Allegro MicroSystems, Inc. (ALGM) Earnings & Analysis

Latest quarter

Allegro reported fiscal Q2 revenue of $276.9 million, above the $271.2 million consensus. Adjusted earnings per share of $0.26 also exceeded the $0.25 consensus. Revenue rose 29.2% from $214.3 million a year earlier.

The company’s filing attributed higher automotive sales to demand across applications including advanced driver assistance, electrified and hybrid vehicles, and internal combustion engines. It attributed growth in industrial and other sales partly to data center, consumer and transport applications. On the call, CFO Derek D’Antilio said automotive sales reached $173 million and industrial and other sales reached $104 million.

Allegro’s gross margin rose to 49.2% from 46.3% a year earlier. Its filing attributed the increase to higher sales, a change in product mix and more favorable absorption of manufacturing costs. Diluted earnings per share rose to $0.12 from $0.03, while free cash flow increased to $30.5 million from $13.9 million.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Mike Doogue said bookings increased 45% year over year and backlog expanded in both automotive and industrial markets. He said design wins also increased, including an onboard charger and a cooling-system motor driver at a North American electric-vehicle manufacturer, where Allegro gained share from a competitor.

Doogue said data center sales reached $46 million in fiscal Q2, up more than 150% year over year. He attributed demand for Allegro’s current sensors partly to the power, heat and space requirements of modern data centers. The company also secured sensor designs with Taiwanese power-supply providers for applications including backup power systems, he said.

Asked about slower sequential data center growth, Doogue said, “Those big programs were pushed out by a quarter or two.” He linked the delays to some hyperscalers’ 800 volt programs. CFO Derek D’Antilio said Allegro did not consider itself wafer constrained, though any capacity constraints were dependent on product mix and concentrated in back-end work, especially testing.

On pricing, D’Antilio said the quarter’s growth largely came from volume: “pricing was not a meaningful impact to our results in the September quarter.” He said Allegro was beginning to raise catalog prices, with broader industrial increases expected in fiscal Q3 and automotive increases on contract renewals in January.

D’Antilio said manufacturing efficiencies, including a transition from gold to copper wire where feasible, were intended to offset input-cost inflation. He identified operating leverage, manufacturing cost reductions, pricing and product mix as drivers of future margin progress. Doogue also described investment in robotics products, including a planned fiscal Q3 sampling of a combined sensor and motor-driver chip for humanoid hands.

Guidance

CFO Derek D’Antilio expects automotive to lead Allegro’s December-quarter sales, with continued data center demand. He also expects other industrial sales to decline seasonally as distributors take a break at year-end.