Allegro MicroSystems, Inc. Q2 FY2026 earnings call

Mike Doogue mentioned positive momentum across the business with multiyear highs in bookings and backlog, strong design win activity in e-Mobility and data center. Second quarter results had sales, gross margin, and EPS above guidance ranges. Automotive sales showed broad strength with growth in e-Mobility and other auto. Industrial and other end markets had data center sales setting a new quarterly record. Looked ahead to building growth vector in data center with new high-voltage gate drivers sampled. Released industry's first 10 megahertz TMR current sensor. Derek D'Antilio reviewed Q2 financial results, including sales growth, profitability, balance sheet, and cash flow. Outlined Q3 2026 outlook with sales range, gross margin guidance, etc

Net sales were $214 million. Automotive sales saw growth in e-Mobility and other auto, with automotive sensor business growing due to increased adoption of ICs and xEV powertrain systems, motor driver ICs growing in various auto applications. Industrial and other end markets had sales growth led by data center, setting a new quarterly record. Magnetic sensor sales increased 1% sequentially and 2% year-over-year, with 13% growth in first half of fiscal '26 compared to second half of fiscal '25. Power products sales increased 13% sequentially and 42% year-over-year. Sales by geography: 29% in China, 24% in rest of Asia, 17% in Japan, 17% in Americas, 13% in Europe

Expect third quarter sales to be in range of $215 million to $225 million. Gross margin to be between 49% and 51%. Interest expense projected at $5 million. Tax rate expected to be 8%. Non-GAAP EPS between $0.12 and $0.16 per share

Factors that could affect business, including risks and uncertainties causing actual results to differ from forward-looking statements. Important factors described in earnings release and SEC filings. Geopolitical challenges and potential impact on business

Q: Congrats on the results. Maybe just kind of try to understand a little bit inside the automotive business. I think e-mobility was up a little bit sequentially, but non-e-Mobility was up a lot more. Any sort of color on just how do we think about what's driving that? Is it inventory replenishment? And what -- how do we think about that going forward?

A: Joe, thanks. This is Mike. So yes, just to kind of reiterate some of the stats on auto, up 8% quarter-over-quarter and up 12% year-over-year, but e-mobility was up 21% year-over-year. So we are seeing growth in the e-mobility space as we would expect based on the strong activity we have through design wins in the e-mobility space. When we look at the overall growth of the auto business in this quarter that we're reporting on, we did have some growth in our motors business for what I would call more in-cabin and chassis-related applications. These are sort of the powertrain agnostic applications where there are an increasing number of motors, and we're getting an increasing number of design wins in that area. So we were actually quite pleased to see some of those wins flow through within the quarter.

Q: On the first one, just on the demand side, very near term, I was wondering if you are noticing any direct or indirect effects because of the Nexperia situation that is going on and is constraining output at some of the larger auto OEMs. And in general, Mike, how would you describe kind of the regional demand environment? I think you mentioned Europe is still a little bit below trend. But just in general, how would you describe what the kind of the broader regional demand situation is and where you see inventory kind of being on the better versus worse side?

A: Yes. Thanks, Vivek. So on the first question, we read in the press the potential impact of the Nexperia situation. Personally, we have not seen any changes in demand from our end customers that can attribute to that situation. So I don't have much more to say on that situation. In terms of the regional trends that we see coming into this quarter, we were pleased to see an uptick in sales in the Americas. We also saw growth in all regions other than Europe. So we continue to see pockets of weakness and pockets of inventory within the European market. And there are still some pockets of inventory in the North American market, but that's why we were encouraged to see it grow a bit more in this quarter.

Q: Derek, I'm having a little bit of a difficult time reconciling the 60 basis points of gross margin upside you delivered for the quarter. Seemingly, there were some headwinds like foreign exchange. Also automotive was a higher percentage of mix. You delivered right on with that $0.75 of gross profit drop-through. So what drove that gross margin upside for the quarter?

A: Yes. I would say, Gary, it came in as we expected, right? I expected to have about 75% drop-through and having the revenue at $214 million above the midpoint, that's the extra 60 basis points. You're absolutely right. There are certainly headwinds with the cost of some commodities continuing to go up. Foreign exchange, at least for the Philippine peso did moderate from a decline in the second quarter here, and we expect it to moderate going forward. So that's good. That's a tailwind. And we continue to do things in our factory to be far more efficient. So our target is to have that 60% to 65% drop-through. The guide for Q3 equates to exactly 65% at the midpoint of that guidance. So I feel like it came in as we expected, offsetting some of the headwinds with continuing to look at PPV from our vendors and also factory efficiencies.

Q: Really nice results. The first is just on the mix of business in the quarter. It looks like your non-e-Mobility business was very strong. We've seen a bit of slowing on the e-mobility side. Could you just maybe give us the breakdown of what you expect between e-mobility and non-e-Mobility in your guidance for the third quarter?

A: Yes. So thanks for the question. I mentioned earlier with e-mobility being up 5% quarter-over-quarter, but also let's remember that it's up 21% year-over-year. And I mentioned these motor driver design wins throughout the cabin or the chassis in the car. These are these powertrain-agnostic applications that we continue to pursue because that's where some of our motor driver technology shines. I've talked many times in the past that we are exceptionally skilled at spinning motors more quietly, more efficiently, et cetera. So we did take up some wins in those areas, and they're ramping within the quarter, and that added to the growth of the automotive market within the quarter. Obviously, again, the e-mobility up 5%, auto overall up 8%. These motor applications driving most of the delta between the 5% growth and the 8% growth.

Q: The first question is related to gross margins as we go into next year. And in the past -- this past year, you've seen a seasonal decline in gross margins in the March quarter as annual price reductions kind of take hold. Should we expect similar this year? And then perhaps with that, could you talk a bit about what your pricing expectations are into next year? Are you still expecting a fairly normal pricing environment?

A: Yes, Chris. What's interesting is that 60% to 65% gross margin drop-through has held pretty true since we've been public on an annual basis. But there are quarter-to-quarter perturbations, meaning that in that March quarter, typically, when pricing is negotiated with customers and they're down, the pricing is down, that hits that quarter immediately like it did this past year. And the cost cycle back into our P&L over the next 2 quarters, which it did here. So we have a better drop-through in those 2 quarters and then it normalizes out. 2 or 3 years ago, when prices were increasing, we had the opposite effect. We had higher gross margin in that March quarter. So it certainly depends on the pricing environment. What I did say this past year in March of 2025 quarter was the friction on the pricing was a bit more than it had been because we had price increases for the past several years. And that was also on a lower revenue number. So the amount of basis points is higher. And now our inventory days have gone from 185 days on balance sheet to 135. So the turns of the cost into the P&L will be quicker. So all else being equal, I expect the impact to be less. And maybe Mike could talk a little bit about the pricing environment.

Q: Nice results. I had 2 questions. I just wanted to ask, obviously, data center has been all over the news. And我现在需要重新整理正确的JSON内容。以下是正确构建的JSON：</think>{