# Allegro Microsystems, Inc.: Form 10-Q for the period ended Jun 28, 2024

- Company: [Allegro Microsystems, Inc.](/companies/algm.md) (CIK 866291)
- Form: 10-Q
- Filed: 2024-08-02
- Accepted by EDGAR: Aug 2, 2024, 08:30 ET
- Period: 2024-06-28
- Accession: 0000950170-24-089610
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/866291/000095017024089610/algm-20240628.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/866291/000095017024089610/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-03-30 to 2024-06-28 | $166.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-03-30 to 2024-06-28 | $92.1m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-03-30 to 2024-06-28 | $74.8m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-03-30 to 2024-06-28 | $45.2m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2024-03-30 to 2024-06-28 | $40.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-03-30 to 2024-06-28 | −$10.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-03-30 to 2024-06-28 | $5.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-03-30 to 2024-06-28 | $1.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-03-30 to 2024-06-28 | −$17.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-03-30 to 2024-06-28 | −$0.09 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-03-30 to 2024-06-28 | −$0.09 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-03-30 to 2024-06-28 | 193,465,708 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-03-30 to 2024-06-28 | $34.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-03-30 to 2024-06-28 | $11.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-06-28 | $173.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-28 | $490.3m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-28 | $1.45bn | us-gaap:Assets |
| Current liabilities | at 2024-06-28 | $105.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-28 | $339.0m | us-gaap:Liabilities |
| Long-term debt | at 2024-06-28 | $202.6m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-06-28 | $1.4m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-06-28 | $1.11bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,719 characters.

*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 for the year ended March 29, 2024, filed with the SEC on May 23, 2024 ( the “2024 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 I, Item 1A. “Risk Factors” of our 2024 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-month periods ended June 28, 2024 and June 30, 2023 relate to the 13-week periods ended June 28, 2024 and June 30, 2023, respectively. All references to “2025,” “fiscal year 2025” or similar references relate to the 52-week period ended March 28, 2025. All references to “2024,” “fiscal year 2024” or similar references relate to the 52-week period ended March 29, 2024.*

### Overview

We are a leading global designer, developer, fabless manufacturer and marketer of sensor integrated circuits (“ICs”) and application-specific analog power ICs enabling the most critical technologies in the automotive and industrial markets. We are a leading supplier of magnetic sensor IC solutions worldwide based on market share, driven by our market leadership in the automotive market. Our products are foundational to automotive and industrial electronic systems. Our sensor ICs enable our customers to precisely measure motion, speed, position and current, while our power ICs include high-temperature and high-voltage capable motor drivers, power management ICs, light emitting diode driver ICs and isolated gate drivers. We believe that our technology expertise, combined with our deep applications knowledge and strong customer relationships, enable us to develop solutions that provide more value to customers than typical ICs. Compared to a typical IC, our solutions are more integrated, intelligent and sophisticated for complex applications and easier for customers to use.

We are headquartered in Manchester, New Hampshire and have a global footprint across multiple continents. Our portfolio now includes more than 1,000 products, and we ship over 1.5 billion units annually to more than 10,000 customers worldwide. During the three-month period ended June 28, 2024 and June 30, 2023, we generated $166.9 million and $278.3 million in total net sales, respectively, with $(17.6) million and $60.9 million in net (loss) income, respectively.

### Business Updates

On July 23, 2024, we entered into a share repurchase agreement with Sanken (the “Share Repurchase Agreement”) pursuant to which we agreed to repurchase 38,767,315 shares of our common stock from Sanken in a privately negotiated transaction. Pursuant to the terms of the Share Repurchase Agreement, Sanken has agreed to reimburse us for the expenses incurred in connection with the transactions contemplated by the Share Repurchase Agreement, including a facilitation fee of $35.0 million. On July 29, 2024, we completed the first closing under the Share Repurchase Agreement, repurchasing 28,750,000 shares of our common stock for $621.5 million, which was the public offering price in the Equity Offering that closed on July 26, 2024 (as described below), minus the discount to the underwriters and transaction expenses and fees, including the $35.0 million facilitation fee paid to us as described above (the “First Closing”). We used the net proceeds of the Equity Offering to fund the purchase price payable to Sanken at the First Closing, and the shares repurchased in the First Closing were retired. The repurchase of the remainder of the shares of our common stock that we expect to repurchase from Sanken is expected to occur substantially concurrently with the receipt by us of borrowings under the 2023 Revolving Credit Agreement or, otherwise, on another date of our choosing (the “Second Closing”). We expect to fund the purchase price payable to Sanken at the Second Closing with cash on hand or additional borrowings under the 2023 Revolving Credit Agreement.

On July 26, 2024, we completed an underwritten equity offering of 28,750,000 shares of its common stock at a public offering price of $24.00 per share (the “Equity Offering”) resulting in net proceeds to us of approximately $665.9 million, after deducting $24.2 million of underwriting discounts. As described above, Sanken reimbursed us for its offering fees and expenses, including the facilitation fee described above. The Equity Offering completed on July 26, 2024 included the exercise of the underwriters’ option to purchase 3,750,000 additional shares of our common stock. As described above, we used the net proceeds of the Equity Offering to complete the First Closing under the Share Repurchase Agreement.

We expect to amend the 2023 Revolving Credit Agreement dated as of June 21, 2023, by and among the Company, Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent, and each lender from time to time party thereto to (i) incur new incremental term loans pursuant to the 2023 Term Loan Facility to finance a portion of the repurchase of shares of common stock from Sanken in the Second Closing pursuant to the terms of the Share Repurchase Agreement, (ii) increase the amount of revolving commitments available under the 2023 Revolving Credit Facility by $32.0 million, (iii) permit under the 2023 Revolving Credit Agreement the repurchase contemplated by the Share Repurchase Agreement with debt proceeds and (iv) make certain other changes.

On July 31, 2024, we announced the allocation of a $400 million term loan tranche (the “Term Loan”), consisting of new term loans incurred, in relevant part, to (i) finance a portion of the repurchase of shares of common stock from Sanken at the Second Closing pursuant to the terms of the Share Repurchase Agreement, (ii) fully refinance our 2023 Term Loan Facility, and (iii) otherwise use for general corporate purposes. The Term Loan is expected to have a maturity date of October 31, 2030 and to bear interest at an annual rate based on the Secured Overnight Financing Rate plus an interest rate margin of 2.25%, which annual rate represents a 0.50% per annum reduction as compared to our 2023 Term Loan Facility. The foregoing transactions are subject to market and other conditions, and there can be no assurance that the incremental term loans under the 2023 Term Loan Facility or the increase to revolving commitments under the 2023 Revolving Credit Facility (or the aforementioned amendments) will be completed on the terms described herein, or at all.

### 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:

### Inflation

Inflation rates in the markets in which we operate have increased and may continue to rise. Inflation over the last several quarters has led us to experience higher costs, including higher labor costs, wafer and other costs for materials from suppliers, and transportation and energy costs. Our suppliers have raised their prices and may continue to raise prices, and in the competitive markets in which we operate, we may not be able to make corresponding price increases to preserve our gross margins and profitability. If inflation rates continue to rise or remain elevated for a sustained period of time, they could have a material adverse effect on our business, financial condition, results of operations and liquidity. While we have generally been able to offset increases in these costs through various productivity and cost reduction initiatives, as well as adjusting our selling prices and releasing new products with improved gross margins, our ability to increase our average selling prices depends on market conditions and competitive dynamics. Given the timing of our actions compared to the timing of these inflationary pressures, there may be periods during which we are unable to fully recover the increases in our costs.

### 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 original equipment manufacturer 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 sales can be lengthy, typically between two and four years. As a result, our future sales are highly dependent on our continued success at winning design mandates from our customers. Further, despite current inflationary conditions, we expect the average sales prices (“ASPs”) of our products to decline over time, and we consider design wins to be critical to our future success. We 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 market 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. However, 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. Cancellation 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 expose us to the risks of inventory shortages or excess inventory. We are currently operating in an inflationary environment for our products.

### Manufacturing Costs and Product Mix

Gross margin 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 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, despite current price leverage, we expect their ASPs to decline in the long term. 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 has historically been highly cyclical and is characterized by increasingly rapid technological change, product obsolescence, competitive pricing pressures, evolving standards, short product life cycles in consumer and other rapidly changing markets 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 and margins generally decline.

### 2017 Tax Cuts and Jobs Act

Pursuant to the 2017 Tax Cuts and Jobs Act, beginning in fiscal year 2023, U.S. tax law now requires us to capitalize and amortize domestic and foreign research and development expenditures over five and 15 years, for domestic and foreign research, respectively (“174 Capitalization”). The impact of 174 Capitalization for fiscal year 2025 is an increase in annual cash taxes of approximately $15.8 million and a foreign derived intangible income (“FDII”) benefit of $7.7 million. Additionally, the Internal Revenue Service has issued Notice 2024-12 and is expected to issue final guidance which may modify this law or change its impact.

### Results of Operations

### Three-Month Period Ended June 28, 2024 Compared to Three-Month Period Ended June 30, 2023

The following table summarizes our results of operations and our results of operations as a percentage of total net sales for the three-month periods ended June 28, 2024 and June 30, 2023.

*(Dollars in thousands)*

|  | Three-Month Period Ended June 28, 2024 | As a % of Net Sales | Three-Month Period Ended June 30, 2023 | As a % of Net Sales | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $166,919 | 100.0% | $278,293 | 100.0% | $(111,374) | (40.0)% |
| Cost of goods sold | 92,148 | 55.2% | 120,343 | 43.2% | (28,195) | (23.4)% |
| Gross profit | 74,771 | 44.8% | 157,950 | 56.8% | (83,179) | (52.7)% |
| Operating expenses: |  |  |  |  |  |  |
| Research and development | 45,204 | 27.1% | 42,975 | 15.4% | 2,229 | 5.2% |
| Selling, general and administrative | 40,197 | 24.1% | 44,229 | 15.9% | (4,032) | (9.1)% |
| Total operating expenses | 85,401 | 51.2% | 87,204 | 31.3% | (1,803) | (2.1)% |
| Operating (loss) income | (10,630) | (6.4)% | 70,746 | 25.4% | (81,376) | (115.0)% |
| Other income (expense), net: |  |  |  |  |  |  |
| Interest expense | (5,377) | (3.2)% | (769) | (0.3)% | (4,608) | 599.2% |
| Interest income | 494 | 0.3% | 843 | 0.3% | (349) | (41.4)% |
| Other income (expense), net | (1,060) | (0.6)% | (2,716) | (1.0)% | 1,656 | (61.0)% |
| (Loss) income before income tax provision | (16,573) | (9.9)% | 68,104 | 24.5% | (84,677) | (124.3)% |
| Income tax provision | 1,040 | 0.6% | 7,215 | 2.6% | (6,175) | (85.6)% |
| Net (loss) income | (17,613) | (10.6)% | 60,889 | 21.9% | (78,502) | (128.9)% |
| Net income attributable to non-controlling interests | 62 | 0.0% | 39 | 0.0% | 23 | 59.0% |
| Net (loss) income attributable to Allegro MicroSystems, Inc. | $(17,675) | (10.6)% | $60,850 | 21.9% | $(78,525) | (129.0)% |

### Total net sales

Total net sales decreased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023. The decrease was driven by an overall reduction in inventory levels maintained by customers and corresponding decline in shipments across all end markets. The decline in shipments impacted all applications including e-Mobility products, safety comfort and convenience applications, and broad-based and other industrial applications, including clean energy and automation, data center applications and consumer and smart home products.

### 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.

*(Dollars in thousands)*

|  | Three-Month Period Ended June 28, 2024 | June 30, 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Automotive | $131,184 | $185,430 | $(54,246) | (29.3)% |
| Industrial and other | 35,735 | 92,863 | (57,128) | (61.5)% |
| **Total net sales** | $166,919 | $278,293 | $(111,374) | (40.0)% |

Automotive net sales decreased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023, primarily due to inventory rebalancing with our automotive contract manufacturing customers looking to manage excess supply, as well as mix across all general markets.

Industrial and other net sales decreased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023, primarily due to a decrease in demand of our broad-based and other industrial applications, in addition to distribution inventory reductions.

### Sales Trends by Product

The following table summarizes net sales by product.

*(Dollars in thousands)*

|  | Three-Month Period Ended June 28, 2024 | June 30, 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Power integrated circuits (“PIC”) | $51,810 | $103,988 | $(52,178) | (50.2)% |
| Magnetic sensors (“MS”) and other | 115,109 | 174,305 | (59,196) | (34.0)% |
| **Total net sales** | $166,919 | $278,293 | $(111,374) | (40.0)% |

The decline in PIC sales was driven by a decrease in demand for our motor products. The decrease in MS and other sales was due to a decline in current and isolator products, as well as our magnetic speed and position sensors.

### Sales Trends by Geographic Location

The following table summarizes net sales by geographic location based on ship-to location.

*(Dollars in thousands)*

| Americas: | Three-Month Period Ended June 28, 2024 | June 30, 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| United States | $22,267 | $48,824 | $(26,557) | (54.4)% |
| Other Americas | 5,224 | 8,508 | (3,284) | (38.6)% |
| EMEA: |  |  |  |  |
| Europe | 26,906 | 55,388 | (28,482) | (51.4)% |
| Asia: |  |  |  |  |
| Japan | 40,643 | 41,580 | (937) | (2.3)% |
| Greater China | 31,860 | 62,216 | (30,356) | (48.8)% |
| South Korea | 21,773 | 29,513 | (7,740) | (26.2)% |
| Other Asia | 18,246 | 32,264 | (14,018) | (43.4)% |
| **Total net sales** | $166,919 | $278,293 | $(111,374) | (40.0)% |

Americas net sales decreased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023, primarily due to the decline in the United States automotive and industrial markets across all applications. In addition, Europe and Other Asia net sales declined in industrial and other markets across all applications, South Korea net sales declined in the automotive industries, primarily safety, comfort and convenience applications, and Greater China net sales declined in automotive markets across all applications which are served through distributors currently managing inventory levels.

### Cost of goods sold

Cost of goods sold decreased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023, primarily due to a reduction in production volume as well as product mix, offset by an increase in amortization of intangible assets in relation to the acquisition of Crocus Technology International Corp. (“Crocus”).

Cost of goods sold as a percentage of our total net sales was 55.2% and 43.2% for the three-month period ended June 28, 2024 and June 30, 2023, respectively. The increase was primarily due to the reduction in production volume, as well as product mix noted above.

### Gross profit and gross margin

Gross profit decreased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023, due to the decrease in net sales and product mix noted above.

Gross margin was 44.8% and 56.8% for the three-month period ended June 28, 2024 and June 30, 2023, respectively. The decrease was primarily due to the decline in net sales and product mix noted above.

### Research and development expenses

Research and development (“R&D”) expenses increased in the three-month period ended June 28, 2024 in comparison to the comparable period in fiscal year 2024, primarily due to a combined increase in personnel costs.

R&D expenses as a percentage of our total net sales was 27.1% and 15.4% for the three-month periods ended June 28, 2024 and June 30, 2023, respectively. The increase was primarily due to the increased costs noted above in addition to the decline in net sales.

### Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses decreased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023, primarily due to a decrease in general operating expenses and outside service costs, partially offset by a combined increase in personnel and severance expenses.

SG&A expenses as a percentage of our total net sales was 24.1% and 15.9% in the three-month periods ended June 28, 2024 and June 30, 2023, respectively. The increase as a percentage of total net sales was primarily due to the factors noted above in addition to the decline in net sales.

### Interest expense

Interest expense increased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023, due to higher interest payments on the 2023 Term Loan Facility, which was used to finance the acquisition of Crocus.

### Interest income

Interest income decreased in the three-month period ended June 28, 2024 compared to the three-month period ended June 30, 2023, primarily due to lower cash balances.

### Other income(expense), net

We recorded a foreign currency loss in both of the three-month periods ended June 28, 2024 and June 30, 2023. The foreign currency loss recorded in the three-month period ended June 28, 2024 was primarily due to realized and unrealized gains from our Philippines location. The foreign currency loss recorded in the three-month period ended June 30, 2023, was primarily due to realized and unrealized losses from our United Kingdom location due to the strengthening of the British Pound.

We also recorded investment income of $0.5 million related to our earnings in our money market fund deposits in the three-month period ended June 28, 2024, compared to unrealized losses of $8.9 million, offset by $5.2 million of realized gains during the three-month period ended June 30, 2023.

### Income tax provision

Income tax provision and the effective income tax rate were $1.0 million and (6.3)%, respectively, in the three-month period ended June 28, 2024 and $7.2 million and 10.6%, respectively, in the three-month period ended June 30, 2023. The decline in the effective tax rate (“ETR”) year-over-year relates primarily to the change in (Loss) income before income taxes, discrete transactions, and the impact of FDII benefits and research credits; offset by non-deductible stock-based compensation charges.

### Liquidity and Capital Resources

As of June 28, 2024, we had $173.1 million of cash and cash equivalents and $384.7 million of working capital, compared to $212.1 million of cash and cash equivalents and $454.3 million of working capital as of March 29, 2024. Working capital is impacted by the timing and extent of our business needs.

We expect to amend the 2023 Revolving Credit Facility as part of the Second Closing under the Share Repurchase Agreement as described above under “Business Updates”. However, there can be no assurance that the incremental term loans under the 2023 Term Loan Facility or the increase to revolving commitments under the 2023 Revolving Credit Facility (or the aforementioned amendments) will be completed on the terms described herein, or at all.

Our primary requirements for liquidity and capital resources besides our growth initiatives 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 fiscal year 2025 is to utilize cash on hand and capacity under our 2023 Revolving Credit Facility to support our continued growth initiatives into select markets and planned capital expenditures, as well as consider potential acquisitions. As of June 28, 2024, the Company was not party to any off-balance sheet arrangements that have had 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 operating leases, operating and capital purchase commitments, and expected contributions to our defined benefit and contribution plans. Additionally, we expect to continue to strategically invest in expanding our operations in China, Europe, Japan and India in order to directly manage and service our customers in these markets, which could result in increases in our total net sales, cost of goods sold and operating expenses. For information regarding the Company’s expected cash requirements and timing of payments related to leases, noncancellable purchase commitments and pension and defined contribution plans, see Note 12, “Leases,” Note 16, “Commitments and Contingencies” and Note 15, “Retirement Plans” to the audited consolidated financial statements in the Company’s 2024 Annual Report.

We believe that our existing cash will be sufficient to finance our continued operations, growth strategy, planned capital expenditures and the additional expenses that we expect to incur during the next 12 months. In order to support and achieve our future growth plans, we may need or advantageously seek 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 12 months. If these resources are not sufficient to satisfy our liquidity requirements due to changes in circumstances, we may be required to borrow under our 2023 Revolving Credit Facility or seek additional financing. If we raise additional funds by issuing equity securities that are not used to repurchase existing shares outstanding, 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 three-month periods ended June 28, 2024 and June 30, 2023:

*(dollars in thousands)*

|  | Three-Month Period Ended June 28, 2024 | June 30, 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $34,196 | $49,663 |
| Net cash used in investing activities | (10,977) | (34,939) |
| Net cash used in financing activities | (60,378) | (11,035) |
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | (825) | (73) |
| Net (decrease) increase in cash and cash equivalents and restricted cash | $(37,984) | $3,616 |

#### Operating Activities

Net cash provided by operating activities was $34.2 million in the three-month period ended June 28, 2024, resulting primarily from net loss of $17.6 million and noncash charges of $24.7 million, partially offset by a net increase in cash from a decrease in net operating assets and liabilities of $27.1 million. The net decrease in operating assets and liabilities consisted of a $55.1 million decrease in trade accounts receivable, net, a $16.0 million increase in inventories, a $14.0 million decrease in accrued expenses and other current and long-term liabilities, and a $1.7 million increase in prepaid expenses and other assets, partially offset by a $3.4 million increase in net amounts due to related party and a $0.2 million increase in trade accounts payable. The increase in inventories was primarily the result of inventory builds to support anticipated sales growth for the remainder of fiscal year 2025. The decrease in accrued expenses and other current and long-term liabilities was primarily the result of a reduction in accrued personnel costs due to the timing of payments pursuant to our annual incentive compensation plan. The increase in prepaid expenses and other assets was mostly due to higher long-term deposits and the timing of tax payments. The decrease in trade accounts receivable, net was primarily a result of decreased sales year-over-year. Trade accounts payable decreased primarily due to the timing of payments to suppliers and vendors, including unpaid capital expenditures of $5.5 million. The increase in net amounts due to related parties was primarily due to variations in the timing of such payments in the ordinary course of business.

Net cash provided by operating activities was $49.7 million in the three-month period ended June 30, 2023, resulting primarily from net income of $60.9 million and noncash charges of $25.8 million, partially offset by a net decrease in cash from an increase in net operating assets and liabilities of $37.0 million. The net increase in operating assets and liabilities consisted of a $27.9 million increase in inventories, a $10.2 million increase in prepaid expenses and other assets, a $17.1 million decrease in accrued expenses and other current and long-term liabilities, and a $10.3 million increase in trade accounts receivable, net, partially offset by a $18.4 million increase in trade accounts payable, and a $10.1 million increase in net amounts due from related parties. The increase in inventories was primarily the result of inventory builds to support anticipated sales growth for the remainder of fiscal year 2024. The increase in prepaid expenses and other assets were mostly due to higher long-term deposits and the timing of tax payments, including value-added taxes receivable, insurance and contract costs. The decrease in accrued expenses and other current and long-term liabilities was primarily the result of a reduction in accrued personnel costs due to timing of payments pursuant to our annual incentive compensation plan. The increase in trade accounts receivable, net, was primarily a result of increased sales year-over-year, as well as timing of receipts. Accounts payable increased primarily due to the timing of payments to suppliers and vendors, partially offset by higher operating purchases, including unpaid capital expenditures of $11.7 million. The increase in net amounts due to related parties was primarily due to variations in the timing of such payments in the ordinary course of business.

#### Investing Activities

Net cash used in investing activities was $11.0 million in the three-month period ended June 28, 2024, consisting of purchases of property, plant and equipment.

Net cash used in investing activities was $34.9 million in the three-month period ended June 30, 2023, consisting of purchases of property, plant and equipment of $44.9 million and proceeds from the sale of marketable securities of $10.0 million.

#### Financing Activities

Net cash used in financing activities was $60.4 million in the three-month period ended June 28, 2024, consisting of a $50.0 million payment on our 2023 Term Loan Facility and $11.2 million of taxes related to the net settlement of equity awards.

Net cash used in financing activities was $11.0 million in the three-month period ended June 30, 2023, primarily consisting of taxes related to the net settlement of equity awards and payments of debt issuance costs in connection with the 2023 Revolving Credit Facility, partially offset by proceeds received in connection with the issuance of common stock under our employee stock purchase plan.

### Debt Obligations

See Note 9, “Debt and Other Borrowings” in the unaudited condensed consolidated financial statements included in this Quarterly Report for information regarding our debt obligations.

### Recent Accounting Pronouncements

See Note 2, “Summary of Significant Accounting Policies” in the unaudited condensed consolidated financial statements included 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 Estimates

The preparation of financial statements in conformity with 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 2024 Annual Report. There have been no material changes in our critical accounting policies and estimates since March 29, 2024.

## Market risk

As filed, 301 characters.

There have not been any material changes in our exposures to market risk since March 29, 2024. For details on the Company’s interest rate, foreign currency exchange rate, and inflation risks, see Part I, Item 7A. “Quantitative and Qualitative Information About Market Risks” in our 2024 Annual Report.

## Controls and procedures

As filed, 1,663 characters.

### 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 Securities Exchange Act of 1934, as amended (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.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of June 28, 2024. Based on the evaluation of our disclosure controls and procedures as of June 28, 2024, 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 were no changes 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 have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 487 characters.

Various risk factors associated with our business are included in our Annual Report, as filed with the SEC on May 23, 2024, as supplemented by the risk factors included in the “Risk Factors” section of our Prospectus on Form S-3ASR dated July 23, 2024 and Prospectus Supplement on Form 424B5 dated July 23, 2024, which are available at www.sec.gov. There have been no material changes to those risk factors previously disclosed in our Annual Report, Prospectus and Prospectus Supplement.

Filed Aug 2, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-089610. Last ingested by Listed: Oct 31, 2026, 03:25 ET. No prices; not investment advice.