Allegro MicroSystems : Annual Report for Fiscal Year Ending March 27, 2026 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes and other information included elsewhere in this 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 sections titled "Risk Factors" and "Forward-Looking Statements" included elsewhere in this Annual 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 "2026," "fiscal year 2026" or similar references relate to the 52-week period ended March 27, 2026. All references to "2025," "fiscal year 2025" or similar references relate to the 52-week period ended March 28, 2025.

This section discusses items pertaining to and comparisons of financial results between 2026 and 2025. A discussion of 2024 items and comparisons between 2025 and 2024 financial results can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7. of the Company's Annual Report on Form 10-K for the fiscal year ended March 28, 2025, filed with the SEC on May 22, 2025.

Overview

Allegro MicroSystems, Inc. is a global leader in the design, development, and marketing of sensor ICs and application-specific power ICs, that enable the sensing, motion control, and power management functions of complex electromechanical or power conversion systems. We primarily serve automotive and industrial markets, including advanced industrial markets such as AI data centers, robotics, and energy infrastructure, where our solutions enable customers to sense, move, and manage power with efficiency, precision, and reliability.

Our sensor ICs provide critical feedback for motion, position, speed, and electrical current sensing, while our power ICs control motors and manage power conversion and regulation across a wide range of applications. By embedding system-level intelligence directly into our products, we reduce the number of components required in a customer's design while improving performance, energy efficiency, safety, and reliability. We believe our deep application knowledge, differentiated technology, and strong customer relationships enable us to deliver solutions that are more integrated, intelligent, and efficient than typical ICs.

We are headquartered in Manchester, New Hampshire and have a global footprint with 27 locations across four continents. Our portfolio includes more than 1,500 products, and we ship approximately 2.1 billion units annually to more than 15,000 customers worldwide. During fiscal years 2026 and 2025, we generated $890.1 million and $725.0 million in total net sales, respectively, with $14.7 million and $72.8 million in net loss, respectively.

Recent Initiatives to Improve Results of Operations

We implemented several initiatives during fiscal years 2025 and 2026 that were designed to improve our operating results during those fiscal years and going forward.

We continue our efforts to leverage our fixed costs and operating margin improvements. Efficiencies may be achieved through cost structure improvements, streamlining of manufacturing and support processes, and further utilization of existing capacity. These manufacturing efficiencies may allow us to leverage higher volumes when demand increases across most of our applications, which would increase the absorption of our fixed costs. Although these initiatives can result in gross margin and operating income improvements, we cannot ensure that these trends will occur or continue over the long-term.

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 at a price per share equal to the price per share at which the underwriters in a public underwritten equity offering of shares of our common stock would purchase the shares (the "Equity Offering"). The repurchase of shares of common stock occurred in two separate closings, with the first closing taking place after the closing of the Equity Offering (the "First Closing") and the second closing (the "Second Closing") occurring after the receipt of the proceeds from borrowings under the Refinanced 2023 Term Loan Facility (as defined below). The First Closing of the share repurchase was conditioned upon the closing of the Equity Offering and certain other conditions, and the Second Closing of the share repurchase was conditioned upon the receipt of net proceeds of no less than $300.0 million from incremental term loans under the Refinanced 2023 Term Loan Facility. Pursuant to the terms of the Share Repurchase Agreement, Sanken reimbursed us for the expenses incurred by us in connection with the transactions contemplated by the Share Repurchase Agreement, and paid a

facilitation fee of $35.0 million, which was recorded within additional paid-in-capital with the consolidated statements of changes in equity.

To fund the First Closing, we entered into an underwriting agreement (the "Underwriting Agreement") with Barclays Capital Inc. and Morgan Stanley & Co. LLC, as representatives of the several underwriters (the "Underwriters"), on July 24, 2024, pursuant to which we agreed to sell 25,000,000 shares of our common stock to the Underwriters at a price of $23.16 per share. Under the terms of the Underwriting Agreement, we granted the Underwriters a 30-day option to purchase up to an additional 3,750,000 shares of our common stock at the same purchase price, which option was exercised in full prior to the closing of the Equity Offering.

On July 26, 2024, we completed the Equity Offering pursuant to the Underwriting Agreement of 28,750,000 shares of our common stock at a public offering price of $24.00 per share resulting in net proceeds to us of approximately $665.9 million, after deducting $24.2 million of underwriting discounts. As described above, we used the net proceeds of the Equity Offering to complete the First Closing under the Share Repurchase Agreement.

On July 29, 2024, we completed the First Closing under the Share Repurchase Agreement, repurchasing 28,750,000 shares of our common stock for aggregate consideration of $628.3 million, which was the Equity Offering price, less the facilitation fee of $35.0 million, underwriting discounts, and reimbursable transaction expenses. The shares repurchased in the First Closing were retired.

On August 6, 2024, we entered into Amendment No. 2 (the "Second Amendment") to the revolving facility credit agreement dated June 21, 2023 by and among the Company, the Company's wholly owned subsidiary Allegro MicroSystems, LLC ("AML") Morgan Stanley Senior Funding, Inc., as administrative agent, collateral agent, a letter of credit issuer and a lender, and the other agents, lenders and letter of credit issuers parties thereto (as amended, restated, supplemented or otherwise modified, refinanced or replaced from time to time, the "2023 Revolving Credit Agreement"). The Second Amendment increased the total capacity of the revolving credit facility thereunder to $256.0 million.

The Second Amendment also provided for a new $400.0 million tranche of term loans maturing in 2030 (the "Refinanced 2023 Term Loan Facility"), the proceeds of which were primarily used to (i) repurchase a portion of our common stock in connection with the Second Closing, (ii) refinance the Company's $250.0 million term loan maturing in 2030 entered into on October 31, 2023, (iii) pay fees and expenses in connection with the foregoing and (iv) for general corporate purposes. The Refinanced 2023 Term Loan Facility amortized at a rate of 1.00% per annum. The Refinanced 2023 Term Loan Facility bore interest, at our option, at a rate equal to (i) Term SOFR (as defined in the 2023 Revolving Credit Agreement) in effect from time to time plus 2.25% or (ii) the highest of (x) the Federal funds rate, as published by the Federal Reserve Bank of New York, plus 0.50%, (y) the prime lending rate or (z) the one-month Term SOFR plus 1.0% in effect from time to time plus 1.25%. In conjunction with this refinancing, we recognized $3.6 million as a debt discount, which will be amortized to interest expense over the remaining term using the effective interest method.

A payment of $25.0 million was applied to the term loan balance on October 31, 2024, which eliminated future required minimum quarterly payments.

On August 7, 2024, we completed the Second Closing under the Share Repurchase Agreement, repurchasing 10,017,315 shares of our common stock for aggregate cash consideration of $225.5 million, which was the Equity Offering price, less underwriting discounts and reimbursable transaction expenses. We used a portion of the proceeds from the Refinanced 2023 Term Loan Facility and existing cash on hand to complete the Second Closing. The shares repurchased in the Second Closing were retired.

The Share Repurchase Agreement was accounted for as a forward repurchase contract as there were certain terms that could have caused the obligation not to be fulfilled. Accordingly, the contract was initially recorded as a liability at its fair value with subsequent remeasurements recognized in loss on change in fair value of forward repurchase contract until the completion of the First Closing and Second Closing. We recognized a loss of $34.8 million as a result of the fair value forward repurchase contract in the consolidated statements of operations.

In connection with the Share Repurchase Agreement, we entered into a Second Amended and Restated Stockholders Agreement with Sanken (the "Second Amended and Restated Stockholders Agreement"), which amended and restated the Amended and Restated Stockholders Agreement, dated as of June 16, 2022, by and among us, Sanken and OEP SKNA, L.P. ("OEP"). The Second Amended and Restated Stockholders Agreement, which became effective in accordance with its terms on July 29, 2024, removed OEP as a party and amended certain rights and obligations of us and Sanken.

On September 20, 2024, we, along with Sanken, PSL, and PS Investment Aggregator, L.P. ("Subscriber"), completed the transaction (the "PSL Closing") contemplated by a Sale and Subscription Agreement that we, Sanken, PSL and Subscriber entered into on April 25, 2024 (the "PSL Agreement" and the transaction thereunder, the "PSL Transaction"). As contemplated by the PSL Agreement, Subscriber and certain of its affiliates agreed to make capital contributions to PSL of $175.0 million in exchange for an equity interest in PSL, and we agreed to discharge the PSL Promissory Notes (as defined in Note 21, "Related Party Transactions" to the audited consolidated financial statements) held by us for a value of $10.4 million in exchange for PSL equity interests. Following the PSL Closing, we owned approximately 10.2% of PSL. As a result of PSL's share issuance to Subscriber, we recognized a net loss of $2.8 million related to the difference between the selling price per share and its carrying amount per share and after a gain from the conversion of the PSL Promissory Notes. The loss is included in Other income (expense), net in the consolidated statements of operations.

At the PSL Closing, we, Sanken and Subscriber entered into an amended and restated limited partnership agreement (the "Limited Partnership Agreement") with Polar Semiconductor GP I, LLC. The Limited Partnership Agreement contains representations, warranties and covenants of the parties customary for a transaction of this type, the reimbursement of expenses and costs, and restrictions on transfers. Also as contemplated by the Limited Partnership Agreement and effective upon the PSL Closing, we, Sanken and Subscriber contributed our equity interests in PSL in exchange for limited partnership interests of a newly formed Delaware limited partnership that is the ultimate parent indirectly holding all of Polar's issued and outstanding equity units ("PSL Parent"). Immediately following the PSL Closing and associated completion of the recapitalization and reorganization transactions contemplated by the Limited Partnership Agreement, the Company's ownership of PSL Parent was approximately 10.2%.

On February 6, 2025 we entered into Amendment No. 3 (the "Third Amendment") to the 2023 Revolving Credit Agreement. The Third Amendment provided for a new $375.0 million tranche of term loans maturing in 2030 (the "2025 Refinanced Loans"), the proceeds of which were used, in relevant part, to (i) refinance all outstanding borrowings under the Refinanced 2023 Term Loan Facility, (ii) pay fees and expenses in connection with the foregoing and (iii) for general corporate purposes. The 2025 Refinanced Loans amortized at a rate of 0.00% per annum. The 2025 Refinanced Loans bore interest, at the Company's option, at a rate equal to (i) Term SOFR (as defined in the 2023 Revolving Credit Agreement) in effect from time to time plus 2.00% or (ii) the highest of (x) the Federal funds rate, as published by the Federal Reserve Bank of New York, plus 0.50%, (y) the prime lending rate or (z) the one-month Term SOFR plus 1.00% in effect from time to time plus 1.00%. The 2025 Refinanced Loans were scheduled to mature on October 31, 2030. In conjunction with this financing, we incurred $1.1 million in costs. Borrowings under the 2025 Refinanced Loans were collateralized by substantially all of our assets. Payments of $30.0 million, $25.0 million, $10.0 million and $25.0 million was applied to the outstanding balance of the 2025 Refinanced Loans on February 28, 2025, April 30, 2025, May 30, 2025 and July 31, 2025, respectively.

In January 2025, we enacted a global restructuring plan that included a repositioning to high-growth and lower cost regions and consolidation of leased facilities in an effort to optimize our cost structure. In June 2025, we undertook additional facility consolidation and further workforce rebalancing as part of this plan. In connection with the restructuring plans, we incurred costs related to severance, annual incentive program and other employee-related benefits, retention incentives, accelerated amortization of right-of-use for certain leases, as well as various professional service charges. The restructuring was substantially completed during fiscal year 2026.

On January 21, 2026, we entered into Amendment No. 4 (the "Fourth Amendment") to the 2023 Revolving Credit Agreement. The Fourth Amendment provides for a new $285.0 million tranche of term loans maturing in October 2030 (the "2026 Refinanced Loans"), the proceeds of which were used, in relevant part, to refinance all outstanding borrowing under the 2025 Refinanced Loans. The 2026 Refinanced Loans amortize at a rate of 0.00% per annum. The 2026 Refinanced Loans bear interest, at our option, at a rate equal to (i) Term SOFR in effect from time to time plus 1.75% or (ii) the highest of (x) the Federal funds rate, as published by the Federal Reserve Bank of New York, plus 0.50%, (y) the prime lending rate or (z) the one-month Term SOFR plus 1.00% in effect from time to time plus 0.75%. The 2026 Refinanced Loans will mature on October 31, 2030.

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 remained elevated and may continue to rise as a result of cost increases attributable to a rise in global energy and commodity prices and global tariff policies. Inflation in recent 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 attempted 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 OEM 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 and pricing conditions, we expect the ASPs of our products to decline over time, and we consider design wins to be critical to our future success as they help mitigate declines in ASPs. 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 a 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, tariffs and other pricing increases 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. Cancellations 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 as a result of a rise in global energy and commodity prices and global tariff policies, which also have the potential to reduce end market demand in certain markets. Over the past several quarters, we and other semiconductor companies have experienced an increase in market demand, but historically such periods are often followed by periods of softening demand, primarily driven by lower demand from customers across various markets and digestion of excess accumulated inventory. In addition, factors that cause a reduction in the demand from end users of our OEMs' or other customers' products, including as a result of increased prices resulting from a rise in global energy and commodity prices and global trade policies, tariffs or a recessionary environment in the markets in which we operate, may in the future continue to cause our direct customers to significantly reduce the number of products ordered from us.

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, 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. Also, expectations and front-loaded investment related to AI and data centers may increase the magnitude and volatility of these cycles, making downturns more abrupt or recoveries more uneven. To the extent that current levels of investment in AI-related infrastructure, products or end-market demand reflect expectations that are not ultimately realized, or if customer spending related to AI or data centers moderates, is delayed, or declines more rapidly than anticipated, the semiconductor industry could experience an accelerated or more pronounced downturn. 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.

Components of Our Results of Operations

Net sales

Our total net sales are primarily derived from product sales to direct customers and distributors. We sell products globally through our direct sales force, third-party distributors and independent sales representatives. Sales are derived from products for different applications. Our core applications are focused on the automotive, industrial and other industries.

We sell magnetic sensor ICs and power ICs in the Americas, EMEA and Asia. Net sales are generally recognized when control of the products is transferred to the customer, which typically occurs at a point in time upon shipment or delivery, depending on the terms of the contract. When we transact with a distributor, our contractual arrangement is with the distributor and not with the end customer. Whether we transact business with and receive the order from a distributor or directly from an end customer through our direct sales force and independent sales representatives, our revenue recognition policy and resulting pattern of revenue recognition for the order are the same. We recognize revenue net of sales returns, price protection adjustments, stock rotation rights and any other discounts or credits offered to our customers.

Cost of goods sold, gross profit and gross margin

Cost of goods sold consists primarily of costs of purchasing raw materials, costs associated with probe, assembly, test and shipping our products, costs of personnel, including stock-based compensation, costs of equipment associated with manufacturing, procurement, planning and management of these processes, costs of depreciation and amortization, costs of logistics and quality assurance, and costs of royalties, value-added taxes, utilities, repairs and maintenance of equipment, and an allocated portion of our facility occupancy costs.

Gross profit is calculated as total net sales less cost of goods sold, and gross margin is calculated as gross profit divided by net sales. Gross profit is affected by numerous factors, including average selling price, revenue mix by product, channel and customer, foreign exchange rates, seasonality, manufacturing costs and the effective utilization of our facilities. Another factor impacting gross profit is the time required for the expansion of existing facilities to reach full production capacity. As a result, gross profit varies from period to period and year to year.

A significant portion of our costs are fixed, and as a result, costs are generally difficult to adjust or may take time to adjust in response to changes in demand. In addition, our fixed costs increase as we expand our capacity. If we expand capacity faster than required by our sales growth, our gross margin could be negatively affected.

Operating Expenses

Research and development ("R&D") expenses

R&D expenses consist primarily of personnel-related costs of our research and development organization, including stock-based compensation, costs of development of wafers and masks, license fees for computer-aided design software, costs of development testing and evaluation, costs of developing automated test programs, equipment depreciation and related occupancy and equipment costs. While most of the costs incurred are for new product development, a significant portion of these costs are related to process technology development, and proprietary package development. R&D expenses also include costs for technology development by external parties. We expect further increases in R&D expenses, in absolute dollars, as we continue the development of innovative technologies and processes for new product offerings, as well as increase the headcount of our R&D personnel in future years.

Selling, general and administrative ("SG&A") expenses

SG&A expenses consist primarily of personnel-related costs, including stock-based compensation, and sales commissions to independent sales representatives, professional fees, including the costs of accounting, audit, legal, regulatory and tax compliance. Additionally, costs related to advertising, trade shows, corporate marketing, as well as an allocated portion of our occupancy costs, also comprise SG&A expenses.

We anticipate our selling and marketing expenses will increase in absolute terms as we expand our sales force and increase our sales and marketing activities.

Impairment of assets held for sale

Impairment of assets held for sale consists primarily of charges recorded to reduce the carrying value of certain assets to their estimated fair value, less costs to sell.

Impairment of long-lived assets

Impairment of long-lived assets consists primarily of impairment charges related to intangibles assets and other long-lived assets when factors exist that indicate the carrying amounts of these assets may not be recoverable.

Interest expense

Interest expense is from term loan debt and credit facilities that we maintain with various financial institutions.

Interest income

Interest income is earned on our cash and cash equivalents, consisting primarily of certain investments that have contractual maturities no greater than three months at the time of purchase.

Foreign currency transaction (loss) gain

We incur transaction gains and losses resulting from intercompany transactions, as well as transactions with customers or vendors, denominated in currencies other than the functional currency of the legal entity in which the transaction is recorded.

(Loss) income in earnings of equity investment

(Loss) income in earnings of equity investment is related to our equity investment in PSL (PSL Parent following its recapitalization in September 2024).

Loss on change in fair value of forward repurchase contract

Loss on change in fair value of forward repurchase contract is due to the various settlement dates under the Share Repurchase Agreement.

Other income (expense), net

Other income (expense), net includes unrealized (loss) gains on marketable securities from changes in the fair value of equity securities with readily determinable fair values. These investments are measured at fair value with unrealized gains and losses related to changes in the entity's stock price. Upon the sale of the investments, realized gains and losses are recognized in other income (expense), net. Miscellaneous income and expense items unrelated to our core operations are also within other income (expense), net.

Income tax (benefit) provision

Our provision for or benefit from income taxes is based on an estimate of the annual effective tax rate plus the tax impact of discrete items.

We are subject to tax in the U.S. and various foreign jurisdictions. Our effective income tax rate fluctuates primarily because of: the change in the mix of our U.S. and foreign income; the impact of discrete transactions and law changes; state tax impacts and the difference between the amount of tax benefits generated by the foreign derived intangible income ("FDII") deduction, including permanent impacts of capitalizing research and development expenses, and research credits, offset by the additional tax costs associated with global intangible low-tax income ("GILTI"), Subpart F income and non-deductible stock-based compensation charges.

In 2017, the Tax Cuts and Jobs Act ("TCJA") introduced significant U.S. corporate tax reform to the U.S. Internal Revenue Code (the "Code"), including a requirement to capitalize domestic and foreign research and development expenditures incurred in fiscal years 2023 through 2025 ("174 Capitalization"). The capitalized amounts were required to be amortized over five and 15 years, respectively. On July 4, 2025, the One Big Beautiful Bill Act ("OBBB") was enacted into law, and it generally extended and modified many of the TCJA provisions of the Code. Specifically, the OBBB provided options to taxpayers such as (i) restoring the ability to immediately expense domestic R&D expenditures, (ii) providing a one-time election to accelerate the deduction of previously capitalized domestic R&D over a two-tax year period ("Accelerated R&D Amortization Election"), (iii) reinstating Section 59(e) of the Code to allow domestic R&D to be capitalized and amortized over 10 years, and (iv) updating Section 280(c) of the Code, which reduces the benefit of the Section 41 research and development tax credit ("R&D Credit"). The OBBB changes, especially the Accelerated R&D Amortization Election, result in a current year reduction of the U.S. cash taxes, FDII deduction, and R&D credit benefits. The Company continues to evaluate the tax impact of the various OBBB provisions, elections, and forthcoming guidance.

We regularly assess the likelihood of outcomes that could result from the examination of our tax returns by the IRS and other tax authorities to determine the adequacy of our income tax reserves and expense. Should actual events or results differ from our then-current expectations, charges or credits to our provision for income taxes may become necessary. Any such adjustments could have a significant effect on our results of operations.

Results of Operations

Fiscal Year 2026 Compared to Fiscal Year 2025

The following table summarizes our results of operations and our results of operations as a percentage of total net sales for the fiscal years ended March 27, 2026 and March 28, 2025.

Total net sales

Total net sales increased primarily driven by Focus Auto products, which include ADAS and xEV components, data center applications, industrial automation and robotics products, medical applications, internal combustion engine products, clean energy applications and safety, comfort and convenience applications, partially offset by a decrease in consumer products, broad-based industrial products and personal and industrial transport products.

Net Sales 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.

Automotive net sales increased primarily due to an increase in demand for Focus Auto products, which include ADAS and xEV components, as well as our internal combustion engine products and safety, comfort and convenience applications.

Industrial and other net sales increased primarily due to an increase in demand for data center applications, industrial automation and robotics products, medical applications and clean energy applications, partially offset by a decrease in consumer products, broad-based industrial products and personal and industrial transport products.

Net Sales by Product

The following table summarizes net sales by product.

The increase in MS was primarily due to an increase in demand for our current and isolator products, magnetic speed sensors, TMR sensor solutions and magnetic position sensors. The increase in PIC sales was primarily driven by a demand for our motor and high performance power products.

Net Sales by Geographic Location

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

Other Asia net sales increased in data center applications, medical applications and safety, comfort and convenience applications, partially offset by a decrease in consumer products. Greater China net sales increased primarily driven by ADAS and xEV components, industrial automation and robotics products, safety, comfort and convenience applications and data center applications, partially offset by a decrease in consumer products. Other Americas net sales increased in both Automotive and Industrial and Other applications, primarily in ADAS components and clean energy applications. Europe net sales increased primarily in Automotive markets, driven by ADAS and xEV components, as well as growth in industrial automation and robotics and internal combustion engine products, partially offset by decreases in consumer products, clean energy applications, and safety, comfort and convenience applications. South Korea net sales increased primarily in xEV components and safety, comfort and convenience applications, partially offset by a decrease in ADAS components. Japan net sales declined primarily in personal and industrial transport products, and safety, comfort and convenience applications, partially offset by an increase in data center applications and ADAS components.

Cost of goods sold, gross profit and gross margin

Cost of goods sold increased in the fiscal year ended March 27, 2026 compared to the fiscal year ended March 28, 2025. The increase in cost of goods sold was primarily due to higher production volume in support of higher product sales and increase in materials and commodity costs.

Gross profit increased in the fiscal year ended March 27, 2026 compared to the fiscal year ended March 28, 2025, primarily due to the increase in net sales and a change in product mix.

Gross margin was 46.3% and 44.3% for the fiscal years ended March 27, 2026 and March 28, 2025, respectively. The increase was primarily due to the increase in net sales and a change in product mix.

R&D expenses

R&D expenses increased in the fiscal year ended March 27, 2026 compared to the fiscal year ended March 28, 2025. This increase was primarily due to an increase in personnel costs, including the funding of the annual incentive program.

R&D expenses represented 23.1% of our total net sales for the fiscal year ended March 27, 2026, a decrease from 24.8% of our total net sales for the fiscal year ended March 28, 2025. The decrease as a percentage of total net sales was primarily due to the increase in net sales, partially offset by an increase in the funding of the annual incentive program.

SG&A expenses

SG&A expenses increased in the fiscal year ended March 27, 2026 compared to the fiscal year ended March 28, 2025. This increase was primarily due to an increase in personnel costs, including the funding of the annual incentive program, outside services and legal fees.

SG&A expenses represented 20.3% of our total net sales for the fiscal year ended March 27, 2026, representing a decrease from 22.3% of our total net sales for the fiscal year ended March 28, 2025. The decrease as a percentage of total net sales was primarily due to the increase in net sales, partially offset by an increase in the funding of the annual incentive program, outside services and legal fees.

Impairment of assets held for sale

We recorded an impairment of assets held for sale in the fiscal year ended March 27, 2026. We determined that the carrying value of these assets exceeded their fair value, less costs to sell.

Interest expense

Interest expense decreased in the fiscal year ended March 27, 2026 compared to the fiscal year ended March 28, 2025. The decrease was primarily due to the voluntary payments applied to the outstanding balance of our Term Loan Facility.

Interest income

Interest income decreased in the fiscal year ended March 27, 2026 compared to the fiscal year ended March 28, 2025, primarily due to reduced average excess cash balances year over year and lower interest rates realized during the year.

Foreign currency transaction (loss) gain

We recorded a foreign currency transaction loss in both fiscal years ended March 27, 2026 and March 28, 2025. The foreign currency transaction loss recorded in the fiscal year ended March 27, 2026 was primarily due to the U.S. Dollar weakening against various currencies, including the Euro and the Philippine Peso. The foreign currency transaction loss recorded in the fiscal year ended March 28, 2025 was primarily due to realized and unrealized losses from our Philippine locations.

(Loss) income in earnings of equity investment

(Loss) income in earnings of equity investment reflected loss of $9.4 million and income of $1.2 million in the fiscal years ended March 27, 2026 and March 28, 2025, respectively, related to our equity investment in PSL (PSL Parent following its recapitalization in September 2024).

Loss on change in fair value of forward repurchase contract

We recorded a loss on the change in fair value of a forward repurchase contract in the fiscal year ended March 28, 2025, primarily due to the various settlement dates under the Share Repurchase Agreement with Sanken.

Other income (expense), net

We recorded $1.4 million of gains related to earnings in our money market fund deposits, partially offset by other expense of $0.8 million in the fiscal year ended March 27, 2026. We recorded a net loss of $2.8 million as a result of the PSL Closing in the fiscal year ended March 28, 2025 related to the difference between the selling price per share and its carrying amount per share and after a gain from the conversion of PSL Promissory Notes that we held, partially offset by $1.6 million of gains related to earnings in our money market fund deposits.

Income tax (benefit) provision

For the fiscal years ended March 27, 2026 and March 28, 2025, our income tax benefits and the ETR was $(0.2) million and 1.7%, and $(12.9) million and 15.1%, respectively. The ETR decrease primarily results from (i) lower pre-tax GAAP loss in the fiscal year ended March 27, 2026, which was driven in part, by the $34.8 million nondeductible loss on change in fair value of forward repurchase contract recorded in the fiscal year ended March 28, 2025 and (ii) the OBBB impacts described above in the "Components of Our Results of Operations."

Liquidity and Capital Resources

As of March 27, 2026, we had $168.8 million of cash and cash equivalents and $357.7 million of working capital, compared to $121.3 million of cash and cash equivalents and $370.8 million of working capital as of March 28, 2025. Working capital is impacted by the timing and extent of our business needs.

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 2027 is to utilize cash on hand and capacity under our revolving credit facility to support our continued growth initiatives into select markets and planned capital expenditures, as well as consider potential acquisitions. As of March 27, 2026, 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 and noncancellable purchase commitments, see Note 12, "Leases" and Note 16, "Commitments and Contingencies" to the audited consolidated financial statements. See Note 15, "Retirement Plans" to the audited consolidated financial statements for more information related to the Company's pension and defined contribution plans. Additionally, refer to Note 13, "Debt and Other Borrowings" for information regarding the Company's management of our third-party debt capacity.

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 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. See "Risk Factors -Risks Related to Our Business and Industry-Our ability to raise capital in the future may be limited and could prevent us from executing our growth strategy." We made advance payments on our borrowings in the fiscal year ended March 28, 2025, which has eliminated future minimum quarterly payments.

Cash Flows from Operating, Investing and Financing Activities

The following table summarizes our cash flows for the fiscal years ended 2026 and 2025:

Operating Activities

Net cash provided by operating activities was $163.1 million in fiscal year 2026, resulting primarily from a net loss of $14.7 million and non-cash charges of $123.0 million, further adjusted by a net increase in cash from a decrease in net operating assets and liabilities of $54.7 million. Noncash charges primarily include increases for $67.6 million for depreciation and amortization, $47.9 million of stock-based compensation, $10.0 million for provisions for inventory and expected credit losses and $6.6 million for impairment of assets held for sale, partially offset by $12.0 million of deferred income taxes. The decrease in net operating assets and liabilities consisted of a $49.4 million decrease in prepaid expenses and other assets, a $41.3 million decrease in other changes in operating assets and liabilities, net, and a $6.0 million increase in trade accounts payable, partially offset by a $15.0 million increase in payment to related party, a $9.8 million increase in accounts receivable - other, a $9.2 million increase in trade accounts receivable, net, a $6.3 million increase in inventories, and a $1.7 million decrease in net amounts due to related party. The decrease in prepaid expenses and other assets was primarily due to the receipt of a tax refund and the additional planning related to the OBBB. The decrease in other changes in operating assets and liabilities, net was primarily the result of accrued income taxes and accrued personnel costs, including $2.1 million of accrued capital expenditures. Trade accounts payable increased primarily due to the timing of payments to suppliers and vendors, including unpaid capital expenditures of $1.9 million. The increase in payment to related party was primarily the result of advanced payment on products. The increase in accounts receivable - other was primarily related to the timing of tax receipts. The increase in trade accounts receivable, net was primarily a result of increased sales year-over-year and timing of collections. The increase in inventories was primarily the result of the increase in production to support the increase in net sales. The decrease in net amounts due to related party was primarily due to variations in the timing of such payments in the ordinary course of business.

Net cash provided by operating activities was $61.9 million in fiscal year 2025, resulting primarily from a net loss of $72.8 million and non-cash charges of $143.5 million, further adjusted by a net decrease in cash from an increase in net operating assets and liabilities of $8.9 million. Noncash charges primarily include increases for $64.5 million of depreciation and amortization, $41.9 million of stock-based compensation, $34.8 million for loss on the change in fair value of a forward repurchase contract, $9.2 million provisions for inventory and expected credit losses and $7.0 million of other non-cash reconciling items, partially offset by $16.3 million of deferred income taxes. The net increase in operating assets and liabilities consisted of a $30.2 million increase in inventories, $16.3 million decrease in other changes in operating assets and liabilities, net and $4.8 million increase in prepaid expenses and other assets, partially offset by a $33.1 million decrease in trade accounts receivable, net, a $4.0 million increase in trade accounts payable and a $5.1 million increase in net amounts due to related party. The decrease in trade accounts receivable, net was primarily a result of decreased sales year-over-year. Trade accounts payable increased primarily due to the timing of payments to suppliers and vendors, including unpaid capital expenditures of $2.2 million. The increase in net amounts due to related party was primarily due to variations in the timing of such payments in the ordinary course of business. The increase in inventories was primarily the result of inventory builds of standard products to support anticipated sales growth. The decrease in prepaid expenses and other assets was mostly due to the timing of tax payments. The decrease in other changes in operating assets and liabilities, net was primarily the result of a reduction in accrued personnel costs due to the timing of payments pursuant to our annual incentive compensation plan.

Investing Activities

Net cash used in investing activities was $41.7 million in fiscal year 2026, consisting of $38.2 million of purchases of property, plant and equipment and $3.5 million of an investment in debt security.

Net cash used in investing activities was $40.8 million in fiscal year 2025, primarily consisting of purchases of property, plant and equipment.

Financing Activities

Net cash used in financing activities was $77.4 million in fiscal year 2026, primarily consisting of $345.0 million of payments on our term loan, $12.6 million of taxes related to the net settlement of equity awards and $5.0 million of payments for intangible assets, partially offset by net proceeds of $285.0 million from our financing activities under the 2023 Revolving Credit Agreement.

Net cash used in financing activities was $112.1 million in fiscal year 2025, consisting of $853.9 million used to repurchase our common stock, $105.0 million of payments on our indebtedness under the 2023 Revolving Credit Agreement and $16.2 million of taxes related to the net settlement of equity awards, partially offset by the issuance of common stock of $665.9 million, net proceeds of $193.1 million from our financing activities under the 2023 Revolving Credit Agreement, proceeds received in connection with the issuance of common stock under our employee stock purchase plan and proceeds received related to the quarterly payment on the PSL Promissory Note (prior to being discharged).

Debt Obligations

See Note 13, "Debt and Other Borrowings" in the consolidated financial statements included elsewhere in this Annual Report for information regarding our debt obligations, including our term loans and credit facilities.

Recent Accounting Pronouncements

Refer to Note 2, "Summary of Significant Accounting Policies" to the consolidated financial statements included elsewhere in this Annual Report for information regarding recent accounting pronouncements.

Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. On an ongoing basis, management evaluates its estimates, assumptions and judgments, including those related to the valuation of acquired intangible assets, impairment assessment and valuation of goodwill, intangible assets and tangible long-lived assets, the net realizable value of inventory, income taxes, stock-based compensation, and sales allowances. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. Actual results could differ from those estimates, and such differences may be material to our financial statements. We believe that the accounting policies described below require management's most difficult, subjective or complex judgments. Judgments or uncertainties affecting the application of these policies may result in materially different amounts being reported under different conditions or using different assumptions. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our financial condition and results of operations. See Note 2, "Summary of Significant Accounting Policies" to the consolidated financial statements included elsewhere in this Annual Report for additional information regarding these and our other significant accounting policies.

Sales Allowances

Sales allowances include sales in which the amount of consideration that we will receive is unknown as of the end of a reporting period. Such consideration primarily includes price protection provisions provided to distributors. We estimate potential future returns, credits, and sales allowances based on historical return rates, anticipated customer claims, credits issued, and changes in product sales to customers. Historical experience can change over time. As a result, estimated sales allowances may differ significantly from amounts recorded in the current and historical periods.

Goodwill, other intangible assets and other long-lived assets

Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. Goodwill is not amortized, but rather is assessed for impairment at the reporting unit level annually during the fourth quarter of each fiscal year or more frequently if we believe indicators of impairment exist. Goodwill impairment, if any, is determined by comparing the reporting unit's fair value to its carrying value. An impairment loss is recognized in an amount equal to the excess of the reporting unit's carrying value over its fair value, up to the amount of goodwill allocated to the reporting unit.

In testing goodwill for impairment, we have the option to first consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Such qualitative factors include industry and market considerations, economic conditions, entity-specific financial performance and other events, such as changes in management, strategy and primary customer base. If based on our qualitative assessment it is more likely than not that the fair value of the reporting unit is less than its carrying amount, quantitative impairment testing is required. However, if we conclude otherwise, quantitative impairment testing is not required.

We assess indefinite-lived intangible assets for impairment on an annual basis, and more frequently if impairment indicators are identified. We also periodically reassess their continuing classification as indefinite-lived intangible assets. Impairment exists if the fair value of the intangible asset is less than its carrying value. An impairment charge equal to the difference is recorded to reduce the carrying value to its fair value.

Other long-lived assets primarily consist of property and equipment, operating lease right-of-use assets and intangible assets. Acquired intangible assets consist of completed technologies, customer relationships, trademarks and trade names, and patents. We engage third-party valuation specialists to assist us with the initial measurement of the fair value of acquired intangible assets. We periodically evaluate the recoverability of other long-lived assets whenever events and changes in circumstances, such as reductions in demand or significant economic slowdowns in the industry, indicate that the carrying amount of an asset may not be fully recoverable. When indicators of impairment are present, the carrying values of the asset group are evaluated in relation to the future undiscounted cash flows of the underlying business. The net book value of the underlying asset is adjusted to fair value if the sum of the expected discounted cash flows is less than book value. Fair values are based on estimates of market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.

The impairment assessment of goodwill, other intangible assets and other long-lived assets involves significant estimates and assumptions, which may be unpredictable and inherently uncertain. These estimates and assumptions may include identification of reporting units and asset groups, long-term growth rates, profitability, estimated useful lives, comparable market multiples, and discount rates. Any changes in these assumptions could impact the result of the impairment assessment. Impairment assessments of goodwill, other intangible assets and other long-lived assets are performed in the fourth quarter of each fiscal year. No impairments of goodwill, other intangible assets and other long-lived assets were identified for fiscal year 2026.