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Good morning, and welcome to the Allegro MicroSystems Third Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation there will be question and answer session. [Operator Instructions]. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised to this conference is being recorded. I would now like to hand the conference over to Jalene Hoover, Vice President, Investor Relations and Corporate Communications.

Thank you, Kevin. Good morning, and thank you for joining us today to discuss Allegro’s third fiscal quarter 2024 results. I’m joined today by Allegro’s President and Chief Executive Officer, Vineet Nargolwala; and Allegro’s Chief Financial Officer, Derek D’Antilio. They will provide highlights of our business review our quarterly financial performance and share our fourth quarter and full fiscal year 2024 outlook. We will follow our prepared remarks with a Q&A session. Our earnings release and prepared remarks include certain non-GAAP financial measures. The non-GAAP financial measures that are discussed today are not intended to replace or be a substitute for our GAAP financial results. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release, which is available in the Investor Relations page of our website at www.allegromicro.com. This call is also being webcast, and a replay will be available in the Events and Presentations section of our IR page shortly. During the course of this conference call, we will make projections and other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution that such statements are based on current expectations and assumptions as of today’s date and as a result, are subject to risks and uncertainties that could cause actual results or events to differ materially from projections. Important factors that can affect our business, including factors that could cause actual results to differ from our forward-looking statements are described in detail in our earnings release for the third quarter of fiscal 2024 and in our most recent periodic filings with the Securities and Exchange Commission. Our estimates or other forward-looking statements may change, and the company assumes no obligation to update forward-looking statements to reflect actual results, changes to assumptions or other events that may occur except as required by law. It is now my pleasure to turn the call over to Allegro’s President and CEO, Vineet Nargolwala. Vineet?

Thank you, Derek. This concludes management’s prepared remarks. Before we open the call for your questions, I’d like to share our fourth fiscal quarter conference line up with you. We are attending Wolfe’s Inaugural Semiconductor Conference on February 15 at the Jay Autograph Collection in San Francisco, California; Susquehanna’s 13th Annual Technology Conference on March 1 with attendance virtual and Morgan Stanley’s TMT Conference on March 4 at the Palace Hotel in San Francisco, California. We will now open the call for your questions. Kevin, please review the Q&A instructions.

[Operator Instructions]. We’ll pause for a moment while we compile our Q&A roster. Our first question comes from Chris Caso with Wolfe Research.

Yes, Chris, this is Vineet. Thanks for the question. So I think the -- we have been pretty transparent and have communicated the inventory digestion in the industrial and other markets. I think the order dynamic is more recent, and it’s really a rebalancing. As I’ve engaged with CEOs of base OEMs and the tiers, it’s clear that the automotive OEM demand continues to be pretty stable. And indeed, the xEV production estimates continue to be very robust. Really, the pressure is coming from the contract manufacturer in the tier side where there’s a rebalancing of inventory back into the pre-pandemic levels. And that’s a little bit of what we’re seeing here in fiscal Q4. And as Derek alluded to, we’ll see some of the same time is continue to the next quarter.

As a follow-on to that, Vineet, you made also a comment that you expect to kind of outgrow the market within auto. When you say that, are you define the market as sort of auto units, which is still expected to grow this year or core of the auto semiconductor peers? Take into account that the end market still grows but inventory comes down. Said more simply, do you expect that in calendar ‘24, you’ll be able to grow the auto market on a year-on-year -- your auto revenue on a year-on-year basis?

Yes, Chris. So a couple of clarifications there, right? So any time we talk about outgrowing the market, it is from an auto perspective, it’s based on auto production. So that’s the basis. And if you recall, when we talked at our Analyst Day, we laid out a model which talked about 7% to 10% growth above auto production. That’s how we characterize the market. Our comment which I think Derek made in the prepared remarks was with respect to full year fiscal ‘24, including our Q4 guidance, where we expect for the full year fiscal ‘24 top line to be about 7% year-on-year growth. When within that, automotive to be exceptionally strong high teens. And so that’s consistent with our model. And as a reminder, we are long cycle. The quarter-to-quarter, we’ll see some perturbations. But really, what we’re focused on is full year growth and really pleased with how the team has executed that strategy to deliver that kind of growth considering the backdrop.

Our next question comes from Gary Mobley with Wells Fargo.

Vineet, I want to ask more of a longer-term focused question. China is a very important market in the overall automotive market for sure. And so my question to you is, what sort of investments are you making there in terms of forging relationships with localized foundry partners, back-end partners and whatnot? How are you showing China domestic customers that you’re willing to invest in the market in an effort to win their trust to maintain their business?

Gary, thanks for the question. And you’re right, China is incredibly important to us. And actually, in the most recent quarter, we saw some really nice growth in China despite all sort of the macro noise that you hear, which just reinforces the belief we have to be in China to win with the Chinese customers, and we’re really pleased with the progress we’re making. To the question you asked, we are investing in localizing a part of our supply chain in China. We have inked an agreement with local OSAT, and we expect in the next 12 to 18 months, we’ll start shipping from our China partners locally. And we are also working with a foundry partner in China which will take a little bit longer to qualify wafers, but it’s part of the plan. And so it’s important for us to demonstrate to our Chinese partners and customers that we are indeed investing in the region. Not just for supply chain resilience from their perspective, also to take advantage of economies of scale locally. And so we’re really excited about the progress we’re making, and we’ll continue to update everybody as we make progress.

Next question comes from Quinn Bolton with Needham & Company.

This is Nick Doyle on for Quinn. So sentiment around EV as low, at least in the U.S., I think the China data points continue to be strong. And I understand Allegro is a bit agnostic to EV versus ICE but wanted to get your sense on customer sentiment. What are you seeing from U.S. EV customers? Is there better design activity than the recent data point suggests from guys like Tesla and GM?

Yes, Nick, thanks for the question. And so let’s take a step back. I think as you look at emissions and fuel economy regulations globally, the end outcome is pretty clear that all OEMs will have to move towards a pretty high mix of battery electric vehicles or some sort of emissions-free vehicle in order to comply with those regulations. The path there is going to be different for each OEM. Some OEMs are investing completely and totally in battery electric vehicles. Others are taking more of a mixed approach with plug-in hybrids and equal part of their focus and strategy. And as you point out, the positive for Allegro is that we are really agnostic to whether the platform is plug-in hybrid or it’s full battery electric. Our content is very similar. And it’s about 1.5 to 1.7x that of a pure ICE vehicle. So we’re really pleased regardless of the direction any OEM takes, and we’re ready to support the OEMs and the tiers with a really broad portfolio of magnetic sensing and very targeted power applications. From a design activity standpoint, I would tell you that every OEM is investing significant amounts of capital in R&D into electrifying their fleet. And it’s various degrees of electrification, as I’ve just pointed out. I can’t comment on any specific OEM. But suffice to say that every OEM is working on a bunch of new models, which will hit the market over the next 2 to 3 years. And so I think from a consumer standpoint, it’s going to be a really exciting time because there will be a ton of choice when it comes to battery electric vehicles or plug-in hybrid vehicles at all price points and from every brand.

Great. And maybe you could talk about the design win activity in data center, specifically the AI liquid cooling. I think your exposure there was something new. We kind of heard at the start of the year. What is it about your power solutions that enable you to win these AI liquid cooling sockets?

Yes. Nick, thanks for the question. So this has been a pivot from our partners that we work with that serve the data center infrastructure market as AI data centers or AI chips are proliferating through data centers. The cooling approach or the cooling solution is much different than a traditional data center. AI chips are larger and they run hotter. And so the power consumption and the heat dissipation is orders of magnitude higher than a regular data center chip. And so just air cooling is not enough. And that’s why a lot of our partners are innovating and coming up with really clever liquid cooling solutions. And so when we look at the data center market, our design win activity through this inventory digestion period, has actually stayed pretty strong. And now we’re starting to see the first design wins on liquid cooling solutions where essentially our motor drivers are used not just now for fans but also for the pumps that are used to pump the liquid and to make sure that the level and the pressure of the liquid is staying consistent. So really excited about what the potential is here. And I think we’re just getting started.

Our next question comes from Vijay Rakesh with Mizuho.

Our next question comes from Blake Friedman with Bank of America.

Our next question comes from Joshua Buchalter with TD Cowen.

Okay. And then as a follow-up, I wanted to ask about Crocus. I believe you mentioned some initial traction in the prepared remarks on e-mobility. Are those products -- does that indicate that the products are close to or are auto qualified and maybe you could talk to a bigger picture about how your engagement with your customers have changed now that you’ve got Crocus in the company and expanding your current sensing portfolio.

Josh, this is Vineet. Thanks for the question. So I can indeed confirm with pleasure that we have now auto qualified the Crocus product. It is what we call a generic call. Now we will -- as we are engaging with each individual customer, obviously, there’s a qualification cycle as per the unique design. But we are very actively engaged across automotive and industrial customers. And I’d characterize the engagements and some of the excitement in 2 ways. One is with the industrial base that Crocus had where maybe there was a little bit of trepidation on engaging with a smaller company, a start-up company. That’s gone away, and now we’re able to engage with a much more comprehensive portfolio around sensing and power with those customers. And so those customers are really excited to engage with us and really take advantage of the whole portfolio. On our customer base, where perhaps some of the more challenging applications, we were working through some of those technical challenges. The addition of the Crocus TMR stack has now made the solution very obvious and very easy. And so we are accelerating the adoption of the TMR stack onto our parts. And really, as I mentioned, we are now going to market through a common brand. ExtremeSense TMR is now the world’s most comprehensive magnetic sensing portfolio on TMR, really addressing the most demanding challenges around sensitivity, around speed of response around low power consumption. And so we see really an endless set of opportunities that we can address together. So really excited about the 2 technologies coming together under one brand.

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

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