Allegro (ALGM) Q1 Revenue Jumps 22%

Key Points

• Revenue grew 22% year over year for the three months ended June 27, 2025, reaching $203.4 million (GAAP) in Q1 FY2026 but missed analyst expectations by $33.3 million (GAAP).

• Non-GAAP earnings per share came in at $0.09, also missing the $0.20 consensus but nearly tripling the prior-year result.

• Non-GAAP free cash flow was $51.0 million, up 119.7% from the prior year, supported by improved operations and ongoing restructuring.

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Allegro MicroSystems (NASDAQ:ALGM), a semiconductor developer known for its magnetic sensor integrated circuits (ICs) and power ICs used in automotive and industrial products, released its Q1 FY2026 earnings on July 31, 2025. The company reported revenue of $203.4 million, a 22% increase from the previous year, but fell short of analysts' GAAP revenue estimates by $33.3 million. Non-GAAP earnings per share landed at $0.09, significantly below consensus expectations of $0.20, even as it represented a threefold increase from the prior year on a non-GAAP basis. Overall, the company delivered growth in key segments and strong cash generation, but also highlighted ongoing challenges with demand visibility and market execution due to missed expectations.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q4 2025 earnings report.

About Allegro MicroSystems and Its Business Priorities

Allegro MicroSystems develops semiconductor technologies focused on magnetic sensor ICs and power ICs, which play a key role in applications like electric vehicles (EVs), advanced driver assistance systems, and industrial automation. Its customers span automotive manufacturers, industrial equipment makers, data center infrastructure suppliers, and medical technology firms.

Recent business priorities highlight five core areas: maintaining a leadership position in magnetic sensor ICs, expanding into e-Mobility and advanced driver assistance systems (ADAS), leveraging a fabless manufacturing (outsourcing chip production) model for efficiency, prioritizing research and development for new product introductions, and integrating environmental, social, and governance (ESG) principles. The ability to ramp up innovation, execute on design wins, and maintain a flexible supply chain are seen as central to its ongoing success.

Quarterly Highlights and Performance Drivers

The company delivered GAAP revenue growth of 22% compared to the same period last year, a rebound largely driven by demand in automotive and industrial markets. The automotive segment contributed $144.3 million (GAAP), rising 13% compared to the same period last year and represented 71% of the company's total sales. Industrial and other segment revenue (GAAP) was $59.1 million, increasing 50% year-over-year. Within automotive, e-Mobility applications (such as EV powertrain components and systems for ADAS) made up about 50% of automotive segment revenue in Q4 FY2025. This mix reflects the ongoing push for higher semiconductor content in each vehicle, particularly in electric and advanced vehicles, which remains a business priority for the company.

Despite these improvements, both GAAP revenue and non-GAAP EPS missed analyst forecasts, falling short by 14.1 % and 54.7 %, respectively. The company experienced low single-digit price reductions from automakers but also saw normalized pricing stabilize in distribution channels.

Margins were a mixed picture. The non-GAAP gross margin decreased slightly by 0.6 percentage points year-over-year. but improved sequentially, helped by cost controls and a restructuring program. Restructuring efforts, launched in Q4 FY2025, are set to yield $15 million in annualized savings beginning in FY2026. These savings are split evenly between cost of goods sold and operating expenses. Operating margin on a non-GAAP basis improved to 11.1%, up from 6.0% versus the prior year.

The company's fabless manufacturing approach allowed it to adapt to supply and demand shifts while keeping capital investments relatively modest. Inventory levels fell by $10.1 million from the previous quarter, while voluntary debt repayments of $35 million continued a trend of reduced leverage that has seen over $140 million repaid in the past five quarters. Free cash flow more than doubled compared to the prior year. Channel inventories at distributors dropped by 25% year over year in Q4 FY2025, signaling improvements in downstream demand and more balanced supply.

Product and technology investment also continued, with research and development spending rising to $46.5 million (GAAP). New design wins in magnetic sensor ICs, including tunnel magnetoresistance (TMR) sensors and power ICs, supported the company's growth objectives. Management highlighted competitive wins in both the biomedical field and power applications for electric vehicles.

No new ESG (Environmental, Social, and Governance) disclosures were made this quarter, but the product portfolio and supply chain efforts continue to align with clean energy and responsible sourcing policies.

NASDAQ:ALGM does not currently pay a dividend.

Looking Forward: Management’s Outlook and Investor Considerations

For the second quarter of fiscal 2026, management projects revenue between $205 million and $215 million, implying a midpoint year-over-year growth of 12%. Non-GAAP gross margin is forecast in the 48–50% range. Non-GAAP EPS is expected to fall between $0.10 and $0.14, marking a potential 50% increase over the prior year midpoint. Management reiterated confidence in long-term growth prospects and margin improvement, citing strong bookings, a healthy backlog, and a recovery in channel inventories.

Investors are keeping a close watch on several areas in the coming quarters: the company’s ability to deliver on improved margin targets, demonstrate sustained sales gains in its core e-Mobility, automotive, and industrial businesses, and maintain its innovation pipeline. Pricing trends in the automotive market and emerging competition in China were specifically called out as issues to monitor. Overall, the outlook remains positive, but future execution will be closely followed given the shortfall to current quarter expectations.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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