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ALLEGRO MICROSYSTEMS, INC. (ALGM)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 FY2025 revenue was $166.9M (down 31% q/q, down 40% y/y) as Allegro intentionally undershipped to accelerate channel and tier inventory normalization; non-GAAP EPS was $0.03, at the high end of guidance, while GAAP diluted EPS was $(0.09) .
  • Gross margin compressed to 44.8% GAAP / 48.8% non-GAAP on underutilization and mix; management said the majority of the q/q GM decline was utilization, with pricing/mix a smaller component .
  • Q2 FY2025 outlook guides a sequential recovery: revenue $182–$192M (~12% q/q at midpoint), non-GAAP GM 49–51%, interest expense ≈$7M, and non-GAAP EPS $0.04–$0.08 (≈$0.08 at midpoint excluding incremental interest from the share repurchase) .
  • Strategic actions: repurchased/retired 39M shares from Sanken (free float +30%, governance enhancements), funded with equity and $200M incremental term loan; S&P corporate rating upgraded to BB- and term loan repriced 50 bps tighter; company made a $50M voluntary debt payment in Q1 .

What Went Well and What Went Wrong

  • What Went Well

    • “We delivered results toward the higher end of our commitments… sales were $167M, above the midpoint… and non-GAAP EPS was $0.03, at the high end” .
    • Inventory normalization progressed across auto and industrial as Allegro “intentionally undershipped” to reduce channel/tier inventories; distribution sell-through exceeded sell-in .
    • Governance/capital catalysts: 39M-share repurchase from Sanken, +30% free float, board/committee changes limiting Sanken control; S&P rating upgrade and loan repricing improve funding profile .

  • What Went Wrong

    • Revenue and margins troughed: sales fell 31% q/q and 40% y/y; GAAP GM fell to 44.8% (non-GAAP 48.8%) on utilization headwinds .
    • Automotive (-28% q/q; -29% y/y) and Industrial & Other (-39% q/q; -62% y/y) both declined as Allegro prioritized inventory rebalancing; distribution revenue dropped to 49% of sales .
    • EPS/Earnings power impacted by incremental interest from the repurchase financing in near-term; Q2 non-GAAP EPS guided $0.04–$0.08 with interest ≈$7M .

Financial Results

MetricQ3 FY2024Q4 FY2024Q1 FY2025
Revenue ($M)$255.0 $240.6 $166.9
GAAP Diluted EPS ($)$0.17 $(0.04) $(0.09)
Non-GAAP Diluted EPS ($)$0.32 $0.25 $0.03
GAAP Gross Margin %52.5% 51.2% 44.8%
Non-GAAP Gross Margin %54.6% 53.8% 48.8%
Non-GAAP Operating Margin %27.2% 23.8% 6.0%
Adjusted EBITDA Margin %34.2% 30.7% 13.1%
Revenue YoY %+2% -11% -40%

Segment revenue (combined “Industrial & Other” to match current reporting):

Segment ($M)Q4 FY2024Q1 FY2025
Automotive$181.9 $131.2
Industrial & Other$58.6 $35.7
Total$240.6 $166.9

Select KPIs (Q1 FY2025):

  • Distribution sales $81M (49% of revenue); E-mobility $62M (48% of auto) .
  • DSO 35 days; inventory 174 days; cash from operations $34M; non-GAAP FCF $23M; capex $11M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ2 FY2025Qualitative: “return to low double-digit sequential growth” $182–$192M New (quantified)
Gross Margin (non-GAAP)Q2 FY2025n/a49–51% New
Interest ExpenseQ2 FY2025n/a≈$7M New
Non-GAAP Diluted EPSQ2 FY2025n/a$0.04–$0.08; midpoint ≈$0.08 ex incremental interest New
Tax Rate (non-GAAP)Q2 FY2025n/a≈10% New
Weighted Avg Diluted SharesQ2 FY2025n/a≈191M; Q3 ≈184M as repurchase flows through New
RevenueQ1 FY2025$160–$170M (guided on Q4 call) Actual: $166.9M Delivered (within range)
Gross Margin (non-GAAP)Q1 FY202549–50% Actual: 48.8% Slightly below
Non-GAAP OpExQ1 FY2025$72–$73M Actual: $71.4M Below (better)
Non-GAAP Diluted EPSQ1 FY2025$0.01–$0.03 Actual: $0.03 At high end

Earnings Call Themes & Trends

TopicQ3 FY2024 (two quarters ago)Q4 FY2024 (prior quarter)Q1 FY2025 (current)Trend
Inventory digestion and channel healthNoted digestion; managing POS and inventories to appropriate levels Pricing support targeted to clear channel; majority GM headwind from utilization, not price Substantial progress; intentionally undershipped; distribution sell-through > sell-in Improving normalization
Auto demand and e‑mobilityAuto stable; e‑mobility up 45% y/y; 54% of auto Auto -7% q/q; e‑mobility down 14% q/q amid inventory rebalancing Auto stable end demand; xEV double-digit growth outlook; e‑mobility $62M (48% of auto) Stabilizing; poised to reaccelerate
Gross margin drivers54.6% non-GAAP; flexible model supports margins Guide down on mix/price support; utilization primary headwind 48.8% non-GAAP; utilization the majority of decline; 60–65% drop-through sensitivity Near-term trough; recovery with volume
China exposure / tariffsLocalize supply chain (OSAT/foundry) in China underway —EU tariffs on Chinese autos not a material headwind; Chinese OEMs diversifying production; China was 19% of Q1 revenue but impacted by deliberate under-shipping Managed risk; localization progressing
Crocus/TMR integrationIntegration progressing; auto-qualified; strong customer interest Synergies planned CY2H24; variable contribution margin healthy Continued new product launches; TMR and power portfolios highlighted Positive integration trajectory
Data center/48VWins in AI liquid cooling (motor drivers) —48V portfolio traction (auto/industrial); increasing data center applications Expanding opportunity set
Capital structure / governance——39M-share repurchase from Sanken; free float +30%; S&P upgrade; loan repriced -50 bps Structural positive catalyst

Management Commentary

  • “We delivered results toward the higher end of our commitments… First quarter sales were $167 million… non-GAAP EPS was $0.03…” — Vineet Nargolwala, CEO .
  • “We believe that inventory rebalancing in automotive will continue into our second quarter… customers are returning to a more normal ordering pattern, which we expect to drive low double-digit growth in the second quarter.” — CEO .
  • “Sales were $167 million, gross margin was 48.8%, operating income was 6%, and adjusted EBITDA was 13% of sales… earnings were $0.03 per share.” — Derek D’Antilio, CFO .
  • “It will reduce Sanken’s ownership from 51%… to approximately 33%, resulting in 30% more free float and a net reduction of approximately [~10M] or 5% fewer shares outstanding… we expect this to be accretive on a non-GAAP basis within fiscal year ’25.” — CFO .
  • “We are repricing the entire term loan… SOFR +225 bps (from +275); S&P corporate rating upgraded from B+ to BB-.” — CFO .

Q&A Highlights

  • Inventory progress and cadence: Management intentionally undershipped in Q1 to accelerate normalization; automotive tiers reduced ~4 weeks of inventory on average; continued progress expected in Q2 .
  • Recovery mix: Q2 sequential growth primarily automotive; industrial remains muted (data center/other portions still digesting) .
  • Gross margin sensitivity: Majority of Q1 GM headwind was utilization; 60–65% GM drop-through vs volume provides a bridge back as volumes recover .
  • China/tariffs: EU tariffs on Chinese EVs not viewed as a material impediment given OEM diversification; Allegro well exposed to top Chinese OEMs .
  • Capital/shares: Q2 weighted average diluted shares ≈191M, declining to ≈184M in Q3 as repurchase fully flows through; Q2 interest expense ≈$7M .

Estimates Context

  • We attempted to retrieve S&P Global consensus for Q1 FY2025 and Q2 FY2025 (revenue, EPS), but access was unavailable at this time. As a result, we cannot opine on beat/miss versus Street for Q1 or whether Q2 guidance brackets consensus at this time. We will update when S&P Global estimates are accessible.

Key Takeaways for Investors

  • Inventory normalization appears near completion; management targets a q/q revenue inflection in Q2 (≈12% at midpoint) with GM lift as utilization improves — a setup for near-term operating leverage if demand stabilizes .
  • Mix underpins medium-term margin recovery: as distribution normalizes and product mix (incl. TMR, 48V, AI data center) improves, non-GAAP GM can trend back toward mid‑50s over time .
  • Governance and float expansion are structural positives: the 39M-share repurchase from Sanken increases liquidity and independence; debt repricing/rating upgrade lower the cost of capital .
  • Near‑term EPS is constrained by higher interest expense from the repurchase financing; management quantified ≈$7M interest in Q2 and provided EPS excluding incremental interest for context .
  • Watch e‑mobility momentum (48% of Q1 auto) and China execution (local supply chain, diversified OEM base) as key growth drivers into the cyclical upturn .
  • Industrial timing remains the swing factor; signs of stabilization exist, but management remains cautious on a “later” recovery, potentially extending into FY2026 .

Appendix: Source Documents

  • Q1 FY2025 8-K and press release (Item 2.02 and EX-99.1): financials, non-GAAP reconciliations, Q2 outlook .
  • Q1 FY2025 earnings call transcript: inventory progress, recovery cadence, share repurchase mechanics, loan repricing, rating upgrade .
  • Prior quarters for trend:
    • Q4 FY2024 8-K and call: revenue $240.6M, non-GAAP EPS $0.25; Q1 FY2025 guide; pricing support, utilization headwinds .
    • Q3 FY2024 8-K and call: revenue $255.0M, non-GAAP EPS $0.32; e‑mobility +45% y/y; initial digestion commentary .