Allegro MicroSystems, Inc. (NASDAQ:ALGM) Q3 2024 Earnings Call Transcript

Thomas O’Malley: Helpful. And then my follow-up is just on the gross margins. A bit lower into March, but I think you mentioned mix. Can you talk about how you see that margin profile recovering? I mean if lead times have come down and the channel looks a little bit different than it did over the last couple of years, shouldn’t margins stay kind of more at these levels? And if you look at auto potentially recovering, does that help bring those margins back after the June-September quarter time frame? Can you just walk me through the puts and takes of how much recovery do you see in the gross margins? And how quickly you think that comes back?

Derek D’Antilio: Yes. As I mentioned, our Q3 gross margin was about 60 points better than we had guided to at the 54.6%. Within that, Allegro’s organic gross margin was still over 55%. So organic gross margin is still very good and very healthy. It holds up well based on the flexible manufacturing model that we have. Going into the March quarter, we’re guiding to 53% to 54%. And that projects a continued decline in distribution sales, which, as I mentioned, generally has significantly higher gross margins than OEM sales because of the volumes they’re buying. Product mix also plays a part in that from quarter-to-quarter. And then the third piece of the March quarter is the continued Crocus integration and Crocus fixed cost before we start to see synergies in the second half of the year.

So I’d expect that gross margin to remain in that 53% to 54% range for the near term, the next couple of quarters. And then as we start to get synergies, start to see the normalization of the distribution, I expect that to go back up to 55% in the medium term, and then we’ll work towards our model of 58% back to where we were a few quarters ago.

Operator: Thank you. At this time, I’m not showing any further questions in the queue. I’d like to turn the call back over to Jalene for any closing remarks.

Jalene Hoover: Thank you, Kevin. We appreciate you taking the time to join us this morning. This concludes the call.

Operator: Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect, and have a wonderful day.