Operator: Good morning, and welcome to the Allegro MicroSystems First Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Jalene Hoover, Vice President of Investor Relations and Corporate Communications.

Jalene A. Hoover: Thank you, Haily. Good morning, and thank you for joining us today to discuss Allegro’s Fiscal First quarter 2026 results. [Audio Gap] Highlights of our business, review our quarterly financial performance and share our second quarter outlook. We will follow our prepared remarks with a 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 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 expectations 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 first quarter of fiscal 2026 and in our most recent periodic and other filings with the Securities and Exchange Commission.

Our estimates, expectations 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. It is now my pleasure to turn the call over to Allegro’s President and CEO, Mike Doogue. Mike?

Michael C. Doogue: Thank you very much, Jalene, and good morning, and thank you all for joining our first quarter earnings conference call. We are encouraged by the positive momentum we are seeing across the business, including continued strong bookings, increasing backlog and strong design win activity in our strategic focus areas. This momentum has enabled us to deliver strong first quarter results with sales and gross margin above the high end of our guidance ranges at $203 million and 48.2%, respectively. We also delivered non-GAAP EPS of $0.09 above the midpoint of our guidance range. E-Mobility led our automotive sales growth in the first quarter with particular strength in current sensors for xEV applications like high-voltage traction inverters and onboard chargers.

We expect this positive e-Mobility trend to continue as a result of tailwinds from ADAS-related safety feature adoption and the continued electrification of vehicle powertrains. In our Industrial and Other end markets, we were encouraged by continued growth in Q1 sales, Data Center as well as Robotics and Automation, both strategic focus areas for Allegro were significant contributors to our Industrial growth in the first quarter. On our May call, I spoke about my strategic priorities as CEO. And as a reminder, one of our top priorities is to demonstrate relentless innovation that drives performance leadership in new and existing markets and applications. To that end, I’m proud of the team for releasing an innovative new ASIL-C current sensor this quarter.

This IC is specifically designed to meet the safety, efficiency and commercial needs of xEV inverters. These inverters are power electronic systems that power the main traction motor in a hybrid or fully electric vehicle. And with this newly released IC, Allegro offers a market-leading device that enables customers to use 2 current sensors and an inverter, whereas most competitor solutions require 3 sensors. This new IC optimizes our customers’ bill of materials while still achieving rigorous automotive safety standards. During the quarter, the team also released our first U-core current sensor ICs that enable customers to use smaller magnetic cores or cordless inverter current sensor systems, thereby reducing the cost, size and weight of the vehicle traction drive while extending vehicle driving range.

Together, these innovative new current sensor ICs support our leadership position in xEV inverters. Our teams have already demonstrated an ability to gain market share with these new ICs, highlighting the value of relentless innovation with purpose. During the quarter, we also released a new 48-volt motor driver IC that results in more efficient, quieter and more reliable cooling fans for use in AI data center installations. Moving to design wins. More than 75% of first quarter wins were in strategic focus areas, including e-Mobility, Data Center, Robotics and Automation, Clean Energy and Medical Applications. E-Mobility and Data Center wins led our first quarter design win activity, and these wins highlight the breadth of our portfolio and our strong product and market positions that can ultimately drive future growth.

In automotive, notable wins included a sizable traction inverter win with a leading Chinese automotive OEM, demonstrating our ability to secure new business in China as a result of our differentiated current sensor technology. We also secured multiple wins with a leading automotive OEM in the APAC region across electronic power steering, onboard charger and in various vehicle cooling applications. Moving now to Industrial wins. We continue to capitalize on opportunities in high-growth sectors in data center, motor drivers for cooling applications and current sensors for server power supplies led to significant first quarter design win activity. It’s a promising sign to see increasing sales momentum from our industry-leading high-bandwidth current sensors.

These ICs enable higher switching frequencies and higher power density in space-constrained data center power supplies. We also secured several wins in Robotics and Automation with both our magnetic current sensor ICs and our advanced motor driver ICs. In addition, our TMR technology continues to gain traction in a growing number of applications, and we secured several global Q1 design wins with TMR ICs across applications in Data Center, Robotics and Automation, Medical and Clean Energy. And finally, we are also seeing strong interest from leading customers as we sample them with our high-voltage isolated gate drivers for silicon carbide-based power systems in e-Mobility, Clean Energy and Data Center Applications. Sampling activity for our isolated gate driver ICs increased significantly in recent months.

In our May call, I also spoke about the importance of cost innovation as a means of increasing gross margins. For example, in the June ending quarter, we optimized our manufacturing flow and increased test yield for certain high-volume TMR devices, resulting in a tangible COGS reduction for TMR devices acquired from Crocus. In summary, we continue to execute on our strategic priorities, and we are seeing positive momentum across the business. I’d like to thank Allegro’s employees, partners, customers and investors for their continued support across all aspects of our business. I’ll now turn the call over to Derek to review the Q1 2026 financial results and provide our outlook for the second quarter.

Derek P. D’Antilio: Thank you, Mike, and good morning, everyone. As Mike mentioned, we continue to see positive forward-looking metrics for the business, including continued strong bookings, in fact, to levels we haven’t seen since our fiscal ’23 as well as orders within lead times and further reductions in our customers’ inventories. Now I’ll turn to our first quarter results. Sales were $203 million and non-GAAP earnings per share were $0.09. Gross margin was 48.2%, operating margin was 11.1% and adjusted EBITDA was 16.4% of sales. Q1 sales increased by 5% sequentially and 22% year-over-year. Sales to our automotive customers increased by 3% sequentially, led by e-mobility sales, which increased by 16% sequentially. Auto sales increased by 13% year-over-year and e-Mobility increased by 31% year-over-year.

Industrial and Other sales increased by another 11% sequentially and for the fourth consecutive quarter, led by continued growth in Data Center, Robotics and Automation and a resurgence of Clean Energy. Industrial and Other sales increased by 50% year-over-year. Sales into the distribution channel were about flat sequentially and increased by 19% year-over-year. POS was the highest it’s been in nearly 2 years, and we continue to see reductions in our distributors’ inventories. Our distributor inventory dollars declined by another 13% sequentially and 28% year-over-year, and we are beginning to prioritize shipments to address low inventories levels for specific parts. From a product perspective, magnetic sensor sales increased by 10% sequentially, led by e-Mobility and increased 12% year-over- year.

Sales of our power products declined by 2% sequentially and increased 43% year-over-year. Sales by geography were 28% in China, 24% in the rest of Asia, 17% in Japan, 16% in the Americas and 15% in Europe. Now turning to Q1 profitability. We also continue to be very focused on improving gross margins and our return on invested capital. Gross margin was 48.2%, an increase of 260 basis points sequentially, while absorbing foreign exchange headwinds from a weakening U.S. dollar. Operating expenses were $75 million, about $3 million above our outlook due to an increase in variable compensation, timing of R&D spend and a weakening U.S. dollar. Operating margin was 11.1% of sales compared to 9% in Q4 and 6% a year ago. Operating income improved by 128% on a 22% sales increase year-over-year, demonstrating the operating leverage in the business model.

The effective tax rate in the quarter was 9.5%. First quarter interest expense was $5.5 million. And the first quarter diluted share count was 185 million shares and net income was $16 million or $0.09 per diluted share. Moving to the balance sheet and cash flow. We ended Q1 with cash of $139 million. Cash flow from operations was $62 million, CapEx was $11 million, and free cash flow was $51 million or 25% of sales. Cash flow from operations included a $30 million tax refund. From a working capital perspective, DSO was 40 days, consistent with Q4 and inventory days were 141 days compared to 148 in Q4. Inventory dollars declined by another $10 million sequentially, largely due to a decline in finished goods as we continue to fulfill some orders within lead times from finished goods.

Finally, in Q1, we made another voluntary debt repayment totaling $35 million, bringing our debt balance down to $310 million and net debt to $181 million compared to net debt of $224 million at the end of Q4. Finally, I’ll now turn to our Q2 2026 outlook. We expect second quarter sales to be in the range of $205 million to $215 million. The midpoint of this range equates to a 12% year-over-year increase. Additionally, we expect the following, all on a non-GAAP basis. Gross margin to be between 48% and 50%, OpEx is expected to be approximately $73 million. Interest expense is projected to be $5 million, inclusive of another $25 million debt repayment we just made this morning. We expect our tax rate to be 10%, reflecting the projected geographic mix of income.

We estimate that our weighted average diluted share count will be 186 million shares. And as a result, we expect non-GAAP EPS to be between $0.10 and $0.14 per share, up 50% year-over-year at the midpoint on a 12% sales increase. Now I will turn the call back over to Jalene for questions. Jalene?

Jalene A. Hoover: Thank you, Derek. This concludes management’s prepared remarks. Before we open the call for your questions, I’d like to share our second fiscal quarter conference line up with you. We will attend Needham’s Sixth Annual Virtual Semiconductor and SemiCap one-on-one Conference on August 20, Evercore’s ISI Semiconductor, IT Hardware and Networking Conference on August 26 at the Peninsula in Chicago; and Jefferies’ Semiconductor, IT Hardware and Communications Technology Conference on August 27 at the Four Seasons also in Chicago. We will now open the call for your questions. Haily, please review Q&A instructions.

Operator: [Operator Instructions] Our first question comes from the line of Joe Quatrochi from Wells Fargo.

Joseph Michael Quatrochi: I was wondering, I think you talked about starting to see some areas — increasing areas of shortages and needing to refill inventory. Can you talk about just kind of the forward demand — picture you’re seeing in the demand pull from your customers and how you’re thinking about the dynamic of potential tariff pull-ins versus kind of continued recovery?

Michael C. Doogue: Yes. Thanks for the question, Joe. So just a reminder on some of the strong positives, that’s really the best way to summarize trends in the business. We continue to see the growing book-to-bill with strong bookings, growing backlog, continuing to see significant orders within lead time and inventory reductions in the Disti channel. So we’re seeing a lot of positive signs. What I can say when we start to think about the impact of tariffs and potential pull-ins, I personally have been on the road a lot talking with customers, and I found it to be quite valuable. In almost every meeting, there have been real tangible discussions about potential future component shortages, meaning other Allegro components based on real and growing demand in the marketplace, that’s true both for industrial and automotive customers.

Certainly, we acknowledge the uncertainties created by the tariff situation, but we find it to be an encouraging sign to be having more and more conversations with customers about real manufacturing-based line tightness, and it’s just another signal that demand is picking up out there.

Derek P. D’Antilio: And Joe, this is Derek. I’ll add to that. It’s something that we have our sales teams in the regions on the lookout for if there’s any unusual bookings activity, unusual sales activity. And so far, we believe the impact of any sort of pull-ins is immaterial from tariffs. We obviously don’t get the reasons why a customer is pulling something in. But in general, it’s because they need it because of a potential line down, for example, in places like data center. And from a tariff perspective, right now, there’s no direct impact for Allegro. We ship about 15% of our products into the United States or into North America. Everything is shipped from the Philippines to all regions. From an indirect standpoint, as far as downstream with our customers, there clearly could be an impact for things like Section 232 and steel and aluminum imports as some of the automakers announced yesterday.

But the impacts to Allegro on that are yet to be seen in the kind of downstream.

Joseph Michael Quatrochi: That’s really helpful. And then as a follow-up, I was wondering if you — can you talk a little bit more about just the industrial exposure? I think in the past, you talked about clean energy, solar being a big piece of that. And I know there’s been some changing with the big beautiful bill in terms of subsidies for solar. So any help there on like what those discussions with customers have been like?

Michael C. Doogue: Yes, absolutely. So if you look at our investor deck, you’ll see in our focused industrial area, it’s about a $3 billion SAM growing at a double-digit growth rate. And it really spans Data Center, Robotics and Factory Automation. And yes, of course, clean energy and also the medical market. So I bring that up, Joe, just to say clean energy is one leg of the stool, but we have a lot more legs on that stool. And in particular, we’ve been seeing an uptick recently in the Data Center portion of the Industrial business. So as we go out, if I paint with a broad brush talking to our industrial customers, we’re seeing strong recovery in the business. We have 4 quarters of growth and the clean energy piece is just one piece of that business. There is a little bit of softness there, but it’s more than being made up by the strength in other areas like data center.

Operator: Our next question comes from the line of Vivek Arya from Bank of America Securities.

Vivek Arya: The first one is on gross margin. So they exceeded the high end of your outlook. And I’m curious what helped to drive the upside? And if you could help differentiate between utilization, pricing and mix, what was specifically different than your initial assumptions? And then as we look forward, how do you see these 3 drivers as you kind of march towards your goal of 50% over the next few quarters?

Derek P. D’Antilio: Yes, Vivek, thank you. In terms of our Q1 gross margin being at 48.2%, which was 20 basis points above our guidance range, revenue was about $1 million above that guidance range. So with that revenue level, it was within our expectations. And we expected a fairly good drop-through going into Q1. I’ve talked in the past about a 60% to 65% drop-through. That’s a number you can use post Q2. For Q1, though, we expected the drop-through to be in that 90% range because, as you may remember on the May call, we talked about how many of our pricing negotiations with our customers occur in the March quarter. So we have a timing dynamic where pricing comes down pretty immediately, but the cost benefits from negotiating cost downs with suppliers take about a quarter or 2 to cycle through our inventory with 150 days in inventory.

So we start to get that benefit here in the June quarter, and that moves into the September quarter as well. So our guidance at the midpoint for the September quarter from 48% to 50% at the midpoint of 49%, that equates to about a 75% drop-through where we continue to get some of those benefits of the cost rolling forward on a FIFO basis. Post that quarter, you can continue to use that 60% to 65% drop-through. The majority of that really is utilization or leverage in the business. The other levers that could put some upside to that is mix. And in the June quarter, sort of had 2, I would call it, headwinds. One was foreign exchange with the Philippine peso, which was kind of noise, but it was still a headwind. The second piece of that was direct sales were higher than distribution in the quarter.

So as distribution starts to come back from a sell-in standpoint, the majority of that is industrial, and we get some tailwinds from that. So that could be some upside to that 65% going forward.

Vivek Arya: Very helpful. Then maybe, Mike, one for you. Maybe your views on the automotive demand recovery because there has been some mixed messages from some of your larger peers, Texas Instruments, STMicro and others. And I’m curious, how do you see the demand environment now versus what you thought 90 days ago? And to be more specific, how are you looking at automotive sales growth going into your September quarter against what is probably just a flattish auto production environment globally?

Michael C. Doogue: Yes, we can start with that auto production forecast. I was pleasantly surprised to see S&P revise their automotive production forecast up over the past quarter. Now that is a forecast change that goes from a slight decline in production to generally a flat vehicle production landscape. But nonetheless, that’s a positive movement of the forward-looking automotive forecast, and that lines up with what we’re seeing when we go out and talk to customers. I mentioned earlier these discussions about automotive tightness where a lot of our auto customers are looking for expedited delivery of material to keep their lines running at maximum efficiency, both through direct customer discussions, but also through discussions with our sales teams.

We’re just seeing a pretty marked increase in those types of situations out there in the marketplace. So I’m not saying that the recovery in auto is very strong at this point in time. But Derek and I, when we look at the situation, we’re seeing all the right signs to indicate that we’re staring at a recovery in front of us.

Operator: Our next question comes from the line of Gary Mobley from Loop Capital.

Gary Wade Mobley: Derek, that revenue guide for the September quarter of $210 million, would you say that represents shipping to true end demand? Or are we still seeing some reduction in the distribution channel that holds the quarterly revenue back?

Derek P. D’Antilio: Gary, it’s not yet shipping to end demand. In the past, I’ve provided a number of between $220 million and $230 million was sort of the last time that we calculated, I guess, off of our sales in Q4 of ’24, what the end demand looks like. We still think that number holds about true right now, that $220 million to $230 million. And we undershipped the distribution channel again in Q1. We might come back to parity in Q2 when I net out the fact that some distributors actually need select parts for inventories. There is some regions of the world like Europe that still have a ways to go on the downside of things. But we are now starting to see distributors need select parts. So the net of those 2 things could make sell-in flattish in Q2. So we’re not quite shipping to demand there. And even with our direct customers, we’re still not shipping to demand. And the guide for Q2 is up about 3%. We’d expect the majority of that to be auto.

Gary Wade Mobley: Got it. Appreciate that color, Derek. Mike, you just highlighted the mix data points in the automotive market. On the negative side, clearly, we’ve seen a number of leading Western automotive OEMs revise down their profit forecast because of tariffs and whatnot. Has that had any sort of impact on the design RFQ activity with many of those Western automotive OEMs? In other words, are they sort of trying to plug the dike, so to speak, because of the tariff environment?

Michael C. Doogue: Good question. I’ve not seen any of that activity as a result of tariffs. If there is any press out there about delays in R&D programs in automotive, the ones I have seen perhaps a quarter ago were more related to companies trying to sort out exactly how to balance their platforms between EV powertrains and ICE powertrains. We’ve seen a little bit of that dynamic, but nothing related to the tariff situation in terms of program pushouts or R&D program changes in plans.

Operator: Our next question comes from the line of Quinn Bolton from Needham & Company.

Nathaniel Quinn Bolton: Mike, Derek, congratulations on the nice results and outlook. I guess my question is this auto recovery and looking into the second half of the calendar year. I know you give guidance only 1 quarter out. But historically, you’ve seen some seasonality in the December quarter. Certainly, it sounds like the growing backlog, the increasing bookings, the chance to potentially start refilling the channel could all align for a better-than-seasonal outlook in December. But just wondering if you might be able to comment on whether you would expect normal seasonality in December or whether you think the cycle can sort of overpower typical seasonal trends as that cycle starts to kick in?

Derek P. D’Antilio: Yes, Quinn, you’re right. We went back and looked at the last 15 years or so. And generally speaking, for the majority of that period of time, the December quarter has had a 5% down seasonality. Where it’s actually been is what I’ll call an Industrial and Other. In fact, some of that’s been consumer. So for example, the September quarter usually has a little bit of a pickup in consumer — I’m talking a couple of million dollars. So that 5% down has traditionally been in Industrial and Other, although last year, that was in auto. This year, it’s interesting because we’re not quite sure if the secular trends or where we are in the cycle will trump that seasonality dynamic. And in ’23 and ’24, it did, in fact, right? So there’s a lot of strong tailwinds right now going towards that. So it’s a little hard to guide to that December quarter. But historically, it’s been down 5% with the secular tailwinds, it could be in that range of down 5% to plus 5%.

Nathaniel Quinn Bolton: Got it. And then I guess just a second question. You’re seeing increasing expedites, it sounds like both from OEMs and potentially distis. You’ve talked about Disti Inventories coming down. I mean at what point do you think you start to restock the channel? I know September sounds like you’re expecting sort of flattish disti or selling to match sell out in that disti channel. But would you expect to be in a position sort of exiting this year to start refilling the channel? Or are you going to kind of take it one quarter at a time?

Derek P. D’Antilio: Yes. We take it one quarter at a time, right? But we get pretty good visibility into our top distributors, of course, and that’s all contractual. We get their POS data, we get the inventory data. So we watch that very closely, and we’ve been actively working with our distributors for over a year now to bring down that inventory. And for example, in the June quarter last year, China declined — sales for us declined 55% because we really helped drive down the inventory in the channel. And that was a good thing. We had a North America reset in the December quarter, a little bit of Europe reset in the March quarter. And so we still have pockets of inventory in parts of Europe and North America. I think Asia is in really, really good shape.

But what we’re starting to see right now is for select parts, we actually have to restock that channel. So what I said earlier was the net effect of those 2 things, we expect the distribution sales into the channel to be about flat in the September quarter.

Operator: Our next question comes from the line of Chris Caso from Wolfe Research.

Christopher Caso: I guess the first question is regarding China. And I guess we’ve heard different things from different suppliers with regard to China. It looks like a 28% of revenue, it’s not terribly different than what you’ve seen in the past, but can you talk to specific trends of what you’re seeing for both the direct customers and the distribution customers within China?

Michael C. Doogue: Yes, Chris, I’ll take that one. So first of all, as you stated, we’ve built a robust business in China. And when I look at that business, it’s across a broad portfolio of devices, each of which have their own strong levels of differentiation. Additionally, in the prepared remarks, I brought up a singular win with a Chinese OEM for an xEV current sensor application. But when I look at the wins within the quarter, I actually see pretty strong momentum in terms of new wins in e-Mobility, in particular, in China. So what we’re seeing in China is a continued ability to win. We also have customers who are responding quite positively to our China-for-China supply chain. So in general, we feel good. That being said, I talked in last quarter’s call, there is stiff competition in China.

It tends to be at the lower end of the market. We don’t have much business at the lower end of the market today, and our strategy is to continue to release differentiated products to compete more on the higher end of the China market. And there’s also the geopolitical concerns existing in China. So net-net, I talked about a lot of the tailwinds that we have through innovation in our products, a couple of headwinds on competition and geopolitics. But net-net, we’re feeling good about our ability to grow in China in the short term.

Christopher Caso: Got it. As a follow-up question, I’d like to discuss pricing. And we’re probably in the early stages of recovery right now. So it’s probably early to see pricing trends. But I know last year, you had to make some pricing moves to move some inventory. You’ve got — you’ll be starting soon the annual price negotiations with your auto customers. What’s your view with regard to pricing as you head into the end of the year and into next year in the context of maybe supply gets a little bit tighter?

Michael C. Doogue: Yes, it’s a dynamic situation, as we all know. Any time we enter the year, we start thinking about can we land at a low single-digit price reduction year-over-year. In many cases, in automotive, we have certain contractual obligations to land there. And we’ve sat down as a team and looked at this year, we think we’re still landing in that space, right? I mean I’m just going to preempt the question. Sometimes people say, because of tariffs, are customers asking you for bigger price reductions. When supply gets tight, we might be able to demand some price increases. But net-net, we feel like we’re going to land in a normal year-over-year price reduction environment as we enter the next calendar year.

Operator: Our next question comes from the line of Tom O’Malley from Barclays.

Thomas James O’Malley: I wanted to dive into the sequential on the Industrial and Other side, which was very strong in June, I think, up 14%. That kind of coincided with a bit of a pickup in China and then a bit of a pickup in Europe as well. Could you map for us where you were seeing that strength? Is that industrial side more isolated on China? Are those correlated at all? Or was that kind of broad-based strength across the different geos?

Derek P. D’Antilio: Tom, it was fairly broad-based. A lot of it was other Asia, which is places like Taiwan, a lot of it is data center. In fact, China, our industrial business in China is a relatively small piece of the overall business. So it was Europe, it was the Americas in some places. Data center really led the strength in terms of dollars. And Mike can give us some examples of what we’re selling into the Data Center, but it was Data Center, a small resurgence in Clean Energy and then an uptick in Robotics and Automation, and most of that is actually in other Asia.

Thomas James O’Malley: Helpful. And then when I look at the e-Mobility versus your other auto businesses, there’s a pretty big divergence over the last couple of quarters where you’re seeing kind of mid-teens growth on the e-Mobility side and then some declines in your more star tracking business. When you look at what’s growing within that e-Mobility bucket, is that related to EVs more specifically? Just because like when you look broadly right now, you’re seeing some news around potentially EV credits, some pull forwards there being a bit better. Like could you help me understand how much of that’s being driven by EV? And like do you have any fears around any sort of order patterns changing just because you’re having some change in the rules?

Michael C. Doogue: Yes. So we’re pleased to see the strong growth rates in our e-Mobility business. That’s what we want to see. And just as a reminder for everyone, in our e-Mobility business, which includes ADAS and EV areas of the automotive sector, most of our dollars in that space come more from the ADAS side of the application space. So when we see growth in e-Mobility, there’s often a decent balance of growth in the ADAS portion of the business as well as the EV portion of the business. A lot of the growth in EV comes from new wins. So we continue to secure new wins, both in ADAS and EV. So as we look at that e- Mobility number, we won’t split out the actual numbers between ADAS and xEV, but the majority would be coming from ADAS, and we see a robust future for the xEV dollars that we have growing as well.

Derek P. D’Antilio: And Tom, in terms of the U.S. changes in regulation, one data point I’ve given in the past is currently today, about 15% of our sales are U.S. and the U.S. is at about 10% adoption, right, of ePure EV, there’s hybrid in there as well. That means that U.S. EV, Pure EV is about 1.5% of our total sales. So it’s not necessarily impactful. It’s great when it grows. And the other data point that you’ve probably seen is that S&P actually has EV in the United States growing as a percentage faster than many other regions, except for Europe because it’s coming off a very small number.

Operator: Our next question comes from the line of Blayne Curtis of Jefferies.

Blayne Peter Curtis: I was wondering on the e-Mobility side, you mentioned a few drivers in the script. Maybe you could just highlight as to — in terms of — curious on the future drivers. You mentioned TMR pricing coming down. I know that’s kind of a more future one to insert that technology into auto. And then I don’t think I’ve heard gate drivers. Can you maybe just walk us through some of the — as you look out the next year or 2, the timing of some of these kind of new products within e-Mobility?

Michael C. Doogue: Yes. I think — thanks for the question, Blayne. I think I understand it. So when we look at e-Mobility in general, what are some of the growth drivers. We continue to see increases in dollar content. We started talking about that in steering systems where we have fairly large chipsets across our different product areas in a steering system. That’s now carrying over into braking systems, whereas previously, there was a fairly small amount of semiconductor content in a braking system. They’re adopting more electric motors and other things in the braking system, including higher safety standards that give us an increasing dollar content opportunity in the ADAS space. That’s already starting to unfold and has many years to come.

When we think more about in the EV space, our #1 area of growth there is in the current sensor space. We’ve had those products for a long time. We’re leaders in that space. But here is where our isolated gate drivers come into play, driving a large SAM expansion and really some strong growth opportunities as we move forward. As a reminder, with that business, when we bought it, the first products to go to market were driving gallium nitride transistors. GaN has a lower market penetration than silicon carbide, which is why in the prepared remarks, we were intentional in calling out the fact that we are now broadly sampling our silicon carbide-based isolated gate drivers. That’s where most of the SAM is. We have strong resonance with customers, pretty much, I would say, the majority of that business being in the EV space, but a close second to that is activity in the data center space.

So we’re feeling good about the isolated gate drivers in terms of the uplift we’ll see both in EVs and also in the industrial and data center space.

Blayne Peter Curtis: I do want to ask you on the Data Center because that was a segment you broke out a while back, and it kind of fell off as spending in the Data Center went down. Is — you mentioned a few times is within that Industrial Other, has Data Center become more material? Or is it the largest segment? Maybe kind of — I think someone asked this before, but in terms of this industrial business that have gone up a bunch, can you just walk us through maybe what are the — some of the bigger segments within that?

Michael C. Doogue: Yes. Maybe I’ll just talk directionally, but we had a robust data center business that certainly got caught up in the inventory cycle. What’s most promising to me now as we’re coming out of the cycle, not only are the fan driver ICs that we’ve been talking about for years and really that we’ve been successful with for years coming back in a robust way. But now we have a lot more of our current sensors in the power supplies in the data center. So we’ve expanded our dollar content footprint. And then the next chapter in that story is the one I just spoke of where the isolated gate drivers will offer up another dollar content expansion in the data center. So we believe it’s a key strategic area for us in terms of future growth, and we’ll continue to highlight it and inform you how it’s going in future calls.

Operator: Our next call comes from the line of Vijay Rakesh from Mizuho.

Vijay Raghavan Rakesh: Just a quick question. Just a follow-up on Blayne’s question. When you look at the e-Mobility side, I know you’ve kind of laid out the different products that are driving it. Can you also give us some color on what the — as you look at your Traction xEV in China and APAC, how the customer pipeline looks like? What are the big OEMs? Where are you seeing increased penetration? And what are the big wins that you’re seeing across APAC, China, et cetera? And what the competitive landscape looks like? And I have a follow-up.

Michael C. Doogue: Yes. Thanks, Vijay. I can’t really talk in depth about OEM activity. They crown upon that or sometimes we’re contractually not allowed. But what I can say is that in recent quarters, I actually went to the APAC region, signed an important development agreement for a next-generation current sensor in a very popular EV. And this is the type of activity we have with a lot of our partners where we are bringing innovative solutions to the table and becoming a partner of choice. In China, I already mentioned a sizable win in an inverter with a local China OEM. In the e-Mobility space in China, we did actually secure a sizable number of wins across numerous OEMs in China, and they’re all local OEMs. The activity we’re seeing on a design win perspective is with these local OEMs providing vehicles to the local China market.

And then if we expand into Japan, we’ve always had a very robust e-Mobility and EV story in Japan. It’s a good opportunity to remind everyone, we actually have a solution set in terms of products for an electrified powertrain where we have significant dollar content in a hybrid and a battery EV. In Japan, we’re having great success on the hybrid side of things with strong dollar content and market share in some of those EV systems.

Vijay Raghavan Rakesh: Got it. And then on your China-for-China strategy, does that support all your China revenues now? And are the margins there attractive with the China-for-China allowing you the 75% drop-through that Derek mentioned?

Michael C. Doogue: Yes. So the China-for-China, like I said, strong resonance with customers. It’s going to be a significant amount of work to roll out our products to run on the China-for-China supply chain. And what I mean by that as an analog mixed signal company, we have lots of product SKUs that we need to move over, and we’re in the process of doing that. I will say that when we work with vendors in China, there’s 2 things going on. They’re actively pursuing our business, and I think the cost base for producing semis in China is a bit lower than other regions of the world. So the way I look at it, what we find is a cost environment that allows us to compete better in China. And I wouldn’t start talking about it at China being an area of margin uplift for the company. But through the China-for-China supply chain, it’s an important part of us staying competitive in China while sustaining margins.

Operator: Our next question comes from the line of Tim Arcuri from UBS.

Timothy Michael Arcuri: So Derek, gross leverage is down to about 2x for September based on your guidance. So when will capital deployment shift from debt paydown to capital return, maybe some share repo? Basically, the question is kind of like when do you consider the balance sheet to be fixed and you’re kind of happy with it?

Derek P. D’Antilio: Yes. Right now, the most accretive thing we can do is continue to repay debt. And so we just made another $25 million payment this morning. So we’re not worried about the leverage level per se, but it happens to be the most accretive thing we can do right now when the debt markets are available for us if we chose to do something else. In terms of capital deployment, our CapEx is down to below 5% of sales. It will continue there as we’ve gone through the investment cycle over the last couple of years. We will continue to invest organically in R&D and sales where we think that makes sense in the high-growth areas. We continue to look at M&A that makes sense. I don’t expect to do anything soon. And then in terms of returns, we don’t plan to do a dividend anytime soon.

We did do a share buyback from Sanken last summer, as anyone knows, but that was for a specific reason to return capital, and it was structured such that it was really favorable to Allegro shareholders. And right now, there’s no plans for any additional broad-based share buybacks.

Timothy Michael Arcuri: Okay. And then I also wanted to ask on China-for-China. I think you are getting chips from SMIC maybe at the end of this year. I think you’ve taped out, I don’t know, maybe 10, 15 products in that fab and then you’re taking wafers from other existing fabs and you’re routing them through OSATs in China. So can you just talk about like is that on track with SMIC? And does that change your competitive position in China? I know only you report 26% of mid-20s revenue in China roughly and only — I think only about half that remains in China. But does the China-for-China — like is it on track? And do you see it changing your competitive balance in China?

Michael C. Doogue: It is on track, and we do believe it changes our competitive positioning. When it comes to wafer technology transfers, they take a long time, and they are progressing. What’s interesting, you hear from a lot of companies in the world that we all need to move at China speed. And what that’s turned into for some companies, they wanted to jump right to exercising our China back end, using wafers from whatever source the wafers may come from, meaning they don’t need to come from China, those wafers. So we’re seeing an increase in the number of customers wanting to exercise the back end, and that’s what’s actually happening right now as we sample and start to ramp with more customers with our CFC supply chain. There is value even in just the back-end only part of the supply chain. But yes, to answer your question, we feel like it’s going well and differentiating our business in China.

Operator: Our next question comes from the line of Nicole Kozhukhov from Morgan Stanley.

Joseph Lawrence Moore: Sorry, this is Joe Moore there might be some confusion. Can you hear me?

Operator: Yes.

Joseph Lawrence Moore: Okay. Sorry, I’m just going to dial in a different line. I want to ask about OpEx. I think your long-term plan is 26% of sales. As your revenue accelerates, do you get there quicker? Do you use that opportunity to invest a little bit more in some of these new markets? Just how do I think about OpEx trajectory?

Derek P. D’Antilio: Yes. Thank you for the question. This is Derek. So what you’ve seen over the last 2.5 years is SG&A has been about flat. So we’ve been able to offset inflation with doing things like moving a lot of our functions to our new shared services center in the Philippines. And we’ve continued to get good leverage there, and that’s also where 70% of our customers in that region. So it’s also enhanced our customer service against our team service. We’ll continue to find ways to offset inflation in SG&A with cost reduction opportunities. We will invest though in sales in certain regions and R&D, but I would call that an allocation. So you’re not going to see a step up in OpEx. So even at $1 billion levels like we were at 2 years ago, OpEx is at the same level. So the percentage does get a lot better. You will not see a material step-up in OpEx dollars. What we will do is reallocate dollars within OpEx to fast-growing strategic areas.

Joseph Lawrence Moore: Okay. That’s helpful. And then with regards to China, I know the question has been asked. But in terms of building a pipeline there, can you talk about what that’s like? Do you — obviously, you have differentiated technology, but where there’s a tie, do they favor European suppliers over American suppliers? And do you see any prospect for sort of China organically doing what you guys do on the semi side?

Michael C. Doogue: Yes. Thanks, Joe. So as I mentioned, we continue to demonstrate our ability to win in China. We had a significant number of design wins this quarter. I want to be clear, as I stated earlier, there is increasing competition in China. There are attempts to localize all kinds of semis in China. And our strategy to combat that is to continue to differentiate, to have that type of product that can save our customers’ money at the system level so that we’re not roiled in head-to-head, pin-for-pin, price-for-price battles in China every time we try to grow the funnel. So right now, it’s going to be a decade-long strategic play. And right now, we’re feeling good about where we are, both in terms of present day design funnel, but also in terms of the innovations we’re bringing forward for the future.

Operator: [Operator Instructions] Our next question comes from the line of Joshua Buchalter from TD Cowen.

Joshua Louis Buchalter: I wanted to ask about current sensing. So it seemed like in the prepared remarks, maybe I’m overthinking this, but your confidence in the near- to medium-term contribution from current sensors in autos has increased. It seems like it’s a little early for the TMR IP that you acquired for Crocus to be impacting the auto market. Is this primarily for Hall-effect sensors or your legacy GMR sensors? Can you maybe elaborate on what’s driving the near- to medium-term current sensing side?

Michael C. Doogue: Thanks, Josh. So we feel very good about our current sensor road map. To answer your question directly, the ICs I spoke about in my prepared remarks are using Hall-effect technology. There’s lots of reasons for that. We live in an R&D world where it does take a few years to develop a custom product for an application. So these products were started roughly 2 years ago. That being said, as we look at our current sensor road map going forward, we’re pivoting much more strongly to TMR. We have product sampling to customers that have much better signal-to-noise ratios, much higher bandwidth. And we’ve been quite pleased with the progression at an R&D level and from a customer response level when it comes to the customer feedback for these upcoming TMR ICs.

Joshua Louis Buchalter: Got it. And then I wanted to ask about the legacy auto business. So if I back into the numbers, I think the non-e-Mobility auto revenue was down sort of high-single, low-double digits sequentially and year-over-year. Was that some of the inventory dynamic that Derek discussed in his prepared remarks? Anything else going on there? And how should we — is that business sort of stabilized? Or is that just at the point where e-Mobility is so much greater as a portion of the mix that it should be flat to down here?

Michael C. Doogue: Yes, Josh, I think there that you nailed it with your first comment. I do think that there’s an inventory component to the numbers outside of e-Mobility and automotive. They’re small numbers. You’ll see our Japan number quarter-over-quarter was not robust either. We just believe that’s timing of purchases. There’s no longer-term signal that’s coming out of the quarter-over-quarters in either that other automotive business or in Japan, both should be fine.

Operator: At this time, I’m showing no further questions in the queue. I would now like to turn it back over to Jalene for closing remarks.

Jalene A. Hoover: Thank you, Haily, We appreciate you taking the time to join us. This concludes this morning’s conference call.

Operator: Thank you for your participation in today’s conference. This concludes the program. You may now disconnect.

AI Assistant

ALLEGRO MICROSYSTEMS INC

Q1 2026

Earnings Transcript

Find Answers

Ask about any part of the document to get insights, explanations, or key details.