174 Capitalization”), and research credits; offset by non-deductible stock-based compensation charges.
The effective tax rate (“ETR”) year-over-year was primarily impacted by discrete tax benefits related to stock-compensation windfalls, a reductiondecrease in FDII deductions offset by reductions in state taxes, and an increase in current year non-deductible executive compensation expense. 174 Capitalization increased U.S. taxableglobal intangible low-tax income cash taxes, FDII deductions, and(“GILTI”), Subpart F, and GILTI inclusions. non-deductible stock-based compensation charges.
14. Related Party Transactions
Transactions involving Sanken
The net tax impactCompany sells products to, and purchases in-process products from, 174 Capitalization is favorable becauseSanken. As of June 30, 2023, Sanken held approximately 51.2% of the increased FDII deductions of $9,000 exceed the additional inclusion for Subpart F and GILTI income inclusions of $3,280 (“Net 174 Benefit”). The Net 174 Benefit is offset in the current year by increased non-deductible executive compensation of $6,826, state tax benefits and discrete tax impacts.Company’s outstanding common stock.
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
The Company regularly assesses the likelihood of outcomes that could result from the examination of its tax returns by the IRS and other tax authorities to determine the adequacy of its income tax reserves and expense. Should actual events or results differ from the Company’s then-current expectations, charges or credits to the Company’s provision for income taxes may become necessary. Any such adjustments could have a significant effect on the results of operations.
18. Related Party Transactions
Transactions involving Sanken
The Company sells products to, and purchases in-process products from, Sanken. As of September 23, 2022, Sanken held approximately 51.5% of the Company’s outstanding common stock.
Net sales of the Company’s products to Sanken totaled $45,026$0 and $86,735$41,709 during the three-three months ended June 30, 2023 and six-month periods ended September 23,June 24, 2022, respectively,respectively. Although certain costs are shared or allocated, cost of goods sold and $37,165 and $72,618 during the three- and six-month periods ended September 24, 2021, respectively.gross margins attributable to related party sales are consistent with those of third-party customers. Trade accounts receivables, net of allowances from Sanken, totaled $32,411$0 and $27,256$13,253 as of September 23, 2022June 30, 2023 and March 25, 2022,31, 2023, respectively. Other accounts receivable from Sanken totaled $117$113 and $104$241 as of September 23, 2022June 30, 2023 and March 25, 2022,31, 2023, respectively. Accounts payable to Sanken totaled $1,373 and $0 as of June 30, 2023 and March 31, 2023, respectively.
Termination of Sanken Distribution Agreement
On September 29, 2022,March 30, 2023, the Company entered into a transitiontermination of the distribution agreement with Sanken that provides for the termination of(the “Termination Agreement”). The Termination Agreement formally terminated the distribution agreement dated as of July 5, 2007, by and between the Company and Sanken (the “Distribution Agreement”) and sets forth, effective March 31, 2023. The Distribution Agreement provided Sanken the terms governing the collaboration between the partiesexclusive right to transition the marketing and sale ofdistribute the Company’s products in Japan. In connection with the termination of the Distribution Agreement, and, as provided for in the Termination Agreement, the Company made a one-time payment of $5,000 to Sanken in exchange for the cancellation of Sanken’s exclusive distribution rights in Japan, which was recorded in selling, general and administrative expenses in the consolidated statements of operations. Concurrent with the Termination Agreement, AML and Sanken also entered into a short-term, nonexclusive distribution agreement (the “Short-Term Distribution Agreement”) and a consulting agreement (the “Consulting Agreement”), each of which were effective April 1, 2023. In addition, the Company allowed a one-time sales return from Sanken of resalable inventory of $4,200. The Short-Term Distribution Agreement provides for the management and sale of Company product inventory for a period of twenty-four months. Under the terms of the Consulting Agreement, Sanken agreed to continue to provide transition services for a period of six months to a strategic customer as orders for the customer are transitioned from Sanken to the Company, during the 12-month transition period beginning on September 29, 2022 (the “Transition Agreement”). Following the 12-month transition period, both the Transition Agreement and the Distribution Agreement will terminate.
Under the terms of the Transition Agreement, Sanken will cease to place new orders for the Company’s products and will begin to transition existing orders to the Company. All orders are expected to be transferred by June 30, 2023. Sanken also will continue to provide support to the Company’s customers and logistical support to the Company during the transition period. In addition, in the Transition Agreement, the Company and Sanken agreed to enter into a separate agreement regarding the transfer of inventory to the Company and a one-time payment topay Sanken based on Sanken’s analysis of its inventory position as of December 23, 2022. The Transition Agreement had no impact on the Company’s results during the second quarter of fiscal 2023.
The Transition Agreement and termination of the Distribution Agreement are expected to transfer related party distributor sales to third party distributors and direct customers, as well as eliminate the distributor discount historically provided to Sanken.for providing these transition services.
Transactions involving Polar Semiconductor, LLC (“PSL”)
The Company purchases in-process products from PSL. PSL is a subsidiary of Sanken, 70% owned by Sanken and 30% owned by the Company.
Purchases of various products from PSL totaled $14,479$16,102 and $29,150$14,671 for the three-three months ended June 30, 2023 and six-month periods ended September 23,June 24, 2022, respectively, and $13,129 and $26,509 for the three- and six-month periods ended September 24, 2021, respectively. Accounts payable to PSL included in amounts due to a related party totaled $4,709$5,091 and $5,222$4,682 as of September 23, 2022June 30, 2023 and March 25, 2022,31, 2023, respectively.
Effective January 26, 2023, the Company and PSL entered into a new Wafer Foundry Agreement (“WFA”) for the fabrication of wafers. The WFA replaces the previous Wafer Foundry Agreement with PSL, dated April 12, 2013, which was due to expire on March 31, 2023.
The WFA has a three-year term, and auto renews for subsequent one-year terms, unless terminated by either party providing two years notice. Pursuant to the WFA, the Company will provide a rolling annual forecast for three years, the first two years of which will be binding. The Company plans to purchase the forecast volume of wafers; however, if the Company fails to purchase the forecasted number of wafers for either of the first two years, it will pay a penalty for any shortfall for the given year. The parties also agreed upon production lead-times, as well as wafer, alignment, and mask pricing for the first two years of the term. Any changes to such pricing are subject to mutual agreement.
Notes Receivable from PSL
On December 2, 2021, AML entered into a loanloan agreement with PSL wherein PSL provided an initial promissory note to AML for a principal amount of $7,500 (the “Initial PSL Loan”). The Initial PSL Loan will be repaid in equal installments, comprising principal and interest accrued at 1.26% per annum, over a term of four years, with payments due on the first day of each calendar year quarter (April 1, July 1, October 1, and January 1). In addition, onOn July 1, 2022, PSL borrowed an additional $7,500 under the same terms of the PSL Loan (the “Secondary PSL Loan” and, together with the Initial PSL Loan, the “PSL Promissory Notes”). The Secondary PSL Loan will be repaid in equal installments, comprising of principal and interest accrued at 2.99% per annum, over a term of four years, with payments due on the first day of each calendar year quarter (April 1, July 1, October 1, and January 1). The loan funds were used by PSL to procure a deep ultraviolet scannerscanner and other associated manufacturing tools necessary to increase wafer fabrication capacity in support of the Company’s increasing wafer demand. As of September 23, 2022,June 30, 2023, the outstanding balance of the PSL Promissory Notes was $14,063.$11,250. During the sixthree months ended September 23, 2022,June 30, 2023, PSL made required quarterly payments to AML totaling $991,$1,005, which included $53$67 of interest income. On October 1, 2022, PSL made a quarterly payment to AML of $938, which included $77 of interest income.interest.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other information included elsewhere in this Quarterly Report, as well as the audited financial statements and the related notes thereto, and the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” included in our Annual Report on Form 10-K for the year ended March 25, 2022,31, 2023, filed with the Securities and Exchange Commission (“SEC”) on May 18, 2022, as amended by Amendment No. 1 on Form 10-K/A filed with25, 2023 ( the SEC on August 29, 2022 (as amended, the “2022“2023 Annual Report”).
In addition to historical data, this discussion contains forward-looking statements about our business, results of operations, cash flows, financial condition and prospects based on current expectations that involve risks, uncertainties and assumptions. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the section titled “Forward-Looking Statements” and in Part I, Item 1A. “Risk Factors” of our 20222023 Annual Report and Part II, Item 1A. “Risk Factors” of this Quarterly Report. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.
We operate on a 52- or 53-week fiscal year ending on the last Friday of March. Each fiscal quarter has 13 weeks, except in a 53-week year, when the fourth fiscal quarter has 14 weeks. All references to the three- and six-month periodsthree months ended September 23,June 30, 2023 and June 24, 2022 and September 24, 2021 relate to the 13- and 26-week13-week periods ended September 23,June 30, 2023 and June 24, 2022, and September 24, 2021, respectively. All references to “2022,“2024,” “fiscal year 2022”2024” or similar references relate to the 53-week period ended March 29, 2024. All references to “2023,” “fiscal year 2023” or similar references relate to the 52-week period ended March 25, 2022.31, 2023.
Overview
Allegro MicroSystems, Inc., together with its consolidated subsidiaries (“Allegro”, “we”, “us” or “our”) isWe are a leading global designer, developer, fabless manufacturer and marketer of sensor integrated circuits (“ICs”) and application-specific analog power ICs enabling important emergingthe most critical technologies in the automotive and industrial markets. We are a leading supplier of magnetic sensor IC solutions worldwide based on market share, driven by our market leadership in automotive.the automotive market. Our products are foundational to automotive and industrial electronic systems. Our sensor ICs enable our customers to precisely measure motion, speed, position and current, while our power ICs include high-temperature and high-voltage capable motor drivers, power management ICs, light emitting diode driver ICs and isolated gate drivers. We focus on providing completebelieve that our technology expertise, combined with our deep applications knowledge and strong customer relationships, enable us to develop solutions that provide more value to customers than typical ICs. Compared to a typical IC, our solutions are more integrated, intelligent and sophisticated for complex applications and are easier for customers to sense, regulate and drive a variety of mechanical systems. This includes sensing the angular or linear position of a shaft or actuator, driving an electric motor or actuator, and regulating the power applied to sensing and driving circuits so they operate safely and efficiently.use.
We are headquartered in Manchester, New Hampshire and have a global footprint with 17 locations across fourmultiple continents. Our portfolio now includes more than 1,0001,500 products, and we ship over one1.5 billion units annually to more than 10,000 customers worldwide. DuringDuring the three-three months ended June 30, 2023 and six-month periods ended September 23,June 24, 2022 we generated $237.7$278.3 million and $455.4$217.8 million in total net sales, respectively, with $50.6 million$60.9 and $60.9 million in net income, respectively. During the three- and six-month periods ended September 24, 2021, we generated $193.6 million and $381.8 million in total net sales, respectively, with $33.2 million and $60.9$10.3 million in net income, respectively.
Recent Initiatives to Improve Results of OperationsBusiness Updates
We implemented several initiatives during the fiscal year 2022 and into fiscal yearOn June 21, 2023,designed to improve our operating results during those fiscal years and going forward.
We continue to implement initiatives to improve gross margins, which is calculated as gross profit divided by total net sales. Our gross margin improved from 53.0% in the second quarter of 2022 to 55.5% in the second quarter of 2023. This gross margin improvement was a result of our operational transformation, improved product mix of higher average selling prices (“ASPs”) on more value-added products, increased leverage of our distribution channel, and continued efficiency and leverage on higher volumes. We expect to continue to realize this lower level of cost of goods and improvements in operating income for the immediate future. Additionally, we will continue to leverage our facility to increase production where demand for our products warrants.
We have been successful in increasing our ASPs through a focus on feature-rich products and selective price increases. Increased ASPs and manufacturing efficiencies have allowed us to continue to improve gross margin in an environment of limited capacity at our suppliers and rising input costs. Limited supply and increased demand for many of our products and applications, as well as supply chain disruptions related to the COVID-19 pandemic and inflation, have contributed to input cost increases on the components needed to manufacture our products. We will continue to consider opportunities for
strategic price increases and process efficiencies to offset input cost increases on the materials and supplies that we use in production.
With our efforts to leverage our fixed cost and operating margin improvements, we have attained efficiencies through cost structure improvements, streamlining of manufacturing and support processes, and further utilization of excess capacity. These manufacturing efficiencies allowed us to leverage higher volumes to keep pace with increasing demand across most of our applications, while reducing cost of goods sold and increasing the absorption of fixed costs. Although these initiatives have resulted in gross margin and operating income improvements over the previous quarters, we cannot ensure that these trends will continue over the long-term.
In May 2022, we entered into ana revolving facility credit agreement to acquire Heyday Integrated Circuits (“Heyday”(the “2023 Revolving Credit Agreement”) with Morgan Stanley Senior Funding, Inc., as administrative agent, collateral agent, a privately held company specializing in compact, fully integrated isolated gate drivers that enable energy conversion in high-voltage gallium nitrideletter of credit issuer and silicon carbide wide-bandgap semiconductor designs (the “Heyday Acquisition”).a lender, and the other agents, lenders and letter of credit issuers parties thereto. The Heyday Acquisition is expected to complement our existing solutions for energy efficiency, including our market-leading current sensor solutions. Additionally, it is expected to significantly expand Allegro’s addressable market for xEV, solar inverters, data center and 5G power supplies, and broad-market industrial applications. The Heyday Acquisition was completed on September 1, 2022.
On September 29, 2022, the Company entered into a transition agreement with Sanken that2023 Revolving Credit Agreement provides for a $224,000 secured revolving credit facility (the “2023 Revolving Credit Facility”), which includes a $20,000 letter of credit subfacility. The 2023 Revolving Credit Facility is available until, and loans made thereunder will mature on, June 21, 2028. The Company may borrow under the termination2023 Revolving Credit Facility for working capital and general corporate purposes, including the financing of transactions that are permitted under the distribution agreement dated as of July 5, 2007, by and between the Company and Sanken (the “Distribution Agreement”) and sets forth the terms governing the collaboration between the parties to transition the marketing and sale of the Company’s products in Japan from Sanken to the Company during the twelve-month transition period beginning on September 29, 2022 (the “Transition Agreement”). The Transition Agreement and termination of the Distribution Agreement are expected to transfer related party distributor sales to third party distributors and direct customers in Japan, as well as eliminate the distributor discount historically provided to Sanken. Additionally, we will invest in expanding our operations in Japan in order to directly manage and service our customers in that market, which is expected to result in increases in our cost of goods sold and operating expenses. The net impacts of the transition from the existing sales model in Japan is expected to provide incremental benefits to our gross margin over the long-term.2023 Revolving Credit Agreement.
Other Key Factors and Trends Affecting our Operating Results
Our financial condition and results of operations have been, and will continue to be, affected by numerous other factors and trends, including the following:
Inflation
Inflation rates in the markets in which we operate have increasedcontinued to increase and may continue to rise. Inflation over the last several monthsquarters has led us to experience higher costs, including higher labor costs, wafer and other costs for materials from suppliers, and transportation and energy costs. Our suppliers have raised their prices and may continue to raise prices, and in
the competitive markets in which we operate, we may not be able to make corresponding price increases to preserve our gross margins and profitability. If inflation rates continue to rise or remain elevated for a sustained period of time, they could have a material adverse effect on our business, financial condition, results of operations and liquidity. WeWhile we have generally been able to offset increases in these costs through various productivity and cost reduction initiatives, as well as adjusting our selling prices to pass through some of these higher costs to our customers; however,and releasing new products with improved gross margins, our ability to raiseincrease our average selling prices depends on market conditions and competitive dynamics. Given the timing of our actions compared to the timing of these inflationary pressures, there may be periods during which we are unable to fully recover the increases in our costs.
Design Wins with New and Existing Customers
Our end customers continually develop new products in existing and new application areas, and we work closely with our significant OEMoriginal equipment manufacturer customers in most of our target markets to understand their product roadmaps and strategies. For new products, the time from design initiation and manufacturing until we generate sales can be lengthy, typically between two and four years. As a result, our future sales are highly dependent on our continued success at winning design mandates from our customers. Further, despite current inflationary and pricing conditions, we expect the ASPsaverage sales prices (“ASPs”) of our products to decline over time, and we consider design wins to be critical to our future success andsuccess. We anticipate being increasingly dependent on revenue from newer design wins for our newer products. The selection process is typically lengthy and may require us to incur significant design and development expenditures in pursuit of a design win, with no assurance that our solutions will be selected. As a result, the loss of any key design win or any significant delay in the ramp-up of volume production of the customer’s products into which our product is designed could adversely affect our business. In addition, volume production is contingent upon the successful introduction and market acceptance of our customers’ end products, which may be affected by several factors beyond our control.
Customer Demand, Orders and Forecasts
Demand for our products is highly dependent on market conditions in the end markets in which our customers operate, which are generally subject to seasonality, cyclicality and competitive conditions. In addition, a substantial portion of our total net sales is derived from sales to customers that purchase large volumes of our products. These customers generally provide periodic forecasts of their requirements, butrequirements. However, these forecasts do not commit such customers to minimum purchases, and customers can revise these forecasts without penalty. In addition, as is customary in the semiconductor industry, customers are generally permitted to cancel orders for our products within a specified period. While we historically we have permitted order cancellations for most customers, most of our current customer order backlog is noncancellable, which helps mitigate our exposure to unforeseen order cancellations. However, cancellations of orders could still result in the loss of anticipated sales without allowing us sufficient time to reduce our inventory and operating expenses. In addition, changes in forecasts or the timing of orders from customers exposesexpose us to the risks of inventory shortages or excess inventory. We continue to see demand for our products exceed supply, and we are currently operating in an inflationary environment.
Manufacturing Costs and Product Mix
Gross margin has been, and will continue to be, affected by a variety of factors, including the ASPs of our products, product mix in a given period, material costs, yields, manufacturing costs and efficiencies. We believe the primary driver of gross margin is the ASP negotiated between us and our customers relative to material costs and yields. Our pricing and margins depend on the volumes and the features of the products we produce and sell to our customers. As our products mature and unit volumes increase, despite current price leverage, we expect their ASPs to decline in the long term. We continually monitor and work to reduce the cost of our products and improve the potential value our solutions provide to our customers, as we target new design win opportunities and manage the product life cycles of our existing customer designs. We also maintain a close relationship with our suppliers and subcontractors to improve quality, increase yields and lower manufacturing costs. As a result, these declines often coincide with improvements in manufacturing yields and lower wafer, assembly, and testing costs, which offset some or all of the margin reduction that results from declining ASPs. However, we expect our gross margin to fluctuate on a quarterly basis as a result of changes in ASPs due to product mix, new product introductions, transitions into volume manufacturing and manufacturing costs. Gross margin generally decreases if production volumes are lower as a result of decreased demand, which leads to a reduced absorption of our fixed manufacturing costs. Gross margin generally increases when the opposite occurs.
Cyclical Nature of the Semiconductor Industry
The semiconductor industry has historically been highly cyclical and is characterized by increasingly rapid technological change, product obsolescence, competitive pricing pressures, evolving standards, short product life cycles in consumer and other rapidly changing markets and fluctuations in product supply and demand. New technology may result in sudden changes in system designs or platform changes that may render some of our products obsolete and require us to devote significant research and development resources to compete effectively. Periods of rapid growth and capacity
expansion are occasionally followed by significant market corrections in which sales decline, inventories accumulate, and facilities go underutilized. During periods of expansion, our margins generally improve as fixed costs are spread over higher manufacturing volumes and unit sales. In addition, we may build inventory to meet increasing market demand for our products during these times, which serves to absorb fixed costs further and increase our gross margins. During an expansion cycle, we may increase capital spending and hiring to add to our production capacity. During periods of slower growth or industry contractions, our sales, production and productivity suffer, and margins generally decline.
2017 Tax Cuts and Jobs Act Pursuant to the 2017 Tax Cuts and Jobs Act (the “Jobs Act”), beginning in fiscal year 2023, U.S. tax law now requires us to capitalize and amortize domestic and foreign research and development expenditures over 5 and 15 years, for domestic and foreign research, respectively (“174 Capitalization”). The impact of 174 Capitalization for fiscal year 2024 is an increase in annual cash taxes of approximately $20 million and an FDII benefit of $9 million. While it is possible that Congress may modify this provision, potentially with retroactive effect, we have no assurance that this provision will be reversed. Additionally, the Internal Revenue Service (“IRS”) is expected to issue guidance which may modify this law change or its impact.
Results of Operations
Three-Month Period Ended September 23, 2022June 30, 2023 Compared to Three-Month Period Ended SeptemberJune 24, 20212022
The following table summarizes our results of operations and our results of operations as a percentage of total net sales for the three-month periods ended September 23, 2022June 30, 2023 and SeptemberJune 24, 2021.2022.
| | | Three-Month Period Ended | | Change | | Three-Month Period Ended | | Three-Month Period Ended | | Change |
| | September 23,
2022 | | September 24,
2021 | | $ | | % | | June 30,
2023 | | As a % of
Net Sales | | June 24,
2022 | | As a % of
Net Sales | | $ | | % |
| | (Dollars in thousands) | | (Dollars in thousands) |
Total net sales (1) | Total net sales (1) | $ | 237,666 | | | $ | 193,610 | | | $ | 44,056 | | | 22.8 | % | Total net sales (1) | $ | 278,293 | | | 100.0 | % | | $ | 217,753 | | | 100.0 | % | | $ | 60,540 | | | 27.8 | % |
Cost of goods sold (1) | Cost of goods sold (1) | 105,644 | | | 91,078 | | | 14,566 | | | 16.0 | % | Cost of goods sold (1) | 120,343 | | | 43.2 | % | | 99,379 | | | 45.6 | % | | 20,964 | | | 21.1 | % |
| Gross profit | Gross profit | 132,022 | | | 102,532 | | | 29,490 | | | 28.8 | % | Gross profit | 157,950 | | | 56.8 | % | | 118,374 | | | 54.4 | % | | 39,576 | | | 33.4 | % |
| Operating expenses: | Operating expenses: | | Operating expenses: | |
| Research and development | Research and development | 35,567 | | | 29,590 | | | 5,977 | | | 20.2 | % | Research and development | 42,975 | | | 15.4 | % | | 33,857 | | | 15.5 | % | | 9,118 | | | 26.9 | % |
| Selling, general and administrative | Selling, general and administrative | 39,117 | | | 34,088 | | | 5,029 | | | 14.8 | % | Selling, general and administrative | 44,229 | | | 15.9 | % | | 69,780 | | | 32.0 | % | | (25,551) | | | (36.6) | % |
| | Change in fair value of contingent consideration | (2,500) | | | 300 | | | (2,800) | | | (933.3) | % | |
| Total operating expenses | Total operating expenses | 72,184 | | | 63,978 | | | 8,206 | | | 12.8 | % | Total operating expenses | 87,204 | | | 31.3 | % | | 103,637 | | | 47.5 | % | | (16,433) | | | (15.9) | % |
| Operating income | Operating income | 59,838 | | | 38,554 | | | 21,284 | | | 55.2 | % | Operating income | 70,746 | | | 25.4 | % | | 14,737 | | | 6.9 | % | | 56,009 | | | 380.1 | % |
| Other income (expense), net: | Other income (expense), net: | | Other income (expense), net: | |
| | Interest expense | Interest expense | (531) | | | (1,228) | | | 697 | | | (56.8) | % | Interest expense | (769) | | | (0.3) | % | | (278) | | | (0.1) | % | | (491) | | | 176.6 | % |
| Interest income | Interest income | 467 | | | 78 | | | 389 | | | 498.7 | % | Interest income | 843 | | | 0.3 | % | | 158 | | | 0.1 | % | | 685 | | | 433.5 | % |
| Foreign currency transaction gain | 266 | | | 202 | | | 64 | | | 31.7 | % | |
| (Loss) income in earnings of equity investment | (1,029) | | | 226 | | | (1,255) | | | (555.3) | % | |
| Other, net | Other, net | 75 | | | 1,534 | | | (1,459) | | | (95.1) | % | Other, net | (2,716) | | | (1.0) | % | | (2,369) | | | (1.1) | % | | (347) | | | 14.6 | % |
| Total other expense, net | (752) | | | 812 | | | (1,564) | | | (192.6) | % | |
| Total other income, net | | Total other income, net | (2,642) | | | (0.9) | % | | (2,489) | | | (1.1) | % | | (153) | | | 6.1 | % |
| Income before income tax provision | Income before income tax provision | 59,086 | | | 39,366 | | | 19,720 | | | 50.1 | % | Income before income tax provision | 68,104 | | | 24.5 | % | | 12,248 | | | 5.6 | % | | 55,856 | | | 456.0 | % |
| Income tax provision | Income tax provision | 8,438 | | | 6,143 | | | 2,295 | | | 37.4 | % | Income tax provision | 7,215 | | | 2.6 | % | | 1,965 | | | 1.0 | % | | 5,250 | | | 267.2 | % |
| Net income | Net income | 50,648 | | | 33,223 | | | 17,425 | | | 52.4 | % | Net income | 60,889 | | | 21.9 | % | | 10,283 | | | 4.7 | % | | 50,606 | | | 492.1 | % |
| Net income attributable to non-controlling interests | Net income attributable to non-controlling interests | 34 | | | 37 | | | (3) | | | (8.1) | % | Net income attributable to non-controlling interests | 39 | | | — | % | | 36 | | | — | % | | 3 | | | 8.3 | % |
| Net income attributable to Allegro MicroSystems, Inc. | Net income attributable to Allegro MicroSystems, Inc. | $ | 50,614 | | | $ | 33,186 | | | $ | 17,428 | | | 52.5 | % | Net income attributable to Allegro MicroSystems, Inc. | $ | 60,850 | | | 21.9 | % | | $ | 10,247 | | | 4.7 | % | | $ | 50,603 | | | 493.8 | % |
(1)Our total net sales and cost of goods sold for the periods presented above include related party net sales and costs of goods sold generated through our distribution agreement with Sanken. See our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information regarding our related party net sales for the periods set forth above.
The following table sets forth our results of operations as a percentage of totalTotal net sales for the periods presented.
| | | | | | | | | | | |
| Three-Month Period Ended |
| September 23,
2022 | | September 24,
2021 |
| Total net sales | 100.0 | % | | 100.0 | % |
| Cost of goods sold | 44.5 | % | | 47.0 | % |
| Gross profit | 55.5 | % | | 53.0 | % |
| Operating expenses: | | | |
| Research and development | 15.0 | % | | 15.3 | % |
| Selling, general and administrative | 16.5 | % | | 17.6 | % |
| | | |
| Change in fair value of contingent consideration | (1.1) | % | | 0.2 | % |
| Total operating expenses | 30.4 | % | | 33.1 | % |
| Operating income | 25.1 | % | | 19.9 | % |
| Other income (expense), net: | | | |
| | | |
| Interest expense | (0.2) | % | | (0.6) | % |
| Interest income | 0.2 | % | | — | % |
| Foreign currency transaction gain | 0.1 | % | | 0.1 | % |
| (Loss) income in earnings of equity investment | (0.3) | % | | 0.1 | % |
| Other, net | — | % | | 0.8 | % |
| Total other expense, net | (0.2) | % | | 0.4 | % |
| Income before income tax provision | 24.9 | % | | 20.3 | % |
| Income tax provision | 3.6 | % | | 3.2 | % |
| Net income | 21.3 | % | | 17.1 | % |
| Net income attributable to non-controlling interests | — | % | | — | % |
| Net income attributable to Allegro MicroSystems, Inc. | 21.3 | % | | 17.1 | % |
Total net sales
Total net sales increased by $44.1 million, or 22.8%, to $237.7 million in the three-month period ended September 23, 2022 from $193.6 million in the three-month period ended SeptemberJune 30, 2023 in the three-month period ended June 24, 2021.2022. This increase was primarily attributable to higher shipmentshipments of our data center,e-Mobility products, which includes our advanced
driver assistance systems (“ADAS”), safety, comfort and convenience, electrified vehicle (“xEV”EV”), and computing applications.broad-based industrial applications, which includes clean energy and automation offset by declines in our consumer and smart home markets.
Sales Trends by Market
The following table summarizes total net sales by market. The categorization of net sales by market is based on the characteristics of the end product and application into which our product will be designed.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Month Period Ended | | Change |
| September 23,
2022 | | September 24,
2021 | | Amount | | % |
| (Dollars in thousands) |
| Automotive | $ | 157,398 | | | $ | 126,031 | | | $ | 31,367 | | | 24.9 | % |
| Industrial | 48,176 | | | 36,321 | | | 11,855 | | | 32.6 | % |
| Other | 32,092 | | | 31,258 | | | 834 | | | 2.7 | % |
| Total net sales | $ | 237,666 | | | $ | 193,610 | | | $ | 44,056 | | | 22.8 | % |
The increase in net sales by market was driven primarily by increases in automotive of $31.4 million, or 24.9%, and industrial of $11.9 million, or 32.6%. | | | | | | | | | | | | | | | | | | | | | | | |
| Three-Month Period Ended | | Change |
| June 30,
2023 | | June 24,
2022 | | Amount | | % |
| (Dollars in thousands) |
| Automotive | $ | 189,698 | | | $ | 149,649 | | | $ | 40,049 | | | 26.8 | % |
| Industrial | 68,184 | | | 40,140 | | | 28,044 | | | 69.9 | % |
| Other | 20,411 | | | 27,964 | | | (7,553) | | | (27.0) | % |
| Total net sales | $ | 278,293 | | | $ | 217,753 | | | $ | 60,540 | | | 27.8 | % |
Automotive netnet sales increased in the three-month period ended September 23, 2022June 30, 2023 compared to the three-month period ended SeptemberJune 24, 2021,2022, primarily due to higher demand for our ADAS, EV and safety, comfort and convenience and xEV applications.
Industrial netnet sales improvedincreased in the three-month period ended September 23, 2022June 30, 2023 compared to the three-month period ended SeptemberJune 24, 2021,2022, primarily due to increases in demand for clean energy and automation. This increase was partially offset by declines in our data center applications.
Other net sales decreased in the three-month period ended June 30, 2023 compared to the three-month period ended June 24, 2022, primarily due to lower demand for our Energy Star household appliance applications, including consumer and Industry 4.0 applications.smart home offerings.
Sales Trends by Product
The following table summarizes net sales by product.
| | | Three-Month Period Ended | | Change | | Three-Month Period Ended | | Change |
| | September 23,
2022 | | September 24,
2021 | | Amount | | % | | June 30,
2023 | | June 24,
2022 | | Amount | | % |
| | (Dollars in thousands) | | (Dollars in thousands) |
| Magnetic sensors (“MS”) and other | | Magnetic sensors (“MS”) and other | $ | 174,305 | | | $ | 137,093 | | | $ | 37,212 | | | 27.1 | % |
| Power integrated circuits (“PIC”) | Power integrated circuits (“PIC”) | $ | 97,327 | | | $ | 65,523 | | | $ | 31,804 | | | 48.5 | % | Power integrated circuits (“PIC”) | 103,988 | | | 80,660 | | | 23,328 | | | 28.9 | % |
| Magnetic sensors (“MS”) and other | 140,339 | | | 128,087 | | | 12,252 | | | 9.6 | % | |
| | Total net sales | Total net sales | $ | 237,666 | | | $ | 193,610 | | | $ | 44,056 | | | 22.8 | % | Total net sales | $ | 278,293 | | | $ | 217,753 | | | $ | 60,540 | | | 27.8 | % |
The increase in net sales by product was driven by increases of $12.2 million, or 9.6%,a relatively even increase in MSboth PIC and other product sales and $31.8 million, or 48.5%, in PICMS product sales. MS sales were driven primarily by our current and isolator products as well our magnetic position sensors, while PIC sales were driven by our motors and high performance power products.
Sales Trends by Geographic Location
The following table summarizes net sales by geographic location based on ship-to location.
| | | Three-Month Period Ended | | Change | | Three-Month Period Ended | | Change |
| | September 23,
2022 | | September 24,
2021 | | Amount | | % | | June 30,
2023 | | June 24,
2022 | | Amount | | % |
| | (Dollars in thousands) | | (Dollars in thousands) |
| Americas: | Americas: | | Americas: | |
| United States | United States | $ | 25,131 | | | $ | 27,785 | | | $ | (2,654) | | | (9.6) | % | United States | $ | 48,824 | | | $ | 28,391 | | | $ | 20,433 | | | 72.0 | % |
| Other Americas | Other Americas | 7,244 | | | 5,427 | | | 1,817 | | | 33.5 | % | Other Americas | 8,508 | | | 6,487 | | | 2,021 | | | 31.2 | % |
| EMEA: | EMEA: | | EMEA: | |
| Europe | Europe | 40,710 | | | 32,466 | | | 8,244 | | | 25.4 | % | Europe | 55,388 | | | 35,333 | | | 20,055 | | | 56.8 | % |
| Asia: | Asia: | | Asia: | |
| Greater China | Greater China | 63,203 | | | 50,683 | | | 12,520 | | | 24.7 | % | Greater China | 62,216 | | | 55,116 | | | 7,100 | | | 12.9 | % |
| Japan | Japan | 45,026 | | | 37,165 | | | 7,861 | | | 21.2 | % | Japan | 41,580 | | | 41,709 | | | (129) | | | (0.3) | % |
| South Korea | South Korea | 20,931 | | | 19,746 | | | 1,185 | | | 6.0 | % | South Korea | 29,513 | | | 20,979 | | | 8,534 | | | 40.7 | % |
| Other Asia | Other Asia | 35,421 | | | 20,338 | | | 15,083 | | | 74.2 | % | Other Asia | 32,264 | | | 29,738 | | | 2,526 | | | 8.5 | % |
| Total net sales | Total net sales | $ | 237,666 | | | $ | 193,610 | | | $ | 44,056 | | | 22.8 | % | Total net sales | $ | 278,293 | | | $ | 217,753 | | | $ | 60,540 | | | 27.8 | % |
Net sales increased across all international locations in the three-month period ended September 23, 2022June 30, 2023 compared to the three-month period ended SeptemberJune 24, 2021,2022, primarily due to content and market share gains partially offsetacross all geographies, except for Japan, which continues to transition from our termination of the Sanken distribution agreement, which provided Sanken the exclusive right to distribute our products to Japan.
Our largest growth was in North America and Europe driven by a decreaseour broad-based industrial markets, industrial automation and e-Mobility applications. Growth in product sales in the U.S.
Other Asia was driven by both China and South Korea experienced saleswhich included growth in all areas of $15.1 million and $1.2 million, respectively, mainly due to higher demand for our data center,the automotive market, including internal combustion engine (“ICE”), safety, comfort and convenience, ADAS, and computing offerings. The increase in net sales of $12.5 million, or 24.7%, in Greater China related to higher automotive demand, primarily in our ADAS, safety, comfort and convenience and xEV sectors. The increase in net sales of $8.2 million, or 25.4%, in Europe, predominantly comprised of Germany and France, was primarily driven by increases in automotive and industrial demand. Net sales in Japan grew $7.9 million, or 21.2%, which was primarily driven by higher demand in our xEV, ICE and industrial offerings. Other Americas increased $1.8 million, or 33.5%, mainly due to higher automotive demand, specifically in our ADAS applications.
The increases above were partially offset by lower net sales in the United States of $2.7 million, or 9.6%, primarily driven by a decline in our industrial sector.EV.
Cost of goods sold gross profit and gross marginprofit
Cost of goods soldsold increased by $14.6 million, or 16.0%, to $105.6 million in the three-month period ended September 23,June 30, 2023 compared to the three-month period ended June 24, 2022, from $91.1 millionprimarily attributable to higher production volume in support of higher product sales, and to a lesser extent additional inventory reserves and stock-based compensation.
Gross profit increased in the three-month period ended September 24, 2021. The increase in cost of goods sold was primarily attributableJune 30, 2023 compared to higher sales volume and, to a lesser extent, higher warranty costs.
Gross profit increased by $29.5 million, or 28.8%, to $132.0 million in the three-month period ended September 23,June 24, 2022, from $102.5 million in the three-month period ended September 24, 2021. The increase in gross profit was driven by a $44.1$60.5 million increase in net sales toacross all markets, discussed above, partially offset by the impacts to cost of goods sold discussed above.
R&D expenses
R&D expensesexpenses increased by $6.0 million, or 20.2%, to $35.6 million in the three-month period ended September 23, 2022 from $29.6 millionJune 30, 2023 in comparison to the three-monthcomparable period ended September 24, 2021. This increase wasin fiscal year 2023, primarily due to a combined $4.7 million increase in personnel and outside service costs, higher stock-based compensation expense of $0.7 million, and a $0.4 millionan increase in general operating expenses.
R&D expenses represented 15.0%as a percentage of our total net sales remained relatively consistent at 15.4% and 15.5% for the three-month periodperiods ended September 23,June 30, 2023 and June 24, 2022, a decrease from 15.3% of our total net sales for the three-month period ended September 24, 2021. This percentage decrease was primarily due to the growth in net sales in the three-month period ended September 23, 2022.respectively.
SG&A expenses
SG&A expenses increased by $5.0 million, or 14.8%, to $39.1 milliondecreased in the three-month period ended September 23, 2022 from $34.1 million inJune 30, 2023 compared to the three-month period ended SeptemberJune 24, 2021. This increase was2022, primarily due to an increase in personnel coststhe inclusion of $3.0 million and higher combined dues and subscriptions and professional fees of $1.0 million, as well as higheraccelerated stock-based compensation expense of $0.9 million.$26.3 million related to the retirement of our former chief executive officer and $3.8 million of severance due to changes in leadership in the period ending June 24, 2022. These decreases were partially offset by increased professional fees and outside services costs of $2.4 million and personnel increases.
SG&A expenses represented 16.5%as a percentage of our total netnets sales fordecreased to 15.9% from 32.0% in the three-month periodperiods ended September 23,June 30, 2023 and June 24, 2022, a decrease from 17.6% of our total net sales for the three-month period ended September 24, 2021. This percentagerespectively. The decrease was primarily due to the growth in net salesimpacts noted above.
Interest expense and interest income
Interest expense increased in the three-month period ended September 23, 2022.
Interest expense, net
Interest expense, net was $0.5 million inJune 30, 2023 compared to the three-month period ended September 23,June 24, 2022, compared to $1.2 million in the three-month period ended September 24, 2021. The decrease in interest expense, net was primarily due to higher interest income received from investments and a related party in the second quarter of 2023, partially offset by higher mandatory interest payments on the Term Loan Facility inFacility. Interest income increased compared to the second quarter of 2023.three-month period ended June 24, 2022, primarily due to higher cash balances maintained.
Foreign currency transaction gainOther, net
We recorded a foreign currency transaction gain of $0.3 millionloss in the three-month period ended September 23, 2022June 30, 2023 compared to a foreign currency transaction gain of $0.2 million in the three-month period ended SeptemberJune 24, 2021.2022. The foreign currency transaction gainsloss recorded in eachthe three-month period wereended June 30, 2023 was primarily due to the realized and unrealized gainslosses from our United Kingdom location partiallydue to the strengthening of the British Pound.
We recognized unrealized losses of $8.9 million, offset by losses from$5.2 million of realized gains related to our Philippines location.
(Loss) income in earnings of equity investment
(Loss) income in earnings of equity investment reflected losses of $1.0 million and gains of $0.2 million in the three-month periods ended September 23, 2022 and September 24, 2021, respectively, representing the (loss) earnings on our 30% investment in PSL.
Other, net
Other, net decreased by $1.5 million to $0.1 million of miscellaneous gainsmarketable securities in the three-month period ended September 23, 2022 from $1.5June 30, 2023, compared to unrealized losses of $3.4 million of miscellaneous gains induring the three-month period ended SeptemberJune 24, 2021. This decrease was largely attributable to $1.0 million of unrealized gains on equity securities recognized during the second quarter of fiscal 2022 that did not repeat in the second quarter of fiscal 2023.2022.
Income tax provision
Income tax provision and the effective income tax rate were $8.4$7.2 million or 14.3%, and $6.1 million, or 15.6%10.6%, respectively, in the three-month periodsperiod ended September 23, 2022June 30, 2023 and September$2.0 million and 16.0%, respectively, in the three-month period ended June 24, 2021, respectively.2022. The effective tax rate (“ETR”) year-over-year was primarily impacted by IRC Section 174 Capitalization (“174 Capitalization”),discrete tax benefits related to stock-based compensation windfalls and a reductiondecrease in FDII deductions offset by reductions in state taxes, and an increase in current year non-deductible executive compensation expense. 174 Capitalization increased U.S. taxable income, cash taxes, FDII deductions, andGILTI, Subpart F, and GILTI inclusions. The net tax impact from 174 Capitalization is favorable because the increased FDII deductions of $9.0 million exceed the additional inclusion for Subpart F and GILTI
income inclusions of $3.3 million (“Net 174 Benefit”). The Net 174 Benefit is offset in the current year by increased non-deductible executive compensation of $6.8 million, state tax benefits and discrete tax impacts.
Six-Month Period Ended September 23, 2022 Compared to Six-Month Period Ended September 24, 2021
The following table summarizes our results of operations for the six-month periods ended September 23, 2022 and September 24, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six-Month Period Ended | | Change | | | | |
| September 23,
2022 | | September 24,
2021 | | $ | | % | | | | | |
| (Dollars in thousands) |
Total net sales (1) | $ | 455,419 | | | $ | 381,752 | | | $ | 73,667 | | | 19.3 | % | | | | | | |
Cost of goods sold (1) | 205,023 | | | 185,060 | | | 19,963 | | | 10.8 | % | | | | | | |
| Gross profit | 250,396 | | | 196,692 | | | 53,704 | | | 27.3 | % | | | | | | |
| Operating expenses: | | | | | | | | | | | | | |
| Research and development | 69,424 | | | 59,144 | | | 10,280 | | | 17.4 | % | | | | | | |
| Selling, general and administrative | 109,097 | | | 66,152 | | | 42,945 | | | 64.9 | % | | | | | | |
| | | | | | | | | | | | | |
| Change in fair value of contingent consideration | (2,700) | | | 600 | | | (3,300) | | | (550.0) | % | | | | | | |
| Total operating expenses | 175,821 | | | 125,896 | | | 49,925 | | | 39.7 | % | | | | | | |
| Operating income | 74,575 | | | 70,796 | | | 3,779 | | | 5.3 | % | | | | | | |
| Other income (expense), net: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Interest expense | (968) | | | (1,654) | | | 686 | | | (41.5) | % | | | | | | |
| Interest income | 784 | | | 159 | | | 625 | | | 393.1 | % | | | | | | |
| Foreign currency transaction gain (loss) | 2,190 | | | (52) | | | 2,242 | | | (4311.5) | % | | | | | | |
| (Loss) income in earnings of equity investment | (1,893) | | | 505 | | | (2,398) | | | (474.9) | % | | | | | | |
| Other, net | (3,354) | | | 1,582 | | | (4,936) | | | (312.0) | % | | | | | | |
| Total other expense, net | (3,241) | | | 540 | | | (3,781) | | | (700.2) | % | | | | | | |
| Income before income tax provision | 71,334 | | | 71,336 | | | (2) | | | — | % | | | | | | |
| Income tax provision | 10,403 | | | 10,406 | | | (3) | | | — | % | | | | | | |
| Net income | 60,931 | | | 60,930 | | | 1 | | | — | % | | | | | | |
| Net income attributable to non-controlling interests | 70 | | | 75 | | | (5) | | | (6.7) | % | | | | | | |
| Net income attributable to Allegro MicroSystems, Inc. | $ | 60,861 | | | $ | 60,855 | | | $ | 6 | | | — | % | | | | | | |
(1)Our total net sales and cost of goods sold for the periods presented above include related party net sales generated through our distribution agreement with Sanken. See our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information regarding our related party net sales for the periods set forth above.
The following table sets forth our results of operations as a percentage of total net sales for the periods presented.
| | | | | | | | | | | |
| Six-Month Period Ended |
| September 23,
2022 | | September 24,
2021 |
| Total net sales | 100.0 | % | | 100.0 | % |
| Cost of goods sold | 45.0 | % | | 48.5 | % |
| Gross profit | 55.0 | % | | 51.5 | % |
| Operating expenses: | | | |
| Research and development | 15.2 | % | | 15.5 | % |
| Selling, general and administrative | 24.0 | % | | 17.3 | % |
| | | |
| Change in fair value of contingent consideration | (0.6) | % | | 0.2 | % |
| Total operating expenses | 38.6 | % | | 33.0 | % |
| Operating income | 16.4 | % | | 18.5 | % |
| Other income (expense), net: | | | |
| | | |
| Interest expense | (0.2) | % | | (0.4) | % |
| Interest income | 0.2 | % | | — | % |
| Foreign currency transaction gain (loss) | 0.5 | % | | — | % |
| (Loss) income in earnings of equity investment | (0.4) | % | | 0.1 | % |
| Other, net | (0.8) | % | | 0.5 | % |
| Total other expense, net | (0.7) | % | | 0.2 | % |
| Income before income tax provision | 15.7 | % | | 18.7 | % |
| Income tax provision | 2.3 | % | | 2.8 | % |
| Net income | 13.4 | % | | 15.9 | % |
| Net income attributable to non-controlling interests | — | % | | — | % |
| Net income attributable to Allegro MicroSystems, Inc. | 13.4 | % | | 15.9 | % |
Total net sales
Total net sales increased by $73.7 million, or 19.3%, to $455.4 million in the six-month period ended September 23, 2022 from $381.8 million in the six-month period ended September 24, 2021. This increase was primarily attributable to higher shipment of our data center, ADAS, xEV, computing, and safety, comfort and convenience applications.
Sales Trends by Core End Market and Application
The following table summarizes total net sales by market. The categorization of net sales by market is based on the characteristics of the end product and application into which our product will be designed.
| | | | | | | | | | | | | | | | | | | | | | | |
| Six-Month Period Ended | | Change |
| September 23,
2022 | | September 24,
2021 | | Amount | | % |
| (Dollars in thousands) |
| Automotive | $ | 307,047 | | | $ | 259,554 | | | $ | 47,493 | | | 18.3 | % |
| Industrial | 88,316 | | | 66,630 | | | 21,686 | | | 32.5 | % |
| Other | 60,056 | | | 55,568 | | | 4,488 | | | 8.1 | % |
| Total net sales | $ | 455,419 | | | $ | 381,752 | | | $ | 73,667 | | | 19.3 | % |
The increase in net sales by market was driven by increases in automotive of $47.4 million, or 18.3%, industrial of $21.7 million, or 32.5%, and other of $4.5 million, or 8.1%.
Automotive net sales increased in the six-month period ended September 23, 2022 compared to the six-month period ended September 24, 2021, as we continued to experience higher demand for our ADAS, xEV, and safety, comfort and convenience applications.
Industrial net sales increased in the six-month period ended September 23, 2022 compared to the six-month period ended September 24, 2021, primarily due to increases in demand for our data center and Industry 4.0 applications.
Other net sales increased in the six-month period ended September 23, 2022 compared to the six-month period ended September 24, 2021 mainly due to increases in demand for certain computer products.
Sales Trends by Product
The following table summarizes net sales by product.
| | | | | | | | | | | | | | | | | | | | | | | |
| Six-Month Period Ended | | Change |
| September 23,
2022 | | September 24,
2021 | | Amount | | % |
| (Dollars in thousands) |
| PIC | $ | 177,987 | | | $ | 132,195 | | | $ | 45,792 | | | 34.6 | % |
| MS and other | 277,432 | | | 249,557 | | | 27,875 | | | 11.2 | % |
| | | | | | | |
| | | | | | | |
| Total net sales | $ | 455,419 | | | $ | 381,752 | | | $ | 73,667 | | | 19.3 | % |
The growth in net sales by product was driven by increases of $45.8 million in PIC product sales and $27.8 million in MS and other product sales during the six-month period ended September 23, 2022 compared to the same period last year.
Sales Trends by Geographic Location
The following table summarizes net sales by geographic location based on ship-to location.
| | | | | | | | | | | | | | | | | | | | | | | |
| Six-Month Period Ended | | Change |
| September 23,
2022 | | September 24,
2021 | | Amount | | % |
| (Dollars in thousands) |
| Americas: | | | | | | | |
| United States | $ | 53,522 | | | $ | 54,626 | | | $ | (1,104) | | | (2.0) | % |
| Other Americas | 13,731 | | | 11,776 | | | 1,955 | | | 16.6 | % |
| EMEA: | | | | | | | |
| Europe | 76,043 | | | 67,217 | | | 8,826 | | | 13.1 | % |
| Asia: | | | | | | | |
| Greater China | 118,319 | | | 93,462 | | | 24,857 | | | 26.6 | % |
| Japan | 86,735 | | | 72,618 | | | 14,117 | | | 19.4 | % |
| South Korea | 41,910 | | | 41,679 | | | 231 | | | 0.6 | % |
| Other Asia | 65,159 | | | 40,374 | | | 24,785 | | | 61.4 | % |
| Total net sales | $ | 455,419 | | | $ | 381,752 | | | $ | 73,667 | | | 19.3 | % |
The increase in net sales across geographic locations in the six-month period ended September 23, 2022 compared to the six-month period ended September 24, 2021 was primarily due to content and market share gains, partially offset by a decrease in product sales in the U.S.
The increase in net sales of $24.9 million, or 26.6%, in Greater China related to higher automotive demand, primarily in our ADAS, xEV, and safety, comfort and convenience sectors. Other Asia experienced sales growth of $24.8 million, or 61.4%, mainly due to higher demand for our data center, ICE, safety, comfort and convenience, ADAS and computing applications. Net sales in Japan grew $14.1 million, or 19.4%, which was primarily driven by higher demand in our xEV, safety, comfort and convenience, ICE and industrial offerings. The increase in net sales of $8.8 million, or 13.1%, in Europe, predominantly comprised of Germany and France, was primarily driven by increases in automotive and industrial demand. Other Americas increased $2.0 million, or 16.6%, mainly due to higher automotive demand, specifically in our ADAS applications.
The increases above were partially offset by lower net sales in the United States of $1.1 million, or 2.0%, primarily driven by a decline in our industrial sector.
Cost of goods sold, gross profit and gross margin
Cost of goods sold increased by $20.0 million, or 10.8%, to $205.0 million in the six-month period ended September 23, 2022 from $185.1 million in the six-month period ended September 24, 2021. The increase in cost of goods sold was primarily attributable to higher production volume in support of higher product sales during the first half of fiscal 2023 and, to a lesser extent, higher warranty costs incurred.
Gross profit increased by $53.7 million, or 27.3%, to $250.4 million in the six-month period ended September 23, 2022 from $196.7 million in the six-month period ended September 24, 2021. The increase in gross profit was driven by a $73.7 million increase in total net sales to all end markets discussed above, partially offset by the impacts to cost of goods sold discussed above.
R&D expenses
R&D expenses increased by $10.3 million, or 17.4%, to $69.4 million in the six-month period ended September 23, 2022 from $59.1 million in the six-month period ended September 24, 2021. This increase was primarily due to a combined $8.3 million increase in employee salaries, contract labor, and inventory and supplies costs, a $1.0 million increase in stock-based compensation expense, and a combined $0.6 million increase in other general operating expenses.
R&D expenses represented 15.2% of our total net sales for the six-month period ended September 23, 2022, a decrease from 15.5% of our total net sales in the six-month period ended September 24, 2021. This percentage decrease was primarily due to the growth in net sales in the six-month period ended September 23, 2022.
SG&A expenses
SG&A expenses increased by $42.9 million, or 64.9%, to $109.1 million in the six-month period ended September 23, 2022 from $66.2 million in the six-month period ended September 24, 2021. This increase was primarily due to a $29.6 million increase in stock-based compensation expense, including accelerated expense from the retirement of our former chief executive officer of approximately $26.3 million, a combined increase of $11.6 million in professional fees, severance and travel and meeting costs, and a combined $8.3 million increase in employee salaries and insurance costs, partially offset by $6.8 million in combined general operating expenses.
SG&A expenses represented 24.0% of our total net sales in the six-month period ended September 23, 2022, an increase from 17.3% of our total net sales in the six-month period ended September 24, 2021. This percentage increase was primarily due to the impacts noted above, partially offset by growth in net sales in the six-month period ended September 23, 2022.
Interest expense, net
Interest expense, net was $1.0 million in the six-month period ended September 23, 2022 compared to $1.7 million in the six-month period ended September 24, 2021. The decrease in interest expense, net was primarily due to higher interest income received from investments and a related party in the six-month period ended September 23, 2022, partially offset by slightly higher mandatory interest payments on the Term Loan Facility in the first half of fiscal 2023.
Foreign currency transaction gain (loss)
Foreign currency transaction gain increased by $2.3 million to $2.2 million in the six-month period ended September 23, 2022 compared to $0.1 million in foreign currency transaction losses in the six-month period ended September 24, 2021. The foreign currency transaction gain recorded in the six-month period ended September 23, 2022 and September 24, 2021 was primarily due to $3.6 million and $0.2 million, respectively, of realized and unrealized gains from our United Kingdom location. During the six-month period ended September 23, 2022, we also recognized foreign currency transaction losses of $0.8 million and $0.5 million related to our operations in Japan and Philippines, respectively.
(Loss) income in earnings of equity investment
(Loss) income in earnings of equity investment reflected losses of $1.9 million and gains of $0.5 million in the six-month periods ended September 23, 2022 and September 24, 2021, respectively, representing the (loss) earnings on our 30% investment in PSL.
Other, net
Other, net changed by $5.0 million to $3.4 million of miscellaneous losses in the six-month period ended September 23, 2022 from $1.6 million of miscellaneous gains in the six-month period ended September 24, 2021. This
change was largely attributable to $3.5 million of unrealized losses on equity securities recognized during the first half of fiscal 2023 compared to $1.0 million in unrealized gains on equity securities recognized during the same period last year.
Income tax provision
Income tax provision and the effective income tax rate were $10.4 million, or 14.6%, and $10.4 million, or 14.6%, respectively, in the six-month periods ended September 23, 2022 and September 24, 2021. The ETR was primarily impacted by 174 Capitalization, a reduction in state taxes and an increase in current year non-deductible executive compensation expense. 174 Capitalization increased U.S. taxable income, cash taxes, FDII deductions, and Subpart F and GILTI inclusions. The net tax impact from 174 Capitalization is favorable because the increased FDII deductions of $9.0 million exceed the additional inclusion for Subpart F and GILTI income inclusions of $3.3 million. The Net 174 Benefit is offset in the current year by increased non-deductible executive compensation of $6.8 million, state tax benefits and discrete tax impacts.charges.
Liquidity and Capital Resources
As of September 23, 2022, June 30, 2023, we had $293.6had $353.4 million of cash and cash equivalents and $432.7$546.8 million of workingworking capital compared to $282.4$351.6 million of cash and cash equivalents and $407.5$500.5 million of working capital as of March 25, 2022.31, 2023. Working capital is impacted by the timing and extent of our business needs.
Our primary requirements for liquidity and capital resources are working capital, capital expenditures, principal and interest payments on our outstanding debt and other general corporate needs. Historically, these cash requirements have been met through cash provided by operating activities and cash and cash equivalents. Our current capital deployment strategy for 2023fiscal 2024 is to invest excessutilize cash on hand and capacity under our 2023 Revolving Credit Facility to support our continued growth initiatives into select markets, planned capital expenditures, and strategic arrangements, as well as consider potential acquisitions. As of September 23, 2022June 30, 2023, the Company iswas not party to any off-balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. The cash requirements for the upcoming fiscal year relate to our operating leases, operating and capital purchase commitments and expected contributions to our defined benefit and contribution plans. Additionally, we expect to invest in expanding our operations in China, Europe and Japan in order to directly manage and service our customers in these markets, which could result in increases in our total net sales, cost of goods sold and operating expenses. For information regarding the Company’s expected cash requirements and timing of payments related to leases, and noncancellable purchase commitments and pension and defined contribution plans, see Note 17,12, “Leases,” Note 16, “Commitments and Contingencies” to the Company’s 2022 Annual Report. Additionally, refer toand Note 16,15 “Retirement Plans” to the Company’s 2022 Annual Report for more information related toaudited consolidated financial statements in the Company’s pension and defined contribution plans.2023 Annual Report.
We believe that our existing cash will be sufficient to finance our continued operations, growth strategy, planned capital expenditures and the additional expenses that we expect to incur during the next 12 months. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through equity or debt financing. We believe that our current operating structure will facilitate sufficient cash flows from operations to satisfy our expected long-term liquidity requirements beyond the next 12 months. If these resources are not sufficient to satisfy our liquidity requirements due to changes in circumstances, we may be required to seek additional financing. If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, may contain covenants that significantly restrict our operations or our ability to obtain additional debt financing in the future. Any additional financing that we raise may contain terms that are not favorable to us or our stockholders. We cannot assure you that we would be able to obtain additional financing on terms favorable to us or our existing stockholders, or at all.
Cash Flows from Operating, Investing and Financing Activities
The following table summarizes our cash flows for the six-month periodsthree months ended September 23, 2022June 30, 2023 and SeptemberJune 24, 2021:2022:
| | | Six-Month Period Ended | | Three-Month Period Ended |
| | September 23, 2022 | | September 24, 2021 | | June 30, 2023 | | June 24, 2022 |
| | (dollars in thousands) | | (dollars in thousands) |
| Net cash provided by operating activities | Net cash provided by operating activities | $ | 91,804 | | | $ | 69,876 | | Net cash provided by operating activities | $ | 49,663 | | | $ | 36,553 | |
| Net cash used in investing activities | Net cash used in investing activities | (54,948) | | | (23,297) | | Net cash used in investing activities | (34,939) | | | (14,389) | |
| Net cash (used in) provided by financing activities | (14,596) | | | 1,291 | | |
| Net cash used in financing activities | | Net cash used in financing activities | (11,035) | | | (9,137) | |
| Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (8,777) | | | 3,939 | | Effect of exchange rate changes on cash and cash equivalents | (73) | | | (6,554) | |
| Net increase in cash and cash equivalents and restricted cash | Net increase in cash and cash equivalents and restricted cash | $ | 13,483 | | | $ | 51,809 | | Net increase in cash and cash equivalents and restricted cash | $ | 3,616 | | | $ | 6,473 | |
Operating Activities
Net cash provided by operating activities was $91.8$49.7 million in the six-monththree-month period ended September 23, 2022,June 30, 2023, resulting primarily from our net income of $60.9 million and noncash charges of $51.3$25.8 million, including a one-time charge of approximately $26.3 million related to the acceleration of stock-based compensation expense from the retirement of our former chief executive officer, partially offset by a net decrease in cash from an increase in net operating assets and liabilities of $20.5$37.0 million. Net changesThe net increase in operating assets and liabilities consisted of a $17.3$27.9 million increase in inventories, a $9.5$8.8 million increase in prepaid expenses and other assets, a $5.7 million decrease in net amounts due from related parties, and a $5.0$17.1 million decrease in accrued expenses and other current and long-term liabilities, and a $10.3 million increase in trade accounts receivable, net, partially offset by an $8.9a $18.4 million increase in trade accounts payable, a $5.5 million decrease in trade accounts receivable, net, and a $2.5$10.1 million decreaseincrease in other receivables.net amounts due from related parties. The increase in inventories was primarily the result of inventory builds to support anticipated sales growth infor the remainder of fiscal 2023.2024. The increase in prepaid expenses and other assets were mostly due to higher long-term deposits and the timing of tax payments, including value-added taxes receivable, insurance and contract costs. The decrease in accrued expenses and other current and long-term liabilities was primarily the result of a reduction in accrued personnel costs due to timing of payments pursuant to our annual incentive compensation plan. The increase in trade accounts receivable, net was primarily a result of increased sales year-over-year, as well as the timing of receipts. Accounts payable increased primarily due to the timing of payments to suppliers and vendors, partially offset by higher operating purchases, including unpaid capital expenditures of $11.7 million. The increase in net amounts due to related parties was primarily due to variations in the timing of such payments in the ordinary course of business. The decrease in accrued expenses and other current and long-term liabilities was primarily the result of lower accrued personnel costs, including management incentives, and a reduction in the balance due on the acquisition of Voxtel, Inc. (“Voxtel”). Accounts payable increased mainly due to the timing of payments to suppliers and vendors, partially offset by higher operating purchases, including unpaid capital expenditures of $3.9 million. The decrease in trade accounts receivable, net was primarily due to the timing of receipts from customers. The decrease in other receivables was primarily due to increased distributor sales year-over-year, as well as the timing of receipts from Sanken.
Net cash provided by operating activities was $69.9$36.6 million in the six-month periodthree months ended SeptemberJune 24, 2021,2022, resulting primarily from our net income of $60.9$10.3 million and noncash charges of $35.5$44.2 million, partially offset by a net decrease in operating assets and liabilities of $26.5$17.9 million. Net changes in operating assets and liabilities consisted of a $17.2$13.1 million increase in prepaid expenses, a $4.9 million increase in inventories, a $4.7 million increase in trade accounts receivable, net, and a $3.3 million decrease in net amounts due from related parties, partially offset by a $1.2 million increase in accrued expenses and other current and long-term liabilities, a $6.8$4.1 million increase in prepaid expenses, a $6.2 million decrease in trade accounts payable and a $2.3 million increase in trade accounts receivable, net, partially offset by a $4.4$2.7 million decrease in inventories and a $1.3 million increase in net amounts due from related parties. The decrease in accrued expenses and other current and long-term liabilities was primarily the result of management incentive payments, partially offset by higher accrued personnel costs. The decrease in accrued expenses and other current and long-term liabilities was primarily due to the release of deposits related to the sale of our manufacturing facility in Thailand (the “AMTC Facility”) and reduction of the balance due on the Voxtel acquisition.accounts receivable. The increase in prepaid expenses and other assets werewas primarily due to an increase in prepaid contracts andhigher long-term deposits investments in marketable equity securities, and the timing of tax payments, including value-added taxes receivable, insurance and contract costs. Accounts payable decreased mainly dueThe increase in inventories was primarily the result of inventory builds to support anticipated sales growth in the timingremainder of payments to suppliers and vendors, partially offset by higher operating purchases, including unpaid capital expenditures of $3.2 million.fiscal 2023. The increase in trade accounts receivable, net was primarily a result of increased sales year-over-year, as well as the timing of receipts from customers. The decrease in inventories was primarily a result of the continued drawdown after building inventory up in prior periods to support anticipated sales growth and recovery from the COVID-19 pandemic. The increase in net amounts due to related parties was primarily due to variations in the timing of such payments in the ordinary course of business. The increase in accrued expenses and other current and long-term liabilities was primarily the result of higher accrued income taxes and accrued personnel costs, partially offset by higher management incentive payments. Accounts payable increased mainly due to the timing of payments to suppliers and vendors, partially offset by higher operating purchases, including unpaid capital expenditures of $2.6 million. The decrease in accounts receivable - other was primarily due to increased distributor sales year-over-year, as well as the timing of receipts from Sanken.
Investing Activities
Net cash used in investing activities was $54.9$34.9 million in the six-monththree-month period ended September 23, 2022,June 30, 2023, consisting of purchases of property, plant and equipment of $35.2$44.9 million and payments related toproceeds from the acquisitionsale of Heydaymarketable securities of $19.7$10.0 million.
Net cash used in investing activities was $23.3$14.4 million in the six-monththree-month period ended SeptemberJune 24, 2021,2022, consisting of purchases of property, plant and equipment of $33.8 million, payments related to the acquisition of Voxtel of $12.5 million, and purchases of marketable securities of $4.3 million, partially offset by $27.4 million of cash received for the sale of the AMTC Facility.equipment.
Financing Activities
Net cash used in financing activities was $14.6$11.0 million in the six-monththree-month period ended September 23, 2022,June 30, 2023, primarily consisting of taxes related to the net settlement of equity awards and additional funds loaned to PSL under our related party loan agreement,payments of debt issuance costs in connection with the 2023 Revolving Credit Facility, partially offset by proceeds received in connection with the issuance of common stock under our employee stock purchase plan and proceeds receivedplan.
Net cash used in financing activities was $9.1 million in the three-month period ended June 24, 2022, primarily consisting of taxes related to the quarterly payment from PSL on our related party loan.net settlement of equity awards.
Net cash provided by financing activities was $1.3 million in the six-month period ended September 24, 2021, consisting of proceeds received in connection with the issuance of common stock under our employee stock purchase plan.
Debt Obligations
On September 30, 2020, we entered into a term loan credit agreement with Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and the other agents, arrangers and lenders party thereto, providing for a $325.0 million senior secured term loan facility due in 2027 (the “Term Loan Facility”). On September 30, 2020, we also entered into a revolving facility credit agreement with Mizuho Bank, Ltd., as administrative agent and collateral agent, and the other agents, arrangers and lenders party thereto, providing for a $50.0 million senior secured revolving credit facility expiring in 2023 (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facilities”). As of September 23, 2022, we had $25.0 million in aggregate principal amount of debt outstanding under our Senior Secured Credit Facilities. There were no material changes in our debt obligations from those disclosed in our 2022 Annual Report.
AMPI Credit Facilities
Refer toSee Note 11,9, “Debt and Other Borrowings” in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for information regarding the line of credit agreements in our Philippine location.debt obligations.
Recent Accounting Pronouncements
See Note 2, “Summary of Significant Accounting Policies” in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for a full description of recent accounting pronouncements, including the respective dates of adoption or expected adoption and effects on our condensed consolidated financial statements contained in Item 1 of this Quarterly Report.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies” to our consolidated financial statements included in our 20222023 Annual Report. There have been no material changes in our critical accounting policies and estimates since March 25, 2022.31, 2023.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in our exposures to market risk since March 25, 2022.31, 2023. For details on the Company’s interest rate, foreign currency exchange, and inflation risks, see “Part I, Item 7A. “Quantitative and Qualitative Information About Market Risks” in our 20222023 Annual Report.
Item 4. Controls and Procedures.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act)Act of 1934, as amended (the “Exchange Act”)), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of September 23, 2022.June 30, 2023. Based on the evaluation of our disclosure controls and procedures as of September 23, 2022,June 30, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may be involved in claims, regulatory examinations or investigations and proceedings arising in the ordinary course of our business. The outcome of any such claims or proceedings, regardless of the merits, and the Company’s ultimate liability, if any, is inherently uncertain. We are not currently party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.
Item 1A. Risk Factors.
There have been no material changes in the risk factors previously disclosed in Part II, Item 1A1A. of our Quarterly Report on Form 10-Q for the quarter ended June 24, 2022, which amended the risk factors previously disclosed in item 1A of our2023 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits
(a) Exhibits
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| 101.INS | | Inline XBRL Instance Document. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | | | | | | | | | | |
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| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | | | | | | | | | | |
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| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101 filed herewith). | | | | | | | | | | |
*Indicates management contract or compensatory plan, contract or arrangement.
** Furnished herewith.
† Portions of this exhibit (indicated by “[XXX]”) have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K under the Securities Act of 1933, as
amended, because they are both (i) not material and (ii) would likely cause competitive harm to the registrant if publicly disclosed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | ALLEGRO MICROSYSTEMS, INC. |
| | | |
Date: October 31, 2022August 4, 2023 | | By: | /s/ Vineet Nargolwala |
| | | Vineet Nargolwala |
| | | President and Chief Executive Officer
(principal executive officer) |
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Date: October 31, 2022August 4, 2023 | | By: | /s/ Derek P. D’Antilio |
| | | Derek P. D’Antilio |
| | | Senior Vice President, Chief Financial Officer and Treasurer
(principal financial and accounting officer) |