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Good day and thank you for standing by. Welcome to the Allegro MicroSystems Q1 Fiscal 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After speaker’s presentation, there’ll be a question-and-answer session. Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today, Ms. Leanne Sievers, President of Shelton Group Investor Relations. Ms. Sievers please go ahead.

Good morning, and thank you for joining us today for Allegro's first quarter fiscal 2023 results. I'm joined today by Allegro's, President and Chief Executive Officer, Vineet Nargolwala; and Chief Financial Officer, Derek D'Antilio. They will provide highlights of our business, review our quarterly financial performance, and provide a summary of our outlook. After the presentation, we will answer questions in a Q&A session. Our earnings release and the accompanying financial tables are available on the Investor Relations page of our website at www.allegromicro.com. This call is being webcasted and a recording will be available on our IR page shortly. Please note that comments other than statements of historical facts made during this call include forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These forward-looking statements include projections and other statements about future events that are based on current expectations and assumptions and as a result are subject to risks and uncertainties that could cause actual results to vary materially from our anticipations and projections. Please refer to the earnings release issued today and other documents filed by us with the SEC, including the risk factors discussed in detail in our most recent 10-K filed on May 18, 2022. While we may elect to update forward-looking statements at some point in the future, the company assumes no obligation to update any forward-looking information presented even if our estimates or assumptions change. Also unless otherwise noted during the call, all references to income statement related financial measures other than revenue will be to financial measures not prepared in accordance with generally accepted accounting principles or GAAP. Please refer to our press release posted to our website for information regarding our non-GAAP financial results, a reconciliation of our GAAP and non-GAAP financial measures and certain pro forma financial information. The non-GAAP financial measures that are discussed today are not intended to replace or be a substitute for the presentation of Allegro's GAAP financial results and may be calculated differently than similar measures used by other companies. We are providing this information because it may enable investors to make meaningful comparisons of core operating results and more clearly highlight the results of our ongoing operations. It's now my pleasure to turn the call over to Allegro's President and CEO, Vineet Nargolwala. Vineet please go ahead.

Thank you Leanne. And good morning and welcome to our first quarter earnings call for fiscal 2023. I'm pleased to join you for my first earnings call as Allegro's CEO. It is an exciting time to lead the company as I believe Allegro is at a key inflection point in its growth journey. Before diving into the quarterly business update, I want to take a minute to share with you what compelled me to join the Allegro team. Over my years in the various industrial markets including automotive, industrial automation and clean energy, I have always admired Allegro's product and technology focus and its deep relationships with its customers. And the company has built on that by becoming a high-quality business with strong fundamentals and solid execution. Allegro has a talented team with a culture of innovation and a strong partner network. The company's solutions and road maps are very well aligned to a number of secular mega-trends that include electrification, autonomous capabilities, safety and efficiency that will have a profound impact across automotive and industrial markets. I've served these markets before from different vantage points in the value chain and I believe there is a real opportunity to meaningfully scale the business and accelerate the company's growth. Since formally assuming the role in mid-June, I've spent a significant portion of my time meeting with our global teams and customers to gain a deeper understanding of Allegro's business, technology, market positions and more importantly what will make us a better partner and employer. These interactions have reinforced my hypotheses and turned them into conviction. I'm fully aligned with our core value of innovation with purpose and believe our products and technology can unlock significant growth including expanded applications in existing markets, new end markets and global expansion. As I consider what has made the company successful so far, it is Allegro's unique value proposition with innovative IT solutions that meet customers' exacting performance requirements as well as its agility and responsiveness to their customer needs. Fundamental to this value proposition is a commitment to and its culture centered around innovation, including the introduction of differentiated technology and products. I believe that innovation leads to market leadership, which in turn delivers differentiated margins and financial performance. While I don't anticipate major changes to the overall strategy that has served us well so far, I do believe there is an opportunity to do more. As part of my initial plan, we will aim to get even closer to our customers and find new ways to energize our growth while also executing better as a team. While we will continue to focus on and grow with secular growth trends in automotive, I see a future for Allegro that reaches well beyond auto and extends our growth with these megatrends to industrial markets like clean energy, data centers and Industry 4.0. Our experience and technology serving these trends in automotive will be leveraged to help us grow in these other markets. The electrification and autonomous functionality are large secular growth stories that will play out over the next decade, and I believe Allegro can play a pivotal role in moving technology and the world towards this exciting future. You can expect us to enhance our focus and align our R&D investments towards more growth in these areas. You can also expect us to deploy our capital towards selective M&A to accelerate our strategic growth initiatives. I also believe we have a terrific opportunity to make ESG a foundational part of a value proposition going forward. I look forward to providing more updates as I learn more about the business and the opportunities that lie ahead of us. Now, let me turn to our results for the fiscal first quarter. The company achieved another record quarter of revenue of $217.8 million with both sequential and year-over-year increases. Customer demand remains very strong, especially in our automotive and industrial target markets and we continue to ramp the capacity of our integrated supply chain to meet it. The top line performance reflects a growth strategic alignment to fast-growing markets, our continued content and share gains, as well as sustained design win momentum. In terms of underlying business trends and drivers, we continue to realize growing traction with our new products targeted at our strategic growth areas. Design win momentum was strong, demand continued to increase and we exited the quarter with record order backlog. Our automotive business had another solid quarter, with sequential and year-over-year growth in all of our automotive applications, led by accelerated adoption of our IC solutions for xEV inverter and onboard charging applications. Complementing our traction in vehicle electrification, we saw continued customer adoption of a cross-portfolio content in ADAS solutions for advanced braking and steering applications. Combined, e-mobility, which represents our xEV and ADAS applications, expanded to a record 38% of automotive revenue in the fiscal first quarter. Key design wins include, BLDC motor drivers in electric vehicle HVAC systems and battery cooling with Allegro winning multiple sockets per system. Our industrial markets saw record revenues with solid double-digit growth sequentially and year-over-year. Growth was broad-based, punctuated by growth in electric vehicle charging infrastructure and sustained momentum in data center, which increased sequentially for the fourth consecutive quarter and more than doubled year-over-year. The superior energy efficiency, offered by Allegro's power IC solutions for data center cooling, continues to resonate with customers. Our overall pipeline of both secured and prospective design wins is very robust and we expect our recent growth momentum in data center to continue over the coming quarters. This quarter, we were pleased with multiple design wins from our current sensors in solar inverters for renewable energy systems and we closed key motor driver wins with a leading power tool company where high-voltage ICs were required to support their next-generation battery technology. From a product line perspective, growth contribution remained well balanced across both our magnetic sensor and power IC solutions with each increasing sequentially to quarterly records. Specific to magnetic sensors, third-party research has independently confirmed our market leadership, accelerated by recent gains in current sensing across a broad set of automotive and industrial applications and GMR-based solutions delivering leading performance in vehicle ADAS. We see this as a confirmation of our commitment to innovation and our focus on a global customer base that sees Allegro as a trusted innovator, partner and supplier. At the Sensors Converge Conference in June, Allegro introduced two new magnetic position sensor ICs for ADAS applications. These new angle sensors leverage the first-ever combination of our hall magnetic sensing technology, together with cutting-edge TMR technology in a single package, resulting in significantly improved resolution, accuracy and safety for vehicle-driving automation. Lastly, I want to provide a quick update on Allegro's planned acquisition of Heyday Integrated Circuits. We are excited about the Heyday team joining Allegro and bringing products based on their technology to our customers. All required approvals remain on track and we look forward to closing the acquisition this fall. In summary, we had a great start to our fiscal year. The strength of our first quarter results is a testament to Allegro’s strong alignment with large secular growth trends, persistent innovation and solid execution. Together with our team, I look forward to building on this foundation and accelerating our growth in our strategic focus areas. I'll now turn the call over to Derek to review the financial results and provide guidance for our fiscal second quarter. Derek?

Thank you, Vineet and good morning, everyone. Before we discuss the financial results, I'll provide an update on what we are seeing in the terms of the business environment. From a demand standpoint, we continue to see robust demand, particularly in the auto and industrial markets and demand in certain parts of the computer and consumer market has certainly softened, as expected. We again ended Q1 with record firm backlog that is largely non-cancelable and it provides us with extended visibility. We continue to review our order patterns as well as inventory levels, including channel inventories, where we have good visibility, we have not seen evidence of an inventory build. We also continue to align our supply with what we believe to be true demand in our strategic focus areas. While we recognize that the global macro environment is uncertain, we believe our business is well aligned to the electrification and autonomous functionality megatrends within automotive and industrial markets. These markets together represent nearly 90% of our total sales and we continue to see robust demand in these markets. Within these broad markets, we have a strategic focus on the areas of xEV and ADAS, or as Vineet said, e-mobility. In industrial, our focus has been on data center, clean energy and Industry 4.0. We believe these strategic focus areas offer long-term secular growth opportunities for Allegro. For example, within the automotive industry, while light vehicle production is expected to grow in the mid to high single digits in fiscal 2023, xEV production is projected to grow by 45%. The acceleration of these mega trends is also evident in our business results. While Allegro's automotive sales increased 19% on a last 12-month basis, our xEV sales increased by 65% on an LTM basis. In addition, total sales to our strategic focus areas increased by 13% sequentially and now represent 45% of total sales compared to 43% in Q4 and 41% a year ago. From a supply perspective, demand continues to exceed supply, with near-term tightness still largely related to 200-millimeter wafers availability. We continue to work closely with our manufacturing partners to ramp this supply. And as a result of our strong supplier relationships, we've been able to expand our available supply. With the incremental committed capacity, we are increasing our sales growth expectation for fiscal 2023 to approximately 20% over fiscal 2022. Now turning to Q1 results. Please note that all income statement related measures, except sales, are stated here on a non-GAAP basis. In Q1, we achieved record sales of $217.8 million. Our gross margins were 54.9%, nearing our target of 55% and OpEx was below our target of 30% of sales. As a result, we had strong operating leverage with sequential operating income growth of 18.3% more than double the growth in sales and EPS was $0.24 per share. Sales in the first quarter increased by 8.7% sequentially and were above the high end of our guidance range as a result of higher overall ASPs from both mix and price, incremental supply from our foundry partners and very good execution on our internal assembly and test facility. Automotive sales increased by 6% sequentially to $149.6 million, and were up 12% compared to Q1 of the prior year. Within automotive xEV and ADAS represented 38% of sales in Q1, up from 35% in Q1 a year ago. Industrial sales increased 16% sequentially to $40 million, up 32% year-over-year. We saw sequential growth in all areas of our industrial market and data center in particular grew another 40% sequentially and over 250% compared to Q1 of fiscal 2022. Other sales, which include computer consumer and smart home applications increased by $3.5 million sequentially to $28 million. Sales through distribution continued to be robust and with 37% of sales in the quarter. We are also pleased to have just recently entered into a new distribution partnership with global semiconductor and electric component retailer Mouser Electronics. This partnership enhances our commitment to creating and supporting a diverse global customer base. Sales by geography were again very well-balanced with 25% of sales in China, 19% in Japan, 23% rest of Asia, 16% in North America and 16% in Europe. Turning to profitability. Gross margin in the quarter was 54.9% and near the high end of our guidance range. Gross margins in the quarter benefited from higher sales volume as well as favorable mix and pricing. In Q1, we continued to see cost inflation increases as well as the impact of cost increases from Q4 that cycled out of inventory in Q1. We do have committed wafer pricing for the remainder of calendar 2022 and our annual wage increases were also effective in Q1. We have been successful in maintaining our gross margins and improving our operating margins with the sales mix towards more feature-rich products, expanding our supply chain, implementing select price increases and effectively leveraging our fixed cost structure. As a result, we expect to maintain our gross margins in this 54% to 55% range in the short-term, as we continue to progress towards our target of 55% on a sustainable basis. Operating expenses were $64.4 million or 29.6% of sales compared to $64.8 million or 32.4% of sales in Q4. We continue to invest in innovation, particularly, in our strategic focus areas and R&D expense was $32.5 million or approximately 15% of sales and SG&A expense was $31.9 million. Operating income increased to $55 million or 25.3% of sales compared to $46.5 million in Q4 and $41.9 million or 22.3% of sales in Q1 of fiscal 2022. We continue to demonstrate the leverage in our operating model as our operating margin increased by another 300 basis points compared to a year ago. The effective tax rate in the quarter was 14.3% below our guidance of approximately 16% as a result of recent US tax legislation. The Q1 share count was 192.4 million shares. And as a result net income was $47.1 million or $0.24 per diluted share, an increase of 17.3% sequentially on a comparable sales increase of 8.7%. Moving to the balance sheet and cash flow. We ended Q1 with cash and equivalents of $296 million. DSO in Q1 was 54 days consistent with Q4 and inventory increased marginally by $2.8 million, which represented 84 days also consistent with Q4 and still well below our target of 100 days to 110 days. Channel inventories continue to remain at low levels and consistent with the prior several quarters. Finally from a cash flow standpoint cash flow from operations was $37.7 million, capital expenditures for capacity expansion were $14.4 million and free cash flow was $23.4 million. Now turning to our outlook for Q2. We expect sales in Q2 to be in the range of $220 million to $230 million. We expect gross margin to be in the range of 54% to 55% and we expect operating expenses to be approximately 29% of sales. For Q2, assuming no changes to tax legislation we expect our tax rate could be approximately 14.5% and we expect our diluted share count in Q2 could be approximately 192.6 million shares. Based upon these assumptions we anticipate earnings per share will be in the range of $0.25 to $0.27. Now I'll turn the call back over to Vineet for some closing comments. Vineet?

Thank you, Derek. This is a great time to be at Allegro, and I'm very excited to be here. As previously mentioned, I believe Allegro is at a key inflection point with an incredible opportunity to scale the company. We have a great product portfolio and considerable engineering talent and there is a very real opportunity to do even more with what we currently have. The markets and applications that we serve are underpinned by strong secular trends which will continue to expand and drive growth for Allegro in both the near term and over the next decade. While automotive, including xEV and ADAS will remain core strategic drivers for our business, we are also focused on further aligning our portfolio to unlock expanded opportunities in industrial markets which are undergoing similar secular trends. As reflected by our second quarter guidance, we are seeing growing momentum and continue to be very positive on our growth expectations for fiscal 2023. With that we'll be glad to take your questions. Leanne?

Thank you, Vineet. That concludes management's prepared remarks and we'll now open the call for questions. Operator, could you please review the instructions for asking a question and initiate the Q&A session.

Yes, thank you. Our first question will come from Gary Mobley of Wells Fargo. Your line is open.

Good morning, everybody. Thanks for taking my question. I have a multipart question to start with as it relates to the pending Heyday acquisition. So I presume that the second quarter guidance does not assume any contribution on the expense side or revenue side from the acquisition. I was hoping you can clarify that. And then longer-term, how do you view this as being a contributor to revenue EPS accretion or dilution and what distinguishes the company in the isolation IC market.

Yes, Gary this is Derek. Thank you. So you're right. The – we have not closed that transaction. We expect it to close in the fall. It's going through French regulatory approval right now and that is not in our guidance for Q2. We expect it in the short-term to have a pretty immaterial impact on our operating expenses. And then we expect to see material revenue beginning about 2.5 years out from right now. And I want to have Vineet talk a little bit about the business itself.

Yes. Gary, thank you for the question. As I said before, we are really excited about the prospect of Heyday and Allegro coming together. And just to put it in perspective, today our gate driver solutions really operate up to a 200- range. And what Heyday brings to us is the ability to operate from 200 volt all the way up to 1200 to 1500 volt. So this really unlocks about a $2.7 billion addressable market for us, as all of our end markets move towards higher voltage solutions, it enables us to bring our current solutions together packaged with Heyday's drivers to be able to address this expanded market.

Thank you. One moment for our next question. Our next question will come from Alessandra Vecchi of William Blair. Your line is open.

Congratulations everybody on the really strong results and it's nice to see the CEO baton passed and the strong fundamental backdrop. With that, can you give us a bit of an update on the ramp-up at TSMC. I think in the past your predecessor pointed to an inflection point in the Q3, Q4 time frames. I'm not sure if some of the upside in Q1, Q2 was an acceleration of capacity ramp or if there was some ASP tailwinds that help strengthen the fundamentals?

Hey, Alex. Good morning, this is Derek. In Q1, really the upside in Q1 came from two pieces. It came from incremental wafers from our other suppliers not TSMC and it also came from some incremental pricing in mix, so that really where Q1 came from the beat in Q1. The TSMC ramp is still as expected and planned. We'll see that in Q3 and into our Q4. Some of the upside in the 20% that we're talking about for the year versus the high teens last time is really from our other wafer suppliers.

Understood. That's very helpful. Thank you. And then just on data center and the data center spreads there with a 100% growth year-over-year and 40% sequentially. Similarly, I think you guys talked about that line item doubling this year, but it sounds like maybe it's tracking a little bit ahead. Can you walk us through some of the puts and takes of where the strength is coming from, if it's primarily three-phase fans or there other contributors? Any detail there would be helpful?

So Alex I'll start and then we'll talk a little bit about some of the content. But it was up really strong 40% here sequentially 250% quarter-over-quarter compared to last year. And if you look at it on an LTM basis what we were referring to before. On an LTM basis it's about 116%. So that's that doubling right there that we're talking about. And it really is those three-phase fans that's driving this area. And this is business that's been in our backlog, but we continue to see strong demand in that space as well.

Yes. And the only thing I would add is that, as data centers continue to transition to 48 volt and three-phase -- for the cooling fans we will continue to see a great take rate of our portfolio and it's really across the portfolio of current sensing as well as our power management ICs.

Thank you so much. With that I'll drop back into queue.

Thank you.

Thank you. One minute for the next question. And our next question will come from Joshua Buchalter of Cowen. Your line is open.

Hey guys, thanks for taking my question and congrats on the results congrats to Vineet you're most of the way through your first earnings call. I just wanted to follow up on Alessandra's question. If I look at my model and what's implied in the guide there's a good amount of upside in the first half and then some more modest in the second half. With TSM coming online as you said in the third quarter, is there any sort of macro conservatism baked into the second half? And I know you mentioned some slowing consumer orders how fungible are those parts to other markets should you see some more incremental softening as we think about the second half? Thank you.

Yes Josh. Good morning. Thank you. Good question. So the consumer in the computer market represents approximately 10% of our overall business. And while we have seen softening there, it was actually up marginally in Q1 from a sales standpoint due to the backlog that we have in that market. And when you look at the first half versus the second half, we had planned on the TSMC ramp that's still planned for the second half of the year, that hasn't materially changed. The upside is coming from incremental wafers, we're getting from our other two foundry partners. And so, really this forecast of 20% is fully aligned with what we believe we are confident in from a committed wafer standpoint. We have more than a year worth of visibility on backlog. And when I look at each quarter growth -- quarter-over-quarter, we'd expect the second half to be higher than the first half and each quarter incrementally to be higher Q3 higher than Q2 and Q4 higher than Q3. From a mix standpoint, we'd expect that auto would be up about in line with that 20% overall growth of course higher for things like xEV and ADAS. Industrial will be higher than Auto for us. And then that other business could be flat to marginally up for the year.

Thanks that's very helpful color. And then Vineet, it was tangible the increased focus on industrial in your prepared remarks. I was hoping you could maybe expand on your thoughts here. Obviously, data center has been an important growth vertical, is it a function of leaning in here into the data center market in particular maybe expanding some more of the power delivery products or are there other verticals that are driving your bullishness on the industrial opportunity? Thanks guys.

Josh, thanks for the question. And I would say that, I think I'm really excited by what we can do in the markets that we've already highlighted and targeted. So, whether it's electric vehicle charging infrastructure, data centers or automation within industries. There is so much more we could be doing and we're just scratching the surface when it comes to opportunities, whether we are talking about more penetration within the customers we serve, expanding to new customers that we don't serve today or even geographies that we don't serve today. So, as I've come in and granted it's only been six weeks everything, I'm seeing continues to make me even more excited and convinced that we've got a great opportunity here to continue to expand with the same technology set into these industrial markets.

Mr. Buchalter?

Thanks. I'll hop back in the queue.

Thank you Josh.

Thank you. One moment for the next question. Our next question shall come from Blayne Curtis of Barclays. Your line is open.

Thank you. One moment for the next question. Our next question will come from Vijay Rakesh of Mizuho Group. Your line is open.

Yeah. Hi, Vineet and Derek. Good quarter and guide here. Just a question on the automotive side. I know you mentioned EV ADAS, 38% of revenues now. Can you talk to what the design pipeline looks like? How much -- how has that been growing year-on-year? And how do you see that going forward?

Yeah, Vijay, thank you for the question. We are having -- we have a great start to our design wins in the first quarter and our pipeline of opportunities continues to be at record levels. I think if you look at the take rates and the projected penetration of electric vehicles as part of total automotive production, it's no surprise that our products both on the current sensing IC side as well as on the power management side continue to see pretty high demand. And so that's reflected in our design wins. In fact, we are already well-ahead of our target for this year and we continue to see really good momentum.

Great. Thanks.

Thank you. One moment for the next question. And our next question shall come from Srini Pajjuri of SMBC. Your line is open.

Thank you. Good morning, guys and Vineet congrats. Vineet on your strategic I guess plan for the company. Thanks for sharing with us. I'm just curious, as you look out to I guess the next few years within auto and outside of auto, could you give us some additional color as to where you see the biggest opportunities? And in terms of investing in these markets, are you thinking more in terms of engineering investments, or is it more sales and marketing, or is it just expanding your disty customer relationships? I guess any color would be helpful there.

Yeah, Srini, thank you for the question. And I would say again, six weeks in I continue to be impressed with our portfolio that's out there today serving our customers, but also what we've got in the pipeline. And we continue to focus on innovation along our strategic growth vectors. So I want to start by saying that automotive will continue to be our key focus here, especially the areas of electrification and ADAS. We also have a great opportunity to take our existing products and technologies to these other industrial markets as it relates to electrification and automation. And so it's a little bit of all the things you mentioned here Srini. We have an opportunity to do more with the resources and the investments we have around R&D. And really, it's about focusing them on these strategic growth vectors in a more meaningful way. From a footprint standpoint, I would say that a big portion of our current business and our growth is coming from regions outside of North America. And we will be looking to add more resources and invest closer to the impact to customers to support them better and to make sure that we're really partnering with them much more closely to become more agile and more responsive to their needs as they innovate and solve really challenging problems. And so distribution and the channel are going to be -- continue to be very important for us as we grow and scale the company. Our distribution partners have done a great job of supporting our customers and we continue to rely on them and partner with them as we scale the company going forward. Thank you very much.

Thank you. Yeah. Thank you. And then just to follow-up on that. You've done a -- I guess the quarter was pretty solid. Industrial growth very strong. I guess the data center strength explains that. At the same time, I look at auto it grew I think 12% year-on-year. If I compare that with some of your larger peers, they have definitely grown faster this quarter. Maybe this is just a quarter-to-quarter lumpiness. I'm just trying to understand why I look at NXP. I think they were up like mid-30s. TI said they're 20% plus year-on-year. So was it a supply issue for you, or was there anything else or just a quarter-to-quarter lumpiness? Thank you.

Sure. Srini, this is Derek. Good question. Yeah, there is some quarter-to-quarter perturbations in there and we're constantly trying to align our supply with the demand and where the line down situations are and those sort of things. So within our auto business even though it grew 12%, within our auto business, we had high growth in our xEV business which grew 71% year-over-year. ADAS grew above the overall auto industry. So we're aligning our supply with where that real robust demand is. And the same thing in industrial, industrial obviously really outgrew auto aligned with that supply.

Got it. And one just one clarification Derek. On the Mouser agreement, I guess you guys probably incorporated the sales to Mouser in your original guidance, but just trying to understand how the mechanics work when you have a new disty kind of rolling out. Is that going to be a tailwind for you in the short term, or is it -- was it originally contemplated in your guidance? Thank you.

So it's contemplated in our guidance, but it's not material in the second quarter Srini. But as we start to move forward, we expect that they'll add significant contribution to our distribution business.

Got it. Thank you and good luck.

Thank you.

Our next question will come from Trevor Janoskie of Needham & Company. Your line is open.

Yeah. Thank you. Hey, guys. This is Trevor on for Quinn Bolton. Thanks for taking my question and congrats on the quarter. I'm wondering, if you expect that some of your additional wafer allocations from TSMC and other partners may be benefiting from a softening in demand from consumer-related end markets in the second half of 2022 and into 2023?

Trevor, thank you very much. This is Derek. It's not actually. They're sort of two different markets. We're still working on the 200-millimeter wafers for our high-voltage capacity products. So, we're not seeing any of that benefit. The TSMC ramp that we're talking about is still as planned and that's been planned now for about a year. So we expect that to go as planned. We're of course working with our other suppliers, both Polar and UMC to work on incremental wafer supply, but we don't really expect in the near term not to come from those other markets particularly the digital side.

Okay. Thank you. And as my follow-up, have you guys seen any changes in customer order patterns like push-outs or cancellations? And have there been any weekly order patterns beginning to show greater volatility?

Yeah. Great question, Trevor. We look at that. I look at it daily. We look at it weekly and we look at it on a macro basis. We haven't really seen that. We continue to have record backlog. We continue to look at – the channel is usually a leading indicator there to understand what's happening with your order patterns. We continue to have robust bookings in our channel. And in fact, most of our backlog is non-cancelable and nonreturnable. We have opened up windows for people to cancel some of those orders. They have a little bit better discipline in the shipping side of things. And we haven't had a lot of uptake on that. There was some modest uptake there, but that backlog is really firm. So we continue to watch the channel inventories. We continue to watch our own inventories. And then just based upon conversations with our OEM customers, we don't have direct visibility into their inventories, but we haven't seen evidence of that we're shipping into inventories.

Okay. Awesome. Thank you, guys.

Thank you. We have a follow-up from Gary Mobley of Wells Fargo. Your line is open.

Hey, guys. Just a couple of quick follow-ups. I know your long-term op margin target is in the mid-20%. And according to your second quarter guidance OpEx is expected to increase about 1.2% sequentially. But unless we assume OpEx accelerates into the second half of the year, you're going to be in the high 20% for operating margins. So how should we think about the trend above long-term goal for op margin and OpEx in general in the second half of the year? And then additionally, do you still expect your ramp at TSMC to be gross margin accretive?

Yeah. Great questions, Gary. This is Derek. So from an OpEx standpoint, we don't expect material increases in our OpEx certainly no changes in the structural OpEx for the remainder of the year. We'll continue to invest in R&D. That's running at about 15% of sales. We expect it to remain at 15% of sales. So there will be absolute dollar increases in R&D, as we move throughout the year with increases in revenue. From an SG&A standpoint, I expect SG&A to remain relatively constant with Q1 here. So there will be some accretion to operating income as we move throughout the year on higher revenue. From a TSMC standpoint, we expect it to be gross margin accretive, but it's not the largest portion. Right now, it's about 5% of our overall wafers. It will get to be somewhere in that low teens percentage of our overall wafers. So, it may not have a material impact on the overall gross margin. So I still expect that – and that was contemplated in our full year guidance of the 54% to 55%. So we still expect the gross margins to remain in that range given all the puts and takes with inflation and the other factors in gross margin.

Got it. Thank you.

Thank you. And that ends our Q&A session. I would now like to turn the conference back to Leanne Sievers for closing remarks.

Thank you, operator. Before closing out the call, I want to quickly highlight that Allegro will be participating in two upcoming investor conferences. The first of which will be Needham's Virtual Semiconductor and Semi Cap Conference on August 24. Then, the company will also attend the Jefferies Semi IT Hardware and Communications Infrastructure Summit, which is being held in person in Chicago on August 30 and 31. For those interested in meeting with management at one of these events, we encourage you to contact the respective hosting firms. Thank you again for joining us today, and that concludes this morning's conference call.