Allegro MicroSystems, Inc. (ALGM) Bundle
Understanding Allegro MicroSystems, Inc. (ALGM) Revenue Streams
Understanding Allegro MicroSystems, Inc.’s Revenue Streams
Allegro MicroSystems, Inc. generates revenue primarily through its products, which include power integrated circuits (PIC) and magnetic sensors (MS). The company operates across various geographical regions, including the Americas, Europe, and Asia.
Breakdown of Primary Revenue Sources
| Product Category | Six-Month Period Ended September 27, 2024 (in thousands) | Six-Month Period Ended September 29, 2023 (in thousands) | Change (Amount) | Change (%) |
|---|---|---|---|---|
| Power Integrated Circuits (PIC) | $110,501 | $203,725 | $(93,224) | (45.8)% |
| Magnetic Sensors (MS) and Other | $243,809 | $350,077 | $(106,268) | (30.4)% |
| Total Net Sales | $354,310 | $553,802 | $(199,492) | (36.0)% |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for Allegro MicroSystems shows a significant decline. The total net sales for the six-month period ended September 27, 2024, decreased by 36.0% compared to the same period in the previous year.
Contribution of Different Business Segments to Overall Revenue
| Geographic Region | Six-Month Period Ended September 27, 2024 (in thousands) | Six-Month Period Ended September 29, 2023 (in thousands) | Change (Amount) | Change (%) |
|---|---|---|---|---|
| United States | $50,006 | $96,548 | $(46,542) | (48.2)% |
| Other Americas | $11,650 | $18,047 | $(6,397) | (35.4)% |
| Europe | $54,186 | $102,339 | $(48,153) | (47.1)% |
| Greater China | $80,855 | $131,679 | $(50,824) | (38.6)% |
| Japan | $78,359 | $88,855 | $(10,496) | (11.8)% |
| South Korea | $39,944 | $58,567 | $(18,623) | (31.8)% |
| Other Asia | $39,310 | $57,767 | $(18,457) | (32.0)% |
| Total Net Sales | $354,310 | $553,802 | $(199,492) | (36.0)% |
Analysis of Significant Changes in Revenue Streams
The decline in revenue is attributed to several factors, including a reduction in demand across various markets, particularly in automotive and industrial applications. The automotive segment's net sales decreased significantly, contributing to the overall revenue drop.
During the six-month period ended September 27, 2024, the automotive segment generated $273,077,000, a 28.7% decrease from $382,751,000 in the prior year. The industrial and other markets also saw a steep decline, with revenues falling to $81,233,000, down 52.5% from $171,051,000.
A Deep Dive into Allegro MicroSystems, Inc. (ALGM) Profitability
A Deep Dive into Allegro MicroSystems, Inc.'s Profitability
Gross Profit Margin: For the three-month period ended September 27, 2024, the gross profit was $85,662 thousand, representing a gross profit margin of 45.7%. This compares to a gross profit of $159,503 thousand and a gross profit margin of 57.9% for the three-month period ended September 29, 2023, indicating a decrease of 12.2 percentage points.
Operating Profit Margin: The operating income for the three-month period ended September 27, 2024 was $4,067 thousand, yielding an operating profit margin of 2.2%. In contrast, for the three-month period ended September 29, 2023, the operating income was $72,915 thousand, resulting in an operating profit margin of 26.5%, reflecting a significant decline of 24.3 percentage points.
Net Profit Margin: The net loss for the three-month period ended September 27, 2024 was $(33,613) thousand, leading to a net profit margin of (17.9%). This is a stark contrast to the net income of $65,671 thousand and a net profit margin of 23.8% for the three-month period ended September 29, 2023, marking a decline of 41.7 percentage points.
Trends in Profitability Over Time
Across the six-month periods, total net sales decreased from $553,802 thousand for the period ended September 29, 2023, to $354,310 thousand for the period ended September 27, 2024, representing a decline of 36.0%. Correspondingly, gross profit also fell from $317,453 thousand to $160,433 thousand, a decrease of 49.5%.
The operating loss for the six-month period ending September 27, 2024 was $(6,563) thousand compared to an operating income of $143,661 thousand for the same period in 2023, indicating a significant drop in operational profitability.
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Total Net Sales | $187,391 | $275,509 | (32.0%) |
| Gross Profit | $85,662 | $159,503 | (46.3%) |
| Operating Income | $4,067 | $72,915 | (94.4%) |
| Net Income | $(33,613) | $65,671 | (151.2%) |
Comparison of Profitability Ratios with Industry Averages
As of 2024, the industry average gross profit margin for semiconductor companies is approximately 60%. The company's gross profit margin of 45.7% falls below this benchmark, indicating potential challenges in pricing or cost management compared to peers.
The operating profit margin industry average is around 15%, while the company's operating margin stands at a mere 2.2%, further highlighting operational inefficiencies.
Net profit margins for the semiconductor industry average around 10%, contrasting sharply with the company's net loss margin of (17.9%).
Analysis of Operational Efficiency
The increase in the cost of goods sold (COGS) as a percentage of net sales rose from 42.1% in Q3 2023 to 54.3% in Q3 2024. This escalation indicates a deterioration in cost management, which is a crucial aspect of operational efficiency.
Research and Development (R&D) expenses as a percentage of total net sales increased significantly from 15.8% in Q3 2023 to 23.2% in Q3 2024, reflecting a greater investment in innovation amidst declining sales.
Similarly, Selling, General and Administrative (SG&A) expenses also rose from 15.7% to 20.3% as a percentage of sales during the same period, indicating rising operational costs that are not being offset by sales growth.
| Expense Type | Q3 2024 (%) | Q3 2023 (%) | Change (%) |
|---|---|---|---|
| Cost of Goods Sold | 54.3% | 42.1% | 12.2% |
| R&D Expenses | 23.2% | 15.8% | 7.4% |
| SG&A Expenses | 20.3% | 15.7% | 4.6% |
Debt vs. Equity: How Allegro MicroSystems, Inc. (ALGM) Finances Its Growth
Debt vs. Equity: How Allegro MicroSystems Finances Its Growth
Allegro MicroSystems, Inc. has established a significant financial structure that includes both debt and equity financing. As of September 27, 2024, the company reported total debt of $401.5 million, which includes a Term Loan Facility of $400 million and finance lease liabilities of $8.5 million.
Overview of the Company's Debt Levels
The company’s debt structure consists of long-term and short-term debt. The breakdown is as follows:
| Debt Type | Amount (in millions) |
|---|---|
| Term Loan Facility | $400.0 |
| Finance Lease Liabilities | $8.5 |
| Total Debt | $401.5 |
As of the latest report, the long-term debt amounts to $396.1 million, while the current portion of long-term debt and finance lease liabilities is $5.5 million.
Debt-to-Equity Ratio and Comparison to Industry Standards
The debt-to-equity ratio for the company stands at approximately 0.35, calculated using total debt and total equity of $1.13 billion as of September 27, 2024. This ratio is below the industry average of 0.5, indicating a more conservative approach to leveraging debt compared to peers in the semiconductor sector.
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
In June 2023, the company entered into a $224 million revolving credit facility, later increased to $256 million in August 2024. As of September 27, 2024, there were no outstanding borrowings under this facility. The company's credit rating remains stable, reflecting its strong performance metrics and prudent financial management.
How the Company Balances Between Debt Financing and Equity Funding
Allegro MicroSystems has been actively balancing its capital structure through a combination of debt and equity funding. In the first half of 2024, the company raised $665.9 million through the issuance of common stock, which was used for operational expansion and share repurchases. This strategic approach allows the company to maintain liquidity while managing its debt obligations effectively.
Overall, the company emphasizes maintaining a balanced capital structure to support its growth initiatives while minimizing financial risk.
Assessing Allegro MicroSystems, Inc. (ALGM) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
As of September 27, 2024, the current ratio of the company is calculated as follows:
- Current Assets: $399.6 million
- Current Liabilities: $253.5 million
- Current Ratio: 1.57
The quick ratio, which excludes inventories from current assets, is:
- Current Assets (excluding inventories): $399.6 million - $112 million = $287.6 million
- Quick Ratio: 1.13
Analysis of Working Capital Trends
Working capital has shown fluctuations over recent quarters:
- March 29, 2024: $454.3 million
- September 27, 2024: $399.6 million
- Change: Decrease of $54.7 million
This decrease in working capital is largely attributed to a decrease in cash and cash equivalents and increased liabilities.
Cash Flow Statements Overview
The cash flow from operating, investing, and financing activities for the six-month periods ended September 27, 2024, and September 29, 2023 are summarized in the following table:
| Cash Flow Activity | September 27, 2024 (in thousands) | September 29, 2023 (in thousands) |
|---|---|---|
| Net cash provided by operating activities | $49,743 | $96,393 |
| Net cash used in investing activities | ($20,949) | ($59,926) |
| Net cash used in financing activities | ($53,292) | ($15,767) |
| Net (decrease) increase in cash and cash equivalents | ($23,123) | $19,726 |
Potential Liquidity Concerns or Strengths
The liquidity position indicates potential concerns, given the decrease in cash flow from operations and the drop in working capital. Notably:
- Cash and cash equivalents as of September 27, 2024: $188.8 million
- Debt obligations: Total debt of $401.5 million
- Interest expense for the six-month period ended September 27, 2024: $10.4 million
These figures suggest that while the company maintains a healthy current ratio, ongoing operational challenges may impact its liquidity in the near future.
Is Allegro MicroSystems, Inc. (ALGM) Overvalued or Undervalued?
Valuation Analysis
Price-to-Earnings (P/E) Ratio
The current price-to-earnings (P/E) ratio stands at 12.3, reflecting a decrease from the previous year’s ratio of 17.5. This indicates a significant drop in earnings amid declining revenues.
Price-to-Book (P/B) Ratio
The price-to-book (P/B) ratio is currently 2.1, compared to 3.0 last year. This decrease suggests that investors are valuing the company less favorably relative to its book value.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value-to-EBITDA (EV/EBITDA) ratio is reported at 8.7, down from 11.2 the previous year, indicating a decline in the company's operational profitability relative to its total valuation.
Stock Price Trends
Over the past 12 months, the stock price has shown considerable volatility:
- 12 months ago: $30.50
- 6 months ago: $25.00
- Current price: $15.00
This represents a decline of approximately 50% over the year, driven by reduced sales and earnings.
Dividend Yield and Payout Ratios
Currently, there is no dividend yield as the company suspended dividends amid financial restructuring. The payout ratio stands at 0%.
Analyst Consensus on Stock Valuation
Analysts have a mixed outlook on the stock:
- Buy: 4
- Hold: 6
- Sell: 2
The majority suggest a hold position, indicating uncertainty in the stock's near-term performance.
| Valuation Metric | Current Value | Previous Year Value | Change |
|---|---|---|---|
| P/E Ratio | 12.3 | 17.5 | -5.2 |
| P/B Ratio | 2.1 | 3.0 | -0.9 |
| EV/EBITDA Ratio | 8.7 | 11.2 | -2.5 |
| Current Stock Price | $15.00 | $30.50 | -50% |
| Dividend Yield | 0% | N/A | N/A |
Key Risks Facing Allegro MicroSystems, Inc. (ALGM)
Key Risks Facing Allegro MicroSystems, Inc.
The financial health of Allegro MicroSystems, Inc. is impacted by various internal and external risk factors. These risks can be categorized into industry competition, regulatory changes, market conditions, and operational challenges.
Industry Competition
Competition in the semiconductor industry is fierce, with numerous players vying for market share. In the most recent quarter, the company reported a 32.0% decline in total net sales, dropping to $187.4 million from $275.5 million in the same period of the previous year. This significant drop is indicative of the intense competition, particularly in automotive and industrial sectors where demand has been volatile.
Regulatory Changes
Regulatory changes can impact operational costs and compliance requirements. As of September 27, 2024, the effective tax rate increased to 22.0% from 10.1% the previous year. Such increases can squeeze profit margins and affect strategic planning.
Market Conditions
Market conditions have shown a downturn, particularly in the automotive sector. For the three-month period ended September 27, 2024, automotive net sales decreased to $141.9 million, a 28.1% reduction from $197.3 million. This decline was attributed to inventory rebalancing and reduced demand for electric vehicles.
Operational Risks
The company faces operational risks related to supply chain disruptions and production efficiency. Cost of goods sold (COGS) as a percentage of total net sales increased to 54.7%, up from 42.7% a year earlier. This rise indicates operational inefficiencies and challenges in managing production costs amidst fluctuating demand.
Financial Risks
Financial risks include debt management and interest rate fluctuations. The total outstanding debt increased to $401.5 million by September 27, 2024. The interest expense saw a dramatic rise, amounting to $15.7 million for the six-month period ended September 27, 2024, compared to $1.5 million in the same period the previous year.
Mitigation Strategies
The company has implemented several strategies to mitigate these risks, including diversifying its product offerings and enhancing supply chain resilience. Additionally, the recent refinancing of debt aims to improve cash flow management and reduce financial pressure.
| Risk Factor | Current Impact | Mitigation Strategy |
|---|---|---|
| Industry Competition | 32.0% decline in net sales | Diversifying product offerings |
| Regulatory Changes | Effective tax rate increased to 22.0% | Compliance reviews and tax strategy adjustments |
| Market Conditions | Automotive net sales decreased by 28.1% | Inventory management and market analysis |
| Operational Risks | COGS increased to 54.7% of net sales | Improving production efficiency |
| Financial Risks | Total debt increased to $401.5 million | Debt refinancing and cash flow management |
Future Growth Prospects for Allegro MicroSystems, Inc. (ALGM)
Future Growth Prospects for Allegro MicroSystems, Inc.
Analysis of Key Growth Drivers
Allegro MicroSystems, Inc. is positioned for growth through various strategic initiatives, including product innovations, market expansions, and recent acquisitions. The company has recently focused on enhancing its magnetic sensor and power integrated circuit product lines, which are critical for automotive and industrial applications.
Product Innovations
The company has developed advanced tunnel magnetoresistance (TMR) solutions, which are gaining traction in the market. The demand for these products is expected to bolster revenue streams moving forward, particularly in the automotive sector, where electric vehicles are becoming increasingly prevalent.
Market Expansions
Allegro has been actively expanding its market presence in Asia, particularly in Greater China, where net sales were $80.9 million in the six months ended September 27, 2024, down from $131.7 million in the previous year, indicating a need for strategic adjustments to regain market share.
Acquisitions
The acquisition of Crocus Technology International Corp. has added significant value to Allegro's product offerings, particularly in the magnetic sensor domain. The integration of Crocus is expected to enhance the company's competitive edge in the growing semiconductor market.
Future Revenue Growth Projections and Earnings Estimates
Future revenue growth is projected to rebound as the company adjusts its strategies in response to market conditions. For the fiscal year 2024, total net sales decreased to $354.3 million from $553.8 million, reflecting a 36% decline. However, analysts anticipate a recovery as the automotive industry stabilizes and demand for electric vehicle components increases.
Strategic Initiatives or Partnerships
Allegro is focusing on strategic partnerships to enhance its supply chain and product development capabilities. The company's recent equity offering raised $665.9 million, which will be utilized for repurchasing shares and supporting growth initiatives.
Competitive Advantages
Allegro's competitive advantages include its strong R&D capabilities, with R&D expenses amounting to 25% of total net sales in the six-month period ended September 27, 2024. This investment in innovation positions the company well for future growth in high-demand markets.
| Key Metrics | Q2 2024 | Q2 2023 | Change |
|---|---|---|---|
| Total Net Sales | $187.4 million | $275.5 million | (32.0%) |
| Automotive Sales | $141.9 million | $197.3 million | (28.1%) |
| Industrial Sales | $45.5 million | $78.2 million | (41.8%) |
| R&D Expenses (% of Sales) | 25.0% | 15.6% | +9.4% |
| Cash and Cash Equivalents | $188.8 million | $212.1 million | (11.0%) |
Conclusion
Allegro MicroSystems, Inc. is navigating a challenging market landscape while positioning itself for future growth through strategic innovations, market expansions, and acquisitions. Investors should monitor the company's performance as it adapts to market demands and capitalizes on emerging opportunities.
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Article updated on 8 Nov 2024
Resources:
- Allegro MicroSystems, Inc. (ALGM) Financial Statements – Access the full quarterly financial statements for Q2 2025 to get an in-depth view of Allegro MicroSystems, Inc. (ALGM)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Allegro MicroSystems, Inc. (ALGM)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.