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ALLEGRO MICROSYSTEMS, INC. (ALGM)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY2025 revenue was $0.178B and non-GAAP diluted EPS $0.07, both above the midpoint of guidance; gross margin (non-GAAP) was 49.1% and adjusted EBITDA margin 17.0% . Sales declined 5% QoQ and 30% YoY; automotive revenue fell 8% QoQ and 33% YoY while industrial and other rose 5% QoQ but fell 21% YoY .
  • Guidance for Q4 FY2025: revenue $0.180–$0.190B, non-GAAP gross margin 46–48%, OpEx ~$72M (+5% QoQ), interest expense ~$6M, non-GAAP EPS $0.03–$0.07; management expects March quarter to be the trough for gross margin given pricing resets ahead of cost reductions and capacity/excess inventory charges .
  • Operational positives: bookings highest in 8 quarters and up 50% YoY; cancellations at an all-time low; progress on “China-for-China” supply chain with shipments from local OSAT partners; accelerating product introductions across magnetic sensing and power ICs .
  • Potential stock reaction catalysts: evidence of cycle improvement (book-to-bill >1 and rising bookings), visibility into margin normalization post-March, and traction in data center and medical end markets; management reiterated long-term drop-through and gross margin targets with 65% variable contribution and an eventual path back toward mid-50s and long-term ~58% GM .

What Went Well and What Went Wrong

What Went Well

  • “We delivered on our commitments with third quarter sales of $178 million and non-GAAP EPS of $0.07, both above the midpoint of our guidance,” emphasizing execution despite inventory digestion .
  • Leading indicators improved: “bookings are the highest they've been in the past 8 quarters, and up 50% year-over-year… cancellations have largely abated” and increased in-quarter orders, signaling healthier channel inventory .
  • Product velocity and wins: record number of new magnetic sensing and power products; wins with a top Chinese OEM (steering, electrified powertrain, in-cabin), data center cooling in Taiwan/China/Japan, TMR wins in smart metering and medical; new current sensor ICs launched with 5x faster response and 40% smaller footprint .

What Went Wrong

  • Auto weakness and mix: automotive revenue $0.130B, down 8% QoQ and 33% YoY; e-mobility sales $63M, down 12% QoQ, reflecting ongoing inventory reductions in North America and some in Europe .
  • Margin headwinds: Q4 gross margin guide includes ~200bps impact from pricing resets ahead of cost reductions, capacity charges from adjusted production, and minor excess inventory charges; March quarter expected to be trough GM .
  • Clean energy softness and inventory overhang: solar-related demand remains muted amid lingering inventory built during the pandemic; Europe automotive remains an area of concern beyond inventory digestion .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Total Net Sales ($USD Billions)$0.167 $0.187 $0.178
GAAP Diluted EPS ($)($0.09) ($0.18) ($0.04)
Non-GAAP Diluted EPS ($)$0.03 $0.08 $0.07
GAAP Gross Margin (%)44.8% 45.7% 45.7%
Non-GAAP Gross Margin (%)48.8% 48.8% 49.1%
Non-GAAP Operating Margin (%)6.0% 11.7% 10.8%
Adjusted EBITDA Margin (%)13.1% 17.2% 17.0%

Segment breakdown:

Segment Net Sales ($USD Billions)Q1 2025Q2 2025Q3 2025
Automotive$0.131 $0.142 $0.130
Industrial and other$0.036 $0.046 $0.048
Total$0.167 $0.187 $0.178

KPIs (Q3 FY2025):

KPIQ3 2025
Distribution channel sales ($M)$94
Distribution % of sales53%
Magnetic sensors sales ($M)$114
Power products sales ($M)$64
E-mobility sales ($M)$63
E-mobility % of auto48%
Geography mix: China / Rest of Asia / Japan / Europe / Americas28% / 22% / 21% / 15% / 14%
Inventory days182
DSO (days)43
Cash and restricted cash ($M)$149

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total net salesQ4 FY2025N/A$0.180–$0.190B New
Non-GAAP gross marginQ4 FY2025N/A46–48% (pricing resets ahead of cost reductions; capacity charges) New
Non-GAAP OpExQ4 FY2025N/A~$72M (+5% QoQ due to payroll tax resets) New
Interest expenseQ4 FY2025N/A~$6M (term loan repricing; $30M planned repayment) New
Non-GAAP diluted EPSQ4 FY2025N/A$0.03–$0.07 New
Tax rateQ4 FY2025N/A~3% New
Weighted avg diluted sharesQ4 FY2025N/A~185M New

Note: Q2 PR provided prior quarter guidance for Q3 FY2025 (revenue $0.170–$0.180B; non-GAAP GM 49–51%; EPS $0.04–$0.08), which Allegro delivered above midpoints for revenue and EPS in Q3 .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY2025)Previous Mentions (Q2 FY2025)Current Period (Q3 FY2025)Trend
Inventory digestion & channel healthEmphasized rebalancing across auto/industrial; progress expected Continued progress; results in-line; high-end EPS guide Cancellations at all-time low; bookings highest in 8 quarters (+50% YoY); increased in-quarter orders Improving
Pricing resets vs cost reductionsNon-GAAP margins guided 49–51% next quarter Similar gross margin guide (49–51%) Q4 GM headwind ~200bps from pricing resets ahead of cost reductions; capacity and minor excess charges Near-term headwind; normalization expected after March
China localization (“China-for-China”)N/AN/AShipments from local OSAT partners begun; fab qualification in process Accelerating localization
End-market mix: EV/ADAS vs ICEEV/ADAS content growth highlighted Encouraged by electrification demand E-mobility $63M (48% of auto), down QoQ due to inventory mgmt; long-term wins >70–75% in e-mobility; no new ICE platforms; hybrids favored Short-term dip; long-term positive mix
Data center & medicalN/AN/AIndustrial strength driven by data center cooling and medical TMR (CGM patches) Emerging growth
Clean energy (solar)N/AN/ARemains soft; lingering inventory built during pandemic Weak
Product velocityN/AAccelerating product releases; sets stage for growth Record new sensing/power products; new ultra-fast current sensors; inductive position sensors, micropower latches Strong innovation cadence

Management Commentary

  • “We delivered on our commitments with third quarter sales of $178 million and non-GAAP EPS of $0.07, both above the midpoint of our guidance.” — Vineet Nargolwala, CEO .
  • “Bookings are the highest they've been in the past 8 quarters, and up 50% year-over-year… cancellations have largely abated.” — Vineet Nargolwala .
  • “We have begun shipping from our local OSAT partners [in China], and we expect volumes to expand throughout the calendar year.” — Vineet Nargolwala .
  • “Gross margin [Q4 guide]… includes pricing resets ahead of cost reductions, minor excess inventory charges, and capacity charges… March quarter will be our trough in gross margin.” — Derek D’Antilio, CFO .
  • “We believe Allegro is poised for significant value creation… multiple catalysts for long-term growth as markets are transformed by electrification and automation.” — Vineet Nargolwala .

Q&A Highlights

  • Gross margin trajectory: 200bps Q4 headwind ($4M) from pricing resets ahead of costs, capacity, and minor excess charges; management expects March to be trough and drop-through from March to June above the normal ~65% variable contribution .
  • Demand indicators: Book-to-bill above 1 for several months; bookings up 50% YoY; in-quarter orders rising as inventories normalize; North America expected to rebound; China seasonally down due to Lunar New Year .
  • EV/ADAS vs ICE: Customers not introducing new ICE platforms; hybrids favored with Allegro content similar to BEV; >70–75% of auto design wins in e-mobility (ADAS+xEV), supporting long-term growth .
  • Pricing/cost dynamics: Automotive pricing back to “normal” 2–3% annual productivity sharing; wafer cost reductions negotiated in exchange for volume (die/wafer bank build), benefits cycle into FY26; channel pricing stabilized .
  • Manufacturing footprint: Fab mix ~>50% UMC, ~35% Polar, ~10–12% TSMC; qualifying a China fab to optimize cost/quality/technology/geopolitics .

Estimates Context

  • S&P Global consensus EPS and revenue estimates were unavailable at time of request due to provider rate limits. As a result, explicit beat/miss vs consensus cannot be determined here. Results were at the high end of company guidance for revenue and EPS .
  • Implications: Given margin headwinds in March and improving bookings/book-to-bill, forward estimates may need to reflect near-term GM pressure with potential normalization in June and FY26 as cost reductions cycle through inventory .

Key Takeaways for Investors

  • Near-term margin trough in March quarter with clear drivers (pricing resets, capacity/excess charges); model a sequential GM recovery into June with drop-through above historical ~65% from the March base .
  • Demand signals improving: bookings +50% YoY, book-to-bill >1, rising in-quarter orders; inventory digestion largely complete outside pockets (watch Europe auto) .
  • Auto mix is favorable long-term: e-mobility/ADAS design wins (>70–75% of auto) position Allegro to outgrow flat global auto production via content gains; hybrids are a tailwind given similar sensor/power content to BEVs .
  • Industrial diversification: early cycle green shoots in data center and medical TMR; clean energy (solar) remains soft—monitor for recovery catalysts and policy/inventory normalization .
  • Execution on localization: China-for-China OSAT shipments and fab qualification reduce geopolitical risk and improve cost/tax dynamics over time; expect incremental margin benefits as volumes ramp .
  • Capital structure: continued voluntary debt repayments ($25M in Q3; $30M planned in Q4) and term loan repricing (SOFR + 200bps) should reduce interest expense by ~$3M annually; incorporate ~3% tax rate and ~185M diluted shares in Q4 modeling .
  • Trading setup: near-term volatility around March margin trough; potential positive inflection with June margin recovery and continued bookings strength. Watch for data center demand trajectory, Europe auto stabilization, and pace of wafer cost pass-through to COGS .