UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 June 24, 2022
or
| 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
_________________
(Exact name of registrant as specified in its charter)
_________________
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(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 | ||||||||||||
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, a 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.
| ☒ | 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 July 22, 2022, the registrant had 191,269,633 shares of common stock, $0.01 par value per share, outstanding.
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TABLE OF CONTENTS
| Page | ||||||||
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 the 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 and Part II, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended March 25, 2022 (the “2022 Annual 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 reliance on a limited number of third-party wafer fabrication facilities and suppliers of other materials;
•our failure to adjust purchase commitments and inventory management based on changing market conditions or customer demand;
•shifts in our product mix or customer mix, which could negatively impact our gross margin;
•the cyclical nature of the analog semiconductor industry;
•any downturn in the automotive market;
•our ability to compensate for decreases in average selling prices of our products and increases in input costs;
•increases in inflation rates or sustained periods of inflation in the markets in which we operate;
•any disruptions at our primary third-party wafer fabrication facilities;
•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;
•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;
•COVID-19 induced lock-downs and suppression on our supply chain and customer demand;
•our ability to develop new product features or new products in a timely and cost-effective manner;
•our ability to manage growth;
•any slowdown in the growth of our end markets;
•the loss of one or more significant customers;
•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;
2
•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 dependence on international customers and operations;
•the availability of rebates, tax credits and other financial incentives on end-user demands for certain products;
•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;
•the volatility of currency exchange rates;
•our ability to raise capital to support our growth strategy;
•our indebtedness may limit our flexibility to operate our business;
•our ability to effectively manage our growth and to retain key and highly skilled personnel;
•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 or those of our third-party service providers;
•our principal stockholders have substantial control over us;
•the inapplicability of the “corporate opportunity” doctrine to any director or stockholder who is not employed by us;
•the dilutive impact on the price of our shares upon future issuance by us or future sales by our stockholders;
•our lack of intent to declare or pay dividends for the foreseeable future;
•anti-takeover provisions in our organizational documents and General Corporation Law of the State of Delaware;
•the exclusive forum provision in our Certificate of Incorporation for disputes with stockholders;
•our inability to design, implement or maintain effective internal control over financial reporting;
•changes in tax rates or the adoption of new tax legislation; and
•other events beyond our control.
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.
3
PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ALLEGRO MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
(Unaudited)
| June 24, 2022 | March 25, 2022 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
Trade accounts receivable, net of provision for expected credit losses of $ | |||||||||||
| Trade and other accounts receivable due from related party | |||||||||||
Accounts receivable – other | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Current portion of related party note receivable | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Deferred income tax assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Related party note receivable, less current portion | |||||||||||
| Equity investment in related party | |||||||||||
| Other assets, net | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities, Non-Controlling Interests and Stockholders' Equity | |||||||||||
| Current liabilities: | |||||||||||
| Trade accounts payable | $ | $ | |||||||||
| Amounts due to related party | |||||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Obligations due under Senior Secured Credit Facilities | |||||||||||
| Operating lease liabilities, less current portion | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 13) | |||||||||||
| Stockholders' Equity: | |||||||||||
Preferred Stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Equity attributable to Allegro MicroSystems, Inc. | |||||||||||
| Non-controlling interests | |||||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities, non-controlling interest and stockholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ALLEGRO MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
| Three-Month Period Ended | |||||||||||
| June 24, 2022 | June 25, 2021 | ||||||||||
| Net sales | $ | $ | |||||||||
| Net sales to related party | |||||||||||
| Total net sales | |||||||||||
| Cost of goods sold (Note17) | |||||||||||
| Gross profit | |||||||||||
| Operating expenses: | |||||||||||
| Research and development | |||||||||||
| Selling, general and administrative | |||||||||||
| Change in fair value of contingent consideration | ( | ||||||||||
| Total operating expenses | |||||||||||
| Operating income | |||||||||||
| Other income (expense): | |||||||||||
| Interest expense, net | ( | ( | |||||||||
| Foreign currency transaction gain (loss) | ( | ||||||||||
| (Loss) income in earnings of equity investment | ( | ||||||||||
| Other, net | ( | ||||||||||
| Income before income taxes | |||||||||||
| Income tax provision | |||||||||||
| Net income | |||||||||||
| Net income attributable to non-controlling interests | |||||||||||
| Net income attributable to Allegro MicroSystems, Inc. | $ | $ | |||||||||
| Net income attributable to Allegro MicroSystems, Inc. per share: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
| Weighted average shares outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ALLEGRO MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
| Three-Month Period Ended | |||||||||||
| June 24, 2022 | June 25, 2021 | ||||||||||
| Net income | $ | $ | |||||||||
| Net income attributable to non-controlling interest | |||||||||||
| Net income attributable to Allegro MicroSystems, Inc. | |||||||||||
| Other comprehensive loss: | |||||||||||
| Foreign currency translation adjustment | ( | ( | |||||||||
| Comprehensive income | |||||||||||
| Other comprehensive loss attributable to non-controlling interest | |||||||||||
| Comprehensive income attributable to Allegro MicroSystems, Inc. | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
ALLEGRO MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except share amounts)
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Non-Controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 26, 2021 | — | $ | — | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of forfeitures | — | — | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 25, 2021 | — | $ | — | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Non-Controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 25, 2022 | — | $ | — | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of forfeitures | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Payments of taxes withheld on net settlement of equity awards | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 24, 2022 | — | $ | — | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
ALLEGRO MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Three-Month Period Ended | |||||||||||
| June 24, 2022 | June 25, 2021 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of deferred financing costs | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Stock-based compensation | |||||||||||
| Gain on disposal of assets | ( | ( | |||||||||
| (Gain) loss on contingent consideration change in fair value | ( | ||||||||||
| Provisions for inventory and expected credit losses | |||||||||||
| Unrealized loss on marketable securities | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Trade accounts receivable | ( | ( | |||||||||
| Accounts receivable - other | ( | ||||||||||
| Inventories | ( | ||||||||||
| Prepaid expenses and other assets | ( | ||||||||||
| Trade accounts payable | ( | ||||||||||
| Due to/from related parties | ( | ||||||||||
| Accrued expenses and other current and long-term liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchases of property, plant and equipment | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Receipts on related party note receivable | |||||||||||
| Payments for taxes related to net share settlement of equity awards | ( | ||||||||||
| Net cash used in financing activities | ( | ||||||||||
| Effect of exchange rate changes on Cash and cash equivalents and Restricted cash | ( | ||||||||||
| Net increase in Cash and cash equivalents and Restricted cash | |||||||||||
| Cash and cash equivalents and Restricted cash at beginning of period | |||||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD: | $ | $ | |||||||||
| RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: | |||||||||||
| Cash and cash equivalents at beginning of period | $ | $ | |||||||||
| Restricted cash at beginning of period | |||||||||||
| Cash and cash equivalents and Restricted cash at beginning of period | $ | $ | |||||||||
| Cash and cash equivalents at end of period | |||||||||||
| Restricted cash at end of period | |||||||||||
| Cash and cash equivalents and Restricted cash at end of period | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash refunded for income taxes | ( | ( | |||||||||
| Noncash transactions: | |||||||||||
| Trade accounts payable related to Property, plant and equipment, net | $ | ( | $ | ( | |||||||
| Noncash lease liabilities arising from obtaining right-of-use assets | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
1. Nature of the Business and Basis of Presentation
Allegro MicroSystems, Inc., together with its consolidated subsidiaries (“AMI” or the “Company”), is a global leader in designing, developing and manufacturing sensing and power solutions for motion control and energy-efficient systems in automotive and industrial markets. The Company is headquartered in Manchester, New Hampshire and has a global footprint across multiple continents.
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements include the Company's accounts and those of its subsidiaries. All intercompany balances have been eliminated in consolidation. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on May 18, 2022 (the “2022 Annual Report”). In the opinion of the Company’s management, the financial information for the interim periods presented reflects all adjustments necessary for a fair statement of the Company’s financial position, results of operations and cash. The results reported in these unaudited condensed consolidated financial statements are not necessarily indicative of results that may be expected for the entire year.
Financial Periods
The Company’s first quarter three-month period is a 13-week period ending on the Friday closest to the last day in June. The Company’s first quarter of fiscal 2023 ended June 24, 2022, and the Company’s first quarter of fiscal 2022 ended June 25, 2021.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingencies at the date of the unaudited condensed consolidated financial statements and the reported amounts of net sales and expenses during the reporting period. Such estimates relate to useful lives of fixed and intangible assets, allowances for expected credit losses and customer returns and sales allowances. Such estimates could also relate to the fair value of acquired assets and liabilities, including goodwill and intangible assets, net realizable value of inventory, accrued liabilities, the valuation of stock-based awards, deferred tax valuation allowances, and other reserves. On an ongoing basis, management evaluates its estimates. Actual results could differ from those estimates, and such differences may be material to the unaudited condensed consolidated financial statements.
As of June 24, 2022 and March 25, 2022, Sanken Electric Co., Ltd. (“Sanken”) accounted for 24.7 % and 23.8 % of the Company’s outstanding trade accounts receivable, net, respectively, including related party trade accounts receivable. No other customers accounted for 10% or more of outstanding trade accounts receivable, net during those periods.
For the three months ended June 24, 2022 and June 25, 2021, Sanken accounted for 19.2 % and 18.8 % of total net sales, respectively. No other customers accounted for 10% or more of total net sales for either of the three months ended June 24, 2022 or June 25, 2021.
9
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
During the three months ended June 24, 2022, sales from customers located outside of the United States accounted for, in the aggregate, 87.0 % of the Company’s total net sales, with Greater China accounting for 25.3 % and Japan accounting for 19.2 %. No other countries accounted for greater than 10% of total net sales for the three months ended June 24, 2022.
During the three months ended June 25, 2021, sales from customers located outside of the United States, in the aggregate, accounted for 85.7 % of the Company’s total net sales, with Greater China accounting for 22.7 %, Japan accounting for 18.8 % and South Korea accounting for 11.7 %. No other countries accounted for greater than 10% of total net sales for the three months ended June 25, 2021.
Recently Adopted Accounting Standards
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which eliminates the diversity in practice and inconsistency related to the accounting for acquired revenue contracts with customers in a business combination. The amendments in ASU 2021-08 require an acquiring entity to apply ASC Topic 606, Contracts with Customers (“ASC 606”), to recognize and measure contract assets and contract liabilities in a business combination as if the acquired contracts with customers were originated by the acquiring entity at the acquisition date. An acquirer may assess how the acquiree applied ASC 606 and generally should recognize and measure the acquired contract assets and contract liabilities consistent with the recognition and measurement in the acquiree’s financial statements, as prepared in accordance with U.S. GAAP. If unable to rely on the acquiree’s accounting due to errors, noncompliance with U.S. GAAP, or differences in accounting policies, the acquirer should consider the terms of the acquired contracts, such as timing of payment, identify each performance obligation in the contracts, and allocate the total transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception (that is, the date the acquiree entered into the contracts) or contract modification to determine what should be recorded at the acquisition date. The Company early adopted ASU 2021-08, effective March 26, 2022 and concluded that adoption of this ASU did not have a material impact on its financial position, results of operations, cash flows, or related disclosures. The Company will apply the guidance in ASU 2021-08 prospectively to all business combinations that occur after the date of adoption.
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2021-04”). ASU 2021-04 outlines how an entity should account for modifications made to equity-classified written call options, including stock options and warrants to purchase the entity’s own common stock. The guidance in the ASU requires an entity to treat a modification of an equity-classified written call option that does not cause the option to become liability-classified as an exchange of the original option for a new option. This guidance applies whether the modification is structured as an amendment to the terms and conditions of the equity-classified written call option or as termination of the original option and issuance of a new option. The Company adopted ASU 2021-04, effective March 26, 2022, and concluded that it did not have a material impact on its financial position, results of operations, cash flows, or related disclosures.
Recently Issued Accounting Standards Not Yet Adopted
None applicable.
3. Revenue from Contracts with Customers
10
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
Net sales by application:
| Three-Month Period Ended | |||||||||||
| June 24, 2022 | June 25, 2021 | ||||||||||
| Automotive | $ | $ | |||||||||
| Industrial | |||||||||||
| Other | |||||||||||
| Total net sales | $ | $ | |||||||||
Net sales by product:
| Three-Month Period Ended | |||||||||||
| June 24, 2022 | June 25, 2021 | ||||||||||
| Power integrated circuits | $ | $ | |||||||||
| Magnetic sensors | |||||||||||
| Photonics | |||||||||||
| Total net sales | $ | $ | |||||||||
Net sales by geography:
| Three-Month Period Ended | |||||||||||
| June 24, 2022 | June 25, 2021 | ||||||||||
| Americas: | |||||||||||
| United States | $ | $ | |||||||||
| Other Americas | |||||||||||
| EMEA: | |||||||||||
| Europe | |||||||||||
| Asia: | |||||||||||
| Japan | |||||||||||
| Greater China | |||||||||||
| South Korea | |||||||||||
| Other Asia | |||||||||||
| Total net sales | $ | $ | |||||||||
The Company recognizes sales net of returns, credits issued, price protection adjustments and stock rotation rights. At June 24, 2022 and March 25, 2022, these adjustments were $14,399 and $14,924 , respectively, and were netted against trade accounts receivable in the unaudited condensed consolidated balance sheets. These amounts represent activity of income of $525 and $1,613 for the three months ended June 24, 2022 and June 25, 2021, respectively.
Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. The Company elected not to disclose the amount of unsatisfied performance obligations as these contracts have original expected durations of less than one year.
11
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
4. Fair Value Measurements
The following tables present information about the Company’s financial assets and liabilities as of June 24, 2022 and March 25, 2022 measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:
| Fair Value Measurement at June 24, 2022 Using: | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market fund deposits | $ | $ | $ | $ | |||||||||||||||||||
| Restricted cash: | |||||||||||||||||||||||
| Money market fund deposits | |||||||||||||||||||||||
| Other assets, net (long-term): | |||||||||||||||||||||||
| Investments in marketable securities | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Other long-term liabilities: | |||||||||||||||||||||||
| Contingent consideration | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
| Fair Value Measurement at March 25, 2022 Using: | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market fund deposits | $ | $ | $ | $ | |||||||||||||||||||
| Restricted cash: | |||||||||||||||||||||||
| Money market fund deposits | |||||||||||||||||||||||
| Other assets, net (long-term): | |||||||||||||||||||||||
| Investments in marketable securities | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Other long-term liabilities: | |||||||||||||||||||||||
| Contingent consideration | |||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
The following table represents the unrealized gains and losses on investments in marketable securities held with a readily determinable fair value for the three months ended June 24, 2022:
| Net losses recognized during the period on equity securities | $ | ( | |||
| Less: Net gains and losses recognized during the period on equity securities sold during the period | |||||
| Unrealized losses recognized during the reporting period on equity securities still held at the reporting date | $ | ( | |||
In addition to the unrealized gains in the table above, the change in fair value of the equity securities was impacted by unrealized foreign currency exchange losses of $323 for the three months ended June 24, 2022. There were no investments in marketable securities during the three months ended June 25, 2021.
In connection with the fiscal year 2021 purchase of Voxtel, Inc. (“Voxtel”), a privately held technology company located in Beaverton, Oregon, that develops, manufactures and supplies photonic and advanced 3D imaging technologies (the “Voxtel Acquisition”), the Company is required to make contingent payments, subject to the entity achieving certain sales and revenue thresholds. The contingent consideration payments are up to $15,000 . The fair value of the liabilities for the contingent payments recognized upon the Voxtel Acquisition as part of the purchase accounting opening balance sheet
12
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
totaled $7,300 and was estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in this calculation were units sold, expected revenue, discount rate and various probability factors. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial measures. This liability is considered to be a Level 3 financial liability that is remeasured during each reporting period. The change in fair value of contingent consideration for the Voxtel Acquisition is included in change in fair value of contingent consideration in the unaudited condensed consolidated statements of operations.
The following table shows the change in fair value of Level 3 contingent consideration in connection with an acquisition in fiscal year 2021 for the three-month periods ended June 24, 2022 and June 25, 2021:
| Level 3 Contingent Consideration | |||||
| Balance at March 25, 2022 | $ | ||||
| Change in fair value of contingent consideration | ( | ||||
| Balance at June 24, 2022 | $ | ||||
| Balance at March 26, 2021 | $ | ||||
| Change in fair value of contingent consideration | |||||
| Balance at June 25, 2021 | $ | ||||
Assets and liabilities measured at fair value on a recurring basis also consist of marketable securities, unit investment trust funds, loans, bonds, stock and other investments which are the Company’s defined benefit plan assets. Fair value information for those assets and liabilities, including their classification in the fair value hierarchy, is included in Note 12, “Retirement Plans.”
During the three months ended June 24, 2022 and June 25, 2021, there were no transfers among Level 1, Level 2 and Level 3 asset or liabilities.
5. Trade Accounts Receivable, net
Trade accounts receivable, net (including related party trade accounts receivable) consisted of the following:
| June 24, 2022 | March 25, 2022 | ||||||||||
| Trade accounts receivable | $ | $ | |||||||||
| Less: | |||||||||||
| Provision for expected credit losses | ( | ( | |||||||||
| Returns and sales allowances | ( | ( | |||||||||
| Related party trade accounts receivable | ( | ( | |||||||||
| Total | $ | $ | |||||||||
13
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
The Company is exposed to credit losses primarily through trade and other financing receivables arising from revenue transactions. The Company uses an aging schedule method to estimate current expected credit losses (“CECL”) based on days of delinquency, including information about past events and current economic conditions. The Company’s accounts receivable are separated into two categories using a portfolio methodology to evaluate the allowance under the CECL impairment model based on sales categorization and similar credit quality and worthiness of the customers: original equipment manufacturers (“OEMs”) and distributors. The receivables in each category share similar risk characteristics. The Company increases the provision for expected credits losses when the Company determines all or a portion of a receivable is uncollectible, and the Company recognizes recoveries as a decrease to the provision for expected credit losses.
Changes in the Company’s expected credit losses and returns and sales allowances were as follows:
| Description | Provision for Expected Credit Losses | Returns and Sales Allowances | Total | |||||||||||||||||
| Balance at March 25, 2022 | $ | $ | $ | |||||||||||||||||
| Charged to costs and expenses or revenue | ||||||||||||||||||||
| Settlements, net of recoveries | ( | ( | ||||||||||||||||||
| Balance at June 24, 2022 | $ | $ | $ | |||||||||||||||||
| Balance at March 26, 2021 | $ | $ | $ | |||||||||||||||||
| Charged to costs and expenses or revenue | ||||||||||||||||||||
| Settlements, net of recoveries | ( | ( | ||||||||||||||||||
| Balance at June 25, 2021 | $ | $ | $ | |||||||||||||||||
6. Inventories
Inventories include material, labor and overhead and consisted of the following:
| June 24, 2022 | March 25, 2022 | ||||||||||
| Raw materials and supplies | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Total | $ | $ | |||||||||
The Company recorded inventory write-offs totaling $2,115 and $3,189 for the three months ended June 24, 2022 and June 25, 2021, respectively.
7. Property, Plant and Equipment, net
Property, plant and equipment, net is stated at cost, and consisted of the following:
| June 24, 2022 | March 25, 2022 | ||||||||||
| Land | $ | $ | |||||||||
| Buildings, building improvements and leasehold improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Office equipment | |||||||||||
| Construction in progress | |||||||||||
| Total | |||||||||||
| Less accumulated depreciation | ( | ( | |||||||||
| Total | $ | $ | |||||||||
Total depreciation expense amounted to $10,850 and $11,120 for the three months ended June 24, 2022 and June 25, 2021, respectively.
14
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
Long-lived assets include property, plant and equipment and related deposits on such assets, and capitalized tooling costs. The geographic locations of the Company's long-lived assets, net, based on physical location of the assets, as of June 24, 2022 and March 25, 2022 are as follows:
| June 24, 2022 | March 25, 2022 | ||||||||||
| United States | $ | $ | |||||||||
| Philippines | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
Amortization of prepaid tooling costs amounted to $32 and $33 for the three months ended June 24, 2022 and June 25, 2021, respectively.
8. Goodwill and Intangible Assets
The table below summarizes the changes in the carrying amount of goodwill as follows:
| Total | |||||
| Balance at March 25, 2022 | $ | ||||
| Foreign currency translation | ( | ||||
| Balance at June 24, 2022 | $ | ||||
| Balance at March 26, 2021 | $ | ||||
| Foreign currency translation | |||||
| Balance at June 25, 2021 | $ | ||||
Intangible assets, net is as follows:
| June 24, 2022 | ||||||||||||||||||||||||||
| Description | Gross | Accumulated Amortization | Net Carrying Amount | Weighted-Average Lives | ||||||||||||||||||||||
| Patents | $ | $ | $ | |||||||||||||||||||||||
| Customer relationships | ||||||||||||||||||||||||||
| Process technology | ||||||||||||||||||||||||||
| Indefinite-lived and legacy process technology | ||||||||||||||||||||||||||
| Trademarks | ||||||||||||||||||||||||||
| Legacy trademarks | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||||||||
| March 25, 2022 | ||||||||||||||||||||||||||
| Description | Gross | Accumulated Amortization | Net Carrying Amount | Weighted-Average Lives | ||||||||||||||||||||||
| Patents | $ | $ | $ | |||||||||||||||||||||||
| Customer relationships | ||||||||||||||||||||||||||
| Process technology | ||||||||||||||||||||||||||
| Indefinite-lived and legacy process technology | ||||||||||||||||||||||||||
| Trademarks | ||||||||||||||||||||||||||
| Legacy trademarks | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||||||||
Intangible assets amortization expense was $1,036 and $1,019 for the three months ended June 24, 2022 and June 25, 2021, respectively. The majority of the Company’s intangible assets are related to patents, as noted above.
15
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
As of June 24, 2022, annual amortization expense of intangible assets for the next five fiscal years is expected to be as follows:
| Remainder of 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total | $ | ||||
9. Accrued Expenses and Other Current Liabilities
The composition of accrued expenses and other current liabilities is as follows:
| June 24, 2022 | March 25, 2022 | ||||||||||
| Accrued management incentives | $ | $ | |||||||||
| Accrued salaries and wages | |||||||||||
| Accrued vacation | |||||||||||
| Accrued severance | |||||||||||
| Accrued professional fees | |||||||||||
| Accrued income taxes | |||||||||||
| Accrued utilities | |||||||||||
| Other current liabilities | |||||||||||
| Total | $ | $ | |||||||||
10. Debt and Other Borrowings
On September 30, 2020, the Company entered into a term loan credit agreement with Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and the other agents, arrangers and lenders party thereto, providing for a $325,000 senior secured term loan facility due in 2028 (the “Term Loan Facility”). On September 30, 2020, the Company also entered into a revolving facility credit agreement with Mizuho Bank, Ltd., as administrative agent and collateral agent, and the other agents, arrangers and lenders party thereto, providing for a $50,000 senior secured revolving credit facility expiring in 2023 (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facilities”). The Company’s outstanding borrowings bore an interest rate of 4.81 % at June 24, 2022. As of both June 24, 2022 and March 25, 2022, the Company had $25,000 no 124 and $149 , respectively, and the related short-term and long-term portions were classified within “Prepaid expenses and other current assets” and “Other assets” on its unaudited condensed consolidated balance sheets.
On November 26, 2019, the Company, through its subsidiaries, entered into a line of credit agreement with a financial institution that provides for a maximum borrowing capacity of 60,000 Philippine pesos (approximately $1,102 at June 24, 2022) at the bank’s prevailing interest rate. The line of credit is due to expire on August 31, 2022. There were no
On November 20, 2019, the Company, through its subsidiaries, entered into a line of credit agreement with a financial institution that provides for a maximum capacity of 75,000 Philippine pesos (approximately $1,378 at June 24, 2022) at the bank’s prevailing interest rate. The line of credit is due to expire on June 30, 2023. There were no
16
ALLEGRO MICROSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements – (continued)
(Amounts in thousands, except share and per share amounts)
11. Other Long-Term Liabilities
The composition of other long-term liabilities is as follows:
| June 24, 2022 | March 25, 2022 | ||||||||||
| Accrued management incentives | $ | $ | |||||||||
| Accrued retirement | |||||||||||
| Accrued contingent consideration | |||||||||||
| Provision for uncertain tax positions (net) | |||||||||||
| Total | $ | $ | |||||||||
12. Retirement Plans
The Company recognizes the funded status (i.e., the difference between the fair value of plan assets and the benefit obligations) of its defined benefit pension plans in its unaudited condensed consolidated balance sheets with a corresponding adjustment to accumulated other comprehensive income, net of tax. These amounts will continue to be recognized as a component of future net periodic benefit costs consistent with the Company’s past practice. Further, actuarial gains and losses and prior service costs that arise in future periods and are not recognized as net periodic benefit costs in the same periods will be recognized as a component of other comprehensive income. Those amounts will also be recognized as a component of future net periodic benefit costs consistent with the Company’s past practice. The Company uses a measurement date for its defined benefit pension plans and other postretirement benefit plans that is equivalent to its fiscal year-end.
Plan Descriptions
Non-U.S. Defined Benefit Plan
The Company, through its wholly owned subsidiary, Allegro MicroSystems Philippines, Inc. (“AMPI”), has a defined benefit pension plan, which is a noncontributory plan that covers substantially all employees of the respective subsidiary. The plan’s assets are invested in common trust funds, bonds and other debt instruments and stocks.
Effect on the unaudited statements of operations
Expense related to the non-United States (“U.S.”) defined benefit plan was as follows:
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