ALLEGRO MICROSYSTEMS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other information included elsewhere in this Quarterly Report, as well as the audited financial statements and the related notes thereto, and the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission ("SEC") onMay 19, 2021 (the "2021 Annual Report"). 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 II, Item 5, "Risk Factors" of our 2021 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. 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 endedDecember 24, 2021 andDecember 25, 2020 relate to the 13-week periods endedDecember 24, 2021 andDecember 25, 2020 , respectively. All references to "2021," "fiscal year 2021" or similar references relate to the 52-week period endedMarch 26, 2021 . OverviewAllegro MicroSystems, Inc. , together with its consolidated subsidiaries ("AMI", "we", "us" or "our") is a leading global designer, developer, manufacturer and marketer of sensor integrated circuits ("ICs") and application-specific analog power ICs enabling the most important emerging technologies in the automotive and industrial markets. We are the number one supplier of magnetic sensor IC solutions worldwide based on market share, driven by our market leadership in the automotive industry. We focus on providing complete IC solutions to sense, regulate and drive a variety of mechanical systems. This includes sensing angular or linear position of a shaft or actuator, driving an electric motor or actuator, and regulating the power applied to sensing and driving circuits so they operate safely and efficiently. We are headquartered inManchester, New Hampshire and have a global footprint with 16 locations across four continents. Our portfolio includes more than 1,000 products, and we ship over one billion units annually to more than 10,000 customers worldwide. During the three- and nine-month periods endedDecember 24, 2021 , we generated$186.6 million and$568.4 million in total net sales, respectively, with$33.0 million and$93.9 million in net income and$54.9 million and$167.7 million in Adjusted EBITDA in such fiscal periods, respectively. During the three- and nine-month periods endedDecember 25, 2020 , we generated$164.4 million and$416.1 million in total net sales, respectively, with$5.1 million in net loss and$9.4 million in net income and$39.6 million and$98.6 million in Adjusted EBITDA in such fiscal periods, respectively. OnNovember 2, 2020 , we completed our initial public offering ("IPO") of 28,750,000 shares of our common stock at an offering price of$14.00 per share, of which 25,000,000 shares were sold by us and 3,750,000 shares were sold by selling stockholders, resulting in net proceeds to us of approximately,$321.4 million after deducting$20.1 million of underwriting discounts and$8.5 million of offering costs. Our common stock is now listed on the Nasdaq Global Select Market under the ticker symbol "ALGM." Our Growth Strategies and Outlook We plan to pursue the following strategies to continue to grow our sales and enhance our profitability: •Invest in research and development that is market-aligned and focused on targeted portfolio expansion. We believe that our investments in research and development in the areas of product design, automotive-grade wafer fabrication technology and IC packaging development are critical to maintaining our competitive advantage. In both the automotive and industrial markets, major technology shifts driven by disruptive technologies are creating high-growth opportunities in areas such as electrified vehicles ("xEVs"), advanced driver assistance systems ("ADAS"), Industry 4.0, data centers and green energy applications. Our knowledge of customers' end systems has driven an expansion of our sensor IC and power solutions to enable these new technologies. By aligning our research and 32 -------------------------------------------------------------------------------- development investments with disruptive technology trends while undergoing a rigorous ROI review, we believe we can deliver an attractive combination of growth and profitability. •Emphasize the automotive "first" philosophy to align our product development with the most rigorous applications and safety standards. We have been intentional about incorporating support for the stringent automotive operating voltages, temperature ranges and safety and reliability standards into every part of our operations, from design to manufacturing. We believe our focus on meeting or exceeding industry standards as the baseline for product development increases our opportunity in the automotive market as customers look for trusted suppliers to deliver highly reliable solutions for rapidly growing emerging markets, and that our philosophy of designing for automotive safety and reliability gives us a meaningful lead over new entrants attempting to enter the automotive market. For example, we will apply this philosophy of innovation, quality and reliability to our new photonics portfolio which supplies components into safety-critical Light Detection and Ranging ("LiDAR") applications. We also believe we can use our expertise in designing for the automotive market and our expanding product portfolio to capitalize on increasing demand among industrial customers for ruggedized solutions that meet the highest quality and reliability standards. Additionally, in our experience, demand for solutions that meet or exceed stringent safety and reliability specifications supports higher average sales prices ("ASP") and lower ASP declines over time than are typical for our industry. •Invest to lead in chosen markets and apply our intellectual property and technology to pursue adjacent growth markets. We intend to continue to invest in technology advancements and our intellectual property portfolio to maintain the number one market share position in magnetic sensor ICs and achieve leadership positions in power ICs within our target markets. We believe that leveraging our technology and existing research and development, sales and support efforts will enable us to take advantage of synergistic opportunities in new, adjacent growth markets. We believe this strategy of leveraging our known capabilities to target adjacent growth markets will enable us to enjoy greater returns on our research and development investments. •Expand our sales channels and enhance our sales operations and customer relationships. Our global sales infrastructure is optimized to support customers through a combination of key account managers and regional technical and support centers near customer locations that enable us to act as an extension of our customers' design teams, providing us with key insights into product requirements and accelerating the adoption and ramp up of our products in customer designs. We intend to continue strengthening our relationships with our existing customers while also enabling our channel partners to support demand creation and fulfillment for smaller broad-based industrial customers. We believe we will be able to further penetrate the industrial market and efficiently scale our business to accelerate growth by enabling our channel partners to become an extension of our demand generation and customer support efforts. •Continue to improve our gross margins through product innovation and cost optimization. We strive to improve our profitability by both rapidly introducing new products with value-added features and reducing our manufacturing costs through our fabless, asset-lite manufacturing model. We expect to continue to improve our product mix by developing new products for growth markets where we believe we can generate higher ASPs and/or higher gross margins. We also intend to further our relationships with key foundry suppliers to apply our product and applications knowledge to develop differentiated and cost-efficient wafer processes and packages. We believe we can reduce our manufacturing costs by leveraging the advanced manufacturing capabilities of our strategic suppliers, implementing more cost-effective packaging technologies and leveraging both internal and external assembly and test capacity to reduce our capital requirements, lower our operating costs, enhance reliability of supply and support our continued growth. •Pursue selective acquisitions and other strategic transactions. We evaluate and pursue selective acquisitions and other transactions to facilitate our entrance into new applications, add to our intellectual property portfolio and design resources, and accelerate our growth. From time to time, we acquire companies, technologies or assets and participate in joint ventures when we believe they will cost effectively and rapidly improve our product development or manufacturing capabilities or complement our existing product offerings. For example, ourAugust 2020 acquisition of Voxtel and its affiliate,LadarSystems, Inc. , brings together Voxtel's laser and imaging expertise and our automotive leadership and scale to enable what we believe will be the next generation of ADAS. •Maintain commitment to sustainability. We intend to continue to innovate with purpose, addressing critical global challenges related to energy efficiency, vehicle emissions and clean and renewable energy with our sensing and power management product portfolio. In addition, we strive to operate our business in a socially responsible and 33 -------------------------------------------------------------------------------- environmentally sustainable manner, and we strive to maintain a commitment to social responsibility in our supply chain and disclosure of the environmental impact of our business operations. Recent Initiatives to Improve Results of Operations We have recently implemented several initiatives designed to improve our operating results. OnAugust 28, 2020 , we acquiredVoxtel, Inc. ("Voxtel"), a privately-held technology company located inBeaverton, Oregon that specializes in components for eye-safe LiDAR used in ADAS, fully autonomous vehicles, and industrial automation (the "Voxtel Acquisition"). In addition to the laser technology, Voxtel's capabilities include its IndiumGallium Arsenide ("InGaAs") Avalanche Photodiode ("APDs") and APD photoreceivers-highly sensitive in the important eye-safe region around 1550 nanometers ("nm"). This technology enables images to be obtained over a wide range of weather conditions and over a long-distance or a wide field of view using a laser that does not pose an ocular hazard. The combination of these highly sensitive detectors and high-peak-power eye-safe lasers with Voxtel's custom integrated circuits and electro-optical packaging expertise, allows for cost-effective, compact laser-ranging and 3D-image sensing. In addition, Voxtel holds more than 38 US patents, representing a comprehensive Laser Detection and Ranging ("LADAR")/LiDAR photonic technology suite. InFebruary 2020 , we announced that we would consolidate our assembly and test facilities into a single site, located at our manufacturing facility inthe Philippines (the "AMPI Facility"). As such, we completed the transition and closed our manufacturing facility inThailand (the "AMTC Facility") inMarch 2021 and closed on the sale of the AMTC Facility inAugust 2021 . As a result, we expect to realize a significant reduction in cost of goods sold in subsequent periods. Other Key Factors and Trends Affecting our Operating Results Our financial condition and results of operations have been, and will continue to be, affected by numerous other factors and trends, including the following: Design Wins with New and Existing Customers Our end customers continually develop new products in existing and new application areas, and we work closely with our significant OEM 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 revenue can be lengthy, typically between two and four years. As a result, our future revenue is highly dependent on our continued success at winning design mandates from our customers. Further, despite current inflationary and pricing conditions, we expect the ASPs of our products to decline over time, and we consider design wins to be critical to our future success and 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 acceptance of our customers' end products, which may be affected by several factors beyond our control. Customer Demand, Orders and Forecasts 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, but 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. 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 exposes us to the risks of inventory shortages or excess inventory. We continue to see demand for our products exceed supply and we are operating in a inflationary environment. Manufacturing Costs and ProductMix Gross margin, or gross profit as a percentage of total net sales, has been, and will continue to be, affected by a variety of factors, including the ASPs of our products, product mix in a given period, material costs, yields, manufacturing costs and efficiencies. We believe the primary driver of gross margin is the ASP negotiated between us and our customers relative to 34 -------------------------------------------------------------------------------- material costs and yields. Our pricing and margins depend on the volumes and the features of the products we produce and sell to our customers. As our products mature and unit volumes increase, we expect their ASPs to decline. We continually monitor and work to reduce the cost of our products and improve the potential value our solutions provide to our customers as we target new design win opportunities and manage the product life-cycles of our existing customer designs. We also maintain a close relationship with our suppliers and subcontractors to improve quality, increase yields and lower manufacturing costs. As a result, these declines often coincide with improvements in manufacturing yields and lower wafer, assembly, and testing costs, which offset some or all of the margin reduction that results from declining ASPs. However, we expect our gross margin to fluctuate on a quarterly basis as a result of changes in ASPs due to product mix, new product introductions, transitions into volume manufacturing and manufacturing costs. Gross margin generally decreases if production volumes are lower as a result of decreased demand, which leads to a reduced absorption of our fixed manufacturing costs. Gross margin generally increases when the opposite occurs. Cyclical Nature of the Semiconductor Industry The semiconductor industry is highly cyclical and is characterized by increasingly rapid technological change, product obsolescence, competitive pricing pressures, evolving standards, short product life-cycles and fluctuations in product supply and demand. New technology may result in sudden changes in system designs or platform changes that may render some of our products obsolete and require us to devote significant research and development resources to compete effectively. Periods of rapid growth and capacity expansion are occasionally followed by significant market corrections in which sales decline, inventories accumulate and facilities go underutilized. During periods of expansion, our margins generally improve as fixed costs are spread over higher manufacturing volumes and unit sales. In addition, we may build inventory to meet increasing market demand for our products during these times, which serves to absorb fixed costs further and increase our gross margins. During an expansion cycle, we may increase capital spending and hiring to add to our production capacity. During periods of slower growth or industry contractions, our sales, production and productivity suffer and margins generally decline. Components of Our Results of Operations Net sales Our total net sales are derived from product sales to direct customers and distributors. We sell products globally through our direct sales force, third-party and related party distributors and independent sales representatives. Sales are derived from products for different applications. Shutdowns of third-party factories, in connection with COVID-19 or other factors beyond our control, have affected, and are expected to continue to affect our product sales in the next fiscal quarter. Our core applications are focused on the automotive, industrial and other industries. We sell magnetic sensor ICs, power ICs and photonics in theAmericas , EMEA andAsia . Revenue is generally recognized when control of the products is transferred to the customer, which typically occurs at a point in time upon shipment or delivery, depending on the terms of the contract. When we transact with a distributor, our contractual arrangement is with the distributor and not with the end customer. Whether we transact business with and receive the order from a distributor or directly from an end customer through our direct sales force and independent sales representatives, our revenue recognition policy and resulting pattern of revenue recognition for the order are the same. We recognize revenue net of sales returns, price protection adjustments, stock rotation rights and any other discounts or credits offered to our customers. Cost of goods sold, gross profit and gross margin Cost of goods sold consists primarily of costs of purchasing raw materials, costs associated with probe, assembly, test and shipping our products, costs of personnel, including stock-based compensation, costs of equipment associated with manufacturing, procurement, planning and management of these processes, costs of depreciation and amortization, costs of logistics and quality assurance, and costs of royalties, value-added taxes, utilities, repairs and maintenance of equipment, and an allocated portion of our occupancy costs. Gross profit is calculated as total net sales less cost of goods sold. Gross profit is affected by numerous factors, including average selling price, revenue mix by product, channel and customer, foreign exchange rates, seasonality, manufacturing costs and the effective utilization of our facilities. Another factor impacting gross profit is the time required for the expansion of existing facilities to reach full production capacity. As a result, gross profit varies from period to period and year to year. We expect cost of goods sold to decrease in absolute dollars and as a percentage of total net sales in the 35 -------------------------------------------------------------------------------- future, primarily as a result of the closure of the AMTC Facility and the transfer of the Sanken products distribution business to PSL. A significant portion of our costs are fixed, and, as a result, costs are generally difficult to adjust or may take time to adjust in response to changes in demand. In addition, our fixed costs increase as we expand our capacity. If we expand capacity faster than required by our sales growth, our gross margin could be negatively affected. Gross margin is calculated as gross profit divided by total net sales. Operating Expenses Research and development ("R&D") expenses R&D expenses consist primarily of personnel-related costs of our research and development organization, including stock-based compensation, costs of development of wafers and masks, license fees for computer-aided design software, costs of development testing and evaluation, costs of developing automated test programs, equipment depreciation and related occupancy and equipment costs. While most of the costs incurred are for new product development, a significant portion of these costs are related to process technology development, and proprietary package development. R&D expenses also include costs for technology development by external parties. We expect further increases in R&D expenses, in absolute dollars and as a percentage of total net sales as we continue the development of innovative technologies and processes for new product offerings as well as increase the headcount of our R&D personnel in future years. Selling, General and Administrative ("SG&A") expenses SG&A expenses consist primarily of personnel-related costs, including stock-based compensation, and sales commissions to independent sales representatives, professional fees, including the costs of accounting, audit, legal, regulatory and tax compliance. Additionally, costs related to advertising, trade shows, corporate marketing, as well as an allocated portion of our occupancy costs also comprise SG&A expenses. We anticipate our selling and marketing expenses to increase in absolute terms as we expand our sales force and increase our sales and marketing activities. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with being a public company. Change in fair value of contingent consideration The change in fair value of contingent consideration represents the gain recorded in the three months endedDecember 24, 2021 resulting from the adjustment in contingent consideration related to the Voxtel Acquisition. Interest (expense) income, net Interest (expense) income, net is comprised of interest expense from term loan debt and credit facilities we maintain with various financial institutions and previously on borrowings under the PSL-Sanken Loans (which were forgiven in connection with the PSL Divestiture). Current expense is partially mitigated by income earned on our cash and cash equivalents, consisting primarily of certain investments that have contractual maturities no greater than three months at the time of purchase. Foreign currency transaction gain (loss) We incur transaction gains and losses resulting from intercompany transactions as well as transactions with customers or vendors denominated in currencies other than the functional currency of the legal entity in which the transaction is recorded. Income in earnings of equity investment Income in earnings of equity investment represents our equity investment in connection with the PSL Divestiture. Other, net Other, net primarily consists of miscellaneous income and expense items unrelated to our core operations. Income tax provision (benefit) Our provision or benefit for income taxes is comprised of the year-to-date taxes based on an estimate of the annual effective tax rate plus the tax impact of discrete items. 36 -------------------------------------------------------------------------------- We are subject to tax in theU.S. and various foreign jurisdictions. Our effective income tax rate fluctuates primarily because of: the change in the mix of ourU.S. and foreign income; the impact of discrete transactions and law changes; and the difference between the amount of tax benefits generated by the foreign derived intangible income deduction ("FDII") and research credits offset by the additional tax costs associated with global intangible low-tax income ("GILTI"). We regularly assess the likelihood of outcomes that could result from the examination of our tax returns by theIRS , and other tax authorities to determine the adequacy of our income tax reserves and expense. Should actual events or results differ from our then-current expectations, charges or credits to our provision for income taxes may become necessary. Any such adjustments could have a significant effect on our results of operations. Results of Operations Three-Month Period EndedDecember 24, 2021 Compared to Three-Month Period EndedDecember 25, 2020 The following table summarizes our results of operations for the three-month periods endedDecember 24, 2021 andDecember 25, 2020 . Three-Month Period Ended Change December 24, December 25, 2021 2020 $ % (Dollars in thousands) Total net sales (1)$ 186,629 $ 164,449 $ 22,180 13.5 % Cost of goods sold 85,464 90,024 (4,560) (5.1) % Gross profit 101,165 74,425 26,740 35.9 % Operating expenses: Research and development 30,297 30,999 (702) (2.3) % Selling, general and administrative 37,963 67,650 (29,687) (43.9) %
Change in fair value of contingent consideration (2,700)
- (2,700) 100.0 %
Total operating expenses 65,560 98,649 (33,089) (33.5) %
Operating income (loss) 35,605 (24,224) 59,829 247.0 %
Other income (expense), net:
Loss on debt extinguishment - (9,055) 9,055 - %
Interest expense, net (269) (2,598) 2,329 (89.6) %
Foreign currency transaction loss (3) (145) 142 (97.9) %
Income in earnings of equity investment 287 949 (662) (69.8) %
Other, net 3,634 (510) 4,144 (812.5) %
Total other income (expense), net 3,649 (11,359) 15,008 132.1 %
Income (loss) before income tax provision
(benefit) 39,254 (35,583) 74,837 210.3 %
Income tax provision (benefit) 6,281 (30,523) 36,804 (120.6) %
Net income (loss) 32,973 (5,060) 38,033 751.6 %
Net income attributable to non-controlling
interests 37 35 2 5.7 %
Net income (loss) attributable to Allegro
MicroSystems, Inc. $ 32,936 $ (5,095) $ 38,031 746.4 %
(1)Our total net sales for the periods presented above include related party net
sales generated through our distribution agreement with Sanken. See our
unaudited consolidated financial statements included elsewhere in this Quarterly
Report for additional information regarding our related party net sales for the
periods set forth above.
37
--------------------------------------------------------------------------------The following table sets forth our results of operations as a percentage of total net sales for the periods presented.
Three-Month Period Ended
December 24, December 25,
2021 2020
Total net sales 100.0 % 100.0 %
Cost of goods sold 45.8 % 54.7 %
Gross profit 54.2 % 45.3 %
Operating expenses:
Research and development 16.2 % 18.9 %
Selling, general and administrative 20.3 % 41.1 %
Change in fair value of contingent consideration (1.4) % - %
Total operating expenses 35.1 % 60.0 %
Operating income (loss) 19.1 % (14.7) %
Other income (expense), net:
Loss on debt extinguishment - % (5.5) %
Interest expense, net (0.1) % (1.6) %
Foreign currency transaction loss - % (0.1) %
Income in earnings of equity investment 0.1 % 0.5 %
Other, net 1.9 % (0.3) %
Total other income (expense), net 1.9 % (7.0) %
Income (loss) before income tax provision (benefit) 21.0 % (21.7) %
Income tax provision (benefit) 3.4 % (18.6) %
Net income (loss) 17.6 % (3.1) %
Net income attributable to non-controlling interests - % - %
Net income (loss) attributable to Allegro MicroSystems, Inc. 17.6 % (3.1) %
Total net sales
Total net sales increased by $22.2 million , or 13.5%, to $186.6 million in the
three-month period ended December 24, 2021 from $164.4 million in the
three-month period ended December 25, 2020 . This increase was primarily due to
the continued economic recovery and increase in demand across most automotive
and industrial solutions. Much of the favorable growth in total net sales was
attributable to higher demand for our ADAS, safety, comfort and convenience,
xEV, broad-based industrial and gaming applications.
Sales Trends by Market
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.
Three-Month Period Ended Change
December 24, December 25,
2021 2020 Amount %
(Dollars in thousands)
Automotive $ 130,797 $ 113,902 $ 16,895 14.8 %
Industrial 31,903 23,654 8,249 34.9 %
Other 23,929 26,893 (2,964) (11.0) %
Total net sales $ 186,629 $ 164,449 $ 22,180 13.5 %
38-------------------------------------------------------------------------------- The increase in net sales by market was driven by increases in automotive of$16.9 million , or 14.8%, and industrial of$8.2 million , or 34.9%, partially offset by a decrease in other of$3.0 million , or 11.0%. Automotive net sales increased in the three-month period endedDecember 24, 2021 compared to the three-month period endedDecember 25, 2020 primarily due to our customers' increased vehicle production across most markets due to the on-going recovery from the COVID-19 pandemic. As a result, we experienced higher demand for our ADAS, safety, comfort and convenience and xEV applications during the third quarter of 2022 compared to the same period last year. Industrial net sales improved in the three-month period endedDecember 24, 2021 compared to the three-month period endedDecember 25, 2020 due primarily to the growth across our industrial applications, including data center and factory automation. Sales Trends by Product The following table summarizes net sales by product: Three-Month Period Ended Change December 24, December 25, 2021 2020 Amount % (Dollars in thousands) Power integrated circuits$ 62,859 $ 54,406 $ 8,453 15.5 % Magnetic sensors 123,543 109,457 14,086 12.9 % Photonics 227 586 (359) (61.3) % Total net sales$ 186,629 $ 164,449 $ 22,180 13.5 % The increase in net sales by product was driven primarily by increases of$14.1 million , or 12.9%, in magnetic sensor IC product sales and$8.5 million , or 15.5%, in power integrated circuit product sales. Sales Trends by Geographic Location The following table summarizes net sales by geographic location based on ship-to location. Three-Month Period Ended Change December 24, December 25, 2021 2020 Amount % (Dollars in thousands) Americas: United States$ 26,228 $ 23,934 $ 2,294 9.6 % Other Americas 4,921 5,620 (699) (12.4) % EMEA: Europe 29,891 28,239 1,652 5.9 % Asia: Japan 39,461 26,439 13,022 49.3 % Greater China 48,696 46,172 2,524 5.5 % South Korea 19,935 17,606 2,329 13.2 % Other Asia 17,497 16,439 1,058 6.4 % Total net sales$ 186,629 $ 164,449 $ 22,180 13.5 % Net sales increased across most geographic locations in the three-month period endedDecember 24, 2021 compared to the three-month period endedDecember 25, 2020 primarily due to content and market share gains as many countries continue to experience economic expansion coming out of the COVID-19 pandemic and demand for many of our products and applications continues to rise. Net sales inJapan grew$13.0 million , or 49.3%, which was primarily driven by higher demand for our automotive applications, particularly safety, comfort and convenience, internal combustion engine ("ICE"), xEV and ADAS. The increase in net sales of$2.5 million , or 5.5%, inGreater China and$2.3 million , or 9.6%, inthe United States related to 39 -------------------------------------------------------------------------------- higher demand for our broad-based industrial and ADAS offerings.South Korea experienced sales growth of$2.3 million , or 13.2%, mainly due to higher demand across all automotive sectors, while Other Asia sales growth of$1.1 million , or 6.4%, was attributable primarily to higher data center demand in our industrial sector. The increase in net sales of$1.7 million , or 5.9%, inEurope , predominantly comprised ofGermany andFrance , was primarily driven by increases in wireless infrastructure and factory automation demand. Cost of goods sold, gross profit and gross margin Cost of goods sold decreased by$4.6 million , or 5.1%, to$85.5 million in the three-month period endedDecember 24, 2021 from$90.0 million in the three-month period endedDecember 25, 2020 . The decrease in cost of goods sold was primarily attributable to decreases in amortization of manufacturing cost absorptions and conversion costs and lower Voxtel impacts, mainly from the discontinuation of a product line, partially offset by higher overall production volume in the third quarter of 2022. Gross profit increased by$26.7 million , or 35.9%, to approximately$101.1 million in the three-month period endedDecember 24, 2021 from$74.4 million in the three-month period endedDecember 25, 2020 . The increase in gross profit was driven by a$22.2 million operational increase in net sales to all markets discussed above coupled with the impacts to cost of goods sold discussed above. R&D expenses R&D expenses decreased by$0.7 million , or 2.3%, to$30.3 million in the three-month period endedDecember 24, 2021 from$31.0 million in the three-month period endedDecember 25, 2020 . This decrease was primarily due to decreases in stock-based compensation expense of$2.0 million and inventory and supplies of$1.0 million , partially offset by a combined$2.2 million increase in employee-related variable compensation costs, as well as general operating expenses, including dues and subscriptions. R&D expenses represented 16.2% of our total net sales for the three-month period endedDecember 24, 2021 , a decrease from 18.9% of our total net sales for the three-month period endedDecember 25, 2020 . This percentage decrease was primarily due to the growth in net sales in the three-month period endedDecember 24, 2021 and, to a lesser extent, the impacts to R&D expenses discussed above. SG&A expenses SG&A expenses decreased by$29.7 million , or 43.9%, to$38.0 million in the three-month period endedDecember 24, 2021 from$67.7 million in the three-month period endedDecember 25, 2020 . This decrease was primarily due to lower stock-based compensation expense of$32.3 million and combined decrease in facilities, supplies and personnel costs of$5.5 million . These lower costs were partially offset by higher general operating expenses of$8.1 million , particularly higher employee-related variable compensation and personnel costs, professional fees, contract labor costs, as well as severance expense related to the departure of an officer in the third quarter of fiscal 2022. SG&A expenses represented 20.3% of our total net sales for the three-month period endedDecember 24, 2021 , a decrease from 41.1% of our total net sales for the three-month period endedDecember 25, 2020 . This percentage decrease was primarily due to the growth in net sales in the three-month period endedDecember 24, 2021 . In addition, the percentage decrease represents the lower SG&A expenses as discussed above, as those costs were incrementally higher for the three-month period endedDecember 25, 2020 due in large part to IPO-related costs and accelerated vesting of the Class A and L common stock and RSU Conversion Program incurred during that period. Loss on debt extinguishment Loss on debt extinguishment reflected a$9.1 million loss in the three-month period endedDecember 25, 2020 , representing the write-off of unamortized balances of previously deferred financing costs as a result of the$300.0 million Term Loan Facility principal balance repayment onNovember 25, 2020 . Interest expense, net Interest expense, net was$0.3 million in the three-month period endedDecember 24, 2021 compared to interest expense, net of$2.6 million in the three-month period endedDecember 25, 2020 . The decrease in interest expense was primarily due to lower outstanding debt balances during the three-month period endedDecember 24, 2021 attributable to 40 -------------------------------------------------------------------------------- mandatory interest payments on the original$325.0 million senior secured debt before repayment of$300.0 million of this balance after the IPO in the three-month period endedDecember 25, 2020 . Foreign currency transaction loss We recorded an insignificant amount of foreign currency transaction loss in the three-month period endedDecember 24, 2021 compared to a loss of$0.1 million in the three-month period endedDecember 25, 2020 . The foreign currency transaction loss in the three-month period endedDecember 24, 2021 was primarily due to the realized and unrealized losses from ourUK location of$0.4 million , mostly offset by$0.2 million of realized and unrealized gains from ourPhilippines location, as well as approximately$0.2 million of unrealized gains on our investments in marketable securities. The foreign currency transaction loss recorded in the three-month period endedDecember 25, 2020 was primarily due to$0.3 million of realized and unrealized losses from ourUK andPhilippines locations, partly offset by$0.2 million of realized and unrealized gains from ourThailand location. Income in earnings of equity investment Income in earnings of equity investment reflected a$0.3 million gain in the three-month period endedDecember 24, 2021 compared to a$0.9 million gain in the three-month period endedDecember 25, 2020 , representing the earnings on our 30% investment in PSL. Other, net Other, net increased by$4.1 million to$3.6 million of miscellaneous gain in the three-month period endedDecember 24, 2021 from$0.5 million of miscellaneous loss in the three-month period endedDecember 25, 2020 . This increase was largely attributable to$3.5 million of unrealized gains on equity securities and a$0.4 million gain related to the sale of scrap metal. Income tax provision (benefit) Income tax expense and the effective income tax rate were$6.3 million , or 16.0%, respectively, in the three-month periodDecember 24, 2021 , and income tax benefit and the effective tax rate were$30.5 million , or 85.8%, respectively, in the three-month periodDecember 25, 2020 . The increase in income tax expense was primarily attributable to tax impacts of the IPO transaction recorded in the prior three-month period. The IPO transaction resulted in excess tax over financial reporting deductions related to a$40.4 million stock-based compensation charge (and the related incremental tax deductions), a$16.0 million one-time dividend treated as compensation expense for tax purposes, as well as a tax loss on the divestiture of PSL. The tax impacts of these transactions and other discrete transactions caused an overallU.S. NOL that will be carried back five years. Additional fluctuations in our effective income tax rate relate primarily to differences in ourU.S. taxable income, estimated FDII benefits, GILTI income, research credits, non-deductible stock-based compensation charges, and discrete tax items. 41 -------------------------------------------------------------------------------- Nine-Month Period EndedDecember 24, 2021 Compared to Nine-Month Period EndedDecember 25, 2020 The following table summarizes our results of operations for the nine-month periods endedDecember 24, 2021 andDecember 25, 2020 . Nine-Month Period Ended Change December 24, December 25, 2021 2020 $ % (Dollars in thousands) Total net sales (1)$ 568,381 $ 416,099 $ 152,282 36.6 % Cost of goods sold 270,524 224,203 46,321 20.7 % Gross profit 297,857 191,896 105,961 55.2 % Operating expenses: Research and development 89,441 80,509 8,932 11.1 % Selling, general and administrative 104,115 118,677 (14,562) (12.3) %
Change in fair value of contingent consideration (2,100)
- (2,100) 100.0 %
Total operating expenses 191,456 199,186 (7,730) (3.9) %
Operating income (loss) 106,401 (7,290) 113,691 1559.5 %
Other income (expense), net:
Loss on debt extinguishment - (9,055) 9,055 - %
Interest expense, net (1,764) (1,935) 171 (8.8) %
Foreign currency transaction loss (55) (1,331) 1,276 (95.9) %
Income in earnings of equity investment 792 1,407 (615) (43.7) %
Other, net 5,216 (297) 5,513 1856.2 %
Total other income (expense), net 4,189 (11,211) 15,400 137.4 %
Income (loss) before income tax provision
(benefit) 110,590 (18,501) 129,091 697.8 %
Income tax provision (benefit) 16,687 (27,913) 44,600 (159.8) %
Net income 93,903 9,412 84,491 897.7 %
Net income attributable to non-controlling
interests 112 103 9 8.7 %
Net income attributable to Allegro MicroSystems,
Inc. $ 93,791 $ 9,309 $ 84,482 907.5 %
(1)Our total net sales for the periods presented above include related party net
sales generated through our distribution agreement with Sanken. See our
unaudited consolidated financial statements included elsewhere in this Quarterly
Report for additional information regarding our related party net sales for the
periods set forth above.
42
--------------------------------------------------------------------------------The following table sets forth our results of operations as a percentage of total net sales for the periods presented.
Nine-Month Period Ended
December 24, December 25,
2021 2020
Total net sales 100.0 % 100.0 %
Cost of goods sold 47.6 % 53.9 %
Gross profit 52.4 % 46.1 %
Operating expenses:
Research and development 15.7 % 19.3 %
Selling, general and administrative 18.3 % 28.5 %
Change in fair value of contingent consideration (0.4) % - %
Total operating expenses 33.6 % 47.8 %
Operating income (loss) 18.8 % (1.7) %
Other income (expense), net:
Loss on debt extinguishment - % (2.2) %
Interest expense, net (0.3) % (0.5) %
Foreign currency transaction loss (0.1) % (0.4) %
Income in earnings of equity investment 0.1 % 0.3 %
Other, net 1.0 % (0.1) %
Total other income (expense), net 0.7 % (2.9) %
Income (loss) before income tax provision (benefit) 19.5 % (4.6) %
Income tax provision (benefit) 3.0 % (6.8) %
Net income 16.5 % 2.2 %
Net income attributable to non-controlling interests - % - %
Net income attributable to Allegro MicroSystems, Inc. 16.5 % 2.2 %
Total net sales
Total net sales increased by $152.3 million , or 36.6%, to $568.4 million in the
nine-month period ended December 24, 2021 from $416.1 million in the nine-month
period ended December 25, 2020 . This increase was primarily due to the continued
economic recovery and increases in demand for ADAS, safety, comfort and
convenience, xEV, wireless infrastructure, personal mobility, industrial
automation and gaming applications.
Sales Trends by Market
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.
Nine-Month Period Ended Change
December 24, December 25,
2021 2020 Amount %
(Dollars in thousands)
Automotive $ 390,351 $ 279,759 $ 110,592 39.5 %
Industrial 98,533 65,710 32,823 50.0 %
Other 79,497 70,630 8,867 12.6 %
Total net sales $ 568,381 $ 416,099 $ 152,282 36.6 %
Net sales to our end markets increased by $152.3 million , or 36.6%, to $568.4
million in the nine-month period ended December 24, 2021 from $416.1 million in
the nine-month period ended December 25, 2020 .
Automotive net sales increased in the nine-month period ended December 24, 2021
compared to the nine-month period ended December 25, 2020 due to the continued
higher demand for our ADAS, safety, comfort and convenience, xEV and ICE
applications.
43
--------------------------------------------------------------------------------
Industrial and other net sales increased in the nine-month period ended
December 24, 2021 compared to the nine-month period ended December 25, 2020
primarily due to increased demand in gaming, industrial automation, wireless
infrastructure and personal mobility.
Sales Trends by Product
The following table summarizes net sales by product:
Nine-Month Period Ended Change
December 24, December 25,
2021 2020 Amount %
(Dollars in thousands)
Power integrated circuits ("PIC") $ 195,054 $ 146,276 $ 48,778 33.3 %
Magnetic sensors ("MS") 371,806 268,956 102,850 38.2 %
Photonics 1,521 867 654 75.4 %
Total $ 568,381 $ 416,099 $ 152,282 36.6 %
The growth in net sales by product was driven by increases in magnetic sensor IC
product sales of $102.9 million and in power IC product sales of $48.8 million
during the nine-month period ended December 24, 2021 compared to the same period
last year.
Sales Trends by Geographic Location
The following table summarizes net sales by geographic location based on ship-to
location.
Nine-Month Period Ended Change
December 24, December 25,
2021 2020 Amount %
(Dollars in thousands)
Americas:
United States $ 80,854 $ 57,892 $ 22,962 39.7 %
Other Americas 16,697 10,797 5,900 54.6 %
EMEA:
Europe 97,108 70,459 26,649 37.8 %
Asia:
Japan 112,079 72,570 39,509 54.4 %
Greater China 142,158 116,178 25,980 22.4 %
South Korea 61,614 43,733 17,881 40.9 %
Other Asia 57,871 44,470 13,401 30.1 %
Total $ 568,381 $ 416,099 $ 152,282 36.6 %
The increase in net sales across geographic locations in the nine-month period
ended December 24, 2021 compared to the nine-month period ended December 25,
2020 was primarily due to content and market share gains as many countries
continue to experience economic expansion coming out of the COVID-19 pandemic
and demand for many of our products and applications rose year-over-year.
The increase in net sales in Japan of $39.5 million , or 54.4%, which was
primarily driven by higher demand for our ICE, safety, comfort and convenience,
ADAS, xEV and personal mobility offerings. The increase in net sales of $26.6
million , or 37.8%, in Europe , predominantly comprised of Germany and France , was
primarily driven by increases in ICE, safety, comfort and convenience, ADAS, xEV
and industrial offerings. The increase in net sales of $26.0 million , or 22.4%,
in Greater China related to higher automotive demand, primarily in our ADAS and
ICE applications, as well as increased demand in our industrial sectors. Net
sales were higher by $28.9 million , or 42.0%, in the United States and Other
Americas (predominantly Mexico ), primarily driven by the COVID-19 recovery, as
well as content and market share gains in ICE,
44
--------------------------------------------------------------------------------
ADAS, safety, comfort and convenience and industrial applications. South Korea
and Other Asia experienced sales growth of $17.9 million , or 40.9%, and $13.4
million , or 30.1%, respectively, mainly due to higher automotive demand,
specifically in ADAS, safety, comfort and convenience, ICE, personal mobility
and industrial motor control applications.
Cost of goods sold, gross profit and gross margin
Cost of goods sold increased by $46.3 million , or 20.7%, to $270.5 million in
the nine-month period ended December 24, 2021 from $224.2 million in the
nine-month period ended December 25, 2020 . The increase in cost of goods sold
was primarily attributable to higher production volume and increases in
amortization of manufacturing cost absorptions and excess inventory reserves,
specifically expenses of $3.1 million related to the discontinuation of a legacy
Voxtel product line during the first nine months of 2022.
Gross profit increased by $106.0 million , or 55.2%, to $297.9 million in the
nine-month period ended December 24, 2021 from $191.9 million in the nine-month
period ended December 25, 2020 . The increase in gross profit was driven by a
$152.3 million increase in net sales in all markets, partially offset by the
impacts to cost of goods sold discussed above.
R&D expenses
R&D expenses increased by $8.9 million , or 11.1%, to $89.4 million in the
nine-month period ended December 24, 2021 from $80.5 million in the nine-month
period ended December 25, 2020 . This increase was primarily due to a combined
$6.4 million increase in employee-related variable compensation costs, contract
labor, and inventory and supplies costs and a combined $2.5 million increase in
office supplies and travel and meeting costs.
R&D expenses represented 15.7% of our total net sales for the nine-month period
ended December 24, 2021 , a decrease from 19.3% of our total net sales in the
nine-month period ended December 25, 2020 . This percentage decrease was
primarily due to the growth in net sales in the nine-month period ended
December 24, 2021 .
SG&A expenses
SG&A expenses decreased by $14.6 million , or 12.3%, to $104.1 million in the
nine-month period ended December 24, 2021 from $118.7 million in the nine-month
period ended December 25, 2020 . This decrease was primarily due to a $25.2
million decrease in stock-based compensation expense, partially offset by
increases of $6.8 million increase in combined employee-related variable
compensation and personnel costs, and inventory and supplies costs and $3.0
million in combined professional fees, severance and travel and meeting costs.
SG&A expenses represented 18.3% of our total net sales in the nine-month period
ended December 24, 2021 , a decrease from 28.5% of our total net sales in the
nine-month period ended December 25, 2020 . This percentage decrease was
primarily due to the growth in net sales in the nine-month period ended
December 24, 2021 . In addition, the percentage decrease represents the lower
SG&A expenses as discussed above, as those costs were incrementally higher for
the nine-month period ended December 25, 2020 due in large part to IPO-related
costs and accelerated vesting of the Class A and L common stock and RSU
Conversion Program incurred during that period.
Loss on debt extinguishment
Loss on debt extinguishment reflected a $9.1 million loss in the nine-month
period ended December 25, 2020 , representing the write-off of unamortized
balances of previously deferred financing costs as a result of the $300.0
million Term Loan Facility principal balance repayment on November 25, 2020 .
Interest expense, net
Interest expense, net was relatively flat at $1.8 million for the nine months
ended December 24, 2021 compared to $1.9 million for the nine months ended
December 25, 2020 .
Foreign currency transaction loss
Foreign currency transaction loss decreased by $1.2 million to $0.1 million in
the nine-month period ended December 24, 2021 compared to $1.3 million in the
nine-month period ended December 25, 2020 . The foreign currency transaction loss
recorded in the nine months ended December 24, 2021 was primarily due to $0.6
million of realized and unrealized losses from our UK location, mostly offset by
$0.2 million of realized and unrealized gains from our Philippines location, as
well as approximately $0.3 million of unrealized gains on our investments in
marketable securities. The foreign
45
--------------------------------------------------------------------------------
currency transaction loss recorded in the nine-month period ended December 25,
2020 was primarily attributable to $2.2 million of realized and unrealized
losses from our UK location, partially offset by $1.4 million of realized and
unrealized gains from our Thailand location.
Income in earnings of equity investment
Income in earnings of equity investment reflected a $0.8 million gain in the
nine-month period ended December 24, 2021 compared to a $1.4 million gain in the
nine-month period ended December 25, 2020 , representing the earnings on our 30%
investment in PSL.
Other, net
Other, net increased by $5.5 million to $5.2 million of miscellaneous gains in
the nine months ended December 24, 2021 from $0.3 million of miscellaneous loss
in the nine months ended December 25, 2020 . This increase was attributable
primarily to $4.5 million of unrealized gains on marketable securities and a
$0.4 million gain related to the sale of the AMTC Facility recognized during the
first nine months of 2022.
Income tax provision (benefit)
Income tax expense and the effective income tax rate were $16.7 million , or
15.1%, respectively, in the nine-month period ended December 24, 2021 , and
income tax benefit and the effective income tax rate were $27.9 million , or
150.9%, respectively, in the nine-month period ended December 25, 2020 . The
increase in income tax expense was primarily attributable to tax impacts of the
IPO transaction recorded in the prior nine- month period. The IPO transaction
resulted in excess tax over financial reporting deductions related to a $40.4
million stock-based compensation charge (and the related incremental tax
deductions), a $16.0 million one-time dividend treated as compensation expense
for tax purposes, as well as a tax loss on the divestiture of PSL. The tax
impacts of these transactions and other discrete transactions caused an overall
U.S. NOL that will be carried back five years. Additional fluctuations in our
effective income tax rate relate primarily to differences in our U.S. taxable
income, estimated FDII benefits, GILTI income, research credits, non-deductible
stock-based compensation charges, and discrete tax items.
46
--------------------------------------------------------------------------------
Non-GAAP Financial Measures
In addition to the measures presented in our consolidated financial statements,
we regularly review other metrics, defined as non-GAAP financial measures by the
SEC , to evaluate our business, measure our performance, identify trends, prepare
financial forecasts and make strategic decisions. The key metrics we consider
are non-GAAP Gross Profit, non-GAAP Gross Margin, non-GAAP Operating Expenses,
non-GAAP Operating Income, non-GAAP Operating Margin, non-GAAP Profit before
Tax, non-GAAP Provision for Income Tax, non-GAAP Net Income, non-GAAP Net Income
per Share, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin (collectively, the
"Non-GAAP Financial Measures"). These Non-GAAP Financial Measures provide
supplemental information regarding our operating performance on a non-GAAP basis
that excludes certain gains, losses and charges of a non-cash nature or that
occur relatively infrequently and/or that management considers to be unrelated
to our core operations, and in the case of non-GAAP Provision for Income Tax,
management believes that this non-GAAP measure of income taxes provides it with
the ability to evaluate the non-GAAP Provision for Income Taxes across different
reporting periods on a consistent basis, independent of special items and
discrete items, which may vary in size and frequency. By presenting these
Non-GAAP Financial Measures, we provide a basis for comparison of our business
operations between periods by excluding items that we do not believe are
indicative of our core operating performance, and we believe that investors'
understanding of our performance is enhanced by our presenting these Non-GAAP
Financial Measures, as they provide a reasonable basis for comparing our ongoing
results of operations. Management believes that tracking and presenting these
non-GAAP Financial Measures provides management and the investment community
with valuable insight into matters such as: our ongoing core operations, our
ability to generate cash to service our debt and fund our operations; and the
underlying business trends that are affecting our performance. These Non-GAAP
Financial Measures are used by both management and our board of directors,
together with the comparable GAAP information, in evaluating our current
performance and planning our future business activities. In particular,
management finds it useful to exclude non-cash charges in order to better
correlate our operating activities with our ability to generate cash from
operations and to exclude certain cash charges as a means of more accurately
predicting our liquidity requirements. We believe that these Non-GAAP Financial
Measures, when used in conjunction with our GAAP financial information, also
allow investors to better evaluate our financial performance in comparison to
other periods and to other companies in our industry.
These Non-GAAP Financial Measures have significant limitations as analytical
tools. Some of these limitations are that:
•such measures do not reflect our cash expenditures, or future requirements for
capital expenditures or contractual commitments;
•such measures exclude certain costs which are important in analyzing our GAAP
results;
•such measures do not reflect changes in, or cash requirements for, our working
capital needs;
•such measures do not reflect the interest expense, or the cash requirements
necessary to service interest or principal payments on our debt;
•such measures do not reflect our tax expense or the cash requirements to pay
our taxes;
•although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future;
•such measures do not reflect any cash requirements for such replacements; and
•other companies in our industry may calculate such measures differently than we
do, thereby further limiting their usefulness as comparative measures.
The Non-GAAP Financial Measures are supplemental measures of our performance
that are neither required by, nor presented in accordance with, GAAP. These
Non-GAAP Financial Measures should not be considered as substitutes for GAAP
financial measures such as gross profit, gross margin, net income or any other
performance measures derived in accordance with GAAP. Also, in the future we may
incur expenses or charges such as those being adjusted in the calculation of
these Non-GAAP Financial Measures. Our presentation of these Non-GAAP Financial
Measures should not be construed as an inference that future results will be
unaffected by unusual or nonrecurring items.
Our prior disclosure referred to non-GAAP Gross Profit and non-GAAP Gross Margin
as Adjusted Gross Profit and Adjusted Gross Margin, respectively. No changes
have been made to how we calculate these measures.
47
--------------------------------------------------------------------------------
Non-GAAP Gross Profit and Non-GAAP Gross Margin
We calculate non-GAAP Gross Profit and non-GAAP Gross Margin excluding the items
below from cost of goods sold in applicable periods, and we calculate non-GAAP
Gross Margin as non-GAAP Gross Profit divided by total net sales.
•Voxtel inventory impairment-Represents costs related to the discontinuation of
one of our product lines manufactured by Voxtel.
•Inventory cost amortization - Represents intercompany inventory transactions
incurred from purchases made from PSL in fiscal year 2020. Such costs are
one-time incurred expenses impacting our operating results during fiscal year
2021 following the disposition of PSL during the fiscal year ended March 26,
2021 (the "PSL Divestiture"). Such costs did not have a continuing impact on our
operating results after our second fiscal quarter of fiscal year 2021.
•Foundry service payment - Represents foundry service payments incurred under
our Price Support Agreement with PSL in respect to the guaranteed capacity at
PSL to support our production forecast and are one-time costs incurred impacting
our operating results during fiscal year 2021 following the PSL Divestiture.
Such costs did have a continuing impact on our operating results after fiscal
year 2021.
•Stock-based compensation-Represents non-cash expenses arising from the grant of
stock-based awards.
•AMTC Facility consolidation one-time costs-Represents one-time costs incurred
in connection with closing of the AMTC Facility and transitioning of test and
assembly functions to the AMPI Facility announced in fiscal year 2020,
consisting of: moving equipment between facilities, contract terminations and
other non-recurring charges. The closure and transition of the AMTC Facility was
substantially completed in March 2021 and closed on the sale in August 2021 .
These costs are in addition to, and not duplicative of, the adjustments noted in
note (*) below.
•Amortization of acquisition-related intangible assets-Represents non-cash
expenses associated with the amortization of intangible assets in connection
with the acquisition of Voxtel, which closed in August 2020 .
•COVID-19 related expenses-Represents expenses attributable to the COVID-19
pandemic primarily related to increased purchases of masks, gloves and other
protective materials, and overtime premium compensation paid for maintaining
24-hour service at the AMPI Facility.
(*) Non-GAAP Gross Profit and the corresponding calculation of non-GAAP Gross
Margin do not include adjustments consisting of:
•Additional AMTC-related costs-Represents costs relating to the closing of the
AMTC Facility and the transitioning of test and assembly functions to the AMPI
Facility in the Philippines announced in fiscal year 2020 consisting of the net
savings expected to result from the movement of work to the AMPI Facility, which
facility had duplicative capacity based on the buildouts of the AMPI Facility in
fiscal years 2019 and 2018. The elimination of these costs did not reduce our
production capacity and therefore did not have direct effects on our ability to
generate revenue. The closure and transition of the AMTC Facility was
substantially completed in March 2021 and closed on the sale in August 2021 .
•Out of period adjustment for depreciation expense of giant magnetoresistance
assets ("GMR assets")-Represents a one-time depreciation expense related to the
correction of an immaterial error, related to 2017, for certain manufacturing
assets that have reached the end of their useful lives.
Non-GAAP Operating Expenses, non-GAAP Operating Income and non-GAAP Operating
Margin
We calculate non-GAAP Operating Expenses and non-GAAP Operating Income excluding
the same items excluded above to the extent they are classified as operating
expenses, and also excluding the items below in applicable periods. We calculate
non-GAAP Operating Margin as non-GAAP Operating Income divided by total net
sales.
•Transaction fees-Represents transaction-related legal and consulting fees
incurred primarily in connection with (i) the acquisition of Voxtel in fiscal
year 2020, (ii) one-time transaction-related legal and consulting fees in fiscal
2021, (iii) one-time transaction-related legal, consulting and registration fees
related to a secondary offering on behalf of certain shareholders in fiscal
2022, and (iv) one-time transaction-related legal and consulting fees in fiscal
2022 not related to (iii).
48
--------------------------------------------------------------------------------
•Severance-Represents severance costs associated with (i) labor savings
initiatives to manage overall compensation expense as a result of the declining
sales volume during the applicable period, including a voluntary separation
incentive payment plan for employees near retirement and a reduction in force,
(ii) the closing of the AMTC Facility and the transitioning of test and assembly
functions to the AMPI Facility announced and initiated in fiscal year 2020,
(iii) costs related to the discontinuation of one of our product lines
manufactured by Voxtel in fiscal year 2022, and (iv) nonrecurring separation
costs related to the departure of an officer in fiscal year 2022.
•Change in fair value of contingent consideration-Represents the change in fair
value of contingent consideration payable in connection with the acquisition of
Voxtel.
(**) Non-GAAP Operating Income does not include adjustments consisting of those
set forth in note (*) to the calculation of non-GAAP Gross Profit, and the
corresponding calculation of non-GAAP Gross Margin, above or:
•Labor savings-Represents salary and benefit costs related to employees whose
positions were eliminated through voluntary separation programs or other
reductions in force (not associated with the closure of the AMTC Facility or any
other plant or facility) and a restructuring of overhead positions from
high-cost to low-cost jurisdictions net of costs for newly hired employees in
connection with such restructuring.
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin
We calculate EBITDA as net income minus interest income (expense), tax provision
(benefit), and depreciation and amortization expenses. We calculate Adjusted
EBITDA as EBITDA excluding the same items excluded above and also excluding the
items below in applicable periods. We calculate Adjusted EBITDA Margin as
Adjusted EBITDA divided by total net sales.
•Non-core (gain) loss on sale of equipment-Represents non-core miscellaneous
losses and gains on the sale of equipment.
•Miscellaneous legal judgment charge-Represents a one-time charge associated
with the final payment of the previously accrued amount payable with respect to
a VAT dispute related to the construction of the AMPI Facility.
•Foreign currency translation (gain) loss-Represents losses and gains resulting
from the remeasurement and settlement of intercompany debt and operational
transactions, as well as transactions with external customers or vendors
denominated in currencies other than the functional currency of the legal entity
in which the transaction is recorded.
•Income in earnings of equity investment-Represents our equity method investment
in PSL.
•Unrealized gains on investments-Represents mark-to-market adjustments on equity
investments with readily determinable fair values.
Non-GAAP Profit before Tax, Non-GAAP Net Income, and Non-GAAP Basic and Diluted
Earnings Per Share
We calculate non-GAAP Profit before Tax as Income before Tax Provision excluding
the same items excluded above and also excluding the items below in applicable
periods. We calculate non-GAAP Net Income as Net Income excluding the same items
excluded above and also excluding the items below in applicable periods.
•Loss on debt extinguishment-Represents one-time costs representing deferred
financing costs associated with the $300.0 million of our term loan facility
repaid during the nine-month period ended December 25, 2020 .
•Interest on repaid portion of term loan facility-Represents interest expense
associated with the $300.0 million of our term loan facility repaid during the
period.
Non-GAAP Provision for Income Tax
In calculating non-GAAP Provision for Income Tax, we have added back the
following to GAAP Income Tax Provision:
•Tax effect of adjustments to GAAP results-Represents the estimated income tax
effect of the adjustments to non-GAAP Profit Before Tax described above and
elimination of discrete tax adjustments.
49
--------------------------------------------------------------------------------
Three-Month Period Ended Nine-Month Period Ended
December 24, September 24, December 25, December 24, December 25,
2021 2021 2020 2021 2020
(Dollars in thousands)Reconciliation of Gross Profit
GAAP Gross Profit $ 101,165 $ 102,532 $ 74,425$ 297,857 $ 191,896 Voxtel inventory impairment - 271 - 3,106 - Inventory cost amortization - - - - 2,698 Foundry service payment - - 1,500 - 5,000 Stock-based compensation 742 722 4,694 1,992 4,844 AMTC Facility consolidation one-time costs - 7 607 144 1,559 Amortization of acquisition-related intangible assets 273 273 273 819 378 COVID-19 related expenses 137 316 65 796 138 Total Non-GAAP Adjustments $ 1,152 $ 1,589 $ 7,139 $ 6,857 $ 14,617 Non-GAAP Gross Profit* $ 102,317 $ 104,121 $ 81,564$ 304,714 $ 206,513 Non-GAAP Gross Margin* (% of net sales) 54.8% 53.8% 49.6% 53.6% 49.6% *Non-GAAP Gross Profit and the corresponding calculation of non-GAAP Gross Margin do not include adjustments for the following components of our net income: (i) additional AMTC related costs of $-, $-, and$1,198 for the three months endedDecember 24, 2021 ,September 24, 2021 , andDecember 25, 2020 , respectively, and (ii) additional AMTC related costs of $- and$6,553 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively, and out of period adjustment for depreciation expense of GMR assets of $- and$768 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively. 50 -------------------------------------------------------------------------------- Three-Month Period Ended Nine-Month Period Ended December 24, September 24, December 25, December 24, December 25, 2021 2021 2020 2021 2020 (Dollars in thousands)
Reconciliation of Operating Expenses
GAAP Operating Expenses$ 65,560 $ 63,978 $ 98,649 $ 191,456 $
199,186
Research and Development Expenses GAAP Research and Development Expenses 30,297 29,590 30,999 89,441
80,509
Stock-based compensation 1,019 1,043 2,984 2,814
3,037
AMTC Facility consolidation one-time costs - - 1 2 2 COVID-19 related expenses 6 8 32 20 92 Transaction fees - - - - 18Non-GAAP Research and Development Expenses 29,272 28,539 27,982 86,605
77,360
Selling, General and Administrative Expenses GAAP Selling, General and Administrative Expenses 37,963 34,088 67,650 104,115
118,677
Stock-based compensation 5,859 4,431 38,198 13,841
39,020
AMTC Facility consolidation one-time costs 108 151 1,620 583
4,138
Amortization of acquisition-related intangible assets 23 16 71 68 80 COVID-19 related expenses 356 551 338 1,288 4,676 Transaction fees 1,085 6 1,729 1,114 3,699 Severance 578 - (181) 746 156 Non-GAAP Selling, General and Administrative Expenses 29,954 28,933 25,875 86,475
66,908
Change in fair value of contingent consideration (2,700) 300 - (2,100) - Total Non-GAAP Adjustments 6,334 6,506 44,792 18,376
54,918
Non-GAAP Operating Expenses *$ 59,226 $ 57,472 $ 53,857 $ 173,080 $
144,268
*Non-GAAP Operating Expenses do not include adjustments for the following components of our net income: (i) additional AMTC related costs of $-, $-, and$19 for the three months endedDecember 24, 2021 ,September 24, 2021 , andDecember 25, 2020 , respectively, and labor savings costs of $-, $-, and$109 for the three months endedDecember 24, 2021 ,September 24, 2021 , andDecember 25, 2020 , respectively, and (ii) additional AMTC related costs of $- and$723 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively, and labor savings costs of $- and$218 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively. 51 -------------------------------------------------------------------------------- Three-Month Period Ended Nine-Month Period Ended December 24, September 24, December 25, December 24, December 25, 2021 2021 2020 2021 2020 (Dollars in thousands) Reconciliation of Operating Income (Loss) GAAP Operating Income (Loss)$ 35,605 $ 38,554 $ (24,224) $ 106,401 $ (7,290) Voxtel inventory impairment - 271 - 3,106 - Inventory cost amortization - - - - 2,698 Foundry service payment -
- 1,500 - 5,000
Stock-based compensation 7,620 6,196 45,876 18,647
46,901
AMTC Facility consolidation one-time costs 108 158 2,228 729
5,699
Amortization of acquisition-related intangible assets 296 289 344 887 458 COVID-19 related expenses 499 875 435 2,104 4,906 Change in fair value of contingent consideration (2,700) 300 - (2,100) - Transaction fees 1,085 6 1,729 1,114 3,717 Severance 578 - (181) 746 156 Total Non-GAAP Adjustments$ 7,486 $ 8,095 $ 51,931 $ 25,233 $
69,535
Non-GAAP Operating Income*$ 43,091 $ 46,649 $ 27,707 $ 131,634 $
62,245
Non-GAAP Operating Margin* (% of net sales) 23.1% 24.1% 16.8% 23.2% 15.0% *Non-GAAP Operating Income and the corresponding calculation of non-GAAP Operating Margin do not include adjustments for the following components of our net income: (i) additional AMTC related costs of $-, $-, and$1,217 for the three months endedDecember 24, 2021 ,September 24, 2021 , andDecember 25, 2020 , respectively, labor savings costs of $-, $-, and$109 for the three months endedDecember 24, 2021 ,September 24, 2021 , andDecember 25, 2020 , respectively, and (ii) additional AMTC related costs of $- and$7,276 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively, labor savings costs of $- and$218 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively, and out of period adjustment for depreciation expense of GMR assets of $- and$768 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively. 52 --------------------------------------------------------------------------------
Three-Month Period Ended Nine-Month Period Ended
December 24, September 24, December 25, December 24, December 25,
2021 2021 2020 2021 2020
(Dollars in thousands)
Reconciliation of EBITDA and Adjusted
EBITDA
GAAP Net Income (Loss) $ 32,973 $ 33,223 $ (5,060) $ 93,903 $ 9,412
Interest expense, net 269 1,150 2,598 1,764 1,935
Income tax provision (benefit) 6,281 6,143 (30,523) 16,687 (27,913)
Depreciation & amortization 12,011 12,339 12,199 36,522 36,225 EBITDA$ 51,534 $ 52,855 $ (20,786) $ 148,876 $ 19,659 Non-core (gain) loss on sale of equipment (19) (296) (7) (350) 286 Voxtel inventory impairment - 271 - 3,106 - Miscellaneous legal judgment charge - - 574 - 574 Loss on debt extinguishment - - 9,055 - 9,055 Foreign currency translation loss (gain) 3 (202) 145 55 1,331 Income in earnings of equity investment (287) (226) (949) (792) (1,407) Unrealized gains on investments (3,504) (978) - (4,482) - Stock-based compensation 7,620 6,196 45,876 18,647 46,901 AMTC Facility consolidation one-time costs 108 158 2,228 729 5,699 COVID-19 related expenses 499 875 435 2,104 4,906 Change in fair value of contingent consideration (2,700) 300 - (2,100) - Transaction fees 1,085 6 1,729 1,114 3,717 Severance 578 - (181) 746 156 Inventory cost amortization - - - -
2,698
Foundry service payment - - 1,500 - 5,000 Adjusted EBITDA*$ 54,917 $ 58,959 $ 39,619 $ 167,653 $ 98,575 Adjusted EBITDA Margin* (% of net sales) 29.4% 30.5% 24.1% 29.5% 23.7% *Adjusted EBITDA and the corresponding calculation of Adjusted EBITDA Margin do not include adjustments for the following components of our net income: (i) additional AMTC related costs of $-, $-, and$1,217 for the three months endedDecember 24, 2021 ,September 24, 2021 , andDecember 25, 2020 , respectively, and labor savings costs of $-, $-, and$109 for the three months endedDecember 24, 2021 ,September 24, 2021 , andDecember 25, 2020 , respectively, and (ii) additional AMTC related costs of $- and$7,276 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively, and labor savings costs of $- and$218 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively. 53 -------------------------------------------------------------------------------- Three-Month Period Ended Nine-Month Period Ended December 24, September 24, December 25, December 24, December 25, 2021 2021 2020 2021 2020 (Dollars in thousands) Reconciliation of Income (Loss) before Tax Provision (Benefit) GAAP Income (Loss) before Tax Provision (Benefit)$ 39,254 $ 39,366 $ (35,583) $ 110,590 $
(18,501)
Non-core (gain) loss on sale of equipment (19) (296) (7) (350)
286
Voxtel inventory impairment - 271 - 3,106
-
Miscellaneous legal judgment charge - - 574 -
574
Loss on debt extinguishment - - 9,055 -
9,055
Foreign currency translation loss (gain) 3 (202) 145 55
1,331
Income in earnings of equity investment (287) (226) (949) (792)
(1,407)
Unrealized gains on investments (3,504) (978) - (4,482) - Inventory cost amortization - - - - 2,698 Foundry service payment -
- 1,500 - 5,000
Stock-based compensation 7,620 6,196 45,876 18,647
46,901
Interest on repaid portion of Term Loan Facility - - 2,163 -
2,163
AMTC Facility consolidation one-time costs 108 158 2,228 729
5,699
Amortization of acquisition-related intangible assets 296 289 344 887 458 COVID-19 related expenses 499 875 435 2,104 4,906 Change in fair value of contingent consideration (2,700) 300 - (2,100) - Transaction fees 1,085 6 1,729 1,114 3,717 Severance 578 - (181) 746 156 Total Non-GAAP Adjustments$ 3,679 $ 6,393 $ 62,912 $ 19,664 $
81,537
Non-GAAP Profit before Tax*$ 42,933 $ 45,759 $ 27,329 $ 130,254 $
63,036
*Non-GAAP Profit before Tax does not include adjustments for the following components of our net income: (i) additional AMTC related costs of $-, $-, and$1,217 for the three months endedDecember 24, 2021 ,September 24, 2021 , andDecember 25, 2020 , respectively, labor savings costs of $-, $-, and$109 for the three months endedDecember 24, 2021 ,September 24, 2021 , andDecember 25, 2020 , respectively, and (ii) additional AMTC related costs of $- and$7,276 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively, labor savings costs of $- and$218 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively, and out of period adjustment for depreciation expense of GMR assets of $- and$768 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively. 54 --------------------------------------------------------------------------------
Three-Month Period Ended Nine-Month Period Ended
December 24, September 24, December 25, December 24, December 25,
2021 2021 2020 2021 2020
(Dollars in thousands)
Reconciliation of Income Tax
Provision (Benefit)
GAAP Income Tax Provision (Benefit)
$ (27,913) GAAP effective tax rate 16.0% 15.6% 85.8% 15.1% 150.9% Tax effect of adjustments to GAAP results 561 946 34,872 3,598
37,539
Non-GAAP Provision for Income Taxes *
$ 9,626
Non-GAAP effective tax rate 15.9% 15.5% 15.9% 15.6%
15.3%
*Non-GAAP Provision for Income Taxes does not include tax adjustments for the following components of our net income: additional AMTC related costs, labor savings costs, and out of period adjustment for depreciation expense of GMR assets. The related tax effect of those adjustments to GAAP results were $-, $- and$297 for the three months endedDecember 24, 2021 ,September 24, 2021 , andDecember 25, 2020 , respectively, and $- and$1,851 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively. 55 -------------------------------------------------------------------------------- Three-Month Period Ended Nine-Month Period Ended December 24, September 24, December 25, December 24, December 25, 2021 2021 2020 2021 2020 (Dollars in thousands)
Reconciliation of Net Income (Loss)
GAAP Net Income (Loss)$ 32,973 $ 33,223 $ (5,060) $ 93,903 $
9,412
GAAP Basic Earnings (Loss) per Share$ 0.17 $ 0.18$ (0.04) $ 0.50 $
0.20
GAAP Diluted Earnings (Loss) per Share
0.17 $ (0.04) $ 0.49 $ 0.05
Non-core (gain) loss on sale of equipment (19) (296) (7) (350) 286 Voxtel inventory impairment - 271 - 3,106 - Miscellaneous legal judgment charge - - 574 -
574
Loss on debt extinguishment - - 9,055 -
9,055
Foreign currency translation loss (gain) 3 (202) 145 55
1,331
Income in earnings of equity investment (287) (226) (949) (792)
(1,407)
Unrealized gains on investments (3,504) (978) - (4,482) - Inventory cost amortization - - - - 2,698 Foundry service payment - - 1,500 - 5,000 Stock-based compensation 7,620 6,196 45,876 18,647 46,901 Interest on repaid portion of Term Loan Facility - - 2,163 -
2,163
AMTC Facility consolidation one-time costs 108 158 2,228 729
5,699
Amortization of acquisition-related intangible assets 296 289 344 887 458 COVID-19 related expenses 499 875 435 2,104 4,906 Change in fair value of contingent consideration (2,700) 300 - (2,100) - Transaction fees 1,085 6 1,729 1,114 3,717 Severance 578 - (181) 746 156 Tax effect of adjustments to GAAP results (561) (946) (34,872) (3,598) (37,539) Non-GAAP Net Income*$ 36,091 $ 38,670 $ 22,980 $ 109,969 $ 53,410 Basic weighted average common shares 189,736,901 189,673,788 124,363,078 189,665,324
48,121,026
Diluted weighted average common shares 192,068,222 191,676,422 181,916,360 191,678,951
171,638,787
Non-GAAP Basic Earnings per Share $ 0.19 $ 0.20 $ 0.18 $ 0.58 $
1.11
Non-GAAP Diluted Earnings per Share $ 0.19 $ 0.20 $ 0.13 $ 0.57 $
0.31
*Non-GAAP Net Income does not include adjustments for the following components of our net income: (i) additional AMTC related costs of $-, $-, and$1,217 for the three months endedDecember 24, 2021 ,September 24, 2021 , andDecember 25, 2020 , respectively, labor savings costs of $-, $-, and$109 for the three months endedDecember 24, 2021 ,September 24, 2021 , andDecember 25, 2020 , respectively, and (ii) additional AMTC related costs of $- and$7,276 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively, labor savings costs of $- and$218 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively, and out of period adjustment for depreciation expense of GMR assets of $- and$768 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively, and (iii) the related tax effect of adjustments to GAAP results $-, $-, and$297 for the three months endedDecember 24, 2021 ,September 24, 2021 , andDecember 25, 2020 , respectively, and $- and$1,851 for the nine months endedDecember 24, 2021 andDecember 25, 2020 , respectively. 56 -------------------------------------------------------------------------------- Liquidity and Capital Resources As ofDecember 24, 2021 , we had$259.2 million of cash and cash equivalents and$368.4 million of working capital compared to$197.2 million of cash and cash equivalents and$313.9 million of working capital as ofMarch 26, 2021 . Working capital is impacted by the timing and extent of our business needs. Our primary requirements for liquidity and capital 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 2022 is to utilize excess cash on hand to support our growth initiatives into select markets and planned capital expenditures. As ofDecember 24, 2021 , the Company is not party to any off-balance sheet arrangements that have 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 leases, operating and capital purchase commitments and expected contributions to our defined benefit and contribution plans. For information regarding the Company's expected cash requirements and timing of payments related to debt and borrowing capacity, leases and noncancellable purchase commitments and pension and defined contribution plans, see Note 15, "Commitments and Contingencies", Note 12, "Debt and Other Borrowings" and Note 14, "Retirement Plans" to the Company's 2021 Annual Report. We have experienced and expect to continue to experience-to a smaller degree-increases in accounting, legal and professional fees and other costs associated with being a public company. We believe that our existing cash resources, together with our access to the capital markets and unutilized loan facilities, will be sufficient to finance our continued operations, growth strategy, planned capital expenditures and the additional expenses we expect to incur as a public company for at least the next twelve 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 twelve months. If these resources are not sufficient to satisfy our liquidity requirements due to changes in circumstances, we may be required to 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. Cash Flows from Operating, Investing and Financing Activities The following table summarizes our cash flows for the nine-month periods endedDecember 24, 2021 andDecember 25, 2020 :
Nine-Month Period Ended
December 24, 2021 December 25, 2020
(dollars in thousands)
Net cash provided by operating activities $ 118,558 $ 63,534
Net cash used in investing activities (50,123) (50,401)
Net cash used in financing activities (6,209) (72,186)
Effect of exchange rate changes on cash and cash equivalents 604 3,350
Net increase in cash and cash equivalents and restricted cash
$ (55,703)
Operating Activities
Net cash provided by operating activities was $118.6 million in the nine months
ended December 24, 2021 , resulting primarily from our net income of $93.9
million and noncash charges of $50.0 million , partially offset by a net decrease
in operating assets and liabilities of $25.4 million . Net changes in operating
assets and liabilities consisted of a $11.9 million increase in prepaid
expenses, a $9.9 million decrease in accrued expenses and other current and
long-term liabilities, a $6.1 million increase in trade accounts receivable,
net, and a $2.8 million increase in net amounts due from related parties,
partially offset by a $3.3 million decrease in inventories and a $2.0 million
increase in trade accounts payable. The increase in prepaid expenses and other
assets were primarily due to an increase in prepaid contracts and deposits and
the timing of tax payments, including value-added taxes receivable, insurance
and contract costs. The decrease in accrued expenses and other
57
--------------------------------------------------------------------------------
current and long-term liabilities was primarily due to the release of deposits
related to the sale of our AMTC Facility and reduction of the balance due on the
Voxtel acquisition, partially offset by higher accrued personnel costs,
particularly for management incentive bonuses, and higher income taxes due. The
increase in trade accounts receivable, net was primarily a result of increased
sales year-over-year, as well as the timing of receipts from customers. The
increase in net amounts due from related parties was primarily due to variations
in the timing of such payments in the ordinary course of business. The decrease
in inventories was primarily a result of the continued drawdown after building
inventory up in prior periods to support anticipated sales growth and recovery
from the COVID-19 pandemic. Accounts payable increased mainly due to higher
operating purchases, including unpaid capital expenditures of $4.9 million ,
partially offset by the timing of payments to vendors and suppliers.
Net cash provided by operating activities was $63.5 million in the nine-month
period ended December 25, 2020 , resulting primarily from our net income of $9.4
million and noncash charges of $79.0 million , partially offset by a net increase
in operating assets and decrease in operating liabilities of $24.9 million . Net
changes in operating assets and liabilities consisted of a $29.7 million
increase in prepaid expenses, a $6.0 million increase in trade accounts
receivable, net and a $1.2 million decrease in accrued expenses and other
current and long-term liabilities, partially offset by a $8.3 million decrease
in net amounts due from related parties, a $2.4 million increase in trade
accounts payable, a $1.1 million decrease in inventories and a $0.1 million
decrease in accounts receivable - other. The increase in prepaid expenses and
other assets, excluding the impact of the noncash removal of PSL-related assets
of $5.2 million and the acquisition of Voxtel, included an $18.7 million
increase in prepaid taxes, a $3.6 million increase in VAT receivables, a $3.5
million increase in prepaid insurance and a $2.8 million increase in amortizable
patent costs. Changes related to trade accounts receivable, net, accounts
receivable - other, and due from/to related parties were primarily due to
variations in the timing of such payments in the ordinary course of business.
The decrease in accrued expenses and other current and long-term liabilities is
the result of a $14.9 million increase in balances from March 27, 2020 , adjusted
for $26.5 million of noncash increases related to the Voxtel acquisition
primarily for deferred and contingent consideration, offset by the $7.6 million
impact of the noncash removal of PSL and Sanken distribution related assets.
Trade accounts payable were impacted by the noncash removal of PSL-related
liabilities of $4.2 million , with the difference due to timing of such payments
in the ordinary course of business. The $1.1 million inventory decrease is the
result of a $33.2 million reduction in balances from March 27, 2020 , offset by a
$32.3 million impact of the noncash removal of PSL and Sanken distribution
business related assets and $3.0 million of noncash inventory provisions,
reduced by $3.1 million of inventory added in the acquisition of Voxtel.
Investing Activities
Net cash used in investing activities primarily consists of purchases and sales
of property, plant and equipment, partially offset by proceeds from sales of
property, plant and equipment. We expect our multi-year transition from an
integrated device manufacturer to our current fabless, asset-lite manufacturing
model, including the completion of the PSL Divestiture, will result in a
stabilization of capital expenditures in the future.
Net cash used in investing activities was $50.1 million in the nine months ended
December 24, 2021 , consisting of purchases of property, plant and equipment of
$55.8 million , payments related to the acquisition of Voxtel of $12.5 million ,
and purchases of marketable securities of $9.2 million , partially offset by
$27.4 million of cash received for the sale of the AMTC Facility.
Net cash used in investing activities was $50.4 million in the nine-month period
ended December 25, 2020 , consisting of $25.9 million of purchases of property,
plant and equipment, $8.5 million of cash expended for the acquisition of Voxtel
and $16.3 million of cash removed as a result of the PSL Divestiture, partially
offset by $0.3 million of proceeds from sales of property, plant and equipment.
Financing Activities
Net cash used in financing activities was $6.2 million in the nine months ended
December 24, 2021 , consisting of funds loaned to PSL of $7.5 million , partially
offset by $1.3 million of proceeds received in connection with the issuance of
common stock under our employee stock purchase plan.
Net cash used in financing activities was $72.2 million in the nine-month period
ended December 25, 2020 , consisting of $400.0 million of dividends paid prior to
our IPO, $300.0 million for repayment of senior secured debt, $27.7 million of
payments for taxes related to net share settlement of equity awards, and $33.0
million for repayment of unsecured credit facilities, partially offset by $315.7
million of borrowing of senior secured debt, net of deferred financing costs,
$321.4
58
--------------------------------------------------------------------------------
million of proceeds from initial public offering, net of underwriting discounts
and other offering costs, and a $51.4 million related party note receivable.
Debt Obligations
On September 30, 2020 , we entered into a term loan credit agreement with Credit
Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent,
and the other agents, arrangers and lenders party thereto, providing for a
$325.0 million senior secured term loan facility due in 2027 (the "Term Loan
Facility"). On September 30, 2020 , we also entered into a revolving facility
credit agreement with Mizuho Bank, Ltd. , as administrative agent and collateral
agent, and the other agents, arrangers and lenders party thereto, providing for
a $50.0 million senior secured revolving credit facility expiring in 2023 (the
"Revolving Credit Facility" and, together with the Term Loan Facility, the
"Senior Secured Credit Facilities"). As of December 24, 2021 , we had $25.0
million in aggregate principal amount of debt outstanding under our Senior
Secured Credit Facilities.
Description of Credit Facilities
Term Loan Facility
The Term Loan Facility bears interest at a rate per year of, at our option,
either (i) the Base Rate (as defined in the credit agreement) plus an applicable
margin from 2.75% to 3.00% depending on our net leverage ratio, or (ii) the
Eurodollar Rate (as defined in the credit agreement) plus an applicable margin
from 3.75% to 4.00% depending on our net leverage ratio. The Eurodollar Rate is
subject to a floor of 0.50%. At December 24, 2021 , all term loan borrowings were
designated as Eurodollar loans and bore interest of 4.25%.
We incurred deferred financing costs of $9.4 million in connection with the Term
Loan Facility, the total of which was amortized into interest expense or
recognized as loss on debt extinguishment as of March 26, 2021 .
The Term Loan Facility contains certain covenants that may, among other things
and subject to certain exceptions, restrict the ability of us to:
•create, incur, assume or suffer to exist any lien upon any of its property,
assets, or revenue;
•create, incur, or assume indebtedness;
•merge, consolidate or amalgamate with or into any other entity;
•purchase or otherwise acquire all or substantially all of the assets,
liabilities or properties of any other entity;
•sell, lease, transfer or otherwise dispose of all or substantially all of its
assets or properties;
•enter into transactions with affiliates;
•pay dividends or make other distributions; or
•change the nature of its business activities, its fiscal year, or its governing
documents.
Borrowings under the Term Loan Facility are secured by 100% of the stock of our
domestic subsidiaries, portions of the stock of certain of our foreign
subsidiaries, and substantially all of our and our subsidiaries' other property
and assets, in each case subject to various exceptions.
We may be required to make mandatory prepayments of the Term Loan Facility if we
have Excess Cash Flow (as defined in the credit agreement) if we make certain
sales of assets outside the ordinary course of business, or if we suffer certain
property loss events. We may make optional prepayments from time to time without
premium or penalty.
Revolving Credit Facility
The Revolving Credit Facility bears interest at a rate per year of, at our
option, the Base Rate plus 1.50%, the Cost of Funds Rate (as defined in the
credit agreement) plus 2.50%, or the Eurodollar Rate plus 2.50%. In addition,
commencing on the last business day of December 2020 , we are required to pay, on
a quarterly basis, a non-refundable commitment fee of 0.50% per year on the
average daily unused commitments under the Revolving Credit Facility.
We incurred financing costs of $0.3 million in connection with the Revolving
Credit Facility, which we classified the related short-term and long-term
portions within Prepaid expenses and other current assets and Other assets on
our unaudited
59
--------------------------------------------------------------------------------
consolidated balance sheet and are amortizing these costs over the term of the
facility. The unamortized portion of the deferred financing costs associated
with the Revolving Credit Facility was $0.2 million at December 24, 2021 .
The Revolving Credit Facility contains certain financial and non-financial
covenants, including a maximum net leverage ratio applicable to the Revolving
Credit Facility in the event that utilization exceeds 35% of the revolving loan
commitment.
Borrowings under the Revolving Credit Facility are secured by 100% of the stock
of our domestic subsidiaries, portions of the stock of certain of our foreign
subsidiaries, and substantially all of our subsidiaries' other property and
assets, in each case subject to various exceptions.
AMPI Credit Facilities
On November 26, 2019 , AMPI entered into a line of credit agreement with Union
Bank of the Philippines, Inc. that provides for a maximum borrowing capacity of
60.0 million Philippine pesos (approximately $1.2 million ) at the bank's
prevailing interest rate. While this line of credit initially expired on August
21, 2021 (in connection with certain delays as a result of the COVID-19 pandemic
and its impact on bank operations), the line of credit was extended in September
2021 and is now expected to expire on August 21, 2022 . There were no borrowings
outstanding under this line of credit as of December 24, 2021 and March 26,
2021 .
On November 20, 2019 , AMPI entered into a line of credit agreement with BDO
Unibank that provides for a maximum borrowing capacity of 75.0 million
Philippine pesos (approximately $1.5 million ) at the bank's prevailing interest
rate. While this line of credit initially expired on June 30, 2021 (in
connection with certain delays as a result of the COVID-19 pandemic and its
impact on bank operations), the line of credit was extended in September 2021
and is now expected to expire on June 30, 2022 . There were no borrowings
outstanding under this line of credit as of December 24, 2021 and March 26,
2021 .
Recent Accounting Pronouncements
See Note 2, "Summary of Significant Accounting Policies" in the unaudited
consolidated financial statements included elsewhere in this Quarterly Report
for a full description of recent accounting pronouncements, including the
respective dates of adoption or expected adoption and effects on our condensed
consolidated financial statements contained in Item 1 of this Quarterly Report.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States ("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 2021 Annual Report. There have been no material
changes in our critical accounting policies and estimates since March 26, 2021 .
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in our exposures to market risk since
March 26, 2021 . For details on the Company's interest rate, foreign currency
exchange, and inflation risks, see "Item 7A. Quantitative and Qualitative
Information About Market Risks" in our 2021 Annual Report.
Item 4. Controls and Procedures.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), management recognizes
that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives.
In addition, the design of disclosure controls and procedures must reflect the
fact that there are resource constraints and that management is required to
apply judgment in evaluating the benefits of possible controls and procedures
relative to their costs.
60
--------------------------------------------------------------------------------
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Senior
Vice President, Chief Financial Officer and Treasurer (our principal executive
officer and principal financial officer, respectively), evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) as of December 24, 2021 . Based
on the evaluation of our disclosure controls and procedures as of December 24,
2021 , our Chief Executive Officer and Chief Financial Officer concluded that, as
of such date, our disclosure controls and procedures were effective at the
reasonable assurance level.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined
in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during
the period covered by this Quarterly Report that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
61--------------------------------------------------------------------------------
© Edgar Online, source
