Allegro MicroSystems, Inc. (NASDAQ:ALGM) Q4 2024 Earnings Call Transcript May 9, 2024
Allegro MicroSystems, Inc. misses on earnings expectations. Reported EPS is $-0.03658 EPS, expectations were $0.21. ALGM isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning and welcome to the Allegro MicroSystems Fourth Quarter and Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation there will be question and answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to our first speaker for today, Jalene Hoover, Vice President of Investor Relations and Corporate Communications. Please go ahead.
Jalene Hoover: Thank you, Crystal. Good morning and thank you for joining us today to discuss Allegro’s fiscal fourth quarter and full year 2024 results. I’m joined today by Allegro’s President and Chief Executive Officer Vineet Nargolwala; who will provide highlights of our business, review our quarterly financial performance, and share our first quarter 2025 outlook. Allegro’s Chief Financial Officer, Derek D’Antilio is not in attendance today due to a personal matter. We will follow our prepared remarks with the Q&A session. Our earnings release and prepared remarks include certain non-GAAP financial measures. The non-GAAP financial measures that are discussed today are not intended to replace or be a substitute for our GAAP financial results.
A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release, which is also available in the Investor Relations page of our website at www.allegromicro.com. This call is also being webcast and a replay will be available in the Events and Presentations section of our IR page shortly. During the course of this conference call, we will make projections and other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution that such statements are based on current projections and assumptions as of today’s date and as a result are subject to risks and uncertainties that could cause actual results or events to differ materially from projections.
Important factors that can affect our business, including factors that could cause actual results to differ from our forward-looking statements are described in detail in our earnings release for the fourth quarter and fiscal year 2024 and in our most recent periodic filings with the SEC, Securities and Exchange Commission. Our estimates or other forward-looking statements may change and the company assumes no obligation to update forward-looking statements to reflect actual results, changes to assumptions or other events that may occur, except as required by law. I will now turn the call over to Allegro’s President and CEO, Vineet Nargolwala. Vineet?
Vineet Nargolwala: Thank you, Jalene, and good morning, all, and thank you for joining our fourth quarter and full year fiscal year 2024 conference call. We are pleased to have delivered fourth quarter revenue and EPS above the high end of our guidance range despite a challenging macro environment. This is a testament to the hard work and dedication of our Allegro team that always puts customers first and innovates with purpose. For full year fiscal 2024, we delivered 8% revenue growth with e-mobility growing 38% and 5% EPS growth. I’m proud of the above-market performance the company has delivered and the progress we have made in serving our customers and positioning the company for sustained long-term growth. We delivered record annual sales of more than $1 billion, a company first, as well as a record level design wins of more than $1 billion.
E-mobility, which includes the increasing electrification of vehicles and the higher adoption of ADAS features, continues to drive Allegro’s above market growth and accounted for more than half of our design wins in fiscal year 2024. From a new product standpoint, we kicked off a record number of products and introduced over 30 new products to the market emphasizing our ongoing commitment to innovation. We extended our leadership in magnetic sensing with the acquisition of Crocus. We’re seeing great excitement from our customers for a highly differentiated ExtremeSense TMR technology that presents the greatest accuracy, lowest power and highest sensitivity for the world’s most demanding applications. Not only are we fanning TMR across our automotive and industrial products, but we are also excited about expanding into medical applications such as continuous glucose monitoring with the leading biomedical OEMs. We have made significant strides in expanding our operational capabilities, building supply chain resilience and improving delivery and quality experiences for our customers.
Through our continuous portfolio review process, we also made the decision to seize investment in our Photonics business to prioritize resources and investments on continued innovation and development of our leading magnetic sensing and power portfolios. In summary, fiscal year 2024 was a successful year, with much to be proud of and celebrate for team Allegro. Now there’s been a lot of discussion on whether xEV momentum is slowing. The facts are that battery electric vehicles are only 15% of global production and growing at 25%. While hybrids are 22% of global production, and growing at 16%. And every OEM is working furiously to bring new xEV models to market. The good news for Allegro is that our content on both platforms is equally strong, and much higher than that on ICE vehicles.
So Allegro wins no matter which platforms, OEMs choose to invest in and grow. And the geographical lens is very important too. xEVs now represent nearly half of total China auto sales, and Chinese OEMs are expanding their global share with economical and compelling products. This is why, continuing to win with Chinese OEMs is increasingly important, and why we have doubled down on our presence with our China-for-China manufacturing initiative. I was in China a few weeks ago, and I’m pleased with the progress we are making and the continued strong support we have with Chinese OEMs and Tier 1s for Allegro’s unique value proposition. And we are making great progress outside of China as well, with global OEMs that are shaping the future of e-mobility.
Our magnetic sensing and power solutions are finding great resonance, with customers in a broad range of applications. And the Allegro team remains focused on executing our product strategy, continuing to win in the target markets and serving our customers. Now, let me spend some time discussing what we’re seeing in our end markets. Our first quarter sales outlook, comprehends ongoing inventory rebalancing in automotive and inventory digestion in the channel, resulting in what we expect to be a trough revenue quarter before returning to sequential growth, thereafter. We are working closely with customers and channel partners, to manage orders to reduce inventory and return to normalized business levels as quickly as possible. In specific instances, we are providing pricing support to the channel to help clear inventory.
Our OEM contract renewals have taken place, with pricing largely in line with historical patterns. At a macro level, auto productions are expected to be stable, with double-digit growth in xEVs. Industrial end markets are generally expected to remain muted, with lower demand and broader market recovery expected in the second half of the calendar year or later. Against this backdrop, we are really excited about a slew of innovative new product launches for fiscal 2025. These include our highly anticipated silicon carbide high-voltage gate driver this quarter, new high-speed current sensors and position sensors including TMR, a new portfolio of intelligent motor drivers with risk architecture, expansion of our TMR portfolio into a broader set of low-power medical applications.
And later this month, we will be launching a portfolio of products to support the 48-volt transition in vehicles, as well as in industrial applications like data center and clean energy. These new products and record level design win pipeline, reinforce our confidence in the ability to grow above market over the mid- to long term, consistent with our target financial model. And we continue to invest in R&D and sales, while we navigate near-term inventory corrections to maximize growth in strategic focus areas. I will now review the Q4 financial results. Sales were $241 million. Gross margin was 53.8%. Operating income was 23.8% and adjusted EBITDA was 30.7% of sales. As a result, earnings were $0.25 per share. Q4 sales declined by 6% sequentially and 11% year-over-year.
Sales to automotive customers were $182 million, down 7% sequentially and up 2% year-over-year representing 76% of Q4 sales. E-mobility sales declined by 14% sequentially and were 49% of fourth quarter auto sales. Industrial sales were $44 million, declining 5% sequentially and 29% year-over-year. Other sales, which includes consumer applications were $15 million up 4% sequentially and down 48% year-over-year. From a product perspective, magnetic sensor sales were $146 million declining 5% sequentially and 13% year-over-year. Sales of our power products were $94 million declining 7% sequentially and 9% year-over-year. Sales by geography were again well-balanced with 27% of sales in China, 26% of the rest of Asia, 18% in Japan, 16% in Europe and 13% in the Americas.
Operating expenses were $72 million, a decrease of $2 million or 3% from a year ago and inclusive of a full quarter of Crocus. Fourth quarter R&D expenses were 17% of sales and SG&A was 13% of sales. Operating margin was 23.8% of sales compared to 27.2% in Q3 and 30.2% a year ago. The effective tax rate for the full year was 11%. The effective tax rate for the quarter was 9.5% down sequentially primarily as a result of R&D tax credits. The fourth quarter diluted share count was 194.5 million shares and net income was $48 million or $0.25 per diluted share. Turning to full year 2024 results. Fiscal 2024 was another strong year for Allegro with sales increasing 8% year-over-year to a record $1.05 billion. Gross margin was 56.3%. Operating margin was 28.5% of sales.
Adjusted EBITDA was 34.7% and earnings per share were a record $1.35 per share. Sales to automotive customers increased by 17% led by a 38% increase in e-mobility sales. Industrial sales increased by 7% year-over-year and other sales declined by 44% during the year. Moving on to product sales. Magnetic Sensor sales increased by 9% year-over-year to $650 million or 62% of total sales. Sales of our power products increased by 7% year-over-year to $399 million. Moving to the balance sheet and cash flow. We ended Q4 with cash of $222 million. Cash flow from operations in the fourth quarter was $13 million and capital expenditures were $14 million. During the quarter we made a tax payment of $41 million to repatriate Crocus IP which we expect to largely recover through US tax credits in fiscal 2025.
Excluding this payment Q4 operating cash flow was $54 million and free cash flow was $40 million or 17% of sales. Full year cash flow from operations was $182 million. Capital expenditures were $125 million and free cash flow was $57 million or $98 million excluding the Crocus related tax payment. From a working capital perspective Q4 day sales outstanding was 45 days compared to 41 days in Q3. Inventory declined by another $3 million sequentially and days of inventory were 126 days compared to 124 days in Q3. Finally, I’ll turn to our Q1 outlook. We expect first quarter sales to be in the range of $160 million to $170 million as we work with customers to reduce their inventory levels. Based upon our backlog, fill rates and customer demand we anticipate low double-digit sequential growth going into Q2.
We expect Q1 gross margin to be between 49% and 50%, which reflects a combination of capacity underutilization, product mix and price adjustments primarily in distribution. We expect operating expenses to be between $72 million and $73 million. We project our non-GAAP tax rate to be 12% and our diluted share count to be approximately 196 million shares. In April, we also made a $50 million voluntary payment on our $250 million term loan which is projected to reduce our annual interest expense by approximately $4 million. As a result, we expect non-GAAP EPS to be between $0.01 and $0.03 per share. Recall that we have been taking actions over the past year to reposition our company for long-term growth, which contributed approximately $15 million or a 10% decline in organic operating expenses during the second half of fiscal 2024 compared to the first half of the year.
So we entered fiscal 2025 with an optimized footprint and ready to serve our customers and grow. I am very proud of what we’ve achieved over the past year to navigate inventory dynamics while delivering record financial results. I would like to thank the entire Allegro team for this terrific performance and their dedication in serving our customers. I’ll now turn the call back to Jalene for questions. Jalene?
Jalene Hoover: Thank you, Vineet. This concludes management’s prepared remarks. Before we open the call for your questions, I’d like to share our first fiscal quarter conference line up with you. We are attending TD Cowen’s 52nd Annual TMT Conference on May 29 at the InterContinental New York Barclay; and Mizuho’s 2024 Technology Conference at the JW Marriott Essex House New York on June 12. We will now open up the call for your questions. Operator, please review Q&A instructions.
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