ALLEGRO MICROSYSTEMS INC
For the period ended Jun 28, 2024. Filed Aug 2, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 28, 2024 · Filed Aug 2, 2024
ALGM$28.17+5.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2023-12-29; filed 2024-02-06.
0000950170-24-011712
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-28; filed 2024-08-02.
0000950170-24-089610
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 117 previous paragraphs and 84 current paragraphs.
39 unchanged; 29 reworded; 16 added; 43 removed; 6 previous and 0 current paragraphs rearranged.
Tables are not compared: 9 previous and 5 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (16)
Current report
On July 23, 2024, we entered into a share repurchase agreement with Sanken (the “Share Repurchase Agreement”) pursuant to which we agreed to repurchase 38,767,315 shares of our common stock from Sanken in a privately negotiated transaction. Pursuant to the terms of the Share Repurchase Agreement, Sanken has agreed to reimburse us for the expenses incurred in connection with the transactions contemplated by the Share Repurchase Agreement, including a facilitation fee of $35.0 million. On July 29, 2024, we completed the first closing under the Share Repurchase Agreement, repurchasing 28,750,000 shares of our common stock for $621.5 million, which was the public offering price in the Equity Offering that closed on July 26, 2024 (as described below), minus the discount to the underwriters and transaction expenses and fees, including the $35.0 million facilitation fee paid to us as described above (the “First Closing”). We used the net proceeds of the Equity Offering to fund the purchase price payable to Sanken at the First Closing, and the shares repurchased in the First Closing were retired. The repurchase of the remainder of the shares of our common stock that we expect to repurchase from Sanken is expected to occur substantially concurrently with the receipt by us of borrowings under the 2023 Revolving Credit Agreement or, otherwise, on another date of our choosing (the “Second Closing”). We expect to fund the purchase price payable to Sanken at the Second Closing with cash on hand or additional borrowings under the 2023 Revolving Credit Agreement.
Current report
On July 26, 2024, we completed an underwritten equity offering of 28,750,000 shares of its common stock at a public offering price of $24.00 per share (the “Equity Offering”) resulting in net proceeds to us of approximately $665.9 million, after deducting $24.2 million of underwriting discounts. As described above, Sanken reimbursed us for its offering fees and expenses, including the facilitation fee described above. The Equity Offering completed on July 26, 2024 included the exercise of the underwriters’ option to purchase 3,750,000 additional shares of our common stock. As described above, we used the net proceeds of the Equity Offering to complete the First Closing under the Share Repurchase Agreement.
Current report
We expect to amend the 2023 Revolving Credit Agreement dated as of June 21, 2023, by and among the Company, Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent, and each lender from time to time party thereto to (i) incur new incremental term loans pursuant to the 2023 Term Loan Facility to finance a portion of the repurchase of shares of common stock from Sanken in the Second Closing pursuant to the terms of the Share Repurchase Agreement, (ii) increase the amount of revolving commitments available under the 2023 Revolving Credit Facility by $32.0 million, (iii) permit under the 2023 Revolving Credit Agreement the repurchase contemplated by the Share Repurchase Agreement with debt proceeds and (iv) make certain other changes.
Current report
On July 31, 2024, we announced the allocation of a $400 million term loan tranche (the “Term Loan”), consisting of new term loans incurred, in relevant part, to (i) finance a portion of the repurchase of shares of common stock from Sanken at the Second Closing pursuant to the terms of the Share Repurchase Agreement, (ii) fully refinance our 2023 Term Loan Facility, and (iii) otherwise use for general corporate purposes. The Term Loan is expected to have a maturity date of October 31, 2030 and to bear interest at an annual rate based on the Secured Overnight Financing Rate plus an interest rate margin of 2.25%, which annual rate represents a 0.50% per annum reduction as compared to our 2023 Term Loan Facility. The foregoing transactions are subject to market and other conditions, and there can be no assurance that the incremental term loans under the 2023 Term Loan Facility or the increase to revolving commitments under the 2023 Revolving Credit Facility (or the aforementioned amendments) will be completed on the terms described herein, or at all.
Current report
Automotive net sales decreased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023, primarily due to inventory rebalancing with our automotive contract manufacturing customers looking to manage excess supply, as well as mix across all general markets.
Current report
Americas net sales decreased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023, primarily due to the decline in the United States automotive and industrial markets across all applications. In addition, Europe and Other Asia net sales declined in industrial and other markets across all applications, South Korea net sales declined in the automotive industries, primarily safety, comfort and convenience applications, and Greater China net sales declined in automotive markets across all applications which are served through distributors currently managing inventory levels.
Current report
Cost of goods sold
Current report
Cost of goods sold decreased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023, primarily due to a reduction in production volume as well as product mix, offset by an increase in amortization of intangible assets in relation to the acquisition of Crocus Technology International Corp. (“Crocus”).
Current report
Cost of goods sold as a percentage of our total net sales was 55.2% and 43.2% for the three-month period ended June 28, 2024 and June 30, 2023, respectively. The increase was primarily due to the reduction in production volume, as well as product mix noted above.
Current report
Gross profit and gross margin
Current report
Gross margin was 44.8% and 56.8% for the three-month period ended June 28, 2024 and June 30, 2023, respectively. The decrease was primarily due to the decline in net sales and product mix noted above.
Current report
Interest expense
Current report
Interest income
Current report
Interest income decreased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023, primarily due to lower cash balances.
Current report
We expect to amend the 2023 Revolving Credit Facility as part of the Second Closing under the Share Repurchase Agreement as described above under “Business Updates”. However, there can be no assurance that the incremental term loans under the 2023 Term Loan Facility or the increase to revolving commitments under the 2023 Revolving Credit Facility (or the aforementioned amendments) will be completed on the terms described herein, or at all.
Current report
Net cash used in financing activities was $60.4 million in the three-month period ended June 28, 2024, consisting of a $50.0 million payment on our 2023 Term Loan Facility and $11.2 million of taxes related to the net settlement of equity awards.
Removed paragraphs (43)
Previous report
On August 7, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company (for purposes of Section 5.15 and applicable provisions of Article IX of the Merger Agreement only), Allegro MicroSystems, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“AML”), Silicon Structures LLC, a Delaware limited liability company and wholly owned subsidiary of AML (“Merger Sub”), Crocus Technology International Corp., a Delaware corporation (“Crocus”), and NanoDimension Management Limited, as the representative of the Crocus shareholders. Pursuant to the terms and conditions of the Merger Agreement, on October 31, 2023 (the “Closing Date”), Merger Sub merged with and into Crocus, with Crocus continuing as the surviving corporation and as a wholly owned subsidiary of AML (the “Transaction”). The aggregate purchase price paid by the Company on the Closing Date was $412.3 million in cash, subject to certain remaining working capital adjustments.
Previous report
On September 11, 2023, AML entered into a note purchase agreement with Crocus, wherein AML agreed to purchase subordinated promissory notes up to the principal amount of $7 million, subject to certain terms and conditions contained in the note purchase agreement. AML issued an initial subordinated promissory note to Crocus in the principal amount of $4 million on September 11, 2023 and an additional subordinated promissory note in the principal amount of $3 million on October 2, 2023 (collectively the “Crocus Loans”). Interest on each of the Crocus Loans accrued from the date of the note on the unpaid principal balance at a rate equal to 12.5% per annum, computed on the basis of the actual number of days elapsed and a year consisting of 365 days. All unpaid principal, together with any then unpaid and accrued interest and other amounts payable thereunder, were due and payable on the earlier of (i) September 11, 2027 or (ii) when, upon the occurrence and during the continuance of an event of default, such amounts were declared due and payable by AML or made automatically due and payable, in each case, in accordance with the terms thereof. The Crocus Loans were repaid in full in connection with the closing of the Transaction described above.
Previous report
On October 31, 2023, we entered into a $250 million term loan maturing in 2030 (the “2023 Term Loan Facility”), the proceeds of which were used to repay all outstanding term loans under the term loan agreement dated September 30, 2020, with Credit Suisse AG, Cayman Islands Branch, as administrative agent, collateral agent, and the other agents, arrangers and lenders parties thereto and to finance, in part, the Transaction. The 2023 Term Loan Facility was executed as an incremental amendment to the revolving facility credit agreement dated June 21, 2023 (the “2023 Revolving Credit Agreement”) with Morgan Stanley Senior Funding, Inc., as administrative agent, collateral agent, a letter of credit issuer and a lender, and the other agents, lenders and letter of credit issuers parties thereto. The 2023 Term Loan Facility amortizes at a rate of 0.25% per quarter, and the initial margin applicable to the 2023 Term Loan Facility is 2.75% for term SOFR-based loans and 1.75% for base rate loans.
Previous report
Our total net sales and cost of goods sold for the periods presented above include related party net sales and costs of goods sold generated with Sanken. See our unaudited condensed consolidated financial statements included in this Quarterly Report for additional information regarding our related party net sales for the periods set forth above.
Previous report
Total net sales increased in the three-month period ended December 29, 2023 compared to the three-month period ended December 23, 2022. This increase was primarily attributable to higher shipments of our e-Mobility products, which includes our advanced driver assistance systems (“ADAS”) and electrified vehicle (“EV”) applications, safety, comfort and convenience applications and data center applications, partially offset by declines in our internal combustion engine (“ICE”) applications and broad-based and other industrial applications, including clean energy and automation, as well as consumer and smart home markets.
Previous report
During the preparation of the third quarter fiscal year 2024 interim condensed consolidated financial statements, the Company identified an immaterial error in the classification of net sales by application, whereby customer returns and sales allowances were incorrectly classified by application between Automotive, Industrial and Other in the prior periods. There was no impact to previously reported total net sales or net income in any of the periods.
Previous report
The Company assessed the materiality of the revision qualitatively and quantitatively and determined the revisions to be immaterial to the prior period interim fiscal year 2024, annual fiscal year 2023, and annual fiscal year 2022 consolidated financial statements. All prior period amounts have been revised in the tables below.
Previous report
Automotive net sales increased in the three-month period ended December 29, 2023 compared to the three-month period ended December 23, 2022, primarily due to higher demand for our e-Mobility applications.
Previous report
Other net sales decreased in the three-month period ended December 29, 2023 compared to the three-month period ended December 23, 2022, primarily due to lower demand for our consumer and smart home applications.
Previous report
Net sales increased in the three-month period ended December 29, 2023 compared to the three-month period ended December 23, 2022, primarily due to product mix and market share gains in Asia. The decline in the United States was driven by clean energy and automation applications, while a decline in Europe was driven by a reduction in both broad-based applications and clean energy and automation application offset by an increase in automotive sales.
Previous report
Growth in Asia was primarily driven by China, which included growth in the automotive market, both ADAS and EV, which overshadowed a decrease in both Industrial Market sales and Other Sales.
Previous report
Cost of goods sold and gross profit
Previous report
Cost of goods sold increased in the three-month period ended December 29, 2023 compared to the three-month period ended December 23, 2022, primarily due to higher production volume and product mix, as well as the addition of cost of goods sold acquired from Crocus.
Previous report
Interest expense and interest income
Previous report
Nine-Month Period Ended December 29, 2023 Compared to Nine-Month Period Ended December 23, 2022
Previous report
Our total net sales and cost of goods sold for the periods presented above include related party net sales and costs of goods sold generated with Sanken. See our unaudited condensed consolidated financial statements included in this Quarterly Report for additional information regarding our related party net sales for the periods set forth above.
Previous report
Total net sales
Previous report
Sales Trends by Market
Previous report
During the preparation of the third quarter fiscal year 2024 interim condensed consolidated financial statements, the Company identified an immaterial error in the classification of net sales by application, whereby customer returns and sales allowances were incorrectly classified by application between Automotive, Industrial and Other in the prior periods. There was no impact to previously reported total net sales or net income in any of the periods.
Previous report
The Company assessed the materiality of the revision qualitatively and quantitatively and determined the revisions to be immaterial to the prior period interim fiscal year 2024, annual fiscal year 2023, and annual fiscal year 2022 consolidated financial statements. All prior period amounts have been revised in the tables below.
Previous report
Automotive net sales increased in the nine-month period ended December 29, 2023 compared to the nine-month period ended December 23, 2022, primarily due to higher demand for our e-Mobility products and safety, comfort and convenience applications.
Previous report
Industrial net sales increased in the nine-month period ended December 29, 2023 compared to the nine-month period ended December 23, 2022, primarily due to increases in broad based industrial and other applications, which includes demand for clean energy and automation applications. These increases were partially offset by declines in our data center applications.
Previous report
Other net sales decreased in the nine-month period ended December 29, 2023 compared to the nine-month period ended December 23, 2022, primarily due to lower demand for our consumer and smart home products.
Previous report
Sales Trends by Product
Previous report
The increase in net sales by product was driven by increases in both PIC and MS and other product sales. MS and other sales were driven primarily by our current and isolator products, as well as our magnetic sensors, while PIC sales were driven by our motors and high-performance power products.
Previous report
Sales Trends by Geographic Location
Previous report
Net sales increased in the nine-month period ended December 29, 2023 compared to the nine-month period ended December 23, 2022, primarily due to product mix and market share gains across all geographies, except for Japan and Other Asia, which was negatively impacted by a reduction in data center demand.
Previous report
Our largest growth was in North America and Europe driven by our broad-based industrial markets, industrial automation and e-Mobility applications. Growth in Asia was driven by both China and South Korea, which included growth in all areas of the automotive market, including ICE, safety, comfort and convenience, ADAS and EV.
Previous report
Cost of goods sold and gross profit
Previous report
Cost of goods sold increased in the nine-month period ended December 29, 2023 compared to the nine-month period ended December 23, 2022, primarily due to higher production volume and product mix, as well as addition of cost of goods sold acquired from Crocus, and to a lesser extent additional inventory reserves.
Previous report
Gross profit increased in the nine-month period ended December 29, 2023 compared to the nine-month period ended December 23, 2022, driven by a $104.6 million increase in net sales across nearly all markets, and the increase of cost of goods sold, as discussed above.
Previous report
Research and development expenses
Previous report
R&D expenses increased in the nine-month period ended December 29, 2023 compared to the comparable period in fiscal year 2023, primarily due to a combined increase in personnel, stock-based compensation and outside service costs, in addition to a general increase in operating expenses to fund new product development, partially offset by reduced variable compensation expense.
Previous report
R&D expenses as a percentage of our total net sales remained relatively consistent at 16.2% and 15.5% for the nine-month periods ended December 29, 2023 and December 23, 2022, respectively.
Previous report
Selling, general and administrative expenses
Previous report
SG&A expenses decreased in the nine-month period ended December 29, 2023 compared to the nine-month period ended December 23, 2022, primarily due to the inclusion, in the nine-month period ended December 23, 2022, of accelerated stock-based compensation expense of $26.3 million related to the retirement of our former chief executive officer and $3.8 million of severance due to changes in leadership, in addition to variable compensation expenses in the current period. These costs are partially offset by increased professional fees, outside services costs and personnel increases in the nine-month period ended December 29, 2023.
Previous report
SG&A expenses as a percentage of our total net sales were 17.3% and 20.4% in the nine-month periods ended December 29, 2023 and December 23, 2022, respectively. The decrease was primarily due to the inclusion of expenses in the nine-month period ended December 23, 2022 noted above.
Previous report
Interest expense and interest income
Previous report
Interest expense increased in the nine-month period ended December 29, 2023 compared to the nine-month period ended December 23, 2022, due to higher interest payments on the 2023 Term Loan Facility, which was used to finance the acquisition of Crocus. Interest income increased compared to the nine-month period ended December 23, 2022, primarily due to higher cash balances maintained throughout the comparable period and higher interest rates.
Previous report
Other income (expense), net
Showing the first 40 of 43 passages. Open the source sections for the rest.
Reworded paragraphs (29)
Previous wording
In addition to historical data, this discussion contains forward-looking statements about our business, results of operations, cash flows, financial condition and prospects based on current expectations that involve risks, uncertainties and assumptions. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the section titled “Forward-Looking Statements” and in Part I, Item 1A. “Risk Factors” of our 2023 Annual Report and Part II, Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the quarterly period ended September 29, 2023, filed with the SEC on November 6, 2023. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Current wording
In addition to historical data, this discussion contains forward-looking statements about our business, results of operations, cash flows, financial condition and prospects based on current expectations that involve risks, uncertainties and assumptions. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the section titled “Forward-Looking Statements” and in Part I, Item 1A. “Risk Factors” of our 2024 Annual Report and Part II, Item 1A. “Risk Factors” of this Quarterly Report. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Previous wording
We operate on a 52- or 53-week fiscal year ending on the last Friday of March. Each fiscal quarter has 13 weeks, except in a 53-week year, when the fourth fiscal quarter has 14 weeks. All references to the three- and nine-month periods ended December 29, 2023 and December 23, 2022 relate to the 13- and 39-week periods ended December 29, 2023 and December 23, 2022, respectively. All references to “2024,” “fiscal year 2024” or similar references relate to the 52-week period ended March 29, 2024. All references to “2023,” “fiscal year 2023” or similar references relate to the 53-week period ended March 31, 2023.
Current wording
We operate on a 52- or 53-week fiscal year ending on the last Friday of March. Each fiscal quarter has 13 weeks, except in a 53-week year, when the fourth fiscal quarter has 14 weeks. All references to the three-month periods ended June 28, 2024 and June 30, 2023 relate to the 13-week periods ended June 28, 2024 and June 30, 2023, respectively. All references to “2025,” “fiscal year 2025” or similar references relate to the 52-week period ended March 28, 2025. All references to “2024,” “fiscal year 2024” or similar references relate to the 52-week period ended March 29, 2024.
Previous wording
We are a leading global designer, developer, fabless manufacturer and marketer of sensor integrated circuits (“ICs”) and application-specific analog power ICs enabling the most critical technologies in the automotive and industrial markets. We are a leading supplier of magnetic sensor IC solutions worldwide, based on market share, driven by our market leadership in the automotive market. Our products are foundational to automotive and industrial electronic systems. Our sensor ICs enable our customers to precisely measure motion, speed, position and current, while our power ICs include high-temperature and high-voltage capable motor drivers, power management ICs, light emitting diode driver ICs and isolated gate drivers. We believe that our technology expertise, combined with our deep applications knowledge and strong customer relationships, enable us to develop solutions that provide more value to customers than typical ICs. Compared to a typical IC, our solutions are more integrated, intelligent and sophisticated for complex applications and are easier for customers to use.
Current wording
We are a leading global designer, developer, fabless manufacturer and marketer of sensor integrated circuits (“ICs”) and application-specific analog power ICs enabling the most critical technologies in the automotive and industrial markets. We are a leading supplier of magnetic sensor IC solutions worldwide based on market share, driven by our market leadership in the automotive market. Our products are foundational to automotive and industrial electronic systems. Our sensor ICs enable our customers to precisely measure motion, speed, position and current, while our power ICs include high-temperature and high-voltage capable motor drivers, power management ICs, light emitting diode driver ICs and isolated gate drivers. We believe that our technology expertise, combined with our deep applications knowledge and strong customer relationships, enable us to develop solutions that provide more value to customers than typical ICs. Compared to a typical IC, our solutions are more integrated, intelligent and sophisticated for complex applications and easier for customers to use.
Previous wording
We are headquartered in Manchester, New Hampshire and have a global footprint across multiple continents. Our portfolio now includes more than 1,500 products, and we ship over 1.5 billion units annually to more than 10,000 customers worldwide. During the three- and nine-month periods ended December 29, 2023, we generated $255.0 million and $808.8 million in total net sales, respectively, with $33.4 million and $160.0 million in net income, respectively. During the three- and nine-month periods ended December 23, 2022, we generated $248.8 million and $704.2 million in total net sales, respectively, with $64.6 million and $125.5 million in net income, respectively.
Current wording
We are headquartered in Manchester, New Hampshire and have a global footprint across multiple continents. Our portfolio now includes more than 1,000 products, and we ship over 1.5 billion units annually to more than 10,000 customers worldwide. During the three-month period ended June 28, 2024 and June 30, 2023, we generated $166.9 million and $278.3 million in total net sales, respectively, with $(17.6) million and $60.9 million in net (loss) income, respectively.
Previous wording
Our end customers continually develop new products in existing and new application areas, and we work closely with our significant original equipment manufacturer customers in most of our target markets to understand their product roadmaps and strategies. For new products, the time from design initiation and manufacturing until we generate sales can be lengthy, typically between two and four years. As a result, our future sales are highly dependent on our continued success at winning design mandates from our customers. Further, despite current inflationary and pricing conditions, we expect the average sales prices (“ASPs”) of our products to decline over time, and we consider design wins to be critical to our future success. We anticipate being increasingly dependent on revenue from newer design wins for our newer products. The selection process is typically lengthy and may require us to incur significant design and development expenditures in pursuit of a design win, with no assurance that our solutions will be selected. As a result, the loss of any key design win or any significant delay in the ramp-up of volume production of the customer’s products into which our product is designed could adversely affect our business. In addition, volume production is contingent upon the successful introduction and market acceptance of our customers’ end products, which may be affected by several factors beyond our control.
Current wording
Our end customers continually develop new products in existing and new application areas, and we work closely with our significant original equipment manufacturer customers in most of our target markets to understand their product roadmaps and strategies. For new products, the time from design initiation and manufacturing until we generate sales can be lengthy, typically between two and four years. As a result, our future sales are highly dependent on our continued success at winning design mandates from our customers. Further, despite current inflationary conditions, we expect the average sales prices (“ASPs”) of our products to decline over time, and we consider design wins to be critical to our future success. We anticipate being increasingly dependent on revenue from newer design wins for our newer products. The selection process is typically lengthy and may require us to incur significant design and development expenditures in pursuit of a design win, with no assurance that our solutions will be selected. As a result, the loss of any key design win or any significant delay in the ramp-up of volume production of the customer’s products into which our product is designed could adversely affect our business. In addition, volume production is contingent upon the successful introduction and market acceptance of our customers’ end products, which may be affected by several factors beyond our control.
Previous wording
Demand for our products is highly dependent on market conditions in the end markets in which our customers operate, which are generally subject to seasonality, cyclicality and competitive conditions. In addition, a substantial portion of our total net sales is derived from sales to customers that purchase large volumes of our products. These customers generally provide periodic forecasts of their requirements. However, these forecasts do not commit such customers to minimum purchases, and customers can revise these forecasts without penalty. In addition, as is customary in the semiconductor industry, customers are generally permitted to cancel orders for our products within a specified period. While we historically have permitted order cancellations for most customers, most of our current customer order backlog is noncancellable, which helps mitigate our exposure to unforeseen order cancellations. However, cancellations of orders could result in the loss of anticipated sales without allowing us sufficient time to reduce our inventory and operating expenses. In addition, changes in forecasts or the timing of orders from customers expose us to the risks of inventory shortages or excess inventory. We are currently operating in an inflationary environment.
Current wording
Demand for our products is highly dependent on market conditions in the end markets in which our customers operate, which are generally subject to seasonality, cyclicality and competitive conditions. In addition, a substantial portion of our total net sales is derived from sales to customers that purchase large volumes of our products. These customers generally provide periodic forecasts of their requirements. However, these forecasts do not commit such customers to minimum purchases, and customers can revise these forecasts without penalty. In addition, as is customary in the semiconductor industry, customers are generally permitted to cancel orders for our products within a specified period. Cancellation of orders could result in the loss of anticipated sales without allowing us sufficient time to reduce our inventory and operating expenses. In addition, changes in forecasts or the timing of orders from customers expose us to the risks of inventory shortages or excess inventory. We are currently operating in an inflationary environment for our products.
Previous wording
Pursuant to the 2017 Tax Cuts and Jobs Act, beginning in fiscal year 2023, U.S. tax law now requires us to capitalize and amortize domestic and foreign research and development expenditures over five and 15 years, for domestic and foreign research, respectively (“174 Capitalization”). The impact of 174 Capitalization for fiscal year 2024 is an increase in annual cash taxes of approximately $20 million and a foreign derived intangible income (“FDII”) benefit of $9 million. While it is possible that Congress may modify this provision, potentially with retroactive effect, we have no assurance that this provision will be reversed. Additionally, the Internal Revenue Service has issued Notice 2024-12 and is expected to issue final guidance which may modify this law change or its impact.
Current wording
Pursuant to the 2017 Tax Cuts and Jobs Act, beginning in fiscal year 2023, U.S. tax law now requires us to capitalize and amortize domestic and foreign research and development expenditures over five and 15 years, for domestic and foreign research, respectively (“174 Capitalization”). The impact of 174 Capitalization for fiscal year 2025 is an increase in annual cash taxes of approximately $15.8 million and a foreign derived intangible income (“FDII”) benefit of $7.7 million. Additionally, the Internal Revenue Service has issued Notice 2024-12 and is expected to issue final guidance which may modify this law or change its impact.
Previous wording
Total net sales increased in the nine-month period ended December 29, 2023 compared to the nine-month period ended December 23, 2022. This increase was primarily attributable to higher shipments of our e-Mobility products, safety comfort and convenience applications, and broad-based and other industrial applications, including clean energy and automation, offset by decline in our data center applications and consumer and smart home products.
Current wording
Total net sales decreased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023. The decrease was driven by an overall reduction in inventory levels maintained by customers and corresponding decline in shipments across all end markets. The decline in shipments impacted all applications including e-Mobility products, safety comfort and convenience applications, and broad-based and other industrial applications, including clean energy and automation, data center applications and consumer and smart home products.
Previous wording
Industrial net sales decreased in the three-month period ended December 29, 2023 compared to the three-month period ended December 23, 2022, primarily due to a decrease in demand of our broad-based and other industrial applications.
Current wording
Industrial and other net sales decreased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023, primarily due to a decrease in demand of our broad-based and other industrial applications, in addition to distribution inventory reductions.
Previous wording
The increase in net sales by product was driven by PIC sales. PIC sales were driven by our high-performance power and motor products. The decrease in MS and other sales was due to a decline in MS sales, offset by an increase in current and isolator products.
Current wording
The decline in PIC sales was driven by a decrease in demand for our motor products. The decrease in MS and other sales was due to a decline in current and isolator products, as well as our magnetic speed and position sensors.
Previous wording
Gross profit decreased in the three-month period ended December 29, 2023 compared to the three-month period ended December 23, 2022, partially driven by the increased cost of goods sold as discussed above, and the change in product mix, offsetting the $6.2 million increase in net sales.
Current wording
Gross profit decreased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023, due to the decrease in net sales and product mix noted above.
Previous wording
Research and development (“R&D”) expenses increased in the three-month period ended December 29, 2023 in comparison to the comparable period in fiscal year 2023, primarily due to a combined increase in personnel and outside service costs.
Current wording
Research and development (“R&D”) expenses increased in the three-month period ended June 28, 2024 in comparison to the comparable period in fiscal year 2024, primarily due to a combined increase in personnel costs.
Previous wording
R&D expenses as a percentage of our total net sales was 17.4% and 15.9% for the three-month periods ended December 29, 2023 and December 23, 2022, respectively. The increase was primarily due to the increased costs noted above.
Current wording
R&D expenses as a percentage of our total net sales was 27.1% and 15.4% for the three-month periods ended June 28, 2024 and June 30, 2023, respectively. The increase was primarily due to the increased costs noted above in addition to the decline in net sales.
Previous wording
Selling, general and administrative (“SG&A”) expenses increased in the three-month period ended December 29, 2023 compared to the three-month period ended December 23, 2022, primarily due to a combined increase in personnel and severance expenses and outside service costs, and an increase in general operating expenses, partially offset by reduced variable compensation expense.
Current wording
Selling, general and administrative (“SG&A”) expenses decreased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023, primarily due to a decrease in general operating expenses and outside service costs, partially offset by a combined increase in personnel and severance expenses.
Previous wording
SG&A expenses as a percentage of our total net sales was 20.7% and 15.0% in the three-month period ended December 29, 2023 and December 23, 2022, respectively. The increase was primarily due to the factors noted above.
Current wording
SG&A expenses as a percentage of our total net sales was 24.1% and 15.9% in the three-month periods ended June 28, 2024 and June 30, 2023, respectively. The increase as a percentage of total net sales was primarily due to the factors noted above in addition to the decline in net sales.
Previous wording
Interest expense increased in the three-month period ended December 29, 2023 compared to the three-month period ended December 23, 2022, due to higher interest payments on the 2023 Term Loan Facility, which was used to finance the acquisition of Crocus. Interest income increased compared to the three-month period ended December 23, 2022, primarily due to higher cash balances maintained and higher interest rates throughout the comparable period.
Current wording
Interest expense increased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023, due to higher interest payments on the 2023 Term Loan Facility, which was used to finance the acquisition of Crocus.
Previous wording
We recorded a foreign currency gain in both of the three-month periods ended December 29, 2023 and December 23, 2022. The foreign currency gain recorded in the three-month period ended December 29, 2023 was primarily due to realized and unrealized gains from our Philippine and France locations. The foreign currency gain recorded in the three-month period ended December 23, 2022, was primarily due to unrealized gains on equity securities denominated in euros, partially offset by losses from our United Kingdom and Philippine locations.
Current wording
We recorded a foreign currency loss in both of the three-month periods ended June 28, 2024 and June 30, 2023. The foreign currency loss recorded in the three-month period ended June 28, 2024 was primarily due to realized and unrealized gains from our Philippines location. The foreign currency loss recorded in the three-month period ended June 30, 2023, was primarily due to realized and unrealized losses from our United Kingdom location due to the strengthening of the British Pound.
Previous wording
We also recorded a gain of $0.7 million related to our investment in marketable securities and earnings in our money market fund deposits in the three-month period ended December 29, 2023, compared to $0.5 million of miscellaneous gains in the three-month period ended December 23, 2022.
Current wording
We also recorded investment income of $0.5 million related to our earnings in our money market fund deposits in the three-month period ended June 28, 2024, compared to unrealized losses of $8.9 million, offset by $5.2 million of realized gains during the three-month period ended June 30, 2023.
Previous wording
Income tax provision and the effective income tax rate were $3.0 million and 8.2%, respectively, in the three-month period ended December 29, 2023 and $7.5 million and 10.5%, respectively, in the three-month period ended December 23, 2022. The effective tax rate (“ETR”) year-over-year was primarily impacted by reductions in global intangible low-tax income (“GILTI”) and non-deductible stock-based compensation charges, offset by a decrease in FDII benefits. The ETR year-over-year was also reduced by discrete tax benefits related to stock-based compensation windfalls realized in the period ended December 29, 2023.
Current wording
Income tax provision and the effective income tax rate were $1.0 million and (6.3)%, respectively, in the three-month period ended June 28, 2024 and $7.2 million and 10.6%, respectively, in the three-month period ended June 30, 2023. The decline in the effective tax rate (“ETR”) year-over-year relates primarily to the change in (Loss) income before income taxes, discrete transactions, and the impact of FDII benefits and research credits; offset by non-deductible stock-based compensation charges.
Previous wording
As of December 29, 2023, we had $214.3 million of cash and cash equivalents and $429.3 million of working capital, compared to $351.6 million of cash and cash equivalents and $500.5 million of working capital as of March 31, 2023. Working capital is impacted by the timing and extent of our business needs.
Current wording
As of June 28, 2024, we had $173.1 million of cash and cash equivalents and $384.7 million of working capital, compared to $212.1 million of cash and cash equivalents and $454.3 million of working capital as of March 29, 2024. Working capital is impacted by the timing and extent of our business needs.
Previous wording
Our primary requirements for liquidity and capital resources besides our growth initiatives are working capital, capital expenditures, principal and interest payments on our outstanding debt, and other general corporate needs. Historically, these cash requirements have been met through cash provided by operating activities and cash and cash equivalents. Our current capital deployment strategy for fiscal 2024 is to utilize cash on hand and capacity under our 2023 Revolving Credit Facility to support our continued growth initiatives into select markets, planned capital expenditures, as well as consider potential acquisitions. As of December 29, 2023, the Company was not party to any off-balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. The cash requirements for the remainder of the fiscal year relate to our operating leases, operating and capital purchase commitments, and expected contributions to our defined benefit and contribution plans. Additionally, we expect to continue to strategically invest in expanding our operations in China, Europe, Japan and India in order to directly manage and service our customers in these markets, which could result in increases in our total net sales, cost of goods sold and operating expenses. For information regarding the Company’s expected cash requirements and timing of payments related to leases, noncancellable purchase commitments and pension and defined contribution plans, see Note 12, “Leases,” Note 16, “Commitments and Contingencies” and Note 15, “Retirement Plans” to the audited consolidated financial statements in the Company’s 2023 Annual Report.
Current wording
Our primary requirements for liquidity and capital resources besides our growth initiatives are working capital, capital expenditures, principal and interest payments on our outstanding debt, and other general corporate needs. Historically, these cash requirements have been met through cash provided by operating activities and cash and cash equivalents. Our current capital deployment strategy for fiscal year 2025 is to utilize cash on hand and capacity under our 2023 Revolving Credit Facility to support our continued growth initiatives into select markets and planned capital expenditures, as well as consider potential acquisitions. As of June 28, 2024, the Company was not party to any off-balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. The cash requirements for the upcoming fiscal year relate to our operating leases, operating and capital purchase commitments, and expected contributions to our defined benefit and contribution plans. Additionally, we expect to continue to strategically invest in expanding our operations in China, Europe, Japan and India in order to directly manage and service our customers in these markets, which could result in increases in our total net sales, cost of goods sold and operating expenses. For information regarding the Company’s expected cash requirements and timing of payments related to leases, noncancellable purchase commitments and pension and defined contribution plans, see Note 12, “Leases,” Note 16, “Commitments and Contingencies” and Note 15, “Retirement Plans” to the audited consolidated financial statements in the Company’s 2024 Annual Report.
Previous wording
We believe that our existing cash will be sufficient to finance our continued operations, growth strategy, planned capital expenditures and the additional expenses that we expect to incur during the next 12 months. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through equity or debt financing. We believe that our current operating structure will facilitate sufficient cash flows from operations to satisfy our expected long-term liquidity requirements beyond the next 12 months. If these resources are not sufficient to satisfy our liquidity requirements due to changes in circumstances, we may be required to borrow under our 2023 Revolving Credit Facility or seek additional financing. If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, may contain covenants that significantly restrict our operations or our ability to obtain additional debt financing in the future. Any additional financing that we raise may contain terms that are not favorable to us or our stockholders. We cannot assure you that we would be able to obtain additional financing on terms favorable to us or our existing stockholders, or at all.
Current wording
We believe that our existing cash will be sufficient to finance our continued operations, growth strategy, planned capital expenditures and the additional expenses that we expect to incur during the next 12 months. In order to support and achieve our future growth plans, we may need or advantageously seek to obtain additional funding through equity or debt financing. We believe that our current operating structure will facilitate sufficient cash flows from operations to satisfy our expected long-term liquidity requirements beyond the next 12 months. If these resources are not sufficient to satisfy our liquidity requirements due to changes in circumstances, we may be required to borrow under our 2023 Revolving Credit Facility or seek additional financing. If we raise additional funds by issuing equity securities that are not used to repurchase existing shares outstanding, our stockholders will experience dilution. Debt financing, if available, may contain covenants that significantly restrict our operations or our ability to obtain additional debt financing in the future. Any additional financing that we raise may contain terms that are not favorable to us or our stockholders. We cannot assure you that we would be able to obtain additional financing on terms favorable to us or our existing stockholders, or at all.
Previous wording
The following table summarizes our cash flows for the nine-month periods ended December 29, 2023 and December 23, 2022:
Current wording
The following table summarizes our cash flows for the three-month periods ended June 28, 2024 and June 30, 2023:
Previous wording
Net cash provided by operating activities was $169.0 million in the nine-month period ended December 29, 2023, resulting primarily from net income of $160.0 million and noncash charges of $67.9 million, partially offset by a net decrease in cash from an increase in net operating assets and liabilities of $58.9 million. The net increase in operating assets and liabilities consisted of a $19.9 million increase in inventories, a $20.5 million decrease in accrued expenses and other current and long-term liabilities, a $12.6 million increase in prepaid expenses and other assets, a $2.6 million increase in trade accounts receivable, net, and a $9.6 million decrease in trade accounts payable, partially offset by a $6.8 million increase in net amounts due to related party. The increase in inventories was primarily the result of inventory builds to support anticipated sales growth for the remainder of fiscal 2024. The decrease in accrued expenses and other current and long-term liabilities was primarily the result of a reduction in accrued personnel costs due to the timing of payments pursuant to our annual incentive compensation plan. The increase in prepaid expenses and other assets was mostly due to higher long-term deposits and the timing of tax payments. The increase in trade accounts receivable, net was primarily a result of increased sales year-over-year, as well as the timing of receipts. Trade accounts payable decreased primarily due to the timing of payments to suppliers and vendors, including unpaid capital expenditures of $2.2 million. The increase in net amounts due to related parties was primarily due to variations in the timing of such payments in the ordinary course of business.
Current wording
Net cash provided by operating activities was $34.2 million in the three-month period ended June 28, 2024, resulting primarily from net loss of $17.6 million and noncash charges of $24.7 million, partially offset by a net increase in cash from a decrease in net operating assets and liabilities of $27.1 million. The net decrease in operating assets and liabilities consisted of a $55.1 million decrease in trade accounts receivable, net, a $16.0 million increase in inventories, a $14.0 million decrease in accrued expenses and other current and long-term liabilities, and a $1.7 million increase in prepaid expenses and other assets, partially offset by a $3.4 million increase in net amounts due to related party and a $0.2 million increase in trade accounts payable. The increase in inventories was primarily the result of inventory builds to support anticipated sales growth for the remainder of fiscal year 2025. The decrease in accrued expenses and other current and long-term liabilities was primarily the result of a reduction in accrued personnel costs due to the timing of payments pursuant to our annual incentive compensation plan. The increase in prepaid expenses and other assets was mostly due to higher long-term deposits and the timing of tax payments. The decrease in trade accounts receivable, net was primarily a result of decreased sales year-over-year. Trade accounts payable decreased primarily due to the timing of payments to suppliers and vendors, including unpaid capital expenditures of $5.5 million. The increase in net amounts due to related parties was primarily due to variations in the timing of such payments in the ordinary course of business.
Previous wording
Net cash provided by operating activities was $145.7 million in the nine-month period ended December 23, 2022, resulting primarily from our net income of $125.5 million and noncash charges of $59.0 million, including a one-time charge of approximately $26.3 million related to the acceleration of stock-based compensation expense from the retirement of our former chief executive officer, partially offset by a net decrease in cash from an increase in net operating assets of $38.8 million. The net increase in operating assets consisted of a $39.1 million increase in inventories, a $17.8 million increase in prepaid expenses and other assets, a $5.9 million increase in trade accounts receivable, net and a $3.3 million decrease in net amounts due to a related party, partially offset by a $19.6 million increase in trade accounts payable, a $5.7 million increase in accrued expenses and other current and long-term liabilities, and a $2.0 million decrease in other receivables. The increase in inventories was primarily the result of inventory builds to support anticipated sales growth for the remainder of fiscal 2023 and into fiscal 2024. The increase in prepaid expenses and other assets were mostly due to higher long-term deposits and the timing of tax payments, including value-added taxes receivable, insurance and contract costs. The increase in trade accounts receivable, net was primarily due to higher sales volumes and the timing of receipts from customers. The decrease in net amounts due to a related party was primarily due to variations in the timing of such payments in the ordinary course of business. Trade accounts payable increased primarily due to the timing of payments to suppliers and vendors, partially offset by higher operating purchases, including unpaid capital expenditures of $2.5 million. The increase in accrued expenses and other current and long-term liabilities was primarily the result of higher warranty costs, accrued personnel costs, income taxes, and accrued operating expenses, partially offset by a reduction in the balance due on the acquisition of Voxtel, Inc. The decrease in other receivables was primarily due to the timing of receipts from Sanken.
Current wording
Net cash provided by operating activities was $49.7 million in the three-month period ended June 30, 2023, resulting primarily from net income of $60.9 million and noncash charges of $25.8 million, partially offset by a net decrease in cash from an increase in net operating assets and liabilities of $37.0 million. The net increase in operating assets and liabilities consisted of a $27.9 million increase in inventories, a $10.2 million increase in prepaid expenses and other assets, a $17.1 million decrease in accrued expenses and other current and long-term liabilities, and a $10.3 million increase in trade accounts receivable, net, partially offset by a $18.4 million increase in trade accounts payable, and a $10.1 million increase in net amounts due from related parties. The increase in inventories was primarily the result of inventory builds to support anticipated sales growth for the remainder of fiscal year 2024. The increase in prepaid expenses and other assets were mostly due to higher long-term deposits and the timing of tax payments, including value-added taxes receivable, insurance and contract costs. The decrease in accrued expenses and other current and long-term liabilities was primarily the result of a reduction in accrued personnel costs due to timing of payments pursuant to our annual incentive compensation plan. The increase in trade accounts receivable, net, was primarily a result of increased sales year-over-year, as well as timing of receipts. Accounts payable increased primarily due to the timing of payments to suppliers and vendors, partially offset by higher operating purchases, including unpaid capital expenditures of $11.7 million. The increase in net amounts due to related parties was primarily due to variations in the timing of such payments in the ordinary course of business.
Previous wording
Net cash used in investing activities was $69.3 million in the nine-month period ended December 23, 2022, consisting of purchases of property, plant and equipment of $49.6 million and payments related to the acquisition of Heyday Integrated Circuits of $19.7 million.
Current wording
Net cash used in investing activities was $11.0 million in the three-month period ended June 28, 2024, consisting of purchases of property, plant and equipment.
Previous wording
Net cash used in investing activities was $502.4 million in the nine-month period ended December 29, 2023, consisting of payments related to the acquisition of Crocus of $408.1 million and, purchases of property, plant and equipment of $110.5 million, partially offset by proceeds from the sale of marketable securities of $16.2 million.
Current wording
Net cash used in investing activities was $34.9 million in the three-month period ended June 30, 2023, consisting of purchases of property, plant and equipment of $44.9 million and proceeds from the sale of marketable securities of $10.0 million.
Previous wording
Net cash provided by financing activities was $198.1 million in the nine-month period ended December 29, 2023, consisting of $245.5 million of borrowing of senior secured debt, proceeds received in connection with the issuance of common stock under our employee stock purchase plan and proceeds received related to the quarterly payment from Polar Semiconductor, LLC (“PSL”) on our related party loan, partially offset by taxes related to the net settlement of equity awards, and payments of debt issuance costs in connection with the 2023 Revolving Credit Facility and 2023 Term Loan Facility.
Current wording
Net cash used in financing activities was $11.0 million in the three-month period ended June 30, 2023, primarily consisting of taxes related to the net settlement of equity awards and payments of debt issuance costs in connection with the 2023 Revolving Credit Facility, partially offset by proceeds received in connection with the issuance of common stock under our employee stock purchase plan.
Previous wording
The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Our significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies” to our consolidated financial statements included in our 2023 Annual Report. There have been no material changes in our critical accounting policies and estimates since March 31, 2023.
Current wording
The preparation of financial statements in conformity with 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Our significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies” to our consolidated financial statements included in our 2024 Annual Report. There have been no material changes in our critical accounting policies and estimates since March 29, 2024.
Rearranged previous paragraphs (6)
Previous report — wording carried elsewhere
The following table summarizes our results of operations and our results of operations as a percentage of total net sales for the nine-month periods ended December 29, 2023 and December 23, 2022.
Previous report — wording carried elsewhere
The following table summarizes total net sales by market. The categorization of net sales by market is based on the characteristics of the end product and application into which our product will be designed.
Previous report — wording carried elsewhere
The following table summarizes net sales by product.
Previous report — wording carried elsewhere
The following table summarizes net sales by geographic location based on ship-to location.
Previous report — wording carried elsewhere
We recorded a foreign currency loss in the nine-month periods ended December 29, 2023 and a gain in the nine-month period ended December 23, 2022. The foreign currency transaction loss recorded in the nine-month period ended December 29, 2023 was related to our Philippine and United Kingdom locations. The foreign currency gains recorded in the nine-month period ended December 23, 2022 was primarily due to realized and unrealized gains from our United Kingdom location, partially offset by realized and unrealized losses from our Philippine location.
Previous report — wording carried elsewhere
Net cash used in financing activities was $16.7 million in the nine-month period ended December 23, 2022, consisting of taxes related to the net settlement of equity awards and additional funds loaned to PSL under our related party loan agreement, partially offset by proceeds received in connection with the issuance of common stock under our employee stock purchase plan and proceeds received related to the quarterly payment from PSL on our related party loan.