Allegro MicroSystems, Inc.

page of our website at www.alegro-micro.com. This call is being webcast and a replay will be available in the events and presentation section of our IR page shortly. Please note that comments other than statements of historical facts made during this conference call, including forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include projections and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks and uncertainties that could cause actual results to differ materially from anticipated results or projections. Please refer to the earnings press release we issued yesterday and other documents filed by us with the SEC including the risk factors discussed in detail in our most recent 10-K filed on May 18, 2022, as amended on Form 10-K-A filed on August 29, 2022, and updated and supplemented in our subsequent 10-Q filings. While we may elect to update forward-looking statements at some point in the future, the company assumes no obligation to update any forward-looking information presented, even if our estimates or assumptions change. Also, unless otherwise noted during the conference call, all references to income stated related financial measures other than sales will be to financial measures not prepared in accordance with generally accepted accounting principles or GAAP. Please refer to the press release posted to our website for information regarding our non-GAAP financial results and a reconciliation of our GAAP to non-GAAP financial measures. The non-GAAP financial measures that are discussed today are not intended to replace or be a substitute for the presentation of Allegro's GAAP financial results and may be calculated differently than similar measures used by other companies. We are providing this information because it may enable investors to make more meaningful comparisons of core operating results and more clearly highlight the results of our core ongoing operations. It's now my pleasure to turn the call over to Allegro's President and CEO, Vineet Nargowalla. Vineet?

Thank you, Jolene, and good morning, and thank you all for joining us for our fourth quarter and fiscal year 2023 conference call. I'm pleased to report that we delivered a strong finish to fiscal year 2023 with record sales at the fourth quarter of $269 million, up 35% year-over-year. We also achieved record non-GAAP earnings per share of 37 cents an increase of over 75% year-over-year. Solid fourth quarter results contributed to record 2023 sales of $974 million, up 27% year-over-year. We continue to see strong momentum in e-mobility, clean energy, and automation, fueled by secular megatrends that are transforming automotive and industrial markets. Sales in these strategic growth areas grew 46% year-over-year to $477 million, or 49% of total 2023 sales. Additionally, we saw significantly increased design wind momentum in fiscal year 2023 with approximately two-thirds of our winds coming from strategic growth areas. The results in Q4 and throughout the past year demonstrate that our strategy is sound and it's working. Immobility, which includes the increasing electrification of vehicles and higher adoption of ADAS feature sets, continues to drive Allegro's above-market growth. In fact, sales into immobility applications expanded to 47% of our Q4 automotive sales and to 43% of Allegro's full-year automotive sales, up from 36% in 2022. Additionally, Approximately two-thirds of our total 2023 automotive design wins were in e-mobility. Our solutions-based design approach is being well received by our customers. During the fourth quarter, we secured a multi-portfolio 8S design win in North America, validating our strong value proposition. We also won multiple current sensor design wins with a leading European OEM during the quarter. Moving on to the industrial market, Continued growth in clean energy and automation end markets drove 67% year-over-year sales growth in Q4, resulting in record sales for the quarter and the year. Design win activity in the quarter was led by data center applications leveraging our power ICs for motor drivers. We had a large win at a Japanese manufacturer, as well as multiple wins with a Chinese manufacturer. We also saw several wins in Asia and Europe for EV charging stations, using our sensor IC technology. The majority of our R&D investment is now focused on our strategic growth areas, which have grown to nearly half our sales, underscoring our core value of innovation with purpose. We take great pride in our leading position at magnetic sensors, which represented approximately 60% of fourth quarter sales, and we continue to innovate with industry-leading solutions. During the fourth quarter, We announced the release of our Automotive Safety Integrity Level, or ACIL, C-rated high-precision field current sensor to enable customers to meet more challenging e-mobility safety and accuracy standards. We also continue to raise the bar with our power innovations. Identifying and overcoming sources of electromagnetic interference, or EMI, in e-mobility applications is notoriously challenging. It often goes undetected until late in the product design cycle, adding to development time and cost. To address this issue and accelerate our customers' time to market, we launched a power DC to DC regulator module that reduces electromagnetic interference inherent in highly electrified industrial and automotive applications such as EVs. Our newest regulator also reduces board footprint by 70% compared to conventional solutions. We wrapped up an outstanding year by hosting our inaugural Analyst Day event where we articulated our strategy and vision and how we are uniquely positioned to benefit from the megatrends of electrification and automation in industrial and automotive markets. We also introduced an updated financial model based on the opportunity we see going forward in our strategic growth areas. As I complete my first year as CEO, I'm very proud of what we've achieved in a short period of time, and I would like to thank the entire Allegra team for this terrific performance and their dedication in serving our customers. We have sharpened our market focus on e-mobility, clean energy, and automation that intersects with our technical expertise in our market-leading sensor and power product portfolios. We've also aligned our investments in R&D and customer support capabilities to focus on these high-growth secular megatrends in automotive and industrial markets. I'm confident in our strategy and the ability of our teams to execute it. I believe we're still in the very early innings of our growth journey, and I couldn't be more excited for the future. I'll now turn the call over to Derek to review the financial results and provide guidance for our first quarter of 2024. Derek? Thank you, Vinay.

Good morning, everyone. In Q4, we had record sales of $269 million Gross margins were 57.8%, operating expenses were 27.6% of sales, operating income was again 30%, and adjusted EBITDA was 35.1% of sales. As a result, earnings were also a record 37 cents per share at the high end of our guidance range and more than 75% above Q4 of fiscal 22. Sales in the fourth quarter were also at the high end of our guidance range, an increase by 8% sequentially and 35% compared to Q4 of fiscal 22. Sales to our auto customers were $182 million, or 68% of Q4 sales, an increase of 9% sequentially and 29% year-over-year. Within auto, e-mobility sales increased 17% sequentially in more than 60% year-over-year, representing 47% of fourth quarter automotive sales, up from 38% a year ago. Industrial sales were $58 million, increasing 15% sequentially, and 67% year-over-year. We saw sequential growth in automation and clean energy end markets, while shipments into data center declined sequentially as expected. Other sales were $29 million, declining 4% sequentially and increasing 19% year-over-year. From a product perspective, magnetic sensor sales were $167 million, increasing 8% sequentially and 31% year-over-year. Sales of our power products were $103 million, an increase of 9% sequentially and 40% year-over-year. Sales through distribution represented 43% of total fourth quarter sales, and POS sell-through remained strong during the quarter, and we continued to work with our partners to restart their inventory levels to within target levels. Consistent with prior quarters, no single customer represented more than 10% of Q4 sales, and sales by geography were well balanced. Turning to Q4 profitability, gross margin was 57.8% slightly above our guidance of approximately 57% as a result of continued favorable product and channel mix. Operating expenses were $74 million or 27.6% of sales compared to 27.7% in Q3 and 32% a year ago. We continued to invest in research and development as well as in local sales and technical resources close to our customers, particularly in our strategic growth areas. Fourth quarter R&D expenses were 14% of sales and SG&A was 13% of sales. Operating margin was 30% of sales compared to 30% in Q3 and 23% a year ago. Operating margin dollars increased by 75% year over year on a comparable sales increase of 35%, demonstrating the leverage in our operating model. The effective tax rate for the quarter was 11.6%, and the fourth quarter diluted share count was 195 million shares, and net income was $72 million, or 37 cents per diluted share, an increase of 3% sequentially and 76% year-over-year. Turning to full year 2023 results, fiscal 23 sales were a record $974 million, an increase of 27% year-over-year. Gross margin was 56.8%, operating margin was 28.6%, adjusted EBITDA was 33.7% of sales, and EPS was $1.28 per share, an increase of 63% year-over-year. Sales to auto customers increased by 24% year-over-year to $658 million and represented 68% of full-year sales. Within auto, e-mobility sales increased by 45%. Industrial sales increased by 48% year-over-year to $197 million, driven by significant growth in clean energy and automation. and other sales increased by 15% to $119 million. Moving on to product sales, magnetic sensor sales increased by 20% year-over-year to $599 million, and sales of our power products increased by 40% year-over-year to $375 million. Full-year sales by geography were well balanced, with 26% of sales in China 24% of sales in the rest of Asia, 17% in both Japan and Europe, and 16% in the Americas. Moving to the balance sheet and cash flows, we ended Q4 with cash of $352 million. Cash flow from operations in the fourth quarter was $48 million. Capital expenditures, primarily for probe and test equipment, were $30 million. and free cash flow was $17 million. For the full year, cash flow from operations was $193 million, CapEx was $80 million, and free cash flow was $113 million. Fourth quarter DSO was 46 days compared to 47 days in Q3, and days of inventory were 127 days compared to 103 days in Q3. As discussed on our Q3 call, we continued to rebuild wafer and die bank and expect this to continue through the first part of FY24. Now, before I turn to Q1 guidance, I'll provide some color on what we are seeing in the business environment. From a market perspective, industry analysts are projecting auto production growth of 4% and EV growth of approximately 30%. over the time period equivalent to our fiscal 24. Our auto and industrial orders and shipments have been resilient, and we expect to see continued strength in these markets in Q1, with shipments to data center and consumer markets remaining muted. Operationally, we continue to improve our lead times and reduce our delinquent backlog. And finally, from a supply perspective, we have worked to largely overcome wafer capacity constraints, and continue to align our back-end capacity with projected demand. Now, with that backdrop, I'll turn to our Q1 outlook. First, as a reminder, following a 14-week fourth quarter, we are returning to a standard 13-week quarter in Q1, which ends on June 30th. We expect first quarter sales to be in the range of $270 to $280 million And based on the midpoint of this range, we are projecting growth of 26% compared to Q1 of fiscal 23. We expect Q1 gross margins to be approximately 56%, reflecting the anticipated normalization of product and channel mix in a relatively weaker U.S. dollar. We expect operating expenses to be between 26% and 27% of sales, We expect our non-GAAP tax rate to be approximately 11% and our diluted share count to be approximately 195.5 million shares. And based upon these assumptions, we anticipate non-GAAP earnings per share to be in the range of 35 to 39 cents per share. Now I'll turn the call back to Jolene for questions. Jolene?