• Revenue: $178 million for Q3, a decline of 5% sequentially and 30% year-over-year.
• Non-GAAP EPS: $0.07, at the high end of guidance.
• Gross Margin: 49.1% for Q3.
• Operating Margin: 10.8% for Q3.
• Adjusted EBITDA: 17% of sales.
• Automotive Sales: $130 million, a decline of 8% sequentially and 33% year-over-year.
• Industrial and Other Sales: $48 million, increased 5% sequentially, declined 21% year-over-year.
• Magnetic Sensor Sales: $114 million, declining 12% sequentially.
• Power Products Sales: $64 million, increasing 9% sequentially.
• Cash: $149 million at the end of Q3.
• Term Loan Balance: $375 million after a $25 million principal payment.
• Cash Flow from Operations: Outflow of $8 million.
• CapEx: $14 million in Q3, expected to be approximately 6% of sales for FY25.
• DSO: 43 days.
• Inventory Days: 182 days.
• Q4 Sales Outlook: $180 million to $190 million.
• Q4 Gross Margin Outlook: 46% to 48%.
• Q4 Non-GAAP EPS Outlook: $0.03 to $0.07 per share.

• Warning! GuruFocus has detected 5 Warning Signs with ALGM.

Release Date: January 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Allegro Microsystems Inc (NASDAQ:ALGM) reported third-quarter sales of $178 million and non-GAAP EPS of $0.07, both above the midpoint of their guidance.
• The company saw a significant increase in bookings, the highest in the past eight quarters, up 50% year-over-year.
• Allegro Microsystems Inc (NASDAQ:ALGM) introduced several innovative products, including new inductive position sensors and micro power magnetic switches, expanding their market reach.
• The company is making progress in localizing its supply chain in China, with shipments from local OSAT partners already underway.
• Allegro Microsystems Inc (NASDAQ:ALGM) continues to secure multiple design wins across key markets, including automotive and industrial applications, indicating strong future growth potential.

Negative Points

• Total Q3 sales declined 5% sequentially and 30% year-over-year, indicating a challenging market environment.
• Automotive sales, which make up a significant portion of revenue, declined 33% year-over-year.
• Gross margin decreased to 49.1%, with operating margin also declining compared to the previous year.
• The company is facing headwinds in Q4 gross margins due to annual pricing agreements and excess inventory charges.
• Allegro Microsystems Inc (NASDAQ:ALGM) continues to experience challenges in the solar segment of its industrial business, with ongoing inventory issues.

Q & A Highlights

Q: Can you unpack the gross margin guidance for the March quarter and discuss the impact of underutilization costs and pricing agreements? Do you expect the March quarter to be the bottom for gross margins this year? A: Derek D'Antilio, CFO, explained that the 200 basis points headwind expected in Q4 includes pricing resets ahead of cost reductions, minor excess inventory charges, and capacity charges due to reduced production. He noted that similar dynamics occurred in 2022. While not providing guidance for the June quarter, he expressed confidence that the March quarter would likely be the trough for gross margins.

Q: How do you view demand shaping up for the calendar year, especially with projections for double-digit growth in ADAS and EV production? A: CEO Vineet Nargolwala stated that they are focused on leading indicators, such as increased in-quarter orders and low cancellations, which suggest inventory gaps are emerging. Bookings are at an eight-quarter high, up 50% year-over-year. While not providing specific guidance, these indicators are encouraging for future demand.

Q: Could you provide the split between Auto and Industrial expectations for the March quarter? A: Derek D'Antilio, CFO, did not provide a market-specific split but mentioned regional expectations. China is expected to be down single digits due to the Lunar New Year, but overall guidance is up 4% at the midpoint, with North America expected to rebound after inventory declines in Q3.

Q: With xEV business at 48% of revenue, do you expect more growth on the xEV side over the next four quarters? A: CEO Vineet Nargolwala clarified that their e-mobility business, which includes xEV and ADAS products, was down due to inventory management. However, with over 70% of automotive design wins in e-mobility, they expect this trend to continue, viewing the current situation as a temporary blip.

Q: Do you believe in S&P Mobility's forecast of flat light vehicle production in 2025, and can you grow in line with or better than this forecast? A: CEO Vineet Nargolwala noted that while they consider S&P's forecast, they rely on direct conversations with OEMs and tiers. Allegro doesn't need auto production growth to grow due to content growth in xEVs and ADAS. They expect to outgrow the market with a model projecting SAR plus 7% to 10% growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.