Allegro MicroSystems Q4 Earnings Call Highlights

Key Points

• Strong fiscal performance: Allegro reported its "5th consecutive quarter of sales growth" with Q4 revenue of $243 million and non-GAAP EPS of $0.17 (nearly triple YoY), while fiscal 2026 revenue rose 23% to $890 million and EPS more than doubled to $0.54, with gross margins around 49–50% and record free cash flow of $125 million.
• Data center is a fast-growing pillar: Data center revenue more than quadrupled in FY26, reached a record 14% of Q4 sales, and management expects long-term data center growth "well north of 20%" as content per AI rack expands and demand for fan drivers and high-speed current sensors accelerates.
• Automotive remains the core growth engine: Automotive accounted for 71% of sales ($629 million) with "focus auto" (xEV and ADAS) up 30% to $349 million driven by content expansion and share gains, and management expects continued outperformance versus auto production amid still-thin inventories and no material shortages on orders.

Allegro MicroSystems NASDAQ: ALGM reported fiscal fourth-quarter and full-year 2026 results that management said reflected continued momentum across both automotive and industrial end markets, highlighted by record data center contributions and expanding content opportunities in next-generation power and sensing applications.

Quarterly results show fifth straight quarter of sales growth

President and CEO Mike Doogue said the company delivered its “5th consecutive quarter of sales growth” with fourth-quarter revenue of $243 million. Non-GAAP EPS for the quarter was $0.17, which Doogue said was “nearly tripling year-over-year.”

Chief Financial Officer Derek D’Antilio detailed that Q4 sales increased 6% sequentially and 26% year-over-year. Non-GAAP gross margin was 50%, operating margin was 15.6%, and adjusted EBITDA was 20.4% of sales. Operating expenses were $84 million, up $5 million sequentially, “largely due to annual payroll tax resets and higher incentive compensation,” D’Antilio said. The effective tax rate in the quarter was 6%.

By end market, automotive revenue was essentially flat sequentially at $164 million, including what D’Antilio described as an “expected decline in China due to the Chinese New Year,” but increased 18% year-over-year. Industrial and other revenue rose 23% sequentially to $79 million and increased 49% year-over-year, driven by data center demand.

Full-year 2026: revenue up 23%, industrial growth outpaced targets

For fiscal 2026, Doogue said sales rose 23% year-over-year to $890 million, while EPS more than doubled to $0.54 per share. D’Antilio added that automotive sales totaled $629 million, up 17% year-over-year, representing 71% of total sales. “Focus auto” (xEV and ADAS) sales were $349 million, up 30% year-over-year, and represented 55% of automotive sales.

Industrial and other sales were $261 million, up 38% year-over-year, which Doogue said was “well above our high-teen sales growth target for our industrial business.” Data center revenue more than quadrupled and represented 10% of fiscal 2026 sales, according to D’Antilio.

On profitability, D’Antilio said full-year gross margin was 49.4%, up 140 basis points year-over-year. He noted that operating leverage and factory efficiencies more than offset price and commodity cost increases, while “the cost of gold, in particular, was an approximately 200 basis point headwind in fiscal 2026.” Operating margin was 14.1% and adjusted EBITDA was 19.1% of sales.

Data center becomes a larger growth pillar as content expands

Management repeatedly pointed to data center strength as a key driver entering fiscal 2027. Doogue said data center sales were up 41% sequentially in the quarter, reaching a record level and accounting for 14% of Q4 sales. D’Antilio said this compared with 10% in Q3 and 8% in Q2.

Doogue described two principal product vectors in data center: high-efficiency three-phase fan drivers and growing adoption of high-speed current sensors in power supplies and backup systems. He said the fan driver opportunity has broadened beyond cooling CPUs and GPUs and “expanded into power supplies and into network switching equipment.”

Current sensors were a major theme in Q&A. Doogue said design-win activity in power supplies and backup systems is “large and growing,” with Hall and TMR current sensors shipping or expected to ship across multiple hyperscaler platforms. D’Antilio provided mix detail, saying current sensors were “0 part” of the company’s data center business entering fiscal 2026, were about 10% in Q3, and “closer to that 20%” in Q4.

Doogue also discussed longer-term content expansion tied to higher-voltage architectures and increased power density in AI racks, saying Allegro’s content opportunity per rack scales “from approximately $150 in today’s servers to over $425 in next-generation AI configurations.” He told analysts the company expects its long-term data center growth rate to be “well north of 20%,” and said management believes fiscal 2027 data center growth will be “well above 20%,” though the company did not provide specific revenue guidance for the segment.

On isolated gate drivers for data center power supplies, Doogue said the opportunity is “still 18-24 months out from having material revenue,” but added that the company is encouraged by current design activity.

Automotive: focus auto share gains and content expansion remain central

Doogue said focused automotive (xEV and ADAS) rose 30% in fiscal 2026, driven by “content expansion and share gains,” with growth including “gains in steering and braking for ADAS applications” and increased adoption of high-voltage traction inverters. He said Allegro is seeing momentum in BLDC motor drivers and xEV powertrain programs.

Asked about focus auto trends into fiscal 2027, Doogue said he expects a similar growth profile to fiscal 2026 and reiterated a model of outgrowing auto production by “SAR plus 7%-10%” due to share gains and increasing dollar content. D’Antilio added that fourth-quarter focus auto was “flatted down a little bit” largely due to China seasonality, and said the company expected both auto and focus auto to be up “a couple of percentage points” in Q1 as China returns.

On inventories, Doogue said the company still sees “somewhat thin inventory levels in automotive” and “no clear signs of restocking” broadly. On potential component constraints, he said customers appear concerned about memory tightness, but Allegro is “seeing no impact of material shortages on our orders.”

Margins, costs, and fiscal Q1 outlook

Looking ahead, D’Antilio guided fiscal first-quarter 2027 revenue to $245 million to $255 million, with non-GAAP gross margin of 50% to 51% and non-GAAP EPS of $0.19 to $0.23. Operating expenses are expected to decline sequentially to about $80 million (± $2 million), while interest expense is projected at $4 million and the non-GAAP tax rate at approximately 9%.

During Q&A, D’Antilio discussed margin dynamics, noting that annual price negotiations typically impact the March quarter, while cost reductions take “a quarter or two to cycle through inventory.” He said the company expects a higher “drop-through” in Q1, and also cited recent headwinds from commodity costs, “particularly commodity costs and recently fuel costs.”

He said the company is pursuing cost-reduction efforts including gold-to-copper conversions—an initiative he described as requiring customer qualification and occurring over time—as well as vendor negotiations and factory efficiencies. He also said “select price increases” are planned, beginning “at the end of Q1,” describing the approach as “very nuanced” and including surcharges tied to gold and fuel-related costs.

On cash flow and the balance sheet, D’Antilio said Allegro ended Q4 with $175 million of cash. Q4 operating cash flow was $36 million, CapEx was $17 million, and free cash flow was $19 million. For the full year, free cash flow was a record $125 million, and the company made $60 million in voluntary debt payments, ending with $285 million in total debt and $116 million in net debt.

About Allegro MicroSystems NASDAQ: ALGM

Allegro MicroSystems, Inc NASDAQ: ALGM is a leading designer and manufacturer of high-performance power and sensing integrated circuits. The company focuses on semiconductor solutions that enable precise motion control, energy-efficient power management and robust sensing in a wide range of applications. Allegro's product portfolio includes Hall-effect magnetic sensors, current and position sensing ICs, motor driver and controller devices, and power management components.

Allegro MicroSystems serves major automotive, industrial and consumer markets worldwide.

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