SEC Filing | Allegro MicroSystems, Inc.

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algm-20201225

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 December 25, 2020


☐			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		03103
Manchester,	New Hampshire	(Zip Code)
(Address of principal executive offices)

(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, 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 February 1, 2021, the registrant had 189,433,744 shares of common stock, $0.01 par value per share, outstanding.

TABLE OF CONTENTS


		Page

	Forward -Looking Statements	2
PART I.	Financial Information	4
Item 1.	Condensed Consolidated Financial Statements	4
	Consolidated Balance Sheets as of December 25, 2020 (Unaudited) and March 27, 2020	4
	Consolidated Statements of Operations for the three- and nine -month periods ended December 25, 2020 and December 27, 2019 (Unaudited)	5
	Consolidated Statements of Comprehensive (Loss) Income for the three- and nine -month periods ended December 25, 2020 and December 27, 2019 (Unaudited)	6
	Consolidated Statements of Changes in Equity for the three- and nine -month periods ended December 25, 2020 and December 27, 2019 (Unaudited)	7
	Consolidated Statements of Cash Flows for the nine -month periods ended December 25, 2020 and December 27, 2019 (Unaudited)	11
	Notes to Unaudited Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	70
Item 4.	Controls and Procedures	71
PART II.	Other Information	71
Item 1.	Legal Proceedings	72
Item 1A.	Risk Factors	72
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 3.	Defaults Upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	72
Item 6.	Exhibits	73
Signatures		74

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 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,” “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, Item 1A “Risk Factors” in this Quarterly Report. 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 ability to compensate for decreases in average selling prices of our products;

•the cyclical nature of the analog semiconductor industry;

•shifts in our product mix or customer mix, which could negatively impact our gross margin;

•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;

•any disruptions at our primary third-party wafer fabrication facilities;

•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 ability to adjust our supply chain volume to account for changing market conditions and customer demand;

•our reliance on a limited number of third-party wafer fabrication facilities and suppliers of other materials;

•our dependence on manufacturing operations in the Philippines;

•our reliance on distributors to generate sales;

•our indebtedness may limit our flexibility to operate our business;

•the loss of one or more significant end customers;

•our ability to develop new product features or new products in a timely and cost-effective manner;

•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 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;

•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;

•our dependence on international customers and operations;

•the availability of rebates, tax credits and other financial incentives on end-user demands for certain products;

•the volatility of currency exchange rates;

•risks related to acquisitions of and investments in new businesses, products or technologies, joint ventures and other strategic transactions;

•our ability to raise capital to support our growth strategy;

•our ability to effectively manage our growth and to retain key and highly skilled personnel;

•changes in tax rates or the adoption of new tax legislation;

•risks related to litigation, including securities class action litigation; and

•our ability to accurately estimate market opportunity and growth forecasts.

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. 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 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.

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share amounts)


	December 25, 2020 (Unaudited)		March 27, 2020
Assets
Current assets:
Cash and cash equivalents	$	157,653	$	214,491
Restricted cash	6,520		5,385
Trade accounts receivable, net of allowances for doubtful accounts of $138 and $288 at December 25, 2020 and March 27, 2020, respectively	67,334		59,457
Trade and other accounts receivable due from related party	20,153		30,851
Accounts receivable - other	1,373		1,796
Inventories	94,021		127,227
Prepaid expenses and other current assets	31,476		9,014
Total current assets	378,530		448,221
Property, plant and equipment, net	214,372		332,330
Deferred income tax assets	23,188		7,217
Goodwill	20,249		1,285
Intangible assets, net	36,420		19,958
Equity investment in related party	26,657		—
Other assets, net	12,482		8,810
Total assets	$	711,898	$	817,821
Liabilities, Non-Controlling Interest and Stockholders' Equity
Current liabilities:
Trade accounts payable	$	20,262	$	20,762
Amounts due to related party	2,078		4,494
Accrued expenses and other current liabilities	66,779		56,855

Current portion of related party debt	—		25,000
Bank lines-of-credit	—		43,000
Total current liabilities	89,119		150,111
Obligations due under Senior Secured Credit Facilities	25,000		—
Related party notes payable, less current portion	—		17,700
Other long-term liabilities	20,861		15,878
Total liabilities	134,980		183,689
Commitments and contingencies (Note 16)
Stockholders' Equity:

Preferred Stock, $0.01 par value; 20,000,000 shares authorized, no shares issued or outstanding at December 25, 2020 and March 27, 2020	—		—
Common stock, $0.01 par value; 1,000,000,000 shares authorized, 189,431,726 shares issued and outstanding at December 25, 2020; No shares authorized, issued or outstanding at March 27, 2020	1,894		—
Class A, $0.01 par value; No shares authorized, issued or outstanding at December 25, 2020; 12,500,000 shares authorized; 10,000,000 shares issued and outstanding at March 27, 2020	—		100
Class L, $0.01 par value; No shares authorized, issued or outstanding at December 25, 2020; 1,000,000 shares authorized; 622,470 shares issued and outstanding at March 27, 2020	—		6
Additional paid-in capital	589,202		458,697
(Accumulated deficit) / retained earnings	(5,094)		194,355
Accumulated other comprehensive loss	(10,171)		(19,976)
Equity attributable to Allegro MicroSystems, Inc.	575,831		633,182
Non-controlling interests	1,087		950
Total stockholders' equity	576,918		634,132
Total liabilities, non-controlling interest and stockholders' equity	$	711,898	$	817,821

The accompanying notes are an integral part of these condensed consolidated financial statements.

ALLEGRO MICROSYSTEMS, INC.

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(Unaudited)


	Three-Month Period Ended				Nine-Month Period Ended
	December 25, 2020		December 27, 2019		December 25, 2020		December 27, 2019
Net sales	$	138,010	$	143,267	$	343,529	$	426,158
Net sales to related party	26,439		16,535		72,570		49,327
Total net sales	164,449		159,802		416,099		475,485
Cost of goods sold	90,024		98,277		224,203		285,967
Gross profit	74,425		61,525		191,896		189,518
Operating expenses:
Research and development	30,999		25,485		80,509		77,565
Selling, general and administrative	67,650		24,909		118,677		78,030
Total operating expenses	98,649		50,394		199,186		155,595
Operating (loss) income	(24,224)		11,131		(7,290)		33,923
Other (expense) income:
Loss on debt extinguishment	(9,055)		—		(9,055)		—
Interest (expense) income, net	(2,598)		10		(1,935)		(60)
Foreign currency transaction (loss) gain	(145)		(560)		(1,331)		2,800
Income in earnings of equity investment	949		—		1,407		—
Other, net	(510)		(81)		(297)		(1,177)
(Loss) income before income tax (benefit) provision	(35,583)		10,500		(18,501)		35,486
Income tax (benefit) provision	(30,523)		1,542		(27,913)		11,710
Net (loss) income	(5,060)		8,958		9,412		23,776
Net income attributable to non-controlling interests	35		32		103		101
Net (loss) income attributable to Allegro MicroSystems, Inc.	$	(5,095)	$	8,926	$	9,309	$	23,675
Net (loss) income attributable to Allegro MicroSystems, Inc. per share (Note 17):
Basic	$	(0.04)	$	0.89	$	0.19	$	2.37
Diluted	$	(0.04)	$	0.89	$	0.05	$	2.37
Weighted average shares outstanding:
Basic	124,363,078		10,000,000		48,121,026		10,000,000
Diluted	124,363,078		10,000,000		171,638,787		10,000,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

ALLEGRO MICROSYSTEMS, INC.

Consolidated Statements of Comprehensive (Loss) Income

(in thousands)

(Unaudited)


	Three-Month Period Ended				Nine-Month Period Ended
	December 25, 2020		December 27, 2019		December 25, 2020		December 27, 2019
Net (loss) income	$	(5,060)	$	8,958	$	9,412	$	23,776
Foreign currency translation adjustment	3,972		2,886		10,152		1,869
Net actuarial loss amortization of net transition obligation and prior service costs related to defined benefit plans, net of tax	—		—		(313)		—
Comprehensive (loss) income	$	(1,088)	$	11,844	$	19,251	$	25,645
Comprehensive expense attributable to non-controlling interest	(10)		(23)		(34)		(5)
Comprehensive (loss) income attributable to Allegro MicroSystems, Inc.	$	(1,098)	$	11,821	$	19,217	$	25,640

The accompanying notes are an integral part of these condensed consolidated financial statements.

ALLEGRO MICROSYSTEMS, INC.

Consolidated Statements of Changes in Equity

(in thousands, except share amounts)

(Unaudited)


	Common Stock, Class A			Common Stock, Class L			Preferred Stock			Common Stock			Additional Paid-In Capital		Retained Earnings / Accum. Deficit		Accumulated Other Comprehensive Loss		Non-Controlling Interests		Total Equity
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance at September 25, 2020	10,000,000	$	100	638,298	$	6	—	$	—	—	$	—	$	439,732	$	208,759	$	(14,133)	$	1,042	$	635,506
Net income	—	—		—	—		—	—		—	—		—		(5,095)		—		35		(5,060)
Capitalization changes related to organizational structure of affiliates and direct and indirect interests in subsidiaries	—	—		—	—		—	—		—	—		527		—		—		—		527
Reclassification of certain class L shares	—	—		—	—		—	—		—	—		298		—		—		—		298
Stock-based compensation	—	—		—	—		—	—		—	—		45,876		—		—		—		45,876
Issuance of common stock in connection with IPO, net of underwriting discounts and other offering costs	—	—		—	—		—	—		25,000,000	250		321,175		—		—		—		321,425
Conversion of Class A and Class L common stock into common stock in connection with the IPO	(10,000,000)	(100)		(636,301)	(6)		—	—		166,500,000	1,665		(1,559)		—		—		—		—
Repurchase of Class A and Class L common stock to cover related taxes	—	—		(1,997)	—		—	—		(2,068,274)	(21)		(27,686)		—		—		—		(27,707)
Conversion of LTCIP/TRIP awards into restricted stock units in connection with the IPO	—	—		—	—		—	—		—	—		2,081		—		—		—		2,081
Cash dividend paid to holders of Class A common stock	—	—		—	—		—	—		—	—		(191,242)		(208,758)		—		—		(400,000)
Foreign currency translation adjustment	—	—		—	—		—	—		—	—		—		—		3,962		10		3,972
Balance at December 25, 2020	—	$	—	—	$	—	—	$	—	189,431,726	$	1,894	$	589,202	$	(5,094)	$	(10,171)	$	1,087	$	576,918

ALLEGRO MICROSYSTEMS, INC.

Consolidated Statements of Changes in Equity

(in thousands, except share amounts)

(Unaudited)


	Common Stock, Class A			Common Stock, Class L			Preferred Stock			Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Non-Controlling Interests		Total Equity
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance at September 27, 2019	10,000,000	$	100	607,620	$	6	—	$	—	—	$	—	$	448,510	$	172,134	$	(17,277)	$	865	$	604,338
Net income	—	—		—	—		—	—		—	—		—		8,926		—		32		8,958
Stock-based compensation	—	—		—	—		—	—		—	—		303		—		—		—		303
Foreign currency translation adjustment	—	—		—	—		—	—		—	—		—		—		2,863		23		2,886
Balance at December 27, 2019	10,000,000	$	100	607,620	$	6	—	$	—	—	$	—	$	448,813	$	181,060	$	(14,414)	$	920	$	616,485

ALLEGRO MICROSYSTEMS, INC.

Consolidated Statements of Changes in Equity

(in thousands, except share amounts)

(Unaudited)


	Common Stock, Class A			Common Stock, Class L			Preferred Stock			Common Stock			Additional Paid-In Capital		Retained Earnings / Accum. Deficit		Accumulated Other Comprehensive Loss		Non-Controlling Interests		Total Equity
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance at March 27, 2020	10,000,000	$	100	622,470	$	6	—	$	—	—	$	—	$	458,697	$	194,355	$	(19,976)	$	950	$	634,132
Net income	—	—		—	—		—	—		—	—		—		9,309		—		103		9,412
Issuance of Class L shares, net of forfeitures	—	—		15,828	—		—	—		—	—		—		—		—		—		—
Capitalization changes related to organizational structure of affiliates and direct and indirect interests in subsidiaries	—	—		—	—		—	—		—	—		(19,165)		—		—		—		(19,165)
Stock-based compensation	—	—		—	—		—	—		—	—		46,901		—		—		—		46,901
Issuance of common stock in connection with IPO, net of underwriting discounts and other offering costs	—	—		—	—		—	—		25,000,000	250		321,175		—		—		—		321,425
Conversion of Class A and Class L common stock into common stock in connection with the IPO	(10,000,000)	(100)		(636,301)	(6)		—	—		166,500,000	1,665		(1,559)		—		—		—		—
Repurchase of Class A and Class L common stock to cover related taxes	—	—		(1,997)	—		—	—		(2,068,274)	(21)		(27,686)		—		—		—		(27,707)
Conversion of LTCIP/TRIP awards into restricted stock units in connection with the IPO	—	—		—	—		—	—		—	—		2,081		—		—		—		2,081
Cash dividend paid to holders of Class A common stock	—	—		—	—		—	—		—	—		(191,242)		(208,758)		—		—		(400,000)
Foreign currency translation adjustment	—	—		—	—		—	—		—	—		—		—		10,118		34		10,152
Net actuarial loss and amortization of net transition obligation and prior service costs related to defined benefit plans, net of tax	—	—		—	—		—	—		—	—		—		—		(313)		—		(313)
Balance at December 25, 2020	—	$	—	—	$	—	—	$	—	189,431,726	$	1,894	$	589,202	$	(5,094)	$	(10,171)	$	1,087	$	576,918

ALLEGRO MICROSYSTEMS, INC.

Consolidated Statements of Changes in Equity

(in thousands, except share amounts)

(Unaudited)


	Common Stock, Class A			Common Stock, Class L			Preferred Stock			Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Non-Controlling Interests		Total Equity
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance at March 29, 2019	10,000,000	$	100	607,620	$	6	—	$	—	—	$	—	$	447,762	$	157,385	$	(16,278)	$	814	$	589,789
Net income	—	—		—	—		—	—		—	—		—		23,675		—		101		23,776
Stock-based compensation	—	—		—	—		—	—		—	—		1,051		—		—		—		1,051
Foreign currency translation adjustment	—	—		—	—		—	—		—	—		—		—		1,864		5		1,869
Balance at December 27, 2019	10,000,000	$	100	607,620	$	6	—	$	—	—	$	—	$	448,813	$	181,060	$	(14,414)	$	920	$	616,485

The accompanying notes are an integral part of these condensed consolidated financial statements.

ALLEGRO MICROSYSTEMS, INC.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Nine-Month Period Ended
	December 25, 2020		December 27, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	9,412	$	23,776
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	36,225		47,608
Amortization of deferred financing costs	226		—
Deferred income taxes	(17,526)		(288)
Stock-based compensation	46,901		1,051
Loss on disposal of assets	272		718
Loss on debt extinguishment	9,055		—
Provisions for inventory and bad debt	3,857		3,353
Changes in operating assets and liabilities:
Trade accounts receivable	(5,975)		15,540
Accounts receivable - other	115		657
Inventories	1,118		(341)
Prepaid expenses and other assets	(29,655)		(6,165)
Trade accounts payable	2,411		1,100
Due to/from related parties	8,283		(20,969)
Accrued expenses and other current and long-term liabilities	(1,185)		(17,270)
Net cash provided by operating activities	63,534		48,770
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(25,880)		(34,997)
Acquisition of business, net of cash acquired	(8,500)		—
Proceeds from sales of property, plant and equipment	314		3,936
Contribution of cash balances due to divestiture of subsidiary	(16,335)		—
Net cash used in investing activities	(50,401)		(31,061)
CASH FLOWS FROM FINANCING ACTIVITIES:
Related party note receivable	51,377		30,000
Proceeds from initial public offering, net of underwriting discounts and other offering costs	321,425		—
Payments for taxes related to net share settlement of equity awards	(27,707)		—
Dividends paid	(400,000)		—
Borrowings of senior secured debt, net of deferred financing costs	315,719		—
Repayment of senior secured debt	(300,000)		—
Repayment of unsecured credit facilities	(33,000)		—
Net cash (used in) provided by financing activities	(72,186)		30,000
Effect of exchange rate changes on Cash and cash equivalents and Restricted cash	3,350		(6,452)
Net (decrease) increase in Cash and cash equivalents and Restricted cash	(55,703)		41,257
Cash and cash equivalents and Restricted cash at beginning of period	219,876		103,257
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD:	$	164,173	$	144,514
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:
Cash and cash equivalents at beginning of period	$	214,491	$	99,743
Restricted cash at beginning of period	5,385		3,514
Cash and cash equivalents and Restricted cash at beginning of period	$